<PAGE>   1
                                                                Exhibit 99.01


                          INDEPENDENT AUDITORS' REPORT

The Board of Directors
Aetna Life and Casualty Company:

     We have audited the accompanying combined balance sheets of The Aetna
Casualty and Surety Company and The Standard Fire Insurance Company and their
subsidiaries (the "Companies") as of December 31, 1995 and 1994, and the related
combined statements of income, shareholder's equity, and cash flows for each of
the years in the three-year period ended December 31, 1995. These combined
financial statements are the responsibility of the Companies' management. Our
responsibility is to express an opinion on these combined financial statements
based on our audits.

     We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

     In our opinion, the combined financial statements referred to above present
fairly, in all material respects, the combined financial position of The Aetna
Casualty and Surety Company and The Standard Fire Insurance Company and their
subsidiaries as of December 31, 1995 and 1994, and the combined results of their
operations and their cash flows for each of the years in the three-year period
ended December 31, 1995, in conformity with generally accepted accounting
principles.

     As discussed in Note 1 to the combined financial statements, in 1993 the
Companies changed their methods of accounting for certain investments in debt
and equity securities, workers' compensation life table indemnity reserves and
retrospectively rated reinsurance contracts.

                                      KPMG PEAT MARWICK LLP

Hartford, Connecticut
February 28, 1996

                                      1


<PAGE>   2
                     THE AETNA CASUALTY AND SURETY COMPANY
                    AND THE STANDARD FIRE INSURANCE COMPANY
                             AND THEIR SUBSIDIARIES
                         COMBINED STATEMENTS OF INCOME
                        FOR THE YEARS ENDED DECEMBER 31,
                                   (MILLIONS)

<TABLE>
<CAPTION>
                                                                                              1995        1994        1993
                                                                                           ----------  ----------  ----------
<S>                                                                                        <C>         <C>         <C>
Revenue:
Premiums.................................................................................  $  4,117.7  $  4,354.8  $  4,609.8
Net investment income....................................................................       902.1       824.3       963.8
Fees and other income....................................................................        82.0       115.8       154.3
Net realized capital gains...............................................................       199.0         5.9       144.0
                                                                                           ----------  ----------  ----------
Total revenue............................................................................     5,300.8     5,300.8     5,871.9
                                                                                           ----------  ----------  ----------
Claims and Expenses:
Claims and claim adjustment expenses.....................................................     4,232.0     3,747.1     4,191.1
Operating expenses.......................................................................       851.8     1,011.2     1,093.1
Amortization of deferred policy acquisition costs........................................       622.7       633.7       646.2
Severance and facilities charge..........................................................          --          --       155.0
                                                                                           ----------  ----------  ----------
Total claims and expenses................................................................     5,706.5     5,392.0     6,085.4
                                                                                           ----------  ----------  ----------
Loss from continuing operations before income tax benefits and cumulative effect
adjustments..............................................................................      (405.7)      (91.2)     (213.5)
Income tax benefits......................................................................      (162.8)      (53.9)     (159.0)
                                                                                           ----------  ----------  ----------
Loss from continuing operations before cumulative effect adjustments.....................      (242.9)      (37.3)      (54.5)
Discontinued Operations, net of tax......................................................          --          --        27.0
                                                                                           ----------  ----------  ----------
Loss before cumulative effect adjustments for continuing operations......................      (242.9)      (37.3)      (27.5)
Cumulative effect adjustments for continuing operations, net of tax......................          --          --       266.5
                                                                                           ----------  ----------  ----------
Net income (loss)........................................................................  $   (242.9) $    (37.3) $    239.0
                                                                                           ==========  ==========  ==========
</TABLE>

                   See Notes to Combined Financial Statements.

                                      2

<PAGE>   3
                     THE AETNA CASUALTY AND SURETY COMPANY
                    AND THE STANDARD FIRE INSURANCE COMPANY
                             AND THEIR SUBSIDIARIES
                            COMBINED BALANCE SHEETS
                (AS OF DECEMBER 31, MILLIONS, EXCEPT SHARE DATA)

<TABLE>
<CAPTION>
                                                                                                        1995         1994
                                                                                                     -----------  -----------
<S>                                                                                                  <C>          <C>
  ASSETS
Investments:
  Debt securities:
     Available for sale, at fair value (amortized cost $11,182.3 and $9,696.4).....................  $  11,598.3  $   9,096.8
     Held for investment, at amortized cost (fair value $407.1)....................................           --        413.5
  Equity securities, at fair value (cost $289.5 and $779.5)........................................        499.9      1,017.9
  Short-term investments...........................................................................        137.2        106.0
  Mortgage loans...................................................................................      1,061.7      1,453.7
  Real estate......................................................................................        264.7        262.0
  Other............................................................................................        291.1        301.2
                                                                                                     -----------  -----------
Total investments..................................................................................     13,852.9     12,651.1
                                                                                                     -----------  -----------
  Cash and cash equivalents........................................................................      1,136.5        676.3
  Reinsurance recoverables and receivables.........................................................      5,276.6      4,903.2
  Accrued investment income........................................................................        184.5        178.0
  Premiums due and other receivables...............................................................      1,002.1      1,063.5
  Federal and foreign income taxes:
     Current.......................................................................................         12.6         20.1
     Deferred......................................................................................        633.7        862.5
  Deferred policy acquisition costs................................................................        305.8        316.0
Other assets.......................................................................................        994.3      1,000.4
                                                                                                     -----------  -----------
  Total assets.....................................................................................  $  23,399.0  $  21,671.1
                                                                                                     ===========  ===========
  LIABILITIES
  Unpaid claims and claim adjustment expenses......................................................  $  16,558.5  $  15,977.2
  Unearned premiums................................................................................      1,398.4      1,423.8
  Policyholders' funds left with the companies.....................................................         39.2         46.7
                                                                                                     -----------  -----------
Total insurance liabilities........................................................................     17,996.1     17,447.7
  Short-term debt..................................................................................           --          9.1
  Long-term debt...................................................................................         35.2         35.5
  Other liabilities................................................................................      1,486.3      1,057.9
                                                                                                     -----------  -----------
Total liabilities..................................................................................     19,517.6     18,550.2
                                                                                                     -----------  -----------
  Commitments and Contingent Liabilities (Notes 12, 13 and 14)

  SHAREHOLDER'S EQUITY
  Common capital stock (1,000 share authorized, issued and outstanding with a par value of $25,000
     and 20,000 shares authorized, issued and outstanding with a par value of $250)................         30.0         30.0
  Paid in capital..................................................................................      1,477.5      1,174.5
  Net unrealized capital gains (losses)............................................................        312.8       (387.9)
  Retained earnings................................................................................      2,061.1      2,304.3
                                                                                                     -----------  -----------
Total shareholder's equity.........................................................................      3,881.4      3,120.9
                                                                                                     -----------  -----------
  Total liabilities and shareholder's equity.......................................................  $  23,399.0  $  21,671.1
                                                                                                     ===========  ===========


</TABLE>

                   See Notes to Combined Financial Statements.

                                      3
<PAGE>   4
                     THE AETNA CASUALTY AND SURETY COMPANY
                    AND THE STANDARD FIRE INSURANCE COMPANY
                             AND THEIR SUBSIDIARIES
                  COMBINED STATEMENTS OF SHAREHOLDER'S EQUITY
                        FOR THE YEARS ENDED DECEMBER 31,

<TABLE>
<CAPTION>
                                                                                              1995        1994        1993
                                                                                           ----------  ----------  ----------
                                                                                                       (MILLIONS)
<S>                                                                                        <C>         <C>         <C>
Shareholder's equity, beginning of year..................................................  $  3,120.9  $  3,858.3  $  3,507.2
Capital Contribution.....................................................................       303.0          --          --
Dividends to shareholder.................................................................         (.3)         --          --
Net change in unrealized capital gains and losses........................................       700.7      (700.1)      112.1
Net income (loss)........................................................................      (242.9)      (37.3)      239.0
                                                                                           ----------  ----------  ----------
Shareholder's equity, end of year........................................................  $  3,881.4  $  3,120.9  $  3,858.3
                                                                                           ==========  ==========  ==========
</TABLE>

                   See Notes to Combined Financial Statements.

                                        4 

<PAGE>   5
                     THE AETNA CASUALTY AND SURETY COMPANY
                    AND THE STANDARD FIRE INSURANCE COMPANY
                             AND THEIR SUBSIDIARIES
                       COMBINED STATEMENTS OF CASH FLOWS
                        FOR THE YEARS ENDED DECEMBER 31,

<TABLE>
<CAPTION>
                                                                                               1995         1994         1993
                                                                                            -----------  -----------  -----------
                                                                                                         (MILLIONS)
<S>                                                                                         <C>          <C>          <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
  Net income (loss).......................................................................  $    (242.9) $     (37.3) $     239.0
  Adjustments to reconcile net income (loss) to net cash provided by (used for) operating
     activities:
     Cumulative effect adjustments........................................................           --           --       (266.5)
     (Increase) Decrease in accrued investment income.....................................         (6.6)        25.4        (13.3)
     Decrease (Increase) in premiums due and other receivables............................        154.0       (232.8)       148.3
     Increase in reinsurance recoverables and receivables.................................       (373.4)      (191.9)       (70.3)
     Decrease (Increase) in deferred policy acquisition costs.............................         10.2         13.5          (.8)
     Depreciation and amortization........................................................          8.6         15.0         19.3
     (Decrease) Increase in federal and foreign income taxes..............................        239.3       (205.1)        65.3
     Net decrease (increase) in other assets and other liabilities........................        413.1       (513.1)       569.3
     Increase (Decrease) in insurance liabilities.........................................        555.5        423.9       (349.8)
     Net purchases of debt trading securities.............................................           --           --     (1,209.0)
     Gain on sale of subsidiaries.........................................................           --           --        (27.0)
     Net realized capital gains...........................................................       (199.0)        (5.9)      (144.0)
     Amortization of net investment discounts.............................................          3.2         55.0         21.3
     Other, net...........................................................................          0.9         70.0        (58.8)
                                                                                            -----------  -----------  -----------
       Net cash provided by (used for) operating activities...............................        562.9       (583.3)    (1,077.0)
                                                                                            -----------  -----------  -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
  Proceeds from sales of:
     Debt securities available for sale...................................................      3,845.9      4,173.2           --
     Debt securities prior to adoption of FAS No. 115.....................................           --           --      2,174.9
     Equity securities....................................................................      1,041.4        550.0        746.2
     Mortgage loans.......................................................................         29.0         33.1         17.5
     Real estate..........................................................................         94.9         69.5         52.3
     Short-term investments...............................................................      9,917.5      7,361.3      9,892.1
  Investment maturities and repayments of:
     Debt securities available for sale...................................................      1,526.4        914.7           --
     Debt securities held for investment..................................................           --        279.9           --
     Debt securities prior to adoption of FAS No. 115.....................................           --           --      1,341.4
     Mortgage loans.......................................................................        319.2        258.4        169.7
  Cost of investment purchases in:
     Debt securities available for sale...................................................     (6,508.1)    (4,751.4)         --
     Debt securities prior to adoption of FAS No. 115.....................................           --           --     (3,328.6)
     Equity securities....................................................................       (317.3)      (420.4)      (772.3)
     Mortgage loans.......................................................................           .3         (9.9)        (7.3)
     Real estate..........................................................................        (18.0)          --           --
     Short-term investments...............................................................     (9,955.7)    (7,331.4)    (9,627.2)
  Decrease (increase) in property and equipment...........................................          1.9          1.3         (8.9)
  Other, net..............................................................................       (373.0)       135.3        (67.1)
                                                                                            -----------  -----------  -----------
     Net cash (used for) provided by investing activities.................................       (395.6)     1,263.6        582.7
                                                                                            -----------  -----------  -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
     Dividends paid to shareholder........................................................          (.3)          --          --
     Capital contribution from shareholder................................................        303.0           --          --
     Issuance of long-term debt...........................................................           --           --          (.3)
     Repayment of long-term debt..........................................................          (.3)       (12.3)        (6.5)
     Net increase (decrease) in short-term debt...........................................         (9.1)         9.1           --
                                                                                            -----------  -----------  -----------
       Net cash provided by (used for) financing activities...............................        293.3         (3.2)        (6.8)
                                                                                            -----------  -----------  -----------
  Effect of exchange rate changes on cash and cash equivalents............................          (.4)         (.3)        (1.3)
                                                                                            -----------  -----------  -----------
  Net increase (decrease) in cash and cash equivalents....................................        460.2        676.8       (502.4)
  Cash and cash equivalents, beginning of year............................................        676.3          (.5)       501.9
                                                                                            -----------  -----------  -----------
  Cash and cash equivalents, end of year..................................................  $   1,136.5  $     676.3  $       (.5)
                                                                                            ===========  ===========  ===========
</TABLE>

                   See Notes to Combined Financial Statements.

