Navigators Reports Fourth Quarter 2016 Earnings

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STAMFORD, Conn., Feb. 16, 2017 (GLOBE NEWSWIRE) — The Navigators Group, Inc. (NASDAQ:NAVG) reported Net income of $21.6 million, or $0.71 per diluted share, for the three months ended December 31, 2016 compared to $17.7 million, or $0.59 per diluted share, for the comparable period in 2015. Net operating earnings were $17.7 million, or $0.58 per diluted share, for the three months ended December 31, 2016 compared to $16.4 million, or $0.55 per diluted share, for the comparable period in 2015. 

For the twelve months ended December 31, 2016, our Company reported Net income of $82.7 million, or $2.75 per diluted share, compared to $81.1 million, or $2.73, for the comparable period in 2015. Net operating earnings were $71.2 million, or $2.37 per diluted share, for the twelve months ended December 31, 2016 compared to $77.1 million, or $2.60 per diluted share, for the comparable period in 2015.

Stan Galanski, President and Chief Executive Officer, commented, “We are pleased to report profitable results for the fourth quarter and full year, led by strong performances in our U.S. Insurance and Global Reinsurance segments. While our International Insurance segment was adversely impacted by property loss activity during the fourth quarter and full year, largely emanating from North American exposures underwritten at Lloyd’s, our Marine and Professional Liability businesses within the segment were profitable. Premium growth remained strong, with Net written premium up 15.6% for the quarter and 13.6% for the full year, reflecting the ongoing development of more recent product initiatives. Net investment income was up 8.7% for the quarter and 15.6% for the full year while maintaining the portfolio’s credit quality.” Mr. Galanski continued, “While we are a growing company, we continue to emphasize cost control. Our Other operating expenses for the quarter were down 1.9% and up only 4.7% for the full year, which is well below our rate of revenue growth. Despite challenging market conditions, we continue to execute on a strategy built around our culture of underwriting excellence, local decision-making and superb customer experiences.”

Gross written premiums and Net written premiums for the three months ended December 31, 2016 were $367.5 million and $282.9 million, respectively, increasing 13.6% and 15.6% from the comparable period in 2015.

Gross written premiums and Net written premiums for the twelve months ended December 31, 2016 were $1.6 billion and $1.2 billion, respectively, increasing 7.9% and 13.6% from the comparable period in 2015.

The combined ratio for the three and twelve months ended December 31, 2016 was 96.7% and 96.7%, respectively, compared to 97.2% and 94.1% for the comparable periods in 2015.

Net investment income for the three and twelve months ended December 31, 2016 was $20.1 million and $79.5 million, respectively, increases of 8.7% and 15.6% as compared to the same periods in 2015. The annualized pre-tax investment yield, excluding Net realized gains and losses and other-than-temporary impairment losses recognized in earnings, was 2.5% and 2.6% for the three and twelve months ended December 31, 2016, compared to 2.5% and 2.4%, respectively, for the comparable periods in 2015.

Our 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 average effective duration of 3.7 years as of December 31, 2016.  As of December 31, 2016, Net unrealized gains within our investment portfolio were $29.0 million, a decrease of $8.3 million compared to December 31, 2015.

We recognized $4.0 million of Net realized gains (losses) for the three months ended December 31, 2016, compared to ($2.1) million of Net realized losses for the same period in 2015.  For the twelve months ended December 31, 2016, we recognized $9.0 million of Net realized gains, compared to $6.7 million for the same period in 2015.

Other income (loss) for the three months ended December 31, 2016 was $1.9 million of income, compared to $4.1 million of income for the same period in 2015.  For the twelve months ended December 31, 2016, Other income (loss) was $8.7 million of income, compared to ($0.5) million of loss for the same period in 2015.  Other income (loss) primarily consists of realized and unrealized foreign exchange gains and losses. Stockholders’ equity was $1.2 billion, or $40.45 per share, as of December 31, 2016 compared to $1.1 billion, or $37.98 per share, as of  December 31, 2015.

On February 16, 2017, the Board of Directors declared a quarterly cash dividend of $0.045 per share of Common stock to be paid on March 24, 2017 to stockholders of record at the close of business on March 3, 2017.

Our Company will hold a conference call on Friday, February 17, 2017 starting at 8:30 a.m. (EST) to discuss the 2016 fourth 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 connect to the webcast at: 

http://edge.media-server.com/m/p/5a9fo82i

On December 6, 2016, our Board of Directors declared a two-for-one stock split of The Navigators Group, Inc. Common stock, to be effected in the form of a stock dividend. Stockholders of record at the close of business on December 30, 2016 received one additional share of Common stock for every share of Common stock held. All disclosures of shares and per share data in this earnings release have been retroactively adjusted to reflect the stock split for all periods presented. The additional shares of Common stock were issued on January 20, 2017. 

