<PAGE>   1
 
================================================================================
                                 UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549
                             ---------------------
                                   FORM 10-K
 
     [X]         ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
                     OF THE SECURITIES EXCHANGE ACT OF 1934
 
                  FOR THE FISCAL YEAR ENDED DECEMBER 31, 1996
 
                                       OR
 
     [ ]       TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
                     OF THE SECURITIES EXCHANGE ACT OF 1934
 
             FOR THE TRANSITION PERIOD FROM ......... TO .........
 
                         COMMISSION FILE NUMBER 0-8636
 
                    AMERICAN INDEMNITY FINANCIAL CORPORATION
             (Exact name of registrant as specified in its charter)
 
<TABLE>
<C>                                              <C>
                    DELAWARE                                        510119643
        (State or other jurisdiction of                          (I.R.S. Employer
         incorporation or organization)                        Identification No.)
 
          ONE AMERICAN INDEMNITY PLAZA
                GALVESTON, TEXAS                                      77550
    (Address of principal executive offices)                        (Zip Code)
</TABLE>
 
       REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (409) 766-4600
 
          SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
 
<TABLE>
<CAPTION>
                                                              NAME OF EACH EXCHANGE
              TITLE OF EACH CLASS                              ON WHICH REGISTERED
              -------------------                             ---------------------
<C>                                              <C>
                      None                                             None
</TABLE>
 
          SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
                       Common Stock ($3.33 1/3 par value)
                                (TITLE OF CLASS)
 
     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 [ ]     No [ ]
 
     Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K.  [ ]
 
     The aggregate market value of the voting stock of the Registrant held by
non-affiliates as of March 14, 1997 was $16,980,522 based upon the closing price
as of such date.
 
     As of March 14, 1997, there were outstanding 1,962,410 shares of Common
Stock, $3.33 1/3 par value, of the Registrant.
 
                      DOCUMENTS INCORPORATED BY REFERENCE:
 
     (1) Annual Report to Stockholders for the fiscal year ended December 31,
1996 (portions of which are incorporated into Parts II and IV hereof).
 
     (2) The Registrant's definitive Proxy Statement with respect to the
Registrant's Annual Meeting of Stockholders proposed to be held April 28, 1997
(portions of which are incorporated into Part III hereof).
================================================================================
<PAGE>   2
 
                               TABLE OF CONTENTS
 
<TABLE>
<CAPTION>
                                                                           PAGE
                                                                           ----
<S>          <C>                                                           <C>
                                    PART I
 
ITEM 1.      Business....................................................    1
             General Development of Business.............................    1
             Distribution of Business....................................    1
             Financial Information.......................................    2
             Net Premiums Written........................................    2
             Underwriting Results........................................    2
             Loss and Loss Adjustment Expense Reserves...................    3
             Narrative Description of Business...........................    6
             General.....................................................    6
             Reinsurance.................................................    6
             Investments.................................................    7
             Regulation and Other Restrictions...........................    7
ITEM 2.      Properties..................................................    8
ITEM 3.      Legal Proceedings...........................................    9
ITEM 4.      Submission of Matters to a Vote of Security Holders.........    9
 
                                    PART II
 
ITEM 5.      Market for the Registrant's Common Equity and Related
               Stockholder Matters.......................................    9
ITEM 6.      Selected Financial Data.....................................    9
ITEM 7.      Management's Discussion and Analysis of Financial Condition
               and Results of Operations.................................    9
ITEM 8.      Financial Statements and Supplementary Data.................    9
ITEM 9.      Changes in and Disagreements with Accountants on Accounting
               and Financial Disclosure..................................    9
 
                                   PART III
 
ITEM 10.     Directors and Executive Officers of the Registrant..........    9
ITEM 11.     Executive Compensation......................................   10
ITEM 12.     Security Ownership of Certain Beneficial Owners and
               Management................................................   10
ITEM 13.     Certain Relationships and Related Transactions..............   10
 
                                    PART IV
 
ITEM 14.     Exhibits, Financial Statement Schedules and Reports on Form
               8-K.......................................................   10
SIGNATURES...............................................................   13
INDEPENDENT AUDITORS' REPORT.............................................   14
SCHEDULE I   Summary of Investments -- Other than Investments in Related
               Parties, December 31, 1996................................  S-1
SCHEDULE II  Condensed Financial Information of Registrant...............  S-2
SCHEDULE VI  Supplemental Information -- Property Casualty Insurance.....  S-5
</TABLE>
<PAGE>   3
 
                                     PART I
 
ITEM 1. BUSINESS.
 
GENERAL DEVELOPMENT OF BUSINESS
 
     American Indemnity Financial Corporation (the "Company"), an insurance
holding company, was organized in June 1973 under the laws of Delaware for the
purpose of acquiring the outstanding shares of common stock of American
Indemnity Company. The Company currently owns 99.9% of the common stock of
American Indemnity Company, its principal operating subsidiary. American
Indemnity Company, incorporated in 1913, is the oldest Texas stock company
engaged in the general casualty insurance business in the state. The insurance
written by American Indemnity Company and its two wholly owned subsidiaries,
American Fire and Indemnity Company and Texas General Indemnity Company,
includes automobile, homeowners multiple peril, workers' compensation, fire and
allied lines, commercial multiple peril and general casualty lines.
 
     In this report, the term "American Indemnity" refers to American Indemnity
Company and its subsidiaries, unless the context indicates otherwise.
 
     The principal business of the Company is carried on through American
Indemnity; however, the Company does provide advice and services to American
Indemnity and coordinates its activities in the areas of accounting,
investments, public relations, business development, data processing and
automation, asset and liability management, budgetary planning, compliance with
governmental regulations and procedures, financing arrangements, and other such
matters. American Indemnity and each of its subsidiaries operate under the
day-to-day management of their own officers and directors.
 
DISTRIBUTION OF BUSINESS
 
     The Company writes the majority of its business in Texas. In general,
American Indemnity has avoided writing business in those jurisdictions where
regulators are most reluctant to grant rate adjustments. The following table
shows the geographic distribution of gross premiums written.
 
<TABLE>
<CAPTION>
                                                               YEARS ENDED DECEMBER 31,
                                                              --------------------------
                                                               1996      1995      1994
                                                              ------    ------    ------
<S>                                                           <C>       <C>       <C>
Texas.......................................................    71.9%     73.4%     73.1%
Louisiana...................................................     7.3       6.9       6.9
Florida.....................................................     6.6       6.4       7.3
Mississippi.................................................     3.8       3.8       3.7
Alabama.....................................................     3.5       2.7       2.3
Tennessee...................................................     2.5       2.4       2.5
Kentucky....................................................     2.1       2.0       1.8
All other (six states)......................................     2.3       2.4       2.4
                                                               -----     -----     -----
          Total.............................................   100.0%    100.0%    100.0%
                                                               =====     =====     =====
</TABLE>
 
     The following table provides the distribution of the Company's business on
the basis of net premiums written between personal lines (primarily insurance
for private passenger automobiles and residential property) and commercial
lines.
 
<TABLE>
<CAPTION>
                                                              YEARS ENDED DECEMBER 31,
                                                              ------------------------
                                                              1996      1995      1994
                                                              ----      ----      ----
<S>                                                           <C>       <C>       <C>
Personal Lines..............................................   37%       38%       42%
Commercial Lines............................................   63        62        58
                                                              ---       ---       ---
          Total.............................................  100%      100%      100%
                                                              ===       ===       ===
</TABLE>
 
                                        1
<PAGE>   4
 
FINANCIAL INFORMATION
 
NET PREMIUMS WRITTEN
 
     The following table summarizes, by major classes of policies written, the
amounts and percentages of net premiums written by American Indemnity during the
periods indicated.
 