                                        5

<PAGE>   6
                     THE AETNA CASUALTY AND SURETY COMPANY
                    AND THE STANDARD FIRE INSURANCE COMPANY
                             AND THEIR SUBSIDIARIES
                     NOTES TO COMBINED FINANCIAL STATEMENTS

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

DESCRIPTION OF ENTITY AND PRINCIPLES OF COMBINATION

     The combined financial statements include The Aetna Casualty and Surety
Company and The Standard Fire Insurance Company and their subsidiaries
(collectively, the 'Companies') which are wholly-owned subsidiaries of Aetna
Life and Casualty Company ('Aetna'). Aetna entered into a definitive agreement,
dated November 28, 1995, to sell the Companies to The Travelers Insurance Group
Inc. ('Travelers'). The sale is subject to state regulatory approval and other
customary conditions and is expected to be completed no later than midyear 1996.
The Companies' commercial insurance operations provide most types of commercial
property-casualty insurance (primarily workers' compensation, auto, liability
and other specialty products), bonds, and insurance-related services for
businesses, government units and associations. The personal insurance operations
underwrite private-passenger auto and homeowner insurance, which is sold to
individuals through independent agents, with a significant market in the
Northeastern states.

     Due to the related business activities, common management control, common
ownership and the interdependence of the affiliated entities, combined financial
statements have been prepared in accordance with generally accepted accounting
principles. Intercompany transactions between the Companies have been
eliminated. Certain reclassifications have been made to 1994 and 1993 financial
information to conform to 1995 presentation.

ACCOUNTING CHANGES

  Accounting by Creditors for Impairment of a Loan

     As of January 1, 1995, the Companies adopted Financial Accounting Standard
('FAS') No. 114, Accounting by Creditors for Impairment of a Loan and FAS No.
118, Accounting by Creditors for Impairment of a Loan-- Income Recognition and
Disclosures. In accordance with these standards, a loan is considered impaired
when it is probable that the Companies will be unable to collect amounts due
according to the contractual terms of the loan agreement. For impaired loans, a
specific impairment reserve is established for the difference between the
recorded investment in the mortgage loan and the fair value of the collateral.
General reserves are established for losses management believes are likely to
arise from the overall portfolio but cannot be attributed to specific loans.
Prior to the adoption of FAS Nos. 114 and 118, the Companies included the
reserve for estimated losses on potential problem loans which management
believed were likely to become classified as problem or restructured in the next
12 months or so in the general reserve. Adoption of these standards had no
impact on 1995 net income.

  Accounting for Certain Investments in Debt and Equity Securities

     On December 31, 1993, the Companies adopted FAS No. 115, Accounting for
Certain Investments in Debt and Equity Securities, which requires the
classification of debt securities into three categories and equity securities
into two categories. (Please refer to Note 3.)

     Initial adoption of this standard in 1993 resulted in a net increase of
$107.6 million, net of taxes of $57.9 million, to net unrealized capital gains
in shareholder's equity as of December 31, 1993.

  Discounting of Workers' Compensation Life Table Indemnity Reserves

     In 1993, the Companies elected to change, retroactive to January 1, 1993,
the accounting policy for reporting reserves for current and expected workers'
compensation life table indemnity claims to a discounted basis. These reserves
are discounted at 5% for voluntary business and 3.5% for involuntary business. A
cumulative effect benefit of $250.0 million, net of taxes of $134.7 million, was
reported in the 1993 Combined Statement of Income. The effect of the change for
the year ended December 31, 1993 was an increase to results from continuing
operations before cumulative effect adjustments of $78.0 million, net of taxes
of $42.0 million.

                                        6

<PAGE>   7
                     THE AETNA CASUALTY AND SURETY COMPANY
                    AND THE STANDARD FIRE INSURANCE COMPANY
                             AND THEIR SUBSIDIARIES
              NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
  Accounting for Retrospectively Rated Reinsurance Contracts

     In 1993, the Companies changed their method of accounting for
retrospectively rated reinsurance contracts to conform to the consensus reached
by the Emerging Issues Task Force of the Financial Accounting Standards Board
('FASB'). Accordingly, the Companies reported a cumulative effect adjustment,
retroactive to January 1, 1993, to recognize an asset for the amounts due from
reinsurers related to the experience through January 1, 1993 under
retrospectively rated reinsurance contracts. The Companies reported a cumulative
effect benefit related to this accounting change of $16.5 million, net of taxes
of $8.6 million, in the 1993 Combined Statement of Income. The effect of the
change for the year ended December 31, 1993 was an increase to results from
continuing operations before cumulative effect adjustments of $3.3 million, net
of taxes of $1.8 million.

FUTURE APPLICATION OF ACCOUNTING STANDARDS

  Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of

     In March 1995, the FASB issued FAS No. 121, Accounting for the Impairment
of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of. This statement
requires write-down to fair value when long-lived assets to be held and used are
impaired. The statement also requires long-lived assets to be disposed of (e.g.,
real estate held for sale) to be carried at the lower of cost or fair value less
estimated selling costs and does not allow such assets to be depreciated. The
Companies will adopt this statement in 1996 and the impact on earnings is not
expected to be material.

USE OF ESTIMATES

     The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from reported results using
those estimates.

CASH AND CASH EQUIVALENTS

     Cash and cash equivalents include cash on hand, money market instruments
and other debt issues with a maturity of 90 days or less when purchased.

INVESTMENTS

     Debt securities which may be sold prior to maturity are classified as
available for sale and carried at fair value. Available for sale debt securities
are written down (as realized losses) for other than temporary declines in
value. Unrealized gains and losses related to available for sale investments,
net of related taxes, are reflected in shareholder's equity.

     Debt securities which the Companies have the positive intent and ability to
hold to maturity are classified as held for investment and are carried at
amortized cost, net of write-downs for other than temporary declines in value.
The Companies had no held for investment securities at December 31, 1995.

     In December 1995, in accordance with guidance published by the FASB, the
Companies reassessed the classifications of all debt securities. As a result of
this review, debt securities with an amortized cost of $403.1 million (fair
value of $400.8 million) were reclassified from the held for investment category
to the available for sale category.

     Debt securities which are held with the objective of trading to generate
profits on short-term differences in price ("trading securities") are carried at
fair value. Changes in fair value related to the trading portfolio are

                                        7 

<PAGE>   8
                     THE AETNA CASUALTY AND SURETY COMPANY
                    AND THE STANDARD FIRE INSURANCE COMPANY
                             AND THEIR SUBSIDIARIES
              NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
reflected in net realized capital gains or losses in the Combined Statements of
Income. The Companies had no trading securities at December 31, 1995 or 1994.

     Equity securities are classified as available for sale and carried at fair
value. Equity securities are written down (as realized losses) for other than
temporary declines in value. Unrealized gains and losses related to such
securities, net of related taxes, are reflected in shareholder's equity.

     Fair values for debt and equity securities are based on quoted market
prices or dealer quotations. Where quoted market prices or dealer quotations are
not available, fair values are measured utilizing quoted market prices for
similar securities or by using discounted cash flow methods. Cost for
mortgage-backed securities is adjusted for unamortized premiums and discounts,
which are amortized using the interest method over the estimated remaining term
of the securities, adjusted for anticipated prepayments.

     Purchases and sales of debt and equity securities are recorded on the trade
date. Purchases and sales of mortgage loans are recorded on the closing date.

     Mortgage loans are carried at unpaid principal balances, net of impairment
reserves, and are generally secured. A mortgage loan is considered impaired when
it is probable that the Companies will be unable to collect amounts due
according to the contractual terms of the loan agreement. For impaired loans, a
specific impairment reserve is established for the difference between the
recorded investment in the mortgage loan and the fair value of the collateral. A
general reserve is established for losses management believes are likely to
arise from the overall portfolio but cannot be attributed to specific loans.

     Investment real estate, which the Companies have the intent to hold for the
production of income, is carried at depreciated costs including capital
additions, net of write-downs for other than temporary declines in fair value.
Properties held for sale (primarily acquired through foreclosure) are carried at
the lower of depreciated cost (fair value at foreclosure plus capital additions
less accumulated depreciation) or fair value less estimated selling costs.
Adjustments to the carrying value of properties held for sale are recorded in a
valuation reserve when the fair value less estimated selling costs is below
depreciated cost.

     Short-term investments, consisting primarily of money market instruments
and other debt issues purchased with a maturity of 91 days to one year, are
considered available for sale and are carried at fair value, which approximates
amortized cost.

     Other invested assets consist primarily of partnerships, equity
subsidiaries and agency loans. Partnerships and equity subsidiaries are carried
on an equity basis and agency loans are carried at the unpaid principal balance.

     The Companies utilize foreign exchange forward contracts and swap
agreements for other than trading purposes in order to manage investment returns
and align maturities, interest rates, currency rates and funds availability with
its obligations. (Please refer to Note 13.)

     Foreign exchange forward contracts which are designated at inception and
effective as hedges of foreign translation exposures and foreign transaction
exposures related to investments classified as available for sale are accounted
for using the deferral method. Under the deferral method, realized and
unrealized gains and losses from these forward contracts are deferred on the
balance sheet, net of tax, in net unrealized capital gains or losses. Upon
disposal of the hedged item, deferred gains and losses are recognized in net
realized capital gains or losses in the Combined Statements of Income. Excess
realized or unrealized gain or loss, if any, from the foreign exchange forward
contract compared to the foreign investment being hedged, is reported as a net
realized gain or loss in the Combined Statements of Income.

     Swap agreements which are designated as interest rate or foreign exchange
rate risk management instruments at inception are accounted for using the
accrual method. Under the accrual method, the difference between

                                        8 

<PAGE>   9
                      THE AETNA CASUALTY AND SURETY COMPANY
                     AND THE STANDARD FIRE INSURANCE COMPANY
                             AND THEIR SUBSIDIARIES
               NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
amounts paid and received on such agreements is reported in net investment
income in the Combined Statements of Income; there is no recognition in the
Combined Balance Sheets for changes in the fair value of the agreement.

DEFERRED POLICY ACQUISITION COSTS

     Certain costs of acquiring insurance business are deferred. These costs,
all of which vary with and are primarily related to the production of new and
renewal business, consist principally of commissions, certain expenses of
underwriting and issuing contracts and certain agency expenses. Acquisition
costs are amortized over the life of the insurance contract.

     Deferred policy acquisition costs would be written off to the extent that
it is determined that future policy premiums and investment income would not be
adequate to cover related losses and expenses.

OTHER ASSETS

     Property and equipment are reported at depreciated cost using the
straight-line method based upon the estimated useful lives of the assets. The
carrying value of property and equipment at December 31, 1995 and 1994 was $12.1
million and $20.9 million, respectively, and was net of accumulated depreciation
of $92.8 million and $92.9 million, respectively.

INSURANCE LIABILITIES

     Liabilities for unpaid claims and claim adjustment expenses include, to the
extent reasonably estimable, provisions for payments to be made on reported
claims, and claims incurred but not reported and for associated claim adjustment
expenses. (Please refer to Note 12.) Workers' compensation life table indemnity
reserves are discounted at 5% for voluntary business and 3.5% for involuntary
business. Workers' compensation life table indemnity reserves, net of the
related discount, totaled $863 million and $821 million at December 31, 1995 and
1994, respectively, which were 26% and 24% of the Companies' total workers'
compensation reserves for unpaid claims and claim adjustment expenses at
December 31, 1995 and 1994, respectively. Certain other reserves with fixed or
determinable payment patterns over periods of up to seven years, including
reserves related to certain environmental and asbestos-related claim
settlements, have also been discounted. The rates used in discounting such
reserves range from 4% to 7%, and the amount of such discounted reserves, net of
reinsurance was approximately $190 million at December 31, 1995.