Net operating earnings, comprised of Net income excluding After-tax net realized gains (losses), After-tax net other-than-temporary impairment losses recognized in earnings, and After-tax foreign exchange gains and losses resulting from foreign currency transactions (transactions denominated in a currency other than the entity’s functional currency) and translation adjustments (translation of foreign currency denominated assets and liabilities into the entity’s functional currency), is a non-GAAP financial measure that is a common performance measurement for insurance companies.  We believe this presentation enhances the understanding of our results of operations by highlighting the underlying profitability of our insurance business.

The Navigators Group, Inc. is an international specialty insurance holding company with insurance company operations, underwriting management companies and operations at Lloyd’s. Navigators has offices in the United States, the United Kingdom and Continental Europe, as well as a representative office in China.

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. 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.

THE NAVIGATORS GROUP, INC. AND SUBSIDIARIES
FINANCIAL HIGHLIGHTS
($ in thousands, except share and per share data)
(unaudited)
 
    Three Months Ended             Twelve Months Ended          
    December 31,             December 31,          
Results of Operations   2016     2015     Change     2016     2015     Change  
                                                 
Gross written premiums   $ 367,539     $ 323,509       13.6 %   $ 1,568,911     $ 1,453,502       7.9 %
Net written premiums     282,868       244,719       15.6 %     1,186,224       1,043,860       13.6 %
                                                 
Revenues:                                                
Net earned premiums   $ 283,985     $ 251,545       12.9 %   $ 1,100,345     $ 984,087       11.8 %
Net investment income     20,107       18,499       8.7 %     79,451       68,718       15.6 %
Net realized gains (losses):                                                
Total other-than-temporary impairment losses     21       (123 )   NM       (227 )     (1,870 )     (87.9 %)
Portion of loss recognized in other comprehensive income (before tax)     (21 )     123     NM       77       172       (55.3 %)
Net other-than-temporary impairment losses recognized in earnings               NM       (150 )     (1,698 )     (91.2 %)
Other realized gains (losses)     4,043       (2,080 )   NM       9,186       8,373       9.7 %
Net realized gains (losses)     4,043       (2,080 )   NM       9,036       6,675       35.4 %
Other income (loss)     1,905       4,147       (54.1 %)     8,701       (491 )   NM  
Total revenues   $ 310,040     $ 272,111       13.9 %   $ 1,197,533     $ 1,058,989       13.1 %
                                                 
Expenses:                                                
Net losses and loss adjustment expenses     172,493       153,881       12.1 %     665,448       572,598       16.2 %
Commission expenses     44,154       31,339       40.9 %     165,045       129,977       27.0 %
Other operating expenses     58,076       59,219       (1.9 %)     234,096       223,516       4.7 %
Interest expense     3,860       3,857       0.1 %     15,435       15,424       0.1 %
Total expenses   $ 278,583     $ 248,296       12.2 %   $ 1,080,024     $ 941,515       14.7 %
                                                 
Income before income taxes     31,457       23,815       32.1 %     117,509       117,474       0.0 %
                                                 
Income tax expense (benefit)     9,866       6,072       62.5 %     34,783       36,417       (4.5 %)
                                                 
Net income (loss)   $ 21,591     $ 17,743       21.7 %   $ 82,726     $ 81,057       2.1 %
                                                 
Per Share Data(1)                                                
                                                 
Net income per common share:                                                
Basic   $ 0.74     $ 0.62       20.5 %   $ 2.85     $ 2.82       1.0 %
Diluted   $ 0.71     $ 0.59       19.9 %   $ 2.75     $ 2.73       0.8 %
                                                 
Average common shares outstanding:                                                
Basic     29,121,376       28,833,895               29,073,803       28,785,044          
Diluted     30,282,248       29,835,293               30,031,609       29,651,490          
                                                 
Underwriting Ratios                                                
Loss Ratio     60.7 %     61.2 %             60.5 %     58.2 %        
Expense Ratio     36.0 %     36.0 %             36.2 %     35.9 %        
Combined Ratio     96.7 %     97.2 %             96.7 %     94.1 %        
                                                 
Balance Sheet Data   December 31,     September 30,             December 31,     December 31,          
    2016     2016             2016     2015          
Stockholders’ equity   $ 1,178,188     $ 1,204,281       -2.2 %   $ 1,178,188     $ 1,096,148       7.5 %
Book value per share   $ 40.45     $ 41.36       -2.2 %   $ 40.45     $ 37.98       6.5 %
 
(1) We completed a two-for-one stock split on January 20, 2017. All share and per share data has been retroactively restated on a post-split basis.
NM- Percentage change not meaningful

 

THE NAVIGATORS GROUP, INC. AND SUBSIDIARIES
NON-GAAP RECONCILIATION OF NET INCOME TO NET OPERATING EARNINGS
($ in thousands, except per share data)
 
