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, 2000

                                       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 31, 2000: 29,186,041.


<PAGE>


                                 HSB GROUP, INC.

                                      INDEX


PART I   FINANCIAL STATEMENTS                                         PAGE

      Item 1 - Financial Statements

                 Consolidated Statements of Operations for the
                    Quarters ended September 30, 2000 and 1999
                    and the Nine Months ended September 30, 2000
                    and 1999 (unaudited)............................    3

                 Consolidated Statements of Comprehensive Income
                    for the Quarters ended September 30, 2000 and
                    1999 and the Nine Months ended September 30,
                    2000 and 1999 (unaudited).......................    4

                 Consolidated Statements of Financial Position
                    as of September 30, 2000 (unaudited) and
                    December 31, 1999...............................    5

                 Consolidated Statements of Cash Flows for
                    the Nine Months ended September 30, 2000
                    and 1999 (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

      Item 3 - Quantitative and Qualitative Disclosures About
         Market Risk................................................   22


PART II  OTHER INFORMATION

      Item 1 - Legal Proceedings....................................   22
      Item 6 - Exhibits and Reports on Form 8-K.....................   23

SIGNATURES..........................................................   24





                                       2
<PAGE>



                                       ITEM 1 - FINANCIAL STATEMENTS
<TABLE>
<CAPTION>

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

                                                                            Quarter                       Nine Months
                                                                      Ended September 30,             Ended September 30,
                                                                      2000            1999            2000           1999
                                                                   -----------     -----------     -----------    ------------
<S>                                                                  <C>             <C>             <C>            <C>
Revenues:
  Gross earned premium                                               $157.2          $200.6          $515.7         $616.3
  Ceded premiums                                                       51.4           107.9           219.2          333.4
                                                                   -----------     -----------     -----------    ------------
  Insurance premiums                                                  105.8            92.7           296.5          282.9
  Engineering services                                                 38.7            30.6           115.9           86.0
  Net investment income                                                16.0            16.5            46.5           48.8
  Realized investment gains                                            15.3            13.5            38.8           30.8
  Gain on sale of interests in Integrated Process Technologies, LLC     9.8             -               9.8            -
                                                                    -----------     -----------     -----------    ------------
     Total revenues                                                   185.6           153.3           507.5          448.5
                                                                   -----------     -----------     -----------    ------------

Expenses:
  Claims and adjustment                                                74.0            44.5           150.9          120.7
  Policy acquisition                                                   23.3            21.6            64.8           65.5
  Underwriting and inspection                                          31.3            24.4            88.7           72.6
  Provision for international large risk business charges              20.7             -              20.7            -
  Engineering services                                                 36.2            29.5           107.8           80.3
  Interest                                                              1.5             0.6             2.6            1.6
                                                                   -----------     -----------     -----------    ------------
     Total expenses                                                   187.0           120.6           435.5          340.7
                                                                   -----------     -----------     -----------    ------------

Income (loss) before income taxes, distributions on capital
   securities and extraordinary item                                 $ (1.4)         $ 32.7          $ 72.0         $107.8

Income taxes (benefit):
   Current                                                             17.7            11.7            47.3           31.0
   Deferred                                                           (15.1)           (2.4)          (20.2)           0.6
                                                                   -----------     -----------     -----------    ------------
     Total income taxes                                              $  2.6            $9.3          $ 27.1         $ 31.6

Distribution on capital securities of subsidiary trusts,
   net of income tax benefits of $2.2, $2.4, $7.3 and $7.2              4.1             4.6            13.5           13.6
                                                                   -----------     -----------     -----------    ------------

Income (loss) before extraordinary item                              $ (8.1)         $ 18.8          $ 31.4         $ 62.6

Loss on extinguishment of capital securities of subsidiary Trust
   II, net of income tax benefits of $5.4, $-, $5.4 and $-              9.9             -               9.9            -
                                                                   -----------     -----------     -----------    ------------

Net income (loss)                                                    $(18.0)         $ 18.8          $ 21.5         $ 62.6
                                                                   ===========     ===========     ===========    ============

Per share data:

Earnings (loss) per common share-basic:
   Income (loss) before extraordinary item                           $ (0.28)        $  0.65         $  1.08        $  2.16
   Extraordinary item                                                  (0.34)           -              (0.34)          -
                                                                    ===========     ===========     ===========    ============
   Net income (loss)                                                 $ (0.62)        $  0.65         $  0.74        $  2.16
                                                                   ===========     ===========     ===========    ============

Weighted-average common shares outstanding                             28.8            29.1            28.9           29.0

Earnings (loss) per common share-assuming dilution:
   Income (loss) before extraordinary item                           $ (0.28)        $  0.64         $  1.08        $  2.10
   Extraordinary item                                                  (0.34)           -              (0.34)          -
                                                                    ===========     ===========     ===========    ============
   Net income (loss)                                                 $ (0.62)        $  0.64         $  0.74        $  2.10
                                                                   ===========     ===========     ===========    ============

Diluted weighted-average common shares outstanding                     28.8            34.7            29.1           34.6

Dividends declared per share                                         $  0.44         $  0.44         $  1.32        $  1.28

See Notes to Consolidated Financial Statements.
</TABLE>
                                       3
<PAGE>


<TABLE>
<CAPTION>



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

                                                                  Quarter Ended           Nine Months Ended
                                                                  September 30             September 30
                                                               2000         1999          2000        1999
                                                             -------      -------        ------       -----
<S>                                                          <C>         <C>            <C>          <C>
Net income (loss)                                            $(18.0)     $  18.8        $ 21.5       $ 62.6

Other comprehensive income (loss), net of tax:
   Unrealized gains (losses) on securities:
     Unrealized holding gains (losses) arising during
       the period, net of taxes (benefits) of $10.1;
       ($13.6); $14.8; and ($18.0)                             17.9        (24.9)         31.6        (33.2)
     Add: reclassification adjustments for gains
       included in net income (loss)                          (10.7)        (8.8)        (24.9)       (20.0)
                                                            --------    ---------     ---------     ---------
       Total unrealized gains (losses) on securities            7.2        (33.7)          6.7        (53.2)
  Foreign currency translation adjustments, net of income
    taxes                                                      (0.5)         0.2          (1.3)         1.1
                                                            --------    ---------     ---------     ---------
Other comprehensive income (loss)                               6.7        (33.5)          5.4        (52.1)
                                                            --------   ----------     ---------     ---------
Comprehensive income (loss)                                  $(11.3)     $ (14.7)       $ 26.9       $ 10.5
                                                            ========   ==========     =========     =========

See Notes to Consolidated Financial Statements
</TABLE>



                                       4
<PAGE>


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

                                                                          September
                                                                          30, 2000        December 31,
                                                                         (Unaudited)          1999
                                                                        ------------      -----------
<S>                                                                      <C>              <C>
   Cash and cash equivalents                                              $   79.9        $   73.0
   Short-term investments, at cost                                            38.9            53.5
   Fixed maturities, at fair value (cost - $532.5; $545.7)                   486.3           489.8
   Equity securities, at fair value (cost - $321.4;  $316.5)                 384.1           381.8
                                                                          -----------     ----------
     Total cash and invested assets                                          989.2           998.1

   Reinsurance assets                                                        625.4           850.3
   Insurance premiums receivable                                              78.5           104.4
   Engineering services receivable                                            39.5            39.1
   Fixed assets                                                               53.5            58.2
   Prepaid acquisition costs                                                  37.6            52.9
   Capital lease                                                              13.2            13.8
   Deferred income taxes                                                      16.9             -
   Other assets                                                              153.0           146.4
                                                                          ----------      -----------
       Total assets                                                       $2,006.8        $2,263.2
                                                                          ==========      ===========

Liabilities:
   Unearned insurance premiums                                            $  259.1        $  420.1
   Claims and adjustment expenses                                            735.3           782.3
   Short-term borrowings                                                      27.6            41.5
   Long-term borrowings                                                      315.0            25.1
   Capital lease                                                              27.7            27.8
   Deferred income taxes                                                       -               2.8
   Dividends and distributions on capital securities                          14.4            24.0
   Ceded reinsurance payable                                                  18.1            66.3
   Other liabilities                                                         141.1            87.8
                                                                           ---------      -----------
       Total liabilities                                                   1,538.3         1,477.7
                                                                           ---------      -----------

