<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
 
                  FOR THE FISCAL YEAR ENDED DECEMBER 31, 1996
 
                                       OR
 
           [  ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF
                      THE SECURITIES EXCHANGE ACT OF 1934
 
FOR THE TRANSITION PERIOD FROM  ...................... TO  .....................
 
COMMISSION FILE NUMBER               1-7080
 
                    RELIANCE FINANCIAL SERVICES CORPORATION
 
             (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
 
<TABLE>
<S>                                      <C>
               DELAWARE                                51-0113548
     (STATE OR OTHER JURISDICTION                   (I.R.S. EMPLOYER
   OF INCORPORATION OR ORGANIZATION)               IDENTIFICATION NO.)
</TABLE>
 
<TABLE>
<S>                                    <C>
           PARK AVENUE PLAZA
          55 EAST 52ND STREET
          NEW YORK, NEW YORK                            10055
    (ADDRESS OF PRINCIPAL EXECUTIVE                  (ZIP CODE)
               OFFICES)
 
      REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (212) 909-1100
</TABLE>
 
          SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
 
<TABLE>
<CAPTION>
                                             NAME OF EACH EXCHANGE ON WHICH
          TITLE OF EACH CLASS                          REGISTERED
---------------------------------------  ---------------------------------------
<S>                                      <C>

  Senior Reset Notes, Due December 1,            New York Stock Exchange
                  2000
</TABLE>
 
          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, 1997, 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 1996 Annual Report--Parts I, II
        and IV.
 
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------

<PAGE>
                                     PART I
 
ITEM 1. BUSINESS.
 
GENERAL
 
     Reliance Financial Services Corporation (the 'Company' or 'Reliance
Financial') is a holding company whose principal business is the ownership of
property and casualty and title insurance companies. The Company also owns an
information technology consulting 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 Surety and Reliance Reinsurance. 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 international markets. In 1996,
Reliance National accounted for 45% 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. In 1996, Reliance Insurance accounted for 38% of the net
premiums written by the Reliance Property and Casualty Companies. Reliance
Surety is a leading writer of surety bonds and fidelity bonds in the United
States. Reliance Reinsurance primarily provides casualty treaty and facultative
reinsurance for small to medium sized regional and specialty insurance companies
located in the United States. The Reliance Property and Casualty Companies
accounted for $1.8 billion (70%) of the 1996 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 and their respective
subsidiaries ('Commonwealth/Transnation Title'). Commonwealth/Transnation Title
is the third largest title insurance operation in the United States, in terms of
1995 total premiums and fees. Commonwealth/Transnation Title accounted for
$780.2 million (30%) of the Reliance Insurance Group's 1996 premiums earned.
 
     The Company's Information technology consulting unit is RCG Information
Technology, Inc. ('RCG Information Technology'), which had revenues of $136.7
million in 1996.
 
     Business segment information for the years ended December 31, 1996, 1995
and 1994 is set forth in Note 15 to the Company's consolidated financial
statements (the 'Consolidated Financial Statements'), which segment information
is included in the Company's 1996 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 Company owns all of the common stock of Reliance Insurance Company. The
common stock of Reliance Insurance Company is pledged 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, Transnation Title Insurance Company and RCG Information
Technology. 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 following table sets forth the amount
of net premiums written in each line of business for the years ended December
31, 1996, 1995 and 1994 by the Reliance Property and Casualty Companies four
principal operations: Reliance National, Reliance Insurance, Reliance Surety and
Reliance Reinsurance.
<TABLE>
<CAPTION>
                                              1996                                           1995                         1994
                          --------------------------------------------   --------------------------------------------   --------
                                                   RELIANCE                                       RELIANCE
                          RELIANCE   RELIANCE      SURETY/               RELIANCE   RELIANCE      SURETY/               RELIANCE
                          NATIONAL   INSURANCE   REINSURANCE    TOTAL    NATIONAL   INSURANCE   REINSURANCE    TOTAL    NATIONAL
                          --------   ---------   ------------   ------   --------   ---------   ------------   ------   --------
                                                            (IN MILLIONS, EXCEPT PERCENTAGES)
<S>                       <C>        <C>         <C>            <C>      <C>        <C>         <C>            <C>      <C>
General Liability.......    $368       $  99         $ --       $  467     $371       $  98         $ --       $  469     $347
Automobile..............      86         179           --          265       88         152           --          240      109
Workers' Compensation...     127         123           --          250      141         125           --          266      179
Multiple Peril..........      20         192           --          212       26         159           --          185       32
Surety..................      --          --          159          159       --          --          139          139       --
Reinsurance.............      --          --          151          151       --          --          119          119       --
Ocean and Inland
 Marine.................      83          46           --          129       66          53           --          119       44
Fire and Allied.........      22          42           --           64       34          34           --           68       26
Accident and Health.....      62          --           --           62       58          --           --           58       52
Involuntary.............      25          19           --           44       53          28           --           81       82
Other...................      41           2           --           43       27           8           --           35       19
                             ---         ---          ---       ------      ---         ---          ---       ------      ---
 Total..................    $834       $ 702         $310       $1,846     $864       $ 657         $258       $1,779     $890
                             ---         ---          ---       ------      ---         ---          ---       ------      ---
                             ---         ---          ---       ------      ---         ---          ---       ------      ---
Percent of Total........     45%         38%          17%         100%      49%         37%          14%         100%      50%
                             ---         ---          ---       ------      ---         ---          ---       ------      ---
                             ---         ---          ---       ------      ---         ---          ---       ------      ---
 
<CAPTION>

 
                                        RELIANCE
                          RELIANCE      SURETY/
                          INSURANCE   REINSURANCE    TOTAL
                          ---------   ------------   ------
 
<S>                       <C>         <C>            <C>
General Liability.......    $  76         $ --       $  423
Automobile..............      135           --          244
Workers' Compensation...      134           --          313
Multiple Peril..........      148           --          180
Surety..................       --          118          118
Reinsurance.............       --          125          125
Ocean and Inland
 Marine.................       60           --          104
Fire and Allied.........       24           --           50
Accident and Health.....       --           --           52
Involuntary.............       32           --          114
Other...................       22           --           41
                              ---          ---       ------
 Total..................    $ 631         $243       $1,764
                              ---          ---       ------
                              ---          ---       ------
Percent of Total........      36%          14%         100%
                              ---          ---       ------
                              ---          ---       ------
</TABLE>
 
                                       2
<PAGE>
     The following table sets forth underwriting results for the Reliance
Property and Casualty Companies for the years ended December 31, 1996, 1995 and
1994.
 
<TABLE>
<CAPTION>
                                  YEAR ENDED DECEMBER 31,
                            ------------------------------------
                              1996          1995          1994
                            --------      --------      --------
                                (IN MILLIONS, EXCEPT RATIOS)
<S>                         <C>           <C>           <C>
Net premiums written...     $1,846.2      $1,779.0      $1,764.3
Underwriting loss(1)...        (38.4)(2)     (45.6)        (97.3)
Combined ratio.........        101.6%(2)     101.8%(3)     104.4%(3)
</TABLE>
 
------------------
(1) Includes catastrophe losses (net of reinsurance) for the years ended
    December 31, 1996, 1995 and 1994 of $19.9 million, $25.7 million and $50.1
    million, respectively.
(2) Excludes a charge of $134.0 million (7.4 combined ratio points) to increase
    net loss reserves for asbestos-related and environmental pollution claims
    for business written in or before 1987. The actual underwriting loss was

    $172.4 million and the combined ratio was 109.0%.
(3) Excludes a charge of $4.0 million in 1995 and $11.6 million in 1994
    pertaining to Proposition 103.
 
