-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, KRPn8nkFTm5o+RlA6ctOZX1ug9u3VTlodMb6+jZ/ZaOxoPEZxDXx0lAdabS7r+m3 SLFW6jEUbAHZjs+J9cfUBg== 0000001985-96-000013.txt : 19961118 0000001985-96-000013.hdr.sgml : 19961118 ACCESSION NUMBER: 0000001985-96-000013 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19960930 FILED AS OF DATE: 19961114 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: ACCEL INTERNATIONAL CORP CENTRAL INDEX KEY: 0000001985 STANDARD INDUSTRIAL CLASSIFICATION: LIFE INSURANCE [6311] IRS NUMBER: 310788334 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-08768 FILM NUMBER: 96665884 BUSINESS ADDRESS: STREET 1: 475 METRO PLACE N CITY: DUBLIN STATE: OH ZIP: 43017 BUSINESS PHONE: 6147647000 MAIL ADDRESS: STREET 1: 475 METRO PLACE NORTH CITY: DUBLIN STATE: OH ZIP: 43017 FORMER COMPANY: FORMER CONFORMED NAME: ACCELERATION CORP DATE OF NAME CHANGE: 19870814 10-Q 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D. C. 20549 FORM 10-Q (Mark One) [X] QUARTERLY REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTER ENDED SEPTEMBER 30, 1996 [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM ____________ TO ____________ COMMISSION FILE NUMBER 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, SUITE 100, 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-Q or any amendment to this Form 10-Q. _____ 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 ----- ----- As of October 31, 1996, there were 8,603,742 shares of Common Stock, $.10 par value per Share outstanding. COMMISSION FILE NO. 0-8162 ACCEL INTERNATIONAL CORPORATION AND SUBSIDIARIES SEPTEMBER 30, 1996 INDEX PART I FINANCIAL INFORMATION Item 1. Financial Statements Page ---- Unaudited Consolidated Balance Sheets (September 30, 1996 and December 31, 1995) 1 - 2 Unaudited Consolidated Statements of Operations (Nine months and three months ended September 30, 1996 and 1995) 3 Unaudited Consolidated Statements of Common Stockholders' Equity (Nine months ended September 30, 1996 and year ended December 31, 1995) 4 Unaudited Consolidated Statements of Cash Flows (Nine months ended September 30, 1996 and 1995) 5 Notes to Unaudited Consolidated Financial Statements 6 - 11 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 12 - 16 PART II OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K 17 ACCEL INTERNATIONAL CORPORATION AND SUBSIDIARIES UNAUDITED CONSOLIDATED BALANCE SHEETS September 30, December 31, 1996 1995 (Thousands of dollars) ASSETS Investments: Investments available for sale, at fair value: Fixed maturities (cost: 1996--$ 57,251,000; 1995--$53,427,000) $ 55,927 $ 53,204 Equity securities (cost: 1996--$6,275,000; 1995--$5,433,000) 6,266 5,451 Short-term investments, at cost 11,960 4,278 Other invested assets, at fair value (cost: 1996--$353,000;1995--$364,000) 321 364 --------- --------- 74,474 63,297 Cash - 5,039 Receivables: Premiums in process of transmittal, less allowance (1996--$282,000; 1995--$279,000) 10,443 1,779 Amounts due from reinsurers 31,481 9,119 Federal income taxes recoverable 481 70 --------- --------- 42,405 10,968 Accrued investment income 579 557 Prepaid reinsurance premiums 17,052 14,895 Reinsurance premium deposits 25,182 51,634 Deferred policy acquisition costs 32,632 31,839 Equipment--at cost, less accumulated depreciation (1996--$169,000; 1995--$564,000) 46 187 Leasehold improvements 161 - 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 742 822 Funds held under reinsurance agreements 20,313 829 Other 950 273 --------- --------- 22,005 1,924 --------- --------- $ 214,536 $ 183,507 ========= ========= (Continued) ACCEL INTERNATIONAL CORPORATION AND SUBSIDIARIES UNAUDITED CONSOLIDATED BALANCE SHEETS--(CONTINUED) September 30, December 31, 1996 1995 (Thousands of dollars) LIABILITIES AND COMMON STOCKHOLDERS' EQUITY Policy Reserves and Liabilities: Unearned premium reserves $ 87,445 $ 82,080 Insurance claims 23,813 22,761 Other 13 11 --------- -------- 111,271 104,852 Other Liabilities: Funds held under reinsurance agreements 19,490 3,072 Cash overdraft 610 - Accounts payable and other liabilities 2,511 2,353 Commissions payable 5,706 5,010 Amounts due reinsurers 5,716 4,442 Federal income taxes: Current 1,006 - Deferred 4,234 5,024 Deferred reinsurance commissions 18,505 15,663 Notes payable--Note D 16,500 22,531 --------- -------- 74,278 58,095 Commitments and Contingencies Redeemable Preferred Stock: Authorized shares--1,000,000; no issued or outstanding shares - - Common Stockholders' Equity: 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 32,509 23,702 Retained earnings 3,551 3,299 Less 797,420 treasury shares at cost (6,599) (6,599) ESOP loan (49) (161) Net unrealized depreciation on investment