                              NET PREMIUMS WRITTEN
                             (DOLLARS IN THOUSANDS)
 
<TABLE>
<CAPTION>
                                                           YEARS ENDED DECEMBER 31,
                                             -----------------------------------------------------
                                                  1996               1995               1994
                                             ---------------    ---------------    ---------------
<S>                                          <C>       <C>      <C>       <C>      <C>       <C>
Personal automobile........................  $17,844    25.9%   $19,764    29.4%   $20,426    30.9%
Commercial automobile......................   16,272    23.6     14,543    21.6     13,408    20.2
Commercial multiple peril..................   15,973    23.2     16,097    23.9     14,511    21.9
Other liability............................    7,646    11.1      6,626     9.8      5,930     9.0
Homeowners multiple peril..................    5,506     8.0      4,154     6.2      4,886     7.4
Fire and allied lines......................    3,506     5.1      3,285     4.9      3,765     5.7
Inland marine..............................    1,366     2.0      1,439     2.1      1,617     2.4
Workers' compensation......................      409     0.6      1,008     1.5      1,241     1.9
All other..................................      341     0.5        399     0.6        390     0.6
                                             -------   -----    -------   -----    -------   -----
          Net premiums written.............  $68,863   100.0%   $67,315   100.0%   $66,174   100.0%
                                             =======   =====    =======   =====    =======   =====
</TABLE>
 
     In April 1996, A. M. Best Company assigned the Company a rating of B
(Adequate). The Company cannot predict whether this rating will eventually be
changed. Although some mortgage lenders will not accept property insurance
written by B rated insurers, the Company has not seen any reduction in the
number of its property policies which can be attributed to this rating. In the
event that any mortgage lenders take exception to any American Indemnity
property policies, the Company has arranged for a cut-through endorsement
(guaranty bond) from Munich American Reinsurance Company which will meet the
standards of mortgage lenders.
 
UNDERWRITING RESULTS
 
     A common industry measurement of property-casualty insurance underwriting
results is the "statutory combined ratio." This ratio is the sum of (1) the
ratio of losses and loss adjustment expenses to premiums earned ("loss and loss
adjustment expense ratio"); (2) the ratio of underwriting expenses to premiums
written ("underwriting expense ratio"); and (3) the ratio of statutory
retrospective premium adjustments on workers' compensation policies to premiums
written ("retrospective premium adjustment ratio"). When the statutory combined
ratio is under 100%, underwriting results are profitable. Federal income taxes,
investment income, deferred policy acquisition costs and other non-underwriting
income and expenses are not reflected in the statutory combined ratios.
 
                                        2
<PAGE>   5
 
     The following table sets forth the Company's statutory combined ratios for
the periods indicated.
 
                           STATUTORY COMBINED RATIOS
                             (DOLLARS IN THOUSANDS)
 
<TABLE>
<CAPTION>
                                                                YEARS ENDED DECEMBER 31,
                                                              -----------------------------
                                                               1996       1995       1994
                                                              -------    -------    -------
<S>                                                           <C>        <C>        <C>
Premiums earned.............................................  $64,579    $67,858    $65,346
Statutory losses incurred...................................   38,505     40,784     35,996
Loss adjustment expenses incurred...........................    7,360      8,752      7,656
  Loss ratio................................................     59.6%      60.1%      55.1%
  Loss and loss adjustment expense ratio....................     70.9       73.0       66.8
  Underwriting expense ratio................................     36.4       37.4       36.1
  Retrospective premium adjustment ratio....................      0.8        3.0         .4
                                                              -------    -------    -------
     Statutory combined ratio...............................    108.1%     113.4%     103.3%
                                                              =======    =======    =======
</TABLE>
 
LOSS AND LOSS ADJUSTMENT EXPENSE RESERVES
 
     Reserves for Insured Events. American Indemnity maintains a provision for
losses and loss adjustment expenses to cover the ultimate net cost of losses on
reported and unreported claims. The estimation of unpaid losses and loss
adjustment expenses is perhaps the most crucial and important aspect affecting
underwriting results of the Company and the industry as a whole. The Company
follows the practice of reserving for losses for reported and unreported claims
and for related loss adjustment expenses, in each case based on the terms and
limits of liability as specified in the Company's policies. There has not been a
significant change in reserving assumptions or methodologies during the year,
nor a material change in the geographic locations of business produced. The
Company believes that its loss reserving methodologies appropriately address the
effects of the change in the mix of business between personal lines and
commercial lines as reflected by the table at the bottom of page one of this
report.
 
     With respect to reported claims, the Company establishes reserves on a
case-by-case basis, based on the best available evidence as to the cost of the
claim. When the reserve for a particular case is set initially, it is based on
current estimated costs, such as automobile or home repair costs for property
damage claims and, in the case of liability claims, the Company's claims
adjuster's and the handling attorney's best estimate of the settlement costs, as
well as such attorney's judgment as to the climate of the courts with respect to
the size of judgments. While there is no explicit provision made for inflation,
these reserves are reviewed periodically on a case-by-case basis to determine
if, for example, updated cost information on property claims or revised
estimates based on new information received in the course of settling or
litigating a claim require the reserve to be adjusted. In this manner, the
reserve is updated implicitly to reflect additional costs resulting from
inflation or from changing social conditions, such as changes in the size of
judgments for liability claims.
 
     In addition to reserving for reported claims, the Company establishes
reserves for incurred but unreported claims. These reserves are based on
historical experience with respect to the probable number and nature of claims
arising from losses not yet reported. In addition, if an event occurs with
respect to which the Company believes that all losses have not been reported,
the Company adjusts the reserve for losses incurred but not reported. This
adjustment of the reserve for incurred but unreported claims is based on the
average severity of claims reported with respect to such an event, historical
experience with respect to the average claim severity of like occurrences, the
judgment of the Company's claims adjusters and an estimate of the probable
number of claims that will arise from such an event.
 
     Loss adjustment expense reserves are established based on the Company's
historical experience with respect to loss adjustment expenses paid relative to
losses paid, as well as an experience-based provision for those loss adjustment
expenses not directly assignable to specific claims which are known as
unallocated loss adjustment expenses. Unallocated loss adjustment expenses are
the overhead costs associated with claim handling and administration, such as
salaries of clerical personnel.
 
                                        3
<PAGE>   6
 
     For each year end since 1987, the Company obtained an independent actuarial
review of its reserves for insured events. In addition to periodic review of
loss reserves for insured events during the year, the Company also tests the
adequacy of loss reserves on an annual basis. Loss reserves for reported claims
at the end of each year are analyzed in relation to the average per claim cost
experienced in the recent past. This average per claim cost, or "average claim
severity" is then used as a projected average. This projected average is then
used to test the adequacy of current reserves for reported losses by multiplying
it by the number of outstanding claims to calculate a projected year-end loss
reserve for insured events. This loss reserve is then compared with the
Company's then existing loss reserve for insured events to determine its
adequacy. Additionally, the current total amount of unreported losses is tested
based on historical trends and relationships regarding unreported losses to
determine the adequacy of current reserve levels for incurred but unreported
claims. This reserve is then compared with the Company's then existing reserve
for unreported losses to test its adequacy. The loss adjustment expense reserves
are tested by taking the ratio of current year data on paid loss adjustment
expenses to paid losses and including an experience-based provision for
unallocated loss adjustment expenses.
 
