<PAGE>
 
CONTENTS
Financial Statements                  1
Independent Auditors' Report         25
Financial Review                     26
Market and Dividend Information      31
Directors                            32
Officers                             33
Corporate Data                       34

A copy of the Company's Annual Report on Form 10-K to the Securities and
Exchange Commission will be furnished to any security holder upon written
request to: Corporate Communications, Reliance Group Holdings, Inc., 55 East
52nd Street, New York, N.Y. 10055.

<PAGE>
                     [This page intentionally left blank]

<PAGE>
RELIANCE FINANCIAL SERVICES CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF INCOME
 
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31                         1995         1994         1993
-----------------------------------------------------------------------------
(In thousands)
<S>                                      <C>          <C>          <C>
REVENUES:
Premiums earned.......................   $2,446,538   $2,634,092   $2,464,903
Net investment income.................      275,289      258,912      250,799
Gain on sales of investments..........       29,110        9,218      158,196
Interest income from parent company...       20,408       14,864       18,491
Other.................................      150,751      141,609      116,802
                                         ----------   ----------   ----------
                                          2,922,096    3,058,695    3,009,191
                                         ----------   ----------   ----------
CLAIMS AND EXPENSES:
Policy claims and settlement
  expenses............................    1,260,445    1,372,960    1,317,397
Policy acquisition costs..............      411,979      387,924      327,437
Interest..............................       20,904       20,231       21,365
Other insurance expenses..............      826,163      959,904      954,747
Other.................................      146,373      137,877      119,186
                                         ----------   ----------   ----------
                                          2,665,864    2,878,896    2,740,132
                                         ----------   ----------   ----------
INCOME BEFORE INCOME TAXES, MINORITY
  INTERESTS AND EQUITY IN INVESTEE
  COMPANY.............................      256,232      179,799      269,059
Provision for income taxes............      (82,900)     (47,982)     (92,994)
Minority interests....................         (849)      (2,757)      (3,157)
Equity in investee company............        7,792        9,478       12,441
                                         ----------   ----------   ----------
INCOME FROM CONTINUING OPERATIONS.....      180,275      138,538      185,349
Loss on disposal of discontinued
  operations of investee company......       (4,497)          --           --
                                         ----------   ----------   ----------
INCOME BEFORE EXTRAORDINARY ITEM AND
  CUMULATIVE EFFECT OF ACCOUNTING
  CHANGE..............................      175,778      138,538      185,349
Extraordinary item--early
  extinguishment of debt..............       (3,363)          --       (3,666)
Cumulative effect of change in
  accounting for income taxes.........           --           --       24,335
                                         ----------   ----------   ----------
NET INCOME............................   $  172,415   $  138,538   $  206,018
                                         ----------   ----------   ----------
                                         ----------   ----------   ----------
</TABLE>


See notes to consolidated financial statements
 
                                       1
<PAGE>
RELIANCE FINANCIAL SERVICES CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEET

<TABLE>
<CAPTION>
ASSETS                       DECEMBER 31         1995         1994
------------------------------------------------------------------
(Dollars in thousands, except per-share amount)
<S>                                        <C>          <C>
Marketable securities:
     Fixed maturities held for
      investment--at amortized cost
      (quoted market $791,459 and
      $1,053,551).......................   $  753,563   $1,166,020
     Fixed maturities available for
      sale--at quoted market (amortized
      cost $2,299,510 and $1,945,919)...    2,371,995    1,839,312
     Equity securities--at quoted market
      (cost $408,054 and $482,529)......      672,668      564,636
     Short-term investments.............      500,284      229,906
Cash....................................       50,848       46,814
Premiums receivable.....................    1,075,226    1,079,393
Other accounts and notes receivable.....      130,555      176,119
Reinsurance recoverables................    3,163,073    2,937,533
Federal and foreign income taxes,
  including deferred taxes..............        9,784      161,013
Notes receivable from parent company....      184,108      187,065
Investments in real estate--at cost,
  less accumulated depreciation.........      278,510      289,465
Investment in investee company..........      156,404      147,513
Deferred policy acquisition costs.......      194,648      181,938
Other assets............................      354,254      331,038
                                           ----------   ----------
                                           $9,895,920   $9,337,765
                                           ----------   ----------
                                           ----------   ----------

<CAPTION>
LIABILITIES AND SHAREHOLDER'S EQUITY
------------------------------------------------------------------
<S>                                        <C>          <C>
Unearned premiums.......................   $1,299,465   $1,288,454
Unpaid claims and related expenses......    6,100,129    5,809,546
Accounts payable and accrued expenses...      586,902      650,374
Reinsurance ceded premiums payable......      325,246      291,844
Senior reset notes......................       40,318       80,596
Term loans and short-term debt..........      176,101      129,355
Minority interests--redeemable preferred
  stock of a subsidiary.................           --       23,517
                                           ----------   ----------
                                            8,528,161    8,273,686
                                           ----------   ----------
Contingencies and commitments
 
Shareholder's equity:
     Common stock, par value $.10
      per-share, 1,000 shares
      authorized, issued and
      outstanding.......................           --           --
     Additional paid-in capital.........      678,349      678,502
     Retained earnings..................      496,839      434,676
     Net unrealized gain (loss) on
      investments.......................      219,356      (27,881)
     Net unrealized loss on foreign
      currency translation..............      (26,785)     (21,218)
                                           ----------   ----------
                                            1,367,759    1,064,079
                                           ----------   ----------
                                           $9,895,920   $9,337,765
                                           ----------   ----------
                                           ----------   ----------
</TABLE>
 
See notes to consolidated financial statements
 
                                       2

<PAGE>
RELIANCE FINANCIAL SERVICES CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDER'S EQUITY
 
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------
(In thousands)
                                                                                                           NET
                                                                                                    UNREALIZED
                                                                                             NET       LOSS ON
                                                        ADDITIONAL                    UNREALIZED       FOREIGN
                                               COMMON      PAID-IN    RETAINED    GAIN (LOSS) ON      CURRENCY   SHAREHOLDER'S
                                                STOCK      CAPITAL    EARNINGS       INVESTMENTS   TRANSLATION          EQUITY
                                               ------   ----------   ---------    --------------   -----------   -------------
<S>                                            <C>      <C>          <C>          <C>              <C>           <C>
Balance, January 1, 1993.....................   $ --     $ 676,696   $ 400,120      $   86,021      $ (12,326)    $  1,150,511
Transactions of investee company.............     --           814          --           1,244             --            2,058
Net income...................................     --            --     206,018              --             --          206,018
Dividends....................................     --            --    (200,000)             --             --         (200,000)
Appreciation after deferred income taxes.....     --            --          --          27,758             --           27,758
Foreign currency translation.................     --            --          --              --         (3,405)          (3,405)
                                               ------   ----------   ---------    --------------   -----------   -------------
Balance, December 31, 1993...................     --       677,510     406,138         115,023        (15,731)       1,182,940
Transactions of investee company.............     --          (597)         --          (9,002)            --           (9,599)
Net income...................................     --            --     138,538              --             --          138,538
Dividends....................................     --            --    (110,000)             --             --         (110,000)
Capital contribution.........................     --         1,589          --              --             --            1,589
Depreciation after deferred income taxes.....     --            --          --        (133,902)            --         (133,902)
Foreign currency translation.................     --            --          --              --         (5,487)          (5,487)
                                               ------   ----------   ---------    --------------   -----------   -------------
BALANCE, DECEMBER 31, 1994...................     --       678,502     434,676         (27,881)       (21,218)       1,064,079
Transactions of investee company.............     --          (153)         --           8,693             --            8,540
Net income...................................     --            --     172,415              --             --          172,415
Loss on early extinguishment of redeemable
  preferred stock of a subsidiary............     --            --        (252)             --             --             (252)
Dividends....................................     --            --    (110,000)             --             --         (110,000)
Appreciation after deferred income taxes.....     --            --          --         238,544             --          238,544
Foreign currency translation.................     --            --          --              --         (5,567)          (5,567)
                                               ------   ----------   ---------    --------------   -----------   -------------
BALANCE, DECEMBER 31, 1995...................   $ --     $ 678,349   $ 496,839      $  219,356      $ (26,785)    $  1,367,759
                                               ------   ----------   ---------    --------------   -----------   -------------
                                               ------   ----------   ---------    --------------   -----------   -------------
</TABLE>
 
See notes to consolidated financial statements
 
                                       3

<PAGE>
RELIANCE FINANCIAL SERVICES CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF CASH FLOWS

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31                           1995         1994         1993
-------------------------------------------------------------------------------
(In thousands)
<S>                                        <C>          <C>          <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income..............................   $  172,415   $  138,538   $  206,018
Adjustments to reconcile net income to
  net cash provided from operating
  activities:
     Cumulative effect of change in
       accounting for income taxes......           --           --      (24,335)
     Gain on sales of investments.......      (29,110)      (9,218)    (158,196)
     Deferred policy acquisition
       costs............................      (12,710)      (3,809)     (54,779)
     Premiums and other receivables and
       reinsurance recoverables.........     (238,754)    (480,590)    (221,956)
     Unearned premiums, unpaid claims
       and related expenses.............      315,288      566,873      581,141
     Accounts payable, accrued expenses
       and other........................       30,885      106,239      (56,079)
                                           ----------   ----------   ----------
                                              238,014      318,033      271,814
                                           ----------   ----------   ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sales of fixed maturities
  available for sale....................      536,795      441,401      341,168
Proceeds from sales of fixed maturities
  held for investment...................       39,218       18,481           --
Proceeds from redemptions of fixed
  maturities available for sale.........       49,218       60,752      170,281
Proceeds from redemptions of fixed
  maturities held for investment........       54,038       15,785      273,921
Proceeds from sales of equity
  securities............................      400,635      189,895    1,016,308
(Increase) decrease in short-term
  investments--net......................     (283,141)     151,965      240,884
Purchases of fixed maturities available
  for sale..............................     (514,491)    (587,581)    (958,817)
Purchases of fixed maturities held for
  investment............................     (108,053)    (265,672)    (586,677)
Purchases of equity securities..........     (262,075)    (209,506)    (680,760)
Discontinued operations.................           --       15,550       69,157
Other--net..............................      (20,710)     (72,905)     (23,067)
                                           ----------   ----------   ----------
                                             (108,566)    (241,835)    (137,602)
                                           ----------   ----------   ----------

CASH FLOWS FROM FINANCING ACTIVITIES:
Decrease (increase) in notes receivable
  from parent company...................        2,957      (17,365)     (14,212)
Increase in term loans..................      120,298       75,272      105,248
Increase (decrease) in short-term
  debt--net.............................       (5,400)      10,652          183
Repayment of term loans.................      (68,152)     (81,942)      (2,536)
Repurchases of debentures and notes.....      (40,348)     (19,062)     (80,060)
Debt issuance costs.....................       (1,000)          --       (6,750)
Dividends...............................     (110,000)     (85,187)    (100,064)
Redemption of redeemable preferred stock
  of a subsidiary.......................      (23,769)      (3,360)      (3,360)
                                           ----------   ----------   ----------
                                             (125,414)    (120,992)    (101,551)
                                           ----------   ----------   ----------
Increase (decrease) in cash.............        4,034      (44,794)      32,661
Cash, beginning of year.................       46,814       91,608       58,947
                                           ----------   ----------   ----------
Cash, end of year.......................   $   50,848   $   46,814   $   91,608
                                           ----------   ----------   ----------
                                           ----------   ----------   ----------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
  INFORMATION:
Interest paid...........................   $   16,300   $   16,400   $   19,600
                                           ----------   ----------   ----------
                                           ----------   ----------   ----------
Income taxes paid.......................   $   55,000   $   44,500   $  136,900
                                           ----------   ----------   ----------
                                           ----------   ----------   ----------
</TABLE>

SUPPLEMENTAL DISCLOSURE OF NONCASH FINANCING ACTIVITIES:
In 1994 and 1993, non-cash dividends of $24,813,000 and $99,936,000 were
recorded as a reduction in notes receivable from parent company.
 