securities (1,365) (205) --------- --------- Total Common Stockholders' Equity 28,987 20,560 --------- --------- $ 214,536 $ 183,507 ========= ========= See notes to unaudited consolidated financial statements. ACCEL INTERNATIONAL CORPORATION AND SUBSIDIARIES UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS Three Months Ended Nine Months Ended September 30, September 30, 1996 1995 1996 1995 (Thousands of dollars, except per share data) REVENUE: Gross premiums written--Note E $ 15,288 $ 15,297 $ 49,152 $ 43,669 Less reinsurance ceded--Note E 3,969 3,413 11,395 10,454 --------- --------- --------- --------- Net premiums written 11,319 11,884 37,757 33,215 Decrease (increase) in unearned premium reserves 945 (1,563) (3,927) (3,274) --------- --------- --------- --------- Premiums earned--Note E 12,264 10,321 33,830 29,941 Net investment income: Interest and dividends 1,218 1,556 3,277 4,644 Realized gains (losses) (48) 24 227 303 Service fees on extended service contracts 662 594 1,885 1,645 Other income 1,439 253 1,711 375 -------- --------- --------- --------- 15,535 12,748 40,930 36,908 BENEFITS AND EXPENSES: Policy benefits--Note E 7,454 4,820 18,031 12,931 Commissions and selling expenses 5,085 5,873 16,250 16,689 Reinsurance expense recovery (810) (454) (1,428) (710) General and administrative 1,949 1,807 5,309 5,348 Taxes, licenses and fees 689 437 1,560 1,398 Interest 489 414 1,577 1,288 Decrease (increase) in deferred policy acquisition costs 305 (624) (795) (1,245) --------- --------- ------- --------- 15,161 12,273 40,504 35,699 --------- --------- --------- --------- INCOME BEFORE FEDERAL INCOME TAX AND EXTRAORDINARY ITEM 374 475 426 1,209 Federal income tax: Current 582 84 1,095 341 Deferred (benefit) (237) 226 (790) 36 --------- --------- --------- --------- 345 310 305 377 --------- --------- --------- --------- INCOME BEFORE EXTRAORDINARY ITEM 29 165 121 832 Extraordinary item--gain on extinguishment of debt--Note D 131 - 131 - --------- --------- --------- --------- NET INCOME $ 160 $ 165 $ 252 $ 832 ========= ========= ========= ========= Per Common Share: Income Before Extraordinary item $ .01 $ .04 $ .02 $ .19 Extraordinary item .02 - .03 - --------- --------- --------- --------- Net Income $ .03 $ .04 $ .05 $ .19 ========= ========= ========= ========= Weighted average number of common shares outstanding 6,029,561 4,446,432 4,998,048 4,446,432 ========= ========= ========= ========= See notes to unaudited consolidated financial statements. ACCEL INTERNATIONAL CORPORATION AND SUBSIDIARIES UNAUDITED CONSOLIDATED STATEMENTS OF COMMON STOCKHOLDERS' EQUITY 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 (Thousands of dollars) 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 - (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 - - - - 112 - - 112 Issuance of 110,000 shares of Common Stock under Common Stock Option Plan 11 223 - - - - - 234 Issuance of 4,047,310 shares of Common Stock in conjuction with the Rights Offering and the Supplemental Offering 405 8,584 - - - - - 8,989 Change in net unrealized depreciation on investment securities - - - - - (1,160) - (1,160) Net income - - 252 - - - - 252 ------- ------- ------- ------- ------- ------- ------- ------- Balances at September 30, 1996 $ 940 $32,509 $ 3,551 $(6,599) $ (49) $(1,365) $ - $28,987 ======= ======= ======= ======= ======= ======= ======= ======= See notes to unaudited consolidated financial statements.
ACCEL INTERNATIONAL CORPORATION AND SUBSIDIARIES UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS Nine Months Ended September 30, 1996 1995 (Thousands of dollars) OPERATING ACTIVITIES: Net income before extraordinary item $ 121 $ 832 Adjustments to reconcile net income to net cash used in operating activities: Change in premiums receivable (8,667) 522 Change in accrued investment income (22) 116 Change in prepaid reinsurance premiums (2,157) 2,440 Change in unearned premium reserves 5,365 519 Change in claim reserves 1,052 (1,880) Change in amounts due reinsurers and amounts due from reinsurers (21,088) (3,368) Change in funds held under reinsurance agreements (3,066) (381) Change in other assets, other liabilities, and accrued income taxes 206 581 Interest paid in kind 403 422 Accrual of discount on bonds (179) (85) Amortization of premium on bonds 77 61 Amortization of deferred policy acquisition costs 15,537 15,286 Policy acquisition costs deferred (16,330) (16,567) Reinsurance commissions earned (16,846) (10,189) Reinsurance commissions received 19,688 8,940 Provision for depreciation and amortization 225 312 Net realized gains on investments (227) (303) -------- -------- NET CASH USED IN OPERATING ACTIVITIES EXCLUDING