---

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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 June 30, 2002

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
incorporation or organization)

(IRS Employer
Identification No.)One Penn Plaza, New York, New York(Address of principal executive offices)

10119(Zip Code)


(212) 244-2333(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    ý              No    o

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

On
August 2, 2002, there were 8,472,272 shares of $0.10 par value common stock issued and outstanding.

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THE NAVIGATORS GROUP, INC. AND SUBSIDIARIES    INDEX

|         |  |                                                                                       |  | Page No.
|-------- |  | ------------------------------------------------------------------------------------- |  | --------
|Part I.  |  | FINANCIAL INFORMATION:                                                                |  | 3       
|         |  | Consolidated Balance Sheets                                                           |  |         
|         |  | June 30, 2002 (unaudited) and December 31, 2001                                       |  | 3       
|         |  | Consolidated Statements of Income (unaudited)                                         |  |         
|         |  | Three Months Ended June 30, 2002 and 2001                                             |  | 4       
|         |  | Six Months Ended June 30, 2002 and 2001                                               |  | 5       
|         |  | Consolidated Statements of Cash Flows (unaudited)                                     |  |         
|         |  | Six Months Ended June 30, 2002 and 2001                                               |  | 6       
|         |  | Notes to Interim Consolidated Financial Statements (unaudited)                        |  | 7       
|         |  | Management's Discussion and Analysis of Financial Condition and Results of Operations |  | 12      
|Part II. |  | OTHER INFORMATION                                                                     |  | 20      

2

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THE NAVIGATORS GROUP, INC. AND SUBSIDIARIES        CONSOLIDATED BALANCE SHEETS        (In thousands, except share data)

|                                                                              |                                                                                                                                                                                              | June 30,
2002                              |         | December 31,
2001 |        
|----------------------------------------------------------------------------- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ------------------------------------------ | ------- | ----------------- | -------
|
|ASSETS                                                                        |                                                                                                                                                                                              |                                            |         |                   |        
|Investments and cash:                                                         |                                                                                                                                                                                              |                                            |         |                   |        
|                                                                              | Fixed maturities, available-for-sale, at fair value (amortized cost: 2002, $222,589; 2001, $237,745)                                                                                         |                                            | $       | 227,845           |        
|                                                                              | Equity securities, available-for-sale, at fair value (cost: 2002, $6,445; 2001, $7,225)                                                                                                      |                                            |         | 6,412             |        
|                                                                              | Short-term investments, at cost which approximates fair value                                                                                                                                |                                            |         | 70,400            |        
|                                                                              | Cash                                                                                                                                                                                         |                                            |         | 7,776             |        
|                                                                              |                                                                                                                                                                                              |                                            |         |                   |        
|                                                                              |                                                                                                                                                                                              | Total investments and cash                 |         |                   | 312,433
|                                                                              |                                                                                                                                                                                              |                                            |         |                   |        
|Premiums in course of collection                                              |                                                                                                                                                                                              |                                            | 56,098  |                   |        
|Funds due from Lloyd's syndicate                                              |                                                                                                                                                                                              |                                            | 115,260 |                   |        
|Commissions receivable                                                        |                                                                                                                                                                                              |                                            | 4,485   |                   |        
|Accrued investment income                                                     |                                                                                                                                                                                              |                                            | 3,003   |                   |        
|Prepaid reinsurance premiums                                                  |                                                                                                                                                                                              |                                            | 54,905  |                   |        
|Reinsurance receivable on paid and unpaid losses and loss adjustment expenses |                                                                                                                                                                                              |                                            | 203,745 |                   |        
|Federal income tax recoverable                                                |                                                                                                                                                                                              |                                            | 491     |                   |        
|Net deferred income tax benefit                                               |                                                                                                                                                                                              |                                            | 10,031  |                   |        
|Deferred policy acquisition costs                                             |                                                                                                                                                                                              |                                            | 23,090  |                   |        
|Goodwill                                                                      |                                                                                                                                                                                              |                                            | 5,040   |                   |        
|Other assets                                                                  |                                                                                                                                                                                              |                                            | 4,776   |                   |        
|                                                                              |                                                                                                                                                                                              |                                            |         |                   |        
|                                                                              |                                                                                                                                                                                              | Total assets                               |         | $                 | 793,357
|                                                                              |                                                                                                                                                                                              |                                            |         |                   |        
|LIABILITIES AND STOCKHOLDERS' EQUITY                                          |                                                                                                                                                                                              |                                            |         |                   |        
|Liabilities:                                                                  |                                                                                                                                                                                              |                                            |         |                   |        
|                                                                              | Reserves for losses and loss adjustment expenses                                                                                                                                             |                                            | $       | 415,082           |        
|                                                                              | Unearned premium                                                                                                                                                                             |                                            |         | 154,428           |        
|                                                                              | Reinsurance balances payable                                                                                                                                                                 |                                            |         | 42,077            |        
|                                                                              | Notes payable to banks                                                                                                                                                                       |                                            |         | 16,000            |        
|                                                                              | Payable for securities                                                                                                                                                                       |                                            |         | 4,135             |        
|                                                                              | Accounts payable and other liabilities                                                                                                                                                       |                                            |         | 5,588             |        
|                                                                              |                                                                                                                                                                                              |                                            |         |                   |        
|                                                                              |                                                                                                                                                                                              | Total liabilities                          |         |                   | 637,310
|                                                                              |                                                                                                                                                                                              |                                            |         |                   |        
|Stockholders' equity:                                                         |                                                                                                                                                                                              |                                            |         |                   |        
|                                                                              | Preferred stock, $.10 par value; authorized 1,000,000 shares; none issued                                                                                                                    |                                            |         |                  |        
|                                                                              | Common stock, $.10 par value; authorized shares 20,000,000 for 2002 and 10,000,000 for 2001; issued and outstanding shares (net of treasury stock) 8,472,272 for 2002 and 8,427,262 for 2001 |                                            |         | 850               |        
|                                                                              | Additional paid-in capital                                                                                                                                                                   |                                            |         | 39,993            |        
|                                                                              | Treasury stock held at cost (shares: 16,423 for 2002 and 35,908 for 2001)                                                                                                                    |                                            |         | (236              | )      
|                                                                              | Accumulated other comprehensive income                                                                                                                                                       |                                            |         | 3,826             |        
|                                                                              | Retained earnings                                                                                                                                                                            |                                            |         | 111,614           |        
|                                                                              |                                                                                                                                                                                              |                                            |         |                   |        
|                                                                              |                                                                                                                                                                                              | Total stockholders' equity                 |         |                   | 156,047
|                                                                              |                                                                                                                                                                                              |                                            |         |                   |        
|                                                                              |                                                                                                                                                                                              | Total liabilities and stockholders' equity |         | $                 | 793,357
|                                                                              |                                                                                                                                                                                              |                                            |         |                   |        

