<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     June 30, 1998

Commission file number             0-15886

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

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


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

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


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

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

Yes          X                No

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

On August 10, 1998 there were 8,427,676 shares of common stock, $0.10 par value,
issued and outstanding.

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

                                      INDEX

<TABLE>
<CAPTION>
                                                                                                          Page No.
                                                                                                          --------
<S>                                                                                                       <C>
Part I.  FINANCIAL INFORMATION:
      Consolidated Balance Sheets
              June 30, 1998 and December 31, 1997 ..........................................                  3

      Consolidated Statements of Income
              Three Months Ended June 30, 1998 and 1997 .....................................                 4
              Six Months Ended June 30, 1998 and 1997 .......................................                 5

      Consolidated Statements of Cash Flows
              Six Months Ended June 30, 1998 and 1997 .......................................                 6

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

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

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

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

<TABLE>
<CAPTION>
                                                                                   June 30, 1998     Dec. 31, 1997
                                                                                   -------------     -------------
                                                                                    (Unaudited)   
                                     ASSETS                                                       
<S>                                                                                  <C>              <C>
Investments and cash:                                                                             
  Fixed maturities, available-for-sale, at fair value                                             
    (amortized cost: 1998, $219,603; 1997, $218,418) ........................        $227,310          $226,834
  Equity securities, available-for-sale, at fair value (cost: 1998, $5,054;                       
    1997, $4,557) ...........................................................           6,539             6,132
  Short-term investments, at cost which approximates fair value .............          16,491            22,579
  Cash ......................................................................           4,151             1,251
  Other investments .........................................................           2,950             1,776
                                                                                     --------          --------
         Total investments and cash .........................................         257,441           258,572
                                                                                     --------          --------
                                                                                                  
Premiums in course of collection ............................................          50,241            45,847
Commissions receivable ......................................................           5,036             6,434
Accrued investment income ...................................................           2,988             3,121
Prepaid reinsurance premiums ................................................          22,491            20,405
Reinsurance receivable on paid and unpaid losses and loss adjustment expenses         154,797           147,104
Federal income tax recoverable ..............................................             228               164
Net deferred Federal and foreign income tax benefit .........................           7,806             7,994
Deferred policy acquisition costs ...........................................           5,004             5,403
Other assets ................................................................           9,468             6,163
                                                                                     --------          --------
                                                                                                  
         Total assets .......................................................        $515,500          $501,207
                                                                                     ========          ========
                                                                                                  
                      LIABILITIES AND STOCKHOLDERS' EQUITY                                        
                                                                                                  
Liabilities:                                                                                      
  Reserves for losses and loss adjustment expenses ..........................        $281,126          $278,432
  Unearned premium ..........................................................          50,125            48,659
  Reinsurance balances payable ..............................................          17,186            16,539
  Notes payable to banks ....................................................          22,834            20,000
  Net deferred state and local income tax ...................................             854             1,184
  Note payable to stockholder ...............................................             942               942
  Accounts payable and other liabilities ....................................           4,298             4,209
                                                                                     --------          --------
         Total liabilities ..................................................         377,365           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 8,418,426 in 1998 and 8,368,167 in 1997 ..........             842               837
  Additional paid-in capital ................................................          38,917            38,119
  Accumulated other comprehensive income ....................................           6,014             6,433
  Retained earnings .........................................................          92,362            85,853
                                                                                     --------          --------
         Total stockholders' equity .........................................         138,135           131,242
                                                                                     --------          --------
         Total liabilities and stockholders' equity .........................        $515,500          $501,207
                                                                                     ========          ========
</TABLE>

      See accompanying notes to interim consolidated financial statements.

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


<TABLE>
<CAPTION>
                                                            THREE MONTHS ENDED
                                                                 JUNE 30,
                                                           1998            1997
                                                           ----            ----
                                                               (Unaudited)
<S>                                                       <C>            <C>
Revenues:
  Net earned premium .............................        $16,532        $22,169
  Commission income ..............................          1,156          1,520
  Net investment income ..........................          3,752          3,556
  Net realized capital gains .....................            522            242
  Other income ...................................            337            635
                                                          -------        -------
         Total revenues ..........................         22,299         28,122
                                                          -------        -------

Operating expenses:
  Net losses and loss adjustment expenses incurred          8,948         13,412
  Commission expense .............................          3,045          3,926
  Other operating expenses .......................          5,747          6,131
  Interest expense ...............................            367            317
                                                          -------        -------
         Total operating expenses ................         18,107         23,786
                                                          -------        -------

Income before income tax .........................          4,192          4,336

Income tax expense:
    Current ......................................          1,038            868
    Deferred .....................................             35            312
                                                          -------        -------
         Total income tax expense ................          1,073          1,180
                                                          -------        -------

Net income .......................................        $ 3,119        $ 3,156
                                                          =======        =======


Net income per common share:
   Basic .........................................        $  0.37        $  0.38
   Diluted .......................................        $  0.37        $  0.38

Average common shares outstanding:
   Basic .........................................          8,411          8,284
   Diluted .......................................          8,450          8,328
</TABLE>

      See accompanying notes to interim consolidated financial statements.

