<PAGE>   1

                                    FORM 10-Q
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

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

For the Quarterly Period Ended      March 31, 1998
                               -------------------------------------------------

Commission file number      0-15886
                      ----------------------------------------------------------

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

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

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

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

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

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

Yes |X|          No |_|

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

On May 6, 1998 there were 8,418,426 shares of common stock, $0.10 par value,
issued and outstanding.


                                       1
<PAGE>   2

                   THE NAVIGATORS GROUP, INC. AND SUBSIDIARIES

                                      INDEX

                                                                        Page No.
                                                                        --------

Part I.  FINANCIAL INFORMATION:

    Consolidated Balance Sheets
         March 31, 1998 and December 31, 1997 ................              3

    Consolidated Statements of Income
         Three Months Ended March 31, 1998 and 1997 ..........              4

    Consolidated Statements of Cash Flows
         Three Months Ended March 31, 1998 and 1997 ..........              5

    Notes to Interim Consolidated Financial Statements .......              6

    Management's Discussion and Analysis of Financial
         Condition and Results of Operations .................              8

Part II.  OTHER INFORMATION ..................................             14

                                        2
<PAGE>   3

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

<TABLE>
<CAPTION>
                                                               March 31, 1998   Dec. 31, 1997
                                                               --------------   -------------
                                                                (Unaudited)
                                          ASSETS
<S>                                                               <C>             <C>        
Investments and cash:                                                                        
  Fixed maturities, available-for-sale, at fair value                                        
    (amortized cost: 1998, $214,048; 1997, $218,418) ..........   $ 221,382       $ 226,834  
  Equity securities, available-for-sale, at fair value                                       
    (cost: 1998, $4,761; 1997, $4,557) ........................       7,151           6,132  
  Short-term investments, at cost which approximates fair                                    
    value .....................................................      23,571          22,579  
  Cash ........................................................         862           1,251  
  Other investments ...........................................       2,959           1,776  
                                                                  ---------       ---------  
      Total investments and cash ..............................     255,925         258,572  
                                                                  ---------       ---------  
                                                                                             
Premiums in course of collection ..............................      51,829          45,847  
Commissions receivable ........................................      10,016           6,434  
Accrued investment income .....................................       3,187           3,121  
Prepaid reinsurance premiums ..................................      23,455          20,405  
Reinsurance receivable on paid and unpaid losses and                                         
  loss adjustment expenses ....................................     145,299         147,104  
Federal income tax recoverable ................................          --             164  
Net deferred Federal and foreign income tax benefit ...........       7,895           7,994  
Deferred policy acquisition costs .............................       5,419           5,403  
Other assets ..................................................       8,939           6,163  
                                                                  ---------       ---------  
      Total assets ............................................   $ 511,964       $ 501,207  
                                                                  =========       =========  
                                                                                             
                      LIABILITIES AND STOCKHOLDERS' EQUITY                                   
Liabilities:                                                                                 
  Reserves for losses and loss adjustment expenses ............   $ 277,075       $ 278,432  
  Unearned premium ............................................      50,338          48,659  
  Reinsurance balances payable ................................      17,607          16,539  
  Notes payable to banks ......................................      20,334          20,000  
  Federal and foreign income tax payable ......................         713              --  
  Deferred state and local income tax .........................         989           1,184  
  Note payable to stockholder .................................         942             942  
  Accounts payable and other liabilities ......................       8,892           4,209  
                                                                  ---------       ---------  
      Total liabilities .......................................     376,890         369,965  
                                                                  ---------       ---------  
                                                                                             
Commitments and contingencies .................................                              
                                                                                             
Stockholders' equity:                                                                        
  Preferred stock, $.10 par value, authorized 1,000,000                                      
    shares, none issued .......................................          --              --  
  Common stock, $.10 par value, authorized 10,000,000                                        
    shares, issued and outstanding 8,402,801 in 1998 and                                     
    8,368,167 in 1997 .........................................         840             837  
  Additional paid-in capital ..................................      38,673          38,119  
  Accumulated other comprehensive income.......................       6,318           6,433
  Retained earnings ...........................................      89,243          85,853  
                                                                  ---------       ---------  
      Total stockholders' equity ..............................     135,074         131,242  
                                                                  ---------       ---------  
      Total liabilities and stockholders' equity ..............   $ 511,964       $ 501,207  
                                                                  =========       =========  
</TABLE>

          See accompanying notes to consolidated financial statements.

