SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                   FORM 1O-K/A
                                Amendment No. 1

(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, 1998 OR

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

     For the transition period from __________________ to ________________

                         Commission file number 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:

                                  Name of each
     Title of each class:                         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, 1999, was approximately $57,150,292.

The number of shares  outstanding of each of the registrant's  classes of common
stock,  as of March 1, 1999,  was 9,685,492  shares of common  stock,  $1.00 par
value.

Portions  of the  Company's  Proxy  Statement  for the 1999  Annual  Meeting  of
Shareholders are incorporated by reference in Part III.

NYMAGIC,  Inc. hereby files this Amendment No. 1 on Form 10-K/A to amend Part I,
Item 1 and Part III,  Items 10, 11, 12 and 13 of its Annual  Report on Form 10-K
for the fiscal year ended December 31, 1998.


                                       1

<PAGE>


                                     Part I

Item 1. Business.

General

Recent Developments

     The Company recently named Vincent T. Papa as President and Chief Executive
Officer of the  Company.  Prior to joining  the  Company,  Mr.  Papa served as a
Senior Vice  President of Orion  Capital  Corporation  and as Chairman and Chief
Executive Officer of its marine and property insurance subsidiary,  Wm. H. McGee
Co., Inc.

     Mr. Papa entered into an employment  agreement  with the Company  effective
March  19,  1999,  which  provides  for  an  initial  three  year  term  and  is
automatically   renewable  for  an  additional  one-year  period  on  the  third
anniversary  of the  Effective  Date (and on each  subsequent  anniversary  date
thereafter)  unless  either party shall have given  notice to the other  written
notice of its  intent not to extend  the term  within  six  months  prior to the
applicable  anniversary  date. Under the terms of his employment  agreement with
the Company, the Company paid Mr. Papa a one-time signing bonus in the amount of
$225,000 on March 19, 1999, and agreed to pay him an annual salary at an initial
rate of $425,000,  which amount may be increased at the  discretion of the Board
of Directors of the Company but may not be decreased.  In addition to his annual
salary, Mr. Papa is eligible, for each calendar year that begins within the term
of his employment agreement, to participate in an annual incentive bonus program
under the terms of which he will have the  opportunity  to earn a bonus of up to
100% of his annual  salary in effect for the  applicable  calendar year based on
the  Company's  achievement  of  the  performance  targets  established  by  the
Compensation  Committee for that year.  For calendar year 1999, Mr. Papa will be
entitled to a minimum bonus of $212,500.

     Mr. Papa's employment  agreement contains customary  provisions relating to
disability,  termination  for cause and  resignation  without  good  reason.  In
addition, such employment agreement provides that if, prior to the expiration of
the term  thereof,  Mr. Papa  resigns from his  employment  with the Company for
"Good  Reason,"  the Company  will be required to pay him his annual  salary and
bonus to the date of termination, together with periodic severance payments at a
rate  equal to 150% of his  annual  salary (at the rate in effect on the date of
termination)  for the longer of (i) the remainder of the term of his  employment
agreement,  and (ii) one year following such  termination.  For purposes of such
employment  agreement,  resignation  for Good Reason means,  among other things,
resignation  by Mr. Papa because of a Change in Control of the Company.  In such
event,  Mr. Papa would be required to provide the Company with written notice of
his intent to resign for Good Reason within 90 days after the Executive knows of
the occurrence of


                                       2
<PAGE>


an event that constitutes Good Reason.

     Set forth below are  provisions  of the  definition  of the term "Change in
Control" contained in Mr. Papa's employment  agreement which are relevant to the
following discussion:

     (i)  any "person"  (within the meaning of Section  13(d) of the  Securities
          and  Exchange  Act of 1934,  as  amended  (the  "Exchange  Act") is or
          becomes the  beneficial  owner  within the meaning of Rule 13d-3 under
          the Exchange Act (a "Beneficial  Owner"),  directly or indirectly,  of
          securities   of  the  Company  (not   including   in  the   securities
          beneficially  owned by such person any  securities  acquired  from the
          Company or its  affiliates)  representing  25% or more of the combined
          voting power of the Company's then outstanding  securities,  excluding
          any person who becomes such a Beneficial  Owner in  connection  with a
          transaction   described  in  clause  (A)  of  paragraph  (iii)  below;
          provided,  however,  that with respect to the beneficial  ownership of
          securities  by John N.  Blackman,  Jr.,  Mark W. Blackman and Louse B.
          Tollefson and their respective heirs,  executors,  and assigns and any
          trust  formed by any of the Blackman  Shareholders  for the purpose of
          estate and/or tax planning  (including the Louise B. Tollefson Florida
          Intangible Tax Trust) (collectively,  the Blackman  Shareholders") the
          reference to 25% in this Section 4(f)(i) shall be changed to 45%;

     (ii) the  following  individuals  cease  for any  reason  to  constitute  a
          majority of the number of directors then serving:  individuals who, on
          the date hereof, constitute the Board and any new director (other than
          a director whose initial assumption of office is in connection with an
          actual or threatened election contest,  including but not limited to a
          consent  solicitation,  relating to the  election of  directors of the
          Company) whose  appointment or election by the Board or nomination for
          election by the Company's  stockholders was approved or recommended by
          a vote of at least two  thirds  (2/3) of the  directors  then still in
          office who either  were  directors  on the date of such  agreement  or
          whose appointment,  election or nomination for election was previously
          so approved or recommended;

    (iii) there is consummated a merger or  consolidation  of the Company or any
          direct or indirect  wholly-owned  subsidiary  of the Company  with any
          other corporation other than (A) a merger or consolidation which would
          result in the voting securities of the Company outstanding immediately
          prior to such merger or consolidation  continuing to represent (either
          by remaining  outstanding or by being converted into voting securities
          of the surviving  entity or any parent  thereof),  in combination with
          the  ownership of any trustee or other  fiduciary  holding  securities
          under an employee benefit plan of the Company or any subsidiary of the
          Company,  at least 50% of the combined  voting power of the securities
          of  the  Company  or  such  surviving  entity  or any  parent  thereof
          outstanding  immediately after such merger or consolidation,  or (B) a
          merger or consolidation  effected to implement a  recapitalization  of
          the Company (or similar  transaction) in which no person is or becomes
          the Beneficial  Owner,  directly or  indirectly,  of securities of the
          Company  representing  25% or more of the combined voting power of the
          Company's then outstanding  securities;  provided,  however, that with
          respect to the  beneficial  ownership  of  securities  by the Blackman
          Shareholders,  the reference to 25% is this Section 4(f)(iii)(B) shall
          be changed to 45%; or

     (iv) the stockholders of the Company approve a plan of complete liquidation
          or dissolution of the Company or there is consummated an agreement for
          the sale or disposition by the


                                       3
<PAGE>


          Company of all or  substantially  all of the Company's  assets,  other
          than a sale or disposition by the Company of all or substantially  all
          of the  Company's  assets to an entity,  at least 50% of the  combined
          voting  power  of  the  voting   securities  of  which  are  owned  by
          stockholders of the Company in  substantially  the same proportions as
          their ownership of the Company immediately prior to such sale.

          Notwithstanding  the  foregoing,  a "Change of  Control"  shall not be
     deemed to have occurred by virtue of the consummation of any transaction or
     series of integrated  transactions  immediately  following which the record
     holders  of the  common  stock  of the  company  immediately  prior to such
     transaction  or  transactions  continue  to  have  substantially  the  same
     proportionate ownership in an entity which owns all or substantially all of
     the assets of the Company immediately  following such transaction or series
     of transactions.

     John N. Blackman, Jr., Mark W. Blackman, Louise B. Tollefson, the mother of
John N. Blackman,  Jr. and Mark W. Blackman, and the Louise B. Tollefson Florida
Intangible Tax Trust (of which Louise B. Tollefson the sole beneficiary), own in
the  aggregate  5,788,208  shares (or 60%) of Common  Stock of the  Company.  In
connection  with the meeting of the Board of Directors of the Company  commenced
on March 24,  1999,  to approve  management's  recommendation  of  nominees  for
election to the Board of Directors at the 1999 Annual Meeting of Stockholders of
the Company (the "1999 Annual Meeting"), John N. Blackman, Jr., Mark W. Blackman
and  Louise B.  Tollefson  delivered  a  memorandum  to the  Board of  Directors
stating,  among other things, that "we are committed to reconstituting the Board
of Directors to move the Company forward and to provide  appropriate support for
Mr. Papa through  consensual  resignations,  new vacancies  and, if necessary or
appropriate, full exercise of our rights as shareholders." At such meeting, Mark
W.  Blackman  proposed the  nomination of nine  individuals  for election to the
Board of Directors,  including two  individuals who currently serve on the Board
of Directors and seven individuals  (including Mr. Papa) who, if elected,  would
be new directors. No action was taken by the Board of Directors at that time and
the meeting was adjourned.  At the reconvened  meeting of the Board of Directors
of the Company held on April 29, 1999, Mark W. Blackman  renewed his proposal to
nominate  such  individuals  and the Board was advised that Mr. Papa declined to
stand  for  election  to the Board of  Directors  of the  Company.  The Board of
Directors  then  voted to expand  the size of the Board  from 13  members  to 17
members,  to nominate and recommend the election of the individuals  (other than
Mr. Papa) proposed by Mr.  Blackman to the Board of Directors of the Company and
to set a date for 1999 Annual  Meeting.  The Board also  approved a proposal for
the Company to enter into indemnification  agreements with each of the Company's
directors and  executive  officers  pursuant to which the Company  agrees to pay
expenses  incurred by such individuals in connection with  indemnifiable  claims
and to establish a $750,000 escrow fund to pay any such amounts. Stockholders of
the Company will receive proxy  material  relating to the 1999 Annual Meeting in
due course,  including biographical information concerning nominees for election
to the Board of Directors of the Company and  information  concerning  any other
actions to be taken at such meeting.

     Some  or  all of the  foregoing  events  may be  asserted  by Mr.  Papa  to
constitute  a Change of Control of the Company,  triggering  his right to resign
and receive the compensation provided for in his employment agreement.  Mr. Papa
has not advised the Company of his  intentions  in this regard.  Should Mr. Papa
assert  such  rights  and  resign  from his  positions  as  President  and Chief
Executive Officer of the Company, such resignation might have a material adverse
effect on the business of the Company.


                                       4
<PAGE>


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

      Insurance Companies and Lloyd's Corporate Capital Vehicle:

      New York Marine And General Insurance Company - ("New York Marine")
      Gotham Insurance Company - ("Gotham")
      MMO UK, Ltd.

      Insurance Underwriters and Managers:

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

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

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

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  (collectively  referred  to as  "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 pro-rated  among
pool members in accordance with their pool participation percentages.

      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 commenced
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 (collectively referred to as "Syndicate 1265").

      The Company has approximately 119 employees of whom 22 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 and Year 2000 compliance. 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.

Such  statements  are made  under  the safe  harbor  provisions  of the  Private
Securities  Litigation Reform Act of 1995. These 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,  plans for Year 2000  compliance,  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.


                                       5
<PAGE>


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.

      The Company  participation  in the business  underwritten for the pools by
the Manager has increased over the years and, since January 1, 1997, the Company
has had a 100% participation in all lines of business produced by the pools.

      Two former pool  members,  Utica Mutual  Insurance  Company and  Arkwright
Mutual  Insurance  Company  withdrew  from the pools and retained  liability for
their  effective pool  participation  for all loss reserves,  including IBNR and
unearned  premium  reserves,  incurred  on  policies  effective  prior  to their
withdrawal from the pools.

      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.

      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.

Investment Policy

      The Company follows an investment  policy which is reviewed  quarterly and
revised periodically.  For the years ended December 31, 1998 and 1997, the yield
on the Company's  investment portfolio (computed on the basis of average monthly
cost  of  investment  and  statutory  investment  income)  was  5.4%  and  5.7%,
respectively.  At December 31,  1998,  the  weighted  average  maturity of fixed
maturity investments was 6.4 years.

      The investment  policy for New York Marine as of December 31, 1998, 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  Aa3/AA- or MIG 2 or better,  tax-exempts
            rated Aa3 or 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 A1/AA- or Aa3/A+ rating not to exceed
            $500,000 in any one institution.


                                       6
<PAGE>


      2.    Bond Funds

            A)    Tax-exempt  securities and obligations of private corporations
                  rated A3/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 A3/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 A3/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 Groupama Asset  Management.  Gotham has its
fixed  income  portfolio  managed by JPMIM and its equity  portfolio  managed by
Rorer Asset Management.  The Company's U.K.  operations have investments managed
by Aberdeen Asset Managers Ltd. See "Subsidiaries".

      As of December 31, 1998,  The Company's  invested  assets were invested as
follows:

                                              (In thousands)
                               New York Marine     Gotham     Syndicate 1265
                               ---------------     ------     --------------
    Bonds Rated A- or better ..   $271,501       $ 77,901       $4,001
    Bonds Rated below A- ......        -0-            -0-          -0-
    Equities ..................   $ 56,295       $ 17,123          -0-


                                       7
<PAGE>


Lines of Insurance

      The Company writes ocean marine,  inland  marine,  aircraft and non-marine
liability  lines of  insurance.  These lines of  business  are  considered,  for
operational purposes, as the Company's main segments for analyzing  underwriting
income. 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.  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
including business from Syndicate 1265. Insurance premiums written on a calendar
year  basis may be  attributable  to various  policy  years.  Thus,  some of the
calendar  year premiums  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,  which set forth calendar year premiums,  do reflect
the  size  and  mix of  business  produced  by the  Managers  for the  years  so
indicated.


                                         Year Ended December 31,
                        -------------------------------------------------------
Gross Premiums Written by
    Line of Business      1998(a)             1997              1996 
----------------------  ---------          ---------          --------
                                              (In thousands)
Ocean marine .........  $  78,768     60%  $  72,995     59%  $  87,519     56%
Inland marine ........      1,321      1%      1,117      1%      1,651      1%
Aircraft .............     36,594     28%     45,853     37%     61,067     39%
Other liability ......      3,176      2%      3,897      3%      5,309      4%
Other.(b) ............     12,337      9%        207     --         358     --
                        ---------    ---   ---------    ---   ---------    --- 
Total ................  $ 132,196    100%  $ 124,069    100%  $ 155,904    100%
                        =========    ===   =========    ===   =========    === 


                                         Year Ended December 31,
                        -------------------------------------------------------
Net Premiums Written by
    Line of Business      1998(a)            1997               1996 
----------------------  ----------         ---------          --------
                                              (In thousands)
Ocean marine .........  $  58,800     82%  $  49,666     79%  $  58,771     59%
Inland marine ........       (355)    --        (217)    --      (2,087)    (2%)
Aircraft .............       (551)    --       9,568     15%     37,682     38%
Other liability ......      2,977      4%      3,864      6%      5,325      5%
Other.(b) ............     10,587     14%        207     --         374     --
                        ---------    ---   ---------    ---   ---------    --- 
Total ................  $  71,954    100%  $  63,088    100%  $ 100,065    100%
                        =========    ===   =========    ===   =========    === 

(a)   Includes gross ocean marine premiums written and net ocean marine premiums
      written from  Syndicate  1265 of $17,817 and $16,832,  respectively.  This
      represents  approximately  23% and 29% of ocean marine premiums on a gross
      and net basis, respectively.

(b)   In 1998, includes a one-time assumption of miscellaneous casualty premiums
      of $12,313 and $10,563 on a gross and net basis, respectively.


                                       8
<PAGE>


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.

      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.


                                       9
<PAGE>


      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, 1998, were  Arkwright,  Lloyd's and Utica
Mutual,  with  aggregate net  recoverables  of $36 million,  $19 million and $13
million, respectively. The 1998 A.M. Best ratings for Arkwright and Utica Mutual
are each rated 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,  1995, 1994 and 1993, Lloyd's reported gains
for each of  those  years.  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, 1998, the Company's net exposure to  reinsurers,  other
than  Arkwright,  Lloyd's and Utica  Mutual,  was  approximately  $109  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 $4.4 million.

Operating Ratios

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

                                           Year Ended December 31,
                            ----------------------------------------------------
                              1998       1997       1996       1995       1994
                            --------   --------   --------   --------   --------
                                           (Dollars in thousands)
Net premiums written ....   $ 45,333   $ 62,221   $ 90,513   $ 97,817   $100,907
Policyholders' surplus ..    196,745    181,844    160,929    148,785    133,813
                            --------   --------   --------   --------   --------
Ratio ...................   .23 to 1   .34 to 1   .56 to 1   .66 to 1   .75 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
premiums  written to surplus ratio should be no greater than 3 to 1. The Company
is well within those  guidelines.  Syndicate 1265 maintained a capacity to write
approximately a U.S. dollar equivalent of $24.9 million in 1998.

      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,
                            ----------------------------------------------------
                              1998       1997       1996       1995       1994
                            --------   --------   --------   --------   --------
Loss Ratio .............       50.4%      58.7%      62.6%      69.0%      80.2%
Expense Ratio ..........       37.3%      31.7%      31.9%      30.3%      28.5%
                              -----      -----      -----      -----      -----
Combined Ratio .........       87.7%      90.4%      94.5%      99.3%     108.7%

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


                                       10
<PAGE>


      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,
                            ----------------------------------------------------
                              1998       1997       1996       1995       1994
                            --------   --------   --------   --------   --------
Loss Ratio .............       66.4%      58.0%      61.2%      67.4%      78.1%
Expense Ratio ..........       27.1%      31.5%      32.3%      31.9%      34.4%
                              -----      -----      -----      -----      -----
Combined Ratio .........       93.5%      89.5%      93.5%      99.3%     112.5%

      The ratios  set forth  above have been  calculated  on a GAAP basis  which
reflect the operating results of NYMAGIC's insurance company  subsidiaries,  New
York Marine, Gotham and Syndicate 1265's operations.

