U.S. SECURITIES AND EXCHANGE COMMISSION

                           WASHINGTON, D.C. 20549

                                Form 10 - QSB

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

               For quarterly period ended September 30, 1998

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

              For the transition period from         to     
                                             -------    -------


                         Commission File No. 0-11184

                        NORTH EAST INSURANCE COMPANY
         (Name of small business issuer as specified in its charter)

                Maine                                01-0278387
   (State or other Jurisdiction of                 (I.R.S employer
   incorporation or organization)              identification number)

                  482 Payne Road, Scarborough, Maine 04074
                  (Address of principal executive offices)

                               (207) 883-2232
                         (Issuer's telephone number)

Check whether the issuer (1) filed all reports required to be filed by 
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for 
such shorter period that the issuer was required to file such reports), and 
(2) has been subject to such filing requirements for the past 90 days. Yes 
[X]   No [ ]

As of November 4, 1998 there were 3,049,089 outstanding shares of Common 
Stock, $1.00 par value, the only authorized class of equity security.

Transitional Small Business Disclosure Format: Yes [ ]  No [X]


                        NORTH EAST INSURANCE COMPANY
                              AND SUBSIDIARIES

                                    INDEX
                                    -----


Part I. -  Financial Information

      Item 1 - Financial Statements

               Consolidated Balance Sheet 
               As of September 30, 1998                              

               Consolidated Statements of Operations and
               Comprehensive Income for the 
               Nine Months Ended September 30,1998 and 1997          

               Consolidated Statements of Operations and
               Comprehensive Income for the 
               Three Months Ended September 30,1998 and 1997         

               Consolidated Statements of Cash Flows for the
               Nine Months Ended September 30,1998 and 1997          

               Notes to Consolidated Financial Statements            

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

Part II -  Other Information

      Item 6 - Exhibits and Reports on Form 8-K                     

Exhibit Index                                                       


                North East Insurance Company and Subsidiaries

Part I:  FINANCIAL INFORMATION
------------------------------
Item 1.  FINANCIAL STATEMENTS

                         Consolidated Balance Sheet
                          As of September 30, 1998

<TABLE>
<CAPTION>
                                                                 1998
                                                                 ----

<S>                                                           <C>
ASSETS
  Investments:
    Fixed maturities available for sale, at
     fair value (amortized cost $16,032,244)                  $16,622,382
    Equity securities available for sale,
     at fair value (cost $385,769)                                297,429
    Short-term investments                                      1,375,111
                                                              -----------
      Total investments                                        18,294,922
  Reinsurance (loss and loss adjustment expense
   reserves and paid recoverables)                              2,769,601
  Premium balances receivable                                   6,811,635
  Deferred policy acquisition costs                             1,418,962
  Cash                                                            689,630
  Prepaid reinsurance premiums (ceded unearned premium)           830,423
  Investment income due and accrued                               273,890
  Property and equipment, net of accumulated depreciation         304,859
  Deferred tax asset                                            1,747,467
  Prepaid federal income tax                                        9,242
  Other assets                                                    134,398
                                                              -----------
      Total Assets                                            $33,285,029
                                                              ===========

LIABILITIES
  Losses and loss adjustment expenses                         $12,762,648
  Unearned premiums                                             8,779,796
  Ceded reinsurance balances payable                              405,340
  Reserve for unpaid expenses                                     898,175
  Book overdraft                                                  273,177
  Other liabilities                                                57,907
                                                              -----------
      Total Liabilities                                        23,177,043

SHAREHOLDERS' EQUITY
  Common stock $1.00 par value,
   authorized 12,000,000 shares, issued
   and outstanding 3,049,089 shares                             3,049,089
  Additional paid-in capital                                    6,407,132
  Unrealized appreciation of investments                          331,186
  Accumulated retained earnings                                   320,579
                                                              -----------
      Total Shareholders' Equity                               10,107,986
                                                              -----------
      Total Liabilities and Shareholders' Equity              $33,285,029
                                                              ===========
</TABLE>