See notes to consolidated financial statements
 
                                       4

<PAGE>
RELIANCE FINANCIAL SERVICES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
--------------------------------------------------------------------------------
 
1. NATURE OF OPERATIONS/SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 
NATURE OF OPERATIONS
 
The Company's principal operations consist of property and casualty insurance
and title insurance. The Company's property and casualty insurance business
consists of four principal operations: Reliance National, Reliance Insurance,
Reliance Reinsurance and Reliance Surety. Reliance National offers, through
national and regional brokers and program agents, a broad range of commercial
property and casualty insurance products and services for large companies and
specialty line customers. Reliance National selects market segments where it can
provide specialized coverages and services, and it conducts business nationwide
and in certain international markets. In 1995, Reliance National accounted for
49% of the net premiums written by the Company's property and casualty insurance
operations. The Reliance Insurance operation offers, through independent agents,
program agents and brokers, commercial property and casualty insurance coverages
for mid-sized companies primarily throughout the United States. Reliance
Insurance also offers traditional and specialized coverages for more complex
risks as well as insurance programs for groups with common insurance needs.
Reliance Reinsurance offers, through reinsurance brokers, treaty and facultative
reinsurance for small to medium sized regional and specialty insurance companies
located in the United States. Reliance Surety is a leading writer of surety
bonds and fidelity bonds in the United States and conducts its business through
branch offices, independent agents and brokers. The Company's property and
casualty insurance operations accounted for $1,774,591,000 (73%) of the
Company's 1995 net premiums earned.
 
The Company's title insurance business consists of Commonwealth Land Title
Insurance Company, Transnation Title Insurance Company and their subsidiaries
('Commonwealth/Transnation'). Commonwealth/Transnation writes, through direct
and agency operations, title insurance for residential and commercial real
estate nationwide and provides escrow and settlement services in connection with
real estate closings. Commonwealth/Transnation accounted for $671,947,000 (27%)
of the Company's 1995 net premiums earned.
 
Reliance Group Holdings, Inc. owns 100% of the common stock of the Company. On
November 15, 1993, Reliance Group, Incorporated, the former parent of the
Company and a subsidiary of Reliance Group Holdings, Inc., was merged into
Reliance Group Holdings, Inc.
 
BASIS OF CONSOLIDATION AND PRESENTATION
 
The consolidated financial statements of the Company include the accounts of all
subsidiaries. The consolidated financial statements have been prepared in
conformity with generally accepted accounting principles. Such statements
include informed estimates and judgements of management for those transactions
that are not yet complete or for which the ultimate effects cannot be precisely
determined. Actual results may differ from these estimates.

 
All material intercompany balances and transactions have been eliminated in
consolidation.
 
INSURANCE
 
The financial statements of the insurance subsidiaries have been prepared in
accordance with generally accepted accounting principles, which differ in
certain respects from those followed in reports to regulatory authorities.
 
Fixed maturity investments, the vast majority of which are publicly traded
securities, include bonds, notes and redeemable preferred stocks. Fixed maturity
investments classified as 'available for sale' represent securities that will be
held for an indefinite period of time and are carried at quoted market value
with the net unrealized gain or loss included in shareholder's equity. Such
investments may be sold in response to changes in interest
 
                                       5
<PAGE>
rates, future general liquidity needs and similar factors. Fixed maturity
investments classified as 'held for investment' are carried at amortized cost
since the Company has the positive intent and ability to hold these securities
to maturity. In November 1995, the Financial Accounting Standards Board issued a
special report which permitted a one-time reassessment of the classification of
securities designated held for investment. Accordingly, the Company reclassified
fixed maturity securities with a market value of $426,442,000 and an amortized
cost of $410,395,000 from the held for investment portfolio into the available
for sale portfolio. This reclassification resulted in an increase in
shareholder's equity of $10,431,000. Investments in equity securities include
common stocks, where the Company's ownership of outstanding voting stock is less
than 20%, and nonredeemable preferred stocks, and are carried at quoted market
value with the net unrealized gain or loss included in shareholder's equity.
Investments in which the Company has a 20% to 50% ownership interest of voting
stock, or otherwise exercises significant influence, are reported using the
equity method of accounting. Short-term investments primarily consist of United
States government and other foreign government securities, certificates of
deposit and commercial paper carried at cost which approximates market value.
Investments whose declines in market values are deemed to be other than
temporary are written down to market value and the accrual of investment income
is discontinued. In circumstances where market values are not available,
investments are written down to estimated fair value. In determining estimated
fair value of investments, the Company reviews the issuer's financial condition
and the stability of its income, as well as the discounted cash flow to be
received by the Company. Write-downs and other realized gains and losses,
determined on a specific identification basis, are included in income.
 
Property and casualty insurance premiums reported as earned represent the
portion of premiums written applicable to the current period, computed on a
pro-rata basis over the terms of the policies in force. Premiums include
estimated audit premiums and estimated premiums on retrospectively rated
policies.

The costs associated with the acquisition of property and casualty business are
deferred and amortized on a straight-line basis over the terms (principally one
year) of the policies in force. Such deferred policy acquisition costs consist
of commissions, premium taxes and other variable policy issuance and
underwriting expenses. Deferred policy acquisition costs are reviewed to
determine that they do not exceed recoverable amounts, including anticipated
investment income.
 
Property and casualty unpaid claims and related expenses are estimated 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. The Company applies a
variety of generally accepted actuarial techniques to determine the estimates of
ultimate liability. The process of estimating claims is a complex task and the
ultimate liability may be more or less than such estimates indicate. Adjustments
of the probable ultimate liability, based on subsequent developments, are
included in operations currently.
 
Direct title insurance premiums and fees are recognized as revenue when policies
become effective. Agency title insurance premiums are recognized as revenue when
reported by the agent. Title insurance claims arise principally from unknown
title defects which exist at the time policies become effective. The reserve for
title losses, which is based on historical and anticipated loss experience,
represents the estimated costs to settle reported claims and estimated future
claims relating to policies issued. The process of estimating claims is a
complex task and the actual payments may be more or less than such estimates
indicate. Changes in loss estimates, resulting from management's continuing
review process, are included in operations currently.
 
INVESTMENTS IN REAL ESTATE
 
Investments in real estate consist primarily of shopping centers and office
buildings, and are carried at cost (less accumulated depreciation), which
includes real estate taxes, interest and other carrying costs incurred prior to
substantial completion of the real estate development projects. Investments in
real estate at December 31, 1995 include $61,200,000 related to undeveloped land
which is zoned for mixed use development. Depreciation expense is provided using
the straight-line method.
 
                                       6
<PAGE>
The Company's real estate properties are reviewed for impairment whenever events
or circumstances indicate that the carrying value of such properties may not be
recoverable. In performing the review for recoverability of carrying value, the
Company estimates the future undiscounted cash flows expected to result from the
use of each of its properties and their eventual disposition. These cash flow
projections reflect changes in occupancy, new leases, current rent roll, future
expirations and general market conditions. If the total expected future
undiscounted cash flows are less than the carrying value of such properties,
impairment losses are recognized on a property-by-property basis. An impairment
loss is measured by the amount that the carrying value of the property exceeds
its fair value.

INCOME TAXES
 
The Company and its domestic subsidiaries, where their ownership is at least 80%
of outstanding voting stock, are included in the consolidated federal income tax
return of Reliance Group Holdings, Inc. The Company provides for deferred income
taxes under the asset and liability method, whereby deferred income taxes result
from temporary differences between the tax bases of assets and liabilities and
their reported amounts in the financial statements. In addition, deferred income
taxes are provided for unrealized appreciation and depreciation on investments
carried at quoted market value.
 
POSTRETIREMENT BENEFIT PLANS
 
Retirement pension benefits, covering substantially all employees, are provided
under noncontributory trusteed defined benefit pension plans. Contributions to
the pension plans are based on the minimum funding requirements of the Employee
Retirement Income Security Act of 1974. In addition, the Company sponsors
defined contribution plans covering employees who meet eligibility requirements
and unfunded postretirement medical and life insurance plans for certain
employees of a subsidiary.
 
TRANSLATION OF FOREIGN CURRENCY FINANCIAL STATEMENTS
 
Assets and liabilities of foreign subsidiaries are translated at year-end
exchange rates. Results of operations are translated at average rates during the
year. The effects of exchange rate changes in translating foreign financial
statements are excluded from the consolidated statement of income and are
presented as a separate component of shareholder's equity. Exchange gains and
losses resulting from foreign currency transactions are included in operations
currently.
 
FAIR VALUE OF FINANCIAL INSTRUMENTS
 
The estimated fair value of publicly traded financial instruments is determined
by the Company using quoted market prices, dealer quotes and prices obtained
from independent third parties. For financial instruments not publicly traded,
fair values are estimated based on values obtained from independent third
parties or quoted market prices of comparable instruments. However, judgment is
required to interpret market data to develop the estimates of fair value.
Accordingly, the estimates are not necessarily indicative of the amounts that
could be realized in a current market exchange. See notes 2, 3 and 8 regarding
fair value information for the Company's financial instruments.
 
The Company believes the fair value of notes receivable from parent company at
December 31, 1995 and 1994 approximates their carrying value.
 
RECLASSIFICATIONS
 
Certain reclassifications have been made to the Company's 1994 and 1993
consolidated financial statements to conform with the current year's
consolidated financial statements.

ADOPTION OF NEW ACCOUNTING STANDARDS
 
Effective January 1, 1994, the Company adopted Statement of Financial Accounting
Standards No. 112, 'Employers' Accounting for Postemployment Benefits' and
effective January 1, 1995, the Company adopted Statement of Financial Accounting
Standards No. 121, 'Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed Of.' The adoption of these Statements had no
material effect on the Company's consolidated financial statements.
 
                                       7
<PAGE>
2. INVESTMENTS
 
Fixed maturities held for investment at December 31, 1995 consisted of:
 
<TABLE>
<CAPTION>
                                                                Gross        Gross
                                  Amortized       Market   Unrealized   Unrealized
                                       Cost        Value        Gains       Losses(1)
----------------------------------------------------------------------------------
(In thousands)
<S>                              <C>          <C>          <C>          <C>
Bonds and notes:
     Public utilities.........   $  296,456   $  309,920   $   13,470   $        6
     Foreign government.......      133,252      139,042        6,715          925
     Corporate bonds and notes
       and other..............      181,849      193,087       11,526          288
Redeemable preferred stock....      142,006      149,410        7,405            1
                                 ----------   ----------   ----------   ----------
                                 $  753,563   $  791,459   $   39,116   $    1,220
                                 ----------   ----------   ----------   ----------
                                 ----------   ----------   ----------   ----------
</TABLE>
 
(1) The amortized cost and market value of fixed maturity investments which have
    unrealized losses were $41,358,000 and $40,138,000.

Fixed maturities available for sale at December 31, 1995 consisted of:

<TABLE>
<CAPTION>
                                                                Gross        Gross
                                     Market    Amortized   Unrealized   Unrealized
                                      Value         Cost        Gains       Losses(1)
----------------------------------------------------------------------------------
(In thousands)
<S>                              <C>          <C>          <C>          <C>
Bonds and notes:
     United States government
       and government agencies
       and authorities.........  $  685,376   $  679,007   $    7,867   $    1,498
     States, municipalities and
       political subdivisions..     133,093      125,967        7,151           25
     Public utilities..........     313,906      305,652        8,900          646
     Corporate bonds and notes
       and other...............     868,291      837,060       44,864       13,633
Redeemable preferred stock.....     371,329      351,824       21,445        1,940
                                 ----------   ----------   ----------   ----------
                                 $2,371,995   $2,299,510   $   90,227   $   17,742
                                 ----------   ----------   ----------   ----------
                                 ----------   ----------   ----------   ----------
</TABLE>
 
(1) The amortized cost and market value of fixed maturity investments which have
    unrealized losses were $603,568,000 and $585,826,000.
 