    Three Months Ended December 31,

2016

    Three Months Ended December 31,

2015

    %

Change

 
    Pre-Tax     Tax     After-Tax     Pre-Tax     Tax     After-Tax     QTD  
Net income   $ 31,457     $ (9,866 )   $ 21,591     $ 23,815     $ (6,072 )   $ 17,743       21.7 %
Adjustments to Net income:                                                        
Realized losses (gains)     (4,043 )     1,416       (2,627 )     2,080       (728 )     1,352     NM  
FX losses (gains)     (1,947 )     682       (1,265 )     (4,132 )     1,446       (2,686 )     (52.9 %)
Net operating earnings   $ 25,467     $ (7,768 )   $ 17,699     $ 21,763     $ (5,354 )   $ 16,409       7.9 %
                                                         
Net operating earnings per common share:(1)                                                        
Basic                   $ 0.61                     $ 0.57          
Diluted                   $ 0.58                     $ 0.55          
                                                         
                                                         
    Twelve Months Ended December 31,

2016

    Twelve Months Ended December 31,

2015

    %

Change

 
    Pre-Tax     Tax     After-Tax     Pre-Tax     Tax     After-Tax     YTD  
Net income   $ 117,509     $ (34,783 )   $ 82,726     $ 117,474     $ (36,417 )   $ 81,057       2.1 %
Adjustments to Net income:                                                        
Realized losses (gains)     (9,036 )     3,163       (5,873 )     (6,675 )     2,336       (4,339 )     35.4 %
FX losses (gains)     (8,626 )     3,019       (5,607 )     622       (218 )     404     NM  
Net operating earnings   $ 99,847     $ (28,601 )   $ 71,246     $ 111,421     $ (34,299 )   $ 77,122       (7.6 %)
                                                         
Net operating earnings per common share:(1)                                                        
Basic                   $ 2.45                     $ 2.68          
Diluted                   $ 2.37                     $ 2.60          
 
(1) We completed a two-for-one stock split on January 20, 2017. All share and per share data has been retroactively restated on a post-split basis.
NM- Percentage change not meaningful

THE NAVIGATORS GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (Unaudited)
 
amounts in thousands, except share and per share amounts.                
    December 31,     December 31,  
    2016     2015  
ASSETS                
Investments:                
Fixed maturities, available-for-sale, at fair value (amortized cost: 2016:  $2,628,225; 2015: $2,400,245)   $ 2,635,882     $ 2,414,210  
Equity securities, available-for-sale, at fair value (cost: 2016: $327,911; 2015: $281,943)     349,142       305,271  
Other invested assets (equity method)     1,960        
Short-term investments, at fair value (amortized cost: 2016: $143,451; 2015: $217,743)     143,539       217,745  
Total investments   $ 3,130,523     $ 2,937,226  
                 
Cash     64,643       69,901  
Premiums receivable     306,686       276,616  
Prepaid reinsurance premiums     213,377       232,588  
Reinsurance recoverable on paid losses     82,582       49,506  
Reinsurance recoverable on unpaid losses and loss adjustment expenses     779,276       809,518  
Deferred policy acquisition costs     119,660       91,983  
Accrued investment income     17,315       16,001  
Goodwill and other intangible assets     6,451       6,807  
Current income tax receivable, net     23,659       22,323  
Deferred income tax, net     17,835       3,900  
Other assets     52,030       67,643  
Total assets   $ 4,814,037     $ 4,584,012  
                 
LIABILITIES AND STOCKHOLDERS’ EQUITY                
Liabilities:                
Reserves for losses and loss adjustment expenses   $ 2,289,727     $ 2,202,644  
Unearned premiums     887,344       820,676  
Reinsurance balances payable     108,980       107,411  
Senior notes     263,728       263,580  
Accounts payable and other liabilities     86,070       93,553  
Total liabilities   $ 3,635,849     $ 3,487,864  
                 
Stockholders’ equity:(1)                
Preferred stock, $.10 par value, authorized 1,000,000 shares, none issued   $     $  
Common stock, $.10 par value, authorized 50,000,000 shares, issued 36,146,899 shares for 2016 and 35,884,538 shares for 2015     3,612       3,586  
Additional paid-in capital     373,983       356,036  
Treasury stock, at cost (7,022,760 shares for 2016 and 2015)     (155,801 )     (155,801 )
Retained earnings     947,519       868,723  
Accumulated other comprehensive income     8,875       23,604  
Total stockholders’ equity   $ 1,178,188     $ 1,096,148  
Total liabilities and stockholders’ equity   $ 4,814,037     $ 4,584,012  
 
(1) We completed a two-for-one stock split on January 20, 2017. All share data has been retroactively restated on a post-split basis.

