<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 Quarter Ended        September 30, 1996

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) 406-2900
              (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  13, 1996 there were  8,220,026  shares of common  stock,  $0.10 par
value issued and outstanding.


<PAGE>   2



                   THE NAVIGATORS GROUP, INC. AND SUBSIDIARIES
                                      INDEX


                                                                   Page No.

Part I. FINANCIAL INFORMATION:

        Balance Sheets
          September 30, 1996 and December 31, 1995.................   1

        Statements of Income
          Three Months Ended September 30, 1996 and
          Three Months Ended September 30, 1995....................   2
          Nine Months Ended September 30, 1996 and
          Nine Months Ended September 30, 1995.....................   3

        Statements of Cash Flows
          Nine Months Ended September 30, 1996 and
          Nine Months Ended September 30, 1995.....................   4

        Notes to Financial Statements..............................   5

        Management's Discussion and Analysis of Financial
          Condition and Results of Operations......................   6

Part II. OTHER INFORMATION.........................................  13




<PAGE>   3



                   THE NAVIGATORS GROUP, INC. AND SUBSIDIARIES

                           CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>

                                                                       Sept. 30, 1996       Dec. 31, 1995
                                                                       --------------       -------------
                                                                        (Unaudited)
<C>                                                                     <C>                   <C>         
ASSETS
Investments:
     Fixed maturities, available for sale, at fair value
         (amortized cost:  1996, $206,112,600; 1995,
          $203,468,088)                                                $209,410,554           $210,697,423
     Equity securities, available for sale, at fair value                                   
         (cost:  1996 $6,325,715; 1995, $5,587,344)                       8,759,444              7,861,813
     Short-term investments, at cost which approximates                                     
         market                                                          11,032,044              7,290,638
                                                                        -----------           ------------
         Sub-total investments                                          229,202,042            225,849,874
     Investment in affiliated company                                     3,689,870              2,277,048
                                                                        -----------           ------------
              Total investments                                         232,891,912            228,126,922
                                                                                            
Cash                                                                        823,476              7,332,698
Premiums in course of collection                                         32,500,981             17,971,529
Commissions receivable                                                    6,412,028              6,048,440
Accrued investment income                                                 3,242,140              3,349,030
Prepaid reinsurance premiums                                             10,914,126              9,814,146
Reinsurance receivable on paid and unpaid losses                                            
     and loss adjustment expenses                                       137,109,654            147,356,684
Deferred federal income tax benefit                                      10,415,147              8,873,030
Deferred policy acquisition costs                                         3,571,428              2,523,180
Other assets                                                              3,280,371              4,156,755
                                                                        -----------           ------------
         Total assets                                                  $441,161,263           $435,552,414
                                                                        ===========           ============
                                                                                            
LIABILITIES AND STOCKHOLDERS' EQUITY                                                        
                                                                                            
Liabilities:                                                                                
     Reserves for loss and loss adjustment expenses                    $263,966,615           $273,854,054
     Unearned premiums                                                   32,247,734             26,753,920
     Reinsurance balances payable                                         7,983,428              6,411,746
     Loans payable to banks                                              17,000,000             19,500,000
     Federal income tax payable                                             408,274              1,243,364
     Deferred state & local income taxes                                  1,159,515              1,382,881
     Notes payable to shareholders                                          942,034              1,007,976
     Accounts payable and other liabilities                               6,903,733              6,322,266
                                                                        -----------           ------------
         Total liabilities                                              330,611,333            336,476,207
                                                                        -----------           ------------
                                                                                            
Commitments and contingencies                                                  --                     --
                                                                                            