     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>
1996........   $1,848,159   $885,799   $3,228,792   $5,669,276   $ 4,482,220   $1,187,056    $  1,410,484
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
</TABLE>
 
------------------
* Includes Reliance Insurance Company's investment in title insurance operations
  of $199.6 million at December 31, 1996.
 
     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,
Sweden, Spain, Germany, in the Americas through offices in Canada, Mexico and
Argentina and in the Pacific Rim through an office in Singapore. In 1996,
California, New York, Texas and Florida accounted for approximately 15%, 10%, 7%
and 6%, 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.
 
     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 Companies compete,
management believes that the current ratings are adequate to enable the Reliance
Property and Casualty Companies to compete successfully.
 
                                       3
<PAGE>
     Reliance National.  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, such as providing captive insurance
arrangements to the alternative risk markets. In addition, Reliance National
provides non-standard personal automobile insurance and certain traditional
insurance products, including guaranteed cost workers' compensation insurance.
In 1996, Reliance National accounted for 45% 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 offices in
fifteen states. Reliance National also conducts business in the European
Community through offices located in the United Kingdom, the Netherlands,
Sweden, Spain and Germany, in the Americas through offices in Canada, Mexico and
Argentina and in the Pacific Rim through an office in Singapore. Reliance
National distributes its products through national and regional insurance
brokers, program agents and, with respect to non-standard automobile insurance,
independent insurance agents. Net premiums written by Reliance National were
$833.7 million, $864.4 million and $889.7 million for the years ended December
31, 1996, 1995 and 1994, 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 Casualty Risk Services, Reliance National's largest division, provides
       workers' compensation, commercial automobile and general liability
       coverages to Fortune 1,000 companies, multinationals and the construction
       and transportation industries. These coverages are provided on a
       retrospectively rated and high deductible basis, and to the alternative
       risk markets on a captive insurance arrangement basis. This division also
       provides environmental pollution coverages (primarily on a claims made
       basis) for consultants, contractors, transporters and certain other
       insureds. In early 1997, this division began providing comprehensive
       insurance coverages for public and private entities engaged in the
       development of infrastructure projects outside of North America and
       guaranteed cost workers' compensation coverages.
 
     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. This division also provides ocean marine
       coverages in domestic and certain international markets.

 
     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 aviation and space satellite
       risk coverages, as well as certain non-traditional insurance products.
 
     o Financial Products provides directors and officers liability insurance,
       errors and omissions insurance and fidelity and fiduciary coverages in
       the domestic market.
 
     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 primarily provides non-standard personal
       automobile insurance for drivers unable to obtain insurance in the
       standard automobile insurance market. This division was formed in
       February of 1996 and had a minimal amount of net premiums written in
       1996.
 
     Reliance National attempts to limit its exposure to losses through the use
of claims-made policies, reinsurance and policies written on a loss sensitive
basis, which include retrospectively rated and high deductible policies.
Approximately 26% of Reliance National's net premiums written during 1996 were
written on a 'claims-made' basis which provides coverage only for claims
reported during the policy
 
                                       4
<PAGE>
period or within an established reporting period, as opposed to 'occurrence'
basis policies which provide coverage for events that occur during the policy
period without regard for when the claim is reported. Claims-made policies
mitigate the 'long tail' nature of the risks insured.
 
     Approximately 7% of Reliance National's net premiums written during 1996
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 14%
of Reliance National's net premiums written during 1996 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 that is independent from the underwriting process. Collateral in the
form of bank letters of credit, trust accounts or cash is generally provided by
the insured to cover a significant portion of Reliance National's credit

exposure.
 
     To further limit exposures, the vast majority of Reliance National's net
premiums written during 1996 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.
 
     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 100 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. In 1996, Reliance Insurance accounted for 38% of the net premiums
written by the Reliance Property and Casualty Companies. 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 $702.2 million, $656.4 million and $631.0 million for
the years ended December 31, 1996, 1995 and 1994, respectively.
 
     Reliance Insurance is organized into the following three 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 Specialty division provides underwriting of excess and surplus
       coverages (generally with lower net retentions than for other commercial
       lines written by Reliance Insurance) for insureds with non-standard
       exposures. This division also provides property and liability insurance
       programs to homogeneous groups of insureds with particular insurance
       needs, such as auto rental companies, day care centers and
       municipalities. These programs are administered directly by Reliance
       Insurance or by independent program agents, with Reliance Insurance
       retaining authority for all underwriting and pricing decisions and
       handling claims and other services. When utilized, program agents market
       the programs, gather the initial underwriting data and, if authorized by
       Reliance Insurance, issue the policies.
 
     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 69% 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,
 
                                       5

<PAGE>
       trust accounts or cash collateral is generally provided by the insured to
       cover a significant portion of Reliance Insurance's credit exposure.
 
     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 Specialty
division has three regional offices. 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 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 commercial
surety, 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 a large majority of the contractors and accounts it has
insured. Reliance Surety's Firemark and Express Surety operations target smaller
contractors and accounts, 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
$159.2 million, $139.3 million and $118.0 million for the years 1996, 1995 and
1994, 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 Surety) 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 risk 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 Reliance Reinsurance were $151.1 million, $119.0 million and $125.6
million for the years ended December 31, 1996, 1995 and 1994, 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(Registered) 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 

                                       6

<PAGE>
States, based on 1995 total premiums and fees. Commonwealth/Transnation Title
had premiums and fees of $780.2 million, $671.9 million and $856.8 million for
the years 1996, 1995 and 1994, 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 nine regions with more
than 325 offices and over 4,000 independent agents covering all 50 states, as
well as Puerto Rico and the Virgin Islands. In 1996, California, Texas, Florida,
New York, Pennsylvania, Washington and Michigan accounted for approximately 11%,
11%, 10%, 8%, 6%, 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. Most lenders require title insurance as a condition to making
loans secured by real estate. Title insurers, unlike other types of insurers,
seek to eliminate 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 Consulting Services.  RCG Information Technology
provides a full range of information technology services to large corporate
clients in the United States. Such services include providing supplemental
computer professional staffing, Year 2000 solutions, software outsourcing,
computer programming and development services and other computer consulting
services. RCG Information Technology had revenues of $136.7 million, $106.5
million and $90.0 million for 1996, 1995 and 1994, respectively.
 
INSURANCE CEDED
 
     All of the Reliance Insurance Group's insurance operations purchase
reinsurance to limit the Company's exposure to losses. The ceding of insurance
does not discharge an insurer from its primary legal liability to a
policyholder, even though the reinsuring company assumes a related liability.
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. Where appropriate, the Reliance Insurance Group limits its 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, the Reliance
Insurance Group purchases additional facultative reinsurance to further reduce
its retentions below treaty levels.
 
