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Navigators Reports First Quarter Earnings

NEW YORK, May 2, 2013 (GLOBE NEWSWIRE) -- The Navigators Group, Inc. (Nasdaq:NAVG) reported net income of $13.9 million, or $0.97 per diluted share, for the three months ended March 31, 2013 compared to $7.9 million, or $0.56 per diluted share, for the comparable period in 2012. Operating earnings were $10.8 million, or $0.75 per diluted share, for the first quarter of 2013 compared to operating earnings of $6.8 million, or $0.48 per diluted share, for the comparable period in 2012.

Gross written premiums and net written premiums for the three months ended March 31, 2013 were $393.2 million and $269.5 million, respectively, an increase of 14.6% and 10.9% from the comparable period in 2012.

The combined loss and expense ratio for the three months ended March 31, 2013 was 97.9% compared to 99.8% for the comparable period in 2012.

Stan Galanski, President and Chief Executive Officer, commented, "We are pleased to report profitable underwriting results for the quarter, with improved profitability in our U.S. insurance business. We are experiencing positive rate movement across most of our product lines and are benefitting from the investments made in expanding our underwriting team over the past few years."

Stockholders' equity was $896.8 million, or $63.46 per share, as of March 31, 2013 compared to $879.5 million, or $62.61 per share, as of December 31, 2012.

Net investment income for the three months ended March 31, 2013 was $13.7 million, an increase of 21.3% from the comparable period in 2012. Net investment income for the three months ended March 31, 2012 was reduced by $4.5 million as a result of the settlement of our dispute with Equitas over foregone interest on amounts that were due on certain reinsurance contracts. The annualized pre-tax investment yield, excluding net realized gains and losses, net other-than-temporary impairment losses recognized in earnings, and for 2012 the $4.5 million in interest expense for the settlement of our dispute with Equitas, was 2.3% and 2.8% for the three months ended March 31, 2013 and 2012, respectively. The effective tax rate on net investment income was 28.5% for the three months ended March 31, 2013, compared to 25.2% for the comparable period in 2012.

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 4.0 years as of March 31, 2013. As of March 31, 2013, net unrealized gains within our investment portfolio were $100.6 million, a decrease of $2.8 million compared to December 31, 2012. There were $4.8 million of net realized gains including other-than-temporary impairment losses recognized in earnings for the three months ended March 31, 2013, compared to $1.7 million for the same period in 2012.

Consolidated net cash flow from operations for the three months ended March 31, 2013 was $4.3 million, compared to $16.4 million for the comparable period in 2012.

The Company will hold a conference call on Friday, May 3, 2013 starting at 8:30 a.m. ET to discuss the 2013 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://investor.shareholder.com/navg/eventdetail.cfm?eventid=127890

Operating earnings, or net income excluding after-tax net realized gains (losses) and net other-than-temporary impairment losses recognized in earnings, 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 of London. Headquartered in New York, Navigators has offices in major insurance centers in the United States, the United Kingdom and Continental Europe.

