<PAGE>
<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 September 30, 1998
                                       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
       incorporation or organization)                  Identification No.)


195 LAKE LOUISE MARIE ROAD, ROCK HILL, NEW YORK            12775-8000
(Address of principal executive offices)                   (Zip Code)

</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.

       [x] Yes                                            [  ] No


The aggregate number of shares of the Registrant's Common Stock, $.01 par value,
outstanding on November 10, 1998 was 37,020,565.

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


                               Page 1 of 21 pages




<PAGE>
<PAGE>


                         FRONTIER INSURANCE GROUP, INC.

<TABLE>
<CAPTION>
                                   INDEX                                                               PAGE
                                   -----                                                               ----
                           
<S>            <C>                                                                                     <C>
PART I -  FINANCIAL INFORMATION

     Item 1.  Consolidated Financial Statements

              Consolidated Balance Sheets at
              September 30, 1998 (Unaudited) and December 31, 1997...................................    3-4

              Consolidated Statements of Income and Comprehensive Income (Unaudited)
              for the Three Months and Nine Months Ended September 30, 1998 and 1997 ................      5

              Consolidated Statements of Cash Flows (Unaudited)
              for the Nine Months Ended September 30, 1998 and 1997..................................      6

              Notes to Consolidated Financial Statements (Unaudited).................................   7-10

     Item 2.  Management's Discussion and Analysis of
              Financial Condition and Results of Operations..........................................  11-19


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......................................................................     20

     Item 6.  Exhibits and Reports on Form 8-K.......................................................     20

     Signature.......................................................................................     21

</TABLE>
                                       -2-



<PAGE>
<PAGE>


PART I - FINANCIAL INFORMATION

Item 1.    Consolidated Financial Statements

                 FRONTIER INSURANCE GROUP, INC. AND SUBSIDIARIES

                           CONSOLIDATED BALANCE SHEETS

                                     ASSETS
                                 (in thousands)
   
<TABLE>
<CAPTION>
                                                                                   September 30,         December 31,
                                                                                       1998                  1997
                                                                                   -------------         ------------       
                                                                                    (Unaudited)
<S>                                                                                 <C>                 <C>
Investments:
Securities, available for sale--at fair value:
     Fixed maturities (amortized cost: 1998--$1,149,589; 1997--$950,015)             $1,194,566          $ 1,079,740
     Equity securities (cost: 1998--$57,674; 1997--$28,998);                             57,479               20,281
Limited investment partnerships                                                          24,818               17,758
Equity investees                                                                         14,519               14,108
Short-term investments                                                                   79,045              117,568
                                                                                     ----------           ----------
     TOTAL INVESTMENTS                                                                1,370,427            1,249,455

Cash                                                                                     39,074               11,804
Premiums receivable, less allowances for doubtful accounts
   (1998--$2,925; 1997--$2,791)                                                         120,294               96,196
Net reinsurance recoverables less allowances for
    doubtful accounts (1998--$246; 1997--$464)                                          474,930              391,168
Accrued investment income                                                                16,271               14,970
Federal income taxes recoverable                                                          7,002                7,292
Deferred policy acquisition costs                                                       101,504               55,634
Deferred federal income tax asset                                                         8,987               29,045
Home office building, property and equipment--at cost,
   less accumulated depreciation and amortization
   (1998-$18,650;  1997--$14,060)                                                        59,250               48,298
Intangible assets, less accumulated amortization
   (1998-$15,497; 1997--$5,088)                                                          54,357               29,885
Other assets                                                                             43,567               41,966
                                                                                     ----------           ----------
         TOTAL ASSETS                                                                $2,295,663           $1,975,713
                                                                                     ==========           ==========


</TABLE>

          See notes to consolidated financial statements (unaudited).


                                       -3-



<PAGE>
<PAGE>


                 FRONTIER INSURANCE GROUP, INC. AND SUBSIDIARIES

                     CONSOLIDATED BALANCE SHEETS--Continued


                             LIABILITIES AND CAPITAL
              (dollar amounts in thousands, except per share data)

<TABLE>
<CAPTION>

                                                                           September 30,         December 31,
                                                                               1998                  1997 
                                                                           -------------         ------------      
                                                                            (Unaudited)
<S>                                                                         <C>                   <C>        
LIABILITIES
   Policy liabilities:
     Unpaid losses                                                           $  705,832            $  635,719
     Unpaid loss adjustment expenses                                            146,548               144,325
     Unearned premiums                                                          529,028               404,042
                                                                             ----------            ----------
         TOTAL POLICY LIABILITIES                                             1,381,408             1,184,086
   Funds held under reinsurance contracts                                       153,379               111,879
   Bank debt                                                                     16,000
   Cash dividend payable to shareholders                                          2,620                 2,375
   Other liabilities                                                             70,344                56,965
                                                                             ----------            ----------
     TOTAL LIABILITIES                                                        1,623,751             1,355,305


COMMITMENTS AND CONTINGENCIES

GUARANTEED PREFERRED BENEFICIAL INTEREST IN
COMPANY'S CONVERTIBLE  SUBORDINATED DEBENTURES                                  166,839               166,703

SHAREHOLDERS' EQUITY--
   Preferred Stock, par value $.01 per share;
      authorized and unissued--1,000,000 shares
   Common Stock, par value $.01 per share
      (shares authorized: 150,000,000,
     shares  issued:  1998-37,591,382;1997--37,419,298)                             376                   340
   Additional paid-in capital                                                   449,232               367,914
   Accumulated other comprehensive income, net of tax                            29,761                20,238
   Retained earnings                                                             28,188                65,995
                                                                             ---------             ----------
     SUBTOTAL                                                                   507,557               454,487
   Less treasury stock--at cost (1998-232,932; 1997--99,495 shares)               2,484                   782
                                                                             ----------            ----------
        TOTAL SHAREHOLDERS' EQUITY                                              505,073               453,705
                                                                             ----------            ----------
        TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY                           $2,295,663            $1,975,713
                                                                             ==========            ==========

Book value per share                                                             $13.52                $12.39
                                                                                 ======                ======

</TABLE>

          See notes to consolidated financial statements (unaudited).