EXTRAORDINARY ITEM (25,908) (2,742) Extraordinary Item 131 - -------- -------- NET CASH USED IN OPERATING ACTIVITIES (25,777) (2,742) INVESTING ACTIVITIES: Sale of investments 9,566 25,137 Purchase of investments (21,739) (23,079) Sale of property occupied by the Company 3,298 - Other, net (350) (43) -------- -------- NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES (9,225) 2,015 FINANCING ACTIVITIES: Payment on ESOP loan 112 76 Repayment of notes payable (731) (200) Issuance of Common Stock under Stock Option Plan 257 - Issuance of Common Stock under Rights Offering 3,263 - Change in reinsurance premium deposit 26,452 301 -------- -------- NET CASH PROVIDED BY FINANCING ACTIVITIES 29,353 177 -------- -------- NET DECREASE IN CASH (5,649) (550) Cash at beginning of period 5,039 1,044 -------- -------- CASH (OVERDRAFT) AT END OF PERIOD $ (610) $ 494 ======== ======== SUPPLEMENTAL SCHEDULE OF NON-CASH FINANCING ACTIVITIES: CANCELLATION OF SUBORDINATED NOTES AS CONSIDERATION FOR THE PURCHASE OF COMMON STOCK--NOTE D 5,703 - ======== ======== See notes to unaudited consolidated financial statements. ACCEL INTERNATIONAL CORPORATION AND SUBSIDIARIES NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS SEPTEMBER 30, 1996 NOTE A--SIGNIFICANT ACCOUNTING POLICIES Basis of Presentation: The accompanying unaudited 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 for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X which, as to the insurance company subsidiaries, differ in some respects from statutory accounting practices prescribed or permitted by state insurance departments. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments considered necessary for a fair presentation have been included. Operating results for all periods presented are not necessarily indicative of the results that may be expected for the full year. For further information, refer to the consolidated financial statements and footnotes thereto included in the Company's Annual Report on Form 10-K for the year ended December 31, 1995. PRINCIPLES OF CONSOLIDATION: The accompanying unaudited consolidated financial statements include the accounts of ACCEL and its wholly-owned subsidiaries. All significant intercompany accounts and transactions have been eliminated in the unaudited 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, vendor's single interest and other specialty casualty products. Beginning in the first quarter of 1996, the Company began to offer coverages for long haul trucking and charter buses through a managing general agent. In the second quarter the Company began to offer commercial multi-peril policies to auto dealers. In the third quarter the Company elected to exit the commercial multi-peril line due to differences with the managing general agent who produced and administered this 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. 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 designed to reduce insurer profits, new legal theories or insurance company insolvencies through guaranty fund assessments may create costs for the insurer beyond those currently recorded in the unaudited 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 sound 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 may have to borrow funds or sell assets prior to maturity and potentially recognize a gain or loss. ACCEL INTERNATIONAL CORPORATION AND SUBSIDIARIES NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS-(CONTINUED) NOTE A--SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED) ACCOUNTING ESTIMATES: In preparing the unaudited 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 unaudited 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 reflected in current operations. INVESTMENTS: The Company classifies all of 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 cost which approximates fair value. Other invested assets are carried at fair value. Realized gains and losses on the disposal of investments are determined by specific identification and are included in the unaudited 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, the Company's accounting follows the provisions of the Financial Accounting Standards Board Emerging Issues Tasks Force ("EITF") Consensus No. 93-18. This EITF requires that 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 to be recognized by writing the investment down to its fair value. FEDERAL INCOME TAXES: Deferred tax assets and liabilities are recognized for 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 carry-forwards. 