UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D. C. 20549
                                    FORM 10-Q

(Mark One)
[X]      QUARTERLY REPORT UNDER SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE
         ACT OF 1934


                    For the quarter ended September 30, 1997


[ ]      TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
         EXCHANGE ACT OF 1934

For the transition period from  ____________ to  ____________

Commission File Number     0-8162
                           ------

                         ACCEL INTERNATIONAL CORPORATION
             (Exact name of registrant as specified in its charter)

                DELAWARE                                         31-0788334
          -----------------------------                          ----------
         (State or other jurisdiction of                     (I.R.S. Employer
          incorporation or organization)                    Identification No.)


 475 METRO PLACE NORTH, SUITE 100, DUBLIN, OHIO                    43017
-----------------------------------------------                   -------
(Address of principal executive offices)                        (Zip Code)

                                                        614-764-7000
                                                -----------------------------
                                               (Registrant's Telephone Number)


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

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

                               Title of each class
                          COMMON STOCK, $.10 PAR VALUE

Indicate by check mark if disclosure of delinquent  filers  pursuant to Item 405
of Regulations 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-Q or any amendment to this
Form 10-Q.
            -----

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


As of October 31, 1997, there were  8,622,742 shares of Common Stock, $.10 par
value per Share outstanding.        ---------

<PAGE>

                ACCEL INTERNATIONAL CORPORATION AND SUBSIDIARIES
                               September 30, 1997
                                      INDEX



PART I -- FINANCIAL INFORMATION

   Item 1.  Financial Statements                                      Page

               Unaudited Consolidated Balance Sheets
                  (September 30, 1997 and December 31, 1996)         1 -  2

               Unaudited Consolidated Statements of Operations
                  (Nine months ended September 30, 1997 and 1996)         3

               Unaudited Consolidated Statements of Common Stockholders'
                  Equity (Nine months ended September 30, 1997 and year
                  ended December 31, 1996)                                4

               Unaudited Consolidated Statements of Cash Flows
                  (Nine months ended September 30, 1997 and 1996)         5

               Notes to Unaudited Consolidated Financial Statements  6 - 11

   Item 2.  Management's Discussion and Analysis of Financial
               Condition and Results of Operations                  12 - 15


PART II -- OTHER INFORMATION

   Item 6.  Exhibits and Reports on Form 8-K                             16

   Signature                                                             16

<PAGE>

                ACCEL INTERNATIONAL CORPORATION AND SUBSIDIARIES

                      UNAUDITED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
                                                      September 30, December 31,
                                                            1997         1996
                                                       (Thousands of dollars)
<S>                                                      <C>            <C>
ASSETS

Investments:
   Investments available for sale, at fair value:
      Fixed maturities (cost: 1997--$49,862,000;
         1996--$58,889,000)                              $ 49,796       $ 58,281
      Equity securities (cost:  1997--$6,124,000;
         1996--$5,514,000)                                  6,126          5,511
      Short-term investments                                                               
         (cost:  1997--$19,925,000; 1996--$10,670,000)     19,958         10,703
   Other invested assets, at cost
      (fair value:  1997--$306,000; 1996--$346,000)           306            346
                                                         --------       --------
                                                           76,186         74,841

Cash                                                        1,113          3,331

Receivables:
   Premiums in process of transmittal, less
      allowance (1997--$258,000; 1996--$223,000)           10,355          7,286
   Amounts due from reinsurers,
      less allowance (1997 and 1996--$125,000)             28,362         11,138
   Recoverable federal income taxes                           129          1,019
                                                         --------       --------
                                                           38,846         19,443

Accrued investment income                                     644            652
Prepaid reinsurance premiums                               19,448         15,036
Reinsurance premium deposits                               26,710         42,615
Deferred policy acquisition costs                          30,362         30,946
Equipment--at cost, less accumulated
   depreciation (1997--$200,000;  1996--$162,000)             662            231
Leasehold improvements, less accumulated amortization
   (1997--$40,000; 1996--$26,000)                             138            152
Other assets:
   Cost in excess of fair value of net assets of
      subsidiaries at dates of acquisition ($4,448,000)
      less accumulated amortization                           657            716
   Funds held under reinsurance agreements                  6,036            406
   Other                                                      729            939
                                                         --------       --------
                                                            7,422          2,061
                                                         --------       --------

                                                         $201,531       $189,308
                                                         ========       ========
</TABLE>
                                                                     (Continued)

                                       1
<PAGE>

                ACCEL INTERNATIONAL CORPORATION AND SUBSIDIARIES

               UNAUDITED CONSOLIDATED BALANCE SHEETS--(CONTINUED)
<TABLE>
<CAPTION>
                                                      September 30, December 31,
                                                            1997         1996
                                                       (Thousands of dollars)
<S>                                                      <C>            <C>
    LIABILITIES AND COMMON STOCKHOLDERS' EQUITY

    Policy reserves and liabilities:
       Unearned premium reserves                        $ 83,980       $ 81,820
       Insurance claims                                   26,884         25,256
       Other                                                   5              7
                                                        --------       --------
                                                         110,869        107,083
    Other liabilities:     
       Funds held under reinsurance agreements             2,940          2,920
       Deferred reinsurance commissions                   14,537         13,902
       Amounts due reinsurers                             12,625          6,133
       Notes payable                                      15,000         15,000
       Commissions payable                                 5,550          5,163
       Accounts payable and other liabilities              2,655          2,788
       Federal income taxes:
           Current                                           -               -
           Deferred                                        4,089          4,678
                                                        --------       --------
                                                          57,396         50,584
                                                        --------       --------
                                                         168,265        157,667
                                                        --------       --------
        
    Redeemable preferred stock:
       Authorized shares--1,000,000;
         no issued or outstanding shares                    -                -
      
    Common stockholders' equity:
       Common stock, $.10 par value
         Authorized shares (1997 and 1996--15,000,000)
         Issued shares (1997--9,406,162; 1996--9,401,162)    941            940
       Additional paid-in capital                         32,520         32,507
       Retained earnings                                   6,435          5,403
       Less 797,420 treasury shares at cost               (6,599)        (6,599)
       ESOP loan                                            -               (32)
       Net unrealized depreciation on investment
          securities                                         (31)          (578)
                                                         --------       --------
                                                          33,266         31,641
                                                         --------       --------
                                                       $ 201,531      $ 189,308
                                                       ==========     ==========
<FN>
     See notes to unaudited consolidated financial statements.                            
</FN>
</TABLE>

