SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549


                                    FORM 1O-K
(Mark One)

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

     For the fiscal year ended December 31, 1997

                                       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 1-11238.

                                  NYMAGIC, INC.
             (Exact name of registrant as specified in its charter)

           New York                                              13-3534162
(State or other jurisdiction of                               (I.R.S. Employer
incorporation or organization)                               Identification No.)

330 Madison Avenue, New York, NY                                    10017
(Address of principal executive offices)                         (Zip Code)

       Registrant's telephone number, including area code: (212) 551-0600

                                    ---------

           Securities registered pursuant to Section 12(b) of the Act:

    Title of each class:              Name of each exchange on which registered:
Common Stock, $1.00 par value               New York Stock Exchange

           Securities registered pursuant to Section 12(g) of the Act:
                                      None

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the  preceding 12 months (or for such  shorter  period that the  registrant  was
required  to file  such  reports),  and  (2) has  been  subject  to such  filing
requirements for the past 90 days. Yes _X_   No ___

Indicate by check mark if disclosure of delinquent  filers  pursuant to Rule 405
of Regulation  S-K is not contained  herein,  and will not be contained,  to the
best of registrant's  knowledge,  in definitive proxy or information  statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]

The  aggregate  market  value of  voting  stock  held by  non-affiliates  of the
registrant, as of March 1, 1998, was approximately $113,652,570.

The number of shares  outstanding of each of the registrant's  classes of common
stock,  as of March 1, 1998,  was 9,676,806  shares of common  stock,  $1.00 par
value.

                       DOCUMENTS INCORPORATED BY REFERENCE

Portions  of the  Company's  Proxy  Statement  for the 1998  Annual  Meeting  of
Shareholders are incorporated by reference in Part III.


                                       1
<PAGE>


                                     Part I

Item 1. Business.

General

     NYMAGIC,  INC., a New York corporation  (the "Company" or "NYMAGIC"),  is a
holding  company which owns and operates the following  insurance  companies and
insurance underwriters and managers:

     Insurance Companies:

     New York Marine And General  Insurance Company - ("New York Marine")
     Gotham Insurance Company - ("Gotham")

The Company's insurance company  subsidiaries,  New York Marine and Gotham, each
maintain an A.M. Best insurance rating of A+.

     Other:

     Mutual Marine Office, Inc. - ("MMO")
     Pacific Mutual Marine Office, Inc. - ("PMMO")
     Mutual Marine Office of the Midwest, Inc. - ("Midwest")
     MMO Underwriting Agency, Ltd.
     MMO UK, Ltd.
     MMO EU, Ltd.

     all of which are collectively referred to hereinafter as the "Company."

     NYMAGIC,  through  its  subsidiaries,  specializes  in  underwriting  ocean
marine, inland marine,  aviation and other liability insurance through insurance
pools managed by MMO, PMMO, and Midwest ("MMO and  affiliates")  since 1964. MMO
and affiliates were acquired by NYMAGIC in January 1991. In addition to managing
the insurance  pools,  NYMAGIC  participates in the risks  underwritten  for the
pools through two insurance  company  subsidiaries,  New York Marine and Gotham.
All premiums,  losses and expenses are prorated among pool members in accordance
with their  pool  participation  percentages.  Effective  January  1, 1994,  the
Company increased to 81.47% its participation in the ocean marine, inland marine
and  aviation  business  produced  by the pools.  Effective  April 1, 1994,  the
Company  increased to 90.00% its  participation  in the inland  marine  business
produced  by the pools and  effective  July 1, 1994,  the Company  increased  to
90.00% its  participation in the ocean marine and aviation  business produced by
the pools and to 100% its participation in the other liability and inland marine
business produced by the pools. Effective January 1, 1997, the Company increased
to 100% its  participation in the ocean marine and aviation business produced by
the pools.  Substantially all of the Company's premiums for the last three years
have  resulted  from  participation  in the  insurance  pools managed by MMO and
affiliates.

     On December 31, 1997, the Company acquired  ownership of Highgate  Managing
Agencies,  Ltd. which subsequently  changed its name to MMO Underwriting Agency,
Ltd.  MMO  Underwriting  Agency Ltd.  is a Lloyd's  managing  agency  which will
commence  underwriting in 1998 for the company's wholly owned subsidiary MMO UK,
Ltd. which is a Lloyd's  corporate capital vehicle providing 100% of the capital
for Syndicate 1265.

     The Company has approximately 115 employees of whom 19 are underwriters.

     This report  contains  certain  forward-looking  statements  concerning the
Company's operations,  economic performance and financial condition,  including,
in  particular  the  likelihood  of the  Company's  success  in  developing  and
expanding its business.  These statements are based upon a number of assumptions
and estimates  which are  inherently  subject to significant  uncertainties  and
contingencies,  many of which are beyond the control of the Company, and reflect
future business decisions which are subject to change. Some of these assumptions
inevitably will not materialize,  and unanticipated events will occur which will
affect the Company's results.

                                       2
<PAGE>


Such  statements  may include,  but are not limited to,  projections  of premium
revenue,  investment income, other revenue,  losses,  expenses,  earnings,  cash
flows, plans for future operations,  common stockholders'  equity,  investments,
capital  plans,  dividends,  plans  relating  to  products  or  services  of and
estimates  concerning  the effects of litigation or other  disputes,  as well as
assumptions of any of the foregoing and are generally  expressed with words such
as  "believes,"  "estimates",  "expects,"  "anticipates,"  "plans,"  "projects,"
"forecasts," "goals", "could have," "may have" and similar expressions.

The Pools

     MMO,  located in New York,  PMMO,  located in San  Francisco  and  Midwest,
located in Chicago (the "Manager" or the "Managers"), manage the insurance pools
in which the Company participates.

     The Manager accepts, on behalf of the pools, insurance risks brought to the
pools by brokers and others.  All  premiums,  losses and  expenses  are prorated
among the pool members in accordance with their percentage participations in the
pools. Pursuant to the pool management agreements,  the pool members have agreed
not to accept  ocean  marine  insurance  (other than ocean  marine  reinsurance)
unless  received  through the Manager and have  authorized the Manager to accept
risks on behalf of the pool members and to effect all transactions in connection
with such risks,  including  the issuance of policies and  endorsements  and the
adjustment of claims.  As compensation for its services,  the Manager receives a
fee of 5.5% of gross premiums  written by the pools and a contingent  commission
of 10% on net underwriting profits, subject to adjustment.

     Inception to date underwriting results for various reinsurance treaties are
used to calculate reinsurance  contingent  commissions on an earned basis in the
period  in which  the  related  profit  commission  is  billed.  Adjustments  to
commissions,   resulting  from  revisions  in  coverage,  retroactive  or  audit
adjustments,  are recorded in the period when realized. Subject to review by the
reinsurers,   the  Managers   determine  the  profitability  of  all  contingent
commission agreements placed with various reinsurance companies.

     New  York  Marine  was  substituted  for  another  member  of the  pools in
existence in 1979, and Pennsylvania  National Mutual Casualty  Insurance Company
("Pennsylvania  National") was admitted to each of the pools in 1981.  Arkwright
Mutual Insurance Company ("Arkwright")  increased its participation in the pools
effective  December  31,  1985,  by assuming  the  percentage  participation  of
Employers  Mutual Casualty  Company  ("Employers")  and Mutual Fire,  Marine and
Inland Insurance Company ("Mutual Fire"),  both of which withdrew from the pools
effective December 31, 1985. In addition, the Arkwright-Boston Insurance Company
transferred  its  entire  interest  in the  pools to its  affiliate,  Arkwright,
effective December 31, 1985.

     In the case of Employers and  Arkwright-Boston  Insurance Company, all loss
and  unearned  premium  reserves as of December 31, 1985,  were  transferred  to
Arkwright and any loss run-off related to such reserves are to be fully absorbed
by Arkwright. In the case of Mutual Fire, all loss and unearned premium reserves
incurred  through  policy year 1985 were  assumed by all members of the pools in
proportion to their respective  interests in the pools at the time such reserves
were incurred.

     Mutual  Fire was a member  of the  pools  from 1964  through  1985,  with a
participation  percentage of 3.71% at the time of its withdrawal from the pools.
In 1986,  Mutual  Fire was  placed  under the  supervision  of the  Pennsylvania
Department of Insurance and it has ceased to meet its obligations under the pool
agreements.  Under the terms of the pool agreements,  if any member is unable to
meet its obligations  with respect to business written by the pools while it was
a member,  the remaining  pool members must assume their  pro-rata  share of the
defaulting member's obligations.

     Effective  December 31, 1990,  Lumber Mutual Insurance  Company  ("Lumber")
ceased to  participate in the pools and its 6.82%  participation  was assumed by
New York Marine as to policies  incepting  on or after  January 1, 1991.  In the
case of Lumber,  all loss and unearned premium reserves  incurred through policy
year 1990 were  transferred  to New York  Marine.  Effective  December 31, 1991,
Pennsylvania  National ceased to participate in the pools and its  participation
was assumed by New York Marine as to policies  incepting on or after  January 1,
1992.  In the case of  Pennsylvania  National,  all loss  and  unearned  premium
reserves incurred through policy year 1991 were transferred to New York Marine.


                                       3
<PAGE>


     Effective   January  1,  1994,   the  Company   increased   to  81.47%  its
participation in the ocean marine,  inland marine and aviation business produced
by the  pools.  The  Company's  participation  in the other  liability  business
produced by the pools remained at 91.47%.

     Effective April 1, 1994, the Company  increased to 90.00% its participation
in the inland marine business produced by the pools.

     Effective July 1, 1994, the Company  increased to 90.00% its  participation
in the ocean marine and aviation  business produced by the pools and to 100% its
participation in the other liability and inland marine business  produced by the
pools.

     The  Company's  increase  in pool  participations  effective  July 1, 1994,
followed the assumption of Utica Mutual  Insurance  Company's  ("Utica  Mutual")
pool share and Utica Mutual's  withdrawal  from the pools.  In the case of Utica
Mutual,  all loss  reserves,  including  incurred but not reported  ("IBNR") and
unearned  premium  reserves,   incurred  on  policies  effective  prior  to  its
withdrawal from the pools, remain as obligations of Utica Mutual.

     Effective  January 1, 1997, the Company increased to 100% its participation
in the ocean marine and aviation business  produced by the pools,  following the
assumption of Arkwright's  pool share and  Arkwright's  withdrawal  from the the
pools. In the case of Arkwright  Mutual,  all loss reserves,  including IBNR and
unearned  premium  reserves,   incurred  on  policies  effective  prior  to  its
withdrawal from the pools, remain as obligations of Arkwright Mutual.

     The Company is not aware of any uncertainties  with respect to any possible
defaults  by  either  Arkwright  or Utica  Mutual  with  respect  to their  pool
obligations which might impact liquidity or results of operations.

     The pool managed by MMO, the largest when measured by premiums written, was
formed in 1964.  The pools  managed by PMMO and Midwest  were formed in 1975 and
1980,  respectively.  Effective  January 1, 1997,  each pool is  composed of the
following members:

                                                                Inland Marine,
                                           Ocean Marine,        Other Liability
Pool Member                               Aviation Pools            Pools
-----------                               --------------        ---------------
New York Marine And General
  Insurance Company                          100.00%                100%

     Assets and liabilities  resulting from the insurance pools are allocated to
the members of the insurance pools based upon the pro-rata participation of each
member of each pool which is set forth in the management  agreement entered into
by and  between  the pool  participants  and the  Managers.  The  allocation  of
premiums and losses is not subject to the Managers'  discretion and the Managers
do not believe  there exist any  conflicts of interest in  connection  with this
aspect of the pools.

Investment Policy

     The Company  follows an investment  policy which is reviewed  quarterly and
revised periodically.  For the years ended December 31, 1997 and 1996, the yield
on the Company's  investment portfolio (computed on the basis of average monthly
cost  of  investment  and  statutory  investment  income)  was  5.7%  and  5.8%,
respectively.  At December 31,  1997,  the  weighted  average  maturity of fixed
maturity investments was 6.3 years.

     The  investment  policy for New York Marine as of December 31, 1997, was as
follows:

     1.   Liquid  Funds  -  Minimum  7-1/2%  of  Investable   Funds.   In  cash,
          certificates of deposit,  prime bankers acceptances,  prime commercial
          paper,  tax-exempts rated AA/AA or MIG 2 or better,  tax-exempts rated
          AA by one service and unrated by the other,  not to exceed  $5,000,000
          par value in any one institution;  obligations of the U.S.  Government
          and its agencies due one year or less;  tax-exempt  notes with a split
          A/AA or AA/A rating not to exceed $500,000 in any one institution.


                                       4
<PAGE>


2.   Bond Funds

     A)   Tax-exempt  securities and obligations of private corporations rated A
          or better  by each  service  which  provides  a rating,  not to exceed
          $5,000,000 maturity value per issuing entity; maturities not to exceed
          December 31 of the 20th year from the purchase date, to include:

          1)   Pollution - control bonds  guaranteed by industrial  corporations
               rated A or better.

          2)   Pre-refunded bonds.

          3)   Housing issues sponsored by the U.S.  Government and its agencies
               secured by underlying  mortgage securities with maturities not in
               excess of 30 years  and  average  maturities  not in excess of 20
               years.

     B)   Preferred stocks with sinking funds,  rated A/A or better,  limited to
          $500,000  par value per issuer for new issues;  to  $500,000  purchase
          price for outstanding issues.

     C)   Obligations of the U.S. Government and its agencies.

3.   A)   Equities  (including  convertible  securities)  - Not more than 25% of
          policyholders'  surplus,  and investment in any one institution is not
          to exceed five percent (5%) of  policyholders'  surplus at the time of
          purchase as last reported to the New York State Insurance Department.

     B)   Subsidiaries - the Company's  investments in subsidiary  companies are
          excluded from the requirements of the Company's Investment Program.

     The  investment  policy  of Gotham is  similar  to that of New York  Marine
except  that  Gotham  is  limited  to  $2,000,000  maturity  value  for its bond
investments and $1,000,000 for short-term investments.

     The  investments  of the  Company's  subsidiaries  must also conform to the
requirements contained in the New York State Insurance Law and Regulations.

     The Company's  investments  are  monitored by the Finance  Committee of the
Board of Directors.  New York Marine's fixed income portfolio is managed by J.P.
Morgan Investment Management, Inc. ("JPMIM"). New York Marine's equity portfolio
is managed by JPMIM and, in part,  by Sorema  Asset  Management.  Gotham has its
fixed  income  portfolio  managed by JPMIM and its equity  portfolio  managed by
Rorer Asset Management. See "Subsidiaries".

     As of December 31, 1997, New York Marine's invested assets were invested as
follows:

     Bonds Rated A or better                             $288,087
     Bonds Rated below A                                      -0-
     Equities                                            $ 45,879

     As of December 31, 1997, Gotham's invested assets were invested as follows:

     Bonds Rated A or better                             $ 73,163
     Bonds Rated below A                                      -0-
     Equities                                            $ 13,380


                                       5
<PAGE>


Lines of Insurance

     The Company  writes ocean marine,  inland  marine,  aircraft and non-marine
liability  lines of insurance.  Ocean marine  insurance  covers a broad range of
classes, including marine hull, primary and excess marine liabilities,  drilling
rig, marine cargo,  war risks and assumed  reinsurance.  Inland marine insurance
includes, among other things,  differences in condition ("DIC"), excess property
packages,   miscellaneous  property  insurance  and  assumed  reinsurance.   DIC
insurance  covers those perils not  included  with a fire and extended  coverage
policy, including burglary,  collapse, flood, volcano and earthquake. In 1995, a
decision  was made to reduce the  Company's  exposure  to  natural  catastrophes
through the inland  marine line.  This  resulted in a reduction in the gross and
net inland marine  premiums  written in  subsequent  years.  Aircraft  insurance
includes hull and engine  insurance as well as liability  insurance.  Non-marine
liability  insurance  includes,  among other things,  umbrella (excess casualty)
insurance, and excess and surplus line risks written primarily through Gotham.

     The following  tables set forth the pools' gross and net written  premiums.
Insurance  premiums  written on a calendar  year  basis may be  attributable  to
various  policy  years.  Thus,  some of the 1997 premium  written may arise from
policies  incepting  in  1996  and  prior  when  the  Company  had  a  different
participation  in the pools.  Therefore,  the  Company's  gross and net  written
premiums  cannot be obtained by  multiplying  the amounts below by the Company's
percentage  participation in each year. However, the tables below do reflect the
size and mix of business produced by the Managers for the years so indicated.

<TABLE>
<CAPTION>
Gross Premium Written by
  Line of Business                        Year Ended December 31,
-------------------------   ----------------------------------------------------------
                                1997               1996                 1995
                                ----               ----                 ----
                                               (In thousands)
<S>                          <C>          <C>    <C>          <C>     <C>         <C>
Ocean marine ..              $  72,995     59%   $  87,519     56%    $  93,892    50%
Inland marine .                  1,117      1%       1,651      1%       14,380     8%
Aircraft ......                 45,853     37%      61,067     39%       70,707    38%
Other liability                  3,897      3%       5,309      4%        7,111     4%
Other .........                    207     --          358     --           290    --
                             ---------  -----    ---------   ----     ---------  ----
Total .........              $ 124,069    100%   $ 155,904    100%    $ 186,380   100%

<CAPTION>
Net Premium Written by
    Line of Business                      Year Ended December 31,
-------------------------   ----------------------------------------------------------
                                1997               1996                 1995
                                ----               ----                 ----
                                               (In thousands)
<S>                          <C>          <C>    <C>          <C>     <C>         <C>
Ocean marine ..              $  49,666     79%   $  58,771     59%    $  55,749    52%
Inland marine .                   (217)    --       (2,087)    (2%)       1,227     1%
Aircraft ......                  9,568     15%      37,682     38%       42,339    40%
Other liability                  3,864      6%       5,325      5%        6,954     7%
Other .........                    207     --          374     --           290    --
                             ---------  -----    ---------   ----     ---------  ----
Total .........              $  63,088    100%   $ 100,065    100%    $ 106,559   100%
</TABLE>

Reinsurance Ceded

     A reinsurance  transaction  takes place when an insurance company transfers
(cedes) a portion or all of its exposure on  insurance  written by it to another
insurer.  The  reinsurer  assumes the exposure in return for a portion or all of
the premium.  The ceding of reinsurance  does not legally  discharge the insurer
from its primary  liability for the full amount of the policies,  and the ceding
company is required to pay the loss if the  assuming  company  fails to meet its
obligations  under the reinsurance  agreement.  The Company,  through the pools,
cedes the greater part of its reinsurance through annual reinsurance  agreements
(treaties) with other insurance  companies.  These treaties,  which are drawn by
lines or classes of insurance, allow the Company to automatically reinsure risks
without having to cede insurance on a risk by risk (facultative) basis, although
facultative reinsurance is utilized on occasion.

                                       6
<PAGE>


     Generally, the Managers place reinsurance with companies which have an A.M.
Best rating  greater than B+ or which have  sufficient  financial  strength,  in
management's  opinion,  to warrant being used for reinsurance  protections.  The
Managers  also  examine  financial  statements  of  reinsurers  and review  such
statements  for  profitability,  reasonable  leverage and adequate  surplus.  In
addition, the Company, through the pools, withholds funds and may obtain letters
of credit  under  reinsurance  treaties.  The Company  continues  to monitor the
financial  status of all  reinsurers on an annual  basis,  as well as the timely
receipt of cash, to assess the ability of reinsurers to pay reinsurance claims.

     The Company,  through the pools, attempts to limit its exposure from losses
on any one occurrence through the use of various excess of loss, quota share and
facultative  reinsurance  arrangements  and to minimize the risk of default by a
reinsurer  by  reinsuring  risks with many  different  reinsurers.  The  Company
utilizes  many separate  reinsurance  treaties each year with a range of 8 to 20
reinsurers participating on each treaty. Many reinsurers participate on multiple
treaties.  The Company  utilizes quota share  reinsurance  treaties in which the
reinsurers  participate  on a set  proportional  basis in both the  premiums and
losses.  Additionally,  the Company utilizes excess of loss reinsurance treaties
in which the reinsurers,  in exchange for a minimum  premium,  subject to upward
adjustment based upon premium volume, agree to pay for that part of each loss in
excess of an agreed upon amount.  The  Company's  retention of exposure,  net of
these treaties,  varies between its different  classes of business and from year
to year,  depending on several factors including the pricing environment on both
the direct and ceded book of business and the  availability of  reinsurance.  In
general,  reinsurance  is obtained for each line of business  when  necessary to
reduce the Company's  exposure to a maximum of $2 million for any one insured on
any one occurrence. The Company can and does, from time to time, carry a maximum
exposure in excess of $2 million for any one insured on any one occurrence. Such
instances,  when they occur, generally reflect a business decision regarding the
cost of further  reductions in the Company's exposure and/or the availability of
reinsurance.

     The Company  attempts to limit its exposure from  catastrophes  through the
purchase of general excess of loss  reinsurance  which provides  coverage in the
event that  multiple  insureds  incur losses  arising from the same  occurrence.
These coverages require the Company to pay a minimum premium,  subject to upward
adjustment based upon premium volume.  The treaties,  which extend,  in general,
for a twelve month period, obligate the reinsurers to pay for the portion of the
Company's aggregate losses (net of specific  reinsurance) which fall within each
treaty's  layer or exposure.  The  Company's  retention on any one  catastrophic
occurrence,  after it obtains the benefit of its excess of loss reinsurance, has
not  exceeded  $4  million  during  the  past  three  years.  In the  event of a
catastrophe  loss,  the Company  would incur  additional  reinstatement  premium
charges for its excess of loss  reinsurance,  to the extent  that such  treaties
incur a portion of the loss and in an amount not greater than the original  cost
of the reinsurance.

