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 September 30, 1999

                                       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 October 29, 1999: 29,114,959.


<PAGE>


                                 HSB GROUP, INC.

                                      INDEX


PART I   FINANCIAL STATEMENTS                                           PAGE

      Item 1 - Financial Statements

      Consolidated Statements of Operations for the
      Quarters ended September 30, 1999
      and 1998 and the Nine Months ended September 30,
      1999 and 1998 (unaudited)........................................  3

      Consolidated Statements of Comprehensive Income
      for the Quarters ended September 30, 1999 and 1998
      and the Nine Months ended September 30, 1999 and
      1998(unaudited)..................................................  4

      Consolidated Statements of Financial Position
      as of September 30, 1999 (unaudited)
      and December 31, 1998 ...........................................  5

      Consolidated Statements of Cash Flows for the
      Nine Months ended September 30, 1999 and 1998
      (unaudited) .....................................................  6

      Notes to Consolidated Financial Statements (unaudited)...........  7

      Item 2 - Management's Discussion and Analysis
         of Consolidated Financial Condition and Results
         of Operations................................................. 13

PART II  OTHER INFORMATION

      Item 1 - Legal Proceedings....................................... 25
      Item 6 - Exhibits and Reports on Form 8-K........................ 25

SIGNATURES............................................................. 26


                                       2
<PAGE>



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

<TABLE>
<CAPTION>

                                                             Quarter                   Nine Months
                                                        Ended September 30         Ended September 30
Revenues:                                               1999         1998         1999        1998
                                                    -------------------------------------------------------
<S>                                                    <C>           <C>           <C>         <C>

  Gross earned premium                                 $200.6        $212.5        $616.3      $567.9
  Ceded premiums                                        107.9         113.0         333.4       278.6
                                                    -------------------------------------------------------
  Insurance premiums                                     92.7          99.5         282.9       289.3
  Engineering services                                   30.6          25.3          86.0        67.7
  Net investment income                                  16.5          15.5          48.8        46.6
  Realized investment gains                              13.5           7.9          30.8        18.4
                                                    -------------------------------------------------------
     Total revenues                                     153.3         148.2         448.5       422.0
                                                    -------------------------------------------------------

Expenses:
  Claims and adjustment                                  44.5          44.2         120.7       129.1
  Policy acquisition                                     21.6          17.9          65.5        45.3
  Underwriting and inspection                            24.4          26.4          72.6        83.5
  Engineering services                                   29.5          23.4          80.3        62.1
  Interest                                                0.6           0.2           1.6         0.5
                                                    -------------------------------------------------------
     Total expenses                                     120.6         112.1         340.7       320.5
                                                    -------------------------------------------------------

Gain on sale of IRI                                       -             -             -          39.0

Income from continuing operations before income
   taxes and distributions on capital securities       $ 32.7        $ 36.1        $107.8      $140.5

Income taxes (benefit):
   Current                                               11.7           9.8          31.0        39.1
   Deferred                                              (2.4)         (0.5)          0.6         2.0
                                                    -------------------------------------------------------
     Total income taxes                                $  9.3        $  9.3        $ 31.6      $ 41.1

Distribution on capital securities of subsidiary
   trust, net of income tax benefits of $2.4;
   $2.5; $7.2; and $7.4.                                  4.6           4.6          13.6        13.8
                                                    -------------------------------------------------------
Income from continuing operations                      $ 18.8        $ 22.2        $ 62.6      $ 85.6

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

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

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

Net income                                             $ 18.8        $ 22.2        $ 62.6      $115.9
                                                    -------------------------------------------------------

Per share data:

Net income per common share-basic:
    Income from continuing operations                 $   0.65       $  0.75       $  2.16     $  2.91
    Discontinued operations                               -             -             -           1.04
    Net income                                        $   0.65       $  0.75       $  2.16     $  3.95

Net income per common share-assuming dilution:
    Income from continuing operations                 $   0.64       $  0.72       $  2.10     $  2.71
    Discontinued operations                               -             -             -           0.86
    Net income                                        $   0.64       $  0.72       $  2.10     $  3.57

Dividends declared per share                          $   0.44       $  0.42       $  1.28     $  1.22
Average shares outstanding and common stock              34.7          35.3          34.6        35.3
   equivalents
</TABLE>

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

                                       3
<PAGE>


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

<TABLE>
<CAPTION>

                                                                           Quarter                  Nine Months
                                                                     Ended September 30          Ended September 30
                                                                    1999           1998           1999        1998
                                                                -------------------------------------------------------
<S>                                                                <C>            <C>             <C>         <C>
Net income                                                         $  18.8        $ 22.2          $ 62.6      $ 115.9
Other comprehensive income, net of tax:

   Unrealized gains (losses) on securities:

     Unrealized holding gains (losses) arising during the
       period (net of taxes (benefits) of ($13.6); ($12.4);
       ($18.0); and $2.5)                                            (24.9)        (21.8)          (33.2)         5.5


     Add: reclassification adjustments for gains included in
       net income                                                     (8.8)         (5.2)          (20.0)       (12.0)
                                                                -------------------------------------------------------

       Total unrealized gains (losses) on securities                 (33.7)        (27.0)          (53.2)        (6.5)

Foreign currency translation adjustments                               0.2          (1.1)            1.1         (1.8)
                                                                -------------------------------------------------------

Other comprehensive income                                           (33.5)        (28.1)          (52.1)        (8.3)
                                                                -------------------------------------------------------

Comprehensive income                                               $ (14.7)       $ (5.9)         $ 10.5       $107.6
                                                                =======================================================
</TABLE>

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

                                       4
<PAGE>

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

<TABLE>
<CAPTION>
                                                                      September 30,    December 31,
                                                                           1999         1998
                                                                        (Unaudited)
<S>                                                                   <C>                 <C>

Assets:
   Cash and cash equivalents                                          $   46.4            $   18.3
   Short-term investments, at cost                                        44.6                62.3
   Fixed maturities, at fair value
     (cost - $558.2; $568.5)                                             525.3               577.1
   Equity securities, at fair value
     (cost - $339.4;  $326.3)                                            409.8               437.1
                                                                      ------------------------------
     Total cash and invested assets                                    1,026.1             1,094.8

   Reinsurance assets                                                    826.3               630.4
   Insurance premiums receivable                                         133.6               146.7
   Engineering services receivable                                        35.0                26.1
   Fixed assets                                                           56.6                54.9
   Prepaid acquisition costs                                              51.1                46.6
   Capital lease                                                          14.0                14.6
   Other assets                                                          146.3               129.9
                                                                      ------------------------------
     Total assets                                                     $2,289.0            $2,144.0
                                                                      ==============================

Liabilities:
   Unearned insurance premiums                                        $  440.9            $  477.9
   Claims and adjustment expenses                                        760.7               550.3
   Short-term borrowings                                                  44.4                21.0
   Long-term borrowings                                                   25.1                25.1
   Capital lease                                                          27.8                27.9
   Deferred income taxes                                                  14.4                42.7
   Dividends and distributions on capital securities                      18.6                23.2
   Ceded reinsurance payable                                              60.5                64.1
   Other liabilities                                                      91.6                83.6
                                                                      ------------------------------
     Total liabilities                                                 1,484.0             1,315.8
                                                                      ------------------------------
Company obligated mandatorily redeemable preferred exchange
   capital securities of subsidiary Trust I holding solely junior
   subordinated deferrable interest debentures of the Company, net
   of unamortized discount of $1.0 in 1999 and $1.1 in 1998              109.0               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 50.0; shares
     issued and outstanding 29.1; 28.9)                                   10.0                10.0
   Additional paid-in capital                                             35.9                33.5
   Accumulated other comprehensive income                                 14.7                66.8
   Retained earnings                                                     341.3               311.2
   Benefit plans                                                          (5.9)               (2.2)
                                                                      ------------------------------
     Total shareholders' equity                                          396.0               419.3
                                                                      ------------------------------
     Total                                                            $2,289.0            $2,144.0
                                                                      ==============================

