<PAGE>   1
                                 UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549
                                -----------------

                                    FORM 10-K

/X/  ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
     ACT OF 1934

                 FOR THE FISCAL YEAR ENDED DECEMBER 31, 1996 OR

/ /  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
     EXCHANGE ACT OF 1934

                FOR THE TRANSITION PERIOD FROM ______ TO ______

                                ----------------
                         COMMISSION FILE NUMBER 1-14328
                                ----------------
                        TRAVELERS PROPERTY CASUALTY CORP.
             (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

<TABLE>
<S>                                                  <C>
                  DELAWARE                                06-1445591
       (STATE OR OTHER JURISDICTION OF                 (I.R.S. EMPLOYER
                INCORPORATION                        IDENTIFICATION NO.)
              OR ORGANIZATION)
</TABLE>

                  ONE TOWER SQUARE, HARTFORD, CONNECTICUT 06183
               (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
                                 (860) 277-0111
              (REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
                                ----------------

SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:

<TABLE>
<CAPTION>
                   TITLE OF EACH CLASS               NAME OF EACH EXCHANGE ON WHICH REGISTERED
                   -------------------               -----------------------------------------
<S>                                                      <C>
        CLASS A COMMON STOCK, PAR VALUE $ .01 PER        NEW YORK STOCK EXCHANGE
                          SHARE
             6-3/4% NOTES DUE APRIL 15, 2001             NEW YORK STOCK EXCHANGE
           8.08% TRUST PREFERRED SECURITIES OF           NEW YORK STOCK EXCHANGE
           SUBSIDIARY TRUST (AND REGISTRANT'S
             GUARANTY WITH RESPECT THERETO)
            8% TRUST PREFERRED SECURITIES OF             NEW YORK STOCK EXCHANGE
           SUBSIDIARY TRUST (AND REGISTRANT'S
             GUARANTY WITH RESPECT THERETO)
</TABLE>

SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:  NONE

INDICATE BY CHECK MARK WHETHER THE REGISTRANT (1) HAS FILED ALL REPORTS REQUIRED
TO BE FILED BY SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 DURING
THE PRECEDING 12 MONTHS (OR FOR SUCH SHORTER PERIOD THAT THE REGISTRANT WAS
REQUIRED TO FILE SUCH REPORTS), AND (2) HAS BEEN SUBJECT TO SUCH FILING
REQUIREMENTS FOR THE PAST 90 DAYS. YES X  NO
                                      ---   ---

INDICATE BY CHECK MARK IF DISCLOSURE OF DELINQUENT FILERS PURSUANT TO ITEM 405
OF REGULATION S-K IS NOT CONTAINED HEREIN, AND WILL NOT BE CONTAINED, TO THE
BEST OF REGISTRANT'S KNOWLEDGE, IN DEFINITIVE PROXY OR INFORMATION STATEMENTS
INCORPORATED BY REFERENCE IN PART III OF THIS FORM 10-K OR ANY AMENDMENT TO THIS
FORM 10-K. [X]

THE AGGREGATE MARKET VALUE OF THE VOTING STOCK HELD BY NONAFFILIATES OF THE
REGISTRANT AS OF MARCH 5, 1997 WAS APPROXIMATELY $2.56 BILLION.

AS OF MARCH 5, 1997, 72,176,747 SHARES OF THE REGISTRANT'S CLASS A COMMON STOCK,
PAR VALUE $ .01 PER SHARE, AND 328,020,170 SHARES OF THE REGISTRANT'S CLASS B
COMMON STOCK, PAR VALUE $.01 PER SHARE, WERE OUTSTANDING.

                     TRAVELERS/AETNA PROPERTY CASUALTY CORP.
                           (FORMER NAME OF REGISTRANT)

                       DOCUMENTS INCORPORATED BY REFERENCE

CERTAIN PORTIONS OF THE REGISTRANT'S ANNUAL REPORT TO STOCKHOLDERS FOR THE
FISCAL YEAR ENDED DECEMBER 31, 1996 ARE INCORPORATED BY REFERENCE INTO PART II
OF THIS FORM 10-K.

CERTAIN PORTIONS OF THE REGISTRANT'S PROXY STATEMENT FOR THE 1997 ANNUAL MEETING
OF STOCKHOLDERS TO BE HELD ON APRIL 23, 1997 ARE INCORPORATED BY REFERENCE INTO
PART III OF THIS FORM 10-K.
<PAGE>   2
                        TRAVELERS PROPERTY CASUALTY CORP.

                           ANNUAL REPORT ON FORM 10-K

                     FOR FISCAL YEAR ENDED DECEMBER 31, 1996
                         ------------------------------

                                TABLE OF CONTENTS

<TABLE>
<CAPTION>
FORM 10-K
ITEM NUMBER                                                                      PAGE
-----------                                                                      ----
<S>                                                                              <C>
      PART I

1.    Business..................................................................   1
2     Properties................................................................  53
3.    Legal Proceedings.........................................................  54
4.    Submission of Matters to a Vote of Security Holders.......................  55

      PART II

5.    Market for Registrant's Common Equity and
        Related Stockholder Matters.............................................  56
6.    Selected Financial Data...................................................  56
7.    Management's Discussion and Analysis of Financial
        Condition and Results of Operations.....................................  57
8.    Financial Statements and Supplementary Data...............................  57
9.    Changes in and Disagreements with Accountants on
        Accounting and Financial Disclosure.....................................  57

      PART III

10.   Directors and Executive Officers of the Registrant........................  57
11.   Executive Compensation....................................................  57
12.   Security Ownership of Certain Beneficial Owners
        and Management..........................................................  57
13.   Certain Relationships and Related Transactions............................  58

      PART IV

14.   Exhibits, Financial Statement Schedules, and Reports
        on Form 8-K.............................................................  58
      Exhibit Index.............................................................  59
      Signatures................................................................  64
      Index to Consolidated Financial Statements and Schedules.................. F-1
</TABLE>
<PAGE>   3
                                     PART I



ITEM 1.  BUSINESS.


      Travelers Property Casualty Corp. (formerly Travelers/Aetna Property
Casualty Corp.) is a property-casualty insurance holding company engaged,
through its subsidiaries, principally in two business segments:  Commercial
Lines, which includes Specialty Accounts, and Personal Lines.  The Company
provides a wide range of commercial and personal property and casualty
insurance products and services to businesses, government units, associations
and individuals.  Except as the context otherwise requires, as used herein
the "Company" refers to Travelers Property Casualty Corp. and its
consolidated subsidiaries.

      Travelers Property Casualty Corp. was formed in January 1996 to hold the
property and casualty insurance subsidiaries (collectively, "Travelers P&C") of
The Travelers Insurance Group Inc. ("TIGI"), a wholly owned subsidiary of
Travelers Group Inc. ("Travelers Group"). On April 2, 1996, the Company
purchased from Aetna Services Inc. (formerly Aetna Life and Casualty Company)
("Aetna") all of the outstanding capital stock of The Aetna Casualty and Surety
Company ("Aetna Casualty") and The Standard Fire Insurance Company ("Standard
Fire"), Aetna's property and casualty insurance subsidiaries (collectively,
"Aetna P&C"), for approximately $4.16 billion in cash. The acquisition of Aetna
P&C (the "Acquisition") was treated as a purchase and, accordingly, the
Company's consolidated financial statements include the results of Aetna P&C's
operations only from the date of the Acquisition. As part of the financing of
the Acquisition, the Company sold approximately 33 million shares of its Class A
Common Stock (representing approximately 9% of its outstanding common stock at
that time) to four private investors, including Aetna, for an aggregate of $525
million. TIGI acquired approximately 328 million shares of the Company's Class B
Common Stock in exchange for its contribution of the outstanding capital stock
of The Travelers Indemnity Company ("Travelers Indemnity") and a capital
contribution of approximately $1.14 billion. In April 1996, the Company sold in
a public offering approximately 39 million shares of its Class A Common Stock
(representing approximately 9.75% of its outstanding common stock at that time)
for total proceeds of $928 million. For additional information about the
Acquisition, the public offering and other related transactions, see Note 2 of
Notes to Consolidated Financial Statements.

      Pursuant to an agreement with Aetna, the Company was required to
discontinue its use of the name "Aetna" as part of its corporate name by
December 31, 1997. Effective March 7, 1997, the Company changed its corporate
name to Travelers Property Casualty Corp.

      Travelers Group owns approximately 82% of the Company's outstanding common
stock. Travelers Group is a financial services holding company engaged, through
its subsidiaries, principally in four business segments: (i) Investment
Services; (ii) Consumer Finance Services; (iii) Life Insurance Services; and
(iv) Property & Casualty Insurance


                                       1
<PAGE>   4
Services (through the Company). The periodic reports of Travelers Group provide
additional business and financial information concerning that company and its
consolidated subsidiaries.

      The principal executive offices of the Company are located at One Tower
Square, Hartford, Connecticut 06183; telephone number (860) 277-0111.

      This discussion of the Company's business is organized as follows: (i) a
description of each of the Company's two business segments and related services;
(ii) a description of the Corporate and Other segment; and (iii) certain other
information. A glossary of insurance terms is included beginning on page 44.

COMMERCIAL LINES

      The Company is the third largest writer of commercial lines insurance in
the United States based on 1995 direct written premiums published by A.M. Best
Company ("A.M. Best"), after giving effect to the Acquisition and recent
industry consolidation. The Company's Commercial Lines offers a broad array of
property and casualty insurance and insurance-related services. Commercial Lines
is organized into four marketing and underwriting groups that are designed to
focus on a particular client base or industry segment to provide products and
services that specifically address customers' needs: National Accounts,
primarily serving large national corporations; Commercial Accounts, serving
mid-size businesses; Select Accounts, serving small businesses and individuals
with commercial exposures; and Specialty Accounts, providing a variety of
specialty coverages. The Company also has a dedicated group within Commercial
Lines that serves the construction industry. The Company distributes its
commercial products through approximately 4,600 brokers and independent agencies
located throughout the United States.

      The commercial coverages marketed by the Company include workers'
compensation, general liability (including product liability), commercial
multi-peril, commercial automobile, property (including fire and allied lines)
and several other miscellaneous coverages. The Company also underwrites
specialty coverages through three separate units, Travelers Specialty, Gulf
Specialty and Bond Specialty, which have historically focused on unique risks
that typically require specialized underwriting. Coverages offered by Travelers
Specialty include general liability for selected product liability risks,
medical malpractice and umbrella and excess liability. Coverages offered by Gulf
Specialty include directors' and officers' liability and errors and omissions
insurance for various professions, umbrella insurance, insurance for
municipalities, hard to place coverages sold on an excess and surplus lines
basis and fidelity and surety coverage. Coverages offered by Bond Specialty
include fidelity and surety, fiduciary liability insurance, directors' and
officers' and other professional liability insurance and other related coverages
such as kidnap and ransom and mail insurance. In addition, the Company offers
various risk management services, generally including claims settlement, loss
control and engineering services, to businesses that choose to self-insure
certain exposures, to state funds and insurance carriers that participate in
state involuntary workers' compensation pools and to employers seeking to manage
workers' compensation medical and disability costs. In 1996, Commercial Lines
generated combined net written


                                       2
<PAGE>   5
premiums of $4.7 billion and combined premium equivalents of $2.7 billion. As
used herein, unless the context otherwise requires, "combined" refers to the
operations of both Travelers P&C and Aetna P&C, without regard to the date of
the Acquisition.

      SELECTED PRODUCT AND MARKET INFORMATION

      The following table sets forth by product line and market net written
premiums and premium equivalents for Commercial Lines for the periods indicated.
For a description of the product lines and markets referred to in the table
below, see "-- Product Lines" and "--Principal Markets and Methods of
Distribution," respectively.

      Over the past several years, National Accounts customers have moved
increasingly from traditional insurance coverages to service-type products,
primarily for workers' compensation coverage and to a lesser extent in general
liability and commercial automobile coverages. These types of products include
risk management services such as claims settlement, loss control and
engineering. The volume of business handled by the Company in servicing
relationships is measured by "premium equivalents." Premium equivalents do not
represent actual premium revenues. Premium equivalents are determined in the
pricing process and represent the Company's estimates of premiums that its
customers would have been charged under a fully insured arrangement, based on
expected losses associated with non-risk-bearing components of each account.

      Because the Acquisition occurred on April 2, 1996, the Company's results
of operations for periods prior to April 2, 1996 do not include the results of
Aetna P&C. Accordingly, premium and other operational information provided for
the Company's combined businesses prior to such time is for informational
purposes only.


              COMBINED NET WRITTEN PREMIUMS AND PREMIUM EQUIVALENTS

(Dollars in millions)
<TABLE>
<CAPTION>
                                                                      PERCENTAGE OF
                                                                        TOTAL NET
                                                                          WRITTEN
                                           YEAR ENDED DECEMBER 31,     PREMIUMS AND
                                        ----------------------------
                                                                         PREMIUM
                                                                        EQUIVALENTS
                                                                         YEAR ENDED
                                                                         DECEMBER 31,
                                         1996       1995       1994         1996
                                        ------     ------     ------    -------------
<S>                                     <C>        <C>        <C>            <C>
NET WRITTEN PREMIUMS BY
PRODUCT LINE:
   Workers' compensation                $1,223     $1,312     $1,617         16.6%
   General liability                       836        815        876         11.3
   Commercial multi-peril                1,223      1,188      1,069         16.6
   Commercial automobile                   806        888        883         10.9
   Property                                342        457        437          4.7
   Fidelity and surety                     215        233        184          2.9
   Other                                    23        251        136          0.3
                                        ------     ------     ------        -----
      Net written premiums(1)           $4,668     $5,144     $5,202         63.3%

      Premiums equivalents(2)            2,712      3,458      2,990         36.7
                                        ------     ------     ------        -----
      Total Commercial Lines            $7,380     $8,602     $8,192        100.0%
                                        ======     ======     ======        =====
</TABLE>

                                               (see footnotes on following page)


                                       3
<PAGE>   6
<TABLE>
<CAPTION>
                                                                   PERCENTAGE OF
                                                                     TOTAL NET
                                                                      WRITTEN
                                  YEAR ENDED DECEMBER 31,          PREMIUMS AND
                               ------------------------------
                                                                      PREMIUM
                                                                    EQUIVALENTS
                                                                     YEAR ENDED
                                                                    DECEMBER 31,
                               1996       1995           1994          1996
                               ----       ----           ----       ------------
                              (Dollars in millions)
<S>                          <C>         <C>           <C>             <C>
NET WRITTEN PREMIUMS
AND PREMIUM EQUIVALENTS
BY MARKET:
   National Accounts         $3,477      $4,550        $ 4,463         47.1%
   Commercial Accounts        1,812       1,962          2,039         24.6
   Select Accounts            1,412       1,466          1,293         19.1
   Specialty Accounts           679         624            397          9.2
                             ------      ------        -------        -----
      Total Commercial
        Lines (2)            $7,380      $8,602        $ 8,192        100.0%
                             ======      ======        =======        =====
</TABLE>
---------------------
(1) The decreases in net written premiums during the periods shown reflect the
    highly competitive marketplace and the Company's selective underwriting
    practices.

(2) Premium equivalents for the year ended December 31, 1994 are provided for
    Travelers P&C only. Historically, Aetna P&C did not track premium
    equivalents and such amounts are not available for that period. The
    decreases in premium equivalents during the periods shown reflect a
    depopulation of involuntary pools as the loss experience of workers'
    compensation improves and insureds move to voluntary markets, the Company's
    selective renewal activity to address the competitive pricing environment
    and its continued success in lowering workers' compensation losses of
    customers.

      PRODUCT LINES

      The Company writes a broad range of commercial property and casualty
insurance for risks of all sizes. The core products in the Company's Commercial
Lines are as follows:

      WORKERS' COMPENSATION provides coverage for employers' liability for
injuries to employees under common law as well as the obligation of an employer
under state or federal law to provide its employees with specified benefits for
work-related injuries, deaths and diseases, regardless of fault. In addition to
the liability exposure that may arise under common law, there are typically four
types of benefits payable under workers' compensation policies: medical
benefits, disability benefits, death benefits and vocational rehabilitation
benefits. Workers' compensation policies are often written in conjunction with
other commercial policies. The Company offers two types of workers' compensation
products: (i) insurance products, including guaranteed cost policies, in which
policy premiums charged are fixed and do not vary as a result of the insured's
loss experience, and loss sensitive plans, including retrospectively rated
policies, in which premiums are adjusted based on actual loss experience of the
insured during the policy period, and large deductible plans, in which the
customer bears the insurance risk up to its deductible amount, and (ii) service
programs, which are generally sold to the Company's larger National Accounts,
where the Company receives fees for providing loss prevention, risk management,
claims administration and benefit administration services to organizations
pursuant to service agreements. The Company also participates in state assigned
risk pools servicing workers' compensation policies as a servicing carrier and
pool participant. The Company emphasizes managed care cost containment


                                       4
<PAGE>   7
strategies (which involve employers, employees and care providers in a
cooperative effort that focuses on the injured employee's early return to work),
cost-effective quality care, and customer service in this market. Workers'
compensation comprehensive claim and managed care cost containment services are
integrated through the Company's claims management system to maximize cost
savings on both service delivery and loss payout. For the year ended December
31, 1996, the Company's workers' compensation line generated $1.2 billion of
combined net written premiums and $2.2 billion of combined premium equivalents.

      GENERAL LIABILITY provides coverage for liability exposures including
bodily injury and property damage arising from products sold and general
business operations. General liability also includes coverage for directors' and
officers' liability arising in their official capacities, fiduciary liability
for trustees and sponsors of pension, health and welfare and other employee
benefit plans, errors and omissions insurance for employees, agents,
professionals and others arising from acts or failures to act under specified
circumstances, as well as medical malpractice, umbrella and excess insurance.
For the year ended December 31, 1996, the Company's general liability line
generated $836 million of combined net written premiums and $299 million of
combined premium equivalents.

      COMMERCIAL MULTI-PERIL provides a combination of property and liability
coverage for businesses and business property for damages such as that caused by
fire, wind, hail, water, theft and vandalism, and protects businesses from
financial loss due to business interruption. It also insures businesses against
third-party liability from accidents occurring on their premises or arising out
of their operations, such as injuries sustained from products sold. For the year
ended December 31, 1996, the Company's commercial multi-peril line generated
$1.2 billion of combined net written premiums.

      COMMERCIAL AUTOMOBILE provides coverage for businesses against losses
incurred from personal bodily injury, bodily injury to third parties, property
damage to an insured's vehicle, and property damage to other vehicles and other
property resulting from the ownership, maintenance or use of automobiles and
trucks in a business. For the year ended December 31, 1996, the Company's
commercial automobile line generated $806 million of combined net written
premiums and $240 million of combined premium equivalents.

      PROPERTY provides coverage for loss or damage to buildings, inventory and
equipment from natural disasters, including hurricanes, windstorms, earthquakes,
hail, explosions, severe winter weather and other events such as theft and
vandalism, fires and storms and financial loss due to business interruption.
Property also includes inland marine, which provides coverage for goods in
transit and unique, one-of-a-kind exposures. For the year ended December 31,
1996, the Company's property line generated $342 million of combined net written
premiums.

      FIDELITY AND SURETY provides fidelity insurance coverage which protects an
insured for loss due to embezzlement or misappropriation of funds by an
employee. Surety is a three-party agreement whereby the insurer agrees to pay a
second party or make complete an obligation in response to the default, acts or
omissions of a third party. Surety is generally


                                       5
<PAGE>   8
provided for construction performance, legal matters such as appeals, trustees
in bankruptcy and probate and other performance bonds. For the year ended
December 31, 1996, the Company's fidelity and surety line generated $215 million
of combined net written premiums.

      OTHER coverages include boiler and machinery insurance, which provides
coverage for loss or damage resulting from the malfunction of boilers and
machinery, as well as miscellaneous assumed reinsurance. For the year ended
December 31, 1996, these other coverages generated $23 million of combined net
written premiums.

      PRINCIPAL MARKETS AND METHODS OF DISTRIBUTION

      The Company's Commercial Lines are organized into four marketing groups
that are designed to focus on a particular client base or industry segment to
provide products and services that specifically address customers' needs:
National Accounts, primarily serving large national corporations; Commercial
Accounts, serving mid-size businesses; Select Accounts, serving small
businesses; and Specialty Accounts, providing a variety of specialty coverages.
The Company also has a dedicated group within Commercial Lines that serves the
construction industry.

      The Company distributes its commercial products primarily through
approximately 4,600 brokers and independent agencies located throughout the
United States that are serviced by 99 field offices. The Company seeks to
establish relationships with well-established, independent insurance agencies
and brokers. In selecting new independent agencies and brokers to distribute the
Company's products, the Company considers each agency's or broker's
profitability, financial stability, staff experience and strategic fit with the
Company's operating and marketing plans. Once an agency or broker is appointed,
the Company carefully monitors its performance.

      NATIONAL ACCOUNTS

      The Company's National Accounts serves large companies, as well as
employee groups, associations and franchises. The Company's National Accounts
also includes the Company's alternative market business (the "Alternative
Market"), which primarily covers workers' compensation products and services to
voluntary and involuntary state pools. National Accounts customers typically
generate annual direct written premiums and premium equivalents of over $1
million per account and generally select products under retrospectively rated
plans, large self-insured retentions or some other loss-responsive arrangement.
National Accounts programs involve both traditional insurance (risk transfer)
and risk service (claims settlement, loss control and risk management).
Customers are usually national in scope and range in size from businesses with
sales of approximately $10 million per year to Fortune 2000 corporations.
Products are marketed through national brokers and regional agents with offices
throughout the United States. Based on combined net written premiums of $852
million and combined premium equivalents of $2.6 billion, National Accounts
constituted approximately 47% of the Commercial Lines business in 1996.


