<PAGE>
 
                      SECURITIES AND EXCHANGE COMMISSION
                            WASHINGTON, D.C. 20549
 
                                   FORM 10-K
(Mark One)
[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: 0-15196
 
                           US FACILITIES CORPORATION
            (Exact name of Registrant as specified in its charter)
 
<TABLE>
 <C>                                                     <S>
                    DELAWARE                                  33-0097221
        (STATE OR OTHER JURISDICTION OF                    (I.R.S. EMPLOYER
         INCORPORATION OR ORGANIZATION)                  IDENTIFICATION NO.)
       650 TOWN CENTER DRIVE, SUITE 1600, 
                COSTA MESA, CA.                                 92626
    (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)                  (ZIP CODE)
</TABLE>
 
        REGISTRANT'S TELEPHONE NUMBER INCLUDING AREA CODE: 714-549-1600
 
          SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
                                     NONE
          SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
 
<TABLE>
             TITLE OF SECURITIES               EXCHANGES ON WHICH REGISTERED
             -------------------               -----------------------------
 <C>                                            <S>
     Common Stock, par value $.01 per share        New York Stock Exchange
          Common Stock Purchase Rights             New York Stock Exchange
</TABLE>
 
  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 [_]
 
  Aggregate Market Value of Voting Stock held by non-affiliates of the
Registrant as of March 21, 1997: $109,866,435 (5,425,503 shares at the closing
price of $20.25 per share). For this purpose, all shares held by officers and
directors of the Registrant are considered to be held by affiliates, but
neither the Registrant nor such persons concede that they are affiliates of
the Registrant.
 
  Number of Shares of Common Stock of the Registrant outstanding as of March
21, 1997: 5,960,148
 
                      DOCUMENTS INCORPORATED BY REFERENCE
 
  Portions of the Registrant's 1996 Annual Report to Stockholders are
incorporated by reference into Part II of this Form 10-K. Portions of the
Registrant's definitive Proxy Statement to be filed within 120 days after
December 31, 1996, are incorporated by reference into Part III of this Form
10-K.
 
  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 the Registrant's knowledge, in definitive proxy or information
statements incorporated by reference into Part III of this Form 10-K or any
amendment to this Form 10-K. [_]
<PAGE>
 
                                    PART 1
 
ITEM 1. BUSINESS
 
                              GENERAL INFORMATION
 
  The Registrant, US Facilities Corporation (the "Company"), is a Delaware
holding company formed in 1982 which, through its subsidiaries, operates as a
specialty insurance group. The Company's two principal operating units are
USBenefits Insurance Services, Inc. ("USBenefits") and USF RE INSURANCE
COMPANY ("USF RE"). USBenefits underwrites, manages and markets medical stop-
loss and provider excess coverages nationwide for The Continental Insurance
Company ("Continental"), one of the CNA Insurance Companies ("CNA"), an
unaffiliated insurance company, in exchange for management fees. Medical stop-
loss insurance protects self-insured employers against the risk of exposure to
excessive losses by limiting their liability to a predetermined amount. Self-
insured plans permit employers to design employee benefit coverages structured
to meet their specific needs, allow employers to exercise more control over
their health insurance costs, and provide health coverages that might not
otherwise be available. Provider excess coverage limits the financial risks
healthcare providers face from medical plans that prepay the providers fixed
sums per plan participant (capitated fees) or provide specified rates for
services. USBenefits also markets other employee benefits related products on
behalf of several national life insurance companies.
 
  USF RE is a property/casualty reinsurance company whose primary business is
the reinsurance of 50% of the medical lines coverages underwritten by
USBenefits for Continental and the reinsurance of property/casualty accounts
produced by independent sources. Its subsidiary, USF Insurance Company
("USFIC"), writes excess and surplus lines insurance on a direct basis through
independent excess and surplus lines brokers.
 
              FINANCIAL INFORMATION RELATING TO BUSINESS SEGMENTS
 
  The Company's operations are classified into two business segments: (1)
medical lines (which include the revenues from commissions and fees of the
Company, and from reinsurance of 50% of its medical lines business); and (2)
property/casualty reinsurance and insurance underwriting. The medical lines
segment produced 70%, 73% and 80%, and the property/casualty segment produced
29%, 26% and 20% of the Company's consolidated revenues for 1996, 1995 and
1994, respectively.
 
  See "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS" and also "Note 9" of Notes to CONSOLIDATED FINANCIAL
STATEMENTS," incorporated herein by reference from the Company's 1996 Annual
Report to Stockholders under Items 7 and 8 hereof, respectively.
 
                                 MEDICAL LINES
 
GENERAL
 
  Since 1980, USBenefits has had a mutually exclusive agreement to underwrite
and manage medical lines coverages for Continental or its predecessor. Such
agreement provides that USBenefits is responsible for designing medical lines
products, marketing the products, underwriting risks, collecting premiums,
administering coverage agreements, investigating and settling claims and
making claim payments within specified limits. While USBenefits participates
in the setting of rates and underwriting standards, which are the ultimate
responsibility of Continental, it does not insure any risks in its role as
underwriting manager; all insurance risks are borne by Continental and its
reinsurers, including USF RE. See "BUSINESS--MEDICAL LINES--MEDICAL LINES
REINSURANCE".
 
  Under its current management agreement with Continental, USBenefits is paid
management fees for its services which are a percentage of premiums collected.
The management agreement may be terminated by either
 
                                       1
<PAGE>
 
party at any December 31 upon 90 days prior notice, and can also be terminated
upon the occurrence of certain events. The management agreement provides that
during its term and for a period ranging from 12 to 18 months following
termination, Continental will not solicit or take away USBenefits' customers,
and that upon termination USBenefits has the right to the expirations and
renewals of the medical lines business. The Company believes that these
provisions permit USBenefits to move the medical lines business to another
insurance company if its relationship with Continental were to terminate.
Alternatively, USBenefits could write medical lines coverages on a direct
basis through its affiliate, USF RE, which is currently licensed to issue such
coverage in 42 states and the District of Columbia.
 
  USBenefits also markets various employee benefits insurance products on
behalf of several large national life insurance companies. Other than
Continental, no one insurance company, third party administrator ("TPA") or
insurance producer accounts for 10% or more of USBenefits' revenues.
 
  During 1995 the Company determined that its medical bill review business was
no longer viable and terminated its operations in May. Consolidated pre-tax
results for 1995 and 1994 include losses from this bill review operation of
$1,156,000 and $1,137,000, respectively.
 
MARKETING
 
  USBenefits markets and distributes its medical lines products through a
network of TPAs, insurance agents, brokers and consultants (collectively
"Producers"). Producers have non-exclusive arrangements with USBenefits that
enable them to submit requests for coverage quotations on behalf of their
clients. Continental may pay a fee or commission to Producers for placing the
coverage, the amount of which is based on a percentage of the premium written
and is negotiated on a case-by-case basis. Additionally, USBenefits may pay an
annual production bonus to Producers based on the amount of new business and
rate of retention of accounts during the calendar year. USBenefits markets its
products to a variety of employers, including both large and small employee
groups.
 
PRODUCTS
 
  Medical Stop-Loss. USBenefits offers two types of medical stop-loss
products: specific excess and aggregate excess. Employers can elect to
purchase specific excess coverage only, or a combination of specific and
aggregate coverage. USBenefits does not offer aggregate coverage separately.
Generally, self-insured employers purchase a combination of specific and
aggregate medical stop-loss coverage in order to minimize their exposure.
 
  Medical stop-loss coverage is written on a basic form which can be
customized to meet the employer's individual needs and ability to retain risk.
Medical stop-loss coverage indemnifies only the employer for its obligations
under its self-insured plan of medical benefits; no plan participant or
beneficiary is covered by the medical stop-loss policy.
 
  Provider Excess. In 1994 USBenefits commenced the marketing, underwriting
and managing of a provider excess product on behalf of Continental. This
product limits the exposure which providers of medical services incur when
they enter into capitated fee arrangements; it protects these providers from
excessive losses that can arise when expenses exceed a predetermined level.
Continental pays USBenefits management fees for its services, which are a
percentage of premiums collected.
 
UNDERWRITING MANAGEMENT
 
  Under its agreement with Continental, USBenefits, with the assistance of USF
RE, provides the services necessary to underwrite and service the medical
lines business, including, but not limited to: (i) selecting Producers; (ii)
accepting medical lines risks and issuing coverage agreements on behalf of
Continental within mutually agreed upon underwriting and pricing guidelines;
and (iii) processing claims for reimbursement under policies on behalf of
Continental.
 
