<PAGE> 1

                    SECURITIES AND EXCHANGE COMMISSION
                          Washington, D.C.  20549


                                 FORM 10-Q

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


For Quarter Ended September 30, 1994    Commission file number 0-10175



                   POLICY MANAGEMENT SYSTEMS CORPORATION
          (Exact name of registrant as specified in its charter)



     South Carolina                                          57-0723125    
(State or other jurisdiction                               (I.R.S. Employer  
 of incorporation)                                        Identification No.)


One PMS Center (P.O. Box Ten)
Blythewood, S.C. (Columbia, S.C.)                             29016 (29202)
(Address of principal executive                                 (Zip Code) 
  offices)


Registrant's telephone number, including area code (803) 735-4000
 
     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           No   X   

     Indicate the number of shares outstanding of each of the
issuer's classes of common stock, as of the latest practicable
date.

  19,419,584 Common shares, $.01 par value, as of September 30,
1994



The information furnished herein reflects all adjustments which
are, in the opinion of management, necessary for the fair
presentation of the results for the periods reported.  Such
information should be read in conjunction with the Company's Annual
Report on Form 10-K for the year ended December 31, 1993.

<PAGE> 2

                   POLICY MANAGEMENT SYSTEMS CORPORATION

                                   INDEX


PART I. FINANCIAL INFORMATION                                PAGE

  Item 1. Financial Statements

          Consolidated Statements of Operations for 
            the three and nine months ended September 30, 
            1994 and 1993..................................... 3

          Consolidated Balance Sheets as of 
            September 30, 1994 and December 31, 1993.......... 4

          Consolidated Statements of Cash Flows for
            the nine months ended September 30, 1994 and 1993. 5

          Notes to Consolidated Financial Statements.......... 6

  Item 2. Management's Discussion and Analysis of
            Financial Condition and Results of
            Operations........................................ 9


PART II. OTHER INFORMATION


  Item 1. Legal Proceedings...................................23 

  Item 6. Exhibits and Reports on Form 8-K....................23 

Signatures....................................................24 






  



<PAGE> 3
                                 PART I
                    FINANCIAL INFORMATION

                   POLICY MANAGEMENT SYSTEMS CORPORATION
                   CONSOLIDATED STATEMENTS OF OPERATIONS

                                         Three Months         Nine Months
                                      Ended September 30,  Ended September 30,
                                        1994       1993       1994      1993  
                                          (Unaudited)     (Unaudited) (Note 1)
                                        (In Thousands, Except Per Share Data)
Revenues:
  Licensing.......................... $ 27,027  $ 15,666   $ 67,018  $ 58,621
  Services...........................   99,966    93,219    300,658   286,187
                                       126,993   108,885    367,676   344,808
 
Costs and Expenses: 
  Employee compensation & benefits...   43,656    42,038    133,498   126,293
  Computer and communications 
    expenses.........................   11,602    10,095     34,314    31,016
  Information services and                                      
    data acquisition costs...........   33,039    34,281    100,865    96,300
  Other operating costs & expenses...   25,816    21,719     66,347    91,862
  Impairment and restructuring 
    charges (credits)................   (1,746)      -       (3,461)   80,733
                                       112,367   108,133    331,563   426,204

Operating income (loss)..............   14,626       752     36,113   (81,396)

Other Income and Expenses:
  Investment income..................    1,282     2,237      4,954     7,941
  Gain/(loss) on sale of marketable
    securities.......................   (1,010)       19     (1,829)    3,052
  Interest expense and other
    charges..........................     (605)     (923)    (2,324)   (1,719)
                                          (333)    1,333        801     9,274

Income (loss) before income tax
  (benefit)..........................   14,293     2,085     36,914   (72,122)

Income taxes (benefit)...............    4,570     1,739     13,025   (12,045)

Net income (loss).................... $  9,723  $    346   $ 23,889 $ (60,077)

Net income (loss) per share.......... $    .49  $    .02   $   1.12 $ (  2.62)

Weighted average number of shares....   19,975    22,604     21,360    22,933


See accompanying notes.


<PAGE> 4

<TABLE>

                      POLICY MANAGEMENT SYSTEMS CORPORATION
                           CONSOLIDATED BALANCE SHEETS

<CAPTION>

                                                        (Unaudited)     (Audited)
                                                        September 30,  December 31,
                                                            1994          1993    
                                                             (In Thousands,
                                                           Except Share Data)
<S>                                                       <C>           <C>
Assets
Current assets:
  Cash and equivalents................................... $ 17,153      $ 24,122
  Marketable securities..................................   45,932       132,650
  Receivables, net of allowance for uncollectible 
     amounts of $1,996 ($1,817 at 1993)..................  101,674        92,975
  Income tax receivable..................................   18,337        18,764
  Deferred income taxes..................................    9,046         9,491
  Other..................................................    9,550         9,735
     Total current assets................................  201,692       287,737

Property and equipment, at cost less accumulated
     depreciation and amortization of $121,073
     ($102,623 at 1993)..................................  131,870       139,029
Receivables..............................................      582         4,716
Goodwill and other intangible assets.....................   77,975        85,969
Capitalized software costs...............................  127,678       117,513
Deferred income taxes....................................      -          21,585
Investments..............................................    7,663          -     
Other....................................................    5,019         3,254
        Total assets..................................... $552,479      $659,803

Liabilities
Current liabilities:
  Accounts payable and accrued expenses.................. $ 39,721      $ 42,256
  Accrued restructuring charges..........................    5,441         9,521
  Accrued contract termination costs.....................    1,580         2,714
  Current portion of long-term debt......................    4,114         6,986
  Unearned revenues......................................   15,710        19,121
  Other..................................................      317           383
     Total current liabilities...........................   66,883        80,981

Long-term debt...........................................    4,477         5,655
Deferred income taxes....................................   54,681        74,151
Accrued restructuring charges............................   12,631        19,735
Other....................................................    1,361         2,309
     Total liabilities...................................  140,033       182,831
 
Commitments and contingencies (Note 3)

Stockholders' Equity
Special stock, $.01 par value, 5,000,000 shares 
   authorized............................................     -              -
Common stock, $.01 par value, 75,000,000 shares 
   authorized, 19,419,584 shares issued and 
   outstanding (22,637,021 at 1993)......................      194           226
Additional paid-in capital...............................  172,648       262,167
Retained earnings........................................  240,521       216,632
Unrealized holding gain on marketable securities.........       19           -
Foreign currency translation adjustment..................     (936)       (2,053)
     Total stockholders' equity..........................  412,446       476,972
        Total liabilities and stockholders' equity....... $552,479      $659,803

<FN>
See accompanying notes.

</TABLE>

<PAGE> 5

                   POLICY MANAGEMENT SYSTEMS CORPORATION
                   CONSOLIDATED STATEMENTS OF CASH FLOWS
                                (Unaudited)

                                                        Nine Months
                                                     Ended September 30,
                                                      1994        1993  
Operating Activities                                  (In Thousands) 
  Net income/(loss)...............................  $ 23,889   $(60,077)
  Adjustments to reconcile net income/(loss) to 
   net cash provided by operating activities:     
    Depreciation and amortization.................    50,413     47,214
    Deferred income taxes.........................     2,560    (20,763)
    Loss/(gain) on sale of marketable  
      securities..................................     1,829     (3,053)
    Provision for uncollectible accounts..........       730      1,500
    Impairment charges............................       -       54,890
  Changes in assets and liabilities:
    Accrued restructuring and lease
      termination costs...........................   (10,436)    25,843
    Receivables...................................    (5,295)    21,344
    Income taxes receivable.......................       427     (7,341)
    Accounts payable and accrued expenses.........    (2,535)     1,822
    Income taxes payable..........................       -        3,009
  Other, net......................................    (4,852)    (3,848)
       Cash provided by operations................    56,730     60,540
  
Investing Activities
  Proceeds from sales/maturities of marketable
   securities.....................................   225,840    364,443
  Purchases of marketable securities..............  (153,033)  (269,112)
  Acquisition of property and equipment...........   (14,514)   (35,242)
  Capitalized internal software development  
   costs..........................................   (25,914)   (17,591)
  Purchased software..............................      (418)    (3,928)
  Proceeds from disposal of property and
   equipment......................................      (437)     9,123
  Business acquisitions...........................       -      (59,097)
       Cash provided (used) by investing 
         activities...............................    31,524    (11,404)

Financing Activities
  Payments on long-term debt......................    (4,599)    (3,680)
  Issuance of common stock under stock 
    option plans..................................       -          690
  Issuance of common stock to employee             
    benefit plan..................................       -        1,328
  Repurchase of common stock......................   (89,551)   (48,660)
       Cash used for financing activities.........   (94,150)   (50,322)

Effect of exchange rate changes on cash...........    (1,073)       519
Net decrease in cash and equivalents..............    (6,969)      (667)
Cash and equivalents at beginning of period.......    24,122     31,959
Cash and equivalents at end of period.............  $ 17,153   $ 31,292

Noncash Activities
  Long-term debt arising from and assumed in           
   connection with business acquisition...........  $    -     $  4,187
Supplemental Information
  Interest paid...................................     1,719      1,037
  Income taxes paid...............................    10,126     12,158

See accompanying notes.


<PAGE> 6

                   POLICY MANAGEMENT SYSTEMS CORPORATION
                NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                            September 30, 1994

NOTE 1. RESTATEMENT OF PRIOR YEAR RESULTS OF OPERATIONS

  In August 1993, the Company engaged independent accountants to
conduct a special audit of the Company's balance sheet as of
December 31, 1992 and its consolidated financial statements as of
and for the six months ended June 30, 1993.  As a result of this
audit, the Company determined that retained earnings previously
reported as of December 31, 1992 required adjustment.  These
adjustments were due to errors in the application of accounting
principles and subsequent discovery of facts existing at February
26, 1993, the date of the predecessor auditor's report (see Note 2
of Notes to Consolidated Financial Statements in the Company's
Annual Report on Form 10-K for the year ended December 31, 1993).
The Company has determined the specific prior periods affected by
these adjustments, has restated its financial statements for such
periods and intends to file amended annual and quarterly reports on
Forms 10-K and 10-Q for the years 1993 and 1992.

NOTE 2. MARKETABLE SECURITIES

  Effective January 1, 1994, the Company adopted the provisions of
Statement of Financial Accounting Standards No. 115, "Accounting
for Certain Investments in Debt and Equity Securities," ("FAS
115").  In accordance with the provisions of FAS 115, the Company
has classified debt securities (principally municipal bonds) either
as available-for-sale, which are carried at fair market value and
shown as Marketable Securities, or as held-to-maturity, which are
carried at amortized cost and shown as Investments.  Unrealized
gains and losses on securities classified as available-for-sale are
reported net and are included in Stockholders' Equity. 

NOTE 3.  CONTINGENCIES

  In April 1993, litigation was commenced against the Company and
certain of its present and former officers and directors in the
United States District Court for the District of South Carolina,
Columbia Division.  In the litigation, which is a class action on
behalf of purchasers of the Company's common stock between March
18, 1992 and July 8, 1993, the plaintiffs allege that the Company
failed to prepare its financial statements in accordance with
generally accepted accounting principles and omitted to disclose
certain information regarding, among other things, its business and
prospects in violation of the Federal securities laws, the South
Carolina Code and common law.  The Company believes it has
meritorious defenses to the claims and is vigorously defending the
litigation.  The plaintiffs seek unspecified compensatory damages,
legal fees and litigation costs. The Company is unable to predict
the outcome or the potential financial impact of this litigation. 
As of September 30, 1994, the Company has recorded a claim for
recovery of litigation costs related to this matter of $10.6
million, which is included in current receivables on 


<PAGE> 7

the Company's consolidated balance sheet.  The maximum insurance
coverage related to these claims is $15 million under the directors'
and officers' insurance.

