<PAGE>   1

                                  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, 1998

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

FOR THE TRANSITION PERIOD FROM               TO
                              ---------------  --------------

COMMISSION FILE NUMBER 0-8162
                       ------

                         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.)


 12603 S.W. FRWY, STE. 315, STAFFORD, TEXAS                        77477
--------------------------------------------                     ----------
 (Address of principal executive offices)                        (Zip Code)


                                  281-565-8010
                         -------------------------------
                         (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 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, 1998, there were 8,552,820 shares of Common Stock, $.10 par
value per share outstanding.



<PAGE>   2



                                                      COMMISSION FILE NO. 0-8162




                ACCEL INTERNATIONAL CORPORATION AND SUBSIDIARIES

                               SEPTEMBER 30, 1998

                                      INDEX

<TABLE>
<CAPTION>



PART I -- FINANCIAL INFORMATION

         Item 1.  Financial Statements                                                                        Page
                                                                                                              ----
<S>      <C>                                                                                                <C>
                  Unaudited Consolidated Balance Sheets
                      (September 30, 1998 and December 31, 1997)                                             3 -  4

                  Unaudited Consolidated Statements of Operations (Three months
                      and nine months ended September 30, 1998 and 1997)                                          5

                  Unaudited Consolidated Statements of Common Stockholders'
                      Equity (Nine months ended September 30, 1998 and year
                      ended December 31, 1997)                                                                    6

                  Unaudited Consolidated Statements of Cash Flows (Nine months
                      ended September 30, 1998 and 1997)                                                          7

                  Notes to Unaudited Consolidated Financial Statements                                       8 - 13

         Item 2.  Management's Discussion and Analysis of Financial
                      Condition and Results of Operations                                                   14 - 17


PART II -- OTHER INFORMATION

         Item 6.  Exhibits and Reports on Form 8-K                                                               18
         Signature                                                                                               18

</TABLE>


                                       2

<PAGE>   3



                ACCEL INTERNATIONAL CORPORATION AND SUBSIDIARIES

                      UNAUDITED CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>

                                                                          September 30,           December 31,
                                                                              1998                   1997
                                                                            --------               ---------
                                                                                 (Thousands of dollars)
<S>                                                                         <C>                    <C>

ASSETS

Investments
     Investments available for sale, at fair value:
        Fixed maturities (cost: 1998--$28,723,000;
            1997--$21,614,000)                                              $ 29,391                $ 21,789
        Equity securities (cost:  1997--$4,879,000)                                -                   4,879
        Short-term investments
            (cost:  1998--$2,014,000; 1997--$7,253,000)                        2,019                   7,253
     Other invested assets                                                     4,851                       -
                                                                            --------               ---------
                                                                              36,261                  33,921

Cash                                                                           2,514                   1,589

Receivables:
     Premiums in process of transmittal, less
        allowance (1998--$150,000; 1997--$130,000)                             6,832                  11,633
     Amounts due from reinsurers                                              25,990                  16,739
     Amounts due from former subsidiaries                                        100                   1,201
                                                                            --------               ---------

                                                                              32,922                  29,573

Accrued investment income                                                        294                     252
Prepaid reinsurance premiums                                                  10,126                   9,567
Deferred policy acquisition costs                                              2,879                   3,112
Equipment--at cost, less accumulated
     depreciation (1998--$463,000;  1997--$273,000)                              532                     409
Leasehold improvements, less accumulated amortization
     (1998--$9,000; 1997--$3,000)                                                 27                      35
Receivable from sale of discontinued and disposed
     of operations                                                               703                  24,987
Other assets:
     Reinsurance recoverable                                                   2,759                       -
     Other                                                                       690                     649
                                                                            --------               ---------
                                                                              18,010                  39,011
                                                                            --------               ---------


Total assets                                                                $ 89,707               $ 104,094
                                                                            ========               =========
</TABLE>




                                       3


<PAGE>   4



                ACCEL INTERNATIONAL CORPORATION AND SUBSIDIARIES

               UNAUDITED CONSOLIDATED BALANCE SHEETS--(CONTINUED)


<TABLE>
<CAPTION>

                                                                        September 30,     December 31,
                                                                            1998              1997
                                                                          --------          ---------
                                                                            (Thousands of dollars)
<S>                                                                       <C>               <C>

     LIABILITIES AND COMMON STOCKHOLDERS' EQUITY

     Policy Reserves and Liabilities:
        Unearned premium reserves                                         $ 16,056           $ 29,986
        Insurance claims                                                    30,889             22,028
                                                                          --------          ---------
                                                                            46,945             52,014
     Other Liabilities:
        Amounts withheld for others                                          1,749              2,076
        Deferred reinsurance commissions                                     1,724              1,635
        Amounts due reinsurers                                               4,101              4,563
        Commissions payable                                                      -              2,842
        Accounts payable and other liabilities                               3,310              3,097
        Payable to former subsidiaries                                           3                  -
        Current federal income taxes                                             9              4,278
                                                                          --------          ---------
                                                                            10,896             18,491
                                                                          --------          ---------
                                                                            57,841             70,505
                                                                          --------          ---------
 


     Commitments and Contingencies

     Redeemable Preferred Stock:
        Authorized shares--1,000,000;
            no issued or outstanding shares                                      -                  -

