<PAGE>
================================================================================

                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                            ------------------------

                                   FORM 10-Q

[X]   QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
      EXCHANGE ACT OF 1934

                    FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1999

                                       OR

[ ]   TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
      EXCHANGE ACT OF 1934

            FOR THE TRANSITION PERIOD FROM              TO

                         COMMISSION FILE NUMBER 0-15022

                            ------------------------

                         FRONTIER INSURANCE GROUP, INC.
             (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

                            ------------------------

<TABLE>
<S>                                            <C>
                  DELAWARE                                      14-1681606
       (STATE OR OTHER JURISDICTION OF             (I.R.S. EMPLOYER IDENTIFICATION NO.)
       INCORPORATION OR ORGANIZATION)

         195 LAKE LOUISE MARIE ROAD,                            12775-8000
             ROCK HILL, NEW YORK                                (ZIP CODE)
  (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
</TABLE>

       REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (914) 796-2100

                            ------------------------

     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 [ ]

     The aggregate number of shares of the Registrant's Common Stock, $.01 par
value, outstanding on August 11, 1999 was 34,742,942.

================================================================================





<PAGE>
                         FRONTIER INSURANCE GROUP, INC.
                                     INDEX

<TABLE>
<CAPTION>
                                                                           PAGE
                                                                           ----
<S>          <C>                                                           <C>
Part I -- Financial Information
  Item 1.    Consolidated Financial Statements
             Consolidated Balance Sheets at June 30, 1999 (Unaudited) and
               December 31, 1998.........................................    3
             Consolidated Statements of Operations and Comprehensive
               Income (Unaudited) for the Three Months and Six Months
               Ended June 30, 1999 and 1998..............................    5
             Consolidated Statements of Cash Flows (Unaudited) for the
               Six Months Ended June 30, 1999 and 1998...................    6
             Notes to Consolidated Financial Statements (Unaudited)......    7
  Item 2.    Management's Discussion and Analysis of Financial Condition
               and Results of Operations.................................   11
  Item 3.    Quantitative and Qualitative Disclosures About Market
               Risk......................................................   19

Part II -- Other Information
  Item 1.    Legal Proceedings...........................................   20
  Item 2.    Changes in Securities.......................................   20
  Item 3.    Defaults upon Senior Securities.............................   20
  Item 4.    Submission of Matters to a Vote of Security Holders.........   20
  Item 5.    Other Information...........................................   21
  Item 6.    Exhibits and Reports on Form 8-K............................   21
  Signature..............................................................   22
</TABLE>

                                       2




<PAGE>
                                     PART I
                             FINANCIAL INFORMATION

ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS

                FRONTIER INSURANCE GROUP, INC. AND SUBSIDIARIES
                          CONSOLIDATED BALANCE SHEETS
                         (DOLLAR AMOUNTS IN THOUSANDS)

<TABLE>
<CAPTION>
                                                               JUNE 30,     DECEMBER 31,
                                                                 1999           1998
                                                                 ----           ----
                                                              (UNAUDITED)
<S>                                                           <C>           <C>
                           ASSETS
Investments:
     Fixed maturity securities, available for sale..........  $1,271,570     $1,199,084
     Equity securities, available for sale..................      67,215         57,328
     Limited investment partnerships........................      32,372         27,291
     Equity investees.......................................      19,287         16,930
     Real estate and mortgage loans.........................       8,304          9,131
     Short-term investments.................................      58,764        149,548
                                                              ----------     ----------
               Total investments............................   1,457,512      1,459,312

Cash........................................................      25,603         28,335
Premiums and agents' balances receivable, less allowances
  for doubtful accounts (1999 -- $5,811; 1998 -- $6,025)....     155,153        114,389
Reinsurance recoverables on:
     Paid losses and loss adjustment expenses...............      48,621         30,626
     Unpaid losses and loss adjustment expenses.............     445,926        448,424
Prepaid reinsurance premiums................................     146,443        137,790
Accrued investment income...................................      17,412         16,517
Federal income taxes recoverable............................        --           24,775
Deferred policy acquisition costs...........................     115,544         96,597
Deferred federal income taxes...............................      46,005         46,434
Property, equipment and software............................      63,550         54,188
Intangible assets...........................................      61,365         54,782
Other assets................................................      41,969         41,608
                                                              ----------     ----------
               TOTAL ASSETS.................................  $2,625,103     $2,553,777
                                                              ----------     ----------
                                                              ----------     ----------
</TABLE>

              See notes to the consolidated financial statements.

                                       3




<PAGE>
                FRONTIER INSURANCE GROUP, INC. AND SUBSIDIARIES
                   CONSOLIDATED BALANCE SHEETS -- (CONTINUED)
              (DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>
                                                               JUNE 30,     DECEMBER 31,
                                                                 1999           1998
                                                                 ----           ----
                                                              (UNAUDITED)
<S>                                                           <C>           <C>
            LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
     Policy liabilities:
          Unpaid losses.....................................  $  823,989     $  831,839
          Unpaid loss adjustment expenses...................     261,848        260,443
          Unearned premiums.................................     558,258        507,046
                                                              ----------     ----------
               Total policy liabilities.....................   1,644,095      1,599,328

Funds withheld under reinsurance contracts..................     172,754        182,211
Bank debt...................................................     127,300         92,000
Reinsurance balances payable................................      74,051         35,773
Cash dividend payable to shareholders.......................       2,432          2,578
Federal income taxes payable................................         974           --
Other liabilities...........................................      65,604         80,514
                                                              ----------     ----------
               TOTAL LIABILITIES............................   2,087,210      1,992,404

Guaranteed preferred beneficial interest in Company's
  convertible subordinated debentures.......................     167,249        167,153

Shareholders' equity:
     Preferred Stock, par value $.01 per share (shares
      authorized and unissued; 1,000,000)...................       --             --
     Common Stock, par value $.01 per share (shares
      authorized: 150,000,000, shares issued:
      1999 -- 37,637,781; 1998 -- 37,594,709)...............         376            376
     Additional paid-in capital.............................     450,808        450,347
     Accumulated other comprehensive income, net of tax.....         484         26,635
     Retained deficit.......................................     (45,938)       (73,833)
                                                              ----------     ----------
                                                                 405,730        403,525
Treasury Stock -- at cost (1999 -- 2,900,413 shares;
  1998 -- 766,912 shares)...................................     (35,086)        (9,305)
                                                              ----------     ----------
               Total shareholders' equity...................     370,644        394,220
                                                              ----------     ----------
               TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY...  $2,625,103     $2,553,777
                                                              ----------     ----------
                                                              ----------     ----------
Book value per share........................................      $10.67         $10.70
                                                                  ------         ------
                                                                  ------         ------
</TABLE>

              See notes to the consolidated financial statements.

