<PAGE>   1


                                 UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                            WASHINGTON, D. C.  20549
                                   FORM 10-K

(Mark One)
[X]      ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
         OF 1934 (NO FEE REQUIRED)

                  FOR THE FISCAL YEAR ENDED DECEMBER 31, 1997

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

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  [ ]

The aggregate market value of Common Stock held by non-affiliates on January
31, 1998 was approximately $9,100,000.

As of January 31, 1998, there were 8,649,763 shares of Common Stock, $.10 par
value per share outstanding.


                      DOCUMENTS INCORPORATED BY REFERENCE:

Portions of the definitive proxy statement furnished to stockholders of the
registrant in connection with the annual meeting of stockholders to be held on
June 16, 1998 are incorporated by reference into Part III.
<PAGE>   2





                                     PART I

ITEM 1.  BUSINESS

(a)             GENERAL DEVELOPMENT OF BUSINESS

ACCEL International Corporation ("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.  Unless the context
requires otherwise, the "Company" includes ACCEL and its subsidiaries.  The
Company is engaged in the underwriting and sale of property/casualty insurance
products, concentrating on commercial lines of business.  The Company offers
various policies covering trucking, charter buses, limousine and paratransit
vehicle fleets, as well as other specialized products tailored to groups such
as crane operators and gun dealers.  The Company offers these products through
general agents ("GA"). See NARRATIVE DESCRIPTION OF BUSINESS for further
information.

In addition to property and casualty insurance products, the Company has
historically sold, principally through automobile dealers, credit life and
credit accident and health insurance and extended service contracts
(collectively the "Auto Aftermarket Group").  Effective December 31, 1997, the
Company sold its entire Auto Aftermarket Group to Lyndon Insurance Group, Inc.,
Lyndon Life Insurance Company and Lyndon Property Insurance Company, all of
which are subsidiaries of Frontier Insurance Group, Inc. (collectively,
"Lyndon"), for approximately $41 million (the "Lyndon Transaction").  As a
result of the Lyndon Transaction, the Company has ceased to be engaged in the
Auto Aftermarket Group, which businesses are described below under "NARRATIVE
DESCRIPTION OF BUSINESS - Discontinued Operations and Disposed Lines of
Business".  The Company intends to use its remaining resources to seek to
develop and expand the business of Acceleration National Insurance Company, the
Company's property and casualty insurance subsidiary ("ANIC").  See "NARRATIVE
DESCRIPTION OF BUSINESS - Continuing Operations."

(b)             FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS

During 1997, the Company continued to operate predominantly in two industry
segments: (i) property and casualty insurance and (ii) life and health
insurance.  See NARRATIVE DESCRIPTION OF BUSINESS and Note K in the Notes to
Consolidated Financial Statements.  As a result of the Lyndon Transaction, the
Company will no longer operate a life and health insurance segment.

(c)             NARRATIVE DESCRIPTION OF BUSINESS

GENERAL

The Company's property and casualty segment consists of coverages for long haul
trucking, charter buses, limousines, and paratransit vehicle fleets as well as
specialized products tailored for crane operators and gun dealers, all of which
coverages are sold through GAs.  Also included are lines previously
discontinued which include commercial multi-peril, farmowners' multi-peril,
ancillary inland marine and realtors' errors and omissions coverages ("REO").
The Company's property and casualty segment also includes extended service
contracts which were insured by ANIC and sold primarily through automobile
dealers, and which were wholly reinsured on January 1, 1998 as part of  the
Company's sale of the Auto Aftermarket Group to Lyndon.

The Company's life and health insurance segment (which was sold effective as of
December 31, 1997 as part of the Lyndon Transaction) consisted primarily of
individual and group credit life and group credit accident and health
insurance, marketed through automobile dealers and financial institutions.

Premiums for the Company's long haul trucking and charter bus line comprised
74.1% and 53.8% of the Company's gross premiums written from continuing
operations in 1997 and 1996, respectively.  The Company did not enter into the
long haul trucking and charter bus line until 1996.  Extended service contracts
(which the Company sold as a result of the Lyndon Transaction) represented
23.8%, 32.7% and 62.9% of the Company's gross premiums written from continuing
operations in 1997, 1996 and 1995, respectively.  The extended service contract
business was ceded 100% to Lyndon effective as of January 1, 1998.

The Company's property and casualty business is conducted through ANIC.  ANIC
has licenses to conduct business in 47 states and the District of Columbia.
The majority of the Company's direct premiums written in 1997 and 1996 were
derived from sales in Florida (16.7% and 9.0%, respectively), Ohio (12.5% and
23.5%, respectively), Georgia (12.1% and 18.6%, respectively) and Virginia
(10.4% and 8.0%, respectively).   During 1995 and early 1996, ANIC was subject
to a re-qualification requirement in the



                                      2
<PAGE>   3
state of Michigan.  The re-qualification was denied.  Therefore, as of March
1996, ANIC was no longer licensed in Michigan, and accordingly discontinued
writings in said state.  The decision by the state of Michigan was based on
ANIC's experience in several discontinued lines of business.  ANIC intends to
re-apply to the state of Michigan in 1998.

CONTINUING OPERATIONS

General. As a result of the Lyndon Transaction, the Company has ceased to be
engaged in the Auto Aftermarket Group, which is described below under
Discontinued Operations and Disposed Lines of Business.  The Company intends to
use its remaining resources to seek to develop and expand the property and
casualty insurance business of ANIC as described below.

Commercial Auto Liability.  In 1996, the Company began offering coverage to
operators of long haul trucks and charter buses. The program is marketed by a
GA, Transportation Insurance Specialists ("TIS"), and its affiliate,
Countrywide Insurance Agency, Inc., which have extensive experience in this
product line.  Commercial automobile liability insurance has become one of the
Company's primary product lines.  Direct premiums written marketed by these
agencies for the Company for this product line in 1997 were approximately $30.3
million, compared to $13.8 million in 1996 (see "Note F" in the Notes to
Consolidated Financial Statements).

New Property and Casualty Products. In 1997, the Company commenced new
marketing initiatives for certain property and casualty products including a
package policy for crane operators consisting of general liability, inland
marine and commercial auto coverages.  The Company's crane program is targeted
toward qualified operators who lease cranes for specific projects.  The Company
uses an independent administrator, The Crane Institute in Maitland, Florida, to
conduct underwriting survey work and loss control in this specialized field.
The Company's business strategy for this product line is to achieve slow
controlled growth with extensive underwriting reviews.  Direct premiums written
by the Company for this product line in 1997 were approximately $198,000.

DISCONTINUED OPERATIONS AND DISPOSED LINES OF BUSINESS 

The Lyndon Transaction.  As noted above, effective as of December 31, 1997, the 
Company consummated the sale of its entire Auto Aftermarket Group to Lyndon for
approximately $41 million in cash.  More specifically, such transaction
included (i) the sale by the Company to Lyndon Insurance Group, Inc. and Lyndon
Life Insurance Company of all the outstanding capital stock of the Company's
wholly owned subsidiaries, Acceleration Life Insurance Company ("ALIC"),
Acceleration National Service Corporation ("ANSC") and Dublin International
Limited ("Dublin") and (ii) the sale by the Company's wholly owned subsidiary,
ANIC, to Lyndon Property Insurance Company ("Lyndon Property"), of ANIC's
vehicle extended service contract business.   See "Item 7. MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS" and
"Note B" to the Notes to Consolidated Financial Statements.  As a result of the
Lyndon Transaction, the Company has ceased to be engaged in the Auto
Aftermarket Group businesses, which are described below.  In connection with
the Lyndon Transaction, Lyndon Property and ANIC entered into two reinsurance
agreements effective January 1, 1998 pursuant to which ANIC ceded to Lyndon
Property and Lyndon Property assumed and reinsured the extended service
programs and all insurance policies issued after the closing date of the Lyndon
Transaction by Lyndon Property in the name of ANIC. 

The Company recognized a gain on the sale of the Auto Aftermarket Group
totaling $3.2 million after federal income taxes.  The gain on sale was
reflected in the accompanying Consolidated Statement of Operations as a gain of
$10.3 million from the sale of ANIC's vehicle extended service contract
business and ANSC and a loss of $7.1 million from the sale of ALIC and Dublin
(excluding the provision for operating loss of $495,000 during the phase-out
period).  In accordance with Accounting Principles Board Opinion No. 30 ("APB
No. 30") the gain from the sale of ANIC's vehicle extended service contract
business and ANSC is included in the Company's income from continuing
operations because such business was part of the Company's property/casualty
insurance segment which the Company continues to own and operate through ANIC.
In connection with the Lyndon transaction, the Company's loss from the sale of
ALIC and Dublin is presented in the Company's Consolidated Statement of
Operations as a disposal of a segment and reported as discontinued operations
since the sale represents the disposal of the Company's life and health
insurance segment.  See "Note B" to the Notes to Consolidated Financial
Statements.

Credit Insurance.  Prior to the sale of the Company's Auto Aftermarket Group to
Lyndon, the Company sold credit insurance primarily in connection with consumer
credit transactions, of which the most significant to the Company was
automobile purchases.  Credit life insurance generally provides funds, in the
event of the insured's death, for payment of a specific loan or loans which are
obligations of the insured.  Similarly, credit accident and health insurance
provides for payments on such loans during the term of the insured's
disability.  In most cases, the entire premium for such insurance is paid at
the time the insurance is issued and such insurance is designed to cover the
risk of loss for the scheduled term of indebtness.  Most credit insurance is





                                       3
<PAGE>   4
written on a decreasing term basis.  The policy benefit is initially the amount
of the unpaid indebtedness and decreases in amounts corresponding to the
repayment schedule.  The primary beneficiary under credit insurance is the
lender.  

The Company's gross credit insurance premiums written during 1997, 1996 and
1995, respectively, were $26.2 million, $34.1 million and $42.3 million.  The
credit insurance business decreased 23.2% in 1997 compared to 1996, 19.4% in
1996 compared to 1995, and 3.6% in 1995 compared to 1994.  The decreases in 1997
and 1996 relate primarily to the termination of a joint marketing agreement
discussed below, the loss of two significant accounts and the Company's
withdrawal from the state of Michigan.  The decrease in 1995 was primarily due
to the loss of a significant account.  During 1997, automobile purchases
continued to be the most significant consumer credit transaction for which
credit insurance was sold by the Company.  Automobile purchases were affected,
directly and indirectly, by auto prices, interest rates, the availability of
consumer credit and general economic conditions.

Extended Service Contracts.  Prior to the sale of the Company's Auto
Aftermarket Group to Lyndon, the Company sold extended service contracts under
the name "Co$tguard" which covered the cost of labor and certain parts for the
repair of automobiles and watercraft.  The Company's product covered towing,
rental car reimbursement and other benefits during the entire contract term and
enabled a purchaser to obtain from the selling dealer a service contract
covering the cost (in excess of a deductible amount where applicable) of
repairs to covered parts subsequent to the expiration of the applicable
manufacturer's warranty.  The Company marketed its extended service contracts
primarily through the same group of automobile dealers who marketed the
Company's credit insurance.  The extended service contract program was marketed
on a net cost basis to automobile dealers who then established the retail price
for the contract.  The net cost paid by the dealer included (i) the premiums
for a contractual liability policy provided the dealer by ANIC and (ii)
administrative and marketing fees.  In 1997, 1996 and 1995, the program
accounted for approximately 23.8%, 32.7% and 62.9% respectively, of the
Company's gross premiums written from continuing operations.

EMPLOYEES

As of December 31, 1997, the Company employed 37 full-time equivalent employees
(excluding 57 individuals who ceased to be employed by the Company as a result
of the Lyndon Transaction), compared to 97 as of December 31, 1996.

REINSURANCE WITH UNAFFILIATED INSURANCE COMPANIES

Reinsurance enables insurance companies to provide greater diversification of
risks and at the same time minimize risk exposure.  The reinsurer reimburses
the Company for any claims on the reinsured portion of the risk.  Although
reinsurance does not discharge the Company from primary liability to the
insured for the full amount of the insurance coverage, the industry and
regulatory practice is to exclude the reinsured portion of the risk from the
consolidated statements of operations.

COMPETITION

In the commercial auto business, the Company competes with insurance companies
which are larger and have greater capital resources available and whose
industry ratings are at higher levels than ANIC.  The principal factors that
enable the Company to compete are the relationship with the GA and the level of
service provided to accounts.  The Company's strategy with respect to such
business is to attempt to focus on product categories and market areas in which
the major property/casualty insurance companies are not fully addressing.

REGULATION

The Company is subject to regulation in the states in which it conducts
business.  The extent of such regulation varies from state to state; but in
general, all states have statutory restrictions and a supervisory agency which
has broad discretionary administrative powers.  Such regulation is designed
primarily to protect policyholders and relates to the licensing of insurers and
their agents, the approval of policy forms, the methods of computing reserves,
the form and content of financial reports and the type and concentration of
permitted investments.  Ohio and other jurisdictions in which the Company
conducts business have enacted legislation providing for specific regulation of
the relationship between licensed insurers and affiliated members of a holding
company group. Such legislation generally (1) establishes requirements and
procedures relative to the approval or disapproval of mergers and other
acquisitions of control, (2) prescribes the filing of registration statements
by insurers which are members of the holding company group, (3) subjects the
holding company to reporting requirements, (4) establishes standards for
transactions between insurers and their holding companies and between members
of a holding company group and (5) controls the payment of extraordinary
dividends.  The dividends which the Company may receive from ANIC are subject
to regulatory requirements as to minimum capital and surplus.  In addition to
regulatory considerations, management considers the overall financial strength
of an operating entity before dividends are paid to ACCEL.





                                       4
<PAGE>   5
In 1993, the National Association of Insurance Commissioners ("NAIC") adopted
Risk-Based Capital ("RBC") formulas.  These model acts require every insurer to
calculate its total adjusted capital and RBC requirement, and provides for an
insurance commissioner to intervene if the insurer experiences financial
difficulty. In 1996, these model acts became law in Ohio, which is the state of
domicile of ANIC.  The formula includes components for asset risk, liability
risk, interest rate exposure, and other factors.  ANIC exceeds all required RBC
levels as of December 31, 1997.

Generally, the net assets of ANIC available for transfer to ACCEL are limited
to the amounts that ANIC's net assets, as determined in accordance with
statutory accounting practices, exceed minimum statutory capital and surplus
requirements; however, payments of such amounts as dividends are currently
subject to regulation by Ohio law.  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
Department of Insurance of the State of Ohio ("Ohio Department").  Based on
this regulation, ANIC could pay an ordinary dividend of approximately $8.8
million to ACCEL during 1998.

ITEM 2.  PROPERTIES

The Company's executive offices are located at 12603 Southwest Freeway, Suite
315, Stafford, Texas, 77477.  The Company leases approximately 7,000 square
feet at this location with annual rental on a five-year lease expiring in
September 2000 of approximately $70,000.  The Company's legal and information
systems departments are located at 475 Metro Place North, Dublin, Ohio.  The
Company leases approximately 16,000 square feet in Dublin, Ohio, under a
five-year lease expiring in July 2001 at an annual rental of approximately
$264,000. Offsetting the annual rental expense for the remaining lease term in
Dublin is sublease rental income for approximately 10,000 square feet from
Lyndon as a result of the sale of the Auto Aftermarket Group. See "Note M" in
the Notes to Consolidated Financial Statements.

ITEM 3.  LEGAL PROCEEDINGS

From time to time the Company is a party to litigation and arbitration
proceedings in the ordinary course of its business, none of which is expected
to have a material adverse effect on the Company.

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

At a Special Meeting of Stockholders held December 30, 1997 the Stockholders
were asked to consider and vote upon one matter: the approval and authorization
of a transaction including (i) the sale of all outstanding capital stock of
ALIC, ANSC and Dublin by the Company to Lyndon and (ii) the sale of the vehicle
extended service contract business of the Company's wholly owned subsidiary,
ANIC, by the Company to Lyndon Property.

The matter was approved, having received the following number of votes:

<TABLE>
<CAPTION>
      FOR           AGAINST          ABSTAIN         NOT VOTED
      ---           -------          -------         ---------
  <S>                  <C>            <C>             <C>
  6,420,887            250            10,721          2,205,104
</TABLE>





                                       5

<PAGE>   6





                                    PART II

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

(a)  ACCEL's common stock is traded over-the-counter National Market Issues,
     under the NASDAQ symbol ACLE.

