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**SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549
                                     

                                    FORM 10-K

                ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
                       THE SECURITIES EXCHANGE ACT OF 1934
                            For the fiscal year ended
                                December 31, 2000

                           Commission File No. 0-15886

                         THE NAVIGATORS GROUP, INC.**
             (Exact name of registrant as specified in its charter)

**Delaware                                                  13-3138397**
State or other jurisdiction of              (I.R.S. employer identification no.)
incorporation or organization)

**One Penn Plaza, New York, New York                                  10119**
(Address of principal executive offices)                             (Zip code)

Registrant's telephone number, including area code:**(212) 244-2333**

Securities registered pursuant to Section 12(b) of the Act:**None**

Securities registered pursuant to Section 12(g) of the Act:**Common Stock, $.10
                                                  Par Value** (Title of Class)

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 by check mark if disclosure of delinquent  filers  pursuant to Item 405
of Regulation  S-K is not contained  herein,  and will not be contained,  to the
best of registrant's  knowledge,  in definitive proxy or information  statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K 

The aggregate  market value of voting stock held by  non-affiliates  as of March
20, 2001 was  $57,305,000.  The number of common shares  outstanding as of March
20, 2001 was 8,419,762.

                  **DOCUMENTS INCORPORATED BY REFERENCE**

Portions of the registrant's  2001 Proxy Statement are incorporated by reference
in Part III, Items 10, 11, 12 and 13 of this Form 10-K.