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


                North East Insurance Company and Subsidiaries
    Consolidated Statements of Operations and Comprehensive Income (Loss)
                   for the Nine Months ended September 30,

<TABLE>
<CAPTION>
                    Consolidated Statements of Operations
                    -------------------------------------
                                                          1998           1997
                                                          ----           ----

<S>                                                    <C>            <C>
Revenues:
  Premiums earned                                      $9,934,435     $ 8,688,774
  Premiums ceded                                        1,214,470       2,099,809
                                                       --------------------------
      Net premiums earned                               8,719,965       6,588,965
  Net investment income                                   666,211         569,086
  Realized capital gains                                   33,247          26,051
                                                       --------------------------
      Total revenues                                    9,419,423       7,184,102
Expenses:
  Losses and loss adjustment expenses                   5,844,775       5,824,082
  Reinsurance expense (recoveries)                        304,182      (1,501,979)
                                                       --------------------------
      Net losses and loss adjustment
       expenses                                         6,148,957       4,322,103
  Underwriting expenses incurred                        3,369,601       3,052,900
                                                       --------------------------
      Total expenses                                    9,518,558       7,375,003
                                                       --------------------------
Income (loss) before provision for
 income taxes                                             (99,135)       (190,901)

Provision (credit) for income taxes                       (45,010)        (70,531)
                                                       --------------------------

Net income (loss)                                      $  (54,125)    $  (120,370)
                                                       ==========================

Net income (loss) per common share:
  Basic                                                $    (0.02)    $     (0.04)
                                                       ==========================
  Diluted                                              $    (0.02)    $     (0.04)
                                                       ==========================

<CAPTION>
           Consolidated Statements of Comprehensive Income (Loss)

                                                          1998           1997
                                                          ----           ----
<S>                                                    <C>            <C>
Net income (loss)                                      $  (54,125)    $  (120,370)
Other comprehensive income (loss):
  Change in unrealized appreciation (depreciation)
   of securities (provision for income taxes
   1998 - $87,936; 1997 -$0)                              170,699         170,193
                                                       --------------------------

Comprehensive income (loss)                            $  116,574     $    49,823
                                                       ==========================
</TABLE>


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


                North East Insurance Company and Subsidiaries
    Consolidated Statements of Operations and Comprehensive Income (Loss)
                  for the Three Months ended September 30,

<TABLE>
<CAPTION>
                    Consolidated Statements of Operations
                    -------------------------------------
                                                          1998           1997
                                                          ----           ----

<S>                                                    <C>            <C>
Revenues:
  Premiums earned                                      $3,660,219     $ 3,020,178
  Premiums ceded                                          276,887         258,997
                                                       --------------------------
      Net premiums earned                               3,383,332       2,761,181
  Net investment income                                   217,794         187,552
  Realized capital gains (losses)                             (69)        (53,261)
                                                       --------------------------
      Total revenues                                    3,601,057       2,895,472
Expenses:
  Losses and loss adjustment expenses                   1,468,825       1,829,574
  Reinsurance expense (recoveries)                        627,332        (521,238)
                                                       --------------------------
      Net losses and loss adjustment
       expenses                                         2,096,157       1,308,336
  Underwriting expenses incurred                        1,180,246       1,869,979
                                                       --------------------------
      Total expenses                                    3,276,403       3,178,315
                                                       --------------------------

Income (loss) before provision for
 income taxes                                             324,654        (282,843)

Provision (credit) for income taxes                       110,406         (84,799)
                                                       --------------------------

Net income (loss)                                      $  214,248     $  (198,044)
                                                       ==========================

Net income (loss) per common share:
  Basic                                                $     0.07     $     (0.07)
                                                       ==========================
  Diluted                                              $     0.07     $     (0.07)
                                                       ==========================

<CAPTION>
           Consolidated Statements of Comprehensive Income (Loss)
           ------------------------------------------------------

                                                          1998           1997
                                                          ----           ----

<S>                                                    <C>            <C>
Net income (loss)                                      $  214,248     $  (198,044)
Other comprehensive income:
  Change in unrealized appreciation (depreciation)
   of securities (provision for income taxes 
   1998-$83,732; 1997-$0)                                 162,539         231,733
                                                       --------------------------