      The GAAP loss ratio  differs  from the  statutory  loss ratio  mainly as a
result of including the operations of Syndicate 1265 which commenced in 1998, an
assumption of premium  transaction  which was commuted in 1998,  amortization of
the deferred  income in  connection  with the  assumption  of loss reserves from
Pennsylvania National and Lumber Mutual, reserves for uncollectible  reinsurance
recoverables  and an adjustment for certain  management  commissions  charged as
unallocated  loss adjustment  expenses.  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. In 1998, two assumption of premium  transactions had the effect
of reducing the expense ratio for GAAP purposes. In 1998, the expense ratio also
includes amounts from Syndicate 1265's operations.

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 percentage.


                                       11
<PAGE>


      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, 1998 and 1997, the Company's  gross,  ceded and net loss and loss adjustment
expense  reserves for  Asbestos/Pollution  policies  amounted to $24.3  million,
$15.3  million  and $9.0  million,  and $25.0  million,  $16.0  million and $9.0
million,  respectively.  As of December 31, 1998, the Company had  approximately
400  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 develop adversely.  However,  the Company believes that, in
aggregate,  the unpaid loss and loss adjustment  expense reserves as of December
31, 1998,  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:

                                                    1998       1997       1996
                                                  -------    -------    -------
                                                          (In thousands)
                                                  ------------------------------
Asbestos
Case Reserves at beginning of period ..........   $ 1,067    $ 1,103    $ 1,307
Incurred loss and loss adjustment expenses ....       (27)        52       (186)
Payments ......................................      (238)       (88)       (18)
                                                  -------    -------    -------
Case Reserves at end of period ................   $   802    $ 1,067    $ 1,103
                                                  =======    =======    =======

                                                    1998       1997       1996
                                                  -------    -------    -------
                                                           (In thousands)
                                                  ------------------------------
Pollution
Case Reserves at beginning of period ..........   $ 1,417    $ 2,323    $ 2,141
Incurred loss and loss adjustment expenses ....       351       (486)       975
Payments ......................................      (613)      (420)      (793)
                                                  -------    -------    -------
Case Reserves at end of period ................   $ 1,155    $ 1,417    $ 2,323
                                                  =======    =======    =======

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:

                                                    1998       1997       1996
                                                  -------    -------    -------
                                                         (In thousands)
                                                  ------------------------------
Asbestos/Pollution
Unpaid loss and loss adjustment expenses
 (Including IBNR) at beginning of period ......   $ 9,029    $ 8,500    $ 7,041
Incurred loss and loss adjustment expenses ....       839      1,037      2,270
Payments ......................................      (851)      (508)      (811)
                                                  -------    -------    -------
Unpaid loss and loss adjustment expenses
 (Including IBNR) at end of period ............   $ 9,017    $ 9,029    $ 8,500
                                                  =======    =======    =======

      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:

                                                    1998       1997       1996
                                                  -------    -------    -------
                                                         (In thousands)
                                                  ------------------------------
Total loss and loss adjustment expense
 payments for the year ended December 31, .....   $58,983    $55,483    $61,524
Asbestos/Pollution loss and loss
 adjustment expense payments for the
 year ended December 31, ......................       851        508        811


                                       12
<PAGE>


      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. 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, 1998, the
aggregate change in the estimates over all prior years.  The  redundancies  have
been reflected in income over the periods shown.


                                       13
<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.

<TABLE>
<CAPTION>
                                                                          Year Ended December 31,
                                               ----------------------------------------------------------------------------
                                                  1988         1989           1990         1991         1992        1993   
                                                  ----         ----           ----         ----         ----        ----   
                                                                               (Dollars in thousands)
<S>                                            <C>          <C>            <C>          <C>          <C>         <C>       
Estimated Liability
for Net Unpaid Losses and
Loss Adjustment Expenses.                      116,089      138,920        156,533      170,744      203,735     208,366   

Cumulative Amount of Net Liability
Paid As a Percentage of
Estimate Through:

      1  Year Later                                17%          17%            18%          19%          20%         22%   
      2  Years Later                               27%          32%            36%          37%          37%         37%   
      3  Years Later                               39%          46%            49%          52%          48%         49%   
      4  Years Later                               49%          57%            62%          61%          58%         57%   
      5  Years Later                               55%          66%            69%          69%          64%         64%
      6  Years Later                               61%          72%            75%          74%          70%
      7  Years Later                               65%          75%            78%          78%
      8  Years Later                               68%          77%            81%
      9  Years Later                               69%          79%
     10  Years Later                               71%


Net Liability Reestimated including 
Cumulative Net Paid Losses and 
Loss Adjustment Expenses As 
a Percentage of Estimate As of:

      1  Year Later                                96%          96%           100%          99%          99%         99%   
      2  Years Later                               90%          98%           100%          99%          97%         96%   
      3  Years Later                               89%          96%            98%          99%          95%         95%   
      4  Years Later                               86%          94%            98%          97%          95%         93%   
      5  Years Later                               83%          91%            96%          98%          94%         94%
      6  Years Later                               80%          90%            96%          96%          95%
      7  Years Later                               79%          91%            95%          97%
      8  Years Later                               80%          90%            97%
      9  Years Later                               80%          92%
     10  Years Later                               82%


Net Cumulative Redundancy                       20,764       11,786          5,201        4,714       10,883      12,128   



Gross Unpaid Losses an Loss Adjustment Expenses                                                                 $407,321
Reinsurance Recoverable on Unpaid Losses and 
  Loss Adjustment Expenses                                                                                       198,955
Reserve Re-estimated Gross                                                                                       374,966
Reserve Re-estimated Reinsurance Recoverable                                                                     181,142
Gross Cumulative Redundancy                                                                                       32,355

<CAPTION>
                                                                             Year Ended December 31,
                                             ---------------------------------------------------------------------------------------
                                                        1994           1995            1996           1997          1998
                                                        ----           ----            ----           ----          ----
                                                                              (Dollars in thousands)
<S>                                                  <C>            <C>             <C>            <C>           <C>    
Estimated Liability
for Net Unpaid Losses and
Loss Adjustment Expenses...                          212,377        229,916         227,370        222,335       213,589

Cumulative Amount of Net Liability
Paid As a Percentage of
Estimate Through:

      1  Year Later                                       20%            20%             17%            19%
      2  Years Later                                      34%            32%             30%
      3  Years Later                                      44%            42%
      4  Years Later                                      53%
      5  Years Later                         
      6  Years Later                         
      7  Years Later                         
      8  Years Later                         
      9  Years Later                         
     10  Years Later                         


Net Liability Reestimated including 
Cumulative Net Paid Losses and 
Loss Adjustment Expenses As 
a Percentage of Estimate As of:

      1  Year Later                                       97%            94%             90%            91%
      2  Years Later                                      95%            87%             87%
      3  Years Later                                      91%            86%
      4  Years Later                                      91%
      5  Years Later                         
      6  Years Later                         
      7  Years Later                         
      8  Years Later                         
      9  Years Later                         
     10  Years Later                         


Net Cumulative Redundancy                             19,336         32,607          28,868         19,466



Gross Unpaid Losses an Loss Adjustment Expenses     $435,072       $417,795        $411,837       $388,402      $401,584
Reinsurance Recoverable on Unpaid Losses and 
  Loss Adjustment Expenses                           222,695        187,879         184,467        166,066       187,995
Reserve Re-estimated Gross                           398,105        384,859         360,676        385,896
Reserve Re-estimated Reinsurance Recoverable         205,873        185,912         155,180        183,026
Gross Cumulative Redundancy                           36,966         32,936          51,161          2,506
</TABLE>


      The  following  table  provides  a  reconciliation   of  the  consolidated
liability  for losses and loss  adjustment  expenses at the beginning and end of
1998, 1997 and 1996:

                                                   Year ended December 31,
                                             ---------------------------------
                                               1998        1997         1996
                                              -------    -------       -------
                                                      (In thousands)
Net liability for losses and loss adjustment
  expenses at beginning of year ............ $ 222,335   $ 227,370    $ 229,916

Provision for losses and loss adjustment
  expenses occurring in current year .......    69,703      72,322       71,731
Decrease in estimated losses and loss
  adjustment expenses for claims occurring
  in prior years (1) .......................   (19,466)    (21,874)     (12,753)
Deferred income-loss portfolio
  assumption(2) ............................       275         320          381

Total losses and loss adjustment expenses
  incurred .................................    50,512      50,768       59,359
                                             ---------   ---------    ---------
Less:
Losses and loss adjustment expense payments 
   for claims occurring during:
      current year .........................    17,407      17,029       15,012
      prior years ..........................    41,576      38,454       46,512
                                                58,983      55,483       61,524
Plus:
Deferred income-loss portfolio assumption(2)      (275)       (320)        (381)
                                             ---------   ---------    ---------
Net liability for losses and loss adjustment
  expenses at year end .....................   213,589     222,335      227,370
                                             ---------   ---------    ---------
Ceded unpaid losses and loss adjustment
  expenses .................................   187,995     166,067      184,467
                                             ---------   ---------    ---------
Gross unpaid losses and loss adjustment
  expenses at year end ..................... $ 401,584   $ 388,402    $ 411,837
                                             =========   =========    =========

      (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,  the Company's  Syndicate  1265, 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.


                                       14
<PAGE>


      The following table sets forth the  reconciliation of the consolidated net
liability for losses and loss adjustment expenses based on statutory  accounting
principles for the domestic insurance  companies and based on generally accepted
accounting principles as of December 31, 1998, 1997 and 1996:
<TABLE>
<CAPTION>
                                                                                                      Year ended December 31,
                                                                                            ---------------------------------------
                                                                                               1998           1997           1996
                                                                                            ---------      ---------      ---------
                                                                                                         (In thousands)
<S>                                                                                         <C>            <C>            <C>      
Liability for losses and loss adjustment expenses
  reported based on statutory accounting principles ..................................      $ 193,680      $ 217,016      $ 222,953
Liability for losses and loss adjustment expenses assumed
  from Lumber Mutual and Pennsylvania National .......................................          4,529          4,469          4,508
 (excludes $4,636, $5,580 and $6,653 at December 31, 1998, 1997 and 1996,
  accounted for in the statutory liability for losses and loss adjustment
  expenses)
UK operations ........................................................................         13,504             --             --
Other, net ...........................................................................          1,876            850            (91)
                                                                                            ---------      ---------      ---------
Net liability for losses and loss adjustment expenses reported
  based on generally accepted accounting principles ..................................        213,589        222,335        227,370
Ceded liability for unpaid losses and loss adjustment expenses .......................        187,995        166,067        184,467
                                                                                            ---------      ---------      ---------
Gross liability for unpaid losses and loss adjustment expenses .......................      $ 401,584      $ 388,402      $ 411,837
                                                                                            =========      =========      =========
</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 domestic 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's project to codify statutory accounting  principles,  which will
ultimately change currently  prescribed  statutory  accounting  principles,  was
approved  by the NAIC in March  1998.  The  approval  included a  provision  for
commissioner  discretion in  determining  appropriate  statutory  accounting for
insurers  in their  state.  The NAIC  indicated  that  codification  will become
effective on January 1, 2001. The Company is examining how  implementation  will
affect its statutory financial statements.

      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.


                                       15
<PAGE>


      Syndicate  1265  operates  in a highly  regulated  environment  within the
overall  Lloyd's  of  London  market.  Lloyd's  of London  maintains  regulatory
departments  that  review the  management  and  operation  of all  agencies  and
syndicates  to ensure that  business is  conducted  in  accordance  with Lloyd's
standards.  Syndicates  are  required  to  maintain  trust  funds for  insurance
transactions  with strict  guidelines  on  withdrawals  from such funds.  Annual
solvency tests are conducted  whereby  syndicates must maintain  minimum capital
requirements in accordance with ratios prescribed by Lloyd's.

      The domestic 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.

      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  domestic  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, 1998
domestic insurance companies' surplus was approximately $19,675,000.

      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 domestic  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, 1998, 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, 1998, New York Marine had aggregate  recoverables
due from  Gotham  of  approximately  $33  million  or 18% of New  York  Marine's
statutory surplus. Gotham had aggregate recoverables due from New York Marine as
of December 31, 1998, of approximately $31 million or 53% 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, 1998, 1997 and 1996.

      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.


                                       16
<PAGE>


      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 commenced
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.

      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.

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 intensified from
1995  through 1998 as 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 119 persons,  of whom 22 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
                  London              -    1,450 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 $1,184,000
from 1999 until the expiration of the lease.  The lease included an initial 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.


                                       17
<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.

                                 1998                          1997
                           ---------------               ---------------
                            High      Low                 High      Low
First Quarter...........   $30.06   $24.38               $21.13   $18.00

Second Quarter .........    34.25    27.00                20.88    18.38

Third Quarter ..........    28.63    21.75                26.06    20.63

Fourth Quarter .........    25.25    19.75                29.81    25.50


      As of March 1,  1999,  there  were 83  shareholders  of  record.  However,
management  believes there are in excess of 2,500 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,
1998 and 1997. 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.

OPERATING DATA                           Year Ended December 31,
                           ----------------------------------------------------
                             1998       1997       1996       1995       1994
                           --------   --------   --------   --------   --------
                                 (In thousands, except per share amounts)
Revenues:
Net premiums earned ...... $ 76,023   $ 87,537   $ 97,036   $103,461   $ 79,255
Net investment income ....   20,803     21,325     21,270     21,659     18,854
Commission income ........      591      1,439      1,981      3,438      2,052
Realized investment gains     8,615     10,425      4,589      4,111      2,992
Other income .............      396        293        690        661        420
                           --------   --------   --------   --------   --------
Total revenues ........... $106,428   $121,019   $125,566   $133,330   $103,573
                           ========   ========   ========   ========   ========

Expenses:
Losses and loss adjustment
  expenses incurred ...... $ 50,512   $ 50,768   $ 59,359   $ 69,716   $ 61,900
Policy acquisition expenses  10,107     16,583     18,828     21,017     14,260
General and administrative
  expenses ...............   21,531     16,763     16,168     16,236     16,742
Interest expense .........    1,374      1,450      1,035        438        495
                           --------   --------   --------   --------   --------
Total expenses ........... $ 83,524   $ 85,564   $ 95,390   $107,407   $ 93,397
                           ========   ========   ========   ========   ========


                                       18
<PAGE>


Selected Financial Data (continued)

                                         Year Ended December 31,
                           ----------------------------------------------------
                             1998       1997       1996       1995       1994
                           --------   --------   --------   --------   --------
                                 (In thousands, except per share amounts)

Income before income taxes   22,904     35,455     30,176     25,923     10,176
                           --------   --------   --------   --------   --------
Income taxes
  Current ................    5,250      8,962      7,495      5,393      2,306
  Deferred ...............     (869)       125         56        410     (1,827)
                           --------   --------   --------   --------   --------
Total income taxes .......    4,381      9,087      7,551      5,803        479
                           --------   --------   --------   --------   --------
Net income ............... $ 18,523   $ 26,368   $ 22,625   $ 20,120   $  9,697
                           ========   ========   ========   ========   ========

BASIC EARNINGS PER SHARE(1):

Weighted average shares
  outstanding ............    9,679      9,849     10,499     11,299     11,379
Basic earnings per share .   $ 1.91   $   2.68   $   2.15   $   1.78   $    .85
                             ======   ========   ========   ========   ========

DILUTED EARNINGS PER SHARE(1):

Weighted average shares
  outstanding ............    9,705      9,872     10,524     11,341     11,392
Diluted earnings per share   $ 1.91   $   2.67   $   2.15   $   1.77   $    .85
                             ======   ========   ========   ========   ========

Dividends declared per share $  .40   $    .40   $    .40   $    .40   $    .40
                             ======   ========   ========   ========   ========

BALANCE SHEET DATA
 AT PERIOD END:
                                           Year Ended December 31,
                           ----------------------------------------------------
                             1998       1997       1996       1995       1994
                           --------   --------   --------   --------   --------
                                               (In thousands)

Total investments ........ $443,022   $438,591   $409,209   $403,306   $341,643
Total assets .............  730,320    707,903    714,949    722,250    730,744
Unpaid losses and loss
  adjustment  expenses ...  401,584    388,402    411,837    417,795    435,072
Notes payable ............   17,458     22,458     20,438     12,727      7,020
Total shareholders' equity $228,180   $206,519   $188,852   $182,717   $164,313

      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."

----------
(1)   Earnings per share data prior to 1997 have been restated as required under
      Statement of Financial Accounting Standards No. 128, "Earnings Per Share".


                                       19
<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 other liability and inland marine
pools  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
pools  increased  to  100%.  These  lines  of  businesses  are  considered,  for
operational  purposes,  as the Company's main segments for purposes of analyzing
underwriting income.

                                        Year Ended December 31,
NYMAGIC Net Premiums Written       ----------------------------------
    Line of Business           1998(a)            1997               1996 
----------------------  -----------------  -----------------  -----------------
                                              (In thousands)
Ocean marine .........  $  59,231     81%  $  48,658     78%  $  54,093     60%
Inland marine ........       (350)    --         146     --      (1,658)    (2%)
Aircraft .............         82     --       9,354     15%     32,482     36%
Other liability ......      2,969      4%      3,856      6%      5,238      6%
Other (b) ............     10,796     15%        207      1%        358     -- 
                        ---------   ----   ---------   ----   ---------   ----
Total ................  $  72,728    100%  $  62,221    100%  $  90,513    100%
                        =========   ====   =========   ====   =========   ==== 

                                        Year Ended December 31,
NYMAGIC Net Premiums Earned        ---------------------------------
    Line of Business           1998(a)            1997               1996 
----------------------  -----------------  -----------------  -----------------
                                              (In thousands)
Ocean marine .........  $  60,219     79%  $  49,984     57%  $  52,483     54%
Inland marine ........       (393)    --         443      1%      2,408      3%
Aircraft .............      2,005      3%     32,566     37%     35,416     36%
Other liability ......      3,393      4%      4,328      5%      6,355      7%
Other (b) ............     10,799     14%        216     --         374     -- 
                        ---------   ----   ---------   ----   ---------   ----
Total ................  $  76,023    100%  $  87,537    100%  $  97,036    100%
                        =========   ====   =========   ====   =========   ==== 


(a)   Includes net ocean marine premiums  written and earned from Syndicate 1265
      of $16,832 and $14,832, respectively.