     Reinsurers of the Reliance Insurance Group.  Premiums ceded by the Reliance
Insurance Group to reinsurers were $1.6 billion and $1.3 billion in 1996 and
1995, 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
 
                                       7
<PAGE>
Reliance Insurance Group of its liability to insureds. At December 31, 1996, the
Reliance Insurance Group had reinsurance recoverables of $3.6 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, 1996. 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.
 
     In 1996, the Reliance Property and Casualty Companies did not cede more
than 4.4% of direct premiums to any one reinsurer and no one reinsurer accounted
for more than 8.6% of total ceded premiums. The Reliance Insurance Group's ten
largest reinsurers, based on 1996 ceded premiums, are as follows:
 
<TABLE>
<CAPTION>
                                                                     
                                                                     
                                                         1996        
                                                         CEDED         BEST  
                                                        PREMIUM       RATING 
                                                     -------------    ------ 
                                                     (IN MILLIONS)
<S>                                                  <C>              <C>
American Re-Insurance Company.....................      $ 133.3          A+
Hertz International Reinsurance Ltd...............         63.3         (1)
Swiss Reinsurance America Corporation.............         56.5          A
Commercial Risk Re-Insurance Company..............         46.5         (2)
Zurich Reinsurance Centre, Inc....................         46.0          A
General Reinsurance Corporation...................         45.3          A++
Kemper Reinsurance Company........................         43.5          A-
Everest Reinsurance Company.......................         33.5          A
Lloyd's of London.................................         30.8         (3)
Cedar Hill Assurance Company......................         30.8         (4)
</TABLE>
 
------------------
(1) An unrated captive reinsurer that is not affiliated with the Company.
    Recoverables from such reinsurer are fully collateralized.
(2) Assigned a Best rating of NR-2 (Less than Minimum Size and/or Operating
    Experience), as the reinsurer does not meet the minimum size and/or
    operating experience requirement. Recoverables from such reinsurer are fully
    collateralized.
(3) Individual Lloyd's of London syndicates are not rated by Best.
(4) Assigned a Best rating of NR-2 (Less than Minimum Size and/or Operating
    Experience), as the reinsurer does not meet the minimum size and/or
    operating experience requirement. The vast majority of 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.
 
PROPERTY AND CASUALTY LOSS RESERVES
 
     The Reliance Insurance Group's staff of over 100 actuaries 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.
 
                                       8
<PAGE>
     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, 1996,
1995 and 1994.
 
<TABLE>
<CAPTION>
                                                  YEAR ENDED DECEMBER 31,
                                           --------------------------------------
                                              1996          1995          1994
                                           ----------    ----------    ----------
                                                       (IN THOUSANDS)
<S>                                        <C>           <C>           <C>
Loss reserves, beginning of year........   $5,859,352    $5,581,483    $5,048,442
Less reinsurance recoverables...........    2,679,917     2,453,702     2,116,914
                                           ----------    ----------    ----------
Net loss reserves, beginning of year....    3,179,435     3,127,781     2,931,528
                                           ----------    ----------    ----------
Provision for policy claims and related
  expenses:
     Provision for insured events of the
     current year.......................    1,211,672     1,163,447     1,274,649
     Increase in provision for insured
     events of prior years..............      138,665(1)     38,512        22,444
                                           ----------    ----------    ----------
       Total provision..................    1,350,337     1,201,959     1,297,093
                                           ----------    ----------    ----------
Payments for policy claims and related
  expenses:
     Attributable to insured events of
     the current year...................      298,838       271,915       321,538
     Attributable to insured events of
     prior years........................      926,996       868,622       780,961
                                           ----------    ----------    ----------
       Total payments...................    1,225,834     1,140,537     1,102,499
                                           ----------    ----------    ----------
Foreign currency translation............        7,668        (9,768)        1,659
                                           ----------    ----------    ----------

Net loss reserves, end of year..........    3,311,606     3,179,435     3,127,781
Plus reinsurance recoverables...........    2,953,814     2,679,917     2,453,702
                                           ----------    ----------    ----------
Loss reserves, end of year(2)...........   $6,265,420    $5,859,352    $5,581,483
                                           ----------    ----------    ----------
                                           ----------    ----------    ----------
</TABLE>
 
------------------
(1) The 1996 increase in provision for insured events of prior years includes a
    pretax charge of $134.0 million to increase net loss reserves for
    asbestos-related and environmental pollution claims for business written in
    or before 1987.
(2) Loss reserves exclude the loss reserves of title insurance operations of
    $264.8 million, $240.8 million and $228.1 million at December 31, 1996, 1995
    and 1994, respectively.
 
     Policy claims and settlement expenses include a provision for insured
events of prior years of $138.7 million, $38.5 million and $22.4 million for the
years 1996, 1995 and 1994, respectively. The provision for all years includes
adverse development related to prior year asbestos-related and environmental
pollution claims, which primarily affect general liability, multiple peril and
reinsurance lines of business, and includes a pretax charge of $134.0 million in
1996 to increase net loss reserves for asbestos-related and environmental
pollution claims for business written in or before 1987. The 1996 provision also
includes adverse development in the automobile line, offset by favorable
development in workers' compensation. The 1995 provision also included 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.
 
                                       9
<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, 1996. A redundancy or deficiency indicates the cumulative
percentage change, as of December 31, 1996, 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 1986 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 1986 through 1995, 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 $134.0 million in
1996, $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,
                           ----------------------------------------------------------------------------------------------
                              1996        1995        1994        1993        1992        1991        1990        1989
                           ----------  ----------  ----------  ----------  ----------  ----------  ----------  ----------
                                                         (IN THOUSANDS, EXCEPT PERCENTAGES)
<S>                        <C>         <C>         <C>         <C>         <C>         <C>         <C>         <C>
Net liability for unpaid
 claims and related
 expenses (loss
 reserves)(1)............. $3,311,606  $3,179,435  $3,127,781  $2,931,528  $2,702,992  $2,375,235  $1,893,421  $1,962,822
Net liability reestimated
 as of:
 One year later...........         --      104.4%      101.2%      100.8%      101.5%      101.3%      114.4%      104.8%
 Two years later..........         --          --      104.8%      101.7%      103.1%      104.4%      115.2%      117.0%
 Three years later........         --          --          --      104.2%      104.0%      105.7%      119.6%      118.2%
 Four years later.........         --          --          --          --      107.2%      106.7%      120.7%      120.9%
 Five years later.........         --          --          --          --          --      110.5%      122.0%      122.2%
 Six years later..........         --          --          --          --          --          --      127.0%      123.8%
 Seven years later........         --          --          --          --          --          --          --      129.1%
 Eight years later........         --          --          --          --          --          --          --          --
 Nine years later.........         --          --          --          --          --          --          --          --
 Ten years later..........         --          --          --          --          --          --          --          --
Redundancy (Deficiency)...         --      (4.4%)      (4.8%)      (4.2%)      (7.2%)     (10.5%)     (27.0%)     (29.1%)
                           ----------  ----------  ----------  ----------  ----------  ----------  ----------  ----------
Paid (cumulative) as of:
 One year later...........         --       29.2%       27.8%       26.6%       28.7%       29.0%       36.6%       40.7%
 Two years later..........         --          --       46.8%       44.9%       48.0%       48.6%       57.9%       65.4%
 Three years later........         --          --          --       58.4%       61.1%       62.1%       72.8%       82.2%
 Four years later.........         --          --          --          --       70.5%       71.6%       83.0%       91.3%
 Five years later.........         --          --          --          --          --       78.1%       90.3%       97.8%
 Six years later..........         --          --          --          --          --          --       95.5%      103.1%
 Seven years later........         --          --          --          --          --          --          --      106.8%
 Eight years later........         --          --          --          --          --          --          --          --
 Nine years later.........         --          --          --          --          --          --          --          --
 Ten years later..........         --          --          --          --          --          --          --          --
 