     The Company reinsures risks with several domestic and foreign reinsurers as
well as  syndicates  including  Lloyd's  of London  ("Lloyd's").  The  Company's
largest  reinsurers as of December 31, 1997, were  Arkwright,  Lloyd's and Utica
Mutual,  with  aggregate net  recoverables  of $38 million,  $15 million and $14
million, respectively. The 1997 A.M. Best ratings for Arkwright and Utica Mutual
are A+ and A,  respectively.  Lloyd's of London maintains a trust fund which was
established for the benefit of all United States ceding  companies.  In 1995, as
part of a reconstruction process, the trust fund was expanded to include certain
obligations on a gross basis. In 1996,  Equitas was formed to handle the run-off
of years 1992 and prior for  Lloyd's.  For the three most recent years for which
Lloyd's has reported  results,  1994, 1993 and 1992,  Lloyd's reported gains for
1994 and 1993 of 1.75 billion pounds and 2.25 billion pounds, respectively,  and
losses  of 1.02  billion  pounds  for  1992.  The  Company  has not  experienced
difficulties  in  collecting  amounts  due from  Lloyd's  and the timing of cash
receipts has not materially affected the Company's liquidity. However, given the
uncertainty  surrounding  the  sufficiency  of  assets  in  Equitas  to meet its
ultimate  obligations,  there is a  reasonable  possibility  that the  Company's
collection  efforts  relating to its  Lloyd's  recoverables  might be  adversely
affected in the future.  At December 31,  1997,  the  Company's  net exposure to
reinsurers,  other than Arkwright,  Lloyd's and Utica Mutual,  was approximately
$94 million,  including amounts recoverable for paid losses, outstanding losses,
IBNR and unearned premium reserves. This amount is recoverable collectively from
approximately 800 reinsurers or syndicates, no single one of which was liable to
the Company for an unsecured amount in excess of approximately $3.0 million.


                                       7
<PAGE>


Operating Ratios

     Premium to Surplus  Ratio.  The  following  table  shows,  for the  periods
indicated,  the Company's  consolidated statutory ratios of net premiums written
(gross premiums less premiums ceded) to policyholders' surplus:

                                           Year Ended December 31,
                            ----------------------------------------------------
                              1997       1996      1995       1994       1993
                           --------   --------   --------   --------   --------
                                         (Dollars in thousands)

Net premiums written ....   $ 62,221   $ 90,513   $ 97,817   $100,907   $ 79,034
Policyholders' surplus...    181,844    160,929    148,785    133,813    131,375
                            --------   --------   --------   --------   --------
Ratio ...................   .34 to 1   .56 to 1   .66 to 1   .75 to 1   .60 to 1

While  there are no  statutory  requirements  applicable  to the  Company  which
establish permissible premium to surplus ratios,  guidelines  established by the
National Association of Insurance  Commissioners  provide that the statutory net
premium  written to surplus  ratio should be no greater than 3 to 1. The Company
is well within those guidelines.

     Combined  Loss and  Expense  Ratios.  The  underwriting  experience  of the
Company is indicated by its "combined  ratio," which is the sum of (l) the ratio
of losses and loss  adjustment  expenses  incurred to net  premiums  earned (the
"loss  ratio")  and  (2)  the  ratio  of  policy  acquisition  costs  and  other
underwriting  expenses  to net  premiums  written  (the  "expense  ratio").  The
Company's  consolidated  loss ratios,  expense ratios and combined ratios,  on a
statutory basis, are shown in the following table:

                                   Year Ended December 31,
                           ----------------------------------------
                            1997     1996     1995     1994   1993
                           ------   ------   ------   ------  -----
Loss Ratio ...........      58.7%    62.6%    69.0%    80.2%   80.3%
Expense Ratio ........      31.7%    31.9%    30.3%    28.5%   26.6%
                           ------   ------   ------   ------  -----
Combined Ratio .......      90.4%    94.5%    99.3%   108.7%  106.9%

     The ratios set forth above have been  calculated on a statutory basis which
reflect the operating results of NYMAGIC's two insurance  company  subsidiaries,
New York Marine and Gotham.

     GAAP Combined Loss and Expense Ratios.  The underwriting  experience of the
Company is indicated by its "combined  ratio," which is the sum of (1) the ratio
of losses and loss  adjustment  expenses  incurred to net  premiums  earned (the
"loss  ratio")  and  (2)  the  ratio  of  policy  acquisition  costs  and  other
underwriting expenses to net premiums earned (the "expense ratio").

     The Company's consolidated loss ratios, expense ratios and combined ratios,
on a GAAP basis, are shown in the following table:

                                   Year Ended December 31,
                           ----------------------------------------
                           1997      1996     1995     1994    1993
                           ------   ------   ------   ------  -----
Loss Ratio ...........      58.0%    61.2%    67.4%    78.1%   77.8%
Expense Ratio ........      31.5%    32.3%    31.9%    34.4%   28.2%
                           ------   ------   ------   ------  -----
Combined Ratio .......      89.5%    93.5%    99.3%   112.5%  106.0%

     The  ratios  set forth  above have been  calculated  on a GAAP basis  which
reflect the operating results of NYMAGIC's two insurance  company  subsidiaries,
New York Marine and Gotham.

     The GAAP loss ratio  differs  from the  statutory  loss  ratio  mainly as a
result of accruals for salvage and subrogation in year 1993, amortization of the
deferred  income  in  connection  with  the  assumption  of loss  reserves  from
Pennsylvania National and Lumber Mutual, and, in 1993 and subsequent, an accrual
on a statutory basis for unallocated loss adjustment expenses which are based on
management commissions charged by the pool and, therefore,  eliminated on a GAAP
consolidated  basis.  The GAAP expense ratio differs from the statutory  expense
ratio primarily as a result of amortization of deferred policy acquisition costs
for GAAP and receivable write-offs which are reflected in income for GAAP.


                                       8
<PAGE>


Reserves

     The applicable insurance laws under which the Company operates require that
reserves be maintained  for the payment of losses and loss  adjustment  expenses
with respect to both reported and IBNR claims under its insurance policies. IBNR
claims are those losses,  based upon  historical  experience  and other relevant
data, that the Company estimates will be reported or ultimately develop on risks
undertaken  by the  Company.  The  Company  maintains a  conservative  policy in
establishing  reserves,  especially in the year the policy is written. Case loss
reserves are determined by evaluating  reported  claims on the basis of the type
of loss involved,  knowledge of the circumstances surrounding the claim, and the
policy provisions relating to the type of loss. IBNR claims are estimated on the
basis of statistical  information with respect to the probable number and nature
of  claims  arising  from  occurrences  which  have not yet been  reported.  The
establishment of reserves acts to reduce income while the downward adjustment or
reduction of reserves increases income.

     The loss settlement period on insurance claims may be many years and during
this period it often becomes  necessary to adjust the estimate of liability on a
claim  either  upward or  downward.  Among the classes of marine,  aviation  and
non-marine  liability  insurance  written by the Company are  liability  classes
which  historically have had long lead times between  occurrence of an insurable
event,  reporting  of the claim to the  Company  and final  settlement.  In such
cases,  the Company is forced to estimate  reserves  over long  periods of time,
with the possibility of several adjustments. Other classes of insurance, such as
property and claims-made  non-marine  liability  classes,  historically have had
shorter lead times between  occurrence of an insurable  event,  reporting of the
claim to the Company and final  settlement.  The  reserves  with respect to such
classes are less likely to be readjusted.

     The Company,  from time to time,  has  increased its  participation  in the
pools.  The effect of each such increase is  prospective  in nature and does not
affect the loss  reserves  herein set forth for the years prior to the effective
date of any such change in participation percent.

     The  insurance  pools  participated  in the  issuance of umbrella  casualty
insurance  for various  Fortune 1000  companies in the period from 1978 to 1983.
Depending on the accident  year,  the  insurance  pools'  maximum  retention per
occurrence  ranged from  $250,000 to  $500,000.  The  Company's  effective  pool
participation  on such risks varied from 11% in 1978 to 30% in 1983. At December
31, 1997 and 1996, the Company's  gross,  ceded and net loss and loss adjustment
expense  reserves for  Asbestos/Pollution  policies  amounted to $25.0  million,
$16.0  million  and $9.0  million,  and $23.5  million,  $15.0  million and $8.5
million,  respectively.  As of December 31, 1997, the Company had  approximately
430  policies  which  had at least  one  claim  relating  to  Asbestos/Pollution
exposures.    The   Company   believes   that   the   uncertainty    surrounding
Asbestos/Pollution  exposures,  including  issues as to  insureds'  liabilities,
ascertainment of loss date, definitions of occurrence, scope of coverage, policy
limits and application and interpretation of policy terms, including exclusions,
all affect the estimation of ultimate losses.  Under such  circumstances,  it is
difficult to determine the ultimate loss for Asbestos/Pollution  related claims.
Given the  uncertainty  in this area,  losses  from  Asbestos/Pollution  related
claims are likely to adversely  impact the Company's  results from operations in
future years and may vary materially from such reserves  reported as of December
31, 1997. However, the Company believes that, in aggregate,  the unpaid loss and
loss adjustment  expense reserves as of December 31, 1997, allow for an adequate
provision and that the ultimate resolution of the Asbestos/Pollution claims will
not have a material impact on the Company's financial position.

         The following  table sets forth  NYMAGIC's net case reserve  experience
for Asbestos/Pollution policies for each of the past three years:

                                                   1997        1996       1995
                                                          (In Thousands)
                                                  ------------------------------
Asbestos
--------
Case Reserves at beginning of period              $ 1,103    $ 1,307    $ 1,367
Incurred loss and loss adjustment expenses             52       (186)         7
Payments                                              (88)       (18)       (67)
                                                  -------    -------    -------
Case Reserves at end of period                    $ 1,067    $ 1,103    $ 1,307
                                                  =======    =======    =======

                                       9
<PAGE>


                                                   1997       1996       1995
                                                         (In Thousands)
                                                  ------------------------------
Pollution
---------
Case Reserves at beginning of period              $ 2,323    $ 2,141    $ 1,977
Incurred loss and loss adjustment expenses           (486)       975        642
Payments                                             (420)      (793)      (478)
                                                  -------    -------    -------
Case Reserves at end of period                    $ 1,417    $ 2,323    $ 2,141
                                                  =======    =======    =======

The following table sets forth  NYMAGIC's net loss and loss  adjustment  expense
experience for Asbestos/Pollution policies for each of the past three years.

                                                   1997       1996        1995
                                                         (In Thousands)
                                                  ------------------------------
Asbestos/Pollution
------------------
Unpaid loss and loss adjustment expenses
 (Including IBNR) at beginning of period          $ 8,500    $ 7,041    $ 6,150
Incurred loss and loss adjustment expenses          1,037      2,270      1,436
Payments                                             (508)      (811)      (545)
                                                  -------    -------    -------
Unpaid loss and loss adjustment expenses
 (Including IBNR) at end of period                $ 9,029    $ 8,500    $ 7,041
                                                  =======    =======    =======

The   loss   and   loss   adjustment   payments   related   to   the   Company's
Asbestos/Pollution exposures have not been material in relation to the Company's
total loss and loss adjustment expense payments as shown in the table below:

                                                      1997      1996      1995
                                                           (In Thousands)
                                                     --------------------------

Total loss and loss adjustment expense
 payments for the year ended December 31,            $55,483   $61,524   $51,719
Asbestos/Pollution loss and loss adjustment
  expense payments for the year ended December 31,       508       811       545

     The insurance  pools have written  primary  insurance  relating to products
liability  since 1985.  The insurance  pools' maximum loss per risk is generally
limited to $1,000,000 and the Company's participation percentage ranges from 59%
to 100% based upon  policy  year.  The  Company  believes  that,  based upon the
maximum amount per risk and the Company's  conservative  reserving posture,  the
reserves currently  established are adequate to cover the ultimate resolution of
all product liability claims.

     The  following  table shows  changes in reserves in  subsequent  years (the
development)  from the prior loss estimates  based upon experience as of the end
of each  succeeding  year.  The  estimate  is  increased  or  decreased  as more
information  becomes  known  about the  frequency  and  severity  of losses  for
individual  years.  A redundancy  means the original  estimate of the  Company's
consolidated  liability was higher than the current estimate; a deficiency means
that the current estimate is higher than the original estimate.

     The first line of the table presents,  for each of the last ten years,  the
estimated liability for unpaid losses and loss adjustment expenses at the end of
the year,  including  the reserve for incurred but not  reported  losses.  These
reserves include reserves assumed from Pennsylvania National and Lumber pursuant
to the  assumption  of their pool  obligations.  The first  section of the table
shows, by year, the cumulative  amounts of losses and loss  adjustment  expenses
paid as of the end of each  succeeding  year,  expressed as a percentage  of the
estimated liability for such amounts.

     The second section sets forth the  re-estimates  in later years of incurred
losses,  including  payments,  as a  percentage  of the  estimate  for the years
indicated.  The  cumulative  redundancy  represents as of December 31, 1997, the
aggregate change in the estimates over all prior years.  The  redundancies  have
been reflected in income over the periods shown.


                                       10
<PAGE>


     The Company makes no specific  provision  for inflation in connection  with
reserve  estimates,  but does each year consider the  adjustment of  outstanding
case reserves and current  inflationary  indices in determining  the adequacy of
the overall loss  reserve.  The Company  monitors  historical  loss  payments to
determine the sufficiency of this provision.

     The following table provides a reconciliation of the consolidated liability
for losses and loss  adjustment  expenses at the beginning and end of 1997, 1996
and 1995:

<TABLE>
<CAPTION>
                                                                                           Year ended December 31,
                                                                             -----------------------------------------------------
                                                                               1997                  1996                  1995
                                                                             ---------             ---------             ---------
                                                                                                (In Thousands)
<S>                                                                           <C>                   <C>                   <C>
Net liability for losses and loss adjustment
  expenses at beginning of year ..................................            $ 227,370             $ 229,916             $ 212,377
                                                                              ---------             ---------             ---------
Provision for losses and loss adjustment
  expenses occurring in current year .............................               72,322                71,731                75,618
Decrease in estimated losses and loss
  adjustment expenses for claims occurring
  in prior years (1) .............................................              (21,874)              (12,753)               (6,360)
Deferred income-loss portfolio
  assumption(2) ..................................................                  320                   381                   458
                                                                              ---------             ---------             ---------
Total losses and loss adjustment expenses
  incurred .......................................................               50,768                59,359                69,716
                                                                              ---------             ---------             ---------
Less:
Losses and loss adjustment expense payments
  for claims occurring during:
      current year ...............................................               17,029                15,012                10,043
      prior years ................................................               38,454                46,512                41,676
                                                                              ---------             ---------             ---------
                                                                                 55,483                61,524                51,719
Plus:
Deferred income-loss portfolio assumption(2) .....................                 (320)                 (381)                 (458)
                                                                              ---------             ---------             ---------
Net liability for losses and loss adjustment
  expenses at year end ...........................................              222,335               227,370               229,916
                                                                              ---------             ---------             ---------
Ceded unpaid losses and loss adjustment
  expenses .......................................................              166,067               184,467               187,879
                                                                              ---------             ---------             ---------
Gross unpaid losses and loss adjustment
  expenses at year end ...........................................            $ 388,402             $ 411,837             $ 417,795
                                                                              =========             =========             =========
</TABLE>

     (1) The  adjustment  to the  consolidated  liability  for  losses  and loss
adjustment  expenses for losses occurring in prior years reflects the net effect
of the  resolution  of losses for other than full reserve  value and  subsequent
readjustments of loss values.

     (2) Deferred  income-loss  portfolio  assumption  represents the difference
between cash received and unpaid loss reserves assumed as a result of the buyout
of Pennsylvania National's and Lumber's net pool obligations which was initially
capitalized and will be amortized over the payout period of the related losses.

     The principal  differences  between the  consolidated  liability for unpaid
losses and loss  adjustment  expenses as reported in the Annual  Statement filed
with  state  insurance  departments  in  accordance  with  statutory  accounting
principles and the liability based on generally accepted  accounting  principles
shown in the above tables is due to the reserve for the Company's pro rata share
of the pool obligations of Mutual Fire, a former pool member,  the assumption of
Pennsylvania  National's  and Lumber's loss  reserves  arising from their former
participation in the MMO insurance pools and unpaid  unallocated loss adjustment
expenses  based upon  management  commissions  payable to the Managers which are
eliminated on a consolidated  basis. The loss reserves shown in the above tables
reflect in each year salvage and subrogation accruals of approximately 1% to 6%.
The  estimated  accrual  for  salvage  and  subrogation  is based on the line of
business  and  historical  salvage and  subrogation  recovery  data.  In neither
statutory  nor  generally  accepted  accounting  principles  are  loss  and loss
adjustment expense reserves discounted.


                                       11
<PAGE>


     The following table sets forth the  reconciliation  of the consolidated net
liability for losses and loss adjustment expenses based on statutory  accounting
principles and based on generally accepted accounting  principles as of December
31, 1997, 1996 and 1995:

<TABLE>
<CAPTION>
                                                                                                   Year ended December 31,
                                                                                              --------------------------------------
                                                                                                1997          1996           1995
                                                                                              ---------     ---------      ---------
                                                                                                      (In Thousands)
<S>                                                                                           <C>           <C>            <C>
Liability for losses and loss adjustment expenses
  reported based on statutory accounting principles .....................................     $ 217,016     $ 222,953      $ 225,260
Liability for losses and loss adjustment expenses assumed
  from Lumber Mutual and Pennsylvania National ..........................................         4,469         4,508          4,615
(excludes $5,580, $6,653 and $8,173 at
  December 31, 1997, 1996 and 1995, accounted for in the statutory liability for
  losses and loss adjustment expenses.)
Other, net ..............................................................................           850           (91)            41
                                                                                              ---------     ---------      ---------
Net liability for losses and loss adjustment expenses reported
  based on generally accepted accounting principles .....................................       222,335       227,370        229,916
Ceded liability for unpaid losses and loss adjustment expenses ..........................       166,067       184,467        187,879
                                                                                              ---------     ---------      ---------
Gross liability for unpaid losses and loss adjustment expenses ..........................     $ 388,402     $ 411,837      $ 417,795
                                                                                              =========     =========      =========
</TABLE>

Regulation

     The Company is regulated by the insurance regulatory agencies of the states
in which it is authorized to do business.  New York Marine is licensed to engage
in the insurance business in all states.

     Gotham is  permitted  to write  excess and  surplus  lines  insurance  on a
non-admitted basis in all of the states except Arkansas, Massachusetts,  Nevada,
New  Jersey,  New  Hampshire  and  Vermont.  Gotham is licensed to engage in the
insurance  business in the state of New York and, as such,  cannot  write excess
and surplus business in that state.

     Many aspects of the Company's insurance business are subject to regulation.
For  example,  minimum  capitalization  must be  maintained;  certain  forms  of
policies  must  be  approved  before  they  may be  offered;  reserves  must  be
established in relation to the amounts of premiums  earned and losses  incurred;
and, in some cases, schedules of premium rates must be approved.

     The insurance company subsidiaries also file statutory financial statements
with each state in the format requested by the National Association of Insurance
Commissioners  (the  "NAIC").  The  NAIC  provides  accounting   guidelines  for
companies to report and provides minimum solvency standards for all companies in
the form of  risk-based  capital  requirements.  The Company  believes  that the
surplus of each of the insurance companies are above the minimum amount required
by the NAIC.

     The NAIC is engaged in a project to codify statutory accounting  principles
which will ultimately become the only source of prescribed  statutory accounting
principles.  When the  project is  completed,  it will likely  change  currently
prescribed  statutory  accounting  principles  and may  result in changes in the
accounting  policies  the  Company  uses  to  prepare  its  statutory  financial
statements as filed with the various states.

     The Company is subject to an examination by the Insurance Department of the
State of New York. The insurance  companies' most recent examination was for the
year ended  December  31,  1995.  There were no  significant  adjustments  which
resulted from that examination.

     The insurance  company  subsidiaries  are limited under New York law in the
amount of dividends they can pay to the parent company,  NYMAGIC,  without prior
approval of the New York State Insurance Department.

                                       12
<PAGE>


NYMAGIC's  principal source of income is dividends from its subsidiaries,  which
is used for payment of operating  expenses,  including  interest  expense,  loan
repayments  and payment of  dividends  to  NYMAGIC's  shareholders.  The maximum
amount  of  dividends  that  may be paid to  NYMAGIC  by the  insurance  company
subsidiaries is limited to the lesser of 10% of statutory surplus or 100% of net
investment  income,  as defined under New York insurance law. The maximum amount
which  could be paid to the  Company  out of  December  31,  1997,  surplus  was
approximately $18,184,000.

     Insurance companies are being regulated more strictly by the various states
in recent  years.  Many states have also  increased  regulation of surplus lines
insurance thereby requiring stricter standards for authorization. Several states
have established  guaranty funds which serve to provide the assured with payment
due under policies  issued by insurance  companies  that have become  insolvent.
Insurance  companies  that are authorized to write in states are assessed a fee,
normally based on direct  writings in a particular  state, to cover any payments
drawn from insolvency  funds.  The Company is subject to such assessments in the
various states.

Subsidiaries

     NYMAGIC's  largest  insurance  company  subsidiary  is New York  Marine And
General Insurance  Company which was formed in 1972.  NYMAGIC was formed in 1989
to serve as a holding  company for the  subsidiary  insurance  companies.  Prior
thereto,  New York Marine And General  Insurance  Company was the parent company
and shares of its common stock,  $1.00 par value, were traded publicly.  NYMAGIC
became  the  holding  company,  and New York  Marine its  subsidiary,  effective
October 2, 1989, following regulatory and shareholder approval.

