NAVG
$59.40
Navigators Grp
$8.70
17.16%
Earnings Details
4th Quarter December 2017
Thursday, February 15, 2018 4:01:29 PM
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Summary

Navigators Grp (NAVG) Reports 4th Quarter Earnings

Navigators Grp (NAVG) reported 4th Quarter December 2017 earnings of $0.81 per share on revenue of $362.0 million. The consensus earnings estimate was $0.50 per share on revenue of $336.5 million. Revenue grew 16.8% on a year-over-year basis.

Navigators Group is an international insurance holding company focused on specialty products within the overall property/casualty insurance market.

Results
Reported Earnings
$0.81
Earnings Whisper
-
Consensus Estimate
$0.50
Reported Revenue
$362.0 Mil
Revenue Estimate
$336.5 Mil
Growth
Earnings Growth
Revenue Growth
Power Rating
Grade
Earnings Release

Navigators Reports Fourth Quarter 2017 Earnings

The Navigators Group, Inc. (NAVG) reported Net Income of $26.9 million, or $0.89 per diluted share, for the three months ended December 31, 2017 compared to $21.6 million, or $0.71 per diluted share, for the same period in 2016. Net Operating Earnings1 were $24.5 million, or $0.81 per diluted share, for the three months ended December 31, 2017 compared to $17.7 million, or $0.58 per diluted share, for the same period in 2016.

The fourth quarter of 2017 was impacted by the enactment of the Tax Cuts and Jobs Act of 2017 (the "Tax Act"). As a result of the Tax Act, The Navigators Group, Inc. ("Navigators" or the "Company") recognized additional income tax expense of $19.7 million which reduced Net Income in the fourth quarter.

Gross Written Premiums and Net Written Premiums for the three months ended December 31, 2017 were $408.7 million and $304.9 million, respectively, increasing 11.2% and 7.8%, respectively, from the comparable period in 2016. Our Combined Ratio for the three months ended December 31, 2017 was 96.6%, compared to 96.7% for the same period in 2016.

Net Investment Income for the three months ended December 31, 2017 was $23.0 million, an increase of 14.3% as compared to the same period in 2016. Our annualized pre-tax investment yield, excluding Net Realized Gains and Losses and Other-Than-Temporary Impairment Losses Recognized in Earnings, was 2.7% for the three months ended December 31, 2017, compared to 2.5% for the same period in 2016.

Other Income (Loss) for the three months ended December 31, 2017 was $(3.2) million, compared to $1.9 million for the same period in 2016, and primarily consists of realized and unrealized foreign exchange gains and losses.

For the full year ended December 31, 2017, our Company reported Net Income of $40.5 million, or $1.35 per diluted share, compared to $82.7 million, or $2.75 per diluted share, for the same period in 2016. Net Operating Earnings were $35.0 million, or $1.16 per diluted share, for the full year ended December 31, 2017 compared to $71.2 million, or $2.37 per diluted share, for the same period in 2016.

Gross Written Premiums and Net Written Premiums for the full year ended December 31, 2017 were $1.7 billion and $1.3 billion, respectively, increasing 9.2% and 7.2%, respectively, from the comparable period in 2016. Our Combined Ratio for the full year ended December 31, 2017 was 103.2%, compared to 96.7% for the same period in 2016.

In addition to the impact of the enactment of the Tax Act in the fourth quarter of 2017, the full year results also include Net Losses and Loss Adjustment Expenses and related net reinsurance reinstatement premiums totaling $71.3 million from Hurricanes Maria, Irma and Harvey and the Puebla, Mexico Earthquake, as well as prior accident year reserve strengthening of $34.3 million.

Net Investment Income for the full year ended December 31, 2017 was $89.3 million, an increase of 12.4% as compared to the same period in 2016. Our pre-tax investment yield, excluding Net Realized Gains and Losses and Other-Than-Temporary Impairment Losses Recognized in Earnings, was 2.7% for the full year ended December 31, 2017, compared to 2.6% for the same period in 2016.

Other Income (Loss) for the full year ended December 31, 2017 was $(4.2) million, compared to $8.7 million for the same period in 2016, and primarily consists of realized and unrealized foreign exchange gains and losses.