The following table sets forth the quarterly range of over-the-counter prices
for ACCEL's stock during the last two years.  These prices have been adjusted
for common stock dividends, if any, and do not include retail mark-up,
mark-down, or commissions and do not always necessarily represent actual
transactions.

<TABLE>
<CAPTION>
             1997              High              Low                    1996               High             Low
             ----              ----              ---                    ----               ----             ---
         <S>                  <C>               <C>                 <C>                  <C>               <C>
         4th Quarter          $3.813            $3.375              4th Quarter          $3.750            $2.375
         3rd Quarter           4.125             3.500              3rd Quarter           3.250             2.375
         2nd Quarter           3.125             2.875              2nd Quarter           3.750             2.500
         1st Quarter           3.250             2.813              1st Quarter           3.875             2.375
</TABLE>

(b)  The approximate number of holders of record of ACCEL's common stock ($.10
     par value) as of January 31, 1998, was 604 holders.

(c)  Dividends paid on common stock:

<TABLE>
             <S>   <C>
             1997 - -0- per share
             1996 - -0- per share
</TABLE>

Restrictions on present or future ability to pay dividends: Since June 1992,
ACCEL's Board of Directors have suspended payment of cash dividends on the
common stock until the Company returns to a level of profitability which will
sustain such payments.





                                       6
<PAGE>   7
ITEM 6. SELECTED FINANCIAL DATA

                ACCEL INTERNATIONAL CORPORATION AND SUBSIDIARIES

<TABLE>
<CAPTION>
                                                             1997          1996          1995            1994**          1993**
                                                          ---------     ---------     ---------       ---------       ---------
                                                                      (Thousands of dollars, except per share data & ratios)
<S>                                                       <C>           <C>           <C>             <C>             <C>      
Gross premiums written                                    $  40,897     $  25,629     $  12,371       $  60,504       $  95,766
Premiums ceded                                              (17,118)       (9,416)       (5,435)        (12,495)        (30,261)
Net premiums written                                         23,779        16,213         6,936          48,009          65,505
Premiums earned                                              18,717        12,466         7,459          47,600          61,649
Net investment income:
     Interest and dividends                                   1,939         1,692         1,570           6,678           8,397
     Realized gains                                           1,051           432           201             808           1,336
Total revenue                                                35,286        21,529        11,653          57,519          74,810
Policy benefits                                              15,373        10,145         6,878          24,997          38,431
Income (loss) before taxes
     and other items                                          8,116         1,370        (3,601)         (4,905)         (5,626)
Income (loss) from continuing operations                      7,015         1,327        (2,964)             --              --
Income (loss) from discontinued operations                   (5,900)          646         1,504              --              --
Extraordinary item                                               --           131            --              --              --
Net income (loss)                                             1,115         2,104        (1,460)         (5,238)         (5,281)
Earnings per common share--basic:
     Income (loss) from continuing operations                   .82           .23          (.67)             --              --
     Income (loss) from discontinued operations                (.69)          .11           .34              --              --
     Extraordinary item                                          --           .02            --              --              --
     Net income (loss)                                          .13           .36          (.33)          (1.18)          (1.19)
Earnings per common share--assuming dilution:
     Income (loss) from continuing operations                   .82           .23          (.67)             --              --
     Income (loss) from discontinued operations                (.69)          .11           .34              --              --
     Extraordinary item                                          --           .02            --              --              --
     Net income (loss)                                          .13           .36          (.33)          (1.18)          (1.19)
At end of year:
     Invested assets                                         33,921        30,302        23,697          98,189         126,590
     Total assets                                           104,094       191,325       183,507         179,948         236,181
     Policy reserves
        and liabilities                                      52,014        31,945        21,942         106,936         146,257
     Notes payable                                               --        15,000        22,531          18,462          18,847
     Common stockholders' equity                             33,589        31,641        20,560          15,366          28,583

Return on average common
     stockholders' equity                                      3.42%         8.06%        (8.13)%        (23.84)%        (17.32)%

Book value per common share                               $    3.88     $    3.68     $    4.62       $    3.46       $    6.43
</TABLE>


Note: Net income (loss) per share reflects the adoption of the Financial
      Accounting Standards Board's Statement of Financial Accounting Standards
      No. 128, Earnings per Share ("EPS"). Both basic EPS and EPS assuming
      dilution have been presented accordingly.

**  Years 1994 and 1993 have not been restated for discontinued operations.



                                       7
<PAGE>   8





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

OPERATING RESULTS FOR THE THREE YEARS ENDED DECEMBER 31, 1997

OVERVIEW

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 ALIC, ANSC and Dublin (collectively, the "Target
Corporations") for $30.2 million in cash and to sell to Lyndon Property
Insurance Company the vehicle extended service contract business of ACCEL's
wholly owned subsidiary, 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 stockholder's equity in accordance with generally accepted accounting
principles ("GAAP") 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.  As discussed
further below, the after-tax net gain on sale of the Auto Aftermarket Group was
$3.2 million which is comprised of $10.3 million in continuing operations and
($7.1 million) in discontinued operations (excluding the provision for
operating loss of $495,000 during the phase-out period). The gain was based
upon the purchase price of approximately $41 million offset by the Company's
equity in the sold subsidiaries of approximately  $32.1 million, the write-off
of goodwill related to ALIC of $.6 million, costs associated with the sale of
$.8 million and federal income taxes related to the sale of $4.3 million.

Upon consummation of the aforementioned sale, the Company ceased to be engaged
in the Auto Aftermarket Group business.  The consolidated financial statements
of the Company, for all periods presented, have been reclassified to reflect
the disposition of ALIC and Dublin which comprised the Life/Health business
segment.  Accordingly, the revenues, benefits and expenses, assets and
liabilities, and cash flows of ALIC and Dublin have been excluded from the
respective captions in the consolidated statements of operations, consolidated
balance sheets and consolidated statements of cash flows.  The net operating
results of these entities have been reported, net of applicable income taxes,
as "Income from discontinued operations"; the assets and liabilities of these
entities have been reported as "Assets of discontinued operations" and
"Liabilities of discontinued operations"; and the net cash flows of these
entities have been reported as "Net cash (used in) provided by discontinued
operations."

The gain of $10.3 million from the sale of the vehicle extended service
contract business was reflected within continuing operations of the Company in
1997 as a result of this business comprising only a portion of the Company's
property and casualty business segment.  Income before federal income taxes
related to the vehicle extended service contract business included in
continuing operations was $360,000, $740,000 and $879,000 for 1997, 1996 and
1995, respectively.

Effective January 1, 1998, ANIC ceded to Lyndon via quota share reinsurance
100% of its liability related to existing and future vehicle extended service
business written on ANIC's policy forms.  In connection with the sale, ANIC
granted Lyndon the authority to write new vehicle extended service contracts
insured by contractual liability policies issued in the name of ANIC for a
maximum period of eighteen months which expires in July 1999.  All new business
written by Lyndon utilizing ANIC's policy forms will be automatically reinsured
by Lyndon under the terms of the aforementioned reinsurance agreements.

The Company's income before income taxes and discontinued operations for 1997
was $8.1 million.  This income was primarily the result of the gain on the sale
of the vehicle extended service contract business to Lyndon which amounted to
$10.3 million.  The Company's other products within the property and casualty
segment continued their growth, producing $31.2 million in gross premiums
written in 1997 compared to $17.3 million in 1996.

The operating results for 1997 were impacted by the write-off of approximately
$150,000 in capitalized software costs related to software which was included
in the sale of assets for the vehicle extended service contract business and
the write-off of approximately $1.25 million in deferred tax assets for ACCEL
and ANIC in order to reflect deferred tax realizable values as a result of the
sale of the Auto Aftermarket Group.

The Company's income before income taxes, discontinued operations, and
extraordinary item for 1996 was $1.4 million.  This income is primarily the
result of the recognition of $4.3 million of other income related to a legal
settlement (see Liquidity and Capital Resources).  In 1996, particularly in the
first half, the Company continued to experience adverse loss development on
discontinued lines of business in the property and casualty segment.  Adverse
development on the Farmowners and related discontinued lines amounted to
$800,000.





                                       8
<PAGE>   9
The loss before income taxes and discontinued operations for 1995 was $3.6
million.  This loss was primarily driven by three factors; the foremost factor
was adverse loss development on discontinued lines of business within the
property and casualty segment. The adverse development aggregated $2.4 million
and included a $1.2 million year-end reserve increase on the discontinued REO
product.  The adverse development was partially offset by a $500,000 favorable
development on the discontinued medical business.  The second factor was the
incurral of legal fees related to the REO program litigation during 1995,
including the Company's legal action against the entities involved in the REO
program.  These actions caused the incurral of legal fees of $550,000 in 1995.
Lastly, during 1995 the Company incurred approximately $350,000 in severance
expenses related to departed employees.

REVENUE

Gross premium writings for 1997 were $40.9 million compared to $25.6 million
and $12.4 million for 1996 and 1995, respectively. Premiums written increased
from 1996 by $16.8 million for the new property and casualty programs and $1.4
million for the vehicle extended service contract program offset by a decrease
of $2.9 million for discontinued product lines.  The increase in premiums
written in 1996 compared to 1995 is primarily the result of increases of $13.8
million for the new property and casualty programs and $.6 million for the
vehicle extended service contract program offset by a decrease of $1.2 million
for discontinued product lines.  See Table II following the narrative in
Management's Discussion and Analysis.

Net premium earned was $18.7 million, $12.5 million and $7.5 million for 1997,
1996 and 1995, respectively.  The increase in 1997 as compared to 1996 and 1995
is due to the development and expansion by the Company into property and
casualty lines of business.  The net loss and loss adjustment expense ratios
remained relatively consistent at 82.1% in 1997 compared to 81.4% in 1996 and
improved from 92.2% in 1995.  See Table I following the narrative in
Management's Discussion and Analysis.

The effect of the Company's material lines of business that are in runoff was
as follows for 1997: net incurred losses and loss adjustment expenses ("LAE")
for the discontinued REO line of business were ($355,000) in relation to zero
earned premium.  This result was due in large part to a re-evaluation of LAE
reserves that lowered the reserve to the expected ultimate cost of settling the
claims.  The total number of open claims at December 31, 1997 was 10 and the
related reserves were $351,000.  Net incurred losses and LAE for the
discontinued Agriculture lines of business at December 31, 1997 were ($77,000).
The net impact on the loss ratio and net income for these discontinued lines of
business in 1997 was immaterial.

A positive impact on 1997 earnings was the level of service fees on the
extended service contracts which increased to $3.1 million in 1997 from $2.5
million in 1996. The 1996 level also showed an increase from the 1995 level of
$2.1 million.  This increase is due to an overall increase in the fee levels as
opposed to an increase in contract volume.

Commissions and selling expenses as a percent of gross premiums written
increased to 22.2% in 1997 due to an increase in the commission rates paid on
the commercial line of business. This percentage was 21.2% in 1996 and 27.6% in
1995. The decrease from 1995 to 1996 is the result of the commercial auto
business becoming a larger part of the product mix.  

Reinsurance expense recoveries increased  $1.7 million or 120% in 1997 due to
the increase in the long-haul trucking business written and reinsurance
agreements in place on this business, compared to a $1.4 million or 50% decrease
between 1996 and 1995 due to the run off of the farmowners and ancillary inland
marine business.   Also effecting 1995 was a profit sharing arrangement on the
casualty portion of this business.

The Company's general and administrative expenses increased in 1997 by $955,000
or 25% and decreased $296,000 or 7.2% between 1996 and 1995.  The 1997 increase
in general and administrative expenses is primarily attributed to the following
expense categories: salaries and wages which increased due to an increase in
the number of personnel related to the Property and Casualty product lines as
well as normal salary increases; employee welfare which increased as a result
of expenses associated with the Company's 401(K) plan and additional group
insurance expenses; and rent which increased as a result of the sale of the
Company's Dublin, Ohio office building in March 1996 and the subsequent rental
of office space in Dublin, Ohio and Stafford, Texas.  In addition, the Company
wrote-off in 1997 approximately $150,000 in capitalized software costs related
to software which was included in the sale of assets for the vehicle extended
service contract business.   The decrease in general and administrative
expenses of 7.2% between 1996 and 1995 was primarily due to increased legal
fees in 1995 as a result of the REO litigation.





                                       9
<PAGE>   10





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 maintains liquidity in its investment portfolio to generally
correspond with the liabilities outstanding on its lines of business.  At
December 31, 1997, the estimated duration of the Company's fixed income
investment portfolio was 2.4 years while the estimated liability duration was
approximately 1.4 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 $.6 million if interest rates rose and an increase of
approximately $.6 million if interest rates declined.

The Company's "available for sale" fixed maturity securities at December 31,
1997 included $3 million of mortgage-backed securities, $2.4 million of
collateralized mortgage obligation securities and $9.6 million of 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
December 31, 1997, 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.

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, ANIC could pay a dividend of
approximately $8.8 million without Ohio Department approval to ACCEL in 1998.
During 1997, ACCEL received dividends totaling approximately $5 million from
subsidiaries which were sold as part of the sale of the Auto Aftermarket Group.

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 will utilize 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 M" in the Notes to Consolidated Financial Statements.
In management's opinion, based on the





                                       10
<PAGE>   11
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.

In early 1998, the Company reached an agreement in principal to purchase 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 subject to the signing of a
definitive agreement and the completion of due diligence.

The Company has adopted Financial Accounting Standards Board ("FASB") Statement
of Accounting Standards ("SFAS") No.  125, Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of Liabilities which became
effective in 1997, and determined that this SFAS did not have a material impact
on the financial condition of the Company.  

In 1997, the FASB issued SFAS No. 128, Earnings per Share ("SFAS No. 128").
This statement, which did not have an impact on net income, establishes
standards for computing and presenting earnings per share.  Earnings per share
for all years presented have been restated to comply with SFAS No. 128.  The
Company will adopt the disclosure requirements of SFAS No. 130, Reporting
Comprehensive Income, in 1998. Adoption of this SFAS will have no effect on the
net income of the Company.  The Company will also adopt the presentation
requirements of SFAS No. 131, Disclosures about Segments of an Enterprise and
Related Information, in 1998.  Management is currently in the process of
evaluating the segment reporting disclosure requirements. Adoption of this SFAS
will have no effect on net income of the Company.

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 is in the final stages of a
project to codify statutory accounting principles to provide a comprehensive
basis of statutory accounting and reporting for use by insurance departments,
insurers, and auditors. Implementation of the codified statutory accounting
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.

YEAR 2000 CONSIDERATION

The Company is aware of the issues associated with the programming code in
existing computer systems as the millennium (Year 2000) approaches.  The
Company is utilizing internal resources to identify, correct, reprogram and
test the systems for the Year 2000 compliance.  All systems utilized by the
Company are currently Year 2000-compliant with the exception of the general
ledger system for which reprogramming efforts will be complete by December
1998, allowing adequate time for testing.  Since January 1, 1996, the Company
has incurred approximately $60,000 in costs to ensure Year 2000 compliance for
continuing operations and expects to incur approximately $40,000 in 1998
related to the final phase of Year 2000 compliance. To date, confirmations have
been received from the Company's primary processing vendors that plans are
being developed to address processing of transactions in the Year 2000.
Management has assessed the Year 2000 compliance issue and has determined that
the effect on the Company's financial condition and earnings is not material.

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.