                                       6
<PAGE>   9
      National Accounts customers often demand risk service programs where the
ultimate cost is based on their own loss experience. Programs offered by the
Company include claims settlement, loss control and risk management services and
are generally offered in connection with a retrospectively rated insurance
policy, a large deductible plan or a self-insured program. Workers' compensation
accounted for approximately 76% of the products sold in 1996 to National
Accounts customers, based on combined net written premiums and premium
equivalents.

      The Alternative Market business of the Company's National Accounts sells
claims and policy management services to workers' compensation and automobile
assigned risk plans, self-insurance pools throughout the United States and to
niche voluntary markets. Since 1993, most state assigned workers' compensation
risk plan contracts have been awarded through a formal state-by-state bid
process. Contracts, which are generally for three-year terms, are awarded by
state agencies based on quality of service and price. The Company has emerged as
the largest workers' compensation assigned risk plan servicing insurer in the
industry with approximately 28% share of the market in 1996. Assigned risk plan
contracts generated approximately $456 million in combined premium equivalents
in 1996 for the Company.

      The Company also services self-insurance groups, sells excess workers'
compensation coverage to these groups and markets various workers' compensation
specialty programs. Self-insurance groups and these specialty programs generated
combined net written premiums and premium equivalents of $89 million in 1996.
National Accounts also participates in various involuntary assigned risk pools,
which provide insurance coverage to individuals or other entities that otherwise
are unable to purchase such coverage in the voluntary market. Participation in
these pools in most states is generally in proportion to voluntary writings of
related lines of business in that state.

      COMMERCIAL ACCOUNTS

      The Company's Commercial Accounts sells a broad range of property and
casualty insurance products through a large network of independent agents and
brokers. Commercial Accounts targets businesses with 75 to 1,000 employees that
generate between $50,000 and $1 million in annual direct written premiums and
premium equivalents. The Company offers a full line of products to its
Commercial Accounts customers, with an emphasis on guaranteed cost products. The
Company also offers retrospectively rated or large deductible programs to these
customers. Based on combined net written premiums of $1.7 billion and combined
premium equivalents of $87 million, Commercial Accounts constituted
approximately 25% of the Commercial Lines business in 1996.

      Commercial Accounts targets certain industries in which the Company has
claims, engineering and underwriting expertise and to which the Company has
established dedicated operations. Industry segments include from the
manufacturing sector: advanced technology, metal products, mineral products,
plastic and rubber products manufacturing and wood products. Also targeted are
colleges and universities, transportation, retail, financial, property
management and the wholesale industry. The Company continues to develop new
industry-


                                       7
<PAGE>   10
targeted programs both on a national and local level. Specific industry
knowledge enables the Company to select, as customers, better managed companies
in an industry segment, to tailor specialized coverages for those companies, and
to link price to the individual exposure and to control risk. Instead of relying
on rating bureaus to establish rates for products, the Company generally uses
its proprietary data, which it has compiled from many years of data generated by
its extensive underwriting and pricing experience. Accordingly, subject to
applicable state insurance regulations, prices are derived from those
proprietary rates and numerous variables that apply to specific risks. The
Company believes that relying on extensive proprietary data to assess individual
risk characteristics, rather than relying on data from industry rating bureaus,
provides it with a competitive advantage in pricing and underwriting commercial
risks. The Company uses components of this approach specifically in connection
with loss control and claims management processing. Through a network of field
offices, the Company's marketing and underwriting specialists, who have point of
sale authority, work closely with local brokers and agents to tailor insurance
coverage to individual customer needs.

      Construction. The Company has established dedicated operations that
exclusively target the construction industry, providing insurance and risk
management services for virtually all areas of construction, including general
contractors, heavy construction (including street and road) and special trade
contractors, except artisan or smaller trade contractors. The Company offers all
product lines to midsize and national customers in the construction market,
including both guaranteed cost and loss-responsive products, with general
liability, workers' compensation, commercial auto, commercial property and
inland marine coverages. The dedicated construction operations provide
specialized service and underwriting, with local market expertise and national
capability, that enable the Company to tailor specialized coverages, have
competitive pricing and control risk. This includes local underwriters who
understand their state's laws and claim climates, engineering and loss control
specialists, professional claim management and legal personnel with extensive
construction experience. Construction's products are distributed through
independent agents and brokers throughout the United States.

      SELECT ACCOUNTS

      Select Accounts serves individuals who have commercial exposures and firms
typically with one to 75 employees, typically generating up to $50,000 in annual
direct written premiums per account. Products offered to Select Accounts are
generally guaranteed cost policies, often a packaged product covering property
and liability exposures. Products are sold through independent agents, who are
often the same agents that sell the Company's Commercial Accounts and Personal
Lines products. Based on combined net written premiums of $1.4 billion, Select
Accounts constituted approximately 19% of the Commercial Lines business in 1996.

      Personnel in the Company's field offices and other points of local
service, which are located throughout the United States, work closely with
agents to ensure a strong local presence in the marketplace. The Company
utilizes a marketing and underwriting approach


                                       8
<PAGE>   11
based on agency automation and defined underwriting criteria. Agency automation
allows agents access to the Company's price quotation and policy issuance
systems and enables agents to provide faster and more cost-effective service to
customers with supervision and underwriting control. Agents that do not utilize
the automated quotation and policy issuance systems work with the Company's
sales and marketing representatives who have point of sale authority. Agents
serving Select Accounts are given greater control and discretion over
underwriting decisions, within predefined parameters, than brokers selling to
larger accounts. Because underwriting criteria and pricing tend to be more
standardized for smaller businesses, Select Accounts uses a standard industry
classification (S.I.C.) based process to allow agents and field marketing
representatives to make underwriting and pricing decisions within predetermined
classifications. Business in other classes is subject to consultative review by
in-house underwriters. The Company believes that its breadth of products, highly
qualified field staff and its technology offer distinct competitive advantages.

      SPECIALTY ACCOUNTS

      Specialty Accounts markets products to national, midsize and small
customers, as well as individuals, and distributes them through both wholesale
brokers and retail agents and brokers throughout the United States. The
Company's fast response time on underwriting decisions, industry expertise and
quality service are important to maintaining relationships with Specialty
Accounts insureds and producers. The Company believes that it has a competitive
advantage with respect to many of these products based on its reputation for
clear, timely decision-making, underwriting and industry expertise and strong
producer and customer relationships as well as its ability to cross-sell with
National Accounts, Commercial Accounts and Select Accounts. Based on combined
net written premiums of $679 million, Specialty Accounts constituted
approximately 9% of the Commercial Lines business in 1996.

      The Company has three separate marketing and underwriting groups within
Specialty Accounts:

      Travelers Specialty provides a broad range of products targeting risks
that do not fall within the underwriting guidelines of the other Commercial
Lines segments and that require highly specialized underwriting. The core
products include general liability for select product liability risks, umbrella
and excess liability, medical malpractice, various types of professional
liability, errors and omissions liability, primary and excess property, and
various coverages that target the transportation industry.

      Gulf Specialty focuses on many non-traditional lines of business with a
particular emphasis on the financial services market. Products include
directors' and officers' liability insurance, errors and omissions coverage for
bankers, investment counselors and mutual fund advisors, and fidelity and surety
coverage for related classes. In addition, Gulf Specialty offers errors and
omissions coverage for professionals and non-professionals such as lawyers,
architects and engineers, insurance agents, podiatrists and chiropractors. Gulf
Specialty also writes umbrella coverage for various industries, provides
insurance products to the entertainment industry and to municipalities and
provides insurance products for other industry


                                       9
<PAGE>   12
specific programs. In addition, Gulf Specialty has developed a book of excess
and surplus lines business through its non-admitted company.

      Bond Specialty's range of products includes fidelity and surety bonds,
directors' and officers' and other professional liability insurance, fiduciary
liability insurance and other related coverages. The customer base ranges from
large financial services companies and commercial entities to small businesses
and individuals. Products and services are distributed primarily through agents
and brokers. Bond is organized around four broad customer segments: Financial
Services, Construction, National Risk (customers with more than $500 million in
revenues) and Commercial Risk (companies with less than $500 million in revenues
and individuals). Bond's agency agreement with Executive Risk Management
Associates ("ERMA"), a partnership owned by Executive Risk, Inc., was
restructured effective January 1, 1997. The restructured agreement replaces the
prior exclusive underwriter status of ERMA for directors' and officers'
liability insurance written by Aetna Casualty with a non-exclusive agreement.

      PRICING AND UNDERWRITING

      Pricing levels for property and casualty insurance products by the
Company's Commercial Lines are generally developed based upon the frequency and
severity of estimated losses, the expenses of producing business and
administering claims, and a reasonable allowance for profit. The Company's
strategy emphasizes a profit-oriented approach rather than a premium volume or
market share-oriented approach to underwriting. The Company's National Accounts
business, which sells primarily risk management services and loss sensitive
products, continues to be very competitive on price. Commercial Accounts and
Select Accounts primarily sell guaranteed cost products.

      A significant portion of Commercial Lines business is written with
retrospectively rated insurance policies as well as large deductible policies in
which the ultimate cost of insurance for a given policy year is dependent on the
loss experience of the insured. Retrospectively rated policies are primarily
used in workers' compensation coverage. Although the payment terms and long-term
nature of the loss development reduces insurance risk, it introduces some
additional credit risk. Receivables from holders of retrospectively rated and
large deductible policies totaled approximately $755 million at December 31,
1996. Collateral, primarily letters of credit and, to a lesser extent, cash
collateral, is generally requested for contracts that provide for deferred
collection of ultimate premiums. The amount of collateral requested is
predicated upon the creditworthiness of the customer and the nature of the
insured risks. Commercial Lines continually monitors the credit exposure on
individual accounts and the adequacy of collateral.

      Under certain workers' compensation insurance contracts with deductible
features, the Company is obligated to pay the claimant the full amount of the
claim. The Company is subsequently reimbursed by the contractholder for the
deductible amount, and is subject to credit risk until such reimbursement is
made. At December 31, 1996, contractholder receivables and payables were
approximately $1.8 billion.


                                       10
<PAGE>   13
      The Company has developed an underwriting methodology that incorporates
underwriting, claims, engineering, actuarial and product development disciplines
for particular industries. This approach is designed to maintain high quality
underwriting and pricing discipline. This approach utilizes proprietary data
gathered and analyzed by the Company with respect to its Commercial Lines
business over many years. The underwriters and engineers use this information to
assess and evaluate risks prior to quotation. This information provides
specialized knowledge about industry segments and catastrophe management and
helps analyze risk based on account characteristics and pricing parameters
designed to ensure that the Company does not compromise its underwriting
integrity. This process is linked with strong underwriting interaction and
review at the Company's and agents' locations.

      The Company is also a member of and participates in the underwriting
operations of insurance and reinsurance pools and associations, several of which
make independent underwriting decisions on behalf of their members. These pools
insure specialized risks such as exposures related to the aviation and nuclear
power industries.

      The Company continually reviews its exposure to catastrophic losses and
attempts to mitigate such exposure. See "Reinsurance." The Company uses
sophisticated computer modeling techniques to assess underwriting risks and
renewal of business in catastrophe-prone areas.

      GEOGRAPHIC DISTRIBUTION

      The following table shows the distribution of Commercial Lines' direct
written premiums for the states that accounted for the majority of combined
premium volume for the year ended December 31, 1996:

<TABLE>
<CAPTION>
                    STATE                       % OF TOTAL
                    -----                       ----------
<S>                                               <C>
                    New York                      13.5%
                    California                     8.8
                    Texas                          5.9
                    Massachusetts                  5.9
                    Pennsylvania                   4.5
                    Florida                        4.5
                    New Jersey                     4.1
                    Illinois                       4.0
                    Connecticut                    3.7
                    North Carolina                 3.1
                    All Others (1)                42.0
                                                 ------
                    TOTAL                        100.0%
                                                 ======
</TABLE>

---------------------
(1)  No other single state accounted for 3.0% or more of the total combined
     direct written premiums written in 1996 by the Company.


                                       11
<PAGE>   14
PERSONAL LINES

      The Company is the largest writer of personal lines insurance through
independent agents and the seventh largest writer of personal lines insurance
overall in the United States based on 1995 direct written premiums published by
A.M. Best, after giving effect to the Acquisition and recent industry
consolidation. In 1996, Personal Lines generated combined net written premiums
of approximately $2.7 billion. Personal Lines primarily offers personal
automobile and homeowners insurance.

      Personal Lines distributes products primarily through approximately 5,000
independent agents located throughout the United States. The Company is also
pursuing a number of initiatives to broaden its distribution of Personal Lines
products, including targeted marketing to affinity groups, employee groups and
other sponsoring organizations and establishing co-marketing arrangements with
other insurers. In 1994, the Company began a pilot program to market personal
automobile and homeowners insurance through the independent agents of Primerica
Financial Services ("PFS"), a unit of Travelers Group. The product is sold under
the name Secure-SM-, and the program has expanded to reach 37 states. Over 6,300
PFS agents were licensed to sell Secure-SM- products by the end of 1996, and
approximately 5,000 new automobile and homeowners policies are now being sold
through this program each month.

      SELECTED PRODUCT INFORMATION

      The following table sets forth by product line net written premiums for
Personal Lines for the periods indicated. For a description of the product lines
referred to in the table below, see "-- Product Lines."

      Because the Acquisition occurred on April 2, 1996, the Company's results
of operations for periods prior to April 2, 1996 do not include the results of
Aetna P&C. Accordingly, premium and other operational information provided for
the Company's combined businesses prior to such time is for informational
purposes only.


                          COMBINED NET WRITTEN PREMIUMS


<TABLE>
<CAPTION>
                                                                       PERCENTAGE OF
                                                                         TOTAL NET
                                                                          WRITTEN
                                                                       PREMIUMS YEAR
                                            YEAR ENDED DECEMBER 31,        ENDED
                                          --------------------------    DECEMBER 31,
                                          1996       1995       1994        1996
                                          ----       ----       ----        ----
                                             (Dollars in millions)
<S>                                      <C>        <C>        <C>         <C>
NET WRITTEN PREMIUMS BY
PRODUCT LINE:
   Personal automobile                   $1,851     $1,822     $1,969        69.2%
   Homeowners and other                     824        721        773        30.8
                                         ------     ------     ------       ------
      Total Personal Lines               $2,675     $2,543     $2,742       100.0%
                                         ======     ======     ======       ======
</TABLE>


                                       12
<PAGE>   15
      PRODUCT LINES

      The Company writes virtually all types of property and casualty insurance
covering personal risks. Personal Lines had approximately 4.2 million policies
in force at December 31, 1996. The primary coverages in Personal Lines are
personal automobile and homeowners insurance sold to individuals.

      PERSONAL AUTOMOBILE provides coverage for liability to others for both
bodily injury and property damage and for physical damage to an insured's own
vehicle from collision and various other perils. In addition, many states
require policies to provide first-party personal injury protection, frequently
referred to as no-fault coverage. For the year ended December 31, 1996, the
Company's personal automobile policies generated $1.9 billion of combined net
written premiums.

      HOMEOWNERS AND OTHER provides protection against losses to dwellings and
contents from a wide variety of perils, as well as coverage for liability
arising from ownership or occupancy. The Company writes homeowners insurance for
dwellings, condominiums, mobile homes and rental property contents. Other
products include coverage for boats, personal articles such as jewelry, and
umbrella liability protection. For the year ended December 31, 1996, the
Company's homeowners and other policies generated $824 million of combined net
written premiums.

      PRINCIPAL MARKETS AND METHODS OF DISTRIBUTION

      The Company's Personal Lines products are distributed primarily through
approximately 5,000 independent agents located throughout the United States,
supported by a network of 23 field marketing offices and five customer service
centers. The principal markets for Personal Lines insurance are in states along
the East Coast, in the South, and in the Midwest. In the states of Florida, New
Jersey and Massachusetts, the Company operates stand-alone domestic companies to
enhance its competitive capability in these highly regulated markets. Separate
business units within Personal Lines market to affinity groups and through the
sales force of PFS.

      Insurance companies generally market personal automobile and homeowners
insurance through one of two distribution systems: independent agents or direct
writing. The independent agents that distribute the Company's Personal Lines
products usually represent several unrelated property and casualty companies. In
contrast, direct writing companies operate either by mail or through exclusive
agents or sales representatives. Due in part to the expense advantage that
direct writers may have relative to companies using independent agents, the
direct writing companies have gradually expanded their market share in recent
years.

      The Company's Personal Lines continues to focus on the independent agency
distribution system, recognizing the service and underwriting advantages the
agent can deliver. In addition to its agency distribution system, the Company is
pursuing a number of initiatives


                                       13
<PAGE>   16
to broaden its distribution of Personal Lines products, including targeted
marketing to affinity groups, employee groups and other sponsoring organizations
and establishing co-marketing arrangements with other insurers. In 1994, the
Company began writing personal automobile and homeowners insurance through the
independent agents of PFS, an affiliate of the Company, in order to broaden the
distribution of its Personal Lines products. This program is now available in 37
states. The PFS sales force primarily sells life insurance products issued by
affiliates of the Company, as well as mutual funds and other Travelers Group
products.

      In 1995, Aetna P&C entered into a marketing agreement with GEICO to write
the majority of GEICO's homeowners business, and to receive referrals from GEICO
for new homeowners business. This agreement added historically profitable
business and helped geographically diversify the homeowners line of business.
New business referrals began in July 1995 and, on January 1, 1996, Personal
Lines began writing renewal policies. This marketing agreement provides for
limits on Personal Lines' obligation to write new and renewal business in
certain catastrophe-prone areas.

      The Company believes that its focus on service, including prompt and
efficient claims handling, a high level of automation and development of
long-term relationships with individual agents gives it a competitive advantage
in the Personal Lines market. In addition, the Company is leveraging its
service, claims handling and automation experience in the expansion of its
distribution channels through its PFS and affinity marketing initiatives.

      PRICING AND UNDERWRITING

      Pricing for personal automobile insurance is driven by changes in the
relative frequency of claims and by inflation in the cost of automobile repairs,
medical care and litigation of liability claims. As a result, the profitability
of the business is largely dependent on promptly identifying and rectifying
disparities between premium levels and expected claim costs, and obtaining
approval of the state regulatory authorities for indicated rate increases.
Premiums charged for physical damage coverage reflect insured car values and,
accordingly, premium levels are somewhat related to the volume of new car sales.

      Pricing in the homeowners business is also driven by changes in the
frequency of claims and by inflation in building supplies, labor costs and
household possessions. Most homeowners policies offer (but do not require)
automatic increases in coverage to reflect growth in replacement costs and
property values. In addition to the normal risks associated with any multiple
peril coverage, the profitability and pricing of homeowners insurance is
affected by the incidence of natural disasters, particularly hurricanes, winter
storms, earthquakes and tornadoes. The high level of catastrophe losses in
recent years has resulted in a reduced availability of homeowners insurance and
has led to higher prices for homeowners policies in some markets. In order to
reduce its exposure to catastrophe losses, the Company has limited the writing
of new homeowners business and selectively non-renewed existing homeowners
business in certain markets, tightened underwriting standards and implemented
price increases in certain hurricane-prone areas, subject to restrictions
imposed by insurance regulatory authorities. In California, the Company has
introduced an endorsement that reduces


                                       14
<PAGE>   17
its exposure to catastrophic earthquake claims by increasing the deductible and
limiting other policy coverages in the event of an earthquake loss. The Company
uses computer modeling techniques to assess its level of exposure to loss in
catastrophe-prone areas. Changes to methods of marketing and underwriting in
coastal areas of Florida and New York and in California are subject to
state-imposed restrictions, the general effect of which is to make it more
difficult for an insurer to reduce exposures.

      Insurers writing property-casualty policies are generally unable to
increase rates until some time after the costs associated with coverage have
increased, primarily as a result of state insurance rate regulation laws. The
pace at which an insurer can change rates in response to competition or to
increased costs depends, in part, on whether the applicable rate regulation law
requires prior approval of a rate increase or notification to the regulator
either before or after a rate increase is imposed. In states having prior
approval laws, a rate must be approved by the regulator before it may be used by
the insurer. In states having "file-and-use" laws, the insurer must file the
rate with the regulator, but does not need to wait for approval before using it.
A "use-and-file" law requires an insurer to file rates within a certain period
of time after the insurer begins using the new rate. Approximately one-half of
the states, including New York and Pennsylvania, require prior approval of rate
increases.

      Underwriting of Personal Lines products is conducted primarily by
independent agents. Agents underwrite Personal Lines policies under strict
underwriting guidelines established and monitored by the Company. Each agent is
assigned to a specific employee of the Company or team of employees responsible
for working with the agent on business plan development, marketing, and overall
growth and profitability. The Company uses agency level management information
to analyze and understand results and to identify problems and opportunities.

      GEOGRAPHIC DISTRIBUTION

      The following table shows the distribution of Personal Lines' direct
written premiums for the states that accounted for the majority of combined
premium volume for the year ended December 31, 1996:

<TABLE>
<CAPTION>
STATE                   % OF TOTAL
-----                   ----------

<S>                      <C>
New York                  23.2%
Pennsylvania               9.0
New Jersey                 8.6
Florida                    8.5
Texas                      8.3
Massachusetts              6.9
Connecticut                6.1
Virginia                   3.8
All others (1)            25.6
                         -----
TOTAL                    100.0%
                         =====
</TABLE>


                                       15
<PAGE>   18
---------------------
(1)  No other single state accounted for 3.0% or more of the total combined
     direct written premiums written in 1996 by the Company.

CLAIMS ADMINISTRATION

      The Company employs approximately 8,900 claims employees located
throughout the United States. These employees include telephone and road
adjusters, appraisers, litigation specialists, staff attorneys, regional and
home office management and support staff. The Company handles over 90% of its
claims internally and employs external adjusters primarily where geographic
location makes it impractical to use the Company's own adjusters. The Company
has an investigative unit that handles claims that the Company suspects may be
fraudulent. The Company also employs a staff of lawyers who are responsible for
the management of the Company's claims litigation. The Company's claims handlers
include professionals with the technical expertise necessary to deal with more
complex coverage, liability and damage issues.