     Common stockholders' equity:
        Common stock, $.10 par value
            Authorized shares (1998--15,000,000;
                  1997--15,000,000)
            Issued shares (1998--9,462,683;
                  1997--9,445,183)                                             946                944
        Additional paid-in capital                                          32,645             32,610
        Retained earnings                                                    4,739              6,518
        Less treasury shares at cost (1998--891,424;
                  1997--797,420)                                            (6,905)            (6,599)
        Accumulated other comprehensive income                                 441                116
                                                                          --------          ---------
                           Net common stockholders' equity                  31,866             33,589
                                                                          --------          ---------

        Total liabilities and common stockholders' equity                 $ 89,707          $ 104,094
                                                                          ========          =========

</TABLE>


See notes to unaudited consolidated financial statements


                                       4


<PAGE>   5




                ACCEL INTERNATIONAL CORPORATION AND SUBSIDIARIES

                 UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>

                                                                       Three Months                    Nine Months
                                                                    Ended September 30,             Ended September 30,
                                                                   1998            1997            1998            1997
                                                               ------------    ------------    ------------    ------------
                                                                      (Thousands of dollars, except per share data)
<S>                                                            <C>             <C>             <C>             <C>         
REVENUE:
        Gross premiums written                                 $      8,772    $      9,402    $     33,704    $     29,125
        Less reinsurance ceded                                        5,441           4,579          20,284          12,502
                                                               ------------    ------------    ------------    ------------
            Net premiums written                                      3,331           4,823          13,420          16,623
        Decrease (increase) in unearned premium reserves                415            (347)            622          (4,123)
                                                               ------------    ------------    ------------    ------------
            Premiums earned                                           3,746           4,476          14,042          12,500
        Net investment income:
            Interest and dividends                                      531             408           1,796           1,231
            Realized gains (losses)                                      10              48             (43)            115
        Equity in income of affiliated company                          (86)           --               (86)           --
        Service fees on extended service
            contracts                                                  --               823            --             2,340
        Other income                                                     56             (16)            268             120
                                                               ------------    ------------    ------------    ------------
                                                                      4,257           5,739          15,977          16,306
                                                               ------------    ------------    ------------    ------------
BENEFITS AND EXPENSES:
        Loss and loss adjustment expenses                             3,570           3,072          11,807           9,296
        Commissions and selling expenses                              1,377           1,676           5,304           6,163
        Reinsurance expense recovery                                 (1,663)           (301)         (4,416)         (1,426)
        General and administrative                                    1,302           1,045           3,896           2,496
        Taxes, licenses and fees                                        311             273           1,285           1,009
        Interest                                                       --               356            --             1,069
        Decrease (increase) in deferred policy
            acquisition costs                                           132             (43)            232          (1,495)
                                                               ------------    ------------    ------------    ------------
                                                                      5,029           6,078          18,108          17,112
                                                               ------------    ------------    ------------    ------------
INCOME (LOSS) BEFORE FEDERAL INCOME
        TAXES AND DISCONTINUED OPERATIONS                              (772)           (339)         (2,131)           (806)

        Federal income taxes:
            Current expense                                            (125)            (19)           (125)            (19)
            Deferred expense                                           --              (137)           --               127
                                                               ------------    ------------    ------------    ------------
                                                                       (125)           (156)           (125)            108
                                                               ------------    ------------    ------------    ------------

INCOME (LOSS) FROM CONTINUING
        OPERATIONS                                                     (647)           (183)         (2,006)           (914)
Discontinued operations:
          Income from operations of discontinued
              business segment                                         --               613            --             1,947

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

NET INCOME (LOSS)                                              $       (647)   $        430    $     (2,006)   $      1,033
                                                               ============    ============    ============    ============

Earnings per common share--basic/assuming dilution:
        Loss from continuing operations                        $      (0.08)   $      (0.02)   $      (0.23)   $      (0.11)
        Income from discontinued operations                            --               .07            --               .23

                                                               ------------    ------------    ------------    ------------
        Net income (loss)                                      $      (0.08)   $       0.05    $      (0.23)   $       0.12
                                                               ============    ============    ============    ============

Weighted average number of common
        shares outstanding                                        8,570,956       8,604,557       8,579,400       8,604,017
                                                               ============    ============    ============    ============

</TABLE>


See notes to unaudited consolidated financial statements



                                       5


<PAGE>   6




                ACCEL INTERNATIONAL CORPORATION AND SUBSIDIARIES

        UNAUDITED CONSOLIDATED STATEMENTS OF COMMON STOCKHOLDERS' EQUITY

                              (Thousands of dollars)

<TABLE>
<CAPTION>
                                                   Additional                 Common                  Accumulated other
                                        Common      paid-in     Retained   stock held in                comprehensive
                                        stock       capital     earnings      treasury      ESOP loan       income          Net
                                      ---------- ------------ ------------  ------------   -----------  --------------   ---------
<S>                                    <C>        <C>          <C>          <C>            <C>           <C>           <C>    
Balances at December 31, 1996          $    940     $ 32,507     $  5,403      ($ 6,599)     ($    32)     ($   578)     $ 31,641
Comprehensive income:
   Net income                              --           --          1,115          --            --            --           1,115
   Other comprehensive
       income (loss), net:
   Change in net unrealized
       appreciation on
       investment securities               --           --           --            --            --             694           694
                                       --------     --------     --------      --------      --------      --------      --------
   Other comprehensive
       income                              --           --           --            --            --             694           694
                                       --------     --------     --------      --------      --------      --------      --------
   Comprehensive income                                             1,115                                       694         1,809
   Payments on ESOP loan                   --           --           --            --              32          --              32
   Issuance of 44,021 shares of
       Common Stock under
       Common Stock Option Plan               4          103         --            --            --            --             107
                                       --------     --------     --------      --------      --------      --------      --------
Balances at December 31, 1997               944       32,610        6,518        (6,599)         --             116        33,589
Comprehensive income (loss):
   Net loss                                --           --         (2,006)         --            --            --          (2,006)
   Other comprehensive
       income (loss), net:
   Change in valuation allowance
       for unrealized appreciation
       on investment securities            --           --            227          --            --             325           552
                                       --------     --------     --------      --------      --------      --------      --------
   Other comprehensive
       income                              --           --            227          --            --             325           552
                                       --------     --------     --------      --------      --------      --------      --------
   Comprehensive income (loss)             --           --         (1,779)         --            --             325        (1,454)
   Purchase of 94,004 shares as
       treasury stock                      --           --           --            (306)         --            --            (306)
   Issuance of 17,500 shares of
       Common Stock under
       Common Stock Option Plan               2           35         --            --            --            --              37