                                       11
<PAGE>   12


                ACCEL INTERNATIONAL CORPORATION AND SUBSIDIARIES

                                     TABLE I

Several key operating ratios of the Company are as follows:

<TABLE>
<CAPTION>
                                                            Consolidated Results
                                                     (Thousands of dollars, except ratios)
                                                       1997          1996          1995
                                                    ---------     ---------     ---------
<S>                                                 <C>           <C>           <C>      
Gross premiums written                              $  40,897     $  25,629     $  12,371
Net premiums earned                                 $  18,717     $  12,466     $   7,459
RATIOS:
    Loss and LAE incurred to net premiums earned         82.1%         81.4%         92.2%
    Commissions and selling expenses and
       general and administrative expenses
       to gross premiums written                         33.9%         36.1%         60.9%
    Commissions and selling expenses,
       reinsurance expense recovery
       and change in deferred policy
       acquisition costs to net premiums earned          22.8%         25.0%         22.4%
    Taxes, licenses and fees to gross
       premiums written                                   3.2%          4.3%          6.8%
</TABLE>






                                       12
<PAGE>   13


                ACCEL INTERNATIONAL CORPORATION AND SUBSIDIARIES

                                    TABLE II
                        Changes in Gross Premiums Written
                             Year Ended December 31
                      (Thousands of dollars, except ratios)

<TABLE>
<CAPTION>
                                                                                  1997                     1996
                                                                                   vs.         %            vs.          %
Gross Premiums Written                     1997         1996         1995         1996        Change       1995        Change
                                         --------     --------     --------     --------     --------    --------     --------
<S>                                      <C>          <C>          <C>          <C>            <C>       <C>           <C>    
Continuing lines of business:
    Commercial auto                      $ 30,293     $ 13,793     $     --     $ 16,500        119.6 %  $ 13,793           --
    Commercial multi-peril                    215          100           --          115        115.0 %       100           --
    Extended service contracts              9,744        8,375        7,777        1,369         16.3 %       598          7.7 %
    Other property/casualty lines             230           18           28          212       1177.8 %       (10)       (35.7)%
                                         --------     --------     --------     --------     --------    --------     --------
       Total continuing lines              40,482       22,286        7,805       18,196         81.6 %    14,481        185.5 %
                                         --------     --------     --------     --------     --------    --------     --------

Discontinued lines of business
   included in continuing operations:
    Medical and miscellaneous
       life and health                        441        1,985           72       (1,544)       (77.8)%     1,913       2656.9 %
    Vendor's single interest                  (35)         (59)        (798)          24        (40.7)%       739        (92.6)%
    Agriculture, REO and other
       property & casualty                      1          362        5,292         (361)       (99.7)%    (4,930)       (93.2)%
    Other                                       8        1,055           --       (1,047)       (99.2)%     1,055           --

                                         --------     --------     --------     --------     --------    --------     --------
Total discontinued lines                      415        3,343        4,566       (2,928)       (87.6)%    (1,223)       (26.8)%
                                         --------     --------     --------     --------     --------    --------     --------
Gross premiums written
   from continuing operations            $ 40,897     $ 25,629     $ 12,371     $ 15,268         59.6 %  $ 13,258        107.2 %
                                         ========     ========     ========     ========     ========    ========     ========
</TABLE>




                                       13



<PAGE>   14




                           ANNUAL REPORT ON FORM 10-K

                  ITEM 8, ITEM 14 (a) (1) and (2), (c) and (d)

                  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

         LIST OF FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES

                                CERTAIN EXHIBITS

                         FINANCIAL STATEMENT SCHEDULES

                          YEAR ENDED DECEMBER 31, 1997

                        ACCEL INTERNATIONAL CORPORATION

                                STAFFORD, TEXAS









                                       14


<PAGE>   15





                          INDEPENDENT AUDITORS' REPORT





The Board of Directors and Stockholders
ACCEL International Corporation:


We have audited the consolidated financial statements of ACCEL International
Corporation and subsidiaries (the Company) as listed in the accompanying index.
In connection with our audits of the consolidated financial statements, we also
have audited the financial statement schedules as listed in the accompanying
index.  These consolidated financial statements and financial statement
schedules are the responsibility of the Company's management.  Our
responsibility is to express an opinion on these consolidated financial
statements and financial statement schedules based on our audits.

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

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of ACCEL
International Corporation and subsidiaries as of December 31, 1997 and 1996,
and the consolidated results of their operations and their cash flows for each
of the years in the three-year period ended December 31, 1997, in conformity
with generally accepted accounting principles.  Also in our opinion, the
related financial statement schedules when considered in relation to the basic
consolidated financial statements taken as a whole, present fairly, in all
material respects, the information set forth therein.



                                             KPMG Peat Marwick LLP




Columbus, Ohio
March 13, 1998





                                       15

<PAGE>   16

                  ACCEL INTERNATIONAL CORPORATION AND SUBSIDIARIES

                          CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
                                                                     December 31,
                                                                1997          1996
                                                              --------      --------
                                                              (Thousands of dollars)
<S>                                                           <C>           <C>     
ASSETS

Investments available for sale, at fair value--Note C:
     Fixed maturities (cost: 1997--$21,614,000;
        1996--$21,575,000)                                    $ 21,789      $ 21,500
     Equity securities (cost:  1997--$4,879,000;
        1996--$4,981,000)                                        4,879         4,436
     Short-term investments
        (cost:  1997--$7,253,000; 1996--$4,366,000)              7,253         4,366

                                                              --------      --------
                                                                33,921        30,302

Cash                                                             1,589           415

Receivables:
     Premiums in process of transmittal--Note F, less
        allowance (1997--$130,000; 1996--$168,000)              11,633         6,459
     Amounts due from reinsurers                                16,739         6,743
     Amounts due from former subsidiaries                        1,201            --
                                                              --------      --------
                                                                29,573        13,202

Accrued investment income                                          252           263
Prepaid reinsurance premiums                                     9,567         5,572
Deferred policy acquisition costs                                3,112         1,418
Equipment--at cost, less accumulated
     depreciation (1997--$273,000;  1996--$162,000)                409           231
Leasehold improvements, less accumulated amortization
     (1997--$3,000; 1996--$2,000)                                   35             5
Receivable from sale of discontinued and disposed
     of operations--Note B                                      24,987            --
Cost in excess of fair value of net assets of
     subsidiaries at dates of acquisition
     less accumulated amortization                                  --           716
Deferred tax asset                                                  --         2,477
Assets of discontinued operations--Note B                           --       135,967
Other assets                                                       649           757
                                                              --------      --------
                                                              $104,094      $191,325
                                                              ========      ========
</TABLE>








                                                                     (Continued)

  
                                       16
<PAGE>   17



                 ACCEL INTERNATIONAL CORPORATION AND SUBSIDIARIES

                    CONSOLIDATED BALANCE SHEETS -- (CONTINUED)


<TABLE>
<CAPTION>
                                                                    December 31,
                                                                  1997          1996
                                                               ---------     ---------
                                                                (Thousands of dollars)
<S>                                                            <C>           <C>      
LIABILITIES AND COMMON STOCKHOLDERS' EQUITY

Policy Reserves and Liabilities:
   Unearned premium reserves--Note G                           $  29,986     $  20,929
   Insurance claims--Notes G and I                                22,028        11,016
                                                               ---------     ---------
                                                                  52,014        31,945
Other Liabilities:
   Premium deposits held                                           2,076           363
   Deferred reinsurance commissions                                1,635           655
   Amounts due reinsurers                                          4,563         2,654
   Note payable--Note E                                               --        15,000
   Commissions payable                                             2,842         2,662
   Accounts payable and other liabilities                          3,097         2,456
   Current federal income taxes                                    4,278            36
   Amounts due former subsidiaries                                    --         1,299
   Liabilities of discontinued operations--Note B                     --       102,614
                                                               ---------     ---------
                                                                  18,491       127,739
                                                               ---------     ---------
                                                                  70,505       159,684
                                                               ---------     ---------



Commitments and Contingencies--Notes G and M

Redeemable preferred stock:
   Authorized shares--1,000,000;
       no issued or outstanding shares                                --            --

Common stockholders' equity--Notes C, D, J, O and S:
   Common stock, $.10 par value
       Authorized shares (1997--15,000,000;
             1996--15,000,000)
       Issued shares (1997--9,445,183;
             1996--9,401,162)                                        944           940
   Additional paid-in capital                                     32,610        32,507
   Retained earnings                                               6,518         5,403
   Less 797,420 treasury shares at cost                           (6,599)       (6,599)
   ESOP loan--Note J                                                  --           (32)
   Net unrealized appreciation (depreciation) on
       investment securities--Note C                                 116          (578)
                                                               ---------     ---------
                      Net common stockholders' equity             33,589        31,641
                                                               ---------     ---------

   Total liabilities & common stockholders' equity             $ 104,094     $ 191,325
                                                               =========     =========
</TABLE>



See notes to consolidated financial statements.







                                       17
<PAGE>   18


                ACCEL INTERNATIONAL CORPORATION AND SUBSIDIARIES

                      CONSOLIDATED STATEMENTS OF OPERATIONS


<TABLE>
<CAPTION>
                                                                      Year Ended December 31,
                                                                   1997         1996         1995
                                                                 --------     --------     --------
                                                           (Thousands of dollars, except per share data)
<S>                                                              <C>          <C>          <C>     
REVENUE:
     Gross premiums written--Notes F and G                       $ 40,897     $ 25,629     $ 12,371
     Less reinsurance ceded--Note G                                17,118        9,416        5,435
                                                                 --------     --------     --------
        Net premiums written                                       23,779       16,213        6,936
     Decrease (increase) in unearned premium reserves              (5,062)      (3,747)         523
                                                                 --------     --------     --------
        Premiums earned--Note G                                    18,717       12,466        7,459
     Net investment income--Note C:
        Interest and dividends                                      1,939        1,692        1,570
        Realized gains                                              1,051          432          201
     Service fees on extended service
        contracts                                                   3,051        2,450        2,137
     Other income--Notes B and Q                                   10,528        4,489          286
                                                                 --------     --------     --------
                                                                   35,286       21,529       11,653
                                                                 --------     --------     --------
BENEFITS AND EXPENSES:
     Loss and loss adjustment expenses--Notes G and I              15,373       10,145        6,878
     Commissions and selling expenses                               9,100        5,436        3,419
     Reinsurance expense recovery                                  (3,083)      (1,381)      (2,792)
     General and administrative                                     4,776        3,821        4,117
     Taxes, licenses and fees                                       1,312        1,107          840
     Interest--Note E                                               1,425        1,969        1,748
     Decrease (increase) in deferred policy
        acquisition costs                                          (1,733)        (938)       1,044
                                                                 --------     --------     --------
                                                                   27,170       20,159       15,254
                                                                 --------     --------     --------
INCOME (LOSS) BEFORE FEDERAL INCOME
     TAXES, DISCONTINUED OPERATIONS                                 8,116        1,370       (3,601)
     AND EXTRAORDINARY ITEM
     Federal income taxes--Note H:
        Current expense (benefit)                                     (52)          --          (11)
        Deferred expense (benefit)                                  1,153           43         (626)
                                                                 --------     --------     --------
                                                                    1,101           43         (637)
                                                                 --------     --------     --------

INCOME (LOSS) FROM CONTINUING OPERATIONS                            7,015        1,327       (2,964)

Discontinued operations--Note B:
       Income from operations of discontinued business
           segment (net of income tax of  ($93,000) in 1997,
           ($238,000) in 1996 and $997,000 in 1995)                 1,744          646        1,504
      Loss on disposal of business segment, including
           provision for operating loss of  $495,000 during
           phase-out period (net of income tax of $2,020,000)      (7,644)          --           --
                                                                 --------     --------     --------

INCOME (LOSS) BEFORE EXTRAORDINARY
     ITEM                                                           1,115        1,973       (1,460)

Extraordinary item--gain on
     extinguishment of debt--Note E                                    --          131           --
                                                                 --------     --------     --------

NET INCOME (LOSS)                                                $  1,115     $  2,104     $ (1,460)
                                                                 ========     ========     ========
</TABLE>





                                                                     (Continued)


                                       18
<PAGE>   19


                ACCEL INTERNATIONAL CORPORATION AND SUBSIDIARIES

                CONSOLIDATED STATEMENT OF OPERATIONS--(CONTINUED)


<TABLE>
<CAPTION>
                                                              Year Ended December 31,
                                                      1997              1996             1995
                                                 -------------     -------------    -------------
                                                  (Thousands of dollars, except per share data)
<S>                                              <C>               <C>              <C>           
Earnings per common share--basic:
     Income (loss) from continuing operations    $        0.82     $        0.23    $       (0.67)
     Income from discontinued operations                   .20               .11              .34
     Loss on disposal of business segment                 (.89)               --               --
     Income (loss) before extraordinary item               .13               .34            (0.33)
     Extraordinary item                                     --               .02               --
                                                 -------------     -------------    -------------
     Net income (loss)                           $        0.13     $        0.36    $       (0.33)
                                                 =============     =============    =============
Earnings per common share--assuming dilution:
     Income (loss) from continuing operations    $        0.82     $        0.23    $       (0.67)
     Income from discontinued operations                   .20               .11              .34
     Loss on disposal of business segment                 (.89)               --               --
     Income (loss) before extraordinary item               .13               .34            (0.33)
     Extraordinary item                                     --               .02               --
                                                 -------------     -------------    -------------
     Net income (loss)                           $        0.13     $        0.36    $       (0.33)
                                                 =============     =============    =============
Weighted average number of common
     shares outstanding                              8,610,757         5,904,398        4,446,432
                                                 =============     =============    =============
</TABLE>



See notes to consolidated financial statements.









                                       19
<PAGE>   20

                ACCEL INTERNATIONAL CORPORATION AND SUBSIDIARIES
             CONSOLIDATED STATEMENTS OF COMMON STOCKHOLDERS' EQUITY
                       Three Years Ended December 31, 1997
                             (Thousands of dollars)


<TABLE>
<CAPTION>
                                                                                                Net unrealized 
                                                                                                 appreciation   Foreign 
                                                 Additional                  Common             (depreciation)  currency
                                       Common     paid-in      Retained  stock held in           on investment translation
                                        stock     capital      earnings     treasury   ESOP loan  securities   adjustments    Net
                                       --------  ----------   ----------   ----------  ---------- -----------  ----------  ---------
<S>                                    <C>       <C>          <C>          <C>          <C>        <C>        <C>        <C>       
Balances at December 31, 1994          $    524  $   24,066   $    4,759   $   (6,599)  $   (627)  $ (6,672)  $    (85)  $   15,366
    Payments on and write down
       of ESOP loan                          --        (364)          --           --        466         --         --          102
    Change in net unrealized
       depreciation on
       investment securities                 --          --           --           --         --      6,467         --        6,467
    Change in foreign currency
       translation adjustment                --          --           --           --         --         --         85           85
    Net loss                                 --          --       (1,460)          --         --         --         --       (1,460)
                                       --------  ----------   ----------   ----------   --------   --------   --------   ----------
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
            (Note J)                         11         223           --           --         --         --         --          234
    Issuance of 4,047,310 shares of
       Common Stock in conjuction
       with the Rights Offering and
       Supplemental Offering (Note E)       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                 --          --           --           --         --        694         --          694
    Issuance of 44,021 shares of
       Common Stock under
       Common Stock Option Plan               4         103           --           --         --         --         --          107
            (Note J)
    Net income                               --          --        1,115           --         --         --         --        1,115
                                       --------  ----------   ----------   ----------   --------   --------   --------   ----------
Balances at December 31, 1997          $    944  $   32,610   $    6,518   $   (6,599)        --   $    116         --   $   33,589
                                       ========  ==========   ==========   ==========   ========   ========   ========   ==========
</TABLE>

See notes to consolidated financial statements.





