<PAGE>
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                       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 [FEE REQUIRED]
 
                  FOR THE FISCAL YEAR ENDED DECEMBER 31, 1995
 
                                       OR
 
           [  ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
             THE SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
 
FOR THE TRANSITION PERIOD FROM  ...................... TO  .....................
 
                                            1-7080
COMMISSION FILE NUMBER  ........................................................
 
                    RELIANCE FINANCIAL SERVICES CORPORATION
 
             (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
 
               DELAWARE                                51-0113548
     (STATE OR OTHER JURISDICTION                   (I.R.S. EMPLOYER
   OF INCORPORATION OR ORGANIZATION)               IDENTIFICATION NO.)
 
           PARK AVENUE PLAZA
          55 EAST 52ND STREET
           NEW YORK, NEW YORK                             10055
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)                (ZIP CODE)
 
       REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (212) 909-1100
 
          SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
 
         TITLE OF EACH CLASS           NAME OF EACH EXCHANGE ON WHICH REGISTERED
-------------------------------------  -----------------------------------------
 Senior Reset Notes, Due November 1,            New York Stock Exchange
                 2000

 Senior Reset Notes, Due December 1,            New York Stock Exchange
                 2000

          SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
 
                                      None
 
     The registrant meets the conditions set forth in General Instructions
J(1)(a) and (b) of Form 10-K and is therefore filing this Form with reduced
disclosure as permitted thereunder.
 
     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
                                              ---     --- 
     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. [X]
 
     As of March 1, 1996, 1,000 shares of the common stock of Reliance Financial
Services Corporation were outstanding, none of which were held by nonaffiliates.
 
                      DOCUMENTS INCORPORATED BY REFERENCE:
 
Reliance Financial Services Corporation 1995 Annual Report--Parts I, II and IV.
 
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<PAGE>
                                     PART I
 
ITEM 1. BUSINESS.
 
GENERAL
 
     Reliance Financial Services Corporation (the 'Company' or 'Reliance
Financial') owns all of the common stock of Reliance Insurance Company. Reliance
Insurance Company and its property and casualty insurance subsidiaries (the
'Reliance Property and Casualty Companies') underwrite a broad range of
commercial lines of property and casualty insurance. Reliance Insurance Company
has conducted business since 1817, making it one of the oldest property and
casualty insurance companies in the United States.

     The Reliance Property and Casualty Companies consist of four principal
operations: Reliance National, Reliance Insurance, Reliance Reinsurance and
Reliance Surety. Established in 1987, Reliance National offers a broad range of
commercial property and casualty insurance products and services for large
companies and specialty line customers. Reliance National selects market
segments where it can provide specialized coverages and services, and it
conducts business nationwide and in certain international markets. In 1995,
Reliance National accounted for 49% of the net premiums written by the Reliance
Property and Casualty Companies. Reliance Insurance offers commercial property
and casualty insurance coverages primarily for mid-sized companies throughout
the United States. Reliance Insurance also offers traditional and specialized
coverages for more complex risks as well as insurance programs for groups with
common insurance needs. Reliance Reinsurance primarily provides casualty treaty
and facultative reinsurance for small to medium sized regional and specialty
insurance companies located in the United States. Reliance Surety is a leading
writer of surety bonds and fidelity bonds in the United States. The Reliance
Property and Casualty Companies accounted for $1,774.6 million (73%) of the 1995
premiums earned by Reliance Insurance Company and its property and casualty and
title insurance subsidiaries (the 'Reliance Insurance Group').
 
     Title insurance business is conducted by Commonwealth Land Title Insurance
Company and Transnation Title Insurance Company (formerly Transamerica Title
Insurance Company) and their respective subsidiaries ('Commonwealth/Transnation
Title'). Commonwealth/Transnation Title is the third largest title insurance
operation in the United States, in terms of 1994 total premiums and fees.
Commonwealth/Transnation Title accounted for $671.9 million (27%) of the
Reliance Insurance Group's 1995 premiums earned.
 
     Business segment information for the years ended December 31, 1995, 1994
and 1993 is set forth in Note 16 to the Company's consolidated financial
statements (the 'Consolidated Financial Statements'), which segment information
is included in the Company's 1995 Annual Report and incorporated herein by
reference. All financial information in this Annual Report on Form 10-K is
presented in accordance with generally accepted accounting principles ('GAAP')
unless otherwise specified.
 
     The common stock of Reliance Insurance Company has been pledged by the
Company to secure certain indebtedness. See Note 8 to the Consolidated Financial
Statements. Reliance Insurance Company owns all of the common stock of
Commonwealth Land Title Insurance Company and Transnation Title Insurance
Company. The Company is a wholly-owned subsidiary of Reliance Group Holdings,
Inc. ('Reliance Group Holdings'). Approximately 45% of the common stock of
Reliance Group Holdings, the only class of voting securities outstanding, is
owned by Saul P. Steinberg, members of his family and affiliated trusts.
 
                                       1

<PAGE>
OPERATING UNITS
 
     Property and Casualty Insurance.  The Reliance Property and Casualty
Companies consist of four principal operations: Reliance National, Reliance
Insurance, Reliance Reinsurance and Reliance Surety. The following table sets
forth the amount of net premiums written in each line of business by Reliance
National, Reliance Insurance, Reliance Reinsurance and Reliance Surety for the
years ended December 31, 1995, 1994 and 1993.

<TABLE>
<CAPTION>
                                              1995                                           1994                                
                          --------------------------------------------   --------------------------------------------            
                                                   RELIANCE                                       RELIANCE                       
                          RELIANCE   RELIANCE    REINSURANCE/            RELIANCE   RELIANCE    REINSURANCE/                     
                          NATIONAL   INSURANCE      SURETY      TOTAL    NATIONAL   INSURANCE      SURETY      TOTAL             
                          --------   ---------   ------------   ------   --------   ---------   ------------   ------            
                                                              (IN MILLIONS, EXCEPT PERCENTAGES)                                  
<S>                       <C>        <C>         <C>            <C>      <C>        <C>         <C>            <C>               
General Liability.......    $371       $  98         $ --       $  469     $347       $  76         $ --       $  423            
Workers' Compensation...     141         125           --          266      179         134           --          313            
Automobile..............      88         152           --          240      109         135           --          244            
Multiple Peril..........      26         159           --          185       32         148           --          180            
Surety..................      --          --          139          139       --          --          118          118            
Reinsurance.............      --          --          119          119       --          --          125          125            
Ocean and Inland                                                                                                                 
 Marine.................      66          53           --          119       44          60           --          104            
Involuntary.............      53          28           --           81       82          32           --          114            
Fire and Allied.........      34          34           --           68       26          24           --           50            
Accident and Health.....      58          --           --           58       52          --           --           52            
Other...................      27           8           --           35       19          22           --           41            
                             ---         ---          ---       ------      ---         ---          ---       ------            
 Total..................    $864       $ 657         $258       $1,779     $890       $ 631         $243       $1,764            
                             ---         ---          ---       ------      ---         ---          ---       ------            
                             ---         ---          ---       ------      ---         ---          ---       ------            
Percent of Total........      49%         37%          14%         100%      50%         36%          14%         100%           
                             ---         ---          ---       ------      ---         ---          ---       ------            
                             ---         ---          ---       ------      ---         ---          ---       ------ 
                                                                                                                       
<CAPTION>
                                              1993
                         ------------------------------------------------
                                                  RELIANCE
                         RELIANCE   RELIANCE    REINSURANCE/
                         NATIONAL   INSURANCE      SURETY      TOTAL
                         --------   ---------   ------------   ------
                                (IN MILLIONS, EXCEPT PERCENTAGES)
<S>                      <C>        <C>         <C>            <C>
General Liability.......   $288       $  82         $ --       $  370
Workers' Compensation...    232         146           --          378
Automobile..............    119         141           --          260
Multiple Peril..........     33         154           --          187
Surety..................     --          --          107          107
Reinsurance.............     --          --          124          124
Ocean and Inland         
 Marine.................     54          51           --          105
Involuntary.............     87          27           --          114
Fire and Allied.........     19          21           --           40
Accident and Health.....     36          --           --           36
Other...................      4          46           --           50
                            ---         ---          ---       ------
 Total..................   $872       $ 668         $231       $1,771
                            ---         ---          ---       ------
                            ---         ---          ---       ------
Percent of Total........     49%         38%          13%         100%
                            ---         ---          ---       ------
                            ---         ---          ---       ------
</TABLE>
                                       2
<PAGE>
     The following table sets forth underwriting results for the Reliance
Property and Casualty Companies for the years ended December 31, 1995, 1994 and
1993.
 
<TABLE>
<CAPTION>
                              YEAR ENDED DECEMBER 31,
                          --------------------------------
                            1995        1994        1993
                          --------    --------    --------
                            (IN MILLIONS, EXCEPT RATIOS)
<S>                       <C>         <C>         <C>
Net premiums written...   $1,779.0    $1,764.3    $1,770.6
Underwriting loss(1)...      (45.6)      (97.3)     (175.6)
Combined ratio.........      101.8%      104.4%      110.8%
</TABLE>
------------------
(1) Includes catastrophe losses (net of reinsurance) for the years ended
    December 31, 1995, 1994 and 1993 of $25.7 million, $50.1 million and $39.3
    million, respectively.

     The following table sets forth certain financial information of the
Reliance Property and Casualty Companies based upon statutory accounting
practices and common shareholder's equity of Reliance Insurance Company, in
thousands:
 
<TABLE>
<CAPTION>
                                          STATUTORY ACCOUNTING                                  GAAP
               --------------------------------------------------------------------------   -------------
                                                      TOTAL                     POLICY-        COMMON
YEAR ENDED      PREMIUMS    UNEARNED      LOSS       ADMITTED       TOTAL       HOLDERS'    SHAREHOLDER'S
DECEMBER 31,    WRITTEN     PREMIUMS    RESERVES      ASSETS     LIABILITIES    SURPLUS*       EQUITY
------------   ----------   --------   ----------   ----------   -----------   ----------   -------------
<S>            <C>          <C>        <C>          <C>          <C>           <C>          <C>
1995........   $1,769,064   $841,127   $3,102,688   $5,538,533   $ 4,410,197   $1,128,336    $  1,404,781
1994........    1,773,196    833,643    3,033,016    5,296,931     4,388,393      908,538       1,076,840
1993........    1,810,070    834,855    2,846,073    4,968,714     4,066,424      902,290       1,171,490
</TABLE>
------------------
* Includes Reliance Insurance Company's investment in title insurance operations
  of $182.2 million at December 31, 1995.
 
     The Reliance Property and Casualty Companies write insurance in every state
of the United States, the District of Columbia, Puerto Rico, Guam and the Virgin
Islands. The Reliance Property and Casualty Companies also write insurance in
the European Community through offices in the United Kingdom, the Netherlands,
Spain and Germany, and in the Americas through offices in Canada, Mexico and
Argentina. In 1995, California, New York, Texas and Pennsylvania accounted for
approximately 14%, 10%, 8% and 5%, respectively, of direct premiums written. No
other state accounted for more than 5% of direct premiums written by the
Reliance Property and Casualty Companies. The Reliance Property and Casualty
Companies write insurance through independent agents, program agents and
brokers. No single insurance agent or broker accounts for 10% or more of the
direct premiums written by the Reliance Property and Casualty Companies.

     The Reliance Property and Casualty Companies ranked 37th among property and
casualty insurance companies and groups in terms of net premiums written during
1994, according to Best's Insurance Management Reports. A. M. Best & Company,
Inc. ('Best'), publisher of Best's Insurance Reports, Property-Casualty, has
assigned an 'A- (Excellent)' rating to the Reliance Property and Casualty
Companies. Best's ratings are based on an analysis of the financial condition
and operations of an insurance company as they relate to the industry in
general. An 'A- (Excellent)' rating is assigned to those companies which have
demonstrated excellent overall performance when compared to the norms of the
property and casualty industry. Standard & Poor's ('S&P') has assigned an 'A'
rating to the claims-paying ability of the Reliance Property and Casualty
Companies. S&P's ratings are based on a quantitative and qualitative analysis,
including consideration of ownership and support factors, if applicable. An 'A'
rating is assigned to those companies which have good financial security, but
capacity to meet policyholder obligations is somewhat susceptible to adverse
economic and underwriting conditions. The Best and S&P ratings are not designed
for the protection of investors and do not constitute recommendations to buy,
sell or hold any security. Although the Best and S&P ratings of the Reliance
Property and Casualty Companies are lower than those of many of the insurance
companies with which the Reliance Property and Casualty
 
                                       3
<PAGE>
Companies compete, management believes that the current ratings are adequate to
enable the Reliance Property and Casualty Companies to compete successfully.
 
     Reliance National.  Established in 1987, Reliance National offers a broad
range of commercial insurance products and services to selected segments of the
property and casualty market which do not lend themselves to traditional
insurance products and services. Reliance National selects market segments where
it can provide specialized coverages and services. In 1995, Reliance National
accounted for 49% of the net premiums written by the Reliance Property and
Casualty Companies. Reliance National, which conducts business nationwide, is
headquartered in New York City and has marketing offices in seven states.
Reliance National also conducts business in the European Community through
offices located in the United Kingdom, the Netherlands, Spain and Germany and in
the Americas through offices in Canada, Mexico and Argentina. Reliance National
distributes its products through national and regional insurance brokers, as
well as program agents. Net premiums written by Reliance National were $864.4
million, $889.7 million and $872.2 million for the years ended December 31,
1995, 1994 and 1993, respectively.
 
     Reliance National is organized into eight major divisions. Each division is
comprised of one or more departments which focus on a particular type of
business, program or market segment. Each department makes use of underwriters,
actuaries and other professionals to market, structure and price its products.