Stockholders' equity:                                                                       
     Preferred Stock, $.10 par value, authorized                                            
         1,000,000 shares, no shares issued                                    --                     --
     Common Stock, $.10 par value                                                           
         Authorized 10,000,000 shares                                                       
         Issued and outstanding 8,220,026 in 1996 and                                       
         8,172,401 in 1995                                                  822,003                817,240
     Additional paid-in capital                                          36,014,202             35,321,339
     Net unrealized gains (losses) on securities available                                  
         for sale (net of income taxes of $1,948,772 in                                     
         1996 and $3,231,293 in 1995)                                     3,782,911              6,272,511
     Foreign currency translation adjustment                                114,787                110,185
     Retained earnings                                                   69,816,027             56,554,932
                                                                        -----------           ------------
         Total stockholders' equity                                     110,549,930             99,076,207
                                                                        -----------           ------------
                                                                                            
         Total liabilities and stockholders' equity                    $441,161,263           $435,552,414
                                                                        ===========           ============
                                                                                     
</TABLE>

See accompanying notes to interim consolidated financial statements.

                                       -1-


<PAGE>   4



                   THE NAVIGATORS GROUP, INC. AND SUBSIDIARIES

                        CONSOLIDATED STATEMENTS OF INCOME

<TABLE>
<CAPTION>

                                                       Three Months Ended
                                                         September 30,
                                                 ---------------------------
                                                    1996              1995
                                                            (Unaudited)
<S>                                              <C>             <C>        
Revenues:
     Net premiums earned                         $19,848,886     $24,908,174
   Commission income                               2,482,030       2,588,599
     Net investment income                         3,251,188       3,508,621
     Net realized capital gains (losses)              30,843       (283,795)
   Other income                                      181,216         248,907
                                                  ----------      ----------
         Total revenues                           25,794,163      30,970,506
                                                  ----------      ----------

Operating expenses:
     Losses and loss adjustment
       expenses incurred                          12,206,328      18,765,558
     Commission expenses                           3,040,603       2,958,837
     Other operating expenses                      5,328,060       4,842,932
     Interest expense                                305,964         458,607
                                                  ----------      ----------
         Total operating expenses                 20,880,955      27,025,934
                                                  ----------      ----------

Equity income in affiliated company,
         net of income tax                         1,408,220             --

Operating income before income taxes               6,321,428       3,944,572

Income tax expense (benefit):
     Current                                       1,347,816       1,065,958
     Deferred                                      (278,442)       (201,134)
                                                 ----------      ----------
         Total income tax expense                  1,069,374         864,824

     Net income                                  $ 5,252,054     $ 3,079,748
                                                  ==========      ==========

Per share data:
     Average common and common equivalent
       shares outstanding                          8,304,630       8,202,123

     Net income per share                        $      0.63     $      0.38
                                                  ==========      ==========

</TABLE>


See accompanying notes to interim consolidated financial statements.

                                      -2-



<PAGE>   5



                   THE NAVIGATORS GROUP, INC. AND SUBSIDIARIES

                        CONSOLIDATED STATEMENTS OF INCOME


<TABLE>
<CAPTION>

                                                    Nine Months Ended
                                                       September 30,
                                               ------------------------------
                                                 1996                1995
                                                         (Unaudited)
<S>                                            <C>                <C>        
Revenues:
     Net premiums earned                       $57,252,479        $63,560,122
   Commission income                             6,870,949          8,062,545
     Net investment income                      10,368,896         10,362,723
     Net realized capital gains                    376,641             30,575
   Other income                                    508,450            738,671
                                                ----------         ----------
         Total revenues                         75,377,415         82,754,636
                                                ----------         ----------

Operating expenses:
     Losses and loss adjustment
       expenses incurred                        35,779,841         46,362,724
     Commission expenses                         8,354,993          8,824,953
     Other operating expenses                   14,334,338         15,975,585
     Interest expense                            1,438,494          1,532,192
                                                ----------         ----------
         Total operating expenses               59,907,666         72,695,454
                                                ----------         ----------

Equity income in affiliated company,
     net of income tax                           1,408,220             --

Operating income before income taxes            16,877,969         10,059,182

Income tax expense (benefit):
     Current                                     3,937,142          2,270,033
     Deferred                                     (320,270)          (321,951)
                                               ----------          ---------
         Total income tax expense                3,616,872          1,948,082

     Net income                                $13,261,097        $ 8,111,100
                                                ==========         ==========

Per share data:
     Average common and common equivalent
       shares outstanding                        8,307,570          8,194,792

     Net income per share                      $      1.60        $      0.99
                                                ==========         ==========

</TABLE>



See accompanying notes to interim consolidated financial statements.