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. EARNINGS PER COMMON SHARE: Net income per common share is 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 unaudited consolidated financial statements have been reclassified to conform with the 1996 presentation. NOTE B--FOREIGN CURRENCY TRANSLATION The financial statements of Acceleration Insurance Company Limited ("AICL"), a United Kingdom subsidiary, have been translated into U.S. dollars using the British pound as the functional currency. The balance sheets of AICL have been translated into U.S. dollars using exchange rates as of the date of the unaudited consolidated financial statements. The operating results of AICL have been translated into U.S. dollars using the average exchange rates in effect during the respective periods. ACCEL INTERNATIONAL CORPORATION AND SUBSIDIARIES NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS-(CONTINUED) NOTE B--FOREIGN CURRENCY TRANSLATION--(CONTINUED) Included in foreign currency translation adjustments are 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. NOTE C--FEDERAL INCOME TAXES The Company files a consolidated federal income tax return. The provision for income taxes is based on income for financial reporting purposes, after permanent differences. NOTE D--NOTES PAYABLE In July 1991, ACCEL issued $5,848,000 of subordinated notes (the "Subordinated Notes") in connection with the purchase of all outstanding common shares of Randjill Group Ltd. ("RGL"). The Subordinated Notes had a nine-year term with no principal payable until maturity, and bore 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 first nine months of 1996 and the full year 1995, respectively. Of the Subordinated Notes described above, $5,371,000 were initially issued to Ranger Insurance Company ("Ranger"), a company related through common ownership by a stockholder and director of the Company. In 1993, Ranger sold all of the Subordinated Notes held by it to Chase Insurance Holdings Corporation ("CIHC"), another company related through common ownership by a stockholder and director of the Company. Additional Subordinated Notes in the amount of $356,000 and $506,000 were issued as interest payments to related parties for the first nine months of 1996 and the full year 1995, respectively. 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 (see Rights Offering under Certain Events). 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 Company had an outstanding loan balance of $13,000,000 under the terms of a credit agreement (the "Credit Agreement") with a bank. 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, respectively, from the liquidation of AICL and the projected sale of the building used as the corporate home office. The loan was to be payable in full on June 30, 1997. ACCEL INTERNATIONAL CORPORATION AND SUBSIDIARIES NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS-(CONTINUED) NOTE D--NOTES PAYABLE--(CONTINUED) 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 bank 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, a subsidiary of the Company entered into a reinsurance agreement with an unaffiliated company to reinsure the in-force Credit Business. This agreement is structured, such, 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 the interest thereon and redeem these Senior Notes. NOTE E--REINSURANCE During 1995, the Company had an agreement in place which covered a substantial portion of its credit insurance business. The agreement contained an experience adjustment computation that resulted in the ultimate cost of this agreement being a stated percentage related to the business covered by the agreement. The Company ultimately retained 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 unaudited consolidated financial statements have been prepared on this basis. On January 1, 1996 the Company terminated this quota share reinsurance agreement and elected to recapture the liabilities subject to this treaty. The liabilities recaptured thereunder were then available for cession under the treaty described below. 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. 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 were $29,756,000 and $8,018,000, respectively, as of September 30, 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 unaudited consolidated balance sheets as of December 31, 1995. Effective January 1, 1996, the Company entered into a reinsurance agreement with the same unaffiliated reinsurer referenced above to reinsure a substantial portion of the credit life and accident and health insurance produced in 1996. This 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 uses the deposit accounting method for recording transactions under both of the reinsurance agreements effective January 1, 1996. ACCEL INTERNATIONAL CORPORATION AND SUBSIDIARIES NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS-(CONTINUED) NOTE E--REINSURANCE--(CONTINUED) The following data summarizes certain aspects of the Company's reinsurance activity for the periods presented. Premiums written and earned in 1996 and 1995 are summarized as follows: WRITTEN EARNED Period Ended September 30, Nine Months Three Months Nine Months Three Months Ended Ended Ended Ended 1996 1995 1996 1995 1996 1995 1996 1995 (Thousands of dollars) Direct $45,214 $39,145 $13,930 $13,527 $38,922 $38,444 $13,775 $13,849 Assumed 3,938 4,524 1,358 1,770 4,864 4,645 2,132 1,732 Ceded 11,395 10,454 3,969 3,413 9,956 13,148 3,643 5,260 ------- ------- ------- ------- ------- ------- ------- ------- Net premiums $37,757 $33,215 $11,319 $11,884 $33,830 $29,941 $12,264 $10,321 Policy benefits incurred for the periods presented are as follows: Nine Months Ended Three Months Ended 1996 1995 1996 1995 (Thousands of dollars) Direct $ 15,125 $ 18,494 $ 6,321 $ 6,385 Assumed 2,993 2,680 1,124 1,026 Ceded 87 8,243 (9) 2,591 ------- ------- -------- ------- Net policy benefits $ 18,031 $ 12,931 $ 7,454 $ 4,820 ======== ======== ======== ======== NOTE F--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 Acceleration Life Insurance Company ("ALIC"), a wholly owned subsidiary of ACCEL, and consists 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 $256,000. NOTE G--COMMITMENTS AND CONTINGENCIES Due to the nature of its operations, the Company is at all times subject to pending and threatened legal actions which arise in the normal course of its activities. In management's opinion, based on the advice of outside counsel, the unaudited consolidated financial statements will not be materially affected by the ultimate outcome of any legal proceedings or contingent liabilities. On October 7, 1994, the Liquidation Bureau of the New York State Insurance Department (the "Liquidation Bureau") took control of Galaxy Insurance Company ("Galaxy"), which prior to the commencement of liquidation proceedings had been an indirect wholly-owned subsidiary of the Company, pursuant to an order of liquidation of the New York Supreme Court. Prior to the liquidation of Galaxy, Acceleration National Insurance Company ("ANIC"), the property and casualty insurance company subsidiary of the Company, 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. ACCEL INTERNATIONAL CORPORATION AND SUBSIDIARIES NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS-(CONTINUED) NOTE G--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 affect on the financial condition or results of operations of the Company. NOTE H--STOCK OPTION AGREEMENT On May 23, 1995, Mr. Friedberg was elected Chairman & CEO of ACCEL and Mr. Coats was elected Executive Vice President and President of ANIC. Accordingly, Mr. Friedberg and Mr. Coats became Key Employees under ACCEL's 1987 Stock Incentive 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. Mr. Friedberg was granted an option for 100,000 shares and Mr. Coats for 50,000 shares. The grant price for both options was $2.125, the fair value of ACCEL's common stock on the date of grant. The options vested 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 be forfeited if employment with ACCEL was voluntarily terminated prior to May 23, 1996. The options lapse five years from the effective date of the grant. At the end of their first year of service, Messrs. Friedberg and Coats' status was evaluated by the Compensation Committee and based on the value of their services, commenced to receive compensation effective June 1, 1996. In addition, Mr. Friedberg and Mr. Coats were granted options pursuant to the 1996 Stock Incentive Plan as of August 28, 1996, for 110,000 and 55,000 shares, respectively, at a grant price equal to the price of ACCEL stock at the close of the market on the date of grant and otherwise according to terms identical to the aforementioned options granted on May 23, 1995. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Operating Results for the Nine Months Ended September 30, 1996 and September 30, 1995 OPERATING RESULTS The income before federal income taxes and an extraordinary item for the nine months ended September 30, 1996 was $426,000 compared to income of $1,209,000 for the same period in 1995. The income before federal income taxes and an extraordinary item for the three months ended September 30, 1996 was $374,000 compared to $475,000 for the same period in 1995. The reduction in income for the nine months ended September 30, 1996 can be attributed to several items. In the third quarter of 1996, the Company received $1,400,000 representing a partial payment of a judgement rendered in favor of the Company (see Discontinued Realtors