Fixed maturities held for investment at December 31, 1994 consisted of:
 
<TABLE>
<CAPTION>
                                                                Gross        Gross
                                  Amortized       Market   Unrealized   Unrealized
                                       Cost        Value        Gains       Losses(1)
----------------------------------------------------------------------------------
(In thousands)
<S>                              <C>          <C>          <C>          <C>
Bonds and notes:
     Public utilities.........   $  536,746   $  477,942   $      202   $   59,006
     Foreign government.......      123,306      115,647          138        7,797
     Corporate bonds and notes
       and other..............      355,215      317,002          761       38,974
Redeemable preferred stock....      150,753      142,960        1,613        9,406
                                 ----------   ----------   ----------   ----------
                                 $1,166,020   $1,053,551   $    2,714   $  115,183
                                 ----------   ----------   ----------   ----------
                                 ----------   ----------   ----------   ----------
</TABLE>
 
(1) The amortized cost and market value of fixed maturity investments which have
    unrealized losses were $1,065,908,000 and $950,725,000.
 
                                       8

<PAGE>
Fixed maturities available for sale at December 31, 1994 consisted of:
 
<TABLE>
<CAPTION>
                                                                Gross        Gross
                                     Market    Amortized   Unrealized   Unrealized
                                      Value         Cost        Gains       Losses(1)
----------------------------------------------------------------------------------
(In thousands)
<S>                              <C>          <C>          <C>          <C>
Bonds and notes:
     United States government
       and government agencies
       and authorities........   $  495,007   $  528,297   $      615   $   33,905
     States, municipalities
       and political
       subdivisions...........       37,306       36,982          757          433
     Public utilities.........       88,602       96,631          177        8,206
     Corporate bonds and notes
       and other..............      877,598      934,648       31,263       88,313
Redeemable preferred stock....      340,799      349,361        5,695       14,257
                                 ----------   ----------   ----------   ----------
                                 $1,839,312   $1,945,919   $   38,507   $  145,114
                                 ----------   ----------   ----------   ----------
                                 ----------   ----------   ----------   ----------
</TABLE>
 
(1) The amortized cost and market value of fixed maturity investments which have
    unrealized losses were $1,533,070,000 and $1,387,956,000.
 
As of December 31, 1995, the contractual maturities of fixed maturity
investments are as follows:
 
<TABLE>
<CAPTION>
                                   Held for investment       Available for sale
                                 -----------------------   -----------------------
                                  Amortized       Market    Amortized       Market
                                       Cost        Value         Cost        Value
----------------------------------------------------------------------------------
(In thousands)
<S>                              <C>          <C>          <C>          <C>
Due within one year...........   $    6,473   $    6,558   $   58,999   $   59,636
Due after one year through
  five years..................       53,181       56,365      568,469      577,205
Due after five years through
  ten years...................      289,905      303,838      451,229      460,217
Due after ten years...........      404,004      424,698    1,063,474    1,114,732
                                 ----------   ----------   ----------   ----------
                                    753,563      791,459    2,142,171    2,211,790

Mortgage-backed securities....           --           --      157,339      160,205
                                 ----------   ----------   ----------   ----------
                                 $  753,563   $  791,459   $2,299,510   $2,371,995
                                 ----------   ----------   ----------   ----------
                                 ----------   ----------   ----------   ----------
</TABLE>
 
Net investment income consisted of:
 
<TABLE>
<CAPTION>

YEAR ENDED DECEMBER 31                              1995         1994         1993
----------------------------------------------------------------------------------
(In thousands)
<S>                              <C>          <C>          <C>          <C>
Investment income:
     Fixed maturities (1)..................   $  221,279   $  218,970   $  193,180
     Equity securities.....................       20,187       27,390       29,640
     Short-term investments................       30,292        9,159       19,920
     Other.................................       15,359       14,159       15,832
                                              ----------   ----------   ----------
                                                 287,117      269,678      258,572
Investment expenses........................      (11,828)     (10,766)      (7,773)
                                              ----------   ----------   ----------
                                              $  275,289   $  258,912   $  250,799
                                              ----------   ----------   ----------
                                              ----------   ----------   ----------
</TABLE>
 
(1) Includes investment income from debentures of Reliance Group Holdings, Inc.
    of $10,085,000 in 1993.
 
                                       9

<PAGE>
Gain on sales of investments consisted of:
 
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31                              1995         1994         1993
----------------------------------------------------------------------------------
(In thousands)
<S>                                           <C>          <C>          <C>
Fixed maturities (1):
     Realized gains........................   $   47,764   $  44,512    $   83,338
     Realized losses (2)...................      (28,406)    (28,016 )     (21,179)
                                              ----------   ----------   ----------
                                                  19,358      16,496        62,159
Equity securities (3)......................       20,445       8,890        98,944
Other (3),(4)..............................      (10,693)    (16,168 )      (2,907)
                                              ----------   ----------   ----------
                                              $   29,110   $   9,218    $  158,196
                                              ----------   ----------   ----------
                                              ----------   ----------   ----------
</TABLE>
 
(1) During 1995 and 1994, the Company sold fixed maturities held for investment
    with an amortized cost of $41,000,000 and $18,100,000. These sales were in
    response to a significant deterioration in the issuers' creditworthiness.
(2) Includes realized losses of $7,600,000, $11,600,000 and $5,200,000 in 1995,
    1994 and 1993, respectively, and write-downs of $15,700,000, $10,300,000 and
    $13,200,000 in 1995, 1994 and 1993, respectively, related to non-investment
    grade securities.
(3) Gain on sales of equity securities and other in 1995, 1994 and 1993 includes
    write-downs of $1,500,000, $13,200,000 and $10,200,000, respectively.
(4) Includes exchange losses of $10,400,000 in 1995 related to certain foreign
    currency denominated investments and realized losses of $14,500,000 in 1994
    related to certain foreign currency contracts.

Net unrealized appreciation (depreciation) on investments consisted of:
 
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31                              1995         1994         1993
----------------------------------------------------------------------------------
(In thousands)
<S>                                           <C>          <C>          <C>
Unrealized appreciation (depreciation):
     Equity securities.....................   $  182,507   $   (6,849)  $   (9,670)
     Fixed maturities available for sale...      179,092     (193,737)      48,689
                                              ----------   ----------   ----------
                                                 361,599     (200,586)      39,019
Deferred income tax (provision) benefit....     (123,055)      66,684      (11,261)
Net unrealized appreciation (depreciation)
  in investments of investee company.......        8,693       (9,002)       1,244
                                              ----------   ----------   ----------
                                              $  247,237   $ (142,904)  $   29,002
                                              ----------   ----------   ----------
                                              ----------   ----------   ----------
Unrealized appreciation (depreciation) on
  fixed maturities held for investment.....   $  150,365   $ (148,939)  $    3,098
                                              ----------   ----------   ----------
                                              ----------   ----------   ----------
</TABLE>
 
                                       10

<PAGE>
Net unrealized gain (loss) on investments consisted of:
 
<TABLE>
<CAPTION>
                   DECEMBER 31         1995         1994         1993
---------------------------------------------------------------------
(In thousands)
<S>                              <C>          <C>          <C>
Equity securities:
     Unrealized gains.........   $  276,760   $  114,231   $  100,179
     Unrealized losses........      (12,146)     (32,124)     (11,223)
                                 ----------   ----------   ----------
                                    264,614       82,107       88,956
                                 ----------   ----------   ----------
Fixed maturities available for
  sale:
     Unrealized gains.........       90,227       38,507       99,621
     Unrealized losses........      (17,742)    (145,114)     (12,491)
                                 ----------   ----------   ----------
                                     72,485     (106,607)      87,130
                                 ----------   ----------   ----------
                                    337,099      (24,500)     176,086
Deferred income tax
  (provision) benefit.........     (118,002)       5,053      (61,631)
Net unrealized gain (loss) in
  investments of investee
  company.....................          259       (8,434)         568
                                 ----------   ----------   ----------
                                 $  219,356   $  (27,881)  $  115,023
                                 ----------   ----------   ----------
                                 ----------   ----------   ----------
</TABLE>
 
Fixed maturity investments carried at $529,200,000 at December 31, 1995 were on
deposit under requirements of regulatory authorities, including deposits related
to workers' compensation reinsurance pools.
 
Investments in a single issuer, other than obligations of the United States
government, whose aggregate carrying value is in excess of 10% of the Company's
shareholder's equity at December 31,1995 is comprised of common stock of Symbol
Technologies, Inc. with a carrying and market value of $141,356,000.

3. INVESTMENT IN INVESTEE COMPANY
 
Investment in investee company at December 31, 1995 and 1994 was $156,404,000
and $147,513,000 which represents the Company's investment in Zenith National
Insurance Corp. ('Zenith'). Equity income in Zenith was $7,792,000, $9,478,000
and $12,441,000 for the years ended December 31, 1995, 1994 and 1993,
respectively. In addition, in 1995, the Company recognized an after-tax loss of
$4,497,000 on the disposal of discontinued life insurance operations by Zenith.
The Company's prior period results of operations have not been reclassified
since amounts attributable to Zenith's life insurance operations are not
significant. Dividends received by the Company from Zenith were $6,574,000 for
each of the years ended December 31,1995, 1994 and 1993.
 
Summarized financial information for Zenith is as follows:
 
<TABLE>
<CAPTION>

YEAR ENDED DECEMBER 31                 1995         1994         1993
---------------------------------------------------------------------
(In thousands, except per-share amounts)
<S>                              <C>          <C>          <C>
Revenues......................   $  519,020   $  512,455   $  508,412
Income from continuing
  operations before income
  taxes.......................       29,422       45,106       62,486
Loss on disposal of
  discontinued life insurance
  operations..................      (19,553)          --           --
Net income....................        6,600       37,900       53,200
Net income per-share..........          .36         1.99         2.76
</TABLE>
 
<TABLE>
<CAPTION>
                                DECEMBER 31         1995         1994
---------------------------------------------------------------------
(In thousands, except percentage of ownership)
<S>                                           <C>          <C>
Total assets...............................   $1,115,433   $1,093,675
Senior notes...............................       74,232       74,111
Common shareholders' equity................      330,432      309,860
Percentage of ownership....................         37.0%        34.7%
Market value of the Company's investment in
  Zenith...................................      140,529      149,569
</TABLE>
 
                                       11

<PAGE>
The Company's equity in net income includes amortization of excess of cost over
fair value of net assets acquired. At December 31, 1995, retained earnings
included undistributed net income of $27,812,000 from Zenith.
 
4. PREMIUMS AND OTHER ACCOUNTS RECEIVABLE
 
As of December 31, 1995, the Company sold with limited recourse $122,400,000
and, in 1994, sold with full recourse $126,700,000 of reinsurance recoverables
and premiums receivable relating to its property and casualty insurance
operations. Pursuant to these recourse provisions, the maximum amount, at
December 31, 1995, that the Company may be obligated to repurchase is
$9,600,000.

5. NOTES RECEIVABLE FROM PARENT COMPANY
 
The notes receivable from parent company, Reliance Group Holdings, Inc., bear
interest at rates sufficient to cover the annual interest expense of the Company
for such funds and are due at various dates commencing June 1, 2000.
 
6. INCOME TAXES
 
Federal income tax has been computed as if the Company filed a separate
consolidated tax return with its domestic subsidiaries where their ownership is
at least 80% of outstanding voting stock. The current tax so computed is paid to
or due from Reliance Group Holdings, Inc.
 