 
                                       2
<PAGE>
 
MEDICAL LINES REINSURANCE
 
  USF RE reinsures a portion of the medical lines business underwritten by
USBenefits. Under the reinsurance agreement with Continental, USF RE is
responsible for 50% of Continental's liability under such contracts issued
through USBenefits. Continental's liability under medical stop-loss contracts
varies per account, but in no event can exceed $2,000,000 lifetime per
individual self-insured plan participant or $2,000,000 in the aggregate per
agreement year for each self-insured employer account. Continental's liability
under provider capitation contracts generally is limited to a maximum of
$1,000,000 per individual participant and up to a maximum of $5,000,000 for
all participants. In addition, USF RE is responsible for a proportionate share
of loss adjustment expenses and any liability incurred by Continental for
extra-contractual or punitive damages.
 
  The amount of premium ceded by Continental to USF RE under the reinsurance
agreement is equal to a proportionate share of the original gross premiums
written by Continental, less a ceding commission paid by USF RE to Continental
which covers Continental's costs of acquiring and servicing such business.
 
                        PROPERTY/CASUALTY UNDERWRITING
 
GENERAL
 
  USF RE underwrites property/casualty reinsurance which it secures from
numerous reinsurance intermediaries and directly from unaffiliated insurance
companies. USF RE is licensed to write various lines of insurance in 47
states, the District of Columbia and Puerto Rico. USF RE and USFIC both carry
an A (Excellent) rating from A.M. Best Company. During the third quarter of
1995, USF RE ceased writing plate glass insurance, which accounted for 3% and
5%, of USF RE's premiums earned in 1995 and 1994, respectively.
 
PROPERTY/CASUALTY REINSURANCE
 
  Gross premiums written by the Company's property/casualty segment were
$65,850,000 in 1996, an increase of 29% as compared to 1995 premiums written
of $50,915,000, which was an increase of 42% over $35,760,000 in premiums
written during 1994. The ceding companies of one client organization accounted
for a total of 23%, 27% and 17% of gross premiums written in the
property/casualty segment in 1996, 1995 and 1994, respectively.
 
  General. USF RE offers a variety of reinsurance coverages in selected
property/casualty lines. In general, reinsurance coverage is provided on the
basis of the underwriter's evaluation of the acceptability of the risk to be
assumed, the adequacy of the premium, the potential exposure of the line of
business to be underwritten, the quality of the primary insurers' operations
and the ceding commission. USF RE's property/casualty premiums are generated
from writing facultative and treaty reinsurance. Facultative is the
reinsurance of one account at a time, while reinsurance treaties cover a
portion of all policies written by another insurer in a particular risk
category.
 
  Product Lines. USF RE concentrates its casualty writings on three principal
lines: general liability, commercial automobile liability and products
liability. USF RE provides casualty reinsurance for primary as well as excess
policies, with the majority of its writing in low excess layers. USF RE
provides a broad range of reinsurance coverages for most types of property
exposures, subject to adequate underwriting information and proper rates and
forms. All Risk and Difference in Conditions coverages respresent the majority
of property premiums written; other coverages include fire and extended
coverage, as well as allied lines and inland marine.
 
  Retrocessions. USF RE has entered into retrocession (reinsurance) agreements
which mitigate USF RE's exposure to losses and therefore allow it to increase
the limits it can offer on each property/casualty account. Other retrocession
agreements protect against catastrophic losses. Management believes this
coverage is adequate to protect the Company from excessive catastrophic
losses.
 
                                       3
<PAGE>
 
  USF RE evaluates the financial condition of potential retrocessionaires to
determine whether to cede retrocessional coverage to such companies. USF RE's
retrocession agreements are placed with unaffiliated companies which
management believes to be financially secure and experienced in this type of
business. Reinsurance recoverables are monitored continually, and any
retrocessionaire not qualified in USF RE's state of domicile, Massachusetts,
is requested to post security in the amount of its estimated liability to USF
RE.
 
  Surplus Lines. USFIC, a Pennsylvania domiciled insurance company, is
eligible to offer surplus lines coverages in 33 states, the District of
Columbia and the U.S. Virgin Islands and is also licensed as an admitted
insurer in New York and Florida. Since acquiring USFIC in 1991, USF RE has
increased USFIC's policyholders' surplus to over $16,000,000 at December 31,
1996. USFIC's business consists primarily of writing commercial property/
casualty coverages on a surplus lines basis. USFIC's operations contributed
13%, 13% and 8% of the property/casualty underwriting segment's premiums
earned in 1996, 1995 and 1994, respectively.
 
                        STATUTORY FINANCIAL INFORMATION
 
COMBINED RATIO
 
  The statutory combined ratio is the traditional indicator of the potential
underwriting profitability of an insurance company's business. It reflects the
percentage of losses and loss adjustment expenses incurred to earned premiums
(the "loss ratio") plus the percentage of production and servicing expenses to
net written premiums (the "underwriting expense ratio"). The table below sets
forth USF RE's consolidated loss ratio, underwriting expense ratio and
combined ratio determined in accordance with statutory accounting practices
("SAP") for the years indicated. Management believes that USF RE's combined
ratio is generally better than the combined ratio for the reinsurance industry
as a whole and is well within the requirements of regulatory agencies.
 
<TABLE>
<CAPTION>
                                                        YEAR ENDED DECEMBER 31,
                                                       -------------------------
                                                         1996    1995     1994
                                                       -------- ------- --------
   <S>                                                 <C>      <C>     <C>
   Loss ratio.........................................     71.0    67.6     69.1
   Underwriting expense ratio.........................     31.4    32.1     34.7
                                                       -------- ------- --------
   Combined ratio.....................................    102.4    99.7    103.8
                                                       ======== ======= ========
</TABLE>
 
LOSS AND LOSS ADJUSTMENT EXPENSE RESERVES
 
  Insurance and reinsurance companies are required to maintain reserves for
losses and loss adjustment expenses ("LAE") which are intended to cover the
ultimate cost of settling all losses incurred and unpaid, including an
estimate of those not yet reported to the insurer, in order to properly match
the expected losses incurred to the related earned premium.
 
  Reserves for medical stop-loss reinsurance are established on the basis of
the most widely used techniques for determining loss reserves for this line of
business, such as trended cost per covered person and loss payment pattern
analysis. Property/casualty loss reserves are determined by customary industry
methods of evaluating reported claims on the basis of the type of loss
involved, knowledge of the circumstances surrounding the claim, policy
provisions relating to the type of loss, and by estimating the cost of
unreported claims on the basis of statistical information for occurrences
which have not yet been reported to the carrier.
 
  Reserves are adjusted from time to time based on monitoring by the insurer.
USF RE conducts, on a quarterly basis, an in-depth analysis of its incurred
but not reported losses and bulk reserves relative to recent experience and
trends, and adjusts such reserves upward or downward as necessary to maintain
the reserves at a level which USF RE deems to be sufficient to provide for all
claims incurred through the reporting date. Such reserves are regularly
reviewed by USF RE's independent actuaries.
 
 
                                       4
<PAGE>
 
  Loss reserve estimates are not precise because they are based on predictions
of future events, as well as other variable factors, including changes in the
legal system which can affect the results of litigated claims. Reserves for
losses and LAE are estimates only. It is possible that an insurer's ultimate
liability may be greater or less than such estimates. At USF RE, no explicit
provisions are made for inflation, but inflationary trends are considered when
setting reserves. USF RE does not discount its reserves to their present
value. USF RE has no known pre-1986 environmental or asbestos exposures.
 
  The loss settlement period for certain types of insurance claims, such as
casualty reinsurance, may be many years, and during such time it often becomes
necessary to adjust the estimate of liability on a claim either upward or
downward. In the last few years various factors (including escalation of
repair costs, the size and unpredictability of jury awards and inflation) have
necessitated periodic upward adjustments in reserves by most property/casualty
insurers, including USF RE. Due to USF RE's size, should any future
adjustments of its reserves become necessary, such adjustments could have a
proportionately greater impact upon its reported earnings and surplus than
they would have upon the earnings and surplus of a much larger insurance
company.
 
  LAE reserves are intended to cover the ultimate cost of investigating and
settling all losses. LAE reserves are estimated throughout each year based on
historical data and factors similar to those used in estimating loss reserves,
and are adjusted from time to time as management deems appropriate.
 
