---

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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 March 31, 2002

Commission file number 0-15886

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

Delaware(State or other jurisdiction of incorporation or organization)

13-3138397(IRS Employer Identification No.)One Penn Plaza, New York, New YorkAddress 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.)

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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
May 2, 2002, there were 8,447,997 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:                                                                |  |         
|         |  | Consolidated Balance Sheets March 31, 2002 and December 31, 2001                      |  | 3       
|         |  | Consolidated Statements of Income Three Months Ended March 31, 2002 and 2001          |  | 4       
|         |  | Consolidated Statements of Cash Flows Three Months Ended March 31, 2002 and 2001      |  | 5       
|         |  | Notes to Interim Consolidated Financial Statements                                    |  | 6       
|         |  | Management's Discussion and Analysis of Financial Condition and Results of Operations |  | 11      
|Part II. |  | OTHER INFORMATION                                                                     |  | 18      

2

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

|                                                                              |                                                                                                                                                    | March 31,
2002                             |         | December 31,
2001 |        
|----------------------------------------------------------------------------- | -------------------------------------------------------------------------------------------------------------------------------------------------- | ------------------------------------------ | ------- | ----------------- | -------
|
|ASSETS                                                                        |                                                                                                                                                   
|Investments and cash:                                                         |                                                                                                                                                    |                                            |         |                   |        
|                                                                              | Fixed maturities, available-for-sale, at fair value (amortized cost: 2002, $241,546; 2001, $237,745)                                               |                                            | $       | 241,371           |        
|                                                                              | Equity securities, available-for-sale, at fair value (cost: 2002, $7,246; 2001, $7,225)                                                            |                                            |         | 8,093             |        
|                                                                              | Short-term investments, at cost which approximates fair value                                                                                      |                                            |         | 33,358            |        
|                                                                              | Cash                                                                                                                                               |                                            |         | 7,317             |        
|                                                                              |                                                                                                                                                    |                                            |         |                   |        
|                                                                              |                                                                                                                                                    | Total investments and cash                 |         |                   | 290,139
|                                                                              |                                                                                                                                                    |                                            |         |                   |        
|Premiums in course of collection                                              |                                                                                                                                                    |                                            | 54,715  |                   |        
|Funds due from Lloyd's syndicate                                              |                                                                                                                                                    |                                            | 108,028 |                   |        
|Commissions receivable                                                        |                                                                                                                                                    |                                            | 5,464   |                   |        
|Accrued investment income                                                     |                                                                                                                                                    |                                            | 3,195   |                   |        
|Prepaid reinsurance premiums                                                  |                                                                                                                                                    |                                            | 57,864  |                   |        
|Reinsurance receivable on paid and unpaid losses and loss adjustment expenses |                                                                                                                                                    |                                            | 199,694 |                   |        
|Federal income tax recoverable                                                |                                                                                                                                                    |                                            |        |                   |        
|Net deferred income tax benefit                                               |                                                                                                                                                    |                                            | 11,664  |                   |        
|Deferred policy acquisition costs                                             |                                                                                                                                                    |                                            | 22,369  |                   |        
|Goodwill                                                                      |                                                                                                                                                    |                                            | 4,866   |                   |        
|Other assets                                                                  |                                                                                                                                                    |                                            | 5,393   |                   |        
|                                                                              |                                                                                                                                                    |                                            |         |                   |        
|                                                                              |                                                                                                                                                    | Total assets                               |         | $                 | 763,391
|                                                                              |                                                                                                                                                    |                                            |         |                   |        
|LIABILITIES AND STOCKHOLDERS' EQUITY                                          |                                                                                                                                                   
|Liabilities:                                                                  |                                                                                                                                                    |                                            |         |                   |        
|                                                                              | Reserves for losses and loss adjustment expenses                                                                                                   |                                            | $       | 400,758           |        
|                                                                              | Unearned premium                                                                                                                                   |                                            |         | 150,379           |        
|                                                                              | Reinsurance balances payable                                                                                                                       |                                            |         | 40,014            |        
|                                                                              | Notes payable to banks                                                                                                                             |                                            |         | 17,500            |        
|                                                                              | Federal income taxes payable                                                                                                                       |                                            |         | 252               |        
|                                                                              | Accounts payable and other liabilities                                                                                                             |                                            |         | 6,464             |        
|                                                                              |                                                                                                                                                    |                                            |         |                   |        
|                                                                              |                                                                                                                                                    | Total liabilities                          |         |                   | 615,367
|                                                                              |                                                                                                                                                    |                                            |         |                   |        
|Stockholders' equity:                                                         |                                                                                                                                                    |                                            |         |                   |        
|                                                                              | Preferred stock, $.10 par value; authorized 1,000,000 shares; none issued                                                                          |                                            |         |                  |        
|                                                                              | Common stock, $.10 par value; authorized 10,000,000 shares; issued and outstanding (net of treasury stock) 8,447,247 in 2002 and 8,427,262 in 2001 |                                            |         | 849               |        
|                                                                              | Additional paid-in capital                                                                                                                         |                                            |         | 39,737            |        
|                                                                              | Treasury stock held at cost (shares: 32,923 in 2002 and 35,908 in 2001)                                                                            |                                            |         | (474              | )      
|                                                                              | Accumulated other comprehensive income                                                                                                             |                                            |         | 72                |        
|                                                                              | Retained earnings                                                                                                                                  |                                            |         | 107,840           |        
|                                                                              |                                                                                                                                                    |                                            |         |                   |        
|                                                                              |                                                                                                                                                    | Total stockholders' equity                 |         |                   | 148,024
|                                                                              |                                                                                                                                                    |                                            |         |                   |        
|                                                                              |                                                                                                                                                    | Total liabilities and stockholders' equity |         | $                 | 763,391
|                                                                              |                                                                                                                                                    |                                            |         |                   |        

