<PAGE>   1
                       SECURITIES AND EXCHANGE COMMISSION
                              WASHINGTON, DC 20549

                                    FORM 10-Q

                QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
                         SECURITIES EXCHANGE ACT OF 1934

For Quarter Ended:  SEPTEMBER 30, 1997          Commission file number:  0-16332


                            NATIONAL INSURANCE GROUP
             (Exact name of registrant as specified in its charter)

       CALIFORNIA                                         94-3031790
(State of Incorporation)                       (IRS Employer Identification No.)

395 OYSTER POINT BOULEVARD, SUITE 500
       SOUTH SAN FRANCISCO, CA                                        94080
(Address of principal executive office)                             (Zip Code)

                                 (650) 872-6772
                         (Registrant's telephone number)

        Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Sections 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   XX           No
    ------              ------

                      APPLICABLE ONLY TO CORPORATE ISSUERS:

        Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date: 4,032,132 shares as
of November 5, 1997.



<PAGE>   2


                            NATIONAL INSURANCE GROUP
                               INDEX TO FORM 10-Q


PART I - FINANCIAL INFORMATION                                             PAGE

Item 1 - Financial Statements:

        Consolidated Balance Sheets as of September 30, 1997 and
        December 31, 1996                                                      1

        Consolidated Statements of Earnings for the periods
        ended September 30, 1997 and 1996                                      2

        Consolidated Statements of Shareholders' Equity
        for the nine months ended September 30, 1997 and 1996                  3

        Consolidated Statements of Cash Flows for the
        nine months ended September 30, 1997 and 1996                          4

        Notes to Consolidated Financial Statements                             5

Item 2 - Management's Discussion and Analysis of Financial Condition
         and Results of Operations                                             7

PART II - OTHER INFORMATION

Item 1 - Legal Proceedings                                                    13

Item 2 - Changes in Securities                                                13

Item 3 - Defaults Upon Senior Securities                                      13

Item 4 - Submission of Matters to a Vote of Security Holders                  13

Item 5 - Other Information                                                    13

Item 6 - Exhibits and Reports on Form 8-K                                     14

SIGNATURES                                                                    16




<PAGE>   3

                    NATIONAL INSURANCE GROUP AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEETS
                 As of September 30, 1997 and December 31, 1996
                 (in thousands of dollars, except share amounts)
<TABLE>
<CAPTION>
                                         September 30,      December 31,
                                             1997              1996
                                         ------------      ------------
                                         (unaudited)
<S>                                         <C>            <C>      
ASSETS:

 Fixed maturities                          $13,995        $18,538   
 Equity securities                           2,856          2,051   
 Short-term investments                     10,854         10,005   
                                           -------        -------   
                                                                    
  Total investments                         27,705         30,594   
                                           -------        -------   
                                                                    
Cash and cash equivalents                    4,888          3,183   
Net premiums and accounts receivable         9,368          5,181   
Accrued interest receivable                    403            377   
Property and equipment, net                  5,028          3,484   
Deferred acquisition costs                   2,690          2,186   
Deferred federal income taxes receivable     2,501            421   
Goodwill                                    12,736             --   
Other assets                                 2,726          1,686   
                                           -------        -------   
                                                                    
  Total assets                             $68,045        $47,112   
                                           =======        =======   
                                                                    
LIABILITIES:                                                        
                                                                    
Reserve for losses and LAE                 $ 2,803        $ 2,198   
Unearned premiums                            6,244          4,753   
Commissions payable                          1,398          1,113   
Accrued expenses and other liabilities       4,882          3,718   
Drafts payable                                 650            295   
Notes payable                                9,768          1,333   
Reserve for return premiums                  5,379          2,382   
Unclaimed property-proposition 103           2,260          2,268   
Deferred revenue                             7,543            500   
                                           -------        -------   
                                                                    
  Total liabilities                         40,927         18,560   
                                           -------        -------   
                                                                    
SHAREHOLDERS' EQUITY:                                               
                                                                    
Common stock, no par value;                                         
  authorized, 15,000,000 shares;                                    
  issued and outstanding:3,988,215                                  
  in 1997 and 3,896,937 in 1996             18,256         17,592   
Retained earnings                            8,862         10,960   
                                           -------        -------   
                                                                    
  Total shareholders' equity                27,118         28,552   
                                           -------        -------   
  Total liabilities and                                             
    shareholders' equity                   $68,045        $47,112   
                                           =======        =======   
                                                          
</TABLE>

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


                                       1

<PAGE>   4

                    NATIONAL INSURANCE GROUP AND SUBSIDIARIES
                       CONSOLIDATED STATEMENTS OF EARNINGS
                For the periods ended September 30, 1997 and 1996
          (in thousands of dollars, except share and per share amounts)
                                   (unaudited)


<TABLE>
<CAPTION>
                                          Third Quarter                Nine Months
                                   --------------------------   --------------------------
                                       1997           1996          1997           1996
                                   -----------    -----------   -----------    -----------
<S>                                <C>            <C>           <C>            <C>        
Net premiums written               $     5,141    $     2,703   $    14,855    $     8,708
Change in unearned premiums               (425)           344        (1,491)         1,180
                                   -----------    -----------   -----------    -----------