     Reliance National's eight major divisions are:
 
     o Risk Management Services, Reliance National's largest division, provides
       workers' compensation, commercial automobile and general liability
       coverages (primarily on a retrospectively rated, high deductible and
       captive insurance arrangement basis) to Fortune 1,000 companies,
       multinationals and the construction and transportation industries. It
       also provides environmental pollution coverages (primarily on a claims
       made basis) for consultants, contractors, transporters and certain other
       insureds.
 
     o Excess and Surplus Lines primarily provides professional liability
       insurance to architects, engineers, lawyers, healthcare providers and
       other professionals, and excess and umbrella coverages.
 
     o Financial and Specialty Coverages provides ocean marine, aviation and
       space satellite risk coverages, as well as certain non-traditional
       insurance products.
 
     o International writes predominantly commercial casualty and property
       insurance products, including specialized coverages, such as excess
       casualty, directors and officers liability and fidelity insurance, in
       certain international markets.
 
     o Financial Products provides directors and officers liability insurance,
       errors and omissions insurance and fidelity and fiduciary coverages.
 
     o Accident and Health provides high limit disability, group accident,
       blanket special risk and medical excess of loss programs.
 
     o Property primarily provides commercial property coverage focusing on
       excess and specialty commercial property.
 
     o Non-Standard Automobile, a recently constituted division, expects to
       provide primarily non-standard personal automobile insurance for drivers
       unable to obtain insurance in the standard automobile insurance market.
 
     Reliance National attempts to limit its exposure to losses through the use
of claims-made policies, retrospectively rated policies, high deductible
policies and reinsurance. Approximately 22% of Reliance National's net premiums
written during 1995 were written on a 'claims-made' basis which provides
coverage only for claims reported during the policy period or within an
established reporting period, as opposed to 'occurrence' basis policies which
provide coverage for events that occur during the policy
 
                                       4

<PAGE>
period without regard for when the claim is reported. Claims-made policies
mitigate the 'long tail' nature of the risks insured.
 
     Approximately 9% of Reliance National's net premiums written during 1995
were written on a retrospectively rated basis, whereby the insured effectively
pays for a large portion or, in many cases, all of its losses. Approximately 9%
of Reliance National's net premiums written during 1995 were written on a high
deductible basis, whereby the insured pays for all of its losses up to the
deductible amount. The use of high deductible policies results in lower premiums
and losses for Reliance National as payments for losses made by an insured under
a high deductible policy are not considered premiums or losses to an insurer.
With retrospectively rated and high deductible policies, Reliance National
provides insurance and loss control management services while reducing its
underwriting risk. Reliance National assumes a credit risk in connection with
retrospectively rated and high deductible policies and, therefore, insureds with
such policies undergo extensive credit analysis by a centralized credit
department. Collateral in the form of bank letters of credit, trust accounts or
cash collateral is generally provided by the insured to cover a significant
portion of Reliance National's credit exposure.
 
     To further limit exposures, approximately 90% of Reliance National's net
premiums written during 1995 were for policies with net retentions equal to or
lower than $1.5 million per risk. By reinsuring a large proportion of its
business, Reliance National seeks to limit its exposure to losses on each line
of business it writes. Its largest single exposure, net of reinsurance, at
December 31, 1995, was $2.5 million per occurrence. Reliance National also wrote
a finite risk policy under which its maximum loss for 1995, after application of
retrospective premium payments, could have been $3.3 million.
 
     Reliance Insurance.  Reliance Insurance offers commercial lines property
and casualty insurance products, primarily focusing on the diverse needs of
mid-sized companies nationwide. Reliance Insurance distributes its products
through approximately 2,600 independent agents, program agents and brokers.
Reliance Insurance's insureds are primarily closely held companies with 25 to
1,000 employees and annual sales of $5 million to $300 million. Reliance
Insurance underwrites a variety of commercial insurance coverages, including
multiple peril, property, general liability, commercial automobile and workers'
compensation (a majority of workers' compensation insurance is written on a
retrospectively rated basis). Reliance Insurance is headquartered in
Philadelphia and operates in 50 states, the District of Columbia, Puerto Rico,
Guam and the Virgin Islands. Net premiums written by Reliance Insurance were
$656.4 million (including $7.8 million of personal lines premiums), $631.0
million (including $20.7 million of personal lines premiums) and $668.2 million
(including $45.4 million of personal lines premiums) for the years ended
December 31, 1995, 1994 and 1993, respectively.

     Reliance Insurance is organized into the following four operating
divisions:
 
     o The Commercial Accounts division focuses on accounts with annual premiums
       of up to $1 million. This division offers a broad range of traditional
       commercial coverages, primarily written on a guaranteed cost basis.
 
     o The Special Risk division provides underwriting of excess and surplus
       coverages (generally with lower net retentions than for other commercial
       lines written by Reliance Insurance) for risks with non-standard
       exposures.
 
     o The Large Accounts division focuses on casualty exposures of accounts
       with annual premiums in excess of $1 million, where it is able to offer
       more flexible coverages through the use of retrospectively rated and high
       deductible policies. The Large Accounts division primarily provides
       workers' compensation insurance and approximately 80% of its business was
       written on a loss sensitive basis. Accounts with retrospectively rated
       and high deductible policies undergo extensive credit analysis by a
       centralized credit department and collateral in the form of bank letters
       of credit, trust accounts or cash collateral is generally provided by the
       insured to cover a significant portion of Reliance Insurance's credit
       exposure.
 
                                       5
<PAGE>
     o The Program division provides property and liability insurance programs,
       targeting homogeneous groups of insureds with particular insurance needs,
       such as auto rental companies, day care centers and municipalities. These
       programs are administered by independent program agents, with Reliance
       Insurance retaining authority for all underwriting and pricing decisions.
       Program agents market the programs, gather the initial underwriting data
       and, if authorized by Reliance Insurance, issue the policies. All claims
       and other services are handled by Reliance Insurance.
 
     The Commercial Accounts division and the Large Accounts division provide
their products and services through a decentralized network of regional and
branch offices. This organization allows the Commercial Accounts division and
the Large Accounts division to place major responsibility and accountability for
underwriting, sales, and customer service close to the insured. The Special Risk
division has three regional offices and the Program division has one central
office. Reliance Insurance manages its claims through a decentralized network of
regional and branch offices, which allows the point of service to be close to
the insured.
 
     Reliance Insurance has substantially withdrawn from traditional personal
lines, where it has had unfavorable experience and does not perceive a potential
for long-term profitability. The Reliance Property and Casualty Companies
derived 0.4% of their net premiums written from traditional personal lines in
1995, compared with 1.2% in 1994 and 2.6% in 1993.

     Reliance Surety.  Reliance Surety is a leading writer of surety and
fidelity bonds in the United States. Reliance Surety concentrates on writing
performance and payment bonds for contractors of public works projects,
commercial real estate and multi-family housing. It also writes financial
institution and commercial fidelity bonds. Reliance Surety performs extensive
credit analysis on its clients, and actively manages claims to minimize losses
and maximize recoveries. Reliance Surety has enjoyed long relationships with the
major contractors it has insured. Reliance Surety's Firemark and Express Surety
operations target smaller contractors, a market traditionally less fully
serviced by national surety companies. Reliance Surety is headquartered in
Philadelphia and conducts business nationwide through 32 branch offices and
approximately 2,250 independent agents and brokers. Net premiums written by
Reliance Surety were $139.3 million, $118.0 million and $106.7 million for the
years 1995, 1994 and 1993, respectively.
 
     Surety bonds guarantee the payment or performance of one party (called the
principal) to another party (called the obligee). This guarantee is typically
evidenced by a written agreement by the surety (e.g., Reliance Insurance
Company) to discharge the payment or performance obligations of the principal
pursuant to the underlying contract between the obligee and the principal.
Fidelity bonds insure against losses arising from employee dishonesty. Financial
institution fidelity bonds insure against losses arising from employee
dishonesty and other specifically named theft and fraud perils.
 
     Reliance Reinsurance.  Reliance Reinsurance provides casualty reinsurance
on both a treaty (blocks of risk) and facultative (individual risks) basis and,
to a lesser extent, property reinsurance on a treaty basis. The business of
Reliance Reinsurance is primarily conducted on a treaty basis. All treaty
business is marketed through reinsurance brokers who negotiate contracts of
reinsurance on behalf of the primary insurer or ceding reinsurer, while
facultative business is produced both directly and through reinsurance brokers.
While Reliance Reinsurance's treaty clients include all types and sizes of
insurers, Reliance Reinsurance typically targets treaty reinsurance for small to
medium sized regional and specialty insurance companies, as well as captives,
risk retention groups and other alternative markets, providing both pro rata and
excess of loss coverage. Reliance Reinsurance believes that this market is
subject to less competition and provides Reliance Reinsurance with an
opportunity to develop and market innovative programs where pricing is not the
key competitive factor. Reliance Reinsurance typically avoids participating in
large capacity reinsurance treaties where price is the predominant competitive
factor. It generally writes reinsurance in the 'lower layers,' the first $1
million of primary coverage, where losses are more predictable and quantifiable.
The assumed reinsurance business of the Reliance Property and Casualty Companies
is conducted nationwide and is headquartered in Philadelphia. Net premiums
written by
 
                                       6

<PAGE>
Reliance Reinsurance were $119.0 million, $125.6 million and $123.6 million for
the years ended December 31, 1995, 1994 and 1993, respectively.
 
     Title Insurance.  Commonwealth/Transnation Title writes title insurance for
residential and commercial real estate nationwide and provides escrow and
settlement services in connection with real estate closings. The National Title
Services division of Commonwealth/Transnation Title provides title services for
large and multi-state commercial transactions. Through the Commonwealth OneStop
operation, Commonwealth/Transnation Title provides national and regional lenders
with a full range of residential closing services, including title insurance
through its National Residential Title Services division, appraisal management
through its CLT Appraisal Services, Inc. subsidiary, and other real estate
related services. Commonwealth/Transnation Title is the third largest title
insurance operation in the United States, based on 1994 total premiums and fees.
Commonwealth/Transnation Title had premiums and fees of $671.9 million, $856.8
million and $893.4 million for the years 1995, 1994 and 1993, respectively.
 
     S&P has assigned an 'A' rating to the claims-paying ability of
Commonwealth/Transnation Title. S&P's ratings are based on a quantitative and
qualitative analysis, including consideration of ownership and support factors,
if applicable. An 'A' rating is assigned to those companies which have good
financial security, but capacity to meet policyholder obligations is somewhat
susceptible to adverse economic and underwriting conditions. Duff & Phelps
Credit Rating Co. ('Duff & Phelps') has assigned an 'A+' rating to the
claims-paying ability of Commonwealth/Transnation Title. Duff & Phelps ratings
are based on a quantitative and qualitative analysis, with particular emphasis
on fundamental factors, recent operating results, reserves, capitalization and
invested assets. An 'A+' rating is assigned to those companies which have a high
claims paying ability; protection factors are average and there is an
expectation of variability in risk over time due to economic and/or underwriting
conditions. The S&P and Duff & Phelps ratings are not designed for the
protection of investors and do not constitute recommendations to buy, sell or
hold any security.
 
     Commonwealth/Transnation Title is organized into ten regions with more than
325 offices covering all 50 states, as well as Puerto Rico and the Virgin
Islands. In 1995, California, Texas, Florida, New York, Pennsylvania, Washington
and Michigan accounted for approximately 11%, 11%, 10%, 7%, 7%, 6% and 6%,
respectively, of revenues for premiums and services related to title insurance.
No other state accounted for more than 5% of such revenues.

     A title insurance policy protects the insured party and certain successors
in interest against losses resulting from title defects, liens and encumbrances
existing as of the date of the policy and not specifically excepted from the
policy's provisions. Generally, a title policy is obtained by the buyer, the
mortgage lender or both at the time real property is transferred or refinanced.
The policy is written for an indefinite term for a single premium which is due
in full upon issuance of the policy. The face amount of the policy is usually
either the purchase price of the property or the amount of the loan secured by
the property. Title policies issued to lenders insure the priority position of
the lender's lien. Many lenders require title insurance as a condition to making
loans secured by real estate. Title insurers, unlike other types of insurers,
seek to eliminate future losses through the title examination process and the
closing process, and a substantial portion of the expenses of a title insurer
relate to those functions.
 
     Information Technology and Inspection Services.  RCG International, Inc.
('RCG'), a subsidiary of the Reliance Insurance Group, and its subsidiaries
primarily provide information technology and inspection services to industry,
government and non-profit organizations, principally in the United States and
Europe, as well as in Canada, Asia, South America, Africa and Australia. The
information technology services consist of computer-related professional
services to large corporate clients. The inspection services consist of pipeline
and equipment inspection and procurement services in the energy industry. RCG
and its subsidiaries had revenues of $150.8 million, $141.6 million and $116.8
million for 1995, 1994 and 1993, respectively.
 
                                       7
<PAGE>
INSURANCE CEDED
 
     All of the Reliance Insurance Group's insurance operations purchase
reinsurance to limit the Company's exposure to losses. Although the ceding of
insurance does not discharge an insurer from its primary legal liability to a
policyholder, the reinsuring company assumes a related liability and,
accordingly, it is the practice of the industry, as permitted by statutory
regulations, to treat properly reinsured exposures as if they were not exposures
for which the primary insurer is liable. The Reliance Insurance Group enters
into reinsurance arrangements that are both facultative (individual risks) and
treaty (blocks of risk). Limits and retentions are based on a number of factors,
including the previous loss history of the operating unit, policy limits and
exposure data, industry studies as to potential severity, and market terms,
conditions and capacity, and may change over time. Reliance National and
Reliance Insurance limit their exposure to individual risks by purchasing excess
of loss and quota share reinsurance, with treaty structures and net retentions
varying with the specific requirements of the line of business or program being
reinsured. In many cases, Reliance National and Reliance Insurance purchase
additional facultative reinsurance to further reduce their retentions below the
treaty levels.

