<PAGE>   1

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

                                 UNITED STATES

                       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 AND
                      EXCHANGE ACT OF 1934 [FEE REQUIRED]

FOR THE FISCAL YEAR ENDED DECEMBER 31, 1996

                                          OR

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

FOR THE TRANSITION PERIOD FROM                  TO

                          COMMISSION FILE NO. 1-12800

                              EXECUTIVE RISK INC.
             (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

<TABLE>
<S>                                           <C>
                   DELAWARE                                     06-1388171
       (STATE OR OTHER JURISDICTION OF             (I.R.S. EMPLOYER IDENTIFICATION NO.)
        INCORPORATION OR ORGANIZATION)
</TABLE>

                  82 HOPMEADOW STREET, SIMSBURY, CT 06070-7683
                    (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)

       REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (860) 408-2000
                            ------------------------

          SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:

<TABLE>
<S>                                           <C>
                TITLE OF CLASS                     NAME OF EXCHANGE ON WHICH REGISTERED
--------------------------------------------------------------------------------------------
         Common Stock, $.01 par value                    New York Stock Exchange
</TABLE>

     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 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 of this Form 10-K or any amendment to this
Form 10-K.  [  ]

     The aggregate market value on March 10, 1997 of the voting stock held by
non-affiliates of the registrant was approximately $398,400,000. There were
9,329,457 shares of the registrant's Common Stock, $.01 par value outstanding,
as of March 10, 1997.

                      DOCUMENTS INCORPORATED BY REFERENCE

(1) Portions of the 1996 Annual Report to Shareholders, as indicated herein
    (Part II).

(2) Proxy Statement involving the election of directors and other matters which
    the registrant intends to file with the Commission within 120 days after
    December 31, 1996 (Part III).
================================================================================
<PAGE>   2

                              EXECUTIVE RISK INC.

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

                               TABLE OF CONTENTS

<TABLE>
<CAPTION>
                                                                                          PAGE
ITEM                                                                                     NUMBER
----                                                                                     ------
<C>    <S>                                                                               <C>
                                                                                         PART I
 1.    Business.......................................................................      1
 2.    Properties.....................................................................     17
 3.    Legal Proceedings..............................................................     17
 4.    Submission of Matters to a Vote of Security Holders............................     17

                                                                                        PART II
 5.    Market for the Registrant's Common Stock and Related Stockholder Matters.......     17
 6.    Selected Financial Data........................................................     18
 7.    Management's Discussion and Analysis of Financial Condition and
         Results of Operations........................................................     18
 8.    Financial Statements and Supplementary Data....................................     18
 9.    Changes in and Disagreements with Accountants on Accounting and
         Financial Disclosures........................................................     18

                                                                                       PART III
10.    Directors and Executive Officers...............................................     19
11.    Executive Compensation.........................................................     19
12.    Security Ownership of Certain Beneficial Owners and Management.................     19
13.    Certain Relationships and Related Transactions.................................     19

                                                                                        PART IV
14.    Exhibits, Financial Statement Schedules and Reports on Form 8-K................     19

Signatures............................................................................     20

Exhibit Index.........................................................................     21

Index to Financial Statements and Schedules...........................................     23
</TABLE>

     The Private Securities Litigation Reform Act of 1995 provides a "safe
harbor" for forward-looking statements. This Form 10-K, the Company's Annual
Report to Stockholders, any Form 10-Q or any Form 8-K of the Company or any
other written or oral statements made by or on behalf of the Company may include
forward-looking statements which reflect the Company's current views with
respect to future events and financial performance. These forward-looking
statements are subject to uncertainties and other factors that could cause
actual results to differ materially from such statements. These uncertainties
and other factors (which are described in more detail elsewhere in this Form
10-K) include, but are not limited to, uncertainties relating to cyclical
industry conditions, uncertainties relating to government and regulatory
policies, the legal environment, the uncertainties of the reserving process, the
competitive environment in which the Company operates, the uncertainties
inherent in international operations, and interest rate fluctuations. The words
"believe," "expect," "anticipate," "project" and similar expressions identify
forward-looking statements. Readers are cautioned not to place undue reliance on
these forward-looking statements, which speak only as of their dates. The
Company undertakes no obligation to publicly update or revise any
forward-looking statements, whether as a result of new information, future
events or otherwise.
<PAGE>   3

                                     PART I

ITEM 1. BUSINESS

  The Directors & Officers and Professional Liability Insurance Industry

     General.  Executive Risk Inc. ("ERI" or the "Company") is a specialty
insurance holding company incorporated under the laws of Delaware. Through its
subsidiaries, ERI develops, markets and underwrites specialty line insurance
products primarily throughout the United States. UAP Executive Partners
("UPEX"), which is a joint venture between the Company and Union des Assurances
de Paris -- Incendie-Accidents ("UAP"), a subsidiary of AXA-UAP Group, a major
European insurance group, markets directors and officers liability insurance
("D&O") internationally. The Company's core business lines are D&O and
professional liability insurance, also known as errors and omissions insurance
("E&O"). Company subsidiaries also offer fidelity bonds and fiduciary liability
insurance to corporations, employment practices liability insurance for
corporations and their employees, technology maintenance and repair coverage for
hospitals and clinics and healthcare stop-loss arrangements for medical
professionals.

     Both D&O and E&O are designed to protect insureds against lawsuits and
associated legal defense expenses. In connection with D&O coverage of for-profit
corporations, such liabilities can arise from claims by customers, vendors,
competitors and former employees, although the most severe liabilities have
historically arisen from lawsuits by stockholders alleging director or officer
failure to discharge duties to the corporation or violations of federal
securities laws. In the case of not-for-profit organizations, the Company's
coverage is often implicated in employment practices litigation. E&O is most
often sold to professionals, such as attorneys, psychologists and insurance
agents, among others, where the principal sources of potential claims are
dissatisfied clients alleging breaches of professional standards or ethical
violations. Fiduciary liability coverages are intended primarily to protect
those who invest and administer benefit plan trusts, and fidelity insurance
coverages (or crime coverage) insure against losses associated with employee
theft and other types of dishonesty. Employment practices liability insurance,
which is available to cover both the employing organization and its supervisors,
insures against losses associated with employee claims such as sexual
harassment, wrongful termination and discriminatory treatment. The Company's two
non-liability related products are Systems Rx, a service contract and cost
management product for owners of high-tech diagnostic equipment and related
healthcare technology, and the recently introduced stop-loss policy for doctors
enrolled in managed care organizations that use the so-called "capitation"
method for capping treatment costs.

     The D&O Industry.  Under various state laws, corporations are authorized to
indemnify their directors and officers against legal claims arising in
connection with their work on behalf of the corporation. In order to attract and
retain qualified directors and officers, corporations purchase D&O, which
typically covers the corporate entity, but only to the extent that it
indemnifies officers and directors. D&O policies have traditionally also
contained a provision that covers officers and directors directly, in order to
insure against losses for which the corporation is legally or financially unable
to indemnify. In recent years, many D&O insurers, including the Company, have
begun to offer another form of coverage, so-called "entity coverage," which
protects the corporation for limited classes of legal liability, even when
directors and/or officers are not named as defendants in the claim.

     The demand for D&O insurance grew dramatically in response to increased
activity in corporate mergers and acquisitions during the late 1970's and the
1980's and the attendant increase in shareholder lawsuits. By the mid-1980's, a
number of carriers, having suffered large losses in this line of business, had
reduced their D&O activities or had ceased offering D&O coverage altogether,
resulting in a shortage of capacity or a "hard market" for D&O. The Company's
subsidiary, Executive Re Inc. ("Executive Re"), was formed in late 1986, largely
due to the decrease in D&O capacity. Today, ERI believes that a relatively small
number of U.S. insurers, together with Underwriters at Lloyd's ("Lloyd's"), tend
to dominate the D&O market for larger and medium-sized domestic corporations.
Domestic demand for D&O has historically been affected by consolidation trends
within certain industries. The Company's management believes that the D&O market
will continue to be impacted by consolidating sectors, such as banking and
financial services, as well as by statutory, regulatory and case law
developments that affect executive liabilities. It is anticipated that
opportunities for

                                        1
<PAGE>   4

growth in D&O demand may be found in the domestic not-for-profit sector, among
non-bank financial institutions, corporations contemplating initial public
offerings, small, privately-held commercial entities and in foreign markets,
where shareholder rights movements are nascent.

     Historically, the single largest risk for which corporations purchased D&O
insurance coverage has involved shareholder-based suits, either in the form of
derivative actions under state corporation laws or in the form of class actions
for securities fraud under Rule 10b-5 of the Securities and Exchange Commission
("SEC"), promulgated under the Securities Exchange Act of 1934. In December
1995, Congress passed the Private Securities Litigation Reform Act of 1995,
which has a number of provisions purporting to affect the ability of private
litigants to prosecute securities fraud suits. The Company's management believes
that the effects of this legislation on the demand for D&O and upon the
frequency and severity of D&O claims will not be known for several years.

     E&O Insurance.  The E&O insurance industry tends to be more fragmented and
regionalized than the D&O industry, since the risks underwritten vary
significantly depending on the nature of the profession and the geographic area
in which it is practiced. Success in E&O depends particularly on knowledgeable
underwriting and on well-conceived distribution and claims handling systems.
ERI's subsidiaries offer E&O coverage to a wide variety of professional classes,
with major classes that include: large law firms (generally over 35 lawyers),
psychologists, insurance agencies, real estate title and closing professionals,
and mortgage brokers.

     The Company's underwriting for E&O business is divided between the Lawyers
Professional Liability ("LPL") department and the Miscellaneous Professional
Liability ("MPL") department, each of which has grown substantially during the
past three years. All LPL policies are underwritten by Company-employed
attorneys, all of whom have some large firm experience. Policies issued through
the MPL Department are generally underwritten directly by Company-employed
underwriters. However, a small but growing percentage of Company E&O coverage is
being written through outside firms, known as program administrators, which have
experience and expertise with respect to a specific class of risk and with which
the Company has entered into written contractual agreements (see
"Markets -- Errors and Omissions Insurance").

  The Company

     History.  The Company's subsidiary, Executive Re, was formed in 1986 by The
Aetna Casualty and Surety Company ("Aetna") and certain other institutional
investors to capitalize on the deficiency of insuring capacity which then
existed in the D&O industry. It commenced operations in 1987. During its first
five years, Executive Re established an underwriting and marketing
infrastructure for the provision of D&O coverage through an insurance facility
(the "Facility") with Aetna. Executive Risk Management Associates ("ERMA"), a
Connecticut general partnership owned 30% by Executive Re and 70% by Aetna prior
to January 1, 1994, was formed to market and underwrite D&O insurance policies.
Executive Risk Indemnity Inc. ("ERII") was acquired to reinsure D&O policies for
which Aetna was the direct insurer. In 1991, Executive Re took steps to expand
domestically into E&O markets on a niche basis, and in 1993, began its overseas
marketing efforts through UPEX, which is owned 50% by the Company and 50% by
UAP. UPEX is a Paris-based underwriting agency that functions in much the same
way ERMA has functioned within the Facility. The lead underwriter at UPEX is a
former Company employee.

