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

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