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Navigators Reports First Quarter Earnings, Operating Earnings Up 94%

The Navigators Group, Inc. Logo

STAMFORD, Conn., May 7, 2014 (GLOBE NEWSWIRE) -- The Navigators Group, Inc. (Nasdaq:NAVG) reported net income of $28.0 million, or $1.94 per diluted share, for the three months ended March 31, 2014 compared to $13.9 million, or $0.97 per diluted share, for the comparable period in 2013.

Operating earnings were $20.9 million, or $1.45 per diluted share, for the first quarter of 2014 compared to $10.8 million, or $0.75 per diluted share, for the comparable period in 2013.

Gross written premiums and net written premiums for the three months ended March 31, 2014 were $422.8 million and $311.9 million, respectively, an increase of 7.5% and 15.7% from the comparable period in 2013.

The combined loss and expense ratio for the three months ended March 31, 2014 was 92.2% compared to 97.9% for the comparable period in 2013.

Stan Galanski, President and Chief Executive Officer, commented, "We are pleased to report profitable underwriting results for both our Insurance Company and Lloyd's Operations, leading to a 3.8% increase in stockholder's equity during the quarter. We achieved double digit net written premium growth for the quarter, with strong production at Lloyd's and in Navigators Specialty, our insurance company excess and surplus lines unit. We continued to experience favorable loss emergence across most specialty product lines."

Stockholders' equity was $936.8 million, or $65.72 per share, as of March 31, 2014 compared to $902.2 million, or $63.54 per share, as of December 31, 2013.

Net investment income for the three months ended March 31, 2014 was $16.6 million, an increase of 21.6% from the comparable period in 2013. The annualized pre-tax investment yield, excluding net realized gains and losses and other-than-temporary impairment losses recognized in earnings, was 2.8% for the three months ended March 31, 2014, compared to 2.3% for the comparable period in 2013. The effective tax rate on net investment income was 28.1% for the three months ended March 31, 2014, compared to 28.5% for the comparable period in 2013.

The Company's investment portfolio mainly consists of fixed income securities with an average quality rating of "AA/Aa" as defined by Standard & Poor's and Moody's, respectively, and an average effective duration of 3.6 years as of March 31, 2014. As of March 31, 2014, net unrealized gains within our investment portfolio were $55.4 million, an increase of $19.4 million compared to December 31, 2013.

There were $0.8 million of net realized gains recognized in earnings for the three months ended March 31, 2014, compared to $4.8 million for the same periods in 2013.

Other income for the three months ended March 31, 2014 includes a one-time foreign exchange gain of $10.0 million ($6.6 million after-tax) due to a change in the functional currency of our Lloyd's Operations, which is equally offset by a reversal within the Accumulated Other Comprehensive Income component of stockholders' equity.

Consolidated net cash flow from operations for the three months ended March 31, 2014 was $8.8 million, compared to $4.3 million for the comparable period in 2013.

The Company will hold a conference call on Thursday, May 8, 2014 starting at 8:30 a.m. ET to discuss the 2014 first 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 (888) 503-8175 and the international dial-in is (719) 325-2472. Participants may connect to the webcast at:

http://www.media-server.com/m/p/38dpgitz

Operating earnings, or net income excluding after-tax net realized gains (losses), 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 representative offices in China and Brazil.

The Navigators Group, Inc. logo is available at http://www.globenewswire.com/newsroom/prs /?pkgid=7778