<CAPTION>
 
                               1988        1987        1986

                            ----------  ----------  ----------
 
<S>                        <C>          <C>         <C>
Net liability for unpaid
 claims and related
 expenses (loss
 reserves)(1).............  $1,644,057  $1,494,227  $1,425,942
Net liability reestimated
 as of:
 One year later...........      104.8%      107.8%      106.6%
 Two years later..........      113.5%      112.0%      115.6%
 Three years later........      121.8%      118.5%      121.6%
 Four years later.........      123.2%      125.0%      127.2%
 Five years later.........      127.8%      126.7%      132.3%
 Six years later..........      128.7%      131.8%      135.1%
 Seven years later........      130.7%      133.1%      140.0%
 Eight years later........      138.0%      135.4%      141.4%
 Nine years later.........          --      143.9%      143.4%
 Ten years later..........          --          --      152.5%
Redundancy (Deficiency)...     (38.0%)     (43.9%)     (52.5%)
                            ----------  ----------  ----------
Paid (cumulative) as of:
 One year later...........       41.6%       38.6%       42.0%
 Two years later..........       71.6%       65.8%       68.4%
 Three years later........       86.4%       88.2%       88.1%
 Four years later.........       97.2%       99.5%      103.9%
 Five years later.........      103.0%      106.2%      112.1%
 Six years later..........      107.3%      110.7%      117.1%
 Seven years later........      111.5%      113.9%      120.8%
 Eight years later........      114.3%      117.4%      123.7%
 Nine years later.........          --      119.7%      126.9%
 Ten years later..........          --          --      128.8%
</TABLE>
 
------------------
(1) The gross liability for unpaid claims and related expenses was $6.3 billion
    at December 31, 1996. The gross liability for unpaid claims and related
    expenses for years 1995 and prior was deficient by $55.0 million at December
    31, 1996.
 
                                       10
<PAGE>
     The difference between the property and casualty liability for loss
reserves at December 31, 1996 and 1995 reported in the Company's 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,
                                                     ------------------------
                                                        1996          1995
                                                     ----------    ----------

                                                          (IN THOUSANDS)
<S>                                                  <C>           <C>
Net liability reported under statutory accounting
  practices.......................................   $3,228,792    $3,102,688
Adjustment for GAAP basis accrual of estimated
  salvage and subrogation recoveries..............      (10,925)      (12,758)
Additional discount of workers' compensation
  reserves........................................       93,739        98,799
Foreign currency translation......................           --        (9,294)
                                                     ----------    ----------
  Net liability reported..........................   $3,311,606    $3,179,435
                                                     ----------    ----------
                                                     ----------    ----------
</TABLE>
 
     The difference between the property and casualty liability for gross loss
reserves at December 31, 1996 and 1995 reported in the Company's consolidated
financial statements and the liability which would be reported in accordance
with statutory accounting practices is as follows:
 
<TABLE>
<CAPTION>
                                                           DECEMBER 31,
                                                     ------------------------
                                                        1996          1995
                                                     ----------    ----------
                                                          (IN THOUSANDS)
<S>                                                  <C>           <C>
Liability reported under statutory accounting
  practices.......................................   $6,097,395    $5,717,321
Adjustment for GAAP basis accrual of estimated
  salvage and subrogation recoveries..............      (13,884)      (14,884)
Additional discount of workers' compensation
  reserves........................................      181,909       179,987
Foreign currency translation......................           --       (23,072)
                                                     ----------    ----------
  Liability reported..............................   $6,265,420    $5,859,352
                                                     ----------    ----------
                                                     ----------    ----------
</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.
Since 1992, the Reliance Property and Casualty Companies have used an
independent actuarial firm to meet such requirements. However, given the
complexity of this process, reserves will require continual updates 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 long tail 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, variation in loss development is more
 
                                       11
<PAGE>
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 $230.0 million, $235.7 million and $245.7 million at December 31,
1996, 1995 and 1994, respectively. The discount in 1996 was increased by $5.4
million which was more than offset by discount amortization of $11.1 million,
resulting in a reduction in pre-tax income of $5.7 million. 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 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, 1996 are $238.3
million ($213.0 million net of reinsurance recoverables) of loss reserves
pertaining to asbestos-related and environmental pollution claims for business
written in or before 1987. The following table presents information relating to
the net loss reserves pertaining to asbestos-related and environmental pollution
claims for business written in or before 1987 for the years ending December 31,
1996, 1995 and 1994:
 
<TABLE>
<CAPTION>
                                                                              DECEMBER 31,
                                                                    --------------------------------
                                                                      1996        1995        1994
                                                                    --------    --------    --------
                                                                             (IN THOUSANDS)
<S>                                                                 <C>         <C>         <C>
Net loss reserves, beginning of year.............................   $101,008    $100,404    $ 97,040
Provision for policy claims and related expenses.................    135,801      23,547      17,996
Payments for policy claims and related expenses..................    (23,762)    (22,943)    (14,632)
                                                                    --------    --------    --------
Net loss reserves, end of year...................................   $213,047    $101,008    $100,404
                                                                    --------    --------    --------
                                                                    --------    --------    --------
</TABLE>
 
     The 1996 provision for policy claims and related expenses includes a pretax
charge of $134.0 million to increase net loss reserves for asbestos-related and
environmental pollution claims for business written in or before 1987. In the
second quarter of 1996, the Company completed a study of its asbestos-related
and environmental pollution reserves. The study entailed a detailed review of
the Company's claims, analysis of new industry data, review of policies and
classes of business written by the Company and industry at large, and new
actuarial methodologies for projecting ultimate losses based on payment patterns
and claims analyses. The loss reserve levels established represent the Company's
estimate of its ultimate losses, based on current information and actuarial
methodologies.
 
     Included in the December 31, 1996 net loss reserves pertaining to
asbestos-related and environmental pollution claims for business written in or
before 1987 are $78.2 million of loss costs for claims incurred but not
reported, $49.2 million of loss costs for reported claims and $85.6 million of
related expenses.

 
                                       12
<PAGE>
     The following table presents information related to the number of insureds
with asbestos-related and environmental pollution claims outstanding for
business written in or before 1987:
 
<TABLE>
<CAPTION>
                                                                                        DECEMBER 31,
                                                                                       --------------
                                                                                       1996      1995
                                                                                       ----      ----
<S>                                                                                    <C>       <C>
Number of insureds with outstanding claims, beginning of year.....................      447       477
Additional insureds with claims during the year...................................      153       188
Insureds with closed or settled claims during the year............................     (252)     (218)
                                                                                       ----      ----
Number of insureds with outstanding claims, end of year...........................      348       447
                                                                                       ----      ----
                                                                                       ----      ----
</TABLE>
 
     The average net paid loss per insured for asbestos-related and
environmental pollution claims for business written in or before 1987 was
$50,200 and $61,100 for the years 1996 and 1995, respectively.
 
