<PAGE>1
                               UNITED STATES
                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, 1996    Commission file number 1-10557



                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 PMSC 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   X       No       

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

  18,178,869 Common shares, $.01 par value, as of November 14,1996 


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, 1995.

<PAGE>2
              POLICY MANAGEMENT SYSTEMS CORPORATION



                              INDEX



PART I. FINANCIAL INFORMATION                                PAGE


  Item 1. Financial Statements

          Consolidated Statements of Income for 
            the three and nine months ended September 30, 
            1996 and 1995..................................... 3

          Consolidated Balance Sheets as of 
            September 30, 1996 and December 31, 1995.......... 4

          Consolidated Statements of Cash Flows for
            the nine months ended September 30, 1996 and 1995. 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...................................26 

  Item 6. Exhibits and Reports on Form 8-K....................27 


Signatures....................................................28






  





<PAGE>3                         PART I
                    FINANCIAL INFORMATION
<TABLE>
              POLICY MANAGEMENT SYSTEMS CORPORATION
                CONSOLIDATED STATEMENTS OF INCOME
<CAPTION>
                                         Three Months         Nine Months
                                      Ended September 30,  Ended September 30,
                                        1996      1995       1996      1995  
                                          (Unaudited)          (Unaudited)    
                                      (In Thousands, Except Per Share Data)
<S>                                   <C>       <C>        <C>       <C>
Revenues
  Licensing.......................... $ 24,186  $ 24,518   $ 74,320  $ 72,798
  Services...........................  122,812   106,704    343,193   325,346
                                       146,998   131,222    417,513   398,144
Operating expenses 
 Cost of revenues 
  Employee compensation & benefits...   47,192    38,401    131,523   116,448
  Computer and communications         
    expenses.........................    7,967     7,160     24,038    21,353
  Information services and                     
    data acquisition costs...........   29,981    26,806     87,890    88,173
  Depreciation and amortization of                                  
    property, equipment and
    capitalized software costs.......   12,539    12,683     35,512    36,750   
  Other costs & expenses.............   13,669    10,984     29,419    30,555
 Selling, general and administrative
   expenses..........................   18,023    15,734     52,691    47,771
 Amortization of goodwill and
   other intangibles.................    2,616     2,330      7,777     6,715
 Litigation settlement and 
    expenses, net....................      -         -       (9,422)    6,216
 Gain on sale of Health business
    and related assets...............      -         -           -     (8,116)
 Business acquisition charges........      109       -           99       -
 Impairment and restructuring 
    credits, net.....................     (394)        6       (461)    ( 240)
                                       131,702   114,104    359,066   345,625

Operating income ....................   15,296    17,118     58,447    52,519 

Other Income and Expenses:
  Investment income..................      376       654      1,898     1,612
  Interest expense and other
    charges..........................   (1,475)     (658)    (3,544)   (2,176)
                                        (1,099)      ( 4)    (1,646)     (564)
Income before income taxes...........   14,197    17,114     56,801    51,955 
Income taxes.........................    5,190     5,520     20,363    16,951 

Net income........................... $  9,007  $ 11,594   $ 36,438  $ 35,004 

Net income per share................. $    .50  $    .60   $   1.94  $   1.81 
Weighted average number of shares....   18,179    19,401     18,747    19,376
<FN>
See accompanying notes.
</TABLE>
<PAGE>4
TABLE
<PAGE>
                 POLICY MANAGEMENT SYSTEMS CORPORATION
                       CONSOLIDATED BALANCE SHEETS
<CAPTION>
                                                        (Unaudited)     (Audited)
                                                        September 30,  December 31,
                                                            1996          1995    
                                                             (In Thousands,
                                                          Except Share Data)
<S>                                                       <C>           <C>  
Assets
Current assets
  Cash and equivalents................................... $  8,030      $ 35,094
  Marketable securities..................................    2,400         4,615
  Receivables, net of allowance for uncollectible 
     amounts of $806   ($2,042 at 1995)..................  102,937        95,740
  Income tax receivable..................................   14,908        25,089
  Deferred income taxes..................................   15,770        10,261
  Other..................................................   16,663        17,833
     Total current assets................................  160,708       188,632

Property and equipment, at cost less accumulated
     depreciation and amortization of $116,589
     ($103,568 at 1995)..................................  113,504       109,183
Receivables..............................................    5,539         5,885
Goodwill and other intangibles assets, net...............   84,352        89,319
Capitalized software costs, net..........................  170,642       145,982
Deferred income taxes....................................    1,376         2,335
Investments..............................................    6,496         4,905  
Other....................................................    5,755         5,492
        Total assets..................................... $548,372      $551,733

Liabilities
Current liabilities
  Accounts payable and accrued expenses.................. $ 49,538      $ 70,673
  Accrued restructuring charges..........................    3,875         9,456
  Accrued contract termination costs.....................      425         1,154
  Current portion of long-term debt......................     -            1,766
  Income taxes payable...................................    7,268            10
  Unearned revenues......................................   10,021        11,350
  Other..................................................       32          -   
     Total current liabilities...........................   71,159        94,409

Long-term debt...........................................   57,750        14,873
Deferred income taxes....................................   62,895        52,701
Accrued restructuring charges............................    1,940         4,439
Other....................................................    3,310         2,639
     Total liabilities...................................  197,054       169,061
 
Commitments and contingencies (Note 1)

Stockholders' Equity
Special stock, $.01 par value, 5,000,000 shares 
   authorized............................................     -              -
Common stock, $.01 par value, 75,000,000 shares 
   authorized, 18,178,869 shares issued and 
   outstanding (19,436,114 at December 31, 1995).........      182           194
Additional paid-in capital...............................  106,094       173,402
Retained earnings........................................  246,551       210,113
Foreign currency translation adjustment..................   (1,509)       (1,037)
     Total stockholders' equity..........................  351,318       382,672
        Total liabilities and stockholders' equity....... $548,372      $551,733
<FN>
See accompanying notes.
</TABLE>
<PAGE>5
<TABLE>
CAPTION
<PAGE>
              POLICY MANAGEMENT SYSTEMS CORPORATION
              CONSOLIDATED STATEMENTS OF CASH FLOWS
                           (Unaudited)

                                                        Nine Months
                                                     Ended September 30,
                                                      1996        1995  
                                                    (In Thousands)
<S>                                                 <C>        <C> 
Operation Activities 
  Net income......................................  $ 36,438   $ 35,004 
  Adjustments to reconcile net income to net
   cash provided by operating activities:     
    Depreciation and amortization.................    45,507     44,985
    Deferred income taxes.........................     6,342      8,790 
    Provision for uncollectible accounts..........       456        262
  Changes in assets and liabilities:
    Accrued restructuring and lease
      termination costs...........................    (8,080)    (4,795)
    Receivables...................................    (4,742)    (4,988)
    Income taxes receivable.......................    10,181      4,533 
    Accounts payable and accrued expenses.........   (21,421)    (6,201)
    Income taxes payable..........................     6,561      1,394
  Other, net......................................    (2,001)    (8,300)
       Cash provided by operations................    69,241     70,684
  
Investing Activities
  Proceeds from sales/maturities of marketable    
   securities.....................................     2,850      7,778
  Purchases of marketable securities..............      -        (3,694)
  Investment in nonconsolidated affiliate.........    (2,315)       -
  Acquisition of property and equipment...........   (20,676)   (17,579)
  Capitalized internal software development  
   costs..........................................   (41,953)   (32,621)
  Purchased software..............................    (1,192)      (250)
  Proceeds from disposal of property and
   equipment......................................       747        827
  Business acquisition............................    (6,777)       -
  Contract acquisition costs......................      -       (10,000)
       Cash (used) by investing 
         activities...............................   (69,316)   (55,539) 
 
Financing Activities
  Payments on long-term debt......................  (138,693)    (6,945)
  Proceeds from borrowing under credit facility...   179,550     27,678
  Issuance of common stock under stock 
   option plans...................................     6,283      2,863
  Repurchase of common stock......................   (73,603)       -   
       Cash (used) provided by financing 
         activities...............................   (26,463)    23,596 

Effect of exchange rate changes on cash...........      (526)       (50)
Net (decrease)increase in cash and 
  equivalents.....................................   (27,064)    38,691 
Cash and equivalents at beginning of period.......    35,094     17,686
Cash and equivalents at end of period.............  $  8,030   $ 56,377

Supplemental Information
  Interest paid...................................     2,265      1,555
  Income taxes (refunded) paid....................    (3,464)     1,456
<FN>
See accompanying notes.
</TABLE>
<PAGE>6<PAGE>

              POLICY MANAGEMENT SYSTEMS CORPORATION
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        September 30, 1996




NOTE 1. CONTINGENCIES


  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 this investigation.

  The Company is involved in a lawsuit with Security Life of Denver ("SLD")
alleging, among other things, breach of a life insurance joint development
contract. The Company is also presently involved in litigation with Liberty Life
Insurance Company arising out of the Company's change in the direction of its
future life software systems development following the acquisition of CYBERTEK.
The Company has asserted various affirmative defenses, claims and counterclaims
and is vigorously pursuing prompt resolutions of these matters through all
available legal processes (see Item 3, Legal Proceedings, of Part I contained in
the Company's Annual Report on Form 10-K for the year ended December 31, 1995).

  In November 1993, the California State Automobile Association Inter-Insurance
Bureau and the California State Automobile Association ("CSAA") brought suit
against the Company in the United States District Court for the Northern 
District of California (see Item 3, Legal Proceedings, of Part I contained in 
the Company's Annual Report on Form 10-K for the Year ended December 31, 1995) 
In May 1996, after nine weeks of trial, the parties agreed that CSAA would 
dismiss its claim against the Company in return for the Company dismissing its 
counterclaim against CSAA. The agreement also resolves a collateral proceeding 
by the Company against CSAA and Computer Sciences Corporation which was 
pending in another jurisdiction and arose out of the agreement which was the
basis of the California proceeding.

<PAGE>7




  Based upon the allegations raised in the CSAA and SLD lawsuits, the Company's
insurer, St. Paul Mercury Insurance Company ("St. Paul"), commenced in 1995 a
declaratory judgment action against the Company to determine St. Paul's
obligation for defense costs and to indemnify the Company for any payment 
related to these claims. The Company filed a counterclaim against St. Paul 
seeking to recover the Company's defense costs in the CSAA and SLD matters, 
coverage for damages, if any, awarded in those matters, and consequential and 
punitive damages (see Item 3, Legal Proceedings, of Part I contained in the 
Company's Annual Report on Form 10-K for the year ended December 31, 1995)

  In connection with the Company reaching an agreement with CSAA for the
dismissal of the CSAA matter, St. Paul and the Company agreed to dismiss with
prejudice all claims against each other with respect to the CSAA matter, and St.
Paul agreed to reimburse the Company for the Company's legal fees in the CSAA
matter (in excess of its deductible) with interest. As a result of this 
recovery, the Company recorded a gain of $9.4 million in the second quarter 
of 1996. This agreement resolves the Company's and St. Paul's claims related 
to the CSAA matter; however, the action will continue as to the parties' 
claims related to insurance coverage for the SLD matter.