(b)   In 1998,  includes a one-time  assumption  of  miscellaneous  casualty net
      written and earned premiums of $10,563, respectively.

      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.


                                       20
<PAGE>


      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.

1998 as Compared to 1997

      Net income  decreased  to $18.5  million for the year ended  December  31,
1998,  from  $26.4  million  for the  prior  year.  Diluted  earnings  per share
decreased to $1.91 in 1998 as compared to $2.67 in 1997. Operating income, which
excludes realized  investment gains, was $12.9 million in 1998 compared to $19.6
million in 1997.  Operating  earnings per share on a diluted  basis was $1.33 in
1998 compared with $1.98 in 1997.

      The  Company's net premiums  earned  decreased to $76.0 million in 1998 as
compared  to $87.5  million  in  1997.  Premiums  earned  in 1998  reflect  very
competitive  markets across all lines of business,  premiums from Syndicate 1265
and the effects of two transactions involving the assumption of premiums.

      Ocean marine  earned  premiums  for this segment  increased by 20% in 1998
compared to 1997. The increase resulted from a reinsurance transaction involving
a one-time  assumption of approximately  $14.2 million of premiums that emanated
from Syndicate 1265, which commenced  operations in the current year.  Syndicate
1265  contributed  an  additional  $3.6  million in gross  direct  ocean  marine
writings in 1998.  The domestic  insurance  companies  reported a 9% decrease in
earned premiums as competition  remained intense and adversely  affected premium
rates. The outlook for 1999 indicates that pricing  pressures will remain intact
as the over capacity  within this market still exists.  Syndicate 1265 will also
continue to write at a cautious pace.

      Other  liability  and other  premiums  earned for this  segment were $14.0
million in 1998 compared to $4.3 million in 1997. The increase resulted from the
second  reinsurance  transaction in 1998 that included a one-time  assumption of
approximately  $10.5 million of miscellaneous  casualty net premiums.  Excluding
the  effect  of  this   transaction,   premiums   earned  would  have  decreased
approximately 22% in 1998 as a result of the soft casualty market which led to a
decline in premium production. The Company expects the casualty market to remain
competitive in 1999 with premiums likely to decline further.

      The  aviation  segment of business  was most  affected by the  competitive
market,  with gross  writings  down by 20%,  and  coupled  with the  purchase of
additional reinsurance protection resulted in premiums earned decreasing to $2.0
million in 1998  compared  with  $32.6  million  in 1997.  Obtaining  additional
reinsurance  protection is consistent with the Company's  strategy of minimizing
risk and  preserving  capital as the  underwriting  climate  for gross  premiums
remains soft. In addition,  large aviation  gross losses  resulted in additional
reinsurance  reinstatement  costs of  approximately  $3.7  million  that further
contributed to the decline in premiums.  The Company  expects this  underwriting
environment to remain competitive in 1999.

      Inland  marine gross  premium  writings for this segment  increased 15% to
$1.3 million in 1998 due in large part to writing policies that are ancillary to
its ocean marine risks.  Earned premiums were negative due to reinsurance  costs
for catastrophe  protection,  reinstatement  costs, and quota share  reinsurance
which  collectively  amounted to approximately  $1.6 million.  This underwriting
strategy is expected to remain in place for 1999.

      Losses  and loss  adjustment  expenses  incurred  as a  percentage  of net
premiums  earned were 66.4% for the year ended  December 31, 1998 as compared to
58.0% for the prior year.

      The ocean marine loss ratio for Syndicate 1265's assumption of premiums in
1998 was  approximately  94% and had the effect of  increasing  the overall loss
ratio significantly.  Absent such business, the ocean marine loss ratio for this
segment would have been approximately 54% as compared to 57% for the prior year.
The domestic  insurance  companies recorded favorable net loss experience in the
Company's core ocean marine line largely due to lower retention levels per loss.


                                       21
<PAGE>


      The other liability loss ratio for this segment  increased to 96% from 91%
in 1997.  The  assumption  of  miscellaneous  net casualty  premiums in 1998 was
subsequently  commuted  in the  fourth  quarter  of 1998 at a loss ratio of 77%.
Excluding  this  business,  the loss ratio would have been  approximately  152%.
Adverse development from prior year losses contributed to the increase.

      An  improvement  in  the  frequency  of  losses  and  favorable  net  loss
development contributed to a lower loss ratio in the aviation line in 1998.

      Policy  acquisition  costs as a percentage of net premiums  earned for the
year ended  December  31,  1998 were 13.3% as  compared  with 18.9% of the prior
year.  The  reduction in the ratio is due to the two  transactions  involving an
assumption of premiums in 1998. Excluding the effect of such business, the ratio
would have been approximately  19.7% for 1998. This ratio approximates the ocean
marine line of business ratio as those premiums represent a larger percentage of
total premiums in 1998 than in 1997.

      Net investment  income in 1998 decreased by 2% to $20.8 million from $21.3
million in 1997 as a result of a decrease in  investment  yield in the Company's
fixed maturity portfolio caused by additional purchases of tax-exempt securities
and lower overall interest rates.  Although  investment yield was lower in 1998,
Syndicate 1265's operations  contributed to a larger average invested asset base
during the current year.

      Commission  income in 1998 was $591,448 as compared to $1,438,606  for the
same period of 1997.  The prior year  included  larger profit  commissions  from
reinsurance transactions in the aviation and ocean marine lines of business.

      General and  administrative  expenses  increased by 28% in 1998 over 1997.
The increase  included  operating  expenses from Syndicate 1265.  Also,  certain
one-time  expenses were incurred in connection  with the  assumption of premiums
and the  formation  of  Syndicate  1265.  Lastly,  contributing  to the  overall
increase were expenses associated with two employee benefit plans adopted by the
Board of Directors in 1998.

      Interest expense  decreased 5% for the year ended December 31,1998 to $1.4
million  primarily  as  a  result  of  a  decrease  in  average  loan  principal
outstanding.

      The Company was able to realize  investment  gains of $8.6 million in 1998
mainly as a result of the sale of appreciated equity securities in 1998.

      The Company's effective tax rate at December 31,1998 was 19.1% as compared
to 25.6% in 1997.  Taxable  income  was  greater  in 1997 as a result  of larger
underwriting  profits  and  realized  investment  gains.  The  decrease  in  the
effective  rate was also due to increased  tax-exempt  income as a percentage of
pre-tax income in 1998.

      Reinsurance  receivables  at December 31, 1998 were $199.7  million or 14%
greater than the prior year's amount.  Large gross aviation  losses,  which were
ceded under various reinsurance agreements, accounted for the increase.

      Accumulated  other   comprehensive   income,   which  includes  unrealized
appreciation of investments and foreign  currency  translation  adjustments,  at
December 31, 1998 was $19.4  million as compared to $12.9 million as of December
31,  1997.  Increases  in  unrealized  appreciation  of both  fixed  and  equity
securities accounted for most of the increase.

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.


                                       22
<PAGE>


      Ocean  marine  premiums  earned  fell by 5% in 1997  mainly due to falling
premium rates as  competition  remained  intense during 1997. All classes within
the ocean marine line experienced declines except for the energy class which saw
increases in production.  In 1997, the Company wrote additional marine liability
accounts with assureds that have smaller amounts of exposure.  Also, net premium
writings  did not decline at the same rate as gross  premiums  primarily  due to
cheaper reinsurance costs.

      Although net premiums  earned in the aviation  line  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  1997.  During  this  soft
underwriting  cycle,  the Company sought 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.

      Other liability earned premiums  decreased by 32%. The casualty market has
been severely competitive for many years. Consequently, the Company continued to
underwrite this line very selectively.

      Premiums earned did benefit,  however,  from the Company's  increased pool
participation in the Mutual Marine Office,  Inc. ocean marine and aviation pools
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
its higher loss ratio in 1997.

      Policy  acquisition  costs as a percentage of net premiums  earned for the
year ended December 31, 1997 were 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.

      Commission income for the year ended December 31, 1997 was $1.4 million as
compared to $2.0 million 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 pools 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 $1.4  million for the year ended  December
31,1997 from $1.0  million 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 $10.4 million in 1997
mainly as a result of the sale of appreciated equity securities.

      Net income  increased by 17% to $26.4 million for the year ended  December
31,  1997,  from $22.6  million for the prior year.  Diluted  earnings per share
increased to $2.67 in 1997 as compared to $2.15 in 1996.

      Accumulated  other  comprehensive  income as of December 31, 1997 included
gross unrealized gains and losses on equity securities of $12.3 million and $0.9
million respectively, and gross unrealized gains on fixed


                                       23
<PAGE>


maturities available for sale of $8.6 million. Unrealized gains were recorded in
fixed and equity  securities  resulting  from  decreases in interest rates and a
strong stock market in 1997, respectively.

      Notes  payable  increased  to $22.4  million 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 $24.4 million 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 prompted  prepaid  reinsurance  premiums,  as well as
ceded reinsurance payable balances, to increase accordingly.


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, 1998, the Company's assets included  approximately $17.8
million 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 1997 and 1996 cash inflows  increased as premium
rates were  higher in the ocean  marine  and  aviation  lines.  Cash was used in
operating  activities in 1998 as further declines in premium rates and increases
in ceded  reinsurance  premiums  negatively  affected cash from operations.  The
Company's maturing book of casualty business also adversely affected cash flows.

      Investing and financing  activities  increased  further as a result of the
Company  entering into a $10,000,000  revolving credit agreement which increased
to   $25,000,000  in  1996  with  the  same  bank.   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  facility  was  reduced  in  1997  from a
$10,000,000  amount  available  in 1996.  The use of this credit  facility  will
assist  the  Company  as a source  of  short-term  liquidity.  In 1998 and 1996,
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 1998 to improve after tax investment yield.


                                       24
<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, 1998, the Company had repurchased a total of
2,116,442 shares of common stock at a total cost of approximately $38,583,101 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 domestic 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.  Dividends can be paid from Syndicate 1265 to the extent
solvency  margins are maintained and after the closing of a calendar year, which
occurs three years following each calendar year.

Impact of Year 2000

      The Company's  computer systems and electronic  devices which are based on
software programs which process dates with two digits rather than four to define
the  applicable  year may assume that all years occur only in the 20th  century.
This could  cause a system  failure or  miscalculation  causing  disruptions  of
operations controlled by such systems or devices, including, among other things,
an  inability  to  process  transactions,  send  invoices,  engage in  actuarial
analyses,  compute and track payment  schedules,  control equipment or engage in
similar normal  business  activities.  The Company's  exposure to this potential
phenomenon is concentrated  principally in its legacy hardware system, insurance
business operations software, financial applications software (accounts payable,
general  ledger  and  other  packages),   business   relations,   and  potential
underwriting  losses  arising  from  claims  by  insureds  under  the  Company's
insurance   policies  for  relief  for  losses  resulting  from  the  Year  2000
phenomenon.

      The following  discussion is based on management's  best estimates,  which
were derived using numerous  assumptions of future  events,  including,  without
limitation,  the continuing availability of basic utilities and other resources,
the  availability  of trained  personnel at reasonable  cost, and the ability of
third  parties to  replace or upgrade  noncompliant  software  and  hardware  at
reasonable  cost.  There can be no guarantee that these  assumptions  will prove
accurate,  and,  accordingly,  actual results may  materially  differ from those
anticipated.

Readiness and Compliance Plan

      The  Company  separated  its Year 2000  compliance  plan into three  major
phases:  (1)  Information  Technology;  (2)  Compliance  by Vendors and Business
Relations;  and (3)  Potential  Underwriting  Losses.  These  three  phases  are
considered the most critical components of the Year 2000 efforts for the
Company.

Information Technology

      In 1996, the Company  commenced  overhauling its existing legacy mainframe
computer hardware and software systems in order to improve employee productivity
and  financial  reporting.  The Company  extended the project to cover Year 2000
concerns.

      In June,  1998,  the Company  replaced its computer  hardware  system with
client-server  architecture  which is Year  2000  compliant.  The  Company  also
successfully  upgraded its insurance business  operations  software so that such
software now functions with the new Year 2000 compliant  operating  system.  The
upgraded  operations  software  was  modified   subsequently  to  be  Year  2000
compliant.  The  Company  is  currently  testing  and  evaluating  the Year 2000
compliant version of its insurance business operations software.  Based upon the
status of its testing,  which is currently on schedule,  the Company expects the
testing of its business operations software to be completed by June 30, 1999.


                                       25
<PAGE>


      The Company expects that its remaining  software (which includes financial
applications  for accounts  payable,  general ledger and other packages) will be
Year 2000  compliant  by June 30,  1999.  The Company has  identified  Year 2000
compliant systems and is evaluating and testing data to insure compliance of the
remaining  software  systems.  The Company is  approximately  25% complete  with
respect to this phase of its Year 2000  evaluation  efforts and is  currently on
schedule with its compliance plans. In the event such systems cannot be upgraded
or remedied,  the Company would  purchase  and/or license  replacement  software
which is Year 2000 compliant.

Compliance by Vendors and Business Relations

      In  connection  with the Company's  Year 2000 plan,  the Company is in the
process of communicating with its various business  relationships and vendors to
determine  the  extent  of  their  Year  2000  compliance.  The  Company  mailed
questionnaires  to  approximately  300 companies which the Company  considers to
have an important  relationship with the Company.  To date, the Company received
responses from  approximately 200 of such companies  indicating that they are in
the process of becoming Year 2000 compliant before January 1, 2000. In 1999, the
Company  selected the 10 largest  producers for the Company,  which accounts for
approximately  64% of the Company's  gross  writings for the domestic  insurance
companies as of December 31,  1998,  and  requested  additional  information  to
evidence  their  Year 2000  Compliance.  Also,  the  Company is  soliciting  the
non-responding  companies  to  determine  the  extent of their  compliance.  The
Company is current with its timetable on this phase of its  compliance  plan and
believes  that it will  complete  analyzing  the  Year  2000  compliance  of its
business  relationships by July 1999. In the event that a business  relationship
does not respond to the Company or does not demonstrate that its own systems are
Year 2000 compliant,  then such business relationships may need to be terminated
which may result in a material  and adverse  effect on the  Company's  business,
assets, prospects, liquidity and financial condition.

Potential Underwriting Losses

      Property/casualty  insurance  companies may have an underwriting  exposure
related to the Year 2000  phenomenon.  Although the Company has not received any
claims for  coverage  from  insureds  based on losses  resulting  from Year 2000
issues, there can be no assurance that insureds will be free from losses of this
type or that the  Company  will be free from  claims  made  under the  Company's
insurance policies. If any claims are made, coverage, if any, will depend on the
facts and circumstances of the claim and the provisions of the subject insurance
policy. The Company,  in certain  instances,  has been able to include Year 2000
exclusions in its policy forms. Also, the Company is requesting information from
certain  insureds  as to the extent of their Year 2000  compliance.  The Company
will  continue  to  monitor  policies  throughout  the 1999  year as a result of
compliance under this phase of its Year 2000 evaluation  efforts.  At this time,
the Company is unable to determine  whether the adverse  impact and/or extent of
underwriting  losses,  if any, in connection  with the  foregoing  circumstances
would be material to the Company.

Cost of Year 2000 Compliance

      The Company estimates, based on its evaluations and actions taken to date,
that the aggregate cost of its  information  technology  project,  including the
cost of achieving  Year 2000  compliance,  will be  approximately  $1,400,000 of
which  approximately  $1,100,000  has been expended  through  December 31, 1998.
These costs  (excluding  internal  personnel  expenses) are comprised of outside
consulting  service  costs for  evaluation  and upgrade of systems,  acquisition
costs for new equipment and componentry, and licensing and purchase fees for new
and upgraded software.  This process has not had a material impact on the status
of other internal technology projects.

Contingency Plan; Actual Results May Differ

      The Company is in the beginning stages of developing a contingency plan in
the event that its insurance business operation software is not placed into use.
This plan,  which has not been  finalized,  includes a combination of purchasing
personal  computers and utilizing  manual  systems.  The  contingency  plan also
addresses Year 2000 issues  relating to  environmental  concerns.  This includes
telephone and security systems, copiers, electrical availability, etc.


                                       26
<PAGE>


      Actual  results may differ  materially  from those  anticipated.  Specific
factors that might cause such material  differences include, but are not limited
to, the availability and cost of personnel  trained in this area, the ability to
locate suitable cost efficient  replacements (or upgrades to) computer  hardware
and  software  which are Year 2000  compliant,  and the  ability to correct  all
relevant  computer  codes and similar  uncertainties.  There can be no assurance
that the Company will be immune from underwriting losses arising from Year 2000;
and such  losses may result in a material  and adverse  effect on the  Company's
business, assets, liquidity and financial condition.

Market risk

      Market risk  includes the  potential  for future  losses due to reasonably
possible changes in the fair value of financial instruments which relates mainly
to  the  Company's  investment  portfolio.   Those  risks  associated  with  the
investment  portfolio  include the  effects of  exposure  to adverse  changes in
interest rates, credit quality, equity prices and foreign exchange rates.

      The  largest  market risk to the  Company  relates to interest  rate risk.
Interest  rate risk  includes the changes in the fair value of fixed  maturities
based upon changes in interest  rates.  This risk is considered  when developing
our benchmarks for evaluating our portfolio.  Such  benchmarks are tied into the
overall  duration of the Company's loss  reserves.  Through the matching of cash
flows from future  maturing  investments and the ultimate payout pattern of loss
reserves, the Company can minimize the effect of interest rate risk.

