SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                    FORM 10-Q

/x/     QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
         SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 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 001-13135

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

                  CONNECTICUT                      06-1475343
          (State or other jurisdiction of        (I.R.S. Employer
          incorporation or organization)        Identification No.)

        P.O. BOX 5024, ONE STATE STREET,
             HARTFORD, CONNECTICUT                   06102-5024
  (Address of principal executive offices)            (Zip Code)

                                 (860) 722-1866
              (Registrant's telephone number, including area code)

                                 Not applicable
              (Former name, former address and former fiscal year,
                        if changed since the last report)

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

The number of shares  outstanding of the  registrant's  common stock without par
value, as of June 30, 1998: 29,395,937
<PAGE>



                                 HSB GROUP, INC.

                                      INDEX


PART I    FINANCIAL INFORMATION                                 PAGE

          Consolidated  Statements of Operations 
          for the Quarters Ended June 30, 1998  and
          1997  and the Six  Months  ended  
          June  30,  1998  and 1997 (unaudited)..................3

          Statement of  Comprehensive  Income 
          for the Quarters Ended June 30, 1998  and  1997 
          and the Six  Months  ended  June  30,  
          1998  and 1997 (unaudited).............................4

          Consolidated Statements of Financial Position as
          of June 30, 1998 (unaudited) and December 31, 1997 ....5

          Consolidated Statements of Cash Flows for the
          Six Months Ended June 30, 1998 and 1997 (unaudited) ...6

          Notes to Consolidated Financial Statements (unaudited).7

          Management's Discussion and Analysis of
          Consolidated Financial Condition and Results
          of Operations.........................................11

PART II   OTHER INFORMATION
          Item 1 - Legal Proceedings............................18
          Item 4 - Submission of Matters to a Vote of 
                   Security Holders.............................19
          Item 5 - Other Information............................20
          Item 6 - Exhibits and Reports on Form 8-K.............20
SIGNATURES......................................................21


<TABLE>
<CAPTION>

                                       2
<PAGE>

                                             HSB GROUP, INC.
                                   Consolidated Statements of Operations
                                               Unaudited
                                   (in millions, except per share data)

                                                           Quarter                             Six Months
                                                        Ended June 30                         Ended June 30

Revenues:                                              1998         1997                   1998           1997
                                                     ---------    ---------              ----------     ---------
<S>                                                <C>          <C>                    <C>              <C>    

  Insurance premiums                               $    93.1    $   117.2              $    194.6       $  239.5
  Engineering services                                  19.9         15.0                    37.5           29.7    
  Net investment income                                 16.0          8.8                    31.2           16.7    
  Realized investment gains                              7.3          3.4                    10.5            4.0     
                                                      ---------  ---------               ----------     ---------  
        Total revenues                                 136.3        144.4                   273.8          289.9              
                                                      ---------  ---------                ----------     --------    
                                                                        
Expenses:
  Claims and adjustment                                 40.4         51.4                    85.0          102.9
  Policy acquisition                                    10.7         20.4                    23.3           43.9
  Underwriting and inspection                           31.9         36.0                    65.4           71.3
  Engineering services                                  18.3         14.1                    34.4           27.7
  Interest                                               0.2          0.4                     0.3            0.6
                                                      ---------   ---------               ---------   ----------          
   Total expenses                                      101.5        122.3                   208.4          246.4
                                                      ---------    ---------               ---------   ---------   
 
Gain on sale of IRI                                       -              -                   39.0            -
                                                                                                 
Income from continuing operations before income
 taxes and distributions on capital securities     $    34.8    $      22.1            $    104.4       $   43.5

Income taxes (benefit):
   Current                                               1.7            6.1                  29.3           12.7
   Deferred                                              7.6           (0.4)                  2.5           (1.4)
                                                     ---------      ---------          ----------   ------------
     Total income taxes                            $     9.3    $       5.7            $     31.8       $   11.3
                                                                                                    

Distribution on capital securities 
   of subsidiary trust, net of income tax 
   benefits of $2.5 and $4.9.                            4.7             -                    9.2            -
                                                       ------        ---------          ---------      -----------     
                                                        
Income from continuing operations                  $    20.8    $      16.4            $     63.4       $   32.2
                                                                           

Discontinued operations:
     Loss from operations, net of income tax
      benefits of $--; $--; $3.2; and $--.                -              -                   (6.6)             -
                                                                                                

     Gain on disposal, net of income taxes 
      of $--; $--;$23.7; and $--.                         -              -                   36.9              -
                                                    ---------       ---------            ----------        ---------

Total discontinued operations                      $      -     $        -             $     30.3       $      -
                                                     ---------      ---------             ----------        ---------

Net income                                         $    20.8    $      16.4            $     93.7       $    32.2
                                                     ---------      ---------             ----------       ------------

Per share data:

Net income per common share-basic:

    Income from continuing operations              $     0.71   $       0.54           $      2.16      $     1.06
                                                                                                
    Net income                                     $     0.71   $       0.54           $      3.20      $     1.06
                                                                                               

Net income per common share-assuming dilution:

    Income from continuing operations              $     0.68   $       0.53           $      1.99      $     1.05
    Net income                                     $     0.68   $       0.53           $      2.85      $     1.05

Dividends declared per share                       $     0.40   $       0.38           $      0.80      $     0.76
Average shares outstanding and common stock           
  equivalents                                           35.4           30.7                  35.3            30.7
  
</TABLE>

See Notes to Consolidated Financial Statements.