See
accompanying notes to interim consolidated financial statements.

3

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

|                                   |                                                  | Three Months Ended
June 30, |      
|---------------------------------- | ------------------------------------------------ | --------------------------- | -----
|
|
|Revenues:                          |                                                  |                             |      
|                                   | Net earned premium                               |                             | $    
|                                   | Commission income                                |                             |      
|                                   | Net investment income                            |                             |      
|                                   | Net realized capital gains                       |                             |      
|                                   | Other income (expense)                           |                             |      
|                                   |                                                  |                             |      
|                                   |                                                  | Total revenues              |      
|                                   |                                                  |                             |      
|Operating expenses:                |                                                  |                             |      
|                                   | Net losses and loss adjustment expenses incurred |                             |      
|                                   | Commission expense                               |                             |      
|                                   | Other operating expenses                         |                             |      
|                                   | Interest expense                                 |                             |      
|                                   |                                                  |                             |      
|                                   |                                                  | Total operating expenses    |      
|                                   |                                                  |                             |      
|Income before income tax expense   |                                                  |                             | 5,058
|                                   |                                                  |                             |      
|Income tax expense (benefit):      |                                                  |                             |      
|                                   | Current                                          |                             |      
|                                   | Deferred                                         |                             |      
|                                   |                                                  |                             |      
|                                   |                                                  | Total income tax expense    |      
|                                   |                                                  |                             |      
|Net income                         |                                                  | $                           | 3,774
|                                   |                                                  |                             |      
|Net income per common share:       |                                                  |                             |      
|                                   | Basic                                            |                             | $    
|                                   | Diluted                                          |                             | $    
|Average common shares outstanding: |                                                  |                             |      
|                                   | Basic                                            |                             |      
|                                   | Diluted                                          |                             |      

See
accompanying notes to interim consolidated financial statements.

4

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

|                                   |                                                  | Six Months Ended
June 30, |      
|---------------------------------- | ------------------------------------------------ | ------------------------- | -----
|
|
|Revenues:                          |                                                  |                           |      
|                                   | Net earned premium                               |                           | $    
|                                   | Commission income                                |                           |      
|                                   | Net investment income                            |                           |      
|                                   | Net realized capital gains (losses)              |                           |      
|                                   | Other income (expense)                           |                           |      
|                                   |                                                  |                           |      
|                                   |                                                  | Total revenues            |      
|                                   |                                                  |                           |      
|Operating expenses:                |                                                  |                           |      
|                                   | Net losses and loss adjustment expenses incurred |                           |      
|                                   | Commission expense                               |                           |      
|                                   | Other operating expenses                         |                           |      
|                                   | Interest expense                                 |                           |      
|                                   |                                                  |                           |      
|                                   |                                                  | Total operating expenses  |      
|                                   |                                                  |                           |      
|Income before income tax expense   |                                                  |                           | 9,379
|                                   |                                                  |                           |      
|Income tax expense (benefit):      |                                                  |                           |      
|                                   | Current                                          |                           |      
|                                   | Deferred                                         |                           |      
|                                   |                                                  |                           |      
|                                   |                                                  | Total income tax expense  |      
|                                   |                                                  |                           |      
|Net income                         |                                                  | $                         | 7,224
|                                   |                                                  |                           |      
|Net income per common share:       |                                                  |                           |      
|                                   | Basic                                            |                           | $    
|                                   | Diluted                                          |                           | $    
|Average common shares outstanding: |                                                  |                           |      
|                                   | Basic                                            |                           |      
|                                   | Diluted                                          |                           |      

See
accompanying notes to interim consolidated financial statements.

5

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THE NAVIGATORS GROUP, INC. AND SUBSIDIARIES        CONSOLIDATED STATEMENTS OF CASH FLOWS  (In thousands)