                                       --------     --------     --------      --------      --------      --------      --------
Balances at September 30, 1998         $    946     $ 32,645     $  4,739      ($ 6,905)         --        $    441      $ 31,866
                                       ========     ========     ========      ========      ========      ========      ========
</TABLE>



See notes to unaudited consolidated financial statements


                                       6


<PAGE>   7




                     ACCEL INTERNATIONAL CORPORATION AND SUBSIDIARIES

                     UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>

                                                                           Nine Months Ended September 30,
                                                                                 1998          1997
                                                                              ----------    ----------
                                                                               (Thousands of dollars)
<S>                                                                           <C>           <C>        
OPERATING ACTIVITIES:
     Income (loss) from continuing operations                                 $   (2,006)   $     (914)
     Adjustments to reconcile income (loss) from continuing operations
         to net cash (used in) provided by operating activities:
            Change in premiums receivable                                          4,801        (2,853)
            Change in accrued investment income                                      (42)           17
            Change in prepaid reinsurance premiums                                  (559)       (1,800)
            Change in premium deposits held                                         (327)          102
            Change in unearned premium reserves                                  (13,930)        5,923
            Change in insurance claim reserves                                     8,861         2,503
            Change in amounts due to and from reinsurers                         (12,472)          800
            Change in other assets, other liabilities
                and accrued income taxes                                          (5,933)         (356)
            Accrual of discount on bonds                                             (38)          (39)
            Amortization of premium on bonds                                          60            36
            Change in deferred policy acquisition costs                              232        (1,495)
            Change in deferred reinsurance commissions                                89           835
            Provision for depreciation and amortization                              196           106
            Net realized gains (losses) on investments                                43          (110)
                                                                              ----------    ----------
     Net cash (used in) provided by continuing operations                        (21,025)        2,755
     Net cash (used in) provided by discontinued operations                       40,122         2,618
                                                                              ----------    ----------
NET CASH (USED IN) PROVIDED BY OPERATING ACTIVITIES                               19,097         5,373
                                                                              ----------    ----------

INVESTING ACTIVITIES:
     Sale of investments available for sale                                       13,433        18,019
     Purchase of investments available for sale                                  (16,018)      (21,628)
     Other, net                                                                     (311)         (385)
                                                                              ----------    ----------
NET CASH (USED IN) PROVIDED BY INVESTING ACTIVITIES                               (2,896)       (3,994)
                                                                              ----------    ----------

FINANCING ACTIVITIES:
     Payment of ESOP loan                                                           --              32
     Repayment of notes payable                                                  (15,000)         --
     Issuance of Common Stock under Stock Option Plan                                 30          --
     Repurchase of treasury shares                                                  (306)         --
                                                                              ----------    ----------
NET CASH (USED IN) PROVIDED BY FINANCING ACTIVITIES                              (15,276)           32
                                                                              ----------    ----------
NET INCREASE (DECREASE) IN CASH                                                      925         1,411
Cash at beginning of period                                                        1,589           415
                                                                              ----------    ----------
CASH AT END OF PERIOD                                                         $    2,514    $    1,826
</TABLE>



See notes to unaudited consolidated financial statements


                                       7


<PAGE>   8




                ACCEL INTERNATIONAL CORPORATION AND SUBSIDIARIES

              NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

                               SEPTEMBER 30, 1998


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 ("GAAP") 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 GAAP 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, 1997.

PRINCIPLES OF CONSOLIDATION: The accompanying unaudited consolidated financial
statements include the accounts of ACCEL and its wholly-owned subsidiaries. As
discussed more fully in Note B, Acceleration Life Insurance Company ("ALIC") and
Dublin International Limited ("Dublin") are presented as discontinued
operations. 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. The Company is engaged in the underwriting and sale of property and
casualty insurance products, concentrating on commercial lines of business. The
Company offers various policies covering long-haul trucking, charter bus,
limousine and paratransit vehicle fleets, as well as other specialized products
tailored to other groups such as crane operators and gun dealers. The Company
offers these products 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.

In addition to the property and casualty insurance products described above, the
Company has historically sold, principally through automobile dealers, credit
life and credit accident and health insurance and extended service contracts
("Auto Aftermarket Group"). Effective December 31, 1997, the Company sold its
Auto Aftermarket Group as discussed more fully in Note B. As a result of this
transaction, the Company has ceased to be engaged in the auto aftermarket credit
insurance and extended service contract businesses.

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 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 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.

Effective April 1, 1998, the Company purchased a 25% interest in the common
stock of USA Insurance Group, Inc., the parent company of Transportation
Insurance Service, the Company's general agent, for $5 million. This investment
is included in other invested assets and is accounted for using the equity
method.