   Common  shareholders' equity per common share                      $   13.63           $   14.53
</TABLE>

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

                                       5
<PAGE>

                                              HSB GROUP, INC
                                   Consolidated Statements of Cash Flows
                                                Unaudited
                                              (in millions)
<TABLE>
<CAPTION>
                                                                               Nine Months Ended
                                                                                  September 30,
                                                                        -----------------------------------
                                                                             1999              1998
                                                                        -----------------------------------
<S>                                                                         <C>             <C>
Operating Activities:
Net income                                                                  $  62.6         $ 115.9
Adjustments to reconcile net income to net cash provided by operating
activities:
   Depreciation and amortization                                               14.7             9.6
   Deferred income taxes                                                        0.6             2.0
   Realized investment gains                                                  (30.8)          (18.4)
   Distributions on capital securities                                         20.8            21.2
   Gain from the disposition of Radian, net of income taxes                     -             (30.3)
   Gain from the disposition of IRI, net of income taxes                        -             (25.2)
   Change in balances, net of effects from purchases and sales
     of subsidiaries:
     Insurance premiums receivable                                             13.1           (17.1)
     Engineering services receivable                                           (5.5)          (12.1)
     Prepaid acquisition costs                                                 (4.5)            3.7
     Reinsurance assets                                                      (195.9)         (471.1)
     Unearned insurance premiums                                              (37.0)          186.3
     Claims and adjustment expenses                                           210.4           246.1
     Ceded reinsurance payable                                                 (3.6)           84.2
     Other                                                                     (9.1)          (51.8)
                                                                        -----------------------------------
       Cash provided by operating activities                                   35.8            43.0
                                                                        -----------------------------------

Investing Activities:
Fixed asset additions, net                                                     (9.4)          (12.6)

Investments:
   Sale of short-term investments, net                                         17.7            70.5
   Purchase of fixed maturities                                              (123.8)         (378.3)
   Proceeds from sale of fixed maturities                                     113.6            44.1
   Redemption of fixed maturities                                              13.6            29.8
   Purchase of equity securities                                             (254.8)         (275.6)
   Proceeds from sale of equity securities                                    279.2           191.4
   Proceeds from disposition of Radian                                          -             128.9
   Proceeds from disposition of IRI                                             -              49.1
   Purchase of Solomon Associates, Inc., net of cash acquired                   -              (2.1)
   Purchase of Kemper books of business                                         -             (29.5)
   Purchase of Structural Integrity Associates, Inc., net of cash
    acquired                                                                   (5.3)            -
                                                                        -----------------------------------
       Cash provided by (used in) investment activities                        30.8          (184.3)
                                                                        -----------------------------------

Financing Activities:
Increase (decrease) in short-term borrowings                                   22.1           (38.0)
Dividends and distributions on capital securities                             (62.5)          (52.0)
Reacquisition of stock                                                         (2.2)          (27.8)
Exercise of stock options                                                       4.1             9.3
                                                                        -----------------------------------
       Cash used in financing activities                                      (38.5)         (108.5)
                                                                        -----------------------------------

   Net increase (decrease) in cash and cash equivalents                        28.1          (249.8)

   Cash and cash equivalents at beginning of period                            18.3           293.2
                                                                        -----------------------------------
   Cash and cash equivalents at end of period                               $  46.4         $  43.4
                                                                        ===================================
Interest paid                                                               $   2.5         $   1.9
                                                                        -----------------------------------
Federal income tax paid                                                     $  19.8         $  41.7
                                                                        -----------------------------------
</TABLE>

Non-cash  investing  and financing  activities:  Issuance of HSB common stock in
connection with the acquisition of Solomon Associates, Inc. in 1998.

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

                                       6
<PAGE>


                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (Unaudited)
1.       General

         The interim  consolidated  financial  statements in this report present
         the  consolidated  accounts  of HSB Group,  Inc.  and its  subsidiaries
         (collectively,  HSB or the Company).  They 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 1998 Annual Report. Certain amounts for 1998 have been reclassified
         to conform with the 1999 presentation.

2.       Discontinued Operations

         On January 2, 1998, The Hartford Steam Boiler  Inspection and Insurance
         Company  (HSBIIC)  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, HSBIIC
         contributed  substantially  all of the  assets and  liabilities  of its
         wholly-owned  subsidiary,  Radian  Corporation  at  historical  cost to
         Radian  LLC. No gain was  recognized  on the  transfer.  The results of
         Radian  LLC  were  classified  as  discontinued   operations  following
         ratification  on July  28,  1997 by the  HSB's  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 and recognized at the
         time the gain was recognized in 1998. This  transaction  resulted in an
         after-tax gain of $36.9 million which was recorded in the first quarter
         of 1998.

3.       Industrial Risk Insurers

         On January 6, 1998,  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  $36.6
         million  pre-tax and $23.8  million  after-tax,  of which $39.0 million
         pre-tax and $25.2 million after-tax was recognized in the first quarter
         of 1998. In the fourth  quarter of 1998,  adjustments  were made to the
         costs  associated  with the sale.  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. HSBIIC received gross proceeds of $49.1 million,  prior to
         transaction  costs, for its 23.5 percent share in IRI. Because the sale
         was  structured  in part as a  reinsurance  transaction,  a portion  of
         HSBIIC's gross proceeds was utilized to reinsure in-force policies with
         ERC.

                                       7
<PAGE>
         Contemporaneous  with the close of the sale, IRI was reconstituted with
         ERC (with a 99.5 percent  share) and HSBIIC (with a 0.5 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  retains  85  percent  of the  equipment  breakdown
         insurance  and 15 percent of the  property  insurance  of the  combined
         insurance portfolio. The agreements are of indefinite duration, but ERC
         has an option to purchase  HSB's  interest in the business in the event
         of a 50 percent or more change in the control of HSB.

4.       Acquisitions

         In July 1999 HSBIIC  acquired  Structural  Integrity  Associates,  Inc.
         (Structural)   based  in  San  Jose,   California.   Structural  is  an
         engineering  consulting firm which  specializes in prevention,  control
         and repair of structural and mechanical failures. The Company continues
         to focus on identifying  and evaluating  acquisition  candidates in the
         niche engineering management consulting service business,  primarily in
         process  industries,  in order to expand or complement its  engineering
         service capabilities.

5.       Recent Accounting Developments

         The Accounting  Standards Executive Committee of the American Institute
         of  Certified   Public   Accountants   (AcSEC)  recently  issued  three
         Statements  of Position  (SOP) which became  effective for fiscal years
         beginning  after December 15, 1998: SOP 97-3,  "Accounting by Insurance
         and Other  Enterprises for  Insurance-Related  Assessments";  SOP 98-1,
         "Accounting  for the Costs of Computer  Software  Developed or Obtained
         for Internal  Use";  and SOP 98-5,  "Reporting on the Costs of Start-Up
         Activities".   Because  the  Company's   accounting  policies  were  in
         compliance with the provisions of the SOP's, the  implementation of the
         SOP's had no impact upon the results of operations, financial condition
         or cash flows.