                                       -4-



<PAGE>
<PAGE>


                 FRONTIER INSURANCE GROUP, INC. AND SUBSIDIARIES

                        CONSOLIDATED STATEMENTS OF INCOME
                                   (Unaudited)
                      (in thousands, except per share data)

<TABLE>
<CAPTION>

                                                                        Three Months                   Nine Months
                                                                     Ended September 30,           Ended September 30,
                                                                     -------------------           -------------------
                                                                     1998            1997          1998           1997
                                                                     ----            ----          ----           ----
<S>                                                                <C>              <C>           <C>           <C>
REVENUES
   Premiums written                                                $221,325         $189,715      $652,160      $424,697
   Premiums ceded                                                   (71,813)         (68,201)     (229,033)     (134,724)
                                                                   --------         --------      --------      --------         
       NET PREMIUMS WRITTEN                                         149,512          121,514       423,127       289,973
   Increase in net unearned premiums                                (21,511)         (18,298)      (55,338)      (32,933)
                                                                   --------         --------      --------      --------         
       NET PREMIUMS EARNED                                          128,001          103,216       367,789       257,040
   Net Investment income                                             18,798           14,555        56,492        39,273
   Realized capital gains                                            (3,273)             231           607         1,446
                                                                   --------         --------      --------      --------         
       TOTAL NET INVESTMENT INCOME                                   15,525           14,786        57,099        40,719
   Net proceeds from company held life insurance policy                                              4,400              
                                                                   --------         --------      --------      --------         
       TOTAL REVENUES                                               143,526          118,002       429,288       297,759

EXPENSES
   Losses                                                            55,829           39,973       164,217        97,194
   Loss adjustment expenses                                          17,290           15,657        54,294        40,145
   Amortization of policy acquisition costs                          31,748           21,075        88,354        56,986
   Underwriting and other expenses                                   17,468           16,583        48,262        35,008
   Minority interest in income of consolidated subsidiary trust       2,780            2,725         8,244         8,116
   Interest expense                                                     261              515           575           986
                                                                   --------         --------      --------      --------         
   TOTAL EXPENSES                                                   125,376           96,528       363,946       238,435
                                                                   --------         --------      --------      --------         
INCOME BEFORE INCOME TAXES                                           18,150           21,474        65,342        59,324

INCOME TAXES
   State                                                                893              479         1,806           889
   Federal                                                            3,064            6,237        14,135        16,354
                                                                   --------         --------      --------      --------         
       TOTAL INCOME TAXES                                             3,957            6,716        15,941        17,243
                                                                   --------         --------      --------      --------

   NET INCOME                                                        14,193           14,758        49,401        42,081
OTHER COMPREHENSIVE INCOME, NET                                       6,873            9,850         9,523        11,791
                                                                   --------         --------      --------      --------         
       TOTAL COMPREHENSIVE INCOME                                  $ 21,066         $ 24,608      $ 58,924      $ 53,872
                                                                   ========         ========      ========      ========

PER SHARE DATA:
   Primary earnings per common share                                   $.38             $.42         $1.32         $1.27
                                                                       ====             ====         =====         =====
   Fully diluted earnings per common share                             $.35             $.38         $1.20         $1.15
                                                                       ====             ====         =====         =====

WEIGHTED AVERAGE COMMON  SHARES
OUTSTANDING (in thousands):
   Primary                                                           37,482           34,851        37,399        33,143
   Fully diluted                                                     45,699           42,945        45,644        41,237

</TABLE>


          See notes to consolidated financial statements (unaudited).


                                       -5-



<PAGE>
<PAGE>


                 FRONTIER INSURANCE GROUP, INC. AND SUBSIDIARIES

                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                   (Unaudited)
                                 (in thousands)

<TABLE>
<CAPTION>
                                                                                               Nine Months
                                                                                           Ended September 30,
                                                                                       --------------------------         
                                                                                         1998              1997
                                                                                       --------          --------
<S>                                                                                  <C>                <C>      
OPERATING ACTIVITIES
   Net income                                                                         $   49,401         $  42,081
   Adjustments to reconcile net income to net cash provided
      by operating activities:
         Increase in policy liabilities                                                  132,084            92,749
         Increase in reinsurance balances                                                (21,989)          (57,642)
         Increase in agents' balances and premiums receivable                            (23,479)          (16,565)
         Increase in deferred policy acquisition costs                                   (45,871)          (16,639)
         (Increase) decrease in accrued investment income                                 (1,068)              171
         Deferred income tax expense                                                      11,988             8,824
         Depreciation and amortization                                                    13,838             3,875
         Realized capital gains                                                             (607)           (1,446)
         Other, net                                                                        2,205            29,708
                                                                                       ---------         ---------
             NET CASH PROVIDED BY OPERATING ACTIVITIES                                   116,502            85,116

INVESTING ACTIVITIES
   Proceeds from sales of fixed maturities                                                76,273            50,839
   Proceeds from calls, paydowns and maturities of fixed maturities                      158,059            71,754
   Proceeds from sales of equity securities                                               12,296            13,458
   Purchases of fixed maturities                                                        (303,056)         (195,471)
   Purchases of equity securities                                                        (49,706)          (27,682)
   Net sales (purchases) of short-term investments                                        64,880           (33,987)
   Additions and improvements to home office building, and
      purchases of property and equipment                                                (14,902)          (10,594)
   Purchase of wholly-owned subsidiary, net of cash acquired                             (28,112)          (89,056)
   Investments in limited investment partnerships                                         (6,948)
   Investments in equity investees                                                        (2,172)
   Other, net                                                                             (4,533)           (9,530)
                                                                                      ----------       -----------
             NET CASH USED IN  INVESTING ACTIVITIES                                      (97,921)         (230,269)

FINANCING ACTIVITIES
   Proceeds from borrowings                                                               16,000            62,000
   Repayment of borrowings                                                                                 (62,000)
   Cash dividends paid                                                                    (7,141)           (5,866)
   Issuance of common stock                                                                1,918           145,901
   Additional costs related to public common stock offering                                 (397)
   Net (purchase) reissuance of treasury stock                                            (1,691)               20
                                                                                     -----------       -----------
             NET CASH PROVIDED BY FINANCING ACTIVITIES                                     8,689           140,055
                                                                                     -----------       -----------
             INCREASE (DECREASE) IN CASH                                                  27,270            (5,098)

             CASH AT BEGINNING OF YEAR                                                    11,804             8,332
                                                                                      ----------        ----------

             CASH AT END OF PERIOD                                                     $  39,074         $   3,234
                                                                                       =========         =========

</TABLE>

          See notes to consolidated financial statements (unaudited).