                                       -3-



<PAGE>   6



                   THE NAVIGATORS GROUP, INC. AND SUBSIDIARIES

                      CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>

                                                                   Nine Months Ended
                                                                     September 30,
                                                            ---------------------------------
                                                               1996                   1995
                                                                      (Unaudited)
<S>                                                          <C>                 <C>         
Operating activities:
   Net income                                                $ 13,261,097        $  8,111,100
   Adjustments to reconcile net
     income to net cash provided
     by (used in) operating activities:
       Depreciation & amortization                                455,810             531,602
       Reinsurance receivable on paid
         and unpaid losses and loss
         adjustment expenses                                   10,247,030          31,654,741
       Reserve for losses and loss
         adjustment expenses                                   (9,887,439)        (14,992,785)
       Prepaid reinsurance premiums                            (1,099,980)          5,909,067
       Unearned premiums                                        5,493,814         (11,002,114)
       Premiums in course of collection                       (14,529,452)          6,711,004
       Commissions receivable                                    (363,588)           (374,737)
       Deferred policy acquisition costs                       (1,048,248)            281,272
       Accrued investment income                                  106,890            (157,066)
       Reinsurance balances payable                             1,571,682          (3,855,441)
       Federal income tax recoverable                                --             6,406,340
       Federal income taxes payable                              (835,090)            564,222
       Deferred federal income taxes                             (259,596)           (151,270)
       Net realized (gains) on investments                       (376,641)            (30,491)
       Other                                                       51,842          (2,358,375)
                                                             ------------        ------------
            Net cash provided by operating
            activities                                          2,788,131          27,247,069
                                                             ------------        ------------

Investing activities:

   Fixed maturities available for sale at fair value:
     Redemptions and maturities                                 8,022,160          15,325,810
     Sales                                                     29,660,589          52,825,521
     Purchases                                                (40,777,622)        (85,146,699)
   Equity securities:
     Sales                                                      2,049,857           1,105,043
     Purchases                                                 (2,478,363)         (1,546,301)
   Payable for securities purchased                                (1,480)            649,728
   Net (purchases) of short-term investments                   (3,741,406)         (1,026,886)
  Purchase of property and equipment                             (228,714)           (148,351)
                                                             ------------        ------------
            Net cash (used in) investing activities            (7,494,979)        (17,962,135)
                                                             ------------        ------------

Financing activities:
   Proceeds from bank loans                                          --             1,000,000
   Repayment of bank loans                                     (2,500,000)         (6,750,000)
   Notes payable to shareholders                                     --            (1,616,716)
   Proceeds from exercise of stock options                        697,626               9,000
                                                             ------------        ------------
             Net cash (used in) financing activities           (1,802,374)         (7,357,716)
                                                             ------------        ------------

Increase (decrease) in cash                                    (6,509,222)          1,927,218

Cash at beginning of period                                     7,332,698             730,047
                                                             ------------        ------------

Cash at end of period                                        $    823,476        $  2,657,265
                                                             ============        ============
</TABLE>


See accompanying notes to interim consolidated financial statements.

                                       -4-


<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, 1995.

(2)      Reinsurance Ceded

         The Company's ceded earned premiums were $15,820,708 and $13,533,107
         for the three months ended September 30, 1996 and 1995, respectively,
         and were $43,139,300 and $53,376,346 for the nine months ended
         September 30, 1996 and 1995, respectively. The Company's ceded losses
         were $27,358,605 and $11,690,991 for the three months ended September
         30, 1996 and 1995, respectively, and were $45,430,544 and $48,395,887
         for the nine months ended September 30, 1996 and 1995, respectively.

