Navigators Reports First Quarter 2016 Earnings

STAMFORD, Conn., May 05, 2016 (GLOBE NEWSWIRE) -- The Navigators Group, Inc. (NASDAQ:NAVG) reported net income of $22.9 million, or $1.54 per diluted share, for the three months ended March 31, 2016 compared to $25.9 million, or $1.77 per diluted share, for the comparable period in 2015. Operating earnings were $20.2 million, or $1.36 per diluted share, for the three months ended March 31, 2016 compared to $20.9 million, or $1.43 per diluted share, for the comparable period in 2015.

Gross written premiums and net written premiums for the three months ended March 31, 2016 were $413.9 million and $319.8 million, respectively, increases of 4.4% and 10.7% from the comparable period in 2015.

The combined ratio for the three months ended March 31, 2016 was 95.1% compared to 92.3% for the comparable period in 2015.

Stan Galanski, President and Chief Executive Officer commented, “We are pleased to report profitable underwriting results across all three of our reporting segments, contributing to strong operating earnings and book value growth for the quarter. Our marine business continued to perform very well globally as did our U.S. property and casualty products. Premium growth benefitted from the ongoing development of the previous investments made in new products and new offices over the past few years. This was most evident in our International Insurance segment, where our newer first-party products at Lloyd’s contributed meaningfully to growth as did our European regional offices. At the same time, we continue to walk away from business that does not meet our standards for rates and policy terms, emphasizing the integrity of individual risk underwriting. We are encouraged by the improved contribution to earnings from our investment portfolio, which was achieved while maintaining the overall credit quality of the portfolio.”

Stockholders’ equity was $1.144 billion, or $78.72 per share, as of March 31, 2016 compared to $1.096 billion, or $75.96 per share, as of December 31, 2015.

Net investment income for the three months ended March 31, 2016 was $19.6 million, an increase of 20.6% from the comparable period in 2015. The annualized pre-tax investment yield, excluding net realized gains and losses and other-than-temporary impairment losses recognized in earnings, was 2.7% for the three months ended March 31, 2016, compared to 2.4% for the comparable period in 2015.

The Company’s investment portfolio mainly consists of fixed income securities with an average quality rating of “AA-/Aa3” as defined by Standard & Poor’s and Moody’s, respectively, and an average effective duration of 3.7 years as of March 31, 2016. As of March 31, 2016, net unrealized gains within our investment portfolio were $72.9 million, an increase of $35.6 million compared to December 31, 2015.

There were $1.6 million of net realized gains recognized in earnings for the three months ended March 31, 2016, compared to $5.6 million for the same period in 2015.

Other income (loss) for the three months ended March 31, 2016 was $2.6 million of income, compared to $2.2 million of income for the same period in 2015. Other income (loss) primarily consists of realized and unrealized foreign exchange gains and losses.

The Company will hold a conference call on Friday, May 6, 2016 starting at 8:30 a.m. (EST) to discuss the 2016 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 (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/uysns3xg

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 2016 2015 Change
Gross written premiums $ 413,877 $ 396,460 4.4%
Net written premiums 319,820 288,958 10.7%
Revenues:
Net earned premiums 264,358 236,132 12.0%
Net investment income 19,594 16,253 20.6%
Net realized gains (losses):
Total other-than-temporary impairment losses (109) 23 NM
Portion of loss recognized in other comprehensive
income (before tax) 109 (23) NM
Net other-than-temporary impairment losses
recognized in earnings - - NM
Other realized gains (losses) 1,597 5,596 -71.5%
Net realized gains (losses) 1,597 5,596 -71.5%
Other income (loss) 2,549 2,242 13.7%
Total revenues 288,098 260,223 10.7%
Expenses:
Net losses and loss adjustment expenses 152,956 130,198 17.5%
Commission expenses 37,554 32,905 14.1%
Other operating expenses 60,809 54,909 10.7%
Interest expense 3,858 3,855 0.1%
Total expenses 255,177 221,867 15.0%
Income before income taxes 32,921 38,356 -14.2%
Income tax expense (benefit) 9,989 12,427 -19.6%
Net income (loss) $ 22,932 $ 25,929 -11.6%
Per Share Data
Net income per common share:
Basic $ 1.58 $ 1.81 -12.7%
Diluted $ 1.54 $ 1.77 -13.1%
Average common shares outstanding:
Basic 14,492,214 14,327,606
Diluted 14,891,646 14,637,837
Underwriting Ratios
Loss Ratio 57.9% 55.1%
Expense Ratio 37.2% 37.2%
Combined Ratio 95.1% 92.3%
Balance Sheet Data March 31,Dec. 31,
2016 2015
Stockholders' equity $ 1,143,879 $ 1,096,148 4.4%
Book value per share $ 78.72 $ 75.96 3.6%
NM - Percentage change not meaningful