  In June 1993, the Securities and Exchange Commission ("SEC")
commenced a formal investigation into possible violations of the
Federal securities laws in connection with the Company's public
reports and financial statements, as well as trading in the
Company's securities.  The SEC has issued a formal order of
investigation which provides the SEC staff with the power to
subpoena documents and to compel testimony in connection with their
investigation. The Company is cooperating with the SEC in
connection with the investigation.

  In addition to the litigation noted above, the Company is
presently involved in litigation and a contract dispute arising out
of the Company's change in the direction of its future life
software systems development following the acquisition of CYBERTEK. 
There are also various other litigation proceedings and claims
arising in the ordinary course of business.  The Company believes
it has meritorious defenses and is vigorously defending these
matters.  While the resolution of these matters could affect the
results of operations in future periods, the Company does not
expect these matters to have a material adverse effect on its
consolidated financial position.  However, the Company is unable to
predict the ultimate outcome or the potential financial impact of
these matters.

NOTE 4. INCOME TAXES

  On September 29, 1994, the Company reached a tentative agreement
with the Internal Revenue Service ("IRS") regarding proposed tax
deficiencies relating to an examination of the Company's
consolidated federal income tax returns.  The tentative settlement,
which includes a current payment of $3.9 million and a liability
for further taxes in future periods, resolves all issues related to
the IRS's examination of the Company's tax returns for the years
1985 through 1990.  The tentative settlement is also less than the
related amounts included in the income tax liability accounts of
the Company.  This formal acceptance is expected within the next
several weeks in the form of a closing letter.  Upon execution of
the closing letter, amounts previously established as liabilities
in excess of the settlement amount will be accounted for as
reductions of tax expense in the period that such closing letter is
received.

NOTE 5.  IMPAIRMENT AND RESTRUCTURING

  The Company recorded, at June 30, 1993, impairment charges to
reduce the carrying value of certain identifiable intangible assets
and goodwill related to its health insurance services business of
$54.9 million and restructuring charges of $25.2 million associated
with employee severance and outplacement ($5.2 million), and  to an
ongoing lease obligation and/or termination for the planned future
abandonment of certain leased office facilities ($20.0 million)
(see Note 13 of Notes to Consolidated Financial Statements in the
Company's Annual Report on Form 10-K for the year ended December
31, 1993).  Due to a 

<PAGE> 8

change in its estimates, as of September 30, 1994, the Company has
reduced its restructuring reserves by $3.5 million, $1.7 million of
which resulted from a change in the scheduled downsizing of the
Company's health staff and a corresponding reduction in amounts
established for severance and outplacement costs, recorded in June
1994, and $1.8 million of which resulted from a lease termination
at amounts less than those established for the planned future
abandonment of certain leased office facilities, recorded in July
1994.

NOTE 6. OTHER MATTERS

  In July 1994, the Company received a decision from an
international arbitration tribunal relating to a contract
termination dispute, finding that both parties were responsible. 
The Company has made provision (at June 1994) for satisfaction of
the award in the amount of $1.9 million.

  The Company announced on April 27, 1994,  that it had agreed with
IBM to repurchase 2,278,537 of the 3,797,561 shares of the
Company's common stock held by IBM and that the remainder of the
Company's shares owned by IBM would be purchased by the General
Atlantic Partners group, a New York-based private investment firm. 
The Company completed the repurchase of these shares on May 16,
1994, at a share price of $24.71, which approximated an aggregate
cash expenditure of $56.3 million.  The shares repurchased by the
Company represent 10% of its total shares outstanding prior to the
repurchase.

  Pursuant to a stock repurchase program approved by the Board of
Directors in July 1994, the Company may purchase from time to time
up to 2.5 million shares of its issued and outstanding common
stock.  This program is flexible as to the timing and method of
acquisition of these shares.  As of September 30, 1994, the Company
had repurchased, on the open market, 938,900 shares of its common
stock, at an average price of approximately $35.00 per share for a
total of $33.0 million.


<PAGE> 9

                   POLICY MANAGEMENT SYSTEMS CORPORATION

                  MANAGEMENT'S DISCUSSION AND ANALYSIS OF
               FINANCIAL CONDITION AND RESULTS OF OPERATIONS

  The following discussion and analysis provides information which
management believes is relevant to an assessment and understanding
of the Company's consolidated results of operations and financial
condition.  The discussion should be read in conjunction with the
consolidated financial statements and notes thereto contained in 
Part I of this report on Form 10-Q and with the Company's Annual
Report on Form 10-K for the year ended December 31, 1993.

                           RESULTS OF OPERATIONS

<TABLE>

  Set forth below are certain operating items expressed as a
percentage of revenues and the percent increase (decrease) for
those items between the periods presented:

<CAPTION>

                                                                    1994   vs   1993
                                                                    Percent Increase
                                                                       (Decrease)    
                             Percentage           Percentage         Three     Nine
                            of Revenues          of Revenues         Months    Months
                            Three Months         Nine Months         Ended     Ended 
                         Ended September 30,  Ended September 30,     September 30,  
                            1994      1993       1994      1993     
<S>                         <C>       <C>        <C>       <C>        <C>       <C>    
Revenues:
Licensing.................  21.3      14.4       18.2      17.0       72.5      14.3 
Services..................  78.7      85.6       81.8      83.0        7.2       5.1 
                           100.0     100.0      100.0     100.0       16.6       6.6
Costs and Expenses:
Employee compensation
    and benefits..........  34.4      38.6       36.3      36.6        3.8       5.7
Computer & communication
    expense...............   9.1       9.3        9.3       9.0       14.9      10.6
Information services & data
    acquisition costs.....  26.0      31.5       27.4      27.9       (3.6)      4.7 
Other operating costs
    and expenses..........  20.3      19.9       18.1      26.7       18.9     (27.8) 
Impairment and restructuring
    charges (credits).....  (1.3)      -          (.9)     23.4     (100.0)   (104.3)
                            88.5      99.3       90.2     123.6        3.9     (22.2)

Operating income (loss)...  11.5        .7        9.8     (23.6)   1,844.9     144.4 
Other income and expenses.   (.3)      1.2         .2       2.7     (125.0)    (91.4)

Income (loss) before income
    tax (benefit).........  11.2       1.9       10.0     (20.9)     585.5     151.2

Income taxes (benefit)....   3.6       1.6        3.5      (3.5)     162.8     208.1

Net income (loss).........   7.6        .3        6.5     (17.4)   2,710.1     139.8

</TABLE>

<PAGE> 10

THREE MONTHS COMPARISON

<TABLE>

  A comparison of revenues and operating income for each line of
business and geographic market for the periods presented is as
follows:

<CAPTION>

                                                                  Operating 
                                              Operating           Income as a
                         Revenues              Income            % of Revenue    
                       Three Months          Three Months         Three Months
                    Ended September 30,   Ended September 30,  Ended September 30,
                       1994    1993          1994     1993        1994     1993
                                         (Dollars in Millions)
<S>                  <C>      <C>           <C>      <C>           <C>     <C>        
  Line of Business   
Property & Casualty  $ 88.2   $ 80.2        $10.1    $ 6.5         11.5      8.1
Life                   29.8     21.4          3.9     (1.1)        13.1     (5.1)
Health                  8.9      7.3          3.4     (4.3)        38.2    (58.9)

  Geographic Market  
United States        $110.7   $ 95.3        $15.3    $(1.3)        13.8     (1.4)
International          16.2     13.6          2.1      2.4         13.0     17.6 

</TABLE>

  The above table does not include an allocation of revenues and
costs associated with corporate activities such as equipment sales,
financial services, legal and other general corporate activities. 
There were no equipment sales during the three months ended
September 30, 1994 or 1993. Costs associated with these corporate
activities amounted to $2.8 million and $.3 million, excluding
special charges, for the three months ended September 30, 1994 and
1993, respectively (see Costs and Expenses below).

Revenues

  Total licensing revenues for the three months ended September 30,
1994 increased $11.4 million (72.5%) compared to the corresponding
period in 1993, due primarily to a $10.9 million increase in
initial license revenues attributable to new systems licensed by
both property and casualty and life insurers and by increased
revenues from continuing monthly license charges for maintenance,
enhancements and services availability ("MESA") and for continuing
right-to-use licenses of $.5 million (3.7%).  As part of the
increase in initial license revenues, the Company executed a
license agreement expansion with a large Blue Cross Blue Shield
organization, which resulted in the recognition of $3.5 million in
revenue for the Company's health insurance systems business. 
However, the Company does not expect to see recurring transactions
of this size in the near term as health insurers, for the most
part, are still reluctant to make major systems decisions.

  Total services revenues for the three months ended September  30,
1994 increased $6.7 million (7.2%) compared to the corresponding
period in 1993.  The total services revenue increase was affected
by activities in professional, outsourcing and information
services, as described more fully below.

<PAGE> 11

  Revenues from professional services increased $2.9 million
(17.9%) to $19.3 million for the three months ended September 30,
1994 from $16.4 million for the corresponding period in 1993, due
primarily to additional services ($4.4 million) generated by the
life insurance services business.  This increase was partially
offset by a reduction in professional services ($1.4 million)
provided by the Company's health insurance services business. 

  Revenues from outsourcing services amounted to $32.3 million for
the three months ended September 30, 1994, an increase of $6.2
million (23.5%) compared with the corresponding period in 1993. 
Revenues from outsourcing services increased $11.2 million as a
result of new outsourcing services relating to life insurance
services in Europe and servicing existing and new contracts with
property and casualty insurance companies and residual markets. 
These increases were partially offset by the wind-down of the New
Jersey Market Transition Facility (MTF) project, where revenues
from this property and casualty contract decreased from $2.9
million for the three months ended September 30, 1993 to $.5
million for the three months ended September 30, 1994, and to the
termination of a facilities management and processing contract in
September 1993, representing $2.7 million of life insurance
services business in Europe for the three months ended September
30, 1993.  

  Revenues from information services were $47.8 million for the
three months ended September 30, 1994 as compared with $50.8
million for the corresponding period in 1993.  This $3.0 million
decrease is attributable to a decrease in business associated with
automobile property and casualty information services and as a
result of a sale of a small non-strategic division.  These
decreases, however, were partially offset by  an increase in life
and information services.

Costs and Expenses

  Employee compensation and benefits increased $1.6 million for the
three months ended September 30, 1994 compared with the
corresponding period in 1993, primarily as a result of increased
costs ($3.7 million) associated with the acquisition of CYBERTEK
Corporation in August 1993, the acquisition of a data center,
including its workforce, in Bergen, Norway and an increase in third
party temporary services.  The increase in costs associated with
these acquisitions was partially offset by a reduction in
compensation and other benefits ($2.1 million) resulting from a
downsizing in the Company's health insurance services staff from
437 at June 30, 1993 to approximately 238 at September 30, 1994. 
These scheduled staff reductions are part of the Company's
restructuring of its health business (see Note 5 of Notes to
Consolidated Financial Statements).

  Computer and communications expenses increased $1.5 million for
the three months ended September 30, 1994 compared with the
corresponding period in 1993, primarily as a result of increased
costs associated with the acquisition of CYBERTEK Corporation in
August 1993, and the acquisition of a data center, including its
workforce, in Bergen, Norway in December 1993.

<PAGE> 12

  Information services and data acquisition costs decreased $1.2
million for the three months ended September 30, 1994 compared with
the corresponding period in 1993, due primarily to a decrease in
the volume of state fees for motor vehicle reports, which is part
of the Company's property and casualty information services
business.

  Other operating costs and expenses for the three months ended
September 30, 1994 increased $4.1 million when compared with the
corresponding period in 1993. The increase is primarily
attributable to increases in operating costs associated with
providing total policy management outsourcing services for new
customers.  This increase was partially offset by an increase in
amounts capitalized principally related to the internal development
of the Company's life software systems.  

  In July 1994 the Company, due to a change in its estimates,
reduced its restructuring reserves by $1.8 million, which resulted
from a lease termination at amounts less than those established for
the planned future abandonment of certain leased office facilities
(see Note 5 of Notes to Consolidated Financial Statements).

