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Navigators Reports Record Net Income in Second Quarter 2018

STAMFORD, Conn., Aug. 08, 2018 (GLOBE NEWSWIRE) -- The Navigators Group, Inc. (NASDAQ:NAVG) reported Net Income of $32.1 million, or $1.07 per diluted share, for the three months ended June 30, 2018 compared to $20.5 million, or $0.69 per diluted share, for the same period in 2017. Net Operating Earnings1 were $27.6 million, or $0.92 per diluted share, for the three months ended June 30, 2018 compared to $19.7 million, or $0.66 per diluted share, for the same period in 2017.

Gross Written Premiums and Net Written Premiums for the three months ended June 30, 2018 were $497.2 million and $379.3 million, respectively, increasing 10.0% and 13.8%, respectively, from the comparable period in 2017. The Combined Ratio for the three months ended June 30, 2018 was 96.0%, compared to 97.3% for the same period in 2017.

Net Investment Income for the three months ended June 30, 2018 was $24.6 million, an increase of 10.5% as compared to the same period in 2017. The annualized pre-tax investment yield, excluding Total Net Realized and Unrealized Gains and Losses recognized in the Results of Operations, was 2.8% for the three months ended June 30, 2018 and 2017.

Other Income (Loss) for the three months ended June 30, 2018 was $2.6 million, compared to $(0.4) million for the same period in 2017. Other Income (Loss) primarily consists of realized and unrealized foreign exchange gains and losses.

Stan Galanski, President and Chief Executive Officer, commented, “We are very pleased with our financial results and operating performance for the second quarter. We continued to achieve profitable underwriting results and double digit premium growth, led by our U.S. Insurance and GlobalRe segments. While the market remains competitive, we are encouraged by both positive renewal price movement for most of our specialty product lines during the quarter as well as by the number of insureds exiting unprofitable product lines, especially in the London market. Our investments continued to perform well, with Net Investment Income up 10.5% for the quarter and six months. During the quarter we completed the acquisition of Belgium based ASCO and BDM, a key to our future growth in the European Union.”

On June 7, 2018, the Company acquired 100% ownership interest in Bracht, Deckers & Mackelbert NV (“BDM”), a specialty underwriting agency, and its affiliated insurance company, Assurances Continentales – Continentale Verzekeringen NV (“ASCO”). The acquisition of BDM/ASCO was undertaken as part of the Company’s strategy of expanding to more brokers and insured across Europe and reinforces the Company’s presence in the European Union’s single market. We anticipate that this will enable the Company to better serve its European clients after Brexit and will also provide an opportunity for BDM and ASCO to reach a wider European audience.

For the six months ended June 30, 2018 the Company reported Net Income of $63.0 million, or $2.09 per diluted share compared to $41.6 million, or $1.39 per diluted share, for the same period in 2017. Net Operating Earnings1 were $60.5 million, or $2.01 per diluted share, for the six months ended June 30, 2018 compared to $40.1 million, or $1.34 per diluted share, for the same period in 2017.

Gross Written Premiums and Net Written Premiums for the six months ended June 30, 2018 were $992.5 million and $772.6 million, respectively, increasing 10.0% and 15.2%, respectively, from the comparable period in 2017. The Combined Ratio for the six months ended June 30, 2018 was 95.0%, compared to 96.9% for the same period in 2017.

Net Investment Income for the six months ended June 30, 2018 was $48.3 million, an increase of 10.5% as compared to the same period in 2017. The annualized pre-tax investment yield, excluding Total Net Realized and Unrealized Gains and Losses recognized in the Results of Operations, was 2.8% for the six months ended June 30, 2018 compared to 2.7% for the same period in 2017.

Other Income for the six months ended June 30, 2018 was $2.5 million, compared to $0.7 million for the same period in 2017. Other Income for the six months ended June 30, 2018 included revenue from the sale of renewal rights for the Company’s fixed-premium protection and indemnity (“P&I”) business as well as net realized and unrealized foreign exchange gains. Other Income for the same period in 2017 primarily consisted of net realized and unrealized foreign exchange gains.

The Company’s investment portfolio mainly consists of fixed income securities with an average quality rating of “AA-/Aa3” as defined by S&P and Moody’s, respectively, with an effective duration of 3.5 years as of June 30, 2018. As of June 30, 2018, Net Unrealized Losses within the Available-For-Sale investment portfolio recognized in Accumulated Other Comprehensive Income were $30.1 million, a change of $71.6 million, compared to Net Unrealized Gains of $41.5 million as of December 31, 2017. Included in this change was the reclassification of $11.8 million of net unrealized gains, before tax, from Accumulated Other Comprehensive Income to Retained Earnings as a result of adopting ASU 2016-01.

The Company recognized $3.1 million of Total Net Realized and Unrealized Gains within the Results of Operations for the three months ended June 30, 2018, compared to $1.7 million for the same period in 2017. The Net Realized and Unrealized Gains within the Results of Operations for the three months ended June 30, 2018 included $1.3 million of Net Unrealized Gains on Equity Securities. For the six months ended June 30, 2018 the Company recognized $1.1 million of Total Net Realized and Unrealized Gains within the Results of Operations, compared to $1.7 million for the same period in 2017. The Net Realized and Unrealized Gains within the Results of Operations for the six months ended June 30, 2018 included $1.9 million of Net Unrealized Losses on Equity Securities.

