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, 1997

                                       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)

           The Hartford Steam Boiler Inspection and Insurance Company
              (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, 1997: 19,761,598



                                       1
<PAGE>




                                 HSB GROUP, INC.

                                      INDEX



PART I   FINANCIAL INFORMATION                                            PAGE
                                                                          ---- 
         Consolidated Statements of Operations for the
         Quarters Ended June 30, 1997 and 1996 (unaudited).................. 3

         Consolidated Statements of Financial Position as
         of June 30, 1997 (unaudited) and December 31,
         1996............................................................... 4

         Consolidated Statements of Cash Flows for the
         Six Months Ended June 30, 1997 and 1996
         (unaudited)........................................................ 5

         Notes to Consolidated Financial Statements (unaudited)............. 6

         Management's Discussion and Analysis of
         Consolidated Financial Condition and Results
         of Operations..................................................... 12

PART II  OTHER INFORMATION

         Item 1 - Legal Proceedings........................................ 21
         Item 2 - Changes in Securities.................................... 22
         Item 5 - Submission of Matters to a Vote of Security Holders...... 23
         Item 6 - Exhibits and Reports on Form 8-K......................... 24

SIGNATURES................................................................. 25




                                       2
<PAGE>


<TABLE>



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




<CAPTION>
                                                  Quarter                            Six Months
                                               Ended June 30                        Ended June 30

Revenues:                                 1997             1996                  1997           1996
                                         -----------    -----------           -----------    -----------
  <S>                                     <C>            <C>                   <C>            <C>  
  Insurance premiums                      $ 117.2        $ 112.9               $ 239.5        $ 221.3
  Net engineering services                   15.0           14.1                  29.7           26.8
  Net investment income                       8.8            7.9                  16.7           15.9
  Realized investment gains                   3.4            5.1                   4.0            6.0
                                         -----------    -----------           -----------    -----------
     Total revenues                         144.4          140.0                 289.9          270.0
                                         -----------    -----------           -----------    -----------
                                                 
Expenses:                                        
  Claims and adjustment                      51.4           56.0                 102.9          100.9
  Policy acquisition                         20.4           21.9                  43.9           42.5
  Underwriting and inspection                36.0           34.4                  71.3           68.1
  Net engineering services                   14.1           12.3                  27.7           23.6
  Interest                                    0.4            0.1                   0.6            0.3
                                          -----------    -----------          -----------    -----------
                                                         
     Total expenses                         122.3          124.7                 246.4          235.4
                                          -----------    -----------          -----------    -----------
                                                 
Income from continuing operations                 
before income taxes                          22.1           15.3                  43.5           34.6

Income taxes:
   Current                                    6.1            5.2                  12.7           10.4
   Deferred                                  (0.4)          (1.9)                 (1.4)          (2.2)
                                          -----------    -----------           -----------    -----------
     Total income taxes                       5.7            3.3                  11.3            8.2

Income from continuing operations            16.4           12.0                  32.2           26.4

Discontinued operations:
     Income from operations 
     of Radian International LLC
     net of income taxes of $(.8);                 
     $1.0; $0; and $2.8                        -             1.4                   0.0            4.0
                                          -----------    -----------           -----------    -----------

     Net income                           $  16.4        $  13.4               $  32.2        $  30.4
                                          ===========    ===========           ===========    ===========
                                                 

Net income per common share:
    Income from continuing operations     $   0.80       $   0.59              $   1.58       $   1.29
    Discontinued operations                    -             0.07                   -             0.20
                                         -----------    -----------           -----------    -----------

    Net income                            $   0.80       $   0.66              $   1.58       $   1.49
                                         ===========    ===========           ===========    ===========

Dividends declared per common share       $   0.57       $   0.57              $   1.14       $   1.14

Average common shares outstanding 
and common stock equivalents                 20.5           20.3                  20.5           20.3
</TABLE>

See Notes to Consolidated Financial Statements.

                                       3
<PAGE>



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


                                                June 30,           December 31,
                                                 1997                 1996
                                             (Unaudited)
                                             -----------          ------------
Assets:
    Cash                                      $      4.7           $       4.5
    Short-term investments, at cost                 98.5                  97.9
    Fixed maturities, at fair value
      (cost -$242.8; $231.3)                       247.9                 235.8
    Equity securities, at fair value
      (cost - $189.1;  $182.9 )                    286.4                 262.7
                                               -----------       --------------
      Total cash and invested assets               637.5                 600.9

    Insurance premiums receivable                  133.7                 106.4
    Engineering services receivable                 11.9                  11.7
    Fixed assets                                    30.7                  31.7
    Prepaid acquisition costs                       43.7                  40.6
    Capital lease                                   15.7                  16.1
    Investment in Radian                            83.0                  79.7
    Reinsurance assets                             147.6                 162.9
    Other assets                                    77.4                  66.3
                                              -----------          ------------
        Total assets                          $  1,181.2           $   1,116.3
                                              ===========          ============
 
Liabilities:
    Unearned insurance premiums               $    295.6           $     270.6
    Claims and adjustment expenses                 282.3                 302.9
    Short-term borrowings                           26.4                   3.2
    Long-term borrowings                            25.1                  25.1
    Capital lease                                   27.9                  27.9
    Deferred income taxes                           29.3                  23.7
    Dividends payable                               11.4                  11.4
    Other liabilities                              113.7                  85.9
                                             -----------          ------------
        Total liabilities                          811.7                 750.7
                                             -----------          ------------

Convertible redeemable preferred stock-
    Series B (stated and redemption 
    value; shares authorized,
    issued and outstanding .002)                    20.0                  20.0

Shareholders' equity:
    Common stock (stated value; shares 
     authorized 50.0; shares issued 21.3; 
     shares outstanding 19.7; 20.0)                 10.0                  10.0
    Additional paid-in capital                      31.5                  32.0
    Unrealized investment gains, net of tax         63.7                  52.8
    Retained earnings                              249.2                 255.1
    Benefit plans                                   (4.9)                 (4.3)
                                               -----------         ------------
          Total shareholders' equity               349.5                 345.6
                                             ------------          ------------
          Total                               $  1,181.2           $   1,116.3
                                              ===========          ============

      Shareholders' equity per common                              
        share                                 $     17.71          $      17.25

See Notes to Consolidated Financial Statements.