THE NAVIGATORS GROUP, INC. AND SUBSIDIARIES
Segment Information
 
    Three Months Ended December 31, 2016  
    U.S.     Int’l                          
amounts in thousands   Insurance     Insurance     GlobalRe     Corporate (1)     Total  
Gross written premiums   $ 230,177     $ 100,104     $ 37,258     $     $ 367,539  
Ceded written premiums     (57,353 )     (26,429 )     (889 )           (84,671 )
Net written premiums     172,824       73,675       36,369             282,868  
                                         
Net earned premiums   $ 166,862     $ 71,814     $ 45,309     $     $ 283,985  
Net losses and LAE     (106,600 )     (44,765 )     (21,128 )           (172,493 )
Commission expenses     (20,433 )     (14,179 )     (9,820 )     278       (44,154 )
Other operating expenses     (31,260 )     (21,398 )     (5,418 )           (58,076 )
Other underwriting income (expense)     149             148       (278 )     19  
                                         
Underwriting profit (loss)   $ 8,718     $ (8,528 )   $ 9,091     $     $ 9,281  
                                         
Net investment income                             20,107       20,107  
Net realized gains (losses)                             4,043       4,043  
Interest expense                             (3,860 )     (3,860 )
Other income (loss)                             1,886       1,886  
Income before income taxes   $ 8,718     $ (8,528 )   $ 9,091     $ 22,176     $ 31,457  
Income tax (expense) benefit                             (9,866 )     (9,866 )
Net income (loss)                                   $ 21,591  
                                         
Losses and LAE ratio     63.9 %     62.3 %     46.6 %             60.7 %
Commission expense ratio     12.2 %     19.7 %     21.7 %             15.5 %
Other operating expense ratio (2)     18.7 %     29.9 %     11.6 %             20.5 %
Combined ratio     94.8 %     111.9 %     79.9 %             96.7 %
 
(1) – Includes Corporate segment intercompany eliminations.
(2) – Includes Other operating expenses and Other underwriting income (expense).

THE NAVIGATORS GROUP, INC. AND SUBSIDIARIES
Segment Information
 
    Three Months Ended December 31, 2015  
    U.S.     Int’l                          
amounts in thousands   Insurance     Insurance     GlobalRe     Corporate (1)     Total  
Gross written premiums   $ 207,684     $ 81,942     $ 33,883     $     $ 323,509  
Ceded written premiums     (57,410 )     (20,324 )     (1,056 )           (78,790 )
Net written premiums     150,274       61,618       32,827             244,719  
                                         
Net earned premiums   $ 145,032     $ 62,716     $ 43,797     $     $ 251,545  
Net losses and LAE     (96,403 )     (33,466 )     (24,012 )           (153,881 )
Commission expenses     (14,542 )     (8,185 )     (9,198 )     586       (31,339 )
Other operating expenses     (33,397 )     (21,555 )     (4,267 )           (59,219 )
Other underwriting income (expense)     360             249       (586 )     23  
                                         
Underwriting profit (loss)   $ 1,050     $ (490 )   $ 6,569     $     $ 7,129  
                                         
Net investment income                             18,499       18,499  
Net realized gains (losses)                             (2,080 )     (2,080 )
Interest expense                             (3,857 )     (3,857 )
Other income (loss)                             4,124       4,124  
Income before income taxes   $ 1,050     $ (490 )   $ 6,569     $ 16,686     $ 23,815  
Income tax (expense) benefit                             (6,072 )     (6,072 )
Net income (loss)                                   $ 17,743  
                                         
Losses and LAE ratio     66.5 %     53.4 %     54.8 %             61.2 %
Commission expense ratio     10.0 %     13.1 %     21.0 %             12.5 %
Other operating expense ratio (2)     22.8 %     34.3 %     9.2 %             23.5 %
Combined ratio     99.3 %     100.8 %     85.0 %             97.2 %
 
(1) – Includes Corporate segment intercompany eliminations.
(2) – Includes Other operating expenses and Other underwriting income (expense).
THE NAVIGATORS GROUP, INC. AND SUBSIDIARIES
Segment Information
 
    Twelve Months Ended December 31, 2016  
    U.S.     Int’l                          
amounts in thousands   Insurance     Insurance     GlobalRe     Corporate (1)     Total  
Gross written premiums   $ 919,395     $ 484,471     $ 165,045     $     $ 1,568,911  
Ceded written premiums     (235,827 )     (138,504 )     (8,356 )           (382,687 )
Net written premiums     683,568       345,967       156,689             1,186,224  
                                         
Net earned premiums   $ 629,308     $ 307,416     $ 163,621     $     $ 1,100,345  
Net losses and LAE     (397,860 )     (178,284 )     (89,304 )           (665,448 )
Commission expenses     (70,812 )     (61,703 )     (34,008 )     1,478       (165,045 )
Other operating expenses     (128,108 )     (86,395 )     (19,593 )           (234,096 )
Other underwriting income (expense)     1,092             522       (1,478 )     136  
                                         
Underwriting profit (loss)   $ 33,620     $ (18,966 )   $ 21,238     $     $ 35,892  
                                         
Net investment income                             79,451       79,451  
Net realized gains (losses)                             9,036       9,036  
Interest expense                             (15,435 )     (15,435 )
Other income (loss)                             8,565       8,565  
Income (loss) before income taxes   $ 33,620     $ (18,966 )   $ 21,238     $ 81,617     $ 117,509  
Income tax (expense) benefit                             (34,783 )     (34,783 )
Net income (loss)                                   $ 82,726  
                                         
Losses and LAE ratio     63.2 %     58.0 %     54.6 %             60.5 %
Commission expense ratio     11.3 %     20.1 %     20.8 %             15.0 %
Other operating expense ratio (2)     20.2 %     28.1 %     11.6 %             21.2 %
Combined ratio     94.7 %     106.2 %     87.0 %             96.7 %
 
(1) – Includes Corporate segment intercompany eliminations.
(2) – Includes Other operating expenses and Other underwriting income (expense).

