<PAGE>   1
                                    FORM 10-Q
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                   Quarterly Report Under Section 13 or 15(d)
                     of the Securities Exchange Act of 1934


For the Quarterly Period Ended September 30, 1998

Commission file number 0-15886

                           The Navigators Group, Inc.
             (Exact name of registrant as specified in its charter)

               Delaware                               13-3138397
   (State or other jurisdiction of                  (IRS Employer
   incorporation or organization)                 Identification No.)


123 William Street,  New York,  New York                  10038
(Address of principal executive offices)               (Zip Code)


                                 (212) 349-1600
              (Registrant's telephone number, including area code)


              (Former name, former address and former fiscal year,
                         if changed since last report.)

Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.

Yes /X/       No / /

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

On November 12, 1998 there were 8,431,426 shares of common stock, $0.10 par
value, issued and outstanding.


                                       1
<PAGE>   2
                   THE NAVIGATORS GROUP, INC. AND SUBSIDIARIES

                                      INDEX

<TABLE>
<CAPTION>
                                                                                            Page No.
                                                                                            --------
<S>                                                                                         <C>
Part I.  FINANCIAL INFORMATION:

      Consolidated Balance Sheets
              September 30, 1998 and December 31, 1997................................         3

      Consolidated Statements of Income
              Three Months Ended September 30, 1998 and 1997..........................         4
              Nine Months Ended September 30, 1998 and 1997...........................         5

      Consolidated Statements of Cash Flows
              Nine Months Ended September 30, 1998 and 1997...........................         6

      Notes to Interim Consolidated Financial Statements..............................         7

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

Part II.  OTHER INFORMATION...........................................................         17
</TABLE>


                                       2
<PAGE>   3
                   THE NAVIGATORS GROUP, INC. AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEETS
                        (In thousands, except share data)

<TABLE>
<CAPTION>
                                                                                     September 30,         December 31,
                                                                                           1998               1997
                                                                                           ----               ----
                                                                                      (Unaudited)
<S>                                                                                      <C>                 <C>
                                                      ASSETS
Investments and cash:
  Fixed maturities, available-for-sale, at fair value
    (amortized cost: 1998, $221,600; 1997, $218,418) ........................            $232,042            $226,834
  Equity securities, available-for-sale, at fair value (cost: 1998, $4,848;
    1997, $4,557) ...........................................................               5,216               6,132
  Short-term investments, at cost which approximates fair value .............              17,147              22,579
  Cash ......................................................................               1,974               1,251
  Other investments .........................................................               1,309               1,776
                                                                                         --------            --------
         Total investments and cash .........................................             257,688             258,572
                                                                                         --------            --------

Premiums in course of collection ............................................              57,359              45,847
Commissions receivable ......................................................               4,886               6,434
Accrued investment income ...................................................               3,184               3,121
Prepaid reinsurance premiums ................................................              25,610              20,405
Reinsurance receivable on paid and unpaid losses and loss adjustment expenses             170,838             147,104
Federal income tax recoverable ..............................................                  24                 164
Net deferred Federal and foreign income tax benefit .........................               7,215               7,994
Deferred policy acquisition costs ...........................................               4,660               5,403
Other assets ................................................................              10,834               6,163
                                                                                         --------            --------

         Total assets .......................................................            $542,298            $501,207
                                                                                         ========            ========

                                       LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
  Reserves for losses and loss adjustment expenses ..........................            $299,174            $278,432
  Unearned premium ..........................................................              53,096              48,659
  Reinsurance balances payable ..............................................              19,567              16,539
  Notes payable to banks ....................................................              22,840              20,000
  Net deferred state and local income tax ...................................                 902               1,184
  Note payable to stockholder ...............................................                 588                 942
  Accounts payable and other liabilities ....................................               3,859               4,209
                                                                                         --------            --------
         Total liabilities ..................................................             400,026             369,965
                                                                                         --------            --------

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 8,427,676 in 1998 and 8,368,167 in 1997 ..........                 843                 837
  Additional paid-in capital ................................................              39,068              38,119
  Accumulated other comprehensive income ....................................               7,117               6,433
  Retained earnings .........................................................              95,244              85,853
                                                                                         --------            --------
         Total stockholders' equity .........................................             142,272             131,242
                                                                                         --------            --------
         Total liabilities and stockholders' equity .........................            $542,298            $501,207
                                                                                         ========            ========
</TABLE>

      See accompanying notes to interim consolidated financial statements.