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
March 31,
Results of Operations 2014 2013 Change
Gross written premiums $ 422,790 $ 393,222 7.5%
Net written premiums 311,850 269,452 15.7%
Revenues:
Net earned premiums 225,272 202,328 11.3%
Net investment income 16,610 13,657 21.6%
Total other-than-temporary impairment losses -- (42) NM
Portion of loss recognized in other comprehensive income (before tax) -- -- NM
Net other-than-temporary impairment losses recognized in earnings -- (42) NM
Net realized gains (losses) 833 4,814 -82.7%
Other income 10,399 618 NM
Total revenues 253,114 221,375 14.3%
Expenses:
Net losses and loss adjustment expenses 135,067 131,342 2.8%
Commission expenses 25,727 26,555 -3.1%
Other operating expenses 47,146 40,874 15.3%
Interest expense 3,852 2,051 87.8%
Total expenses 211,792 200,822 5.5%
Income before income taxes 41,322 20,553 101.0%
Income tax expense (benefit) 13,354 6,643 101.0%
Net income (loss) $ 27,968 $ 13,910 101.1%
Per Share Data
Net income per common share:
Basic $ 1.96 $ 0.99 99.0%
Diluted $ 1.94 $ 0.97 100.6%
Average common shares outstanding:
Basic 14,233,504 14,085,821
Diluted 14,408,416 14,374,957
Underwriting Ratios
Loss Ratio 60.0% 64.9%
Expense Ratio 32.2% 33.0%
Combined Ratio 92.2% 97.9%
Balance Sheet Data
March 31,
2014
Dec. 31,
2013
Stockholders' equity $ 936,834 $ 902,212 3.8%
Book value per share $ 65.72 $ 63.54 3.4%
THE NAVIGATORS GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
($ in thousands, except share data)
March 31,
2014
December 31,
2013
(unaudited)
ASSETS
Investments and cash:
Fixed maturities, available-for-sale, at fair value (amortized cost: 2014, $2,133,492; 2013, $2,036,999) $ 2,162,713 $ 2,047,873
Equity securities, available-for-sale, at fair value (cost: 2014, $137,358; 2013, $118,804) 163,527 143,954
Short-term investments, at cost which approximates fair value 207,843 296,250
Cash 55,041 86,509
Total investments and cash 2,589,124 2,574,586
Premiums receivable 416,675 325,025
Prepaid reinsurance premiums 246,545 247,822
Reinsurance recoverable on paid losses 42,260 38,384
Reinsurance recoverable on unpaid losses and loss adjustment expenses 830,431 822,438
Deferred policy acquisition costs 79,334 67,007
Accrued investment income 14,221 13,866
Goodwill and other intangible assets 7,174 7,177
Current income tax receivable, net 3,204 9,918
Deferred income tax, net 20,928 28,187
Receivable for investments sold 10,078 3
Other assets 39,831 35,039
Total assets $ 4,299,805 $ 4,169,452
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Reserves for losses and loss adjustment expenses $ 2,087,471 $ 2,045,071
Unearned premiums 798,745 714,606
Reinsurance balances payable 145,948 167,252
Senior notes 263,340 263,308
Payable for investments purchased 10,231 7,624
Accounts payable and other liabilities 57,236 69,379
Total liabilities 3,362,971 3,267,240
Stockholders' equity:
Preferred stock, $.10 par value, authorized 1,000,000 shares, none issued -- --
Common stock, $.10 par value, authorized 50,000,000 shares, issued 17,766,586 shares for 2014 and 17,709,876 shares for 2013 1,776 1,770
Additional paid-in capital 337,242 335,546
Treasury stock, at cost (3,511,380 shares for 2014 and 2013) (155,801) (155,801)
Retained earnings 720,305 692,337
Accumulated other comprehensive income 33,312 28,360
Total stockholders' equity 936,834 902,212
Total liabilities and stockholders' equity $ 4,299,805 $ 4,169,452
THE NAVIGATORS GROUP, INC. AND SUBSIDIARIES
Comparative Premium Data
($ in thousands)
Gross Written Premiums: Three Months
Insurance Companies: 2014 2013 Change
Marine $ 52,233 $ 50,847 2.7%
Property Casualty 229,356 218,964 4.7%
Professional Liability 30,209 31,817 -5.1%
311,798 301,628 3.4%
Lloyd's Operations:
Marine 62,957 53,644 17.4%
Property Casualty 33,079 25,058 32.0%
Professional Liability 14,956 12,892 16.0%
110,992 91,594 21.2%
Total $ 422,790 $ 393,222 7.5%
Net Written Premiums: Three Months
Insurance Companies: 2014 2013 Change
Marine $ 41,124 $ 41,141 0.0%
Property Casualty 172,361 149,951 14.9%
Professional Liability 20,466 25,227 -18.9%
233,951 216,319 8.2%
Lloyd's Operations:
Marine 52,131 39,558 31.8%
Property Casualty 16,534 7,312 126.1%
Professional Liability 9,234 6,263 47.4%
77,899 53,133 46.6%
Total $ 311,850 $ 269,452 15.7%
Net Earned Premiums: Three Months
Insurance Companies: 2014 2013 Change
Marine $ 32,760 $ 36,725 -10.8%
Property Casualty 110,826 92,718 19.5%
Professional Liability 22,298 24,888 -10.4%
165,884 154,331 7.5%
Lloyd's Operations:
Marine 38,887 34,045 14.2%
Property Casualty 12,958 7,879 64.5%
Professional Liability 7,543 6,073 24.2%
59,388 47,997 23.7%
Total $ 225,272 $ 202,328 11.3%
THE NAVIGATORS GROUP, INC. AND SUBSIDIARIES
Segment Information
Three Months Ended
March 31, 2014
($ in thousands)
Insurance
Companies
Lloyd's
Operations