Comprehensive income                                   $  376,787     $    33,689
                                                       ==========================
</TABLE>


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


                North East Insurance Company And Subsidiaries
                    Consolidated Statements of Cash Flows
                   for the Nine Months ended September 30,

<TABLE>
<CAPTION>
                                                         1998            1997
                                                         ----            ----

<S>                                                   <C>             <C>
Cash flow from operating activities:
  Insurance premium received                          $10,192,473     $ 8,153,167
  Loss and loss adjustment expenses paid               (5,586,217)     (5,777,905)
  Operating expenses paid                              (3,247,710)     (4,298,216)
  Investment income received                              602,225         621,547
                                                      ---------------------------
    Net cash provided by 
     (used in) operating activities                     1,960,771      (1,301,407)
                                                      ---------------------------

Cash flows from investing activities:
  Fixed maturities available for sale, sold             2,865,829       3,817,112
  Fixed maturities available for sale, purchased       (6,097,234)     (1,850,675)
  Equity securities available for sale, purchased        (293,506)              0
  Sale of furniture, fixtures and equipment                17,523          17,269
  Purchase of furniture, fixtures and
   equipment                                              (43,192)       (152,376)
                                                      ---------------------------
    Net cash provided by (used in)
     investing activities                              (3,550,580)      1,831,330
                                                      ---------------------------

Cash flows from financing activities:
  Proceeds from issuance of common stock                    5,758         100,049
  Increase (decrease)  in book overdraft                 (123,946)        748,024
                                                      ---------------------------
    Net cash provided by
     (used in) financing activities                      (118,188)        848,073
                                                      ---------------------------

  Net increase (decrease) in cash,
   and short-term investments                          (1,707,997)      1,377,996
Cash and short-term 
 investments at beginning of year                       3,772,738       2,868,875
                                                      ---------------------------
  Cash and short-term 
   investments at end of period                       $ 2,064,741     $ 4,246,871
                                                      ===========================
</TABLE>


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


                North East Insurance Company And Subsidiaries
                 Consolidated Reconciliation of Cash Used In
                  Operating Activities to Net Income (Loss)
                   for the Nine Months ended September 30,

<TABLE>
<CAPTION>
                                                    1998            1997
                                                    ----            ----

<S>                                              <C>             <C>
Net income (loss)                                $  (54,125)     $  (120,370)

Decrease (increase) in net premium and ceded
 reinsurance balances                              (578,054)      (1,568,826)
Increase in unearned 
 premium reserve                                  2,050,562        2,843,798
Increase (decrease) in net loss and loss 
 adjustment expense reserve                         562,740       (1,166,572)
Decrease (increase) in investment income 
 due and accrued                                    (63,986)          52,461
Decrease (increase) in deferred tax asset           (45,010)         (70,531)
Increase in deferred policy
 acquisition costs                                 (389,474)        (980,638)
Increase (decrease) in expense accruals             315,227         (467,119)
Amortization of bond premium, net                    50,895           56,937
Depreciation and amortization expense               146,239          145,871
Gain on investment activities                       (34,243)         (26,418)
                                                 ---------------------------
Net cash provided by
 (used in) operating activities                  $1,960,771      $(1,301,407)
                                                 ===========================
</TABLE>


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


                North East Insurance Company and Subsidiaries

                 Notes to Consolidated Financial Statements

                             September 30, 1998

1. The condensed financial statements included herein have been prepared by 
the Registrant, without audit, pursuant to the rules and regulations of the 
Securities and Exchange Commission. Certain information and footnote 
disclosure normally included in financial statements prepared in accordance 
with generally accepted accounting principles have been condensed or omitted 
pursuant to such rules and regulations, although the Registrant believes 
that the disclosures which are made are adequate to make the information 
presented not misleading, particularly when read in conjunction with the 
financial statements and the notes thereto included in the Registrant's 
latest annual report on Form 10-KSB. In Management's opinion, the attached 
interim financial statements reflect all adjustments which are necessary for 
a fair statement of the results for the periods presented.