Operating Income

   Operating income was $14.6 million for the three months ended
September 30, 1994, compared with $.8 million for the corresponding
period in 1993.  This increase resulted primarily from an increase
in initial license revenues for new systems licensed by both
property and casualty and life insurers, an increase in life
insurance services in Europe, an increase in professional and
outsourcing services provided under existing and new contracts with
property and casualty insurance companies and residual markets, and
to a reduction in restructuring reserves.

  The Company's health insurance systems business continues to show
some improvement.  Revenues benefited from a significant license
agreement expansion resulting in the recognition of $3.5 million in
revenue.  Additional improvements resulted from a reduction in
operating costs associated with the reduction in amortization
charges for certain identifiable intangible assets and goodwill,
which were written-off at June 30, 1993, a reduction in rental
expense related to lease terminations and compensation and other
benefits costs through the downsizing of staff.

  The property and casualty insurance software and services
business experienced a higher level of revenue primarily from
increased licensing activities and outsourcing revenues related to
total policy management services during the three months ended
September 30, 1994 compared to the corresponding period of 1993. 
However, operating income declined from the second quarter of 1994
as a result of a decrease in information services business and
additional costs associated with servicing new outsourcing
customers.

  Although the Company has not been able to reduce its operating
expenses, associated with the wind-down of the MTF project, as
quickly 

<PAGE> 13

as the reduction in revenue from the MTF occurred, operating income
from services provided under new outsourcing contracts with
insurance companies and residual markets have started to replace
operating income lost from the MTF project.  Revenues for the three
months ended September 30, 1994 increased $4.7 million compared
with the corresponding period in 1993; however, margins will be
reduced during the early phases of these contracts due to start-up
costs.

  The information services businesses, which include property and
casualty as well as life insurance information services, produced
a net operating loss for the three months ended September 30, 1994
of $1.8 million. The property and casualty business unit produced
an operating loss of $2.5 million while the life business unit
produced operating income of $.7 million.  These results were
weaker than that reported for the third quarter of 1993 when the
property and casualty business produced an operating loss of $.7
million and the life business produced operating income of $.7
million.  The 1994 third quarter performance reflects a trend of
weakening results that began earlier in the year and in property
and casualty is reflective of increasing price competition and
changing market conditions.  The life business has been heavily
impacted by the implementation of new systems and higher costs to
acquire information.  In response to the recent performance and
changing market conditions, the Company has taken and is
considering further near-term actions to improve the overall
results from information services.  These actions include
management changes, realigning and consolidating field offices,
reducing other expenses, refining and enhancing products and
services and evaluating the recoverability and amortization periods
of intangible assets acquired in information services business
acquisitions.  Additionally, the Company is pursuing a long-term
strategy to direct more of its information services business into
database products and life information services where margins are
generally higher.  The Company typically realizes a much lower
gross margin from property and casualty information services than
from software products and related services. 

  In August 1993, the Company completed its acquisition of CYBERTEK
Corporation. The Company continues to focus on integrating
CYBERTEK's products with the Company's Series III applications and
technology.  The Company has also completed the combination of
CYBERTEK with the Company's life insurance software and services
organization to eliminate redundancies.  Although ongoing expenses
of the combination continued at a high level in the third quarter,
total revenues and operating income for the Company's life business
increased $8.4 million and $5.0 million for the three months ended
September 30, 1994, respectively, compared with the corresponding
period in 1993, due primarily to the CYBERTEK acquisition, the
addition of a new outsourcing contract in Europe during December
1993, and to increased initial license revenues.

  Investment income decreased $1.0 million during the three months
ended September 30, 1994, compared with the corresponding period in
1993, as a result of a lower level of investable funds resulting
from large cash expenditures for the acquisition of CYBERTEK
Corporation 

<PAGE> 14

($59.7 million) in August 1993, the repurchase in May 1994 of
2,278,537 of the 3,797,561 shares of common stock held by IBM
($56.3 million), the repurchase of 938,900 shares of the Company's
common stock, on the open market, ($33.0 million) under its 2.5
million share repurchase plan (see Note 6 of Notes to Consolidated
Financial Statements).

  As part of the Company's repurchase of 938,900 shares of its
outstanding common stock under its 2.5 million share repurchase
plan, the Company liquidated a portion of its marketable securities
portfolio.  The Company incurred a loss on the sale of securities
of approximately $1.0 million related directly to the repurchase
during the third quarter of 1994 (see Note 6 of Notes to
Consolidated Financial Statements).

  Interest expense and other charges decreased $.3 million for the
three months ended September 30, 1994 compared with the
corresponding period in 1993, primarily as a result of a decrease
in the amortization of discounts associated with long-term
restructuring liabilities recorded at June 30, 1993.  These
liabilities, which are part of restructuring charges established to
recognize as a loss the planned future abandonment of certain
facilities relating to the restructuring of the Company's health
insurance services business, were reduced $1.8 million during the
three months ended September 30, 1994 (see Note 5 of Notes to
Consolidated Financial Statements).

  The effective income tax rate (income taxes expressed as a
percentage of pre-tax income) was 32.0% and 83.0% for the three
months ended September 30, 1994 and 1993, respectively.  The
decrease in the effective tax rate is due primarily to the impact
of recording a one time charge in the three months ended September
30, 1993 related to the increase in the highest federal marginal
income tax rate from 34% to 35%.  Without the one time charge, the
effective tax rate would have been 31.8% for the three months ended
September 30, 1993. The effective income tax rate for the three
months ended September 30, 1994 is lower than the preceding 1994
quarters, principally as a result of a reduction in state income
taxes ($.4 million), which are based on gross income and capital of
the Company.

<PAGE> 15

NINE MONTHS COMPARISON

<TABLE>

  A comparison of revenues and operating income for each line of
business and geographic market for the periods presented is as
follows:

<CAPTION>

                                                                  Operating
                                             Operating            Income as a
                          Revenues             Income             % of Revenue   
                        Nine Months          Nine Months          Nine Months
                    Ended September 30,  Ended September 30,  Ended September 30, 
                       1994     1993       1994      1993       1994      1993
                                       (Dollars in Millions)
<S>                  <C>      <C>         <C>       <C>         <C>      <C>  
  Line of Business   
Property & Casualty  $256.0   $260.0      $30.8     $37.3       12.0      14.3
Life                   86.9     55.1        7.0      (6.4)       8.1     (11.6)
Health                 24.7     25.9        6.1      (9.5)      24.7     (36.7)

  Geographic Market  
United States        $317.2   $299.0      $38.7     $14.5       12.2       4.8
International          50.4     42.0        5.2       6.9       10.3      16.4

  The above table does not include an allocation of revenues and
costs associated with corporate activities such as equipment sales,
financial services, legal and other general corporate activities. 
Revenues related to equipment sales amounted to $3.8 million for
the nine months ended September 30, 1993.  There were no equipment
sales during the corresponding period of 1994.  Costs associated
with these corporate activities amounted to $7.8 million and $7.8
million, excluding special charges ($98.8 million in 1993), for the
nine months ended September 30, 1994 and 1993, respectively (see
Costs and Expenses below).

Revenues

  Total licensing revenues for the nine months ended September 30,
1994 increased $8.4 million (14.3%) compared with the corresponding
period in 1993, due primarily to a $4.8 million increase in initial
license revenues attributable to new systems licensed by life
insurers and to an expanded license agreement in the health
insurance systems business. Additionally, revenues from continuing
monthly license charges for maintenance, system enhancements and
services availability ("MESA") and for continuing right-to-use
licenses increased $3.6 million (10.1%). These increases were
partially offset by a reduction in systems licensed primarily to
the property and casualty business in the United States.

  Total services revenues for the nine months ended September  30,
1994 increased $14.5 million (4.2%) compared with the corresponding
period in 1993.  The total services revenue increase was primarily
affected by activities in professional, outsourcing and information
services, as described more fully below.

  Revenues from professional services increased $12.6 million
(26.7%) to $59.9 million for the nine months ended September 30, 1994
from 


<PAGE> 16

$47.3 million for the corresponding period in 1993, due primarily to
additional services ($13.3 million) generated by the life insurance
services business.

  Revenues from outsourcing services were $93.3 million for the nine
months ended September 30, 1994, an increase of $1.2 million (1.3%)
compared with the corresponding period in 1993. Revenues from
outsourcing services increased $26.5 million as a result of $7.9
million in new outsourcing services relating to life insurance
services in Europe and $17.4 million in servicing existing and new
contracts with property and casualty insurance companies and residual
markets. These increases were partially offset by the wind-down of
the New Jersey Market Transition Facility (MTF) project, where
revenues from this property and casualty business decreased from
$18.0 million for the  first nine months in 1993 to $2.1 million for
the first nine months in 1994, and to the termination of a facilities
management and processing contract in September 1993, representing
$9.5 million of life insurance services revenue in Europe for the
nine months ended September 30, 1993.  

  Revenues from information services were $146.1 million for the
nine months ended September 30, 1994 as compared with $143.8 million
for  the corresponding period in 1993.  This $2.4 million increase
is primarily attributable to an increase in business associated with
automobile property and casualty information services and life
information services.  These increases, however, were partially
offset by a reduction in property and casualty information services
revenue associated with risk services.

Costs And Expenses

  Employee compensation and benefits increased $7.2 million for the
nine months ended September 30, 1994 compared with the corresponding
period in 1993, primarily as a result of increased costs ($12.6
million) associated with the acquisition of CYBERTEK Corporation in
August 1993, and the acquisition of a data center, including its
workforce, in Bergen, Norway.  The increase in costs associated with
these acquisitions was partially offset by a reduction in
compensation and other benefits ($5.6 million) resulting from a
downsizing in the Company's health insurance services staff from 437
at June 30, 1993 to approximately 238 at September 30, 1994.  These
scheduled staff reductions are part of the Company's restructuring
of its health business (see Note 13 of Notes to Consolidated
Financial Statements in the Company's Annual Report on Form 10-K for
the year ended December 31, 1993).

   Computer and communications expenses increased $3.3 million for
the nine months ended September 30, 1994 compared with the
corresponding period in 1993, primarily as a result of increased
costs associated with the acquisition of CYBERTEK Corporation in
August 1993, and the acquisition of a data center, including its
workforce, in Bergen, Norway.

  Information services and data acquisition costs increased $4.6 

<PAGE> 17

million for the nine months ended September 30, 1994 compared with
the corresponding period in 1993, due primarily to an increase in the
volume of state fees for motor vehicle reports, which is part of the
Company's property and casualty information services business.

  Other operating costs and expenses for the nine months ended
September 30, 1994 decreased $25.5 million when compared with the
corresponding period in 1993.  The decrease is primarily attributable
to charges related to early project terminations, the deductible
under the Company's Directors' and Officers' liability insurance
policy in response to shareholder litigation, cost overruns on
certain projects and other charges arising from the Company's
previously disclosed internal investigation of its accounting
practices.  These charges, $16.4 million, were recorded during the
six months ended June 30, 1993.  In addition to these charges, other
operating costs and expenses declined as a result of a reduction in
the cost of equipment sold of $3.5 million, a decrease in costs
associated with the wind-down of the New Jersey MTF project, a
decrease associated with the recovery of certain receivables
previously written off, and an increase in amounts capitalized
principally related to the internal development of the Company's life
software systems.  These decreases were partially offset by an
increase in operating costs associated with providing total policy
management outsourcing services for new customers.

  Other operating costs and expenses include a charge of $1.9 million
associated with the recent settlement of a contract dispute, which
was decided through an international arbitration tribunal (see Note
6 of Notes to Consolidated Financial Statements).

  Due to changes in its estimates, as of September 30, 1994, the
Company has reduced its restructuring reserves by $3.5 million, $1.7
million of which resulted from a change in the scheduled downsizing
of the Company's health staff and a corresponding reduction in
amounts established for severance and outplacement costs, recorded
in June 1994, and $1.8 million of which resulted from a lease
termination at amounts less than those established for the planned
future abandonment of certain leased office facilities, recorded in
July 1994 (see Note 5 of Notes to Consolidated Financial Statements).