                                        3
<PAGE>   4

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

<TABLE>
<CAPTION>
                                                                     Three Months Ended
                                                                         March 31,
                                                                    ---------------------
                                                                    1998            1997
                                                                    ----            ----
                                                                         (Unaudited)
<S>                                                               <C>          <C>      
Revenues:
  Net earned premium ..........................................   $  17,890    $  18,406
  Commission income ...........................................       1,224        1,595
  Net investment income .......................................       3,918        3,371
  Net realized capital gains ..................................         715          212
  Other income ................................................         280          353
                                                                  ---------    ---------
      Total revenues ..........................................      24,027       23,937
                                                                  ---------    ---------

Operating expenses:
  Net losses and loss adjustment expenses incurred ............      10,415       10,846
  Commission expense ..........................................       3,050        3,140
  Other operating expenses ....................................       5,681        5,351
  Interest expense ............................................         364          287
                                                                  ---------    ---------
      Total operating expenses ................................      19,510       19,624
                                                                  ---------    ---------
Income before income tax ......................................       4,517        4,313

Income tax expense (benefit):
    Current ...................................................       1,138          562
    Deferred ..................................................         (11)         516
                                                                  ---------    ---------
      Total income tax expense ................................       1,127        1,078
                                                                  ---------    ---------

Net income ....................................................   $   3,390    $   3,235
                                                                  =========    =========

Net income per common share:
  Basic .......................................................   $    0.40    $    0.39
  Diluted .....................................................   $    0.40    $    0.39

Average common shares outstanding:
  Basic .......................................................       8,385        8,261
  Diluted .....................................................       8,435        8,312
</TABLE>

      See accompanying notes to interim consolidated financial statements.

                                        4
<PAGE>   5

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

<TABLE>
<CAPTION>
                                                                    Three Months Ended
                                                                        March  31,
                                                                    -------------------
                                                                       1998        1997
                                                                       ----        ----
                                                                         (Unaudited)
<S>                                                               <C>          <C>      
Operating activities:
    Net income ................................................   $   3,390    $   3,235
    Adjustments to reconcile net income to net
     cash provided by operating activities:
      Depreciation & amortization .............................         258           98
      Reinsurance receivable on paid and unpaid
        losses and loss adjustment expenses ...................       1,805       11,056
      Reserve for losses and loss adjustment
       expenses ...............................................      (1,357)     (10,763)
      Prepaid reinsurance premiums ............................      (3,050)         172
      Unearned premium ........................................       1,679         (197)
      Premiums in course of collection ........................      (5,982)       2,446
      Commissions receivable ..................................          78         (508)
      Deferred policy acquisition costs .......................         (16)        (209)
      Accrued investment income ...............................         (27)        (286)
      Reinsurance balances payable ............................       1,068         (234)
      Federal income tax ......................................         851          349
      Net deferred Federal and foreign income tax .............         198          340
      Net realized capital (gains) ............................        (715)        (212)
      Other ...................................................      (1,344)        (617)
                                                                  ---------    ---------
        Net cash provided by (used in) operating activities ...      (3,164)       4,670
                                                                  ---------    ---------

 Investing activities:
    Fixed maturities, available-for-sale
      Redemptions and maturities ..............................      12,525        2,857
      Sales ...................................................      12,144        2,368
      Purchases ...............................................     (19,958)      (9,328)
    Equity securities, available-for-sale
      Sales ...................................................       1,023          729
      Purchases ...............................................          --       (1,235)
    Payable for securities purchased ..........................         836       (1,959)
    Net sales (purchases) of short-term investments ...........        (992)       1,809
    Payment for purchase of MTC, net of cash acquired .........      (2,975)          --
    Purchase of property and equipment ........................        (385)        (212)
                                                                  ---------    ---------
      Net cash provided by (used in) investing activities .....       2,218       (4,971)
                                                                  ---------    ---------

Financing activities:
    Proceeds from exercise of stock options ...................         557          497
                                                                  ---------    ---------
      Net cash provided by financing activities ...............         557          497
                                                                  ---------    ---------

Increase (decrease) in cash ...................................        (389)         196
Cash at beginning of year .....................................       1,251        1,460
                                                                  ---------    ---------
Cash at end of period .........................................   $     862    $   1,656
                                                                  =========    =========
</TABLE>

          See accompanying notes to consolidated financial statements.