Errors and Omissions Program in Certain Events). This other income has been offset by reserve strengthening on the discontinued Agriculture lines, reserve strengthening on the Company's credit business and the write down of an investment. The third quarter results have been affected by the aforementioned $1,400,000 income item partially offset by increases in policy benefits on the Company's credit business, reserve strengthening on runoff lines of business ($500,000) and the write down of an investment ($150,000). The Company's new Property and Casualty programs produced $14,300,000 of annualized premium in the first nine months of 1996; $4,600,000 in the first quarter, $5,700,000 in the second quarter and $4,000,000 in the third quarter. Approximately $1,500,000 of this total relates to the commercial multi-peril policies issued to auto dealers which has now been discontinued. As this new Property and Casualty premium earns, its effect on the bottom line will become increasingly more pronounced. REVENUE Premium writings for the nine months ended September 30, 1996, were $49.2 million compared to $43.7 million for the same period in 1995. This increase was due to writings in the aforementioned new Property and Casualty programs of $14.3 million partially offset by a decrease in premium written of $4.9 million in credit insurance and decreases in discontinued Agriculture lines. Premium written for the three months ended September 30, 1996, was $15.3 million compared to essentially the same for the same period in 1995. Several offsetting changes resulted in the similar premium written numbers. Premium written under the new Property and Casualty programs increased by $4.0 million offset by a decrease in premium written of $2.8 million in credit insurance and decreased premium in discontinued Agriculture lines. 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 (See Note E--Reinsurance). 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 liability outstanding on its lines of business. At September 30, 1996, the estimated duration of the Company's fixed income investment portfolio was 2.75 years while the estimated liability duration was approximately 3.5 years. Currently, an interest rate change of 1% would impact the market value of the fixed maturity portfolio and stockholders' equity by a decline of approximately $1.8 million if interest rates rose and an increase of approximately $1.8 million if interest rates declined. The mortgage and asset-backed securities held by the Company are subject to risks associated with variable prepayments. As such, these 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 September 30, 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 portfolio 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 Department of Insurance of the State of Ohio ("Ohio Department"). Based on this regulation, Acceleration Life Insurance Company ("ALIC") could pay a dividend of $8,000 and Acceleration National Insurance Company ("ANIC") would require Ohio Department approval to pay any dividend to the registrant during 1996. The Company's cash flow projections for 1996 assume that certain events will take place in order to have sufficient cash to meet its debt service and other requirements. One of these events included the liquidation of Acceleration Insurance Company Limited ("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 the Rights Offering and a partial payment from a judgement entered in its favor in a legal proceeding (see Rights Offering and Discontinued Realtors' Errors and Omissions Program under CERTAIN EVENTS) to repay $2,647,000 in advances received in 1992 and 1993 from the registrant's subsidiaries. The Company intends to retire the remaining intercompany balance ($1,600,000) in the fourth quarter of 1996. These outstanding advances are 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 generated $141,862 in cash proceeds of which $110,812 had been received by the Company as of September 30, 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-- Notes Payable), and for general corporate purposes. Also, under the provisions of the Rights Offering, the Company permitted CIHC and its affiliate to tender the principal amount of their Subordinated Notes (See Note D--Notes Payable) 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, 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 a bank loan outstanding under an existing Credit Agreement (See Note D--Notes Payable) 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 its in-force Credit Business. This agreement is structured, such, 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 the interest thereon and redeem these Senior Notes. 