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
March 31, |      
|---------------------------------- | ------------------------------------------------ | ---------------------------- | -----
|
|
|Revenues:                          |                                                  |                              |      
|                                   | Net earned premium                               |                              | $    
|                                   | Commission income                                |                              |      
|                                   | Net investment income                            |                              |      
|                                   | Net realized capital gains (losses)              |                              |      
|                                   | Other income                                     |                              |      
|                                   |                                                  |                              |      
|                                   |                                                  | 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   |                                                  |                              | 4,321
|                                   |                                                  |                              |      
|Income tax expense (benefit):      |                                                  |                              |      
|                                   | Current                                          |                              |      
|                                   | Deferred                                         |                              |      
|                                   |                                                  |                              |      
|                                   |                                                  | Total income tax expense     |      
|                                   |                                                  |                              |      
|Net income                         |                                                  | $                            | 3,450
|                                   |                                                  |                              |      
|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 CASH FLOWS        (In thousands)

|                                                   |                                                                                             | Three Months Ended
March 31,                                                  |                                          
|-------------------------------------------------- | ------------------------------------------------------------------------------------------- | ----------------------------------------------------------------------------- | -----------------------------------------
|
|
|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                                   |                                                                                             |                                                                               | 4,887                                    
|Cash at beginning of year                          |                                                                                             |                                                                               | 2,430                                    
|                                                   |                                                                                             |                                                                               |                                          
|Cash at end of period                              |                                                                                             | $                                                                             | 7,317                                    
|                                                   |                                                                                             |                                                                               |                                          
|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.

5

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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 $28,475,000 and $22,380,000 and the ceded incurred losses were $15,564,000 and $10,232,000 for the three months ended
March 31, 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.

6

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

Three Months Ended
March 31,2002

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

$
28,999

$
15,996Navigators Agencies


6,108


3,318Lloyd's Operations


11,227


13,657Other operations


(4,866
)

(2,446
)Total

$
41,468

$
30,525Income (loss) before tax expense (benefit):Insurance Companies

$
4,926

$
5,708Navigators Agencies


390


(559
)Lloyd's Operations


872


(1,056
)Other operations


(1,867
)

(793
)Total

$
4,321

$
3,300Income tax expense (benefit):Insurance Companies

$
1,531

$
1,779Navigators Agencies


94


(278
)Lloyd's Operations





Other operations


(754
)