     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, multiple peril and reinsurance lines of business. For business
written in or before 1987, coverage and claim settlement issues, such as the
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.
 
     Since 1987, the Company has generally excluded coverage for most types of
asbestos-related and environmental pollution claims from its general liability
policies, other than policies specifically intended to provide environmental
pollution and asbestos removal coverages. Policies written by the Company after
1987 ('post-1987 A&E business') which specifically intend to provide
environmental pollution coverages are written primarily on a claims made basis
and those which specifically intend to provide asbestos removal coverages are
written on an occurrence basis, generally with liability limits of $1.1 million
(net of reinsurance), including defense costs.
 
     The liability for loss reserves at December 31, 1996 also included $40.8
million ($27.8 million net of reinsurance recoverables) of loss reserves
pertaining to post-1987 A&E business. The following table presents information
relating to the net loss reserves pertaining to claims for post-1987 A&E
business for the years ending December 31, 1996, 1995 and 1994:
 
<TABLE>

<CAPTION>
                                                                              DECEMBER 31,
                                                                     -------------------------------
                                                                      1996        1995        1994
                                                                     -------     -------     -------
                                                                             (IN THOUSANDS)
<S>                                                                  <C>         <C>         <C>
Net loss reserves, beginning of year..............................   $29,698     $29,739     $24,994
Provision for policy claims and related expenses..................     5,857       2,357      10,283
Payments for policy claims and related expenses...................    (7,791)     (2,398)     (5,538)
                                                                     -------     -------     -------
Net loss reserves, end of year....................................   $27,764     $29,698     $29,739
                                                                     -------     -------     -------
                                                                     -------     -------     -------
</TABLE>
 
     The December 31, 1996 net loss reserves pertaining to claims for post-1987
A&E business include $13.2 million of loss costs for claims incurred but not
reported, $4.3 million of loss costs for reported claims and $10.3 million of
related expenses.
 
     The following table presents information related to the number of insureds
with claims outstanding for post-1987 A&E business:
 
<TABLE>
<CAPTION>
                                                                                        DECEMBER 31,
                                                                                       --------------
                                                                                       1996      1995
                                                                                       ----      ----
<S>                                                                                    <C>       <C>
Number of insureds with outstanding claims, beginning of year.....................      303       189
Additional insureds with claims during the year...................................      385       275
Insureds with closed or settled claims during the year............................     (214)     (161)
                                                                                       ----      ----
Number of insureds with outstanding claims, end of year...........................      474       303
                                                                                       ----      ----
                                                                                       ----      ----
</TABLE>
 
     The average net paid loss per insured for claims for post-1987 A&E business
was $20,500 and $5,600 for the years 1996 and 1995, respectively.
 
     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.
 
                                       13
<PAGE>
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 1996 Annual Report, which section is incorporated
herein by reference, and Note 2 to the Consolidated Financial Statements.
 
     At December 31, 1996, the Company's investment portfolio was $4.2 billion
(at cost) with 90% in fixed maturities and short-term securities (including
redeemable preferred stock and cash) and 10% in equity securities, approximately
24% of which were convertible preferred stock. The following table details the
distribution of the Company's investments at December 31, 1996:
 
<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......................   $  704,386    $  702,472    $  702,472
     States, municipalities and
       political subdivisions...........      128,874       132,163       132,163
     Foreign-government.................       42,955        46,172        46,172
     Foreign-other......................       96,051       103,976       103,976
     Public utilities...................      374,404       373,389       373,389
     Convertibles and bonds with
       warrants attached................       87,625        87,134        87,134
     All other corporate bonds and
       notes............................      662,385       654,809       654,809
  Redeemable preferred stocks...........      499,249       523,554       523,554
                                           ----------    ----------    ----------
                                            2,595,929     2,623,669     2,623,669
                                           ----------    ----------    ----------
Fixed maturities held for investment:
  Bonds and notes:
     States, municipalities and
       political subdivisions...........        8,382         8,169         8,382
     Foreign-government.................      145,065       150,622       145,065
     Foreign-other......................       17,978        20,172        17,978
     Public utilities...................      355,567       357,377       355,567
     All other corporate bonds and
       notes............................      148,026       150,059       148,026
  Redeemable preferred stocks...........      112,818       115,339       112,818
                                           ----------    ----------    ----------
                                              787,836       801,738       787,836
                                           ----------    ----------    ----------
       Total fixed maturities...........    3,383,765     3,425,407     3,411,505
                                           ----------    ----------    ----------
Equity securities(1):

  Common stocks:
     Public utilities...................        3,333         4,928         4,928
     Banks, trusts and insurance
       companies........................       24,622        38,284        38,284
     Industrial and other...............      292,365       556,463       556,463
  Nonredeemable preferred stocks........      115,733       116,931       116,931
                                           ----------    ----------    ----------
                                              436,053       716,606       716,606
                                           ----------    ----------    ----------
Short-term investments(2)...............      355,967       355,967       355,967
                                           ----------    ----------    ----------
       Total investment portfolio.......   $4,175,785    $4,497,980    $4,484,078
                                           ----------    ----------    ----------
                                           ----------    ----------    ----------
</TABLE>
 
<TABLE>
<CAPTION>
                                 COST AND CARRYING
                                       VALUE
                                 -----------------
<S>                              <C>
                                  (IN THOUSANDS)
Mortgage Loans(3).............      $    19,506
Investments in real estate....          275,237
</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, 1996, had a
    carrying value of $157.9 million and a market value of $180.0 million. See
    '--Investee Company.'
 
(2) Includes cash of $36.8 million.
 
(3) In the Company's Consolidated Financial Statements, mortgage loans are
    included in premiums and other receivables.
 
                                       14
<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, 1996, 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......................   $2,056,676    $2,066,354        60%
BBB...........................      761,756       765,619        23
                                 ----------    ----------       ---
   Total investment grade.....    2,818,432     2,831,973        83
                                 ----------    ----------       ---
BB to B.......................      488,167       488,506        14
CCC to D......................       11,301        11,301        --
Non-rated.....................       93,605        93,627         3
                                 ----------    ----------       ---
   Total......................   $3,411,505    $3,425,407       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, 1997, the Reliance Insurance Group owned 3,578,634 shares of
common stock of Symbol Technologies, Inc. ('Symbol'), representing 13.7% 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, 1997, the
market value of the Reliance Insurance Group's investment in Symbol was
$179,826,000 (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, 1997, the Reliance Insurance Group owned 2,449,624 shares of
Human Genome Sciences, Inc. ('Human Genome'), representing 13.1% of the then
outstanding common stock of Human Genome. Human Genome specializes in human
genetic research designed to detect and treat human illnesses. As of March 1,
1997, the market value of the Reliance Insurance Group's investment in Human
Genome was $93,086,000 (based upon
 
                                       15
<PAGE>
the last reported sales price on such date as reported by the Nasdaq National
Market), with a cost basis of $52,382,000.
 