THE NAVIGATORS GROUP, INC. AND SUBSIDIARIES
Segment Information
 
    Twelve Months Ended December 31, 2015  
    U.S.     Int’l                          
amounts in thousands   Insurance     Insurance     GlobalRe     Corporate (1)     Total  
Gross written premiums   $ 865,781     $ 411,947     $ 175,774     $     $ 1,453,502  
Ceded written premiums     (268,775 )     (134,005 )     (6,862 )           (409,642 )
Net written premiums     597,006       277,942       168,912             1,043,860  
                                         
Net earned premiums   $ 555,836     $ 259,960     $ 168,291     $     $ 984,087  
Net losses and LAE     (343,497 )     (134,702 )     (94,399 )           (572,598 )
Commission expenses     (56,319 )     (43,676 )     (32,240 )     2,258       (129,977 )
Other operating expenses     (131,407 )     (75,867 )     (16,242 )           (223,516 )
Other underwriting income (expense)     1,690             690       (2,258 )     122  
                                         
Underwriting profit (loss)   $ 26,303     $ 5,715     $ 26,100     $     $ 58,118  
                                         
Net investment income                             68,718       68,718  
Net realized gains (losses)                             6,675       6,675  
Interest expense                             (15,424 )     (15,424 )
Other income (loss)                             (613 )     (613 )
Income (loss) before income taxes   $ 26,303     $ 5,715     $ 26,100     $ 59,356     $ 117,474  
Income tax (expense) benefit                             (36,417 )     (36,417 )
Net income (loss)                                   $ 81,057  
                                         
Losses and LAE ratio     61.8 %     51.8 %     56.1 %             58.2 %
Commission expense ratio     10.1 %     16.8 %     19.2 %             13.2 %
Other operating expense ratio (2)     23.4 %     29.2 %     9.2 %             22.7 %
Combined ratio     95.3 %     97.8 %     84.5 %             94.1 %
 
(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
 
    U.S. Insurance  
    Three Months Ended December 31, 2016     Three Months Ended December 31, 2015          
amounts in thousands   Marine     P&C     Professional

Liability

    Total     Marine     P&C     Professional

Liability

    Total     %

Change

Total

 
Gross written premiums   $ 39,784     $ 160,030     $ 30,363     $ 230,177     $ 40,045     $ 138,214     $ 29,425     $ 207,684       10.8 %
Ceded written premiums     (17,035 )     (32,602 )     (7,716 )     (57,353 )     (16,747 )     (28,395 )     (12,268 )     (57,410 )     (0.1 %)
Net written  premiums     22,749       127,428       22,647       172,824       23,298       109,819       17,157       150,274       15.0 %
                                                                         
Net earned premiums   $ 26,496     $ 118,331     $ 22,035     $ 166,862     $ 21,976     $ 109,673     $ 13,383     $ 145,032       15.1 %
Net losses and LAE     (14,639 )     (77,979 )     (13,982 )     (106,600 )     (14,619 )     (71,878 )     (9,906 )     (96,403 )     10.6 %
Commission expenses     (2,694 )     (14,146 )     (3,593 )     (20,433 )     (2,254 )     (11,392 )     (896 )     (14,542 )     40.5 %
Other operating expenses     (6,603 )     (19,901 )     (4,756 )     (31,260 )     (6,953 )     (20,890 )     (5,554 )     (33,397 )     (6.4 %)
Other underwriting income (expense)      108       32       9       149       100       246       14       360       (58.5 %)
                                                                         
Underwriting profit (loss)   $ 2,668     $ 6,337     $ (287 )   $ 8,718     $ (1,750 )   $ 5,759     $ (2,959 )   $ 1,050     NM  
                                                                         
Losses and LAE ratio     55.3 %     65.9 %     63.5 %     63.9 %     66.5 %     65.5 %     74.0 %     66.5 %        
Commission expense ratio     10.2 %     12.0 %     16.3 %     12.2 %     10.3 %     10.4 %     6.7 %     10.0 %        
Other operating expense ratio (1)     24.4 %     16.7 %     21.5 %     18.7 %     31.2 %     18.8 %     41.4 %     22.8 %        
Combined ratio     89.9 %     94.6 %     101.3 %     94.8 %     108.0 %     94.7 %     122.1 %     99.3 %        
 