Stan Galanski, President and Chief Executive Officer, commented, "We are pleased to report solidly profitable results for the fourth quarter. Both the U.S. Insurance and Global Reinsurance segments produced excellent underwriting results, with combined ratios of 91.3% and 90.9% respectively. We grew Gross Written Premium by 11.2% and are well positioned to capitalize on anticipated growth opportunities emanating from the ongoing strength of the U.S. economy as well as targeted specialty niches globally. Net Investment Income was up 14.3% over fourth quarter 2017. In December, we opted to liquidate our actively managed common equity holdings, realizing pre-tax gains of $37.1 million. While the recently enacted Tax Act adversely impacted our fourth quarter results, we anticipate positive benefits of a lower corporate tax rate beginning in 2018. During the quarter, we announced the proposed acquisition of a Belgium-based specialty underwriting manager and insurance company, which we expect to close in the second quarter, subject to regulatory approval. This is an important part of our post-Brexit strategy."

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 effective duration of 3.5 years as of December 31, 2017. As of December 31, 2017, Net Unrealized Gains within our investment portfolio were $41.5 million, a decrease of $(45.8) million compared to September 30, 2017. We recognized $37.1 million of Net Realized Gains for the three months ended December 31, 2017, compared to $4.0 million of Net Realized Gains for the same period in 2016. For the full year ended December 31, 2017 we recognized $43.0 million of Net Realized Gains (inclusive of Net Other-Than-Temporary Impairment Losses Recognized in Earnings), compared to $9.0 million of Net Realized Gains (inclusive of Net Other-Than-Temporary Impairment Losses Recognized in Earnings) for the same period in 2016. The increase in Net Realized Gains (inclusive of Net Other-Than-Temporary Impairment Losses Recognized in Earnings) for the fourth quarter and full year 2017 compared to the same periods in 2016 was primarily related to the liquidation of our common equity portfolio in December 2017 as we reassess our actively managed common equity strategy.

Stockholders’ Equity was $1.2 billion, or $41.55 per share, as of December 31, 2017 compared to $41.49 per share, as of September 30, 2017 and $40.45 per share, as of December 31, 2016.

During the three months ended December 31, 2017, our Company declared and paid a quarterly cash dividend of $0.06 per share of Common Stock.

On February 15, 2018 our Board of Directors declared a cash dividend on our Company’s Common Stock of $0.07 per share, payable on March 23, 2018 to stockholders of record on March 2, 2018. This represents an increase of 16.7% over the prior quarter dividend.

Our Company will hold a conference call on Friday, February 16, 2018 starting at 8:30 a.m. (ET) to discuss the 2017 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 also connect to the webcast at: https://edge.media-server.com/m6/p/o8reaviq.

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.

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.

Contact:

Ciro M. DeFalco

Executive Vice President and Chief Financial Officer

(203) 905-6343

cdefalco@navg.com

www.navg.com

THE NAVIGATORS GROUP, INC. AND SUBSIDIARIES
FINANCIAL HIGHLIGHTS
(Unaudited)
Three Months Ended
Years Ended
amounts in thousands, except per share amounts
December 31,
December 31,
Results of Operations
2017
2016
Change
2017
2016
Change
Gross Written Premiums
$
408,743
$
367,539
11.2
%
$
1,713,265
$
1,568,911
9.2
%
Net Written Premiums
304,869
282,868
7.8
%
1,271,330
1,186,224
7.2
%
Revenues:
Net Earned Premiums
$
305,099
$
283,985
7.4
%
$
1,186,420
$
1,100,345
7.8
%
Net Investment Income
22,982
20,107
14.3
%
89,293
79,451
12.4
%
Net Realized Gains (Losses):
Total Other-Than-Temporary Impairment
3
21
(87.9 %)
(2,002
)
(227
)
NM
Losses
Portion of Loss Recognized in Other
(3
)
(21
)
(85.7 %)
(62
)
77
NM
Comprehensive Income (Before Tax)
Net Other-Than-Temporary Impairment Losses
--
--
NM
(2,064
)
(150
)
NM
Recognized In Earnings
Other Realized Gains
37,141
4,043
NM
45,073
9,186
NM
Net Realized Gains
37,141
4,043
NM
43,009
9,036
NM
Other Income (Loss)
(3,201
)
1,905
NM
(4,243
)
8,701
NM
Total Revenues
$
362,021
$
310,040
16.8
%
$
1,314,479
$
1,197,533
9.8
%
Expenses:
Net Losses and Loss Adjustment Expenses
183,384
172,493
6.3
%
806,265
665,448
21.2
%
Commission Expenses
43,205
44,154
(2.2
%)
184,731
165,045
11.9
%
Other Operating Expenses
68,153
58,076
17.4
%
233,230
234,096
(0.4
%)
Interest Expense
3,863
3,860
0.1
%
15,447
15,435
0.1
%
Total Expenses
$
298,605
$
278,583
7.2
%
$
1,239,673
$
1,080,024
14.8
%
Income Before Income Taxes
63,416
31,457
101.6 %
74,806
117,509
(36.3 %)
Income Tax Expense
36,555
9,866
NM
34,312
34,783
(1.4
%)
Net Income
$
26,861
$
21,591
24.4
%
$
40,494
$
82,726
(51.1 %)
Per Share Data
Net Income Per Common Share:
Basic
$
0.91
$
0.74
22.8
%
$
1.38
$
2.85
(51.7 %)
Diluted
$
0.89
$
0.71
25.2
%
$
1.35
$
2.75
(51.1 %)
Average Common Shares Outstanding:
Basic
29,505
29,121
29,441
29,074
Diluted
30,099
30,282
30,071
30,032
Underwriting Ratios
Loss Ratio
60.1
%
60.7
%
68.0
%
60.5
%
Expense Ratio
36.5
%
36.0
%
35.2
%
36.2
%
Combined Ratio
96.6
%
96.7
%
103.2
%
96.7
%
Balance Sheet Data
December 31,
September 30,
December 31,
December 31,
2017
2017
2017
2016
Stockholders’ Equity
$
1,225,965
$
1,224,191
0.1
%
$
1,225,965
$
1,178,188
4.1
%
Book Value per Share
$
41.55
$
41.49
0.1
%
$
41.55
$
40.45
2.7
%
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 Net Realized Gains (Losses), After-Tax Net Other-Than-Temporary Impairment Losses Recognized in Earnings, After-Tax Foreign Exchange Gains (Losses), and the impact of the passage of the Tax Act at enactment recognized in our Consolidated Statements of Income.