     Reliance National and Reliance Insurance.  During 1995, the highest net
retention per occurrence for a casualty loss was $2.4 million for Reliance
National and $2.8 million for Reliance Insurance. In addition, in 1995 each of
Reliance National and Reliance Insurance purchased 'casualty clash' coverage to
provide protection in the event of losses incurred by multiple coverages on one
occurrence. Under such casualty clash coverages, Reliance National's highest net
retention for casualty losses up to $70 million was $5 million and Reliance
Insurance's highest net retention for casualty losses up to $60 million was $4.6
million. Where appropriate, Reliance National and Reliance Insurance obtain
facultative reinsurance to provide protection in addition to such casualty
treaty coverages.
 
     During 1995, the highest net retention per loss for a property risk was
$2.5 million for Reliance National and $3.2 million for Reliance Insurance.
Reliance National also wrote a finite risk policy under which its maximum loss
for 1995, after application of retrospective premium payments, could have been
$3.3 million. In addition, during 1995, Reliance National and Reliance Insurance
together had reinsurance for 95% of net retained property catastrophe losses in
excess of $15 million and up to $107 million. Thus, for all net retained
property losses attributable to a single catastrophe of $107 million, Reliance
National and Reliance Insurance together retained a maximum loss exposure of
$19.6 million. Any net retained property loss from a single catastrophe beyond
$107 million is not reinsured and is retained by Reliance National and Reliance
Insurance together. Renewal of property catastrophe coverage during the term of
the treaty is provided by a provision for one automatic reinstatement of the
original coverage at a contractually determined premium. The Company believes
that the limit of $107 million of net retained property losses per occurrence is
sufficient to cover its probable maximum loss in the event of a catastrophe.
 
     Catastrophe losses, including losses incurred by Reliance Reinsurance on
insurance assumed, were $25.7 million in 1995 ($78.5 million before insurance
ceded), compared to $50.1 million in 1994 ($134.0 million before insurance
ceded), which included $44.9 million ($127.0 million before insurance ceded)
arising from the January 1994 California earthquake. Catastrophe losses,
including losses incurred by Reliance Reinsurance on insurance assumed, were
$39.3 million in 1993 ($88.5 million before insurance ceded).
 
     A catastrophic event can cause losses in lines of insurance other than
property. Each of Reliance National and Reliance Insurance purchase workers'
compensation reinsurance coverage up to $200 million to provide protection
against losses under workers' compensation policies which might be caused by
catastrophes. Such workers' compensation reinsurance applies after retentions by
Reliance National of up to $500,000 and Reliance Insurance of up to $1 million.
For Reliance Insurance, any such losses over $200 million would be covered by
the property catastrophe treaty to the extent of available capacity. For
Reliance National, any such losses over $200 million and up to $270 million
would be covered by Reliance National's casualty clash coverage.
 
                                       8

<PAGE>
     Reliance National and Reliance Insurance have also purchased reinsurance to
cover aggregate retained catastrophe losses in the event of multiple
catastrophes in any one year. This reinsurance agreement provides coverage for
up to 93% of aggregate catastrophe losses between $12.5 million and $31.0
million, after applying a deductible of $3.8 million per catastrophe.
 
     In 1995, Reliance Insurance Company entered into an aggregate excess of
loss reinsurance agreement. This agreement indemnifies the Reliance Property and
Casualty Companies for ultimate net property and casualty insurance losses in
excess of a specified retention for the 1995 accident year, up to a maximum
aggregate limit of $100 million.
 
     Reliance Surety.  Reliance Surety retains 100% of losses on surety bonds up
to $2 million. For surety bonds in excess of $2 million, Reliance Surety obtains
reinsurance that provides various layers of coverage such that the maximum
retained loss for a single surety bond of $50 million is not greater than $20
million. In addition, to protect against multiple losses from any one principal
insured, Reliance Surety reinsures approximately 95% of net losses between $3
million and $30 million for any one principal insured. Thus, the maximum loss on
any one principal insured, where net retained losses by Reliance Surety after
primary reinsurance is $30 million, would not exceed $4.25 million. For fidelity
business, Reliance Surety retains 100% of each loss up to $1.5 million. Reliance
Surety has obtained reinsurance above that retention up to a maximum of $8.5
million on each loss. Where appropriate, Reliance Surety obtains facultative
reinsurance to provide protection in addition to such reinsurance.
 
     Reliance Reinsurance.  Reliance Reinsurance writes treaty property and
casualty reinsurance and facultative casualty reinsurance with limits of $1.5
million per program. Facultative property reinsurance, which was discontinued in
February 1994, was written with limits of $10 million per risk, of which the
Company retained $500,000 after the purchase of reinsurance. Reliance
Reinsurance purchases catastrophe protection for its assumed property
reinsurance of $6.75 million in excess of a $1.75 million per occurrence
retention, with a contractual provision for a reinstatement. In 1994, Reliance
Reinsurance also wrote a specific catastrophe book of business within an
aggregate limit of $17.7 million for any one event, not subject to the above
protection. As of December 31, 1994, Reliance Reinsurance ceased writing a
specific catastrophe book of business.
 
     Commonwealth/Transnation Title.  Commonwealth/Transnation Title generally
retains no more than $60 million on any one risk, although it often retains less
than this amount, with reinsurance placed with other title companies.
Commonwealth/Transnation Title also purchases reinsurance from an international
syndicate, including Lloyd's of London, which provides coverage for 80% of
losses between $20 million and $60 million, on any one risk. The largest net
loss that has been paid by Commonwealth/Transnation Title on any one risk was
approximately $4 million.

     Reinsurers of the Reliance Insurance Group.  Premiums ceded by the Reliance
Insurance Group to reinsurers were $1.3 billion and $1.2 billion in 1995 and
1994, respectively. The Reliance Insurance Group is subject to credit risk with
respect to its reinsurers, as the ceding of risk to reinsurers does not relieve
the Reliance Insurance Group of its liability to insureds. At December 31, 1995,
the Reliance Insurance Group had reinsurance recoverables of $3.2 billion,
representing estimated amounts recoverable from reinsurers pertaining to paid
claims, unpaid claims, claims incurred but not reported and unearned premiums.
In order to minimize losses from uncollectible reinsurance, the Reliance
Insurance Group places its reinsurance with a number of different reinsurers,
and utilizes a security committee and a staff of analysts to approve in advance
the reinsurers which meet its standards of financial strength and are acceptable
for use by Reliance Insurance Group. The Reliance Insurance Group holds
substantial amounts of collateral, consisting of letters of credit, trust
accounts and cash collateral, to secure recoverables from unauthorized
reinsurers. The Company had $6.4 million reserved for potentially unrecoverable
reinsurance at December 31, 1995. The Company is not aware of any impairment of
the creditworthiness of any of the Reliance Insurance Group's significant
reinsurers. While the Company is aware of financial difficulties experienced by
certain Lloyd's of London syndicates, the Company has not experienced
deterioration of payments from the Lloyd's of London syndicates from which it
has reinsurance.
 
                                       9
<PAGE>
     In 1995, the Reliance Property and Casualty Companies did not cede more
than 4% of direct premiums to any one reinsurer and no one reinsurer accounted
for more than 8.4% of total ceded premiums. The Reliance Insurance Group's ten
largest reinsurers, based on 1995 ceded premiums, are as follows:
 
<TABLE>
<CAPTION>
                                                         1995
                                                         CEDED         BEST
                                                        PREMIUM       RATING
                                                     -------------    ------
                                                     (IN MILLIONS)
<S>                                                  <C>              <C>
Lloyd's of London.................................      $ 108.1         (1)
American Re-Insurance Company.....................        105.9          A+
Hertz International Reinsurance Ltd...............         59.6         (2)
Commercial Risk Re-Insurance Company..............         42.6         (3)
Swiss Reinsurance America Corporation.............         34.4          A
Zurich Reinsurance Centre, Inc....................         32.7          A
Kemper Reinsurance Company........................         32.3          A-
International Industrial Indemnity Company
  (formerly TRN Insurance Company)................         32.1         (2)
Transatlantic Reinsurance Company.................         30.0          A+
G.I.O. Insurance Ltd..............................         29.3         (4)
</TABLE>
------------------
(1) Individual Lloyd's of London syndicates are not rated by Best.

(2) An unrated captive reinsurer that is not affiliated with the Company.
    Recoverables from such reinsurer are fully collateralized.
 
(3) Assigned a Best rating of NA-3 (Insufficient Operating Experience), as the
    reinsurer has not accumulated five years of representative operating
    experience. Recoverables from such reinsurer are fully collateralized.
 
(4) Reinsurer is not rated by Best. The S&P rating for the claims paying ability
    of such reinsurer is 'A'. Recoverables from such reinsurer are fully
    collateralized.
 
     The Reliance Insurance Group maintains no 'Funded Cover' reinsurance
agreements. 'Funded Cover' reinsurance agreements are multi-year retrospectively
rated reinsurance agreements which may not meet relevant accounting standards
for risk transfer and under which the reinsured must pay additional premiums in
subsequent years if losses in the current year exceed levels specified in the
reinsurance agreement.
 
                                       10
<PAGE>
PROPERTY AND CASUALTY LOSS RESERVES
 
     As of March 1, 1996, the Reliance Insurance Group had a staff of 101
actuaries, of whom 20 are fellows of the Casualty Actuarial Society and one is a
fellow of the Society of Actuaries. This staff regularly performs comprehensive
analyses of reserves and reviews the pricing and reserving methodologies of the
Reliance Insurance Group. Although the Company believes, in light of present
facts and current legal interpretations, that the Reliance Insurance Group's
overall property and casualty reserve levels are adequate to meet its
obligations under existing policies, due to the inherent uncertainty and
complexity of the reserving process, the ultimate liability may be more or less
than such reserves.
 
     The following tables present information relating to the liability for
unpaid claims and related expenses ('loss reserves') for the Reliance Property
and Casualty Companies. The table below provides a reconciliation of the
beginning to ending liability balances for the years ended December 31, 1995,
1994 and 1993.

<TABLE>
<CAPTION>
                                                  YEAR ENDED DECEMBER 31,
                                           --------------------------------------
                                              1995          1994          1993
                                           ----------    ----------    ----------
                                                       (IN THOUSANDS)
<S>                                        <C>           <C>           <C>
Loss reserves, beginning of year........   $5,581,483    $5,048,442    $4,571,792
Less reinsurance recoverables...........    2,453,702     2,116,914     1,868,800
                                           ----------    ----------    ----------
Net loss reserves, beginning of year....    3,127,781     2,931,528     2,702,992
                                           ----------    ----------    ----------
Provision for policy claims and related
  expenses:
     Provision for insured events of the
       current year.....................    1,163,447     1,274,649     1,195,425
     Increase in provision for insured
       events of prior years............       38,512        22,444        40,169
                                           ----------    ----------    ----------
       Total provision..................    1,201,959     1,297,093     1,235,594
                                           ----------    ----------    ----------
Payments for policy claims and related
  expenses:
     Attributable to insured events of
       the current year.................      271,915       321,538       229,778
     Attributable to insured events of
       prior years......................      868,622       780,961       776,881
                                           ----------    ----------    ----------
       Total payments...................    1,140,537     1,102,499     1,006,659
                                           ----------    ----------    ----------
Foreign currency translation............       (9,768)        1,659          (399)
                                           ----------    ----------    ----------
Net loss reserves, end of year..........    3,179,435     3,127,781     2,931,528
Plus reinsurance recoverables...........    2,679,917     2,453,702     2,116,914
                                           ----------    ----------    ----------
Loss reserves, end of year*.............   $5,859,352    $5,581,483    $5,048,442
                                           ----------    ----------    ----------
                                           ----------    ----------    ----------
</TABLE>
------------------
* Loss reserves exclude the loss reserves of title insurance operations of
  $240.8 million, $228.1 million and $204.7 million at December 31, 1995, 1994
  and 1993, respectively.

     Policy claims and settlement expenses include a provision for insured
events of prior years of $38.5 million, $22.4 million and $40.2 million for the
years 1995, 1994 and 1993, respectively. The provision for all years includes
adverse development related to prior year asbestos-related and environmental
pollution claims, which primarily affect general liability and multiple peril
lines of business. The 1995 provision also includes adverse development in other
general liability, automobile and reinsurance lines, partially offset by
favorable development in workers' compensation. The 1994 provision also included
adverse development in other general liability lines, partially offset by
favorable development in workers' compensation. The 1993 provision also included
adverse development from workers' compensation reinsurance pools, partially
offset by favorable development in other general liability lines.
 
                                       11
<PAGE>
     The table below summarizes the development of the estimated liability for
loss reserves (net of reinsurance recoverables) as of December 31 of each of the
prior ten years. The amounts shown on the top line of the table represent the
estimated liability for loss reserves (net of reinsurance recoverables) for
claims that are unpaid at the particular balance sheet date, including losses
that had been incurred but not reported to the Reliance Property and Casualty
Companies. The upper portion of the table indicates the loss reserves as they
are reestimated in subsequent periods as a percentage of the originally recorded
reserves. These estimates change as losses are paid and more accurate
information becomes available about remaining loss reserves. A redundancy exists
when the original loss reserve estimate is greater, and a deficiency exists when
the original loss reserve estimate is less, than the reestimated loss reserve at
December 31, 1995. A redundancy or deficiency indicates the cumulative
percentage change, as of December 31, 1995, of originally recorded loss
reserves. The lower portion of the table indicates the cumulative amounts paid
as of successive periods as a percentage of the original loss reserve liability.
In calculating the percentage of cumulative paid losses to the loss reserve
liability in each year, unpaid losses of General Casualty Company of Wisconsin,
a former wholly-owned subsidiary, and its subsidiaries ('General Casualty') at
April 30, 1990 (the date of sale of General Casualty), relating to 1985 through
1989, were deducted from the original liability in each year. Each amount in the
following table includes the effects of all changes in amounts for prior
periods. The table does not present accident or policy year development data.
For the years 1985 through 1994, the Company has experienced deficiencies in its
estimated liability for loss reserves. The table includes provisions
specifically made to strengthen prior years' loss reserves of $156.0 million in
1991 and $100.0 million in 1986. The Company's loss reserves during this period
have been adversely affected by a number of factors beyond the Company's control
as follows: (i) significant increases in claim settlements reflecting, among
other things, inflation in medical costs; (ii) increases in the costs of
settling claims, particularly legal expenses; (iii) more frequent resort to
litigation in connection with claims; and (iv) a widening interpretation of what
constitutes a covered claim.