2. In June 1997, the Financial Accounting Standards Board ("FASB") issued 
FAS No. 130, "Reporting Comprehensive Income", which establishes standards 
for reporting and display of comprehensive income and its components in a 
financial statement with the same prominence as other financial statements. 
Comprehensive income is defined as net income adjusted for changes in 
shareholders' equity resulting from events other than net income or 
transactions related to an entity's capital instruments. North East adopted 
the provisions of FAS 130 effective January 1, 1998.

In June 1997, the FASB issued FAS No. 131, "Disclosure about Segments of an 
Enterprise and Related Information", which establishes standards for 
reporting information about operating segments. Generally, FAS 131 requires 
that financial information be reported on the basis that is used internally 
for evaluating performance. The Company is required to adopt FAS 131 
effective January 1, 1998 and comparative information for earlier years must 
be restated. This statement does not need to be applied to interim financial 
statements in the initial year of application. The Company is currently 
considering what impact, if any, FAS 131 will have on its year end reporting 
format.

In June 1998, the FASB issued FAS No. 133, "Accounting for Derivative 
Instruments and Hedging Activities," which establishes accounting and 
reporting standards for derivative instruments, including certain 
derivatives embedded in other contracts, and for hedging activities. 
Generally, FAS 133 requires recognition of all derivatives, at fair value, 
as either assets or liabilities in the statement of financial position. The 
Company is required to adopt the provisions of FAS 133 effective January 1, 
2000. Adoption of FAS 133 is not expected to have a material effect on the 
Company's consolidated results of operations or financial position as the 
Company presently does not hold any derivative instruments nor does it 
participate in any hedging transactions. 

3. North East Insurance Company owns 100% of American Colonial Insurance 
Company and North Atlantic Underwriters, Inc. whose results are consolidated 
herein.

4. Earnings per share are computed in accordance with the provisions of FAS 
No. 128 "Earnings Per Share" which requires the dual presentation of basic 
and diluted earnings per share. The weighted average number of shares 
outstanding used to calculate basic earnings per share was 3,047,591 and 
3,017,197 for the nine months ended September 30, 1998 and 1997, 
respectively. The weighted average number of shares outstanding used to 
calculate diluted earnings per share was 3,133,158 and 3,085,382 for the 
nine months ended September 30, 1998 and 1997, respectively.


Item 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND 
RESULTS OF OPERATIONS

Three Months Ended September 30, 1998
-------------------------------------

Operating results for the third quarter have been significantly affected by 
a rapid increase in premiums from a new personal automobile insurance 
program ("Auto"Matic). In late May 1998 the Company introduced AutoMatic to 
replace both its existing non-standard and standard/preferred personal 
automobile insurance programs. Policies issued under the previous non-
standard and standard/preferred programs are being renewed under the new 
"Auto"Matic program. Key features of the new program include assignment of 
drivers to specific vehicles and automatic mid-term premium credits at 
predefined eligibility dates instead of at the policy renewal date. 

Gross premiums written for the three months ended September 30, 1998 
amounted to $5,061,168, representing a growth of 61.6% over the $3,131,117 
recorded for the comparable three months in 1997. Gross premiums earned for 
the three months ended September 30, 1998 amounted to $3,660,219, 
representing a growth of 21.2% over the $3,020,178 recorded in the 
comparable period in 1997. Net premiums written and net premiums earned 
amounted to $4,661,958 and $3,383,332 for the three months ended September 
30, 1998, respectively, versus $3,230,472 and $2,761,181 for the comparable 
period in 1997. Management believes comparisons between 1998 and 1997 net 
premium are not meaningful, due to substantial changes in reinsurance 
arrangements, as further described below.

The recent dramatic growth in premium volume has resulted primarily from the 
substantial increase in the number of auto policies written. In addition, 
the average premium per policy written has increased, due to recent changes 
in coverage requirements. Effective July 1, 1998, the State of Maine increased 
by 150% the mandatory statutory liability limits for personal auto coverage. 
Increased coverage limits can be expected to result in higher claims expense 
in the future. The Company has attempted to adopt a rate structure for 
"Auto"Matic that will compensate NEIC for the increased risks being assumed, 
and yet that will remain competitive with auto policies from other insurers.