                                        1
**Forward-looking statements**

Some of the  statements  in this Annual  Report on Form 10-K are not  historical
facts and are "forward-looking statements" (as defined in the Private Securities
Litigation  Act of  1995).  These  statements  use  words  such  as  "believes,"
"expects,"  "intends," "may," "will,"  "should,"  "anticipates" (or the negative
forms of those words) and describe our strategies, goals, expectations of future
results  and  other  forward-looking   information.  We  derive  forward-looking
information  from information  which we currently have and numerous  assumptions
which we make.  We  cannot  assure  that  results  which we  anticipate  will be
achieved,  since results may differ materially because of both known and unknown
risks and uncertainties  which we face. Factors which could cause actual results
to differ materially from our forward looking  statements  include,  but are not
limited to:
-  the effects of domestic  and foreign  economic  conditions  and  conditions which affect the market for property and casualty insurance;  laws, rules and regulations which apply to insurance companies; the effects of competition from banks,  other insurers and the trend toward self-insurance;
-  risks which we face in entering new markets and  diversifying  the products and services we offer;  weather-related events and other catastrophes affecting our insureds; our ability to obtain rate increases and to retain business; and
-  other risks which we identify in future  filings  with the  Securities  and Exchange Commission,  although we do not promise to update  forward-looking statements to reflect  actual  results or changes in  assumptions  or other factors that could affect these statements. **Part I**  Item 1. BUSINESSGeneral      The  accompanying  consolidated  financial  statements  consisting  of  theaccounts of The Navigators  Group,  Inc., a Delaware  holding  company,  and itstwelve active wholly owned  subsidiaries are prepared on the basis of accountingprinciples generally accepted in the United States ("GAAP").  Unless the contextotherwise  requires,  the term  "Company"  as used herein  means The  NavigatorsGroup,  Inc. and its  subsidiaries.  The term Parent Company is used to mean theCompany without its subsidiaries.  All significant intercompany transactions andbalances have been eliminated.     The Company's two insurance company  subsidiaries are Navigators  InsuranceCompany  ("Navigators  Insurance"),  which includes a United Kingdom Branch ("UKBranch"),  and  NIC  Insurance  Company  ("NIC").  Navigators  Insurance  is theCompany's  largest  insurance  subsidiary  and has been active  since  1983.  Itspecializes  principally in underwriting  marine  insurance and related lines ofbusiness  and a  contractors'  general  liability  program.  NIC, a wholly ownedsubsidiary of Navigators  Insurance,  began operations in 1990. It underwrites asmall book of surplus  lines  insurance in certain  states and cedes 100% of itsgross writings from this business to Navigators Insurance.  Navigators Insuranceand NIC are collectively referred to herein as the "Insurance Companies".     In order to establish a common  identity  under the  Navigators  name,  theCompany  changed the name of several of its  subsidiaries in March 2001. The newnames will be used throughout this document.  Five of the Company's subsidiariesare marine underwriting  management  companies:  Navigators  Management Company,Inc. (formerly Somerset Marine,  Inc.),  Navigators Insurance Services of Texas,Inc.  (formerly  Somerset  Insurance  Services  of  Texas,   Inc.),   NavigatorsCalifornia  Insurance  Services,  Inc.  (formerly Somerset Insurance Services ofCalifornia,  Inc.), Navigators Insurance Services of Washington,  Inc. (formerlySomerset Insurance Services of Washington,  Inc.) and Navigators Management (UK)Limited (formerly Somerset Marine (UK) Limited)  (collectively,  the "NavigatorsAgencies"). The Navigators Agencies described above (formerly referred to as theSomerset Companies) produce, manage and underwrite insurance and reinsurance forNavigators Insurance, NIC and four unaffiliated insurance companies.                                       2      The Navigators  Agencies  specialize in writing marine and related lines ofbusiness.  The marine business is written through a pool of insurance companies,Navigators  Insurance  having  the  largest   participation  in  the  pool.  TheNavigators Agencies derive their revenue from commissions, service fees and costreimbursement arrangements from their Parent Company,  Navigators Insurance, NICand the unaffiliated insurers. Commissions are earned both on a fixed percentageof  premiums  and  on  underwriting   profits  from  business  placed  with  theparticipating  insurance companies within the pool. Other than a small amount ofwar and satellite  business,  the Company withdrew from the aviation business inOctober  1998 due to  inadequate  pricing.  In 1999,  the Company  produced  itsonshore energy,  engineering  and  construction  business  through the Company'sfacilities at Lloyd's of London  ("Lloyd's").  Prior to 1999,  this business wasproduced by the Navigators Agencies.     In April 1999,  the  Company  acquired  Anfield  Insurance  Services,  Inc.("Anfield"),  an insurance  agency located in San Francisco,  California,  whichspecializes  in  underwriting  general  liability  insurance  coverage for smallartisan and general  contractors on the West Coast.  Anfield  produces  businessexclusively  for the Insurance  Companies  and is included  with the  NavigatorsAgencies unless otherwise noted. In 2001, Anfield will become part of NavigatorsCalifornia Insurance Services, Inc.     Navigators  Holdings (UK) Limited is a holding company for the Company's UKsubsidiaries.  Navigators  Management (UK) Limited produces  business for the UKBranch  of  Navigators  Insurance  and four  unaffiliated  insurance  companies.Navigators Corporate Underwriters Limited ("NCUL") is admitted to do business atLloyd's of London ("Lloyd's") as a corporate member with limited  liability.  InJanuary 1998, the Company acquired  Mander,  Thomas &  Cooper  (UnderwritingAgencies) Limited ("MTC"), a Lloyd's marine  underwriting  managing agency whichmanages  Lloyd's  Syndicate  1221, and its wholly owned  subsidiary,  MillenniumUnderwriting  Limited  ("Millennium"),  a Lloyd's  corporate member with limitedliability.  Both NCUL and Millennium provide capacity to Lloyd's Syndicate 1221.In August  1999,  MTC  formed  Pennine  Underwriting  Limited,  an  underwritingmanaging  agency  located  in  Northern  England,  which  underwrites  cargo andengineering  business for Lloyd's  Syndicate 1221. In March 2001, MTC's Board ofDirectors  approved that MTC's name would be changed to Navigators  UnderwritingAgency Limited. The name change is expected to occur in 2001.     Property and casualty insurance premiums historically have been cyclical innature and, accordingly, during a "hard market" demand for property and casualtyinsurance exceeds supply, or capacity, and as a result, premiums and commissionsmay increase. On the downturn of the property and casualty cycle, supply exceedsdemand, and as a result, premiums and commissions may decrease.     The Company's revenue is primarily  comprised of premiums,  commissions andinvestment  income.  The Insurance  Companies derive their premium from businesswritten by the  Navigators  Agencies.  The  Insurance  Companies  are managed byNavigators  Management Company, Inc. The Lloyd's Operations derive their premiumfrom business written by MTC.                                       3**Lines of Business**     The Company  primarily  writes  marine,  onshore  energy,  engineering  andconstruction  insurance,  and  a  contractors'  general  liability  program.  Asunderwritten by the Company,  marine insurance includes hull, energy,  liabilityand cargo;  onshore energy  primarily covers property damage with an emphasis onthe oil and petrochemical  sectors;  and engineering and construction  primarilycovers construction projects including machinery,  equipment and loss of use dueto delays.  As discussed  above,  the Company has generally  withdrawn  from theaviation  market.  In 1999, the production of onshore  energy,  engineering  andconstruction business was transferred from Navigators Insurance to the Company'sfacilities at Lloyd's.  See the table set forth in "Management's  Discussion andAnalysis - Results of  Operations - Revenues"  for the  Company's  gross writtenpremium by segment and line of  business,  and ceded and net written  premium bysegment for the periods indicated.**Marine Insurance**     Navigators  Insurance obtains marine business through  participation in themarine pool managed by the Navigators Agencies.  The composition of the pool andthe level of participation of each member changes from time to time.  NavigatorsInsurance's net  participation  in the marine pool increased from 60% in 1998 to75% in 1999 and 2000.     In 1998, 1999 and 2000, the Navigators Agencies received  commissions equalto 7.5% of the gross  premium  earned on marine  insurance  and are  entitled toreceive a 20% profit commission on the net underwriting profits of the pool.     The Lloyd's marine premium is generated as the result of capacity  providedto Syndicate 1221 by NCUL and  Millennium.  The Company's share of the premiums,losses and  expenses  from the Lloyd's  marine  syndicates  are  included in theCompany's results but are not included in the Insurance Companies' results sinceNCUL and Millennium are not part of the Insurance Companies' operations.**Aviation Insurance**     The Company's  aviation  business had been written by Navigators  Insuranceuntil October 1998 when Navigators Insurance decided to no longer write aviationbusiness  due to  inadequate  pricing,  other  than a  small  amount  of war andsatellite business.**Onshore Energy**     In 1996,  Navigators Insurance began to underwrite onshore energy insurancewhich  principally  focuses  on the  oil and  gas,  chemical  and  petrochemicalindustries with coverages  primarily for property damage.  In 1999 and 2000, theonshore energy business was written through the Company's facilities at Lloyd's.**Engineering and Construction**     In 1997,  Navigators  Insurance began writing  engineering and constructionbusiness  consisting  of  coverage  for  construction   projects  including  themachinery,  equipment  and  loss of use due to  delays.  In 1999 and  2000,  theengineering  and  construction   business  was  written  through  the  Company'sfacilities at Lloyd's.                                       4**Program Insurance**     The program insurance,  currently written by Anfield, consists primarily ofgeneral  liability  insurance for  contractors  and a small amount of commercialmulti-peril insurance for restaurants and taverns.**Reinsurance Ceded**     The Company  utilizes  reinsurance  principally  to reduce its  exposure onindividual  risks, to protect against  catastrophic  losses, to maintain desiredratios of net premium written to statutory surplus and to stabilize loss ratios.     The ceding of reinsurance  does not discharge the original insurer from itsprimary liability to the policyholder. The ceding company is required to pay thelosses even if the  assuming  company  fails to meet its  obligations  under thereinsurance agreement.     Reinsurance is generally  written under treaty  contracts in which coverageis either on a proportional basis, where the reinsurer shares proportionately inpremiums  and losses,  or on an excess of loss basis,  where only losses above afixed amount are reinsured.     The Company is  protected  by various  treaty and  facultative  reinsuranceagreements.  The  reinsurance  is  diversified  by  reinsuring  with a number ofdifferent reinsurers,  principally in the United States and European reinsurancemarkets. This coverage is placed on behalf of the Company's insurance operationsby a number of different reinsurance  intermediaries,  each of which is utilizedbecause of its  expertise  in placing a particular  type of  coverage.  All suchintermediaries are compensated by the reinsurers.     The  Company's   Reinsurance  Security  Committee  monitors  the  financialstrength of its reinsurers and the amounts of reinsurance receivables from thosereinsurers.  To the  extent  that it is  determined  that  the  ultimate  amountcollectible  is less than the  amount  recorded  as a  receivable,  a reserve isestablished.  At December 31, 2000 and 1999,  the Company had an  allowance  foruncollectible  reinsurance  of  $2,500,000  and  $1,250,000,   respectively.  Inaddition, in 1999 the Company recorded a charge against earnings of $6.6 millionfor unrecoverable reinsurance from New Cap Reinsurance Corporation Limited whichparticipated in the Company's 1997 and 1998 reinsurance programs.**Reserves**     Insurance  companies  and  Lloyd's  syndicates  are  required  to  maintainreserves for unpaid losses and unpaid loss adjustment  expenses  ("LAE") for alllines of business.  These  reserves are intended to cover the probable  ultimatecost of settling all losses  incurred and unpaid,  including  those incurred butnot  reported.  The  determination  of reserves for losses and LAE for insurancecompanies  such as Navigators  Insurance and Lloyd's  corporate  members such asNCUL and Millennium is dependent upon the receipt of information  from the poolsand syndicates in which such companies  participate.  Generally,  there is a lagbetween the time  premiums are written and related  losses and LAE are incurred,and the  time  such  events  are  reported  to the  pools  and  syndicates  and,subsequently, to Navigators Insurance, NCUL and Millennium.                                       5     The  Insurance  Companies  and Lloyd's  syndicates  establish  reserves forreported  claims  when they  first  receive  notice of the claim.  Reserves  areestablished on a case-by-case basis by evaluating several factors, including thetype of risk involved,  knowledge of the  circumstances  surrounding such claim,severity of injury or damage,  the potential for ultimate  exposure,  experiencewith  the  insured  and the  broker  on the  line of  business,  and the  policyprovisions relating to the type of claim. Reserves for incurred but not reportedlosses are  determined in part on the basis of  statistical  information  and inpart on industry experience.     Loss reserves are estimates of what the insurer or reinsurer expects to payon claims,  based on facts and circumstances then known, and it is possible thatthe ultimate liability may exceed or be less than such estimates. Such estimatesare based,  among other things, on predictions of future events and estimates offuture  trends in claim  severity  and  frequency.  During  the loss  settlementperiod, which, in some cases, may last several years, additional facts regardingindividual claims may become known and, accordingly,  it often becomes necessaryto refine and adjust the  estimates  of liability on a claim upward or downward.Such estimates are regularly reviewed and updated and any resulting  adjustmentsare included in income currently.  Even then, the ultimate  liability may exceedor be less than the  revised  estimates.  The  reserving  process is intended toprovide  implicit  recognition  of the  impact of  inflation  and other  factorsaffecting  loss payments by taking into account  changes in  historical  paymentpatterns and perceived probable trends. There is generally no precise method forthe  subsequent  evaluation  of the  adequacy  of  the  consideration  given  toinflation,  or to any other specific factor,  because the eventual deficiency orredundancy  of  reserves  is  affected  by  many  factors,  some  of  which  areinterdependent. The Company does not discount any of its reserves.     The Company records those premiums which are reported to it through the endof each  calendar  year and accrues  estimates for amounts where there is a timelag  between  when  the  policy  is  bound  and the  receipt  of the  policy.  Asubstantial portion of the premiums are from international  business where therecan be significant  time lags. To the extent that the actual  premiums vary fromestimates, the difference is recorded in current operations.                                       6         The following table presents an analysis of losses and LAE:                                                                       Year Ended December 31,       200019991998*(In thousands)*Net reserves for losses and LAE at      beginning of year..................................      $170,530        $150,517        $139,841Provision for losses and LAE for     claims occurring in the current year................        60,152          45,001          46,050Lloyd's portfolio transfer - reinsurance to close........         7,854          15,533          19,655Increase (decrease) in estimated losses and     LAE for claims occurring in prior years.............        (4,994)          9,380(3,383)Incurred losses and LAE .................................        63,01269,91462,322Losses and LAE payments for claims     occurring during:         Current year....................................       (15,358)        (10,925)         (9,848)         Prior years.....................................       (43,301)        (38,976)        (41,798)Losses and LAE payments..................................       (58,659)        (49,901)        (51,646)Net reserves for losses and LAE at end of year...........       174,883170,530150,517Reinsurance receivables on unpaid losses and LAE.........       182,791220,564191,927Gross reserves for losses and LAE at end of year.........     $ 357,674       $ 391,094       $ 342,444                                                                =======         =======         =======     The following  table presents the development of the Company's loss and LAEreserves  for 1990  through  2000.  The line "Net  reserves  for losses and LAE"reflects  the net reserves at the balance  sheet date for each of the  indicatedyears and represents the estimated amount of losses and LAE arising in all prioryears that are unpaid at the balance  sheet date.  The  "Reserves  re-estimated"lines of the table reflect the  re-estimated  amount of the previously  recordedreserves based on experience as of the end of each succeeding year. The estimatechanges as more  information  becomes  known about the frequency and severity ofclaims for individual years. The "Cumulative  redundancy  (deficiency)" lines ofthe table reflect the cumulative  amounts  developed as of successive years withrespect to the aforementioned  reserve liability.  The cumulative  redundancy ordeficiency  represents  the  aggregate  change in the  estimates  over all prioryears.     The table  allocates  losses and LAE reported  and  recorded in  subsequentyears to all prior years  starting with the year in which the loss was incurred.For  example,  assume that a loss  occurred in 1994 and was not  reported  until1996, the amount of such loss will appear as a deficiency in both 1994 and 1995.Conditions  and trends that have  affected  development  of the liability in thepast  may  not  necessarily  occur  in the  future.  Accordingly,  it may not beappropriate to extrapolate  future  redundancies  or  deficiencies  based on thetable.                                       7                                        Year Ended December 31,                                           19901991199219931994199519961997199819992000*(In thousands)*Net reserves for losses   and LAE.................        $70,457  $77,507    $89,361  $103,176   $135,377  $138,761  $132,558 $139,841  $150,517 $170,530 $174,883Reserves for losses andLAE re-estimated as of:   One year later..........         71,643   80,478     94,785   104,306    142,400   136,309   131,524  136,458   159,897  165,536   Two years later.........         73,849   80,937     98,062   102,831    139,139   134,324   127,901  138,991   149,741   Three years later.......         73,441   81,322     98,338   101,537    138,155   131,658   126,457  129,592   Four years later........         73,349   80,652     97,257   100,432    135,482   131,018   117,388   Five years later........         72,706   79,469     96,889    98,805    134,197   122,845   Six years later.........         71,730   79,239     96,358    97,740    129,213   Seven years later.......         71,620   78,742     94,457    93,812   Eight years later.......         71,003   77,167     93,578   Nine years later........         70,622   77,549   Ten years later.........         71,336Net cumulative redundancy   (deficiency)............           (879)      42     (4,217)    9,364      6,164    15,916    15,170   10,249       776    4,994Net cumulative paid as of:   One year later..........         22,784   25,741     37,998    32,700     47,187    39,741    32,416   41,798    38,976   43,301   Two years later.........         36,532   43,688     54,552    53,603     69,960    59,397    59,796   64,301    63,400   Three years later.......         47,060   51,753     65,997    62,769     83,921    78,821    71,420   74,588   Four years later........         51,769   59,308     72,063    69,356     97,499    87,876    77,593   Five years later........         57,421   63,138     75,864    75,534    104,454    92,189   Six years later.........         60,291   65,441     80,193    80,308    107,469   Seven years later.......         61,837   68,192     84,132    81,584   Eight years later.......         63,753   70,868     85,010   Nine years later........         66,067   71,683   Ten years later.........         66,761Gross liability-end of year........................    224,191   247,346    314,898   273,854   269,601  278,432   342,444  391,094  357,674Reinsurance recoverable............................    134,830   144,170    179,521   135,093   137,043  138,591   191,927  220,564  182,791                                                       -------   -------    -------   -------   -------  -------   -------  -------  -------Net liability-end of year..........................     89,361   103,176    135,377   138,761   132,558  139,841   150,517  170,530  174,883Gross re-estimated latest..........................    290,608   272,071    356,589   302,199   294,593  312,859   376,796  394,259Re-estimated recoverable latest....................    197,030   178,259    227,376   179,354   177,205  183,267   227,055  228,723                                                       -------   -------    -------   -------   -------  -------   -------  -------Net re-estimated latest............................     93,578    93,812    129,213   122,845   117,388  129,592   149,741  165,536Gross cumulative (deficiency)......................    (66,417)  (24,725)   (41,691)  (28,345)  (24,992) (34,427)  (34,352)  (3,165)                                       8     The net cumulative deficiency for the year ended December 31, 1992 resultedfrom adverse  development in certain lines of business.  The 1992 and 1993 grosscumulative  deficiencies resulted primarily from the 1989 Exxon Valdez loss. Thegross cumulative deficiencies for 1994 and 1995 resulted primarily from the 1994Northridge  Earthquake  loss,  the 1989  Exxon  Valdez  loss and a large  marineliability  claim  reported in 1999  affecting  years 1994 through 1998. The 1996gross cumulative  deficiency  resulted from adverse development in several linesof  business.  The  1997  gross  cumulative  deficiency  resulted  from  adversedevelopment in the onshore energy  business and from one large 1989 claim from arunoff book of business which also  adversely  affected years prior to 1997. Thedeficiency in 1998 resulted from the two marine  liability claims  mentioned,  alarge  energy  claim   incurred  in  1998  and  reported  in  1999  and  reservestrengthening in the Company's Lloyd's  Operations.  The adverse  development onthe Company's  gross reserves has been mostly  reinsured  through excess of lossreinsurance treaties.     Management  believes  that the  reserves for losses and LAE are adequate tocover the ultimate cost of losses and LAE on reported and unreported claims.**Environmental Pollution and Asbestos Related Claims**     In  2000,  1999  and  1998,  the  Company  paid  gross  losses  and  LAE of$1,158,000, $665,000 and $2,091,000,  respectively, resulting in net paid lossesand LAE of $173,000,  $378,000 and  $369,000,  respectively,  for  environmentalpollution and asbestos  related  claims.  As of December 31, 2000 and 1999,  theCompany carried gross reserves of $3,364,000 and $3,712,000,  respectively,  andnet  reserves  of  $994,000  and  $1,088,000,  respectively,  for the  potentialexposure to such claims.  Management  believes that its reserves for such claimsare adequate  because the Company's  participation in such risks is generally inthe higher excess layers and,  based on a continuing  review of such claims,  itbelieves that a majority of these claims will be unlikely to penetrate such highexcess layers of coverage;  however, due to significant  assumptions inherent inestimating  these  exposures,  actual  liabilities  could  differ  from  currentestimates.  At December 31, 2000, there were 412 open claims with  environmentalpollution or asbestos exposures. Management will continue to review its exposureto and reserves for such claims.  Any potential  exposure to these claims existspredominantly in connection with the marine business.**Investments**     The  investments of the Insurance  Companies must comply with the insurancelaws of New York State, the domiciliary  state of Navigators  Insurance and NIC.These laws prescribe the kind,  quality and  concentration of investments  whichmay be made by insurance companies.  In general,  these laws permit investments,within specified limits and subject to certain qualifications, in federal, stateand municipal  obligations,  corporate bonds,  preferred stocks,  common stocks,real estate  mortgages  and real estate.  The  Insurance  Companies'  investmentguidelines  prohibit  investments in derivatives other than as a hedge against aforeign currency.     The  Insurance  Companies'  investments  are subject to the  direction  andcontrol of its Board of  Directors  and are reviewed on a quarterly  basis.  Theinvestments  are  managed  by  outside  professional  fixed  income  and  equityportfolio managers.  Current investment  objectives are to maximize annual aftertax income in the context of  preserving  and  enhancing  capital and  statutorysurplus. The Insurance Companies seek to obtain these objectives by investing inmunicipal bonds, U.S. Government obligations, corporate bonds, and preferred andcommon stocks.  Due to the Company being in an  alternative  minimum tax ("AMT")position,   the  portfolio  managers  have  been  reducing  the  municipal  bondportfolio.  The Insurance Companies' investment guidelines require that at least90% of the fixed  income  portfolio  be rated  "A-" or  better  by a  nationallyrecognized rating organization. Up to 25% of the total portfolio may be investedin equity securities that are actively traded on major U.S. stock exchanges.  AtDecember 31, 2000 and 1999, all fixed maturity and equity securities held by theCompany were classified as available-for-sale.                                       9     The majority of the investment income of the Navigators Agencies is derivedfrom fiduciary funds invested in accordance with the guidelines of various stateinsurance  departments.   These  guidelines  typically  require  investments  inshort-term  instruments.  This  investment  income is paid to the pool  members,including Navigators Insurance.     The table set forth below  reflects  investments  and income earned thereonfor the Company on a consolidated basis and for the Insurance Companies for eachof the three years ended December 31, 2000:                                                               Year Ended December 31,              200019991998*(Dollars in thousands)*The Company Consolidated (1)Average investments..................................    $281,770       $273,738       $259,121Net investment income................................      18,447         15,985         15,209Average yield........................................        6.55%         5.84%          5.87%Insurance CompaniesAverage investments..................................    $241,208       $247,396       $251,422Net investment income................................      15,536         14,573         14,659Average yield........................................        6.44%         5.89%          5.83%(1)  The Company's average investments  include NCUL's and Millennium's  portion     of the investments held by Lloyd's Syndicate 1221 which is presented in the     Company's balance sheet as Funds due from Lloyd's syndicates.     The  following  table shows the cash and  investments  of the Company as ofDecember 31, 2000:                                                  Carrying Value               Percent                                                 *(In thousands)*of TotalCash and short-term investments..................  $   19,788                     7.9%U.S. Treasury Bonds and GNMAs....................      48,474                    19.3Municipal bonds..................................      60,483                    24.1Mortgage backed securities (excluding GNMAs).....      15,292                     6.1Asset backed securities..........................      44,173                    17.6Corporate bonds..................................      56,706                    22.5Common stocks    ................................       6,269  2.5         Total  .................................  $  251,185                   100.0%                                                    =========                   =====                                       10**Regulation**     The Parent Company,  the Insurance Companies and the Lloyd's Operations aresubject to regulation  under the insurance  statutes  including  holding companystatutes of various states,  the UK regulatory  authorities  and Lloyd's.  Theseregulations vary but generally require insurance holding companies, and insurersthat are  subsidiaries  of  holding  companies,  to  register  and file  reportsconcerning their capital structure,  ownership,  financial condition and generalbusiness  operations.  Such regulations also generally  require prior regulatoryagency approval of changes in control of an insurer and of  transactions  withinthe  holding  company   structure.   The  regulatory   agencies  have  statutoryauthorization   to  enforce   their  laws  and   regulations   through   variousadministrative orders and enforcement proceedings.     The  State of New  York  Insurance  Department  (the  "Department")  is theCompany's principal  regulatory agency. The New York Insurance Law provides thatno  corporation  or other person may acquire  control of the  Company,  and thusindirect control of the Insurance  Companies,  unless it has given notice to theInsurance Companies, and obtained prior written approval from the Superintendentof Insurance  of the State of New York for such  acquisition.  In New York,  anypurchaser of 10% or more of the outstanding shares of the Company's common stockwould  be  presumed  to  have  acquired  control  of the  Company,  unless  suchpresumption  is rebutted.  The UK authorities  and Lloyd's also have  regulatoryrequirements concerning change in control.     Navigators  Insurance and NIC may only pay dividends out of their statutoryearned surplus under New York insurance  law.  Generally,  the maximum amount ofdividends  Navigators  Insurance and NIC may pay without regulatory  approval inany twelve-month  period is the lesser of adjusted net investment  income or 10%of statutory surplus.     Under  insolvency  or  guaranty  laws in most  states  in which  NavigatorsInsurance  and NIC  operate,  insurers  doing  business  in those  states can beassessed up to prescribed limits for policyholder  losses of insolvent insurancecompanies.     Navigators Insurance is licensed to engage in the insurance and reinsurancebusiness in 49 states, the District of Columbia and Puerto Rico. NIC is licensedto engage in the insurance and reinsurance business in the State of New York andis an approved surplus lines insurer or meets the financial  requirements  wherethere  is not a  formal  approval  process  in 31  states  and the  District  ofColumbia.     As  part  of its  general  regulatory  oversight  process,  the  Departmentconducts  detailed  examinations of the books,  records and accounts of New Yorkinsurance companies every three to five years. Navigators Insurance and NIC wereexamined by the  Department  for the years 1991 through 1995. The Department didnot  recommend any  adjustments  to the Insurance  Companies'  previously  filedstatutory financial statements. The Insurance Companies have been advised by theDepartment that they are scheduled for an audit to begin in mid 2001.     The Insurance  Regulatory  Information System ("IRIS") was developed by theNational  Association  of  Insurance  Commissioners  ("NAIC")  and  is  intendedprimarily to assist state  insurance  departments in executing  their  statutorymandates to oversee the financial  condition of insurance companies operating intheir respective  states.  IRIS identifies  twelve industry ratios and specifies"usual  values" for each ratio.  Departure from the usual values on four or moreof  the  ratios  can  lead  to  inquiries  from   individual   state   insurancecommissioners as to certain aspects of an insurer's business. As of December 31,2000 and 1999, the Insurance Companies' results were within the usual values forall IRIS ratios except for the 1999 `change in net  writings'  ratio for NIC dueto the reinsurance arrangement between NIC and Navigators Insurance.                                       11     The NAIC recently completed a project which codifies  statutory  accountingpractices  for  insurance  enterprises.  As a result of this  process,  the NAICissued a revised statutory  Accounting Practices and Procedures Manual that willbe  effective  January 1, 2001 for the  calendar  year 2001.  The  Company  willprepare its statutory basis financial  statements in accordance with the revisedstatutory  manual subject to any  deviations  prescribed or permitted by the NewYork Insurance Commissioner. The Company has determined that these changes wouldnot have resulted in a negative  impact to the statutory  capital and surplus ofthe Insurance Companies had the changes been implemented for 2000.     From time to time  various  regulatory  and  legislative  changes have beenproposed in the insurance and  reinsurance  industry.  Among the proposals  thathave in the  past  been or are at  present  being  considered  are the  possibleintroduction  of federal  regulation  in addition to, or in lieu of, the currentsystem  of  state   regulation  of  insurers  and  proposals  in  various  statelegislatures  (some of which proposals have been enacted) to conform portions oftheir  insurance laws and regulations to various model acts adopted by the NAIC.The Company is unable to predict whether any of these laws and regulations  willbe adopted, the form in which any such laws and regulations would be adopted, orthe  effect,  if  any,  these  developments  would  have on the  operations  andfinancial condition of the Company.     State  insurance  departments  have adopted a methodology  developed by theNAIC for  assessing  the adequacy of statutory  surplus of property and casualtyinsurers  which includes a risk-based  capital  formula that attempts to measurestatutory  capital  and surplus  needs based on the risks in a company's  mix ofproducts  and  investment  portfolio.  The  formula is  designed  to allow stateinsurance regulators to identify potential weakly capitalized  companies.  Underthe formula,  a company  determines its "risk-based  capital"  ("RBC") by takinginto account  certain  risks related to the insurer's  assets  (including  risksrelated to its  investment  portfolio and ceded  reinsurance)  and the insurer'sliabilities  (including  underwriting risks related to the nature and experienceof its  insurance  business).  The RBC rules  provide  for  different  levels ofregulatory  attention  depending  on the  ratio of a  company's  total  adjustedcapital to its "authorized  control level" of RBC. Based on calculations made byNavigators Insurance and NIC, their RBC level exceeds a level that would triggerregulatory  attention.  In their respective 2000 statutory financial statements,Navigators  Insurance  and NIC have  complied  with  the  NAIC's  RBC  reportingrequirements.     In addition to regulations  applicable to insurance agents  generally,  theNavigators  Agencies are subject to Managing  General Agents Acts in their stateof domicile and in certain other jurisdictions where they do business.     The  Company's  subsidiaries  domiciled in the UK are subject to regulationfrom the government regulatory authorities in the UK and from Lloyd's.**Competition**     The property and casualty  insurance  industry is highly  competitive.  Thedemand for low-cost,  high quality service has created  difficult  conditions inthe domestic property and casualty market,  including a leveling or reduction inpremium rates in certain lines of business in which the Company competes.                                       12     The Company faces competition from both domestic and foreign insurers, someof whom have longer  operating  histories and greater  financial,  marketing andmanagement resources. Competition in the types of insurance in which the Companyis engaged is based on many factors,  including the perceived  overall financialstrength of the Company,  pricing and other terms and conditions of products andservices offered, business experience,  marketing and distribution arrangements,agency and broker relationships,  levels of customer service (including speed ofclaims payments),  product  differentiation and quality,  operating efficienciesand underwriting.  Furthermore, insureds tend to favor large, financially stronginsurers,  and the  Company  faces the risk that it will  lose  market  share tohigher rated insurers.     No single  insured or reinsured  accounted for 10% or more of the Company'sgross written premium in 2000.     Another  competitive  factor in the industry  involves  banks and brokeragefirms  breaking  down the barriers  between  various  segments of the  financialservices  industry,  including  insurance.  These efforts pose new challenges toinsurance  companies  and  agents  from  industries  traditionally  outside  theinsurance business.**Employees**     As of December 31, 2000, the Company had 121 full-time employees.**Item 2. PROPERTIES**     The Company's  administrative offices are occupied pursuant to a lease froman unaffiliated company which expires June 30, 2010 in a building located at OnePenn Plaza,  New York,  New York.  Several of the  Company's  subsidiaries  havenoncancellable operating leases for their respective office locations.     In January 2000,  the Company  purchased a `flat' in London to  accommodatevisitors  to its  London  operations.  The  cost of the  flat  was(pound)507,375($820,000) for a 75 year lease.**Item 3. LEGAL PROCEEDINGS**     The Company is not a party to or the subject of, any material pending legalproceedings  which depart from the ordinary routine  litigation  incident to thekinds  of  business  conducted  by the  Company,  except  for an  assessment  onNavigators  Insurance by the Institute of London  Underwriters  ("ILU"). In late1998,  the  ILU  advised  its  then  forty-one  members,   including  NavigatorsInsurance, that they were each being assessed  approximately(pound)900,000 ($1.3million) to pay for anticipated  operating  deficits  arising from the long termlease  of the  ILU  building  located  in  London  (the  "ILU  Building").  Thisassessment was to be paid in cash or by providing a letter of credit.     Even assuming that Navigators  Insurance could be held  responsible for theassessment,  Navigators  Insurance  has  informed  the ILU that it  opposes  theassessment as inequitable and inappropriate since it purports to force the ILU'smembers (without regard to the length of membership,  proportionate usage of theILU's London Processing Centre or current or past occupancy of the ILU Building)to pay now for potential worst case liabilities extending through 2011.                                       13     The ILU has,  thus far,  not filed suit to enforce the  assessment  againstNavigators  Insurance.  In the event  the ILU does file such a suit,  NavigatorsInsurance intends to vigorously contest liability for payment of the assessment.It is not possible to forecast the  ultimate  liability,  if any, at the presenttime.**Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS**There were no matters  submitted to a vote of security holders during the fourthquarter of 2000.**Part II****Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATEDSTOCKHOLDER MATTERS****Market Information**     The Company's common stock is traded  over-the-counter (The Nasdaq NationalMarket)  under the  symbol  NAVG.  Over-the-counter  market  quotations  reflectinter-dealer  prices,  without retail mark-up,  mark-down or commissions and maynot necessarily represent actual transactions.     The high and low bid prices for the four  quarters  of 2000 and 1999 are asfollows:                                                  2000                                 1999                                                      High                Low                      High                LowFirst Quarter..............           $11.31             $  8.75                   $16.13              $13.50Second Quarter.............           $10.50             $  8.63                   $15.00              $14.00Third Quarter..............           $12.25             $  8.75                   $16.00              $13.38Fourth Quarter.............           $14.13             $ 10.75                   $14.13              $ 9.13     There were  approximately  100 holders of record of shares of the Company'scommon stock as of March 20, 2001.  However,  management  believes  there are inexcess of 1,000 beneficial owners of the stock.**Dividends**     The  Company  has not paid or  declared  any cash  dividends  on its commonstock. While there presently is no intention to pay cash dividends on the commonstock,  future  declarations,  if any, and the amounts of such dividends will bedependent upon, among other factors,  the earnings of the Company, its financialcondition and business needs, restrictive covenants under debt arrangements, thecapital and surplus  requirements of its subsidiaries and applicable  governmentregulations.**Item 6. SELECTED FINANCIAL DATA**     The following table sets forth summary consolidated  financial  informationof the Company for each of the years in the five-year  period ended December 31,2000 derived from the Company's audited consolidated  financial statements.  Seethe  Consolidated  Financial  Statements of the Company  including notes theretoincluded herein.                                       14                       Year Ended December 31,                         20001999199819971996*(In thousands, except book value and net income per share data)*Operating Information:Net earned premium..................    $  97,240         $ 89,442        $ 91,203       $  85,002        $  78,731Net investment income...............       18,447           15,985          15,209          14,435           13,614Total revenues......................      120,084          105,624         115,120         108,217          102,788Income (loss)   before income taxes..............       10,338           (5,392)         15,153          17,184           20,874Net income (loss)...................        7,032           (3,652)         11,489          12,546           16,752Net income (loss) per share:   Basic............................    $    0.84         $  (0.43)      $    1.37       $    1.51        $    2.04   Diluted..........................    $    0.84         $  (0.43)      $    1.36       $    1.50        $    2.02Average common shares:   Basic............................        8,414            8,419           8,414           8,296            8,197   Diluted ........................         8,414            8,419           8,459           8,385            8,286Balance Sheet Information(at end of period):Total investments & cash............    $ 251,185         $246,688        $257,232        $258,572         $240,720Total assets........................      614,975          631,324         592,086         501,207          457,095Loss and LAE reserves...............      357,674          391,094         342,444         278,432          269,601Notes payable.......................       22,000           24,000          23,500          20,942           17,942Stockholders' equity................      143,480          130,365         143,266         131,242          115,542Book value per share................    $   17.05         $  15.51       $   16.96        $  15.68        $   14.03**Item 7.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONAND  RESULTS OF OPERATIONSGeneral**     The  Company  is  a  holding   company  with  twelve  active  wholly  ownedsubsidiaries.  See  "BUSINESS-General"  included herein for a description of theCompany.     The Company's revenue is primarily  comprised of premiums,  commissions andinvestment income. The Insurance  Companies derive the majority of their premiumfrom business written by the Navigators  Agencies.  The Insurance  Companies aremanaged by Navigators  Management  Company,  Inc. The Lloyd's  Operations derivetheir premium from business written by MTC.**Results of Operations**General.  The  Company's  1998,  1999 and 2000 results of operationsreflect intense market  competition in the marine business which started to easeslightly in 2000.     The 1999 results include a charge against  earnings of  approximately  $6.6million pretax resulting in an after tax charge of approximately $4.3 million asthe result of  unrecoverable  reinsurance  from New Cap Reinsurance  CorporationLimited  ("New  Cap  Re")  which  participated  in the  Company's  1997 and 1998reinsurance programs.                                       15Revenues.  Gross written  premium  decreased  from $172.2 million in1998 to $167.1  million in 1999 and  increased  to $188.4  million in 2000.  Thefollowing  table sets forth the Company's  gross written  premium by segment andline of business,  and ceded and net written  premium by segment for the periodsindicated:                                                                        Year Ended December 31,                       200019991998*(Dollars in thousands)*Lloyd's Operations:   Marine...............................          $  76,101     40%      $  63,040    38%        $  46,637    27%   Engineering and Construction.........                936      1             961     1                -      -   Onshore Energy.......................                520      -           1,346     1                -      -                                                   --------     --        --------    --          --------    --     Gross Written Premium..............             77,557     41          65,347    40            46,637    27                                                                --                    --                      --     Ceded Written Premium..............            (21,257)               (12,250)                 (7,441)                                                   --------                -------                --------     Net Written Premium................             56,300                 53,097                  39,196                                                   --------               --------                --------Insurance Companies:   Marine...............................             81,664     44          82,086    49            64,043    37   Program Insurance....................             28,360     15          18,581    11            15,684     9   Aviation.............................                191      -             180     -            23,405    14   Onshore Energy.......................                 82      -             812     -            11,418     7   Engineering and Construction.........                452      -             (77)    -             9,976     6   Other................................                119      -             183     -             1,048     -                                                   --------     --        --------    --          --------    --     Gross Written Premium..............            110,868     59         101,765    60           125,574    73                                                                --                    --                      --     Ceded Written Premium..............            (59,075)               (60,778)                (76,288)                                                   --------               --------                --------     Net Written Premium................             51,793                 40,987                  49,286                                                   --------               --------                --------        Total Gross Written Premium.....            188,425    100%        167,112   100%          172,211   100%                                                               ===                   ===                     ===        Total Ceded Written Premium.....            (80,332)               (73,028)                (83,729)                                                    -------                -------                 -------        Total Net Written Premium.......          $ 108,093              $  94,084               $  88,482                                                   ========               ========                ========Lloyd's Operations     The  Lloyd's  premium is  generated  as the  result of NCUL and  Millenniumproviding  capacity  to Lloyd's  Syndicate  1221  which is  managed by MTC.  Thepremiums,  losses and expenses from the Lloyd's  Operations  are included in theCompany's  consolidated  financials  but  are  not  included  in  the  InsuranceCompanies'  results.     Lloyd's Syndicate 1221 had capacity  of(pound)66.3  million ($96.0 million)in  2000,(pound)67.0  million ($105.9  million) in 1999  and(pound)66.9  million($111.1  million)  in 1998.  The Lloyd's  marine  business  has been  subject tocontinued  pricing  competition  resulting in less premiums per risk relative tocertain  prior  years.  As a result,  the Company  wrote less than the  capacityavailable. The pricing competition showed some signs of easing in 2000.     *Marine  Premium*.  In 2000,  marine premium increased 20.7% from 1999due to the capacity  provided to Syndicate  1221 by NCUL and  Millennium  in theaggregate  increasing from 52.5% in 1999 to 64.5% in 2000. The capacity providedto Syndicate 1221 by NCUL and  Millennium  increased from 39.5% in 1998 to 52.5%in 1999 resulting in the increase in premium volume.                                       16*Engineering  and  Construction  Premium*.   In  1999,  the  RobertsonConsortium  managed by MTC began writing  engineering and construction  businessfor Syndicate 1221. The business consists of coverage for construction  projectsincluding machinery,  equipment and loss of use due to delays.  Previously,  theengineering and construction business was written for Navigators Insurance.     *Onshore Energy*. In 1999, the Robertson Consortium also began writingonshore energy business for Syndicate 1221. The business  principally focuses onthe oil and gas, chemical and petrochemical  industries with coverages primarilyfor property  damage.  Previously,  the onshore energy  business was written forNavigators Insurance.     Lloyd's  presents  its results on an  underwriting  year  basis,  generallyclosing each  underwriting  year after three years.  The Company makes estimatesfor each year and timely accrues the expected results. At Lloyd's, the amount toclose an underwriting year into the next year is referred to as the "reinsuranceto close." At December 31,  2000,  Syndicate  1221 closed its 1998  underwritingyear,  the net effect of which  resulted  in a  portfolio  transfer  to NCUL andMillennium of $7.9 million at December 31, 2000. At December 31, 1999, Syndicate1221 and an  unaffiliated  syndicate on which NCUL  participated  in 1997 closedtheir 1997 underwriting year resulting in a portfolio  transfer to NCUL of $15.5million at December  31,  1999.  At December  31,  1998,  Syndicate  1221 and anunaffiliated  syndicate on which NCUL  participated  in 1997,  closed their 1996underwriting year resulting in a portfolio  transfer to NCUL of $19.7 million atDecember 31, 1998. These transactions accounted for part of the increases in thepremium volume in the Company's  Lloyd's  Operations.  The  reinsurance to closetransactions  were recorded as  additional  written and earned  premium,  lossesincurred,  loss reserves and receivables,  all in the same amount. There were nogains or losses recorded on the transactions.     The Company  controlled  75.6% of  Syndicate  1221's  capacity for the 2000underwriting  year. The actual capacity was  (pound)66,297,000  ($95,985,000) ofwhich the Company  directly  controlled(pound)42,772,000  ($61,925,000) or 64.5%and  indirectly  controlled(pound)7,340,000  ($10,627,000)  or 11.1%.  Since thecontrolled  capacity  exceeded 75% in 2000,  Lloyd's  Mandatory Byelaw (No. 5 of1999)  required  the  Company  to  make  a  mandatory  offer  to   noncontrolledparticipants for their capacity at the first Lloyd's capacity auctions beginningin July 2000. As a result,  the Company purchased an  additional(pound)7,379,000($11,018,000)  of capacity  for 2001  through  the auction  process in 2000 at atotal cost of(pound)133,000 ($199,000).     The  offer  was made at 1.8  pence  per(pound)1  of  capacity  which is theminimum  price that the Company was  obliged to offer,  being the highest  pricepaid for capacity during the prior 12 months.  If the Company were to exceed the90% control threshold,  Lloyd's Major Syndicate  Transactions  Byelaw (No. 18 of1997) allows for a Minority  Buy-out to be effected.  In such a transaction  theremaining  participants  are  required  to give up their  capacity in return forcompensation  which  must be at least  equal to the offer  price  preceding  thebuy-out.  Syndicate  1221's  capacity for 2001 will be  approximately(pound)66.3million of which the Company will directly control 67.4% and indirectly  control20.7%.     The Company  provides letters of credit to Lloyd's to support its Syndicate1221 capacity. If the amount of capacity controlled increases,  the Company willbe  required  to  supply  additional  letters  of  credit  or  other  collateralacceptable to Lloyd's, or reduce the capacity of Syndicate 1221.                                       17**Insurance Companies***Marine  Premium*.  Marine gross written premium  remained  relativelyunchanged from 1999 to 2000.  Written premium  increased 28.2% from 1998 to 1999primarily due to Navigators Insurance increasing its participation in the marinepool.  Navigators  Insurance's  participation in the marine pool was 75% in 2000and 1999 and 60% in 1998.     *Program Insurance Premium*. The program insurance,  currently writtenby Anfield,  consists  primarily of general liability  insurance for contractorsand a small amount of  commercial  multi-peril  insurance  for  restaurants  andtaverns.  The premium  increased  52.6% from 1999 to 2000 and 18.5% from 1998 to1999 due to the expansion of these programs.     *Aviation  Premium*.   Navigators  Insurance  withdrew  from  aviationbusiness  effective October 1998, other than a small amount of war and satellitebusiness, due to inadequate pricing in the aviation insurance market.     *Onshore  Energy  Premium*.  In 1996,  Navigators  Insurance  began tounderwrite  onshore energy  insurance which  principally  focused on the oil andgas, chemical and petrochemical,  and power generation industries with coveragesprimarily for property  damage.  Beginning in 1999, the onshore energy  businesswas written through the Company's facilities at Lloyd's.     *Engineering and Construction Premium*.  In 1997, Navigators Insurancebegan writing  engineering and construction  business consisting of coverage forconstruction projects including the machinery,  equipment and loss of use due todelays. Beginning in 1999, the engineering and construction business was writtenthrough the Company's  facilities at Lloyd's.  In early 1999, the Company closedits  Somerset  Asia  Pacific  Limited  office in  Australia  which,  along  withNavigators  Management UK, had previously  produced this business for NavigatorsInsurance.**Ceded  Written  Premium**.  In the  ordinary  course of  business,  theCompany reinsures certain insurance risks with unaffiliated  insurance companiesfor the  purpose of limiting  its  maximum  loss  exposure,  protecting  againstcatastrophic  losses, and maintaining  desired ratios of net premiums written tostatutory  surplus.  The  increase in ceded  premium in the  Lloyd's  Operationsduring 2000 was due to the purchase of additional  quota share protection in themarine business and increased gross written  premium.  The Insurance  Companies'ceded premium  declined 2.8% from 1999 to 2000  primarily due to more  favorablereinsurance  rates in the program  insurance.  The decrease in the ceded premiumfrom  1998 to 1999  resulted  from the  decrease  in  engineering  and  aviationbusiness which were heavily reinsured.**Net Written Premium**. Net written premium increased 14.9% from 1999 to2000  primarily  due to the  increases  in the Lloyd's  marine  business and theprogram business. Net written premium increased 6.3% from 1998 to 1999 primarilydue to increases in the marine  premium  partially  offset by decreases in otherlines of business as described above.**Net Earned  Premium**.  Net earned premium  increased 8.7% from 1999 to2000  primarily  due to the increase in the written  premium.  The 1.9% decreasefrom 1998 to 1999 was  primarily due to higher  unearned  premium in the Lloyd'sOperations and a smaller  reinsurance to close premium in 1999 which is recordedas fully earned premium.**Commission Income**.  Commission income increased in 2000 primarily dueto the absence to a great extent of the factors that reduced  commission  incomein  1999.  Commission  income  decreased  from  1998 to 1999  due to  NavigatorsInsurance  increasing its  participation  in the marine pool from 60% in 1998 to75% in 1999, the losses related to unrecoverable  reinsurance  which reduced theprofit  commission,  the Company's  reduction of its commission income estimatesdue to the extremely  competitive  rate  environment and less profit  commissionearned by MTC in 1999 than in 1998.                                       18**Net  Investment  Income**.  Net investment  income increased 15.4% from1999  to 2000  and  5.1%  from  1998 to 1999  primarily  due to an  increase  ininvestment  income  allocated to NCUL and Millennium from the investments at theLloyd's  syndicates due to their increased  participation  in Syndicate 1221 andreduction in the Insurance Companies'  municipal  portfolio.  Increased yield inthe  portfolio  and  reduction  in the  expenses  to manage the  portfolio  alsoincreased  investment income in 2000. The investments at NCUL and Millennium arerepresented by funds due from the Lloyd's syndicates to the Company.