     One factor influencing the predictability of loss reserves, as well as the
underwriting results of the Company, is the amount of net property losses
incurred resulting from weather-related catastrophes. Weather-related
catastrophe losses are an ever present aspect of the property-casualty insurance
business. The cost to the Company of such losses in 1996 was approximately
$3,525,000, compared with $6,281,000 for 1995 and $2,930,000 for 1994.
 
     With respect to losses for insured events, the Company continues to limit
the effects of large losses on underwriting results by maintaining what it
believes to be adequate treaty, facultative and catastrophe reinsurance. See
Note 6 of "Notes to Consolidated Financial Statements" in the Company's 1996
Annual Report to Stockholders (the "Annual Report").
 
     The following table presents the changes in loss reserves for the three
most recent years.
 
                  RECONCILIATION OF CONSOLIDATED LOSS RESERVES
                             (DOLLARS IN THOUSANDS)
 
<TABLE>
<CAPTION>
                                                                YEARS ENDED DECEMBER 31,
                                                              -----------------------------
                                                               1996       1995       1994
                                                              -------    -------    -------
<S>                                                           <C>        <C>        <C>
Beginning reserve...........................................  $39,191    $40,293    $40,841
                                                              -------    -------    -------
Provision for:
  Insured events of the current year........................   44,431     47,159     42,015
  Insured events of prior years.............................    1,777      2,407      1,294
                                                              -------    -------    -------
  Incurred loss and loss adjustment expenses................   46,208     49,566     43,309
                                                              -------    -------    -------
Payments for losses and loss adjustment expenses:
  Attributable to insured events of the current year........   24,941     27,910     23,567
  Attributable to insured events of prior years.............   23,625     22,758     20,290
                                                              -------    -------    -------
          Total payments....................................   48,566     50,668     43,857
                                                              -------    -------    -------
Ending reserve..............................................  $36,833    $39,191    $40,293
                                                              =======    =======    =======
</TABLE>
 
                                        4
<PAGE>   7
 
     The following table presents the Company's loss reserve development for the
ten years ended December 31, 1996:
 
           CONSOLIDATED LOSS AND LOSS ADJUSTMENT EXPENSE DEVELOPMENT
                             (DOLLARS IN THOUSANDS)
 
<TABLE>
<CAPTION>
                                                                YEARS ENDED DECEMBER 31,
                                ----------------------------------------------------------------------------------------
                                 1987     1988     1989     1990     1991     1992     1993     1994      1995     1996
                                ------   ------   ------   ------   ------   ------   ------   -------   ------   ------
<S>                             <C>      <C>      <C>      <C>      <C>      <C>      <C>      <C>       <C>      <C>
LIABILITY FOR UNPAID CLAIMS
  AND CLAIM ADJUSTMENT
  EXPENSE(1)..................  58,800   49,214   51,624   54,449   47,643   43,407   40,841    40,293   39,191   36,833
PAID (CUMULATIVE) AS OF:
  One year later..............  34,099   25,848   26,186   25,009   25,514   21,184   20,375    22,759   23,625       --
  Two years later.............  47,735   38,054   36,055   39,030   35,756   29,795   31,375    32,389       --       --
  Three years later...........  55,859   43,278   44,317   45,892   40,170   36,068   36,407        --       --       --
  Four years later............  58,981   48,484   48,515   48,736   42,984   39,180       --        --       --       --
  Five years later............  62,849   51,069   50,044   50,500   44,914       --       --        --       --       --
  Six years later.............  64,819   52,212   51,324   51,824       --       --       --        --       --       --
  Seven years later...........  65,827   53,138   52,491       --       --       --       --        --       --       --
  Eight years later...........  66,585   54,324       --       --       --       --       --        --       --       --
  Nine years later............  67,570       --       --       --       --       --       --        --       --       --
LIABILITY RE-ESTIMATED AS
  OF(1):
  One year later..............  59,581   50,185   52,934   53,674   48,803   44,183   42,135    42,700   40,968       --
  Two years later.............  62,997   54,145   54,949   57,612   51,887   46,609   45,516    46,267       --       --
  Three years later...........  65,324   55,397   56,414   59,599   52,202   48,749   47,640        --       --       --
  Four years later............  66,268   56,082   57,264   59,693   52,947   50,016       --        --       --       --
  Five years later............  66,687   56,511   57,112   60,474   53,737       --       --        --       --       --
  Six years later.............  66,974   56,234   57,552   60,995       --       --       --        --       --       --
  Seven years later...........  66,697   56,571   57,957       --       --       --       --        --       --       --
  Eight years later...........  66,990   56,974       --       --       --       --       --        --       --       --
  Nine years later............  67,318       --       --       --       --       --       --        --       --       --
REDUNDANCY (DEFICIENCY).......  (8,518)  (7,760)  (6,333)  (6,546)  (6,094)  (6,609)  (6,799)   (5,974)  (1,777)      --
Gross liability -- end of
  year........................                                                                  50,917   51,165   55,602
Reinsurance recoverable.......                                                                  10,624   11,974   18,769
Net liability -- end of
  year........................                                                                  40,293   39,191   36,833
Gross re-estimated
  liability -- latest.........                                                                  62,717   56,716
Re-estimated recoverable --
  latest......................                                                                  16,450   15,748
Net re-estimated liability --
  latest......................                                                                  46,267   40,968
Gross cumulative deficiency...                                                                 (11,800)  (5,551)
</TABLE>
 
---------------
 
(1) The re-estimated liability shown above has been reduced (increased) by
    retrospective premium adjustments which were subsequently collected from
    (paid to) workers' compensation policyholders as follows (dollars in
    thousands): 1987, $4,189; 1988, $1,537; 1989, $(579); 1990, $(3,823); 1991,
    $(2,648); 1992, $(4,098); 1993, $(3,602); 1994, $(3,035); and 1995, $(782).
    Since these amounts are reported separately from incurred losses in the
    Company's financial statements prepared in accordance with generally
    accepted accounting principles and its statutory financial statements, they
    are reconciling items between this table and Schedule P of the statutory
    financial statements. Additionally, in accordance with generally accepted
    accounting principles, accruals have been made for the Company's estimated
    assessments from the Texas Workers' Compensation Insurance Facility, and the
    liability for unpaid claims and claim adjustment expenses has been increased
    by the following amounts (dollars in thousands): 1987, $2,766; 1988, $2,817;
    1989, $4,060; 1990, $4,958; 1991, $2,415; 1992, $603; 1993, $0; 1994, $0;
    1995, $0; and 1996, $0, and the re-estimated liability shown above has been
    increased (decreased) by the following amounts (dollars in thousands): 1987,
    $460; 1988, $752; 1989, $751; 1990, $401; 1991, $(366); 1992, $(642); 1993,
    $(214); 1994, $42 and 1995, $(37). Such amounts are also reconciling items
    between this table and Schedule P of the statutory financial statements.
    Also, the liability for incurred but not reported claims on certain lines of
    business is allocated to prior accident years using different percentages in
    the Company's financial statements prepared in accordance with generally
    accepted accounting principles and its statutory financial statements, and
    the re-estimated liability for incurred but not reported claims has been
    reduced by the following amounts (dollars in thousands): 1994, $(142); and
    1995, $(1,353). These amounts are also reconciling items between this table
    and Schedule P of the statutory financial statements.
 