   In addition to the litigation described above, 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 any of the above matters could have a material adverse
effect on 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. The Company, however, is unable to predict the ultimate
outcome or the potential financial impact of these matters.


NOTE 2. NEW ACCOUNTING STANDARDS  

  On January 1, 1996, the Company formally adopted Statement of Financial
Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived 
Assets and for Assets to be Disposed of" ("SFAS 121"). The Statement requires 
impairment losses to be recorded on long-lived assets used in operations when 
indicators of impairment are present and the expected future cash flows of 
those assets are less than the assets'carrying amount. SFAS 121 also addresses 
the accounting for long-lived assets that are expected to be sold or abandoned. 
As the Company's accounting policies prior to the adoption of SFAS 121 have 
provided for similar accounting treatment, the effect of adoption was not 
material to the Company's financial condition or results of operations.

<PAGE>8

  Also on January 1, 1996, the Company adopted Statement of Financial Accounting
Standards No. 123, "Accounting for Stock-Based Compensation". The Statement
requires that companies with stock-based compensation plans either recognize
compensation expense based on new fair value accounting methods or continue to
apply the provisions of Accounting Principles Board Opinion No. 25 ("APB 25") 
and disclose pro forma net income and earnings per share assuming the fair value
method had been applied. The Company has elected to adopt the disclosure
alternative in its annual financial statements and continue accounting for its
stock-based compensation plans in accordance with APB 25.



NOTE 3. RECLASSIFICATION

  Certain prior year amounts have been reclassified to conform to current year
presentation.



NOTE 4.  ACQUISITIONS

  On August 9, 1996, the Company acquired certain assets of Co-Cam Pty Ltd. and
related entities ("Co-Cam") for $6.3 million. Co-Cam, whose software and 
services include superannuation and pension administration systems, operates 
in Australia, New Zealand, the United Kingdom and certain Southeast Asia 
nations. The acquisition  has been recorded using the purchase method of 
accounting.

<PAGE>9<PAGE>
                  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, 1995.

                          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:
<TABLE>
<CAPTION>           
                                                                          1996   vs   1995
                                                                          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, 
                                  1996      1995       1996      1995 
<S>                            <C>        <C>        <C>      <C>        <C>       <C>   
Revenues    
 Licensing.....................   16.4      18.7       17.8      18.2      (1.3)     2.1  
 Services......................   83.6      81.3       82.2      81.8      15.1      5.5  
                                 100.0     100.0      100.0     100.0      12.0      4.9 
Operating expenses
 Cost of revenues
 Employee compensation           
   and benefits.................  32.1      29.2       31.5      29.2      22.9     12.9
 Computer & communication            
   expenses.....................   5.4       5.5        5.8       5.4      11.3     12.6   
 Information services & data
   acquisition costs............  20.4      20.4       21.0      22.1      11.8      (.3)  
 Depreciation & amortization
   of property, equipment &
   capitalized software costs...   8.5       9.7        8.5       9.2      (1.1)    (3.4)
 Other costs & expenses.........   9.3       8.4        7.1       7.7      24.4     (3.7)
Selling, general &
  administrative expenses.......  12.3      12.0       12.6      12.0      14.6     10.3
Amortization of goodwill and
  other intangibles.............   1.8       1.8        1.9       1.7      12.3     15.8
Litigation settlement and
  expenses, net.................     -        -        (2.3)      1.6        -    (100.0)
Gain on sale of Health 
  business and related assets...     -        -          -       (2.0)       -    (100.0)
Business acquisition charges....    .1        -          -         -      100.0       -
Impairment and restructuring
  credits, net..................   (.3)       -         (.1)      (.1)   (100.0)      -    
                                  89.6      87.0       86.0      86.8      15.4      3.9

Operating income................  10.4      13.0       14.0      13.1     (10.6)    11.3  
Other income and expenses.......   (.7)       -         (.4)      (.1)    100.0    100.0  
Income before income taxes......   9.7      13.0       13.6      13.0     (17.0)     9.3 
Income taxes....................   3.5       4.2        4.9       4.2      (6.0)    20.1 
Net income......................   6.2       8.8        8.7       8.8     (22.3)     4.1   
</TABLE>
<PAGE>10

THREE MONTHS COMPARISON

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

<TABLE>
<CAPTION>
                                    Three Months  
                                 Ended September 30, 
                                    1996     1995       Change 
                               (Dollars in Millions)
<S>                               <C>      <C>           <C>
   Line of Business 
Property & Casualty....           $103.7   $ 96.0         8.0 % 
Life...................             43.3     35.2        23.0

   Geographic Market   
United States..........           $109.8   $ 98.7        11.2 %
International..........             37.2     32.5        14.5

</TABLE>



Revenues
<TABLE>
<CAPTION>
                                Three                 Three
                             Months Ended          Months Ended 
  Licensing                September 30,1996     September 30,1995      Change   
                                  (Dollars in Millions)
<S>                             <C>                   <C>              <C> 
Initial charges................ $ 10.1                $ 11.3           (10.6)%
Monthly charges................   14.1                  13.2             6.8 %   
                                $ 24.2                $ 24.5            (1.2)%   

Percentage of revenues.........   16.4%                 18.7%                    

</TABLE>
  Initial license revenues decreased $1.2 million from the third quarter of 1995
to the third quarter of 1996.

  Life insurance initial licensing revenues increased 86.4% ($2.7 million) from
third quarter 1995 to third quarter 1996. These were offset by lower property 
and casualty  licensing revenues, as initial licensing revenues declined by 
$1.4 million domestically and $2.5 million internationally from the third 
quarter of 1995 to the third quarter of 1996. Property and casualty licensing 
revenues in the United States are being impacted by various market factors 
including heightened focus by many insurance companies on their year 2000 
projects and the lack of availability of certain "open" systems architectures 
in the Company's property and casualty products. The Company has initiatives 
underway to address these issues including new releases of Series III, 
Insure 90, Point and Capsil and programs to assist those companies, not 
currently customers, with near-term year 2000 solutions.
<PAGE>11
  
  Right-to-use charges (excluding further MESA obligations), and termination
charges generally (related to the buy-out of monthly license agreements) were
insignificant in the third quarter of 1996 and 1995. During the third quarter 
1996 one customer accounted for $3.1 million of life insurance initial license 
charges representing a standard initial license of $1.0 million and a perpetual 
license of $2.1 million. The customer is paying these charges 
and its MESA obligations monthly over a six year period.  

  Because a significant portion of initial licensing revenues are recorded at 
the time new systems are licensed, there can be significant fluctuations in 
revenue from quarter to quarter.  Set forth below is a comparison of initial 
license revenues for the preceding seven quarters expressed as a percentage of 
total revenues for each of the periods presented:
<TABLE>
<CAPTION>


                                  1996                    1995              1994 
                            3rd   2nd   1st      4th   3rd   2nd*  1st*     4th* 
                                           (Dollars in Millions)
<S>                        <C>   <C>   <C>      <C>    <C>   <C>   <C>      <C>
 Property and Casualty  
Initial license revenues   $4.2  $6.0  $7.3     $13.8  $8.1  $7.3  $8.0     $5.6
Total revenues              2.9%  4.4%  5.5%      9.9%  6.2%  5.5%  6.0%     5.8%

         Life           
Initial license revenues   $5.8  $6.0  $3.1     $ 2.3  $3.2  $2.1  $3.7     $1.6
Total revenues              4.0%  4.4%  2.3%      1.7%  2.4%  1.6%  2.8%     1.3%

<FN>

*Excludes licensing activity of the Company's Health Insurance Systems business, sold June
30, 1995. First and second quarter 1995 licensing revenues (initial and monthly licensing
charges) related to the Health business were $.6 million and $.3 million, respectively.
</TABLE>
<PAGE>12









<TABLE>
<CAPTION>



                                 Three              Three
                              Months Ended       Months Ended
  Services                 September 30,1996  September 30,1995      Change   
                                   (Dollars In Millions)
<S>                             <C>               <C>               <C> 
Professional and outsourcing... $ 81.6            $ 64.7             26.1 %
Information....................   39.7              41.6            ( 4.6)%
Other..........................    1.5                .4            275.0 %   
                                $122.8            $106.7             15.1 %   

Percentage of revenues.........   83.6%             81.3%                     

</TABLE>
  
  Property and casualty professional and outsourcing services revenues increased
26.0% ($13.1 million). Domestic property and casualty professional and 
outsourcing services revenues increased 23.0% ($7.9 million) due to increases 
in the volume of services provided to new and existing customers. International 
property and casualty professional and outsourcing services revenues increased 
32.4% ($5.2 million), principally due to services activity of micado, acquired 
October 1, 1995, Co-Cam Pty Ltd., acquired August 9, 1996 and increases in the 
volume of services provided to new and existing customers. The growth 
rate of these services, excluding the impact of the acquisitions, was 16.5%.

  The life insurance professional and outsourcing services revenue increased 
25.7% ($3.7 million) over third quarter 1995, domestic life insurance 
professional and outsourcing services increased 36.4% ($3.0 million), and
international life insurance professional and outsourcing services revenues 
increased 11.6% ($.7 million), due principally to increased volumes of services 
to new and existing international customers.

  Information services revenues decreased 4.6% from third quarter of 1995 to the
third quarter of 1996. However, when risk information services (ceased and 
abandoned operations in the fourth quarter of 1995) are excluded from the 
comparison, information services revenues increased 11.3%. This increase is 
due in part to an increase of 6.0% ($.9 million) in life insurance information 
services principally comprised of attending physician statements and Infinity 
information services. Also contributing to this increase is an  increase in 
property and casualty information services revenues of 17.2% ($3.4 million) 
which consists principally of fees for domestic motor vehicle reports as a 
result of the Company's November 1995 alliance with a leading database 
information enterprise.

<PAGE>13





OPERATING EXPENSES  


Cost of Revenues



  Overall employee compensation and benefits increased 22.9% from third quarter
1995 to third quarter 1996, principally as a result of the increases in both
international and domestic development and professional services staffing and 
the Company's acquisition on October 1, 1995 of micado (compensation expense 
of $1.6 million for the quarter) and August 9, 1996 of Co-Cam Pty Ltd.
(compensation expense of $1.2 million for the quarter). Offsetting these 
increases was the effect of the Company's divestiture of its risk information 
services business in December 1995, which lowered compensation and benefits 
expense by approximately $3.7 million. 