                                       2
<PAGE>

                ACCEL INTERNATIONAL CORPORATION AND SUBSIDIARIES

                 UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>

                                                                 Three Months Ended               Nine Months Ended
                                                                   September 30,                     September 30,
                                                                1997             1996             1997             1996
                                                                  (Thousands of dollars, except per share data)
<S>                                                       <C>             <C>              <C>              <C>
REVENUE:
     Gross premiums written                                  $ 17,029         $ 15,288         $ 49,574         $ 49,152
     Less reinsurance ceded                                     6,117            3,185           16,255           12,439
                                                          ------------    -------------    -------------    -------------
        Net premiums written                                   10,912           12,103           33,319           36,713
     Decrease (increase) in unearned
            premium reserves                                      949            1,074            1,700           (1,974)
                                                          ------------    -------------    -------------    -------------
        Premiums earned                                        11,861           13,177           35,019           34,739
     Net investment income:
        Interest and dividends                                  1,074            1,218            3,405            3,277
        Realized gains (losses)                                    16              (48)              81              227
     Service fees on extended service
        contracts                                                 822              662            2,339            1,885
     Other income                                                  81            1,439              231            1,711
                                                          ------------    -------------    -------------    -------------
                                                               13,854           16,448           41,075           41,839
                                                          ------------    -------------    -------------    -------------
BENEFITS AND EXPENSES:
     Policy benefits                                            6,118            7,429           18,360           18,114
     Commissions and selling expenses                           5,240            5,556           16,438           17,611
     Reinsurance expense recovery                              (1,160)            (344)          (4,043)          (1,963)
     General and administrative                                 2,236            1,950            6,050            5,309
     Taxes, licenses and fees                                     480              689            1,570            1,560
     Interest                                                     356              489            1,069            1,577
     Decrease (increase) in deferred policy
        acquisition costs                                         180              305              584             (795)
                                                          ------------    -------------    -------------    -------------
                                                               13,450           16,074           40,028           41,413
                                                          ------------    -------------    -------------    -------------

        INCOME BEFORE FEDERAL INCOME
             TAXES AND EXTRAORDINARY ITEM                         404              374            1,047              426
Federal income taxes:
     Current expense                                              118              582              604            1,095
     Deferred benefit                                            (143)            (237)            (589)            (790)
                                                          ------------    -------------    -------------    -------------
                                                                  (25)             345               15              305
                                                          ------------    -------------    -------------    -------------

        INCOME BEFORE EXTRAORDINARY
            ITEM                                                $ 429             $ 29          $ 1,032            $ 121
Extraordinary item--gain on
     extinguishment of debt--Note B                                 -              131                -              131
                                                          ------------    -------------    -------------    -------------
        NET INCOME                                              $ 429            $ 160          $ 1,032            $ 252
                                                          ============    =============    =============    =============

 Per Common Share:
     Net income                                                $ 0.05           $ 0.03           $ 0.12           $ 0.05
                                                          ============    =============    =============    =============
Weighted average number of common
     shares outstanding                                     8,604,557        6,029,561        8,604,017        4,998,048
                                                          ============    =============    =============    =============
<FN>
See notes to unaudited consolidated financial statements
</FN>
</TABLE>

                                       3
<PAGE>
<TABLE>
                                          ACCEL INTERNATIONAL CORPORATION AND SUBSIDIARIES
                                  UNAUDITED CONSOLIDATED STATEMENTS OF COMMON STOCKHOLDERS' EQUITY
<CAPTION>
                                                                                                           Net
                                                                                                       unrealized
                                                Additional                    Common                  depreciation
                                       Common      paid-in     Retained  stock held in                on investment
                                        stock      capital     earnings     treasury     ESOP loan     securities          Net
                                    ----------   ----------   ----------   ----------    ----------    ----------    ----------
                                                                    (Thousands of dollars)
<S>                                 <C>          <C>          <C>          <C>           <C>           <C>           <C>
Balances at December 31, 1995       $     524    $  23,702    $   3,299    $  (6,599)    $    (161)    $    (205)    $  20,560
   Payments on ESOP loan                    -            -            -            -           129             -           129
   Change in net unrealized
      depreciation on
      investment securities                 -            -            -            -             -          (373)         (373)
   Issuance of 110,000 shares of
      Common Stock under
      Common Stock Option Plan             11          223            -            -             -             -           234
   Issuance of 4,047,310 shares of
      Common Stock in conjuction
      with the Rights Offering and
      the Supplemental Offering           405        8,582            -            -             -             -         8,987
   Net income                               -            -        2,104            -             -             -         2,104
                                    ----------   ----------   ----------   ----------    ----------    ----------    ----------
Balances at December 31, 1996             940       32,507        5,403       (6,599)          (32)         (578)       31,641
   Payments on ESOP loan                    -            -            -            -            32             -            32
   Change in net unrealized
      depreciation on
      investment securities                 -            -            -            -             -           547           547 
   Issuance of 5,000 shares of
      Common Stock under
      Common Stock Option Plan              1           13            -            -             -             -            14
   Net income                               -            -        1,032            -             -             -         1,032
                                    ----------   ----------   ----------   ----------    ----------    ----------    ----------
Balances at September 30, 1997      $     941    $  32,520    $   6,435    $  (6,599)    $       -     $     (31)    $  33,266
                                    ==========   ==========   ==========   ==========    ==========    ==========    ==========

<FN>
See notes to unaudited consolidated financial statements.
</FN>
</TABLE>
                                       4
<PAGE>

                ACCEL INTERNATIONAL CORPORATION AND SUBSIDIARIES

                 UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
                                                 Nine Months Ended September 30,
                                                            1997           1996
                                                    -------------  -------------
                                                         (Thousands of dollars)
<S>                                                   <C>            <C>
OPERATING ACTIVITIES:
 Net income                                           $    1,032     $      121
 Adjustments to reconcile net income to net
  cash used in operating activities:
   Change in premiums receivable                          (3,104)        (8,667)
   Change in accrued investment income                         8            (22)
   Change in prepaid reinsurance premiums                 (4,412)        (2,157)
   Change in funds held under reinsurance
    agreements                                            (5,610)        (3,066)
   Change in unearned premium reserves                     2,160          5,365
   Change in insurance claim reserves                      1,628          1,052
   Change in amounts due reinsurers
    and amounts due from reinsurers                      (10,732)       (21,088)
   Change in other assets, other liabilities
    and accrued income taxes                                 928            206
   Interest paid in kind                                       -            403
   Accrual of discount on bonds                             (175)          (179)
   Amortization of premium on bonds                           80             77
   Amortization of deferred policy acquisition
    costs                                                 15,190         15,537
   Policy acquisition costs deferred                     (14,606)       (16,330)
   Reinsurance commissions earned                        (10,973)       (16,846)
   Reinsurance commissions received                       11,608         19,688
   Provision for depreciation and amortization               198            225
   Net realized gains on investments                         (81)          (227)
                                                    -------------  -------------
NET CASH USED IN OPERATING ACTIVITIES
 EXCLUDING EXTRAORDINARY ITEM                            (16,861)       (25,908)
  Extraordinary Item                                           -            131
                                                    -------------  -------------
NET CASH USED IN OPERATING ACTIVITIES                    (16,861)       (25,777)
INVESTING ACTIVITIES:
 Sale of investments available for sale                   23,605          9,566
 Purchase of investments available for sale              (24,357)       (21,739)
 Sale of property occupied by the Company                      -          3,298
 Other, net                                                 (556)          (350)
                                                    -------------  -------------
NET CASH USED IN INVESTING ACTIVITIES                     (1,308)        (9,225)
FINANCING ACTIVITIES:
 Payment on ESOP loan                                         32            112
 Repayment of notes payable                                    -           (731)
 Issuance of Common Stock under Stock Option Plan             14            257
 Issuance of Common Stock under Rights Offering                -          3,263
 Change in reinsurance premium deposits                   15,905         26,452
                                                    -------------  -------------
NET CASH PROVIDED BY FINANCING ACTIVITIES                 15,951         29,353
                                                    -------------  -------------
 NET DECREASE IN CASH                                     (2,218)        (5,649)
Cash at beginning of year                                  3,331          5,039
                                                    -------------  -------------
CASH (OVERDRAFT) AT END OF PERIOD                     $    1,113     $     (610)
                                                    =============  =============