Provision for income taxes consisted of:
 
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31       1995         1994         1993
-----------------------------------------------------------
(In thousands)
<S>                    <C>          <C>          <C>
Current:
     Federal........   $   54,862   $   52,666   $   87,627
     Foreign........        6,830        6,204        1,949
                       ----------   ----------   ----------
                           61,692       58,870       89,576
Deferred federal....       21,208      (10,888)       3,418
                       ----------   ----------   ----------
                       $   82,900   $   47,982   $   92,994
                       ----------   ----------   ----------
                       ----------   ----------   ----------
</TABLE>

Domestic and foreign income before income taxes, minority interests and equity
in investee company is as follows:
 
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31       1995         1994         1993
-----------------------------------------------------------
(In thousands)
<S>                    <C>          <C>          <C>
Domestic............   $  236,718   $  161,301   $  263,490
Foreign.............       19,514       18,498        5,569
                       ----------   ----------   ----------
                       $  256,232   $  179,799   $  269,059
                       ----------   ----------   ----------
                       ----------   ----------   ----------
</TABLE>

The reconciliation of taxes computed at the statutory rate of 35% to the
provision for income taxes is as follows:
 
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31       1995         1994         1993
-----------------------------------------------------------
(In thousands)
<S>                    <C>          <C>          <C>
Tax provision at
  statutory rate....   $   89,681   $   62,930   $   94,171
Nontaxable
  investment income.      (13,405)     (13,989)      (1,743)
Increase in
  valuation
  allowance.........        7,000           --           --
Impact of change in
  statutory rate
  from new tax act..           --           --       (4,043)
Other...............         (376)        (959)       4,609
                       ----------   ----------   ----------
Provision for income
  taxes.............   $   82,900   $   47,982   $   92,994
                       ----------   ----------   ----------
                       ----------   ----------   ----------
</TABLE>
 
                                       12

<PAGE>
The tax effects of items comprising the Company's net deferred tax asset are as
follows:
 
<TABLE>
<CAPTION>
                             DECEMBER 31         1995         1994
------------------------------------------------------------------
(In thousands)
<S>                                        <C>          <C>
Deferred tax assets:
     Discounting of loss reserves.......   $  200,907   $  197,655
     Tax basis differential of
      subsidiary not included in
      consolidated tax return...........      111,815      120,600
     Operating loss carryforwards of
      subsidiary not included in
      consolidated tax return...........       57,925       57,925
     Unearned premium reserve...........       40,354       40,748
     Accruals not currently
      deductible........................       42,569       42,878
     Other..............................       62,681       71,938
                                           ----------   ----------
                                              516,251      531,744
Deferred tax liabilities:
     Deferred policy acquisition
      costs.............................       67,785       62,874
     Unrealized investment gains........      118,002           --
     Investment in investee company.....       20,576       17,499
     Other..............................       81,378       83,419
                                           ----------   ----------
                                              228,510      367,952
Valuation allowance.....................     (165,803)    (164,042)
                                           ----------   ----------
Net deferred tax asset..................   $   62,707   $  203,910
                                           ----------   ----------
                                           ----------   ----------
</TABLE>
 
For the year ended December 31, 1995, the Company's valuation allowance and
income tax provision were increased by $7,000,000 relating primarily to deferred
tax assets of a subsidiary that is not included in the consolidated tax return
for which it is likely that tax benefits will not be realized. The remaining
changes in the 1995 and 1994 valuation allowances relate principally to a
subsidiary that is not included in the consolidated tax return.

At December 31, 1995, a subsidiary of the Company, not included in the
consolidated tax return, had available net operating loss carryforwards ('NOL')
of approximately $165,500,000. For federal income tax purposes, approximately
$129,300,000 expires in 2001, $17,000,000 in 2002, $17,000,000 in 2004 and
$2,200,000 in 2010. The Internal Revenue Code imposes limitations on the
availability of these NOL's since the subsidiary experienced a more than 50
percentage point ownership change in 1989. The amount of the NOL incurred prior
to the ownership change which can be utilized in each subsequent year is limited
(the 'Loss Limitation') based on the value of the subsidiary on the date of the
ownership change. The annual Loss Limitation approximates $25,000,000.
 
The Internal Revenue Service is currently examining Reliance Group Holdings,
Inc.'s 1986 through 1990 federal income tax returns. While the outcome of the
current examinations is uncertain, the Company does not believe it is probable
that its additional tax liability, if any, will have a material adverse effect
on its consolidated financial statements.
 
Effective January 1, 1993, the Company adopted Statement of Financial Accounting
Standards No. 109, 'Accounting for Income Taxes' ('FAS 109'). The effect of
adopting FAS 109 in 1993 was to increase net income by $24,878,000 representing
a decrease in the provision for income taxes of $4,043,000, an increase in
income for the cumulative effect of the change in accounting principle of
$24,335,000 and a decrease in extraordinary income from the utilization of NOL's
of $3,500,000. As a result of adopting FAS 109, previously unrecorded deferred
tax benefits from NOL's were recognized. These benefits amounted to $31,100,000,
net of a valuation allowance of $25,000,000.
 
                                       13

<PAGE>
7. UNPAID CLAIMS AND RELATED EXPENSES
 
The reconciliation of the beginning to ending liability for unpaid claims and
related expenses ('loss reserves') for the Company's property and casualty
insurance operations is as follows:
 
<TABLE>
<CAPTION>
                             DECEMBER 31         1995         1994         1993
-------------------------------------------------------------------------------
(In thousands)
<S>                                        <C>          <C>          <C>
Loss reserves, beginning of year........   $5,581,483   $5,048,442   $4,571,792
     Less reinsurance recoverables......    2,453,702    2,116,914    1,868,800
                                           ----------   ----------   ----------
Net loss reserves, beginning of year....    3,127,781    2,931,528    2,702,992
                                           ----------   ----------   ----------
Provision for policy claims and related
  expenses:
     Provision for insured events of the
       current year.....................    1,163,447    1,274,649    1,195,425
     Increase in provision for insured
       events of prior years............       38,512       22,444       40,169
                                           ----------   ----------   ----------
          Total provision...............    1,201,959    1,297,093    1,235,594
                                           ----------   ----------   ----------
Payments for policy claims and related
  expenses:
     Attributable to insured events of
       the current year.................      271,915      321,538      229,778
     Attributable to insured events of
       prior years......................      868,622      780,961      776,881
                                           ----------   ----------   ----------
          Total payments................    1,140,537    1,102,499    1,006,659
                                           ----------   ----------   ----------
Foreign currency translation............       (9,768)       1,659         (399)
                                           ----------   ----------   ----------
Net loss reserves, end of year..........    3,179,435    3,127,781    2,931,528
     Plus reinsurance recoverables......    2,679,917    2,453,702    2,116,914
                                           ----------   ----------   ----------
Loss reserves, end of year..............   $5,859,352   $5,581,483   $5,048,442
                                           ----------   ----------   ----------
                                           ----------   ----------   ----------
</TABLE>

The provision for insured events of prior years for 1995, 1994 and 1993 includes
adverse development related to asbestos-related and environmental pollution
claims, which primarily affect general liability and multiple peril lines of
business. The 1995 provision also includes adverse development in other general
liability, automobile and reinsurance lines, partially offset by favorable
development in workers' compensation. The 1994 provision also included adverse
development in other general liability lines, partially offset by favorable
development in workers' compensation. The 1993 provision also included adverse
development from workers' compensation reinsurance pools, partially offset by
favorable development in other general liability lines.
 
At December 31, 1995 and 1994, loss reserves include $400,200,000 and
$437,900,000 relating to short-duration contracts which are expected to have
fixed, periodic payment patterns and have been discounted to present values
using statutory annual rates ranging from 3 1/2% to 6%.
 
                                       14
<PAGE>
The reconciliation of the beginning to ending loss reserves for the Company's
title insurance operations is as follows:
 
<TABLE>
<CAPTION>
                             DECEMBER 31         1995         1994         1993
-------------------------------------------------------------------------------
(In thousands)
<S>                                        <C>          <C>          <C>
Loss reserves, beginning of year........   $  228,063   $  204,695   $  173,328
                                           ----------   ----------   ----------
Provision for policy claims and related
  expenses:
     Provision for insured events of the
       current year.....................       57,900       71,060       76,955
     Increase in provision for insured
       events of prior years............          586        4,807        4,848
                                           ----------   ----------   ----------
          Total provision...............       58,486       75,867       81,803
                                           ----------   ----------   ----------
Payments for policy claims and related
  expenses:
     Attributable to insured events of
       the current year.................        2,187        4,475        2,356
     Attributable to insured events of
       prior years......................       43,585       48,024       48,080
                                           ----------   ----------   ----------
          Total payments................       45,772       52,499       50,436
                                           ----------   ----------   ----------
Loss reserves, end of year..............   $  240,777   $  228,063   $  204,695
                                           ----------   ----------   ----------
                                           ----------   ----------   ----------
</TABLE>

The reconciliation of the beginning to ending net loss reserves pertaining to
asbestos-related and environmental pollution claims is as follows:
 
<TABLE>
<CAPTION>
                             DECEMBER 31         1995         1994         1993
-------------------------------------------------------------------------------
(In thousands)
<S>                                        <C>          <C>          <C>
Net loss reserves, beginning of year....   $  130,143   $  122,034   $   94,253
Provision for policy claims and related
  expenses..............................       25,904       28,279       52,630
Payments for policy claims and related
  expenses..............................      (25,341)     (20,170)     (24,849)
                                           ----------   ----------   ----------
Net loss reserves, end of year..........   $  130,706   $  130,143   $  122,034
                                           ----------   ----------   ----------
                                           ----------   ----------   ----------
</TABLE>
 
Included in the December 31, 1995 net loss reserves for asbestos-related and
environmental pollution claims are $33,782,000 of loss costs for claims incurred
but not reported, $51,875,000 of loss costs for reported claims and $45,049,000
of related expenses. The Company continues to receive claims asserting injuries
from hazardous materials and alleged damages to cover various clean-up costs.
Loss and loss expense reserves for asbestos-related and environmental pollution
claims are established using standard actuarial techniques as well as
management's judgement. Coverage and claim settlement issues, related to
policies written in prior years, 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. See Financial Review
section for further discussion.
 
8. SENIOR RESET NOTES, TERM LOANS AND SHORT-TERM DEBT
 
In 1993, the Company entered into a revolving credit facility and term loan
agreement ('Credit Facility'). Borrowings under the Credit Facility were used to
redeem all of the Company's outstanding debentures. As a result of the early
extinguishment of this debt, the Company incurred an extraordinary loss of
$3,666,000, net of income taxes of $1,974,000, in 1993.
 
On April 26, 1995, the Company extended its revolving credit facility through
March 31, 2000 from December 31, 1998. In addition, the Company increased term
loan borrowings to $137,500,000 from $62,500,000 and extended the maturity dates
of the term loan borrowings through March 31, 2000. The additional $75,000,000
of borrowings under the term loan were used, in part, to redeem $25,000,000 of
the 7.866% senior reset notes and $25,000,000 of the 9.48% senior reset notes,
including $9,652,000 of notes held by Reliance Insurance Company. These
transactions resulted in an extraordinary loss of $3,363,000, net of income
taxes of $1,811,000. In addition, on May 1, 1995, all of the outstanding shares
of redeemable preferred stock of Reliance Insurance Company, which had a
carrying value of $23,517,000, were redeemed. The cost of the early redemption
in excess of the carrying value of the preferred stock, $252,000, was charged

directly to shareholder's equity.

                                       15
<PAGE>
Senior reset notes outstanding are as follows:
 
<TABLE>
<CAPTION>
                             DECEMBER 31         1995         1994
------------------------------------------------------------------
(Dollars in thousands)
<S>                                        <C>          <C>
7.866% senior reset notes (interest rate
  is adjustable every five years based
  on Treasury Rate) due 2000............   $   15,365      $30,713
9.48% senior reset notes (interest rate
  is adjustable every three years based
  on Treasury Rate) due 2000; ($25,000
  and $50,000 principal amount, less
  unamortized discount of $47 and $117
  at December 31, 1995 and 1994)........       24,953       49,883
                                           ----------   ----------
                                           $   40,318      $80,596
                                           ----------   ----------
                                           ----------   ----------
</TABLE>
 
The fair value of the Company's senior reset notes at December 31, 1995 and 1994
was $40,345,000 and $80,753,000 based on quoted market prices.
 
TERM LOANS AND SHORT-TERM DEBT
 
At December 31, 1995, term loans and short-term debt aggregated $176,101,000 and
consisted of $168,248,000 of term loans which are payable in varying amounts
through 2015 with interest rates ranging from 5.2% to 10.5% and $7,853,000 of
short-term debt. The weighted average interest rate on short-term debt was 7.5%
and 7.4% at December 31, 1995 and 1994. The Company believes that the fair value
of its term loans and short-term debt at December 31, 1995 and 1994 approximates
carrying value.
 