**Operating Expenses***Net Losses and Loss Adjustment Expenses  Incurred*.  The ratio of netloss and loss  adjustment  expenses  incurred  to net earned  premium was 64.8%,78.2%, and 68.3% in 2000, 1999, and 1998, respectively. The decrease in the 2000loss ratio compared to 1999 was primarily due to the  unrecoverable  reinsurancefor New Cap Re recorded in 1999 and to the lower reinsurance to close premium in2000 of $7.9 million compared to $15.5 million in 1999. The increase in the 1999loss ratio compared to 1998 was primarily due to unrecoverable  reinsurance fromNew Cap Re and higher loss ratios on the Lloyd's  premium,  partially  offset bythe  decrease  in the  reinsurance  to close  premium  in 1999 of $15.5  millioncompared to $19.7 million in 1998. The  reinsurance to close premium is recordedat a 100% loss ratio since the premium received  represents  estimated  ultimatelosses.  The 1999 loss ratio excluding the New Cap Re unrecoverable  reinsurancewas 70.8%. The loss reserves were not discounted.     *Commission Expense*. Commission expense as a percentage of net earnedpremium was 20.6%, 16.5% and 13.0% for 2000, 1999, and 1998,  respectively.  Thesame ratios without the reinsurance to close premium were 22.5%, 19.9% and 16.6%in 2000,  1999 and  1998,  respectively.  The  increase  in the 2000  commissionexpense ratio  compared to 1999 was primarily due to the increase in the Lloyd'spremium which  generally has a higher  commission  expense.  The  reinsurance toclose  premium  increases  earned  premium  but does not change  the  commissionexpense,  therefore the ratio of commission expense to earned premium decreases.The  increase in the 1999  commission  expense  ratio  compared to 1998 was alsoprimarily due to increased commissions at Lloyd's.     *Other  Operating  Expenses*.  The change in other operating  expensesfrom 1999 to 2000 was minimal. Other operating expenses increased 2.5% from 1998to 1999  primarily  due to the  acquisition  of  Anfield  on April  2,  1999 andincreased  expenses in the Lloyd's  Operations  due to the  Company's  increasedparticipation  in its Lloyd's  syndicate,  partially  offset by reduced expensesfrom the closing of the Somerset Asia Pacific  Limited  office in Australia fromwhich the company incurred a foreign exchange loss of $346,000.     *Interest Expense*. The increase in interest expense from 1999 to 2000was primarily due to higher interest rates charged on the loan balance.                                       19**Income  Taxes**.  The income tax expense  (benefit)  was $3.3  million,($1.7) million,  and $3.7 million for 2000,  1999, and 1998,  respectively.  Theeffective  tax rates for 2000,  1999,  and 1998  were  32.0%,  32.3% and  24.2%,respectively.  The tax  benefit in 1999  compared to the tax expense in 1998 wasprimarily due to operating  losses in 1999. The Company had alternative  minimumtax ("AMT")  carryforwards  of $5.3  million,  $6.4  million and $4.7 million atDecember 31, 2000,  1999, and 1998,  respectively.  The AMT  carryforwards  wereprimarily  attributable  to the tax benefits from municipal  bond interest.  TheCompany began reducing its municipal bond portfolio in 1997.     As of December 31, 2000 and 1999, the net deferred Federal,  foreign, stateand local  tax  asset was $9.0  million  and  $12.9  million,  respectively.  AtDecember 31, 2000 the Company had a $5.8 million valuation allowance against itsdeferred tax asset  compared to a $4.5 million  valuation  allowance at December31, 1999. The valuation allowance is necessitated by the uncertainty  associatedwith the realization of the deferred tax asset for the carryforward of operatinglosses from certain of the Company's foreign, state and local operations.     **Net Income (Loss)**. The Company had net income of $7.0 millionin 2000  compared  to a net  (loss) of ($3.7)  million in 1999 and net income of$11.5  million  in 1998.  The loss in 1999 was  primarily  due to  unrecoverablereinsurance, price competition, higher loss ratios in the Lloyd's Operations andexpenses related to the foreign expansion in London.**Liquidity and Capital Resources**     Cash flow provided by (used in) operations  was $1.6 million,  $8.9 millionand ($3.0) million for 2000, 1999 and 1998, respectively. Operating cash flow in1999 and 2000 was used primarily to acquire additional  investment assets and toreduce debt.  The negative  operating cash flow in 1998 was primarily due to thepayment  of loss  reserves  on  runoff  business  and  less  premiums  received,partially due to Lloyd's  disbursing  cash only after an  underwriting  year hasclosed, normally three years later.     Invested assets and cash increased from $246.7 million at December 31, 1999to $251.2  million at December 31, 2000.  The increase was  primarily due to thefair  value  of the  fixed  maturities  portfolio  moving  from  a $5.3  millionunrealized  loss at  December  31,  1999 to a $3.3  million  unrealized  gain atDecember  31,  2000.  Net  investment  income was $15.2  million in 1998,  $16.0million in 1999 and $18.4 million in 2000.  The average yield of the  portfolio,excluding net realized  capital  gains,  was 5.87% in 1998,  5.84% in 1999,  and6.55% in 2000 reflecting the prevailing  interest rates during those years,  thedecrease in the  tax-exempt  portfolio  and  reduction in expenses to manage theportfolio in 2000. As of December 31, 2000,  all fixed  maturity  securities andequity securities held by the Company were classified as available-for-sale.     The average  rating of the Company's  fixed  maturity  investments is AA byStandard & Poor's and Aa by Moody's. The Company has no significant exposureto credit risk since the Company's fixed maturity investment portfolio primarilyconsists of investment  grade bonds.  The  portfolio has an average  maturity ofapproximately seven years.  Management  continually monitors the composition andcash flow of the  investment  portfolio  in order to  maintain  the  appropriatelevels of liquidity. This ensures the Company's ability to satisfy claims.     The  decrease in reserves for losses and loss  adjustment  expenses and therelated  decrease in the  reinsurance  receivable  on paid and unpaid losses andloss adjustment  expenses at December 31, 2000 as compared to 1999 was primarilydue to the  payment of  reserves  and  recovery  of  reinsurance  during 2000 onvarious large energy and aviation claims.                                       20     On December 21, 1998, the Company  entered into a new bank credit  facilitywhich  replaced  the prior  facility.  The new  credit  facility,  as amended onSeptember  20,  2000,  provides  a $26  million  revolving  line of credit at aninterest rate of either, at the Company's election,  the base commercial lendingrate of one of the banks or at LIBOR plus 1.25% on the used  portion of the lineof credit.  The  commitment  fee on the unused  portion of the line of credit is0.25%.  The line of credit facility reduces each quarter by amounts between $1.0million  and $2.25  million  beginning  January 1, 2000 until it  terminates  onNovember 19, 2004. At December 31, 2000 and 1999, $22 million and $24 million inloans  were  outstanding,  respectively,  under  the  revolving  line of  creditfacility at an interest rate of 7.6% and 7.1%, respectively. The credit facilityalso  provides  for a $55 million  letter of credit  facility  which is utilizedprimarily  by NCUL and  Millennium  to  participate  in Lloyd's  Syndicate  1221managed by MTC.  The cost of the letters of credit is 1.3% for the used  portionand 0.25% for the unused portion of the letter of credit  facility.  At December31,  2000 and 1999,  letters of credit  with an  aggregate  face amount of $46.6million and $42.2 million, respectively,  were issued under the letter of creditfacility. In 2000, $78,500 of these letters of credit were drawn upon.     The bank credit facility is collateralized by shares of common stock of theCompany's major subsidiary. It contains covenants common to transactions of thistype, including  restrictions on indebtedness and liens,  limitations on mergersand the sale of assets,  maintaining  certain  consolidated total  stockholders'equity, statutory surplus, minimum liquidity,  loss reserves and other financialratios. At December 31, 2000, the Company complied with all covenants.     Total stockholders' equity was $143.5 million at December 31, 2000, a 10.1%increase for the year as the result of the  Company's net income in 2000 and theunrealized gain in the investment portfolio.     The Company's reinsurance has been placed with various U.S. companies rated"A-" or better by A.M. Best Company, as well as with foreign insurance companiesand with  selected  syndicates  of Lloyd's.  Pursuant to the  implementation  ofLloyd's  Plan  of  Reconstruction  and  Renewal,  a  portion  of  the  Company'srecoverables are now reinsured by Equitas (a separate UK authorized  reinsurancecompany established to reinsure  outstanding  liabilities of all Lloyd's membersfor all risks written in the 1992 or prior years of account).     The  Company  believes  that  the  cash  flow  generated  by the  operatingactivities of the Company's  subsidiaries will provide  sufficient funds for theCompany to meet its liquidity needs over the next twelve months. Beyond the nexttwelve months, cash flow available to the Company may be influenced by a varietyof  factors,  including  general  economic  conditions  and  conditions  in  theinsurance and reinsurance  markets, as well as fluctuations from year to year inclaims experience.**Economic Conditions**     The  Company is a  specialty  insurance  company  and  periods of  moderateeconomic  recession or inflation tend not to have a significant direct affect onthe Company's underwriting  operations.  They do, however,  impact the Company'sinvestment  portfolio.  A decrease in interest  rates will tend to decrease  theCompany's  yield and have a positive  effect on the fair  value of its  investedassets.  An increase in interest rates will tend to increase the Company's yieldand have a negative effect on the fair value of its invested assets.                                       21     Management  considers  the  potential  impact of these  economic  trends inestimating loss reserves.  Management believes that the underwriting controls itmaintains,  and the fact that the majority of the Company's business is in linesof  insurance  which have  relatively  short  loss  payout  patterns,  assist inestimating ultimate claim costs more reasonably and lessen the potential adverseimpact of the economy on the Company.**Quantitative and Qualitative Disclosures About Market Risk**Market Risk     Market  risk is the risk of loss  arising  from  adverse  changes in marketrates and prices,  such as interest rates,  foreign currency exchange rates, andother relevant market rate or price changes.  Market risk is directly influencedby the volatility  and liquidity in the markets in which the related  underlyingassets are traded. The following is a discussion of the Company's primary marketrisk exposures and how those exposures are currently  managed as of December 31,2000.  The  Company's  market risk  sensitive  instruments  are entered into forpurposes other than trading.     The carrying value of the Company's investment portfolio as of December 31,2000  was  $251.2  million  of  which  89.6%  was  invested  in  fixed  maturitysecurities. The primary market risk to the investment portfolio is interest raterisk associated  with  investments in fixed maturity  securities.  The Company'sexposure to equity price risk and foreign exchange risk is not significant.  TheCompany has no commodity risk.     For fixed maturity securities, short-term liquidity needs and the potentialliquidity  needs of the business are key factors in managing the portfolio.  Theportfolio  duration  relative to the liabilities'  duration is primarily managedthrough investment transactions.     For the Company's investment  portfolio,  there were no significant changesin the Company's  primary  market risk  exposures or in how those  exposures aremanaged  compared to the year ended  December  31,  1999.  The Company  does notcurrently anticipate significant changes in its primary market risk exposures orin how those exposures are managed in future  reporting  periods based upon whatis known or expected to be in effect in future reporting periods.     The Company is subject to interest  rate risk on its notes payable to banksas changes in  interest  rates  would  impact  future  earnings,  however,  thisinterest rate risk exposure is not considered significant.Sensitivity Analysis     Sensitivity  analysis is defined as the  measurement  of potential  loss infuture  earnings,  fair  values or cash  flows of market  sensitive  instrumentsresulting from one or more selected  hypothetical  changes in interest rates andother market rates or prices over a selected time. In the Company's  sensitivityanalysis  model,  a  hypothetical  change in market  rates is  selected  that isexpected to reflect  reasonably  possible  near-term changes in those rates. Theterm  "near-term"  means a period of time going  forward up to one year from thedate of the consolidated  financial  statements.  Actual results may differ fromthe hypothetical  change in market rates assumed in this disclosure,  especiallysince this sensitivity analysis does not reflect the results of any actions thatwould be taken by the  Company  to  mitigate  such  hypothetical  losses in fairvalue.                                       22     In this sensitivity analysis model, the Company uses fair values to measureits potential loss. The sensitivity analysis model includes fixed maturities andshort-term  investments.  The  primary  market  risk  to  the  Company's  marketsensitive instruments is interest rate risk. The sensitivity analysis model usesa 100 basis point change in interest rates to measure the hypothetical change infair value of financial instruments included in the model.     For  invested  assets,  modified  duration  modeling  is used to  calculatechanges in fair values.  Durations on invested assets are adjusted for call, putand interest rate reset features.  Duration on tax exempt securities is adjustedfor the fact that the yield on such  securities is less  sensitive to changes ininterest  rates  compared  to  Treasury  securities.  Invested  asset  portfoliodurations are calculated on a market value  weighted  basis,  including  accruedinvestment income, using holdings as of December 31, 2000.     The sensitivity  analysis model used by the Company produces a loss in fairvalue of market  sensitive  instruments  of $11.0  million  based on a 100 basispoint increase in interest rates as of December 31, 2000.  This loss amount onlyreflects  the  impact on an  interest  rate  increase  on the fair  value of theCompany's  fixed  maturities  and  short-term   investments,   which  constituteapproximately 39.6% of total assets as of December 31, 2000.     Based on the  sensitivity  analysis model used by the Company,  the loss infair value of market  sensitive  instruments,  as a result of a 100 basis  pointincrease in interest rates as of December 2000, is not material.**Item 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA**     The consolidated  financial statements required in response to this sectionare submitted as part of Item 14(a) ofthis report.**Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTINGAND FINANCIAL DISCLOSURE**     None.**Part IIIItem 10.  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT**     Information  concerning  the directors  and the  executive  officers of theCompany is contained  under  "Election of Directors" in the Company's 2001 ProxyStatement, which information is incorporated herein by reference.**Item 11. EXECUTIVE COMPENSATION**     Information   concerning   executive   compensation   is  contained   under"Compensation  of Directors and Executive  Officers" in the Company's 2001 ProxyStatement, which information is incorporated herein by reference.                                       23**Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT**     Information concerning the security ownership of the directors and officersof the  registrant is contained  under  "Election of Directors" in the Company's2001 Proxy Statement, which information is incorporated herein by reference.**Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS**     Information  concerning  relationships  and  related  transactions  of  thedirectors and officers of the Company is contained under "Certain  Relationshipsand  Related  Transactions"  in  the  Company's  2001  Proxy  Statement,   whichinformation is incorporated herein by reference.**Part IVItem 14. EXHIBITS, FINANCIAL SCHEDULES AND REPORTS ON FORM 8-K**     (a)  The following documents are filed as part of this report:               1.   **Financial   Statements  and   Schedules**:   The                    financial   statements   and   schedules   listed   in   the                    accompanying Index to Consolidated  Financial Statements and                    Schedules on page F-1.               2.   **Exhibits**:  The  exhibits  are  listed  on  the                    accompanying Index to Exhibits on the page which immediately                    follows  page  S-8.  The  exhibits  include  the  management                    contracts and compensatory plans or arrangements required to                    be   filed  as   exhibits   to  this   Form   10-K  by  Item                    601(a)(10)(iii) of Regulation S-K.     (b)  Reports on Form 8-K:  There  were no reports  filed on Form 8-K during          the fourth quarter of 2000.                                       24                                   SIGNATURES     Pursuant  to the  requirements  of  Section  13 or 15(d) of the  SecuritiesExchange Act of 1934, the Registrant has duly caused this report to be signed onits behalf by the undersigned,  thereunto duly authorized. The Navigators Group,Inc. (Registrant)         Dated:  March 28, 2001                By:/s/ BRADLEY D. WILEY                                                  Bradley D. Wiley                                               Senior Vice President,                                               CFO and Secretary     Pursuant to the  requirements of the Securities  Exchange Act of 1934, thisreport  has  been  signed  below  by the  following  persons  on  behalf  of theRegistrant and in the capacities and on the dates indicated.        **NameTitleDate**/s/ TERENCE N. DEEKS                                  Chairman, President and CEO (Principal       March 28, 2001Terence N. Deeks                                      Executive Officer)/s/ BRADLEY D. WILEY                                  Senior Vice President, CFO                   March 28, 2001Bradley D. Wiley                                      and Secretary                                                      (Principal Financial Officer)/s/ SALVATORE A. MARGARELLA                           Vice President and Treasurer                 March 28, 2001Salvatore A. Margarella                               (Principal Accounting Officer)/s/ ROBERT M. DEMICHELE                               Director                                     March 28, 2001Robert M. DeMichele/s/ LEANDRO S. GALBAN, JR.                            Director                                     March 28, 2001Leandro S. Galban, Jr./s/ MARC M. TRACT                                     Director                                     March 28, 2001Marc M. Tract/s/ WILLIAM D. WARREN                                 Director                                     March 28, 2001William D. Warren/s/ ROBERT F. WRIGHT                                  Director                                     March 28, 2001Robert F. Wright/s/ HOWARD M. ZELIKOW                                 Director                                     March 28, 2001Howard M. Zelikow                                       25**INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULES**Independent Auditors' Report...............................................................     F-2Consolidated Balance Sheets at December 31, 2000 and 1999..................................     F-3Consolidated Statements of Income for each of the years in the three-year  period ended December 31, 2000...........................................................     F-4Consolidated Statements of Stockholders' Equity for each of the years in  the three-year period ended December 31, 2000............................................     F-5Consolidated Statements of Cash Flows for each of the years in the  three-year period ended December 31, 2000................................................     F-6Notes to Consolidated Financial Statements.................................................     F-7SCHEDULES:Schedule I      Summary of Consolidated Investments--other than                investments in related parties.............................................      S-1Schedule II     Condensed Financial Information of Registrant.............................       S-2Schedule III    Supplementary Insurance Information .......................................      S-5Schedule IV     Reinsurance................................................................      S-6Schedule V      Valuation and Qualifying Accounts..........................................      S-7Schedule VI     Supplementary Information Concerning                         Property-Casualty Insurance Operations............................      S-8                                      F-1**INDEPENDENT AUDITORS' REPORT**The Board of Directors and StockholdersThe Navigators Group, Inc.     We have audited the  consolidated  balance sheets of The Navigators  Group,Inc.  and  subsidiaries  as of  December  31,  2000 and  1999,  and the  relatedconsolidated statements of income,  stockholders' equity and cash flows for eachof the years in the  three-year  period ended  December 31, 2000.  In connectionwith our audits of the consolidated  financial statements,  we also have auditedthe  consolidated  financial  statement  schedules as listed in the accompanyingindex. These consolidated financial statements and financial statement schedulesare the  responsibility of the Company's  management.  Our  responsibility is toexpress an opinion on these  consolidated  financial  statements  and  financialstatement schedules based on our audits.     We conducted our audits in accordance  with  auditing  standards  generallyaccepted in the United States of America.  Those standards  require that we planand perform the audit to obtain reasonable assurance about whether the financialstatements are free of material misstatement.  An audit includes examining, on atest basis,  evidence  supporting  the amounts and  disclosures in the financialstatements.  An audit also includes assessing the accounting principles used andsignificant  estimates  made by  management,  as well as evaluating  the overallfinancial  statement  presentation.   We  believe  that  our  audits  provide  areasonable basis for our opinion.     In our opinion,  the consolidated  financial  statements  referred to abovepresent  fairly,  in  all  material  respects,  the  financial  position  of TheNavigators  Group,  Inc. and  subsidiaries as of December 31, 2000 and 1999, andthe  results of their  operations  and their cash flows for each of the years inthe  three-year  period ended December 31, 2000, in conformity  with  accountingprinciples  generally  accepted  in the United  States of  America.  Also in ouropinion, the related financial statement schedules,  when considered in relationto the basic consolidated financial statements taken as a whole, present fairly,in all material respects, the information set forth therein.             KPMG LLPNew York, New YorkMarch 26, 2001                                      F-2**THE NAVIGATORS GROUP, INC. AND SUBSIDIARIES                                                      CONSOLIDATED BALANCE SHEETS***(In thousands, except share data)***December 31,          20001999****ASSETS**Investments and cash:   Fixed maturities, available-for-sale, at fair value     (amortized cost: 2000, $221,807; 1999, $227,875).......................................          $225,128           $222,555   Equity securities, available-for-sale, at fair value (cost: 2000, $5,608;     1999, $11,105) ........................................................................             6,269             11,840   Short-term investments, at cost which approximates fair value...........................             18,186              6,747   Cash.....................................................................................             1,602              5,546                                                                                                       -------           --------         Total investments and cash.........................................................           251,185            246,688                                                                                                       -------            -------Premiums in course of collection............................................................            35,282             35,614Funds due from Lloyd's syndicates...........................................................            68,912             55,243Accrued investment income...................................................................             3,125              3,250Prepaid reinsurance premiums................................................................            26,274             24,765Reinsurance receivable on paid and unpaid losses and loss adjustment expenses...............           195,713            229,111Federal income tax recoverable..............................................................               463              2,016Net deferred Federal and foreign income tax benefit.........................................             9,399             13,227Deferred policy acquisition costs...........................................................             8,400              5,878Goodwill ...................................................................................             5,278              5,805Other assets................................................................................            10,944              9,727                                                                                                       -------           --------         Total assets.......................................................................          $614,975           $631,324                                                                                                       =======            =======**LIABILITIES AND STOCKHOLDERS' EQUITY**Liabilities:  Reserves for losses and loss adjustment expenses..........................................          $357,674           $391,094  Unearned premium..........................................................................            66,238             55,003  Reinsurance balances payable..............................................................            20,402             24,799  Notes payable to banks....................................................................            22,000             24,000  Net deferred state and local income tax...................................................               398                374  Accounts payable and other liabilities....................................................             4,783              5,689                                                                                                       -------           --------         Total liabilities..................................................................           471,495            500,959                                                                                                       -------            -------Commitments and contingencies...............................................................Stockholders' equity:  Preferred stock, $.10 par value, authorized 1,000,000 shares, none issued.................              --                 --  Common stock, $.10 par value, authorized 10,000,000 shares,     issued and outstanding 8,414,356 in 2000 and 8,406,970 in 1999.........................               846                846  Additional paid-in capital................................................................            39,413             39,447  Treasury stock held at cost (shares:  41,314 in 2000 and 48,700 in 1999)..................              (594)              (700)  Accumulated other comprehensive income (loss):     Net unrealized gains (losses) on securities available-for-sale (net of tax expense (benefit)       of $1,394 in 2000 and ($1,605) in 1999)..............................................             2,822             (2,980)     Foreign currency translation adjustment (net of tax expense of $146 in 2000 and       $34 in 1999).........................................................................               271                 62  Retained earnings.........................................................................           100,722             93,690                                                                                                       -------           --------         Total stockholders' equity.........................................................           143,480            130,365                                                                                                       -------            -------         Total liabilities and stockholders' equity.........................................          $614,975           $631,324                                                                                                       =======            =======                                    See accompanying notes to consolidated financial statements.                                      F-3**THE NAVIGATORS GROUP, INC. AND SUBSIDIARIES                                                     CONSOLIDATED STATEMENTS OF INCOME***(In thousands, except net income per share)***Year Ended December 31,**200019991998Revenues:   Net earned premium...................................................        $ 97,240             $  89,442           $  91,203   Commission income....................................................           3,787                   482               6,569   Net investment income................................................          18,447                15,985              15,209   Net realized capital gains (losses)..................................             265                  (443)              1,431   Other income........................................................              345                   158                 708                                                                                 -------               -------            --------     Total revenues.....................................................         120,084               105,624             115,120                                                                                 -------               -------             -------Operating expenses:   Net losses and loss adjustment expenses incurred.....................          63,012                69,914              62,322   Commission expense...................................................          20,078                14,721              11,864   Other operating expenses.............................................          24,775                24,879              24,264   Interest expense.....................................................           1,881                 1,502               1,517                                                                                 -------               -------            --------     Total operating expenses...........................................         109,746               111,016              99,967                                                                                 -------               -------            --------Income (loss) before income tax expense (benefit).......................          10,338                (5,392)             15,153                                                                                 -------               -------            --------Income tax expense (benefit):   Current..............................................................           2,565                  (450)              3,100   Deferred.............................................................             741                (1,290)                564                                                                                 -------               -------            --------       Total income tax expense (benefit)...............................           3,306                (1,740)              3,664                                                                                 -------               -------            --------Net Income (Loss).......................................................        $  7,032             $  (3,652)          $  11,489                                                                                 =======              ========            ========Net income (loss) per common share:   Basic................................................................        $   0.84             $   (0.43)          $    1.37   Diluted..............................................................        $   0.84             $   (0.43)          $    1.36Average common shares outstanding:   Basic................................................................           8,414                 8,419               8,414   Diluted..............................................................           8,414                 8,419               8,459                                     See accompanying notes to consolidated financial statements.                                      F-4**THE NAVIGATORS GROUP, INC. AND SUBSIDIARIES                                                 CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY***(In thousands)***Year Ended December 31,**200019991998Preferred stock   Balance at beginning and end of year..............        $   --                 $   --                   $    --                                                              =========              ========                 ========Common stock   Balance at beginning of year......................        $      846             $     845                $     837   Issuance of common stock during the year..........              --                       1                        8                                                              ---------              --------                 --------   Balance at end of year............................        $      846             $     846                $     845                                                              =========              ========                 ========Additional paid-in capital   Balance at beginning of year......................        $   39,447             $  39,332                $  38,119   Issuance of common stock during the year..........               (34)                  115                    1,213                                                              ---------              --------                 --------   Balance at end of year............................        $   39,413             $  39,447                $  39,332                                                              =========              ========                 ========Retained earnings   Balance at beginning of year......................        $   93,690             $  97,342                $  85,853   Net income (loss).................................             7,032  $  7,032      (3,652)    $ (3,652)     11,489    $11,489                                                              ---------   -------    --------      -------    --------     ------   Balance at end of year............................        $  100,722             $  93,690                $  97,342                                                              =========              ========                 ========Treasury stock held at cost   Balance at beginning of year......................        $     (700)            $   --                   $    --   Purchase of Treasury stock........................               --                   (700)                    --   Shares issued to Directors........................               106                 --                        --                                                              ---------              --------                 --------   Balance at end of year............................        $     (594)            $    (700)               $    --                                                              =========              ========                 ========Accumulated other comprehensive income (loss)   Balance at beginning of year......................        $   (2,918)            $   5,747                $   6,433   Net unrealized gains (losses) on securities, net of     tax expense (benefit) of $2,999, ($4,792) and     ($310) in 2000, 1999 and 1998, respectively (1).                       5,802                   (8,899)                  (575)   Foreign currency gain (loss) net of tax expense     (benefit) of $112, $126 and ($60) in 2000,     1999 and 1998,  respectively....................                         209                      234                   (111)                                                                          -------                  -------                -------   Other comprehensive income (loss).................             6,011     6,011      (8,665)      (8,665)       (686)      (686)                                                              ---------   -------    --------     --------    --------     ------   Comprehensive income (loss).......................                     $13,043                 $(12,317)               $ 10,803                                                                           ======                  =======                 =======   Balance at end of year............................        $    3,093             $  (2,918)               $   5,747                                                              =========              ========                 ========Total stockholders' equity at end of year............        $  143,480             $ 130,365                $ 143,266                                                              =========              ========                  =======(1)  Disclosure of reclassification amount:     Unrealized holding gains (losses) arising.......       during period.................................                    $  6,005                 $ (8,625)              $    628      Less: reclassification adjustment for net       (gains) included in net income................                        (203)                    (274)                (1,203)                                                                          -------                  -------                -------     Net unrealized gains (losses) on securities.....                    $  5,802                 $ (8,899)              $   (575)                                                                          =======                  =======                =======                                     See accompanying notes to consolidated financial statements.                                      F-5**THE NAVIGATORS GROUP, INC. AND SUBSIDIARIES                                                     CONSOLIDATED STATEMENTS OF CASH FLOWS***(In thousands)***Year Ended December 31,              200019991998** Operating activities:    Net income (loss)...........................................       $    7,032              $  (3,652)          $   11,489    Adjustments to reconcile net income to net       cash provided by (used in) operating activities:     Depreciation & amortization................................            1,173                  1,361                  833     Net deferred income tax ...................................              741                 (1,290)                 564     Net realized capital (gains) losses........................             (265)                   443               (1,431)    Changes in assets and liabilities, net of acquisitions:     Reinsurance receivable on paid and unpaid       losses and loss adjustment expenses......................           33,398                (29,094)             (52,913)     Reserve for losses and loss adjustment expenses............          (33,420)                48,650               64,012     Prepaid reinsurance premiums...............................           (1,509)                   934               (5,294)     Unearned premium...........................................           11,235                  3,707                2,636     Premiums in course of collection...........................              332                  6,361               (6,771)     Funds due from Lloyd's syndicates..........................          (13,435)               (20,897)             (23,703)     Deferred policy acquisition costs..........................           (2,522)                (1,575)               1,100     Accrued investment income..................................              125                    (25)                 (59)     Reinsurance balances payable...............................           (4,397)                   242                8,319     Federal income tax.........................................            1,553                 (1,651)                (261)     Other......................................................            1,524                  5,383               (1,510)                                                                         --------               --------             --------         Net cash provided by (used in) operating activities....            1,565                  8,897               (2,989)                                                                         --------               --------             -------- Investing activities:    Fixed maturities, available-for-sale      Redemptions and maturities  ..............................           11,516                 43,295               24,074      Sales  ...................................................           60,133                 25,335               28,664      Purchases  ...............................................          (66,240)               (64,365)             (66,373)    Equity securities, available-for-sale      Sales  ...................................................            9,653                  3,341                3,285      Purchases  ...............................................           (3,422)                (8,087)              (3,083)   Payment for purchase of MTC, net of cash acquired of $489 ...              --                     (26)              (5,321)   Payment for purchase of Anfield, net of cash acquired of $68.              --                  (2,591)                --   (Receivable) payable for securities..........................           (1,800)                (2,158)               2,832   Net (purchases) sales of short-term investments  ............          (11,439)                (1,100)              16,932   Other investments  ..........................................              --                   1,145                1,262   Purchase of property and equipment  .........................           (1,910)                  (791)              (1,166)                                                                         --------               --------             --------         Net cash provided by (used in) investing activities  ..           (3,509)                (6,002)               1,106                                                                         --------               --------             --------Financing activities:   Proceeds from bank loan  ....................................            3,000                  1,500                3,500   Repayment of bank loan  .....................................           (5,000)                (1,000)                (340)   Proceeds from exercise of stock options  ....................              --                      44                1,221   Purchase of treasury stock...................................              --                    (700)                --   Repayment of note payable to stockholder  ...................              --                     --                  (942)                                                                         --------               --------             --------         Net cash provided by (used in) financing activities               (2,000)                  (156)               3,439                                                                         --------               --------             ---------Increase (decrease) in cash  ...................................           (3,944)                 2,739                1,556Cash at beginning of year  .....................................            5,546                  2,807                1,251                                                                         --------               --------             ---------Cash at end of year  ...........................................       $    1,602              $   5,546            $   2,807                                                                        =========               ========             ========Supplemental disclosures of cash flow information:   Federal, state and local income tax paid ....................       $    1,236              $   1,050            $   3,599   Interest paid  ..............................................            1,805                  1,530                1,605   Issuance of stock to directors...............................               72                     72                   72   Fair value of assets acquired................................              --                   4,204               10,495   Liabilities assumed in acquisitions..........................              --                   1,519                4,685                                     See accompanying notes to consolidated financial statements.                                      F-6**THE NAVIGATORS GROUP, INC. AND SUBSIDIARIES                 NOTES TO CONSOLIDATED FINANCIAL STATEMENTSNote 1.  Organization and Summary of Significant Accounting Policies**     The  accompanying  consolidated  financial  statements  consisting  of  theaccounts of The Navigators  Group,  Inc., a Delaware  holding  company,  and itssixteen  wholly  owned  subsidiaries,  are  prepared on the basis of  accountingprinciples generally accepted in the United States ("GAAP").  Unless the contextotherwise  requires,  the term  "Company"  as used herein  means The  NavigatorsGroup, Inc. and its subsidiaries.  All significant intercompany transactions andbalances are eliminated.  Certain amounts for prior years have been reclassifiedto conform to the current year's presentation.     The Company's two insurance  subsidiaries are Navigators  Insurance Company("Navigators Insurance"),  which includes a United Kingdom Branch ("UK Branch"),and NIC Insurance Company ("NIC"). Navigators Insurance is the Company's largestinsurance subsidiary and has been active since 1983. It specializes  principallyin  underwriting  marine  insurance  and  related  lines  of  business,   and  acontractors'  general  liability  program.  NIC, a wholly  owned  subsidiary  ofNavigators  Insurance,  began operations in 1990. It underwrites a small book ofsurplus  lines  insurance  in certain  states and cedes 100% of its gross directwritings from this business to Navigators  Insurance.  Navigators  Insurance andNIC are collectively referred to herein as the "Insurance Companies".     In order to establish a common  identity  under the  Navigators  name,  theCompany  changed the name of several of its  subsidiaries in March 2001. The newnames will be used throughout this document.  Five of the Company's subsidiariesare marine underwriting  management  companies:  Navigators  Management Company,Inc. (formerly Somerset Marine,  Inc.),  Navigators Insurance Services of Texas,Inc.  (formerly  Somerset  Insurance  Services  of  Texas,   Inc.),   NavigatorsCalifornia  Insurance  Services,  Inc.  (formerly Somerset Insurance Services ofCalifornia,  Inc.), Navigators Insurance Services of Washington,  Inc. (formerlySomerset Insurance Services of Washington,  Inc.) and Navigators Management (UK)Limited (formerly Somerset Marine (UK) Limited)  (collectively,  the "NavigatorsAgencies"). The Navigators Agencies described above (formerly referred to as theSomerset Companies) produce, manage and underwrite insurance and reinsurance forNavigators Insurance, NIC and four unaffiliated insurance companies.     In April 1999,  the  Company  acquired  Anfield  Insurance  Services,  Inc.("Anfield"),  an insurance  agency located in San Francisco,  California,  whichspecializes  in  underwriting  general  liability  insurance  coverage for smallartisan  and  general  contractors  on the West  Coast.  The  purchase  price ofapproximately  $2.7  million,  funded  through a bank loan and working  capital,resulted in goodwill of approximately $2.3 million which is being amortized over20 years.  The  acquisition  has been accounted for under the purchase method ofaccounting.  Anfield produces business  exclusively for the Insurance  Companiesand is included with the Navigators  Agencies unless  otherwise  noted. In 2001,Anfield will become part of Navigators California Insurance Services, Inc.     Navigators  Holdings (UK) Limited is a holding company for the Company's UKsubsidiaries.  Navigators  Management (UK) Limited produces  business for the UKBranch  of  Navigators  Insurance.  Navigators  Corporate  Underwriters  Limited("NCUL")  is  admitted  to do  business  at Lloyd's of London  ("Lloyd's")  as acorporate member with limited  liability.  In January 1998, the Company acquiredMander,  Thomas & Cooper (Underwriting  Agencies) Limited ("MTC"), a Lloyd'smarine  underwriting  managing agency which manages Lloyd's  Syndicate 1221, andits wholly owned subsidiary,  Millennium Underwriting Limited ("Millennium"),  aLloyd's corporate member with limited liability.  The purchase price consists ofinitial cash payments, acquisition costs and contingent consideration based uponfuture performance.  The purchase price of approximately $6.2 million was fundedthrough a bank loan and working  capital.  In addition,  the purchase  agreementrequires payment of additional consideration based on the performance of Lloyd'sSyndicate 1221 managed by MTC.  Goodwill of approximately  $4.0 million has beenrecorded  to date in  connection  with the  transaction.  The  goodwill is beingamortized  over 20 years.  Additional  goodwill  may be recorded in future yearswhen the amount of the future  performance  contingencies are determinable.  Theacquisition has been accounted for under the purchase  method of accounting.  InAugust 1999, MTC formed Pennine Underwriting  Limited, an underwriting  managingagency located in Northern  England,  which  underwrites  cargo and  engineeringbusiness for Lloyd's  Syndicate  1221.  In March 2001,  MTC's Board of Directorsapproved  that MTC's name would be  changed to  Navigators  Underwriting  AgencyLimited. The name change is expected to take place in 2001.                                      F-7     During 1999, the Company  closed  Somerset Asia Pacific  Limited,  a whollyowned  subsidiary  operating  in  Australia  from  which it  incurred  a foreignexchange loss of $346,000.     The Company's revenue is primarily  comprised of premiums,  commissions andinvestment income.  The Insurance  Companies,  managed by Navigators  ManagementCompany,  Inc.  derive their  premium from  business  written by the  NavigatorsAgencies.  The Lloyd's  Operations  derive their premium primarily from businesswritten by MTC.**Investments**     Investments are classified into one of three  categories.  Held-to-maturitysecurities  are debt  securities  that the Company has the  positive  intent andability  to hold to  maturity  and  are  reported  at  amortized  cost.  Tradingsecurities  are  debt  and  equity   securities  that  are  purchased  and  heldprincipally for the purpose of selling them in the near term and are reported atfair  value,   with   unrealized   gains  and  losses   included  in   earnings.Available-for-sale  securities are debt and equity  securities not classified aseither  held-to-maturity  securities or trading  securities  and are reported atfair value, with unrealized gains and losses excluded from earnings and reportedin other comprehensive  income as a separate component of stockholders'  equity.As of December 31, 2000 and 1999, all fixed maturity and equity  securities heldby the Company were classified as available-for-sale.  Premiums and discounts onfixed maturity  securities  are amortized into interest  income over the life ofthe security under the interest method.     Prepayment  assumptions  for  mortgage  and asset  backed  securities  wereobtained from broker/dealer  survey values or from outside investment  managers.These  assumptions  are consistent  with the current  interest rate and economicenvironment.   The  retrospective   adjustment  method  is  used  to  value  allsecurities.     Short-term  investments are carried at cost, which approximates fair value.Short-term investments mature within one year from the purchase date.     Realized  gains and losses on sales of  investments  are  determined on thebasis of the  specific  identification  method.  When a decline in fair value ofinvestments  is considered to be "other than  temporary,"  the  investments  arewritten down to net  realizable  value.  The write down is considered a realizedloss in the consolidated statement of income.**Funds Due From Lloyd's Syndicates**     Funds due from Lloyd's  syndicates  consist primarily of investments,  cashand premiums receivable resulting primarily from the Company's  participation inLloyd's  Syndicate 1221.  These assets are used for the settlement of losses andpayment of expenses related to the business written by the syndicates  includingpayment of the amount to close an underwriting year. The investments included inthe funds due from Lloyd's syndicates are recorded at fair value with unrealizedgains and losses reported in other comprehensive  income as a separate componentof stockholders' equity.     Lloyd's  presents  its results on an  underwriting  year  basis,  generallyclosing each  underwriting  year after three years.  The Company makes estimatesfor each year and timely accrues the expected results. At Lloyd's, the amount toclose an underwriting year into the next year is referred to as the "reinsuranceto  close".  The  reinsurance  to close was $7.9  million  and $15.5  million atDecember 31, 2000 and 1999, respectively.  The reinsurance to close transactionsare recorded as additional  written and earned premium,  losses  incurred,  lossreserves and receivables,  all in the same amount. There were no gains or lossesrecorded on the transactions.                                      F-8**Premium Revenues**     Insurance premiums are recognized as income by the Company during the termsof the related policies.  Unearned premium reserves are established to cover theunexpired portion of written premiums.**Commission Income**     Commission  income consists of commissions and profit  commissions from theunaffiliated  insurance companies.  Commissions from those unaffiliated insurersare based on gross  earned  premiums  and are  recognized  over the terms of therelated  policies.  Profit  commission  is based on estimated  net  underwritingresults of the unaffiliated  insurers.  Changes in prior estimates of commissionincome are recorded when such changes become known.**Deferred Policy Acquisition Costs**     Costs of acquiring business which vary with and are directly related to theproduction of business are deferred and  amortized  ratably over the period thatthe related  premiums are  recognized as earned.  Such costs  primarily  includecommission expense, other underwriting expenses and premium taxes. The method ofcomputing  deferred  policy  acquisition  costs  limits  the  deferral  to theirestimated net realizable value based on the related unearned  premiums and takesinto account  anticipated  losses and loss  adjustment  expenses and maintenanceexpenses based on historical and current  experience and anticipated  investmentincome based on a 5% rate of return.**Reserve for Losses and Loss Adjustment Expenses**     Unpaid losses and loss adjustment  expenses are determined on an individualbasis for claims reported on direct business for insureds, from reports receivedfrom ceding  insurers for insurance  assumed from such insurers and on estimatesbased on Company and industry  experience  for incurred but not reported  claimsand  loss  adjustment  expenses.  The  provision  for  unpaid  losses  and  lossadjustment  expenses has been  established to cover the estimated unpaid cost ofclaims  incurred.  Such  estimates  are  regularly  reviewed and updated and anyresulting  adjustments  are included in the current year's  results.  Managementbelieves  that the unpaid  losses and loss  adjustment  expenses are adequate tocover  the  ultimate  unpaid  claims  incurred,  however,  such  provisions  arenecessarily based on estimates and, accordingly,  no representation is made thatthe ultimate liability will not exceed such amounts.**Net Income Per Share**     The Company  calculates its net income (loss) per share in accordance  withthe  Financial  Accounting  Standards  Board's  ("FASB")  Statement of FinancialAccounting  Standards  ("SFAS") No. 128, Earnings Per Share.  Basic earnings pershare was  computed by dividing  net income by the  weighted  average  number ofshares outstanding for the period. Diluted earnings per share reflects the basicearnings per share  adjusted for the potential  dilution that would occur if theissued stock options were exercised.**Reinsurance Ceded**     Reinsurance   ceded  which  transfers  risk,   premiums,   commissions  andrecoveries  on losses  incurred is reflected  as  reductions  of the  respectiveincome and expense  accounts.  Unearned  premiums ceded and estimates of amountsrecoverable from reinsurers on paid and unpaid losses are reflected as assets.                                      F-9**Depreciation and Amortization**     Depreciation  of  furniture  and fixtures and  electronic  data  processingequipment,  and amortization of computer software is provided over the estimateduseful lives of the respective  assets,  ranging from five to seven years, usingthe  straight-line  method.  Amortization of leasehold  improvements is providedover the estimated lives of the leases using the straight-line method.     The  Company  capitalizes  the  costs of  computer  software  developed  orpurchased  for  internal  use.  As of December  31,  2000 and 1999,  unamortizedcomputer  software  costs  were $1.1  million  and $1.3  million,  respectively.Amortization of computer  software  expense amounted to $377,000 and $332,000 in2000 and 1999, respectively. There was no computer software amortization expensein 1998.