      The  following  tabular  presentation  outlines the expected cash flows of
fixed  maturities  available  for sale for each of the next  five  years and the
aggregate  cash flows  expected for the remaining  years  thereafter  based upon
maturity dates. Fixed maturities include taxable and tax-exempt  securities with
applicable  weighted  average  interest  rates.  Taxables also include  mortgage
backed  securities  that have  prepayment  features  which may cause actual cash
flows to differ from those based on maturity date.

                 Future cash flows of expected principal amounts
                                  (in millions)
                                                                   Total   Total
                                                          There- Amortized  Fair
Fixed maturities          1999   2000   2001   2002   2003 after   Cost    Value
----------------          ----   ----   ----   ----   ----------   ----    -----

Tax-exempt ............. $ 15   $ 11   $ 15   $ 18   $ 32   $161    $252   $260
   Average interest rate  5.9%   6.5%   6.0%   5.7%   5.8%   6.2%     --     --

Taxables ...............   15      3     16     --      9     48      91     93
   Average interest rate  7.0%   7.8%   6.8%    --    5.4%   7.1%     --     --
                         ----   ----   ----   ----   ----------   ----    -----
Total .................. $ 30   $ 14   $ 31   $ 18   $ 41   $209    $343   $353


      Credit  quality  risk  includes  the risk of  default  by  issuers of debt
securities.  The Company's investment guidelines are conservatively designed and
prevent the investment in securities below an A rating. Overall, the Company has
maintained  fixed  maturities  with an average credit quality rating of AA as of
December 31, 1998. The Company's exposure to credit risk is considered minimal.

      Foreign  currency  risk includes  exposure to changes in foreign  exchange
rates  on  the  market  value  and  interest   income  of  foreign   denominated
investments. Syndicate 1265 operations maintain an equivalent of $2.9 million in
investments  in British Pounds  Sterling to the extent  business is derived from
transactions  in such  currency.  The  investment  of cash flows  from  business
written in Pounds  Sterling in  securities  of the same foreign  currency,  will
ultimately mitigate the risk associated with changes in foreign exchange rates.

      Equity risk includes the potential  loss from changes in the fair value of
equity  securities.  The Company's  equity  securities are traded on major stock
exchanges  and are highly  liquid.  These  securities  are limited by investment
guidelines to 25% of statutory  surplus in order to minimize the impact of large
changes in the stock market.

      The Company monitors market risks on a regular basis through meetings with
investment  advisors,  examining the existing portfolio and reviewing  potential
changes in investment guidelines. The overall effect of


                                       27
<PAGE>


which is to allow  management to make informed  decisions  concerning the impact
that market risks have on the portfolio.

Effect of recent accounting pronouncements

      Statement of  Financial  Accounting  Standards  No. 133,  "Accounting  for
Derivative  Instruments and Hedging Activities",  ("SFAS 133") was issued by the
Financial Accounting Standards Board in June 1998. SFAS 133 requires derivatives
to be recorded on the balance sheet at fair value. Derivatives not considered as
hedges must be recorded  at fair value with  adjustments  recorded in the income
statement. For derivatives that qualify as a hedge, changes in the fair value of
the derivative are offset against changes in the fair value of the hedged assets
or  liabilities  and  are  recognized  in  the  income  statement  or  in  other
comprehensive income depending on the nature of the hedge. SFAS 133 is effective
for years beginning after June 15, 1999.

      The Company uses  derivatives,  in the form of an interest rate swap,  for
hedging  purposes as part of its interest rate  management.  The Company has not
yet determined the effect of SFAS 133 on its financial statements.

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.


                                       28
<PAGE>


                                    PART III

Item 10.  Directors and Executive Officers of the Registrant.

Directors and Executive Officers of the Registrant

General

     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 I, II and III expire in the years 1999, 2000 and
2001 respectively.  References to the Company include,  as the context requires,
NYMAGIC and its predecessor,  New York Marine And General Insurance Company.  As
of April 29, 1999,  the Executive  Officers and Directors of the Company were as
follows:

                                      Class of
       Name                    Age    Directors    Position(s) 
       ----                    ---    ---------    ----------- 
Vincent T. Papa                 52       III       President and Chief Executive
                                                   Officer 
Mark W. Blackman(3)             47        II       Director
John N. Blackman, Jr.(2)*       52         I       Director
Thomas J. Condon (1)(2)         54         I       Director
Jean H. Goulding(1)             57       III       Director
John Kean, Jr. (4)              74       III       Director
James A. Lambert                43       III       Director
Charles A. Mitchell             50        II       Vice-President and Director
William R. Scarbrough(3)        70        II       Director
Michael S. Shaffet (1)(3)       63         I       Director
Richard T. Soper(1)(3 )         73        II       Director
William A. Thorne (2)(4)*       73         I       Director
Sergio B. Tobia (1)             60         I       Chairman of the Board and
                                                   Director
Louise B. Tollefson (4)         75        II       Director
Thomas J. Iacopelli             38                 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.

*    Nominee for Election to the Board.

     Vincent T. Papa was appointed  President and Chief Executive Officer of the
Company  effective March 19, 1999. Prior to joining the Company,  Mr. Papa was a
Senior  Vice-President  of Orion Capital and Chief  Executive  Officer of Wm. H.
McGee Co. Inc.

     Mark W.  Blackman has been a Director  since 1979 and was  President of the
Company from 1988 until September 1998. Mr. Blackman was employed by the Company
or its  subsidiaries  from 1977 until September 1998. Mr. Blackman is the son of
Louise B. Tollefson and brother of John N. Blackman, Jr.


                                       29
<PAGE>


     John N. Blackman, Jr. has been a Director since 1975 and served as Chairman
of the Board from 1988 through September, 1998. Mr. Blackman was employed by MMO
and affiliates from 1973 until September 1998. 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. Ms. Goulding
served as acting President of the Company from September 1998 until March 1999.

     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  served as
Chief  Operating  Officer from 1989 until March 1999 and as General  Counsel and
Secretary from 1986 until March 1999.

     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 has been Vice
Chairman of Argent Marine  Operations,  Inc since 1990. Prior to that, 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.  Mr. Tobia  served as acting  Chairman of the Board of
Company from September 1998 until March 1999.

     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.

     In  addition  to the people  noted  above who are  nominees to the Board of
Directors,  the following additional persons have been nominated by the Board of
Directors  of  the  Company  for   election  at  the  1999  Annual   Meeting  of
Stockholders.

     Bennet Tollefson is a former engineer who operated Tollefson Associates, an
Engineering and Sales agency for 35 years. He had previously  worked for General
Electric  and the  Atomic  Energy  Commission,  and is the  husband of Louise B.
Tollefson.  He is  President  and a  member  of the  Board of  Directors  of the
Rochester Hemophilia Foundation. [Age: 79]

     John R.  Anderson  was a 50% owner of the  Compain-Anderson  Group,  Inc. a
general  agency of Guardian Life Insurance  Company from 1991 through  February,
1999, and has worked in the insurance  industry for 27 years.  He is currently a
sales consultant for the S&W Agency,  Inc.,  another Guardian  Insurance Company
general  agency.  He has a BS  from  Rutgers  University,  and  has an MBA  from
University of Hartford. [Age: 55]

     Robert W. Bailey is a Senior Vice President of AON Re Inc., a subsidiary of
the AON Group and is a director of the Kenmark Companies,  which provide various
processing services of the insurance  industry.  Prior to his position as Senior
Vice-President  of Aon Re, Mr. Bailey was President and Chief Operating  Officer
of BEP International,  a reinsurance  intermediary subsidiary of Sodarcan, and a
member of the executive management committee. [Age: 65]

     Costa N.  Kensington is a founder,  and has been a member,  of Kensington &
Ressler, LLC, a New York city law firm, for over 20 years. [Age: 51]

     Jonathan Bannett is a senior Vice-President of Delaware Valley Underwriting
Agency of New Jersey,  Inc. and Delaware Valley Underwriting Agency of New York,
Inc. He also  serves as  Chairman of the Board of Director of ECPI,  a technical
college with campuses in Virginia and North Carolina. [Age: 42]

     Edward  J.  Waite,  III is the  President  and  managing  member of Waite &
Associates,  LLC. He serves as Chairman and Chief Executive Office of Fiber-Tec,
Inc.  and as a Director  of  Niadyne,  Inc. He was  previously  Vice  President,
General  Counsel and Secretary of General  Chemical  Corporation for a number of
years,  and was also the Chief Legal Officer and Secretary of Crompton & Knowles
Corporation. [Age: 52]

     Glenn R. Yanoff is Chief  Executive  Officer and  President of  Crackerjack
Systems, Inc., and is a Assistant Secretary and Assistant Treasurer of North Sea
Insurance Company.  He is an insurance  underwriter with I. Arthur Yanoff & Co.,
Ltd [Age: 43]



                                       30
<PAGE>


     The Board of Directors,  as well as its Audit, Finance and Stock Option and
Compensation  Committees  meet on a  quarterly  basis.  In 1998,  all  Directors
attended at least 75% of the meetings of the Board and the  Committees  on which
they sit.

Item 11.  Executive Compensation.

Executive Compensation

Compensation of Directors

     Directors  who are not also  officers  of the  Company  receive  $8,000 and
shares of the Company's  Common Stock in an amount equal to $10,000 as an annual
retainer  plus an  additional  $1,000 for each meeting of the Board of Directors
and $750 for any Committee meeting attended.  Directors who are also officers of
the Company  receive  $350 for each  meeting of the Board of  Directors  and any
Committee meeting attended.  All Directors of the Company's subsidiaries receive
$250 for each  meeting  of the  Board of  Directors  and $100 for any  Committee
meeting attended.

Compensation of Executive Officers

     The following Summary Compensation Table shows the compensation paid by the
Company for services  rendered  during fiscal years 1998,  1997, and 1996 by its
former  Chairman  of the  Board and its  former  President  and Chief  Executive
Officer,  each of whom ceased to serve in such positions in September  1998, and
each of the  Company's  other  executive  officers  whose total salary and bonus
exceeded  $100,000 during such fiscal year  (collectively,  the "Named Executive
Officers").


                                       31
<PAGE>


                           Summary Compensation Table

<TABLE>
<CAPTION>
                                                   Annual Compensation                             Long Term Compensation Awards
                                ---------------------------------------------------------       ----------------------------------
                                                                                                Restricted             All Other
Name and                                                                  Other Annual             Stock     Options/ Compensation
Principal Position              Year       Salary($)       Bonus($)    Compensation($)(2)        Awards($)   SARs(#)     ($)(1)   
------------------              ----       ---------       --------    ------------------        ---------   -------   -----------
<S>                             <C>        <C>              <C>             <C>                     <C>        <C>      <C>   
John N. Blackman, Jr.           1998       323,606           5,000              -0-                 -0-        -0-       24,000
 Chairman and                   1997       323,606          40,000              -0-                 -0-        -0-      167,257
 Director(3)                    1996       304,375          40,000          336,600                 -0-        -0-      145,244

Mark W. Blackman                1998       335,817          40,000              -0-                 -0-        -0-       24,000
 President and                  1997       323,606          40,000              -0-                 -0-        -0-      167,257
 Director(4)                    1996       304,375          40,000          336,600                 -0-        -0-      145,244

Jean H. Goulding                1998       161,667             -0-              -0-                 -0-        -0-          -0-
 President(5)                   1997           -0-             -0-              -0-                 -0-        -0-          -0-
                                1996           -0-             -0-              -0-                 -0-        -0-          -0-

James A. Lambert                1998       266,149           5,000              -0-                 -0-        -0-       24,000
 Chief Operating                1997       245,316          35,000          198,550                 -0-        -0-       24,000
 Officer, General               1996       229,932          35,000              -0-                 -0-        -0-       22,500
 Counsel, Secretary
 and Director(6)

Sergio B. Tobia                 1998       242,499             -0-              -0-                 -0-        -0-          -0-
 Chairman & Chief               1997           -0-             -0-              -0-                 -0-        -0-          -0-
 Executive Officer(7)           1996           -0-             -0-              -0-                 -0-        -0-          -0-

George Berg                     1998       175,000           3,000           23,185                 -0-        -0-       24,000
 Vice-President                 1997       163,125          13,000              -0-                 -0-        -0-       24,000
                                1996        34,667          10,000              -0-                 -0-        -0-          -0-

Charles Mitchell                1998       159,000           3,000              -0-                 -0-        -0-       24,000
 Vice-President                 1997       149,224          13,000           13,095                 -0-        -0-       24,000
                                1996       139,032          13,000           36,000                 -0-        -0-       22,500
</TABLE>

     (1) The amounts shown in this column for 1998, represent contributions made
by the  Company  in 1998 on  behalf of all  eligible  employees,  including  the
officers  listed  above,   pursuant  to  the  terms  of  the  Company's  defined
contribution retirement plans ("retirement benefits"). The amounts shown in this
column  represent the  retirement  benefits paid in that year as well as certain
amounts for Mr. John N. Blackman, Jr. and Mr. Mark W. Blackman,  which represent
compensation  provided to them as the premium  for term life  insurance,  and in
1997 and 1996  representing  the  dollar  value  benefit  to each of them for an
interest free loan for the payment of the premium for whole life insurance.


                                       32
<PAGE>


     (2) The amounts shown in this column  represent  proceeds from the exercise
of stock options.

     (3) John H.  Blackman,  Jr. ceased to serve as Chairman of the Board of the
Company on September 9, 1998.

     (4) Mark W.  Blackman  ceased to serve as  President  and  Chief  Executive
Officer of the Company on September 9, 1998.

     (5) Jean H. Goulding ceased to serve as Acting  President of the Company on
March 31, 1999.

     (6) James A. Lambert ceased to serve as Chief  Operating  Officer,  General
Counsel and Secretary of the Company on March 31, 1999.

     (7) Sergio B.  Tobias  ceased to serve as Acting  Chairman of the Board and
Acting Chief Executive Officer of the Company on March 31, 1999.

Employment  Contracts  and  Termination  of  Employment  and   Change-in-Control
Arrangements

Vincent T. Papa

     Vincent T. Papa  entered  into an  employment  agreement  with the  Company
effective March 19, 1999, to serve as President and Chief  Executive  Officer of
the Company. Prior to joining the Company, Mr. Papa served as Chairman and Chief
Executive  Officer of Wm. H. McGee & Co., Inc., a marine and property  insurance
subsidiary  of Orion Capital  Corporation  from October 1, 1995 until March 1999
and as Senior Vice President of Orion Capital  Corporation until March 1999. See
"Business - General - Recent Developments."

Mark W. Blackman

     Mark W. Blackman  entered into a termination  of employment  agreement with
the Company effective as of September 9, 1998.  Pursuant to such agreement,  Mr.
Blackman provided consulting and advisory services to the Company from September
9, 1998 through  December 31,  1998,  and  continued to receive his monthly base
salary.  Under such  termination  of  employment  agreement,  Mr.  Blackman  was
entitled to receive a 1998  year-end  bonus in an amount not less than that paid
to him by the Company in 1997 and to participate in 1998 distributions under the
NYMAGIC  Profit  Sharing  Plan.  In addition,  the Company  agreed to pay to Mr.
Blackman  an  annual  base  salary  of  $317,500  in  1999,   payable  in  equal
installments,  and a  $317,500  lump sum  payment  on or as soon as  practicable
following  January 1, 2000. In the event of a "change of control," as defined in
Mr. Blackman's termination agreement, all payments due under such agreement will
be  accelerated  and  become  immediately  due and  payable  and  the  Company's
obligations with respect to Mr. Blackman expire.

Jean H. Goulding

     Jean H. Goulding  entered into a four-month  employment  agreement with the
Company  effective as of September 9, 1998,  to serve as Interim  President  and
Interim Chief Executive Officer of the Company,


                                       33
<PAGE>


which  employment  agreement was  subsequently  extended through March 31, 1999.
Pursuant  to such  agreement,  Ms.  Goulding  received a weekly  base  salary of
$10,000 and reimbursement of reasonable housing

James A. Lambert

     James A.  Lambert  was  employed  as Chief  Operating  Officer  and General
Counsel under an employment agreement with the Company that was extended through
March 31, 1999.  Mr.  Lambert's  employment  with the Company was deemed to have
been  involuntarily  terminated  at March  31,  1999,  within  the  terms of the
Company's  Executive  Severance Plan, adopted by the Board of Directors on March
11, 1998.  

Sergio B. Tobia

     Sergio B. Tobia  entered into a four-month  employment  agreement  with the
Company  effective as of September 9, 1998, to serve as Interim Chief  Executive
Officer of the Company,  which employment  agreement was  subsequently  extended
through March 31, 1999. Pursuant to such agreement,  Mr. Tobia received a weekly
base salary of $15,000.

     The Company  does not  maintain  any  employment  contracts  with its other
executive officers.  The Company maintains an Executive Severance Pay Plan which
provides for severance  benefits to executive officers in an amount equal to two
years' salary in the event of the  termination of employment,  except for cause,
and one year's salary in the event of a change of control.

Stock Options

     No stock options were granted to the Named Executive Officers in 1998 under
the Company's  stock options  plans.  For a description  of the Company's  stock
option plans, see "Stock Option Plans."

Aggregated Stock Option/SAR Exercises and Year-End Values

     The  following  table  shows stock  options  exercised  by Named  Executive
Officers  in  1998,  including  the  aggregate  value  of  gains  on the date of
exercise. In addition,  this table includes the number of shares covered by both
exercisable  and  non-exercisable  stock  options as of December 31, 1998.  Also
reported  are values for  "in-the-money"  options  that  represent  the positive
spread  between the exercise  price of any such  existing  stock options and the
year-end price of the Company's Common Stock.