     NYMAGIC's other insurance company subsidiary, Gotham Insurance Company, was
organized  in 1986 as a means of  expanding  into the excess and  surplus  lines
marketplace.  New York Marine and Gotham  entered into a Reinsurance  Agreement,
effective  January 1, 1987,  under  terms of which  Gotham will cede 100% of its
gross  direct  writings to New York  Marine and assume 15% of New York  Marine's
total retained business,  beginning with the 1987 policy year. Accordingly,  for
policy year 1987 and subsequent, Gotham's underwriting statistics are similar to
New York Marine's. As of December 31, 1997, 75% and 25% of Gotham's common stock
is owned by New York Marine and NYMAGIC, respectively.

     Gotham  does  not  assume  or  cede  business  to or from  other  insurance
companies.  As of December 31, 1997, New York Marine had aggregate  recoverables
due from  Gotham  of  approximately  $35  million  or 21% of New  York  Marine's
statutory surplus. Gotham had aggregate recoverables due from New York Marine as
of December 31, 1997, of approximately $31 million or 59% of Gotham's  statutory
surplus.

     New  York  Marine's  and  Gotham's  combined  net  income  on a GAAP  basis
represented  substantially all of the consolidated net income of the Company for
each of the years ended December 31, 1997, 1996 and 1995.

     Mutual Marine  Office,  Inc. was acquired in 1991 and was formed in 1964 to
underwrite a book of ocean marine insurance.  MMO's activities expanded over the
years and it now underwrites a book of ocean marine, inland marine, aviation and
other liability insurance.

     Mutual  Marine  Office of the  Midwest,  Inc.  was acquired in 1991 and was
formed in 1978 to  underwrite  a varied book of business  located in the Midwest
region.

     Pacific Mutual Marine  Office,  Inc. was acquired in 1991 and was formed in
1975 to underwrite a varied book of business in the West Coast region.


                                       13
<PAGE>


Competition

     The  insurance  industry  is highly  competitive  and the  companies,  both
domestic and foreign,  against which the Company  competes are often larger with
greater capital  resources than the Company and the pools. The principal methods
of  competition  are  pricing and  responsiveness  to the  individual  insured's
coverage requirements.  The competitive nature of the business reached a peak in
1990 after several major catastrophes forced the withdrawal of several insurance
companies  from various  markets.  As a result,  the aviation,  ocean and inland
marine market hardened in 1991 and remained favorable through 1994.  However, in
1995 through 1997 competition intensified and rates softened in the aviation and
ocean marine lines.  Competition  remains intense as a result of excess capacity
in the casualty market. Accordingly,  the Company is not planning to renew those
policies which would result in an underwriting loss.

     The Company believes it can successfully compete against other companies in
the insurance  market due to its philosophy of underwriting  quality  insurance,
its reputation as a conservative well-capitalized insurer and its willingness to
forego unprofitable business.

Employees

     The Company  currently employs  approximately  115 persons,  of whom 19 are
insurance underwriters.

Item 2. Properties.

     The Company does not own,  directly or  indirectly,  any real  estate.  The
Company leases office space for day to day operations in the following cities:

            New York          -      37,000 square feet
            Chicago           -       3,500 square feet
            San Francisco     -       4,050 square feet

     The Company's principal executive offices are approximately  37,000 sq. ft.
in size and are  located in New York City.  In 1993 the  Company  moved into its
location at 330 Madison Avenue,  New York, New York,  which was renovated and is
in excellent condition.  The lease for the Company's principal executive offices
expires December 30, 2003. The minimum annual rent under the lease is $1,074,000
in 1998 and $1,184,000  from 1999 until the  expiration of the lease.  The lease
included a cash payment by the lessor to the Company of  $1,853,000 of which the
benefit was deferred and amortized over the lease term.

Item 3. Legal Proceedings.

     None.

Item 4. Submission of Matters to a Vote of Security Holders.

     None.




                                       14
<PAGE>


                                     PART II

Item 5. Market for Registrant's Common Stock and Related Stockholder Matters.

     The  Company's  common  stock trades on the New York Stock  Exchange  (NYSE
Symbol: NYM). The following table sets forth representative high and low closing
prices for the periods indicated.

                                         1997                       1996
                                   ------------------        -------------------

                                     High         Low         High         Low
                                     ----         ---         ----         ---
First Quarter ..............       $21.13       $18.00       $22.00       $16.38

Second Quarter .............        20.88        18.38        19.88        18.38

Third Quarter ..............        26.06        20.63        19.13        17.00

Fourth Quarter .............        29.81        25.50        19.00        17.25

     As of March  1,  1998,  there  were 83  shareholders  of  record.  However,
management  believes there are in excess of 2500 beneficial  owners of NYMAGIC's
common stock.

Dividend Policy

     A cash  dividend  of ten (10)  cents  per share  was  declared  and paid to
shareholders  of record as of March 31, June 30,  September 30, and December 31,
1997 and 1996. For a description of restrictions on the ability of the Company's
insurance  subsidiaries  to  transfer  funds  to  the  Company  in the  form  of
dividends,  see "Management's Discussion and Analysis of Financial Condition and
Results of Operations - Liquidity and Capital Resources."

Item 6. Selected Financial Data.

<TABLE>
<CAPTION>
OPERATING DATA                                                                  Year Ended December 31,
                                                       ---------------------------------------------------------------------------
                                                         1997             1996             1995              1994             1993
                                                         ----             ----             ----              ----             ----
                                                                     (In thousands, except per share amounts)
<S>                                                     <C>              <C>              <C>              <C>              <C>
Revenues:

Net premiums earned ...........................         $ 87,537         $ 97,036         $103,461         $ 79,255         $ 65,276
Net investment income .........................           21,325           21,270           21,659           18,854           17,746
Commission income .............................            1,439            1,981            3,438            2,052            2,498
Realized investment gains .....................           10,425            4,589            4,111            2,992            6,458
Other income ..................................              293              690              661              420              275
                                                        --------         --------         --------         --------         --------

Total revenues ................................         $121,019         $125,566         $133,330         $103,573         $ 92,253
                                                        --------         --------         --------         --------         --------

Expenses:

Losses and loss adjustment
  expenses incurred ...........................         $ 50,768         $ 59,359         $ 69,716         $ 61,900         $ 50,816
Policy acquisition expenses ...................           16,583           18,828           21,017           14,260           10,429
General and administrative
  expenses ....................................           16,763           16,168           16,236           16,742           14,749
Interest expense ..............................            1,450            1,035              438              495              661
                                                        --------         --------         --------         --------         --------

Total expenses ................................         $ 85,564         $ 95,390         $107,407         $ 93,397         $ 76,655
                                                        --------         --------         --------         --------         --------
</TABLE>



                                       15
<PAGE>


Selected Financial Data (continued)

<TABLE>
<CAPTION>
                                                                               Year Ended December 31,
                                                       -------------------------------------------------------------------------
                                                         1997            1996           1995             1994             1993
                                                       --------        --------        --------        --------         --------
                                                                          (In thousands, except per share amounts)
<S>                                                    <C>             <C>             <C>             <C>              <C>
Income before income taxes                               35,455          30,176          25,923          10,176           15,598
                                                       --------        --------        --------        --------         --------
Income taxes
  Current .....................................           8,962           7,495           5,393           2,306            2,236
Deferred ......................................             125              56             410          (1,827)             (66)
                                                       --------        --------        --------        --------         --------
Total income taxes ............................           9,087           7,551           5,803             479            2,170
                                                       --------        --------        --------        --------         --------
Income before
  cumulative effect ...........................          26,368          22,625          20,120           9,697           13,428
Cumulative effect of change
  in accounting for income taxes ..............              --              --              --              --            1,221(3)
                                                       --------        --------        --------        --------         --------
Net income ....................................        $ 26,368        $ 22,625        $ 20,120        $  9,697         $ 14,649
                                                       ========        ========        ========        ========         ========
Weighted average shares
  outstanding - basic .........................           9,849          10,499          11,299          11,379           11,411
Weighted average shares
  outstanding - diluted .......................           9,872          10,524          11,341          11,392           11,449

BASIC EARNINGS PER SHARE(4):

Income before
  cumulative effect ...........................        $   2.68        $   2.15        $   1.78        $    .85         $   1.17
Cumulative effect of change
  in accounting for income taxes ..............              --              --              --              --              .11(3)
                                                       --------        --------        --------        --------         --------
Basic earnings per share ......................        $   2.68        $   2.15        $   1.78        $    .85         $   1.28
                                                       ========        ========        ========        ========         ========

DILUTED EARNINGS PER SHARE(4):

Income before
  cumulative effect ...........................        $   2.67        $   2.15        $   1.77        $    .85         $   1.17
Cumulative effect of change
  in accounting for income taxes ..............              --              --              --              --              .11(3)
                                                       --------        --------        --------        --------         --------
Diluted earnings per share ....................        $   2.67        $   2.15        $   1.77        $    .85         $   1.28
                                                       ========        ========        ========        ========         ========
Dividends declared ............................        $    .40        $    .40        $    .40        $    .40         $    .40
                                                       ========        ========        ========        ========         ========

<CAPTION>
BALANCE SHEET DATA
 AT PERIOD END:
                                                                          Year Ended December 31,
                                                 --------------------------------------------------------------------------------
                                                   1997              1996              1995               1994               1993
                                                   ----              ----              ----               ----               ----
                                                                                (In thousands)
<S>                                             <C>                <C>                <C>                <C>                <C>
Total investments ......................        $438,591(2)        $409,209(2)        $403,306(2)        $341,643(2)        $334,722
Total assets (1) .......................         707,903            714,949            722,250            730,744            680,100
Unpaid losses and loss
  adjustment  expenses(1) ..............         388,402            411,837            417,795            435,072            407,321
Notes payable ..........................          22,458             20,438             12,727              7,020             10,294
Total shareholders' equity .............        $206,519           $188,852           $182,717           $164,313           $166,482
</TABLE>

----------
(1)  Includes reserve liabilities reported gross of reinsurance credits pursuant
     to Statement of Financial Accounting Standards No. 113.
(2)  Fixed  maturities  available for sale are carried at fair value pursuant to
     Statement of Financial Accounting Standards No. 115.
(3)  Reflects  the  cumulative  effect  of  calculating   deferred  taxes  under
     Statement of Accounting Standards No. 109 "Accounting for Income Taxes."
(4)  Earnings per share data prior to 1997 have been restated as required  under
     Statement of Financial Accounting Standards No. 128, "Earnings Per Share".

     For a description of factors that materially  affect the  comparability  of
the  information  reflected in the Selected  Financial  Data, see  "Management's
Discussion and Analysis of Financial Condition and Results of Operations" below.


                                       16
<PAGE>


Item 7.  Management's Discussion and Analysis of
         Financial Condition and Results of Operations.

     Results of Operations

     The Company  participates  in pools of  insurance  covering  ocean  marine,
inland marine,  aircraft and non-marine  liability  insurance managed by MMO and
affiliates.  The Company's  participation in the ocean marine, inland marine and
aviation business produced by the pools increased to 81.47% effective January 1,
1994. The Company's  participation in the other liability and inland marine pool
increased to 100%  effective July 1, 1994,  and its  participation  in the ocean
marine and aviation pools increased to 90% at the same time.  Effective  January
1, 1997,  the  Company's  participation  in the ocean marine and  aviation  pool
increased to 100%.

<TABLE>
<CAPTION>
NYMAGIC Net Premiums Written
    by Line of Business                                                Year Ended December 31,
                                       ----------------------------------------------------------------------------
                                                1997                         1996                   1995
                                              --------                     --------               --------
                                                                        (In thousands)
<S>                                    <C>             <C>         <C>             <C>          <C>           <C>
Ocean Marine ..................        $ 48,658         78%        $ 54,093         60%         $ 48,944       50%
Inland Marine .................             146         --           (1,658)        (2%)           2,803        3%
Aircraft ......................           9,354         15%          32,482         36%           38,962       40%
Other liability ...............           3,856          6%           5,238          6%            6,818        7%
Other .........................             207          1%             358         --               290       --
                                       --------        ---         --------        ---          --------      ---
Total .........................        $ 62,221        100%        $ 90,513        100%         $ 97,817      100%
                                       ========        ===         ========        ===          ========      ===

<CAPTION>
NYMAGIC Net Premiums Earned
    by Line of Business                                                Year Ended December 31,
                                       ----------------------------------------------------------------------------
                                                1997                         1996                   1995
                                              --------                     --------               --------
                                                                        (In thousands)
<S>                                    <C>             <C>         <C>             <C>          <C>            <C>
Ocean Marine ....................      $ 49,984         57%        $ 52,483         54%         $ 48,110       47%
Inland Marine ...................           443          1%           2,408          3%           11,563       11%
Aircraft ........................        32,566         37%          35,416         36%           35,496       34%
Other liability .................         4,328          5%           6,355          7%            8,022        8%
Other ...........................           216         --              374         --               270       --
                                       --------        ---         --------        ---          --------      ---
Total ...........................      $ 87,537        100%        $ 97,036        100%         $103,461      100%
                                       ========        ===         ========        ===          ========      ===
</TABLE>

----------

     Unlike many types of property and casualty insurance,  ocean marine, inland
marine, aviation and other liability premium rates are not strictly regulated by
governmental  authorities.  Consequently,  the Company is able to adjust premium
rates  quickly in response  to  competition,  varying  degrees of risk and other
factors. In addition, the Company, by virtue of its underwriting flexibility, is
able to emphasize specific lines of business in response to advantageous premium
rates and the anticipation of positive underwriting results.

     The Company's  general and  administrative  expenses  consist  primarily of
compensation   expense,   employee   benefits  and  rental  expense  for  office
facilities.  The  Company's  policy  acquisition  costs  include both  brokerage
commissions  and premium  taxes which are  primarily  based on a  percentage  of
premiums  written.  Such costs have generally changed in proportion with changes
in premium volume.  Losses and loss adjustment  expenses  incurred in connection
with insurance  claims in any  particular  year depend upon a variety of factors
including the rate of inflation,  accident or claim frequency, the occurrence of
natural catastrophes and the number of policies written.

     The Company  estimates  reserves  each year based upon,  and in  conformity
with, the factors discussed under  "Business-Reserves".  The Company maintains a
conservative policy for establishing  reserves,  especially in the year a policy
is written.  Changes in estimates of reserves are reflected in operating results
in the year in which the change occurs.


                                       17
<PAGE>


1997 as Compared to 1996

     The Company's net premiums  earned  decreased by 10% in 1997 as compared to
1996. The decrease in premiums earned occurred in all major lines of business.

     Inland marine premiums  recorded the largest  percentage  decline at 82% in
1997.  The Company  decided in the prior year to withdraw from writing  property
risks of the larger assureds with multiple locations after years of unprofitable
results brought about mainly by large  catastrophe  losses. In 1997, the Company
concentrated on writing risks that are ancillary to its ocean marine risks. This
strategy is expected to remain in place for 1998.

     Ocean  marine  premiums  earned  fell by 5% in 1997  mainly  due to falling
premium  rates as  competition  remained  intense  during the year.  All classes
within the ocean marine line  experienced  declines  except for the energy class
which saw increases in production.  Net premium  writings did not decline at the
same  rate  as  gross  premiums   primarily  due  to  lower  reinsurance  costs.
Competition  should  remain  intense  in 1998.  The  Company  has  been  writing
additional marine liability  accounts with assureds that have smaller amounts of
exposure.  This area of growth may offset expected rate reductions.  A source of
additional growth in 1998 in this line will be from premiums written through our
recently acquired agency and syndicate in Lloyd's of London.

     Although  net premiums  earned in the aviation  decreased by only 8%, gross
written and net  written  premiums  decreased  by 25% and 71%,  respectively.  A
softening  of  rates  in the  aviation  line,  resulting  from  excess  industry
capacity,  initially started in 1996 and continued into 1997 and accounted for a
reduction in gross aviation  premiums  written in the current year.  During soft
underwriting  cycles,  the Company seeks to reduce overall  retention  levels in
order  to  avoid  the  negative  impact  of any  one  loss on net  income.  As a
consequence of purchasing additional reinsurance, net writings fell at a greater
percentage. The Company expects this environment to remain competitive in 1998.

     Other liability  earned premiums  decreased by 32%. The casualty market has
been severely competitive for many years. Consequently, the Company continues to
underwrite this line very  selectively.  The Company expects the casualty market
to remain competitive in1998 with premiums likely to further decline.

     Premiums  earned did benefit,  however,  from the Company's  increased pool
participation  in the Mutual Marine Office,  Inc. ocean marine and aviation pool
from 90% to 100% effective for policies incepting on or after January 1, 1997.

     Losses and loss adjustment expenses as a percentage of premiums earned were
58.0% in 1997 as compared to 61.2% in 1996.  Improved net loss experience in the
other liability and inland lines  contributed to the overall decline in the loss
ratios.  In  addition,  despite an  increase in the  frequency  of losses in the
aviation line, this loss ratio actually improved from the prior year as a result
of lower retention levels on losses and favorable loss development on prior year
reserves. An increase in severity losses in the ocean marine line contributed to
a higher loss ratio in the current year.

     Policy  acquisition  costs as a percentage  of net premiums  earned for the
year ended  December 31, 1997 was 18.9% as compared to 19.4% for the prior year.
The Company saw an improvement in the acquisition  ratio in the aviation line as
a result of obtaining ceding override  commissions on reinsurance  placed.  This
had the effect of reducing  overall net  commissions  at a greater rate than the
decline in premiums.

     Net  investment  income for the year ended  December  31,  1997 was flat as
compared to the same period of 1996 as a result of a decrease in the  investment
yield in the Company's fixed maturity portfolio. The investment income generated
from a larger  invested asset base was offset by a decrease in investment  yield
in the Company's fixed maturity portfolio as a result of additional purchases of
tax-exempt securities and lower interest rates overall.


                                       18
<PAGE>


     Commission  and other  income  for the year  ended  December  31,  1997 was
$1,438,606  as compared to  $1,980,632  for the same period of 1996.  Commission
income includes  management and contingent  commissions charged by Mutual Marine
Office,  Inc. for operating the insurance pools. As gross writings decreased and
the  Company  increased  its MMO pool  participation  in the  ocean  marine  and
aviation  pool from 90% to 100%  effective  for  policies  incepting on or after
January 1, 1997,  management  commission income from a non-affiliated  member of
the insurance pools declined.

     General and administrative  expenses increased by 4% in 1997 primarily as a
result of increased  personnel and  administrative  costs to further  strengthen
support services.

     Interest  expense  increased  to  $1,449,770  for the year  ended  December
31,1997  from  $1,035,058  for the same period of the prior year  primarily as a
result of an increase in average loan principal outstanding.

     The Company was able to realize  investment  gains of  $10,425,133  in 1997
mainly as a result of the sale of appreciated equity securities.

     Net income  increased by 17% to $26,367,740 for the year ended December 31,
1997, from $22,624,618 for the prior year.  Diluted earnings per share increased
to $2.67 in 1997 as compared to $2.15 in 1996.

     Unrealized  appreciation  of  investments  as of December 31, 1997 included
gross  unrealized  gains and  losses on equity  securities  of  $12,276,631  and
$943,821 respectively, and gross unrealized gains and losses on fixed maturities
available for sale of $8,601,011  and $47,998,  respectively.  Unrealized  gains
were  recorded  in fixed and  equity  securities  resulting  from  decreases  in
interest rates and a strong stock market in 1997, respectively.

     Premiums and other receivables, net decreased to $40,635,164 as of December
31, 1997. Declines in premium writings contributed to the overall decline.

     Ceded reinsurance  payable increased to $27,307,129 at December 31, 1997 as
a result of lowering  the  Company's  retention  level in the  aviation  line of
business.

     Notes payable increased to $22,458,413 as of December 31, 1997 and resulted
from  loans  obtained  to  repurchase  the  Company's  common  stock.  This also
contributed to the increase in treasury stock, at cost, in 1997.

     Prepaid reinsurance  premiums increased 131% to $24,414,620 at December 31,
1997  however the reserve for  unearned  premiums  decreased in 1997 by 17%. The
decline in gross  writings in 1997 is consistent  with the change in the reserve
for unearned premiums. The Company,  however, reduced its net retention per loss
in the aviation line which caused prepaid reinsurance premiums, as well as ceded
reinsurance payable balances, to increase accordingly.

1996 as Compared to 1995

     The  Company's net premiums  earned  decreased by 6% in 1996 as compared to
1995.  The decline  primarily  relates to the inland marine and other  liability
lines of business.

     The inland marine line recorded the largest  decline in earned  premiums at
79%.  This was  consistent  with the  Company's  plan in 1996 to  withdraw  from
writing the larger multi-location  assureds. After several years of unprofitable
results  caused by large  catastrophe  losses  and  expensive  reinsurance,  the
Company  limited  its 1996  writings to those that were  ancillary  to its ocean
marine risks.  Negative  premiums  written for 1996 occurred as a consequence of
purchasing  reinsurance  to cover the  run-off of the prior  year's  catastrophe
oriented business which was in force in 1996.

     The other liability earned premiums  decreased 21% as compared to the prior
year.  Due to the fierce  competition  in this line,  casualty  market rates had
remained soft.


                                       19
<PAGE>


     The ocean  marine line  recorded  the largest  growth in written and earned
premiums  among the  Company's  various lines of business in 1996. An 11% and 9%
increase over the prior year's  written and earned  premium,  respectively,  was
achieved  by  additional  production  in the hull and cargo  classes of business
coupled with changes in the ocean marine  reinsurance  program.  Gross  premiums
were down slightly as rate  reductions in various marine classes  outweighed the
additional  production in the hull and cargo classes.  Rates in the ocean marine
line softened as competition  intensified.  Reinsurance changes in the Company's
hull,  cargo and energy  classes  enabled  those  classes to retain more premium
income without sustaining much additional exposure.