                                       4
<PAGE>


                                 HSB Group, Inc.
                      Consolidated Statements of Cash Flows
                                  (In millions)

                                                       Six Months Ended
                                                           June 30,
                                                   --------------------------
                                                      1997           1996
                                                   -----------    -----------
Operating activities:
Net income                                         $   32.2        $  30.4
Adjustments to reconcile net income to
     Cash provided by operating activities:
     Depreciation and amortization                      3.3            5.9
     Deferred  income taxes                            (1.4)          (2.2)
     Realized investment gains, including              
     market adjustment for derivative instruments      (4.0)          (6.0)
     Change in:
        Insurance premiums receivable                 (27.3)         (29.4)
        Engineering services receivable                (0.2)          (1.5)
        Prepaid acquisition costs                      (3.1)          (6.2)
        Reinsurance assets                             15.3          (46.7)
        Unearned insurance premiums                    25.0           47.5
        Claims and adjustment expenses                (20.6)          42.8
        Investment in Radian                           (3.3)           8.6
        Other                                          (2.8)          (6.7)
                                                     -----------    -----------

            Cash provided by operating activities      13.1           36.5
                                                     -----------    -----------

Investing activities:
Fixed asset additions, net                             (2.0)          (3.9)

Investments:
     Purchase of short-term investments, net           (0.6)           0.5
     Purchase of fixed maturities                     (28.0)         (54.3)
     Proceeds from sale of fixed maturities             7.4           71.6
     Redemption of fixed maturities                     8.7            3.3
     Purchase of equity securities                    (90.1)         (66.7)
     Proceeds from sale of equity securities          107.3           57.3
     Cash transferred to investment in Radian            -            (0.8)
                                                    -----------    -----------

            Cash provided by investment activities      2.7            7.0
                                                    -----------    -----------

Financing activities:
Increase (decrease) in short-term borrowings           23.2          (10.3)
Dividends paid to shareholders                        (23.5)         (23.1)
Reacquisition of stock                                (16.6)          (4.0)
Exercise of stock options                               1.3            1.1
                                                    -----------    -----------

            Cash used in financing activities         (15.6)         (36.3)
                                                    -----------    -----------

     Net increase in cash                               0.2            7.2

     Cash at beginning of period                        4.5            8.6
                                                    -----------    -----------

     Cash at end of period                          $   4.7         $ 15.8
                                                    ===========    ===========

Interest paid                                       $   0.6         $  1.1
                                                    -----------    -----------

Federal income tax paid                             $  13.1         $  8.8
                                                    -----------    -----------




See Notes to Consolidated Financial Statements.

                                       5
<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 1996  Annual  Report.
         Certain  amounts for 1996 have been  reclassified  to conform  with the
         1997 presentation.

2.       Discontinued Operations

         In 1996, the Company  entered into a joint venture  agreement with The
         Dow Chemical Company (Dow) to form a new company, Radian International
         LLC  (Radian  LLC).  The  terms  of the  agreement  provided  that HSB
         contribute  the net assets of its Radian  Corp.  subsidiary  into this
         joint venture for a 40% ownership.  Income was subject to a preference
         return to HSB in the first two years.  The agreement  provided HSB the
         option  to put its share of the  venture  to Dow any time  during  the
         period  from  December  31,  1997 to  December  31,  1998 upon  giving
         appropriate  notice.  On July  28,  1997 the HSB  Board  of  Directors
         ratified  management's  decision to put its share of Radian LLC to Dow
         on or about  January  1, 1998 for  approximately  $145  million.  This
         amount is not  subject to any  material  adjustment  due to the future
         operating  results  of Radian  LLC;  therefore  this will  result in a
         pre-tax gain of approximately $60 million.  Due to this decision,  the
         results of Radian LLC have been classified as discontinued operations.
         HSB's  share  of  Radian  LLC's  results  has been  immaterial  to the
         consolidated results during the first six months of 1997.

3.       Industrial Risk Insurers

         On December 1, 1996 HSB increased its  participation in Industrial Risk
         Insurers (IRI) from 14% to 23.5%. IRI is an  unincorporated,  voluntary
         property  underwriting  association currently comprised of twenty-three
         property casualty insurance companies. IRI primarily writes policies on
         a syndicate basis which  specifies to the insured the percentage  share
         of risk  accepted  by  each  member  of the  association.  Each  member
         company,  therefore,  operates as a direct insurer or reinsurer on such
         policies  and   participates  in  the  premiums  and  losses  generated
         thereunder in proportion to its membership interest.

         In essence,  the IRI facilitates the proportional sharing of risk under
         one policy where each member is essentially considered to be the direct
         writer  for  reporting,  premium  tax and  other  regulatory  purposes.
         Liability  on such  policies is several and not joint,  and  

                                       6
<PAGE>

         therefore,  members are not responsible for policy  liabilities of the
         other members. An increased  participation does not expose the Company
         to the effect of adverse loss  development on claims incurred prior to
         the  effective  date of the  increase.  

         Other  than a nominal  deposit,  which is  refunded  if  participation
         ceases,  there is no cost to becoming a member of the IRI. Members can
         change or terminate their participation on an annual basis.  Typically
         participation  levels vary based on a member's  expectations of future
         profits.