                                       34
<PAGE>


               Aggregated Option/SAR Exercises in Last Fiscal Year
                         and Year-End Option/SAR Values

<TABLE>
<CAPTION>
                             Shares                           Number of Unexercised               Value of Unexercised In-
                           Acquired         Value                Options/SARs at                 The-Money Options /SARs at
                              on          Realized           December 31, 1998 (#)                  December 31, 1998 ($)
Name                      Exercise(#)        ($)         Exercisable       Unexercisable      Exercisable           Exercisable
----                      -----------     --------       -----------       -------------      -----------           -----------
<S>                           <C>          <C>             <C>                <C>              <C>                   <C>
John N. Blackman, Jr.           -0-           -0-             -0-               -0-               -0-                   -0-
Mark W. Blackman                -0-           -0-             -0-               -0-               -0-                   -0-
James A. Lambert                -0-           -0-          21,667             5,833               -0-                   -0-

Jean H. Goulding                -0-           -0-             -0-               -0-               -0-                   -0-
Serge B. Tobia                  -0-           -0-             -0-               -0-               -0-                   -0-
George Berg                   2,000        23,185           2,000             6,000               -0-                   -0-
Charles A. Mitchell             -0-           -0-          10,000             5,000               -0-                   -0-
</TABLE>

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.  The Company does not  maintain  any defined  benefit
retirement plans.

Executive Life Insurance Plan

     The  Company  maintains  an  Executive  Life  Insurance  Plan for  eligible
officers.  Under the Plan,  the Company  pays life  insurance  premiums  for the
benefit of  participating  officers  with such amounts  secured by a lien on the
policy and repaid in full upon termination of the policy.

Stock Option Plans

     In 1983,  the Company's  Board of Directors and  Shareholders  approved the
Company's  1983  Employee  Stock  Option Plan (the "1983  Plan").  The 1983 Plan
authorized  the  granting to  employees  of the  Company  options to purchase an
aggregate of 250,000  shares of the Company's  Common Stock under the 1983 Plan.
Under the 1983 Plan, the option price may not be less than the fair market value
on the date of grant,  or less than 110% of the fair market value in the case of
an  employee  who owns 10% of the total  combined  voting  power or value of the
Common Stock of the Company immediately before the grant of any option. The 1983
Plan is administered by the Stock Option & Compensation Committee.

     In 1986,  the Company's  Board of Directors and  Shareholders  approved the
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 and
employees,  could  attract  and  retain  persons  of  ability  as  officers  and
employees.


                                       35
<PAGE>


The 1986 Plan  authorized  the  issuance  of options to  purchase  up to 500,000
shares of the  Company's  Common  Stock at not less than 95% of the fair  market
value at the date of grant. The 1986 Plan was administered by the Stock Option &
Compensation  Committee.  The 1986 Plan  expired in 1997 and all options  issued
under the plan have expired and are no longer exercisable.

     In 1991,  the Company's  Board of Directors and  Shareholders  approved the
1991  Stock  Option  Plan (the "1991  Plan"),  to  provide a means  whereby  the
Company,  through the grant of  non-qualified  stock options to key officers and
employees,  may attract and retain persons of ability as officers and employees.
The 1991 Plan  authorizes  the  issuance  of options to  purchase  up to 500,000
shares of the  Company's  Common  Stock at not less than 95% of the fair  market
value at the date of grant.  The 1991 Plan is administered by the Stock Option &
Compensation Committee.

Compensation Committee Interlocks and Insider Participation

     Directors Kean, Thorne,  Tobia and Tollefson served as members of the Stock
Option & Compensation Committee of the Board of Directors during 1998. Mr. Tobia
resigned  from  this  Committee  upon his  appointment  as  Chairman  and  Chief
Executive Officer in September 1999.

     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.

     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.

     Louise B. Tollefson is the mother of Mark W. Blackman and John N. Blackman,
Jr.

Section 16(a) Beneficial Ownership Reporting Compliance

     Section  16(a) of the  Securities  Exchange  Act of 1934  (the  "Securities
Exchange Act")  requires the Company's  executive  officers and  directors,  and
persons  who own more than 10% of a  registered  class of the  Company's  equity
securities,  to file  initial  reports of  ownership  and  reports of changes in
ownership  with the SEC.  Executive  officers and  directors are required by SEC
regulations  to furnish the Company with copies of all Section 16(a) forms which
they file.

     The Company  prepares  Section  16(a) forms on behalf of its  officers  and
directors based on the information provided by them. Based solely on a review of
this  information,  copies of such forms  furnished  to the  Company and written
representations from the Company's executive officers and directors, the Company
believes  that in 1998 all Section 16(a) filing  requirements  applicable to its
executive  officers,  directors  and  greater  than 10%  beneficial  owners were
complied with.


                                       36
<PAGE>


                       Share Investment Performance Graph

     In accordance with SEC rules, set forth below is a line graph comparing the
cumulative total  stockholder  return on the Company's Common Stock to the total
return of the S&P 500 Index and a peer  group(1) of the  Company's  competitors,
obtained  from Value Line,  Inc. for the period of five fiscal years  commencing
January 1, 1994 and ending  December 31,  1998,  assuming  $100  invested in the
Company's Common Stock and in each index and assuming reinvestment of dividends.

     Although  inclusion of a share  performance  graph in this Proxy  Statement
appears  to  suggest  that  Executive  Compensation  should  be  based  on stock
performance  alone, the Stock Option and Compensation  Committee of the Board of
Directors considers many factors in determining compensation.  See "Compensation
Committee Report".

     Notwithstanding  anything to the contrary set forth in any of the Company's
previous filings under the Securities Act of 1933, as amended, or the Securities
Exchange Act, as amended,  that might incorporate future filings,  including the
Company's Proxy  Statement,  in whole or in part, the following Share Investment
Performance  Graph and the Compensation  Committee Report contained herein shall
not be incorporated by reference into any such filings.



(1)  Based on  information  for a peer  group of the  Company's  competitors  as
     obtained  from and  compiled  by  Value  Line,  Inc.,  which  includes  the
     following companies: 20th Cent. Inds. Cal. (TW), Berkley W.R. Corp. (BKLY),
     Chubb  Corporation  (CB),   Cincinnati   Financial  Corp.,   (CINF),  USF&G
     Corporation  (FG),  Fremont General Corp. (FMT),  Frontier  Insurance Group
     (FTR), Gainsco Inc. (GNA), General Reinsurance  Corporation (GRN), Hartford
     Steam Boiler (HSB),  Orion Capital Corp. (OC), Ohio Casualty Corp.  (OCAS),
     Progressive  Corp.  Ohio  (PGR),  SAFECO  Corporation   (SAFC),   Selective
     Insurance  Group,  Inc.  (SIGI),  and St. Paul Insurance Co. (SPC),  all of
     which were included in the prior year's peer group. The following companies
     were added to the peer  group  this year by Value  Line,  Inc.:  Ace,  Ltd.
     (ACL), Allmerical Financial (AFC), Allstate Corp. (ALL), American Financial
     Group (AFG),  Hartford Financial (HIG), Market Corp. (MKL), Mercury General
     (MCY), NAC Re. Corp. (NRC), Old Republic (ORI), and Transatlantic  Holdings
     (TRH).


                                       37
<PAGE>


                          Compensation Committee Report

Summary of Compensation Policies for Executive Officers

The Stock Option & Compensation Committee of the Board of Directors
(the "Committee") meets quarterly and reviews certain aspects of the Company's
compensation that affect executives and non-executives alike. The Committee's
review procedures for use during 1998 are summarized below.

o    The Company develops compensation data for all employees utilizing national
     and  regional  surveys for the  insurance  and  brokerage  industries.  The
     Company's   executive  positions  including  the  positions  of  the  Named
     Executive  Officers other than the former Chairman and the former President
     were matched to comparable  survey  positions and  compensation  data.  The
     referenced  surveys  for the  insurance  and  brokerage  industries  do not
     disclose the  identities  of  individual  participants  and survey data for
     comparable  executive positions is not generally  available.  The Committee
     uses  such  survey  data  in  connection  with  reviewing  salaries  on  an
     individual  basis with the  objective of  providing  each such officer with
     sufficient   compensation   to  cause  them  to  maintain  their  continued
     employment with the Company.

o    The Committee  reviewed the compensation  levels of the former Chairman and
     the former  President in conjunction  with the  information  developed from
     industry surveys. The Committee,  at the request of the former Chairman and
     the former  President,  kept the salaries of these two  executive  officers
     beneath  the higher end of the median  range of salaries  indicated  by the
     compensation surveys. In light of the significant ownership position of the
     former Chairman and the former  President,  the effect of their salaries in
     maintaining their continued  employment was not deemed to be as significant
     as with the other executive officers.  Additionally,  the pricing pressures
     which exist in the markets  within  which the  Company  competes  adversely
     impacted the  Company's  ability to show growth in earnings in 1998. It was
     not deemed  appropriate during this time period to increase the salaries of
     these two executive  officers towards the higher end of the median range of
     salaries  indicated  by the  compensation  surveys.  There were no specific
     performance   goals  for  these   officers  and  no   performance   related
     compensation incentives other than options.

o    The  Committee  reviewed the  compensation  levels for  executive  officers
     excluding the former Chairman and the former  President  within the context
     of  salary  recommendations  for  such  officers  and the  industry  salary
     information.  The Committee  does not utilize  performance  objectives  for
     executives  and senior  officers as such are deemed  inappropriate  for the
     industry  and  markets  within  which the  Company  competes.  Rather,  the
     Committee balanced the competitive  marketplace pressures which might cause
     an officer to leave the Company along with  corporate  needs in the context
     of the recommendations of the former Chairman and the former President. The
     Committee  aims to  maintain  quality  management  without  increasing  the
     Company's   salary  expense  beyond  the  median  range  indicated  by  the
     compensation   surveys.   No  specific   relationship   between   corporate
     performance for 1998 and each element of compensation was considered by the
     Committee in determining  executive  compensation  in general or the former
     Chairman's and the former President's  compensation in particular.  Bonuses
     are   generally   awarded   based   upon   length   of   service   and  job
     responsibilities.

o    In connection with the review of executives and senior officers, the former
     Chairman and the former President, from time to time, made recommendations
     to the Committee with respect to the award or repricing of options pursuant
     to the Company's Stock Option Plans. Through the use of options which vest
     over a five to ten year period and a competitive base salary, the Committee
     attempts to meet competitive marketplace pressures while at the same time
     focusing long-term compensation gains for officers on areas which provide
     similar benefits to non-employee shareholders. The options are awarded in a
     quantity designed to be sufficient to provide each option recipient with an
     incentive to maintain continued employment with the Company. In light of
     their significant ownership position with the Company, the former Chairman
     and the former President have not been awarded additional options for the
     past six years. No outside factors other than comparative surveys were
     considered by the Committee in determining each element of compensation. In
     particular, the Committee did not consider the amounts of options
     outstanding or previously granted or the aggregate size of current awards
     in deciding to award additional options, although the repricing of previous
     grants was taken into consideration.


                                       38
<PAGE>


     The  Company has  reviewed  provisions  of the  Internal  Revenue  Code and
related   regulations   of  the  Internal   Revenue   Service  which  limit  the
deductibility  of  executive  compensation  paid to the former  Chairman and the
former President and each of the other three most highly compensated officers at
the end of any fiscal year to the extent such compensation exceeds $1,000,000 in
any year and does not  qualify  for an  exception  under the statute or proposed
regulations.  The Committee does not believe that annual cash  compensation will
be likely to exceed  $1,000,000  for any  executive  officer in the  foreseeable
future and has  therefore  concluded  that no action with respect to  qualifying
such  compensation for  deductibility  was necessary at this time. The Committee
will continue to evaluate the  advisability of qualifying the  deductibility  of
such compensation in the future.

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

Security Ownership of Certain Beneficial Owners and Management

     The  following  table sets  forth  information  as of March 1,  1999,  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,  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.               616 ,800 (5)           6.37%
     1299 Ocean Avenue - 7th Floor          
     Santa Monica, CA  90401                
   T. Rowe Price Associates, Inc.               1,012,700 (6)          10.46%
     100 East Pratt Street                  
      Baltimore, Maryland  21202            
   John N. Blackman, Jr.                        2,010,996 (1)          20.69%
   Mark W. Blackman                             1,962,674 (2)          20.20%
*  Thomas J. Condon                                   960                   *
*  Jean H. Goulding                                22,460                   *
   John Kean, Jr.                                     860                   *
*  James A. Lambert                                22,667 (3)               *
*  Charles A. Mitchell                             10,700 (3)               *
*  William R. Scarbrough                              960                   *
*  Michael S. Shaffet                               2,260 (4)               *
   Richard T. Soper                                   860                   *
   William A. Thorne                               33,260 (4)               *
*  Sergio B. Tobia                                  4,080                   *
   Louise B. Tollefson                              3,860                   *
   Howard S. Tuthill, Trustee                   1,814,611 (7)          18.67%
                                                ---------              ------
   All directors and officers as a          
   group (15 persons)                           5,891,208 (8)          60.62%
                                           
*    Less than 1% of issued and outstanding Common Stock.


                                       39
<PAGE>


     (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 and his wife,  Deborah,  own 60,000 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 - 10,000 and Mr. Lambert
- 21,667.

     (4) Of the shares shown as beneficially owned by Mr. Thorne,  17,706 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,
1,400 are held individually by his wife.

     (5)  Dimensional  Fund  Advisors,   Inc.   ("Dimensional"),   a  registered
investment advisor, is deemed to have beneficial  ownership of 616,800 shares of
NYMAGIC,  INC.  stock as of December 31,  1998,  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.

     (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  512,700 and T. Rowe Price Small Cap Value
Fund, Inc. 500,000.

     (7)  Howard S.  Tuthill,  as Trustee  of the  Louise B.  Tollefson  Florida
Intangible Tax Trust,  of which Ms.  Tollefson is the  beneficiary,  has filed a
report on Schedule 13D disclosing  ownership of 1,814,611 shares of Common Stock
in  connection  with  certain  aspects of estate and tax  planning for Louise B.
Tollefson.

     (8)  Of  the  5,891,208  shares  indicated  as  beneficially  owned  by all
directors  and  officers as a group,  31,667 are shares  reserved  for  issuance
pursuant  to  currently   exercisable   options.  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.

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  $240,000 in 1998
and $480,000 in each of 1997 and 1996.  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. and Mr. Mark W. Blackman who
donate their time and receive no form of remuneration from the Foundation.


                                       40
<PAGE>


                                     PART IV

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 31.

            2.    Financial Statement Schedules

                  The  list of  financial  statement  schedules  appears  in the
                  accompanying index on page 31.

            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.)

                  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


                                       41
<PAGE>


            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.)

                  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.)

                  10.9  Employment  Agreement  between  Vincent  T. Papa and the
            Company.

                  21. Subsidiaries of the Registrant.


                                       42
<PAGE>


                  23. Consent of KPMG LLP.

                  27. Financial Data Schedule

                  28. Schedule P as of December 31, 1998.

      (b)   Reports on Form 8-K

            None.


                                       43
<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/ Sergio B. Tobia
                                                       ------------------------
                                                       Sergio B. Tobia
                                                       Chairman of the Board


                                                       Date: April 30, 1999
                                                       ------------------------



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

                                    Director                      April 30, 1999
----------------------------
John N. Blackman, Jr.


/s/ Mark W. Blackman                Director                      April 30, 1999
----------------------------
Mark W. Blackman


/s/ Thomas J. Condon                Director                      April 30, 1999
----------------------------
Thomas J. Condon


/s/ Jean H. Goulding                Director                      April 30, 1999
----------------------------
Jean H. Goulding


/s/ John Kean, Jr.                  Director                      April 30, 1999
----------------------------
John Kean, Jr.