NM – Percentage change not meaningful
(1) – Includes Other operating expenses and Other underwriting income (expense).
THE NAVIGATORS GROUP, INC. AND SUBSIDIARIES
Reportable Segment Results
 
    Int’l Insurance  
    Three Months Ended December 31, 2016     Three Months Ended December 31, 2015          
amounts in thousands   Marine     P&C     Professional

Liability

    Total     Marine     P&C     Professional

Liability

    Total     %

Change

Total

 
Gross written premiums   $ 31,680     $ 35,969     $ 32,455     $ 100,104     $ 33,863     $ 18,715     $ 29,364     $ 81,942       22.2 %
Ceded written premiums     (6,818 )     (12,581 )     (7,030 )     (26,429 )     (5,582 )     (7,046 )     (7,696 )     (20,324 )     30.0 %
Net written  premiums     24,862       23,388       25,425       73,675       28,281       11,669       21,668       61,618       19.6 %
                                                                         
Net earned premiums   $ 31,847     $ 18,847     $ 21,120     $ 71,814     $ 34,540     $ 12,208     $ 15,968     $ 62,716       14.5 %
Net losses and LAE     (12,653 )     (19,821 )     (12,291 )     (44,765 )     (15,792 )     (3,463 )     (14,211 )     (33,466 )     33.8 %
Commission expenses     (7,894 )     (3,102 )     (3,183 )     (14,179 )     (5,275 )     (1,038 )     (1,872 )     (8,185 )     73.2 %
Other operating expenses     (8,376 )     (8,389 )     (4,633 )     (21,398 )     (8,742 )     (7,540 )     (5,273 )     (21,555 )     (0.7 %)
Other underwriting income (expense)                                                       NM  
                                                                         
Underwriting profit (loss)   $ 2,924     $ (12,465 )   $ 1,013     $ (8,528 )   $ 4,731     $ 167     $ (5,388 )   $ (490 )   NM  
                                                                         
Losses and LAE ratio     39.7 %     105.2 %     58.2 %     62.3 %     45.7 %     28.4 %     89.0 %     53.4 %        
Commission expense ratio     24.8 %     16.5 %     15.1 %     19.7 %     15.3 %     8.5 %     11.7 %     13.1 %        
Other operating expense ratio (1)     26.3 %     44.4 %     21.9 %     29.9 %     25.3 %     61.7 %     33.0 %     34.3 %        
Combined ratio     90.8 %     166.1 %     95.2 %     111.9 %     86.3 %     98.6 %     133.7 %     100.8 %        
 
NM – Percentage change not meaningful
(1) – Includes Other operating expenses and Other underwriting income (expense).

THE NAVIGATORS GROUP, INC. AND SUBSIDIARIES
Reportable Segment Results
 
    U.S. Insurance  
    Twelve Months Ended December 31, 2016     Twelve Months Ended December 31, 2015          
amounts in thousands   Marine     P&C     Professional

Liability

    Total     Marine     P&C     Professional

Liability

    Total     %

Change

Total

 
Gross written premiums   $ 169,405     $ 631,562     $ 118,428     $ 919,395     $ 158,124     $ 596,673     $ 110,984     $ 865,781       6.2 %
Ceded written premiums     (70,858 )     (135,888 )     (29,081 )     (235,827 )     (61,916 )     (152,168 )     (54,691 )     (268,775 )     (12.3 %)
Net written  premiums     98,547       495,674       89,347       683,568       96,208       444,505       56,293       597,006       14.5 %
                                                                         
Net earned premiums   $ 100,132     $ 453,673     $ 75,503     $ 629,308     $ 96,082     $ 401,408     $ 58,346     $ 555,836       13.2 %
Net losses and LAE     (50,087 )     (295,877 )     (51,896 )     (397,860 )     (43,553 )     (266,806 )     (33,138 )     (343,497 )     15.8 %
Commission expenses     (8,469 )     (52,483 )     (9,860 )     (70,812 )     (11,606 )     (39,931 )     (4,782 )     (56,319 )     25.7 %
Other operating expenses     (27,559 )     (81,469 )     (19,080 )     (128,108 )     (27,082 )     (81,866 )     (22,459 )     (131,407 )     (2.5 %)
Other underwriting income (expense)     465       582       45       1,092       489       1,122       79       1,690       (35.4 %)
                                                                         
Underwriting profit (loss)   $ 14,482     $ 24,426     $ (5,288 )   $ 33,620     $ 14,330     $ 13,927     $ (1,954 )   $ 26,303       27.8 %
                                                                         
Losses and LAE ratio     50.0 %     65.2 %     68.7 %     63.2 %     45.3 %     66.5 %     56.8 %     61.8 %        
Commission expense ratio     8.5 %     11.6 %     13.1 %     11.3 %     12.1 %     9.9 %     8.2 %     10.1 %        
Other operating expense ratio (1)     27.0 %     17.8 %     25.2 %     20.2 %     27.7 %     20.1 %     38.3 %     23.4 %        
Combined ratio     85.5 %     94.6 %     107.0 %     94.7 %     85.1 %     96.5 %     103.3 %     95.3 %        
 