                                        5
<PAGE>   8
 
     In evaluating the above table, it should be noted that each amount includes
the effects of all changes in amounts for prior periods. For example, the amount
of the deficiency related to losses settled in 1990, but incurred in 1987, will
be included in the cumulative deficiency amount for years 1987, 1988 and 1989.
Conditions and trends that have affected development of the reserves in the past
may not necessarily occur in the future. Accordingly, it is not appropriate to
extrapolate future redundancies or deficiencies based on this table.
 
     Loss reserves amounted to approximately $36,833,000 at December 31, 1996.
In view of the variability inherent in the calculation of loss reserves, should
the ultimate net cost of American Indemnity's losses prove to be substantially
greater than its loss reserves, its operations, earnings and surplus could be
adversely affected. The Company believes, however, that its aggregate loss and
loss adjustment expense reserves are reasonable and adequate to cover the
ultimate net cost of losses and loss adjustment expenses on reported and
unreported claims.
 
NARRATIVE DESCRIPTION OF BUSINESS
 
  General
 
     The Company, through American Indemnity, is a multiple-line property and
casualty insurer. The lines of insurance written by American Indemnity include
automobile, homeowners multiple peril, workers' compensation, fire and allied
lines, commercial multiple peril and general casualty lines. American Indemnity
does not write certain high-risk specialty lines, such as medical and other
professional malpractice and directors' and officers' liability, although it is
exposed to a certain extent to such risks through pooling arrangements required
of insurance companies by various state regulatory authorities.
 
     The insurance written by American Indemnity is produced through
approximately 554 agencies. All such agencies are permitted to, and usually do,
represent other insurance companies. Workers' compensation insurance is
principally written directly by American Indemnity's internal marketing
department. In addition, American Indemnity maintains four service offices in
two states to service its agencies and policyholders. In five other states, the
Company has a marketing representative.
 
     American Indemnity competes with individual companies and with groups of
affiliated companies, many of which have nationwide organizations, more
diversified lines of insurance coverage, greater financial resources, larger
sales forces and more widespread agency relationships. Competitors include both
stock and mutual companies and other underwriting organizations.
 
     As of December 31, 1996, the Company and American Indemnity had 159 home
office employees and 72 employees in the field.
 
  Reinsurance
 
     American Indemnity follows the customary practice of reinsuring with other
insurance companies a portion of certain risks under the policies it has
written. This practice is referred to as "ceding." Such reinsurance is
maintained to protect American Indemnity against the severity of individual
claims as well as against unusually serious occurrences in which a number of
claims produce an aggregate extraordinary loss. Although reinsurance does not
discharge American Indemnity from its primary liability for the full amount of
the policies, it does make the assuming reinsurer liable to American Indemnity
to the extent of the reinsured portion of risks. The statutes and regulations of
various states permit the primary insurer, in its financial statements, to treat
risks, to the extent properly reinsured, as though they were risks for which the
primary insurer is not liable.
 
     American Indemnity has reinsurance contracts, known as reinsurance
"treaties," under which certain types of policies are automatically reinsured
without the need for individual approval by the reinsurer of each risk covered.
Other reinsurance contracts provide for "facultative" reinsurance which is
handled on an individual policy or risk basis and requires the specific
agreement of the reinsurer as to each risk insured.
 
                                        6
<PAGE>   9
 
     Property insurance risks are reinsured under treaty arrangements whereby
$900,000 of losses in excess of $100,000 are automatically reinsured. American
Indemnity has additional automatic property facultative reinsurance agreements
for losses in excess of $1,000,000 up to a maximum of $2,300,000. Therefore, the
liability of American Indemnity on property risks is effectively limited to a
maximum of $100,000. In addition, American Indemnity currently carries excess
catastrophe reinsurance which covers 95% of all losses with respect to
windstorm, hurricane and hail suffered within any two separate 72 hour periods
within a 12 month interval up to $36,000,000 in excess of $4,000,000. American
Indemnity carries excess property and automobile catastrophe reinsurance which
covers 95% of catastrophe losses up to $4,000,000 incurred in excess of
$2,000,000, subject to a $200,000 per occurrence retention. The Company has
never had an individual catastrophe loss in excess of $6,300,000; however, there
can be no assurance that a greater loss could not occur in the future.
 
     All claims on automobile liability and casualty insurance over $125,000 up
to $2,000,000 are automatically reinsured under a treaty. Effective January 1,
1997, American Indemnity's retention for these claims will increase to $150,000
from $125,000.
 
INVESTMENTS
 
     American Indemnity invests its capital surplus and reserve funds in
securities and other investments authorized by applicable state laws and
regulations and receives income from such investments in the form of interest,
dividends and capital gains. The principal objective of the Company's investment
portfolio is to provide capital for American Indemnity's insurance underwriting
operations. The securities comprising American Indemnity's investment portfolio
consist primarily of taxable government and government agencies and authorities
bonds, tax-exempt state and municipal bonds, corporate bonds, and preferred and
common stocks.
 
     The invested assets of the Company at December 31, 1996 are set forth on
Schedule I hereto.
 
     The following table sets forth the investment results of the Company,
exclusive of investments in subsidiaries, for each of the three years ended
December 31, 1996 (dollars in thousands).
 
<TABLE>
<CAPTION>
                                                                            ANNUAL PERCENTAGE
                                                                                EARNED ON
                                                                        -------------------------     NET CAPITAL GAINS
                         AVERAGE CASH AND INVESTMENTS         NET                                         (LOSSES)
                       ---------------------------------   INVESTMENT   INVESTMENTS   INVESTMENTS   ---------------------
        YEAR            CASH    INVESTMENTS(1)    TOTAL    INCOME(2)     AND CASH        ONLY       REALIZED   UNREALIZED
        ----           ------   --------------   -------   ----------   -----------   -----------   --------   ----------
<S>                    <C>      <C>              <C>       <C>          <C>           <C>           <C>        <C>
1994.................  $3,783      $84,325       $88,108     $4,703        5.34%         5.58%       $ (31)     $(12,245)
1995.................   4,860       83,125        87,985      4,010        4.56          4.82         (276)       12,737
1996.................   4,566       86,388        90,954      4,592        5.05          5.32          658          (304)
</TABLE>
 
---------------
 
(1) The average of amounts at beginning and end of year with securities valued
    at market value.
 
(2) Net investment income is after deduction of investment expenses and before
    net realized gains and losses.
 
REGULATION AND OTHER RESTRICTIONS
 
     American Indemnity, similar to other insurance companies, is subject to
regulation and supervision by the insurance regulatory authority of each state
or other jurisdiction in which it is licensed to do business. These regulatory
authorities have broad administrative powers relating to the granting and
revocation of licenses to transact business, the licensing of agents, the
approval of policy forms and rates, the form and content of mandatory financial
statements, reserve requirements and the types of investments which may be made.
Detailed annual reports must be filed with the appropriate regulatory
authorities and the books and records of American Indemnity are subject to their
examination.
 