  In 1987, USF RE established a liability for uncollectible reinsurance
related to adverse development in its discontinued general liability and
special multiple peril ("GL/SMP") liability lines of business to recognize
that certain amounts would not be recoverable from a former reinsurer. Under
generally accepted accounting principles ("GAAP"), that provision was recorded
as additional loss and LAE reserves, and has been adjusted periodically as
claims develop. USF RE has not experienced any other material unrecoverable
reinsurance.
 
  The following table reconciles USF RE's consolidated reserve for losses and
LAE from SAP to amounts based on GAAP:
 
<TABLE>
<CAPTION>
                                                           DECEMBER 31, 1996
                                                        -----------------------
                                                         1996    1995    1994
                                                        ------- ------- -------
                                                        (DOLLARS IN THOUSANDS)
   <S>                                                  <C>     <C>     <C>
   Statutory loss and LAE reserves..................... $72,385 $62,420 $56,304
   Reserves ceded to reinsurers........................  22,265  16,426  13,292
   Provision for uncollectible reinsurance.............      18      48      51
                                                        ------- ------- -------
   GAAP loss and LAE reserves.......................... $94,668 $78,894 $69,647
                                                        ======= ======= =======
</TABLE>
 
  Except for the foregoing, there is no difference in USF RE's reserves for
losses and LAE whether determined in accordance with GAAP or SAP.
 
                                       5
<PAGE>
 
  The table below provides a reconciliation of beginning and ending
consolidated statutory liability balances as of December 31, 1996, 1995 and
1994. Management will continue to evaluate and monitor reserves on all of its
businesses, and management believes that USF RE's consolidated reserves at
December 31, 1996 are adequate to cover the ultimate cost of settlement of all
losses incurred through that date.
 
<TABLE>
<CAPTION>
                                                          DECEMBER 31
                                                   ----------------------------
                                                     1996      1995      1994
                                                   --------  --------  --------
                                                     (DOLLARS IN THOUSANDS)
   <S>                                             <C>       <C>       <C>
   Reserves for losses and LAE at beginning of
    period.......................................   $62,420   $56,304   $51,358
   Incurred losses and LAE:
    Provision for losses and LAE for claims oc-
     curring in the current
     year........................................    83,485    74,935    61,941
    Increase in estimated losses and LAE for
     claims occurring in prior years.............     4,688     2,808     2,425
   Payments:
    Losses and LAE payments for claims occurring
     during:
     The current year............................   (43,287)  (39,511)  (33,345)
     Prior years.................................   (34,921)  (32,116)  (26,075)
                                                   --------  --------  --------
     Reserve for losses and LAE at end of period.   $72,385   $62,420   $56,304
                                                   ========  ========  ========
</TABLE>
 
  The table on the following page presents the development of USF RE's
consolidated statutory balance sheet liability for losses and LAE for 1986
through 1996. The top line of the table shows the estimated liability for
unpaid losses and LAE recorded at December 31 for each of the indicated years.
This liability represents the estimated amount of losses and LAE for claims
arising in all years that are unpaid at the balance sheet date, including
losses that had been incurred but not yet reported. Insurance and reinsurance
companies establish reserves for losses incurred, but not yet paid, in order
to match such losses with the related premiums earned. The process of
establishing loss reserves is subject to uncertainties that are a normal,
recurring aspect of the insurance business which requires the use of informed
judgments and estimates. Estimating loss reserves is a process where many
factors can ultimately affect the final settlement of a claim and, therefore,
the ultimate reserve that is needed. In addition, time can be a critical part
of reserving determinations, since the longer the span between the incidence
of a loss and the payment or settlement of the claim, the more variable the
ultimate settlement amounts may be. In 1996, changes in the payment patterns
experienced within the Company's medical lines segment produced adjustments to
factors applied to actuarial models resulting in increases in estimated losses
and LAE for claims occurring in prior years. Loss and loss adjustment expense
reserve development is reviewed on a regular basis, incorporating analyses of
current trends, market changes in the Company's business segments and
historical experience to analyze the Company's actuarial assumptions. As
additional experience and other data become available, the Company's actuarial
estimates may be revised and impact earnings.
 
  The upper portion of the table shows the re-estimated amount of the
previously recorded liability based on experience as of the end of each
succeeding year. The estimate is increased or decreased as more information
becomes known about the frequency and severity of claims for individual years.
The material increase in loss reserves beginning in 1986 is primarily
attributable to USF RE's commencement of and, thereafter, significant growth
in its reinsurance business. The cumulative redundancy or deficiency
represents the total change in reserves from the original balance sheet date
to December 31, 1996, and is a measure of the accuracy of the original
estimate. The significant deficiencies shown for years 1986 and 1987 are
related to the aforementioned discontinued GL/SMP lines of business. Such
increases related to losses incurred in 1983 through 1984, and therefore
affect reserve amounts in all years from 1986 through 1996.
 
                                       6
<PAGE>
 
  The lower portion of the table shows the cumulative amount paid with respect
to the previously recorded liability as of the end of each succeeding year, and
a reconciliation of the gross and net amounts for the latest three years.
 
<TABLE>
<CAPTION>
                             1986     1987     1988     1989     1990     1991     1992     1993     1994      1995      1996
                            ------   ------   -------  -------  -------  -------  -------  -------  -------   -------   -------
                                                           (DOLLARS IN THOUSANDS)
 <S>                        <C>      <C>      <C>      <C>      <C>      <C>      <C>      <C>      <C>       <C>       <C>
 Net Liability for
  Losses/LAE--
  End of Year............   $6,462   $8,623   $17,660  $28,697  $35,975  $36,481  $45,483  $51,358  $56,304   $62,420   $72,385
 Net Liability re-
 estimated as of:
 1 year later............    8,736   11,143    17,003   29,715   33,871   37,528   47,119   53,783   59,112    67,108
 2 years later...........   10,233   11,622    17,752   29,619   32,720   36,381   47,482   52,625   56,601
 3 years later...........   10,788   12,370    18,290   29,694   31,654   36,037   46,786   50,185
 4 years later...........   11,299   12,717    18,294   28,581   30,222   34,529   42,785
 5 years later...........   11,702   12,154    18,063   27,392   29,610   31,614
 6 years later...........   11,091   12,288    17,994   26,815   27,111
 7 years later...........   11,205   12,326    17,707   25,647
 8 years later...........   11,244   12,314    17,496
 9 years later...........   11,222   12,271
 10 years later..........   11,189
 Net Cumulative
 redundancy/(deficiency).   (4,727)  (3,648)      164    3,050    8,864    4,867    2,698    1,172     (297)   (4,688)
 Cumulative %............      (73)%    (42)%       1%      11%      25%      13%       6%       2%      (1)%      (8)%
 Paid (cumulative) as of:
 1 year later............    5,616    6,988     9,373   14,255   13,918   14,516   22,190   26,075   32,115    34,921
 2 years later...........    6,734    8,424    11,676   18,265   17,497   17,832   26,374   33,952   38,884
 3 years later...........    7,881    9,638    14,959   21,095   19,946   20,164   31,747   38,488
 4 years later...........    8,766   11,472    15,693   21,833   21,276   24,004   34,347
 5 years later...........   10,509   11,741    15,927   22,653   22,868   25,672
 6 years later...........   10,732   11,920    16,606   23,480   23,281
 7 years later...........   10,899   12,028    16,122   23,606
 8 years later...........   10,998   12,042    16,170
 9 years later...........   11,012   12,091
 10 years later..........   11,061
</TABLE>
 
<TABLE>
<CAPTION> 
                                            1992   1993    1994    1995    1996
                                           ------ ------  ------  ------  ------
<S>                                        <C>    <C>     <C>     <C>     <C>
Gross Liability--End of Year.............. 51,803 58,542  69,597  78,846  94,650
Reinsurance Recoverable...................  6,320  7,184  13,293  16,426  22,265
Net Liability--End of Year................ 45,483 51,358  56,304  62,420  72,385
Gross Re-Estimated Liability-Latest....... 49,646 58,558  72,011  84,666
Re-Estimated Recoverable-Latest...........  6,861  8,373  15,410  17,558
Net Re-Estimated Liability-Latest......... 42,785 50,185  56,601  67,108
Gross Cumulative Deficiency...............  2,157    (16) (2,414) (5,820)
</TABLE>
 
INVESTMENTS
 
  For information, see "Note 1 (c) and Note 2 of Notes to Consolidated
Financial Statements," incorporated by reference from the Company's Annual
Report to Stockholders under Item 8 herein.
 