                                       4




<PAGE>
                FRONTIER INSURANCE GROUP, INC. AND SUBSIDIARIES
         CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
                                  (UNAUDITED)
                 (AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>
                                                     THREE MONTHS               SIX MONTHS
                                                    ENDED JUNE 30,            ENDED JUNE 30,
                                                -----------------------   -----------------------
                                                   1999         1998         1999         1998
                                                   ----         ----         ----         ----
<S>                                             <C>          <C>          <C>          <C>
REVENUES
     Premiums earned..........................  $  137,922   $  121,606   $  278,177   $  238,027
     Net investment income....................      19,164       19,128       38,694       37,694
     Net realized capital gains...............       2,307        1,596        3,722        3,880
                                                ----------   ----------   ----------   ----------
     Total net investment income..............      21,471       20,724       42,416       41,574
     Net proceeds from company owned life
       insurance policy.......................      --           --           --            4,400
                                                ----------   ----------   ----------   ----------
          Total revenues......................     159,393      142,330      320,593      284,001
EXPENSES
     Losses...................................      54,915       54,321      112,702      108,388
     Loss adjustment expenses.................      23,863       15,548       48,594       37,004
     Amortization of policy acquisition
       costs..................................      32,178       27,303       61,796       50,270
     Underwriting and other expenses..........      19,951       18,164       41,332       35,369
     Minority interest in income of
       consolidated subsidiary trust..........       2,720        2,777        5,487        5,464
     Interest expense.........................       1,972          238        3,277          314
                                                ----------   ----------   ----------   ----------
          Total expenses......................     135,599      118,351      273,188      236,809
                                                ----------   ----------   ----------   ----------
     Income before income taxes...............      23,794       23,979       47,405       47,192
Provision for income taxes:
     State....................................         446          344          773          913
     Federal..................................       6,992        6,170       13,856       11,071
                                                ----------   ----------   ----------   ----------
          Total income tax expense............       7,438        6,514       14,629       11,984
                                                ----------   ----------   ----------   ----------
     NET INCOME...............................      16,356       17,465       32,776       35,208
Other comprehensive (loss) income, net of
  tax.........................................     (14,597)       2,230      (26,151)       2,650
                                                ----------   ----------   ----------   ----------
     TOTAL COMPREHENSIVE INCOME...............  $    1,759   $   19,695   $    6,625   $   37,858
                                                ----------   ----------   ----------   ----------
                                                ----------   ----------   ----------   ----------
Earnings per common share:
     Basic....................................  $      .47   $      .47   $      .92   $      .94
                                                ----------   ----------   ----------   ----------
                                                ----------   ----------   ----------   ----------
     Diluted..................................  $      .42   $      .42   $      .83   $      .85
                                                ----------   ----------   ----------   ----------
                                                ----------   ----------   ----------   ----------
Weighted average common shares outstanding:
     Basic....................................      34,726       37,395       35,618       37,369
     Diluted..................................      42,956       45,883       43,819       45,858

Cash dividends declared per common share......  $      .07   $      .07   $      .14   $      .14
                                                ----------   ----------   ----------   ----------
                                                ----------   ----------   ----------   ----------
</TABLE>

              See notes to the consolidated financial statements.

                                       5




<PAGE>
                FRONTIER INSURANCE GROUP, INC. AND SUBSIDIARIES
                     CONSOLIDATED STATEMENTS OF CASH FLOWS
                                  (UNAUDITED)
                             (AMOUNTS IN THOUSANDS)

<TABLE>
<CAPTION>
                                                                    SIX MONTHS
                                                                  ENDED JUNE 30,
                                                              -----------------------
                                                                 1999         1998
                                                                 ----         ----
<S>                                                           <C>          <C>
OPERATING ACTIVITIES
     Net income.............................................  $   32,776   $   35,208
     Adjustments to reconcile net income to net cash
      provided by operating activities:
          Increase in policy liabilities....................      44,767       92,289
          Increase in reinsurance balances..................     (33,607)     (32,247)
          Increase in agents' balances and premiums
            receivable......................................     (40,764)     (18,728)
          Increase in deferred policy acquisition costs.....     (18,947)     (26,919)
          Increase in accrued investment income.............        (895)      (1,619)
          Deferred income tax expense.......................      11,566        3,590
          Depreciation and amortization.....................      10,586        9,396
          Realized capital gains............................      (3,722)      (3,880)
          Other, net........................................      50,803       34,631
                                                              ----------   ----------
               NET CASH PROVIDED BY OPERATING ACTIVITIES....      52,563       91,721
INVESTING ACTIVITIES
     Proceeds from sales of fixed maturity securities.......      34,534       91,743
     Proceeds from calls, paydowns and maturities of fixed
      maturity securities...................................      70,380       71,770
     Proceeds from sales of equity securities...............      23,897        9,098
     Purchases of fixed maturity securities.................    (217,669)    (243,196)
     Purchases of equity securities.........................     (29,783)     (25,860)
     Short-term investments, net............................      90,784       74,739
     Purchases of property, equipment and software..........     (13,947)      (6,937)
     Purchase of wholly-owned subsidiary, net of cash
      acquired..............................................      --          (28,112)
     Purchases of intangible assets.........................     (13,025)     (13,313)
     Other, net.............................................      (5,419)      (7,874)
                                                              ----------   ----------
               NET CASH USED IN INVESTING ACTIVITIES........     (60,248)     (77,942)
FINANCING ACTIVITIES
     Proceeds from bank borrowings..........................      35,300       10,000
     Cash dividends paid....................................      (5,027)      (4,751)
     Issuance of common stock...............................         461        1,238
     (Purchases) reissuance of treasury stock, net..........     (25,781)           4
                                                              ----------   ----------
               NET CASH PROVIDED BY FINANCING ACTIVITIES....       4,953        6,491
                                                              ----------   ----------
               (DECREASE) INCREASE IN CASH..................      (2,732)      20,270
               CASH AT BEGINNING OF YEAR....................      28,335       11,804
                                                              ----------   ----------
               CASH AT END OF PERIOD........................  $   25,603   $   32,074
                                                              ----------   ----------
                                                              ----------   ----------
</TABLE>

              See notes to the consolidated financial statements.

                                       6




<PAGE>
                FRONTIER INSURANCE GROUP, INC. AND SUBSIDIARIES
                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
                                  (UNAUDITED)

1. BASIS OF PRESENTATION

     The accompanying unaudited consolidated financial statements have been
prepared in accordance with the instructions to Form 10-Q and Article 10 of
Regulation S-X and, accordingly, do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements and should be read in conjunction with the consolidated
financial statements and notes thereto included in the Company's Annual Report
on Form 10-K for the year ended December 31, 1998. In the opinion of management,
all adjustments (consisting of only normal, recurring accruals) considered
necessary for a fair presentation have been included. Certain amounts in the
1998 financial statements have been reclassified to conform to the 1999
presentation. All share and per share information presented in the accompanying
financial statements and these notes thereto have been adjusted to give effect
to stock dividends and stock splits. Operating results for the six-month period
ended June 30, 1999 are not necessarily indicative of the results that may be
expected for the year ending December 31, 1999. Also, refer to 'Managements
Discussion and Analysis of Financial Condition and Results of Operations' for
disclosures regarding the Company's reportable segments.

2. NEW ACCOUNTING STANDARDS

     Effective January 1, 1999, the Company adopted 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 the recognition and
measurement of liabilities for guaranty funds and certain other insurance
related assessments. The cumulative effect of this change in accounting
principle was not material to the Company's results of operations or financial
condition as of, or for the quarter ended March 31, 1999. The effect of adopting
the SOP was to decrease net income by approximately $377,000 and $507,000 for
the three and six-months ended June 30, 1999, respectively.