<TABLE>
<CAPTION>
                                                                    DECEMBER 31,
                           ----------------------------------------------------------------------------------------------
                              1995        1994        1993        1992        1991        1990        1989        1988
                           ----------  ----------  ----------  ----------  ----------  ----------  ----------  ----------
                                                         (IN THOUSANDS, EXCEPT PERCENTAGES)
<S>                        <C>         <C>         <C>         <C>         <C>         <C>         <C>         <C>
Net liability for unpaid
 claims and related
 expenses (loss
 reserves)(1)............. $3,179,435  $3,127,781  $2,931,528  $2,702,992  $2,375,235  $1,893,421  $1,962,822  $1,644,057
Net liability reestimated
 as of:
 One year later...........         --       101.2%      100.8%      101.5%      101.3%      114.4%      104.8%      104.8%
 Two years later..........         --          --       101.7%      103.1%      104.4%      115.2%      117.0%      113.5%
 Three years later........         --          --          --       104.0%      105.7%      119.6%      118.2%      121.8%
 Four years later.........         --          --          --          --       106.7%      120.7%      120.9%      123.2%
 Five years later.........         --          --          --          --          --       122.0%      122.2%      127.8%
 Six years later..........         --          --          --          --          --          --       123.8%      128.7%
 Seven years later........         --          --          --          --          --          --          --       130.7%
 Eight years later........         --          --          --          --          --          --          --          --
 Nine years later.........         --          --          --          --          --          --          --          --
 Ten years later..........         --          --          --          --          --          --          --          --
Redundancy (Deficiency)...         --        (1.2%)      (1.7%)      (4.0%)      (6.7%)     (22.0%)     (23.8%)     (30.7%)
                           ----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
Paid (cumulative) as of:
 One year later...........         --        27.8%       26.6%       28.7%       29.0%       36.6%       40.7%       41.6%
 Two years later..........         --          --        44.9%       48.0%       48.6%       57.9%       65.4%       71.6%
 Three years later........         --          --          --        61.1%       62.1%       72.8%       82.2%       86.4%
 Four years later.........         --          --          --          --        71.6%       83.0%       91.3%       97.2%
 Five years later.........         --          --          --          --          --        90.3%       97.8%      103.0%
 Six years later..........         --          --          --          --          --          --       103.1%      107.3%
 Seven years later........         --          --          --          --          --          --          --       111.5%
 Eight years later........         --          --          --          --          --          --          --          --
 Nine years later.........         --          --          --          --          --          --          --          --
 Ten years later..........         --          --          --          --          --          --          --          --

<CAPTION>
                                       DECEMBER 31,
                           -----------------------------------
                               1987        1986        1985
                            ----------  ----------  ----------
                            (IN THOUSANDS, EXCEPT PERCENTAGES)
<S>                        <C>          <C>         <C>
Net liability for unpaid
 claims and related
 expenses (loss
 reserves)(1).............  $1,494,227  $1,425,942  $1,248,713
Net liability reestimated
 as of:
 One year later...........       107.8%      106.6%      122.1%
 Two years later..........       112.0       115.6       134.5
 Three years later........       118.5       121.6       142.5
 Four years later.........       125.0       127.2       150.4
 Five years later.........       126.7       132.3       155.1
 Six years later..........       131.8       135.1       161.2
 Seven years later........       133.1       140.0       163.5
 Eight years later........       135.4       141.4       168.5
 Nine years later.........          --       143.4       169.3
 Ten years later..........          --          --       170.8
Redundancy (Deficiency)...       (35.4%)     (43.4%)     (70.8%)
                            ----------  ----------  ----------
Paid (cumulative) as of:
 One year later...........        38.6%       42.0%       48.1%
 Two years later..........        65.8        68.4        79.1
 Three years later........        88.2        88.1        98.9
 Four years later.........        99.5       103.9       114.4
 Five years later.........       106.2       112.1       127.3
 Six years later..........       110.7       117.1       134.9
 Seven years later........       113.9       120.8       138.5
 Eight years later........       117.4       123.7       141.9
 Nine years later.........          --       126.9       144.1
 Ten years later..........          --          --       146.7
</TABLE>
------------------
(1) The gross liability for unpaid claims and related expenses was $5.9 billion
    at December 31, 1995. The gross liability for unpaid claims and related
    expenses for years 1994 and prior was redundant by $30.7 million at December
    31, 1995.
 
                                       12

<PAGE>
     The difference between the property and casualty liability for loss
reserves at December 31, 1995 and 1994 reported in the Consolidated Financial
Statements (net of reinsurance recoverables) and the liability which would be
reported in accordance with statutory accounting practices is as follows:
 
<TABLE>
<CAPTION>
                                                           DECEMBER 31,
                                                     ------------------------
                                                        1995          1994
                                                     ----------    ----------
                                                          (IN THOUSANDS)
<S>                                                  <C>           <C>
Net liability reported under statutory accounting
  practices.......................................   $3,102,688    $3,033,016
Adjustment for GAAP basis accrual of estimated
  salvage and subrogation recoveries..............      (12,758)       (9,858)
Additional discount of workers' compensation
  reserves........................................       98,799       104,145
Foreign currency translation......................       (9,294)          478
                                                     ----------    ----------
Net liability reported............................   $3,179,435    $3,127,781
                                                     ----------    ----------
                                                     ----------    ----------
</TABLE>
 
     The difference between the property and casualty liability for gross loss
reserves at December 31, 1995 and 1994 reported in the Consolidated Financial
Statements and the liability which would be reported in accordance with
statutory accounting practices is as follows:
 
<TABLE>
<CAPTION>
                                                           DECEMBER 31,
                                                     ------------------------
                                                        1995          1994
                                                     ----------    ----------
                                                          (IN THOUSANDS)
<S>                                                  <C>           <C>
Liability reported under statutory accounting
  practices.......................................   $5,717,321    $5,395,846
Adjustment for GAAP basis accrual of estimated
  salvage and subrogation recoveries..............      (14,884)      (11,984)
Additional discount of workers' compensation
  reserves........................................      179,987       198,808
Foreign currency translation......................      (23,072)       (1,187)
                                                     ----------    ----------
Liability reported................................   $5,859,352    $5,581,483
                                                     ----------    ----------
                                                     ----------    ----------
</TABLE>


     Property and casualty loss reserves are based on an evaluation of reported
claims, in addition to statistical projections of claims incurred but not
reported and loss adjustment expenses. Estimates of salvage and subrogation are
deducted from the liability for unpaid claims. Also considered are other factors
such as the promptness with which claims are reported, the history of the
ultimate liability for such claims compared with initial and intermediate
estimates, the type of insurance coverage involved, the experience of the
property and casualty industry and other economic indicators, when applicable.
 
     The establishment of loss reserves requires an estimate of the ultimate
liability based primarily on past experience. The Reliance Property and Casualty
Companies apply a variety of generally accepted actuarial techniques to
determine the estimates of ultimate liability. The techniques recognize, among
other factors, the Reliance Insurance Group's and the industry's experience with
similar business, historical trends in reserving patterns and loss payments,
pending level of unpaid claims, the cost of claim settlements, the Reliance
Insurance Group's product mix and the economic environment in which property and
casualty companies operate. Estimates are continually reviewed and adjustments
of the probable ultimate liability based on subsequent developments and new data
are included in operating results for the periods in which they are made. In
general, reserves are initially established based upon the actuarial and
underwriting data utilized to set pricing levels, and are reviewed as additional
information, including claims experience, becomes available. The Reliance
Property and Casualty Companies regularly analyze their reserves and review
their pricing and reserving methodologies, using Reliance Insurance Group
actuaries, so that future adjustments to prior year reserves can be minimized.
From time to time, the Reliance Property and Casualty Companies consult with
independent actuarial firms concerning reserving practices and levels. The
Reliance Property and Casualty Companies are required by state insurance
regulators to file, along with their statutory reports, a statement of actuarial
reserve opinion setting forth an actuary's assessment of their reserve status
and, in 1995, the Reliance Property and Casualty Companies used an independent
actuarial
 
                                       13
<PAGE>
firm to meet such requirements. However, given the complexity of this process,
reserves require continual updates. The process of estimating claims is a
complex task and the ultimate liability may be more or less than such estimates
indicate. Estimation of loss reserves for long tail lines of business is more
difficult than for short tail lines because claims may not become apparent for a
number of years, and a relatively higher proportion of ultimate losses are
considered incurred but not reported. As a result, variations in loss
development are more likely in long tail lines of business. The Reliance
Property and Casualty Companies attempt to reduce these variations in certain of
its long tail lines, primarily directors and officers liability and professional
liability, by writing policies on a claims-made basis, which mitigates the long
tail nature of the risks. The Reliance Property and Casualty Companies also
limit the potential loss from a single event through the extensive use of
reinsurance.

     In calculating the liability for loss reserves, the Reliance Property and
Casualty Companies discount workers' compensation pension claims which are
expected to have regular, periodic payment patterns. These claims are discounted
for mortality and for interest using statutory annual rates ranging from 3.5% to
6%. In addition, the reserves for claims assumed through the participation of
the Reliance Property and Casualty Companies in workers' compensation
reinsurance pools are discounted. The discounting of all claims (net of
reinsurance recoverables) resulted in a decrease in the liability for loss
reserves of $235.7 million, $245.7 million and $284.7 million at December 31,
1995, 1994 and 1993, respectively. The discount in 1995 was increased by $1.8
million, which was more than offset by discount amortization of $11.8 million,
resulting in a reduction in pre-tax income of $10.0 million. The discount in
1994 was reduced by $27.3 million plus discount amortization of $11.7 million,
resulting in a reduction in pre-tax income of $39.0 million. The discount in
1993 was increased by $7.9 million, which was more than offset by discount
amortization resulting in a decrease in pre-tax income of $4.8 million.
 
     The liability for loss reserves includes provisions for inflation in
several ways, depending on how the reserve is established. An explicit provision
for inflation is used where estimates of ultimate loss are based on pricing. A
provision for inflation is also included for certain discounted workers'
compensation claims. In these cases, the provision for inflation is based on
factors supplied by the respective workers' compensation rating bureaus which
have jurisdiction for states which provide for cost-of-living increases in
indemnity benefits. In other reserves, the analysis reflects the effect of
inflationary trends as part of the overall effect on claim costs, as well as
changes in marketing, underwriting, reporting and processing systems, claims
settlement and coverages purchased.
 
     Included in the liability for loss reserves at December 31, 1995 are $178.6
million ($130.7 million net of reinsurance recoverables) of loss reserves
pertaining to asbestos-related and environmental pollution claims. The following
table presents information relating to the net loss reserves pertaining to
asbestos-related and environmental pollution claims for the years ending
December 31, 1995, 1994 and 1993:
 
<TABLE>
<CAPTION>
                                                          DECEMBER 31,
                                                --------------------------------
                                                  1995        1994        1993
                                                --------    --------    --------
                                                         (IN THOUSANDS)
<S>                                             <C>         <C>         <C>
Net loss reserves, beginning of year.........   $130,143    $122,034    $ 94,253
Provision for policy claims and related
  expenses...................................     25,904      28,279      52,630
Payments for policy claims and related
  expenses...................................    (25,341)    (20,170)    (24,849)
                                                --------    --------    --------
Net loss reserves, end of year...............   $130,706    $130,143    $122,034
                                                --------    --------    --------
                                                --------    --------    --------
</TABLE>

     Included in the December 31, 1995 net loss reserves for asbestos-related
and environmental pollution claims are $33.8 million of loss costs for claims
incurred but not reported, $51.9 million of loss costs for reported claims and
$45.0 million of related expenses. The Company continues to receive claims
asserting injuries from hazardous materials and alleged damages to cover various
clean-up costs. Asbestos-related and environmental pollution claims primarily
affect the Company's general liability and multiple peril lines of business.
Loss and loss expense reserves for asbestos-related and environmental pollution
claims are established using analysis by specialized claims personnel, actuarial
techniques and management's judgment. Coverage and claim settlement issues,
related to policies written in prior years, such as the
 
                                       14
<PAGE>
determination that coverage exists and the definition of an occurrence, may
cause the actual loss development for asbestos-related and environmental
pollution claims to exhibit more variation than the remainder of the Company's
book of business.
 
     The Company's net paid losses and related expenses for asbestos-related and
environmental pollution claims have not been material in relation to the
Company's total net paid losses and related expenses. Net paid losses and
related expenses relating to these claims were $25.3 million (including $7.3
million of related expenses), $20.2 million (including $7.9 million of related
expenses) and $24.8 million (including $8.1 million of related expenses) for the
years ended December 31, 1995, 1994 and 1993, respectively. The increase in net
paid losses and related expenses in 1995 from 1994 reflects the settlement of a
large environmental pollution claim. Related expenses consist primarily of legal
costs. Total payments for all property and casualty insurance policy claims and
related expenses were $1.14 billion, $1.10 billion and $1.01 billion for the
years ended December 31, 1995, 1994 and 1993, respectively. The following table
presents information related to the number of insureds with asbestos-related and
environmental pollution claims outstanding:
 
<TABLE>
<CAPTION>
                                                               DECEMBER 31,
                                                               -------------
                                                               1995     1994
                                                               ----     ----
<S>                                                            <C>      <C>
Number of insureds with outstanding claims, beginning of
  year......................................................    666      661
Additional insureds with claims during the year.............    463      307
Insureds with closed or settled claims during the year......   (379)    (302)
                                                               ----     ----
Number of insureds with outstanding claims, end of year.....    750      666
                                                               ----     ----
                                                               ----     ----
</TABLE>

     The average net paid loss per insured for asbestos-related and
environmental pollution claims was $37,500 and $34,200 for the years 1995 and
1994, respectively. The increase in the average net paid loss reflects the
settlement of a large environmental pollution claim. As of December 31, 1995,
the Company was involved in approximately 46 coverage disputes (where a motion
for declaratory judgment had been filed, the resolution of which will require a
judicial interpretation of an insurance policy) related to asbestos or
environmental pollution claims. The Company is not aware of any pending
litigation or pending claim which will result in significant contingent
liabilities in these areas. The Company believes it has made reasonable
provisions for these claims, although the ultimate liability may be more or less
than such reserves. The Company believes that future losses associated with
these claims will not have a material adverse effect on its financial position,
although there is no assurance that such losses will not materially affect the
Company's results of operations for any period.
 