                                       7
<PAGE>
 
                                  COMPETITION
 
  The insurance and reinsurance industries are highly competitive and consist
of a large number of companies, many of which have financial resources,
employees, facilities and experience substantially in excess of those of the
Company.
 
MEDICAL LINES
 
  The medical lines business is highly competitive and involves a diversified
field of participants from small, start-up operations to large, well-
established organizations such as USBenefits. In the past few years there has
been significant growth in the number of medical lines providers. Currently
the Company believes that there are over 200 providers of medical stop-loss
coverage, as compared to approximately 120 providers in 1990. Based on its
over-15 years of experience in the medical stop-loss business, the Company
believes that it is the largest single issuer of medical stop-loss coverage in
the United States. However, other large and established companies offer
medical lines products and services similar to those offered by USBenefits.
 
  USBenefits currently relies primarily on its long-standing relationships
with independent TPAs as a source of business, as well as newer relationships
with insurance agents, brokers and consultants. USBenefits must compete for
its business by offering competitively priced products, providing high
quality, timely services and paying commissions which are competitive.
USBenefits believes that the financial strength of Continental and its A-
(Excellent) rating from A.M. Best Company are positive factors in USBenefits'
competitive position.
 
PROPERTY/CASUALTY REINSURANCE
 
  Competition in the reinsurance business is based on many factors, including
a reinsurer's perceived overall financial strength, premiums charged, A.M.
Best Company rating, services offered, claims handling, experience in the
lines of business written and the number of jurisdictions in which a reinsurer
is authorized to do business. During 1996 surplus capacity in the industry
caused changes in demand and rates in the various sectors of the reinsurance
marketplace. Although these factors result in highly competitive market
conditions, the combination of increasing surplus levels, strict underwriting
standards and A (Excellent) rating from A.M. Best Company provide a strong
position for USF RE to continue property/casualty growth.
 
  The reinsurance market has two basic segments: reinsurers that primarily
obtain their business directly from ceding insurance companies, and those that
primarily obtain business through reinsurance intermediaries. USF RE obtains
the majority of its property/casualty business through reinsurance
intermediaries. USF RE's competition in this field includes numerous major
international and domestic insurance and reinsurance companies and
underwriting syndicates.
 
SURPLUS LINES
 
  Competition in the surplus lines area involves the same factors and
considerations as with any insurance operation: the financial strength of the
carrier, the premiums charged, the A.M. Best Company rating, the services
offered, the timeliness of claims handling, experience in the lines of
business written, relationships with brokers and the number of jurisdictions
in which the carrier is authorized to do business.
 
                                       8
<PAGE>
 
                                  REGULATION
 
GENERAL
 
  Insurance and reinsurance companies are subject to primary regulation and
supervision by the insurance departments of their states of domicile, as well
as by agencies of other states where they are licensed or authorized to
transact business. Such regulation and supervision is designed primarily to
protect policyholders, not stockholders. Although the extent of such
regulation varies from state to state, in general the insurance laws of states
provide such supervisory agencies with broad administrative powers. These
powers include the granting and revocation of licenses to transact business,
the licensing of agents, the approval of policy forms and rates, the
determination of reserve requirements, the monitoring of financial stability,
the form and content of required financial statements, and the type and
character of investments. Further, the National Association of Insurance
Commissioners ("NAIC") has proposed a variety of model laws and regulations
affecting insurance companies generally, including laws and regulations
relating to solvency standards for all insurance companies. Certain of these
model laws and regulations have been adopted by various states and others are
being considered for adoption.
 
  USF RE and USFIC are required to file detailed annual financial and other
reports with the appropriate insurance regulatory agency in each state in
which they are admitted or authorized to do business. Their business and
accounts are subject to examination by such agencies at any time, and the laws
of Massachusetts and Pennsylvania and other states require periodic
examination of USF RE and USFIC. USF RE was examined by the Division of
Insurance of the Commonwealth of Massachusetts during 1993 for the four-year
period ended December 31, 1992. USFIC was examined by the Insurance Department
of the Commonwealth of Pennsylvania during 1993 for the three-year period
ended December 31, 1992. The final reports of these examinations did not
indicate any concerns of a material nature or which were significant to USF
RE's or USFIC's surplus as regards policyholders.
 
PROPERTY/CASUALTY
 
  Historically the property/casualty reinsurance business had not been subject
to extensive regulation. However, reinsurance is now under closer scrutiny by
state agencies, as evidenced by the promulgation by the NAIC of several model
laws and regulations. Additionally, legislative initiatives are being
considered at the federal level to regulate the solvency of insurance and
reinsurance companies. Management expects this trend toward greater regulation
of the insurance and reinsurance industries to continue. At this time
management cannot anticipate what impact, if any, such regulation would have
on the Company's operations.
 
  USFIC is required by state laws governing surplus lines to be eligible to
write business as a surplus lines insurer in each state in which its products
are sold. Eligibility is based on a number of considerations, including size,
financial condition, experience in the insurer's state of domicile, expertise
of management and plan of operations. The writing of surplus lines is
constrained by laws that require that the business can be written in a state
only if coverage for the risk is not available from an insurer admitted in
such state. Furthermore, the business can only be written through a licensed
excess and surplus lines broker.
 
MEDICAL LINES
 
  State regulation of self-insured medical plans is preempted by the Employee
Retirement Income Security Act of 1974 ("ERISA"). However, as medical stop-
loss has grown in importance, states have attempted to circumvent ERISA's
preemption by seeking to assert their regulatory authority over insurance
companies writing medical stop-loss coverages and related service providers,
such as USBenefits.
 
  The NAIC has adopted a model Managing General Agents Law, the substance of
which has been enacted in 49 states and the District of Columbia. This model
law requires the licensing of managing general agents that
 
                                       9
<PAGE>
 
perform certain functions on behalf of insurance companies, such as
underwriting together with claims settlement and payment. It also imposes
certain requirements with respect to the content of agreements between
insurance companies and managing general agents. USBenefits is licensed or
registered as a managing general agent or third party administrator in various
states. It is also licensed directly, or through one or more of its employees,
in 47 states as an accident and health insurance agent and in 36 states as a
property/casualty insurance agent.
 
STATE INSURANCE HOLDING COMPANY LAWS
 
  The Company, its stockholders, and its insurance company subsidiaries are
subject to the Insurance Holding Company Acts of the Commonwealth of
Massachusetts where USF RE is domiciled, the State of California where USF RE
has been deemed to be "commercially domiciled" and the Commonwealth of
Pennsylvania where USFIC is domiciled. Generally these Insurance Holding
Company Acts prohibit any person from acquiring "control" of a domestic
insurer, or of a company controlling a domestic insurer, without prior
approval of the insurance commissioner of such insurer's state of domicile.
Control is presumed to exist through ownership or the right to acquire 10% or
more of the stock of the insurer; but this presumption may be rebutted. These
Insurance Holding Company Acts require holding companies and their insurance
subsidiaries to register and file on a regular basis reports which include
information concerning their capital structure, ownership and financial
condition. Certain transactions between members of the holding company group
are subject to fairness and reasonableness standards, and notice of such
transactions must be given to the Commissioners of Insurance of Massachusetts
and Pennsylvania 30 days prior to entering into such transactions, during
which time the Commissioners of these states may indicate their disapproval.
Further, the California Holding Company Act requires approval of material
transactions of an extraordinary type.
 
  The amount of dividends which USF RE is permitted to pay the Company is
limited by the insurance laws of Massachusetts and California. USF RE must
give notice to the Massachusetts and California Insurance Commissioners of all
dividends and other distributions to stockholders within five business days
after they are declared, and may not pay such dividends until ten business
days after receipt by both Commissioners of the required notices. Following
such dividends or distributions, USF RE's surplus to policyholders must be
reasonable in relation to its outstanding liabilities and adequate for its
financial needs. In addition, USF RE may not pay any "extraordinary" dividend
or distribution until 30 days after the Massachusetts and California Insurance
Commissioners have received notice of such dividend or distribution, and until
both Commissioners have either (i) not disapproved such payment within such
30-day period, or (ii) approved such payment within such 30-day period. For
1997, the amount which may be paid in dividends by USF RE without prior
regulatory approval is $10,988,000. The amount of dividends which USFIC may
pay to USF RE is subject to similar restrictions under the laws of
Pennsylvania. Since being acquired by the Company, neither USF RE nor USFIC
has paid any dividends. Further, under changes adopted during the latter part
of 1996, USF RE may no longer continue to be "commercially domiciled" in
California as of 1997.
 