      In its handling of claims, the Company strives to balance customer
expectations of service with its business objectives of effectively managing
loss exposure and controlling claims expense. In an effort to resolve claims
efficiently, the Company matches claims settlement authority to the ability of
its claims personnel and matches its in-house expertise with the issues involved
in the claim. The Company's workers' compensation claim adjudication process is
being re-engineered to encompass a higher level of nursing/medical intervention,
a more effective use of preferred provider networks to better manage medical and
lost-time claims, and a renewed emphasis on prompt and thorough investigations.

      The Company's new Personal Lines claims workstation implemented in 1995
and workers' compensation claim workstation implemented in 1994 have improved
the speed and quality of both Personal Lines and Commercial Lines claims
service, and have helped loss payout performance. Use of technology such as VRUs
(voice response units) has lowered the cost of settling claims and shortened the
time to claim payment. The claim department also provides automated feedback
from claim handlers to underwriters to help with risk assessment and accurate
pricing information. Since the date of the Acquisition, significant progress has
been made in converting all of the Company's claims processing to this
technology. In Personal Lines, all new automobile and homeowners notices are now
entered into the Company's claims database through the new workstation which
provides access to data for both Aetna P&C and Travelers P&C sourced customers
through one professional claim workstation. In Commercial Lines workers'
compensation, all first reports of injury have been converted to the new
telephone reporting system and a conversion of all open claims to utilize the
new workstation is under way.

      The home office claims department periodically conducts internal file
reviews of claims offices to monitor adherence to claims policies and
procedures, the adequacy of case reserves, claims loss control, claims expense
control, productivity and service standards. Regional claims management
periodically audits sample files of claims representatives as part of their
supervisory process.


                                       16
<PAGE>   19
      Environmental, asbestos and cumulative injury claims are segregated from
other claims and are handled separately by the Company's Special Liability
Group, a special unit staffed by dedicated legal, claim, finance and engineering
professionals. See "Environmental, Asbestos and Cumulative Injury Claims."

REINSURANCE

      The Company reinsures a portion of the risks it underwrites in order to
control its exposure to losses, stabilize earnings and protect surplus. The
Company cedes to reinsurers a portion of these risks and pays premiums based
upon the risk and exposure of the policies subject to such reinsurance.
Reinsurance is subject to collectibility in all cases and to aggregate loss
limits. Although the reinsurer is liable to the Company to the extent of the
reinsurance ceded, the Company remains primarily liable as the direct insurer on
all risks reinsured. Reinsurance recoverables are reported after allowances for
uncollectible amounts. The Company also holds collateral, including escrow funds
and letters of credit, under certain reinsurance agreements. The Company
monitors the financial condition of reinsurers on an ongoing basis, and reviews
its reinsurance arrangements periodically. Reinsurers are selected based on
their financial condition, business practices and the price of their product
offerings. For additional information concerning reinsurance, see Note 5 of
Notes to Consolidated Financial Statements.

      The Company utilizes a variety of reinsurance agreements to control its
exposure to large property and casualty losses. The Company utilizes the
following types of reinsurance: (i) facultative reinsurance, in which
reinsurance is provided for all or a portion of the insurance provided by a
single policy and each policy reinsured is separately negotiated; (ii) treaty
reinsurance, in which reinsurance is provided for a specified type or category
of risks; and (iii) catastrophe reinsurance, in which the ceding company is
indemnified for an amount of loss in excess of a specified retention with
respect to losses resulting from a catastrophic event.

      The Company's top five reinsurers, except Lloyd's of London ("Lloyd's")
(which is not rated), are rated "A" or higher by A.M. Best. The ratings and
reinsurance recoverable at December 31, 1996 follow (in millions):

<TABLE>
<CAPTION>
                                       REINSURANCE
             REINSURER                 RECOVERABLE       A.M. BEST RATING OF REINSURER
             ---------                 -----------       -----------------------------
<S>                                      <C>             <C>
General Reinsurance Corporation          $483            A++    highest of 15 ratings
American Re-Insurance Company             262            A+     2nd highest of 15 ratings
Executive Risk Indemnity Inc.             193            A      3rd highest of 15 ratings
Employers Reinsurance Corporation         96             A++    highest of 15 ratings
NAC Reinsurance Corporation               75             A      3rd highest of 15 ratings
</TABLE>

      As of December 31, 1996, the Company had ceded to Lloyd's and General
Reinsurance Corporation, two reinsurers with which the Company does the most
business, approximately $488 million and $483 million, respectively, of
insurance losses and loss adjustment expenses. In 1996, Lloyd's restructured its
operations with respect to claims for years prior to 1993.


                                       17
<PAGE>   20
The Company is in arbitration with underwriters at Lloyd's in New York State to
enforce reinsurance contracts with respect to recoveries for certain asbestos
claims that constitute a portion of the total reinsurance recoverable referred
to above. The dispute involves the ability of the Company to aggregate asbestos
claims under a market agreement between Lloyd's and the Company or under the
applicable reinsurance treaties. See Item 3, "Legal Proceedings."

      The outcome of the arbitration referred to above is uncertain and the
impact, if any, on collectibility of amounts recoverable by the Company from
Lloyd's cannot be quantified at this time. The Company believes that it is
possible that an unfavorable resolution of this matter could have a material
adverse effect on the Company's operating results in a future period. However,
the Company believes that it is not likely that the outcome could have a
material adverse effect on the Company's financial condition or liquidity.

      The Company participates in pools with other insurers to provide capacity
for unique and high-valued risks such as exposures related to the aviation and
nuclear power industries. The Company's maximum net exposure to this type of
business at December 31, 1996 was $29 million per risk. For policies written on
or after January 1, 1997, the exposure was reduced to $15 million per risk.

      At December 31, 1996, the Company had $9.7 billion in reinsurance
recoverables. Of this amount, $4.2 billion is for pools and associations which
relate primarily to workers' compensation service business and have the strength
of the participating insurance companies on a joint basis supporting these
cessions. Of the remaining $5.5 billion ceded to reinsurers at December 31,
1996, $497 million was environmental and asbestos-related and the remainder
principally reflects reinsurance in support of ongoing business. In addition, at
December 31, 1996, $465 million was collateralized by letters of credit against
the asset. The descriptions below relate to reinsurance arrangements of the
Company in effect at January 1, 1997.

      Net Retention Policy. Currently, for third-party liability, including
automobile no-fault, the reinsurance agreements used by Commercial Accounts,
Select Accounts and Construction limit the net retention to a maximum of $4
million per insured, per occurrence. For Travelers Specialty, the reinsurance
agreements for third-party liability, including professional and healthcare
liability, limit the Company's net retention to a maximum of $4 million per
policy, per occurrence. Gulf Specialty utilizes various reinsurance mechanisms
and has limited its net retention to $4 million for any line of business. For
commercial property insurance, there is a $5 million maximum retention per
insured with 100% reinsurance coverage for risks with higher limits. The
reinsurance agreement in place for workers' compensation policies written by
Commercial Accounts, Select Accounts, Construction, Travelers Specialty and some
segments of Alternative Markets covers 100% of each loss between $2 million and
$10 million. For National Accounts, reinsurance arrangements are typically
tiered, or layered, such that only levels of risk acceptable to the Company are
retained. The reinsurance agreement in place for Personal Lines umbrella
policies covers 100% of each loss between $1 million and $5 million. The
reinsurance agreements in place for Personal Lines property policies covers 100%
of each loss between $1


                                       18
<PAGE>   21
million and $6 million. For surety protection, Bond has reinsurance coverage for
95% of up to $50 million of liability in excess of $50 million of liability. In
addition, Bond's accident year results are protected by an aggregate excess of
loss treaty that provides 93.85% of approximately $52 million of reinsurance
coverage in excess of a $119 million retention.

      Catastrophe Reinsurance. The Company utilizes reinsurance agreements with
nonaffiliated reinsurers to control its exposure to losses resulting from one
occurrence. For the accumulation of net property losses arising out of one
occurrence, reinsurance agreements cover 75% of total losses between $250
million and $650 million. For multiple workers' compensation losses arising from
a single occurrence, reinsurance agreements cover 100% of losses between $10
million and $250 million and, for workers' compensation losses caused by
property perils, reinsurance agreements cover 75% of losses between $250 million
and $650 million.

      For commercial property insurance sold through Commercial Accounts, Select
Accounts, Construction and certain National Accounts, 10% of all losses are
reinsured in 1997, subject to an occurrence limitation of $275 million. For
Personal Lines homeowners insurance, in 1997, 25% of losses in states along the
East Coast are reinsured up to a maximum recovery of $180 million per
occurrence. The covered territory of this Homeowners Quota Share includes Maine,
New Hampshire, Massachusetts, Rhode Island, Connecticut, New York, New Jersey,
Delaware, Maryland, Virginia, North Carolina, South Carolina, Georgia, Florida
and Washington, D.C.

      REINSURANCE FUND

      The Company also participates in the Florida Hurricane Catastrophe Fund
("FHCF"), which is a state-mandated catastrophe reinsurance fund. FHCF is
primarily funded by premiums from insurance companies that write residential
property business in Florida and, if insufficient, assessments on insurance
companies that write other property and casualty insurance, excluding workers'
compensation. FHCF's resources are limited to these contributions and to its
borrowing capacity at the time of a significant catastrophe. There can be no
assurance that these resources will be sufficient to meet the obligations of
FHCF.

      The Company's recovery of less than contracted amounts from FHCF could
have a material adverse effect on the Company's results of operations in the
event of a significant catastrophe in Florida.

RESERVES

      Property and casualty claim reserves are established to account for the
estimated ultimate costs of claims and claim adjustment expenses for claims that
have been reported but not yet settled and claims that have been incurred but
not reported. The Company establishes reserves by line of business, coverage and
year.


                                       19
<PAGE>   22
      The process of estimating claim reserves is imprecise due to a number of
variables. These variables are affected by both internal and external events
such as changes in claims handling procedures, inflation, judicial trends and
legislative changes. Many of these items are not directly quantifiable,
particularly on a prospective basis. Additionally, there may be significant
reporting lags between the occurrence of the insured event and the time it is
actually reported to the insurer. The Company continually refines reserve
estimates in a regular ongoing process as experience develops and further claims
are reported and settled. The Company reflects adjustments to reserves in the
results of operations in the periods in which the estimates are changed. In
establishing reserves, the Company takes into account estimated recoveries for
reinsurance, salvage and subrogation.

      The Company derives estimates for unreported claims and development on
reported claims principally from actuarial analyses of historical patterns of
claims development by accident year for each line of business and market
segment. Similarly, the Company derives estimates of unpaid claim adjustment
expenses principally from actuarial analyses of historical development patterns
of the relationship of claim adjustment expenses to losses for each line of
business and market segment. For a description of the Company's reserving
methods for environmental and asbestos claims, see "Environmental, Asbestos and
Cumulative Injury Claims."

      Discounting. The liability for losses for certain long-term disability
payments under workers' compensation insurance and workers' compensation excess
insurance has been discounted using a maximum interest rate of 5%. At December
31, 1996, 1995 and 1994 the combined amounts of discount for the Company were
$1.012 billion, $1.206 billion and $1.120 billion, respectively.

      For a reconciliation of beginning and ending property and casualty
insurance claims and claim adjustment expense reserves of the Company for each
of the last three years, see Note 6 of Notes to Consolidated Financial
Statements.

      The following table sets forth the year-end reserves from 1986 through
1996 and the subsequent changes in those reserves, presented on a combined basis
for Travelers P&C and Aetna P&C. The data in the table are presented in
accordance with reporting requirements of the Securities and Exchange
Commission. Care must be taken to avoid misinterpretation by those unfamiliar
with such information or familiar with other data commonly reported by the
insurance industry. The following data is not accident year data, but rather a
display of 1986-1996 year-end reserves and the subsequent changes in those
reserves.

      For instance, the "cumulative deficiency or redundancy" shown in the
following table for each year represents the aggregate amount by which original
estimates of reserves as of that year-end have changed in subsequent years.
Accordingly, the cumulative deficiency for a year relates only to reserves at
that year-end and such amounts are not additive. Expressed another way, if the
original reserves at the end of 1986 included $4 million for a loss that is
finally settled in 1996 for $5 million, the $1 million deficiency (the excess of
the actual


                                       20
<PAGE>   23
settlement of $5 million over the original estimate of $4 million) would be
included in the cumulative deficiencies in each of the years 1986-1995 shown in
the following table.

      Certain factors may distort the re-estimated reserves and cumulative
deficiency or redundancy shown in the following table. For example, a
substantial portion of the cumulative deficiencies in each of the years
1986-1996 arises from claims on policies written prior to the mid-1970s
involving liability exposures such as environmental, asbestos and cumulative
injury claims. In the post-1984 period, the Company has developed more stringent
underwriting standards and policy exclusions and has significantly contracted or
terminated the writing of such risks. See "Environmental, Asbestos and
Cumulative Injury Claims." General conditions and trends that have affected the
development of these liabilities in the past will not necessarily recur in the
future.

      Other factors that affect the data in the following table include the
discounting of workers' compensation reserves and the use of retrospectively
rated insurance policies. To the extent permitted under applicable accounting
practices, workers' compensation reserves are discounted to reflect the time
value of money, due to the relatively long time period over which these claims
are to be paid. Apparent deficiencies will continue to occur as the discount on
these workers' compensation reserves is accreted at the appropriate interest
rates. Also, a significant portion of National Accounts business is underwritten
with retrospectively rated insurance policies in which the ultimate loss
experience is primarily borne by the insured. Increases in loss experience
result in an increase in reserves, and an offsetting increase in amounts
recoverable from insureds. These amounts recoverable mitigate the impact of the
cumulative deficiencies but are not reflected in the following table.
Retrospective rating is particularly significant for National Accounts business
for workers' compensation, and to a lesser extent in general liability and
commercial automobile coverages. This mechanism affords the Company a
significant financial protection against adverse development on a large block of
net reserves.

      Because of these and other factors, it is difficult to develop meaningful
extrapolation of estimated future redundancies or deficiencies in loss reserves
from the data in the following table.

      The differences between the reserves for claims and claim adjustment
expenses shown in the following table, which is prepared in accordance with
GAAP, and those reported in the annual statements of the Company filed with
state insurance departments, which are prepared in accordance with statutory
accounting practices, were: $14 million, $(7) million and $(26) million for the
years 1996, 1995 and 1994, respectively.


                                       21
<PAGE>   24
<TABLE>
<CAPTION>
                                                         YEAR ENDED DECEMBER 31,
                          1986     1987      1988     1989      1990      1991     1992     1993      1994      1995     1996
-------------------------------------------------------------------------------------------------------------------------------
                                                             (Dollars in millions)
<S>                     <C>       <C>       <C>      <C>       <C>       <C>      <C>      <C>       <C>       <C>      <C>
Reserves for claims and
claim adjustment 
expenses originally
estimated:              $14,076   $16,241   $17,851  $19,401   $20,182   $20,694  $21,454  $21,223   $21,272   $21,675  $21,816
Cumulative amounts
paid as of:
One year later            4,006     4,914     5,263    5,480     5,476     5,080    5,064    4,609     4,415     3,887
Two years later           6,963     8,152     8,553    8,949     9,020     8,639    8,363    7,812     7,190
Three years later         9,218    10,407    10,911   11,447    11,660    11,100   10,887    9,949
Four years later         10,779    12,036    12,643   13,390    13,450    13,097   12,586
Five years later         11,941    13,273    14,064   14,717    14,986    14,430
Six years later          12,868    14,370    15,051   15,964    16,058
Seven years later        13,745    15,129    16,031   16,815
Eight years later        14,373    15,963    16,751
Nine years later         15,117    16,598
Ten years later          15,683

Reserves
re-estimated as
of:
One year later           14,443    16,780    18,204   19,629    20,358    21,178   21,645   21,458    22,101    22,095
Two years later          15,173    17,268    18,589   19,908    21,087    21,704   22,087   22,567    22,522
Three years later        15,738    17,696    19,056   20,676    21,820    22,397   23,303   23,031
Four years later         16,278    18,210    19,795   21,459    22,728    23,731   24,004
Five years later         16,755    18,967    20,595   22,501    24,133    24,547
Six years later          17,501    19,737    21,641   23,964    24,960
Seven years later        18,312    20,788    23,069   24,790
Eight years later        19,328    22,206    23,865
Nine years later         20,770    22,946
Ten years later          21,388

Cumulative deficiency     7,312     6,705     6,014    5,389     4,778     3,853    2,550    1,808     1,250       420

Gross
liability--end of
year                                                                                                           $31,167  $30,969
Reinsurance and
deductible
recoverables                                                                                                     9,492    9,153
                                                                                                               ----------------
Net
liability--end of year                                                                                         $21,675  $21,816
                                                                                                               ================

Gross  reestimated
liability--latest                                                                                              $31,166
Reestimated
reinsurance and
deductible
recoverables--latest                                                                                             9,071
                                                                                                               -------
Net reestimated
liability--latest                                                                                              $22,095
                                                                                                               =======
Gross cumulative
deficiency
(redundancy)                                                                                                   $    (1)
                                                                                                               =======
</TABLE>


STATUTORY COMBINED RATIO INFORMATION

      The following table sets forth the statutory loss and LAE ratios,
underwriting expense ratios and combined ratios for the periods indicated for
the Company.

      The statutory combined ratio is an industry measurement of the results of
property and casualty insurance underwriting. This ratio is the sum of the ratio
of incurred losses and loss adjustment expenses to net premiums earned (the
"loss and LAE ratio"), the ratio of underwriting expenses incurred to net
premiums written (the "underwriting expense ratio") and, where applicable, the
ratio of dividends to policyholders to net premiums earned. A combined ratio
under 100% generally indicates an underwriting profit; a combined ratio over
100% generally indicates an underwriting loss. However, investment income,
federal income taxes and other non-underwriting income (e.g., service fee
income) or expenses are not reflected in the combined ratio. The profitability
of property and casualty insurance companies depends on income from
underwriting, investment and service operations. Lines of


                                       22
<PAGE>   25
business where claims are paid out over a longer period of time, such as
workers' compensation, also provide investment income over a longer period of
time and therefore can be profitable at higher combined ratios than lines where
claims are paid out over a shorter period. Insurers with a high proportion of
long-tail policies will generally have higher combined ratios than insurers with
more short-tail business.

      The ratios shown in the table below are computed based upon statutory
accounting practices, not GAAP. For information on GAAP combined ratios, see
Item 7, "Management's Discussion and Analysis of Financial Condition and Results
of Operations."


                            STATUTORY COMBINED RATIOS

<TABLE>
<CAPTION>
                                      YEAR ENDED DECEMBER 31,
                                  ------------------------------
                                   1996         1995        1994
                                   ----         ----        ----
<S>                               <C>         <C>          <C>
Commercial Lines:
   Loss and LAE ratio              96.2%       80.6%       104.2%
   Underwriting expense ratio      32.7        24.4         24.0
   Combined ratio before
      policyholder dividends      128.9 (1)   105.0        128.2 (2)
   Combined ratio                 129.6       106.3        126.2
Personal Lines:
   Loss and LAE ratio              68.7        74.5         71.0
   Underwriting expense ratio      28.9        29.9         29.4
   Combined ratio                  97.6 (3)   104.4        100.4
Total:
   Loss and LAE ratio              85.5        78.2         90.2
   Underwriting expense ratio      31.3        26.4         26.2
   Combined ratio before
      policyholder dividends      116.8       104.6        116.4
   Combined ratio                 117.2       105.4        115.3
</TABLE>

---------------------
(1) Includes the effect of charges associated with the Acquisition and also
    includes statutory charges made to conform accounting policies and Company
    strategies in connection with the Acquisition (but not for GAAP reporting
    purposes due to purchase accounting). The combined ratio excluding such
    charges was 110.0%.

(2) Includes statutory reserve increases for environmental claims and a
    reduction of ceded reinsurance balances amounting to $225 million by the
    Company. The combined ratio excluding this item was 114.2%.

(3) Includes the effect of the Company's review of reserves associated with the
    Acquisition. The combined ratio excluding this item was 100.1%.

ENVIRONMENTAL, ASBESTOS AND CUMULATIVE INJURY CLAIMS

      Environmental, asbestos and cumulative injury claims are segregated from
other claims and are handled separately by the Company's Special Liability
Group, a special unit staffed by dedicated legal, claim, finance and engineering
professionals.


                                       23
<PAGE>   26
      ENVIRONMENTAL CLAIMS

      As a result of various state and federal regulatory efforts aimed at
environmental remediation, the insurance industry has been, and continues to be,
involved in extensive litigation involving policy coverage and liability issues.
The Comprehensive Environmental Response, Compensation and Liability Act
("CERCLA") was first enacted in 1980, and significantly expanded in 1984. CERCLA
enables private parties and the federal and state governments to take action
with respect to releases and threatened releases of hazardous substances and to
recover their response costs from certain liable parties or such parties may be
ordered to undertake remedial action directly. Liability under CERCLA may be
joint and several with other responsible persons. In addition to the regulatory
pressures, the Company believes that certain court decisions have expanded
insurance coverage beyond the original intent of the insurers and insureds,
frequently involving policies that were issued prior to the mid-1970s. The
results of court decisions affecting the industry's coverage positions continue
to be inconsistent. Accordingly, the ultimate responsibility and liability for
environmental remediation costs remain uncertain.