Company obligated mandatorily redeemable capital securities of
   subsidiary Trust I holding solely junior subordinated deferrable
   interest debentures of the Company, net of unamortized discount of
   $1.0 in 2000 and 1999                                                     105.0           109.0

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

Shareholders' equity:
   Common stock (stated value; shares authorized 50.0; shares issued and
     outstanding 28.9; 29.1)                                                  10.0            10.0
   Additional paid-in capital                                                 34.9            36.2
   Accumulated other comprehensive income                                      3.5            (1.9)
   Retained earnings                                                         321.0           339.1
   Benefit plans                                                              (5.9)           (6.9)
                                                                          ----------      -----------
       Total shareholders' equity                                            363.5           376.5
                                                                          ----------      -----------
      Total                                                               $2,006.8        $2,263.2
                                                                          ==========      ===========

   Shareholders' equity per common share                                  $   12.56       $   12.95

See Notes to Consolidated Financial Statements.
</TABLE>


                                       5
<PAGE>


<TABLE>
<CAPTION>
                                              HSB GROUP, INC.
                                   Consolidated Statements of Cash Flows
                                                 Unaudited
                                               (in millions)
                                                                                        Nine Months Ended
                                                                                          September 30,
                                                                                        2000          1999
                                                                                     -----------   ---------
<S>                                                                                     <C>           <C>
Operating Activities:
Net income                                                                            $  21.5       $  62.6
Adjustments to reconcile net income to net cash provided by operating activities:
   Depreciation and amortization                                                         23.1          14.7
   Deferred  income taxes (benefit)                                                     (20.2)          0.6
   Realized investment gains, net                                                       (38.8)        (30.8)
   Distributions on capital securities                                                   20.8          20.8
   Gain on sale of interests in Integrated Process Technologies, LLC                     (9.8)          -
   Loss on extinguishment of capital securities of Subsidiary Trust II                   15.3           -
   Change in balances, net of effects from purchases and sales of subsidiaries:
     Insurance premiums receivable                                                       25.9          13.1
     Engineering services receivable                                                     (3.3)         (5.5)
     Prepaid acquisition costs                                                           15.3          (4.5)
     Reinsurance assets                                                                 224.9        (195.9)
     Unearned insurance premiums                                                       (161.0)        (37.0)
     Claims and adjustment expenses                                                     (46.9)        210.4
     Ceded reinsurance payable                                                          (48.2)         (3.6)
     Other                                                                               46.2          (9.1)
                                                                                     -----------   ---------
       Cash provided by operating activities                                             64.8          35.8
                                                                                     -----------   ---------

Investing Activities:
Fixed asset additions, net                                                               (5.9)         (9.4)

Investments:
   Sale of short-term investments, net                                                   14.6          17.7
   Purchase of fixed maturities                                                         (98.2)       (123.8)
   Proceeds from sale of fixed maturities                                                94.6         113.6
   Redemption of fixed maturities                                                        15.6          13.6
   Purchase of equity securities                                                       (208.4)       (254.8)
   Proceeds from sale of equity securities                                              241.8         279.2
   Purchase of Structural Integrity Associates, Inc., net of cash acquired                -            (5.3)
   Proceeds from disposition of Integrated Process Technologies, LLC, net of cash
    disposed                                                                              4.2           -
                                                                                     -----------   ---------
     Cash provided by investment activities                                              58.3          30.8
                                                                                     -----------   ---------

Financing Activities:
(Decrease) increase in short-term borrowings                                            (13.9)         22.1
Proceeds from long-term borrowings                                                      315.0           -
Repayment of long-term borrowings                                                       (25.1)          -
Dividends and distributions on capital securities                                       (68.5)        (62.5)
Reacquisition of stock                                                                   (9.6)         (2.2)
Exercise of stock options                                                                 4.6           4.1
Reacquisition of company obligated mandatorily redeemable capital securities of
 Subsidiary Trust I                                                                      (3.7)          -
Retirement of company obligated mandatorily redeemable capital securities of
 Subsidiary Trust II                                                                   (315.0)          -
                                                                                     -----------   ---------
       Cash used in financing activities                                               (116.2)        (38.5)
                                                                                     -----------   ---------

   Net increase in cash and cash equivalents                                              6.9          28.1

   Cash and cash equivalents at beginning of period                                      73.0          18.3
                                                                                     -----------   ---------

   Cash and cash equivalents at end of period                                         $  79.9       $  46.4
                                                                                     ===========   =========

Interest paid                                                                         $   3.5       $   2.5
                                                                                     -----------   ---------

Federal income tax paid                                                               $  30.1       $  19.8
                                                                                     -----------   ---------

Non-cash investing activity:
   Additional proceeds of $11.1 million from the sale of IPT were received by HSB after quarter end.

See Notes to Consolidated Financial Statements.
</TABLE>
                                       6
<PAGE>

<PAGE>

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                     (in millions, except per share amounts)
                                   (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 with the exception of the provision for
         international  large risk business  charges (see Note 5). 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 1999 Annual Report.


2.       Accounting Policy for Premium Deficiency

         For  purposes of  determining  whether a premium  deficiency  exists on
         insurance   contracts,   contracts  are  grouped  consistent  with  the
         Company's   manner  of   acquiring,   servicing   and   measuring   the
         profitability  on such  contracts.  Due to the nature of the  variables
         involved,  subjective  judgement  is an  integral  component  of  these
         calculations.  If a premium  deficiency  exists,  all  related  prepaid
         acquisition costs are written off to the extent of the deficiency and a
         liability is established for any excess amounts remaining. Such amounts
         are charged to  operations  as  incurred  and the effects of changes in
         estimated  premium  deficiency  reserves are included in the results of
         operations in the period in which the estimates change.

3.       Corporate Activity

         Proposed Merger with American International Group, Inc.
         -------------------------------------------------------

         HSB and  American  International  Group,  Inc.  (AIG)  entered  into a
         definitive Agreement and Plan of Merger (Merger Agreement) dated as of
         August 17,  2000,  under  which AIG would  acquire  100 percent of the
         outstanding  stock of HSB  through  a merger  of HSB into  Engineering
         Acquisition  Corporation,  a  wholly  owned  subsidiary  of AIG.  This
         transaction  has been  approved  by the  Boards of  Directors  of both
         companies and the  shareholders of HSB. The transaction is expected to
         be  completed  later this  year,  upon  receipt of pending  regulatory
         approvals.

         If  the  merger  is  completed,   each  shareholder  other  than  those
         exercising  dissenter  rights is entitled  to receive AIG common  stock
         with a total value equal to $41.00 for each share of HSB common  stock.
         The total value for the transaction is approximately $1.2 billion.  The
         transaction will be treated as a purchase for accounting  purposes.  It
         is  anticipated  that  the  transaction  will  qualify  as  a  tax-free
         reorganization for federal income tax purposes. HSB is obligated to pay
         AIG a fee of $45.0 million, if the Merger Agreement is terminated under
         certain conditions.

         Industrial Risk Insurers
         ------------------------

         The joint  underwriting  association  that was known as HSB  Industrial
         Risk Insurers is now known as Industrial Risk Insurers (IRI), effective
         January 1, 2000. The reinsurance  agreements effective January 1, 1998,
         between The Hartford  Steam Boiler  Inspection  and  Insurance  Company
         (HSBIIC),  Employers Reinsurance  Corporation (ERC) and Industrial Risk
         Insurers were  terminated  with respect to loss or liabilities  arising
         out of  occurrences  taking  place on or after  January 1,  2000.  As a
         result,  HSBIIC no longer retains 85 percent of the equipment breakdown
         insurance  and 15 percent of the  property  insurance  of the  combined
         insurance portfolio for risks arising on or after January 1, 2000.

                                       7
<PAGE>

         Concurrent with the termination of the reinsurance agreements,  HSBIIC,
         ERC and IRI also  replaced the  operating  agreement  dated  January 1,
         1998. The new agreement,  effective  January 1, 2000, called for HSBIIC
         to retain  0.5  percent  membership  share in IRI with the  ability  to
         increase its total share up to a maximum of 10 percent,  at no cost, at
         HSBIIC's  option.  In addition,  the new agreements also established an
         arrangement  for HSB to perform  equipment  breakdown  engineering  and
         inspection services for clients of IRI.