Supplemental schedule of non-cash financing activities:
 cancellation of Subordinated Notes as
 consideration for the purchase of
 Common Stock--Note B                                          -          5,703
                                                    =============  =============
<FN>
See notes to unaudited consolidated financial statements.
</FN>
</TABLE>
                                       5
<PAGE>

                ACCEL INTERNATIONAL CORPORATION AND SUBSIDIARIES

              NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

                               SEPTEMBER 30, 1997


NOTE A--SIGNIFICANT ACCOUNTING POLICIES

Basis  of  Presentation:   The  accompanying  unaudited  consolidated  financial
statements  of  ACCEL  International   Corporation  ("ACCEL")  and  subsidiaries
(collectively  referred  to  herein as the  "Company")  have  been  prepared  in
accordance with generally accepted  accounting  principles for interim financial
information and with the  instructions to Form 10-Q and Article 10 of Regulation
S-X which,  as to the insurance  company  subsidiaries,  differ in some respects
from statutory  accounting  practices prescribed or permitted by state insurance
departments.  Accordingly,  they  do not  include  all of  the  information  and
footnotes  required by generally  accepted  accounting  principles  for complete
financial statements.  In the opinion of management,  all adjustments considered
necessary for a fair presentation have been included.  Operating results for all
periods  presented  are not  necessarily  indicative  of the results that may be
expected for the full year. For further  information,  refer to the consolidated
financial  statements  and footnotes  thereto  included in the Company's  Annual
Report on Form 10-K for the year ended December 31, 1996.

Principles of Consolidation:  The accompanying  unaudited consolidated financial
statements include the accounts of ACCEL and its wholly-owned subsidiaries.  All
significant  intercompany  accounts and transactions have been eliminated in the
unaudited consolidated financial statements.

Description of Business:  ACCEL is an insurance holding company  incorporated in
Delaware  in  June  1978  as the  successor  to an  Ohio  corporation,  formerly
Acceleration Corporation, organized in 1969. The Company has been engaged in the
sale and  underwriting of credit life and credit accident and health  insurance,
extended  service  contracts,  commercial  auto  and  other  specialty  casualty
products.  The credit insurance and extended service contract  products continue
to be offered to consumers,  principally through automobile  dealers,  financial
institutions and other business  entities.  The specialty  casualty products are
offered through general agents. The Company is subject to competition from other
insurers throughout the states in which it writes business.  The Company is also
subject to  regulation  by the  insurance  departments  of states in which it is
licensed, and undergoes periodic examinations by those departments.

Accounting  Estimates:   In  preparing  the  unaudited   consolidated  financial
statements, management is required to make estimates and assumptions that affect
the reported amounts of assets and liabilities and the disclosures of contingent
assets and  liabilities as of the date of the unaudited  consolidated  financial
statements  and revenues and expenses for the reporting  period.  Actual results
could differ significantly from those estimates.

The most significant estimates include those used in determining deferred policy
acquisition  costs and the liability for unearned premium reserves and insurance
claims.  Although some  variability is inherent in these  estimates,  management
believes the amounts  provided  are  adequate.  The  estimates  are  continually
reviewed and adjusted as necessary.  Such adjustments are generally reflected in
current operations.

Investments:  The Company classifies its fixed maturity and equity securities as
available for sale, therefore these securities are carried at fair value and the
unrealized  appreciation or depreciation is reported as a separate  component of
common stockholders' equity after giving effect to applicable income taxes.

Short-term  investments,  which  include U. S. Treasury  securities,  commercial
paper and  certificates of deposit are carried at fair value which  approximates
cost.

Other invested assets are carried at cost which approximates fair value.

Realized  gains and losses on the  disposal of  investments  are  determined  by
specific   identification  and  are  included  in  the  unaudited   consolidated
statements of operations.

                                       6
<PAGE>

                ACCEL INTERNATIONAL CORPORATION AND SUBSIDIARIES

        NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS-(CONTINUED)


NOTE A--SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)

When an other  than  temporary  decline  in value is  recognized,  the  specific
investment is carried at estimated  realizable value and its original book value
is reduced to reflect such impairment of the investment. Such reductions in book
value are reflected in realized  investment  losses for the period in which they
were written down.  For mortgage  backed  securities,  when the present value of
estimated  future cash flows  discounted  at a risk-free  rate of return is less
than the cost basis of the  investment,  an  impairment  loss is  recognized  by
writing the investment down to its fair value.

Deferred  Policy  Acquisition  Costs:  The costs  (principally  commissions  and
certain  expenses  of  policy  issuance)  of  acquiring  or  renewing  insurance
business,  all of which vary with and are directly  related to the production of
business,  have been  deferred.  These  deferred  policy  acquisition  costs are
amortized  in  a  manner  related  to  the   recognition  of  premiums   earned.
Substantially  all such deferred costs are amortized within a four-year  period.
Anticipated  investment  income is considered in determining  recoverability  of
deferred costs.

Equipment  and  Depreciation:  Equipment  is  carried  at cost less  accumulated
depreciation.  Depreciation is provided using the  straight-line  method over an
estimated useful asset life of five years.

Leasehold  Improvements:   Leasehold  improvements  are  carried  at  cost  less
accumulated  amortization.  Amortization  is  provided  using the  straight-line
method over the term of the five year lease.

Goodwill  Amortization:   Cost  in  excess  of  fair  value  of  net  assets  of
subsidiaries  at  dates  of  acquisition  is being  amortized  primarily  over a
thirty-five  year period.  It is the Company's policy to account for goodwill at
the lower of  amortized  cost or fair  value.  On an ongoing  basis,  management
reviews the valuation and amortization of its goodwill.

Premium Income  Recognition  and Unearned  Premium  Reserves:  Unearned  premium
reserves on credit life and credit accident and health  insurance are calculated
primarily under the "Rule of 78's Method", which results in premium income being
recognized  in  decreasing  proportions  over the terms of the  policies,  which
approximates the pattern of policy benefits incurred.

Unearned  premium  reserves on the extended  service  contracts are based on the
historical  emergence pattern of claims.  The Company's primary liability on new
car contracts exists subsequent to the expiration of manufacturers'  warranties.
This method  results in premium  being  recognized  in direct  proportion to the
emergence of benefits on these contracts.