(3)      Equity Income in Affiliated Company, Net of Income Tax

         At September 30, 1996, the Company owned approximately 27% of the
         outstanding common stock of Riverside Underwriters plc (formerly
         Navigators Underwriters plc) ("Riverside"). Riverside derives its
         earnings through a wholly-owned subsidiary that underwrites at 
         Lloyd's of London as a corporate name with limited liability. The 
         Company records its investment in Riverside using the equity method 
         of accounting and, as a result, records its share of Riverside's 
         earnings. The Company records its share of Riverside's earnings from 
         underwriting when sufficient information becomes available to provide
         reasonable estimates of earned premiums and losses. In the third
         quarter of 1996, information about Riverside's underwriting profits
         for two years, 1994 and 1995, became available to Riverside through
         Lloyd's of London enabling the Company to record an amount totalling
         $1,408,000 net of tax as "equity income in affiliated company, net of
         income tax". The Company's ownership interest in Riverside is expected
         to decrease in the fourth quarter of 1996 to approximately 8%. The
         transaction to reduce the Company's ownership in Riverside is not
         expected to result in a material capital gain or loss.


(4)      Credit Agreement

         The Company has entered into a credit agreement dated as of August 5,
         1994. As of June 1, 1996, the interest rate applicable to the term
         loan borrowed under the credit agreement was reduced to 1% over the
         index rate. As of September 30, 1996, the credit agreement was amended
         (a) to defer until November 30, 1996 the payment of $3,750,000 in
         principal that would otherwise have been due on September 30, and (b)
         to waive compliance as of June 30, 1996 with the requirement that the
         Company, as a stand alone entity, hold at least $2,000,000 in liquid
         assets. The Company expects to amend on or prior to November 30, 1996,
         the credit agreement to extend further the period within which to make
         principal payments under the term loan of such credit agreement and to
         make certain other changes to such credit agreement.


        
                                       -5-


<PAGE>   8



                           THE NAVIGATORS GROUP, INC.

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

     The Company is a holding company with 13 wholly owned subsidiaries.

     Two of the Company's subsidiaries, Navigators Insurance Company and NIC
Insurance Company ("NIC"), specialize principally in underwriting marine,
aviation and property (including inland marine) insurance, and certain lines of
specialty reinsurance and non-marine program insurance. The non-marine program
insurance consists of business written by unaffiliated managing general
agencies. Navigators Insurance Company has been active since 1983. NIC is a
wholly owned subsidiary of Navigators Insurance Company, was licensed in 1989
and began operations during 1990. Navigators Insurance Company and NIC are
collectively referred to herein as "Navigators."

     Eight of the Company's subsidiaries, Somerset Marine, Inc., Somerset of
Georgia, Inc., Somerset Insurance Services of Texas, Inc., Somerset Insurance
Services of California, Inc., Somerset Insurance Services of Washington, Inc.,
Somerset Property, Inc., Somerset Re Management, Inc. and Navigators Management
Corporation (collectively, the "Somerset Companies"), are a group of
underwriting management companies which produce, manage and underwrite insurance
and reinsurance for Navigators and nine other unrelated insurance companies. The
other subsidiaries of the Company are Somerset Casualty Agency, Inc. and
Somerset Marine Aviation Property Managers Inc., which are both inactive.

     In the third quarter of 1996, the Company opened an office in Sydney,
Australia through the creation of Somerset Asia Pacific Pty. Ltd., a
wholly-owned subsidiary. This office will concentrate on marine, energy and
construction business primarily in Indonesia, Thailand, Malaysia, China and
Vietnam. The Australia office is expected to begin writing business in 1997.

