1
<PAGE>
     
                                                    FORM 10-K
                                        SECURITIES AND EXCHANGE COMMISSION
                                              Washington, D.C. 20549

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: 0-14950
                                               Argonaut Group, Inc.
                        (Exact name of Registrant as specified in its charter)

Delaware                                                            95-4057601
(State or other jurisdiction of                                (I.R.S. Employer
incorporation or organization)                               Identification No.)

1800 Avenue of the Stars, Suite 1175
Los Angeles California                                               90067-4213
(Address of principal executive offices)                             (Zip code)

                                                  (310) 553-0561
                             (Registrant's telephone number including area code)

                           Securities  registered  pursuant to section 12(g) of
the Act:

        Title of Securities  Exchanges on which  Registered  Common  Stock,  par
value of $.10 per share National Association of Securities Dealers, Inc.
Automated Quotation System.

        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
Item 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. ?

As of  March  18,  1999,  registrant  had  24,027,511  shares  of  Common  Stock
outstanding,  and  the  aggregate  market  value  of the  voting  stock  held by
nonaffiliates was approximately $583 million.

                                        DOCUMENTS INCORPORATED BY REFERENCE

Part II: Excerpts from Argonaut Group,  Inc.'s Annual Report to Shareholders for
the Year Ended December 31, 1998. Part III: Excerpts from Argonaut Group, Inc.'s
Proxy  Statement for the Annual Meeting of  Shareholders to be held on April 27,
1999.


<PAGE>
                                       2





                                               Argonaut Group, Inc.
                                            Annual Report on Form 10-K
                                       For the Year Ended December 31, 1998


                                                 TABLE OF CONTENTS

<TABLE>
<CAPTION>
<S>         <C>                                                              <C>


                                                   PART I

Item  1.     Business                                                         3
Item  2.     Properties                                                       11
Item  3.     Legal Proceedings                                                11
Item  4.     Submission of Matters to a Vote of Security Holders              12

                                                   PART II

Item  5.     Market for Registrant's Common Equity and Related                13
                  Stockholder Matters
Item  6.     Selected Financial Data                                          13
Item  7.     Management's Discussion and Analysis of                          13
                  Financial Condition and Results of Operations
Item  7A.    Quantitative and Qualitative Disclosures about Market Risk       14
Item  8.     Financial Statements and Supplementary Data                      15
Item  9.     Changes in and Disagreements with Accountants on                 15
                  Accounting and Financial Disclosure

                                                  PART III

Item 10.     Directors and Executive Officers of the Registrant               16
Item 11.     Executive Compensation                                           16
Item 12.     Security Ownership of Certain Beneficial Owners
                  and Management                                              16
Item 13.     Certain Relationships and Related Transactions                   16

                                                   PART IV

Item 14.     Exhibits, Financial Statement Schedules and Reports on Form 8-K  16
</TABLE>



                                                  Page 2



<PAGE>
                                       3


                                                      PART I

Item 1. Business

Introduction

Argonaut Group, Inc.  ("Argonaut Group") is a holding company whose subsidiaries
are  primarily  engaged in the selling,  underwriting,  and servicing of workers
compensation   and  other   lines  of   property-casualty   insurance.   Workers
compensation  accounted  for 83% of  premiums  in 1998.  See  "Item 6.  Selected
Financial Data" for certain financial information regarding industry segments in
which the Company operates. Argonaut Group is incorporated in Delaware. Argonaut
Group's executive  offices are located at 1800 Avenue of the Stars,  Suite 1175,
Los Angeles,  California 90067, telephone  310.553.0561.  The term "the Company"
refers to Argonaut Group and all its subsidiaries.

Argonaut  Insurance  Company  ("Argonaut  Insurance"),  Argonaut  Group's larger
insurance   subsidiary,   was   established  in  California  in  1948.   Workers
compensation is the primary line of insurance written by Argonaut  Insurance and
its  subsidiaries:   Argonaut-Midwest   Insurance  Company,   Argonaut-Northwest
Insurance Company,  Argonaut-Southwest  Insurance Company, and Georgia Insurance
Company.  Argonaut  Insurance and these  subsidiaries  also write  complementary
lines of  commercial  insurance for a small number of their  clients,  primarily
consisting of general and automobile liability.

Argonaut Great Central Insurance Company  ("Argonaut Great Central") is Argonaut
Group's other principal  insurance  subsidiary.  Established in Illinois in 1948
and  purchased by Argonaut  Insurance  Company in 1971,  Argonaut  Great Central
specializes in providing package insurance policies including property,  general
liability,  workers  compensation,  and umbrella coverage for certain classes of
insureds. Argonaut Insurance is Argonaut Great Central's immediate parent.

AGI Properties,  Inc. ("AGI Properties"),  a non-insurance  company,  owns and 
leases certain real properties.  AGI Properties was incorporated in California 
in 1970.  Argonaut Insurance is AGI Properties' immediate parent.

Products

The  Company  has  two  primary  product  lines:  workers  compensation   
insurance  and  other   property-casualty insurance.  Incorporated  herein by 
reference is the information  appearing as "Note 10 - Business Segments" in the
Notes to the Consolidated Financial Statements of the Annual Report.  
See Exhibit Index.






                                                  Page 3



<PAGE>
                                       4


Workers Compensation

Workers  compensation  insurance  is  a  statutory  system  which  provides  for
compensation  of a  policyholder's  employees and their  dependents for injuries
(other than  self-inflicted  wounds) arising out of or suffered in the course of
the employee's  employment,  even though the injuries may have resulted from the
negligence  or wrongful  conduct of the  employee  himself or any other  person.
Workers  compensation  insurance is sold primarily by Argonaut Insurance and its
subsidiaries. Net earned premiums for this line of business were $115.6 million,
$140.6 million, and $129.5 million, in 1998, 1997, and 1996, respectively.

Other Property-Casualty Insurance

This   product   includes   general   and   automobile   liability,   commercial
multiple-peril,  and  various  other  insurance  coverages.  Premiums  for these
product lines were $22.9  million,  $24.3 million,  and $32.2 million,  in 1998,
1997, and 1996, respectively.

Argonaut  Insurance offers general and automobile  liability and other insurance
to  commercial  clients in  conjunction  with  workers  compensation  insurance.
Liability  insurance  compensates  third parties for damages  resulting from the
actions of the insured.

Commercial  multiple-peril  insurance,  one of Argonaut Great Central's  primary
products, is a composite product designed for the small-to-medium sized business
which  needs  basic  insurance  coverage  and simple  insurance  administration.
Commercial  multiple-peril policies generally cover property,  plant, inventory,
general liability, and associated coverages.

Ceded Reinsurance

The Company's policy regarding  reinsurance is based upon the  capitalization of
the  subsidiaries.  The goal is to limit the  exposure  to surplus  from  losses
resulting from catastrophes and large or unusually hazardous risks.

As is the case with direct premiums written,  cessions on reinsurance  contracts
are recognized ratably over the period to which the premium relates.

To take  advantage of attractive  pricing in the  reinsurance  market,  Argonaut
Insurance  reduced  the  limit  of  retention  on its  primary  excess  of  loss
reinsurance  treaty from $2 million to $250,000 effective May 1, 1998. Its limit
of retention is $250,000 on its wrap up treaty.  Argonaut Great  Central's limit
of retention is $500,000 on the property and liability  treaty,  $300,000 on the
First Workers'  Compensation  Excess of Loss Reinsurance  Treaty and $250,000 on
the First Underlying Excess of Loss Reinsurance Treaty.