                                       3
<PAGE>



                                                       HSB GROUP, INC.
                                             Statements of Comprehensive Income
                                                        (in millions)
                                                         (Unaudited)

<TABLE>
<CAPTION>

                                                                Quarter Ended                 Six Months
                                                                Ended June 30                Ended June 30

                                                             1998            1997           1998            1997
                                                             ----            ----           ----            ----
<S>                                                    <C>               <C>            <C>              <C>    

Net income                                             $     20.8        $   16.4       $   93.7         $  32.2
Other comprehensive income, net of tax:

Unrealized gains on securities:
   Unrealized holding gains arising during the period
    (net of taxes of $5.4; $6.2; $14.7 and $7.2)             10.1            11.5           27.3            13.4

Add : reclassification adjustments for gains                 (7.0)           (2.5)          (6.8)           (2.3)
      included in net income                                  3.1             9.0           20.5            11.1

Foreign currency translation adjustments                     (1.0)            0.1           (0.7)           (0.2)

Other comprehensive income                                    2.1             9.1           19.8            10.9

Comprehensive income                                   $     22.9        $   25.5       $  113.5         $  43.1
</TABLE>


See Notes to Consolidated Financial Statements


                                       4
<PAGE>




                                 HSB GROUP, INC.
                  Consolidated Statements of Financial Position
                      (In millions, except per share data)


                                               June 30,             December 31,
                                                 1998                    1997
                                              (Unaudited)
                                             -------------         -------------
Assets:

Cash                                     $             17.5       $        45.3
                                                             
Short-term investments, at cost                       104.4               379.2
Fixed maturities, at fair value
  (cost -$542.3; $241.1)                              554.2               248.4
Equity securities, at fair value
  (cost - $340.9;  $231.3 )                           461.3               323.8
                                            ------------------------------------
  Total cash and invested assets                    1,137.4               996.7

Reinsurance assets                                    403.0               124.5
Insurance premiums receivable                         164.8               138.0
Engineering services receivable                        25.1                12.2
Fixed assets                                           40.0                36.4
Prepaid acquisition costs                              26.5                42.5
Capital lease                                          14.9                15.3
Investment in Radian                                    -                  83.4
Other assets                                          132.1                88.2
                                            ----------------   -----------------
    Total assets                         $          1,943.8       $     1,537.2
                                                ================   =============

Liabilities:

Unearned insurance premiums              $            430.7       $       287.3
Claims and adjustment expenses                        337.1               276.7
Short-term borrowings                                   7.1                42.4
Long-term borrowings                                   25.1                25.1
Capital lease                                          27.9                27.9
Deferred income taxes                                  46.7                31.5
Dividends and distributions on capital
  securities                                           23.2                13.3
Ceded reinsurance payable                              98.6                 3.9
Other liabilities                                     104.4                74.9
                                            ----------------   -----------------
    Total liabilities                               1,100.8               783.0
                                            ----------------   -----------------

Company obligated mandatorily 
  redeemable capital securities
  of subsidiary Trust I holding  
  solely  junior  subordinated  
  deferrable  interest  debentures 
  of  the Company, net of unamortized
  discount of $1.1 and $1.1 million, 
  respectively                                        108.9               108.9

Company obligated mandatorily 
  redeemable convertible capital securities 
  of subsidiary Trust II holding 
  solely junior subordinated deferrable
  interest debentures of the Company                  300.0               300.0

Shareholders' equity:
Common stock (stated value; shares 
  authorized 75.0; shares issued 32.0;
  shares outstanding 29.4; 29.4)                       10.0                10.0
Additional paid-in capital                             34.4                31.6
Accumulated other comprehensive income                 79.6                59.8
Retained earnings                                     316.6               248.8
Benefit plans                                          (6.5)               (4.9)
                                            ----------------   -----------------
      Total shareholders' equity                      434.1               345.3
                                            ----------------   -----------------
      Total                              $          1,943.8       $     1,537.2
                                                            
                                            ================   =================

Shareholders' equity per common 
share (restated for stock split)         $             14.77      $        11.75
   

                                       5
<PAGE>



                                 HSB Group, Inc.
                      Consolidated Statements of Cash Flows
                                    Unaudited
                                  (In Millions)
                                                             Six Months Ended
                                                                 June 30,
                                                        ------------------------
                                                            1998         1997
                                                        ----------- ---------
Operating Activities:
Net income                                                 93.7          32.2
Adjustments  to  reconcile   net  income  
   to  net  cash  provided  by  operating
   activities:
   Depreciation and amortization                            4.4           3.3
   Deferred  income taxes (benefit)                         2.5          (1.4)
   Realized investment gains, including market            
     adjustment for derivative instruments                (10.5)         (4.0)
    Gain from the disposition of Radian (after tax)       (30.3)           -
    Gain from the disposition of IRI (after tax)          (25.2)           -
   Change in balances net of effects from 
     purchases and sales of subsidiaries:
     Insurance premiums receivable                        (26.8)        (27.3)
     Engineering services receivable                      (10.2)         (0.2)
     Prepaid acquisition costs                              16.0         (3.5)
     Reinsurance assets                                   (278.5)        15.3
     Unearned insurance premiums                           143.4         25.4
     Claims and adjustment expenses                         60.4        (20.6)
     Ceded reinsurance payable                              94.7          4.9
     Investment in Radian                                   -            (3.3)
     Other                                                 (24.1)        (7.7)
                                                     -------------       -------

         Cash provided by operating activities               9.5         13.1
                                                     -------------       -------

Investing Activities:

Fixed asset additions, net                                  (7.6)        (2.0)

Investments:
     Sale (purchase) of short-term 
       investments, net                                    274.8         (0.6)
     Purchase of fixed maturities                         (342.4)       (28.0)
     Proceeds from sale of fixed maturities                 23.5          7.4
     Redemption of fixed maturities                         17.9          8.7
     Purchase of equity securities                        (209.5)       (90.1)
     Proceeds from disposition of Radian                   128.9            -
     Proceeds from disposition of IRI                       49.1            -
     Proceeds from sale of equity securities               109.0        107.3
     Purchase of Solomon Associates, net 
     of cash acquired                                       (2.1)           -
                                                                             
                                                     -------------     -------

         Cash provided by (used in) investment
           activities                                       41.6          2.7
                                                     -------------     -------

Financing Activities
Increase (decrease) in short-term borrowings               (35.3)        23.2
Dividends and distributions on capital securities          (27.9)       (23.5)
Reacquisition of stock                                     (24.1)       (16.6)
Exercise of stock options                                    8.4          1.3
                                                     -------------     -------

         Cash used in financing activities                 (78.9)       (15.6)
                                                     -------------      -------

     Net increase (decrease) in cash                       (27.8)         0.2

     Cash at beginning of period                            45.3          4.5
                                                     -------------      -------
     Cash at end of period                                  17.5          4.7
                                                     =============      =======
Interest paid                                      $         1.1     $    0.6
                                                     -------------      -------
Federal income tax paid                            $        25.5     $   13.1
                                                     -------------      -------

See notes to Consolidated Financial Statements.