     In addition, the Company is in the process of forming two subsidiaries in
London, England. The first will be a wholly-owned subsidiary to be named
Somerset Marine (UK) Limited, which will serve as an agency office for
Navigators and concentrate on business segments within marine, aviation, energy
and construction business. Navigators is expected to be authorized to operate a
U.K. branch in early 1997. The second will be a wholly-owned subsidiary to be
named Navigators Corporate Underwriters Limited. This subsidiary is expected to
be admitted to underwrite marine and related lines of business at Lloyd's of
London as a corporate member with limited liability, commencing with the 1997
year of account.


                                       -6-


<PAGE>   9



     The Company's revenue is primarily comprised of premiums, commissions and
investment income. Navigators derives substantially all of its business from
insurance underwritten by the Somerset Companies. The insurance business and
operations of Navigators are managed by one of the Somerset Companies,
Navigators Management Corporation.

     The Somerset Companies specialize principally in four lines of business:
marine, aviation and property (primarily inland marine) insurance, and certain
lines of specialty reinsurance and non-marine program insurance. They underwrite
marine business through a syndicate of insurance companies, Navigators having
the largest participation in the syndicate. The remaining lines of business are
underwritten exclusively for the account of Navigators. The Somerset Companies
derive their revenue from commissions, investment income and service fees from
Navigators and other insurers. Commissions are earned both on a fixed percentage
of premiums and on underwriting profits on business placed with the
participating insurance companies within the marine syndicate. Property and
casualty insurance premiums are 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 increase. On the downturn of
the property and casualty cycle, supply exceeds demand, and as a result,
premiums and commissions decrease.

     Navigators and the Somerset Companies earn investment income on cash
balances and invested assets. The Somerset Companies also earn investment income
on fiduciary funds. Such fiduciary funds are invested, subject to applicable
insurance regulations, primarily in short-term instruments.

Results of Operations

     General. The results of operations of the Company during the third quarter
of 1996 reflect management's emphasis on the Company's core ocean marine
business, its aviation business, its inland marine business and its non-marine
program book of business.

     Revenues. Gross written premium for the first nine months of 1996 was
$105,885,000, approximately the same as for the corresponding period of 1995.

     The following table sets forth Navigators' gross written premium by line of
business and net written premium in the aggregate:

                                       -7-


<PAGE>   10



<TABLE>
<CAPTION>


                                          Nine Months Ended September 30,

                                              1996              1995
                                              ----              ----
                                             (Dollars in thousands)
                                             -----------------------

<S>                                  <C>            <C>      <C>           <C>
Marine                               $ 40,236       38%      $44,018       41%

Aviation                               28,097       27%       33,534       32%

Property and Inland
  Marine                               15,993       15%        9,322        9%

Specialty Reinsurance and
  Non-Marine Program Insurance         21,559       20%       19,060       18%
                                       ------       --       -------       --

      Total Gross Written
        Premium                       105,885      100%      105,934      100%
                                      -------      ===       -------      ===

Ceded Written Premium
                                      (44,239)               (47,551)
                                      -------                -------

      Total Net Written Premium      $ 61,646               $ 58,383
                                      =======                =======

</TABLE>


     Marine Premium. Marine gross written premium decreased 9% when comparing
the first nine months of 1996 to the first nine months of 1995. The marine
market is competitive at this time and management anticipates that the total
amount of marine business written in 1996 will be less than the amount written
in 1995.

     Aviation Premium. Aviation gross written premium decreased 16% from the
first nine months of 1995 to the first nine months of 1996. This decrease
reflects management's decision to reduce Navigators' gross aviation business.

     Property Premium. Property and inland marine gross written premium
increased 72% from the first nine months of 1995 to the first nine months of
1996 reflecting the continuing development of the Company's inland marine book
of business.