  Computer and communications expenses increased 11.3% principally as a result 
of lease expense associated with leases entered into as part of the Company's 
fourth quarter 1995 restructure of its data processing facilities. As part of 
this restructuring, the Company entered into 2 and 4 year renewable lease 
agreements for certain data processing equipment, which are intended to 
enable the Company to make use of the latest technology and improve the 
quality of service to its customers while allowing the Company to benefit from 
projected decreases in unit costs of this technology. The increase in lease 
expense resulting from the restructuring was offset by the decrease in 
depreciation expense discussed below.

  Information services and data acquisition costs increased 11.8%, due 
principally to increases of 14.4% in property and casualty information costs 
arising from increased volume of motor vehicle reports and 4.8% in life 
insurance information services, arising from increased  volume of attending 
physician statements. These increases are consistent with the trend in 
information services revenues as discussed in Revenues above.

  Depreciation and amortization of property, equipment and capitalized software
costs decreased 1.1%. This decrease is principally due to  lower depreciation
expense resulting from the Company's fourth quarter 1995 restructuring of its 
data processing facilities. This decrease in depreciation expense was offset 
in part by an increase in amortization resulting principally from the 
March 1996 release of the latest version of CyberLife client/server life 
insurance software.

<PAGE>14







  Other operating costs and expenses increased 24.4% Fees associated with the 
use of consultants and independent contractors increased, principally as a 
result of training in new technologies and the  staffing needs for certain 
development and services activities. The increase was partially offset by an 
increase in amounts capitalized principally related to the increased use of 
outside resources in the continued enhancement and development of the Company's 
Series III property and casualty insurance software and CyberLife life 
insurance software as well as other ongoing development projects, and decreased 
costs associated with the depopulation of certain assigned risk pools 
serviced by the Company's total policy management business.   


Selling, general and administrative expenses

  Selling, general and administrative expenses increased 14.6%, principally 
because of the Company's investment in its international sales force and 
infrastructure.


Amortization of goodwill and other intangibles

  The 12.3% increase in amortization of goodwill and other intangibles is
principally the result of amortization of intangible assets related to the
acquisition of micado on October 1, 1995.



OPERATING INCOME

  Third quarter 1996 operating income decreased 10.6% ($1.8 million) compared 
with the 1995 third quarter, before the effects of restructuring credits 
recorded during the third quarter 1996. This decline has largely been caused 
by the current period increase in expenditures in the Company's international 
infrastructure, including its sales force, professional services organization 
and product development areas. Partially offsetting this effect was the 
increase in the percentage of total revenues represented by professional 
services from 17.3% of total revenues for third quarter 1995 to 25.2% of 
total revenues for third quarter 1996.


OTHER INCOME AND EXPENSE

  As a result of a higher average level of borrowed funds, principally 
borrowings under the Company's credit facilities, interest expense increased 
$.8 million. The average nominal interest rate applicable to borrowings under 
these facilities during the third quarter was 6.07%.

<PAGE>15



INCOME TAXES

  The effective income tax rate (income taxes expressed as a percentage of 
pre-tax income) was 36.6% and 32.3% for the three months ended September 30, 
1996 and 1995, respectively. The effective rate for the third quarter of 1996 
is higher than the federal statutory rate principally due to the effect of 
state and local income taxes; however the effect of state and local income 
taxes has been offset in part by the effect of the Company's expensing, during 
1996 for tax purposes, certain intangible assets related to the abandonment of 
certain of the Company's domestic property and casualty risk information 
services activities. The effective rate for 1995 was significantly lower than 
the federal statutory rate due principally to goodwill, deducted for tax 
purposes, relating to the sale of the Company's Health Insurance Systems 
Division.


<PAGE>16































NINE MONTHS COMPARISON


  A comparison of revenues for each line of business and geographic market for 
the periods presented is as follows:
                                    
<TABLE>
<CAPTION>

                              Nine Months  
                          Ended September 30, 
                             1996    1995       Change    
                         (Dollars in Millions)
<S>                        <C>     <C>            <C>
   Line of Business   
Property & Casualty...     $291.3  $288.0          1.1%
Life..................      126.2   101.9         23.9
Health................         .*     7.9*

  Geographic Market   
United States.........     $309.9  $306.3          1.2%
International.........      107.6    91.8         17.2
<FN>
*The Company's Health Insurance Systems business was divested June 30, 1995.
</TABLE>

Revenues
<TABLE>        
<CAPTION>
                                    Nine                Nine  
                                 Months Ended        Months Ended
  Licensing                   September 30,1996   September 30,1995    Change 
                                    (Dollars in Millions)
<S>                                 <C>                 <C>             <C>
Initial charges...................  $32.5               $32.7           ( .6)%
Monthly charges...................   41.8                40.1            4.2 %
                                    $74.3               $72.8            2.1 %

Percentage of revenues............   17.8%               18.3%                

</TABLE>
  Life insurance initial license charges increased 67.9% ($6.0 million). This
increase was offset by a decrease of 25.2% ($5.9 million) in property and 
casualty initial license charges. However, initial license charges for the 
first nine months of 1995 included a $4.0 million non-recurring source code 
license agreement with a cross-industry vendor and $4.7 million related to 
joint marketing and distribution arrangements with NCR Corporation, formerly 
AT&T Global Information Solutions. These revenues were replaced in part by a 
large Series III license executed during the first quarter of 1996, the  
$3.1 million initial license charge described in the three month comparison, 
and $2.9 million in initial license charge revenues of micado, acquired 
October 1, 1995. 

<PAGE>17

  Initial license charges for the first nine months of 1996 include right-to-use
charges (licenses excluding further MESA obligations) of $3.0 million compared 
to $4.6 million (inclusive of the $4.0 million source code license referred 
to above) for the first nine months of 1995. Initial license charges for the 
period also include termination charges (related to the buyout of monthly 
license charges) of $0 and $1.4 million for the first nine months of 1996 and 
1995, respectively.

<TABLE>
<CAPTION>
 
                                 Nine                Nine
                              Months Ended        Months Ended
  Services                 September 30,1996   September 30,1995     Change 
                                        (Dollars in Millions)
<S>                             <C>                  <C>             <C> 
Professional and outsourcing... $221.7               $191.3           15.9 %
Information....................  118.5                132.6          (10.6)%
Other..........................    3.0                  1.4          114.3 %
                                $343.2               $325.3            5.5 %

Percentage of revenues.........   82.2%                81.7%                

</TABLE>

  Overall professional and outsourcing services revenues increased 15.9% 
however, when revenues of the Company's health business (sold June 30, 1995) 
are excluded from the comparison, the increase is 25.6%.

  Property and casualty professional and outsourcing services revenues increased
16.3% ($23.6 million). Domestic professional and outsourcing revenues increased
9.5%; however, excluding total policy management revenues, domestic professional
and outsourcing services revenues increased 23.3% ($13.1 million) principally 
due to increased volumes of professional services associated with new and 
existing customers. This increase was offset in part by the effects of 
depopulation of certain assigned risk pools serviced by the Company's total 
policy management business and the change to six month policies from twelve 
month policies of the Florida Joint Underwriting Authority. International 
professional and outsourcing services revenues increased 31.2% ($14.2 million),
principally as a result of the October 1, 1995 acquisition of micado and 
increased services activity to new and existing customers in other areas of 
Europe.

  Life insurance professional and outsourcing services revenues increased 
overall by 34.2% ($13.7 million). Domestic life insurance professional and 
outsourcing services revenues increased 56.9% ($11.5 million) principally as 
a result of an increase in the volume of services provided to new and existing
customers, including implementation services and total policy administration 
services. International life insurance professional and outsourcing services 
revenues increased 7.3% ($1.4 million), principally in the European and 
Nordic regions.

<PAGE>18


  Information services revenue decreased 10.7%; however, excluding risk 
information services revenues (ceased and abandoned in the fourth quarter 
1995), information services revenues increased 3.4% ($3.9 million). Domestic 
property and casualty automobile information services revenues were relatively 
flat for the first nine months of 1996 as compared to the first nine months of 
1995, although, principally as a result of the Company's 1995 alliance with a 
leading database information enterprise, these third quarter 1996 revenues are 
approximately 26.3% higher than fourth quarter 1995 levels. Life insurance 
information services revenues increased 7.1%, principally as a result of 
revenue associated with the Company's Infinity services.


OPERATING EXPENSES  

Cost of Revenues

  Overall employee compensation and benefits increased 12.9% from the first nine
months of 1995 to the first nine months of 1996, principally due to increases in
international development and professional services staffing, the October 1, 
1995 acquisition of micado ( compensation expense of $4.0 million) and the 
August 10, 1996 acquisition of Co-Cam Pty. Ltd.(compensation expense of $1.2 
million). The effect of the Company's divestitures of its health and risk 
information services businesses in June 1995 and December 1995, respectively, 
was to lower compensation and benefits expense by approximately $15.9 million. 
However, this effect was offset by compensation expense associated with 
increased domestic development and professional services staffing. 

  Computer and communications expenses increased 12.6%, resulting principally 
from the effect of licensing expense related to the Company's long-term 
license and maintenance agreement (entered into March 27, 1995) to acquire 
rights to certain operating system management software products for use in 
the Company's worldwide data center operations, and the effect of lease 
expense associated with leases entered into as part of the Company's 
restructuring of its data processing facilities discussed in the three month 
Operating Expense discussion above.

  Information services and data acquisition costs decreased .3%, due principally
to a 2.1% decrease in state fees for motor vehicle reports associated with the
Company's domestic property and casualty information services, similar to the 
trend discussed in Revenues above. This decrease was offset in part by an 
increase of 5.1% in the volume of expenses for attending physician statements 
related to the provision of certain life insurance information services.

<PAGE>19
  Depreciation and amortization of property, equipment and capitalized software
costs decreased 3.4%. This decrease is principally due to lower depreciation 
expense resulting from the Company's fourth quarter 1995 restructure of its 
data processing facilities. This decrease in depreciation expense was offset 
in part by increased amortization resulting principally from the March 1996 
release of the latest version of CyberLife client/server life insurance 
software.

  Other operating costs and expenses decreased 3.7%. Fees related to the use of
consultants and independent contractors increased, principally the result of
training costs in new technologies and the satisfaction of staffing needs for
certain development and services activities. These increases were offset by an
increase in amounts capitalized principally related to the increased use of 
outside resources in the continued enhancement and development of the 
Company's Series III property and casualty insurance software and CyberLife 
life insurance software as well as other ongoing development projects, and 
decreased costs associated with the depopulation of certain assigned risk 
pools serviced by the Company's total policy management business.