     The Companies' insurance reserve liabilities are reported net of estimated
amounts of salvage and subrogation.

     Unearned premiums are calculated on a pro rata basis. Additional premiums
under retrospectively-rated policies are excluded from unearned premiums and
classified as premiums due.

PREMIUMS, CLAIMS AND EXPENSES

     Premiums are generally recognized as revenue on a pro rata basis over the
policy term. Certain policies allow the Companies to charge additional premiums
as a result of recognizing additional claim and expense costs under the
policies. Such premiums are recognized when the related losses are provided.

     Claims and expenses, including acquisition costs such as commissions,
certain premium taxes and certain other items, are charged to current operations
as incurred. Claims are reported net of salvage and subrogation received and
anticipated. Premiums, claims and expenses are also reported net of deductions
for reinsurance ceded.

                                        9 

<PAGE>   10
                     THE AETNA CASUALTY AND SURETY COMPANY
                    AND THE STANDARD FIRE INSURANCE COMPANY
                             AND THEIR SUBSIDIARIES
              NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
STRUCTURED SETTLEMENTS

     In cases where the Company has obtained a structured settlement with a
qualified assignment, i.e., the structured settlement annuity is owned by a
party other than the Company, the cost of the annuity is recognized as a paid
loss and gains, if any, are recognized in income. For cases where no qualified
assignment is obtained, the related loss amount and the annuity cost plus
accrued interest are included in loss reserves and reinsurance recoverables,
respectively.

FEDERAL AND FOREIGN INCOME TAXES

     The Companies are included in the consolidated federal income tax return of
Aetna. The Companies are taxed at regular corporate rates after adjusting
income/(loss) reported for financial statement purposes for certain items.
Foreign subsidiaries and U.S. subsidiaries operating outside of the United
States are taxed under applicable foreign statutes. Deferred income tax
expenses/benefits result from changes during the year in cumulative temporary
differences between the tax basis and book basis of assets and liabilities.

DISCONTINUED OPERATIONS

     On September 30, 1992, The Aetna Casualty and Surety Company ("AC&S")
completed the sale of American Re-Insurance Company ("Am Re"), formerly a wholly
owned subsidiary. As part of the sale, AC&S received 70,000 shares of American
Re Corporation's (the new holding company) Preferred Stock which were redeemed
in 1993 resulting in an after-tax gain of $27.0 million.

2. SEVERANCE AND FACILITIES CHARGE

     The Companies recorded a $101 million after-tax ($155 million pretax)
severance and facilities charge in the fourth quarter of 1993. The planned
actions included the elimination of approximately 2,000 positions. The severance
and facilities charge included costs related to vacating excess leased office
space and costs related to vacating and selling a property owned by Aetna in
Hartford, Connecticut. During 1995 and 1994, the Companies charged costs of
$12.6 million and $142.4 million (pretax), respectively, to the 1993 severance
and facilities reserve related to the cost reduction actions.

3. INVESTMENTS

     Debt securities at December 31, 1995 were as follows:

<TABLE>
<CAPTION>
                                                                                           GROSS        GROSS
                                                                            AMORTIZED   UNREALIZED   UNREALIZED      FAIR
                                                                              COST         GAINS       LOSSES        VALUE
                                                                           -----------  -----------  -----------  -----------
                                                                                               (MILLIONS)
<S>                                                                        <C>          <C>          <C>          <C>
Available for Sale:
  U.S. Treasury securities and obligations of U.S. government agencies
and corporations.........................................................  $   3,048.2   $   122.3    $     8.1   $   3,162.4
  Obligations of states and political subdivisions.......................        628.5        10.9          7.6         631.8
  Utilities..............................................................        735.3        37.6          2.5         770.4
  Financial..............................................................      1,304.7        83.9          1.2       1,387.4
  Transportation/Capital Goods...........................................        649.8        27.1          4.9         672.0
  Other corporate securities.............................................        366.4        12.0          2.0         376.4
  Mortgage-backed securities.............................................      1,655.5        46.2          4.3       1,697.4
  Other loan-backed securities...........................................        708.5        12.5          1.4         719.6
  Foreign governments....................................................      1,125.7        64.6          6.5       1,183.8
  Other..................................................................        959.7        39.4          2.0         997.1
                                                                           -----------   ---------    ---------   -----------
     Total Available for Sale............................................  $  11,182.3   $   456.5    $    40.5   $  11,598.3
                                                                           ===========   =========    =========   ===========
</TABLE>

                                       10 

<PAGE>   11
                     THE AETNA CASUALTY AND SURETY COMPANY
                    AND THE STANDARD FIRE INSURANCE COMPANY
                             AND THEIR SUBSIDIARIES
              NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)

3. INVESTMENTS--(CONTINUED)
     Debt securities at December 31, 1994 were as follows:

<TABLE>
<CAPTION>
                                                                                           GROSS        GROSS
                                                                            AMORTIZED   UNREALIZED   UNREALIZED      FAIR
                                                                              COST         GAINS       LOSSES        VALUE
                                                                           -----------  -----------  -----------  -----------
                                                                                               (MILLIONS)
<S>                                                                        <C>          <C>          <C>          <C>
Available for Sale:
  U.S. Treasury securities and obligations of U.S. government agencies
and corporations.........................................................  $   3,680.2   $     1.2    $   254.9   $   3,426.5
  Obligations of states and political subdivisions.......................      1,048.0         3.9         46.6       1,005.3
  Utilities..............................................................        519.7         1.4         22.8         498.3
  Financial..............................................................        530.2          .1         17.5         512.8
  Transportation/Capital Goods...........................................        625.6         2.9         26.2         602.3
  Other corporate securities.............................................        274.0          .6         21.1         253.5
  Mortgage-backed securities.............................................      1,370.4         3.5        102.3       1,271.6
  Other loan-backed securities...........................................        332.2          --         14.7         317.5
  Foreign governments....................................................        759.4         1.8         74.0         687.2
  Other..................................................................        556.7         1.2         36.1         521.8
                                                                           -----------  -----------  -----------  -----------
     Total Available for Sale............................................  $   9,696.4   $    16.6    $   616.2   $   9,096.8
                                                                           ===========   =========    =========   ===========
Held for Investment:
  Obligations of states and political subdivisions.......................  $     246.1   $     1.1    $     8.0   $     239.2
  Utilities..............................................................         37.7          .1           .6          37.2
  Financial..............................................................         42.8          .2           .3          42.7
  Transportation/Capital Goods...........................................         13.8          .5           .2          14.1
  Other corporate securities.............................................          3.7          .1           .3           3.5
  Foreign governments....................................................         23.3          .1           .3          23.1
  Other..................................................................         46.1         1.8           .6          47.3
                                                                           -----------  -----------  -----------  -----------
     Total Held for Investment...........................................  $     413.5   $     3.9    $    10.3   $     407.1
                                                                           ===========   =========    =========   ===========
</TABLE>

     The carrying and fair value of debt securities are shown below by
contractual maturity. Actual maturities may differ from contractual maturities
because securities may be restructured, called or prepaid.

<TABLE>
<CAPTION>
                                                                                                               1995
                                                                                                     ------------------------
                                                                                                      AMORTIZED      FAIR
                                                                                                        COST         VALUE
                                                                                                     -----------  -----------
                                                                                                            (MILLIONS)
<S>                                                                                                  <C>          <C>
Available for Sale:
  Due to mature:
  One year or less.................................................................................  $     793.7  $     837.2
  After one year through five years................................................................      3,812.9      3,864.4
  After five years through ten years...............................................................      2,494.6      2,610.3
  After ten years..................................................................................      1,717.1      1,869.4
  Mortgage-backed securities.......................................................................      1,655.5      1,697.4
  Other loan-backed securities.....................................................................        708.5        719.6
                                                                                                     -----------  -----------
     Total Available for Sale......................................................................  $  11,182.3  $  11,598.3
                                                                                                     ===========  ===========
</TABLE>

                                       11 

<PAGE>   12
                     THE AETNA CASUALTY AND SURETY COMPANY
                    AND THE STANDARD FIRE INSURANCE COMPANY
                             AND THEIR SUBSIDIARIES
              NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)

3. INVESTMENTS--(CONTINUED)

     The Companies engage in securities lending whereby certain securities from
its portfolio are loaned to other institutions for short periods of time. Cash
collateral, which is in excess of the market value of the loaned securities, is
deposited by the borrower with a lending agent, and retained and invested by the
lending agent to generate additional income for the Companies. The market value
of the loaned securities is monitored on a daily basis with additional
collateral obtained or refunded as the market value fluctuates. At December 31,
1995, the Companies had loaned securities (which are reflected as invested
assets on the Combined Balance Sheets) with a market value of approximately $.9
billion.

     Investments in equity securities were as follows:

<TABLE>
<CAPTION>
                                                                                              GROSS        GROSS
                                                                                           UNREALIZED   UNREALIZED      FAIR
                                                                                  COST        GAINS       LOSSES       VALUE
                                                                                ---------  -----------  -----------  ----------
                                                                                                  (MILLIONS)
<S>                                                                             <C>        <C>          <C>          <C>
1995
  Equity securities...........................................................  $   289.5   $   287.0    $    76.6   $    499.9
1994
  Equity securities...........................................................  $   779.5   $   335.8    $    97.4   $  1,017.9
</TABLE>

     Real estate holdings at December 31 were as follows:

<TABLE>
<CAPTION>
                                                                                                             1995       1994
                                                                                                           ---------  ---------
                                                                                                                (MILLIONS)
<S>                                                                                                        <C>        <C>
Properties held for sale.................................................................................  $   173.0  $    98.6
Investment real estate...................................................................................      106.8      197.7
                                                                                                           ---------  ---------
                                                                                                               279.8      296.3
Valuation reserve........................................................................................       15.1       34.3
                                                                                                           ---------  ---------
  Net carrying value.....................................................................................  $   264.7  $   262.0
                                                                                                           =========  =========


</TABLE>

     The accumulated depreciation for real estate was $29.0 million and $19.1
million at December 31, 1995 and 1994, respectively.

     Total real estate write-downs included in the net carrying value of the
Companies' real estate holdings on the Combined Balance Sheets at December 31,
1995 and 1994 were $116.4 million and $83.3 million, respectively.

     At December 31, 1995, the total recorded investment in mortgage loans that
are considered to be impaired (which include problem loans, restructured loans
and potential problem loans) under FAS No. 114 and related specific reserves are
$164.4 million and $21.3 million, respectively. Included in the total recorded
investment are impaired loans of $61.0 million for which no specific reserves
are considered necessary.

     The activity in the mortgage loan impairment reserves for the twelve months
ended December 31, 1995 is summarized below:

<TABLE>
<CAPTION>
                                                                                                (MILLIONS)
<S>                                                                                             <C>
Balance at December 31, 1994..................................................................   $   136.6
Charged to net realized capital loss..........................................................         6.4
Principal write-offs..........................................................................       (77.3)
                                                                                                -----------
Balance at December 31, 1995(1)...............................................................   $    65.7
                                                                                                 =========
</TABLE>

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

(1) Total reserves at December 31, 1995 included $21.3 million of specific
    reserves and $44.4 million of general reserves.

                                       12 

<PAGE>   13
                     THE AETNA CASUALTY AND SURETY COMPANY
                    AND THE STANDARD FIRE INSURANCE COMPANY
                             AND THEIR SUBSIDIARIES
              NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)

3. INVESTMENTS--(CONTINUED)

     The Companies accrue interest income on impaired loans to the extent it is
deemed collectible and the loan continues to perform under its original or
restructured contractual terms. Interest income on problem loans is generally
recognized on a cash basis. Cash payments on loans in the process of foreclosure
are generally treated as a return of principal.

     Income earned (pretax) and received were each $12.2 million on the average
recorded investment in impaired loans of $227.0 million for the twelve months
ended December 31, 1995.