The effective tax rate was 19.3% and 18.1% for the three and six months ended June 30, 2018, respectively, which compares to 25.4% and 26.0% for the same periods in 2017, with the decrease being primarily a result of changes related to 2017 tax reform.

Stockholders’ Equity was $1.2 billion, or $41.49 per share, as of June 30, 2018 compared to $40.96 per share, as of March 31, 2018, and $41.55 per share, as of December 31, 2017.

During the three months ended June 30, 2018, the Company declared and paid a quarterly cash dividend of $0.07 per share of Common Stock.

The Company will hold a conference call on Thursday, August 9, 2018 starting at 8:30 a.m. (ET) to discuss the 2018 second quarter results. The call will be available via live webcast on Navigators’ website (www.navg.com).

To participate by telephone, the domestic dial-in number is 800-850-2903 and the international dial-in is 224-357-2399. Participants may also connect to the webcast at: https://edge.media-server.com/m6/p/spw5hg2q

The Navigators Group, Inc. is an international specialty insurance holding company with operations in the United States, the United Kingdom, Continental Europe and Asia.

This press release may contain “forward-looking statements” as defined in the Private Securities Litigation Reform Act of 1995. Whenever used in this release, the words “estimate,” “expect,” “believe” or similar expressions are intended to identify such forward-looking statements. Forward-looking statements are derived from information that we currently have and assumptions that we make. These forward-looking statements include statements on the financial impact of tax reform. We continue to assess the tax accounting effects of tax reform. We cannot assure that results that we anticipate will be achieved, since results may differ materially because of known and unknown risks and uncertainties that we face. Please refer to Navigators’ most recent reports on Forms 10-K and 10-Q and its other filings with the Securities and Exchange Commission for a description of Navigators’ business and the important factors that may affect that business. Navigators’ undertakes no obligation to publicly update or revise any forward-looking statement.

Contact: Ciro M. DeFalco
  Executive Vice President and Chief Financial Officer
  (203) 905-6343
  cdefalco@navg.com
  www.navg.com
   

/EIN News/ -- 1 Net Operating Earnings is a “non-GAAP financial measure” as defined in Regulation G. A reconciliation of Net Income (the nearest GAAP financial measure) to Net Operating Earnings is provided on page 4 of this release, as is a discussion of the rationale for the presentation of this item.

THE NAVIGATORS GROUP, INC. AND SUBSIDIARIES
FINANCIAL HIGHLIGHTS
(Unaudited)

    Three Months Ended             Six Months Ended          
amounts in thousands, except per share amounts   June 30,             June 30,          
Results of Operations   2018     2017     Change     2018     2017     Change  
                                                 
Gross Written Premiums   $ 497,236     $ 452,179       10.0%     $ 992,460     $ 902,484       10.0%  
Net Written Premiums     379,292       333,282       13.8%       772,554       670,445       15.2%  
                                                 
Revenues:                                                
Net Earned Premiums   $ 331,015     $ 293,835       12.7%     $ 653,642     $ 579,966       12.7%  
Net Investment Income     24,601       22,265       10.5%       48,303       43,713       10.5%  
Net Realized and Unrealized Gains (Losses):                                                
Total Other-Than-Temporary Impairment
  Losses
    (18)       29     NM       (55)       (1,048)       (94.7%)  
Portion of Loss Recognized in Other
  Comprehensive Income (Before Tax)
    18       (29)     NM       55       (45)     NM  
Net Other-Than-Temporary Impairment Losses
  Recognized In Earnings
              NM             (1,093)     NM  
Net Realized Gains on Investments Sold     1,787       1,694       5.5%       2,956       2,743       7.7%  
Net Unrealized Gains (Losses) on Equity
  Securities at Fair Value
    1,329           NM       (1,852)           NM  
Total Net Realized and Unrealized Gains     3,116       1,694       83.9%       1,104       1,650       (33.1%)  
Other Income (Loss)     2,628       (411)     NM       2,511       657     NM  
Total Revenues   $ 361,360     $ 317,383       13.9%     $ 705,560     $ 625,986       12.7%  
                                                 
Expenses:                                                
Net Losses and Loss Adjustment Expenses   $ 196,333     $ 177,110       10.9%     $ 382,478     $ 346,710       10.3%  
Commission Expenses     53,193       48,173       10.4%       107,345       96,017       11.8%  
Other Operating Expenses     68,182       60,766       12.2%       131,108       119,304       9.9%  
Interest Expense     3,864       3,861       0.1%       7,728       7,722       0.1%  
Total Expenses   $ 321,572     $ 289,910       10.9%     $ 628,659     $ 569,753       10.3%  
                                                 
Income Before Income Taxes   $ 39,788     $ 27,473       44.8%     $ 76,901     $ 56,233       36.8%  
                                                 
Income Tax Expense     7,684       6,971       10.2%       13,919       14,621       (4.8%)  
                                                 
Net Income   $ 32,104     $ 20,502       56.6%     $ 62,982     $ 41,612       51.4%  
                                                 
                                                 
Per Share Data                                                
                                                 
Net Income Per Common Share:                                                
Basic   $ 1.08     $ 0.70       55.2%     $ 2.12     $ 1.42       49.9%  
Diluted   $ 1.07     $ 0.69       55.6%     $ 2.09     $ 1.39       50.1%  
                                                 
Average Common Shares Outstanding:                                                
Basic     29,733       29,470               29,664       29,377          
Diluted     30,103       29,918               30,143       29,897          
                                                 
Underwriting Ratios                                                
Loss Ratio     59.3%       60.3%               58.5%       59.8%          
Expense Ratio     36.7%       37.0%               36.5%       37.1%          
Combined Ratio     96.0%       97.3%               95.0%       96.9%          
                                                 
Balance Sheet Data   June 30,     March 31,             June 30,     December 31,          
    2018     2018             2018     2017          
Stockholders' Equity   $ 1,234,084     $ 1,216,952       1.4%     $ 1,234,084     $ 1,225,965       0.7%  
Book Value per Share   $ 41.49     $ 40.96       1.3%     $ 41.49     $ 41.55       (0.1%)  

NM - Percentage change not meaningful.