     Although the Company believes, in light of present facts and current legal
interpretations, that the overall loss reserves of the Reliance Property and
Casualty Companies are adequate to meet their obligations under existing
policies, due to the inherent uncertainty and complexity of the reserving
process, the ultimate liability may be more or less than such reserves.
 
PORTFOLIO INVESTMENTS
 
     Investment activities are an integral part of the business of the Reliance
Insurance Group. The Reliance Insurance Group believes that the investment
objectives of safety and liquidity, while seeking the best available return, can
be achieved by active portfolio management and intensive monitoring of
investments. Reference is made to 'Financial Review--Investment Portfolio' on
page 29 of the Company's 1995 Annual Report, which section is incorporated
herein by reference, and Note 2 to the Consolidated Financial Statements.
 
                                       15

<PAGE>
     At December 31, 1995, the Company's investment portfolio was $4.0 billion
(at cost) with 90% in fixed maturities and short-term securities (including
redeemable preferred stock and cash) and 10% in equity securities, approximately
40% of which were convertible preferred stock. The following table details the
distribution of the Company's investments at December 31, 1995:
 
<TABLE>
<CAPTION>
                                           AMORTIZED       MARKET       CARRYING
                                              COST         VALUE         VALUE
                                           ----------    ----------    ----------
                                                       (IN THOUSANDS)
<S>                                        <C>           <C>           <C>
Fixed maturities available for sale:
  Bonds and notes:
     United States government and
       government agencies and
       authorities......................   $  679,007    $  685,376    $  685,376
     States, municipalities and
       political subdivisions...........      125,967       133,093       133,093
     Foreign-government.................       30,253        31,765        31,765
     Foreign-other......................       85,889        89,380        89,380
     Public utilities...................      305,652       313,906       313,906
     Convertibles and bonds with
       warrants attached................       41,146        47,253        47,253
     All other corporate bonds and
       notes............................      679,772       699,893       699,893
  Redeemable preferred stock............      351,824       371,329       371,329
                                           ----------    ----------    ----------
                                            2,299,510     2,371,995     2,371,995
                                           ----------    ----------    ----------
Fixed maturities held for investment:
  Bonds and notes:
     States, municipalities and
       political subdivisions...........       11,822        11,797        11,822
     Foreign-government.................      133,252       139,042       133,252
     Foreign-other......................       21,000        23,008        21,000
     Public utilities...................      296,456       309,920       296,456
     All other corporate bonds and
       notes............................      149,027       158,282       149,027
  Redeemable preferred stock............      142,006       149,410       142,006
                                           ----------    ----------    ----------
                                              753,563       791,459       753,563
                                           ----------    ----------    ----------
       Total fixed maturities...........    3,053,073     3,163,454     3,125,558
                                           ----------    ----------    ----------

Equity securities(1):
  Common stocks:
     Public utilities...................        3,333         5,339         5,339
     Banks, trusts and insurance
       companies........................       38,289        38,335        38,335
     Industrial and other...............      190,863       430,275       430,275
  Nonredeemable preferred stock.........      175,569       198,719       198,719
                                           ----------    ----------    ----------
                                              408,054       672,668       672,668
                                           ----------    ----------    ----------
Short-term investments(2)...............      551,093       551,093       551,093
                                           ----------    ----------    ----------
       Total investment portfolio.......   $4,012,220    $4,387,215    $4,349,319
                                           ----------    ----------    ----------
                                           ----------    ----------    ----------
</TABLE>
 
<TABLE>
<CAPTION>
                                 COST AND CARRYING
                                       VALUE
                                 -----------------
<S>                              <C>
                                  (IN THOUSANDS)
Mortgage loans(3).............      $    17,465
Investments in real estate....          278,510
</TABLE>
------------------
(1) Does not include investment in Zenith National Insurance Corp. which is
    accounted for by the equity method and which, as of December 31, 1995, had a
    carrying value of $156.4 million and a market value of $140.5 million. See
    '--Investee Company.'
 
(2) Includes cash of $50.8 million.
 
(3) In the Company's Consolidated Financial Statements, mortgage loans are
    included in other accounts and notes receivable.
 
                                       16
<PAGE>
     The Company seeks to maintain a diversified and balanced fixed maturity
portfolio representing a broad spectrum of industries and types of securities.
The Company holds virtually no investments in commercial real estate mortgages
and has no exposure to derivative securities (other than through its ownership
of any option, warrant or convertible security with an exercise or conversion
price related to an equity security). Purchases of fixed maturity securities are
researched individually based on in-depth analysis and objective predetermined
investment criteria and are managed to achieve a proper balance of safety,
liquidity and investment yields. The Reliance Insurance Group primarily invests
in investment grade securities (those rated 'BBB' or better by S&P), and, to a
lesser extent, non-investment grade and non-rated securities.

     At December 31, 1995, the aggregate carrying value and market value of
fixed maturities (other than short-term investments and cash) that either have
been rated by S&P in the following categories or are non-rated were as follows:
 
<TABLE>
<CAPTION>
                                                              PERCENT
                                  CARRYING       MARKET      OF MARKET
                                   VALUE         VALUE         VALUE
                                 ----------    ----------    ---------
                                  (IN THOUSANDS, EXCEPT PERCENTAGES)
<S>                              <C>           <C>           <C>
AAA to A......................   $1,921,040    $1,945,017        61%
BBB...........................      846,049       857,198        27
                                 ----------    ----------       ---
   Total investment grade.....    2,767,089     2,802,215        88
                                 ----------    ----------       ---
BB to B.......................      298,964       301,697        10
CCC to C......................           80            80        --
Non-rated.....................       59,425        59,462         2
                                 ----------    ----------       ---
   Total......................   $3,125,558    $3,163,454       100%
                                 ----------    ----------       ---
                                 ----------    ----------       ---
</TABLE>
 
     Substantially all of the non-investment grade and non-rated fixed
maturities are classified as 'available for sale' and, accordingly, are carried
at quoted market value. All publicly traded investment grade securities are
priced using the Merrill Lynch Matrix Pricing model, which model is one of the
standard methods of pricing such securities in the industry. All publicly traded
non-investment grade securities, except as indicated below, are priced from
broker-dealers who make markets in these and other similar securities. For fixed
maturities not publicly traded, prices are estimated based on values obtained
from independent third parties or quoted market prices of comparable
instruments. Upon sale, such prices may not be realized when the size of a
particular investment in an issue is significant in relation to the total size
of such issue. Non-investment grade securities that are thinly traded are priced
using internally developed calculations. Such securities represent less than 1%
of the Reliance Insurance Group's fixed maturities portfolio.
 
     Equity investments are made after an in-depth analysis of individual
company's fundamentals by the Reliance Insurance Group's staff of investment
professionals. They seek to identify equities of companies with strong growth
prospects and equities that appear to be undervalued relative to the issuer's
business fundamentals, such as earnings, cash flows, balance sheet and future
prospects. Subsequent to purchase, the business fundamentals of each equity
investment are carefully monitored.

     As of March 1, 1996, the Reliance Insurance Group owned 3,578,634 shares of
common stock of Symbol Technologies, Inc. ('Symbol'), representing 13.9% of the
then outstanding common stock of Symbol. Symbol is the nation's largest
manufacturer of bar code-based data capture systems. As of March 1, 1996, the
market value of the Reliance Insurance Group's investment in Symbol was
$132,857,000 (based upon the closing price on such date as reported by the
NYSE), with a cost basis of $27,252,000. The board of directors of Symbol
includes certain executive officers of the Company.
 
     As of March 1, 1996, the Reliance Insurance Group owned 2,176,000 shares of
Human Genome Sciences, Inc. ('Human Genome'), representing 12.0% of the then
outstanding common stock of Human
 
                                       17
<PAGE>
Genome. Human Genome specializes in human genetic research designed to detect
and treat human illnesses. As of March 1, 1996, the market value of the Reliance
Insurance Group's investment in Human Genome was $84,864,000 (based upon the
last reported sales price on such date as reported by the Nasdaq National
Market), with a cost basis of $42,219,000.
 
     At December 31, 1995, the Company's real estate operations had holdings
with a carrying value of $278.5 million, which includes nine shopping centers
with an aggregate carrying value of $129.4 million, office buildings and other
commercial properties with an aggregate carrying value of $87.9 million, and
undeveloped land with a carrying value of $61.2 million.
 
     The following table presents the investment results of the Reliance
Insurance Group's investment portfolio for each of the years ended December 31,
1995, 1994, and 1993:

<TABLE>
<CAPTION>
                                                   YEAR ENDED DECEMBER 31,
                                           ----------------------------------------
                                              1995           1994           1993
                                           ----------     ----------     ----------
                                              (IN THOUSANDS, EXCEPT PERCENTAGES)
<S>                                        <C>            <C>            <C>
Fixed Maturities:
Average investments(1)..................   $3,394,988     $3,213,556     $3,050,018
Net investment income...................      243,268        221,771        210,916
Realized gains..........................       10,521         16,556         59,252
Increase (decrease) in unrealized
  gains.................................      329,457       (342,676)        51,787
Average annual yield:
     Net investment income..............         7.17%          6.90%          6.92%
     Realized gains.....................         0.31           0.51           1.94
     Increase (decrease) in unrealized
       gains............................         9.70         (10.66)          1.70
                                           ----------     ----------     ----------
Return on fixed maturities..............        17.18%         (3.25)%        10.56%
                                           ----------     ----------     ----------
                                           ----------     ----------     ----------
Equity Securities(2):
Average investments(1)..................   $  600,206     $  540,139     $  622,435
Net investment income...................       19,317         26,251         28,259
Realized gains..........................       23,811          1,611         98,944
Increase (decrease) in unrealized
  gains.................................      182,507         (6,849)        (9,670)
Average annual yield:
     Net investment income..............         3.22%          4.86%          4.54%
     Realized gains.....................         3.97           0.30          15.89
     Increase (decrease) in unrealized
       gains............................        30.40          (1.27)         (1.55)
                                           ----------     ----------     ----------
Return on equity securities.............        37.59%          3.89%         18.88%
                                           ----------     ----------     ----------
                                           ----------     ----------     ----------
Total weighted average return on fixed
  maturities and equity securities(3)...        20.25%         (2.22)%        11.97%
                                           ----------     ----------     ----------
                                           ----------     ----------     ----------
</TABLE>
------------------
(1) The average is computed by dividing the total market value of investments at
    the beginning of the period plus the individual quarter-end balances by five
    for the years ended December 31, 1995, 1994 and 1993.
 
(2) Does not include investment in Zenith National Insurance Corp. See
    '--Investee Company.'

(3) The impact on the overall rate of return of a one percent increase or
    decrease in the December 31, 1995 fixed maturity portfolio market value
    would be approximately 0.75%.
 
     The carrying value and market value at December 31, 1995 of fixed
maturities for which interest is payable on a deferred basis was $100.2 million.
 
                                       18
<PAGE>
INVESTEE COMPANY
 
     As of March 1, 1996, the Reliance Insurance Group owned 6,574,445 shares of
common stock of Zenith National Insurance Corp. ('Zenith'), representing 37.0%
of the outstanding common stock of Zenith, a California-based insurance company
with significant workers' compensation and standard commercial and personal
lines business. As of March 1, 1996 the market value of the Reliance Insurance
Group's investment in Zenith was $156,143,000 (based upon the closing price on
such date as reported by the NYSE), with a carrying value of $156,404,000.
Certain executive officers of the Company serve, at the Company's request, as
directors of Zenith. The Company's investment in Zenith is accounted for by the
equity method. See Note 3 to the Consolidated Financial Statements.
 
REGULATION
 
     The businesses of the Reliance Insurance Group, in common with those of
other insurance companies, are subject to comprehensive, detailed regulation in
the jurisdictions in which they do business. Such regulation is primarily for
the protection of policyholders rather than for the benefit of investors.
Although their scope varies from place to place, insurance laws in general grant
broad powers to supervisory agencies or officials to examine companies and to
enforce rules or exercise discretion touching almost every significant aspect of
the conduct of the insurance business. These include the licensing of companies
and agents to transact business, the imposition of monetary penalties for rules
violations, varying degrees of control over premium rates (particularly for
property and casualty companies), the forms of policies offered to customers,
financial statements, periodic reporting, permissible investments and adherence
to financial standards relating to surplus, dividends and other criteria of
solvency intended to assure the satisfaction of obligations to policyholders.
Other legislation obliges the Reliance Property and Casualty Companies to offer
policies or assume risks in various markets which they would not seek if they
were acting solely in their own interest. While such regulation and legislation
is sometimes burdensome, inasmuch as all insurance companies similarly situated
are subject to such controls, the Company does not believe that the competitive
position of the Reliance Insurance Group is adversely affected.

     State holding company acts also regulate changes of control in insurance
holding companies and transactions and dividends between an insurance company
and its parent or affiliates. Although the specific provisions vary, the holding
company acts generally prohibit a person from acquiring a controlling interest
in an insurer incorporated in the state promulgating the act or in any other
controlling person of such insurer unless the insurance authority has approved
the proposed acquisition in accordance with the applicable regulations. In many
states, including Pennsylvania, where Reliance Insurance Company is domiciled,
'control' is presumed to exist if 10% or more of the voting securities of the
insurer are owned or controlled by a party, although the insurance authority may
find that 'control' in fact does or does not exist where a person owns or
controls either a lesser or a greater amount of securities. The holding company
acts also impose standards on certain transactions with related companies, which
generally include, among other requirements, that all transactions be fair and
reasonable and that certain types of transactions receive prior regulatory
approval either in all instances or when certain regulatory thresholds have been
exceeded.
 
