UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT UNDER SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934 (FEE REQUIRED)
For the fiscal year ended December 31, 1996
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
For the transition period from __________ to __________
Commission File Number 0-8162
ACCEL INTERNATIONAL CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 31-0788334
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
475 METRO PLACE NORTH, DUBLIN, OHIO 43017
(Address of principal executive offices) (Zip Code)
614-764-7000
(Registrant's Telephone Number)
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: None
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
Title of each class
COMMON STOCK, $.10 PAR VALUE
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulations S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. ____
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
The aggregate market value of Common Stock held by non-affiliates on January 31,
1997 was approximately $9,100,000.
As of January 31, 1997, there were 8,603,742 shares of Common Stock, $.10 par
value per share outstanding.
DOCUMENTS INCORPORATED BY REFERENCE:
Portions of the definitive proxy statement furnished to stockholders of the
registrant in connection with the annual meeting of stockholders to be held on
May 20, 1997 are incorporated by reference into Part III.
Total sequentially numbered pages 55 Exhibit Index on page 44
------ ----
<PAGE>
Part I
------
ITEM 1. BUSINESS
(a) GENERAL DEVELOPMENT OF BUSINESS
ACCEL International Corporation ("ACCEL") is an insurance holding company
incorporated in Delaware in June 1978 as the successor to an Ohio corporation,
formerly Acceleration Corporation, organized in 1969. Unless the context
requires otherwise, the "Company" includes ACCEL and its subsidiaries. The
Company is engaged in the underwriting and sale of credit life and credit
accident and health insurance, extended service contracts and specialty casualty
products. Beginning in the first quarter of 1996, the Company began to offer
commercial auto coverages for long haul truckers and certain public
transportation vehicles ("charter buses") through a general agent ("GA"). In the
second quarter the Company began to offer commercial multi-peril policies to
auto dealers, but elected in the third quarter to exit this line of business.
The credit insurance and extended service contract products continue to be
offered to consumers, principally through automobile dealers, financial
institutions and other business entities. In 1990, the Company began offering
farmowners' multi-peril and ancillary inland marine coverages through a network
of selected agents. These coverages were discontinued in early 1995. See
NARRATIVE DESCRIPTION OF BUSINESS for further information.
(b) FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS
Through 1996 the Company operated predominately in two industry segments: life
and health and property and casualty insurance. See "Note J" in the Notes to
Consolidated Financial Statements.
(c) NARRATIVE DESCRIPTION OF BUSINESS
General
The Company's life and health insurance segment primarily consists of individual
and group credit life and group credit accident and health insurance, which is
sold through automobile dealers and financial institutions. The Company's
property and casualty segment consists of extended service contracts, sold
primarily through automobile dealers, coverages for long haul trucking and
charter buses sold through a GA and the discontinued commercial multi-peril,
farmowners' multi-peril, ancillary inland marine and realtors errors and
omissions coverages ("REO").
Credit insurance and extended service contracts, which represent a significant
portion of the Company's business, are affected by automobile sales. These
premiums accounted for approximately 72.8% of the Company's gross premiums
written in 1996.
Premiums for the long haul trucking and charter bus line comprised 23.6% of the
Company's gross premiums written in 1996.
The Company's principal subsidiary engaged in the life and health insurance
business is Acceleration Life Insurance Company ("ALIC"), which holds licenses
to conduct business in 40 states and the District of Columbia. Credit life and
credit accident and health insurance are the primary insurance products written
by ALIC. The Company's property and casualty business is conducted through
Acceleration National Insurance Company ("ANIC"). ANIC holds licenses to conduct
business in 47 states and the District of Columbia. Acceleration National
Service Corporation ("ANSC") administers the Company's extended service
contracts. The majority of the Company's direct premiums written in 1996 was
derived from sales in Ohio (37.9%), Virginia (12.7%), Georgia (9.0%), West
Virginia (4.7%), Indiana (6.4%) and Florida (4.5%). During 1995 and early 1996,
both ALIC and ANIC were subject to a re-application rule in the state of
Michigan. The re-applications were denied. Therefore, as of March 1996, ALIC and
ANIC were no longer licensed in Michigan, and accordingly discontinued writings
in said state. The decision by the state of Michigan was based on ALIC's and
ANIC's experiences in several discontinued lines of business. The results from
these lines of business are now several years old. Therefore, the companies,
based on their positive 1996 results, intend to re-apply to the state of
Michigan in 1997.
<PAGE>
Credit Insurance
- ----------------
The Company sells credit insurance primarily in connection with consumer credit
transactions, of which the most significant to the Company are automobile
purchases. Credit life insurance provides funds, in the event of the insured's
death, for payment of a specified loan or loans which are obligations of the
insured. Similarly, credit accident and health insurance provides for payments
on such loans during the term of the insured's disability. In most cases, the
entire premium is paid at the time the insurance is issued and such insurance is
designed to cover the risk of loss for the scheduled term of the indebtedness.
Most credit insurance is written on a decreasing term basis. The policy benefit
is initially the amount of the unpaid indebtedness and decreases in amounts
corresponding to the repayment schedule. The primary beneficiary under credit
insurance is the lender.
Substantially all of the Company's credit insurance is group insurance. Group
credit insurance policies are issued to master policyholders (typically
automobile dealers or financial institutions). The master policy of insurance
authorizes the master policyholder to issue certificates representing insurance
sold to its customers. Premiums collected from customers are remitted to the
Company net of commissions. The Company uses good health statements as part of
its underwriting measures, which inquire about the proposed insured's health at
the time the insurance is to be issued. Although medical examinations are not
required, the good health statement is intended to reduce the acceptance of
certain risks. The Company also uses additional health related questions on its
applications related to specific medical conditions. Because such conditions, if
experienced within the twelve months prior to the loan date, could be expected
to result in claims during the term of the loan, the applications are denied. In
addition to other sales and marketing services, the Company conducts related
training programs for finance and insurance managers, master policyholders and
their salespeople, independent agents and sales representatives employed by the
Company.
The Company reinsures substantial percentages of its credit accident and health
premiums on a written basis. This reinsurance provides statutory surplus relief,
thereby increasing the Company's capacity to write credit insurance. An effect
of this reinsurance is, however, to reduce the profit that the Company might
otherwise realize on its credit insurance business. The applicable agreement
contains an experience adjustment computation which results in the ultimate cost
of this reinsurance being a stated percentage related to the surplus relief
provided. Under such arrangements, a security fund is usually maintained by the
Company approximating the amount of ceded unearned premiums less commissions
retained, plus ceded insurance claims.
The Company has also entered into agreements to cede credit life and credit
accident and health insurance to reinsurance companies owned by certain
automobile dealers, financial institutions and agents. Under these arrangements
said entities and persons participate in the profits or losses of the insurance
sold through them, and the Company retains nominal percentages of the related
risk. These agreements generally provide that the Company receive a ceding fee
and be reimbursed for commissions and claims.
Approximately 58%, 76% and 73% of the Company's gross premiums written during
1996, 1995 and 1994, respectively, were derived from its credit insurance
business. The credit insurance business decreased 19.4% in 1996 compared to
1995, decreased 3.6% in 1995 compared to 1994, and increased 4% in 1994 compared
to 1993. The decrease in 1996 relates to the termination of a joint marketing
agreement discussed below, the loss of two significant accounts and the
Company's withdrawal from the state of Michigan. The decrease in 1995 was
primarily due to the loss of a significant account. Automobile purchases
continue to be the most significant consumer credit transaction for which credit
insurance is sold by the Company. Automobile purchases have been and will
continue to be affected, directly and indirectly, by auto prices, interest
rates, the availability of consumer credit and general economic conditions.
The primary states in which the Company's credit insurance is sold are Ohio,
Virginia, Indiana and West Virginia. The Company markets its credit insurance
through both independent agents and its own direct sales representatives. In
1987 the Company entered into a joint marketing arrangement with Consumers
Financial Corporation ("CFC") and transferred all of its Pennsylvania credit
insurance accounts to CFC's subsidiary, Consumers Life Insurance Company. This
business had previously been marketed by the Company's employees. The joint
venture also provided for marketing automobile extended service contracts in
Pennsylvania. The Company and CFC combined their efforts to market these
products to the automobile dealer accounts which both parties had serviced in
the past and to sign-up additional accounts.
<PAGE>
By a Termination Agreement effective July 31, 1996, the Company and CFC mutually
terminated the joint venture between the parties. Under the agreement, the
Company was to receive a proportionate share of the proceeds received by CFC
from the sale of the business. By later amendment to the Termination Agreement,
the Company is to receive a payment of $500,000 at the completion of a
transaction to sell CFC to an unrelated organization. The special meeting of CFC
stockholders called to consider the transaction is set for March 25, 1997. If
the transaction is approved by CFC stockholders, the transaction will close soon
thereafter. A gain from the amended Termination Agreement has not been
recognized in the 1996 consolidated financial statements.
Commercial Automobile Liability
- -------------------------------
In 1996, the Company began offering coverage to operators of long haul trucks
and charter buses. This program is marketed by an unaffiliated GA
(Transportation Insurance Specialists) with extensive experience in this product
line. Commercial Auto has become one of the Company's primary product lines with
first year direct premiums written of $13,800,000 (see "Note E" in the Notes to
Consolidated Financial Statements).
New Property and Casualty Products
- ----------------------------------
The Company has commenced new marketing initiatives in 1997 for products
including a package policy for crane operators consisting of general liability,
inland marine and commercial auto coverages; and an oil and gas liability
program. The target for the crane program is qualified operators who lease
cranes for specific projects. An independent administrator, The Crane Institute,
is being used to conduct loss control and underwriting survey work in this
specialized field. The Company expects slow controlled growth in this product
line with extensive underwriting reviews.
The oil and gas product is designed to be marketed to small or mid-sized
accounts. The program will insure the leasehold operators and contractors.
Limits provided will be $1 million per each occurrence subject to an annual
aggregate of $2 million. The GA has had extensive experience in this field.
Extended Service Contracts
- --------------------------
Extended service contracts are sold under the name "Co$tGuard" and cover the
cost of labor and certain parts for the repair of automobiles and watercraft.
The Company's product covers towing, rental car reimbursement and other benefits
during the entire contract term and enables a purchaser to obtain from the
selling dealer a service contract covering the cost (in excess of a deductible
amount where applicable) of repairs to covered parts subsequent to the
expiration of the applicable manufacturer's warranty. Extended service contracts
are primarily marketed through the same group of automobile dealers who market
the Company's credit insurance. The extended service contract program is
marketed on a net cost basis to the automobile dealer who is free to establish
the retail price for the contract. The net cost paid by the dealer includes the
premiums for a contractual liability policy provided the dealer by ANIC, and
administrative and marketing fees. In 1996, this program accounted for
approximately 32.7% of ANIC's gross premiums written.
Other Insurance Products
- ------------------------
In early 1990, the Company introduced its farmowners' multi-peril and ancillary
inland marine coverage products. Premiums written for these products were $0,
$97,000 and $8,460,000 in 1996, 1995 and 1994, respectively. The Company elected
to discontinue offering these lines and entered into an agreement whereby the
Company ceded 100% of the in-force business at December 31, 1994. Accordingly,
any new business written after January 1, 1995 was reinsured with an
unaffiliated carrier.
As of June 30, 1995, the Company ceased writing this business.
Investment In Randjill Group Ltd ("RGL") and Galaxy Insurance Company ("Galaxy")
- --------------------------------------------------------------------------------
In 1986 the Company acquired a 20% interest in RGL, a company related through
common ownership by a shareholder and director of the Company, and in 1991
acquired the remaining 80% interest. The total amount invested in RGL was
approximately $10.3 million. Due to significant losses incurred, and the
insolvency of RGL's operating subsidiary, Galaxy, a New York domiciled property
and casualty insurance company, the Company wrote off its investment in RGL
during the second quarter of 1994. For further information regarding RGL and
Galaxy see "Note K" in the Notes to Consolidated Financial Statements.
<PAGE>
Employees
- ---------
As of December 31, 1996, the Company employed 97 full-time equivalent employees
compared to 78 as of December 31, 1995.
Reinsurance with Unaffiliated Insurance Companies
- -------------------------------------------------
Reinsurance enables insurance companies to provide greater diversification of
risks and at the same time minimize risk exposure. The reinsurer reimburses the
Company for any claims on the reinsured portion of the risk. Although
reinsurance does not discharge the Company from primary liability to the insured
for the full amount of the insurance coverage, the industry and regulatory
practice is to exclude the reinsured portion of the risk from the consolidated
statements of operations.
The Company has an arrangement in place which covers a substantial portion of
its credit insurance business with an unaffiliated insurance company. The effect
of this agreement is that the Company ultimately retains a substantial part of
the insurance risk, the underwriting income or loss and the investment income on
net funds, with the reinsurers receiving a stated percentage of the surplus
relief provided. See "Note F" in the Notes to Consolidated Financial Statements.
In 1993, the Company entered into reinsurance agreements with unaffiliated
reinsurers related to its discontinued health products. The effect of such
reinsurance arrangements was to transfer 100% of the related risk to the
reinsurers. Premiums ceded associated with these agreements and included in the
accompanying consolidated statements of operations amounted to $496,000,
$633,000 and $980,000 in 1996, 1995 and 1994, respectively.
Reinsurance with Producer-owned Reinsurance Companies
- -----------------------------------------------------
Certain automobile dealers, financial institutions and insurance agencies, which
generate credit insurance premiums and are master policyholders of the Company,
have formed Producer-owned Reinsurance Companies owned either wholly or in part,
directly or indirectly, by such master policyholders to reinsure credit life and
disability business generated by them. These arrangements are structured to
provide Producer-owned Reinsurance Companies with underwriting income and a
portion of investment income on the premiums ceded in connection with such
reinsurance. In these transactions the Company's revenue is limited to a ceding
fee and a portion of the investment income.
As of December 31, 1996, $10,040,000 of credit life and disability unearned
premium reserves were ceded by the Company to Producer-owned Reinsurance
Companies. However, most of these Producer-owned Reinsurance Companies are
required to deposit cash and marketable securities in a custodial account with
an independent financial institution. The minimum balance in each account is
generally required to be equal to the policy and claim reserves ceded to the
Producer-owned Reinsurance Companies. In the event a Producer-owned Reinsurance
Company fails to fulfill its obligation, the Company may withdraw funds from the
Producer-owned Reinsurance Company's account as reimbursement for premium
refunds and claim disbursements. On all insurance written by the Company and
reinsured with Producer-owned Reinsurance Companies, the Company remains liable
in the event of the insolvency of the reinsurers. As of December 31, 1996, the
Company had ceded approximately $234,907,000 of credit life insurance in-force
to Producer-owned Reinsurance Companies. See "Note F" in the Notes to
Consolidated Financial Statements.
Competition
- -----------
The Company's business is extremely competitive as to both price and service. In
the credit insurance business, the Company's competitors include other insurance
companies, many of which are larger than the Company and have greater resources.
A significant competitive factor is the commission which may be paid to licensed
agents affiliated with master policyholders. The Company, however, continues to
compete by offering what it believes to be realistic commissions and providing a
high level of service including training, consulting and related services to its
master policyholders.
In the Co$tguard business, the Company competes with much larger and established
national and regional insurance companies and with automobile manufacturers
which provide service contracts to their dealers. The automobile manufacturers
have significantly greater resources than the Company and have relationships
with automobile dealers which extend beyond providing service contracts. The
principal competitive factors include price, profit potential, type and quality
of the products offered and the quality of service. Many of the same master
policyholders which sell the Company's credit insurance also market its extended
service contracts, and the termination of the relationship in one segment could
affect the Company's relationship in the other segment.
<PAGE>
In the Commercial Auto business the Company also competes with larger insurance
companies and with companies whose industry ratings are at higher levels than
ANIC. The principal factors that enable the Company to compete are the
relationship with the general agent and the level of service provided to
accounts.
Regulation
- ----------
The Company is subject to regulation in the states in which it conducts
business. The extent of such regulation varies from state to state; but in
general, all states have statutory restrictions and a supervisory agency which
has broad discretionary administrative powers. Such regulation is designed
primarily to protect policyholders and relates to the licensing of insurers and
their agents, the approval of policy forms, the methods of computing reserves,
the form and content of financial reports and the type and concentration of
permitted investments. Ohio and other jurisdictions in which the Company
conducts business have enacted legislation providing for specific regulation of
the relationship between licensed insurers and affiliated members of a holding
company group. Such legislation generally (1) establishes requirements and
procedures relative to the approval or disapproval of mergers and other
acquisitions of control, (2) prescribes the filing of registration statements by
insurers which are members of the holding company group, (3) subjects the
holding company to reporting requirements, (4) establishes standards for
transactions between insurers and their holding companies and between members of
a holding company group and (5) controls the payment of extraordinary dividends.
The dividends which the Company may receive from both its life and property and
casualty insurance subsidiaries are subject to regulatory requirements as to
minimum capital and surplus. In addition to regulatory considerations,
management considers the overall financial strength of each operating entity
before dividends are paid to the Company. Additionally, the amount of dividends
the Company's primary life insurance subsidiary can pay is subject to certain
tax considerations.
In 1993, the National Association of Insurance Commissioners ("NAIC") adopted
the life and health and property and casualty Risk-Based Capital ("RBC")
formulas. These model acts require every insurer to calculate its total adjusted
capital and RBC requirement, and provides for an insurance commissioner to
intervene if the insurer experiences financial difficulty. These model acts
became law in Ohio, the Company's insurance subsidiaries' state of domicile, in
March 1996. The formula includes components for asset risk, liability risk,
interest rate exposure, and other factors. Each of the Company's insurance
subsidiaries exceed all required RBC levels as of December 31, 1996.
The tax considerations related to the life insurance subsidiary restrict the
amount of dividends that can be paid without incurring a tax. As of December 31,
1996, the Company's life insurance subsidiary could pay an aggregate of
$4,700,000 from shareholders' surplus without incurring a tax. As of December
31, 1996, ALIC could pay a dividend of $1,543,315 to ACCEL in 1997 without
approval of the Department of Insurance of the State of Ohio ("Ohio
Department"). ANIC would require Ohio Department approval to pay any dividend to
ACCEL during 1997.