Operating Income

   Operating income was $36.1 million for the nine months ended
September 30, 1994, compared with an operating loss of $81.4 million
for the corresponding period in 1993.  The operating loss for the
nine months ended September 30, 1993 reflected the special charges
of $98.8 million relating to impairment and restructuring charges
($80.7 million) and other special charges ($18.1 million).

  Operating income, excluding impairment and restructuring charges 
(credits) and other special charges, as a percentage of revenues
increased to 8.9% for the nine months ended September 30, 1994 from
5.0% for the comparable period in 1993.  This increase resulted
primarily from an increase in outsourcing services related to life 

<PAGE> 18

insurance services in Europe, professional and outsourcing services
provided under existing and new contracts with property and
casualty insurance companies and residual markets, and to an
increase in initial license revenues from both the Company's life
and health insurance systems businesses.

  The Company's health insurance systems business continues to show
some improvement over the prior year's first nine month results. 
Improvements resulted from a significant license agreement
expansion resulting in the recognition of $3.5 million in revenue
and to a reduction in operating costs associated with amortization
charges for certain identifiable intangible assets and goodwill,
which were written-off at June 30, 1993, a reduction in rental
expense related to lease terminations and compensation and other
benefits costs through the downsizing of staff.  

  The property and casualty insurance software and services
business experienced a lower level of revenue and operating income
primarily from decreased licensing activities and outsourcing
services during the nine months ended September 30, 1994 than in
the corresponding periods of 1993.  Outsourcing services for
property and casualty insurers have not met expectations due to
several contracts not closing or ramping up as fast as anticipated 
and the Company has not been able to reduce its operating expenses,
associated with the wind-down of the MTF project, as quickly as the
reduction in revenue from the MTF occurred.  However, as a result
of an increased role in servicing additional new contracts with
insurance companies and residual markets, the Company is beginning
to replace revenues lost from the MTF project during the nine
months ended September 30, 1994.  Margins have improved but will be
reduced during the early phases of these contracts due to start-up
costs.

  The information services businesses, which include property and
casualty as well as life information services, produced a net
operating loss for the nine months ended September 30, 1994 of $3.6
million.  The property and casualty business produced an operating
loss of $5.9 million while the life business unit produced
operating income of $2.3 million.  These results were weaker than
that reported for the corresponding period in 1993 where the
property and casualty business produced an operating loss of $3.6
million and the life business produced operating income of $3.9
million, resulting in net operating income of $.3 million.  The
1994 nine months performance in property and casualty is reflective
of increasing price competition and changing market conditions. 
The life business has been heavily impacted by the implementation
of new systems and higher costs to acquire information.  In
response to the recent performance, the Company has taken and is
considering further near-term actions to improve the overall
results from information services.

  One time costs of integrating CYBERTEK with the Company's life
insurance systems business continued at a high level in the first
nine months of 1994; however, total revenues for the Company's life
business were 57.7% higher ($31.8 million) for the nine months
ended September 30, 1994, compared with the corresponding period in
1993,

<PAGE> 19

due primarily to the CYBERTEK acquisition, the addition of a new
outsourcing contract in Europe during December 1993, and to
increased initial license revenues.

  Investment income decreased $3.0 million for the nine months
ended September 30, 1994 compared with the corresponding period in
1993, as a result of a lower level of investable funds, resulting
from large cash expenditures for the acquisition of CYBERTEK
Corporation ($59.7 million) in August 1993,  the repurchase in
April 1993 of 970,668 shares of the Company's common stock ($48.7
million), the repurchase in May 1994 of 2,278,537 of the 3,797,561
shares of common stock held by IBM ($56.3 million), the repurchase 
of 938,900 shares of the Company's outstanding common stock, on the
open market, ($33.0 million) under its 2.5 million share repurchase
authorization, and to a decrease in interest income related to
long-term accounts receivable.

  As part of the Company's repurchase of 2,278,537 of the 3,797,561
shares of its common stock held by IBM, at a price of $24.77 per
share, and the open market repurchase of 938,900 shares of common
stock, the Company liquidated a portion of its marketable
securities portfolio.  The Company incurred a loss on the sale of
securities of approximately $1.8 million related directly to these
repurchases during 1994 (see Note 6 of Notes to Consolidated
Financial Statements).

  Interest expense and other charges increased $.6 million for the
nine months ended September 30, 1994 compared with the
corresponding period in 1993, primarily as a result of the
amortization of discounts associated with long-term restructuring
liabilities recorded at June 30, 1993.  These liabilities, which
are part of restructuring charges established to recognize as a
loss the planned future abandonment of certain facilities relating
to the restructuring of the Company's health insurance services
business, were reduced $1.8 million during the nine months ended
September 30, 1994 (see Note 5 of Notes to Consolidated Financial
Statements).

  The effective income tax (benefit) rate (income taxes expressed
as a percentage of pre-tax income) was 35.3% and (16.7%) for the
nine months ended September 30, 1994 and 1993, respectively.  The
effective tax benefit rate would have been significantly higher
(38.3%) for the 1993 period were it not for the write off of
goodwill ($39.4 million) related to the impairment of the Company's
health insurance systems business (see Note 13 of Notes to
Consolidated Financial Statements in the Company's Annual Report on
Form 10-K for the year ended December 31, 1993).  The effective
income tax rate for the nine months ended September 30, 1994 is
lower than the preceeding six month period ended June 30, 1994,
principally as a result of a reduction in state income taxes ($.4
million), which are based on gross income and capital of the
Company.


<PAGE> 20

                     LIQUIDITY AND CAPITAL RESOURCES 

                                     September 30,     December 31,
                                         1994            1993    
Cash and equivalents, marketable             (In Millions)
  securities, and investments           $ 70.7         $156.8
Current assets                           201.7          287.7
Current liabilities                       66.8           81.0
Working capital                          134.9          206.7

                                     September 30,  September 30,
                                         1994           1993     
                                             (In Millions)
Cash provided by operations             $ 56.7         $ 60.5
Cash provided (used) by            
  investing activities                    31.5          (11.4)
Cash used for financing activities       (94.2)         (50.3)

  The Company's financial condition remained strong at  September
30, 1994.  Working capital was $134.9 million, including cash, cash
equivalents and marketable securities of $63.1 million, and
excluding $7.7 million of long-term investments.  Cash, cash
equivalents, marketable securities and investments were $70.7
million at September 30, 1994 as compared to $156.8 million at
December 31, 1993, a net decrease of $86.1 million, resulting
primarily from  the repurchase in May 1994 of 2,278,537 of the
3,797,561 shares of common stock held by IBM for $56.3 million; the
repurchase of 938,900 shares of the Company's common stock for
$33.0 million, on the open market, in the third quarter of 1994.

  The decrease in net cash generated by operations of $3.8 million
for the nine months ended September 30, 1994 compared with the
corresponding period in 1993 was primarily attributable to payment
of lease termination costs, an increase in accounts receivable and
a decrease in accounts payable and accrued expenses.  This decrease
was partially offset by a decrease in income taxes paid.  The
increase in accounts receivable is primarily due to the Company's
claim for recovery of litigation costs (see Note 3 of Notes to
Consolidated Financial Statements) and to the high level of
software licensing transactions which occurred during the latter
part of September 1994.  These licensing transactions, most of
which required substantial payments at the date of execution, were
collected the following month.

  The Company recorded, at June 30, 1993, impairment charges to
reduce the carrying value of certain identifiable intangible assets
and goodwill related to its health insurance services business of
$54.9 million.  Due to this impairment and write-down, the Company
decided to restructure this business and take a restructuring
charge of $25.2 million as of June 30, 1993.  Costs to restructure
the health business are composed of $5.2 million associated with
employee severance and outplacement, and $20.0 million related to
an ongoing lease obligation and/or termination for the planned
future abandonment of certain leased office facilities (see Note 13
of Notes to Consolidated Financial Statements in the Company's
Annual Report on Form 10-K 

<PAGE> 21

for the year ended December 31, 1993).  Cash outlays with respect
to the restructuring charges were $10.4 million for the nine months
ended September 30, 1994.  Cash outlays are expected to be
approximately $1.9 million for the remainder of 1994.

  During the nine months ended September 30, 1994, the Company
reduced its liabilities for accrued restructuring charges by $8.1
million ($9.0 million in cash outlays, less $.9 million in non-cash
discount amortization) for lease terminations and $.4 million
(primarily cash) for employee severance and outplacement costs. 
Additionally, the Company adjusted its restructuring liability
established for employee severance and outplacement and lease
termination costs downward by $3.5 million.  This decrease resulted
from a change in the scheduled downsizing of its health staff and
a corresponding reduction in amounts established for severance and
outplacement costs and a lease termination at amounts less than
those established for the planned abandonment of certain leased
office facilities.

  Excluding short-term investments, net cash used by investing
activities declined in the first nine months of 1994 compared with
the corresponding period in 1993.  During the first nine months of
1994, net cash used for investments included $11.7 million compared
to $32.4 million for the first nine months of 1993 that was
invested in data processing, communications equipment and office
furniture and equipment.  Approximately $27.4 million of the amount
expended in 1993 was for upgrading data processing and
communications equipment.  Amounts capitalized for internal
software development increased $8.3 million (47.2%) to $25.9
million for the first nine months of 1994 compared to $17.6 million
for the corresponding period in 1993, due primarily to the
development of life systems based on the business functions of
CYBERTEK software and the process of integrating CYBERTEK
functionality with certain existing Series III applications.
           
  Significant expenditures anticipated for the remainder of 1994,
excluding any possible business acquisitions and stock repurchases,
are as follows:  acquisition of data processing, communications
equipment and office furniture, fixtures and equipment ($1.7
million); costs relating to the internal development of software
systems ($8.6 million); and debt payments relating to past business
acquisitions ($2.4 million).

  The Company has historically used the cash generated from
operations for the following:  development and acquisition of new
products, acquisition of businesses and repurchase of the Company's
stock.  The Company anticipates that it will continue to use its
cash for all of these purposes in the future and that projected
cash from operations and cash and investment reserves will be able
to meet presently anticipated needs;  however, the Company may also
consider incurring debt as needed to accomplish specific objectives
in these areas and for other general corporate purposes.


<PAGE> 22

                  FACTORS THAT MAY AFFECT FUTURE RESULTS

  The Company's future operating results may be affected by a
number of factors, including uncertainties relative to economic
conditions; industry factors; the Company's ability to develop and
sell its products profitably; the Company's ability to successfully
increase market share in its core business while expanding its
product base into other markets; and the Company's ability to
effectively manage expense growth relative to revenue growth in
anticipation of continued pressure on gross margins.  The Company's
operating results could be adversely affected should the Company be
unable to anticipate customer demand accurately, to introduce new
products on a timely basis, or to effectively manage the impact on
the Company of changes in the insurance marketplace.

  Contracts with governmental agencies involve a variety of special
risks, including the risk of early contract termination by the
governmental agency and changes associated with newly elected state
administrations or newly appointed regulators.

  A significant portion of both the Company's revenue and its
operating income is derived from initial licensing charges received
as part of the Company's software licensing activities.  Because a
substantial portion of these revenues are recorded at the time new
systems are licensed, there can be significant fluctuations from
period to period in the revenues and operating income derived from
licensing activities based upon the timing of the licensing of new
systems.

  Because of the foregoing factors, as well as other factors
affecting the Company's operating results, past financial
performance should not be considered to be a reliable indicator of
future performance, and investors should not use historical trends
to anticipate results or trends in future periods.  

<PAGE> 23

                                  PART II
                             OTHER INFORMATION

                   POLICY MANAGEMENT SYSTEMS CORPORATION


Item 1. Legal Proceedings

        See Note 3, "Contingencies" of Notes to the Consolidated
        Financial Statements.

Items 2, 3, 4, and 5 are not applicable

Item 6. Exhibits and Reports on Form 8-K.

Exhibits

  Exhibits required to be filed with this Quarterly Report on Form
10-Q are listed in the following Exhibit Index.

