SECURITIES AND EXCHANGE COMMISSION
                        Washington, D.C.

                            FORM 10-Q

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

For the period ended June 30, 1998  Commission file number: 0-2047 

             CAPITOL TRANSAMERICA CORPORATION (CTC)
     (Exact name of registrant as specified in its charter)

       A WISCONSIN CORPORATION                 39-1052658


       4610 University Avenue
         Madison,  Wisconsin                   53705-0900

 Registrant's telephone number, including area code: (608) 231-4450

  Securities registered pursuant to Section 12 (g) of the Act:

                    COMMON STOCK, $1.00 PAR VALUE


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 twelve months (or for such shorter period that the regis-
trant was required to file such reports), and (2) has been subject to such 
filing requirements for the past 90 days.

                           YES  X      NO     
   
Based on the closing average of the high (20 5/8) and low price (20 1/2), the 
aggregate market value of voting stock held by non-affiliates of the registrant 
as of June 30, 1998 was approximately $230,649,830.

Indicate the number of shares of each of the issuer's class of common stock, as
of the latest practicable date:

                        At June 30, 1998

                 Common Stock, $1.00 Par Value;


                       Issued:        11,522,605

                       Outstanding:   11,217,013


                        Total Pages:   21


               Securities and Exchange Commission

                     Washington, D.C.  20549

                            Form 10-Q


                             Part I


     Financial Information                             Page

          Consolidated Financial Statements           3 - 7

          Notes to Consolidated Financial Statements  8 - 9

          Management's Discussion and Analysis of
            Financial Condition and Results of
            Operations                                10 - 12

          Condensed Statutory Financial
            Statements of Insurance Subsidiaries        13


                             Part II

     Other Information

          Other Disclosures                             15

          Officers and Directors                        16

          Signatures                                    17

          Exhibit 1 (Press Release)                   18 - 21          




                                2



<TABLE>
                                                         CAPITOL TRANSAMERICA CORPORATION
                                                            CONSOLIDATED BALANCE SHEETS


<CAPTION>
                                                                               June 30,     December 31,      June 30,
                                                                                 1998           1997            1997
                                                                                                              (Restated)
    <S>                                                                    <C>             <C>             <C> 
    ASSETS
    Investments:
      Available-for-sale investment securities, at fair value
       U.S. Government bonds (amortized cost $54,012, $67,192
         and $573,240, respectively)                                       $     58,695    $     72,075    $    577,233
       State, municipal and political subdivision bonds (amortized
         cost $66,334,009, $68,651,060 and $67,302,035, respectively)        70,602,600      73,239,504      71,890,710
       Corporate bonds and notes (amortized cost $818,174,
         $716,722 and $1,126,919, respectively)                                 867,489         759,937       1,213,451
       Equity securities:
       Common stock (cost $110,607,273, $101,409,300 and
          $80,917,488, respectively)                                        148,727,611     145,208,469     119,749,118
       Nonredeemable preferred stock (cost $6,269,703, $5,854,291
          and $5,866,216, respectively)                                       8,367,001       6,928,541       6,780,177
       Investment real estate, at cost, net of depreciation                   8,695,480       8,122,638       7,191,665
       Short-term investments, at cost which
          approximates fair value                                             5,948,642      11,312,878         999,745
              Total Investments                                             243,267,518     245,644,042     208,402,099

    Cash                                                                        590,537       1,202,548         545,506
    Accrued investment income                                                 1,721,169       1,707,692       1,668,678
    Receivables from agents, insureds and others, less allowance for
         doubtful accounts of $470,000, $440,000 and $410,000, respectively  21,621,406      20,820,481      22,769,318
    Balances due from reinsurers                                                259,811         122,916         144,800
    Income taxes recoverable                                                      -             684,342       3,043,511
    Deferred insurance acquisition costs                                     13,797,429      14,186,941      13,414,263
    Prepaid reinsurance premiums                                                373,979         743,988         619,301
    Due from securities brokers                                               5,211,626           -               -
    Other assets                                                              2,054,910       1,569,325       1,611,023
              Total Assets                                                 $288,941,620    $286,682,275    $252,218,499

</TABLE>


                                                                             3
<TABLE>
                                                         CAPITOL TRANSAMERICA CORPORATION
                                                            CONSOLIDATED BALANCE SHEETS


<CAPTION>
                                                                                   June 30,    December 31,        June 30,
                                                                                     1998          1997              1997
                                                                                                                   (Restated)
    <S>                                                                         <C>             <C>             <C>   
    LIABILITIES
    Policy liabilities and accruals:
      Reserve for losses                                                        $ 51,238,825    $ 48,570,173    $ 37,548,444
      Reserve for loss adjustment expenses                                        23,125,685      22,902,165      18,837,286
      Unearned premiums                                                           46,264,452      47,411,849      47,695,377
         Total Policy Liabilities and Accruals                                   120,628,962     118,884,187     104,081,107

    Accounts payable                                                               5,782,049       5,805,568       7,390,078
    Due to securities brokers                                                        936,828       5,318,372           -
    Balances due to reinsurers                                                       669,888       1,337,564       1,699,018
    Accrued premium taxes                                                            176,335         337,163         160,511
    Income taxes payable                                                           1,497,986           -               -
    Deferred income taxes                                                         13,942,208      15,657,280      14,195,451
         Total Other Liabilities                                                  23,005,294      28,455,947      23,445,058

         Total Liabilities                                                       143,634,256     147,340,134     127,526,165