     In addition, other states may regulate licensed insurers as though they
were domestic insurers for insurance holding company purposes. The State of
California, for example, presently treats certain insurance subsidiaries of
Reliance Insurance Company, which are not domiciled in California, as
'commercially domiciled' California insurers. As a result, such subsidiaries are
required to comply with the holding company provisions of the California
Insurance Code, certain of which provisions are more restrictive than the
comparable law of the states of domicile of such subsidiaries. The California
laws that limit the maximum amount of dividends which may be paid without
approval by the California Insurance Department and specify the factors to be
considered by the California Insurance Department to determine if the payment of
a dividend is reasonable in relation to an insurance company's outstanding
liabilities and financial needs are substantially the same as the laws of the
states of domicile of such subsidiaries of Reliance Insurance Company that are
'commercially domiciled' California insurers.
 
     The Insurance Law of Pennsylvania, where Reliance Insurance Company is
domiciled, limits the maximum amount of dividends which may be paid without
approval by the Pennsylvania Insurance
 
                                       19

<PAGE>
Department. Under such law, Reliance Insurance Company may pay dividends during
the year equal to the greater of (a) 10% of the preceding year-end
policyholders' surplus or (b) the preceding year's statutory net income, but in
no event to exceed the amount of unassigned funds, which are defined as
'undistributed, accumulated surplus including net income and unrealized gains
since the organization of the insurer.' In addition, the Pennsylvania law
specifies factors to be considered by the Pennsylvania Insurance Department to
allow it to determine that statutory surplus after the payment of dividends is
reasonable in relation to an insurance company's outstanding liabilities and
adequate for its financial needs. Such factors include the size of the company,
the extent to which its business is diversified among several lines of
insurance, the number and size of risks insured, the nature and extent of the
company's reinsurance, and the adequacy of the company's reserves. The maximum
dividend permitted by law is not indicative of an insurer's actual ability to
pay dividends, which may be constrained by business and regulatory
considerations, such as the impact of dividends on surplus, which could affect
an insurer's ratings, competitive position, the amount of premiums that can be
written and the ability to pay future dividends. Furthermore, the Pennsylvania
Insurance Department has broad discretion to limit the payment of dividends by
insurance companies.
 
     Total common stock dividends paid by Reliance Insurance Company during
1995, 1994 and 1993 were $111.5 million, $111.5 million and $130.6 million,
respectively. During 1996, $165.4 million would be available for dividend
payments by Reliance Insurance Company under Pennsylvania law. The Company
believes such amount will be sufficient to meet its cash needs.
 
     There is no assurance that Reliance Insurance Company will meet the test in
effect from time to time under Pennsylvania law for the payment of dividends
without prior Insurance Department approval or that any requested approval will
be obtained. Reliance Insurance Company has been advised by the Pennsylvania
Insurance Department that any required prior approval will be based upon a
solvency standard and will not be unreasonably withheld. Any significant
limitation of Reliance Insurance Company's dividends would adversely affect the
Company's ability to service its debt and to pay dividends on its common stock.
 
     The National Association of Insurance Commissioners (the 'NAIC') has a
'risk-based capital' requirement for the property and casualty insurance
industry. 'Risk-based capital' refers to the determination of the amount of
statutory capital required for an insurer based on the risks assumed by the
insurer (including, for example, investment risks, credit risks relating to
reinsurance recoverables and underwriting risks) rather than just the amount of
net premiums written by the insurer. A formula that applies prescribed factors
to the various risk elements in an insurer's business is used to determine the
minimum statutory capital requirement for the insurer. An insurer having less
statutory capital than the formula calculates would be subject to varying
degrees of regulatory intervention, depending on the level of capital
inadequacy. All of the Company's statutory insurance companies have
policyholders' surplus in excess of the minimum required risk-based capital.

     Maintaining appropriate levels of statutory surplus is considered important
by the Company's management, state insurance regulatory authorities, and the
agencies that rate insurers' claims-paying abilities and financial strength.
Failure to maintain certain levels of statutory capital and surplus could result
in increased scrutiny or, in some cases, action taken by state regulatory
authorities and/or downgrades in an insurer's ratings.
 
     The Company's principal property and casualty insurance subsidiary,
Reliance Insurance Company, has operated outside of the NAIC financial ratio
range concerning liabilities to liquid assets (the 'NAIC liquidity test'). This
ratio is intended only as a guideline for an insurance company to follow. The
Company believes that it has sufficient marketable assets on hand to make timely
payment of claims and other operating requirements.
 
     On November 8, 1988, voters in California approved Proposition 103, which
requires a rollback of rates for property and casualty insurance policies issued
or renewed after November 8, 1988 of 20% from November 1987 levels and freezes
rates at such lower levels until November 1989. Proposition 103 also requires
that subsequent rate changes be justified to, and approved by, an elected
insurance commissioner.
 
                                       20
<PAGE>
     On November 28, 1994, Reliance Insurance Company and several of its
affiliates received an order from the outgoing Insurance Commissioner ordering
refunds totaling $72.3 million, inclusive of interest. On January 31, 1996, the
Company reached a settlement with the California Department of Insurance
resolving its total liability for refunds and interest under Proposition 103.
The settlement requires the Company to pay $15.6 million in refunds and interest
on certain policies issued or renewed between November 8, 1988 and November 7,
1989. Although the Company believes that the California Department of Insurance
misapplied Proposition 103 as it relates to it, the Company agreed to the
settlement to avoid prolonging the matter further. In the fourth quarter of
1995, the Company recorded a pre-tax charge of $4.0 million related to
Proposition 103. The fourth quarter 1995 charge represents the difference
between the settlement amount and the pre-tax charge of $11.6 million the
Company had taken in the fourth quarter of 1994 to provide for Proposition 103
refunds and interest.
 
     From time to time, other states have considered adopting legislation or
regulations which could adversely affect the manner in which the Company sets
rates for policies of insurance, particularly as they relate to personal lines.
No assurance can be given as to what effect the adoption of any such legislation
or regulation would have on the ability of the Company to raise its rates.

COMPETITION
 
     All of the Company's businesses are highly competitive. The property and
casualty insurance business is fragmented and no single company dominates any of
the markets in which the Company operates. The Reliance Property and Casualty
Companies compete with individual companies and with groups of affiliated
companies with greater financial resources, larger sales forces and more
widespread agency and broker relationships. Competition in the property and
casualty insurance industry is based primarily on price, product design and
service. In addition, because the Reliance Property and Casualty Companies sell
policies through independent agents and insurance brokers who are not obligated
to choose the policies of the Reliance Property and Casualty Companies over
those of another insurer, the Reliance Property and Casualty Companies must
compete for agents and brokers and for the business they control. Such
competition is based upon price, product design, policyholder service,
commissions and service to agents and brokers.
 
     Commonwealth/Transnation Title competes with other large national title
insurance companies and with smaller, locally established businesses which may
possess distinct competitive advantages. Competition in the title insurance
business is based primarily on the quality and timeliness of service. In some
market areas, abstracts and title opinions issued by attorneys are used as an
alternative to title insurance and other services provided by title companies.
In addition, certain jurisdictions have title registration systems which can
lessen the demand for title insurance.
 
SALE OF NON-CORE OPERATIONS
 
     In July 1993, the Company completed the sale of its life insurance
subsidiary, United Pacific Life Insurance Company. In the fourth quarter of
1992, the Company sold substantially all of the operating assets and insurance
brokerage, employee benefits consulting and related services businesses of its
insurance brokerage subsidiary, Frank B. Hall & Co. Inc. ('Hall'). Also in the
fourth quarter of 1992, the Company sold its mortgage insurance subsidiary,
Commonwealth Mortgage Assurance Corporation, through a public offering of 100%
of the common stock of CMAC Investment Corporation.
 
ITEM 2. PROPERTIES.
 
     The Company and its consolidated subsidiaries own and lease offices in
various locations primarily in the United States. None of these properties is
material to the Company's business. At December 31, 1995, the Company and its
consolidated subsidiaries employed approximately 8,630 persons in approximately
460 offices.
 
                                       21

<PAGE>
ITEM 3. LEGAL PROCEEDINGS.
 
     The Company and its subsidiaries are involved in certain litigation arising
in the course of their businesses, some of which involve claims of substantial
amounts. Although the ultimate outcome of these matters cannot be ascertained at
this time, and the results of legal proceedings cannot be predicted with
certainty, the Company is contesting the allegations of the complaints in each
pending action against it and believes, based on current knowledge and after
consultation with counsel, that the resolution of these matters will not have a
material adverse effect on the Consolidated Financial Statements. In addition,
the Company is subject to the litigation set forth below.
 
     In June 1989, Hall, the predecessor corporation of Prometheus Funding
Corp., a subsidiary of the Company ('Prometheus'), entered into a settlement
agreement, which is subject to court approval, with the Superintendent of
Insurance of the State of New York (the 'Superintendent'), arising out of the
insolvency of Union Indemnity Insurance Company of New York, Inc. ('Union
Indemnity'). The settlement agreement was submitted to the court for approval in
October 1989 and objections were filed by various parties. The Superintendent
has informed Prometheus that he intends to pursue court approval of the
settlement. The settlement agreement will not become effective until final
approval by the court and there is no assurance that such approval will be
obtained.
 
     See Note 15 to the Consolidated Financial Statements for additional
information concerning the above referenced legal proceedings affecting the
Company and its subsidiaries.
 
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
 
     Item 4 is not required pursuant to the reduced disclosure requirements
applicable to this Form 10-K.
 
                                    PART II
 
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS.
 
     As of March 1, 1996, all 1,000 shares of Reliance Financial's common stock
are held of record by Reliance Group Holdings and are not publicly traded. See
the information in 'Market and Dividend Information for Common Stock' on page 31
of the Reliance Financial 1995 Annual Report, which information is incorporated
herein by reference.
 
ITEM 6. SELECTED FINANCIAL DATA.
 
     Item 6 is not required pursuant to the reduced disclosure requirements
applicable to this Form 10-K.

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
 
     See the information in 'Reliance Financial Services Corporation and
Subsidiaries Financial Review' on pages 26 through 31 of the Reliance Financial
1995 Annual Report, which information is incorporated herein by reference.
 
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
 
     The financial statements of the Company and its consolidated subsidiaries,
included on pages 1 through 24 of the Reliance Financial 1995 Annual Report,
which information is incorporated herein by reference, are listed in Item 14
below.
 
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
 
     None.
 
                                    PART III
 
     Items 10, 11, 12 and 13, which comprise Part III, are not required pursuant
to the reduced disclosure requirements applicable to this Form 10-K.
 
                                       22

<PAGE>
                                    PART IV
 
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
 
(A) 1. FINANCIAL STATEMENTS.
 
     The consolidated financial statements of Reliance Financial Services
Corporation and Subsidiaries, which appear on pages 1 through 24 of the Reliance
Financial 1995 Annual Report, are incorporated herein by reference.
 
                                                               PAGE REFERENCE
                                                             -------------------
                                                                           1995
                                                                          ANNUAL
                                                             FORM 10-K    REPORT
                                                             ---------    ------
RELIANCE GROUP HOLDINGS, INC. AND SUBSIDIARIES:
  Independent Auditors' Report............................      A-1        25
  Consolidated Financial Statements at December 31, 1995
     and 1994 and for the three years ended December 31,
     1995:
       Statement of Income................................                  1
       Balance Sheet......................................                  2
       Statement of Changes in Shareholder's Equity.......                  3
       Statement of Cash Flows............................                  4
       Notes to Financial Statements (1-17)...............                5-24
 
    2. FINANCIAL STATEMENT SCHEDULES.
 
I  -- Summary of Investments -- Other Than Investments in       A-2
       Related Parties....................................
II -- Condensed Financial Information of the Registrant at
       December 31, 1995 and 1994 and for the three years
       ended December 31, 1995:
      Statement of Income.................................      A-3
      Balance Sheet.......................................      A-4
      Statement of Cash Flows.............................      A-5
III-- Supplementary Insurance Information.................      A-6
IV -- Reinsurance.........................................      A-7
VI -- Supplemental Information Concerning Property and          
       Casualty Insurance Operations......................      A-8
 
     Pursuant to Rule 1-02(w) of Regulation S-X, Reliance Insurance Group's
investment in Zenith National Insurance Corp. met the definition of a
'significant subsidiary' in 1993 and 1994. Zenith National Insurance Corp. files
financial statements with the Securities and Exchange Commission which should be
referred to for additional information.
 
                                       23

<PAGE>
    3. EXHIBITS
 
 EXHIBIT
 NUMBER                           DESCRIPTION OF EXHIBIT
---------  --------------------------------------------------------------------
     3.1   Reliance Financial's Certificate of Incorporation, as amended
           (incorporated by reference to Exhibit 3(a) to Registration Statement
           No. 2-458933).

     3.2   Amendment to Exhibit 3.1 (incorporated by reference to Exhibit 3.2
           to Registration Statement No. 2-60201).

     3.3   Amendment to Exhibit 3.1 (incorporated by reference to Exhibit 3.3
           to Reliance Financial's Annual Report on Form 10-K for the year
           ended December 31, 1983).

     3.4   Reliance Financial's By-Laws, as amended (incorporated by reference
           to Exhibit 3.4 to Reliance Financial's Annual Report on Form 10-K
           for the year ended December 31, 1990).

    *4.

    10.1   Asset Purchase Agreement, dated July 24, 1992, between Frank B. Hall
           & Co. Inc. ('Hall') and Aon Corporation ('Aon') (incorporated by
           reference to Exhibit 2.1 to Reliance Group Holdings' Quarterly
           Report on Form 10-Q for the quarter ended June 30, 1992).