Selling, general and administrative expenses 

  Selling, general and administrative expenses increased 10.3%, principally due 
to the Company's investment in its international sales force and 
infrastructure.

Litigation settlement and expenses, net

  In May 1996, the Company resolved its litigation with the California State
Automobile Association Inter-Insurance Bureau and the California State 
Automobile Association ("CSSA"), concluding with an agreement for the mutual 
dismissal of all related claims and counter claims as well as the Company's 
recovery of certain defense costs incurred relative to the CSAA matter, with 
interest. As a result, the Company recorded a $9.4 million gain for this 
recovery during the second quarter.

  During the first quarter of 1995, the Company and its insurance carrier agreed
to settle amounts contested related to the reimbursement of certain costs 
incurred by the Company in connection with 1994 settlement of its securities 
class action. Accordingly, the Company recorded a credit of $1.7 million, in 
the first quarter of 1995, as a further adjustment to the estimated costs of 
settling the securities class action which had previously been recorded in 
the fourth quarter of 1994.

<PAGE>20





  The Company, during the second quarter of 1995, provided for $7.9 million in
estimated litigation costs arising from certain pending litigation to which the
Company was both a defendant and counter-claimant. The costs provided for 
included, but were not limited to, fees paid or anticipated to be paid to 
external counsel and other costs related to the Company's defense and claims 
regarding these matters.


Gain on sale of Health business and related assets

  On June 30, 1995 the Company completed the sale of its Health Insurance 
Systems Division for a total consideration of $9.3 million cash. After 
selling expense and other accrued costs the Company recorded a pre-tax gain 
of $8.1 million.

Amortization of goodwill and other intangibles

  The 15.8% increase in amortization of goodwill and other intangibles  is
principally the result of amortization of intangible assets related to the
acquisition of micado on October 1, 1995.


OPERATING INCOME

  Operating income increased 11.3% ($5.9 million). Excluding the effects of the
litigation recovery on the 1996 results, the gain on the sale of the health 
business and provision for litigation costs on the 1995 results operating 
income fell by $1.6 million (3.1%). 


OTHER INCOME AND EXPENSE

  As a result of a higher average level of borrowed funds, principally 
borrowings under the Company's credit facilities, interest expense increased 
$1.4 million. The average nominal interest rate applicable to borrowings 
under these facilities during the first half was 6.07%.

  The increased interest costs were offset by a $.3 million increase in 
investment income, principally related to a higher average level of 
interest-bearing cash equivalents during the first nine months of 1996 as 
compared to the same period of 1995.


<PAGE>21




INCOME TAXES

  The effective income tax rate (income taxes expressed as a percentage of 
pre-tax income) was 35.9% and 32.6% for the nine months ended September 30, 
1996 and 1995, respectively. The effective rate for the 1996 period is higher 
than the federal statutory rate due principally to the effect of state and 
local income taxes; however, the effect of state and local income taxes has 
been offset in part by the effect of the Company's expensing, during 1996 for 
tax purposes, certain intangible assets related to the abandonment of certain 
of the Company's domestic property and casualty risk information services 
activities. The effective rate for 1995 was significantly lower than the 
federal statutory rate due principally to goodwill, deducted for tax purposes, 
relating to the sale of the Company's Health Insurance Systems Division.



<PAGE>22



































                  LIQUIDITY AND CAPITAL RESOURCES 


                                     September 30,   December 31,
                                         1996           1995     
Cash and equivalents, marketable         (Dollars in Millions)
  securities, and investments.........  $ 16.9         $ 44.6    
Current assets........................   160.7          188.6
Current liabilities...................    71.2           94.4
Working capital.......................    89.5           94.2
Long-term debt........................    57.7           14.9



                                      Nine months    Nine months
                                         ended          ended
                                     September 30,  September 30,
                                         1996           1995    
                                         (Dollars in Millions)
Cash provided by operations...........  $ 69.2         $ 70.7
Cash used for investing activities....   (69.3)         (55.5)
Cash used for financing activities....   (26.5)          23.6 



  The Company's current ratio (current assets divided by current liabilities) 
stood at 2.3 at September 30, 1996, which management believes is sufficient 
when combined with the available credit facilities to provide for day-to-day 
operating needs and the flexibility to take advantage of investment 
opportunities. The Company  has available under its credit facilities (net of 
amounts outstanding at September 30, 1996) $100.0 million under its 364 day 
$100.0 million facility and $43.0 million under its 3 year $100.0 million 
facility, should management choose debt financing for any of the Company's 
operating, investing or financing activities. Also, the Company has available 
an uncommitted $10.0 million operating line of credit with which it may choose 
to fund temporary operating cash needs.

  Cash provided by operations decreased $1.5 million from September 30, 1995 to
September 30, 1996. During the first nine months of 1996, the Company paid a
significant amount of costs previously accrued in 1995 related to its ongoing 
legal proceedings. In the third quarter of 1996 the Company made a cash 
payment of $3.1 million relating to a 1995 business acquisition. Additionally, 
the Company made cash payments of $6.8 million against its restructuring 
reserves, as well as other accrued items in the normal course of business.

<PAGE>23




  During the nine months ended September 30, 1996 the Company capitalized $42.0
million principally related to the development of its Series III client/server
property and casualty software (including the incorporation of object-oriented
technology and support for Microsoft Windows) and CyberLife object-oriented
client/server life insurance software, as well as other ongoing projects for 
other domestic as well as international products. Also, during the second 
quarter of 1996, the Company repurchased 1.4 million of its outstanding 
common shares at an aggregate cost of $73.6 million.

  Significant expenditures anticipated for the remainder of 1996, excluding any
possible business acquisitions or common share  repurchases, are as follows:
acquisition of data processing, communications equipment and office furniture,
fixtures and equipment ($7.0 million); costs relating to the internal 
development of software systems ($15.0 million); and payments relating to past 
business acquisitions ($3.1 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,  cash and investment reserves along with 
amounts available under the Company's debt facilities will be sufficient to 
meet presently anticipated operating needs and to accomplish specific
objectives in these areas and for other general corporate purposes.

<PAGE>24























               FACTORS THAT MAY AFFECT FUTURE RESULTS

  The Company's operating results and financial condition can be impacted by a
number of factors, including, but not limited to, the following, any of which 
could cause actual results to vary materially from current and historical 
results or the Company's anticipated future results:

- Currently, the Company's business is focused principally within the global
  property and casualty and life insurance industries;

- There is increasing competition for the Company's products and services;

- The market for the Company's products and services is characterized by rapid
  changes in technology;

- 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;

- The timing and amount of the Company's revenues are subject to a number of
  factors, including, but not limited to, the timing of customers' decisions to
  enter into large license agreements with the Company;

- Unforeseen events or adverse economic or business trends may significantly
  increase cash demands beyond those currently anticipated or affect the 
  Company's  ability to generate/raise cash to satisfy financing needs;

- The Company's operations have not proven to be significantly seasonal, 
  although quarterly revenues and net income could be expected to vary at 
  times;

- Although the Company cannot accurately determine the amounts attributable
  thereto, the Company has been affected by inflation through increased costs of
  employee compensation and other operation expenses.

- Many of the Company's current and potential customers are or will spend
  significant amounts of money to make their existing information systems 
  capable of handling the year 2000.



<PAGE>25


  The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of 
contingent assets and liabilities at the date of the financial statements, as 
well as the reported amounts of revenues and expenses during the reporting 
period. Changes in the status of certain matters or facts or circumstances 
underlying these estimates could result in material changes in these estimates, 
and actual results could differ from these estimates.

  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.  

                            
Safe Harbor Statement under the Private Securities Litigation Reform Act of
1995:Statements in this report that are not descriptions of historical facts 
may be forward-looking statements that are subject to risks and uncertainties, 
including economic, competitive and technological factors affecting the 
Company's operations, markets, products, services and prices, as well as 
other specific factors discussed in the Company's fillings with the Securities 
and Exchange Commission. These and other factors may cause actual results to 
differ materially from those anticipated.


<PAGE>26
<PAGE>
                              PART II
                         OTHER INFORMATION

               POLICY MANAGEMENT SYSTEMS CORPORATION


Item 1. Legal Proceedings

  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 this investigation.

  The Company is involved in a lawsuit with Security Life of Denver ("SLD")
alleging, among other things, breach of a life insurance joint development 
contract. The Company is also presently involved in litigation with Liberty 
Life Insurance Company arising out of the Company's change in the direction of 
its future life software systems development following the acquisition of 
CYBERTEK. The Company has asserted various affirmative defenses, claims and 
counterclaims and is vigorously pursuing prompt resolutions of these matters 
through all available legal processes (see Item 3, Legal Proceedings, of 
Part I contained in the Company's Annual Report on Form 10-K for the year 
ended December 31, 1995).

  In November 1993, the California State Automobile Association Inter-Insurance
Bureau and the California State Automobile Association ("CSAA") brought suit 
against the Company in the United States District Court for the Northern 
District of California (see Item 3, Legal Proceedings, of Part I contained in 
the Company's Annual Report on Form 10-K for the year ended December 31, 1995). 
In May 1996, after nine weeks of trial, the parties agreed that CSAA would 
dismiss its claim against the Company in return for the Company dismissing its 
counterclaim against CSAA. The agreement also resolves a collateral proceeding 
by the Company against CSAA and Computer Sciences Corporation which is pending 
in another jurisdiction and arose out of the agreement which was the basis of 
the California proceeding.

  Based upon the allegations raised in the CSAA and SLD lawsuits, the Company's
insurer, St. Paul Mercury Insurance Company ("St. Paul"), commenced a 
declaratory judgment action against the Company to determine St. Paul's 
obligation for defense costs and to indemnify the Company for any payment 
related to these claims. The Company filed a counterclaim against St. Paul 
seeking to recover the Company's defense costs in the CSAA and SLD matters, 
coverage for damages, if any, awarded in those matters, and consequential and 
punitive damages (see Item 3, Legal Proceedings, of Part I contained in the 
Company's Annual Report on Form 10-K for the year ended December 31, 1995).



<PAGE>27


  In connection with the Company reaching an agreement with CSAA for the 
dismissal of the CSAA matter, St. Paul and the Company agreed to dismiss with 
prejudice all claims against each other with respect to the CSAA matter, and 
St. Paul agreed to reimburse the Company the Company's legal fees in the CSAA 
matter (in excess of its deductible) with interest. As a result of this 
recovery, the Company recorded a gain of $9.4 million in the second quarter of 
1996. This agreement resolves the Company's and St. Paul's claims related to 
the CSAA matter; however, the action will continue as to the parties' claims 
related to insurance coverage for the SLD matter.

  In addition to the litigation described above, there are also various other
litigation proceedings and claims arising in the ordinary course of business. 
The Company is vigorously pursuing prompt resolutions of these matters 
through all available legal processes.