Incorporated  herein by  reference  is the  information  appearing  as
"Note 3-  Reinsurance"  in the Notes to the Consolidated Financial Statements
 of the Annual Report.  See Exhibit Index.



                                                  Page 4



<PAGE>
                                       5


Competition

The  property-casualty  insurance industry is characterized by a large number of
competing companies and modest market shares by industry participants. According
to A.M.  Best, a leading  insurance  industry  rating and analysis  firm,  as of
December 31, 1998, there are about 3,350  property-casualty  insurance companies
operating  in the United  States,  with the 100  largest  companies  (groups and
unaffiliated) writing about 80% of the industry's premiums.

The Company's principal  competitors cannot be easily classified.  The Company's
principal  lines of  business  are  written  by  numerous  insurance  companies.
Competition  for any one account may come from a very large  national  firm or a
smaller  regional company selling either directly or through agents and brokers.
For the Company's principal line of business,  workers compensation,  additional
competition comes from state workers compensation funds.

Regulation

Since,  1994,  the  Company's  insurance  subsidiaries  have been subject to the
Risk-Based  Capital (RBC) for Insurers Model Act. The RBC calculation takes into
account:  (1) asset risk,  (2) credit risk, (3)  underwriting  risk, and (4) all
other relevant risks. The RBC for Insurers Model Act provides for four levels of
regulatory  authority:  (1) Company Action Level Event,  (2)  Regulatory  Action
Level Event, (3) Authorized Control Level Event, and (4) Mandatory Control Level
Event. These four levels of authority provide for increasing regulatory remedies
for companies that fail to comply with the RBC for Insurers Model Act.

As of  December  31,  1998,  calculations  show  that  the  Company's  insurance
subsidiaries' RBC coverage far exceeds the minimum required.

The Company's  insurance  subsidiaries  are members of the  statutorily  created
insolvency  guarantee  associations  in all states where they are  authorized to
transact  business.  These  associations  were  formed for the purpose of paying
claims of  insolvent  companies.  The Company is assessed  its pro rata share of
such  claims  based  upon its  premium  writings,  subject  to a maximum  annual
assessment per line of insurance.  Such costs can generally be recovered through
surcharges on future premiums.  The Company does not believe that assessments on
current  insolvencies will have a material effect on its financial  condition or
results of operations.

The Company has no policyholder dividend restrictions.

Under the provisions of the California Insurance Code, there is a maximum amount
of  shareholder  dividends  which  can be paid  without  prior  approval  of the
Insurance  Commissioner.  Under  these  provisions,  as of  December  31,  1998,
Argonaut  Insurance  could pay to  Argonaut  Group a maximum  dividend  of $20.5
million without the Insurance Commissioner's approval.




                                                  Page 5
<PAGE>
                                       6


Marketing

Argonaut Insurance and Argonaut Great Central operate in substantially different
markets.

Incorporated  herein by  reference  is the  information  appearing  as "Note 1 -
Business and Significant  Accounting  Policies" in the Notes to the Consolidated
Financial Statements of the Annual Report. See Exhibit Index.

Argonaut  Insurance  Company is  authorized  to  operate  in all 50 states.  Its
primary line of business,  workers compensation  insurance,  accounts for 99% of
its premiums (83% of total consolidated premiums).  These policies are primarily
written on a retrospective rating basis or with large deductible provisions. For
retrospectively  rated policies,  Argonaut Insurance's risk regarding inadequate
price levels is  mitigated  to a certain  extent as the insured will have to pay
additional  premiums (or will be refunded premiums) based upon their actual loss
experience.

Argonaut  Great  Central is  authorized  to  operate in 33 states and  considers
itself to be a specialty  company with a defined target  market.  Argonaut Great
Central's   dominant   products  are  commercial   multiple-peril   and  workers
compensation  insurance.  Argonaut Great Central's policies are marketed through
agents.

Neither  Argonaut  Insurance  nor  Argonaut  Great  Central  market any of their
policies through managing general agents.

Run Off Lines

Incorporated  herein by  reference  is the  information  appearing as "Note 12- 
Run Off Lines" in the Notes to the Consolidated Financial Statements of the 
Annual Report.  See Exhibit Index.

Loss ratios for the run off line of business are not  meaningful as there are no
current year  premiums  associated  with the current year losses on this line of
business.

Investments

The Company's  investment  portfolio  continues to emphasize  high quality fixed
income  and  equity  investments.  As  a  percentage  of  the  total  investment
portfolio,  U.S.  Treasury  securities  comprise  the  largest  portion  of  the
Company's  holdings.  Obligations  of states  and  political  subdivisions  have
decreased from 1997 as a result of maturities and sales. The proceeds from these
maturities and sales were reinvested in high quality preferred and common stocks
and Other U.S. Agencies (FNMA and FHLM).

The  Company's  investment  policy is to  invest  only in  securities  issued by
investment-grade  issuers.  It does not invest in  high-yield or so called "junk
bonds," derivatives, speculative real estate, or mortgage backed securities.

Incorporated  herein by  reference  is the  information  appearing  as "Note 2 -
Investments"  and  "Note  7 -  Net  Investment  Income"  in  the  Notes  to  the
Consolidated Financial Statements of the Annual Report. See Exhibit Index.

                                                  Page 6

<PAGE>
                                       7


Reserves for Losses and Loss Adjustment Expenses

Incorporated  herein by reference is the information set forth under the caption
"Management's  Discussion  and Analysis of Results of  Operations  and Financial
Condition-Results  of  Operations"  in the  Annual  Report  to  Shareholders  of
Argonaut  Group for the fiscal  year ended  December  31,  1998 and in "Note 4 -
Reserves  for  Losses  and  Loss  Adjustment  Expenses"  in  the  Notes  to  the
Consolidated Financial Statements of the Annual Report. See Exhibit Index.

Reserves  for  environmental  claims  were $96.3  million  and $98.2  million at
December 31, 1998 and 1997,  respectively.  Reserves  for  asbestos  claims were
$76.6 and $101.4 million at December 31, 1998 and 1997.

In the opinion of management, the Company's reserves for each of these liability
issues represent the Company's best estimate of its ultimate liabilities,  based
on currently  known facts,  current law,  current  technology,  and  assumptions
considered   reasonable   where  facts  are  not  known.   Due  to   significant
uncertainties  and  related  management  judgments,  however,  there  can  be no
assurance  that  future  loss  development,  favorable  or  unfavorable,  can be
accurately predicted.

The following  tables on page 8 and 9 indicate the manner in which  reserves for
losses and loss  adjustment  expenses at the end of a particular  year change as
time  passes.  The first  table  (Table I)  presented  is net of the  effects of
reinsurance. The second table (Table II) presented includes only amounts related
to direct insurance.

The first line  shows the  reserves  as  originally  reported  at the end of the
stated year. The second section shows the cumulative  amounts paid as of the end
of  successive  years  related to those  reserves.  The third  section shows the
original recorded reserves as of the end of successive years adjusted to reflect
facts and circumstances later discovered.  The last line,  cumulative deficiency
or  redundancy,  compares  the adjusted  reserves to the reserves as  originally
established  and shows that the  reserves  as  originally  recorded  were either
inadequate or excessive to cover the estimated cost of claims as of December 31,
1998.