    SHAREHOLDERS' INVESTMENT
    Common stock, $1.00 par value, authorized 15,000,000 shares,
          issued 11,522,605, 11,502,520 and 11,471,850, respectively              11,522,605      11,502,520      11,471,850
    Paid-in surplus                                                               22,136,114      21,832,206      21,503,620
    Net unrealized appreciation on investment securities carried at 
          fair value, net of deferred taxes of $15,143,679, $16,833,386
          and $15,104,429, respectively                                           29,396,546      32,676,572      29,320,362
    Retained earnings                                                             82,722,142      73,732,118      62,749,762

    Shareholders' investment before treasury stock                               145,777,407     139,743,416     125,045,594

    Treasury stock, 305,592, 323,638 and 316,448 shares,
          respectively, at cost                                                     (470,043)       (401,275)       (353,260)

          Total Shareholders' Investment                                         145,307,364     139,342,141     124,692,334

          Total Liabilities and Shareholders' Investment                        $288,941,620    $286,682,275    $252,218,499
    Book Value Per Share                                                        $      12.95    $      12.46    $      11.18

    Shares Outstanding                                                            11,217,013      11,178,882      11,155,402
</TABLE>

                                                                             4
<TABLE>
                                                  CAPITOL TRANSAMERICA CORPORATION
                                                  CONSOLIDATED STATEMENTS OF INCOME

<CAPTION>
                                                        For the Six Months           For the Three Months
                                                           Ended June 30,                Ended June 30, 
                                                       1998           1997           1998            1997
                                                                   (Restated)                     (Restated)
    <S>                                           <C>             <C>             <C>            <C>            
    REVENUES
       Premiums earned                            $ 44,814,531    $ 41,886,245    $  22,566,270  $  21,525,775
       Net investment income                         4,582,773       4,119,867        2,286,942      1,972,565
       Realized investment gains                     7,637,647         379,060        6,741,095         33,366
       Other revenues                                   48,908          36,352           21,963         29,625
        Total Revenues                              57,083,859      46,421,524       31,616,270     23,561,331

    LOSSES AND EXPENSES INCURRED
       Losses incurred                              22,985,036      23,247,375       11,551,728     12,551,564
       Loss adjustment expenses incurred             3,959,518       4,430,344        2,329,743      2,287,747
       Underwriting, acquisition and
          insurance expenses                        14,270,964      15,465,869        7,459,669      8,418,457
       Decrease (Increase) in deferred 
          insurance acquisition costs                  389,512        (435,949)        (180,267)      (612,235)
       Other expenses                                  687,184         644,785          344,016        321,040
         Total Losses and Expenses Incurred         42,292,214      43,352,424       21,504,889     22,966,573
    Income from operations before
       income taxes                                 14,791,645       3,069,100       10,111,381        594,758

    Income tax expense (benefit)        
       Current                                       4,364,358         216,223        2,947,335       (360,446)
       Deferred                                       (131,442)        188,835           65,858        331,499
                                                     4,232,916         405,058        3,013,193        (28,947)

    Net Income                                    $ 10,558,729    $  2,664,042    $   7,098,188  $     623,705


    INCOME PER SHARE - BASIC                      $       0.94    $       0.24    $        0.63  $        0.06


    Weighted Avg # of Shares Outstanding-Basic      11,179,758      11,110,549       11,179,758     11,110,549

    INCOME PER SHARE - DILUTED                    $       0.94    $       0.24    $        0.63  $        0.06


    Weighted Avg # of Shares Outstanding-Diluted    11,243,474      11,260,293       11,243,474     11,260,293


                                                                         5
                                                           CAPITOL TRANSAMERICA CORPORATION
                                                 CONSOLIDATED STATEMENTS OF SHAREHOLDERS INVESTMENT

<CAPTION>
                                                                                          Net Unrealized
                                                                 Common                   Appreciation
                                                   Common        Stock                   (Depreciation)
                                                   Stock      Distributable               on Securities
                                                 (Par Value    (Par Value      Paid-In     Carried at      Retained      Treasury
                                                   $1.00)        $1.00)        Surplus     Fair Value      Earnings       Stock
<S>                                              <C>           <C>           <C>           <C>           <C>          <C>
Balance, January 1, 1996                         $ 6,899,060   $  689,545    $20,949,100   $13,259,988   $51,177,894  $  (321,707)
    Net income                                        -             -              -             -        18,349,158         -
    Unrealized appreication on available-for
      sale securities, net of deferred taxes          -             -              -         8,364,037         -             -   
    Stock options exercised                           24,106        -            165,544         -             -          (15,799)
    Stock dividends                                  689,545    3,116,810          -             -        (3,806,355)        -
    Cash dividends declared                           -             -              -             -        (2,959,043)        -
Balance, December 31, 1996                       $ 7,612,711   $3,806,355    $21,114,644   $21,624,025   $62,761,654  $  (337,506)
    Net income                                        -             -              -             -        15,191,879         -
    Unrealized appreciation on available-for
      sale securities, net of deferred taxes          -             -              -        11,052,547         -             -
    Stock options exercised                           83,678        -            542,344         -             -          (63,769)
    Proceeds from treasury share transactions         -             -            175,218         -             -             -
    Stock dividends                                3,806,131    (3,806,355)        -             -             -             -
    Cash dividends declared                           -             -              -             -        (4,221,415)        -
Balance, December 31, 1997                       $11,502,520   $    -        $21,832,206   $32,676,572   $73,732,118  $  (401,275)
    Net income                                        -             -              -             -        10,558,729         -
    Unrealized depreciation on available-for
      sale securities, net of deferred taxes          -             -              -        (3,280,026)        -             -
    Stock options exercised                           20,085        -             97,988         -             -          (68,768)
    Proceeds from treasury share transactions         -             -            205,920         -             -             -
    Cash dividends declared                           -             -              -             -        (1,568,705)        -
Balance, June 30, 1998                           $11,524,002   $    -        $22,136,114   $29,396,546   $82,722,142  $  (470,043)
                                                                                