For information regarding certain federal income tax limitations on dividends,
see "Note G" in the Notes to Consolidated Financial Statements.
(d) FINANCIAL INFORMATION ABOUT FOREIGN AND DOMESTIC OPERATIONS
AND EXPORT SALES
In 1982 the Company incorporated Dublin International Limited ("Dublin"), an
exempted Island of Nevis domiciled company. Dublin is a component in the
Company's relationship with Producer-owned reinsurance companies (see "Note F"
in the Notes to Consolidated Financial Statements).
In 1986 Acceleration Insurance Company, Ltd. ("AICL"), a wholly-owned subsidiary
organized by ACCEL and domiciled in the United Kingdom, received approval from
regulatory authorities to commence operations. From mid-1986 through 1992, AICL
offered specialty casualty products in the United Kingdom.
During 1995, the Company redeemed most of its shares of AICL, which resulted in
proceeds approximating the Company's original investment in AICL. The
transaction was approved by the Department of Trade and Insurance (United
Kingdom). On February 7, 1996, the Company received the final proceeds for
redemption of its remaining shares, and AICL will exist only for as long as it
takes to recover any taxes that may be refunded to it.
The assets and results of operations of these subsidiaries for the year ended
December 31, 1996 are not significant to the Company's consolidated financial
statements. See "Note M" in the Notes to Consolidated Financial Statements.
<PAGE>
ITEM 2. PROPERTIES
Since July 1981 the Company's executive offices have been located at 475 Metro
Place North, Dublin, Ohio. The four-story office building had been owned by ALIC
and consisted of approximately 80,000 square feet of office space.
On March 21, 1996, the building was sold by ALIC to an unrelated party for a
price of $3.5 million. The Company realized a pre-tax gain of $170,000 on this
sale. The Company remains in the building and occupies approximately 16,000
square feet of home office space under a five-year lease at an annual rental of
approximately $264,000. In late 1995 the Company began renting approximately
6,000 square feet of office space in Stafford, Texas, to house its executive
offices. The annual rental on the five-year lease approximates $70,000.
ITEM 3. LEGAL PROCEEDINGS
From time to time the Company is a party to litigation and arbitration
proceedings in the ordinary course of its business, none of which is expected to
have a material adverse effect on the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
<PAGE>
Part II
-------
ITEM 5. MARKET FOR ACCEL'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS
(a) ACCEL's common stock is traded over-the-counter National Market
Issues, under the NASDAQ symbol ACLE.
The following table sets forth the quarterly range of over-the-counter prices
for ACCEL's stock during the last two years. These prices have been adjusted for
common stock dividends and do not include retail mark-up, mark-down, or
commissions and do not always necessarily represent actual transactions.
1996 High Low 1995 High Low
---- ---- --- ---- ---- ---
4th Quarter $3.750 $2.375 4th Quarter $3.875 $2.375
3rd Quarter 3.250 2.375 3rd Quarter 4.875 2.750
2nd Quarter 3.750 2.500 2nd Quarter 3.125 2.000
1st Quarter 3.875 2.375 1st Quarter 2.875 1.750
(b) The approximate number of holders of record of ACCEL's common stock
($.10 par value) as of January 31, 1997, was 657 holders.
(c) Dividends paid on common stock:
1996 - -0- per share
1995 - -0- per share
Restrictions on present or future ability to pay dividends:
The Senior Notes issued December 29, 1995 (See "Note D" in the Notes to
Consolidated Financial Statements) contain certain covenants which restrict the
payment of dividends to not more than 50% of the cumulative consolidated net
income for the period from January 1, 1996 to and including the date of making
the dividend payment.
Since June 1992, ACCEL's Board of Directors have suspended payment of cash
dividends on the common stock until the Company returns to a level of
profitability which will sustain such payments.
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
<TABLE>
ACCEL INTERNATIONAL CORPORATION AND SUBSIDIARIES
<CAPTION>
1996** 1995** 1994** 1993** 1992
-------------------------------------------------------------------------
(Thousands of dollars, except per share data & ratios)
<S> <C> <C> <C> <C> <C>
Gross premiums written $ 58,412 $ 55,443 $ 60,504 $ 95,766 $ 122,101
Premiums ceded (12,860) (12,147) (12,495) (30,261) (45,116)
Net premiums written 45,552 43,296 48,009 65,505 76,985
Premiums earned 45,957 40,853 47,600 61,649 80,426
Net investment income:
Interest and dividends 4,416 6,488 6,678 8,397 11,831
Realized gains 484 455 808 1,336 701
Total revenue 57,820 50,475 57,519 74,810 96,043
Policy benefits 24,338 20,118 24,997 38,431 71,472
Income (loss) before taxes
and other items 1,779 (1,101) (4,905) (5,626) (25,075)
Cumulative effective of change in
accounting for income taxes - - - - (3,067)
Extraordinary item 131 - - - -
Net income (loss) 2,104 (1,460) (5,238) (5,281) (22,124)
Per common share*:
Cumulative effect of change in
accounting for income taxes - - - - (.69)
Net income (loss) .36 (.33) (1.18) (1.19) (4.98)
Cash dividends - - - - .07
At end of year:
Invested assets 74,841 63,297 98,189 126,590 139,244
Total assets 189,308 183,507 179,948 236,181 204,209
Policy reserves
and liabilities 107,083 104,852 106,936 146,257 90,616
Notes payable 15,000 22,531 18,462 18,847 22,000
Redeemable preferred stock - - - - 73
Common stockholders' equity 31,641 20,560 15,366 28,583 32,361
Return on average common
stockholders' equity 8.06 % (8.13)% (23.84)% (17.32)% (52.29)%
Book value per common share $ 3.68 $ 4.62 $ 3.46 $ 6.43 $ 7.28
<FN>
* Net income (loss) per common share is computed using the weighted average
number of common shares outstanding during the year after giving effect to
the preferred stock dividend requirement. The inclusion of common stock
equivalents (options) would not be dilutive.
** The 1996, 1995, 1994 and 1993 data reflects the adoption of the Financial
Accounting Standards Board's ("FASB") Statement No. 113, "Accounting and
Reporting for Reinsurance of Short-Duration and Long-Duration Contracts".
</FN>
</TABLE>
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Operating Results for the Three Years Ended December 31, 1996
- -------------------------------------------------------------
The Company's income before income taxes and extraordinary item for 1996 was
$1,779,000. This income was primarily the result of the recognition of
$4,291,085 of other income related to a legal settlement (see Discontinued
Realtors' Errors and Omissions Program under Certain Events). In 1996,
particularly in the first half, the Company continued to experience adverse loss
development on discontinued lines of business. Adverse development on
discontinued Farmowners and related lines amounted to $800,000. The Company's
new Property and Casualty products, in particular Commercial Auto, had a
positive underwriting result in 1996. The premium earned on this line has been
continuing to grow.
The loss before income taxes for 1995 was $1,101,000. This loss was primarily
driven by three factors; the foremost factor was adverse loss development on
discontinued property and casualty products. The adverse development aggregated
$2,400,000 which included a $1,200,000 year end reserve increase on the
discontinued REO product. The adverse development was partially offset by a
$500,000 favorable development on the discontinued medical business. The second
factor was the incurral of legal fees related to the REO program litigation
during 1995, including the Company's legal action against the entities involved
in the REO program. These actions caused the incurral of legal fees of $550,000
in 1995. Lastly, during 1995 the Company incurred approximately $350,000 in
severance expenses related to departed employees.
The loss before income taxes for 1994 was $4,905,000. A significant portion of
the 1994 loss was related to the write off of Galaxy ($3,829,000) and Galaxy's
first quarter loss ($205,000), for a total Galaxy loss of $4,034,000. In
addition, several discontinued property and casualty lines continued to show
adverse loss development in 1994, partially offset by positive results from the
credit and extended service contract product lines.
The Company made concerted efforts in the last three years to reduce general and
administrative expenses. General and administrative expenses have decreased by
4.2% in 1996 compared to 1995 and by 16.3% in 1995 compared to 1994. These
expense control initiatives have allowed the Company to concentrate on its
traditional profit producing lines of business (credit insurance and extended
service contracts) and to begin programs in selected Property & Casualty lines
in which the current management team has experience.
Table I on page 14 indicates changes in several key operating ratios for the
Company. The ratios in the table are consistent with the Company's premium
volume and product mix.
Revenue
- -------
Gross premium writings for 1996 were $58.4 million compared to $55.4 million for
1995. The increase in 1996 was primarily the result of increases in premium
levels related to the new lines of business. See Table II on page 15.
Gross premium writings for 1995 were $55.4 million compared to $60.5 million for
1994. The decrease in 1995 was primarily the result of decreases in premium
levels related to discontinued lines of business. See Table II on page 15.
The Company has also experienced decreases in net investment income, excluding
realized gains, since 1993. The decrease in 1994 was primarily attributable to a
decrease in invested assets due to the run off of discontinued lines of
business. The 1995 decrease was caused by the level of prevailing interest
rates. Proceeds from the Company's maturing investments were not able to be
reinvested at rates comparable to those on the maturing securities. The major
portion of the decrease in 1996 is attributable to a reinsurance treaty with an
unaffiliated party. Under the terms of this treaty, investment income credits
related to funds held are categorized as reinsurance expense recovery as opposed
to investment income.
The Company plans to concentrate its efforts on growing the credit, extended
service contract and the newly introduced property and casualty program product
lines.
<PAGE>
Liquidity and Capital Resources
- -------------------------------
The Company's cash flows from operations have generally been adequate for its
current operating needs. Cash flows from operating activities in 1995 were
adversely impacted by the reinsurance transaction dated December 29, 1995
described in "Note F" in the Notes to Consolidated Financial Statements. The
Company's credit insurance policy terms and related liabilities are generally
limited to a four-year period during which the consumer makes payments on the
loan. The Company's liability on extended service contracts typically extends
for either one-year or five-year periods. The Company's long haul trucking and
charter bus business generally is written for a term of one year with the
casualty claim related liabilities extending beyond that period. The Company,
therefore, maintains liquidity in its investment portfolio to correspond with
the liabilities outstanding on its lines of business. At December 31, 1996, the
estimated duration of the Company's fixed income investment portfolio was 3.0
years while the estimated liability duration was approximately 3.5 years.
Currently, an interest rate change of 1% would impact the fair value of the
fixed maturity portfolio and stockholders' equity by a decline of approximately
$2 million if interest rates rose and an increase of approximately $2 million if
interest rates declined.
The Company's "available for sale" fixed maturity securities at December 31,
1996 include $16.5 million of mortgage-backed securities; $16.0 million of
collateralized mortgage obligation securities and $8.2 million of asset-backed
collateralized securities. The mortgage and asset-backed securities are subject
to risks associated with variable prepayments. As such, those securities may
have a different actual maturity and yield than planned at the time of purchase.
The degree to which a security is susceptible to either gains or losses is
influenced by the difference between its amortized cost and par value, relative
sensitivity of the underlying mortgages to prepayment risk in a changing
interest rate environment and relative priority of the securities in the overall
securitization.
The Company limits the extent of its risks on fixed maturity securities by
generally avoiding securities whose cost significantly exceeds par, by
purchasing securities which are backed by stable collateral, and by
concentrating on securities that are either planned amortization or sequential
pay classes. The collateralized mortgage obligations and asset backed securities
owned have primarily short to intermediate average lives. At December 31, 1996,
the Company did not have a significant amount of higher risk mortgage or asset
backed securities. There are negligible default risks on the mortgage and asset
backed security portfolios as a whole as the vast majority of the assets are
either guaranteed by U. S. government-sponsored entities or are supported in the
securitization structure by junior securities enabling the assets to achieve
high investment grade status.
Ohio domiciled insurance companies are subject to Ohio law which regulates the
ability of insurance companies to pay dividends. The regulation limits the
annual dividend or distribution of an insurer to the greater of (1) net income
of the previous year or (2) 10% of unassigned surplus as of the end of the
previous year. In addition, all dividends must come from earned surplus to
qualify as a non-extraordinary dividend. Amounts greater than this would be
considered extraordinary dividends and could not be paid without permission of
the Ohio Department. Based on this regulation, ALIC could pay a dividend of
$1,543,315 without Ohio Department approval to ACCEL in 1997 and ANIC would
require Ohio Department approval to pay any dividend to ACCEL during 1997.
The Company's cash flow projections for 1996 assumed that certain events would
take place in order to have sufficient cash to meet its debt service and other
requirements. One of these events included the liquidation of AICL, which was
concluded in the first quarter of 1996. The Company will monitor its current and
future debt service requirements to coincide with cash flow availability. The
Company has used a portion of the proceeds from a Rights Offering and the
payment from a judgment entered in its favor in a legal proceeding (see Rights
Offering and Discontinued Realtor's Errors and Omissions Program under Certain
Events) to repay $4,296,000 in advances received in 1992 and 1993 from ACCEL's
subsidiaries. These outstanding advances were eliminated in consolidation.
On July 25, 1996, the Company commenced an offering of non-transferable rights
to stockholders of record as of June 18, 1996 (see Rights Offering under Certain
Events). The Rights Offering concluded on August 28, 1996 and generated
$3,261,780 in cash proceeds. A supplemental offering to employees, agents and
customers concluded on September 30, 1996 and generated $141,862 in cash
proceeds of which $113,355 had been received by the Company as of December 31,
1996. The cash proceeds from these offerings have been used to repay
intercompany advances ($2,647,000), for the redemption of Subordinated Notes
which were not tendered in the Rights Offering ($600,000) (see "Note D" in the
Notes to Consolidated Financial Statements), and for general corporate purposes.
<PAGE>
Also, under the provisions of the Rights Offering, the Company permitted Chase
Insurance Holdings Corporation ("CIHC") and its affiliates to tender the
principal amount of their Subordinated Notes (See "Note D" in the Notes to
Consolidated Financial Statements) for cancellation as consideration (in lieu of
cash) for the purchase of shares of common stock pursuant to the Rights
Offering. On August 23, 1996, CIHC and its affiliates tendered $5,619,046
principal amount of their Subordinated Notes plus an additional $83,759 of
accrued interest thereon under the terms of the Rights Offering. At the
conclusion of the offering, CIHC and its affiliate had reduced their holding of
Subordinated Notes to $0.
In a separate transaction, ACCEL retired $731,533 principal amount of
Subordinated Notes held by an unrelated third party for consideration of
$600,000. ACCEL recognized an extraordinary gain on this transaction of
$131,533. No federal income tax was recognized related to this gain due to the
current consolidated tax position of the Company. The result of the two
aforementioned transactions was to retire all outstanding Subordinated Notes.
On December 29, 1995, the Company issued new senior notes (the "Senior Notes")
totaling $16,500,000 at 9.50%, maturing on April 1, 2001. The proceeds from
these notes were used to retire the loan outstanding under an existing credit
agreement (see "Note D" in the Notes to Consolidated Financial Statements) and
to liquidate an intercompany loan between ACCEL and an insurance company
subsidiary. In addition, as of January 1, 1996, ALIC entered into a reinsurance
agreement with an unaffiliated company to reinsure its in-force credit business.
The Senior Notes are payable to the same unaffiliated company which is a party
to the reinsurance agreement dated January 1, 1996. This agreement is structured
such, that as future profits emerge on this block of business, these profits are
held by the reinsurance company, and ultimately applied to pay interest on and
to redeem the Senior Notes. Profits in excess of the amount required to retire
the Senior Notes are to be returned to ALIC. As of December 31, 1996, $1,500,000
of the profits on this block of business were released to ALIC in the form of
the aforementioned Senior Notes issued by ACCEL. This release resulted in a
balance of $15,000,000 of Senior Notes outstanding as of December 31, 1996.
ACCEL's Board of Directors approved an Employee Stock Ownership Plan ("ESOP")
during 1989. In 1990, the ESOP entered into an agreement with ALIC to borrow up
to $1,000,000 for the purchase of ACCEL's common stock. Company contributions
into the ESOP have been used to pay down the loan from ALIC and release shares
into the participants' accounts as the Company's matching contribution. The ESOP
purchased 136,887 shares (adjusted for the 1990 5% common stock dividend) under
this loan agreement with ALIC at a cost of $1,000,000. In addition to the shares
purchased under the loan agreement, the ESOP purchased 90,088 common shares at a
cost of $603,000. The loan bears interest at 10%.
At December 31, 1995, the loan had an unpaid balance of $525,239. The market
value of the underlying shares was $161,000. The Company revalued this loan to
market value as of December 31, 1995 to allow for the release of shares to
participants' accounts at an average price which more closely approximated
recent market values on the Company's common stock. The decrease in the loan in
1995 was reflected through a decrease in additional paid-in capital in the
accompanying consolidated balance sheets. The unpaid balance of the loan
($32,000 at December 31, 1996) has been reflected as a reduction in common
stockholders' equity in the accompanying consolidated balance sheets.
During 1996, 1995 and 1994, the Company incurred ESOP contribution expenses of
$187,000, $198,000 and $178,000, respectively.
The Company currently has three material lines of business that are in run-off
status: the REO line, the farmowner's multi-peril and ancillary inland marine
products and the auto dealers' commercial multi-peril line. Also, for
information regarding Galaxy, see "Note K" in the Notes to Consolidated
Financial Statements.
The estimates for policy reserves are continually under review and adjusted as
necessary as experience develops or new information becomes known; such
adjustments are included in current operations. These liabilities are
necessarily subject to the impact of future changes in claim severity, frequency
and other factors. Although considerable variability is inherent in such
estimates, based on recent evaluations management believes that the current
level of policy reserves will be adequate to cover anticipated claim
liabilities. Accordingly, the ultimate amounts required for settlement of policy
benefits may vary significantly from the amounts included in the accompanying
consolidated financial statements.