                                       -6-




<PAGE>
<PAGE>


                 FRONTIER INSURANCE GROUP, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (Unaudited)

1.  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, 1997. 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 1997 financial statements have been reclassified to conform
    to the 1998 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 nine-month period ended September 30, 1998 are not
    necessarily indicative of the results that may be expected for the year
    ending December 31, 1998.

2.  In the first quarter of 1997, the Company adopted Financial Accounting
    Standards Board Statement 125, "Accounting for Transfers and Servicing of
    Financial Assets and Extinguishments of Liabilities" ("FASB 125"), which
    provides accounting and reporting standards for sales, securitizations, and
    servicing of receivables and other financial assets, secured borrowing and
    collateral transactions, and the extinguishments of liabilities. The
    adoption excluded the provisions that deal with securities lending,
    repurchase and dollar repurchase agreements, and the recognition of
    collateral, which will be adopted in 1998 pursuant to the proposed
    amendment. The adoption of FASB 125 did not have a material impact to the
    Company's financial position or results of operations.

    In June 1997, the Financial Accounting Standards Board issued Statement 131,
    "Disclosures and Segments of an Enterprise and Related Information."
    Statement 131 is effective for the years beginning after December 15, 1997
    and establishes new disclosure requirements related to products and
    services, geographic areas and major customers on an annual and quarterly
    basis. Statement 131 requires companies to disclose qualitative and
    quantitative segment data on the basis that is used by management for
    evaluating segment performance and deciding how to allocate resources.
    Although early application is encouraged, segment information is not
    required to be reported in interim financial statements in the first year
    of application. The Company is currently evaluating what its meaningful
    reporting segments will be under Statement 131.

    In October 1997, the Financial Accounting Standards Board issued Statement
    128, "Earnings per Share", which establishes standards for computing and
    presenting earnings per share ("EPS"). Statement 128 replaced the
    calculation of primary and fully diluted earnings per share with basic and
    diluted earnings per share. Unlike primary earnings per share, basic
    earnings per share excludes any dilutive effects of options, warrants and
    convertible securities. Diluted earnings per share is very similar to the
    previously reported fully diluted earnings per share. All earnings per share
    amounts for all periods have been presented and where appropriate have been
    restated to conform to the Statement 128 requirements.

                                       -7-



<PAGE>
<PAGE>


Item 1.  Notes to Consolidated Financial Statements (Unaudited)--Continued

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

    As of January 1, 1998, the Company adopted Financial Accounting Standards
    Board's statement 130, "Reporting Comprehensive Income." Statement 130
    establishes new rules for the reporting and display of comprehensive income
    and its components; however, the adoption of this statement has no impact on
    the Company's net income or shareholders' equity. Statement 130 requires
    unrealized gains or losses on the Company's available-for sale securities
    and foreign currency translation adjustments, which prior to adoption were
    reported separately in shareholders' equity to be included in other
    comprehensive income. Prior year financial statements have been reclassified
    to conform to the requirements of Statement 130.

    The components of comprehensive income for the three months ended September
    30, 1998 and 1997, and the nine months ended September 30, 1998 and 1997 are
    as follows:

<TABLE>
<CAPTION>

                                                                 Three Months                    Nine Months
                                                              Ended September 30,            Ended September 30,
                                                           ----------------------           --------------------
                                                           1998               1997          1998             1997
                                                           ----               ----          ----             ----
                                                                                 (in thousands)
<S>                                                        <C>               <C>            <C>              <C>    
    Net income                                            $14,193           $14,758        $49,401          $42,081
    Other comprehensive income
        Unrealized gains, net of tax                        6,873             9,850          9,523           11,791
                                                          -------           -------        -------          -------
            Total comprehensive income                    $21,066           $24,608        $58,924          $53,872
                                                          =======           =======        =======          =======
</TABLE>




    The components of accumulated other comprehensive income, net of related tax
    at September 30, 1998 and December 31, 1997 are as follows:


<TABLE>
<CAPTION>

                                                                   September 30, 1998             December 31, 1997
                                                                   ------------------             -----------------
                                                                                      (in thousands)
<S>                                                                         <C>                        <C>    
    Unrealized gains on securities, net of tax                              $29,761                    $20,238

</TABLE>

                                       -8-



<PAGE>
<PAGE>


Item 1.  Notes to Consolidated Financial Statements (Unaudited)--Continued

3.   Dividends have been declared by the Board of Directors and paid by the
     Company during the periods presented in the accompanying financial
     statements, as follows:

<TABLE>
<CAPTION>

     Declaration        Record         Payment               Type of                Cash               Number of
         Date            Date           Date                 Dividend               Paid             Shares Issued
     -----------        -------        --------        --------------------         -----            -------------
<S>                    <C>            <C>             <C>                          <C>              <C>   
     11/21/96           12/27/96       01/14/97        $.065 per share cash         $1,904                   N/A
     02/27/97           03/24/97       04/18/97        $.065 per share cash         $1,905                   N/A
     05/22/97           06/30/97       07/21/97        100% stock                      N/A               14,735,962
     05/22/97           06/30/97       07/21/97        $.07 per share cash          $2,057                   N/A
     08/14/97           09/30/97       10/17/97        $.07 per share cash          $2,374                   N/A
     11/13/97           12/31/97       01/20/97        $.07 per share cash          $2,375                   N/A
     02/06/98           03/31/98       04/21/98        $.07 per share cash          $2,376                   N/A
     06/01/98           06/30/98       07/20/98        $.07 per share cash          $2,384                   N/A
     06/01/98           07/01/98       07/20/98        10% stock                    $    7(1)             3,414,296
     09/14/98           09/30/98       10/20/98        $.07 per share cash          $2,620                   N/A
</TABLE>

     (1) Cash in lieu of fractional shares.