     At December 31, 1996, the Company's real estate operations had holdings
with a carrying value of $275.2 million, which includes nine shopping centers
with an aggregate carrying value of $127.5 million, office buildings and other
commercial properties with an aggregate carrying value of $85.3 million, and
undeveloped land with a carrying value of $62.4 million.
 
     The following table presents the investment results of the Reliance
Insurance Group's investment portfolio for each of the years ended December 31,
1996, 1995, and 1994:
 
<TABLE>
<CAPTION>
                                                   YEAR ENDED DECEMBER 31,
                                           ----------------------------------------
                                              1996           1995           1994
                                           ----------     ----------     ----------
                                              (IN THOUSANDS, EXCEPT PERCENTAGES)
<S>                                        <C>            <C>            <C>
Fixed Maturities:
Average investments(1)..................   $3,625,144     $3,394,988     $3,213,556
Net investment income...................      260,275        243,268        221,771
Realized gains (losses).................       (5,686)        10,521         16,556
Increase (decrease) in unrealized
  gains.................................      (68,739)       329,457       (342,676)
Average annual yield:
     Net investment income..............         7.18%          7.17%          6.90%
     Realized gains (losses)............        (0.15)          0.31           0.51
     Increase (decrease) in unrealized
       gains............................        (1.90)          9.70         (10.66)
                                           ----------     ----------     ----------
Return on fixed maturities..............         5.13%         17.18%         (3.25)%
                                           ----------     ----------     ----------
                                           ----------     ----------     ----------
Equity Securities(2):
Average investments(1)..................   $  703,121     $  600,206     $  540,139
Net investment income...................       12,425         19,317         26,251
Realized gains..........................       58,296         23,811          1,611
Increase (decrease) in unrealized
  gains.................................       15,939        182,507         (6,849)

Average annual yield:
     Net investment income..............         1.77%          3.22%          4.86%
     Realized gains.....................         8.29           3.97           0.30
     Increase (decrease) in unrealized
       gains............................         2.27          30.40          (1.27)
                                           ----------     ----------     ----------
Return on equity securities.............        12.33%         37.59%          3.89%
                                           ----------     ----------     ----------
                                           ----------     ----------     ----------
Total weighted average return on fixed
  maturities and equity securities(3)...         6.30%         20.25%         (2.22)%
                                           ----------     ----------     ----------
                                           ----------     ----------     ----------
</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, 1996, 1995 and 1994.
 
(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, 1996 fixed maturity portfolio market value
    would be approximately 0.78%
 
     The carrying value and market value at December 31, 1996 of fixed
maturities for which interest is payable on a deferred basis was $152.2 million.
 
                                       16
<PAGE>
INVESTEE COMPANY
 
     As of March 1, 1997, the Reliance Insurance Group owned 6,574,445 shares of
common stock of Zenith National Insurance Corp. ('Zenith'), representing 37.4%
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, 1997 the market value of the Reliance Insurance
Group's investment in Zenith was $174,223,000 (based upon the closing price on
such date as reported by the NYSE), with a carrying value of $157,894,000.
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.
 
     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 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
 
                                       17

<PAGE>
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.
 
     The total amount of common stock dividends paid by Reliance Insurance
Company was $111.5 million in each of 1996, 1995 and 1994. During 1997, $118.5
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 statutory
capital 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.
 
     In 1994, Reliance Insurance Company and several of its affiliates received
an order from the outgoing Insurance Commissioner ordering refunds under
California Proposition 103 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
 
                                       18
<PAGE>
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.
 
     RCG Information Technology competes with other national mid-size
information technology services companies, as well as smaller computer
professional supplemental staffing firms. Competition in the information
technology consulting business is based primarily on price, service and quality
of the solutions provided and the availability of qualified computer
professionals.
 
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, 1996, the Company and its
consolidated subsidiaries employed approximately 9,200 persons in approximately
480 offices.
 
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
action pending 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 and continue to be pursued 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 14 to the Consolidated Financial Statements for additional
information concerning the above referenced legal proceedings affecting the
Company and its subsidiaries.
 
                                       19
<PAGE>
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, 1997, 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 1996 Annual Report, which information is incorporated
herein by reference.
 
ITEM 6. SELECTED FINANCIAL DATA.
 
     Item 6 is not required pursuant to 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 & Subsidiaries
Financial Review' on pages 26 through 31 of the Reliance Financial 1996 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 1996 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 reduced disclosure requirements applicable to this Form 10-K.
 
                                       20
<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 1996 Annual Report, are incorporated herein by reference.
 
<TABLE>
<CAPTION>
                                                               PAGE REFERENCE
                                                             -------------------

                                                                           1996
                                                                          ANNUAL
                                                             FORM 10-K    REPORT
                                                             ---------    ------
<S>                                                          <C>          <C>
RELIANCE FINANCIAL SERVICES AND SUBSIDIARIES:
  Independent Auditors' Report............................      A-1        25
  Consolidated Financial Statements at December 31, 1996
     and 1995 and for the three years ended December 31,
     1996:
       Statement of Income................................                  1
       Balance Sheet......................................                  2
       Statement of Changes in Shareholders' Equity.......                  3
       Statement of Cash Flows............................                  4
       Notes to Financial Statements (1-16)...............                5-24
</TABLE>
 
    2. FINANCIAL STATEMENT SCHEDULES.
 
<TABLE>
<S><C>                                                       <C>          <C>
I  -- Summary of Investments -- Other Than Investments in       A-2
       Related Parties....................................
II -- Condensed Financial Information of the Registrant at
       December 31, 1996 and 1995 and for the three years
       ended December 31, 1996:
     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          A-8
       Casualty Insurance Operations......................
</TABLE>
 
 
                                       21
<PAGE>
    3. EXHIBITS.
 
<TABLE>
<CAPTION>
 EXHIBIT
 NUMBER                           DESCRIPTION OF EXHIBIT
---------  --------------------------------------------------------------------
<S>        <C>
     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 1996 Annual Report.
    27.1   Financial Data Schedule.
</TABLE>
 
------------------
 * 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.
 
(B) REPORTS ON FORM 8-K
 
     No reports on Form 8-K were filed during the year ended December 31, 1996.
 
                                       22
<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 21ST DAY OF
MARCH, 1997.