4.       Shareholders' Equity

         The Connecticut  Business  Corporation  Act, which became  effective on
         January 1, 1997, eliminated the concept of treasury shares.  Therefore,
         shares  reacquired by the Company  constitute  authorized  but unissued
         shares.  As a result of this change in law, the Company  eliminated the
         caption  Treasury  Stock from its balance  sheet and  reclassified  the
         amounts to  additional  paid-in  capital and retained  earnings.  These
         amounts were $74.8  million as of June 30, 1997 and $59.5 million as of
         December 31, 1996. The reclassifications were distributed as follows:

                                  June 30, 1997       December 31, 1996
                                  -------------       -----------------
         Additional Paid In         $    2.5               $    2.0
         Retained Earnings              72.3                   57.5
                                   ----------              ----------
         Total                      $   74.8               $   59.5

         On  December  30,  1996,  the  Company  issued  Convertible  Redeemable
         Preferred  Stock.  The Stock is convertible  into 398,406 shares of HSB
         common  stock at a price of $50.20 per share and may be redeemed at the
         option of the Company on or after the fifth anniversary of issuance and
         by the holder after the eighth anniversary.  As a result of the stock's
         redemption features, it has been included in the "mezzanine" section of
         the balance sheet located between liabilities and shareholders' equity.

         Prior year amounts now conform to these presentations.

5.       Derivative Instruments

         On December 19, 1996, the Company  entered into three "zero cost collar
         contracts"  to mitigate  the effects of market risk on its U. S. common
         stock  portfolio  (which,  for management  purposes,  included  certain
         convertible  preferreds).  Each  contract  had a notional  value of $50
         million and maturity  dates ranging from November 1997 to January 1998.
         The  contracts  are European  style,  which means they only settle upon
         maturity. The contracts, which were entered into when the S&P 500 Index
         was 744.3,  allow the Company to recover from the  counterparty  if the
         index is below 695.2 at the time of maturity,  and requires the Company
         to reimburse the counterparty if the index is above a range of 811.3 to
         818.7 at the time of maturity.

                                       7
<PAGE>

         The Company  entered into these  contracts with the intent to hold such
         contracts  until maturity.  However,  based upon price movements in the
         S&P 500 Index since  December 31, 1996, the contracts do have a current
         estimated  market value of $(19.4)  million,  which represents the cost
         the Company  would incur if it had canceled  the  contracts at June 30,
         1997.  As of June 30,  1997,  the Company  recorded  the mark to market
         valuation of $19.4 million as a reduction of realized investment gains.
         At present  such  contracts  are included in other  liabilities  in the
         Statement of Financial Position.

         At June 30,  1997,  the S&P 500 Index was 885.14,  which is outside the
         bounds of the collar.  If the contracts  had reached  their  expiration
         dates at the end of the  quarter,  HSB would have been  required to pay
         approximately  $14.0 million to its counterparty and an additional $5.4
         million of realized  gains would have been  recognized in the statement
         of income.

         The  Company's  U.S.  common stock  portfolio  has  experienced a total
         return  of  $37  million   (which   includes  price   appreciation   of
         approximately $34 million) since December 31, 1996, and has had a price
         movement correlation with the S&P 500 Index well in excess of 80%.

         The collar subjects the Company to market and counterparty credit risk.
         The Company manages this exposure by frequently modeling the effects of
         potential  future price  movements on the value of the collar and HSB's
         portfolio  and  by  entering  into   contracts   with   internationally
         recognized financial institutions,  which are expected to perform under
         the terms of the contract,  and by evaluating the credit  worthiness of
         such  institutions  by taking  into  account  credit  ratings and other
         factors.

6.       Recent Accounting Developments

         In February  1997,  the  Financial  Accounting  Standards  Board issued
         Statement of Financial  Accounting  Standards  No. 128,  "Earnings  per
         Share".  This  statement   establishes   standards  for  computing  and
         presenting  earnings per share (EPS).  It replaces 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 will be effective
         for year end  1997  financial  statements.  Had this  standard  been in
         effect as of the first quarter 1996, EPS would have been as follows:

                              June 30, 1997                   June 30, 1996
                              -------------                   -------------
                          Quarter         YTD            Quarter           YTD
                          -------        -----           -------          ----

         Basic            $  .81         $1.58           $ .66           $1.50
         Diluted          $  .80         $1.58           $ .66           $1.49
         As Reported      $  .80         $1.58           $ .66           $1.49

                                       8
<PAGE>

         In June 1997 the FASB issued SFAS 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  will  be  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 in 1998.

7.       Legal Proceedings

         The Company is involved in three arbitration or litigation  proceedings
         regarding  the extent to which  certain  explosion  events are  insured
         under  boiler  and  machinery  policies  of the  Company  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.

         A lower court ruling in one of these cases held that an  explosion  did
         occur,  and that the  Company  was not liable for losses of the insured
         resulting from the explosion. In a further action, the court denied the
         Company's motion for summary  judgment on certain issues,  thus leaving
         the  Company   potentially  liable  for  certain   unquantified  losses
         resulting from events prior to the  explosion.  In the first quarter of
         1997 the Company and the property insurer jointly settled the case with
         the insured.  The Company's  ultimate share of the  settlement  will be
         determined in an arbitration  proceeding with the property insurer. The
         Company has incurred  gross  losses and LAE of $40.7  million and a net
         loss  after  taking  into  account  reinsurance  recoverables  of  $6.4
         million,  of which $5 million  represents  claim cost and the remaining
         $1.4  million  represents  loss  adjustment  expenses.  As a result  of
         payments made to date, at June 30, 1997 the Company  carried gross loss
         and LAE reserves of $2.8 million and  recoverables  from  reinsurers of
         $2.9 million.