         In June 1998, the Financial  Accounting  Standards Board (FASB) issued
         Statement of Financial Accounting Standard (SFAS) No. 133, "Accounting
         for Derivative  Instruments  and Hedging  Activities".  This statement
         establishes   accounting   and  reporting   standards  for  derivative
         instruments,  including  certain  derivative  instruments  embedded in
         other  contracts,  and for hedging  activities.  It requires  that all
         derivatives  be  recognized  as either  assets or  liabilities  in the
         statement of financial  position and that such instruments be measured
         at  fair  value.  In  addition,  all  hedging  relationships  must  be
         designated,  reassessed and  documented  pursuant to the provisions of
         SFAS No.  133. In June 1999 SFAS No. 137 was  issued.  This  statement
         defers the effective date of SFAS No. 133 to fiscal quarters of fiscal
         years beginning after June 15, 2000. Based on its current  operations,
         product  designs  and  investment  strategy,   the  Company  does  not
         anticipate  that the adoption of the  provisions  of SFAS No. 133 will
         have a material impact on results of operations,  financial  condition
         or cash flows.

         In October 1998, AcSEC issued SOP 98-7, "Deposit Accounting: Accounting
         for Insurance and Reinsurance  Contracts That Do Not Transfer Insurance
         Risk." The SOP  identifies  several  methods of deposit  accounting and
         provides  guidance  on the  application  of each  method.  This  SOP is
         effective for financial  statements  for fiscal years  beginning  after
         June 15,  1999.  Currently  the  Company is not party to any  contracts
         which do not comply with the risk transfer  provisions of SFAS No. 113,
         "Accounting  and  Reporting  for  Reinsurance  of  Short-Duration   and
         Long-Duration  Contracts,"  and,  therefore,  does

                                       8
<PAGE>

          not anticipate the adoption of SOP 98-7 will have a material impact on
          results of operations, financial condition or cash flows.


6.       Legal Proceedings

         HSBIIC has been involved in three  significant  claim-related  disputes
         concerning  the extent to which certain  explosion  events were insured
         under boiler and machinery coverages of HSBIIC.  Information  regarding
         these  disputes has been  provided in previous  10-K and 10-Q  reports.
         Current  rulings  in all three  cases  confirm  HSBIIC's  long-standing
         position that HSBIIC  policies do not cover the  explosion  events that
         occurred in those cases.  In one case the parties settled their dispute
         following  Summary  Judgment  rulings of the Federal District Court for
         the State of Illinois;  in a second case, a decision of an  arbitration
         panel  has  been  confirmed  by the  Superior  Court  of the  State  of
         Connecticut; and in a third case, judgment has been entered in HSBIIC's
         favor on remand  from the  Federal  Court of  Appeals  for the  Seventh
         Circuit.

          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 or
          with respect to the disputes  above or any other known  litigation  in
          which the Company is a party,  will have a material  adverse impact on
          the results of operations or the financial position of the Company.



7.       Earnings per share

         Computation of Earnings Per Share:

<TABLE>
<CAPTION>
                                                       Quarter Ended                      Nine Months Ended
                                                    September 30, 1999                    September 30, 1999
                                                    ------------------                    ------------------
                                            Income       Shares        Per        Income          Shares       Per
                                                                       Share                                  Share
                                            ------       ------        ------     -------         -------     -----
           <S>                              <C>            <C>          <C>        <C>              <C>        <C>

           Income from continuing
                operations                  $ 18.8                                 $ 62.6
           Basic EPS:
           Income available to common
                shareholders                $ 18.8                                 $ 62.6
           Weighted Average Common
                Shares Outstanding                         29.1                                     29.0
           Income from continuing
                operations per common
                share - basic                                           $ 0.65                                 $ 2.16

           Effect of dilutive securities:
             After-tax interest on
              convertible capital
              securities                    $  3.4                                 $ 10.3
             Convertible capital
              securities                                    5.3                                      5.3
              Stock options                                 0.3                                      0.3
           Diluted EPS:
           Income from continuing
              operations available to
              common and assumed
              conversions                   $ 22.2         34.7                    $ 72.9           34.6

           Income from continuing
              operations per common
              share - assuming dilution                                $ 0.64                                  $ 2.10

</TABLE>

                                       9
<PAGE>

<TABLE>
<CAPTION>

                                                       Quarter Ended                        Nine Months Ended
                                                    September 30, 1998                     September 30, 1998

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

           Income from continuing
                operations                  $ 22.2                                 $ 85.6
           Basic EPS:
           Income available to common
                shareholders                $ 22.2                                 $ 85.6
           Weighted Average Common
                Shares Outstanding                          29.4                                     29.3
           Income from continuing
                operations per common
                share - basic                                          $ 0.75                                   $ 2.91

           Effect of dilutive securities:
             After-tax interest on
              convertible capital
              securities                    $  3.4                                 $ 10.2
             Convertible capital
              securities                                     5.3                                      5.3
              Stock options                                  0.6                                      0.7
           Diluted EPS:
           Income from continuing
              operations available to
              common and assumed
              conversions                   $ 25.6          35.3                   $ 95.8            35.3

           Income from continuing
              operations per common
              share - assuming dilution                                $ 0.72                                   $ 2.71


</TABLE>

8.       Segment Information

         In 1998, HSB implemented  the provisions of 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 utilizing the management  approach
         to defining operating  segments.  It includes  disclosure  requirements
         relating  to  products  and  services,   geographic   areas  and  major
         customers.  The  adoption  of SFAS No. 131 did not affect  consolidated
         results  of  operations  or  financial  position  but  did  affect  the
         disclosure of segment information.

         HSB has four reportable  segments--Commercial insurance, Global Special
         Risk  insurance,   Engineering  services  and  Investments.  HSB  is  a
         multi-national company operating primarily in North American, European,
         and Asian  markets.  Through its  Commercial  segment  operations,  HSB
         provides risk modification services,  equipment breakdown insurance and
         loss recovery  services to commercial  businesses.  The Global  Special
         Risk  operating  segment  focuses  on the needs of  equipment-intensive
         industries by offering all risk coverage  with  customized  engineering
         consulting and risk management.  HSB's Engineering  services operations
         offers  professional  scientific and technical  consulting for industry
         and government  worldwide.  The Company's investment assets are managed
         by its Investment operating segment.

         The accounting  policies of the segments are consistent  with generally
         accepted accounting principles except for certain benefit charges which
         comprise the Corporate  Account.  HSB evaluates the  performance of its
         segments and  allocates  resources to them based on net income  (loss).
         Segment assets are not included in this  evaluation  process.  Interest
         income  and  expense  are   included  in  the  results  of   Investment
         operations.