Unearned  premium  reserves on all other  property  and  casualty  products  are
calculated on the pro rata method.

Insurance  Claims:  The  liabilities for insurance  claims are determined  using
statistical  analyses  and  represent  estimates of the ultimate net cost of all
reported  and  unreported  claims  that are  unpaid  at year  end.  Considerable
variability  is inherent in such estimates and actual results will likely differ
from those estimates.

Federal Income Taxes:  ACCEL and its  subsidiaries  file a consolidated  federal
income  tax  return.  The  provision  for  income  taxes is based on income  for
financial reporting purposes,  after permanent differences.  Deferred tax assets
and liabilities are recognized for the future tax  consequences  attributable to
differences  between the financial statement carrying amounts of existing assets
and liabilities and their respective tax bases and operating loss and tax credit
carryforwards.  Deferred tax assets and  liabilities  are measured using enacted
tax rates  expected  to apply to  taxable  income  in the  years in which  those
temporary  differences  are  expected to be  recovered  or  settled.  Under this
method,  the effect on deferred  tax assets and  liabilities  of a change in tax
rates is recognized  in income in the period that  includes the enactment  date.
Valuation  allowances are established  when necessary to reduce the deferred tax
assets to the amounts expected to be realized.

Reinsurance:  Reinsurance  premiums ceded and  reinsurance  recoveries on policy
benefits  incurred are deducted from the respective income and expense accounts.
Assets and  liabilities  related to  reinsurance  ceded are  reported on a gross
basis.  Amounts  related to  reinsurance  contracts,  where it is not reasonably
possible for the reinsurer to realize a significant  loss, are recorded based on
the deposit accounting method.

                                       7
<PAGE>

                ACCEL INTERNATIONAL CORPORATION AND SUBSIDIARIES

        NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS-(CONTINUED)


NOTE A--SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)

Deferred  Reinsurance  Commissions:  Commissions  and ceding  fees  received  in
connection with premiums ceded are deferred and amortized in a manner related to
the  recognition of premiums  earned.  Substantially  all such  commissions  and
ceding  fees are  amortized  within a  four-year  period.  Earned  ceding  fees,
commissions  and  experience   refunds  are  reported  as  reinsurance   expense
recoveries in the unaudited consolidated statements of operations.

Stock Option  Plans:  Prior to January 1, 1996,  the Company  accounted  for its
stock option plans in accordance  with the  provisions of Accounting  Principles
Board ("APB")  Opinion No. 25,  Accounting  for Stock Issued to  Employees,  and
related interpretations.  As such, compensation expense would be recorded on the
date of grant only if the current market price of the underlying  stock exceeded
the  exercise  price.  On January 1, 1996,  the Company  adopted  the  Financial
Accounting   Standards   Board's  (FASB)  Statement  No.  123,   Accounting  for
Stock-Based  Compensation,  which permits  entities to recognize as expense over
the  vesting  period  the fair  value of all  stock-based  awards on the date of
grant. Alternatively, FASB No. 123 also allows entities to continue to apply the
provisions  of APB Opinion No. 25 and provide pro forma net income and pro forma
earnings per share disclosures for employee stock option grants made in 1995 and
future years as if the fair-value-based  method defined in FASB No. 123 had been
applied.

Earnings Per Common  Share:  Net income per common  share is computed  using the
weighted  average  number of common shares  outstanding  during the period.  The
inclusion of common stock equivalents (options) would not be dilutive.

Reclassifications:  Certain amounts in the 1996 unaudited consolidated financial
statements have been reclassified to conform with the 1997 presentation.


NOTE B--NOTES PAYABLE

In 1991,  ACCEL  issued  $5,848,000  of  subordinated  notes (the  "Subordinated
Notes").  The Subordinated  Notes had a nine-year term with no principal payable
until maturity, and bore interest at 10.125% per annum. Effective June 30, 1992,
ACCEL  amended  the notes to permit the  issuance  of  additional  notes for the
purpose of making interest payments,  provided, however, that ACCEL could at its
option pay cash in lieu of issuing  additional notes in any denomination of less
than $1,000.  As a result,  ACCEL issued  additional notes totaling $403,000 for
the nine months ended September 30, 1996.

Of the Subordinated  Notes described  above, a significant  portion were held by
Chase Insurance Holdings Corporation  ("CIHC"), a company related through common
ownership by a stockholder and director of the Company.

On July 25, 1996, the Company commenced an offering of  non-transferable  rights
(the "Rights Offering") to stockholders of record as of June 18, 1996. Under the
provisions of the Rights Offering,  the Company permitted CIHC and its affiliate
to tender the principal amount of their  Subordinated  Notes for cancellation as
consideration  (in lieu of cash) for the  purchase  of  shares  of common  stock
pursuant to the Rights  Offering.  On August 23,  1996,  CIHC and its  affiliate
tendered  $5,619,046  principal  amount  of  their  Subordinated  Notes  plus an
additional  $83,759 of accrued  interest  thereon  under the terms of the Rights
Offering. At the conclusion of the offering,  CIHC and its affiliate had reduced
their holding of Subordinated Notes to $0.

In a separate  transaction,  the Company retired  $731,533  principal  amount of
Subordinated  Notes  held by an  unrelated  third  party  for  consideration  of
$600,000.  The Company  recognized an extraordinary  gain on this transaction of
$131,533  during the third quarter of 1996. No federal income tax was recognized
related to this gain due to the consolidated tax position of the Company.

The result of the two aforementioned  transactions was to retire all outstanding
Subordinated Notes.

                                       8
<PAGE>

                ACCEL INTERNATIONAL CORPORATION AND SUBSIDIARIES

        NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS-(CONTINUED)


NOTE B--NOTES PAYABLE  (CONTINUED)

On December  29, 1995,  the Company  issued  senior  notes (the "Senior  Notes")
totaling  $16,500,000  at 9.50%,  maturing on April 1, 2001.  The proceeds  from
these notes were used to retire the loan  outstanding  under an existing  credit
agreement and to liquidate an  intercompany  loan between ACCEL and an insurance
subsidiary.  In addition,  as of January 1, 1996,  Acceleration  Life  Insurance
Company  ("ALIC")  entered into a  reinsurance  agreement  with an  unaffiliated
company to reinsure  the majority of the in-force  credit  business.  The Senior
Notes  are  payable  to the same  unaffiliated  company  which is a party to the
reinsurance  agreement dated January 1, 1996. This agreement is structured such,
that as future profits emerge on this block of business,  these profits are held
by the  reinsurance  company,  and ultimately  applied to pay interest on and to
redeem the Senior Notes. This is accomplished by the following transactions. The
reinsurance company distributes profits to ALIC as periodically agreed to by the
reinsurance  company and ALIC. ALIC then, subject to the Department of Insurance
of the State of Ohio (Ohio Department) approval, dividends funds to ACCEL. ACCEL
then uses these funds to redeem a portion of the senior  notes and the  interest
thereon. Profits in excess of the amount required to retire the Senior Notes are
to be returned to ALIC from the reinsurer.  As of December 31, 1996,  $1,500,000
of the  profits on this block of business  were  released to ALIC in the form of
the  aforementioned  Senior Notes.  These Senior Notes were retired on September
30, 1997.  These  transactions  resulted in a balance of  $15,000,000  of Senior
Notes outstanding as of September 30, 1997 and December 31, 1996.