                                       6
<PAGE>




                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (Unaudited)

1.       General

         The interim  consolidated  financial  statements in this report include
         adjustments   based  on  management's  best  estimates  and  judgments,
         including  estimates of future loss  payments,  which are  necessary to
         present  a fair  statement  of the  results  for  the  interim  periods
         reported.  These  adjustments are of a normal,  recurring  nature.  The
         financial  statements  are prepared on the basis of generally  accepted
         accounting  principles  and  should  be read in  conjunction  with  the
         financial  statements  and  related  notes in the 1997  Annual  Report.
         Certain amounts for 1997 have been  reclassified or restated to conform
         with the 1998 presentation.

2.       Discontinued Operations


         On January  2, 1998,  the  Company  exercised  its option to put its 40
         percent  share in  Radian  International  LLC  (Radian  LLC) to The Dow
         Chemical  Company  (Dow),  for  approximately  $129  million,   net  of
         expenses. Radian LLC was formed in January 1996 as a joint venture with
         Dow to  provide  environmental,  engineering,  information  technology,
         remediation and strategic  chemical  management  services to industries
         and governments world-wide. In connection with the formation of the new
         company, the Company contributed substantially all of the assets of its
         wholly-owned subsidiary,  Radian Corporation to Radian LLC. The results
         of Radian LLC were  classified  as  discontinued  operations  following
         ratification  in July 1997 by the Board of  Directors  of  management's
         decision to  exercise  its put.  The  Company's  share of Radian  LLC's
         losses  incurred  subsequent  to such  decision of  approximately  $6.6
         million after-tax was deferred until the closing of the sale on January
         2, 1998. The after-tax gain of $30.3 million  recognized in 1998 is net
         of deferred  losses  noted above.  In 1996 and prior to June 1997,  the
         Company's share of the joint venture's  results were recorded as equity
         in Radian.


3.       Industrial Risk Insurers

          On January 6, 1998, The Hartford Steam Boiler Inspection and Insurance
          Company  (HSBIIC)  sold its 23.5  percent  share  in  Industrial  Risk
          Insurers (IRI) to Employers Reinsurance  Corporation (ERC), one of the
          world's largest reinsurance companies, in accordance with a previously
          announced   purchase  and  sale   agreement   between  ERC  and  IRI's
          twenty-three  member  insurers.  The gain on the sale of IRI was $39.0
          million  pre-tax  and $25.2  million  after-tax.  IRI is a  voluntary,
          unincorporated joint underwriting association, which provides property
          insurance for the class of business known as "highly  protected risks"
          (HPR) -- larger manufacturing,  processing,  and industrial businesses
          which have  invested in  protection  against  loss  through the use of
          sprinklers  and  other  means.  Contemporaneous  with the close of the
          sale, IRI was  reconstituted  with ERC (with a 99.5 percent share) and
          HSBIIC  (with  a .5  percent  share)  as the  sole  members.  The  new
          association  has been renamed HSB  Industrial  Risk  Insurers.  HSBIIC
          writes  the  business  for HSB  Industrial  Risk  Insurers  using  its
          insurance licenses and provides certain other management and technical
          services.  In  addition,   through  various  quota  share  reinsurance
          agreements  with  ERC  and  HSB  Industrial   Risk  Insurers,   HSBIIC
          transferred its manufacturing  book of business to HSB Industrial Risk
          Insurers and will retain 85% of the equipment  breakdown insurance and
          15% of the property insurance of the combined insurance portfolio.

                                       7
<PAGE>


4.       Recent Accounting Developments

         In June 1997 the  Financial  Accounting  Standards  Board (FASB) issued
         Statement of Financial  Accounting Standards (SFAS) No. 130 " Reporting
         Comprehensive Income" which requires items that comprise  comprehensive
         income be  reported  in a  financial  statement  display  with the same
         prominence  as  other  financial  statements.  This  presentation  will
         include such items as market value  adjustments of securities,  foreign
         currency  translation,  and certain adjustments made for benefit plans,
         which  are   currently   reported  as  components  of  the  changes  in
         shareholders'  equity.  This  statement is effective  beginning in 1998
         with retroactive restatement of prior periods required.


         Also in June of 1997 the FASB  issued SFAS No. 131  "Disclosures  about
         Segments of an  Enterprise  and  Related  Information".  This  standard
         requires  companies to report  financial  and  descriptive  information
         about   reportable   operating   segments.   It   includes   disclosure
         requirements  relating to products and services,  geographic  areas and
         major  customers.  This statement will be effective  beginning year end
         1998.


5.       Legal Proceedings


         HSBIIC  is  involved  in  two  arbitration  or  litigation  proceedings
         regarding  the extent to which  certain  explosion  events are  insured
         under  boiler and  machinery  policies of HSBIIC or under the  all-risk
         property  insurance  policies  issued  by other  companies.  Management
         believes HSBIIC's policies do not provide coverage for losses resulting
         from the explosion events that are the subject of these proceedings.

         HSBIIC has  accrued  $6.5  million  with  respect  to these  cases for
         potential loss adjustment  expenses,  including legal costs, to defend
         HSBIIC's  position.  One case is on appeal; the other case is involved
         in both  arbitration and litigation  proceedings.  The arbitration has
         been set for a final  hearing in the third  quarter 1998. A trial date
         has not been set for either  case.  In the event  that  HSBIIC is held
         liable for one or both of the remaining  claims,  amounts in excess of
         HSBIIC's   net  maximum   aggregate   retention  of  $8.5  million  is
         recoverable from  reinsurers.  Claim amounts  potentially  recoverable
         from  reinsurers in the event of a possible  adverse  outcome in these
         cases could range, in the aggregate, from $40 million to $195 million.