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, 1996.





<PAGE>28


                                  

















              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:  November 14 , 1996               By:  Timothy V. Williams
                                        Executive Vice President
                                        (Chief Financial Officer)         
                             
<PAGE>29


                        Policy Management Systems Corporation


                                   Exhibit Index

Exhibit
Number
10. MATERIAL CONTRACTS

  A.    Amendment No.3 to 364-Day Credit Agreement dated August 9, 1996 among 
        Policy Management Systems Corporation and Morgan Guaranty Trust Company
        of New York.

11. STATEMENT REGARDING COMPUTATION OF PER SHARE EARNINGS

27. FINANCIAL DATA SCHEDULE
[{"type": "10-Q", "sequence": "1", "secsgml_size_bytes": 61959}]
{"company-data": {"conformed-name": "POLICY MANAGEMENT SYSTEMS CORP", "cik": "0000356226", "assigned-sic": "6411", "irs-number": "570723125", "state-of-incorporation": "SC", "fiscal-year-end": "1231"}, "filing-values": {"form-type": "10-Q", "act": "34", "file-number": "001-10557", "film-number": "96666071"}, "business-address": {"street1": "ONE PMS CTR", "street2": "PO BOX TEN", "city": "COLUMBIA", "state": "SC", "zip": "29202", "phone": "8037354000"}}
1
                               UNITED STATES
                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, 1996    Commission file number 1-10557

                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 PMSC 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   X       No       

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

  18,178,869 Common shares, $.01 par value, as of November 14,1996 

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, 1995.
2
              POLICY MANAGEMENT SYSTEMS CORPORATION

                              INDEX

PART I. FINANCIAL INFORMATION                                PAGE

  Item 1. Financial Statements

          Consolidated Statements of Income for 
            the three and nine months ended September 30, 
            1996 and 1995..................................... 3

          Consolidated Balance Sheets as of 
            September 30, 1996 and December 31, 1995.......... 4

          Consolidated Statements of Cash Flows for
            the nine months ended September 30, 1996 and 1995. 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...................................26 

  Item 6. Exhibits and Reports on Form 8-K....................27 

Signatures....................................................28
3                         PART I
                    FINANCIAL INFORMATION

              POLICY MANAGEMENT SYSTEMS CORPORATION
                CONSOLIDATED STATEMENTS OF INCOME
Three Months         Nine Months
                                      Ended September 30,  Ended September 30,
                                        1996      1995       1996      1995  
                                          (Unaudited)          (Unaudited)    
                                      (In Thousands, Except Per Share Data)
Revenues
  Licensing.......................... $ 24,186  $ 24,518   $ 74,320  $ 72,798
  Services...........................  122,812   106,704    343,193   325,346
                                       146,998   131,222    417,513   398,144
Operating expenses 
 Cost of revenues 
  Employee compensation & benefits...   47,192    38,401    131,523   116,448
  Computer and communications         
    expenses.........................    7,967     7,160     24,038    21,353
  Information services and                     
    data acquisition costs...........   29,981    26,806     87,890    88,173
  Depreciation and amortization of                                  
    property, equipment and
    capitalized software costs.......   12,539    12,683     35,512    36,750   
  Other costs & expenses.............   13,669    10,984     29,419    30,555
 Selling, general and administrative
   expenses..........................   18,023    15,734     52,691    47,771
 Amortization of goodwill and
   other intangibles.................    2,616     2,330      7,777     6,715
 Litigation settlement and 
    expenses, net....................      -         -       (9,422)    6,216
 Gain on sale of Health business
    and related assets...............      -         -           -     (8,116)
 Business acquisition charges........      109       -           99       -
 Impairment and restructuring 
    credits, net.....................     (394)        6       (461)    ( 240)
                                       131,702   114,104    359,066   345,625

Operating income ....................   15,296    17,118     58,447    52,519 

Other Income and Expenses:
  Investment income..................      376       654      1,898     1,612
  Interest expense and other
    charges..........................   (1,475)     (658)    (3,544)   (2,176)
                                        (1,099)      ( 4)    (1,646)     (564)
Income before income taxes...........   14,197    17,114     56,801    51,955 
Income taxes.........................    5,190     5,520     20,363    16,951 

Net income........................... $  9,007  $ 11,594   $ 36,438  $ 35,004 

Net income per share................. $    .50  $    .60   $   1.94  $   1.81 
Weighted average number of shares....   18,179    19,401     18,747    19,376
See accompanying notes.
4
TABLE
POLICY MANAGEMENT SYSTEMS CORPORATION
                       CONSOLIDATED BALANCE SHEETS

                                                        (Unaudited)     (Audited)
                                                        September 30,  December 31,
                                                            1996          1995    
                                                             (In Thousands,
                                                          Except Share Data)
Assets
Current assets
  Cash and equivalents................................... $  8,030      $ 35,094
  Marketable securities..................................    2,400         4,615
  Receivables, net of allowance for uncollectible 
     amounts of $806   ($2,042 at 1995)..................  102,937        95,740
  Income tax receivable..................................   14,908        25,089
  Deferred income taxes..................................   15,770        10,261
  Other..................................................   16,663        17,833
     Total current assets................................  160,708       188,632

Property and equipment, at cost less accumulated
     depreciation and amortization of $116,589
     ($103,568 at 1995)..................................  113,504       109,183
Receivables..............................................    5,539         5,885
Goodwill and other intangibles assets, net...............   84,352        89,319
Capitalized software costs, net..........................  170,642       145,982
Deferred income taxes....................................    1,376         2,335
Investments..............................................    6,496         4,905  
Other....................................................    5,755         5,492
        Total assets..................................... $548,372      $551,733

Liabilities
Current liabilities
  Accounts payable and accrued expenses.................. $ 49,538      $ 70,673
  Accrued restructuring charges..........................    3,875         9,456
  Accrued contract termination costs.....................      425         1,154
  Current portion of long-term debt......................     -            1,766
  Income taxes payable...................................    7,268            10
  Unearned revenues......................................   10,021        11,350
  Other..................................................       32          -   
     Total current liabilities...........................   71,159        94,409

Long-term debt...........................................   57,750        14,873
Deferred income taxes....................................   62,895        52,701
Accrued restructuring charges............................    1,940         4,439
Other....................................................    3,310         2,639
     Total liabilities...................................  197,054       169,061
 
Commitments and contingencies (Note 1)

Stockholders' Equity
Special stock, $.01 par value, 5,000,000 shares 
   authorized............................................     -              -
Common stock, $.01 par value, 75,000,000 shares 
   authorized, 18,178,869 shares issued and 
   outstanding (19,436,114 at December 31, 1995).........      182           194
Additional paid-in capital...............................  106,094       173,402
Retained earnings........................................  246,551       210,113
Foreign currency translation adjustment..................   (1,509)       (1,037)
     Total stockholders' equity..........................  351,318       382,672
        Total liabilities and stockholders' equity....... $548,372      $551,733
See accompanying notes.
5

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

                                                        Nine Months
                                                     Ended September 30,
                                                      1996        1995  
                                                    (In Thousands)
Operation Activities 
  Net income......................................  $ 36,438   $ 35,004 
  Adjustments to reconcile net income to net
   cash provided by operating activities:     
    Depreciation and amortization.................    45,507     44,985
    Deferred income taxes.........................     6,342      8,790 
    Provision for uncollectible accounts..........       456        262
  Changes in assets and liabilities:
    Accrued restructuring and lease
      termination costs...........................    (8,080)    (4,795)
    Receivables...................................    (4,742)    (4,988)
    Income taxes receivable.......................    10,181      4,533 
    Accounts payable and accrued expenses.........   (21,421)    (6,201)
    Income taxes payable..........................     6,561      1,394
  Other, net......................................    (2,001)    (8,300)
       Cash provided by operations................    69,241     70,684
  
Investing Activities
  Proceeds from sales/maturities of marketable    
   securities.....................................     2,850      7,778
  Purchases of marketable securities..............      -        (3,694)
  Investment in nonconsolidated affiliate.........    (2,315)       -
  Acquisition of property and equipment...........   (20,676)   (17,579)
  Capitalized internal software development  
   costs..........................................   (41,953)   (32,621)
  Purchased software..............................    (1,192)      (250)
  Proceeds from disposal of property and
   equipment......................................       747        827
  Business acquisition............................    (6,777)       -
  Contract acquisition costs......................      -       (10,000)
       Cash (used) by investing 
         activities...............................   (69,316)   (55,539) 
 
Financing Activities
  Payments on long-term debt......................  (138,693)    (6,945)
  Proceeds from borrowing under credit facility...   179,550     27,678
  Issuance of common stock under stock 
   option plans...................................     6,283      2,863
  Repurchase of common stock......................   (73,603)       -   
       Cash (used) provided by financing 
         activities...............................   (26,463)    23,596 

Effect of exchange rate changes on cash...........      (526)       (50)
Net (decrease)increase in cash and 
  equivalents.....................................   (27,064)    38,691 
Cash and equivalents at beginning of period.......    35,094     17,686
Cash and equivalents at end of period.............  $  8,030   $ 56,377

Supplemental Information
  Interest paid...................................     2,265      1,555
  Income taxes (refunded) paid....................    (3,464)     1,456
See accompanying notes.
6
POLICY MANAGEMENT SYSTEMS CORPORATION
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        September 30, 1996

NOTE 1. CONTINGENCIES

  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 this investigation.

  The Company is involved in a lawsuit with Security Life of Denver ("SLD")
alleging, among other things, breach of a life insurance joint development
contract. The Company is also presently involved in litigation with Liberty Life
Insurance Company arising out of the Company's change in the direction of its
future life software systems development following the acquisition of CYBERTEK.
The Company has asserted various affirmative defenses, claims and counterclaims
and is vigorously pursuing prompt resolutions of these matters through all
available legal processes (see Item 3, Legal Proceedings, of Part I contained in
the Company's Annual Report on Form 10-K for the year ended December 31, 1995).

