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Navigators Reports First Quarter 2015 Earnings

STAMFORD, Conn., May 7, 2015 (GLOBE NEWSWIRE) -- The Navigators Group, Inc. (Nasdaq:NAVG) reported net income of $25.9 million, or $1.77 per diluted share, for the three months ended March 31, 2015 compared to $28.0 million, or $1.94 per diluted share, for the comparable period in 2014. 2014 results included 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 Syndicate, which was equally offset by a reversal within the Accumulated Other Comprehensive Income component of stockholders’ equity. Excluding this gain, the first quarter 2014 net income per diluted share would have been $1.49.

Net operating earnings were $20.9 million, or $1.43 per diluted share, for the first quarter of 2015 compared to $20.9 million, or $1.45 per diluted share, for the comparable period in 2014.

Gross written premiums and net written premiums for the three months ended March 31, 2015 were $396.5 million and $289.0 million, respectively, a decrease of 6.2% and 7.3% from the comparable period in 2014, due to our decision to non-renew a $30 million crop reinsurance treaty.

The combined ratio for the three months ended March 31, 2015 was 92.3% compared to 92.2% for the comparable period in 2014.

Stan Galanski, President and Chief Executive Officer commented, “We are pleased to report a combined ratio of 92.3% for the first quarter of 2015, our ninth consecutive quarter of underwriting profit. Each of our three new underwriting segments – U.S. Insurance, International Insurance, and Global Reinsurance experienced profitable results in the quarter. We produced a 10.1% annualized return on equity which contributed to growth in book value of 2.6%, and we continue to achieve growth in our U.S. Casualty, International Marine, and International Management Liability and E&O divisions. Our new Continental European offices are off to a good start and we are developing additional property and casualty products both in the U.S. and in London.”

Stockholders’ equity was $1,053.6 million, or $73.21 per share, as of March 31, 2015 compared to $1,027.2 million, or $71.93 per share, as of December 31, 2014.

Net investment income for the three months ended March 31, 2015 was $16.3 million, a decrease of 2.1% from the comparable period in 2014. The annualized pre-tax investment yield, excluding net realized gains and losses, was 2.4% for the three months ended March 31, 2015, compared to 2.8% for the comparable period in 2014.

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 3.7 years as of March 31, 2015. As of March 31, 2015, net unrealized gains within our investment portfolio were $74.4 million, an increase of $3.0 million compared to December 31, 2014.

There were $5.6 million of net realized gains for the three months ended March 31, 2015, compared to $0.8 million for the same period in 2014.

Other income for the three months ended March 31, 2015 was $2.2 million, primarily consisting of a net foreign exchange gain, compared to $10.4 million in the first quarter of 2014; $10 million of which is the one-time foreign exchange gain noted above.

During the first quarter of 2015, we realigned our reporting segments from Insurance Companies, Lloyd’s Operations and Corporate to U.S. Insurance, International Insurance, Global Reinsurance and Corporate. We reclassified our international business from our previously reported Lloyd’s Operations segment to the International Insurance segment. We also reclassified our non-Lloyd’s business written internationally (primarily business written by the U.K. Branch) into this segment and have excluded Assumed Reinsurance. Our new Global Reinsurance business segment was previously reported within our U.S. Insurance and Lloyd’s Operations segments as Assumed Reinsurance. Our U.S. Insurance segment now excludes the U.K. Branch and Assumed Reinsurance. Our Corporate segment now includes investment income (loss), interest income (loss), foreign exchange gain (loss) and income tax benefit (expense), which are not allocated to the underwriting segments.

The Company will hold a conference call on Friday, May 8, 2015 starting at 8:30 a.m. ET to discuss the 2015 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 (888-240-9373) and the international dial-in is (913) 312-0956. Participants may connect to the webcast at:

http://edge.media-server.com/m/p/7uazasdp

Net operating earnings, or 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 representative offices in China and Brazil.