         The obligations of HSBIIC's  reinsurers with respect to these cases are
         not  in  dispute.  Therefore,  management  believes  that  any  adverse
         outcomes  in these cases will not,  in the  aggregate,  have a material
         effect on either the results of  operations  or financial  condition of
         the Company.  HSBIIC's  reinsurance  contracts do not require HSBIIC to
         reimburse its  reinsurers  for any losses such  reinsurers  might incur
         should  these  cases not be decided in  HSBIIC's  favor.  Nevertheless,
         reinsurers  often quote rates for future  coverages based upon their or
         other reinsurers' experience on a particular account. Therefore, in the
         event  HSBIIC's   reinsurers  pay  significant  sums  pursuant  to  the
         arbitration or litigation  proceedings  described  above,  it is likely
         HSBIIC's  reinsurance rates would increase in future periods.  However,
         given  the  insured   capacity  that  exists  in  reinsurance   markets
         worldwide,  coupled  with  HSBIIC's  ability to negotiate a redesign or
         restructuring of its reinsurance  program, it does not necessarily mean
         that such an increase would be material.

                                       8
<PAGE>


         The Company is also  involved in various  other  legal  proceedings  as
         defendant or co-defendant  that have arisen in the normal course of its
         business.  In the  judgment  of  management,  after  consultation  with
         counsel,  it is improbable  that any  liabilities  which may arise from
         such litigation  will have a material  adverse impact on the results of
         operations or the financial position of the Company.

6.       Earnings per share


         In February 1997, FASB issued SFAS No. 128, "Earnings per Share".  This
         statement  established  standards for computing and presenting earnings
         per share  (EPS).  It replaced the  presentation  of primary EPS with a
         presentation of basic EPS. It also requires dual  presentation of basic
         and   diluted  EPS  on  the  face  of  the  income   statement   and  a
         reconciliation  of the  numerator  and  denominator  of the  basic  EPS
         computation  to  the  numerator  and  denominator  of the  diluted  EPS
         computation.  The  requirements of this statement  became effective for
         year end 1997 financial  statements  with prior  restatement  required.
         Accordingly,  comparative  information  presented  in the  Consolidated
         Statements of Operations have been restated in compliance with SFAS No.
         128. On April 21, 1998 the Board of Directors  approved a three-for-two
         stock split for shares held of record on May 1, 1998. Additional shares
         resulting  from  the  split  were  distributed  on  May  22,  1998.  In
         accordance with SFAS No. 128, all earnings per share presentations have
         been  adjusted  to  reflect  the impact of the stock  split,  including
         retroactive  restatement  of prior  periods.  Previously,  the  company
         reported  EPS of $ 0.80 and $1.58 per  share  for the  quarter  and six
         months ended June 30,1997, respectively.

                                       9
<PAGE>


         Computation of Earnings per share
<TABLE>
<CAPTION>

                                                          Quarter  Ended                                   Six Months Ended
                                                          June 30, 1998                                     June 30, 1998
                                                 ----------------------------------------      -------------------------------------

                                                  Income         Shares         Per Share      Income         Shares      Per Share
<S>                                               <C>            <C>             <C>           <C>            <C>         <C>

Income from continuing operations                 $20.8                                        $63.4
Basic EPS:
Income available to common shareholders            20.8(A)                                      63.4(E)
Weighted Average Common Shares Outstanding                       29.3(B)                                      29.3(F)
Income from continuing operations 
  per common share-basic:                                                        $0.71(A/B)                               $2.16(E/F)
    Effect of dilutive securities:
       After-tax interest on convertible
          capital securities                      $ 3.4                                        $ 6.8
       Convertible capital securities                             5.3                                          5.3
       Stock options                                              0.8                                          0.7
Diluted EPS:
    Income available to common and 
      assumed conversions:                        $24.2(C)       35.4(D)                       $70.2(G)       35.3(H)
Income from continuing operations per common
  share-assuming dilution:                                                       $0.68(C/D)                               $1.99(G/H)

</TABLE>

<TABLE>
<CAPTION>
                                                           Quarter  Ended                                Six Months Ended
                                                            June 30, 1997                                 June 30, 1997
                                                ------------------------------------------  ---------------------------------------

                                                   Income         Shares         Per Share      Income        Shares      Per Share
<S>                                                <C>           <C>             <C>             <C>          <C>        <C>

Income from continuing operations                  $16.4                                         $32.2
Less: convertible preferred stock dividends        $ 0.3                                          $0.6
Basic EPS:
Income available to common shareholders             16.1(A)                                       31.6(E)
Weighted Average Common Shares Outstanding                       29.9(B)                                      30.0(F)
Income from continuing operations per 
  common share-basic:                                                            $0.54(A/B)                              $1.06(E/F)*
    Effect of dilutive securities:
       Preferred stock dividends                   $ 0.3                                          $0.6
       Convertible preferred stock                                0.4                                          0.4
       Stock options                                              0.4                                          0.3
Diluted EPS:
    Income available to common and 
     assumed conversions:                          $16.4(C)      30.7(D)                         $32.2(G)     30.7(H)
Income from continuing operations per common 
   share-assuming dilution:                                                      $0.53(C/D)                              $1.05(G/H)

* Computation excludes rounding.

</TABLE>

                                       10
<PAGE>



                      MANAGEMENT'S DISCUSSION AND ANALYSIS
                       OF CONSOLIDATED FINANCIAL CONDITION
                            AND RESULTS OF OPERATIONS
                                  JUNE 30, 1998

RESULTS OF OPERATIONS
 (dollar amounts in millions)
Consolidated Overview




<TABLE>
<CAPTION>

                                                        Quarter Ended           Six Months Ended
                                                           June 30                  June 30
                                                     ---------------------     -------------------

                                                     1998         1997           1998       1997
                                                     ----         ----           ----       ----
<S>                                               <C>         <C>           <C>         <C>   

Gross Earned Premium ..........................   $   178.5   $   149.2     $   360.2   $   305.0

Ceded Premium .................................        85.4        32.0         165.6        65.5
                                                    -------     -------       -------       ------

Insurance premium .............................   $    93.1   $   117.2     $   194.6   $   239.5

Engineering services revenue ..................        19.9        15.0          37.5        29.7

Net investment income .........................        16.0         8.8          31.2        16.7

Realized investment gains .....................         7.3         3.4          10.5         4.0
                                                     ------     -------       -------       ------