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



                                       8

<PAGE>   9



                ACCEL INTERNATIONAL CORPORATION AND SUBSIDIARIES

             NOTES TO 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. 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.

PREMIUM INCOME RECOGNITION AND UNEARNED PREMIUM RESERVES: Unearned premium
reserves on property and casualty products are calculated on the pro rata
method. 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.

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 period 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 losses and
loss adjustment expenses incurred are deducted from the respective income and
expense accounts. Assets and liabilities related to reinsurance ceded are
reported on a gross basis.

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. 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 Statement of
Financial Accounting Standards ("SFAS") 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, SFAS 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 SFAS No. 123 had been
applied. The Company has elected to continue to apply the provisions of APB
Opinion No. 25 and provide the pro forma disclosure provisions of SFAS No. 123.


                                       9

<PAGE>   10



                ACCEL INTERNATIONAL CORPORATION AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(CONTINUED)


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

EARNINGS PER COMMON SHARE: Net income and net loss per common share are computed
using the weighted average number of common shares outstanding during the
period. Effective December 31, 1997, the Company adopted SFAS No. 128, Earnings
per Share. This standard, which did not have an effect on net income,
establishes standards for computing and presenting earnings per share. Earnings
per share for all periods presented have been restated to comply with SFAS No.
128.

RECLASSIFICATIONS: Certain amounts in the 1997 unaudited consolidated financial
statements have been reclassified to conform with the 1998 presentation.


NOTE B -- SALE OF AUTO AFTERMARKET GROUP

On October 20, 1997, ACCEL entered into agreements to sell to Lyndon Insurance
Group, Inc. and Lyndon Life Insurance Company (collectively, "Lyndon") the
outstanding capital stock of Acceleration Life Insurance Company ("ALIC"),
Acceleration National Service Company ("ANSC") and Dublin (collectively, the
"Target Corporations") for $30.2 million in cash and to sell to Lyndon Property
Insurance Company ("Lyndon Property") assets related to the vehicle extended
service contract business of ACCEL's wholly owned subsidiary, Acceleration
National Insurance Company ("ANIC"), for $10.3 million in cash. The sale was
effective December 31, 1997.

The agreements provided that within 125 days after the closing, the sales price
for the Target Corporations would be decreased or increased by the amount, if
any, by which the Target Corporations' combined GAAP stockholder's equity as of
December 31, 1997 was less than or greater than, respectively, $31.6 million. As
of December 31, 1997, the combined GAAP stockholder's equity of the Target
Corporations was $32.1 million which resulted in a net sales price of
approximately $41.0 million.

The "Receivable from sale of discontinued and disposed of operations"
("Receivable from sale") of approximately $.7 million as of September 30, 1998
represents the difference between the net sales price of $41 million and the
initial sales price of $40.5 million and approximately $.2 million related to
the cession of vehicle extended service contract reserves to Lyndon Property.
The receivable from sale of approximately $25 million as of December 31, 1997
represents the net sales proceeds of $41 million less the note payable and
accrued interest of $16 million transferred to ALIC by an unaffiliated company
on December 31, 1997. The Company has filed a legal action seeking declaratory
judgment relief relating to disagreement with Lyndon concerning the exact amount
of the net sales price. Accordingly, the receivable from sale may be more or
less than $.7 million. The Company believes the resolution of the matter will
not have a material adverse effect on the financial condition or results of
operations of the Company.

In conjunction with the sale, on January 1, 1998, ANIC ceded via a quota share
reinsurance agreement 100% of its liability related to the vehicle extended
service contract business to Lyndon Property. Upon consummation of the
aforementioned sale, the Company ceased to be engaged in the auto aftermarket
credit insurance and extended service contract businesses. The consolidated
financial statements of the Company have been reclassified to reflect the
disposition of ALIC and Dublin which comprised the Life/Health business segment.
Accordingly, the revenues, benefits and expenses, and cash flows of ALIC and
Dublin have been excluded from the respective captions in the unaudited
consolidated statements of operations and unaudited consolidated statements of
cash flows for 1997. The net operating results of these entities have been
reported, net of applicable income taxes, as "Income from discontinued
operations" and the net cash flows of these entities have been reported as "Net
cash (used in) provided by discontinued operations." The vehicle extended
service contract business sold to Lyndon Property and ANSC were components of
the Company's property and casualty segment, and therefore are included in
continuing operations for 1997.


NOTE C--REINSURANCE

The Company has entered into reinsurance contracts associated with its property
and casualty lines which transfer a percentage of risk to the related reinsurer.
The Company also has agreements which transfer risks after a predetermined loss
amount has been reached. Unearned premium reserves associated with reinsurance
agreements at September 30, 1998 and December 31, 1997 are $10.1 million and
$9.6 million, respectively, and the liability for insurance claims is $22
million and $14.3 million at September 30, 1998 and December 31, 1997,
respectively. The following data summarizes certain aspects of the Company's
reinsurance activity for 1998 and 1997.