Net premiums earned                      4,716          3,047        13,364          9,888
Real Estate Information Services         5,919          4,920        15,898         14,511
Tracking fees                            1,893          1,362         5,495          3,884
Net commission income                      310            298           698            897
Net investment income                      389            488         1,280          1,490
                                   -----------    -----------   -----------    -----------

   TOTAL REVENUES                       13,227         10,115        36,735         30,670
                                   -----------    -----------   -----------    -----------


Loss and LAE incurred                    1,605            975         4,491          3,647
Commissions to
  non-affiliates                           152            346         1,254          1,606
Personnel expenses                       5,716          4,311        16,289         14,471
All other expenses                       4,393          3,112        10,826         10,691
                                   -----------    -----------   -----------    -----------

   TOTAL EXPENSES                       11,866          8,744        32,860         30,415
                                   -----------    -----------   -----------    -----------

Income before provision
  for income taxes                       1,361          1,371         3,875            255

Provision for
  income taxes                             483            501         1,358             93
                                   -----------    -----------   -----------    -----------

   NET INCOME                      $       878    $       870   $     2,517    $       162
                                   ===========    ===========   ===========    ===========

Weighted average common and
  common equivalent shares
  outstanding                        4,063,047      3,996,897     4,049,796      3,985,708
                                   -----------    -----------   -----------    -----------


Per share results:

Net income per share               $      0.22    $      0.22   $      0.62    $      0.04
                                   ===========    ===========   ===========    ===========
</TABLE>


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



                                       2

<PAGE>   5

                    NATIONAL INSURANCE GROUP AND SUBSIDIARIES
                CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
             For the nine months ended September 30, 1997 and 1996
                 (in thousands of dollars, except share amounts)
                                   (unaudited)

<TABLE>
<CAPTION>
                                                                  Total
                            Common Stock                          Share-
                       ------------------------     Retained      holders'
                          Shares     Amount         Earnings      Equity
                       ----------    ----------    ----------    ----------
<S>                     <C>          <C>           <C>           <C>
Balance at
December 31, 1995       4,679,697    $   23,071    $    9,810    $   32,881

Options exercised          22,500           149            --           149

Accelerated vesting            --            39            --            39

Stock Repurchase         (705,300)       (4,972)           --        (4,972)

Net Income                     --            --           162           162

Unrealized loss, net
of deferred tax                --            --          (174)         (174)
                       ----------    ----------    ----------    ----------

Balance at
September 30, 1996      3,996,897    $   18,287    $    9,798    $   28,085
                       ==========    ==========    ==========    ==========


Balance at
December 31, 1996       3,896,937    $   17,592    $   10,960    $   28,552

Net income                     --            --         2,517         2,517

Options exercised          91,278           664            --           664

Dividends paid                 --            --        (4,660)       (4,660)

Unrealized gain,
net of deferred tax            --            --            45            45
                       ----------    ----------    ----------    ----------

Balance at
September 30, 1997      3,988,215    $   18,256    $    8,862    $   27,118
                       ==========    ==========    ==========    ==========
</TABLE>


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


                                       3
<PAGE>   6


                    NATIONAL INSURANCE GROUP AND SUBSIDIARIES
                     CONSOLIDATED STATEMENTS OF CASH FLOWS
             For the nine months ended September 30, 1997 and 1996
                 (in thousands of dollars, except share amounts)
                                   (unaudited)

<TABLE>
<CAPTION>
                                                               September 30, September 30,
                                                                   1997         1996
                                                                ---------    ---------
<S>                                                             <C>          <C>      
CASH FLOWS FROM OPERATING ACTIVITIES
        Net income                                              $   2,517    $     162
        Adjustments to reconcile net income to net cash
         provided by operating activities:
         Depreciation and amortization                              1,014        1,358
         Change in assets and liabilities net of effects
          from purchase of ARTS
           Increase in net premiums and accounts
             receivable and accrued interest receivable            (3,019)      (1,159)
           Increase in deferred revenue                                39           --
           (Increase) decrease in deferred acquisition costs         (504)         543
           Increase (decrease) in insurance liabilities             5,448         (124)
           Decrease in unclaimed property-proposition 103              (9)      (2,098)
           (Increase)  in tax assets                                  476         (117)
           Other, net                                                 450          634
                                                                ---------    ---------
             Net cash provided (used) by operating activities       6,412         (801)
                                                                ---------    ---------

CASH FLOWS FROM INVESTING ACTIVITIES
           Purchase of investments                                (47,218)    (106,466)
           Maturity of investments                                 50,215      111,075
           Purchase of equipment                                   (2,144)        (999)
           Purchase of ARTS, including acquisition costs           (9,881)          --
                                                                ---------    ---------
             Net cash provided (used) by investing activities      (9,028)       3,610
                                                                ---------    ---------

CASH FLOWS FROM FINANCING ACTIVITIES
           Repurchase Common Stock                                     --       (4,972)
           Stock options exercised                                    547          189
           Dividends to shareholders                               (4,660)          --
           Net Borrowings on notes payable                          8,434        2,000
                                                                ---------    ---------
             Net cash provided (used) by financing activities       4,321       (2,783)
                                                                ---------    ---------