     In 1992, negotiations commenced for the acquisition of Aetna's ownership
interest in ERMA. A reorganization transaction (the "1994 Transaction") was
consummated on January 1, 1994. The Company had been formed in August 1993 in
anticipation of the 1994 Transaction. As a result of the 1994 Transaction, ERI
now owns a 70% direct ownership interest in ERMA, and has become the direct
holding company of Executive Re (which owns the remaining 30% of ERMA) and the
indirect holding company of the Executive Re subsidiaries, which include ERII,
as well as ERII's surplus lines insurance subsidiary, Executive Risk Specialty
Insurance Company ("ERSIC"). ERII and ERSIC are referred to herein as the
"Insurance Subsidiaries." Further, the 1994 Transaction modified the Facility,
permitting the Insurance Subsidiaries to underwrite D&O insurance directly. With
the completion of the 1994 Transaction and ERI's initial public stock offering
in March 1994, the Company became a publicly-owned insurance holding company. In
May

                                        2
<PAGE>   5

1995, the Company incorporated Executive Risk N.V. ("ERNV"), a Dutch insurance
company, to participate in professional liability opportunities.

     1996 Aetna Transactions.  In March 1996, the Company entered into a Stock
Purchase Agreement (the "Stock Purchase Agreement") with Aetna and its then
parent, Aetna Life and Casualty Company ("AL&C"). On March 26, 1996 (the
"Repurchase Closing Date"), the Company purchased from Aetna 1,286,300 shares of
ERI Common Stock and all 1,225,000 shares of ERI Class B Common Stock (together,
the "Repurchased Common Stock"), at a price of $29.875 per share, or
approximately $75 million in the aggregate. Prior to the Repurchase Closing
Date, the Company's capital stock had consisted of 10,280,341 issued and
outstanding shares of Common Stock and 1,225,000 issued and outstanding shares
of Class B Common Stock. Prior to the Repurchase Closing Date, Aetna owned a
total of 4,511,300 shares of ERI capital stock, consisting of (i) 3,286,300
shares of Common Stock, 32% of the issued and outstanding shares of Common Stock
and (ii) all 1,225,000 shares of the Class B Common Stock. AL&C also owned and
continues to own an option to purchase 100,000 shares of Company Common Stock at
an exercise price of $12.00 per share (the "Aetna Option"). Counting the shares
obtainable through exercise of the Aetna Option, AL&C had controlled 39.7% of
the Common and Class B Common Stock outstanding prior to the Repurchase Closing
Date.

     For approximately two and a half months following the Repurchase Closing
Date, AL&C owned 2,000,000 shares of Common Stock, representing approximately
22% of the then issued and outstanding amount. In accordance with the Stock
Purchase Agreement, the Company filed with the SEC a Form S-3 Registration
Statement, under which it registered for public sale all 2,000,000 of Aetna's
remaining shares. In connection with such offering, the Company also registered
300,000 newly issued shares. The underwritten public offering closed on June 7,
1996, on which date the 2,300,000 shares were sold at the price of $34.00 per
share. Upon closure of such secondary offering, neither Aetna nor AL&C have any
ownership interest in the Company, other than the Aetna Option.

     The Aetna Facility prior to 1997 Restructuring.  Until early 1997, the
Insurance Subsidiaries conducted D&O business primarily through the Facility,
consisting of Aetna, ERII and ERSIC, each of which acted as an insurer or
reinsurer, and ERMA, which acted as the product developer, marketer and managing
underwriter. The Facility had operated under the terms of a number of related
documents, including: (1) an Amended and Restated Agency and Insurance Services
Agreement, dated as of January 1, 1994 among Aetna, the Company and ERMA (the
"Pre-restructuring Agency Agreement"), (2) an Amended and Restated Quota Share
Reinsurance Agreement, dated as of January 1, 1994, between Aetna and ERII
respecting business issued by ERMA on Aetna policies (the "Pre-restructuring
Aetna Quota Share Agreement"), (3) a Quota Share Reinsurance Agreement, dated as
of January 1, 1994, between ERII and Aetna respecting certain business issued by
ERMA on ERII policies (the "Pre-restructuring ERII Quota Share Agreement") and
(4) a Quota Share Reinsurance Agreement, dated as of January 1, 1994, between
ERSIC and Aetna respecting certain business issued by ERMA on ERSIC paper (the
"Pre-restructuring ERSIC Quota Share Agreement").

     Under the Pre-restructuring Agency Agreement, Aetna had authorized ERMA to
underwrite and issue, on behalf of Aetna, policies of D&O insurance, financial
institution trust department errors and omissions insurance ("Trust E&O"), and
certain other insurance ("Other Lines"; collectively with D&O and Trust E&O, the
"Aetna Lines"), all in accordance with prescribed underwriting guidelines and
within defined liability limits. Under this agreement, ERMA had the exclusive
right and authority to issue D&O insurance on behalf of Aetna in North America.
This exclusive arrangement was binding on Aetna, its former parent, AL&C, and
its subsidiaries; however, it was not binding on Aetna's current parent,
Travelers/Aetna Property Casualty Corp. ("TAPCO"), or TAPCO's affiliates. The
Pre-restructuring Agency Agreement was subject to termination upon two years'
notice, provided that no such termination could be effective until December 31,
1999. Generally, where Aetna's policies were issued, Aetna ceded 50% of gross
D&O liability to ERII on a quota share basis, with other specified percentages
applicable to non-D&O policies. Where an Insurance Subsidiary's policy was
issued, 12.5% of the gross D&O liability was ceded to Aetna on a quota share
basis. For each reinsured policy, the reinsuring entity received premium from
the reinsured entity and was obligated to pay a ceding commission to the
reinsured entity.

                                        3
<PAGE>   6

     The 1997 Facility Restructuring.  On February 13, 1997, the Company
announced a restructuring (the "Restructuring") of its relationship with Aetna.
In connection with the Restructuring, the Pre-restructuring Agency Agreement,
Pre-restructuring Aetna Quota Share Agreement, Pre-restructuring ERII Quota
Share Agreement and Pre-restructuring ERSIC Quota Share Agreement have been
terminated and replaced with the following agreements: (a) a Restructuring
Agreement, dated February 13, 1997 (the "Restructuring Agreement") by and among
the Company, and its subsidiaries, Executive Re, ERII, ERSIC and ERMA
(collectively, the "Subsidiaries"), and Aetna and Aetna's direct subsidiary,
Aetna Casualty & Surety Company of Canada; (b) an Agency and Insurance Services
Agreement, dated as of January 1, 1997, between Aetna and ERMA (the "1997 Agency
Agreement"); and (c) a Quota Share Reinsurance Agreement, dated as of January 1,
1997, between Aetna and ERII (the "1997 Reinsurance Agreement").

     Pursuant to the 1997 Agency Agreement, ERMA retains the right and
authority, on a non-exclusive basis, to (a) renew on Aetna paper all policies of
Aetna Lines written or quoted prior to February 13, 1997, and (b) underwrite and
issue new policies of Aetna D&O in the United States in accordance with existing
underwriting guidelines and specified limitations on limits of liability. The
1997 Agency Agreement provides that annual gross premium volume written by ERMA
with respect to Aetna Lines must not exceed an aggregate amount equal to the
lesser of (a) 10% of the sum of the Company's total direct gross D&O premiums
plus the total direct gross D&O premiums written by ERMA on Aetna policies under
the 1997 Agency Agreement and (b) $25 million. The Company currently expects
that it will underwrite and issue Aetna policies aggregating lower premium
volumes than the maximums permitted under the 1997 Agency Agreement. Unless
terminated sooner in accordance with its terms, the 1997 Agency Agreement will
remain in effect through December 31, 1999 (subject to possible extension; see
paragraph (e) below).

     Under the Pre-restructuring ERII and ERSIC Quota Share Agreements, Aetna
had a 12.5% quota share participation in generally all direct D&O business
written on ERII and ERSIC policies. Under the Restructuring Agreement, effective
as of January 1, 1997, Aetna no longer participates in the Company's direct D&O
business by way of reinsurance. During 1996, the Company's direct D&O business
totaled approximately $225 million.

     Additionally, under the Pre-restructuring Aetna Quota Share Agreement, ERII
had a 50% quota share participation in generally all Aetna D&O business issued
by ERMA. ERII also had a quota share participation in Trust E&O and Other Lines
business written by ERMA on behalf of Aetna. Pursuant to the Restructuring
Agreement, as of January 1, 1997, ERII has a 100% quota share participation in
all Aetna Lines business written by ERMA on behalf of Aetna. Under the 1997
Reinsurance Agreement, Aetna receives a ceding commission equal to actual
producers' commissions plus 3.5% of gross written premiums, less return
premiums, as an allowance for premium taxes and other costs and expenses
incurred by Aetna in connection with the business covered under that agreement.

     In addition to modifying the agency and reinsurance relationships, the
Restructuring Agreement provided for the following:

          (a) Mr. Joseph P. Kiernan, an officer of Aetna and TAPCO, has resigned
     from the Boards of Directors and Partnership Committee, as the case may be,
     of the Company, the Insurance Subsidiaries and ERMA, and Aetna no longer
     has any election or nomination rights with respect to the Boards of
     Directors or Partnership Committee of the Company and its Subsidiaries;

          (b) all restrictions on the Company's premium volume (other than as to
     the business written on Aetna policies as described above) and any
     remaining Aetna consent requirements for the Company's corporate governance
     have been terminated;

          (c) the Company has agreed to secure a portion of Aetna's reinsurance
     receivable from ERII under the Pre-restructuring Aetna Quota Share
     Agreement and the 1997 Reinsurance Agreement by means of providing Aetna
     with a standby letter of credit in an amount of not more than $25 million,
     subject to adjustment in the event of certain contingencies;

          (d) Aetna, on behalf of itself and its subsidiaries and certain
     affiliates, has agreed that for a period of two years it will not solicit
     the Company's (or any Subsidiary's) underwriters for employment; and

                                        4
<PAGE>   7

          (e) the parties have mutually agreed to meet in 1999 to discuss the
     possibility of entering into another agency relationship with respect to
     D&O beyond December 31, 1999.

     Under the Restructuring, the Company and its Subsidiaries have relinquished
the exclusive right to underwrite and issue D&O on Aetna policies. As a result,
competition for D&O business through the end of 1999 may increase. Management is
of the opinion that there are potential benefits to the Company by virtue of the
Restructuring, principally those flowing from the cessation of Aetna's 12.5%
quota share participation in ERII's and ERSIC's direct D&O business, as
described above. The financial benefits that may result from the Restructuring
depend upon a number of assumptions and marketplace considerations, which are
impossible to quantify at this time.