Conditions  and trends that have affected the  development  of these reserves in
the past will not necessarily  recur in the future.  It would not be appropriate
to use this cumulative history in the projection of future performance.











                                                  Page 7

<PAGE>
                                       8


Table I



                   Analysis of Losses and Loss Adjustment Expenses (LAE)
                        Development (in millions)
                              (Net of Reinsurance)
<TABLE>
<CAPTION>

                        ----------------------------------------------------------------------------------------------------------
                           1989      1990       1991      1992       1993      1994       1995      1996       1997       1998
                           ----      ----       ----      ----       ----      ----       ----      ----       ----       ----
<S>                      <C>        <C>        <C>       <C>        <C>        <C>        <C>       <C>        <C>        <C>

Reserves for Losses
and LAE (a)               $1,337.0  $1,348.5   $1,287.8  $1,201.9   $1,107.6    $976.6     $858.1    $951.0     $845.7     $723.3
Cumulative Amount
Paid as of: (b)
One year later               260.0     313.1      307.3     276.9      259.9     239.7      214.2     179.0      172.7
Two years later              464.9     537.5      525.8     489.2      444.7     417.9      356.2     309.7
Three years later            603.2     698.5      697.6     638.9      588.8     531.5      468.6
Four years later             704.4     835.7      821.4     759.5      684.1     623.9
Five years later             801.7     940.1      919.5     839.9      758.5
Six years later              884.5   1,021.3      991.0     906.8
Seven years later            952.3   1,082.7    1,051.3
Eight years later          1,004.8   1,134.2
Nine years later           1,049.3
Reserves Re-estimated
as of:
One year later             1,317.2   1,358.3    1,285.2   1,197.1    1,086.8     996.5    1,073.6     934.0      819.2
Two years later            1,284.7   1,356.9    1,311.9   1,202.0    1,083.0   1,180.8    1,038.9     895.5
Three years later          1,261.3   1,381.9    1,315.9   1,203.0    1,283.4   1,159.2    1,014.1
Four years later           1,282.9   1,374.1    1,325.9   1,403.1    1,277.3   1,152.5
Five years later           1,257.5   1,384.9    1,514.9   1,400.6    1,268.2
Six years later            1,265.3   1,572.0    1,524.3   1,396.2
Seven years later          1,442.0   1,575.6    1,518.8
Eight years later          1,447.0   1,572.8
Nine years later           1,448.9
Cumulative (Deficiency)
Redundancy:(c)            ($111.9)  ($224.3)   ($231.0)  ($194.3)   ($160.6)  ($175.9)   ($156.0)     $55.5      $26.5
</TABLE>


(a)    Reserves for losses and LAE, net of reserves for reinsurance.
(b)    Cumulative amount paid, net of reinsurance payments.
(c) Represents  changes of net reserves between the original  estimate (for each
accident year) of the indicated year and
         the reserve  re-estimated  as of the end of the current  year.  
Re-estimated  reserves are  calculated  by adding cumulative
      amount paid to unpaid loss and LAE and incurred but not reported (IBNR) at
year end for each accident year.











                                                  Page 8


<PAGE>
                                       9


Table II



                     Analysis of Losses and Loss Adjustment Expenses (LAE)
                              Development (in millions)
                             (Direct Insurance Only)
<TABLE>
<CAPTION>

                         1989       1990       1991       1992       1993       1994       1995       1996      1997      1998
                           ----       ----       ----       ----       ----       ----       ----       ----      ----      ----
<S>                       <C>         <C>        <C>        <C>        <C>        <C>        <C>        <C>       <C>      <C>

Reserves for Losses
and LAE (a)                $1,587.4   $1,561.8   $1,494.4   $1,390.9   $1,284.1   $1,161.5   $1,026.1   $1,158.8  $1,024.9   $895.9
Cumulative Amount
Paid as of: (b)
One year later                509.2      384.7      355.7      325.6      288.3      267.5      245.2      234.7      197.0       
Two years later               770.5      656.2      621.6      564.4      499.3      474.8      437.8      389.3
Three years later             954.4      862.6      818.2      739.3      668.9      625.4      572.1
Four years later            1,097.1    1,023.5      965.1      884.2      787.9      737.5
Five years later            1,216.7    1,149.2    1,086.1      983.5      881.4
Six years later             1,318.7    1,252.8    1,174.5    1,069.3
Seven years later           1,408.1    1,327.6    1,253.6
Eight years later           1,473.3    1,396.5
Nine years later            1,533.9
Reserves Re-estimated
as of:
One year later              1,770.2    1,619.3    1,512.6    1,414.2    1,291.7    1,179.7     1,300.3    1,159.7   1,006.2
Two years later             1,764.0    1,645.8    1,570.2    1,448.8    1,278.8    1,423.1     1,282.8    1,134.3
Three years later           1,772.2    1,702.3    1,603.7    1,440.6    1,533.8    1,404.1     1,267.2
Four years later            1,829.1    1,719.7    1,604.2    1,694.5    1,526.6    1,412.1
Five years later            1,820.3    1,723.6    1,841.5    1,687.5    1,532.5
Six years later             1,823.6    1,956.8    1,850.4    1,698.0
Seven years later           2,045.6    1,958.8    1,859.5
Eight years later           2,052.8    1,970.0
Nine years later            2,067.1
                          
Cumulative (Deficiency)
Redundancy: (c)            ($479.7)   ($408.2)   ($365.1)   ($307.1)   ($248.4)   ($250.6)   ($241.1)      $24.5     $18.7

</TABLE>





(a)  Reserves  for  losses  and  LAE,  excluding  effects  of  reinsurance.  
(b)  Cumulative amount paid, excluding effects of reinsurance.
(c)  Represents  changes of direct  reserves  between the original  estimate 
(for each accident year) of the indicated year and the reserve re-estimated as 
of the end  of the  current  year.  Re-estimated  reserves  are  calculated  
by  adding cumulative amounnt paid to unpaid loss and LAE and incurred but not 
reported (IBNR) at year end for each accident year.





                                                  Page 9


<PAGE>
                                       10



Capital Adequacy

Several  measures  of  capital  adequacy  are  common  in the  property-casualty
industry.  The two most often used are (a)  premium-to-surplus  (which  measures
pressures  on capital from  inadequate  pricing)  and,  (b)  reserves-to-surplus
(which  measures  pressures on capital from  inadequate loss and loss adjustment
expense reserves).

The   following   table   shows   the   consolidated    premium-to-surplus   and
reserves-to-surplus  ratios  of  the  Company's  insurance  subsidiaries  (on  a
statutory basis).

<TABLE>
<CAPTION>

                                     Year Ended December 31,
                               1998         1997      1996
<S>                            <C>          <C>       <C>    

Ratio of:
Premium-to-surplus              0.2          0.3       0.3
                                ===          ===       ===

Reserves-to-surplus             1.1          1.5       2.0
                                ===          ===       ===
</TABLE>

The Company believes that its 1998 capital ratios are satisfactory.