THE NAVIGATORS GROUP, INC. AND SUBSIDIARIES
NON-GAAP RECONCILIATION OF NET INCOME TO NET OPERATING EARNINGS
(Unaudited)

In this release, we present Net Operating Earnings, which is a “non-GAAP financial measure” as defined in Regulation G.

Net Operating Earnings is comprised of Net Income excluding After-Tax Total Net Realized and Unrealized Gains (Losses), After-Tax Foreign Exchange Gains (Losses), and the Net Gain on Disposition of Product Line recognized in the Results of Operations.

We believe this presentation enhances the understanding of the results of operations by highlighting the underlying profitability of the business and enables investors and other users of the financial information to analyze underlying business performance in a manner similar to management. We also believe this measure follows industry practice and, therefore facilitates comparison of our performance with our peer group.

The following tables provide a reconciliation of Net Income (the nearest GAAP financial measure) to Net Operating Earnings:

                   
    Three Months Ended June 30, 2018     Three Months Ended June 30, 2017     % Change  
amounts in thousands, except per share amounts   Pre-Tax     Tax (1)     After-Tax     Pre-Tax     Tax (1)     After-Tax     QTD  
Net Income   $ 39,788     $ (7,684)     $ 32,104     $ 27,473     $ (6,971)     $ 20,502       56.6%  
Adjustments to Net Income:                                                        
Total Net Realized and Unrealized Losses     (3,116)       654       (2,462)       (1,694)       593       (1,101)       123.7%  
FX Losses (Gains)     (2,586)       543       (2,043)       463       (162)       301     NM  
Net Operating Earnings   $ 34,086     $ (6,487)     $ 27,599     $ 26,242     $ (6,540)     $ 19,702       40.1%  
                                                         
Average Common Shares Outstanding:                                                        
Basic                     29,733                       29,470          
Diluted                     30,103                       29,918          
                                                         
Net Operating Earnings per Common Share:                                                        
Basic                   $ 0.93                     $ 0.67          
Diluted                   $ 0.92                     $ 0.66          

(1) - Tax impact is estimated by applying the statutory rates of applicable jurisdictions, after consideration of any other relevant factors.
NM - Percentage change not meaningful.

                   
    Six Months Ended June 30, 2018     Six Months Ended June 30, 2017     % Change  
amounts in thousands, except per share amounts   Pre-Tax     Tax (1)     After-Tax     Pre-Tax     Tax (1)     After-Tax     YTD  
Net Income   $ 76,901     $ (13,919)     $ 62,982     $ 56,233     $ (14,621)     $ 41,612       51.4%  
Adjustments to Net Income:                                                        
Total Net Realized and Unrealized Losses     (1,104)       232       (872)       (1,650)       578       (1,072)       (18.6%)  
FX Losses (Gains)     (1,064)       223       (841)       (660)       231       (429)       96.1%  
Net Gain on Disposition of Product Line     (948)       199       (749)                       NM  
Net Operating Earnings   $ 73,785     $ (13,265)     $ 60,520     $ 53,923     $ (13,812)     $ 40,111       50.9%  
                                                         
Average Common Shares Outstanding:                                                        
Basic                     29,664                       29,377          
Diluted                     30,143                       29,897          
                                                         
Net Operating Earnings per Common Share:                                                        
Basic                   $ 2.04                     $ 1.37          
Diluted                   $ 2.01                     $ 1.34          

(1) - Tax impact is estimated by applying the statutory rates of applicable jurisdictions, after consideration of any other relevant factors.
NM - Percentage change not meaningful.

THE NAVIGATORS GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS

                 
    June 30,     December 31,  
    2018     2017  
amounts in thousands, except per share amounts   (Unaudited)          
ASSETS                
Investments:                
Fixed Maturities, available-for-sale, at fair value (amortized cost: 2018:  $2,991,629;
  2017: $3,027,408)
  $ 2,961,541     $ 3,057,054  
Equity Securities, at fair value  (cost: 2018: $317,497; 2017: $224,159)     327,466       235,981  
Other Invested Assets     38,372       30,488  
Short-Term Investments, available-for-sale, at fair value (amortized cost: 2018: $6,368;
  2017: $6,477)
    6,368       6,480  
Total Investments   $ 3,333,747     $ 3,330,003  
Cash and Cash Equivalents     175,834       102,735  
Restricted Cash and Cash Equivalents     47,522       56,229  
Premiums Receivable     455,742       351,393  
Prepaid Reinsurance Premiums     239,660       228,569  
Reinsurance Recoverable on Paid Losses     94,503       72,494  
Reinsurance Recoverable on Unpaid Losses and Loss Adjustment Expenses     799,084       809,765  
Deferred Policy Acquisition Costs     157,153       135,249  
Accrued Investment Income     20,276       19,480  
Goodwill and Other Intangible Assets     28,272       6,596  
Current Income Tax Receivable, Net     21,395       16,667  
Deferred Income Tax, Net     24,552       22,271  
Other Assets     91,205       73,171  
Total Assets   $ 5,488,945     $ 5,224,622  
                 