Maturities and sinking fund payments of the senior reset notes as well as term
loans and short-term debt for each of the next five years are as follows:

<TABLE>
<CAPTION>
                             Term Loans
                    Senior          and
                     Reset   Short-Term
                     Notes         Debt
---------------------------------------
(In thousands)
<S>             <C>          <C>
1996..........  $       --      $ 8,336
1997..........          --       21,065
1998..........          --       20,000
1999..........          --       50,000
2000..........      40,365       65,000
</TABLE>
 
The Company's Credit Facility includes a revolving credit facility with various
banks providing for aggregate maximum outstanding borrowings of $100,000,000
through March 31, 2000. At the Company's option, all borrowings under the
revolving credit facility will bear interest at a floating rate based on a bank
reference rate (or, if higher, the Federal Funds rate plus 1/2%) or at a rate
based on the Eurodollar rate. At December 31, 1995, borrowings aggregating
$21,000,000 were outstanding under this facility. All of the common stock of
Reliance Insurance Company, the principal subsidiary of the Company, has been
pledged to secure the Credit Facility and the senior reset notes.
 
The Company's dividends are subject to provisions of the senior reset notes.
These provisions are less restrictive than the provisions in the Credit Facility
which require, among other things, a minimum net worth requirement and a
limitation of indebtedness. At February 14, 1996, the Company could pay up to
$352,400,000 in dividends without violating the more restrictive minimum net
worth requirement.
 
                                       16
<PAGE>
9. DIVIDENDS OF SUBSIDIARIES

The Insurance Law of Pennsylvania, where Reliance Insurance Company (the
Company's principal property and casualty insurance subsidiary) 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 premiums
that can be written and the ability to pay future dividends. Furthermore, the
Pennsylvania Insurance Department has broad discretion to limit the payment of
dividends by insurance companies.

Total common stock dividends paid by Reliance Insurance Company during 1995,
1994 and 1993 were $111,467,000, $111,467,000 and $130,639,000, respectively.
During 1996, $165,400,000 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 tests 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.

10. REINSURANCE
 
In the normal course of business, the property and casualty insurance companies
assume and cede reinsurance on both a pro-rata and excess basis. Reinsurance
provides greater diversification of business and limits the maximum net loss
potential arising from large claims. Although the ceding of reinsurance does not
discharge an insurer from its primary legal liability to a policyholder, the
reinsuring company assumes the related liability.
 
Amounts recoverable from reinsurers are estimated in a manner consistent with
the liability for unpaid claims and related expenses associated with the
reinsurance. Estimated amounts of reinsurance recoverables are reported as
assets in the accompanying consolidated balance sheet. As of December 31, 1995
and 1994, reinsurance recoverables include $472,925,000 and $463,380,000 of
prepaid reinsurance premiums which represents the portion of property and
casualty premiums ceded to reinsurers applicable to unearned premiums.
 
                                       17

<PAGE>
The reconciliation of property and casualty insurance direct premiums to net
premiums is as follows:

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31     1995                      1994                      1993
--------------------------------------------------------------------------------------------
(In thousands)
                   Premiums     Premiums     Premiums     Premiums     Premiums     Premiums
                    Written       Earned      Written       Earned      Written       Earned
                 ----------   ----------   ----------   ----------   ----------   ----------
<S>              <C>          <C>          <C>          <C>          <C>          <C>
Direct.........  $2,748,439   $2,707,978   $2,654,437   $2,630,549   $2,587,149   $2,531,478
Assumed........     325,226      350,636      330,261      345,398      323,422      304,422
Ceded..........  (1,294,625)  (1,284,023)  (1,220,408)  (1,198,629)  (1,139,974)  (1,264,361)
                 ----------   ----------   ----------   ----------   ----------   ----------
Net premiums...  $1,779,040   $1,774,591   $1,764,290   $1,777,318   $1,770,597   $1,571,539
                 ----------   ----------   ----------   ----------   ----------   ----------
                 ----------   ----------   ----------   ----------   ----------   ----------
</TABLE>
 
The reconciliation of property and casualty insurance gross policy claims and
settlement expenses to net policy claims and settlement expenses is as follows:
 
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31                              1995         1994         1993
----------------------------------------------------------------------------------
(In thousands)
<S>                                           <C>          <C>          <C>
Gross.......................................  $1,987,055   $2,220,285   $2,097,428
Reinsurance recoveries......................    (785,096)    (923,192)    (861,834)
                                              ----------   ----------   ----------
Net policy claims and settlement expenses...  $1,201,959   $1,297,093   $1,235,594
                                              ----------   ----------   ----------
                                              ----------   ----------   ----------
</TABLE>
 
The Company holds substantial amounts of funds and letters of credit as
collateral pursuant to recoverables from unauthorized reinsurers. The Company is
not aware of any impairment of the creditworthiness of any of its significant
reinsurers.
 
Reliance Insurance Company's ten largest reinsurers, based on 1995 ceded
premiums, are as follows:

<TABLE>
<CAPTION>
--------------------------------------------------------
(In thousands)
<S>                                          <C>
Lloyd's of London.........................   $   108,070
American Re-Insurance Company.............       105,938
Hertz International Reinsurance Ltd. .....        59,583
Commercial Risk Re-Insurance Co. .........        42,593
Swiss Reinsurance America Corporation.....        34,380
Zurich Reinsurance Centre, Inc. ..........        32,741
Kemper Reinsurance Company................        32,291
International Industrial Indemnity Company
  (formerly TRN Insurance Company)........        32,126
Transatlantic Reinsurance Company.........        29,986
G.I.O. Insurance Ltd. ....................        29,288
</TABLE>
 
The Company has entered into an aggregate excess of loss reinsurance agreement.
This agreement indemnifies the Company for ultimate net property and casualty
insurance losses in excess of a specified retention for the 1995 accident year
up to a maximum aggregate limit of $100,000,000.
 
11. OTHER INSURANCE EXPENSES
 
<TABLE>
<CAPTION>

YEAR ENDED DECEMBER 31                     1995          1994          1993
---------------------------------------------------------------------------
(In thousands)
<S>                                 <C>           <C>           <C>
Salaries and commissions.........   $   563,680   $   704,254   $   684,362
Taxes, other than income taxes...        48,603        34,849        54,049
Rent.............................        55,848        54,863        50,852
Policyholders' dividends.........         7,065         2,630         6,342
Other............................       150,967       163,308       159,142
                                    -----------   -----------   -----------
                                    $   826,163   $   959,904   $   954,747
                                    -----------   -----------   -----------
                                    -----------   -----------   -----------
</TABLE>
 
                                       18

<PAGE>
12. POSTRETIREMENT BENEFIT PLANS
 
Retirement benefits under the Company's noncontributory trusteed defined benefit
pension plans are paid to eligible employees based primarily on years of service
and compensation. Plan assets principally consist of corporate and government
debt securities and 1,247,400 shares of Reliance Group Holdings, Inc. common
stock and 404,797 warrants to purchase shares of Reliance Group Holdings, Inc.
common stock.
 
Pension cost includes the following components:
 
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31                                  1995         1994         1993
--------------------------------------------------------------------------------------
(In thousands)
<S>                                                 <C>         <C>          <C>
Service cost--benefits earned during the period...  $  7,959    $  10,255    $   7,882
Interest cost on projected benefit obligation.....    13,689       12,941       12,495
Actual return on plan assets......................   (28,748)       8,920      (25,596)
Net amortization and deferral.....................    13,303      (26,252)      10,068
Effect of plan curtailment........................        --           --       (1,212)
                                                    --------    ---------    ---------
                                                    $  6,203    $   5,864    $   3,637
                                                    --------    ---------    ---------
                                                    --------    ---------    ---------
</TABLE>
 
A reconciliation of the funded status of the plans with the accrued pension cost
included in accounts payable and accrued expenses is as follows:

<TABLE>
<CAPTION>
                                             DECEMBER 31       1995        1994
-------------------------------------------------------------------------------
(In thousands)
<S>                                                       <C>          <C>
Actuarial present value of benefit obligation:
     Vested.............................................  $ 158,753    $ 118,580
     Nonvested..........................................      9,971        6,890
                                                          ---------    ---------
Accumulated benefit obligation..........................    168,724      125,470
Effect of anticipated future compensation levels........     36,022       26,675
                                                          ---------    ---------
Projected benefit obligation............................    204,746      152,145
Plan assets at market value.............................   (164,877)    (144,347)
                                                          ---------    ---------
Projected benefit obligation in excess of plan assets...     39,869        7,798
Unrecognized net asset at date of adoption..............      8,455       10,076
Unrecognized net loss...................................    (25,166)        (919)
                                                          ---------    ---------
Accrued pension cost....................................  $  23,158    $  16,955
                                                          ---------    ---------
                                                          ---------    ---------
</TABLE>
 
No contributions under the Company's noncontributory trusteed defined benefit
pension plan were made during 1995. Contributions were $3,391,000 and $4,381,000
in 1994 and 1993.
 
The assumptions used to measure the projected benefit obligation at December 31,
1995 and 1994 include a discount rate of 7.5% and 9.0% and a weighted average
rate of compensation increase of 5.4% and 5.9%. The expected long-term
investment rate of return on plan assets for the years ended December 31, 1995
and 1994 was 9.5% and 10.0%.
 
Contributions under the Company's defined contribution plans were $4,105,000,
$5,095,000 and $6,353,000 in 1995, 1994 and 1993, respectively, and were based
on a formula specified in the plan agreements.
 
The Company offers unfunded postretirement medical and life insurance plans to
certain employees of a subsidiary. Postretirement benefit cost includes the
following components:

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31                                                 1995         1994         1993
-----------------------------------------------------------------------------------------------------
(In thousands)
<S>                                                                <C>         <C>          <C>
Service cost--benefits earned during the period..................  $    167    $     226    $     242
Interest cost on accumulated postretirement benefit obligation...       713          715          893
Net amortization and deferral....................................       624          790        1,141
                                                                   --------    ---------    ---------
                                                                   $  1,504    $   1,731    $   2,276
                                                                   --------    ---------    ---------
                                                                   --------    ---------    ---------
</TABLE>
 
                                       19
<PAGE>
The components of the accumulated postretirement benefit obligation are as
follows:
 
<TABLE>
<CAPTION>
                                   DECEMBER 31        1995        1994
----------------------------------------------------------------------
(In thousands)
<S>                                             <C>           <C>
Accumulated postretirement benefit obligation:
     Retirees.................................  $    5,597    $  5,743
     Other active plan participants...........       3,618       3,001
                                                ----------    --------
Accumulated benefit obligation................       9,215       8,744
Unrecognized net gain.........................          92         853
Unrecognized transition obligation............      (7,963)     (8,630)
                                                ----------    --------
Accrued postretirement benefit cost...........  $    1,344    $    967
                                                ----------    --------
                                                ----------    --------
</TABLE>
 
The assumed health care cost trend rate used in measuring the accumulated
postretirement benefit obligation as of December 31, 1995 was 12.0% for 1996
decreasing until it reaches 6.0% in 2008, after which it remains constant. A
one-percentage-point change in the assumed health care cost trend rate for each
year would change the accumulated postretirement benefit obligation as of
December 31, 1995 and the 1995 net postretirement health care cost by
approximately 2.9% and 2.2%. The assumed discount rate used in determining the
accumulated postretirement benefit obligation at December 31, 1995 and 1994 was
7.5% and 9.0%.

13. STATUTORY INFORMATION
 
Statutory net income is as follows:
 
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31                             1995           1994        1993
----------------------------------------------------------------------------------
(In thousands)
<S>                                            <C>          <C>           <C>
Property and casualty insurance operations...  $225,989     $  123,970    $217,353
Title insurance operations...................    12,439         32,421      43,904
</TABLE>
 
Statutory policyholders' surplus is as follows:
 
<TABLE>
<CAPTION>
                                      DECEMBER 31        1995        1994
-------------------------------------------------------------------------
(In thousands)
<S>                                                <C>           <C>
Property and casualty insurance operations (1)...  $1,128,336    $908,538
Title insurance operations.......................     182,167     180,757
</TABLE>
 
(1) Includes Reliance Insurance Company's investment in title insurance
    operations. Also reflects a reduction in statutory loss reserves of
    $98,800,000 and $104,100,000 at December 31, 1995 and 1994, representing
    discounts of workers' compensation reserves in excess of GAAP discounts.
 