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


<TABLE>
<CAPTION>
                                                             SIX MONTHS ENDED
                                                                 JUNE 30,
                                                           1998            1997
                                                           ----            ----
                                                               (Unaudited)
<S>                                                       <C>            <C>
Revenues:
  Net earned premium .............................        $34,422        $40,575
  Commission income ..............................          2,380          3,115
  Net investment income ..........................          7,670          6,927
  Net realized capital gains .....................          1,237            454
  Other income ...................................            617            988
                                                          -------        -------
         Total revenues ..........................         46,326         52,059
                                                          -------        -------

Operating expenses:
  Net losses and loss adjustment expenses incurred         19,363         24,258
  Commission expense .............................          6,095          7,066
  Other operating expenses .......................         11,428         11,482
  Interest expense ...............................            731            604
                                                          -------        -------
         Total operating expenses ................         37,617         43,410
                                                          -------        -------

Income before income tax .........................          8,709          8,649

Income tax expense:
    Current ......................................          2,176          1,430
    Deferred .....................................             24            828
                                                          -------        -------
         Total income tax expense ................          2,200          2,258
                                                          -------        -------

Net income .......................................        $ 6,509        $ 6,391
                                                          =======        =======


Net income per common share:
   Basic .........................................        $  0.78        $  0.77
   Diluted .......................................        $  0.77        $  0.77

Average common shares outstanding:
   Basic .........................................          8,398          8,273
   Diluted .......................................          8,446          8,328
</TABLE>

      See accompanying notes to interim consolidated financial statements.

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

<TABLE>
<CAPTION>
                                                                       SIX MONTHS ENDED
                                                                            JUNE 30,
                                                                     1998             1997
                                                                     ----             ----
                                                                          (Unaudited)
<S>                                                                <C>              <C>
Operating activities:
    Net income ............................................        $  6,509         $  6,391
    Adjustments to reconcile net income to net
       cash provided by (used in) operating activities:
      Depreciation & amortization .........................             439              220
      Reinsurance receivable on paid and unpaid
       losses and loss adjustment expenses ................          (7,693)           6,655
      Reserve for losses and loss adjustment expenses .....           2,695           (4,800)
      Prepaid reinsurance premiums ........................          (2,087)          (5,904)
      Unearned premium ....................................           1,465           11,039
      Premiums in course of collection ....................          (4,394)            (437)
      Commissions receivable ..............................           5,058             (908)
      Deferred policy acquisition costs ...................             400           (2,325)
      Accrued investment income ...........................             172              (44)
      Reinsurance balances payable ........................             647             (147)
      Federal and foreign income tax ......................             (90)            (240)
      Net deferred Federal and foreign income tax .........             474              448
      Net realized capital (gains) ........................          (1,237)            (454)
      Other ...............................................          (4,446)          (1,092)
                                                                   --------         --------
        Net cash provided by (used in) operating activities          (2,088)           8,402
                                                                   --------         --------

 Investing activities:
    Fixed maturities, available-for-sale
      Redemptions and maturities ..........................          17,999            5,446
      Sales ...............................................          16,332           36,639
      Purchases ...........................................         (35,269)         (49,410)
    Equity securities, available-for-sale
      Sales ...............................................           2,216            5,756
      Purchases ...........................................          (1,061)          (3,849)
    Payable for securities purchased ......................             787             (889)
    Net sales (purchases) of short-term investments .......           6,087             (805)
    Payment for purchase of MTC, net of cash acquired .....          (5,245)              --
    Purchase of property and equipment ....................            (602)            (292)
                                                                   --------         --------
      Net cash provided by (used in) investing activities .           1,244           (7,404)
                                                                   --------         --------

Financing activities:
   Proceeds from bank loan ................................           2,500               --
    Proceeds from exercise of stock options ...............             754              497
                                                                   --------         --------
      Net cash provided by financing activities ...........           3,254              497
                                                                   --------         --------

Increase in cash ..........................................           2,410            1,495
Cash at beginning of year .................................           1,741            1,460
                                                                   --------         --------
Cash at end of period .....................................        $  4,151         $  2,955
                                                                   ========         ========
</TABLE>

      See accompanying notes to interim consolidated financial statements.