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 2015 2014 Change
Gross written premiums $ 396,460 $ 422,790 -6.2%
Net written premiums 288,958 311,850 -7.3%
Revenues:
Net earned premiums 236,132 225,272 4.8%
Net investment income 16,253 16,610 -2.1%
Net realized gains (losses) 5,596 833 NM
Other income 2,242 10,399 -78.4%
Total revenues 260,223 253,114 2.8%
Expenses:
Net losses and loss adjustment expenses 130,198 135,067 -3.6%
Commission expenses 32,905 25,727 27.9%
Other operating expenses 54,909 47,146 16.5%
Interest expense 3,855 3,852 0.1%
Total expenses 221,867 211,792 4.8%
Income before income taxes 38,356 41,322 -7.2%
Income tax expense (benefit) 12,427 13,354 -6.9%
Net income (loss) $ 25,929 $ 27,968 -7.3%
Per Share Data
Net income per common share:
Basic $ 1.81 $ 1.96 -7.7%
Diluted $ 1.77 $ 1.94 -8.8%
Average common shares outstanding:
Basic 14,327,606 14,233,504
Diluted 14,637,837 14,408,416
Underwriting Ratios
Loss Ratio 55.1% 60.0%
Expense Ratio 37.2% 32.2%
Combined Ratio 92.3% 92.2%
Balance Sheet Data Mar. 31,Dec. 31,
2015 2014
Stockholders' equity $ 1,053,603 $ 1,027,224 2.6%
Book value per share $ 73.21 $ 71.93 1.8%

THE NAVIGATORS GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
($ in thousands, except share data)
March 31, December 31,
2015 2014
(unaudited)
ASSETS
Investments and cash:
Fixed maturities, available-for-sale, at fair value
(amortized cost: 2015, $2,294,763; 2014, $2,323,959)$ 2,345,225 $ 2,365,934
Equity securities, available-for-sale, at fair value (cost: 2015, $133,968; 2014, $154,843) 159,044 184,295
Short-term investments, at fair value (amortized cost: 2015: $243,730; 2014: $179,527) 242,553 179,506
Cash 90,016 90,751
Total investments and cash 2,836,838 2,820,486
Premiums receivable 396,357 342,479
Prepaid reinsurance premiums 244,599 237,851
Reinsurance recoverable on paid losses 55,990 51,347
Reinsurance recoverable on unpaid losses and loss adjustment expenses 828,799 851,498
Deferred policy acquisition costs 86,221 79,452
Accrued investment income 14,685 14,791
Goodwill and other intangible assets 6,785 7,013
Current income tax receivable, net 5,869 14,549
Receivable for investments sold 19 326
Other assets 42,663 44,384
Total assets$ 4,518,825 $ 4,464,176
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Reserves for losses and loss adjustment expenses$ 2,141,705 $ 2,159,634
Unearned premiums 825,740 766,167
Reinsurance balances payable 153,980 152,774
Senior notes 263,474 263,440
Deferred income tax, net 2,325 1,467
Payable for investments purchased 15,392 134
Accounts payable and other liabilities 62,606 93,336
Total liabilities 3,465,222 3,436,952
Stockholders' equity:
Preferred stock, $.10 par value, authorized 1,000,000 shares, none issued$ - $ -
Common stock, $.10 par value, authorized 50,000,000 shares, issued 17,903,198 shares
for 2015 and 17,792,846 shares for 2014 1,789 1,778
Additional paid-in capital 346,338 347,022
Treasury stock, at cost (3,511,380 shares for 2015 and 2014) (155,801) (155,801)
Retained earnings 813,595 787,666
Accumulated other comprehensive income 47,682 46,559
Total stockholders' equity 1,053,603 1,027,224
Total liabilities and stockholders' equity$ 4,518,825 $ 4,464,176