Ratings

The  Company's  insurance  subsidiaries  are rated by A.M.  Best.  A.M.  Best is
generally  considered to be the leading insurance rating agency, and its ratings
are used by insurance buyers,  agents and brokers, and other insurance companies
as an  indicator of financial  strength  and  security,  and are not intended to
reflect  the  quality of the rated  company for  investment  purposes.  Argonaut
Insurance  and its pooled  subsidiaries  has carried an "A+"  (Superior)  rating
since  1991.  Argonaut  Great  Central is rated  separately  and carries an "A-"
(Excellent) rating.

Standard  &  Poor's  currently  rates  the  claims-paying  ability  of  Argonaut
Insurance  and its pooled  subsidiaries  as "AA+" and Argonaut  Great Central as
"A".

Employees

At December 31, 1998,  the Company  employed 499  full-time  employees.  Of this
total, Argonaut Insurance employed 415 people (362  professional/managerial  and
53  clerical/operational).   Argonaut  Great  Central  employed  71  people  (45
professional/managerial and 26 clerical/operational). Argonaut Group employed 13
people (12 professional/managerial  and 1 clerical/operational).  The Company is
not a party to any collective bargaining agreements.






                                            Page 10

<PAGE>
                                       11


Item 2. Properties

Argonaut Insurance's  headquarters are located in a facility that consists of an
office building on  approximately  two acres of land in Menlo Park,  California.
Argonaut  Great  Central's  headquarters  are  located in a facility  in Peoria,
Illinois.  Argonaut  Insurance  and Argonaut  Great Central own the buildings in
which their headquarters are located. In addition,  the Company has entered into
short term  leases in  conjunction  with its  operations  at  various  locations
throughout  the country.  The Company  believes that its properties are adequate
for its present needs.

Item 3. Legal Proceedings

On August 30, 1996, the Los Angeles County Metropolitan Transportation Authority
(MTA)  filed a civil  action  against  Argonaut  Insurance  alleging  breach  of
contract,  breach of the covenant of good faith and fair dealing, and requesting
ancillary relief in the form of an accounting,  an injunction and restitution in
connection  with  allegations   regarding  failures  to  perform  under  certain
contracts of insurance.

Argonaut  Insurance  has  responded  to  the  complaint,   and  brought  certain
counterclaims against the MTA, and possibly others, in connection with the facts
underlying the lawsuit. Argonaut Insurance believes it has meritorious defenses,
and intends to vigorously  contest these claims.  Argonaut  Insurance is unable,
with any degree of certainty,  to comment upon the range of any potential  loss,
or whether  such an outcome is probable  or remote,  in light of the lack of any
discovery  conducted in the case, and the  preliminary  investigation  conducted
thus far.

The Company has been sued in sixteen  referenced  lawsuits  brought on behalf of
alleged  classes of  purchasers of retrospectively rated worker's compensation 
insurance,  alleging that the defendants,  including other compensation 
insurers,  charged the  purported  class  unlawful  premiums.  The  lawsuits  
are El Chico  Restaurants,  Inc. and Southwest  Cafes of Tennessee,  Inc. v. 
The Aetna Casualty and Surety  Company,  et al.; Civil Action No.  97-92-I,
pending in the Chancery Court for Davidson  County,  Tennessee,  filed on 
January 8, 1997; El Chico  Restaurants, Inc. v. The Aetna Casualty and Surety 
Company,  et al.; Civil Action File No.  97-RCCV-28,  pending in the Superior
Court of Richmond County,  Georgia,  filed on January 10, 1997;  Bristol Hotel  
Management  Corp., et al. v. Aetna Casualty & Surety Co. A/K/A Aetna Group,  et 
al.;  Civil  Action No. CL 9700727A,  pending in the Circuit  Court of
the Fifteenth  Judicial Circuit,  in and for Palm Beach County,  Florida,  filed
on August 15, 1997; Bristol Hotel Management  Corp.,  et al. v. Aetna  Casualty 
& Surety Co. A/K/A Aetna  Group,  et al.;  Civil Action No.  97-2240, pending 
in the United States District Court for the Southern  District of Florida,  
Miami  Division,  filed on July 17, 1997; Foodarama Supermarkets,  Inc. and WSR 
Corporation d/b/a Strauss Discount Auto v. Aetna Casualty & Surety Co., et al.; 
Docket No. L-3556-97,  pending in the Superior Court of New Jersey Law 
Division,  Morris County, filed on November  17,  1997;  CR/PL  Management  
Co., et al. v.  Allianz  Insurance  Company,  et al.;  Civil Action 
No. 98-01635; pending in the
Circuit Court of Cook County, Illinois County Department,





                                                  Page 11



<PAGE>
                                       12


Chancery  Division,  filed  February 6, 1998;  Hill-Behan  Lumber  Company,  et
al.; v. Aetna  Casualty and Surety Company,  et al.; Case No.  982-00338;  
pending in the Circuit  Court of the City of St. Louis,  State of Missouri,
filed on February 12, 1998;  Foodrama  Supermarkets,  Inc.,  et al. v. Allianz  
Insurance  Company,  et al.;  Civil Action No. 001138;  pending in the Court of
Common Pleas,  Philadelphia County,  Civil Division,  filed on February 6, 1998;
Sandwich Chef of Texas, Inc., et al. v. Reliance National Indemnity  Insurance 
Company,  et al., Case No.98-01631;  In the District  Court of Harris County,  
Texas,  295th  Judicial  District,  was filed on May 6, 1998; AARP, et al. v. 
National Surety Corp.,  et al., No.  98-820589-CZ;  Wayne County Circuit 
Court,  
State of Michigan, was filed on June 30, 1998;  Alumax,  Inc., et al. v. Allianz
Insurance Company,  et al., Case No.  CV98032222;  In the Circuit Court of 
Jefferson  County,  Alabama,  was filed on May 21, 1998;  Burnham  Service  
Corp.,  et al. v. NCCI,  Inc., et al., Case No.  9800321;  Supreme Court of the 
State of New York,  County of New York,  was filed on June 30, 1998; FFE  
Transportation  Services,  Inc., et al. v. NCCI, et al., Case No.  
98-RCCV-509;  
Superior Court of Richmond  County,  State of Georgia,  was filed on June 11, 
1998;  Payless  Cashways,  Inc., et al. v. National Surety Corp., et al., Case 
No. 9812388;  Fayette Circuit Court, Division 1, Commonwealth of Kentucky,  was
filed on June 30, 1998; and Albany  International  Corp.,  et al. v. American  
National Fire Insurance Co., et al., Case No. CV98-11695;  Superior  Court of 
the State of Arizona,  County of Maricopa,  was filed on June 26,  1998; 
DAL-Tile Corporation,  et al.; v. National  Council on  Compensation  Insurance,
Inc., et al.; Case No. 311263;  Pending in Superior Court of the State of 
California, County of Riverside, was filed on April 17, 1998.

The Company intends to vigorously defend these lawsuits. Management is unable to
determine the potential financial impact of these lawsuits at this time.

On  February  19,  1999 in an action  involving a  reinsurance  collection  case
entitled   Stonewall   Insurance  Co.  v.  Argonaut  Insurance  Co.,  (wherin  a
counterclaim was filed by Argonaut against Stonewall), a jury returned a verdict
in Argonaut's favor that included  punitive damages of $13.0 million.  Judgement
has not yet been entered and the time for post-trial  motions and appeal has not
yet begun.  The  Company has not  recorded  any amount for  punitive  damages in
regards to this case at this time.

