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 (FEE REQUIRED)

                   For the fiscal year ended December 31, 1996

[ ]      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.)

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

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

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

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

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

Indicate by check mark if disclosure of delinquent  filers  pursuant to Item 405
of Regulations S-K is not contained  herein,  and will not be contained,  to the
best of registrant's  knowledge,  in definitive proxy or information  statements
incorporated by reference in Part III of this Form 10-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,
1997 was approximately $9,100,000.

As of January 31, 1997,  there were 8,603,742  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
May 20, 1997 are incorporated by reference into Part III.

Total sequentially numbered pages   55             Exhibit Index on page  44
                                  ------                                 ----

<PAGE>

                                     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 credit  life and  credit
accident and health insurance, extended service contracts and specialty casualty
products.  Beginning in the first  quarter of 1996,  the Company  began to offer
commercial   auto   coverages  for  long  haul   truckers  and  certain   public
transportation vehicles ("charter buses") through a general agent ("GA"). In the
second  quarter the Company began to offer  commercial  multi-peril  policies to
auto  dealers,  but elected in the third  quarter to exit this line of business.
The credit  insurance  and extended  service  contract  products  continue to be
offered  to  consumers,   principally  through  automobile  dealers,   financial
institutions  and other business  entities.  In 1990, the Company began offering
farmowners'  multi-peril and ancillary inland marine coverages through a network
of selected  agents.  These  coverages  were  discontinued  in early  1995.  See
NARRATIVE DESCRIPTION OF BUSINESS for further information.

(b)              FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS

Through 1996 the Company operated  predominately in two industry  segments: life
and health and  property  and  casualty insurance.  See "Note J" in the Notes to
Consolidated Financial Statements.

(c)              NARRATIVE DESCRIPTION OF BUSINESS

General

The Company's life and health insurance segment primarily consists of individual
and group credit life and group credit accident and health  insurance,  which is
sold  through  automobile  dealers and  financial  institutions.  The  Company's
property and  casualty  segment  consists of extended  service  contracts,  sold
primarily  through  automobile  dealers,  coverages  for long haul  trucking and
charter  buses sold through a GA and the  discontinued  commercial  multi-peril,
farmowners'  multi-peril,  ancillary  inland  marine  and  realtors  errors  and
omissions coverages ("REO").

Credit insurance and extended service  contracts,  which represent a significant
portion of the  Company's  business,  are affected by  automobile  sales.  These
premiums  accounted  for  approximately  72.8% of the Company's  gross  premiums
written in 1996.

Premiums for the long haul trucking and charter bus line comprised  23.6% of the
Company's gross premiums written in 1996.

The  Company's  principal  subsidiary  engaged in the life and health  insurance
business is Acceleration Life Insurance  Company ("ALIC"),  which holds licenses
to conduct  business in 40 states and the District of Columbia.  Credit life and
credit accident and health insurance are the primary insurance  products written
by ALIC.  The  Company's  property  and casualty  business is conducted  through
Acceleration National Insurance Company ("ANIC"). ANIC holds licenses to conduct
business  in 47 states  and the  District  of  Columbia.  Acceleration  National
Service  Corporation   ("ANSC")   administers  the  Company's  extended  service
contracts.  The majority of the Company's  direct  premiums  written in 1996 was
derived from sales in Ohio  (37.9%),  Virginia  (12.7%),  Georgia  (9.0%),  West
Virginia (4.7%),  Indiana (6.4%) and Florida (4.5%). During 1995 and early 1996,
both  ALIC  and ANIC  were  subject  to a  re-application  rule in the  state of
Michigan. The re-applications were denied. Therefore, as of March 1996, ALIC and
ANIC were no longer licensed in Michigan, and accordingly  discontinued writings
in said state.  The  decision  by the state of Michigan  was based on ALIC's and
ANIC's experiences in several  discontinued lines of business.  The results from
these lines of business are now several  years old.  Therefore,  the  companies,
based on their  positive  1996  results,  intend  to  re-apply  to the  state of
Michigan in 1997.

<PAGE>

Credit Insurance
----------------

The Company sells credit insurance  primarily in connection with consumer credit
transactions,  of which  the most  significant  to the  Company  are  automobile
purchases.  Credit life insurance  provides funds, in the event of the insured's
death,  for payment of a specified  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 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 the  indebtedness.
Most credit  insurance is 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.

Substantially  all of the Company's credit  insurance is group insurance.  Group
credit  insurance  policies  are  issued  to  master  policyholders   (typically
automobile  dealers or financial  institutions).  The master policy of insurance
authorizes the master policyholder to issue certificates  representing insurance
sold to its  customers.  Premiums  collected  from customers are remitted to the
Company net of commissions.  The Company uses good health  statements as part of
its underwriting measures,  which inquire about the proposed insured's health at
the time the insurance is to be issued.  Although  medical  examinations are not
required,  the good health  statement  is intended to reduce the  acceptance  of
certain risks. The Company also uses additional  health related questions on its
applications related to specific medical conditions. Because such conditions, if
experienced  within the twelve months prior to the loan date,  could be expected
to result in claims during the term of the loan, the applications are denied. In
addition to other sales and marketing  services,  the Company  conducts  related
training programs for finance and insurance managers,  master  policyholders and
their salespeople,  independent agents and sales representatives employed by the
Company.

The Company reinsures substantial  percentages of its credit accident and health
premiums on a written basis. This reinsurance provides statutory surplus relief,
thereby increasing the Company's  capacity to write credit insurance.  An effect
of this  reinsurance  is,  however,  to reduce the profit that the Company might
otherwise  realize on its credit insurance  business.  The applicable  agreement
contains an experience adjustment computation which results in the ultimate cost
of this  reinsurance  being a stated  percentage  related to the surplus  relief
provided. Under such arrangements,  a security fund is usually maintained by the
Company  approximating  the amount of ceded unearned  premiums less  commissions
retained, plus ceded insurance claims.

The  Company has also  entered  into  agreements  to cede credit life and credit
accident  and  health  insurance  to  reinsurance  companies  owned  by  certain
automobile dealers,  financial institutions and agents. Under these arrangements
said entities and persons  participate in the profits or losses of the insurance
sold through them, and the Company  retains  nominal  percentages of the related
risk. These agreements  generally  provide that the Company receive a ceding fee
and be reimbursed for commissions and claims.

Approximately  58%, 76% and 73% of the Company's  gross premiums  written during
1996,  1995 and 1994,  respectively,  were  derived  from its  credit  insurance
business.  The credit  insurance  business  decreased  19.4% in 1996 compared to
1995, decreased 3.6% in 1995 compared to 1994, and increased 4% in 1994 compared
to 1993. The decrease in 1996 relates 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.  Automobile  purchases
continue to be the most significant consumer credit transaction for which credit
insurance  is sold by the  Company.  Automobile  purchases  have  been  and will
continue to be affected,  directly  and  indirectly,  by auto  prices,  interest
rates, the availability of consumer credit and general economic conditions.

The primary  states in which the  Company's  credit  insurance is sold are Ohio,
Virginia,  Indiana and West Virginia.  The Company markets its credit  insurance
through both  independent  agents and its own direct sales  representatives.  In
1987 the Company  entered  into a joint  marketing  arrangement  with  Consumers
Financial  Corporation  ("CFC") and transferred all of its  Pennsylvania  credit
insurance accounts to CFC's subsidiary,  Consumers Life Insurance Company.  This
business had  previously  been  marketed by the Company's  employees.  The joint
venture also provided for marketing  automobile  extended  service  contracts in
Pennsylvania.  The  Company  and CFC  combined  their  efforts  to market  these
products to the  automobile  dealer  accounts which both parties had serviced in
the past and to sign-up additional accounts.

<PAGE>

By a Termination Agreement effective July 31, 1996, the Company and CFC mutually
terminated  the joint  venture  between the parties.  Under the  agreement,  the
Company was to receive a  proportionate  share of the  proceeds  received by CFC
from the sale of the business. By later amendment to the Termination  Agreement,
the  Company  is to  receive  a  payment  of  $500,000  at the  completion  of a
transaction to sell CFC to an unrelated organization. The special meeting of CFC
stockholders  called to consider the  transaction  is set for March 25, 1997. If
the transaction is approved by CFC stockholders, the transaction will close soon
thereafter.  A  gain  from  the  amended  Termination  Agreement  has  not  been
recognized in the 1996 consolidated financial statements.

Commercial Automobile Liability
-------------------------------

In 1996,  the Company began  offering  coverage to operators of long haul trucks
and  charter   buses.   This   program  is  marketed  by  an   unaffiliated   GA
(Transportation Insurance Specialists) with extensive experience in this product
line. Commercial Auto has become one of the Company's primary product lines with
first year direct premiums  written of $13,800,000 (see "Note E" in the Notes to
Consolidated Financial Statements).

New Property and Casualty Products
----------------------------------

The  Company  has  commenced  new  marketing  initiatives  in 1997 for  products
including a package policy for crane operators  consisting of general liability,
inland  marine  and  commercial  auto  coverages;  and an oil and gas  liability
program.  The target  for the crane  program is  qualified  operators  who lease
cranes for specific projects. An independent administrator, The Crane Institute,
is being used to conduct  loss  control  and  underwriting  survey  work in this
specialized  field.  The Company expects slow controlled  growth in this product
line with extensive underwriting reviews.

The oil and gas  product  is  designed  to be  marketed  to small  or  mid-sized
accounts.  The program  will insure the  leasehold  operators  and  contractors.
Limits  provided  will be $1 million  per each  occurrence  subject to an annual
aggregate of $2 million. The GA has had extensive experience in this field.

Extended Service Contracts
--------------------------

Extended  service  contracts are sold under the name  "Co$tGuard"  and cover the
cost of labor and certain parts for the repair of  automobiles  and  watercraft.
The Company's product covers towing, rental car reimbursement and other benefits
during the entire  contract  term and  enables 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. Extended service contracts
are primarily  marketed through the same group of automobile  dealers who market
the  Company's  credit  insurance.  The  extended  service  contract  program is
marketed on a net cost basis to the  automobile  dealer who is free to establish
the retail price for the contract.  The net cost paid by the dealer includes the
premiums for a contractual  liability  policy  provided the dealer by ANIC,  and
administrative   and  marketing  fees.  In  1996,  this  program  accounted  for
approximately 32.7% of ANIC's gross premiums written.

Other Insurance Products
------------------------

In early 1990, the Company introduced its farmowners'  multi-peril and ancillary
inland marine coverage  products.  Premiums  written for these products were $0,
$97,000 and $8,460,000 in 1996, 1995 and 1994, respectively. The Company elected
to discontinue  offering  these lines and entered into an agreement  whereby the
Company ceded 100% of the in-force  business at December 31, 1994.  Accordingly,
any  new  business   written  after  January  1,  1995  was  reinsured  with  an
unaffiliated carrier.
As of June 30, 1995, the Company ceased writing this business.

Investment In Randjill Group Ltd ("RGL") and Galaxy Insurance Company ("Galaxy")
--------------------------------------------------------------------------------

In 1986 the Company  acquired a 20% interest in RGL, a company  related  through
common  ownership by a  shareholder  and  director of the  Company,  and in 1991
acquired  the  remaining  80%  interest.  The total  amount  invested in RGL was
approximately  $10.3  million.  Due to  significant  losses  incurred,  and  the
insolvency of RGL's operating subsidiary,  Galaxy, a New York domiciled property
and casualty  insurance  company,  the Company  wrote off its  investment in RGL
during the second  quarter of 1994.  For further  information  regarding RGL and
Galaxy see "Note K" in the Notes to Consolidated Financial Statements.

<PAGE>

Employees
---------

As of December 31, 1996, the Company employed 97 full-time  equivalent employees
compared to 78 as of December 31, 1995.

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.

The Company has an  arrangement  in place which covers a substantial  portion of
its credit insurance business with an unaffiliated insurance company. The effect
of this agreement is that the Company  ultimately  retains a substantial part of
the insurance risk, the underwriting income or loss and the investment income on
net funds,  with the  reinsurers  receiving a stated  percentage  of the surplus
relief provided. See "Note F" in the Notes to Consolidated Financial Statements.

In 1993,  the Company  entered into  reinsurance  agreements  with  unaffiliated
reinsurers  related  to its  discontinued  health  products.  The effect of such
reinsurance  arrangements  was to  transfer  100%  of the  related  risk  to the
reinsurers.  Premiums ceded associated with these agreements and included in the
accompanying   consolidated  statements  of  operations  amounted  to  $496,000,
$633,000 and $980,000 in 1996, 1995 and 1994, respectively.

Reinsurance with Producer-owned Reinsurance Companies
-----------------------------------------------------

Certain automobile dealers, financial institutions and insurance agencies, which
generate credit insurance premiums and are master  policyholders of the Company,
have formed Producer-owned Reinsurance Companies owned either wholly or in part,
directly or indirectly, by such master policyholders to reinsure credit life and
disability  business  generated by them.  These  arrangements  are structured to
provide  Producer-owned  Reinsurance  Companies with  underwriting  income and a
portion of  investment  income on the  premiums  ceded in  connection  with such
reinsurance.  In these transactions the Company's revenue is limited to a ceding
fee and a portion of the investment income.