Reports on Form 8-K

  The Company did not file any reports on Form 8-K during the
quarter ended September 30, 1994.




<PAGE> 24



                   POLICY MANAGEMENT SYSTEMS CORPORATION


                                SIGNATURES


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.


                   POLICY MANAGEMENT SYSTEMS CORPORATION
                               (Registrant)



                                        
Date:  October 31, 1994            By:  Timothy V. Williams
                                        Executive Vice President
                                        (Chief Financial Officer) 
                                     


</TABLE>
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1

                    SECURITIES AND EXCHANGE COMMISSION
                          Washington, D.C.  20549

                                 FORM 10-Q

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

For Quarter Ended September 30, 1994    Commission file number 0-10175

                   POLICY MANAGEMENT SYSTEMS CORPORATION
          (Exact name of registrant as specified in its charter)

     South Carolina                                          57-0723125    
(State or other jurisdiction                               (I.R.S. Employer  
 of incorporation)                                        Identification No.)

One PMS Center (P.O. Box Ten)
Blythewood, S.C. (Columbia, S.C.)                             29016 (29202)
(Address of principal executive                                 (Zip Code) 
  offices)

Registrant's telephone number, including area code (803) 735-4000
 
     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           No   X   

     Indicate the number of shares outstanding of each of the
issuer's classes of common stock, as of the latest practicable
date.

  19,419,584 Common shares, $.01 par value, as of September 30,
1994

The information furnished herein reflects all adjustments which
are, in the opinion of management, necessary for the fair
presentation of the results for the periods reported.  Such
information should be read in conjunction with the Company's Annual
Report on Form 10-K for the year ended December 31, 1993.
2

                   POLICY MANAGEMENT SYSTEMS CORPORATION

                                   INDEX

PART I. FINANCIAL INFORMATION                                PAGE

  Item 1. Financial Statements

          Consolidated Statements of Operations for 
            the three and nine months ended September 30, 
            1994 and 1993..................................... 3

          Consolidated Balance Sheets as of 
            September 30, 1994 and December 31, 1993.......... 4

          Consolidated Statements of Cash Flows for
            the nine months ended September 30, 1994 and 1993. 5

          Notes to Consolidated Financial Statements.......... 6

  Item 2. Management's Discussion and Analysis of
            Financial Condition and Results of
            Operations........................................ 9

PART II. OTHER INFORMATION

  Item 1. Legal Proceedings...................................23 

  Item 6. Exhibits and Reports on Form 8-K....................23 

Signatures....................................................24
3
                                 PART I
                    FINANCIAL INFORMATION

                   POLICY MANAGEMENT SYSTEMS CORPORATION
                   CONSOLIDATED STATEMENTS OF OPERATIONS

                                         Three Months         Nine Months
                                      Ended September 30,  Ended September 30,
                                        1994       1993       1994      1993  
                                          (Unaudited)     (Unaudited) (Note 1)
                                        (In Thousands, Except Per Share Data)
Revenues:
  Licensing.......................... $ 27,027  $ 15,666   $ 67,018  $ 58,621
  Services...........................   99,966    93,219    300,658   286,187
                                       126,993   108,885    367,676   344,808
 
Costs and Expenses: 
  Employee compensation & benefits...   43,656    42,038    133,498   126,293
  Computer and communications 
    expenses.........................   11,602    10,095     34,314    31,016
  Information services and                                      
    data acquisition costs...........   33,039    34,281    100,865    96,300
  Other operating costs & expenses...   25,816    21,719     66,347    91,862
  Impairment and restructuring 
    charges (credits)................   (1,746)      -       (3,461)   80,733
                                       112,367   108,133    331,563   426,204

Operating income (loss)..............   14,626       752     36,113   (81,396)

Other Income and Expenses:
  Investment income..................    1,282     2,237      4,954     7,941
  Gain/(loss) on sale of marketable
    securities.......................   (1,010)       19     (1,829)    3,052
  Interest expense and other
    charges..........................     (605)     (923)    (2,324)   (1,719)
                                          (333)    1,333        801     9,274

Income (loss) before income tax
  (benefit)..........................   14,293     2,085     36,914   (72,122)

Income taxes (benefit)...............    4,570     1,739     13,025   (12,045)

Net income (loss).................... $  9,723  $    346   $ 23,889 $ (60,077)

Net income (loss) per share.......... $    .49  $    .02   $   1.12 $ (  2.62)

Weighted average number of shares....   19,975    22,604     21,360    22,933

See accompanying notes.
4

                      POLICY MANAGEMENT SYSTEMS CORPORATION
                           CONSOLIDATED BALANCE SHEETS
(Unaudited)     (Audited)
                                                        September 30,  December 31,
                                                            1994          1993    
                                                             (In Thousands,
                                                           Except Share Data)
Assets
Current assets:
  Cash and equivalents................................... $ 17,153      $ 24,122
  Marketable securities..................................   45,932       132,650
  Receivables, net of allowance for uncollectible 
     amounts of $1,996 ($1,817 at 1993)..................  101,674        92,975
  Income tax receivable..................................   18,337        18,764
  Deferred income taxes..................................    9,046         9,491
  Other..................................................    9,550         9,735
     Total current assets................................  201,692       287,737

Property and equipment, at cost less accumulated
     depreciation and amortization of $121,073
     ($102,623 at 1993)..................................  131,870       139,029
Receivables..............................................      582         4,716
Goodwill and other intangible assets.....................   77,975        85,969
Capitalized software costs...............................  127,678       117,513
Deferred income taxes....................................      -          21,585
Investments..............................................    7,663          -     
Other....................................................    5,019         3,254
        Total assets..................................... $552,479      $659,803

Liabilities
Current liabilities:
  Accounts payable and accrued expenses.................. $ 39,721      $ 42,256
  Accrued restructuring charges..........................    5,441         9,521
  Accrued contract termination costs.....................    1,580         2,714
  Current portion of long-term debt......................    4,114         6,986
  Unearned revenues......................................   15,710        19,121
  Other..................................................      317           383
     Total current liabilities...........................   66,883        80,981

Long-term debt...........................................    4,477         5,655
Deferred income taxes....................................   54,681        74,151
Accrued restructuring charges............................   12,631        19,735
Other....................................................    1,361         2,309
     Total liabilities...................................  140,033       182,831
 
Commitments and contingencies (Note 3)

Stockholders' Equity
Special stock, $.01 par value, 5,000,000 shares 
   authorized............................................     -              -
Common stock, $.01 par value, 75,000,000 shares 
   authorized, 19,419,584 shares issued and 
   outstanding (22,637,021 at 1993)......................      194           226
Additional paid-in capital...............................  172,648       262,167
Retained earnings........................................  240,521       216,632
Unrealized holding gain on marketable securities.........       19           -
Foreign currency translation adjustment..................     (936)       (2,053)
     Total stockholders' equity..........................  412,446       476,972
        Total liabilities and stockholders' equity....... $552,479      $659,803
See accompanying notes.
5

                   POLICY MANAGEMENT SYSTEMS CORPORATION
                   CONSOLIDATED STATEMENTS OF CASH FLOWS
                                (Unaudited)

                                                        Nine Months
                                                     Ended September 30,
                                                      1994        1993  
Operating Activities                                  (In Thousands) 
  Net income/(loss)...............................  $ 23,889   $(60,077)
  Adjustments to reconcile net income/(loss) to 
   net cash provided by operating activities:     
    Depreciation and amortization.................    50,413     47,214
    Deferred income taxes.........................     2,560    (20,763)
    Loss/(gain) on sale of marketable  
      securities..................................     1,829     (3,053)
    Provision for uncollectible accounts..........       730      1,500
    Impairment charges............................       -       54,890
  Changes in assets and liabilities:
    Accrued restructuring and lease
      termination costs...........................   (10,436)    25,843
    Receivables...................................    (5,295)    21,344
    Income taxes receivable.......................       427     (7,341)
    Accounts payable and accrued expenses.........    (2,535)     1,822
    Income taxes payable..........................       -        3,009
  Other, net......................................    (4,852)    (3,848)
       Cash provided by operations................    56,730     60,540
  
Investing Activities
  Proceeds from sales/maturities of marketable
   securities.....................................   225,840    364,443
  Purchases of marketable securities..............  (153,033)  (269,112)
  Acquisition of property and equipment...........   (14,514)   (35,242)
  Capitalized internal software development  
   costs..........................................   (25,914)   (17,591)
  Purchased software..............................      (418)    (3,928)
  Proceeds from disposal of property and
   equipment......................................      (437)     9,123
  Business acquisitions...........................       -      (59,097)
       Cash provided (used) by investing 
         activities...............................    31,524    (11,404)

Financing Activities
  Payments on long-term debt......................    (4,599)    (3,680)
  Issuance of common stock under stock 
    option plans..................................       -          690
  Issuance of common stock to employee             
    benefit plan..................................       -        1,328
  Repurchase of common stock......................   (89,551)   (48,660)
       Cash used for financing activities.........   (94,150)   (50,322)

Effect of exchange rate changes on cash...........    (1,073)       519
Net decrease in cash and equivalents..............    (6,969)      (667)
Cash and equivalents at beginning of period.......    24,122     31,959
Cash and equivalents at end of period.............  $ 17,153   $ 31,292

Noncash Activities
  Long-term debt arising from and assumed in           
   connection with business acquisition...........  $    -     $  4,187
Supplemental Information
  Interest paid...................................     1,719      1,037
  Income taxes paid...............................    10,126     12,158

See accompanying notes.
6

                   POLICY MANAGEMENT SYSTEMS CORPORATION
                NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                            September 30, 1994

NOTE 1. RESTATEMENT OF PRIOR YEAR RESULTS OF OPERATIONS

  In August 1993, the Company engaged independent accountants to
conduct a special audit of the Company's balance sheet as of
December 31, 1992 and its consolidated financial statements as of
and for the six months ended June 30, 1993.  As a result of this
audit, the Company determined that retained earnings previously
reported as of December 31, 1992 required adjustment.  These
adjustments were due to errors in the application of accounting
principles and subsequent discovery of facts existing at February
26, 1993, the date of the predecessor auditor's report (see Note 2
of Notes to Consolidated Financial Statements in the Company's
Annual Report on Form 10-K for the year ended December 31, 1993).
The Company has determined the specific prior periods affected by
these adjustments, has restated its financial statements for such
periods and intends to file amended annual and quarterly reports on
Forms 10-K and 10-Q for the years 1993 and 1992.

NOTE 2. MARKETABLE SECURITIES

  Effective January 1, 1994, the Company adopted the provisions of
Statement of Financial Accounting Standards No. 115, "Accounting
for Certain Investments in Debt and Equity Securities," ("FAS
115").  In accordance with the provisions of FAS 115, the Company
has classified debt securities (principally municipal bonds) either
as available-for-sale, which are carried at fair market value and
shown as Marketable Securities, or as held-to-maturity, which are
carried at amortized cost and shown as Investments.  Unrealized
gains and losses on securities classified as available-for-sale are
reported net and are included in Stockholders' Equity. 

NOTE 3.  CONTINGENCIES

  In April 1993, litigation was commenced against the Company and
certain of its present and former officers and directors in the
United States District Court for the District of South Carolina,
Columbia Division.  In the litigation, which is a class action on
behalf of purchasers of the Company's common stock between March
18, 1992 and July 8, 1993, the plaintiffs allege that the Company
failed to prepare its financial statements in accordance with
generally accepted accounting principles and omitted to disclose
certain information regarding, among other things, its business and
prospects in violation of the Federal securities laws, the South
Carolina Code and common law.  The Company believes it has
meritorious defenses to the claims and is vigorously defending the
litigation.  The plaintiffs seek unspecified compensatory damages,
legal fees and litigation costs. The Company is unable to predict
the outcome or the potential financial impact of this litigation. 
As of September 30, 1994, the Company has recorded a claim for
recovery of litigation costs related to this matter of $10.6
million, which is included in current receivables on
7

the Company's consolidated balance sheet.  The maximum insurance
coverage related to these claims is $15 million under the directors'
and officers' insurance.