    10.2   Agreement and Plan of Merger, dated as of July 24, 1992, among
           Reliance Group Holdings, Hall and Prometheus Liquidating Corp.
           (incorporated by reference to Exhibit 2.2 to Reliance Group
           Holdings' Quarterly Report on Form 10-Q for the quarter ended June
           30, 1992).

    10.3   Employee Benefit Agreement, dated July 24, 1992, among Reliance
           Group Holdings and Aon (incorporated by reference to Exhibit 28.2 to
           Reliance Group Holdings' Quarterly Report on Form 10-Q for the
           quarter ended June 30, 1992).

    10.4   Amendment, dated November 2, 1992, to Exhibit 10.1 (incorporated by
           reference to Exhibit 2.1 to Reliance Group Holdings' Quarterly
           Report on Form 10-Q for the quarter ended September 30, 1992).

    10.5   Settlement Agreement and Release, dated June 2, 1989, between James
           P. Corcoran, Superintendent of Insurance of the State of New York,
           as Liquidator of Union Indemnity Insurance Company of New York, Inc.
           and Hall (now known as Prometheus Funding Corp.)(incorporated herein
           by reference to Exhibit 10.01 to Frank B. Hall & Co. Inc.'s report
           on Form 10-Q for the quarter ended June 30, 1989).

    13.1   Reliance Financial 1995 Annual Report.

    27.1   Financial Data Schedule.

 **+28.1   Schedule P from the statutory reports of the Reliance Property and
           Casualty Companies.
 
------------------
 * Neither Reliance Financial nor its subsidiaries is a party to any instrument
   relating to long-term debt under which the securities authorized exceed 10%
   of the total consolidated assets of Reliance Financial and its subsidiaries.
   Copies of instruments relating to long-term debt of lesser amounts will be
   provided to the Securities and Exchange Commission upon request.
 
 + Schedule P from the statutory reports of Zenith National Insurance Corp.,
   37.0% of the outstanding common stock of which is owned by the Reliance
   Insurance Group, is omitted herefrom as such Schedule P is filed directly
   with the Securities and Exchange Commission.
 
** Incorporated by reference to Exhibit 28.1 to the Reliance Group Holdings
   Annual Report on Form 10-K for the year ended Decembr 31, 1995.
 
(B) REPORTS ON FORM 8-K.
 
     No reports on Form 8-K were filed during the year ended December 31, 1995.
 
                                       24

<PAGE>
                                   SIGNATURES
 
     PURSUANT TO THE REQUIREMENTS OF SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934, THE REGISTRANT HAS DULY CAUSED THIS REPORT TO BE SIGNED ON
ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, ON THE 27TH DAY OF
MARCH, 1996.
 
                                          RELIANCE GROUP HOLDINGS, INC.
 
                                          BY:         SAUL P. STEINBERG
                                             -------------------------------
                                                      SAUL P. STEINBERG
                                                    CHAIRMAN OF THE BOARD
                                                 AND CHIEF EXECUTIVE OFFICER
 
     PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THIS
REPORT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS ON BEHALF OF THE
REGISTRANT AND IN THE CAPACITIES AND ON THE DATES INDICATED.

      SIGNATURES                         TITLE                         DATE
----------------------  ----------------------------------------  --------------
  SAUL P. STEINBERG     Chairman of the Board, Principal          March 27, 1996
----------------------    Executive Officer and Director
  SAUL P. STEINBERG       
 
   GEORGE E. BELLO      Principal Accounting Officer              March 27, 1996
----------------------    and Director
   GEORGE E. BELLO        
 
  LOWELL C. FREIBERG    Principal Financial Officer               March 27, 1996
----------------------    and Director
  LOWELL C. FREIBERG      
 
   GEORGE R. BAKER      Director                                  March 27, 1996
----------------------
   GEORGE R. BAKER
 
   DENNIS A. BUSTI      Director                                  March 27, 1996
----------------------
   DENNIS A. BUSTI
 
  THOMAS P. GERRITY     Director                                  March 27, 1996
----------------------
  THOMAS P. GERRITY
 
                                       25

<PAGE>
      SIGNATURES                         TITLE                         DATE
----------------------  ----------------------------------------  --------------
   JEWELL J. MCCABE     Director                                  March 27, 1996
----------------------
   JEWELL J. MCCABE
 
   IRVING SCHNEIDER     Director                                  March 27, 1996
----------------------
   IRVING SCHNEIDER
 
 BERNARD L. SCHWARTZ    Director                                  March 27, 1996
----------------------
 BERNARD L. SCHWARTZ
 
  RICHARD E. SNYDER     Director                                  March 27, 1996
----------------------
  RICHARD E. SNYDER
 
                        Director                                  March 27, 1996
----------------------
THOMAS J. STANTON, JR.
 
 ROBERT M. STEINBERG    Director                                  March 27, 1996
----------------------
 ROBERT M. STEINBERG
 
  JAMES E. YACOBUCCI    Director                                  March 27, 1996
----------------------
  JAMES E. YACOBUCCI
 
                                       26

<PAGE>
INDEPENDENT AUDITORS' REPORT
 
Board of Directors and Shareholder
Reliance Financial Services Corporation
New York, New York
 
We have audited the consolidated financial statements of Reliance Financial
Services Corporation (a subsidiary of Reliance Group Holdings, Inc.) and
subsidiaries as of December 31, 1995 and 1994, and for each of the three years
in the period ended December 31, 1995, and have issued our report thereon dated
February 26, 1996 (which report includes an explanatory paragraph concerning the
adoption of Statement of Financial Accounting Standards No. 109); such financial
statements and report are included in your 1995 Annual Report and are
incorporated herein by reference. Our audits also included the financial
statement schedules of Reliance Financial Services Corporation, 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 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.
 
/s/ DELOITTE & TOUCHE LLP
New York, New York
February 26, 1996
 
                                      A-1

<PAGE>
                                                                      SCHEDULE I
                                                                     ITEM 14(A)2
 
RELIANCE FINANCIAL SERVICES CORPORATION AND SUBSIDIARIES
SUMMARY OF INVESTMENTS--OTHER THAN INVESTMENTS IN RELATED PARTIES
DECEMBER 31, 1995

<TABLE>
<CAPTION>
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
             COLUMN A                  COLUMN B      COLUMN C        COLUMN D
--------------------------------------------------------------------------------
                                                                 AMOUNT AT WHICH
                                                                  SHOWN IN THE
        TYPE OF INVESTMENT               COST         VALUE       BALANCE SHEET
--------------------------------------------------------------------------------
(In thousands)
<S>                                   <C>           <C>          <C>
Fixed maturities available for sale:
  Bonds and notes:
     United States government and
       government agencies and
       authorities.................   $  679,007    $  685,376      $   685,376
     States, municipalities and
       political subdivisions......      125,967       133,093          133,093
     Foreign--government...........       30,253        31,765           31,765
     Foreign--other................       85,889        89,380           89,380
     Public utilities..............      305,652       313,906          313,906
     Convertibles and bonds with
       warrants attached...........       41,146        47,253           47,253
     All other corporate bonds and
       notes.......................      679,772       699,893          699,893
  Redeemable preferred stocks......      351,824       371,329          371,329
                                      ----------    ----------    -------------
                                       2,299,510     2,371,995        2,371,995
                                      ----------    ----------    -------------
Fixed maturities held for
  investment:
  Bonds and notes:
     States, municipalities and
       political subdivisions......       11,822        11,797           11,822
     Foreign--government...........      133,252       139,042          133,252
     Foreign--other................       21,000        23,008           21,000
     Public utilities..............      296,456       309,920          296,456
     All other corporate bonds and
       notes.......................      149,027       158,282          149,027
  Redeemable preferred stocks......      142,006       149,410          142,006
                                      ----------    ----------    -------------
                                         753,563       791,459          753,563
                                      ----------    ----------    -------------

Equity securities:
  Common stocks:
     Public utilities..............        3,333         5,339            5,339
     Banks, trusts and insurance
       companies...................       38,289        38,335           38,335
     Industrial and other..........      190,863       430,275          430,275
  Nonredeemable preferred stocks...      175,569       198,719          198,719
                                      ----------    ----------    -------------
                                         408,054       672,668          672,668
                                      ----------    ----------    -------------
Short-term investments.............      500,284       500,284          500,284
                                      ----------    ----------    -------------
Cash...............................       50,809        50,809           50,809
                                      ----------    ----------    -------------
                                                    $4,387,215
                                                    ----------
                                                    ----------
Mortgage loans(1)..................       17,465                         17,465
Investments in real estate.........      278,510                        278,510
                                      ----------                  -------------
                                      $4,308,195                    $ 4,645,294
                                      ----------                  -------------
                                      ----------                  -------------
</TABLE>
 
(1) In the consolidated financial statements, mortgage loans are included in
    other accounts and notes receivable.
 
                                      A-2

<PAGE>
                                                                     SCHEDULE II
                                                                     ITEM 14(A)2
RELIANCE FINANCIAL SERVICES CORPORATION
(PARENT COMPANY)
 
STATEMENT OF INCOME
 
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31                    1995        1994        1993
----------------------------------------------------------------------
(In thousands)
<S>                                   <C>         <C>         <C>
REVENUES:
Dividends from subsidiaries........   $111,467    $111,467    $130,639
Interest and other income,
  principally from affiliates......     20,821      15,136      18,560
                                      --------    --------    --------
                                       132,288     126,603     149,199
                                      --------    --------    --------
EXPENSES:
Interest...........................     15,811      15,244      18,423
General and administrative.........      1,191       2,051         537
                                      --------    --------    --------
                                        17,002      17,295      18,960
                                      --------    --------    --------
                                       115,286     109,308     130,239
Income tax (provision) benefit.....       (859)        760         140
                                      --------    --------    --------
INCOME BEFORE EQUITY IN
  SUBSIDIARIES AND INVESTEE
  COMPANY..........................    114,427     110,068     130,379
Equity in subsidiaries (net income
  less dividends received).........     58,056      18,992      42,529
Equity in investee company.........      7,792       9,478      12,441
Loss on disposal of discontinued
  operations of investee company...     (4,497)         --          --
                                      --------    --------    --------
INCOME BEFORE EXTRAORDINARY ITEM
  AND CUMULATIVE EFFECT
  OF ACCOUNTING CHANGE.............    175,778     138,538     185,349
Extraordinary item--early
  extinguishment of debt...........     (3,363)         --      (3,666)
Cumulative effect of change in
  accounting for subsidiaries'
  income taxes.....................         --          --      24,335
                                      --------    --------    --------
NET INCOME.........................   $172,415    $138,538    $206,018
                                      --------    --------    --------
                                      --------    --------    --------
</TABLE>
 
                                      A-3

<PAGE>
                                                                     SCHEDULE II
                                                                     ITEM 14(A)2
RELIANCE FINANCIAL SERVICES CORPORATION
(PARENT COMPANY)
 
BALANCE SHEET
 
<TABLE>
<CAPTION>
ASSETS                  DECEMBER 31         1995          1994
--------------------------------------------------------------
(Dollars in thousands, except
per-share amount)
<S>                                   <C>           <C>
Cash...............................   $       39    $    8,923
Investments in subsidiaries........    1,388,975     1,051,404
Notes receivable from parent
  company..........................      184,108       187,065
Other assets.......................       14,443        19,238
                                      ----------    ----------
                                      $1,587,565    $1,266,630
                                      ----------    ----------
                                      ----------    ----------
<CAPTION>
LIABILITIES AND SHAREHOLDER'S EQUITY
--------------------------------------------------------------
<S>                                   <C>           <C>
Accounts payable and accrued
  expenses.........................   $    2,122    $    2,137
Federal income taxes due to parent
  company..........................       18,866        19,818
Term loans and short-term debt.....      158,500       100,000
Debentures and notes...............       40,318        80,596
                                      ----------    ----------
                                         219,806       202,551
                                      ----------    ----------

Contingencies and commitments
 
Shareholder's equity:
  Common stock, par value $.10
     per-share, 1,000 shares
     authorized, issued and
     outstanding...................           --            --
  Additional paid-in capital.......      678,349       678,502
  Retained earnings (including
     undistributed net income of
     subsidiaries of $328,356 and
     $267,005).....................      496,839       434,676
  Net unrealized gain (loss) on
     investments of subsidiaries...      219,356       (27,881)
  Net unrealized loss on foreign
     currency translation of
     subsidiaries..................      (26,785)      (21,218)
                                      ----------    ----------
                                       1,367,759     1,064,079
                                      ----------    ----------
                                      $1,587,565    $1,266,630
                                      ----------    ----------
                                      ----------    ----------
</TABLE>
 
                                      A-4

<PAGE>
                                                                     SCHEDULE II
                                                                     ITEM 14(A)2
RELIANCE FINANCIAL SERVICES CORPORATION
(PARENT COMPANY)
 
STATEMENT OF CASH FLOWS
 
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31                     1995         1994         1993
-------------------------------------------------------------------------
(In thousands)
<S>                                   <C>          <C>          <C>
CASH FLOWS FROM OPERATING
  ACTIVITIES:
Net income.........................   $ 172,415    $ 138,538    $ 206,018
Equity in undistributed net income
  of subsidiaries and investee
  company..........................     (61,351)     (28,470)     (79,305)
Other--net.........................       3,574          821        3,319
                                      ---------    ---------    ---------
                                        114,638      110,889      130,032
                                      ---------    ---------    ---------
CASH FLOWS FROM INVESTING
  ACTIVITIES:
Capital contribution to
  subsidiary.......................     (33,631)     (15,000)      (5,000)
Other--net.........................          --           --          755
                                      ---------    ---------    ---------
                                        (33,631)     (15,000)      (4,245)
                                      ---------    ---------    ---------
CASH FLOWS FROM FINANCING
  ACTIVITIES:
Decrease (increase) in notes
  receivable from parent
  company--net.....................       2,957      (17,365)     (14,212)
Increase (decrease) in term loans
  and short-term debt--net.........      58,500       (5,000)     105,000
Repurchases of debentures..........     (40,348)      (9,125)     (80,060)
Debt issuance costs................      (1,000)          --       (6,750)
Dividends..........................    (110,000)     (85,187)    (100,064)
                                      ---------    ---------    ---------
                                        (89,891)    (116,677)     (96,086)
                                      ---------    ---------    ---------
Increase (decrease) in cash........      (8,884)     (20,788)      29,701
Cash, beginning of year............       8,923       29,711           10
                                      ---------    ---------    ---------
Cash, end of year..................   $      39    $   8,923    $  29,711
                                      ---------    ---------    ---------
                                      ---------    ---------    ---------
</TABLE>

SUPPLEMENTAL DISCLOSURE OF NON-CASH FINANCING ACTIVITIES:
In 1994 and 1993, non-cash dividends of $24,813,000 and $99,936,000 were
recorded as a reduction in notes receivable from parent company.
 