         The Company  has accrued  $6.5  million  with  respect to the other two
         cases for potential loss adjustment expenses,  including legal costs to
         defend the Company's position.  One case is in the process of pre-trial
         summary  judgment  motions and  appeals;  the other case is involved in
         both arbitration and litigation proceedings.  A trial date has not been
         set for either  case.  In the event that the Company is held liable for
         one or both of the remaining claims, amounts in excess of the Company's
         net maximum aggregate retention of $8.5 million is recoverable from the


                                       9
<PAGE>

         Company's  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 the Company'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.  The  Company's  reinsurance  contracts do not require the
         Company to  reimburse  its  reinsurers  for any losses such  reinsurers
         might incur should these cases not be decided in the  Company's  favor.
         Nevertheless,  reinsurers  often quote rates for future coverages based
         upon their or other  reinsurer's  experience  on a particular  account.
         Therefore,  in the event the Company's  reinsurers pay significant sums
         pursuant to the arbitration or litigation  proceedings described above,
         it is likely the Company's  reinsurance  rates would increase in future
         periods. However, given the insured capacity that exists in reinsurance
         markets  worldwide,  coupled with the Company'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.

  8.     Holding Company Formation

         At a special  meeting  of the  Company on June 23,  1997,  shareholders
         voted to approve a proposal  which  enabled  the  Company to form a new
         holding  company,  HSB  Group,  Inc.  Shareholders  of  Hartford  Steam
         Boiler's  common  stock  automatically  became  holders of HSB  Group's
         common stock through a share exchange approved by the shareholders, and
         certificates   representing   Hartford   Steam   Boiler   common  stock
         automatically  represent the  corresponding  shares of HSB Group common
         stock.

  9.     Capital Securities

         On July 10, 1997, HSB Group, Inc. announced the sale of $110 million of
         30 year Capital Securities in a private  placement.  The securities are
         non-callable  for  ten  years  and  may  be  called  earlier  upon  the
         occurrence  of a Tax Event.  The  securities  were  issued  through HSB
         Capital I, a Delaware  business  trust created by HSB Group,  Inc. at a
         floating rate tied to 90 day LIBOR. The initial coupon is approximately
         6.7  percent.  Holders of the  Capital  Securities  will be entitled to
         receive  preferential  cumulative cash distributions  accumulating from
         the date of 

                                       10
<PAGE>

          original  issuance and payable  quarterly in arrears.  The Company has
          the right to defer  payment  of  interest  at any time or from time to
          time for a period not exceeding 20 consecutive  quarterly periods with
          respect to each deferral period. During an extension period,  interest
          will  continue  to accrue  and the  amount of  distributions  to which
          holders of the Capital  Securities are entitled will  accumulate,  and
          the Company will be prohibited  from paying any cash  dividends on its
          common  stock.   The  Company  has  irrevocably  and   unconditionally
          guaranteed  all of the Issuer  Trust's  obligations  under the Capital
          Securities.  The  Company  expects  to use the  proceeds  for  general
          corporate  purposes,  which may include the  repurchase  of HSB common
          stock;   funding   investments   in,  or   extensions  of  credit  to,
          subsidiaries;  repayment  of maturing  debt;  and  financing  possible
          future acquisitions.

10.      Computation of Earnings Per Share

                                      Quarter Ended             Year to Date
                                      June 30, 1997             June 30, 1997
                                      -------------             -------------

          Net Income                   $16.4  (A)               $  32.2  (A)
                                       =====                     =======

          Weighted Average Common
            Shares Outstanding          19.9                       20.0
          Common Stock Equivalents
            Preferred Stock - 
             assuming conversion          .4                         .4
            Options                       .2                         .1
                                        ----                     -------

                                        20.5  (B)                  20.5  (B)
                                        =====                     =======

          EPS - (A)/(B)                 $0.80                      $1.58*


         *Computation excludes rounding





                                       11
<PAGE>

<TABLE>


                      MANAGEMENT'S DISCUSSION AND ANALYSIS
                       OF CONSOLIDATED FINANCIAL CONDITION
                            AND RESULTS OF OPERATIONS
                                  JUNE 30, 1997

RESULTS OF OPERATIONS
 (dollar amounts in millions)
Consolidated Overview
                                                Quarter Ended                    Six Months Ended
                                                   June 30                             June 30
                                           ---------------------              -----------------------
  
                                           1997              1996             1997                1996
                                           ----              ----             ----                ----
<S>                                      <C>               <C>              <C>               <C> 

Insurance premium                        $  117.2          $ 112.9          $  239.5          $ 221.3

Net engineering services revenue             15.0             14.1              29.7             26.8

Net investment income                         8.8              7.9              16.7             15.9

Realized investment gains                     3.4              5.1               4.0              6.0
                                          --------          -------          --------          -------

    Total revenues                       $  144.4          $ 140.0          $  289.9          $ 270.0
                                           ======          =======          ========          =======

Income from continuing operations        $   16.4          $  12.0          $   32.2          $  26.4
                                         --------          -------          --------          -------

Net income                               $   16.4          $  13.4          $   32.2          $  30.4
                                          =======          =======          ========          =======

Income from continuing operations

per common share                         $    0.80         $   0.59         $    1.58         $   1.29
                                          --------          -------          --------          -------



Net income per common share              $    0.80         $   0.66         $    1.58         $   1.49
                                          ========          =======          ========          =======
</TABLE>


Net income per common share for the second  quarter of 1997 increased 21 percent
from the second  quarter of 1996 and increased 6 percent in the first six months
of 1997 compared to 1996 due to significantly  higher  underwriting gains in the
Company's  insurance  operations.  There were no earnings from HSB's interest in
its joint venture,  Radian International LLC during the quarter and year to date
through June 30, 1997.  Continued softness in Radian's  businesses due to delays
associated  with  the  transition  of  their  client  mix to one  that  is  more
commercial based than government  based accounted for the decrease.  On July 28,
1997 the HSB Board ratified  management's decision to exercise its option to put
its share of Radian  International  LLC to Dow on or about  January  1, 1998 for
approximately  $145  million.  Due to  this  decision,  the  results  of  Radian
International LLC have been classified as discontinued operations. In comparison
to 1996  results,  income  per share from  continuing  operations  increased  36
percent and 22 percent for the second quarter and year to date respectively.

