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Navigators Reports First Quarter 2017 Earnings

STAMFORD, Conn., May 04, 2017 (GLOBE NEWSWIRE) -- The Navigators Group, Inc. (NASDAQ:NAVG) reported Net income of $21.1 million, or $0.70 per diluted share, for the three months ended March 31, 2017 compared to $22.9 million, or $0.77 per diluted share, for the comparable period in 2016. Net operating earnings1 were $20.4 million, or $0.68 per diluted share, for the three months ended March 31, 2017 compared to $20.2 million, or $0.68 per diluted share, for the same period in 2016.

Gross written premiums and Net written premiums for the three months ended March 31, 2017 were $450.3 million and $337.2 million, respectively, increasing 8.8% and 5.4% from the comparable period in 2016. The combined ratio for the three months ended March 31, 2017 was 96.4%, compared to 95.1% for the same period in 2016.

Net investment income for the three months ended March 31, 2017 was $21.4 million, an increase of 9.5% as compared to the same period in 2016. 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, 2017 and 2016.

Stan Galanski, President and Chief Executive Officer, commented, “We are pleased to report profitable underwriting results and reasonable premium growth for the quarter. Our U.S. Insurance and Global Reinsurance segments had excellent quarters, achieving double digit premium growth and increased underwriting profit over first quarter 2016. Cost control continues to be a priority and our other operating expenses were down 3.7% from first quarter 2016, offset by increased commission levels in large part resulting from competitive market conditions. This is evident in the results of our International Insurance segment, which continues to be challenged by soft trading conditions, particularly in the London market. Our investment portfolio continued to perform well. Book value per share increased 1.2% during the quarter.”

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 3.8 years as of March 31, 2017. As of March 31, 2017, Net unrealized gains within our investment portfolio were $52.2 million, an increase of $23.2 million compared to December 31, 2016. We recognized $44 thousand of Net realized losses (inclusive of Net other-than-temporary impairment losses recognized in earnings) for the three months ended March 31, 2017, compared to $1.6 million of Net realized gains for the same period in 2016.

Other income for the three months ended March 31, 2017 was $1.1 million, compared to $2.5 million for the same period in 2016. Other income primarily consists of realized and unrealized foreign exchange gains and losses.

Stockholders’ equity was $1.2 billion, or $40.94 per share, as of March 31, 2017 compared to $40.45 per share, as of December 31, 2016.

During the three months ended March 31, 2017, our Company declared and paid a quarterly cash dividend of $0.045 per share of Common stock.

Our Company will hold a conference call on Friday, May 5, 2017 starting at 8:30 a.m. (EST) to discuss the 2017 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/o6dcrex9.

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.

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. 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.

1 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.

THE NAVIGATORS GROUP, INC. AND SUBSIDIARIES
FINANCIAL HIGHLIGHTS
(Unaudited)
Three Months Ended
amounts in thousands, except per share amounts. March 31,
Results of Operations 2017 2016 Change
Gross written premiums $450,305 $413,877 8.8%
Net written premiums 337,163 319,820 5.4%
Revenues:
Net earned premiums $286,131 $264,358 8.2%
Net investment income 21,448 19,594 9.5%
Net realized gains (losses):
Total other-than-temporary impairment losses (1,077) (109) NM
Portion of loss recognized in other comprehensive income (before tax) (16) 109 NM
Net other-than-temporary impairment losses recognized in earnings (1,093) NM
Other realized gains 1,049 1,597 (34.3%)
Net realized gains (losses) (44) 1,597 NM
Other income 1,068 2,549 (58.1%)
Total revenues $308,603 $288,098 7.1%
Expenses:
Net losses and loss adjustment expenses 169,600 152,956 10.9%
Commission expenses 47,844 37,554 27.4%
Other operating expenses 58,538 60,809 (3.7%)
Interest expense 3,861 3,858 0.1%
Total expenses $279,843 $255,177 9.7%
Income before income taxes 28,760 32,921 (12.6%)
Income tax expense 7,650 9,989 (23.4%)
Net income $21,110 $22,932 (7.9%)
Per Share Data (1)
Net income per common share:
Basic $0.72 $0.79 (8.9%)
Diluted $0.70 $0.77 (9.1%)
Average common shares outstanding:
Basic 29,283 28,984
Diluted 30,000 29,783
Underwriting Ratios
Loss Ratio 59.3% 57.9%
Expense Ratio 37.1% 37.2%
Combined Ratio 96.4% 95.1%
Balance Sheet Data March 31, December 31,
2017 2016
Stockholders' equity $ 1,206,136 $1,178,188 2.4%
Book value per share $40.94 $40.45 1.2%

(1) - We completed a two-for-one stock split on January 20, 2017. All share and per share data prior to January 20, 2017 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
(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, 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). We believe that showing Net income exclusive of Realized gains and losses, Net other-than-temporary impairment losses recognized in earnings, and Foreign exchange gains and losses reflects the underlying fundamentals of our business.