     The carrying values of investments that were nonincome producing for the
twelve months preceding the balance sheet date were as follows:

<TABLE>
<CAPTION>
                                                                                                                1995       1994
                                                                                                              ---------  ---------
                                                                                                                   (MILLIONS)
<S>                                                                                                           <C>        <C>
Debt securities.............................................................................................  $      .6  $     2.4
Equity securities...........................................................................................       12.6        9.3
Mortgage loans..............................................................................................         .3       14.9
Real estate.................................................................................................       71.4       47.9
                                                                                                              ---------  ---------
  Total nonincome producing investments.....................................................................  $    84.9  $    74.5
                                                                                                              =========  =========
</TABLE>

     Significant noncash investing activities include acquisition of real estate
through foreclosures (including in-substance foreclosures) of mortgage loans
amounting to $40 million in 1995, $59 million in 1994 and $17 million in 1993.

4. CAPITAL GAINS AND LOSSES ON INVESTMENT OPERATIONS

     Realized capital gains or losses are the difference between the carrying
value and sale proceeds of specific investments sold. Provisions for impairments
and changes in the fair value of real estate subsequent to foreclosure are also
included in net realized capital gains. Unrealized capital gains and losses on
available for sale investments, net of related taxes, are reflected in
shareholder's equity.

     Net realized capital gains (losses) on investments were as follows:

<TABLE>
<CAPTION>
                                                                                                     1995       1994       1993
                                                                                                   ---------  ---------  ---------
                                                                                                             (MILLIONS)
<S>                                                                                                <C>        <C>        <C>
Debt securities..................................................................................  $   (38.0) $     9.7  $   230.5
Equity securities................................................................................      239.5       30.7       75.9
Mortgage loans...................................................................................       (5.5)     (52.8)    (107.5)
Real estate......................................................................................       28.7       12.2      (51.9)
Sales of subsidiaries............................................................................     --           20.8     --
Other............................................................................................      (25.7)     (14.7)      (3.0)
                                                                                                   ---------  ---------  ---------
  Pretax realized capital gains..................................................................  $   199.0  $     5.9  $   144.0
                                                                                                   =========  =========  =========
  After tax realized capital gains...............................................................  $   128.6  $     3.8  $    96.8
                                                                                                   =========  =========  =========
</TABLE>

     Proceeds from the sale of investments in debt securities available for sale
during 1995 were $3.8 billion. Gross gains of $56.5 million and gross losses of
$94.5 million were realized on those sales. Proceeds from sales of investments
in held for investment, available for sale and trading debt securities during
1994 and 1993 were $4.2 billion and $2.2 billion, respectively. Gross gains of
$66.5 million and $257.8 million, and gross losses of $57.9 million and $20.9
million were realized on those sales.


                                       13 

<PAGE>   14
                     THE AETNA CASUALTY AND SURETY COMPANY
                    AND THE STANDARD FIRE INSURANCE COMPANY
                             AND THEIR SUBSIDIARIES
              NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)

4. CAPITAL GAINS AND LOSSES ON INVESTMENT OPERATIONS--(CONTINUED)

     Net realized capital gains in 1994 included a $14 million after tax gain
resulting from the sale of a portion of an unconsolidated subsidiary.

     Changes in shareholder's equity included changes in unrealized capital
gains (losses), for the periods as follows:

<TABLE>
<CAPTION>
                                                                                                 1995       1994       1993
                                                                                              ----------  ---------  ---------
                                                                                                         (MILLIONS)
<S>                                                                                           <C>         <C>        <C>
Equity securities...........................................................................  $    (28.0) $  (132.9) $    72.0
Debt trading securities.....................................................................          --         --      (99.3)
Debt securities available for sale..........................................................     1,015.6     (808.1)     208.5
Foreign exchange and other, net.............................................................       (33.0)      35.2       (3.5)
                                                                                              ----------  ---------  ---------
                                                                                                   954.6     (905.8)     177.7
Increase (Decrease) in deferred federal income taxes........................................       253.9     (205.7)      65.6
                                                                                              ----------  ---------  ---------
Net changes in unrealized capital gains (losses)............................................  $    700.7  $  (700.1) $   112.1
                                                                                              ==========  =========  =========
</TABLE>

     Changes in unrealized capital gains (losses) for the periods exclude pretax
changes in debt securities carried at amortized cost. The unrecorded
appreciation (depreciation) for debt securities carried at amortized cost is the
difference between estimated market and carrying values, and amounted to $(6.4)
million and $20.6 million at December 31, 1994 and 1993, respectively. The
change in unrecorded appreciation (depreciation) was $6.4 million, $(27.0)
million and $(202.6) million in 1995, 1994 and 1993, respectively.

     Shareholder's equity included the following unrealized capital gains
(losses) at December 31:

<TABLE>
<CAPTION>
                                                                                                  1995       1994       1993
                                                                                                ---------  ---------  ---------
                                                                                                          (MILLIONS)
<S>                                                                                             <C>        <C>        <C>
Equity securities:
  Gross unrealized capital gains..............................................................  $   287.0  $   335.8  $   400.2
  Gross unrealized capital losses.............................................................      (76.6)     (97.4)     (28.9)
                                                                                                ---------  ---------  ---------
                                                                                                    210.4      238.4      371.3
Debt securities available for sale:
  Gross unrealized capital gains..............................................................      456.5       16.6      251.1
  Gross unrealized capital losses.............................................................      (40.5)    (616.2)     (42.6)
                                                                                                ---------  ---------  ---------
                                                                                                    416.0     (599.6)     208.5
Foreign exchange and other, net...............................................................      (96.7)     (63.7)     (98.9)
Deferred federal income taxes (benefits)......................................................      216.9      (37.0)     168.7
                                                                                                ---------  ---------  ---------
  Net unrealized capital gains (losses).......................................................  $   312.8  $  (387.9) $   312.2
                                                                                                =========  =========  =========
</TABLE>

     At December 31, 1994, approximately $290 million of net unrealized capital
losses, primarily on available for sale debt and equity securities, were
reflected in shareholder's equity without deferred tax benefits. (Please refer
to Note 8 for a discussion of the tax treatment for unrealized capital losses on
available for sale debt and equity securities.)


                                       14 

<PAGE>   15
                     THE AETNA CASUALTY AND SURETY COMPANY
                    AND THE STANDARD FIRE INSURANCE COMPANY
                             AND THEIR SUBSIDIARIES
              NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)

5. NET INVESTMENT INCOME

     Sources of net investment income were as follows:

<TABLE>
<CAPTION>
                                                                                                  1995       1994       1993
                                                                                                ---------  ---------  ---------
                                                                                                          (MILLIONS)
<S>                                                                                             <C>        <C>        <C>
Debt securities...............................................................................  $   683.2  $   626.5  $   721.2
Equity securities.............................................................................       31.3       27.0       11.2
Short-term investments........................................................................         .8         --       13.4
Mortgage loans................................................................................      121.8      154.4      189.1
Real estate...................................................................................       56.6       59.2       70.1
Other.........................................................................................       23.0        8.8       31.6
Cash equivalents..............................................................................       48.3       25.6       11.6
                                                                                                ---------  ---------  ---------
Gross investment income.......................................................................      965.0      901.5    1,048.2
Less investment expenses......................................................................       62.9       77.2       84.4
                                                                                                ---------  ---------  ---------
  Net investment income.......................................................................  $   902.1  $   824.3  $   963.8
                                                                                                =========  =========  =========
</TABLE>

6. DIVIDEND RESTRICTIONS AND SHAREHOLDER'S EQUITY

     The amount of dividends that may be paid to Aetna by AC&S and The Standard
Fire Insurance Company in 1996, without prior approval by the Insurance
Commissioner of the State of Connecticut (the "Department") is $216.6 million
(the sale agreement with Travelers prohibits the payment of dividends from the
Companies). Dividends of $.3 million were paid by AC&S to Aetna in 1995. No
dividends have been paid by The Standard Fire Insurance Company during 1995.
Dividend payments by the domestic insurance subsidiaries of AC&S and The
Standard Fire Insurance Company are subject to similar restrictions in
Connecticut and other states, and are limited in 1996 to approximately $164.4
million in the aggregate. Dividends of $5.0 million were paid to AC&S by the
domestic insurance subsidiaries during 1995.

     The Department recognizes as net income and shareholder's equity those
amounts determined in conformity with statutory accounting practices prescribed
or permitted by the Department, which differ in certain respects from generally
accepted accounting principles.

     Statutory net income (loss) was $(196.2) million, $(170.1) million and $7.8
million for the years ended December 31, 1995, 1994 and 1993, respectively.
Statutory shareholder's equity was $2,793.4 million and $2,525.7 million as of
December 31, 1995 and 1994, respectively.

     In recent years, state insurance regulators have been considering changes
in statutory accounting practices and other initiatives to strengthen solvency
regulation. Under the risk-based capital ("RBC") standards for property-casualty
insurers adopted by the NAIC, each of the Companies applies the RBC formula
which compares adjusted surplus to required surplus and reflects the risk
profile of the company (RBC ratio). The RBC ratio at December 31, 1995 for each
of the Companies is above the levels which would require regulatory action.

     As of December 31, 1995, the Companies do not utilize any statutory
accounting practices which are not prescribed by insurance regulators that,
individually or in the aggregate, materially affect statutory shareholder's
equity.


                                       15 

<PAGE>   16
                     THE AETNA CASUALTY AND SURETY COMPANY
                    AND THE STANDARD FIRE INSURANCE COMPANY
                             AND THEIR SUBSIDIARIES
              NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)

7. LONG-TERM DEBT

<TABLE>
<CAPTION>
                                                                                                                1995       1994
                                                                                                              ---------  ---------
                                                                                                                   (MILLIONS)
<S>                                                                                                           <C>        <C>
Long-term debt:
  Mortgage Notes and Other Notes, 6.9%-11% due in varying amounts to 2018...................................  $    35.2  $    35.5
                                                                                                              =========  =========
</TABLE>



     Aggregate maturities of long-term debt and sinking fund requirements for
1996 through 2000 are $.3 million, $.2 million, $29.5 million, $.1 million, $.1
million, respectively, and $5.0 million thereafter.

8. FEDERAL AND FOREIGN INCOME TAXES

     The Companies are included in the consolidated federal income tax return of
Aetna. Aetna allocates to each member an amount approximating the tax it would
have incurred were it not a member of the consolidated group, and credits the
member for the use of its tax saving attributes in the consolidated return.

     In August 1993, the Omnibus Budget Reconciliation Act of 1993 ("OBRA") was
enacted which resulted in an increase in the federal corporate tax rate from 34%
to 35% retroactive to January 1, 1993. The enactment of OBRA resulted in an
increase in the deferred tax asset of $26.0 million at date of enactment, which
is included in the 1993 deferred tax benefit.

     Components of income tax benefits were as follows:

<TABLE>
<CAPTION>
                                                                                                 1995       1994       1993
                                                                                               ---------  ---------  ---------
                                                                                                         (MILLIONS)
<S>                                                                                            <C>        <C>        <C>
Current taxes (benefits):
  Income (Loss)--from operations.............................................................  $  (179.7) $     4.2  $  (169.3)
  Income--foreign taxes......................................................................         .9         --         --
  Realized capital gains (losses)............................................................       65.6      (47.4)      71.1
                                                                                               ---------  ---------  ---------
                                                                                                  (113.2)     (43.2)     (98.2)
Deferred taxes (benefits):
  Loss--from operations......................................................................      (54.3)     (60.2)     (36.9)
  Income--foreign taxes......................................................................        (.1)        --         --
  Realized capital gains (losses)............................................................        4.8       49.5      (23.9)
                                                                                               ---------  ---------  ---------
                                                                                                   (49.6)     (10.7)     (60.8)
                                                                                               ---------  ---------  ---------
Total........................................................................................  $  (162.8) $   (53.9) $  (159.0)
                                                                                               =========  =========  =========
</TABLE>

                                       16 

<PAGE>   17
                     THE AETNA CASUALTY AND SURETY COMPANY
                    AND THE STANDARD FIRE INSURANCE COMPANY
                             AND THEIR SUBSIDIARIES
              NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)

8. FEDERAL AND FOREIGN INCOME TAXES--(CONTINUED)

     Income tax benefits on loss from continuing operations were different from
the amount computed by applying the federal income tax rate to loss from
continuing operations before income tax benefits for the following reasons:

<TABLE>
<CAPTION>
                                                                                                 1995       1994       1993
                                                                                               ---------  ---------  ---------
                                                                                                         (MILLIONS)
<S>                                                                                            <C>        <C>        <C>
Loss before income tax benefits..............................................................  $  (405.7) $   (91.2) $  (213.5)
Tax rate.....................................................................................         35%        35%        35%
                                                                                               ---------  ---------  ---------
Application of the tax rate..................................................................     (142.0)     (31.9)     (74.7)
Tax effect of:
  Tax-exempt interest........................................................................      (16.2)     (31.1)     (42.0)
  Foreign operations.........................................................................         .8        6.9        0.7
  Excludable dividends.......................................................................       (6.2)      (8.1)     (12.0)
  Tax rate change on deferred assets and liabilities.........................................         --         --      (24.7)
  Other, net.................................................................................         .8       10.3       (6.3)
                                                                                               ---------  ---------  ---------
Income tax benefits..........................................................................  $  (162.8) $   (53.9) $  (159.0)
                                                                                               =========  =========  =========
</TABLE>

     The tax effects of temporary differences that give rise to deferred tax
assets and deferred tax liabilities at December 31 are presented below:

<TABLE>
<CAPTION>
                                                                                                             1995       1994
                                                                                                           ---------  ---------
                                                                                                                (MILLIONS)
<S>                                                                                                        <C>        <C>
Deferred tax assets:
  Insurance reserves.....................................................................................  $   814.4  $   756.6
  Reserve for severance and facilities expense...........................................................        5.6       26.3
  Impairment reserves....................................................................................        1.8       49.5
  Net unrealized capital losses..........................................................................         --      139.5
  Net operating loss carryforward........................................................................      122.2      113.2
  Other..................................................................................................       27.4        9.4
                                                                                                           ---------  ---------
Total gross assets.......................................................................................      971.4    1,094.5
Less valuation allowance.................................................................................         --      102.1
                                                                                                           ---------  ---------
Assets net of valuation..................................................................................      971.4      992.4
Deferred tax liabilities:
  Deferred policy acquisition costs......................................................................      107.0      110.5
  Market discount........................................................................................       11.2       17.1
  Net unrealized capital gains...........................................................................      216.9         --
  Other..................................................................................................        2.6        2.3
                                                                                                           ---------  ---------
Total gross liabilities..................................................................................      337.7      129.9
                                                                                                           ---------  ---------
  Net deferred tax asset.................................................................................  $   633.7  $   862.5
                                                                                                           =========  =========
</TABLE>

     Net unrealized capital gains and losses are presented in shareholder's
equity net of deferred taxes. During the twelve months ended December 31, 1995,
the Companies moved from a net unrealized capital loss position of $(387.9)
million at December 31, 1994, to a net unrealized capital gain position of
$312.8 million at December 31, 1995, primarily due to decreases in interest
rates. As a result, the $102.1 million of valuation allowances previously
established in 1994 related to deferred tax assets were reversed, which had no
impact on net income in 1995.

     Management believes that it is more likely than not that the Companies will
realize the benefit of the net deferred tax asset of $633.7 million. Aetna's
election of special estimated tax payments in years 1989 through 1994 assures
realizability of a substantial portion of deferred tax assets arising from the
discounting of property-casualty


                                       17 

<PAGE>   18
                      THE AETNA CASUALTY AND SURETY COMPANY
                     AND THE STANDARD FIRE INSURANCE COMPANY
                             AND THEIR SUBSIDIARIES
               NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)

8. FEDERAL AND FOREIGN INCOME TAXES--(CONTINUED)

reserves. The Companies have more than 15 years to generate sufficient taxable
income to cover the reversal of its temporary differences due to the long-term
reversal patterns of these differences. Because of Aetna's long-term history of
taxable income, which is projected to continue, and the availability of
significant tax planning strategies, such as converting tax-exempt bonds to
taxable bonds, the Companies expect sufficient taxable income in the future to
realize the net deferred tax asset.

     The net deferred tax asset includes $122.2 million related to the
Companies' expected utilization of its current U.S. net operating loss
carryforward of $349.2 million, $111.2 million of which expires in the year
2008, $226.3 million of which expires in the year 2009 and $11.7 million of
which expires in the year 2010.

     The Internal Revenue Service (the "Service") has completed examination of
the consolidated federal income tax returns of Aetna through 1986. Discussions
are being held with the Service with respect to proposed adjustments. The
Service has commenced its examination for the years 1987 through 1990. However,
management believes there are adequate defenses against, or sufficient reserves
recorded by Aetna to provide for, such challenges.

     The Companies received net federal income tax refunds for continuing
operations of $148.4 million, $60.8 million and $141.2 million in 1995, 1994 and
1993, respectively.

9. BENEFIT PLANS

     Pension Plans--The Companies, in conjunction with Aetna, have
noncontributory defined benefit plans covering substantially all employees and
certain agents. The plans provide pension benefits based on years of service and
average annual compensation (measured over 60 consecutive months of highest
earnings in a 120-month period). Contributions are determined by using the
Projected Unit Credit Method and, for qualified plans subject to ERISA
requirements, are limited to the amounts that are currently deductible for tax
reporting purposes. The accumulated benefit obligations and plan assets are
recorded by Aetna. Data on a separate company basis regarding the proportionate
share of the accumulated benefit obligation and plan assets is not available.
The accumulated plan assets exceed accumulated benefits. Pretax charges to
operations for the pension plan (based on the Companies' total salary cost as a
percentage of Aetna's total salary cost) were $22.3 million, $12.0 million and
$6.4 million in 1995, 1994 and 1993, respectively. There has been no funding to
the plan in 1995, 1994 or 1993.

     Postretirement Benefits--In addition to providing pension benefits, Aetna
also provides certain health care and life insurance benefits for retired
employees. A comprehensive medical and dental plan is offered to all full-time
employees retiring at age 50 with 15 years of service or at age 65 with 10 years
of service. Retirees are generally required to contribute to the plans based on
their years of service with Aetna.

     In January 1994, Aetna announced a modification of its postretirement
benefit plan to cap the portion of the cost paid by Aetna relating to medical
and dental benefits for individuals retiring after March 1, 1994. The
accumulated benefit obligations and plan assets are recorded by Aetna. Data on a
separate company basis regarding the proportionate share of employee costs is
not available. An allocation, based on headcount, of Aetna's total cash costs
for retirees was approximately $5.0 million (pretax) in 1995, 1994 and 1993,
respectively, and is reflected in the Combined Statements of Income.

     Incentive Saving Plan--Substantially all employees are eligible to
participate in a savings plan under which designated contributions, which may be
invested in common stock of Aetna or certain other investments, are matched, up
to 5% of compensation, by Aetna. Pretax charges to operations for the incentive
savings plan were $21.5 million, $24.3 million, and $25.4 million in 1995, 1994
and 1993, respectively.

     1994 Stock Incentive Plan--Certain employees participate in Aetna's 1994
stock incentive plan (which replaced the 1984 stock option plan). The 1994 plan
provides for stock options (see (1) Stock Option Plans), and deferred contingent
common stock or cash awards (see (2) Incentive Units) to certain key employees.
The

                                       18 

<PAGE>   19
                     THE AETNA CASUALTY AND SURETY COMPANY
                    AND THE STANDARD FIRE INSURANCE COMPANY
                             AND THEIR SUBSIDIARIES
              NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)

9. BENEFIT PLANS--(CONTINUED)

Companies' pretax charges to operations for the Stock Incentive Plan were $12.7
million in 1995. There was an immaterial impact to the results of operations in
1994.

          (1) Stock Option Plans--Executive and middle management employees may
     be granted options to purchase common stock of Aetna at the market price on
     the date of grant. Certain options granted prior to 1992 contain stock
     appreciation rights permitting the employee to exercise those rights and
     receive the excess of fair market value at the date of exercise over the
     grant date fair market value in cash and/or stock.

          (2) Incentive Units--Executive and middle management employees may be
     granted incentive units under the Aetna 1994 Stock Incentive Plan, which
     are rights to receive Aetna common stock or cash at the end of a vesting
     period (currently 1996 and 1998) conditioned upon the employee's continued
     employment during that period and achievement of Aetna performance goals.
     The incentive unit holders are not entitled to dividends during the vesting
     period.

10. RELATED PARTY TRANSACTIONS

     A substantial portion of the administrative and support functions of the
Companies are provided by Aetna and its affiliates. The financial statements
reflect allocated charges for these services based upon measures which
management considers reasonable and appropriate for the type and nature of
service provided. The Companies have agreements and contracts with certain Aetna
affiliates to provide administrative and technical services. The types of
services provided by Aetna and its affiliates to the Companies related to such
functions include, but are not limited to, general ledger processing, including
subsidiary expense ledgers, use of the corporate conference center, office
services, purchasing, security, facilities management, payroll and other human
resources services, bank administration and other treasury services. The
Companies are also allocated charges for certain corporate staff area costs
which include, but are not limited to, salaries, certain employee benefit and
incentive plans, legal fees, travel and taxes (including payroll and personal
property).

     Hartford-area home office properties occupied by the Companies are owned by
Aetna affiliates. The Companies are charged rent based on their proportionate
share (based on square footage occupied) of the total occupancy cost (including
depreciation) of Aetna's Hartford-area properties. Certain other facilities
owned by the Companies, either directly or through partnerships, are leased by
Aetna and its affiliates. In addition, the Combined Balance Sheets reflect
certain mortgage and real estate investments that are held jointly by Companies
and Aetna affiliates.

     The Companies, by virtue of their participation in the consolidated
operations of Aetna, benefit from certain costs which are incurred in other
Aetna legal entities and not subsequently allocated back to the Companies. Such
costs include, but are not limited to, advertising, interest expense, charitable
contributions, certain postretirement benefits other than pensions, certain
postemployment benefits and certain other employee benefit plans.

     The Companies utilize intercompany receivable/payable accounts to settle
allocated charges primarily related to general and administrative expenses of
Aetna and its affiliates. Such expenses are paid by the parent company, Aetna
Life and Casualty Company which acts as a clearinghouse in allocating such
expenses to each of the parent company's subsidiaries. Settlements generally
take place within 45 days after the end of each month.

     AC&S had entered into a stop-loss agreement with an affiliate, Aetna
Re-Insurance Company (U.K.) Ltd., a wholly-owned subsidiary of Aetna. Such
agreement covered all policies-in-force, written, renewed or accepted during
1992 and prior years. AC&S had a 100% participation, capped at a maximum of
$58.0 million, in net losses in excess of the retention limits which result from
adverse development on known losses valued as of December 31, 1992 and/or
reported subsequent to December 31, 1992. Effective December 31, 1995, AC&S
entered into an agreement with Aetna whereby Aetna was substituted as primary
obligor under the stop-loss agreement for a payment equal to the held reserves
for such coverage of $35.7 million.


                                       19 

<PAGE>   20
                     THE AETNA CASUALTY AND SURETY COMPANY
                    AND THE STANDARD FIRE INSURANCE COMPANY
                             AND THEIR SUBSIDIARIES
              NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)

11. REINSURANCE

     The Companies utilize reinsurance agreements to reduce their exposure to
large losses in all aspects of their insurance business. Reinsurance permits
recovery of a portion of losses from reinsurers, although it does not discharge
the primary liability of the Companies as direct insurers of the risks
reinsured. The Companies evaluate the financial strength of potential reinsurers
and continually monitor the financial condition of present reinsurers. Only
those reinsurance recoverables deemed probable of recovery are reflected as
assets on the Combined Balance Sheets.

     Prepaid reinsurance premiums were $.4 billion for the year ended December
31, 1995 and $.3 billion for both the years ended December 31, 1994 and 1993. A
summary of earned premiums for the years ended December 31 was as follows:

<TABLE>
<CAPTION>
                                                                                              1995        1994        1993
                                                                                           ----------  ----------  ----------
                                                                                                       (MILLIONS)
<S>                                                                                        <C>         <C>         <C>
Direct Amount............................................................................  $  5,006.4  $  5,093.4  $  5,488.2
Ceded to Other Companies(1)..............................................................     1,307.0     1,177.7     1,232.3
Assumed from Other Companies(2)..........................................................       418.3       439.1       353.9
                                                                                           ----------  ----------  ----------
  Net Amount.............................................................................  $  4,117.7  $  4,354.8  $  4,609.8
                                                                                           ==========  ==========  ==========

Percentage of Amount Assumed to Net......................................................        10.2%       10.1%        7.7%
</TABLE>

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

(1) Includes $165.4 million, $184.7 million, and $215.5 million in 1995, 1994
    and 1993, respectively, of premiums ceded to Aetna affiliates.