4.   At September 30, 1998, options to purchase 912,256 shares of Common Stock,
     at per share exercise prices ranging from $8.57 to $30.63, were
     outstanding, compared to options to purchase 896,598 shares of Common
     Stock, at per share exercise prices ranging from $9.43 to $26.69,
     outstanding at September 30, 1997 under the Company's stock option plans
     (the "Plans"). Options to purchase 310,337 and 240,675 shares of Common
     Stock were exercisable at September 30,1998 and September 30,1997,
     respectively, under the Plans.

     In 1998, the Company granted the President and Chairman of the Board, and
     an Executive Vice President, separate stock options outside the Plans to
     purchase 990,000 and 495,000 shares, respectively, of the Company's Common
     Stock at prices ranging from $30.00 to $50.00 per share, exercisable at any
     time through December 31, 2004. In August 1998, the Executive Vice
     President resigned and under the terms of the option grant, the 495,000
     shares were forfeited and cancelled. Accordingly, 990,000 options were
     outstanding at September 30, 1998.

     In 1998, the Company granted the then President and Chairman of the Board,
     since deceased, a separate stock option outside the Plans to purchase
     275,000 shares of the Company's Common Stock at $36.36 per share at any
     time through December 31, 2001, which options were outstanding at September
     30, 1998.

     In 1998, the Company also granted the Executive Vice President of Finance
     and Strategic Planning a separate stock option outside the Plans to
     purchase 235,000 shares of the Company's Common Stock at prices ranging
     from $17.00 to $42.50 exercisable at any time, which options were
     outstanding at September 30, 1998.

     During 1993, the Company granted the President and Chairman of the Board,
     and a Vice President, separate stock options outside of the Plans to
     purchase 825,000 and 148,500 shares, respectively, of the Company's Common
     Stock at $22.73 per share at any time through December 31, 1999, which
     options were outstanding at September 30, 1998.

     The number of shares subject to options and the per share option prices
     have been adjusted to reflect stock dividends. Exercisable options are
     nondilutive to earnings per share presented in the accompanying financial
     statements.


                                       -9-



<PAGE>
<PAGE>


Item 1.  Notes to Consolidated Financial Statements (Unaudited)--Continued

5.   Contingent reinsurance commissions are accounted for on an earned basis and
     are accrued, in accordance with the terms of the applicable reinsurance
     agreement, based on the estimated level of profitability relating to such
     reinsured business. During the three months ended September 30, 1998 and
     1997, such earned commissions accrued were $(605,000) and $506,000,
     respectively. During the nine months ended September 30, 1998 and 1997,
     such earned commissions accrued were $(624,000) and $419,000, respectively.
     The estimated profitability of the reinsured business is continually
     reviewed and as adjustments become necessary, such adjustments are
     reflected in current operations.

6.   The components of the net reinsurance recoverables balances in the
     accompanying balance sheets were as follows:

<TABLE>
<CAPTION>
                                                           September 30, 1998                        December 31, 1997
                                                           ------------------                        -----------------
                                                                                 (in thousands)
<S>                                                            <C>                                     <C>        
      Ceded paid losses recoverable                              $ 28,253                                 $ 21,460
      Ceded unpaid losses and LAE                                 346,979                                  291,734
      Ceded unearned premiums                                     136,485                                  111,927
      Ceded reinsurance payable                                   (36,787)                                 (33,953)
                                                                 --------                                 --------
           TOTAL                                                 $474,930                                 $391,168
                                                                 ========                                 ========
</TABLE>


      The reinsurance ceded components of the amounts relating to the
      accompanying income statements were as follows:

<TABLE>
<CAPTION>
                                                                               Nine Months Ended September 30,
                                                                            ----------------------------------
                                                                            1998                           1997
                                                                            ----                           ----   
                                                                                         (in thousands)
<S>                                                                         <C>                            <C>     
      Ceded premiums earned                                                 $212,079                       $131,571
      Ceded incurred losses                                                  136,393                         89,865
      Ceded incurred LAE                                                      18,909                         17,390
</TABLE>


     The effect of reinsurance on premiums written and earned at September 30,
     1998 and 1997 was as follows:

<TABLE>
<CAPTION>
                                                               Nine Months Ended September 30,
                                             -------------------------------------------------------------------------
                                                        1998                                        1997
                                                      Premiums                                     Premiums
                                             ----------------------------                  ---------------------------
                                             Written              Earned                     Written            Earned 
                                             -------              ------                     -------            ------   
                                                                           (in thousands)
<S>                                           <C>                <C>                        <C>                <C>     
     Direct                                   $612,013           $546,135                   $410,931           $371,941
     Assumed                                    40,147             33,733                     13,766             16,670
     Ceded                                    (229,033)          (212,079)                  (134,724)          (131,571)
                                              --------           --------                   --------           --------
     Net                                      $423,127           $367,789                   $289,973           $257,040
                                              ========           ========                   ========           ========
</TABLE>


                                      -10-



<PAGE>
<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
Report and with the Company's Annual Report on Form 10-K for the fiscal year
ended December 31, 1997.

Three Months Ended September 30, 1998 Compared to Three Months Ended September
30, 1997

The following table sets forth the net premiums earned by the principal lines of
insurance written by the Company for the periods indicated and the dollar amount
and percentage of change therein from period to period:

<TABLE>
<CAPTION>
                                                                     Three Months                   Increase (Decrease)
                                                                  Ended September 30,                  1997 to 1998      
                                                               ------------------------          ------------------------
                                                                1998               1997            Amount            % 
                                                               ------             -----            ------           ---
                                                                            (dollar amounts in thousands)
   <S>                                                         <C>             <C>                <C>              <C>
    General liability                                         $  31,477        $  29,713          $   1,764          5.9
    Medical malpractice                                          28,495           27,101              1,394          5.1
    Surety                                                       18,761           13,483              5,278         39.1
    Specialty personal lines                                     16,417           11,913              4,504         37.8
    Credit related products                                      18,712           11,430              7,282         63.7
    Commercial earthquake                                         2,135            1,481                654         44.2
    Workers' compensation                                         1,484            2,113               (629)       (29.8)
    Other                                                        10,520            5,982              4,538         75.9
                                                               --------         --------            -------
                 Total                                         $128,001         $103,216            $24,785         24.0
                                                               ========         ========            =======
</TABLE>