We believe this presentation enhances the understanding of our results of operations by highlighting the underlying profitability of our business and enables investors and other users of our 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 December 31, 2017
Three Months Ended December 31, 2016
% Change
amounts in thousands, except per share amounts
Pre-Tax
Tax
After-Tax
Pre-Tax
Tax
After-Tax
QTD
Net Income
$
63,416
$
(36,555 )
$
26,861
$
31,457
$
(9,866 )
$
21,591
24.4 %
Adjustments to Net Income:
Realized Losses (Gains)
(37,141 )
12,999
(24,142 )
(4,043 )
1,416
(2,627 )
NM
FX Losses (Gains)
3,198
(1,119
)
2,079
(1,947 )
682
(1,265 )
NM
Impact of the Tax Act at Enactment
--
19,694
19,694
--
--
--
NM
Net Operating Earnings
$
29,473
$
(4,981
)
$
24,492
$
25,467
$
(7,768 )
$
17,699
38.4 %
Average Common Shares Outstanding:
Basic
29,505
29,121
Diluted
30,099
30,282
Net Operating Earnings per Common Share:
Basic
$
0.83
$
0.61
Diluted
$
0.81
$
0.58
Year Ended December 31, 2017
Year Ended December 31, 2016
% Change
amounts in thousands, except per share amounts
Pre-Tax
Tax
After-Tax
Pre-Tax
Tax
After-Tax
YTD
Net Income
$
74,806
$
(34,312
)
$
40,494
$
117,509
$
(34,783
)
$
82,726
(51.1
%)
Adjustments to Net Income:
Realized Losses (Gains)
(43,009
)
15,054
(27,955
)
(9,036
)
3,163
(5,873
)
NM
FX Losses (Gains)
4,213
(1,474
)
2,739
(8,626
)
3,019
(5,607
)
NM
Impact of the Tax Act at Enactment
--
19,694
19,694
--
--
--
NM
Net Operating Earnings
$
36,010
$
(1,038
)
$
34,972
$
99,847
$
(28,601
)
$
71,246
(50.9
%)
Average Common Shares Outstanding:
Basic
29,441
29,074
Diluted
30,071
30,032
Net Operating Earnings per Common Share:
Basic
$
1.19
$
2.45
Diluted
$
1.16
$
2.37
(1) - Tax impact is estimated by applying the statutory rates of applicable jurisdictions, after consideration of any other relevant factors.
(2) - As a result of the enactment of the Tax Act, we revalued our deferred tax assets as of December 31, 2017 resulting in a reduction in our deferred tax assets of $17.1 million and we also anticipate incurring a one-time payment of approximately $2.6 million due to tax on previously untaxed accumulated and current earnings and profits on certain foreign subsidiaries.
NM - Percentage change not meaningful.
THE NAVIGATORS GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31,
December 31,
2017
2016
amounts in thousands, except per share amounts
(Unaudited)
ASSETS
Investments:
Fixed Maturities, available-for-sale, at fair value (amortized cost: 2017:
$3,027,408; 2016: $2,628,225)
$
3,057,054
$
2,635,882
Equity Securities, available-for-sale, at fair value (cost: 2017: $224,159; 2016: $327,911)
235,981
349,142
Other Invested Assets (Equity Method)
1,720
1,960
Short-Term Investments, at fair value (amortized cost: 2017: $127,125; 2016: $143,451)
127,128
143,539
Total Investments
$
3,421,883
$
3,130,523
Cash
67,084
64,643
Premiums Receivable
351,393
306,686
Prepaid Reinsurance Premiums
228,569
213,377
Reinsurance Recoverable on Paid Losses
72,494
82,582
Reinsurance Recoverable on Unpaid Losses and Loss Adjustment Expenses
809,765
779,276
Deferred Policy Acquisition Costs
135,249
119,660
Accrued Investment Income
19,480
17,315
Goodwill and Other Intangible Assets
6,596
6,451
Current Income Tax Receivable, Net
16,667
20,556
Deferred Income Tax, Net
22,271
20,938
Other Assets
73,171
52,030
Total Assets
$
5,224,622
$
4,814,037
LIABILITIES AND STOCKHOLDERS’ EQUITY
Liabilities:
Reserves for Losses and Loss Adjustment Expenses
$
2,515,145
$
2,289,727
Unearned Premiums
987,681
887,344
Reinsurance Balances Payable
136,192
108,980
Senior Notes
263,885
263,728
Accounts Payable and Other Liabilities
95,754
86,070
Total Liabilities
$
3,998,657
$
3,635,849
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
3,650
3,612
36,530 shares for 2017 and 36,147 shares for 2016)
Additional Paid-In Capital
376,868
373,983
Treasury Stock, at cost (7,023 shares for 2017 and 2016)
(155,801
)
(155,801
)
Retained Earnings
981,380
947,519
Accumulated Other Comprehensive Income
19,868
8,875
Total Stockholders’ Equity
$
1,225,965
$
1,178,188