                                       10

<PAGE>   11



                ACCEL INTERNATIONAL CORPORATION AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(CONTINUED)


NOTE C--REINSURANCE--(CONTINUED)

Premiums written and earned in 1998 and 1997 are summarized as follows:

<TABLE>
<CAPTION>
                                 WRITTEN                                                 EARNED
            --------------------------------------------------      --------------------------------------------------
                                                     Period Ended September 30,

              Nine Months Ended           Three Months Ended          Nine Months Ended           Three Months Ended
              1998          1997          1998          1997          1998          1997          1998          1997
            --------      --------      --------      --------      --------      --------      --------      --------
                                                      (Thousands of dollars)
<S>         <C>           <C>           <C>           <C>           <C>           <C>           <C>           <C>     
Direct      $ 30,124      $ 27,872      $  7,441      $  8,149      $ 30,870      $ 20,314      $  9,627      $  8,031
Assumed        3,580         1,253         1,331         1,253         3,307           373         1,067           373
Ceded        (20,284)      (12,502)       (5,441)       (4,579)      (20,135)       (8,187)       (6,948)       (3,928)
            --------      --------      --------      --------      --------      --------      --------      --------
Net         $ 13,420      $ 16,623      $  3,331      $  4,823      $ 14,042      $ 12,500      $  3,746      $  4,476
            ========      ========      ========      ========      ========      ========      ========      ========
</TABLE>


Loss and loss adjustment expenses incurred in 1998 and 1997 are summarized as
follows:

<TABLE>
<CAPTION>
                                    Nine Months Ended          Three Months Ended
                                      September 30,              September 30,
                                   1998          1997          1998          1997
                                 --------      --------      --------      --------
                                               (Thousands of dollars)
<S>                              <C>           <C>           <C>           <C>     
Direct                           $ 25,683      $ 14,644      $  8,342      $  5,965
Assumed                             2,163           264           740           264
Ceded                             (16,039)       (5,612)       (5,512)       (3,157)
                                 --------      --------      --------      --------
Net loss and
    loss adjustment expenses     $ 11,807      $  9,296      $  3,570      $  3,072
                                 ========      ========      ========      ========
</TABLE>


NOTE D--SEGMENT INFORMATION

The Company operates primarily in the property/casualty insurance industry
within the United States. There are no intersegment sales. The allocations of
certain general expenses and investment income within segments are based on a
number of assumptions, and the reported operating results would change if
different methods were applied. Depreciation and capital expenditures are not
considered material.

Information relating to revenue, income (loss) before federal income taxes and
discontinued operations, and identifiable assets by segment are summarized as
follows:

<TABLE>
<CAPTION>
                                                 Nine Months Ended          Three Months Ended
                                                   September 30,              September 30,
                                                1998           1997         1998          1997
                                              --------      --------      --------      --------
                                              (Thousands of dollars)      (Thousands of dollars)
<S>                                           <C>           <C>           <C>           <C>     
Revenue:
         Property/Casualty                    $ 15,688      $ 13,965      $  4,278      $  4,917
         Corporate and Other                       289         2,341           (21)          822
                                              --------      --------      --------      --------
               Total                          $ 15,977      $ 16,306      $  4,257      $  5,739
                                              ========      ========      ========      ========

Income (loss) before federal income taxes
     and discontinued operations:
         Property/Casualty                    $ (1,728)     $    432      $   (522)     $    (61)
         Corporate and Other                      (403)       (1,238)         (250)         (278)
                                              --------      --------      --------      --------
               Total                          $ (2,131)     $   (806)     $   (772)     $   (339)
                                              ========      ========      ========      ========
</TABLE>


<TABLE>
<CAPTION>
                               September 30,       December 31, 
                                   1998               1997      
                                 --------           --------    
                                   (Thousands of dollars)                
<S>                              <C>                <C>         
Identifiable assets:                                            
         Property/Casualty       $ 83,079           $ 89,303    
         Corporate and Other        6,628             14,791    
                                 --------           --------    
               Total             $ 89,707           $104,094    
                                 ========           ========    
</TABLE>
                                                  


                                       11

<PAGE>   12

                ACCEL INTERNATIONAL CORPORATION AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(CONTINUED)


NOTE D--SEGMENT INFORMATION--(CONTINUED)

Effective January 1, 1998, the Company adopted SFAS No. 131, Disclosures about
Segments of an Enterprise and Related Information. This standard, which does not
have an effect on net income, establishes standards for disclosing segment
information.


NOTE E--COMMITMENTS AND CONTINGENCIES

Due to the nature of its operations, the Company is at all times subject to
pending and threatened legal actions that arise in the normal course of its
activities. In management's opinion, based on the advice of outside counsel, the
accompanying consolidated financial statements would not be materially affected
by the ultimate outcome of any legal proceedings or contingent liabilities.

In July 1991, the Company acquired 100% of RGL. Galaxy Insurance Company
("Galaxy"), a wholly owned subsidiary of RGL, wrote commercial property
insurance, property and casualty, and assumed treaty reinsurance. Galaxy became
statutorily insolvent at June 30, 1994. Due to the insolvency of Galaxy, the
Company wrote its investment in RGL to zero and deconsolidated RGL as of April
1, 1994.

On October 7, 1994, 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.

In May 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 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 to ANIC. 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.

In early 1998, the Superintendent of Insurance of the State of New York, as
Liquidator of Galaxy and Administrator of the Guaranty Fund, filed suit against
ANIC in New York State Supreme Court. The complaint alleged, among other things,
breach of contract and demanded that ANIC specifically perform its alleged
obligations under the Certificates. The complaint asked for an amount in excess
of $6.5 million in damages.

As reflected above, the suit requested indemnification or reimbursement for the
claims paid or to be paid by the Guaranty Fund to Galaxy insureds on policies
which may have been covered by the Certificates. ANIC has maintained that the
Guaranty Fund does not have the right to seek indemnification unless the terms
and conditions of validly issued Certificates have been strictly complied with.
Accordingly, ANIC filed for dismissal of the suit which motion was recently
granted by the Court. Should the matter survive the recent development, ANIC
will continue to vigorously defend itself against any such claims and its
alleged liability in the suit.