LEGISLATIVE AND REGULATORY DEVELOPMENTS
 
  As noted in prior filings with the Securities and Exchange Commission by the
Company, various Federal and state healthcare legislative and regulatory
proposals which could impact the financing and delivery of healthcare have
been considered. The 104th Congress enacted certain of those proposals, some
of which cover self-insured medical benefit plans. Management cannot predict
at this time what impact, if any, these enactments would have on the Company's
medical lines business. However, based on management's review of the latest
information received, management believes that these enactments will not have
an adverse impact on the Company's business.
 
  Some of the statements included within this Item 1 and Management's
Discussion and Analysis of Financial Condition and Results of Operations as
well as in the Consolidated Financial Statements and related Notes
(incorporated herein by reference from the Company's 1996 Annual Report to
Stockholders under items 7 and 8 hereof, respectively) may be considered to be
forward looking statements (as that term is defined in the Private Securities
Litigation Reform Act of 1995), and which are subject to certain risks and
uncertainties. Among those
 
                                      10
<PAGE>
 
factors which could cause the actual results to differ materially from those
suggested by such statements are: catastrophe losses in the Company's
insurance lines or a material aggregation of losses; changes in federal or
state law affecting an employer's ability to self-insure; the availability of
adequate retrocessional insurance coverage at appropriate prices; a downturn
in the general economy; the effects of competitive market pressures within the
medical stop-loss or property/casualty marketplaces; the effect of changes
required by generally accepted accounting practices or statutory accounting
practices; and other risks which are described from time to time in the
Company's filings with the Securities and Exchange Commission.
 
                                   EMPLOYEES
 
  As of March 21, 1997 the Company had 183 full-time employees. No employees
are represented by labor unions, and management considers its employee
relations to be excellent.
 
                       EXECUTIVE OFFICERS OF THE COMPANY
 
  The executive officers of the Company are:
 
<TABLE>
<CAPTION>
          NAME           AGE                             POSITION
          ----           ---                             --------
<S>                      <C> <C>
David L. Cargile........  51 Chairman, President and Chief Executive Officer
Howard S. Singer........  51 Executive Vice President-Corporate Finance and Investor Relations
John T. Grush...........  48 Senior Vice President
Mark Burke..............  52 Senior Vice President, Chief Financial Officer and Treasurer
Jose A. Velasco.........  42 Senior Vice President, Secretary and General Counsel
Craig J. Kelbel.........  43 Senior Vice President
</TABLE>
 
  All executive officers have been employed by the Company for more than five
years. There are no family relationships among any of the executive officers
of the Company. There have been no events under bankruptcy or insolvency laws,
no criminal proceedings and no judgments or injunctions material to the
evaluation of the ability and integrity of any executive officer during the
past five years.
 
ITEM 2. PROPERTIES
 
  The principal executive offices of the Company and its subsidiaries are
located in 40,281 square feet of leased office space at 650 Town Center Drive,
Costa Mesa, California. The lease on this facility was renewed for the period
from October 1, 1995 through March 31, 2007, with a five-year option to
extend. Additional offices are maintained in leased premises in Chicago,
Illinois; Philadelphia, Pennsylvania; Atlanta, Georgia; Tulsa, Oklahoma; Troy,
Michigan and Phoenix, Arizona.
 
ITEM 3. LEGAL PROCEEDINGS
 
  From time to time the Company is a party to legal proceedings incidental to
its business, none of which individually or in the aggregate is considered by
the Company to be material to its financial condition or results of
operations.
 
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
 
  No matters were submitted during the fourth quarter of the fiscal year
covered by this report to a vote of security holders, through the solicitaion
of proxies or otherwise.
 
                                      11
<PAGE>
 
                                    PART II
 
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
 
  The Company paid quarterly cash dividends of $.06 and $.05 per share in 1996
and 1995, respectively. In addition, material appearing under the captions
"Stockholder Information" and "Stock Price Information" in the 1996 Annual
Report to Stockholders of US Facilities Corporation (the "Annual Report") is
hereby incorporated by this reference.
 
  On May 22, 1996, the Company sold 10,000 shares of common stock to Howard S.
Singer, an officer and director of the Company, for $5.04 per share, and on
September 13, 1996 sold 10,000 shares for $11.88 per share and 10,000 shares
for $13.00 per share. Such shares were acquired upon exercise of stock options
purchased in 1991 by a corporation controlled by Mr. Singer. These shares were
issued in reliance upon the exemption from registration afforded by Section
4(2) of the Securities act of 1933, as amended. Mr. Singer executed an
Investment Representation certifying that he acquired the shares for his own
account, for investment purposes and not with a view to the resale thereof.
 
ITEM 6. SELECTED FINANCIAL DATA
 
  Material appearing under the caption "Selected Financial Data" in the
Company's Annual Report is hereby incorporated by this reference.
 
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
 
  Material appearing under the caption "Management's Discussion and Analysis
of Financial Condition and Results of Operations" in the Company's Annual
Report is hereby incorporated by this reference.
 
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
 
  Material appearing under the captions "Report on Consolidated Financial
Statements" and "Independent Auditors' Report" and contained in the Company's
Consolidated Financial Statements and Notes thereto in the Company's Annual
Report is hereby incorporated by this 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 regarding directors and executive officers of the Registrant
as required by Items 401 and 405 of Regulation S-K is set forth in Part I of
this Form 10-K under the caption "EXECUTIVE OFFICERS OF THE COMPANY" and under
the caption "ELECTION OF DIRECTORS" in the Company's definitive Proxy
Statement for the Company's 1997 Annual Meeting of Stockholders scheduled to
be held on May 14, 1997, and which will be filed with the Securities and
Exchange Commission not later than 120 days after December 31, 1996 (the
"Proxy Statement"), and is hereby incorporated by this reference.
 
ITEM 11. EXECUTIVE COMPENSATION
 
  The information required by Item 402 of Regulation S-K is set forth under
the caption "COMPENSATION OF EXECUTIVE OFFICERS," "COMPENSATION COMMITTEE OF
THE BOARD OF DIRECTORS REPORT ON EXECUTIVE COMPENSATION," and "COMPENSATION
COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION" in the Company's Proxy
Statement, and is hereby incorporated by this reference.
 
                                      12
<PAGE>
 
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
 
  The information required by Item 403 of Regulation S-K is set forth under
the captions "SECURITY OWNERSHIP OF MANAGEMENT" and "SECURITY OWNERSHIP OF
CERTAIN OTHER STOCKHOLDERS" in the Company's Proxy Statement, and is hereby
incorporated by this reference.
 
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
 
  The information regarding certain relationships and related transactions as
required by Item 404 of Regulation S-K is set forth in the Company's Proxy
Statement under the captions "COMPENSATION OF EXECUTIVE OFFICERS" and "RELATED
TRANSACTIONS," and is hereby incorporated by this reference.
 
                                    PART IV
 
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
 
  (a) The following documents are filed as part of this Form 10-K:
 
    (i) The following is a list of financial statements, together with
  reports thereon, filed as part of this Form 10-K, all of which have been
  incorporated herein by reference to the material in the Company's Annual
  Report as described under Item 8 of this Form 10-K:
 
    Report on Consolidated Financial Statements
    Consolidated Income Statements--Years ended December 31, 1996, 1995 and
    1994
    Consolidated Balance Sheets--December 31, 1996 and 1995
    Consolidated Statements of Stockholders' Equity-- at December 31, 1994,
    1995, and 1996
    Consolidated Statements of Cash Flows--Years ended December 31, 1996,
    1995 and 1994
    Notes to Consolidated Financial Statements
    Independent Auditors' Report
 
    (ii) The following is a list of financial statement schedules filed with
  this Form 10-K:
 
    Index to Schedules
    Independent Auditors' Report
    Schedule I--Summary of Investments
    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 and therefore have been omitted.
 