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. This will allow 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 unaudited consolidated balance sheets. The unpaid balance of the loan ($49,000 at September 30, 1996 and $161,000 at December 31, 1995) has been reflected as a reduction in common stockholders' equity in the accompanying unaudited consolidated financial statements. The Company currently has two material business lines that are in run-off status: the realtors' errors and omissions ("REO") line and the farmowner's multi-peril and ancillary inland marine products ("Agriculture"). 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 conducted by experienced consultants and internal reviews, management believes that the current level of policy reserves will be adequate to cover anticipated claim liabilities. However, because the REO risk was written from the first quarter 1986 through the first quarter of 1991; and considering the length of time involved in the settlement of some claims, there remains a lack of credible experience needed to determine whether actual incurred policy benefits will conform to the assumptions inherent in the determination of these liabilities. In addition, outstanding claims on the Company's discontinued Agriculture lines are subject to variability due to the length of time that has elapsed since the termination of the program and the nature of some of the claims. Accordingly, the ultimate amounts required for settlement of policy benefits may vary significantly from the amounts included in the accompanying unaudited consolidated financial statements. 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" which became effective in 1996. The Company has decided to disclose the impact of FASB 123 in a footnote to the annual 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 the 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 at 5:00 p.m., Eastern Standard time, 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 affiliate 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. 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 (a New York domiciled Property and Casualty Company, "Galaxy"), which prior to the commencement of liquidation proceedings had been an indirect wholly-owned subsidiary of the Company, pursuant to an order of liquidation of the New York Supreme Court. Prior to the liquidation of Galaxy, ANIC, the property and casualty insurance company subsidiary of the Company, 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. 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 evidence 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 affect on the financial condition or results of operations of the Company. DISCONTINUED REALTORS' ERRORS AND OMISSIONS PROGRAM: Litigation was commenced in November, 1991, to recover losses sustained in the REO program which resulted in $5.3 million being awarded to Accel in December, 1995. Pursuant to settlements reached with all the parties earlier in 1996, $1,541,085 was received by Accel as of September 30, 1996 and has been recognized as other income for the nine months ended September 30, 1996. An additional $2,750,000 was received on November 8, 1996 and will be recognized as other income in the fourth quarter of 1996. This resulted in a total recovery of $4,291,085. With the approval of the Department of Insurance of the State of Ohio, the proceeds from the settlement are being shared equally between Accel and ANIC. The Company requested the sharing arrangement due to the continuing losses in the REO Program realized by ANIC since 1991. PART II. OTHER INFORMATION ITEM 6. Exhibits and Reports on Form 8-K (b) No reports on Form 8-K have been filed by the Registrant during the quarter ended September 30, 1996. SIGNATURE Pursuant to the requirements 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 Dated: November 13, 1996 By: /S/ Kurt L. Mueller ------------------------------ -------------------------- Kurt L. Mueller Vice President, Treasurer and Controller* _____ * Mr. Mueller is Vice President, Treasurer and Controller and has been duly authorized to execute the report on behalf of the Registrant. EX-27 2
7 This schedule contains summary financial information extracted from ACCEL International Corporation's third quarter 1996 Form 10-Q and is qualified in its entirety by reference to such Form 10-Q. 0000001985 ACCEL INTERNATIONAL CORPORATION 1,000 9-MOS DEC-31-1996 JAN-01-1996 SEP-30-1996 55,927 0 0 6,266 0 0 74,474 (610) 0 32,632 214,536 23,813 87,445 13 0 16,500 0 0 940 0 214,536 33,830 3,228 227 3,596 18,031 14,027 8,397 426 305 0 0 131 0 252 .05 0 0 0 0 0 0 0 0
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