THE NAVIGATORS GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (Unaudited)
amounts in thousands, except share and per share amounts.
March 31, December 31,
2016 2015
ASSETS
Investments:
Fixed maturities, available-for-sale, at fair value (amortized cost: 2016: $2,432,837; 2015: $2,400,245)$2,477,720 $2,414,210
Equity securities, available-for-sale, at fair value (cost: 2016: $286,811; 2015: $281,943) 314,815 305,271
Short-term investments, at fair value (amortized cost: 2016: $211,782; 2015: $217,743) 211,782 217,745
Total investments$3,004,317 $2,937,226
Cash 72,618 69,901
Premiums receivable 348,916 276,616
Prepaid reinsurance premiums 220,696 232,588
Reinsurance recoverable on paid losses 55,752 49,506
Reinsurance recoverable on unpaid losses and loss adjustment expenses 793,632 809,518
Deferred policy acquisition costs 105,359 91,983
Accrued investment income 16,451 16,001
Goodwill and other intangible assets 6,746 6,807
Current income tax receivable, net 13,032 22,323
Deferred income tax, net - 3,900
Other assets Other assets 59,114 67,643
Total assets $4,696,633 $4,584,012
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Reserves for losses and loss adjustment expenses $2,211,848 $2,202,644
Unearned premiums 864,247 820,676
Reinsurance balances payable 123,165 107,411
Senior notes 263,616 263,580
Deferred income tax, net 8,280 -
Accounts payable and other liabilities 81,598 93,553
Total liabilities $3,552,754 $3,487,864
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 18,042,474 shares for 2016
and 17,942,269 shares for 2015 1,803 1,793
Additional paid-in capital 359,829 357,829
Treasury stock, at cost (3,511,380 shares for 2016 and 2015) (155,801) (155,801)
Retained earnings 891,655 868,723
Accumulated other comprehensive income 46,393 23,604
Total stockholders' equity$1,143,879 $1,096,148
Total liabilities and stockholders' equity $4,696,633 $4,584,012