                                       3
<PAGE>   4
                   THE NAVIGATORS GROUP, INC. AND SUBSIDIARIES
                        CONSOLIDATED STATEMENTS OF INCOME
                   (In thousands, except net income per share)




<TABLE>
<CAPTION>
                                                                 THREE MONTHS ENDED
                                                                    SEPTEMBER 30,
                                                              ----------------------------
                                                                1998                1997
                                                              --------            --------
                                                                      (Unaudited)
<S>                                                           <C>                 <C>
Revenues:
  Net earned premium .............................            $ 19,030            $ 21,701
  Commission income ..............................               1,334               1,086
  Net investment income ..........................               3,724               3,749
  Net realized capital gains .....................                 168               1,798
  Other income (expense) .........................                 104                (249)
                                                              --------            --------
         Total revenues ..........................              24,360              28,085
                                                              --------            --------

Operating expenses:
  Net losses and loss adjustment expenses incurred              11,677              13,161
  Commission expense .............................               2,813               4,606
  Other operating expenses .......................               5,445               5,213
  Interest expense ...............................                 403                 323
                                                              --------            --------
         Total operating expenses ................              20,338              23,303
                                                              --------            --------

Income before income tax .........................               4,022               4,782
                                                              --------            --------

Income tax expense:
    Current ......................................                 799               1,282
    Deferred .....................................                 341                  37
                                                              --------            --------
         Total income tax expense ................               1,140               1,319
                                                              --------            --------

Net income .......................................            $  2,882            $  3,463
                                                              ========            ========


Net income per common share:
   Basic .........................................            $   0.34            $   0.42
   Diluted .......................................            $   0.34            $   0.41

Average common shares outstanding:
   Basic .........................................               8,423               8,311
   Diluted .......................................               8,455               8,382
</TABLE>



      See accompanying notes to interim consolidated financial statements.


                                       4
<PAGE>   5
                  THE NAVIGATORS GROUP, INC. AND SUBSIDIARIES
                       CONSOLIDATED STATEMENTS OF INCOME
                  (In thousands, except net income per share)

<TABLE>
<CAPTION>
                                                                       NINE MONTHS ENDED
                                                                         SEPTEMBER 30,
                                                                    1998               1997
                                                                   -------            -------
                                                                           (Unaudited)
<S>                                                           <C>                <C>
Revenues:
  Net earned premium ..................................            $53,452            $62,276
  Commission income ...................................              3,715              4,202
  Net investment income ...............................             11,394             10,676
  Net realized capital gains ..........................              1,405              2,252
  Other income ........................................                720                738
                                                                   -------            -------
         Total revenues ...............................             70,686             80,144
                                                                   -------            -------

Operating expenses:
  Net losses and loss adjustment expenses incurred.....             31,040             37,418
  Commission expense ..................................              8,908             11,672
  Other operating expenses ............................             16,873             16,696
  Interest expense ....................................              1,134                927
                                                                   -------            -------
         Total operating expenses .....................             57,955             66,713
                                                                   -------            -------

Income before income tax ..............................             12,731             13,431
                                                                   -------            -------

Income tax expense:
    Current ...........................................              2,976              2,712
    Deferred ..........................................                364                865
                                                                   -------            -------
         Total income tax expense .....................              3,340              3,577
                                                                   -------            -------

Net income ............................................            $ 9,391            $ 9,854
                                                                   =======            =======


Net income per common share:
   Basic ..............................................            $  1.12            $  1.19
   Diluted ............................................            $  1.11            $  1.18

Average common shares outstanding:
   Basic ..............................................              8,406              8,285
   Diluted ............................................              8,453              8,365
</TABLE>



      See accompanying notes to interim consolidated financial statements.


                                       5
<PAGE>   6
                  THE NAVIGATORS GROUP, INC. AND SUBSIDIARIES
                     CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (In thousands)

<TABLE>
<CAPTION>
                                                                            NINE MONTHS ENDED
                                                                                SEPTEMBER 30,
                                                                         1998                 1997
                                                                       --------             --------
                                                                                 (Unaudited)
<S>                                                                    <C>                  <C>
Operating activities:
    Net income ............................................            $  9,391             $  9,854
    Adjustments to reconcile net income to net
       cash provided by (used in) operating activities:
      Depreciation & amortization .........................                 672                  352
      Reinsurance receivable on paid and unpaid
       losses and loss adjustment expenses ................             (23,734)               1,425
      Reserve for losses and loss adjustment expenses .....              20,742                2,526
      Prepaid reinsurance premiums ........................              (5,205)              (8,927)
      Unearned premium ....................................               4,436               13,137
      Premiums in course of collection ....................             (11,512)              (7,474)
      Commissions receivable ..............................               5,208                 (281)
      Deferred policy acquisition costs ...................                 743               (1,873)
      Accrued investment income ...........................                 (24)                 138
      Reinsurance balances payable ........................               3,028                3,804
      Federal and foreign income tax ......................                 114                   62
      Net deferred Federal and foreign income tax .........                 497                  593
      Net realized capital (gains) ........................              (1,405)              (2,252)
      Other ...............................................              (3,759)                 689
                                                                       --------             --------
        Net cash provided by (used in) operating activities                (808)              11,773
                                                                       --------             --------