/s/ James A. Lambert                Director, General Counsel,    April 30, 1999
----------------------------        Chief Operating Officer
James A. Lambert                    and Secretary


                                       44
<PAGE>


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

/s/ Charles A. Mitchell             Director and Vice President   April 30, 1999
----------------------------
Charles A. Mitchell


/s/ Michael S. Shaffet              Director                      April 30, 1999
----------------------------
Michael S. Shaffet


/s/ William R. Scarbrough           Director                      April 30, 1999
----------------------------
William R. Scarbrough


/s/ Richard T. Soper                Director                      April 30, 1999
----------------------------
Richard T. Soper


/s/ William A. Thorne               Director                      April 30, 1999
----------------------------
William A. Thorne


/s/ Sergio B. Tobia                 Chairman of the Board and     April 30, 1999
----------------------------        Director
Sergio B. Tobia


/s/ Louise B. Tollefson             Director                      April 30, 1999
----------------------------
Louise B. Tollefson


/s/ Thomas J. Iacopelli             Principal Accounting Officer  April 30, 1999
----------------------------        and Chief Financial Officer
Thomas J. Iacopelli                 


/s/ Vincent T. Papa                 President and Chief           April 30, 1999
----------------------------        Executive Officer
Vincent T. Papa


                                       45
<PAGE>


                                  NYMAGIC, INC.
                   INDEX TO CONSOLIDATED FINANCIAL STATEMENTS





Independent Auditors' Report ..............................................   47

Consolidated Balance Sheets ...............................................   48

Consolidated Statements of Income .........................................   49

Consolidated Statements of Shareholders' Equity ...........................   50

Consolidated Statements of Cash Flows .....................................   51

Notes to Consolidated Financial Statements ................................   52

Financial Statement Schedule II ...........................................   73

Financial Statement Schedule V ............................................   75

Financial Statement Schedule VI ...........................................   76


                                       46
<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,  1998 and  1997,  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, 1998.  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,  1998 and 1997,  and the
consolidated  results of their  operations  and their cash flows for each of the
years in the  three-year  period  ended  December  31, 1998 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 LLP
     New York, New York
     February 16, 1999


                                       47
<PAGE>


                                  NYMAGIC, INC.
                           CONSOLIDATED BALANCE SHEETS


                                                         December 31,
                                                 ------------------------------
                                                      1998             1997
                                                 -------------    -------------

                                     ASSETS
Investments:
Fixed maturities available for sale at
  fair value (amortized cost
  $342,583,525 and $352,696,745) .............   $ 353,403,303    $ 361,249,758
Equity securities at fair value
   (cost $54,368,172 and $47,925,798) ........      73,418,473       59,258,608
Short-term investments .......................      16,200,606       18,082,540
                                                 -------------    -------------
   Total investments .........................     443,022,382      438,590,906
                                                 -------------    -------------
Cash .........................................       1,583,390        1,042,310
Accrued investment income ....................       6,189,866        6,322,370
Premiums and other receivables, net ..........      41,422,913       40,635,164
Reinsurance receivables ......................     199,730,802      175,657,952
Deferred policy acquisition costs ............       4,277,430        5,567,488
Prepaid reinsurance premiums .................      19,393,546       24,414,620
Deferred income taxes ........................       5,811,741        8,436,768
Property, improvements & equipment, net ......       2,341,021        2,365,653
Other assets .................................       6,547,403        4,869,609
                                                 -------------    -------------
   Total assets ..............................   $ 730,320,494    $ 707,902,840
                                                 =============    =============

                                  LIABILITIES
Unpaid losses and loss adjustment expenses ...   $ 401,584,146    $ 388,401,548
Reserve for unearned premiums ................      46,878,550       55,188,281
Ceded reinsurance payable ....................      23,795,992       27,307,129
Notes payable ................................      17,458,413       22,458,413
Other liabilities ............................      11,454,977        7,062,095
Dividends payable ............................         968,549          966,031
                                                 -------------    -------------
    Total liabilities ........................     502,140,627      501,383,497
                                                 -------------    -------------

                              SHAREHOLDERS' EQUITY
Common stock .................................      15,017,892       14,991,992
Paid-in capital ..............................      28,029,410       27,529,877
Accumulated other comprehensive income .......      19,436,591       12,931,785
Retained earnings ............................     208,198,204      193,547,346
                                                 -------------    -------------
                                                   270,682,097      249,001,000
Treasury stock, at cost, 5,332,400
  and 5,331,686 shares .......................     (42,502,230)     (42,481,657)
                                                 -------------    -------------

    Total shareholders' equity ...............     228,179,867      206,519,343
                                                 -------------    -------------
    Total liabilities and shareholders' equity   $ 730,320,494    $ 707,902,840
                                                 =============    =============

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


                                       48
<PAGE>


<TABLE>
                                  NYMAGIC, INC.
                        CONSOLIDATED STATEMENTS OF INCOME


<CAPTION>
                                                                                            Year ended December 31,
                                                                      --------------------------------------------------------------
                                                                           1998                     1997                     1996
                                                                      -------------             ------------            ------------

<S>                                                                   <C>                       <C>                     <C>
Revenue:
  Net premiums earned ....................................            $  76,022,663             $ 87,536,906            $ 97,036,021
  Commission income ......................................                  591,448                1,438,606               1,980,632
  Net investment income ..................................               20,803,433               21,325,065              21,270,194
  Realized investment gains ..............................                8,615,058               10,425,133               4,589,133
  Other income ...........................................                  395,560                  292,918                 689,641
                                                                      -------------             ------------            ------------
    Total revenues .......................................              106,428,162              121,018,628             125,565,621
                                                                      -------------             ------------            ------------

Expenses:
  Losses and loss adjustment expenses
   incurred ..............................................               50,512,063               50,768,248              59,358,857
  Policy acquisition expenses ............................               10,107,327               16,582,623              18,827,794
  General and administrative expenses ....................               21,531,287               16,763,699              16,168,162
  Interest expense .......................................                1,373,408                1,449,770               1,035,058
                                                                      -------------             ------------            ------------
    Total expenses .......................................               83,524,085               85,564,340              95,389,871
                                                                      -------------             ------------            ------------

Income before income taxes ...............................               22,904,077               35,454,288              30,175,750
                                                                      -------------             ------------            ------------
  Income tax provision:
  Current ................................................                5,250,123                8,962,799               7,494,593
  Deferred ...............................................                 (869,462)                 123,749                  56,539
                                                                      -------------             ------------            ------------
    Total income taxes ...................................                4,380,661                9,086,548               7,551,132
                                                                      -------------             ------------            ------------

  Net income .............................................            $  18,523,416             $ 26,367,740            $ 22,624,618
                                                                      =============             ============            ============


Weighted average number of shares of
  common stock outstanding-basic .........................                9,678,802                9,848,959              10,499,366
                                                                      =============             ============            ============

Basic earnings per share .................................            $        1.91             $       2.68            $       2.15
                                                                      =============             ============            ============

Weighted average number of shares of
  common stock outstanding-diluted .......................                9,705,433                9,871,586              10,523,996
                                                                      =============             ============            ============

Diluted earnings per share ...............................            $        1.91             $       2.67            $       2.15
                                                                      =============             ============            ============
</TABLE>

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


                                       49
<PAGE>


<TABLE>
                                  NYMAGIC, INC.
                 CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY

<CAPTION>
                                                                             Year ended December 31,
                                            ---------------------------------------------------------------------------------------
                                                       1998                          1997                         1996
                                            ---------------------------   ---------------------------   ---------------------------
<S>                                         <C>            <C>            <C>            <C>            <C>            <C>
Retained earnings:
  Balance, beginning of period ...........  $193,547,346                  $171,089,462                  $152,646,915
  Net income .............................    18,523,416   $ 18,523,416     26,367,740   $ 26,367,740     22,624,618   $ 22,624,618
                                                           ------------                  ------------                  ------------
  Dividends declared .....................    (3,872,558)                   (3,909,856)                   (4,182,071)
                                            ------------                  ------------                  ------------
         Balance, end of period ..........   208,198,204                   193,547,346                   171,089,462
                                            ============                  ============                  ============

Accumulated other comprehensive income:
  Balance, beginning of period ...........    12,931,785                     8,150,910                     9,865,486
  Unrealized gain (loss) on securities,
    net of reclassification  adjustment ..                    6,489,767                     4,774,875                    (1,714,576)
  Foreign currency translation adjustments                       15,039                         6,000
                                                           ------------                  ------------                  ------------
  Other comprehensive income (loss) ......     6,504,806      6,504,806      4,780,875      4,780,875     (1,714,576)    (1,714,576)
                                            ------------   ------------   ------------   ------------   ------------   ------------
  Comprehensive income ...................                 $ 25,028,222                  $ 31,148,615                  $ 20,910,042
                                                           ============                  ============                  ============
         Balance, end of period ..........    19,436,591                    12,931,785                     8,150,910
                                            ============                  ============                  ============

Common stock:
  Balance, beginning of period ...........    14,991,992                    14,911,992                    14,749,192
  Shares issued ..........................        25,900                        80,000                       162,800
                                            ------------                  ------------                  ------------
         Balance, end of period ..........    15,017,892                    14,991,992                    14,911,992
                                            ============                  ============                  ============

Paid-in capital:
  Balance, beginning of period ...........    27,529,877                    26,258,259                    23,933,587
  Shares issued ..........................       499,533                     1,271,618                     2,324,672
                                            ------------                  ------------                  ------------
         Balance, end of period ..........    28,029,410                    27,529,877                    26,258,259
                                            ============                  ============                  ============

Treasury stock:
  Balance, beginning of period ...........   (42,481,657)                  (31,558,897)                  (18,478,576)
  Net repurchase of common stock .........       (20,573)                  (10,922,760)                  (13,080,321)
                                            ------------                  ------------                  ------------
         Balance, end of period ..........  $(42,502,230)                 $(42,481,657)                 $(31,558,897)
                                            ============                  ============                  ============

<CAPTION>
                                                                         Number of Shares
                                                                         ----------------
<S>                                         <C>                           <C>                           <C>       
Common stock, par value $1 each:
  Issued, beginning of period ............    14,991,992                    14,911,992                    14,749,192
  Shares Issued ..........................        25,900                        80,000                       162,800
                                            ------------                  ------------                  ------------
  Issued, end of period ..................    15,017,892                    14,991,992                    14,911,992
                                            ============                  ============                  ============

  Common stock, authorized shares,
  par value $1 each ......................    30,000,000                    30,000,000                    30,000,000
                                            ============                  ============                  ============

  Common stock, shares outstanding .......     9,685,492                     9,660,306                    10,143,052
                                            ============                  ============                  ============

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

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


                                       50
<PAGE>


<TABLE>
                                  NYMAGIC, INC.
                      CONSOLIDATED STATEMENTS OF CASH FLOWS

<CAPTION>
                                                                                         Year ended December 31,
                                                                       ------------------------------------------------------------
                                                                           1998                   1997                     1996
                                                                       ------------           -------------           -------------
<S>                                                                    <C>                    <C>                     <C>
Cash flows from operating activities:
 Net income .................................................          $ 18,523,416           $  26,367,740           $  22,624,618
                                                                       ------------           -------------           -------------
Adjustments to reconcile net income to
  net cash (used in) provided by operating
  activities:
  Provision for deferred taxes ..............................              (869,462)                123,749                  56,539
  Realized investment gains .................................            (8,615,058)            (10,425,133)             (4,589,133)
  Net bond amortization .....................................             2,220,565               1,895,355               1,933,151
  Depreciation and other, net ...............................               733,950                 582,126                 442,945
Changes in:
  Premiums and other receivables ............................              (787,749)             22,404,229               6,641,818
  Reinsurance receivables ...................................           (24,072,850)             22,330,121                (592,384)
  Ceded reinsurance payable .................................            (3,511,137)              7,553,186               3,327,596
  Accrued investment income .................................               132,504                (362,173)                150,205
  Deferred policy acquisition costs .........................             1,290,058               5,336,753                 756,662
  Prepaid reinsurance premiums ..............................             5,021,074             (13,852,407)              6,394,228
  Other assets ..............................................            (1,677,794)             (1,523,783)                 80,157
  Unpaid losses and loss adjustment
    expenses ................................................            13,182,598             (23,435,433)             (5,957,544)
  Reserve for unearned premiums .............................            (8,309,731)            (11,463,652)            (12,917,022)
  Foreign currency translation adjustments ..................                15,039                   6,000                      --
  Other liabilities .........................................             4,392,882                 660,632              (5,546,174)
                                                                       ------------           -------------           -------------
      Total adjustments .....................................           (20,855,111)               (170,430)             (9,818,956)
                                                                       ------------           -------------           -------------
Net cash (used in) provided by operating
 activities .................................................            (2,331,695)             26,197,310              12,805,662
                                                                       ------------           -------------           -------------

Cash flows from investing activities:
  Fixed maturities acquired .................................           (77,604,001)           (205,891,607)           (231,515,433)
  Equity securities acquired ................................           (51,440,490)            (50,578,073)            (37,880,911)
  Net sale of short-term investments ........................             1,890,059                 178,516              22,458,421
  Fixed maturities matured ..................................            34,682,127              25,059,072              36,302,944
  Fixed maturities sold .....................................            51,905,388             167,867,245             171,112,392
  Equity securities sold ....................................            52,514,190              49,858,725              33,637,805
  Acquisition of property & equipment, net ..................              (709,318)               (840,692)               (276,494)
                                                                       ------------           -------------           -------------
Net cash provided by (used in) investing
 activities .................................................            11,237,955             (14,346,814)             (6,161,276)
                                                                       ------------           -------------           -------------

Cash flows from financing activities:
  Proceeds from stock issuance ..............................               525,433               1,351,618               2,487,472
  Cash dividends paid to stockholders .......................            (3,870,040)             (3,958,130)             (4,236,947)
  Net repurchase of common stock ............................               (20,573)            (10,922,760)            (13,080,321)
  Proceeds from borrowings ..................................             5,000,000               9,520,000              14,211,472
  Loan principal payments ...................................           (10,000,000)             (7,500,000)             (6,500,000)
                                                                       ------------           -------------           -------------
Net cash used in financing activities .......................            (8,365,180)            (11,509,272)             (7,118,324)
                                                                       ------------           -------------           -------------

Net increase (decrease) in cash .............................               541,080                 341,224                (473,938)
  Cash at beginning of year .................................             1,042,310                 701,086               1,175,024
                                                                       ------------           -------------           -------------
  Cash at end of year .......................................          $  1,583,390           $   1,042,310           $     701,086
                                                                       ============           =============           =============
</TABLE>

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


                                       51
<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.

     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.  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 and
results of operations of MMO EU, MMO UK and MMO UA (collectively  referred to as
"Syndicate 1265") are included in the consolidated financial statements.

     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.

     The  preparation  of  financial   statements  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.


                                       52
<PAGE>


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


     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  accumulated  other
comprehensive income in shareholders' equity.

     Derivatives

     In 1998,  an  interest  rate  agreement  was entered  into for  purposes of
hedging interest rate risk on the Company's existing note payable. Cash flows as
a result of the hedge are recorded as adjustments to interest expense.

     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
$650,000  and  $700,000 as of  December  31,  1998 and 1997,  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.

     The  Company   accounts  for  all  reinsurance   recoverables  and  prepaid
reinsurance premiums as assets.


                                       53
<PAGE>


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


     Depreciation

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

     Income Taxes

     The Company and its  subsidiaries  file a consolidated  Federal tax return.
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 based upon enacted tax rates. The effect of a change in tax rates is
recognized in income in the period of change.

     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,  recorded 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 in accumulated
other comprehensive  income in shareholders'  equity.  Revenues and expenses are
translated to U.S. dollars using the average exchange rates for the year.

     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.


                                       54
<PAGE>


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


     Basic and diluted earnings per share

     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  12 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 the 1998 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.  The Company adopted SFAS 130 in 1998 and has disclosed information
pertaining to SFAS 130 in the consolidated  statements of  shareholders'  equity
and in Note 11.

     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.  Information  pertaining to the
various segments is reported pursuant to SFAS 131 in Note 14.

     Statement  of  Financial  Accounting  Standards  No. 133,  "Accounting  for
Derivative  Instruments and Hedging Activities ", ("SFAS 133") was issued by the
Financial Accounting Standards Board in June 1998. SFAS 133 requires derivatives
to be recorded on the balance sheet at fair value. Derivatives not considered as
hedges must be recorded  at fair value with  adjustments  recorded in the income
statement. For derivatives that qualify as a hedge, changes in the fair value of
the derivative are offset against changes in the fair value of the hedged assets
or  liabilities  and  are  recognized  in  the  income  statement  or  in  other
comprehensive income depending on the nature of the hedge. SFAS 133 is effective
for years beginning after June 15, 1999.

     The Company uses  derivatives,  in the form of an interest  rate swap,  for
hedging  purposes  as  part  of its  interest  rate  management.  Management  is
assessing  the  impact  of  SFAS  133 on the  Company's  consolidated  financial
position and results of operation.


                                       55
<PAGE>


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


(2)  Investments:

     A summary of  investment  components  at December 31, 1998  consists of the
following:

                                                                      Amount
                                                                     at which
                                                        Fair       shown in the
Type of Investment                       Cost          Value       balance sheet
------------------                   ------------   ------------   ------------
Fixed maturities available
    for sale:
  Bonds:
    United States Government and
      government agencies and
      authorities .................. $ 55,934,951   $ 57,451,902   $ 57,451,902
    States, municipalities and
    political subdivisions .........  252,371,231    260,408,800    260,408,800
    Public utilities ...............   15,456,885     16,223,000     16,223,000
    All other corporate bonds ......   18,820,458     19,319,601     19,319,601
                                     ------------   ------------   ------------
    Total fixed maturities
      available for sale ...........  342,583,525    353,403,303    353,403,303
                                     ------------   ------------   ------------
Equity securities:
Common stocks:
Public utilities ...................    3,273,626      4,161,364      4,161,364
Banks, trusts and insurance
  companies ........................    6,708,311      7,354,216      7,354,216
Industrial, miscellaneous and
  all other ........................   44,386,235     61,902,893     61,902,893
                                     ------------   ------------   ------------
  Total equity securities ..........   54,368,172     73,418,473     73,418,473
                                     ------------   ------------   ------------
Short term investments .............   16,200,606     16,200,606     16,200,606
                                     ------------   ------------   ------------
  Total investments ................ $413,152,303   $443,022,382   $443,022,382
                                     ============   ============   ============


     Unrealized  depreciation or appreciation of investments  (before applicable
income taxes) at December 31, 1998 and 1997 included gross  unrealized  gains on
equity  securities  of  $19,915,191  and  $12,276,631,  respectively;  and gross
unrealized losses on equity  securities of $864,890 and $943,821,  respectively;
and gross unrealized gains on fixed maturities available for sale of $10,841,711
and $8,601,011 at December 31, 1998 and 1997, respectively; and gross unrealized
losses on fixed  maturities  available  for sale of  $21,933  and  $47,998 as of
December 31, 1998 and 1997, respectively.

     Included  in  investments  at December  31, 1998 are bonds on deposit  with
various  regulatory  authorities  as  required  by  law  with a  fair  value  of
$9,037,650.

     There were no non-income  producing fixed maturity  investments for each of
the years ended December 31, 1998, 1997 and 1996.

     All mortgage backed  securities  available as of December 31, 1998 and 1997
are obligations of various U.S.  Government  agencies and consist of GNMA, FHLMC
or FNMA pass through securities. These securities are readily marketable.