The  insurance  subsidiaries  of the Company are parties to other  various legal
proceedings  which are  considered  routine and incidental to their business and
are not material to the Company's financial condition or results of operations.

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

No matters were submitted to a vote of Argonaut  Group's security holders during
the last quarter of its fiscal year ended December 31, 1998.

                                                  Page 12

<PAGE>
                                       13

       


                                                      PART II

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

Market Information

The  Company's  common  stock trades on the NASDAQ Stock Market under the symbol
AGII. The closing price on March 18, 1999 was $24.25 per share.  The information
on high and low common  stock prices set forth under the caption  "Common  Stock
Market  Prices" in the Annual Report to  Shareholders  of Argonaut Group for the
fiscal year ended December 31, 1998, is  incorporated  herein by reference.  See
Exhibit Index.

Holders of Common Stock

The number of holders of record of the Company's Common Stock as of February 26,
1999 was 7,550.

Dividends

The  information  set  forth  under the  caption  "Management's  Discussion  and
Analysis of Results of  Operations  and  Financial  Condition  -  Liquidity  and
Capital  Resources" in the Annual Report to  Shareholders  of Argonaut Group for
the fiscal year ended December 31, 1998 and in "Note 6 -  Shareholders'  Equity"
in the Notes to the Consolidated  Financial  Statements of the Annual Report, is
incorporated herein by reference. See Exhibit Index.

Item 6. Selected Financial Data

The  information  set forth under the caption  "Selected  Financial  Data" in 
the Annual Report to  Shareholders of Argonaut  Group for the fiscal year ended
December 31, 1998,  is  incorporated  herein by  reference.  See Exhibit Index.

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

The  information  set  forth  under the  caption  "Management's  Discussion  and
Analysis of Results of Operations and Financial  Condition" in the Annual Report
to  Shareholders  of Argonaut Group for the fiscal year ended December 31, 1998,
is incorporated herein by reference. See Exhibit Index.

On January 28,  1998,  the Company  announced  that it was  reviewing a range of
strategic  alternatives to enhance shareholder value. These alternatives include
the potential  combination with another company.  The Company had engaged Credit
Suisse First Boston Corporation to assist in this process.  On November 24, 1998
the Company  announced  that it had completed the review and determined it would
remain an independent provider of specialty property-casualty insurance products
through its 26 offices  throughout the United States.  The Company will continue
to  pursue  its  specialty   niches,   with  emphasis  on  value-added   workers
compensation  and its strength in "wrap-up"  construction  projects for industry
and government entities using its safety engineering expertise.
                                                  Page 13
<PAGE>
                                       14


On October 19, 1998, the Year 2000  Information and Readiness  Disclosure Act 
("Y2K Act")(Pub.  L. No. 105-271,  12 Stat.  2386 (1998) to be codified  at 15
 U.S.C.  ss. 1) was enacted  into law by  President  Clinton.  The  following
disclosure is defined by section 3(9) of the Y2K Act.

The Company  established a Year 2000 project team in November of 1996 to prepare
its computer hardware,  operating system software,  computer programs, and voice
and data  communications to address Year 2000 compliance and remediation issues.
The Company's  external Year 2000 plan covers the information  exchange  process
with vendors and business  partners,  and  includes  validating  and testing the
readiness of its outsource data center service providers.

It is the opinion of management that as of April 30, 1998, the Company's  client
server policy  management,  policy rating and claims processing systems are Year
2000 compliant.  These computer  systems use a four-position  field to store and
process all dates.  In addition,  it is the opinion of management that effective
September 30, 1998, the Company's mission critical mainframe legacy systems have
been remediated to process dates beyond the Year 2000. The Company has completed
testing its mission  critical  business  processing  client server and mainframe
legacy systems, computer hardware,  computer infrastructure systems software and
office automation software to assure continuity of service beyond the Year 2000.
The Company will continue the testing of  non-mission  critical user systems and
validating    the   above    mission    critical    systems    for   Year   2000
compliance/remediation  into 1999.  The Company will prepare a contingency  plan
that will  include a designated  team to resolve any  unforeseen  problems  that
arise beyond the Year 2000.

The total project cost is estimated to be approximately $4.4 million.  All costs
associated with the project have been expensed as incurred.

Statement  of  Position   ("SOP")  97-3,   Accounting  by  Insurance  and  Other
Enterprises  for  Insurance-Related  Assessments  was also  issued in 1997.  The
Company's  required  adoption  date is  January 1, 1999.  The  Company  does not
anticipate  SOP 97-3 to have an impact on its results of operations or financial
position.

SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities,  was
issued on June 16, 1998.  The  Company's  required  adoption  date is January 1,
2000.  The  Company  does not  anticipate  SFAS No. 133 to have an impact on its
results of operations or financial position.

Item 7A.    Quantitative and Qualitative Disclosures about Market Risk

The primary  market  risk  exposures  that result in an impact to the  Company's
investment portfolio relates to equity price changes and interest rate changes.

The Company holds a well  diversified  portfolio of  investments in common stock
representing  U.S.  firms in industries and market  segments  ranging from small
market  capitalization  stocks to the Standard & Poor's 500 stocks. These equity
investments  are not made for  trading  purposes.  Equity  price risk is managed
primarily  through the daily  monitoring of funds committed to the various types
securities  owned  by the  Company  and by  limiting  the  exposure  in any  one
investment or type of investment.

                                                  Page 14

<PAGE>
                                       15


At December 31, 1998 the fair market value of the Company's investment in common
stock was $341.8 million.  The potential loss in fair value at December 31, 1998
using a 10%  hypothetical  decline in prices,  is estimated to be  approximately
$34.2 million.

The  Company's  primary  exposure  to  interest  rate risk  relates to its fixed
maturity  investments  including  redeemable and nonredeemable  preferred stock.
These investments are not made for trading purposes.  Changes in market interest
rates  directly  impact the market value of the fixed  maturity  securities  and
preferred stocks. The following interest rate sensitivity  analysis measures the
potential change in fair value for the Company's fixed maturity  investments and
preferred  stock as of December 31, 1998  resulting  from changes in the rate of
100 and 200 basis points.
<TABLE>
<CAPTION>

Interest Rate Sensitivity Analysis
                                                                Modified
                       Fair Value              Yield to         Duration
                      (millions)               Maturity         (years)
<S>                   <C>                     <C>               <C>
-200bp                1,124.8                 3.3%               5.1
-100bp                1,073.1                 4.3%               4.4
Base Case             1,029.4                 5.3%               3.9
+100bp                  991.0                 6.3%               3.6
+200bp                  956.4                 7.2%               3.4
</TABLE>

The Company  manages its exposure to interest rate risks by adhering to
specific  
guidelines in connection with its investment  portfolio.  The maximum maturity  
guidelines are presently as follows:  (1) U.S. Treasury  Securities-5
years. (2) Government  Sponsored  Agencies-10  years. (3) Municipal  
Bonds-10 years. (4) Preferred  Stocks-variable depending on structure of the 
individual security.