 Investing activities:
    Fixed maturities, available-for-sale
      Redemptions and maturities ..........................              24,074                8,267
      Sales ...............................................              23,742               63,568
      Purchases ...........................................             (50,810)             (72,646)
    Equity securities, available-for-sale
      Sales ...............................................               3,207                8,633
      Purchases ...........................................              (1,355)              (4,008)
    Payable for securities purchased ......................                (889)              (3,258)
    Sale of other investments .............................               1,262                   --
    Net sales (purchases) of short-term investments .......               5,431              (12,902)
    Payment for purchase of MTC, net of cash acquired .....              (5,321)                  --
    Purchase of property and equipment ....................                (850)                (635)
                                                                       --------             --------
      Net cash provided by (used in) investing activities .              (1,509)             (12,981)
                                                                       --------             --------

Financing activities:
   Proceeds from bank loan ................................               2,500                   --
   Repayment of note payable ..............................                (354)                  --
   Proceeds from exercise of stock options ................                 894                1,234
                                                                       --------             --------
      Net cash provided by financing activities ...........               3,040                1,234
                                                                       --------             --------

Increase in cash ..........................................                 723                   26
Cash at beginning of year .................................               1,251                1,460
                                                                       --------             --------
Cash at end of period .....................................            $  1,974             $  1,486
                                                                       ========             ========
</TABLE>


      See accompanying notes to interim consolidated financial statements.


                                       6
<PAGE>   7
                   THE NAVIGATORS GROUP, INC. AND SUBSIDIARIES

               Notes to Interim Consolidated Financial Statements




(1)   Accounting Policies

      The interim financial statements are unaudited but reflect all adjustments
      which, in the opinion of management, are necessary to provide a fair
      statement of the results of The Navigators Group, Inc. and its
      subsidiaries (the "Company") for the interim periods presented. All such
      adjustments are of a normal recurring nature. The results of operations
      for any interim period are not necessarily indicative of results for the
      full year. These financial statements should be read in conjunction with
      the financial statements and notes thereto contained in the Company's Form
      10-K for the year ended December 31, 1997. Certain amounts for prior years
      have been reclassified to conform to the current year's presentation.


(2)   Reinsurance Ceded

      The Company's ceded earned premiums were $22,523,000 and $18,540,000 for
      the three months ended September 30, 1998 and 1997, respectively, and
      $59,046,000 and $52,700,000 for the nine months ended September 30, 1998
      and 1997, respectively. The Company's ceded incurred losses were
      $35,704,000 and $22,146,000 for the three months ended September 30, 1998
      and 1997, respectively, and were $76,177,000 and $41,995,000 for the nine
      months ended September 30, 1998 and 1997, respectively.


(3)   Net Income Per Share

      The Company adopted the Financial Accounting Standards Board's ("FASB")
      Statement of Financial Accounting Standards ("SFAS") No. 128, Earnings Per
      Share, on December 31, 1997. SFAS No. 128 supersedes APB Opinion No. 15,
      Earnings Per Share, and replaces primary earnings per share and fully
      diluted earnings per share with basic earnings per share and diluted
      earnings per share, respectively. The Company has restated earnings per
      share for all prior periods presented to comply with the provisions of
      SFAS No. 128.


(4)   Comprehensive Income

      The Company adopted SFAS No. 130, Reporting Comprehensive Income, as of
      January 1, 1998. SFAS No. 130 establishes standards for the reporting and
      presentation of comprehensive income and its components in the financial
      statements. Comprehensive income encompasses all changes in stockholders'
      equity (except those arising from transactions with owners) and includes
      net income, net unrealized capital gains or losses on available for sale
      securities and foreign currency translation adjustments. Application of
      SFAS No. 130 did not impact amounts previously reported for net income or
      affect the comparability of previously issued financial statements.