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

               Notes to Interim Consolidated Financial Statements




(1)   Accounting Policies
      The interim financial statements are unaudited but reflect all adjustments
      which, in the opinion of management, are necessary to provide a fair
      statement of the results of The Navigators Group, Inc. and its
      subsidiaries (the "Company") for the interim periods presented. All such
      adjustments are of a normal recurring nature. The results of operations
      for any interim period are not necessarily indicative of results for the
      full year. These financial statements should be read in conjunction with
      the financial statements and notes 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 $19,446,000 and $17,146,000 for
      the three months ended June 30, 1998 and 1997, respectively, and
      $36,523,000 and $34,160,000 for the six months ended June 30, 1998 and
      1997, respectively. The Company's ceded incurred losses were $26,007,000
      and $7,971,000 for the three months ended June 30, 1998 and 1997,
      respectively, and were $40,473,000 and $19,850,000 for the six months
      ended June 30, 1998 and 1997, respectively.


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


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

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

<TABLE>
<CAPTION>
                                                                                              June 30,
                                                                                         1998            1997
                                                                                         ----            ----
                                                                                           (In thousands)
<S>                                                                                    <C>             <C>
      Net income ..............................................................        $ 3,119         $ 3,156
      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 $(5) for 1998 and
            $819 for 1997) ....................................................             (6)          1,588
                Less: reclassification adjustment for gains included in
                net income (net of income tax expense of $183 for 1998
                and $82 for 1997) .............................................            339             160
        Foreign currency translation adjustment, net of tax ...................             41               6
                                                                                       -------         -------
                    Other comprehensive income ................................           (304)          1,434
                                                                                       -------         -------

                         Comprehensive income .................................        $ 2,815         $ 4,590
                                                                                       =======         =======
</TABLE>


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

<TABLE>
<CAPTION>
                                                                                              June 30,
                                                                                        1998             1997
                                                                                        ----             ----
                                                                                           (In thousands)
<S>                                                                                    <C>             <C>
      Net income ..............................................................        $ 6,509         $ 6,391
      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 $152 for 1998 and
            $(25) for 1997) ...................................................            286             (49)
                Less: reclassification adjustment for gains included in
                net income (net of income tax expense of $433 for 1998
              and $154 for 1997) ..............................................            804             300
        Foreign currency translation adjustment, net of tax ...................             99             (65)
                                                                                       -------         -------
                    Other comprehensive income ................................           (419)           (414)
                                                                                       -------         -------

                         Comprehensive income .................................        $ 6,090         $ 5,977
                                                                                       =======         =======
</TABLE>

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

<TABLE>
<CAPTION>
                                                                                     June 30,     December 31,
                                                                                      1998            1997
                                                                                      ----            ----
                                                                                          (In thousands)
<S>                                                                                  <C>          <C>
         Net unrealized gains on securities available-for-sale (net of tax of
            $3,217 in 1998 and $3,497 in 1997) ..............................        $ 5,976        $ 6,494
         Foreign currency translation adjustment, net of tax ................             38            (61)
                                                                                     -------        -------
                   Accumulated other comprehensive income ...................        $ 6,014        $ 6,433
                                                                                     =======        =======
</TABLE>

                                       8
<PAGE>   9
(5)   Future Application of Accounting Standards
      SFAS No. 131, Disclosures about Segments of an Enterprise and Related
      Information, was issued in June 1997 and establishes standards for the
      reporting of information relating to operating segments in annual
      financial statements, as well as disclosure of selected information in
      interim financial reports. This statement supersedes SFAS No. 14,
      Financial Reporting for Segments of a Business Enterprise, which requires
      reporting segment information by industry and geographic area (industry
      approach). Under SFAS No. 131, operating segments are defined as
      components of a company for which separate financial information is
      available and is used by management to allocate resources and assess
      performance (management approach). This statement is effective for
      year-end 1998 financial statements. Interim financial information will be
      required beginning in 1999 (with comparative 1998 information).

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


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

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

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

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

GENERAL

         The accompanying consolidated financial statements consisting of the
accounts of The Navigators Group, Inc., a Delaware holding company, and its
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, 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, 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 supply, or capacity, and as a result, premiums and commissions
may increase. On the downturn of the property and

                                       10
<PAGE>   11
casualty cycle, supply exceeds demand, and as a result, premiums and commissions
may decrease.