                                       20
<PAGE>   21
                ACCEL INTERNATIONAL CORPORATION AND SUBSIDIARIES

                      CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
                                                                                         Year Ended December 31,
                                                                                     1997         1996          1995
                                                                                  ----------   ----------   ----------
                                                                                          (Thousands of dollars)
<S>                                                                               <C>          <C>          <C>        
OPERATING ACTIVITIES:
     Income (loss) from continuing operations                                     $    7,015   $    1,327   $   (2,964)
     Adjustments to reconcile income (loss) from continuing operations
         to net cash used in operating activities:
            Change in premiums receivable                                             (5,174)      (5,659)       1,431
            Change in accrued investment income                                           11          (72)          49
            Change in prepaid reinsurance premiums                                    (3,995)      (5,572)       1,706
            Change in premium deposits held                                            1,713          363         (318)
            Change in unearned premium reserves                                        9,057        6,674       (4,120)
            Change in insurance claim reserves                                        11,012        3,363        1,275
            Change in amounts due to and from reinsurers                              (8,087)        (300)         108
            Change in other assets, other liabilities
                and accrued income taxes                                                 935        1,713          772
            Interest paid in kind                                                         --          403          569
            Accrual of discount on bonds                                                 (51)         (62)        (109)
            Amortization of premium on bonds                                              52           39           49
            Amortization of deferred policy acquisition  costs                         4,457        2,226        2,402
            Policy acquisition costs deferred                                         (6,151)      (3,431)      (1,345)
            Reinsurance commissions earned                                            (3,122)      (1,381)      (2,805)
            Reinsurance commissions received                                           4,102        1,894        1,380
            Provision for depreciation and amortization                                  110          111           54
            Net realized gains on investments                                         (1,051)        (432)        (201)
                                                                                  ----------   ----------   ----------
     Net cash (used in) provided by continuing operations                             10,833        1,204       (2,067)
     Net cash (used in) provided by discontinued operations                           (7,605)      (1,969)      (2,232)
                                                                                  ----------   ----------   ----------
     Net cash (used in) provided by operating activities
         before extraordinary item                                                     3,228         (765)      (4,299)
            Extraordinary gain                                                            --          131           --
                                                                                  ----------   ----------   ----------
NET CASH (USED IN) PROVIDED BY OPERATING ACTIVITIES                                    3,228         (634)      (4,299)
                                                                                  ----------   ----------   ----------

INVESTING ACTIVITIES:
     Sale of investments available for sale                                           17,677        9,070        7,535
     Purchase of investments available for sale                                      (19,552)     (15,406)      (2,807)
     Other, net                                                                         (318)        (160)         (54)
                                                                                  ----------   ----------   ----------
NET CASH (USED IN) PROVIDED BY INVESTING ACTIVITIES                                   (2,193)      (6,496)       4,674
                                                                                  ----------   ----------   ----------

FINANCING ACTIVITIES:
     Payment of ESOP loan                                                                 32          129          102
     Repayment of notes payable                                                           --         (600)     (13,000)
     Issuance of notes payable                                                            --           --       16,500
     Issuance of Common Stock under Stock Option Plan                                    107          234           --
     Issuance of Common Stock under Rights Offering                                       --        3,284           --
                                                                                  ----------   ----------   ----------
NET CASH PROVIDED BY FINANCING ACTIVITIES                                                139        3,047        3,602
                                                                                  ----------   ----------   ----------
NET INCREASE (DECREASE) IN CASH                                                        1,174       (4,083)       3,977
Cash at beginning of year                                                                415        4,498          521
                                                                                  ----------   ----------   ----------
CASH AT END OF YEAR                                                               $    1,589   $      415   $    4,498
                                                                                  ==========   ==========   ==========

Supplemental schedule of non-cash financing activities:
     Cancellation of Subordinated Notes as consideration
     for the purchase of Common Stock--Note E                                             --   $    5,703           --
                                                                                  ==========   ==========   ==========

     Transfer of note payable to ALIC--Note E                                     $   15,000   $    1,500           --
                                                                                  ==========   ==========   ==========

See notes to consolidated financial statements 
</TABLE>




                                       21
<PAGE>   22



                ACCEL INTERNATIONAL CORPORATION AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                        DECEMBER 31, 1997, 1996 AND 1995

NOTE A--SIGNIFICANT ACCOUNTING POLICIES

BASIS OF PRESENTATION:  The accompanying 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") which, as to the insurance
company subsidiaries, differ in some respects from statutory accounting
practices prescribed or permitted by state insurance departments.  The
significant accounting policies followed by the Company that materially affect
financial reporting are summarized below.

PRINCIPLES OF CONSOLIDATION: The accompanying consolidated financial statements
include the accounts of ACCEL and its wholly-owned subsidiaries except for
Randjill Group, Ltd ("RGL") (see Note M).  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 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/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.

The following is a description of the most significant risks facing
property/casualty insurers and how the Company mitigates those risks:

    LEGAL/REGULATORY RISK is the risk that changes in the legal or regulatory
    environment in which an insurer operates will create additional expenses
    not anticipated by the insurer in pricing its products.  That is,
    regulatory initiatives, new legal theories or insurance company
    insolvencies through guaranty fund assessments may create costs for the
    insurer beyond those currently recorded in the consolidated financial
    statements.  The Company mitigates this risk by operating throughout the
    United States, thus reducing its exposure to any single jurisdiction and
    also by employing underwriting and loss adjusting practices which identify
    and minimize the adverse impact of this risk.

    CREDIT RISK is the risk that issuers of securities owned by the Company
    will default or that other parties, including reinsurers, which owe the
    Company money, will not pay.  The Company minimizes this risk by adhering
    to a conservative investment strategy, by maintaining reinsurance and
    credit and collection policies and by providing for any amounts deemed
    uncollectible.

    INTEREST RATE RISK is the risk that interest rates will change and cause a
    decrease in the value of an insurer's investments.  The Company mitigates
    this risk by attempting to match the maturity schedule of its assets with
    the expected payouts of its liabilities.  To the extent that liabilities
    come due more quickly than assets mature, an insurer would have to borrow
    funds or sell assets prior to maturity and potentially recognize a gain or
    loss.

ACCOUNTING ESTIMATES:  In preparing the 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.






                                       22
<PAGE>   23


                ACCEL INTERNATIONAL CORPORATION AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(CONTINUED)

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

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.

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

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.

FAIR VALUES OF FINANCIAL INSTRUMENTS:  The fair value of a financial instrument
is the amount at which the financial instrument could be exchanged in a current
transaction between willing parties.  In cases where quoted market prices are
not available, fair value is based on estimates using present value or other
valuation techniques.

These techniques are significantly affected by the assumptions used, including
the discount rate and estimates of future cash flows.  Although fair value
estimates are calculated using assumptions that management believes are
appropriate, changes in assumptions could cause these estimates to vary
materially.  In that regard, the derived fair value estimates cannot be
substantiated by comparison to independent markets and, in many cases, could
not be realized in the immediate settlement of the instruments.  The disclosure
requirements related to financial instruments exclude certain assets and
liabilities.  Accordingly, the aggregate fair value amounts presented do not
represent the underlying value of the Company.

The tax ramifications of the related unrealized gains and losses may have a
significant effect on fair value estimates and have not been considered in the
estimates.

The carrying amounts reported in the consolidated balance sheets for cash,
short-term investments, accrued investment income, premiums in process of
transmittal, and amounts due from reinsurers approximate their fair value.

Fair values for fixed maturity, equity and asset and mortgage backed securities
are based on quoted market prices, where available.  If quoted market prices
are not available, fair values are based on quoted market prices of comparable
instruments at amortized value (see Note C).

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.





                                       23
<PAGE>   24





                ACCEL INTERNATIONAL CORPORATION AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(CONTINUED)

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

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 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 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
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 (see Note J).

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 years presented have been restated to comply with
SFAS No.  128.

RECLASSIFICATIONS:  Certain amounts in the 1996 and 1995 consolidated financial
statements have been reclassified to conform with the 1997 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 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.






                                       24
<PAGE>   25

                ACCEL INTERNATIONAL CORPORATION AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(CONTINUED)

NOTE B -- SALE OF AUTO AFTERMARKET GROUP--(CONTINUED)

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" of
approximately $25 million as of December 31, 1997 in the Consolidated Balance
Sheets represents the 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 (see Note E).  The after-tax net gain on sale of the Auto
Aftermarket Group was $3.2 million which was comprised of $10.3 million in
continuing operations (included in "Other income" in the 1997 Consolidated
Statement of Operations) and ($7.1 million) in discontinued operations
(excluding the provision for operating loss of $495,000 during the phase-out
period).  The income tax expense of $2 million included in the loss on disposal
of business segment in the 1997 consolidated statement of operations includes
$1.5 million current tax expense for the distribution of the policyholders'
surplus account as a result of the sale of ALIC (see Note H), current tax
expense of $2.8 million for the gain on the sale of the subsidiaries included
in discontinued operations, and $2.5 million deferred tax benefit and $.2
million current tax expense, respectively, related to the operations during the
phase-out period of the subsidiaries included in discontinued operations.

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, ANSC and Dublin that comprised the Life/Health business
segment.  Accordingly, the assets, liabilities, revenues, benefits and
expenses, and cash flows of ALIC and Dublin have been excluded from the
respective captions in the consolidated balance sheets, consolidated statements
of operations, and consolidated statements of cash flows for all periods
presented.  The net operating results of these entities have been reported, net
of applicable income taxes, as "Income from discontinued operations", the
assets and liabilities of these entities have been reported as "Assets of
discontinued operations" and "Liabilities of discontinued operations", and the
net cash flows of these entities have been reported as "Net cash (used in)
provided by discontinued operations."

Summarized information for the discontinued operations is as follows:

<TABLE>
<CAPTION>
                                                        Year Ended December 31,
                                                       1997       1996      1995
                                                     --------   --------  --------
                                                         (Thousands of dollars)
<S>                                                  <C>        <C>       <C>     
Revenue                                              $ 31,815   $ 36,416  $ 38,958
Income before provision for
     income taxes                                      (3,787)       884     2,501
Income from discontinued operations, including loss
     on disposal, net of income taxes                  (5,900)       646     1,504
</TABLE>


<TABLE>
<CAPTION>
                                                     Prior to Sale
                                                    on December 31, December 31,
                                                          1997          1996 
                                                      ------------  ------------
                                                        (Thousands of dollars)
<S>                                                   <C>           <C>         
Total assets, consisting primarily of investments,
     receivables, prepaid reinsurance premiums and
     deposits, and deferred policy acquisition costs  $    124,011  $    135,967
Total liabilities, consisting primarily of policy
     reserves and claims                                    91,855       102,614
                                                      ------------  ------------
Net assets of discontinued operations                 $     32,156  $     33,353
                                                      ------------  ------------
</TABLE>






                                       25
<PAGE>   26



                ACCEL INTERNATIONAL CORPORATION AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(CONTINUED)

NOTE B -- SALE OF AUTO AFTERMARKET GROUP--(CONTINUED)

The vehicle extended service contract business sold to Lyndon Property and ANSC
were components of the Company's property/casualty business segment, and
therefore are included in continuing operations for all periods presented.  The
Company continues to write property/casualty insurance products.  The sale
resulted in a gain of $10.3 million which is included in "Other income" in the
1997 consolidated statement of operations.

Total assets consisting primarily of investments, cash, premiums receivable and
amounts due from affiliates for the vehicle extended service contract business
were $17.6 million as of December 31, 1997.  Total liabilities consisting
primarily of unearned premium reserves, loss reserves and commissions payable
for the vehicle extended service contract business were $17.6 million as of
December 31, 1997.  Other summarized financial information for the vehicle
extended service contract business for the three years ended December 31, 1997
is as follows:

<TABLE>
<CAPTION>
                                                1997    1996    1995
                                               ------  ------  ------
                                               (Thousands of dollars)
<S>                                            <C>     <C>     <C>   
Revenue, primarily premiums and fee income on
  vehicle extended service contracts           $9,223  $9,129  $9,097
Net income                                        360     740     879
</TABLE>


NOTE C--INVESTMENTS

At December 31, 1997 and 1996, investments in cash and securities with a
carrying value of $5,484,000 and $5,427,000, respectively, were on deposit with
state insurance departments to satisfy regulatory requirements.

The change in net unrealized gains (losses) on fixed maturity and equity
securities is summarized as follows:

<TABLE>
<CAPTION>
                                          Year Ended December 31,
                                         1997      1996      1995 
                                       -------   -------   -------
                                          (Thousands of dollars)
<S>                                    <C>       <C>       <C>    
       Securities available for sale:
         Fixed maturities              $   250   $  (385)  $ 6,417
         Equity securities                 444       (21)       50
         Short-term investments             --        33        --
                                       -------   -------   -------
                                       $   694   $  (373)  $ 6,467
                                       =======   =======   =======
</TABLE>

Realized gains (losses) on investments are summarized as follows:

<TABLE>
<S>                                         <C>       <C>      <C>    
       Securities available for sale:
         Fixed maturities:
           Gross realized gains             $   102   $   134  $   117       
           Gross realized losses                (14)       --       (4)      
                                                                             
         Equity securities:                                                  
           Gross realized gains               1,206       298      106       
           Gross realized losses               (243)       --      (18)      
                                            -------   -------  -------       
                                            $ 1,051   $   432  $   201       
                                            =======   =======  =======       
</TABLE>                                                                     


The major sources of investment income are summarized as follows:

<TABLE>
<CAPTION>
                                   Year Ended December 31,
                                  1997      1996       1995 
                                 -------   -------   -------
                                    (Thousands of dollars)
<S>                              <C>       <C>       <C>    
       Fixed maturities          $ 1,465   $ 1,343   $ 1,417
       Equity securities             312       232       143
       Short-term investments        297       164        47
       Other                          --        91       377
                                 -------   -------   -------
                                   2,074     1,830     1,984
       Investment expenses          (135)     (138)     (414)
                                 -------   -------   -------
          Net investment income  $ 1,939   $ 1,692   $ 1,570
                                 =======   =======   =======
</TABLE>






                                       26
<PAGE>   27



                ACCEL INTERNATIONAL CORPORATION AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(CONTINUED)

NOTE C--INVESTMENTS--(CONTINUED)

The amortized cost and estimated fair value of fixed maturity securities by
category, all of which were available for sale, are as follows:

<TABLE>
<CAPTION>
                                                             Gross       Gross
                                                Amortized  unrealized  unrealized      Fair
                                                  cost       gains       losses        value
                                               ----------  ----------  ----------   ----------
                                                           (Thousands of dollars)
<S>                                            <C>         <C>         <C>          <C>       
December 31, 1997

U. S. Treasury and U. S. government
  agency securities                            $    5,414  $       85  $       --   $    5,499
State and political subdivision
  securities                                          180           9          --          189
Mortgage-backed securities                          2,980          24          --        3,004
Collateralized mortgage obligations                 2,419          --          (3)       2,416
Asset-backed securities                             9,574          95         (20)       9,649
U. S. corporate securities                          1,047           9         (24)       1,032
                                               ----------  ----------  ----------   ----------
     Total                                     $   21,614  $      222  $      (47)  $   21,789
                                               ==========  ==========  ==========   ==========

December 31, 1996

U. S. Treasury and U. S. government
  agency securities                            $    6,431  $       21  $      (19)  $    6,433
State and political subdivision
  securities                                          700          16          --          716
Mortgage-backed securities                          3,579          27         (64)       3,542
Collateralized mortgage obligations                 5,769          26         (54)       5,741
Asset-backed securities                             3,061          34         (40)       3,055
U. S. corporate securities                          1,490          19         (38)       1,471
Redeemable preferred stocks                           545          --          (3)         542
                                               ----------  ----------  ----------   ----------
     Total                                     $   21,575  $      143  $     (218)  $   21,500
                                               ==========  ==========  ==========   ==========
</TABLE>

The amortized cost and estimated fair value of fixed maturity securities, all
of which were available for sale, at December 31, 1997, by contractual
maturity, are summarized as follows:

<TABLE>
<CAPTION>
                                               Amortized      Fair
Maturity                                          cost        value   
                                               ----------  ----------
                                               (Thousands of dollars)
<S>                                            <C>         <C>       
Due in one year or less                        $       --  $       --
Due after one year through five years               5,996       6,076
Due after five years through ten years                180         189
Due after ten years                                   465         455
Mortgage-backed securities                          2,980       3,004
Collateralized mortgage obligations                 2,419       2,416
Asset-backed securities                             9,574       9,649
                                               ----------  ----------
Total                                          $   21,614  $   21,789
                                               ==========  ==========
</TABLE>


The expected maturities in the foregoing table will differ from contractual
maturities because borrowers may have the right to call or prepay obligations
with or without penalty.  Mortgage-backed securities owned have an expected
weighted average maturity of over 10 years.

Proceeds from the sale of securities available-for-sale during 1997, 1996 and
1995 were $18,011,000, $8,728,000 and $7,535,000, respectively.  Gross gains of
$1,308,000 ($432,000 in 1996 and $223,000 in 1995) and gross losses of $257,000
($0 in 1996 and $22,000 in 1995) were realized on those sales.






                                       27
<PAGE>   28




                ACCEL INTERNATIONAL CORPORATION AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(CONTINUED)


NOTE D--STOCKHOLDERS' EQUITY AND TRANSFER LIMITATIONS

Generally, the net assets of ANIC available for transfer to ACCEL are limited
to the amounts that ANIC's net assets, as determined in accordance with
statutory accounting practices, exceed minimum statutory capital and surplus
requirements; however, payments of such amounts as dividends are currently
subject to regulation by Ohio law.  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
Department of Insurance of the State of Ohio ("Ohio Department").  Based on
this regulation, ANIC could pay a dividend of approximately $8.8 million to
ACCEL during 1998 without prior approval.