As of December  31, 1996,  $10,040,000  of credit life and  disability  unearned
premium  reserves  were  ceded  by the  Company  to  Producer-owned  Reinsurance
Companies.  However,  most of these  Producer-owned  Reinsurance  Companies  are
required to deposit cash and marketable  securities in a custodial  account with
an independent  financial  institution.  The minimum  balance in each account is
generally  required  to be equal to the policy and claim  reserves  ceded to the
Producer-owned  Reinsurance Companies. In the event a Producer-owned Reinsurance
Company fails to fulfill its obligation, the Company may withdraw funds from the
Producer-owned  Reinsurance  Company's  account  as  reimbursement  for  premium
refunds and claim  disbursements.  On all  insurance  written by the Company and
reinsured with Producer-owned  Reinsurance Companies, the Company remains liable
in the event of the insolvency of the  reinsurers.  As of December 31, 1996, the
Company had ceded  approximately  $234,907,000 of credit life insurance in-force
to  Producer-owned   Reinsurance  Companies.  See  "Note  F"  in  the  Notes  to
Consolidated Financial Statements.

Competition
-----------

The Company's business is extremely competitive as to both price and service. In
the credit insurance business, the Company's competitors include other insurance
companies, many of which are larger than the Company and have greater resources.
A significant competitive factor is the commission which may be paid to licensed
agents affiliated with master policyholders.  The Company, however, continues to
compete by offering what it believes to be realistic commissions and providing a
high level of service including training, consulting and related services to its
master policyholders.

In the Co$tguard business, the Company competes with much larger and established
national and regional  insurance  companies  and with  automobile  manufacturers
which provide service contracts to their dealers.  The automobile  manufacturers
have  significantly  greater  resources than the Company and have  relationships
with automobile  dealers which extend beyond providing  service  contracts.  The
principal competitive factors include price, profit potential,  type and quality
of the  products  offered and the  quality of  service.  Many of the same master
policyholders which sell the Company's credit insurance also market its extended
service contracts,  and the termination of the relationship in one segment could
affect the Company's relationship in the other segment.

<PAGE>

In the Commercial Auto business the Company also competes with larger  insurance
companies and with companies  whose  industry  ratings are at higher levels than
ANIC.  The  principal  factors  that  enable  the  Company  to  compete  are the
relationship  with the  general  agent  and the  level of  service  provided  to
accounts.

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 both its life and property and
casualty  insurance  subsidiaries  are subject to regulatory  requirements as to
minimum  capital  and  surplus.   In  addition  to  regulatory   considerations,
management  considers the overall  financial  strength of each operating  entity
before dividends are paid to the Company.  Additionally, the amount of dividends
the Company's  primary life  insurance  subsidiary can pay is subject to certain
tax considerations.

In 1993, the National  Association of Insurance  Commissioners  ("NAIC") adopted
the life and  health  and  property  and  casualty  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.  These model acts
became law in Ohio, the Company's insurance  subsidiaries' state of domicile, in
March 1996.  The formula  includes  components for asset risk,  liability  risk,
interest rate  exposure,  and other  factors.  Each of the  Company's  insurance
subsidiaries exceed all required RBC levels as of December 31, 1996.

The tax  considerations  related to the life insurance  subsidiary  restrict the
amount of dividends that can be paid without incurring a tax. As of December 31,
1996,  the  Company's  life  insurance  subsidiary  could  pay an  aggregate  of
$4,700,000 from  shareholders'  surplus without  incurring a tax. As of December
31,  1996,  ALIC could pay a dividend  of  $1,543,315  to ACCEL in 1997  without
approval  of  the   Department   of  Insurance  of  the  State  of  Ohio  ("Ohio
Department"). ANIC would require Ohio Department approval to pay any dividend to
ACCEL during 1997.

For information  regarding  certain federal income tax limitations on dividends,
see "Note G" in the Notes to Consolidated Financial Statements.

(d)      FINANCIAL INFORMATION ABOUT FOREIGN AND DOMESTIC OPERATIONS
         AND EXPORT SALES

In 1982 the Company  incorporated Dublin  International  Limited ("Dublin"),  an
exempted  Island  of Nevis  domiciled  company.  Dublin  is a  component  in the
Company's  relationship with Producer-owned  reinsurance companies (see "Note F"
in the Notes to Consolidated Financial Statements).

In 1986 Acceleration Insurance Company, Ltd. ("AICL"), a wholly-owned subsidiary
organized by ACCEL and domiciled in the United Kingdom,  received  approval from
regulatory authorities to commence operations.  From mid-1986 through 1992, AICL
offered specialty casualty products in the United Kingdom.

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 will exist only for as long as it
takes to recover any taxes that may be refunded to it.

The assets and results of  operations of these  subsidiaries  for the year ended
December 31, 1996 are not  significant to the Company's  consolidated  financial
statements. See "Note M" in the Notes to Consolidated Financial Statements.

<PAGE>

ITEM 2.  PROPERTIES

Since July 1981 the Company's  executive  offices have been located at 475 Metro
Place North, Dublin, Ohio. The four-story office building had been owned by ALIC
and consisted of approximately 80,000 square feet of office space.

On March 21, 1996,  the  building  was sold by ALIC to an unrelated  party for a
price of $3.5 million.  The Company  realized a pre-tax gain of $170,000 on this
sale.  The Company  remains in the building and  occupies  approximately  16,000
square feet of home office space under a five-year  lease at an annual rental of
approximately  $264,000.  In late 1995 the Company began  renting  approximately
6,000  square feet of office space in Stafford,  Texas,  to house its  executive
offices. The annual rental on the five-year lease approximates $70,000.


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

Not applicable.

<PAGE>

                                     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  and do  not  include  retail  mark-up,  mark-down,  or
commissions and do not always necessarily represent actual transactions.

     1996     High      Low            1995       High    Low
     ----     ----      ---            ----       ----    ---

4th  Quarter $3.750    $2.375      4th Quarter  $3.875    $2.375
3rd  Quarter  3.250     2.375      3rd Quarter   4.875     2.750
2nd  Quarter  3.750     2.500      2nd Quarter   3.125     2.000
1st  Quarter  3.875     2.375      1st Quarter   2.875     1.750

(b)          The approximate number of holders of record of ACCEL's common stock
             ($.10 par value) as of January 31, 1997, was 657 holders.

(c)           Dividends paid on common stock:

              1996 - -0- per share

              1995 - -0- per share

Restrictions on present or future ability to pay dividends:

The  Senior  Notes  issued  December  29,  1995  (See  "Note D" in the  Notes to
Consolidated  Financial Statements) contain certain covenants which restrict the
payment of dividends  to not more than 50% of the  cumulative  consolidated  net
income for the period from January 1, 1996 to and  including  the date of making
the dividend payment.

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.

<PAGE>

ITEM 6.  SELECTED FINANCIAL DATA

<TABLE>
                                              ACCEL INTERNATIONAL CORPORATION AND SUBSIDIARIES
<CAPTION>
                                                 1996**        1995**         1994**         1993**        1992
                                         -------------------------------------------------------------------------
                                                  (Thousands of dollars, except per share data & ratios)
<S>                                         <C>           <C>            <C>            <C>           <C>
Gross premiums written                      $   58,412    $   55,443     $   60,504     $   95,766    $  122,101
Premiums ceded                                 (12,860)      (12,147)       (12,495)       (30,261)      (45,116)
Net premiums written                            45,552        43,296         48,009         65,505        76,985
Premiums earned                                 45,957        40,853         47,600         61,649        80,426
Net investment income:
     Interest and dividends                      4,416         6,488          6,678          8,397        11,831
     Realized gains                                484           455            808          1,336           701
Total revenue                                   57,820        50,475         57,519         74,810        96,043
Policy benefits                                 24,338        20,118         24,997         38,431        71,472
Income (loss) before taxes
     and other items                             1,779        (1,101)        (4,905)        (5,626)      (25,075)
Cumulative effective of change in
     accounting for income taxes                     -             -              -              -        (3,067)
Extraordinary item                                  131            -              -              -             -
Net income (loss)                                 2,104       (1,460)        (5,238)        (5,281)      (22,124)

Per common share*:
     Cumulative effect of change in
         accounting for income taxes                  -            -              -              -          (.69)
     Net income (loss)                              .36         (.33)         (1.18)         (1.19)        (4.98)
     Cash dividends                                   -            -              -              -           .07

At end of year:
     Invested assets                             74,841       63,297         98,189        126,590       139,244
     Total assets                               189,308      183,507        179,948        236,181       204,209
     Policy reserves
         and liabilities                        107,083      104,852        106,936        146,257        90,616
     Notes payable                               15,000       22,531         18,462         18,847        22,000
     Redeemable preferred stock                       -            -              -              -            73
     Common stockholders' equity                 31,641       20,560         15,366         28,583        32,361

Return on average common
     stockholders' equity                        8.06 %      (8.13)%       (23.84)%       (17.32)%      (52.29)%

Book value per common share                     $ 3.68       $ 4.62         $ 3.46         $ 6.43        $ 7.28
<FN>
*    Net income (loss) per common share is computed  using the weighted  average
     number of common shares  outstanding during the year after giving effect to
     the preferred  stock  dividend  requirement.  The inclusion of common stock
     equivalents (options) would not be dilutive.

**   The 1996, 1995, 1994 and 1993  data reflects the  adoption of the Financial
     Accounting  Standards  Board's ("FASB") Statement No. 113,  "Accounting and
     Reporting for Reinsurance of Short-Duration and Long-Duration Contracts".
</FN>
</TABLE>

<PAGE>

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

Operating Results for the Three Years Ended December 31, 1996
-------------------------------------------------------------

The Company's  income before  income taxes and  extraordinary  item for 1996 was
$1,779,000.  This  income  was  primarily  the  result  of  the  recognition  of
$4,291,085  of other  income  related to a legal  settlement  (see  Discontinued
Realtors'  Errors  and  Omissions  Program  under  Certain  Events).   In  1996,
particularly in the first half, the Company continued to experience adverse loss
development  on  discontinued   lines  of  business.   Adverse   development  on
discontinued  Farmowners and related lines  amounted to $800,000.  The Company's
new  Property  and Casualty  products,  in  particular  Commercial  Auto,  had a
positive  underwriting  result in 1996. The premium earned on this line has been
continuing to grow.

The loss before  income taxes for 1995 was  $1,101,000.  This loss was primarily
driven by three  factors;  the foremost  factor was adverse loss  development on
discontinued property and casualty products.  The adverse development aggregated
$2,400,000  which  included  a  $1,200,000  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.

The loss before income taxes for 1994 was $4,905,000.  A significant  portion of
the 1994 loss was related to the write off of Galaxy  ($3,829,000)  and Galaxy's
first  quarter  loss  ($205,000),  for a total  Galaxy  loss of  $4,034,000.  In
addition,  several  discontinued  property and casualty lines  continued to show
adverse loss development in 1994,  partially offset by positive results from the
credit and extended service contract product lines.

The Company made concerted efforts in the last three years to reduce general and
administrative  expenses.  General and administrative expenses have decreased by
4.2% in 1996  compared  to 1995  and by 16.3% in 1995  compared  to 1994.  These
expense  control  initiatives  have  allowed the Company to  concentrate  on its
traditional  profit producing lines of business  (credit  insurance and extended
service  contracts) and to begin programs in selected  Property & Casualty lines
in which the current management team has experience.

Table I on page 14  indicates  changes in several key  operating  ratios for the
Company.  The  ratios in the table are  consistent  with the  Company's  premium
volume and product mix.

Revenue
-------

Gross premium writings for 1996 were $58.4 million compared to $55.4 million for
1995.  The  increase in 1996 was  primarily  the result of  increases in premium
levels related to the new lines of business. See Table II on page 15.

Gross premium writings for 1995 were $55.4 million compared to $60.5 million for
1994.  The  decrease in 1995 was  primarily  the result of  decreases in premium
levels related to discontinued lines of business. See Table II on page 15.

The Company has also experienced  decreases in net investment income,  excluding
realized gains, since 1993. The decrease in 1994 was primarily attributable to a
decrease  in  invested  assets  due to the  run  off of  discontinued  lines  of
business.  The 1995  decrease  was  caused by the level of  prevailing  interest
rates.  Proceeds from the  Company's  maturing  investments  were not able to be
reinvested at rates  comparable to those on the maturing  securities.  The major
portion of the decrease in 1996 is attributable to a reinsurance  treaty with an
unaffiliated  party.  Under the terms of this treaty,  investment income credits
related to funds held are categorized as reinsurance expense recovery as opposed
to investment income.

The Company  plans to  concentrate  its efforts on growing the credit,  extended
service contract and the newly introduced  property and casualty program product
lines.

<PAGE>

Liquidity and Capital Resources
-------------------------------

The Company's  cash flows from  operations  have generally been adequate for its
current  operating  needs.  Cash flows from  operating  activities  in 1995 were
adversely  impacted  by the  reinsurance  transaction  dated  December  29, 1995
described in "Note F" in the Notes to  Consolidated  Financial  Statements.  The
Company's credit  insurance  policy terms and related  liabilities are generally
limited to a four-year  period during which the consumer  makes  payments on the
loan. The Company's  liability on extended service  contracts  typically extends
for either one-year or five-year  periods.  The Company's long haul trucking and
charter  bus  business  generally  is  written  for a term of one year  with the
casualty claim related  liabilities  extending beyond that period.  The Company,
therefore,  maintains  liquidity in its investment  portfolio to correspond with
the liabilities  outstanding on its lines of business. At December 31, 1996, the
estimated  duration of the Company's fixed income  investment  portfolio was 3.0
years  while the  estimated  liability  duration  was  approximately  3.5 years.
Currently,  an  interest  rate  change of 1% would  impact the fair value of the
fixed maturity portfolio and stockholders'  equity by a decline of approximately
$2 million if interest rates rose and an increase of approximately $2 million if
interest rates declined.