In November 1997, suit was filed against ALIC by four long-term care
policyholders seeking to represent a class of North Dakota policyholders
alleging breach of contract, fraud and misrepresentation regarding an alleged
promise not to raise premiums "too much". Said long-term care insurance business
was entirely reinsured to and assumed by Commonwealth Life Insurance Company
("Commonwealth") of Louisville, Kentucky, in 1991. The matter was tendered to
Commonwealth to defend on behalf of ALIC pursuant to the applicable provisions
of the reinsurance agreement between the parties, and Commonwealth also tendered
the matter back to ALIC.


                                       12

<PAGE>   13


                ACCEL INTERNATIONAL CORPORATION AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(CONTINUED)


NOTE E--COMMITMENTS AND CONTINGENCIES--(CONTINUED)

The allegations of fraud and misrepresentation at the time of sale of the
long-term care policies are based on alleged statements that premiums "would not
be raised too much" even though the policy on its face stated that the "Company
reserves the right to increase premiums at anytime." Moreover, premiums were
increased subsequent to the reinsurance of the business to Commonwealth by ALIC
and the increases appear to have been approved by the proper regulatory
authority. Plaintiffs recently filed a motion to amend their complaint to set
forth allegations that the policies were intentionally underpriced and/or poorly
underwritten, so as to justify premium increases and induce policy lapses. The
Company and Commonwealth are cooperating to vigorously defend the matter. Joint
motions to dismiss and to strike the class action allegations were filed in the
U.S. District Court, District of North Dakota, Southeastern Division. The Court
acted to deny all pending motions without prejudice to refiling until
development of the record has occurred. The parties have undertaken to conduct
discovery to develop the record as directed by the Court. Based thereon, the
Company intends to file a motion for summary judgment in the near future. The
Company continues to believe there is little or no exposure of liability for
ALIC and the matter will not have a material adverse effect on the financial
condition or results of operations of the Company. In the event the plaintiffs
prevail however, the Company believes that it has the right to seek
indemnification from Commonwealth.

When the suit was filed, the Company was in the middle of a transaction to sell
one hundred percent of ALIC to Lyndon. Due to the recent filing of the suit,
Lyndon requested a separate indemnification for the matter. Accordingly, the
Company agreed to provide additional indemnification, fully assume and directly
pay for all defense costs of the litigation against ALIC, and to directly pay
any settlement costs, judgments or other liabilities incurred in connection with
the litigation. The indemnification shall expire on its terms when and if there
is a final, nonappealable determination that class certification in the matter
is denied. The obligation of the Company is insured by a bond of indemnity in
the amount of $3,000,000 issued by ANIC.


                                       13

<PAGE>   14



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

                 Operating Results for the Three and Nine Months
                       Ended September 30, 1998 and 1997


OPERATING RESULTS

On October 20, 1997, ACCEL entered into agreements to sell to Lyndon Insurance
Group, Inc. and Lyndon Life Insurance Company (collectively, "Lyndon") the
outstanding capital stock of Acceleration Life Insurance Company ("ALIC"),
Acceleration National Service Company ("ANSC") and Dublin International Limited
("Dublin") (collectively, the "Target Corporations") for $30.2 million in cash
and to sell to Lyndon Property Insurance Company ("Lyndon Property") assets
related to the vehicle extended service contract business of ACCEL's wholly
owned subsidiary, Acceleration National Insurance Company ("ANIC"), for $10.3
million in cash. The sale was effective December 31, 1997.

The agreements provided that within 125 days after the closing, the sales price
for the Target Corporations would be decreased or increased by the amount, if
any, by which the Target Corporations' combined GAAP stockholder's equity as of
December 31, 1997, was less than or greater than, respectively, $31.6 million.
As of December 31, 1997, the combined GAAP stockholder's equity of the Target
Corporations was $32.1 million which resulted in a net sales price of
approximately $41 million.

The "receivable from sale of discontinued and disposed of operations"
("receivable from sale") of approximately $.7 million as of September 30, 1998
represents the difference of approximately $.5 million between the net sales
price of $41 million and the initial sales price of $40.5 million and
approximately $.2 million related to the cession of vehicle extended service
contract reserves to Lyndon Property. The receivable from sale of approximately
$25 million as of December 31, 1997, represents the net sales proceeds of $41
million less the note payable and accrued interest of $16 million transferred to
ALIC by an unaffiliated company on December 31, 1997. The Company has filed a
legal action seeking declaratory judgment relief relating to a disagreement with
Lyndon concerning the exact amount of the net sales price. Accordingly, the
receivable from sale may be more or less than $.7 million. The Company believes
the resolution of the matter will not have a material adverse effect on the
financial condition or results of operations of the Company.

In conjunction with the sale, on January 1, 1998, ANIC ceded via a quota share
reinsurance agreement 100% of its liability related to the vehicle extended
service contract business to Lyndon Property. Upon consummation of the
aforementioned sale, the Company ceased to be engaged in the auto aftermarket
credit insurance and extended service contract businesses. The consolidated
financial statements of the Company have been reclassified to reflect the
disposition of ALIC and Dublin that comprised the Life/Health business segment.
Accordingly, the revenues, benefits and expenses, and cash flows of ALIC and
Dublin have been excluded from the respective captions in the unaudited
consolidated statements of operations and unaudited consolidated statements of
cash flows for 1997. The net operating results of these entities have been
reported, net of applicable income taxes, as "Income from discontinued
operations," and the net cash flows of these entities have been reported as "Net
cash (used in) provided by discontinued operations" for 1997. The vehicle
extended service contract business sold to Lyndon Property and ANSC were
components of the Company's property and casualty segment, and therefore are
included in continuing operations for 1997.