Insurance  premiums  grew 4 percent in the quarter  and 8 percent  year to date,
with the increased  participation in IRI a contributing factor as well as growth
in both the domestic and  international  

                                       12
<PAGE>

books of business.  The second quarter combined ratio improved from 99.0 percent
in 1996 to 91.8 percent in 1997. Net engineering  services  revenue  increased 7
percent  for  the  second  quarter  and 11  percent  year to  date  compared  to
comparable periods last year.

The effective tax rates for the second  quarter and year to date were 26 percent
compared to 22 percent and 24 percent for the comparable prior periods. Tax rate
fluctuations  occur as underwriting and engineering  services results change the
mix of pre-tax income between fully taxable earnings and tax preferred earnings.
The  Company  continues  to manage its use of tax  advantageous  investments  to
maximize after tax earnings.


Recent Accounting Developments
------------------------------

In February 1997, the Financial  Accounting  Standards Board issued Statement of
Financial  Accounting  Standards No. 128,  "Earnings per Share".  This statement
establishes  standards for computing and presenting earnings per share (EPS). It
replaces 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 will be effective for year end
1997 financial statements.  Had this standard been in effect for 1997, basic EPS
would have increased $.01 for the second quarter to $.81.

In June 1997 the FASB issued SFAS 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
will  include a  presentation  of items  such as  market  value  adjustments  of
securities,  foreign  currency  translation,  and certain  adjustments  made for
benefit  plans.  This  statement  will  be  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
in 1998.

Other Developments
------------------

At a special meeting for the Company on June 23, shareholders voted to approve a
proposal  which  enabled the Company to form a new holding  company,  HSB Group,
Inc.  Shareholders of Hartford Steam Boiler's common stock automatically  became
holders of HSB Group's  common stock  through a share  exchange  approved by the
shareholders,  and certificates  representing Hartford Steam Boiler common stock
automatically represent the corresponding shares of HSB Group common stock.


                                       13
<PAGE>



Insurance Operations
--------------------

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

On December 1, 1996 HSB increased its  participation in Industrial Risk Insurers
(IRI)  from  14%  to  23.5%.  IRI  is  an  unincorporated,   voluntary  property
underwriting  association  currently comprised of twenty-three property casualty
insurance  companies.  IRI primarily  writes policies on a syndicate basis which
specifies to the insured the percentage share of risk accepted by each member of
the association. Each member company, therefore, operates as a direct insurer or
reinsurer on such policies and participates in the premiums and losses generated
thereunder in proportion to its membership interest.

In  essence,  the IRI  facilitates  the  proportional  sharing of risk under one
policy where each member is  essentially  considered to be the direct writer for
reporting, premium tax and other regulatory purposes. Liability on such policies
is several and not joint, and therefore,  members are not responsible for policy
liabilities of the other members. An increased participation does not expose the
Company to the effect of adverse loss  development  on claims  incurred prior to
the effective date of the increase.

Other than a nominal deposit,  which is refunded if participation  ceases, there
is no cost to  becoming a member of the IRI.  Members  can  change or  terminate
their  participation  on an annual basis.  Typically  participation  levels vary
based on a member's expectations of future profits.

IRI has a fiscal year ending November 30, and provides reports to its members on
a quarterly basis. As a result,  the Company's  increased  participation to 23.5
percent has initially been reflected in the first quarter  financial results for
1997.




                                       14
<PAGE>

<TABLE>


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


                                                1997              1996               1997             1996
                                                ----              ----               ----             ----
<S>                                            <C>              <C>                 <C>              <C>   
Gross earned premium                           $  149.2         $   137.7           $  305.0         $   271.4

Ceded premium                                      32.0              24.8               65.5              50.1
                                                 ------         ---------           --------         ---------

Insurance premium                                 117.2             112.9              239.5             221.3

Claims and adjustment expenses                     51.4              56.0              102.9             100.9

Underwriting, acquisition

         and other expenses                        56.4              56.3              115.2             110.6
                                                 ------         ---------           --------         ---------

Underwriting gain                              $    9.4         $     0.6           $   21.4         $     9.8
                                              =========        ==========           ========         =========




Loss ratio                                         43.9%             49.5%              43.0%             45.6%
Expense ratio                                      47.9%             49.5%              47.9%             49.5%
                                               ----------        ----------          --------          -------- 
Combined ratio                                     91.8%             99.0%              90.9%             95.1%
                                               ==========        ==========          ========          ========         
</TABLE>


Gross earned premiums in the second quarter and year to date increased 8 percent
and 12 percent from the comparable  periods in 1996. This increase was primarily
attributable  to the  increased  participation  in IRI ($6.4  million  and $16.5
million)  and to  growth in both  domestic  and  global  markets.  Gross  earned
premiums  representing  coverage  outside the U.S.  increased  12 percent in the
second quarter and 21 percent year to date from the  comparable  period in 1996.
In certain areas of the Company's direct domestic and international  businesses,
the market is experiencing  price erosion.  HSB will not write business at rates
which would  lessen our ability to maintain  underwriting  profit.  Increases in
ceded  premium of 29 percent in the current  quarter and 31 percent year to date
were  primarily due to the additional  participation  in IRI and the purchase of
facultative reinsurance at EIL.