LIABILITIES AND STOCKHOLDERS' EQUITY                
Liabilities:                
Reserves for Losses and Loss Adjustment Expenses   $ 2,574,116     $ 2,515,145  
Unearned Premiums     1,125,731       987,681  
Reinsurance Balances Payable     132,285       136,192  
Senior Notes     263,967       263,885  
Payable for Investments Purchased     45,800        
Accounts Payable and Other Liabilities     112,962       95,754  
Total Liabilities   $ 4,254,861     $ 3,998,657  
                 
Stockholders' Equity:                
Preferred Stock ($.10 par value per share, authorized 1,000 shares, none issued)   $     $  
                 
Common Stock ($.10 par value per share, authorized 50,000 shares, issued
  36,764 shares for 2018 and 36,530 shares for 2017)
    3,673       3,650  
Additional Paid-In Capital     376,705       376,868  
Treasury Stock, at cost (7,023 shares for 2018 and 2017)     (155,801)       (155,801)  
Retained Earnings     1,045,131       981,380  
Accumulated Other Comprehensive Income     (35,624)       19,868  
Total Stockholders' Equity   $ 1,234,084     $ 1,225,965  
Total Liabilities and Stockholders' Equity   $ 5,488,945     $ 5,224,622  
                 

THE NAVIGATORS GROUP, INC. AND SUBSIDIARIES
Segment Information
(Unaudited)

    Three Months Ended June 30, 2018  
    U.S.     Int'l                          
amounts in thousands   Insurance     Insurance     GlobalRe     Corporate (1)     Total  
Gross Written Premiums   $ 288,478     $ 132,523     $ 76,235     $     $ 497,236  
Ceded Written Premiums     (76,144)       (39,882)       (1,918)             (117,944)  
Net Written Premiums     212,334       92,641       74,317             379,292  
                                         
Net Earned Premiums   $ 179,746     $ 92,071     $ 59,198     $     $ 331,015  
Net Losses and LAE     (111,885)       (52,304)       (32,144)             (196,333)  
Commission Expenses     (20,382)       (19,863)       (13,148)       200       (53,193)  
Other Operating Expenses     (38,447)       (23,299)       (6,436)             (68,182)  
Other Underwriting Income (Expense)     71             136       (200)       7  
                                         
Underwriting Profit (Loss)   $ 9,103     $ (3,395)     $ 7,606     $     $ 13,314  
                                         
Net Investment Income                             24,601       24,601  
Total Net Realized and Unrealized Gains                             3,116       3,116  
Interest Expense                             (3,864)       (3,864)  
Other Income                             2,621       2,621  
Income (Loss) Before Income Taxes   $ 9,103     $ (3,395)     $ 7,606     $ 26,474     $ 39,788  
Income Tax Expense                             (7,684)       (7,684)  
Net Income                                   $ 32,104  
                                         
Losses and LAE Ratio     62.2%       56.8%       54.3%               59.3%  
Commission Expense Ratio     11.3%       21.6%       22.2%               16.1%  
Other Operating Expense Ratio (2)     21.4%       25.3%       10.7%               20.6%  
Combined Ratio     94.9%       103.7%       87.2%               96.0%  

(1) - Includes Corporate segment intercompany eliminations.
(2) - Includes Other Operating Expenses and Other Underwriting Income (Expense).

THE NAVIGATORS GROUP, INC. AND SUBSIDIARIES
Segment Information
(Unaudited)

    Three Months Ended June 30, 2017  
    U.S.     Int'l                          
amounts in thousands   Insurance     Insurance     GlobalRe     Corporate (1)     Total  
Gross Written Premiums   $ 257,186     $ 131,193     $ 63,800     $     $ 452,179  
Ceded Written Premiums     (73,857)       (43,809)       (1,231)             (118,897)  
Net Written Premiums     183,329       87,384       62,569             333,282  
                                         
Net Earned Premiums   $ 167,087     $ 82,100     $ 44,648     $     $ 293,835  
Net Losses and LAE     (105,270)       (44,095)       (27,745)             (177,110)  
Commission Expenses     (20,460)       (19,001)       (8,970)       258       (48,173)  
Other Operating Expenses     (33,140)       (22,506)       (5,120)             (60,766)  
Other Underwriting Income (Expense)     100             169       (258)       11  
                                         
Underwriting Profit (Loss)   $ 8,317     $ (3,502)     $ 2,982     $     $ 7,797  
                                         
Net Investment Income                             22,265       22,265  
Total Net Realized and Unrealized Gains                             1,694       1,694  
Interest Expense                             (3,861)       (3,861)  
Other Loss                             (422)       (422)  
Income (Loss) Before Income Taxes   $ 8,317     $ (3,502)     $ 2,982     $ 19,676     $ 27,473  
Income Tax Expense                             (6,971)       (6,971)  
Net Income                                   $ 20,502  
                                         
Losses and LAE Ratio     63.0%       53.7%       62.1%               60.3%  
Commission Expense Ratio     12.2%       23.1%       20.1%               16.4%  
Other Operating Expense Ratio (2)     19.8%       27.5%       11.1%               20.6%  
Combined Ratio     95.0%       104.3%       93.3%               97.3%  

(1) - Includes Corporate segment intercompany eliminations.
(2) - Includes Other Operating Expenses and Other Underwriting Income (Expense).