         Effective  September 14, 2000, in connection with an agreement  between
         ERC and HSB under  which  HSB  redeemed  $300  million  of  Convertible
         Capital  Securities held by ERC (see Note 4, below) HSB transferred its
         0.5 percent  membership share to ERC. In addition,  HSB agreed to enter
         into  agreements  with ERC under  which HSB will  continue  to  provide
         inspection,  engineering and mechanical  breakdown  services to IRI for
         each of the two annual periods commencing January 1, 2001 and 2002.


         Gain on sale of interests in Integrated Process Technologies, LLC
         -----------------------------------------------------------------

         On September  29, 2000,  HSBIIC  completed  the sale of its 51 percent
         membership interest in Integrated Process  Technologies,  LLC (IPT) to
         Enron  Energy  Services  Operations,  Inc.  (EESO)  pursuant to an LLC
         Membership  Interest Purchase  Agreement between HSBIIC and EESO dated
         September 28, 2000.  In a related  transaction,  HSBIIC  completed the
         sale of a call option it held on an additional 29 percent  interest to
         the other 49 percent holder in IPT.  HSBIIC  recognized a pre-tax gain
         of $9.8 million from the two IPT sales transactions.


4.       Capital Structure

         Redemption of the Convertible Capital  Securities
         -------------------------------------------------

         On December 31,  1997,  HSB sold $300  million of  Convertible  Capital
         Securities  to ERC in a  private  placement.  The  Convertible  Capital
         Securities  were  issued  through HSB Capital II (Trust II), a Delaware
         business trust created by HSB. The Convertible  Capital Securities were
         redeemable, under certain conditions, at par plus a redemption premium,
         at the option of ERC, in the event of a change in control of HSB.

         On August 28, 2000, in  contemplation  of the proposed merger with AIG
         (see Note 3), HSB and ERC entered  into a  Redemption  Agreement  with
         respect to the  exercise  by ERC of the  change in control  redemption
         right provided at the time of the original issuance of the Convertible
         Capital Securities.

         On September 14, 2000, HSB redeemed the Convertible  Capital Securities
         issued by Trust II for $315.0 million plus accrued and unpaid  interest
         using funds  borrowed from AIG (see  "Borrowings"  below).  This amount
         included  the  change  in  control  redemption  premium.  Trust  II was
         subsequently  dissolved.  The early  extinguishment  of the Convertible
         Capital Securities resulted in an extraordinary  charge of $9.9 million
         after-tax or $0.34 per common share for the quarter.


         Borrowings
         ----------

         On September 14, 2000,  AIG lent $315.0 million in principal to HSB to
         fund the redemption of the Convertible Capital Securities. The loan is
         a five-year  term loan that  matures on September  30, 2005.  The loan
         bears  interest  at an annual  rate of 7.47  percent  and  interest is
         payable quarterly and on the date of any repayment of principal. After
         the  principal  amount of the loan becomes due and  payable,  the loan
         bears interest at an annual rate of 9.47 percent. The loan contains an
         optional  prepayment  provision,  whereby HSB has the option to prepay
         the loan,  in whole or in part,  subject to certain  notification  and
         minimum payment requirements.
                                       8
<PAGE>

5.       Provision for international large risk business

         The $20.7  million  provision  for  international  large risk business
         recognized in the third  quarter of 2000,  relates to the special risk
         insurance  business  of  the  Company's  London-based  affiliate,  HSB
         Engineering Insurance Limited (EIL). On a pre-tax basis, these charges
         include  amounts  recognized for estimated  future claims and expenses
         that resulted from the Company's evaluation of a premium deficiency of
         $12.2 million as well as the  recognition of an impairment of goodwill
         of $7.6  million and a reserve for  severance  and other costs of $0.9
         million  relating to that business.  The Company  determined  that the
         goodwill  associated with EIL's insurance business was not recoverable
         when measured using estimated future undiscounted cash flows.


6.       Recent Accounting Developments

         Statement of Position 98-7
         --------------------------

         In October  1998,  AcSEC issued  Statement of Position  98-7,  "Deposit
         Accounting:  Accounting for Insurance and Reinsurance Contracts That Do
         Not Transfer  Insurance Risk (SOP 98-7)." SOP 98-7  identifies  several
         methods of deposit  accounting and provides guidance on the application
         of each method. This SOP became effective for financial  statements for
         fiscal years  beginning after June 15, 1999. The adoption and impact of
         SOP 98-7 has not had a  material  impact on the  Company's  results  of
         operations,  financial  condition or cash flows,  as the Company is not
         party to any  contracts  that do not  comply  with  the  risk  transfer
         provisions of issued Statement of Financial Accounting Standards (SFAS)
         No. 113,  "Accounting and Reporting for  Reinsurance of  Short-Duration
         and Long-Duration Contracts."


         Statements of Financial Accounting Standards Nos. 133, 137 and 138
         -------------------------------------------------------------------

         In June 1998, the Financial  Accounting  Standards Board (FASB) issued
         SFAS No.  133,  "Accounting  for  Derivative  Instruments  and Hedging
         Activities"  subsequently  amended  by SFAS  Nos.  137 and  138.  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.  This  statement  is  effective  for the Company for the
         first  quarter  of 2001.  Based on the  Company's  current  investment
         policies and practices,  the Company  anticipates that the adoption of
         the  provisions  of SFAS No. 133, as amended by SFAS Nos.  137 and 138
         will not have a significant effect on results of operations, financial
         condition or cash flows.


         Statement of Financial Accounting Standards No. 140
         ---------------------------------------------------

         In September  2000, FASB issued SFAS No. 140 " Accounting for Transfers
         and Servicing of Financial  Assets and  Extinguishment  of Liabilities"
         which replaces SFAS No. 125 " Accounting for Transfers and Servicing of
         Financial  Assets  and  Extinguishment  of  Liabilities."  SFAS No. 140
         revises the  standards for  accounting  for  securitizations  and other
         transfers  of financial  assets and  collateral  and  requires  certain
         disclosures,  but it  carries  over most of SFAS No.  125's  provisions
         without reconsideration.

         This  statement is effective  for transfers and servicing of financial
         assets and  extinguishments  of liabilities  occurring after March 31,
         2001 and for  recognition and  reclassification  of collateral and for
         disclosures relating to securitization transactions and collateral for
         fiscal  years ending after  December 15, 2000.  Generally,  earlier or
         retroactive  application of the accounting  provisions of SFAS No. 140
         is  not  permitted.  Based  on  the  Company's  current  policies  and
         practices, the
                                       9
<PAGE>

         Company  anticipates  that the adoption of the  provisions of SFAS No.
         140 will not have a  significant  effect  on  results  of  operations,
         financial condition or cash flows.


         Codification of Statutory Accounting Principles
         -----------------------------------------------

         In 1998,  the National  Association of Insurance  Commissioners  (NAIC)
         adopted the Codification of Statutory  Accounting  Principles  guidance
         (Codification), which will replace the current Accounting Practices and
         Procedures   manual  as  the  NAIC's  primary   guidance  on  statutory
         accounting.  In 2000, the Connecticut legislature adopted Codification.
         The Company is in the process of estimating the effect of  Codification
         that becomes effective January 1, 2001.

7.       Legal Proceedings

         The Company is involved in various  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 litigation, will
         have a material  adverse  impact on the  results of  operations  or the
         financial position of the Company.


8.       Earnings per Common Share

         The  following  table  presents a  reconciliation  of the numerator and
         denominator of the calculation of basic and diluted Earnings per Common
         Share from income (loss) before extraordinary item.