                                                                         6

                                                                  CAPITOL TRANSAMERICA CORPORATION
                                                               CONSOLIDATED STATEMENTS OF CASH FLOWS


                                                                           June 30,       December 31,      June 30,
                                                                             1998             1997            1997
    Cash flows provided by operating activities:                                                            (Restated)
     <S>                                                                <C>              <C>             <C>
     Net Income                                                         $10,558,729      $ 15,191,879    $  2,664,042
         Adjustments to reconcile net income to net cash
            provided by operating activities:
              Depreciation                                                  547,904         1,018,894         456,530
              Realized investment gains                                  (7,637,647)      (15,370,384)       (379,060)
              Change in:
                  Deferred insurance acquisition costs                      389,512        (1,208,627)       (435,949)
                  Unearned premiums                                      (1,147,397)        4,153,016       4,436,544
                  Allowance for doubtful accounts receivable from agents     30,000            60,000          30,000
                  Accrued investment income                                 (13,477)          (22,752)         16,262
                  Receivables from agents, insureds and others             (830,925)       (2,168,094)     (4,086,931)
                  Balances due to/from reinsurers                           112,629          (284,774)         11,772
                  Reinsurance recoverable on paid and unpaid losses        (917,200)          755,956         797,471
                  Funds held by ceding reinsurers                           (43,235)           44,791          46,300
                  Income taxes payable                                    2,288,408        (2,554,594)     (4,913,763)
                  Deferred income taxes                                    (131,445)          (78,292)        188,835
                  Due to/from securities brokers                         (9,593,170)       11,191,845       5,873,473
                  Prepaid reinsurance premiums                              370,009           (39,840)         84,847
                  Other assets                                             (385,812)          339,684         379,385
                  Reserve for losses and loss adjustment expenses         2,892,172        23,769,975       8,683,367
                  Accounts payable                                          (23,518)         (806,814)        777,696
                  Accrued premium taxes                                    (160,828)         (225,410)       (402,062)
                          Net cash provided by operating activities      (3,695,291)       33,766,459      14,228,759

    Cash flows provided by (used for) investing activities:
         Proceeds from sales of available-for-sale investments           25,093,983        44,747,214      12,455,931
         Purchases of available-for-sale investments                    (22,412,160)      (78,773,489)    (26,273,105)
         Maturities of available-for-sale investments                     2,201,620         5,064,056       2,167,542
         Purchase of depreciable assets                                    (486,682)         (477,992)       (144,160)
                          Net cash used for investing activities          4,396,761       (29,440,211)    (11,793,792)

    Cash flows provided by (used for) financing activities:
         Cash dividends paid                                             (1,568,706)       (4,226,165)     (2,680,685)
         Stock options exercised                                            323,993           626,022         441,984
         Net proceeds from sale of treasury stock                           (68,768)          111,449         (15,754)
                          Net cash used for financing activities         (1,313,481)       (3,488,694)     (2,254,455)

         Net increase (decrease) in cash                                   (612,011)          837,554         180,512
         Cash, beginning of period                                        1,202,548           364,994         364,994
         Cash, end of period                                            $   590,537      $  1,202,548    $    545,506

    Cash paid during the year for:
         Income taxes                                                   $ 2,182,031      $  9,164,506    $  5,130,000
         
</TABLE>


                                                                           7

                           CAPITOL TRANSAMERICA CORPORATION
                     NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                    June 30, 1998

   (1)   Basis of Presentation
         The condensed financial statements included herein of Capitol 
         Transamerica Corporation (the "Company"), other than the Consolidated
         Balance Sheet as of December 31, 1997, and the Consolidated Statement
         of Cash Flows as of December 31, 1997, have been prepared by the Compa-
         ny without audit, pursuant to the rules and regulations of the 
         Securities Exchange Commission. Certain information and footnote dis-
         closures normally included in financial statements prepared in accor-
         dance with generally accepted accounting principles have been condensed
         or omitted pursuant to such rules and regulations.

         A 1997 year-end analysis of operations determined that certain timing
         related expense and revenue items had not been recorded properly 
         throughout the year.  As a result, the Company has restated quarterly
         results of operations for 1997 to reflect a more equitable distribution
         of these items.
         
         Although the Company believes the disclosures are adequate to make the
         information presented not misleading, it is suggested that these con-
         densed financial statements be read in conjunction with the financial
         statements and the notes thereto included in the Company's 1997 annual
         report on Form 10-K. Wherever applicable, prior period's information 
         has been restated to reflect the December 31, 1996 three-for-two stock
         split and the December 28, 1995 ten percent stock dividend.
          
         

   (2)   Income Per Share
         Net income per share is computed by dividing net income by the weighted
         average number of shares of stock outstanding during the period.

         In 1997, the Financial Accounting Standards Board issued Statement of
         Financial Standards No. 128, "Earnings per Share," which replaces the
         presentation of primary and fully diluted earnings per share (EPS) 
         with a presentation of basic and diluted EPS.  the following table sets
         forth the computation of basic and diluted EPS:

<TABLE>

<CAPTION>                                                              June 30,
                                                                 1998            1997
                                                                               (Restated)
    <S>                                                     <C>             <C>            
    Numerator:
      Consolidated net income                                $10,558,729     $ 2,664,042

    Denominator:
    Denominator for basic EPS - weighted average shares       11,179,758      11,110,549
     Effect of dilutive securities - employee stock options       63,716         149,744
    Denominator for diluted EPS                               11,243,474      11,260,293


</TABLE>

   (3)   Income Taxes
         Deferred income taxes reflect the net tax effects of temporary differ-
         ences between the carrying amounts of assets and liabilities for finan-
         cial statement purposes and the amounts used for income taxes.