14. RELATED PARTY TRANSACTION
 
In 1993, the Company purchased, at fair market value, an office building for
$10,500,000 from a wholly-owned subsidiary of Reliance Group Holdings, Inc.
 
15. CONTINGENCIES AND COMMITMENTS
 
CONTINGENCIES
 
On November 8, 1988, voters in California approved Proposition 103, which
requires a rollback of rates for property and casualty insurance policies issued
or renewed after November 8, 1988 of 20% from November 1987 levels and freezes
rates at such lower levels until November 1989. Proposition 103 also requires
that subsequent rate changes be justified to, and approved by, an elected
insurance commissioner.
 
                                       20

<PAGE>
On November 28, 1994, Reliance Insurance Company and several of its affiliates
received an order from the outgoing Insurance Commissioner ordering refunds
totaling $72,300,000 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 $15,600,000 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 $4,000,000 related to Proposition
103. The fourth quarter 1995 charge represents the difference between the
settlement amount and the pre-tax charge of $11,600,000 the Company had taken in
the fourth quarter of 1994 to provide for Proposition 103 refunds and interest.
 
LEGAL PROCEEDINGS
 
The Company and its subsidiaries are involved in certain litigation arising in
the course of their businesses, some of which involve claims of substantial
amounts. Although the ultimate outcome of these matters cannot be ascertained at
this time, and the results of legal proceedings cannot be predicted with
certainty, the Company is contesting the allegations of the complaints in each
pending action against it and believes, based on current knowledge and after
consultation with counsel, that the resolution of these matters will not have a
material adverse effect on the consolidated financial statements of the Company.
In addition, the Company is subject to the litigation set forth below.
 
In March 1987, the Superintendent of Insurance of New York (the
'Superintendent'), as liquidator of Union Indemnity Insurance Company of New
York ('Union Indemnity'), formerly a wholly-owned subsidiary of Frank B. Hall &
Co. Inc. ('Hall') which the Superintendent took possession of in 1985, commenced
an action in the Supreme Court of the State of New York seeking damages of not
less than $140,000,000 against Hall, various subsidiaries of Hall, Hall's and
Union Indemnity's independent auditors and certain individuals who were former
officers and directors of Union Indemnity. The Superintendent sought to hold the
defendants liable for the insolvency of Union Indemnity alleging, among other
claims, that Hall breached fiduciary and other duties owed to Union Indemnity
and violated provisions of the New York State Insurance Code, that Union
Indemnity did not have a separate operating identity, and that Hall and the Hall
subsidiaries named as defendants constituted a single enterprise which was
liable for Union Indemnity's obligations to its policyholders and other
creditors.
 
In July 1987, American Centennial Insurance Company, International Fidelity
Insurance Company, and Ranger Insurance Company (the 'American Centennial
Plaintiffs') commenced an action in the Supreme Court of the State of New York
against Hall, two subsidiaries of Hall, and certain individuals who were former
officers and directors of Union Indemnity seeking to hold the defendants liable
for certain alleged reinsurance obligations of Union Indemnity, certain
misrepresentations concerning Union Indemnity's financial position and the
breach of certain duties owed to the American Centennial Plaintiffs. The
American Centennial Plaintiffs sought damages of at least $54,900,000 and
punitive damages against all defendants.

 
The action brought by the Superintendent was settled by an agreement, dated June
2, 1989, under which Hall, now known as Prometheus Funding Corp. ('Prometheus'),
will make an initial payment of $19,000,000 and additional payments aggregating
$29,000,000 over a ten-year period without interest as follows: $1,500,000 each
in years one and two; $2,000,000 each in years three and four; $5,000,000 in
year five; $4,500,000 each in years six and seven; $4,000,000 in year eight; and
$2,000,000 each in years nine and ten. The settlement agreement provides for the
entry of an order by the court barring other claims against Hall relating to
Union Indemnity, including the claims by the American Centennial Plaintiffs
described above. The settlement agreement was submitted to the court for
approval in October 1989 and objections were filed by various parties. The
Superintendent has informed Prometheus that he intends to pursue court approval
of the settlement. The settlement agreement will not become effective until
final approval by the court and there is no assurance that such approval will be
obtained. Prometheus has recorded a reserve of $36,000,000 representing the
initial payment of $19,000,000 and the present value of the additional remaining
annual payments over a ten-year period. Prometheus has received an aggregate of
$20,000,000 in insurance proceeds in connection with this matter from its
insurance carrier.
 
                                       21
<PAGE>
COMMITMENTS
 
A subsidiary of the Company, Saul P. Steinberg and other executives of the
Company are partners in a partnership which owns certain real estate properties.
At December 31, 1995, the partnership's total outstanding debt was $172,080,000,
including borrowings of $6,563,000 under a line of credit with Reliance Group
Holdings, Inc. As of December 31, 1995, the Company guaranteed $38,000,000 of
the partnership's outstanding debt which matures on December 29, 1996. The
Company believes that, to the extent such debt cannot be fully refinanced at
maturity, the partnership will need to seek additional financing from other
sources, which may include the Company or Reliance Group Holdings, Inc. The
Company receives a fee of .5% per annum on the average outstanding debt covered
by the guarantee. In addition, the Company will receive 48% of any cumulative
net profit (as defined) realized from the activities of the partnership.
 
During 1992, Hall, the Company's discontinued insurance brokerage operation,
completed the sale of substantially all of its operating assets and its
insurance brokerage, employee benefits consulting and related services
businesses to Aon Corporation ('Aon'). Under the terms of the sale, the Company
agreed to provide $18,000,000 per year until 2007 of reinsurance brokerage
commissions to Aon.
 
LEASE COMMITMENTS
 
The Company and its subsidiaries lease certain office facilities and equipment
under lease agreements that expire at various dates through 2011. Rent expense
for the years ended December 31, 1995, 1994 and 1993 was $92,300,000,
$92,400,000 and $92,000,000, respectively.

At December 31, 1995, future net minimum rental payments required under
noncancelable leases are as follows:
 
<TABLE>
<CAPTION>
--------------------------------
(In thousands)
<S>                     <C>
1996..................  $ 59,757
1997..................    47,909
1998..................    31,912
1999..................    25,243
2000..................     9,993
2001 and thereafter...    13,328
                        --------
                        $188,142
                        --------
                        --------
</TABLE>
 
                                       22
<PAGE>
16. BUSINESS SEGMENT INFORMATION
 
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31                                   1995          1994          1993
-----------------------------------------------------------------------------------------
(In thousands)
<S>                                                <C>           <C>           <C>
REVENUES:
Property and casualty insurance
     Premiums earned.............................  $1,774,591    $1,777,318    $1,571,539
     Net investment income.......................     247,343       232,299       226,517
     Gain on sales of investments................      27,381         8,702       153,410
                                                   ----------    ----------    ----------
                                                    2,049,315     2,018,319     1,951,466
                                                   ----------    ----------    ----------
Title insurance
     Premiums earned.............................     671,947       856,774       893,364
     Net investment income.......................      27,946        26,613        24,282
     Gain on sales of investments................       1,729           516         4,786
                                                   ----------    ----------    ----------
                                                      701,622       883,903       922,432
                                                   ----------    ----------    ----------
Other............................................     171,159       156,473       135,293
                                                   ----------    ----------    ----------
                                                   $2,922,096    $3,058,695    $3,009,191
                                                   ----------    ----------    ----------
                                                   ----------    ----------    ----------

INCOME BEFORE INCOME TAXES, MINORITY INTERESTS
  AND EQUITY IN INVESTEE COMPANY:
Property and casualty insurance
     Underwriting................................  $  (45,644)   $  (97,343)   $ (175,565)
     Net investment income.......................     247,343       232,299       226,517
     Gain on sales of investments................      27,381         8,702       153,410
                                                   ----------    ----------    ----------
                                                      229,080       143,658       204,362
                                                   ----------    ----------    ----------
Title insurance..................................      14,012        31,326        59,966
                                                   ----------    ----------    ----------
Other............................................      13,140         4,815         4,731
                                                   ----------    ----------    ----------
                                                   $  256,232    $  179,799    $  269,059
                                                   ----------    ----------    ----------
                                                   ----------    ----------    ----------
IDENTIFIABLE ASSETS AT YEAR-END:
Property and casualty insurance..................  $9,100,210    $8,541,019    $7,959,886
Title insurance..................................     572,267       550,160       547,707
Other............................................     223,443       246,586       270,319
                                                   ----------    ----------    ----------
                                                   $9,895,920    $9,337,765    $8,777,912
                                                   ----------    ----------    ----------
                                                   ----------    ----------    ----------
</TABLE>
 
Income before income taxes, minority interests and equity in investee company
relating to property and casualty insurance underwriting has been reduced by
policyholders' dividends and other income and expense. Income before income
taxes, minority interests and equity in investee company by segment is before
allocation of corporate interest expense. The pre-tax results of RCG
International, Inc. (a subsidiary of the property and casualty insurance
operations) are included in Other.
 
Identifiable assets by industry segment are those assets which are used in the
Company's operations in each segment.
 
                                       23

<PAGE>
17. QUARTERLY FINANCIAL DATA (UNAUDITED)
<TABLE>
<CAPTION>
                                                                                         1995 Quarter
-----------------------------------------------------------------------------------------------------
                                                            First      Second       Third      Fourth
-----------------------------------------------------------------------------------------------------
(In thousands)
<S>                                                      <C>         <C>         <C>         <C>
REVENUES:
Premiums earned........................................  $604,666    $599,957    $618,831    $623,084
Net investment income..................................    69,378      66,362      68,727      70,822
Gain on sales of investments...........................     8,286       7,669      10,187       2,968
Interest income from parent company....................     4,917       5,362       5,166       4,963
Other..................................................    37,817      40,657      36,512      35,765
                                                         --------    --------    --------    --------
                                                         $725,064    $720,007    $739,423    $737,602
                                                         --------    --------    --------    --------
                                                         --------    --------    --------    --------
INCOME FROM CONTINUING OPERATIONS......................  $ 44,402    $ 46,386    $ 50,464    $ 39,023
Loss on disposal of discontinued operations of investee
  company..............................................        --          --      (4,497)         --
                                                         --------    --------    --------    --------
INCOME BEFORE EXTRAORDINARY ITEM.......................    44,402      46,386      45,967      39,023
Extraordinary item--early extinguishment of debt.......        --      (3,363)         --          --
                                                         --------    --------    --------    --------
NET INCOME.............................................  $ 44,402    $ 43,023    $ 45,967    $ 39,023
                                                         --------    --------    --------    --------
                                                         --------    --------    --------    --------
</TABLE>

<TABLE>
<CAPTION>
                                                                                         1994 Quarter
-----------------------------------------------------------------------------------------------------
                                                            First      Second       Third      Fourth
-----------------------------------------------------------------------------------------------------
(In thousands)
<S>                                                      <C>         <C>         <C>         <C>
Revenues:
Premiums earned........................................  $685,885    $734,588    $623,547    $590,072
Net investment income..................................    62,650      64,603      65,362      66,297
Gain on sales of investments...........................     3,637       1,672       3,403         506
Interest income from parent company....................     2,918       3,046       3,551       5,349
Other..................................................    31,475      37,109      36,847      36,178
                                                         --------    --------    --------    --------
                                                         $786,565    $841,018    $732,710    $698,402
                                                         --------    --------    --------    --------
                                                         --------    --------    --------    --------
Net income.............................................  $ 17,662    $ 41,355    $ 43,194    $ 36,327
                                                         --------    --------    --------    --------
                                                         --------    --------    --------    --------
</TABLE>

                                       24
<PAGE>
INDEPENDENT AUDITORS' REPORT
--------------------------------------------------------------------------------
 
Board of Directors and Shareholder
Reliance Financial Services Corporation
New York, New York
 
We have audited the accompanying consolidated balance sheets of Reliance
Financial Services Corporation (a subsidiary of Reliance Group Holdings, Inc.)
and subsidiaries as of December 31, 1995 and 1994, and the related statements of
income, changes in shareholder's equity and cash flows for each of the three
years in the period ended December 31, 1995. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
 
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
 
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of Reliance Financial Services
Corporation and subsidiaries at December 31, 1995 and 1994 and the results of
their operations and their cash flows for each of the three years in the period
ended December 31, 1995 in conformity with generally accepted accounting
principles.
 