  In November 1993, the California State Automobile Association Inter-Insurance
Bureau and the California State Automobile Association ("CSAA") brought suit
against the Company in the United States District Court for the Northern 
District of California (see Item 3, Legal Proceedings, of Part I contained in 
the Company's Annual Report on Form 10-K for the Year ended December 31, 1995) 
In May 1996, after nine weeks of trial, the parties agreed that CSAA would 
dismiss its claim against the Company in return for the Company dismissing its 
counterclaim against CSAA. The agreement also resolves a collateral proceeding 
by the Company against CSAA and Computer Sciences Corporation which was 
pending in another jurisdiction and arose out of the agreement which was the
basis of the California proceeding.
7

  Based upon the allegations raised in the CSAA and SLD lawsuits, the Company's
insurer, St. Paul Mercury Insurance Company ("St. Paul"), commenced in 1995 a
declaratory judgment action against the Company to determine St. Paul's
obligation for defense costs and to indemnify the Company for any payment 
related to these claims. The Company filed a counterclaim against St. Paul 
seeking to recover the Company's defense costs in the CSAA and SLD matters, 
coverage for damages, if any, awarded in those matters, and consequential and 
punitive damages (see Item 3, Legal Proceedings, of Part I contained in the 
Company's Annual Report on Form 10-K for the year ended December 31, 1995)

  In connection with the Company reaching an agreement with CSAA for the
dismissal of the CSAA matter, St. Paul and the Company agreed to dismiss with
prejudice all claims against each other with respect to the CSAA matter, and St.
Paul agreed to reimburse the Company for the Company's legal fees in the CSAA
matter (in excess of its deductible) with interest. As a result of this 
recovery, the Company recorded a gain of $9.4 million in the second quarter 
of 1996. This agreement resolves the Company's and St. Paul's claims related 
to the CSAA matter; however, the action will continue as to the parties' 
claims related to insurance coverage for the SLD matter.

   In addition to the litigation described above, 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 any of the above matters could have a material adverse
effect on 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. The Company, however, is unable to predict the ultimate
outcome or the potential financial impact of these matters.

NOTE 2. NEW ACCOUNTING STANDARDS  

  On January 1, 1996, the Company formally adopted Statement of Financial
Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived 
Assets and for Assets to be Disposed of" ("SFAS 121"). The Statement requires 
impairment losses to be recorded on long-lived assets used in operations when 
indicators of impairment are present and the expected future cash flows of 
those assets are less than the assets'carrying amount. SFAS 121 also addresses 
the accounting for long-lived assets that are expected to be sold or abandoned. 
As the Company's accounting policies prior to the adoption of SFAS 121 have 
provided for similar accounting treatment, the effect of adoption was not 
material to the Company's financial condition or results of operations.
8

  Also on January 1, 1996, the Company adopted Statement of Financial Accounting
Standards No. 123, "Accounting for Stock-Based Compensation". The Statement
requires that companies with stock-based compensation plans either recognize
compensation expense based on new fair value accounting methods or continue to
apply the provisions of Accounting Principles Board Opinion No. 25 ("APB 25") 
and disclose pro forma net income and earnings per share assuming the fair value
method had been applied. The Company has elected to adopt the disclosure
alternative in its annual financial statements and continue accounting for its
stock-based compensation plans in accordance with APB 25.

NOTE 3. RECLASSIFICATION

  Certain prior year amounts have been reclassified to conform to current year
presentation.

NOTE 4.  ACQUISITIONS

  On August 9, 1996, the Company acquired certain assets of Co-Cam Pty Ltd. and
related entities ("Co-Cam") for $6.3 million. Co-Cam, whose software and 
services include superannuation and pension administration systems, operates 
in Australia, New Zealand, the United Kingdom and certain Southeast Asia 
nations. The acquisition  has been recorded using the purchase method of 
accounting.
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, 1995.

                          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:
1996   vs   1995
                                                                          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, 
                                  1996      1995       1996      1995
Revenues    
 Licensing.....................   16.4      18.7       17.8      18.2      (1.3)     2.1  
 Services......................   83.6      81.3       82.2      81.8      15.1      5.5  
                                 100.0     100.0      100.0     100.0      12.0      4.9 
Operating expenses
 Cost of revenues
 Employee compensation           
   and benefits.................  32.1      29.2       31.5      29.2      22.9     12.9
 Computer & communication            
   expenses.....................   5.4       5.5        5.8       5.4      11.3     12.6   
 Information services & data
   acquisition costs............  20.4      20.4       21.0      22.1      11.8      (.3)  
 Depreciation & amortization
   of property, equipment &
   capitalized software costs...   8.5       9.7        8.5       9.2      (1.1)    (3.4)
 Other costs & expenses.........   9.3       8.4        7.1       7.7      24.4     (3.7)
Selling, general &
  administrative expenses.......  12.3      12.0       12.6      12.0      14.6     10.3
Amortization of goodwill and
  other intangibles.............   1.8       1.8        1.9       1.7      12.3     15.8
Litigation settlement and
  expenses, net.................     -        -        (2.3)      1.6        -    (100.0)
Gain on sale of Health 
  business and related assets...     -        -          -       (2.0)       -    (100.0)
Business acquisition charges....    .1        -          -         -      100.0       -
Impairment and restructuring
  credits, net..................   (.3)       -         (.1)      (.1)   (100.0)      -    
                                  89.6      87.0       86.0      86.8      15.4      3.9

Operating income................  10.4      13.0       14.0      13.1     (10.6)    11.3  
Other income and expenses.......   (.7)       -         (.4)      (.1)    100.0    100.0  
Income before income taxes......   9.7      13.0       13.6      13.0     (17.0)     9.3 
Income taxes....................   3.5       4.2        4.9       4.2      (6.0)    20.1 
Net income......................   6.2       8.8        8.7       8.8     (22.3)     4.1
10

THREE MONTHS COMPARISON

        A comparison of revenues for each line of business and geographic market
for the periods presented is as follows:
Three Months  
                                 Ended September 30, 
                                    1996     1995       Change 
                               (Dollars in Millions)
Line of Business 
Property & Casualty....           $103.7   $ 96.0         8.0 % 
Life...................             43.3     35.2        23.0

   Geographic Market   
United States..........           $109.8   $ 98.7        11.2 %
International..........             37.2     32.5        14.5
Revenues
Three                 Three
                             Months Ended          Months Ended 
  Licensing                September 30,1996     September 30,1995      Change   
                                  (Dollars in Millions)
Initial charges................ $ 10.1                $ 11.3           (10.6)%
Monthly charges................   14.1                  13.2             6.8 %   
                                $ 24.2                $ 24.5            (1.2)%   

Percentage of revenues.........   16.4%                 18.7%
Initial license revenues decreased $1.2 million from the third quarter of 1995
to the third quarter of 1996.

  Life insurance initial licensing revenues increased 86.4% ($2.7 million) from
third quarter 1995 to third quarter 1996. These were offset by lower property 
and casualty  licensing revenues, as initial licensing revenues declined by 
$1.4 million domestically and $2.5 million internationally from the third 
quarter of 1995 to the third quarter of 1996. Property and casualty licensing 
revenues in the United States are being impacted by various market factors 
including heightened focus by many insurance companies on their year 2000 
projects and the lack of availability of certain "open" systems architectures 
in the Company's property and casualty products. The Company has initiatives 
underway to address these issues including new releases of Series III, 
Insure 90, Point and Capsil and programs to assist those companies, not 
currently customers, with near-term year 2000 solutions.
11
  
  Right-to-use charges (excluding further MESA obligations), and termination
charges generally (related to the buy-out of monthly license agreements) were
insignificant in the third quarter of 1996 and 1995. During the third quarter 
1996 one customer accounted for $3.1 million of life insurance initial license 
charges representing a standard initial license of $1.0 million and a perpetual 
license of $2.1 million. The customer is paying these charges 
and its MESA obligations monthly over a six year period.  

  Because a significant portion of initial licensing revenues are recorded at 
the time new systems are licensed, there can be significant fluctuations in 
revenue from quarter to quarter.  Set forth below is a comparison of initial 
license revenues for the preceding seven quarters expressed as a percentage of 
total revenues for each of the periods presented:
1996                    1995              1994 
                            3rd   2nd   1st      4th   3rd   2nd*  1st*     4th* 
                                           (Dollars in Millions)
Property and Casualty  
Initial license revenues   $4.2  $6.0  $7.3     $13.8  $8.1  $7.3  $8.0     $5.6
Total revenues              2.9%  4.4%  5.5%      9.9%  6.2%  5.5%  6.0%     5.8%

         Life           
Initial license revenues   $5.8  $6.0  $3.1     $ 2.3  $3.2  $2.1  $3.7     $1.6
Total revenues              4.0%  4.4%  2.3%      1.7%  2.4%  1.6%  2.8%     1.3%
*Excludes licensing activity of the Company's Health Insurance Systems business, sold June
30, 1995. First and second quarter 1995 licensing revenues (initial and monthly licensing
charges) related to the Health business were $.6 million and $.3 million, respectively.
12
Three              Three
                              Months Ended       Months Ended
  Services                 September 30,1996  September 30,1995      Change   
                                   (Dollars In Millions)
Professional and outsourcing... $ 81.6            $ 64.7             26.1 %
Information....................   39.7              41.6            ( 4.6)%
Other..........................    1.5                .4            275.0 %   
                                $122.8            $106.7             15.1 %   

Percentage of revenues.........   83.6%             81.3%
Property and casualty professional and outsourcing services revenues increased
26.0% ($13.1 million). Domestic property and casualty professional and 
outsourcing services revenues increased 23.0% ($7.9 million) due to increases 
in the volume of services provided to new and existing customers. International 
property and casualty professional and outsourcing services revenues increased 
32.4% ($5.2 million), principally due to services activity of micado, acquired 
October 1, 1995, Co-Cam Pty Ltd., acquired August 9, 1996 and increases in the 
volume of services provided to new and existing customers. The growth 
rate of these services, excluding the impact of the acquisitions, was 16.5%.

  The life insurance professional and outsourcing services revenue increased 
25.7% ($3.7 million) over third quarter 1995, domestic life insurance 
professional and outsourcing services increased 36.4% ($3.0 million), and
international life insurance professional and outsourcing services revenues 
increased 11.6% ($.7 million), due principally to increased volumes of services 
to new and existing international customers.

  Information services revenues decreased 4.6% from third quarter of 1995 to the
third quarter of 1996. However, when risk information services (ceased and 
abandoned operations in the fourth quarter of 1995) are excluded from the 
comparison, information services revenues increased 11.3%. This increase is 
due in part to an increase of 6.0% ($.9 million) in life insurance information 
services principally comprised of attending physician statements and Infinity 
information services. Also contributing to this increase is an  increase in 
property and casualty information services revenues of 17.2% ($3.4 million) 
which consists principally of fees for domestic motor vehicle reports as a 
result of the Company's November 1995 alliance with a leading database 
information enterprise.
13

OPERATING EXPENSES  

Cost of Revenues

  Overall employee compensation and benefits increased 22.9% from third quarter
1995 to third quarter 1996, principally as a result of the increases in both
international and domestic development and professional services staffing and 
the Company's acquisition on October 1, 1995 of micado (compensation expense 
of $1.6 million for the quarter) and August 9, 1996 of Co-Cam Pty Ltd.
(compensation expense of $1.2 million for the quarter). Offsetting these 
increases was the effect of the Company's divestiture of its risk information 
services business in December 1995, which lowered compensation and benefits 
expense by approximately $3.7 million. 