      The Company continues to receive claims alleging liability exposures
arising out of insureds' alleged disposition of toxic substances. These claims
when submitted rarely indicate the monetary amount being sought by the claimant
from the insured and the Company does not keep track of the monetary amount
being sought in those few claims which indicated such a monetary amount. The
Company's review and investigation of environmental claims includes an
assessment of the probable liability, available coverage, judicial
interpretations and historical value of similar claims. In addition, the unique
facts presented in each claim are evaluated individually and collectively. Due
consideration is given to the many variables presented in each claim, such as:
the nature of the alleged activities of the insured at each site; the
allegations of environmental damage at each site; the number of sites; the total
number of potentially responsible parties at each site; the nature of
environmental harm and the corresponding remedy at a site; the nature of
government enforcement activities at each site; the ownership and general use of
each site; the overall nature of the insurance relationship between the Company
and the insured; the identification of other insurers; the potential coverage
available, if any; the number of years of coverage, if any; the obligation to
provide a defense to insureds, if any; and the applicable law in each
jurisdiction.

      The Company's reserves for environmental claims are not established on a
claim-by-claim basis. An aggregate bulk reserve is carried for all of the
Company's environmental claims that are in the dispute process, until the
dispute is resolved. This bulk reserve is established and adjusted based upon
the aggregate volume of in-process environmental claims and the Company's
experience in resolving such claims. Environmental loss and loss expense
reserves of the Company at December 31, 1996 were $1.242 billion, net of
reinsurance of $127 million. Approximately 12% of such loss and loss expense
reserves (i.e., approximately $146 million) were case reserves for resolved
claims. The balance, approximately 88% of the net aggregate reserve (i.e.,
approximately $1.096 billion), is carried in a bulk reserve and


                                       24
<PAGE>   27
includes incurred but not yet reported environmental claims for which the
Company has not received any specific claims.

      The duration of the Company's investigation and review of such claims and
the extent of time necessary to determine an appropriate estimate, if any, of
the value of the claim to the Company, varies significantly and is dependent
upon a number of factors. These factors include, but are not limited to, the
cooperation of the insured in providing claim information, the pace of
underlying litigation or claim processes, the pace of coverage litigation
between the insured and the Company and the willingness of the insured and the
Company to negotiate, if appropriate, a resolution of any dispute between them
pertaining to such claims. Since the foregoing factors vary from claim to claim
and insured by insured, the Company cannot provide a meaningful average of the
duration of an environmental claim. However, based upon the Company's experience
in resolving such claims, the duration may vary from months to several years.

      The property and casualty insurance industry does not have a standard
method of calculating claim activity for environmental losses. Generally for
environmental claims, Travelers P&C establishes a claim file for each insured on
a per site, per claimant basis. If there is more than one claimant such as a
federal and a state agency, this method will result in two claims being set up
for a policyholder at that one site. Similarly, if one hundred claimants file a
lawsuit against ten policyholders alleging injury as a result of the discharge
of wastes or pollutants, one thousand claims would be established. Travelers P&C
adheres to this method of calculating claim activity on all
environmental-related claims, whether such claims are tendered on primary,
excess or umbrella policies.

      As of December 31, 1996, Travelers P&C had approximately 30,800 pending
environmental-related claims tendered by 664 active policyholders. The pending
environmental-related claims represent federal or state EPA-type claims as well
as plaintiffs' claims alleging bodily injury and property damage due to the
discharge of waste or pollutants. In 1996, the pending inventory increased by
approximately 20,000 claims as a result of several lawsuits being filed in the
states of Louisiana and Texas. These lawsuits, filed against one or more
policyholders of Travelers P&C, allege that the plaintiffs were injured or
damaged as a result of either alleged waste disposal or the alleged release of
deleterious substances from ongoing business operations which have taken place
near the plaintiffs' residences. Claims of this nature have historically been
considered in the level of TAP's environmental reserves. To date, Travelers P&C
has resolved environmental-related claims on behalf of 1,628 policyholders.

      The Company is preparing a claims system conversion which when completed
will apply Travelers P&C's method of establishing claim files to Aetna P&C's
environmental-related claims. The Company anticipates that this process should
be completed in 1997. As of December 31, 1996, Aetna P&C had pending
environmental-related claims tendered by approximately 948 active policyholders.
Approximately 129 of these 948 active policyholders are also included in the 664
active Travelers P&C policyholders. Aetna P&C's policyholders, like those of
Travelers P&C, have tendered both EPA-type claims and individual claims


                                       25
<PAGE>   28
alleging injury or damage as a result of the discharge of wastes or pollutants.
To date, Aetna P&C has resolved environmental-related claims on behalf of 1,870
policyholders.

      To date, the Company generally has been successful in resolving its
coverage litigation and continues to reduce its potential exposure through
favorable settlements with certain insureds. These settlement agreements with
certain insureds are based on the variables presented in each piece of coverage
litigation. Generally the settlement dollars paid in disputed coverage claims
are a percentage of the total coverage sought by such insureds. In addition,
with respect to settlement of many of the environmental claims, the agreement
between the Company and the insured extinguishes any obligation the Company may
have under any policy issued to the insured for future environmental liabilities
risks. This form of settlement is commonly referred to as a "buy-back" of
policies for future environmental liability risks. Additional provisions of
these agreements include the appropriate indemnities and hold harmless
provisions to protect the Company. The Company's general purpose in executing
such agreements is to reduce its potential environmental exposure and eliminate
both the risks presented by coverage litigation with the insured and the cost of
such litigation.

      ASBESTOS CLAIMS

      In the area of asbestos claims, the Company believes that the property and
casualty insurance industry has suffered from judicial interpretations that have
attempted to maximize insurance availability from both a coverage and liability
standpoint far beyond the intent of the contracting parties. These policies
generally were issued prior to the 1980s. The Company continues to receive
asbestos claims alleging insureds' liability from claimants' asbestos-related
injuries. These claims, when submitted, rarely indicate the monetary amount
being sought by the claimant from the insured and the Company does not keep
track of the monetary amount being sought in those few claims which indicated
such a monetary amount. Originally the cases involved mainly plant workers and
traditional asbestos manufacturers and distributors. However, in the mid-1980s,
a new group of plaintiffs, whose exposure to asbestos was less direct and whose
injuries were often speculative, began to file lawsuits in increasing numbers
against the traditional defendants as well as peripheral defendants who had
produced products that may have contained small amounts of some form of
encapsulated asbestos. These claims continue to arise and on an individual basis
generally involve smaller companies with smaller limits of potential coverage.

      Also, there has emerged a group of non-product claims by plaintiffs,
mostly independent labor union workers, mainly against companies, alleging
exposure to asbestos while working at these companies' premises. In addition,
various insurers, including the Company, remain defendants in an action brought
in Philadelphia regarding potential consolidation and resolution of future
asbestos bodily injury claims.

      In summary, various classes of asbestos defendants, such as major product
manufacturers, peripheral and regional product defendants as well as premises
owners, are tendering asbestos-related claims to the industry. Because each
insured presents different


                                       26
<PAGE>   29
liability and coverage issues, the Company evaluates those issues on an
insured-by-insured basis.

      The Company's evaluations have not resulted in any meaningful data from
which an average asbestos defense or indemnity payment may be determined. The
varying defense and indemnity payments made by the Company on behalf of its
insureds have also precluded the Company from deriving any meaningful data by
which it can predict whether its defense and indemnity payments for asbestos
claims (on average or in the aggregate) will remain the same or change in the
future. Based upon the Company's experience with asbestos claims, the duration
period of an asbestos claim from the date of submission to resolution is
approximately two years.

      At December 31, 1996, asbestos claims reserves of the Company were $1.073
billion, net of reinsurance of $370 million. Approximately 25% of the net
aggregate reserve (i.e., approximately $263 million) is for pending asbestos
claims. The balance, approximately 75% (i.e., approximately $810 million), of
the net asbestos reserves represents incurred but not yet reported losses for
which the Company has not received any specific claims.

      UNCERTAINTY REGARDING ADEQUACY OF ENVIRONMENTAL AND ASBESTOS RESERVES

      It is difficult to estimate the reserves for environmental and
asbestos-related claims due to the vagaries of court coverage decisions,
plaintiffs' expanded theories of liability, the risks inherent in major
litigation and other uncertainties. Conventional actuarial techniques are not
used to estimate such reserves.

      For environmental claims, the Company estimates its financial exposure and
establishes reserves based upon an analysis of its historical claim experience
and the facts of the individual underlying claims. The unique facts presented in
each claim are evaluated individually and collectively. Due consideration is
given to the many variables presented in each claim, as discussed above.

      The following factors are evaluated in projecting the ultimate reserve for
asbestos-related claims: available insurance coverage; limits and deductibles;
an analysis of each policyholder's potential liability; jurisdictional
involvement; past and projected future claim activity; past settlement values of
similar claims; allocated claim adjustment expense; potential role of other
insurance, and applicable coverage defenses, if any. Once the gross ultimate
exposure for indemnity and allocated claim adjustment expense is determined for
a policyholder by policy year, a ceded projection is calculated based on any
applicable facultative and treaty reinsurance. In addition, a similar review is
conducted for asbestos property damage claims. However, due to the relatively
minor claim volume, these reserves have remained at a constant level.

      As a result of these processes and procedures, the reserves carried for
environmental and asbestos claims at December 31, 1996 are the Company's best
estimate of ultimate claims


                                       27
<PAGE>   30
and claim adjustment expenses based upon known facts and current law. However,
the environment surrounding the final resolution of these claims continues to
change. Currently, it is not possible to predict changes in the legal and
legislative environment and their impact on the future development of asbestos
and environmental claims. Such development will be affected by future court
decisions and interpretations and changes in Superfund and other legislation.
Because of these future unknowns, additional liabilities may arise for amounts
in excess of the current reserves. These additional amounts, or a range of these
additional amounts, cannot now be reasonably estimated, and could result in a
liability exceeding reserves by an amount that would be material to the
Company's operating results in a future period. However, the Company believes
that it is not likely that these claims will have a material adverse effect on
the Company's financial condition or liquidity.

      CUMULATIVE INJURY OTHER THAN ASBESTOS

      Cumulative injury other than asbestos ("CIOTA") claims are generally
submitted to the Company under general liability policies and often involve an
allegation by a claimant against an insured that the claimant has suffered
injuries as a result of long-term or continuous exposure to potentially harmful
products or substances. Such potentially harmful products or substances include,
but are not limited to, lead paint, pesticides, pharmaceutical products,
silicone-based personal products, solvents and other deleterious substances.

      Due to claimants' allegations of long-term bodily injury in CIOTA claims,
numerous complex issues regarding such claims are presented. The claimants'
theories of liability must be evaluated, evidence pertaining to a causal link
between injury and exposure to a substance must be reviewed, the potential role
of other causes of injury must be analyzed, the liability of other defendants
must be explored, and assessment of a claimant's damages must be made and the
law of the jurisdiction must be applied. In addition, the Company must review
the number of policies issued by the Company to the insured and whether such
policies are triggered by the allegations, the terms and limits of liability of
such policies, the obligations of other insurers to respond to the claim, and
the applicable law in each jurisdiction.

      To the extent disputes exist between the Company and a policyholder
regarding the coverage available for CIOTA claims, the Company resolves the
disputes, where feasible, through settlements with the policyholder or through
coverage litigation. Generally, the terms of a settlement agreement set forth
the nature of the Company's participation in resolving CIOTA claims, the scope
of coverage to be provided by the Company and contain the appropriate
indemnities and hold harmless provisions to protect the Company. These
settlements generally eliminate uncertainties for the Company regarding the
risks extinguished, including the risk that losses would be greater than
anticipated due to evolving theories of tort liability or unfavorable coverage
determinations. The Company's approach also has the effect of determining losses
at a date earlier than would have occurred in the absence of such settlement
agreements. On the other hand, in cases where future developments are favorable
to insurers, this approach could have the effect of resolving claims for amounts
in excess of those that would ultimately have been paid had the claims not been
settled in this manner. No


                                       28
<PAGE>   31
inference should be drawn that because of the Company's method of dealing with
CIOTA claims, its reserves for such claims are more conservatively stated than
those of other insurers.

      Aetna P&C did not distinguish CIOTA from other general liability claims or
treat CIOTA claims as a special class of claims. In addition, there were
substantial differences in claim approach and resolution between the Company and
Aetna P&C regarding CIOTA claims.

      During the second quarter, the Company completed its review of Aetna P&C's
exposure to CIOTA claims in order to determine an appropriate level of reserves
using the Company's approach as described above. Based on the results of that
review, the Company's general liability insurance reserves were increased $360
million, net of reinsurance ($234 million after tax).

      At December 31, 1996, CIOTA claims reserves of the Company were $1.114
billion, net of reinsurance of $446 million. Approximately 19% of the net
aggregate reserve (i.e., approximately $215 million) is for pending CIOTA
claims. The balance, approximately 81% (i.e., approximately $899 million), of
the net CIOTA reserves represents incurred but not yet reported losses for which
the Company has not received any specific claims.

INSURANCE POOLS

      Most of the Company's insurance subsidiaries are members of one of three
separate intercompany property and casualty reinsurance pooling arrangements:
the Travelers Indemnity pool, the Aetna Insurance pool and the Gulf pool. Each
of these insurance pools permits the participating companies to rely on the
capacity of the entire pool rather than on its own capital and surplus. Under
the arrangements of each insurance pool, the members share substantially all
insurance business that is written and prorate the combined premiums, losses and
expenses.

RATINGS

      Insurance companies are rated by rating agencies to provide both industry
participants and insurance consumers with meaningful information on specific
insurance companies. Higher ratings generally indicate financial stability and a
strong ability to pay claims. These ratings are based upon factors relevant to
policyholders and are not directed toward protection of investors. Such ratings
are neither a rating of securities nor a recommendation to buy, hold or sell any
security and may be revised or withdrawn at any time. Ratings focus primarily on
the following factors: capital resources, financial strength, demonstrated
management expertise in the insurance business, credit analysis, systems
development, market segment position and growth opportunities, marketing, sales
conduct practices, investment operations, minimum policyholders' surplus
requirements and capital sufficiency to meet projected growth, as well as access
to such traditional capital as may be necessary to continue to meet standards
for capital adequacy.


                                       29
<PAGE>   32
      The following table summarizes the current claims-paying and financial
strength ratings of the Company's property-casualty insurance pools and Aetna
Casualty and Surety Company of America ("Aetna C&S of America") by A. M. Best,
Duff & Phelps Corp. ("Duff & Phelps"), Moody's Investor's Service Inc.
("Moody's") and Standard & Poor's Ratings Group ("Standard & Poor's"). The table
also presents the position of each rating in the applicable agency's rating
scale.

<TABLE>
<CAPTION>
                                                                                        STANDARD &
                                  A.M. BEST       DUFF & PHELPS        MOODY'S              POOR'S
                                -------------     --------------    -------------     -------------
<S>                             <C>               <C>               <C>               <C>
Travelers Indemnity pool(1)     A  (3rd of 15)    AA- (4th of 18)   A1 (5th of 19)    A+ (5th of 18)
Aetna Insurance pool (2)        A- (4th of 15)    A+  (5th of 18)   A1 (5th of 19)    A+ (5th of 18)
Gulf pool (3)                   A+ (2nd of 15)           --               --          AA (3rd of 18)
Aetna C&S of America            A  (3rd of 15)    A+  (5th of 18)   A1 (5th of 19)    A+ (5th of 18)
</TABLE>

-------------------
(1)The Travelers Indemnity pool consists of Travelers Indemnity, The Phoenix
   Insurance Company, The Charter Oak Fire Insurance Company, The Travelers
   Indemnity Company of Connecticut, The Travelers Indemnity Company of America,
   The Travelers Indemnity Company of Missouri, The Travelers Indemnity Company
   of Illinois, TravCo Insurance Company and The Travelers Home and Marine
   Insurance Company.

(2)The Aetna Insurance pool consists of Aetna Casualty, Standard Fire, Aetna
   Casualty & Surety Company of Illinois, The Farmington Casualty Company, The
   Automobile Insurance Company of Hartford, Connecticut, Aetna Casualty Company
   of Connecticut, Aetna Commercial Insurance Company, Aetna Insurance Company,
   Aetna Insurance Company of Illinois and Aetna Personal Security Insurance
   Company.

(3)The Gulf pool consists of Gulf Insurance Company, Gulf Underwriters
   Insurance Company, Select Insurance Company, Atlantic Insurance Company and
   Gulf Group Lloyds.

INVESTMENTS

      Insurance company investments must comply with applicable laws and
regulations which prescribe the kind, quality and concentration of investments.
In general, these laws and regulations permit investments, within specified
limits and subject to certain qualifications, in federal, state and municipal
obligations, corporate bonds, preferred and common equity securities, real
estate mortgages and real estate.

      The Company's investment policies are determined by its Board of Directors
and are reviewed on a regular basis. At December 31, 1996, the carrying value of
the Company's investment portfolio was $29.4 billion, of which 91.1% was
invested in fixed maturity investments and short-term investments, 4.0% in
mortgage loans and real estate held for sale, 2.6% in common stocks and other
equity securities and 2.3% in other investments. The average duration of the
fixed maturity portfolio, including short-term investments, was 5.3 years at
such date. Non-investment grade securities totaled $599 million, representing
approximately 2.4% of the Company's fixed maturity investment portfolio as of
December 31, 1996.

      For additional information regarding these investment portfolios, see Note
4 of Notes to Consolidated Financial Statements, the discussion of Investment
Portfolio in Item 7 of this Form 10-K and Note 3 of Notes to the 1995 Combined
Financial Statements of Aetna P&C.


                                       30
<PAGE>   33
      The following table sets forth information regarding the investments of
the Company. It reflects the average amount of investments, net investment
income earned and the yield thereon for the years ended December 31, 1996, 1995
and 1994. The table includes information on the investments of Aetna P&C for
periods prior to April 2, 1996 (the date of the Acquisition). See Note 4 of
Notes to Consolidated Financial Statements and Note 3 of Notes to the 1995
Combined Financial Statements of Aetna P&C for information regarding the
investment portfolio of the Company.
<TABLE>
<CAPTION>
                                              YEAR ENDED DECEMBER 31,
                                       -------------------------------------------
                                          1996            1995             1994
                                       ---------        ---------        ---------
                                               (Dollars in millions)
<S>                                    <C>              <C>              <C>
Average investments                    $28,018.7        $24,824.9        $24,068.0
Net investment income                  $ 1,898.6        $ 1,611.8        $ 1,397.3
Average yield (1)                            7.2%             6.4%             6.0%
Average tax equivalent yield (1)             7.7%             6.9%             6.5%
Average tax equivalent yield
excluding real estate (1)                    7.6%             6.8%             6.3%
</TABLE>

---------
(1)    Excluding realized and unrealized capital gains and losses.

      MORTGAGE LOANS AND REAL ESTATE HELD FOR SALE

      At December 31, 1996, the mortgage loan and real estate held for sale
portfolios of the Company consisted of approximately $1.0 billion and $157
million, respectively. The 1996 increase in mortgage loans and real estate held
for sale is primarily attributable to the Acquisition.

      Management evaluates the real estate portfolio on an ongoing basis,
assessing the probabilities of loss with respect to a comprehensive series of
projections, including a host of variables relating to the borrower, the
property, the term of the loan, the tenant composition, rental rates, other
supply and demand factors, and overall economic conditions.

      The following table summarizes by property type the mortgage loan
portfolio and real estate held for sale included in the investment portfolio of
the Company as of December 31, 1996, 1995 and 1994. For informational purposes
only, the table includes the investments of Aetna P&C for all periods presented.


                                       31
<PAGE>   34
<TABLE>
<CAPTION>
                   ----------------------------     ---------------------------
                          MORTGAGE LOANS                  REAL ESTATE
                   ----------------------------     ---------------------------
                                      (Dollars in millions)
                     1996      1995       1994      1996      1995      1994
                   --------  --------  --------     ------     ------    ------
<S>                <C>       <C>       <C>         <C>       <C>       <C>
Property Type:
Commercial:
   Office          $  503.4  $  591.0  $  764.2    $  69.2   $  139.7  $  133.1
   Apartment          181.6     243.3     269.1        7.7        4.8      19.8
   Hotel               26.6      74.4     147.0       35.8       56.8      46.3
   Retail             210.8     285.4     415.8       19.6       20.2      24.4
   Industrial          47.8      51.9      55.6       21.9       22.6      22.2
   Other               26.0      52.1      62.7        0.6       41.5      38.5
                   --------  --------  --------     ------     ------    ------
Total commercial      996.2   1,298.1   1,714.4      154.8      285.3     284.3
Agriculture             9.4      20.8      26.3        1.9        2.2       7.4
Residential             -         -         7.3        -          -         0.2
Less:  valuation
  reserve (1)           -       (44.4)    (58.5)       -          -         -
                   --------  --------  --------     ------     ------    ------
Total              $1,005.6  $1,274.5  $1,689.5     $156.7     $287.5    $291.9
                   ========  ========  ========     ======     ======    ======
</TABLE>

---------------------

(1) In 1996, reflects purchase accounting adjustments related to the
Acquisition.

      For additional information regarding the mortgage loan and real estate
held for sale portfolios of the Company, see Note 4 of Notes to Consolidated
Financial Statements and Notes 3 and 15 of Notes to the 1995 Combined Financial
Statements of Aetna P&C. Actual maturities will differ from contractual
maturities because borrowers may have the right to prepay loans with or without
prepayment penalties. The Company's combined unscheduled payments and sales of
mortgage loans were $163 million in 1996 and $227 million in 1995. The average
remaining life of the mortgage portfolio is five years.

      DERIVATIVES

      See Note 12 of Notes to Consolidated Financial Statements for a discussion
of the policies and transactions related to derivatives of the Company.