Item 8. Financial Statements and Supplementary Data

The  Report  of  Independent  Public  Accountants  and  consolidated   financial
statements and related notes of Argonaut Group, Inc. and subsidiaries  listed on
the index to  financial  statements  set forth in Item  14(a)1 of this Form 10-K
Report are incorporated herein by reference to the Annual Report to Shareholders
of Argonaut Group for the fiscal year ended December 31, 1998.

The Company does not  identify  each asset with any one line of business and any
such allocation would be arbitrary.

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

None.







                                                  Page 15
<PAGE>
                                       16


                                                     PART III

Item 10.       Directors and Executive Officers of the Registrant

Incorporated herein by reference is the information appearing under the captions
"Election of Directors",  "Executive Officers," "Security Ownership of Principal
Shareholders and Management" , and Section 16(a) Beneficial  Ownership Reporting
Compliance in the  registrant's  Proxy Statement to be filed with the Securities
and  Exchange   Commission  relating  to  the  registrant's  Annual  Meeting  of
Shareholders to be held on April 27, 1999.

Item 11.       Executive Compensation

Incorporated herein by reference is the information appearing under the captions
"Compensation of Executive Officers",  "Indemnity  Agreements",  "Pension Plan",
and "Compensation of Directors" in the registrant's  Proxy Statement to be filed
with the Securities and Exchange  Commission relating to the registrant's Annual
Meeting of Shareholders to be held on April 27, 1999.

Item 12.       Security Ownership of Certain Beneficial Owners and Management

Incorporated herein by reference is the information  appearing under the caption
"Security   Ownership  of  Principal   Shareholders   and   Management"  in  the
registrant's  Proxy  Statement  to be filed  with the  Securities  and  Exchange
Commission  relating to the  registrant's  Annual Meeting of  Shareholders to be
held on April 27, 1999.

Item 13.       Certain Relationships and Related Transactions

Incorporated herein by reference is the information  appearing under the caption
"Compensation and Stock Option Committee  Interlocks and Insider  Participation"
in the registrant's Proxy Statement to be filed with the Securities and Exchange
Commission  relating to the  registrant's  Annual Meeting of  Shareholders to be
held on April 27, 1999.



                                                      PART IV

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

(a)1.          Financial Statements

               Selected Financial Data

               Report of Independent Public Accountants

               Consolidated Balance Sheets  -  December 31, 1998 and 1997

               Consolidated Statements of Operations
               For the Years Ended December 31, 1998, 1997, and 1996

                                                  Page 16
<PAGE>
                                       17



               Consolidated Statements of  Comprehensive Income
               For the Years Ended December 31, 1998, 1997, and 1996

               Consolidated Statements of Shareholders' Equity
               For the Years Ended December 31, 1998, 1997, and 1996

               Consolidated Statements of Cash Flow
               For the Years Ended December 31, 1998, 1997, and 1996

               Notes to Consolidated Financial Statements

               Quarterly Financial Data (Unaudited)

               Common Stock Market Prices (Unaudited)

               Management's Discussion and Analysis of Results of Operations and
               Financial Condition

(a)2.          Financial Statement Schedules
               Report of Independent Public Accountants on Schedules

               Schedule I - Condensed Financial Information of Registrant
               December 31, 1998 and 1997

               Schedule V - Supplementary Insurance Information December 31, 
               1998, 1997, and 1996

All other schedules and notes specified under Regulation S-X are omitted because
they are either not  applicable,  not required,  or the  information  called for
therein  appears  in  response  to the  items of Form  10-K or in the  financial
statements or notes thereto.

(a)3.          Exhibits

The following  exhibits are numbered in accordance with Item 601 of Regulation
 S-K and, except as noted,  are filed herewith.

2.     Information  Statement of  Registrant  (incorporated  by reference to the
       Exhibit  2 to the  Registrant's  Form  10  Registration  Statement  dated
       September 3, 1986,  filed with the Securities and Exchange  Commission on
       September 4, 1986).

  3.1    Certificate of Incorporation  of Registrant  (incorporated by reference
         to the Exhibit 3.1 to the Registrant's  Form 10 Registration  Statement
         dated  September  3,  1986,  filed  with the  Securities  and  Exchange
         Commission on September 4, 1986).

  3.2    Bylaws of the Registrant  (incorporated by reference to the Exhibit 3.2
         to the Registrant's  Form 10 Registration  Statement dated September 3,
         1986, filed with the Securities and Exchange Commission on September 4,
         1986).


                                                     Page 17
<PAGE>
                                       18


10.1     Argonaut Group, Inc. 1986 Stock Option Plan  (incorporated by reference
         to the Exhibit 10.1 to the Registrant's Form 10 Registration  Statement
         dated  September  3,  1986,  filed  with the  Securities  and  Exchange
         Commission on September 4, 1986).

10.2     Argonaut Group, Inc.  Retirement Plan (incorporated by reference to the
         Exhibit 10.2 to the Registrant's  Form 10 Registration  Statement dated
         September 3, 1986, filed with the Securities and Exchange Commission on
         September 4, 1986).

10.3     Tax  Agreement  by  and  among  Registrant  and  its  subsidiaries  and
         Teledyne,  Inc.  (incorporated  by reference to the Exhibit 10.3 to the
         Registrant's  Form 10  Registration  Statement dated September 3, 1986,
         filed with the  Securities  and  Exchange  Commission  on  September 4,
         1986).

10.4     Argonaut Group,  Inc. 1986 Stock Option Plan, as amended  (incorporated
         by  reference  to the  Exhibit  4.3 to  the  Registrant's  Registration
         Statement on Form S-8 filed with the Securities and Exchange Commission
         on February 13, 1987).

10.5     401(k)  Retirement  Savings  Plan  (incorporated  by  reference  to the
         Exhibit 10.4 to the  Registrant's  Form 10-K filed with the  Securities
         and Exchange Commission on February 28, 1989).

10.6     Employee  Stock  Investment  Plan  (incorporated  by  reference  to the
         Exhibit  4.3 to the  Registrant's  Registration  Statement  on Form S-8
         filed with the Securities and Exchange Commission on October 10, 1989).

10.7     Argonaut Group,  Inc. 1986 Stock Option Plan, as amended  (incorporated
         by  reference  to the  Exhibit  4.3 to  the  Registrant's  Registration
         Statement on Form S-8 filed with the Securities and Exchange Commission
         on December 9, 1997).

10.8     Argonaut  Group,  Inc. Form of Employee  Retention  Agreement for 
         Messrs.  Rinsch and Halliday dated as of February 24, 1998.

10.9     Argonaut  Group,  Inc.  Form of Employee  Retention  Agreement  for  
         Messrs.  Mellin and Polak dated as of February 24, 1998.

10.10    Argonaut Group,  Inc. Form of Employee  Retention  Agreement for 
         Argonaut Group, Inc. dated as of February 24, 1998.

13.      The following  materials are excerpted from the Annual Report to 
         Shareholders of Argonaut Group,  Inc. for the fiscal year ended 
         December 31, 1998:
         a)       Selected Financial Data
         b)       Financial Statements
         c)       Common Stock Market Prices
         d)       Management's Discussion and Analysis of Results of Operations 
                  and Financial Condition



                                                  Page 18

<PAGE>
                                       19


21.      Subsidiaries of Registrant (incorporated by reference to the Exhibit 21
         to the Registrant's  Form 10 Registration  Statement dated September 3,
         1986, filed with the Securities and Exchange Commission on September 4,
         1986).