     Specialty Reinsurance and Non-Marine Program Insurance Premium. Gross
written specialty reinsurance and non-marine program premium increased 13% from
the first nine months of 1995 to the first nine months of 1996. The increase was
due primarily to the emergence of new non-marine program business, which
management began developing in the last half of 1995.

     Ceded Premium. The decrease in ceded written premium results from a
decrease in gross aviation writings which are heavily reinsured and more
favorable reinsurance rates on this business.

     Net Written Premium. Net written premium for the first nine months of 1996
was $61,646,000 as compared to $58,383,000 in the corresponding period of 1995.


                                       -8-


<PAGE>   11



     Net earned premium for the first nine months of 1996 was $57,252,000 as
compared to $63,560,000 for the first nine months of 1995. Net earned premium
for the three months ended September 30, 1996 and 1995 was $19,849,000 and
$24,908,000, respectively. Net earned premium generally follows the pattern of
written premium; however, the run-off of the property book in 1995 resulted in
net earned premium which exceeded net written premium in 1995. In addition, the
Company accrued $1,354,000 of additional reinstatement premium in the third
quarter of 1996 due to increased reserves on certain reinsured losses.

     Commission income, based on gross premiums earned and net underwriting
profits, during the first nine months of 1996 was $6,871,000 compared to
$8,063,000 during the corresponding period of 1995, and $2,482,000 for the three
months ended September 30, 1996 as compared to $2,589,000 for the corresponding
period of 1995. The decrease for the first nine months of 1996 was primarily a
result of Navigators' decision to increase its participation in the aviation
business managed by the Somerset Companies to 100%, which eliminated commission
income paid by the former participants in the aviation insurance pool. Third
quarter commission income remained fairly level despite the decrease in aviation
commission, due to $755,000 of profit commissions earned during the third
quarter of 1996 under the Company's management agreement with Riverside 
Underwriters plc ("Riverside") and Riverside Corporate Underwriters Limited, as
described below.

     Investment income of $10,369,000 earned during the first nine months of
1996 was approximately the same as the corresponding period of 1995. Investment
income was $3,251,000 for the three months ended September 30, 1996 as compared
to $3,509,000 for the corresponding period in 1995. The decrease in the third
quarter 1996 investment income was due primarily to decreased fiduciary
investable funds held by the Somerset Companies.

     Included in pre-tax net income were $377,000 in realized capital gains for
the first nine months of 1996 and $31,000 in realized capital gains for the same
period last year. On an after tax basis, these realized gains represent $0.03
per share and $0.00 per share for the respective periods. Included in pre-tax
net income for the three months ended September 30, 1996 and 1995 were realized
capital gains of $31,000 and realized capital losses of $284,000, respectively.
On an after tax basis, these realized gains and losses represent $0.00 and
$(0.02) per share for the respective periods.

     The Company holds an equity interest in Riverside, which through its
wholly-owned subsidiary, Riverside Corporate Underwriters Limited, is admitted
to underwrite at Lloyd's of London as a corporate name with limited liability.
The Company records its share of Riverside's underwriting results when
sufficient information becomes available to provide reasonable estimates of
earned premiums and losses. Underwriting results became available during the
third quarter and, as a result, the

                                       -9-


<PAGE>   12



Company recorded its share of the 1994 and 1995 underwriting earnings,
$1,408,000 after taxes, during the third quarter of 1996.

     During the fourth quarter of 1996, the Company expects to reduce its
investment in Riverside from a holding of approximately 27% of the
outstanding shares to a holding of approximately 8%. The transaction to reduce
the Company's ownership in Riverside is not expected to produce a material
capital gain or loss. The Company will, however, remain entitled to receive 
from Riverside an amount equal to the aggregate dividends that it would have
received if it had continued to hold its original investment to the extent such
dividends are attributable to writings at Lloyd's by Riverside Corporate
Underwriters Limited during the 1994, 1995 and 1996 years of account. In
connection with the reduction of the Company's investment, Navigators
Management Corporation has agreed to cease being manager of Riverside and
Riverside Corporate Underwriters Limited, although Navigators Management
Corporation will remain entitled to profit commissions with respect to 1994,
1995 and 1996 years of account.