<TABLE>
<CAPTION>


                                                          Quarter Ended         Nine Months Ended
                                                          September 30,           September 30,
                                                          -------------           -------------
                                                        2000         1999        2000        1999
          ----------------------------------------------------------------------------------------
          <S>                                         <C>          <C>          <C>         <C>
          Income (loss) before extraordinary item     $ (8.1)      $ 18.8       $  31.4     $ 62.6
          After-tax distributions on convertible
              capital securities (1)                     -            3.4           -         10.3
                                                      -------       ------        ------     -----
          Adjusted for diluted computation            $ (8.1)      $ 22.2       $  31.4     $ 72.9
          ----------------------------------------------------------------------------------------

          Weighted-average common shares outstanding    28.8         29.1          28.9       29.0
          Stock options (2)                              -            0.3           0.2        0.3
          Convertible capital securities (1)             -            5.3           -          5.3
                                                        ----         ----          ----       ----
          Adjusted for diluted computation              28.8         34.7          29.1       34.6
          ----------------------------------------------------------------------------------------
          Earnings (loss) per Common Share before
           extraordinary item:
            Basic (3) (4)                             $ (0.28)     $  0.65      $   1.08    $  2.16
            Assuming dilution (4)                     $ (0.28)     $  0.64      $   1.08    $  2.10
          -----------------------------------------------------------------------------------------
</TABLE>

         (1) Includes  only  the  dilutive   effect  of   convertible   capital
             securities.  See Note 4 "Capital  Structure" - "Redemption  of the
             Convertible Capital Securities".

         (2) Includes only the dilutive effect of stock options  computed using
             the treasury stock method and shares issuable under deferred stock
             awards.

         (3) Represents   income   applicable  to  common  stock  divided  by
             weighted-average common shares outstanding.

         (4) Computation excludes rounding.

                                       10
<PAGE>


9.       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
         offer 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.

         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,
                                                         -----------------------      ------------------
                                                          2000          1999          2000            1999
           ---------------------------------------------------------------------------------------------------
           <S>                                        <C>           <C>             <C>            <C>
           Revenues from continuing operations
           Insurance premiums:
           Commercial                                 $    94.1     $   82.7        $ 275.0        $ 245.2
           Global Special Risks                            11.5         10.1           22.9           36.9
           Engineering services *                          48.5         30.6          125.7           86.0
           Net investment income and realized
            investment gains                               31.3         30.0           85.3           79.6
                                                      -----------   ----------    -----------    ------------
           Total revenues from reportable segments        185.4        153.4          508.9          447.7
           Other segments                                   0.2         (0.1)          (1.4)           0.8
                                                      -----------   ----------    -----------    ------------
           Total revenues                             $   185.6     $  153.3        $ 507.5        $ 448.5
                                                      ===========   ==========    ===========    ============

           Net income (loss):
           Commercial                                 $     3.4     $    4.2        $  13.7         $ 10.1
           Global Special Risks                           (31.7)        (1.6)         (35.3)           6.3
           Engineering services *                           7.4          0.5            9.9            3.0
           Investment                                      20.1         21.3           56.5           55.9
                                                      -----------   ----------    -----------    ------------
           Total net income from reportable
            segments                                       (0.8)        24.4           44.8           75.3
           Other segments                                  (5.1)        (2.2)          (5.7)          (3.7)
           Corporate account                                1.9          1.2            5.8            4.6
           Distributions on capital securities             (4.1)        (4.6)         (13.5)         (13.6)
                                                      -----------   ----------     -----------    ------------
           Net income (loss) before extraordinary
            item                                           (8.1)        18.8           31.4           62.6
           Loss on extinguishment of capital
            securities of subsidiary Trust II, net
            of tax                                         (9.9)         -             (9.9)           -
                                                      -----------   ----------    -----------    ------------
           Net income (loss)                          $   (18.0)    $   18.8        $  21.5        $  62.6
                                                      ===========   ==========    ===========    ============
</TABLE>

         *Includes gain on sale of interests in Integrated Process Technologies,
          LLC (see Note 3).
                                       11
<PAGE>

10.      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 Debt Securities accrue and pay
         cash  distributions  quarterly in arrears at a variable  rate of LIBOR
         plus .91 percent 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  percent 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.

         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.

         In the  second  and third  quarters  of 2000,  the  Company  purchased
         $4,000,000 in face amount of Capital  Securities.  Since September 30,
         2000, the Company has  repurchased  an additional  $11,000,000 in face
         amount of Capital Securities.

11.      Stock Purchase Rights

         Under the shareholders  rights plan (Rights Agreement)  approved by the
         Board of Directors on September 21, 1998, the Board declared a dividend
         of one right for each outstanding share of common stock to shareholders
         of  record  on  November  28,  1998.  Under  the  terms  of the  Rights
         Agreement,  if certain conditions are met, the rights separate from the
         common  stock and  become  exercisable  if a person  or group  acquires
         ownership of 15 percent or more of the outstanding  common stock of the
         Company or  commences a tender or exchange  offer to acquire 15 percent
         or more of the outstanding shares.

         In  connection  with the merger,  the Rights  Agreement  was amended to
         provide that  neither the signing of the Merger  Agreement or the stock
         option  agreement (under which AIG was granted the option to acquire up
         to 19.9 percent of HSB common  stock) nor  completion  of the merger or
         the  exercise  of  the  stock  option  would  cause  AIG to  become  an
         "acquiring  person" or constitute a  "triggering  event" as these terms
         are defined in the Rights Agreement.

                                       12
<PAGE>



                  ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS
                       OF CONSOLIDATED FINANCIAL CONDITION
                            AND RESULTS OF OPERATIONS
                               SEPTEMBER 30, 2000

RESULTS OF OPERATIONS
---------------------

(in millions, except per share amounts)

<TABLE>
<CAPTION>

Consolidated Overview
---------------------
                                                          Quarter Ended                      Nine Months Ended
                                                           September 30,                       September 30,

                                                       2000          1999                  2000            1999
                                                       ----          ----                  ----            ----
<S>                                                <C>            <C>                   <C>             <C>
Revenues:

Gross earned premiums                              $   157.2      $   200.6             $   515.7       $  616.3
Ceded premiums                                          51.4          107.9                 219.2          333.4
                                                   ---------      ---------             ---------       --------

Insurance premiums                                     105.8           92.7                 296.5          282.9

Engineering services                                    38.7           30.6                 115.9           86.0

Net investment income                                   16.0           16.5                  46.5           48.8

Realized investment gains                               15.3           13.5                  38.8           30.8

Gain on sale of interests in IPT                         9.8            -                     9.8            -
                                                   ---------       ----------           ---------       --------
   Total revenues                                  $   185.6      $   153.3             $   507.5       $  448.5
                                                   =========      ===========           =========       ========



Pre-tax income (loss)                              $    (1.4)     $    32.7             $    72.0       $  107.8

Income taxes                                             2.6            9.3                  27.1           31.6

Distributions on capital securities, net of tax          4.1            4.6                  13.5           13.6
                                                   ---------      ---------             ---------       --------

Income (loss) before extraordinary item            $    (8.1)     $    18.8             $    31.4       $   62.6


Loss on extinguishment of capital securities of
   subsidiary Trust II, net of tax                       9.9            -                     9.9            -
                                                   ---------      ---------             ---------       --------


Net income (loss)                                  $   (18.0)     $    18.8             $    21.5       $   62.6
                                                   ==========     =========             =========       ========

Earnings (loss) per common share-basic:

     Income (loss) before extraordinary item       $    (0.28)    $     0.65            $     1.08      $    2.16
     Net income (loss)                             $    (0.62)    $     0.65            $     0.74      $    2.16

Earnings (loss) per common share-assuming
  dilution:

     Income (loss) before extraordinary item       $    (0.28)    $     0.64            $     1.08      $    2.10
     Net income (loss)                             $    (0.62)    $     0.64            $     0.74      $    2.10
</TABLE>

                                       13
<PAGE>



Overview of Results of Operations
---------------------------------

Total  revenues  for the third  quarter and first nine months of 2000  increased
21.1 and 13.2 percent from comparable  periods in 1999. The third quarter growth
in insurance premiums primarily reflects growth in our Commercial business.  The
year to date growth in  insurance  premiums  reflects  growth in our  Commercial
business  offset in part by declines in our Global Special Risks  business.  The
growth in  Engineering  Services  revenues of 26.5 percent for the third quarter
and 34.8 percent year to date,  which  excludes the impact of the third  quarter
2000 gain on sale of interests in  Integrated  Process  Technologies,  LLC (IPT)
(see "Engineering Services Operations"),  reflects the impact of new business as
well as continued growth in certain engineering affiliates and subsidiaries. The
third quarter and year to date increase in realized investment gains reflect the
shift of a portion of investments out of common stocks.