        Net increase in cash and cash equivalents                   1,705           26
        Cash and cash equivalents at beginning of period            3,183        3,233
                                                                ---------    ---------
        Cash and cash equivalents at end of period              $   4,888    $   3,259
                                                                =========    =========
</TABLE>


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


                                       4

<PAGE>   7

                    NATIONAL INSURANCE GROUP AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1.  Financial Information

         In the opinion of management, the financial information reflects all
      adjustments (consisting only of normal recurring adjustments) which are
      necessary to a fair presentation of financial position and results of
      operations for the interim periods. The results for the nine month period
      ended September 30, 1997 and September 30, 1996 are not necessarily
      indicative of the results to be expected in the future.

2.  Acquisition

         On September 18, 1997, two wholly owned subsidiaries of National
      Insurance Group, a California corporation (the "Company" or "National"),
      Pinnacle American Realty Tax Services, Inc., a Delaware corporation
      ("PARTS-VA"), and Pinnacle American Realty Tax Services of New York, Inc.,
      a Delaware corporation ("PARTS-NY") (PARTS-NY and PARTS-VA, collectively
      "PARTS"), acquired substantially all the assets and assumed certain
      liabilities of American Realty Tax Services, Inc., a Virginia corporation
      ("ARTS-VA"), and American Realty Tax Services of New York, Inc., a
      Virginia corporation ("ARTS-NY") (ARTS-NY and ARTS-VA, collectively
      "ARTS"). The acquisition agreement, dated August 15, 1997, as amended (the
      "Agreement"), was entered into by and among ARTS, the shareholders of
      ARTS, the Company, and New Arts Acquisition, Inc., a Delaware corporation,
      which is a wholly owned subsidiary of the Company ("New Arts"). On October
      1, 1997, PARTS-VA changed its name to Pinnacle Real Estate Tax Services,
      Inc. ("PRETS-VA"), and PARTS-NY changed its name to Pinnacle Real Estate
      Tax Services of New York, Inc. ("PRETS-NY") (PRETS-NY and PRETS-VA,
      collectively "PRETS").

         As consideration for the acquisition of certain assets of ARTS (the
      "ARTS Acquisition"), New Arts paid $9.2 million in cash and agreed to
      assume certain liabilities of ARTS. Pursuant to the Agreement, if the cash
      revenue of certain contracts of PRETS exceeds certain targets for the
      twelve months ended and including April 30, 1998, PRETS is required to pay
      additional consideration of up to $4 million according to a formula as set
      forth in the Agreement ("Additional Consideration"). Fifty percent of the
      Additional Consideration may be paid in the form of a three year note
      bearing interest at eight percent per annum. The remaining fifty percent
      of the Additional Consideration may be paid in cash. The Company has
      agreed to guarantee the payment of these obligations.

         The ARTS Acquisition was accounted for as a purchase of assets. The
      fair market value of the assets acquired from ARTS was approximately $4.4
      million. The fair market value of liabilities assumed was approximately
      $7.3 million, including approximately $7 million of deferred revenue
      related to PRETS' existing portfolio of loans. The amount of goodwill
      recorded in connection with the transaction was $12.7 million, which will
      be amortized over a 25-year period as a result of PRETS' long standing
      vendor and customer relationships. Since the ARTS Acquisition was executed
      only thirteen days prior to the end of the third quarter of 1997, the
      Company's results of operations for the third quarter and nine months
      ended September 30, 1997, were not materially affected by the ARTS
      Acquisition. The Company filed with the Securities and Exchange Commission
      a Form 8-K, Current Report, dated September 18, 1997, in connection with
      the ARTS Acquisition. The Company will file an amendment to the Form 8-K
      in which historical and pro-forma financial information for PRETS will be
      presented.

         The majority of tax service revenues earned by PRETS are from "life of
      loan" servicing contracts, which require customers to pay an up-front,
      one-time fee to receive real estate property tax tracking services over
      the life of a loan. The revenue from "life of loan" contracts is
      recognized over the estimated life of the loans in proportion to the
      amount of expenses incurred to 



                                       5
<PAGE>   8

      service the real estate property tax tracking on the subject loans. Since
      the bulk of expenses incurred in providing real estate property tax
      tracking on the loans occurs in the first year, a majority of the "life of
      loan" revenue is recognized within the first year of servicing. The
      remainder of the revenue is amortized in accordance with the estimated
      rate at which loans are paid off or otherwise are removed from the
      servicing portfolio. As a result of this revenue recognition policy, PRETS
      records a deferred revenue reserve on its balance sheet. As of
      September 30, 1997, deferred "life of loan" tax servicing revenue was $7.0
      million.

         The primary business of PRETS is real estate property tax information
      services for mortgage lending and mortgage loan servicing institutions.
      PRETS facilitates the payment by mortgage lenders and mortgage loan
      servicing companies of borrowers' escrowed and non-escrowed funds to
      local, county and state taxing authorities nationwide. PRETS obtains
      property tax data from various taxing authorities and integrates this
      information with loan data from its customer base. PRETS accomplishes this
      through a proprietary online database and software, as well as a network
      of customer service centers.