23.      Consent of Independent Public Accountants.

27.      Financial Data Schedule for December 31, 1998 Form 10-K.

(b)      Reports on Form 8-K.
                  There were no Reports filed on Form 8-K for the quarter ended
                   December 31, 1998





































                                                      Page 19

<PAGE>
                                       20



                                                    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.

                                                           ARGONAUT GROUP, INC.

                                                     By  /s/  Charles E. Rinsch
                                                              Charles E. Rinsch
                                                                    President

Date:  March 19, 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 dates indicated.

Signature                      Title                             Date

/s/ Charles E. Rinsch          President, Chief Executive       March 19, 1999
---------------------------
Charles E. Rinsch              Officer, and Director


/s/ James B Halliday           Vice President, Secretary,       March 19, 1999
James B Halliday               and Treasurer (principal
                                     financial and accounting
                                      officer)

/s/ George A. Roberts          Director                         March  19, 1999
-------------------------
George A. Roberts


/s/ Jerrold V. Jerome          Director                         March 19, 1999
-------------------------
Jerrold V. Jerome

/s/ Fayez S. Sarofim           Director                         March 19, 1999
-------------------------
Fayez S. Sarofim

/s/ Henry E. Singleton         Director                         March 19, 1999
-------------------------
Henry E. Singleton



                                     Page 20



<PAGE>
                                       21




                     REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS ON SCHEDULES



To the Shareholders of Argonaut Group, Inc.

We have audited in accordance with generally  accepted auditing  standards,  the
consolidated  financial  statements  included in Argonaut  Group,  Inc.'s annual
report to  shareholders  incorporated  by reference in this Form 10-K,  and have
issued  our report  thereon  dated  January 7, 1999.  Our audit was made for the
purpose of forming an  opinion on the basic  consolidated  financial  statements
taken as a whole.  The schedules  listed in Part IV, Item 14(a)(2) are presented
for purposes of complying with the Securities  and Exchange  Commission's  rules
and are not part of the basic consolidated financial statements. These schedules
have been subjected to the auditing procedures applied in our audit of the basic
consolidated  financial statements and, in our opinion, are fairly stated in all
material  respects in relation to the basic  consolidated  financial  statements
taken as a whole.





                                                            ARTHUR ANDERSEN LLP


San Francisco, California
  March 12, 1999

















<PAGE>
                                       22
<TABLE>
<CAPTION>



                                             ARGONAUT GROUP, INC.
                                                   SCHEDULE I
                                CONDENSED FINANCIAL INFORMATION OF REGISTRANT
                                               ($ in millions)


BALANCE SHEET
                                                                         December 31,
                                                                -------------------------------
Assets                                                                    1998            1997
                                                                --------------- ---------------
<S>                                                             <C>             <C>

      Short-term investments                                             $10.1            $5.3
      Cash & cash equivalents                                              0.3             0.5
      Investment in subsidiary                                           661.1           604.0
      Cost in excess of net assets purchased                              35.5            38.3
      Deferred Federal income taxes receivable                            68.8            89.7
      Other assets                                                         9.3             8.7
                                                                =============== ===============
                                                                         $785.1         $746.5
                                                                =============== ===============

Liabilities & Shareholders' Equity
      Income taxes payable                                                $7.0            $3.3
      Other liabilities                                                    1.0             0.6
      Due from/(to) subsidiaries                                          22.7            24.7
      Shareholders' equity                                               754.4           717.9
                                                                =============== ===============
                                                                        $785.1         $746.5
                                                                =============== ===============

</TABLE>



<TABLE>
<CAPTION>


STATEMENT OF OPERATIONS                                                For The Year Ended December 31,
                                                                -----------------------------------------------
                                                                     1998            1997            1996
                                                                --------------- --------------- ---------------
<S>                                                             <C>             <C>             <C>  

Revenues                                                             $4.1           $ 5.3           $4.4        
Expenses:
      Amortization of cost in excess of net assets                    2.8             2.8             2.8
      Other expenses                                                  5.2             4.0             4.0
                                                                --------------- --------------- ---------------


Loss before tax and undistributed earnings                           (3.9)           (1.5)           (2.4)
Provision for income taxes                                           (1.8)             0.5             4.5
                                                                --------------- --------------- ---------------

Net loss before equity in earnings of subsidiary                     (2.1)           (2.0)           (6.9)
Equity (loss) in undistributed earnings of subsidiary                 64.8            50.5          (87.1)
                                                                --------------- --------------- ---------------


Net Income (loss)                                                   $ 62.7         $  48.5        $ (94.0)
                                                                                      
                                                                =============== =============== ===============

</TABLE>







<PAGE>
                                       23

<TABLE>
<CAPTION>


                                         ARGONAUT GROUP, INC.
                                              SCHEDULE I
                            CONDENSED FINANCIAL INFORMATION OF REGISTRANT
                                           ($ in millions)


STATEMENTS OF CASH FLOW                                           For The Year Ended December 31,
                                                                  -------------------------------------
                                                                     1998         1997        1996
                                                                  ------------ ----------- ------------
<S>                                                               <C>          <C>         <C>

Cash flows from operating activities:
     Net income (loss)                                            $62.7      $48.5        $(94.0)
                                                                     
     Adjustments to reconcile net income (loss) to
         net cash provided by operations:    
         Amortization                                               2.8         2.8           2.8
         Undistributed loss (earnings) in subsidiary              (88.5)      (62.5)        118.6
         Dividend from subsidiary                                  40.5        38.3          45.0
         Decrease in deferred Federal income taxes
            (payable) receivable                                   20.8         13.1        (27.5)
         Decrease (increase) in due from/to subsidiaries           (2.0)        (2.5)        (1.7)
         Increase in income taxes payable                           3.7          2.1          0.9
         Other, net                                                (0.2)        (0.4)        (2.1)
                                                                  ------------ ----------- ------------

                                                                     39.8         39.4        42.0
                                                                  ------------ ----------- ------------

Cash flows from investing activities:
     Decrease (increase) in short-term investments
                                                                        (4.8)       (2.2)      2.7
                                                                  ------------ ----------- ------------

                                                                        (4.8)       (2.2)      2.7
                                                                  ------------ ----------- ------------

Cash flows from financing activities:
     Repurchase of common stock                                       (0.5)      -            (10.8)
     Payment of cash dividend                                        (39.3)      (38.1)       (34.6)
     Exercise of stock options                                         4.6         1.2          0.8
                                                                  ------------ ----------- ------------

                                                                       (35.2)      (36.9)       (44.6)
                                                                  ------------ ----------- ------------

Increase (decrease) in cash & cash equivalents                          (0.2)       0.3         0.1
Cash & cash equivalents, beginning of period                             0.5        0.2         0.1
                                                                  ============ =========== ============
Cash & cash equivalents, end of period                                $  0.3       $0.5       $0.2
                                                                                        
                                                                  ============ =========== ============

</TABLE>

<PAGE>
                                       24












<TABLE>
<CAPTION>


                              ARGONAUT GROUP, INC.
                                   SCHEDULE V
                       SUPPLEMENTARY INSURANCE INFORMATION
                  Years Ended December 31, 1998, 1997, and 1996
                                 ($ in millions)