                                        5
<PAGE>   6

                   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 hereto contained in the Company's Form 10-K for the
    year ended December 31, 1997. Certain amounts for prior years have been
    reclassified to conform to the current year's presentation.

(2) Reinsurance Ceded

    The Company's ceded earned premiums were $17,077,000 and $17,014,000 and
    ceded losses were $14,466,000 and $11,879,000 for the three months ended
    March 31, 1998 and 1997, respectively.

(3) Net Income Per Share

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

(4) Comprehensive Income

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


                                       6
<PAGE>   7

    The following table summarizes comprehensive income for the three months
    ended March 31, 1998 and 1997:

<TABLE>
<CAPTION>
                                                                         March 31,
                                                                      ---------------
                                                                      1998       1997
                                                                      ----       ----
                                                                       In thousands
<S>                                                                 <C>        <C>    
Net income ......................................................   $ 3,390    $ 3,235
Other comprehensive income, net of tax:
  Net unrealized gains (losses) on securities available for sale:
      Unrealized holding gain (loss) arising during period
      (net of income tax expense (benefit) of $157 for
      1998 and $(844) for 1997) .................................       292     (1,637)
          Less: reclassification adjustment for gains
          included in net income (net of income tax expense
          of $250 for 1998 and $72 for 1997) ....................       465        140
     Foreign currency translation adjustment, net of tax ........        58        (71)
                                                                    -------    -------
              Other comprehensive income ........................      (115)    (1,848)
                                                                    -------    -------

                   Comprehensive income .........................   $ 3,275    $ 1,387
                                                                    =======    =======

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

<CAPTION>
                                                                   March 31,    December 31,
                                                                   ---------    ------------
                                                                     1998          1997
                                                                     ----          ----
                                                                       (In thousands)
<S>                                                                 <C>           <C>
Net unrealized gains on securities available-for-sale
   (net of tax of $3,463 in 1998 and $3,497 in 1997)........        $6,321        $6,494
Foreign currency translation adjustment, net of tax.........            (3)          (61)
                                                                    ------        ------
Accumulated other comprehensive income......................        $6,318        $6,433
                                                                    ======        ======

</TABLE>

(5) Future Application of Accounting Standards

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

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

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

    In January 1998, the Company purchased 100% of Mander, Thomas & Cooper
    (Underwriting Agencies) Limited, a Lloyd's of London marine underwriting
    managing agency and its wholly owned subsidiary, Millennium Underwriting
    Limited. The purchase price consists of initial cash payments plus future
    performance contingent consideration. The purchase was funded through a bank
    loan and working capital. The total purchase price was not material to the
    Company's total assets. The acquisition has been recorded under the
    purchase method of accounting. Goodwill amounted to $3,992,000 and
    is being amortized over 20 years. Additional goodwill may be recorded in
    future years when the amount of the future performance contingencies are
    determinable.


                                       7
<PAGE>   8

                   THE NAVIGATORS GROUP, INC. AND SUBSIDIARIES

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

General

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

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

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

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

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


                                       8
<PAGE>   9

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.

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

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

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

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

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

      Other investments include the Company's 8% interest in Riverside
Underwriters Plc ("Riverside"), which through a wholly owned subsidiary is
admitted to underwrite at Lloyd's of London as a corporate name with limited
liability. The investment in Riverside is recorded at cost.


                                       9
<PAGE>   10

Results of Operations

      The Company's 1998 and 1997 results of operations reflect intense market
competition in the core marine and aviation lines.

      Revenues. Gross written premium for the first three months of 1998
increased by 4% to $36,644,000 from $35,223,000 for the first three months of
1997.