The following table sets 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>
                                                       Statutory Combined Ratio             GAAP Combined Ratio
                                                       ------------------------             -------------------
                                                             Three Months                       Three Months
                                                        Ended September 30,                  Ended September 30,  
                                                       ------------------------            ---------------------
                                                        1998              1997              1998             1997
                                                        ----              ----              ----             ----  
<S>                                                      <C>              <C>                <C>            <C>  
Losses                                                   45.3%            38.7%              43.6%          38.7%
Loss adjustment expenses (LAE)                           14.6             15.2               13.5           15.2
                                                         ----             ----               ----           ----
Losses and LAE                                           59.9             53.9               57.1           53.9
Acquisition, underwriting and
  other expenses                                         39.5             33.6               38.4           36.5
                                                         ----             ----               ----           ----
Total combined ratio                                     99.4%            87.5%              95.5%          90.4%
                                                         ====             ====               ====           ====

</TABLE>

                                      -11-



<PAGE>
<PAGE>


Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations-Continued

A variety of factors accounted for the 24.0% growth in net premiums earned, the
principal factors being increases in the Company's core and new program
business, and the acquisitions of Lyndon Property Insurance Company ("Lyndon")
in June 1997, Western Indemnity Insurance Company ("Western") and Environmental
Commercial Insurance Agency("ECI") in December 1997, and Acceleration Life
Insurance Company ("Accel") in January 1998. This increase was partially offset
by a decrease in commercial earthquake business due to an increased amount of
reinsurance coverage purchased and a decrease in the number of risks insured,
increased premiums ceded under an aggregate excess of loss reinsurance treaty,
and the planned decrease in a general liability program for apartment owners.

Net premiums earned in the general liability line increased primarily because of
increases in various programs, including continued growth in social services,
artisans contractor, demolition contractors, and excess employers' liability
programs, and in the environmental programs underwritten by United Capitol.
These increases were partially offset by a decrease in net premiums earned in
the umbrella and liability programs for apartment owners.

The increase in medical malpractice net premiums earned was primarily
attributable to an increase in the number of physicians insured in the programs
for psychiatrists and alternative risks, growth in the dental program endorsed
by the Academy of General Dentistry and the acquisition of Western, partially
offset by the sale of the Florida medical malpractice business effective
December 1, 1997.

Growth in surety net premiums earned continued in 1998, primarily attributable
to expanded writings of license and permit bonds, landfill bonds and
miscellaneous bonds.

Net premiums earned for the workers' compensation line decreased, primarily as a
result of a lesser required participation in the National Workers' Compensation
Reinsurance Pools, partially offset by increased workers' compensation premiums
written in the alternative risk program, and the acquisition of Western.

Net premiums earned for the specialty personal lines increased primarily due to
increased volume in the mobile homeowners' program and auto physical damage
insurance attributable, in part, to the acquisition of Lyndon.

Net premiums earned for the credit-related products increased as a result of the
acquisitions of Lyndon and Accel.

Net premiums earned in the commercial earthquake program increased primarily due
to a decrease in the amount of premiums ceded.

Net premiums earned for the other lines of business increased primarily due to
an increase in volume in commercial package and ocean marine programs.

Net investment income increased 29.2%, primarily as a result of the increased
funds available for investments from the cash flow from regular operations and
the contribution to investment income from the 1997 acquisitions, partially
offset by the interest charge on funds held by the Company for the benefit of
the reinsurer of the aggregate excess of loss reinsurance treaty. Total net
investment income increased 5.0% due to the increase in net investment income,
partially offset by realized capital losses of $3.3 million, of which $.7
million was attributable to the alternative investment portfolio and $2.6
million to other investments, including investments in equity investees. The
average annual pre-tax yield on investments, excluding the interest charge on
funds held under the aggregate excess loss of reinsurance treaty and realized
capital gains and losses, was 6.6% compared to 6.3% for the 1997 period. The


                                      -12-



<PAGE>
<PAGE>


Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations-Continued

average annual after-tax yield on investments, excluding the interest charge on
funds held under the aggregate excess of loss reinsurance treaty and realized
capital gains and losses, was 4.7% compared to 4.8% for the 1997 period.

Total revenues increased 21.6% as a result of the above.

Total expenses increased by 29.9%, compared to the 24.0% increase in net
premiums earned. Losses and loss adjustment expenses ("LAE") increased at a
31.4% rate as a result of a 39.7% increase in losses and a 10.4% increase in
LAE. The increase in losses and LAE was disproportionate to that of net premiums
earned, resulting in a loss and LAE component of the GAAP Combined Ratio 3.2
percentage points higher than in the comparable 1997 period. The 1998 third
quarter losses were negatively impacted by hurricane catastrophe losses of $1.2
million. The 1.9% increase in the amortization of policy acquisition costs,
underwriting and other expenses was attributable primarily to an increase in
direct commission expense resulting from growth in programs with higher
commission rates, increased staffing and marketing expenses related to
expansion, salary increases and the total expenses attributable to Lyndon,
Western and ECI, partially offset by the recognition of $1.8 million of the
amortization of the excess of net assets over the purchase price associated with
the Lyndon acquisition. As the non-claim related component of the GAAP Combined
Ratio increased at a greater rate than premiums earned, the non-claim component
was 1.9 percentage points higher than in the comparable 1997 period. The total
GAAP Combined Ratio increased by 5.1 percentage points to 95.5 % as a result of
the above.

The foregoing changes resulted in income before taxes of $18.2 million for the
1998 quarter, a 15.5% decrease over the comparable 1997 quarter. Net income for
the quarter decreased by $.5 million, or 3.8%, from the 1997 quarter.