   (4)   Common Stock Options
         There were 20,085 options exercised during the six months ended June
         30, 1998 and there were 83,678 options exercised during the six
         months ended June 30, 1997. For further information regarding stock 
         options, refer to Note 6 of Notes to Consolidated Financial Statements
         included in the Company's 1997 annual report.
                                                                      
                                                                      8
   
   
   (5)   Dividends
         1998
         On April 29, 1998 a cash dividend of $.07 per share was declared to
         shareholders of record June 12, 1998 and paid June 26, 1998 in the
         amount of $785,379.

         On February 27, 1998 a cash dividend of $.07 per share was declared to
         shareholders of record March 13, 1998 and paid March 27 in the amount
         of $783,327.
         
         1997
         On October 24, 1997 a cash dividend of $.07 per share was declared to
         shareholders of record December 10 and paid December 19 in the amount
         of $782,718.

         On July 25, 1997 a cash dividend of $.07 per share was declared to 
         shareholders of record September 12 and paid September 26 in the amount
         of $781,711.
         
         On May 6, 1997 a cash dividend of $.07 per share was declared to 
         shareholders of record June 13 and paid June 27 in the amount of
         $780,878.
         
         On January 20, 1997 a cash dividend of $.10 per share was declared to
         shareholders of record February 14 and paid February 28 in the amount 
         of $1,114,823.

         On January 20, 1997 as cash dividend of $.07 per share was declared to
         shareholders of record March 14 and paid on March 28 in the amount of
         $780,458.
            
   
   (6)   Investments
         Fixed maturities and equity securities are classified as available-for-
         sale and, accordingly, are carried at fair value, with unrealized gains
         and losses reported as a separate component of shareholders' invest-
         ment, net of taxes. The cost of fixed maturities is adjusted for amor-
         tization of premiums and discounts to maturity. Fixed maturities and 
         equity securities deemed to have declines in value that are other than
         temporary are written down through the statement of income to carrying
         values equal to their estimated fair values.

         Investment real estate is carried at cost net of accumulated deprecia-
         tion of $606,799, $444,381 and $296,589 as of June 30, 1998, December 
         31, 1997 and June 30, 1997, respectively.

         Cost of investments sold is determined under the specific identifica-
         tion method.

   (7)   Contingent Liabilities
         The Company is a defendant in certain lawsuits involving complaints
         which demand damages and recoveries for claims and losses alledgedly
         related to risks insured by the Company. In the opinion of management,
         such lawsuits are routine in that they result from the ordinary course
         of business in the insurance industry. The reserve for losses includes
         management's estimates of the probable ultimate cost of settling all 
         losses involving lawsuits.


                                         9

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

OVERVIEW

Capitol Transamerica Corporation (the "Company") is an insurance holding company
operating in 37 states which writes, through its insurance subsidiaries, both 
property-casualty and fidelity-surety insurance. The property-casualty segement
accounts for approximately 70% of the business written while the fidelity-surety
segment accounts for approximately 30% of the Company's business.

The underwriting cylcles of the property-casualty insurance industry have been 
characterized by peak periods of adequate rates, underwriting profits and lower
combined ratios, while the downward side of the cycle is characterized by inade-
quate rates, underwriting losses and, as a result, higher combined ratios.  The 
adequacy of premium rates is affected primarily by the severity and frequency of
claims which in turn are affected by natural disasters, regulatory measures and
court decisions which continue to uphold the "deep pocket" theory in awarding
against insurance companies. Unfortunately for the insurance industry, the trend
of increasing price competition has continued as has the number of significant
natural disasters. This combination has resulted in considerable reduction in 
underwriting profitability for the industry as a whole.

Inflation also has a significant impact on the insurance industry in general, as
well as on the Company. Inflation creates higher claim costs, which are then
matched currently against premiums whose rating statistics were developed from
data of previous years. In recent inflationary periods, this has led to inade-
quate rate structures, since rate regualtors are slow to grant rate adjustments
at times when the overall economy is in an inflationary cycle. Studies have 
shown that premium rates trail the claim experience by a period of two years or 
more. Adequate premium rates continue to be of concern to the Company and the 
property casulaty industry as a whole.

OPERATING RESULTS

As mentioned in the Overview section, the property-casualty insurance industry
is in a downward cycle. However, despite a difficult year in 1997, management
believes the company has turned in a solid six month performance, and that the
outlook for the ramainder of the year is positive and on track with financial
goals. The Company's business plan includes expansion of existing products into
new geographic regions, as well as introduction of new coverages, which when 
combined with prudent underwriting standards will assure continued profitabil-
ity for our shareholders.  Indeed, when the industry's cycle reverses, the 
Company will be in an excellenent position to take advantage of premium rate
increases.

For the six months ended June 30, 1998 gross premiums written decreased 2.1% 
over the same period in 1997. The decrease was due largely to increased com-
petition in the Company's niche business, as well as continued rate inadequacy.
The Company's plan to conteract the slight decrease in premium writings is to 
continue expansion into new states and introduction of new programs. In the 
first quarter of 1998 the Company became licensed in the state of Maryland, and
plans to extend workers compensation coverage into new states continue. The 
Company has also introduced a business owners protection coverage, with plans
to market the program in all states. 