<PAGE>
The Company has reviewed Financial Accounting Standards Board ("FASB") Statement
No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of" which became effective in 1996, and has determined
this FASB statement will not impact the Company. The Company has also reviewed
FASB Statement No. 123, "Accounting for Stock-Based Compensation" ("FASB 123")
which became effective in 1996. The Company has elected to disclose the impact
of FASB 123 in the Notes to the Consolidated Financial Statements and not adopt
the statement for financial statement reporting as permitted by FASB 123. The
Company has also reviewed FASB Statement No. 125, "Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of Liabilities" which becomes
effective in 1997, and does not expect this FASB statement to have a material
impact on the financial condition of the Company.
Although the cumulative effects of inflation on premium growth cannot be fully
determined, increases in the retail price of automobiles have generally resulted
in increased amounts being financed which constitute the basis of premiums
charged for credit insurance. Anticipated increases in automobile repairs also
provide the primary basis for increases in extended service contract premium
rates.
Certain Events
- --------------
Rights Offering: On July 25, 1996, the Company commenced a Rights Offering to
stockholders of record as of June 18, 1996. The non-transferable subscription
rights entitled stockholders of record to receive one right for each share of
stock held and each right entitled the holder thereof to purchase one and
one-half shares of the common stock of the Company at a subscription price of
$2.25 per share. The rights expired on August 28, 1996. No commission or
compensation was paid in connection with the Rights Offering. As part of the
Rights Offering, the Company permitted the outstanding Subordinated Notes held
by CIHC and its affiliates to be tendered for cancellation as consideration (in
lieu of cash) for the purchase of shares of common stock pursuant to the Rights
Offering.
A total of 3,984,260 shares were subscribed for under the Rights Offering. Total
consideration of $8,964,585 consisted of $5,702,805 in Subordinated Notes and
$3,261,780 in cash.
Subsequent to the Rights Offering, the Company commenced a Supplemental Offering
to employees, agents and customers which concluded on September 30, 1996. Shares
were offered under this Supplemental Offering at $2.25 per share. A total of
63,050 shares were subscribed for under this offering. No soliciting fees or
other compensation were paid in connection with such offering. The net cash
proceeds from these offerings have been used to repay intercompany advances
($2,647,000), for the redemption of Subordinated Notes which were not tendered
in the Rights Offering ($600,000) and for general corporate purposes.
Write Off of Investment In RGL and Galaxy: During December 1986, ACCEL invested
$1,370,000 (a 20% interest) in RGL. Galaxy, a wholly owned subsidiary of RGL,
was writing commercial property insurance, property and casualty, and assumed
treaty reinsurance.
During the second quarter of 1991, the Company purchased 11,000 additional
common shares of RGL at a cost of $992,000. The additional investment increased
the Company's ownership to 31% at June 30, 1991. In July 1991, the Company
purchased the remaining 69% of RGL for cash and Subordinated Notes (see "Note D"
in the Notes to Consolidated Financial Statements) of $2.1 million and $5.8
million, respectively. The purchase price included goodwill of $1.2 million, of
which the outstanding balance was written off in 1993.
Members of CIHC held a 45% interest in RGL prior to the acquisition by ACCEL.
For the three years ended December 31, 1993, RGL recorded losses and Galaxy's
underwriting results deteriorated, resulting in the New York Department of
Insurance ("New York Department") placing a moratorium on all new business as of
February 28, 1994. Due to significant loss development during 1994 on Galaxy's
liability lines of business, the Company contracted with an independent
actuarial consultant to review the adequacy of Galaxy's loss and LAE reserves as
of June 30, 1994. The findings of this review indicated the need for additional
reserves which resulted in the statutory insolvency of Galaxy at June 30, 1994.
Statutory capital and surplus after the reserve strengthening was a negative
$2.3 million.
<PAGE>
Due to the significance of the statutory loss and the loss of the Company's
control of Galaxy as a result of the insolvency, the Company wrote off its
investment in RGL ($3.8 million) during the second quarter of 1994. As a result
of this action, the consolidated results of operations for 1994 include a charge
to operations of $3.8 million, representing the Company's net investment in
Galaxy as of April 1, 1994, in addition to operating losses of $205,000 incurred
during the first quarter. The Company wrote down its investment in RGL to zero
and deconsolidated RGL as of April 1, 1994.
Pursuant to an Order of Liquidation dated October 7, 1994, issued by the Supreme
Court of the State of New York, the Liquidation Bureau of the New York
Department took control of Galaxy on October 11, 1994.
Claims Asserted by Liquidation Bureau under Certificates of Suretyship: On
October 7, 1994, the Liquidation Bureau of the New York Department (the
"Liquidation Bureau") took control of Galaxy pursuant to an order of liquidation
of the New York Supreme Court. Prior to the liquidation of Galaxy, ANIC had
issued certain certificates of suretyship ("Certificates") with respect to
certain Galaxy insurance policies each of which provided that ANIC would assume
the responsibilities of Galaxy under the specified policy if Galaxy became
insolvent or financially unable to meet its obligations on the underlying
policy, but only if certain conditions were met. In particular, the Certificates
provided that ANIC's assumption of liability was contingent upon the insured's
executing and delivering all agreements, assignments or evidences of subrogation
satisfactory to ANIC respecting payments made or liabilities assumed.
During 1996, the Liquidation Bureau, acting on behalf of the New York
Property/Casualty Insurance Security Funds (the "Guaranty Fund"), informally
advised the Company that on behalf of the Guaranty Fund it intended to seek
indemnification or reimbursement from ANIC for claims paid by the Guaranty Fund
to Galaxy insureds on policies which may have been covered by the Certificates.
The Liquidation Bureau has provided some information in response to the
Company's request for accounting data and other information with respect to the
Liquidation Bureau's analysis of the Guaranty Fund's right to indemnification;
however, the Company has not been able to evaluate or quantify the magnitude of
the potential claim, if any, for indemnification or reimbursement. The Company
has taken the position that the Guaranty Fund has no right to seek
indemnification unless Galaxy insureds who hold properly issued Certificates
have executed assignments and evidences of subrogation. Even if any Galaxy
insureds properly made such a claim directly to ANIC, the Company has been
advised by its legal counsel that if ANIC paid any such claim, it would have the
right, under assignment and subrogation agreements with its insureds, to assert
all rights that the insureds could have asserted to recover the loss amounts
from any other source, including the Guaranty Fund. In early 1997, the
Liquidation Bureau requested of Companys' counsel the basis for the position
taken by the Company. A written analysis supporting Company's position was
subsequently issued to the Liquidation Bureau.
The Company intends to vigorously defend any claims for indemnification or
reimbursement made by the Liquidation Bureau, on behalf of the Guaranty Fund,
with respect to the Certificates. Although the Company is not in a position to
estimate the magnitude of the potential claims for indemnification or
reimbursement, it does not believe that the ultimate resolution of such claims
will have a material adverse effect on the financial condition or results of
operations of the Company.
Discontinued Realtors' Errors and Omissions Program: As a result of the losses
sustained in the REO program, and in particular, conduct discovered by the
Company after it assumed responsibility for claims processing and handling, the
Company filed suit in November 1991 against the non-affiliated marketing
organization and broker involved in the program.
The lawsuit sought to recover funds improperly withdrawn from the account
established for the payment of claims under the program; for damages due to
business expenses improperly charged against such funds; and for improper
administration of the program. ACCEL and ANIC entered into an arrangement
whereby ANIC's rights under the lawsuit were transferred to ACCEL in exchange
for a $4,000,000 collateral loan issued to ANIC which was recorded as a capital
contribution. The transaction and related agreements were approved by the Ohio
Department. The loan agreement and accompanying promissory note called for
interest at the 13 week Treasury Bill rate plus 100 basis points. The principal
of $4,000,000 was paid in full on December 29, 1995.
In late 1995, ACCEL was awarded $5,300,000 in damages related to this
litigation. Pursuant to settlements reached with all of the parties, ACCEL
received a total of $4,291,085 in 1996. With the approval of the Ohio
Department, the proceeds from the settlement were shared equally between ACCEL
and ANIC. The Company requested the sharing agreement due to the continuing
losses in the REO program realized by ANIC since 1991. The Company has recorded
the recovery as "Other income" in the accompanying consolidated statement of
operations for the year ended December 31, 1996.
<PAGE>
TABLE I
Several key operating ratios of the Company are as follows:
Consolidated Results
-------------------------------------
(Thousands of dollars, except ratios)
1996 1995 1994
--------- --------- ---------
Gross premiums written $ 58,412 $ 55,443 $ 60,504
========= ========= =========
Net premiums earned $ 45,957 $ 40,853 $ 47,600
========= ========= =========
RATIOS:
Policy benefits to net premiums earned 53.0% 49.2% 52.5%
Commissions and selling expenses and
general and administrative expenses
to gross premiums written 50.7% 57.0% 52.3%
Commissions and selling expenses,
reinsurance expense recovery
and change in deferred policy
acquisition costs to net premiums
earned 44.3% 49.3% 43.6%
Taxes, licenses and fees to gross
premiums written 3.2% 3.1% 3.1%
<PAGE>
<TABLE>
TABLE II
Changes in Gross Premiums Written
Year Ended December 31
(Thousands of dollars, except ratios)
<CAPTION>
1996 1995
vs. % vs. %
Gross Premiums Written 1996 1995 1994 1995 Change 1994 Change
===================================== ===========================================================================================
<S> <C> <C> <C> <C> <C> <C> <C>
Continuing lines of business:
Credit $ 34,126 $ 42,338 $ 43,905 $ (8,212) (19.4)% $ (1,567) (3.6)%
Extended service contracts 8,375 7,777 8,221 598 7.7 % (444) (5.4)%
Commercial auto 13,793 - - 13,793 N/A - -
Other property/casualty lines 118 58 42 60 103.4 % 16 38.1 %
--------- --------- ---------- --------- ---------- ---------- ------------
Total continuing lines 56,412 50,173 52,168 6,239 12.4 % (1,995) (3.8)%
--------- --------- ---------- --------- ---------- ---------- ------------
Discontinued lines of business:
Medical and miscellaneous
life and health 642 776 1,751 (134) (17.3)% (975) (55.7)%
Vendor's single interest (59) (798) (5,451) 739 92.6 % 4,653 (85.4)%
Agriculture, REO and other
property & casualty 362 5,292 10,091 (4,930) (93.2)% (4,799) (47.6)%
Commercial multi-peril 1,055 - - 1,055 N/A - -
Galaxy Insurance Company - - 1,945 - - (1,945) (100.0)%
--------- --------- ---------- --------- ---------- ---------- ------------
Total discontinued lines 2,000 5,270 8,336 (3,270) (62.0)% (3,066) (36.8)%
--------- --------- ---------- --------- ---------- ---------- ------------
Gross premiums written $ 58,412 $ 55,443 $ 60,504 $ 2,969 5.4 % $ (5,061) (8.4)%
========= ========= ========== ========= ========== ========== ============
</TABLE>
<PAGE>
ANNUAL REPORT ON FORM 10-K
ITEM 8, ITEM 14 (a) (1) and (2), (c) and (d)
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
LIST OF FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES
CERTAIN EXHIBITS
FINANCIAL STATEMENT SCHEDULES
YEAR ENDED DECEMBER 31, 1996
ACCEL INTERNATIONAL CORPORATION
DUBLIN, OHIO
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
ACCEL International Corporation:
We have audited the consolidated financial statements of ACCEL International
Corporation and subsidiaries (the Company) as listed in the accompanying index.
In connection with our audits of the consolidated financial statements, we also
have audited the financial statement schedules as listed in the accompanying
index. These consolidated financial statements and financial statement schedules
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these consolidated financial statements and financial
statement schedules 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 consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of ACCEL
International Corporation and subsidiaries as of December 31, 1996 and 1995, and
the consolidated results of their operations and their cash flows for each of
the years in the three-year period ended December 31, 1996, in conformity with
generally accepted accounting principles. Also in our opinion, the related
financial statement schedules when considered in relation to the basic
consolidated financial statements taken as a whole, present fairly, in all
material respects, the information set forth therein.
KPMG Peat Marwick LLP
Columbus, Ohio
March 14, 1997
<PAGE>
ACCEL INTERNATIONAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31,
1996 1995
--------- ---------
(Thousands of dollars)
ASSETS
Investments--Notes B and F:
Investments available for sale, at fair value:
Fixed maturities (cost: 1996--$58,889,000;
1995--$53,427,000) $ 58,281 $ 53,204
Equity securities (cost: 1996--$5,514,000;
1995--$5,433,000) 5,511 5,451
Short-term investments
(cost: 1996--$10,670,000; 1995--$4,278,000) 10,703 4,278
Other invested assets at cost
(fair value: 1996--$346,000; 1995--$364,000) 346 364
--------- ---------
74,841 63,297
Cash 3,331 5,039
Receivables:
Premiums in process of transmittal--Note E, less
allowance (1996--$223,000; 1995--$154,000) 7,286 1,779
Amounts due from reinsurers--Note F,
less allowance (1996 and 1995--$125,000) 11,138 9,119
Recoverable federal income taxes--Note G 1,019 70
--------- ---------
19,443 10,968
Accrued investment income 652 557
Prepaid reinsurance premiums--Note F 15,036 14,895
Reinsurance premium deposits--Note F 42,615 51,634
Deferred policy acquisition costs 30,946 31,839
Equipment--at cost, less accumulated
depreciation (1996--$162,000; 1995--$564,000) 231 187
Leasehold improvements, less accumulated amortization
(1996--$26,000) 152 -
Property occupied by the Company--at cost, less
accumulated depreciation
(1995--$2,382,000) - 3,167
Other assets:
Cost in excess of fair value of net assets of
subsidiaries at dates of acquisition ($4,448,000)
less accumulated amortization 716 822
Funds held under reinsurance agreements--Note F 406 829
Other 939 273
--------- ---------
2,061 1,924
--------- ---------
$189,308 $183,507
========= =========
(Continued)
<PAGE>
ACCEL INTERNATIONAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS--(CONTINUED)
December 31,
1996 1995
--------- ---------
(Thousands of dollars)
LIABILITIES AND COMMON STOCKHOLDERS' EQUITY
Policy Reserves and Liabilities:
Unearned premium reserves--Note F $ 81,820 $ 82,080
Insurance claims--Notes F and H 25,256 22,761
Other 7 11
--------- ---------
107,083 104,852
Other Liabilities:
Funds held under reinsurance agreements--Note F 2,920 3,072
Deferred reinsurance commissions--Note F 13,902 15,663
Amounts due reinsurers--Note F 6,133 4,442
Notes payable--Notes D and F 15,000 22,531
Commissions payable 5,163 5,010
Accounts payable and other liabilities 2,788 2,353
Deferred federal income taxes--Note G 4,678 5,024
--------- ---------
50,584 58,095
--------- ---------
157,667 162,947
--------- ---------
Commitments and Contingencies--Notes F and N
Redeemable Preferred Stock:
Authorized shares--1,000,000;
no issued or outstanding shares - -
Common stockholders' equity--Notes C, D, G, I and P:
Common stock, $.10 par value
Authorized shares (1996--15,000,000;
1995--10,000,000)
Issued shares (1996--9,401,162;
1995--5,243,852) 940 524
Additional paid-in capital 32,507 23,702
Retained earnings 5,403 3,299
Less 797,420 treasury shares at cost (6,599) (6,599)
ESOP loan--Note L (32) (161)
Net unrealized depreciation on investment
securities--Note B (578) (205)
--------- ---------
Net common stockholders' equity 31,641 20,560
--------- ---------
$189,308 $183,507
========= =========
See notes to consolidated financial statements.
<PAGE>
ACCEL INTERNATIONAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Year Ended December 31,
1996 1995 1994
------------------ ------------------- ------------------
(Thousands of dollars, except per share data)
<S> <C> <C> <C>
REVENUE:
Gross premiums written--Notes E and F $ 58,412 $ 55,443 $ 60,504
Less reinsurance ceded--Note F 12,860 12,147 12,495
------------------ ------------------- ------------------
Net premiums written 45,552 43,296 48,009
Decrease (increase) in unearned premium reserves 405 (2,443) (409)
------------------ ------------------- ------------------
Premiums earned--Note F 45,957 40,853 47,600
Net investment income--Note B:
Interest and dividends 4,416 6,488 6,678
Realized gains 484 455 808
Service fees on extended service
contracts 2,450 2,137 2,063
Other income--Note S 4,513 542 370
------------------ ------------------- ------------------
57,820 50,475 57,519
BENEFITS AND EXPENSES:
Policy benefits--Notes F and H 24,338 20,118 24,997
Commissions and selling expenses 22,145 23,780 22,296
Reinsurance expense recovery--Note F (2,670) (2,880) (3,611)
General and administrative 7,486 7,817 9,336
Taxes, licenses and fees 1,880 1,743 1,903
Interest--Note D 1,969 1,748 1,589
Decrease (increase) in deferred policy
acquisition costs 893 (750) 2,085
Write off of subsidiary--Note K - - 3,829
------------------ ------------------- ------------------
56,041 51,576 62,424
------------------ ------------------- ------------------
INCOME (LOSS) BEFORE FEDERAL INCOME
TAXES AND EXTRAORDINARY ITEM 1,779 (1,101) (4,905)
Federal income taxes--Note G:
Current expense 152 273 219
Deferred expense (benefit) (346) 86 114
------------------ ------------------- ------------------
(194) 359 333
------------------ ------------------- ------------------
INCOME (LOSS) BEFORE EXTRAORDINARY
ITEM 1,973 (1,460) (5,238)
Extraordinary item--gain on
extinguishment of debt--Note D 131 - -
------------------ ------------------- ------------------
NET INCOME (LOSS) $ 2,104 $ (1,460) $ (5,238)
================== =================== ==================
Per Common Share:
Net income (loss) before extraordinary item $ 0.34 $ (0.33) $ (1.18)
Extraordinary item .02 - -
------------------ ------------------- ------------------
Net income (loss)
$ 0.36 $ (0.33) $ (1.18)
================== =================== ==================
Weighted average number of common
shares outstanding 5,904,398 4,446,432 4,446,432
================== =================== ==================
<FN>
See notes to consolidated financial statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
ACCEL INTERNATIONAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMMON STOCKHOLDERS' EQUITY
Three Years Ended December 31, 1996
(Thousands of dollars)
<CAPTION>
Net
unrealized
appreciation
Common (depreci- Foreign
Additional stock ation) on currency
Common paid-in Retained held in ESOP investment translation
stock capital earnings treasury loan securities adjustments Total
----- ------- -------- -------- ----- ---------- ----------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balances at December 31, 1993 $ 524 $ 24,066 $ 9,997 $ (6,599) $ (720) $ 1,496 $ (181) $ 28,583
Payments on ESOP loan - - - - 93 - - 93
Change in net unrealized
depreciation on
investment securities - - - - - (8,168) - (8,168)
Change in foreign currency
translation adjustment - - - - - - 96 96
Net loss - - (5,238) - - - - (5,238)
------- ------- ------- ------- ------- ------- ------- -------
Balances at December 31, 1994 524 24,066 4,759 (6,599) (627) (6,672) (85) 15,366
Payments on and write down
of ESOP loan--Note L - (364) - - 466 - - 102
Change in net unrealized
depreciation on
investment securities - - - - - 6,467 - 6,467
Change in foreign currency
translation adjustment - - - - - - 85 85
Net loss - - (1,460) - - - - (1,460)
------- ------- ------- ------- ------- ------- ------- -------
Balances at December 31, 1995 524 23,702 3,299 (6,599) (161) (205) - 20,560
Payments on ESOP loan - - - - 129 - - 129
Change in net unrealized
depreciation on
investment securities - - - - - (373) - (373)
Issuance of 110,000 shares of
Common Stock under Common
Stock Option Plan--Note I 11 223 - - - - - 234
Issuance of 4,047,310 shares of
Common Stock in conjunction
with the Rights Offering and
the Supplemental Offering 405 8,582 - - - - - 8,987
Net income - - 2,104 - - - - 2,104
------- ------- ------- ------- ------- ------- ------- -------
Balances at December 31, 1996 $ 940 $32,507 $ 5,403 $(6,599) $ (32) $ (578) - $31,641
======= ======= ======= ======= ======= ======= ======= =======
<FN>
See notes to unaudited consolidated financial statements.