THE NAVIGATORS GROUP, INC. AND SUBSIDIARIES
Segment Information
(Unaudited)

    Six Months Ended June 30, 2018  
    U.S.     Int'l                          
amounts in thousands   Insurance     Insurance     GlobalRe     Corporate (1)     Total  
Gross Written Premiums   $ 528,406     $ 260,395     $ 203,659     $     $ 992,460  
Ceded Written Premiums     (142,725)       (68,770)       (8,411)             (219,906)  
Net Written Premiums     385,681       191,625       195,248             772,554  
                                         
Net Earned Premiums   $ 352,659     $ 185,281     $ 115,702     $     $ 653,642  
Net Losses and LAE     (222,307)       (98,147)       (62,024)             (382,478)  
Commission Expenses     (41,243)       (39,619)       (26,916)       433       (107,345)  
Other Operating Expenses     (75,438)       (43,829)       (11,841)             (131,108)  
Other Underwriting Income (Expense)     169             274       (433)       10  
                                         
Underwriting Profit   $ 13,840     $ 3,686     $ 15,195     $     $ 32,721  
                                         
Net Investment Income                             48,303       48,303  
Total Net Realized and Unrealized Gains                             1,104       1,104  
Interest Expense                             (7,728)       (7,728)  
Other Income                             2,501       2,501  
Income Before Income Taxes   $ 13,840     $ 3,686     $ 15,195     $ 44,179     $ 76,901  
Income Tax Expense                             (13,919)       (13,919)  
Net Income                                   $ 62,982  
                                         
Losses and LAE Ratio     63.0%       53.0%       53.6%               58.5%  
Commission Expense Ratio     11.7%       21.4%       23.3%               16.4%  
Other Operating Expense Ratio (2)     21.4%       23.6%       10.0%               20.1%  
Combined Ratio     96.1%       98.0%       86.9%               95.0%  

(1) - Includes Corporate segment intercompany eliminations.
(2) - Includes Other Operating Expenses and Other Underwriting Income (Expense).

THE NAVIGATORS GROUP, INC. AND SUBSIDIARIES
Segment Information
(Unaudited)

    Six Months Ended June 30, 2017  
    U.S.     Int'l                          
amounts in thousands   Insurance     Insurance     GlobalRe     Corporate (1)     Total  
Gross Written Premiums   $ 494,791     $ 273,053     $ 134,640     $     $ 902,484  
Ceded Written Premiums     (135,344)       (90,402)       (6,293)             (232,039)  
Net Written Premiums     359,447       182,651       128,347             670,445  
                                         
Net Earned Premiums   $ 331,091     $ 166,186     $ 82,689     $     $ 579,966  
Net Losses and LAE     (204,096)       (94,800)       (47,814)             (346,710)  
Commission Expenses     (40,844)       (38,234)       (17,462)       523       (96,017)  
Other Operating Expenses     (66,612)       (42,299)       (10,393)             (119,304)  
Other Underwriting Income (Expense)     210             345       (523)       32  
                                         
Underwriting Profit (Loss)   $ 19,749     $ (9,147)     $ 7,365     $     $ 17,967  
                                         
Net Investment Income                             43,713       43,713  
Total Net Realized and Unrealized Gains                             1,650       1,650  
Interest Expense                             (7,722)       (7,722)  
Other Income                             625       625  
Income (Loss) Before Income Taxes   $ 19,749     $ (9,147)     $ 7,365     $ 38,266     $ 56,233  
Income Tax Expense                             (14,621)       (14,621)  
Net Income                                   $ 41,612  
                                         
Losses and LAE Ratio     61.6%       57.0%       57.8%               59.8%  
Commission Expense Ratio     12.3%       23.0%       21.1%               16.6%  
Other Operating Expense Ratio (2)     20.1%       25.5%       12.2%               20.5%  
Combined Ratio     94.0%       105.5%       91.1%               96.9%  

(1) - Includes Corporate segment intercompany eliminations.
(2) - Includes Other Operating Expenses and Other Underwriting Income (Expense).

THE NAVIGATORS GROUP, INC. AND SUBSIDIARIES
Reportable Segment Results
(Unaudited)

    U.S. Insurance  
    Three Months Ended June 30, 2018     Three Months Ended June 30, 2017          
amounts in thousands   Marine     P&C     Professional Liability     Total     Marine     P&C     Professional Liability     Total     %
Change
Total
 
Gross Written Premiums   $ 38,830     $ 217,984     $ 31,664     $ 288,478     $ 41,687     $ 187,492     $ 28,007     $ 257,186       12.2%  
Ceded Written Premiums     (16,918)       (54,835)       (4,391)       (76,144)       (19,451)       (51,147)       (3,259)       (73,857)       3.1%  
Net Written Premiums     21,912       163,149       27,273       212,334       22,236       136,345       24,748       183,329       15.8%  
                                                                         