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 2013 2012 Change
Gross written premiums $ 393,222 $ 343,149 14.6%
Net written premiums 269,452 243,045 10.9%
Revenues:
Net earned premiums 202,328 183,119 10.5%
Net investment income 13,657 11,258 21.3%
Total other-than-temporary impairment losses (42) (198) -78.8%
Portion of loss recognized in other comprehensive income (before tax) -- 44 NM
Net other-than-temporary impairment losses recognized in earnings (42) (154) -72.7%
Net realized gains (losses) 4,814 1,842 NM
Other income 618 911 -32.1%
Total revenues 221,375 196,976 12.4%
Expenses:
Net losses and loss adjustment expenses 131,342 117,985 11.3%
Commission expenses 26,555 29,450 -9.8%
Other operating expenses 40,874 36,307 12.6%
Interest expense 2,051 2,049 0.1%
Total expenses 200,822 185,791 8.1%
Income before income taxes 20,553 11,185 83.8%
Income tax expense (benefit) 6,643 3,281 102.5%
Net income (loss) $ 13,910 $ 7,904 76.0%
Per Share Data
Net income per common share:
Basic $ 0.99 $ 0.57 74.7%
Diluted $ 0.97 $ 0.56 73.5%
Average common shares outstanding:
Basic 14,085,821 13,979,442
Diluted 14,374,957 14,174,875
Underwriting Ratios
Loss Ratio 64.9% 64.4%
Expense Ratio 33.0% 35.4%
Combined Ratio 97.9% 99.8%
Balance Sheet Data
March 31,
2013
Dec. 31,
2012
Stockholders' equity $ 896,758 $ 879,485 2.0%
Book value per share $ 63.46 $ 62.61 1.4%
THE NAVIGATORS GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
($ in thousands, except share data)
March 31,
2013
December 31,
2012
(unaudited)
ASSETS
Investments and cash:
Fixed maturities, available-for-sale, at fair value (amortized cost: 2013, $2,001,865; 2012, $2,034,765) $ 2,078,003 $ 2,121,833
Equity securities, available-for-sale, at fair value (cost: 2013, $92,017; 2012, $85,004) 116,482 101,297
Short-term investments, at cost which approximates fair value 129,475 153,788
Cash 58,576 45,336
Total investments and cash 2,382,536 2,422,254
Premiums receivable 400,397 320,182
Prepaid reinsurance premiums 232,776 221,015
Reinsurance recoverable on paid losses 51,955 49,282
Reinsurance recoverable on unpaid losses and loss adjustment expenses 872,290 880,139
Deferred policy acquisition costs 69,349 61,005
Accrued investment income 13,640 12,587
Goodwill and other intangible assets 6,785 7,093
Deferred income tax, net 4,049 3,216
Receivable for investments sold 9,334 4,310
Other assets 27,934 26,587
Total assets $ 4,071,045 $ 4,007,670
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Reserves for losses and loss adjustment expenses $ 2,104,386 $ 2,097,048
Unearned premiums 719,383 642,407
Reinsurance balances payable 165,113 165,813
Senior notes 114,462 114,424
Current income tax payable, net 7,078 2,133
Payable for investments purchased 20,905 58,345
Accounts payable and other liabilities 42,960 48,015
Total liabilities 3,174,287 3,128,185
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 17,641,357 shares for 2013 and 17,558,046 shares for 2012 1,763 1,755
Additional paid-in capital 331,932 329,452
Treasury stock, at cost (3,511,380 shares for 2013 and 2012) (155,801) (155,801)
Retained earnings 642,781 628,871
Accumulated other comprehensive income 76,083 75,208
Total stockholders' equity 896,758 879,485
Total liabilities and stockholders' equity $ 4,071,045 $ 4,007,670
THE NAVIGATORS GROUP, INC. AND SUBSIDIARIES
Comparative Premium Data
($ in thousands)
Gross Written Premiums: Three Months
Insurance Companies: 2013 2012 Change
Marine $ 50,847 $ 61,865 -17.8%
Property Casualty 218,964 155,919 40.4%
Professional Liability 31,817 30,554 4.1%
301,628 248,338 21.5%
Lloyd's Operations:
Marine 53,644 61,775 -13.2%
Property Casualty 25,058 24,296 3.1%
Professional Liability 12,892 8,740 47.5%
91,594 94,811 -3.4%
Total $ 393,222 $ 343,149 14.6%
Net Written Premiums: Three Months
Insurance Companies: 2013 2012 Change
Marine $ 41,141 $ 42,865 -4.0%
Property Casualty 149,951 114,532 30.9%
Professional Liability 25,227 23,853 5.8%
216,319 181,250 19.3%
Lloyd's Operations:
Marine 39,558 48,058 -17.7%
Property Casualty 7,312 9,355 -21.8%
Professional Liability 6,263 4,382 42.9%
53,133 61,795 -14.0%
Total $ 269,452 $ 243,045 10.9%
Net Earned Premiums: Three Months
Insurance Companies: 2013 2012 Change
Marine $ 36,725 $ 35,275 4.1%
Property Casualty 92,718 74,368 24.7%
Professional Liability 24,888 21,905 13.6%
154,331 131,548 17.3%
Lloyd's Operations:
Marine 34,045 33,264 2.3%
Property Casualty 7,879 14,502 -45.7%
Professional Liability 6,073 3,805 59.6%
47,997 51,571 -6.9%
Total $ 202,328 $ 183,119 10.5%
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) 0 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
Segment Information
Three Months Ended
March 31, 2012
($ in thousands)
Insurance
Companies
Lloyd's
Operations