Corporate (1)

Total
Gross written premiums $ 311,798 $ 110,992 $ 422,790
Net written premiums 233,951 77,899 311,850
Net earned premiums 165,884 59,388 225,272
Net losses and loss adjustment expenses (106,427) (28,640) (135,067)
Commission expenses (16,710) (9,526) 509 (25,727)
Other operating expenses (33,361) (13,785) (47,146)
Other underwriting income (expense) 658 6 (509) 155
Underwriting profit (loss) 10,044 7,443 -- 17,487
Net investment income 14,777 1,815 18 16,610
Net realized gains (losses) 1,237 (404) 0 833
Interest expense 0 0 (3,852) (3,852)
Other income (expense) 49 10,195 0 10,244
Income (loss) before income taxes 26,107 19,049 (3,834) 41,322
Income tax expense (benefit) 8,112 6,638 (1,396) 13,354
Net income (loss) $ 17,995 $ 12,411 $ (2,438) $ 27,968
Losses and loss adjustment expenses ratio 64.2% 48.2% 60.0%
Commission expense ratio 10.1% 16.0% 11.4%
Other operating expense ratio (2) 19.6% 23.3% 20.8%
Combined ratio 93.9% 87.5% 92.2%
(1) The Corporate segment includes intercompany eliminations.
(2) The Other operating expense ratio includes Other underwriting income
THE NAVIGATORS GROUP, INC. AND SUBSIDIARIES
Segment Information
Three Months Ended
March 31, 2013
($ in thousands)
Insurance
Companies
Lloyd's
Operations

Corporate (1)

Total
Gross written premiums $ 301,628 $ 91,594 $ -- $ 393,222
Net written premiums 216,319 53,133 -- 269,452
Net earned premiums 154,331 47,997 -- 202,328
Net losses and loss adjustment expenses (106,985) (24,357) -- (131,342)
Commission expenses (18,517) (8,621) 583 (26,555)
Other operating expenses (29,343) (11,531) -- (40,874)
Other income (expense) 659 542 (583) 618
Underwriting profit (loss) 145 4,030 -- 4,175
Net investment income 11,951 1,702 4 13,657
Net realized gains (losses) 4,792 (20) -- 4,772
Interest expense -- -- (2,051) (2,051)
Income (loss) before income taxes 16,888 5,712 (2,047) 20,553
Income tax expense (benefit) 5,404 2,046 (807) 6,643
Net income (loss) $ 11,484 $ 3,666 $ (1,240) $ 13,910
Losses and loss adjustment expenses ratio 69.3% 50.7% 64.9%
Commission expense ratio 12.0% 18.0% 13.1%
Other operating expense ratio (2) 18.6% 22.9% 19.9%
Combined ratio 99.9% 91.6% 97.9%
(1) The Corporate segment includes intercompany eliminations.
(2) The Other operating expense ratio includes Other income (expense).
THE NAVIGATORS GROUP, INC. AND SUBSIDIARIES
Underwriting Results
($ in thousands)
Three Months Ended March 31, 2014
Insurance Companies: Net
Earned
Premiums
Losses
and LAE
Incurred

Underwriting
Expenses

Underwriting
Profit (Loss)