NOTE  C--REINSURANCE

On  January  1,  1996 the  Company  terminated  its then  existing  quota  share
reinsurance  agreement and elected to recapture the  liabilities  subject to the
treaty.  The liabilities  recaptured  thereunder were then available for cession
under the treaty  described  below.  The  unearned  premium  reserves  and claim
liabilities recaptured were $29,753,000 and $8,424,000, respectively.

Concurrent  with  this  termination,  the  Company  entered  into a  reinsurance
agreement with a different  unaffiliated  reinsurer  (which is also the buyer of
the Senior Notes  discussed in Note B) to reinsure a substantial  portion of the
in-force credit life and accident and health insurance  business,  including the
amounts  recaptured.  This  agreement is structured in such a way that as future
profits emerge on this block of business, a substantial portion of the Company's
share of the  profits  will be used over the next four to five years to pay fees
and interest to the  reinsurer  and redeem the new Senior  Notes of  $16,500,000
(see Note B). In connection  with this agreement,  approximately  $40,000,000 of
assets were  transferred  to the reinsurer on December 29, 1995, as agreed to by
all parties.  The unearned  premium  reserves and liability for insurance claims
subject to cession under this treaty  approximated  $48,616,000  and $9,919,000,
respectively, as of January 1, 1996.

The Company also has an agreement in place which covers a substantial portion of
its credit insurance business produced in 1996 and 1997. This agreement contains
an experience  adjustment  computation that results in the ultimate cost of this
agreement  being a stated  percentage  related  to the  business  covered by the
agreement.  The Company  ultimately  retains a substantial part of the insurance
risk, the underwriting income or loss and the investment income on net funds.

The Company  determined  that deposit  accounting is the  appropriate  method of
accounting  for this  agreement  since  it is not  reasonably  possible  for the
reinsurer to realize a  significant  loss from the  transaction.  The  unaudited
consolidated financial statements have been prepared on this basis.

                                       9
<PAGE>

                ACCEL INTERNATIONAL CORPORATION AND SUBSIDIARIES

        NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS-(CONTINUED)


NOTE C--REINSURANCE (CONTINUED)

The following  data  summarizes  certain  aspects of the  Company's  reinsurance
activity for the periods presented.

Premiums written and earned in 1997 and 1996 are summarized as follows:

                     WRITTEN                                 EARNED
       ------------------------------------ ------------------------------------
                            Period Ended September 30
       Nine Months Ended Three Months Ended Nine Months Ended Three Months Ended
            1997     1996     1997     1996     1997     1996     1997     1996
            ----     ----     ----     ----     ----     ----     ----     ----
                             (Thousands of dollars)

Direct   $49,070  $45,214  $15,978  $13,930  $43,950  $38,922  $15,880  $13,775
Assumed      504    3,938    1,051    1,358    3,467    4,864    1,241    2,132
Ceded     16,255   12,439    6,117    3,185   12,398    9,047    5 260    2,730
          ------   ------  -------  -------  -------  -------  -------  -------
Net      $33,319  $36,713  $10,912  $12,103  $35,019  $34,739  $11,861  $13,177
         =======  =======  ======= ========  =======  =======  =======  =======


Policy benefits incurred in 1997 and 1996 are summarized as follows:

             Nine Months Ended September 30     Three Months Ended September 30
                         1997        1996              1997         1996
                             (Thousands of dollars)
Direct                $23,031     $15,125           $ 9,058      $ 6,321
Assumed                 2,350       2,993               805        1,124
Ceded                   7,021           4             3,745           16
                      -------     -------           -------      -------
Net policy benefits   $18,360     $18,114           $ 6,118      $ 7,429
                      =======     =======           =======      =======


NOTE D--COMMITMENTS AND CONTINGENCIES

In May 1996, the  Liquidation  Bureau of the New York  Department  ("Liquidation
Bureau"), acting on behalf of the New York Property/Casualty  Insurance Security
Funds (the  "Guaranty  Fund"),  during a meeting  with  Company  representatives
informally  advised the Company that on behalf of the Guaranty  Fund it intended
to seek  indemnification or reimbursement  from Acceleration  National Insurance
Company  ("ANIC")  for  claims  paid by the  Guaranty  Fund to Galaxy  Insurance
Company ("Galaxy", a subsidiary of the Company),  insureds on policies which may
have been covered by certificates of suretyship  ("Certificates") which ANIC had
issued with respect to certain Galaxy insurance policies. The Liquidation Bureau
has  provided  some  information  in  response  to  the  Company's  request  for
accounting data and other  information with respect to the Liquidation  Bureau's
analysis of the Guaranty Fund's right to indemnification;  however,  the Company
is not yet able to quantify the  magnitude of the potential  claim,  if any, for
indemnification  or  reimbursement.  The Company has taken the position that the
Guaranty Fund has no right to seek  indemnification  unless Galaxy  insureds who
hold properly  issued  Certificates  have executed  assignments and evidences of
subrogation in accordance with the terms of the Certificates. Even if any Galaxy
insured  properly  made such a claim  directly  to ANIC,  the  Company  has been
advised by counsel  that if ANIC paid any such  claim,  it would have the right,
under  assignment and subrogation  agreements  with its insureds,  to assert all
rights that the  insureds  could have  asserted to recover the loss amounts from
any other source, including the Guaranty Fund.

The  Company  intends  to fully  investigate  each claim  which the  Liquidation
Bureau,  acting on behalf of the Guaranty Fund,  formally asserts is entitled to
the benefits of a Certificate to determine whether such Certificate was properly
endorsed by ANIC and issued  with proper  authority  and if so,  whether  proper
agreements,  assignments  and evidences of subrogation  have been executed.  The
Company  intends  to  vigorously  defend  any  claims  for   indemnification  or
reimbursement  made by the Liquidation  Bureau,  on behalf of the Guaranty Fund,
with respect to the  Certificates.  Although the Company is not in a position to
estimate  the  magnitude  of  the  potential  claims  for   indemnification   or
reimbursement,  it does not believe that the ultimate  resolution of such claims
will have a material  adverse  effect on the  financial  condition or results of
operations of the Company.  . In early 1997, the Liquidation Bureau requested of
the  Company's'  counsel  the basis for the  position  taken by the  Company.  A
written analysis  supporting the Company's  position was subsequently  issued to
the Liquidation Bureau.