     Effective January 1, 1999, the Company adopted Statement of Position No.
98-1, Accounting for the Costs of Computer Software Developed or Obtained for
Internal Use ('SOP 98-1'). SOP 98-1 requires the capitalization of certain costs
incurred after the date of adoption in connection with developing or obtaining
software for internal use. Prior to the adoption of SOP 98-1, the Company
expensed all internal use software related costs as incurred. The effect of
adopting the SOP was to increase net income by approximately $715,000
for the three and six-months ended June 30, 1999.

3. ACQUISITIONS

     During 1999, the Company purchased several small insurance agencies
specializing in the sale of surety insurance. The combined purchase price of
these acquisitions was approximately $12,300,000 and consisted almost entirely
of goodwill. The operations of these agencies are not material to the Company's
consolidated financial statements.

4. EARNINGS PER COMMON SHARE

     The following table sets forth the computation of basic and diluted
earnings per common share (amounts in thousands, except per share data):

<TABLE>
<CAPTION>
                                                 THREE MONTHS ENDED  SIX MONTHS ENDED
                                                       JUNE 30,           JUNE 30,
                                                  -----------------   -----------------
                                                   1999      1998      1999      1998
                                                   ----      ----      ----      ----
<S>                                               <C>       <C>       <C>       <C>
NUMERATOR:
     Net income.................................  $16,356   $17,465   $32,776   $35,208
                                                  -------   -------   -------   -------
                                                  -------   -------   -------   -------
Numerator for basic earnings per share -- income
  available to common shareholders..............  $16,356   $17,465   $32,776   $35,208
Effect of dilutive securities:
     Minority interest in income of consolidated
       subsidiary trust.........................    1,768     1,805     3,567     3,552
                                                  -------   -------   -------   -------
Numerator for diluted earnings per
  share -- income available to common
  shareholders after assumed conversions........  $18,124   $19,270   $36,343   $38,760
                                                  -------   -------   -------   -------
                                                  -------   -------   -------   -------
                                                     (table continued on next page)
</TABLE>

                                       7




<PAGE>
                FRONTIER INSURANCE GROUP, INC. AND SUBSIDIARIES
         NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
                                  (UNAUDITED)

(table continued from previous page)

<TABLE>
<CAPTION>
                                                  THREE MONTHS ENDED   SIX MONTHS ENDED
                                                       JUNE 30,            JUNE 30,
                                                  -----------------    ----------------
                                                   1999      1998      1999      1998
                                                   ----      ----      ----      ----
<S>                                               <C>       <C>       <C>       <C>
DENOMINATOR:
     Denominator for basic earnings per share --
       weighted average shares..................   34,726    37,395    35,618    37,369
Effect of dilutive securities:
     Convertible Trust Originated Preferred
       Securities...............................    8,094     8,094     8,094     8,094
     Employee stock options.....................      136       394       107       395
                                                  -------   -------   -------   -------
Dilutive potential common shares................    8,230     8,488     8,201     8,489
                                                  -------   -------   -------   -------
Denominator for diluted earnings per share --
  adjusted weighed average shares and assumed
  conversions...................................   42,956    45,883    43,819    45,858
                                                  -------   -------   -------   -------
                                                  -------   -------   -------   -------
Earnings per common share:
     Basic......................................  $   .47   $   .47   $   .92   $   .94
                                                  -------   -------   -------   -------
                                                  -------   -------   -------   -------
     Diluted....................................  $   .42   $   .42   $   .83   $   .85
                                                  -------   -------   -------   -------
                                                  -------   -------   -------   -------
</TABLE>

5. COMPREHENSIVE INCOME

     The components of comprehensive income are as follows (in thousands):

<TABLE>
<CAPTION>
                                                 THREE MONTHS ENDED    SIX MONTHS ENDED
                                                      JUNE 30,             JUNE 30,
                                                 ------------------   ------------------
                                                   1999      1998       1999      1998
                                                   ----      ----       ----      ----
<S>                                              <C>        <C>       <C>        <C>
Net income.....................................  $ 16,356   $17,465   $ 32,776   $35,208
Other comprehensive income:
     Unrealized (losses) gains, net of tax.....   (14,597)    2,230    (26,151)    2,650
                                                 --------   -------   --------   -------
          Total comprehensive income...........  $  1,759   $19,695   $  6,625   $37,858
                                                 --------   -------   --------   -------
                                                 --------   -------   --------   -------
</TABLE>

     Accumulated other comprehensive income consists of unrealized gains of
$484,000 and $26,635,000, net of related deferred federal income tax, as of June
30, 1999 and December 31, 1998, respectively.

6. UNPAID LOSSES AND LOSS ADJUSTMENT EXPENSES ('LAE')

     The liabilities for unpaid losses and LAE are estimated by management
utilizing methods and procedures which they believe are reasonable. These
liabilities are necessarily subject to the impact of future changes in claim
severity and frequency, as well as numerous other factors. Although management
believes that the estimated liabilities for unpaid losses and LAE are
reasonable, because of the extended period of time over which such losses are
reported and settled, the subsequent development of these liabilities may not
conform to the assumptions inherent in their determination and, accordingly, may
vary from the estimated amounts included in the accompanying financial
statements. To the extent that the actual emerging loss experience varies from
the assumptions used in the determination of these liabilities, they are
adjusted to reflect actual experience. Such adjustments, to the extent they
occur, are reported in the period recognized.

     The anticipated effect of inflation is implicitly considered when
estimating reserves for losses and LAE. Although anticipated price increases due
to inflation are considered in estimating the ultimate claim costs, the increase
in average severities of claims is caused by a number of factors that vary with
the types of policies written. Average severities are projected based on
historical trends adjusted for implemented changes in underwriting standards,
policy provisions, and general economic trends. Those

                                       8




<PAGE>
                FRONTIER INSURANCE GROUP, INC. AND SUBSIDIARIES
         NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
                                  (UNAUDITED)

anticipated trends are monitored based on actual development and are adjusted as
necessary. The effects of such adjustments are reported in the period
recognized.

     The Company writes insurance on accounts which have hazardous, unique or
unusual risk characteristics. These liability policies generally exclude
absolute pollution coverage, except for policies providing pollution liability
coverage to contractors involved in the remediation of pre-existing pollution.
The Company believes that such risks do not represent a material exposure
related to environmental pollution claims but there can be no assurance of the
Company's continued protection in view of the expansion of liability for
environmental claims in recent litigation in the insurance industry.

     The Company's property and casualty subsidiaries have exposure to insured
losses caused by hurricanes, windstorms and other catastrophic events, primarily
in Florida and North Carolina, and have earthquake exposure limited to
California. A continuous assessment of the catastrophic exposures is made to
ensure that liabilities associated with the events can be minimized.

     Also, refer to 'Management's Discussion and Analysis of Financial Condition
and Results of Operations -- Risk Factors' for additional disclosures regarding
unpaid losses and loss adjustment expenses.