The Company's  "available  for sale" fixed  maturity  securities at December 31,
1996 include  $16.5  million of  mortgage-backed  securities;  $16.0  million of
collateralized  mortgage obligation  securities and $8.2 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 are either planned  amortization or sequential
pay classes. The collateralized mortgage obligations and asset backed securities
owned have primarily short to intermediate  average lives. At December 31, 1996,
the Company did not have a  significant  amount of higher risk mortgage or asset
backed securities.  There are negligible default risks on the mortgage and asset
backed  security  portfolios  as a whole as the vast  majority of the assets are
either guaranteed by U. S. government-sponsored entities or are supported in the
securitization  structure  by junior  securities  enabling the assets to achieve
high investment grade status.

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

The Company's cash flow  projections  for 1996 assumed that certain events would
take place in order to have  sufficient  cash to meet its debt service and other
requirements.  One of these events included the  liquidation of AICL,  which was
concluded in the first quarter of 1996. The Company will monitor its current and
future debt service  requirements to coincide with cash flow  availability.  The
Company  has used a  portion  of the  proceeds  from a Rights  Offering  and the
payment from a judgment  entered in its favor in a legal  proceeding (see Rights
Offering and Discontinued  Realtor's Errors and Omissions  Program under Certain
Events) to repay  $4,296,000 in advances  received in 1992 and 1993 from ACCEL's
subsidiaries. These outstanding advances were eliminated in consolidation.

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

<PAGE>

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

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

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

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

At December 31,  1995,  the loan had an unpaid  balance of $525,239.  The market
value of the underlying  shares was $161,000.  The Company revalued this loan to
market  value as of  December  31,  1995 to allow for the  release  of shares to
participants'  accounts  at an average  price  which more  closely  approximated
recent market values on the Company's  common stock. The decrease in the loan in
1995 was  reflected  through a decrease  in  additional  paid-in  capital in the
accompanying  consolidated  balance  sheets.  The  unpaid  balance  of the  loan
($32,000 at  December  31,  1996) has been  reflected  as a reduction  in common
stockholders' equity in the accompanying consolidated balance sheets.

During 1996, 1995 and 1994, the Company incurred ESOP  contribution  expenses of
$187,000, $198,000 and $178,000, respectively.

The Company  currently has three  material lines of business that are in run-off
status:  the REO line, the farmowner's  multi-peril and ancillary  inland marine
products  and  the  auto  dealers'   commercial   multi-peril  line.  Also,  for
information  regarding  Galaxy,  see  "Note  K" in  the  Notes  to  Consolidated
Financial Statements.

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.

<PAGE>

The Company has reviewed Financial Accounting Standards Board ("FASB") Statement
No. 121,  "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of" which became  effective  in 1996,  and has  determined
this FASB statement  will not impact the Company.  The Company has also reviewed
FASB Statement No. 123,  "Accounting for Stock-Based  Compensation" ("FASB 123")
which became  effective in 1996.  The Company has elected to disclose the impact
of FASB 123 in the Notes to the Consolidated  Financial Statements and not adopt
the statement for  financial  statement  reporting as permitted by FASB 123. The
Company has also reviewed FASB Statement No. 125,  "Accounting for Transfers and
Servicing of Financial Assets and  Extinguishments of Liabilities" which becomes
effective  in 1997,  and does not expect this FASB  statement to have a material
impact on the financial condition of the Company.

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

Certain Events
--------------

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

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

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

Write Off of Investment In RGL and Galaxy:  During December 1986, ACCEL invested
$1,370,000 (a 20% interest) in RGL.  Galaxy,  a wholly owned  subsidiary of RGL,
was writing commercial  property insurance,  property and casualty,  and assumed
treaty reinsurance.

During the second  quarter of 1991,  the  Company  purchased  11,000  additional
common shares of RGL at a cost of $992,000.  The additional investment increased
the  Company's  ownership  to 31% at June 30,  1991.  In July 1991,  the Company
purchased the remaining 69% of RGL for cash and Subordinated Notes (see "Note D"
in the Notes to  Consolidated  Financial  Statements)  of $2.1  million and $5.8
million,  respectively. The purchase price included goodwill of $1.2 million, of
which the outstanding balance was written off in 1993.

Members of CIHC held a 45% interest in RGL prior to the acquisition by ACCEL.

For the three years ended  December 31, 1993,  RGL recorded  losses and Galaxy's
underwriting  results  deteriorated,  resulting  in the New York  Department  of
Insurance ("New York Department") placing a moratorium on all new business as of
February 28, 1994. Due to significant loss  development  during 1994 on Galaxy's
liability  lines  of  business,  the  Company  contracted  with  an  independent
actuarial consultant to review the adequacy of Galaxy's loss and LAE reserves as
of June 30, 1994. The findings of this review  indicated the need for additional
reserves which resulted in the statutory  insolvency of Galaxy at June 30, 1994.
Statutory  capital and surplus  after the reserve  strengthening  was a negative
$2.3 million.

<PAGE>

Due to the  significance  of the  statutory  loss and the loss of the  Company's
control  of Galaxy  as a result of the  insolvency,  the  Company  wrote off its
investment in RGL ($3.8 million)  during the second quarter of 1994. As a result
of this action, the consolidated results of operations for 1994 include a charge
to  operations  of $3.8 million,  representing  the Company's net  investment in
Galaxy as of April 1, 1994, in addition to operating losses of $205,000 incurred
during the first  quarter.  The Company wrote down its investment in RGL to zero
and deconsolidated RGL as of April 1, 1994.

Pursuant to an Order of Liquidation dated October 7, 1994, issued by the Supreme
Court  of the  State  of New  York,  the  Liquidation  Bureau  of the  New  York
Department took control of Galaxy on October 11, 1994.

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

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

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

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

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

In  late  1995,  ACCEL  was  awarded  $5,300,000  in  damages  related  to  this
litigation.  Pursuant to  settlements  reached  with all of the  parties,  ACCEL
received  a  total  of  $4,291,085  in  1996.  With  the  approval  of the  Ohio
Department,  the proceeds from the settlement  were shared equally between ACCEL
and ANIC.  The Company  requested the sharing  agreement  due to the  continuing
losses in the REO program  realized by ANIC since 1991. The Company has recorded
the recovery as "Other  income" in the  accompanying  consolidated  statement of
operations for the year ended December 31, 1996.

<PAGE>

                                                  TABLE I

Several key operating ratios of the Company are as follows:

                                                  Consolidated Results
                                         -------------------------------------
                                         (Thousands of dollars, except ratios)
                                               1996       1995       1994
                                           ---------  ---------  ---------
Gross premiums written                     $ 58,412   $ 55,443   $ 60,504
                                           =========  =========  =========
Net premiums earned                        $ 45,957   $ 40,853   $ 47,600
                                           =========  =========  =========
RATIOS:
   Policy benefits to net premiums earned      53.0%      49.2%      52.5%
   Commissions and selling expenses and
      general and administrative expenses
      to gross premiums written                50.7%      57.0%      52.3%
   Commissions and selling expenses,
      reinsurance expense recovery
      and change in deferred policy
      acquisition costs to net premiums
      earned                                   44.3%      49.3%      43.6%
   Taxes, licenses and fees to gross
      premiums written                          3.2%       3.1%       3.1%


<PAGE>

<TABLE>
                                                             TABLE II

                                                Changes in Gross Premiums Written
                                                      Year Ended December 31
                                              (Thousands of dollars, except ratios)
<CAPTION>
                                                                              1996                    1995
                                                                               vs.        %            vs.           %
Gross Premiums Written                      1996       1995        1994       1995     Change         1994        Change
=====================================   ===========================================================================================
<S>                                     <C>        <C>        <C>         <C>        <C>          <C>        <C>
Continuing lines of business:
     Credit                             $ 34,126   $ 42,338   $  43,905   $ (8,212)    (19.4)%    $ (1,567)       (3.6)%
     Extended service contracts            8,375      7,777       8,221        598       7.7 %        (444)       (5.4)%
     Commercial auto                      13,793          -           -     13,793       N/A             -            -
     Other property/casualty lines           118         58          42         60     103.4 %          16        38.1 %
                                        ---------  ---------  ----------  ---------  ----------  ----------  ------------
        Total continuing lines            56,412     50,173      52,168      6,239      12.4 %      (1,995)       (3.8)%
                                        ---------  ---------  ----------  ---------  ----------  ----------  ------------

Discontinued lines of business:
     Medical and miscellaneous
        life and health                      642        776       1,751       (134)    (17.3)%        (975)      (55.7)%
     Vendor's single interest                (59)      (798)     (5,451)       739      92.6 %       4,653       (85.4)%
     Agriculture, REO and other
        property & casualty                  362      5,292      10,091     (4,930)    (93.2)%      (4,799)      (47.6)%
     Commercial multi-peril                1,055          -           -      1,055       N/A             -            -
     Galaxy Insurance Company                  -          -       1,945          -           -      (1,945)     (100.0)%
                                        ---------  ---------  ----------  ---------  ----------  ----------  ------------
        Total discontinued lines           2,000      5,270       8,336     (3,270)     (62.0)%     (3,066)      (36.8)%
                                        ---------  ---------  ----------  ---------  ----------  ----------  ------------
             Gross premiums written     $ 58,412   $ 55,443   $  60,504   $  2,969        5.4 %  $  (5,061)       (8.4)%
                                        =========  =========  ==========  =========  ==========  ==========  ============
</TABLE>

<PAGE>

                           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, 1996

                         ACCEL INTERNATIONAL CORPORATION

                                  DUBLIN, OHIO

<PAGE>

                          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, 1996 and 1995, and
the  consolidated  results of their  operations and their cash flows for each of
the years in the three-year  period ended December 31, 1996, 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 14, 1997

<PAGE>

                ACCEL INTERNATIONAL CORPORATION AND SUBSIDIARIES

                           CONSOLIDATED BALANCE SHEETS


                                                              December 31,
                                                             1996      1995
                                                         --------- ---------
                                                        (Thousands of dollars)
ASSETS

Investments--Notes B and F:
   Investments available for sale, at fair value:
      Fixed maturities (cost: 1996--$58,889,000;
         1995--$53,427,000)                              $ 58,281  $ 53,204
      Equity securities (cost:  1996--$5,514,000;
            1995--$5,433,000)                               5,511     5,451
      Short-term investments
            (cost:  1996--$10,670,000; 1995--$4,278,000)   10,703     4,278
   Other invested assets at cost
      (fair value:  1996--$346,000; 1995--$364,000)           346       364
                                                         --------- ---------
                                                           74,841    63,297

Cash                                                        3,331     5,039

Receivables:
     Premiums in process of transmittal--Note E, less
        allowance (1996--$223,000; 1995--$154,000)          7,286     1,779
     Amounts due from reinsurers--Note F,
        less allowance (1996 and 1995--$125,000)           11,138     9,119
     Recoverable federal income taxes--Note G               1,019        70
                                                         --------- ---------
                                                           19,443    10,968

Accrued investment income                                     652       557
Prepaid reinsurance premiums--Note F                       15,036    14,895
Reinsurance premium deposits--Note F                       42,615    51,634
Deferred policy acquisition costs                          30,946    31,839
Equipment--at cost, less accumulated
     depreciation (1996--$162,000;  1995--$564,000)           231       187
Leasehold improvements, less accumulated amortization
     (1996--$26,000)                                          152         -
Property occupied by the Company--at cost, less
     accumulated depreciation
     (1995--$2,382,000)                                         -     3,167
Other assets:
     Cost in excess of fair value of net assets of
        subsidiaries at dates of acquisition ($4,448,000)
        less accumulated amortization                         716       822
     Funds held under reinsurance agreements--Note F          406       829
     Other                                                    939       273
                                                         --------- ---------
                                                            2,061     1,924
                                                         --------- ---------
                                                         $189,308  $183,507
                                                         ========= =========
                                                                     (Continued)

<PAGE>

                ACCEL INTERNATIONAL CORPORATION AND SUBSIDIARIES

                    CONSOLIDATED BALANCE SHEETS--(CONTINUED)

                                                              December 31,
                                                             1996      1995
                                                         --------- ---------
                                                        (Thousands of dollars)
LIABILITIES AND COMMON STOCKHOLDERS' EQUITY

Policy Reserves and Liabilities:
   Unearned premium reserves--Note F                     $ 81,820  $ 82,080
   Insurance claims--Notes F and H                         25,256    22,761
   Other                                                        7        11
                                                         --------- ---------
                                                          107,083   104,852
Other Liabilities:
   Funds held under reinsurance agreements--Note F          2,920     3,072
   Deferred reinsurance commissions--Note F                13,902    15,663
   Amounts due reinsurers--Note F                           6,133     4,442
   Notes payable--Notes D and F                            15,000    22,531
   Commissions payable                                      5,163     5,010
   Accounts payable and other liabilities                   2,788     2,353
   Deferred federal income taxes--Note G                    4,678     5,024
                                                         --------- ---------
                                                           50,584    58,095
                                                         --------- ---------
                                                          157,667   162,947
                                                         --------- ---------
Commitments and Contingencies--Notes F and N

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

Common stockholders' equity--Notes C, D, G, I and P:
   Common stock, $.10 par value
      Authorized shares (1996--15,000,000;
         1995--10,000,000)
      Issued shares (1996--9,401,162;
         1995--5,243,852)                                     940       524
   Additional paid-in capital                              32,507    23,702
   Retained earnings                                        5,403     3,299
   Less 797,420 treasury shares at cost                    (6,599)   (6,599)
   ESOP loan--Note L                                          (32)     (161)
   Net unrealized depreciation on investment
      securities--Note B                                     (578)     (205)
                                                         --------- ---------
         Net common stockholders' equity                   31,641    20,560
                                                         --------- ---------
                                                         $189,308  $183,507
                                                         ========= =========

     See notes to consolidated financial statements.