    (iii) The following is a list of exhibits required to be filed as part of
  this Form 10-K by Item 601 of Regulation S-K:
 
<TABLE>
 <C>       <S>
 3.1, 4.1  Restated Certificate of Incorporation, as amended, as presently in
           effect. Filed as Exhibits 3.1 and 3.1.1 to the Company's Form S-1
           Registration Statement declared effective by the Securities and
           Exchange Commission ("Commission") on October 31, 1986 (the "S-1
           Registration Statement"), and incorporated herein by this reference;
           and as Exhibit 3 to the Company's Current Report on Form 8-K dated
           May 24, 1990, and incorporated herein by this reference.
 3.2, 4.2  Bylaws of the Company, as amended, as presently in effect. Filed as
           Exhibit 4.2 to the Company's Quarterly Report on Form 10-Q for the
           quarter ended June 30, 1994 (the "June 1994 Form 10-Q"), and
           incorporated herein by this reference.
      4.3* Stock Certificate of the Company (complying with New York Stock
           Exchange requirements).
</TABLE>
 
                                      13
<PAGE>
 
<TABLE>
 <C>         <S>
  4.4        Rights Agreement. Filed as Exhibit 2 to the Company's Current
             Report on Form 8-K dated May 24, 1990, and incorporated herein by
             this reference.
  4.5        First Amendment to Rights Agreement. Filed as Exhibit 1 to the
             Company's Current Report on Form 8-K dated January 16, 1992, and
             incorporated herein by this reference.
  4.6        Second Amendment to Rights Agreement. Filed as Exhibit 10.1 to the
             Company's Current Report on Form 8-K dated April 29, 1994, and
             incorporated herein by this reference.
  4.7        Third Amendment to Rights Agreement. Filed as Exhibit 4 to the
             Company's Current Report on Form 8-K dated September 28, 1995, and
             incorporated herein by this reference.
  9          Not applicable.
 10          Material Contracts.
 10.1        Agreement of Employment between the Company and David L. Cargile
             dated August 4, 1994, and Amendment to Agreement of Employment
             dated July 21, 1995. Filed as Exhibit 10.2 to the Company's
             Quarterly Report on Form 10-Q for the quarter ended September 30,
             1994 (the "September 1994 Form 10-Q") and as Exhibit 10.4(i) to
             the Company's Annual Report on Form 10-K for the year ended
             December 31, 1995 (the "1995 Form 10-K"), respectively, and
             incorporated herein by this reference.
 10.2*       Agreement of Employment between the Company and David L. Cargile
             effective as of November 1, 1996.
 10.3*       Agreement of Employment between the Company and Howard S. Singer
             effective as of November 1, 1996.
 10.4*       Agreement of Employment between the Company and Craig J. Kelbel
             effective as of November 1, 1996.
 10.5(i)     Severance Agreement dated May 24, 1994 between the Company and
             Howard S. Singer. Filed as Exhibit 10.2 to the Company's June 1994
             Form 10-Q, and incorporated herein by this reference.
 10.5(ii)    Severance Agreement dated May 24, 1994 between the Company and
             David L. Cargile. Filed as Exhibit 10.3 to the Company's June 1994
             Form 10-Q, and incorporated herein by this reference.
 10.5(iii)   Severance Agreement dated May 24, 1994 between the Company and
             John T. Grush. Filed as Exhibit 10.4 to the Company's June 1994
             Form 10-Q, and incorporated herein by this reference.
 10.5(iv)    Severance Agreement dated May 24, 1994 between the Company and
             Mark Burke. Filed as Exhibit 10.5 to the Company's June 1994 Form
             10-Q, and incorporated herein by this reference.
 10.5(v)     Severance Agreement dated May 24, 1994 between the Company and
             Jose A. Velasco. Filed as Exhibit 10.6 to the Company's June 1994
             Form 10-Q, and incorporated herein by this reference.
 10.5(vi)    Severance Agreement dated May 24, 1994 between the Company and
             Craig J. Kelbel. Filed as Exhibit 10.14(v) to the Company's 1995
             Form 10-K, and incorporated herein by this reference.
 10.5(vii)*  Amendment dated December 4, 1996 to Severance Agreement between
             the Company and David L. Cargile.
 10.5(viii)* Amendment dated December 4, 1996 to Severance Agreement between
             the Company and Howard S. Singer.
 10.5(ix)*   Amendment dated December 4, 1996 to Severance Agreement between
             the Company and John T. Grush.
 10.5(x)*    Amendment dated December 4, 1996 to Severance Agreement between
             the Company and Craig J. Kelbel.
 10.5(xi)*   Amendment dated December 4, 1996 to Severance Agreement between
             the Company and Mark Burke.
</TABLE>
 
 
                                       14
<PAGE>
 
<TABLE>
 <C>         <S>
  10.5(xii)* Amendment dated December 4, 1996 to Severance Agreement between
             the Company and Jose A. Velasco.
  10.6(i)    Lease Agreement dated May 28, 1985 between Center Tower Associates
             and US Benefits, Inc. Filed as Exhibit 10.13 to the Company's S-1
             Registration Statement, and incorporated herein by this reference.
  10.6(ii)   First Amendment dated November 24, 1986 to Lease Agreement between
             Center Tower Associates and the Company as assignee of US
             Benefits, Inc. Filed as Exhibit 10.26 to the Company's Form S-2
             Registration Statement declared effective by the Commission on
             December 4, 1991 ( the "S-2 Registration Statement"), and
             incorporated herein by this reference.
  10.6(iii)  Second Amendment dated July 8, 1992 to Lease Agreement between
             Center Tower Associates and the Company. Filed as Exhibit 10.17 to
             the Company's Annual Report on Form 10-K for the year ended
             December 31, 1992, and incorporated herein by this reference.
  10.6(iv)   Third Amendment dated May 4,1993 to Lease Agreement between Center
             Tower Associates and the Company. Filed as Exhibit 10.18 to the
             Company's Annual Report on Form 10-K for the year ended December
             31, 1993 ( the "1993 Form 10-K"), and incorporated herein by this
             reference.
  10.6(v)    Fourth and Fifth Amendments dated August 29, 1994 and October 1,
             1995, respectively, to Lease Agreement between Center Tower
             Associates and the Company. Filed as Exhibit 10.18(i) to the
             Company's 1995 Form 10-K, and incorporated herein by this
             reference.
  10.7(i)    Management Agreement No. 1 dated October 3, 1994 (with Addenda)
             between The Continental Insurance Company and USBenefits Insurance
             Services, Inc. Filed as Exhibit 10.1 to the Company's September
             1994 Form 10-Q, and incorporated herein by this reference.
  10.7(ii)   Additional Addenda to Management Agreement No.1 between The
             Continental Insurance Company and USBenefits Insurance Services,
             Inc. Filed as Exhibit 10.19(i) to the Company's 1995 Form 10-K and
             incorporated herein by this reference.
  10.8(i)    Quota Share Retrocession Agreement dated July 11, 1986 between The
             Continental Insurance Company, as successor to Harbor Insurance
             Company by assumption, and USF RE INSURANCE COMPANY, as amended.
             Filed as Exhibit 10.47 to the Company's S-2 Registration
             Statement, and incorporated herein by this reference.
  10.8(ii)   Amendment dated January 16, 1991 to Quota Share Retrocession
             Agreement between The Continental Insurance Company and USF RE
             INSURANCE COMPANY. Filed as Exhibit 10.21 to the Company's 1993
             Form 10-K, and incorporated herein by this reference.
  10.8(iii)  Amendment dated October 3, 1994 to Quota Share Retrocession
             Agreement between The Continental Insurance Company and USF RE
             INSURANCE COMPANY. Filed as Exhibit 10.21(i) to the Company's
             Annual Report on Form 10-K for the year ended December 31, 1994,
             and incorporated herein by this reference.
  10.9(i)    Credit Agreement dated as of December 20, 1994 between the Company
             and Fleet National Bank of Connecticut (formerly known as Shawmut
             Bank Connecticut, N.A.), including Revolving Note and Pledge
             Agreement. Filed as Exhibit 10.1 to the Company's Quarterly Report
             on Form 10-Q for the quarter ended March 31, 1995, and
             incorporated herein by this reference.
  10.9(ii)   First and Second Amendments to the Credit Agreement between the
             Company and Fleet National Bank of Connecticut. Filed as Exhibit
             10.1 to the Company's Quarterly Reports on Form 10-Q for the
             quarters ended March 31, 1996 and September 30, 1996,
             respectively, and incorporated herein by this reference.
 10.10(i)    US Facilities Corporation Amended 1988 Employee Stock Option Plan.
             Filed as Appendix 3 to the Company's Preliminary Proxy Statement
             for the May 14, 1997 Annual Meeting of Stockholders, which was
             filed with the Commission on March 11, 1997, and incorporated
             herein by this reference.
</TABLE>
 