|                                                   |                                                                                             | Six Months Ended
June 30,                                                     |                                          
|-------------------------------------------------- | ------------------------------------------------------------------------------------------- | ----------------------------------------------------------------------------- | -----------------------------------------
|
|
|Operating activities:                              |                                                                                             |                                                                               |                                          
|                                                   | Net income                                                                                  |                                                                               | $                                        
|                                                   | Adjustments to reconcile net income to net cash provided by (used in) operating activities: |                                                                               |                                          
|                                                   |                                                                                             | Depreciation & amortization                                                   |                                          
|                                                   |                                                                                             | Net deferred income tax                                                       |                                          
|                                                   |                                                                                             | Net realized capital (gains) losses                                           |                                          
|                                                   | Changes in assets and liabilities:                                                          |                                                                               |                                          
|                                                   |                                                                                             | Reinsurance receivable on paid and unpaid losses and loss adjustment expenses |                                          
|                                                   |                                                                                             | Reserve for losses and loss adjustment expenses                               |                                          
|                                                   |                                                                                             | Prepaid reinsurance premiums                                                  |                                          
|                                                   |                                                                                             | Unearned premium                                                              |                                          
|                                                   |                                                                                             | Premiums in course of collection                                              |                                          
|                                                   |                                                                                             | Commissions receivable                                                        |                                          
|                                                   |                                                                                             | Funds due from Lloyd's syndicate                                              |                                          
|                                                   |                                                                                             | Deferred policy acquisition costs                                             |                                          
|                                                   |                                                                                             | Accrued investment income                                                     |                                          
|                                                   |                                                                                             | Reinsurance balances payable                                                  |                                          
|                                                   |                                                                                             | Federal income tax                                                            |                                          
|                                                   |                                                                                             | Other                                                                         |                                          
|                                                   |                                                                                             |                                                                               |                                          
|                                                   |                                                                                             |                                                                               | Net cash provided by operating activities
|                                                   |                                                                                             |                                                                               |                                          
|Investing activities:                              |                                                                                             |                                                                               |                                          
|                                                   | Fixed maturities, available-for-sale                                                        |                                                                               |                                          
|                                                   |                                                                                             | Redemptions and maturities                                                    |                                          
|                                                   |                                                                                             | Sales                                                                         |                                          
|                                                   |                                                                                             | Purchases                                                                     |                                          
|                                                   | Equity securities, available-for-sale                                                       |                                                                               |                                          
|                                                   |                                                                                             | Sales                                                                         |                                          
|                                                   |                                                                                             | Purchases                                                                     |                                          
|                                                   | Change in receivable for securities                                                         |                                                                               |                                          
|                                                   | Net change in short-term investments                                                        |                                                                               |                                          
|                                                   | Purchase of property and equipment                                                          |                                                                               |                                          
|                                                   |                                                                                             |                                                                               |                                          
|                                                   |                                                                                             |                                                                               | Net cash (used in) investing activities  
|                                                   |                                                                                             |                                                                               |                                          
|Financing activities:                              |                                                                                             |                                                                               |                                          
|                                                   | Repayment of bank loan                                                                      |                                                                               |                                          
|                                                   | Proceeds from exercise of stock options                                                     |                                                                               |                                          
|                                                   |                                                                                             |                                                                               |                                          
|                                                   |                                                                                             | Net cash (used in) financing activities                                       |                                          
|                                                   |                                                                                             |                                                                               |                                          
|Increase in cash                                   |                                                                                             |                                                                               | 5,346                                    
|Cash at beginning of year                          |                                                                                             |                                                                               | 2,430                                    
|                                                   |                                                                                             |                                                                               |                                          
|Cash at end of period                              |                                                                                             | $                                                                             | 7,776                                    
|                                                   |                                                                                             |                                                                               |                                          
|Supplemental disclosures of cash flow information: |                                                                                             |                                                                               |                                          
|                                                   | Federal, state and local income tax paid                                                    |                                                                               | $                                        
|                                                   | Interest paid                                                                               |                                                                               |                                          
|                                                   | Issuance of stock to directors                                                              |                                                                               |                                          

See accompanying notes to interim consolidated financial statements.

6

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THE NAVIGATORS GROUP, INC. AND SUBSIDIARIES        Notes to Interim Consolidated Financial Statements        (Unaudited)

(1) Accounting Policies

The interim consolidated 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. All
significant intercompany transactions and balances have been eliminated. 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 consolidated financial statements and notes contained in the Company's 2001 Annual Report on Form 10-K. Certain amounts for prior
periods have been reclassified to conform to the current period's presentation.

(2) Reinsurance Ceded

The Company's ceded earned premiums were $36,415,000 and $22,395,000 for the three months ended June 30, 2002 and 2001, respectively, and were $64,891,000
and $44,776,000 for the six months ended June 30, 2002 and 2001, respectively. The Company's ceded incurred losses were $24,885,000 and $27,751,000 for the three months ended June 30,
2002 and 2001, respectively, and were $40,450,000 and $37,983,000 for the six months ended June 30, 2002 and 2001, respectively.

(3) Segments of an Enterprise

The Company's subsidiaries are primarily engaged in the underwriting and management of property and casualty insurance. The Company's segments include the
Insurance Companies, the Navigators Agencies and the Lloyd's Operations, each of which is managed separately. The Insurance Companies consist of Navigators Insurance Company and NIC Insurance Company
which are primarily engaged in underwriting marine insurance and related lines of business, contractors' general liability insurance, and directors and officers professional liability insurance. The
Navigators Agencies are underwriting management companies which produce, manage and underwrite insurance and reinsurance for the Insurance Companies and four non-affiliated companies. The
Lloyd's Operations consist primarily of a Lloyd's managing agency and two Lloyd's corporate members which underwrite marine and related lines of business at Lloyd's of London. All segments are
evaluated based on their underwriting or operating results calculated on the basis of accounting principles generally accepted in the United States of America ("GAAP").

The
Insurance Companies and the Lloyd's Operations are measured taking into account net earned premiums, incurred losses and loss expenses, commission expense and other underwriting
expenses. The Navigators Agencies' results include commission income less other operating expenses. Each segment maintains its own investments on which it earns income and realizes capital gains or
losses. Other operations include intersegment income and expense in the form of affiliated commissions, income and expense from corporate operations, and consolidating adjustments.