Total Liabilities and Stockholders’ Equity
$
5,224,622
$
4,814,037
THE NAVIGATORS GROUP, INC. AND SUBSIDIARIES
Segment Information
(Unaudited)
Three Months Ended December 31, 2017
U.S.
Int’l
amounts in thousands
Insurance
Insurance
GlobalRe
Corporate
Total
Gross Written Premiums
$
258,450
$
114,476
$
35,817
$
--
$
408,743
Ceded Written Premiums
(67,321
)
(35,910 )
(643
)
--
(103,874 )
Net Written Premiums
191,129
78,566
35,174
--
304,869
Net Earned Premiums
$
174,424
$
83,199
$
47,476
$
--
$
305,099
Net Losses and LAE
(103,917 )
(53,088 )
(26,379 )
--
(183,384 )
Commission Expenses
(18,599
)
(14,389 )
(10,441 )
224
(43,205
)
Other Operating Expenses
(36,918
)
(24,777 )
(6,458
)
--
(68,153
)
Other Underwriting Income (Expense)
126
--
126
(224
)
28
Underwriting Profit (Loss)
$
15,116
$
(9,055
)
$
4,324
$
--
$
10,385
Net Investment Income
22,982
22,982
Net Realized Gains
37,141
37,141
Interest Expense
(3,863
)
(3,863
)
Other Loss
(3,229
)
(3,229
)
Income (Loss) Before Income Taxes
$
15,116
$
(9,055
)
$
4,324
$
53,031
$
63,416
Income Tax Expense
(36,555 )
(36,555
)
Net Income
$
26,861
Losses and LAE Ratio
59.6
%
63.8
%
55.6
%
60.1
%
Commission Expense Ratio
10.7
%
17.3
%
22.0
%
14.2
%
Other Operating Expense Ratio
21.0
%
29.8
%
13.3
%
22.3
%
Combined Ratio
91.3
%
110.9
%
90.9
%
96.6
%
(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 December 31, 2016
U.S.
Int’l
amounts in thousands
Insurance
Insurance
GlobalRe
Corporate
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
4,043
4,043
Interest Expense
(3,860 )
(3,860
)
Other Income
1,886
1,886
Income (Loss) Before Income Taxes
$
8,718
$
(8,528
)
$
9,091
$
22,176
$
31,457
Income Tax Expense
(9,866 )
(9,866
)
Net Income
$
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
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
(Unaudited)
Year Ended December 31, 2017
U.S.
Int’l
amounts in thousands
Insurance
Insurance
GlobalRe
Corporate
Total
Gross Written Premiums
$
988,293
$
501,130
$
223,842
$
--
$
1,713,265
Ceded Written Premiums
(266,993 )
(165,278 )
(9,664
)
--
(441,935
)
Net Written Premiums
721,300
335,852
214,178
--
1,271,330
Net Earned Premiums
$
674,665
$
333,792
$
177,963
$
--
$
1,186,420
Net Losses and LAE
(443,353 )
(229,601 )
(133,311 )
--
(806,265
)
Commission Expenses
(77,729
)
(68,824
)
(39,136
)
958
(184,731
)
Other Operating Expenses
(128,905 )
(83,464
)
(20,861
)
--
(233,230
)
Other Underwriting Income (Expense)
461
--
565
(958
)
68
Underwriting Profit (Loss)
$
25,139
$
(48,097
)
$
(14,780
)
$
--
$
(37,738
)
Net Investment Income
89,293
89,293
Net Realized Gains
43,009
43,009
Interest Expense
(15,447 )
(15,447
)
Other Loss
(4,311
)
(4,311
)
Income (Loss) Before Income Taxes
$
25,139
$
(48,097
)
$
(14,780
)
$
112,544
$
74,806
Income Tax Expense
(34,312 )
(34,312
)
Net Income
$
40,494
Losses and LAE Ratio
65.7
%
68.8
%
74.9
%
68.0
%
Commission Expense Ratio
11.5
%
20.6
%
22.0
%
15.6
%
Other Operating Expense Ratio
19.1
%
25.0
%
11.4
%
19.6
%
Combined Ratio
96.3
%
114.4
%
108.3
%
103.2
%
(1) - Includes Corporate segment intercompany eliminations.
(2) - Includes Other Operating Expenses and Other Underwriting Income (Expense).
THE NAVIGATORS GROUP, INC. AND SUBSIDIARIES
Segment Information
(Unaudited)
Year Ended December 31, 2016
U.S.
Int’l
amounts in thousands
Insurance
Insurance
GlobalRe
Corporate
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
9,036
9,036
Interest Expense
(15,435 )
(15,435
)
Other Income
8,565
8,565
Income (Loss) Before Income Taxes
$
33,620
$
(18,966
)
$
21,238
$
81,617
$
117,509
Income Tax Expense
(34,783 )
(34,783
)
Net Income
$
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
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
Reportable Segment Results
(Unaudited)
U.S. Insurance
Three Months Ended December 31, 2017
Three Months Ended December 31, 2016
amounts in thousands
Marine
P&C
Professional Liability
Total
Marine
P&C
Professional Liability
Total
%
Change
Total
Gross Written Premiums
$
37,131
$
189,316
$
32,003
$
258,450
$
39,784
$
160,030
$
30,363
$
230,177
12.3
%
Ceded Written Premiums
(16,601 )
(44,204 )