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 table provides a reconciliation of Net income (the nearest GAAP financial measure) to Net operating earnings:

Three Months Ended March 31, 2017 Three Months Ended March 31, 2016 % Change
amounts in thousands, except per share amounts. Pre-Tax Tax (1) After-Tax Pre-Tax Tax (1) After-Tax QTD
Net income $28,760 $(7,650) $21,110 $32,921 $(9,989) $22,932 (7.9%)
Adjustments to Net income:
Realized losses (gains) 44 (15) 29 (1,597) 559 (1,038) NM
FX losses (gains) (1,123) 393 (730) (2,540) 888 (1,652) (55.8%)
Net operating earnings $27,681 $(7,272) $20,409 $28,784 $(8,542) $20,242 0.8%
Average common shares outstanding: (2)
Basic 29,283 28,984
Diluted 30,000 29,783
Net operating earnings per common share: (2)
Basic $0.70 $0.70
Diluted $0.68 $0.68

(1) - Tax impact is estimated by applying the statutory rates of applicable jurisdictions, after consideration of any other relevant factors.
(2) - We completed a two-for-one stock split on January 20, 2017. All share and per share data prior to January 20, 2017 has been retroactively restated on a post-split basis.
NM - Percentage change not meaningful.

THE NAVIGATORS GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
March 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: $2,678,475; 2016: $2,628,225) $ 2,695,277 $2,635,882
Equity securities, available-for-sale, at fair value (cost: 2017: $326,910; 2016: $327,911) 362,214 349,142
Other invested assets 1,776 1,960
Short-term investments, at fair value (amortized cost: 2017: $123,796; 2016: $143,451) 123,846 143,539
Total investments $3,183,113 $3,130,523
Cash 63,462 64,643
Premiums receivable 379,787 306,686
Prepaid reinsurance premiums 224,562 213,377
Reinsurance recoverable on paid losses 76,876 82,582
Reinsurance recoverable on unpaid losses and loss adjustment expenses 794,576 779,276
Deferred policy acquisition costs 126,199 119,660
Accrued investment income 18,107 17,315
Goodwill and other intangible assets 6,442 6,451
Current income tax receivable, net 4,280 20,556
Deferred income tax, net 21,574 20,938
Other assets 58,365 52,030
Total assets $4,957,343 $4,814,037
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Reserves for losses and loss adjustment expenses $2,331,392 $2,289,727
Unearned premiums 949,483 887,344
Reinsurance balances payable 118,167 108,980
Senior notes 263,767 263,728
Payable for investments purchased 6,715
Accounts payable and other liabilities 81,683 86,070
Total liabilities $3,751,207 $3,635,849
Stockholders' equity: (1)
Preferred stock ($.10 par value per share, authorized 1,000 shares, none issued) $ $
Common stock ($.10 par value per share, authorized 50,000 shares, issued 36,484 shares for 2017 and 36,147 shares for 2016) 3,645 3,612
Additional paid-in capital 367,311 373,983
Treasury stock, at cost (7,023 shares for 2017 and 2016) (155,801) (155,801)
Retained earnings 967,305 947,519
Accumulated other comprehensive income 23,676 8,875
Total stockholders' equity $1,206,136 $1,178,188
Total liabilities and stockholders' equity $4,957,343 $4,814,037

(1) - We completed a two-for-one stock split on January 20, 2017. All share data prior to January 20, 2017 has been retroactively restated on a post-split basis.