7. REINSURANCE

     The effect of reinsurance on premiums written and earned is as follows (in
thousands):

<TABLE>
<CAPTION>
                              THREE MONTHS ENDED JUNE 30,                  SIX MONTHS ENDED JUNE 30,
                       -----------------------------------------   -----------------------------------------
                              1999                  1998                  1999                  1998
                            PREMIUMS              PREMIUMS              PREMIUMS              PREMIUMS
                       -------------------   -------------------   -------------------   -------------------
                       WRITTEN     EARNED    WRITTEN     EARNED    WRITTEN     EARNED    WRITTEN     EARNED
                       -------     ------    -------     ------    -------     ------    -------     ------
<S>                    <C>        <C>        <C>        <C>        <C>        <C>        <C>        <C>
Direct...............  $252,308   $201,910   $204,616   $181,513   $456,472   $394,588   $391,136   $357,088
Assumed..............     5,185     10,158      8,050     10,432     17,672     20,287     34,162     24,112
Ceded................   (81,703)   (74,146)   (77,566)   (70,339)  (153,408)  (136,698)  (157,220)  (143,173)
                       --------   --------   --------   --------   --------   --------   --------   --------
Net..................  $175,790   $137,922   $135,100   $121,606   $320,736   $278,177   $268,078   $238,027
                       --------   --------   --------   --------   --------   --------   --------   --------
                       --------   --------   --------   --------   --------   --------   --------   --------
</TABLE>

     The effect of reinsurance ceded reduced incurred loss and LAE as follows
(in thousands):

<TABLE>
<CAPTION>
                                                         THREE MONTHS ENDED   SIX MONTHS ENDED
                                                              JUNE 30,            JUNE 30,
                                                          -----------------   -----------------
                                                           1999      1998      1999      1998
                                                           ----      ----      ----      ----
<S>                                                       <C>       <C>       <C>       <C>
Incurred losses.........................................  $50,031   $43,943   $89,472   $90,176
Incurred LAE............................................   10,553     5,463    16,808     9,952
</TABLE>

8. CREDIT FACILITY

     During the first quarter of 1999, the Company obtained an increase in the
limit of its five year, revolving loan credit facility with Deutsche Bank AG,
New York Branch from $150,000,000 to $175,000,000. Also during the first quarter
of 1999, the Company borrowed $15,000,000 and during the second quarter of 1999
borrowed an additional $20,300,000 under the credit facility.

9. EMPLOYEE STOCK PURCHASE PLAN

     During 1999, the Company implemented an Employee Stock Purchase Plan
('ESPP'). Under the terms of the ESPP, eligible employees, through payroll
deductions, may purchase the Company's Common Stock on the last business day of
each quarter (up to $25,000 in fair market value per calendar year). The
purchase price of such shares is 85% of the fair market value ('FMV') of the
Company's Common Stock on the trading day immediately preceding the first
business day of such calendar quarter

                                       9




<PAGE>
                FRONTIER INSURANCE GROUP, INC. AND SUBSIDIARIES
         NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
                                  (UNAUDITED)

or the last business day of such calendar quarter, whichever is lower. The FMV
is the closing price of the Company's Common Stock as traded on the New York
Stock Exchange. Purchased shares under the ESPP are issued from the Company's
treasury stock and/or authorized but unissued shares. Additionally, the Company
will grant to each participating employee, stock options under the Company's
Stock Option Plan in an amount equal to the number of shares purchased during
the year through the ESPP and owned at December 31 of such year. For the three
months and six months ended June 30, 1999, the Company issued under the ESPP,
17,078 and 31,689 shares, respectively.

10. OFFICER LOAN PROGRAM

     The Company has established a program to facilitate the purchase of its
Common Stock by key management executives. Under the program, a financial
institution loans funds to the participating executive for such purchases and
the shares are pledged with the financial institution as collateral for the
loans by the executives, who are responsible for their repayment and payment of
the related interest. The Company guarantees the loans as long as the executive
is in the employ of the Company. At June 30, 1999, the total amount borrowed by
executives and guaranteed by the Company under this program is approximately
$4,520,000.

                                       10




<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

     'Safe Harbor' Statement under the Private Securities Litigation Reform Act
of 1995: This Quarterly Report, on Form 10-Q contains forward-looking statements
within the meaning of Section 27A of the Securities Act of 1933 and Section 21E
of the Securities Exchange Act of 1934 which are not historical facts, and
involve risks and uncertainties that could cause actual results to differ
materially from those expected and projected. Such risks and uncertainties
include the following: general economic conditions and conditions specific to
the property and casualty insurance industry including its cyclical nature,
regulatory changes and conditions, rating agency policies and practices,
competitive factors, claims development and the impact thereof on loss reserves
and the Company's reserving policies, the adequacy of the Company's reinsurance
programs, developments in the securities markets and the impact on the Company's
investment portfolio, the success of the Company's acquisition program, changes
in generally accepted accounting principles and the risk factors listed from
time to time in the Company's Securities and Exchange Commission filings.
Accordingly, there can be no assurance that the actual results will conform to
the forward-looking statements in this Quarterly Report.

     The following discussion and analysis should be read in conjunction with
the consolidated financial statements and notes thereto included elsewhere in
this Quarterly Report and with the Company's Annual Report on Form 10-K for the
year ended December 31, 1998.

REPORTABLE SEGMENTS

     The Company currently writes in excess of 150 insurance programs through
six reportable segments: Health Care; Surety; Alternative Risk; Specialty
Programs; Environmental, Excess and Surplus Lines; and Personal and
Credit-Related. The Company's reportable segments are divisions that offer
different types of coverages and are managed separately because of the
specialized nature of the related products underwritten.

     The Company evaluates segment performance based on profit or loss before
the effects of the Zurich Reinsurance (North America), Inc. ('Zurich N.A.')
reinsurance agreements, investment income (including capital gains/losses and
net of interest on funds held), interest expense, other corporate expenses and
income taxes. Although the Company considers returns on investments in the
overall management of its operations, assets are not allocated to individual
segments for analytical purposes. Other corporate expenses include expenses of
the parent company and directly owned non-insurance subsidiaries, reduced by
other miscellaneous income.

     The following is a summary of premiums earned by segment (in thousands):

<TABLE>
<CAPTION>
                                                      THREE MONTHS ENDED     SIX MONTHS ENDED
                                                           JUNE 30,              JUNE 30,
                                                      -------------------   -------------------
                                                        1999       1998       1999       1998
                                                        ----       ----       ----       ----
<S>                                                   <C>        <C>        <C>        <C>
PREMIUMS EARNED BY SEGMENT:
     Health Care....................................  $ 42,082   $ 49,723   $ 88,551   $100,761
     Surety.........................................    22,813     17,740     45,887     34,477
     Alternative Risk...............................     8,593      6,797     16,799     11,858
     Specialty Programs.............................    25,090     18,268     46,256     36,225
     Environmental, Excess and Surplus Lines........    14,134     12,817     31,201     23,424
     Personal and Credit-Related....................    25,210     29,008     49,483     54,033
     Less premiums ceded under Zurich N.A.
       agreements...................................     --       (12,747)     --       (22,751)
                                                      --------   --------   --------   --------
          Net premiums earned.......................  $137,922   $121,606   $278,177   $238,027
                                                      --------   --------   --------   --------
                                                      --------   --------   --------   --------
</TABLE>