The statutory basis capital and surplus and net income (loss) of ANIC, as
reported to insurance regulatory authorities, are summarized as follows:

<TABLE>
<CAPTION>
                                                           ANIC
                                                           ----
                                                    (Thousands of dollars)
       <S>                                                <C>
       Statutory capital and surplus
           at December 31:
                           1997                           $25,258
                           1996                            13,017

        Statutory net income (loss) for
           year ended December 31:

                           1997                           $ 8,826
                           1996                               884
                           1995                            (2,574)
</TABLE>


NOTE E--NOTES PAYABLE

In 1991, ACCEL issued $5.8 million of subordinated notes (the "Subordinated
Notes").  The Subordinated Notes had a nine- year term with no principal
payable until maturity, and with 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 and $569,000 for the 1996 and 1995 interest payments,
respectively.

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 the $5.6 million 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 in 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.





                                       28
<PAGE>   29




                ACCEL INTERNATIONAL CORPORATION AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(CONTINUED)

NOTE E--NOTES PAYABLE--(CONTINUED)

On December 29, 1995, the Company issued senior notes (the "Senior Notes")
totaling $16.5 million at 9.50%, maturing on April 1, 2001. The proceeds from
these notes were used to retire a previous loan outstanding and to liquidate an
intercompany loan between ACCEL and an insurance subsidiary. The Senior Notes
were payable to the same unaffiliated company which was a party to a reinsurance
agreement with ALIC. This reinsurance agreement was structured such, that as
future profits emerged on the reinsured block of business, the profits would be
held by the reinsurance company, and ultimately applied to pay interest on and
to redeem the Senior Notes. Profits in excess of the amount required to retire
the Senior Notes were to be returned to ALIC. As of December 31, 1996, $1.5
million of the profits on this block of business were released to ALIC in the
form of the aforementioned Senior Notes. This release resulted in a balance of
$15.0 million of Senior Notes outstanding as of December 31, 1996. The
reinsurance agreement between ALIC and the unaffiliated company was commuted on
December 31, 1997 as a condition of the sale of the Auto Aftermarket Group. The
Senior Notes were transferred from the unaffiliated company to ALIC in
connection with the commutation of the reinsurance agreement on December 31,
1997 and retired with proceeds from the sale.

During 1997, 1996 and 1995, ACCEL paid interest on notes of $1,069,000,
$403,000 and $1,125,000, respectively.


NOTE F--BUSINESS CONCENTRATION

Commercial Auto has become a primary product line for the Company since its
introduction as a new product in 1996. The program is marketed by a general
agent located in Florida, Transportation Insurance Specialists ("TIS"), and its
affiliate, Countrywide Insurance Agency, Inc. Gross written premium was $30.3
million and $13.8 million for 1997 and 1996, respectively. Gross earned premium
was $23.6 million and $8.4 million, respectively, for 1997 and 1996 while
premium receivable, net of commission, due from the general agents was $10.6
million and $5.2 million, respectively, as December 31, 1997 and 1996.


NOTE G--REINSURANCE

The ceding of insurance through reinsurance agreements does not discharge the
primary liability of the original underwriter to the insured, but it is the
practice of insurers to treat risks that have been reinsured with other
companies, to the extent of the reinsurance, as though they were not risks for
which the original insurer is liable. Should the reinsurer not be able to meet
its obligations, those obligations are the ultimate responsibility of the
Company. Therefore, in financial statement presentation, premiums and policy
benefits are presented net of that portion of risks reinsured with other
companies.

In 1996, the Company entered into reinsurance contracts associated with its
property and casualty lines. Under these agreements, the Company transfers a
percentage of risk to the related reinsurer. The Company also has agreements
which transfer risks after a predetermined loss has been reached. Premiums ceded
amounted to $17.1 million, $9.4 million and $5.4 million for 1997, 1996 and
1995, respectively. Unearned premium reserves associated with these agreements
at December 31, 1997 and 1996 are $9.6 million and $5.6 million, respectively,
and the liability for insurance claims is $14.3 million and $5.8 million at
December 31, 1997 and 1996, respectively.

The following data summarizes certain aspects of the Company's reinsurance
activity for 1997, 1996 and 1995.

Premiums written and earned in 1997, 1996 and 1995 are summarized as follows:

<TABLE>
<CAPTION>
                               1997                  1996                  1995  
                               ----                  ----                  ----  
                        Written     Earned    Written     Earned    Written     Earned 
                        --------   --------   --------   --------   --------   --------
                                             (Thousands of dollars)
<S>                     <C>        <C>        <C>        <C>        <C>        <C>     
Direct                  $ 38,848   $ 30,885   $ 25,629   $ 18,953   $ 12,371   $ 16,488
Assumed                    2,049        957         --         --         --         --
Ceded                    (17,118)   (13,125)    (9,416)    (6,487)    (5,435)    (9,029)
                        --------   --------   --------   --------   --------   --------
Net premiums            $ 23,779   $ 18,717   $ 16,213   $ 12,466   $  6,936   $  7,459
                        ========   ========   ========   ========   ========   ========
</TABLE>






                                       29
<PAGE>   30



                ACCEL INTERNATIONAL CORPORATION AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(CONTINUED)

NOTE G--REINSURANCE--(CONTINUED)

Loss and loss adjustment expenses incurred in 1997, 1996 and 1995 are
summarized as follows:

<TABLE>
<CAPTION>
                                1997       1996       1995
                              --------   --------   --------
                                   (Thousands of dollars)
<S>                           <C>        <C>        <C>     
Direct                        $ 27,593   $ 15,198   $ 11,778
Assumed                          1,150         --         --
Ceded                          (13,370)    (5,053)    (4,900)
                              --------   --------   --------
Net loss and loss adjustment
  expenses                    $ 15,373   $ 10,145   $  6,878
                              ========   ========   ========
</TABLE>


NOTE H--FEDERAL INCOME TAXES

The Company files a consolidated federal income tax return with its
subsidiaries.  For tax purposes, certain amounts had been accumulated by ALIC
in a memorandum tax account designated as "policyholders' surplus" that is
taxed when distributed to shareholders.  Policyholders' surplus on a tax basis
was $4,489,000 at December 31, 1997 and was taxed as a result of the sale of
ALIC effective December 31, 1997 (see Note B).

In 1997, 1996 and 1995 the Company paid $825,000, $1,100,000 and $410,000,
respectively, in federal income taxes.

Total income tax expense (benefit) differed from the amount computed by
applying the statutory federal income tax rate to income (loss) before taxes as
follows:

<TABLE>
<CAPTION>
                                                 Year Ended December 31,
                                                 1997      1996      1995 
                                                -------   -------   -------
                                                   (Thousands of dollars)
<S>                                             <C>       <C>       <C>     
        Income tax (benefit) at statutory rate  $ 2,769   $   465   $(1,224)
        Amortization of goodwill                     36        36        36
        Dividends-received deduction                (50)      (55)      (48)
        Tax-exempt interest                         (10)       (9)       (9)
        Net operating loss utilized              (1,656)       --        --
        Net operating loss for future use        (2,353)       --        --
        Valuation allowance                       2,329      (319)      448
        Other, net                                   36       (75)      160
                                                -------   -------   -------
        Federal income tax expense (benefit)    $ 1,101   $    43   $  (637)
                                                =======   =======   =======
</TABLE>

The tax effects of temporary differences that give rise to significant
components of the deferred tax assets and liabilities at December 31, 1997 and
1996 are summarized as follows:

<TABLE>
<CAPTION>
                                                           December 31,
                                                          1997       1996
                                                         -------   -------
                                                       (Thousands of dollars)
<S>                                                      <C>       <C>    
        Deferred Tax Liabilities:
           Deferred policy acquisition costs             $ 1,057   $   482
           Other                                             285        72
                                                         -------   -------
                                                           1,342       554
                                                         -------   -------
        Deferred Tax Assets:
           Unearned premium reserves                       1,388     1,044
           Deferred reinsurance commissions                  556       223
           Net operating loss carryforward                 1,917       993
           Insurance reserves                                132       374
           Vehicle extended service contract adjustment       --     1,900
           Other                                             115       223
                                                         -------   -------
          Total deferred tax assets                        4,108     4,757
           Valuation allowance                            (2,766)   (1,726)
                                                         -------   -------
          Net deferred tax assets                          1,342     3,031
                                                         -------   -------
                                                         $    --   $ 2,477
                                                         =======   =======
</TABLE>

The Company has $5.6 million of net operating losses that are available to
reduce future income taxes and will expire as follows: $1.9 million in 2008 and
$3.7 million in 2009.





                                       30
<PAGE>   31



                ACCEL INTERNATIONAL CORPORATION AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(CONTINUED)

NOTE H--FEDERAL INCOME TAXES--(CONTINUED)

The Company has determined the valuation allowance related to the deferred tax
assets based on its analysis of future deductible amounts.  This analysis
included a schedule of the deductibility of non-life items pursuant to Section
801 of the Internal Revenue Code and a determination of the realization of
losses generated by available for sale securities.  The Company recorded a
valuation allowance of $1,767,000 and $1,353,000 as of December 31, 1995 and
January 1, 1995, respectively.


NOTE I--LIABILITY FOR INSURANCE CLAIMS

The following table provides a reconciliation of beginning and ending liability
balances for the Company's insurance claims for 1997, 1996 and 1995.

<TABLE>
<CAPTION>
                                          1997       1996       1995 
                                        --------   --------   --------
                                             (Thousands of dollars)
<S>                                     <C>        <C>        <C>     
     Liability for insurance claims
       at beginning of year             $ 11,016   $  7,653   $  6,378

       Less reinsurance recoverables      (5,820)    (2,240)      (889)
                                        --------   --------   --------

     Net balances at beginning of year     5,196      5,413      5,489

     Policy benefits incurred:

       Policy benefits incurred for
         events of the current year       15,705     10,086      6,486

       Policy benefits incurred for
         events of prior years              (332)        59        392
                                        --------   --------   --------

     Total policy benefits incurred       15,373     10,145      6,878
                                        --------   --------   --------


     Payments:

       Policy benefits for insured
         events of the current year        9,558      7,215      4,516

       Policy benefits for insured
         events in prior years             3,233      3,147      2,438
                                        --------   --------   --------

     Total payments                       12,791     10,362      6,954
                                        --------   --------   --------

     Net balances at end of year           7,778      5,196      5,413

     Plus reinsurance recoverables        14,250      5,820      2,240
                                        --------   --------   --------

     Liability for insurance claims
       at end of year                   $ 22,028   $ 11,016   $  7,653
                                        ========   ========   ========
</TABLE>


The table above reflects increases in the liability for insurance claims
resulting from increased writings in the Company's Commercial Auto business.
The increase in loss and loss adjustment expense incurred in 1995 for events of
prior years relates to management's reevaluation of discontinued lines of
business.

In establishing the liability for insurance claims, management considers facts
currently known and the current state of the law and coverage litigation.
Liabilities are recognized for known claims (including the cost of related
litigation) when sufficient information has been developed to indicate the
involvement of a specific insurance policy, and management can reasonably
estimate its liability.  In addition, liabilities have been established to
cover additional exposures on both known and unasserted claims.  Estimates of
the liabilities are reviewed and updated continually.




                                       31
<PAGE>   32





                ACCEL INTERNATIONAL CORPORATION AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(CONTINUED)

NOTE J--COMMON STOCKS AND COMMON STOCK OPTIONS

In 1992, the Board of Directors voted to suspend payment of cash dividends on
the common stock until the Company returns to a level of profitability that
will sustain the payment of cash dividends.

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 $1.0 million for the purchase of ACCEL's common stock.  This loan was
retired in 1997.

During November 1989, ACCEL's Board of Directors also approved a stock buy back
program to repurchase up to 1,000,000 common shares in the open market.  ACCEL
has purchased 229,185 shares at a cost of $1.7 million under this program.  The
buy back program was funded from internally generated funds.

During 1982, ACCEL adopted a stock option plan (the "82 Plan") under which
shares of common stock were made available to eligible officers and key
personnel.  Under the terms of the 82 Plan, the option price had to be at least
100% of the fair value at the date of grant, and, accordingly, there were no
charges to income resulting from grants.  Options were granted at prices
ranging from $2.769 to $11.750 per share from April 1982 through April 1992.
The options become exercisable after one year of continuous employment in
installments of 50% at the end of the first and the second year from the date
of grant and expired ten years from the date of grant.  A total of 300,000
(349,672 after giving effect to all subsequent stock dividends) shares had been
reserved for options under the 82 Plan.  No additional shares may be granted
under the 82 Plan.

During 1987, ACCEL adopted the 1987 Incentive Stock Option Plan (the "87 Plan").
The 87 Plan provided for incentive stock options with respect to a maximum of
300,000 (347,287 after giving effect to all subsequent stock dividends) shares
of common stock of ACCEL prior to the expiration of the 87 Plan in April 1997.
During June of 1991, ACCEL's Board of Directors and shareholders approved the
First Restatement of the 1987 Stock Incentive Plan (the "Restated Plan"). The
Restated Plan replaced the 87 Plan except as to options granted and outstanding
under the 87 Plan. The Restated Plan reserved an additional 450,000 shares for
key employees and 50,000 shares for non-employee directors. Options could be
granted prior to expiration of the Restated Plan covering shares subject to
lapsed or terminated options. No additional shares may be granted under the 87
Plan or the Restated Plan.

During May 1995, two new Key Employees were granted stock options under ACCEL's
Restated Plan. Under the terms of their arrangement with ACCEL, both were
granted stock options for ACCEL's common stock in lieu of salary for their first
year of service. Options for 150,000 shares were granted at an option price per
share of $2.125, the fair value of ACCEL's common stock on the date of grant.
The options vest immediately and become exercisable one year following the date
of grant; however, they would become exercisable immediately upon either a)
change of control of ACCEL, or b) involuntary termination. The options would be
forfeited if employment with ACCEL was voluntarily terminated prior to May 23,
1996. The options will lapse five years from the effective date of grant.

At the end of their first and second years of service, the status of these two
key employees was evaluated by the Compensation Committee and based on the value
of their services, began receiving compensation effective June 1, 1996. As part
of their compensation both were granted stock options pursuant to the 1996 Stock
Incentive Plan (the "96 Plan"). In 1996, options for 165,000 shares were granted
at an option price per share of $2.50, the fair value of ACCEL's common stock on
the date of grant. In 1997, options for 90,000 shares were granted at an option
price per share of $2.75, the fair value of ACCEL's common stock on the date of
grant. The terms are identical to the aforementioned options granted in May
1995.

In June 1996, ACCEL stockholders approved the adoption of the 96 Plan. The 96
Plan provides for stock options, stock appreciation rights, restricted stock,
phantom stock and performance awards. No award may be granted after June 11,
2006, the expiration date of the 96 Plan. The total number of shares of common
stock available under the 96 Plan is 1,000,000 shares and up to 100,000 shares
may be issued pursuant to the exercise of outside directors' stock options.

Options granted to employees or independent agents of the Company under the 96
Plan will be priced at not less than 100% of the fair value of the common stock
on the date of grant and will become exercisable as to 25% of the shares subject
to the option upon completion of each full year of employment until fully
vested. Grants of options to outside directors under the 96 Plan will also be
priced at 100% of fair value on the date of grant but, in the absence of any
provisions in an option to the contrary, the options will become exercisable as
to 50% of the shares subject to the option upon completion of each full year
until vested. In substantially all other respects, the 96 Plan contains
provisions similar to the previous plans.




                                       32
<PAGE>   33



                ACCEL INTERNATIONAL CORPORATION AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(CONTINUED)

NOTE J--COMMON STOCKS AND COMMON STOCK OPTIONS--(CONTINUED)

On August 28, 1996, the Board of Directors of the Company approved a resolution
to offer to all key employees holding options outstanding that were priced in
excess of the current market value the opportunity to receive "re-priced"
options. Such key employees were permitted to surrender, cancel and terminate
any or all outstanding options (whether vested or not) and receive options for
an equal number of shares under the 96 Plan at the then current price of $2.50
per share. The re-priced or "replacement" options would be newly granted options
and become exercisable in accordance with the vesting provisions of the 96 Plan.
A total of 161,371 shares were surrendered by key employees as part of the
re-pricing opportunity and 4,500 shares were not surrendered.