                                       7
<PAGE>   8
      The following table summarizes comprehensive income for the three months
      ended September 30, 1998 and 1997:

<TABLE>
<CAPTION>
                                                                                              September 30,
                                                                                        ------------------------
                                                                                         1998              1997
                                                                                        ------            ------
                                                                                            (In thousands)
<S>                                                                                     <C>               <C>
      Net income ...........................................................            $2,882            $3,463
                                                                                        ------            ------
      Other comprehensive income, net of tax:
        Net unrealized gains (losses) on securities available for sale:
            Unrealized holding gain arising during period (net of income tax
            expense of $771 for 1998 and $1,233 for 1997) ...................            1,432             2,394
               Less: reclassification adjustment for gains included in
               net income (net of income tax expense of $206 for 1998
               and $720 for 1997) ...........................................              382             1,398
        Foreign currency translation adjustment, net of tax .................               53                13
                                                                                        ------            ------
                    Other comprehensive income...............................            1,103             1,009
                                                                                        ------            ------
                         Comprehensive income ...............................           $3,985            $4,472
                                                                                        ======            ======
</TABLE>


      The following table summarizes comprehensive income for the nine months
      ended September 30, 1998 and 1997:


<TABLE>
<CAPTION>
                                                                                                September 30,
                                                                                        ----------------------------
                                                                                          1998                1997
                                                                                        --------            --------
                                                                                             (In thousands)
<S>                                                                                     <C>                 <C>
      Net income ...........................................................            $  9,391            $  9,854
                                                                                        --------            --------
      Other comprehensive income, net of tax:
        Net unrealized gains (losses) on securities available for sale:
            Unrealized holding gain arising during period (net of income tax
            expense of $925 for 1998 and $1,206 for 1997) ..................               1,718               2,346
                Less: reclassification adjustment for gains included in
                net income (net of income tax expense of $639 for 1998
                and $874 for 1997) .........................................               1,186               1,698
        Foreign currency translation adjustment, net of tax ................                 152                 (52)
                                                                                        --------            --------
                    Other comprehensive income .............................                 684                 596
                                                                                        --------            --------
                         Comprehensive income ..............................            $ 10,075            $ 10,450
                                                                                        ========            ========
</TABLE>


      The following table summarizes the components of accumulated other
      comprehensive income:

<TABLE>
<CAPTION>
                                                                                  September 30,      December 31,
                                                                                       1998              1997
                                                                                      -------            -------
                                                                                             (In thousands)
<S>                                                                                   <C>                <C>
      Net unrealized gains on securities available-for-sale (net of tax of
         $3,783 in 1998 and $3,497 in 1997) ..............................            $ 7,026            $ 6,494
      Foreign currency translation adjustment, net of tax ................                 91                (61)
                                                                                      -------            -------
                Accumulated other comprehensive income ...................            $ 7,117            $ 6,433
                                                                                      =======            =======
</TABLE>


                                       8
<PAGE>   9
(5)   Future Application of Accounting Standards

      SFAS No. 131, Disclosures about Segments of an Enterprise and Related
      Information, was issued in June 1997 and establishes standards for the
      reporting of information relating to operating segments in annual
      financial statements, as well as disclosure of selected information in
      interim financial reports. This statement supersedes SFAS No. 14,
      Financial Reporting for Segments of a Business Enterprise, which requires
      reporting segment information by industry and geographic area (industry
      approach). Under SFAS No. 131, operating segments are defined as
      components of a company for which separate financial information is
      available and is used by management to allocate resources and assess
      performance (management approach). This statement is effective for
      year-end 1998 financial statements. Interim financial information will be
      required beginning in 1999 (with comparative 1998 information).

      In December 1997, the American Institute of Certified Public Accountants
      issued Statement of Position No. 97-3, Accounting by Insurance and Other
      Enterprises for Insurance Related Assessments, ("SOP 97-3"). SOP 97-3,
      effective for fiscal years beginning after December 15, 1998, establishes
      standards for accounting for guaranty-fund and certain other insurance
      related assessments. The adoption of this statement is not expected to
      have a material effect on the Company's results of operations or financial
      condition.


      SFAS No. 133, Accounting for Derivative Instruments and Hedging
      Activities, was issued in June 1998 and establishes accounting and
      reporting standards for derivative instruments, including certain
      derivative instruments embedded in other contracts, (collectively referred
      to as derivatives) and for hedging activities. It requires that an entity
      recognize all derivatives as either assets or liabilities in the statement
      of financial position and measure those instruments at fair value. This
      statement is effective for all fiscal quarters of fiscal years beginning
      after June 15, 1999, earlier application is encouraged, but it is
      permitted only as of the beginning of any fiscal quarter that begins after
      issuance of this statement. SFAS No. 133 should not be applied
      retroactively to financial statements of prior periods. The adoption of
      this statement will have no effect on the Company's results of operations
      or financial condition.

(6)   Acquisition of Mander, Thomas & Cooper (Underwriting Agencies) Limited

      In January 1998, the Company purchased 100% of Mander, Thomas & Cooper
      (Underwriting Agencies) Limited, a Lloyd's of London marine underwriting
      managing agency and its wholly owned subsidiary, Millennium Underwriting
      Limited. The purchase price consists of initial cash payments plus future
      performance contingent consideration. The purchase was funded through a
      bank loan and working capital. The total purchase price was not material
      to the Company's total assets. The acquisition has been recorded under the
      purchase method of accounting. Goodwill of approximately $4,000,000 is
      being amortized over 20 years. Additional goodwill may be recorded in
      future years when the amount of the future performance contingencies are
      determinable.