<PAGE>

                ACCEL INTERNATIONAL CORPORATION AND SUBSIDIARIES

                      CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
                                                                                       Year Ended December 31,
                                                                            1996                 1995                1994
                                                                ------------------  -------------------  ------------------
                                                                      (Thousands of dollars, except per share data)
<S>                                                                     <C>                  <C>                 <C>
REVENUE:
     Gross premiums written--Notes E and F                              $  58,412            $  55,443           $  60,504
     Less reinsurance ceded--Note F                                        12,860               12,147              12,495
                                                                ------------------  -------------------  ------------------
        Net premiums written                                               45,552               43,296              48,009
     Decrease (increase) in unearned premium reserves                         405               (2,443)               (409)
                                                                ------------------  -------------------  ------------------
        Premiums earned--Note F                                            45,957               40,853              47,600
     Net investment income--Note B:
        Interest and dividends                                              4,416                6,488               6,678
        Realized gains                                                        484                  455                 808
     Service fees on extended service
        contracts                                                           2,450                2,137               2,063
     Other income--Note S                                                   4,513                  542                 370
                                                                ------------------  -------------------  ------------------
                                                                           57,820               50,475              57,519
BENEFITS AND EXPENSES:
     Policy benefits--Notes F and H                                        24,338               20,118              24,997
     Commissions and selling expenses                                      22,145               23,780              22,296
     Reinsurance expense recovery--Note F                                  (2,670)              (2,880)             (3,611)
     General and administrative                                             7,486                7,817               9,336
     Taxes, licenses and fees                                               1,880                1,743               1,903
     Interest--Note D                                                       1,969                1,748               1,589
     Decrease (increase) in deferred policy
        acquisition costs                                                     893                 (750)              2,085
     Write off of subsidiary--Note K                                            -                    -               3,829
                                                                ------------------  -------------------  ------------------
                                                                           56,041               51,576              62,424
                                                                ------------------  -------------------  ------------------

        INCOME (LOSS) BEFORE FEDERAL INCOME
            TAXES AND EXTRAORDINARY ITEM                                    1,779              (1,101)             (4,905)
Federal income taxes--Note G:
     Current expense                                                          152                  273                 219
     Deferred expense (benefit)                                              (346)                  86                 114
                                                                ------------------  -------------------  ------------------
                                                                             (194)                 359                 333
                                                                ------------------  -------------------  ------------------
        INCOME (LOSS) BEFORE EXTRAORDINARY
            ITEM                                                            1,973               (1,460)             (5,238)
Extraordinary item--gain on
     extinguishment of debt--Note D                                           131                    -                   -
                                                                ------------------  -------------------  ------------------
        NET INCOME (LOSS)                                               $   2,104            $  (1,460)          $  (5,238)
                                                                ==================  ===================  ==================

 Per Common Share:
     Net income (loss) before extraordinary item                        $    0.34            $   (0.33)          $   (1.18)
     Extraordinary item                                                       .02                    -                   -
                                                                ------------------  -------------------  ------------------
     Net income (loss)
                                                                        $    0.36            $   (0.33)          $   (1.18)
                                                                ==================  ===================  ==================
Weighted average number of common
     shares outstanding                                                 5,904,398            4,446,432           4,446,432
                                                                ==================  ===================  ==================
<FN>
See notes to consolidated financial statements.
</FN>
</TABLE>

<PAGE>

<TABLE>
                                          ACCEL INTERNATIONAL CORPORATION AND SUBSIDIARIES
                                       CONSOLIDATED STATEMENTS OF COMMON STOCKHOLDERS' EQUITY
                                                 Three Years Ended December 31, 1996
                                                       (Thousands of dollars)
<CAPTION>
                                                                                                 Net
                                                                                              unrealized
                                                                                              appreciation
                                                                       Common                 (depreci-    Foreign
                                                Additional              stock                 ation) on   currency
                                     Common     paid-in     Retained   held in       ESOP     investment translation
                                     stock      capital     earnings   treasury      loan     securities adjustments   Total
                                     -----      -------     --------   --------     -----    ----------  -----------  -------
   <S>                               <C>        <C>         <C>        <C>        <C>         <C>        <C>        <C>
    Balances at December 31, 1993    $    524   $  24,066   $  9,997   $ (6,599)  $    (720)  $  1,496   $   (181)  $   28,583
       Payments on ESOP loan                -           -          -          -          93          -          -           93
       Change in net unrealized
          depreciation on
          investment securities             -           -          -          -           -     (8,168)         -       (8,168)
       Change in foreign currency
          translation adjustment            -           -          -          -           -          -         96           96
       Net loss                             -           -     (5,238)         -           -          -          -       (5,238)
                                       -------    -------    -------    -------     -------    -------    -------      -------
    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--Note L              -        (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 I        11         223          -          -           -          -          -          234
       Issuance of 4,047,310 shares of
          Common Stock in conjunction
          with the Rights Offering and
          the Supplemental Offering       405       8,582          -          -           -          -          -        8,987
       Net income                           -           -      2,104          -           -          -          -        2,104
                                       -------    -------    -------    -------     -------    -------    -------      -------
    Balances at December 31, 1996     $   940     $32,507    $ 5,403    $(6,599)    $   (32)   $  (578)         -      $31,641
                                       =======    =======    =======    =======     =======    =======    =======      =======
<FN>
See notes to unaudited consolidated financial statements.
</FN>
</TABLE>


<PAGE>

                ACCEL INTERNATIONAL CORPORATION AND SUBSIDIARIES

                      CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
                                                                                          Year Ended December 31,
                                                                                      1996          1995         1994
                                                                               ------------  ------------  ------------
                                                                                       (Thousands of dollars)
<S>                                                                             <C>           <C>           <C>
OPERATING ACTIVITIES:
     Net income (loss) before extraordinary item                                $    1,973    $   (1,460)   $  (5,238)

     Adjustments to reconcile net income (loss) to net
         cash used in operating activities:
            Change in premiums receivable                                           (5,576)        1,789        3,266
            Change in accrued investment income                                        (95)          250          191
            Change in prepaid reinsurance premiums                                    (141)        3,812        9,208
            Change in funds held under reinsurance
                agreements                                                             271         (292)       (1,196)
            Change in unearned premium reserves                                       (260)      (1,682)       (7,449)
            Change in insurance claim reserves                                       2,495         (398)      (12,435)
            Change in amounts due reinsurers
                and amounts due from reinsurers                                     (1,828)      (3,310)        7,298
            Change in other assets, other liabilities
                and accured income taxes                                            (1,463)       1,683          (860)
            Interest paid in kind                                                      403          569           515
            Accrual of discount on bonds                                              (234)        (461)         (128)
            Amortization of premium on bonds                                           101          172           116
            Amortization of deferred policy acquisition
                costs                                                               20,290       20,743        24,414
            Policy acquisition costs deferred                                     (19,397)      (21,493)      (22,329)
            Reinsurance commissions earned                                        (33,645)      (13,329)      (12,763)
            Reinsurance commissions received                                       31,884        11,162        11,708
            Provision for depreciation and amortization                               286           412           528
            Write off of subsidiary                                                     -             -         3,829
            Net realized gains on investments                                        (484)         (455)         (808)
                                                                               ------------  ------------  ------------
NET CASH USED IN OPERATING ACTIVITIES
     BEFORE EXTRAORDINARY ITEM                                                     (5,420)       (2,288)       (2,133)
            Extraordinary gain                                                        131             -             -
                                                                               ------------  ------------  ------------
NET CASH USED IN OPERATING ACTIVITIES                                              (5,289)       (2,288)       (2,133)
                                                                               ------------  ------------  ------------
                                                                                                           (Continued)
</TABLE>

<PAGE>

                ACCEL INTERNATIONAL CORPORATION AND SUBSIDIARIES

               CONSOLIDATED STATEMENTS OF CASH FLOWS--(CONTINUED)

<TABLE>
<CAPTION>
                                                                                          Year Ended December 31,
                                                                                      1996          1995         1994
                                                                               ------------  ------------  ------------
                                                                                       (Thousands of dollars)
<S>                                                                             <C>           <C>           <C>
INVESTING ACTIVITIES:
     Sale of investments available for sale                                         16,219        49,159       38,103
     Purchase of investments available for sale                                    (27,665)       (7,067)     (35,574)
     Sale of property occupied by the Company                                        3,298             -            -
     Other, net                                                                       (337)         (122)         (59)
                                                                               ------------  ------------   -----------
NET CASH (USED IN) PROVIDED BY INVESTING ACTIVITIES                                 (8,485)       41,970        2,470
                                                                               ------------  ------------   -----------
FINANCING ACTIVITIES:
     Payment on ESOP loan                                                              129           102           93
     Repayment of notes payable                                                       (600)      (13,000)           -
     Issuance of notes payable                                                           -        16,500            -
     Debentures redeemed                                                                 -             -         (900)
     Issuance of Common Stock under Stock Option Plan                                  234             -            -
     Issuance of Common Stock under Rights Offering                                  3,284             -            -
     Change in reinsurance premium deposit                                           9,019       (39,289)      (1,251)
                                                                               ------------  ------------   -----------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES                                 12,066       (35,687)      (2,058)
                                                                               ------------  ------------   -----------
     NET INCREASE (DECREASE) IN CASH                                                (1,708)        3,995       (1,721)
Cash at beginning of year                                                            5,039         1,044        2,765
                                                                               ------------  ------------   -----------
CASH AT END OF YEAR                                                             $    3,331    $    5,039     $  1,044
                                                                               ============  ============   ===========

Supplemental schedule of non-cash financing activities:
     Cancellation of Subordinated Notes as consideration
     for the purchase of Common Stock--Note D                                   $    5,703             -            -
                                                                               ============  ============   ===========
     Transfer of note payable to subsidiary--Note D                             $    1,500             -             -
                                                                               ============  ============   ===========
<FN>
See notes to consolidated financial statements.
</FN>
</TABLE>

<PAGE>

                ACCEL INTERNATIONAL CORPORATION AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                        December 31, 1996, 1995 and 1994

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

The following is a  description  of the most  significant  risks facing life and
health and 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.

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.

<PAGE>

                ACCEL INTERNATIONAL CORPORATION AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(CONTINUED)

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

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

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

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

Realized  gains and losses on the  disposal of  investments  are  determined  by
specific  identification  and are  included in the  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 value 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 B).

The fair  value  of notes  payable  is  estimated  using  discounted  cash  flow
analyses, based on ACCEL's current incremental borrowing rates for similar types
of borrowing arrangements (see Note G).

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

<PAGE>

                ACCEL INTERNATIONAL CORPORATION AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(CONTINUED)

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

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.

Property  Occupied  by  Company:  Home  office  property is carried at cost less
accumulated  depreciation.  Depreciation  is  provided  using the  straight-line
method over an estimated life of thirty-five years.

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

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

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

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

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

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

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

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

<PAGE>

                ACCEL INTERNATIONAL CORPORATION AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(CONTINUED)

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

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

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.  The  inclusion  of  common  stock  equivalents  (options)  would not be
dilutive.

Reclassifications:   Certain amounts in the 1995 and 1994 consolidated financial
statements have been reclassified to conform with the 1996 presentation.


NOTE B--INVESTMENTS

At  December  31,  1996 and  1995,  investments  in cash and  securities  with a
carrying value of $10,056,000 and $9,108,000, respectively, were on deposit with
state  insurance  departments  to  satisfy  regulatory  requirements.  Cash  and
securities  with a carrying value of $22,502,000 and $19,879,000 at December 31,
1996 and 1995,  respectively,  were on deposit as security  funds in  connection
with reinsurance treaties.

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

                                             Year Ended December 31,
                                        1996            1995            1994
                                   -----------     -----------     -----------
                                               (Thousands of dollars)
Securities available for sale:
  Fixed maturities                     $(385)        $ 6,417         $(8,054)
  Equity securities                      (21)             50            (114)
  Short-term investments                  33               -               -
                                   -----------     -----------     -----------
                                       $(373)        $ 6,467         $(8,168)
                                   ===========      ==========     ===========

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

Securities available for sale:
  Fixed maturities:
    Gross realized gains              $  158         $   607         $   194
    Gross realized losses               (150)           (284)           ( 35)

  Equity securities:
    Gross realized gains                 307             106             148
    Gross realized losses                  -               -               -

  Other invested asset gains             169              26             501
                                   -----------     -----------     -----------
                                      $  484         $   455         $   808
                                   ===========      ==========     ===========

<PAGE>

                ACCEL INTERNATIONAL CORPORATION AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(CONTINUED)

NOTE B--INVESTMENTS--(CONTINUED)

The major sources of investment income are summarized as follows:

                                             Year Ended December 31,
                                        1996            1995            1994
                                   -----------     -----------     -----------
                                               (Thousands of dollars)
Fixed maturities                     $ 3,865         $ 5,669         $ 6,307
Equity securities                        288             181             113
Short-term investments                   440             927             333
Other                                     55             431             469
                                   -----------     -----------     -----------
                                       4,648           7,208           7,222
Investment expenses                     (232)           (720)           (544)
                                   -----------     -----------     -----------
  Net investment income              $ 4,416         $ 6,488         $ 6,678
                                   ===========      ==========     ===========

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

                                                    Gross      Gross
                                    Amortized  unrealized unrealized      Fair
                                         cost       gains     losses     value
                                   ----------  ---------- ---------- ---------
                                              (Thousands of dollars)

December 31, 1996
-----------------
U. S. Treasury and U. S. government
   agency securities                $ 13,120   $      99   $    (26) $ 13,193
State and political subdivision
   securities                            940          20          -       960
Mortgage-backed securities            16,590          48       (638)   16,000
Collateralized mortgage obligations   15,972         101       (135)   15,938
Asset-backed securities                8,181          73       (160)    8,094
U. S. corporate securities             3,541          51        (38)    3,554
Redeemable preferred stocks              545           -         (3)      542
                                    ---------  ----------  --------- ---------
      Total                         $ 58,889   $     392   $ (1,000) $ 58,281
                                    =========  ==========  ========= =========