The loss before federal income taxes and discontinued operations for the nine
months of 1998 was $2.1 million compared with a loss of $806,000 for the same
period in 1997. The Company's primary product line, commercial auto, produced a
positive underwriting margin in the first nine months of 1998 of approximately
$700,000 while net investment income contributed approximately $1.8 million.
These contributions were offset primarily by general and administrative expenses
of approximately $3.9 million and taxes, licenses and fees other than premium
taxes of $400,000. The Company's commercial auto program, consisting of direct
and assumed business, continued its growth, producing $26.8 million of
annualized premium in the first nine months of 1998 compared with $21.2 million
for the same period in 1997.

For the quarter ended September 30, 1998, the loss before federal income taxes
and discontinued operations was $772,000 compared with a loss of $339,000 for
the same quarter in 1997. Loss and loss adjustment expenses as a percentage of
net earned premiums increased to 95.3% for the quarter ended September 30, 1998,
from 68.6% for the same period in 1997 due to reserve strengthening on prior
years' reserves of $750,000 in the third quarter of 1998. The major cause of the
poor loss performance has been the large fleet trucking and paratransit accounts
which have been non-renewed or cancelled.

Gross premium writings for the first nine months of 1998 were $33.7 million
compared with $29.1 million for the same period in 1997. This increase is due to
increased writings in the Company's commercial auto program of approximately
$3.3 million. Gross premiums written for the third quarter of 1998 were $8.8
million as compared with $9.4 million for the third quarter of 1997. This
decrease is 




                                       14

<PAGE>   15

attributable to the company non-renewing larger trucking and paratransit
accounts within the commercial auto line due to poor underwriting results.

Net premium earned was $14 million for the first nine months of 1998 as compared
with $12.5 million for the first nine months of 1997. The third quarter of 1998
produced net earned premium of $3.7 million as compared with $4.5 million for
the third quarter of 1997. The year to date increase is due to the completion of
the earnings cycle in the first half of 1998 for policies written in 1997 which
have since been non-renewed or cancelled as discussed previously, which also
accounts for the decrease in the third quarter of 1998 as compared with the same
quarter in 1997.

The net loss and loss adjustment expense ratios were 84.1% for the first nine
months of 1998 as compared with 74.3% for the same period in 1997. This increase
is attributable to losses from the Company's trucking and paratransit accounts.
Many of these policies have since been non-renewed or canceled and this
refinement process is continuing. However, some development may persist in the
future.

A positive impact on 1997 earnings was the level of service fee revenue on
extended service contract business which amounted to $2.3 million for the first
nine months of 1997. These service fees are non-recurring in 1998 due to the
sale of the extended service contract business to Lyndon Property effective
January 1, 1998.

Commissions and selling expenses as a percent of gross premiums were 15.7% for
the first nine months of 1998 compared with 21.2% for the same period in 1997.
For the third quarter of 1998, commissions and selling expenses as a percent of
gross premiums were 15.7% as compared with 17.8% for the same period in 1997.
These decreases are due largely to commercial auto becoming the predominant
product line for the Company. Commercial auto has significantly lower
acquisition costs than the Company's extended service contract business which
was fully ceded to Lyndon effective January 1, 1998.

The Company's general and administrative expenses have increased by $1.4 million
or 56.1% in the first nine months of 1998 compared with the same period in 1997.
For the third quarter of 1998, general and administrative expenses increased by
$257,000 or 24.6% for the same period in 1997. These increases are largely due
to salaries and other expenses which were previously allocated to the
subsidiaries sold effective December 31, 1997.

STRATEGIC PARTNERSHIP

The Company's Board of Directors has engaged Advest, an investment banking firm,
to assist the Company in finding a strategic partner or purchaser for itself or
its insurance subsidiaries, with an eye to enhancing overall shareholder value.

LIQUIDITY AND CAPITAL RESOURCES

The Company's cash flows from operations have generally been adequate for its
current operating needs. The Company's long haul trucking, charter bus and
paratransit business generally is written for a term of one year with the
casualty claim-related liabilities extending beyond that period. The Company's
liability on vehicle extended service contracts typically has extended for
either one-year or five-year periods. However as previously discussed, the
Company's existing vehicle extended service contract business was ceded to
Lyndon Property effective January 1, 1998.

The Company's "available for sale" fixed maturity securities at September 30,
1998 and 1997 include 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 have either a 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, 1998, the Company did not have a significant amount of higher risk
mortgage or asset backed securities which had a significant risk of loss or
principal. 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. The Company's collateralized mortgage obligations
and asset backed securities are predominantly sequential pay with little or no
exposure to interest only obligations ("IOs") or inverse IOs.



                                       15

<PAGE>   16

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 of Insurance. Based on this regulation, ANIC could pay a
dividend of approximately $8.8 million without Ohio Department of Insurance
approval to ACCEL in 1998.

The Company used a portion of the proceeds from the sale upon closing in January
1998 of the Auto Aftermarket Group to retire the outstanding balance of $15
million of senior notes held by ALIC, who had received them from an unaffiliated
company, along with accrued interest of approximately $1.1 million, to make a
capital contribution of $3.5 million to ANIC, to pay taxes on the sale of
approximately $4.3 million, to transfer $8.8 million in cash to Lyndon in
connection with the ceding of the existing vehicle extended service contract
business on January 1, 1998 and has utilized the remainder for general corporate
purposes.