Corporate (1)

Total
Gross written premiums $ 248,338 $ 94,811 $ -- $ 343,149
Net written premiums 181,250 61,795 -- 243,045
Net earned premiums 131,548 51,571 -- 183,119
Net losses and loss adjustment expenses (91,177) (26,808) -- (117,985)
Commission expenses (19,301) (10,886) 737 (29,450)
Other operating expenses (25,345) (10,962) -- (36,307)
Other income (expense) 1,642 6 (737) 911
Underwriting profit (loss) (2,633) 2,921 -- 288
Net investment income 8,935 2,283 40 11,258
Net realized gains (losses) 1,875 (187) -- 1,688
Interest expense -- -- (2,049) (2,049)
Income (loss) before income taxes 8,177 5,017 (2,009) 11,185
Income tax expense (benefit) 2,258 1,726 (703) 3,281
Net income (loss) $ 5,919 $ 3,291 $ (1,306) $ 7,904
Losses and loss adjustment expenses ratio 69.3% 52.0% 64.4%
Commission expense ratio 14.7% 21.1% 16.1%
Other operating expense ratio (2) 18.0% 21.2% 19.3%
Combined ratio 102.0% 94.3% 99.8%
(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, 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%
Three Months Ended March 31, 2012
Insurance Companies: Net
Earned
Premiums
Losses
and LAE
Incurred

Underwriting
Expenses
Underwriting
Profit
(Loss)

Loss
Ratio

Expense
Ratio

Combined
Ratio
Marine $ 35,275 $ 27,770 $ 12,655 $ (5,150) 78.7% 35.9% 114.6%
Property Casualty 74,368 48,148 22,854 3,366 64.7% 30.8% 95.5%
Professional Liability 21,905 15,259 7,495 (849) 69.7% 34.2% 103.9%
Total Insurance Companies 131,548 91,177 43,004 (2,633) 69.3% 32.7% 102.0%
Lloyd's Operations:
Marine 33,264 21,558 14,682 (2,976) 64.8% 44.1% 108.9%
Property Casualty 14,502 4,048 5,059 5,395 27.9% 34.9% 62.8%
Professional Liability 3,805 1,202 2,101 502 31.6% 55.2% 86.8%
Total Lloyd's 51,571 26,808 21,842 2,921 52.0% 42.3% 94.3%
Total All $ 183,119 $ 117,985 $ 64,846 $ 288 64.4% 35.4% 99.8%
Amounts Loss Ratio
Net Incurred Loss Activity For the Three Months Ended: Mar. 31,
2013
Mar. 31,
2012
Mar. 31,
2013
Mar. 31,
2012
Insurance Companies:
Loss and LAE payments $ 79,904 $ 93,652 51.8% 71.2%
Change in reserves 27,081 (2,475) 17.5% -1.9%
Net incurred loss and LAE 106,985 91,177 69.3% 69.3%
Lloyd's Operations:
Loss and LAE payments 30,462 24,644 63.4% 47.8%
Change in reserves (6,105) 2,164 -12.7% 4.2%
Net incurred loss and LAE 24,357 26,808 50.7% 52.0%
Total
Loss and LAE payments 110,366 118,296 54.5% 64.6%
Change in reserves 20,976 (311) 10.4% -0.2%
Net incurred loss and LAE $ 131,342 $ 117,985 64.9% 64.4%
Impact of Prior Years Reserves Amounts Loss Ratio Impact
Favorable / (Unfavorable) Development
For the Three Months Ended:
Mar. 31,
2013
Mar. 31,
2012
Mar. 31,
2013
Mar. 31,
2012
Insurance Companies $ (7,730) $ 2,716 -3.8% 1.5%
Lloyd's Operations 3,647 4,150 1.8% 2.2%
Total $ (4,083) $ 6,866 -2.0% 3.7%
THE NAVIGATORS GROUP, INC. AND SUBSIDIARIES
Net Loss Data
($ in thousands)
Net Loss Reserves, March 31, 2013: Case
Reserves
IBNR
Reserves