The Company's  pre-tax  earnings  decreased 104.3 and 33.2 percent for the third
quarter and first nine months of 2000 compared to 1999.  The decrease in pre-tax
earnings  for the  third  quarter  and year to date  2000 was due  primarily  to
reduced underwriting profits in our Global Special Risks business which reflects
$23.2 million of third quarter 2000 adverse loss experience,  net of reinsurance
recoveries of $24.5 million. The claims associated with this experience occurred
after July 1, 2000, of which the majority of the gross loss  experience  related
to  international  risks.  In  addition,  results for the third  quarter of 2000
include a charge of $20.7  million with  respect to the special  risk  insurance
business  generated by the Company's  London-based  affiliate,  HSB  Engineering
Insurance Limited (EIL).  This charge includes  provisions for future claims and
certain other expenses as well as a  non-tax-deductible  write-down with respect
to the goodwill impairment of that business.

The  effective  tax rates for the third quarter and year to date 2000 were 185.7
and 37.6  percent  compared to 28.4 and 29.3  percent for the  comparable  prior
periods.  The increase in the third quarter and year to date 2000  effective tax
rate  compared to 1999  relates to  increases  in  non-deductible  goodwill  and
reduced foreign tax credits.  The increase in non-deductible  goodwill for these
periods primarily relates to a charge of $7.6 million related to EIL, which is a
component of the $20.7 million  pre-tax  special risk insurance  business charge
discussed  above.  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.

Third  quarter  and year to date  2000  after-tax  results  also  include a $9.9
million  extraordinary loss on the early extinguishment of capital securities of
subsidiary Trust II which resulted when the Convertible  Capital Securities were
redeemed.   The  early  redemption  resulted  from  action  taken  by  Employers
Reinsurance  Corporation  (ERC) to  exercise  its change in  control  redemption
option, provided at the time of the original issuance of the Convertible Capital
Securities,  to require the  redemption of the  Convertible  Capital  Securities
under certain conditions (see Note 4 "Capital Structure").


Proposed Merger with American International Group, Inc.
-------------------------------------------------------

HSB Group, Inc. (HSB) and American  International Group, Inc. (AIG) entered into
a definitive  Agreement and Plan of Merger (Merger Agreement) dated as of August
17, 2000 under which AIG would acquire 100 percent of the  outstanding  stock of
HSB through a merger of HSB into Engineering Acquisition  Corporation,  a wholly
owned  subsidiary  of AIG. This  transaction  has been approved by the Boards of
Directors of both  companies and the  shareholders  of HSB. The  transaction  is
expected to be completed  later this year,  upon  receipt of pending  regulatory
approvals.

If the  merger is  completed,  each  shareholder  other  than  those  exercising
dissenter  rights is  entitled  to receive  AIG common  stock with a total value
equal to $41.00  for each  share of HSB common  stock.  The total  value for the
transaction is approximately $1.2 billion.  The transaction will be treated as a
purchase for accounting  purposes.  It is anticipated  that the transaction will
qualify as a tax-free  reorganization  for federal  income tax purposes.  HSB is
obligated  to pay  AIG a fee  of  $45.0  million,  if the  Merger  Agreement  is
terminated under certain conditions.

                                       14
<PAGE>


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

Statement of Position 98-7

In October 1998, AcSEC issued Statement of Position 98-7,  "Deposit  Accounting:
Accounting  for  Insurance  and  Reinsurance  Contracts  That  Do  Not  Transfer
Insurance  Risk (SOP  98-7)."  SOP 98-7  identifies  several  methods of deposit
accounting and provides  guidance on the  application  of each method.  This SOP
became effective for financial  statements for fiscal years beginning after June
15, 1999.  The adoption and impact of SOP 98-7 has not had a material  impact on
the Company's results of operations,  financial  condition or cash flows, as the
Company is not party to any contracts  that do not comply with the risk transfer
provisions  of  Statement  of  Financial  Accounting  Standards  (SFAS) No. 113,
"Accounting and Reporting for Reinsurance of  Short-Duration  and  Long-Duration
Contracts."


Statements of Financial Accounting Standards Nos. 133, 137 and 138

In June 1998, the Financial  Accounting  Standards  Board (FASB) issued SFAS No.
133, "Accounting for Derivative Instruments and Hedging Activities" subsequently
amended by SFAS Nos. 137 and 138.  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.  This  statement  is
effective for the Company for the first quarter of 2001.  Based on the Company's
current  investment  policies and practices,  the Company  anticipates  that the
adoption of the provisions of SFAS No. 133, as amended by SFAS Nos. 137 and 138,
will not have a significant effect on results of operations, financial condition
or cash flows.


Statement of Financial Accounting Standards No. 140

In September  2000,  FASB issued SFAS No. 140 "  Accounting  for  Transfers  and
Servicing of Financial Assets and  Extinguishment of Liabilities" which replaces
SFAS No. 125 " Accounting  for Transfers  and Servicing of Financial  Assets and
Extinguishment  of  Liabilities."   SFAS  No.  140  revises  the  standards  for
accounting  for  securitizations  and other  transfers of  financial  assets and
collateral and requires  certain  disclosures,  but it carries over most of SFAS
No. 125's provisions without reconsideration.

This statement is effective for transfers and servicing of financial  assets and
extinguishments   of  liabilities   occurring  after  March  31,  2001  and  for
recognition and  reclassification of collateral and for disclosures  relating to
securitization  transactions  and  collateral  for  fiscal  years  ending  after
December  15,  2000.  Generally,  earlier  or  retroactive  application  of  the
accounting  provisions of SFAS No. 140 is not permitted.  Based on the Company's
current policies and practices, the Company anticipates that the adoption of the
provisions  of SFAS No.  140 will not have a  significant  effect on  results of
operations, financial condition or cash flows.


Codification of Statutory Accounting Principles

In 1998, the National Association of Insurance  Commissioners (NAIC) adopted the
Codification of Statutory Accounting Principles guidance  (Codification),  which
will  replace the current  Accounting  Practices  and  Procedures  manual as the
NAIC's  primary  guidance on  statutory  accounting.  In 2000,  the  Connecticut
legislature  adopted  Codification.  The Company is in the process of estimating
the effect of Codification that becomes effective January 1, 2001.

                                       15
<PAGE>


Insurance Operations
--------------------
<TABLE>
<CAPTION>

                                                          Quarter Ended                    Nine Months Ended
                                                          September 30,                      September 30,
                                                          -------------                      -------------
                                                      2000           1999                  2000            1999
                                                      ----           ----                  ----            ----
<S>                                                <C>            <C>                   <C>             <C>
Gross earned premiums                              $   157.2      $   200.6             $   515.7       $  616.3
Ceded premiums                                          51.4          107.9                 219.2          333.4
                                                   ---------      ---------             ---------       --------
Insurance premiums                                     105.8           92.7                 296.5          282.9

Claims and adjustment expenses                          74.0           44.5                 150.9          120.7


Underwriting, acquisition and other expenses            54.6           46.0                 153.5          138.1
                                                   ---------      ---------             ---------          -----
Underwriting gain (loss)                           $   (22.8)     $     2.2             $    (7.9)      $   24.1


Provision for international large
  risk business charges                                 20.7           -                     20.7            -
                                                   ----------     ---------             ----------      --------
Pre-tax income (loss)                              $   (43.5)     $     2.2             $   (28.6)      $   24.1
                                                   ==========     =========             ==========      ========

Combined ratio excluding the provision
 for international large risk business charges:

Loss ratio *                                          70.0%           48.1%                 50.9%          42.7%
Expense ratio *                                       51.5%           49.6%                 51.7%          48.8%
                                                   --------       ---------             ---------       --------
Combined ratio *                                     121.5%           97.7%                102.6%          91.5%
                                                   ========       =========             =========       ========
</TABLE>

* Computation excludes rounding.


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

Gross earned  premiums in the third quarter and year to date 2000 decreased 21.6
and 16.3 percent from  comparable  periods in 1999. The decrease in gross earned
premiums  largely  relates to declines  in Global  Special  Risks  gross  earned
premiums  of  47.9  and  38.7   percent  for  the  quarter  and  year  to  date,
respectively.  These declines  primarily resulted from the Company's decision to
reduce its risk  position  in IRI  effective  January 1, 2000.  The  declines in
Global  Special  Risks were  offset by  increases  in  Commercial  gross  earned
premiums of 9.3 and 10.2 percent for the quarter and year to date, respectively,
which  related  primarily  to  increases  in  our  domestic  commercial  assumed
equipment breakdown business.