3. Financing

         In connection with the ARTS Acquisition, the Company and New Arts
      entered into a term note facility (the "Term Facility") with the Company's
      primary commercial bank. The Term Facility allows for a maximum borrowing
      of $11.3 million, including $2 million for any Additional Consideration
      which may be payable pursuant to the Agreement on or before May 25, 1998.
      The Term Facility matures in May, 2003, and calls for interest payments at
      the rate of prime plus one and one-quarter percent, beginning September,
      1997. Principal is paid monthly, beginning May 30, 1998, in accordance
      with a variable amortization schedule. Collateral for the loan includes
      non-insurance company cash deposits of the Company, the common stock of
      the Company's wholly owned subsidiary, Pinnacle Data Corporation, a
      California corporation, as well as the stock of PRETS and of New Arts. As
      of September 30, 1997, the Company had utilized $9.3 million of the $11.3
      million Term Facility.

         On September 18, 1997, the Company amended its $5 million revolving
      facility (the "Revolving Facility"). The primary amendment to the
      Revolving Facility was the reduction in borrowing limits to $1 million
      from $5 million. As of September 30, 1997, the Company had no borrowings
      under the Revolving Facility and was in compliance with the financial
      covenants of the Revolving Facility.

4.  Reclassification

         For comparative purposes, certain prior year amounts have been
      reclassified to conform to the current year presentation. Such
      reclassifications had no impact on the Company's net income or
      shareholders' equity.

5.  Earnings per share

         In February, 1997, the Financial Accounting Standards Board ("FASB")
      issued Statement of Financial Accounting Standards ("SFAS") No. 128. SFAS
      No. 128 is designed to improve the earnings per share ("EPS") information
      provided in the financial statements by simplifying the existing
      computational guidelines, revising the disclosure requirements, and
      increasing the comparability of EPS data on an international basis. SFAS
      No. 128 is required to be adopted on December 31, 1997. The Company does
      not believe that SFAS No. 128 will have a material impact on its financial
      statements.


6.  Comprehensive income

         In June, 1997, the FASB issued SFAS No. 130, Reporting Comprehensive
      Income. SFAS No. 130 establishes standards for the reporting and display
      of comprehensive income and its 



                                       6
<PAGE>   9

      components in a full set of general purpose financial statements.
      Comprehensive income is defined as the change in equity of a business
      enterprise during a period from transactions and other events and
      circumstances from non-owner sources. SFAS No. 130 is effective for fiscal
      years beginning after December 15, 1997. The Company does not believe that
      SFAS No. 130 will have a material impact on its financial statements.

7.  Segment reporting

         In June, 1997, the FASB issued SFAS No. 131, Disclosures about Segments
      of an Enterprise and Related Information. SFAS No. 131 requires
      publicly-held companies to report financial and other information about
      key revenue-producing segments of the entity for which such information is
      available and utilized by the chief operating decision maker. Specific
      information to be reported for individual segments includes profit or
      loss, certain revenue and expense items and total assets. A reconciliation
      of segment financial information to amounts reported in the financial
      statements would be provided. SFAS No. 131 is effective for fiscal years
      beginning after December 15, 1997. The Company does not believe that SFAS
      No. 131 will have a material impact on its financial statements.

8.  Subsequent events

         On November 1, 1997, the Company's Board of Directors declared a
      dividend of $0.11 per share. The dividend is payable on November 24, 1997,
      to shareholders of record on November 17, 1997.

           These quarterly interim financial statements are unaudited.

ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

    The following discussion should be read in conjunction with the interim
financial statements and the notes thereto, which are set forth elsewhere in
this report.

RESULTS OF OPERATIONS

General

    On September 18, 1997, two wholly owned subsidiaries of the Company acquired
substantially all the assets of ARTS and assumed certain liabilities. The
acquisitions were accounted for as purchases of assets and are described in
detail in the notes to the financial statements contained in this report. The
Company's results of operations for the third quarter ended and for the nine
months ended September 30, 1997, were not materially affected by this
transaction, since the transaction closed thirteen days before the end of the
quarter.

THIRD QUARTER OF 1997 COMPARED WITH THIRD QUARTER OF 1996:

Revenue

         Total revenue of the Company for the third quarter increased from $10.1
      million in 1996 to $13.2 million in 1997, an increase of $3.1 million, or
      31%. Revenues for the comparable period of 1996 included a change in a
      deferred revenue estimate, which increased reported revenue for that
      period by $885,000. Had this adjustment not been made, the Company would
      have recognized $9.2 million in the third quarter of 1996, instead of the
      reported $10.1 million.



                                       7
<PAGE>   10

   Net premiums written by the Company's wholly owned subsidiary, Great Pacific
Insurance Company, a California corporation (the "Insurance Subsidiary"), for
the third quarter increased from $2.7 million in 1996 to $5.1 million in 1997,
an increase of $2.4 million, or 90%. The increase in net premiums written was
primarily due to an increase in the volume of business from the Company's
existing mortgage hazard insurance tracking customers.