COMPETITION

      The property and casualty insurance industry is highly competitive in the
areas of price, service, product offerings, agent relationships and, in the case
of personal property and casualty business, method of distribution (i.e., use of
independent agents, captive agents and/or salaried employees). There are
approximately 3,400 property-casualty insurance companies in the United States.
Of those companies, approximately 800 operate in all or most states and write
the vast majority of the business in the industry while approximately 2,600
offer one or more personal or commercial lines property-casualty products
similar to those marketed by the Company. In addition, an increasing amount of
commercial risks are covered


                                       32
<PAGE>   35
by purchaser self-insurance, large deductibles, risk-purchasing groups,
risk-retention groups and captive companies.

      COMMERCIAL LINES. The insurance industry is represented in the commercial
lines marketplace by many insurance companies of varying size. The industry is
comprised of small local firms, large regional firms and large national firms,
as well as self-insurance programs or captive insurers. Market competition works
to set the price charged for insurance products and the level of service
provided within the insurance regulatory framework. Growth is driven by a
company's ability to provide insurance and services at a price that is
reasonable and acceptable to the customer. In addition, the marketplace is
affected by available capacity of the insurance industry as measured by
policyholders' surplus. Surplus expands and contracts primarily in conjunction
with profit levels generated by the industry. Growth in premium and service
business is also measured by a company's ability to retain existing customers
and to attract new customers.

      The National Accounts market is highly competitive. Competition is based
primarily on quality and service and, to a lesser extent, on the basis of price.
National Accounts business is generally written through national brokers and
regional agents. The Company also competes for state contracts to provide claims
and policy management services. These contracts, which generally have three-year
terms, are selected by state agencies through a bid process based on quality of
service and price. The Company has emerged as the largest assigned risk plan
service insurer in the industry with approximately 28% of the market in 1996.

      The Commercial Accounts market is highly competitive. Commercial Accounts
business has historically been written through independent agents and brokers,
although some companies use direct writing. Competitors in this market are
primarily national property-casualty insurance companies willing to write most
classes of business using traditional products and pricing and, to a lesser
extent, regional insurance companies and companies that have developed niche
programs for specific industry segments. Companies compete on price, product
offerings, response time in policy issuance and claim and loss prevention
services. Additionally, reduced overhead and improved efficiency through
automation and response time to customer needs are key to success in this
market.

      The Construction market has become a focused industry segment for several
large insurance companies. Construction market business is written through
agents and brokers. Insurance companies compete in this market based upon price,
product offering and claims service. The Company utilizes its specialized
underwriters and engineers who have extensive experience and knowledge of the
construction industry to work with agents and brokers to compete effectively in
this market.

      The Select Accounts market is highly competitive and is typically written
through independent agents and, to a lesser extent, regional brokers. Both
national and regional property-casualty insurance companies compete in the
Select Accounts market which is generally comprised of low risk, "main street"
business customers. Risks are underwritten


                                       33
<PAGE>   36
and priced using standard industry practices and a combination of proprietary
and standard industry product offerings. Competition in this market is primarily
based on price, product offerings and response time in policy services. The
Company has established a strong marketing relationship with its distribution
network and has provided it with defined underwriting policies, competitive
prices and efficient automated environments.

      The market in which Specialty Accounts competes includes small to
mid-sized niche companies that target certain lines of insurance and larger,
multi-line companies that focus on various segments of the Specialty Accounts
market. Specialty Accounts business is generally written through wholesale
brokers and retail agents and brokers throughout the United States. Gulf
Specialty derives a competitive advantage through its underwriting practices,
low expense levels and broad product offering base. Bond Specialty's reputation
for clear, timely decision-making, underwriting and industry expertise and
strong producer and customer relationships as well as its ability to offer its
customers a full range of financial services products, enable it to compete
effectively. Its ability to cross-sell Bond products to customers of National
Accounts, Commercial Accounts, Select Accounts and through other Travelers Group
units provides further competitive advantages for the Company.

      PERSONAL LINES. Personal lines insurance is written by hundreds of
insurance companies of varying sizes. Although national companies write the
majority of the business, the Company also faces competition from local or
regional companies which often have a competitive advantage because of their
expense structure or because they specialize in providing coverage to particular
risk groups. The Company believes that the principal competitive factors are
price, service, perceived stability of the insurer and name recognition. The
Company also competes for business within each of the independent agencies
representing it, because these agencies also offer policies of competing
independent agency companies. At the agency level, the Company believes that
competition is primarily based on the level of service, including claims
handling, level of automation and the development of long-term relationships
with the individual agents. The Company also competes with insurance companies
that use captive agents or salaried employees to sell their products. Because
these companies generally pay lower commissions than independent agency
companies, they may be able to generate business at a lower cost than the
Company. Due to this expense advantage, the direct writing companies have
gradually expanded their market share in recent years. However, in addition to
its traditional independent agency distribution, Personal Lines is pursuing a
number of initiatives to broaden its distribution of Personal Lines products,
including marketing through the PFS sales force, marketing to affinity groups
and establishing co-marketing arrangements with other insurers.

REGULATION

      STATE REGULATION

      The Company's insurance subsidiaries are subject to regulation and
supervision in the various states and jurisdictions in which they transact
business. The extent of regulation varies but generally has its source in
statutes that delegate regulatory, supervisory and administrative


                                       34
<PAGE>   37
authority to a department of insurance of each state. The regulation,
supervision and administration relate, among other things, to the standards of
solvency that must be met and maintained, the licensing of insurers and their
agents, the nature of and limitations on investments, premium rates,
restrictions on the size of risks that may be insured under a single policy,
reserves and provisions for unearned premiums, losses and other obligations,
deposits of securities for the benefit of policyholders, approval of policy
forms and the regulation of market conduct including underwriting and claims
practices. In addition, many states have enacted variations of competitive
rate-making laws which allow insurers to set certain premium rates for certain
classes of insurance without having to obtain the prior approval of the state
insurance department. State insurance departments also conduct periodic
examinations of the affairs of insurance companies and require the filing of
annual and other reports relating to the financial condition of companies and
other matters.

      At the present time, the Company's insurance subsidiaries are collectively
licensed to transact insurance business in all states, the District of Columbia,
Guam, Puerto Rico, and the U.S. Virgin Islands, as well as Canada and the United
Kingdom.

      Although the Company is not regulated as an insurance company, it is the
owner of the capital stock of its insurance subsidiaries and as such is subject
to state insurance holding company statutes, as well as certain other laws, of
each of the states of domicile of its insurance subsidiaries. All holding
company statutes, as well as certain other laws, require disclosure and, in some
instances, prior approval of material transactions between an insurance company
and an affiliate. The holding company statutes, as well as certain other laws,
also require, among other things, prior approval of an acquisition of control of
a domestic insurer and the payment of extraordinary dividends or distributions.

      The Company's insurance subsidiaries are subject to various state
statutory and regulatory restrictions in each company's state of domicile, which
limit the amount of dividends or distributions by an insurance company to its
stockholders. As a holding company whose principal assets are the capital stock
of Travelers Indemnity, Aetna Casualty and Standard Fire, the Company relies
primarily on dividends from these subsidiaries to meet its obligations for
payment of interest and principal on outstanding debt obligations, dividends to
stockholders and corporate expenses. The ability of these subsidiaries to pay
dividends to the Company in the future will depend on their statutory surplus,
future earnings and regulatory restrictions. Dividend payments to the Company
from its insurance subsidiaries are limited to $647 million in 1997 without
prior approval of the Connecticut Insurance Department.

      The Company's principal insurance subsidiaries are domiciled in the State
of Connecticut. The insurance holding company law of Connecticut requires notice
to, and approval by, the state insurance commissioner for the declaration or
payment of any dividend, which together with other distributions made within the
preceding twelve months, exceeds the greater of (i) 10% of the insurer's surplus
or (ii) the insurer's net income for the twelve-month period ending the
preceding December 31st, in each case determined in accordance with statutory
accounting practices. Such declaration or payment is further limited by adjusted
unassigned funds (surplus), as determined in accordance with statutory
accounting practices.


                                       35
<PAGE>   38
The insurance holding company laws of other states in which the Company's
insurance subsidiaries are domiciled generally contain similar (although in
certain instances somewhat more restrictive) limitations on the payment of
dividends.

      Virtually all states require insurers licensed to do business in their
state to bear a portion of the loss suffered by certain insureds as a result of
the insolvency of other insurers. Depending upon state law, insurers can be
assessed an amount that is generally equal to between 1% and 2% of premiums
written for the relevant lines of insurance in that state each year to pay the
claims of an insolvent insurer. Most of these payments are recoverable through
premium rates, premium tax credits or policy surcharges. Significant increases
in assessments could limit the ability of the Company's insurance subsidiaries
to recover such assessments through tax credits. In addition, there have been
some legislative efforts to limit or repeal the tax offset provisions, which
efforts, to date, have been generally unsuccessful. These assessments may
increase or decrease in the future depending upon the rate of insolvencies of
insurance companies.

      The Company also participates in FHCF, which is a state-mandated
catastrophe reinsurance fund that provides reimbursement to insurers for a
portion of their future catastrophic hurricane losses. FHCF is primarily funded
by premiums from the insurance companies that write residential property
business in Florida and, if insufficient, assessments on insurance companies
that write other property and casualty insurance in Florida, excluding workers'
compensation. FHCF's resources are limited to these contributions and to its
borrowing capacity at the time of a significant catastrophe in Florida.

      The Company's insurance subsidiaries are also required to participate in
various involuntary assigned risk pools, principally involving workers'
compensation and automobile insurance, which provide various insurance coverages
to individuals or other entities that otherwise are unable to purchase such
coverage in the voluntary market. Participation in these pools in most states is
generally in proportion to voluntary writings of related lines of business in
that state. The underwriting results of these pools traditionally have been
unprofitable, although the effect of their performance has been partially
mitigated in certain lines of insurance by the states' allowance of increases in
rates for business voluntarily written by pool participants in such states.
Combined earned premiums related to such pools and assigned risks for the
Company were $379 million, $315 million and $509 million in 1996, 1995 and 1994,
respectively. The related combined underwriting losses for the Company were $39
million, $152 million and $300 million in 1996, 1995 and 1994, respectively.

      Proposed legislation and regulatory changes have been introduced in the
states from time to time that would modify certain laws and regulations
affecting the financial services industry, including the provisions governing
relationships among insurance companies and agents, investment banks and
commercial banks. The potential impact of such legislation on the Company's
businesses cannot be predicted at this time.


                                       36
<PAGE>   39
      INSURANCE REGULATIONS CONCERNING CHANGE OF CONTROL

      Many state insurance regulatory laws intended primarily for the protection
of policyholders contain provisions that require advance approval by state
agencies of any change in control of an insurance company that is domiciled (or,
in some cases, having such substantial business that it is deemed to be
commercially domiciled) in that state. The Company owns, directly or indirectly,
all of the shares of stock of certain property and casualty insurance companies
domiciled in the States of Connecticut, Florida, Georgia, Illinois, Indiana,
Massachusetts, Missouri, New Jersey and Texas. "Control" is generally presumed
to exist through the ownership of 10% or more of the voting securities of a
domestic insurance company or of any company that controls a domestic insurance
company. Any purchaser of shares of Common Stock representing 10% or more of the
voting power of the Company will be presumed to have acquired control of the
Company's domestic insurance subsidiaries unless, following application by such
purchaser in each insurance subsidiary's state of domicile, the relevant
Insurance Commissioner determines otherwise. In addition, many state insurance
regulatory laws contain provisions that require prenotification to state
agencies of a change in control of a nondomestic admitted insurance company in
that state. While such prenotification statutes do not authorize the state
agency to disapprove the change of control, such statutes do authorize issuance
of a cease and desist order with respect to the nondomestic admitted insurer if
certain conditions exist such as undue market concentration. Any future
transactions that would constitute a change in control of the Company would
generally require prior approval by the insurance departments of the states in
which the Company's insurance subsidiaries are domiciled or commercially
domiciled and may require preacquisition notification in those states that have
adopted preacquisition notification provisions and in which such insurance
subsidiaries are admitted to transact business.

      Certain insurance subsidiaries of the Company are authorized to conduct
insurance business in the United Kingdom. Authorized insurers in the United
Kingdom are subject to certain change of control restrictions in the Insurance
Companies Act of 1982 which require the approval of The Department of Trade and
Industry if any person is to become a "controller" (which is defined as a person
entitled to exercise control of 15% or more of the voting power) of an
authorized insurance company.

      Certain other insurance subsidiaries of the Company are authorized to
conduct insurance business in Canada. Authorized insurers in Canada are subject
to certain change of control restrictions in Section 407 of the Insurance
Companies Act, which requires the approval of the Minister of Finance if any
person acquires a "significant interest" (beneficial ownership, directly or
through one or more entities controlled by such person, of 10% of the
outstanding shares of such Company) in an authorized insurance company.

      Such requirements may deter, delay or prevent certain transactions
affecting the control of or the ownership of Common Stock, including
transactions that could be advantageous to the stockholders of the Company.


                                       37
<PAGE>   40
      Insurance Regulatory Information System

      The NAIC has developed a set of financial relationships or "tests" called
the Insurance Regulatory Information System ("IRIS") that were designed for
early identification of companies that may require special attention by
insurance regulatory authorities. These tests were developed primarily to assist
state insurance departments in executing their statutory mandate to oversee the
financial condition of insurance companies. Insurance companies submit data on
an annual basis to the NAIC, which in turn analyzes the data using ratios
covering twelve categories of financial data with defined "usual ranges" for
each category.

      Falling outside the usual range of IRIS ratios is not considered a failing
result; rather, unusual values are viewed as part of the regulatory early
monitoring system. Furthermore, in some years, it may not be unusual for
financially sound companies to have several ratios with results outside the
usual ranges. An insurance company may fall out of the usual range for one or
more ratios because of specific transactions that are in themselves immaterial.
Generally, an insurance company will become subject to regulatory scrutiny if it
falls outside the usual ranges of four or more of the ratios. In normal years,
15% of the companies included in the IRIS system are expected by the NAIC to be
outside the usual range on four or more ratios.

      In each of the last three years, certain of the Company's insurance
subsidiaries have been outside of the usual range for certain IRIS ratios. In
all such instances, the regulators have been satisfied upon follow-up that there
is no solvency problem. It is possible that similar events could occur this
year, and management believes that the resolution would be the same. No
regulatory action has been taken by any state insurance department or the NAIC
with respect to IRIS ratios of any of the Company's insurance subsidiaries for
the three years ended December 31, 1996.

      For 1996, Travelers Indemnity did not have any IRIS ratios outside the
usual range. However, both the two-year overall operating ratio and the two-year
reserve development to surplus ratios were outside the usual range for Aetna
Casualty and Standard Fire because of actions taken during 1996 and 1995 to
strengthen reserves for environmental and asbestos-related claims. In addition,
the change in writings ratio produced an unusual value for Standard Fire and the
estimated current reserve deficiency to surplus ratio was outside the usual
range for Aetna C&S of America, both as a result of management's decision in
1995 to combine its two intercompany pooling arrangements (one for Personal
Lines and one for Commercial Lines) into one pool. If these two ratios were
recalculated to have all items reflect the new agreement, the ratios would not
produce unusual values. Concurrent with the change in the intercompany pooling
arrangements, capital was reallocated among Aetna P&C insurers, which resulted
in an unusual value in the change in surplus ratio for Standard Fire.


                                       38
<PAGE>   41
      The following table sets forth information regarding the premium to
surplus ratios of the Company. For informational purposes only, the table
includes Aetna P&C for all periods presented.


          SCHEDULE OF PREMIUM TO SURPLUS RATIOS (STATUTORY BASIS)(1)


<TABLE>
<CAPTION>
                                        YEAR ENDED DECEMBER 31,
                                    -------------------------------
                                     1996         1995         1994
                                     ----         ----         ----
                                          (Dollars in millions)

<S>                                 <C>          <C>          <C>
Net written premiums                $7,343       $7,701       $7,981
Capital and surplus                  5,423        5,231        4,659
Ratio of net written premiums
to capital and surplus               1.35x        1.47x        1.71x 
</TABLE>

------
(1)    Including accident and health business.


      RISK-BASED CAPITAL (RBC) REQUIREMENTS

      In order to enhance the regulation of insurer solvency, the NAIC has
adopted a formula and model law to implement RBC requirements for most property
and casualty insurance companies, which is designed to assess minimum capital
requirements and to raise the level of protection that statutory surplus
provides for policyholder obligations. The RBC requirements are to be used as
early warning tools by the NAIC and states to identify companies that merit
further regulatory action. The RBC formula for property and casualty insurance
companies measures four major areas of risk facing property and casualty
insurers: (i) underwriting, which encompasses the risk of adverse loss
developments and inadequate pricing; (ii) declines in asset values arising from
credit risk; (iii) declines in asset values arising from investment risks; and
(iv) off-balance sheet risk arising from adverse experience from non-controlled
assets, guarantees for affiliates or other contingent liabilities and reserve
and premium growth. Pursuant to the law, insurers having less statutory surplus
than that required by the RBC calculation will be subject to varying degrees of
regulatory action, depending on the level of capital inadequacy.

      The RBC law provides for four levels of regulatory action. The extent of
regulatory intervention and action increases as the level of surplus to RBC
falls. The first level, the Company Action Level (as defined by the NAIC),
requires an insurer to submit a plan of corrective actions to the regulator if
surplus falls below 200% of the RBC amount. The Regulatory Action Level (as
defined by the NAIC) requires an insurer to submit a plan containing corrective
actions and permits the relevant Insurance Commissioner to perform an
examination or other analysis and issue a corrective order if surplus falls
below 150% of the RBC amount. The Authorized Control Level (as defined by the
NAIC) allows the relevant Insurance Commissioner to rehabilitate or liquidate an
insurer in addition to the aforementioned actions if surplus falls below 100% of
the RBC amount. The fourth action level is the Mandatory Control Level (as
defined by the NAIC) which requires the relevant Insurance Commissioner to
rehabilitate or liquidate the insurer if surplus falls below 70% of


                                       39
<PAGE>   42
the RBC amount. Based on the foregoing formula, at December 31, 1996, the RBC
ratios of the Company's insurance subsidiaries were in excess of levels that
would require company or regulatory action.

      The formulas have not been designed to differentiate among adequately
capitalized companies which operate with higher levels of capital. Therefore, it
is inappropriate and ineffective to use the formulas to rate or to rank such
companies. At December 31, 1996, all of the Company's property-casualty
insurance companies had adjusted capital in excess of amounts requiring
regulatory action at any of the four levels.

      FEDERAL REGULATION

      Although the federal government does not directly regulate the business of
insurance, other than flood insurance, federal initiatives often have an impact
on the insurance industry. Legislation has been introduced in Congress during
the past several sessions that, if enacted, would result in substantially
greater federal regulation of the insurance business. Current and proposed
federal measures that may affect the property and casualty industry may include
possible changes to CERCLA and the tax laws governing property and casualty
insurance companies, proposed limits to product liability lawsuits and other
tort reform proposals. In addition, proposed legislation has been introduced in
Congress from time to time that would modify certain laws and regulations
affecting the financial services industry, including the provisions regarding
affiliations among insurance companies, investment banks and commercial banks.

      It is not possible to predict whether such proposed legislation will be
enacted, what form such legislation might take when enacted, or the potential
effects of such legislation on the Company and its competitors.

CORPORATE AND OTHER OPERATIONS

      In addition to its two business segments, the Company's Corporate and
Other segment consists primarily of financing costs associated with the
Acquisition.

OTHER INFORMATION

      GENERAL BUSINESS FACTORS

      In the judgment of the Company, no material part of the business of the
Company and its subsidiaries is dependent upon a single customer or group of
customers, the loss of any one of which would have a materially adverse effect
on the Company, and no one customer or group of affiliated customers accounts
for as much as 10% of the Company's consolidated revenues.


                                       40
<PAGE>   43
      At December 31, 1996, the Company had approximately 20,600 full-time and
670 part-time employees. The Company believes that its employee relations are
satisfactory. None of the Company's employees is subject to collective
bargaining agreements.

      SOURCE OF FUNDS

      For a discussion of the Company's sources of funds and maturities of the
long-term debt of the Company, see Item 7, "Management's Discussion and Analysis
of Financial Condition and Results of Operations -- Liquidity and Capital
Resources," and Note 7 of Notes to Consolidated Financial Statements.

      TAXATION

      For a discussion of tax matters affecting the Company and its operations,
see Item 7, "Management's Discussion and Analysis of Financial Condition and
Results of Operations," and Note 8 of Notes to Consolidated Financial
Statements.

      FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS

      For financial information regarding industry segments of the Company, see
Item 7, "Management's Discussion and Analysis of Financial Condition and Results
of Operations," and Note 3 of Notes to Consolidated Financial Statements.

      EXECUTIVE OFFICERS OF THE COMPANY

      The current executive officers of the Company are indicated below. Ages
are given as of March 5, 1997.

<TABLE>
<CAPTION>
                                                                      Officer
Name                   Age    Positions                                Since
----                   ---    ---------                               -------

<S>                    <C>    <C>                                      <C>
Robert I. Lipp         58     Chairman of the Board, President and     1996
                                Chief Executive Officer
Jay S. Fishman         44     Vice Chairman and Chief Administrative   1996
                                Officer; President and Chief Operating
                                Officer - Commercial Lines
Stanton F. Long        55     Vice Chairman                            1997
Jon C. Madonna         53     Vice Chairman                            1997
Charles J. Clarke      61     Chairman and Chief Executive Officer -   1996
                                 Commercial Lines
Joseph P. Kiernan      56     Chairman and Chief Executive Officer -   1996
                                 Bond
Robert P. Restrepo,    46     Chairman and Chief Executive Officer -   1996
Jr.                              Personal Lines
</TABLE>


                                       41
<PAGE>   44
<TABLE>
<CAPTION>

                                                                      Officer
Name                   Age    Positions                                Since
----                   ---    ---------                               -------

<S>                    <C>    <C>                                      <C>
Ronald E. Foley        51     Chairman and Chief Executive Officer -   1996
                                 Risk Management
William P. Hannon      48     Chief Financial Officer                  1996
Glenn D. Lammey        35     Senior Vice President                    1996
James M. Michener      44     Senior Vice President, General           1996
                              Counsel and Secretary
Thomas P. Shugrue      39     Vice President and Chief Accounting      1996
                                 Officer
</TABLE>

      Mr. Lipp has been Chairman of the Board, President and Chief Executive
Officer of the Company since January 1996. Mr. Lipp has been a director of
Travelers Group since 1991 and is a Vice Chairman of Travelers Group. Mr. Lipp
has been Chairman of the Board and Chief Executive Officer of The Travelers
Insurance Group Inc. since December 1993. From 1991 to 1993, he was Chairman and
Chief Executive Officer of Travelers Group's Consumer Finance Services group.
From April 1986 through September 1991, he was an Executive Vice President of
Travelers Group and its corporate predecessor. Prior to joining Travelers Group
in 1986, he was a President and a director of Chemical New York Corporation and
Chemical Bank where he held senior executive positions for more than five years
prior thereto. Mr. Lipp is a director of The New York City Ballet, Wadsworth
Atheneum and the Massachusetts Museum of Contemporary Art and Chairman of
Dance-On Inc., a private foundation.