Although pleased by the sudden popularity of "Auto"Matic with agents and 
customers, management believes that the dramatic 61.6% growth in premiums 
written is partially attributable to nonrecurring factors. Management has 
instead budgeted for 15%-20% increases per year in the volume of premiums 
written. The auto insurance market is highly competitive, however, and there 
is no assurance that revenue growth at that rate can be sustained over time.

Loss and loss adjustment expense represented 62.0% and 47.4% of net earned 
premium for the three months ended September 30, 1998 and 1997, 
respectively. Underwriting expenses incurred amounted to $1,180,246 and 
$1,869,779 or 25.3% and 57.9% of net written premium for the three months 
ended September 30, 1998 and 1997, respectively. The combined ratio for the 
three months ended September 30, 1998 and 1997 was 87.3% and 105.3%. 

The Company substantially altered its reinsurance treaties during 1997. The 
35% quota share treaty in effect for 1996 and 1995 was canceled on a runoff 
basis effective January 1, 1997 and was subsequently commuted on September 
30, 1997. Additionally, during the third quarter of 1997 the Company 
negotiated a modification to the quota share program, reducing the per 
occurrence deductible from $1,000 to $100, and a significant rate reduction 
to its first excess of loss treaty. Reinsurance treaties for 1998 remain 
unchanged from those in effect at December 31, 1997. The current 
arrangements include an endorsement to the first layer excess of loss 
treaty, to provide an experience rated premium adjustment in the event 
NEIC's direct loss and loss expense exceeds 57% for 1997 and 68% for 1998. 
This endorsement gives rise to additional net premium cost which was not 
present in 1997. 

Investment income, including realized gains, amounted to $217,725 for the 
three months ended September 30, 1998, compared with $134,291 for the three 
months ended September 30, 1997. 

Net income for the three months ended September 30, 1998 amounted to 
$214,248 or $0.07 per share compared with a net loss of $198,044 or $0.07 
per share for the three months ended September 30, 1997. 

Shareholders' equity at September 30, 1998 amounted to $10,107,986 or $3.32 
per share compared with $9,731,199 or $3.19 per share at June 30, 1998. 

Nine Months Ended September 30, 1998
------------------------------------

Gross premiums written for the nine months ended September 30, 1998 amounted 
to $12,442,100, representing a growth of 32.9% over the $9,360,632 recorded 
for the comparable period in 1997. Gross premiums earned for the nine months 
ended September 30, 1998 amounted to $9,934,435, representing a growth of 
14.3% over the $8,688,774 recorded for the comparable period in 1997. The 
significant increase in premium values is directly related to the 
introduction of "Auto"Matic in late May 1998 (see "Three Months Ended 
September 30, 1998"). Net premiums written amounted to $10,770,527 for the 
nine months ended September 30, 1998, compared with $9,432,763 for the 
comparable period in 1997. Net premiums earned amounted to $8,719,965 for 
the nine months ended September 30, 1998, compared with $6,588,965 for the 
comparable period in 1997. As noted above, management believes comparisons 
between 1998 and 1997 net premium are not meaningful, due to substantial 
changes in reinsurance arrangements. 

Loss and loss adjustment expense represented 70.5% and 65.6% of net earned 
premium for the nine months ended September 30, 1998 and 1997, respectively. 
Both of these ratios show continued improvement from the 75.9% and 78.7% 
reported for the six month periods ending June 30, 1998 and 1997, 
respectively. The improvement primarily reflects the seasonality of the 
business, in that loss frequency is higher during the winter months.

Underwriting expenses incurred represented 31.2% and 32.4% of net premiums 
written for the nine months ended September 30, 1998 and 1997, respectively. 
The lower expense ratio for 1998 was directly attributable to stable fixed 
overhead expenses even though premium volume increased substantially. 
Expenses incurred in the nine months ended September 30, 1998 included 
certain one-time expenses associated with the rights offering scheduled to 
take place in the fourth quarter of 1998. 