    Net premiums earned by the Insurance Subsidiary for the third quarter
increased from $3.0 million in 1996 to $4.7 million in 1997, an increase of $1.7
million, or 55%. Premium revenue is generally earned ratably over a twelve month
period from the inception date of each insurance policy written, and is affected
by policies written over the prior twelve months and by policies canceled during
the quarter. Such cancellations would be applicable to premiums written in all
prior periods. The combined effect of changes in premiums written, earned and
canceled within any period is measured in terms of the change in unearned
premiums. For the quarter ended September 30, 1997, unearned premiums increased
by $425,000, compared to a decrease in unearned premiums of $344,000 for the
same quarter of 1996. See also, "Item 2, Management's Discussion and Analysis of
Financial Condition and Results of Operations, Results of Operations, Nine
Months Ended September 30, 1997, Compared with the Nine Months Ended September
30, 1996, Revenue."

    Real estate information services revenues for the third quarter increased
from $4.9 million in 1996 to $5.9 million in 1997, an increase of $1 million, or
20%. This increase is primarily a result of higher volume of inquires from
existing flood zone determination customers. The real estate information
services revenues for the third quarter of 1996 included a change in a deferred
revenue estimate, which increased reported revenues by $885,000. Had this
adjustment not been made, real estate information services revenues would have
been $4 million, instead of the reported $4.9 million.

    Tracking fees for the third quarter increased from $1.4 million in 1996 to
$1.9 million in 1997, an increase of $500,000, or 39%. The increase was due
primarily to the addition of new customers.

Expenses

   Loss and loss adjustment expenses ("LAE") incurred for the third quarter
increased from $975,000 (32% of net premiums earned) in 1996 to $1.6 million
(34% of net premiums earned) in 1997, an increase of $630,000, or 65%. The
average loss and LAE per new claim reported in the third quarter of 1997 was
approximately $6,080, compared to $5,600 for the same period in 1996. The number
of losses increased from 173 in 1996 to 264 in 1997.

    Commissions to non-affiliates in the third quarter decreased from $346,000
(11.3% of net premiums earned) in 1996 to $152,000 (3.2% of net premiums earned)
in 1997, a decrease of $194,000, or 56%. The decrease in the amount of
commission expense is due to a decline in net premiums written by independent
agents. The percentage of commissions paid to net premiums earned varies
depending upon customer mix. The decrease as a percentage of net premiums is due
primarily to the fact that a larger percentage of the Insurance Subsidiary's
business is produced by lenders who earn lower commission rates.

   Personnel expenses in the third quarter increased from $4.3 million in 1996
to $5.7 million in 1997, an increase of $1.4 million, or 33%. This increase was
a result of an increase in hiring in response to volume increases in net
premiums written, flood zone determinations, and motor vehicle tracking 



                                       8
<PAGE>   11

business. Personnel expenses as a percent of total revenue remained constant
at 43% from 1996 to 1997.

    All other expenses in the third quarter increased from $3.1 million in 1996
to $4.4 million in 1997, an increase of $1.3 million, or 41%. The increase was
primarily due to additional costs incurred to handle the increase in the volume
of business in each of the Company's subsidiaries.

    As a result of the above factors, income before provision for income taxes
for the third quarter decreased from $1.37 million in 1996 to $1.36 million in
1997, a decrease of approximately $10,000. Net Income for the third quarter of
1996 was $870,000, or $0.22 per share compared with net income of $878,000, or
$0.22 per share in 1997. The weighted average number of shares outstanding for
the third quarter of 1996 and 1997 were 3,996,897 and 4,063,047, respectively.

NINE MONTHS ENDED SEPTEMBER 30, 1997, COMPARED WITH THE NINE MONTHS ENDED
SEPTEMBER 30, 1996:

Revenue

   Total revenue of the Company for the nine month period increased from $30.7
million in 1996 to $36.7 million in 1997, an increase of $6.0 million, or 20%.
Revenues for the comparable period of 1996 included a change in a deferred
revenue estimate, which increased reported revenue for that period by $885,000.
Had this adjustment not been made, the Company would have recognized revenues of
$29.8 million in the third quarter of 1996, instead of the reported $30.7
million.

    Net premiums written for the period increased from $8.7 million in 1996 to
$14.9 million in 1997, an increase of $6.2 million, or 71%. The increase in net
premiums written was primarily due to an increase in the volume of business from
the Company's existing mortgage tracking customers.

    Net premiums earned by the Insurance Subsidiary for the period increased
from $9.9 million in 1996 to $13.4 million in 1997, an increase of $3.5 million,
or 35%. Premium revenue is generally earned ratably over a twelve month period
from the inception date of each insurance policy written, and is affected by
policies written over the prior twelve months and by policies canceled during
the applicable accounting period. Such cancellations would be applicable to
premiums written in all prior periods. The combined effect of changes in
premiums written, earned and canceled within any period is measured in terms of
the change in unearned premiums. For the nine months ended September 30, 1997,
unearned premiums increased by $1.5 million, compared to a decrease in unearned
premiums of $1.2 million for the same nine months of 1996.