(2) Includes $115.3 million, $130.8 million, and $160.9 million in 1995, 1994
    and 1993, respectively, of premiums assumed from Aetna affiliates.

     There is not a material difference in premiums on a written versus an
earned basis.

     Ceded claims and claim adjustment expenses were $.8 billion for the year
ended December 31, 1995 and $1.2 billion for the year ended December 31, 1994
and $1.1 billion for the year ended December 31, 1993.

     Certain subsidiaries of the Companies act as servicing carriers for several
involuntary pools. This business is ceded completely to the pools, and the
Companies have no direct underwriting risk associated with it. Reinsurance
recoverables for this business were approximately $1.7 billion and $1.8 billion
as of December 31, 1995 and 1994, respectively. The Companies also participate
as members in a number of the involuntary pools, and as a result assume their
share of premiums and losses associated with these pools.

     The Companies also utilize a variety of reinsurance agreements, primarily
with nonaffiliated insurers, to control their exposure to large
property-casualty losses. These agreements, most of which are renegotiated
annually as to coverage, limits and price, are structured either on a treaty
basis (where all risks meeting prescribed criteria are automatically covered) or
on a facultative basis (where the circumstances of specific individual insurance
risks are reflected). The amount of risk retained by the Companies depends on
the underwriter's evaluation of the specific risk, subject to maximum limits
based on risk characteristics and the type of coverage. The principal
catastrophe reinsurance agreement currently in force covers approximately 90% of
specified property losses between $150 million and $325 million. The Companies
also have in place an aggregate excess of loss arrangement with respect to all
of its property-casualty lines for accident year 1995, providing up to
approximately $250 million of additional net protection.

     Unpaid claims and claim adjustment expenses and reinsurance recoverables on
the Combined Balance Sheets are reported net of amounts ceded to and assumed
from certain affiliates. The total amount of unpaid claims and claim adjustment
expenses and reinsurance recoverables related to these reinsurance agreements
was $658.8 million and $642.0 million at December 31, 1995 and 1994,
respectively, of which $657.1 million and $639.9


                                       20 

<PAGE>   21
                     THE AETNA CASUALTY AND SURETY COMPANY
                    AND THE STANDARD FIRE INSURANCE COMPANY
                             AND THEIR SUBSIDIARIES
              NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)

11. REINSURANCE--(CONTINUED)

million, respectively, relates to an arrangement which terminated effective
January 1, 1996. There was no impact to the Combined Statements of Income in
1995, 1994 or 1993 as a result of these agreements.

12. RESERVES

     The following represents changes in aggregate reserves for unpaid claims
and claim adjustment expenses:

<TABLE>
<CAPTION>
                                                                                               1995       1994       1993
                                                                                             ---------  ---------  ---------
                                                                                                       (MILLIONS)
<S>                                                                                          <C>        <C>        <C>
Net unpaid claims and claim adjustment expenses at beginning of year.......................  $  11,022  $  11,259  $  11,581
Incurred claims and claim adjustment expenses:
  Provision for insured events of the current year.........................................      3,095      3,484      3,526
  Increases in provision for insured events of prior years(1)(2)...........................      1,137        263         51
                                                                                             ---------  ---------  ---------
     Total incurred claims and claim adjustment expenses...................................      4,232      3,747      3,577
                                                                                             ---------  ---------  ---------
Payments: Claim and claim adjustment expenses attributable to insured events of the current
year.......................................................................................      1,118      1,275      1,041
Claim and claim adjustment expenses attributable to insured events of prior years..........      2,563      2,709      2,858
                                                                                             ---------  ---------  ---------
     Total payments........................................................................      3,681      3,984      3,899
                                                                                             ---------  ---------  ---------
Net unpaid claims and claim adjustment expenses at end of the year.........................     11,573     11,022     11,259
Plus: Reinsurance recoverables.............................................................      4,573      4,603      4,407
Deductible amounts recoverable from policyholders..........................................        412        352         --
                                                                                             ---------  ---------  ---------
Gross unpaid claims and claim adjustment expenses at end of the year.......................  $  16,558  $  15,977  $  15,666
                                                                                             =========  =========  =========
</TABLE>

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

(1) 1995 includes increases in provision for insured events of prior years of
    $399 million related to asbestos-related claims and $778 million related to
    environmental-related claims.

(2) 1993 includes increases in provision for insured events of prior years of
    $665 million, offset by the cumulative effect adjustment related to the
    change in accounting to report workers' compensation life table indemnity
    claims on a discounted basis of $(514) million and the current year effect
    of this change in accounting of $(100) million related to the provision for
    insured events of prior years.

  Environmental and Asbestos-Related Claims

     The Companies added $778 million ($505.7 million, after tax) to
environmental-related claims reserves in 1995. In the opinion of management, the
Companies' reserves for environmental-related claims at December 31, 1995
represent the Companies' best estimate of their ultimate environmental-related
liability, based on currently known facts, current law (including Superfund),
current technology, and assumptions considered reasonable where facts are not
known. Due to the significant uncertainties and related management judgment
involved in estimating the Companies' environmental liability, no assurances can
be given that the environmental reserve represents the amount that will
ultimately be paid by the Companies for all environmental-related losses. The
amount ultimately paid could differ materially from the Companies' currently
recorded reserve as legal and factual issues are clarified, but any difference
cannot be reasonably estimated at this time.

     As a result of this addition to the environmental-related claims reserves,
Aetna contributed $303 million of additional capital to the Companies in the
fourth quarter of 1995 in order to restore capital levels (including risk-based
capital), to appropriate levels for regulatory and other purposes.

     In conjunction with the reserve addition for environmental-related claims,
the Companies purchased reinsurance which provided aggregate protection of $335
million for the adverse loss development beyond reserves held (net of existing
reinsurance). Under this arrangement, approximately $165 million of the existing
reserves for such losses were ceded at the time the contract was entered into.
As a result of the asbestos-related reserve addition (see


                                       21 

<PAGE>   22
                     THE AETNA CASUALTY AND SURETY COMPANY
                    AND THE STANDARD FIRE INSURANCE COMPANY
                             AND THEIR SUBSIDIARIES
              NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)

12. RESERVES--(CONTINUED)

below) and other reserve developments, substantially all of, the available
statutory surplus protection was utilized during 1995. There was an immaterial
benefit to the results of operations under this arrangement.

     In 1995, the Companies settled a case involving a policyholder (a major
producer of asbestos and asbestos products) that had exhausted applicable policy
limits on asbestos products claims and asserted coverage under policy provisions
for other types of liability. The Companies obtained a release from the insured
for all current and future asbestos bodily injury claims and certain asbestos
property damage claims (along with all environmental claims) under existing
policies in exchange for fixed, scheduled cash payments, which were recorded on
a discounted basis. In connection with this settlement, $120 million of
property-casualty reserves not previously classified as covering
asbestos-related claims were transferred to asbestos reserves. No amounts were
transferred from environmental reserves, and the environmental-related portion
of the settlement was covered by existing environmental reserves. As a result,
this settlement did not affect 1995 results of operations. As part of the
settlement, the Companies also agreed, among other things, to make insurance
coverage available to the insured in the year 2000 (on a one-time basis), for a
percentage of all asbestos defense and indemnity claim payments made by the
insured during the years 2000 through 2007. The Companies' payment obligations
would be subject to annual dollar caps. Given the uncertainty as to whether the
insured will elect to purchase this additional insurance, no related premiums or
losses have been recorded by the Companies at this time. Related premiums and
losses will be recorded if it becomes probable that the insured will elect to
purchase the additional insurance coverage.

     Reserving for asbestos-related claims is subject to significant
uncertainties and management is currently unable to make a reasonable estimate
as to the ultimate amount of losses or a reasonable range of losses for all
asbestos-related claims and related litigation expenses. Management has
continued to evaluate reserves for asbestos liabilities as the Companies
continue to gather and analyze new information and reassess its reserving
techniques for these claims in order to determine whether it can better estimate
its liability. In connection with such evaluation, the Companies added $335
million ($218 million, after tax) to asbestos-related claims reserves in the
fourth quarter of 1995. While the Companies expect to recover some of its
asbestos losses from its reinsurers, due to the uncertainty in estimating
amounts to be recovered, no reinsurance benefits were recorded in establishing
this addition to reserves. Further adjustments may be made to such reserves as
loss patterns develop and other information is obtained, and the amount
ultimately paid for such claims could differ materially from reserves, although
any difference cannot be reasonably estimated at this time.

     Environmental and asbestos-related loss and loss adjustment expense
reserves as reflected on the Combined Balance Sheets at December 31, were as
follows (before reinsurance and net of discounts on certain environmental and
asbestos settlement):

<TABLE>
<CAPTION>
                                                                                                            1995       1994
                                                                                                         ----------  ---------
                                                                                                              (MILLIONS)
<S>                                                                                                      <C>         <C>
Environmental Liability................................................................................  $  1,005.9  $   436.1
Asbestos Bodily Injury*................................................................................       754.3      295.9
Asbestos Property Damage*..............................................................................        22.3       29.9
                                                                                                         ----------  ---------
Total Environmental and Asbestos-Related Reserves......................................................  $  1,782.5  $   761.9
                                                                                                         ==========  =========
</TABLE>

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

* Includes $107.4 million and $12.6 million of reserves transferred to asbestos
  bodily injury and asbestos property damage reserves, respectively, in 1995.

  Workers' Compensation Claims

     Estimating workers' compensation reserves is particularly difficult (and,
therefore, more subject to change than many other types of property-casualty
claims), largely because of the length of the "tail" associated with workers'
compensation claims. Workers' compensation claim costs are dependent on a number
of complex factors including social and economic trends and changes in doctrines
of legal liability and damage awards. Adjustments will be made to such reserves
as loss patterns develop and new information becomes available and such
adjustments may be material.


                                       22 

<PAGE>   23
                     THE AETNA CASUALTY AND SURETY COMPANY
                    AND THE STANDARD FIRE INSURANCE COMPANY
                             AND THEIR SUBSIDIARIES
              NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)

12. RESERVES--(CONTINUED)

  Other

     Policyholders of the Companies also seek insurance coverage from the
Companies for other long-term exposure claims against them, including claims
relating to silicone-based personal products, lead paint and other allegedly
toxic or harmful substances. Evaluating and reserving for these types of
exposures is complex and subject to many uncertainties including those stemming
from coverage issues, long latency periods and changing or expanding laws and
legal theories of liability. Adjustments will be made to such reserves as loss
patterns develop and new information becomes available and such adjustments may
be material.

13. FINANCIAL INSTRUMENTS

ESTIMATED FAIR VALUE

     The carrying values and estimated fair values of the Companies' financial
instruments at December 31, 1995 and 1994 were as follows:

<TABLE>
<CAPTION>
                                                                                      1995                     1994
                                                                            ------------------------  ----------------------
                                                                             CARRYING       FAIR       CARRYING      FAIR
                                                                               VALUE        VALUE       VALUE       VALUE
                                                                            -----------  -----------  ----------  ----------
<S>                                                                         <C>          <C>          <C>         <C>
Assets:
  Cash and cash equivalents...............................................  $   1,136.5  $   1,136.5  $    676.3  $    676.3
  Short-term investments..................................................        137.2        137.2       106.0       106.0
  Debt securities.........................................................     11,598.3     11,598.3     9,510.3     9,503.9
  Equity securities.......................................................        499.9        499.9     1,017.9     1,017.9
  Mortgage loans..........................................................      1,061.7      1,052.7     1,453.7     1,416.0
Liabilities:
  Short-term debt.........................................................  $        --  $        --  $      9.1  $      9.1
  Long-term debt..........................................................         35.2         35.2        35.5        35.5
</TABLE>

     Fair value estimates are made at a specific point in time, based on
available market information and judgments about the financial instrument, such
as estimates of timing and amount of expected future cash flows. Such estimates
do not reflect any premium or discount that could result from offering for sale
at one time the Companies' entire holdings of a particular financial instrument,
nor do they consider the tax impact of the realization of unrealized gains or
losses. In many cases, the fair value estimates cannot be substantiated by
comparison to independent markets, nor can the disclosed value be realized in
immediate settlement of the instrument. In evaluating the Companies' management
of interest rate and liquidity risk, and currency exposures, the fair values of
all assets and liabilities should be taken into consideration, not only those
presented above.