  In June 1993, the Securities and Exchange Commission ("SEC")
commenced a formal investigation into possible violations of the
Federal securities laws in connection with the Company's public
reports and financial statements, as well as trading in the
Company's securities.  The SEC has issued a formal order of
investigation which provides the SEC staff with the power to
subpoena documents and to compel testimony in connection with their
investigation. The Company is cooperating with the SEC in
connection with the investigation.

  In addition to the litigation noted above, the Company is
presently involved in litigation and a contract dispute arising out
of the Company's change in the direction of its future life
software systems development following the acquisition of CYBERTEK. 
There are also various other litigation proceedings and claims
arising in the ordinary course of business.  The Company believes
it has meritorious defenses and is vigorously defending these
matters.  While the resolution of these matters could affect the
results of operations in future periods, the Company does not
expect these matters to have a material adverse effect on its
consolidated financial position.  However, the Company is unable to
predict the ultimate outcome or the potential financial impact of
these matters.

NOTE 4. INCOME TAXES

  On September 29, 1994, the Company reached a tentative agreement
with the Internal Revenue Service ("IRS") regarding proposed tax
deficiencies relating to an examination of the Company's
consolidated federal income tax returns.  The tentative settlement,
which includes a current payment of $3.9 million and a liability
for further taxes in future periods, resolves all issues related to
the IRS's examination of the Company's tax returns for the years
1985 through 1990.  The tentative settlement is also less than the
related amounts included in the income tax liability accounts of
the Company.  This formal acceptance is expected within the next
several weeks in the form of a closing letter.  Upon execution of
the closing letter, amounts previously established as liabilities
in excess of the settlement amount will be accounted for as
reductions of tax expense in the period that such closing letter is
received.

NOTE 5.  IMPAIRMENT AND RESTRUCTURING

  The Company recorded, at June 30, 1993, impairment charges to
reduce the carrying value of certain identifiable intangible assets
and goodwill related to its health insurance services business of
$54.9 million and restructuring charges of $25.2 million associated
with employee severance and outplacement ($5.2 million), and  to an
ongoing lease obligation and/or termination for the planned future
abandonment of certain leased office facilities ($20.0 million)
(see Note 13 of Notes to Consolidated Financial Statements in the
Company's Annual Report on Form 10-K for the year ended December
31, 1993).  Due to a
8

change in its estimates, as of September 30, 1994, the Company has
reduced its restructuring reserves by $3.5 million, $1.7 million of
which resulted from a change in the scheduled downsizing of the
Company's health staff and a corresponding reduction in amounts
established for severance and outplacement costs, recorded in June
1994, and $1.8 million of which resulted from a lease termination
at amounts less than those established for the planned future
abandonment of certain leased office facilities, recorded in July
1994.

NOTE 6. OTHER MATTERS

  In July 1994, the Company received a decision from an
international arbitration tribunal relating to a contract
termination dispute, finding that both parties were responsible. 
The Company has made provision (at June 1994) for satisfaction of
the award in the amount of $1.9 million.

  The Company announced on April 27, 1994,  that it had agreed with
IBM to repurchase 2,278,537 of the 3,797,561 shares of the
Company's common stock held by IBM and that the remainder of the
Company's shares owned by IBM would be purchased by the General
Atlantic Partners group, a New York-based private investment firm. 
The Company completed the repurchase of these shares on May 16,
1994, at a share price of $24.71, which approximated an aggregate
cash expenditure of $56.3 million.  The shares repurchased by the
Company represent 10% of its total shares outstanding prior to the
repurchase.

  Pursuant to a stock repurchase program approved by the Board of
Directors in July 1994, the Company may purchase from time to time
up to 2.5 million shares of its issued and outstanding common
stock.  This program is flexible as to the timing and method of
acquisition of these shares.  As of September 30, 1994, the Company
had repurchased, on the open market, 938,900 shares of its common
stock, at an average price of approximately $35.00 per share for a
total of $33.0 million.
9

                   POLICY MANAGEMENT SYSTEMS CORPORATION

                  MANAGEMENT'S DISCUSSION AND ANALYSIS OF
               FINANCIAL CONDITION AND RESULTS OF OPERATIONS

  The following discussion and analysis provides information which
management believes is relevant to an assessment and understanding
of the Company's consolidated results of operations and financial
condition.  The discussion should be read in conjunction with the
consolidated financial statements and notes thereto contained in 
Part I of this report on Form 10-Q and with the Company's Annual
Report on Form 10-K for the year ended December 31, 1993.

                           RESULTS OF OPERATIONS

  Set forth below are certain operating items expressed as a
percentage of revenues and the percent increase (decrease) for
those items between the periods presented:
1994   vs   1993
                                                                    Percent Increase
                                                                       (Decrease)    
                             Percentage           Percentage         Three     Nine
                            of Revenues          of Revenues         Months    Months
                            Three Months         Nine Months         Ended     Ended 
                         Ended September 30,  Ended September 30,     September 30,  
                            1994      1993       1994      1993
Revenues:
Licensing.................  21.3      14.4       18.2      17.0       72.5      14.3 
Services..................  78.7      85.6       81.8      83.0        7.2       5.1 
                           100.0     100.0      100.0     100.0       16.6       6.6
Costs and Expenses:
Employee compensation
    and benefits..........  34.4      38.6       36.3      36.6        3.8       5.7
Computer & communication
    expense...............   9.1       9.3        9.3       9.0       14.9      10.6
Information services & data
    acquisition costs.....  26.0      31.5       27.4      27.9       (3.6)      4.7 
Other operating costs
    and expenses..........  20.3      19.9       18.1      26.7       18.9     (27.8) 
Impairment and restructuring
    charges (credits).....  (1.3)      -          (.9)     23.4     (100.0)   (104.3)
                            88.5      99.3       90.2     123.6        3.9     (22.2)

Operating income (loss)...  11.5        .7        9.8     (23.6)   1,844.9     144.4 
Other income and expenses.   (.3)      1.2         .2       2.7     (125.0)    (91.4)

Income (loss) before income
    tax (benefit).........  11.2       1.9       10.0     (20.9)     585.5     151.2

Income taxes (benefit)....   3.6       1.6        3.5      (3.5)     162.8     208.1

Net income (loss).........   7.6        .3        6.5     (17.4)   2,710.1     139.8
10

THREE MONTHS COMPARISON

  A comparison of revenues and operating income for each line of
business and geographic market for the periods presented is as
follows:
Operating 
                                              Operating           Income as a
                         Revenues              Income            % of Revenue    
                       Three Months          Three Months         Three Months
                    Ended September 30,   Ended September 30,  Ended September 30,
                       1994    1993          1994     1993        1994     1993
                                         (Dollars in Millions)
Line of Business   
Property & Casualty  $ 88.2   $ 80.2        $10.1    $ 6.5         11.5      8.1
Life                   29.8     21.4          3.9     (1.1)        13.1     (5.1)
Health                  8.9      7.3          3.4     (4.3)        38.2    (58.9)

  Geographic Market  
United States        $110.7   $ 95.3        $15.3    $(1.3)        13.8     (1.4)
International          16.2     13.6          2.1      2.4         13.0     17.6
The above table does not include an allocation of revenues and
costs associated with corporate activities such as equipment sales,
financial services, legal and other general corporate activities. 
There were no equipment sales during the three months ended
September 30, 1994 or 1993. Costs associated with these corporate
activities amounted to $2.8 million and $.3 million, excluding
special charges, for the three months ended September 30, 1994 and
1993, respectively (see Costs and Expenses below).

Revenues

  Total licensing revenues for the three months ended September 30,
1994 increased $11.4 million (72.5%) compared to the corresponding
period in 1993, due primarily to a $10.9 million increase in
initial license revenues attributable to new systems licensed by
both property and casualty and life insurers and by increased
revenues from continuing monthly license charges for maintenance,
enhancements and services availability ("MESA") and for continuing
right-to-use licenses of $.5 million (3.7%).  As part of the
increase in initial license revenues, the Company executed a
license agreement expansion with a large Blue Cross Blue Shield
organization, which resulted in the recognition of $3.5 million in
revenue for the Company's health insurance systems business. 
However, the Company does not expect to see recurring transactions
of this size in the near term as health insurers, for the most
part, are still reluctant to make major systems decisions.

  Total services revenues for the three months ended September  30,
1994 increased $6.7 million (7.2%) compared to the corresponding
period in 1993.  The total services revenue increase was affected
by activities in professional, outsourcing and information
services, as described more fully below.
11

  Revenues from professional services increased $2.9 million
(17.9%) to $19.3 million for the three months ended September 30,
1994 from $16.4 million for the corresponding period in 1993, due
primarily to additional services ($4.4 million) generated by the
life insurance services business.  This increase was partially
offset by a reduction in professional services ($1.4 million)
provided by the Company's health insurance services business. 

  Revenues from outsourcing services amounted to $32.3 million for
the three months ended September 30, 1994, an increase of $6.2
million (23.5%) compared with the corresponding period in 1993. 
Revenues from outsourcing services increased $11.2 million as a
result of new outsourcing services relating to life insurance
services in Europe and servicing existing and new contracts with
property and casualty insurance companies and residual markets. 
These increases were partially offset by the wind-down of the New
Jersey Market Transition Facility (MTF) project, where revenues
from this property and casualty contract decreased from $2.9
million for the three months ended September 30, 1993 to $.5
million for the three months ended September 30, 1994, and to the
termination of a facilities management and processing contract in
September 1993, representing $2.7 million of life insurance
services business in Europe for the three months ended September
30, 1993.  

  Revenues from information services were $47.8 million for the
three months ended September 30, 1994 as compared with $50.8
million for the corresponding period in 1993.  This $3.0 million
decrease is attributable to a decrease in business associated with
automobile property and casualty information services and as a
result of a sale of a small non-strategic division.  These
decreases, however, were partially offset by  an increase in life
and information services.

Costs and Expenses

  Employee compensation and benefits increased $1.6 million for the
three months ended September 30, 1994 compared with the
corresponding period in 1993, primarily as a result of increased
costs ($3.7 million) associated with the acquisition of CYBERTEK
Corporation in August 1993, the acquisition of a data center,
including its workforce, in Bergen, Norway and an increase in third
party temporary services.  The increase in costs associated with
these acquisitions was partially offset by a reduction in
compensation and other benefits ($2.1 million) resulting from a
downsizing in the Company's health insurance services staff from
437 at June 30, 1993 to approximately 238 at September 30, 1994. 
These scheduled staff reductions are part of the Company's
restructuring of its health business (see Note 5 of Notes to
Consolidated Financial Statements).

  Computer and communications expenses increased $1.5 million for
the three months ended September 30, 1994 compared with the
corresponding period in 1993, primarily as a result of increased
costs associated with the acquisition of CYBERTEK Corporation in
August 1993, and the acquisition of a data center, including its
workforce, in Bergen, Norway in December 1993.
12

  Information services and data acquisition costs decreased $1.2
million for the three months ended September 30, 1994 compared with
the corresponding period in 1993, due primarily to a decrease in
the volume of state fees for motor vehicle reports, which is part
of the Company's property and casualty information services
business.

  Other operating costs and expenses for the three months ended
September 30, 1994 increased $4.1 million when compared with the
corresponding period in 1993. The increase is primarily
attributable to increases in operating costs associated with
providing total policy management outsourcing services for new
customers.  This increase was partially offset by an increase in
amounts capitalized principally related to the internal development
of the Company's life software systems.  

  In July 1994 the Company, due to a change in its estimates,
reduced its restructuring reserves by $1.8 million, which resulted
from a lease termination at amounts less than those established for
the planned future abandonment of certain leased office facilities
(see Note 5 of Notes to Consolidated Financial Statements).