7

---

The
following tables present financial data by segment for the periods indicated:

Three Months Ended
June 30,

Six Months Ended
June 30,2002

2001

2002

2001(In thousands)Revenue, excluding net investment income and net realized capital gains (losses):Insurance Companies

$
29,272

$
16,664

$
58,271

$
32,660Navigators Agencies


6,224


3,933


12,332


7,251Lloyd's Operations


23,215


18,448


34,442


32,105Other operations


(5,109
)

(4,153
)

(9,975
)

(6,599
)Total

$
53,602

$
34,892

$
95,070

$
65,417Income (loss) before tax expense (benefit):Insurance Companies

$
4,577

$
6,089

$
9,503

$
11,797Navigators Agencies


742


(176
)

1,132


(763
)Lloyd's Operations


735


(12
)

1,607


(1,068
)Other operations


(996
)

(2,734
)

(2,863
)

(3,499
)Total

$
5,058

$
3,167

$
9,379

$
6,467Income tax expense (benefit):Insurance Companies

$
1,414

$
1,923

$
2,945

$
3,702Navigators Agencies


218


(114
)

312


(402
)Lloyd's Operations











Other operations


(348
)

(956
)

(1,102
)

(1,198
)Total

$
1,284

$
853

$
2,155

$
2,102Net income (loss):Insurance Companies

$
3,163

$
4,166

$
6,558

$
8,095Navigators Agencies


524


(62
)

820


(361
)Lloyd's Operations


735


(12
)

1,607


(1,068
)Other operations


(648
)

(1,778
)

(1,761
)

(2,301
)Total

$
3,774

$
2,314

$
7,224

$
4,365


8

---

(4) Comprehensive Income

Comprehensive income encompasses all changes in stockholders' equity including net income, net unrealized capital gains and losses on available for sale
securities, and foreign currency translation adjustments.

The
following table summarizes comprehensive income for the three months ended June 30, 2002 and 2001:

June 30,2002

2001(In thousands)Net income

$
3,774

$
2,314Other comprehensive income (loss), net of tax:Net unrealized gains on securities available for sale:Unrealized holding gains (losses) arising during period (net of tax expense (benefit) of $1,669 for 2002 and $(637) for 2001)


3,687


(1,184
)Less: reclassification adjustment for gains included in net income (net of tax expense of $77 for 2002 and $35 for 2001)


124


120Net unrealized gains (losses) on securities


3,563


(1,304
)Foreign currency translation gain (loss) adjustment, net of tax expense (benefit) of $103 for 2002 and $(2) for 2001


191


(4
)Other comprehensive income (loss)


3,754


(1,308
)Comprehensive income

$
7,528

$
1,006


The
following table summarizes comprehensive income for the six months ended June 30, 2002 and 2001:

June 30,2002

2001(In thousands)Net income

$
7,224

$
4,365Other comprehensive income (loss), net of tax:Net unrealized gains (losses) on securities available for sale:Unrealized holding gains arising during period (net of tax expense (benefit) of $630 for 2002 and $(250) for 2001)


1,077


(464
)Less: reclassification adjustment for gains included in net income (net of tax expense (benefit) of $(21) for 2002 and $123 for 2001)


(71
)

485Net unrealized gains (losses) on securities


1,148


(949
)Foreign currency translation (loss) adjustment, net of tax (benefit) of $(159) for 2002 and $(113) for 2001


(296
)

(210
)Other comprehensive income (loss)


852


(1,159
)Comprehensive income

$
8,076

$
3,206


9

---

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

June 30,
2002

December 31,
2001(audited)(In thousands)Net unrealized gains on securities available-for-sale (net of tax expense of $1,828 in 2002 and $1,177 in 2001)

$
3,720

$
2,572Foreign currency translation adjustment (net of tax expense of $57 in 2002 and $216 in 2001)


106


402Accumulated other comprehensive income

$
3,826

$
2,974


(5) Adoption of Accounting Standards

The Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards ("SFAS") 141,Business
Combinations, and SFAS 142,Goodwill and Other Intangible Assets. The Company adopted both SFAS 141 and
SFAS 142 effective January 1, 2002. SFAS 141 requires that the purchase method of accounting be used for all business combinations initiated after June 30, 2001. It also
specifies that intangible assets acquired in a purchase method business combination be recognized and reported apart from goodwill. SFAS 142 changes the accounting for goodwill and intangible
assets that have indefinite useful lives from an amortization approach to an impairment-only approach that requires that those assets be tested at least annually for impairment. Intangible
assets that have finite useful lives will continue to be amortized over their useful lives, but without an arbitrary ceiling on their useful lives. The Company completed its impairment review
resulting in no impairment as of January 1, 2002. In addition, no other intangible assets were required to be reclassified and accounted for as an asset apart from goodwill upon adoption of
SFAS 142. No expense for amortization of goodwill has been recorded in the first six months or second quarter of 2002 compared to an after tax expense of $122,000 and $61,000 recorded in the
first six months and second quarter of 2001, respectively. Net income for the six months and three months ended June 30, 2001, excluding the amortization of goodwill expense, would have been
$4,487,000 and $2,375,000, respectively, and both basic and diluted earnings per share for the six months and three months ended June 30, 2001 would have increased by $0.01 per share. Goodwill
of $1,978,000 and $1,978,000 was recorded for the Navigators Agencies' segment and $3,062,000 and $2,937,000 for the Lloyd's Operations segment at June 30, 2002 and December 31, 2001,
respectively. Goodwill on the Company's consolidated balance sheets may fluctuate due to changes in the foreign currency rates between the U.S. dollar and the British pound. The adoption of
SFAS 141 had no impact on the Company's consolidated financial statements.

Effective
January 1, 2002, the Company also adopted SFAS 144,Accounting for the Impairment or Disposal of Long Lived
Assets. The adoption of SFAS 144 did not have any impact on the Company's consolidated financial statements.

10

---

(6) Lloyd's Participation

The Company participates for, and records in its consolidated financial statements, its portion of Lloyd's Syndicate 1221's premium and related losses and
expenses. Such participation was 68.1% of Syndicate 1221's £75.0 million ($108.0 million) of capacity utilized for the 2002 underwriting year and 67.4% of Syndicate 1221's
£66.3 million ($95.5 million) of capacity utilized for the 2001 underwriting year.

At
June 30, 2002, by Lloyd's definition, the Company controlled, through non-affiliated insurance companies (the "Non-affiliates"), an additional 20.7% of Syndicate 1221's
capacity. The portion of Syndicate 1221's premium written and recorded by the Non-affiliates was $19,360,000 and $16,951,000 for the six months ended June 30, 2002 and 2001, respectively, and
$9,035,000 and $7,216,000 for the three months ended June 30, 2002 and 2001, respectively.