                                       10
<PAGE>

         The  following  presents  revenue  and net  income  from the  Company's
         reportable  segments and reconciles these amounts to the  corresponding
         consolidated totals:

<TABLE>
<CAPTION>
                                                              Quarter Ended                Nine Months Ended
                                                              September 30                   September 30
                                                      -------------------------------     ------------------
                                                          1999             1998           1999            1998
           -------------------------------------------- ----------- ---- ----------- -- ----------- -- ------------
           <S>                                           <C>              <C>             <C>             <C>

           Revenues from continuing operations
           Insurance premiums:
           Commercial                                    $   82.7         $   83.5        $ 245.2         $ 220.5
           Global Special Risks                              10.1             14.5           36.9            63.8
           Engineering services                              30.6             25.3           86.0            67.7
           Net investment income and realized
             investment gains                                30.0             23.4           79.6            65.0
                                                        -----------      -----------    -----------    ------------
           Total revenues from reportable segments          153.4            146.7          447.7           417.0
           Other segments                                   (0.1)              1.5            0.8             5.0
                                                        -----------      -----------    -----------    ------------
           Total revenues                                 $ 153.3          $ 148.2        $ 448.5         $ 422.0
                                                        ===========      ===========    ===========    ============

           Net income (loss):
           Commercial                                   $     4.2        $     7.6       $   10.1        $   11.5
           Global Special Risks                              (1.6)            (2.2)           6.3             5.0
           Engineering services                               0.5              1.2            3.0             3.3
           Investment                                        21.3             17.6           55.9            47.9
                                                        -----------      -----------    -----------    ------------
           Total net income from reportable segments         24.4             24.2           75.3            67.7
           Other segments                                    (2.2)             1.7           (3.7)            2.9
           Corporate account                                  1.2              0.9            4.6             3.6
           Distributions on capital securities               (4.6)            (4.6)         (13.6)          (13.8)
           Discontinued operations                            -                -              -              30.3

           Gain on sale of IRI, net of income taxes           -                -              -              25.2

                                                        -----------     ------------    -----------    ------------

           Net income                                    $   18.8         $   22.2        $  62.6        $  115.9
                                                        ===========      ===========    ===========    ============
</TABLE>

9.       Global Floating Rate Capital Securities

         On July 15,  1997,  a trust  sponsored  and wholly owned by the Company
         issued $110,000,000  aggregate liquidation amount of capital securities
         in a private  placement  and 3,403 shares of common  securities  to the
         Company,   the  proceeds  of  which  were  invested  by  the  trust  in
         $113,403,000   aggregate   principal   amount  of  the  Company's  debt
         securities.  On November  5, 1997,  an  exchange  offer was  commenced,
         pursuant  to which  the  capital  securities  originally  issued in the
         private  placement  were  exchanged  for capital  securities  that were
         registered  with the Securities and Exchange  Commission  (the "Capital
         Securities") and the debt securities were exchanged for debt securities
         that were registered  with the Securities and Exchange  Commission (the
         "Debt Securities" ).

         The Debt  Securities  represent  all of the  assets of the  trust.  The
         proceeds  from the  issuance  of the Debt  Securities  were used by the
         Company for general corporate purposes. The Debt Securities and related
         income statement  effects are eliminated in the Company's  consolidated
         financial  statements.  The  $113.4  million  principal  amount of Debt
         Securities accrue and pay cash distributions  quarterly in arrears at a
         variable  rate of LIBOR plus .91% of the stated  liquidation  amount of
         $1,000 per Debt Security, and are scheduled to mature on July 15, 2027.

         The Capital Securities accrue and pay cash  distributions  quarterly in
         arrears at a variable rate of LIBOR plus .91% of the stated liquidation
         amount  of  $1,000  per  Capital  Security.   The  terms  of  the  Debt
         Securities,  the  guarantee  of the Company with respect to the Capital
         Securities,  the Indenture and the Trust Agreement  together  provide a
         full guarantee of amounts due on the Capital Securities.

                                       11
<PAGE>

         The Capital Securities are mandatorily  redeemable upon the maturity of
         the Debt  Securities  on July 15, 2027, or earlier to the extent of any
         redemption by the Company of any Debt Securities.  The redemption price
         in either  such case will be $1,000 per share plus  accrued  and unpaid
         distributions to the date fixed for redemption.



                                       12
<PAGE>

                      MANAGEMENT'S DISCUSSION AND ANALYSIS
                       OF CONSOLIDATED FINANCIAL CONDITION
                            AND RESULTS OF OPERATIONS
                                SEPTEMBER 30,1999

RESULTS OF OPERATIONS
(dollar amounts in millions)

Consolidated Overview

<TABLE>
<CAPTION>
                                                      Quarter Ended                 Nine Months Ended
                                                      September 30                    September 30
                                                       ------------                   ------------

                                                  1999            1998             1999            1998
                                                  ----            ----             ----            ----
<S>                                           <C>              <C>               <C>             <C>
Revenues:

Gross earned premiums                         $     200.6      $   212.5         $   616.3       $  567.9
Ceded premiums                                      107.9          113.0             333.4          278.6
                                              -----------      ---------         ---------       --------

Insurance premiums                                   92.7           99.5             282.9          289.3

Engineering services                                 30.6           25.3              86.0           67.7

Net investment income                                16.5           15.5              48.8           46.6

Realized investment gains                            13.5            7.9              30.8           18.4
                                                ---------      ---------         ---------       --------

   Total revenues                             $     153.3      $   148.2         $   448.5       $  422.0
                                                =========      =========         =========       ========

Pre-tax Income from Continuing Operations:

   Pre-tax income excluding sale of IRI       $      32.7      $    36.1         $   107.8       $  101.5
   Pre-tax gain on sale of IRI                        -              -                 -             39.0
                                                -------------- --------------    --------------  --------

   Pre-tax income                                    32.7           36.1             107.8          140.5

Income taxes on continuing operations                 9.3            9.3              31.6           41.1

Distributions on capital securities                   4.6            4.6              13.6           13.8
                                                ---------      ---------         ---------       --------

Income from continuing operations                    18.8           22.2              62.6           85.6

Discontinued operations                               -              -                 -             30.3
                                                -------------- --------------    --------------  --------

Net income                                    $      18.8      $    22.2         $    62.6       $  115.9
                                                =========      =========         =========       ========

Net income per common share:

     Basic                                    $       0.65     $     0.75        $     2.16      $    3.95
     Assuming dilution                        $       0.64     $     0.72        $     2.10      $    3.57

</TABLE>

                                       13
<PAGE>


Consolidated Overview

Absent the sales of Industrial Risk Insurers (IRI) and Radian  International LLC
(Radian LLC)  discussed  below,  the  Company's  third  quarter  1999  after-tax
earnings decreased 15.3 percent from the third quarter of 1998 and increased 3.6
percent in the first nine months of 1999 compared to 1998. The results reflect a
decline in third quarter underwriting results impacted largely by $10 million in
losses from weather related events domestically and the Taiwan earthquake. These
results were offset in part by improvement in income from investment operations.

In  addition,  net income for the first nine months of 1998  included  after-tax
gains on the sale of HSB's  interest  in IRI of $25.2  million and Radian LLC of
$30.3 million.  The Radian 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  (Dow).  As a
result, HSB's interest in Radian LLC was classified as a discontinued  operation
in 1997.

The effective tax rate on income from continuing operations,  excluding the sale
of IRI,  for the third  quarter  and year to date were 28 percent and 29 percent
compared  to 26  percent  and 27  percent  for  the  comparable  prior  periods.
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. The Company continues to manage its use of tax advantageous
investments to maximize after tax earnings.

Recent Accounting Developments

The  Accounting  Standards  Executive  Committee  of the  American  Institute of
Certified  Public  Accountants  (AcSEC)  recently  issued  three  Statements  of
Position (SOP) which became  effective for fiscal years beginning after December
15,  1998:  SOP  97-3,  "Accounting  by  Insurance  and  Other  Enterprises  for
Insurance-Related  Assessments"; SOP 98-1, "Accounting for the Costs of Computer
Software  Developed or Obtained for Internal Use";  and SOP 98-5,  "Reporting on
the Costs of Start-Up  Activities".  Because the Company's  accounting  policies
were in compliance with the provisions of the SOP's, the  implementation  of the
SOP's had no impact upon the results of operations,  financial condition or cash
flows.