     In 1971, the Texas Legislature enacted the Insurance Holding Company System
Regulatory Act (the "Texas Act") which regulates insurance companies authorized
to do business in the State of Texas which are members of an insurance holding
company system. Under the Texas Act, no insurance company may pay dividends
within any twelve-month period which exceed the greater of 10% of such insurer's
statutory surplus as regards policyholders, as reported at the end of the
preceding calendar year, or the statutory net investment
 
                                        7
<PAGE>   10
 
income of such insurer for such year, without the consent of the Commissioner of
Insurance of the State of Texas. Furthermore, only such earnings of American
Indemnity determined on the statutory basis, exclusive of restricted surplus and
special surplus funds, are available for distribution as cash dividends and are
subject to declaration by American Indemnity's Board of Directors and to such
restrictions imposed by law or regulation on the payment of dividends. For
amounts available for payment of dividends by American Indemnity, see Note 7 of
"Notes to Consolidated Financial Statements" in the Annual Report.
 
     The National Association of Insurance Commissioners (the "NAIC") has
established various model laws, regulations and guidelines as part of its
regulatory oversight of insurance companies. A state must adopt these laws in
order to maintain its accreditation from the NAIC. The NAIC Model Insurance
Company System Regulatory Act (the "NAIC Model Act") contains restrictions
regarding payment of dividends which differ from restrictions under Texas law.
Although the state of Texas has not yet adopted these restrictions, the Texas
Department of Insurance has given notice it will vigorously scrutinize any
dividends deemed extraordinary under this act and may take a variety of actions.
The NAIC Model Act requires that no insurance company may pay any extraordinary
dividend or make any other extraordinary distribution to its shareholders until
thirty days after the commissioner of insurance has received notice of the
declarations thereof and has not within that period disapproved the payment, or
until the commissioner of insurance has approved the payment within the
thirty-day period. An extraordinary dividend or distribution includes any
dividend or distribution of cash or other property, whose fair market value
together with that of other dividends or distributions made within the preceding
twelve months exceeds the lesser of 10% of its statutory surplus as regards to
policyholders as of the end of the preceding calendar year or the net income,
not including realized capital gains, for such year. An insurance company may
carry forward net income from the previous two calendar years that has not
already been paid out as dividends.
 
     Additionally, under the Texas Act, a Texas insurance company may not enter
into transactions with any member of its holding company system involving sales,
purchases, exchanges, loans or extensions of credit, or investment, involving
either more than 5% of its admitted assets or 25% of its surplus, whichever is
the lesser, as of the end of the prior calendar year, without the approval of
the Commissioner of Insurance of the State of Texas. Certain other states in
which American Indemnity is authorized to do business have enacted statutes
similar to the Texas Act, but such statutes typically provide that they are
inapplicable, in whole or in part, to insurance companies which are subject to
similar regulations in their state of domicile.
 
     American Indemnity, similar to other insurance companies, maintains its
accounts in accordance with statutory insurance practices, which differ in some
respects from generally accepted accounting principles followed by other
business enterprises in determining financial position and results of
operations. Since these differences have been adjusted to present the Company's
consolidated financial statements filed as a part of this report in conformity
with generally accepted accounting principles (see Notes 1 and 7 of "Notes to
Consolidated Financial Statements" in the Annual Report), such consolidated
financial statements do not necessarily disclose American Indemnity's financial
position for purposes of regulation and supervision by the supervising agencies
of each state or jurisdiction in which American Indemnity is licensed to do
business.
 
     In accordance with the insurance laws of Texas and the rules and practices
of the NAIC, American Indemnity is examined periodically by examiners of the
state of Texas and (on an "association" or "zone" basis) by representatives of
the other states in which it is licensed to do business. The most recently
completed examination was made by the state of Texas as of June 30, 1994. In
addition, an examination as of December 31, 1996 is currently being conducted by
the state of Texas.
 
ITEM 2. PROPERTIES.
 
     The home office facilities consist of two adjacent and connected buildings
owned by American Indemnity with an aggregate of 152,000 square feet located in
the business section of Galveston, Texas. The Company's home office facilities
are 99.9% occupied by the Company and 0.1% leased to other parties.
 
                                        8
<PAGE>   11
 
     All other facilities of the Company consist of a total of four service
offices in two states that are leased by American Indemnity for terms of one to
five years.
 
     The Company believes that its leased and owned properties are adequate for
its current needs.
 
ITEM 3. LEGAL PROCEEDINGS.
 
     None.
 
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
 
     None.
 
                                    PART II
 
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
        MATTERS.
 
     The information set forth under the captions "Per Share Market and Dividend
Information" and "Common Stock" on the inside front cover and inside back cover,
respectively, of the Annual Report, is incorporated herein by reference.
Reference is also made to "Regulation and Other Restrictions" under Item 1 of
this Form.
 
ITEM 6. SELECTED FINANCIAL DATA.
 
     The information set forth under the caption "Five Year Comparative Summary
of Selected Financial Data" on page 8 of the Annual Report is incorporated
herein by reference.
 
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
        OF OPERATIONS.
 
     The information set forth under the caption "Management's Discussion and
Analysis of Financial Condition and Results of Operations" on pages 9 through
13, inclusive, of the Annual Report is incorporated herein by reference.
 
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
 
     The information set forth under the captions "Consolidated Balance Sheets",
"Consolidated Statements of Income", "Consolidated Statements of Cash Flows",
"Consolidated Statements of Stockholders' Equity", "Notes to Consolidated
Financial Statements" and "Independent Auditors' Report" on pages 14 through 28,
inclusive, of the Annual Report, and under the caption "Selected Quarterly
Financial Data" on page 8 of the Annual Report, is incorporated herein by
reference.
 
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
        FINANCIAL DISCLOSURE.
 
     None.
 
                                    PART III
 
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
 
     The information set forth under the caption "Election of Directors" on
pages 4 through 6, inclusive, the information set forth under the caption
"Executive Officers" on page 9 and the information under the caption "Compliance
with Section 16(a) of the Securities Exchange Act of 1934" on pages 15 and 16 of
the Company's Proxy Statement with respect to the Company's 1997 Annual Meeting
of Stockholders (the "Proxy Statement"), is incorporated herein by reference.
 
                                        9
<PAGE>   12
 
ITEM 11. EXECUTIVE COMPENSATION.
 
     The information set forth under the caption "Executive Compensation" on
pages 9 through 15, inclusive, of the Proxy Statement is incorporated herein by
reference.
 
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
 
     The information set forth under the captions "Principal Stockholders" and
"Election of Directors" on pages 2 through 6, inclusive, and the information set
forth under the caption "Executive Officers" on page 9 of the Proxy Statement is
incorporated herein by reference.
 
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
 
     The information set forth under the caption "Other Transactions" on page 15
of the Proxy Statement is incorporated herein by reference.
 
                                    PART IV
 
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
 
     (a) Documents Filed as a Part of this Report.
 
1. FINANCIAL STATEMENTS
 
     The financial statements listed below appear on pages 14 through 27 of the
Annual Report. Such financial statements are incorporated herein by reference.
 
          Consolidated Balance Sheets, December 31, 1996 and 1995
 
          Consolidated Statements of Income for the Three Years Ended December
     31, 1996
 
          Consolidated Statements of Cash Flows for the Three Years Ended
     December 31, 1996
 
          Consolidated Statements of Stockholders' Equity for the Three Years
     Ended December 31, 1996
 
          Notes to Consolidated Financial Statements for the Three Years Ended
     December 31, 1996
 
2. FINANCIAL STATEMENT SCHEDULES
 
<TABLE>
<CAPTION>
                                                                             PAGE
                                                                             ----
<S>            <C>                                                           <C>
Schedule I --  Summary of Investments -- Other Than Investments in Related
               Parties, December 31, 1996..................................  S-1
Schedule II--  Condensed Financial Information of Registrant:
               Balance Sheets, December 31, 1996 and 1995..................  S-2
               Statements of Income for the Three Years Ended December 31,
               1996........................................................  S-3
               Statements of Cash Flows for the Three Years Ended December
               31, 1996....................................................  S-4
Schedule VI--  Supplemental Information -- Property Casualty Insurance.....  S-5
</TABLE>
 
     All other schedules are omitted because they are not required or because
the required information is included in the financial statements or related
footnotes.
 