      Mr. Fishman has been President and Chief Operating Officer of Commercial
Lines since October 1996. In addition, he has been Vice Chairman and Chief
Administrative Officer of the Company since January 1996. Mr. Fishman has served
as Senior Vice President of Travelers Group since October 1991. He has also
served as Vice Chairman of TIGI since September 1995 and as Chief Financial
Officer of that company since December 1993. Mr. Fishman was Treasurer of
Travelers Group from 1991 to December 1993. Prior thereto, he held various other
positions with Travelers Group and its subsidiaries since 1989, when he joined
that company from Shearson Lehman Brothers Inc., where he was Senior Vice
President of Merchant Banking.

      Mr. Long was elected Vice Chairman of the Company in January 1997. Prior
to joining the Company, Mr. Long was Vice President of American International
Group since 1992. From 1988 to 1992, he was President and Chief Executive
Officer of SAIF Corporation. Prior to his association with SAIF Corporation in
1988, Mr. Long was an attorney in private practice for 20 years.


                                       42
<PAGE>   45
      Mr. Madonna joined the Company in February 1997 as Vice Chairman and also
serves as Vice Chairman of Travelers Group. Prior to joining the Company, Mr.
Madonna was Chairman of KPMG International since October 1995. From 1990 to
1996, he was Chairman and Chief Executive Officer of KPMG Peat Marwick LLP.

      Mr. Clarke has been Chairman and Chief Executive Officer--Commercial Lines
of the Company since January 1996. From 1990 to January 1996, Mr. Clarke was
Chairman of Commercial Lines of Travelers P&C. Prior thereto, Mr. Clarke was
Senior Vice President of the National Accounts and the Reinsurance business
units of Travelers P&C. Mr. Clarke has served in several positions at Travelers
P&C since 1958.

      Mr. Kiernan has been Chairman and Chief Executive Officer--Bond of the
Company since March 1996. From 1989 to March 1996, Mr. Kiernan was Vice
President of Aetna's bond business and has worked in the bond business lines at
Aetna since 1963. From June 1995 to March 1996, Mr. Kiernan was Vice President
of Standard Commercial Accounts of Aetna.

      Mr. Restrepo has been Chairman and Chief Executive Officer--Personal Lines
of the Company since March 1996. Mr. Restrepo was Senior Vice President of the
Personal Auto and Homeowners business units of Aetna from 1995 to 1996 and was
head of the Homeowners business unit of Aetna from 1993 to 1996. Prior thereto,
Mr. Restrepo served in a variety of property/casualty business areas of Aetna.

      Mr. Foley has been Chairman and Chief Executive Officer--Risk Management
of the Company since January 1996. Mr. Foley served as Chairman of Personal
Lines of Travelers P&C from 1994 until his present appointment and from 1987 to
1991 and served as Chief Financial Officer of The Travelers Corporation from
1991 through 1993.

      Mr. Hannon has been Chief Financial Officer of the Company since January
1996. Prior to joining the Company, Mr. Hannon served as Deputy Managing Partner
of the Financial Services practice of KPMG Peat Marwick LLP, which he joined in
1969, and also served as a member of the firm's Securities and Exchange
Commission reviewing partner's committee.

      Mr. Lammey has been Senior Vice President of the Company since October
1996. Mr. Lammey served as Vice President of Travelers P&C from 1992 until his
present appointment and has served in several positions at Travelers P&C since
1988.

      Mr. Michener has been Senior Vice President, General Counsel and Corporate
Secretary of the Company since July 1996. Prior to joining the Company, Mr.
Michener was General Counsel of The MetraHealth Companies, Inc. from January
1995 to October 1995 and Deputy General Counsel of United HealthCare Corporation
from October 1995 to May 1996. From August 1977 to December 1994, Mr. Michener
served in several positions at TIGI.


                                       43
<PAGE>   46
      Mr. Shugrue has been Vice President and Controller of the Company since
October 1996 and Chief Accounting Officer of the Company since November 1996.
Mr. Shugrue has served in several positions at TIGI since 1983.

GLOSSARY OF INSURANCE TERMS


<TABLE>
<S>                             <C>
Accident year.................   The annual accounting period in which loss
                                 events occurred, regardless of when the losses
                                 are actually reported, booked or paid.

Adjusted unassigned surplus...   Unassigned surplus as of the most recent
                                 statutory annual report reduced by twenty-five
                                 percent of that year's unrealized appreciation
                                 in value or revaluation of assets or unrealized
                                 profits on investments, as defined in such
                                 report.

Admitted insurer..............   A company licensed to transact insurance
                                 business within a state.

Alternative market............   The segment of the insurance market which has
                                 developed in response to volatility in cost and
                                 availability of traditional commercial
                                 insurance coverage and consists of various risk
                                 financing mechanisms, including self insurance,
                                 captive insurance companies, risk retention
                                 groups and residual market business.

Annuity.......................   A contract that pays a periodic income benefit
                                 for the life of a person (the annuitant), the
                                 lives of two or more persons or for a specified
                                 period of time.

Assigned risk pools...........   Reinsurance pools which cover risks for those
                                 unable to purchase insurance in the voluntary
                                 market because the risk is too great or rate
                                 inadequacy has reduced the supply of insurance.
                                 The costs of the risks associated with these
                                 pools are charged back to insurance carriers in
                                 proportion to their direct writings.

Assumed reinsurance...........   Insurance liabilities acquired from a ceding
                                 company.

Assumption reinsurance........   A transaction whereby the ceding company
                                 transfers its entire obligation under the
                                 policy to the reinsurer, who becomes directly
                                 liable to the policyholder in all respects,
                                 including collecting premiums and paying
                                 benefits. See "Reinsurance."

Attachment point..............   The amount of losses above which excess of loss
                                 reinsurance becomes operative.
</TABLE>


                                       44
<PAGE>   47
<TABLE>
<S>                        <C>
Broker...................  One who negotiates contracts of insurance or reinsurance on behalf of an insured
                           party, receiving a commission from the insurer or reinsurer for placement and
                           other services rendered.

Capacity.................  The percentage of surplus, or the dollar amount of exposure, that an insurer or
                           reinsurer is willing to place at risk. Capacity may apply to a single risk, a
                           program, a line of business or an entire book of business. Capacity may be
                           constrained by legal restrictions, corporate restrictions or indirect
                           restrictions.

Captive company..........  An insurance company formed to insure the risks of its parent entity or entities.

Case reserves............  Loss reserves, established with respect to specific, individual reported claims.

Casualty insurance.......  Insurance which is primarily concerned with the losses caused by injuries to
                           third persons (i.e., not the insured) and the legal liability imposed on the
                           insured resulting therefrom. It includes, but is not limited to, employers'
                           liability, workers' compensation, public liability, automobile liability,
                           personal liability and aviation liability insurance. It excludes certain types
                           of losses that by law or custom are considered as being exclusively within the
                           scope of other types of insurance, such as fire or marine.

Catastrophe..............  A severe loss, usually involving risks such as fire, earthquake, windstorm,
                           explosion and other similar events.

Catastrophe loss.........  Loss and directly identified loss adjustment expenses from catastrophes.

Catastrophe reinsurance..  A form of excess of loss property reinsurance which,
                           subject to a specified limit, indemnifies the ceding
                           company for the amount of loss in excess of a
                           specified retention with respect to an accumulation
                           of losses resulting from a catastrophic event. The
                           actual reinsurance document is called a "catastrophe
                           cover."

Cede; ceding company.....  When an insurer reinsures its liability with another insurer (a "cession"), it
                           "cedes" business and is referred to as the "ceding company."
</TABLE>


                                       45
<PAGE>   48
<TABLE>
<S>                        <C>
Ceded reinsurance........  Risks transferred to another company as reinsurance.  See "Reinsurance."

Claim....................  Request by an insured for indemnification by an insurance company for loss
                           incurred from an insured peril.

Claim adjustment expense.  See "Loss adjustment expense."

Claims and claim
     adjustment expense..  See "Loss and loss adjustment expenses."

Claims and claim
     adjustment
     expense reserves....  See "Loss reserves."

Clash cover..............  An excess of loss agreement with a retention higher than the limits on  any one
                           reinsured policy. The agreement is thus only exposed to loss when two or more
                           policies (perhaps from different lines of business) are involved  in a common
                           occurrence in an amount greater than the clash cover retention.  Also known as
                           contingency cover.

Combined ratio...........  The sum of the loss and LAE ratio, the underwriting expense ratio and, where
                           applicable, the ratio of dividends to policyholders to net premiums earned. A
                           combined ratio under 100% generally indicates an underwriting profit. A combined
                           ratio over 100% generally indicates an underwriting loss.

Commercial lines.........  The various kinds of insurance which are written for businesses.

Commutation agreement....  An agreement between a reinsurer and a
                           ceding company whereby the reinsurer pays an agreed
                           upon amount in exchange for a complete discharge of
                           all obligations, including future obligations,
                           between the parties for reinsurance losses incurred.

Deductible...............  The amount of loss that an insured retains.

Deferred acquisition
     costs ..............  Commissions and premium taxes, which vary with and are primarily related to the
                           production of new business, are deferred and
                           amortized to achieve a matching of revenues and
                           expenses when reported in financial statements
                           prepared in accordance with GAAP.
</TABLE>


                                       46
<PAGE>   49
<TABLE>
<S>                        <C>
Direct written premiums..  The amounts charged by a primary
                           insurer to insureds in exchange for coverages
                           provided in accordance with the terms of an insurance
                           contract.

Earned premiums or
     premiums earned.....  That portion of property-liability premiums written that applies to the expired
                           portion of the policy term. Earned premiums are recognized as revenues under
                           both SAP and GAAP.

Excess liability.........  Additional casualty coverage above the first layer.

Excess of loss
     reinsurance ........  Reinsurance that indemnifies the
                           reinsured against all or a specified portion of
                           losses under reinsured policies in excess of a
                           specified dollar amount or "retention."

Expense ratio............  See "Underwriting expense ratio."

Extra contractual
    obligations losses...  Losses incurred by an insurer, beyond those that would have been incurred as
                           specified in the insurance agreement with an insured, due to monetary awards
                           required by a court of law against the insurer for its negligence to or bad
                           faith in dealing with its insured.

Facultative reinsurance..  The reinsurance of all or a portion of
                           the insurance provided by a single policy. Each
                           policy reinsured is separately negotiated.

Fidelity and surety
    programs ............  Insurance which guarantees performance of an obligation or indemnifies for loss
                           due to embezzlement or wrongful abstraction of money,
                           securities or other property.

Guaranteed cost products.  An insurance policy where the premiums
                           charged will not be adjusted for actual loss
                           experience during the covered period.

Guaranty fund............  State-regulated mechanism which is financed by assessing insurers doing business
                           in those states. Should insolvencies occur, these funds are available to meet
                           some or all of the insolvent insurer's obligations to policyholders.

Incurred but not reported
     ("IBNR") reserves...  Reserves for estimated losses and LAE which have been incurred but not yet
                           reported to the insurer.
</TABLE>


                                       47
<PAGE>   50
<TABLE>
<S>                        <C>
Indemnity reinsurance....  A transaction whereby the reinsurer
                           agrees to indemnify the ceding company against all or
                           part of the loss that the latter may sustain under
                           the policies it issued that are being reinsured. The
                           ceding company remains primarily liable as the direct
                           insurer on all risks ceded. See "reinsurance."

Inland marine............  A broad type of insurance generally covering articles that may be transported
                           from one place to another, as well as bridges, tunnels and other
                           instrumentalities of transportation. It includes goods in transit (generally
                           other than transoceanic) and may include policies for movable objects such as
                           personal effects, personal property, jewelry, furs, fine art and others.

IRIS ratios..............  Financial ratios calculated by the NAIC to assist state insurance departments in
                           monitoring the financial condition of insurance companies.

Large deductible policy..  An insurance policy where the
                           customer assumes at least $25,000 or more of each
                           loss.

Loss.....................  An occurrence that is the basis for submission and/or payment of a claim.
                           Losses may be covered, limited or excluded from coverage, depending on the terms
                           of the policy.

Loss adjustment expense
     ("LAE").............  The expenses of settling claims, including legal and other fees and the portion
                           of general expenses allocated to claim settlement costs.

Loss and LAE ratio.......  For SAP it is the ratio of incurred losses and loss adjustment expenses to net
                           premiums earned.  For GAAP it is the ratio of incurred losses and loss
                           adjustment expenses to net premiums earned plus fee income.

Loss reserves............  Liabilities established by insurers and reinsurers to reflect the estimated cost
                           of claims incurred that the insurer or reinsurer will ultimately be required to
                           pay  in respect of insurance or reinsurance it has written. Reserves are
                           established for losses and for LAE, and consist of case reserves and IBNR
                           reserves.

Losses and loss adjustment
     expenses............  The sum of losses incurred and loss adjustment expenses.
</TABLE>


                                       48
<PAGE>   51
<TABLE>
<S>                        <C> 
Losses incurred..........  The total losses sustained by an insurance company under a policy or policies, whether
                           paid or unpaid. Incurred losses includes a provision
                           for IBNR.

Multi-peril policies.....  Refers to policies which cover both property and third party liability exposures.

National Association
     of Insurance
     Commissioners
     ("NAIC")............  An organization of the insurance commissioners or directors of all 50 states and
                           the District of Columbia organized to promote consistency of regulatory practice
                           and statutory accounting standards throughout the United States.

Net written premiums.....  Direct written premiums plus assumed reinsurance less premiums ceded to
                           reinsurers.

Non-admitted coverage....  Insurance coverage written in a given state by an insurer not licensed in that
                           state.

Novation.................  A transaction in which the original direct insurer's obligations are completely
                           extinguished, resulting in no further exposure to loss arising on the business
                           novated.

Personal lines...........  Types of insurance written for individuals or families, rather than for
                           businesses.

Pool.....................  An organization of insurers or reinsurers through which particular types of
                           risks are underwritten with premiums, losses and expenses being shared in agreed
                           percentages.

Premium equivalents......  Premium equivalents represent estimates of premiums that customers would have
                           been charged under a fully insured arrangement, based on expected losses
                           associated with non-risk-bearing components of each account, as determined in
                           the pricing process. Premium equivalents are indicative of the volume of
                           business handled by an insurer in servicing relationships. Premium equivalents
                           do not represent actual premium revenues.

Premiums.................  The amount charged during the year on policies and contracts issued, renewed or
                           reinsured by an insurance company.

Producer.................  Contractual entity which directs insureds to the insurer for coverage.  See
                           "Broker."
</TABLE>


                                       49
<PAGE>   52
<TABLE>
<S>                        <C>
Property insurance.......  Insurance that provides coverage to
                           a person with an insurable interest in tangible
                           property for that person's property loss, damage or
                           loss of use.

Quota share reinsurance..  Reinsurance wherein the insurer
                           cedes an agreed fixed percentage of liabilities,
                           premiums and losses for each policy covered on a pro
                           rata basis.

Rate of renewal/retention
     ratio...............  Current period renewal accounts or policies as a percentage of expired accounts
                           or policies.

Rates....................  Amounts charged per unit of insurance.

Reinsurance..............  The practice whereby one insurer, called the reinsurer, in consideration of a
                           premium paid to such insurer, agrees to indemnify another insurer, called the
                           ceding company, for part or all of the liability assumed by the ceding company
                           under one or more policies or contracts of insurance which it has issued.

Reinsurance agreement....  A contract specifying the terms of a reinsurance transaction.

Residual market
     (involuntary
     business)...........  Insurance market which provides coverage for risks unable to purchase insurance
                           in the voluntary market either because the risk is too great or rate inadequacy
                           has reduced the supply of insurance. Residual markets are frequently created by
                           state legislation either because of lack of available coverage such as property
                           coverage in a windstorm prone area or protection of the accident victim as in
                           the case of workers' compensation. The costs of the residual market are usually
                           charged back to the direct insurance carriers in proportion to the carriers'
                           voluntary market shares for the type of coverage involved.

Retention................  The amount of exposure an insurance company retains on any one risk or group of
                           risks.

Retrospective premiums...  Premiums related to retrospectively rated policies.

Retrospective rating.....  A plan or method which permits adjustment of the final premium or commission on
                           the basis of actual loss experience, subject to certain minimum and maximum
                           limits.
</TABLE>


                                       50
<PAGE>   53
<TABLE>
<S>                        <C>
Risk-based capital
    ("RBC") .............  A measure adopted by the NAIC for
                           assessing the minimum statutory capital and surplus
                           requirements of insurers.

Risk retention...........  The amount or portion of a risk an insurer retains for its own account after
                           ceded reinsurance. Losses above the stated retention level are collectible from
                           the reinsurer. The retention level may be stated as a percentage or dollar
                           amount.

Salvage..................  The amount of money an insurer recovers through the sale of property transferred
                           to the insurer as a result of a loss payment.

Second injury fund.......  The employer of an injured, impaired worker is responsible only for the workers'
                           compensation benefit for the most recent injury; the second injury fund would
                           cover the cost of any additional benefits for aggravation of a prior condition.
                           The cost is shared by the insurance industry, funded through assessments to
                           insurance companies based on either premiums or losses.

Self-insured retentions..  That portion of the risk retained by a person for its own account.

Servicing carrier........  An insurance company that provides,
                           for a fee, various services including policy
                           issuance, claims adjusting and customer service for
                           insureds in a reinsurance pool.

Standard policy forms....  Self-contained pre-printed policy language used when a large number of insureds
                           face similar loss exposures.

Statutory accounting
     practices ("SAP")...  The rules and procedures prescribed or permitted by United States state
                           insurance regulatory authorities for recording transactions and preparing
                           financial statements. Statutory accounting practices generally reflect a
                           modified going concern basis of accounting.

Statutory surplus........  As determined under SAP, the amount remaining after all liabilities, including
                           loss reserves, are subtracted from all admitted assets. Admitted assets are
                           assets of an insurer prescribed or permitted by a state to be recognized on the
                           statutory balance sheet.  Statutory surplus is also referred to as "surplus" or
                           "surplus as regards policyholders" for statutory accounting purposes.
</TABLE>


                                       51
<PAGE>   54
<TABLE>
<S>                        <C>
Structured settlements...  Periodic payments to an injured person
                           or survivor for a determined number of years or for
                           life, typically in settlement of a claim under a
                           liability policy, usually funded through the purchase
                           of an annuity.

Subrogation..............  A principle of law incorporated in insurance policies, which enables an
                           insurance company, after paying a loss to its insured, to recover the amount of
                           the loss from another who is legally liable for it.

Third party liability....  A liability owed to a claimant (or "third party") who is not one of the two
                           parties to the insurance contract.  Insured liability claims are referred to as
                           third party claims.

Treaty reinsurance.......  The reinsurance of a specified type or category of risks defined in a
                           reinsurance agreement (a "treaty") between a primary insurer or other reinsured
                           and a reinsurer. Typically, in treaty reinsurance, the primary insurer or
                           reinsured is obligated to offer and the reinsurer is obligated to accept a
                           specified portion of  all such type or category of risks originally written by
                           the  primary insurer or reinsured.

Umbrella coverage........  A form of insurance protection against losses in excess of amounts covered by other
                           liability insurance policies or amounts not covered
                           by the usual liability policies.

Unassigned funds
    (surplus) ...........  The undistributed and unappropriated amount of statutory surplus.

Underwriter..............  An employee of an insurance company who examines, accepts or rejects risks and
                           classifies accepted risks in order to charge an appropriate premium for each
                           accepted risk. The underwriter is expected to select business that will produce
                           an average risk of loss no greater than that anticipated for the class of
                           business.

Underwriting.............  The insurer's or reinsurer's process of reviewing applications for insurance
                           coverage, and the decision whether to accept all or part of the coverage and
                           determination of the applicable premiums; also refers to the acceptance of such
                           coverage.

Underwriting expense
      ratio .............  For SAP it is the ratio of underwriting
                           expenses incurred to net premiums written. For GAAP
                           it is the ratio of underwriting expenses incurred to
                           net premiums written plus fee income.
</TABLE>


                                       52
<PAGE>   55
<TABLE>
<S>                        <C>
Underwriting profit or
     underwriting loss...  The pre-tax profit or loss experienced by a
                           property and casualty insurance company after
                           deducting loss and loss adjustment expenses and
                           operating expenses from net earned premiums. This
                           profit or loss calculation includes reinsurance
                           assumed and ceded but excludes investment income.

Unearned premium.........  The portion of premiums written that is allocable to the unexpired portion of
                           the policy term.

Voluntary market.........  The market in which a person seeking
                           insurance obtains coverage without the assistance of
                           residual market mechanisms.