 
                                          RELIANCE FINANCIAL SERVICES
                                          CORPORATION
 
                                          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.
<TABLE>
<CAPTION>
      SIGNATURE                          TITLE                         DATE
----------------------  ----------------------------------------  --------------
 
<S>                     <C>                                       <C>
 
<CAPTION>
  SAUL P. STEINBERG     Chairman of the Board,                    March 21, 1997
----------------------    Principal Executive Officer
  SAUL P. STEINBERG       and Director
 
   GEORGE E. BELLO      Principal Accounting                      March 21, 1997
----------------------    Officer and Director
   GEORGE E. BELLO        
 
  LOWELL C. FREIBERG    Principal Financial                       March 21, 1997
----------------------    Officer and Director
  LOWELL C. FREIBERG  
 
   GEORGE R. BAKER      Director                                  March 21, 1997
----------------------
   GEORGE R. BAKER
 
   DENNIS A. BUSTI      Director                                  March 21, 1997
----------------------
   DENNIS A. BUSTI
 
  THOMAS P. GERRITY     Director                                  March 21, 1997
----------------------
  THOMAS P. GERRITY
</TABLE>
 
                                       23
<PAGE>
<TABLE>
<CAPTION>
      SIGNATURE                          TITLE                         DATE
----------------------  ----------------------------------------  --------------
 
<S>                     <C>                                       <C>
   JEWELL J. MCCABE     Director                                  March 21, 1997
----------------------
   JEWELL J. MCCABE
 
   IRVING SCHNEIDER     Director                                  March 21, 1997
----------------------
   IRVING SCHNEIDER

 
 BERNARD L. SCHWARTZ    Director                                  March 21, 1997
----------------------
 BERNARD L. SCHWARTZ
 
  RICHARD E. SNYDER     Director                                  March 21, 1997
----------------------
  RICHARD E. SNYDER
 
THOMAS J. STANTON, JR.  Director                                  March 21, 1997
----------------------
THOMAS J. STANTON, JR.
 
 ROBERT M. STEINBERG    Director                                  March 21, 1997
----------------------
 ROBERT M. STEINBERG
 
  JAMES E. YACOBUCCI    Director                                  March 21, 1997
----------------------
  JAMES E. YACOBUCCI
</TABLE>
 
                                       24

<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, 1996 and 1995, and for each of the three years
in the period ended December 31, 1996, and have issued our report thereon dated
February 14, 1997; such financial statements and report are included in your
1996 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.
 
Deloitte & Touche LLP
New York, New York
February 14, 1997
 
                                      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, 1996

<TABLE>
<CAPTION>
           COLUMN A                COLUMN B    COLUMN C      COLUMN D
           --------                --------    --------      --------
                                                            AMOUNT AT
                                                              WHICH
                                                             SHOWN IN
                                                               THE
                                                             BALANCE
      TYPE OF INVESTMENT            COST        VALUE         SHEET
      ------------------            ----        -----       ---------
<S>                                 <C>         <C>         <C>

(In thousands)

Fixed maturities available for
  sale:
  Bonds and notes:
     United States government
       and government agencies
       and authorities........      $  704,386  $  702,472  $  702,472
     States, municipalities
       and political
       subdivisions...........         128,874     132,163     132,163
     Foreign--government......          42,955      46,172      46,172
     Foreign--other...........          96,051     103,976     103,976
     Public utilities.........         374,404     373,389     373,389
     Convertibles and bonds
       with warrants
       attached...............          87,625      87,134      87,134
     All other corporate bonds
       and notes..............         662,385     654,809     654,809
  Redeemable preferred
     stocks...................         499,249     523,554     523,554
                                    ----------  ----------  ----------
                                     2,595,929   2,623,669   2,623,669
                                    ----------  ----------  ----------
Fixed maturities held for
  investment:
  Bonds and notes:
     States, municipalities
       and political
       subdivisions...........           8,382       8,169       8,382
     Foreign--government......         145,065     150,622     145,065
     Foreign--other...........          17,978      20,172      17,978

     Public utilities.........         355,567     357,377     355,567
     All other corporate bonds
       and notes..............         148,026     150,059     148,026
  Redeemable preferred
     stocks...................         112,818     115,339     112,818
                                    ----------  ----------  ----------
                                       787,836     801,738     787,836
                                    ----------  ----------  ----------
Equity securities:
  Common stocks:
     Public utilities.........           3,333       4,928       4,928
     Banks, trusts and
       insurance companies....          24,622      38,284      38,284
     Industrial and other.....         292,365     556,463     556,463
  Nonredeemable preferred
     stocks...................         115,733     116,931     116,931
                                    ----------  ----------  ----------
                                       436,053     716,606     716,606
                                    ----------  ----------  ----------
Short-term investments........         319,165     319,165     319,165
                                    ----------  ----------  ----------
Cash..........................          36,802      36,802      36,802
                                    ----------  ----------  ----------
                                                $4,497,980
                                                ==========
Mortgage loans(1).............          19,506                   19,506
Investments in real estate....         275,237                  275,237
                                    ----------               ----------
                                    $4,470,528               $4,778,821
                                    ==========               ==========
</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                         1996         1995         1994
----------------------                         ----         ----         ----
(In thousands)
<S>                                            <C>          <C>          <C>

REVENUES:
Dividends from subsidiaries...........   $  111,467   $  111,467   $  111,467
Interest and other income, principally
  from affiliates.....................       21,520       20,821       15,136
                                         ----------   ----------   ----------
                                            132,987      132,288      126,603
                                         ----------   ----------   ----------
 
EXPENSES:
Interest..............................       14,483       15,811       15,244
General and administrative............        1,375        1,191        2,051
                                         ----------   ----------   ----------
                                             15,858       17,002       17,295
                                         ----------   ----------   ----------
                                            117,129      115,286      109,308
Income tax (provision) benefit........       (1,717)        (859)         760
                                         ----------   ----------   ----------
INCOME BEFORE EQUITY IN SUBSIDIARIES
  AND INVESTEE COMPANY................      115,412      114,427      110,068
Equity in subsidiaries (net income
  less dividends received)............       15,181       58,056       18,992
Equity in investee company............        8,908        7,792        9,478
Loss on disposal of discontinued
  operations of investee company......           --       (4,497)          --
                                         ----------   ----------   ----------
INCOME BEFORE EXTRAORDINARY ITEM......      139,501      175,778      138,538
Extraordinary item--early
  extinguishment of debt..............           --       (3,363)          --
                                         ----------   ----------   ----------
NET INCOME............................   $  139,501   $  172,415   $  138,538
                                         ==========   ==========   ==========
</TABLE>
 
                                       A-3


<PAGE>
                                                                     SCHEDULE II
                                                                     ITEM 14(A)2
 
RELIANCE FINANCIAL SERVICES CORPORATION
(PARENT COMPANY)

BALANCE SHEET

<TABLE>
<CAPTION>

ASSETS                      DECEMBER 31       1996         1995
---------------------------------------       ----         ----
<S>                                           <C>          <C>

(Dollars in thousands, except per-share
  amount)
Cash....................................   $    1,718   $       39
Investments in subsidiaries.............    1,395,168    1,388,975
Notes receivable from parent company....      202,272      184,108
Other assets............................       14,627       14,443
                                           ----------   ----------
                                           $1,613,785   $1,587,565
                                           ==========   ==========
 
LIABILITIES AND SHAREHOLDER'S EQUITY

Accounts payable and accrued expenses...   $    2,265   $    2,122
Federal income taxes due to parent         
  company...............................       20,583       18,866
Term loans and short-term debt..........      197,500      158,500
Senior reset notes......................       15,365       40,318
                                           ----------   ----------
                                              235,713      219,806
                                           ----------   ----------
Contingencies and commitments
 
Shareholder's equity:
     Common stock, par value $.10          
      per-share, 1,000 shares
      authorized, issued and
      outstanding.......................           --           --
     Additional paid-in capital.........      677,969      678,349
     Retained earnings (including             
      undistributed net income of
      subsidiaries of $352,445 and
      $328,356).........................      526,340      496,839
     Net unrealized gain on investments 
      of subsidiaries...................      198,786      219,356
     Net unrealized loss on foreign           
      currency translation of
      subsidiaries......................      (25,023)     (26,785)
                                           ----------   ----------