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

<TABLE>
<CAPTION>
                                      Three Months Ended March 31,
                                    --------------------------------
                                        1998                1997
                                    ------------        ------------

                                           (Dollars in thousands)
<S>                            <C>          <C>    <C>          <C>
Marine .....................   $ 14,335      39%   $  9,575      27%
Aviation ...................      5,286      14       9,738      28
Inland Marine ..............        353       1       4,506      13
Onshore Energy .............      2,764       8       3,144       9
Engineering and Construction      3,767      10          --      --
Lloyd's - Marine ...........      6,523      18          --      --
Specialty Reinsurance
  and Program Insurance ....      3,616      10       8,260      23
                               --------     ---    --------     ---

Gross Written Premium ......     36,644     100%     35,223     100%
                               --------     ===    --------     ===

Ceded Written Premium ......    (20,125)            (16,841)       
                               --------            --------        

Net Written Premium ........   $ 16,519            $ 18,382        
                               ========            ========        
</TABLE>

    Marine Premium. Marine gross written premium (non-Lloyd's) increased 50%
when comparing the first quarter of 1998 to the first quarter of 1997 primarily
due to Navigators increasing its participation in the marine pool from 48% to
60% and the first full quarter of premium from the UK Branch.

    Aviation Premium. Aviation gross written premium decreased 46% from the
first three months of 1997 to 1998 due to generally lower rates on aviation
business and the recording of return premiums from rate adjustments on certain
profitable large airline policies.

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


                                       10
<PAGE>   11

    Onshore Energy Premium. In 1996, Navigators began to underwrite onshore
energy business which principally focuses on the oil and gas, chemical and
petrochemical, and power generation industries with coverages primarily for
property damage and machinery breakdown. The Onshore Energy premium decreased
12% from the first three months of 1997 to 1998.

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

    Lloyd's Marine Premium. NCUL provided capacity to Lloyd's Syndicate 1221
managed by MTC and one other Lloyd's syndicate in 1998 and 1997, and Millennium
provided capacity to Syndicate 1221 in 1998. The premiums, losses and 
expenses from the Lloyd's marine syndicates are included in the Company's 
financials but are not included in the Insurance Companies' results since NCUL
and Millennium are wholly owned by the parent company.

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

    Ceded Premium. In the ordinary course of business, Navigators Insurance
reinsures certain insurance risks with unaffiliated insurance companies for the
purpose of limiting its maximum loss exposure, protecting against catastrophic
losses, and maintaining desired ratios of net premiums written to statutory
surplus. The increase in the ceded premium when comparing the first three months
of 1997 to 1998 resulted from the engineering and construction business, which
is heavily reinsured, and from the purchase of additional reinsurance to protect
the marine business.

    Net Written Premium. Net written premium decreased 10% when comparing the
first three months of 1997 to the first three months of 1998 primarily due to
the decrease in the program and aviation premium and the Company's decision to
no longer write inland marine and specialty reinsurance business, partially
offset by the increase in the marine premium.

    Net Earned Premium. Net earned premium decreased 3% for the first three
months of 1998 to $17,890,000 as compared to $18,406,000 for the first three
months of 1997. Net earned premium generally follows the pattern of written
premium but at a slower rate since unearned premium from the prior year is
partially earned in the current period along with a portion of the premium
written in the current period.

    Commission Income. Commission income decreased 23% from $1,595,000 for the
first quarter of 1997 to $1,224,000 for the first quarter of 1998. The decrease
is primarily due to Navigators Insurance's increased participation in the marine
pool which results in the Company receiving less commission income from the
unaffiliated members of the pool.


                                       11
<PAGE>   12

    Net Investment Income. Net investment income increased 16% to $3,918,000
during the first three months of 1998 from $3,371,000 during the corresponding
period in 1997. This increase was due primarily to the overall increase in
invested assets and the decrease of the amount of municipal bonds in the
portfolio.

    Net Realized Capital Gains. Pre-tax net income included $715,000 of realized
capital gains for the first three months of 1998 compared to $212,000 for the
same period last year. On an after tax basis, the realized capital gains were
$0.06 per share in 1998 and $0.02 per share in 1997.