The loss ratio decreased from 49.5 percent in the second quarter of 1996 to 43.9
percent in the current  quarter and from 45.6 percent in the first six months of
1996 to 43.0 percent in the first six months of 1997. In 1996, high frequency of
claims  and   unusually   severe  winter   weather   impacted  the  loss  ratio.
Approximately  $2.6 million of flood  related  losses were  reported  during the
first six  months  of 1997,  which  impacted  the loss  ratio by 1.1  percentage
points.  Gross  claims and  adjustment  expenses  for 1997 and 1996 were  $142.5
million and $214.2 million, respectively.

                                       15
<PAGE>

The expense ratio improved in both the quarter and year to date from  comparable
periods in the previous year as the growth rate in earned  premium  exceeded the
growth rate in underwriting and inspection expenses.  Underwriting,  acquisition
and other expenses were flat in the second quarter but increased approximately 4
percent year to date primarily due to increased  participation  in IRI. In April
HSB was notified that expected  obligations  to the Florida  Insurance  Guaranty
Association  relating to Hurricane Andrew were canceled.  Expenses in the second
quarter  benefited  from the  release  $.6  million  of  reserves  that had been
established in prior years for these assessments.


Engineering Services Operations
<TABLE>

                                                  Quarter Ended                      Six Months Ended
                                                     June 30                             June 30

                                             1997                1996           1997           1996
                                             ----                ----           ----           ----
<S>                                        <C>                 <C>              <C>            <C>     
Net engineering services revenue           $  15.0             $  14.1          $  29.7        $  26.8
Net engineering services expenses             14.1                12.3             27.7           23.6
                                            ------              ------          -------        -------

Operating gain                             $   0.9             $   1.8          $   2.0        $   3.2
                                            =======            =======           ======        =======

Net margin                                     6.1%               12.6%             6.6%          12.0%
</TABLE>

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.

Net engineering  services  revenues  increased $.9 million in the second quarter
and $2.9 million year to date  compared to the same periods in 1996.  The growth
in revenues was  primarily due to increases  generated by HSBRT.  The decline in
operating gain from the previous  periods reflects slower growth in the domestic
book and Far East  operations,  and  operating  costs  incurred  to develop  new
products and in new start up operations.

                                       16
<PAGE>

Investment Operations
<TABLE>

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

                                               1997             1996               1997             1996
                                               ----             ----               ----             ----
<S>                                         <C>               <C>                 <C>              <C>   

Net investment income                       $     8.8         $     7.9           $   16.7         $    15.9
Realized investment gains                         3.4               5.1                4.0               6.0
                                            ---------         ---------           --------         ---------
Pretax income from
         investment operations              $    12.2         $    13.0           $   20.7         $    21.9
                                            =========         =========           ========         =========
</TABLE>

                                       

Net  investment  income for the second  quarter and year to date  increased  $.9
million and $.8 million compared to the same periods in 1996.  Investable assets
increased  in 1997 in  comparison  to the same  period in 1996.  Net  investment
income was impacted  earlier in 1997 by calls of high yielding  preferred stocks
and cash collections from reinsurers that were not received until late in March.
In the second quarter net investment income increases  reflected more investable
funds  and a  modest  change  in the mix of the  portfolio  from  tax  preferred
investments  to more taxable  investments  with higher  pre-tax  yields.  Second
quarter net investment income was also impacted by higher interest costs related
to a larger amount of commercial paper outstanding.

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 stockholders 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.

In the fourth quarter of 1996, HSB entered into three zero cost collar contracts
to mitigate the effects of market risk on its domestic  common stock  portfolio.
The contracts  have  maturity  dates ranging from November 1997 to January 1998.
The contracts,  which were entered into when the S&P index was 744.3,  allow the
Company to recover from the counterparty if the index is below 695.2 at the time
of maturity and requires the Company to reimburse the  counterparty if the index
is above a range of 811.3 to  818.7  at the time of  maturity.  In  addition  to
offering  downside  protection for market declines in excess of  approximately 6
percent,  the collar  permits the Company to receive the dividends on its common
stock investments and retain a certain level of upside appreciation depending on
market movements.

At June 30, 1997 the S&P index was at 885.14  which is outside the bounds of the
collar.  Although  there would have been a settlement of $14.0 million had these
contracts  matured at June 30, 1997, HSB has adjusted its value of the contracts
to an estimated fair value at that date 

                                       17
<PAGE>

and reduced realized  investment gains by $19.4 million on a year to date basis.
The impact on the quarter was $18.0 million.

The Company's U.S.  common stock portfolio has experienced a total return of $37
million (which includes price  appreciation of approximately  $34 million) since
December 31, 1996,  and has had a price  movement  correlation  with the S&P 500
Index well in excess of 80%.


                                      
Liquidity and Capital Resources
-------------------------------
                                                       Balances at
                                            June 30                December 31
                                             -------                -----------

                                              1997                     1996
                                              ----                     ----

Total assets                               $ 1,181.2               $ 1,116.3
Short-term investments                          98.5                    97.9
Cash                                             4.7                     4.5
Short-term borrowings                           26.4                     3.2
Convertible Redeemable Preferred Stock          20.0                    20.0
Common shareholder's equity                    349.5                   345.6

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.  The Company also  maintains a highly liquid
short-term portfolio to provide for immediate cash needs.

Cash provided from  operations was $13.1 million in the first six months of 1997
compared to $36.5 million for the same period in 1996. Insurance operations cash
flow decreased as claims paid  increased 54 percent  compared to the same period
in 1996, and premiums collected were 5 percent higher year to date.  Collections
from  reinsurers  increased  significantly  in the current  year.  The Company's
participation in IRI impacted  components of the Consolidated  Statement of Cash
Flows for 1997,  including a year to date  positive  impact of $8.3  million and
$9.4 million for 1997 and 1996, respectively, to cash provided from operations.