December 31, 1995
-----------------
U. S. Treasury and U. S. government
   agency securities                $  9,310   $     274   $      -  $  9,584
State and political subdivision
   securities                          1,255          35          -     1,290
Mortgage-backed securities            15,887          66       (104)   15,849
Collateralized mortgage obligations   11,587          53       (604)   11,036
Asset-backed securities               13,740         203       (206)   13,737
U. S. corporate securities             1,000          26          -     1,026
Redeemable preferred stocks              648          34          -       682
                                    ---------  ----------  --------- ---------
      Total                         $ 53,427   $     691   $   (914) $ 53,204
                                    =========  ==========  ========= =========

The amortized cost  and estimated fair value of  fixed maturity securities,  all
of which were available for sale, at December 31, 1996, by contractual maturity,
are summarized as follows:

                                               Amortized               Fair
Maturity                                            cost              value
--------                                      ----------         ----------
                                                 (Thousands of dollars)
Due in one year or less                       $   4,972          $   4,989
Due after one year through five years             7,446              7,522
Due after five years through ten years            4,288              4,308
Due after ten years                               1,440              1,430
Mortgage-backed securities                       16,590             16,000
Collateralized mortgage obligations              15,972             15,938
Asset-backed securities                           8,181              8,094
                                              ----------         ----------
        Total                                 $  58,889            $58,281
                                              ==========         ==========

<PAGE>

                ACCEL INTERNATIONAL CORPORATION AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(CONTINUED)

NOTE B--INVESTMENTS--(CONTINUED)

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 1996,  1995 and
1994 were $2,973,000,  $18,456,000 and $3,467,000,  respectively. Gross gains of
$408,000  ($444,000  in 1995 and  $211,000  in 1994)  and  gross  losses of $-0-
($25,000 in 1995 and $31,000 in 1994) were realized on those sales.

One  asset-backed  security held by the Company was written down by $150,000 and
$200,000  in 1996  and 1995,  respectively.  These  write downs  are included in
realized  gains in the accompanying consolidated statements of operations.


NOTE C--STOCKHOLDERS' EQUITY AND TRANSFER LIMITATIONS

Generally,  the net assets of the consolidated  insurance subsidiaries available
for  transfer  to  ACCEL  are  limited  to  the  amounts   that  the   insurance
subsidiaries' net assets, as determined in accordance with statutory  accounting
practices,  exceed minimum statutory capital and surplus requirements;  however,
payments  of such  amounts  as  dividends  from each  insurance  subsidiary  are
currently  subject to  regulation by Ohio law.  Based on this law,  Acceleration
Life Insurance  Company  ("ALIC") could pay a dividend of $1,543,315 to ACCEL in
1997 without approval of the Department of Insurance of the State of Ohio ("Ohio
Department").  Acceleration  National  Insurance  Company ("ANIC") would require
Ohio Department approval to pay any dividend to ACCEL during 1997.

The  statutory  basis capital and surplus and net income (loss) of the insurance
subsidiaries included in the Company's  consolidated  financial  statements,  as
reported to insurance regulatory authorities, are summarized as follows:

                                        Life/            Property/
                                       Health             Casualty
                                      --------          -----------
                                          (Thousands of dollars)
Statutory capital and surplus
  at December 31:
             1996                     $15,122              $13,017
             1995                      13,010               10,037

Statutory net income (loss) for
  year ended December 31:
             1996                      $1,543             $    884
             1995                        (713)              (2,574)
             1994                       1,165               (1,537)


NOTE D--NOTES PAYABLE

In 1991,  ACCEL  issued  $5,848,000  of  subordinated  notes (the  "Subordinated
Notes").  The Subordinated  Notes had a nine-year term with no principal payable
until maturity, and bear 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 may 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.


<PAGE>

                ACCEL INTERNATIONAL CORPORATION AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(CONTINUED)

NOTE D--NOTES PAYABLE--(CONTINUED)

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

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

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

At December 31, 1994, the effective  interest rate and outstanding  loan balance
under a credit  agreement (the "Credit  Agreement")  were 8.75% and $13,000,000,
respectively.  On  February 7, 1995 the  Company  renegotiated  the terms of the
Credit Agreement.  Under the amended Credit Agreement,  the quarterly  principal
payments  scheduled to begin in 1995 were waived.  Specific  principal  payments
totaling up to $1.5 million were due on June 30, 1995 and December 31, 1995. The
loan was to be payable in full on June 30, 1997

On December  29, 1995,  the Company  issued  senior  notes (the "Senior  Notes")
totaling  $16,500,000  at 9.50%,  maturing on April 1, 2001.  The proceeds  from
these notes were used to retire the loan  outstanding  under the  aforementioned
Credit  Agreement  and to liquidate an  intercompany  loan between  ACCEL and an
insurance  subsidiary.  In addition,  as of January 1, 1996, ALIC entered into a
reinsurance  agreement with an unaffiliated  company to reinsure the majority of
the  in-force  credit  business.  The  Senior  Notes  are  payable  to the  same
unaffiliated company which is a party to the reinsurance agreement dated January
1, 1996.  This  agreement is structured  such,  that as future profits emerge on
this block of business,  these profits are held by the reinsurance  company, and
ultimately applied to pay interest on and to redeem the Senior Notes. Profits in
excess of the amount  required to retire the Senior  Notes are to be returned to
ALIC.  As of  December  31,  1996,  $1,500,000  of the  profits on this block of
business were released to ALIC in the form of the  aforementioned  Senior Notes.
This release resulted in a balance of $15,000,000 of Senior Notes outstanding as
of December  31,  1996.  The fair value of these Senior Notes as of December 31,
1996 was $8,100,000.

During 1996, 1995 and 1994, ACCEL paid interest on notes of $403,000, $1,125,000
and $974,000, respectively.


NOTE E--BUSINESS CONCENTRATION

With first year  premium  written of  $13,800,000  and gross  earned  premium of
$8,400,000,  Commercial  Auto has become a primary product line for the Company.
This   program  is  marketed   by  a  general   agent   located  in   Melbourne,
Florida-Transportation  Insurance  Specialists  (TIS).  At year  end  1996,  the
premium receivable, net of commission, due from TIS was $5,200,000.


NOTE F--REINSURANCE

The Company's  reinsurance program includes an agreement covering certain of its
direct credit  business,  the  reinsurance  of other direct  business ceded on a
quota  share  basis and  direct  business  ceded to  producer-owned  reinsurance
companies.

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.

<PAGE>

                ACCEL INTERNATIONAL CORPORATION AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(CONTINUED)

NOTE F--REINSURANCE--(CONTINUED)

Direct Business Ceded--Credit Business Quota Share: The Company has an agreement
in place which covers a substantial  portion of its credit  insurance  business.
The agreement contains an experience adjustment  computation that results in the
ultimate  cost of  this  agreement  being a  stated  percentage  related  to the
business covered by the agreement.  The Company ultimately retains a substantial
part of the insurance risk, the  underwriting  income or loss and the investment
income on net funds.

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

The  effect of this  agreement is to increase  statutory  capital and surplus of
ALIC,  a wholly owned  subsidiary of ACCEL, by $14,416,000 and $14,512,000 as of
December 31, 1996 and 1995, respectively.

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

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

Prior to December  31,  1995,  a security  fund had been  maintained,  primarily
comprised of fixed maturities, for the benefit of the reinsurer. Pursuant to the
termination  of the agreement  effective  January 1, 1996,  as discussed  above,
certain investments were liquidated from the security fund on December 29, 1995.
Proceeds from this  liquidation,  along with other funds,  were  transferred  on
December 29, 1995 to the reinsurer  who is party to the agreement  dated January
1, 1996.  These amounts are included in  "Reinsurance  Premium  Deposits" on the
accompanying consolidated balance sheets as of December 31, 1996 and 1995.

Direct Business Ceded--Other Quota Share: The Company reinsures a portion of its
group life and health care insurance with several  unaffiliated  companies.  The
effect of this reinsurance is to transfer the risk, the  underwriting  income or
loss, and the  investment  income  related to the premiums  ceded.  In 1993, the
Company entered into reinsurance agreements with unaffiliated reinsurers related
to certain additional product lines. The effect of such reinsurance arrangements
is to  transfer  100% of the  related  risk to the  reinsurers.  Premiums  ceded
associated with these agreements and included in the  accompanying  consolidated
statements  of operations  amounted to $496,000,  $633,000 and $980,000 in 1996,
1995 and 1994, respectively.

Direct Business Ceded--To Producer-Owned  Reinsurance Companies: The Company has
agreements to cede certain credit life and credit accident and health  insurance
to  reinsurance  companies  owned  by  certain  automobile  dealers,   financial
institutions  or  agents.  Under  these  arrangements,   the  assuming  entities
participate in the profits or losses of the insurance  produced by them, and the
Company  may  retain a nominal  percentage  of the  applicable  business.  These
treaties  generally  provide  that the  Company  receives  a  ceding  fee and is
reimbursed for certain commissions and claims.

Written  premiums  included  in  the  accompanying  consolidated  statements  of
operations  that have been ceded, or which are subject to cession under all such
agreements, amounted to $5,669,000, $7,429,000 and $10,284,000 in 1996, 1995 and
1994, respectively.

<PAGE>

                ACCEL INTERNATIONAL CORPORATION AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(CONTINUED)

NOTE F--REINSURANCE--(CONTINUED)

Other  Reinsurance:  Credit life and credit accident and health premiums assumed
by the Company  relating to business  written in Pennsylvania by an unaffiliated
carrier,  amounted to $3,633,000,  $6,308,000  and $7,640,000 in 1996,  1995 and
1994,  respectively.  Unearned  premium reserves and the liability for insurance
claims at December  31, 1996 include  $8,279,000  and  $3,352,000,  respectively
($10,904,000  and  $3,243,000  at December  31, 1995,  respectively),  for risks
assumed under this agreement.

On July 31, 1996 this agreement was terminated.  The obligations relating to the
in-force business shall remain in effect until such business expires.

As of December 31, 1992, the Company  entered into a reinsurance  agreement with
unaffiliated  reinsurers  whereby the Company cedes 100% of the premiums written
in  connection  with  vendor's  single  interest  insurance.   In  mid  1994,  a
substantial  part  of  the  remaining   in-force  business  was  assumed  by  an
unaffiliated  reinsurer,  and resulted in a return of premiums.  The VSI product
was  forced-placed  when the  borrower  could not  demonstrate  coverage for the
automobile  that was  securing the loan with the lending  institution.  Premiums
ceded under this agreement were $(63,000), $(858,000) and $(6,024,000) for 1996,
1995 and 1994,  respectively.  Policy  benefit  expense in 1996,  1995 and 1994,
respectively,   has  been  reduced  by  $83,000,   $104,000  and  $1,407,000  in
conjunction with these agreements.

The Company also entered into reinsurance  agreements with several  unaffiliated
reinsurers related to certain property and casualty lines of business written by
the Company.  Unearned  premium  reserves and the liability for insurance claims
associated  with these  agreements  at  December  31,  1996 are  $5,572,000  and
$5,820,000,  respectively  ($2,645,000  and  $2,240,000  at December  31,  1995,
respectively).

The following  data  summarizes  certain  aspects of the  Company's  reinsurance
activity for 1996, 1995 and 1994.

Premiums written and earned in 1996, 1995 and 1994 are summarized as follows:

                       1996                  1995                  1994
                     --------              --------              --------
                Written     Earned    Written     Earned    Written     Earned
               --------------------  --------------------  --------------------
                                    (Thousands of dollars)
Direct         $ 54,779   $ 52,417   $ 49,135   $ 50,265   $ 52,864   $ 59,789
Assumed           3,633      6,259      6,308      6,864      7,640      7,004
Ceded           (12,860)   (12,719)   (12,147)   (16,276)   (12,495)   (19,193)
               ---------  ---------  ---------  ---------  ---------  ---------
Net premiums   $ 45,552   $ 45,957   $ 43,296   $ 40,853   $ 48,009   $ 47,600
               =========  =========  =========  =========  =========  =========


Policy benefits incurred in 1996, 1995 and 1994 are summarized as follows:


                       1996                  1995                  1994
                     ---------             ---------             ---------
                                    (Thousands of dollars)
Direct               $ 27,602              $ 24,900              $ 31,567
Assumed                 4,100                 3,973                 3,754
Ceded                  (7,364)               (8,755)              (10,324)
                     ---------             ---------             ---------

Net policy benefits  $ 24,338              $ 20,118              $ 24,997
                     =========             =========             =========



NOTE G--FEDERAL INCOME TAXES

The  Company  files a  consolidated  income  tax return  with its  subsidiaries,
including its life insurance subsidiary.  For tax purposes, certain amounts have
been  accumulated by the life  insurance  subsidiary in a memorandum tax account
designated as "policyholders'  surplus" that will be taxed only when distributed
to  shareholders.  Policyholders'  surplus  on a tax  basis  was  $4,489,000  at
December 31, 1996.  Management  considers the likelihood of  distributions  from
this account to be remote;  therefore,  no federal  income tax has been provided
for such distributions in the accompanying consolidated financial statements.

<PAGE>

                ACCEL INTERNATIONAL CORPORATION AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(CONTINUED)

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

As of December  31,  1996,  approximately  $4,700,000  could be  distributed  to
shareholders   before  a   distribution   would  be   designated   as  from  the
policyholders' surplus account.