(6,516
)
(67,321
)
(17,035 )
(32,602 )
(7,716
)
(57,353
)
17.4
%
Net Written Premiums
20,530
145,112
25,487
191,129
22,749
127,428
22,647
172,824
10.6
%
Net Earned Premiums
$
21,970
$
128,980
$
23,474
$
174,424
$
26,496
$
118,331
$
22,035
$
166,862
4.5
%
Net Losses and LAE
(13,232 )
(76,937 )
(13,748
)
(103,917 )
(14,639 )
(77,979 )
(13,982
)
(106,600 )
(2.5
%)
Commission Expenses
(918
)
(13,643 )
(4,038
)
(18,599
)
(2,694
)
(14,146 )
(3,593
)
(20,433
)
(9.0
%)
Other Operating Expenses
(7,221
)
(24,077 )
(5,620
)
(36,918
)
(6,603
)
(19,901 )
(4,756
)
(31,260
)
18.1
%
Other Underwriting Income
104
16
6
126
108
32
9
149
(15.5 %)
Underwriting Profit (Loss)
$
703
$
14,339
$
74
$
15,116
$
2,668
$
6,337
$
(287
)
$
8,718
73.4
%
Losses and LAE Ratio
60.2
%
59.7
%
58.6
%
59.6
%
55.3
%
65.9
%
63.5
%
63.9
%
Commission Expense Ratio
4.2
%
10.6
%
17.2
%
10.7
%
10.2
%
12.0
%
16.3
%
12.2
%
Other Operating Expense Ratio
32.4
%
18.6
%
23.9
%
21.0
%
24.4
%
16.7
%
21.5
%
18.7
%
Combined Ratio
96.8
%
88.9
%
99.7
%
91.3
%
89.9
%
94.6
%
101.3
%
94.8
%
(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 December 31, 2017
Three Months Ended December 31, 2016
amounts in thousands
Marine
P&C
Professional Liability
Total
Marine
P&C
Professional Liability
Total
%
Change
Total
Gross Written Premiums
$
38,122
$
34,677
$
41,677
$
114,476
$
31,680
$
35,969
$
32,455
$
100,104
14.4 %
Ceded Written Premiums
(8,608
)
(15,518 )
(11,784
)
(35,910 )
(6,818
)
(12,581 )
(7,030
)
(26,429 )
35.9 %
Net Written Premiums
29,514
19,159
29,893
78,566
24,862
23,388
25,425
73,675
6.6
%
Net Earned Premiums
$
36,338
$
21,225
$
25,636
$
83,199
$
31,847
$
18,847
$
21,120
$
71,814
15.9 %
Net Losses and LAE
(30,554 )
(7,137
)
(15,397
)
(53,088 )
(12,653 )
(19,821 )
(12,291
)
(44,765 )
18.6 %
Commission Expenses
(4,951
)
(2,933
)
(6,505
)
(14,389 )
(7,894
)
(3,102
)
(3,183
)
(14,179 )
1.5
%
Other Operating Expenses
(10,424 )
(8,554
)
(5,799
)
(24,777 )
(8,376
)
(8,389
)
(4,633
)
(21,398 )
15.8 %
Underwriting Profit (Loss)
(9,591
)
2,601
(2,065
)
(9,055
)
2,924
(12,465 )
1,013
(8,528
)
6.2
%
Losses and LAE Ratio
84.1
%
33.6
%
60.1
%
63.8
%
39.7
%
105.2
%
58.2
%
62.3
%
Commission Expense Ratio
13.6
%
13.8
%
25.4
%
17.3
%
24.8
%
16.5
%
15.1
%
19.7
%
Other Operating Expense Ratio
28.7
%
40.3
%
22.6
%
29.8
%
26.3
%
44.4
%
21.9
%
29.9
%
Combined Ratio
126.4
%
87.7
%
108.1
%
110.9
%
90.8
%
166.1
%
95.2
%
111.9
%
THE NAVIGATORS GROUP, INC. AND SUBSIDIARIES
Reportable Segment Results
(Unaudited)
U.S. Insurance
Year Ended December 31, 2017
Year Ended December 31, 2016
amounts in thousands
Marine
P&C
Professional Liability
Total
Marine
P&C
Professional Liability
Total
%
Change
Total
Gross Written Premiums
$
156,171
$
713,539
$
118,583
$
988,293
$
169,405
$
631,562
$
118,428
$
919,395
7.5
%
Ceded Written Premiums
(72,431 )
(173,501 )
(21,061
)
(266,993 )
(70,858 )
(135,888 )
(29,081
)
(235,827 )
13.2
%
Net Written Premiums
83,740
540,038
97,522
721,300
98,547
495,674
89,347
683,568
5.5
%
Net Earned Premiums
$
86,605
$
495,260
$
92,800
$
674,665
$
100,132
$
453,673
$
75,503
$
629,308
7.2
%
Net Losses and LAE
(58,099 )
(316,112 )
(69,142
)
(443,353 )
(50,087 )
(295,877 )
(51,896
)
(397,860 )
11.4
%
Commission Expenses
(4,932
)
(57,756
)
(15,041
)
(77,729
)
(8,469
)
(52,483
)
(9,860
)
(70,812
)
9.8
%
Other Operating Expenses
(25,501 )
(84,433
)
(18,971
)
(128,905 )
(27,559 )
(81,469
)
(19,080
)
(128,108 )
0.6
%
Other Underwriting Income
374
61
26
461
465
582
45
1,092
(57.8 %)
Underwriting Profit (Loss)
$
(1,553
)
$
37,020
$
(10,328
)
$
25,139
$
14,482
$
24,426
$
(5,288
)
$
33,620
(25.2 %)
Losses and LAE Ratio
67.1
%
63.8
%
74.5
%
65.7
%
50.0
%
65.2
%
68.7
%
63.2
%
Commission Expense Ratio
5.7
%
11.7
%
16.2
%
11.5
%
8.5
%
11.6
%
13.1
%
11.3
%
Other Operating Expense Ratio
29.0
%
17.0
%
20.4
%
19.1
%
27.0
%
17.8
%
25.2
%
20.2
%
Combined Ratio
101.8
%
92.5
%
111.1
%
96.3
%
85.5
%
94.6
%
107.0
%
94.7
%
(1) - Includes Other Operating Expenses and Other Underwriting Income (Expense).
THE NAVIGATORS GROUP, INC. AND SUBSIDIARIES
Reportable Segment Results
(Unaudited)
Int’l Insurance