     Although  net earned  premiums  in the  aviation  line  remained  flat when
compared to 1995,  gross and net writings  decreased 14% and 16%,  respectively.
1995 was a peak year for aviation rates after insurers suffered several years of
losses. As industry gross losses improved in 1995,  competition  intensified and
rates subsequently softened. As a casualty of this competitive rate environment,
certain accounts were not renewed in 1996 and thereby contributed to the overall
decline.

     Losses and loss adjustment expenses as a percentage of premiums earned were
61.2% in 1996 as compared to 67.4% in 1995.  Improved net loss experience in the
Company's core ocean and aviation lines contributed to the overall decline.

     Although  the inland  loss ratio in 1996 was  adversely  affected by severe
weather experienced during the 1995-1996 winter season, such ratio improved when
compared to the prior year. The 1995 year included  large  property  catastrophe
losses from various hurricanes.

     The other liability line deteriorated in 1996 from adverse loss development
in both the umbrella and the non-marine liability occurrence classes.

     Commission income,  consisting  primarily of reinsurance profit commissions
and insurance pool profit and management  commissions  charged to members of the
insurance  pools other than New York Marine,  decreased  by 42% in 1996.  Larger
reinsurance  contingent commissions were recorded in 1995 as a result of greater
profitability  in various  marine  war  classes of  business.  Also,  management
commission from a non-affiliated member of the insurance pools decreased overall
in proportion to the decline in the pool's gross writings in 1996.

     Net investment income for the year ended December 31, 1996, decreased by 2%
from the prior year. Investment yields decreased on the Company's fixed maturity
portfolio due to both market  conditions and a greater  investment in tax-exempt
securities which was applied against a larger investment asset base.

     Policy  acquisition  costs as a percentage  of net premiums  earned for the
year ended  December 31, 1996 was 19.4% as compared to 20.3% for the prior year.
The inland  marine line had the largest  acquisition  ratio among the  Company's
various lines of business. Reductions in inland premium writings in 1996 had the
effect of decreasing policy acquisition costs and the overall ratio.

     Interest  expense  increased  by 137% in 1996  primarily  as a result of an
increase in loan principal outstanding.

     General and  administrative  expenses  remained  flat as compared  with the
prior year as a result of continuing efforts to contain personnel costs and cost
effective reductions in administrative expenses.

     Realized  investment gains for the year ended December 31, 1996 amounted to
$4,589,133  and  resulted   primarily  from  the  sale  of  appreciated   equity
securities.

     Net income  increased by 12% to $22,624,618 for the year ended December 31,
1996,  from  $20,119,862  for the prior year. Net income per share  increased to
$2.15 in 1996 as compared to $1.77 in 1995.


                                       20
<PAGE>


     Unrealized  appreciation  of  investments  as of December 31, 1996 included
gross  unrealized  gains and  losses  on equity  securities  of  $8,754,704  and
$567,677 respectively, and gross unrealized gains and losses on fixed maturities
held for sale of $5,537,330 and $1,184,493, respectively. Declines in unrealized
gains were recorded in the Company's fixed  maturities  resulting from increases
in interest rates in 1996.

     Notes payable increased to $20,438,413 as of December 31, 1996 and resulted
from loans obtained to repurchase the Company's common stock.

     Prepaid reinsurance premiums and reserve for unearned premiums decreased in
1996 by 38% and 16%,  respectively.  The  decline in gross  writings  in 1996 is
consistent  with the change in the reserve for unearned  premiums.  Also, as the
Company  retained  additional  premium  with  modifications  in its  reinsurance
program,  further  reductions  in  ceded  premiums  occurred  in 1996  which  is
consistent with the change in prepaid reinsurance premiums.

Liquidity and Capital Resources

     The Company  monitors cash and  short-term  investments in order to have an
adequate level of funds  available to satisfy claims and expenses as they become
due. As of December  31,  1997,  the  Company's  assets  included  approximately
$19,125,000  in cash and  short-term  investments.  The  primary  sources of the
Company's  liquidity are funds  generated  from insurance  premiums,  investment
income and maturing or liquidating investments.

     Historically,  cash provided by operating  activities was used in investing
and financing activities. In 1996 and 1995 cash outflows increased on prior year
loss payments as a result of catastrophe  losses from the inland marine line and
the  Company's  maturing  book of casualty  business.  Such payments were not as
large in 1997,  however,  increased payments were recorded in the aviation line.
As  premiums  declined in 1997 and 1996,  so did cash  collected  from  premiums
written.

     Investing and  financing  activities  increased  further as a result of the
Company  borrowing  $25,000,000 from a bank in 1990. This amount was invested in
its principal  insurance  subsidiary,  New York Marine,  to further  bolster its
surplus in order to support  larger  participation  interests  in the  insurance
pools.  Repayments  of the loan started in 1991 and  continued  through 1995. In
1994, the Company entered into a $10,000,000  revolving  credit  agreement which
increased  to  $25,000,000  in 1996 with the same  bank.  The  Company  borrowed
approximately  $9,000,000 in 1995 to repurchase  540,000 shares of the Company's
Common Stock.  Additional borrowings of approximately  $9,520,000 and $9,200,000
were made in 1997 and 1996,  respectively,  to repurchase  the Company's  Common
Stock. Repayments were made quarterly generally at $1,250,000 per quarter.

     The Company has an unsecured  credit facility with a bank that allows for a
maximum  credit of  $5,000,000.  This was  reduced  in 1997  from a  $10,000,000
facility  available  in 1996.  The use of this credit  facility  will assist the
Company as a source of  short-term  liquidity.  In 1996 and 1995,  amounts  were
borrowed to assist the insurance  pools managed by the Company in the payment of
gross losses . The amounts  borrowed  under the line of credit were fully repaid
after collecting recoverables due from reinsurers on such losses.

     The Company adheres to investment  guidelines set by the Finance  Committee
of the Board of Directors. The investment guidelines are conservatively designed
to provide the Company with adequate capital growth and sufficient  liquidity to
meet existing  obligations.  Such  guidelines  consider  many factors  including
anticipated tax position and regulatory requirements.

     The  Company's  largest  investments  are in bonds from various  states and
municipalities.  Such securities  receive favorable tax treatment under existing
tax laws. Our investment position is monitored regularly as the Company has been
affected by the  alternative  minimum  tax.  As net  earnings  were  affected by
several  catastrophe losses in the mid 1990's, the Company further bolstered its
taxable investment position. As the Company's tax position changed with improved
earnings in 1995,  additional  investments  were made in  tax-exempt  securities
through 1997 to improve after tax investment yield.


                                       21
<PAGE>


     Under the Common  Stock  Repurchase  Plan,  the Company may  purchase up to
$55,000,000 of the Company's  issued and  outstanding  shares of common stock on
the open market. As of December 31, 1997, the Company had repurchased a total of
2,115,728 shares of common stock at a total cost of approximately $38,562,528 at
market prices ranging from $16.50 to $26.88 per share.

     NYMAGIC's  principal  source of cash flow is dividends  from its  insurance
company  subsidiaries  which  is  used  to fund  operating  expenses,  including
interest expense, loan repayments and payment of dividends to shareholders.  The
Company's insurance company subsidiaries are limited by statute in the amount of
dividends that may be declared or paid during a year.  The limitation  restricts
dividends paid or declared to the lower of 10% of policyholders' surplus or 100%
of  net  investment  income  as  defined  under  New  York  insurance  law.  The
limitations  on  dividends  from  the  insurance  company  subsidiaries  are not
expected  to have an  impact  on the  Company's  ability  to meet  current  cash
obligations  or  materially  limit  the  current  payment  of  dividends  to the
Company's shareholders.

     The Company is currently  modifying its existing computer operating systems
in  order  to be  Year  2000  compliant.  This  problem  arises  from  computers
recognizing  only the last two  digits  of the year and may  result in errors in
processing  information.  The Company expects to complete all  modifications  to
existing  systems in 1998. The cost of this  modification  is not expected to be
material to the financial  statements,  liquidity  and capital  resources of the
Company.

     The Company is in the process of  communicating  with its various  business
relationships to determine the extent of their Year 2000 compliance. The results
of this process will serve to reduce the Company's  overall exposure to the Year
2000 problem.

     The  Company is also in the process of  evaluating  the  insurance  risk in
connection with the potential for losses arising from Year 2000 failures. Losses
resulting  from  Year  2000  failures  may be  determined  to be  covered  under
insurance contracts depending upon contract wording and specific  circumstances.
However,  the extent of such  losses , which the  Company  may incur,  cannot be
determined currently.

Effect of recent accounting pronouncements

     The FASB issued  SFAS No. 130,  "Reporting  Comprehensive  Income,"  ("SFAS
130"),  in  June  1997  which  establishes   standards  for  the  reporting  and
presentation of comprehensive  income and its components.  Comprehensive  income
encompasses  all changes in  shareholders'  equity,  except  those  arising from
transactions with owners,  and includes net income, net unrealized capital gains
or losses on available  for sale  securities  and foreign  currency  translation
adjustments. SFAS 130 is effective for fiscal years beginning after December 15,
1997, with earlier application  permitted.  The Company is currently  evaluating
the presentation alternatives permitted by the statement.

     The FASB issued SFAS No. 131,  "Disclosures about Segments of an Enterprise
and Related Information," ("SFAS 131"), in June 1997 which establishes standards
for the  reporting  of  information  relating  to  operating  segments in annual
financial  statements,  as well as disclosure of selected information in interim
financial reports. Operating segments are defined as components of a company for
which separate  financial  information is available and is used by management to
allocate resources and assess performance.



                                       22
<PAGE>


The  statement  supersedes  SFAS 14,  "Financial  Reporting  for  Segments  of a
Business  Enterprise," which requires reporting segment  information by industry
and  geographic  area.  This  statement is effective for year-end 1998 financial
statements and interim financial information will be required beginning in 1999.
The Company is currently evaluating the segment information  disclosure pursuant
to SFAS 131.

Inflation

     Periods of inflation have prompted the pools, and consequently the Company,
to react  quickly to actual or potential  imbalances  between  costs,  including
claim expenses,  and premium rates.  These imbalances have been corrected mainly
through  improved  underwriting  controls,   responsive  management  information
systems and frequent review of premium rates and loss experience.

     Inflation also affects the final  settlement  costs of claims which may not
be paid for  several  years.  The  longer  a claim  takes  to  settle,  the more
significant  the impact of  inflation  on final  settlement  costs.  The Company
periodically reviews outstanding claims and adjusts reserves for the pools based
on a number of factors, including inflation.

Item 8. Financial Statements and Supplementary Data.

     The consolidated financial statements required in response to this item are
included as part of Item 14(a) of this report.

Item  9.  Changes  in and  Disagreements  with  Accountants  on  Accounting  and
Financial Disclosure.

     None.

                                       23
<PAGE>


                                    PART III

Item 10. Directors and Executive Officers of the Registrant.

     The information  required by this Item is incorporated by reference  herein
from the  "Compensation  and Other  Information"  section of the Company's Proxy
Statement for the 1998 Annual Meeting of  Shareholders,  except for  information
with respect to Directors and Executive Officers which is set forth below.

     NYMAGIC's  charter and by-laws provide for a Board of Directors  consisting
of not fewer than thirteen nor more than nineteen  Directors  divided into three
classes as nearly equal as possible.  NYMAGIC presently has thirteen  Directors.
The three year terms of classes  III, I and II expire in the years  1998,  1999,
and  2000  respectively.  References  to the  Company  include,  as the  context
requires,  NYMAGIC and its  predecessor,  New York Marine And General  Insurance
Company. The Executive Officers and Directors of the Company are as follows:

                                     Class of
       Name                   Age    Directors       Position(s)
       ----                   ---    ---------       -----------
Mark W. Blackman(1)           46        II      President, Chief Executive
                                                 Officer and Director
John N. Blackman, Jr. (1)(2)  51         I      Chairman of the Board, Director
Thomas J. Condon (2)          53         I      Director
Jean H. Goulding              56       III      Director
John Kean, Jr. (4)            73       III      Director
James A. Lambert (1)          42       III      General Counsel, Chief Operating
                                                 Officer, Secretary and Director
Charles A. Mitchell           49        II      Vice-President, Director
William R. Scarbrough(3)      69        II      Director
Michael S. Shaffet (3)        62         I      Director
Richard T. Soper(1)(3 )       72        II      Director
William A. Thorne (1)(2)(4)   72         I      Director
Sergio B. Tobia (4)           59         I      Director
Louise B. Tollefson (4)       74        II      Director
Thomas J. Iacopelli           37                Chief Financial Officer

----------
(1)  Member of Executive Committee.
(2)  Member of Finance Committee.
(3)  Member of Audit Committee.
(4)  Member of Stock Option & Compensation Committee.

     Mark W. Blackman has been a Director since 1979 and was appointed President
in 1988. Mr. Blackman has been employed by the Company or its subsidiaries since
1977.  Mr.  Blackman  is the son of Louise B.  Tollefson  and brother of John N.
Blackman, Jr.

     John N.  Blackman,  Jr.  has been a Director  since 1975 and was  appointed
Chairman  of the  Board in 1988.  Mr.  Blackman  has  been  employed  by MMO and
affiliates since 1973 and in December, 1988 became Chairman of the Board of MMO,
PMMO, and Midwest. Mr. Blackman is the son of Louise B. Tollefson and brother of
Mark W. Blackman.

     Thomas J. Condon was elected to the Board of Directors in June 1987.  He is
a Vice-President - Investments and Investment  Advisor with A.G. Edwards & Sons,
Inc.  which he joined in September  1993. Mr. Condon  formerly  served as Senior
Vice President at Peoples  Westchester  Savings Bank from 1981 through September
1993.

     Jean H. Goulding has been a Director since 1976. Ms.  Goulding was employed
by the  Company or its  subsidiaries  from 1965 to 1992 and served as  Executive
Vice President-Underwriting from 1988 until her retirement in 1992.


                                       24
<PAGE>


     John Kean,  Jr. has been a Director  since 1991.  Until his  retirement  in
1991,  Mr. Kean was a Senior Vice President and Director of Guy Carpenter & Co.,
Inc.

     James A. Lambert has been a Director  since 1986. Mr. Lambert was appointed
Chief Operating  Officer in 1989 and has served as General Counsel and Secretary
since 1986.

     Charles A. Mitchell has been a Director and Vice  President  since 1981. He
has been employed by the Company or its subsidiaries since 1976.

     William R. Scarbrough became a Director in June, 1995. Until his retirement
in 1993, Mr.  Scarbrough was a Vice President and Director of Wm. H. McGee & Co,
Inc.

     Michael S. Shaffet has been a Director since September 1990. Mr. Shaffet is
the Treasurer and Chief Financial  Officer of M. Fabrikant & Sons, Inc. Prior to
assuming that  position in 1989,  he was a partner in Berman,  Shaffet & Schain,
the accountants for MMO and affiliates.

     Richard T. Soper has been a Director since 1972. Mr. Soper is Vice Chairman
of Argent Marine  Operations,  Inc. Prior to assuming that position in 1990, Mr.
Soper  served from 1986 as Chairman  and  President  of the  American  Bureau of
Shipping.  From  1978 to  1986,  he was  Executive  Vice  President  of Sea Land
Service, Inc. and from 1983 to 1986, served as Chairman of the Board of Intersea
Operations, Ltd., Inc.

     William A.  Thorne  has been a Director  since  1972.  Mr.  Thorne has been
employed by Hydrocarbon Products Company, Inc. as its Treasurer and has been its
Chairman of the Board since March 1983.

     Sergio B. Tobia has been a Director since 1981. Mr. Tobia was a Senior Vice
President and Director of Sorema North America  Reinsurance  Co. from 1989 until
his retirement in 1996.

     Louise B.  Tollefson has been a Director  since 1986.  Mrs.  Tollefson owns
approximately  18.0% of the Company's  Common Stock and is the mother of John N.
Blackman, Jr. and Mark W. Blackman.

     Thomas J. Iacopelli joined the Company in 1985 as its Assistant Controller.
In 1987,  Mr.  Iacopelli was appointed  Controller of the Company and in 1989 he
was  appointed  Chief  Financial  Officer of the  Company.  Prior to joining the
Company,  Mr.  Iacopelli was employed by the accounting  and consulting  firm of
Coopers & Lybrand. Mr. Iacopelli is a Certified Public Accountant.

     The Board of Directors,  as well as its Audit, Finance and Stock Option and
Compensation  Committees  meet on a  quarterly  basis.  In 1997,  all  Directors
attended at least 75% of the meetings of the Board and the  Committees  on which
they sit.

Item 11. Executive Compensation.

     The information set forth under "Compensation and Other Information" in the
Company's Proxy Statement for the Annual Meeting of Shareholders is incorporated
herein by reference.

Stock Option Plans

     In 1986,  the Company's  Board of Directors and  Shareholders  approved the
Company's  1986 Stock Option Plan (the "1986 Plan"),  to provide a means whereby
the Company,  through the grant of non-qualified  stock options to key officers,
may attract and retain persons of ability as officers.  The 1986 Plan authorizes
the issuance of options to purchase up to 500,000 shares of the Company's common
stock at not less than 95 percent of the fair market value at the date of grant.
The 1986 Plan is administered by a committee appointed by the Board of Directors
of the Company.

     On January 12, 1987 and October 21, 1987, options for the purchase of 6,000
and 75,500 common shares, respectively, were granted to officers of the Company,
with an exercise price of $14.50 and $13.78,  respectively.  The market value of
the common stock on each of these days was $15.25 and $14.50, respectively.


                                       25
<PAGE>


     On January 14, 1988,  options for the purchase of 69,000 common shares were
granted to officers of the Company, with an exercise price of $13.78. The market
value of the common stock on that day was $14.50.

     On June 14, 1989, and September 13, 1989, options for the purchase of 2,000
and 1,000 common shares, respectively, were granted to an officer of the Company
with an exercise price of $17.10 and $18.41,  respectively.  The market value of
the common stock on each of these days was $18.00 and $19.38, respectively.

     On June 13,  1991,  options  for the  purchase  of  58,500  common  shares,
respectively,  were granted to officers of the Company with an exercise price of
$25.48.  The  market  value of the  common  stock on the date of the  grant  was
$26.82.

     In 1991,  the Company's  Board of Directors and  Shareholders  approved the
Company's 1991 Stock Option Plan (the "1991 Plan").

     On September 2, 1992,  options for the  purchase of 172,500  common  shares
were granted to officers and employees of the Company with an exercise  price of
$22.33. The market value of the common stock on that day was $23.50.

     In December,  1993,  options for the purchase of 116,000 common shares were
granted to  officers  and  employees  of the Company  with an exercise  price of
$22.92. The market value of the common stock on the date of the grant was $24.13
per share.

     In September,  1994,  options for the purchase of 12,500 common shares were
granted to an officer  of the  Company  with an  exercise  price of $17.34.  The
market value of the common stock on the date of the grant was $18.25 per share.

     In December,  1994,  options for the purchase of 68,500  common shares were
granted to  officers  and  employees  of the Company  with an exercise  price of
$15.56. The market value of the common stock on the date of the grant was $16.38
per share.

     In December,  1995,  options for the purchase of 210,500 common shares were
granted to  officers  and  employees  of the Company  with an exercise  price of
$15.79.  The  market  value of the  common  stock on the date of the  grant  was
$16.625 per share.  The grant of these options was made in  connection  with the
surrender by the option holders of options of equal amounts which had previously
been granted at higher exercise prices.

     In September,  1996,  options for the purchase of 10,000 common shares were
granted to  officers  and  employees  of the Company  with an exercise  price of
$17.58. The market value of the common stock on the date of the grant was $18.50
per share.

     In December,  1996,  options for the purchase of 10,000  common shares were
granted to  officers  and  employees  of the Company  with an exercise  price of
$17.22. The market value of the common stock on the date of the grant was $18.12
per share.

Retirement Plans

     The Company  maintains two  retirement  plans for the benefit of employees.
Both plans  provide for 100% vesting upon  completion of three years of service.
The Money Purchase Plan provides for a yearly contribution equal to 7-1/2% of an
employee's cash compensation, for each year of service during which the employee
has completed  1000 hours of service and is employed on the last day of the plan
year.  The Profit  Sharing  Plan does not  provide  for any  specified  level of
contribution but any contribution  made is subject to the restrictions set forth
above for the Money Purchase Plan. For the most recent plan year, a contribution
equal to 7-1/2% of cash compensation,  was made to all eligible  participants in
the Profit Sharing Plan.


                                       26
<PAGE>


Item 12.  Security Ownership of Certain
          Beneficial Owners and Management.

     The  following  table sets  forth  information  as of March 1,  1998,  with
respect to beneficial  ownership of NYMAGIC  Common Stock by  beneficial  owners
known by the Company to own more than 5% of such stock,  directors and nominees,
each officer named in the Summary Compensation Table in the Company's 1998 Proxy
Statement, and all directors and officers as a group. Except as described in the
notes below, all owners listed have power to vote and dispose of the shares held
by them.

                                                                    Percent of
                                              Amount and Nature    Common Stock
                  Name                         of  Ownership       Outstanding
                  ----                         --  ---------       -----------
Dimensional Fund Advisors, Inc.                   619,800(5)         6.38%
  1299 Ocean Avenue - 7th Floor
  Santa Monica, CA 90401
T. Rowe Price Associates, Inc.                  1,012,000(6)        10.42%
  100 East Pratt Street
   Baltimore, Maryland 21202
John N. Blackman, Jr                            2,010,996(1)        20.70%
Mark W. Blackman                                1,962,674(2)        20.20%
Judith Cohen                                        4,000(3)          *
Thomas J. Condon                                      606             *
Jean H. Goulding                                   22,106             *
John Kean, Jr                                         506             *
James A. Lambert                                   18,055(3)          *
Charles A. Mitchell                                 7,700(3)          *
Robert Palmer                                       7,000(3)          *
William R. Scarbrough                                 606             *
Michael S. Shaffet                                  1,906(4)          *
Richard T. Soper                                      506             *
William A. Thorne                                  32,906(4)          *
Sergio B. Tobia                                     3,726             *
Louise B. Tollefson                                 3,506             *
Howard S. Tuthill, Trustee                      1,911,211(7)        19.68%
                                                ---------           -----
All directors and officers as a
group (15 persons)                              5,988,010(8)        61.65%

----------
* Less than 1% of issued and outstanding Common Stock.