     The Company has received notice from a customer that it would not renew its
hazard insurance tracking and force-place insurance contract effective October
31, 1997. Such customer accounted for 1.6% of consolidated revenue in 1995, 3.3%
in 1996 and 11% in the first nine months of 1997. Management believes that the
decrease in revenue due to the loss of this customer may be material, but will
be offset, in part, by changes in certain reserves potentially arising from the
customer's departure, and additional business from new and existing customers;
and, delayed by the rate at which the unearned premium for such customer is
earned over the next twelve months. The Company is presently unable to estimate
the amount of such offsets, which are dependent upon numerous factors,
including, without limitation, the general health of the mortgage banking and
vehicle financing industries, interest rates, general economic conditions, the
realization of expected new business from new and existing customers 



                                       9
<PAGE>   12

and other factors. These factors, together with statements regarding certain
risks and uncertainties contained in other parts of this report, may affect the
Company's operating results. Investors should read this paragraph, which
contains forward looking statements, in connection with any other
forward looking statement made in this report, including, but not limited to,
statements preceded or followed by the words "believes", "anticipates",
"expects", "aware" or similar expressions as they relate to the Company or its
management.

    Real estate information services revenues for the period increased from
$14.5 million in 1996 to $15.9 million in 1997, an increase of $1.4 million, or
10%. This increase is primarily a result of higher volume of inquiries from
existing flood zone determination customers. The real estate information
services revenues for the nine months ended September 30, 1996, included a
change in a deferred revenue estimate, which increased reported revenues by
$885,000. Had this adjustment not been made, real estate information services
revenues would have been $13.6 million, instead of the reported $14.5 million.

    Tracking fees for the period increased from $3.9 million in 1996 to $5.5
million in 1997, an increase of $1.6 million, or 42%. The increase was due
primarily to the addition of new customers.

Expenses

    Loss and LAE incurred for the nine month period increased from $3.6 million
(36.9% of net premiums earned) in 1996 to $4.5 million (34% of net premiums
earned) in 1997, an increase of $900,000, or 23%. The average loss and LAE per
new claim reported in the nine month period ended September 30, 1997, was
approximately $7,209, compared to $6,100 for the same period in 1996. The number
of losses increased from 595 in 1996 to 623 in 1997.

    Commissions to non-affiliates for the period decreased from $1.6 million
(16.2% of net premiums earned) in 1996 to $1.3 million (9.4% of net premiums
earned) in 1997, a decrease of $300,000, or 18.8%. The percentage of commissions
paid to net premiums earned varies depending upon customer mix. The decrease is
due primarily to the fact that a larger percentage of the Insurance Subsidiary's
business is being produced by lenders who earn lower commission rates.

    Personnel expenses for the period increased from $14.5 million in 1996 to
$16.3 million in 1997, an increase of $1.8 million, or 13%. This increase was in
response to volume increases in the volume of net written premiums, flood zone
determinations and motor vehicles tracked. Personnel expenses as a percent of
total revenue decreased from 47.2% in 1996 to 44% in 1997. The reduction was
primarily due to the fact that personnel expenses from the comparable period of
1996 included expenses of $1.37 million from executive retention agreements
entered into in the second quarter of 1996 in connection with a change in
management of the Company. Had these expenses not occurred, the Company would
have recognized $13.1 million in personnel expenses in the comparable period of
1996, instead of the reported $14.5 million; accordingly, personnel expenses as
a percentage of revenues would have been 43%, instead of 47.2%.

    All other expenses in the nine month period increased nominally from $10.7
million in 1996 to $10.8 million in 1997, an increase of $100,000, or 1%.

    As a result of the above factors, pre-tax income for the nine month period
increased from $255,000 in 1996 to $3.9 million in 1997, an increase of $3.6
million. The pre-tax income from last year's 



                                       10
<PAGE>   13

comparable period included a change in a deferred revenue estimate, as well as
costs incurred in connection with executive retention agreements. The deferred
revenue adjustment increased reported revenue and pre-tax earnings for the
period by $885,000; the expenses recognized in connection with the executive
retention agreements lowered reported pre-tax earnings for the period by $1.37
million. Had this adjustment and expense not occurred, the Company would have
recognized pre-tax income for the nine months ended September 30, 1996, of
$751,000, instead of the reported pre-tax income of $255,000; net income would
have been $477,000, or $0.12 per share, instead of the reported net income of
$162,000, or $0.04 per share. The weighted average number of shares outstanding
for the nine months ended September 30, 1996, and 1997 were 3,985,708 and
4,049,796, respectively.

LIQUIDITY AND CAPITAL RESOURCES

    National is a holding company with no operations and no sources of income
itself except interest or investment income. The principal assets of National
are the stock of its subsidiaries. National is, and for the foreseeable future
will continue to be, dependent on the dividends from its subsidiaries to meet
its liquidity requirements, including debt service obligations. Dividends
payable to National by the Insurance Subsidiary are subject to certain
regulatory restrictions described below.

    The Insurance Subsidiary collects and invests premiums written in advance of
the payments for associated claims. In the absence of a catastrophic loss, this
timing difference between premium collection and claims payment, combined with
investment income, normally provides short-term funds in excess of normal
operating demands for cash. As of September 30, 1997, the Company had cash and
short-term investments aggregating $15.7 million compared to $13.2 million at
December 31, 1996.