Year Ended December 31, 2017
Year Ended December 31, 2016
amounts in thousands
Marine
P&C
Professional Liability
Total
Marine
P&C
Professional Liability
Total
%
Change
Total
Gross Written Premiums
$
198,241
$
159,123
$
143,766
$
501,130
$
183,228
$
181,094
$
120,149
$
484,471
3.4
%
Ceded Written Premiums
(42,018
)
(85,298 )
(37,962
)
(165,278 )
(40,092 )
(69,606 )
(28,806
)
(138,504 )
19.3 %
Net Written Premiums
156,223
73,825
105,804
335,852
143,136
111,488
91,343
345,967
(2.9 %)
Net Earned Premiums
$
152,396
$
88,517
$
92,879
$
333,792
$
141,593
$
89,455
$
76,368
$
307,416
8.6
%
Net Losses and LAE
(114,460 )
(61,791 )
(53,350
)
(229,601 )
(67,051 )
(68,995 )
(42,238
)
(178,284 )
28.8 %
Commission Expenses
(32,541
)
(13,918 )
(22,365
)
(68,824
)
(34,018 )
(14,529 )
(13,156
)
(61,703
)
11.5 %
Other Operating Expenses
(34,878
)
(28,537 )
(20,049
)
(83,464
)
(33,170 )
(34,075 )
(19,150
)
(86,395
)
(3.4 %)
Underwriting Profit (Loss)
$
(29,483
)
$
(15,729 )
$
(2,885
)
$
(48,097
)
$
7,354
$
(28,144 )
$
1,824
$
(18,966
)
NM
Losses and LAE Ratio
75.1
%
69.8
%
57.4
%
68.8
%
47.4
%
77.1
%
55.3
%
58.0
%
Commission Expense Ratio
21.4
%
15.7
%
24.1
%
20.6
%
24.0
%
16.2
%
17.2
%
20.1
%
Other Operating Expense Ratio
22.8
%
32.3
%
21.6
%
25.0
%
23.4
%
38.2
%
25.1
%
28.1
%
Combined Ratio
119.3
%
117.8
%
103.1
%
114.4
%
94.8
%
131.5
%
97.6
%
106.2
%
NM- Percentage change not meaningful.
THE NAVIGATORS GROUP, INC. AND SUBSIDIARIES
Net Incurred Loss Activity
(Unaudited)
For the Three Months Ended December 31,
amounts in thousands
Amounts
Loss Ratio
Net Incurred Loss Activity
2017
2016
2017
2016
U.S. Insurance:
Loss and LAE Payments
$
99,085
$
73,100
56.8
%
43.8 %
Change in Reserves
4,832
33,500
2.8
%
20.1 %
Net Incurred Loss and LAE
$
103,917
$
106,600
59.6
%
63.9 %
Int’l Insurance:
Loss and LAE Payments
$
55,296
$
45,011
66.5
%
62.6 %
Change in Reserves
(2,208
)
(246
)
(2.7
%)
(0.3 %)
Net Incurred Loss and LAE
$
53,088
$
44,765
63.8
%
62.3 %
GlobalRe:
Loss and LAE Payments
$
34,302
$
17,260
72.3
%
38.1 %
Change in Reserves
(7,923
)
3,868
(16.7 %)
8.5
%
Net Incurred Loss and LAE
$
26,379
$
21,128
55.6
%
46.6 %
Total
Loss and LAE Payments
$
188,683
$
135,371
61.8
%
47.6 %
Change in Reserves
(5,299
)
37,122
(1.7
%)
13.1 %
Net Incurred Loss and LAE
$
183,384
$
172,493
60.1
%
60.7 %
For the Three Months Ended December 31,
Impact of Prior Years Reserves
Amounts
Loss Ratio Impact
Favorable / (Unfavorable) Development
2017
2016
2017
2016
U.S. Insurance
$
1,492
$
(420
)
0.5
%
(0.1 %)
Int’l Insurance
7,239
19,660
2.5
%
6.9
%
GlobalRe
1,568
(2,356
)
0.5
%
(0.8 %)
Total
$
10,299
$
16,884
3.5
%
6.0
%
THE NAVIGATORS GROUP, INC. AND SUBSIDIARIES
Net Incurred Loss Activity
(Unaudited)
For the Years Ended December 31,
amounts in thousands
Amounts
Loss Ratio
Net Incurred Loss Activity
2017
2016
2017
2016
U.S. Insurance:
Loss and LAE Payments
$
324,102
$
299,842
48.0 %
47.6 %
Change in Reserves
119,251
98,018
17.7 %
15.6 %
Net Incurred Loss and LAE
$
443,353
$
397,860
65.7 %
63.2 %
Int’l Insurance:
Loss and LAE Payments
$
201,402
$
151,098
60.4 %
49.2 %
Change in Reserves
28,199
27,186
8.4
%
8.8
%
Net Incurred Loss and LAE
$
229,601
$
178,284
68.8 %
58.0 %
GlobalRe:
Loss and LAE Payments
$
97,570
$
81,089
54.8 %
49.6 %
Change in Reserves
35,741
8,215
20.1 %
5.0
%
Net Incurred Loss and LAE
$
133,311
$
89,304
74.9 %
54.6 %
Total
Loss and LAE Payments
$
623,074
$
532,029
52.6 %
48.4 %
Change in Reserves
183,191
133,419
15.4 %
12.1 %
Net Incurred Loss and LAE
$
806,265
$
665,448
68.0 %
60.5 %
For the Years Ended December 31,
Impact of Prior Years Reserves
Amounts
Loss Ratio Impact
Favorable / (Unfavorable) Development
2017
2016
2017
2016
U.S. Insurance
$
(16,714 )
$
1,348
(1.4 %)
0.1
%
Int’l Insurance
(14,834 )
25,019
(1.3 %)
2.3
%
GlobalRe
(2,762
)
2,161
(0.2 %)
0.2
%
Total
$
(34,310 )
$
28,528
(2.9 %)
2.6
%
THE NAVIGATORS GROUP, INC. AND SUBSIDIARIES
Net Loss Data
(Unaudited)
As of December 31, 2017
amounts in thousands
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
As of December 31, 2016
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

