SECURITIES AND EXCHANGE COMMISSION
                     Washington, D.C. 20549
                     ----------------------
                                
                                
                            FORM 8-K
                                
                         Current Report
             Pursuant to Section 13 or 15(d) of the
                 Securities Exchange Act of 1934
                                
                                
        Date of Report (date of earliest event reported)
                                
                                
                         August 30, 1996
                                
                                
                 HIGHLANDS INSURANCE GROUP, INC.
  ------------------------------------------------------------
     (Exact name of registrant as specified in its charter)
                                
                            Delaware
  ------------------------------------------------------------
         (State or Other Jurisdiction of Incorporation)
     
     1-14028                             75-2370945
  ------------------------------------------------------------
(Commission File Number)      (IRS Employee Identification No.)
     
     10370 Richmond Avenue, Houston, Texas        77042-4123
   -----------------------------------------------------------
(Address of principal executive offices)          (Zip Code)
                                
     (713)952-9555
   -----------------------------------------------------------
Registrant's telephone number, including area code


<PAGE>  2
ITEM 4.

     On August 30, 1996, the Board of Directors of Highlands
Insurance Group, Inc. (the "Registrant"), determined to dismiss
Arthur Andersen LLP ("Arthur Andersen") as its principal
accountant and to retain KPMG Peat Marwick LLP ("KPMG") in that
capacity.  The decision to change accountants was recommended by
the Audit Committee and approved by the Board of Directors of the
Registrant.

     The Board of Directors determined that it was in the best
interest of the Registrant to allow both KPMG and other qualified
accounting firms to make proposals for providing accounting
services to the Registrant and to submit bids for the providing
of such services.  Proposals were solicited and received from
four accounting firms. After reviewing the proposals from all of
the submitting accounting firms, it was determined that it was in
the best interest of the Registrant to make a change in
accounting firms at this time and retain KPMG.

     The audit reports of Arthur Andersen on the Registrant's
financial statements for the last two fiscal years did not
contain an adverse opinion or a disclaimer of opinion, nor was
such opinion qualified or modified as to uncertainty, audit scope
or accounting principles.  During the Registrant's two most
recent fiscal years and subsequent interim periods preceding the
dismissal of Arthur Andersen, the Registrant had no disagreements
with Arthur Andersen on any matter of accounting principles or
practices, financial statement disclosure or auditing scope or
procedure.

     During the Registrant's two most recent fiscal years and
subsequent interim periods preceding the retention of KPMG,
neither the Registrant nor anyone on the Registrant's behalf
consulted KPMG regarding (i) matters which were the subject of
disagreement as defined in Item 304(a)(1)(v), (ii) reportable
events as defined in Item 304(a)(1)(v) of Regulation S-K or (iii)
the application of accounting principles to a specified
transaction either completed or proposed; or the type of audit
opinion that might be rendered on the registrant's financial
statements.

     The Registrant has provided Arthur Andersen a copy of the
disclosures made under this Item 4 of this Report, and Arthur
Andersen has furnished the Registrant with a letter addressed to
the Commission stating that it agrees with the statements made by
the Registrant in response to this Item.  Such letter is filed as
an exhibit to this Report.

ITEM 7.

The following exhibits are filed with this report on Form 8-K:

1.1 - Letter dated September 4, 1996, from Arthur Andersen LLP to
the Commission

                           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 hereunto duly authorized.

                         HIGHLANDS INSURANCE GROUP, INC.



                         By:  /s/  MICHAEL A. WEBERPAL
                              ------------------------------
                                   Michael A. Weberpal
                                   Vice President and Secretary

September 5, 1996
<PAGE>  3

                            EXHIBITS
                                
EXHIBIT NO.

1.1  --  Letter dated September 4, 1996, from Arthur Andersen LLP
         to the Commission.

                  [ARTHUR ANDERSEN LETTERHEAD]
                                
                                
                                
September 4, 1996



Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C.  20549

Dear Sirs:

     We have read Item 4 included in the attached Form 8-K dated
August 30, 1996 of Highlands Insurance Group, Inc. to be filed
with the Securities and Exchange Commission and are in agreement
with the statements contained therein.