Nine Months Ended September 30, 1998 Compared to Nine Months Ended September 30,
1997

The following table sets forth the net premiums earned by the principal lines of
insurance written by the Company for the periods indicated and the dollar amount
and percentage of change therein from period to period:

<TABLE>
<CAPTION>
                                                                      Nine Months               Increase (Decrease)
                                                                  Ended September 30,               1997 to 1998
                                                             -----------------------------     ---------------------      
                                                               1998                 1997        Amount           %
                                                             --------              -------     --------         ---- 
                                                                            (dollar amounts in thousands)
<S>                                                          <C>                <C>             <C>             <C> 
    General liability                                         $ 95,161          $  80,500        $ 14,661       18.2
    Medical malpractice (including
       dental malpractice)                                      83,342             80,845           2,497        3.1
    Surety                                                      49,581             40,497           9,084       22.4
    Specialty personal lines                                    44,808             18,019          26,789      148.7
    Credit related products                                     38,948             14,286          24,662      172.6
    Workers' compensation                                        6,872              3,606           3,266       90.6
    Commercial earthquake                                        4,668              6,181          (1,513)     (24.5)
    Other                                                       44,409             13,106          31,303      238.8
                                                              --------           --------        --------
      Total                                                   $367,789           $257,040        $110,749       43.1
                                                              ========           ========        ========
</TABLE>


                                      -13-



<PAGE>
<PAGE>


Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations-Continued


The following table sets 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>
                                                       Statutory Combined Ratio             GAAP Combined Ratio
                                                      --------------------------          ----------------------
                                                                      Nine Months Ended September 30,
                                                      ----------------------------------------------------------               
                                                        1998              1997              1998           1997  
                                                      --------          --------          --------        ------
<S>                                                      <C>              <C>                <C>            <C>  
Losses                                                   46.3%            37.8%              44.6%          37.8%
Loss adjustment expenses (LAE)                           16.1             15.6               14.8           15.6
                                                         ----             ----               ----           ----
Losses and LAE                                           62.4             53.4               59.4           53.4
Acquisition, underwriting, and
  other expenses                                         36.1             35.0               37.1           35.8
                                                         ----             ----               ----           ----
Total combined ratio                                     98.5%            88.4%              96.5%          89.2%
                                                         ====             ====               ====           ====
</TABLE>


A variety of factors accounted for the 43.1% growth in net premiums earned, the
principal factor being increases in the Company's core and new program
businesses and the acquisitions of Lyndon in June 1997, Western and ECI in
December 1997, and Accel in January 1998. This increase was partially offset by
a decrease in commercial earthquake business due to an increased amount of
reinsurance coverage purchased and a decrease in the number of risks insured,
increased premiums ceded under the aggregate excess of loss reinsurance treaty,
and the planned decrease in a general liability program for apartment owners.

The increase in medical malpractice net premiums earned was primarily
attributable to an increase in the number of physicians insured in the programs
for psychiatrists and alternative risks, growth in the dental program endorsed
by the Academy of General Dentistry and the acquisition of Western, partially
offset by the sale of the Florida medical malpractice business, effective
December 1, 1997.

Net premiums earned for the general liability line increased primarily because
of increases in various programs, including continued growth in the social
services, artisans contractor, demolition contractors, and excess employers'
liability programs, and in the environmental programs underwritten by United
Capitol. These increases were partially offset by a decrease in net premiums
earned in the umbrella and liability programs for apartment owners.

Growth in surety net premiums earned continued in 1998, primarily attributable
to expanded writings of license and permit bonds, landfill bonds and
miscellaneous bonds.

Net premiums earned for the specialty personal lines increased primarily due to
increased volume in the mobile homeowners' program and auto physical damage
insurance attributable, in part, to the acquisition of Lyndon.

Net premiums earned for credit-related products increased as a result of the
acquisitions of Lyndon and Accel.

Net premiums earned for the workers' compensation line increased, primarily as a
result of a greater required participation in the National Workers' Compensation
Reinsurance Pools, workers' compensation premiums written in the alternative
risk program, and the acquisition of Western.

Net premiums earned for the commercial earthquake program decreased, primarily
due to the planned decrease in this line of business.


                                      -14-



<PAGE>
<PAGE>


Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations-Continued

Net premiums earned in the other lines of business increased, primarily due to
an increase in volume in commercial package and ocean marine programs.

Net investment income increased 43.8%, primarily as a result of the increased
funds available for investments from the cash flow from regular operations and
the contribution to investment income from the 1997 acquisitions, partially
offset by the interest charge on funds held by the Company for the benefit of
the reinsurer of the aggregate excess of loss reinsurance treaty. Total net
investment income increased 40.2% due to the increase in net investment income
from the 1997 third quarter, partially offset by a decrease in realized capital
gains. The average annual pre-tax yield on investments, excluding the interest
charge on funds held under the aggregate excess loss of reinsurance treaty and
realized capital gains and losses, was 6.5% compared to 6.3% for the 1997
period. The average annual after-tax yield on investments, excluding the
interest charge on funds held under the aggregate excess of loss reinsurance
treaty and realized capital gains and losses, was 4.8% unchanged from the
comparable 1997 period.

Total revenues increased 44.2% as a result of the above.

Total expenses increased by 52.6%, compared to the 43.1% increase in net
premiums earned. Losses and loss adjustment expenses ("LAE") increased at a
59.1% rate as a result of a 69% increase in losses and a 35.2% increase in LAE.
The increase in losses and LAE was disproportionate to that of net premiums
earned due to a $6.8 million addition to reserves in the first quarter of 1998,
predominantly in the medical malpractice line of business for accident years
prior to 1995, substantially offset by a one-time gain of $4.4 million from the
proceeds of an insurance policy on the life of the Company's late President and
Chief Executive Officer, resulting in a loss and LAE component of the GAAP
Combined Ratio 6 percentage points higher than in the comparable 1997 period.
The .8% decrease in LAE resulted from a change in the line of business mix to
those having a lower percentage relationship of LAE to losses partially offset
by the $6.8 million addition to reserves, of which $2.0 million was allocated to
LAE. The 1.3% increase in the amortization of policy acquisition costs,
underwriting and other expenses was attributable primarily to an increase in
direct commission expense resulting from growth in programs with higher
commission rates, increased staffing and marketing expenses related to
expansion, salary increases and the total expenses attributable to Lyndon,
Western and ECI, partially offset by the recognition of $6.5 million of the
amortization of the excess of net assets over the purchase price associated with
the Lyndon acquisition. As the non-claim related component of the GAAP Combined
Ratio increased at a greater rate than premiums earned, the non-claim component
was 1.3 percentage points higher than in the comparable 1997 period. The total
GAAP Combined Ratio increased by 7.3 percentage points to 96.5% as a result of
the above.