                                       56
<PAGE>


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


     The gross unrealized gains and losses on debt securities as of December 31,
1998 and 1997 are as follows:

<TABLE>
<CAPTION>
                                                                                              1998
                                                           -------------------------------------------------------------------------
                                                                                  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 .......................        $ 55,934,951        $  1,521,904        $     (4,953)        $ 57,451,902

Obligations of states and
  political subdivisions ..........................         252,371,231           8,054,549             (16,980)         260,408,800

Corporate securities ..............................          34,277,343           1,265,258                  --           35,542,601
                                                           ------------        ------------        ------------         ------------

         Totals ...................................        $342,583,525        $ 10,841,711        $    (21,933)        $353,403,303
                                                           ============        ============        ============         ============

<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
                                                           ============        ============        ============         ============
</TABLE>


                                       57
<PAGE>


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


     The amortized cost and fair value of debt  securities at December 31, 1998,
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 ................        $ 30,081,115        $ 30,301,713

Due after one year
through five years .....................         102,721,452         106,139,463

Due after five years
through ten years ......................         102,072,965         105,988,562

Due after ten years ....................          72,345,669          74,705,248
                                                ------------        ------------

                                                 307,221,201         317,134,986

Mortgage backed securities .............          35,362,324          36,268,317
                                                ------------        ------------


  Totals ...............................        $342,583,525        $353,403,303
                                                ============        ============

     The  investment  portfolio has exposure to market risks which  includes the
effect of adverse changes in interest rates,  credit quality,  equity prices and
foreign exchange rates on the portfolio. Interest rate risk includes the changes
in the fair value of fixed  maturities  based upon  changes in  interest  rates.
Credit quality risk includes the risk of default by issuers of debt  securities.
Foreign currency risk includes  exposure to changes in foreign exchange rates on
the market value and interest income of foreign denominated investments.  Equity
risk  includes  the  potential  loss from  changes  in the fair  value of equity
securities.


                                       58
<PAGE>


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


     Proceeds from sales of investments in debt securities during 1998, 1997 and
1996 were $51,905,388, $167,867,245 and $171,112,392,  respectively. Gross gains
of $1,105,100, $1,365,460 and $1,121,305 and gross losses of $ 14,246, $ 868,944
and $  1,437,369  were  realized  on the  those  sales in 1998,  1997 and  1996,
respectively.

     Realized and unrealized  investment  appreciation  (depreciation)  on fixed
maturities and equity securities for the years ended December 31, 1998, 1997 and
1996 are as follows:

                                               Year ended December 31,
                                   --------------------------------------------
                                       1998            1997            1996
                                   --------------------------------------------

Realized gains (losses) on sale
of investments
  Fixed maturities .............   $  1,090,854    $    496,516    $   (316,064)
  Equity securities ............      7,516,080      10,044,741       4,931,909
  Short-term investments .......          8,124        (116,124)        (26,712)
                                   ------------    ------------    ------------
  Realized investments gains ...      8,615,058      10,425,133       4,589,133
  Less: applicable income taxes      (3,015,270)     (3,648,797)     (1,606,197)
                                   ------------    ------------    ------------
Net realized investment gains ..   $  5,599,788    $  6,776,336    $  2,982,936
                                   ============    ============    ============

Change in unrealized investment
    appreciation (depreciation)
    of securities:
  Fixed maturities .............   $  2,266,766    $  4,200,177    $ (5,017,118)
  Equity securities ............      7,717,489       3,145,784       2,379,308
                                   ------------    ------------    ------------
  Unrealized investment
    gains (losses) .............      9,984,255       7,345,961      (2,637,810)
  Less:  applicable deferred
         income taxes ..........     (3,494,488)     (2,571,086)        923,234
                                   ------------    ------------    ------------
  Net unrealized investment
    gains (losses) .............   $  6,489,767    $  4,774,875    $ (1,714,576)
                                   ============    ============    ============

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

                                               Year ended December 31,
                                   --------------------------------------------
                                       1998            1997            1996
                                   --------------------------------------------

Fixed maturities ...............   $ 18,740,628    $ 20,192,031    $ 19,938,840
Short-term investments .........      2,021,670       1,089,128       1,316,992
Equity securities ..............        846,610         814,341         734,939
                                   ------------    ------------    ------------
  Total investment income ......     21,608,908      22,095,500      21,990,771
Investment expenses ............       (805,475)       (770,435)       (720,577)
                                   ------------    ------------    ------------
  Net investment income ........   $ 20,803,433    $ 21,325,065    $ 21,270,194
                                   ============    ============    ============


                                       59
<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 pools.

     A summary of the pools'  underwriting  accounts as of December 31, 1998 and
1997 is as follows:

                                                            December 31,
                                                   -----------------------------
                                                      1998              1997
                                                   -----------------------------


Cash and short-term investments ............       $ 5,264,642       $ 3,276,115
Premiums receivable ........................        36,384,613        41,537,562
Reinsurance and other recoverables .........        27,525,077        23,942,068
                                                   -----------       -----------

Total Assets ...............................       $69,174,332       $68,755,745
                                                   ===========       ===========

Due to insurance pool members ..............       $29,705,029       $27,251,208
Reinsurance payable ........................        26,500,070        31,984,380
Funds withheld from reinsurers .............         6,447,912         5,043,576
Other liabilities ..........................         6,521,321         4,476,581
                                                   -----------       -----------

Total Liabilities ..........................       $69,174,332       $68,755,745
                                                   ===========       ===========

     A portion of the pools'  underwriting  accounts above have been included in
the  Company's  insurance  subsidiaries  operations  based upon  their  pro-rata
participation in the MMO insurance pools.


                                       60
<PAGE>


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


(4)  Insurance Operations:

     Reinsurance Transactions

     Approximately  45%, 50% and 42% of the  Company's  insurance  subsidiaries'
direct and assumed gross premiums written for the years ended December 31, 1998,
1997 and  1996,  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, 1998,  were Arkwright  Mutual
Insurance Company ("Arkwright"),  Lloyd's of London ("Lloyd's") and Utica Mutual
Insurance Company ("Utica Mutual"),  with aggregate recoverables of $36 million,
$19  million  and $13  million,  respectively.  The 1998 A.M.  Best  ratings for
Arkwright  and Utica  Mutual are each rated 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, 1998,  no single one of
which  was  liable  to  the  Company  for  an  unsecured  amount  in  excess  of
approximately $4.4 million.

     Funds  withheld and letters of credit  obtained  under various  reinsurance
treaties  amounted  to  approximately  $89  million  as of  December  31,  1998.
Reinsurance  receivables  as of December 31, 1998 and 1997 included an allowance
for  uncollectible   reinsurance   recoverables  of  $6,823,000  and  $5,785,000
respectively.

     In 1998, the Company entered into a reinsurance  transaction  involving the
assumption of approximately $14.2 million in ocean marine premiums that emanated
from the Company's Syndicate 1265. In addition, a second reinsurance transaction
involving  the  assumption  of  approximately  $10.5  million  in  miscellaneous
casualty net premiums was written by the Company's  domestic  insurance  company
subsidiary in 1998.  The second  transaction  was  subsequently  commuted in the
fourth  quarter  of 1998  resulting  in total  payments  of  approximately  $8.1
million.


                                       61
<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, 1998    $ 85,489,133   $ 59,408,755   $ 46,647,604   $ 72,727,982
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

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

                         Gross       Ceded     Assumed                Percentage
                       (direct)     to other  from other              of assumed
Year Ended              amount     companies   companies   Net amount   to net
----------             --------    ---------   ---------   ---------- ----------
December 31, 1998   $ 93,908,920 $64,431,374  $46,545,117 $76,022,663    61%
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%

     Losses and loss adjustment  expenses  incurred are net of ceded reinsurance
recoveries amounting to $83,487,279,  $26,912,355, and $62,516,373 for the years
ended December 31, 1998, 1997, and 1996, 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 1998, 1997 and 1996:

<TABLE>
<CAPTION>
                                                                                 Year ended December 31,
                                                                           -----------------------------------
                                                                              1998         1997        1996
                                                                           ---------    ---------    ---------
                                                                                      (in thousands)
<S>                                                                        <C>          <C>          <C>
Net liability for losses and loss adjustment
  expenses at beginning of year ........................................   $ 222,335    $ 227,370    $ 229,916
                                                                           ---------    ---------    ---------
Provision for losses and loss adjustment
 expenses occurring in current year ....................................      69,703       72,322       71,731
Decrease in estimated losses and loss
  adjustment expenses for claims occurring
  in prior years (1) ...................................................     (19,466)     (21,874)     (12,753)
Deferred income-loss portfolio
  assumption(2) ........................................................         275          320          381
                                                                           ---------    ---------    ---------
Total losses and loss adjustment expenses incurred .....................      50,512       50,768       59,359
                                                                           ---------    ---------    ---------
Less:
Losses and loss adjustment expense payments for claims occurring during:
      current year .....................................................      17,407       17,029       15,012
      prior years ......................................................      41,576       38,454       46,512
                                                                           ---------    ---------    ---------
                                                                              58,983       55,483       61,524
Add:
Deferred income-loss portfolio assumption (2) ..........................        (275)        (320)        (381)
                                                                           ---------    ---------    ---------
Net Liability for losses and loss adjustment
  expenses at year end .................................................     213,589      222,335      227,370
                                                                           ---------    ---------    ---------
Ceded unpaid loss and loss adjustment
 expenses ..............................................................     187,995      166,067      184,467
                                                                           ---------    ---------    ---------
Gross unpaid losses and loss adjustment
  expenses at year end .................................................   $ 401,584    $ 388,402    $ 411,837
                                                                           =========    =========    =========
</TABLE>


                                       62
<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.  The decrease in estimated losses is attributable
to the ocean  marine and  aviation  lines of business  as a result of  favorable
payout trends in part due to lower retention levels per loss.

     (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, 1998 and 1997, the Company's  gross,  ceded and net loss and loss adjustment
expense  reserves for  Asbestos/Pollution  policies  amounted to $24.3  million,
$15.3  million  and $9.0  million,  and $25.0  million,  $16.0  million and $9.0
million,  respectively. Net paid losses resulting from Asbestos/Pollution losses
during  1998,  1997  and 1996  amounted  to  $851,000,  $508,000  and  $811,000,
respectively.  As of  December  31,  1998,  the Company  had  approximately  400
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, 1998. However, the Company believes that, in aggregate,  the unpaid loss and
loss adjustment  expense reserves as of December 31, 1998, 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 $6,354,281  and
$6,833,720 at December 31, 1998 and 1997, respectively.

     Deferred Policy Acquisition Costs

     Deferrable  acquisition  costs amortized to income amounted to $10,107,327,
$16,582,623  and  $18,827,794  for the years ended  December 31, 1998,  1997 and
1996, respectively.


                                       63
<PAGE>


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


(5)  Property, Improvements and Equipment, Net:

     Property  improvements  and  equipment,  net at December  31, 1998 and 1997
include the following.

                                                       1998             1997
                                                   -----------      -----------

Office furniture and equipment ...............     $ 1,492,011      $ 1,452,923
Computer equipment ...........................       2,373,363        1,726,591
Leasehold improvements .......................       2,433,141        2,409,683
                                                   -----------      -----------
                                                     6,298,515        5,589,197

Less:  accumulated depreciation
            and amortization .................      (3,957,494)      (3,223,544)
                                                   -----------      -----------

Property, improvements and equipment, net ....     $ 2,341,021      $ 2,365,653
                                                   ===========      ===========

     Depreciation  and  amortization  expense for the years ended  December  31,
1998, 1997 and 1996 amounted to $733,950, $582,126 and $442,945, respectively.

(6)  Income Taxes:

     The  components of deferred tax assets and  liabilities  as of December 31,
1998 and 1997 are as follows:

                                                             December 31,
                                                     ---------------------------
                                                         1998            1997
                                                     -----------     -----------
Deferred Tax Assets:

Loss reserve discounting .......................     $13,128,970     $13,549,308
Unearned premiums ..............................       1,923,950       2,154,156
Equity securities write-down ...................         764,692         198,901
State and local income tax carryforward ........       1,826,839         423,300
Deferred rent liability ........................         374,215         410,237
Bad debt reserve ...............................       2,615,459       2,269,750
Other ..........................................         272,841         121,044
                                                     -----------     -----------
Deferred tax assets ............................      20,906,966      19,126,696
                                                     -----------     -----------

Less: Valuation allowance ......................       1,187,445              --
                                                     -----------     -----------

Total deferred tax assets ......................      19,719,521      19,126,696
                                                     -----------     -----------


                                       64
<PAGE>


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


     Deferred Tax Liabilities:

                                                             December 31,
                                                     ---------------------------
                                                        1998            1997
                                                     -----------     -----------

Deferred policy acquisition costs ..............     $ 1,497,101     $ 1,948,621
Unrealized appreciation of investments .........      10,454,527       6,960,037
Deferred income-loss portfolio assumption ......         144,167         240,279
Discount on accrued salvage and subrogation ....         348,111         374,378
Other ..........................................       1,463,874       1,166,613
                                                     -----------     -----------
Total deferred tax liabilities .................      13,907,780      10,689,928
                                                     -----------     -----------
Net deferred tax assets ........................     $ 5,811,741     $ 8,436,768
                                                     ===========     ===========

     The last year for which the state  and local  income  tax  carryforward  of
$1,826,839 as of December 31, 1998 can be carried  forward  against future state
and local tax liabilities is the year 2018.

     The Company's  valuation allowance account with respect to the deferred tax
asset and the change in the account is as follows:

                                           1998          1997           1996
                                        ----------    ----------     ----------

Balance, beginning of year .........    $       --    $  516,716     $  712,706
Change in valuation allowance ......     1,187,445      (516,716)      (195,990)
                                        ----------    ----------     ----------
Balance, end of year ...............    $1,187,445    $       --     $  516,716
                                        ==========    ==========     ==========

     The Company  believes that the total deferred tax asset net of the recorded
valuation allowance account as of December 31, 1998 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,
                                                  ----------------------------
                                                   1998       1997       1996
                                                  ------     ------     ------
Income taxes at the Federal statutory rate ....     35.0%      35.0%      35.0%
Tax exempt interest ...........................    (21.7)     (12.5)     (12.8)
Valuation allowance ...........................      5.2       (1.5)      (0.7)
State taxes ...................................     (3.9)      (0.5)       0.2
Net bond amortization .........................      3.3        1.9        1.8
Investment income proration ...................      2.9        1.7        1.7
Other, net ....................................     (1.7)       1.5       (0.2)
                                                  ------     ------     ------
Income tax provisions .........................     19.1%      25.6%      25.0%
                                                  ======     ======     ======


                                       65
<PAGE>


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


     Federal  income  tax  payments  amounted  to  $5,328,181,   $9,335,632  and
$7,339,913 for the years ended December 31, 1998, 1997 and 1996, respectively.

     Federal  income taxes  recoverable  at December 31, 1998  included in other
assets  amounted to  $181,667.  Federal  income tax payable at December 31, 1997
included in other liabilities amounted to $386,970.

(7)  Statutory Income and Surplus:

     The Company's  domestic  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, 1998 surplus is approximately $19,675,000.

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

                                Consolidated      Consolidated        Dividends
                                  Statutory         Statutory            Paid
                                 net income          surplus          To Parent
                                ------------      ------------      ------------
December 31, 1998 ........      $ 30,223,000      $196,745,000      $ 18,367,000
December 31, 1997 ........        36,758,000       181,844,000        17,850,262
December 31, 1996 ........        26,542,000       160,929,000        12,950,071


                                       66
<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 two 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,  1998,  1997 and 1996  amounted to
$1,017,551, $978,997 and $991,469, respectively.

     In 1998,  management  approved two employee  benefit  plans for bonuses and
severance payments which resulted in expenses of $3,533,432 in 1998.

(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  5.9%
on the  outstanding  principal  balance  of the  loan at  December  31,  1998 of
$17,458,413. 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%, (b) the bank's adjusted certificate of deposit rate,
plus .775 of 1%, or (c) the bank's adjusted London Interbank  offered rate, plus
 .65 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,  1998.  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, 1998 and
1997, respectively.

     Interest paid amounted to  $1,347,653,  $1,464,240  and  $1,020,737 for the
years ended December 31, 1998, 1997 and 1996.

     In 1998,  the Company  entered into an interest  rate swap  agreement  (the
"agreement")  with a bank for purposes of hedging its interest  rate risk on its
existing bank loan.  The  agreement  requires the Company to pay interest to the
bank  at a rate  of  6.50%  on  the  original  notional  amount  outstanding  of
$22,500,000 which is subsequently  adjusted quarterly by notional  reductions of
$1,250,000.  The bank is  required  to pay the  Company,  on the  same  notional
amounts  outstanding,  an  amount  equal to the  three  month US  Dollar  London
Interbank  Offered Rate plus .65% which is reset on a quarterly basis.  Interest
expense recorded under the agreement was $44,719 in 1998.


                                       67
<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, 1998 are as follows:

                                                                    Amount
                                                                 ----------
     1999 .................................................      $1,318,118

     2000 .................................................       1,297,828

     2001 .................................................       1,297,828

     2002 .................................................       1,297,828

     thereafter ...........................................       1,297,828
                                                                 ----------
     Total ................................................      $6,509,430
                                                                 ==========

     The operating leases also include provisions for additional  payments based
on certain annual cost increases.  Rent expense for the years ended December 31,
1998, 1997 and 1996 amounted to $1,131,951, $1,049,119 and $1,001,295.

     As of December  31,  1998,  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 $19,090,000 as of December 31, 1998.


