-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, PnL0ypA4krErAu7AuI/y9LSRwbb9wnCz0uL91mEwdhcEEt5UoImVQqeErtNm56XG p43EKOtbgSZmOFVTFkTmyQ== 0000898080-08-000133.txt : 20080729 0000898080-08-000133.hdr.sgml : 20080729 20080728182745 ACCESSION NUMBER: 0000898080-08-000133 CONFORMED SUBMISSION TYPE: 8-K PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 20080728 ITEM INFORMATION: Results of Operations and Financial Condition ITEM INFORMATION: Departure of Directors or Principal Officers; Election of Directors; Appointment of Principal Officers ITEM INFORMATION: Regulation FD Disclosure FILED AS OF DATE: 20080729 DATE AS OF CHANGE: 20080728 FILER: COMPANY DATA: COMPANY CONFORMED NAME: NAVIGATORS GROUP INC CENTRAL INDEX KEY: 0000793547 STANDARD INDUSTRIAL CLASSIFICATION: FIRE, MARINE & CASUALTY INSURANCE [6331] IRS NUMBER: 133138397 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 8-K SEC ACT: 1934 Act SEC FILE NUMBER: 000-15886 FILM NUMBER: 08973948 BUSINESS ADDRESS: STREET 1: ONE PENN PLAZA STREET 2: 55TH FL CITY: NEW YORK STATE: NY ZIP: 10119 BUSINESS PHONE: 2122442333 MAIL ADDRESS: STREET 1: ONE PENN PLAZA 55TH FL CITY: NEW YORK STATE: NY ZIP: 10119 8-K 1 form8k.txt FORM 8-K UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 FORM 8-K CURRENT REPORT Pursuant to Section 13 or 15 (d) of the Securities Exchange Act of 1934 Date of Report (Date of earliest reported event): July 28, 2008 The Navigators Group, Inc. (Exact name of registrant as specified in its charter) DELAWARE 0-15886 13-3138397 - -------------------------------------------------------------------------------- (State of (Commission (I.R.S. Employer organization) File Number) Identification No.) One Penn Plaza, New York, NY 10119 --------------------------------------------------------------------------- (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (914) 934-8999 Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (SEE General Instruction A.2. below): [_] Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) [_] Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) [_] Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) [_] Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)) Item 2.02 Results of Operations and Financial Condition. Item 7.01 Regulation FD Disclosure. The following information is furnished pursuant to Item 2.02 "Results of Operations and Financial Condition", and Item 7.01 "Regulation FD Disclosure". This information, including the Exhibits attached hereto, shall not be deemed filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), or incorporated by reference into any filing under the Securities Act of 1933, as amended, or the Exchange Act, except as shall be expressly set forth by specific reference in such filing. On July 28, 2008, The Navigators Group, Inc. (the "Company") issued a press release announcing its earnings for the second quarter of 2008. This press release is attached hereto as Exhibit 99.1. Item 5.02 Departure of Directors or Certain Officers; Election of Directors; Appointment of Certain Officers; Compensatory Arrangements of Certain Officers. As reported in its press release dated July 28, 2008, which is filed with this report as Exhibit 99.2, the Company announced that Francis McDonnell has been appointed as Senior Vice President and Chief Financial Officer of the Company. Mr. McDonnell will join the Company on August 5, 2008 as Senior Vice President and will assume the responsibility of Chief Financial Officer effective August 15, 2008, succeeding Paul J. Malvasio. As announced by the Company in its Form 8-K filed on April 28, 2008, Mr. Malvasio is retiring as Executive Vice President and Chief Financial Officer of the Company effective August 15, 2008. In connection with his offer of employment, Mr. McDonnell entered into a letter agreement with the Company, a copy of which is filed with this report as Exhibit 99.3 and incorporated herein by reference. Prior to his position with the Company, Mr. McDonnell, 52, served as Chief Financial Officer of ACE USA, a subsidiary of ACE Ltd., from July 2002 to July 2008. Prior to that position, he held the position of Chief Financial Officer of PMA Capital Corporation from May 1995 to June 2002. He is a Certified Public Accountant and holds the Chartered Property Casualty Underwriter designation. Mr. McDonnell holds an undergraduate degree from Rutgers University and a Master of Business Administration degree from St. Joseph's University. SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized. THE NAVIGATORS GROUP, INC. (Registrant) /s/ Elliot S. Orol -------------------------------------------- Name: Elliot S. Orol Title: Senior Vice President, General Counsel and Secretary Date: July 28, 2008 ________________________________________________________________________________ INDEX TO EXHIBITS Number Description - ------ ----------- 99.1 Second Quarter Earnings Press Release dated July 28, 2008. 99.2 Press Release dated July 28, 2008 announcing new Chief Financial Officer. 