                                       11




<PAGE>
     The following is a summary of profit (loss) by segment (in thousands):

<TABLE>
<CAPTION>
                                                          THREE MONTHS ENDED      SIX MONTHS ENDED
                                                               JUNE 30,               JUNE 30,
                                                         ---------------------   ------------------
                                                           1999        1998       1999       1998
                                                           ----        ----       ----       ----
<S>                                                      <C>         <C>         <C>       <C>
SEGMENT PROFIT (LOSS):
     Health Care.......................................   $(2,571)    $(4,636)   $(4,080)  $(12,207)
     Surety............................................     3,663       2,912      7,448      5,811
     Alternative Risk..................................     2,528       2,278      3,889      2,601
     Specialty Programs................................     1,405       1,134      2,534      2,122
     Environmental, Excess and Surplus Lines...........     2,676       2,575      4,643      5,381
     Personal and Credit-Related.......................       (11)      2,681        754      5,630
                                                          -------     -------    -------   --------
          Total segment profit.........................     7,690       6,944     15,188      9,338
Reconciling items:
     Net effect of Zurich N.A. agreements..............     --            590      --        (1,321)
     Total net investment income.......................    21,471      20,724     42,416     41,574
     Interest expense..................................    (4,692)     (3,015)    (8,764)    (5,778)
     Other corporate (expenses) income, net............      (675)     (1,264)    (1,435)     3,379
                                                          -------     -------    -------   --------
          Consolidated income before income taxes......   $23,794     $23,979    $47,405   $ 47,192
                                                          -------     -------    -------   --------
                                                          -------     -------    -------   --------
</TABLE>

     The following tables set forth the Company's combined ratio calculated on a
statutory basis ('Statutory Combined Ratio') and on the basis of generally
accepted accounting principles ('GAAP Combined Ratio') for the periods
indicated:

<TABLE>
<CAPTION>
                                                           THREE MONTHS ENDED    SIX MONTHS ENDED
                                                                JUNE 30,             JUNE 30,
                                                            -----------------   ------------------
                                                            1999      1998      1999      1998
                                                            ----      ----      ----      ----
<S>                                                         <C>       <C>       <C>       <C>
STATUTORY COMBINED RATIO:
     Losses...............................................   40.2%     45.6%     40.9%     46.9%
     Loss adjustment expenses ('LAE').....................   18.6      13.0      18.7      16.9
     Underwriting and other expenses......................   33.2      36.0      34.4      34.3
                                                            -----     -----     -----     -----
          Total combined ratio............................   92.0%     94.6%     94.0%     98.1%
                                                            -----     -----     -----     -----
                                                            -----     -----     -----     -----
GAAP COMBINED RATIO:
     Losses...............................................   39.8%     44.6%     40.5%     45.5%
     LAE..................................................   17.3      12.8      17.5      15.5
     Underwriting and other expenses......................   37.8      37.4      37.1      36.0
                                                            -----     -----     -----     -----
          Total combined ratio............................   94.9%     94.8%     95.1%     97.0%
                                                            -----     -----     -----     -----
                                                            -----     -----     -----     -----
</TABLE>

THREE MONTHS ENDED JUNE 30, 1999 COMPARED TO THREE MONTHS ENDED JUNE 30, 1998

NET PREMIUMS EARNED

     During the three months ended June 30, 1999, a variety of factors
contributed to the increase in net premiums earned over the comparable 1998
period, the principal factors being increases within the Surety, Alternative
Risk, Speciality Programs, and Environmental, Excess and Surplus Lines
Divisions, partially offset by planned decreases within the Health Care and
Personal and Credit-Related Divisions. Additionally, effective December 31,
1998, the Company terminated its 1999 Zurich N.A. reinsurance agreement and,
accordingly, no premiums were ceded under the agreement during the second
quarter of 1999.

     The increase within the Surety Division relates primarily to increased
writings in license and permit, landfill, subdivision and self-insured workers'
compensation bonds, resulting from continued geographic expansion and the
acquisition of several bond agencies.

                                       12




<PAGE>
     The increase in the Alternative Risk Division is primarily attributable to
increases in the primary and excess workers' compensation programs, partially
offset by planned decreases within the commercial earthquake program.

     Net premiums earned within the Specialty Programs Division increased as a
result of new programs, including a short-term auto rental program, a public
entity program and a children's summer camp program, and continued growth in the
pest control and mobile homeowners programs. These increases were partially
offset by the discontinuance of a liability program for apartment owners.

     The increase within the Environmental, Excess and Surplus Lines Division is
primarily due to growth in the environmental and pollution liability and the
California contractors' liability programs.

     Net premiums earned in the Health Care Division decreased compared to the
1998 second quarter primarily due to planned decreases in the physicians'
malpractice business, predominantly for business written in the states of Ohio,
Texas, and Illinois. These decreases were partially offset by expanded writings
in more profitable programs within this segment, such as psychiatrists,
chiropractors and dentists.

     The decrease in net premiums earned within the Personal and Credit-Related
Division is primarily attributable to the run-off of the non-standard auto
business which was discontinued during 1998, partially offset by increases in
the Company's homeowners business in North Carolina.

NET INVESTMENT INCOME

     The slight increase in net investment income for the three months ended
June 30, 1999 over the comparable 1998 period is primarily due to an increase in
invested assets, offset by increased interest costs related to the Zurich N.A.
reinsurance agreements.

LOSSES AND LAE

     The improvement in the Company's overall loss and LAE ratio is due, in
part, to the aforementioned planned decrease in the physicians' medical
malpractice business and discontinuance of the liability program for apartment
owners. Additionally, changes in business mix to more profitable programs
underwritten, most notably in the Surety, Environmental, Excess and Surplus
Lines, and Personal and Credit-Related Divisions also contributed to the
Company's improved results.

UNDERWRITING AND OTHER EXPENSES

     The increase in amortization of policy acquisition expenses during the
second quarter of 1999 compared to the 1998 second quarter is due primarily to
the higher acquisition costs related to the increased writings in low loss ratio
business in the Surety and Environmental, Excess and Surplus Lines Divisions.
Additionally, acquisition costs increased due to a lesser amount of negative
goodwill amortized in the 1999 quarter compared to the 1998 quarter.

     The increase in underwriting and other expenses is due primarily to the
addition of approximately 165 new employees, including several members of senior
management. This increase was partially offset by the capitalization of certain
costs related to the development of internally used computer software.

INTEREST EXPENSE

     The increase in interest expense over the comparable 1998 quarter is due to
increased amounts borrowed under the Deutsche Bank credit facility.

SIX MONTHS ENDED JUNE 30, 1999 COMPARED TO SIX MONTHS ENDED JUNE 30, 1998

NET PREMIUMS EARNED

     During 1999, a variety of factors contributed to the increase in net
premiums earned over the comparable 1998 period, the principal factors being
increases within the Surety, Alternative Risk, Speciality Programs, and
Environmental, Excess and Surplus Lines Divisions, partially offset by planned

                                       13




<PAGE>
decreases within the Health Care and Personal and Credit-Related Divisions.
Additionally, effective December 31, 1998, the Company terminated its 1999
Zurich N.A. reinsurance agreement and, accordingly, no premiums were ceded under
the agreement during 1999.