Ceded  premiums in the third  quarter and year to date  decreased  52.4 and 34.3
percent to comparable periods in 1999. This is consistent with declines in gross
earned  premiums for the same periods and reflects  changes in the  structure of
some of the Company's  reinsurance  programs  which now utilize less quota share
reinsurance  on  certain  books  of  business  as  well  as  changes  in the IRI
agreements.

The loss ratio  increased from 48.1 percent in the third quarter of 1999 to 70.0
percent in the current quarter;  and from 42.7 percent year to date 1999 to 50.9
percent  year to date 2000.  For the third  quarter  and year to date 2000,  the
increase in the loss ratios primarily  related to adverse loss experience in our
Global  Special  Risks  large risk  business.  The claims  associated  with this
experience  occurred  after  July  1,  2000  and  totaled  $23.2  million  after
reinsurance  recoveries  of  $24.5  million.  The  majority  of the  gross  loss
experience was related to international risks. Net of the effects of reinsurance
recoverable,  this  adverse loss  experience  had a 21.9 percent and 7.8 percent
impact  on the  Company's  third  quarter  and year to date  2000  loss  ratios,
respectively.  The  increase  in the loss ratio for the quarter and year to date
reflects to some extent  management's  decision to  increase  the  retention  on
certain  claims,  in order to provide  increased  reinsurance  capacity  for our
domestic  businesses.   Third  quarter  1999  results  include  $10  million  in
weather-related events domestically and the Taiwan earthquake.

                                       16
<PAGE>

The third quarter and year to date results include a $20.7 million provision for
international large risk business charges which are more fully discussed in Note
5. Excluding the provision for  international  large risk business,  the expense
ratio  increased  from 49.6 percent in the third quarter of 1999 to 51.5 percent
in the  current  quarter,  and from  48.8  percent  year to date in 1999 to 51.7
percent year to date in 2000.  The increases in the expense ratio were primarily
attributed to increases in underwriting and inspection expenses, which increased
$6.9  million  for the third  quarter  and  $16.1  million  year to date.  These
increases  were  largely  due to the  reduced  management  fees  related  to the
Company's  decision to reduce its risk bearing  position in IRI,  changes in the
Company's reinsurance programs which resulted in reduced ceding commissions, and
marketing incentive increases related to the growth in our Commercial  business.
Policy  acquisition  costs  increased $1.7 million for the quarter and were flat
year to date  compared to 1999 amounts due primarily to the reduction in IRI net
policy  acquisition  costs.  These  changes were offset,  however,  by increased
policy acquisition costs in our Commercial business.

IRI  management  fees are reflected as expense  reductions to  underwriting  and
inspection  expenses and policy  acquisition  costs.  The expense ratio would be
approximately  2.5 and 3.8  percent  higher  for the  quarter  and year to date,
respectively, absent the IRI arrangements.

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

                               Quarter Ended              Nine Months Ended
                               September 30,                September 30,
                               -------------                -------------
                             2000        1999            2000         1999
                             ----        ----            ----         ----
Commercial:
   Net earned premiums      $ 94.1      $82.7           $275.0      $245.2
   Net income                  3.4        4.2             13.7        10.1

Global Special Risks:
   Net earned premiums      $ 11.5      $10.1           $ 22.9      $ 36.9
   Net income (loss)         (31.7)      (1.6)           (35.3)        6.3


Net earned premiums in the Commercial segment rose $11.4 million or 13.8 percent
in the third quarter and $29.8 million or 12.2 percent for the first nine months
of 2000 due  primarily  to  continued  growth  in our  domestic  client  company
business through our ReSource product.  Net income for the third quarter of 2000
reflected  increased frequency of small claims as well as a higher percentage of
policy  acquisition and other underwriting costs to net earned premiums compared
to the  third  quarter  of 1999.  Net  income  year to date  2000 was  favorably
impacted by  reduction  in the loss ratio and the  absorption  of fixed costs on
higher net earned premiums.

Global  Special Risks net earned  premiums for the third quarter  increased $1.4
million and declined $14.0 million year to date from the  comparable  periods in
1999.  The quarter to date increase in net earned  premiums was due primarily to
the impact of increases in our domestic special risk business, offset in part by
decreases  in the IRI net  earned  premiums.  The year to date  decrease  in net
earned  premiums  was  due  primarily  to the  impact  of  changes  in  the  IRI
agreements. Global Special Risks net loss for the third quarter and year to date
2000  compared  to net  income  (loss)  for the same  periods  in 1999  reflects
increased loss as well as a portion  ($15.1 million  after-tax) of the provision
for international large risk business charges described in Note 5. The increased
losses in 2000 include the previously discussed impact of $23.2 million of large
third quarter losses, net of reinsurance  recoveries of $24.5 million related to
international   risks.   In  addition,   Global   Special  Risks   domestic  and
international loss ratios were also unfavorably  impacted by reduced quota share
reinsurance  coverages.  Global Special Risks 1999 results presented reflect the
impact of third quarter 1999 losses from weather-related events domestically and
the Taiwan  earthquake.  Global  Special  Risks may  continue to have an adverse
impact on  underwriting  results until such time as needed pricing  improvements
are  accepted  in  the  marketplace.  During  the  third  quarter,  the  Company
re-evaluated  EIL's contribution to Global Special Risks and has taken action to
curtail writings and address costs as the Company  continues to evaluate various
future strategies regarding Global Special Risks business.

                                       17
<PAGE>

Engineering Services Operations
<TABLE>
<CAPTION>

                                                  Quarter Ended                  Nine Months Ended
                                                  September 30,                    September 30,
                                                  -------------                    -------------
                                               2000           1999             2000           1999
                                               ----           ----             ----           ----
<S>                                         <C>             <C>              <C>            <C>

Engineering services revenues               $    38.7       $   30.6         $  115.9       $  86.0
Engineering services expenses                    36.2           29.5            107.8          80.3
                                            ---------       --------         --------       -------
Operating gain                              $     2.5       $    1.1         $    8.1       $   5.7

Gain on sale of interests in IPT                  9.8            -                9.8           -
                                            ---------       --------         --------       -------

Pre-tax income                              $    12.3       $    1.1         $   17.9       $   5.7
                                            =========       ========         ========       =======

Operating margin  *                               6.5%           3.6%             7.0%          6.6%
</TABLE>

* Excludes gain on sale of interests in IPT.

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 interests
in IPT until September 29, 2000 when its interests were sold.

Engineering  services  revenues  for the third  quarter and first nine months of
2000 increased $8.1 and $29.9 million  compared to the same periods in 1999. The
growth in Engineering services revenues for the third quarter was largely due to
growth in license  and  service  fees which were  generated  from the  Company's
agreements with Enron Energy Services  Operations,  Inc. (EESO),  an Enron Corp.
affiliate, new agreements with IRI that became effective January 1, 2000 and the
continued expansion of EIL's Haughton  engineering  business and HSBRT. The year
to date  growth in  Engineering  services  revenues  was  attributable  to these
factors as well as increased  revenue  generated by Structural that was acquired
in July 1999 and IPT. Under  agreements with EESO, which became effective in the
first quarter of 2000, the Company  provides  certain energy  services,  project
management and other technical assistance.

Engineering  services  operating  margin was 6.5 and 7.0  percent  for the third
quarter  and first nine  months of 2000,  respectively,  compared to 3.6 and 6.6
percent for comparable periods in 1999. The improvements in engineering services
operating margins were largely due to license and service fees. This improvement
was offset in part by the negative impact of IPT and the increased investment of
operating funds to develop new products.

On September 29, 2000,  HSBIIC  completed the sale of its 51 percent  membership
interest  in  IPT  to  EESO  pursuant  to an LLC  Membership  Interest  Purchase
Agreement  between  HSBIIC  and EESO  dated  September  28,  2000.  In a related
transaction, HSBIIC completed the sale of a call option it held on an additional
29 percent  interest to the other 49 percent holder in IPT. HSBIIC  recognized a
pre-tax gain of $9.8 million from the two IPT sales transactions.