                                       9
<PAGE>   10
                   THE NAVIGATORS GROUP, INC. AND SUBSIDIARIES

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

GENERAL

         The accompanying consolidated financial statements consisting of the
accounts of The Navigators Group, Inc., a Delaware holding company, and its
fourteen wholly owned subsidiaries, are prepared on the basis of generally
accepted accounting principles. Unless the context otherwise requires, the term
"Company" as used herein means The Navigators Group, Inc. and its subsidiaries.
All significant intercompany transactions and balances are eliminated.

         The Company's two insurance subsidiaries are Navigators Insurance
Company ("Navigators Insurance") and NIC Insurance Company ("NIC"). Navigators
Insurance is the Company's largest insurance subsidiary and has been active
since 1983. The Company currently specializes principally in underwriting
marine, energy, engineering and construction insurance. NIC, a wholly owned
subsidiary of Navigators Insurance, began operations in 1990. It underwrites a
small book of surplus lines insurance in certain states and, pursuant to an
intercompany reinsurance pooling agreement, cedes 100% of its gross direct
writings from this business to Navigators Insurance in exchange for assuming 10%
of Navigators Insurance's net premium. Navigators Insurance and NIC are
collectively referred to herein as the "Insurance Companies".

         Navigators Corporate Underwriters Limited ("NCUL"), a subsidiary formed
in the fourth quarter of 1996, is admitted to do business at Lloyd's of London
as a corporate member with limited liability.

         Six of the Company's subsidiaries are underwriting management
companies: Somerset Marine, Inc., Somerset Insurance Services of Texas, Inc.,
Somerset Insurance Services of California, Inc., Somerset Insurance Services of
Washington, Inc., Somerset Marine (UK) Limited ("Somerset UK") and Somerset Asia
Pacific Pty Limited ("Somerset Asia") (collectively, the "Somerset Companies").
The Somerset Companies produce, manage and underwrite insurance and reinsurance
for Navigators Insurance, NIC and six unaffiliated insurance companies.

         The Somerset Companies currently specialize principally in producing
marine, energy, engineering and construction insurance premium. They underwrite
marine business for a syndicate of insurance companies with Navigators Insurance
having a 60% participation in the pool for 1998. The Somerset Companies derive
their revenue from commissions, service fees and cost reimbursement arrangements
from their parent company, Navigators Insurance, NIC and the unaffiliated
insurers. Commissions are earned both from a fixed percentage of premiums and
from underwriting profits on business placed with the participating insurance
companies within the pool. Property and casualty insurance premiums historically
have been cyclical in nature and, accordingly, during a "hard market" demand for
property and casualty insurance exceeds supply, or capacity, and as a result,


                                       10
<PAGE>   11
premiums and commissions may increase. On the downturn of the property and
casualty cycle, supply exceeds demand, and as a result, premiums and commissions
may decrease.

         Somerset Asia was formed in the third quarter of 1996 and operates from
an office in Sydney, Australia. This office concentrates on producing marine,
energy, engineering and construction insurance premium primarily in Indonesia,
Thailand, Malaysia, Taiwan, China and Vietnam. Somerset Asia began writing
business in early 1997 and is supported by Somerset Services Pte Limited which
provides loss prevention consultancy to Somerset Asia's assureds and producers.
Somerset Services Pte Limited, a wholly owned subsidiary of Somerset Asia, was
formed in September 1997 and is located in Singapore.

         Somerset UK, formed in the fourth quarter of 1996, concentrates on
producing marine, energy, engineering and construction insurance premium.
Navigators Insurance was authorized to operate an United Kingdom ("UK") Branch
on October 22, 1997. Somerset UK began producing business in the fourth quarter
of 1997 for the UK Branch of Navigators Insurance ("UK Branch").

         Navigators Holdings (UK) Limited was formed on September 15, 1997 as a
holding company for the Company's UK subsidiaries. The Company also owns
Somerset Marine Aviation Property Managers, Inc., an inactive subsidiary.

         In January 1998, the Company acquired 100% of Mander, Thomas & Cooper
(Underwriting Agencies) Limited ("MTC"), a Lloyd's of London marine underwriting
managing agency, and its wholly owned subsidiary, Millennium Underwriting
Limited ("Millennium"), a Lloyd's corporate member with limited liability. MTC
manages Lloyd's Syndicate 1221.