  Markets

     Directors & Officers Insurance.  ERI's strategy has been to position itself
as a niche player, developing specialized expertise in specific industry groups.
With respect to domestic D&O, the Company markets its products in three
principal sectors: Commercial Entities, Financial Institutions and
Not-for-Profit Organizations. Based on the 1996 survey of the D&O industry
conducted by Watson Wyatt Worldwide, ERI's management believes that the Company
is a leading underwriter of primary D&O in the United States.

     The following table shows the gross D&O premiums written for each of the
three principal sectors for the periods indicated:

<TABLE>
<CAPTION>
                                                         GROSS DOMESTIC D&O PREMIUMS WRITTEN
                                                               YEAR ENDED DECEMBER 31,
                                                         -----------------------------------
                          SECTOR                           1996         1995
    ---------------------------------------------------  ---------    ---------
                                                                                     1994
                                                                   (IN THOUSANDS)  ---------
    <S>                                                  <C>          <C>          <C>
      Commercial Entities..............................  $ 136,598    $  88,318    $  47,993
      Financial Institutions...........................     54,433       45,169       36,922
      Not-for-Profit Organizations.....................     52,888       26,826       20,547
                                                         ---------    ---------    ---------
              Total....................................  $ 243,919    $ 160,313    $ 105,462
                                                          ========     ========     ========
</TABLE>

     Within each of the D&O sectors, ERI has targeted and developed particular
areas of expertise, a strategy that management believes has allowed ERMA and the
Insurance Subsidiaries to develop and adapt their insurance products more
knowledgeably and to underwrite submissions and process claims more
professionally than competing companies. Management believes that such
expertise, together with a strong reputation for prompt service and responsive
claims handling, alleviates the pressure to compete on the basis of price during
a "soft market," such as that which has prevailed within the industry in recent
years. See "Competition."

     The Commercial Entities sector focuses principally on publicly owned,
mid-sized companies, but also considers secondary layers of insurance (called
"excess insurance") for larger public companies which carry primary D&O coverage
from other insurers. In 1993, the Company also began to focus on coverages for
small commercial entities (assets under $100 million), and a product
specifically designed for the small, non-public commercial entity was introduced
by the Company in late 1995. As with other sectors, ERI's commercial entity D&O
strategy is to develop particularized knowledge of selected sub-sectors and then
utilize its underwriting expertise in adapting coverage and assessing risks.
Within the Financial Institutions D&O sector, the Company maintains
specializations in several sub-sectors, such as community banks (including small
depository institutions under $250 million in assets), large depository
institutions, mortgage bankers, mutual fund companies and broker-dealers. The
third sector, Not-for-Profit Organizations, underwrites for a variety of
not-for-profit healthcare facilities (principally hospitals) and social
service/charitable organizations (such as foundations, chambers of commerce,
etc.).

     Errors & Omissions Insurance.  ERMA underwrites and markets E&O insurance
on ERII and ERSIC policy forms directly. Non-lawyer E&O underwriting has
historically been performed within the MPL group, which was formed in 1992 and
oversees the Company's basic line of E&O products. Through the MPL unit, the
Company offers E&O products providing up to $5 million in coverage to a variety
of smaller to medium-

                                        5
<PAGE>   8

sized, independent professional firms in a wide variety of service sectors,
including financial services and real estate sectors. During 1996, the Company
initiated an effort to focus on a line of financial institution E&O products,
such as policies for mutual fund sponsors, financial advisory firms and related
financial industry participants. Such products are offered via a new Financial
Institutions E&O unit within the Underwriting Department.

     Following a research and development program, the Company formed the LPL
underwriting group in 1993. Using only attorney-underwriters, this group
underwrites E&O for mid-size and larger law firms (generally those with at least
35 lawyers) on a primary or excess coverage basis. The Company believes that its
use of experienced lawyers in the marketing and underwriting process has proven
to be attractive to firms within the target market. Effective January 1, 1996, a
reinsurance program, involving a number of domestic and international
reinsurance markets, is in place, and as a result, in 1996 the Company began to
market lawyers E&O policies up to policy limits of $50 million each loss and
$100 million in the aggregate. See "Reinsurance."

     Program administration involves contracting with third party producers who,
with special expertise in a specific class of E&O risk, agree to underwrite
Company policies within carefully defined parameters. The Company currently has
four program administration arrangements in place, and management anticipates
that this could evolve into a significant distribution methodology for the
Company's E&O products. (See "Marketing.")

     International.  In January 1993, the Company entered into a joint venture
agreement with UAP to write D&O insurance for European companies. During 1996,
UAP announced that it had agreed to merge with Axa; the merged entity, which is
known as AXA-UAP Group, is the largest insurance organization in Europe. Under
the UPEX joint venture agreement, the Company has agreed that it will not market
D&O insurance outside North America, except that it may offer D&O through UPEX
and in countries where UPEX elects not to do business. UPEX offers D&O policies
issued by UAP, up to a maximum $25 million policy limit, subject to certain
foreign currency adjustments, and the Company assumes a 50% participation in
these policies. Commencing operations in November 1993, UPEX underwrote
approximately $22 million in gross premiums in 1996. The management of AXA-UAP
Group is largely comprised of AXA management officials, and the Company cannot
at this time predict what, if any, effect the change in management will have
with respect to the operation of the UPEX joint venture.

     The Company's Dutch subsidiary, ERNV, was founded in May 1995 to
participate in professional liability opportunities. ERNV was formed initially
to participate in a Netherlands-based D&O pool, which participation ended
December 31, 1996. ERNV generated relatively small (less than $500,000) gross
premiums in 1996.

  Marketing

     The Company's products are distributed principally through licensed
independent property and casualty brokers, excess and surplus lines brokers and
licensed wholesalers. The Company's products are distributed by several thousand
brokers. During 1996, no single office of any broker or organization accounted
for a material portion of the gross premiums written through ERMA, and the
Company was not dependent on any one broker. With the exception of a four-person
branch in the Chicago area, the Company services domestic brokers from its
Simsbury, Connecticut headquarters. Improvements to the Company's product
distribution system are regularly under review, and the Company has recently
established regional subdivisions within the Underwriting Department, to better
manage relations with producers and insureds across the country.

     Marketing is conducted in a variety of ways, but is generally targeted at
the agent and broker audience. The Company produces a quarterly newsletter,
containing articles of interest to the D&O and E&O industry, which is widely
distributed. Advertisements, articles in trade publications, seminar
participations and convention sponsorships are among the other methods used to
market the Company's products. Particularly in the health care D&O line,
arrangements with national hospital and health care associations have been
useful in presenting the Company's products to target markets. An in-house
marketing and communications staff produces (or oversees production of) all of
the Company's public relations materials. The Company believes

                                        6
<PAGE>   9

that these efforts have resulted in widespread name recognition of the Company
and its products within target markets.

     Beginning in 1995, the Company instituted relationships with insurance
agencies with national or regional books of E&O program business. Under such a
"program administration" relationship, a third party entity becomes the
Company's agent to underwrite and issue E&O policies within guidelines specified
by the Company. Program administrators are not authorized to handle or pay
claims or bind reinsurance. The Company conducts due diligence procedures with
respect to potential program administrators prior to entering into such
contractual relationships, and it exercises on-going audit rights under the
program administration agreements. As of year-end 1996, four program
administration relationships were in effect, and others were being investigated.

  Underwriting

     General.  The Company's general underwriting philosophy stresses two
essential factors: expert consideration of complex insurance submissions,
including those from harder-to-insure applicants, and profitability over premium
growth. Accordingly, the Company prices premiums based primarily upon specific
risk exposure, including loss experience, rather than primarily upon market
factors. The table below sets forth statutory loss ratios and combined ratios
for the periods indicated for the Insurance Subsidiaries and the
property/casualty industry. The Insurance Subsidiaries' specialty products
business is not directly comparable to the business of the property/casualty
industry as a whole.

<TABLE>
<CAPTION>
                                                            YEAR ENDED DECEMBER 31,
                STATUTORY ACCOUNTING              --------------------------------------------
                   PRACTICES DATA                 1996     1995      1994      1993      1992
    --------------------------------------------  ----     -----     -----     -----     -----
    <S>                                           <C>      <C>       <C>       <C>       <C>
    Insurance Subsidiaries
      Loss Ratio................................  67.6%     67.4%     67.6%     67.6%     71.5%
      Combined Ratio............................  92.7      90.7      97.6     102.1     102.8
    Industry(1)
      Loss Ratio................................   *        78.9      81.1      79.5      88.1
      Combined Ratio(2).........................   *       105.0     107.2     105.7     114.6
</TABLE>

---------------
 * Not available

(1) Source: Best's Aggregates & Averages -- Property-Casualty.

(2) Excludes policyholder dividends.

     The Company emphasizes industry specialization within its underwriting
staff, which includes a number of professionals with operational experience from
the industries being underwritten. ERMA's staff of underwriters works under the
supervision of Stephen J. Sills, who has been with ERI since 1986 and is
currently President, Chief Underwriting Officer and a director. In February
1997, the Company announced that John F. Kearney has been promoted to Senior
Vice President and Chief Underwriting Officer of ERMA. In addition to consulting
with members of the underwriting management team, underwriters may also consult
with members of the Company's actuarial, claims and legal departments, as they
analyze various aspects of a prospective insured's risk profile. Except with
respect to the Company's higher volume, lower risk not-for-profit business (not
including hospitals, where a Company-developed ratings system is utilized),
submissions for D&O and E&O insurance are underwritten on a risk-by-risk basis.

     A large portion of the Company's policies have a one-year term, though the
number of longer-term policies has been growing in recent years. Greater than
one-year terms are offered in several situations, including "run-off " insurance
coverage, which is most often purchased to protect the directors and officers of
an acquired corporation during the three to six year period following a merger
or acquisition. Most submissions for renewal of an expiring policy are
re-underwritten and re-priced in accordance with the standard underwriting
practices and procedures, which generally do not distinguish between new and
renewal policies. The underwriting guidelines are set by the underwriting
committees of the Insurance Subsidiaries.

                                        7
<PAGE>   10

     Particularly in the underwriting of its insurance business, the Company
relies heavily on advanced computer technology, including its proprietary
Underwriter Work Station ("UWS") software. By utilizing down-loaded data from
the U.S. Department of Commerce and other sources, the UWS can be used to
perform sophisticated financial modeling tasks, providing the Company with what
it believes to be a competitive advantage in information-intensive industry
segments, such as banking and large commercial accounts. For not-for-profit D&O
and E&O business lines, the UWS is focused primarily on maximizing efficiencies
in submissions handling and response.