In June 1998, the Financial  Accounting  Standards Board (FASB) issued Statement
of Financial  Accounting  Standard  (SFAS) No. 133,  "Accounting  for Derivative
Instruments and Hedging Activities".  This statement establishes  accounting and
reporting  standards for derivative  instruments,  including certain  derivative
instruments embedded in other contracts, and for hedging activities. It requires
that all  derivatives  be  recognized  as either  assets or  liabilities  in the
statement of financial  position and that such  instruments  be measured at fair
value. In addition, all hedging relationships must be designated, reassessed and
documented  pursuant to the  provisions of SFAS No. 133. In June,  1999 SFAS No.
137 was issued.  This  statement  defers the  effective  date of SFAS No. 133 to
fiscal  quarters of fiscal years  beginning  after June 15,  2000.  Based on its
current operations,  product designs and investment  strategy,  the Company does
not  anticipate  that the adoption of the provisions of SFAS No. 133 will have a
material impact on results of operations, financial condition or cash flows.

In October 1998,  AcSEC issued SOP 98-7,  "Deposit  Accounting:  Accounting  for
Insurance and Reinsurance  Contracts That Do Not Transfer  Insurance  Risk". The
SOP identifies  several methods of deposit  accounting and provides  guidance on
the application of each method.  This SOP is effective for financial  statements
for fiscal years  beginning  after June 15, 1999.  Currently

                                       14
<PAGE>

the  Company is not party to any  contracts  which do not  comply  with the risk
transfer  provisions of SFAS No. 113,  "Accounting and Reporting for Reinsurance
of  Short-Duration  and  Long-Duration  Contracts,"  and,  therefore,  does  not
anticipate  the  adoption of SOP 98-7 will have a material  impact on results of
operations, financial condition or cash flows.


Insurance Operations

Insurance  operations include the insurance results of The Hartford Steam Boiler
Inspection and Insurance  Company  (HSBIIC),  HSB Engineering  Insurance Limited
(EIL), The Boiler Inspection and Insurance  Company of Canada (BI&I),  The Allen
Insurance  Company,  Ltd.,  HSB of  Connecticut,  HSB  of  Texas,  and  HSBIIC's
participation in HSB Industrial Risk Insurers and various other pools.

<TABLE>
<CAPTION>

                                                          Quarter Ended                    Nine Months Ended
                                                           September 30                        September 30
                                                          ------------                         ------------

                                                     1999            1998                 1999            1998
                                                     ----            ----                 ----            ----
<S>                                              <C>              <C>                   <C>             <C>
Gross earned premiums                            $     200.6      $   212.5             $   616.3       $  567.9
Ceded premiums                                         107.9          113.0                 333.4          278.6
                                                 -----------      ---------             ---------       --------

Insurance premiums                                      92.7           99.5                 282.9          289.3

Claims and adjustment expenses                          44.5           44.2                 120.7          129.1

Underwriting, acquisition and other expenses            46.0           44.3                 138.1          128.8
                                                 -----------      ---------             ---------       --------

Underwriting gain                                $       2.2      $    11.0             $    24.1       $   31.4
                                                 ===========      =========             =========       ========


Loss ratio                                              48.1%          44.4%                 42.7%          44.6%

Expense ratio                                           49.6%          44.5%                 48.8%          44.6%
                                                  ----------       ---------             ---------       --------

Combined ratio                                          97.7%          88.9%                 91.5%          89.2%
                                                  ==========       =========             =========       ========
</TABLE>


Gross  earned  premiums in the third  quarter of 1999  decreased  5.6 percent in
comparison to the third quarter of 1998.  This was primarily  attributable  to a
decline in premiums from HSB  Industrial  Risk Insurers.  Gross earned  premiums
year to date  increased  8.5 percent from the  comparable  period in 1998.  This
reflects the impact of the acquisition of certain  commercial  books of business
acquired in mid 1998 as well as the impact of the timing of the  Company's  role
as direct writer of HSB Industrial Risk Insurers. These increases were offset in
part by  decreases  in Global  Special Risk  premiums.  In certain  areas of the
Company's  direct  businesses,  the market is experiencing  price erosion as the
number of insurers offering  capacity has expanded.  HSB will not write business
at rates  which do not provide  sufficient  opportunity  to earn a profit.  As a
result,  premiums in the Global  Special Risk areas may  continue to  experience
revenue declines until pricing in these markets begins to improve.

Ceded premiums  decreased 4.5 percent in the current quarter consistent with the
decline in gross earned premiums for the same period.  Ceded premiums  increased
19.7  percent  year to date  resulting  from the HSB  Industrial  Risk  Insurers
arrangement  and  related  reinsurance  with  ERC,

                                       15
<PAGE>

as well as the timing of instituting some of the Company's  reinsurance programs
which now utilize  significantly  more quota share reinsurance on certain of our
books of business.

The loss ratio  increased from 44.4 percent in the third quarter of 1998 to 48.1
percent in the current quarter. Year to date, the loss ratio decreased from 44.6
percent in 1998 to 42.7 percent in 1999. The third quarter variance was impacted
by $10 million in losses from weather-related events domestically and the Taiwan
earthquake.  In the third quarter of 1998, weather-related loss events were $8.3
million less.  Despite  these events,  the year to date loss ratio was favorable
due in part to the first  quarter  1998  severe  ice  storms in Canada and third
quarter 1998 losses from Hurricane Georges.

Gross claims and adjustment  expenses for the first nine months of 1999 and 1998
were $517.9  million and $478.5  million,  respectively.  This  increase was the
result of weather-related  events domestically,  the Taiwan earthquake and large
losses in our Global  Special Risk business which were largely  reinsured.  This
increase was partially offset by gross claims in 1998 from Hurricane  Georges on
exposures written by HSB Industrial Risk Insurers.  The significant increases in
claim reserves and reinsurance  assets since December 31, 1998 largely relate to
these events.

The expense  ratio  increased  from 44.5 percent in the third quarter of 1998 to
49.6 percent in the current quarter,  and from 44.6 percent year to date in 1998
to 48.8 percent year to date in 1999. The increase in the expense ratio for both
the third  quarter and year to date is  primarily  attributed  to  increases  in
policy  acquisition  costs. These increases result from the impact of changes in
HSB's participation in HSB Industrial Risk Insurers reinsurance programs as well
as the timing of the Company's role as direct writer of that business.  The year
to date expense ratio was also affected by the  increased  level of  reinsurance
purchased  and  related  ceding  commissions.  The year to date  growth in gross
earned  premiums and increases in commission  rates which reflect changes in the
mix of business are also contributing  factors.  In addition,  the expense ratio
has been impacted more heavily in 1999 by Year 2000 remediation costs.

The  following  information  summarizes  net earned  premiums  and net income by
reportable insurance segment:

                                  Quarter Ended           Nine Months Ended
                                  September 30               September 30
                                  ------------               ------------

                                 1999       1998          1999         1998
                                 ----       ----          ----         ----
Commercial:
   Net earned premiums        $   82.7    $  83.5      $   245.2    $   220.5
   Net income                      4.2        7.6           10.1         11.5

Global Special Risks:
   Net earned premiums        $   10.1    $  14.5      $    36.9    $    63.8
   Net income                     (1.6)      (2.2)           6.3          5.0

Net earned premiums in the Commercial segment declined $0.8 million in the third
quarter. Year to date net earned premiums rose $24.7 million over the comparable
period in 1998.  The year to date increase is due primarily to the  integration
of the Kemper  portfolio and growth in our client  company  business,  offset by
declines in direct billings.  Profits for both the quarter and year to date were
adversely impacted by 1999 weather related losses,  increased frequency of small
claims and expected higher systems costs related to the Year 2000 Program.  1998
year to date results were impacted by severe ice storms in Canada.