THE NAVIGATORS GROUP, INC. AND SUBSIDIARIES
Segment Information
Three Months Ended
March 31, 2015
($ in thousands)
U.S. International Global
Insurance Insurance Reinsurance Corporate (1) Total
Gross written premiums $ 199,327 $ 122,427 $ 74,706 $ - $ 396,460
Ceded written premiums (68,730) (34,256) (4,516) - (107,502)
Net written premiums 130,597 88,171 70,190 - 288,958
Net earned premiums 131,091 65,525 39,516 - 236,132
Net losses and loss adjustment expenses (77,799) (29,691) (22,708) - (130,198)
Commission expenses (14,345) (11,413) (7,298) 151 (32,905)
Other operating expenses (33,688) (17,009) (4,212) - (54,909)
Other underwriting income (expenses) 196 - 10 (151) 55
Underwriting profit (loss) $ 5,455 $ 7,412 $ 5,308 $ - $ 18,175
Net investment income 16,253 16,253
Net realized gains (losses) 5,596 5,596
Interest expense (3,855) (3,855)
Other income (expense) 2,187 2,187
Income before income taxes
$ 5,455 $ 7,412 $ 5,308 $ 20,181 $ 38,356
Income tax (expense) benefit (12,427) (12,427)
Net income (loss) $ 25,929
Losses and loss adjustment expenses ratio 59.3% 45.3% 57.5% 55.1%
Commission expense ratio 10.9% 17.4% 18.5% 13.9%
Other operating expense ratio (2) 25.6% 26.0% 10.6% 23.3%
Combined ratio 95.8% 88.7% 86.6% 92.3%
(1) The Corporate segment includes intercompany eliminations.
(2) The Other operating expense ratio includes Other income (expense).

THE NAVIGATORS GROUP, INC. AND SUBSIDIARIES
Segment Information
Three Months Ended
March 31, 2014
($ in thousands)
U.S. International Global
Insurance Insurance Reinsurance Corporate (1) Total
Gross written premiums $ 198,348 $ 119,192 $ 105,250 $ - $ 422,790
Ceded written premiums (65,066) (42,582) (3,292) - (110,940)
Net written premiums 133,282 76,610 101,958 - 311,850
Net earned premiums 115,190 62,054 48,028 - 225,272
Net losses and loss adjustment expenses (72,964) (31,220) (30,883) - (135,067)
Commission expenses (9,509) (8,855) (7,872) 509 (25,727)
Other operating expenses (27,993) (15,059) (4,094) - (47,146)
Other underwriting income (expenses) 513 6 145 (509) 155
Underwriting profit (loss) $ 5,237 $ 6,926 $ 5,324 $ - $ 17,487
Net investment income 16,610 16,610
Net realized gains (losses) 833 833
Interest expense (3,852) (3,852)
Other income (expense) 10,244 10,244
Income before income taxes $ 5,237 $ 6,926 $ 5,324 $ 23,835 $ 41,322
Income tax (expense) benefit (13,354) (13,354)
Net income (loss) $ 27,968
Losses and loss adjustment expenses ratio 63.3% 50.3% 64.3% 60.0%
Commission expense ratio 8.3% 14.3% 16.4% 11.4%
Other operating expense ratio (2) 23.9% 24.2% 8.2% 20.8%
Combined ratio 95.5% 88.8% 88.9% 92.2%
(1) The Corporate segment includes intercompany eliminations.
(2) The Other operating expense ratio includes Other income (expense).