Very truly yours,



/s/  ARTHUR ANDERSEN LLP
- ---------------------------------
     ARTHUR ANDERSEN LLP
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SECURITIES AND EXCHANGE COMMISSION
                     Washington, D.C. 20549
                     ----------------------
                                
                                
                            FORM 8-K
                                
                         Current Report
             Pursuant to Section 13 or 15(d) of the
                 Securities Exchange Act of 1934
                                
                                
        Date of Report (date of earliest event reported)
                                
                                
                         August 30, 1996
                                
                                
                 HIGHLANDS INSURANCE GROUP, INC.
  ------------------------------------------------------------
     (Exact name of registrant as specified in its charter)
                                
                            Delaware
  ------------------------------------------------------------
         (State or Other Jurisdiction of Incorporation)
     
     1-14028                             75-2370945
  ------------------------------------------------------------
(Commission File Number)      (IRS Employee Identification No.)
     
     10370 Richmond Avenue, Houston, Texas        77042-4123
   -----------------------------------------------------------
(Address of principal executive offices)          (Zip Code)
                                
     (713)952-9555
   -----------------------------------------------------------
Registrant's telephone number, including area code
2
ITEM 4.

     On August 30, 1996, the Board of Directors of Highlands
Insurance Group, Inc. (the "Registrant"), determined to dismiss
Arthur Andersen LLP ("Arthur Andersen") as its principal
accountant and to retain KPMG Peat Marwick LLP ("KPMG") in that
capacity.  The decision to change accountants was recommended by
the Audit Committee and approved by the Board of Directors of the
Registrant.

     The Board of Directors determined that it was in the best
interest of the Registrant to allow both KPMG and other qualified
accounting firms to make proposals for providing accounting
services to the Registrant and to submit bids for the providing
of such services.  Proposals were solicited and received from
four accounting firms. After reviewing the proposals from all of
the submitting accounting firms, it was determined that it was in
the best interest of the Registrant to make a change in
accounting firms at this time and retain KPMG.

     The audit reports of Arthur Andersen on the Registrant's
financial statements for the last two fiscal years did not
contain an adverse opinion or a disclaimer of opinion, nor was
such opinion qualified or modified as to uncertainty, audit scope
or accounting principles.  During the Registrant's two most
recent fiscal years and subsequent interim periods preceding the
dismissal of Arthur Andersen, the Registrant had no disagreements
with Arthur Andersen on any matter of accounting principles or
practices, financial statement disclosure or auditing scope or
procedure.

     During the Registrant's two most recent fiscal years and
subsequent interim periods preceding the retention of KPMG,
neither the Registrant nor anyone on the Registrant's behalf
consulted KPMG regarding (i) matters which were the subject of
disagreement as defined in Item 304(a)(1)(v), (ii) reportable
events as defined in Item 304(a)(1)(v) of Regulation S-K or (iii)
the application of accounting principles to a specified
transaction either completed or proposed; or the type of audit
opinion that might be rendered on the registrant's financial
statements.

     The Registrant has provided Arthur Andersen a copy of the
disclosures made under this Item 4 of this Report, and Arthur
Andersen has furnished the Registrant with a letter addressed to
the Commission stating that it agrees with the statements made by
the Registrant in response to this Item.  Such letter is filed as
an exhibit to this Report.

ITEM 7.

The following exhibits are filed with this report on Form 8-K:

1.1 - Letter dated September 4, 1996, from Arthur Andersen LLP to
the Commission

                           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 hereunto duly authorized.

                         HIGHLANDS INSURANCE GROUP, INC.

                         By:  /s/  MICHAEL A. WEBERPAL
                              ------------------------------
                                   Michael A. Weberpal
                                   Vice President and Secretary

September 5, 1996
3

                            EXHIBITS
                                
EXHIBIT NO.

1.1  --  Letter dated September 4, 1996, from Arthur Andersen LLP
         to the Commission.

                  [ARTHUR ANDERSEN LETTERHEAD]
                                
                                
                                
September 4, 1996

Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C.  20549

Dear Sirs:

     We have read Item 4 included in the attached Form 8-K dated
August 30, 1996 of Highlands Insurance Group, Inc. to be filed
with the Securities and Exchange Commission and are in agreement
with the statements contained therein.

Very truly yours,

/s/  ARTHUR ANDERSEN LLP
- ---------------------------------
     ARTHUR ANDERSEN LLP