Wholesale broker.........  An independent or exclusive agent that represents both admitted and non admitted
                           insurers in market areas which include standard, non-standard, specialty and
                           excess and surplus lines of insurance. The wholesaler does not deal directly
                           with the insurance consumer. The wholesaler deals with the retail agent or
                           broker.

Workers' compensation....  A system (established under state and federal laws) under which employers provide
                           insurance for benefit payments to their employees for
                           work-related injuries, deaths and diseases,
                           regardless of fault.
</TABLE>

ITEM 2.  PROPERTIES.

      The Company's executive offices are located in Hartford, Connecticut. The
Company rents from an affiliate of Travelers Group approximately 1,030,000
square feet of office space in Hartford, Connecticut, under a ten-year lease
that expires on April 1, 2006 and, subject to certain conditions, is renewable
by the Company for additional five-year terms. Under certain circumstances, the
Company may be required to purchase the leased premises. In addition, the
Company leases 302 field offices totaling approximately 6,650,000 square feet
throughout the United States under leases or subleases with third parties. The
Company also rents from Aetna approximately 373,000 square feet of office space
at City Place, located in Hartford, Connecticut, under an eight-year sublease
that expires in 2004, and approximately 225,000 square feet of office space in
Windsor, Connecticut, under a two-year lease that expires in 1998 and is
renewable by the Company for up to two additional three-year terms.

      The Company owns an office building with approximately 267,000 square feet
of office space in Tampa, Florida, of which it occupies approximately 125,000
square feet.

      The Company believes its properties are adequate and suitable for its
business as presently conducted and are adequately maintained. For further
information concerning leases, see Note 11 of Notes to Consolidated Financial
Statements.


                                       53
<PAGE>   56
ITEM 3.  LEGAL PROCEEDINGS.

      In the ordinary course of business, the Company receives claims asserting
alleged injuries and damages from asbestos and other hazardous waste and toxic
substances. The environment surrounding the final resolution of these claims
continues to change. Currently, it is not possible to predict changes in the
legal and legislative environment and their impact on the future development of
asbestos and environmental claims. Such development will be affected by future
court decisions and interpretations and changes in Superfund and other
legislation. Because of these future unknowns, additional liabilities may arise
for amounts in excess of the current reserves. These additional amounts, or a
range of these additional amounts, cannot now be reasonably estimated, and could
result in a liability exceeding reserves by an amount that would be material to
the Company's operating results in a future period. However, the Company
believes that it is not likely that these claims will have a material adverse
effect on the Company's financial condition or liquidity.

      For information concerning a case involving the enforcement of certain
reinsurance contracts with Lloyd's, see the description that appears in the
fifth full paragraph on page 90 of the Company's Prospectus dated April 22,
1996, which description is incorporated by reference herein. A copy of the
pertinent paragraph of such filing is included as an exhibit to this Form 10-K.
Hearings before the American Arbitration Association began in the second half of
1996 and are expected to continue into the second quarter of 1997.

      For information concerning actions filed against several insurance
companies and industry organizations relating to service fee charges and premium
calculations on certain workers' compensation insurance, see the descriptions
that appear in the paragraph that begins on page 90 and ends on page 91 of the
Company's Prospectus dated April 22, 1996, the first paragraph on page 24 of the
Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 1996 and
the first paragraph on page 25 of the Company's Quarterly Report on Form 10-Q
for the quarter ended September 30, 1996, which descriptions are incorporated by
reference herein. A copy of the pertinent paragraphs of such filings is included
as an exhibit to this Form 10-K. In NC Steel, Inc. v. NCCI, plaintiffs and
defendants have appealed to the North Carolina State Supreme Court. In November
1996, Amundson & Associates Art Studio v. NCCI, et al. was removed to the U.S.
District Court for the District of Kansas. In December 1996, a purported class
action entitled Forman, Inc. v. NCCI, et al. was filed in Chancery Court, Marion
County, Tennessee, with allegations similar to those in NC Steel and seeking
unspecified monetary damages. In January 1997, two additional purported class
actions, each entitled El Chico Restaurants, Inc. v. The Aetna Casualty and
Surety Company, et al., were filed in Chancery Court, Davidson County,
Tennessee, and Superior Court, Richmond County, Georgia, respectively, with
allegations similar to those in Weatherford Roofing Company v. Employers
National Insurance Company, which was settled in mid-1996. Plaintiffs seek
unspecified monetary damages. In February 1997, one action was removed to the
U.S. District Court for the Middle District of Tennessee and the other action
was removed to the U.S. District Court for the Southern District of Georgia.
Also in January 1997, a purported class of Texas workers' compensation insureds
filed a petition to intervene in a lawsuit pending since 1995 in District Court,
Travis County, Texas, entitled Travelers Indemnity Company of Connecticut v.
Texas Workers Compensation


                                       54
<PAGE>   57
Insurance Facility. The pending lawsuit arose out of a fee dispute between
certain subsidiaries of the Company and the administration of the Texas assigned
risk pool. The proposed class challenges both the fees paid to servicing
carriers for the pool from 1991 to 1993 and certain premium calculations on
certain workers' compensation policies from 1991 forward. The Company believes
it has meritorious defenses to these actions and intends to contest the
allegations.

      For information concerning the appeal of a Memorandum of Decision issued
by the Connecticut Department of Insurance approving the acquisition by the
Company of Aetna P&C, see the description that appears in the second full
paragraph on page 91 of the Company's Prospectus dated April 22, 1996, which
description is incorporated by reference herein. A copy of the pertinent
paragraph of such filing is included as an exhibit to this Form 10-K. In October
1996, the court dismissed the appeal. Plaintiffs have appealed the dismissal.

      The Company is involved in numerous other lawsuits (other than
environmental and asbestos claims) arising, from the most part, in the ordinary
course of its business operations either as a liability insurer defending
third-party claims brought against its insureds or as an insurer defending
coverage claims brought against it. Although there can be no assurances, the
Company believes, based on information currently available, that the ultimate
resolution of these legal proceedings would not be likely to have a material
adverse effect on the Company's results of operations, financial condition or
liquidity. See "Business -- Environmental, Asbestos and Cumulative Injury
Claims," Note 13 of Notes to Consolidated Financial Statements and Note 14 of
Notes to the 1995 Combined Financial Statements of Aetna P&C.

ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.

      Pursuant to an action by written consent of TIGI, dated February 19, 1997,
the Company was authorized to amend and restate Article FIRST of its Restated
Certificate of Incorporation to change its corporate name to Travelers Property
Casualty Corp. The consent was signed by the holder of 328,020,170 shares of the
Company's Class B Common Stock, representing approximately 82% of the Company's
outstanding common stock and approximately 98% of the total voting power of the
outstanding common stock. Through this consent, 3,280,201,700 votes were cast
for the amendment. No other votes were cast.

      The action by written consent was taken in accordance with the terms of
the Company's Restated Certificate of Incorporation and Delaware law and prompt
notice thereof was provided to all stockholders. The name change was effective
March 7, 1997, upon filing of the Certificate of Amendment to the Company's
Restated Certificate of Incorporation.


                                       55
<PAGE>   58
                                     PART II

ITEM 5.  MARKET FOR REGISTRANT'S COMMON EQUITY AND
         RELATED STOCKHOLDER MATTERS.

      The Company's Class A Common Stock is listed on the NYSE under the symbol
"TAP." There is no established public trading market for the Company's Class B
Common Stock. The high and low sale prices, as reported on the consolidated
transaction reporting system, for the Class A Common Stock for the periods
indicated, and the dividends per share, are set forth below.

<TABLE>
<CAPTION>
                                             1996                      1997
                                 ------------------------------      -------
                                  2ND Q*     3RD Q       4TH Q       1ST Q**
                                 -------    -------     -------      -------
<S>                              <C>        <C>         <C>          <C>
Class A Common
Stock Price

High                             $28.500    $29.375     $36.000      $39.500
Low                              $26.000    $23.125     $28.000      $33.750

Dividends per
Share of Class A
Common Stock                                $  .075     $  .075      $  .075
</TABLE>

-------------------
*  Since April 23, 1996.
** Through March 5, 1997.

      At March 5, 1997, the Company had approximately 300 holders of record of
its Class A Common Stock. This figure does not represent the actual number of
beneficial owners of common stock because shares are frequently held in "street
name" by securities dealers and others for the benefit of individual owners who
may vote the shares. At March 5, 1997, TIGI was the sole holder of record of the
Company's Class B Common Stock.

      For information on dividend restrictions in certain long-term loan and
credit agreements of the Company and its subsidiaries, as well as restrictions
on the ability of certain of the Company's subsidiaries to transfer funds to the
Company in the form of cash dividends or otherwise, see Item 7, "Management's
Discussion and Analysis of Financial Condition and Results of Operations."

ITEM 6.  SELECTED FINANCIAL DATA.

      See "Five-Year Summary of Selected Financial Data" on page 17 of the
Company's 1996 Annual Report to Stockholders (the "1996 Annual Report"),
included as part of Exhibit 13 to this Form 10-K and incorporated herein by
reference.


                                       56
<PAGE>   59
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
        OF OPERATIONS.

      See "Management's Discussion and Analysis of Financial Condition and
Results of Operations" beginning on page 18 of the 1996 Annual Report, included
as part of Exhibit 13 to this Form 10-K and incorporated herein by reference.

ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

      See Index to Consolidated Financial Statements and Schedules on page F-1
hereof. There is also incorporated by reference herein in response to this Item
the material under the caption "Selected Quarterly Financial Data (unaudited)"
on page 54 of the 1996 Annual Report, which material is included as part of
Exhibit 13 to this Form 10-K.

      The combined financial statements of Aetna P&C as of December 31, 1995
and 1994 and for the years ended December 31, 1995, December 31, 1994 and
December 31, 1993, together with the notes thereto and the related report of
Independent Accountants, are included as Exhibit 99.01 to this Form 10-K and are
incorporated herein by reference.

ITEM 9.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
         ACCOUNTING AND FINANCIAL DISCLOSURE.

      None.

                                    PART III

ITEM 10.    DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.

      For information on the directors of the Company, see the material under
the caption "Election of Directors," in the definitive Proxy Statement for the
Company's Annual Meeting of Stockholders to be held on April 23, 1997, filed
with the Securities and Exchange Commission (the "Proxy Statement"),
incorporated herein by reference. For information on executive officers, see
Item 1, "Business -- Other Information -- Executive Officers of the Company"
herein.

ITEM 11.    EXECUTIVE COMPENSATION.

      See the material under the caption "Executive Compensation" of the Proxy
Statement, incorporated herein by reference.

ITEM 12.    SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
            AND MANAGEMENT.

      See the material under the captions "Voting Rights", "Security Ownership
of Certain Beneficial Owners" and "Security Ownership of Management" of the 
Proxy Statement, incorporated herein by reference.


                                       57
<PAGE>   60
ITEM 13.    CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

      See the material under the captions "Election of Directors" and "Executive
Compensation" of the Proxy Statement, incorporated herein by reference.

                                     PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND
         REPORTS ON FORM 8-K.

   (a)   Documents filed as a part of the report:

     (1)   Financial Statements. See Index to Consolidated Financial Statements
           and Schedules on page F-1 hereof. Also filed as a part of this report
           are the combined financial statements of Aetna P&C as of December 31,
           1995 and 1994 and for the years ended December 31, 1995, December 31,
           1994 and December 31, 1993, together with the notes thereto and the
           related report of Independent Accountants. See Exhibit 99.01.

      (2)  Financial Statement Schedules. See Index to Consolidated Financial
           Statements and Schedules on page F-1 hereof.

      (3)  Exhibits:

           See Exhibit Index.

   (b)   Reports on Form 8-K:

         On October 8, 1996, the Company filed a Current Report on Form 8-K
         dated October 4, 1996, filing certain exhibits under Item 7 thereof
         relating to the offer and sale of the Company's 6 1/4% Notes due
         October 1, 1999.

         On November 14, 1996, the Company filed a Current Report on Form 8-K
         dated November 12, 1996, filing certain exhibits under Item 7 thereof
         relating to the offer and sale of the Company's 6 3/4% Notes due
         November 15, 2006.

         No other reports on Form 8-K were filed during the fourth quarter of
         1996; however, on January 21, 1997, the Company filed a Current Report
         on Form 8-K dated January 21, 1997, reporting under Item 5 thereof
         certain additional financial information for the three months and the
         year ended December 31, 1996, and on February 10, 1997, the Company
         filed a Current Report on Form 8-K dated February 10, 1997, reporting
         under Item 5 thereof certain additional financial information as of
         December 31, 1996.


                                       58
<PAGE>   61
                                 EXHIBIT INDEX
                                 -------------
<TABLE>
<CAPTION>
     EXHIBIT                                                                      FILING
     NUMBER       DESCRIPTION OF EXHIBIT                                          METHOD
     -------      ----------------------                                          ------
<S>               <C>                                                             <C>
       3.01       Restated Certificate of Incorporation of Travelers Property     Electronic
                  Casualty Corp. (formerly Travelers/Aetna Property Casualty
                  Corp.) (the "Company"), Certificate of Designations, Powers,
                  Preferences and Rights of 7.5% Redeemable Preferred Stock,
                  Series Z, of the Company, and Certificate of Amendment to the
                  Restated Certificate of Incorporation.

       3.02       Restated By-Laws of the Company, effective March 29, 1996,
                  incorporated by reference to Exhibit 3.2 to the Company's Form
                  S-1.

       4.01       Intercompany Agreement, dated as of April 2, 1996, between
                  Travelers Group Inc. and the Company, incorporated by
                  reference to Exhibit 4.1 to the Company's Form S-1.

       4.02       Shareholders Agreement, dated as of April 2, 1996, by and
                  among the Company, Aetna Life and Casualty Company, J.P.
                  Morgan Capital Corporation, The Trident Partnership L.P. and
                  Fund American Enterprises Holdings, Inc., incorporated by
                  reference to Exhibit 4.2 to the Company's Form S-1.

   10.01.1        Stock Purchase Agreement, dated as of November 28, 1995,
                  between The Travelers Insurance Group Inc. and Aetna Life and
                  Casualty Company, incorporated by reference to Exhibit 10.1 to
                  the Annual Report on Form 10-K of Aetna Life and Casualty
                  Company for the fiscal year ended December 31, 1995 (File No.
                  1-5704).

   10.01.2        Assignment of Stock Purchase Agreement, dated as of March 22,
                  1996, between the Company and The Travelers Insurance Group
                  Inc., incorporated by reference to Exhibit 2.2 to the
                  Company's Form S-1.


   10.01.3        Amendment to Stock Purchase Agreement, dated as of April 2,
                  1996, between the Company and Aetna Life and
</TABLE>


                                       59
<PAGE>   62
<TABLE>
<CAPTION>
     EXHIBIT                                                                      FILING
     NUMBER       DESCRIPTION OF EXHIBIT                                          METHOD
     -------      ----------------------                                          ------
<S>               <C>                                                             <C>

                  Casualty Company, incorporated by reference to Exhibit 2.3 to
                  the Company's Form S-1.

     10.02*       Travelers Property Casualty Corp. Capital Accumulation Plan
                  (as amended through September 1, 1996), incorporated by
                  reference to Exhibit 10.01 to the Company's Quarterly Report
                  on Form 10-Q for the fiscal quarter ended September 30, 1996
                  (File No. 1-14328) (the "Company's 9/30/96 10-Q").

     10.03*       Travelers Property Casualty Corp. 1996 Executive Option Plan    Electronic
                  (as amended through March 7, 1997).

     10.04*       Travelers Property Casualty Corp. Executive                     Electronic
                  Performance Compensation Plan (as amended through 
                  March 7, 1997).

     10.05*       Travelers Property Casualty Corp. 1996 Deferred Compensation
                  Plan for Non-Employee Directors (as amended through September
                  25, 1996), incorporated by reference to Exhibit 10.02 to the
                  Company's 9/30/96 10-Q.

     10.06*       Travelers Group Capital Accumulation Plan (as
                  amended through September 25, 1996),
                  incorporated by reference to Exhibit 10.03 to
                  the Quarterly Report on Form 10-Q of Travelers
                  Group Inc. for the fiscal quarter ended
                  September 30, 1996 (File No. 1-9924) (the "TRV
                  9/30/96 10-Q").

   10.07.1*       Travelers Group Stock Option Plan (as amended
                  and restated as of April 24, 1996),
                  incorporated by reference to Exhibit 10.02.1 to
                  the Annual Report on Form 10-K of Travelers
                  Group Inc. for the fiscal year ended December
                  31, 1996 (File No. 1-9924).

   10.07.2*       Amendment No. 14 to the Travelers Group Stock
                  Option Plan, incorporated by reference to
                  Exhibit 10.01 to the TRV 9/30/96 10-Q.

     10.08*       Travelers Group 1996 Stock Incentive Plan (as
                  amended
</TABLE>


                                       60
<PAGE>   63
<TABLE>
<CAPTION>
     EXHIBIT                                                                      FILING
     NUMBER       DESCRIPTION OF EXHIBIT                                          METHOD
     -------      ----------------------                                          ------
<S>               <C>                                                             <C>
                  through November 22, 1996), incorporated by reference to
                  Exhibit 10.03 to the Annual Report on Form 10-K of Travelers
                  Group Inc. for the fiscal year ended December 31, 1996 (File
                  No. 1-9924).

     10.09*       Retirement Benefit Equalization Plan of Travelers Group Inc.
                  (as amended and restated as of January 1, 1994) incorporated 
                  by reference to Exhibit 10.04 to the Annual Report on 
                  Form 10-K of Travelers Group Inc. for the fiscal year ended 
                  December 31, 1996 (File No. 1-9924).

     10.10        License Agreement, dated November 28, 1995, by and between
                  Aetna Life and Casualty Company and The Aetna Casualty and
                  Surety Company and The Standard Fire Insurance Company,
                  incorporated by reference to Exhibit 10.7 to the Company's
                  Form S-1.


     10.11*       The Travelers Corporation Supplemental Benefit Plan, effective
                  December 20, 1992, incorporated by reference to Exhibit 10(d)
                  to the Annual Report on Form 10-K of The Travelers Corporation
                  ("old Travelers") for the fiscal year ended December 31, 1992
                  (File No. 1-5799).

     10.12        TAPC Tax Allocation Agreement, effective as of
                  January 1, 1996 between Travelers Group Inc.
                  and the Company, incorporated by reference to
                  Exhibit 10.9 to the Company's Form S-1.

     10.13        Lease for office space at City Place, dated March 28, 1996, by
                  and between Aetna Life and Casualty Company and The Travelers
                  Indemnity Company, incorporated by reference to Exhibit 10.10
                  to the Company's Form S-1.

     10.14        Lease for office space in Hartford,                             Electronic
                  Connecticut, dated as of April 2, 1996, by and
                  between The Travelers Insurance Company and The
                  Travelers Indemnity Company.

     10.15*       Letter Agreement, dated November 17, 1996,                      Electronic
                  between the Company and Stanton F. Long.

     10.16*       Letter Agreement, dated April 12, 1996, between the Company
                  and James M. Michener, incorporated by reference to Exhibit
                  10.01 to the Company's Quarterly
</TABLE>


                                       61
<PAGE>   64
<TABLE>
<CAPTION>
     EXHIBIT                                                                      FILING
     NUMBER       DESCRIPTION OF EXHIBIT                                          METHOD
     -------      ----------------------                                          ------
<S>               <C>                                                             <C>

                  Report on Form 10-Q for the
                  fiscal quarter ended June 30, 1996 (File No. 1-14328).

      10.17*      Letter Agreement, dated as of December 12, 1995, between
                  Travelers Insurance Companies and William Hannon, incorporated
                  by reference to Exhibit 10.12 to the Company's Form S-1.

      10.18*      Employment Agreement, dated as of October 27, 1995, between
                  Aetna Life and Casualty Company and Robert P. Restrepo, as
                  assumed by the Company, incorporated by reference to Exhibit
                  10.13 to the Company's Form S-1.

      10.19*      Employment Agreement, dated as of October 27, 1995, between
                  Aetna Life and Casualty Company and Joseph P. Kiernan, as
                  assumed by the Company, incorporated by reference to Exhibit
                  10.14 to the Company's Form S-1.

      10.20*      Employment Agreement, dated as of December 31,
                  1993, between The Travelers Insurance Group,
                  Inc. and Ronald E. Foley, incorporated by
                  reference to Exhibit 10.15 to the Company's
                  Form S-1.

      10.21*      The Travelers Corporation TESIP Restoration and Non-Qualified
                  Savings Plan, effective January 1, 1991, incorporated by
                  reference to Exhibit 10(e) to the Annual Report on Form 10-K
                  of old Travelers for the fiscal year ended December 31, 1991
                  (File No. 1-5799).

      11.01       Computation of Earnings Per Share.                              Electronic

      12.01       Computation of Ratio of Earnings to Fixed                       Electronic
                  Charges.

      13.01       Pages 17 through 55 of the 1996 Annual Report to                Electronic
                  Stockholders of the Company (pagination of exhibit does not
                  correspond to pagination in the 1996 Annual Report to
                  Stockholders).

      21.01       Subsidiaries of the Registrant.                                 Electronic

      23.01       Consent of KPMG Peat Marwick LLP, Independent Certified         Electronic
                  Public Accountants.

      23.02       Consent of KPMG Peat Marwick LLP, Independent Certified         Electronic
                  Public Accountants.
</TABLE>


                                       62






<PAGE>   65
<TABLE>
<CAPTION>
     EXHIBIT                                                                      FILING
     NUMBER       DESCRIPTION OF EXHIBIT                                          METHOD
     -------      ----------------------                                          ------
<S>               <C>                                                             <C>
      24.01       Powers of Attorney.                                             Electronic

      27.01       Financial Data Schedule.                                        Electronic

      99.01       Combined Financial Statements of The Aetna                      Electronic
                  Casualty and Surety Company and The Standard
                  Fire Insurance Company as of December 31, 1995
                  and 1994 and for the years ended December 31, 1995, 
                  December 31, 1994 and December 31, 1993, together 
                  with the notes thereto and the related reports of 
                  Independent Accountants.