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

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

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

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

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

                                       11
<PAGE>   12
RESULTS OF OPERATIONS

         General. 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 six months of 1998
decreased by 16% to $72,409,000 from $85,774,000 for the first six 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>
                                                      Six Months Ended June 30,
                                              1998                                1997
                                              ----                                ----
                                                         (Dollars in thousands)
<S>                                 <C>              <C>               <C>             <C>
Marine .....................        $ 28,359               39%         $ 21,109              25%
Lloyd's - Marine ...........          12,473               17            16,910              20
Aviation ...................          12,684               17            17,200              20
Inland Marine ..............            (105)              --             7,392               9
Onshore Energy .............           6,206                9             4,317               5
Engineering and Construction           4,057                6             1,192               1
Specialty Reinsurance
  and Program Insurance ....           8,735               12            17,654              20
                                    --------         --------          --------        --------

Gross Written Premium ......          72,409              100%           85,774             100%
                                    --------         ========          --------        ========

Ceded Written Premium ......         (38,685)                           (40,065)
                                    --------                           --------

Net Written Premium ........        $ 33,724                           $ 45,709
                                    ========                           ========
</TABLE>


         Marine Premium. Marine gross written premium (non-Lloyd's) increased
34% when comparing the first six months of 1998 to the first six months of 1997
primarily due to Navigators Insurance increasing its participation in the marine
pool from 48% to 60% and the premium produced from the UK Branch.

         Lloyd's Marine Premium. The Lloyd's marine premium is generated as the
result of capacity provided to Syndicate 1221 by NCUL and Millennium in 1998 and
capacity provided to Syndicate 1221 and an unaffiliated syndicate by NCUL in
1997. The 26% decrease from 1997 to 1998 is due to increased rate competition
and NCUL providing capacity to an unaffiliated syndicate in 1997. The premiums,
losses and expenses from the Lloyd's marine syndicates are included in the
Company's financials but are not included in the Insurance Companies' results
since NCUL and Millennium are not owned by the Insurance Companies.

                                       12
<PAGE>   13
         Aviation Premium. Aviation gross written premium decreased 26% from the
first six 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.

         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 increased
44% from the first six 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.

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

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

         Net Written Premium. Net written premium decreased 26% when comparing
the first six months of 1997 to the first six months of 1998 primarily due to
the additional use of reinsurance and the decrease in the aviation, program and
inland marine premium.

         Net Earned Premium. Net earned premium decreased 15% for the first six
months of 1998 to $34,422,000 as compared to $40,575,000 for the first six
months of 1997. Net earned premium for the three months ended June 30, 1998 and
1997 was $16,532,000 and $22,169,000, respectively. Net earned premium generally
follows the pattern of written premium but at a slower rate since unearned
premium from the prior year is partially earned in the current period along with
a portion of the premium written in the current period.

         Commission Income. Commission income decreased 24% from $3,115,000 for
the first six months of 1997 to $2,380,000 for the first six months of 1998 and
also decreased 24% for the three months ended June 30, 1998 from the same period
in 1997. 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.

                                       13
<PAGE>   14
         Net Investment Income. Net investment income increased 11% to
$7,670,000 during the first six months of 1998 from $6,927,000 during the
corresponding period in 1997 and increased 6% to $3,752,000 during the three
months ended June 30, 1998 from $3,556,000 during the corresponding period in
1997. These increases were 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 $1,237,000 of
realized capital gains for the first six months of 1998 compared to $454,000 for
the same period last year. On an after tax basis, the realized capital gains
were $0.10 per share in 1998 and $0.04 per share in 1997. Pretax income for the
three months ended June 30, 1998 and 1997 included realized capital gains of
$522,000 and $242,000, respectively. On an after tax basis the realized capital
gains represented $0.04 per share and $0.02 per share for the respective three
month periods.

      Operating Expenses.

         Net Loss and Loss Adjustment Expenses Incurred. The ratio of net loss
and loss adjustment expenses incurred to net earned premium was 56.3% and 59.8%
during the first six months of 1998 and 1997, respectively. This decrease was
primarily due to a decrease in losses in the company's program, inland marine
and specialty reinsurance business. These ratios were 54.1% and 60.5% for the
three months ended June 30, 1998 and 1997, respectively.