THE NAVIGATORS GROUP, INC. AND SUBSIDIARIES
Segment Information
(Unaudited)
Three Months Ended March 31, 2017
U.S. Int'l
amounts in thousands Insurance Insurance GlobalRe Corporate (1) Total
Gross written premiums $ 237,605 $ 141,860 $70,840 $ $450,305
Ceded written premiums (61,487) (46,593) (5,062) (113,142)
Net written premiums 176,118 95,267 65,778 337,163
Net earned premiums $164,004 $84,086 $38,041 $ $286,131
Net losses and LAE (98,826) (50,705) (20,069) (169,600)
Commission expenses (20,384) (19,233) (8,492) 265 (47,844)
Other operating expenses (33,472) (19,793) (5,273) (58,538)
Other underwriting income (expense) 110 176 (265) 21
Underwriting profit (loss) $11,432 $(5,645) $4,383 $ $10,170
Net investment income 21,448 21,448
Net realized losses (44) (44)
Interest expense (3,861) (3,861)
Other income 1,047 1,047
Income before income taxes $11,432 $(5,645) $4,383 $18,590 $28,760
Income tax expense (7,650) (7,650)
Net income $21,110
Losses and LAE ratio 60.3% 60.3% 52.8% 59.3%
Commission expense ratio 12.4% 22.9% 22.3% 16.7%
Other operating expense ratio (2) 20.3% 23.5% 13.4% 20.4%
Combined ratio 93.0% 106.7% 88.5% 96.4%

(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 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 $8,573 $472 $4,003 $ $13,048
Net investment income 19,594 19,594
Net realized gains 1,597 1,597
Interest expense (3,858) (3,858)
Other income 2,540 2,540
Income before income taxes $8,573 $472 $4,003 $19,873 $32,921
Income tax expense (9,989) (9,989)
Net income $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
Reportable Segment Results
(Unaudited)
U.S. Insurance
Three Months Ended March 31, 2017 Three Months Ended March 31, 2016
amounts in thousands Marine P&C Professional
Liability
Total Marine P&C Professional
Liability
Total %
Change
Total
Gross written premiums $40,950 $ 170,634 $26,021 $ 237,605 $43,163 $ 141,278 $26,206 $ 210,647 12.8%
Ceded written premiums (17,520) (38,198) (5,769) (61,487) (17,647) (30,507) (6,343) (54,497) 12.8%
Net written premiums 23,430 132,436 20,252 176,118 25,516 110,771 19,863 156,150 12.8%
Net earned premiums $22,694 $119,123 $22,187 $164,004 $23,250 $109,159 $15,931 $148,340 10.6%
Net losses and LAE (13,775) (71,749) (13,302) (98,826) (9,775) (71,597) (10,140) (91,512) 8.0%
Commission expenses (1,472) (15,366) (3,546) (20,384) (1,482) (11,852) (1,521) (14,855) 37.2%
Other operating expenses (6,821) (21,814) (4,837) (33,472) (7,372) (21,522) (4,867) (33,761) (0.9%)
Other underwriting income 83 18 9 110 79 268 14 361 (69.4%)
Underwriting profit (loss) $709 $10,212 $511 $11,432 $4,700 $4,456 $(583) $8,573 33.3%
Losses and LAE ratio 60.7% 60.2% 60.0% 60.3% 42.0% 65.6% 63.7% 61.7%
Commission expense ratio 6.5% 12.9% 16.0% 12.4% 6.4% 10.9% 9.5% 10.0%
Other operating expense ratio (1) 29.7% 18.3% 21.7% 20.3% 31.4% 19.4% 30.5% 22.5%
Combined ratio 96.9% 91.4% 97.7% 93.0% 79.8% 95.9% 103.7% 94.2%

(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 March 31, 2017 Three Months Ended March 31, 2016
amounts in thousands Marine P&C Professional
Liability
Total Marine P&C Professional
Liability
Total %
Change
Total
Gross written premiums $68,833 $40,368 $32,659 $ 141,860 $71,948 $44,046 $28,149 $ 144,143 (1.6%)
Ceded written premiums (10,926) (29,646) (6,021) (46,593) (11,089) (17,229) (6,653) (34,971) 33.2%
Net written premiums 57,907 10,722 26,638 95,267 60,859 26,817 21,496 109,172 (12.7%)
Net earned premiums $37,495 $22,180 $24,411 $84,086 $38,856 $21,209 $17,943 $78,008 7.8%
Net losses and LAE (20,601) (15,869) (14,235) (50,705) (20,088) (11,216) (9,106) (40,410) 25.5%
Commission expenses (9,541) (3,742) (5,950) (19,233) (9,405) (2,775) (3,175) (15,355) 25.3%
Other operating expenses (8,440) (6,423) (4,930) (19,793) (8,442) (8,708) (4,621) (21,771) (9.1%)
Other underwriting income (expense) NM
Underwriting profit (loss) $(1,087) $(3,854) $(704) $(5,645) $921 $(1,490) $1,041 $472 NM
Losses and LAE ratio 54.9% 71.5% 58.3% 60.3% 51.7% 52.9% 50.7% 51.8%
Commission expense ratio 25.4% 16.9% 24.4% 22.9% 24.2% 13.1% 17.7% 19.7%
Other operating expense ratio (1) 22.6% 29.0% 20.2% 23.5% 21.7% 41.0% 25.8% 27.9%
Combined ratio 102.9% 117.4% 102.9% 106.7% 97.6% 107.0% 94.2% 99.4%