The foregoing changes resulted in income before taxes of $65,342 for the nine
months ended September 30, 1998, a 10.1% increase from the comparable 1997
period. Net income for the period increased by $7,320 or 17.4%, from the 1997
period to $49,401.

Liquidity and Capital Resources

The Company is a holding company, receiving cash principally through sales of
equities, borrowings, and dividends from its subsidiaries, most of which are
subject to dividend restrictions. The ability of insurance and reinsurance
companies to underwrite insurance and reinsurance is based on maintaining
liquidity and capital resources sufficient to pay claims and expenses as they
become due. The primary sources of liquidity for the Company's subsidiaries are
funds generated from insurance and reinsurance premiums, investment income,
commission and fee income, capital contributions from the Company and


                                      -15-



<PAGE>
<PAGE>


Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations-Continued

proceeds from sales and maturities of portfolio investments. The principal
expenditures of the Company are for payment of losses and LAE, operating
expenses, commissions, and dividends to shareholders.

At September 30, 1998, $2.3 billion in total assets were comprised of the
following: 61.4% cash and investments, 20.7% net reinsurance recoverables, 5.2%
premiums receivable, 2.6% home office building and equipment, 4.8% deferred
expenses (federal income taxes and policy acquisition costs), and 5.3% other
assets.

The Company's subsidiaries maintain liquid operating positions and follow
investment guidelines that are intended to provide for an acceptable return on
investment while preserving capital, maintaining sufficient liquidity to meet
their obligations and, as to the Company's insurance subsidiaries, maintaining a
sufficient margin of capital and surplus to ensure their unimpaired ability to
write insurance and assume reinsurance.

The following table provides a profile of the Company's fixed maturities
investment portfolio by rating at September 30, 1998:

<TABLE>
<CAPTION>
                                                                                   Amount
                                                          Market                Reflected on              Percent of
         S&P's/Moody's Rating                              Value                Balance Sheet             Portfolio
         --------------------                             ------                -------------             ---------- 
                                                                        (dollar amounts in thousands)
<S>                                                    <C>                       <C>                        <C>  
AAA/Aaa (including U.S. Treasuries
             of $46,441)                                $  637,849                $  637,849                  53.4%
AA/Aa                                                      206,672                   206,672                  17.3
A/A                                                        240,764                   240,764                  20.2
BBB/Baa                                                     77,848                    77,848                   6.5
All other                                                   31,433                    31,433                   2.6
                                                        ----------                ----------                 -----
             Total                                      $1,194,566                $1,194,566                 100.0%
                                                        ==========                ==========                 =====
</TABLE>

Cash flow generated from operations for the nine-month periods ended September
30, 1998 and 1997 was $116.5 million, and $85.1 million, respectively, amounts
adequate to meet all obligations during the periods.

In April 1992, the Company commenced paying quarterly cash dividends to its
shareholders. Cash dividends declared in the nine-month periods ended September
30, 1998 and 1997 were $7,387,000 and $5,866,000 respectively.

On June 3, 1997, the Company obtained a five-year $100,000,000 revolving loan
credit facility from Deutsche Bank AG, New York Branch and/or Cayman Islands
Branch ("Deutsche Bank"), from which it borrowed $62,000,000 at an initial
floating interest rate of 6.04%, based upon Eurodollar interest rates, payable
quarterly, to fund a portion of the $92,000,000 purchase price for Lyndon.
During 1998, the Company increased the facility to $150,000,000 and is currently
working with Deutsche Bank to have the facility increased to $200,000,000. As of
September 30, 1998, the Company had an outstanding principal balance of
$16,000,000.

Analysis of Medical Malpractice Business, Reserves and Reinsurance

During the third quarter of 1998, the Company initiated an in-depth analysis of
its medical malpractice business, including a detailed review by its internal
and independent actuaries of the adequacy of the loss and loss adjustment
expense reserves. This analysis and review should be completed by the end of the
fourth quarter of 1998. Changes, if any, in reserves determined to be
appropriate as a result of


                                      -16-



<PAGE>
<PAGE>


Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations-Continued


the review, will be included in operating results in the fourth quarter of 1998.
In addition to this analysis, the Company is also reviewing the reinsurance
for its medical malpractice business in terms of adequacy and appropriateness,
which review should also be completed by the end of the fourth quarter. Any
resulting changes in such reinsurance would be effective January 1, 1999.

Reinsurance

Effective January 1, 1995, the Company entered into a stop loss reinsurance
agreement with Zurich Reinsurance (North America), Inc. ("Zurich N.A."),
formerly Centre Reinsurance Company of New York, for accident years' commencing
1995. Under the agreement, Zurich N.A. provides reinsurance protection within
certain accident year and contract aggregate dollar limits for losses and LAE in
excess of a predetermined ratio of these expenses to net premiums earned for a
given accident year for specified classes of business. The loss and LAE ratio
above which the reinsurance provides coverage is 66%, 65%, and 64% for accident
years 1995 through 1997, respectively. The maximum amount recoverable for an
accident year is 175% of the reinsurance premium paid for the accident year, or
$162,500,000 in the aggregate for the three years.

Effective January 1, 1998, the Company entered into an aggregate excess of loss
(stop loss) reinsurance agreement with Zurich N.A. for the 1998 and 1999
accident years. The new agreement includes selected programs underwritten by
United Capitol, Western, and selected core programs of Frontier Insurance and
Frontier Pacific, which were part of the original 1995-1997 reinsurance
agreements. Under the terms of the new agreement, Zurich N.A. provides
reinsurance protection within certain contract aggregate dollar limits for
losses and LAE in excess of a predetermined ratio of these expenses to earned
premiums for a given accident year for subject insurance programs. The maximum
amount recoverable for an accident year is 240% of the reinsurance premium paid
for the accident year, or $230,000,000 in the aggregate for the two years.