     The increase within the Surety Division is due primarily to increased
writings in license and permit, landfill, subdivision and self-insured workers'
compensation bonds, resulting from the continued geographic expansion and the
acquisition of several bond agencies.

     The increase in the Alternative Risk Division is primarily attributed to
increases in the primary and excess workers' compensation programs, partially
offset by planned decreases within the commercial earthquake program.

     Net premiums earned within the Specialty Programs Division increased as a
result of new programs, including a short-term auto rental program, a public
entity program and a children's summer camp program, and continued growth in the
pest control and mobile homeowners programs. These increases were partially
offset by the discontinuance of a liability program for apartment owners and
decreased writings in the title agents errors and omissions program.

     The increase within the Environmental, Excess and Surplus Lines Division is
primarily due to growth in the environmental and pollution liability and the
California contractors' liability programs. This growth was partially offset by
a reduction in specialty classes of general liability and property coverages due
to increased price competition in the excess and surplus lines market.

     Net premiums earned in the Health Care Division decreased compared to the
1998 six month period primarily due to planned decreases in the physicians'
malpractice business, predominantly for business written in the states of Ohio,
Texas, and Illinois. These decreases were partially offset by expanded writings
in more profitable programs within this segment, such as psychiatrists,
chiropractors and dentists.

     The decrease in net premiums earned within the Personal and Credit-Related
Division is primarily attributable to the run-off of the non-standard auto
business which was discontinued during 1998, partially offset by increases in
the Company's homeowners business in North Carolina, and in extended warranty
and service contracts. Also, the premiums related to the extended warranty and
service contracts are typically earned over a three to five year period and,
will be recognized in future periods.

NET INVESTMENT INCOME

     The increase in net investment income during the first six months of 1999
over the comparable 1998 period is primarily due to an increase in invested
assets, partially offset by increased interest costs related to the Zurich N.A.
reinsurance agreements and a slight decline in overall market yields.

LOSSES AND LAE

     The improvement in the Company's overall loss and LAE ratio is due, in
part, to the aforementioned planned decrease in the physicians' medical
malpractice business and discontinuance of the liability program for apartment
owners. Additionally, changes in business mix to more profitable programs
underwritten, most notably in the Surety, Alternative Risk, Environmental,
Excess and Surplus Lines, and Personal and Credit-Related Divisions, also
contributed to the Company's improved results. In addition, during 1998, the
Company increased loss and LAE reserves by approximately $6,800,000,
predominately in the Health Care Division's medical malpractice line of
business.

UNDERWRITING AND OTHER EXPENSES

     The increase in amortization of policy acquisition expenses over the
comparable 1998 six month period is due primarily to the higher acquisition
costs related to the increased writings in low loss ratio business in the Surety
and the Environmental, Excess and Surplus Lines Divisions. Additionally,
acquisition costs increased due to a lesser amount of negative goodwill
amortized in the 1999 period compared to the 1998 period.

                                       14




<PAGE>
     The increase in underwriting and other expenses is due primarily to the
addition of approximately 165 new employees, including six members of executive
management. This increase was partially offset by the capitalization of certain
costs related to the development of internally used computer software.

INTEREST EXPENSE

     The increase in interest expense over the comparable 1998 six month period
is due to increased amounts borrowed under the Deutsche Bank credit facility.

LIQUIDITY AND CAPITAL RESOURCES

     The Company is a holding company, receiving cash principally through sales
of its securities, borrowings and management fees charged to its subsidiaries,
most of which are subject to certain dividend restrictions. The ability of the
Company's subsidiaries to underwrite insurance is based on maintaining liquidity
and capital resources sufficient to pay claims and expenses as they become due.

     The liquidity needs of the Company's insurance subsidiaries are generally
met through cash provided by operating activities. During 1999, the Company
borrowed $35,300,000 under its $175,000,000 credit facility with Deutsche Bank
AG, New York Branch and at June 30, 1999, the outstanding balance thereunder is
$127,300,000. Under the terms of the credit facility, the Company is subject to
certain financial and non-financial covenants, some of which restrict its
ability to dispose of assets, incur additional indebtedness and require the
maintenance of a minimum level of consolidated shareholders' equity.

     The Company has authorized a stock repurchase plan for up to 3,000,000
shares of its Common Stock under which it repurchased 668,300 shares at a cost
of $8,500,000 during 1998. During 1999, the Company purchased 2,150,900 shares
at a cost of approximately $25,919,000. Although the Company plans to continue
to repurchase its Common Stock to the extent market conditions make such
repurchases strategically advantageous, it has no commitment or obligation to
purchase any particular number of shares and the program may be suspended at the
Company's discretion.

     The Company continually monitors existing and alternative financing sources
to support its capital and liquidity needs including, but not limited to, debt
and preferred or Common Stock issuance.

LITIGATION WITH THE STATE OF NEW YORK

     Over the past decade, the Company has been engaged in litigation with the
State of New York as to whether physician medical school faculty members at the
State University of New York ('SUNY') engaged in the clinical practice of
medicine at a SUNY medical school facility, corollary to such physicians'
faculty activities, were within the scope of their employment by SUNY, and
thereby protected against malpractice claims arising out of such activity by the
State, or by the Company under its medical malpractice policies insuring the
SUNY physicians. As a result of favorable judicial decisions, the Company
recorded subrogation recoverables for claims previously paid and reserves
established with respect to such malpractice claims of approximately $19,000,000
on December 31, 1995 and $13,000,000 on June 30, 1996. The Company and the State
reached an agreement with respect to 83 cases pursuant to which the State paid
$15,000,000 to the Company in September 1998 and the Company agreed to forego
$5,100,000 in interest. As a result, the amount of subrogation recoverables
recorded at June 30, 1999 amounted to approximately $12,000,000.

     Discussions are continuing with respect to the cases not included in the
agreement with the State and, to the extent the amount of the actual recovery
varies from the recorded subrogation recoverables of $12,000,000, such
difference will be reported in the period recognized. The Company is continuing
to defend all SUNY faculty members against malpractice claims that have been
asserted and is maintaining reserves adjusted for the anticipated recoveries.

SHAREHOLDER LITIGATION

     Following the Company's November 5, 1994 announcement of its third-quarter
financial results, the Company was served with seven purported class actions
alleging violations of federal securities laws by the Company and, in some
cases, by certain of its officers and directors. In September 1995, a pre-trial

                                       15




<PAGE>
order was signed which consolidated all actions in the Eastern District of New
York, appointed three law firms as co-lead counsel for the plaintiffs and set
forth a timetable for class certification, motion practice and discovery. In
November 1995, plaintiffs served a consolidated amended complaint alleging
violations by the Company of Section 10(b) of the Securities Exchange Act of
1934 and Rule 10(b)(5) thereunder, seeking to impose controlling person
liability on certain of the Company's officers and directors, and further
alleging insider sales, all premised on negative financial information that
should have been publicly disclosed earlier. Plaintiffs seek an unspecified
amount in damages to be proven at trial, reasonable attorney fees and expert
witness costs. In April 1997, the Court certified the class. Plaintiffs have
subpoenaed documents and deposed outside auditors and analysts. Plaintiffs have
also taken depositions from current or former officers, directors and employees
of the Company. The Company believes the suit is without merit, has retained
special legal counsel to contest this suit vigorously and believes that the
Company's exposure to liability, if any, thereunder would not have a material
adverse effect on the its financial condition.