         The Company's revenue primarily consists of premiums, commissions and
investment income. The Insurance Companies derive the majority of their business
from the Somerset Companies through either business written specifically for the
Insurance Companies or through Navigators participation in insurance pools
managed by the Somerset Companies.


                                       11
<PAGE>   12
RESULTS OF OPERATIONS

      General. The Company's results of operations for the nine months ended
September 30, 1998 and 1997 reflect intense market competition in the marine and
aviation lines.

      Revenues. Gross written premium for the first nine months of 1998
decreased by 9% to $116,740,000 from $128,113,000 for the first nine months of
1997.

      The following table sets forth the Company's gross written premium by line
of business and net written premium in the aggregate for the periods indicated:


<TABLE>
<CAPTION>
                                                                            Nine Months Ended September 30,
                                                 ---------------------------------------------------------------------------
                                                               1998                                        1997
                                                 -------------------------------             -------------------------------
                                                                          (Dollars in thousands)
<S>                                           <C>                   <C>                   <C>                   <C>
      Marine ........................            $  46,330                    40%            $  40,992                    32%
      Lloyd's - Marine ..............               17,920                    15                18,206                    14
      Aviation ......................               23,146                    20                24,891                    19
      Inland Marine .................                 (139)                   --                 7,984                     6
      Onshore Energy ................                8,350                     7                 7,461                     6
      Engineering and Construction...                8,163                     7                 4,812                     4
      Specialty Reinsurance
        and Program Insurance .......               12,970                    11                23,767                    19
                                                 ---------             ---------             ---------             ---------

      Gross Written Premium .........              116,740                   100%              128,113                   100%
                                                 ---------             =========             ---------             =========

      Ceded Written Premium .........              (64,195)                                    (61,627)
                                                 ---------                                   ---------

      Net Written Premium ...........            $  52,545                                   $  66,486
                                                 =========                                   =========
</TABLE>


      Marine Premium. Marine gross written premium (non-Lloyd's) increased 13%
when comparing the first nine months of 1998 to the first nine months of 1997
primarily due to Navigators Insurance increasing its participation in the marine
pool from 48% to 60% and the premium produced from the UK Branch.

      Lloyd's Marine Premium. The Lloyd's marine premium is generated as the
result of capacity provided to Syndicate 1221 by NCUL and Millennium in 1998 and
capacity provided to Syndicate 1221 and an unaffiliated syndicate by NCUL in
1997. The premiums, losses and expenses from the Lloyd's marine syndicates are
included in the Company's financials but are not included in the Insurance
Companies' results since NCUL and Millennium are not owned by the Insurance
Companies.

      Aviation Premium. Aviation gross written premium decreased 7% from the
first nine months of 1997 to 1998 due to generally lower rates on aviation
business and the recording of return premiums from rate adjustments on certain
profitable large airline policies. The


                                       12
<PAGE>   13
Company announced on October 5, 1998 that it will not renew its airline business
at the current premium levels.

      Inland Marine Premium. As of June 1997, the Company no longer writes
traditional inland marine business.

      Onshore Energy Premium. In 1996, Navigators began to underwrite onshore
energy business which principally focuses on the oil and gas, chemical and
petrochemical, and power generation industries with coverages primarily for
property damage and machinery breakdown.

      Engineering and Construction Premium. The Company began writing
engineering and construction business in mid 1997. The business is produced by
Somerset Asia and Somerset UK.

      Specialty Reinsurance and Program Insurance Premium. Navigators
Insurance's reinsurance premium consisted primarily of excess of loss and quota
share property, surety, and other specialty reinsurance lines. This business was
not renewed after 1995 except for a few treaties which were written through
1997. The program insurance, which began in 1995, was reduced during 1997 and
currently consists of one managing general agent writing primarily general
liability insurance for contractors.

      Ceded Premium. In the ordinary course of business, Navigators Insurance
reinsures certain insurance risks with unaffiliated insurance companies for the
purpose of limiting its maximum loss exposure, protecting against catastrophic
losses, and maintaining desired ratios of net written premium to statutory
surplus.

      Net Written Premium. Net written premium decreased 21% when comparing the
first nine months of 1997 to the first nine months of 1998 primarily due to the
additional use of reinsurance and the decrease in the aviation, program and
inland marine premium.

      Net Earned Premium. Net earned premium decreased 14% for the first nine
months of 1998 to $53,452,000 as compared to $62,276,000 for the first nine
months of 1997. Net earned premium for the three months ended September 30, 1998
and 1997 was $19,030,000 and $21,701,000, respectively. Net earned premium
generally follows the pattern of written premium but at a slower rate since
unearned premium from the prior year is partially earned in the current period
along with a portion of the premium written in the current period.