In 1996,  1995 and 1994,  the Company paid  $1,100,000,  $410,000 and  $140,000,
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:

                                                 Year Ended December 31,
                                            1996          1995           1994
                                        ---------     ---------      ---------
                                                (Thousands of dollars)
Income tax (benefit) at statutory rate  $    605       $  (374)       $(1,668)
Amortization of goodwill                      36            36             36
Dividends-received deduction                 (64)          (54)           (38)
Special deductions of life insurance
  subsidiaries                              (273)            -           (297)
Tax-exempt interest                          (14)          (18)           (21)
Valuation allowance                         (372)          761           (599)
Write off of subsidiary                        -             -          1,302
Other, net                                  (112)            8          1,618
                                        ---------     ---------      ---------
Federal income tax expense (benefit)    $   (194)      $   359       $    333
                                        =========     =========      =========

The  tax  effects  of  temporary  differences  that  give  rise  to  significant
components  of the net deferred tax  liability at December 31, 1996 and 1995 are
summarized as follows:

                                                        December 31,
                                                  1996               1995
                                              ---------          ---------
                                                 (Thousands of dollars)
  Deferred Tax Liabilities:
    Deferred policy acquisition costs         $ 10,400           $ 10,656
    Other                                        2,233              2,621
                                              ---------          ---------
                                                12,633             13,277
                                              ---------          ---------
  Deferred Tax Assets:
    Deferred reinsurance commissions             4,819              5,420
    Net operating loss carryforward                994              1,766
    Insurance reserves                           1,457              1,328
    Unrealized losses on investments               204                119
    Service contracts                            1,900              1,757
    Amount due reinsurers                          277                  -
    Other                                          228                 95
                                              ---------          ---------
  Total deferred tax assets                      9,879             10,485
    Valuation allowance                         (1,924)            (2,232)
                                              ---------          ---------
  Net deferred tax assets                        7,955              8,253
                                              ---------          ---------
Net deferred tax liability                    $  4,678           $  5,024
                                              =========          =========

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 against life company
taxable  income  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 $3,638,000  and $2,484,000 as of
December 31, 1994 and January 1, 1994, respectively.

The Company has $2,923,000 of net  operating losses that are available to reduce
future income taxes and will expire in  2010.

<PAGE>

                ACCEL INTERNATIONAL CORPORATION AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(CONTINUED)

NOTE H--LIABILITY FOR INSURANCE CLAIMS

The following table provides a reconciliation  of beginning and ending liability
balances for the Company's insurance claims for 1996, 1995 and 1994.

                                         1996            1995            1994
                                     ---------       ---------        --------
                                                (Thousands of dollars)
Liability for insurance claims
  at beginning of year               $ 22,761        $ 23,159        $ 49,919

  Less reinsurance recoverables        (5,864)        ( 5,423)        (11,801)
                                     ---------       ---------        --------

Net balances at beginning of year      16,897          17,736          38,118

Policy benefits incurred:

  Policy benefits incurred for
    events of the current year         23,895          19,602          24,914

  Policy benefits incurred for
    events of prior years                 443             516              83
                                     ---------       ---------        --------

Total policy benefits incurred         24,338          20,118          24,997
                                     ---------       ---------        --------

  Galaxy unpaid losses and LAE at
    date of write off (see Note K)          -               -          14,325

Payments:

  Policy benefits for insured
    events of the current year         13,307          10,860          20,556

  Policy benefits for insured
    events in prior years               8,896          10,097          10,498
                                     ---------       ---------        --------

Total payments                         22,203          20,957          31,054
                                     ---------       ---------        --------

Net balances at end of year            17,759          16,897          17,736

Plus reinsurance recoverables           7,497           5,864           5,423
                                     ---------       ---------        --------

Liability for insurance claims
  at end of year                     $ 25,256        $ 22,761        $ 23,159
                                     =========       =========        ========


The table  above  reflects  decreases  in the  liability  for  insurance  claims
resulting  from  discontinued  lines of  business  and the  write  off of Galaxy
Insurance  Company  ("Galaxy"),  a wholly owned  subsidiary of RGL (see Note K).
Increases  in policy  benefits  incurred  for  events of prior  years  relate 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.

<PAGE>

                ACCEL INTERNATIONAL CORPORATION AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(CONTINUED)

NOTE I--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 $1,000,000  for the purchase of ACCEL's  common stock.  At December 31, 1996,
the unpaid balance on this loan was $32,000.

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 $1,722,000 under this program. The buy
back program was funded from  internally  generated  funds.  No shares have been
purchased since 1992.

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.

Of the total options granted under the 82 Plan at December 31, 1996, only 18,524
remain exercisable.  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.  Of the  total  options  outstanding  under the
Restated  Plan,  235,254 were  exercisable at December 31, 1996. At December 31,
1996, no shares were reserved for future grants.

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) a
change of control of ACCEL, or b) an involuntary termination.  The options would
have been  forfeited if employment  with ACCEL had been  voluntarily  terminated
prior to May 23, 1996.  The options lapse five years from the effective  date of
grant.

At the end of their first year 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").  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. 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.

<PAGE>

                ACCEL INTERNATIONAL CORPORATION AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(CONTINUED)

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

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.

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.  Including  the
shares surrendered as a part of the re-pricing opportunity, options were granted
for a total of 420,371 shares to key employees and outside  directors  under the
96 Plan.

The following table summarizes activity under the respective plans.

        The 1996 Plan
                                                     1996      1995      1994
                                                  --------  --------  --------

        Options granted                            420,371         -         -
        Average option price per share               2.514         -         -
        Options lapsed                                   -         -         -

        Options exercised                                -         -         -
        Average exercise price                           -         -         -

        The Restated Plan-Employees

                                                     1996      1995      1994
                                                  --------  --------  --------

        Options granted                                  -   231,500    89,000
        Average option price per share                   -   $ 2.125   $ 4.500
        Options lapsed                              45,526    25,000   118,759

        Options exercised                          110,000         -         -
        Average exercised price                      2.125         -         -

        The Restated Plan-Non Employee Directors

                                                     1996      1995      1994
                                                  --------  --------  --------

        Options granted                                  -     9,000     8,000
        Average option price per share                   -   $ 2.236   $ 4.500
        Options lapsed                                   -         -         -

        Options exercised                                -         -         -
        Average exercised price                          -         -         -

<PAGE>

                ACCEL INTERNATIONAL CORPORATION AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(CONTINUED)

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

At  December  31, 1996 and 1995,  there were  579,629  and 0  additional  shares
available for grant under the 1996 Plan and the Restated Plan, respectively. The
per share  weighted-average  fair value of stock options granted during 1996 and
1995  was  $1.20  and  $0.79  on the  date of  grant  using  the  Black  Scholes
option-pricing  model with the following  weighted-average  assumptions:  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  7.00%,  and  expected  lives of 5 to 10 years  (based  on the terms of the
grant).

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 FASB
No.  123,  the  Company's  net income  would have been  reduced to the pro forma
amounts indicated below:

                                                       1996              1995
                                                  ----------       -----------
        Net income (loss)       As reported       $   2,104        $   (1,460)
                                 Pro forma            1,980            (1,580)

        Net income (loss) per   As reported       $     .36        $     (.33)
              common share       Pro forma              .34              (.36)

Pro forma net income reflects only options granted in 1996 and 1995.  Therefore,
the full impact of  calculating  compensation  cost for stock options under FASB
No. 123 is not  reflected  in the proforma 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 J--SEGMENT INFORMATION

The  Company  operates  primarily  in  the  life/health  and   property/casualty
insurance industries. 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  and
extraordiary item, and identifiable  assets by segment are summarized as follows
(see Note K regarding 1994 Property/Casualty amounts):

                                               Year Ended December 31,
                                       1996              1995             1994
                                   ---------         ---------        ---------
                                                (Thousands of dollars)
Revenue:
     Life/Health                   $ 36,382          $ 38,878         $ 37,097
     Property/Casualty  (Note S)     19,289            11,454           20,185
     Other (Note S)                   2,149               143              237
                                   ---------         ---------        ---------
       Total                       $ 57,820          $ 50,475         $ 57,519
                                   =========         =========        =========

Income (loss) before income taxes
  and extraordinary item:
     Life/Health                   $    628          $  3,055         $  3,123
     Property/Casualty                1,345            (2,236)          (6,333)
     Other                             (194)           (1,920)          (1,695)
                                   ---------         ---------        ---------
       Total                       $  1,779          $ (1,101)        $ (4,905)
                                   =========         =========        =========

<PAGE>

                ACCEL INTERNATIONAL CORPORATION AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(CONTINUED)

NOTE J--SEGMENT INFORMATION--(CONTINUED)

                                                     December 31,
                                       1996              1995             1994
                                   ---------         ---------        ---------
                                              (Thousands of dollars)
Identifiable assets:
        Life/Health                $138,723          $144,164         $139,262
        Property/Casualty            49,840            38,977           40,428
        Other                           745               366              258
                                   ---------         ---------        ---------
          Total                    $189,308          $183,507         $179,948
                                   =========         =========        =========


NOTE K--WRITE OFF OF INVESTMENT IN RANDJILL GROUP LTD. AND GALAXY INSURANCE
        COMPANY

During December 1986, ACCEL invested $1,370,000 (a 20% interest) in RGL. Galaxy,
a wholly owned subsidiary of RGL, wrote commercial property insurance,  property
and casualty, and assumed treaty reinsurance.

During the second  quarter of 1991,  the  Company  purchased  11,000  additional
common shares of RGL at a cost of $992,000.  The additional investment increased
the  Company's  ownership  to 31% at June 30,  1991.  In July 1991,  the Company
purchased the remaining 69% of RGL for cash and Subordinated  Notes (see Note D)
of $2.1 million and $5.8  million,  respectively.  The purchase  price  included
goodwill  of $1.2  million of which the  outstanding  balance was written off in
1993.

Members of CIHC held a 45% interest in RGL prior to the acquisition by ACCEL.

For the three years ended  December 31, 1993,  RGL recorded  losses and Galaxy's
underwriting  results  deteriorated,  resulting  in the New York  Department  of
Insurance ("New York Department") placing a moratorium on all new business as of
February 28, 1994. Due to significant loss  development  during 1994 on Galaxy's
liability  lines  of  business,  the  Company  contracted  with  an  independent
actuarial consultant to review the adequacy of Galaxy's loss and loss adjustment
expense  reserves as of June 30, 1994. The findings of this review indicated the
need for  additional  reserves  which  resulted in the  statutory  insolvency of
Galaxy at June 30,  1994.  Statutory  capital  and  surplus  after  the  reserve
strengthening was a negative $2.3 million.

Due to the  significance  of the  statutory  loss and the loss of the  Company's
control  of Galaxy  as a result of the  insolvency,  the  Company  wrote off its
investment in RGL ($3.8 million)  during the second quarter of 1994. As a result
of this action, the consolidated results of operations for 1994 include a charge
to  operations  of $3.8 million,  representing  the Company's net  investment in
Galaxy as of April 1, 1994, in addition to operating losses of $205,000 incurred
during the first  quarter.  The Company wrote its  investment in RGL to zero and
deconsolidated RGL as of April 1, 1994.

Pursuant to an Order of Liquidation dated October 7, 1994, issued by the Supreme
Court  of the  State  of New  York,  the  Liquidation  Bureau  of the  New  York
Department  (the  "Liquidation  Bureau")  took  control of Galaxy on October 11,
1994.

ANIC,  a wholly owned  subsidiary  of ACCEL,  in the normal  course of business,
issued certain policy endorsements on Galaxy policies in 1992, some of which had
pending claims open at the time of liquidation (see Note N).


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 1996, 1995 and 1994 the Board  authorized
contributions  to the Plan at a level  that would fund a 100% match of the first
6% of each  participating  employees  tax  deferred  contributions.  The Company
incurred a contribution  expense for 1996,  1995 and 1994 of $187,000,  $198,000
and $178,000, respectively.

The Plan allows all  employees  who meet certain  eligibility  requirements  and
choose to  participate  to defer a percentage of their salary and  contribute to
the Plan on a tax deferred  basis.  The employee  contributions  to the Plan are
used to fund the savings element of the Plan. The Company  contributions  become
part of the Plan and are used to purchase  shares of ACCEL's common stock in the
open market.

<PAGE>

                ACCEL INTERNATIONAL CORPORATION AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(CONTINUED)

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

In 1990, the Plan entered into an agreement with ALIC to borrow up to $1,000,000
for the purchase of ACCEL's  common stock.  The Plan  purchased  136,887  shares
(adjusted for the 1990 5% common stock  dividend) under this loan agreement with
ALIC at a cost of $1,000,000. In addition to the shares purchased under the loan
agreement,  the Plan has  purchased  90,088 common shares at a cost of $603,000.
The  loan,   which  bears   interest  at  10%,  is  being  repaid  from  Company
contributions to the Plan.

At December 31,  1995,  the loan had an unpaid  balance of $525,000.  The market
value of the underlying  shares was $161,000.  The Company revalued this loan to
market  value as of December  31,  1995.  This  allowed the release of shares to
participants'  accounts  at an average  price  which more  closely  approximates
recent market values on the  Company's  stock.  The decrease in the loan in 1995
has been  reflected  through a decrease  in  additional  paid-in  capital in the
accompanying  consolidated  balance  sheets.  The  unpaid  balance  of the  loan
($32,000  and $161,000 at December  31, 1996 and 1995,  respectively),  has been
reflected  as a reduction  in common  stockholders'  equity in the  accompanying
consolidated balance sheets.


NOTE M--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 and $82,000 of pre-tax loss from AICL
for the years ended December 31, 1995 and 1994, respectively.