                                       10
<PAGE>

                ACCEL INTERNATIONAL CORPORATION AND SUBSIDIARIES

        NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS-(CONTINUED)

NOTE E--SALE OF AUTO AFTER-MARKET PRODUCT GROUP

On August 13,  1997,  ACCEL  announced  it had reached an agreement in principle
pursuant to which ACCEL would sell its auto aftermarket product group along with
the stock of its Acceleration  Life Insurance  Company (ALIC) subsidiary and two
other  subsidiaries to Frontier Insurance Group, Inc. On October 27, 1997, ACCEL
announced  it had signed  definitive  agreements  to sell its auto  after-market
product  group  along with the stock of  Acceleration  Life  Insurance  Company,
Dublin  International  Limited and Acceleration  National Service Corporation to
Frontier  Insurance  Group,  Inc. for $40.5 million in cash. The  transaction is
expected to close on or about  December  31, 1997 and is subject to  stockholder
approval and the receipt of applicable regulatory approvals.

                                       11
<PAGE>

                MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
                       CONDITION AND RESULTS OF OPERATIONS

                   Operating Results for the Nine Months Ended
                           September 30, 1997 and 1996

Operating Results

The income  before  federal  income  taxes and  extraordinary  item for the nine
months ended September 30, 1997 was $1,047,000 compared to $426,000 for the same
period in 1996. The income before federal  income taxes and  extraordinary  item
for the three months ended September 30, 1997 was $404,000  compared to $374,000
for the same period in 1996. The Company's three primary product lines;  credit,
extended   service   contracts  and  commercial   auto  all  produced   positive
underwriting  margins in the nine months of 1997. Loss ratios for these products
were at or below targeted levels.

The  Company's  new Property  and  Casualty  programs  continued  their  growth,
producing  $21,468,000 of annualized premium in the nine months of 1997 compared
to $14,300,000 in the nine months of 1996. These programs,  primarily Commercial
Auto,  have now matured to the point  where they are  generating  a  significant
contribution to the Company's financial results.

The Company's general and administrative  expenses have increased by $741,000 or
13.95% in 1997 compared to 1996.  These  expenses are being incurred in order to
prepare  the  Company to add  additional  product  lines and to enhance  current
offerings.


Revenue

Premium  writings  for the nine  months of 1997 were $49.6  million  compared to
$49.2  million  for the nine  months  of 1996.  Premiums  written  increased  by
$1,072,000 for the extended  service  contract program and by $7,168,000 for the
new property and casualty programs. These increases were offset by a decrease in
credit  premium  written  of  $7,368,000.  The  decrease  in credit  premium  is
attributable to the termination of a joint marketing  agreement  covering credit
business  written  in the  commonwealth  of  Pennsylvania  in July  1996 and the
Company's withdrawal from the state of Michigan in November 1996.


Liquidity and Capital Resources

The Company's  cash flows from  operations  have generally been adequate for its
current operating needs. The Company's credit insurance policy terms and related
liabilities  are  generally  limited  to a  four-year  period  during  which the
consumer makes payments on the loan. The Company's liability on extended service
contracts  typically  extends for either  one-year  or  five-year  periods.  The
Company's long haul trucking and charter bus business generally is written for a
term of one year with the casualty claim related  liabilities  extending  beyond
that  period.  The Company,  therefore,  maintains  liquidity in its  investment
portfolio  to  correspond  with  the  liabilities  outstanding  on its  lines of
business.  At September 30, 1997, the estimated  duration of the Company's fixed
income investment portfolio was 2.8 years while the estimated liability duration
was  approximately  3.5 years.  Currently,  an interest  rate change of 1% would
impact the fair value of the fixed maturity  portfolio and stockholders'  equity
by a decline  of  approximately  $1.9  million  if  interest  rates  rose and an
increase of approximately $1.9 million if interest rates declined.

The Company's  "available  for sale" fixed  maturity  portfolio at September 30,
1997 and  1996  includes  mortgage-backed  securities,  collateralized  mortgage
obligation securities and asset-backed  collateralized  securities. The mortgage
and  asset-backed  securities  are  subject to risks  associated  with  variable
prepayments.  As such, those securities may have a different actual maturity and
yield than  planned at the time of  purchase.  The degree to which a security is
susceptible  to either gains or losses is influenced by the  difference  between
its  amortized  cost  and par  value,  relative  sensitivity  of the  underlying
mortgages  to  prepayment  risk in a  changing  interest  rate  environment  and
relative priority of the securities in the overall securitization.

The  Company  limits the  extent of its risks on fixed  maturity  securities  by
generally  avoiding   securities  whose  cost  significantly   exceeds  par,  by
purchasing   securities   which  are  backed  by  stable   collateral,   and  by
concentrating  on securities that are either planned  amortization or sequential
pay classes. The collateralized mortgage obligations and asset backed securities
owned have primarily short to intermediate average lives. At September 30, 1997,
the Company did not have a  significant  amount of higher risk mortgage or asset
backed securities.  There are negligible default risks on the mortgage and asset
backed  security  portfolios  as a whole as the vast  majority of the assets are
either guaranteed by U. S. government-sponsored entities or are supported in the
securitization  structure  by junior  securities  enabling the assets to achieve
high investment grade status.

                                       12
<PAGE>

Ohio domiciled  insurance  companies are subject to Ohio law which regulates the
ability of  insurance  companies to pay  dividends.  The  regulation  limits the
annual  dividend or  distribution of an insurer to the greater of (1) net income
of the  previous  year or (2)  10% of  unassigned  surplus  as of the end of the
previous  year.  In addition,  all  dividends  must come from earned  surplus to
qualify as a  non-extraordinary  dividend.  Amounts  greater  than this would be
considered  extraordinary  dividends and could not be paid without permission of
the Ohio  Department.  Based on this  regulation,  ALIC could pay a dividend  of
$1,543,315  without  Ohio  Department  approval  to ACCEL in 1997 and ANIC would
require Ohio  Department  approval to pay any dividend to ACCEL during 1997.  On
May 8, 1997, ALIC paid a cash dividend to ACCEL in the amount of $1,500,000.  On
September  30,  1997,  ALIC,  with the approval of the Ohio  Department,  paid a
dividend of $1,678,125 to ACCEL.  This  dividend  consisted of an  extraordinary
portion of $1,634,810 and an ordinary portion of $43,315.

The Company  will monitor its current and future debt  service  requirements  to
coincide with cash flow availability. In 1996, the Company used a portion of the
proceeds from a Rights  Offering and the payment from a judgment  entered in its
favor in a legal  proceeding  (see Rights  Offering and  Discontinued  Realtor's
Errors and  Omissions  Program  under  Certain  Events) to repay  $4,296,000  in
advances received in 1992 and 1993 from ACCEL's subsidiaries.  These outstanding
advances were eliminated in consolidation.

On July 25, 1996, the Company commenced an offering of  non-transferable  rights
to stockholders of record as of June 18, 1996 (see Rights Offering under Certain
Events).  The  Rights  Offering  concluded  on  August  28,  1996 and  generated
$3,261,780 in cash proceeds.  A supplemental  offering to employees,  agents and
customers  concluded  on  September  30,  1996 and  generated  $141,862  in cash
proceeds of which  $113,355 had been  received by the Company as of December 31,
1996.  The  cash  proceeds  from  these   offerings  have  been  used  to  repay
intercompany  advances  ($2,647,000),  for the redemption of Subordinated  Notes
which were not tendered in the Rights  Offering  ($600,000) (see "Note B" in the
Notes to Unaudited Consolidated Financial Statements), and for general corporate
purposes.