If
the Company were to control more than 90% of Syndicate 1221's capacity by Lloyd's definition, Lloyd's Major Syndicate Transaction Byelaw (No. 18 of 1997) allows for a Minority
Buy-out to be effected. In such a transaction, the remaining participants are required to give up their capacity in return for compensation which must be at least equal to the offer price preceding
the buy-out. The cost of such a buy-out is not considered to be material to the Company's consolidated financial statements.

The
Company provides letters of credit to Lloyd's to support its participation in Syndicate 1221's capacity. If the Company increases its participation in Syndicate 1221's capacity, or
if Lloyd's changes the collateral requirements, the Company may be required to supply additional letters of credit or other collateral acceptable to Lloyd's, or to reduce the capacity of Syndicate
1221.

(7) Income TaxValuation Allowance

The Company's valuation allowance in the first six months of 2002 decreased by $683,000 relating to the reduction in the loss carryforward at the Company's
foreign operations resulting from income generated by these operations in the first six months of 2002. At June 30, 2002 and 2001, the Company had loss carryforwards remaining at its foreign
operations amounting to potential future tax benefits of $5,113,000 and $4,541,000, respectively, along with a valuation allowance equal to these benefits. The Company needs to generate $16,493,000 of
future foreign pretax income in order to fully utilize the foreign loss carryforwards which can be carried forward indefinitely.

The
Company also had net state and local loss carryforwards amounting to potential future tax benefits of $1,899,000 and $1,225,000 at June 30, 2002 and 2001, respectively, along
with a valuation allowance equal to these benefits. The Company needs to generate $10,443,000 of future state and local pretax income in order to fully utilize the loss carryforwards which expire from
2019 to 2022.

(8) Future Application of Accounting Standards

In June 2001, the FASB issued SFAS 143Accounting for Asset Retirement Obligations.SFAS 143
addresses financial accounting and reporting for obligations associated with the retirement of tangible long-lived assets and the associated asset retirement costs. The provisions of SFAS 143
are effective for financial statements issued for fiscal years beginning after June 15, 2002, with early application encouraged. The adoption of this statement is not expected to have a
material effect on the Company's results of operations or financial condition.

In
July 2002, the FASB issued SFAS 146,Obligations Associated with Disposal Activities. SFAS 146 addresses financial
accounting and reporting for costs associated with a disposal activity. This statement requires a liability for a disposal obligation be recognized and measured at its fair value when it is incurred
and that the guidance of SFAS 5,Accounting for Contingencies, and FASB Interpretation No. 14,Reasonable
Estimation of the Amount of Loss, do not apply to the recognition and measurement of the liability. The provisions of SFAS 146 are effective for disposal activities
initiated after December 31, 2002, with early application encouraged. The adoption of this statement is not expected to have a material effect on the Company's results of operations or
financial condition.

11

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THE NAVIGATORS GROUP, INC. AND SUBSIDIARIES    Management's Discussion and Analysis of  Financial Condition and Results of Operations

Forward-looking statements

Some of the statements in this Form 10-Q are "forward-looking statements" as defined in the Private Securities Litigation Act of 1995. We
derive forward-looking statements from information which we currently have and from 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. The Company is not required to update any forward looking statements. Factors which could cause actual
results to differ materially from our forward looking statements include, but are not limited to:



General

The accompanying consolidated financial statements consisting of the accounts of The Navigators Group, Inc., a Delaware holding company, and its twelve
active wholly owned subsidiaries, are prepared on the basis of accounting principles generally accepted in the United States of America ("GAAP"). Unless the context otherwise requires, the term
"Company" as used herein means The Navigators Group, Inc. and its subsidiaries. The term Parent Company is used to mean the Company without its subsidiaries. All significant intercompany
transactions and balances have been eliminated.

The
Company's two insurance company 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 largest insurance subsidiary and has been active since 1983. It specializes primarily in underwriting marine insurance and related lines of
business, contractors' general liability insurance, and directors and officers professional liability insurance. NIC, a wholly owned subsidiary of Navigators Insurance, began operations in 1990. It
underwrites a small book of surplus lines insurance fully reinsured by Navigators Insurance. Navigators Insurance and NIC are collectively referred to herein as the "Insurance Companies".

Five
of the Company's wholly owned insurance agencies (the "Navigators Agencies" or individually, a "Navigators Agency"), specialize in writing marine and related lines of business. The
marine business is written through a pool of five insurance companies, Navigators Insurance having a 75% net participation in the pool. The Navigators Agencies derive their revenue from commissions,
service fees and cost reimbursement arrangements from their Parent Company, Navigators Insurance, NIC and the four unaffiliated insurers in the marine pool. Commissions are earned both on a fixed

12

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percentage of premiums and on underwriting profits from business placed with the participating insurance companies within the pool. A Navigators Agency manages the Insurance Companies.

Navigators
Specialty, a division of a Navigators Agency located in San Francisco, California, specializes in underwriting general liability insurance coverage for small artisan and
general contractors on the West Coast and produces business exclusively for the Insurance Companies.

Navigators
Pro, a division of a Navigators Agency located in New York, specializes in underwriting professional liability insurance and began producing directors and officers liability
insurance exclusively for the Insurance Companies in the fourth quarter of 2001.

Navigators
Holdings (UK) Limited is a holding company for the Company's UK subsidiaries consisting of the Lloyd's Operations, and Navigators Management (UK) Limited, a Navigators Agency,
which produces business for the UK Branch of Navigators Insurance and the unaffiliated pool members. The Lloyd's Operations consist of Navigators Underwriting Agency Ltd.
("NUAL"), a Lloyd's of London ("Lloyd's") marine underwriting managing agency which manages Lloyd's Syndicate 1221, Millennium Underwriting Ltd. ("Millennium") and Navigators
Corporate Underwriters Ltd. ("NCUL"). Both Millennium and NCUL are Lloyd's corporate members with limited liability and provide capacity to Lloyd's Syndicate 1221. NUAL owns
Pennine Underwriting Ltd., an underwriting managing agency with offices in Manchester and Leeds, England, which underwrites cargo and engineering business for Lloyd's Syndicate 1221.