     Expenses. The ratio of loss and loss adjustment expenses incurred to net
premiums earned was 62.5% and 72.9% during the first nine months of 1996 and
1995, respectively, and 61.5% and 75.3% for the three months ended September 30,
1996 and 1995, respectively. The loss ratio for the first nine months of 1995
and for the three months ended September 30, 1995 includes additional net loss
development of $10,721,000 and $4,500,000, respectively, from the Northridge,
California earthquake, which occurred on January 17, 1994 (the "Northridge
Earthquake"). The decrease in the 1996 loss ratio was due primarily to a return
to more normal experience in comparison to the adverse development on losses
from the Northridge Earthquake in 1995.

     Commission expense as a percentage of net premiums earned was 14.6% and
13.9% during the first nine months of 1996 and 1995. For the three months ended
September 30, 1996 and 1995, commission expense as a percentage of net premiums
earned was 15.3% and 11.9%, respectively. The increases in the 1996 commission
expense ratios are primarily due to the additional reinstatement premiums 
previously discussed and reductions to the third quarter 1995 commission 
expenses due to additional profit commissions.

     Other operating expenses decreased 10% to $14,334,000 during the first nine
months of 1996 from $15,976,000 during the corresponding period of 1995. This
decrease was primarily due to the severance charges incurred in the first
quarter of 1995 and savings on operational expenses resulting from the Company's
restructuring and headcount reduction that began in early 1995. Other operating
expenses increased 10% to $5,328,000 for the three months ended September 30,
1996 from $4,843,000 for the same period in 1995. The increase for the third
quarter of 1996 was primarily due to the costs associated with the opening of
the offices in London, England and Sydney, Australia and the Company's bonus
program which is a function of return on equity.


                                      -10-


<PAGE>   13



     Interest expense decreased 6% to $1,439,000 during the first nine months of
1996 from $1,532,000 during the corresponding period of 1995. This decrease was
primarily due to the paydown of the term loan balances and, to a lesser extent,
to a decrease in the interest rate on debt, partially offset by the $368,000 of
interest expense on the Company's rollback liability under Proposition 103
settled with the State of California Insurance Department on March 19, 1996.
Interest expense decreased 33% to $306,000 during the third quarter of 1996 from
$459,000 during the same period of 1995. This decrease is due to the paydown of
the term loan balances and a decrease in the interest rate on the debt.

     The effective tax rate, excluding the equity income in affiliated company,
was 23.4% and 19.4% for the nine months ended September 30, 1996 and 1995,
respectively. The effective tax rate, excluding the equity income in affiliated
company, was 21.8% and 21.9% for the three months ended September 30, 1996 and
1995, respectively. The increase in the nine month tax rate resulted primarily
from a greater portion of total income being attributable to underwriting income
and, therefore, a lesser portion being attributable to tax exempt income and, to
a lesser extent, from an increase in state taxes.

     Net Income. For the first nine months of 1996, the Company had after tax 
income of $13,261,000 compared to after tax income of $8,111,000 for the same
period last year. On a per share basis, this represents net income of $1.60 and
$0.99 for the first nine months of 1996 and 1995, respectively. For the three
months ended September 30, 1996, the Company had after tax income of $5,252,000
compared to after tax income of $3,080,000 for the same period in 1995. On a
per share basis, this represents net income of $0.63 and $0.38 for the three
months ended September 30, 1996 and 1995, respectively. The improvement for the
nine month and three month periods ending September 30, 1996 compared to the
same periods in 1995 was primarily due to a return to normal experience in
comparison to the losses from the Northridge Earthquake as well as the profits
recorded related to Riverside. The profits recorded related to Riverside of
$1,408,000 increased the 1996 earnings per share by $0.17 for both the three
months and nine months ended September 30, 1996.