(252
)Total

$
871

$
1,249Net income (loss):Insurance Companies

$
3,395

$
3,929Navigators Agencies


296


(281
)Lloyd's Operations


872


(1,056
)Other operations


(1,113
)

(541
)Total

$
3,450

$
2,051


7

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(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 March 31, 2002 and 2001:

March 31,2002

2001(In thousands)Net income

$
3,450

$
2,051Other comprehensive income, net of tax:Net unrealized gains on securities available for sale:Unrealized holding gains (losses) arising during period
(net of tax expense (benefit) of $(843) for 2002
and $123 for 2001)


(2,611
)

720Less: reclassification adjustment for gains (losses) included in net income (net of tax expense (benefit) of $(98) for 2002 and $88 for 2001)


(195
)

365Net unrealized gains (losses) on securities


(2,416
)

355Foreign currency translation (loss) adjustment, net of tax (benefit) of $(252) for 2002 and $(111) for 2001


(486
)

(206
)Other comprehensive income (loss)


(2,902
)

149Comprehensive income

$
548

$
2,200


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

March 31,
2002

December 31,
2001(In thousands)Net unrealized gains on securities available-for-sale (net of tax expense of $236 in 2002 and $1,177 in 2001)

$
156

$
2,572Foreign currency translation adjustment (net of tax expense (benefit) of $(35) in 2002 and $216 in 2001)


(84
)

402Accumulated other comprehensive income

$
72

$
2,974


(5) Adoption of Accounting Standards

The Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards ("SFAS") 142,Goodwill and Other
Intangible Assets. 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. SFAS 142 is required to be applied starting with fiscal

8

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years beginning after December 15, 2001 and is required to be applied at the beginning of an entity's fiscal year. The statement is to be applied to all goodwill and other intangible assets
recognized in an entity's financial statements at that date. Impairment losses for goodwill and indefinite lived intangible assets that arise due to the initial application of SFAS 142
(resulting from an impairment test) are to be reported as a change in accounting principle. Retroactive application is not permitted. The Company is in the process of completing its impairment review,
and to date there is no indication of an impairment as of January 1, 2002. The Company has not yet determined the full impact that SFAS 142 will have on its consolidated financial
statements. The impact, if any, is not expected to be material to the Company's consolidated financial statements. No expense for amortization of goodwill has been recorded in the first quarter of
2002 compared to an after tax expense of $62,000 recorded in the first quarter of 2001.

The
Company has also adopted SFAS 141,Business Combinations.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 141 requires, upon adoption of SFAS 142, that existing intangible assets and goodwill that were acquired in a prior purchase business combination be evaluated, and
that
any necessary reclassifications be made in order to conform to the SFAS 141 criteria. The impact of the adoption of SFAS 141 was not material to 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.

(6) Lloyd's Participation

The Company participates for 68.1% of Lloyd's Syndicate 1221's £75.0 million ($107.0 million) of capacity for the 2002 underwriting year
and for 67.4% of Syndicate 1221's £66.3 million ($95.5 million) of capacity for the 2001 underwriting year. If the Company were to control more than 90% of Syndicate 1221's
capacity, 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. At March 31, 2002, by Lloyd's definition, the Company
controlled 88.8% of Syndicate 1221's capacity. 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 Syndicate 1221 capacity. If the amount of capacity controlled increases, the Company will 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 utilized $362,000 of the valuation allowance in the first quarter of 2002 which related to the reduction in the loss carryforward at the Company's
foreign operations resulting from income generated by these operations in the first quarter. At March 31, 2002 and 2001, the Company had loss carryforwards remaining at its foreign operations
amounting to potential future tax benefits of

9

---

$5,434,000 and $4,173,000, respectively, along with a valuation allowance equal to these benefits. The Company needs to generate $17,529,000 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 $1,733,000 and $1,263,000 at March 31, 2002 and 2001, respectively, along
with a valuation allowance equal to these benefits. The Company needs to generate $9,652,000 of future state and local pretax income in order to fully utilize the loss carryforwards which expire from
2019 to 2022.