     The following valuation methods and assumptions were used by the Companies
in estimating the fair value of the above financial instruments:

     Short-term instruments: Fair values are based on quoted market prices or
dealer quotations. Where quoted market prices or dealer quotations are not
available, the carrying amounts reported in the Combined Balance Sheets
approximate fair value. Short-term instruments have a maturity date of one year
or less and include cash and cash equivalents, short-term investments and
short-term debt.

     Debt and equity securities: Fair values are based on quoted market prices
or dealer quotations. Where quoted market prices or dealer quotations are not
available, fair values are estimated by using quoted market prices for similar
securities or discounted cash flow methods.

     Mortgage loans: Fair values are estimated by discounting expected mortgage
loan cash flows at market rates which reflect the rates at which similar loans
would be made to similar borrowers. The rates reflect management's

                                       23 

<PAGE>   24
                     THE AETNA CASUALTY AND SURETY COMPANY
                    AND THE STANDARD FIRE INSURANCE COMPANY
                             AND THEIR SUBSIDIARIES
              NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)

13. FINANCIAL INSTRUMENTS--(CONTINUED)

assessment of the credit quality and the remaining duration of the loans. The
fair value estimates of mortgage loans of lower credit quality, including
problem and restructured loans, are based on the estimated fair value of the
underlying collateral.

     Long-term debt: Fair value is based on quoted market prices for the same or
similar issued debt or, if no quoted market prices are available, on the current
rates estimated to be available to the Companies for debt of similar terms and
remaining maturities.

OFF-BALANCE-SHEET FINANCIAL INSTRUMENTS (INCLUDING DERIVATIVE FINANCIAL
INSTRUMENTS):

     The notional amounts, carrying values and estimated fair values of the
Companies' off-balance-sheet financial instruments at December 31, 1995 and 1994
were as follows:

<TABLE>
<CAPTION>
                                                                                                                CARRYING
                                                                                                                  VALUE
                                                                                                  NOTIONAL        ASSET
                                                                                                   AMOUNT      (LIABILITY)
                                                                                                 -----------  -------------
                                                                                                         (MILLIONS)
<S>                                                                                              <C>          <C>
  1995
Foreign exchange forward contracts--sell:
  Related to investments in nondollar denominated assets.......................................   $    65.2     $     (.1)
Interest rate swaps:
  Unrecognized gains...........................................................................       380.0            --
  Unrecognized losses..........................................................................       380.0            --
</TABLE>

<TABLE>
<CAPTION>
                                                                                                   FAIR
                                                                                                   VALUE
                                                                                                 ---------
<S>                                                                                              <C>
  1995
Foreign exchange forward contracts--sell:
  Related to investments in nondollar denominated assets.......................................  $     (.2)
Interest rate swaps:
  Unrecognized gains...........................................................................       20.4
  Unrecognized losses..........................................................................      (20.2)
</TABLE>

<TABLE>
<CAPTION>
                                                                                                                CARRYING
                                                                                                                  VALUE
                                                                                                  NOTIONAL        ASSET
                                                                                                   AMOUNT      (LIABILITY)
                                                                                                 -----------  -------------
                                                                                                         (MILLIONS)
<S>                                                                                              <C>          <C>
  1994
Foreign exchange forward contracts--sell:
  Related to net investments in foreign affiliates.............................................   $    27.1     $      .2
  Related to investments in nondollar denominated assets.......................................       206.1            .2
Foreign exchange forward contracts--buy:
  Related to investments in nondollar denominated assets.......................................         3.8           (.4)
Interest rate swaps:
  Unrecognized gains...........................................................................       386.4            --
  Unrecognized losses..........................................................................       386.4            --
</TABLE>


<TABLE>
<CAPTION>
                                                                                                   FAIR
                                                                                                   VALUE
                                                                                                 ---------
<S>                                                                                              <C>
  1994
Foreign exchange forward contracts--sell:
  Related to net investments in foreign affiliates.............................................  $      .2
  Related to investments in nondollar denominated assets.......................................       (1.5)
Foreign exchange forward contracts--buy:
  Related to investments in nondollar denominated assets.......................................        (.1)
Interest rate swaps:
  Unrecognized gains...........................................................................       18.3
  Unrecognized losses..........................................................................      (18.3)
</TABLE>

     The notional amounts of these instruments do not represent the Companies'
risk of loss. The fair value amounts of these instruments were estimated based
on quoted market prices, dealer quotations or internal price estimates believed
to be comparable to dealer quotations. These amounts reflect the estimated
amounts that the Companies would have to pay or would receive if the contracts
were terminated.

     The Companies engage in hedging activities to manage foreign exchange and
interest rate risk. Such hedging activities have principally consisted of using
off-balance-sheet instruments including foreign exchange forward contracts and
interest rate swap agreements. All of these instruments involve, to varying
degrees, elements of market risk and credit risk in excess of the amounts
recognized in the Combined Balance Sheets. The Companies evaluate the risks
associated with off-balance-sheet financial instruments in a manner similar to
that used to evaluate the risks associated with on-balance-sheet financial
instruments. Market risk is the possibility that future


                                       24 

<PAGE>   25
                     THE AETNA CASUALTY AND SURETY COMPANY
                    AND THE STANDARD FIRE INSURANCE COMPANY
                             AND THEIR SUBSIDIARIES
              NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)

13. FINANCIAL INSTRUMENTS--(CONTINUED)

changes in market prices may make a financial instrument less valuable. For
off-balance-sheet financial instruments used for hedging, such market price
changes are generally offset by the market price changes in the hedged
instruments held by the Companies. Credit risk arises from the possibility that
counterparties may fail to perform under the terms of the contract, which could
result in an unhedged position. However, unlike on-balance-sheet financial
instruments, where credit risk generally is represented by the notional or
principal amount, the off-balance-sheet financial instruments' risk of credit
loss generally is significantly less than the notional value of the instrument
and is represented by the positive fair value of the instrument. The Companies
generally do not require collateral or other security to support the financial
instruments discussed below. However, the Companies control their exposure to
credit risk through credit approvals, credit limits and regular monitoring
procedures. There were no material concentrations of off-balance-sheet financial
instruments at December 31, 1995.

  Foreign Exchange Forward Contracts:

     Foreign exchange forward contracts are agreements to exchange fixed amounts
of two different currencies at a specified future date and at a specified price.
The Companies utilize foreign exchange forward contracts to hedge their foreign
currency exposure arising from certain investments in foreign affiliates and
nondollar denominated investment securities. The Companies generally utilize
foreign currency contracts with terms of up to three months.

     At December 31, 1995 the Companies has unhedged foreign currency exposures
of $29.8 million and $41.2 million related to net investments in foreign
affiliates and investments in nondollar denominated assets, respectively. These
exposures include $40.1 million of investments in nondollar denominated assets
for which effective markets for hedging vehicles do not currently exist.

  Interest Rate Swaps

     The Companies utilize interest rate swaps to manage certain exposures
related to changes in interest rates. This swap activity included transactions
which were entered into in prior years where the Companies act as an
intermediary for entities whose debt the Companies have guaranteed to allow them
to convert variable rate debt to a fixed rate, with the Companies retaining no
interest rate risk. (Please refer to Note 14.) Interest rate swap activity also
includes exchanging variable rate asset returns for fixed rate returns.

14. COMMITMENTS AND CONTINGENT LIABILITIES

COMMITMENTS

     Commitments to extend credit are legally binding agreements to lend monies
at a specified interest rate and within a specified time period. Risk arises
from the potential inability of counterparties to perform under the terms of the
contracts and from interest rate fluctuations. The Companies' exposure to credit
risk is reduced by the existence of conditions within the commitment agreements
which release the Companies from their obligations in the event of a material
adverse change in the counterparty's financial condition. At December 31, 1995
and 1994, the Companies had $79.8 million and $120.0 million, respectively, in
commitments to fund partnerships.

     Through the normal course of investment operations, the Companies commit to
either purchase or sell securities or money market instruments at a specified
future date and at a specified price or yield. The inability of counterparties
to honor these commitments may result in either a higher or lower replacement
cost. Also, there is likely to be a change in the value of the securities
underlying the commitments. At December 31, 1995, the Companies had commitments
to purchase investments of $66.9 million, the fair value of which was $67.3
million. The Companies had no commitments to purchase investments in 1994.


                                       25 

<PAGE>   26
                     THE AETNA CASUALTY AND SURETY COMPANY
                    AND THE STANDARD FIRE INSURANCE COMPANY
                             AND THEIR SUBSIDIARIES
              NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)

14. COMMITMENTS AND CONTINGENT LIABILITIES--(CONTINUED)

FINANCIAL GUARANTEES

     The Companies no longer write municipal bond insurance and such business
previously written by the Companies was reinsured with another company. It is
not practicable to estimate the fair value of the business that has been ceded.

     AC&S was a writer of financial guarantees on obligations secured by real
estate, corporate debt obligations, and of municipal and non-municipal
tax-exempt entities through December 31, 1987, and ceased writing such
guarantees as of January 1, 1988. The aggregate net par value of financial
guarantees outstanding at December 31, 1995 and 1994 was $656.4 million and
$728.3 million, respectively. Future runoff of financial guarantees as of
December 31, 1995 after adjusting for extensions granted on certain guarantees,
is estimated to be $31.9 million for 1996, $135.4 million for 1997, $276.7
million for 1998, $3.8 million for 1999, $7.4 million for 2000 and $201.2
million thereafter. It is not practicable to estimate a fair value for AC&S'
financial guarantees because AC&S no longer writes such guarantees, there is no
quoted market price for such contracts, and it is not practicable to reliably
estimate the timing and amount of all future cash flows due to the unique nature
of each of these contracts.

     Total reserves for the financial guarantee business, which include reserves
for defaults, probable losses not yet identified and unearned premiums, were
$40.5 million and $47.7 million at December 31, 1995 and 1994, respectively.
Premium income received from such guarantees is recognized pro rata over the
contract coverage period.

REINSURANCE AGREEMENT

     In connection with the 1992 sale of Am Re, Am Re and AC&S entered into a
reinsurance agreement which provides that to the extent Am Re incurred losses in
1991 and prior that were still outstanding at January 1, 1992 in excess of $2.7
billion, AC&S has an 80% participation in payments on those losses up to a
maximum payment by AC&S of $500 million. In 1995, Am Re increased reserves for
asbestos, environmental and other latent liabilities. As a result of this
increase, losses of approximately $228 million ($120 million after discount),
which were largely workers' compensation life table indemnity claims, were ceded
to AC&S. There was no material impact on 1995 earnings as AC&S had previously
established reserves. It is reasonably possible that additional undiscounted
losses of up to approximately $270 million pretax could be ceded to the company
in the future.

STRUCTURED SETTLEMENTS

     The Companies have settled claims through the purchase of structured
settlement annuities under which they remain liable to the claimants. Such
structured settlements of $1,189.3 million and $1,097.2 million are reflected in
reinsurance recoverables on the Combined Balance Sheet at December 31, 1995 and
1994, respectively. Included in such liabilities is $352.4 million and $280.0
million of structured settlements purchased from affiliates, consisting of
$177.2 million and $153.4 million from Aetna Life Insurance Company at December
31, 1995 and 1994, respectively, and $175.2 million and $126.6 million from
Aetna Life Insurance and Annuity Company at December 31, 1995 and 1994,
respectively.

LITIGATION

     The Companies are continuously involved in numerous lawsuits arising, for
the most part, in the ordinary course of their business operations either as
liability insurers defending third-party claims brought against their insureds
or as insurers defending coverage claims brought against them, including
lawsuits related to issues of policy coverage and judicial interpretation. One
such area of coverage litigation involves legal liability for environmental and
asbestos-related claims. These lawsuits and other factors make reserving for
these claims subject to significant uncertainties.


                                       26 

<PAGE>   27
                     THE AETNA CASUALTY AND SURETY COMPANY
                    AND THE STANDARD FIRE INSURANCE COMPANY
                             AND THEIR SUBSIDIARIES
              NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)

14. COMMITMENTS AND CONTINGENT LIABILITIES--(CONTINUED)

     While the ultimate outcome of such litigation cannot be determined at this
time, such litigation, net of reserves established therefore and giving effect
to reinsurance probable of recovery, is not expected to result in judgments for
amounts material to the financial condition of the Companies, although it may
adversely affect results of operations in future periods.