(1) – Includes Other operating expenses and Other underwriting income (expense).
THE NAVIGATORS GROUP, INC. AND SUBSIDIARIES
Reportable Segment Results
 
    Int’l Insurance  
    Twelve Months Ended December 31, 2016     Twelve Months Ended December 31, 2015          
amounts in thousands   Marine     P&C     Professional

Liability

    Total     Marine     P&C     Professional

Liability

    Total     %

Change

Total

 
Gross written premiums   $ 183,228     $ 181,094     $ 120,149     $ 484,471     $ 183,707     $ 130,729     $ 97,511     $ 411,947       17.6 %
Ceded written premiums     (40,092 )     (69,606 )     (28,806 )     (138,504 )     (36,515 )     (67,722 )     (29,768 )     (134,005 )     3.4 %
Net written  premiums     143,136       111,488       91,343       345,967       147,192       63,007       67,743       277,942       24.5 %
                                                                         
Net earned premiums   $ 141,593     $ 89,455     $ 76,368     $ 307,416     $ 149,256     $ 55,320     $ 55,384     $ 259,960       18.3 %
Net losses and LAE     (67,051 )     (68,995 )     (42,238 )     (178,284 )     (79,737 )     (20,478 )     (34,487 )     (134,702 )     32.4 %
Commission expenses     (34,018 )     (14,529 )     (13,156 )     (61,703 )     (32,187 )     (4,999 )     (6,490 )     (43,676 )     41.3 %
Other operating expenses     (33,170 )     (34,075 )     (19,150 )     (86,395 )     (30,419 )     (26,294 )     (19,154 )     (75,867 )     13.9 %
Other underwriting income (expense)                                                    NM  
                                                                         
Underwriting profit (loss)   $ 7,354     $ (28,144 )   $ 1,824     $ (18,966 )   $ 6,913     $ 3,549     $ (4,747 )   $ 5,715     NM  
                                                                         
Losses and LAE ratio     47.4 %     77.1 %     55.3 %     58.0 %     53.4 %     37.0 %     62.3 %     51.8 %        
Commission expense ratio     24.0 %     16.2 %     17.2 %     20.1 %     21.6 %     9.0 %     11.7 %     16.8 %        
Other operating expense ratio (1)     23.4 %     38.2 %     25.1 %     28.1 %     20.4 %     47.6 %     34.6 %     29.2 %        
Combined ratio     94.8 %     131.5 %     97.6 %     106.2 %     95.4 %     93.6 %     108.6 %     97.8 %        
 
NM – Percentage change not meaningful
(1) – Includes Other operating expenses and Other underwriting income (expense).

THE NAVIGATORS GROUP, INC. AND SUBSIDIARIES
Net Incurred Loss Activity
 
    For the Three Months Ended December 31,  
amounts in thousands   Amounts     Loss Ratio  
Net Incurred Loss Activity   2016     2015     2016     2015  
U.S. Insurance:                                
Loss and LAE payments   $ 73,100     $ 60,750       43.8 %     41.9 %
Change in reserves     33,500       35,653       20.1 %     24.6 %
Net incurred loss and LAE   $ 106,600     $ 96,403       63.9 %     66.5 %
                                 
Int’l Insurance:                                
Loss and LAE payments   $ 45,011     $ 27,933       62.6 %     44.6 %
Change in reserves     (246 )     5,533       (0.3 %)     8.8 %
Net incurred loss and LAE   $ 44,765     $ 33,466       62.3 %     53.4 %
                                 
GlobalRe:                                
Loss and LAE payments   $ 17,260     $ 48,320       38.1 %     110.3 %
Change in reserves     3,868       (24,308 )     8.5 %     (55.5 %)
Net incurred loss and LAE   $ 21,128     $ 24,012       46.6 %     54.8 %
                                 
Total                                
Loss and LAE payments   $ 135,371     $ 137,003       47.6 %     54.5 %
Change in reserves     37,122       16,878       13.1 %     6.7 %
Net incurred loss and LAE   $ 172,493     $ 153,881       60.7 %     61.2 %
                                 
    Amounts     Loss Ratio Impact  
Impact of Prior Years Reserves   December 31,     December 31,     December 31,     December 31,  
Favorable / (Unfavorable) Development     2016     2015     2016     2015  
U.S. Insurance   $ (420 )   $ 8,023       (0.1 %)     3.2 %
Int’l Insurance     19,660       17,812       6.9 %     7.1 %
GlobalRe     (2,356 )     4,865       (0.8 %)     1.9 %
Total   $ 16,884     $ 30,700       6.0 %     12.2 %