                                       15
<PAGE>
 
<TABLE>
 <C>        <S>
 10.11      US Facilities Corporation Amended and Restated 1991 Employee Stock
            Option Plan. Filed as Appendix 2 to the Company's Preliminary Proxy
            Statement for the May 14, 1997 Annual Meeting of Stockholders,
            which was filed with the Commission on March 11, 1997, and
            incorporated herein by this reference.
 10.12      Form of Stock Option Agreement under the US Facilities Corporation
            Amended and Restated 1991 Employee Stock Option Plan. Filed as
            Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q for the
            quarter ended June 30, 1996 (the "June 1996 Form 10-Q"), and
            incorporated herein by this reference
 10.20(i)   US Facilities Corporation 1988 Directors Stock Option Plan. Filed
            as Exhibit B to the Company's Proxy Statement for the May 25, 1988
            Annual Meeting of Stockholders, and incorporated herein by this
            reference.
 10.20(ii)  US Facilities Corporation 1991 Directors Stock Option Plan Amended
            and Restated. Filed as Exhibit B to the Company's Proxy Statement
            for the May 22, 1996 Annual Meeting of Stockholders, and
            incorporated herein by this reference.
 10.20(iii) Form of Stock Option Agreement under the US Facilities Corporation
            1991 Directors Stock Option Plan Amended and Restated. Filed as
            Exhibit 10.2 to the Company's June 1996 Form 10-Q, and incorporated
            herein by this reference
 10.21      US Facilities Corporation Amended Incentive Compensation Program.
            Filed as Exhibit 10.26 to the Company's 1995 Form 10-K, and
            incorporated herein by this reference.
 10.22      US Facilities Corporation 1997 Long-Term Incentive-Performance Unit
            Plan, including form of Plan Agreement. Filed as Appendix 1 to the
            Company's Preliminary Proxy Statement for the May 14, 1997 Annual
            Meeting of Stockholders, which was filed with the Commission on
            March 11, 1997, and incorporated herein by this reference.
 10.23*     US Facilities Corporation Non-Qualified Deferred Compensation Plan,
            including form of Plan Agreement.
    11*     The US Facilities Corporation and Subsidiaries Computation of
            Earnings Per Share.
    12      Not applicable.
    13*     US Facilities Corporation 1996 Annual Report to Stockholders (filed
            with the Commission only to the extent it is specifically
            incorporated by reference in this Form 10-K).
    18      Not applicable.
    19      Not applicable.
    21*     Subsidiaries of US Facilities Corporation.
    22      Not applicable.
    23*     Independent Auditors' Consent dated March 26, 1997.
    24      Not applicable.
    27*     Financial Data Schedules
</TABLE>
 
  (b) Reports on Form 8-K:
 
    No reports on Form 8-K were filed during the fourth quarter of the year
  ended December 31, 1996.
--------
* Describes a document filed with the Annual Report on Form 10-K for the year
ended December 31, 1996.
 
                                       16
<PAGE>
 
                                  SIGNATURES
 
  Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Company has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
 
Date: March 28, 1997                    US FACILITIES CORPORATION
 
                                        By /s/   DAVID L. CARGILE
                                           ------------------------------
                                                 David L. Cargile
                                               Chairman of the Board
                                              Chief Executive Officer
                                                   and President
 
  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 Company
and in the capacities and on the dates indicated.
 
<TABLE>
<CAPTION>
               SIGNATURE                              TITLE                    DATE
               ---------                              -----                    ----
<S>                                       <C>                           <C>
            /s/ MARK BURKE               
---------------------------------------- 
               Mark Burke                 Senior Vice President, Chief
                                          Financial Officer and
                                          Treasurer (Principal
                                          Financial and Accounting
                                          Officer)                      March 26, 1997

         /s/ DAVID L. CARGILE            
---------------------------------------- 
            David L. Cargile              Chairman of the Board, Chief
                                          Executive Officer and
                                          President (Principal
                                          Executive Officer)            March 26, 1997

          /s/ JOHN F. KOOKEN
----------------------------------------
            John F. Kooken                Director                      March 26, 1997

        /s/ L. STEVEN MEDGYESY
----------------------------------------
           L. Steven Medgyesy             Director                      March 26, 1997

         /s/ BERNARD H. ROSS
----------------------------------------
            Bernard H. Ross               Director                      March 26, 1997 

                                                                                       
        /s/ CHARLES L. SCHULTZ
----------------------------------------
           Charles L. Schultz             Director                      March 26, 1997

         /s/ HOWARD S. SINGER
----------------------------------------
            Howard S. Singer              Director and Executive Vice
                                          President-Corporate Finance
                                          and Investor Relations        March 26, 1997

         /s/ KENNETH C. TYLER
----------------------------------------
            Kenneth C. Tyler              Director                      March 26, 1997
</TABLE>
 
                                      17
<PAGE>
 
                               INDEX TO SCHEDULES
 
Independent Auditors' Report
 
<TABLE>
<S>                                                                 <C>
  Summary of Investments........................................... Schedule I
  Condensed Financial Information of Registrant.................... Schedule II
  Supplementary Insurance Information.............................. Schedule III
  Reinsurance...................................................... Schedule IV
</TABLE>
 
                                       18
<PAGE>
 
                         INDEPENDENT AUDITORS' REPORT
 
  Under date of February 4, 1997, we reported on the consolidated balance
sheets of US Facilities Corporation and Subsidiaries as of December 31, 1996
and 1995, and the related consolidated income statements, statements of
stockholders' equity and cash flows for each of the years in the three-year
period ended December 31, 1996 as contained in the 1996 Annual Report to
Stockholders. These consolidated financial statements and our report thereon
are incorporated by reference in the annual report on Form 10-K for the year
1996. In connection with our audits of the aforementioned consolidated
financial statements, we also audited the related consolidated financial
statement schedules as listed in the accompanying index. These consolidated
financial statement schedules are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statement schedules based on our audits.
 
  In our opinion, such 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.
 
/s/KPMG PEAT MARWICK LLP
 
Los Angeles, California
February 4, 1997
 
                                      19
<PAGE>
 
                  US FACILITIES CORPORATION AND SUBSIDIARIES
 
                       SCHEDULE I-SUMMARY OF INVESTMENTS
 
                               DECEMBER 31, 1996
 
<TABLE>
<CAPTION>
                                                                    AMOUNT AT
                                                                    WHICH SHOWN
                                                                    ON BALANCE
                                                COST(1)   VALUE(1)   SHEET(1)
                                               ---------  -------- ------------
                                                   (DOLLARS IN THOUSANDS)
<S>                                            <C>        <C>      <C>
Fixed maturities:
Bonds:
 United States Government agencies and author-
  ities....................................... $  13,265  $ 13,421   $ 13,421
 States, municipalities and political subdivi-
  sions.......................................    89,996    93,265     93,265
 Foreign governments..........................       529       554        554
 All other corporate bonds....................    46,884    48,240     48,240
                                               ---------  --------   --------
  Total fixed maturities......................   150,674   155,480    155,480
Equity securities:
 Preferred stocks:
  Industrial and miscellaneous................       250       256        256
 Common stocks:
  Industrial and miscellaneous................    16,046    20,114     20,114
                                               ---------  --------   --------
  Total.......................................    16,296    20,370     20,370
Other invested assets.........................       863       863        863
Short-term investments........................    17,639    17,639     17,639
                                               ---------  --------   --------
Total investments.............................  $185,472  $194,352   $194,352
                                               =========  ========   ========
</TABLE>
 
(1) Cost represents the amortized cost of investments to the Company. Value
represents current market value. Amount at which investments are shown on the
balance sheet represents current market value as required by SFAS No. 115.
 