15. CONCENTRATIONS OF INVESTMENT CREDIT RISK

     At December 31, 1995, the Companies had an investment in common stock of
MBIA, Inc. with a carrying value of $286.0 million representing 7% of
shareholder's equity, and an investment in preferred stock of Federated
Investors with a carrying value of $100.7 million representing 3% of
shareholder's equity. Subsequent to December 31, 1995, the Companies sold all of
their investment in Federated Investors and 82% of their investment in MBIA,
Inc. These sales resulted in a combined realized capital gain of $173.8 million
(pretax) which will be reflected in 1996 results.

     The Companies' holdings in debt securities were $11.6 billion and $9.5
billion as of December 31, 1995 and 1994, respectively. The debt securities in
the Companies' portfolio are generally rated by external rating agencies, and,
if not externally rated, are rated by the Companies on a basis believed to be
similar to that used by the rating agencies. At December 31, 1995 and 1994, the
average quality rating of the Companies' portfolio of debt securities was AA and
the composition by quality ratings and market sector were as follows:

                        DEBT SECURITIES QUALITY RATINGS

                  DEBT SECURITIES INVESTMENTS BY MARKET SECTOR

<TABLE>
<CAPTION>
                                                 DECEMBER 31,
                                           ------------------------
                                              1995         1994
                                           -----------  -----------
<S>                                        <C>          <C>
AAA......................................          54%          59%
AA.......................................          11%          10%
A........................................          21%          18%
BBB......................................          11%           9%
BB & Below...............................           3%           4%
</TABLE>

<TABLE>
<CAPTION>
                                                 DECEMBER 31,
                                           ------------------------
                                              1995         1994
                                           -----------  -----------
<S>                                        <C>          <C>
Corporate................................          28%          23%
Treasuries/Agencies......................          27%          36%
Mortgage-Backed Securities...............          15%          13%
Financial................................          12%           6%
Public Utilities.........................           7%           6%
Other Loan Backed........................           6%           3%
Municipals...............................           5%          13%
</TABLE>

     At December 31, 1995 and 1994, mortgage loan balances, net of specific
impairment reserves, by property type and geographic region were as follows:


                                       27 

<PAGE>   28
                     THE AETNA CASUALTY AND SURETY COMPANY
                    AND THE STANDARD FIRE INSURANCE COMPANY
                             AND THEIR SUBSIDIARIES
              NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)

15. CONCENTRATIONS OF INVESTMENT CREDIT RISK--(CONTINUED)

DECEMBER 31, 1995

<TABLE>
<CAPTION>
                                                                                                             MIXED
                                           OFFICE     RETAIL     APARTMENT    HOTEL/MOTEL   INDUSTRIAL     USE/OTHER      TOTAL
                                          ---------  ---------  -----------  -------------  -----------  -------------  ----------
                                                                                (MILLIONS)
<S>                                       <C>        <C>        <C>          <C>            <C>          <C>            <C>
South Atlantic..........................  $   175.6  $    60.9   $    51.8     $     2.7     $     3.1     $    49.5    $    343.6
Middle Atlantic.........................      147.1       64.8          --            --          19.9            .1         231.9
New England.............................      120.5       66.9        59.7          44.2            --            --         291.3
South Central...........................       10.7       14.6          .5           1.7            --            --          27.5
North Central...........................        3.4       20.2        38.3          11.1            .8            .9          74.7
Pacific and Mountain....................       69.9       28.9        18.4            --           7.3           3.1         127.6
Other...................................         --         --          --            --            --           9.5           9.5
                                          ---------  ---------   ---------     ---------     ---------     ---------    ----------
     Total..............................  $   527.2  $   256.3   $   168.7     $    59.7     $    31.1     $    63.1       1,106.1
                                          =========  =========   =========     =========     =========     =========

Less general portfolio loss reserve.....                                                                                      44.4
                                                                                                                        ----------
     Adjusted total, net of reserves....                                                                                $  1,061.7
                                                                                                                        ==========
</TABLE>

DECEMBER 31, 1994

<TABLE>
<CAPTION>
                                                                                                            MIXED
                                           OFFICE     RETAIL     APARTMENT   HOTEL/MOTEL   INDUSTRIAL     USE/OTHER      TOTAL
                                          ---------  ---------  -----------  ------------  -----------  -------------  ----------
                                                                                (MILLIONS)
<S>                                       <C>        <C>        <C>          <C>           <C>          <C>            <C>
South Atlantic..........................  $   159.5  $   165.2   $    58.9    $     62.1    $     3.2     $    59.0    $    507.9
Middle Atlantic.........................      196.1       67.0        30.1            --         17.6            .5         311.3
New England.............................      122.6       65.6        59.4          45.1           .4           3.8         296.9
South Central...........................       32.1       12.1        13.3           2.0          3.8            .9          64.2
North Central...........................       31.7       40.3        55.1          23.5           .9           1.2         152.7
Pacific and Mountain....................      118.6       29.2         7.6            --          7.7           4.3         167.4
Other...................................         --         --          --            --           --          11.8          11.8
                                          ---------  ---------   ---------    ----------    ---------     ---------    ----------
     Total..............................  $   660.6  $   379.4   $   224.4    $    132.7    $    33.6     $    81.5       1,512.2
                                          =========  =========   =========    ==========    =========     =========
Less general portfolio loss reserve.....                                                                                     58.5
                                                                                                                       ----------
     Adjusted total, net of reserves....                                                                               $  1,453.7
                                                                                                                       ==========
</TABLE>

     As of December 31, 1995 and 1994, the Companies' investments in problem,
potential problem and restructured mortgage loans by property type and
geographic distribution were as follows:

  PROBLEM, POTENTIAL PROBLEM AND RESTRUCTURED MORTGAGE LOANS BY PROPERTY TYPE

GEOGRAPHIC DISTRIBUTION OF PROBLEM, POTENTIAL PROBLEM AND RESTRUCTURED MORTGAGE
                                     LOANS

<TABLE>
<CAPTION>
                                              DECEMBER 31,
                                          --------------------
                                            1995       1994
                                          ---------  ---------
<S>                                       <C>        <C>
Apartment...............................       13.3%       9.0%
Hotel/Motel.............................        -- %        .8%
Office..................................       48.8%      72.4%
Retail..................................       37.9%      17.0%
Other...................................        -- %        .8%
</TABLE>

<TABLE>
<CAPTION>
                                              DECEMBER 31,
                                          --------------------
                                            1995       1994
                                          ---------  ---------
<S>                                       <C>        <C>
Middle Atlantic.........................       11.9%      22.1%
New England.............................         .2%       1.3%
North Central...........................       13.4%      32.6%
Pacific and Mountain....................       62.2%       7.3%
South Atlantic..........................       12.3%      17.6%
South Central...........................        -- %      19.1%
</TABLE>

                                       28 

<PAGE>   29
                     THE AETNA CASUALTY AND SURETY COMPANY
                    AND THE STANDARD FIRE INSURANCE COMPANY
                             AND THEIR SUBSIDIARIES
              NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)

15. CONCENTRATIONS OF INVESTMENT CREDIT RISK--(CONTINUED)
     "Problem loans" are defined to be loans with payments over 60 days past
due, loans on properties in the process of foreclosure, loans on properties
involved in bankruptcy proceedings and loans on properties subject to
redemption.

     "Restructured loans" are loans whose original contract terms have been
modified to grant concessions to the borrower and are currently performing
pursuant to such modified terms.

     In connection with the Companies' adoption of FAS Nos. 114 and 118 on
January 1, 1995 (please see Note 1 of Notes to Combined Financial Statements),
management has revised the definition of "potential problem loans" to include
all loans which are performing pursuant to existing terms and are considered
likely to become classified as problem or restructured loans. Prior to January
1, 1995, potential problem loans were performing loans which management believed
were likely to become classified as problem or restructured loans in the next 12
months or so. As a result of the revised definition, potential problem loans at
December 31, 1995 are approximately $65 million higher than they would have been
had the definition not been changed. Potential problem loans are identified
through the portfolio review process on the basis of known information about the
ability of borrowers to comply with present loan terms. Identifying such
potential problem loans requires significant judgment as to likely future market
conditions and developments specific to individual properties and borrowers.
Provision for losses that management believes are likely to arise from such
potential problem loans is included in the specific impairment reserves. (Please
see Note 3 for a discussion of mortgage loan impairment reserves.)

     The Companies' equity real estate balances were $264.7 million and $262.0
million at December 31, 1995 and 1994, respectively. The Companies' equity real
estate balances at December 31, 1995 and 1994 by property type and geographic
distribution were as follows:

                      EQUITY REAL ESTATE BY PROPERTY TYPE

                 GEOGRAPHIC DISTRIBUTION OF EQUITY REAL ESTATE

<TABLE>
<CAPTION>
                                              DECEMBER 31,
                                          --------------------
                                            1995       1994
                                          ---------  ---------
<S>                                       <C>        <C>
Apartment...............................        -- %       6.0%
Hotel/Motel.............................       21.3%      17.3%
Industrial..............................        8.6%       8.7%
Land....................................       14.3%      13.2%
Office..................................       47.1%      44.1%
Retail..................................        7.6%       9.5%
Other...................................        1.1%       1.2%
</TABLE>

<TABLE>
<CAPTION>
                                              DECEMBER 31,
                                          --------------------
                                            1995       1994
                                          ---------  ---------
<S>                                       <C>        <C>
Middle Atlantic.........................        7.9%       8.2%
New England.............................       12.5%      16.1%
North Central...........................       18.3%      12.3%
Pacific and Mountain....................       37.9%      40.1%
South Atlantic..........................       16.7%      20.4%
South Central...........................        6.7%       2.9%
</TABLE>


                                       29 

<PAGE>   30
                     THE AETNA CASUALTY AND SURETY COMPANY
                    AND THE STANDARD FIRE INSURANCE COMPANY
                             AND THEIR SUBSIDIARIES
              NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)

16. SEGMENT INFORMATION

<TABLE>
<CAPTION>
                                                                                          COMMERCIAL    PERSONAL
                                                                                             LINES        LINES      COMBINED
                                                                                          -----------  -----------  -----------
                                                                                                      (IN MILLIONS)
<S>                                                                                       <C>          <C>          <C>
1995
Revenues
  Premiums..............................................................................   $   2,833    $   1,285    $   4,118
  Net investment income.................................................................         757          145          902
  Fee & other income....................................................................          78            4           82
  Realized investment gains (losses)....................................................         151           48          199
                                                                                           ---------    ---------    ---------
       Total............................................................................       3,819        1,482        5,301
                                                                                           ---------    ---------    ---------
Income (loss) before federal income taxes...............................................        (607)         201         (406)
Net income (loss).......................................................................        (377)         134         (243)
                                                                                           ---------    ---------    ---------
Total assets............................................................................      19,670        3,729       23,399
                                                                                           =========    =========    =========
1994
Revenues
  Premiums..............................................................................       3,006        1,349        4,355
  Net investment income.................................................................         661          163          824
  Fee & other income....................................................................         110            6          116
  Realized investment gains (losses)....................................................          (2)           8            6
                                                                                           ---------    ---------    ---------
       Total............................................................................       3,775        1,526        5,301
                                                                                           ---------    ---------    ---------
Income (loss) before federal income taxes...............................................        (135)          44          (91)
Net income (loss).......................................................................         (74)          37          (37)
                                                                                           ---------    ---------    ---------
Total assets............................................................................      18,057        3,614       21,671
                                                                                           =========    =========    =========
1993
Revenues
  Premiums..............................................................................       3,120        1,489        4,609
  Net investment income.................................................................         739          225          964
  Fee & other income....................................................................         149            5          154
  Realized investment gains (losses)....................................................         142            2          144
                                                                                           ---------    ---------    ---------
       Total............................................................................       4,150        1,721        5,871
                                                                                           ---------    ---------    ---------
Income (loss) before federal income taxes and cumulative effect adjustments.............        (242)          28         (214)
Net income (loss).......................................................................         200           39          239
                                                                                           ---------    ---------    ---------
Total assets............................................................................      17,825        4,075       21,900
                                                                                           =========    =========    =========
</TABLE>

                                       30