As discussed in note 6 to the consolidated financial statements, in 1993 the
Company adopted Statement of Financial Accounting Standards No. 109 and,
accordingly, changed its method of accounting for income taxes.
 
/s/ Deloitte & Touche LLP
New York, New York
February 26, 1996
 
                                       25

<PAGE>
RELIANCE FINANCIAL SERVICES CORPORATION AND SUBSIDIARIES
 
FINANCIAL REVIEW
--------------------------------------------------------------------------------
 
OVERVIEW
 
The Company had income from continuing operations, before gains on sales of
investments, of $159.7 million in 1995 compared to $132.5 million in 1994 and
$82.5 million in 1993. These increases resulted from continued improvement in
the underwriting results of the property and casualty insurance operations.
After-tax gains on sales of investments were $20.6 million in 1995, which
included a gain of $1.7 million from the sales of certain consulting operations,
compared to $6.0 million in 1994 and $102.8 million in 1993.
 
Net income was $172.4 million in 1995, which included a loss of $4.5 million on
the disposal of discontinued life insurance operations by Zenith National
Insurance Corp. ('Zenith'), an investee company, and an extraordinary loss of
$3.4 million from the early extinguishment of debt. Net income in 1994 was
$138.5 million and $206.0 million in 1993, which included income of $24.3
million representing the cumulative effect of adopting Statement of Financial
Accounting Standards No. 109, 'Accounting for Income Taxes.'
 
PROPERTY AND CASUALTY INSURANCE OPERATIONS
 
The property and casualty insurance operations reported pretax income, before
gains on sales of investments, of $201.7 million in 1995 compared to $135.0
million in 1994 and $51.0 million in 1993. Gains on sales of investments were
$27.4 million in 1995 compared to $8.7 million in 1994 and $153.4 million in
1993.
 
Property and casualty insurance underwriting results improved significantly in
1995. The combined ratios (calculated on a GAAP basis), after policyholders'
dividends, were 101.8%, 104.4% and 110.8% for 1995, 1994 and 1993, respectively.
The 1995 results reflect improved performance in workers' compensation, ocean
and inland marine and general liability lines, as well as record underwriting
profits in surety lines. Underwriting losses were $45.6 million in 1995 compared
to $97.3 million in 1994 and $175.6 million in 1993. Underwriting results in
1995 benefitted from lower catastrophes losses, which were $25.7 million ($78.5
million before reinsurance) compared to $50.1 million in 1994 ($134.0 million
before reinsurance) which included $44.9 million arising from the January 1994
California earthquake, and $39.3 million in 1993 ($88.5 million before
reinsurance).
 
Net premiums written and premiums earned for each line of property and casualty
insurance are as follows:

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31                 1995                      1994                      1993
--------------------------------------------------------------------------------------------------------
(In thousands)                      Net          Net          Net          Net          Net          Net
                               Premiums     Premiums     Premiums     Premiums     Premiums     Premiums
                                Written       Earned      Written       Earned      Written       Earned
                             ----------   ----------   ----------   ----------   ----------   ----------
<S>                          <C>          <C>          <C>          <C>          <C>          <C>
General Liability..........  $  468,951   $  451,867   $  423,377   $  427,864   $  369,895   $  337,151
Workers' Compensation......     265,882      290,241      312,808      323,891      377,592      360,613
Automobile.................     239,819      236,592      244,000      251,038      260,180      225,910
Multiple Peril.............     184,600      180,166      180,074      170,230      187,438      147,158
Surety.....................     139,298      127,355      117,989      108,833      106,664       97,414
Reinsurance................     118,969      119,921      125,597      132,694      123,742      124,150
Ocean and Inland Marine....     118,757      115,590      103,865       95,103      105,254       82,451
Involuntary................      81,006       88,734      113,483      115,963      113,498      112,700
Fire and Allied............      68,118       61,430       49,977       56,495       40,372       20,850
Other......................      93,640      102,695       93,120       95,207       85,962       63,142
                             ----------   ----------   ----------   ----------   ----------   ----------
                             $1,779,040   $1,774,591   $1,764,290   $1,777,318   $1,770,597   $1,571,539
                             ----------   ----------   ----------   ----------   ----------   ----------
                             ----------   ----------   ----------   ----------   ----------   ----------
</TABLE>
 
                                       26
<PAGE>
The increase in net premiums written in 1995, when compared to 1994, reflects
growth in international operations, particularly in general liability and ocean
and inland marine lines of business. In addition, surety premiums increased in
1995 resulting from an increase in construction activity by insureds and
increased retentions from restructuring certain reinsurance programs. These
increases were partially offset by declines in workers' compensation premiums
resulting from the shift by insureds to high deductible and captive insurance
programs, as well as a decline in premiums from involuntary insurance
facilities. The decline in net premiums written in 1994, when compared to 1993,
is primarily attributable to lower writings in workers' compensation, including
a reduction of $11.0 million in premiums as a result of certain litigation
claims in Texas. These claims were settled in 1995 for a total of $12.2 million.
This decline was substantially offset by growth in general liability, surety and
fire and allied lines of business. The increase in net premiums earned in 1994,
when compared to 1993, is due to the non-renewal of certain quota share
reinsurance treaties. These treaties reduced 1993 net premiums earned by $209.2
million.
 
In addition to the effect of lower catastrophe losses, the improvement in 1995
underwriting results reflect higher underwriting profits in workers'
compensation, which were $58.5 million in 1995 compared to $12.0 million in 1994
and $11.4 million in 1993. These improvements resulted from continued favorable
trends in loss development. Underwriting results in 1995 also benefitted from
record underwriting profits in surety lines, reflecting fewer large losses.
Underwriting profits in surety lines were $41.5 million in 1995 compared to
$27.5 million in 1994 and $18.4 million in 1993. These improvements were
partially offset by higher underwriting losses in automobile lines which

experienced adverse development in various programs. The improvement in
underwriting results in 1994, when compared to 1993, reflects lower underwriting
losses in automobile and multiple peril lines and involuntary insurance
facilities. 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 1995 and 1994 underwriting results include
charges of $4.0 million and $11.6 million, respectively, resulting from this
matter. See note 15 to the consolidated financial statements.
 
The property and casualty insurance operations assume and cede reinsurance in
the normal course of business. The Company's aggregate reinsurance recoverables
were $3.16 billion at December 31, 1995, representing estimated amounts
recoverable from reinsurers pertaining to unpaid claims, claims incurred but not
reported, unearned premiums and paid claims. The Company is subject to credit
risk with respect to its reinsurers, as the ceding of risk to reinsurers does
not relieve the Company of its liability to insureds. In order to minimize
losses from uncollectible reinsurance, the Company places its reinsurance with a
number of different reinsurers and utilizes a security committee to approve, in
advance, the reinsurers which meet its standards of financial strength. The
Company holds substantial amounts of collateral to secure recoverables from
unauthorized reinsurers. See note 10 to the consolidated financial statements.
 
Policy claims and settlement expenses include a provision for insured events of
prior years of $38.5 million in 1995 compared to $22.4 million in 1994 and $40.2
million in 1993. The provision for all years includes adverse development
related to prior year asbestos-related and environmental pollution claims, which
primarily affect general liability and multiple peril lines of business. The
1995 provision also includes adverse development in other general liability,
automobile and reinsurance lines, partially offset by favorable development in
workers' compensation. The 1994 provision also included adverse development in
other general liability lines, partially offset by favorable development in
workers' compensation. The 1993 provision also included adverse development from
workers' compensation reinsurance pools, partially offset by favorable
development in other general liability lines.
 
The Company records involuntary assessments when such assessments are billed by
the respective state insurance facilities. These assessments are subject to
large variations in timing and amount and, accordingly, the Company cannot
reasonably estimate a minimum amount of liability prior to billing. While the
amount of any involuntary assessments cannot be predicted with certainty, the
Company believes that future assessments will not have a material effect on its
liquidity or capital resources.
 
                                       27

<PAGE>
The liability for property and casualty insurance loss reserves at December 31,
1995 was $5.86 billion compared to $5.58 billion at December 31, 1994. This
liability is 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.
Reinsurance recoverables of $2.68 billion and $2.45 billion at December 31, 1995
and 1994, respectively, are included in the liability.
 
The establishment of loss reserves requires an estimate of the ultimate
liability based primarily on past experience. The Company applies a variety of
generally accepted actuarial techniques to determine the estimates of ultimate
liability. The techniques recognize, among other factors, the Company's and
industry's experience with similar business, historical trends in reserving
patterns and loss payments, pending level of unpaid claims, cost of claim
settlements, 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 Company
regularly analyzes its reserves and reviews its pricing and reserving
methodologies so that future adjustments to prior year reserves can be
minimized. 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 likely in long tail lines of business. The Company
attempts 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
Company also limits the potential loss from a single event through the extensive
use of reinsurance.
 
Included in the liability for loss reserves at December 31, 1995 are $178.6
million ($130.7 million net of recoverables from reinsurers) of loss reserves
pertaining to asbestos-related and environmental pollution claims. Included in
these reserves are reserves for claims incurred but not reported and reserves
for loss expenses, which include litigation expenses. The Company continues to
receive claims asserting injuries from hazardous materials and alleged damages
to cover various clean-up costs. Coverage and claim settlement issues, related
to policies written in prior years, such as the determination that coverage
exists and the definition of an occurrence, may cause the actual loss
development to exhibit more variation than the remainder of the Company's book
of business. The Company's net paid losses and related expenses for
asbestos-related and environmental pollution claims have not been material in
relation to the Company's total net paid losses and related expenses. Net paid
losses and related expenses (primarily legal fees and expenses) relating to
these claims were $25.3 million (including $7.3 million of related expenses),
$20.2 million (including $7.9 million of related expenses) and $24.8 million
(including $8.1 million of related expenses) for the years ended December 31,

1995, 1994 and 1993, respectively. Net payments for all property and casualty
insurance policy claims and related expenses were $1.14 billion, $1.10 billion
and $1.01 billion for the years ended December 31, 1995, 1994 and 1993,
respectively. The following table presents information related to the number of
insureds with asbestos-related and environmental pollution claims outstanding:
 
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31                                            1995    1994
------------------------------------------------------------------------------
<S>                                                               <C>     <C>
Number of insureds with outstanding claims, beginning of year...   666     661
Additional insureds with claims during the year.................   463     307
Insureds with closed or settled claims during the year..........  (379)   (302)
                                                                  ----    ----
Number of insureds with outstanding claims, end of year.........   750     666
                                                                  ----    ----
                                                                  ----    ----
</TABLE>
 
                                       28
<PAGE>
The average net paid loss for asbestos-related and environmental pollution
claims was $37,500 and $34,200 for the years 1995 and 1994, respectively. The
increase in the average net paid loss reflects the settlement of a large
environmental pollution claim. As of December 31, 1995, the Company was involved
in approximately 46 coverage disputes (where a motion for declaratory judgement
had been filed, the resolution of which will require a judicial interpretation
of an insurance policy) related to asbestos or environmental pollution claims.
The Company is not aware of any pending litigation or pending claim which will
result in significant contingent liabilities in these areas. The Company
believes it has made reasonable provisions for these claims, although the
ultimate liability may be more or less than such reserves. The Company believes
that future losses associated with these claims will not have a material adverse
affect on its financial position, although there is no assurance that such
losses will not materially affect the Company's results of operations for any
period.
 
PROPERTY AND CASUALTY INSURANCE INVESTMENT RESULTS
 
Net investment income of the property and casualty insurance operations
increased to $247.3 million in 1995 from $232.3 million in 1994 and $226.5
million in 1993. These increases reflect growth in the size of the fixed
maturity investment portfolio.
 
Gains on sales of investments were $27.4 million in 1995 compared to $8.7
million in 1994 and $153.4 million in 1993. Gains on sales of investments in
1993 primarily resulted from sales of equity securities.

TITLE INSURANCE OPERATIONS
 
The title insurance operations reported pretax income, before gains on sales of
investments, of $12.3 million in 1995, $30.8 million in 1994 and $55.2 million
in 1993.
 