The
Company's revenue is primarily comprised of premiums, commissions and investment income. The Insurance Companies derive the majority of their premium from business written by the
Navigators Agencies. The Lloyd's Operations derive their premium from business written by NUAL.

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, 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.

Critical Accounting Policies

It is important to understand the Company's accounting policies in order to understand its financial statements. Management considers certain of these policies to
be critical to the presentation of the financial results since they require management to make estimates and assumptions. These estimates and assumptions affect the reported amounts of assets,
liabilities, revenues, expenses, and related disclosures at the financial reporting date and throughout the period being reported upon. Certain of the estimates result from judgments that can be
subjective and complex, and consequently actual results may differ from these estimates.

The
Company's most critical accounting policies involve the reporting of the reserves for losses and loss adjustment expenses (including losses that have occurred but were not reported
to the Company by the
financial reporting date), reinsurance recoverables, written and unearned premium, the recoverability of deferred tax assets, the impairment of invested assets, and goodwill.

Loss
reserves represent an estimate of the expected cost of the ultimate settlement and administration of losses, based on facts and circumstances then known. Actuarial methodologies are
employed to assist in establishing such estimates and include judgments relative to estimates of future claims severity and frequency, length of time to develop to ultimate, judicial theories of
liability and other third party factors which are often beyond our control. Due to the inherent uncertainty associated with the reserving process, the ultimate liability may be different from the
original estimate. Such estimates are regularly reviewed and updated and any resulting adjustments are included in the current year's results.

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Reinsurance
recoverables are established for the portion of the loss reserves that are ceded to reinsurers. Reinsurance recoverables are determined based upon the terms and conditions of
the reinsurance contracts which could be subject to judicial theories of liability. In addition, a credit risk exists with the reinsurer particularly considering that certain of the reserves remain
outstanding for an extended period of time. The Company is required to pay the losses even if the reinsurer fails to meet its obligations under the reinsurance agreement.

Written
premium is recorded based on the insurance policies that have been reported to the Company and the policies that have been written by the agents but not yet reported to the
Company. The Company must estimate the amount of written premium not yet reported based on judgments relative to current and historical trends of the business being written. Such estimates are
regularly reviewed and updated and any resulting adjustments are included in the current year's results. An unearned premium reserve is established to reflect the unexpired portion of each policy at
the financial reporting date.

The
Company has recorded valuation allowances related to deferred tax assets resulting from net operating loss carryforwards due to the uncertainty associated with the realization of the
deferred tax asset related to certain of the Company's foreign, state and local operations.

Impairment
of investment securities results in a charge to operations when a market decline below cost is other than temporary. Management regularly reviews each investment security for
impairment based on criteria that include the extent to which cost exceeds market value, the duration of that market decline and the financial health of and specific prospects for the issuer.

The
Company evaluates, at least annually, the recoverability of goodwill and other acquired intangible assets. The carrying value of such assets would be reduced through a direct
write-off if it was probable that projected future operating income and discounted cash flow would not be sufficient to recover the carrying value.

Results of Operations

Revenues.Gross written premium for the first six months of 2002 increased 44.6% to $212,861,000 from $147,174,000 for the
first six months of 2001. Gross written premium for the three months ended June 30, 2002 increased 48.2% to $90,945,000 from $61,371,000 for the same period in 2001.

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

|                     |                              | Six Months Ended June 30, |                            
|-------------------- | ---------------------------- | ------------------------- | ---------------------------
|
|
|Lloyd's Operations:  |                              |                           |                            
|                     | Marine                       |                           | $                          
|                     | Engineering and Construction |                           |                            
|                     | Onshore Energy               |                           |                            
|                     |                              |                           |                            
|                     |                              | Gross Written Premium     |                            
|                     |                              |                           |                            
|                     |                              | Ceded Written Premium     |                            
|                     |                              |                           |                            
|                     |                              | Net Written Premium       |                            
|                     |                              |                           |                            
|Insurance Companies: |                              |                           |                            
|                     | Marine                       |                           |                            
|                     | Specialty Insurance          |                           |                            
|                     | Professional Liability       |                           |                            
|                     | Other                        |                           |                            
|                     |                              |                           |                            
|                     |                              | Gross Written Premium     |                            
|                     |                              |                           |                            
|                     |                              | Ceded Written Premium     |                            
|                     |                              |                           |                            
|                     |                              | Net Written Premium       |                            
|                     |                              |                           |                            
|                     |                              |                           | Total Gross Written Premium
|                     |                              |                           |                            
|                     |                              |                           | Total Ceded Written Premium
|                     |                              |                           |                            
|                     |                              |                           | Total Net Written Premium  
|                     |                              |                           |                            

Lloyd's Operations' Gross Written Premium

The Lloyd's premium is generated as the result of NCUL and Millennium providing capacity to Lloyd's Syndicate 1221 managed by NUAL. The Company participates for,
and records in its consolidated financial statements, its portion of Lloyd's Syndicate 1221's premium and related losses and expenses. Such participation was 68.1% of Syndicate 1221's
£75.0 million ($108.0 million) of capacity utilized for the 2002 underwriting year and for 67.4% of Syndicate 1221's £66.3 million ($95.5 million)
of capacity utilized for the 2001 underwriting year. Syndicate 1221's capacity is expressed net of commission (as is standard at Lloyd's) of approximately 21%. Lloyd's presents its results on an
underwriting year basis, generally closing each underwriting year after three years. The Company makes estimates for each year and timely accrues the expected results.