Also, under the provisions of the Rights Offering,  the Company  permitted Chase
Insurance  Holdings  Corporation  ("CIHC")  and its  affiliates  to  tender  the
principal  amount  of their  Subordinated  Notes  (See  "Note B" in the Notes to
Unaudited  Consolidated  Financial Statements) for cancellation as consideration
(in lieu of cash) for the  purchase  of shares of common  stock  pursuant to the
Rights Offering. On August 23, 1996, CIHC and its affiliates tendered $5,619,046
principal  amount of their  Subordinated  Notes  plus an  additional  $83,759 of
accrued  interest  thereon  under  the  terms  of the  Rights  Offering.  At the
conclusion of the offering,  CIHC and its affiliate had reduced their holding of
Subordinated Notes to $0.

In  a  separate   transaction,   ACCEL  retired  $731,533  principal  amount  of
Subordinated  Notes  held by an  unrelated  third  party  for  consideration  of
$600,000. ACCEL recognized an extraordinary gain on this transaction of $131,533
during the third quarter of 1996. No federal income tax was  recognized  related
to this gain due to the current  consolidated  tax position of the Company.  The
result of the two  aforementioned  transactions  was to retire  all  outstanding
Subordinated Notes.

On December 29, 1995, the Company  issued new senior notes (the "Senior  Notes")
totaling  $16,500,000  at 9.50%,  maturing on April 1, 2001.  The proceeds  from
these notes were used to retire the loan  outstanding  under an existing  credit
agreement  (see  "Note  B" in the  Notes  to  Unaudited  Consolidated  Financial
Statements) and to liquidate an intercompany loan between ACCEL and an insurance
company  subsidiary.  In  addition,  as of January 1, 1996,  ALIC entered into a
reinsurance  agreement  with an  unaffiliated  company to reinsure  its in-force
credit business.  The Senior Notes are payable to the same unaffiliated  company
which is a party to the  reinsurance  agreement  dated  January  1,  1996.  This
agreement is structured  such,  that as future  profits  emerge on this block of
business,  these profits are held by the  reinsurance  company,  and  ultimately
applied to pay interest on and to redeem the Senior Notes.  This is accomplished
by the following  transactions.  The reinsurance  company distributes profits to
ALIC as periodically  agreed to by the reinsurance  company and ALIC. ALIC then,
subject to Ohio Department  approval,  dividends funds to ACCEL. ACCEL then uses
these funds to redeem a portion of the senior  notes and the  interest  thereon.
Profits in excess of the amount  required  to retire the Senior  Notes are to be
returned to ALIC from the reinsurer.  As of December 31, 1996, $1,500,000 of the
profits  on this  block of  business  were  released  to ALIC in the form of the
aforementioned  Senior Notes issued by ACCEL. This release resulted in a balance
of $15,000,000 of Senior Notes outstanding as of September 30, 1997 and December
31, 1996.

ACCEL's Board of Directors  approved an Employee  Stock  Ownership Plan ("ESOP")
during 1989. In 1990,  the ESOP entered into an agreement with ALIC to borrow up
to $1,000,000  for the purchase of ACCEL's common stock.  Company  contributions
into the ESOP have been used to pay down the loan from ALIC and  release  shares
into the participants' accounts as the Company's matching contribution. The ESOP
purchased  136,887 shares (adjusted for the 1990 5% common stock dividend) under
this loan agreement with ALIC at a cost of $1,000,000. In addition to the shares
purchased under the loan agreement, the ESOP purchased 90,088 common shares at a
cost of $603,000. The loan bore interest at 10%.

                                       13
<PAGE>

The  unpaid  balance of the loan has been  reflected  as a  reduction  in common
stockholders' equity in the accompanying  unaudited consolidated balance sheets.
During the first quarter of 1997,  ACCEL made the final payment and retired this
loan.

The Company  currently has three  material lines of business that are in run-off
status:  the REO line, the farmowner's  multi-peril and ancillary  inland marine
products and the auto dealers' commercial multi-peril line.

The estimates for policy reserves are  continually  under review and adjusted as
necessary  as  experience  develops  or  new  information  becomes  known;  such
adjustments  are  included  in  current   operations.   These   liabilities  are
necessarily subject to the impact of future changes in claim severity, frequency
and  other  factors.  Although  considerable  variability  is  inherent  in such
estimates,  based on recent  evaluations  management  believes  that the current
level  of  policy  reserves  will  be  adequate  to  cover   anticipated   claim
liabilities. Accordingly, the ultimate amounts required for settlement of policy
benefits may vary  significantly  from the amounts  included in the accompanying
unaudited consolidated financial statements.

In June 1996, the Financial Accounting Standards Board ("FASB") issued Statement
of  Financial  Accounting  Standards  No. 125 -  Accounting  for  Transfers  and
Servicing of Financial  Assets and  Extinguishments  of Liabilities  (SFAS 125).
SFAS 125 provides accounting and reporting standards for transfers and servicing
of financial  assets and  extinguishments  of  liabilities.  The  accounting and
disclosure requirements of SFAS 125 are effective for transfers and servicing of
financial assets and extinguishments of liabilities occurring after December 31,
1996 and is to be applied prospectively.  Earlier or retroactive application was
not  permitted.  ACCEL  adopted SFAS 125 in 1997 and the impact on the unaudited
consolidated financial statements was not material.

In February 1997, the FASB issued  Statement of Financial  Accounting  Standards
No. 128 - Earnings  per Share (SFAS 128).  SFAS 128  establishes  standards  for
computing and presenting earnings per share (EPS). The accounting and disclosure
requirements  of SFAS 128 are  effective  for  financial  statements  issued for
periods ending after December 15, 1997,  including  interim  periods and earlier
adoption  is  not  permitted.   SFAS  128  also  requires   restatement  of  all
prior-period EPS data presented.  ACCEL will adopt SFAS 128 in December 1997 and
the impact on the unaudited consolidated financial statements is not expected to
be material.

Although the  cumulative  effects of inflation on premium growth cannot be fully
determined, increases in the retail price of automobiles have generally resulted
in increased  amounts  being  financed  which  constitute  the basis of premiums
charged for credit insurance.  Anticipated  increases in automobile repairs also
provide the primary basis for  increases in extended  service  contract  premium
rates.


Certain Events

Rights  Offering:  On July 25, 1996, the Company  commenced a Rights Offering to
stockholders  of record as of June 18, 1996. The  non-transferable  subscription
rights  entitled  stockholders  of record to receive one right for each share of
stock  held and each right  entitled  the holder  thereof  to  purchase  one and
one-half  shares of the common stock of the Company at a  subscription  price of
$2.25 per  share.  The  rights  expired on August 28,  1996.  No  commission  or
compensation  was paid in connection  with the Rights  Offering.  As part of the
Rights Offering,  the Company permitted the outstanding  Subordinated Notes held
by CIHC and its affiliates to be tendered for cancellation as consideration  (in
lieu of cash) for the purchase of shares of common stock  pursuant to the Rights
Offering.