Premiums and fees were $671.9 million in 1995 compared to $856.8 million in 1994
and $893.4 million in 1993. The decline in premiums and fees in 1995 primarily
resulted from decreased agency revenues reflecting the weak real estate markets
that existed in late 1994 and early 1995. Premiums and fees in 1994 benefitted
from increased agency revenues reflecting the strong real estate market
conditions that existed in late 1993 and early 1994. Premiums and fees in 1993
benefitted from high levels of residential refinancing activity that existed
throughout the year.
 
Agency commissions represent the portion of premiums retained by agents pursuant
to the terms of their agency contracts and are the title insurance operations'
single largest expense. Agency commissions, which fluctuate in direct relation
to agency premiums, were $310.7 million in 1995 compared to $432.0 million in
1994 and $418.4 million in 1993. Other expenses of the title insurance
operations include personnel costs relating to marketing activities, title
searches, information gathering on specific properties and preparation of
insurance policies, as well as costs associated with the maintenance of title
plants. Other expenses were $318.4 million in 1995 compared to $344.7 million in
1994 and $362.3 million in 1993. The decline in other expenses reflects cost
control programs, including staff reductions, implemented by the title insurance
operations. The expense ratio of the title insurance operations (which includes
agency commissions) increased to 93.1% in 1995 from 90.0% in 1994 and 87.3% in
1993. These increases in the expense ratio resulted from a proportionately
greater decline in premiums than expenses. The provision for policy claims
decreased to $58.5 million in 1995 from $75.9 million in 1994 and $81.8 million
in 1993 reflecting a decline in the amount of premiums.
 
INVESTMENT PORTFOLIO
 
At December 31, 1995, the Company's investment portfolio aggregated $4.01
billion (at cost), of which 10% was invested in equity securities. The Company
seeks to maintain a diversified and balanced fixed maturity portfolio
representing a broad spectrum of industries and types of securities. At December
31, 1995, no one issuer comprised more than 2.5% of the fixed maturity and
short-term investment portfolio. Furthermore, the Company holds virtually no
investments in commercial real estate mortgages in its investment portfolio.
Purchases of fixed maturity securities are researched individually based on
in-depth analysis and objective predetermined investment criteria and the
portfolio is managed to achieve a proper balance of safety, liquidity and
investment yields.
 
                                       29

<PAGE>
The Company's fixed maturity portfolio consists of investment grade securities
(those rated 'BBB' or better by Standard & Poor's) and, to a lesser extent,
non-investment grade and non-rated securities. The risk of default is generally
considered to be greater for non-investment grade securities, when compared to
investment grade securities, since these issues may be more susceptible to
severe economic downturns. At December 31, 1995, the carrying values of
non-investment grade securities and securities not rated by Standard & Poor's
were $299.0 million (8% of the fixed income portfolio) and $64.4 million (2% of
the fixed income portfolio), respectively. Substantially all of the Company's
non-investment grade and non-rated securities are classified as available for
sale and, accordingly, are carried at market value. See note 2 to the
consolidated financial statements.
 
At December 31, 1995, approximately 29% of the Company's fixed maturity and
short-term investment portfolio was comprised of securities issued by utilities,
the vast majority of which are rated investment grade and are first mortgage or
senior secured bonds. The utility portfolio is widely diversified among various
geographic regions in the United States and is not dependent on the economic
stability of any one particular region. No other industry group comprises more
than 10% of the fixed maturity and short-term investment portfolio.
 
In November 1995, the Financial Accounting Standards Board issued a special
report which permitted a one-time reassessment of the classification of
securities designated held for investment. Accordingly, the Company reclassified
fixed maturity securities with a market value of $426.4 million and an amortized
cost of $410.4 million from the held for investment portfolio into the available
for sale portfolio. This reclassification resulted in an increase in
shareholder's equity of $10.4 million.
 
OTHER OPERATIONS
 
RCG International, Inc., a subsidiary of the Company, provides technical
services in the information technology and energy industries. Revenues for these
operations were $150.8 million in 1995, $141.6 million in 1994 and $116.8
million in 1993. Revenues for 1995 include a pretax gain of $2.6 million
resulting from the sales of certain consulting operations. These sales are not
expected to have a material effect on the Company's ongoing operations. The
increase in revenues in both 1995 and 1994 resulted from growth in the
information technology business. Operating expenses incurred by these operations
were $141.6 million in 1995, $134.7 million in 1994 and $111.7 million in 1993.
Revenues and expenses of the technical services operations are included in other
revenues and other expenses in the accompanying consolidated statement of
income.
 
At December 31, 1995, the Company's real estate operations had holdings with a
carrying value of $278.5 million, which includes nine shopping centers with an
aggregate carrying value of $129.4 million, office buildings and other
commercial properties with an aggregate carrying value of $87.9 million, and
undeveloped land with a carrying value of $61.2 million.

EQUITY IN INVESTEE COMPANY
 
Equity in investee company income was $7.8 million, $9.5 million and $12.4
million in 1995, 1994 and 1993, respectively, from the Company's investment in
Zenith. In addition, in 1995, the Company recognized an after-tax loss of $4.5
million on the disposal of discontinued life insurance operations by Zenith. The
decline in equity income in 1995, when compared to 1994, reflects an increase in
Zenith's property and casualty underwriting losses, particularly in workers'
compensation. The decline in equity income in 1994, when compared to 1993,
reflects a lower level of gains on sales of investments by Zenith.
 
                                       30
<PAGE>
OTHER MATTERS
 
The Company has a revolving credit facility with various banks providing for
aggregate maximum outstanding borrowings of $100 million. At December 31, 1995,
borrowings aggregating $21 million were outstanding under this facility. On
April 26, 1995, the Company extended the revolving credit facility through March
31, 2000 from December 31, 1998. In addition, the Company increased term loan
borrowings to $137.5 million from $62.5 million and extended the maturity dates
of the term loan borrowings through March 31, 2000. The additional $75 million
of borrowings under the term loan were used, in part, to redeem $25 million of
the 7.866% senior reset notes and $25 million of the 9.48% senior reset notes,
including $9.7 million of notes held by Reliance Insurance Company. These
transactions resulted in an after-tax extraordinary loss of $3.4 million. In
addition, on May 1, 1995, all of the outstanding shares of redeemable preferred
stock of Reliance Insurance Company, which had a carrying value of $23.5
million, were redeemed. The cost of the early redemption in excess of the
carrying value of the preferred stock, $252,000, was charged directly to
shareholder's equity.
 
The National Association of Insurance Commissioners 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.
 
--------------------------------------------------------------------------------
 
MARKET AND DIVIDEND INFORMATION FOR COMMON STOCK
 
Reliance Group Holdings, Inc. owns 100% of the common stock of the Company.
Dividends on common stock, which are subject to agreements governing the
Company's Credit Facility and senior reset notes, were $110.0 million in both
1995 and 1994.
 
                                       31
<PAGE>
RELIANCE FINANCIAL SERVICES CORPORATION
 
--------------------------------------------------------------------------------
 
DIRECTORS
 
GEORGE R. BAKER(2)
Corporate Director/Advisor
 
GEORGE E. BELLO(3)
Executive Vice President
and Controller
Reliance Group Holdings, Inc.
 
DENNIS A. BUSTI
President and
Chief Executive Officer
Reliance National Insurance Company
 
LOWELL C. FREIBERG(3)
Senior Vice President and
Chief Financial Officer
Reliance Group Holdings, Inc.
 
DR. THOMAS P. GERRITY(2)
Dean of the Wharton School
University of Pennsylvania
 
JEWELL JACKSON MCCABE
President, Jewell Jackson
McCabe Associates

IRVING SCHNEIDER(2)
Executive Vice President
Helmsley-Spear, Inc.
 
BERNARD L. SCHWARTZ(1)
Chairman & CEO of
Loral Space & Communications Ltd. and
Chairman & CEO of Globalstar
 
RICHARD E. SNYDER
President
Western Publishing Group
 
THOMAS J. STANTON, JR.(2)
Chairman Emeritus
National Westminster Bank NJ
 
ROBERT M. STEINBERG(1),(3)
President and
Chief Operating Officer
Reliance Group Holdings, Inc.
 
SAUL P. STEINBERG(1),(3)
Chairman of the Board and
Chief Executive Officer
Reliance Group Holdings, Inc.
 
JAMES E. YACOBUCCI
Senior Vice President
Investments
Reliance Group Holdings, Inc.
 
(1) Executive Committee Member
(2) Audit Committee Member
(3) Finance Committee Member
 
                                       32
<PAGE>
RELIANCE FINANCIAL SERVICES CORPORATION
 
--------------------------------------------------------------------------------
 
OFFICERS
 
CORPORATE
 
SAUL P. STEINBERG
Chairman of the Board and
Chief Executive Officer

ROBERT M. STEINBERG
President and
Chief Operating Officer
 
GEORGE E. BELLO
Executive Vice President
and Controller
 
LOWELL C. FREIBERG
Senior Vice President and
Chief Financial Officer
 
HENRY A. LAMBERT
Senior Vice President
Real Estate Investments
and Operations
 
DENNIS J. O'LEARY
Senior Vice President
Taxes
 
PHILIP S. SHERMAN
Senior Vice President and
Group Controller
 
BRUCE L. SOKOLOFF
Senior Vice President
Administration
 
HOWARD E. STEINBERG
Senior Vice President,
General Counsel and
Corporate Secretary
 
JAMES E. YACOBUCCI
Senior Vice President
Investments
 
ALBERT A. BENCHIMOL
Vice President and
Treasurer
 
THOMAS G. BUTLER
Vice President
Taxes
 
ANDREW B. DONNELLAN, JR.
Vice President and
Chief Litigation Counsel

DAVID F. NOYES
Vice President and
Chief Credit Officer
 
STEVEN A. RAUTENBERG
Vice President
Communications
 
JOEL H. ROTHWAX
Vice President
Human Resources
 
THOMAS J. SANDERS
Vice President and
Assistant Controller
 
PAUL W. ZELLER
Vice President,
Deputy General Counsel
and Assistant Secretary
 
OFFICERS OF OPERATING UNITS
 
Reliance Insurance Group
 
ROBERT M. STEINBERG
Chairman and
Chief Executive Officer
 
JEROME H. CARR
Senior Vice President
and Chief Financial Officer
 
KENNETH R. FROHLICH
Senior Vice President
and Chief Actuarial Officer
 
Property and Casualty Insurance
 
DENNIS A. BUSTI
President and
Chief Executive Officer
Reliance National Insurance
Company
 
ROBERT C. OLSMAN
President and
Chief Operating Officer
Reliance Insurance Company

GEORGE H. ROBERTS
President
Reliance Reinsurance Corp.
 
C. BRIAN SCHMALZ
President and
Chief Executive Officer
Reliance Surety Company
 
Title Insurance
 
HERBERT WENDER
Chairman and Chief
Executive Officer
Commonwealth Land Title
Insurance Company
 
RCG Information Technology
 
ROBERT P. BUTTACAVOLI
President and
Chief Executive Officer
RCG Information Technology, Inc.
 
                                       33
<PAGE>
RELIANCE FINANCIAL SERVICES CORPORATION
 
--------------------------------------------------------------------------------
 
CORPORATE DATA
 
RELIANCE INSURANCE GROUP
 
PROPERTY AND CASUALTY INSURANCE
 
Reliance Insurance Company
Reliance National Insurance Company
Reliance Reinsurance Corp.
Reliance Surety Company
 
TITLE INSURANCE
 
Commonwealth Land Title Insurance Company
Transnation Title Insurance Company
 
CONSULTING
 
RCG International, Inc.

CORPORATE OFFICES
 
Reliance Financial Services Corporation
A subsidiary of Reliance Group Holdings, Inc.
Park Avenue Plaza
55 East 52nd Street
New York, NY 10055
(212) 909-1100
FAX (212) 909-1864
 
INDEPENDENT AUDITORS
 
Deloitte & Touche LLP
New York, NY
 
LISTED SECURITIES
 
Securities are listed on the New York
Stock Exchange
 
7.866% Senior Reset Notes, due 2000
9.48% Senior Reset Notes, due 2000
 
                                       34