  Claims

     General.  Claims arising under insurance policies underwritten by the
Company are managed by the Company's Claims department. Because of the nature of
the Company's policies and the persons covered by D&O insurance, claims tend to
be reported soon after the occurrence of a loss or an event representing a
potential loss. Claims personnel are assigned to handle claims based, in part,
on industry specialization. To assist its staff in claims management, the
Company has developed a comprehensive automated electronic claim file system
(the "Claims Information System") for administering and investigating claims,
and calculating and updating case reserves. When the Company receives notice of
a loss or potential loss, a claims handler is assigned to the claim and a claim
file is created in the Claims Information System. This system electronically
attaches a copy of the policy file to the claim file and can also help determine
whether there are obvious claim issues, such as a claim being made outside the
policy period. The Claims Information System automatically composes certain
routine correspondence to the insured. All outgoing correspondence, reports from
monitoring counsel and other relevant data are entered in the Claims Information
System claim file.

     In reviewing the claim, the Claims Information System, utilizing
staff-entered severity code information relating to various claim
characteristics, helps to ensure objectivity, and consequently consistency, of
claims evaluation. The severity classification assigned to a particular claim
assists in determining the frequency and manner in which the claim is
administered. All significant claims are reviewed at least quarterly. Claims
assigned a high severity code are monitored more frequently and typically
assigned to outside legal counsel for review and monitoring. The Company's
insurance policies have not generally contained a "duty to defend" provision
requiring it to hire attorneys to defend its insureds, although duty to defend
types of policies are becoming an increasingly important part of the Company's
product mix. Even where there is no duty to defend, however, the Company does in
certain instances become closely involved with defense counsel in evaluating
claims and developing litigation management and settlement strategies. The
Company believes that its experience in resolving claims and its proactive
approach to claims management has contributed to the advantageous resolution of
many cases.

     Based in part on the claims severity code and other factors developed by
the claims handler (assisted by the Claims Information System), the Claims
department recommends a case reserve for each claim. As more information is
discovered with respect to a claim, the claims handler may recommend an increase
or decrease in case reserves. The Company believes that the claims analysis
permitted by the Claims Information System helps the Company to evaluate claims
and make informed judgments with respect to case reserves promptly. See
"Reserves."

  Reinsurance

     General.  The Company has historically used reinsurance arrangements to
limit the amount of risk retained under policies written or reinsured by the
Insurance Subsidiaries. With respect to D&O risks, the Company purchased an
excess-of-loss reinsurance treaty in 1995 and 1996 providing for 100%
reinsurance protection (20% in 1994), subject to aggregate limits and other
restrictions, on losses incurred in excess of $2.5 million up to a limit of $10
million. The treaty was renewed effective January 1, 1997 under substantially
the same terms and conditions as applied in 1996. In 1995, ERII and ERSIC also
entered into a D&O quota share reinsurance treaty, with various reinsurers,
covering 90% of losses in excess of $10 million up to (i) $25 million through
February 28, 1997 and (ii) $35 million from and after March 1, 1997, subject in
both cases to certain limitations. In addition, for the Company's D&O coverages
assumed from UAP since January 1, 1995, ERII

                                        8
<PAGE>   11

has entered into a quota share reinsurance treaty, with various reinsurers,
which generally provides for 70% reinsurance protection on losses incurred,
subject to certain restrictions.

     Effective January 1, 1996 and subject to certain limitations, the Company's
Lawyers Professional Liability product is reinsured, through a number of
domestic and international markets, in a combination quota share and excess of
loss reinsurance program whereby the Company retains more of the risk insured on
lower limit policies and cedes more of the risk insured on higher limit
policies. This program limits the Company's exposure to slightly under $5
million on a policy with a maximum limit of $50 million. For the Company's other
E&O coverages, ERII and ERSIC have entered into quota share reinsurance treaties
with various reinsurers, which generally provide for between 75% and 90%
reinsurance protection on losses incurred, subject to certain restrictions.

     Since the Company, in its role as ceding insurer, remains responsible for
policy claims without regard to the extent the reinsurer does or does not pay
such claims, reinsurers are carefully selected, taking into consideration the
financial stability of a potential reinsurer and its service and claims paying
history. While the Company endeavors to diversify its reinsurance relationships
and to reinsure with financially sound reinsurers, there can be no assurance
that the Company will not experience difficulties in the future in recovering
under these arrangements should one or more of its reinsurers experience
financial difficulties.

     The Company's reinsurance programs include material exposure to Lloyd's,
which is a collection of underwriters (known as "Names") who group together
annually to form syndicates. Lloyd's syndicates have experienced substantial
underwriting losses and decreases in underwriting capacity in the past, and they
underwent a restructuring of liabilities during 1996. The long-term success or
failure of such restructuring could affect Lloyd's syndicates' ability to meet
their reinsurance obligations. The Company, together with its reinsurance
brokers, performs a periodic security analysis of its Lloyd's exposure,
including quantitative and qualitative analyses, and management believes that
the syndicates supporting the Company's reinsurance programs are financially
stable.

     For the year ended December 31, 1996, the Company's total ceded premiums
were approximately $121.7 million, of which approximately $33.2 million were
ceded to Lloyd's syndicates. To date, the Company has experienced no reinsurance
recoverable defaults. The availability and cost of reinsurance arrangements are
subject to prevailing market conditions, which are beyond the Company's control.
As a result of these or other factors, the Company may in the future choose to
revise further its reinsurance practices to increase, decrease or eliminate
entirely the amount of risk it cedes to reinsurers.

     Primarily due to expense considerations in light of past experience, the
Company does not purchase "clash" reinsurance protection. Clash coverage
protects the ceding insurer in situations where there are multiple
losses -- either in a single line of business or multiple lines of
business -- arising out of a single event.

  Reserves

     The Company is liable for losses and loss adjustment expenses ("LAE") under
its insurance policies and reinsurance treaties. Both D&O and E&O policies are
generally written on a "claims made" form. In general, a claims made policy
provides for payment with respect to any claim made against the insured during
the policy period with respect to a covered act. In many cases, several years
may elapse between the reporting of the claim or covered act to the Company and
the Company's payment on a related loss. The Company reflects its liability for
the ultimate payment of incurred losses and LAE by establishing loss and LAE
reserves, which are balance sheet liabilities representing estimates of future
amounts needed to pay claims and related expenses with respect to insured events
that have occurred.

     The Company maintains two classes of reserves. When a claim is reported,
the Company establishes an initial case reserve for the estimated amount of the
Company's ultimate losses and LAE. This estimate reflects a judgment, based on
the Company's reserving practices and the experience of the Company's claims
staff, regarding the nature and value of the reported claim. The Company may
periodically adjust the amount of case reserves as additional information
becomes known or partial payments are made. The Company also establishes
incurred but not reported reserves ("IBNR reserves") on an aggregate basis to
provide for future

                                        9
<PAGE>   12

developments on case reserves, as well as for claims reported to the insured or
to the Company but not yet recorded by the Company. IBNR reserves are
established based on the experience of the Company and the insurance industry
generally with respect to the average frequency and severity of insured events.

     Reserves are estimates involving actuarial and statistical projections of
the cost of the ultimate settlement and administration of claims, based on known
facts and circumstances, predictions of future events, estimates of future
trends in claims severity and other variable factors such as inflation and new
concepts of liability. It may be necessary in the future to revise estimated
potential loss exposure, and therefore the Company's loss reserves. During the
claim settlement period, which may be years in duration, additional facts
regarding claims and trends may become known. As the Company becomes aware of
new information, it may refine and adjust its estimates of its ultimate
liability. The revised estimates of ultimate liability may prove to be less than
or greater than the actual settlement or award amount for which the claim is
finally discharged. As a consequence, actual losses and LAE paid may deviate,
perhaps substantially, from estimates reflected in the Company's reserves in its
financial statements.

     The Company's Insurance Subsidiaries, like other insurance companies, are
subject to the risk of severe or multiple losses, which could significantly
exceed the maximum loss previously assumed. To the extent reserves prove to be
inadequate after taking into account available reinsurance coverage, the Company
augments its reserves, resulting in a current-year charge to earnings. In
addition, loss reserves may prove to be inadequate in the event that a major
part of the Company's reinsurance coverage were to become uncollectible. See
"Reinsurance."

     Since 1988, the Company has retained the services of an independent
actuarial consulting firm to provide opinions regarding reserves as required for
state regulatory filings. The Company intends to retain such services in the
future. Although the Company believes that its reserves are adequate, there can
be no assurance that ultimate loss experience will not exceed the Company's
reserves, which may result in a material adverse effect on the Company's
financial condition and results of operations. The following table sets forth a
reconciliation of beginning and ending reserves for unpaid losses and LAE, net
of reserves for reinsured losses and LAE, for the years indicated.

<TABLE>
<CAPTION>
                                                                  YEAR ENDED DECEMBER 31,
                                                             ----------------------------------
                                                               1996         1995         1994
                                                             --------     --------     --------
                                                                       (IN THOUSANDS)
<S>                                                          <C>          <C>          <C>
Reserves for losses and LAE at beginning of period,
  gross....................................................  $324,416     $254,758     $215,151
Reinsurance recoverable at beginning of period.............   (33,531)      (8,958)      (6,053)
                                                             --------     --------     --------
Reserves for losses and LAE at beginning of period, net....   290,885      245,800      209,098
Provision for losses and LAE for current year claims.......   112,107       83,775       68,304
Decrease in estimated ultimate losses and LAE for prior
  year claims..............................................    (6,772)      (5,245)      (4,133)
                                                             --------     --------     --------
Total incurred losses and LAE..............................   105,335       78,530       64,171
Adjustment for foreign exchange loss on unpaid loss and
  LAE......................................................       (23)          58           27
Loss and LAE payments for claims attributable to:
  Current year.............................................     2,239          792          587
  Prior years..............................................    13,811       32,711       26,909
                                                             --------     --------     --------
Total payments.............................................    16,050       33,503       27,496
                                                             --------     --------     --------
Reserves for losses and LAE at end of period, net..........   380,147      290,885      245,800
Reinsurance recoverable at end of period...................    76,916       33,531        8,958
                                                             --------     --------     --------
     Reserves for losses and LAE at end of period, gross...  $457,063     $324,416     $254,758
                                                             ========     ========     ========
</TABLE>

     As shown above, a result of the Company's normal reserving review, which
includes a reevaluation of the adequacy of reserve levels for prior-years'
claims, was that in 1996 the Company reduced its unpaid loss and LAE reserves
for prior-years' claims by approximately $6.8 million. The Company does not
consider reserve reductions to represent a trend, and there can be no assurance
concerning future adjustments of reserves,

                                       10
<PAGE>   13

positive or negative, for prior-years' claims. The procedures used in
determining appropriate reserves at December 31, 1996 were consistent with
prior-years' reserving methodologies.

     Except for the last seven lines, the following "Development of Reserves"
table presents the development of unpaid loss and LAE reserves, net of
reinsurance, from 1987 through 1996. The last seven lines of the table present
that type of development on a "gross-of-reinsurance" basis for the periods
following the Company's adoption of Statement of Financial Standards No. 113,
"Accounting and Reporting For Reinsurance of Short-Duration and Long-Duration
Contracts," as of January 1, 1993. The top line of the table shows the reserves
for unpaid losses and LAE, net of reinsurance recoverables on unpaid claims, at
the end of each of the indicated years. That net reserve represents the amount
of unpaid losses and LAE for claims arising in the current year and all prior
years that were unpaid at the balance sheet date, including IBNR reserves. The
upper portion of the table also shows the re-estimated amount of the previously
recorded reserves based on experience as of the end of each succeeding year. The
estimate changes as more information becomes known about the frequency and
severity of claims for individual years.