Investment income, including realized gains, amounted to $699,458 for the 
nine months ended September 30, 1998, compared with $595,137 for the 
comparable period in 1997. The return on invested assets, based on amortized 
cost, net of allocated expenses, was 5.4% for the nine months ended 
September 30, 1998, compared with 4.9% for the comparable period in 1997.

Net loss for the nine months ended September 30, 1998 amounted to $54,125 or 
$0.02 per share compared with a loss of $120,370 or $0.04 per share for the 
comparable period in 1997. 

Shareholders' equity at September 30, 1998 amounted to $10,107,986 or $3.32 
per share, compared with $9,985,654 or $3.28 per share at December 31, 1997. 

Liquidity and Capital Resources
-------------------------------

Cash provided by operating activities amounted to $1,960,771 for the nine 
months ended September 30, 1998, compared with cash used by operating 
activities of $1,301,407 for the comparable period in 1997. Cash flow for 
the nine months ended September 30, 1998 included receipt of approximately 
$2.8 million due the Company under its reinsurance treaties. Cash used in 
investing activities amounted to $3,550,580 for the nine months ended 
September 30, 1998, compared with cash provided by investing activities of 
$1,831,330 for the comparable period in 1997.

The fair value of the Company's fixed maturities available for sale was 
$590,138 more than amortized cost at September 30, 1998, compared with 
$243,162 more than amortized cost at December 31, 1997. During the nine 
months ended September 30, 1998 the Company used $293,506 for the purchase 
of equity securities. At September 30, 1998 the fair value of equity 
securities available for sale was $88,340 less than original acquisition 
cost. 

The Company maintains short-term investments to provide a cash resource 
should the demands from operations exceed incoming cash flow. Short-term 
investments amounted to $1,375,111 at September 30, 1998, compared with 
$3,397,581 at December 31, 1997. The Company believes that the level of 
short-term investments is adequate to meet any shortfall resulting from its 
immediate operating activities. 

The Company plans to conduct a rights offering of up to 3,049,089 shares of 
its Common Stock to existing shareholders. If successful, such offering 
would raise between $3 million and $6.8 million of new capital. The rights 
offering is the subject of a Registration Statement filed with the 
Securities and Exchange Commission.

Year 2000 Issues
----------------

Year 2000 ("Y2K") issues arise from the inability of some computer-based 
systems to properly recognize and handle dates after December 31, 1999. Like 
other insurers, NEIC relies on time-sensitive calculations in the 
determining sales revenues (premiums) and, in the case of a claim, verifying 
coverage at the time of the claim. Other time-sensitive calculations 
include, but are not limited to, installment billing, credit or debit 
surcharges, reinsurance protection, authority of authorized agents and 
agents' commissions.

Beginning in 1995, the Company replaced its accounting, billing, 
underwriting, and claims processing software and hardware. This upgrade was 
motivated by factors other than Y2K issues, but was conducted with a view 
toward avoiding Y2K problems. Since June 1997, NEIC has been reviewing Y2K 
issues as they pertain to the new system. Program code has been searched in 
order to identify any commands that include a two-digit year reference, and 
modifications to a four-digit year have been made or are scheduled to be 
made no later than June 30, 1999. As modified, the software will reject 
attempts to input year codes having fewer than four digits. All of the new 
hardware has since been upgraded or checked for Y2K compliance.

Although NEIC believes it has identified its internal Y2K issues, no 
assurance can be given that it has identified all such problems. 
Accordingly, the Company continues to perform information systems tests to 
further evaluate its posture relative to Y2K. 

Failure of the policy issuance, premium collection or premium billing 
systems as a result of any corrupt data or unclear program code, including 
those issues associated with Y2K, for any significant length of time could 
result in complete loss of revenue for the Company. Accordingly, the Company 
has placed great emphasis on these systems to correct Y2K issues of which it 
is aware. In the event any of these systems fail to perform, the Company 
would depend upon its information system staff and outside consultants to 
identify the source of the failure and rectify the problem.