10

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THE NAVIGATORS GROUP, INC. AND SUBSIDIARIES

Management's Discussion and Analysis ofFinancial 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 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"), 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 percentage of premiums and on
underwriting profits from business placed with the participating insurance companies within the pool.

11

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Navigators
Specialty, a division of one of the Navigators Agencies 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 one of the Navigators Agencies 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, one of the
Navigators Agencies, 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. In
August 1999, NUAL formed 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, managed by Navigators Management Company, Inc., 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.

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

12

---

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.

The
Company regularly evaluates 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, before amortization of goodwill, would not be sufficient to recover the carrying value.

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.

Results of Operations

Revenues.Gross written premium for the first three months of 2002 increased 42.1% to $121,916,000 from $85,803,000 for the first three
months of 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:

|                          |                              | Three Months Ended March 31, |                            
|------------------------- | ---------------------------- | ---------------------------- | ---------------------------
|
|
|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 |                              | $                            | 70,794                     
|                          |                              |                              |                            

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
68.1% of Lloyd's Syndicate 1221's £75.0 million ($107.0 million) of capacity for the 2002 underwriting year and for 67.4% of Syndicate 1221's £66.3 million
($95.5 million) of capacity 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. The premiums,
losses
and expenses from the Lloyd's Operations are included in the Company's consolidated financials but are not included in the Insurance Companies' results.

If
the Company were to control more than 90% of Syndicate 1221's capacity, 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. At March 31, 2002, by Lloyd's definition, the Company controlled 88.8% of Syndicate 1221's capacity.

The
Company provides letters of credit to Lloyd's to support its Syndicate 1221 capacity. If the amount of capacity controlled increases, the Company will 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 quarter of 2002 compared to the first quarter of 2001 due to
increases in prior premium estimates recorded in the 2001 quarter.

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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 64.1% when comparing the first three months of 2002 to the first three
months of 2001 primarily due to new business and rate increases. Navigators Insurance's participation in the marine pools was 75% in both periods.

Specialty Insurance Premium.The specialty insurance consists primarily of general liability insurance for contractors as
well as small commercial risks. The 125.9% increase in the gross written premium, when comparing the first three months of 2002 and 2001, resulted from new business and rate increases.

Ceded Written Premium.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 quarter of 2002 to the first quarter of 2001 resulted from the increase in the gross written premium and the increase in the 2002 reinsurance rates.

Net Written Premium.Net written premium increased 34.1% when comparing the first three months of 2002 to the first three months of 2001
due to the increase in the gross written premium.

Net Earned Premium.Net earned premium increased 35.6% for the first three months of 2002 to $40,157,000 as compared to $29,621,000 for the
first three months of 2001. The increase in net earned premium resulted from the increase in net written premium in 2001 and the first quarter of 2002.

Commission Income.Commission income generated by the Navigators Agencies increased to $1,101,000 for the first three months of 2002 from
$805,000 for the first three months of 2001 primarily as the result of the increased earned premium on the marine business produced by the Navigators Agencies.

Net Investment Income.Net investment income increased 3.6% to $4,942,000 for the first three months of 2002 from $4,769,000 for the
corresponding period in 2001. This increase is primarily due to the increase in the Insurance Companies investment portfolio and to the investment income allocated to NCUL and Millennium from the
investments held by Lloyd's Syndicate 1221 due to the Company's increased participation. The investments at NCUL and Millennium are represented by funds due from Lloyd's Syndicate 1221 to the Company.

Net Realized Capital Gains/Losses.Pre-tax net income included $293,000 of net realized capital losses for the first three
months of 2002 compared to $453,000 of net realized capital gains for the same period last year. On an after tax basis, the net realized capital losses resulted in a loss of $0.02 per share in 2002
and the net realized capital gains resulted in a gain of $0.04 per share in 2001.

Operating Expenses.

Net Losses and Loss Adjustment Expenses Incurred.The ratio of net losses and loss adjustment expenses incurred to net earned
premium was 59.2% and 64.8% for the first three months of 2002 and

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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).

Commission Expense.Commission expense as a percentage of net earned premium was 19.8% and 22.7% for the first three months of 2002 and
2001, respectively. The decrease was primarily due to a smaller portion of the premium written by the Lloyd's operations which generally has a higher commission rate.