Premiums earned are recognized as net revenues after reduction for reinsurance
ceded and after establishment of the provision for the pro-rata unearned portion
of premiums written. Net premiums earned totaled $44,814,531, $87,451,620 and 
$41,886,245 for the respective periods, and net unearned premiums were 
$46,264,452, $47,411,849 and $47,695,377 at each respective period.
<TABLE>
<CAPTION>                                                     Restated
                                  June 30,     December 31,   June 30,  
                                    1998          1997          1997
     <S>                          <C>           <C>           <C>
     Gross Premiums Written       $46,464,458   $99,507,846   $47,448,552
     Reinsurance Ceded              2,742,067     7,943,050     1,040,917
     Net Premiums Written         $43,722,391   $91,564,796   $46,407,635
     Net Premiums Earned          $44,814,531   $87,451,620   $41,886,245
     Net Unearned Premium Reserve $46,264,452   $47,411,849   $47,695,377


The large increase in ceded premiums in 1997 is due to a new reinsurance 
agreement entered into during the year.  CIC assumed and then fully ceded 
capitated dental premiums while retaining a brokerage fee.  The Company is
not expected to incur any net losses from this business.

                                           10

The Company's underwriting results can be measured by reference to the com-
bined loss and expense ratios.  This tabulation includes the operating results
of the two subsidiary insurance companies on a statutory basis.  Losses and 
loss adjustment expenses are stated as a ratio of net premiums earned, while
underwriting expenses are stated as a ratio of net premiums written.  The
combined ratios were as follows:


<CAPTION>                                                                         Restated
                                                 June 30,      December 31,       June 30,
Insurance Operating Ratios (Statutory Basis):      1998            1997             1997
          <S>                                       <C>             <C>              <C>
          Loss and Loss Adjustment Expenses         60.4%           70.1%            61.9%
          Underwriting Expenses                     34.8%           32.1%            34.8%
          Combined Ratios                           95.2%          102.2%            96.7%

In 1997 the Company strengthened IBNR reserves by $14.5 million, which increased
the loss ratio by 16.6%.  Despite this large adjustment, the Company's com-
bined loss and expense ratio still compares favorably with  the commercial
lines industry averages of 101.7% for the first quarter of 1998 and 103.3% for 
the year of 1997.
</TABLE>

REINSURANCE

The Company follows the customary practice of reinsuring with other companies,
e.g., ceding a portion of its exposure on the policies it has written. This pro-
gram of reinsurance permits the Company greater diversification of business and
the ability to write larger policies while limiting the extent of its maximum
net loss. It provides protection for the Company against unusually serious oc-
currences in which a number of claims could produce a large aggregate loss. 
Management continually monitors the Company's reinsurance program to obtain pro-
tection that should be adequate to ensure the availability of funds for losses
while maintaining future growth.

NET INVESTMENT INCOME AND REALIZED GAINS

The Company's fixed maturities and equity securites are classified as 
available-for-sale and are carried at fair value. The unrealized gains and 
losses, net of tax, are reported as a separate component of shareholders' 
investment.

Interest and Dividend Income: Interest on fixed maturities is recorded as income
when earned and is adjusted for any amortization of purchase premium or dis-
count. Dividends on equity securities are recorded as income on ex-dividend 
dates.
<TABLE>
<CAPTION>
                                        June 30,          December 31,           June 30,
Investments:                              1998                1997                 1997
     <S>                                <C>                 <C>                 <C>
     Invested Assets                    $ 243,267,518       $ 245,644,042       $ 208,402,099
     Net Investment Income                  4,582,773           8,580,713           4,119,867
     Percent of Return to
       Average Carrying Value                   4.6%                4.9%                5.2%
     Realized Gains                         7,637,647          15,370,384             379,060
     Change in Unrealized Gains(Losses) $  (4,969,733)      $  16,746,287       $  11,661,117
</TABLE>
The $4,969,733 decrease in unrealized gains for the six months of 1998 was
composed of a $313,952 decrease in market value over cost of the Company's
fixed maturities and a $4,655,781 decrease in market value over cost of the 
equity portfolio.  The Company has taken over $7.5 million in realized gains
in the first six months of 1998, without which there would have been an 
overall increase in unrealized gains.  Future investment decisions will be 
based on the economy and the stock and bond markets.  Net investment income for
the six months of 1998 was up 11.2% over the like period of 1997, but the over-
all rate of return on the investment portfolio has decreased slightly.  Before
tax unrealized gains were $44,540,225, $49,509,958 and $44,424,791 as of June
30, 1998, December 31, 1997 and June 30, 1997.

                                       11
INCOME TAXES

Income tax expense is based on income reported for financial statement purposes
and tax laws and rates in effect for the years presented. Deferred federal in-
come taxes arise from timing differences between the recognition of income de-
termined for financial reporting purposes and income tax purposes. Such timing
differences are related principally to the deferral of policy acquisition costs,
the recognition of unearned premiums, and discounting the claims reserves for
tax purposes. Deferred taxes are also provided on unrealized gains and losses.

LOSS RESERVES

Reserves for loss and loss adjustment expenses reflect the Company's best esti-
mate of the liability for the ultimate cost of reported claims and incurred but
not reported (IBNR) claims as of the end of each period. The estimates are based
on past claim experience and consider current claim trends as well as social and
economic conditions. The Company's reserve for loss and loss adjustment expenses
were $74,364,510 as of June 30, 1998 compared with $71,472,338 as of December
31, 1997 and $56,385,730 as of June 30, 1997. In 1997 the Company increased  
IBNR reserves by $14.5 million. This increase is expected to stabilize future
development; however, management continues to closely monitor the development
trends and projections as it attempts to contain the increased claim activity
which has occurred in recent years.