The following table summarizes activity under the respective plans.

<TABLE>
<CAPTION>
                                       1997                   1996                     1995
                              ----------------------  -----------------------  ----------------------
                                Number    Weighted      Number     Weighted     Number      Weighted
                              of Shares   Avg Price   of Shares    Avg Price   of Shares   Avg Price
                              ----------  ----------  ----------   ----------  ----------  ----------
<S>                              <C>      <C>            <C>       <C>            <C>      <C>       
1996 Plan

Outstanding at
    beginning of year            430,371  $    2.514          --           --          --          --
Outstanding at
    end of year                  558,054  $    2.595     430,371   $    2.514          --          -- 
Exercisable                      205,821  $    2.509          --           --          --          -- 
Granted                          207,000  $    2.750     430,371*  $    2.514          --          -- 
Exercised                         28,021  $    2.554          --           --          --          -- 
Forfeited                         51,296  $    2.563          --           --          --          -- 
Expired                               --          --          --           --          --          -- 

1987 Restated Plan-Employees

Outstanding at
    beginning of year            191,881  $    4.503     500,569   $    4.595     414,294  $    6.571
Outstanding at
    end of year                  122,285  $    3.347     191,881   $    4.503     500,569  $    4.622
Exercisable                      122,285  $    3.328     190,754   $    4.507     419,819  $    4.613
Granted                               --          --          --           --     241,500  $    2.172
Exercised                         12,000  $    2.125     110,000   $    2.125          --          -- 
Forfeited                             --          --     198,688*  $    6.050     155,225  $    6.101
Expired                           57,596  $    7.451          --           --          --          -- 
</TABLE>
                                                                            
*    Includes 161,371 shares that were surrendered under the repricing offer to
     key employees.







                                       33
<PAGE>   34

                ACCEL INTERNATIONAL CORPORATION AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(CONTINUED)

NOTE J--COMMON STOCKS AND COMMON STOCK OPTIONS--(CONTINUED)

<TABLE>
<CAPTION>
                                    1997                        1996                       1995
                          ------------------------    ------------------------    ------------------------
                            Number      Weighted        Number       Weighted       Number       Weighted
                          of Shares     Avg Price     of Shares     Avg Price     of Shares     Avg Price
                          ----------    ----------    ----------    ----------    ----------    ----------
<S>                           <C>       <C>               <C>       <C>               <C>       <C>       
1987 Restated Plan-Non
 Employee Directors

Outstanding at
    beginning of year         49,000    $    5.860        49,000    $    5.860        40,000    $    6.675
Outstanding at
    end of year               36,000    $    6.025        49,000    $    5.860        49,000    $    5.860
Exercisable                   36,000    $    6.025        44,500    $    6.226        36,000    $    6.806
Granted                           --            --            --            --         9,000    $    2.236
Exercised                      4,000    $    2.375            --            --            --            --
Forfeited                      9,000    $    6.347            --            --            --            --
Expired                           --            --            --            --            --            --

1982 Plan

Outstanding at
    beginning of year         18,524    $    6.486        67,401    $    7.686       111,985    $    7.721
Outstanding at
    end of year               15,049    $    6.263        18,524    $    6.486        67,401    $    7.686
Exercisable                   15,049    $    6.263        18,524    $    6.486        67,401    $    7.686
Granted                           --            --            --            --            --            --
Exercised                         --            --            --            --            --            --
Forfeited                         --            --         8,209    $    7.457        18,050    $    8.158
Expired                        3,475    $    7.451        40,668    $    8.278        26,534    $    7.515
</TABLE>


The following table summarizes information about stock options outstanding at
December 31, 1997:

<TABLE>
<CAPTION>
       Range of          # Outstanding         Weighted Avg         Weighted Avg           # Exercisable         Weighted Avg
    Exercise Prices       at 12/31/97         Remaining Life       Exercise Prices          at 12/31/97         Exercise Prices 
    ---------------       -----------         --------------       ---------------         -------------       -----------------
<S>                          <C>                   <C>                 <C>                    <C>                    <C>   
        $2 - $ 4             657,054               8.15                $2.548                 305,821                $2.434
        $4 - $ 6              12,000               5.5                 $5.188                  12,000                $5.188
        $6 - $ 8              50,334               0.25                $6.263                  49,334                $6.263
        $8 - $10              12,000               3.5                 $9.750                  12,000                $9.750
</TABLE>

The per share weighted-average fair value of stock options granted during 1997,
1996 and 1995 was $1.42, $1.20 and $.79, respectively, on the date of grant
using the Black Scholes option-pricing model with the following weighted-average
assumptions: 1997 - expected dividend yield 0%, risk-free interest rate of
6.00%, and expected lives of 5 to 10 years (based on the terms of the grant);
1996 - expected dividend yield 0%, risk-free interest rates ranging from 6.85%
to 7.09% (based on the date of the grant), and expected lives of 5 to 10 years
(based on the terms of the grant); 1995 - expected dividend yield 0%, risk-free
interest rate of 7.00%, and expected lives of 5 to 10 years (based on the terms
of the grant). The Company used a volatility factor of 25% in determining the
fair value of options for pro forma purposes.

The Company applies APB Opinion No. 25 in accounting for these plans and,
accordingly, no compensation cost has been recognized for its stock options in
the consolidated financial statements. Had the Company determined compensation
cost based on the fair value at the grant date for its stock options under SFAS
No. 123, the Company's net income would have been reduced to the pro forma
amounts indicated below:





                                       34
<PAGE>   35


                ACCEL INTERNATIONAL CORPORATION AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(CONTINUED)

NOTE J--COMMON STOCKS AND COMMON STOCK OPTIONS--(CONTINUED)

<TABLE>
<CAPTION>
                                                                         1997         1996         1995
                                                                      ---------    ---------    ---------
<S>                                                                   <C>          <C>          <C>       
       Net income (loss) as reported                                  $   1,115    $   2,104    $  (1,460)
       Pro forma net income (loss)                                        1,044        1,980       (1,580)

       Net income (loss) per share as reported - basic                $     .13    $     .36    $    (.33)
       Net income (loss) per share as reported - assuming dilution          .13          .36         (.33)
       Pro forma net income (loss) per share - basic                        .12          .34         (.36)
       Pro forma net income (loss) per share - assuming dilution            .12          .34         (.36)
</TABLE>

Pro forma net income reflects only options granted subsequent to 1994.
Therefore, the full impact of calculating compensation cost for stock options
under SFAS No. 123 is not reflected in the pro forma net income amounts
presented above because compensation cost is reflected over the options' vesting
periods from one to four years and compensation cost for options granted prior
to January 1, 1995 is not considered.


NOTE K--SEGMENT INFORMATION

The Company operates primarily in the property/casualty insurance industry.
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 income taxes,
discontinued operations and extraordinary item, and identifiable assets by
segment are summarized as follows:

<TABLE>
<CAPTION>
                                                        Year Ended December 31,
                                                     1997         1996         1995 
                                                   --------     --------     --------
                                                         (Thousands of dollars)
<S>                                                <C>          <C>          <C>     
Revenue:
       Property/Casualty                           $ 35,055     $ 19,380     $ 11,510
       Corporate and Other                              231        2,149          143
                                                   --------     --------     --------
         Total                                     $ 35,286     $ 21,529     $ 11,653
                                                   ========     ========     ========


Income (loss) before income taxes, discontinued
  operations and extraordinary item:
       Property/Casualty                           $  9,901     $  1,774     $ (1,121)
       Corporate and Other                           (1,785)        (404)      (2,480)
                                                   --------     --------     --------
         Total                                     $  8,116     $  1,370     $ (3,601)
                                                   ========     ========     ========
Identifiable assets:
       Property/Casualty                           $ 89,303     $ 54,503     $ 38,977
       Corporate and Other                           14,791          855          366
                                                   --------     --------     --------
         Total                                     $104,094     $ 55,358     $ 39,343 
                                                   ========     ========     ========
</TABLE>

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

NOTE L--RETIREMENT SAVINGS AND STOCK OWNERSHIP PLAN

The Acceleration Retirement Savings Plan became effective in 1985. During 1989,
ACCEL's Board of Directors approved changes to this plan to include an ESOP and
concurrently changed the plan name to the "Acceleration Retirement Savings and
Stock Ownership Plan" ("Plan"). For the first six months of 1997, 1996 and 1995
the Board authorized contributions to the Plan at a level that would fund a 100%
match of the first 6% of each participating employee's tax deferred
contributions.





                                       35
<PAGE>   36



                ACCEL INTERNATIONAL CORPORATION AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(CONTINUED)

NOTE L--RETIREMENT SAVINGS AND STOCK OWNERSHIP PLAN--(CONTINUED)

Effective July 1, 1997, the Company reorganized the Plan into two separate
Plans.  One plan, the ACCEL International Corporation 401K Plan ("401K Plan"),
authorized contributions at a level that would fund a 75% match of the first 6%
of each participating employee's tax deferred contributions.  The second plan,
the ACCEL International Corporation Stock Ownership Plan ("ESOP Plan"),
authorized a 2% funding to the plan for each eligible employee.  The Company
incurred contribution expense for 1997, 1996 and 1995 of $209,000, $187,000 and
$198,000, respectively.

The 401K Plan allows all employees who meet certain eligibility requirements
and choose to participate to defer a percentage of their salary and contribute
to the 401K Plan on a tax deferred basis.  The ESOP Plan meanwhile has a 2%
discretionary contribution from the Company once the employee meets eligibility
requirements.  The Company contributions to the ESOP Plan are used to purchase
shares of ACCEL's common stock.  As a result of the reorganization of the 401K
and ESOP Plans, the Company funded $68,000 as a partial termination in 1997.


NOTE M--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.

By complaint dated February 5, 1998, the Superintendent of Insurance of the
State of New York, as Liquidator of Galaxy and Administrator of the Guaranty
Fund, sued ANIC in New York State Supreme Court. The complaint alleges, among
other things, breach of contract and demands that ANIC specifically perform its
alleged obligations under the Certificates. The complaint seeks an amount in
excess of $6.5 million in damages.

As reflected above, the suit seeks 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's position continues to be
that the Guaranty Fund has no 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 on March 31, 1998. ANIC will
continue to vigorously defend itself against any such claims and its alleged
liability in the suit. Although the suit is of recent origin and the Company is
not in a position to estimate the magnitude of exposure for indemnification or
reimbursement, it continues to believe that the ultimate resolution of the
matter will not have a material adverse effect on the financial condition or
results of operations of the Company.






                                       36
<PAGE>   37


                ACCEL INTERNATIONAL CORPORATION AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(CONTINUED)

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

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.

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 by ALIC and all
increases appear to have been approved by the proper regulatory authority. The
Company and Commonwealth are cooperating to vigorously defend the matter. Joint
motions to dismiss and to strike the class action allegations were recently
filed in the U.S. District Court, District of North Dakota, Southeastern
Division. Both motions are currently pending before the Court. The Company
believes 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.

The Company currently leases office space under two operating leases which
expire in 2000 and 2001.  These leases are accounted for as operating leases.
Minimum rental commitments in effect at December 31, 1997 are as follows:

<TABLE>
<CAPTION>
          Year Payable                         Annual Minimum Rentals
          ------------                         ----------------------
                <S>                                 <C>
                1998                                $ 239,000
                1999                                  241,000
                2000                                  222,000
                2001                                   95,000
                2002                                       -- 
                                                    ---------
                Total                               $ 797,000
                                                    =========
</TABLE>

The amount of rent charged to continuing operations was $80,000, $68,000 and
$16,800 in 1997, 1996 and 1995, respectively. Total future rental payments have
not been reduced by $364,000 of sublease rentals to be received in the future
under non-cancelable subleases.


NOTE N--RELATED PARTY TRANSACTIONS

During 1995, the Company sold its investment in First International Bancorp, an
affiliate of CIHC, to entities associated with CIHC. The sales price was
$1,250,000; no gain or loss was realized on the disposition.

As more fully described in Note E, during 1996 the Company retired all of the
outstanding Subordinated Notes held by CIHC.


NOTE O--RISK BASED CAPITAL

In 1993, the National Association of Insurance Commissioners ("NAIC") adopted
Risk-Based Capital (RBC) formulas for insurance companies. These model acts
require every insurer to calculate its total adjusted capital and RBC
requirement, and provides for an insurance commissioner to intervene if the
insurer experiences financial difficulty. These model acts became law in Ohio,
ANIC's state of domicile, in 1996. The formula includes components for asset
risk, liability risk, interest rate exposure, and other factors. ANIC exceeds
all required RBC levels as of December 31, 1997.




                                       37
<PAGE>   38



                ACCEL INTERNATIONAL CORPORATION AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(CONTINUED)

NOTE P--QUARTERLY CONSOLIDATED RESULTS OF OPERATIONS (UNAUDITED)

Quarterly consolidated results of operations for 1997 and 1996 are summarized
as follows:

<TABLE>
<CAPTION>
                                                  First     Second      Third     Fourth
                                                 Quarter    Quarter    Quarter    Quarter
                                                 -------    -------    -------    -------
                                               (Thousands of dollars, except per share data)
<S>                                              <C>        <C>        <C>        <C>    
1997

Premiums written:
  From continuing operations                     $ 7,416    $12,307    $ 9,402    $11,772
  From discontinued operations                     5,983      6,839      7,627      5,834
                                                 -------    -------    -------    -------
As previously reported                            13,399     19,146     17,029     17,606

Premiums earned:
  From continuing operations                       3,814      4,210      4,476      6,217
  From discontinued operations                     6,737      8,397      7,385      6,911
                                                 -------    -------    -------    -------
As previously reported                            10,551     12,607     11,861     13,128

Loss and loss adjustment expense incurred:
  From continuing operations                       2,766      3,401      3,160      6,046
  From discontinued operations                     3,248      2,827      2,958      2,302
                                                 -------    -------    -------    -------
As previously reported                             6,014      6,228      6,118      8,348

Net income                                           225        378        429         83

Net income per common share:
  Basic                                              .03        .04        .05        .01
  Assuming dilution                                  .03        .04        .05        .01

1996

Premiums written:
  From continuing operations                     $ 8,099    $ 8,076    $ 6,538    $ 2,916
  From discontinued operations                     8,598      9,093      8,750      6,342
                                                 -------    -------    -------    -------
As previously reported                            16,697     17,169     15,288      9,258

Premiums earned:
  From continuing operations                       2,161      2,968      3,698      3,639
  From discontinued operations                     7,904      8,530      9,479      7,579
                                                 -------    -------    -------    -------
As previously reported *                          10,065     11,498     13,177     11,218

Loss and loss adjustment expense incurred:
  From continuing operations                       1,686      2,220      3,521      2,718
  From discontinued operations                     3,405      3,374      3,908      3,506
                                                 -------    -------    -------    -------
As previously reported *                           5,091      5,594      7,429      6,224

Net income                                            46         46        160      1,852

Net income per common share:
  Basic                                              .01        .01        .03        .31
  Assuming dilution                                  .01        .01        .03        .31
</TABLE>

The net income per common share amounts do not equal amounts previously reported
due to the restatement of per share amounts under SFAS No. 128. The 1996 net
income per common share amounts, in the aggregate, do not equal the amount on
the 1996 consolidated statement of operations due to the Rights Offering (see
Note E).

Certain quarterly information has been restated to reflect the sale of ALIC and
Dublin, which comprised the Life/Health segment, as discontinued operations.

* The previously reported total amounts for the first, second and third quarters
of 1996 have been restated to be consistent with 1996's year-end presentation
relating to certain reinsurance treaties of a discontinued subsidiary. The
restatement of these quarterly amounts did not change net income or net income
per common share as previously reported.






                                       38
<PAGE>   39



                ACCEL INTERNATIONAL CORPORATION AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(CONTINUED)


NOTE Q--LITIGATION PROCEEDS

In 1996, ACCEL received a total of $4,291,085 in proceeds from a legal action
brought by the Company against a non- affiliated marketing organization. With
the approval of the Ohio Department the proceeds from the settlement were shared
equally between ACCEL and ANIC. These proceeds have been categorized as "Other
income" in the accompanying 1996 consolidated statement of operations.