      Commission Income. Commission income decreased 12% from $4,202,000 for the
first nine months of 1997 to $3,715,000 for the first nine months of 1998 and
increased 23% for the three months ended September 30, 1998 from the same period
in 1997. The decrease for the first nine months is primarily due to Navigators
Insurance's increased participation in the marine pool which results in the
Company receiving less commission income from the unaffiliated members of the
pool. The increase in the third quarter was primarily due to additional profit
commission on marine business recorded in the third quarter 1998 and the
inclusion of commission income from MTC, while the third quarter 1997 included a
charge for a large marine claim.


                                       13
<PAGE>   14
      Net Investment Income. Net investment income increased 7% to $11,394,000
during the first nine months of 1998 from $10,676,000 during the corresponding
period in 1997 and decreased 1% to $3,724,000 during the three months ended
September 30, 1998 from $3,749,000 during the corresponding period in 1997. The
increase for the nine months was due primarily to the overall increase in
invested assets and the decrease of the amount of municipal bonds in the
portfolio.

     Net Realized Capital Gains. Pre-tax income included $1,405,000 of realized
capital gains for the first nine months of 1998 compared to $2,252,000 for the
same period last year. On an after tax basis, the realized capital gains were
$0.11 per share in 1998 and $0.18 per share in 1997. Pre-tax income for the
three months ended September 30, 1998 and 1997 included realized capital gains
of $168,000 and $1,798,000, respectively. On an after tax basis the realized
capital gains represented $0.01 per share and $0.14 per share for the respective
three month periods. Included in net realized capital gains for the third
quarter of 1998 is a loss of $421,000 from the Company's disposal of its 8%
investment in Riverside Underwriters Plc.

      Operating Expenses.

      Net Loss and Loss Adjustment Expenses Incurred. The ratio of net loss and
loss adjustment expenses incurred to net earned premium was 58.1% and 60.1%
during the first nine months of 1998 and 1997, respectively. This decrease was
primarily due to a decrease in losses in the Company's program, inland marine
and specialty reinsurance business. These ratios were 61.4% and 60.6% for the
three months ended September 30, 1998 and 1997, respectively.

      Commission Expense. Commission expense as a percentage of net earned
premium was 16.7% and 18.7% during the first nine months of 1998 and 1997,
respectively, and 14.8% and 21.2% for the three months ended September 30, 1998
and 1997, respectively. The decreases were primarily due to increased
proportional reinsurance for which the Company receives an overriding commission
and a decrease in the Company's reinsurance assumed business which generally had
a higher commission expense.

      Other Operating Expenses. Other operating expenses increased to
$16,873,000 during the first nine months of 1998 from $16,696,000 during the
corresponding period of 1997 and increased 4% for the three months ended
September 30, 1998 compared to the same period in 1997. These increases were
primarily due to our international expansion.

      Interest Expense. Interest expense increased to $1,134,000 during the
first nine months of 1998 from $927,000 during the corresponding period of 1997.
This increase and the related increase in the third quarter of 1998 were
primarily due to an increase in the loan balance under the Company's Amended
Credit Agreement (as defined below) from $17,000,000 at September 30, 1997 to
$22,500,000 at September 30, 1998.

      Income Taxes. The effective tax rates were 26.2% and 26.6% for the nine
months ended September 30, 1998 and 1997, respectively.


                                       14
<PAGE>   15
      Net Income. The Company had net income of $9,391,000 for the first nine
months of 1998 compared to $9,854,000 for the same period last year. On a
diluted per share basis, this represents net income per share of $1.11 and $1.18
for the first nine months of 1998 and 1997, respectively. The Company had net
income of $2,882,000 or $0.34 per share for the three months ended September 30,
1998 compared to net income of $3,463,000 or $0.41 per share for the same period
in 1997.

LIQUIDITY AND CAPITAL RESOURCES

      Cash flow from operations was $(808,000) and $11,773,000 for the first
nine months of 1998 and 1997, respectively. The negative cash flow in 1998 is
primarily due to the payment of reserves on runoff business. Invested assets and
cash decreased slightly to $257,688,000 at September 30, 1998 from $258,572,000
at December 31, 1997.

      The Company's credit agreement, as amended, currently provides for a $25
million revolving loan facility, which reduces each quarter by amounts ranging
from $500,000 to $2,000,000 until it terminates on December 31, 2003, and a $30
million letter of credit facility. At September 30, 1998, $22.5 million in loans
were outstanding under the revolving loan facility at an interest rate of 6.48%
and letters of credit with an aggregate face amount of $29.5 million were issued
under the letter of credit facility. The letters of credit are primarily
utilized by NCUL as collateral to participate in Lloyd's Syndicate 1221
specializing in marine insurance and managed by MTC. No letters of credit have 
been drawn upon.