  Computer and communications expenses increased 11.3% principally as a result 
of lease expense associated with leases entered into as part of the Company's 
fourth quarter 1995 restructure of its data processing facilities. As part of 
this restructuring, the Company entered into 2 and 4 year renewable lease 
agreements for certain data processing equipment, which are intended to 
enable the Company to make use of the latest technology and improve the 
quality of service to its customers while allowing the Company to benefit from 
projected decreases in unit costs of this technology. The increase in lease 
expense resulting from the restructuring was offset by the decrease in 
depreciation expense discussed below.

  Information services and data acquisition costs increased 11.8%, due 
principally to increases of 14.4% in property and casualty information costs 
arising from increased volume of motor vehicle reports and 4.8% in life 
insurance information services, arising from increased  volume of attending 
physician statements. These increases are consistent with the trend in 
information services revenues as discussed in Revenues above.

  Depreciation and amortization of property, equipment and capitalized software
costs decreased 1.1%. This decrease is principally due to  lower depreciation
expense resulting from the Company's fourth quarter 1995 restructuring of its 
data processing facilities. This decrease in depreciation expense was offset 
in part by an increase in amortization resulting principally from the 
March 1996 release of the latest version of CyberLife client/server life 
insurance software.
14

  Other operating costs and expenses increased 24.4% Fees associated with the 
use of consultants and independent contractors increased, principally as a 
result of training in new technologies and the  staffing needs for certain 
development and services activities. The increase was partially offset by an 
increase in amounts capitalized principally related to the increased use of 
outside resources in the continued enhancement and development of the Company's 
Series III property and casualty insurance software and CyberLife life 
insurance software as well as other ongoing development projects, and decreased 
costs associated with the depopulation of certain assigned risk pools 
serviced by the Company's total policy management business.   

Selling, general and administrative expenses

  Selling, general and administrative expenses increased 14.6%, principally 
because of the Company's investment in its international sales force and 
infrastructure.

Amortization of goodwill and other intangibles

  The 12.3% increase in amortization of goodwill and other intangibles is
principally the result of amortization of intangible assets related to the
acquisition of micado on October 1, 1995.

OPERATING INCOME

  Third quarter 1996 operating income decreased 10.6% ($1.8 million) compared 
with the 1995 third quarter, before the effects of restructuring credits 
recorded during the third quarter 1996. This decline has largely been caused 
by the current period increase in expenditures in the Company's international 
infrastructure, including its sales force, professional services organization 
and product development areas. Partially offsetting this effect was the 
increase in the percentage of total revenues represented by professional 
services from 17.3% of total revenues for third quarter 1995 to 25.2% of 
total revenues for third quarter 1996.

OTHER INCOME AND EXPENSE

  As a result of a higher average level of borrowed funds, principally 
borrowings under the Company's credit facilities, interest expense increased 
$.8 million. The average nominal interest rate applicable to borrowings under 
these facilities during the third quarter was 6.07%.
15

INCOME TAXES

  The effective income tax rate (income taxes expressed as a percentage of 
pre-tax income) was 36.6% and 32.3% for the three months ended September 30, 
1996 and 1995, respectively. The effective rate for the third quarter of 1996 
is higher than the federal statutory rate principally due to the effect of 
state and local income taxes; however the effect of state and local income 
taxes has been offset in part by the effect of the Company's expensing, during 
1996 for tax purposes, certain intangible assets related to the abandonment of 
certain of the Company's domestic property and casualty risk information 
services activities. The effective rate for 1995 was significantly lower than 
the federal statutory rate due principally to goodwill, deducted for tax 
purposes, relating to the sale of the Company's Health Insurance Systems 
Division.
16

NINE MONTHS COMPARISON

  A comparison of revenues for each line of business and geographic market for 
the periods presented is as follows:
Nine Months  
                          Ended September 30, 
                             1996    1995       Change    
                         (Dollars in Millions)
Line of Business   
Property & Casualty...     $291.3  $288.0          1.1%
Life..................      126.2   101.9         23.9
Health................         .*     7.9*

  Geographic Market   
United States.........     $309.9  $306.3          1.2%
International.........      107.6    91.8         17.2
*The Company's Health Insurance Systems business was divested June 30, 1995.
Revenues
Nine                Nine  
                                 Months Ended        Months Ended
  Licensing                   September 30,1996   September 30,1995    Change 
                                    (Dollars in Millions)
Initial charges...................  $32.5               $32.7           ( .6)%
Monthly charges...................   41.8                40.1            4.2 %
                                    $74.3               $72.8            2.1 %

Percentage of revenues............   17.8%               18.3%
Life insurance initial license charges increased 67.9% ($6.0 million). This
increase was offset by a decrease of 25.2% ($5.9 million) in property and 
casualty initial license charges. However, initial license charges for the 
first nine months of 1995 included a $4.0 million non-recurring source code 
license agreement with a cross-industry vendor and $4.7 million related to 
joint marketing and distribution arrangements with NCR Corporation, formerly 
AT&T Global Information Solutions. These revenues were replaced in part by a 
large Series III license executed during the first quarter of 1996, the  
$3.1 million initial license charge described in the three month comparison, 
and $2.9 million in initial license charge revenues of micado, acquired 
October 1, 1995.
17

  Initial license charges for the first nine months of 1996 include right-to-use
charges (licenses excluding further MESA obligations) of $3.0 million compared 
to $4.6 million (inclusive of the $4.0 million source code license referred 
to above) for the first nine months of 1995. Initial license charges for the 
period also include termination charges (related to the buyout of monthly 
license charges) of $0 and $1.4 million for the first nine months of 1996 and 
1995, respectively.
Nine                Nine
                              Months Ended        Months Ended
  Services                 September 30,1996   September 30,1995     Change 
                                        (Dollars in Millions)
Professional and outsourcing... $221.7               $191.3           15.9 %
Information....................  118.5                132.6          (10.6)%
Other..........................    3.0                  1.4          114.3 %
                                $343.2               $325.3            5.5 %

Percentage of revenues.........   82.2%                81.7%
Overall professional and outsourcing services revenues increased 15.9% 
however, when revenues of the Company's health business (sold June 30, 1995) 
are excluded from the comparison, the increase is 25.6%.

  Property and casualty professional and outsourcing services revenues increased
16.3% ($23.6 million). Domestic professional and outsourcing revenues increased
9.5%; however, excluding total policy management revenues, domestic professional
and outsourcing services revenues increased 23.3% ($13.1 million) principally 
due to increased volumes of professional services associated with new and 
existing customers. This increase was offset in part by the effects of 
depopulation of certain assigned risk pools serviced by the Company's total 
policy management business and the change to six month policies from twelve 
month policies of the Florida Joint Underwriting Authority. International 
professional and outsourcing services revenues increased 31.2% ($14.2 million),
principally as a result of the October 1, 1995 acquisition of micado and 
increased services activity to new and existing customers in other areas of 
Europe.

  Life insurance professional and outsourcing services revenues increased 
overall by 34.2% ($13.7 million). Domestic life insurance professional and 
outsourcing services revenues increased 56.9% ($11.5 million) principally as 
a result of an increase in the volume of services provided to new and existing
customers, including implementation services and total policy administration 
services. International life insurance professional and outsourcing services 
revenues increased 7.3% ($1.4 million), principally in the European and 
Nordic regions.
18

  Information services revenue decreased 10.7%; however, excluding risk 
information services revenues (ceased and abandoned in the fourth quarter 
1995), information services revenues increased 3.4% ($3.9 million). Domestic 
property and casualty automobile information services revenues were relatively 
flat for the first nine months of 1996 as compared to the first nine months of 
1995, although, principally as a result of the Company's 1995 alliance with a 
leading database information enterprise, these third quarter 1996 revenues are 
approximately 26.3% higher than fourth quarter 1995 levels. Life insurance 
information services revenues increased 7.1%, principally as a result of 
revenue associated with the Company's Infinity services.

OPERATING EXPENSES  

Cost of Revenues

  Overall employee compensation and benefits increased 12.9% from the first nine
months of 1995 to the first nine months of 1996, principally due to increases in
international development and professional services staffing, the October 1, 
1995 acquisition of micado ( compensation expense of $4.0 million) and the 
August 10, 1996 acquisition of Co-Cam Pty. Ltd.(compensation expense of $1.2 
million). The effect of the Company's divestitures of its health and risk 
information services businesses in June 1995 and December 1995, respectively, 
was to lower compensation and benefits expense by approximately $15.9 million. 
However, this effect was offset by compensation expense associated with 
increased domestic development and professional services staffing. 

  Computer and communications expenses increased 12.6%, resulting principally 
from the effect of licensing expense related to the Company's long-term 
license and maintenance agreement (entered into March 27, 1995) to acquire 
rights to certain operating system management software products for use in 
the Company's worldwide data center operations, and the effect of lease 
expense associated with leases entered into as part of the Company's 
restructuring of its data processing facilities discussed in the three month 
Operating Expense discussion above.

  Information services and data acquisition costs decreased .3%, due principally
to a 2.1% decrease in state fees for motor vehicle reports associated with the
Company's domestic property and casualty information services, similar to the 
trend discussed in Revenues above. This decrease was offset in part by an 
increase of 5.1% in the volume of expenses for attending physician statements 
related to the provision of certain life insurance information services.
19
  Depreciation and amortization of property, equipment and capitalized software
costs decreased 3.4%. This decrease is principally due to lower depreciation 
expense resulting from the Company's fourth quarter 1995 restructure of its 
data processing facilities. This decrease in depreciation expense was offset 
in part by increased amortization resulting principally from the March 1996 
release of the latest version of CyberLife client/server life insurance 
software.

  Other operating costs and expenses decreased 3.7%. Fees related to the use of
consultants and independent contractors increased, principally the result of
training costs in new technologies and the satisfaction of staffing needs for
certain development and services activities. These increases were offset by an
increase in amounts capitalized principally related to the increased use of 
outside resources in the continued enhancement and development of the 
Company's Series III property and casualty insurance software and CyberLife 
life insurance software as well as other ongoing development projects, and 
decreased costs associated with the depopulation of certain assigned risk 
pools serviced by the Company's total policy management business.

Selling, general and administrative expenses 

  Selling, general and administrative expenses increased 10.3%, principally due 
to the Company's investment in its international sales force and 
infrastructure.

Litigation settlement and expenses, net

  In May 1996, the Company resolved its litigation with the California State
Automobile Association Inter-Insurance Bureau and the California State 
Automobile Association ("CSSA"), concluding with an agreement for the mutual 
dismissal of all related claims and counter claims as well as the Company's 
recovery of certain defense costs incurred relative to the CSAA matter, with 
interest. As a result, the Company recorded a $9.4 million gain for this 
recovery during the second quarter.