                                      20
<PAGE>
 
                   US FACILITIES CORPORATION AND SUBSIDIARIES
 
                    SCHEDULE II-CONDENSED INCOME STATEMENTS
 
                           US FACILITIES CORPORATION
                             (PARENT COMPANY ONLY)
 
<TABLE>
<CAPTION>
                                                      YEAR ENDED DECEMBER 31,
                                                       1996     1995     1994
                                                      -------  -------  ------
                                                      (DOLLARS IN THOUSANDS)
<S>                                                   <C>      <C>      <C>
Revenues:
 Dividends from subsidiaries......................... $ 4,000  $ 6,000  $2,500
 Other...............................................      58       49      13
                                                      -------  -------  ------
  Total revenues.....................................   4,058    6,049   2,513
 Operating expenses:
 Other general and administrative....................     896    1,723     648
 Restructuring.......................................     --       --      654
 Interest............................................   2,610    2,259      48
                                                      -------  -------  ------
  Total operating expenses...........................   3,506    3,982   1,350
Other expenses:
 Unusual charges related to unsolicited takeover 
  proposal...........................................     --       --    2,029
                                                      -------  -------  ------
Income (loss) before income taxes....................     552    2,067    (866)
 Income tax benefits.................................  (1,652)  (2,324) (1,008)
                                                      -------  -------  ------
Income before equity in earnings of subsidiaries.....   2,204    4,391     142
 Equity in earnings of subsidiaries..................  12,816    9,463   6,096
                                                      -------  -------  ------
Net income........................................... $15,020  $13,854  $6,238
                                                      =======  =======  ======
</TABLE>
 
                                       21
<PAGE>
 
                   US FACILITIES CORPORATION AND SUBSIDIARIES
 
                      SCHEDULE II-CONDENSED BALANCE SHEETS
 
                           US FACILITIES CORPORATION
                             (PARENT COMPANY ONLY)
 
                                     ASSETS
 
<TABLE>
<CAPTION>
                                                              DECEMBER 31, 1996
                                                              -----------------
                                                                1996     1995
                                                              -------- --------
                                                                 (DOLLARS IN
                                                                 THOUSANDS)
<S>                                                           <C>      <C>
Cash......................................................... $    641 $    815
Investment in and due from affiliates........................  134,838  122,049
Other assets.................................................    3,889    2,425
                                                              -------- --------
Total assets................................................. $139,368 $125,289
                                                              ======== ========
</TABLE>
 
                      LIABILITIES AND STOCKHOLDERS' EQUITY
 
<TABLE>
<S>                                                          <C>       <C>
Note payabable.............................................. $ 35,000  $ 35,000
Accounts payable and accrued expenses.......................    2,004     2,228
                                                             --------  --------
Total liabilities...........................................   37,004    37,228
Stockholders' equity:
Common stock................................................       61        61
Paid-in capital.............................................   45,503    44,489
Net unrealized investment gain..............................    5,860     7,211
Retained earnings...........................................   52,883    39,273
                                                             --------  --------
                                                              104,307    91,034
Less treasury stock, at cost................................   (1,943)   (2,973)
                                                             --------  --------
Total stockholders' equity..................................  102,364    88,061
                                                             --------  --------
Total liabilities and stockholders' equity.................. $139,368  $125,289
                                                             ========  ========
</TABLE>
 
                                       22
<PAGE>
 
                   US FACILITIES CORPORATION AND SUBSIDIARIES
 
                           US FACILITIES CORPORATION
                             (PARENT COMPANY ONLY)
 
                 SCHEDULE II-CONDENSED STATEMENTS OF CASH FLOWS
 
<TABLE>
<CAPTION>
                                                    YEAR ENDED DECEMBER 31,
                                                    --------------------------
                                                     1996     1995      1994
                                                    -------  -------  --------
                                                     (DOLLARS IN THOUSANDS)
<S>                                                 <C>      <C>      <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
 Net income........................................ $15,020  $13,854  $  6,238
  Adjustments to reconcile net income to net cash
   provided by (used in) operating activities:
  Increase (decrease) in accounts payable and 
   accrued expenses................................    (224)    (359)      666
  Increase in other assets.........................  (1,464)    (690)     (406)
  Equity in income of and change in due from 
   affiliates...................................... (14,140) (15,310)   (5,602)
                                                    -------  -------  --------
Net cash provided by (used in) operating
 activities........................................    (808)  (2,505)      896
                                                    -------  -------  --------
CASH FLOWS FROM FINANCING ACTIVITIES:
  Proceeds from note payable.......................     --    10,000    25,000
  Proceeds from issuance of common stock...........   2,044    2,405     1,588
  Dividends Paid...................................  (1,410)  (1,125)      --
  Purchase of 498,000 shares of treasury stock.....     --       --     (5,000)
                                                    -------  -------  --------
   Net cash provided by financing activities.......     634   11,280    21,588

CASH FLOWS FROM INVESTING ACTIVITIES:
 Increase in investment in affiliates..............     --   (10,500)  (20,000)
                                                    -------  -------  --------
 Net (decrease) increase in cash...................    (174)  (1,725)    2,484
 Cash at beginning of year.........................     815    2,540        56
                                                    -------  -------  --------
 Cash at end of year............................... $   641  $   815  $  2,540
                                                    =======  =======  ========
Supplemental Disclosures of Cash Flow Information:
 Cash paid during the year for:
 Interest.......................................... $ 2,498  $ 2,187  $     19
 Income taxes...................................... $ 4,771  $ 5,217    $1,350
</TABLE>
 
                                       23
<PAGE>
 
                   US FACILITIES CORPORATION AND SUBSIDIARIES
                SCHEDULE III-SUPPLEMENTARY INSURANCE INFORMATION
 
<TABLE>
<CAPTION>
                                FUTURE POLICY                                    BENEFITS,  AMORTIZATION
                     DEFERRED     BENEFITS,                                       CLAIMS,   OF DEFERRED
                      POLICY       LOSSES,                               NET     LOSSES AND    POLICY      OTHER     NET
                    ACQUISITION  CLAIMS AND    UNEARNED    PREMIUM    INVESTMENT SETTLEMENT ACQUISITION  OPERATING PREMIUMS
                       COSTS    LOSS EXPENSES  PREMIUMS    REVENUE      INCOME    EXPENSES     COSTS     EXPENSES  WRITTEN
    SEGMENT         ----------- ------------- ----------- ----------- ---------- ---------- ------------ --------- --------
                                                        (DOLLARS IN THOUSANDS)
<S>                 <C>         <C>           <C>         <C>         <C>        <C>        <C>          <C>       <C>      
   1996
Medical lines.....    $   --       17,400             --       84,179    3,312     58,095      28,526     10,111    84,179
Property/casualty.      3,644      77,250          22,936      39,945    6,777     30,078       8,653      3,988    43,799
                      -------      ------      ---------- -----------   ------     ------      ------     ------   -------
Total.............    $ 3,644      94,650          22,936     124,124   10,089     88,173      37,179     14,099   127,978
                      =======      ======      ========== ===========   ======     ======      ======     ======   =======
   1995
Medical lines.....    $   --       17,947             --       81,546    3,269     54,563      27,069     12,025    81,546
Property/casualty.      2,830      60,947          17,705      33,425    5,872     23,180       8,895      3,304    35,350
                      -------      ------      ---------- -----------   ------     ------      ------     ------   -------
Total.............    $ 2,830      78,894          17,705     114,971    9,141     77,743      35,964     15,329   116,896
                      =======      ======      ========== ===========   ======     ======      ======     ======   =======
   1994
Medical lines.....    $   --       18,113             --       72,517    2,273     48,356      23,647     13,772    72,517
Property/casualty.      3,047      51,534          14,613      20,752    3,677     16,010       7,694      2,499    23,865
                      -------      ------      ---------- -----------   ------     ------      ------     ------   -------
Total.............    $ 3,047      69,647          14,613      93,269    5,950     64,366      31,341     16,271    96,382
                      =======      ======      ========== ===========   ======     ======      ======     ======   =======
</TABLE>
 
                                       24
<PAGE>
 
                   US FACILITIES CORPORATION AND SUBSIDIARIES
 
                            SCHEDULE IV-REINSURANCE
 
                    USF RE INSURANCE COMPANY AND SUBSIDIARY
            (WHOLLY-OWNED SUBSIDIARIES OF US FACILITIES CORPORATION)
 
<TABLE>
<CAPTION>
INSURANCE PREMIUMS EARNED                               1996     1995     1994
-------------------------                             --------  -------  ------
                                                      (DOLLARS IN THOUSANDS)
<S>                                                   <C>       <C>      <C>
Gross amount (direct)................................  $10,279  $12,218  $9,386
Ceded to other companies.............................   20,869   14,398  10,690
Assumed from other companies.........................  134,714  117,151  94,573
Net amount...........................................  124,124  114,971  93,269
Percentage of amount assumed to net..................    108.5%   101.9%  101.4%
</TABLE>
 
 
                                       25