                                       11
<PAGE>   14

                            DEVELOPMENT OF RESERVES
                             (DOLLARS IN THOUSANDS)

<TABLE>
<CAPTION>
                                                                  YEAR ENDED DECEMBER 31,
                         ---------------------------------------------------------------------------------------------------------
                           1987      1988      1989      1990       1991       1992       1993       1994       1995       1996
                         --------  --------  --------  ---------  ---------  ---------  ---------  ---------  ---------  ---------
<S>                      <C>       <C>       <C>       <C>        <C>        <C>        <C>        <C>        <C>        <C>
Reserves for losses and
  LAE, net.............  $ 11,459  $ 43,273  $ 76,277  $ 111,987  $ 157,131  $ 188,438  $ 209,098  $ 245,800  $ 290,885  $ 380,147
  Reserves re-estimated
    as of end of year:
    1 year later.......    10,990    42,140    74,787    112,710    156,773    185,391    204,965    240,555    284,113
    2 years later......    10,345    38,653    70,708    112,333    153,726    181,258    199,720    233,783
    3 years later......     6,886    23,846    56,919    111,178    149,593    176,013    192,948
    4 years later......     2,801    10,057    55,764    110,597    144,348    169,241
    5 years later......     1,619     8,899    55,183    105,352    137,576
    6 years later......     1,635     8,916    49,938    100,368
    7 years later......     1,635     8,916    49,236
    8 years later......     1,635     8,916
    9 years later......     1,635
Cumulative redundancy
  (deficiency).........     9,824    34,357    27,041     11,619     19,555     19,197     16,150     12,017      6,772
Cumulative paid as of:
    1 year later.......  $      5  $     50  $  1,088  $   9,491  $  20,075  $  25,838  $  26,909  $  32,711  $  13,811
    2 years later......        33       449     4,815     26,321     44,814     47,270     56,823     42,851
    3 years later......        33     1,936    17,977     44,759     61,562     73,100     59,760
    4 years later......     1,283     2,072    26,483     56,572     78,916     75,751
    5 years later......     1,265     2,134    31,157     68,277     79,675
    6 years later......     1,265     4,421    38,435     68,671
    7 years later......     1,265     4,426    38,477
    8 years later......     1,265     4,441
    9 years later......     1,265
Net reserve -- December
  31...................                                                                 $ 209,098  $ 245,800  $ 290,885  $ 380,147
Reinsurance
  recoverables.........                                                                     6,053      8,958     33,531     76,916
                                                                                         --------   --------   --------   --------
Gross
  reserve -- December
  31...................                                                                 $ 215,151  $ 254,758  $ 324,416  $ 457,063
                                                                                         ========   ========   ========   ========
Net re-estimated
  reserve..............                                                                   192,948    233,783    284,113
Re-estimated
  reinsurance
  recoverables.........                                                                     2,339      9,123     33,536
                                                                                         --------   --------   --------
Gross re-estimated
  reserve..............                                                                 $ 195,287  $ 242,906  $ 317,649
                                                                                         ========   ========   ========
Gross cumulative
  redundancy...........                                                                 $  19,864  $  11,852  $   6,767
                                                                                         ========   ========   ========
</TABLE>

     In the Company's early years of operation, the Company had little or no
actual loss experience upon which to calculate reserves. As a result, its
reserving methodologies were based largely on industry data. In recent years,
the Company has developed reserves based upon its own loss experience. With this
information available, the Company believes it is capable of estimating future
losses, and consequently reserves, with a greater degree of accuracy than in the
Company's early years of operations. There can be no assurance that the
Company's reserves will be sufficient to cover ultimate losses.

  Investments

     The Company's investment philosophy is to seek optimum total return. This
is done in a manner consistent with what management believes is a generally
conservative investment approach, as evidenced by the portfolio's quality
characteristics, liquidity and diversification. The Company has established
investment guidelines and policies and oversees management of the investment
portfolio through the Finance Committee of the Company's Board of Directors.
Investment policies are approved by its Board of Directors or Finance Committee.
All investments are reviewed periodically by the Finance Committee, and
exceptional investment decisions are submitted for advance approval. In addition
to the specifications in the investment policy statements, all investments of
the Insurance Subsidiaries must meet the applicable state statutory
requirements.

                                       12
<PAGE>   15

     The Company's investment policies specify limitations as to type of
investment and exposure to single issuers. Investments currently consist
principally of U.S. Government securities, corporate and municipal obligations,
mortgage-backed and asset-backed securities, partnership interests and common
equities (including mutual fund shares). At December 31, 1996, the Company had
no direct investments in mortgages or equity real estate, other than its
headquarters building in Simsbury, Connecticut. Investments in securities backed
by the full faith and credit of the U.S. Government and U.S. Government agencies
may be made without limitation. Additionally, the Company's allocation to one of
its external investment managers permits holdings of up to $6.9 million in
non-investment grade debt securities.

     The following table summarizes the investment portfolio of the Company, by
asset class, as of December 31, 1996.

<TABLE>
<CAPTION>
                                                                   DECEMBER 31, 1996
                                                         --------------------------------------
                                                         FAIR VALUE     COST(1)      PERCENT(2)
                                                         ----------     --------     ----------
                                                                 (DOLLARS IN THOUSANDS)
    <S>                                                  <C>            <C>          <C>
    U.S. Treasury or agency securities.................   $  24,734     $ 24,621          3.6%
    Municipal securities...............................     439,281      424,012         63.6
    Corporate fixed income securities..................      92,855       91,528         13.4
    Mortgage and other asset backed securities.........      61,955       60,911          9.0
    Foreign government securities......................       1,567        1,517          0.2
                                                           --------     --------        -----
              Total fixed maturities...................     620,392      602,589         89.8
                                                           --------     --------        -----
    Equity securities..................................      45,877       35,820          6.6
    Short-term investments and cash....................      24,706       24,706          3.6
                                                           --------     --------        -----
              Total investments and cash...............   $ 690,975     $663,115        100.0%
                                                           ========     ========        =====
</TABLE>

---------------
(1) Amortized cost for fixed maturities and short-term investments.

(2) Percent of total portfolio, based on fair value.

     Except with respect to a portion of the allocation to one of its investment
managers, representing a small part of the total portfolio (see above), new
investments in publicly-traded fixed income securities, both short-and
long-term, are restricted to issues that maintain a quality rating equal or
equivalent to Baa/BBB or better from Standard & Poor's ("S&P") or Moody's
Investors Service, Inc. ("Moody's"). Should an investment in the portfolio be
downgraded below this rating, the investment is not necessarily sold immediately
but is closely monitored for further deterioration of credit quality and the
need to write down the book value of the investment. Private placements or other
investments with lower ratings or investments not rated by those agencies are
permitted, if approved by the Finance Committee and reported to the Board of
Directors. Cash and publicly-traded fixed income securities comprised 91.1%
(based on fair value) of the total investment portfolio as of December 31, 1996.
At December 31, 1996, over 99% of the Company's publicly-traded bond portfolio
was rated investment grade. The following table sets forth the composition of
the Company's publicly-traded fixed income securities, by quality rating, as of
December 31, 1996.

<TABLE>
<CAPTION>
                                    RATINGS                                   DECEMBER 31,
                                 (S&P/MOODY'S)                                  1996(1)
    ------------------------------------------------------------------------  ------------
    <S>                                                                       <C>
      AAA/Aaa...............................................................       57.7%
      AA/Aa.................................................................       20.7
      A/A...................................................................       19.3
      Other.................................................................        2.3
                                                                                  -----
              Total.........................................................      100.0%
                                                                                  =====
</TABLE>

---------------
(1) Based on fair value.

                                       13
<PAGE>   16

     The National Association of Insurance Commissioners ("NAIC") has a fixed
income securities rating system that assigns to investment securities certain
ratings, called "NAIC designations," that are used by insurers when preparing
their annual statutory financial statements. The NAIC assigns designations to
publicly-traded and privately-placed securities. Designations assigned by the
NAIC range from 1 to 6, with 1 representing securities of the highest quality.
As of December 31, 1996, 97.1% (based on amortized cost) of the Insurance
Subsidiaries' fixed income investment portfolio was invested in securities rated
1 by the NAIC.

     The investment portfolio is designed to provide sufficient liquidity to
enable the Company to satisfy its obligations on a timely basis. Although the
investment guidelines permit investments with a maturity range of up to 30
years, the Company generally invests in the five to fifteen year maturity range.
The following table indicates the composition of the Company's fixed maturity
investments, based on fair value, by time to maturity as of December 31, 1996.

<TABLE>
<CAPTION>
                                    TIME TO                                   DECEMBER 31,
                                    MATURITY                                      1996
    ------------------------------------------------------------------------  ------------
    <S>                                                                       <C>
    0 -1 year...............................................................        6.5%
    1 - 5 years.............................................................       30.7
    5 - 10 years............................................................       59.3
    10+ years...............................................................        3.5
                                                                                  -----
              Total.........................................................      100.0%
                                                                                  =====
</TABLE>

     The investment policies of the Company permit hedging activities to
mitigate losses associated with fluctuations in foreign currency. At this point,
the Company has no material foreign currency exposure. The Company's initial
investments of 6.0 million French francs in the UPEX joint venture and 3.0
million Dutch guilders in ERNV (see "International") are viewed as long-term
capital commitments and, as such, are not hedged against fluctuations in the
dollar value of the foreign currencies. The Company also maintains, in eleven
different European currencies, $2.9 million (as translated to U.S. dollars) of
loss reserves assumed from UAP, which are not hedged against fluctuations in the
value of these currencies. The Company could determine at a future date to
engage in hedging transactions with respect to any foreign currency risk
associated with its international operations, including UPEX and ERNV.

     The Company's assets are invested, subject to the above mentioned statutory
constraints and guidelines, to maximize after-tax investment returns. The
Company attempts to optimize the blend of income from tax-exempt/taxable
securities to achieve maximization of after-tax investment income. The following
table illustrates the breakdown of the portfolio between taxable and tax-exempt
securities as of December 31, 1996.

<TABLE>
<CAPTION>
                                                                        DECEMBER 31, 1996
                                                                ---------------------------------
                                                                                          PERCENT
                                                                     FAIR VALUE           -------
                                                                ---------------------
                                                                (DOLLARS IN MILLIONS)
    <S>                                                         <C>                       <C>
    Tax-exempt securities.....................................         $ 439.3               63.6%
    Taxable securities........................................           251.7               36.4
                                                                        ------              -----
              Total...........................................         $ 691.0              100.0%
                                                                        ======              =====
</TABLE>

     The Company's investments are managed by Conning & Company, Black Rock
Financial Management and Hyperion Capital Management. Conning & Company is a
stockholder of the Company. In addition, the Company utilizes the investment
management services of Vanguard Group.