A total of 3,984,260 shares were subscribed for under the Rights Offering. Total
consideration  of $8,964,585  consisted of $5,702,805 in Subordinated  Notes and
$3,261,780 in cash.

Subsequent to the Rights Offering, the Company commenced a Supplemental Offering
to employees, agents and customers which concluded on September 30, 1996. Shares
were offered  under this  Supplemental  Offering at $2.25 per share.  A total of
63,050 shares were  subscribed  for under this offering.  No soliciting  fees or
other  compensation  were paid in connection  with such  offering.  The net cash
proceeds  from these  offerings  have been used to repay  intercompany  advances
($2,647,000),  for the redemption of Subordinated  Notes which were not tendered
in the Rights Offering ($600,000) and for general corporate purposes.

                                       14
<PAGE>

Claims  Asserted by Liquidation  Bureau under  Certificates  of  Suretyship:  On
October  7,  1994,  the  Liquidation  Bureau  of the New  York  Department  (the
"Liquidation Bureau") took control of Galaxy pursuant to an order of liquidation
of the New York Supreme  Court.  Prior to the  liquidation  of Galaxy,  ANIC had
issued  certain  certificates  of  suretyship  ("Certificates")  with respect to
certain Galaxy insurance  policies each of which provided that ANIC would assume
the  responsibilities  of Galaxy  under the  specified  policy if Galaxy  became
insolvent  or  financially  unable  to meet its  obligations  on the  underlying
policy, but only if certain conditions were met. In particular, the Certificates
provided that ANIC's  assumption of liability was contingent  upon the insured's
executing and delivering all agreements, assignments or evidences of subrogation
satisfactory to ANIC respecting payments made or liabilities assumed.

During  1996,  the  Liquidation  Bureau,  acting  on  behalf  of  the  New  York
Property/Casualty  Insurance  Security Funds (the "Guaranty  Fund"),  informally
advised  the  Company  that on behalf of the  Guaranty  Fund it intended to seek
indemnification  or reimbursement from ANIC for claims paid by the Guaranty Fund
to Galaxy insureds on policies which may have been covered by the  Certificates.
The  Liquidation  Bureau  has  provided  some  information  in  response  to the
Company's  request for accounting data and other information with respect to the
Liquidation  Bureau's analysis of the Guaranty Fund's right to  indemnification;
however,  the Company has not been able to evaluate or quantify the magnitude of
the potential claim, if any, for  indemnification or reimbursement.  The Company
has  taken  the  position   that  the  Guaranty   Fund  has  no  right  to  seek
indemnification  unless Galaxy  insureds who hold properly  issued  Certificates
have executed  assignments  and evidences of subrogation in accordance  with the
terms of the  Certificates.  Even if any Galaxy  insureds  properly  made such a
claim  directly to ANIC,  the Company has been advised by its legal counsel that
if ANIC paid any such  claim,  it would have the  right,  under  assignment  and
subrogation agreements with its insureds, to assert all rights that the insureds
could have asserted to recover the loss amounts from any other source, including
the  Guaranty  Fund.  In early 1997,  the  Liquidation  Bureau  requested of the
Company's'  counsel the basis for the position  taken by the Company.  A written
analysis  supporting  the  Company's  position  was  subsequently  issued to the
Liquidation Bureau.

The  Company  intends to  vigorously  defend any claims for  indemnification  or
reimbursement  made by the Liquidation  Bureau,  on behalf of the Guaranty Fund,
with respect to the  Certificates.  Although the Company is not in a position to
estimate  the  magnitude  of  the  potential  claims  for   indemnification   or
reimbursement,  it does not believe that the ultimate  resolution of such claims
will have a material  adverse  effect on the  financial  condition or results of
operations of the Company.

Discontinued  Realtors' Errors and Omissions Program:  As a result of the losses
sustained in the REO  program,  and in  particular,  conduct  discovered  by the
Company after it assumed  responsibility for claims processing and handling, the
Company  filed  suit in  November  1991  against  the  non-affiliated  marketing
organization and broker involved in the program.

The  lawsuit  sought to recover  funds  improperly  withdrawn  from the  account
established  for the  payment of claims  under the  program;  for damages due to
business  expenses  improperly  charged  against  such funds;  and for  improper
administration  of the  program.  ACCEL  and ANIC  entered  into an  arrangement
whereby  ANIC's rights under the lawsuit were  transferred  to ACCEL in exchange
for a $4,000,000  collateral loan issued to ANIC which was recorded as a capital
contribution.  The transaction and related  agreements were approved by the Ohio
Department.  The loan  agreement  and  accompanying  promissory  note called for
interest at the 13 week Treasury Bill rate plus 100 basis points.  The principal
of $4,000,000 was paid in full on December 29, 1995.

In  late  1995,  ACCEL  was  awarded  $5,300,000  in  damages  related  to  this
litigation.  Pursuant to  settlements  reached  with all of the  parties,  ACCEL
received a total of $4,291,085 in 1996  ($140,000 in the first quarter of 1996).
With the approval of the Ohio Department,  the proceeds from the settlement were
shared  equally  between  ACCEL and ANIC.  The  Company  requested  the  sharing
agreement due to the continuing losses in the REO program realized by ANIC since
1991.  The Company has recorded the $140,000  recovery as "Other  income" in the
accompanying  unaudited consolidated statement of operations for the nine months
ended September 30, 1996.

Sale of Auto  Aftermarket  Product Group: On August 13, 1997, ACCEL announced it
had reached an  agreement  in  principle  pursuant to which ACCEL would sell its
auto  aftermarket  product group along with the stock of its  Acceleration  Life
Insurance  Company  (ALIC)  subsidiary  and two other  subsidiaries  to Frontier
Insurance  Group,  Inc.  On October  27,  1997,  ACCEL  announced  it had signed
definitive agreements to sell its auto after-market product group along with the
stock of Acceleration Life Insurance Company,  Dublin International  Limited and
Acceleration  National Service Corporation to Frontier Insurance Group, Inc. for
$40.5 million in cash. The transaction is expected to close on or about December
31, 1997 and is subject to  stockholder  approval and the receipt of  applicable
regulatory approvals.

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<PAGE>

PART II.   OTHER INFORMATION


ITEM 6. Exhibits and Reports on Form 8-K

        (b) No reports on Form 8-K have been filed by the Registrant  during the
            quarter ended September 30, 1997.


                                    SIGNATURE


Pursuant  to the  requirements  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.

                                                 ACCEL INTERNATIONAL CORPORATION

Dated:   November 13, 1997                       By:    /S/ Cynthia Anne Moore
        -------------------                            ------------------------
                                                       Cynthia Anne Moore
                                                       Chief Financial Officer*

*    Ms. Moore is Senior Vice President and Chief Financial Officer and has been
     duly authorized to execute the report on behalf of the Registrant.

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