Loss
Ratio

Expense
Ratio

Combined
Ratio
Marine $ 32,760 $ 17,408 $ 10,442 $ 4,910 53.1% 31.9% 85.0%
Property Casualty 110,826 75,105 30,932 4,789 67.8% 27.9% 95.7%
Professional Liability 22,298 13,914 8,039 345 62.4% 36.1% 98.5%
Total Insurance Companies 165,884 106,427 49,413 10,044 64.2% 29.7% 93.9%
Lloyd's Operations:
Marine 38,887 $ 19,430 $ 15,152 $ 4,305 50.0% 38.9% 88.9%
Property Casualty 12,958 4,626 4,809 3,523 35.7% 37.1% 72.8%
Professional Liability 7,543 4,584 3,344 (385) 60.8% 44.3% 105.1%
Total Lloyd's 59,388 28,640 23,305 7,443 48.2% 39.3% 87.5%
Total All $ 225,272 $ 135,067 $ 72,718 $ 17,487 60.0% 32.2% 92.2%
Three Months Ended March 31, 2013
Insurance Companies: Net
Earned
Premiums
Losses
and LAE
Incurred

Underwriting
Expenses

Underwriting
Profit (Loss)

Loss
Ratio

Expense
Ratio

Combined
Ratio
Marine $ 36,725 $ 23,385 $ 12,828 $ 512 63.7% 34.9% 98.6%
Property Casualty 92,718 61,238 26,642 4,838 66.0% 28.8% 94.8%
Professional Liability 24,888 22,362 7,731 (5,205) 89.9% 31.0% 120.9%
Total Insurance Companies 154,331 106,985 47,201 145 69.3% 30.6% 99.9%
Lloyd's Operations:
Marine 34,045 18,837 13,270 1,938 55.3% 39.0% 94.3%
Property Casualty 7,879 751 4,320 2,808 9.5% 54.9% 64.4%
Professional Liability 6,073 4,769 2,020 (716) 78.5% 33.3% 111.8%
Total Lloyd's 47,997 24,357 19,610 4,030 50.7% 40.9% 91.6%
Total All $ 202,328 $ 131,342 $ 66,811 $ 4,175 64.9% 33.0% 97.9%
Amounts Loss Ratio
Net Incurred Loss Activity
For the Three Months Ended:
March 31,
2014
March 31,
2013
March 31,
2014
March 31,
2013
Insurance Companies:
Loss and LAE payments $ 74,910 $ 79,904 45.2% 51.8%
Change in reserves 31,517 27,081 19.0% 17.5%
Net incurred loss and LAE 106,427 106,985 64.2% 69.3%
Lloyd's Operations:
Loss and LAE payments 25,753 30,462 43.3% 63.4%
Change in reserves 2,887 (6,105) 4.9% -12.7%
Net incurred loss and LAE 28,640 24,357 48.2% 50.7%
Total
Loss and LAE payments 100,663 110,366 44.7% 54.5%
Change in reserves 34,404 20,976 15.3% 10.4%
Net incurred loss and LAE $ 135,067 $ 131,342 60.0% 64.9%
Amounts Loss Ratio Impact
Impact of Prior Years Reserves
Favorable / (Unfavorable) Development
For the Three Months Ended:

March 31,
2014

March 31,
2013

March 31,
2014

March 31,
2013
Insurance Companies $ (548) $ (7,730) -0.3% -3.8%
Lloyd's Operations 586 3,647 0.3% 1.8%
Total $ 38 $ (4,083) 0.0% -2.0%
THE NAVIGATORS GROUP, INC. AND SUBSIDIARIES
Net Loss Data
($ in thousands)
Net Loss Reserves, March 31, 2014: Case
Reserves
IBNR
Reserves

Total
Insurance Companies:
Marine $ 119,754 $ 102,490 $ 222,244
Property Casualty 152,463 407,153 559,616
Professional Liability 62,034 90,241 152,275
Total Insurance Companies 334,251 599,884 934,135
Lloyd's Operations:
Marine 129,943 89,109 219,052
Property Casualty 26,599 17,491 44,090
Professional Liability 13,011 46,752 59,763
Total Lloyd's Operations 169,553 153,352 322,905
Total Net Loss Reserves $ 503,804 $ 753,236 $ 1,257,040
Net Loss Reserves, December 31, 2013 Case
Reserves
IBNR
Reserves