     (1) Mr. Blackman is also the Trustee of trusts for the benefit of his minor
children which own, in total, 92,822 shares of the Company's Common Stock, which
shares are included herein.

     (2) Trusts for the benefit of Mr. Blackman's children own, in total, 54,876
shares of the Company's Common Stock, which shares are included herein.

     (3) Of the shares shown as beneficially owned by the following individuals,
the amount listed next to each name include shares with respect to which options
are currently  exercisable by that person:  Mr. Mitchell - 7,000;  Mr. Lambert -
17,055; Mrs. Cohen - 4,000; and Mr. Palmer - 7,000.

     (4) Of the shares shown as beneficially owned by Mr. Thorne,  16,706 shares
are held by him  individually  and 16,200  shares are held by Mr. Thorne and his
wife as joint tenants. Of the shares shown as beneficially owned by Mr. Shaffet,
400 are held individually by his wife.

     (5)  Dimensional  Fund  Advisors,   Inc.   ("Dimensional"),   a  registered
investment advsior, is deemed to have beneficial  ownership of 619,800 shares of
NYMAGIC,  INC.  stock as of December 31,  1997,  all of which shares are held in
portfolios  of DFA  Investment  Dimensions  Group,  Inc., a registered  open-end
investment company, or in series of the DFA Investment Trust Company, a Delaware
business  trust,  or the DFA Group  Trust  and DFA  Participation  Group  Trust,
investment   vehicles  for  qualified  employee  benefit  plans,  all  of  which
Dimensional  Fund  Advisors,  Inc.  serves as  investment  manager.  Dimensional
disclaims beneficial ownership of all such shares.

                                       27
<PAGE>


     (6) T. Rowe  Price  Associates,  Inc.  has filed a report on  Schedule  13G
disclosing  beneficial  ownership  of 1,012,000  shares in total.  T. Rowe Price
Associates,  Inc.  beneficially  owns  512,000 and T. Rowe Price Small Cap Value
Fund, Inc. owns 500,000.

     (7)  Howard S.  Tuthill,  as Trustee  of the  Louise B.  Tollefson  Florida
Intangible Tax Trust, has filed a report on Schedule 13D disclosing ownership of
1,911,211  shares of Common Stock in connection  with certain  aspects of estate
and tax planning for Louise B. Tollefson.

     (8)  Of  the  5,988,010  shares  indicated  as  beneficially  owned  by all
directors  and officers as a group,  35,055 shares with respect to which options
are currently exercisable.  See "Compensation and Other Information-Stock Option
Plans".  These shares are included in the total number of outstanding shares for
the purpose of determining the percentage of Common Stock  beneficially owned by
all directors and officers as a group.

Item 13. Certain Relationships and Related Transactions.

     The Company made annual charitable  donations to the John N. Blackman,  Sr.
Foundation (the "Foundation") in the amount of approximately $480,000 in each of
1997,  1996 and 1995. The  Foundation  was  established by Mr. John N. Blackman,
Sr.,  the  founder  of the  Company,  shortly  before  his  death in  1988.  The
Foundation  supports  numerous  charities  with  a  primary  emphasis  on  those
charities assisting the indigent,  disabled or disadvantaged.  The Foundation is
managed by Mr. John N.  Blackman,  Jr.,  Mr. Mark W.  Blackman  and Mr. James A.
Lambert,  all of whom donate their time and receive no form of remuneration from
the Foundation.

Item 14.  Exhibits, Financial Statement Schedules, and Reports on Form 8-K.

     (a)  1. Financial Statements

               The list of  financial  statements  appears  in the  accompanying
               index on page 34.

          2.   Financial Statement Schedules

               The  list  of  financial   statement  schedules  appears  in  the
               accompanying index on page 34.

          3.   Exhibits

               3.1.  Charter.  (Incorporated  by reference to Exhibit 3-1 to the
          Registrant's Registration Statement No. 33-27665).

               3.3. By-laws.

               4.0.  Specimen  Certificate  of  common  stock  (Incorporated  by
          reference to Exhibit 4 to the Registrant's  Registration Statement No.
          33-27665).

               10.2. Restated Management  Agreement dated as of January 1, 1986,
          by  and  among  Mutual  Marine  Office,   Inc.  and   Arkwright-Boston
          Manufacturers   Mutual  Insurance  Company,   Utica  Mutual  Insurance
          Company,   Lumber  Mutual  Insurance   Company,   the  Registrant  and
          Pennsylvania  National Mutual Casualty Insurance Company (Incorporated
          by reference to Exhibit 10.2 of the  Registrant's  Annual  Report Form
          1O-K for the fiscal year ended December 31, 1986.)

                    10.2.2. Amendment to Restated Management Agreement, dated as
               of December 30, 1988,  and among Mutual Marine  Office,  Inc. and
               Arkwright  Mutual  Insurance  Company,   Utica  Mutual  Insurance
               Company,  Lumber Mutual  Insurance  Company,  the  Registrant and
               Pennsylvania   National   Mutual  Casualty   Insurance   Company.
               (Incorporated by reference to Exhibit 10.2.2. of the Registrant's
               Report on Form 8-K dated January 6, 1989.)


                                       28
<PAGE>


                    10.2.3. Amendment to Restated Management Agreement, dated as
               of December 31, 1990,  and among Mutual Marine  Office,  Inc. and
               Arkwright  Mutual  Insurance  Company,   Utica  Mutual  Insurance
               Company, the Registrant and Pennsylvania National Mutual Casualty
               Insurance Company.  (Incorporated by reference to Exhibit 10.2.3.
               of the  Registrant's  Annual  Report on Form 10-K for the  fiscal
               year ended December 31, 1992.)

               10.4. Restated Management  Agreement dated as of January 1, 1986,
          by and among Mutual Inland Marine  Office,  Inc. and  Arkwright-Boston
          Manufacturers   Mutual  Insurance  Company,   Utica  Mutual  Insurance
          Company,   Lumber  Mutual  Insurance   Company,   the  Registrant  and
          Pennsylvania  National Mutual Casualty Insurance Company (Incorporated
          by reference to Exhibit 10.4 of the  Registrant's  Annual  Report Form
          10-K for the fiscal year ended December 31, 1986.)

                    10.4.2. Amendment to Restated Management Agreement, dated as
               of December 30, 1988, and among Mutual Inland Marine Office, Inc.
               and Arkwright  Mutual Insurance  Company,  Utica Mutual Insurance
               Company,  Lumber Mutual  Insurance  Company,  the  Registrant and
               Pennsylvania   National   Mutual   Casualty   Insurance   Company
               (Incorporated  by reference to Exhibit 10.4.2 of the Registrant's
               Report on Form 8-K, dated January 6, 1989.)

                    10.4.3. Amendment to Restated Management Agreement, dated as
               of December 31, 1990, by and among Mutual  Inland Marine  Office,
               Inc.  and  Arkwright  Mutual  Insurance  Company,   Utica  Mutual
               Insurance  Company,  the  Registrant  and  Pennsylvania  National
               Mutual Casualty Insurance Company.  (Incorporated by reference to
               Exhibit 10.4.3.  of the  Registrant's  Annual Report on Form 10-K
               for the fiscal year ended December 31, 1992.)

               10.6. Restated Management  Agreement dated as of January 1, 1986,
          by  and  among  Mutual  Marine   Office  of  the  Midwest,   Inc.  and
          Arkwright-Boston  Manufacturers Mutual Insurance Company, Utica Mutual
          Insurance Company, Lumber Mutual Insurance Company, the Registrant and
          Pennsylvania National Mutual Casualty Insurance Company. (Incorporated
          by reference to Exhibit 10.6 of the Registrant's Annual Report on Form
          10-K for the fiscal year ended December 31, 1986.)

                    10.6.2.  Amendment to Restated Management Agreement dated as
               of December 30, 1988,  by and among Mutual  Marine  Office of the
               Midwest,  Inc. and  Arkwright  Mutual  Insurance  Company,  Utica
               Mutual Insurance Company,  Lumber Mutual Insurance  Company,  the
               Registrant and  Pennsylvania  National Mutual Casualty  Insurance
               Company.  (Incorporated  by  reference  to Exhibit  10.6.2 of the
               Registrant's Report on Form 8-K, dated January 6, 1989.)

                    10.6.3.  Amendment to Restated Management Agreement dated as
               of December 31, 1990,  by and among Mutual  Marine  Office of the
               Midwest,  Inc. and  Arkwright  Mutual  Insurance  Company,  Utica
               Mutual  Insurance   Company,   the  Registrant  and  Pennsylvania
               National  Mutual Casualty  Insurance  Company.  (Incorporated  by
               reference to Exhibit 10.6.3. of the Registrant's Annual Report on
               Form 10-K for the fiscal year ended December 31, 1992.)

               10.8. Restated Management  Agreement dated as of January 1, 1986,
          by and among Pacific Mutual Marine Office,  Inc. and  Arkwright-Boston
          Manufacturers  Mutual  Insurance  Company,   Lumber  Mutual  Insurance
          Company,   Utica  Mutual   Insurance   Company,   the  Registrant  and
          Pennsylvania National Mutual Casualty Insurance Company. (Incorporated
          by reference to Exhibit 10.8 of the Registrant's Annual Report on Form
          10-K for the fiscal year ended December 31, 1986.)

                    10.8.2.  Amendment to Restated Management Agreement dated as
               of December 30, 1988, by and among Pacific  Mutual Marine Office,
               Inc.  and  Arkwright  Mutual  Insurance  Company,  Lumber  Mutual
               Insurance Company, Utica Mutual Insurance Company, the Registrant
               and  Pennsylvania  National  Mutual Casualty  Insurance  Company.
               (Incorporated  by reference to Exhibit 10.8.2 of the Registrant's
               Report on Form 8-K, dated January 6, 1989.)


                                       29
<PAGE>


                    10.8.3.  Amendment to Restated Management Agreement dated as
               of December 31, 1990, by and among Pacific  Mutual Marine Office,
               Inc.  and  Arkwright  Mutual  Insurance  Company,   Utica  Mutual
               Insurance  Company,  the  Registrant  and  Pennsylvania  National
               Mutual Casualty Insurance Company.  (Incorporated by reference to
               Exhibit 10.8.3.  of the  Registrant's  Annual Report on Form 10-K
               for the fiscal year ended December 31, 1992.)

          21. Subsidiaries of the Registrant.

          23. Consent of KPMG Peat Marwick LLP.

          28. Schedule P as of December 31, 1997.

     (b)  Reports on Form 8-K

          None.


                                       30
<PAGE>


                                   SIGNATURES


     Pursuant  to the  requirements  of  Section  13 or 15(d) 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.


                                             NYMAGIC, INC.
                                             (Registrant)



                                              By:  /s/ Mark W. Blackman
                                                   -----------------------------
                                                     Mark W. Blackman
                                                     Chief Executive Officer


                                              Date: March 11, 1998


     Pursuant to the  requirements of the Securities  Exchange Act of 1934, this
Report  has  been  signed  below  by the  following  persons  on  behalf  of the
Registrant and in the capacities and on the date indicated.

Name                                   Title                       Date
----                                   -----                       ----


/s/ John N. Blackman, Jr.       Chairman of the Board             March 11, 1998
-------------------------         and Director
John N. Blackman, Jr.


/s/ Mark W. Blackman            President, Chief Executive        March 11, 1998
-------------------------         Officer and Director
Mark W. Blackman


/s/ Thomas J. Condon            Director                          March 11, 1998
-------------------------
Thomas J. Condon


/s/ Jean H. Goulding            Director                          March 11, 1998
-------------------------
Jean H. Goulding


/s/ John Kean, Jr.              Director                          March 11, 1998
-------------------------
John Kean, Jr.


/s/ James A. Lambert            Director, General Counsel,        March 11, 1998
-------------------------         Chief Operating Officer
James A. Lambert                  and Secretary



                                    31
<PAGE>


Name                              Title                           Date
----                              -----                           ----

/s/ Charles A. Mitchell         Director and Vice President       March 11, 1998
-------------------------
Charles A. Mitchell


/s/ Michael S. Shaffet          Director                          March 11, 1998
-------------------------
Michael S. Shaffet


/s/ William R. Scarbrough       Director                          March 11, 1998
-------------------------
William R. Scarbrough


/s/ Richard T. Soper            Director                          March 11, 1998
-------------------------
Richard T. Soper


/s/ William A. Thorne           Director                          March 11, 1998
-------------------------
William A. Thorne


/s/ Sergio B. Tobia             Director                          March 11, 1998
-------------------------
Sergio B. Tobia


/s/ Louise B. Tollefson         Director                          March 11, 1998
-------------------------
Louise B. Tollefson


/s/ Thomas J. Iacopelli         Principal Accounting Officer      March 11, 1998
-------------------------         and Chief Financial Officer
Thomas J. Iacopelli


                                       32

<PAGE>



                                  NYMAGIC, INC.
                   INDEX TO CONSOLIDATED FINANCIAL STATEMENTS


Independent Auditors' Report ..............................................   35

Consolidated Balance Sheets ...............................................   36

Consolidated Statements of Income .........................................   37

Consolidated Statements of Shareholders' Equity ...........................   38

Consolidated Statements of Cash Flows .....................................   39

Notes to Consolidated Financial Statements ................................   40

Financial Statement Schedule II ...........................................   59

Financial Statement Schedule V ............................................   61

Financial Statement Schedule VI ...........................................   62


                                       34
<PAGE>


                          INDEPENDENT AUDITORS' REPORT

The Board of Directors and Shareholders
NYMAGIC, INC.:

     We have audited the  accompanying  consolidated  balance sheets of NYMAGIC,
INC.  and  subsidiaries  as of  December  31,  1997 and  1996,  and the  related
consolidated statements of income, shareholders' equity, and cash flows for each
of the years in the  three-year  period ended  December 31, 1997.  In connection
with our audits of the consolidated  financial statements,  we have also audited
the financial  statement  schedules as listed in the accompanying  index.  These
consolidated  financial  statements  and financial  statement  schedules are the
responsibility of the Company's management.  Our responsibility is to express an
opinion on these  consolidated  financial  statements  and  financial  statement
schedules based on our audits.

     We conducted  our audits in accordance  with  generally  accepted  auditing
standards.  Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement.  An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements.  An audit also includes
assessing the  accounting  principles  used and  significant  estimates  made by
management,  as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

     In our opinion,  the consolidated  financial  statements  referred to above
present fairly, in all material respects, the consolidated financial position of
NYMAGIC,  INC.  and  subsidiaries  as of  December  31,  1997 and 1996,  and the
consolidated  results of their  operations  and their cash flows for each of the
years in the  three-year  period  ended  December  31, 1997 in  conformity  with
generally  accepted  accounting  principles.  Also, in our opinion,  the related
financial  statement  schedules,  when  considered  in  relation  to  the  basic
consolidated  financial  statements  taken as a whole,  present  fairly,  in all
material respects, the information set forth therein.


KPMG Peat Marwick LLP
New York, New York
February 17, 1998


                                       35
<PAGE>


                                  NYMAGIC, INC.
                           CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
                                                                                                           December 31,
                                                                                               ------------------------------------
                                                                                                   1997                    1996
                                                                                               -------------          -------------
<S>                                                                                            <C>                    <C>
                                                             ASSETS
Investments:
Fixed maturities available for sale at fair value
  (amortized cost $352,696,745 and $341,130,292) .....................................         $ 361,249,758          $ 345,483,129
Equity securities at fair value
  (cost $47,925,798 and $37,161,709) .................................................            59,258,608             45,348,736
Short-term investments ...............................................................            18,082,540             18,377,180
                                                                                               -------------          -------------
  Total investments ..................................................................           438,590,906            409,209,045
                                                                                               -------------          -------------
Cash .................................................................................             1,042,310                701,086
Accrued investment income ............................................................             6,322,370              5,960,197
Premiums and other receivables, net ..................................................            40,635,164             63,039,393
Reinsurance receivables ..............................................................           175,657,952            197,988,073
Deferred policy acquisition costs ....................................................             5,567,488             10,904,241
Prepaid reinsurance premiums .........................................................            24,414,620             10,562,213
Deferred income taxes ................................................................             8,436,768             11,131,603
Property, improvements & equipment, net ..............................................             2,365,653              2,107,087
Other assets .........................................................................             4,869,609              3,345,826
                                                                                               -------------          -------------
  Total assets .......................................................................         $ 707,902,840          $ 714,948,764
                                                                                               =============          =============

                                                      LIABILITIES
Unpaid losses and loss adjustment expenses ...........................................         $ 388,401,548          $ 411,836,981
Reserve for unearned premiums ........................................................            55,188,281             66,651,933
Ceded reinsurance payable ............................................................            27,307,129             19,753,943
Notes payable ........................................................................            22,458,413             20,438,413
Other liabilities ....................................................................             7,062,095              6,401,463
Dividends payable ....................................................................               966,031              1,014,305
                                                                                               -------------          -------------
  Total liabilities ..................................................................           501,383,497            526,097,038
                                                                                               -------------          -------------

                                                   SHAREHOLDERS' EQUITY
Common stock .........................................................................            14,991,992             14,911,992
Paid-in capital ......................................................................            27,529,877             26,258,259
Unrealized appreciation of investments
  (net of deferred income taxes) .....................................................            12,925,785              8,150,910
Foreign currency adjustment ..........................................................                 6,000                   --
Retained earnings ....................................................................           193,547,346            171,089,462
                                                                                               -------------          -------------
                                                                                                 249,001,000            220,410,623
Treasury stock, at cost, 5,331,686 and 4,768,940
shares ...............................................................................           (42,481,657)           (31,558,897)
                                                                                               -------------          -------------

  Total shareholders' equity .........................................................           206,519,343            188,851,726
                                                                                               -------------          -------------
  Total liabilities and shareholders' equity .........................................         $ 707,902,840          $ 714,948,764
                                                                                               =============          =============
</TABLE>

   The accompanying notes are an integral part of these  consolidated  financial
statements.


                                       36
<PAGE>


                                                   NYMAGIC, INC.
                                         CONSOLIDATED STATEMENTS OF INCOME

<TABLE>
<CAPTION>
                                                                                          Year ended December 31,
                                                                        ------------------------------------------------------------
                                                                             1997                    1996                   1995
                                                                        ------------------------------------------------------------
<S>                                                                     <C>                     <C>                     <C>
Revenue:
   Net premiums earned .....................................            $ 87,536,906            $ 97,036,021            $103,461,499
   Commission income .......................................               1,438,606               1,980,632               3,438,418
   Net investment income ...................................              21,325,065              21,270,194              21,658,931
   Realized investment gains ...............................              10,425,133               4,589,133               4,110,515
   Other income ............................................                 292,918                 689,641                 660,924
                                                                        ------------            ------------            ------------
     Total revenues ........................................             121,018,628             125,565,621             133,330,287

Expenses:
   Losses and loss adjustment expenses
    incurred ...............................................              50,768,248              59,358,857              69,716,186
   Policy acquisition expenses .............................              16,582,623              18,827,794              21,017,503
   General and administrative expenses .....................              16,763,699              16,168,162              16,236,323
   Interest expense ........................................               1,449,770               1,035,058                 437,653
                                                                        ------------            ------------            ------------
     Total expenses ........................................              85,564,340              95,389,871             107,407,665
                                                                        ------------            ------------            ------------

Income before income taxes .................................              35,454,288              30,175,750              25,922,622
                                                                        ------------            ------------            ------------

   Income tax provision:
   Current .................................................               8,962,799               7,494,593               5,392,637

   Deferred ................................................                 123,749                  56,539                 410,123
                                                                        ------------            ------------            ------------
     Total income taxes ....................................               9,086,548               7,551,132               5,802,760
                                                                        ------------            ------------            ------------

   Net income ..............................................            $ 26,367,740            $ 22,624,618            $ 20,119,862
                                                                        ============            ============            ============

Weighted average number of shares of
 common stock outstanding-basic ............................               9,848,959              10,499,366              11,298,746
                                                                        ============            ============            ============

Basic earnings per share ...................................                   $2.68                   $2.15                   $1.78
                                                                        ============            ============            ============

Weighted average number of shares of
   common stock outstanding-diluted ........................               9,871,586              10,523,996              11,341,370
                                                                        ============            ============            ============

Diluted earnings per share .................................                   $2.67                   $2.15                   $1.77
                                                                        ============            ============            ============
</TABLE>

     The accompanying notes are an integral part of these consolidated financial
statements.