Global  Special  Risks net earned  premiums  declined  $4.4 million in the third
quarter.  Year to date,  net earned  premiums  decreased  $26.9  million.  These
decreases  relate to price erosion and the  maintenance  of strict  underwriting
standards,  coupled with changes in reinsurance  programs.  Global Special Risks
net income for third quarter of 1999 was negatively  impacted due to losses

                                       16
<PAGE>

from  weather-related  events  domestically and the Taiwan  earthquake.  Despite
these events,  1999 Global  Special Risks  profitability  improved over the same
period in the prior year,  due to  adherence to strict  underwriting  standards,
changes in reinsurance  programs,  and positive reserve  development on pre-1998
IRI business. Results include fees/expense reimbursement generated from managing
the IRI business. The level of fees/expense  reimbursement in the future will be
dependent  upon pricing in these markets and the volume of business  which meets
our underwriting standards.

Engineering Services Operations

                                      Quarter Ended          Nine Months Ended
                                      September 30            September 30
                                      ------------            ------------

                                    1999        1998         1999       1998
                                    ----        ----         ----       ----

Engineering services revenues   $    30.6     $   25.3    $   86.0    $    67.7
Engineering services expenses        29.5         23.4        80.3         62.1
                                ---------     --------    --------    ---------

Operating gain                  $     1.1     $    1.9    $    5.7    $     5.6
                                =========     ========    ========    =========

Net margin                           3.6%          7.4%       6.6%         8.3%

Engineering  services  operations  include  the results of  HSBIIC's,  EIL's and
BI&I's  engineering   services,   HSB  Reliability   Technologies  (HSBRT),  HSB
Professional Loss Control,  HSB International,  Solomon Associates,  Inc. (SAI),
Structural Integrity Associates, Inc. (Structural) and the Company's interest in
Integrated Process Technologies, LLC.

Engineering  services  revenues  increased $5.3 million in the third quarter and
$18.3 million year to date  compared to the same periods in 1998.  The growth in
revenues was primarily  due to SAI which was acquired in April 1998,  Structural
which  was  acquired  in July  1999  and  EIL's  engineering  services  revenues
generated through other acquisitions.

The decline in operating  margin from the previous  periods  reflects  operating
costs incurred to develop new products and in new start up operations, delays in
starting certain  contracts,  systems costs related to the Year 2000 Program and
the closing of plants in the steel industry serviced by a higher margin business
unit.

In  July  1999  HSBIIC  acquired  Structural  based  in  San  Jose,  California.
Structural is an engineering  consulting  firm which  specializes in prevention,
control and repair of structural and mechanical failures.  The Company continues
to focus on  identifying  and  evaluating  acquisition  candidates  in the niche
engineering  management  consulting  service  business,   primarily  in  process
industries,   in  order  to  expand  or  complement  its   engineering   service
capabilities.

                                       17
<PAGE>

Investment Operations

                                        Quarter Ended        Nine Months Ended
                                        September 30            September 30
                                        ------------            ------------

                                        1999        1998       1999      1998
                                        ----        ----       ----      ----

Net investment income                $  16.5     $  15.5     $ 48.8     $ 46.6
Realized investment gains               13.5         7.9       30.8       18.4
                                     -------     -------     ------     ------
Pretax income from
         investment operations       $  30.0     $  23.4     $ 79.6     $ 65.0
                                     =======     =======     ======     ======

Income  from  investment  operations  for the  third  quarter  and  year to date
increased  $6.6  million  and  $14.6  million,  respectively,  primarily  due to
realized  investment gains from  repositioning  the investment  portfolio due to
market  fluctuations.  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.  The  Company  does  not  engage  in cash  flow
underwriting; it seeks to have underwriting profit each year.

Market Risk

The  value  of  the  Company's  financial   instruments  reacts  to  changes  in
macroeconomic  variables.  These changes are considered systemic risks or market
risks and are  quantified as equity market risk,  interest rate risk and foreign
currency risk. Equity market risk is the possibility that market influences will
adversely affect the expected returns on equity investments.  Interest rate risk
relates to the effect of changes in the level of interest rates on the return on
financial instruments, in particular fixed income investments.  Foreign currency
risk is the chance that  fluctuations  in foreign  currency  exchange rates will
impact the value of financial instruments.

Portfolio  sensitivity  to these  variables  tends to  change  over  time due to
changes in portfolio  composition and changes in market environment.  During the
first nine  months of 1999 the  Company's  equity  instruments'  sensitivity  to
equity market risk, as measured by portfolio beta,  decreased from 1.02 to 0.97.
This  change is  generally  attributed  to  portfolio  repositioning  during the
period.

For  the  fixed  maturity  portfolio,  sensitivity,  as  measured  by  duration,
increased  from 5.48 to 8.62 during the first nine months of 1999.  The increase
in duration is due  primarily  to changes  that  occurred in the  interest  rate
environment  during  the  period.  The  Company  uses  a  yield  to  worst  call
methodology  to  calculate  duration.  This  assumes  that an issuer,  given the
current  rate  environment,  will call  higher  coupon debt if  appropriate.  As
interest rates increased during the year, the call feature on many issues became
non-applicable.  This change in the  environment  caused  portfolio  duration to
increase and a corresponding increase in sensitivity to interest rates.

The following  analysis  illustrates  the sensitivity of the market value of the
financial  instruments to selected changes in market rates and prices. The range
reflects the Company's view of reasonably  possible market  movements over a one
year  period.  The range of values  selected  should not be  interpreted  as the
Company's  prediction of future market events, but rather an

                                       18
<PAGE>

illustration of the impact of such events.  The  computations do not contemplate
any  actions  the  Company  would  undertake  in response to changes in interest
rates.

The  sensitivity  analysis  assumes an  instantaneous  shift in market  interest
rates, with scenarios of interest rates increasing 100 and 150 basis points from
their  levels at September  30, 1999,  and all other  variables  held  constant.
Currency risk assumes an  instantaneous  10 percent and 20 percent change in the
foreign  currency  exchange  rates  versus the US dollar  from  their  levels at
September 30, 1999 with all other variables held constant.  Equity price risk is
measured assuming an instantaneous 10 percent and 25 percent change in the S & P
500 Index from its level at  September  30, 1999 with all other  variables  held
constant.

The Company's  convertible  capital  securities have been issued at fixed rates,
and as such interest expense would not be impacted by interest rate shifts.  The
impact of 100 and 150 basis point increases in interest rates on the convertible
capital  securities  would be an  estimated  decrease  in market  value of $26.0
million and $37.4  million and is  calculated  without  giving any effect to the
relationship  of the conversion  price to the current market price of HSB Group,
Inc. common stock.

The following  table  reflects the estimated  effects on the market value of the
Company's  financial  instruments  due to an increase  in interest  rates of 100
basis points,  a 10 percent decline in foreign  currency  exchange rates,  and a
decline of 10 percent in the S & P 500 Index.