    Operating Expenses.

    Net Loss and Loss Adjustment Expenses Incurred. The ratio of net loss and
loss adjustment expenses incurred to net earned premium was 58.2% and 58.9%
during the first three months of 1998 and 1997, respectively. This decrease was
primarily due to better results in the company's program business and the
decrease in inland marine and specialty reinsurance business written which
generally had a greater loss ratio.

    Commission Expense. Commission expense as a percentage of net earned premium
was 17.0% and 17.1% during the first three months of 1998 and 1997,
respectively.

    Other Operating Expenses. Other operating expenses increased 6% to
$5,681,000 during the first three months of 1998 from $5,351,000 during the
corresponding period of 1997. This increase was primarily due to expenses
incurred by Somerset UK, Somerset Asia and NCUL.

    Interest Expense. Interest expense increased 27% to $364,000 during the
first three months of 1998 from $287,000 during the corresponding period of
1997. This increase is primarily due to an increase in the loan balance under
the Company's Amended Credit Agreement (as defined below) from $17,000,000 at
March 31, 1997 to $20,000,000 at March 31, 1998 and higher interest rates in the
1998 period.

    Income Taxes. The effective tax rate was 25.0% for each of the three months
ended March 31, 1998 and 1997.

    Net Income. The Company had net income of $3,390,000 for the first quarter
of 1998 compared to $3,235,000 for the same period last year. On a diluted per
share basis, this represents net income per share of $0.40 and $0.39 for the
1998 and 1997 first quarters, respectively.


                                       12
<PAGE>   13

Liquidity and Capital Resources

    Cash flow from operations was $(3,164,000) and $4,670,000 for the first
three months of 1998 and 1997, respectively. Invested assets and cash decreased
to $255,925,000 at March 31, 1998 from $258,572,000 at December 31, 1997.

    The Company's credit agreement, as amended, currently provides for a $25
million revolving credit loan facility, which reduces each quarter by amounts
ranging from $500,000 to $2,000,000 until it terminates on December 31, 2003,
and a $30 million letter of credit facility. At March 31, 1998, $20 million in
loans were outstanding under the revolving credit loan facility at an interest
rate of 6.6% and letters of credit with an aggregate face amount of $29 million
were issued under the letter of credit facility. The letters of credit are
primarily utilized by NCUL as collateral to participate in two Lloyd's marine
syndicates specializing in marine insurance. No letters of credit have been
drawn upon.

    As of March 31, 1998, the Company's consolidated stockholders' equity was
$135,074,000, an increase of 3% from $131,242,000 at December 31, 1997.


Year 2000 Compliance

        The Company is aware of the issues associated with Year 2000 issue in
existing computer systems and is currently replacing its major computer systems
with systems that are Year 2000 compliant and thereby will benefit from
state-of-the-art integrated systems along with being Year 2000 compliant. The
project is expected to be completed in 1998. If the project is not completed
timely, the Year 2000 issue may have material impact on the operations of the
Company. The costs directly related to the Year 2000 issue to date have been
minimal. There can be no assurance that the systems of the other companies on
which the Company's systems rely will also be timely converted or that any such
failure to convert by another company would not have an adverse effect on the
Company's sytems.

                                       13
<PAGE>   14

Part II - Other Information

Item 1. Legal Proceedings:

         The Company is not a party to or the subject of, any material pending
         legal proceedings which depart from the ordinary routine litigation
         incident to the kinds of business conducted by the Company.

Item 2. Changes in Securities:

         None.

Item 3. Defaults Upon Senior Securities:

         None.

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

         None.

Item 5. Other Information:

         None.

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

         (a)   Exhibits:

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

         (b)   Reports on Form 8-K:
                 There were no reports on Form 8-K filed for the three months
                 ended March 31, 1998.


                                       14
<PAGE>   15

                                   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)


Dated: May 15, 1998                       /s / Bradley D. Wiley
       ------------                       --------------------------------------
                                          Bradley D. Wiley
                                          Senior Vice President, Chief Financial
                                          Officer and Secretary


                                       15
<PAGE>   16

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


                                       16