                                       37
<PAGE>


                                  NYMAGIC, INC.
                 CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY

<TABLE>
<CAPTION>
                                                                                             Year ended December 31,
                                                                              -----------------------------------------------------
                                                                                  1997                1996                1995
                                                                              -------------       -------------       -------------
<S>                                                                           <C>                 <C>                 <C>
 Common stock, authorized shares,
 par value $1 each .....................................................         30,000,000          30,000,000          30,000,000
                                                                              =============       =============       =============
 Balance, beginning of period ..........................................      $  14,911,992       $  14,749,192       $  14,747,292
 Shares issued .........................................................             80,000             162,800               1,900
                                                                              -------------       -------------       -------------
         Balance, end of period ........................................         14,991,992          14,911,992          14,749,192
                                                                              -------------       -------------       -------------
 Paid-in capital:
 Balance, beginning of period ..........................................         26,258,259          23,933,587          23,736,024
 Shares issued .........................................................          1,271,618           2,324,672             197,563
                                                                              -------------       -------------       -------------
         Balance, end of period ........................................         27,529,877          26,258,259          23,933,587
                                                                              -------------       -------------       -------------

 Unrealized appreciation (depreciation) of investments:
 Balance, beginning of period ..........................................          8,150,910           9,865,486          (4,132,749)
 Net change during period ..............................................          7,345,961          (2,637,810)         21,439,413
 Applicable deferred income taxes on the
 change ................................................................         (2,571,086)            923,234          (7,441,178)
                                                                              -------------       -------------       -------------
         Balance, end of period ........................................         12,925,785           8,150,910           9,865,486
                                                                              -------------       -------------       -------------
 Retained earnings:
 Balance, beginning of period ..........................................        171,089,462         152,646,915         137,000,454
 Net income ............................................................         26,367,740          22,624,618          20,119,862
 Dividends declared ....................................................         (3,909,856)         (4,182,071)         (4,473,401)
                                                                              -------------       -------------       -------------
      Balance, end of period ...........................................        193,547,346         171,089,462         152,646,915
                                                                              -------------       -------------       -------------
 Treasury stock:
 Balance, beginning of period ..........................................        (31,558,897)        (18,478,576)         (7,037,640)
 Net repurchase of common stock ........................................        (10,922,760)        (13,080,321)        (11,440,936)
                                                                              -------------       -------------       -------------
         Balance, end of period ........................................      $ (42,481,657)      $ (31,558,897)      $ (18,478,576)
                                                                              =============       =============       =============

                                                 Number of Shares

Common stock, par value $1 each:
   Issued, beginning of period .........................................         14,911,992          14,749,192          14,747,292
   Shares Issued .......................................................             80,000             162,800               1,900
                                                                              -------------       -------------       -------------

   Issued, end of period ...............................................         14,991,992          14,911,992          14,749,192
                                                                              =============       =============       =============

   Common stock, shares outstanding ....................................          9,660,306          10,143,052          10,691,812
                                                                              =============       =============       =============

   Dividends declared per share ........................................               $.40                 .40                $.40
                                                                              =============       =============       =============
</TABLE>

     The accompanying notes are an integral part of these consolidated financial
statements.



                                       38
<PAGE>


                                  NYMAGIC, INC.
                      CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
                                                                                       Year ended December 31,
                                                                     -----------------------------------------------------------
                                                                          1997                  1996                    1995
                                                                     -----------------------------------------------------------
Cash flows from operating activities:
<S>                                                                  <C>                    <C>                    <C>
Net income .................................................         $  26,367,740          $  22,624,618          $  20,119,862
                                                                     -------------          -------------          -------------
Adjustments to reconcile net income to
   net cash provided by operating
   activities:
   Provision for deferred taxes ............................               123,749                 56,539                410,123
   Realized investment gains ...............................           (10,425,133)            (4,589,133)            (4,110,515)
   Net bond amortization ...................................             1,895,355              1,933,151              1,492,577
   Depreciation and other, net .............................               582,126                442,945                520,011
Changes in:
   Premiums and other receivables ..........................            22,404,229              6,641,818             13,545,283
   Reinsurance receivables .................................            22,330,121               (592,384)            41,589,294
   Ceded reinsurance payable ...............................             7,553,186              3,327,596             (8,331,820)
   Accrued investment income ...............................              (362,173)               150,205               (359,831)
   Deferred policy acquisition costs .......................             5,336,753                756,662              1,797,197
   Prepaid reinsurance premiums ............................           (13,852,407)             6,394,228              6,202,940
   Other assets ............................................            (1,523,783)                80,157                (59,531)
   Unpaid losses and loss adjustment
     expenses ..............................................           (23,435,433)            (5,957,544)           (17,277,135)
   Reserve for unearned premiums ...........................           (11,463,652)           (12,917,022)           (11,847,234)
   Foreign currency adjustment .............................                 6,000                   --                     --
   Other liabilities .......................................               660,632             (5,546,174)             4,920,993
                                                                     -------------          -------------          -------------
       Total adjustments ...................................              (170,430)            (9,818,956)            28,492,352
                                                                     -------------          -------------          -------------

Net cash provided by operating activities ..................            26,197,310             12,805,662             48,612,214
                                                                     -------------          -------------          -------------
Cash flows from investing activities:
   Fixed maturities acquired ...............................          (205,891,607)          (231,515,433)          (272,053,730)
   Equity securities acquired ..............................           (50,578,073)           (37,880,911)           (21,224,924)
   Short-term investments sold or matured ..................           239,532,269            631,722,760            835,378,875
   Short-term investments acquired .........................          (239,353,753)          (609,264,339)          (844,049,317)
   Fixed maturities matured ................................            25,059,072             36,302,944             33,726,487
   Fixed maturities sold ...................................           167,867,245            171,112,392            209,230,556
   Equity securities sold ..................................            49,858,725             33,637,805             21,385,913
   Acquisition of property & equipment, net ................              (840,692)              (276,494)              (121,852)
                                                                     -------------          -------------          -------------
Net cash used in investing activities ......................           (14,346,814)            (6,161,276)           (37,727,992)
                                                                     -------------          -------------          -------------
Cash flows from financing activities:
   Proceeds from stock issuance ............................             1,351,618              2,487,472                199,463
   Cash dividends paid to stockholders .....................            (3,958,130)            (4,236,947)            (4,542,123)
   Net repurchase of common stock ..........................           (10,922,760)           (13,080,321)           (11,440,936)
   Proceeds from borrowings ................................             9,520,000             14,211,472             15,118,449
   Loan principal payments .................................            (7,500,000)            (6,500,000)            (9,411,764)
                                                                     -------------          -------------          -------------
   Net cash used in financing activities ...................           (11,509,272)            (7,118,324)           (10,076,911)
Net increase (decrease) in cash ............................               341,224               (473,938)               807,311
   Cash at beginning of year ...............................               701,086              1,175,024                367,713
                                                                     -------------          -------------          -------------
   Cash at end of year .....................................         $   1,042,310          $     701,086          $   1,175,024
                                                                     =============          =============          =============
</TABLE>

     The accompanying notes are an integral part of these consolidated financial
statements.


                                       39
<PAGE>


                                  NYMAGIC, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

     (1)  Summary Of Significant Accounting Policies:

     Nature of Operations

     NYMAGIC,  through  its  subsidiaries,  specializes  in  underwriting  ocean
marine, inland marine,  aviation and other liability insurance through insurance
pools managed by Mutual Marine  Office,  Inc. - ("MMO"),  Pacific  Mutual Marine
Office,  Inc.  -  ("PMMO"),  and Mutual  Marine  Office of the  Midwest,  Inc. -
("Midwest").  MMO,  located  in New York,  PMMO  located in San  Francisco,  and
Midwest,  located in Chicago,  manage the insurance pools in which the Company's
insurance  subsidiaries,  New York Marine and General  Insurance Company - ("New
York  Marine")  and  Gotham  Insurance  Company  ("Gotham"),   participate.  All
premiums, losses and expenses are prorated among pool members in accordance with
their  pool  participation  percentages.  Effective  July 1, 1994,  the  Company
increased to 90.00% its  participation in the ocean marine and aviation business
produced by the pools and to 100% its  participation  in the other liability and
inland marine  business  produced by the pools.  Effective  January 1, 1997, the
Company  increased  to 100% its  participation  in the ocean marine and aviation
business produced by the pools.  Substantially all of the Company's premiums for
the last three years have resulted  from  participation  in the insurance  pools
managed by MMO and affiliates.

     On December 31, 1997,  the Company  acquired  100% of the stock of Highgate
Managing Agency, a Lloyd's of London underwriting agent for a nominal amount and
renamed the Company MMO  Underwriting  Agency Ltd (MMO UA). The  acquisition was
accounted  for under the purchase  method of  accounting.  Pro forma  results of
operations  have been omitted from the  statements of income as such amounts are
considered  immaterial.  In 1997 , The  Company  formed  MMO EU Ltd,  a  holding
company,  and MMO UK LTD,  a Lloyd's of London  corporate  vehicle  for  Lloyd's
Syndicate  1265.  The  assets and  liabilities  of MMO EU, MMO UK and MMO UA are
included in the consolidated balance sheet.

   Basis of Reporting

     The  consolidated  financial  statements have been prepared on the basis of
generally  accepted  accounting  principles  which  differ in  certain  material
respects  from  the  accounting  principles  prescribed  or  permitted  by state
insurance regulatory  authorities for the Company's two insurance  subsidiaries.
The  principal   differences   recorded  under  generally  accepted   accounting
principles  are deferred  policy  acquisition  costs,  an allowance for doubtful
accounts,  fixed maturities held for sale are carried at fair value and deferred
income taxes.

     Generally  accepted  accounting  principles also require management to make
estimates that affect the reported amounts of assets, liabilities,  revenues and
expenses. Actual amounts could differ from those amounts previously estimated.

   Consolidation

     The consolidated  financial statements include the accounts of the Company,
two  insurance   subsidiaries,   New  York  Marine  and  Gotham,   three  agency
subsidiaries   collectively   referred  to  as  ("MMO")  and  the  Company's  UK
operations.  Gotham is owned 25% by the Company and 75% by New York Marine.  All
other subsidiaries are wholly owned. All intercompany  accounts and transactions
have been eliminated in consolidation.


                                       40
<PAGE>


                                  NYMAGIC, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

   Investments

     Fixed  maturities held for sale are carried at fair value and include those
bonds where the Company's  intent to carry such  investments  to maturity may be
affected in future periods by changes in market  interest rates or tax position.
Equity  securities  (common  stocks and  non-redeemable  preferred  stocks)  are
carried  at fair  value.  Short-term  investments  are  carried  at  cost  which
approximates  fair  value.  Fair  value  is  based  upon  quotes  obtained  from
independent sources.

     Realized  investment gains and losses  (determined on the basis of specific
identified  cost), also include any declines in value which are considered to be
other than  temporary.  Unrealized  appreciation or depreciation of investments,
net of related deferred income taxes, is reflected in shareholders' equity.

     In November, 1995, the Financial Accounting Standards Board ("FASB") issued
a report entitled "A Guide to  Implementation of Statement 115 on Accounting for
Certain  Investments in Debt and Equity  Securities," which allowed companies to
reassess the  classifications  of all  securities  held and permitted  transfers
among  classifications,  prior  to  December  31,  1995,  without  tainting  the
securities' previous  classification.  Accordingly,  the Company transferred the
entire fixed  maturities held for investment  portfolio at December 1, 1995 at a
fair value of $89.6 million into the  available for sale account.  The effect of
the  transfer at December 1, 1995 was to increase  shareholders'  equity by $2.7
million without an effect on net income.

   Premium and policy acquisition cost recognition

     Premiums and policy  acquisition  costs are reflected in income and expense
on a  monthly  pro  rata  basis  over  the  terms  of the  respective  policies.
Accordingly,  unearned  premium  reserves  are  established  for the  portion of
premiums  written  applicable to unexpired  policies in force,  and  acquisition
costs,  consisting  mainly  of net  brokerage  commissions  and  premium  taxes,
relating to these unearned premiums are deferred to the extent recoverable.  The
Company has provided an  allowance  for  uncollectible  premium  receivables  of
$700,000  and  $750,000 as of  December  31,  1997 and 1996,  respectively.  The
determination  of  acquisition  costs to be deferred  considers  historical  and
current loss and loss adjustment expense experience. Consideration is also given
to  anticipated  investment  income in measuring the carrying  value of deferred
policy acquisition costs.

   Revenue recognition

     Management commission income on policies written by the MMO insurance pools
is  recognized  primarily  as of the  effective  date  of the  policies  issued.
Adjustments to the policies,  resulting principally from changes in coverage and
audit adjustments, are recorded in the period reported.

     Contingent   profit   commission   revenue  derived  from  the  reinsurance
transactions  of the  insurance  pools is  recognized  when such amount  becomes
billable to the respective reinsurers.

   Reinsurance

     The Company's  insurance  subsidiaries  participate in various  reinsurance
agreements on both an assumed and ceded basis  through the MMO insurance  pools.
The Company uses various types of reinsurance including  quota-share,  excess of
loss  and  facultative  agreements  to  spread  the risk of loss  among  several
reinsurers  and to limit its  exposure  from losses on any one  occurrence.  Any
recoverable  due from  reinsurers is recorded in the period in which the related
gross liability is established.



                                       41
<PAGE>


                                  NYMAGIC, INC.
              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued

     The Company  accounts  for  reinsurance  in  accordance  with  Statement of
Financial  Accounting  Standards ("SFAS") No. 113, "Accounting and Reporting for
Reinsurance of Short and Long Duration  Contracts"  (SFAS 113). SFAS 113 defines
the requirements for a contract to be considered reinsurance and requires assets
and  liabilities  relating to  reinsurance  contracts  to be  reported  gross of
reinsurance.

   Depreciation

     Property,  equipment and leasehold  improvements are depreciated using both
straightline and accelerated methods over their useful lives.

   Income Taxes

     The Company provides deferred income taxes on temporary differences between
the  financial  reporting  basis and the tax basis of the  Company's  assets and
liabilities in accordance with SFAS No. 109 "Accounting for Income Taxes."

   Fair Values of Financial Instruments

     The fair value of the Company's fixed maturity  investments is disclosed in
Note  2.  The  Company's  other   financial   instruments   include   short-term
receivables,  notes  payable  and  other  payables  which  are  recorded  at the
underlying transaction value and approximate fair value.

   Goodwill

     The excess of purchase price over the fair value of net assets  acquired is
amortized to income on a straight -line basis over five years.

   Foreign currency translation

     The assets and  liabilities  of the Company's UK  operations,  expressed in
Pounds  Sterling,  are translated to U.S. dollars at exchange rates in effect at
the balance sheet date and the resulting  adjustments are recorded as a separate
component of Shareholders' Equity.

   Incurred losses

     Unpaid losses are based on individual case estimates for losses reported. A
provision is also included,  based on past  experience,  for losses incurred but
not  reported,  salvage  and  subrogation  recoveries  and for  loss  adjustment
expenses. The method of making such estimates and for establishing the resulting
reserves is continually reviewed and updated and any changes resulting therefrom
are reflected in operating results currently.


                                       42
<PAGE>


                                  NYMAGIC, INC.
              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued


   Basic and diluted earnings per share

     In February  1997,  the FASB issued  SFAS No.  128,  "Earnings  Per Share,"
("SFAS 128"),  which  specifies the  computation,  presentation  and  disclosure
requirements  of earnings  per share (EPS) for  companies  with  publicly  owned
common  stock  or  potential   common  stock  and   supersedes   the  accounting
requirements  of APB Opinion No. 15,  "Earnings Per Share." The Company's  stock
options are  considered  potential  common  stock under SFAS 128.  SFAS 128 also
requires the dual presentation of "basic EPS" and "diluted EPS."

     SFAS 128 is effective for financial  statements for both interim and annual
periods ending after December 15, 1997.  Accordingly,  all prior period EPS data
reported herein has been restated to conform with SFAS 128.

     Basic EPS is  calculated  by dividing  net income by the  weighted  average
number of common shares  outstanding  during the year. Diluted EPS is calculated
by  dividing  net  income  by the  weighted  average  number  of  common  shares
outstanding  during the year and the  dilutive  effect of assumed  stock  option
exercises.  See  Note  11 for a  reconciliation  of the  shares  outstanding  in
determining basic and diluted EPS.

   Reclassification

     Certain  accounts  in the  prior  year's  financial  statements  have  been
reclassified to conform to their 1997 presentation.

   Effects of recent accounting pronouncements

     The FASB issued  SFAS No. 130,  "Reporting  Comprehensive  Income,"  ("SFAS
130"),  in  June  1997  which  establishes   standards  for  the  reporting  and
presentation of comprehensive  income and its components.  Comprehensive  income
encompasses  all changes in  shareholders'  equity,  except  those  arising from
transactions with owners,  and includes net income, net unrealized capital gains
or losses on available  for sale  securities  and foreign  currency  translation
adjustments. SFAS 130 is effective for fiscal years beginning after December 15,
1997, with earlier application  permitted.  The Company is currently  evaluating
the presentation alternatives permitted by the statement.

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



                                       43
<PAGE>


                                  NYMAGIC, INC.
              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued


(2)  Investments:

     A summary of  investment  components  at December 31, 1997  consists of the
following:

<TABLE>
<CAPTION>
                                                                                                                     Amount at which
                                                                                                   Fair                shown in the
Type of Investment                                                          Cost                   Value              balance sheet
------------------                                                      ------------            ------------          -------------
<S>                                                                     <C>                     <C>                    <C>
Fixed maturities available for sale:
  Bonds:
    United States Government and
      government agencies and
      authorities ..........................................            $101,491,865            $102,945,945           $102,945,945
    States, municipalities and
      political subdivisions ...............................             219,788,108             226,044,611            226,044,611
      Public utilities .....................................              18,003,038              18,522,005             18,522,005
  All other corporate bonds ................................              13,413,734              13,737,197             13,737,197
                                                                        ------------            ------------           ------------
      Total fixed maturities
        available for sale .................................             352,696,745             361,249,758            361,249,758
                                                                        ------------            ------------           ------------
Equity securities:
Common stocks:
Public utilities ...........................................               2,673,124               3,203,122              3,203,122
Banks, trusts and insurance
  companies ................................................               4,036,308               4,819,806              4,819,806
Industrial, miscellaneous and
  all other ................................................              41,069,366              51,043,305             51,043,305
Non-redeemable preferred stock .............................                 147,000                 192,375                192,375
                                                                        ------------            ------------           ------------
  Total equity securities ..................................              47,925,798              59,258,608             59,258,608
                                                                        ------------            ------------           ------------
Short term investments .....................................              18,082,540              18,082,540             18,082,540
                                                                        ------------            ------------           ------------
  Total investments ........................................            $418,705,083            $438,590,906           $438,590,906
                                                                        ============            ============           ============
</TABLE>

     Unrealized  depreciation or appreciation of investments  (before applicable
income taxes) at December 31, 1997 and 1996 included gross  unrealized  gains on
equity  securities  of  $12,276,631  and  $8,754,704,  respectively;  and  gross
unrealized losses on equity  securities of $943,821 and $567,677,  respectively;
and gross unrealized gains on fixed maturities  available for sale of $8,601,011
and $5,537,330 at December 31, 1997 and 1996, respectively; and gross unrealized
losses on fixed  maturities  available for sale of $47,998 and  $1,184,493 as of
December 31, 1997 and 1996, respectively.

     Included  in  investments  at December  31, 1997 are bonds on deposit  with
various  regulatory  authorities  as  required  by  law  with a  fair  value  of
$8,870,200.

     There were no non-income  producing fixed maturity  investments for each of
the years ended December 31, 1997, 1996 and 1995.

     All mortgage backed  securities  available as of December 31, 1997 and 1996
are obligations of various U.S.  Government  agencies and consist of GNMA, FHLMC
or FNMA pass through securities. These securities are readily marketable.


                                       44
<PAGE>


                                  NYMAGIC, INC.
              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued


   The gross  unrealized  gains and losses on debt securities as of December 31,
1997 and 1996 are as follows:

<TABLE>
<CAPTION>
                                                                                               1997
                                                           -------------------------------------------------------------------------
                                                                                  Gross               Gross
                                                             Amortized          Unrealized          Unrealized             Fair
                                                               Cost               Gains               Losses               Value
                                                           ------------        ------------        ------------         ------------
<S>                                                        <C>                 <C>                 <C>                  <C>
Fixed maturities available for sale:

US Treasury securities and
  obligations of US government
  corporations and agencies .......................        $101,491,865        $  1,483,761        $    (29,681)        $102,945,945

Obligations of states and
  political subdivisions ..........................         219,788,108           6,257,453                (950)         226,044,611

Corporate securities ..............................          31,416,772             859,797             (17,367)          32,259,202
                                                           ------------        ------------        ------------         ------------

    Totals ........................................        $352,696,745        $  8,601,011        $    (47,998)         361,249,758
                                                           ============        ============        ============         ============

<CAPTION>
                                                                                               1996
                                                           -------------------------------------------------------------------------
                                                                                  Gross               Gross
                                                             Amortized          Unrealized          Unrealized             Fair
                                                               Cost               Gains               Losses               Value
                                                           ------------        ------------        ------------         ------------
<S>                                                        <C>                 <C>                 <C>                  <C>
Fixed maturities available for sale:

US Treasury securities and
  obligations of US government
  corporations and agencies .......................        $ 91,871,356        $    314,995        $   (634,327)        $ 91,552,024

Obligations of states and
  political subdivisions ..........................         188,150,708           4,458,433            (299,641)         192,309,500

Corporate securities ..............................          61,108,228             763,902            (250,525)          61,621,605
                                                           ------------        ------------        ------------         ------------

    Totals ........................................        $341,130,292        $  5,537,330        $ (1,184,493)        $345,483,129
                                                           ============        ============        ============         ============
</TABLE>


                                       45
<PAGE>


                                  NYMAGIC, INC.
              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued


     The amortized cost and fair value of debt  securities at December 31, 1997,
by contractual  maturity,  are shown below. Expected maturities will differ from
contractual  maturities  because  borrowers may have the right to call or prepay
obligations with or without call or prepayment penalties.