  Regulation

     General.  As insurance companies, ERII and ERSIC are subject to supervision
and regulation in the states in which they transact business. Such supervision
and regulation, which is designed primarily for the protection of policyholders
and not shareholders, relates to most aspects of an insurance company's business
and includes such matters as authorized lines of business; underwriting
standards; financial condition standards; licensing of insurers; investment
standards; premium levels; policy provisions; the filing of annual and other
financial reports prepared on the basis of Statutory Accounting Practices; the
filing and form of

                                       14
<PAGE>   17

actuarial reports; the establishment and maintenance of reserves for unearned
premiums, losses and LAE; transactions with affiliates; dividends; changes in
control; and a variety of other financial and nonfinancial matters.
Additionally, ERMA is subject to supervision and regulation under state
insurance agency laws in the states in which it does business as an insurance
agent. Insurance regulatory authorities have broad administrative powers to
regulate trade practices and in that connection to restrict or rescind licenses
to transact business and to levy fines and monetary penalties against insurers
and insurance agents found to be in violation of applicable laws and
regulations.

     Licenses.  The Company has obtained insurance company licenses for ERII in
all states other than Colorado, where the application is pending, and
Connecticut, where ERSIC is the licensed entity. ERSIC is licensed as an
insurance company in Connecticut, its state of domicile, and is an eligible
surplus lines insurer in all other states. In a small number of states, the
Company's ability to write insurance is limited to its core liability lines, and
the Company is seeking to expand its authority to include all property/casualty
lines in such states. Future flexibility with respect to certain new products
could be limited to the extent that the Company is unable to secure additional
authorized lines of business in these remaining states.

     At December 31, 1996, ERMA was licensed as an insurance agent in 26 states
and the District of Columbia, with ERMA officers licensed as agents or brokers
in 49 states. At least 21 states license only individuals as insurance agents or
brokers. Such restriction has not limited the Company's ability to write
insurance; however, ERMA's ability to do business in the future could be limited
to the extent that it is unable to secure necessary licenses.

     Regulation of Insurance Holding Companies.  ERII and ERSIC are incorporated
under the laws of Delaware and Connecticut, respectively. Delaware and
Connecticut, like many other states, have laws governing insurance holding
companies (such as ERI). Under Delaware and Connecticut law, ERII and ERSIC are
each required to register annually and file certain reports with their
respective domiciliary State Insurance Commissioners. Such reports must include
current information concerning the capital structure, ownership, management,
financial condition and general business operations of the filing Insurance
Subsidiary and must also disclose certain agreements and transactions between
such Insurance Subsidiary and its affiliates, which agreements must satisfy
certain standards specified in the respective insurance laws.

     Under Delaware law, no person may acquire control of ERII or a corporation
controlling ERII unless such person has filed a statement containing specified
information with the Insurance Commissioner of the State of Delaware (the
"Delaware Commissioner") and the Delaware Commissioner has approved such
acquisition of control. Under Connecticut law, no person may acquire control of
ERSIC or a corporation controlling ERSIC unless such person has filed a
statement containing specified information with the Insurance Commissioner of
the State of Connecticut (the "Connecticut Commissioner") and the Connecticut
Commissioner has approved such acquisition of control. Under both Delaware and
Connecticut law, any person acquiring, directly or indirectly, or holding
proxies with respect to, 10% or more of the voting stock of any other person is
presumed to have acquired "control" of such person. Accordingly, any purchase
resulting in the purchaser owning 10% or more of the outstanding Common Stock of
ERI would require prior approval of the Delaware and Connecticut Commissioners.
Such prior approval requirement also would apply to an acquisition of proxies to
vote 10% or more of the outstanding Common Stock of ERI and, therefore, in a
proxy contest could delay or prevent a stockholder from acquiring such proxies.
No assurance can be given as to whether or not the Company would seek to invoke
these laws and regulations in the event of a contested solicitation of proxies.

     Under Delaware and Connecticut law, ERII and ERSIC, respectively, may not
enter into certain transactions, including certain reinsurance agreements,
management agreements and service contracts, with members of their insurance
holding company system unless they have notified the applicable State Insurance
Commissioner of their intention to enter into such a transaction and the
applicable State Insurance Commissioner has not disapproved of such transaction
within 30 days of such notice. Among other things, such transactions are subject
to the requirements that their terms be fair and reasonable, that charges or
fees for services performed must be reasonable and that the interests of
policyholders not be adversely affected.

                                       15
<PAGE>   18

     Dividend Restrictions.  As an insurance holding company, the Company is
dependent on dividends and other permitted payments from the Insurance
Subsidiaries to pay its cash dividends to stockholders. The ability of ERII and
ERSIC to pay dividends to the Company is subject to Delaware and Connecticut
insurance laws, respectively. See Note 8 of the Notes to Consolidated Financial
Statements in the Company's 1996 Annual Report to Stockholders.

     Regulatory Examinations.  As part of its routine regulatory process, the
Delaware Insurance Department conducts, typically once every three years, an
examination of ERII. The report with respect to the most recent completed
examination of ERII was issued in December 1995, and covered the period January
1990 through December 1993. The report contained no material adverse findings.
ERSIC was incorporated in October 1991 and, as part of its routine regulatory
process, the Connecticut Insurance Department conducts, typically once every
five years, an examination of insurance companies domiciled in Connecticut. An
examination of ERSIC by the Connecticut Insurance Department commenced in March
1995 and was completed in October 1995. Such examination covered the period from
ERSIC's incorporation through December 31, 1993. There were no material adverse
findings.

     Insurance regulatory authorities of other states in which the Insurance
Subsidiaries hold insurance company licenses may examine the Company's selling
practices within their jurisdictions, and such authorities are empowered to
impose fines or other sanctions where such examinations reveal deficiencies. To
date, only California has conducted a market conduct exam. That exam in 1996
resulted in no material adverse findings.

     The National Association of Insurance Commissioners.  In addition to
state-imposed insurance laws and regulations, the Insurance Subsidiaries are
subject to accounting practices and reporting formats established by the NAIC.
The NAIC also promulgates model insurance laws and regulations relating to
insurance companies, which may or may not be adopted by state legislatures or
departments of insurance. However, NAIC model laws and regulations have become
increasingly important in recent years, due primarily to the NAIC's state
regulatory accreditation program. Under this program, virtually all states have
adopted certain required model laws and regulations and meet various staffing
and other requirements and are "accredited" by the NAIC. Because the adoption of
certain model laws and regulations is a prerequisite to accreditation, the
NAIC's initiatives have taken on a greater level of practical importance in
recent years.

     IRIS Ratios.  The NAIC annually calculates 11 financial ratios to assist
state insurance departments in monitoring the financial condition of insurance
companies. Results are compared against a "usual range" of results for each
ratio, established by the NAIC. For 1996, the Insurance Subsidiaries were
outside the usual range for IRIS Ratio 2, "Change in Net Writings," which has
been due to the above-average growth rate, due in part to conversions by
insureds from Aetna D&O policies to ERII and ERSIC D&O policies. Additionally,
ERSIC was outside the usual range for IRIS Ratio 8, "Agents' Balances to
Surplus," at 52%, which resulted solely from the accounting for the intercompany
pooling arrangement with ERII, and not from receivables actually due from third
parties. On a group basis, the ratio of agents' balances to surplus is within
the IRIS usual range. Management does not believe that the Insurance
Subsidiaries' IRIS ratio results will adversely affect their ability to write
new business.

     Capital and Surplus Requirements.  The NAIC has developed risk-based
capital ("RBC") formulas to be applied to all insurance companies, which
formulas are used to calculate a minimum required statutory net worth, based on
the underwriting, investment and other business risks inherent in an individual
company's operations. Any insurance company which does not meet threshold RBC
levels ultimately could become subject to increasing levels of regulatory
scrutiny and regulatory action. Implementation of these requirements was
required for the first time in regulatory filings covering fiscal 1994. The
formulas for determining the amount of risk-based capital specify various
weighting factors that are applied to financial balances or various levels of
activity based on the perceived degree of risk. Regulatory compliance is
determined by a ratio of the insurance company's regulatory total adjusted
capital to its authorized control level risk-based capital, both as defined by
the NAIC. At December 31, 1996, the total adjusted capital (as defined by the
NAIC) of ERII and ERSIC was in excess of the risk-based capital regulatory
action level. The application of the proceeds from the February 1997 offering of
capital securities by a trust affiliated with the Company caused the total
adjusted capital of ERII and ERSIC to exceed the risk-based capital company
action level, which is a higher standard. See Note 16 of the Notes to
Consolidated Financial Statements in the Company's 1996 Annual Report to
Stockholders.

                                       16
<PAGE>   19

     The Insurance Subsidiaries' total adjusted capital at December 31, 1994 and
1995 was in excess of the risk-based capital standards specified by the NAIC for
1994 and 1995. The insurance laws of Delaware and Connecticut limit the retained
exposure on any one risk to 10% of capital and surplus.

  Competition

     The insurance industry is highly competitive. ERI competes with domestic
and foreign insurers and reinsurers, some of which have greater financial,
marketing and management resources than ERI, and it may compete with new market
entrants in the future. The Company believes its major competitors are American
International Group, Inc. and The Chubb Corporation, who the Company believes
are dominant competitors in the industry. Other competitors include ACE Limited,
Associated Electric & Gas Insurance Services Limited, CNA Financial Corp., EXEL
Limited, Great American Insurance Company, Gulf Insurance Company, Lloyd's
syndicates, PHICO Insurance Company, Reliance Group Holdings, Inc. and Zurich-
American Insurance Company. Competition is based on many factors, including the
perceived financial strength of the insurer, pricing and other terms and
conditions, services provided, ratings assigned by independent rating
organizations (including A.M. Best Company, Inc. and S&P), the speed of claims
payment and the reputation and experience of the insurer. Ultimately, this
competition could affect ERI's ability to attract business on terms having the
potential to yield appropriate returns.

  Employees

     At December 31, 1996 the Company employed approximately 310 full-time
employees. None of the employees is subject to collective bargaining agreements
and the Company knows of no current efforts to implement such agreements. The
Company believes it has a good relationship with its employees.

ITEM 2.  PROPERTIES

     ERI's executive offices occupy an approximately 120,000 square foot,
two-story office building that the Company owns in Simsbury, Connecticut. The
Company believes that the premises provide adequately for its near-term space
requirements in Connecticut. In addition, the Company occupies office space in
the Chicago area (1,300 square feet) for its remote office operations. The
operations of the Company are supported by local area networks of personal
computers. The local networks in Simsbury and the Chicago area are
interconnected by way of wide area telecommunications and provide services such
as electronic mail, desktop faxing, real-time data communications, and batch
file transfers.