Operating Income

   Operating income was $14.6 million for the three months ended
September 30, 1994, compared with $.8 million for the corresponding
period in 1993.  This increase resulted primarily from an increase
in initial license revenues for new systems licensed by both
property and casualty and life insurers, an increase in life
insurance services in Europe, an increase in professional and
outsourcing services provided under existing and new contracts with
property and casualty insurance companies and residual markets, and
to a reduction in restructuring reserves.

  The Company's health insurance systems business continues to show
some improvement.  Revenues benefited from a significant license
agreement expansion resulting in the recognition of $3.5 million in
revenue.  Additional improvements resulted from a reduction in
operating costs associated with the reduction in amortization
charges for certain identifiable intangible assets and goodwill,
which were written-off at June 30, 1993, a reduction in rental
expense related to lease terminations and compensation and other
benefits costs through the downsizing of staff.

  The property and casualty insurance software and services
business experienced a higher level of revenue primarily from
increased licensing activities and outsourcing revenues related to
total policy management services during the three months ended
September 30, 1994 compared to the corresponding period of 1993. 
However, operating income declined from the second quarter of 1994
as a result of a decrease in information services business and
additional costs associated with servicing new outsourcing
customers.

  Although the Company has not been able to reduce its operating
expenses, associated with the wind-down of the MTF project, as
quickly
13

as the reduction in revenue from the MTF occurred, operating income
from services provided under new outsourcing contracts with
insurance companies and residual markets have started to replace
operating income lost from the MTF project.  Revenues for the three
months ended September 30, 1994 increased $4.7 million compared
with the corresponding period in 1993; however, margins will be
reduced during the early phases of these contracts due to start-up
costs.

  The information services businesses, which include property and
casualty as well as life insurance information services, produced
a net operating loss for the three months ended September 30, 1994
of $1.8 million. The property and casualty business unit produced
an operating loss of $2.5 million while the life business unit
produced operating income of $.7 million.  These results were
weaker than that reported for the third quarter of 1993 when the
property and casualty business produced an operating loss of $.7
million and the life business produced operating income of $.7
million.  The 1994 third quarter performance reflects a trend of
weakening results that began earlier in the year and in property
and casualty is reflective of increasing price competition and
changing market conditions.  The life business has been heavily
impacted by the implementation of new systems and higher costs to
acquire information.  In response to the recent performance and
changing market conditions, the Company has taken and is
considering further near-term actions to improve the overall
results from information services.  These actions include
management changes, realigning and consolidating field offices,
reducing other expenses, refining and enhancing products and
services and evaluating the recoverability and amortization periods
of intangible assets acquired in information services business
acquisitions.  Additionally, the Company is pursuing a long-term
strategy to direct more of its information services business into
database products and life information services where margins are
generally higher.  The Company typically realizes a much lower
gross margin from property and casualty information services than
from software products and related services. 

  In August 1993, the Company completed its acquisition of CYBERTEK
Corporation. The Company continues to focus on integrating
CYBERTEK's products with the Company's Series III applications and
technology.  The Company has also completed the combination of
CYBERTEK with the Company's life insurance software and services
organization to eliminate redundancies.  Although ongoing expenses
of the combination continued at a high level in the third quarter,
total revenues and operating income for the Company's life business
increased $8.4 million and $5.0 million for the three months ended
September 30, 1994, respectively, compared with the corresponding
period in 1993, due primarily to the CYBERTEK acquisition, the
addition of a new outsourcing contract in Europe during December
1993, and to increased initial license revenues.

  Investment income decreased $1.0 million during the three months
ended September 30, 1994, compared with the corresponding period in
1993, as a result of a lower level of investable funds resulting
from large cash expenditures for the acquisition of CYBERTEK
Corporation
14

($59.7 million) in August 1993, the repurchase in May 1994 of
2,278,537 of the 3,797,561 shares of common stock held by IBM
($56.3 million), the repurchase of 938,900 shares of the Company's
common stock, on the open market, ($33.0 million) under its 2.5
million share repurchase plan (see Note 6 of Notes to Consolidated
Financial Statements).

  As part of the Company's repurchase of 938,900 shares of its
outstanding common stock under its 2.5 million share repurchase
plan, the Company liquidated a portion of its marketable securities
portfolio.  The Company incurred a loss on the sale of securities
of approximately $1.0 million related directly to the repurchase
during the third quarter of 1994 (see Note 6 of Notes to
Consolidated Financial Statements).

  Interest expense and other charges decreased $.3 million for the
three months ended September 30, 1994 compared with the
corresponding period in 1993, primarily as a result of a decrease
in the amortization of discounts associated with long-term
restructuring liabilities recorded at June 30, 1993.  These
liabilities, which are part of restructuring charges established to
recognize as a loss the planned future abandonment of certain
facilities relating to the restructuring of the Company's health
insurance services business, were reduced $1.8 million during the
three months ended September 30, 1994 (see Note 5 of Notes to
Consolidated Financial Statements).

  The effective income tax rate (income taxes expressed as a
percentage of pre-tax income) was 32.0% and 83.0% for the three
months ended September 30, 1994 and 1993, respectively.  The
decrease in the effective tax rate is due primarily to the impact
of recording a one time charge in the three months ended September
30, 1993 related to the increase in the highest federal marginal
income tax rate from 34% to 35%.  Without the one time charge, the
effective tax rate would have been 31.8% for the three months ended
September 30, 1993. The effective income tax rate for the three
months ended September 30, 1994 is lower than the preceding 1994
quarters, principally as a result of a reduction in state income
taxes ($.4 million), which are based on gross income and capital of
the Company.
15

NINE MONTHS COMPARISON

  A comparison of revenues and operating income for each line of
business and geographic market for the periods presented is as
follows:
Operating
                                             Operating            Income as a
                          Revenues             Income             % of Revenue   
                        Nine Months          Nine Months          Nine Months
                    Ended September 30,  Ended September 30,  Ended September 30, 
                       1994     1993       1994      1993       1994      1993
                                       (Dollars in Millions)
Line of Business   
Property & Casualty  $256.0   $260.0      $30.8     $37.3       12.0      14.3
Life                   86.9     55.1        7.0      (6.4)       8.1     (11.6)
Health                 24.7     25.9        6.1      (9.5)      24.7     (36.7)

  Geographic Market  
United States        $317.2   $299.0      $38.7     $14.5       12.2       4.8
International          50.4     42.0        5.2       6.9       10.3      16.4

  The above table does not include an allocation of revenues and
costs associated with corporate activities such as equipment sales,
financial services, legal and other general corporate activities. 
Revenues related to equipment sales amounted to $3.8 million for
the nine months ended September 30, 1993.  There were no equipment
sales during the corresponding period of 1994.  Costs associated
with these corporate activities amounted to $7.8 million and $7.8
million, excluding special charges ($98.8 million in 1993), for the
nine months ended September 30, 1994 and 1993, respectively (see
Costs and Expenses below).

Revenues

  Total licensing revenues for the nine months ended September 30,
1994 increased $8.4 million (14.3%) compared with the corresponding
period in 1993, due primarily to a $4.8 million increase in initial
license revenues attributable to new systems licensed by life
insurers and to an expanded license agreement in the health
insurance systems business. Additionally, revenues from continuing
monthly license charges for maintenance, system enhancements and
services availability ("MESA") and for continuing right-to-use
licenses increased $3.6 million (10.1%). These increases were
partially offset by a reduction in systems licensed primarily to
the property and casualty business in the United States.

  Total services revenues for the nine months ended September  30,
1994 increased $14.5 million (4.2%) compared with the corresponding
period in 1993.  The total services revenue increase was primarily
affected by activities in professional, outsourcing and information
services, as described more fully below.

  Revenues from professional services increased $12.6 million
(26.7%) to $59.9 million for the nine months ended September 30, 1994
from
16

$47.3 million for the corresponding period in 1993, due primarily to
additional services ($13.3 million) generated by the life insurance
services business.

  Revenues from outsourcing services were $93.3 million for the nine
months ended September 30, 1994, an increase of $1.2 million (1.3%)
compared with the corresponding period in 1993. Revenues from
outsourcing services increased $26.5 million as a result of $7.9
million in new outsourcing services relating to life insurance
services in Europe and $17.4 million in servicing existing and new
contracts with property and casualty insurance companies and residual
markets. These increases were partially offset by the wind-down of
the New Jersey Market Transition Facility (MTF) project, where
revenues from this property and casualty business decreased from
$18.0 million for the  first nine months in 1993 to $2.1 million for
the first nine months in 1994, and to the termination of a facilities
management and processing contract in September 1993, representing
$9.5 million of life insurance services revenue in Europe for the
nine months ended September 30, 1993.  

  Revenues from information services were $146.1 million for the
nine months ended September 30, 1994 as compared with $143.8 million
for  the corresponding period in 1993.  This $2.4 million increase
is primarily attributable to an increase in business associated with
automobile property and casualty information services and life
information services.  These increases, however, were partially
offset by a reduction in property and casualty information services
revenue associated with risk services.

Costs And Expenses

  Employee compensation and benefits increased $7.2 million for the
nine months ended September 30, 1994 compared with the corresponding
period in 1993, primarily as a result of increased costs ($12.6
million) associated with the acquisition of CYBERTEK Corporation in
August 1993, and the acquisition of a data center, including its
workforce, in Bergen, Norway.  The increase in costs associated with
these acquisitions was partially offset by a reduction in
compensation and other benefits ($5.6 million) resulting from a
downsizing in the Company's health insurance services staff from 437
at June 30, 1993 to approximately 238 at September 30, 1994.  These
scheduled staff reductions are part of the Company's restructuring
of its health business (see Note 13 of Notes to Consolidated
Financial Statements in the Company's Annual Report on Form 10-K for
the year ended December 31, 1993).

   Computer and communications expenses increased $3.3 million for
the nine months ended September 30, 1994 compared with the
corresponding period in 1993, primarily as a result of increased
costs associated with the acquisition of CYBERTEK Corporation in
August 1993, and the acquisition of a data center, including its
workforce, in Bergen, Norway.

  Information services and data acquisition costs increased $4.6
17

million for the nine months ended September 30, 1994 compared with
the corresponding period in 1993, due primarily to an increase in the
volume of state fees for motor vehicle reports, which is part of the
Company's property and casualty information services business.

  Other operating costs and expenses for the nine months ended
September 30, 1994 decreased $25.5 million when compared with the
corresponding period in 1993.  The decrease is primarily attributable
to charges related to early project terminations, the deductible
under the Company's Directors' and Officers' liability insurance
policy in response to shareholder litigation, cost overruns on
certain projects and other charges arising from the Company's
previously disclosed internal investigation of its accounting
practices.  These charges, $16.4 million, were recorded during the
six months ended June 30, 1993.  In addition to these charges, other
operating costs and expenses declined as a result of a reduction in
the cost of equipment sold of $3.5 million, a decrease in costs
associated with the wind-down of the New Jersey MTF project, a
decrease associated with the recovery of certain receivables
previously written off, and an increase in amounts capitalized
principally related to the internal development of the Company's life
software systems.  These decreases were partially offset by an
increase in operating costs associated with providing total policy
management outsourcing services for new customers.

  Other operating costs and expenses include a charge of $1.9 million
associated with the recent settlement of a contract dispute, which
was decided through an international arbitration tribunal (see Note
6 of Notes to Consolidated Financial Statements).

  Due to changes in its estimates, as of September 30, 1994, the
Company has reduced its restructuring reserves by $3.5 million, $1.7
million of which resulted from a change in the scheduled downsizing
of the Company's health staff and a corresponding reduction in
amounts established for severance and outplacement costs, recorded
in June 1994, and $1.8 million of which resulted from a lease
termination at amounts less than those established for the planned
future abandonment of certain leased office facilities, recorded in
July 1994 (see Note 5 of Notes to Consolidated Financial Statements).

Operating Income

   Operating income was $36.1 million for the nine months ended
September 30, 1994, compared with an operating loss of $81.4 million
for the corresponding period in 1993.  The operating loss for the
nine months ended September 30, 1993 reflected the special charges
of $98.8 million relating to impairment and restructuring charges
($80.7 million) and other special charges ($18.1 million).