THE YEAR 2000

     The Company has a committee comprised of senior management from the
corporate office and from each of its subsidiaries to develop and implement a
uniform and complete Year 2000 compliance plan. An assessment of all systems
that could be affected by Year 2000 issues has been completed. For its
information technology ('IT') exposures, the Company is nearing completion of
the remediation of its systems. Those remediated systems which have been
implemented have been tested for compliance for: 20th century system dates with
current and 21st century data; and, with the exception of one system, 21st
century system dates with 20th and 21st century data. Processes and procedures
are currently in place to ensure the following: that all future IT development
and testing follow Year 2000 standards; that all projects undertaken in the
interim deliver Year 2000 compliant solutions; that all future third-party
hardware and software acquisitions are Year 2000 compliant; and that all
commercial third-party service providers, including agents and program
administrators, are queried regarding their Year 2000 compliance plans.

     To date, the costs related to Year 2000 compliance efforts are
approximately $2,000,000 and have been expensed as incurred. Total costs are not
expected to exceed $3,000,000 and will continue to be funded out of operating
cash flows. However, anticipated costs could be adversely affected by the
continued need for availability of personnel and system resources, as well as
any failure by third-party vendors, service providers, or agencies to properly
address Year 2000 issues. The impact of achieving Y2K compliance has not caused
a significant delay in other IT related development efforts.

     The Company has also conducted a comprehensive review of its underwriting
guidelines and is seeking regulatory approval of an endorsement to be added to
all commercial property and casualty policies which would clarify that coverage
is not afforded losses resulting from Year 2000 noncompliance by insureds. Upon
approval, this endorsement is being added to each policy at either issuance or
renewal. Underwriting policy and protocol have been developed to address
nonapproving states and/or states that approved the endorsement but only for
certain lines of business. To date, the Company has received endorsement
approval from 49 states and the District of Columbia. For these reasons, the
Company believes that its exposure to Year 2000 claims will not be material to
its operations or financial condition. However, due to social and legal trends,
it is impossible to predict what, if any, exposure insurance companies generally
may have relating to Year 2000 claims.

     A contingency plan is currently being developed which will delineate the
Company's responsibilities in the event that Year 2000 compliance is not
achieved due to internal or external factors. These plans involve, among other
things, manual workarounds, additional paper-based report development and
adjusting staffing strategies. The Company recognizes the need for a contingency
plan, but given the status of its current Y2K efforts does not anticipate having
to rely on the plan. The Company expects to continue to conduct periodic tests
of its systems throughout 1999 to complete testing for various conditions, and
to further ensure continued Year 2000 compliance is maintained.

     The Company believes it has an effective program in place to resolve
Year 2000 issues in a timely manner. However, risks remain that as yet untested
or undiscovered computer system problems will emerge. In addition, disruptions
in the economy generally resulting from the Year 2000 could also

                                       16




<PAGE>
materially adversely affect the Company, rendering it unable to receive premiums
or settle its insureds' claims in a timely manner. In addition, the Company
could be subject to litigation for claims related to its insureds' Year 2000
exposures.

RISK FACTORS

Adequacy of Loss Reserves

     Liabilities for unpaid losses and loss adjustment expenses are estimated
utilizing methods and procedures which management believe are reasonable and in
compliance with regulatory requirements. These liabilities are necessarily
subject to the impact of developments in the frequency and severity of claims,
as well as numerous other factors, such as judicial and legislative trends and
actions, economic factors and changes in estimates based on these factors. Most
or all of these factors are not directly quantifiable, particularly on a
prospective basis. Over the extended period of time during which losses are
reported and settled, these liabilities may not conform to the assumptions
underlying management's estimates and, accordingly, may vary significantly from
the estimated amounts included in the financial statements. To the extent that
the emerging loss experience varies from such estimates, these liabilities are
adjusted to reflect actual experience. These adjustments, to the extent they
occur, are reported in the period recognized.

     In December 1998, the Company increased its liabilities for unpaid losses
and loss adjustment expenses by $155,000,000 to reflect revised estimates for
these liabilities. This increase was recognized in the fourth quarter of 1998
and resulted in a corresponding charge to pre-tax earnings.

     During the past year, the Company has seen continued growth in its case
reserves for prior year claims related to its medical malpractice line of
business. However, during this same period, the Company's settled claims have
exhibited considerable savings from the case reserves previously established.
Additionally, the Company has instituted a policy to aggressively settle older
claims that had not been progressing to resolution. The net effect of these
contradictory underlying trends is being continually and closely monitored.

     The Company believes that the combination of the year-end reserve
strengthening and the increased emphasis on closing older claims has resulted in
claims examiners establishing case reserves at redundant levels, a belief
supported by the recent favorable settled claim experience. However, recognizing
the conflicting results of applying various actuarial estimation techniques to
the Company's claim history, the Company will expand its customary detailed
third quarter reserve analysis to include an in-depth study of its claim
department practices to further support its basis for its current reserve
position. The effects of these conflicting results cannot be quantified
for the 1999 and prior accident year reserves at this time. While management
believes that the study will confirm the assumptions underlying its current
estimates, it is possible that the results may vary significantly from the
estimated amounts included in the financial statements.

Emphasis on Insurance Company Ratings

     Increased public and regulatory concerns with the financial stability of
insurers have resulted in a greater focus by policyholders and their insurance
agents upon insurance company ratings and a potential competitive advantage for
carriers with higher ratings. Rating organizations periodically review the
financial performance and condition of insurers and reevaluate their ratings.
A.M. Best Company, Inc. has currently rated all of the Company's insurance
subsidiaries as A - (Excellent), except for Lyndon Life Insurance Company and
Gulfco Life Insurance Company which they have rated as B++ (Very Good) and
Acceleration Life Insurance Company which they have rated B+ (Very Good). The
Company cannot assure that its insurance subsidiaries will maintain their
ratings and any downgrade could materially adversely affect their operations.

Highly Competitive Market

     The property and casualty insurance business is highly competitive with
respect to a number of factors, including overall financial strength of the
insurer, ratings by rating agencies, premium rates, policy terms and conditions,
services offered, reputation and broker compensation. Although the Company's
business strategy is to achieve an underwriting profit by identifying niche
markets and

                                       17




<PAGE>
specialty programs that management believes afford favorable opportunities for
profitability due to limited potential competition, the Company nevertheless
encounters competition from carriers engaged in insuring risks in the broader
lines of business that encompass our niche markets and specialty programs. The
Company expects that type of competition will increase as it expands its
operations.