    Total revenues ............................   $   136.3   $   144.4     $   273.8   $   289.9
                                                     =======    =======       =======      ======

Pre-tax Income from Continuing Operations:

  Pre-tax income excluding sale of IRI ........   $    34.8   $    22.1     $    65.4   $    43.5

  Pre-tax Gain on Sale of IRI .................   $      --         --           39.0        -- 
                                                      -------   -------        -------      ------

  Pre-tax income ..............................   $    34.8   $    22.1         104.4        43.5

Income taxes on Continuing Operations .........   $     9.3   $     5.7     $    31.8   $    11.3

Distributions on Capital Securities, net of tax   $     4.7         --            9.2         --
                                                    -------     -------       -------      ------

Income From Continuing Operations .............   $    20.8   $    16.4     $    63.4   $    32.2

After-tax Gain on Radian Disposal .............   $     --          --      $    30.3   $    -- 
                                                   -------      -------       -------     --------

Net income ....................................   $    20.8   $    16.4     $    93.7   $    32.2
                                                    =======     =======      =======       ======

Net income per common share:

  Basic .......................................   $      .71  $      .54    $     3.20  $     1.06
  Diluted .....................................   $      .68  $      .53    $     2.85  $     1.05
</TABLE>






Net income for the six months ended June 30, 1998  included  after-tax  gains on
the sale of HSB's  interests in Industrial Risk Insurers (IRI) of $ 25.2 million
and Radian  International  LLC of $ 30.3 million.  The Radian  International LLC
gain is net of after-tax operating losses of $ 6.6 million that were deferred in
1997 when the  decision was made to exercise  HSB's option to put the  Company's
interest to The Dow  Chemical  Company.  As a result,  HSB's  interest in Radian

                                       11
<PAGE>

International  LLC was  classified  as a  discontinued  operation.  Absent these
sales,  HSB's after-tax  earnings increased 26.8 percent from the second quarter
of 1997 and  increased  18.6 percent in the first six months of 1998 compared to
1997 due to improved engineering margins and higher net realized gains.

Gross earned  premiums grew 19.6 percent in the quarter and 18.1 percent year to
date  compared to the prior year.  Much of this  growth is  attributable  to HSB
Industrial  Risk  Insurers.  Contemporaneous  with  the  sale  of  IRI,  the IRI
association was reconstituted with Employers Reinsurance Corporation (ERC) (with
a 99.5 percent  share) and The Hartford  Steam Boiler  Inspection  and Insurance
Company (HSBIIC) (with a .5 percent share) as sole members.  The new association
has been renamed HSB Industrial  Risk  Insurers.  HSBIIC writes the business for
HSB Industrial Risk Insurers using its insurance  licenses and provides  certain
other services. HSBIIC transferred its highly protected risk (HPR) manufacturing
book of business to HSB Industrial Risk Insurers and through various quota share
reinsurance  arrangements  with  ERC,  HSBIIC  will  retain  85  percent  of the
equipment  breakdown  business  and 15 percent of the  property  business of the
combined  insurance  portfolio.  This  arrangement  is the largest  contributing
factor in the growth of both the gross earned premium and the ceded premium.  As
a result, the Unearned insurance premium,  the Reinsurance assets, and the Ceded
reinsurance  payable  reflected  in the  Consolidated  Statements  of  Financial
Position  have  increased  significantly.  The  second  quarter  combined  ratio
improved to 88.9  percent in 1998 from 91.8 percent in 1997 and the year to date
combined  ratio  improved  to 88.9  percent  in 1998 from 90.9  percent in 1997.
Engineering  services revenue  increased 32.7 percent for the second quarter and
26.4 percent year to date and margins in this  business grew to 8.1 percent from
6.1 percent in the second  quarter of 1997 and to 8.2  percent  from 6.6 percent
year to date.

The  effective  tax rate on income  from  continuing  operations  for the second
quarter and year to date were 27 percent  and 30 percent  compared to 26 percent
for both periods in 1997.  Typically tax rate fluctuations occur as underwriting
and  engineering  services  results and realized gains change the mix of pre-tax
income  between  fully taxable  earnings and tax preferred  earnings that can be
obtained by investing in certain instruments.  In 1998 the taxes associated with
the  sale of IRI  contributed  to the  higher  first  quarter  and  year to date
effective tax rates. The Company continues to manage its use of tax advantageous
investments to maximize after tax earnings.

Recent Accounting Developments

In June of 1997 the FASB issued SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information".  This standard requires companies to report
financial and descriptive  information about reportable  operating segments.  It
includes disclosure  requirements relating to products and services,  geographic
areas and major  customers.  This statement will be effective with calendar year
1998,  however  application is not required for interim financial  statements in
the initial  year.  It is possible  that this  standard may redefine our segment
information.  However,  the Company has not yet determined how SFAS No. 131 will
be applied.


                                       12
<PAGE>


Insurance Operations

Insurance  operations  include the insurance results of HSBIIC;  HSB Engineering
Insurance  Limited  (HSB-EIL);  The Boiler  Inspection and Insurance  Company of
Canada (BI&I) and The Allen Insurance Company, Ltd.


<TABLE>
<CAPTION>


                                                  Quarter Ended                           Six Months Ended
                                                     June 30                                   June 30
                                               ------------------                      ---------------------


                                              1998               1997                    1998            1997
                                              ----               ----                    ----            ----
<S>                                         <C>               <C>                       <C>            <C>    

Gross earned premium                        $ 178.5           $ 149.2                   $ 360.2        $ 305.0



Ceded premium                                  85.4              32.0                     165.6           65.5
                                            -------           -------                   --------        ---------

Insurance premium                              93.1             117.2                     194.6          239.5

Claims and adjustment expenses                 40.4              51.4                      85.0          102.9

Underwriting, acquisition
     and other expenses                        42.6              56.4                      88.7          115.2
                                            -------           -------                   ---------       --------

Underwriting gain                           $  10.1           $   9.4                  $   20.9       $   21.4
                                            =======           =======                   ========        ========



Loss ratio                                     43.4%             43.9%                     43.7%          43.0%
Expense ratio (Excluding Goodwill
  Amortization)                                45.5%             47.9%                     45.2%          47.9%
                                               -----             -----                    -----           -----

Combined ratio                                 88.9%             91.8%                     88.9%          90.9%
                                               =====             =====                    =====           =====

</TABLE>






Gross  earned  premiums in the second  quarter and year to date  increased  19.6
percent and 18.1 percent from the comparable  periods in 1997. This increase was
primarily attributable to the new arrangement with HSB Industrial Risk Insurers.
Gross earned premiums from IRI increased $ 32.5 million in the second quarter of
1998 and $ 66.7 million year to date 1998 compared to the comparable  periods in
1997. Gross earned premiums  representing  coverage outside the U.S. for non HSB
Industrial Risk Insurers  business  increased 18.8 percent in the second quarter
and 11.4 percent year to date from the  comparable  periods in 1997.  In certain
areas of our direct  domestic and foreign  business,  the market is experiencing
price  erosion.  HSB will not write  business at rates  which  would  lessen our
ability to maintain underwriting profit.