</FN>
</TABLE>
<PAGE>
ACCEL INTERNATIONAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year Ended December 31,
1996 1995 1994
------------ ------------ ------------
(Thousands of dollars)
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net income (loss) before extraordinary item $ 1,973 $ (1,460) $ (5,238)
Adjustments to reconcile net income (loss) to net
cash used in operating activities:
Change in premiums receivable (5,576) 1,789 3,266
Change in accrued investment income (95) 250 191
Change in prepaid reinsurance premiums (141) 3,812 9,208
Change in funds held under reinsurance
agreements 271 (292) (1,196)
Change in unearned premium reserves (260) (1,682) (7,449)
Change in insurance claim reserves 2,495 (398) (12,435)
Change in amounts due reinsurers
and amounts due from reinsurers (1,828) (3,310) 7,298
Change in other assets, other liabilities
and accured income taxes (1,463) 1,683 (860)
Interest paid in kind 403 569 515
Accrual of discount on bonds (234) (461) (128)
Amortization of premium on bonds 101 172 116
Amortization of deferred policy acquisition
costs 20,290 20,743 24,414
Policy acquisition costs deferred (19,397) (21,493) (22,329)
Reinsurance commissions earned (33,645) (13,329) (12,763)
Reinsurance commissions received 31,884 11,162 11,708
Provision for depreciation and amortization 286 412 528
Write off of subsidiary - - 3,829
Net realized gains on investments (484) (455) (808)
------------ ------------ ------------
NET CASH USED IN OPERATING ACTIVITIES
BEFORE EXTRAORDINARY ITEM (5,420) (2,288) (2,133)
Extraordinary gain 131 - -
------------ ------------ ------------
NET CASH USED IN OPERATING ACTIVITIES (5,289) (2,288) (2,133)
------------ ------------ ------------
(Continued)
</TABLE>
<PAGE>
ACCEL INTERNATIONAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS--(CONTINUED)
<TABLE>
<CAPTION>
Year Ended December 31,
1996 1995 1994
------------ ------------ ------------
(Thousands of dollars)
<S> <C> <C> <C>
INVESTING ACTIVITIES:
Sale of investments available for sale 16,219 49,159 38,103
Purchase of investments available for sale (27,665) (7,067) (35,574)
Sale of property occupied by the Company 3,298 - -
Other, net (337) (122) (59)
------------ ------------ -----------
NET CASH (USED IN) PROVIDED BY INVESTING ACTIVITIES (8,485) 41,970 2,470
------------ ------------ -----------
FINANCING ACTIVITIES:
Payment on ESOP loan 129 102 93
Repayment of notes payable (600) (13,000) -
Issuance of notes payable - 16,500 -
Debentures redeemed - - (900)
Issuance of Common Stock under Stock Option Plan 234 - -
Issuance of Common Stock under Rights Offering 3,284 - -
Change in reinsurance premium deposit 9,019 (39,289) (1,251)
------------ ------------ -----------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES 12,066 (35,687) (2,058)
------------ ------------ -----------
NET INCREASE (DECREASE) IN CASH (1,708) 3,995 (1,721)
Cash at beginning of year 5,039 1,044 2,765
------------ ------------ -----------
CASH AT END OF YEAR $ 3,331 $ 5,039 $ 1,044
============ ============ ===========
Supplemental schedule of non-cash financing activities:
Cancellation of Subordinated Notes as consideration
for the purchase of Common Stock--Note D $ 5,703 - -
============ ============ ===========
Transfer of note payable to subsidiary--Note D $ 1,500 - -
============ ============ ===========
<FN>
See notes to consolidated financial statements.
</FN>
</TABLE>
<PAGE>
ACCEL INTERNATIONAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1996, 1995 and 1994
NOTE A--SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation: The accompanying consolidated financial statements of
ACCEL International Corporation ("ACCEL") and subsidiaries (collectively
referred to herein as the "Company") have been prepared in accordance with
generally accepted accounting principles which, as to the insurance company
subsidiaries, differ in some respects from statutory accounting practices
prescribed or permitted by state insurance departments. The significant
accounting policies followed by the Company that materially affect financial
reporting are summarized below.
Principles of Consolidation: The accompanying consolidated financial statements
include the accounts of ACCEL and its wholly-owned subsidiaries, except for
Randjill Group Ltd. ("RGL") (see Note K). All significant intercompany accounts
and transactions have been eliminated in the consolidated financial statements.
Description of Business: ACCEL is an insurance holding company incorporated in
Delaware in June 1978 as the successor to an Ohio corporation, formerly
Acceleration Corporation, organized in 1969. The Company has been engaged in the
sale and underwriting of credit life and credit accident and health insurance,
extended service contracts, commercial auto and other specialty casualty
products. The credit insurance and extended service contract products continue
to be offered to consumers, principally through automobile dealers, financial
institutions and other business entities. The specialty casualty products are
offered through general agents. The Company is subject to competition from other
insurers throughout the states in which it writes business. The Company is also
subject to regulation by the Insurance Departments of states in which it is
licensed, and undergoes periodic examinations by those departments.
The following is a description of the most significant risks facing life and
health and property/casualty insurers and how the Company mitigates those risks:
Legal/Regulatory Risk is the risk that changes in the legal or regulatory
environment in which an insurer operates will create additional expenses
not anticipated by the insurer in pricing its products. That is, regulatory
initiatives, new legal theories or insurance company insolvencies through
guaranty fund assessments may create costs for the insurer beyond those
currently recorded in the consolidated financial statements. The Company
mitigates this risk by operating throughout the United States, thus
reducing its exposure to any single jurisdiction, and also by employing
underwriting and loss adjusting practices which identify and minimize the
adverse impact of this risk.
Credit Risk is the risk that issuers of securities owned by the Company
will default or that other parties, including reinsurers, which owe the
Company money, will not pay. The Company minimizes this risk by adhering to
a conservative investment strategy, by maintaining reinsurance and credit
and collection policies and by providing for any amounts deemed
uncollectible.
Interest Rate Risk is the risk that interest rates will change and cause a
decrease in the value of an insurer's investments. The Company mitigates
this risk by attempting to match the maturity schedule of its assets with
the expected payouts of its liabilities. To the extent that liabilities
come due more quickly than assets mature, an insurer would have to borrow
funds or sell assets prior to maturity and potentially recognize a gain or
loss.
Accounting Estimates: In preparing the consolidated financial statements,
management is required to make estimates and assumptions that affect the
reported amounts of assets and liabilities and the disclosures of contingent
assets and liabilities as of the date of the consolidated financial statements
and revenues and expenses for the reporting period. Actual results could differ
significantly from those estimates.
The most significant estimates include those used in determining deferred policy
acquisition costs and the liability for unearned premium reserves and insurance
claims. Although some variability is inherent in these estimates, management
believes the amounts provided are adequate. The estimates are continually
reviewed and adjusted as necessary. Such adjustments are generally reflected in
current operations.
<PAGE>
ACCEL INTERNATIONAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(CONTINUED)
NOTE A--SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
Investments: The Company classifies its fixed maturity and equity securities as
available for sale, therefore these securities are carried at fair value and the
unrealized appreciation or depreciation is reported as a separate component of
common stockholders' equity after giving effect to applicable income taxes.
Short-term investments, which include U. S. Treasury securities, commercial
paper and certificates of deposit are carried at fair value which approximates
cost.
Other invested assets are carried at cost which approximates fair value.
Realized gains and losses on the disposal of investments are determined by
specific identification and are included in the consolidated statements of
operations.
When an other than temporary decline in value is recognized, the specific
investment is carried at estimated realizable value and its original book value
is reduced to reflect such impairment of the investment. Such reductions in book
value are reflected in realized investment losses for the period in which they
were written down. For mortgage backed securities, when the present value of
estimated future cash flows discounted at a risk-free rate of return is less
than the cost basis of the investment, an impairment loss is recognized by
writing the investment down to its fair value.
Fair Values of Financial Instruments: The fair value of a financial instrument
is the amount at which the financial instrument could be exchanged in a current
transaction between willing parties. In cases where quoted market prices are not
available, fair value is based on estimates using present value or other
valuation techniques.
These techniques are significantly affected by the assumptions used, including
the discount rate and estimates of future cash flows. Although fair value
estimates are calculated using assumptions that management believes are
appropriate, changes in assumptions could cause these estimates to vary
materially. In that regard, the derived fair value estimates cannot be
substantiated by comparison to independent markets and, in many cases, could not
be realized in the immediate settlement of the instruments. The disclosure
requirements related to financial instruments exclude certain assets and
liabilities. Accordingly, the aggregate fair value amounts presented do not
represent the underlying value of the Company.
The tax ramifications of the related unrealized gains and losses may have a
significant effect on fair value estimates and have not been considered in the
estimates.
The carrying amounts reported in the consolidated balance sheets for cash,
short-term investments, accrued investment income, premiums in process of
transmittal, and amounts due from reinsurers approximate their fair value.
Fair value for fixed maturity, equity and asset and mortgage backed securities
are based on quoted market prices, where available. If quoted market prices are
not available, fair values are based on quoted market prices of comparable
instruments at amortized value (see Note B).
The fair value of notes payable is estimated using discounted cash flow
analyses, based on ACCEL's current incremental borrowing rates for similar types
of borrowing arrangements (see Note G).
Deferred Policy Acquisition Costs: The costs (principally commissions and
certain expenses of policy issuance) of acquiring or renewing insurance
business, all of which vary with and are directly related to the production of
business, have been deferred. These deferred policy acquisition costs are
amortized in a manner related to the recognition of premiums earned.
Substantially all such deferred costs are amortized within a four-year period.
Anticipated investment income is considered in determining recoverability of
deferred costs.
<PAGE>
ACCEL INTERNATIONAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(CONTINUED)
NOTE A--SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
Equipment and Depreciation: Equipment is carried at cost less accumulated
depreciation. Depreciation is provided using the straight-line method over an
estimated useful asset life of five years.
Leasehold Improvements: Leasehold improvements are carried at cost less
accumulated amortization. Amortization is provided using the straight-line
method over the term of the five year lease.
Property Occupied by Company: Home office property is carried at cost less
accumulated depreciation. Depreciation is provided using the straight-line
method over an estimated life of thirty-five years.
Goodwill Amortization: Cost in excess of fair value of net assets of
subsidiaries at dates of acquisition is being amortized primarily over a
thirty-five year period. It is the Company's policy to account for goodwill at
the lower of amortized cost or fair value. On an ongoing basis, management
reviews the valuation and amortization of its goodwill.
Premium Income Recognition and Unearned Premium Reserves: Unearned premium
reserves on credit life and credit accident and health insurance are calculated
primarily under the "Rule of 78's Method", which results in premium income being
recognized in decreasing proportions over the terms of the policies, which
approximates the pattern of policy benefits incurred.
Unearned premium reserves on the extended service contracts are based on the
historical emergence pattern of claims. The Company's primary liability on new
car contracts exists subsequent to the expiration of manufacturers' warranties.
This method results in premium being recognized in direct proportion to the
emergence of benefits on these contracts.
Unearned premium reserves on property and casualty products are calculated on
the pro rata method.
Insurance Claims: The liabilities for insurance claims are determined using
statistical analyses and represent estimates of the ultimate net cost of all
reported and unreported claims that are unpaid at year end. Considerable
variability is inherent in such estimates and actual results will likely differ
from those estimates.
Federal Income Taxes: ACCEL and its subsidiaries file a consolidated federal
income tax return. The provision for income taxes is based on income for
financial reporting purposes, after permanent differences. Deferred tax assets
and liabilities are recognized for the future tax consequences attributable to
differences between the financial statement carrying amounts of existing assets
and liabilities and their respective tax bases and operating loss and tax credit
carryforwards. Deferred tax assets and liabilities are measured using enacted
tax rates expected to apply to taxable income in the years in which those
temporary differences are expected to be recovered or settled. Under this
method, the effect on deferred tax assets and liabilities of a change in tax
rates is recognized in income in the period that includes the enactment date.
Valuation allowances are established when necessary to reduce the deferred tax
assets to the amounts expected to be realized.
Reinsurance: Reinsurance premiums ceded and reinsurance recoveries on policy
benefits incurred are deducted from the respective income and expense accounts.
Assets and liabilities related to reinsurance ceded are reported on a gross
basis. Amounts related to reinsurance contracts, where it is not reasonably
possible for the reinsurer to realize a significant loss, are recorded based on
the deposit accounting method.
Deferred Reinsurance Commissions: Commissions and ceding fees received in
connection with premiums ceded are deferred and amortized in a manner related to
the recognition of premiums earned. Substantially all such commissions and
ceding fees are amortized within a four-year period. Earned ceding fees,
commissions and experience refunds are reported as reinsurance expense
recoveries in the consolidated statements of operations.
<PAGE>
ACCEL INTERNATIONAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(CONTINUED)
NOTE A--SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
Stock Option Plans: Prior to January 1, 1996, the Company accounted for its
stock option plans in accordance with the provisions of Accounting Principles
Board ("APB") Opinion No. 25, Accounting for Stock Issued to Employees, and
related interpretations. As such, compensation expense would be recorded on the
date of grant only if the current market price of the underlying stock exceeded
the exercise price. On January 1, 1996, the Company adopted the Financial
Accounting Standards Board's (FASB) Statement No. 123, Accounting for
Stock-Based Compensation, which permits entities to recognize as expense over
the vesting period the fair value of all stock-based awards on the date of
grant. Alternatively, FASB No. 123 also allows entities to continue to apply the
provisions of APB Opinion No. 25 and provide pro forma net income and pro forma
earnings per share disclosures for employee stock option grants made in 1995 and
future years as if the fair-value-based method defined in FASB No. 123 had been
applied. The Company has elected to continue to apply the provisions of APB
Opinion No. 25 and provide the pro forma disclosure provisions of FASB No. 123
(see Note I).
Earnings Per Common Share: Net income and net loss per common share are computed
using the weighted average number of common shares outstanding during the
period. The inclusion of common stock equivalents (options) would not be
dilutive.
Reclassifications: Certain amounts in the 1995 and 1994 consolidated financial
statements have been reclassified to conform with the 1996 presentation.
NOTE B--INVESTMENTS
At December 31, 1996 and 1995, investments in cash and securities with a
carrying value of $10,056,000 and $9,108,000, respectively, were on deposit with
state insurance departments to satisfy regulatory requirements. Cash and
securities with a carrying value of $22,502,000 and $19,879,000 at December 31,
1996 and 1995, respectively, were on deposit as security funds in connection
with reinsurance treaties.