In November 1998 the Company will begin issuing insurance policies having 
terms that expire in the year 2000. Subsequent to November 1998 endorsement 
processing may occur for policies with year 2000 expiration dates. In 
November 1999 the Company will issue its first policy with a year 2000 
effective date and a year 2001 expiration date. Each phase of this process 
will be closely monitored. 

Systems failure of the claims processing system would receive similar 
attention, although manual intervention is an alternative. Should manual 
intervention be necessary, the Company would utilize its existing staff on 
an overtime basis and, if necessary, hire additional part-time staff.

The Company relies on the independent agents to market and sell its 
insurance products. NEIC will be sending letters to agents who represent the 
Company, to ascertain whether their systems will be Y2K compliant, whether 
new business submissions will be affected by noncompliance with Y2K and what 
steps are being taken to rectify areas known to be Y2K noncompliant. 

NEIC uses outside vendors to verify information provided by its insureds and 
to determine credits or surcharges in calculating the amount of insurance 
premium charged for the risk assumed. This data is provided through 
electronic media. The Company also uses outside vendors for various 
electronic financial statement preparation processes. NEIC is in the process 
of contacting these vendors to ascertain their status relative to Y2K 
issues.

The Company is reviewing its non-financial software (security, mail 
processing equipment, telephone, etc.) to assess the effect Y2K noncompliance 
could have on the operations of the Company. Since the Company is in the 
information gathering phase, it does not yet have a contingency plan for 
Y2K-related disruptions in these systems.

The Company estimates that the cost of upgrading its information processing 
systems (over and above normal systems maintenance costs) did not exceed 
$1,000,000 from 1995 through the date of substantial completion of the 
upgrade. As noted above, this upgrade was motivated primarily by factors 
other than Y2K compliance. The Company estimates its additional expenditures 
for Y2K compliance will not exceed $100,000. 

No assurance can be given that the Company will be fully Y2K compliant by 
the dates required. However, based on current information, the Company 
believes that the effects of any noncompliance will not be material to the 
overall operations of the Company.

Forward-Looking Information
---------------------------

From time to time, NEIC publishes information that includes forward-looking 
statements, as defined in Section 21E of the Securities Exchange Act of 
1934. This "Management's Discussion and Analysis" section of this Form 10-
QSB contains forward-looking statements, such as estimates of future revenue 
growth and estimates of costs and implementation dates associated with Y2K 
compliance efforts.

The Company cautions readers that numerous factors beyond NEIC's control 
could cause projected revenue growth to differ materially from the levels 
reflected in these forward-looking statements, including changes in the 
changes in the pricing of competing policies, consolidation among insurance 
agents, and changes in consumer preferences. Factors that could cause Y2K-
related costs to exceed expectations include the failure of agents and 
outside vendors to cooperate with NEIC compliance efforts and unanticipated 
problems with systems believed to be Y2K compliant.


                North East Insurance Company and Subsidiaries

Part II: OTHER INFORMATION
--------------------------

Item 6. EXHIBITS AND REPORTS ON FORM 8-K

        a) Exhibits
             27  Financial Data Schedules

        b) Reports on Form 8-K
             None



                North East Insurance Company and Subsidiaries

                                 SIGNATURES

In accordance with the requirements of the Exchange Act, the Registrant 
caused this report to be signed on its behalf by the undersigned, thereunto 
duly authorized.

                                       North East Insurance Company

Date:  November 12, 1998               By  /S/ Robert G. Schatz
                                           ---------------------------
                                           Robert G. Schatz
                                       President and Chief Executive Officer

Date:  November 12, 1998               By  /S/ Graham S. Payne
                                           ---------------------------
                                           Graham S. Payne
                                       Treasurer and Chief Financial Officer


                North East Insurance Company and Subsidiaries
                                 Form 10-QSB
                                Exhibit Index


<TABLE>
<CAPTION>
Exhibit
Number       Description                   Page
-------      -----------                   ----

<C>          <S>                           <C>
27           Financial Data Schedules      19
</TABLE>