                                                   Fixed maturities available
                                                             for sale
                                                --------------------------------
                                                  Amortized             Fair
                                                    Cost               Value
                                                ------------        ------------
Due in one year or less ................        $ 24,563,680        $ 24,653,035

Due after one year
through five years .....................         102,214,605         104,868,192

Due after five years
through ten years ......................         115,972,146         119,296,900

Due after ten years ....................          69,636,609          71,192,336
                                                ------------        ------------

                                                 312,387,040         320,010,463

Mortgage backed securities .............          40,309,705          41,239,295
                                                ------------        ------------


  Totals ...............................        $352,696,745        $361,249,758
                                                ============        ============


                                       46
<PAGE>


                                  NYMAGIC, INC.
              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued


     Proceeds from sales of investments in debt securities during 1997, 1996 and
1995 were $167,867,245, $171,112,392 and $209,230,556, respectively. Gross gains
of  $1,365,460,  $1,121,305  and  $2,324,039  and  gross  losses  of $  868,944,
$1,437,369  and $ 1,330,386  were realized on the those sales in 1997,  1996 and
1995, respectively.

     Realized and unrealized  investment  appreciation  (depreciation)  on fixed
maturities and equity securities for the years ended December 31, 1997, 1996 and
1995 are as follows:

<TABLE>
<CAPTION>
                                                                                          Year ended December 31,
                                                                         ----------------------------------------------------------
                                                                             1997                   1996                  1995
                                                                         ----------------------------------------------------------
<S>                                                                      <C>                    <C>                    <C>
Realized gains (losses) on sale
of investments
  Fixed maturities ............................................          $    496,516           $   (316,064)          $    993,653
  Equity securities ...........................................            10,044,741              4,931,909              3,089,104
  Short-term investments ......................................              (116,124)               (26,712)                27,758
                                                                         ------------           ------------           ------------
  Realized investments gains ..................................            10,425,133              4,589,133              4,110,515
  Less: applicable income taxes ...............................            (3,648,797)            (1,606,197)            (1,438,680)
                                                                         ------------           ------------           ------------
Net realized investment gains .................................          $  6,776,336           $  2,982,936           $  2,671,835
                                                                         ============           ============           ============

Change in unrealized investment appreciation
(depreciation) of securities:
  Fixed maturities ............................................          $  4,200,177           $ (5,017,118)          $ 15,368,821
  Equity securities ...........................................             3,145,784              2,379,308              5,059,901
                                                                         ------------           ------------           ------------
  Unrealized investment gains (losses) ........................             7,345,961             (2,637,810)            20,428,722
  Less:  applicable deferred income taxes .....................            (2,571,086)               923,234             (7,150,053)
                                                                         ------------           ------------           ------------
  Net unrealized investment gains (losses) ....................          $  4,774,875           $ (1,714,576)          $ 13,278,669
                                                                         ============           ============           ============
</TABLE>

     Net investment income from each major category of investments for the years
indicated is as follows:

<TABLE>
<CAPTION>
                                                                                          Year ended December 31,
                                                                         ----------------------------------------------------------
                                                                             1997                   1996                  1995
                                                                         ----------------------------------------------------------
<S>                                                                      <C>                    <C>                    <C>
Fixed maturities ...............................................         $ 20,192,031           $ 19,938,840           $ 19,933,777
Short-term investments .........................................            1,089,128              1,316,992              1,779,497
Equity securities ..............................................              814,341                734,939                678,038
                                                                         ------------           ------------           ------------
  Total investment income ......................................           22,095,500             21,990,771             22,391,312
Investment expenses ............................................             (770,435)              (720,577)              (732,381)
                                                                         ------------           ------------           ------------
  Net investment income ........................................         $ 21,325,065           $ 21,270,194           $ 21,658,931
                                                                         ============           ============           ============
</TABLE>


                                       47
<PAGE>


                                  NYMAGIC, INC.
              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued


     (3)  Fiduciary Funds:

     The Company's insurance agency subsidiaries  maintain separate underwriting
accounts which record all the underlying insurance transactions of the insurance
pools  which  they  manage.  These  transactions  primarily  include  collecting
premiums from the insured, collecting paid recoverables from reinsurers,  paying
claims as losses become payable,  paying reinsurance  premiums to reinsurers and
remitting net account balances to member insurance  companies in the pools which
MMO manages.  Unremitted amounts to members of the insurance pools are held in a
fiduciary capacity and interest income earned on such funds inure to the benefit
of the members of the insurance pools based on their pro-rata  participation  in
the pool.

     A summary of the underwriting  accounts as of December 31, 1997 and 1996 is
as follows:

                                                            December 31,
                                                   -----------------------------
                                                       1997             1996
                                                   -----------       -----------
Cash and short-term investments ............       $ 3,276,115       $ 3,554,109
Premiums receivable ........................        41,537,562        50,372,575
Reinsurance and other recoverables .........        23,942,068        34,366,554
                                                   -----------       -----------

Total Assets ...............................       $68,755,745       $88,293,238
                                                   ===========       ===========

Due to insurance pool members ..............       $27,251,208       $57,991,694
Reinsurance payable ........................        31,984,380        22,815,569
Funds withheld from reinsurers .............         5,043,576         2,756,157
Other liabilities ..........................         4,476,581         4,729,818
                                                   -----------       -----------

Total Liabilities ..........................       $68,755,745       $88,293,238
                                                   ===========       ===========

     The  underwriting  accounts  above  are not  included  in the  accompanying
consolidated balance sheets.


                                       48
<PAGE>


                                  NYMAGIC, INC.
              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued


     (4)  Insurance Operations:

   Reinsurance Transactions

     Approximately  50%, 42% and 47% of the  Company's  insurance  subsidiaries'
direct and assumed gross premiums written for the years ended December 31, 1997,
1996 and  1995,  respectively,  have been  reinsured  by the  pools  with  other
companies on both a treaty and a facultative basis.

     In the event that all or any of the pool companies  might be unable to meet
their obligations to the pools, the remaining companies would be liable for such
defaulted amounts on a pro rata pool participation basis. A contingent liability
also exists with respect to reinsurance ceded since such transactions  generally
do not relieve the Company of its primary  obligation  to the  policyholder  and
such  reinsurance  ceded would  become a liability  of the  Company's  insurance
subsidiaries  in the  event  that  any  reinsurer  might be  unable  to meet the
obligations assumed under the reinsurance  agreements.  All reinsurers must meet
certain  minimum  standards of financial  condition as established by the pools.
The Company's  largest  reinsurers at December 31, 1997,  were Arkwright  Mutual
Insurance Company ("Arkwright"),  Lloyd's of London ("Lloyd's") and Utica Mutual
Insurance Company ("Utica Mutual"),  with aggregate recoverables of $38 million,
$15  million  and $14  million,  respectively.  The 1997 A.M.  Best  ratings for
Arkwright  and  Utica  Mutual  are A+ and A,  respectively.  Lloyd's  of  London
maintains  a trust  fund  which was  established  for the  benefit of all United
States  ceding  companies.  Lloyd's has  reported  substantial  losses in recent
years; however, the Company has not experienced difficulty in collecting amounts
due from  Lloyd's and the  settlement  of  recoverables  due the Company has not
materially  impacted  its  liquidity.  In 1996  Equitas was formed to handle the
run-off  of years 1992 and prior for  Lloyd's.  However,  given the  uncertainty
surrounding   the  sufficiency  of  assets  in  Equitas  to  meet  its  ultimate
obligations,  there is a reasonable  possibility  that the Company's  collection
efforts relating to its Lloyd's  recoverables might be adversely affected in the
future. The Company's exposure to reinsurers,  other than Arkwright,  Lloyds and
Utica Mutual include  reinsurance  recoverables  collectively from approximately
800  reinsurers  or  syndicates,  and as of December 31, 1997,  no single one of
which  was  liable  to  the  Company  for  an  unsecured  amount  in  excess  of
approximately $3.0 million.

     Funds  withheld and letters of credit  obtained  under various  reinsurance
treaties  amounted  to  approximately  $62  million  as of  December  31,  1997.
Reinsurance  receivables  as of December 31, 1997 and 1996 included an allowance
for  uncollectible   reinsurance   recoverables  of  $5,785,000  and  $4,075,000
respectively.


                                       49
<PAGE>


                                  NYMAGIC, INC.
              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued

     Reinsurance ceded and assumed relating to premiums written were as follows:

                           Gross          Ceded          Assumed
                          (direct)      to other       from other
Year Ended                 amount       companies       companies     Net amount
----------                 ------       ---------       ---------     ----------
December 31, 1997       $89,396,181    $61,728,408     $34,553,074   $62,220,847
December 31, 1996       113,566,184     64,752,583      41,699,626    90,513,227
December 31, 1995       150,647,712     87,527,861      34,697,354    97,817,205

         Reinsurance  ceded and  assumed  relating  to  premiums  earned were as
follows:

<TABLE>
<CAPTION>
                           Gross          Ceded          Assumed                  Percentage
                          (direct)      to other       from other                 of assumed
Year Ended                 amount       companies       companies     Net amount     to net
----------                 ------       ---------       ---------     ----------  ----------
<S>                     <C>            <C>             <C>           <C>              <C>
December 31, 1997       $97,920,323    $47,875,999     $37,492,582   $87,536,906      43%
December 31, 1996       128,483,112     71,146,813      39,699,722    97,036,021      41
December 31, 1995       164,713,618     93,730,801      32,478,682   103,461,499      31
</TABLE>

     Losses and loss adjustment  expenses  incurred are net of ceded reinsurance
recoveries  amounting to $26,912,355,  $62,516,373 and $22,138,211 for the years
ended December 31, 1997, 1996 and 1995, respectively.

   Unpaid Losses

     Unpaid losses are based on individual  case  estimates for losses  reported
and  include a  provision  for losses  incurred  but not  reported  and for loss
adjustment  expenses.  The  following  table  provides a  reconciliation  of the
consolidated  liability for losses and loss adjustment expenses at the beginning
and end of 1997, 1996 and 1995:

<TABLE>
<CAPTION>
                                                                                               Year ended December 31,
                                                                                  -------------------------------------------------
                                                                                    1997                1996                1995
                                                                                  ---------           ---------           ---------
<S>                                                                               <C>                 <C>                 <C>
Net liability for losses and loss adjustment                                                       (in thousands)
  expenses at beginning of year ........................................          $ 227,370           $ 229,916           $ 212,377
                                                                                  ---------           ---------           ---------
Provision for losses and loss adjustment
 expenses occurring in current year ....................................             72,322              71,731              75,618
Decrease in estimated losses and loss
  adjustment expenses for claims occurring
  in prior years (1) ...................................................            (21,874)            (12,753)             (6,360)
Deferred income-loss portfolio
  assumption(2) ........................................................                320                 381                 458
                                                                                  ---------           ---------           ---------
Total losses and loss adjustment expenses incurred .....................             50,768              59,359              69,716
                                                                                  ---------           ---------           ---------
Less:
Losses and loss adjustment expense payments
 for claims occurring during:
   current year ........................................................             17,029              15,012              10,043
   prior years .........................................................             38,454              46,512              41,676
                                                                                  ---------           ---------           ---------
                                                                                     55,483              61,524              51,719
Add:
Deferred income-loss portfolio assumption (2) ..........................               (320)               (381)               (458)
                                                                                  ---------           ---------           ---------
Net Liability for losses and loss adjustment
  expenses at year end .................................................            222,335             227,370             229,916
                                                                                  ---------           ---------           ---------
Ceded unpaid loss and loss adjustment
 expenses ..............................................................            166,067             184,467             187,879
                                                                                  ---------           ---------           ---------
Gross unpaid losses and loss adjustment
  expenses at year end .................................................          $ 388,402           $ 411,837           $ 417,795
                                                                                  =========           =========           =========
</TABLE>


                                       50
<PAGE>


                                  NYMAGIC, INC.
              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued


     (1)The  adjustment  to the  consolidated  liability  for  losses  and  loss
adjustment  expenses for losses occurring in prior years reflects the net effect
of the  resolution  of losses for other than full reserve  value and  subsequent
readjustments of loss values.

     (2)Deferred  income loss  portfolio  assumption  represents  the difference
between cash received and unpaid loss reserves assumed as a result of the buyout
of Pennsylvania  National's and Lumber Mutual's net pool  obligations  which was
initially  capitalized  and will be  amortized  over the  payout  period  of the
related losses.

     The  insurance  pools  participated  in the  issuance of umbrella  casualty
insurance  for various  Fortune 1000  companies in the period from 1978 to 1983.
Depending on the accident  year,  the  insurance  pools'  maximum  retention per
occurrence  ranged from  $250,000 to  $500,000.  The  Company's  effective  pool
participation  on such risks varied from 11% in 1978 to 30% in 1983. At December
31, 1997 and 1996, the Company's  gross,  ceded and net loss and loss adjustment
expense  reserves for  Asbestos/Pollution  policies  amounted to $25.0  million,
$16.0  million  and $9.0  million,  and $23.5  million,  $15.0  million and $8.5
million,  respectively. Net paid losses resulting from Asbestos/Pollution losses
during  1997,  1996  and 1995  amounted  to  $508,000,  $811,000  and  $545,000,
respectively.  As of  December  31,  1997,  the Company  had  approximately  430
policies which had at least one claim relating to Asbestos/Pollution  exposures.
Unpaid  losses and loss  adjustment  expenses are  recorded for reported  claims
regarding  Asbestos/Pollution  exposures,   including  the  cost  of  litigation
expenses,  when sufficient information is present to indicate the involvement of
a specific  insurance  policy  and the  Company  can  reasonably  estimate  this
liability.    The   Company   believes   that   the   uncertainty    surrounding
Asbestos/Pollution  exposures,  including  issues as to  insureds'  liabilities,
ascertainment of loss date, definitions of occurrence, scope of coverage, policy
limits and application and interpretation of policy terms, including exclusions,
all affect the estimation of ultimate losses.  Under such  circumstances,  it is
difficult to determine the ultimate loss for Asbestos/Pollution  related claims.
Given the  uncertainty  in this area,  losses  from  Asbestos/Pollution  related
claims are likely to adversely  impact the Company's  results from operations in
future years and may vary materially from such reserves  reported as of December
31, 1997. However, the Company believes that, in aggregate,  the unpaid loss and
loss adjustment  expense reserves as of December 31, 1997, allow for an adequate
provision and that the ultimate resolution of the Asbestos/Pollution claims will
not have a material impact on the Company's financial position.

   Salvage and Subrogation

     Estimates of salvage and  subrogation  recoveries on paid and unpaid losses
have been recorded as a reduction of unpaid losses  amounting to $6,833,720  and
$6,888,733 at December 31, 1997 and 1996, respectively.

   Deferred Policy Acquisition Costs

     Deferrable  acquisition  costs amortized to income amounted to $16,582,623,
$18,827,794,  and  $21,017,503  for the years ended December 31, 1997,  1996 and
1995, respectively.


                                       51
<PAGE>


                                  NYMAGIC, INC.
              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued


     (5)  Property, Improvements and Equipment, Net:

     Property  improvements  and  equipment,  net at December  31, 1997 and 1996
include the following.

                                                      1997              1996
                                                   -----------      -----------
Office furniture and equipment ...............     $ 1,452,923      $ 1,335,519
Computer equipment ...........................       1,916,493        1,346,960
Leasehold improvements .......................       2,409,683        2,255,928
                                                   -----------      -----------
                                                     5,779,099        4,938,407

Less:  accumulated depreciation
    and amortization .........................      (3,413,446)      (2,831,320)
                                                   -----------      -----------

Property, improvements and equipment, net ....     $ 2,365,653      $ 2,107,087
                                                   ===========      ===========

     Depreciation  and  amortization  expense for the years ended  December  31,
1997, 1996 and 1995 amounted to $582,126, $442,945 and $520,011, respectively.

     (6)  Income Taxes:

     The  components of deferred tax assets and  liabilities  as of December 31,
1997 and 1996 are as follows:

                                                           December   31,
                                                     ---------------------------
                                                         1997           1996
                                                     ---------------------------
Deferred Tax Assets:

Loss reserve discounting .......................     $13,549,308     $14,390,810
Unearned premiums ..............................       2,154,156       3,926,280
State and local income tax carryforward ........         423,300          68,748
Deferred rent liability ........................         410,237         446,258
Bad debt reserve ...............................       2,269,750       1,688,750
Other ..........................................         319,945         331,643
                                                     -----------     -----------
Total deferred tax assets ......................      19,126,696      20,852,489
                                                     -----------     -----------


                                       52
<PAGE>


                                  NYMAGIC, INC.
              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued


   Deferred Tax Liabilities:

                                                             December 31,
                                                      --------------------------
                                                         1997            1996
                                                      --------------------------

Deferred policy acquisition costs ..............       1,948,621       3,816,484
Unrealized appreciation of investments .........       6,960,037       4,388,952
Deferred income-loss portfolio assumption ......         240,279         352,409
Discount on accrued salvage and subrogation ....         374,378         376,987
Other ..........................................       1,166,612         786,054
                                                     -----------     -----------

Total deferred tax liabilities .................      10,689,927       9,720,886
                                                     -----------     -----------

Net deferred tax assets ........................     $ 8,436,769     $11,131,603
                                                     ===========     ===========

     The state and local income tax  carryforward of $423,300 as of December 31,
1997 can be carried forward against future state and local tax liabilities until
the year 2012.

     The Company has no valuation allowance and believes that total deferred tax
assets at December 31, 1997 will more likely than not be fully realized.

     Income tax  provisions  differ  from the amounts  computed by applying  the
Federal statutory rate to income before income taxes as follows:

                                                       Year ended December 31
                                                      ------------------------
                                                      1997      1996      1995
                                                      ----      ----      ----

Income taxes at the Federal statutory rate .......    35.0%     35.0%     35.0%
Tax exempt interest ..............................    (12.5)    (12.8)    (15.2)
State income taxes ...............................    (0.5)      0.2       1.3
Net bond amortization ............................     1.9       1.8       1.7
Investment income proration ......................     1.7       1.7       2.1
Effect of change in tax rates ....................      --        --      (1.7)
Other, net .......................................      --      (0.9)     (0.8)
                                                      ----      ----      ----
Income tax provisions ............................    25.6%     25.0%     22.4%
                                                      ====      ====      ====


                                       53
<PAGE>


                                  NYMAGIC, INC.
              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued


     Federal  income  tax  payments  amounted  to  $9,335,632,   $7,339,913  and
$4,332,559 for the years ended December 31, 1997, 1996 and 1995, respectively.

     Federal  income  taxes  payable at December  31, 1997 and 1996  included in
other liabilities amounted to $386,970 and $640,336, respectively.

(7)  Statutory Income and Surplus:

     The Company's  insurance  subsidiaries are limited,  based on the lesser of
10% of statutory  basis  surplus or 100% of net  investment  income,  as defined
under New York  Insurance Law, in the amount of dividends they could pay without
regulatory approval. The maximum amount which may be paid to the holding company
out of December 31, 1997 surplus is approximately $18,184,000.

     Consolidated  statutory net income and surplus of the  Company's  insurance
subsidiaries were as follows for the periods indicated:

                                              Consolidated         Consolidated
                                                Statutory           Statutory
                                                net income           surplus
                                              ------------         ------------
December 31, 1997                             $ 36,758,000         $181,844,000
December 31, 1996                               26,542,000          160,929,000
December 31, 1995                               20,476,000          148,785,000



                                       54
<PAGE>


                                  NYMAGIC, INC.
              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued


(8)  Employee Retirement Plans:

     The Company  maintains two  retirement  plans for the benefit of employees.
Both plans  provide for 100% vesting upon  completion of three years of service.
The  Money  Purchase  Plan  provides  for a  contribution  equal to 7-1/2% of an
employee's cash compensation, including bonuses, for each year of service during
which the  employee has  completed  1000 hours of service and is employed on the
last day of the plan year. The Profit Sharing plan does not require any specific
contribution but any contribution  made is subject to the restrictions set forth
above for the Money  Purchase  Plan.  Contribution  and  related  administration
expenses  for the years  ended  December  31,  1997,  1996 and 1995  amounted to
$978,997, $991,469 and $1,038,633, respectively.

(9)  Debt:

     In 1994 the Company and a bank entered into a $10,000,000  credit agreement
which was subsequently amended in 1996 to $25,000,000.  The interest rate on the
loan is fixed, at the Company's option,  for a period of one to six months.  The
Company has elected to pay interest at an effective rate of approximately  6.62%
on the  outstanding  principal  balance  of the  loan at  December  31,  1997 of
$22,458,413. The interest rate was equal to the bank's Adjusted London Interbank
Offered Rate at the time of the interest rate adjustment period, plus .65 of 1%.
Principal  repayments are paid quarterly in equal installments of $1,250,000 and
end on June 30, 2002.  The Company has the option to prepay amounts in excess of
the required repayments. At the Company's option, the interest rate may be based
on either  (a) the higher of the bank's  prime  rate or the  applicable  Federal
Funds Rate,  plus 1/2 of 1% or (b) the bank's  adjusted  certificate  of deposit
rate, plus .775 of 1%.

     The bank loan  agreement  requires  the  Company to  maintain a minimum net
worth of  $125,000,000  plus 50% of net  profits  earned  during  each year on a
cumulative basis. In addition,  other significant  covenants include limitations
on total indebtedness,  investment  purchases,  pledging and sales of assets and
requires the Company's  insurance  subsidiaries to maintain a certain  statutory
surplus,  gross and net premiums written to surplus ratios and total liabilities
to surplus ratio. The Company was in compliance with all financial  covenants as
stipulated  in the bank loan  agreement  as of  December  31,  1997.  The credit
agreement provides for a facility fee of .15 of 1% on the outstanding balance.

     The Company has an unsecured credit facility with the same bank that allows
the  Company  to  borrow  up to  $5,000,000.  Interest  is based  on the  bank's
international  short-term  lending  rate.  The credit  facility  provides  for a
commitment fee of 1/8 of 1% on the average unused available  credit balance.  No
amounts were outstanding  under this credit facility as of December 31, 1997 and
1996, respectively.