THE NAVIGATORS GROUP, INC. AND SUBSIDIARIES
Net Incurred Loss Activity
 
    For the Twelve Months Ended December 31,  
amounts in thousands   Amounts     Loss Ratio  
Net Incurred Loss Activity   2016     2015     2016     2015  
U.S. Insurance:                                
Loss and LAE payments   $ 299,842     $ 247,530       47.6 %     44.5 %
Change in reserves     98,018       95,967       15.6 %     17.3 %
Net incurred loss and LAE   $ 397,860     $ 343,497       63.2 %     61.8 %
                                 
Int’l Insurance:                                
Loss and LAE payments   $ 151,098     $ 126,667       49.2 %     48.7 %
Change in reserves     27,186       8,035       8.8 %     3.1 %
Net incurred loss and LAE   $ 178,284     $ 134,702       58.0 %     51.8 %
                                 
GlobalRe:                                
Loss and LAE payments   $ 81,089     $ 106,468       49.6 %     63.3 %
Change in reserves     8,215       (12,069 )     5.0 %     (7.2 %)
Net incurred loss and LAE   $ 89,304     $ 94,399       54.6 %     56.1 %
                                 
Total                                
Loss and LAE payments   $ 532,029     $ 480,665       48.4 %     48.9 %
Change in reserves     133,419       91,933       12.1 %     9.3 %
Net incurred loss and LAE   $ 665,448     $ 572,598       60.5 %     58.2 %
                                 
    Amounts     Loss Ratio Impact  
Impact of Prior Years Reserves   December 31,     December 31,     December 31,     December 31,  
Favorable / (Unfavorable) Development     2016     2015     2016     2015  
U.S. Insurance   $ 1,348     $ 29,319       0.1 %     3.0 %
Int’l Insurance     25,019       26,216       2.3 %     2.7 %
GlobalRe     2,161       9,134       0.2 %     0.9 %
Total   $ 28,528     $ 64,669       2.6 %     6.6 %

THE NAVIGATORS GROUP, INC. AND SUBSIDIARIES
Net Loss Data
 
    As of December 31, 2016  
amounts in thousands   Case       IBNR            
Net Loss Reserves:   Reserves     Reserves     Total  
U.S. Insurance:                        
Marine   $ 56,701     $ 54,259     $ 110,960  
P&C     201,368       603,509       804,877  
Professional Liability     24,555       70,559       95,114  
Total U.S. Insurance   $ 282,624     $ 728,327     $ 1,010,951  
Int’l Insurance:                        
Marine   $ 163,124     $ 36,118     $ 199,242  
P&C     66,496       18,192       84,688  
Professional Liability     30,106       70,103       100,209  
Total Int’l Insurance   $ 259,726     $ 124,413     $ 384,139  
                         
GlobalRe   $ 47,505     $ 67,856     $ 115,361  
                         
Total Net Loss Reserves       $ 589,855     $ 920,596     $ 1,510,451  
                         
                         
    As of December 31, 2015  
    Case     IBNR          
Net Loss Reserves:   Reserves     Reserves     Total  
U.S. Insurance:                        
Marine   $ 68,677     $ 55,408     $ 124,085  
P&C     170,988       514,777       685,765  
Professional Liability     42,546       60,528       103,074  
Total U.S. Insurance   $ 282,211     $ 630,713     $ 912,924  
Int’l Insurance:                        
Marine   $ 167,157     $ 61,409     $ 228,566  
P&C     40,313       19,735       60,048  
Professional Liability     19,583       63,229       82,812  
Total Int’l Insurance   $ 227,053     $ 144,373     $ 371,426  
                         
GlobalRe   $ 32,160     $ 76,616     $ 108,776  
                         
Total Net Loss Reserves   $ 541,424     $ 851,702     $ 1,393,126  

THE NAVIGATORS GROUP, INC. AND SUBSIDIARIES
Investment Data
 
As of December 31, 2016, the average quality of the investment portfolio as rated by S&P and Moody’s was AA-/Aa3 with an average duration of 3.7 years. Our Company does not own any collateralized debt obligations (CDO’s) or asset backed commercial paper.
 
The following table sets forth our investments as of December 31, 2016:
 
    As of December 31, 2016  
            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     $ 273,776     $ 2,192     $ (5,128 )   $ 276,712  
States, municipalities and political subdivisions     547,415       11,542       (4,036 )     539,909  
Mortgage-backed and asset-backed securities:                                
Agency mortgage-backed securities     487,364       4,016       (6,585 )     489,933  
Residential mortgage obligations     20,530       453       (55 )     20,132  
Asset-backed securities     314,601       824       (1,178 )     314,955  
Commercial mortgage-backed securities     154,139       2,859       (1,904 )     153,184  
Subtotal   $ 976,634     $ 8,152     $ (9,722 )   $ 978,204  
Corporate bonds     838,057       10,185       (5,528 )     833,400  
Total fixed maturities   $ 2,635,882     $ 32,071     $ (24,414 )   $ 2,628,225  
Equity securities     349,142       27,016       (5,785 )     327,911  
Short-term investments     143,539       88             143,451  
Total investments   $ 3,128,563     $ 59,175     $ (30,199 )   $ 3,099,587  

 

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