Fluctuations in Industry Results

     The financial results of property and casualty insurers historically have
been subject to significant fluctuations. Profitability is affected
significantly by volatile and unpredictable developments (including
catastrophes), changes in loss reserves resulting from changing legal
environments as different types of claims arise and judicial interpretations
develop relating to the scope of insurers' liability, fluctuations in interest
rates and other changes in the investment environment which affect returns on
invested capital, and inflationary pressures that affect the size of losses.
Further, underwriting results have been cyclical in the property and casualty
insurance industry, with protracted periods of overcapacity accompanied by lower
premium rates and operating results followed by periods of undercapacity
accompanied by higher premium rates and operating results. The property and
casualty insurance industry is currently experiencing a protracted period of
overcapacity and lower premium rates, and the Company cannot assure when or if
this period will end and when premium rates will increase.

Reliance Upon Reinsurance

     To moderate the impact of unusually severe or frequent losses, the
Company's insurance subsidiaries cede (i.e., transfer) a portion of their gross
premiums to reinsurers in exchange for the reinsurers' agreements to share
covered losses with the subsidiaries. Although reinsurance makes the assuming
reinsurer liable to the extent of the risk ceded, the Company's insurance
subsidiaries are not relieved of their primary liability to their insureds and,
therefore, bear a credit risk with respect to their reinsurers. Although the
Company's insurance subsidiaries place reinsurance only with reinsurers they
believe to be financially sound, the Company cannot assure that these reinsurers
will pay all reinsurance claims on a timely basis, if at all. Further, although
the Company believes its insurance subsidiaries are adequately reinsured, it
cannot be certain that they will continue to be able to obtain reinsurance on
satisfactory terms.

Dependence Upon Investment Income

     Similar to other property and casualty insurance companies, the Company
depends on income from its investment portfolio for a substantial portion of its
earnings. A significant decline in investment yields could have a material
adverse effect on the Company's financial results.

Concentration in Ownership

     Mr. Harry W. Rhulen, Chairman of the Board and President of the Company,
members of Mr. Rhulen's family and other directors and officers of the Company
owned, as of June 1999, approximately 25% of the outstanding shares of Common
Stock. As a result, these persons are in a position to influence the Company's
management and affairs and, collectively, may be able to prevent a proposed
change in control of the Company.

Restrictions Under Insurance Regulations

     The Company is subject to regulation under applicable insurance statutes,
including insurance holding company statutes, of the various states in which its
insurance subsidiaries write insurance. Insurance regulation is intended to
provide safeguards for policyholders rather than to protect investors in
insurance companies or their holding companies. Regulators oversee matters
relating to trade practices, policy forms, claims practices, mandated
participation in shared markets, types and amounts of investments, reserve
adequacy, insurer solvency, minimum amounts of capital and surplus, transactions
with related parties and changes in control. The rates that the Company's
insurance subsidiaries can charge for certain lines of business are also subject
to regulation and, therefore, may not keep pace with inflation. Changes in any
of these laws and regulations could materially adversely affect the Company's
operations.

                                       18




<PAGE>
Dependence Upon Dividends and Other Distributions from Subsidiaries

     Because the Company is a holding company, its ability to pay dividends or
fund other expenditures depends significantly on the payment of dividends and
management fees to it by its subsidiaries. However, the Company's insurance
subsidiaries are subject to regulations designed to protect their solvency that
restrict the amount of dividends or other distributions they may make to the
Company. In addition, the Company's current policy involves the retention by its
insurance subsidiaries of their capital for growth rather than the payment of
dividends.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

     The Company's investment portfolio is subject to market risk arising from
potential changes in value in various securities held within the portfolio.
Market risk comprises many factors, such as interest rate risk, liquidity risk,
prepayment risk, credit risk and equity price risk. Analytical tools and
monitoring systems are in place to assess these market risks. The market risks
which most affect the Company's investment portfolio are interest rate risk
associated with investments held in fixed maturities and equity price risk
associated with investments held in equity securities. As of June 30, 1999, the
market risk exposures have not materially changed from December 31, 1998.

                                       19




<PAGE>
                          PART II -- OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

     Not applicable.

ITEM 2. CHANGES IN SECURITIES

     Not applicable.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

     Not applicable.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

     On June 28, 1999, the stockholders of the Company held their annual meeting
in New York, New York. The stockholders of 32,306,911 shares or 93.1% of the
Company's Common Stock outstanding, were present or represented by proxy and,
accordingly, a quorum was present and matters were voted upon as follows:

          a. The following persons were elected directors of the Company:

<TABLE>
<CAPTION>
                                                      VOTES FOR    VOTES AGAINST
                                                      ---------    -------------
<S>                                                   <C>          <C>
Harry W. Rhulen.....................................  30,189,640     2,117,268
Peter L. Rhulen.....................................  30,189,556     2,117,351
Suzanne Rhulen Loughlin.............................  30,190,141     2,116,767
Lawrence E. O'Brien.................................  30,190,475     2,116,433
Douglas C. Moat.....................................  30,190,475     2,116,433
Alan Gerry..........................................  30,190,205     2,116,703
Paul B. Guenther....................................  30,190,475     2,116,433
</TABLE>

          b. The amendment of the Restated Certificate of Incorporation of the
     Company to classify the Board of Directors was not ratified. 15,871,111
     shares were voted in favor of the amendment, 9,734,637 were voted against,
     97,501 abstained and 6,603,662 were broker non-votes.

          c. The adoption of the 1999 Employee Stock Purchase Plan was ratified.
     24,488,008 shares were voted in favor of the proposal, 1,105,438 shares
     were voted against, 109,803 abstained and 6,603,662 were broker non-votes.

          d. The adoption of the 1999 Stock Option Plan was also ratified.
     17,875,507 shares were voted in favor of the proposal, 7,685,263 were
     against, 155,699 abstained and 6,590,442 were broker non-votes.

          e. The grant of a stock option to Patrick W. Kenny, the Executive Vice
     President of Finance and Strategic Planning, to purchase a total of 235,000
     shares of the Company's Common Stock at prices ranging from $17.30 to
     $43.30 per shares was also ratified. 23,153,258 shares were voted in favor
     of the proposal, 2,663,221 shares were voted against, 181,186 abstained and
     6,309,246 were broker non-votes.

          f. The reappointment of Ernst & Young LLP as independent auditors of
     the Company for the year ending December 31, 1999 was also ratified.
     31,680,986 shares were voted in favor of the proposal, 84,085 shares were
     voted against, 86,080 abstained and 455,760 were broker non-votes.

                                       20




<PAGE>
ITEM 5. OTHER INFORMATION

     Not applicable.

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

     a. Exhibits.

        Exhibit 27 -- Financial Data Schedule

     b. Reports on Form 8-K.

        None.

                                       21




<PAGE>
                                   SIGNATURE

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

Date: August 16, 1999                     FRONTIER INSURANCE GROUP, INC.
                                                 (Registrant)

                                          By:         /S/ MARK H. MISHLER
                                               .................................
                                                      MARK H. MISHLER
                                            SR. VICE PRESIDENT -- TREASURER AND
                                                  CHIEF FINANCIAL OFFICER
                                                (PRINCIPAL FINANCIAL OFFICER
                                                AND DULY AUTHORIZED OFFICER)



                                          By:        /S/ JEFFREY C. GORDON
                                               .................................
                                                     JEFFREY C. GORDON
                                                VICE PRESIDENT -- CONTROLLER
                                               (PRINCIPAL ACCOUNTING OFFICER
                                                AND DULY AUTHORIZED OFFICER)

                                       22