The change in net unrealized gains (losses) on fixed maturity and equity
securities is summarized as follows:
Year Ended December 31,
1996 1995 1994
----------- ----------- -----------
(Thousands of dollars)
Securities available for sale:
Fixed maturities $(385) $ 6,417 $(8,054)
Equity securities (21) 50 (114)
Short-term investments 33 - -
----------- ----------- -----------
$(373) $ 6,467 $(8,168)
=========== ========== ===========
Realized gains (losses) on investments are summarized as follows:
Securities available for sale:
Fixed maturities:
Gross realized gains $ 158 $ 607 $ 194
Gross realized losses (150) (284) ( 35)
Equity securities:
Gross realized gains 307 106 148
Gross realized losses - - -
Other invested asset gains 169 26 501
----------- ----------- -----------
$ 484 $ 455 $ 808
=========== ========== ===========
<PAGE>
ACCEL INTERNATIONAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(CONTINUED)
NOTE B--INVESTMENTS--(CONTINUED)
The major sources of investment income are summarized as follows:
Year Ended December 31,
1996 1995 1994
----------- ----------- -----------
(Thousands of dollars)
Fixed maturities $ 3,865 $ 5,669 $ 6,307
Equity securities 288 181 113
Short-term investments 440 927 333
Other 55 431 469
----------- ----------- -----------
4,648 7,208 7,222
Investment expenses (232) (720) (544)
----------- ----------- -----------
Net investment income $ 4,416 $ 6,488 $ 6,678
=========== ========== ===========
The amortized cost and estimated fair value of fixed maturity securities by
category, all of which were available for sale, are as follows:
Gross Gross
Amortized unrealized unrealized Fair
cost gains losses value
---------- ---------- ---------- ---------
(Thousands of dollars)
December 31, 1996
- -----------------
U. S. Treasury and U. S. government
agency securities $ 13,120 $ 99 $ (26) $ 13,193
State and political subdivision
securities 940 20 - 960
Mortgage-backed securities 16,590 48 (638) 16,000
Collateralized mortgage obligations 15,972 101 (135) 15,938
Asset-backed securities 8,181 73 (160) 8,094
U. S. corporate securities 3,541 51 (38) 3,554
Redeemable preferred stocks 545 - (3) 542
--------- ---------- --------- ---------
Total $ 58,889 $ 392 $ (1,000) $ 58,281
========= ========== ========= =========
December 31, 1995
- -----------------
U. S. Treasury and U. S. government
agency securities $ 9,310 $ 274 $ - $ 9,584
State and political subdivision
securities 1,255 35 - 1,290
Mortgage-backed securities 15,887 66 (104) 15,849
Collateralized mortgage obligations 11,587 53 (604) 11,036
Asset-backed securities 13,740 203 (206) 13,737
U. S. corporate securities 1,000 26 - 1,026
Redeemable preferred stocks 648 34 - 682
--------- ---------- --------- ---------
Total $ 53,427 $ 691 $ (914) $ 53,204
========= ========== ========= =========
The amortized cost and estimated fair value of fixed maturity securities, all
of which were available for sale, at December 31, 1996, by contractual maturity,
are summarized as follows:
Amortized Fair
Maturity cost value
- -------- ---------- ----------
(Thousands of dollars)
Due in one year or less $ 4,972 $ 4,989
Due after one year through five years 7,446 7,522
Due after five years through ten years 4,288 4,308
Due after ten years 1,440 1,430
Mortgage-backed securities 16,590 16,000
Collateralized mortgage obligations 15,972 15,938
Asset-backed securities 8,181 8,094
---------- ----------
Total $ 58,889 $58,281
========== ==========
<PAGE>
ACCEL INTERNATIONAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(CONTINUED)
NOTE B--INVESTMENTS--(CONTINUED)
The expected maturities in the foregoing table will differ from contractual
maturities because borrowers may have the right to call or prepay obligations
with or without penalty. Mortgage-backed securities owned have an expected
weighted average maturity of over 10 years.
Proceeds from the sale of securities available-for-sale during 1996, 1995 and
1994 were $2,973,000, $18,456,000 and $3,467,000, respectively. Gross gains of
$408,000 ($444,000 in 1995 and $211,000 in 1994) and gross losses of $-0-
($25,000 in 1995 and $31,000 in 1994) were realized on those sales.
One asset-backed security held by the Company was written down by $150,000 and
$200,000 in 1996 and 1995, respectively. These write downs are included in
realized gains in the accompanying consolidated statements of operations.
NOTE C--STOCKHOLDERS' EQUITY AND TRANSFER LIMITATIONS
Generally, the net assets of the consolidated insurance subsidiaries available
for transfer to ACCEL are limited to the amounts that the insurance
subsidiaries' net assets, as determined in accordance with statutory accounting
practices, exceed minimum statutory capital and surplus requirements; however,
payments of such amounts as dividends from each insurance subsidiary are
currently subject to regulation by Ohio law. Based on this law, Acceleration
Life Insurance Company ("ALIC") could pay a dividend of $1,543,315 to ACCEL in
1997 without approval of the Department of Insurance of the State of Ohio ("Ohio
Department"). Acceleration National Insurance Company ("ANIC") would require
Ohio Department approval to pay any dividend to ACCEL during 1997.
The statutory basis capital and surplus and net income (loss) of the insurance
subsidiaries included in the Company's consolidated financial statements, as
reported to insurance regulatory authorities, are summarized as follows:
Life/ Property/
Health Casualty
-------- -----------
(Thousands of dollars)
Statutory capital and surplus
at December 31:
1996 $15,122 $13,017
1995 13,010 10,037
Statutory net income (loss) for
year ended December 31:
1996 $1,543 $ 884
1995 (713) (2,574)
1994 1,165 (1,537)
NOTE D--NOTES PAYABLE
In 1991, ACCEL issued $5,848,000 of subordinated notes (the "Subordinated
Notes"). The Subordinated Notes had a nine-year term with no principal payable
until maturity, and bear interest at 10.125% per annum. Effective June 30, 1992,
ACCEL amended the notes to permit the issuance of additional notes for the
purpose of making interest payments, provided, however, that ACCEL may at its
option pay cash in lieu of issuing additional notes in any denomination of less
than $1,000. As a result, ACCEL issued additional notes totaling $403,000 and
$569,000 for the 1996 and 1995 interest payments, respectively.
Of the Subordinated Notes described above, a significant portion were held by
Chase Insurance Holdings Corporation ("CIHC"), a company related through common
ownership by a stockholder and director of the Company.
<PAGE>
ACCEL INTERNATIONAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(CONTINUED)
NOTE D--NOTES PAYABLE--(CONTINUED)
On July 25, 1996, the Company commenced an offering of non-transferable rights
(the "Rights Offering") to stockholders of record as of June 18, 1996. Under the
provisions of the Rights Offering, the Company permitted CIHC and its affiliate
to tender the principal amount of their Subordinated Notes for cancellation as
consideration (in lieu of cash) for the purchase of shares of common stock
pursuant to the Rights Offering. On August 23, 1996, CIHC and its affiliate
tendered $5,619,046 principal amount of their Subordinated Notes plus an
additional $83,759 of accrued interest thereon under the terms of the Rights
Offering. At the conclusion of the offering, CIHC and its affiliate had reduced
their holding of Subordinated Notes to $0.
In a separate transaction, the Company retired $731,533 principal amount of
Subordinated Notes held by an unrelated third party for consideration of
$600,000. The Company recognized an extraordinary gain on this transaction of
$131,533. No federal income tax was recognized related to this gain due to the
current consolidated tax position of the Company.
The result of the two aforementioned transactions was to retire all outstanding
Subordinated Notes.
At December 31, 1994, the effective interest rate and outstanding loan balance
under a credit agreement (the "Credit Agreement") were 8.75% and $13,000,000,
respectively. On February 7, 1995 the Company renegotiated the terms of the
Credit Agreement. Under the amended Credit Agreement, the quarterly principal
payments scheduled to begin in 1995 were waived. Specific principal payments
totaling up to $1.5 million were due on June 30, 1995 and December 31, 1995. The
loan was to be payable in full on June 30, 1997
On December 29, 1995, the Company issued senior notes (the "Senior Notes")
totaling $16,500,000 at 9.50%, maturing on April 1, 2001. The proceeds from
these notes were used to retire the loan outstanding under the aforementioned
Credit Agreement and to liquidate an intercompany loan between ACCEL and an
insurance subsidiary. In addition, as of January 1, 1996, ALIC entered into a
reinsurance agreement with an unaffiliated company to reinsure the majority of
the in-force credit business. The Senior Notes are payable to the same
unaffiliated company which is a party to the reinsurance agreement dated January
1, 1996. This agreement is structured such, that as future profits emerge on
this block of business, these profits are held by the reinsurance company, and
ultimately applied to pay interest on and to redeem the Senior Notes. Profits in
excess of the amount required to retire the Senior Notes are to be returned to
ALIC. As of December 31, 1996, $1,500,000 of the profits on this block of
business were released to ALIC in the form of the aforementioned Senior Notes.
This release resulted in a balance of $15,000,000 of Senior Notes outstanding as
of December 31, 1996. The fair value of these Senior Notes as of December 31,
1996 was $8,100,000.
During 1996, 1995 and 1994, ACCEL paid interest on notes of $403,000, $1,125,000
and $974,000, respectively.
NOTE E--BUSINESS CONCENTRATION
With first year premium written of $13,800,000 and gross earned premium of
$8,400,000, Commercial Auto has become a primary product line for the Company.
This program is marketed by a general agent located in Melbourne,
Florida-Transportation Insurance Specialists (TIS). At year end 1996, the
premium receivable, net of commission, due from TIS was $5,200,000.
NOTE F--REINSURANCE
The Company's reinsurance program includes an agreement covering certain of its
direct credit business, the reinsurance of other direct business ceded on a
quota share basis and direct business ceded to producer-owned reinsurance
companies.
The ceding of insurance through reinsurance agreements does not discharge the
primary liability of the original underwriter to the insured, but it is the
practice of insurers to treat risks that have been reinsured with other
companies, to the extent of the reinsurance, as though they were not risks for
which the original insurer is liable. Should the reinsurer not be able to meet
its obligations, those obligations are the ultimate responsibility of the
Company. Therefore, in financial statement presentation, premiums and policy
benefits are presented net of that portion of risks reinsured with other
companies.
<PAGE>
ACCEL INTERNATIONAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(CONTINUED)
NOTE F--REINSURANCE--(CONTINUED)
Direct Business Ceded--Credit Business Quota Share: The Company has an agreement
in place which covers a substantial portion of its credit insurance business.
The agreement contains an experience adjustment computation that results in the
ultimate cost of this agreement being a stated percentage related to the
business covered by the agreement. The Company ultimately retains a substantial
part of the insurance risk, the underwriting income or loss and the investment
income on net funds.
The Company determined that deposit accounting is the appropriate method of
accounting for this agreement since it is not reasonably possible for the
reinsurer to realize a significant loss from the transaction. The consolidated
financial statements have been prepared on this basis.
The effect of this agreement is to increase statutory capital and surplus of
ALIC, a wholly owned subsidiary of ACCEL, by $14,416,000 and $14,512,000 as of
December 31, 1996 and 1995, respectively.
On January 1, 1996 the Company terminated its quota share reinsurance agreement
and elected to recapture the liabilities subject to the treaty. The liabilities
recaptured thereunder were then available for cession under the treaty described
below. The unearned premium reserves and claim liabilities recaptured were
$29,753,000 and $8,424,000, respectively.
Concurrent with this termination, the Company entered into a reinsurance
agreement with a different unaffiliated reinsurer (which is also the buyer of
the Senior Notes discussed in Note D) to reinsure a substantial portion of the
in-force credit life and accident and health insurance business, including the
amounts recaptured. This agreement is structured in such a way that as future
profits emerge on this block of business, a substantial portion of the Company's
share of the profits will be used over the next four to five years to pay fees
and interest to the reinsurer and redeem the new Senior Notes of $16,500,000
(see Note D). In connection with this agreement, approximately $40,000,000 of
assets were transferred to the reinsurer on December 29, 1995, as agreed to by
all parties. The unearned premium reserves and liability for insurance claims
subject to cession under this treaty approximated $48,616,000 and $9,919,000,
respectively, as of January 1, 1996.
Prior to December 31, 1995, a security fund had been maintained, primarily
comprised of fixed maturities, for the benefit of the reinsurer. Pursuant to the
termination of the agreement effective January 1, 1996, as discussed above,
certain investments were liquidated from the security fund on December 29, 1995.
Proceeds from this liquidation, along with other funds, were transferred on
December 29, 1995 to the reinsurer who is party to the agreement dated January
1, 1996. These amounts are included in "Reinsurance Premium Deposits" on the
accompanying consolidated balance sheets as of December 31, 1996 and 1995.
Direct Business Ceded--Other Quota Share: The Company reinsures a portion of its
group life and health care insurance with several unaffiliated companies. The
effect of this reinsurance is to transfer the risk, the underwriting income or
loss, and the investment income related to the premiums ceded. In 1993, the
Company entered into reinsurance agreements with unaffiliated reinsurers related
to certain additional product lines. The effect of such reinsurance arrangements
is to transfer 100% of the related risk to the reinsurers. Premiums ceded
associated with these agreements and included in the accompanying consolidated
statements of operations amounted to $496,000, $633,000 and $980,000 in 1996,
1995 and 1994, respectively.
Direct Business Ceded--To Producer-Owned Reinsurance Companies: The Company has
agreements to cede certain credit life and credit accident and health insurance
to reinsurance companies owned by certain automobile dealers, financial
institutions or agents. Under these arrangements, the assuming entities
participate in the profits or losses of the insurance produced by them, and the
Company may retain a nominal percentage of the applicable business. These
treaties generally provide that the Company receives a ceding fee and is
reimbursed for certain commissions and claims.
Written premiums included in the accompanying consolidated statements of
operations that have been ceded, or which are subject to cession under all such
agreements, amounted to $5,669,000, $7,429,000 and $10,284,000 in 1996, 1995 and
1994, respectively.
<PAGE>
ACCEL INTERNATIONAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(CONTINUED)
NOTE F--REINSURANCE--(CONTINUED)
Other Reinsurance: Credit life and credit accident and health premiums assumed
by the Company relating to business written in Pennsylvania by an unaffiliated
carrier, amounted to $3,633,000, $6,308,000 and $7,640,000 in 1996, 1995 and
1994, respectively. Unearned premium reserves and the liability for insurance
claims at December 31, 1996 include $8,279,000 and $3,352,000, respectively
($10,904,000 and $3,243,000 at December 31, 1995, respectively), for risks
assumed under this agreement.
On July 31, 1996 this agreement was terminated. The obligations relating to the
in-force business shall remain in effect until such business expires.
As of December 31, 1992, the Company entered into a reinsurance agreement with
unaffiliated reinsurers whereby the Company cedes 100% of the premiums written
in connection with vendor's single interest insurance. In mid 1994, a
substantial part of the remaining in-force business was assumed by an
unaffiliated reinsurer, and resulted in a return of premiums. The VSI product
was forced-placed when the borrower could not demonstrate coverage for the
automobile that was securing the loan with the lending institution. Premiums
ceded under this agreement were $(63,000), $(858,000) and $(6,024,000) for 1996,
1995 and 1994, respectively. Policy benefit expense in 1996, 1995 and 1994,
respectively, has been reduced by $83,000, $104,000 and $1,407,000 in
conjunction with these agreements.
The Company also entered into reinsurance agreements with several unaffiliated
reinsurers related to certain property and casualty lines of business written by
the Company. Unearned premium reserves and the liability for insurance claims
associated with these agreements at December 31, 1996 are $5,572,000 and
$5,820,000, respectively ($2,645,000 and $2,240,000 at December 31, 1995,
respectively).
The following data summarizes certain aspects of the Company's reinsurance
activity for 1996, 1995 and 1994.
Premiums written and earned in 1996, 1995 and 1994 are summarized as follows:
1996 1995 1994
-------- -------- --------
Written Earned Written Earned Written Earned
-------------------- -------------------- --------------------
(Thousands of dollars)
Direct $ 54,779 $ 52,417 $ 49,135 $ 50,265 $ 52,864 $ 59,789
Assumed 3,633 6,259 6,308 6,864 7,640 7,004
Ceded (12,860) (12,719) (12,147) (16,276) (12,495) (19,193)
--------- --------- --------- --------- --------- ---------
Net premiums $ 45,552 $ 45,957 $ 43,296 $ 40,853 $ 48,009 $ 47,600
========= ========= ========= ========= ========= =========
Policy benefits incurred in 1996, 1995 and 1994 are summarized as follows:
1996 1995 1994
--------- --------- ---------
(Thousands of dollars)
Direct $ 27,602 $ 24,900 $ 31,567
Assumed 4,100 3,973 3,754
Ceded (7,364) (8,755) (10,324)
--------- --------- ---------
Net policy benefits $ 24,338 $ 20,118 $ 24,997
========= ========= =========
NOTE G--FEDERAL INCOME TAXES
The Company files a consolidated income tax return with its subsidiaries,
including its life insurance subsidiary. For tax purposes, certain amounts have
been accumulated by the life insurance subsidiary in a memorandum tax account
designated as "policyholders' surplus" that will be taxed only when distributed
to shareholders. Policyholders' surplus on a tax basis was $4,489,000 at
December 31, 1996. Management considers the likelihood of distributions from
this account to be remote; therefore, no federal income tax has been provided
for such distributions in the accompanying consolidated financial statements.
<PAGE>
ACCEL INTERNATIONAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(CONTINUED)
NOTE G--FEDERAL INCOME TAXES--(CONTINUED)
As of December 31, 1996, approximately $4,700,000 could be distributed to
shareholders before a distribution would be designated as from the
policyholders' surplus account.
In 1996, 1995 and 1994, the Company paid $1,100,000, $410,000 and $140,000,
respectively, in federal income taxes.
Total income tax expense (benefit) differed from the amount computed by applying
the statutory federal income tax rate to income (loss) before taxes as follows:
Year Ended December 31,
1996 1995 1994
--------- --------- ---------
(Thousands of dollars)
Income tax (benefit) at statutory rate $ 605 $ (374) $(1,668)
Amortization of goodwill 36 36 36
Dividends-received deduction (64) (54) (38)
Special deductions of life insurance
subsidiaries (273) - (297)
Tax-exempt interest (14) (18) (21)
Valuation allowance (372) 761 (599)
Write off of subsidiary - - 1,302
Other, net (112) 8 1,618
--------- --------- ---------
Federal income tax expense (benefit) $ (194) $ 359 $ 333
========= ========= =========
The tax effects of temporary differences that give rise to significant
components of the net deferred tax liability at December 31, 1996 and 1995 are
summarized as follows:
December 31,
1996 1995
--------- ---------
(Thousands of dollars)
Deferred Tax Liabilities:
Deferred policy acquisition costs $ 10,400 $ 10,656
Other 2,233 2,621
--------- ---------
12,633 13,277
--------- ---------
Deferred Tax Assets:
Deferred reinsurance commissions 4,819 5,420
Net operating loss carryforward 994 1,766
Insurance reserves 1,457 1,328
Unrealized losses on investments 204 119
Service contracts 1,900 1,757
Amount due reinsurers 277 -
Other 228 95
--------- ---------
Total deferred tax assets 9,879 10,485
Valuation allowance (1,924) (2,232)
--------- ---------
Net deferred tax assets 7,955 8,253
--------- ---------
Net deferred tax liability $ 4,678 $ 5,024
========= =========
The Company has determined the valuation allowance related to the deferred tax
assets based on its analysis of future deductible amounts. This analysis
included a schedule of the deductibility of non-life items against life company
taxable income pursuant to Section 801 of the Internal Revenue Code and a
determination of the realization of losses generated by available for sale
securities.