THE NAVIGATORS GROUP, INC. AND SUBSIDIARIES
Reportable Segment Results
($ in thousands)
U.S. Insurance
Q1 2015 Q1 2014 % Change
amounts in thousands MarineP&CProfessional
Liability
Total MarineP&CProfessional
Liability
Total Total
Gross written premiums $ 40,835 $ 134,146 $ 24,346 $ 199,327 $ 43,025 $ 125,119 $ 30,204 $ 198,348 0.5%
Ceded written premiums (16,286) (39,558) (12,886) (68,730) (9,170) (46,156) (9,740) (65,066) 5.6%
Net written premiums 24,549 94,588 11,460 130,597 33,855 78,963 20,464 133,282 -2.0%
Net earned premiums 23,924 90,735 16,432 131,091 27,986 64,931 22,273 115,190 13.8%
Net losses and LAE (10,188) (58,047) (9,564) (77,799) (14,683) (44,349) (13,932) (72,964) 6.6%
Commission expenses (4,032) (8,556) (1,757) (14,345) (2,547) (3,945) (3,017) (9,509) 50.9%
Other operating expenses (6,973) (21,059) (5,656) (33,688) (5,689) (17,313) (4,991) (27,993) 20.3%
Other underwriting income (expenses) 151 44 1 196 201 266 46 513 -61.8%
Underwriting profit (loss) $ 2,882 $ 3,117 $ (544)$ 5,455 $ 5,268 $ (410)$ 379 $ 5,237 4.2%
Losses and LAE ratio 42.6% 64.0% 58.2% 59.3% 52.5% 68.3% 62.6% 63.3%
Commission expense ratio 16.9% 9.4% 10.7% 10.9% 9.1% 6.1% 13.5% 8.3%
Other operating expense ratio (1) 28.5% 23.2% 34.4% 25.6% 19.6% 26.2% 22.2% 23.9%
Combined ratio 88.0% 96.6% 103.3% 95.8% 81.2% 100.6% 98.3% 95.5%
(1) The Other operating expense ratio includes Other income (expense).
Int'l Insurance
Q1 2015 Q1 2014 % Change
amounts in thousands Marine P&C Professional
Liability
Total MarineP&CProfessional
Liability
Total Total
Gross written premiums $ 67,410 $ 32,950 $ 22,067 $ 122,427 $ 61,982 $ 42,250 $ 14,960 $ 119,192 2.7%
Ceded written premiums (10,822) (16,129) (7,305) (34,256) (12,394) (24,464) (5,724) (42,582) -19.6%
Net written premiums 56,588 16,821 14,762 88,171 49,588 17,786 9,236 76,610 15.1%
Net earned premiums 37,792 16,034 11,699 65,525 38,044 16,441 7,569 62,054 5.6%
Net losses and LAE (19,511) (4,880) (5,300) (29,691) (19,697) (6,957) (4,566) (31,220) -4.9%
Commission expenses (9,190) (1,027) (1,196) (11,413) (9,987) 1,191 (59) (8,855) 28.9%
Other operating expenses (6,695) (5,984) (4,330) (17,009) (6,415) (5,280) (3,364) (15,059) 13.0%
Other underwriting income (expenses) - - - - 6 - - 6 NM
Underwriting profit (loss) $ 2,396 $ 4,143 $ 873 $ 7,412 $ 1,951 $ 5,395 $ (420)$ 6,926 7.0%
Losses and LAE ratio 51.6% 30.4% 45.3% 45.3% 51.8% 42.3% 60.3% 50.3%
Commission expense ratio 24.4% 6.4% 10.2% 17.4% 26.4% -7.2% 0.8% 14.3%
Other operating expense ratio (1) 17.8% 37.4% 37.1% 26.0% 16.8% 32.1% 44.5% 24.2%
Combined ratio 93.8% 74.2% 92.6% 88.7% 95.0% 67.2% 105.6% 88.8%
NM - Percentage change not meaningful
(1) The Other operating expense ratio includes Other income (expense).