THE NAVIGATORS GROUP, INC. AND SUBSIDIARIES
Segment Information
Three Months Ended March 31, 2016
U.S. Int'l
amounts in thousands Insurance Insurance GlobalRe Corporate (1) Total
Gross written premiums $210,647 $144,143 $59,087 $- $413,877
Ceded written premiums (54,497) (34,971) (4,589) - (94,057)
Net written premiums 156,150 109,172 54,498 - 319,820
Net earned premiums 148,340 78,008 38,010 - 264,358
Net losses and LAE (91,512) (40,410) (21,034) - (152,956)
Commission expenses (14,855) (15,355) (7,745) 401 (37,554)
Other operating expenses (33,761) (21,771) (5,277) - (60,809)
Other underwriting income (expense) 361 - 49 (401) 9
Underwriting profit (loss) $8,573 $472 $4,003 $- $13,048
Net investment income 19,594 19,594
Net realized gains (losses) 1,597 1,597
Interest expense (3,858) (3,858)
Other income (loss) 2,540 2,540
Income before income taxes $8,573 $472 $4,003 $19,873 $32,921
Income tax (expense) benefit (9,989) (9,989)
Net income (loss) $22,932
Losses and LAE ratio 61.7% 51.8% 55.3% 57.9%
Commission expense ratio 10.0% 19.7% 20.4% 14.2%
Other operating expense ratio (2) 22.5% 27.9% 13.8% 23.0%
Combined ratio 94.2% 99.4% 89.5% 95.1%
(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 March 31, 2015
U.S. Int'l
amounts in thousands Insurance Insurance GlobalRe 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 LAE (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 (expense) 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 (loss) 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 LAE 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) - 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 March 31, 2016 Three months ended March 31, 2015
amounts in thousands MarineP&CProfessional
Liability
Total MarineP&CProfessional
Liability
Total %
Change
Total
Gross written premiums $43,163 $141,278 $26,206 $210,647 $40,835 $134,146 $24,346 $199,327 5.7%
Ceded written premiums (17,647) (30,507) (6,343) (54,497) (16,286) (39,558) (12,886) (68,730) -20.7%
Net written premiums 25,516 110,771 19,863 156,150 24,549 94,588 11,460 130,597 19.6%
Net earned premiums $23,250 $109,159 $15,931 $148,340 $23,924 $90,735 $16,432 $131,091 13.2%
Net losses and LAE (9,775) (71,597) (10,140) (91,512) (10,188) (58,047) (9,564) (77,799) 17.6%
Commission expenses (1,482) (11,852) (1,521) (14,855) (4,032) (8,556) (1,757) (14,345) 3.6%
Other operating expenses (7,372) (21,522) (4,867) (33,761) (6,973) (21,059) (5,656) (33,688) 0.2%
Other underwriting income (expense) 79 268 14 361 151 44 1 196 84.2%
Underwriting profit (loss) $4,700 $4,456 $(583)$8,573 $2,882 $3,117 $(544)$5,455 57.2%
Losses and LAE ratio 42.0% 65.6% 63.7% 61.7% 42.6% 64.0% 58.2% 59.3%
Commission expense ratio 6.4% 10.9% 9.5% 10.0% 16.9% 9.4% 10.7% 10.9%
Other operating expense ratio (1) 31.4% 19.4% 30.5% 22.5% 28.5% 23.2% 34.4% 25.6%
Combined ratio 79.8% 95.9% 103.7% 94.2% 88.0% 96.6% 103.3% 95.8%
(1) - Includes Other operating expenses and Other underwriting income (expense).
Int'l Insurance
Three months ended March 31, 2016 Three months ended March 31, 2015
amounts in thousands Marine P&C Professional
Liability
Total MarineP&CProfessional
Liability
Total %
Change
Total
Gross written premiums $71,948 $44,046 $28,149 $144,143 $67,410 $32,950 $22,067 $122,427 17.7%
Ceded written premiums (11,089) (17,229) (6,653) (34,971) (10,822) (16,129) (7,305) (34,256) 2.1%
Net written premiums 60,859 26,817 21,496 109,172 56,588 16,821 14,762 88,171 23.8%
Net earned premiums $38,856 $21,209 $17,943 $78,008 $37,792 $16,034 $11,699 $65,525 19.1%
Net losses and LAE (20,088) (11,216) (9,106) (40,410) (19,511) (4,880) (5,300) (29,691) 36.1%
Commission expenses (9,405) (2,775) (3,175) (15,355) (9,190) (1,027) (1,196) (11,413) 34.5%
Other operating expenses (8,442) (8,708) (4,621) (21,771) (6,695) (5,984) (4,330) (17,009) 28.0%
Other underwriting income (expense) - - - - - - - - NM
Underwriting profit (loss) $921 $(1,490)$1,041 $472 $2,396 $4,143 $873 $7,412 -93.6%
Losses and LAE ratio 51.7% 52.9% 50.7% 51.8% 51.6% 30.4% 45.3% 45.3%
Commission expense ratio 24.2% 13.1% 17.7% 19.7% 24.3% 6.4% 10.2% 17.4%
Other operating expense ratio (1) 21.7% 41.0% 25.8% 27.9% 17.8% 37.4% 37.0% 26.0%
Combined ratio 97.6% 107.0% 94.2% 99.4% 93.7% 74.2% 92.5% 88.7%
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
($ in thousands)
For the Three Months Ended March 31,
Amounts Loss Ratio
Net Incurred Loss Activity 2016 2015 2016 2015
US Insurance:
Loss and LAE payments $73,035 $62,734 49.2% 47.8%
Change in reserves 18,477 15,065 12.5% 11.5%
Net incurred loss and LAE 91,512 77,799 61.7% 59.3%
International Insurance:
Loss and LAE payments 29,243 35,537 37.5% 54.2%
Change in reserves 11,167 (5,846) 14.3% -8.9%
Net incurred loss and LAE 40,410 29,691 51.8% 45.3%
Global Reinsurance:
Loss and LAE payments 25,131 21,212 66.1% 53.7%
Change in reserves (4,097) 1,496 -10.8% 3.8%
Net incurred loss and LAE 21,034 22,708 55.3% 57.5%
Total
Loss and LAE payments 127,409 119,483 48.2% 50.6%
Change in reserves 25,547 10,715 9.7% 4.5%
Net incurred loss and LAE $152,956 $130,198 57.9% 55.1%
Amounts Loss Ratio Impact
Impact of Prior Years Reserves Mar. 31,Mar. 31, Mar. 31,Mar. 31,
Favorable / (Unfavorable) Development 2016 2015 2016 2015
US Insurance $2,669 $6,409 1.0% 2.7%
International Insurance (855) 6,191 -0.3% 2.6%
Global Reinsurance 20 (1) 0.0% 0.0%
Total $1,834 $12,599 0.7% 5.3%