    Of the Company's cash and short-term investments as of September 30, 1997,
$8.3 million is held by the Insurance Subsidiary compared to $8.3 million at
December 31, 1996. Insurance companies, including the Insurance Subsidiary, are
subject to laws and regulations which restrict their ability to pay dividends to
parent companies or other shareholders. Under California law, the maximum amount
of dividends that the Insurance Subsidiary may pay the Company in any twelve
month period without prior regulatory approval is the greater of (i) net income
for the preceding calendar year, or (ii) 10% of policyholders' surplus
(shareholders' equity adjusted to a statutory basis) as of the previous December
31. For the year ended December 31, 1996, the Insurance Subsidiary had net
income of approximately $2.8 million and as of December 31, 1996, statutory
policyholders' surplus of $26.8 million. Accordingly, for the year ended
December 31, 1996, the maximum dividend permitted by the Insurance Subsidiary to
National was approximately $2.8 million. On April 10, 1997, the Insurance
Subsidiary made a dividend payment to National in the amount of $2.5 million.

    On September 18, 1997, the Company entered into a secured term note facility
(the "Term Facility") with a commercial bank. The Term Facility allows for a
maximum borrowing of $11.3 million, the proceeds of which may only be used for
purposes of acquiring the assets of ARTS. As of September 30, 1997, the
Company's borrowings under the Term Facility were $9.3 million. The remaining
portion of the Term Facility may be used for paying additional consideration for
ARTS in accordance with the Asset Purchase Agreement dated August 15, 1997, as
amended. As of September 30, 1997, the Company was in compliance with all
financial ratio and minimum net worth requirements per the terms of the Term
Facility.

    On September 18, 1997, the Company amended its $5 million revolving facility
(the "Revolving Facility"). The primary amendment to the Revolving Facility was
the reduction in borrowing limits to 



                                       11
<PAGE>   14

$1 million from $5 million. As of September 30, 1997, the Company had no
borrowings under the Revolving Facility and was in compliance with the financial
covenants of the Revolving Facility.

    In addition to the Term Facility and Revolving Facility, the Company has a
remaining balance of $500,000 due under a $2 million note payable (the "Term
Loan") as of September 30, 1997. As of September 30, 1997, the Company is in
compliance with the financial covenants of the Term Loan.

    Consolidated shareholders' equity at September 30, 1997, totaled $27.1
million, or $6.80 per share, compared to $28.6 million, or $7.33 per share, at
December 31, 1996.

    Industry and regulatory guidelines suggest that a property and casualty
insurers' annual statutory net written premium should not exceed approximately
three times its policyholder surplus. The Company's surplus ratio is
significantly lower than such guidelines. For the year ended December 31, 1996,
the Company's net written premium to policyholder surplus ratio was .50 to 1.
Management believes that as of September 30, 1997, that ratio has not materially
changed.

    The Company is not aware of any trends, requirements, commitments, or events
that will or are reasonably likely to have a material negative impact on the
Company's liquidity during 1997. This report contains forward-looking statements
reflecting the Company's current expectations. There can be no assurance that
the Company's actual future performance will meet the Company's current
expectations. 

    Inflation generally affects the rate of investment return in the securities
and financial markets, and increases and decreases in such investment return
rates have a corresponding effect on the Company's investment income.



                                       12
<PAGE>   15
                    NATIONAL INSURANCE GROUP AND SUBSIDIARIES

PART II      OTHER INFORMATION


Item 1.  Legal Proceedings

      The Company is routinely a party to litigation incidental to its business,
as well as other litigation. While the ultimate results of such litigation
cannot presently be determined on the date of this report, management believes
that no individual item of litigation or group of similar items of litigation is
likely to have a material adverse effect on the consolidated financial position
of the Company.

Item 2.  Changes in Securities

      None.

Item 3.  Defaults upon Senior Securities

      None.

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

      The Company held its annual meeting of shareholders on July 11, 1997. At
the annual meeting, the shareholders elected Bard E. Bunaes, Bruce A. Cole, John
F. Hartigan, Saul B. Jodel and Mark A. Speizer to serve as directors of the
Company for the ensuing year, amended the Company's 1986 Stock Option Plan, and
ratified the selection of Coopers & Lybrand, LLP, as the Company's independent
accountants for the year ending December 31, 1997.

The votes for each of the proposals at the annual meeting were as follows:

Proposal
--------

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

1.   Election of Directors:

     All nominees for director were elected with 3,558,210 shares voting for and 235,700 shares withheld.

                                                                                      Broker
                                        For         Against        Withheld          Non-votes
                                        ---         -------        --------          ---------
2.   Amendment to
    1986 Stock Option Plan           3,367,637       416,273         10,000              0

3.   Appointment of
    Coopers & Lybrand, LLP           3,793,910             0              0              0
</TABLE>

                                        
      No other matters were submitted to a vote of security holders of the
Company at the annual meeting or otherwise during the quarter.

Item 5.  Other Information

      In August, 1997, Mr. Hartigan resigned from the Board of Directors.