ITEM 3.  LEGAL PROCEEDINGS

     The Company is subject to routine legal proceedings in connection with its
insurance business. The Company does not believe that these legal proceedings
will have a material adverse effect on the Company.

ITEM 4.  SUBMISSION TO A VOTE OF SECURITY HOLDERS

     There were no matters submitted to a vote of security holders during the
fourth quarter of 1996.

                                    PART II

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

  Market Information

     The Common Stock, $.01 par value, of Executive Risk Inc. was listed for
trading on the New York Stock Exchange ("NYSE") on March 15, 1994 under the
symbol "ER". For the periods presented below, the high and low sales prices of
the Registrant's Common Stock on the NYSE were as follows:

<TABLE>
<CAPTION>
                                                              THREE MONTHS ENDED
                                         ------------------------------------------------------------
                                           MARCH 31       JUNE 30      SEPTEMBER 30      DECEMBER 31
                                         ------------     --------     -------------     ------------
    <S>                                  <C>              <C>          <C>               <C>
    1996
    -----
    High sales price...................    $ 33.000       $ 38.250        $38.500          $ 42.000
    Low sales price....................    $ 26.250       $ 29.250        $33.375          $ 34.125
</TABLE>

                                       17
<PAGE>   20

<TABLE>
<CAPTION>
                                                              THREE MONTHS ENDED
                                         ------------------------------------------------------------
                                           MARCH 31       JUNE 30      SEPTEMBER 30      DECEMBER 31
                                         ------------     --------     -------------     ------------
    <S>                                  <C>              <C>          <C>               <C>
    1995
    -----
    High sales price...................    $ 17.125       $ 19.000        $23.875          $ 29.000
    Low sales price....................    $ 13.625       $ 16.625        $18.375          $ 22.000
</TABLE>

<TABLE>
<CAPTION>
                                                                      THREE MONTHS ENDED
                                         PERIOD ENDED     -------------------------------------------
                                           MARCH 31       JUNE 30      SEPTEMBER 30      DECEMBER 31
                                         ------------     --------     -------------     ------------
    <S>                                  <C>              <C>          <C>               <C>
    1994
    -----
    High sales price...................    $ 12.500       $ 14.875        $15.875          $ 14.250
    Low sales price....................    $ 10.875       $ 10.875        $12.750          $ 12.250
</TABLE>

  Stockholders

     There were 94 holders of record of shares of the Company's Common Stock as
of February 26, 1997. Approximately 90% of the Registrant's outstanding shares
of Common Stock were held of record by Cede & Co., for an unknown number of
beneficial owners.

  Dividends

     The Company paid cash dividends of $.02 per share in each quarter of 1996,
1995 and in June, September and December 1994. There is presently no intention
to either increase or decrease the cash dividend on the Company's Common Stock
in the foreseeable future. Future dividends will be dependent upon, among other
things, the Company's earnings, financial condition, capital requirements and
general business conditions.

ITEM 6.  SELECTED FINANCIAL DATA

     Financial Highlights on the inside front cover of the Company's 1996 Annual
Report to Shareholders is incorporated herein by reference.

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

     Management's Discussion and Analysis of Financial Condition and Results of
Operations on pages 24 through 30 of the 1996 Annual Report to Stockholders is
incorporated herein by reference.

ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

     The following consolidated financial statements of Executive Risk Inc. and
its subsidiaries, included on pages 35 through 52 of the Company's 1996 Annual
Report to Stockholders, are incorporated herein by reference:

        -- Consolidated Balance Sheets at December 31, 1996 and 1995.

        -- Consolidated Statements of Income for the years ended December 31,
           1996, 1995 and 1994.

        -- Consolidated Statements of Stockholders' Equity for the years ended
           December 31, 1996, 1995 and 1994.

        -- Consolidated Statements of Cash Flows for the years ended December
31, 1996, 1995 and 1994.

        -- Notes to Consolidated Financial Statements.

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

     Not applicable.

                                       18
<PAGE>   21

                                    PART III

ITEM 10.  DIRECTORS AND EXECUTIVE OFFICERS

     Information concerning the Company's directors and executive officers is
incorporated herein by reference to the caption "Item 1. Election of Directors"
in the definitive Proxy Statement involving the election of directors and other
matters (the "Proxy Statement") which the Company intends to file with the
Commission pursuant to Regulation 14A under the Securities Exchange Act of 1934
not later than 120 days after December 31, 1996.

ITEM 11.  EXECUTIVE COMPENSATION

     Incorporated herein by reference to the caption "Executive Compensation" in
the Proxy Statement.

ITEM 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

     Incorporated by reference to the caption "Beneficial Ownership of Stock" in
the Proxy Statement.

ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

     Incorporated by reference to the captions "Certain Relationships and
Related Transactions" and "Compensation Committee Interlocks and Insider
Participation" in the Proxy Statement.

                                    PART IV

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

  Financial Statements and Schedules

     The Financial Statements and schedules listed in the accompanying Index to
Financial Statements and Schedules are filed as part of this Report.

  Exhibits

     The exhibits listed on the accompanying Index to Exhibits are filed as part
of this report.

  Reports on Form 8-K

     The Company filed no Current Reports on Form 8-K during the quarter ended
December 31, 1996. On February 18, 1997, the Company filed a Current Report on
Form 8-K relating to the restructuring of its underwriting and reinsurance
relationships with Aetna.

                                       19
<PAGE>   22

                                   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.

                                         EXECUTIVE RISK INC.
                                             (REGISTRANT)

                                          By:   /s/ LEROY A. VANDER PUTTEN
                                            ------------------------------------
                                                   LEROY A. VANDER PUTTEN
                                            CHAIRMAN AND CHIEF EXECUTIVE OFFICER

Dated: March 25, 1997

     PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THIS
REPORT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS ON BEHALF OF THE
REGISTRANT AND IN THE CAPACITIES AND ON THE DATES INDICATED:

<TABLE>
<CAPTION>
                  SIGNATURE                                TITLE                     DATE
---------------------------------------------  -----------------------------    ---------------
<C>                                            <S>                              <C>

         /s/ LeRoy A. Vander Putten            Chairman of the Board and         March 25, 1997
---------------------------------------------    Chief Executive Officer
           LEROY A. VANDER PUTTEN

            /s/ Robert H. Kullas               Director, Vice Chairman and       March 25, 1997
---------------------------------------------    Chief Operating Officer
              ROBERT H. KULLAS

            /s/ Stephen J. Sills               Director and President            March 25, 1997
---------------------------------------------
              STEPHEN J. SILLS

             /s/ Gary G. Benanav               Director                          March 25, 1997
---------------------------------------------
               GARY G. BENANAV

            /s/ Barbara G. Cohen               Director                          March 25, 1997
---------------------------------------------
              BARBARA G. COHEN
             /s/ John G. Crosby                Director                          March 25, 1997
---------------------------------------------
               JOHN G. CROSBY

           /s/ Patrick A. Gerschel             Director                          March 25, 1997
---------------------------------------------
             PATRICK A. GERSCHEL

             /s/ Peter Goldberg                Director                          March 25, 1997
---------------------------------------------
               PETER GOLDBERG

             /s/ Michael D. Rice               Director                          March 25, 1997
---------------------------------------------
               MICHAEL D. RICE

            /s/ Joseph D. Sargent              Director                          March 25, 1997
---------------------------------------------
              JOSEPH D. SARGENT

            /s/ Robert V. Deutsch              Executive Vice President,         March 25, 1997
---------------------------------------------    Chief Financial Officer,
              ROBERT V. DEUTSCH                  Chief Actuary and Chief
                                                 Accounting Officer
</TABLE>

                                       20
<PAGE>   23

                               INDEX TO EXHIBITS

<TABLE>
<CAPTION>
EXHIBIT NO.
-----------
<S>           <C>
     (3)      -- Articles of incorporation and bylaws:
                 3.1  Amended and Restated Certificate of Incorporation of Executive Risk Inc.,
                      incorporated herein by reference to Exhibit 3.2 to the Registration
                      Statement on Form S-1 (No. 33-70820) of the Company (herein the
                      "Registration Statement").
                 3.2  Restated Bylaws of Executive Risk Inc., incorporated herein by reference to
                      Exhibit 3 to Registrant's Quarterly Report on Form 10-Q for the quarter
                      ended June 30, 1994.

    (10)      -- Material contracts
                10.1  Stock Purchase Option between Executive Risk Inc. and The Aetna Casualty
                      and Surety Company, incorporated herein by reference to Exhibit 10.3 to the
                      Registration Statement.
                10.2  Joint Venture Agreement, dated January 21, 1993, between Executive Re Inc.
                      and Union des Assurance de Paris'IARD, incorporated herein by reference to
                      Exhibit 10.17 to the Registration Statement.
                10.3  Rights Agreement between Executive Risk Inc. and Mellon Bank, N.A., as
                      Rights Agent, incorporated herein by reference to Exhibit 10.19 to the
                      Registration Statement.
                10.4  Employment Agreement, dated as of March 15, 1995, by and between Executive
                      Risk Inc. and Robert H. Kullas, incorporated herein by reference to Exhibit
                      10.13 to Annual Report on Form 10-K for the fiscal year ended December 31,
                      1994 (the "1994 10-K").
                10.5  Employment Agreement, dated as of March 15, 1995, by and between Executive
                      Risk Inc. and Stephen J. Sills, incorporated herein by reference to Exhibit
                      10.14 of the 1994 10-K.
                10.6  Employment Agreement, dated as of March 15, 1995, by and between Executive
                      Risk Inc. and Robert V. Deutsch, incorporated herein by reference to
                      Exhibit 10.15 to the 1994 10-K.
                10.7  Executive Risk Inc. Nonqualified Stock Option Plan, as amended and
                      restated, filed herewith.
                10.8  Executive Risk Inc. Employee Incentive Nonqualified Stock Option Plan, as
                      amended and restated, filed herewith.
                10.9  Executive Risk Inc. IPO Stock Compensation Plan, as amended and restated,
                      filed herewith.
               10.10  Executive Risk Inc. Incentive Compensation Plan, incorporated herein by
                      reference to Exhibit 10.19 to the 1994 10-K.
               10.11  Executive Risk Inc. Retirement Plan, incorporated herein by reference to
                      Exhibit 10.27 to the Registration Statement.
               10.12  Executive Risk Inc. Nonemployee Directors Stock Option Plan, as amended and
                      restated, filed herewith.
               10.13  Employment Agreement, dated as of March 31, 1995, by and between the
                      Company and LeRoy A. Vander Putten, incorporated herein by reference to
                      Exhibit 10.2 to Quarterly Report on Form 10-Q for the period ended March
                      31, 1995.
               10.14  Supplemental Pension Agreement by and among the Company, Aetna Life and
                      Casualty Company and LeRoy A. Vander Putten, dated as of March 31, 1995,
                      incorporated herein by reference to Exhibit 10.3 to Quarterly Report on
                      Form 10-Q for the period ended March 31, 1995.
</TABLE>