15

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At June 30, 2002, by Lloyd's definition, the Company controlled an additional 20.7% of Syndicate 1221's capacity through non-affiliated insurance companies (the
"Non-affiliates"). The portion of Syndicate 1221's premium written and recorded by the Non-affiliates was $19,360,000 and $16,951,000 for the six months ended June 30, 2002 and
2001, respectively, and $9,035,000 and $7,216,000 for the three months ended June 30, 2002 and 2001, respectively.

If
the Company were to control more than 90% of Syndicate 1221's capacity by Lloyd's definition, Lloyd's Major Syndicate Transactions Byelaw (No. 18 of 1997) allows for a Minority
Buy-out to be effected. In such a transaction, the remaining participants are required to give up their capacity in return for compensation which must be at least equal to the offer price
preceding the buy-out.

The
Company provides letters of credit to Lloyd's to support its participation in Syndicate 1221's capacity. If the Company increases its participation in Syndicate 1221's capacity, or
if Lloyd's changes the collateral requirements, the Company may be required to supply additional letters of credit or other collateral acceptable to Lloyd's, or to reduce the capacity of Syndicate
1221.

Marine Premium.Marine premium decreased slightly in the first six months of 2002 compared to the first six months of 2001,
due to increases in prior premium estimates recorded in the 2001 period.

Engineering and Construction Premium.NUAL underwrites engineering and construction business for Syndicate 1221. The business
consists of coverage for construction projects including machinery, equipment and loss of use due to delays.

Onshore Energy Premium.NUAL also underwrites onshore energy business for Syndicate 1221. The business principally focuses on
the oil and gas, chemical and petrochemical industries with coverages primarily for property damage and business interruption.

Insurance Companies' Gross Written Premium

Marine Premium.Marine gross written premium increased 52.7% when comparing the first six months of 2002 to the first six
months of 2001, and increased 38.6% for the three months ended June 30, 2002 compared to the same period last year. The increases were due to new business and rate increases. Navigators
Insurance's participation in the marine pools was 75% in both years.

Specialty Insurance Premium.The specialty insurance consists primarily of general liability insurance for contractors as
well as small commercial risks. The 112.3% increase in the gross written premium when comparing the first six months of 2002 and 2001, and the 101.9% increase when comparing the three months ended
June 30, 2002 and 2001, resulted from new business and rate increases.

Professional Liability Premium.In late 2001, the Insurance Companies began to write professional liability insurance
consisting primarily of directors & officers liability coverages for privately held and publicly traded corporations.



In the ordinary course of business, the Company 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 premiums written to statutory surplus. The relationship of ceded to written premium varies based upon the
types of business written and whether the business is written by the Insurance Companies or the Lloyd's Operations. The increase in ceded premium when comparing the first six months of 2002 to the
first six months of 2001, and the second quarter of 2002 to the second quarter of 2001, resulted from the increase in the gross written premium, the increase in the 2002 excess of loss reinsurance
rates and an 85% quota share reinsurance treaty on the professional liability premium.

16

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Net written premium increased 41.7% when comparing the first six months of 2002 to the first six months of 2001, and increased 52.4% when comparing the second
quarter of 2002 to the same period in 2001, due to the increase in the gross written premium.



Net earned premium increased 42.8% for the first six months of 2002 to $92,125,000 as compared to $64,532,000 for the first six months of 2001. Net earned premium
increased 48.9% in the second quarter of 2002 compared to the second quarter of 2001. The increase in net earned premium resulted from the increase in net written premium in 2001 and the first six
months of 2002.



Commission income generated by the Navigators Agencies increased to $2,094,000 for the first six months of 2002 from $1,800,000 for the same period in 2001,
primarily as the result of the increased earned premium on the marine business produced by the Navigators Agencies.



Net investment income decreased 6.5% to $9,104,000 for the first six months of 2002 from $9,741,000 for the corresponding period in 2001 primarily due to the
decrease in interest rates in 2002. The investments at NCUL and Millennium are represented by funds due from Lloyd's Syndicate 1221 to the Company and have a relatively short duration.



Pre-tax net income included $(92,000) of net realized capital (losses) for the first six months of 2002 compared to $608,000 of net realized capital
gains for the same period last year. On an after tax basis, the net realized capital gains (losses) were $(71,000) or $(0.01) per share for the first six months of 2002 and $486,000 or $0.06 per share
for the first six months of 2001. Pre-tax net income included $201,000 and $155,000 of net realized capital gains for the second quarter of 2002 and 2001, respectively. On an after tax
basis, the net realized capital gains were $124,000 or $0.01 per share for the second quarter of 2002 compared to $120,000 or $0.01 per share for the second quarter of 2001. Included in net realized
capital gains in the second quarter of 2002 was $2,118,000 of impairment losses recorded on one of the Company's asset backed securities.



Other income (expense) for 2001 consisted primarily of a $(1,300,000) charge related to the Company's former investment in Riverside Corporate
Underwriters, Ltd. ("RCUL"), a Lloyd's corporate name. Lloyd's informed the Company in 2001 that it was liable for part of the adverse development in the Lloyd's syndicates in
which RCUL provided capacity in 1999 and 1998. The Company had provided a letter of credit to RCUL in order for RCUL to participate on various Lloyd's syndicates. The charge represented the Company's
best estimate of its potential exposure based upon then available information.



Net Losses and Loss Adjustment Expenses Incurred.The ratio of net losses and loss adjustment expenses incurred to net earned
premium (the "loss ratio") was 61.0% and 64.5% for the first six months of 2002 and 2001, respectively. This decrease was primarily due to approximately $1.8 million of losses in the first
quarter of 2001 resulting from one large offshore energy claim (Petrobras).

17

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The loss ratio was 62.4% for the second quarter of 2002 compared to 64.2% for the 2001 second quarter. The decrease was primarily due to improved underwriting results from the Company's Lloyd's
Operations. There was no development in the Company's incurred losses for the first six months of 2002 related to the attack on the World Trade Center.