Other Operating Expenses.Other operating expenses increased to $9,887,000 during the first three months of 2002 from
$6,128,000 during the corresponding period of 2001 primarily due to the increase in employee related expenses resulting from expansion of the business.

Interest Expense.Interest expense was $160,000 during the first three months of 2002 compared to $415,000 during the
corresponding period of 2001. This decrease was due to a smaller loan balance and lower interest rates on the loan.

Income Taxes.The effective tax rate was 20.2% and 37.8% for the three months ended March 31, 2002 and 2001, respectively. The rates
differed from the Federal statutory income tax rate due to tax-exempt interest income and the change in the valuation allowance.

The
Company utilized $362,000 of the valuation allowance in the first quarter of 2002 which related to the reduction in the loss carryforward at the Company's foreign operations
resulting from income generated by these operations in the first quarter. At March 31, 2002 and 2001, the Company had loss carryforwards remaining at its foreign operations amounting to
potential future tax benefits of $5,434,000 and $4,173,000, respectively, along with a valuation allowance equal to these benefits. The Company needs to generate $17,529,000 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 $1,733,000 and $1,263,000 at March 31, 2002 and March 31, 2001,
respectively, along with a valuation allowance equal to these benefits. The Company needs to generate $9,652,000 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 $3,097,000 and $4,542,000 at March 31, 2002 and 2001, respectively.

Net Income.The Company had net income of $3,450,000 for the first three months of 2002 compared to net income of $2,051,000 for the same
period last year. On a diluted per share basis, this represented net income per share of $0.40 and $0.24 for the first three months of 2002 and 2001, respectively.

Liquidity and Capital Resources

Cash flow provided by operations was $16,868,000 and $3,692,000 for the first three months of 2002 and 2001, respectively. The increase in the 2002 operating cash
flow was primarily due to increases in net written premium. Operating cash flow was used primarily to acquire additional investment assets and to reduce debt. Invested assets and cash increased to
$290,139,000 at March 31, 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 $17.5 million revolving line of credit facility, which reduces each
quarter by amounts totaling $3 million in 2002, $9 million in 2003 and $7 million in 2004 until it terminates on November 19, 2004, and a $55 million letter of
credit facility. At March 31, 2002, $17,500,000 in loans were outstanding under the revolving line of credit facility at an interest rate of 3.31%. The letter of credit facility is utilized
primarily by NCUL and Millennium to participate in Lloyd's Syndicate 1221.

16

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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 March 31,
2002 and 2001, letters of credit with an aggregate face amount of $47,281,000 and $49,766,000, respectively, were issued under the letter of credit facility.

As
of March 31, 2002, the Company's consolidated stockholders' equity was $148,024,000 compared to $147,206,000 at December 31, 2001. The increase was primarily due to the
net income for the three months ended March 31, 2002 partially offset by the decrease 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.

17

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Part IIOther Information

|Item 1. |  | Legal Proceedings:                                                                                                                                                                                  
|------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|        |  | The Company is not a party to or the subject of any material pending legal proceedings which depart from the ordinary routine litigation incident to the kinds of business conducted by the Company.
|Item 2. |  | Changes in Securities:                                                                                                                                                                              
|        |  | None.                                                                                                                                                                                               
|Item 3. |  | Defaults Upon Senior Securities:                                                                                                                                                                    
|        |  | None.                                                                                                                                                                                               
|Item 4. |  | Submissions of Matters to a Vote of Securities Holders:                                                                                                                                             
|        |  | None.                                                                                                                                                                                               
|Item 5. |  | Other Information:                                                                                                                                                                                  
|        |  | None.                                                                                                                                                                                               
|Item 6. |  | Exhibits and Reports on Form 8-K:                                                                                                                                                                   
|        |  | (a                                                                                                                                                                                                  
|        |  |                                                                                                                                                                                                     
|        |  |                                                                                                                                                                                                     
|        |  | (b                                                                                                                                                                                                  
|        |  |                                                                                                                                                                                                     

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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: May 15, 2002 |  | By:                                    

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