The Company recorded a valuation allowance of $3,638,000 and $2,484,000 as of
December 31, 1994 and January 1, 1994, respectively.
The Company has $2,923,000 of net operating losses that are available to reduce
future income taxes and will expire in 2010.
<PAGE>
ACCEL INTERNATIONAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(CONTINUED)
NOTE H--LIABILITY FOR INSURANCE CLAIMS
The following table provides a reconciliation of beginning and ending liability
balances for the Company's insurance claims for 1996, 1995 and 1994.
1996 1995 1994
--------- --------- --------
(Thousands of dollars)
Liability for insurance claims
at beginning of year $ 22,761 $ 23,159 $ 49,919
Less reinsurance recoverables (5,864) ( 5,423) (11,801)
--------- --------- --------
Net balances at beginning of year 16,897 17,736 38,118
Policy benefits incurred:
Policy benefits incurred for
events of the current year 23,895 19,602 24,914
Policy benefits incurred for
events of prior years 443 516 83
--------- --------- --------
Total policy benefits incurred 24,338 20,118 24,997
--------- --------- --------
Galaxy unpaid losses and LAE at
date of write off (see Note K) - - 14,325
Payments:
Policy benefits for insured
events of the current year 13,307 10,860 20,556
Policy benefits for insured
events in prior years 8,896 10,097 10,498
--------- --------- --------
Total payments 22,203 20,957 31,054
--------- --------- --------
Net balances at end of year 17,759 16,897 17,736
Plus reinsurance recoverables 7,497 5,864 5,423
--------- --------- --------
Liability for insurance claims
at end of year $ 25,256 $ 22,761 $ 23,159
========= ========= ========
The table above reflects decreases in the liability for insurance claims
resulting from discontinued lines of business and the write off of Galaxy
Insurance Company ("Galaxy"), a wholly owned subsidiary of RGL (see Note K).
Increases in policy benefits incurred for events of prior years relate to
management's reevaluation of discontinued lines of business.
In establishing the liability for insurance claims, management considers facts
currently known and the current state of the law and coverage litigation.
Liabilities are recognized for known claims (including the cost of related
litigation) when sufficient information has been developed to indicate the
involvement of a specific insurance policy, and management can reasonably
estimate its liability. In addition, liabilities have been established to cover
additional exposures on both known and unasserted claims. Estimates of the
liabilities are reviewed and updated continually.
<PAGE>
ACCEL INTERNATIONAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(CONTINUED)
NOTE I--COMMON STOCKS AND COMMON STOCK OPTIONS
In 1992, the Board of Directors voted to suspend payment of cash dividends on
the common stock until the Company returns to a level of profitability that
will sustain the payment of cash dividends.
ACCEL's Board of Directors approved an Employee Stock Ownership Plan ("ESOP")
during 1989. In 1990, the ESOP entered into an agreement with ALIC to borrow up
to $1,000,000 for the purchase of ACCEL's common stock. At December 31, 1996,
the unpaid balance on this loan was $32,000.
During November 1989, ACCEL's Board of Directors also approved a stock buy back
program to repurchase up to 1,000,000 common shares in the open market. ACCEL
has purchased 229,185 shares at a cost of $1,722,000 under this program. The buy
back program was funded from internally generated funds. No shares have been
purchased since 1992.
During 1982, ACCEL adopted a stock option plan (the "82 Plan") under which
shares of common stock were made available to eligible officers and key
personnel. Under the terms of the 82 Plan, the option price had to be at least
100% of the fair value at the date of grant, and, accordingly, there were no
charges to income resulting from grants. Options were granted at prices ranging
from $2.769 to $11.750 per share from April 1982 through April 1992. The options
become exercisable after one year of continuous employment in installments of
50% at the end of the first and the second year from the date of grant and
expired ten years from the date of grant. A total of 300,000 (349,672 after
giving effect to all subsequent stock dividends) shares had been reserved for
options under the 82 Plan.
Of the total options granted under the 82 Plan at December 31, 1996, only 18,524
remain exercisable. No additional shares may be granted under the 82 Plan.
During 1987, ACCEL adopted the 1987 Incentive Stock Option Plan (the "87 Plan").
The 87 Plan provided for incentive stock options with respect to a maximum of
300,000 (347,287 after giving effect to all subsequent stock dividends) shares
of common stock of ACCEL prior to the expiration of the 87 Plan in April 1997.
During June of 1991, ACCEL's Board of Directors and shareholders approved the
First Restatement of the 1987 Stock Incentive Plan (the "Restated Plan"). The
Restated Plan replaced the 87 Plan except as to options granted and outstanding
under the 87 Plan. The Restated Plan reserved an additional 450,000 shares for
key employees and 50,000 shares for non-employee directors. Options could be
granted prior to expiration of the Restated Plan covering shares subject to
lapsed or terminated options. Of the total options outstanding under the
Restated Plan, 235,254 were exercisable at December 31, 1996. At December 31,
1996, no shares were reserved for future grants.
During May 1995, two new Key Employees were granted stock options under ACCEL's
Restated Plan. Under the terms of their arrangement with ACCEL, both were
granted stock options for ACCEL's common stock in lieu of salary for their first
year of service. Options for 150,000 shares were granted at an option price per
share of $2.125, the fair value of ACCEL's common stock on the date of grant.
The options vest immediately and become exercisable one year following the date
of grant; however, they would become exercisable immediately upon either a) a
change of control of ACCEL, or b) an involuntary termination. The options would
have been forfeited if employment with ACCEL had been voluntarily terminated
prior to May 23, 1996. The options lapse five years from the effective date of
grant.
At the end of their first year of service the status of these two key employees
was evaluated by the Compensation Committee and based on the value of their
services, began receiving compensation effective June 1, 1996. As part of their
compensation both were granted stock options pursuant to the 1996 Stock
Incentive Plan (the "96 Plan"). Options for 165,000 shares were granted at an
option price per share of $2.50, the fair value of ACCEL's common stock on the
date of grant. The terms are identical to the aforementioned options granted in
May 1995.
In June 1996, ACCEL stockholders approved the adoption of the 96 Plan. The 96
Plan provides for stock options, stock appreciation rights, restricted stock,
phantom stock and performance awards. No award may be granted after June 11,
2006, the expiration date of the 96 Plan. The total number of shares of common
stock available under the 96 Plan is 1,000,000 shares and up to 100,000 shares
may be issued pursuant to the exercise of outside directors' stock options.
<PAGE>
ACCEL INTERNATIONAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(CONTINUED)
NOTE I--COMMON STOCKS AND COMMON STOCK OPTIONS--(CONTINUED)
Options granted to employees or independent agents of the Company under the 96
Plan will be priced at not less than 100% of the fair value of the common stock
on the date of grant and will become exercisable as to 25% of the shares subject
to the option upon completion of each full year of employment until fully
vested. Grants of options to outside directors under the 96 Plan will also be
priced at 100% of fair value on the date of grant but, in the absence of any
provisions in an option to the contrary, the options will become exercisable as
to 50% of the shares subject to the option upon completion of each full year
until vested. In substantially all other respects, the 96 Plan contains
provisions similar to the previous plans.
On August 28, 1996, the Board of Directors of the Company approved a resolution
to offer to all key employees holding options outstanding that were priced in
excess of the current market value the opportunity to receive "re-priced"
options. Such key employees were permitted to surrender, cancel and terminate
any or all outstanding options (whether vested or not) and receive options for
an equal number of shares under the 96 Plan at the then current price of $2.50
per share. The re-priced or "replacement" options would be newly granted options
and become exercisable in accordance with the vesting provisions of the 96 Plan.
A total of 161,371 shares were surrendered by key employees as part of the
re-pricing opportunity and 4,500 shares were not surrendered. Including the
shares surrendered as a part of the re-pricing opportunity, options were granted
for a total of 420,371 shares to key employees and outside directors under the
96 Plan.
The following table summarizes activity under the respective plans.
The 1996 Plan
1996 1995 1994
-------- -------- --------
Options granted 420,371 - -
Average option price per share 2.514 - -
Options lapsed - - -
Options exercised - - -
Average exercise price - - -
The Restated Plan-Employees
1996 1995 1994
-------- -------- --------
Options granted - 231,500 89,000
Average option price per share - $ 2.125 $ 4.500
Options lapsed 45,526 25,000 118,759
Options exercised 110,000 - -
Average exercised price 2.125 - -
The Restated Plan-Non Employee Directors
1996 1995 1994
-------- -------- --------
Options granted - 9,000 8,000
Average option price per share - $ 2.236 $ 4.500
Options lapsed - - -
Options exercised - - -
Average exercised price - - -
<PAGE>
ACCEL INTERNATIONAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(CONTINUED)
NOTE I--COMMON STOCKS AND COMMON STOCK OPTIONS--(CONTINUED)
At December 31, 1996 and 1995, there were 579,629 and 0 additional shares
available for grant under the 1996 Plan and the Restated Plan, respectively. The
per share weighted-average fair value of stock options granted during 1996 and
1995 was $1.20 and $0.79 on the date of grant using the Black Scholes
option-pricing model with the following weighted-average assumptions: 1996 -
expected dividend yield 0%, risk-free interest rates ranging from 6.85% to 7.09%
(based on the date of the grant), and expected lives of 5 to 10 years (based on
the terms of the grant); 1995 - expected dividend yield 0%, risk-free interest
rate 7.00%, and expected lives of 5 to 10 years (based on the terms of the
grant).
The Company applies APB Opinion No. 25 in accounting for these plans and,
accordingly, no compensation cost has been recognized for its stock options in
the consolidated financial statements. Had the Company determined compensation
cost based on the fair value at the grant date for its stock options under FASB
No. 123, the Company's net income would have been reduced to the pro forma
amounts indicated below:
1996 1995
---------- -----------
Net income (loss) As reported $ 2,104 $ (1,460)
Pro forma 1,980 (1,580)
Net income (loss) per As reported $ .36 $ (.33)
common share Pro forma .34 (.36)
Pro forma net income reflects only options granted in 1996 and 1995. Therefore,
the full impact of calculating compensation cost for stock options under FASB
No. 123 is not reflected in the proforma net income amounts presented above
because compensation cost is reflected over the options' vesting periods from
one to four years and compensation cost for options granted prior to January 1,
1995 is not considered.
NOTE J--SEGMENT INFORMATION
The Company operates primarily in the life/health and property/casualty
insurance industries. There are no intersegment sales.
The allocations of certain general expenses and investment income within
segments are based on a number of assumptions, and the reported operating
results would change if different methods were applied. Depreciation and capital
expenditures are not considered material.
Information relating to revenue, income (loss) before income taxes and
extraordiary item, and identifiable assets by segment are summarized as follows
(see Note K regarding 1994 Property/Casualty amounts):
Year Ended December 31,
1996 1995 1994
--------- --------- ---------
(Thousands of dollars)
Revenue:
Life/Health $ 36,382 $ 38,878 $ 37,097
Property/Casualty (Note S) 19,289 11,454 20,185
Other (Note S) 2,149 143 237
--------- --------- ---------
Total $ 57,820 $ 50,475 $ 57,519
========= ========= =========
Income (loss) before income taxes
and extraordinary item:
Life/Health $ 628 $ 3,055 $ 3,123
Property/Casualty 1,345 (2,236) (6,333)
Other (194) (1,920) (1,695)
--------- --------- ---------
Total $ 1,779 $ (1,101) $ (4,905)
========= ========= =========
<PAGE>
ACCEL INTERNATIONAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(CONTINUED)
NOTE J--SEGMENT INFORMATION--(CONTINUED)
December 31,
1996 1995 1994
--------- --------- ---------
(Thousands of dollars)
Identifiable assets:
Life/Health $138,723 $144,164 $139,262
Property/Casualty 49,840 38,977 40,428
Other 745 366 258
--------- --------- ---------
Total $189,308 $183,507 $179,948
========= ========= =========
NOTE K--WRITE OFF OF INVESTMENT IN RANDJILL GROUP LTD. AND GALAXY INSURANCE
COMPANY
During December 1986, ACCEL invested $1,370,000 (a 20% interest) in RGL. Galaxy,
a wholly owned subsidiary of RGL, wrote commercial property insurance, property
and casualty, and assumed treaty reinsurance.
During the second quarter of 1991, the Company purchased 11,000 additional
common shares of RGL at a cost of $992,000. The additional investment increased
the Company's ownership to 31% at June 30, 1991. In July 1991, the Company
purchased the remaining 69% of RGL for cash and Subordinated Notes (see Note D)
of $2.1 million and $5.8 million, respectively. The purchase price included
goodwill of $1.2 million of which the outstanding balance was written off in
1993.
Members of CIHC held a 45% interest in RGL prior to the acquisition by ACCEL.
For the three years ended December 31, 1993, RGL recorded losses and Galaxy's
underwriting results deteriorated, resulting in the New York Department of
Insurance ("New York Department") placing a moratorium on all new business as of
February 28, 1994. Due to significant loss development during 1994 on Galaxy's
liability lines of business, the Company contracted with an independent
actuarial consultant to review the adequacy of Galaxy's loss and loss adjustment
expense reserves as of June 30, 1994. The findings of this review indicated the
need for additional reserves which resulted in the statutory insolvency of
Galaxy at June 30, 1994. Statutory capital and surplus after the reserve
strengthening was a negative $2.3 million.
Due to the significance of the statutory loss and the loss of the Company's
control of Galaxy as a result of the insolvency, the Company wrote off its
investment in RGL ($3.8 million) during the second quarter of 1994. As a result
of this action, the consolidated results of operations for 1994 include a charge
to operations of $3.8 million, representing the Company's net investment in
Galaxy as of April 1, 1994, in addition to operating losses of $205,000 incurred
during the first quarter. The Company wrote its investment in RGL to zero and
deconsolidated RGL as of April 1, 1994.
Pursuant to an Order of Liquidation dated October 7, 1994, issued by the Supreme
Court of the State of New York, the Liquidation Bureau of the New York
Department (the "Liquidation Bureau") took control of Galaxy on October 11,
1994.
ANIC, a wholly owned subsidiary of ACCEL, in the normal course of business,
issued certain policy endorsements on Galaxy policies in 1992, some of which had
pending claims open at the time of liquidation (see Note N).
NOTE L--RETIREMENT SAVINGS AND STOCK OWNERSHIP PLAN
The Acceleration Retirement Savings Plan became effective in 1985. During 1989,
ACCEL's Board of Directors approved changes to this plan to include an ESOP and
concurrently changed the plan name to the "Acceleration Retirement Savings and
Stock Ownership Plan" ("Plan"). For 1996, 1995 and 1994 the Board authorized
contributions to the Plan at a level that would fund a 100% match of the first
6% of each participating employees tax deferred contributions. The Company
incurred a contribution expense for 1996, 1995 and 1994 of $187,000, $198,000
and $178,000, respectively.
The Plan allows all employees who meet certain eligibility requirements and
choose to participate to defer a percentage of their salary and contribute to
the Plan on a tax deferred basis. The employee contributions to the Plan are
used to fund the savings element of the Plan. The Company contributions become
part of the Plan and are used to purchase shares of ACCEL's common stock in the
open market.
<PAGE>
ACCEL INTERNATIONAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(CONTINUED)
NOTE L--RETIREMENT SAVINGS AND STOCK OWNERSHIP PLAN--(CONTINUED)
In 1990, the Plan entered into an agreement with ALIC to borrow up to $1,000,000
for the purchase of ACCEL's common stock. The Plan purchased 136,887 shares
(adjusted for the 1990 5% common stock dividend) under this loan agreement with
ALIC at a cost of $1,000,000. In addition to the shares purchased under the loan
agreement, the Plan has purchased 90,088 common shares at a cost of $603,000.
The loan, which bears interest at 10%, is being repaid from Company
contributions to the Plan.
At December 31, 1995, the loan had an unpaid balance of $525,000. The market
value of the underlying shares was $161,000. The Company revalued this loan to
market value as of December 31, 1995. This allowed the release of shares to
participants' accounts at an average price which more closely approximates
recent market values on the Company's stock. The decrease in the loan in 1995
has been reflected through a decrease in additional paid-in capital in the
accompanying consolidated balance sheets. The unpaid balance of the loan
($32,000 and $161,000 at December 31, 1996 and 1995, respectively), has been
reflected as a reduction in common stockholders' equity in the accompanying
consolidated balance sheets.
NOTE M--FOREIGN CURRENCY TRANSLATION AND OPERATING RESULTS
The financial statements of Acceleration Insurance Company, Ltd. ("AICL") were
translated into U.S. dollars using the British pound as the functional currency.
The balance sheets of AICL were translated into U. S. dollars using exchange
rates, as of the date of the consolidated financial statements.
The operating results of AICL were translated into U. S. dollars using the
average exchange rates in effect during the respective period. The consolidated
results of operations included $137,000 and $82,000 of pre-tax loss from AICL
for the years ended December 31, 1995 and 1994, respectively.
Included in foreign currency translation adjustments were unrealized exchange
gains of $85,000 in 1995.
During 1995, the Company redeemed most of its shares of AICL, which resulted in
proceeds approximating the Company's original investment in AICL. The
transaction was approved by the Department of Trade and Insurance (United
Kingdom). On February 7, 1996, the Company received the final proceeds for
redemption of its remaining shares, and AICL will exist only for as long as it
takes to recover any taxes that may be refunded to it.
NOTE N--COMMITMENTS AND CONTINGENCIES
Due to the nature of its operations, the Company is at all times subject to
pending and threatened legal actions that arise in the normal course of its
activities. In management's opinion, based on the advice of outside counsel, the
accompanying consolidated financial statements would not be materially affected
by the ultimate outcome of any legal proceedings or contingent liabilities.