                                            1,378,072    1,367,759
                                           ----------   ----------
                                           $1,613,785   $1,587,565
                                           ==========   ==========
</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                           1996         1995         1994
----------------------                           ----         ----         ----
(In thousands)
<S>                                              <C>          <C>          <C>

CASH FLOWS FROM OPERATING ACTIVITIES:
Net income..............................   $  139,501   $  172,415   $  138,538
Equity in undistributed net income of
  subsidiaries and investee company.....      (24,089)     (61,351)     (28,470)
Other--net..............................          911        3,574          821
                                           ----------   ----------   ----------
                                              116,323      114,638      110,889
                                           ----------   ----------   ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital contribution to subsidiary......           --      (33,631)     (15,000)
                                           ----------   ----------   ----------
                                                   --      (33,631)     (15,000)
                                           ----------   ----------   ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Decrease (increase) in notes receivable
  from parent company--net..............      (18,164)       2,957      (17,365)
Increase (decrease) in term loans and
  short-term debt--net..................       39,000       58,500       (5,000)
Repurchases of senior reset notes.......      (25,000)     (40,348)      (9,125)
Debt issuance costs.....................         (480)      (1,000)          --
Dividends...............................     (110,000)    (110,000)     (85,187)
                                           ----------   ----------   ----------
                                             (114,644)     (89,891)    (116,677)
                                           ----------   ----------   ----------
Increase (decrease) in cash.............        1,679       (8,884)     (20,788)
Cash, beginning of year.................           39        8,923       29,711
                                           ----------   ----------   ----------
Cash, end of year.......................   $    1,718   $       39   $    8,923
                                           ==========   ==========   ==========

</TABLE>
 
SUPPLEMENTAL DISCLOSURE OF NON-CASH FINANCING ACTIVITIES:
 
In 1994, non-cash dividends of $24,813,000 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
           --------                 --------        -------        --------       --------       --------       --------
                                    DEFERRED         UNPAID                                                      POLICY
                                     POLICY        CLAIMS AND                                      NET         CLAIMS AND
                                   ACQUISITION      RELATED        UNEARNED       PREMIUMS      INVESTMENT     SETTLEMENT
            SEGMENT                   COSTS         EXPENSES       PREMIUMS        EARNED         INCOME        EXPENSES
            -------                -----------     ---------       --------       --------      ----------     ----------
(In thousands)
<S>                                <C>             <C>            <C>            <C>            <C>            <C>

YEAR ENDED DECEMBER 31, 1996:
Property and casualty..........       215,438      $6,265,420     $1,468,299     $1,800,854      $257,133      $1,350,337
Title..........................            --        264,838             --         780,157        30,455          61,116
                                    ---------      ----------     ----------     ----------     ---------      ----------
                                    $ 215,438      $6,530,258     $1,468,299     $2,581,011      $287,588      $1,411,453
                                    =========      ==========     ==========     ==========     =========      ==========

 
YEAR ENDED DECEMBER 31, 1995:
Property and casualty..........     $ 194,648      $5,859,352     $1,299,465     $1,774,591      $247,343      $1,201,959
Title..........................            --        240,777             --         671,947        27,946         58,486
                                    ---------      ----------     ----------     ----------     ----------     ----------
                                    $ 194,648      $6,100,129     $1,299,465     $2,446,538      $275,289      $1,260,445
                                    =========      ==========     ==========     ==========     =========      ==========
                                                                       
YEAR ENDED DECEMBER 31, 1994:
Property and casualty..........     $ 181,938      $5,581,483     $1,288,454     $1,777,318      $232,299      $1,297,093
 
Title..........................            --        228,063             --         856,774        26,613         75,867
                                    ---------      ----------     ----------     ----------     ----------     ----------
                                    $ 181,938      $5,809,546     $1,288,454     $2,634,092      $258,912      $1,372,960
                                    =========      ==========     ==========     ==========     =========      ==========
                                                                       
<CAPTION>
           COLUMN A                COLUMN H       COLUMN I     COLUMN J
           --------                --------       --------     --------
                                 AMORTIZATION
                                 OF DEFERRED
                                    POLICY         OTHER
                                 ACQUISITION      INSURANCE    PREMIUMS
 SEGMENT                            COSTS         EXPENSES     WRITTEN
------------------              -----------      ---------     --------
(In thousands)
<S>                               <C>             <C>          <C>

YEAR ENDED DECEMBER 31, 1996:
Property and casualty..........    $414,636       $201,485     $1,846,199

                                                               ==========                                             
                                             
Title..........................          --        711,185
                                   --------       --------
                                   $414,636       $912,670
                                   ========       ========
                                 
YEAR ENDED DECEMBER 31, 1995:
Property and casualty..........    $411,979       $197,112     $1,779,040
                                                               ==========
                                                               
Title..........................          --        629,051
                                   --------       --------
                                   $411,979       $826,163
                                   ========       ========
                                 
YEAR ENDED DECEMBER 31, 1994:
Property and casualty..........    $387,924       $183,755     $1,764,290
                                                               ==========
                                                               
Title..........................          --        776,149
                                   --------       --------
                                   $387,924       $959,904
                                   ========       ========
                                 
</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, 1996:
Premiums:
     Property and casualty...........................   $2,894,096    $1,449,731    $356,489    $1,800,854       19.80%
     Title...........................................      779,318         1,406       2,245       780,157        0.29
                                                        ----------    ----------    --------    ----------    
                                                        $3,673,414    $1,451,137    $358,734    $2,581,011       13.90
                                                        ==========    ==========    ========    ==========    
 
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
                                                        ==========    ==========    ========    ==========    
                                                                                                              
</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
--------                    --------     --------    --------     --------     --------       --------     -------------------   
                                          UNPAID     DISCOUNT                                                  CLAIMS AND 
                             DEFERRED     CLAIMS     DEDUCTED                                               SETTLEMENT EXPENSES
AFFILIATION                   POLICY       AND          IN                                       NET        INCURRED RELATED TO
   WITH                    ACQUISITION   RELATED      COLUMN       UNEARNED       EARNED      INVESTMENT   CURRENT       PRIOR
REGISTRANT                    COSTS      EXPENSES      C(a)        PREMIUMS      PREMIUMS       INCOME       YEAR        YEARS
----------                  ----------   --------    -------       --------      --------     ----------   -------       -----
(In thousands)
<S>                         <C>          <C>         <C>           <C>           <C>          <C>           <C>          <C>

Consolidated  subsidiaries:
Year Ended
  December 31, 1996......   $215,438    $6,265,420  $229,963     $1,468,299     $1,800,854    $257,133    $1,211,672   $138,665 
                            ========    ==========  =========    ==========     ==========    ========    ==========   ========
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
                            ========    ==========  =========    ==========     ==========    ========    ==========   ========
 
<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, 1996......     $414,636     $1,225,834     $1,846,199
                              ========     ==========     ==========

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
                              ========     ==========     ==========
</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%. 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

                                 EXHIBIT INDEX

 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 1996 Annual Report.
    27.1   Financial Data Schedule.

------------------
 * 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.