Investment Operations
---------------------

                                     Quarter Ended          Nine Months Ended
                                     September 30,            September 30,
                                     -------------            -------------
                                   2000         1999         2000        1999
                                   ----         ----         ----        ----
Net investment income             $ 16.0      $ 16.5       $ 46.5      $ 48.8
Realized investment gains           15.3        13.5         38.8        30.8
                                  ------      ------       ------      ------
 Income before interest expense   $ 31.3      $ 30.0       $ 85.3      $ 79.6
Interest expense                     1.5         0.6          2.6         1.6
                                   ----       ------       ------      ------
Pre-tax income                    $ 29.8      $ 29.4       $ 82.7      $ 78.0
                                  ======      ======       ======      ======

                                       18
<PAGE>


Pre-tax income from investment  operations  increased $0.4 million for the third
quarter and $4.7 million for the first nine months of 2000  compared to the same
periods in 1999. The decrease in net investment income for the third quarter and
year to date 2000 primarily  related to reduced  investable funds which resulted
from the  repositioning of our investment  portfolio.  A portion of the proceeds
generated from  repositioning  the  investment  portfolio was used to repurchase
$9.6 million of HSB stock and repay $25.1 million in long-term  debt.  The third
quarter  and year to date  2000  increase  in  realized  investment  gains  over
comparable periods in 1999 reflected the shift of some investments out of common
stocks in accordance with the investment  portfolio's asset allocation  targets.
Realized  investment  gains  for the  third  quarter  and year to date 2000 also
include $0.2 and $5.6 million,  respectively, of losses arising from declines in
the realizable value of certain venture capital and other investments considered
to be other than temporary.  Management continues to evaluate the credit risk on
its  venture  capital  investments.   The  Company  continues  to  evaluate  its
investments for exposure to declines in realizable  value considered to be other
than temporary. 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.

Interest  expense  increased $0.9 million for the third quarter and $1.0 million
for the first nine  months of 2000  compared  to the same  periods in 1999.  The
increase  in  interest  expense  for the  third  quarter  and year to date  2000
primarily  resulted  from the impact of the Company's  $315.0  million loan with
AIG,  the  proceeds  of  which  were  used to  redeem  the  Convertible  Capital
Securities on September 14, 2000.


Market Risk
-----------

The value of the  Company's  financial  instruments  reacts to  changes in macro
economic variables.  Market risk generally  encompasses  systemic risks or risks
associated with macro factors  relating to the economic impact of changes in the
fair value of a financial instrument.  Market risk relates to the variability of
market  prices  and/or cash flows  associated  with  changes in interest  rates,
securities prices,  market indices,  yield curves or currency exchange rates and
is inherent to all  financial  instruments.  The Company's  investment  strategy
continues to be to maximize  total return on the  investment  portfolio  through
investment  income  and  capital  appreciation  and is based on such  factors as
operational results, tax implications,  regulatory requirements, interest rates,
dividends to stockholders,  debt and capital securities  servicing  requirements
and market conditions.

The focus of this  disclosure is on one element of market risk - price risk. For
the  Company,  price risk relates to changes in the level of prices of financial
instruments due to changes in interest rates,  equity prices or foreign exchange
rates.  The primary price risk exposures of the Company relate to interest rates
and equity price risk.

For  purposes  of  this  disclosure   market  risk  sensitive   instruments  are
categorized as  instruments  entered into for trading  purposes and  instruments
entered  into for  purposes  other than  trading.  The Company does not hold any
financial  instruments entered into for trading purposes and, therefore,  market
risk  sensitive  instruments  are  classified  as held for  purposes  other than
trading.


Interest Rate Risk

Interest  rate risk is the major price risk facing the  Company's  fixed  income
portfolio and relates to the effect of changes in the level of interest rates on
the return on financial instruments.  The Company attempts to mitigate this risk
by investing in high quality issues of various  maturities  using a buy and hold
approach and by  structuring  its  portfolio  such that the impact on regulatory
capital is moderated.


Equity Market Risk

Equity market risk is the  possibility  that market  influences  will  adversely
affect the  expected  returns on equity  investments.  The  Company  attempts to
reduce this risk through  diversification  and focus on high quality,  blue chip
investments.


Foreign Exchange Risk

Foreign  currency  risk is the chance  that  fluctuations  in  foreign  currency
exchange rates will impact the value of financial  instruments.  The Company has
foreign exchange exposure when it buys or sells foreign  currencies or financial

                                       19
<PAGE>

instruments   denominated  in  a  foreign   currency.   The  Company's   foreign
transactions are primarily denominated in Canadian dollars.


Sensitivity Analysis

The  sensitivity  analysis  assumes an  instantaneous  shift in market  interest
rates,  with scenarios of interest  rates  increasing and decreasing 100 and 150
basis points from their levels at September 30, 2000,  with all other  variables
held constant.  The analysis assumes the yield to worst  methodology.  A 100 and
150 basis point increase in the market  interest rates would result in a pre-tax
decrease in the net  financial  instrument  position of $49.3 million and $70.5,
respectively.  Similarly,  a 100 and 150 basis point decrease in market interest
rates  would  result  in a  pre-tax  increase  in the net  financial  instrument
position of $49.3 and $70.5 million, respectively.

Portfolio  sensitivity  to these  variables  tends to  change  over  time due to
changes in  portfolio  composition  and changes in market  environment.  For the
fixed  maturity  portfolio,  sensitivity,  as measured by duration,  was 8.13 at
September 30, 2000, essentially the same as at December 31, 1999.

The Company's long-term  borrowings were issued at a fixed rate of 7.47 percent,
and as such, interest expense would not be impacted by interest rate shifts. The
effect of 100 and 150 basis  point  increases  in  interest  rates on the $315.0
million in long-term borrowings to AIG would result in an estimated market value
of $302.3 million and $296.2 million,  respectively. For purposes of determining
the impact of changes in interest rates on market value,  it is assumed that the
Company  does not  exercise  its  optional  prepayment  rights.  If the  Company
exercises its prepayment rights, the impact on market values due to increases in
interest rates could be less severe.

The  impact  of 100 and 150  basis  point  increases  in  interest  rates on the
variable rate capital securities would result in an additional annualized charge
to pre-tax income of $1.1 million and $1.6 million,  respectively. A 100 and 150
basis point decrease in interest rates would increase  annualized pre-tax income
by $1.1 million and $1.6 million, respectively, per year.

Equity  price risk was  measured  assuming  an  instantaneous  10 percent and 25
percent  change in the S&P 500 Index from its level at  September  30, 2000 with
all other variables held constant.  The Company's equity holdings  (comprised of
common  stocks and  non-redeemable  preferreds)  were  assumed to be 100 percent
correlated  to this index.  A 10 percent and 25 percent  increase or decrease in
the S&P 500  Index  would  result  in a $18.0  and  $45.0  million  increase  or
decrease,  respectively, in the net financial instrument position. The Company's
equity instruments'  sensitivity to equity market risk, as measured by portfolio
beta,  decreased  from 0.98 at December 31, 1999 to 0.85 at September  30, 2000.
This  change is  generally  attributed  to  portfolio  repositioning  during the
period.

The sensitivity analysis also assumes an instantaneous 10 percent and 20 percent
change in the foreign currency  exchange rates versus the U.S. dollar from their
levels at September  30, 2000,  with all other  variables  held  constant.  A 10
percent  and 20  percent  strengthening  of the  U.S.  dollar  would  result  in
decreases  of  $10.2  and  $10.6  million,  respectively,  in the net  financial
instrument  position.  Weakening of the U.S. dollar versus all other  currencies
would result in like increases in the net financial instrument position.

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 the S&P 500 Index and a decline of 10
percent in foreign currency exchange rates.