On October 7, 1994, the Liquidation Bureau took control of Galaxy pursuant to an
order of liquidation of the New York Supreme Court. Prior to the liquidation of
Galaxy, ANIC had issued certain certificates of suretyship ("Certificates") with
respect to certain Galaxy insurance policies each of which provided that ANIC
would assume the responsibilities of Galaxy under the specified policy if Galaxy
became insolvent or financially unable to meet its obligations on the underlying
policy, but only if certain conditions were met. In particular, the Certificates
provided that ANIC's assumption of liability was contingent upon the insured's
executing and delivering all agreements, assignments or evidences of subrogation
satisfactory to ANIC respecting payments made or liabilities assumed.
<PAGE>
ACCEL INTERNATIONAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(CONTINUED)
NOTE N--COMMITMENTS AND CONTINGENCIES--(CONTINUED)
In May 1996, the Liquidation Bureau, acting on behalf of the New York
Property/Casualty Insurance Security Funds (the "Guaranty Fund"), during a
meeting with Company representatives informally advised the Company that on
behalf of the Guaranty Fund it intended to seek indemnification or reimbursement
from ANIC for claims paid by the Guaranty Fund to Galaxy insureds on policies
which may have been covered by the Certificates. The Liquidation Bureau has
provided some information in response to the Company's request for accounting
data and other information with respect to the Liquidation Bureau's analysis of
the Guaranty Fund's right to indemnification; however, the Company is not yet
able to quantify the magnitude of the potential claim, if any, for
indemnification or reimbursement. The Company has taken the position that the
Guaranty Fund has no right to seek indemnification unless Galaxy insureds who
hold properly issued Certificates have executed assignments and evidences of
subrogation. Even if any Galaxy insured properly made such a claim directly to
ANIC, the Company has been advised by counsel that if ANIC paid any such claim,
it would have the right, under assignment and subrogation agreements with its
insureds, to assert all rights that the insureds could have asserted to recover
the loss amounts from any other source, including the Guaranty Fund.
The Company intends to fully investigate each claim which the Liquidation
Bureau, acting on behalf of the Guaranty Fund, formally asserts is entitled to
the benefits of a Certificate to determine whether such Certificate was properly
endorsed by ANIC and issued with proper authority and if so, whether proper
agreements, assignments and evidences of subrogation have been executed. The
Company intends to vigorously defend any claims for indemnification or
reimbursement made by the Liquidation Bureau, on behalf of the Guaranty Fund,
with respect to the Certificates. Although the Company is not in a position to
estimate the magnitude of the potential claims for indemnification or
reimbursement, it does not believe that the ultimate resolution of such claims
will have a material adverse effect on the financial condition or results of
operations of the Company.
The Company currently leases office space under two operating leases which
expire in 2000 and 2001. These leases are accounted for as operating leases.
Minimum rental commitments in effect at December 31, 1996 are as follows:
Year Payable Annual Minimum Rentals
------------ ----------------------
1997 $ 336,000
1998 338,000
1999 340,000
2000 322,000
2001 147,000
----------
Total $1,483,000
==========
The amount of rent charged to operations was $208,000, $16,800 and $28,700 in
1996, 1995 and 1994, respectively.
NOTE O--RELATED PARTY TRANSACTIONS
During 1995, the Company sold its investment in First International Bancorp, an
affiliate of CIHC, to entities associated with CIHC. The sales price was
$1,250,000; no gain or loss was realized on the disposition.
As more fully described in Note D, during 1996 the Company retired all of the
outstanding Subordinated Notes held by CIHC.
NOTE P--RISK BASED CAPITAL
In 1993, the National Association of Insurance Commissioners ("NAIC") adopted
the life and health and property and casualty Risk-Based Capital (RBC) formulas.
These model acts require every insurer to calculate its total adjusted capital
and RBC requirement, and provides for an insurance commissioner to intervene if
the insurer experiences financial difficulty. These model acts became law in
Ohio, the Company's insurance subsidiaries' state of domicile, in March 1996.
The formula includes components for asset risk, liability risk, interest rate
exposure, and other factors. Each of the Company's insurance subsidiaries exceed
all required RBC levels as of December 31, 1996.
<PAGE>
ACCEL INTERNATIONAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(CONTINUED)
NOTE Q--QUARTERLY CONSOLIDATED RESULTS OF OPERATIONS (UNAUDITED)
Quarterly consolidated results of operations for 1996 and 1995 are summarized as
follows:
First Second Third Fourth
Quarter Quarter Quarter Quarter
--------- --------- --------- ---------
(Thousands of dollars, except per share data)
1996
----
Premiums written $16,697 $17,169 $15,288 $ 9,258
Premiums earned 10,065 11,498 13,176 11,218
Policy benefits 5,091 5,594 7,429 6,224
Net income 46 46 160 1,852
Net income per common share .01 .01 .03 .22
1995
----
Premiums written $13,247 $15,125 $15,297 $11,774
Premiums earned 9,787 9,833 10,321 10,912
Policy benefits 4,138 3,973 4,820 7,187
Net income (loss) 268 399 165 (2,292)
Net income (loss) per common share .06 .09 .04 (.52)
The 1996 net income per common share amounts, in the aggregate, do not equal the
amount on the 1996 consolidated statement of operations due to the Rights
Offering (see Note D).
The first, second and third quarters of 1996 have been restated to be consistent
with the year end presentation relating to certain reinsurance treaties. These
treaties, which had been accounted for as reinsurance have been presented using
deposit accounting in the year end results. The restatement of these quarterly
amounts did not change net income or net income per common share as previously
reported.
NOTE R--PROPERTIES
Since July 1981 the Company's executive offices have been located at 475 Metro
Place North, Dublin, Ohio. The four-story office building had been owned by
ALIC, and consisted of approximately 80,000 square feet of office space.
On March 21, 1996, the building was sold by ALIC to an unrelated party for a
price of $3.5 million. The Company realized a pre-tax gain of $170,000 on this
sale. The Company will remain in the building and occupy approximately 16,000
square feet of home office space under a five-year lease at an annual rental of
approximately $264,000.
NOTE S--LITIGATION PROCEEDS
In 1996, ACCEL received a total of $4,291,085 in proceeds from a legal action
brought by the Company against a non-affiliated marketing organization. With the
approval of the Ohio Department the proceeds from the settlement were shared
equally between ACCEL and ANIC. These proceeds have been categorized as other
income in the accompanying 1996 consolidated statement of operations.
<PAGE>
Part III
--------
ITEM 9. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURES
Not Applicable.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
In accordance with General Instruction G(3), the information
required by this Item 10 is incorporated by reference herein from
the material under the headings "Election of Directors" and
"Executive Compensation" contained in the Company's definitive
proxy statement filed with the Commission relating to the annual
meeting of stockholders to be held on May 20, 1997.
The executive officers, their respective ages and business
experience are as follows: Thomas H. Friedberg (57), Chairman of
the Board, President and Chief Executive Officer; Douglas J. Coats
(63), Executive Vice President; Cynthia A Moore (34), Senior Vice
President and Chief Financial Officer; Nicholas Z. Alexander (61),
Senior Vice President, Secretary and General Counsel; Larry L.
Main (48), Senior Vice President-Auto After Market Group; and Kurt
L. Mueller (48), Vice President, Treasurer and Controller; William
E. Merritt, Jr. (61), Senior Vice President of Claims and Bryce E.
Farmer (45), Senior Vice President of Administration.
Mr. Friedberg joined the Company on May 23, 1995, when he was
appointed Chairman, President & CEO. Prior thereto, he was
Chairman, President and CEO of Ranger Insurance Company, Houston,
Texas for more than five years and was a director of the Company
for five years..
Mr. Coats joined the Company on May 23, 1995, when he was
appointed Executive Vice President and a member of the Board of
Directors. Prior thereto, he was Executive Vice President of
Ranger Insurance Company, Houston, Texas for more than five years.
Ms. Moore joined the Company and on August 28, 1996, she was
elected Senior Vice President and Chief Financial Officer. Prior
thereto she was an Audit Executive with Ernst & Young LLP for more
than five years.
Mr. Alexander was named Senior Vice President, Secretary and
General Counsel of the Company in 1992 and prior thereto was Vice
President, Secretary and General Counsel of the Company for more
than five years.
Mr. Farmer joined the Company in February 1996 and was elected
Senior Vice President Administration on March 12, 1996. Prior
thereto he had been Senior Vice President-Corporate Development
with Universal Underwriters Group, Overland Park, Kansas between
June 1993 and November 1995. Prior thereto, he had been with
Ranger Insurance Company, Houston, Texas for more than five years
as Senior Vice President-Administration.
Mr. Main was named Senior Vice President in 1992 and prior thereto
was Vice President of the Company for more than five years.
Mr. Merritt was elected Senior Vice President-Claims for the
Company on July 11, 1996. For more than five years prior thereto,
he had been Senior Vice President-Claims with Houston General
Insurance Company, Dallas, Texas.
Mr. Mueller was named Vice President/Treasurer and Controller of
the Company in 1996 and prior thereto had been Vice President,
Controller of the Company since 1994 and prior to that had been
Vice President-General Accounting of the subsidiaries of the
Company for more than five years.
ITEM 11. EXECUTIVE COMPENSATION
In accordance with General Instruction G(3), the information
required by this Item 11 is incorporated by reference herein from
the material under the headings "Executive Compensation" and
"Incentive Stock Option Plans" contained in the Company's
definitive proxy statement filed with the Commission relating to
the Company's annual meeting of stockholders to be held on May 20,
1997.
<PAGE>
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
In accordance with General Instruction G(3), the information
required by this Item 12 is incorporated by reference herein from
the material under the headings "Security Ownership and Certain
Beneficial Owners" contained in the Company's definitive proxy
statement filed with the Commission relating to the Company's
annual meeting of stockholders to be held on May 20, 1997.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In accordance with General Instruction G(3), the information
required by this Item 13 is incorporated by reference herein from
the material under the heading "Certain Relationships" contained
in the Company's definitive proxy statement filed with the
Commission relating to the Company's annual meeting of
stockholders to be held on May 20, 1997.
PART IV
-------
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
ITEM 14(a) (l) and (2)--INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND FINANCIAL
STATEMENT SCHEDULES COVERED BY INDEPENDENT AUDITORS' REPORT
The following consolidated financial statements of ACCEL International
Corporation and subsidiaries are included in Item 8:
Independent Auditors' Report
Consolidated balance sheets -- December 31, 1996 and 1995
Consolidated statements of operations -- Years ended December 31, 1996,
1995 and 1994
Consolidated statements of common stockholders' equity -- Years ended
December 31, 1996, 1995 and 1994
Consolidated statements of cash flows -- Years ended December 31, 1996,
1995 and 1994
Notes to consolidated financial statements
The following financial statement schedules of ACCEL International Corporation
and subsidiaries are included in Item 14 (d):
Schedule I -- Summary of Investments - Other than Investments in
Related Parties
Schedule II -- Condensed Financial Information of Registrant
Schedule III -- Supplementary Insurance Information
Schedule IV -- Reinsurance
All other schedules to the consolidated financial statements required by Article
7 of Regulation S-X are not required under the related instructions or are
inapplicable or the required information is provided in the consolidated
financial statements, and the schedules therefore have been omitted.
ITEM 14 (c)--EXHIBITS
<PAGE>
Page
Numbers
In
Exhibit Exhibit
Number Description Volume
- ------- -------------------------------------------------------------- --------
(3) Articles of Incorporation and By-Laws.
1(a) Certificate of Incorporation, as amended, of Registrant.
(Incorporated by reference to Exhibit A of Registrant's
definitive Proxy Statement as filed with the Commission on
June 9, 1978.)
1(b) Restated Certificate of Incorporation of the Registrant.
(Incorporated by reference to Exhibit (3)1(g) of Registrant's
Report on Form 10-K for the year ended December 31, 1989.)
2(a) By-laws of Registrant. (Incorporated by reference to
Exhibit B of the Registrant's definitive Proxy Statement as
filed with the Commission on June 9, 1978.)
2(b) Amendment to Article III, Section 3.02 of the
Registrant's By-Laws as passed by the Board of Directors of
the Registrant on December 1, 1978. (Incorporated by reference
to Exhibit (9)(b) of the Registrant's Report on Form 10-Q for
the quarter ended March 31, 1979.)
2(c) Amendment to Article II, Section 2.04 of the Registrant's
By-Laws as passed by the Board of Directors of the Registrant
on October 23, 1981. (Filed with the Registrant's Amendment #1
to the Registration Statement on Form S-7 as Exhibit (4)3(c)
and incorporated herein by reference.)
2(d) Amendment to Article II, Section 2.02 of the Registrant's
By-Laws as approved by the Board of Directors of the
Registrant on June 18, 1985. (Incorporated by reference to
Exhibit (3) 2(d) to Registrant's Report on Form 10-K for the
year ended December 31, 1985.)
2(e) Amendment to Article II, Section 2.02 of the Registrant's
By-Laws as approved by the Board of Directors of the
Registrant on March 29, 1988. (Incorporated by reference to
Exhibit (3)2(e) of Registrants Report on Form 10-K for the
year ended December 31, 1989.)
2(f) Amendment to Article VIII and the redesignation and
alteration of the former Article VIII as Article IX.
(Incorporated by reference to Exhibit (3)2(f) of Registrant's
Report on Form 10-K for the year ended December 31, 1989.)
(10) Material Contracts.
Previously filed Material Contracts which are either
terminated or deemed to be in the ordinary course of business
to the Registrant are no longer identified.
1(a) Verification of coverage of current Directors and 1
Officers Liability Policy for ACCEL International Corporation
as issued by Reliance Insurance Company, indicating coverage
for the period from June 1, 1996 to June 1, 1997.
<PAGE>
Page
Numbers
In
Exhibit Exhibit
Number Description Volume
- ------- -------------------------------------------------------------- --------
(10) 2. The Company's 1982 Incentive Stock Option Plan.
Cont. (Incorporated by reference to Exhibit A to the Company's
definitive Proxy Statement for the 1982 annual meeting of
stockholders of the Company.)
3. The Company's 1987 Incentive Stock Option Plan.
(Incorporated by reference to Exhibit (10) 7. to the
Registrant's Report on Form 10-K for the year ended December
31, 1987.)
3(a) The Company's first restatement of the 1987 Stock
Incentive Plan. (Incorporated by reference to Exhibit A to the
Company's definitive Proxy Statement for the 1990 annual
meeting of stockholders of the Company.)
4. The Company's 1996 Stock Incentive Plan. (Incorporated by
reference to Exhibit A to the Company's definitive Proxy
Statement for the 1996 annual meeting of stockholders of the
Company.)
5(a) Joint Venture Agreement dated June 16, 1987 by and
between Consumers Life Insurance Company and Acceleration Life
Insurance Company of Pennsylvania and Acceleration National
Service Corporation with Exhibits E and F. (Incorporated by
reference to Exhibit (10) 9(a) to Registrant's Report on Form
10-K for year ended December 31, 1987.)
5(b) Quota Share Reinsurance Agreement dated June 16, 1987 by
and between Consumers Life Insurance Company and Acceleration
Life Insurance Company. (Incorporated by reference to Exhibit
(10) 9(b) to Registrant's Report on Form 10-K for year ended
December 31, 1987.)
5(b) 1. Amendment to the Quota Share Reinsurance Agreement
effective October 1, 1987. (Incorporated by reference to
Exhibit (10)9(b) of the Registrant's Report on Form 10-K for
year ended December 31, 1988.)
5(c) Custodial Account Agreement effective July 1, 1987 by and
between Acceleration Life Insurance Company, Consumers Life
Insurance Company, and Fifth-Third Bank. (Incorporated by
reference to Exhibit (10) 9(c) of the Registrant's Report on
Form 10-K for year ended December 31, 1987.)
5(d) Service Contract, Agreement and Schedules - Joint Venture
Agreement Exhibit B by and between Consumers Life Insurance
Company and Acceleration Life Insurance Company. (Incorporated
by reference to Exhibit (10) 9(d) of the Registrant's Report
on Form 10-K for year ended December 31, 1987.)
5(e) Service Contract Settlement - Joint Venture Agreement
Exhibit C effective July 1, 1987 by and between Consumers Life
Insurance Company and Acceleration Life Insurance Company.
(Incorporated by reference to Exhibit (10) 9(e) of the
Registrant's Report on Form 10-K for year ended December 31,
1987.)
5(f) Security Agreement - Joint Venture Agreement effective
July 1, 1987 by and between Acceleration Life Insurance
Company, Consumers Life Insurance Company, and Fifth-Third
Bank. (Incorporated by reference to Exhibit (10) 9(f) of the
Registrant's Report on Form 10-K for year ended December 31,
1987.)
<PAGE>
Page
Numbers
In
Exhibit Exhibit
Number Description Volume
- ------- -------------------------------------------------------------- --------
(10) 5(g) Marketing Representation Agreement dated June 16,1987 by
Cont. and between Consumers Financial Corporation, ACCEL
International Corporation, and Pennsylvania Auto Association
Insurance Agency, Inc. (Incorporated by reference to Exhibit
(10) 9(g) of the Registrant's Report on Form 10-K for year
ended December 31, 1987.)
5(h) Unconditional Irrevocable Guaranty dated June 16, 1987 by
Consumers Financial Corporation and Consumers Life Insurance
Company. (Incorporated by reference to Exhibit (10) 9(h) of
the Registrant's Report on Form 10-K for year ended December
31, 1987.)
5(i) Unconditional Irrevocable Guaranty dated June 16, 1987 by
ACCEL International Corporation. (Incorporated by reference to
Exhibit (10) 9(i) of the Registrant's Report on Form 10-K for
year ended December 31, 1987.)
5(j) Termination Agreement with Consumers Life Insurance 2-6
effective July 31, 1996.
5(k) Amendment to Termination Agreement with Consumers Life 7-8
Insurance Company effective October 9, 1996.
6. Credit Life and Accident and Health Quota Share Reinsurance
Contract effective December 31, 1994 issued to Acceleration
Life Insurance Company.
The Company executed Amendment No. 3 to a Credit Agreement
with the Fifth Third Bank, Cincinnati, Ohio, a copy of which
is not included herewith as an exhibit. Registrant agrees to
furnish to the Commission a copy thereof upon request.
7. Note Agreement pertaining to $16,500,000 9.5% Senior Notes,
due April 1, 2001, dated as of December 15, 1995, with The
Lincoln National Life Insurance Company.