      99.02       The fifth full paragraph on page 90 of the                      Electronic
                  Company's Prospectus dated April 22, 1996.

      99.03       The paragraph that begins on page 90 and ends                   Electronic
                  on page 91 of the Company's Prospectus dated
                  April 22, 1996, the first paragraph on page 24
                  of the Company's Quarterly Report on Form 10-Q
                  for the fiscal quarter ended June 30, 1996 and
                  the first paragraph on page 25 of the Company's
                  9/30/96 10-Q.

      99.04       The second full paragraph on page 91 of the                     Electronic
                  Company's Prospectus dated April 22, 1996.
</TABLE>


The total amount of securities authorized pursuant to any instrument defining
rights of holders of long-term debt of the Company does not exceed 10% of the
total assets of the Company and its consolidated subsidiaries. The Company will
furnish copies of any such instrument to the Commission upon request.

Copies of any of the exhibits referred to above will be furnished at a cost of
$.25 per page (although no charge will be made for the 1996 Annual Report on
Form 10-K) to security holders who make written request therefor to Corporate
Communications, Travelers Property Casualty Corp., One Tower Square, Hartford,
Connecticut 06183.

-------------------
* Denotes a management contract or compensatory plan or arrangement required to
be filed as an exhibit pursuant to Item 14(c) of Form 10-K.


                                       63
<PAGE>   66
                                   SIGNATURES

      Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized, on the 26th day of
March, 1997.

                                    TRAVELERS PROPERTY CASUALTY CORP.
                                    (Registrant)

                                    By:  /s/ Robert I. Lipp
                                         --------------------------------------
                                         Robert I. Lipp, Chairman of the Board,
                                         President and Chief Executive Officer

      Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed by the following persons on behalf of the registrant and
in the capacities indicated on the 26th day of March, 1997.

<TABLE>
<CAPTION>
            SIGNATURE                                   TITLE
            ---------                                   -----

<S>                                       <C>
        /s/ Robert I. Lipp                Chairman of the Board, President
---------------------------------            and Chief Executive Officer
          Robert I. Lipp                  (Principal Executive Officer) and
                                                      Director


      /s/ William P. Hannon                    Chief Financial Officer
---------------------------------           (Principal Financial Officer)
        William P. Hannon                   


      /s/ Thomas P. Shugrue                   Vice President and Chief
---------------------------------           Accounting Officer (Principal 
        Thomas P. Shugrue                        Accounting Officer)


                *                                     Director
---------------------------------
        Kenneth J. Bialkin


                                                      Director
---------------------------------
          John J. Byrne


                *                                     Director
---------------------------------
           James Dimon
</TABLE>


                                       64
<PAGE>   67
<TABLE>
<CAPTION>
            SIGNATURE                                   TITLE
            ---------                                   -----

<S>                                       <C>

                *                                     Director
---------------------------------
         Dudley C. Mecum


                *                                     Director
---------------------------------
        Roberto G. Mendoza


                *                                     Director
---------------------------------
          Frank J. Tasco


                *                                     Director
---------------------------------
         Sanford I. Weill


                *                                     Director
---------------------------------
          Arthur Zankel



*By:
 /s/ Jay S. Fishman
----------------------------------
        Jay S. Fishman
        Attorney-in-fact
</TABLE>


                                       65
<PAGE>   68
               TRAVELERS PROPERTY CASUALTY CORP. AND SUBSIDIARIES

           INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULES *

<TABLE>
<CAPTION>
                                                                                  Incorporated
                                                                                By Reference from
                                                                               the Company's 1996
                                                                                Annual Report to
                                                                Page             Stockholders at
                                                               Herein            Page Indicated
                                                               ------            --------------
<S>                                                            <C>             <C>
Independent Auditors' Report                                     F-2                    55

Consolidated Statement of Income for the years ended
December 31, 1996, 1995 and 1994                                                        32

Consolidated Balance Sheet at
December 31, 1996 and 1995                                                              33

Consolidated Statement of Changes in Stockholders'
Equity for the years ended December 31, 1996, 1995 and 1994                             34

Consolidated Statement of Cash Flows for the years ended
December 31, 1996, 1995 and 1994                                                        35

Notes to Consolidated Financial Statements                                              36-54

Schedules:

      Schedule I - Summary of Investments - Other than
      Investments in Related Parties                             F-1

      Schedule II - Condensed Financial Information of
      Registrant (Parent Company only)                           F-4 - F-7

      Schedule III - Supplementary Insurance Information         F-8 - F-10

      Schedule VI - Supplementary Information Concerning
      Property-Casualty Insurance Operations                     F-11
</TABLE>


* Schedules not listed are omitted as not applicable or not required by
Regulation S-X.


                                       F-1


<PAGE>   69











                          Independent Auditors' Report


The Board of Directors and Stockholders
Travelers Property Casualty Corp.:

Under date of January 17, 1997, we reported on the consolidated balance sheets
of Travelers Property Casualty Corp. (formerly Travelers/Aetna Property Casualty
Corp.) and subsidiaries as of December 31, 1996 and 1995, and the related
consolidated statements of income, changes in stockholders' equity, and cash
flows for each of the years in the three-year period ended December 31, 1996, as
contained in the 1996 annual report to stockholders. These consolidated
financial statements and our report thereon are incorporated by reference in the
annual report on Form 10-K for the year ended December 31, 1996. In connection
with our audits of the aforementioned consolidated financial statements, we also
audited the related financial statement schedules which are listed on the
accompanying index. These financial statement schedules are the responsibility
of the Company's management. Our responsibility is to express an opinion on
these financial statement schedules based on our audits.

In our opinion, such financial statement schedules, when considered in relation
to the basic consolidated financial statements taken as a whole, present fairly,
in all material respects, the information set forth therein.




/s/ KPMG Peat Marwick LLP
Hartford, Connecticut
January 17, 1997


                                       F-2


<PAGE>   70


                                   SCHEDULE I
               TRAVELERS PROPERTY CASUALTY CORP. AND SUBSIDIARIES
                       Summary of Investments - Other Than
                         Investments in Related Parties
                                December 31, 1996
                                  (in millions)

<TABLE>
<CAPTION>
                                                                                                  Amount at which
                                                                                                   shown in the
Type of Investment                                                    Cost            Value       balance sheet(1)
------------------                                                  -------          -------      ----------------
<S>                                                                 <C>              <C>          <C>    
Fixed maturities:
   Bonds:
      United States Government and government agencies and
        authorities                                                 $ 6,402          $ 6,514          $ 6,514
      States, municipalities and political subdivisions               5,127            5,219            5,219
      Foreign governments                                               581              596              596
      Public utilities                                                1,953            1,974            1,974
      Convertible bonds and bonds with warrants attached                197              211              211
      All other corporate bonds (2)                                   9,663            9,802            9,802
                                                                    -------          -------          -------
        Total bonds                                                  23,923           24,316           24,316
   Redeemable preferred stocks                                           75               75               75
                                                                    -------          -------          -------
        Total fixed maturities                                       23,998           24,391           24,391
                                                                    -------          -------          -------
Equity securities:
   Common stock
      Banks, trust and insurance companies                                8                8                8
      Industrial, miscellaneous and all other                           156              168              168
                                                                    -------          -------          -------
        Total common stocks                                             164              176              176
   Nonredeemable preferred stocks                                       592              603              603
                                                                    -------          -------          -------
        Total equity securities                                         756              779              779
                                                                    -------          -------          -------
Mortgage loans                                                        1,005                             1,005
Real estate held for sale                                               157                               157

Short-term securities                                                 2,311                             2,311
Other investments                                                       644                               666
                                                                    -------                           -------
        Total investments                                           $28,871                           $29,309
                                                                    =======                           =======
</TABLE>

(1)   Determined in accordance with methods described in notes 1 and 4 of the
      notes to the consolidated financial statements.

(2)   Excludes $54 million cost and $55 million fair value of Commercial Credit
      Company bonds. See note 14 of the notes to the consolidated financial
      statements.


                                       F-3



<PAGE>   71


                                                                     SCHEDULE II

                        Travelers Property Casualty Corp.
               (formerly Travelers/Aetna Property Casualty Corp.)
                              (Parent Company Only)

                  Condensed Financial Information of Registrant
                                  (In millions)

                          CONDENSED STATEMENT OF INCOME

<TABLE>
<CAPTION>
                                                                         For the period January 16, 1996
                                                                               to December 31, 1996
                                                                               --------------------
<S>                                                                      <C>  
REVENUES
  Net investment income and other                                                      $   2

EXPENSES
  Interest                                                                               120
  Other                                                                                   36
                                                                                       -----
                                                                                         156

Loss before federal income taxes and equity in net income of subsidiaries               (154)
Federal income tax benefit                                                                54
                                                                                       -----
Loss before equity in net income of subsidiaries                                        (100)
Equity in net income of subsidiaries                                                     491
                                                                                       -----
NET INCOME                                                                             $ 391
                                                                                       =====
</TABLE>

The condensed financial statements should be read in conjunction with the
consolidated financial statements and notes thereto and the accompanying notes
to the condensed financial information of Registrant.


                                       F-4



<PAGE>   72



                                                                     SCHEDULE II

                        Travelers Property Casualty Corp.
               (formerly Travelers/Aetna Property Casualty Corp.)
                              (Parent Company Only)

                  Condensed Financial Information of Registrant
                                  (In millions)

                             CONDENSED BALANCE SHEET

<TABLE>
<CAPTION>
                                                               December 31, 1996
                                                               -----------------
<S>                                                            <C>    
ASSETS
Cash                                                                $     1
Investment in subsidiaries at equity                                  8,686
Federal income tax receivable                                            32
Deferred federal income taxes                                            12
Deferred charges                                                         10
Other (primarily investments)                                             6
                                                                    -------
            Total assets                                            $ 8,747
                                                                    -------
LIABILITIES
Commercial paper                                                    $    25
Long-term debt                                                        2,177
Other liabilities                                                        65
                                                                    -------
            Total liabilities                                         2,267
                                                                    -------
STOCKHOLDERS' EQUITY
Common Stock:
   Class A, $.01 par value, 700 million shares authorized,
     71,979,829 shares issued                                             1
   Class B, $.01 par value, 700 million shares authorized,
     328,020,170 shares issued and outstanding                            3
Additional paid-in capital                                            5,455
Retained earnings                                                       749
Treasury stock, at cost (shares, 406,860)                               (13)
Unrealized gain on investment securities, net of tax                    285
                                                                    -------
            Total stockholders' equity                                6,480
                                                                    -------
            Total liabilities and stockholders' equity              $ 8,747
                                                                    -------
</TABLE>

The condensed financial statements should be read in conjunction with the
consolidated financial statements and notes thereto and the accompanying notes
to the condensed financial information of Registrant.


                                       F-5


<PAGE>   73


                                                                     SCHEDULE II

                        Travelers Property Casualty Corp.
               (formerly Travelers/Aetna Property Casualty Corp.)
                              (Parent Company Only)

                  Condensed Financial Information of Registrant
                                  (In millions)

                        CONDENSED STATEMENT OF CASH FLOWS

<TABLE>
<CAPTION>
                                                     For the period January 16, 1996
                                                            to December 31, 1996
                                                            --------------------
<S>                                                  <C>    
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income                                                         $   391
Adjustments to reconcile net income to
  cash provided by operating activities:
Equity in net income of subsidiaries                                  (491)
Dividends received from consolidated subsidiaries                      299
Amortization expense                                                     1
Deferred federal income tax benefit                                    (12)
Federal income tax receivable                                          (32)
Other assets                                                           (14)
Other liabilities                                                       52
                                                                   -------
Net cash provided by operating activities                              194

CASH FLOWS FROM INVESTING ACTIVITIES:
Capital contribution to subsidiaries                                  (710)
Short-term securities, (purchases) sales, net                           (6)
Business acquisition                                                (4,160)
                                                                   -------
Net cash used in investing activities                               (4,876)

CASH FLOWS FROM FINANCING ACTIVITIES:         
Issuance of commercial paper, net                                       25
Issuance of long-term debt                                           2,177
Borrowings on revolving line of credit                               2,650
Payments on revolving line of credit                                (2,650)
Contributions from TIGI                                              1,138
Purchase of treasury stock                                             (13)
Private offering of common stock                                       525
Initial public offering of common stock                                928
Issuance of Series Z preferred stock                                   540
Redemptions of Series Z preferred stock                               (540)
Fees paid on behalf of subsidiaries                                    (33)
Dividends on Series Z preferred stock                                   (4)
Dividends to TIGI                                                      (49)
Dividends to minority shareholders                                     (11)
                                                                   -------
Net cash provided by financing activities                            4,683
                                                                   -------
Net increase in cash                                                     1

Cash at beginning of period                                             --
                                                                   -------
Cash at end of period                                              $     1
                                                                   =======

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for interest                           $   100
                                                                   =======
Cash received during the period for taxes                          $    10
                                                                   =======
</TABLE>

The condensed financial statements should be read in conjunction with the
consolidated financial statements and notes thereto and the accompanying notes
to the condensed financial information of Registrant.


                                       F-6


<PAGE>   74


                                                                     SCHEDULE II

NOTES TO CONDENSED FINANCIAL STATEMENTS OF REGISTRANT


1.    GENERAL

      Travelers Property Casualty Corp. (TAP) (a direct majority-owned
      subsidiary of The Travelers Insurance Group Inc. (TIGI) and an indirect
      majority-owned subsidiary of Travelers Group Inc.) was organized on
      January 16, 1996. TIGI contributed The Travelers Indemnity Company and its
      subsidiaries to TAP in March 1996. In April 1996, TAP purchased all of the
      outstanding capital stock of The Aetna Casualty and Surety Company and The
      Standard Fire Insurance Company (collectively, Aetna P&C) for a purchase
      price of approximately $4.2 billion in cash.

2.    PRINCIPLES OF CONSOLIDATION

      The accompanying financial statements include the accounts of TAP and, on
      an equity basis, its subsidiaries and affiliates and should be read in
      conjunction with the Consolidated Financial Statements and notes thereto.

3.    DEBT

      Aggregate annual maturities on long-term debt obligations are as follows:


<TABLE>
<CAPTION>
                       (in millions)
                  <S>             <C>
                  1997            $    --
                  1998                 --
                  1999                400
                  2000                 --
                  2001                500
                  Thereafter        1,277
                  -----------------------
                  Total           $ 2,177
                  -----------------------
</TABLE>

4.    SUPPLEMENTARY DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES

      In connection with the acquisition of Aetna P&C and the formation of TAP,
      TIGI acquired approximately 328 million shares of Class B Common Stock of
      TAP in exchange for contributing the outstanding capital stock of The
      Travelers Indemnity Company and a capital contribution of approximately
      $1.1 billion.


                                       F-7


<PAGE>   75



                                  SCHEDULE III


               TRAVELERS PROPERTY CASUALTY CORP. AND SUBSIDIARIES


                       Supplementary Insurance Information

                                      1996
                                  (in millions)

<TABLE>
<CAPTION>
                                                                                                 Amortization
Segment        Deferred policy    Claims and      Unearned   Premium   Net          Claims       of deferred    Other       Premiums
               acquisition costs  claim adjust-   premiums   revenue   investment   and claim    policy         operating   written
                                  ment expense                         income       adjustment   acquisition    expenses
                                  reserves                             (a)          expenses     costs          (b)
------------------------------------------------------------------------------------------------------------------------------------
<S>            <C>                <C>             <C>        <C>       <C>          <C>          <C>            <C>         <C>   
Commercial
     Lines           $253          $28,017         $2,303     $3,695    $1,343        $3,679        $533         $1,081      $3,973

Personal
   Lines              173            2,952          1,251      2,323       311         1,599         373            294       2,359

Corporate
  and Other
  Operations           --              208             --         10         2             4          --            147          10
                     ----          -------         ------     ------    ------        ------        ----         ------      ------

Consolidated         $426          $31,177         $3,554     $6,028    $1,656        $5,282        $906         $1,522      $6,342
                     ====          =======         ======     ======    ======        ======        ====         ======      ======
</TABLE>

(a)   Net investment income for each segment is accounted for separately, except
      for the portion earned on the investment of stockholders' equity which is
      allocated based on assigned capital.

(b)   Expense allocations are determined in accordance with prescribed statutory
      accounting practices. These practices make a reasonable allocation of all
      expenses to those product lines with which they are associated.


                                       F-8


<PAGE>   76


                                  SCHEDULE III

               TRAVELERS PROPERTY CASUALTY CORP. AND SUBSIDIARIES

                       Supplementary Insurance Information

                                      1995
                                  (in millions)

<TABLE>
<CAPTION>
                                                                                           Amortization
Segment       Deferred policy    Claims and     Unearned  Premium  Net         Claims      of deferred   Other      Premiums
              acquisition costs  claim adjust-  premiums  revenue  investment  and claim   policy        operating  written
                                 ment expense                      income      adjustment  acquisition   expenses
                                 reserves                          (a)         expenses    costs         (b)
----------------------------------------------------------------------------------------------------------------------------
<S>           <C>                <C>            <C>       <C>      <C>         <C>         <C>           <C>        <C>   
Commercial
  Lines             $  122         $13,725       $1,154   $2,017     $  548      $1,853      $    291      $ 502     $2,309

Personal
     Lines              80           1,488          541    1,284        161         957           221        157      1,298

Corporate
  and Other
  Operations            --             247           --       14          1           7             -         30         14
                    ------         -------       ------   ------     ------      ------      --------      -----     ------
Consolidated        $  202         $15,460       $1,695   $3,315     $  710      $2,817      $    512      $ 689     $3,621
                    ======         =======       ======   ======     ======      ======      ========      =====     ======
</TABLE>

(a)   Net investment income for each segment is accounted for separately, except
      for the portion earned on the investment of stockholders' equity which is
      allocated based on assigned capital.

(b)   Expense allocations are determined in accordance with prescribed statutory
      accounting practices. These practices make a reasonable allocation of all
      expenses to those product lines with which they are associated.


                                       F-9


<PAGE>   77



                                  SCHEDULE III

               TRAVELERS PROPERTY CASUALTY CORP. AND SUBSIDIARIES

                       Supplementary Insurance Information

                                      1994
                                  (in millions)


<TABLE>
<CAPTION>
                                                                                           Amortization
Segment       Deferred policy    Claims and     Unearned  Premium  Net         Claims      of deferred   Other      Premiums
              acquisition costs  claim adjust-  premiums  revenue  investment  and claim   policy        operating  written
                                 ment expense                      income      adjustment  acquisition   expenses
                                 reserves                          (a)         expenses    costs         (b)
----------------------------------------------------------------------------------------------------------------------------
<S>           <C>                <C>            <C>       <C>      <C>         <C>         <C>           <C>        <C>   
Commercial
     Lines          $140           $13,622       $1,238   $1,810      $444       $1,836        $248        $458      $2,112

Personal
  Lines               81             1,391          539    1,353       128          977         225         182       1,433

Corporate
  and Other
  Operations          --               286            1       15         1            6          --          26          15
                    ----           -------       ------   ------      ----       ------        ----        ----      ------
Consolidated        $221           $15,299       $1,778   $3,178      $573       $2,819        $473        $666      $3,560
                    ====           =======       ======   ======      ====       ======        ====        ====      ======
</TABLE>

(a)   Net investment income for each segment is accounted for separately, except
      for the portion earned on the investment of stockholders' equity which is
      allocated based on assigned capital.

(b)   Expense allocations are determined in accordance with prescribed statutory
      accounting practices. These practices make a reasonable allocation of all
      expenses to those product lines with which they are associated.


                                      F-10


<PAGE>   78



                                   SCHEDULE VI


               TRAVELERS PROPERTY CASUALTY CORP. AND SUBSIDIARIES


 SUPPLEMENTARY INFORMATION CONCERNING PROPERTY-CASUALTY INSURANCE OPERATIONS (1)

                                    1994-1996

                                  (IN MILLIONS)


<TABLE>
<CAPTION>
                                                                                                             Claims and     
                                             Reserves for                                                  claim adjust-   
                                                unpaid      Discount                                       ment expenses   
                                 Deferred       claims        from                                     incurred related to:
          Affiliation             policy      and claim     reserves                           Net     --------------------
             with               acquisition   adjustment   for unpaid  Unearned   Earned   investment   Current     Prior  
          registrant               costs       expenses     claims(2)  premiums  premiums    income      Year        Year  
          ----------            -----------  ------------  ----------  --------  --------  ----------  ---------   --------
<S>                             <C>          <C>           <C>         <C>       <C>       <C>         <C>         <C>     
1996 Consolidated  property -
     casualty operations . . .     $426         $30,969      $1,012     $3,554    $6,018     $1,654      $4,839     $ 192  
                             
1995 Consolidated property - 
     casualty operations . . .     $202         $15,213      $  528     $1,695    $3,301     $  709      $2,903     $(226) 
                                                                                                                           
1994 Consolidated property -                                                                                               
     casualty operations . . .     $221         $15,013      $  476     $1,777    $3,163     $  572      $3,041     $(255) 
</TABLE>

<TABLE>
<CAPTION>
                                
                                
                                Amortization
                                of deferred   Paid claims
          Affiliation             policy       and claim
             with               acquisition   adjustment   Premiums
          registrant               costs       expenses    written
          ----------            ------------  -----------  --------
<S>                             <C>           <C>          <C>   
1996 Consolidated  property -
     casualty operations . . .      $906         $5,057     $6,332
                             
1995 Consolidated property - 
     casualty operations . . .      $512         $2,819     $3,607
                                                              
1994 Consolidated property -                             
     casualty operations . . .      $473         $2,646     $3,545
</TABLE>

(1)   Excludes accident and health business.

(2)   See "Discounting" on page 22.


                                      F-11