                                       10
<PAGE>   13
 
3. EXHIBITS
 
     The Company undertakes to furnish to any stockholder so requesting a copy
of any of the following exhibits upon payment to the Company of the reasonable
costs incurred by the Company in furnishing any such exhibit.
 
<TABLE>
<CAPTION>
<C>                      <S>
           3.1.          -- Certificate of Incorporation of the Company, as amended
                            (Exhibit 3.1 to the Company's Annual Report on Form 10-K
                            for the year ended December 31, 1989, is incorporated by
                            reference herein).
           3.2.          -- By-Laws of the Company, as amended (Exhibit 3.2 to the
                            Company's Annual Report on Form 10-K for the year ended
                            December 31, 1992 is incorporated by reference herein).
           4.1           -- See Exhibit Nos. 3.1 and 3.2 for provisions of the
                            Certificate of Incorporation, as amended, and the
                            By-Laws, as amended, of the Company defining the rights
                            of the holders of the Common Stock.
         +10.1.          -- The Company's 1982 Incentive Stock Option Plan (Exhibit
                            10.1 to the Company's Annual Report on Form 10-K for the
                            year ended December 31, 1990, is incorporated by
                            reference herein).
         +10.2.          -- Form of 1982 Incentive Stock Option Plan Agreement
                            (Exhibit 10.2 to the Company's Annual Report on Form 10-K
                            for the year ended December 31, 1990, is incorporated by
                            reference herein).
         +10.3.          -- The Company's Key Executive Severance Plan (Exhibit 10.3
                            to the Company's Annual Report on Form 10-K for the year
                            ended December 31, 1990, is incorporated by reference
                            herein).
         +10.4.          -- Form of Key Executive Severance Agreement (Exhibit 10.4
                            to the Company's Annual Report on Form 10-K for the year
                            ended December 31, 1990, is incorporated by reference
                            herein).
         +10.5.          -- The Company's 1992 Employee Stock Option Plan (Exhibit
                            4.4 to the Company's Registration Statement on Form S-8
                            (No. 33-47359), is incorporated by reference herein).
         +10.6.          -- Form of the Company's Non-Incentive Stock Option
                            Agreement (Exhibit 4.5 to the Company's Registration
                            Statement on Form S-8 (No. 33-47359), is incorporated by
                            reference herein).
         +10.7.          -- Form of the Company's Incentive Stock Option Agreement
                            (Exhibit 4.6 to the Company's Registration Statement on
                            Form S-8 (No. 33-47359), is incorporated by reference
                            herein).
         +10.8.          -- The Company's 1992 Non-Employee Director Stock Option
                            Plan (Exhibit 4.4 to the Company's Registration Statement
                            on Form S-8 (No. 33-47546), is incorporated by reference
                            herein).
         +10.9.          -- Form of the Company's Non-Employee Director Stock Option
                            Agreement (Exhibit 4.5 to the Company's Registration
                            Statement on Form S-8 (No. 33-47546), is incorporated by
                            reference herein).
         *11.1.          -- Computation of Fully Diluted Net Income (Loss) Per Common
                            and Common Equivalent Share.
         *13.1.          -- Inside front cover, pages 9 through 28, inclusive, and
                            information set forth under the caption "Common Stock" on
                            the inside back cover of the Company's Annual Report to
                            Stockholders for the fiscal year ended December 31, 1996.
          21.1.          -- List of the Company's Subsidiaries (Exhibit 22.1 to the
                            Company's Annual Report on Form 10-K for the year ended
                            December 31, 1990, is hereby incorporated by reference
                            herein).
</TABLE>
 
                                       11
<PAGE>   14
 
<TABLE>
<CAPTION>
 
<C>                      <S>
         *23.1.          -- Consent of Independent Auditors.
         *24.1.          -- Powers of Attorney.
         *27.1           -- Financial Data Schedule
        **28.1.          -- Consolidated Statutory Schedule "P".
</TABLE>
 
---------------
 
 * Filed herewith.
 
** As permitted by rule 311(c) of Regulation S-T, the Company has filed the
   Consolidated Statutory Schedule "P" (Exhibit 28.1) with the Commission in
   paper format under cover of Form SE.
 
 + Management contract or compensatory plan or arrangement required to be filed
   pursuant to Item 14 of Form 10-K.
 
     (b) Reports on Form 8-K.
 
     No current reports on Form 8-K were filed by the Company during the three
months ended December 31, 1996.
 
                                       12
<PAGE>   15
 
                                   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.
 
                                            AMERICAN INDEMNITY FINANCIAL
                                            CORPORATION
 
                                            By      /s/ PHILLIP E. APGAR
                                             -----------------------------------
                                                      Phillip E. Apgar
                                             Vice President, Treasurer and Chief
                                                       Financial Officer
 
Dated March 26, 1997
 
     Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below on the 26th day of March, 1997, by the following
persons on behalf of the Registrant and in the capacities indicated.
 
<TABLE>
<CAPTION>
                      SIGNATURE                                             TITLE
                      ---------                                             -----
<C>                                                     <S>
 
           /s/ J. FELLMAN SEINSHEIMER, III              President, Chief Executive Officer and
-----------------------------------------------------     Director (Principal Executive Officer)
            (J. Fellman Seinsheimer, III)
 
                /s/ PHILLIP E. APGAR                    Vice President, Treasurer and Chief Financial
-----------------------------------------------------     Officer (Principal Financial Officer and
                 (Phillip E. Apgar)                       Principal Accounting Officer)
 
             /s/ WILLIAM C. LEVIN, M.D.*                Director
-----------------------------------------------------
              (William C. Levin, M.D.)
 
             /s/ HARRIS L. KEMPNER, JR.*                Director
-----------------------------------------------------
              (Harris L. Kempner, Jr.)
 
                 /s/ MARVIN L. WEST*                    Director
-----------------------------------------------------
                  (Marvin L. West)
 
                 /s/ JACK T. CURRIE*                    Director
-----------------------------------------------------
                  (Jack T. Currie)
 
                 /s/ HENRY W. HOPE*                     Director
-----------------------------------------------------
                   (Henry W. Hope)
 
                /s/ SYNOTT L. McNEEL*                   Director
-----------------------------------------------------
                 (Synott L. McNeel)
 
           /s/ JAMES W. McFARLAND, Ph.D.*               Director
-----------------------------------------------------
             (James W. McFarland, Ph.D.)
 
                 /s/ FRED C. BURNS*                     Director
-----------------------------------------------------
                   (Fred C. Burns)
 
              *By /s/ PHILLIP E. APGAR
  -------------------------------------------------
  (Phillip E. Apgar, pursuant to Power of Attorney)
</TABLE>
 
                                       13
<PAGE>   16
 
                          INDEPENDENT AUDITORS' REPORT
 
American Indemnity Financial Corporation:
 
     We have audited the consolidated financial statements of American Indemnity
Financial Corporation and subsidiaries as of December 31, 1996 and 1995, and for
each of the three years in the period ended December 31, 1996 and have issued
our report thereon dated March 7, 1997; such consolidated financial statements
and report are included in your 1996 Annual Report to Stockholders and are
incorporated herein by reference. Our audits also included the financial
statement schedules of American Indemnity Financial Corporation and
subsidiaries, listed in Item 14. These financial statement schedules are the
responsibility of the Company's management. Our responsibility is to express an
opinion based on our audits. In our opinion, such supplemental 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.
 