8. Reinsurance Agreement between Acceleration Life Insurance
Company and The Lincoln National Life Insurance Company
executed December 29, 1995 and by amendment thereto, made
effective January 1, 1996.
8(a) Amendment No. 2 to the Reinsurance Agreement between 9-15
Acceleration Life Insurance Company and The Lincoln National
Life Insurance Company effective January 1, 1996.
8(b) Amendment No. 3 to the Reinsurance Agreement between 16-19
Acceleration Life Insurance Company and The Lincoln National
Life Insurance Company effective January 1, 1996
9. Reinsurance Agreement between Acceleration Life Insurance 20-54
Company and The Lincoln National Reassurance Company effective
January 1, 1996, and executed July 31, 1996.
9(a) Amendment No. 1 to the Reinsurance Agreement between 55-62
Acceleration Life Insurance Company and The Lincoln National
Reassurance Company effective January 1, 1996.
(21) Subsidiaries of the Registrant
(1) See Organizational Chart - all such Companies are 63
incorporated herein by reference and are presently doing
business under their respective INCORPORATED NAMES.
<PAGE>
Page
Numbers
In
Exhibit Exhibit
Number Description Volume
- ------- -------------------------------------------------------------- --------
(23) Consent of Independent Auditors' 64
(24) Powers of Attorney 65-73
* The total amount of securities authorized under any
instrument with respect to long-term debt does not exceed 10%
of the total assets of the Registrant and its subsidiaries on
a consolidated basis. The Registrant hereby agrees to furnish
a copy of any such instrument to the Commission upon request.
(27) Financial Data Schedule incorporated herein by reference to
the EDGAR filing of the Registrant for the year ended December
31, 1996.
<PAGE>
ITEM 14 (d)--SCHEDULES
SCHEDULE I - SUMMARY OF INVESTMENTS -
OTHER THAN INVESTMENTS IN RELATED PARTIES
ACCEL INTERNATIONAL CORPORATION AND SUBSIDIARIES
December 31, 1996
- --------------------------------------------------------------------------------
Column A Column B Column C Column D
- --------------------------------------------------------------------------------
Amount at
Which Shown
in the
Fair Balance
Type of Investment Cost* Value Sheet
- --------------------------------------------------------------------------------
(Thousands of dollars)
Available for sale securities:
Fixed maturities:
United States Government and govern-
ment agencies and authorities $ 13,120 $ 13,193 $ 13,193
States, municipalities and
political subdivisions 940 960 960
Mortgage and asset-backed securities 40,743 40,032 40,032
All other corporate bonds 3,541 3,554 3,554
Redeemable preferred stocks 545 542 542
---------- ---------- ----------
Total 58,889 58,281 58,281
Equity securities
Common stocks:
Industrial & Miscellaneous 5,514 5,511 5,511
Other long-term investments 346 346 346
Short-term investments 10,670 10,703 10,703
---------- ---------- ----------
Total investments $ 75,419 $ 74,841 $ 74,841
========== ========== ==========
* Original cost of equity securities, adjusted for any permanent write down,
and, as to fixed maturities, original cost reduced by repayments and
adjusted for amortization of premiums or accrual of discounts.
See accompanying independent auditors' report.
<PAGE>
SCHEDULE II - CONDENSED FINANCIAL INFORMATION OF REGISTRANT
BALANCE SHEETS
ACCEL INTERNATIONAL CORPORATION (Parent Company)
December 31,
1996 1995
---------- ----------
(Thousands of dollars)
ASSETS
Investments $ 1 $ 1
Cash 28 443
Notes and receivables from
consolidated subsidiaries* 3 391
Deferred federal income tax 209 251
Investments in subsidiaries** 51,162 48,596
Other 110 4
---------- ----------
$ 51,513 $ 49,686
========== ==========
LIABILITIES AND COMMON STOCKHOLDERS' EQUITY
Accounts payable and other liabilities $ 1,126 $ 296
Notes and accounts payable to subsidiaries* 3,401 5,954
Current federal income tax 345 345
Notes payable 15,000 22,531
---------- ----------
19,872 29,126
Common stockholders' equity:
Common stock 940 524
Additional paid-in capital 32,507 23,702
Retained earnings (including undistributed
earnings of subsidiaries and affiliates:
1996--$11,189,000; 1995--$8,770,000) 5,403 3,299
Treasury shares at cost (6,599) (6,599)
ESOP loan (32) (161)
Net unrealized depreciation on investment
securities (representing amounts
attributable to investments of subsidiaries
1996--($578,000); 1995--($205,000)) (578) (205)
---------- ----------
31,641 20,560
---------- ----------
$ 51,513 $ 49,686
========== ==========
* Eliminated in consolidation
** Eliminated in consolidation except for portion related to goodwill and ESOP
loan.
The condensed financial statements should be read in conjunction with the
consolidated financial statements and notes thereto of ACCEL International
Corporation and subsidiaries.
See accompanying independent auditors' report.
<PAGE>
SCHEDULE II - CONDENSED FINANCIAL INFORMATION OF REGISTRANT
STATEMENTS OF OPERATIONS
ACCEL INTERNATIONAL CORPORATION (Parent Company)
Year Ended December 31,
1996 1995 1994
------------ ------------ ------------
(Thousands of dollars)
INCOME
Net investment income:
Dividends from consolidated
subsidiaries* $ - $ 803 $ 631
Interest 3 1 13
Realized gains - - 122
Other income 2,146 143 105
------------ ------------ ------------
2,149 947 871
EXPENSES
General and administrative 374 315 345
Interest 2,178 2,307 2,007
Loss on write-off of subsidiary - - 3,829
------------ ------------ ------------
2,552 2,622 6,181
------------ ------------ ------------
LOSS BEFORE INCOME
TAXES AND OTHER ITEMS (403) (1,675) (5,310)
Federal income taxes (benefit) 43 (248) -
Other item--equity in undistributed
net income (loss) of consolidated
subsidiaries* 2,419 (33) 72
------------ ------------ ------------
INCOME (LOSS) BEFORE
EXTRAORDINARY ITEM 1,973 (1,460) (5,238)
Extraordinary item-gain on
extinguishment of debt 131 - -
------------ ------------ ------------
NET INCOME (LOSS) $ 2,104 $ (1,460) $ (5,238)
============ ============ ============
* Eliminated in consolidation
The condensed financial statements should be read in conjunction with the
consolidated financial statements and notes thereto of ACCEL International
Corporation and subsidiaries.
See accompanying independent auditors' report.
<PAGE>
SCHEDULE II - CONDENSED FINANCIAL INFORMATION OF REGISTRANT
STATEMENTS OF CASH FLOWS
ACCEL INTERNATIONAL CORPORATION (Parent Company)
Year Ended December 31,
1996 1995 1994
-------- -------- --------
(Thousands of dollars)
OPERATING ACTIVITIES:
Net income (loss) before extraordinary item $ 1,973 $(1,460) $(5,238)
Adjustments to reconcile net income (loss) to
net cash provided by (used in)
operating activities:
Change in amounts due from consolidated
subsidiaries 388 830 118
Change in accounts payable to consolidated
subsidiaries (233) 652 115
Change in other assets, other liabilities,
and accrued income taxes 741 (191) (112)
Interest paid in kind 403 569 515
Amortization of premium on bonds - - 5
Equity in (gains) losses of subsidiaries
and affiliates (2,419) 33 (72)
Provision for amortization of goodwill 106 107 108
Write off of subsidiary - - 3,829
Net realized gains on investments - - (122)
-------- -------- --------
NET CASH PROVIDED BY (USED IN) OPERATIONS
BEFORE EXTRAORDINARY ITEM 959 540 (854)
Extraordinary gain 131 - -
-------- -------- --------
NET CASH PROVIDED BY (USED IN) OPERATIONS 1,090 540 (854)
INVESTING ACTIVITIES:
Additional investment in subsidiary (496) (4,000) -
Sale, maturity, or repayment of investments - 49 1,599
-------- -------- --------
NET CASH PROVIDED BY (USED IN)
INVESTING ACTIVITIES (496) (3,951) 1,599
FINANCING ACTIVITIES:
Repayment of notes payable (600) (13,000) -
Issuance of notes payable - 16,500 -
Repayment of notes to subsidiary (3,927) (1,000) -
Write down of ESOP Loan - (364) -
Stock redemption of subsidiary - 1,483 -
Debentures redeemed - - (900)
Issuance of Common Stock under Stock
Option Plan 234 - -
Issuance of Common Stock under Rights
Offering 3,284 - -
Other net - 32 366
-------- -------- --------
NET CASH PROVIDED BY (USED IN)
FINANCING ACTIVITIES (1,009) 3,651 ( 534)
-------- -------- --------
INCREASE (DECREASE) IN CASH (415) 240 211
Cash (Overdraft) at beginning of year 443 203 (8)
-------- -------- --------
CASH AT END OF YEAR $ 28 $ 443 $ 203
======== ======== ========
Supplemental schedule of non-cash
financing activities:
Cancellation of Subordinated Notes
as consideration for the purchase
of Common Stock--Note D $ 5,703 $ - $ -
======== ======== ========
Transfer of note payable to
Subsidiary--Note D $ 1,500 $ - $ -
======== ======== ========
The condensed financial statements should be read in conjunction with the
consolidated financial statements and notes thereto of ACCEL International
Corporation and subsidiaries.
See accompanying independent auditors' report.
<PAGE>
<TABLE>
SCHEDULE III - SUPPLEMENTARY INSURANCE INFORMATION
ACCEL INTERNATIONAL CORPORATION AND SUBSIDIARIES
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Column A Column B Column C Column D Column E Column F Column G Column H Column I Column J Column K
- ------------------------------------------------------------------------------------------------------------------------------------
December 31, Year ended December 31,
--------------------------------------------------------- ------------------------------------------------------------
Deferred Reserve Unearned Other Premium Net Benefits, Amortization Other Premiums
policy for future Premiums policy revenue investment claims, of deferred operating written
acquisition policy claim and income(1) losses and policy expenses
costs benefits benefits settlement acquisition (1)
payable expenses costs (2)
- ------------------------------------------------------------------------------------------------------------------------------------
(Thousands of dollars)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1996
Life/Health $ 29,528 $ - $ 62,057 $ 15,891 $ 27,845 $ 2,776 $ 14,036 $ 1,829 $ 19,861 $ 34,768
Property
/Casaulty 1,418 - 19,763 9,365 18,112 2,121 10,302 (936) 8,606 23,644
Other - 7 - - - 3 - - 2,343 -
---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
TOTAL $ 30,946 $ 7 $ 81,820 $ 25,256 $ 45,957 $ 4,900 $ 24,338 $ 893 $ 30,810 $ 58,412
========== ========== ========== ========== ========== ========== ========== ========== ========== ==========
1995
Life/Health $ 31,357 $ 11 $ 67,850 $ 15,568 $ 24,411 $ 5,172 $ 12,775 $ (1,795) $ 24,843 $ 43,144
Property
/Casaulty 482 - 14,230 7,193 16,442 1,631 7,343 1,045 5,302 12,299
Other - - - - - 140 - - 2,063 -
---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
TOTAL $ 31,839 $ 11 $ 82,080 $ 22,761 $ 40,853 $ 6,943 $ 20,118 $ (750) $ 32,208 $ 55,443
========== ========== ========== ========== ========== ========== ========== ========== ========== ==========
1994
Life/Health $ 29,563 $ 15 $ 65,387 $ 16,781 $ 32,059 $ 4,972 $ 12,350 $ (2,563) $ 24,188 $ 35,577
Property
/Casaulty 1,526 - 18,375 6,378 15,541 2,380 12,647 4,648 9,223 12,432
Other - - - - - 134 - - 1,932 -
---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
TOTAL $ 31,089 $ 15 $ 83,762 $ 23,159 $ 47,600 $ 7,486 $ 24,997 $ 2,085 $ 35,343 $ 48,009
========== ========== ========== ========== ========== ========== ========== ========== ========== ==========
<FN>
(1) Allocations of net investment income and other operating expenses are based
on a number of assumptions and results would change if different methods
were applied. Net investment income includes realized gains and losses.
Other operating expenses at December 31, 1994 include the write off of
Randjill Group Limited ($3,829,280).
(2) Represents the net (increase) decrease in deferred policy acquisition costs.
See accompanying independent auditors' report.
</FN>
</TABLE>
<PAGE>
SCHEDULE IV - REINSURANCE
ACCEL INTERNATIONAL CORPORATION AND SUBSIDIARIES
Column
Column A Column B Column C Column D Column E F
- --------------------------------------------------------------------------------
Percentage
of amount
Ceded to Assumed assumed
Gross other from other Net to
amount companies companies amount net
- --------------------------------------------------------------------------------
(Thousands of dollars)
Year Ended December 31, 1996
- ----------------------------
Life insurance in-force $1,188,609 $ 327,883 $ 258,953 $1,119,679 23.1%
========== ========= ========= ==========
Premiums
Life $ 12,812 $ 1,953 $ 1,311 $ 12,170 10.8%
Accident and health 18,323 3,390 2,322 17,255 13.5%
Property and casualty 23,644 7,517 - 16,127 .0%
---------- --------- --------- ----------
Total premiums $ 54,779 $ 12,860 $ 3,633 $ 45,552 8.0%
========== ========= ========= ==========
Year Ended December 31, 1995
- ----------------------------
Life insurance in-force $1,523,926 $ 432,311 $ 320,466 $1,412,081 22.7%
========== ========= ========= ==========
Premiums
Life $ 15,301 $ 2,604 $ 2,255 $ 14,952 15.1%
Accident and health 21,463 4,108 4,053 21,408 18.9%
Property and casualty 12,371 5,435 - 6,936 .0%
---------- --------- --------- ----------
Total premiums $ 49,135 $ 12,147 $ 6,308 $ 43,296 14.6%
========== ========= ========= ==========
Year Ended December 31, 1994
- ----------------------------
Life insurance in-force $1,172,278 $ 290,673 $ 336,153 $1,217,758 27.6%
========== ========= ========= ==========
Premiums
Life $ 15,149 $ 4,932 $ 2,794 $ 13,011 21.4%
Accident and health 22,909 5,189 4,846 22,566 21.5%
Property and casualty 14,806 2,374 - 12,432 .0%
---------- --------- --------- ----------
Total premiums $ 52,864 $ 12,495 $ 7,640 $ 48,009 15.9%
========== ========= ========= ==========
See accompanying independent auditors' report.
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
ACCEL INTERNATIONAL CORPORATION
By: /S/ Kurt L. Mueller
---------------------------------
Kurt L. Mueller
Vice President, Treasurer & Controller
Date: March 28, 1997
---------------------
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant and
in the capacities and on the dates indicated.
Signature Title Date
- -------------------------------- ----------- ----------------
/S/ Robert Betagole Director March 18, 1997
- -------------------------------- --------------
Robert Betagole
/S/ David T. Chase* Director March 18, 1997
- -------------------------------- --------------
David T. Chase
/S/ Douglas J. Coats* Director March 18, 1997
- -------------------------------- --------------
Douglas J. Coats
/S/ Raymond H. Deck* Director March 18, 1997
- ----------------------------- --------------
Raymond H. Deck
Director
- ----------------------------- --------------
Robert E. Fowler III
/S/ Thomas H. Friedberg* Director March 18, 1997
- ------------------------------ --------------
Thomas H. Friedberg
<PAGE>
Signature Title Date
- -------------------------------- ----------- ----------------
/S/ Kermit G. Hicks* Director March 18, 1997
- ------------------------------ --------------
Kermit G. Hicks
/S/ Stephen M. Qua* Director March 18, 1997
- ------------------------------ --------------
Stephen M. Qua
/S/ Milton J. Taylor, Sr.* Director March 18, 1997
- ------------------------------ --------------
Milton J. Taylor, Sr.
/S/ Paul R. Whitters* Director March 18, 1997
- ------------------------------ --------------
Paul R. Whitters
*By: /S/Nicholas Z. Alexander March 28, 1997
---------------------------- --------------
Nicholas Z. Alexander
Attorney-in-Fact
<TABLE> <S> <C>
<ARTICLE> 7
<LEGEND>
This schedule contains summary information extracted from ACCEL International
Corporation's Annual Report on Form 10-K for the year ended December 31, 1996,
and is qualified in its entiretyby reference to such Form 10-K.
</LEGEND>
<CIK> 0000001985
<NAME> ACCEL INTERNATIONAL CORPORATION
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<DEBT-HELD-FOR-SALE> 58,281
<DEBT-CARRYING-VALUE> 0
<DEBT-MARKET-VALUE> 0
<EQUITIES> 5,511
<MORTGAGE> 0
<REAL-ESTATE> 0
<TOTAL-INVEST> 74,841
<CASH> 3,331
<RECOVER-REINSURE> 0
<DEFERRED-ACQUISITION> 30,946
<TOTAL-ASSETS> 189,308
<POLICY-LOSSES> 25,256
<UNEARNED-PREMIUMS> 81,820
<POLICY-OTHER> 7
<POLICY-HOLDER-FUNDS> 0
<NOTES-PAYABLE> 15,000
0
0
<COMMON> 940
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 189,308
45,957
<INVESTMENT-INCOME> 4,416
<INVESTMENT-GAINS> 484
<OTHER-INCOME> 6,963
<BENEFITS> 24,338
<UNDERWRITING-AMORTIZATION> 31,703
<UNDERWRITING-OTHER> 0
<INCOME-PRETAX> 1,779
<INCOME-TAX> (194)
<INCOME-CONTINUING> 1,973
<DISCONTINUED> 0
<EXTRAORDINARY> 131
<CHANGES> 0
<NET-INCOME> 2,104
<EPS-PRIMARY> .36
<EPS-DILUTED> 0
<RESERVE-OPEN> 22,761
<PROVISION-CURRENT> 0
<PROVISION-PRIOR> 0
<PAYMENTS-CURRENT> 0
<PAYMENTS-PRIOR> 0
<RESERVE-CLOSE> 25,256
<CUMULATIVE-DEFICIENCY> 0
</TABLE>