                                                                                                    Amortization
                                    Future               Other     Premium  Net        Ben,      (Deferral)  Other    Premiums
                                                                             Invest.     Loss,
                          DPAC     Benefits     UPR     Payables   Revenue   Income     & LAE      DPAC     Insur.     Written
                                                                                                               Exp
        Segment            (a)       (b)        (c)       (d)        (e)     (f) (1)     (g)        (h)     (i) (2)      (j)
--------------------------------------------------------------------------------------------------------------------------------
<S>                      <C>       <C>        <C>       <C>       <C>        <C>         <C>       <C>     <C>         <C>     

Year Ended December 31, 1998

Workers Comp
                              3.0     499.6    17.1            -      115.6      28.2      75.5        0.3      61.4      119.2
All Other
                              1.8     396.3    19.7            -       22.9      22.3      19.6        0.4       9.8       24.9
Unallocable
                            -             -          -         -          -      26.9         -      -         -              -
                        ========== ========= ========== ========= ==================== ========= ========== ========= ==========

                              4.8     895.9       36.8         -      138.5      77.4      95.1        0.7      71.2      144.1
                        ========== ========= ========== ========= ==================== ========= ========== ========= ==========

Year Ended December 31, 1997

Workers Comp
                              2.7     572.4    20.8            -      140.6      36.5      91.1      (1.3)      69.4      132.3
All Other
                              1.3     452.5    19.4            -       24.3      28.8      21.7        0.1      10.0       25.9
Unallocable
                                -         -          -         -          -      21.9         -      -         -              -
                        ========== ========= ========== ========= ==================== ========= ========== ========= ==========

                              4.0   1,024.9       40.2         -      164.9      87.2     112.8      (1.2)      79.4      158.2
                        ========== ========= ========== ========= ==================== ========= ========== ========= ==========

Year Ended December 31, 1996

Workers Comp
                              4.1     659.5    47.3            -      129.5      42.3      81.2      (0.5)      52.9      147.5
All Other
                              1.2     534.2    18.0            -       32.2      34.3     265.0      (0.1)      11.8       28.6
Unallocable
                                -         -          -         -          -      12.9         -      -         -              -
                        ========== ========= ========== ========= ==================== ========= ========== ========= ==========

                              5.2   1,193.7       65.3         -      161.7      89.5     346.2      (0.6)      64.7      176.1
                        ========== ========= ========== ========= ==================== ========= ========== ========= ==========
</TABLE>

(a)  Deferred Policy Acquisition Costs                                      
                                                                           
(b)  Future Policy Benefits, Claims, and Claim Adjustment Expenses          
(c)  Unearned Premiums                                                      
(d)  Other Policy Claims and Benefits Payable
(e)  Premium Revenue
                                                                            
        
(f)   Net Investment Income                       
(g)  Benefits, Claims, and Claim Adjustment Expenses                        
(h)  Amortization of Deferred Policy Acquisition  Costs        
(i)  Other Insurance Expenses
(j)  Premiums Written
(1)  Net investment income allocated based upon
     each segment's share of investable funds 
(2)  Other insurance expenses allocated based on  
     specific identification, where possible, and related activities.
<PAGE>
                                       25


                         EXHIBIT INDEX
                           Document


Exhibit
No.

The following  exhibits are numbered in accordance with Item 601 of Regulation
 S-K and, except as noted,  are filed herewith.

2.     Information  Statement of  Registrant  (incorporated  by reference to the
       Exhibit  2 to the  Registrant's  Form  10  Registration  Statement  dated
       September 3, 1986,  filed with the Securities and Exchange  Commission on
       September 4, 1986).

  3.1    Certificate of Incorporation  of Registrant  (incorporated by reference
         to the Exhibit 3.1 to the Registrant's  Form 10 Registration  Statement
         dated  September  3,  1986,  filed  with the  Securities  and  Exchange
         Commission on September 4, 1986).

  3.2    Bylaws of the Registrant  (incorporated by reference to the Exhibit 3.2
         to the Registrant's  Form 10 Registration  Statement dated September 3,
         1986, filed with the Securities and Exchange Commission on September 4,
         1986).


10.1     Argonaut Group, Inc. 1986 Stock Option Plan  (incorporated by reference
         to the Exhibit 10.1 to the Registrant's Form 10 Registration  Statement
         dated  September  3,  1986,  filed  with the  Securities  and  Exchange
         Commission on September 4, 1986).

10.2     Argonaut Group, Inc.  Retirement Plan (incorporated by reference to the
         Exhibit 10.2 to the Registrant's  Form 10 Registration  Statement dated
         September 3, 1986, filed with the Securities and Exchange Commission on
         September 4, 1986).

10.3     Tax  Agreement  by  and  among  Registrant  and  its  subsidiaries  and
         Teledyne,  Inc.  (incorporated  by reference to the Exhibit 10.3 to the
         Registrant's  Form 10  Registration  Statement dated September 3, 1986,
         filed with the  Securities  and  Exchange  Commission  on  September 4,
         1986).

10.4     Argonaut Group,  Inc. 1986 Stock Option Plan, as amended  (incorporated
         by  reference  to the  Exhibit  4.3 to  the  Registrant's  Registration
         Statement on Form S-8 filed with the Securities and Exchange Commission
         on February 13, 1987).

10.5     401(k)  Retirement  Savings  Plan  (incorporated  by  reference  to the
         Exhibit 10.4 to the  Registrant's  Form 10-K filed with the  Securities
         and Exchange Commission on February 28, 1989).

10.6     Employee  Stock  Investment  Plan  (incorporated  by  reference  to the
         Exhibit  4.3 to the  Registrant's  Registration  Statement  on Form S-8
         filed with the Securities and Exchange Commission on October 10, 1989).

10.7     Argonaut Group,  Inc. 1986 Stock Option Plan, as amended  (incorporated
         by  reference  to the  Exhibit  4.3 to  the  Registrant's  Registration
         Statement on Form S-8 filed with the Securities and Exchange Commission
         on December 9, 1997).

10.8     Argonaut  Group,  Inc. Form of Employee  Retention  Agreement for 
         Messrs.  Rinsch and Halliday dated as of February 24, 1998.

10.9     Argonaut  Group,  Inc.  Form of Employee  Retention  Agreement  for  
         Messrs.  Mellin and Polak dated as of February 24, 1998.

10.10    Argonaut Group,  Inc. Form of Employee  Retention  Agreement for 
         Argonaut Group, Inc. dated as of February 24, 1998.

13.      The following  materials are excerpted from the Annual Report to 
         Shareholders of Argonaut Group,  Inc. for the fiscal year ended 
         December 31, 1998:
         a)       Selected Financial Data
         b)       Financial Statements
         c)       Common Stock Market Prices
         d)       Management's Discussion and Analysis of Results of Operations 
                  and Financial Condition


21.      Subsidiaries of Registrant (incorporated by reference to the Exhibit 21
         to the Registrant's  Form 10 Registration  Statement dated September 3,
         1986, filed with the Securities and Exchange Commission on September 4,
         1986).


23.      Consent of Independent Public Accountants.

27.      Financial Data Schedule for December 31, 1998 Form 10-K.

(b)      Reports on Form 8-K.
                  There were no Reports filed on Form 8-K for the quarter ended
                   December 31, 1998