Net Earned Premiums   $ 21,177     $ 132,630     $ 25,939     $ 179,746     $ 21,812     $ 121,226     $ 24,049     $ 167,087       7.6%  
Net Losses and LAE     (9,517)       (86,192)       (16,176)       (111,885)       (12,767)       (77,858)       (14,645)       (105,270)       6.3%  
Commission Expenses     (780)       (15,089)       (4,513)       (20,382)       (1,575)       (15,232)       (3,653)       (20,460)       (0.4%)  
Other Operating Expenses     (6,934)       (26,231)       (5,282)       (38,447)       (6,798)       (21,645)       (4,697)       (33,140)       16.0%  
Other Underwriting Income     53       13       5       71       82       9       9       100       (29.0%)  
                                                                         
Underwriting Profit (Loss)   $ 3,999     $ 5,131     $ (27)     $ 9,103     $ 754     $ 6,500     $ 1,063     $ 8,317       9.5%  
                                                                         
Losses and LAE Ratio     44.9%       65.0%       62.4%       62.2%       58.5%       64.2%       60.9%       63.0%          
Commission Expense Ratio     3.7%       11.4%       17.4%       11.3%       7.2%       12.6%       15.2%       12.2%          
Other Operating Expense Ratio (1)     32.5%       19.7%       20.3%       21.4%       30.8%       17.8%       19.5%       19.8%          
Combined Ratio     81.1%       96.1%       100.1%       94.9%       96.5%       94.6%       95.6%       95.0%          

(1) - Includes Other Operating Expenses and Other Underwriting Income.

THE NAVIGATORS GROUP, INC. AND SUBSIDIARIES
Reportable Segment Results
(Unaudited)

    Int'l Insurance  
    Three Months Ended June 30, 2018     Three Months Ended June 30, 2017          
amounts in thousands   Marine     P&C     Professional Liability     Total     Marine     P&C     Professional Liability     Total     %
Change
Total
 
Gross Written Premiums   $ 40,714     $ 46,579     $ 45,230     $ 132,523     $ 49,597     $ 46,663     $ 34,933     $ 131,193       1.0%  
Ceded Written Premiums     (11,523)       (17,705)       (10,654)       (39,882)       (12,536)       (20,362)       (10,911)       (43,809)       (9.0%)  
Net Written Premiums     29,191       28,874       34,576       92,641       37,061       26,301       24,022       87,384       6.0%  
                                                                         
Net Earned Premiums   $ 37,197     $ 23,715     $ 31,159     $ 92,071     $ 39,525     $ 23,337     $ 19,238     $ 82,100       12.1%  
Net Losses and LAE     (29,287)       (6,294)       (16,723)       (52,304)       (23,848)       (8,867)       (11,380)       (44,095)       18.6%  
Commission Expenses     (8,945)       (2,984)       (7,935)       (19,863)       (9,517)       (4,577)       (4,907)       (19,001)       4.5%  
Other Operating Expenses     (7,931)       (8,703)       (6,664)       (23,299)       (9,226)       (7,946)       (5,334)       (22,506)       3.5%  
                                                                         
Underwriting Profit (Loss)   $ (8,966)     $ 5,734     $ (163)     $ (3,395)     $ (3,066)     $ 1,947     $ (2,383)     $ (3,502)       (3.0%)  
                                                                         
Losses and LAE Ratio     78.7%       26.5%       53.7%       56.8%       60.3%       38.0%       59.2%       53.7%          
Commission Expense Ratio     24.0%       12.6%       25.5%       21.6%       24.1%       19.6%       25.5%       23.1%          
Other Operating Expense Ratio     21.4%       36.7%       21.3%       25.3%       23.4%       34.1%       27.7%       27.5%          
Combined Ratio     124.1%       75.8%       100.5%       103.7%       107.8%       91.7%       112.4%       104.3%          
                                                                         

THE NAVIGATORS GROUP, INC. AND SUBSIDIARIES
Reportable Segment Results
(Unaudited)

    U.S. Insurance  
    Six Months Ended June 30, 2018     Six Months Ended June 30, 2017          
amounts in thousands   Marine     P&C     Professional Liability     Total     Marine     P&C     Professional Liability     Total     %
Change
Total
 
Gross Written Premiums   $ 80,554     $ 386,177     $ 61,675     $ 528,406     $ 82,637     $ 358,126     $ 54,028     $ 494,791       6.8%  
Ceded Written Premiums     (34,398)       (99,747)       (8,580)       (142,725)       (36,971)       (89,345)       (9,028)       (135,344)       5.5%  
Net Written Premiums     46,156       286,430       53,095       385,681       45,666       268,781       45,000       359,447       7.3%  
                                                                         
Net Earned Premiums   $ 42,269     $ 260,220     $ 50,170     $ 352,659     $ 44,506     $ 240,349     $ 46,236     $ 331,091       6.5%  
Net Losses and LAE     (25,269)       (167,110)       (29,928)       (222,307)       (26,542)       (149,607)       (27,947)       (204,096)       8.9%  
Commission Expenses     (2,188)       (30,256)       (8,799)       (41,243)       (3,047)       (30,598)       (7,199)       (40,844)       1.0%  
Other Operating Expenses     (13,209)       (51,855)       (10,374)       (75,438)       (13,619)       (43,459)       (9,534)       (66,612)       13.3%  
Other Underwriting Income     130       28       11       169       165       27       18       210       (19.5%)  
                                                                         
Underwriting Profit   $ 1,733     $ 11,027     $ 1,080     $ 13,840     $ 1,463     $ 16,712     $ 1,574     $ 19,749       (29.9%)  
                                                                         
Losses and LAE Ratio     59.8%       64.2%       59.7%       63.0%       59.6%       62.2%       60.4%       61.6%          
Commission Expense Ratio     5.2%       11.6%       17.5%       11.7%       6.8%       12.7%       15.6%       12.3%          
Other Operating Expense Ratio (1)     30.9%       20.0%       20.6%       21.4%       30.3%       18.1%       20.6%       20.1%          
Combined Ratio     95.9%       95.8%       97.8%       96.1%       96.7%       93.0%       96.6%       94.0%          

(1) - Includes Other Operating Expenses and Other Underwriting Income.