Total
Insurance Companies:
Marine $ 134,550 $ 120,674 $ 255,224
Property Casualty 216,211 294,205 510,416
Professional Liability 65,272 82,367 147,639
Total Insurance Companies 416,033 497,246 913,279
Lloyd's Operations:
Marine 124,780 92,504 217,284
Property Casualty 26,307 22,895 49,202
Professional Liability 12,764 39,567 52,331
Total Lloyd's Operations 163,851 154,966 318,817
Total Net Loss Reserves $ 579,884 $ 652,212 $ 1,232,096
Net Loss Reserves, December 31, 2012 Case
Reserves
IBNR
Reserves

Total
Insurance Companies:
Marine $ 137,934 $ 114,236 $ 252,170
Property Casualty 204,988 290,455 495,443
Professional Liability 54,092 84,493 138,585
Total Insurance Companies 397,014 489,184 886,198
Lloyd's Operations:
Marine 125,884 95,122 221,006
Property Casualty 27,903 28,463 56,366
Professional Liability 14,694 38,645 53,339
Total Lloyd's Operations 168,481 162,230 330,711
Total Net Loss Reserves $ 565,495 $ 651,414 $ 1,216,909
THE NAVIGATORS GROUP, INC. AND SUBSIDIARIES
Investment Data
March 31, 2013
As of March 31, 2013, the average quality of the investment portfolio as rated by S&P and Moody's was AA/Aa with an average duration of 4.0 years. The Company does not own any collateralized debt obligations (CDO's), collateralized loan obligations (CLO's) or asset backed commercial paper.
As of March 31, 2013, the Company owned two asset-backed securities approximating $0.7 million with subprime mortgage exposures. The securities have an effective maturity of 3.0 years. In addition, the Company owned a total of seven collateralized mortgage obligations and asset-backed securities approximating $2.1 million classified as Alt-A which is a credit category between prime and subprime. They have an effective maturity of 6.1 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, 2013:

March 31, 2013

Fair
Value
Gross
Unrealized
Gains
Gross
Unrealized
(Losses)
Cost or
Amortized
Cost
($ in thousands)
Fixed maturities:
U.S.Treasury bonds, agency bonds and foreign government bonds $ 531,463 $ 7,988 $ (31) $ 523,506
States, municipalities and political subdivisions 449,387 17,619 (1,744) 433,512
Mortgage- and asset-backed securities:
Agency mortgage-backed securities 346,829 11,842 (640) 335,627
Residential mortgage obligations 38,350 1,223 (187) 37,314
Asset-backed securities 47,092 1,110 (29) 46,011
Commercial mortgage-backed securities 180,939 13,170 (29) 167,798
Subtotal 613,210 27,345 (885) 586,750
Corporate bonds 483,943 25,970 (124) 458,097
Total fixed maturities 2,078,003 78,922 (2,784) 2,001,865
Equity securities - common stocks 116,482 24,712 (247) 92,017
Short-term investments 129,475 -- -- 129,475
Cash 58,576 -- -- 58,576
Total $ 2,382,536 $ 103,634 $ (3,031) $ 2,281,933
THE NAVIGATORS GROUP, INC. AND SUBSIDIARIES
Investment Data
March 31, 2013
($ 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, 2013:
Agency mortgage-backed securities:
Fair
Value
Gross
Unrealized
Gains
Gross
Unrealized
(Losses)
Cost or
Amortized
Cost
GNMA $ 126,391 $ 4,074 $ (556) $ 122,873
FNMA 169,045 6,294 (62) 162,813
FHLMC 51,393 1,474 (22) 49,941
Total $ 346,829 $ 11,842 $ (640) $ 335,627
Residential mortgage obligations:
Fair
Value
Gross
Unrealized
Gains
Gross
Unrealized
(Losses)
Cost or
Amortized
Cost
Prime $ 12,507 $ 417 $ (141) $ 12,231
Alt-A 2,139 81 (46) 2,104
Subprime 668 28 -- 640
Non-US RMBS 23,036 697 -- 22,339
Total $ 38,350 $ 1,223 $ (187) $ 37,314

CONTACT: Ciro M. DeFalco Senior Vice President and Chief Financial Officer (914) 933-6043 cdefalco@navg.com www.navg.com

Source:The Navigators Group, Inc.