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 will exist only for as long as it
takes to recover any taxes that may be refunded to it.


NOTE N--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.

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.

<PAGE>

                ACCEL INTERNATIONAL CORPORATION AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(CONTINUED)

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

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

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

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, 1996 are as follows:

           Year Payable                                Annual Minimum Rentals
           ------------                                ----------------------
                 1997                                        $ 336,000
                 1998                                          338,000
                 1999                                          340,000
                 2000                                          322,000
                 2001                                          147,000
                                                            ----------
                 Total                                      $1,483,000
                                                            ==========

The amount of rent charged to operations  was  $208,000,  $16,800 and $28,700 in
1996, 1995 and 1994, respectively.


NOTE O--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 D, during 1996 the Company  retired all of the
outstanding Subordinated Notes held by CIHC.


NOTE P--RISK BASED CAPITAL

In 1993, the National  Association of Insurance  Commissioners  ("NAIC") adopted
the life and health and property and casualty 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.  These model acts became law in
Ohio, the Company's insurance  subsidiaries'  state of domicile,  in March 1996.
The formula includes  components for asset risk,  liability risk,  interest rate
exposure, and other factors. Each of the Company's insurance subsidiaries exceed
all required RBC levels as of December 31, 1996.

<PAGE>

                ACCEL INTERNATIONAL CORPORATION AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(CONTINUED)

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

Quarterly consolidated results of operations for 1996 and 1995 are summarized as
follows:

                                        First     Second      Third     Fourth
                                      Quarter    Quarter    Quarter    Quarter
                                     ---------  ---------  ---------  ---------
                                  (Thousands of dollars, except per share data)
    1996
    ----
Premiums written                      $16,697    $17,169    $15,288    $ 9,258
Premiums earned                        10,065     11,498     13,176     11,218
Policy benefits                         5,091      5,594      7,429      6,224
    Net income                             46         46        160      1,852

    Net income per common share           .01        .01        .03        .22

    1995
    ----
Premiums written                      $13,247    $15,125    $15,297    $11,774
Premiums earned                         9,787      9,833     10,321     10,912
Policy benefits                         4,138      3,973      4,820      7,187
    Net income (loss)                     268        399        165     (2,292)

   Net income (loss) per common share     .06        .09        .04       (.52)

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 D).

The first, second and third quarters of 1996 have been restated to be consistent
with the year end presentation relating to certain reinsurance  treaties.  These
treaties,  which had been accounted for as reinsurance have been presented using
deposit  accounting in the year end results.  The restatement of these quarterly
amounts did not change net income or net income per common  share as  previously
reported.


NOTE R--PROPERTIES

Since July 1981 the Company's  executive offices have been  located at 475 Metro
Place  North, Dublin, Ohio.  The  four-story  office  building had been owned by
ALIC, and consisted of approximately 80,000 square feet of office space.

On March 21, 1996,  the  building  was sold by ALIC to an unrelated  party for a
price of $3.5 million.  The Company  realized a pre-tax gain of $170,000 on this
sale.  The Company will remain in the building and occupy  approximately  16,000
square feet of home office space under a five-year  lease at an annual rental of
approximately $264,000.


NOTE S--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.

<PAGE>

                                    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 May 20, 1997.

              The  executive  officers,  their  respective  ages  and   business
              experience are as follows:  Thomas H. Friedberg (57),  Chairman of
              the Board, President and Chief Executive Officer; Douglas J. Coats
              (63), Executive Vice President;  Cynthia A Moore (34), Senior Vice
              President and Chief Financial Officer; Nicholas Z. Alexander (61),
              Senior  Vice President,  Secretary  and General Counsel;  Larry L.
              Main (48), Senior Vice President-Auto After Market Group; and Kurt
              L. Mueller (48), Vice President, Treasurer and Controller; William
              E. Merritt, Jr. (61), Senior Vice President of Claims and Bryce E.
              Farmer (45), Senior Vice President of 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.  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. Main was named Senior Vice President in 1992 and prior thereto
              was Vice President of the Company for more than five years.

              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.

              Mr. Mueller was named Vice  President/Treasurer  and Controller of
              the  Company in 1996 and prior  thereto  had been Vice  President,
              Controller  of the  Company  since 1994 and prior to that had been
              Vice  President-General  Accounting  of  the  subsidiaries  of the
              Company for more than five years.


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 May 20,
              1997.

<PAGE>

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 May 20, 1997.

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 May 20, 1997.


                                     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, 1996 and 1995
         Consolidated statements of operations -- Years ended December 31, 1996,
              1995 and 1994
         Consolidated  statements of common stockholders' equity -- Years  ended
              December 31, 1996, 1995 and 1994
         Consolidated statements of cash flows -- Years ended December 31, 1996,
              1995 and 1994
         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

<PAGE>
                                                                         Page
                                                                        Numbers
                                                                          In
Exhibit                                                                 Exhibit
Number   Description                                                    Volume
-------  -------------------------------------------------------------- --------

(3)      Articles of Incorporation and By-Laws.

         1(a) Certificate of Incorporation,  as amended, of Registrant.
         (Incorporated  by  reference  to  Exhibit  A  of  Registrant's
         definitive  Proxy  Statement as filed with the  Commission  on
         June 9, 1978.)

         1(b) 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.)

         2(a)  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.)

         2(b)   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.)

         2(c) 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.)

         2(d) 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.)

         2(e) 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.)

         2(f)  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.

         1(a)  Verification  of  coverage  of  current   Directors  and     1
         Officers Liability Policy for ACCEL  International Corporation
         as issued by Reliance Insurance Company,  indicating  coverage
         for the period from June 1, 1996 to June 1, 1997.

<PAGE>

                                                                         Page
                                                                        Numbers
                                                                          In
Exhibit                                                                 Exhibit
Number   Description                                                    Volume
-------  -------------------------------------------------------------- --------

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

         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.)

         3(a)  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.)

         4. 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.)

         5(a)  Joint  Venture  Agreement  dated  June  16,  1987 by and
         between Consumers Life Insurance Company and Acceleration Life
         Insurance  Company of Pennsylvania and  Acceleration  National
         Service  Corporation  with Exhibits E and F.  (Incorporated by
         reference to Exhibit (10) 9(a) to Registrant's  Report on Form
         10-K for year ended December 31, 1987.)

         5(b) Quota Share Reinsurance  Agreement dated June 16, 1987 by
         and between  Consumers Life Insurance Company and Acceleration
         Life Insurance Company.  (Incorporated by reference to Exhibit
         (10) 9(b) to  Registrant's  Report on Form 10-K for year ended
         December 31, 1987.)

         5(b) 1.  Amendment  to the Quota Share  Reinsurance  Agreement
         effective  October  1, 1987.  (Incorporated  by  reference  to
         Exhibit (10)9(b) of the  Registrant's  Report on Form 10-K for
         year ended December 31, 1988.)

         5(c) Custodial Account Agreement effective July 1, 1987 by and
         between  Acceleration Life Insurance  Company,  Consumers Life
         Insurance  Company,  and Fifth-Third  Bank.  (Incorporated  by
         reference to Exhibit (10) 9(c) of the  Registrant's  Report on
         Form 10-K for year ended December 31, 1987.)

         5(d) Service Contract, Agreement and Schedules - Joint Venture
         Agreement  Exhibit B by and between  Consumers  Life Insurance
         Company and Acceleration Life Insurance Company. (Incorporated
         by reference to Exhibit (10) 9(d) of the  Registrant's  Report
         on Form 10-K for year ended December 31, 1987.)

         5(e) Service  Contract  Settlement - Joint  Venture  Agreement
         Exhibit C effective July 1, 1987 by and between Consumers Life
         Insurance  Company and  Acceleration  Life Insurance  Company.
         (Incorporated  by  reference  to  Exhibit  (10)  9(e)  of  the
         Registrant's  Report on Form 10-K for year ended  December 31,
         1987.)

         5(f) Security  Agreement - Joint Venture  Agreement  effective
         July  1,  1987  by and  between  Acceleration  Life  Insurance
         Company,  Consumers Life Insurance  Company,  and  Fifth-Third
         Bank.  (Incorporated  by reference to Exhibit (10) 9(f) of the
         Registrant's  Report on Form 10-K for year ended  December 31,
         1987.)

<PAGE>
                                                                         Page
                                                                        Numbers
                                                                          In
Exhibit                                                                 Exhibit
Number   Description                                                    Volume
-------  -------------------------------------------------------------- --------

(10)     5(g)  Marketing Representation Agreement dated June 16,1987 by
Cont.    and    between   Consumers   Financial   Corporation,    ACCEL
         International Corporation,  and Pennsylvania Auto  Association
         Insurance Agency,  Inc.  (Incorporated by reference to Exhibit
         (10) 9(g) of the Registrant's Report on  Form  10-K  for  year
         ended December 31, 1987.)

         5(h) Unconditional Irrevocable Guaranty dated June 16, 1987 by
         Consumers  Financial  Corporation and Consumers Life Insurance
         Company.  (Incorporated  by  reference to Exhibit (10) 9(h) of
         the  Registrant's  Report on Form 10-K for year ended December
         31, 1987.)

         5(i) Unconditional Irrevocable Guaranty dated June 16, 1987 by
         ACCEL International Corporation. (Incorporated by reference to
         Exhibit (10) 9(i) of the Registrant's  Report on Form 10-K for
         year ended December 31, 1987.)

         5(j)  Termination Agreement  with   Consumers  Life  Insurance    2-6
         effective July 31, 1996.

         5(k)  Amendment to Termination Agreement  with  Consumers Life    7-8
         Insurance Company effective October 9, 1996.

         6. Credit Life and Accident and Health Quota Share Reinsurance
         Contract  effective  December 31, 1994 issued to  Acceleration
         Life Insurance Company.

         The Company  executed  Amendment  No. 3 to a Credit  Agreement
         with the Fifth Third Bank,  Cincinnati,  Ohio, a copy of which
         is not included  herewith as an exhibit.  Registrant agrees to
         furnish to the Commission a copy thereof upon request.

         7. Note Agreement pertaining to $16,500,000 9.5% Senior Notes,
         due April 1, 2001,  dated as of December  15,  1995,  with The
         Lincoln National Life Insurance Company.

         8. Reinsurance  Agreement between  Acceleration Life Insurance
         Company  and  The  Lincoln  National  Life  Insurance  Company
         executed  December  29, 1995 and by  amendment  thereto,  made
         effective January 1, 1996.

         8(a)  Amendment  No. 2  to the Reinsurance Agreement   between    9-15
         Acceleration Life Insurance Company  and  The Lincoln National
         Life Insurance Company effective January 1, 1996.

         8(b)  Amendment  No. 3  to the Reinsurance Agreement   between   16-19
         Acceleration  Life Insurance  Company and The Lincoln National
         Life Insurance Company effective January 1, 1996

         9.  Reinsurance Agreement between Acceleration Life  Insurance   20-54
         Company and The Lincoln National Reassurance Company effective
         January 1, 1996, and executed July 31, 1996.

         9(a) Amendment No. 1 to the  Reinsurance   Agreement   between   55-62
         Acceleration Life Insurance Company and The  Lincoln  National
         Reassurance Company effective January 1, 1996.

(21)     Subsidiaries of the Registrant

         (1)  See Organizational Chart  -  all   such   Companies   are    63
         incorporated  herein  by reference  and  are  presently  doing
         business under their respective INCORPORATED NAMES.

<PAGE>
                                                                         Page
                                                                        Numbers
                                                                          In
Exhibit                                                                 Exhibit
Number   Description                                                    Volume
-------  -------------------------------------------------------------- --------

(23)     Consent of Independent Auditors'                                  64

(24)     Powers of Attorney                                               65-73

         *  The  total  amount  of  securities   authorized  under  any
         instrument  with respect to long-term debt does not exceed 10%
         of the total assets of the Registrant and its  subsidiaries on
         a consolidated  basis. The Registrant hereby agrees to furnish
         a copy of any such instrument to the Commission upon request.

(27)     Financial Data Schedule  incorporated  herein by  reference to
         the EDGAR filing of the Registrant for the year ended December
         31, 1996.

<PAGE>

ITEM 14 (d)--SCHEDULES

                      SCHEDULE I - SUMMARY OF INVESTMENTS -

                    OTHER THAN INVESTMENTS IN RELATED PARTIES

                ACCEL INTERNATIONAL CORPORATION AND SUBSIDIARIES

                                December 31, 1996


--------------------------------------------------------------------------------
           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)
Available for sale securities:
   Fixed maturities:
     United States Government and govern-
       ment agencies and authorities          $  13,120   $  13,193   $  13,193
     States, municipalities and
       political subdivisions                       940         960         960
     Mortgage and asset-backed securities        40,743      40,032      40,032
     All other corporate bonds                    3,541       3,554       3,554
   Redeemable preferred stocks                      545         542         542
                                              ----------  ----------  ----------
   Total                                         58,889      58,281      58,281

   Equity securities
     Common stocks:
     Industrial & Miscellaneous                   5,514       5,511       5,511

Other long-term investments                         346         346         346
Short-term investments                           10,670      10,703      10,703
                                              ----------  ----------  ----------
     Total investments                        $  75,419   $  74,841   $  74,841
                                              ==========  ==========  ==========


*    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.