NOTE R--FOREIGN CURRENCY TRANSLATION AND OPERATING RESULTS

The financial statements of Acceleration Insurance Company, Ltd. ("AICL") were
translated into U. S. dollars using the British pound as the functional
currency. The balance sheets of AICL were translated into U. S. dollars using
exchange rates, as of the date of the consolidated financial statements. The
operating results of AICL were translated into U. S. dollars using the average
exchange rates in effect during the respective period. The consolidated results
of operations included $137,000 of pre-tax loss from AICL for the year ended
December 31, 1995. Included in foreign currency translation adjustments were
unrealized exchange gains of $85,000 in 1995.

During 1995, the Company redeemed most of its shares of AICL, which resulted in
proceeds approximating the Company's original investment in AICL. The
transaction was approved by the Department of Trade and Insurance (United
Kingdom). On February 7, 1996, the Company received the final proceeds for
redemption of its remaining shares, and AICL ceased to exist in December 1997.


NOTE S--EARNINGS PER SHARE

Common stock options were not included in the computation of earnings per share
assuming dilution because to do so would have been antidilutive for the periods
presented.

NOTE T--SUBSEQUENT EVENT

In early 1998, the Company reached an agreement in principal to purchase 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 subject to the signing of a
definitive agreement and the completion of due diligence.






                                       39
<PAGE>   40



                                    PART III


ITEM 9.  DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURES

         Not Applicable.


ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

         In accordance with General Instruction G(3), the information required
         by this Item 10 is incorporated by reference herein from the material
         under the headings "Election of Directors" and "Executive
         Compensation" contained in the Company's definitive proxy statement
         filed with the Commission relating to the annual meeting of
         stockholders to be held on June 16, 1998.

         The executive officers, their respective ages and business experience
         are as follows:  Thomas H.  Friedberg (58), Chairman of the Board,
         President and Chief Executive Officer; Douglas J. Coats (64),
         Executive Vice President; Cynthia A. Moore (36), Senior Vice
         President, Treasurer and Chief Financial Officer; Nicholas Z.
         Alexander (62), Senior Vice President, Secretary and General Counsel;
         William E.  Merritt, Jr. (62), Senior Vice President - Claims and
         Bryce E. Farmer (46), Senior Vice President - Administration.

         Mr. Friedberg joined the Company on May 23, 1995, when he was
         appointed Chairman, President & CEO.  Prior thereto, he was Chairman,
         President and CEO of Ranger Insurance Company, Houston, Texas for more
         than five years and was a director of the Company for five years..

         Mr. Coats joined the Company on May 23, 1995, when he was appointed
         Executive Vice President and a member of the Board of Directors.
         Prior thereto, he was Executive Vice President of Ranger Insurance
         Company, Houston, Texas for more than five years.

         Ms. Moore joined the Company and on August 28, 1996, she was elected
         Senior Vice President and Chief Financial Officer.  On December 31,
         1997 she was elected Treasurer of the Company.  Prior thereto she was
         an Audit Executive with Ernst & Young LLP for more than five years.

         Mr. Alexander was named Senior Vice President, Secretary and General
         Counsel of the Company in 1992 and prior thereto was Vice President,
         Secretary and General Counsel of the Company for more than five years.

         Mr. Farmer joined the Company in February 1996 and was elected Senior
         Vice President Administration on March 12, 1996.  Prior thereto he had
         been Senior Vice President-Corporate Development with Universal
         Underwriters Group, Overland Park, Kansas between June 1993 and
         November 1995.  Prior thereto, he had been with Ranger Insurance
         Company, Houston, Texas for more than five years as Senior Vice
         President- Administration.

         Mr. Merritt was elected Senior Vice President-Claims for the Company
         on July 11, 1996.  For more than five years prior thereto, he had been
         Senior Vice President-Claims with Houston General Insurance Company,
         Dallas, Texas.


ITEM 11. EXECUTIVE COMPENSATION

         In accordance with General Instruction G(3), the information required
         by this Item 11 is incorporated by reference herein from the material
         under the headings "Executive Compensation" and "Incentive Stock
         Option Plans" contained in the Company's definitive proxy statement
         filed with the Commission relating to the Company's annual meeting of
         stockholders to be held on June 16, 1998.


ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
         MANAGEMENT

         In accordance with General Instruction G(3), the information required
         by this Item 12 is incorporated by reference herein from the material
         under the headings "Security Ownership and Certain Beneficial Owners"
         contained in the Company's definitive proxy statement filed with the
         Commission relating to the Company's annual meeting of stockholders to
         be held on June 16, 1998.





                                       40
<PAGE>   41




ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

         In accordance with General Instruction G(3), the information required
         by this Item 13 is incorporated by reference herein from the material
         under the heading "Certain Relationships" contained in the Company's
         definitive proxy statement filed with the Commission relating to the
         Company's annual meeting of stockholders to be held on June 16, 1998.


                                    PART IV


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

ITEM 14 (a) (l) AND (2)--INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND
FINANCIAL STATEMENT SCHEDULES COVERED BY INDEPENDENT AUDITORS' REPORT

The following consolidated financial statements of ACCEL International
Corporation and subsidiaries are included in Item 8:


    Independent Auditors' Report
    Consolidated balance sheets--December 31, 1997 and 1996
    Consolidated statements of operations--Years ended December 31, 1997, 1996
         and 1995
    Consolidated statements of common stockholders' equity--Years ended
         December 31, 1997, 1996 and 1995
    Consolidated statements of cash flows--Years ended December 31, 1997, 1996
         and 1995
    Notes to consolidated financial statements

The following financial statement schedules of ACCEL International Corporation
and subsidiaries are included in Item 14 (d):

    Schedule I   --   Summary of Investments - Other than Investments in
                      Related Parties
    Schedule II  --   Condensed Financial Information of Registrant
    Schedule III --   Supplementary Insurance Information
    Schedule IV --    Reinsurance

All other schedules to the consolidated financial statements required by Article
7 of Regulation S-X are not required under the related instructions or are
inapplicable or the required information is provided in the consolidated
financial statements, and the schedules therefore have been omitted.


ITEM 14 (c)--EXHIBITS





                                       41
<PAGE>   42


<TABLE>
<CAPTION>
Exhibit
Number   Description
------   ----------------------------------------------------------------------
<S>     <C>

(3)     Articles of Incorporation and By-Laws.

        3.1 Restated Certificate of Incorporation of the Registrant.
        (Incorporated by reference to Exhibit (3)1(g) of Registrant's Report on
        Form 10-K for the year ended December 31, 1989.)

        3.2 By-laws of Registrant. (Incorporated by reference to Exhibit B of
        the Registrant's definitive Proxy Statement as filed with the Commission
        on June 9, 1978.)

        3.3 Amendment to Article III, Section 3.02 of the Registrant's By-Laws
        as passed by the Board of Directors of the Registrant on December 1,
        1978. (Incorporated by reference to Exhibit (9)(b) of the Registrant's
        Report on Form 10-Q for the quarter ended March 31, 1979.)

        3.4 Amendment to Article II, Section 2.04 of the Registrant's By-Laws as
        passed by the Board of Directors of the Registrant on October 23, 1981.
        (Filed with the Registrant's Amendment #1 to the Registration Statement
        on Form S-7 as Exhibit (4)3(c) and incorporated herein by reference.)

        3.5 Amendment to Article II, Section 2.02 of the Registrant's By-Laws as
        approved by the Board of Directors of the Registrant on June 18, 1985.
        (Incorporated by reference to Exhibit (3) 2(d) to Registrant's Report on
        Form 10-K for the year ended December 31, 1985.)

        3.6 Amendment to Article II, Section 2.02 of the Registrant's By-Laws as
        approved by the Board of Directors of the Registrant on March 29, 1988.
        (Incorporated by reference to Exhibit (3)2(e) of Registrants Report on
        Form 10-K for the year ended December 31, 1989.)

        3.7 Amendment to Article VIII and the redesignation and alteration of
        the former Article VIII as Article IX. (Incorporated by reference to
        Exhibit (3)2(f) of Registrant's Report on Form 10-K for the year ended
        December 31, 1989.)

(10)    Material Contracts.

        Previously filed Material Contracts which are either terminated or
        deemed to be in the ordinary course of business to the Registrant are no
        longer identified.

        10.1 Verification of coverage of current Directors and Officers
        Liability Policy for ACCEL International Corporation as issued by
        Reliance Insurance Company, indicating coverage for the period from June
        1, 1997 to November 27, 1998.

        10.2 The Company's 1982 Incentive Stock Option Plan. (Incorporated by
        reference to Exhibit A to the Company's definitive Proxy Statement for
        the 1982 annual meeting of stockholders of the Company.)

        10.3 The Company's 1987 Incentive Stock Option Plan. (Incorporated by
        reference to Exhibit (10) 7. to the Registrant's Report on Form 10-K for
        the year ended December 31, 1987.)
</TABLE>





                                       42
<PAGE>   43

<TABLE>
<CAPTION>
Exhibit
Number   Description
------   ---------------------------------------------------------------------
<S>     <C>
(10)    
Cont.   10.4 The Company's first restatement of the 1987 Stock Incentive Plan.
        (Incorporated by reference to Exhibit A to the Company's definitive
        Proxy Statement for the 1990 annual meeting of stockholders of the
        Company.)

        10.5 The Company's 1996 Stock Incentive Plan. (Incorporated by reference
        to Exhibit A to the Company's definitive Proxy Statement for the 1996
        annual meeting of stockholders of the Company.)

        10.6 Termination Agreement with Consumers Life Insurance effective July
        31, 1996. (Incorporated by reference to Form 10-K for year ended
        December 31, 1996.)

        10.7 Amendment to Termination Agreement with Consumers Life Insurance
        Company effective October 9, 1996. (Incorporated by reference to Form
        10-K for year ended December 31, 1996.)

        10.8. Stock Acquisition Agreement dated October 20, 1997 by and among
        ACCEL International Corporation, Lyndon Life Insurance Company and
        Lyndon Insurance Group, Inc. (Incorporated by reference to the Proxy
        Statement filed in connection with the Special Shareholders' meeting
        held December 30, 1997.)

        10.9. Asset Purchase Agreement dated October 20, 1997 by and among ACCEL
        International Corporation, Acceleration National Insurance Company, and
        Lyndon Life Insurance Company. (Incorporated by reference to the Proxy
        Statement filed in connection with the Special Shareholders' meeting
        held December 30, 1997.)

        10.10. Amendment No. 1 to Stock Acquisition Agreement dated January 2,
        1998 by and among ACCEL International Corporation, Acceleration National
        Insurance Company, Lyndon Life Insurance Company and Lyndon Insurance
        Group, Inc. (Incorporated by reference to the Form 8- K dated December
        31, 1997.)

(21)    Subsidiaries of the Registrant

        21.1 See Organizational Chart - all such Companies are incorporated
        herein by reference and are presently doing business under their
        respective INCORPORATED NAMES.

(23)    23.1   Consent of Independent Auditors'

(24)    24.1   Powers of Attorney

(27)    27.1 Financial Data Schedule incorporated herein by reference to the
        EDGAR filing of the Registrant for the year ended December 31, 1997.
</TABLE>





                                       43
<PAGE>   44

ITEM 14 (d)--SCHEDULES

                     SCHEDULE I - SUMMARY OF INVESTMENTS -

                   OTHER THAN INVESTMENTS IN RELATED PARTIES

                ACCEL INTERNATIONAL CORPORATION AND SUBSIDIARIES

                               DECEMBER 31, 1997



<TABLE>
<CAPTION>
           Column A                                         Column B       Column C     Column D
-------------------------------------------------------------------------------------------------
                                                                                      Amount at
                                                                                      which shown
                                                                                      in the
                                                                             Fair     Balance
         Type of Investment                                  Cost*          Value     Sheet 
-------------------------------------------------------------------------------------------------
                                                                      (Thousands of dollars)
<S>                                                        <C>           <C>           <C>       
Available for sale securities:
  Fixed maturities:
    United States government and govern-
      ment agencies and authorities                        $    5,414    $    5,499    $    5,499
    States, municipalities and
      political subdivisions                                      180           189           189
    Mortgage and asset-backed securities                       14,973        15,069        15,069
    All other corporate bonds                                   1,047         1,032         1,032
                                                           ----------    ----------    ----------
  Total                                                        21,614        21,789        21,789

  Equity securities
    Common stocks:
    Industrial & miscellaneous                                  4,879         4,879         4,879

    Short-term investments                                      7,253         7,253         7,253
                                                           ----------    ----------    ----------
    Total investments                                      $   33,746    $   33,921    $   33,921
                                                           ==========    ==========    ==========
</TABLE>


*    Original cost of equity securities, adjusted for any permanent write down,
     and, as to fixed maturities, original cost reduced by repayments and
     adjusted for amortization of premiums or accrual of discounts.





See accompanying independent auditors' report.






                                       44
<PAGE>   45

          SCHEDULE II - CONDENSED FINANCIAL INFORMATION OF REGISTRANT

                                 BALANCE SHEETS

                ACCEL INTERNATIONAL CORPORATION (PARENT COMPANY)

<TABLE>
<CAPTION>
                                                                           December 31,
                                                                        1997           1996 
                                                                     ----------     ----------
                                                                       (Thousands of dollars)
<S>                                                                  <C>            <C>       
ASSETS

  Investments                                                        $        1     $        1
  Cash                                                                       73             28
  Notes and receivables from
    consolidated subsidiaries*                                                1              3
  Deferred federal income tax                                                --            209
  Investments in subsidiaries**                                          27,986         17,809
  Net assets of discontinued operations***                                   --         33,353
  Receivable from sale of discontinued and
     disposed of operations                                              14,687             --
  Other                                                                     254            110
                                                                     ----------     ----------
                                                                     $   43,002     $   51,513
                                                                     ==========     ==========

LIABILITIES AND COMMON STOCKHOLDERS' EQUITY

  Accounts payable and other liabilities                             $      795     $    1,126
  Notes and accounts payable to subsidiaries*                             3,759          1,414
  Payable related to discontinued operations                                220          1,987
  Current federal income tax                                              4,640            345
  Notes Payable                                                              --         15,000
                                                                     ----------     ----------
                                                                          9,413         19,872
                                                                     ----------     ----------


  Common stockholders' equity:
    Common stock                                                            944            940
    Additional paid-in capital                                           32,610         32,507
    Retained earnings (including undistributed
      earnings of subsidiaries and affiliates:
      1997--$(8,700,000); 1996--$(9,274,927);                             6,518          5,403
       discontinued operations 1996--$20,463,927.)
    Treasury shares at cost                                              (6,599)        (6,599)
    ESOP loan                                                                --            (32)
    Net unrealized appreciation (depreciation) on investments               116            (66)
    Net unrealized depreciation on investments
    related to discontinued operations                                       --           (512)
                                                                     ----------     ----------
                                                                         33,589         31,641
                                                                     ----------     ----------
                                                                     $   43,002     $   51,513
                                                                     ==========     ==========
</TABLE>


*    Eliminated in consolidation

**   Eliminated in consolidation except for portion related to goodwill and ESOP
     loan.

***  Represents net assets and liabilities of certain subsidiaries which
     comprise discontinued operations.

     The condensed financial statements should be read in conjunction with the
     consolidated financial statements and notes thereto of ACCEL International
     Corporation and subsidiaries.





See accompanying independent auditors' report.