THE NAVIGATORS GROUP, INC. AND SUBSIDIARIES
Net Loss Data
($ in thousands)
As of March 31, 2016
Case IBNR
Net Loss Reserves: Reserves Reserves Total
US Insurance:
Marine $61,330 $52,905 $114,235
Property Casualty 181,868 539,950 721,818
Professional Liability 35,188 60,167 95,355
Total US Insurance 278,386 653,022 931,408
International Insurance:
Marine 168,371 60,951 229,322
Property Casualty 42,189 21,437 63,626
Professional Liability 27,136 62,123 89,259
Total International Insurance 237,696 144,511 382,207
Global Reinsurance 37,309 67,292 104,601
Total Net Loss Reserves $553,391 $864,825 $1,418,216
As of December 31, 2015
Case IBNR
Net Loss Reserves: Reserves Reserves Total
US Insurance:
Marine $68,677 $55,408 $124,085
Property Casualty 170,988 514,777 685,765
Professional Liability 42,546 60,528 103,074
Total US Insurance 282,211 630,713 912,924
International Insurance:
Marine 167,157 61,409 228,566
Property Casualty 40,313 19,735 60,048
Professional Liability 19,583 63,229 82,812
Total International Insurance 227,053 144,373 371,426
Global Reinsurance 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 March 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. The Company does not own any collateralized debt obligations (CDO’s) or asset backed commercial paper.

The following table sets forth our investments as of March 31, 2016:

As of March 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 $322,009 $4,934 $(4,478) $321,553
States, municipalities and political subdivisions 550,855 26,085 (497) 525,267
Mortgage-backed and asset-backed securities:
Agency mortgage-backed securities 380,418 8,831 (323) 371,910
Residential mortgage obligations 29,451 569 (131) 29,013
Asset-backed securities 235,714 421 (2,040) 237,333
Commercial mortgage-backed securities 188,169 4,903 (1,718) 184,984
Subtotal $833,752 $14,724 $(4,212) $823,240
Corporate bonds 771,104 15,457 (7,130) 762,777
Total fixed maturities $2,477,720 $61,200 $(16,317) $2,432,837
Equity securities 314,815 29,650 (1,646) 286,811
Short-term investments 211,782 - - 211,782
Total investments $3,004,317 $90,850 $(17,963) $2,931,430

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.