<PAGE>

           SCHEDULE II - CONDENSED FINANCIAL INFORMATION OF REGISTRANT

                                 BALANCE SHEETS

                ACCEL INTERNATIONAL CORPORATION (Parent Company)

                                                             December 31,
                                                         1996           1995
                                                    ----------     ----------
                                                      (Thousands of dollars)
ASSETS

  Investments                                       $       1     $        1
  Cash                                                     28            443
  Notes and receivables from
    consolidated subsidiaries*                              3            391
  Deferred federal income tax                             209            251
  Investments in subsidiaries**                        51,162         48,596
  Other                                                   110              4
                                                    ----------     ----------
                                                    $  51,513      $  49,686
                                                    ==========     ==========

LIABILITIES AND COMMON STOCKHOLDERS' EQUITY

  Accounts payable and other liabilities            $   1,126      $     296
  Notes and accounts payable to subsidiaries*           3,401          5,954
  Current federal income tax                              345            345
  Notes payable                                        15,000         22,531
                                                    ----------     ----------
                                                       19,872         29,126


  Common stockholders' equity:
    Common stock                                          940            524
    Additional paid-in capital                         32,507         23,702
    Retained earnings (including undistributed
      earnings of subsidiaries and affiliates:
      1996--$11,189,000; 1995--$8,770,000)              5,403          3,299
    Treasury shares at cost                            (6,599)        (6,599)
    ESOP loan                                             (32)          (161)
    Net unrealized depreciation on investment
        securities (representing amounts
      attributable to investments of subsidiaries
      1996--($578,000); 1995--($205,000))                (578)          (205)
                                                    ----------     ----------
                                                       31,641         20,560
                                                    ----------     ----------
                                                    $  51,513      $  49,686
                                                    ==========     ==========


*    Eliminated in consolidation

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

     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.

<PAGE>

           SCHEDULE II - CONDENSED FINANCIAL INFORMATION OF REGISTRANT

                            STATEMENTS OF OPERATIONS

                ACCEL INTERNATIONAL CORPORATION (Parent Company)

                                                  Year Ended December 31,
                                              1996          1995          1994
                                       ------------  ------------  ------------
                                                (Thousands of dollars)
INCOME
   Net investment income:
     Dividends from consolidated
        subsidiaries*                  $         -   $       803   $       631
     Interest                                    3             1            13
     Realized gains                              -             -           122
   Other income                              2,146           143           105
                                       ------------  ------------  ------------
                                             2,149           947           871
EXPENSES
   General and administrative                  374           315           345
   Interest                                  2,178         2,307         2,007
   Loss on write-off of subsidiary               -             -         3,829
                                       ------------  ------------  ------------
                                             2,552         2,622         6,181
                                       ------------  ------------  ------------

   LOSS BEFORE INCOME
     TAXES AND OTHER ITEMS                    (403)       (1,675)       (5,310)

Federal income taxes (benefit)                  43          (248)            -

Other item--equity in undistributed
   net income (loss) of consolidated
   subsidiaries*                             2,419           (33)           72
                                       ------------  ------------  ------------
   INCOME (LOSS) BEFORE
     EXTRAORDINARY ITEM                      1,973        (1,460)       (5,238)

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

   NET INCOME (LOSS)                   $     2,104   $    (1,460)  $    (5,238)
                                       ============  ============  ============


*    Eliminated in consolidation

     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.

<PAGE>

           SCHEDULE II - CONDENSED FINANCIAL INFORMATION OF REGISTRANT

                            STATEMENTS OF CASH FLOWS

                ACCEL INTERNATIONAL CORPORATION (Parent Company)

                                                    Year Ended December 31,
                                                  1996        1995        1994
                                               --------    --------    --------
                                                    (Thousands of dollars)
OPERATING ACTIVITIES:
Net income (loss) before extraordinary item    $ 1,973     $(1,460)    $(5,238)
Adjustments to reconcile net income (loss) to
    net cash provided by (used in)
    operating activities:
  Change in amounts due from consolidated
    subsidiaries                                   388         830         118
  Change in accounts payable to consolidated
    subsidiaries                                  (233)        652         115
  Change in other assets, other liabilities,
    and accrued income taxes                       741        (191)       (112)
  Interest paid in kind                            403         569         515
  Amortization of premium on bonds                   -           -           5
  Equity in (gains) losses of subsidiaries
      and affiliates                            (2,419)         33         (72)
  Provision for amortization of goodwill           106         107         108
  Write off of subsidiary                            -           -       3,829
  Net realized gains on investments                  -           -        (122)
                                               --------    --------    --------
NET CASH PROVIDED BY (USED IN) OPERATIONS
BEFORE EXTRAORDINARY ITEM                          959         540        (854)
Extraordinary gain                                 131           -           -
                                               --------    --------    --------
NET CASH PROVIDED BY (USED IN) OPERATIONS        1,090         540        (854)

INVESTING ACTIVITIES:
  Additional investment in subsidiary             (496)     (4,000)          -
  Sale, maturity, or repayment of investments        -          49       1,599
                                               --------    --------    --------
NET CASH PROVIDED BY (USED IN)
   INVESTING ACTIVITIES                           (496)     (3,951)      1,599

FINANCING ACTIVITIES:
  Repayment of notes payable                      (600)    (13,000)          -
  Issuance of notes payable                          -      16,500           -
  Repayment of notes to subsidiary              (3,927)     (1,000)          -
  Write down of ESOP Loan                            -        (364)          -
  Stock redemption of subsidiary                     -       1,483           -
  Debentures redeemed                                -           -        (900)
  Issuance of Common Stock under Stock
     Option Plan                                   234           -           -
  Issuance of Common Stock under Rights
     Offering                                    3,284           -           -
  Other net                                          -          32         366
                                               --------    --------    --------
NET CASH PROVIDED BY (USED IN)
   FINANCING ACTIVITIES                         (1,009)      3,651      (  534)
                                               --------    --------    --------

         INCREASE (DECREASE) IN CASH              (415)        240         211
Cash (Overdraft) at beginning of year              443         203          (8)
                                               --------    --------    --------
CASH AT END OF YEAR                            $    28     $   443     $   203
                                               ========    ========    ========
Supplemental schedule of non-cash
   financing activities:
     Cancellation of Subordinated Notes
     as consideration for the purchase
     of Common Stock--Note D                   $ 5,703     $     -      $    -
                                               ========    ========    ========

     Transfer of note payable to
        Subsidiary--Note D                     $ 1,500     $     -      $    -
                                               ========    ========    ========

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.

<PAGE>

<TABLE>
                                                         SCHEDULE III - SUPPLEMENTARY INSURANCE INFORMATION
                                                          ACCEL INTERNATIONAL CORPORATION AND SUBSIDIARIES
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------------
Column A       Column B    Column C    Column D    Column E    Column F    Column G    Column H    Column I    Column J    Column K
------------------------------------------------------------------------------------------------------------------------------------
                                   December 31,                                              Year ended December 31,
              --------------------------------------------------------- ------------------------------------------------------------
               Deferred     Reserve    Unearned       Other     Premium         Net   Benefits, Amortization      Other     Premiums
                 policy  for future    Premiums      policy     revenue  investment     claims,  of deferred  operating      written
            acquisition      policy               claim and               income(1)  losses and       policy   expenses
                  costs    benefits                benefits                          settlement  acquisition        (1)
                                                    payable                            expenses     costs (2)
------------------------------------------------------------------------------------------------------------------------------------
                                                          (Thousands of dollars)
<S>           <C>         <C>         <C>         <C>         <C>         <C>         <C>         <C>         <C>         <C>
      1996
Life/Health   $  29,528   $       -   $  62,057   $  15,891   $  27,845   $   2,776   $  14,036   $   1,829   $  19,861   $  34,768
Property
   /Casaulty      1,418           -      19,763       9,365      18,112       2,121      10,302        (936)      8,606      23,644
Other                 -           7           -           -           -           3           -           -       2,343           -
              ----------  ----------  ----------  ----------  ----------  ----------  ----------  ----------  ----------  ----------
      TOTAL   $  30,946   $       7   $  81,820   $  25,256   $  45,957   $   4,900   $  24,338   $     893   $  30,810   $  58,412
              ==========  ==========  ==========  ==========  ==========  ==========  ==========  ==========  ==========  ==========

      1995
Life/Health   $  31,357   $      11   $  67,850   $  15,568   $  24,411   $  5,172    $  12,775   $ (1,795)   $  24,843   $  43,144
Property
   /Casaulty        482           -      14,230       7,193      16,442      1,631        7,343      1,045        5,302      12,299
Other                 -           -           -           -           -        140            -          -        2,063           -
              ----------  ----------  ----------  ----------  ----------  ----------  ----------  ----------  ----------  ----------
      TOTAL   $  31,839   $      11   $  82,080   $  22,761   $  40,853   $  6,943    $  20,118   $    (750)  $  32,208   $  55,443
              ==========  ==========  ==========  ==========  ==========  ==========  ==========  ==========  ==========  ==========

      1994
Life/Health   $  29,563   $      15   $  65,387   $  16,781   $  32,059   $   4,972   $  12,350   $  (2,563)  $  24,188   $  35,577
Property
   /Casaulty      1,526           -      18,375       6,378      15,541       2,380      12,647       4,648       9,223      12,432
Other                 -           -           -            -          -         134           -           -       1,932           -
              ----------  ----------  ----------  ----------  ----------  ----------  ----------  ----------  ----------  ----------
      TOTAL   $  31,089   $      15   $  83,762   $  23,159   $  47,600   $   7,486   $  24,997   $   2,085   $  35,343   $  48,009
              ==========  ==========  ==========  ==========  ==========  ==========  ==========  ==========  ==========  ==========


<FN>
(1)  Allocations of net investment income and other operating expenses are based
     on a number of  assumptions  and results would change if different  methods
     were applied.  Net investment  income  includes  realized gains and losses.
     Other  operating  expenses  at December  31, 1994  include the write off of
     Randjill Group Limited ($3,829,280).
(2)  Represents the net (increase) decrease in deferred policy acquisition costs.

See accompanying independent auditors' report.
</FN>
</TABLE>

<PAGE>

                            SCHEDULE IV - REINSURANCE

                ACCEL INTERNATIONAL CORPORATION AND SUBSIDIARIES

                                                                         Column
Column A                      Column B   Column C   Column D    Column E    F
--------------------------------------------------------------------------------
                                                                      Percentage
                                                                       of amount
                                         Ceded to    Assumed             assumed
                                 Gross      other from other         Net      to
                                amount  companies  companies      amount     net
--------------------------------------------------------------------------------
                             (Thousands of dollars)

Year Ended December 31, 1996
----------------------------
Life insurance in-force     $1,188,609  $ 327,883  $ 258,953  $1,119,679  23.1%
                            ==========  =========  =========  ==========

Premiums
   Life                     $   12,812  $   1,953  $   1,311  $   12,170  10.8%
   Accident and health          18,323      3,390      2,322      17,255  13.5%
   Property and casualty        23,644      7,517          -      16,127    .0%
                            ----------  ---------  ---------  ----------
   Total premiums           $   54,779  $  12,860  $   3,633  $   45,552   8.0%
                            ==========  =========  =========  ==========

Year Ended December 31, 1995
----------------------------
Life insurance in-force     $1,523,926  $ 432,311  $ 320,466  $1,412,081  22.7%
                            ==========  =========  =========  ==========

Premiums
   Life                     $   15,301  $   2,604  $   2,255  $   14,952  15.1%
   Accident and health          21,463      4,108      4,053      21,408  18.9%
   Property and casualty        12,371      5,435          -       6,936    .0%
                            ----------  ---------  ---------  ----------
   Total premiums           $   49,135  $  12,147  $   6,308  $   43,296  14.6%
                            ==========  =========  =========  ==========

Year Ended December 31, 1994
----------------------------
Life insurance in-force     $1,172,278  $ 290,673  $ 336,153  $1,217,758  27.6%
                            ==========  =========  =========  ==========

Premiums
   Life                     $   15,149  $   4,932  $   2,794  $   13,011  21.4%
   Accident and health          22,909      5,189      4,846      22,566  21.5%
   Property and casualty        14,806      2,374          -      12,432    .0%
                            ----------  ---------  ---------  ----------
Total premiums              $   52,864  $  12,495  $   7,640  $   48,009  15.9%
                            ==========  =========  =========  ==========


See accompanying independent auditors' report.

<PAGE>

                                   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/ Kurt L. Mueller
               ---------------------------------
                    Kurt L. Mueller
               Vice President, Treasurer  & Controller


Date:             March 28, 1997
               ---------------------

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


             Signature                          Title              Date
--------------------------------             -----------     ----------------


     /S/ Robert Betagole                       Director       March 18, 1997
--------------------------------                              --------------
     Robert Betagole



     /S/ David T. Chase*                       Director       March 18, 1997
--------------------------------                              --------------
     David T. Chase



     /S/ Douglas J. Coats*                     Director       March 18, 1997
--------------------------------                              --------------
     Douglas J. Coats



     /S/ Raymond H. Deck*                      Director       March 18, 1997
-----------------------------                                 --------------
     Raymond H. Deck



                                               Director
-----------------------------                                 --------------
     Robert E. Fowler III



     /S/ Thomas H. Friedberg*                  Director       March 18, 1997
------------------------------                                --------------
     Thomas H. Friedberg

<PAGE>


             Signature                          Title              Date
--------------------------------             -----------     ----------------


     /S/ Kermit G. Hicks*                      Director       March 18, 1997
------------------------------                                --------------
     Kermit G. Hicks



     /S/ Stephen M. Qua*                       Director       March 18, 1997
------------------------------                                --------------
      Stephen M. Qua



     /S/ Milton J. Taylor, Sr.*                Director       March 18, 1997
------------------------------                                --------------
     Milton J. Taylor, Sr.



     /S/ Paul R. Whitters*                     Director       March 18, 1997
------------------------------                                --------------
     Paul R. Whitters






*By:   /S/Nicholas Z. Alexander                               March 28, 1997
     ----------------------------                             --------------
       Nicholas Z. Alexander
         Attorney-in-Fact