         Commission Expense. Commission expense as a percentage of net earned
premium was 17.7% and 17.4% during the first six months of 1998 and 1997,
respectively, and 18.4% and 17.7% for the three months ended June 30, 1998 and
1997, respectively. These increases were primarily due to increased excess of
loss reinsurance which lowers net premium with no corresponding ceding
commission to offset the commission expense incurred on the gross written
premium.

         Other Operating Expenses. Other operating expenses decreased to
$11,428,000 during the first six months of 1998 from $11,482,000 during the
corresponding period of 1997 and decreased 6% for the three months ended June
30, 1998 compared to the same period in 1997. These decreases were primarily due
to the Company's exit from the inland marine business during 1997.

         Interest Expense. Interest expense increased 21% to $731,000 during the
first six months of 1998 from $604,000 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 June
30, 1997 to $22,500,000 at June 30, 1998 and higher interest rates in the 1998
period.

         Income Taxes. The effective tax rates were 25.3% and 26.1% for the six
months ended June 30, 1998 and 1997, respectively.

                                       14
<PAGE>   15
         Net Income. The Company had net income of $6,509,000 for the first six
months of 1998 compared to $6,391,000 for the same period last year. On a
diluted per share basis, this represents net income per share of $0.77 for both
the first six months of 1998 and 1997. The Company had net income of $3,119,000
or $0.37 per share for the three months ended June 30, 1998 compared to net
income of $3,156,000 or $0.38 per share for the same period in 1997.

LIQUIDITY AND CAPITAL RESOURCES

         Cash flow from operations was $(2,088,000) and $8,402,000 for the first
six months of 1998 and 1997, respectively. The negative cash flow in 1998
primarily resulted from an increase in ceded paid losses not recovered at 
June 30, 1998. Invested assets and cash decreased slightly to $257,441,000 at 
June 30, 1998 from $258,572,000 at December 31, 1997.

         The Company's credit agreement, as amended, currently provides for a
$25 million revolving loan facility, which reduces each quarter by amounts
ranging from $500,000 to $2,000,000 until it terminates on December 31, 2003,
and a $30 million letter of credit facility. At June 30, 1998, $22.5 million in
loans were outstanding under the revolving loan facility at an interest rate of
6.63% and letters of credit with an aggregate face amount of $28.9 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 syndicates
specializing in marine insurance. No letters of credit have been drawn upon.

         As of June 30, 1998, the Company's consolidated stockholders' equity
was $138,135,000, an increase of 5.3% from $131,242,000 at December 31, 1997.

YEAR 2000 COMPLIANCE

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

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

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

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

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

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

                                       16
<PAGE>   17
PART II - OTHER INFORMATION

Item 1.       Legal Proceedings:

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

Item 2.       Changes in Securities:

              None.

Item 3.       Defaults Upon Senior Securities:

              None.

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

              On May 28, 1998, the Company's stockholders voted for the
              following matters at the annual stockholders' meeting:

              (a) The election of seven (7) directors to serve until the 1999
                  Annual Meeting of Stockholders or until their respective
                  successors have been duly elected and qualified. The results
                  of the voting were as follows:

<TABLE>
<CAPTION>
              Name                                       For                           Withheld
              ----                                       ---                           --------
<S>                                                   <C>                              <C>
              Terence N. Deeks                        6,362,280                          23,257
              Robert M. DeMichele                     6,383,037                           2,500
              Leandro S. Galban                       6,372,737                          12,800
              John F. Knight                          6,351,980                          33,557
              Marc M. Tract                           6,372,737                          12,800
              William D. Warren                       6,239,860                         145,677
              Robert F. Wright                        6,351,980                          33,557
</TABLE>

              (b) The ratification of the appointment of KPMG Peat Marwick LLP
                  as the Company's independent auditors. The stockholders cast
                  6,383,537 votes for and 1,450 votes against ratification with
                  550 abstention votes.

Item 5.       Other Information:

              None.

                                       17
<PAGE>   18
Item 6.       Exhibits and Reports on Form 8-K:

              (a) Exhibits:

               Exhibit No.        Description of Exhibit

                  27.1           Financial Data Schedule

              (b) Reports on Form 8-K:

              There were no reports on Form 8-K filed for the six months ended
              June 30, 1998.

                                       18
<PAGE>   19
                                   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:  August 14, 1998                /s / Bradley D. Wiley
      ------------------               ----------------------------------------
                                       Bradley D. Wiley
                                       Senior Vice President, Chief Financial
                                       Officer and Secretary

                                       19
<PAGE>   20
                                INDEX OF EXHIBITS

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

                                       20