                                       13
<PAGE>




Increases  in ceded  premium of 166.9  percent in the second  quarter  and 152.8
percent  year to date  were  the  result  of both  the new HSB  Industrial  Risk
Insurers arrangement  previously discussed and related reinsurance with ERC, and
changes in the Company's reinsurance programs which now utilize more quota share
reinsurance  on  certain  of our  books of  business.  We  anticipate  these new
reinsurance  contracts and the HSB  Industrial  Risk Insurers  arrangement  will
continue to result in high growth in gross  earned  premium but lower  growth in
net earned premium.

The loss ratio  declined from 43.9 percent in the second quarter of 1997 to 43.4
percent in the current  quarter and increased from 43.0 percent in the first six
months of 1997 to 43.7  percent  in the first six  months of 1998.  Year to date
1998 results were impacted by severe ice storms in Canada. In 1997 flood related
losses  impacted the loss ratio.  Gross claims and  adjustment  expenses for the
first  six  months of 1998 and 1997 were $ 220.7  million  and $ 142.5  million,
respectively.

The expense  ratio  improved to 45.5 percent in the second  quarter of 1998 from
47.9 percent in the second quarter of 1997 and to 45.2 percent year to date 1998
from 47.9 percent year to date 1997. The new quota share reinsurance  agreements
and the HSB Industrial Risk Insurers  arrangement with ERC, both of which result
in ceding  commissions to HSBIIC have  positively  impacted our expense ratio by
approximately  10  percentage  points.  Ceding  commission  should  continue  to
positively  impact the expense ratio  throughout  1998. A portion of such ceding
commission is intended to reimburse HSB for the additional costs of managing HSB
Industrial Risk Insurers.

HSBIIC completed an acquisition of the monoline boiler and machinery business of
Kemper  Insurance  Companies,  effective  July 1, 1998.  The two companies  also
completed an arrangement  for HSBIIC to reinsure  boiler and machinery  coverage
written  as  part  of  Kemper's  commercial  package  policies.  Kemper's  total
estimated boiler and machinery premiums were $80 million in 1997.


Engineering Services Operations

<TABLE>
<CAPTION>

                                                  Quarter Ended                   Six Months Ended
                                                   June 30                           June 30
                                              -------------------             ---------------------

                                           1998                1997           1998              1997
                                           ----                ----           ----              ----
<S>                                      <C>               <C>              <C>               <C>    

Net engineering services revenue         $ 19.9            $ 15.0           $ 37.5            $ 29.7
Net engineering services expenses          18.3              14.1             34.4              27.7
                                          -------           -------          -------           -------

Operating gain                           $  1.6            $   .9           $  3.1            $  2.0
                                           =======           ========         =======          =======

Net margin                                  8.1%              6.1%             8.2%              6.6%

</TABLE>


                                       14
<PAGE>


Engineering  services  operations  include  the  results  of  HSB's  and  BI&I's
engineering  services,  HSB Reliability  Technologies  (HSBRT) and the Company's
other engineering services subsidiaries.

In April 1998 HSB acquired  Solomon  Associates,  Inc.  (SAI),  based in Dallas,
Texas.  SAI  is  an  engineering   management   consulting  firm  that  provides
comparative performance benchmarking consulting to the refining,  petro-chemical
and power  generation  industries.  In 1997, SAI had gross sales of $13,000,000.
SAI  establishes  efficiency and  productivity  benchmarks for 80 percent of the
worldwide   petroleum   refining  industry.   This  acquisition   expands  HSB's
engineering management consulting services and benchmarking capability.

Engineering  services revenues increased $ 4.9 million in the second quarter and
$ 7.8 million year to date  compared to the same periods in 1997.  The growth in
revenues was  primarily  due to increases  generated by HSBRT as their  revenues
increased  20.5  percent,  SAI  revenues  of $1.4  million,  as well as revenues
generated by some recent small  acquisitions.  The improvement in operating gain
from the previous periods  reflects  efforts to improve staff  utilization and a
refocus in certain areas on pricing strategies.  We are still incurring costs to
develop new products which have the objective of increasing growth rates.

On July 1, 1998 HSB purchased  Kemper's ASME inspection  services  business that
certifies boiler and pressure vessel  compliance with the codes and standards of
the American Society of Mechanical Engineers. Total estimated 1997 revenues were
approximately $7.5 million.

The Company has been focusing on identifying acquisition candidates in the niche
engineering  management  consulting  service  business,   primarily  in  process
industries, in order to grow the engineering service segment of the business.






Investment Operations

                                      Quarter Ended         Six Months Ended
                                        June 30                 June 30
                                     ----------------      -------------------

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

Net investment income              $  16.0    $   8.8    $  31.2    $  16.7
Realized investment gains              7.3        3.4       10.5        4.0
                                   -------    -------     -------   -------

Pretax income from
   investment operations           $  23.3    $  12.2    $  41.7    $  20.7
                                   =======    =======    =======    =======

                                       15
<PAGE>


Net  investment  income  for the  second  quarter  and  year  to date  increased
significantly  compared  to the same  periods in 1997 due to the  investment  of
proceeds  from  capital  securities  issued  during the second half of 1997.  In
addition,  proceeds from the January sales of HSB's  interests in IRI and Radian
International LLC significantly  increased investable funds. Realized investment
gains were  significantly  impacted  in 1998 by call  premiums  on fixed  income
investments.  In the second quarter of 1997 realized gains were reduced by $18.0
million  and year to date 1997 by $19.4  million to reflect the  estimated  fair
value of three  "zero cost"  collar  contracts  entered  into at the end of 1996
which were used to mitigate the effects of market risk on the U.S.  common stock
portfolio. These collars were closed out by year end 1997.