  Operating income, excluding impairment and restructuring charges 
(credits) and other special charges, as a percentage of revenues
increased to 8.9% for the nine months ended September 30, 1994 from
5.0% for the comparable period in 1993.  This increase resulted
primarily from an increase in outsourcing services related to life
18

insurance services in Europe, professional and outsourcing services
provided under existing and new contracts with property and
casualty insurance companies and residual markets, and to an
increase in initial license revenues from both the Company's life
and health insurance systems businesses.

  The Company's health insurance systems business continues to show
some improvement over the prior year's first nine month results. 
Improvements resulted from a significant license agreement
expansion resulting in the recognition of $3.5 million in revenue
and to a reduction in operating costs associated with amortization
charges for certain identifiable intangible assets and goodwill,
which were written-off at June 30, 1993, a reduction in rental
expense related to lease terminations and compensation and other
benefits costs through the downsizing of staff.  

  The property and casualty insurance software and services
business experienced a lower level of revenue and operating income
primarily from decreased licensing activities and outsourcing
services during the nine months ended September 30, 1994 than in
the corresponding periods of 1993.  Outsourcing services for
property and casualty insurers have not met expectations due to
several contracts not closing or ramping up as fast as anticipated 
and the Company has not been able to reduce its operating expenses,
associated with the wind-down of the MTF project, as quickly as the
reduction in revenue from the MTF occurred.  However, as a result
of an increased role in servicing additional new contracts with
insurance companies and residual markets, the Company is beginning
to replace revenues lost from the MTF project during the nine
months ended September 30, 1994.  Margins have improved but will be
reduced during the early phases of these contracts due to start-up
costs.

  The information services businesses, which include property and
casualty as well as life information services, produced a net
operating loss for the nine months ended September 30, 1994 of $3.6
million.  The property and casualty business produced an operating
loss of $5.9 million while the life business unit produced
operating income of $2.3 million.  These results were weaker than
that reported for the corresponding period in 1993 where the
property and casualty business produced an operating loss of $3.6
million and the life business produced operating income of $3.9
million, resulting in net operating income of $.3 million.  The
1994 nine months performance in property and casualty is reflective
of increasing price competition and changing market conditions. 
The life business has been heavily impacted by the implementation
of new systems and higher costs to acquire information.  In
response to the recent performance, the Company has taken and is
considering further near-term actions to improve the overall
results from information services.

  One time costs of integrating CYBERTEK with the Company's life
insurance systems business continued at a high level in the first
nine months of 1994; however, total revenues for the Company's life
business were 57.7% higher ($31.8 million) for the nine months
ended September 30, 1994, compared with the corresponding period in
1993,
19

due primarily to the CYBERTEK acquisition, the addition of a new
outsourcing contract in Europe during December 1993, and to
increased initial license revenues.

  Investment income decreased $3.0 million for the nine months
ended September 30, 1994 compared with the corresponding period in
1993, as a result of a lower level of investable funds, resulting
from large cash expenditures for the acquisition of CYBERTEK
Corporation ($59.7 million) in August 1993,  the repurchase in
April 1993 of 970,668 shares of the Company's common stock ($48.7
million), the repurchase in May 1994 of 2,278,537 of the 3,797,561
shares of common stock held by IBM ($56.3 million), the repurchase 
of 938,900 shares of the Company's outstanding common stock, on the
open market, ($33.0 million) under its 2.5 million share repurchase
authorization, and to a decrease in interest income related to
long-term accounts receivable.

  As part of the Company's repurchase of 2,278,537 of the 3,797,561
shares of its common stock held by IBM, at a price of $24.77 per
share, and the open market repurchase of 938,900 shares of common
stock, the Company liquidated a portion of its marketable
securities portfolio.  The Company incurred a loss on the sale of
securities of approximately $1.8 million related directly to these
repurchases during 1994 (see Note 6 of Notes to Consolidated
Financial Statements).

  Interest expense and other charges increased $.6 million for the
nine months ended September 30, 1994 compared with the
corresponding period in 1993, primarily as a result of the
amortization of discounts associated with long-term restructuring
liabilities recorded at June 30, 1993.  These liabilities, which
are part of restructuring charges established to recognize as a
loss the planned future abandonment of certain facilities relating
to the restructuring of the Company's health insurance services
business, were reduced $1.8 million during the nine months ended
September 30, 1994 (see Note 5 of Notes to Consolidated Financial
Statements).

  The effective income tax (benefit) rate (income taxes expressed
as a percentage of pre-tax income) was 35.3% and (16.7%) for the
nine months ended September 30, 1994 and 1993, respectively.  The
effective tax benefit rate would have been significantly higher
(38.3%) for the 1993 period were it not for the write off of
goodwill ($39.4 million) related to the impairment of the Company's
health insurance systems business (see Note 13 of Notes to
Consolidated Financial Statements in the Company's Annual Report on
Form 10-K for the year ended December 31, 1993).  The effective
income tax rate for the nine months ended September 30, 1994 is
lower than the preceeding six month period ended June 30, 1994,
principally as a result of a reduction in state income taxes ($.4
million), which are based on gross income and capital of the
Company.
20

                     LIQUIDITY AND CAPITAL RESOURCES 

                                     September 30,     December 31,
                                         1994            1993    
Cash and equivalents, marketable             (In Millions)
  securities, and investments           $ 70.7         $156.8
Current assets                           201.7          287.7
Current liabilities                       66.8           81.0
Working capital                          134.9          206.7

                                     September 30,  September 30,
                                         1994           1993     
                                             (In Millions)
Cash provided by operations             $ 56.7         $ 60.5
Cash provided (used) by            
  investing activities                    31.5          (11.4)
Cash used for financing activities       (94.2)         (50.3)

  The Company's financial condition remained strong at  September
30, 1994.  Working capital was $134.9 million, including cash, cash
equivalents and marketable securities of $63.1 million, and
excluding $7.7 million of long-term investments.  Cash, cash
equivalents, marketable securities and investments were $70.7
million at September 30, 1994 as compared to $156.8 million at
December 31, 1993, a net decrease of $86.1 million, resulting
primarily from  the repurchase in May 1994 of 2,278,537 of the
3,797,561 shares of common stock held by IBM for $56.3 million; the
repurchase of 938,900 shares of the Company's common stock for
$33.0 million, on the open market, in the third quarter of 1994.

  The decrease in net cash generated by operations of $3.8 million
for the nine months ended September 30, 1994 compared with the
corresponding period in 1993 was primarily attributable to payment
of lease termination costs, an increase in accounts receivable and
a decrease in accounts payable and accrued expenses.  This decrease
was partially offset by a decrease in income taxes paid.  The
increase in accounts receivable is primarily due to the Company's
claim for recovery of litigation costs (see Note 3 of Notes to
Consolidated Financial Statements) and to the high level of
software licensing transactions which occurred during the latter
part of September 1994.  These licensing transactions, most of
which required substantial payments at the date of execution, were
collected the following month.

  The Company recorded, at June 30, 1993, impairment charges to
reduce the carrying value of certain identifiable intangible assets
and goodwill related to its health insurance services business of
$54.9 million.  Due to this impairment and write-down, the Company
decided to restructure this business and take a restructuring
charge of $25.2 million as of June 30, 1993.  Costs to restructure
the health business are composed of $5.2 million associated with
employee severance and outplacement, and $20.0 million related to
an ongoing lease obligation and/or termination for the planned
future abandonment of certain leased office facilities (see Note 13
of Notes to Consolidated Financial Statements in the Company's
Annual Report on Form 10-K
21

for the year ended December 31, 1993).  Cash outlays with respect
to the restructuring charges were $10.4 million for the nine months
ended September 30, 1994.  Cash outlays are expected to be
approximately $1.9 million for the remainder of 1994.

  During the nine months ended September 30, 1994, the Company
reduced its liabilities for accrued restructuring charges by $8.1
million ($9.0 million in cash outlays, less $.9 million in non-cash
discount amortization) for lease terminations and $.4 million
(primarily cash) for employee severance and outplacement costs. 
Additionally, the Company adjusted its restructuring liability
established for employee severance and outplacement and lease
termination costs downward by $3.5 million.  This decrease resulted
from a change in the scheduled downsizing of its health staff and
a corresponding reduction in amounts established for severance and
outplacement costs and a lease termination at amounts less than
those established for the planned abandonment of certain leased
office facilities.

  Excluding short-term investments, net cash used by investing
activities declined in the first nine months of 1994 compared with
the corresponding period in 1993.  During the first nine months of
1994, net cash used for investments included $11.7 million compared
to $32.4 million for the first nine months of 1993 that was
invested in data processing, communications equipment and office
furniture and equipment.  Approximately $27.4 million of the amount
expended in 1993 was for upgrading data processing and
communications equipment.  Amounts capitalized for internal
software development increased $8.3 million (47.2%) to $25.9
million for the first nine months of 1994 compared to $17.6 million
for the corresponding period in 1993, due primarily to the
development of life systems based on the business functions of
CYBERTEK software and the process of integrating CYBERTEK
functionality with certain existing Series III applications.
           
  Significant expenditures anticipated for the remainder of 1994,
excluding any possible business acquisitions and stock repurchases,
are as follows:  acquisition of data processing, communications
equipment and office furniture, fixtures and equipment ($1.7
million); costs relating to the internal development of software
systems ($8.6 million); and debt payments relating to past business
acquisitions ($2.4 million).

  The Company has historically used the cash generated from
operations for the following:  development and acquisition of new
products, acquisition of businesses and repurchase of the Company's
stock.  The Company anticipates that it will continue to use its
cash for all of these purposes in the future and that projected
cash from operations and cash and investment reserves will be able
to meet presently anticipated needs;  however, the Company may also
consider incurring debt as needed to accomplish specific objectives
in these areas and for other general corporate purposes.
22

                  FACTORS THAT MAY AFFECT FUTURE RESULTS

  The Company's future operating results may be affected by a
number of factors, including uncertainties relative to economic
conditions; industry factors; the Company's ability to develop and
sell its products profitably; the Company's ability to successfully
increase market share in its core business while expanding its
product base into other markets; and the Company's ability to
effectively manage expense growth relative to revenue growth in
anticipation of continued pressure on gross margins.  The Company's
operating results could be adversely affected should the Company be
unable to anticipate customer demand accurately, to introduce new
products on a timely basis, or to effectively manage the impact on
the Company of changes in the insurance marketplace.

  Contracts with governmental agencies involve a variety of special
risks, including the risk of early contract termination by the
governmental agency and changes associated with newly elected state
administrations or newly appointed regulators.

  A significant portion of both the Company's revenue and its
operating income is derived from initial licensing charges received
as part of the Company's software licensing activities.  Because a
substantial portion of these revenues are recorded at the time new
systems are licensed, there can be significant fluctuations from
period to period in the revenues and operating income derived from
licensing activities based upon the timing of the licensing of new
systems.

  Because of the foregoing factors, as well as other factors
affecting the Company's operating results, past financial
performance should not be considered to be a reliable indicator of
future performance, and investors should not use historical trends
to anticipate results or trends in future periods.
23

                                  PART II
                             OTHER INFORMATION

                   POLICY MANAGEMENT SYSTEMS CORPORATION

Item 1. Legal Proceedings

        See Note 3, "Contingencies" of Notes to the Consolidated
        Financial Statements.

Items 2, 3, 4, and 5 are not applicable

Item 6. Exhibits and Reports on Form 8-K.

Exhibits

  Exhibits required to be filed with this Quarterly Report on Form
10-Q are listed in the following Exhibit Index.

Reports on Form 8-K

  The Company did not file any reports on Form 8-K during the
quarter ended September 30, 1994.
24

                   POLICY MANAGEMENT SYSTEMS CORPORATION

                                SIGNATURES

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.

                   POLICY MANAGEMENT SYSTEMS CORPORATION
                               (Registrant)

                                        
Date:  October 31, 1994            By:  Timothy V. Williams
                                        Executive Vice President
                                        (Chief Financial Officer)