LIQUIDITY AND CAPITAL RESOURCES

Liquidity refers to the Company's ability to meet obligations as they become
due. The obligations and cash outflow of the Company include claims settlements,
acquisition and administrative expenses, investment purchases and dividends to 
shareholders. In addition to satisfying obligations and cash outflow through
premium collections, there is cash inflow obtained from interest and dividend 
income, maturities and sales of investments. Because cash inflow from premiums
is received in advance of cash outflow required to settle claims, the Company
accumulates funds which it invests pending liquidity requirements. Therefore,
investments represent the majority (84.2%, 85.7% and 82.6% at each respective 
period) of the Company's assets. Cash outflow can be unpredictable for two rea-
sons: first, a large portion of liabilities representing loss reserves have un-
certainty regarding settlement dates; and second, there is potential for losses
occurring either individually or in aggregate. As a result, the Company main-
tains adequate short-term investment programs necessary to ensure the availa-
bility of funds. The investment program is structured so that a forced sale li-
quidation of fixed maturities should not be necessary during the course of ordi-
nary business involvement and activities. The Company has no material capital
expenditure commitments.

YEAR 2000

A significant issue facing not only the insurance industry but society as a 
whole is potential computer problems related to the approaching year 2000.
Older computer programs were written using two digits rather than four to
define the applicable year.  As a result, those computer programs may mis-
interpret a date, using "00" as the year 1900 rather than the year 2000.

During 1996 and 1997 the Company incurred approximately $1.8 million of 
expenses in updating its management information system to alleviate potential
year 2000 problems.  This process is substantially completed, with only test-
ing and peripheral adjustments remaining.  The additional expense for the 
testing and adjustments is expected to be approximately $600,000.  As a 
result of these efforts, the Company is confident that the year 2000 will not
cause a significant disruption to its business.  

The Company has also assessed the potential impact of year 2000 related
problems that may be encountered by our agents and third parties, and deter-
mined that any impact would not be material relative to the operations of 
the Company.  However, there can be no guarantee that actual results would
not differ materially from those anticipated.

                                      12

<TABLE>
                                                          INSURANCE SUBSIDIARY FINANCIAL STATEMENTS
                                                  Statutory Basis as Reported to State Regulatory Authorities
                                                     June 30, 1998, December 31, 1997 and June 30, 1997

    CAPITOL INDEMNITY CORPORATION                             June 30,           December 31,      June 30,
    Balance Sheets                                              1998                 1997            1997
                                                                                                  (Restated)
    <S>                                            <C>                          <C>             <C>      
    ASSETS
    Cash and Invested Assets                       $        225,435,790         $228,121,190    $192,334,844
    Other Assets                                             27,116,514           21,344,680      26,557,919
    Total Assets                                   $        252,552,304         $249,465,870    $218,892,763
    LIABILITIES
    Reserve for Losses and Loss Expenses           $         73,228,293         $ 71,117,787    $ 55,997,813
    Unearned Premiums                                        45,575,721           46,667,861      47,076,076
    Other Liabilities                                        23,423,979           22,356,111      19,124,764
    Total Liabilities                                       142,227,993          140,141,759     122,198,653
    SURPLUS AS REGARDS POLICYHOLDERS
    Shareholder's Equity                                    110,324,311          109,324,111      96,694,110
    Total Liabilities and Capital                  $        252,552,304         $249,465,870    $218,892,763

    Statements of Income
    Premiums Earned                                $         44,814,531         $ 87,304,679    $ 41,886,245
    Underwriting Deductions                                  42,118,516           91,152,886      43,996,585
    Net Underwriting Gain                                     2,696,015           (3,848,207)     (2,110,340)
    Investment Income Including Sales                        11,478,355           22,791,517       3,941,775
    Other Income                                                 44,785               28,708          34,222
    Income Tax Expense                                        3,902,675            5,809,963        (157,278)
    Net Income                                     $         10,316,480         $ 13,162,055    $  2,022,935


    CAPITOL SPECIALTY INSURANCE CORPORATION
    Balance Sheets
    ASSETS
    Cash and Invested Assets                       $          6,051,010         $  6,353,535    $  6,948,600
    Other Assets                                                614,006            1,903,026         201,555
    Total Assets                                   $          6,665,016         $  8,256,561    $  7,150,155
    LIABILITIES
    Reserve for Losses and Loss Expenses           $            389,047         $     -         $     -
    Unearned Premiums                                            -                    -               -
    Other Liabilities                                           382,199            1,818,683         297,392
    Total Liabilities                                           771,246            1,818,683         297,392
    SURPLUS AS REGARDS POLICYHOLDERS
    Shareholder's Equity                                      5,893,770            6,437,878       6,852,763
    Total Liabilities and Capital                  $          6,665,016         $  8,256,561    $  7,150,155
    Statements of Income
    Premiums Earned                                $             -              $     -         $     -
    Underwriting Deductions                                     (14,815)              (3,719)         10,329
    Net Underwriting (Loss) Gain                                (14,815)              (3,719)        (10,329)
    Investment Income Including Sales                           460,409              302,428         159,268
    Other Income                                                 -                    -               -
    Income Tax Expense (Benefit)                                116,706                9,111           2,062
    Net Income                                     $            358,518         $    297,036    $    146,877
</TABLE>

                                                                   13








                                         PART II




                                                            14



                         
                        
                        Other Disclosures




     Item 1.   Legal Proceedings

               Reference is made to footnote number 7 "Contingent
               Liabilities" on Page 9 of this report.


     Item 2.   Changes in Securities
                         NONE

     Item 3.   Defaults Upon Senior Securities
                         NONE

     Item 4.   Submission of Matters to a Vote of Security Holders

               Reference is made to the Notice of Annual Meeting of
               Shareholders and Proxy Statement for the Annual
               Meeting of Shareholders which was held May 11, 1998,
               both of which are dated April 6, 1998 and previously
               filed with the Securities and Exchange Commission
               and are incorporated herein as an exhibit by
               reference.