                                       13

<PAGE>   16

Item 6.  Exhibits and Reports on Form 8-K

 (a)     Exhibit Index

<TABLE>
<CAPTION>

   Exhibit                        Description
   -------                        -----------
<S>          <C>                                                                        
    2.1      Assets Purchase Agreement by and among New ARTS Acquisition, Inc.,
             National Insurance Group, American Realty Tax Services, Inc.,
             American Realty Tax Services of New York, Inc., and Certain
             Shareholders dated August 15, 1997 (incorporated by reference to
             exhibits filed with the Company's Form 8-K dated September 18,
             1997)

   10.1      Credit Terms and Conditions dated April 2, 1997 by and between
             National Insurance Group and Imperial Bank and Amendment No. 1 to
             Credit Terms and Conditions dated September 17, 1997, by and
             between National Insurance Group and Imperial Bank

   10.2      Credit Terms and Conditions dated September 11, 1997, by and
             between New Arts Acquisition, Inc. and Imperial Bank

   10.3      Note dated September 11, 1997, made by New Arts Acquisition, Inc.
             payable to Imperial Bank in the original principal amount of
             $11,268,000

   10.4      Addendum to Note dated September 11, 1997, made by New Arts
             Acquisition, Inc.

   10.5      Note dated September 11, 1997, made by National Insurance Group
             payable to Imperial Bank in the original principal amount of
             $1,000,000

   10.6      Continuing Guarantee dated September 11, 1997, by National
             Insurance Group for the benefit of Imperial Bank

   10.7      General Security Agreement dated September 11, 1997, by New Arts
             Acquisition, Inc. for the benefit of Imperial Bank

   10.8      Pledge Agreement dated September 10, 1996, by and between National
             Insurance Group and Imperial Bank, as amended by Amendment No. 1 to
             Pledge Agreement dated April 2, 1997, and as further amended by
             Amendment No. 2 to Pledge Agreement dated September 18, 1997

   11.1      Computation of weighted average shares outstanding and earnings per
             share

   27.1      Financial data schedule

</TABLE>



                                       14
<PAGE>   17

(b) Reports on Form 8-K

      Report on Form 8-K, dated September 18, 1997, was filed with the
Securities and Exchange Commission. This report contained information relating
to the ARTS Acquisition.



                                       15
<PAGE>   18

                                   SIGNATURES


PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THE
REGISTRANT HAS DULY CAUSED THIS REPORT TO BE SIGNED ON ITS BEHALF BY THE
UNDERSIGNED THEREUNTO DULY AUTHORIZED.


                                            NATIONAL INSURANCE GROUP
                                            ------------------------
                                                  (REGISTRANT)



                                               /S/ MARK A. SPEIZER
                                            -------------------------
DATE: NOVEMBER 5, 1997                            (SIGNATURE)
                                            Mark A. Speizer, Chairman
                                            of the Board and Chief
                                            Executive Officer




                                             /S/ GREGORY S. SAUNDERS 
                                             -------------------------
DATE: NOVEMBER 5, 1997                             (SIGNATURE)
                                            Gregory S. Saunders,
                                            Executive Vice President, Treasurer
                                            and Chief Financial Officer
                                            (Principal Financial Officer)



                                       16
<PAGE>   19


                            NATIONAL INSURANCE GROUP
                                INDEX TO EXHIBITS


EXHIBIT
NUMBER


<TABLE>
<CAPTION>
  Exhibit                         Description
  -------                         -----------

<S>           <C>                                                                        
    2.1      Assets Purchase Agreement by and among New ARTS Acquisition, Inc.,
             National Insurance Group, American Realty Tax Services, Inc.,
             American Realty Tax Services of New York, Inc., and Certain
             Shareholders dated August 15, 1997 (incorporated by reference to
             exhibits filed with the Company's Form 8-K dated September 18,
             1997)

   10.1      Credit Terms and Conditions dated April 2, 1997, by and between
             National Insurance Group and Imperial Bank and Amendment No. 1 to
             Credit Terms and Conditions dated September 17, 1997, by and
             between National Insurance Group and Imperial Bank

   10.2      Credit Terms and Conditions dated September 11, 1997, by and
             between New Arts Acquisition, Inc. and Imperial Bank

   10.3      Note dated September 11, 1997, made by New Arts Acquisition, Inc.
             payable to Imperial Bank in the original principal amount of
             $11,268,000

   10.4      Addendum to Note dated September 11, 1997, made by New Arts
             Acquisition, Inc.

   10.5      Note dated September 11, 1997, made by National Insurance Group
             payable to Imperial Bank in the original principal amount of
             $1,000,000

   10.6      Continuing Guarantee dated September 11, 1997, by National
             Insurance Group for the benefit of Imperial Bank

   10.7      General Security Agreement dated September 11, 1997, by New Arts
             Acquisition, Inc. for the benefit of Imperial Bank

   10.8      Pledge Agreement dated September 10, 1996, by and between National
             Insurance Group and Imperial Bank, as amended by Amendment No. 1 to
             Pledge Agreement dated April 2, 1997, and as further amended by
             Amendment No. 2 to Pledge Agreement dated September 18, 1997

   11.1      Computation of weighted average shares outstanding and earnings per
             share

   27.1      Financial data schedule
</TABLE>