Capital  resources  consist  of  shareholders'  equity,  convertible  redeemable
preferred  stock and debt  outstanding  and  represent  those funds  deployed or
available to be deployed to support business  operations.  Common  shareholders'
equity of $349.5  million  at June 30,  1997  increased  by $3.9  million  since
December 31, 1996.  The  increase  reflects net income of $32.2  million year to
date and an increase in unrealized  gains, net of tax, of $10.9 million,  offset
by dividends of $23.3 million and share repurchases.

On January 27, 1997 the Board of Directors  renewed the Company's  authorization
to repurchase up to one million of its common shares.  During the second quarter
the Company repurchased 340,400 common shares at a cost of $15.3 million. At its
July  meeting,  the HSB  Board  of  Directors  increased  the  authorization  to
repurchase  shares  to  two  million.   Treasury  stock  of  

                                       18
<PAGE>

$74.8  million was  reclassified  to retained  earnings and  additional  paid-in
capital during 1997 in accordance with the Connecticut  Business Corporation Act
which, effective January 1, 1997, eliminated the concept of treasury shares. For
comparative  purposes treasury stock of $59.5 million was likewise  reclassified
at December 1996.

At June 30, 1997, 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, 1997 and December 31,
1996  was  $26.4  million  and  $3.2  million,  respectively.  The  Company  has
authorized  a guaranty  of up to 40 percent of Radian  International,  LLC's $40
million  credit  facility  with The Dow Chemical  Company.  At June 30, 1997 the
amount guaranteed was $13.7 million.

On July 10, 1997, HSB Group, Inc.  announced the sale of $110 million of 30 year
Capital Securities in a private  placement.  The securities are non-callable for
ten years and may be called  earlier  upon the  occurrence  of a tax event.  The
securities were issued through HSB Capital I, a Delaware  business trust created
by HSB Group,  Inc. at a floating rate tied to 90 day LIBOR.  The initial coupon
is approximately 6.7 percent. Holders of the Capital Securities will be entitled
to receive preferential cumulative cash distributions accumulating from the date
of original issuance and payable quarterly in arrears. The Company has the right
to defer  payment of  interest at any time or from time to time for a period not
exceeding 20 consecutive quarterly periods with respect to each deferral period.
During an extension  period,  interest will continue to accrue and the amount of
distributions  to which  holders of the Capital  Securities  are  entitled  will
accumulate, and the Company will be prohibited from paying any cash dividends on
its common stock. The Company has irrevocably and unconditionally guaranteed all
of the Issuer  Trust's  obligations  under the Capital  Securities.  The Company
expects to use the proceeds for general  corporate  purposes,  which may include
the  repurchase of HSB common stock;  funding  investments  in, or extensions of
credit to,  subsidiaries;  repayment of maturing  debt;  and financing  possible
future acquisitions.

The Company is involved in three arbitration or litigation proceedings regarding
the extent to which  certain  explosion  events  are  insured  under  boiler and
machinery  policies  of the  Company 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.  More  information  pertaining to these legal
proceedings  may be found  under note 7 of the Notes to  Consolidated  Financial
Statements herein.

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

                                       19
<PAGE>

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;  the adequacy of loss reserves;
changes in asset  valuations;  consolidation  and restructuring in the insurance
industry; 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.


                                       20
<PAGE>



                           PART II - OTHER INFORMATION

Item 1. Legal Proceedings
-------------------------

The Company is involved in three arbitration or litigation proceedings regarding
the extent to which  certain  explosion  events  are  insured  under  boiler and
machinery  policies  of the  Company 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.

A lower court ruling in one of these cases held that an explosion did occur, and
that the  Company was not liable for losses of the  insured  resulting  from the
explosion.  In a further  action,  the court  denied  the  Company's  motion for
summary judgment on certain issues,  thus leaving the Company potentially liable
for certain unquantified losses resulting from events prior to the explosion. In
the first quarter of 1997 the Company and the property  insurer  jointly settled
the case with the insured.  The Company's  ultimate share of the settlement will
be  determined  in an  arbitration  proceeding  with the property  insurer.  The
Company has incurred  gross losses and LAE of $40.7 million and a net loss after
taking  into  account  reinsurance  recoverables  of $6.4  million,  of which $5
million  represents  claim cost and the remaining $1.4 million  represents  loss
adjustment expenses.  As a result of payments made to date, at June 30, 1997 the
Company  carried  gross loss and LAE reserves of $2.8  million and  recoverables
from reinsurers of $2.9 million.

The Company has accrued  $6.5  million  with  respect to the other two cases for
potential  loss  adjustment  expenses,  including  legal  costs  to  defend  the
Company's  position.  One case is in the process of pre-trial  summary  judgment
motions  and  appeals;  the  other  case is  involved  in both  arbitration  and
litigation  proceedings.  A trial date has not been set for either case.  In the
event that the Company is held liable for one or both of the  remaining  claims,
amounts in excess of the  Company's  net  maximum  aggregate  retention  of $8.5
million is recoverable from the Company's 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 the Company'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.  The Company's  reinsurance
contracts do not require the Company to reimburse its  reinsurers for any losses
such  reinsurers  might incur should these cases not be decided in the Company's
favor.  Nevertheless,  reinsurers  often quote rates for future  coverages based
upon their or other reinsurer's  experience on a particular account.  Therefore,
in the event the  Company's  reinsurers  pay  significant  sums  pursuant to the
arbitration  or  litigation  proceedings  described  above,  it  is  likely  the
Company's reinsurance rates would increase in future periods. However, given the
insured capacity that exists in reinsurance markets worldwide,  coupled with the
Company's  ability to negotiate a redesign 