     Item 5.   Other Information
                         NONE

     Item 6.   Exhibits and Reports on Form 8-K
                         NONE




                               15


                CAPITOL TRANSAMERICA CORPORATION
                          Subsidiaries
                  Capitol Indemnity Corporation
             Capitol Specialty Insurance Corporation
                 Capitol Facilities Corporation


                       Board of Directors

     Paul J. Breitnauer                      Michael J. Larson
      Vice President and Treasurer            Vice President
      Capitol Transamerica Corporation        American National Bank
      Sun Prairie,  Wisconsin                 Madison,  Wisconsin

     Larry Burcalow                          Reinhart H. Postweiler
      Owner and President                     Retired, formerly with
      Yahara Materials, Inc.                  Flad Affiliated Corp.
      Middleton, Wisconsin                    Madison, Wisconsin
      

     George A. Fait                          Kenneth P. Urso
      Chairman of the Board                   Owner and Operator
      and President                           Urso and Associates, LLC
      Capitol Transamerica Corporation        Middleton, Wisconsin
      Madison, Wisconsin                      




                            Officers

     George A. Fait                          Virgiline M. Schulte
      Chairman of the Board and President     Secretary

     Paul J. Breitnauer                      Jane F. Endres
      Vice President and Treasurer            Assistant Secretary





                               16




                           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 under-
signed thereunto duly authorized.



                         CAPITOL TRANSAMERICA CORPORATION






                         George A. Fait
                         Chairman of the Board and President



                         Paul J. Breitnauer
                         Vice President and Treasurer




Date:     August 6, 1998

                              
                               17


                CAPITOL TRANSAMERICA CORPORATION
              ANNOUNCES RECORD SIX MONTHS EARNINGS


FOR IMMEDIATE RELEASE              Contact:  Paul J. Breitnauer
                                             Phone (608) 231-4450

Madison, Wisconsin, July 21, 1998 - George A. Fait, Chairman of Capitol 
Transamerica Corporation, announced that six months earnings were $10.6 million
($0.94 per share) compared with six months earnings of $2.7 million ($0.24 per
share) in 1997. Six months income in 1998 included $5.0 million or $0.45 per 
share of after-tax realized gains while the six months income in 1997 included
$250,000 or $0.02 per share of after-tax realized gains. Excluding realized 
gains, net income for the six months of 1998 was $0.49 per share compared with
$0.22 per share for the same period last year. Unless otherwise noted, all per
share amounts are presented on a diluted basis. Fourth quarter adjustments made
in December 1997 for certain revenues and expenses in 1997 have been restated 
to provide a more accurate comparison by quarter.

     Second quarter 1998 earnings were $7.1 million or $0.63 per share compared
with 1997 second quarter earnings of $624,000 or $0.06 per share. Second quar-
ter 1998 earnings included $0.40 per share of after-tax realized gains, whereas
the second quarter of 1997 included less than $0.01 per share. Excluding net
realized gains, second quarter 1998 and 1997 income was $0.24 and $0.06 per 
share, respectively.

     Six months earned premiums written for 1998 were $44.8 million compared
with $41.9 million for the first six months of 1997. Earned premiums written 
for the second quarter increased from $21.5 million in 1997 to $22.6 million
for the like period in 1998.

     Net investment income for the first six months of 1998 was $4.6 million
compared to $4.1 million for the same period of 1997, an increase of 11.2%. Net
investment income for the second quarter was $2.3 million compared with $2.0
million for 1997, a 15.9% increase.

     Shareholders' investment increased significantly from $124.7 million at
June 30, 1997 to $145.3 million at June 30, 1998, a 16.5% increase. Unrealized
appreciation on investments, after realized investment gains, was $44.5 million
at June 30, 1998, and after tax was $29.4 million. Total invested assets grew
from $208.4 million at June 30, 1997 to $243.3 million at June 30, 1998, an in-
crease of 16.7%. Cash dividends paid in the first six months of 1998 totaled 
$1.6 million or $0.14 per share.

     The Company's combined net loss, loss expense and general expense ratio for
the first six months of 1998 was 95.2% compared with 96.7% for the like period 
in 1997. The Company's experience continues to be favorable compared to the in-
dustry average of 101.7% for the first quarter of 1998 and 103.3% for the year
of 1997.

     Fait reported that "The Company has turned in a solid six month performance
and the outlook for the raminder of the year is positive and on track with fi-
nancial goals. By continuing to take advantage of the resources generated by 
our strong surplus position, we are situated to meet the challenge of maintain-
ing a realistically steady pattern of growth, expansion and profitablility."

     Capitol Transamerica Corporation is an insurance holding company operating
a national insurance business writing specialty lines of commercial property
and casualty policies as well as fidelity and surety coverages through its
subsidiary insurance companies Capitol Indemnity Corporation and Capitol 
Specialty Insurance Corporation.  A third subsidiary, Capitol Facilities
Corporation, provides premium financing for the insurance companies.

The Capitol Transamerica Group operates in 37 states and is rated A+ by A.M.
best Company, Inc., an independent organization that analyzes the insurance
industry.

Capitol Transamerica Corporation, with 11.2 million shares outstanding, is 
traded on the National Over-the-Counter Stock Market under the symbol CATA.