DELOITTE & TOUCHE LLP
 
Houston, Texas
March 7, 1997
<PAGE>   17
 
                                                                      SCHEDULE I
 
           AMERICAN INDEMNITY FINANCIAL CORPORATION AND SUBSIDIARIES
 
                      SUMMARY OF INVESTMENTS -- OTHER THAN
                         INVESTMENTS IN RELATED PARTIES
 
<TABLE>
<CAPTION>
                                                                   DECEMBER 31, 1996
                                                      -------------------------------------------
                                                                                       AMOUNT
                                                                                      AT WHICH
                                                                       MARKET       SHOWN IN THE
                 TYPE OF INVESTMENT                     COST(A)         VALUE       BALANCE SHEET
                 ------------------                   -----------    -----------    -------------
<S>                                                   <C>            <C>            <C>
Fixed maturities:
  Bonds
     United States government and government
       agencies and authorities.....................  $21,954,272    $21,960,750      $21,960,750
     Mortgage-backed securities issued by U.S.
       government agencies and authorities..........   27,627,789     26,041,700       26,041,700
     Collateralized mortgage obligations............   15,975,313     15,938,340       15,938,340
     States, municipalities and political
       subdivisions.................................    2,529,867      2,591,659        2,591,659
     All other......................................    5,510,812      5,577,812        5,577,812
                                                      -----------    -----------      -----------
          Total fixed maturities....................   73,598,053     72,110,261       72,110,261
                                                      -----------    -----------      -----------
Equity securities:
  Common stocks
     Public utilities...............................  $ 4,241,695    $ 5,168,478      $ 5,168,478
     Banks, trusts and insurance companies..........    1,156,454      2,628,431        2,628,431
     Industrial, miscellaneous and all other........    3,441,175      4,623,347        4,623,347
  Nonredeemable preferred stocks....................    1,390,189      1,377,438        1,377,438
                                                      -----------    -----------      -----------
          Total equity securities...................   10,229,513     13,797,694       13,797,694
                                                      -----------    -----------      -----------
Mortgage loans on real estate.......................       19,710         19,710           19,710
                                                      -----------    -----------      -----------
          Total investments.........................  $83,847,276    $85,927,665      $85,927,665
                                                      ===========    ===========      ===========
</TABLE>
 
---------------
 
(a) Original cost of equity securities and, as to fixed maturities, original
    cost, reduced by repayments and adjusted for amortization of premium or
    accrual of discount.
 
                                       S-1
<PAGE>   18
 
                                                                     SCHEDULE II
 
                    AMERICAN INDEMNITY FINANCIAL CORPORATION
                             (PARENT COMPANY ONLY)
 
                 CONDENSED FINANCIAL INFORMATION OF REGISTRANT
                                 BALANCE SHEETS
 
                                     ASSETS
 
<TABLE>
<CAPTION>
                                                                     DECEMBER 31,
                                                              --------------------------
                                                                 1996           1995
                                                              -----------    -----------
<S>                                                           <C>            <C>
CURRENT ASSETS:
  Bonds.....................................................  $   113,676    $   477,037
  Cash and cash equivalents.................................       47,555         41,746
  Accrued investment income.................................          596          6,895
  Receivable from affiliate.................................       27,288         26,586
                                                              -----------    -----------
          Total current assets..............................      189,115        552,264
  INVESTMENTS IN SUBSIDIARIES -- At equity, including
     unrealized appreciation in market value of investments
     held by subsidiaries...................................   41,430,749     39,977,615
                                                              -----------    -----------
          TOTAL ASSETS......................................  $41,619,864    $40,529,879
                                                              ===========    ===========
                                      LIABILITIES
Accounts Payable............................................  $       891    $       764
                                                              -----------    -----------
                                         EQUITY
STOCKHOLDERS' EQUITY:
  Common stock, $3.33 1/3 par value, authorized 2,500,000
     shares; outstanding shares, 1,951,910 in 1996 and
     1,947,110 in 1995......................................  $ 6,506,351    $ 6,490,351
  Preferred stock, authorized 2,000,000 shares; none
     outstanding............................................
  Paid-in surplus...........................................   13,061,709     13,047,085
  Unrealized appreciation in market value of investments
     held by subsidiaries...................................    2,080,388      2,384,457
  Retained earnings (substantially all of which represent
     equity in undistributed earnings of subsidiaries)......   19,970,525     18,607,222
                                                              -----------    -----------
          TOTAL.............................................  $41,618,973    $40,529,115
                                                              -----------    -----------
          TOTAL LIABILITIES AND EQUITY......................  $41,619,864    $40,529,879
                                                              ===========    ===========
</TABLE>
 
                                       S-2
<PAGE>   19
 
                                                                     SCHEDULE II
 
                    AMERICAN INDEMNITY FINANCIAL CORPORATION
                             (PARENT COMPANY ONLY)
 
                 CONDENSED FINANCIAL INFORMATION OF REGISTRANT
                              STATEMENTS OF INCOME
 
<TABLE>
<CAPTION>
                                                               YEARS ENDED DECEMBER 31,
                                                        ---------------------------------------
                                                           1996          1995           1994
                                                        ----------    -----------    ----------
<S>                                                     <C>           <C>            <C>
INCOME:
  That portion of the equity in earnings of wholly
     owned subsidiaries which is equal to the amount
     of dividends received during the year............  $  215,876    $   347,801    $  563,677
  Investment income...................................      21,110         35,018        32,492
                                                        ----------    -----------    ----------
          Total.......................................     236,986        382,819       596,169
EXPENSES..............................................      46,938         66,560        57,727
                                                        ----------    -----------    ----------
INCOME BEFORE FEDERAL INCOME TAX AND EQUITY IN
  EARNINGS OF WHOLLY OWNED SUBSIDIARIES...............     190,048        316,259       538,442
CREDIT FOR FEDERAL INCOME TAX -- CURRENT..............        (702)       (10,724)       (8,580)
                                                        ----------    -----------    ----------
INCOME BEFORE EQUITY IN EARNINGS OF WHOLLY OWNED
  SUBSIDIARIES........................................     190,750        326,983       547,022
INCOME (LOSS) OF WHOLLY OWNED SUBSIDIARIES, IN EXCESS
  OF DIVIDENDS RECEIVED...............................   1,757,203     (5,420,738)    7,702,083
                                                        ----------    -----------    ----------
NET INCOME (LOSS).....................................  $1,947,953    $(5,093,755)   $8,249,105
                                                        ==========    ===========    ==========
EARNINGS (LOSS) PER SHARE.............................  $     1.00    $     (2.62)   $     4.24
                                                        ==========    ===========    ==========
</TABLE>
 
                                       S-3
<PAGE>   20
 
                                                                     SCHEDULE II
 
                    AMERICAN INDEMNITY FINANCIAL CORPORATION
                             (PARENT COMPANY ONLY)
 