Held For Other Than Trading Purposes

                                   Market    Interest      Currency     Equity
At September 30, 1999              Value     Rate Risk       Risk        Risk
--------------------------------------------------------------------------------

Fixed maturity securities      $    525.3    $  (38.1)   $   (2.2)     $   -
Equity securities                   409.8       (14.3)       (1.9)       (21.4)
Short term investments               44.5        (0.3)       (1.3)         -
                            ----------------------------------------------------

     Total all securities      $    979.6    $  (52.7)   $   (5.4)     $ (21.4)
                            ----------------------------------------------------

                                       19
<PAGE>
The following  table  reflects the estimated  effects on the market value of the
Company's  financial  instruments  due to an increase  in interest  rates of 150
basis points,  a 20 percent decline in foreign  currency  exchange rates,  and a
decline of 25 percent in the S& P 500 Index.

Held For Other Than Trading Purposes

                                  Market       Interest     Currency   Equity
At September 30, 1999             Value        Rate Risk     Risk       Risk
--------------------------------------------------------------------------------
Fixed maturity securities       $  525.3     $  (54.3)   $   (4.4)   $     -
Equity securities                  409.8        (20.1)       (3.7)      (53.4)
Short term investments              44.5         (0.5)       (2.5)         -
                             ---------------------------------------------------

     Total all securities       $  979.6     $  (74.9)   $  (10.6)   $  (53.4)
                             ---------------------------------------------------



Statement of Comprehensive Income

In  addition  to the impact of HSB's  results of  operations,  the  Consolidated
Statements of  Comprehensive  Income  display the effects of price  movements on
HSB's invested assets. As a result of market  fluctuations,  cumulative  holding
gains,  net of taxes,  for the first nine months of 1999 decreased $52.1 million
as  compared  to the  decrease  of $8.3  million  in the  same  period  in 1998.
Exclusive of realized gains,  the decrease in 1999 is mainly in fixed maturities
due to rising interest rates.



Liquidity and Capital Resources
                                                        Balances at
                                                September 30      December 31
                                                   1999              1998
                                               ----------       ---------------

Total assets                                   $ 2,289.0         $ 2,144.0
Short-term investments                              44.6              62.3
Cash and cash equivalents                           46.4              18.3
Short-term borrowings                               44.4              21.0
Capital securities of subsidiary Trust I           109.0             108.9
Capital securities of subsidiary Trust II          300.0             300.0
Common shareholder's equity                        396.0             419.3

Liquidity refers to the Company's  ability to generate  sufficient funds to meet
the cash  requirements of its business  operations.  HSB Group,  Inc. (HSB) is a
holding company whose principal  subsidiary is HSBIIC.  HSB relies on investment
income,  primarily  in the form of dividends  from HSBIIC,  in order to meet its
short and long-term liquidity  requirements  including the service  requirements
for its capital  securities.  The Company receives a regular inflow of cash from
maturing investments,  engineering services and insurance operations. The mix of
the  investment  portfolio  is  managed to respond  to  expected  claim  pay-out
patterns and the service  requirements of the Company's capital securities.  HSB
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 the Capital
Securities of subsidiary Trust I.

Cash provided from operations was $35.8 million in the first nine months of 1999
compared to $43.0  million for the same  period in 1998.  Overall  cash flows in
1998  were  significantly  impacted  by the  investment  of  proceeds  from  the
convertible  capital  securities  issued in late  December 1997 and the sales of
Radian and IRI in 1998.

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.  Common  shareholders' equity of $396.0 million at
September  30, 1999,  decreased by $23.3 million  since  December 31, 1998.  The
reduction in  shareholders'  equity was caused by the impact of rising  interest
rate levels on our fixed  income  investments.  The  components  of the decrease
primarily reflect  comprehensive income of $10.5 million and option exercises of
$4.1  million,  less  dividends of $37.2 million and share  repurchases  of $2.2
million.

At September 30, 1999, HSBIIC had significant short-term and long-term borrowing
capacity.  HSBIIC  is  currently  authorized  to  issue  up to  $75  million  of
commercial  paper.  Commercial  paper  outstanding  at  September  30,  1999 was
approximately $40 million.

HSBIIC has been involved in three significant  claim-related disputes concerning
the extent to which  certain  explosion  events were  insured  under  boiler and
machinery  coverages of HSBIIC.

                                       20
<PAGE>

Information regarding these disputes has been provided in previous 10-K and 10-Q
reports.  Current  rulings in all three  cases  confirm  HSBIIC's  long-standing
position that HSBIIC policies do not cover the explosion events that occurred in
those cases.  In one case the parties  settled their dispute  following  Summary
Judgment rulings of the Federal  District Court for the State of Illinois;  in a
second  case,  a decision  of an  arbitration  panel has been  confirmed  by the
Superior Court of the State of  Connecticut;  and in a third case,  judgment has
been entered in HSBIIC's  favor on remand from the Federal  Court of Appeals for
the Seventh Circuit.

The  Company  writes  business in European  markets  primarily  through its U.K.
subsidiary,  EIL. 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.  The U.K. is not a first wave euro
country  and as such the  impact is  primarily  limited  to the  small  overseas
offices located in Spain and the Irish  Republic.  Over time, if the U.K. adopts
the euro as its currency, there may be more of an impact, however, the number of
affected  transactions are such that a manual backup system is practicable.  The
Company will  continue to monitor  developments  and assess  impacts on markets,
pricing, and reporting.

Year 2000

The following Year 2000 statements  constitute a Year 2000 Readiness  Disclosure
within the meaning of the Year 2000 Information and Readiness  Disclosure Act of
1998.


Year 2000 Plan and State of Readiness

In 1996, the Company began a  comprehensive  effort to assess and address issues
affecting the Company,  which related to the inability of computer equipment and
embedded computer chips to distinguish  between the year 1900 and the year 2000.
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.

As a part of this effort, the Company established a Year 2000 Program to address
four key areas: (i) applications software, primarily consisting of the Company's
policy management,  claims,  financial  recording and reporting,  human resource
systems, and engineering databases and systems;  (ii)  infrastructures,  such as
mainframe and corporate servers,  workstations and networking components;  (iii)
embedded  technology in facilities in which the Company  conducts its operations
and in testing equipment used by the Company's  engineering  staff; and (iv) key
business  partners  and  suppliers.  In  addition,  the  Company  is  evaluating
potential  coverage  exposures  arising  out of the Year 2000 and its  impact on
insured  equipment.  The Company's  Year 2000 Program  consists of six partially
overlapping  stages for the key areas listed above: (i) assessment and analysis;
(ii) development, renovation and replacement; (iii) implementation; (iv) testing
and  certification;  (v) contingency  planning;  and (vi) audit and review.  The
Company is using members of its internal information technology staff as well as
external  consultants  and  programmers to complete  various tasks in connection
with its Year 2000 Program and is currently on schedule.

The Company has  completed  the  assessment  and  analysis  phase for its policy
management,  claims,  financial recording and reporting,  human resource systems
and engineering databases and systems. The development,  renovation, replacement
and  implementation  phases are virtually complete for these systems as well. We
have   substantially   completed  Year  2000  testing  for  our  current  policy
management,  claims,  human resources and engineering  systems.  The Company has
recently implemented new financial  applications and Year 2000 testing for these
applications

                                       21
<PAGE>

is expected to be substantially  completed by December 1, 1999. We will continue
to Year 2000 test other  supporting  applications  through December 1999. We are
currently limiting changes to our production  environment,  and will continue to
do so through the first few months of the year 2000.