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
(Unaudited)
For the Three Months Ended March 31,
amounts in thousands Amounts Loss Ratio
Net Incurred Loss Activity 2017 2016 2017 2016
U.S. Insurance:
Loss and LAE payments $69,771 $73,035 42.5% 49.2%
Change in reserves 29,055 18,477 17.8% 12.5%
Net incurred loss and LAE $ 98,826 $91,512 60.3% 61.7%
Int'l Insurance:
Loss and LAE payments $44,908 $29,243 53.4% 37.5%
Change in reserves 5,797 11,167 6.9% 14.3%
Net incurred loss and LAE $50,705 $40,410 60.3% 51.8%
GlobalRe:
Loss and LAE payments $28,330 $25,131 74.5% 66.1%
Change in reserves (8,261) (4,097) (21.7%) (10.8%)
Net incurred loss and LAE $20,069 $21,034 52.8% 55.3%
Total
Loss and LAE payments $143,009 $127,409 50.0% 48.2%
Change in reserves 26,591 25,547 9.3% 9.7%
Net incurred loss and LAE $ 169,600 $ 152,956 59.3% 57.9%
For the Three Months Ended March 31,
Impact of Prior Years Reserves Amounts Loss Ratio Impact
Favorable / (Unfavorable) Development 2017 2016 2017 2016
U.S. Insurance $472 $2,669 0.2% 1.0%
Int'l Insurance (6,616) (855) (2.3%) (0.3%)
GlobalRe (941) 20 (0.3%) 0.0%
Total $(7,085) $1,834 (2.4%) 0.7%


THE NAVIGATORS GROUP, INC. AND SUBSIDIARIES
Net Loss Data
(Unaudited)
As of March 31, 2017
amounts in thousands Case IBNR
Net Loss Reserves: Reserves Reserves Total
U.S. Insurance:
Marine $53,547 $51,935 $105,482
P&C 192,160 623,071 815,231
Professional Liability 26,183 72,578 98,761
Total U.S. Insurance $ 271,890 $ 747,584 $ 1,019,474
Int'l Insurance:
Marine $170,805 $31,968 $202,773
P&C 74,807 23,125 97,932
Professional Liability 38,984 70,526 109,510
Total Int'l Insurance $284,596 $125,619 $410,215
GlobalRe $43,093 $64,034 $107,127
Total Net Loss Reserves $599,579 $937,237 $1,536,816
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 March 31, 2017, the average quality of the investment portfolio as rated by S&P and Moody’s was AA-/Aa3 with an average duration of 3.8 years. Our Company does not own any collateralized debt obligations or asset backed commercial paper.

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

As of March 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
government bonds
$270,009 $2,110 $(3,671) $271,570
States, municipalities and political subdivisions 604,912 13,772 (3,353) 594,493
Mortgage-backed and asset-backed securities:
Agency mortgage-backed securities 468,255 3,858 (7,051) 471,448
Residential mortgage obligations 16,970 439 (37) 16,568
Asset-backed securities 331,567 1,470 (769) 330,866
Commercial mortgage-backed securities 147,353 2,670 (1,843) 146,526
Subtotal $964,145 $8,437 $(9,700) $965,408
Corporate exposures 856,211 12,948 (3,741) 847,004
Total fixed maturities $2,695,277 $37,267 $(20,465) $2,678,475
Equity securities:
Common stocks $169,905 $29,474 $(652) $141,083
Preferred stocks 192,309 7,702 (1,220) 185,827
Total Equity securities $362,214 $37,176 $(1,872) $326,910
Short-term investments 123,846 50 123,796
Total investments $ 3,181,337 $74,493 $(22,337) $ 3,129,181


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

Source:The Navigators Group, Inc.