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
consolidated financial statements.

Due to the nature of its operations, the Company is at all times subject to
pending and threatened legal actions that arise in the normal course of its
activities. For information regarding legal proceedings involving the Company
including developments relating to the insolvency of Galaxy Insurance Company (a
subsidiary of the Company) and a suit against ALIC by four long-term care
policyholders, see "Note E" in the Notes to Unaudited Consolidated Financial
Statements. In management's opinion, based on the advice of and information
obtained from outside counsel, the ultimate resolution of the pending legal
matters will not have a material adverse effect on the financial condition or
results of operations of the Company.

Effective April 1, 1998, the Company purchased a 25% interest in the common
stock of USA Insurance Group, Inc., the parent company of TIS, the Company's
general agent, for $5 million. This investment is included in other invested
assets and is accounted for using the equity method.

In June 1997, the Financial Accounting Standards Board issued Statement of
Accounting Standards ("SFAS") No. 130, Reporting Comprehensive Income, effective
for years beginning after December 15, 1997. This SFAS establishes standards for
reporting and display of comprehensive income and its components. The adoption
of SFAS No. 130 does not affect results of operations or financial position, but
affects their presentation and disclosure. The Company adopted SFAS No. 130 as
of January 1, 1998.

The Company adopted the reporting requirements of SFAS No. 131, Disclosures
about Segments of an Enterprise and Related Information, in the first quarter of
1998. Adoption of this SFAS had no effect on net income of the Company. SFAS No.
132, Employer's Disclosures about Pensions and Other Postretirement Benefits, is
effective for fiscal years beginning after December 15, 1997. This SFAS will not
affect the Company's financial statement presentation or related disclosures as
the Company does not offer pension or other postretirement benefits to employees
or former employees.

Although the cumulative effects of inflation on premium growth cannot be fully
determined, increases in the value of commercial property results in increased
premiums for property coverages. The combination of severity (which is affected
by inflation) and frequency of loss trends in commercial auto and general
liability are recognized in premium increases or decreases by the adoption of
filed premium rates.

The National Association of Insurance Commissioners ("NAIC") has completed and
adopted a project to codify statutory accounting principles with a provision for
commissioner discretion in the determination of appropriate statutory accounting
for insurers. Although the NAIC has indicated that January 1, 2001 is the
expected date of implementation, the implementation is ultimately dependent upon
an insurer's state of domicile. Implementation of the codified statutory
principles may affect the surplus level of ANIC on a statutory basis. Management
is unable at this time to determine what impact, if any this project will have
on the statutory surplus of ANIC.



  
                                     16
<PAGE>   17

YEAR 2000 CONSIDERATIONS

The Company is aware of the issues associated with the programming code in
existing computer systems as the millennium (Year 2000) approaches. The
Company's plan for assessment and renovation of these issues is grouped by
hardware, system and operating software, application system software, end-user
decision support software, telecommunications, office (non-information
technology) systems, service provider relationships and business partner
relationships. Within each grouping, components representing mission-critical
operations to the Company have been prioritized. Hardware, operating software,
application software, telecommunications, and key business partner relationships
necessary to conduct the basic business of the Company have progressed beyond
the renovation phase and are being validated or implemented. Additionally, the
Company is performing final assessments of supportive components within each
group to verify that normal life cycles and third party provider efforts have
matured to compliance levels. The Company expects little renovation will be
required from this phase other than completion of its general ledger system
implementation which is scheduled for the second quarter of 1999.

Since January 1996, the Company has incurred approximately $120,000 in costs
associated with the Year 2000 project. The Company expects to incur
approximately $60,000 in remaining costs prior to the project's anticipated
completion in the second quarter of 1999. Management is in constant appraisal of
the project status and is supportive and committed to successful completion.
Based on the Company's current state of readiness and project progress,
management has determined that the effect on the Company's financial condition
and earnings is not material. Should any of the Company's benchmarks be
compromised from the planned completion timetables, the Company has contingency
plans in the form of contractual resource relationships, which will be activated
to accelerate the delinquent task.

CAUTIONARY STATEMENT REGARDING FORWARD LOOKING STATEMENTS

The 1995 Private Securities Litigation Reform Act provides issuers the
opportunity to make cautionary statements regarding forward-looking statements.
Accordingly, any forward-looking statement contained herein or in any other oral
or written statement by the Company or any of its officers, directors or
employees is qualified by the fact that actual results of the Company may differ
materially from such statement due to the following important factors, among
other risks and uncertainties inherent in the Company's business: state
insurance regulations, rate competition, adverse changes in interest rates,
unforeseen losses with respect to loss and settlement expense reserves for
unreported and reported claims, and catastrophic events.



                                       17

<PAGE>   18




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, 1998.


                                   SIGNATURES


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, 1998            BY:  /s/ Cindy Moore
          -----------------------              ----------------------------
                                               Cynthia A. Moore
                                               Senior Vice President, Chief
                                               Financial Officer and Treasurer*


* Ms. Moore has been duly authorized to execute the report on behalf of the
Registrant.





                                       18
<PAGE>   19


                               INDEX TO EXHIBITS

<TABLE>
<CAPTION>

EXHIBIT
NUMBER                        DESCRIPTION
-------                       -----------
<S>                 <C>    
  27                Financial Data Schedule

</TABLE>