Total
Insurance Companies:
Marine $ 122,909 $ 101,077 $ 223,986
Property Casualty 150,477 377,173 527,650
Professional Liability 61,117 89,865 150,982
Total Insurance Companies 334,503 568,115 902,618
Lloyd's Operations:
Marine 133,060 85,685 218,745
Property Casualty 25,870 18,271 44,141
Professional Liability 14,013 43,116 57,129
Total Lloyd's Operations 172,943 147,072 320,015
Total Net Loss Reserves $ 507,446 $ 715,187 $ 1,222,633
THE NAVIGATORS GROUP, INC. AND SUBSIDIARIES
Investment Data
March 31, 2014
As of March 31, 2014, the average quality of the investment portfolio as rated by S&P and Moody's was AA/Aa with an average duration of 3.6 years. The Company does not own any collateralized debt obligations (CDO's) or asset backed commercial paper.
As of March 31, 2014, the Company owned two asset-backed securities approximating $0.5 million with subprime mortgage exposures. The securities have an effective maturity of 2.1 years. In addition, the Company owned a total of seven collateralized mortgage obligations and asset-backed securities approximating $1.9 million classified as Alt-A which is a credit category between prime and subprime. They have an effective maturity of 7.6 years. Such subprime and Alt-A categories are as defined by S&P. The Company is receiving principal and/or interest payments on all these securities and believes such amounts are fully collectible.
The following table sets forth our cash and investments as of March 31, 2014:
March 31, 2014
Fair
Value
Gross
Unrealized
Gains
Gross
Unrealized
(Losses)

Amortized
Cost
($ in thousands)
Fixed maturities:
U.S.Treasury bonds, agency bonds and foreign government bonds $ 417,942 3,066 (4,956) 419,832
States, municipalities and political subdivisions 491,598 12,216 (6,948) 486,330
Mortgage- and asset-backed securities:
Agency mortgage-backed securities 265,818 7,182 (3,525) 262,161
Residential mortgage obligations 57,852 1,573 (136) 56,415
Asset-backed securities 162,226 639 (563) 162,150
Commercial mortgage-backed securities 173,333 7,792 (272) 165,813
Subtotal 659,229 17,186 (4,496) 646,539
Corporate bonds 593,944 15,472 (2,319) 580,791
Total fixed maturities 2,162,713 47,940 (18,719) 2,133,492
Equity securities - common stocks 141,476 26,589 (1,271) 116,158
Equity securities - preferred stocks 22,051 852 (1) 21,200
Short-term investments 207,843 -- -- 207,843
Cash 55,041 -- -- 55,041
Total $ 2,589,124 $ 75,381 $ (19,991) $ 2,533,734
THE NAVIGATORS GROUP, INC. AND SUBSIDIARIES
Investment Data
March 31, 2014
($ in thousands)
The following tables set forth our agency mortgage-backed securities and residential mortgage obligations, categorized by those issued by GNMA, FNMA and FHLMC and the quality category (prime, Alt-A and subprime) for all other such investments at March 31, 2014:
Agency mortgage-backed securities:
Fair
Value
Gross
Unrealized
Gains
Gross
Unrealized
(Losses)

Amortized
Cost
GNMA $ 98,801 $ 3,012 $ (2,076) $ 97,865
FNMA 122,073 3,340 (1,332) 120,065
FHLMC 44,944 830 (117) 44,231
Total $ 265,818 $ 7,182 $ (3,525) $ 262,161
Residential mortgage obligations:
Fair
Value
Gross
Unrealized
Gains
Gross
Unrealized
(Losses)

Amortized
Cost
Prime $ 34,793 $ 822 $ (104) $ 34,075
Alt-A 1,883 113 (32) 1,802
Subprime 503 11 -- 492
Non-US RMBS 20,673 627 -- 20,046
Total $ 57,852 $ 1,573 $ (136) $ 56,415

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

Source:The Navigators Group, Inc.