Held For Other Than Trading Purposes

                               Market      Interest      Currency       Equity
At September 30, 2000          Value      Rate Risk        Risk          Risk
--------------------------------------------------------------------------------
Fixed maturity securities      $ 486.3      $ (34.7)     $ (6.7)       $    -
Equity securities                384.1        (14.1)       (2.2)          (18.0)
Short term investments            38.9         (0.5)       (1.3)            -
--------------------------------------------------------------------------------
  Total all Securities         $ 909.3      $ (49.3)     $(10.2)       $  (18.0)
--------------------------------------------------------------------------------

                                       20
<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, 2000          Value      Rate Risk        Risk          Risk
--------------------------------------------------------------------------------
Fixed maturity securities      $  486.3     $ (49.7)     $ (6.9)       $    -
Equity securities                 384.1       (20.0)       (2.1)          (45.0)
Short term investments             38.9        (0.8)       (1.6)            -
--------------------------------------------------------------------------------
  Total all securities         $  909.3     $ (70.5)     $(10.6)       $  (45.0)
--------------------------------------------------------------------------------


Statements 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 2000  increased $5.4 million
compared to a decrease of $52.1 million in the same period in 1999. Exclusive of
realized  gains,  the change in 2000 when  compared  to the first nine months of
1999 is largely due to rising interest rates.


Liquidity and Capital Resources
-------------------------------
                                                        Balances at
                                             --------------------------------
                                             September 30,       December 31,
                                                 2000                1999
                                            ---------------      -------------
Total assets                                $ 2,006.8               $ 2,263.2
Short-term investments                           38.9                    53.5
Cash and cash equivalents                        79.9                    73.0
Short-term borrowings                            27.6                    41.5
Long-term borrowings                            315.0                    25.1
Capital securities of subsidiary Trust I        105.0                   109.0
Capital securities of subsidiary Trust II         -                     300.0
Shareholders' equity                            363.5                   376.5


Liquidity refers to the Company's  ability to generate  sufficient funds to meet
the cash requirements of its business operations. 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 and long-term  borrowings.  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  borrowings and
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 $64.8 million in the first nine months of 2000
compared  to  $35.8  million  for the same  period  in 1999.  The  decreases  in
reinsurance assets,  insurance premiums  receivable,  prepaid acquisition costs,
unearned  insurance  premiums,   claims  and  adjustments   expenses  and  other
liabilities on the Consolidated  Statement of Position from December 31, 1999 to
September  30,  2000  largely  relate to changes in the IRI  arrangement,  which
became effective January 1, 2000. This trend is expected to continue through the
remainder of 2000.  Cash provided by investment  activities was $58.3 million in
the first nine  months of 2000  compared  to $30.8 for the same  period in 1999.
This reflects  investment  portfolio  repositioning to asset allocation targets.
Cash used in financing activities was $116.2 million in the first nine months of
2000  compared to $38.5  million for the same period in 1999.  This  increase is
largely
                                       21
<PAGE>

due to the decrease in short-term borrowings and the settlement of $25.1 million
of senior notes that  matured  during the second  quarter of 2000.  In the third
quarter of 2000,  the  proceeds of a $315.0  million  loan from AIG were used to
retire the  Company  obligated  mandatorily  redeemable  capital  securities  of
subsidiary  Trust II. The Cash used in financing  activities  for the first nine
months of 2000 also  includes the  repurchase  of $4.0 million in face amount of
capital securities of subsidiary Trust I at a discount. Since September 30, 2000
the  Company  has  repurchased  an  additional  $11.0  million in face amount of
capital securities at a discount.

Capital resources consist of debt outstanding,  shareholders' equity and capital
securities,  and represent  those funds  deployed or available to be deployed to
support  business   operations.   Common   shareholders'   equity  decreased  by
approximately  $13.0 million  since  December 31, 1999.  The decrease  primarily
reflects  comprehensive income of $26.9 million less dividends of $38.2 million,
stock  repurchases  of $9.6  million and the  exercise of stock  options of $4.6
million.  Shareholders'  equity as a percent of assets was 18.1 percent, up from
16.6 percent at December 31, 1999,  as changes in the balance  sheet reflect the
Company's  decision to reduce its risk bearing position in IRI effective January
1,  2000.  During  the  first  nine  months  of 2000,  the  Company  repurchased
approximately 365,000 shares of its outstanding shares.

On September 14, 2000,  AIG lent $315.0  million in principal to HSB to fund the
redemption of the Convertible Capital  Securities.  The loan is a five-year term
loan that matures on September  30, 2005.  The loan bears  interest at an annual
rate of 7.47 percent and is payable  quarterly  and on the date of any repayment
of principal.  After the  principal  amount of the loan becomes due and payable,
the loan bears interest at an annual rate of 9.47 percent.  The loan contains an
optional prepayment provision, whereby HSB has the option to prepay the loan, in
whole  or  in  part,  subject  to  certain   notification  and  minimum  payment
requirements.

At September 30, 2000, HSBIIC had significant short-term and long-term borrowing
capacity.  HSBIIC  is  currently  authorized  to  issue  up to $100  million  of
commercial paper, an increase of $25 million since December 31, 1999. Commercial
paper  outstanding  at September  30, 2000 was  approximately  $27 million.  The
weighted-average interest rate was 6.6 percent at September 30, 2000. Standard &
Poor's and Fitch  (formerly Duff & Phelps) credit rating  services have assigned
their highest ratings for the commercial paper.


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: consummation of the
proposed  merger with AIG;  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 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.


Item 3 - Quantitative and Qualitative Disclosures About Market Risk

See Item 2,  "Management's  Discussion  and Analysis of  Consolidated  Financial
Condition and Results of Operations", "Market Risk".


PART II - OTHER INFORMATION

Item 1 - Legal Proceedings

See Note 7 to Consolidated Financial Statements, Part I, Item 1.

                                       22
<PAGE>

Item 6 - Exhibits and Reports on Form 8-K

(a)  Exhibits

     Exhibit  2 -  Agreement  and  Plan of  Merger  among  Registrant,  American
     International  Group, Inc. (AIG) and Engine  Acquisition  Corporation dated
     August 17, 2000,  incorporated  by  reference to Exhibit 2 to  Registrant's
     Current Report on Form 8-K dated August 18, 2000.

     Exhibit  10(ii)(a) -  Redemption  Agreement  dated  August 23, 2000 between
     Employers Reinsurance Corporation and Registrant, incorporated by reference
     to  Exhibit  10(ii)(a)  to  Registrant's  Current  Report on Form 8-K dated
     September 6, 2000.

     Exhibit  10(ii)(b)  - Term Loan  Agreement  dated as of  September  6, 2000
     between AIG and Registrant,  incorporated by reference to Exhibit 10(ii)(b)
     to Registrant's Current Report on Form 8-K dated September 6, 2000.

     Exhibit 10(iii)(a) - Form of Employment Agreement among Registrant,  Engine
     Acquisition Corporation and various executive officers.*

     Exhibit  10(iii)(b)  -  Employment   Agreement  among  Registrant,   Engine
     Acqusition Corporation and Richard H. Booth dated September 1, 2000.*

     Exhibit 27 - Financial Data Schedule

     Exhibit  99  -  Stock  Option  Agreement  dated  August  17,  2000  between
     Registrant  and  AIG,   incorporated   by  reference  to  Exhibut  99.2  to
     Registrant's Current Report on Form 8-K dated August 18, 2000.


*    Management contract,  compensatory plan or arrangement required to be filed
     as an exhibit pursuant to Item 6(a).


(b)  Reports on Form 8-K

     Form 8-K dated July 24,  2000  reporting  on  Registrant's  second  quarter
     earnings and the declaration of a dividend.

     Form 8-K  dated  August  18,  2000  reporting  on the  signing  of a merger
     agreement among Registrant,  American  International  Group, Inc. (AIG) and
     Engine Acquisition Corporation.

     Form 8-K  dated  September  6,  2000  reporting  on the  agreement  between
     Registrant and Employers Reinsurance Corporation under which Registrant has
     agreed to redeem the convertible  capital  securities issued by HSB Capital
     II. This Form 8-K also reported that Registrant and AIG entered into a Term
     Loan  Agreement  under  which  AIG will loan  Registrant  $315  million  in
     connection with the redemption of the securities.

                                       23
<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 14, 2000                  By:      /s/  Saul L. Basch
                                                          Saul L. Basch
                                                          Senior Vice President,
                                                          Treasurer and Chief
                                                          Financial Officer


Date:    November 14, 2000                  By:      /s/  Robert C. Walker
                                                          Robert C. Walker
                                                          Senior Vice President
                                                          and General Counsel

                                       24