The Company's  investment  strategy  continues to be to maximize total return on
the investment  portfolio through  investment  income and capital  appreciation.
Investment  strategies  for any given year are  developed  based on many factors
including  operational  results,  tax  implications,   regulatory  requirements,
interest rates, dividends to shareholders and market conditions.  The investment
portfolio  includes a wide variety of high quality  equity  securities  and both
domestic and foreign fixed  maturities.  The Company continues to manage its use
of tax advantageous investments to maximize after tax investment earnings.

Liquidity and Capital Resources

                                                     Balances at
                                            June 30             December 31
                                             1998                  1997
                                          ------------          ----------

Total assets                              $ 1,943.8             $ 1,537.2
Short-term investments                        104.4                 379.2
Cash                                           17.5                  45.3
All other invested assets                   1,015.5                 572.2
Short-term borrowing                            7.1                  42.4
Common shareholder's equity                   434.1                 345.3

Liquidity refers to the Company's  ability to generate  sufficient funds to meet
the cash requirements of its business operations. The Company receives a regular
inflow of cash from maturing  investments and engineering services and insurance
operations.  The mix of the  investment  portfolio  is  managed  to  respond  to
expected claim pay-out  patterns and other cash  requirements.  The Company also
maintains a highly liquid  short-term  portfolio to provide for  immediate  cash
needs and to offset a portion of interest rate risk relating to certain  capital
securities.

Cash provided from  operations  was $9.5 million in the first six months of 1998
compared  to  $13.1  million  for the same  period  in 1997.  The  reduction  is
primarily the result of the timing of settlement of portfolio  transfers related
to IRI in the first  quarter of 1998 as compared  to the first  quarter of 1997.
Aside from IRI activity,  premiums  collected were  essentially flat compared to
the first  six  months of 1997  while  claims  paid  declined.


                                       16
<PAGE>


Capital resources consist of shareholders'  equity,  capital securities and debt
outstanding  and represent  those funds  deployed or available to be deployed to
support  business  operations and investment  activities.  Common  shareholders'
equity of $ 434.1  million at June 30, 1998  increased by $ 88.8  million  since
December 31, 1997. The increase  primarily reflects net income of $ 93.7 million
for the year to date and an increase in unrealized  gains, net of tax, of $ 19.8
million,  offset  by  common  dividends  of $  23.4  million  and  common  stock
repurchases of $24.1 million offset by issuances of $22.4 million.

At June 30, 1998, the Company had significant short-term and long-term borrowing
capacity.  The  Company is  currently  authorized  to issue up to $75 million of
commercial paper. Commercial paper outstanding at June 30, 1998 was $6 million.

The Company is involved in two arbitration or litigation  proceedings  regarding
the extent to which  certain  explosion  events  are  insured  under  boiler and
machinery  policies of HSBIIC or under the all-risk property  insurance policies
issued by other  companies.  Management  believes the Company's  policies do not
provide  coverage for losses  resulting  from the explosion  events that are the
subject of these proceedings.  In the opinion of management any adverse outcomes
in these cases will not, in the aggregate,  have a material effect on either the
results of operations or financial  condition of the Company.  More  information
pertaining to these legal  proceedings may be found under note 5 of the Notes to
Consolidated Financial Statements herein.

The Company continues to evaluate the potential  coverage  exposures arising out
of the  year  2000  and its  impact  on  insured  equipment.  As has  been  well
publicized,  many computer  systems and date  controlled  equipment may cease to
function  or may  function  in a  different  manner  when the year 2000  arrives
because they are  programmed to recognize  only the last two digits of the year.
During the first  quarter the Company  filed with the various  jurisdictions  an
endorsement to its equipment  breakdown forms which  reiterates that coverage is
not provided for the inherent inability of computers and computerized  equipment
to  properly  recognize  a  particular  date or  time,  such as the  year  2000.
Quantification of the Company's  exposure to year 2000 losses is not possible at
this time as  applicable  policy  wordings  have not been legally  tested in the
context of such losses.  See discussion on other year 2000  uncertainties in the
Management's  Discussion and Analysis of  Consolidated  Financial  Condition and
Results of Operations in the Company's 1997 Report on Form 10-K.

The  Company  writes  business in European  markets  primarily  through its U.K.
subsidiary, HSB Engineering Insurance Limited. The adoption of a common currency
(the euro) by eleven of the fifteen  member  countries of the European  Union on
January  1,  1999 is not  expected  to  result  in a  substantial  change in the
business or a significant  increase in costs in the short term. In part, this is
due to the fact that much of the business is U.S. dollar denominated. Over time,
as and if the U.K.  adopts  the  euro as its  currency  there  may be more of an
impact. The Company will continue to monitor  developments and assess impacts on
markets, pricing, etc.


                                       17
<PAGE>

Forward-Looking Statements

Certain statements contained in this report are forward-looking and are based on
management's  current  expectations.  Actual results may differ  materially from
such  expectations  depending on the outcome of certain  factors  described with
such forward-looking statements and other factors including: significant natural
disasters  and severe  weather  conditions;  changes in  interest  rates and the
performance  of the financial  markets;  changes in the  availability,  cost and
collectibility of reinsurance; changes in domestic and foreign laws, regulations
and taxes; the entry of new or stronger  competitors and the  intensification of
pricing  competition;  the loss of current  customers or the inability to obtain
new customers;  changes in the coverage  terms selected by insurance  customers,
including higher deductibles and lower limits; adverse development on losses and
loss  adjustment  expenses  related  to claims  arising  in prior  periods;  new
insurance and reinsurance  contract  interpretations,  including coverage issues
related to Year 2000  events;  changes in asset  valuations;  consolidation  and
restructuring  in the  financial  services  industry;  changes in the  Company's
participation in joint underwriting associations, and in particular IRI; changes
in the demand and customer base for engineering and inspection  services offered
by the Company,  whether  resulting  from changes in the law or  otherwise,  and
other general market conditions.