                                       21
<PAGE>

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 2.  Changes in Securities
------------------------------

Recent Sales of Unregistered Securities

Effective  September 26, 1996, the Company  terminated  its retirement  plan for
current and future  non-employee  directors and adopted the Directors  Stock and
Deferred  Compensation  Plan (the "Directors  Plan"). At that time, the value of
benefits  payable to current  non-employee  directors who were covered under the
terminated  retirement plan was converted into stock  equivalent units under the
Directors  Plan.  Under the Directors  Plan,  non-employee  directors  will each
receive an annual award of 550 stock  equivalent  units,  and may elect to defer
all or a portion  of their  cash  compensation  for  payment  at a future  date.
Deferred  accounts will be credited  annually  with interest or translated  into
stock  equivalent  units,  at the election of the director.  The number of stock
equivalent  units  equals  the amount of cash  compensation  divided by the fair
market  value  of  Company  common  stock on the date  such  compensation  would
otherwise have been paid.

Account  balances  held  under  the  Directors  Plan  are paid out in cash or an
equivalent  number of shares of Company  common  stock,  at the  election of the
director.  Dividend  equivalents,  in an amount equal to the amount of dividends
that would have been payable had each stock  equivalent unit constituted a share
of Company common stock,  are payable in cash at the end of the plan year on all
stock equivalent units credited under the plan.

33,858.48 stock equivalent units, in the aggregate, were granted to eight of the
Company's  non-employee  directors  on September  26, 1996,  based on a price of
$44.625 per share.

Under the Company's Long-Term  Incentive Plan (the "Long-Term  Incentive Plan"),
senior  executives  of  the  Company  are  eligible  for  awards  based  on  the
achievement of long-term  performance goals. For each performance goal, an award
schedule  of  performance  contingent  units is  established.  The actual  award
payable at the  conclusion  of a three year  performance  period is based on the
level of attainment of the performance  goals  established for such period.  Any
payments  under the plan are made in cash or in shares of Company  common  stock
(which may be restricted  shares) as  determined by the committee  administering
the plan.  Dividend  equivalent  units  may be paid in  conjunction  with  award
payouts  made under the plan equal to the  amount of cash  dividends  that would
have  been  paid if the  award  had been  made in  Company  common  stock at the
committee's discretion.

                                       22
<PAGE>

On January 27, 1997, a total of 7,586 shares of restricted stock were awarded to
senior  executives  under  the  plan.  The fair  market  value of a share of the
Company's common stock on that date was $45.8125.

To the  extent  that such  grants  under the  Directors  Plan and the  Long-Term
Incentive Plan constitute  sales of equity  securities,  the Company issued such
stock  equivalent  units,  performance  contingent units and restricted stock in
reliance on the  exemption  provided by Section  4(2) of the  Securities  Act of
1933,  as amended,  taking into  account  the nature of the  Directors  Plan and
Long-Term  Incentive Plan, the sophistication of the non-employee  directors and
senior   executives  and  their  access  to  the  kind  of  information  that  a
registration statement would provide.

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

         (a)      The Annual Meeting of Stockholders  was held on April 24, 1997
                  and a Special  Meeting  of  Stockholders  was held on June 23,
                  1997.

         (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
                           -------             ---------         --------------
                           William B. Ellis    16,371,482            797,462
                           E. James Ferland    16,817,823            351,121
                           Wilson Wilde        16,602,165            566,779

                  2.       Proposal to amend and restate 1995 Stock Option Plan
                           ----------------------------------------------------

                           Votes for                 Against           Abstain
                           ---------                 -------           -------
                           15,302,655                1,536,186         330,103

                  3.       Appointment of Coopers & Lybrand as  Independent 
                           ------------------------------------------------
                           Public Accountants
                           ------------------   

                           Votes for                 Against           Abstain
                           ---------                 -------           ------- 
                           16,863,270                115,596           191,356

                                       23
<PAGE>

                  The  following  matter  was  voted  upon at the June 27,  1997
                  Special Meeting with the voting results indicated.

                           Proposal  to  approve  Agreement  and  Plan of  Share
                           -----------------------------------------------------
                           Exchange  in  connection  with  the  formation  of  a
                           -----------------------------------------------------
                           revised holding company structure.
                           ---------------------------------

                           Votes for                 Against           Abstain
                           ---------                 -------           -------
                           15,276,070                191,093           161,267


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

         (a)  Exhibits -- Exhibit 4.  Documents related to HSB Capital I:

                            Amended and Restated  Trust  Agreement  dated as of 
                            July 15, 1997 among HSB  Group,  Inc.,  The First 
                            National Bank of Chicago, First Chicago Delaware 
                            Inc. and the Administrative Trustees. 

                            Junior Subordinated Indenture dated as of July 15,
                            1997 between HSB Group, Inc. and The First National
                            Bank of Chicago.

                            Guarantee Agreement between HSB Group, Inc. and The 
                            First National Bank of Chicago dated as of July 15, 
                            1997.

                            First Supplemental Indenture between HSB Group, Inc.
                            and The First National Bank of Chicago dated as of 
                            July 15, 1997.

                           Exhibit 27. Financial Data Schedule.

         (b)  Reports on Form 8-K -

                           Form 8-K/A  filed on May 12, 1997  amending  Form 8-K
                           dated January 30, 1996.  

                           Form 8-K filed June 23,  1997 to announce shareholder
                           approval of a revised holding company structure. 

                                       24

 <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 13, 1997               By:      /s/ Saul L. Basch
                                              Saul L. Basch
                                              Senior Vice President, Treasurer
                                              and Chief Financial Officer

Date:  August 13, 1997               By:      /s/ Robert C. Walker
                                              Robert C. Walker
                                              Senior Vice President and
                                                     General Counsel



                                       25
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