                 CONDENSED FINANCIAL INFORMATION OF REGISTRANT
                            STATEMENTS OF CASH FLOWS
 
<TABLE>
<CAPTION>
                                                              YEARS ENDED DECEMBER 31,
                                                      -----------------------------------------
                                                         1996           1995           1994
                                                      -----------    -----------    -----------
<S>                                                   <C>            <C>            <C>
OPERATING ACTIVITIES:
  Net income (loss).................................  $ 1,947,953    $(5,093,755)   $ 8,249,105
  Adjustments to reconcile net income to net cash
     flows from operating activities:
     Excess of equity in income of subsidiaries over
       dividends received therefrom.................   (1,757,203)     5,420,738     (7,702,083)
     Realized investment gains (losses).............       (7,911)         2,807
     Decrease (Increase) in accrued investment
       income.......................................        6,299          2,040         (3,134)
     Increase in receivable from affiliate..........         (702)       (10,724)        (8,580)
     Increase in accounts payable...................          127            764
                                                      -----------    -----------    -----------
          Net cash flow from operating activities...      188,563        321,870        535,308
                                                      -----------    -----------    -----------
INVESTING ACTIVITIES:
  Sale of bonds.....................................      929,898        248,430
  Purchase of bonds.................................     (558,626)       (74,629)      (149,704)
                                                      -----------    -----------    -----------
          Net cash flow from investing activities...      371,272        173,801       (149,704)
                                                      -----------    -----------    -----------
FINANCING ACTIVITIES:
  Cash dividends paid to stockholders...............     (584,650)      (554,845)      (408,806)
  Proceeds received from exercise of stock
     options........................................       30,624          2,552            638
                                                      -----------    -----------    -----------
          Net cash flow from financing activities...     (554,026)      (552,293)      (408,168)
                                                      -----------    -----------    -----------
  Net Increase (Decrease) in Cash and Cash
     Equivalents....................................        5,809        (56,622)       (22,564)
  Cash and Cash Equivalents -- January 1............       41,746         98,368        120,932
                                                      -----------    -----------    -----------
  Cash and Cash Equivalents -- December 31..........  $    47,555    $    41,746    $    98,368
                                                      ===========    ===========    ===========
</TABLE>
 
                                       S-4
<PAGE>   21
 
                                                                     SCHEDULE VI
 
            SUPPLEMENTAL INFORMATION -- PROPERTY CASUALTY INSURANCE
                             (DOLLARS IN THOUSANDS)
 
<TABLE>
<CAPTION>
                                                     LOSSES AND LOSS
                                                   ADJUSTMENT EXPENSES    AMORTIZATION
                                                   INCURRED RELATED TO    OF DEFERRED     PAID LOSSES
                           NET          NET        -------------------       POLICY        AND LOSS        NET
 YEAR ENDED              PREMIUMS    INVESTMENT    CURRENT      PRIOR     ACQUISITION     ADJUSTMENT     PREMIUMS
DECEMBER 31,              EARNED       INCOME        YEAR       YEARS        COSTS         EXPENSES      WRITTEN
------------             --------    ----------    --------    -------    ------------    -----------    --------
<S>            <C>       <C>         <C>           <C>         <C>        <C>             <C>            <C>
   1996................  $66,961       $4,592       $44,431     $1,777      $17,993         $48,118      $68,863
   1995................   67,137        4,010        47,159      2,407       17,643          50,668       68,035
   1994................   65,346        4,703        42,015      1,294       16,217          43,857       66,174
</TABLE>
 
                                       S-5
<PAGE>   22
 
                                 EXHIBIT INDEX
 
<TABLE>
<CAPTION>
        EXHIBIT
         NUMBER                                  DESCRIPTION
         ------                                  -----------
<C>                      <S>
           3.1.          -- Certificate of Incorporation of the Company, as amended
                            (Exhibit 3.1 to the Company's Annual Report on Form 10-K
                            for the year ended December 31, 1989, is incorporated by
                            reference herein).
           3.2.          -- By-Laws of the Company, as amended (Exhibit 3.2 to the
                            Company's Annual Report on Form 10-K for the year ended
                            December 31, 1992 is incorporated by reference herein).
           4.1           -- See Exhibit Nos. 3.1 and 3.2 for provisions of the
                            Certificate of Incorporation, as amended, and the
                            By-Laws, as amended, of the Company defining the rights
                            of the holders of the Common Stock.
         +10.1.          -- The Company's 1982 Incentive Stock Option Plan (Exhibit
                            10.1 to the Company's Annual Report on Form 10-K for the
                            year ended December 31, 1990, is incorporated by
                            reference herein).
         +10.2.          -- Form of 1982 Incentive Stock Option Plan Agreement
                            (Exhibit 10.2 to the Company's Annual Report on Form 10-K
                            for the year ended December 31, 1990, is incorporated by
                            reference herein).
         +10.3.          -- The Company's Key Executive Severance Plan (Exhibit 10.3
                            to the Company's Annual Report on Form 10-K for the year
                            ended December 31, 1990, is incorporated by reference
                            herein).
         +10.4.          -- Form of Key Executive Severance Agreement (Exhibit 10.4
                            to the Company's Annual Report on Form 10-K for the year
                            ended December 31, 1990, is incorporated by reference
                            herein).
         +10.5.          -- The Company's 1992 Employee Stock Option Plan (Exhibit
                            4.4 to the Company's Registration Statement on Form S-8
                            (No. 33-47359), is incorporated by reference herein).
         +10.6.          -- Form of the Company's Non-Incentive Stock Option
                            Agreement (Exhibit 4.5 to the Company's Registration
                            Statement on Form S-8 (No. 33-47359), is incorporated by
                            reference herein).
         +10.7.          -- Form of the Company's Incentive Stock Option Agreement
                            (Exhibit 4.6 to the Company's Registration Statement on
                            Form S-8 (No. 33-47359), is incorporated by reference
                            herein).
         +10.8.          -- The Company's 1992 Non-Employee Director Stock Option
                            Plan (Exhibit 4.4 to the Company's Registration Statement
                            on Form S-8 (No. 33-47546), is incorporated by reference
                            herein).
         +10.9.          -- Form of the Company's Non-Employee Director Stock Option
                            Agreement (Exhibit 4.5 to the Company's Registration
                            Statement on Form S-8 (No. 33-47546), is incorporated by
                            reference herein).
         *11.1.          -- Computation of Fully Diluted Net Income (Loss) Per Common
                            and Common Equivalent Share.
         *13.1.          -- Inside front cover, pages 9 through 28, inclusive, and
                            information set forth under the caption "Common Stock" on
                            the inside back cover of the Company's Annual Report to
                            Stockholders for the fiscal year ended December 31, 1996.
          21.1.          -- List of the Company's Subsidiaries (Exhibit 22.1 to the
                            Company's Annual Report on Form 10-K for the year ended
                            December 31, 1990, is hereby incorporated by reference
                            herein).
         *23.1.          -- Consent of Independent Auditors.
         *24.1.          -- Powers of Attorney.
         *27.1           -- Financial Data Schedule
        **28.1.          -- Consolidated Statutory Schedule "P".
</TABLE>
<PAGE>   23
 
---------------
 
 * Filed herewith.
 
** As permitted by rule 311(c) of Regulation S-T, the Company has filed the
   Consolidated Statutory Schedule "P" (Exhibit 28.1) with the Commission in
   paper format under cover of Form SE.
 
 + Management contract or compensatory plan or arrangement required to be filed
   pursuant to Item 14 of Form 10-K.
 
     (b) Reports on Form 8-K.
 
     No current reports on Form 8-K were filed by the Company during the three
months ended December 31, 1996.