THE NAVIGATORS GROUP, INC. AND SUBSIDIARIES
Reportable Segment Results
(Unaudited)

    Int'l Insurance  
    Six Months Ended June 30, 2018     Six Months Ended June 30, 2017          
amounts in thousands   Marine     P&C     Professional Liability     Total     Marine     P&C     Professional Liability     Total     %
Change
Total
 
Gross Written Premiums   $ 97,192     $ 80,539     $ 82,664     $ 260,395     $ 118,430     $ 87,031     $ 67,592     $ 273,053       (4.6%)  
Ceded Written Premiums     (19,577)       (31,372)       (17,821)       (68,770)       (23,462)       (50,008)       (16,932)       (90,402)       (23.9%)  
Net Written Premiums     77,615       49,167       64,843       191,625       94,968       37,023       50,660       182,651       4.9%  
                                                                         
Net Earned Premiums   $ 76,476     $ 45,484     $ 63,321     $ 185,281     $ 77,020     $ 45,517     $ 43,649     $ 166,186       11.5%  
Net Losses and LAE     (49,733)       (15,517)       (32,897)       (98,147)       (44,449)       (24,736)       (25,615)       (94,800)       3.5%  
Commission Expenses     (18,675)       (5,549)       (15,396)       (39,619)       (19,058)       (8,319)       (10,857)       (38,234)       3.6%  
Other Operating Expenses     (14,741)       (16,382)       (12,705)       (43,829)       (17,666)       (14,369)       (10,264)       (42,299)       3.6%  
                                                                         
Underwriting Profit (Loss)   $ (6,673)     $ 8,036     $ 2,323     $ 3,686     $ (4,153)     $ (1,907)     $ (3,087)     $ (9,147)     NM  
                                                                         
Losses and LAE Ratio     65.0%       34.1%       52.0%       53.0%       57.7%       54.3%       58.7%       57.0%          
Commission Expense Ratio     24.4%       12.2%       24.3%       21.4%       24.7%       18.3%       24.9%       23.0%          
Other Operating Expense Ratio     19.3%       36.0%       20.0%       23.6%       23.0%       31.6%       23.5%       25.5%          
Combined Ratio     108.7%       82.3%       96.3%       98.0%       105.4%       104.2%       107.1%       105.5%          

NM – Percentage change not meaningful

THE NAVIGATORS GROUP, INC. AND SUBSIDIARIES
Net Incurred Loss Activity
(Unaudited)

    For the Three Months Ended June 30,  
amounts in thousands   Amounts     Loss Ratio  
Net Incurred Loss Activity   2018     2017     2018     2017  
U.S. Insurance:                                
Loss and LAE Payments   $ 81,269     $ 86,792       45.2%       51.9%  
Change in Reserves     30,616       18,478       17.0%       11.1%  
Net Incurred Loss and LAE   $ 111,885     $ 105,270       62.2%       63.0%  
                                 
Int'l Insurance:                                
Loss and LAE Payments   $ 56,926     $ 46,050       61.8%       56.1%  
Change in Reserves     (4,622)       (1,955)       (5.0%)       (2.4%)  
Net Incurred Loss and LAE   $ 52,304     $ 44,095       56.8%       53.7%  
                                 
GlobalRe:                                
Loss and LAE Payments   $ 22,413     $ 21,279       37.9%       47.6%  
Change in Reserves     9,731       6,466       16.4%       14.5%  
Net Incurred Loss and LAE   $ 32,144     $ 27,745       54.3%       62.1%  
                                 
Total                                
Loss and LAE Payments   $ 160,608     $ 154,121       48.5%       52.5%  
Change in Reserves     35,725       22,989       10.8%       7.8%  
Net Incurred Loss and LAE   $ 196,333     $ 177,110       59.3%       60.3%  
                                 
                                 
    For the Three Months Ended June 30,  
Impact of Prior Years Reserves   Amounts     Loss Ratio Impact  
Favorable / (Unfavorable) Development   2018     2017     2018     2017  
U.S. Insurance   $ 2,220     $ (295)       0.7%       (0.1%)  
Int'l Insurance     (3,330)       (4,743)       (1.0%)       (1.6%)  
GlobalRe     (244)       (2,992)       (0.1%)       (1.0%)  
Total   $ (1,354)     $ (8,030)       (0.4%)       (2.7%)  
                                 

THE NAVIGATORS GROUP, INC. AND SUBSIDIARIES
Net Incurred Loss Activity
(Unaudited)