Liquidity and Capital Resources

     Cash flow from operations was $2,788,000 and $27,247,000 for the first nine
months of 1996 and 1995, respectively. Cash decreased from $7,333,000 at
December 31, 1995 to $823,000 at September 30, 1996 primarily as a result of
$2,500,000 of cash used for the repayment of bank loans and increases in the
investment portfolio. Cash used in operations during 1996 included payments on
previously established reserves for the Northridge Earthquake. The Company
believes that the cash flow generated by the operating activities of the
Company's subsidiaries, including the Somerset Companies, will provide
sufficient funds for the Company to meet its liquidity needs.

     Invested assets, at market value, increased 2% during the first nine months
of 1996 to $232,892,000 at September 30, 1996 as

                                      -11-


<PAGE>   14



compared to $228,127,000 at December 31, 1995. Investment income during the nine
months of 1996 was $10,369,000.

     The Company has entered into a credit agreement dated as of August 5, 1994.
As of June 1, 1996, the interest rate applicable to the term loan borrowed under
the credit agreement was reduced to 1% over the index rate. As of September 30,
1996, the credit agreement was amended (a) to defer until November 30, 1996 the
payment of $3,750,000 in principal that would otherwise have been due on
September 30, and (b) to waive compliance as of June 30, 1996 with the
requirement that the Company, as a stand alone entity, hold at least $2,000,000
in liquid assets. The Company expects to amend on or prior to November 30, 1996,
the credit agreement to extend further the period within which to make principal
payments under the term loan of such credit agreement and to make certain other
changes to such credit agreement. Pursuant to the existing credit agreement, the
Company may borrow, subject to certain conditions, up to an aggregate of
$5,000,000 in revolving credit loans. As of September 30, 1996, the Company had
outstanding $15,000,000 in term loans and $2,000,000 in revolving credit loans
under the credit agreement.

     The Company's consolidated stockholders' equity was $110,550,000 at
September 30, 1996, an increase from $99,076,000 at December 31, 1995.









                                      -12-


<PAGE>   15



                    THE NAVIGATORS GROUP, INC. & SUBSIDIARIES
                           Part II - Other Information


Item   1. Legal Proceedings:

          Neither the Company nor any of its subsidiaries is a party to, nor is
          the property thereof the subject of, any pending legal proceedings
          which depart from the ordinary routine litigation incident to the
          kinds of business conducted by the Company and its subsidiaries or, if
          such proceedings constitute other than routine litigation, in which
          there is a reasonable possibility of an adverse decision which could
          have any material adverse effect upon the financial condition of the
          Company.

          In November 1988, the voters of the State of California approved
          Proposition 103, which required most property and casualty insurance
          companies, among other things, to reduce rates charged to California
          insureds to a level 20% below November 8, 1987 levels. On March 19,
          1996, the Company agreed with the Insurance Commissioner of the State
          of California to settle its rollback liability under Proposition 103,
          a settlement which has been fully reflected in the Company's financial
          statements. The settlement is not affected by the preliminary
          injunction issued in Proposition 103 Enforcement Project v.
          Quakenbush, LASC Case No. BS037146.

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



                                      -13-


<PAGE>   16



          b)      Reports on Form 8-K:
                  There were no reports on Form 8-K filed for the nine
                  months ended September 30, 1996.


                                      -14-


<PAGE>   17



                                   SIGNATURES

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

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


November 14, 1996                             /s/ W. Allen Barnett
-----------------                            ----------------------------------
   (Date)                                     W. Allen Barnett, Senior Vice   
                                              President, Chief Financial Officer
                                               


<PAGE>   18



                                INDEX TO EXHIBITS

                                                    Sequentially
                                                    Numbered
Exhibit No.    Description of Exhibit               Page
----------     ----------------------               -------------
  27.1         Financial Data Schedule