THE NAVIGATORS GROUP, INC. AND SUBSIDIARIES

Investment Data

(Unaudited)

As of December 31, 2017, 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. Our Company does not own any collateralized debt obligations or asset backed commercial paper.

The following table sets forth our investments as of December 31, 2017:

As of December 31, 2017
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
$
393,563
$
2,081
$
(2,014
)
$
393,496
Government Bonds
States, Municipalities and Political Subdivisions
814,632
20,136
(1,423
)
795,919
Mortgage-Backed and Asset-Backed Securities:
Agency Mortgage-Backed Securities
407,619
2,352
(5,414
)
410,681
Residential Mortgage Obligations
54,104
606
(79
)
53,577
Asset-Backed Securities
328,753
2,138
(663
)
327,278
Commercial Mortgage-Backed Securities
160,904
2,354
(1,182
)
159,732
Subtotal
$
951,380
$
7,450
$
(7,338
)
$
951,268
Corporate Exposures
897,479
14,491
(3,737
)
886,725
Total Fixed Maturities
$
3,057,054
$
44,158
$
(14,512 )
$
3,027,408
Equity Securities:
Common Stocks
$
52,439
$
7,423
$
(112
)
$
45,128
Preferred Stocks
183,542
6,071
(1,560
)
179,031
Total Equity Securities
$
235,981
$
13,494
$
(1,672
)
$
224,159
Short-Term Investments
127,128
3
--
127,125
Total Investments
$
3,420,163
$
57,655
$
(16,184 )
$
3,378,692
(1) - Corporate Exposures consist of investments in corporate bonds, hybrid bonds and redeemable preferred stocks.

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