    For the Six Months Ended June 30,  
amounts in thousands   Amounts     Loss Ratio  
Net Incurred Loss Activity   2018     2017     2018     2017  
U.S. Insurance:                                
Loss and LAE Payments   $ 168,820     $ 156,563       47.8%       47.2%  
Change in Reserves     53,487       47,533       15.2%       14.4%  
Net Incurred Loss and LAE   $ 222,307     $ 204,096       63.0%       61.6%  
                                 
Int'l Insurance:                                
Loss and LAE Payments   $ 105,169     $ 90,958       56.8%       54.7%  
Change in Reserves     (7,022)       3,842       (3.8%)       2.3%  
Net Incurred Loss and LAE   $ 98,147     $ 94,800       53.0%       57.0%  
                                 
GlobalRe:                                
Loss and LAE Payments   $ 51,686     $ 49,609       44.8%       60.0%  
Change in Reserves     10,338       (1,795)       8.8%       (2.2%)  
Net Incurred Loss and LAE   $ 62,024     $ 47,814       53.6%       57.8%  
                                 
Total                                
Loss and LAE Payments   $ 325,675     $ 297,130       49.8%       51.3%  
Change in Reserves     56,803       49,580       8.7%       8.5%  
Net Incurred Loss and LAE   $ 382,478     $ 346,710       58.5%       59.8%  
                                 
                                 
    For the Six Months Ended June 30,  
Impact of Prior Years Reserves   Amounts     Loss Ratio Impact  
Favorable / (Unfavorable) Development   2018     2017     2018     2017  
U.S. Insurance   $ (2,593)     $ 177       (0.4%)       0.0%  
Int'l Insurance     (847)       (11,359)       (0.1%)       (2.0%)  
GlobalRe     120       (3,933)       0.0%       (0.7%)  
Total   $ (3,320)     $ (15,115)       (0.5%)       (2.7%)  
                                 

THE NAVIGATORS GROUP, INC. AND SUBSIDIARIES
Net Loss Data
(Unaudited)

    As of June 30, 2018  
amounts in thousands   Case     IBNR          
Net Loss Reserves:   Reserves     Reserves     Total  
U.S. Insurance:                        
Marine   $ 51,576     $ 50,637     $ 102,213  
P&C     197,765       740,654       938,419  
Professional Liability     34,839       87,603       122,442  
Total U.S. Insurance   $ 284,180     $ 878,894     $ 1,163,074  
Int'l Insurance:                        
Marine   $ 172,149     $ 36,540     $ 208,689  
P&C     75,011       24,928       99,939  
Professional Liability     39,551       101,453       141,004  
Total Int'l Insurance   $ 286,711     $ 162,921     $ 449,632  
                         
GlobalRe   $ 58,300     $ 104,026     $ 162,326  
                         
Total Net Loss Reserves   $ 629,191     $ 1,145,841     $ 1,775,032  
                         
                         
    As of December 31, 2017  
    Case     IBNR          
Net Loss Reserves:   Reserves     Reserves     Total  
U.S. Insurance:                        
Marine   $ 58,301     $ 45,393     $ 103,694  
P&C     192,291       700,264       892,555  
Professional Liability     26,774       86,649       113,423  
Total U.S. Insurance   $ 277,366     $ 832,306     $ 1,109,672  
Int'l Insurance:                        
Marine   $ 181,369     $ 39,949     $ 221,318  
P&C     66,412       37,067       103,479  
Professional Liability     31,463       87,211       118,674  
Total Int'l Insurance   $ 279,244     $ 164,227     $ 443,471  
                         
GlobalRe   $ 58,962     $ 93,275     $ 152,237  
                         
Total Net Loss Reserves   $ 615,572     $ 1,089,808     $ 1,705,380  
                         

THE NAVIGATORS GROUP, INC. AND SUBSIDIARIES
Investment Data
(Unaudited)

As of June 30, 2018, the average quality of the investment portfolio as rated by S&P and Moody’s was “AA-/Aa3”, respectively, with an effective duration of 3.5 years. The Company does not own any collateralized debt obligations or asset backed commercial paper.

The following table sets forth the Available-For-Sale Investments as of June 30, 2018:

       
    As of June 30, 2018  
            Gross     Gross     Cost or  
    Fair     Unrealized     Unrealized     Amortized  
amounts in thousands   Value     Gains     (Losses)     Cost  
Fixed Maturities:                                
U.S. Treasury Bonds, Agency Bonds and Foreign
  Government Bonds
  $ 289,612     $ 955     $ (4,189)     $ 292,846  
States, Municipalities and Political Subdivisions     658,129       10,410       (4,870)       652,589  
Mortgage-Backed and Asset-Backed Securities:                                
Agency Mortgage-Backed Securities     362,870       1,091       (14,497)       376,276  
Residential Mortgage Obligations     96,134       464       (431)       96,101  
Asset-Backed Securities     476,838       737       (2,749)       478,850  
Commercial Mortgage-Backed Securities     168,609       807       (2,817)       170,619  
Subtotal   $ 1,104,451     $ 3,099     $ (20,494)     $ 1,121,846  
Corporate Exposures (1)     909,349       4,303       (19,302)       924,348  
Total Fixed Maturities   $ 2,961,541     $ 18,767     $ (48,855)     $ 2,991,629  
Short-Term Investments     6,368                   6,368  
Total Available-For-Sale Investments   $ 2,967,909     $ 18,767     $ (48,855)     $ 2,997,997  

(1) - Corporate Exposures consist of investments in corporate bonds, hybrid bonds and redeemable preferred stocks.

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