     Interest paid amounted to $1,464,240, $1,020,737 and $437,653 for the years
ended December 31, 1997, 1996 and 1995.


                                       55
<PAGE>


                                  NYMAGIC, INC.
              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued


(10) Commitments:

     The Company  maintains  various  non-cancelable  operating leases to occupy
office space. The lease terms expire on various dates through December 30, 2003.

     The aggregate minimum annual rental payments under various operating leases
for office facilities as of December 31, 1997 are as follows:

                                                                        Amount
                                                                      ----------
1998 ................................................                 $1,139,247

1999 ................................................                  1,205,122

2000 ................................................                  1,184,832

2001 ................................................                  1,184,832

2002 ................................................                  1,184,832

thereafter ..........................................                  1,184,832
                                                                      ----------
Total ...............................................                 $7,083,697
                                                                      ==========

     The operating leases also include provisions for additional  payments based
on certain annual cost increases.  Rent expense for the years ended December 31,
1997, 1996 and 1995 amounted to $1,049,119, $1,001,295 and $1,017,380.

     As of December  31,  1997,  the Company is not  involved in any  litigation
which would  require  disclosure  in the  financial  statements  or would have a
material effect on the Company's financial statements.

     In  connection  with the  formation  of MMO UK LTD, in 1997,  as  corporate
capital for Lloyd's  Syndicate 1265, the Company obtained an unsecured letter of
credit  from  a  bank  in  pounds  sterling  with  a  US  dollar  equivalent  of
approximately $17,160,000 as of December 31, 1997.


                                       56
<PAGE>


                                  NYMAGIC, INC.
              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued


(11) Common Stock Repurchase Plan and Shareholders' Equity:

     The  Company  has a common  stock  repurchase  plan  which  authorizes  the
repurchase of up to $55,000,000,  at prevailing  market prices, of the Company's
issued and outstanding shares of common stock on the open market. As of December
31, 1997,  the Company had  repurchased  a total of  2,115,728  shares of common
stock under this plan at a total cost of  $38,562,528  at market prices  ranging
from $16.50 to $26.88 per share.

     In  connection  with the  acquisition  of MMO in  1991,  the  Company  also
acquired  3,215,958 shares of its own common stock available by MMO and recorded
such shares as treasury stock at MMO's original cost of $3,919,129.

     A  reconciliation  of basic and  diluted  EPS for each of the  years  ended
December 31, 1997, 1996 and 1995 is as follows:

<TABLE>
<CAPTION>
                                                             (In Thousands except for per share amounts)
                                                1997                             1996                             1995
                                    -----------------------------    -----------------------------    ------------------------------
                                       Net                            Net                              Net
                                     Income    Shares   Per Share    Income     Shares   Per Share    Income      Shares   Per Share
                                    -------    ------   ---------    ------     ------   ---------    ------      ------   ---------
<S>                                 <C>         <C>       <C>        <C>        <C>        <C>        <C>         <C>        <C>
Basic EPS:                          $26,368     9,849     $2.68      $22,625    10,499     $2.15      $20,120     11,299     $1.78

Effect of
Dilutive Securities:

Stock Options                          --          23       .01         --          25      --           --           42       .01
                                    -------   -------     -----      -------   -------     -----      -------    -------     -----

Diluted EPS                         $26,368     9,872     $2.67      $22,625    10,524     $2.15      $20,120     11,341     $1.77
                                    =======   =======     =====      =======   =======     =====      =======    =======     =====
</TABLE>

(12) Stock Option Plans:

     The Company has two stock option plans.

     The first plan,  approved by  shareholders  in 1986,  and the second  plan,
approved by shareholders in 1991,  provide a means whereby the Company,  through
the grant of non-qualified stock options to key officers, may attract and retain
persons of  ability as  officers  to exert  their best  efforts on behalf of the
Company.  Each plan authorizes the issuance of options to purchase up to 500,000
shares of the  Company's  common  stock at not less than 95  percent of the fair
market  value at the date of grant.  Options  are  exercisable  over a period as
determined in each option agreement and expire at a maximum term of ten years.


                                       57
<PAGE>


                                  NYMAGIC, INC.
              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued

     A summary of  activity  under the stock  option  plans for the years  ended
December 31, 1997 1996 and 1995 follows:

<TABLE>
<CAPTION>
                                          1997                                1996                             1995
                               ----------------------------------------------------------------------------------------------------
                               Number          Option             Number           Option             Number          Option
Shares Under                   of              Price              of               Price              of              Price
   Option                      Shares          Per Share          Shares           Per Share          Shares          Per Share
-----------------------------------------------------------------------------------------------------------------------------------
<S>                            <C>             <C>                <C>              <C>                <C>             <C>
Outstanding,
beginning of
year                           373,200         $13.78-$22.92       528,500         $13.00-$22.92       623,400        $13.00-$23.87

Granted                           --                    --          20,000         $17.22-$17.58       210,500               $15.79

Exercised                      (79,900)        $13.78-$15.79      (162,800)        $13.00-$15.56        (1,900)       $13.00-$13.78

(Forfeited)                    (50,200)        $15.56-$22.92       (12,500)        $15.79-$22.33      (303,500)       $22.92-$23.87
                               -------                            --------                            --------
Outstanding,
end of year                    243,100         $13.78-$22.92       373,200         $13.78-$22.92       528,500        $13.00-$22.92
                               =======                            ========                            ========
Exercisable,
end of year                     95,356         $13.78-$22.92       135,389         $13.78-$22.92       240,533        $13.00-$22.92
                               =======                            ========                            ========
</TABLE>

     In 1995,  210,500 options granted in prior years with option prices ranging
from $22.33 to $23.87 were repriced at $15.79.  The effect on net income for the
year ended December 31, 1995 was immaterial.

     The Company has elected to measure  compensation expense for employee stock
options under APB No. 25 as permitted by SFAS 123,  "Accounting  for Stock Based
Compensation."  Under,  SFAS 123,  the Company is  required to disclose  the pro
forma  effects  on net  income of  applying  a fair  value  method of  measuring
compensation expense.

     The pro forma effect on the years ended December 31, 1997, 1996 and 1995 is
as follows:

                                    1997              1996             1995
                                    ----              ----             ----
Net income - as reported         $26,367,740       $22,624,618      $22,119,862

Net income - pro forma           $26,261,229       $22,513,184      $20,114,511

Diluted EPS - as reported              $2.67             $2.15            $1.77

Diluted EPS - pro forma                $2.66             $2.14            $1.77

     In  determining  the pro forma  effect  on net  income,  the fair  value of
options  granted  in 1996 and 1995 was  estimated  at the grant  date  using the
Black-Scholes   option-pricing   model  with  the  following   weighted  average
assumptions  in 1996 and 1995,  respectively;  dividend  yield of 2.2% and 2.4%;
expected  volatility of 25% and 28%; expected lives of 5 years for each year and
a  risk-free  interest  rate of 6% and 5.38%.  There were no options  granted in
1997.

     The full impact of calculating compensation expense for stock options under
SFAS 123 is not reflected in the pro forma net income  amounts  presented  above
because  options  granted  prior to  January 1, 1995 are not  considered  in the
determination of the compensation expense.


                                       58
<PAGE>


                          FINANCIAL STATEMENT SCHEDULES
            SCHEDULE II-CONDENSED FINANCIAL INFORMATION OF REGISTRANT

                                  NYMAGIC, INC.

                                 Balance Sheets
                                (Parent Company)

<TABLE>
<CAPTION>
                                                                                 December 31,
                                                                  -----------------------------------------
                                                                       1997                        1996
                                                                  -----------------------------------------
<S>                                                               <C>                         <C>
Assets:
Cash ......................................................       $     205,516               $      17,000
Short term investments ....................................           6,000,000                   5,000,000
Investment in subsidiaries ................................         218,563,990                 201,367,648
Due from subsidiaries .....................................           2,666,372                   2,227,007
Other assets ..............................................           2,663,530                   1,829,191
                                                                  -------------               -------------
    Total assets ..........................................       $ 230,099,408               $ 210,440,846
                                                                  =============               =============

Liabilities:
Notes payable .............................................       $  22,458,413               $  20,438,413
Dividends payable .........................................             966,031                   1,014,305
Other liabilities .........................................             155,621                     136,402
                                                                  -------------               -------------
  Total Liabilities .......................................          23,580,065                  21,589,120
                                                                  -------------               -------------

Shareholders' equity:
Common stock ..............................................          14,991,992                  14,911,992
Paid in capital ...........................................          27,529,877                  26,258,259
Unrealized appreciation of
  investments (net of deferred income taxes) ..............          12,925,785                   8,150,910
Foreign currency adjustment ...............................               6,000                        --
Retained earnings .........................................         193,547,346                 171,089,462
Treasury stock ............................................         (42,481,657)                (31,558,897)
                                                                  -------------               -------------
    Total shareholders' equity ............................         206,519,343                 188,851,726
                                                                  -------------               -------------
    Total liabilities and shareholders' equity ............       $ 230,099,408               $ 210,440,846
                                                                  =============               =============
</TABLE>

                              Statements of Income
                                (Parent Company)

<TABLE>
<CAPTION>
                                                      Year Ended           Year Ended          Year Ended
                                                     December 31,         December 31,        December 31,
                                                         1997                 1996                1995
                                                     ------------         ------------        ------------
<S>                                                  <C>                  <C>                 <C>
Revenues:
Cash dividends from subsidiary ..................    $ 17,850,262         $ 12,950,071        $ 12,357,008
Net investment income ...........................          21,070                  676                --
                                                     ------------         ------------        ------------
                                                       17,871,332           12,950,747          12,357,008
                                                     ------------         ------------        ------------
Expenses:
Operating expenses ..............................       2,197,039            1,552,852           2,604,577
Income tax benefit ..............................        (754,480)            (561,073)           (955,981)
                                                     ------------         ------------        ------------
                                                        1,442,559              991,779           1,648,596
                                                     ------------         ------------        ------------

Income before equity income .....................      16,428,773           11,958,968          10,708,412
Equity in undistributed earnings
of subsidiaries .................................       9,938,967           10,665,650           9,411,450
                                                     ------------         ------------        ------------

Net income ......................................    $ 26,367,740         $ 22,624,618        $ 20,119,862
                                                     ============         ============        ============
</TABLE>


                                       59
<PAGE>


            SCHEDULE II-CONDENSED FINANCIAL INFORMATION OF REGISTRANT

                                  NYMAGIC, INC.

                            Statements of Cash Flows
                                (Parent Company)

<TABLE>
<CAPTION>
                                                                            Year Ended            Year Ended            Year Ended
                                                                           December 31,          December 31,          December 31,
                                                                               1997                  1996                  1995
                                                                           ------------          ------------          ------------
<S>                                                                        <C>                   <C>                   <C>
Cash flows from operating activities:
Net income .......................................................         $ 26,367,740          $ 22,624,618          $ 20,119,862
                                                                           ------------          ------------          ------------

Adjustments to reconcile net income
   to cash provided by operating activities:
   Equity in undistributed earnings of
     subsidiaries ................................................           (9,938,967)          (10,665,650)           (9,411,450)
   Increase in other assets ......................................             (834,339)             (359,403)             (222,715)
   (Increase)decrease in due from subsidiaries ...................             (439,365)              527,868              (429,902)
   (Decrease) Increase in other liabilities ......................               19,219               (11,312)                6,586
                                                                           ------------          ------------          ------------
Net cash provided by operating activities ........................           15,174,288            12,116,121            10,062,381
                                                                           ------------          ------------          ------------

Cash flows from investing activities:
   Short term investments acquired ...............................          (13,800,000)           (5,000,000)                 --
   Short term investments matured ................................           12,800,000                  --                    --
   Investment in subsidiaries ....................................           (2,476,500)                 --                    --
                                                                           ------------          ------------          ------------
   Net cash used in investing activities .........................           (3,476,500)           (5,000,000)                 --
                                                                           ------------          ------------          ------------

Cash flows from financing activities:
   Proceeds from stock options exercised .........................            1,351,618             2,487,472               199,463
   Cash dividends paid to stockholders ...........................           (3,958,130)           (4,236,947)           (4,542,123)
   Repurchase of common stock ....................................          (10,922,760)          (13,080,321)          (11,440,936)
   Proceeds from borrowings ......................................            9,520,000            14,211,472            15,118,449
   Loan principal payments .......................................           (7,500,000)           (6,500,000)           (9,411,764)
                                                                           ------------          ------------          ------------

Net cash used in
   financing activities ..........................................          (11,509,272)           (7,118,324)          (10,076,911)
                                                                           ------------          ------------          ------------

Net increase (decrease) in cash ..................................              188,516                (2,203)              (14,530)

Cash at beginning of period ......................................               17,000                19,203                33,733
                                                                           ------------          ------------          ------------

Cash at end of period ............................................         $    205,516          $     17,000          $     19,203
                                                                           ============          ============          ============
</TABLE>


                                       60
<PAGE>


                                  NYMAGIC, INC.
                  SCHEDULE V-VALUATION AND QUALIFYING ACCOUNTS

                     YEARS ENDED DECEMBER 31, 1997 AND 1996

--------------------------------------------------------------------------------
COLUMN A                   COLUMN B       COLUMN C      COLUMN D      COLUMN E
--------------------------------------------------------------------------------
DESCRIPTION                Balance at                                  Balance
                           beginning                                   close of
                           of period      Additions    Deductions       period
--------------------------------------------------------------------------------
December 31, 1997:
 Allowance for
    doubtful accounts...   $4,825,000    $1,930,261     $(270,261)    $6,485,000

December 31, 1996:
 Allowance for
  doubtful accounts.....    3,025,000     2,155,271      (355,271)     4,825,000


                                       61
<PAGE>

NYMAGIC, INC.
SCHEDULE VI - SUPPLEMENTARY INFORMATION CONCERNING  PROPERTY/CASUALTY  INSURANCE
OPERATIONS.
(In Thousands)

<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------------
                                                                                                CLAIMS AND CLAIMS
                                                                                                EXPENSES INCURRED     AMORTIZATION
                     DEFERRED      RESERVE FOR                                                     RELATED TO          OF DEFERRED
AFFILIATION           POLICY       UNPAID CLAIMS           UNEARNED     NET          NET      ---------------------      POLICY
   WITH             ACQUISITION     AND CLAIMS             PREMIUM     EARNED     INVESTMENT  CURRENT       PRIOR      ACQUISITION
REGISTRANT             COSTS         EXPENSES    DISCOUNT  RESERVE    PREMIUMS      INCOME      YEAR         YEAR         COSTS
------------------------------------------------------------------------------------------------------------------------------------
<S>                   <C>            <C>            <C>    <C>        <C>           <C>        <C>         <C>           <C>
DECEMBER 31, 1997     $ 5,567        $388,402       --     $55,188    $ 87,537      $21,325    $72,322     ($21,874)     $16,583
CONSOLIDATED
SUBSIDIARIES

DECEMBER 31, 1996      10,904         411,837       --      66,652      97,036       21,270     71,731      (12,753)      18,828
CONSOLIDATED
SUBSIDIARIES

DECEMBER 31, 1995      11,661         417,795       --      79,569     103,461       21,659     75,618       (6,360)      21,018
CONSOLIDATED
SUBSIDIARIES


<CAPTION>
----------------------------------------------
AFFILIATION              PAID CLAIMS
   WITH                   AND CLAIMS  PREMIUMS
REGISTRANT                 EXPENSES   WRITTEN
----------------------------------------------
<S>                         <C>       <C>
DECEMBER 31, 1997           $55,483   $62,221
CONSOLIDATED
SUBSIDIARIES

DECEMBER 31, 1996            61,524    90,513
CONSOLIDATED
SUBSIDIARIES

DECEMBER 31, 1995            51,719    97,817
CONSOLIDATED
SUBSIDIARIES
</TABLE>


                                       62
<PAGE>


                                  NYMAGIC, INC.
                                    FORM 10-K

                     For Fiscal Year Ended December 31, 1997


                                  Exhibit Index

<TABLE>
<CAPTION>
Exhibit                                                           Sequentially
Number             Description                                    Numbered Page
------             -----------                                    -------------
<S>                <C>                                            <C>
3.1                Charter                                        Incorporated herein by reference

3.3                By-laws

4.0                Specimen Certificate of Common Stock           Incorporated herein by reference

10.2               Restated Management Agreement dated as of      Incorporated herein by reference
                   January  1,  1986,  by and  among  Mutual
                   Marine Office, Inc. and  Arkwright-Boston
                   Manufacturers  Mutual Insurance  Company,
                   Utica Mutual  Insurance  Company,  Lumber
                   Mutual Insurance Company,  the Registrant
                   and Pennsylvania National Mutual Casualty
                   Insurance Company

10.2.2             Amendment    to    Restated    Management      Incorporated herein by reference
                   Agreement, dated as of December 30, 1988,
                   and among Mutual Marine Office,  Inc. and
                   Arkwright Mutual Insurance Company, Utica
                   Mutual Insurance  Company,  Lumber Mutual
                   Insurance  Company,  the  Registrant  and
                   Pennsylvania   National  Mutual  Casualty
                   Insurance Company

10.2.3             Amendment    to    Restated    Management      Incorporated herein by reference
                   Agreement, dated as of December 31, 1990,
                   and among Mutual Marine Office,  Inc. and
                   Arkwright Mutual Insurance Company, Utica
                   Mutual Insurance Company,  the Registrant
                   and Pennsylvania National Mutual Casualty
                   Insurance Company

10.4               Restated Management Agreement dated as of      Incorporated herein by reference
                   January  1,  1986,  by and  among  Mutual
                   Inland    Marine    Office,    Inc.   and
                   Arkwright-Boston   Manufacturers   Mutual
                   Insurance Company, Utica Mutual Insurance
                   Company, Lumber Mutual Insurance Company,
                   the Registrant and Pennsylvania  National
                   Mutual Casualty Insurance Company
</TABLE>


<PAGE>


<TABLE>
<CAPTION>
Exhibit                                                           Sequentially
Number             Description                                    Numbered Page
------             -----------                                    -------------
<S>                <C>                                            <C>
10.4.2             Amendment    to    Restated    Management      Incorporated herein by reference
                   Agreement, dated as of December 30, 1988,
                   and among Mutual  Inland  Marine  Office,
                   Inc.  and  Arkwright   Mutual   Insurance
                   Company,  Utica Mutual Insurance Company,
                   Lumber  Mutual  Insurance  Company,   the
                   Registrant  and   Pennsylvania   National
                   Mutual Casualty Insurance Company

10.4.3             Amendment    to    Restated    Management      Incorporated herein by reference
                   Agreement, dated as of December 31, 1990,
                   by and among Mutual Inland Marine Office,
                   Inc.  and  Arkwright   Mutual   Insurance
                   Company,  Utica Mutual Insurance Company,
                   the Registrant and Pennsylvania  National
                   Mutual Casualty Insurance Company


10.6               Restated Management Agreement dated as of      Incorporated herein by reference
                   January  1,  1986,  by and  among  Mutual
                   Marine  Office of the  Midwest,  Inc. and
                   Arkwright-Boston   Manufacturers   Mutual
                   Insurance Company, Utica Mutual Insurance
                   Company, Lumber Mutual Insurance

10.6.2             Amendment    to    Restated    Management      Incorporated herein by reference
                   Agreement  dated as of December 30, 1988,
                   by and among Mutual  Marine Office of the
                   Midwest,   Inc.  and   Arkwright   Mutual
                   Insurance Company, Utica Mutual Insurance
                   Company, Lumber Mutual Insurance Company,
                   the Registrant and Pennsylvania  National
                   Mutual Casualty Insurance Company

10.6.3             Amendment    to    Restated    Management      Incorporated herein by reference
                   Agreement  dated as of December 31, 1990,
                   by and among Mutual  Marine Office of the
                   Midwest,   Inc.  and   Arkwright   Mutual
                   Insurance Company, Utica Mutual Insurance
                   Company,  the Registrant and Pennsylvania
                   National   Mutual   Casualty    Insurance
                   Company

10.8               Restated Management Agreement dated as of      Incorporated herein by reference
                   January  1,  1986,  by and among  Pacific
                   Mutual    Marine    Office,    Inc.   and
                   Arkwright-Boston   Manufacturers   Mutual
                   Insurance    Company,    Lumber    Mutual
                   Insurance Company, Utica Mutual Insurance
                   Company,  the Registrant and Pennsylvania
                   National   Mutual   Casualty    Insurance
                   Company
</TABLE>



<PAGE>


<TABLE>
<CAPTION>
Exhibit                                                           Sequentially
Number             Description                                    Numbered Page
------             -----------                                    -------------
<S>                <C>                                            <C>
10.8.2             Amendment    to    Restated    Management      Incorporated herein by reference
                   Agreement  dated as of December 30, 1988,
                   by  and  among   Pacific   Mutual  Marine
                   Office,   Inc.   and   Arkwright   Mutual
                   Insurance    Company,    Lumber    Mutual
                   Insurance Company, Utica Mutual Insurance
                   Company,  the Registrant and Pennsylvania
                   National   Mutual   Casualty    Insurance
                   Company.

10.8.3             Amendment    to    Restated    Management      Incorporated herein by reference
                   Agreement  dated as of December 31, 1990,
                   by  and  among   Pacific   Mutual  Marine
                   Office,   Inc.   and   Arkwright   Mutual
                   Insurance Company, Utica Mutual Insurance
                   Company,  the Registrant and Pennsylvania
                   National   Mutual   Casualty    Insurance
                   Company

21                 Subsidiaries of the Registrant.

23                 Consent of KPMG Peat Marwick LLP.

28                 Schedule P as of December 31, 1997.
</TABLE>