THE NAVIGATORS GROUP, INC. AND SUBSIDIARIES
Net Incurred Loss Activity
($ in thousands)
Amounts Loss Ratio
Net Incurred Loss Activity Mar. 31,Mar. 31, Mar. 31,Mar. 31,
For the Three Months Ended: 2015 2014 2015 2014
US Insurance:
Loss and LAE payments $ 62,734 $ 49,655 47.8% 43.1%
Change in reserves 15,065 23,309 11.5% 20.2%
Net incurred loss and LAE 77,799 72,964 59.3% 63.3%
International Insurance:
Loss and LAE payments 35,537 31,708 54.2% 51.1%
Change in reserves (5,846) (488) -8.9% -0.8%
Net incurred loss and LAE 29,691 31,220 45.3% 50.3%
Global Reinsurance:
Loss and LAE payments 21,212 19,291 53.7% 40.2%
Change in reserves 1,496 11,592 3.8% 24.1%
Net incurred loss and LAE 22,708 30,883 57.5% 64.3%
Total
Loss and LAE payments 119,483 100,654 50.6% 44.7%
Change in reserves 10,715 34,413 4.5% 15.3%
Net incurred loss and LAE $ 130,198 $ 135,067 55.1% 60.0%
Impact of Prior Years Reserves Amounts Loss Ratio Impact
Favorable / (Unfavorable) Development Mar. 31,Mar. 31, Mar. 31,Mar. 31,
For the Three Months Ended: 2015 2014 2015 2014
US Insurance $ 6,409 $ (437) 2.7% -0.3%
International Insurance 6,191 573 2.6% 0.3%
Global Reinsurance (1) (98) 0.0% 0.0%
Total $ 12,599 $ 38 5.3% 0.0%

THE NAVIGATORS GROUP, INC. AND SUBSIDIARIES
Net Loss Data
($ in thousands)
Case IBNR
Net Loss Reserves, March 31, 2015: Reserves Reserves Total
US Insurance:
Marine $ 75,586 $ 62,905 $ 138,491
Property Casualty 145,540 419,345 564,885
Professional Liability 47,533 81,093 128,626
Total US Insurance 268,659 563,343 832,002
International Insurance:
Marine 172,408 69,630 242,038
Property Casualty 35,320 22,257 57,577
Professional Liability 7,477 51,229 58,706
Total International Insurance 215,205 143,116 358,321
Global Reinsurance 30,371 92,211 122,582
Total Net Loss Reserves $ 514,235 $ 798,670 $ 1,312,905
Case IBNR
Net Loss Reserves, December 31, 2014 Reserves Reserves Total
US Insurance:
Marine $ 74,699 $ 64,390 $ 139,089
Property Casualty 144,334 391,643 535,977
Professional Liability 56,501 85,369 141,870
Total US Insurance 275,534 541,402 816,936
International Insurance:
Marine 168,575 75,673 244,248
Property Casualty 41,695 21,391 63,086
Professional Liability 12,466 49,712 62,178
Total International Insurance 222,736 146,776 369,512
Global Reinsurance 31,108 90,580 121,688
Total Net Loss Reserves $ 529,378 $ 778,758 $ 1,308,136

THE NAVIGATORS GROUP, INC. AND SUBSIDIARIES
Investment Data
March 31, 2015
As of March 31, 2015, the average quality of the investment portfolio as rated by S&P and Moody’s was AA/Aa with an average duration of 3.7 years. The Company does not own any collateralized debt obligations (CDO’s) or asset backed commercial paper.
The following table sets forth our cash and investments as of March 31, 2015:
Gross Gross Cost or
Fair Unrealized Unrealized Amortized
March 31, 2015 Value Gains (Losses) Cost
($ in thousands)
Fixed maturities:
U.S.Treasury bonds, agency bonds
and foreign government bonds $ 310,389 $ 4,858 $ (8,732) $ 314,263
States, municipalities and political
subdivisions 547,664 19,989 (321) 527,996
Mortgage- and asset-backed securities:
Agency mortgage-backed securities 364,468 9,975 (589) 355,082
Residential mortgage obligations 33,116 1,079 (117) 32,154
Asset-backed securities 216,475 814 (554) 216,215
Commercial mortgage-backed securities 231,703 7,789 (28) 223,942
Subtotal 845,762 19,657 (1,288) 827,393
Corporate bonds 641,410 17,231 (932) 625,111
Total fixed maturities 2,345,225 61,735 (11,273) 2,294,763
Equity securities 159,044 26,113 (1,037) 133,968
Short-term investments 242,553 20 (1,197) 243,730
Total $ 2,746,822 $ 87,868 $ (13,507) $ 2,672,461




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.