                                       21
<PAGE>   24

<TABLE>
<CAPTION>
EXHIBIT NO.
-----------
<S>           <C>
               10.15  Executive Risk Inc. Stock Incentive Plan, incorporated herein by reference
                      to Exhibit 10.25 to Annual Report on Form 10-K for the year ended December
                      31, 1996 (the "1996 10-K").
               10.16  Executive Risk Inc. Performance Share Plan, incorporated herein by
                      reference to Exhibit 10.26 to the 1996 10-K.
               10.17  Stock Purchase Agreement, dated as March 22, 1996 by and among the
                      Executive Risk Inc., The Aetna Casualty and Surety Company and Aetna Life
                      and Casualty Company, incorporated by reference to Exhibit 2 to Current
                      Report on Form 8-K dated March 25, 1996 (the "March 1996 8-K").
               10.18  Term Loan Agreement, dated as of March 26, 1996, among Executive Risk Inc.,
                      the Banks signatory thereto and The Chase Manhattan Bank (National
                      Association), as Agent, incorporated by reference to Exhibit 3(a) to the
                      March 1996 8-K.
               10.19  Stock Pledge Agreement, dated as of March 26, 1996, between Executive Risk
                      Inc. and The Chase Manhattan Bank (National Association), as Agent,
                      incorporated by reference to Exhibit 3(b) to the March 1996 8-K.
               10.20  Restructuring Agreement, dated as of February 13, 1997, by and among
                      Executive Risk Inc., Executive Re Inc., Executive Risk Indemnity Inc.,
                      Executive Risk Specialty Insurance Company, Executive Risk Management
                      Associates, The Aetna Casualty and Surety Company and Aetna Casualty and
                      Surety of Canada, incorporated by reference to Exhibit 10.1 to Current
                      Report on Form 8-K dated February 18, 1997 (the "February 1997 8-K").
               10.21  Agency and Insurance Services Agreement, dated as of January 1, 1997, by
                      and between The Aetna Casualty and Surety Company and Executive Risk
                      Management Associates, incorporated by reference to Exhibit 10.2 to the
                      February 1997 8-K.
               10.22  Quota Share Reinsurance Agreement, dated as of January 1, 1997, by and
                      between The Aetna Casualty and Surety Company and Executive Risk Indemnity
                      Inc., incorporated by reference to Exhibit 10.3 to the February 1997 8-K.

    (11)      Statement regarding computation of per share earnings

    (13)      Executive Risk Inc. 1996 Annual Report to Stockholders; except for those portions
              thereof which are expressly incorporated by reference in the Annual Report on Form
              10-K for the year ended December 31, 1996, the Report to Stockholders is furnished
              for the information of the Securities and Exchange Commission only and is not to be
              deemed "filed" as part of this Annual Report on Form 10-K.

    (21)      Subsidiaries of Executive Risk Inc.

    (23)      Consents of experts and counsel
                23.1  Consent of Ernst & Young LLP
</TABLE>

                                       22
<PAGE>   25

                  INDEX TO FINANCIAL STATEMENTS AND SCHEDULES

<TABLE>
<CAPTION>
                                                                                          PAGES
                                                                                          -----
<S>                                                                                       <C>
Financial Statements of Executive Risk Inc.
      Report of Independent Auditors on Financial Statements............................     *
      Consolidated Balance Sheets at December 31, 1996 and 1995.........................     *
      Consolidated Statements of Income for the years ended December 31, 1996, 1995 and      *
        1994............................................................................
      Consolidated Statements of Stockholders' Equity for the years ended December 31,       *
        1996, 1995 and 1994.............................................................
      Consolidated Statements of Cash Flows for the years ended December 31, 1996, 1995      *
        and 1994........................................................................
      Notes to Financial Statements.....................................................     *
Schedule(s)
II    Condensed Financial Information of Registrant
      -- Balance Sheets.................................................................   S-1
      -- Statements of Income...........................................................   S-2
      -- Statements of Cash Flows.......................................................   S-3
</TABLE>

Schedules not listed above have been omitted because they are not applicable or
are not required, or the information required to be set forth therein is
included in the Consolidated Financial Statements or Notes thereto.
---------------
* Incorporated by reference to the Executive Risk Inc. 1996 Annual Report to
  Stockholders; see Exhibit 13 to this Annual Report on Form 10-K.

                                       23
<PAGE>   26

                   EXECUTIVE RISK INC. (PARENT COMPANY ONLY)
          SCHEDULE II -- CONDENSED FINANCIAL INFORMATION OF REGISTRANT
                                 BALANCE SHEETS

<TABLE>
<CAPTION>
                                                                             DECEMBER 31,
                                                                         ---------------------
                                                                           1996         1995
                                                                         --------     --------
<S>                                                                      <C>          <C>
(In thousands)
ASSETS
  Fixed maturities available for sale..................................  $     --     $ 16,717
  Cash and short-term investments......................................       109          401
                                                                         --------     --------
       TOTAL CASH AND INVESTED ASSETS..................................       109       17,118
  Accrued investment income............................................                    263
  Intercompany receivable..............................................       815           --
  Investment in subsidiaries and equity investees......................   206,366      187,539
  Deferred income taxes................................................     3,275        1,888
  Other assets.........................................................     6,413        4,398
                                                                         --------     --------
       TOTAL ASSETS....................................................  $216,978     $211,206
                                                                         ========     ========

LIABILITIES
  Note payable to bank.................................................    70,000       25,000
  Intercompany payable.................................................        --        4,211
  Accrued expenses and other liabilities...............................     2,203        4,270
                                                                         --------     --------
       TOTAL LIABILITIES...............................................    72,203       33,481

STOCKHOLDERS' EQUITY
  Common Stock.........................................................       104          116
  Additional paid-in capital...........................................    93,651       87,228
  Unrealized gain on investments, net of tax...........................    18,382       19,156
  Currency translation adjustments.....................................      (186)          29
  Retained earnings....................................................    65,384       74,315
  Cost of shares in treasury...........................................   (32,560)      (3,119)
                                                                         --------     --------
       TOTAL STOCKHOLDERS' EQUITY......................................   144,775      177,725
                                                                         --------     --------
       TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY......................  $216,978     $211,206
                                                                         ========     ========
</TABLE>

                                       S-1
<PAGE>   27

                   EXECUTIVE RISK INC. (PARENT COMPANY ONLY)
          SCHEDULE II -- CONDENSED FINANCIAL INFORMATION OF REGISTRANT
                              STATEMENTS OF INCOME

<TABLE>
<CAPTION>
                                                                    YEAR ENDED DECEMBER 31,
                                                                -------------------------------
                                                                 1996        1995        1994
                                                                -------     -------     -------
<S>                                                             <C>         <C>         <C>
(In thousands)
REVENUES
  Net investment income.......................................  $   624     $   779     $    89
  Net realized capital gains..................................      503          --          --
                                                                -------     -------     -------
     TOTAL REVENUES...........................................    1,127         779          89

EXPENSES
  General and administrative expenses.........................    3,460       2,321       2,097
  Long-term incentive compensation............................      187       1,458       1,009
  Interest expense............................................    4,335       1,893       1,440
                                                                -------     -------     -------
     TOTAL EXPENSES...........................................    7,982       5,672       4,546
                                                                -------     -------     -------
     INCOME (LOSS) BEFORE TAXES AND EARNINGS OF
       SUBSIDIARIES...........................................   (6,855)     (4,893)     (4,457)
  Federal income tax benefit..................................   (2,543)     (2,100)     (1,473)
                                                                -------     -------     -------
     INCOME (LOSS) BEFORE EARNINGS OF
       SUBSIDIARIES...........................................   (4,312)     (2,793)     (2,984)
  Equity in earnings of subsidiaries..........................   32,417      28,079      22,224
                                                                -------     -------     -------
     NET INCOME...............................................  $28,105     $25,286     $19,240
                                                                =======     =======     =======
</TABLE>

                                       S-2
<PAGE>   28

                   EXECUTIVE RISK INC. (PARENT COMPANY ONLY)
          SCHEDULE II -- CONDENSED FINANCIAL INFORMATION OF REGISTRANT
                            STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
                                                                  YEAR ENDED DECEMBER 31,
                                                             ----------------------------------
                                                               1996         1995         1994
                                                             --------     --------     --------
<S>                                                          <C>          <C>          <C>
(In thousands)
OPERATING ACTIVITIES
  Net income...............................................  $ 28,105     $ 25,286     $ 19,240
  Adjustments to reconcile net income to net cash provided
     by
     operating activities:
     Amortization of bond premium..........................        16           36            4
     Equity in earnings of Subsidiaries....................   (32,417)     (28,079)     (22,224)
     Net realized gains on investments.....................      (503)
     Deferred income taxes.................................    (1,073)        (622)      (1,579)
     Other.................................................      (635)      (1,450)       1,341
     Change in:
       Accrued investment income...........................       263         (146)        (117)
       Intercompany receivable/payable.....................     6,737        3,099          597
       Accrued expenses and other liabilities..............       587        1,476        2,168
                                                             --------     --------     --------
          Net Cash Provided by (Used in) Operating
            Activities.....................................     1,080         (400)        (570)
INVESTING ACTIVITIES
  Purchase of investment securities........................    (1,379)     (10,481)      (5,354)
  Proceeds from sales of fixed maturities held for sale        17,661
  Contribution of capital to ERII..........................   (10,870)                  (12,000)
  Distributions from subsidiaries..........................    15,104       14,387        5,864
                                                             --------     --------     --------
          Net Cash Provided by (Used in) Investing
            Activities.....................................    20,516        3,906      (11,490)
FINANCING ACTIVITIES
  Proceeds from exercise of options........................       423          241
  Cost of repurchase of Common Stock.......................   (75,025)      (3,119)
  Placement fees and other.................................      (192)
  Repayment of note payable to bank........................   (25,000)
  Note payable to bank.....................................    70,000
  Loan arrangement fees....................................      (980)
  Proceeds from over-allotment option exercise.............     9,675
  Dividends paid on Common Stock...........................      (789)        (919)        (690)
  Proceeds from issuance of Common Stock...................                              11,160
  Proceeds from conversion of warrants.....................                               4,200
  Offering Costs...........................................                                (912)
  Dividends paid on Preferred Stock........................                              (1,031)
                                                             --------     --------     --------
          Net Cash (Used in) Provided by Financing
            Activities.....................................   (21,888)      (3,797)      12,727
                                                             --------     --------     --------
          Net (Decrease) Increase in Cash and Short-Term
            Investments....................................      (292)        (291)         667
Cash and short-term investments at beginning of period.....       401          692           25
                                                             --------     --------     --------
          Cash and Short-Term Investments at End of
            Period.........................................  $    109     $    401     $    692
                                                             ========     ========     ========
Supplemental Cash Flow Disclosures:
  Income taxes received (paid).............................  $    763     $    (70)    $    350
  Interest paid on debt....................................    (4,131)      (1,888)      (1,451)
</TABLE>

                                       S-3