  During the first quarter of 1995, the Company and its insurance carrier agreed
to settle amounts contested related to the reimbursement of certain costs 
incurred by the Company in connection with 1994 settlement of its securities 
class action. Accordingly, the Company recorded a credit of $1.7 million, in 
the first quarter of 1995, as a further adjustment to the estimated costs of 
settling the securities class action which had previously been recorded in 
the fourth quarter of 1994.
20

  The Company, during the second quarter of 1995, provided for $7.9 million in
estimated litigation costs arising from certain pending litigation to which the
Company was both a defendant and counter-claimant. The costs provided for 
included, but were not limited to, fees paid or anticipated to be paid to 
external counsel and other costs related to the Company's defense and claims 
regarding these matters.

Gain on sale of Health business and related assets

  On June 30, 1995 the Company completed the sale of its Health Insurance 
Systems Division for a total consideration of $9.3 million cash. After 
selling expense and other accrued costs the Company recorded a pre-tax gain 
of $8.1 million.

Amortization of goodwill and other intangibles

  The 15.8% increase in amortization of goodwill and other intangibles  is
principally the result of amortization of intangible assets related to the
acquisition of micado on October 1, 1995.

OPERATING INCOME

  Operating income increased 11.3% ($5.9 million). Excluding the effects of the
litigation recovery on the 1996 results, the gain on the sale of the health 
business and provision for litigation costs on the 1995 results operating 
income fell by $1.6 million (3.1%). 

OTHER INCOME AND EXPENSE

  As a result of a higher average level of borrowed funds, principally 
borrowings under the Company's credit facilities, interest expense increased 
$1.4 million. The average nominal interest rate applicable to borrowings 
under these facilities during the first half was 6.07%.

  The increased interest costs were offset by a $.3 million increase in 
investment income, principally related to a higher average level of 
interest-bearing cash equivalents during the first nine months of 1996 as 
compared to the same period of 1995.
21

INCOME TAXES

  The effective income tax rate (income taxes expressed as a percentage of 
pre-tax income) was 35.9% and 32.6% for the nine months ended September 30, 
1996 and 1995, respectively. The effective rate for the 1996 period is higher 
than the federal statutory rate due principally to the effect of state and 
local income taxes; however, the effect of state and local income taxes has 
been offset in part by the effect of the Company's expensing, during 1996 for 
tax purposes, certain intangible assets related to the abandonment of certain 
of the Company's domestic property and casualty risk information services 
activities. The effective rate for 1995 was significantly lower than the 
federal statutory rate due principally to goodwill, deducted for tax purposes, 
relating to the sale of the Company's Health Insurance Systems Division.
22

                  LIQUIDITY AND CAPITAL RESOURCES 

                                     September 30,   December 31,
                                         1996           1995     
Cash and equivalents, marketable         (Dollars in Millions)
  securities, and investments.........  $ 16.9         $ 44.6    
Current assets........................   160.7          188.6
Current liabilities...................    71.2           94.4
Working capital.......................    89.5           94.2
Long-term debt........................    57.7           14.9

                                      Nine months    Nine months
                                         ended          ended
                                     September 30,  September 30,
                                         1996           1995    
                                         (Dollars in Millions)
Cash provided by operations...........  $ 69.2         $ 70.7
Cash used for investing activities....   (69.3)         (55.5)
Cash used for financing activities....   (26.5)          23.6 

  The Company's current ratio (current assets divided by current liabilities) 
stood at 2.3 at September 30, 1996, which management believes is sufficient 
when combined with the available credit facilities to provide for day-to-day 
operating needs and the flexibility to take advantage of investment 
opportunities. The Company  has available under its credit facilities (net of 
amounts outstanding at September 30, 1996) $100.0 million under its 364 day 
$100.0 million facility and $43.0 million under its 3 year $100.0 million 
facility, should management choose debt financing for any of the Company's 
operating, investing or financing activities. Also, the Company has available 
an uncommitted $10.0 million operating line of credit with which it may choose 
to fund temporary operating cash needs.

  Cash provided by operations decreased $1.5 million from September 30, 1995 to
September 30, 1996. During the first nine months of 1996, the Company paid a
significant amount of costs previously accrued in 1995 related to its ongoing 
legal proceedings. In the third quarter of 1996 the Company made a cash 
payment of $3.1 million relating to a 1995 business acquisition. Additionally, 
the Company made cash payments of $6.8 million against its restructuring 
reserves, as well as other accrued items in the normal course of business.
23

  During the nine months ended September 30, 1996 the Company capitalized $42.0
million principally related to the development of its Series III client/server
property and casualty software (including the incorporation of object-oriented
technology and support for Microsoft Windows) and CyberLife object-oriented
client/server life insurance software, as well as other ongoing projects for 
other domestic as well as international products. Also, during the second 
quarter of 1996, the Company repurchased 1.4 million of its outstanding 
common shares at an aggregate cost of $73.6 million.

  Significant expenditures anticipated for the remainder of 1996, excluding any
possible business acquisitions or common share  repurchases, are as follows:
acquisition of data processing, communications equipment and office furniture,
fixtures and equipment ($7.0 million); costs relating to the internal 
development of software systems ($15.0 million); and payments relating to past 
business acquisitions ($3.1 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,  cash and investment reserves along with 
amounts available under the Company's debt facilities will be sufficient to 
meet presently anticipated operating needs and to accomplish specific
objectives in these areas and for other general corporate purposes.
24

               FACTORS THAT MAY AFFECT FUTURE RESULTS

  The Company's operating results and financial condition can be impacted by a
number of factors, including, but not limited to, the following, any of which 
could cause actual results to vary materially from current and historical 
results or the Company's anticipated future results:

- Currently, the Company's business is focused principally within the global
  property and casualty and life insurance industries;

- There is increasing competition for the Company's products and services;

- The market for the Company's products and services is characterized by rapid
  changes in technology;

- 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;

- The timing and amount of the Company's revenues are subject to a number of
  factors, including, but not limited to, the timing of customers' decisions to
  enter into large license agreements with the Company;

- Unforeseen events or adverse economic or business trends may significantly
  increase cash demands beyond those currently anticipated or affect the 
  Company's  ability to generate/raise cash to satisfy financing needs;

- The Company's operations have not proven to be significantly seasonal, 
  although quarterly revenues and net income could be expected to vary at 
  times;

- Although the Company cannot accurately determine the amounts attributable
  thereto, the Company has been affected by inflation through increased costs of
  employee compensation and other operation expenses.

- Many of the Company's current and potential customers are or will spend
  significant amounts of money to make their existing information systems 
  capable of handling the year 2000.
25

  The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of 
contingent assets and liabilities at the date of the financial statements, as 
well as the reported amounts of revenues and expenses during the reporting 
period. Changes in the status of certain matters or facts or circumstances 
underlying these estimates could result in material changes in these estimates, 
and actual results could differ from these estimates.

  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.  

                            
Safe Harbor Statement under the Private Securities Litigation Reform Act of
1995:Statements in this report that are not descriptions of historical facts 
may be forward-looking statements that are subject to risks and uncertainties, 
including economic, competitive and technological factors affecting the 
Company's operations, markets, products, services and prices, as well as 
other specific factors discussed in the Company's fillings with the Securities 
and Exchange Commission. These and other factors may cause actual results to 
differ materially from those anticipated.
26
PART II
                         OTHER INFORMATION

               POLICY MANAGEMENT SYSTEMS CORPORATION

Item 1. Legal Proceedings

  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 this investigation.

  The Company is involved in a lawsuit with Security Life of Denver ("SLD")
alleging, among other things, breach of a life insurance joint development 
contract. The Company is also presently involved in litigation with Liberty 
Life Insurance Company arising out of the Company's change in the direction of 
its future life software systems development following the acquisition of 
CYBERTEK. The Company has asserted various affirmative defenses, claims and 
counterclaims and is vigorously pursuing prompt resolutions of these matters 
through all available legal processes (see Item 3, Legal Proceedings, of 
Part I contained in the Company's Annual Report on Form 10-K for the year 
ended December 31, 1995).

  In November 1993, the California State Automobile Association Inter-Insurance
Bureau and the California State Automobile Association ("CSAA") brought suit 
against the Company in the United States District Court for the Northern 
District of California (see Item 3, Legal Proceedings, of Part I contained in 
the Company's Annual Report on Form 10-K for the year ended December 31, 1995). 
In May 1996, after nine weeks of trial, the parties agreed that CSAA would 
dismiss its claim against the Company in return for the Company dismissing its 
counterclaim against CSAA. The agreement also resolves a collateral proceeding 
by the Company against CSAA and Computer Sciences Corporation which is pending 
in another jurisdiction and arose out of the agreement which was the basis of 
the California proceeding.

  Based upon the allegations raised in the CSAA and SLD lawsuits, the Company's
insurer, St. Paul Mercury Insurance Company ("St. Paul"), commenced a 
declaratory judgment action against the Company to determine St. Paul's 
obligation for defense costs and to indemnify the Company for any payment 
related to these claims. The Company filed a counterclaim against St. Paul 
seeking to recover the Company's defense costs in the CSAA and SLD matters, 
coverage for damages, if any, awarded in those matters, and consequential and 
punitive damages (see Item 3, Legal Proceedings, of Part I contained in the 
Company's Annual Report on Form 10-K for the year ended December 31, 1995).
27

  In connection with the Company reaching an agreement with CSAA for the 
dismissal of the CSAA matter, St. Paul and the Company agreed to dismiss with 
prejudice all claims against each other with respect to the CSAA matter, and 
St. Paul agreed to reimburse the Company the Company's legal fees in the CSAA 
matter (in excess of its deductible) with interest. As a result of this 
recovery, the Company recorded a gain of $9.4 million in the second quarter of 
1996. This agreement resolves the Company's and St. Paul's claims related to 
the CSAA matter; however, the action will continue as to the parties' claims 
related to insurance coverage for the SLD matter.

  In addition to the litigation described above, there are also various other
litigation proceedings and claims arising in the ordinary course of business. 
The Company is vigorously pursuing prompt resolutions of these matters 
through all available legal processes.

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, 1996.
28

                                  

              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:  November 14 , 1996               By:  Timothy V. Williams
                                        Executive Vice President
                                        (Chief Financial Officer)
29

                        Policy Management Systems Corporation

                                   Exhibit Index

Exhibit
Number
10. MATERIAL CONTRACTS

  A.    Amendment No.3 to 364-Day Credit Agreement dated August 9, 1996 among 
        Policy Management Systems Corporation and Morgan Guaranty Trust Company
        of New York.

11. STATEMENT REGARDING COMPUTATION OF PER SHARE EARNINGS

27. FINANCIAL DATA SCHEDULE