                                      A-5
<PAGE>
                                                                    SCHEDULE III
                                                                     ITEM 14(A)2
 
RELIANCE FINANCIAL SERVICES CORPORATION AND SUBSIDIARIES
 
SUPPLEMENTARY INSURANCE INFORMATION

<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------------------------------------
   COLUMN A      COLUMN B    COLUMN C     COLUMN D     COLUMN E    COLUMN F    COLUMN G    COLUMN H    COLUMN I    COLUMN J
----------------------------------------------------------------------------------------------------------------------------
                                                                                         AMORTIZATION
                                                                                              OF
                 DEFERRED     UNPAID                                            POLICY     DEFERRED
                  POLICY    CLAIMS AND                                NET     CLAIMS AND    POLICY       OTHER
                ACQUISITION   RELATED     UNEARNED     PREMIUMS    INVESTMENT SETTLEMENT  ACQUISITION  INSURANCE   PREMIUMS
    SEGMENT        COSTS     EXPENSES     PREMIUMS      EARNED      INCOME     EXPENSES      COSTS     EXPENSES     WRITTEN
----------------------------------------------------------------------------------------------------------------------------
(In thousands)
<S>             <C>         <C>          <C>          <C>          <C>        <C>          <C>        <C>        <C>
YEAR ENDED
  DECEMBER 31,
  1995:
 
Property and
  casualty.....  $194,648   $ 5,859,352  $ 1,299,465  $ 1,774,591  $247,343   $ 1,201,959  $411,979   $197,112   $ 1,779,040
                                                                                                                 -----------
                                                                                                                 -----------
Title..........        --       240,777           --      671,947    27,946        58,486        --    629,051
                 ---------  -----------  -----------  -----------  ---------  -----------  ---------  ---------
                 $194,648   $ 6,100,129  $ 1,299,465  $ 2,446,538  $275,289   $ 1,260,445  $411,979   $826,163
                 ---------  -----------  -----------  -----------  ---------  -----------  ---------  ---------
                 ---------  -----------  -----------  -----------  ---------  -----------  ---------  ---------
Year Ended
  December 31,
  1994:
 
Property and
  casualty.....  $181,938   $ 5,581,483  $ 1,288,454  $ 1,777,318  $232,299   $ 1,297,093  $387,924   $183,755   $ 1,764,290
                                                                                                                 -----------
                                                                                                                 -----------
Title..........        --       228,063           --      856,774    26,613        75,867        --    776,149
                 ---------  -----------  -----------  -----------  ---------  -----------  ---------  ---------
                 $181,938   $ 5,809,546  $ 1,288,454  $ 2,634,092  $258,912   $ 1,372,960  $387,924   $959,904
                 ---------  -----------  -----------  -----------  ---------  -----------  ---------  ---------
                 ---------  -----------  -----------  -----------  ---------  -----------  ---------  ---------

Year Ended
  December 31,
  1993:
 
Property and
  casualty.....  $178,129   $ 5,048,442  $ 1,276,331  $ 1,571,539  $226,517   $ 1,235,594  $327,437   $174,609   $ 1,770,597
                                                                                                                 -----------
                                                                                                                 -----------
Title..........        --       204,695           --      893,364    24,282        81,803        --    780,138
                 ---------  -----------  -----------  -----------  ---------  -----------  ---------  ---------
                 $178,129   $ 5,253,137  $ 1,276,331  $ 2,464,903  $250,799   $ 1,317,397  $327,437   $954,747
                 ---------  -----------  -----------  -----------  ---------  -----------  ---------  ---------
                 ---------  -----------  -----------  -----------  ---------  -----------  ---------  ---------
</TABLE>
 
                                      A-6

<PAGE>
                                                                     SCHEDULE IV
                                                                     ITEM 14(A)2
 
RELIANCE FINANCIAL SERVICES CORPORATION AND SUBSIDIARIES

REINSURANCE

<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------
                 COLUMN A             COLUMN B      COLUMN C     COLUMN D      COLUMN E      COLUMN F
------------------------------------------------------------------------------------------------------
                                                     CEDED        ASSUMED                   PERCENTAGE
                                                      TO           FROM                     OF AMOUNT
                                       GROSS         OTHER         OTHER         NET         ASSUMED
                                       AMOUNT      COMPANIES     COMPANIES      AMOUNT       TO NET
------------------------------------------------------------------------------------------------------
(Dollars in thousands)
<S>                                  <C>           <C>           <C>          <C>           <C>
YEAR ENDED DECEMBER 31, 1995:
Premiums:
  Property and casualty............   $2,707,978    $1,284,023    $ 350,636    $1,774,591      19.76%
  Title............................      671,222         1,649        2,374       671,947        .35
                                      ----------    ----------    ---------    ----------
                                      $3,379,200    $1,285,672    $ 353,010    $2,446,538      14.43
                                      ----------    ----------    ---------    ----------
                                      ----------    ----------    ---------    ----------
Year Ended December 31, 1994:
Premiums:
  Property and casualty............   $2,630,549    $1,198,629    $ 345,398    $1,777,318      19.43
  Title............................      854,679         1,370        3,465       856,774        .40
                                      ----------    ----------    ---------    ----------
                                      $3,485,228    $1,199,999    $ 348,863    $2,634,092      13.24
                                      ----------    ----------    ---------    ----------
                                      ----------    ----------    ---------    ----------
Year Ended December 31, 1993:
Premiums:
  Property and casualty............   $2,531,478    $1,264,361    $ 304,422    $1,571,539      19.37
  Title............................      891,843         1,411        2,932       893,364        .33
                                      ----------    ----------    ---------    ----------
                                      $3,423,321    $1,265,772    $ 307,354    $2,464,903      12.47
                                      ----------    ----------    ---------    ----------
                                      ----------    ----------    ---------    ----------
</TABLE>
 
                                      A-7

<PAGE>
                                                                     SCHEDULE VI
                                                                     ITEM 14(A)2
 
RELIANCE FINANCIAL SERVICES CORPORATION AND SUBSIDIARIES

SUPPLEMENTAL INFORMATION CONCERNING PROPERTY AND CASUALTY INSURANCE OPERATIONS

<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------------------------------
   COLUMN A       COLUMN B      COLUMN C      COLUMN D      COLUMN E     COLUMN F     COLUMN G          COLUMN H
----------------------------------------------------------------------------------------------------------------------
                                                                                                       CLAIMS AND
                                 UNPAID                                                           SETTLEMENT EXPENSES
                  DEFERRED       CLAIMS                                                           INCURRED RELATED TO
  AFFILIATION      POLICY         AND         DISCOUNT                                  NET       --------------------
     WITH        ACQUISITION    RELATED     DEDUCTED IN     UNEARNED      EARNED     INVESTMENT    CURRENT      PRIOR
  REGISTRANT        COSTS       EXPENSES    COLUMN C (a)    PREMIUMS     PREMIUMS      INCOME        YEAR       YEARS
----------------------------------------------------------------------------------------------------------------------
(In thousands)
<S>              <C>           <C>          <C>            <C>          <C>          <C>          <C>          <C>
Consolidated
  subsidiaries:
YEAR ENDED
  DECEMBER 31,
  1995.........   $  194,648   $5,859,352     $235,664     $1,299,465   $1,774,591    $ 247,343   $1,163,447   $38,512
                 -----------   ----------   ------------   ----------   ----------   ----------   ----------   -------
                 -----------   ----------   ------------   ----------   ----------   ----------   ----------   -------
Year Ended
  December 31,
  1994.........   $  181,938   $5,581,483     $245,737     $1,288,454   $1,777,318    $ 232,299   $1,274,649   $22,444
                 -----------   ----------   ------------   ----------   ----------   ----------   ----------   -------
                 -----------   ----------   ------------   ----------   ----------   ----------   ----------   -------
Year Ended
  December 31,
  1993.........   $  178,129   $5,048,442     $284,681     $1,276,331   $1,571,539    $ 226,517   $1,195,425   $40,169
                 -----------   ----------   ------------   ----------   ----------   ----------   ----------   -------
                 -----------   ----------   ------------   ----------   ----------   ----------   ----------   -------

<CAPTION>
------------------------------------------------------
------------------------------------------------------
   COLUMN A        COLUMN I      COLUMN J     COLUMN K
------------------------------------------------------
                 AMORTIZATION      PAID
                 OF DEFERRED      CLAIMS
  AFFILIATION       POLICY         AND
     WITH        ACQUISITION    SETTLEMENT    PREMIUMS
  REGISTRANT         COST        EXPENSES     WRITTEN
------------------------------------------------------
(In thousands)
<S>              <C>            <C>          <C>
Consolidated
  subsidiaries:
YEAR ENDED
  DECEMBER 31,
  1995.........    $411,979     $1,140,537   $1,779,040
                 ------------   ----------   ----------
                 ------------   ----------   ----------
Year Ended
  December 31,
  1994.........    $387,924     $1,102,499   $1,764,290
                 ------------   ----------   ----------
                 ------------   ----------   ----------
Year Ended
  December 31,
  1993.........    $327,437     $1,006,659   $1,770,597
                 ------------   ----------   ----------
                 ------------   ----------   ----------
</TABLE>
 
(a) Liabilities for unpaid claims and related expenses for short-duration
    contracts which are expected to have fixed, periodic payment patterns are
    discounted to present values using statutory annual rates ranging from
    3 1/2% to 6% in 1995 and 1994 and 3% to 6% in 1993. Discount shown relates
    to net liabilities for unpaid claims and related expenses for short-duration
    contracts which are expected to have fixed, periodic payment patterns.
 
                                      A-8

<PAGE>
                                 EXHIBIT INDEX
 
                                                                      SEQUENTIAL
EXHIBIT                                                                  PAGE
NUMBER                      DESCRIPTION OF EXHIBIT                      NUMBER
-------  ------------------------------------------------------------ ----------
    3.1  Reliance Financial's Certificate of Incorporation, as
         amended (incorporated by reference to Exhibit 3(a) to
         Registration Statement No. 2-458933).

    3.2  Amendment to Exhibit 3.1 (incorporated by reference to
         Exhibit 3.2 to Registration Statement No. 2-60201).

    3.3  Amendment to Exhibit 3.1 (incorporated by reference to
         Exhibit 3.3 to Reliance Financial's Annual Report on Form
         10-K for the year ended December 31, 1983).

    3.4  Reliance Financial's By-Laws, as amended (incorporated by
         reference to Exhibit 3.4 to Reliance Financial's Annual
         Report on Form 10-K for the year ended December 31, 1990).

   *4.

   10.1  Asset Purchase Agreement, dated July 24, 1992, between Frank
         B. Hall & Co. Inc. ('Hall') and Aon Corporation ('Aon')
         (incorporated by reference to Exhibit 2.1 to Reliance Group
         Holdings' Quarterly Report on Form 10-Q for the quarter
         ended June 30, 1992).

   10.2  Agreement and Plan of Merger, dated as of July 24, 1992,
         among Reliance Group Holdings, Hall and Prometheus
         Liquidating Corp. (incorporated by reference to Exhibit 2.2
         to Reliance Group Holdings' Quarterly Report on Form 10-Q
         for the quarter ended June 30, 1992).

   10.3  Employee Benefit Agreement, dated July 24, 1992, among
         Reliance Group Holdings and Aon (incorporated by reference
         to Exhibit 28.2 to Reliance Group Holdings' Quarterly Report
         on Form 10-Q for the quarter ended June 30, 1992).

   10.4  Amendment, dated November 2, 1992, to Exhibit 10.1
         (incorporated by reference to Exhibit 2.1 to Reliance Group
         Holdings' Quarterly Report on Form 10-Q for the quarter
         ended September 30, 1992).

   10.5  Settlement Agreement and Release, dated June 2, 1989,
         between James P. Corcoran, Superintendent of Insurance of
         the State of New York, as Liquidator of Union Indemnity
         Insurance Company of New York, Inc. and Hall (now known as
         Prometheus Funding Corp.)(incorporated herein by reference
         to Exhibit 10.01 to Frank B. Hall & Co. Inc.'s report on
         Form 10-Q for the quarter ended June 30, 1989).

   13.1  Reliance Financial 1995 Annual Report.

   27.1  Financial Data Schedule.

**+28.1  Schedule P from the statutory reports of the Reliance
         Property and Casualty Companies.
 
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 * Neither Reliance Financial nor its subsidiaries is a party to any instrument
   relating to long-term debt under which the securities authorized exceed 10%
   of the total consolidated assets of Reliance Financial and its subsidiaries.
   Copies of instruments relating to long-term debt of lesser amounts will be
   provided to the Securities and Exchange Commission upon request.
 
 + Schedule P from the statutory reports of Zenith National Insurance Corp.,
   37.0% of the outstanding common stock of which is owned by the Reliance
   Insurance Group, is omitted herefrom as such Schedule P is filed directly
   with the Securities and Exchange Commission.
 
** Incorporated by reference to Exhibit 28.1 to the Reliance Group Holdings
   Annual Report on Form 10-K for the year ended Decembr 31, 1995.