**Goodwill**     Goodwill  was $5.3  million and $5.8 million at December 31, 2000 and 1999,respectively,   net  of  accumulated  amortization  of  $790,000  and  $487,000,respectively.  Amortization expense was $304,000, $283,000 and $203,000 in 2000,1999 and 1998, respectively.     The Company  regularly  evaluates the  recoverability of goodwill and otheracquired  intangible  assets. The carrying value of such assets would be reducedthrough a direct  write-off if, in management's  judgment,  it was probable thatprojected future operating income, before amortization of goodwill, would not besufficient on an undiscounted basis to recover the carrying value.**Stock-Based Compensation**     SFAS  No.  123,  Accounting  for  Stock-Based   Compensation,   establishesfinancial accounting and reporting standards for stock-based compensation plans.As permitted by SFAS 123, the Company will continue to use the accounting methodprescribed by Accounting  Principles Board Opinion No. 25,  Accounting for StockIssued to Employees ("APB 25").  Companies using APB 25 are required to make proforma  footnote  disclosures of net income and earnings per share as if the fairvalue method of accounting, as defined in SFAS 123, had been applied.**Federal Income Taxes**     The Company files a  consolidated  Federal  income tax return with its U.S.subsidiaries.  The Company applies the asset and liability  method of accountingfor income taxes. Under the asset and liability method,  deferred tax assets andliabilities  are  recognized  for the future tax  consequences  attributable  todifferences  between the financial statement carrying amounts of existing assetsand  liabilities  and their  respective  tax  bases.  Deferred  tax  assets  andliabilities  are measured  using enacted tax rates  expected to apply to taxableincome in the years in which  those  temporary  differences  are  expected to berecovered  or settled.  The effect on deferred tax assets and  liabilities  of achange in tax rates is  recognized  in income in the period  that  includes  theenactment date.**Use of Estimates**     The  preparation of financial  statements in conformity  with GAAP requiresmanagement to make estimates and assumptions that affect the reported amounts ofassets and  liabilities  and disclosure of contingent  assets and liabilities atthe date of the financial  statements  and the reported  amounts of revenues andexpenses  during the reporting  period.  Actual  results could differ from theseestimates.                                      F-10**Future Application of Accounting Standards**     SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities,was issued in June 1998 and establishes  accounting and reporting  standards forderivative  instruments,  including certain derivative  instruments  embedded inother  contracts,  (collectively  referred  to as  derivatives)  and for hedgingactivities.  It requires  that an entity  recognize  all  derivatives  as eitherassets or liabilities  in the statement of financial  position and measure thoseinstruments at fair value. SFAS No. 133, as amended by SFAS 137, Deferral of theEffective Date of SFAS 133, is effective for all fiscal quarters of fiscal yearsbeginning  after June 15, 2000.  Earlier  application is  encouraged,  but it ispermitted  only as of the  beginning  of any fiscal  quarter  that begins  afterissuance  of this  statement.  SFAS 133 should not be applied  retroactively  tofinancial  statements of prior  periods.  In June 2000, the FASB issued SFAS No.138,   Accounting  for  Certain  Derivative   Instruments  and  Certain  HedgingActivities,  an amendment of SFAS No. 133, which amends  certain  accounting andreporting  standards of SFAS No. 133. The  adoption of these  statements  is notexpected to have any effect on the Company's  results of operations or financialcondition.**Note 2. Investments**The Company's  fixed  maturities and equity  securities at December 31, 2000 and1999 were as follows:**Gross               Gross                                              Amortized            Unrealized          Unrealized         FairDecember 31, 2000Cost or CostGains(Losses)Value***(In thousands)*Fixed maturities:   U.S. Government Treasury Bonds      and GNMAs..........................       $ 46,320              $ 2,230            $    (76)     $  48,474   States, municipalities and political      subdivisions.......................         59,132                1,588                (237)        60,483   Mortgage and asset backed      (excluding GNMAs)..................         59,869                  658              (1,062)        59,465   Corporate bonds.......................         56,486                  985                (765)        56,706                                                --------               ------             -------       --------      Total fixed maturities.............       $221,807              $ 5,461             $(2,140)     $ 225,128                                                 =======               ======              ======        =======Equity securities - common stocks........       $  5,608              $   888            $   (227)      $  6,269                                                 =======               ======             =======          =====**Gross               Gross                                                 Amortized         Unrealized          Unrealized        FairDecember 31, 1999Cost or CostGains(Losses)Value**                                                                         (In thousands)Fixed maturities:   U.S. Government Treasury Bonds      and GNMAs..........................       $ 43,382              $   206           $  (1,340)      $ 42,248   States, municipalities and political      subdivisions.......................         93,965                1,472              (1,586)        93,851   Mortgage and asset backed      (excluding GNMAs)..................         52,249                    4              (2,465)        49,788   Corporate bonds.......................         37,258                   21              (1,629)        35,650   Redeemable preferred stock............          1,021                    6                  (9)         1,018                                                 -------               ------             -------        -------      Total fixed maturities.............       $227,875              $ 1,709           $  (7,029)      $222,555                                                 =======               ======              ======        =======Equity securities - common stocks........       $ 11,105              $ 1,222           $    (487)      $ 11,840                                                 =======               ======            ========        =======                                      F-11The Company's fixed maturity securities by years of maturity were as follows:**Period from           December 31, 2000                                  Amortized        Fair              to Maturity     CostValue***(In thousands)*One year or less...................................         $   4,646        $   4,671Over one year through five years...................            37,594           38,456Over five years through ten years..................            52,663           55,828More than ten years................................            29,599           29,821Mortgage and asset backed (including GNMAs)........            97,305           96,352                                                             --------         --------   Total...........................................          $221,807         $225,128                                                              =======          =======     Due to the periodic  repayment of principal,  the mortgage and asset backedsecurities  are  estimated to have an effective  maturity of  approximately  sixyears.  Expected  maturities  may differ  from  contractual  maturities  becauseissuers may have the right to call or prepay obligations with or without call orprepayment penalties.     Net  investment  income  of the  Company  was  derived  from the  followingsources:**Year Ended December 31,                 200019991998***(In thousands)*  Fixed maturities..........................           $17,801                 $15,713                  $13,784  Equity securities.........................               252                     363                      230  Short-term investments....................               997                     573                    1,874                                                       -------                  ------                   ------                                                        19,050                  16,649                   15,888  Investment expenses.......................              (603)                   (664)                    (679)                                                       -------                    ----                     ----  Net investment income.....................           $18,447                 $15,985                  $15,209                                                        ======                  ======                   ======          The Company's realized capital gains and losses were as follows:**Year Ended December 31,                 200019991998***(In thousands)*  Fixed maturities:     Gains..................................          $    975                $  1,108                   $  768     (Losses)...............................            (1,454)                   (549)                     (99)                                                       -------                   -----                    -----                                                          (479)                    559                      669                                                       -------                   -----                  -------  Equity securities and other investments:     Gains..................................             1,168                     492                    1,196     (Losses)...............................              (424)                 (1,494)                    (434)                                                       -------                  ------                    -----                                                           744                  (1,002)                     762                                                       -------                  ------                    -----  Net realized capital gains (losses).......          $    265                $   (443)                  $1,431                                                       =======                 =======                    =====     At December 31, 2000 and 1999,  fixed  maturities with amortized  values of$6,814,000  and  $6,825,000,  respectively,  were on deposit with various  StateInsurance Departments.  In addition, at December 31, 2000 and 1999, $137,000 and$132,000,  respectively, were on deposit with the Bank of England for NavigatorsInsurance's  UK  Branch.  Also,  at  December  31,  2000 and 1999,  $405,000  ofinvestments were pledged as security under a reinsurance treaty.                                      F-12     At December 31, 2000, the Company did not have a  concentration  of greaterthan 10% of invested assets in a single issuer.     In 1998, the Company  disposed of its investment in Riverside  UnderwritersPlc ("Riverside").  The Company received a payment of (pound)225,000  ($382,000)in 1998 and recorded a loss on the  disposal  of(pound)250,000  ($420,000).  Theremaining  payments  of(pound)300,000  and  (pound)225,000  were due in 1999 and2000,  respectively.  The  payment  due in  1999  was  not  received  and it wasconsidered  unlikely  that the 1999 or 2000  payments  would be  received in theforeseeable  future.  Therefore,  the Company recorded an additional loss on theinvestment  in 1999  of(pound)525,000  ($865,000).  No payments were received in2000.     In addition to the disposal of the investment in Riverside, pretax earnings(losses)  related to Riverside  for 1999 and 1998 of  ($215,000)  and  $393,000,respectively,  were included in other income.  The Company recorded its share ofRiverside's  earnings  from  underwriting  when  sufficient  information  becameavailable to provide  reasonable  estimates of earned  premiums and losses.  Thelast  underwriting  year  that  the  Company  participated  at  Lloyd's  throughRiverside  was 1996 which  closed on December  31, 1998 under the Lloyd's  threeyear methodology.**Note 3.  Notes Payable and Letters of Credit**     On December 21, 1998, the Company entered into a new bank credit  facility,as amended,  which  replaced the prior  facility.  The new credit  facility,  asamended on September 20, 2000,  provides a $26 million  revolving line of creditat an interest rate of either,  at the Company's  election,  the base commerciallending  rate of one of the banks or at LIBOR plus 1.25% on the used  portion ofthe line of credit.  The  commitment  fee on the  unused  portion of the line ofcredit is 0.25%.  The line of credit  facility  reduces  each quarter by amountsbetween  $1.0  million  and $2.25  million  beginning  January  1, 2000 until itterminates on November 19, 2004. At December 31, 2000 and 1999,  $22 million and$24 million in loans were outstanding, respectively, under the revolving line ofcredit facility at an interest rate of 7.6% and 7.1%,  respectively.  The creditfacility  also  provides for a $55 million  letter of credit  facility  which isutilized  primarily by NCUL and Millennium to  participate in Lloyd's  Syndicate1221  managed  by MTC.  The cost of the  letters  of credit is 1.3% for the usedportion and 0.25% for the unused  portion of the letter of credit  facility.  AtDecember 31, 2000 and 1999,  letters of credit with an aggregate  face amount of$46.6 million and $42.2 million,  respectively,  were issued under the letter ofcredit facility. In 2000, $78,500 of these letters of credit were drawn upon.     The credit  facility  is  collateralized  by shares of common  stock of theCompany's major subsidiary and contains certain financial  covenants  consistingof requirements for minimum  consolidated  tangible net worth, minimum statutorysurplus, minimum risk-based capital and a leverage ratio**Note 4.  Fiduciary Funds**     The Navigators Agencies maintain fiduciary accounts for the insurance poolsthey manage. Functions performed by the Navigators Agencies include underwritingbusiness,  collecting premiums from the insured, paying claims,  collecting paidrecoverables  from  reinsurers,  paying  reinsurance  premiums to reinsurers andremitting net account balances to member insurance companies. Funds belonging tothe insurance pools are held in a fiduciary capacity.                                      F-13         The fiduciary accounts as of December 31, 2000 and 1999 were as follows:**December 31,                   20001999***(In thousands)*         Cash and short-term investments.............          $12,991                       $ 7,019         Premiums receivable.........................           32,932                        31,802         Reinsurance balances receivable (payable)...           (4,304)                         (378)                                                              --------                        ------                Total assets.........................          $41,619                       $38,443                                                                ======                        ======         Due to insurance companies..................          $41,619                       $38,443                                                                ------                        ------                Total liabilities....................          $41,619                       $38,443                                                                ======                        ======         The fiduciary accounts above were not included in the accompanying consolidated balance sheets.**Note 5.  Income Taxes**         The components of current and deferred income tax expense (benefit) were as follows:**Year Ended December 31,                 200019991998***(In thousands)*Current:   Federal and foreign......................                 $2,507                   $   (499)            $ 2,887   State and local..........................                     58                         49                 213                                                             ------                     ------              ------      Total.................................                 $2,565                   $   (450)            $ 3,100                                                              =====                    =======               =====Deferred:   Federal and foreign......................                 $  718                   $   (560)            $   595   State and local..........................                     23                       (730)                (31)                                                              -----                     ------                ----      Total.................................                 $  741                    $(1,290)             $  564                                                              =====                     ======               ======     A  reconciliation  of total income taxes  applicable  to pre-tax  operatingincome and the amounts  computed by applying  the Federal  statutory  income taxrate to the pre-tax operating income was as follows:**200019991998***(Dollars in thousands)*Computed expected   tax expense..............................     $3,618        35.0%        $(1,887)   (35.0)%      $5,304       35.0%Tax-exempt interest.........................     (1,313)      (12.7)         (1,747)   (32.4)       (2,139)     (14.1)Dividends received deduction................        (59)       (0.6)            (88)    (1.6)          (48)      (0.3)State and local income taxes, net of   Federal income tax.......................         53         0.6            (442)    (8.2)          118        0.8State and local tax net operating loss   carryforward.............................       (453)       (4.4)           (941)   (17.5)          --         --Valuation allowance.........................      1,375        13.3           2,879     53.4           465        3.0Other.......................................         85         0.8             486      9.0           (36)      (0.2)                                                  -----        ----        --------    -----        ------       ----                                                 $3,306        32.0%        $(1,740)   (32.3)%      $3,664       24.2%                                                  =====        ====          ======    =====         =====       ====                                      F-14     The tax  effects  of  temporary  differences  that  give  rise to  Federal,foreign,  state and local deferred tax assets and deferred tax liabilities  wereas follows:**December 31,                 20001999***(In thousands)*Deferred tax assets:   Loss reserve discount......................................              $  6,386                $  6,195   Unearned premium...........................................                 1,817                   1,309   Alternative minimum tax carryforward.......................                 5,276                   6,376   Net unrealized losses on securities........................                   --                    1,605   Foreign operations net operating loss carryforward.........                 4,433                   3,511   State and local net operating loss carryforward............                 1,394                     941   Other......................................................                   418                     531                                                                             -------                 -------Total gross deferred tax assets...............................                19,724                  20,468Less valuation allowance......................................                (5,827)                 (4,452)                                                                             -------                 -------     Total deferred tax assets................................                13,897                  16,016                                                                             -------                 -------Deferred tax liabilities:   Deferred acquisition costs.................................                (1,339)                   (824)   Contingent commission receivable...........................                (1,765)                 (1,965)   Net unrealized gains on securities.........................                (1,394)                    --   Net deferred state and local income tax....................                  (398)                   (374)                                                                             -------                 -------     Total deferred tax liabilities...........................                (4,896)                 (3,163)                                                                             -------                  ------     Net deferred tax asset...................................              $  9,001                 $12,853                                                                             =======                  ======     In assessing the realization of deferred tax assets,  management  considerswhether  it is more  likely  than not  that  the  deferred  tax  assets  will berealized.  The ultimate realization of deferred tax assets is dependent upon thegeneration of future taxable income during the periods in which those  temporarydifferences  become deductible.  Management  considers the scheduled reversal ofdeferred tax liabilities, tax planning strategies and anticipated future taxableincome in making  this  assessment  and  believes it is more likely than not theCompany will realize the benefits of its deductible  differences at December 31,2000, net of any valuation allowance.     Valuation  allowances  of  $4,433,000  and  $3,511,000  for the years endedDecember  31,  2000  and  1999,  respectively,   were  established  due  to  theuncertainty  associated  with the  realization of the deferred tax asset for thecarryforward of operating losses from the Company's foreign operations.     The  Company  also had net  state and local  operating  loss  carryforwardsamounting  to  potential  future tax  benefits  of  $1,394,000  and  $941,000 atDecember 31, 2000 and 1999, respectively.  A valuation allowance was establishedfor the amount of the tax benefit  due to the  uncertainty  associated  with therealization of the deferred tax asset.                                      F-15**Note 6.  Reserves for Losses and Loss Adjustment Expenses**         The following table summarizes the activity in the Company's reserve for losses and loss adjustment  expenses ("LAE") during thethree most recent years:                                                                                    Year Ended December 31,            200019991998*(In thousands)*Net reserves for losses and LAE at      beginning of year..............................                     $170,530        $150,517           $139,841                                                                           -------         -------            -------Provision for losses and LAE for    claims occurring in the current year.............                       60,152          45,001             46,050Lloyd's portfolio transfer - reinsurance to close....                        7,854          15,533             19,655Increase (decrease) in estimated losses and    LAE for claims occurring in prior years..........                       (4,994)          9,380             (3,383)                                                                          --------        --------           --------Incurred losses and LAE..............................                       63,012          69,914             62,322                                                                          --------        --------           --------Losses and LAE payments for claims    occurring during:       Current year..................................                      (15,358)       (10,925)             (9,848)       Prior years...................................                      (43,301)       (38,976)            (41,798)                                                                          --------         ------             -------Losses and LAE payments..............................                     ( 58,659)       (49,901)            (51,646)                                                                           -------         ------             -------Net reserves for losses and LAE at end of year.......                      174,883        170,530             150,517                                                                           -------        -------             -------Reinsurance receivable on unpaid losses and LAE......                      182,791        220,564             191,927                                                                           -------        -------             -------Gross reserves for losses and LAE at end of year.....                     $357,674       $391,094          $  342,444                                                                           =======        =======           =========     The  deficiency  for the year ended  December  31, 1998  resulted  from theunrecoverable  reinsurance  from  New Cap Re and  reserve  strengthening  in theCompany's Lloyd's subsidiary.     The Company  controlled  75.6% of  Syndicate  1221's  capacity for the 2000underwriting  year. The actual capacity was  (pound)66,297,000  ($95,985,000) ofwhich the Company  directly  controlled(pound)42,772,000  ($61,925,000) or 64.5%and indirectly  controlled  (pound)7,340,000  ($10,627,000) or 11.1%.  Since thecontrolled  capacity  exceeded 75% in 2000,  Lloyd's  Mandatory Byelaw (No. 5 of1999)  required  the  Company  to  make  a  mandatory  offer  to   noncontrolledparticipants for their capacity at the first Lloyd's capacity auctions beginningin July 2000. As a result,  the Company purchased an  additional(pound)7,379,000($11,018,000)  of capacity  for 2001  through  the auction  process in 2000 at atotal cost of(pound)133,000 ($199,000).     The  offer  was made at 1.8  pence  per(pound)1  of  capacity  which is theminimum  price that the Company was  obliged to offer,  being the highest  pricepaid for  capacity  during the prior 12 months.  If the Company  exceeds the 90%control threshold,  Lloyd's Major Syndicate Transactions Byelaw (No. 18 of 1997)allows  for a  Minority  Buy-out  to be  effected.  In  such a  transaction  theremaining  participants  are  required  to give up their  capacity in return forcompensation  which  must be at least  equal to the offer  price  preceding  thebuy-out.  Syndicate  1221's  capacity for 2001 will be  approximately(pound)66.3million of which the Company will directly control 67.4% and indirectly  control20.7%.     The Company  provides letters of credit to Lloyd's to support its Syndicate1221 capacity. If the amount of capacity controlled increases,  the Company willbe  required  to  supply  additional  letters  of  credit  or  other  collateralacceptable to Lloyd's, or to reduce the capacity of Syndicate 1221.     During  2000,  1999 and 1998,  the  Company  paid  gross  losses and LAE of$1,158,000, $665,000 and $2,091,000,  respectively, resulting in net paid lossesand LAE of $173,000,  $378,000 and  $369,000,  respectively,  for  environmentalpollution and asbestos  related  claims.  As of December 31, 2000 and 1999,  theInsurance  Companies  carried  gross  reserves  of  $3,364,000  and  $3,712,000,respectively, and net reserves of $994,000 and $1,088,000, respectively, for thepotential  exposure to such claims.  At December  31, 2000,  there were 412 openclaims with environmental  pollution or asbestos exposures.  Management believesthat its reserves for such claims are adequate because the Insurance  Companies'participation in such risks was generally in the higher excess layers and, basedon a continuing  review of such claims,  management  believes that a majority ofthese claims will be unlikely to penetrate  such high excess layers of coverage;however,  due  to the  significant  assumptions  inherent  in  estimating  theseexposures, actual liabilities could differ from current estimates.                                      F-16**Note 7.  Reinsurance**         The following table summarizes earned premium:                                                                         Year Ended December 31,                      200019991998*(In thousands)*         Direct.............................         $144,057                        $107,939                  $102,256         Assumed............................           32,791                          55,465                    67,422         Ceded..............................          (79,608)                        (73,962)                  (78,475)                                                      -------                         -------                   -------         Net................................        $  97,240                        $ 89,442                  $ 91,203                                                     ========                         =======                   =======         The following table summarizes written premium:                                                                         Year Ended December 31,                       200019991998*(In thousands)*         Direct.............................         $155,888                        $120,426                 $  92,910         Assumed............................           32,537                          46,686                    79,301         Ceded..............................          (80,332)                        (73,028)                  (83,729)                                                     --------                         -------                   -------         Net................................         $108,093                        $ 94,084                 $  88,482                                                      =======                         =======                  ========     The 2000,  1999 and 1998 assumed  written and earned premium  includes $7.9million,  $15.5 million, and $19.7 million,  respectively,  of Lloyd's portfoliotransfers to close the 1998, 1997 and 1996 underwriting years, respectively.     Ceded  losses  and loss  adjustment  expenses  incurred  were  $60,602,000,$112,870,000, and $126,392,000 in 2000, 1999, and 1998, respectively.     A contingent  liability exists with respect to reinsurance ceded, since theCompany would be required to pay losses in the event the assuming reinsurers areunable to meet their obligations under their reinsurance agreements.     At  December  31,  2000,  the  Company  had  uncollateralized   reinsurancereceivables  from the following six reinsurers which were in excess of 5% of theInsurance  Companies'  statutory  surplus:   Folksamerica  Reinsurance  Company,$8,903,000;  General  Reinsurance  Company,  $8,075,000;   American  ReinsuranceCompany, $6,750,000;  Employers Mutual Casualty Company,  $5,910,000;  InsuranceCorporation of New York, $5,893,000; and National Liability & Fire InsuranceCompany, $5,772,000.     The  Company's   Reinsurance  Security  Committee  monitors  the  financialstrength of its reinsurers and the related reinsurance receivables. An allowanceis  established  to the extent that it is  determined  that the ultimate  amountcollectible  is less than the amount  recorded as a receivable.  At December 31,2000  and  1999,  there  was  an  allowance  for  uncollectible  reinsurance  of$2,500,000 and $1,250,000,  respectively. The expense recorded for uncollectiblereinsurance  was  $1,250,000,  $7,016,000  and $58,000 for 2000,  1999 and 1998,respectively.  The 1999 expense for  uncollectible  reinsurance is primarily theresult of New Cap Reinsurance  Corporation  Limited,  which  participated on theCompany's  1998 and 1999  reinsurance  programs,  being  under the control of anAdministrator for possible liquidation.                                      F-17**Note 8.  Financial Instruments**     The following table presents the carrying amounts and estimated fair valuesof the Company's financial instruments:**December 31, 2000          December 31, 1999                                                      Carrying           Fair            Carrying              Fair                                                AmountValueAmountValue***(In thousands)*     Financial assets:        Fixed maturities............            $225,128          $225,128           $222,555        $222,555        Equity securities...........               6,269             6,269             11,840          11,840        Short-term investments......              18,186            18,186              6,747           6,747     Financial liabilities:        Notes payable to banks......            $ 22,000         $  22,000          $  24,000       $  24,000     The carrying  amounts  shown in the table are included in the  consolidatedbalance sheets under the indicated captions.     The fair values of fixed maturity and equity securities are based on quotedmarket prices at the reporting date for those or similar investments. Short-terminvestments are carried at cost,  which  approximates  fair value.  The carryingamounts  of premium  receivables  approximate  fair  value  because of the shortmaturity of those instruments.     The fair  value  of the  Company's  loans  payable  to  banks  approximatescarrying value since the interest rate charged is computed using market rates.**Note 9.  Stock Option Plans**     The Company has an Incentive  Stock Option Plan and a Non  Qualified  StockOption  Plan which  allow for the grant to key  employees  of the  Company,  itssubsidiaries and affiliates,  options to purchase an aggregate of 900,000 sharesof its common stock.     All options are  exercisable  upon  vesting for one share of the  Company'scommon  stock and are  granted at  exercise  prices no less than 90% of the fairmarket  value of the  common  stock on the date of the  grant.  No  amounts  arecharged to expense  upon the granting of options  under the plans.  Options vestequally over a four year period and have a maximum term of ten years.                                      F-18         Stock options outstanding at December 31, 2000, 1999 and 1998 were as follows:**2000                 1999                 1998**                                                  Average                   Average                  Average                                    No. of        Exercise       No. of     Exercise    No. of       Exercise                                    SharesPricesSharesPricesSharesPricesOptions outstanding at   beginning of year.......        243,650        $19.01       442,750        $19.79     477,925       $19.37     Granted...............        277,500        $10.65        30,000        $14.00      79,500       $17.00     Exercised.............           -             -           (3,100)       $14.25     (75,925)      $14.09     Expired or forfeited..        (10,250)       $12.82      (226,000)       $19.80     (38,750)      $20.07                                   -------                    --------                   -------Options outstanding at   end of year.............        510,900        $14.59       243,650        $19.01     442,750       $19.79                                   =======                     =======                   =======Number of options   exercisable.............        241,025        $18.56       176,338        $20.29     370,750       $20.33     The Company has a Stock Appreciation Rights Plan which allows for the grantof up to 300,000 stock appreciation  rights at prices of no less than 90% of thefair market value of the common stock.  The Company granted  116,000,  2,500 and13,500  stock  appreciation  rights in 2000,  1999 and 1998,  respectively.  Theamounts charged to expense  (recovered) in 2000, 1999 and 1998 were $32,000,  $0and ($171,000), respectively.     The Company accounts for stock options in accordance with the provisions ofAccounting Principles Board (APB) Opinion No. 25, Accounting for Stock Issued toEmployees, which requires compensation expense to be recognized only if the fairvalue of the  underlying  stock at the grant date exceeds the exercise  price ofthe option.  Accordingly,  no  compensation  cost has been  recognized for stockoptions.  Had compensation  cost for the Company's stock options been determinedconsistent  with SFAS No.  123,  Accounting  for Stock Based  Compensation,  theCompany's  net income and  income per share  would have been  reduced to the proforma amounts indicated in the following table:                                                                          200019991998Net income (loss) (in thousands):       As reported                     $  7,032        $  (3,652)      $ 11,489                                        Pro forma                       $  6,855        $  (3,738)      $ 11,243Basic income (loss) per share:          As reported                     $   0.84        $   (0.43)      $   1.37                                        Pro forma                       $   0.81        $   (0.44)      $   1.34Diluted income (loss) per share:        As reported                     $   0.84        $   (0.43)      $   1.36                                        Pro forma                       $   0.81        $   (0.44)      $   1.33     The fair value of each option grant is estimated on the date of grant usingthe Black-Scholes  option-pricing model with the following  assumptions used forthe options granted: no dividend yield;  expected volatility of 33.9%, 33.0% and32.3% in 2000,  1999 and 1998,  respectively;  risk free interest rate of 6%, 6%and 5% for 2000, 1999 and 1998,  respectively;  and expected life of 6 years for2000,  1999 and 1998.  The weighted  average  fair value of options  granted was$4.75, $6.16 and $7.03 in 2000, 1999 and 1998, respectively.                                      F-19         The following table summarizes information about options outstanding at December 31, 2000:**Outstanding        Average Remaining              Average            Exercisable           AveragePrice RangeSharesContract LifeExercise PriceSharesExercise Price**$10 to $11              270,500                  9.4                     10.65               26,000              10.88$14 to $17              180,400                  5.6                     15.14              155,025              15.12$28 to $34               60,000                  2.2                     30.75               60,000              30.75**Note 10.  Employee Benefits**     The Company sponsors a defined contribution plan covering substantially allits U.S.  employees.  Contributions are equal to 15% of each eligible employee'sgross pay (plus  bonus of up to $2,500) up to the  amount  permitted  by certainFederal regulations.  Employees vest at 20% per year beginning at the end of thesecond year and are  therefore  fully  vested  after six years of service.  Planexpense, included within operating expenses,  amounted to $708,000, $731,000 and$607,000 in 2000, 1999 and 1998,  respectively.  The Company  sponsors a similarplan  under UK  regulations  for its UK  employees  for  which the  Company  hadexpenses  of  $420,000,   $358,000  and  $142,000  for  2000,   1999  and  1998,respectively.     The Company has a 401(k) Plan for all  eligible  employees.  Each  eligibleemployee  can  contribute  up to 8% of their salary  limited by certain  Federalregulations. The Company does not match any of the employee contributions.**Note 11.   Dividends from Subsidiaries and Statutory Financial Information**     Navigators  Insurance may pay dividends to the Company out of its statutoryearned  surplus  pursuant to statutory  restrictions  imposed under the New YorkInsurance  Law.  The maximum  amount  available  for the payment of dividends byNavigators   Insurance  during  2000  without  prior   regulatory   approval  is$11,464,000.  Navigators  Insurance paid $11,000,000 in dividends to the Companyin 2000 and $8,500,000 in 1999.     The UK Branch is required to maintain certain capital requirements under UKregulations.     The Insurance  Companies' statutory net income as filed with the regulatoryauthorities for 2000, 1999 and 1998 was $16,334,000, $9,320,000 and $17,987,000,respectively. The statutory surplus as filed with the regulatory authorities was$114,642,000 and $110,273,000 at December 31, 2000 and 1999, respectively.     The  Insurance  Companies,  domiciled  in New York State,  prepare and filetheir statutory  financial  statements in accordance  with accounting  practicesprescribed or permitted by the New York State Insurance  Department.  Prescribedstatutory  accounting practices ("SAP") include a variety of publications of theNational Association of Insurance Commissioners ("NAIC"), as well as state laws,regulations,  and general  administrative rules.  Permitted statutory accountingpractices  encompass all accounting  practices not so prescribed.  The InsuranceCompanies do not apply any permitted accounting practices.     The  significant  differences  between SAP and GAAP are that under SAP: (1)acquisition  and  commission  costs are expensed when incurred  while under GAAPthese costs are deferred and  amortized  as the related  premium is earned;  (2)bonds are  stated at  amortized  cost,  while  under  GAAP  bonds are held in anavailable-for-sale account and reported at fair value, with unrealized gains andlosses  recognized  in other  comprehensive  income as a separate  component  ofstockholder's  equity;  (3) federal income taxes are recorded when payable whileunder GAAP deferred taxes are provided to reflect temporary  differences betweenthe  carrying  values  and tax basis of assets  and  liabilities;  (4)  unearnedpremiums and loss  reserves are  reflected net of ceded amounts while under GAAPthe unearned  premiums and loss reserves are reflected  gross of ceded  amounts;(5) agents'  balances over ninety days due are excluded from the balance  sheet,and uncollateralized  amounts due from unauthorized reinsurers are deducted fromsurplus, while under GAAP they are restored to the balance sheet, subject to theusual tests regarding recoverability.                                      F-20     The  NAIC  recently  completed  a  process  intended  to  codify  statutoryaccounting practices for insurance enterprises. As a result of this process, theNAIC will issue a revised statutory  Accounting  Practices and Procedures Manualthat will be effective  January 1, 2001 for the calendar year 2001.  The Companywill prepare its statutory  basis  financial  statements in accordance  with therevised  statutory  manual subject to any deviations  prescribed or permitted bythe New York  insurance  commissioner.  The  Company has  determined  that thesechanges  would not have resulted in a negative  impact to the statutory  capitaland surplus of the  Insurance  Companies  had the changes been  implemented  for2000.     As part of its general  regulatory  oversight  process,  the New York StateInsurance  Department (the "Department")  conducts detailed  examinations of thebooks,  records and accounts of New York insurance companies every three to fiveyears.  The Insurance  Companies  were examined by the  Department for the years1991  through  1995.  There  were no  adjustments  to the  Insurance  Companies'previously filed statutory financial statements.**Note 12.  Commitments and Contingencies**a.   Future minimum annual rental commitments at December 31, 2000 under various     noncancellable operating leases for the Company's office facilities,  which     expire at various dates through 2010, are as follows:       Year Ended December 31,*(In thousands)*              2001...................................                  $   1,489              2002...................................                      1,462              2003...................................                      1,398              2004...................................                      1,205              2005 and subsequent....................                      5,218                                                                        --------              Total..................................                  $  10,772                                                                        ========     The Company is also liable for  additional  payments to the  landlords  for     certain  annual cost  increases.  Rent expense for the years ended December     31,  2000,  1999  and  1998  was  $1,590,000,  $1,468,000  and  $1,298,000,     respectively.b.   The Company is not a party to or the subject of, any material pending legal     proceedings which depart from the ordinary routine  litigation  incident to     the kinds of business conducted by the Company, except for an assessment on     Navigators  Insurance by the Institute of London  Underwriters  ("ILU"). In     late 1998, the ILU advised its then current  forty-one  members,  including     Navigators    Insurance,    that   they   were    each    being    assessed     approximately(pound)900,000 ($1.3 million) to pay for anticipated operating     deficits  arising from the long term lease of the ILU  building  located in     London (the "ILU  Building").  This assessment was to be paid in cash or by     providing a letter of credit.     Even assuming that Navigators  Insurance could be held  responsible for the     assessment,  Navigators  Insurance has informed the ILU that it opposes the     assessment as inequitable and inappropriate  since it purports to force the     ILU's members  (without  regard to the length of membership,  proportionate     usage of the ILU's London Processing Centre or current or past occupancy of     the ILU Building) to pay now for potential worst case liabilities extending     through 2011.     The ILU has,  thus far,  not filed suit to enforce the  assessment  against     Navigators  Insurance.  In the  event  the  ILU  does  file  such  a  suit,     Navigators Insurance intends to vigorously contest liability for payment of     the assessment.  It is not possible to forecast the ultimate liability,  if     any, at the present time.                                      F-21**Note 13.  Segment Information**     The  Company's  subsidiaries  are  primarily  engaged  in the  writing  andmanagement of property and casualty  insurance.  The Company's  segments includethe Insurance  Companies,  the Navigators  Agencies and the Lloyd's  Operations,each of  which  is  managed  separately.  The  Insurance  Companies  consist  ofNavigators Insurance and NIC and currently are primarily engaged in underwritingmarine  insurance  and related  lines of business,  and a  contractors'  generalliability program. The Navigators Agencies are underwriting management companieswhich  produce,  manage  and  underwrite  insurance  and  reinsurance  for  bothaffiliated and unaffiliated companies.  The Lloyd's Operations underwrite marineand related  lines of business at Lloyd's of London.  All segments are evaluatedbased on their GAAP  underwriting or operating  results which are prepared usingthe  accounting  policies  described  in the summary of  significant  accountingpolicies in Note 1.     The Insurance Companies and the Lloyd's Operations are measured taking intoaccount net  premiums  earned,  incurred  losses and loss  expenses,  commissionexpense  and other  underwriting  expenses.  The  Navigators  Agencies'  resultsinclude  commission  income less other  operating  expenses.  Each  segment alsomaintains their own  investments,  on which they earn income and realize capitalgains or losses. Other operations include intersegment income and expense in theform of affiliated commissions, income and expense from corporate operations andconsolidating adjustments.Financial data by segment for 1998 through 2000 is as follows:                                                                                Year ended December 31,200019991998*(In thousands)*Revenue, excluding net investment income and   net realized capital gains (losses):   Insurance Companies........................................         $   44,389    $   42,001        $  50,983   Navigators Agencies........................................             13,120         5,430           12,935   Lloyd's Operations.........................................             53,114        48,266           42,455   Other operations...........................................             (9,251)       (5,615)          (7,893)                                                                          -------     ---------         --------     Total....................................................           $101,372    $   90,082        $  98,480                                                                          =======     =========         ========Net investment income:   Insurance Companies........................................         $   15,536    $   14,573        $  14,658   Navigators Agencies........................................                 98            65                8   Lloyd's Operations.........................................              2,796         1,342              535   Other operations...........................................                 17             5                8                                                                        ---------     ---------         --------     Total....................................................         $   18,447    $   15,985        $  15,209                                                                        =========     =========         ========Net realized capital gains (losses):   Insurance Companies........................................         $      177    $      295        $   1,851   Navigators Agencies........................................                  -            -                 -   Lloyd's Operations.........................................                 88           127                -   Other operations...........................................                  -          (865)            (420)                                                                        ---------     ---------         --------     Total....................................................         $      265    $     (443)       $   1,431                                                                        =========     ==========        ========Income loss before tax expense (benefit):   Insurance Companies........................................         $   18,890    $   10,474        $  20,458   Navigators Agencies........................................             (1,947)       (9,857)          (2,619)   Lloyd's Operations.........................................             (2,296)       (4,395)             279   Other operations...........................................             (4,309)       (1,614)          (2,965)                                                                        ---------     ---------           ------     Total....................................................         $   10,338    $   (5,392)       $  15,153                                                                        =========     =========         ========                                      F-22Income tax expense (benefit):   Insurance Companies........................................         $    5,241    $    2,021        $    4,922   Navigators Agencies........................................               (484)       (3,286)              (76)   Lloyd's Operations.........................................                  -           221                -   Other operations...........................................             (1,451)         (696)           (1,182)                                                                        ---------     ---------          --------     Total....................................................         $    3,306    $   (1,740)        $   3,664                                                                        =========     =========          ========Net income (loss):   Insurance Companies........................................         $   13,649    $    8,453         $  15,536   Navigators Agencies........................................             (1,463)       (6,570)           (2,543)   Lloyd's Operations.........................................             (2,296)       (4,616)              279   Other operations...........................................             (2,858)         (919)           (1,783)                                                                        ---------     ---------          --------     Total....................................................         $    7,032    $   (3,652)        $  11,489                                                                        =========     =========          ========Identifiable assets:   Insurance Companies........................................           $506,863      $543,035          $532,320   Navigators Agencies........................................             11,741         2,478            15,406   Lloyd's Operations.........................................             95,229        70,112            50,069   Other operations...........................................              1,142        15,699            (5,708)                                                                        ---------       -------           -------     Total....................................................         $  614,975      $631,324          $592,087                                                                        =========       =======           =======**Note 14.  Earnings Per Common Share**     Following is a  reconciliation  of the numerators and  denominators  of thebasic and  diluted  earnings  per share  ("EPS")  computations  for the  periodsindicated:                                                                             Year ended December 31, 2000                                                                                                          Average                   Net                                                                 Net                     Shares                Income                                                                IncomeOutstandingPer ShareBasic EPS:   Income available to common stockholders     ...........    $7,032,000              8,413,851                 $0.84Effect of Dilutive Securities:   Stock options..........................................                                 -Diluted EPS:   Income available to common stockholders     ..........     $7,032,000              8,413,851                 $0.84                                                                             Year ended December 31, 1999                                                                                                          Average                 Net                                                                 Net                     Shares                (Loss)                                                                (Loss)OutstandingPer ShareBasic EPS:   Income (loss) available to common stockholders.........    $(3,652,000)              8,419,318                $(0.43)Effect of Dilutive Securities:   Stock options .........................................                                     53Diluted EPS:   (Loss) available to common stockholders     ..........     $(3,652,000)              8,419,371               $(0.43)                                      F-23             Year ended December 31, 1998                                                                                                          Average                   Net                                                                 Net                     Shares                Income                                                                IncomeOutstandingPer ShareBasic EPS:   Income available to common stockholders     ...........    $11,489,000              8,414,237                $1.37Effect of Dilutive Securities:   Stock options ........................................                                 44,789Diluted EPS:   Income available to common stockholders...............     $11,489,000              8,459,026                $1.36     Certain  outstanding options to purchase common shares were not included inthe  respective  computations  of diluted  earnings per common share because theoptions'  exercise  prices were  greater  than the average  market  price of thecommon  shares.  For each of the  years  presented,  these  outstanding  optionsconsisted of the following:  during 2000,  510,900 shares at an average price of$14.59 expiring in years 2001 to 2010; during 1999, 213,650 shares at an averageprice of $19.71 expiring in years 2000 to 2008; and during 1998,  156,125 sharesat an average price of $27.96 expiring in years 2000 to 2003.**Note 15.  Quarterly Financial Data (Unaudited)**         The results of operations for the quarterly periods during 2000 and 1999 were as follows.**Three Month Period Ended                                                                           March 31,             June 30,         Sept. 30,           Dec. 31,                                                   2000200020002000***(In thousands, except net income per share)*Total revenues......................              $  24,395            $  27,815        $  24,124          $  43,750Income before income tax............              $   1,816            $   3,109        $   1,872          $   3,541Net income..........................              $   1,344            $   1,746        $   1,610          $   2,332Comprehensive income................              $   1,692            $   2,156        $   3,268          $   5,927Per share data:Net income per share - Basic........              $   0.16             $   0.21         $    0.19          $   0.28Net income per share - Diluted......              $   0.16             $   0.21         $    0.19          $   0.28**Three Month Period Ended                                                                            March 31,             June 30,         Sept. 30,           Dec. 31,**1999199919991999*(In thousands, except net income per share)*Total revenues..........................          $  21,720            $  24,660        $  18,870          $  40,374Income (loss) before income tax.........          $   2,926            $   2,264        $  (7,460)         $  (3,123)Net income (loss).......................          $   2,107            $   1,937        $  (4,808)         $  (2,888)Comprehensive income (loss).............          $     448            $  (1,454)       $  (6,895)         $  (4,416)Per share data:Net income (loss) per share - Basic.....          $    0.25            $    0.23        $   (0.57)          $  (0.34)Net income (loss) per share - Diluted...          $    0.25            $    0.23        $   (0.57)          $  (0.34)     The increase in fourth  quarter  2000 and 1999  revenues as compared to theprevious  three  quarters was primarily due to the Lloyd's  reinsurance to closeportfolio transfer of $7.9 million and $15.5 million, respectively.                                      F-24                                                                                                          SCHEDULE I                                         THE NAVIGATORS GROUP, INC. AND SUBSIDIARIES                                  SUMMARY OF CONSOLIDATED INVESTMENTS--OTHER THAN INVESTMENTS                                                      IN RELATED PARTIES                                                      December 31, 2000                                                        *(In thousands)*                                                                                                              Amount at which                                                                                                                shown in the                                                           Amortized                                             consolidatedType of InvestmentCost or CostFair valuebalance sheetFixed maturities:   Bonds:     United States Government Treasury       Bonds and GNMAs ..........................          $   46,320               $   48,474                  $   48,474     States, municipalities       and political subdivisions................              59,132                   60,483                      60,483     Mortgage and asset backed...................       (excluding GNMAs).........................              59,869                   59,465                      59,465     Corporate bonds.............................              56,486                   56,706                      56,706                                                              -------                  -------                     -------           Total fixed maturities................             221,807                  225,128                     225,128                                                              -------                  -------                     -------Equity securities:   Common stocks:     Industrial, miscellaneous       and all other.............................               5,608                    6,269                       6,269Short-term investments...........................              18,186                   18,186                      18,186                                                              -------                  -------                     -------           Total investments.....................            $245,601                 $249,583                    $249,583                                                              =======                  =======                     =======                                      S-1      SCHEDULE II                                         THE NAVIGATORS GROUP, INC. AND SUBSIDIARIES                                        CONDENSED FINANCIAL INFORMATION OF REGISTRANT                                                  THE NAVIGATORS GROUP, INC.                                                        BALANCE SHEETS                                                       (Parent Company)                                              *(In thousands, except share data)*                  December 31,                     A S S E T S                                                                       20001999Cash  ..........................................................             $       50                $     281Investment in wholly owned subsidiaries,   at equity....................................................                144,909                  138,345Short-term investments..........................................                    400                     --Other assets....................................................                 20,851                   16,227                                                                              ---------                 --------         Total assets...........................................             $  166,210                 $154,853                                                                              =========                  =======L I A B I L I T I E SNotes payable to banks..........................................             $   22,000                $  24,000Accounts payable and other liabilities..........................                    730                      488                                                                              ---------                 --------         Total liabilities......................................                 22,730                   24,488                                                                              ---------                 --------Commitments and contingencies...................................S T O C K H O L D E R S'  E Q U I T YPreferred stock, $.10 par value, authorized   1,000,000 shares, none issued................................                   --                       --Common stock, $.10 par value, authorized   10,000,000 shares, issued and outstanding   8,414,356 in 2000 and 8,406,970 in 1999......................                    846                      846Additional paid-in capital......................................                 39,413                   39,447Retained earnings...............................................                100,722                   93,690Treasury stock held at cost (shares: 41,314 in 2000 and   48,700 in 1999)..............................................                   (594)                    (700)Accumulated other comprehensive income (loss):   Net unrealized gains (losses) on securities   available-for-sale, net of tax...............................                  2,822                   (2,980)   Foreign currency translation adjustment, net of tax..........                    271                       62                                                                             ----------                 --------         Total stockholders' equity.............................                143,480                  130,365                                                                             ----------                  -------         Total liabilities and stockholders' equity.............             $  166,210                 $154,853                                                                              =========                  =======                                      S-2                                                                                                          SCHEDULE II                                         THE NAVIGATORS GROUP, INC. AND SUBSIDIARIES                                  CONDENSED FINANCIAL INFORMATION OF REGISTRANT (Continued)                                                  THE NAVIGATORS GROUP, INC.                                                     STATEMENTS OF INCOME                                                       (Parent Company)                                                        *(In thousands)*             Year Ended December 31,                 200019991998Revenues:   Net investment income.............................                  $      17            $       4           $      7   Net realized capital losses.......................                         --                 (865)              (420)   Dividends received from wholly owned     subsidiaries....................................                     11,000               11,000              5,000   Other income......................................                        (10)                (222)               591   Operating expenses and income taxes...............                     (2,865)              (1,731)            (1,944)                                                                        --------               ------             ------   Income before equity in     undistributed net income     of wholly owned subsidiaries....................                      8,142                8,186              3,234   Equity in undistributed net income (loss)     of wholly owned subsidiaries....................                     (1,110)             (11,838)             8,255                                                                        --------              -------           --------   Net Income (Loss).................................                  $   7,032            $  (3,652)           $11,489                                                                        ========             ========             ======                                      S-3                                                                                                          SCHEDULE II                                         THE NAVIGATORS GROUP, INC. AND SUBSIDIARIES                                  CONDENSED FINANCIAL INFORMATION OF REGISTRANT (Continued)                                                  THE NAVIGATORS GROUP, INC.                                                   STATEMENTS OF CASH FLOWS                                                       (Parent Company)                                                        *(In thousands)*                    Year Ended December 31,                         200019991998Operating activities:   Net income (loss)........................................              $  7,032               $(3,652)             $11,489   Adjustments to reconcile net income     to net cash provided by (used in) operations:     Net realized capital losses............................                   --                    864                  420     Equity in undistributed net income of wholly       owned subsidiaries...................................                 1,110                11,838               (8,255)     Other..................................................                (4,311)               (5,860)              (4,475)                                                                            ------               -------               ------       Net cash provided by (used in) operating activities..                 3,831                 3,190                 (821)                                                                           -------               -------              -------Investing activities:   Investment in affiliate..................................                (1,662)               (2,865)              (5,144)   Sale of other investments................................                   --                    --                 1,356   Net (increase) decrease in short-term investments........                  (400)                   17                  (17)                                                                            ------               -------              -------       Net cash (used in) investing activities..............                (2,062)               (2,848)              (3,805)                                                                           -------               -------              -------Financing activities:   Proceeds from bank loan..................................                 3,000                 1,500                3,500   Repayment of bank loan...................................                (5,000)               (1,000)                --   Purchase of Treasury stock...............................                    --                  (700)                --   Proceeds from exercise of stock options..................                    --                    44                1,221                                                                           -------               -------              -------       Net cash provided by (used in) financing activities..                (2,000)                 (156)               4,721                                                                           -------               -------              -------Increase (decrease) in cash.................................                  (231)                  186                   95Cash Beginning of Year......................................                   281                    95                 --                                                                           -------               -------              -------       Cash End of Year.....................................              $     50              $    281             $     95                                                                           =======               =======              =======                                      S-4                                                                                                                  SCHEDULE III                                         THE NAVIGATORS GROUP, INC. AND SUBSIDIARIES                                             SUPPLEMENTARY INSURANCE INFORMATION                                                        *(In thousands)*                                                      Reserve                                                                    Losses      Amortization                                     Deferred       for losses                   Other policy                                    and loss    of deferred                                      policy         and loss                     claims and          Net            Net        adjustment      policy         Other           Net                                    acquisition     adjustment      Unearned      benefits          earned       investment      expenses    acquisition     operating      written         Periodcostsexpensespremiumspayablepremiumincome (1)incurredcosts(2)expenses(1)premiumYear ended December 31, 2000   Insurance Companies..............   $3,826        $ 284,280       $49,216        $   --         $ 44,539         $15,536       $22,472        $15,217      $2,771         $ 51,793   Lloyd's Operations...............    4,574           73,394        17,022            --           52,701           2,578        40,540         12,849       4,258           56,300                                        -----         --------        ------         --------        ------          -------       ------         ------       -----          -------                                       $8,400        $ 357,674       $66,238        $   --         $ 97,240         $18,114       $63,012        $28,066      $7,029         $108,093                                       ======          =======        ======          =======        ======          ======        ======         ======       =====          =======Year ended December 31, 1999   Insurance Companies..............   $2,355        $ 333,262       $42,596        $   --         $ 41,970         $14,573       $31,070        $12,897      $2,428         $ 40,987   Lloyd's Operations...............    3,523           57,832        12,407            --           47,472           1,222        38,844          9,632       4,586           53,097                                        -----         --------        ------         --------        ------          ------        ------         ------       -----         --------                                       $5,878        $ 391,094       $55,003        $   --         $ 89,442         $15,795       $69,914        $22,529      $7,014         $ 94,084                                        =====          =======        ======         ========        ======          ======        ======         ======       =====Year ended December 31, 1998   Insurance Companies..............   $2,813        $ 307,788       $44,681        $   --         $ 51,033         $14,658       $30,123        $14,613      $2,299         $ 49,287   Lloyd's Operations...............    1,490           34,656         6,614            --           40,170             347        32,199          5,032       2,720           39,195                                        -----         --------        ------         --------        ------          ------        ------         ------       -----          -------                                       $4,303        $ 342,444       $51,295        $   --         $ 91,203         $15,005       $62,322        $19,645      $5,019         $ 88,482                                        =====          =======        ======         ========        ======          ======        ======         ======       =====           ======(1)  Net  investment  income  and other  operating  expenses  reflect  only such     amounts attributable to the Company's insurance operations.(2)  Amortization  of  deferred  policy  acquisition  costs  reflects  only such     amounts  attributable to the Company's insurance  operations.  A portion of     these costs is eliminated upon consolidation.                                      S-5                                                                                                                   SCHEDULE IV                                         THE NAVIGATORS GROUP, INC. AND SUBSIDIARIES                                                         REINSURANCE                                          Written Premium                                       *(Dollars in thousands)*                                                  Ceded to        Assumed                     Percentage                                    Direct         other         from other         Net        of amount                                    Amountcompaniescompaniesamountassumed to netYear ended December 31, 2000   Property-Casualty.............  $155,888        $80,332        $32,537         $108,093        30%                                    -------         ------         ------          -------        ---Year ended December 31, 1999   Property-Casualty.............  $120,426        $73,028        $46,686        $  94,084        50%                                    -------         ------         ------         --------        ---Year ended December 31, 1998   Property-Casualty.............  $ 92,910        $83,729        $79,301        $  88,482        90%                                    -------         ------         ------         --------        ---                                      S-6                                                                                                          SCHEDULE V                                         THE NAVIGATORS GROUP, INC. AND SUBSIDIARIES                                              VALUATION AND QUALIFYING ACCOUNTS                                                        *(In thousands)*Col. ACol. BCol. CCol. DCol. E                                                                  Additions                                                                                    Balance at                                                                                        Balance at                            January 1,               Charged to                  Charged to             Deductions             December 31,  Description2000Costs and ExpensesOther AccountsDescribe2000Allowance foruncollectiblereinsurance                  $1,250,000                $1,250,000                    $ -                  $ -                  $2,500,000Valuation allowance indeferred taxes                             $4,452,000                $1,375,000                    $ -                  $  -                 $5,827,000                                      S-7                                                                                                                   SCHEDULE VI                                         THE NAVIGATORS GROUP, INC. AND SUBSIDIARIES                         SUPPLEMENTARY INFORMATION CONCERNING PROPERTY-CASUALTY INSURANCE OPERATIONS                                                        *(In thousands)*                                       Reserve                                                            Amort.                           Deferred   for losses                                     Losses and LAE     of deferred       Affiliation          policy     and loss  Discount,           Net      Net   incurred related to   policy      Other    Net         with            acquisition  adjustment  if any,  Unearned earned investment  Current   Prior  acquisition   oper.  written       RegistrantcostsexpensesdeductedPremiumpremiumincome(1)yearyearscosts(2)exps.(1)premiumConsolidated SubsidiariesYear ended December 31, 2000  $8,400  $357,674  $ --      $66,238   $97,240  $18,114   $68,006  $(4,994)  $28,066  $7,029  $108,093                               -----   -------   -------   ------    ------   ------    ------   ------    ------   -----   -------Year ended December 31, 1999  $5,878  $391,094  $ --      $55,003   $89,442  $15,795   $60,534  $ 9,380   $22,529  $7,014  $ 94,084                               -----   -------   -------   ------    ------   ------    ------   ------    ------   -----   -------Year ended December 31, 1998  $4,303  $342,444  $ --      $51,295   $91,203  $15,005   $65,705  $(3,383)  $19,645  $5,019  $ 88,482                               -----   -------   -------   ------    ------   ------    ------   ------    ------   -----   -------(1)  Net  investment  income  and other  operating  expenses  reflect  only such     amounts attributable to the Company's insurance operations.(2)  Amortization  of  deferred  policy  acquisition  costs  reflects  only such     amounts  attributable to the Company's insurance  operations.  A portion of     these costs is eliminated upon consolidation.                                      S-8**INDEX TO EXHIBITS**Exhibit No.Description of Exhibit          3-1             Restated Certificate of Incorporation                                 (a)          3-2             By-laws, as amended                                                   (a)          10-1            Management Agreement between Navigators Insurance Company and                          Somerset Marine, Inc.                                                 (a)          10-2            Agreement between The Navigators Group, Inc. and Somerset Marine,                          Inc.                                                                  (a)          10-3            Stock Option Plan                                                     (a)(b)          10-4            Non-Qualified Stock Option Plan                                       (b)          10-8            Consulting Agreement between The Navigators Group, Inc. and Robert                          F. Wright Associates, Inc.                                            (c)          10-9            Amended and Restated Credit Agreement dated November 26, 1996,                          among The Navigators Group, Inc. and Lenders                          (d)          10-10           Agreement with Bradley D. Wiley dated June 3, 1997                    (e)          10-11           First Amendment dated April 9, 1997 to the Amended and Restated                          Credit Agreement dated November 26, 1996                              (e)          10-12           Second Amendment dated December 11, 1997 to the Amended and                          Restated Credit Agreement dated November 26, 1996                     (e)          10-13           Consulting Agreement between The Navigators Group, Inc. and William                          D. Warren                                                             (e)         10-14            Amended and Restated Credit Agreement dated December 21, 1998,                          among The Navigators Group, Inc. and Lenders                          (f)         10-15            Employment Agreement with Salvatore A. Margarella dated March 1,                          1999                                                                  (f)         10-16            Amendment No. 1 dated March 28, 2000 to the Amended and Restated                          Credit Agreement dated December 21, 1998, among The Navigators                          Group, Inc. and the Lender                                            (g)         10-17            Amendment No. 2 dated September 20, 2000 to the Amended and                          Restated Credit Agreement dated December 21, 1998, among The                          Navigators Group, Inc. and the Lenders                                (g)          11-1            Statement re Computation of Per Share Earnings          21-1            Subsidiaries of Registrant          23-1            Consent of Independent Auditor(a)            Previously  filed under  Commission  file No.  33-5667 as part of               Form S-1, incorporated herein by reference thereto.(b)            Management   contracts  of  compensatory  plans  or  arrangements               required  to be  filed  as  exhibits  to this  Form  10-K by Item               601(10)(iii) of Regulation S-K, previously filed as indicated and               incorporated herein by reference.(c)(d)(e)(f)(g)Previously  filed with the  Company's  document as indicated  and               incorporated herein by reference thereto:  Form 10-K for the year               ended  December  31, 1994 (c),  1996 (d),  1997 (e) and 1998 (f);               Form 10-Q for September 30, 2000 (g).                                      S-9                                                                                                EXHIBIT 11-1                                         THE NAVIGATORS GROUP, INC. AND SUBSIDIARIES                                           COMPUTATION OF PER SHARE EARNINGS (LOSS)                            Earnings (Loss) Per Share of Common Stock and Common Stock Equivalents                                            *(In thousands, except per share data)*         Year Ended December 31,                            200019991998Net income (loss) applicable to common stock                         $7,032               $ (3,652)            $  11,489Average number of common shares outstanding                           8,414                  8,419                 8,414Net income (loss) per share - Basic                                $   0.84               $  (0.43)            $    1.37Average number of common shares outstanding                           8,414                  8,419                 8,414Add:  Assumed exercise of stock options                                --                      --                     45                                                                     ------                -------              --------Common and common equivalent shares outstanding                       8,414                  8,419                 8,459                                                                     ======                =======              ========Net income (loss) per share - Diluted                              $   0.84               $  (0.43)            $    1.36                                                                                                                 EXHIBIT 21-1**THE NAVIGATORS GROUP, INC.                                                      AND SUBSIDIARIESSUBSIDIARIES OF THE REGISTRANT AT DECEMBER 31, 2000                                                                       Jurisdiction inNamewhich organized**Navigators Insurance Company                                               New YorkNIC Insurance Company                                                      New YorkSomerset Marine, Inc.                                                      New YorkSomerset Insurance Services of Texas, Inc.                                 TexasSomerset Insurance Services of California, Inc.                            CaliforniaAnfield Insurance Services, Inc.                                           CaliforniaSomerset Insurance Services of Washington, Inc.                            WashingtonSomerset Marine Aviation Property Managers, Inc.                           New JerseySomerset Asia Pacific Pty Ltd.                                             Sydney, AustraliaSomerset Marine (UK) Ltd.                                                  EnglandNavigators Corporate Underwriters Ltd.                                     EnglandNavigators Holdings (UK) Ltd.                                              EnglandSomerset Services Pte Ltd.                                                 SingaporeMander, Thomas & Cooper   (Underwriting Agencies) Ltd.                                            EnglandMillennium Underwriting Ltd.                                               EnglandPennine Underwriting Limited                                               England                                                                                                                  EXHIBIT 23-1**CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS**The Board of DirectorsThe Navigators Group, Inc.We consent to  incorporation  by reference in the  registration  statement  (No.33-51608) on Form S-8 of The  Navigators  Group,  Inc. and  subsidiaries  of ourreport dated March 26, 2001, relating to the consolidated  balance sheets of TheNavigators  Group,  Inc. and subsidiaries as of December 31, 2000, and 1999, andthe related consolidated  statements of income,  stockholders'  equity, and cashflows for each of the years in the  three-year  period ended  December 31, 2000,and all related schedules, which report appears in the December 31, 2000, AnnualReport on Form 10-K of The Navigators Group, Inc. and subsidiaries.                           /s/ KPMG LLPNew York, New YorkMarch 30, 2001
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