With respect to  infrastructure  items, the mainframe is Year 2000 compliant and
the Company has largely  completed the migration to Year 2000 compliant  servers
and supporting  hardware and software.  Replacement of the various components of
non-compliant  workstations  and  peripheral  equipment  has  also  been  mostly
completed. Many of the third-party software applications utilized by the Company
in its desktop  environment  are already  Year 2000  compliant.  The Company has
substantially completed the installation of such compliant programs on virtually
all of its workstations.

In the area of  embedded  chip  technology,  the  Company's  principal  exposure
relates to the  prevalence of such  technology in office  buildings in which the
Company  leases space for conducting  its business  operations.  The Company has
sent  questionnaires to the leasing vendors for all of its principal  facilities
with respect to Year 2000  readiness  and has received  assurances  of readiness
from most of its vendors.


The Company  continues  to be in contact  with its key  suppliers of service and
business partners,  such as client companies,  agents and brokers, with whom the
Company has  significant  business  relations,  as to their Year 2000  readiness
status.  As the Company  receives  responses  and updated  information  from its
suppliers and business  partners,  it is reassessing the potential impact on the
Company of such parties' Year 2000 state of readiness and remediation plans and
conducts renovations and/or replacement and compliance testing, as appropriate.

The Company is relying upon Year 2000 readiness statements of other entities and
has not independently verified the accuracy of such statements.

Costs

It is currently  estimated that the Company's  aggregate  spending in connection
with the Year  2000  Program  will be in the  range  of $27.8  million  of which
approximately  $26.5  million has been  expended  through  September  30,  1999.
Certain of these  costs are being  expensed as they are  incurred  and are being
funded through operating cash flow. The Company has expensed $5.1 million,  $1.5
million and $0.2 million in 1998, 1997 and 1996, respectively,  and $5.7 million
for the first nine months of 1999.  It is estimated  that  expenditures  of $1.0
million for the remainder of 1999 will be expensed as incurred. The remainder of
the $27.8 million  estimate which has not been expensed  relates to systems that
the Company anticipated replacing in the normal course of information technology
development but the timetable for which was accelerated in  contemplation of the
Year 2000 event. Costs of replacement and renovation of information  systems and
infrastructure that would have occurred in the normal course of business without
the advent of the Year 2000 event are excluded from these  amounts.  The current
estimate also does not include any costs associated with the  implementation  of
contingency plans that are in the process of being developed.

The Company does not expect the costs  relating to its Year 2000 Program to have
a  material  effect  on  its  results  of  operations,  liquidity  or  financial
condition.  However,  the  Year  2000  Program  is an  ongoing  process  and the
estimated costs, as well as the estimated completion dates for various phases of
the program, are subject to change.

                                       22
<PAGE>

Risks

The failure of one or more critical  software  applications or components of the
Company's  infrastructure  to be Year  2000  compliant  could  cause a  material
disruption in the normal business  operations of the Company.  Such  disruptions
could include the inability to process  policies,  register and collect premiums
and  engineering  receivables,   process  claims  or  schedule  inspections  and
engineering services. Due to the difficulty in estimating the scope and duration
of such  failures,  the Company is unable to  determine at this time whether the
consequences  of such  failures  will have a  material  impact on the  Company's
results  of  operations,   liquidity,  or  financial  condition.  Moreover,  the
Company's  operations are  interdependent  with systems of business partners and
service  providers,  such  as  financial  institutions,   communication  service
providers and utilities,  over which the Company has no control.  The failure of
one or more of such  business  partners  or  service  providers  to be Year 2000
compliant  could have a material  adverse  impact on the Company.  However,  the
Company  believes  that  with the  implementation  of its Year 2000  Program  as
scheduled, including the contingency plans discussed below, the risk of material
disruptions to its normal business operations should be significantly reduced.

As an  insurance  company,  the Company  maintains a  significant  portfolio  of
investments in cash, short-term fixed income, and equity securities. Inasmuch as
the advent of the Year 2000 may cause events, business interruptions and altered
economic facts and circumstances,  the value of the Company's investments may be
affected  favorably or  unfavorably.  The Company is selectively  monitoring the
Year 2000  compliant  status of the corporate  issuers of the  securities in its
investment  portfolio  primarily through reviewing public disclosure  documents.
State government and municipal bonds held by the Company are general obligations
and/or are  credit-enhanced and therefore the Company does not perceive there to
be a  significant  credit risk with these  securities in the absence of a severe
Year 2000 disruption affecting governments and businesses  generally.  A portion
of the  Company's  portfolio  is  invested in  non-public  issues  where  public
disclosure  documents are  unavailable.  Due to the difficulty in estimating the
scope and  duration of such  events,  the Company is unable to determine at this
time whether the consequences of such  developments  will have a material impact
on the Company's investment portfolio and therefore, on the Company's results of
operations, liquidity or financial condition.

Contingency Plans

As a component of the Year 2000 Program, the Company is concurrently  developing
contingency  plans  intended to mitigate  the  possible  disruption  of business
operations arising out of the Year 2000 event. During the remainder of 1999, the
Company  will  be   completing,   reviewing  and  updating  Year  2000  business
contingency  plans to prepare for the crossover into the next year.  Contingency
plans may include securing  back-up power for the Company's data center,  manual
processing,  short-term  fixes to  non-compliant  programs or  business  partner
interfaces  and  modifying  the  Company's  asset  selection  criteria  for  its
investment activities.

Insurance Coverage Issues

The Company continues to evaluate the potential  coverage  exposures arising out
of the Year 2000 event and its  impact on insured  equipment.  The  Company  has
prepared an  endorsement  to its equipment  breakdown  and all-risk  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.  The  endorsement  is being  included  on all new and  renewal
equipment breakdown and all-risk policies. In addition, a notice reiterating the
Company's  coverage  intent with respect to Year 2000 exposures has been sent to
all new and renewal equipment breakdown policyholders. Most of the insurers that
the Company  reinsures  for  equipment  breakdown  coverage are issuing  similar
endorsements  to  their   policies.   The  Company

                                       23
<PAGE>

is  conducting  an  on-going  communications  program  with its  client  company
insurers and agents to disseminate to the ultimate  policyholders  its Year 2000
loss control suggestions and policy coverage position.

Quantification of the Company's exposure to Year 2000 losses and loss adjustment
expenses  are not  reasonably  estimable at this time as  applicable  policy and
reinsurance  contract  wordings  have not been legally  tested in the context of
such losses.

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;  the adequacy of loss reserves;
changes in asset  valuations;  consolidation  and restructuring in the insurance
industry;   changes  in  the  Company's   participation  in  joint  underwriting
associations,  and in  particular  its  arrangement  with  HSB  Industrial  Risk
Insurers; 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.

                                       24
<PAGE>


PART II - OTHER INFORMATION

Item 1 - Legal Proceedings

         See Note 6 to Consolidated Financial Statements, Part I, Item 1.

Item 6 - Exhibits and Reports on Form 8-K

(a)  Exhibits

     Exhibit 27 - Financial Data Schedule

(b)  Reports on Form 8-K

     Form 8-K dated July 26, 1999  reporting on the second  quarter  results and
announcing the declaration of a dividend.

                                       25
<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:  November 15, 1999              By:      /s/  Saul L. Basch
                                               Saul L. Basch
                                               Senior Vice President, Treasurer
                                               and Chief Financial Officer


Date:  November 15, 1999              By:      /s/  Robert C. Walker
                                               Robert C. Walker
                                               Senior Vice President and
                                               General Counsel


                                       26