                                       45
<PAGE>   46

          SCHEDULE II - CONDENSED FINANCIAL INFORMATION OF REGISTRANT

                            STATEMENTS OF OPERATIONS

                ACCEL INTERNATIONAL CORPORATION (PARENT COMPANY)

<TABLE>
<CAPTION>
                                                          Year Ended December 31,
                                                       1997         1996         1995 
                                                     --------     --------     --------
                                                            (Thousands of dollars)
<S>                                                  <C>          <C>          <C>     
INCOME
  Net investment income:
    Dividends from subsidiaries                      $  5,011     $     --     $    803
    Interest                                               --            3            1
    Realized gains                                        226           --           --
  Other income                                              8        2,146          143
                                                     --------     --------     --------
                                                        5,245        2,149          947
EXPENSES
  General and administrative                              488          374          315
  Interest                                              1,532        2,178        2,307
                                                     --------     --------     --------
                                                        2,020        2,552        2,622
                                                     --------     --------     --------

  INCOME (LOSS) BEFORE INCOME
    TAXES AND OTHER ITEMS                               3,225         (403)      (1,675)

Federal income taxes (benefit)                            286           43         (248)
Other item--equity in undistributed net income
  (loss) of consolidated subsidiaries                   8,673        1,525       (2,668)
Other item--undistributed net income (loss)
  of former subsidiaries                              (10,497)         894        2,635
                                                     --------     --------     --------

  INCOME (LOSS) BEFORE
    EXTRAORDINARY ITEM                                  1,115        1,973       (1,460)

Extraordinary item-gain on extinguishment of debt          --          131           --
                                                     --------     --------     --------

  NET INCOME (LOSS)                                  $  1,115     $  2,104     $ (1,460)
                                                     ========     ========     ========
</TABLE>



     The condensed financial statements should be read in conjunction with the
     consolidated financial statements and notes thereto of ACCEL International
     Corporation and subsidiaries.





See accompanying independent auditors' report.





                                       46
<PAGE>   47

           SCHEDULE II - CONDENSED FINANCIAL INFORMATION OF REGISTRANT
                             STATEMENT OF CASH FLOWS
                ACCEL INTERNATIONAL CORPORATION (PARENT COMPANY)

<TABLE>
<CAPTION>
                                                                                            Year Ended December 31,
                                                                                       1997         1996         1995
                                                                                      --------     --------     --------
                                                                                             (Thousands of dollars)
<S>                                                                                   <C>          <C>          <C>      
OPERATING ACTIVITIES:
     Income (loss) from continuing operations                                         $  7,015     $  1,327     $ (2,964)
     Adjustments to reconcile income (loss) from continuing operations
         to net cash provided by operating activities:
             Change in notes and receivables due from subsidiaries                          (2)         388          830
             Change in notes and accounts payable due to subsidiaries
                and former subsidiaries                                                    578         (233)         652
             Change in other assets, other liabilities and accrued income taxes           (266)         741         (191)
             Interest paid in kind                                                          --          403          569
             Equity in (gains) losses of subsidiaries                                   (8,673)      (1,525)       2,668
             Provision for amortization of goodwill                                         65          106          107
                                                                                      --------     --------     --------
     Net cash (used in) provided by continuing operations                               (1,283)       1,207        1,671
     Net cash (used in) provided by discontinued operations                              1,221         (248)      (1,131)
                                                                                      --------     --------     --------
     Net cash (used in) provided by operating activities before extraordinary item         (62)         959          540
             Extraordinary gain                                                             --          131           --
                                                                                      --------     --------     --------
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES                                        (62)       1,090          540
                                                                                      --------     --------     --------

INVESTING ACTIVITIES:
     Additional investment in subsidiary                                                    --         (496)      (4,000)
     Sale, maturity or repayment of investments                                             --           --           49
                                                                                      --------     --------     --------
NET CASH USED IN INVESTING ACTIVITIES                                                       --         (496)      (3,951)
                                                                                      --------     --------     --------
FINANCING ACTIVITIES:
     Repayment of notes payable                                                             --         (600)     (13,000)
     Issuance of notes payable                                                              --           --       16,500
     Repayment of notes to subsidiary                                                       --       (3,927)      (1,000)
     Issuance of Common Stock under Stock Option Plan                                      107          234           --
     Issuance of Common Stock under Rights Offering                                         --        3,284           --
     Write down of ESOP loan                                                                --           --         (364)
     Other, net                                                                             --           --           32
     Stock redemption of subsidiary                                                         --           --        1,483
                                                                                      --------     --------     --------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES                                        107       (1,009)       3,651
                                                                                      --------     --------     --------
     NET INCREASE (DECREASE) IN CASH                                                        45         (415)         240
Cash at beginning of year                                                                   28          443          203
                                                                                      --------     --------     --------
CASH AT END OF YEAR                                                                   $     73     $     28     $    443
                                                                                      ========     ========     ========

Supplemental schedule of non-cash financing activities:
     Cancellation of Subordinated Notes as consideration
     for the purchase of Common Stock--Note E                                               --     $  5,703           --
                                                                                      ========     ========     ========

     Transfer of note payable to ALIC--Note E                                         $ 15,000     $  1,500           --
                                                                                      ========     ========     ========
</TABLE>

The condensed financial statements should be read in conjunction with the
consolidated financial statements and notes thereto of ACCEL International
Corporation and subsidiaries.

See accompanying independent auditors' report.



                                       47
<PAGE>   48



               SCHEDULE III - SUPPLEMENTARY INSURANCE INFORMATION
                ACCEL INTERNATIONAL CORPORATION AND SUBSIDIARIES

<TABLE>
<CAPTION>
---------------------------------------------------------------------
Column A            Column B      Column C      Column D   Column E  
---------------------------------------------------------------------
                                      December 31,                   
                   --------------------------------------------------
                                                           Other     
                   Deferred                                policy    
                   policy        Reserve for               claim and 
                   acquisition   future policy Unearned    benefits  
                   costs         benefits      Premiums    payable   
                   ----------    ----------    ----------  ----------
                                  (Thousands of dollars)
<S>                <C>           <C>           <C>         <C>       
1997
Property/Casualty       3,112            --        29,986      22,028
Other                      --            --            --          --
                   ----------    ----------    ----------  ----------
      TOTAL        $    3,112    $       --    $   29,986  $   22,028
                   ==========    ==========    ==========  ==========

1996
Property/Casualty       1,418            --        20,929      11,016
Other                      --             7            --          --
                   ----------    ----------    ----------  ----------
      TOTAL        $    1,418    $        7    $   20,929  $   11,016
                   ==========    ==========    ==========  ==========

1995
Property/Casualty         482            --        14,255       7,688
Other                      --            --            --          --
                   ----------    ----------    ----------  ----------
      TOTAL        $      482    $       --    $   14,255  $    7,688
                   ==========    ==========    ==========  ==========

<CAPTION>
-------------------------------------------------------------------------------------------
Column A            Column F   Column G    Column H     Column I    Column J     Column K
-------------------------------------------------------------------------------------------
                                                     Year ended December 31,
                   ------------------------------------------------------------------------
                                           Benefits,   Amortization
                                           claims,     of deferred 
                               Net invest- losses and  policy       Other       
                   Premium     ment        settlement  acquisition  operating    Premiums 
                   revenue     income (1)  expenses    costs (2)    expenses(1)  written
                   ----------  ----------  ----------  ----------   ----------   ----------
                                           (Thousands of dollars)
<S>                <C>         <C>         <C>         <C>          <C>          <C>       
1997
Property/Casualty      18,717       2,764      15,373      (1,733)      11,617       40,897
Other                      --         226          --          --        1,913           --
                   ----------  ----------  ----------  ----------   ----------   ----------
      TOTAL        $   18,717  $    2,990  $   15,373  $   (1,733)  $   13,530   $   40,897
                   ==========  ==========  ==========  ==========   ==========   ==========

1996
Property/Casualty      12,466       2,121      10,145        (938)       8,609       25,629
Other                      --           3          --          --        2,343           --
                   ----------  ----------  ----------  ----------   ----------   ----------
      TOTAL        $   12,466  $    2,124  $   10,145  $     (938)  $   10,952   $   25,629
                   ==========  ==========  ==========  ==========   ==========   ==========

1995
Property/Casualty       7,459       1,631       6,878       1,044        5,269       12,371
Other                      --         140          --          --        2,063           --
                   ----------  ----------  ----------  ----------   ----------   ----------
      TOTAL        $    7,459  $    1,771  $    6,878  $    1,044   $    7,332   $   12,371
                   ==========  ==========  ==========  ==========   ==========   ==========

</TABLE>



(1)  For years 1996 and 1995 allocations for investment income and other
     operating expenses are based on a number of assumptions and results would
     change if different methods were applied. For all years net investment
     income includes realized gains and losses.

(2)  Represents the net (increase) decrease in deferred policy acquisition
     costs.

See accompanying independent auditors' report.







                                       48
<PAGE>   49

                            SCHEDULE IV - REINSURANCE
                ACCEL INTERNATIONAL CORPORATION AND SUBSIDIARIES


<TABLE>
<CAPTION>
Column A                          Column B         Column C         Column D        Column E              Column F
--------------------------------------------------------------------------------------------------------------------
                                                                                                       Percentage of 
                                                    Ceded to         Assumed                              amount 
                                    Gross            other          from other                          assumed to 
                                    amount         companies        companies      Net amount              net
--------------------------------------------------------------------------------------------------------------------
                                                               (Thousands of dollars)
<S>                              <C>              <C>             <C>             <C>                      <C> 
Year Ended December 31, 1997:

Premiums

     Property and casualty       $     38,848     $   (17,118)    $      2,049    $     23,779             8.6%
                                 ============     ===========     ============    ============        ========
Year Ended December 31, 1996:

Premiums

     Property and casualty       $     25,629     $    (9,416)              --    $     16,213             0.0%
                                 ============     ===========     ============    ============        ========
Year Ended December 31, 1995:

Premiums

     Property and casualty       $     12,371     $    (5,435)              --    $      6,936             0.0%
                                 ============     ===========     ============    ============        ========
</TABLE>




See accompanying independent auditors' report.



                                       49
<PAGE>   50
                                   SIGNATURES


Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.


ACCEL INTERNATIONAL CORPORATION



By:              /S/ Cindy A. Moore
   ---------------------------------------------------
                  Cynthia A. Moore
      Senior Vice President, Chief Financial Officer
                    and Treasurer



Date:             April 13, 1998            
     --------------------------------------

Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.


<TABLE>
<CAPTION>
               Signature                       Title              Date     
---------------------------------------        ------         -------------
  <S>                                          <C>            <C>
     /S/ Robert Betagole*                      Director       March 17, 1998
---------------------------------------                       --------------
     Robert Betagole


     /S/ David T. Chase*                       Director       March 11, 1998
---------------------------------------                       --------------
     David T. Chase


     /S/ Douglas J. Coats*                     Director       March 5, 1998
---------------------------------------                       --------------
      Douglas J. Coats


  /S/ Raymond H. Deck*                         Director       March 12, 1998
---------------------------------------                       --------------
      Raymond H. Deck


    /S/Richard Desich*                         Director       March 12, 1998
---------------------------------------                       --------------
    Richard Desich


   /S/ Thomas H. Friedberg*                    Director       March 9, 1998
---------------------------------------                       --------------
     Thomas H. Friedberg
</TABLE>





                                       50
<PAGE>   51


<TABLE>
<CAPTION>
           Signature                            Title              Date     
---------------------------------------        -------        --------------
<S>                                            <C>            <C>
   /S/ Kermit G. Hicks*                        Director       March 12, 1998
---------------------------------------                       --------------
      Kermit G. Hicks


   /S/ Stephen M. Qua*                         Director       March 6, 1998
---------------------------------------                       --------------
      Stephen M. Qua


   /S/ John P. Redding*                        Director       March 12, 1998
---------------------------------------                       --------------
     John P. Redding


*By:   /S/ Nicholas Z. Alexander                              April 10, 1998
    -----------------------------------                       --------------
       Nicholas Z. Alexander
         Attorney-in-Fact
</TABLE>








                                       51
<PAGE>   52



                               INDEX TO EXHIBITS





<TABLE>
<CAPTION>
Exhibit
Number   Description
------   ---------------------------------------------------------------------
<S>     <C>
(3)     Articles of Incorporation and By-Laws.

        3.1 Restated Certificate of Incorporation of the Registrant.
        (Incorporated by reference to Exhibit (3)1(g) of Registrant's Report on
        Form 10-K for the year ended December 31, 1989.)

        3.2 By-laws of Registrant. (Incorporated by reference to Exhibit B of
        the Registrant's definitive Proxy Statement as filed with the Commission
        on June 9, 1978.)

        3.3 Amendment to Article III, Section 3.02 of the Registrant's By-Laws
        as passed by the Board of Directors of the Registrant on December 1,
        1978. (Incorporated by reference to Exhibit (9)(b) of the Registrant's
        Report on Form 10-Q for the quarter ended March 31, 1979.)

        3.4 Amendment to Article II, Section 2.04 of the Registrant's By-Laws as
        passed by the Board of Directors of the Registrant on October 23, 1981.
        (Filed with the Registrant's Amendment #1 to the Registration Statement
        on Form S-7 as Exhibit (4)3(c) and incorporated herein by reference.)

        3.5 Amendment to Article II, Section 2.02 of the Registrant's By-Laws as
        approved by the Board of Directors of the Registrant on June 18, 1985.
        (Incorporated by reference to Exhibit (3) 2(d) to Registrant's Report on
        Form 10-K for the year ended December 31, 1985.)

        3.6 Amendment to Article II, Section 2.02 of the Registrant's By-Laws as
        approved by the Board of Directors of the Registrant on March 29, 1988.
        (Incorporated by reference to Exhibit (3)2(e) of Registrants Report on
        Form 10-K for the year ended December 31, 1989.)

        3.7 Amendment to Article VIII and the redesignation and alteration of
        the former Article VIII as Article IX. (Incorporated by reference to
        Exhibit (3)2(f) of Registrant's Report on Form 10-K for the year ended
        December 31, 1989.)

(10)    Material Contracts.

        Previously filed Material Contracts which are either terminated or
        deemed to be in the ordinary course of business to the Registrant are no
        longer identified.

        10.1 Verification of coverage of current Directors and Officers
        Liability Policy for ACCEL International Corporation as issued by
        Reliance Insurance Company, indicating coverage for the period from June
        1, 1997 to November 27, 1998.

        10.2 The Company's 1982 Incentive Stock Option Plan. (Incorporated by
        reference to Exhibit A to the Company's definitive Proxy Statement for
        the 1982 annual meeting of stockholders of the Company.)

        10.3 The Company's 1987 Incentive Stock Option Plan. (Incorporated by
        reference to Exhibit (10) 7. to the Registrant's Report on Form 10-K for
        the year ended December 31, 1987.)
</TABLE>

<PAGE>   53

<TABLE>
<CAPTION>
Exhibit
Number   Description
------   ---------------------------------------------------------------------
<S>     <C>
(10)    
Cont.   10.4 The Company's first restatement of the 1987 Stock Incentive Plan.
        (Incorporated by reference to Exhibit A to the Company's definitive
        Proxy Statement for the 1990 annual meeting of stockholders of the
        Company.)

        10.5 The Company's 1996 Stock Incentive Plan. (Incorporated by reference
        to Exhibit A to the Company's definitive Proxy Statement for the 1996
        annual meeting of stockholders of the Company.)

        10.6 Termination Agreement with Consumers Life Insurance effective July
        31, 1996. (Incorporated by reference to Form 10-K for year ended
        December 31, 1996.)

        10.7 Amendment to Termination Agreement with Consumers Life Insurance
        Company effective October 9, 1996. (Incorporated by reference to Form
        10-K for year ended December 31, 1996.)

        10.8. Stock Acquisition Agreement dated October 20, 1997 by and among
        ACCEL International Corporation, Lyndon Life Insurance Company and
        Lyndon Insurance Group, Inc. (Incorporated by reference to the Proxy
        Statement filed in connection with the Special Shareholders' meeting
        held December 30, 1997.)

        10.9. Asset Purchase Agreement dated October 20, 1997 by and among ACCEL
        International Corporation, Acceleration National Insurance Company, and
        Lyndon Life Insurance Company. (Incorporated by reference to the Proxy
        Statement filed in connection with the Special Shareholders' meeting
        held December 30, 1997.)

        10.10. Amendment No. 1 to Stock Acquisition Agreement dated January 2,
        1998 by and among ACCEL International Corporation, Acceleration National
        Insurance Company, Lyndon Life Insurance Company and Lyndon Insurance
        Group, Inc. (Incorporated by reference to the Form 8- K dated December
        31, 1997.)

(21)    Subsidiaries of the Registrant

        21.1 See Organizational Chart - all such Companies are incorporated
        herein by reference and are presently doing business under their
        respective INCORPORATED NAMES.

(23)    23.1   Consent of Independent Auditors'

(24)    24.1   Powers of Attorney

(27)    27.1 Financial Data Schedule incorporated herein by reference to the
        EDGAR filing of the Registrant for the year ended December 31, 1997.
</TABLE>