      In November 1998, the Company replaced its existing credit agreement and
with a new credit agreement providing for a $25 million revolving loan facility
which begins reducing in 2000 and terminates in 2003, and a $50 million letter
of credit facility. The letters of credit will be primarily utilized by NCUL and
Millennium as collateral to participate in Lloyd's Syndicate 1221 managed by
MTC.

      As of September 30, 1998, the Company's consolidated stockholders' equity
was $142,272,000, an increase of 8.4% from $131,242,000 at December 31, 1997.

YEAR 2000 COMPLIANCE

      The Year 2000 problem relates to existing computer programs that use the
last two digits to refer to a year with the assumption that the first two digits
are 19. If not corrected, certain computer applications could stop running or
provide inaccurate results when the first two digits of the year should be 20.
The Company has considered the Year 2000 problem a high priority since 1996 and
is currently replacing its major computer systems with Year 2000 compliant
systems and thereby will benefit from state-of-the-art integrated systems along
with being Year 2000 compliant. The Year 2000 Committee (the "Committee")
includes the Company's Chief Financial Officer and senior members of the
Company's Claims, Human Resources and Information Technology departments. The
major goal of the Committee has been to identify critical systems that will be
impacted by the Year 2000 problem, and to replace or correct the systems. The
Committee provides reports to the Executive Committee as well as the Board of
Directors. If the project is not completed timely, the Year 2000 issue may have
a material impact on the operations of the Company.


                                       15
<PAGE>   16
   The Company is replacing its underwriting, claims and accounting systems with
state-of-the-art systems that are Year 2000 compliant. To accomplish this,
internal resources have been supplemented with outside consultants. The Company
expects to complete the conversion of data and to be operating on the Year 2000
compliant systems for the first quarter of 1999. December 31, 1998. All of the
personal computer off-the-shelf software used by the Company is from major
vendors that are either currently Year 2000 compliant or plan to be in future
releases. The Company is in the process of systematically replacing the personal
computer and AS400 hardware to be Year 2000 compliant by November 30, 1998. The
majority of the hardware and software has been installed. The focus is now on
the conversion of existing data. If for some reason the data could not be
converted timely, the contingency plan is to use the Year 2000 compliant systems
without the historical data.

      The costs associated with the above, approximately $1,000,000, relate
primarily to the replacement of systems that needed to be replaced regardless of
the Year 2000 issue. The costs directly related to the Year 2000 problem are
minimal.

      As part of the overall Year 2000 Plan, business partners are being
contacted to determine their progress on Year 2000 efforts. Each reply is
evaluated to determine the Company's future relationship with each respondent.
This effort will continue into 1999.

      Although the Company has not received any claims based on losses resulting
from year 2000 issues, there can be no assurance that insureds will not suffer
losses of this type and seek compensation under the Company's insurance
policies. If any claims are made, the Company's obligations, if any, will depend
on the facts and circumstances of the claim and provisions of the policy. At
this time, the Company is unable to determine whether the adverse impact, if
any, in connection with the foregoing circumstances would be material.

      The aforementioned Year 2000 discussion contains forward looking
statements in respect to completion of Year 2000 compliance and the effect on
the Company. Such statements are made under the safe harbor provisions of the
Private Securities Litigation Reform Act of 1995 and involve a number of risks
and uncertainties which could materially affect future results.


                                       16
<PAGE>   17
PART II - OTHER INFORMATION

Item 1.       Legal Proceedings:

              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.

Item 2.       Changes in Securities:

              None.

Item 3.       Defaults Upon Senior Securities:

              None.

Item 4.       Submissions of Matters to a Vote of Securities Holders:

              None.

Item 5.       Other Information:

              None.

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

              (a)     Exhibits:

              Exhibit No.        Description of Exhibit
              -----------        ----------------------

                  27.1           Financial Data Schedule

              (b)     Reports on Form 8-K:
                         There were no reports on Form 8-K filed for the nine
                         months ended September 30, 1998.



                                       17
<PAGE>   18
                                    SIGNATURE


      Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.



                                      The Navigators Group,  Inc.
                                      -----------------------------------------
                                                (Registrant)


Dated:   November 13, 1998            /s / Bradley D. Wiley
         ------------------------     -----------------------------------------
                                      Bradley D. Wiley
                                      Senior Vice President, Chief Financial
                                      Officer and Secretary


                                       18
<PAGE>   19
                                INDEX OF EXHIBITS

<TABLE>
<CAPTION>
                                                               Sequentially
                                                                 Numbered
Exhibit No.            Description of Exhibit                      Page
-----------            ----------------------                      ----
<S>                    <C>                                     <C>
  27.1                 Financial Data Schedule
</TABLE>



                                       19