PART II - OTHER INFORMATION

Item 1.  Legal Proceedings


         HSBIIC  is  involved  in  two  arbitration  or  litigation  proceedings
         regarding  the extent to which  certain  explosion  events are  insured
         under  boiler and  machinery  policies of HSBIIC or under the  all-risk
         property  insurance  policies  issued  by other  companies.  Management
         believes HSBIIC's policies do not provide coverage for losses resulting
         from the explosion events that are the subject of these proceedings.

         HSBIIC  has  accrued  $6.5  million  with  respect  to these  cases for
         potential loss  adjustment  expenses,  including  legal costs to defend
         HSBIIC's position. One case is on appeal; the other case is involved in
         both arbitration and litigation  proceedings.  The arbitration has been
         set for a final hearing in the third quarter 1998. A trial date has not
         been set for either  case.  In the event that HSBIIC is held liable for
         one or both of the remaining claims,  amounts in excess of HSBIIC's net
         maximum  aggregate  retention  of  $8.5  million  is  recoverable  from
         reinsurers.  Claim amounts  potentially  recoverable from reinsurers in
         the event of a possible  adverse outcome in these cases could range, in
         the aggregate, from $40 million to $195 million.

         The obligations of HSBIIC's  reinsurers with respect to these cases are
         not  in  dispute.  Therefore,  management  believes  that  any  adverse
         outcomes  in these cases will not,  in the  aggregate,  have a material
         effect on either the results of  operations  or financial  condition of
         the Company.  HSBIIC's  reinsurance  contracts do not require HSBIIC to
         reimburse its  reinsurers  for any losses such  reinsurers  might incur
         should  these  cases not be decided in  HSBIIC's  favor.  Nevertheless,
         reinsurers  often quote rates for future  coverages based upon their or
         other reinsurers' experience on a particular account. Therefore, in the
         event  HSBIIC's   reinsurers  pay  significant  sums  pursuant  to  the

                                       18
<PAGE>

         arbitration or litigation  proceedings  described  above,  it is likely
         HSBIIC's  reinsurance rates would increase in future periods.  However,
         given  the  insured   capacity  that  exists  in  reinsurance   markets
         worldwide,  coupled  with  HSBIIC's  ability to negotiate a redesign or
         restructuring of its reinsurance  program, it does not necessarily mean
         that such an increase would be material.

         The Company is also  involved in various  other  legal  proceedings  as
         defendant or co-defendant  that have arisen in the normal course of its
         business.  In the  judgment  of  management,  after  consultation  with
         counsel,  it is improbable  that any  liabilities  which may arise from
         such litigation  will have a material  adverse impact on the results of
         operations or the financial position of the Company.


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

          (a)  The Annual Meeting of Stockholders was held on April 21, 1998.

          (b)  Three  directors  were  nominated  for  election  at  the  Annual
               Meeting.  Proxies for such meeting were solicited by Registrant's
               management  pursuant  to  Regulation  14A  under  the  Securities
               Exchange Act of 1934;  there was no solicitation in opposition to
               management's  nominees as listed in the proxy statement;  and all
               of such nominees were elected for a three-year term.

          (c)  The following  matters were voted upon at the Annual Meeting with
               the voting results indicated.

               1.   Election of directors

                        Nominee           Votes for        Votes Withheld
                        -------           ---------        --------------
                    Richard H. Booth     16,220,588           201,029
                    Colin G. Campbell    16,219,532           202,085
                    Simon W. Leathes     16,230,814           190,803

               2.   Proposal to amend and restate the Short-Term Incentive Plan

                    Votes for             Against             Abstain
                    ---------             -------             -------
                    15,139,437           1,042,442            239,736

               3.   Proposal to amend and restate the Long-Term Incentive Plan

                    Votes for             Against             Abstain
                    ---------             -------             -------
                    15,164,414           1,028,033            229,168

                                       19
<PAGE>

               4.   Appointment  of  Coopers &  Lybrand  as  Independent  Public
                    Accountants

                    Votes for             Against             Abstain
                    ---------             -------             -------
                    16,280,619              79,445             61,553

Item 5.  Other Information

The deadline for  submission  of  shareholder  proposals  pursuant to Rule 14a-8
under the  Securities  Exchange Act of 1934,  as amended,  for  inclusion in the
Company's  proxy  statement  for its 1999  Annual  Meeting  of  Shareholders  is
November 6, 1998. Additionally,  if the Company receives notice of a shareholder
proposal after February 20, 1998, the persons named in the proxies  solicited by
the  Board  of  Directors  of  the  Company  for  its  1999  Annual  Meeting  of
Shareholders  may  exercise  discretionary  voting  power  with  respect to such
proposal.

Item 6 - Exhibits and Reports on Form 8-K

(a)  Exhibits

     Exhibit 27.1 - Financial Data Schedule
     Exhibit 27.2 - Financial Data Schedule

(b)  Reports on Form 8-K

     (i) Form 8-K  dated  April 22,  1998 to report  first  quarter  results,  a
     three-for-two  stock split, the declaration of a quarterly dividend payable
     June 30, 1998, and a summary of the Company's  annual meeting held on April
     21, 1998.

     (ii) Form 8-K  dated May 18,  1998 to  report  the  signing  of a letter of
     intent for The Hartford Steam Boiler Inspection and Insurance Company,  the
     Company's  subsidiary,  to acquire  Kemper  Insurance  Companies'  monoline
     boiler and machinery business and to reinsure boiler and machinery coverage
     written as part of Kemper's commercial package policies and to acquire ASME
     code business.


                                       20
<PAGE>



                                   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.


                                                   HSB GROUP, INC.

Date:  August 14, 1998                   By:      /s/  Saul L. Basch
                                                  Saul L. Basch
                                                  Senior Vice President, 
                                                  Treasurer and Chief Financial 
                                                  Officer


Date:  August 14, 1998                   By:      /s/  Robert C. Walker
                                                  Robert C. Walker
                                                  Senior Vice President and 
                                                  General Counsel



                                       21