Commission Expense.Commission expense as a percentage of net earned premium was 21.0% and 21.8% for the first six months of 2002 and
2001, respectively, and 21.9% and 21.0% for the second quarter of 2002 and 2001, respectively. The commission expense tends to fluctuate with changes in the mix of business.

Other Operating Expenses.Other operating expenses increased to $18,870,000 during the first six months of 2002 from
$12,841,000 during the corresponding period of 2001, and to $8,983,000 during the second quarter of 2002 from $6,713,000 in the second quarter of 2001, primarily due to the increase in employee
related expenses resulting from expansion of the business, stock appreciation rights and stock grants. No expense for amortization of goodwill has been recorded in the first six months or second
quarter of 2002 compared to an after tax expense of $122,000 and $61,000 recorded in the first six months and second quarter of 2001, respectively.

Interest Expense.Interest expense was $305,000 during the first six months of 2002 compared to $819,000 during the
corresponding period of 2001. This decrease was due to a smaller loan balance and lower interest rates on the loan. The interest expense for the three months ended June 30, 2002 decreased to
$145,000 from $404,000 for the same period in 2001.



The effective tax rate was 23.0% and 32.5% for the six months ended June 30, 2002 and 2001, respectively. The rates differed from the Federal statutory
income tax rate primarily due to the change in the valuation allowance and also to tax-exempt interest income.

The
Company's valuation allowance for the six and three month periods ended June 30, 2002 decreased by $683,000 and $321,000, respectively, relating to the reduction in the loss
carryforward at the Company's foreign operations resulting from income generated by those operations in the first six months of 2002. At June 30, 2002 and 2001, the Company had loss
carryforwards remaining at its foreign operations amounting to potential future tax benefits of $5,113,000 and $4,541,000, respectively, along with a valuation allowance equal to these benefits. The
Company needs to generate $16,493,000 of future foreign pretax income in order to fully utilize the foreign loss carryforwards which can be carried forward indefinitely.

The
Company also had net state and local loss carryforwards amounting to potential future tax benefits of $1,899,000 and $1,225,000 at June 30, 2002 and 2001, respectively, along
with a valuation allowance equal to these benefits. The Company needs to generate $10,443,000 of future state and local pretax income in order to fully utilize the loss carryforwards which expire from
2019 to 2022.

The
Company had alternative minimum tax carryforwards of $2,304,000 and $3,978,000 at June 30, 2002 and 2001, respectively.



The Company had net income of $7,224,000 for the first six months of 2002 compared to $4,365,000 for the same period last year. On a diluted per share basis, this
represented net income per share of $0.84 and $0.52 for the first six months of 2002 and 2001, respectively. Net income in the second quarter of 2002 was $3,774,000, or $0.43 per share, compared to
net income in the second quarter of 2001 of $2,314,000, or $0.27 per share.

18

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Liquidity and Capital Resources

Cash flow provided by operations was $31,342,000 and $6,931,000 for the first six months of 2002 and 2001, respectively. The increase in the 2002 operating cash
flow was primarily due to increases in net written premium and reductions in reinsurance recoverables. Operating cash flow was used primarily to acquire additional investment assets and to reduce
debt. Invested assets and cash increased to $312,433,000 at June 30, 2002 from $278,299,000 at December 31, 2001.

The
Company has a credit facility provided through a consortium of banks. The credit facility provides for a $16.0 million revolving line of credit facility, which reduces each
quarter by amounts totaling $4.5 million in 2002, $9 million in 2003 and $5.5 million in 2004 until it terminates on November 19, 2004, and a $55 million letter of
credit facility. At June 30, 2002, $16,000,000 in loans were outstanding under the revolving line of credit facility at an interest rate of 3.18%. The letter of credit facility is utilized
primarily by NCUL and Millennium for its direct participation in Lloyd's Syndicate 1221. The credit facility agreement requires that the banks vote whether or not to renew the letter of credit portion
of the facility each year. If the banks decide to not renew the letter of credit portion of the facility, the Company will need to find other sources to provide the letters of credit or other
collateral in order to continue its participation in Syndicate 1221. At June 30, 2002, letters of credit with an aggregate face amount of $50,789,000 were issued under the letter of credit
facility.

At
June 30, 2002, the Company's consolidated stockholders' equity was $156,047,000 compared to $147,206,000 at December 31, 2001. The increase was primarily due to the net
income for the six months ended June 30, 2002 and the increase in the unrealized gains in the investment portfolio.

Quantitative and Qualitative Disclosures About Market Risk

There have been no material changes in the information concerning market risk as stated in the Company's 2001 Annual Report on Form 10-K.

Treasury Stock

During the first quarter of 2002 and 2001, the Company issued 2,985 and 5,406 shares of treasury stock, respectively, to the non-employee directors as
part of the directors' annual compensation for the
prior year. The Company expensed $60,000 and $72,000 in each of the prior two years relating to the issuance of these shares. In addition, during the second quarter of 2002, the Company issued 16,500
shares to the Company's President representing the vested portion of a 2001 stock grant.

19

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Part IIOther Information

Item 1.    Legal Proceedings:



Item 2.    Changes in Securities:



Item 3.    Defaults Upon Senior Securities:



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



Name

For

WithheldTerence N. Deeks

7,049,920

203,345Robert M. DeMichele

7,050,220

203,045Robert W. Eager, Jr.

7,050,220

203,045Stanley A. Galanski

7,049,920

203,345Leandro S. Galban, Jr.

7,050,220

203,045Marc M. Tract

7,050,220

203,045George T. Van Gilder

7,050,120

203,145Robert F. Wright

7,050,220

203,045




20

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Item 5.    Other Information:



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



Exhibit No.

Description of Exhibit99.1

Certification of CEO99.2

Certification of CFO






21

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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: August 14, 2002 |  | /s/BRADLEY D. WILEYBradley D. Wiley
Senior Vice President, Chief Financial
Officer and Secretary

22

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INDEX OF EXHIBITS

Exhibit No.

Description of Exhibit99.1

Certification of CEO99.2

Certification of CFO


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