                         FINANCIAL HIGHLIGHTS FOLLOW

                                           
                                      19



                                   CAPITOL TRANSAMERICA CORPORATION
                                        SELECTED FINANCIAL DATA
                                    (in thousands, except per share)
<TABLE>
                                 CONSOLIDATED STATEMENTS OF OPERATIONS
<CAPTION>
                                          
                                                  Six months ended            Three months ended
                                                       June 30,                     June 30,
                                                    1998        1997            1998        1997
                                                             (Restated)                  (Restated)
    <S>                                          <C>         <C>             <C>         <C>
    REVENUES
       Gross premiums written                    $  44,464   $  47,449       $  24,789   $  27,162
       Net premiums written                         43,722      46,408          23,349      26,561
       Net premiums earned                       $  44,814   $  41,886       $  22,566   $  21,526

    EXPENSES
       Claims and claim expenses                    26,944      27,678          13,881      14,840
       Other underwriting expenses                  15,348      15,674           7,624       8,126
          Total Losses and Expenses Incurred        42,292      43,352          21,505      22,966

       Underwriting income                           2,522      (1,466)          1,061      (1,440)

       Investment income                             4,583       4,120           2,287       1,973
       Realized investment gains                     7,638         379           6,741          33
       Other income                                     49          36              22          29
          Income from Operations Before             
            Income Tax                              14,792       3,069          10,111         595

       Income tax expense                            4,233         405           3,013         (29)
            NET INCOME                           $  10,559   $   2,664       $   7,098   $     624

    EARNINGS PER SHARE - BASIC                   $    0.94   $    0.24       $    0.63   $    0.06

    EARNINGS PER SHARE - DILUTED                 $    0.94   $   0.24        $    0.63   $    0.06


<CAPTION>
                    COMPARATIVE FINANCIAL HIGHLIGHTS- Six Months Ended June 30,

                                   1998            1997            1996           1995            1994
Per Share Information                            (Restated)
    <S>                        <C>             <C>             <C>            <C>             <C>      
    Income per share - diluted $       0.94    $       0.24    $       0.67   $       0.63    $       0.47
    Consolidated net income    $     10,559    $      2,664    $      7,432   $      6,906    $      5,192
    Weighted average number
      of shares outstanding          
      - diluted                      11,243          11,111          11,066         11,034          10,980
    Book value per share       $      12.95    $      11.18    $       8.89   $       7.38    $       6.01
    Shareholders' investment   $    145,307    $    124,692    $     98,457   $     81,595    $     66,250
    Dividends paid             $      1,581    $      2,699    $      2,222   $      1,205    $      1,869
    Shares outstanding               11,217          11,155          11,076         11,055          11,015
Company Statistics:
    Gross premiums written     $     46,464    $     47,449    $     43,653   $     33,930    $     29,446
    Net investment income      $      4,583    $      4,120    $      3,497   $      3,112    $      2,536
    Invested assets            $    243,268    $    208,402    $    157,949   $    123,889    $     94,417
    Total assets               $    288,942    $    252,218    $    194,135   $    151,564    $    118,197
Insurance Operating Ratios,
Statutory Basis:
    Loss and loss adjustment
                    expenses:         60.4%           61.9%           50.8%          51.1%           47.7%
    Underwriting expenses             34.8%           34.8%           32.2%          32.5%           32.3%
    Combined ratios                   95.2%           96.7%           83.0%          83.6%           80.0%

                                                    20 
  
                          CAPITOL TRANSAMERICA CORPORATION
                               SELECTED FINANCIAL DATA


                                    BALANCE SHEETS
                            (in thousands, except per share)
<CAPTION>
                                                      June 30,     December 31      June 30,
                                                        1998           1997           1997
ASSETS                                                              (Restated)
   <S>                                               <C>            <C>            <C>   
   Investments
    Available-for-sale investments at fair value
     U.S. Government bonds (cost $54, $67, 
      and $573, respectively)                        $     59       $     72       $    577
     State and municipal bonds (cost $66,334,
      $68,651, and $67,302, respectively)              70,603         73,239         71,891
     Corporate bonds (cost $818, $716, 
      and $1,127, respectively)                           867            760          1,213
     Common stock (cost $110,607, $101,409, 
      and $80,917, respectively)                      148,728        145,208        119,749
     Preferred stock (cost $6,270, $5,854, 
      and $5,866, respectively)                         8,367          6,929          6,780
      Investment real estate                            8,695          8,123          7,192
    Short-term investments                              5,949         11,313          1,000
     Total Investments                                243,268        245,644        208,402

   Cash                                                   590          1,203            545
   Due from securities brokers                          5,212           -              -
   Receivables                                         23,602         23,335         27,626
   Other assets                                        16,270         16,500         15,645

     TOTAL ASSETS                                    $288,942       $286,682       $252,218


LIABILITIES
   Reserves for losses and loss adjustment expenses  $ 74,365       $ 71,472       $ 56,386
   Unearned premiums                                   46,264         47,412         47,695
   Other liabilities                                   23,005         28,456         23,445

     TOTAL LIABILITIES                               $143,634       $147,340       $127,526


SHAREHOLDERS' EQUITY
   Common stock, $1.00 par value, authorized
      15,000 shares, issued 11,523, 11,503,
      and 11,472 shares, respectively                $ 11,523       $ 11,503       $ 11,472
   Paid-in surplus                                     21,930         21,832         21,503
   Unrealized appreciation on securities carried
      at fair value, net of deferred taxes of            
      $15,144, $16,833, and $15,104, respectively      29,397         32,676         29,320
   Retained earnings                                   82,928         73,732         62,750
   Less treasury stock, 305, 324 and 316 shares,
      respectively, at cost                              (470)          (401)          (353)

     TOTAL SHAREHOLDERS' EQUITY                       145,308        139,342        124,692

     TOTAL LIABILITIES AND
      SHAREHOLDERS' EQUITY                           $288,942       $286,682       $252,218


SHAREHOLDERS' EQUITY PER SHARE                       $  12.95       $  12.46       $  11.18

SHARES OUTSTANDING                                     11,217         11,179         11,155
Increase in Sharholders' Equity-
     June 30, 1997 to June 30, 1998                     16.5%
     June 30, 1996 to June 30, 1997                                    26.6%
                                                      21
                        


</TABLE>