Litigation with the State of New York

In December 1990, the New York State Court of Claims rendered a decision in
favor of the Company holding that a State University of New York ("SUNY")
medical school faculty member engaged in the clinical practice of medicine at a
SUNY medical facility, corollary to such physician's faculty activities, was
within the scope of such physician's employment by SUNY and was protected
against malpractice claims arising out of such activity by the State of New York
and not under the Company's medical malpractice policy. The decision was
affirmed on appeal by the New York State Appellate Division in November 1991 and
not appealed by the State. In July 1992, the State of New York enacted
legislation eliminating medical school faculty members of SUNY engaged in the
clinical practice of medicine at a SUNY medical facility from indemnification by
the State with respect to malpractice claims arising out of such activity,
retroactive to July 1, 1991. In an opinion filed on September 3, 1993 the Court
of Claims of the State of New York held, inter alia, that the July 1992
legislation by the State of New York eliminating SUNY medical school faculty
members engaged in the clinical practice of medicine, as part of their
employment by SUNY, from indemnification by the State with respect to
malpractice claims arising out of such activity, was not to be applied
retroactively. This decision was affirmed by the New York State Appellate
Division in April 1994. Subsequently, in February 1995, the Appellate Division
granted leave to Frontier and the State of New York to have the issues of
Frontier's entitlement to recover its costs of defense and its costs of
settlement ruled on by the State's highest Court, the New York Court of Appeals.
In December 1995, the New York Court of Appeals ruled on this issue and
concluded that Frontier was entitled to recoveries from the State for such
medical malpractice claims. In January 1997, the New York Court of Claims
rendered a decision granting summary judgement to the Company on three SUNY
cases that were previously paid by the Company. This decision has been appealed
by the State of New York. As a result of this decision, the Company believes
that it will benefit economically by not being ultimately


                                      -17-



<PAGE>
<PAGE>


Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations-Continued

responsible for certain claims against SUNY physicians for whom it presently
carries reserves is entitled to reimbursement of certain claims previously paid;
accordingly, as of December 31, 1997, Frontier recorded subrogation recoverables
of approximately $27,000,000, representing the amount of claims already paid and
the reserves currently held by Frontier on cases that management believes are
reimbursable by the State of New York. In January 1998, the New York Legislature
approved a bill to eliminate the right of SUNY physicians to obtain
indemnification from New York State for claims arising out of their clinical
practice of medicine, retroactive to August 5, 1978, which bill was vetoed by
the Governor in February 1998. Prior to the veto, the Company's management and
members of the offices of the Governor and of the Attorney General held joint
discussions for a comprehensive settlement of the amount of reimbursement to
which the Company is entitled from the State.

On July 21, 1998, the Company announced that it had reached an agreement with
the State of New York pertaining to the 83 pending closed cases involving
physicians in Frontier's SUNY program, for which the Company recorded
subrogation recoveries of $14,500,000. Under the agreement, the State will pay
the Company $15,000,000 and the Company will forego $5,100,000 in interest. On
September 22, 1998, the Company received the $15,000,000 payment from the State,
as stipulated in the agreement.

Discussions are continuing, with respect to open cases, but to date no
resolution has been reached. To the extent that the amount of the actual
recovery varies from the recorded subrogation recoveries, 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 therefor adjusted for the anticipated recoveries.

The Year 2000

The Company has formed a committee, which includes senior management personnel
from each of its' subsidiaries, to develop and implement a Year 2000 compliance
plan. All internal mission-critical systems are scheduled to be Year 2000
compliant by December 31, 1998. Processes and procedures are currently in place
to ensure the following: that all future internal 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 are queried regarding their Year 2000 compliance plans. In
addition, the Company is actively working with government agencies to determine
their 2000 compliance plans and has begun making Year 2000 changes based on
their mandates.

To date, the costs related to Year 2000 compliance have not been material and
have been expensed as incurred. However, these costs may 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, and agencies to
properly address the Year 2000 issues.

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 and/or external factors. While the Company recognizes
the need for a contingency plan, it anticipates all of its systems will be Year
2000 compliant by December 31, 1998. The first of three Year 2000 system
compliance tests has been successfully performed by the Company.

The Company has 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 preclude the Company from
losses resulting from Year 2000 non-compliance. Upon approval, this endorsement
is being added to each policy at either policy issuance or renewal. Underwriting
policy and protocol are currently being developed to address non-approving
states and


                                      -18-



<PAGE>
<PAGE>


Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations-Continued

business situations which cannot be endorsed. To date, the Company has received
endorsement approval from 41 jurisdictions, including the District of Columbia.
For these reasons, the Company believes that its exposure to Year 2000 claims
will not be significant. However, due to social and legal trends, it is
impossible to predict what, if any, exposure insurance companies may ultimately
have relating to Year 2000 claims.

Shareholder Litigation

The Company is a defendant in a class action alleging violations of federal
securities laws by the Company and certain of its officers and directors. The
complaint relates to the Company's November 5, 1994 announcement of its third
quarter financial results and alleges that the Company previously had omitted
and/or misrepresented material facts with respect to its earnings and profits.
The Company believes the suit is without merit and has retained special legal
counsel to contest the suit vigorously and believes that the Company's exposure
to liability under such lawsuit, if any, would not have a material adverse
effect on the Company's financial condition.


                                      -19-



<PAGE>
<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

              Not applicable.


Item 5.       Other Information


              Not applicable.


Item 6.       Exhibits and Reports on Form 8-K

              a.   Exhibits.

                   (11)  Computation of Per Share Earnings
                   (27)  Financial Data Schedule


                                      -20-



<PAGE>
<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:  November 13, 1998                   Frontier Insurance Group, Inc.
                                           ------------------------------
                                                   (Registrant)



                                       By: /s/ Mark H. Mishler
                                           ------------------------------------
                                           Mark H. Mishler
                                           Vice President - Treasurer and
                                           Chief Financial Officer
                                           (Principal Financial and Accounting 
                                           Officer and Duly Authorized Officer)


                                      -21-




<PAGE>