                                       68
<PAGE>


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


(11) Comprehensive Income:

     The accumulated  balances for each  classification  of other  comprehensive
income are as follows:

                                                                      Total
                                                    Unrealized     Accumulated
                                                       Gains          Other
                                       Foreign     (Losses) on    Comprehensive
                                      Currency      Securities        Income
                                    ------------   ------------    ------------

Beginning balance, January 1, 1996  $         --   $  9,865,486    $  9,865,486
Current period change ............            --     (1,714,576)     (1,714,576)
                                    ------------   ------------    ------------
Ending balance, December 31, 1996             --      8,150,910       8,150,910
                                    ============   ============    ============

Beginning balance, January 1, 1997            --      8,150,910       8,150,910
Current period change ............         6,000      4,774,875       4,780,875
                                    ------------   ------------    ------------
Ending balance, December 31, 1997          6,000     12,925,785      12,931,785
                                    ============   ============    ============

Beginning balance, January 1, 1998         6,000     12,925,785      12,931,785
Current period change ............        15,039      6,489,767       6,504,806
                                    ------------   ------------    ------------
Ending balance, December 31, 1998   $     21,039   $ 19,415,552    $ 19,436,591
                                    ============   ============    ============

     The related tax effects allocated to each component of other  comprehensive
income are as follows:

<TABLE>
<CAPTION>
                                                                     Year ended December 31,
                                                          --------------------------------------------
                                                              1998            1997            1996
                                                          ------------    ------------    ------------
<S>                                                       <C>             <C>             <C>         
Foreign currency translation adjustments:
    Before-tax amount .................................   $     15,039    $      6,000    $         --
    Tax (expense) benefit .............................             --              --              --
                                                          ------------    ------------    ------------
    Net-of-tax amount .................................         15,039           6,000              --
                                                          ------------    ------------    ------------

Unrealized gains (losses) on securities:
  Holding gains arising during period:
    Before-tax amount .................................     18,599,313      17,771,094       1,951,323
    Tax (expense) .....................................     (6,509,758)     (6,219,883)       (682,963)
                                                          ------------    ------------    ------------
    Net-of-tax amount .................................     12,089,555      11,551,211       1,268,360
                                                          ------------    ------------    ------------
  Less: reclassification adjustment for realized gains:
    Before-tax amount .................................      8,615,058      10,425,133       4,589,133
    Tax (expense) .....................................     (3,015,270)     (3,648,797)     (1,606,197)
                                                          ------------    ------------    ------------
    Net-of-tax amount .................................      5,599,788       6,776,336       2,982,936
                                                          ------------    ------------    ------------
  Net unrealized gains (losses):
    Before-tax amount .................................      9,984,255       7,345,961      (2,637,810)
    Tax (expense) benefit .............................     (3,494,488)     (2,571,086)        923,234
                                                          ------------    ------------    ------------
    Net-of-tax amount .................................      6,489,767       4,774,875      (1,714,576)
                                                          ------------    ------------    ------------

Other comprehensive income (loss):
    Before-tax amount .................................      9,999,294       7,351,961      (2,637,810)
    Tax (expense) benefit .............................     (3,494,488)     (2,571,086)        923,234
                                                          ------------    ------------    ------------
    Net-of-tax amount .................................   $  6,504,806    $  4,780,875    $ (1,714,576)
                                                          ============    ============    ============
</TABLE>


                                       69
<PAGE>


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


(12) 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, 1998,  the Company had  repurchased  a total of  2,116,442  shares of common
stock under this plan at a total cost of  $38,583,101  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, 1998, 1997 and 1996 is as follows:

<TABLE>
<CAPTION>
                                                        (In thousands except for per share amounts)
                                       1998                                1997                                   1996
                          -------------------------------      -------------------------------        ------------------------------
                                       Weighted                              Weighted                             Weighted
                                       Average                               Average                              Average
                            Net         Shares       Per         Net          Shares      Per           Net        Share        Per
                          Income     Outstanding    Share      Income      Outstanding   Share        Income    Outstanding    Share
                          ------     -----------    -----      ------      -----------   -----        ------    -----------    -----
<S>                       <C>          <C>          <C>        <C>          <C>        <C>           <C>          <C>          <C>
Basic EPS: .........      $18,523        9,679      $1.91      $26,368        9,849      $2.68       $22,625       10,499      $2.15

Effect of
Dilutive Securities:

Stock Options ......           --           26         --           --           23       (.01)           --           25         --
                          -------      -------      -----      -------      -------      -----       -------      -------      -----

Diluted EPS ........      $18,523        9,705      $1.91      $26,368        9,872      $2.67       $22,625       10,524      $2.15
                          =======      =======      =====      =======      =======      =====       =======      =======      =====
</TABLE>

(13) Stock Option Plans:

     The Company has a stock option plan,  which was approved by shareholders in
1991,  and  provides  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.  The
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.


                                       70
<PAGE>


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


     A summary of  activity  under the stock  option  plans for the years  ended
December 31, 1998, 1997 and 1996 follows:

<TABLE>
<CAPTION>
                                 1998                            1997                         1996
                       ----------------------------------------------------------------------------------------
                       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                 243,100      $13.78-$22.92      373,200     $13.78-$22.92      528,500     $13.00-$22.92

Granted                 30,000          $20.25              --      --     --          20,000     $17.22-$17.58

Exercised              (25,900)     $13.78-$15.79      (80,000)    $13.78-$15.79     (162,800)    $13.00-$15.56

(Forfeited)            (19,000)     $15.56-$15.79      (50,100)    $15.56-$22.92      (12,500)    $15.79-$22.33
                      --------                        --------                       --------

Outstanding,
  end of year          228,200      $13.78-$22.92      243,100     $13.78-$22.92      373,200     $13.78-$22.92
                      ========                        ========                       ========

Exercisable,
  end of year          115,367      $13.78-$22.92       95,356     $13.78-$22.92      135,389     $13.78-$22.92
                      ========                        ========                       ========
</TABLE>



     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, 1998, 1997 and 1996 is
as follows:

                                       1998             1997             1996
                                   -----------      -----------      -----------
Net income - as reported ....      $18,523,416      $26,367,740      $22,624,618

Net income - pro forma ......      $18,414,657      $26,261,229      $22,513,184

Diluted EPS - as reported ...      $      1.91      $      2.67      $      2.15

Diluted EPS - pro forma .....      $      1.90      $      2.66      $      2.14

     In  determining  the pro forma  effect  on net  income,  the fair  value of
options granted in 1998, 1996 and 1995 was estimated at the grant date using the
Black-Scholes   option-pricing   model  with  the  following   weighted  average
assumptions in 1998, 1996 and 1995,  respectively;  dividend yield of 1.9%, 2.2%
and 2.4%; expected volatility of 28%, 25% and 28%; expected lives of 5 years for
each year and a risk-free interest rate of 4.56%, 6.00% 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.


                                       71
<PAGE>


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


(14) Segment Information:

     The  insurance  company  and  agency  subsidiaries   underwrite  commercial
insurance in four major lines of business.  The Company  considers ocean marine,
aviation, other liability and inland marine as appropriate segments for purposes
of evaluating the Company's overall performance.  The Company evaluates revenues
and income or loss by line of business.  Revenues  include  premiums  earned and
commission income. Income or loss includes premiums earned and commission income
less the sum of losses incurred, policy acquisition costs and other expenses.

     Investment income represents a material component of the Company's revenues
and income.  The Company does not maintain its  investment  portfolio by segment
because  management  does not  consider  revenues and income by segment as being
derived  from  the   investment   portfolio.   Accordingly,   an  allocation  of
identifiable  assets,  investment  income and realized  investment  gains is not
considered  practicable.  As  such,  other  income,  interest  expense,  certain
corporate  expenses  and  income  taxes are not  considered  by  management  for
purposes of providing segment information.

     The financial information by segment is as follows:

<TABLE>
<CAPTION>
                                                      1998                            1997                           1996
                                            -------------------------       ------------------------       ------------------------
                                                                                (in thousands)
                                                              Income                         Income                         Income
                                             Revenue          (Loss)         Revenue         (Loss)         Revenue         (Loss)
                                            ---------       ---------       ---------      ---------       ---------      ---------
<S>                                         <C>             <C>             <C>            <C>             <C>            <C>
Segments
--------
Ocean marine(a) ......................      $  60,621       $     980       $  51,012      $   3,782       $  54,230      $  12,136
Aviation .............................          2,242          (4,092)         32,976          1,892          35,689           (594)
Other liability ......................         14,144            (736)          4,545           (797)          6,722         (5,383)
Inland marine ........................           (393)            854             443            794           2,376           (848)
                                            ---------       ---------       ---------      ---------       ---------      ---------
Subtotal .............................         76,614          (2,994)         88,976          5,671          99,017          5,311

Other income .........................            396             396             293            293             690            690
Net investment income ................         20,803          20,803          21,325         21,325          21,270         21,270
Realized investment gains ............          8,615           8,615          10,425         10,425           4,589          4,589
Corporate expenses ...................             --          (2,543)             --           (809)             --           (649)
Interest expense .....................             --          (1,373)             --         (1,450)             --         (1,035)
Income taxes .........................             --          (4,381)             --         (9,087)             --         (7,551)
                                            ---------       ---------       ---------      ---------       ---------      ---------
Total ................................      $ 106,428       $  18,523       $ 121,019      $  26,368       $ 125,566      $  22,625
                                            =========       =========       =========      =========       =========      =========
</TABLE>

(a)  1998 includes  approximately  $14,838 in revenues and $(2,692) in loss from
     the Company's Syndicate 1265.


                                       72
<PAGE>


<TABLE>
                          FINANCIAL STATEMENT SCHEDULES
            SCHEDULE II-CONDENSED FINANCIAL INFORMATION OF REGISTRANT

                                  NYMAGIC, INC.

                                 Balance Sheets
                                (Parent Company)


<CAPTION>
                                                                                                         December 31,
                                                                                          -----------------------------------------
                                                                                               1998                        1997
                                                                                          -------------               -------------
<S>                                                                                       <C>                         <C>
Assets:
Cash .......................................................................              $      47,116               $     205,516
Short term investments .....................................................                         --                   6,000,000
Investment in subsidiaries .................................................                229,680,280                 218,563,990
Due from subsidiaries and MMO insurance pools ..............................                 14,664,300                   2,666,372
Other assets ...............................................................                  2,471,346                   2,663,530
                                                                                          -------------               -------------
         Total assets ......................................................              $ 246,863,042               $ 230,099,408
                                                                                          =============               =============

Liabilities:
Notes payable ..............................................................              $  17,458,413               $  22,458,413
Dividends payable ..........................................................                    968,549                     966,031
Other liabilities ..........................................................                    256,213                     155,621
                                                                                          -------------               -------------
    Total Liabilities ......................................................                 18,683,175                  23,580,065
                                                                                          -------------               -------------

Shareholders' equity:
Common stock ...............................................................              $  15,017,892               $  14,991,992
Paid in capital ............................................................                 28,029,410                  27,529,877
Accumulated other comprehensive income .....................................                 19,436,591                  12,931,785
Retained earnings ..........................................................                208,198,204                 193,547,346
Treasury stock .............................................................                (42,502,230)                (42,481,657)
                                                                                          -------------               -------------
         Total shareholders' equity ........................................                228,179,867                 206,519,343
                                                                                          -------------               -------------
         Total liabilities and shareholders' equity ........................              $ 246,863,042               $ 230,099,408
                                                                                          =============               =============
</TABLE>

                              Statements of Income
                                (Parent Company)

<TABLE>
<CAPTION>
                                                                                        Year Ended December 31,
                                                                   ----------------------------------------------------------------
                                                                       1998                      1997                      1996
                                                                   ------------              ------------              ------------
<S>                                                                <C>                       <C>                       <C>
Revenues:
Cash dividends from subsidiary .......................             $ 18,367,000              $ 17,850,262              $ 12,950,071
Net investment income ................................                   74,122                    21,070                       676
                                                                   ------------              ------------              ------------
                                                                     18,441,122                17,871,332                12,950,747
                                                                   ------------              ------------              ------------
Expenses:
Operating expenses ...................................                5,200,857                 2,197,039                 1,552,852
Income tax benefit ...................................               (1,661,488)                 (754,480)                 (561,073)
                                                                   ------------              ------------              ------------
                                                                      3,539,369                 1,442,559                   991,779
                                                                   ------------              ------------              ------------

Income before equity income ..........................               14,901,753                16,428,773                11,958,968
Equity in undistributed earnings
of subsidiaries ......................................                3,621,663                 9,938,967                10,665,650
                                                                   ------------              ------------              ------------
Net income ...........................................             $ 18,523,416              $ 26,367,740              $ 22,624,618
                                                                   ============              ============              ============
</TABLE>


                                       73
<PAGE>


<TABLE>
            SCHEDULE II-CONDENSED FINANCIAL INFORMATION OF REGISTRANT

                                  NYMAGIC, INC.

                            Statements of Cash Flows
                                (Parent Company)


<CAPTION>
                                                                                            Year Ended December 31,
                                                                         ----------------------------------------------------------
                                                                              1998                   1997                   1996
                                                                         ------------           ------------           ------------

<S>                                                                      <C>                    <C>                    <C>
Cash flows from operating activities:
Net income ....................................................          $ 18,523,416           $ 26,367,740           $ 22,624,618
                                                                         ------------           ------------           ------------

Adjustments to reconcile net income
    to cash provided by operating activities:
    Equity in undistributed earnings of
         subsidiaries .........................................            (3,621,663)            (9,938,967)           (10,665,650)
    Decrease (increase) in other assets .......................               192,184               (834,339)              (359,403)
    (Increase)decrease in due from subsidiaries ...............           (11,997,928)              (439,365)               527,868
    (Decrease) increase in other liabilities ..................               100,592                 19,219                (11,312)
                                                                         ------------           ------------           ------------

Net cash provided by operating activities .....................             3,196,601             15,174,288             12,116,121
                                                                         ------------           ------------           ------------

Cash flows from investing activities:
    Short term investments acquired ...........................            (2,870,000)           (13,800,000)            (5,000,000)
    Short term investments matured ............................             8,870,000             12,800,000                     --
    Investment in subsidiaries ................................              (989,821)            (2,476,500)                    --
                                                                         ------------           ------------           ------------
    Net cash provided by (used in) investing
         activities ...........................................             5,010,179             (3,476,500)            (5,000,000)
                                                                         ------------           ------------           ------------

Cash flows from financing activities:
    Proceeds from stock options exercised .....................               525,433              1,351,618              2,487,472
    Cash dividends paid to stockholders .......................            (3,870,040)            (3,958,130)            (4,236,947)
    Repurchase of common stock ................................               (20,573)           (10,922,760)           (13,080,321)
    Proceeds from borrowings ..................................             5,000,000              9,520,000             14,211,472
    Loan principal payments ...................................           (10,000,000)            (7,500,000)            (6,500,000)
                                                                         ------------           ------------           ------------
    Net cash used in financing activities .....................            (8,365,180)           (11,509,272)            (7,118,324)
                                                                         ------------           ------------           ------------

Net increase (decrease) in cash ...............................              (158,400)               188,516                 (2,203)

Cash at beginning of period ...................................               205,516                 17,000                 19,203
                                                                         ------------           ------------           ------------

Cash at end of period .........................................          $     47,116           $    205,516           $     17,000
                                                                         ============           ============           ============
</TABLE>

     The condensed  financial  information of NYMAGIC,  INC. for the years ended
December  31,  1998,  1997  and  1996  should  be read in  conjunction  with the
consolidated  financial  statements of NYMAGIC,  INC. and subsidiaries and notes
thereto.


                                       74
<PAGE>


<TABLE>
                                  NYMAGIC, INC.
                  SCHEDULE V-VALUATION AND QUALIFYING ACCOUNTS

                     YEARS ENDED DECEMBER 31, 1998 AND 1997


<CAPTION>
------------------------------------------------------------------------------------------------------------------------------------
COLUMN A                                              COLUMN B               COLUMN C               COLUMN D                COLUMN E
------------------------------------------------------------------------------------------------------------------------------------
DESCRIPTION                                         Balance at                                                               Balance
                                                     beginning                                                              close of
                                                     of period              Additions             Deductions                  period
------------------------------------------------------------------------------------------------------------------------------------
<S>                                                 <C>                    <C>                    <C>                     <C>
December 31, 1998:
Allowance for
  doubtful accounts ....................            $6,485,000             $1,456,160             $ (468,421)             $7,472,739

December 31, 1997:
Allowance for
  doubtful accounts ....................             4,825,000              1,930,261               (270,261)              6,485,000
</TABLE>


                                       75
<PAGE>


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


<CAPTION>
------------------------------------------------------------------------------------------------------------------------------------
                                    RESERVE                                                            AMORTIZA-
                                      FOR                                         CLAIMS AND CLAIMS     TION OF
                           DEFERRED  UNPAID                                        EXPENSES INCURRED    DEFFERED   PAID
                            POLICY   CLAIMS                                           RELATED TO        POLICY    CLAIMS
   AFFILIATION             ACQUISI-    AND           UNEARNED    NET       NET    -----------------     ACQUISI-    AND
      WITH                   TION    CLAIMS           PREMIUM   EARNED  INVESTMENT  CURRENT   PRIOR      TION     CLAIMS   PREMIUMS
   REGISTRANT                COSTS  EXPENSES DISCOUNT RESERVE  PREMIUMS   INCOME     YEAR      YEAR      COSTS   EXPENSES   WRITTEN
------------------------------------------------------------------------------------------------------------------------------------
<S>                        <C>      <C>       <C>    <C>       <C>        <C>       <C>      <C>        <C>       <C>       <C>
DECEMBER 31, 1998 .......  $  4,277 $401,584     --  $ 46,879  $ 76,023   $ 20,803  $ 69,703 ($19,466)  $ 10,107  $ 58,984  $ 72,728
CONSOLIDATED SUBSIDIARIES

DECEMBER 31, 1997 .......     5,567  388,402     --    55,188    87,537     21,325    72,322  (21,874)    16,583    55,483    62,221
CONSOLIDATED SUBSIDIARIES

DECEMBER 31, 1996 .......    10,904  411,837     --    66,652    97,036     21,270    71,731  (12,753)    18,828    61,524    90,513
CONSOLIDATED SUBSIDIARIES
</TABLE>


                                       76