99.3 Letter Agreement with Francis McDonnell. EX-99.1 2 ex99-1.txt SECOND QUARTER EARNINGS PRESS RELEASE DATED JULY 28, 2008 [LOGO] The Navigators Group, Inc. CORPORATE NEWS Navigators Reports Second Quarter Earnings New York - July 28, 2008 -- The Navigators Group, Inc. (NASDAQ:NAVG) reported net income of $17,421,000 or $1.03 per share for the 2008 second quarter compared to net income of $24,375,000 or $1.44 per share for the 2007 second quarter. The 2008 second quarter results include net realized capital losses of $7,976,000 or $0.31 per share and the 2007 second quarter results include net realized capital gains of $840,000 or $0.03 per share. The 2008 second quarter net realized capital losses include a provision of $8,412,000 for declines in the market value of equity securities which were considered to be other than temporary. The after-tax loss of such provision was $5,468,000 or $0.32 per share. The decision to record realized capital losses on such securities has no impact on the Company's shareholders' equity or book value per share. Net income for the six month period ended June 30, 2008 was $40,671,000 or $2.39 per share, compared to $44,047,000 or $2.60 per share for the six month period ended June 30, 2007. The results for the six months ended June 30, 2008 included a net realized capital loss of $0.31 per share and the results for the six months ended June 30, 2007 included a net realized capital gain of $0.04 per share. Gross written premium and net written premium for the 2008 second quarter were $279,213,000 and $174,287,000, respectively, increases of 1% and 8%, respectively, from the comparable 2007 period. Gross written premium and net written premium for the six month period ended June 30, 2008 were $566,359,000 and $362,009,000, respectively, a decrease of 2% and an increase of 8%, respectively, from the comparable 2007 period. The combined loss and expense ratios for the 2008 second quarter and six month period were 90.4% and 89.8%, respectively, compared to 86.4% and 87.8% for the comparable 2007 periods. The combined loss and expense ratios for the 2008 second quarter and six month period were favorably impacted by 6.5 and 7.6 loss ratio points, respectively, for redundancies in prior period loss reserves. Net paid loss ratios for the 2008 second quarter and six month period were 29.7% and 31.2%, respectively, compared to 32.6% and 31.9% for the comparable 2007 periods. Navigators' Chief Executive Officer Stan Galanski commented, "We continue to focus on underwriting profit and disciplined risk-taking, which is the foundation of our culture. Our second quarter earnings reflect solid underwriting results in our insurance companies and we continue to experience favorable loss emergence from prior underwriting years. We continue to emphasize the importance of cost control through expense management, implementation of enhanced technology and productivity initiatives." Net investment income for the 2008 second quarter and six month period was $18,731,000 and $37,569,000, respectively, increases of 8% and 12% from the comparable 2007 periods. The pre-tax investment yields for the 2008 second quarter and six month period were 4.1% and 4.2%, respectively, compared to 4.5% and 4.4% for the comparable 2007 periods. The effective tax rates on net investment News Release July 28, 2008 Page 2 income were 25.4% and 25.9% for the 2008 second quarter and six month period, respectively, compared to 28.2% and 28.3% for the comparable 2007 periods. The Company's investment portfolio mainly consists of high quality fixed income securities with an average quality rating of "AA/Aa" by Standard & Poor's and Moody's, respectively, and an average effective duration of 4.3 years at June 30, 2008. Consolidated cash flow from operations for the 2008 second quarter and six month period was $73,748,000 and $133,400,000, respectively, compared to $91,589,000 and $111,667,000 for the comparable 2007 periods. During the 2008 second quarter, the Company repurchased 50,000 shares of its common stock at an average cost of $49.90 per share, for an aggregate amount of $2,495,000. At June 30, 2008 there is approximately $20.2 million in remaining capacity from the $30 million stock repurchase program approved in October 2007. Stockholders' equity was $676,357,000 or $40.29 per share at June 30, 2008 compared to $662,106,000 or $39.24 per share at December 31, 2007. Statutory surplus of Navigators Insurance Company was $592,752,000 at June 30, 2008. The Company will hold a conference call on Tuesday, July 29, 2008 starting at 8:30 a.m. ET to discuss the 2008 second quarter's results. The call will be available via live webcast on Navigators' website (www.navg.com) by clicking on the Earnings Webcast link. To participate by telephone, the domestic dial-in number is 888-679-8034 and the international dial-in is 617-213-4847. The access code is 99254593. Participants may pre-register for the call at www.theconferencingservice.com/prereg/key. process?key=PPKA3UVLK. Pre-registrants will be issued a pin number to use when dialing into the live call that will provide quick access by bypassing the operator upon connection. The webcast will be available for replay on the "News & Events" page of Navigators' website. 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. 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. 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 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. Contact: Paul J. Malvasio Executive Vice President and Chief Financial Officer (914) 933-6088 pmalvasio@navg.com www.navg.com News Release Page 3 THE NAVIGATORS GROUP, INC. AND SUBSIDIARIES Financial Highlights ($'s in thousands, except per share data)
Three Months Ended Six Months Ended June 30, June 30, ---------------------- ---------------------- Financial Highlights 2008 2007 Change 2008 2007 Change - -------------------- ---- ---- ------ ---- ---- ------ Gross written premium 279,213 276,549 1% $ 566,359 $ 577,410 -2% Net written premium 174,287 161,350 8% 362,009 334,369 8% Revenues: Net earned premium 162,703 145,617 12% 318,443 284,663 12% Commission income 467 486 -4% 728 894 -19% Investment income 18,731 17,330 8% 37,569 33,546 12% Net realized capital gains (losses) (7,976) 840 NM (8,052) 1,041 NM Other income (expense) 1,010 (253) NM 1,021 (324) NM ----------------------- ---------------------- Total revenues 174,935 164,020 7% 349,709 319,820 9% ----------------------- ---------------------- Operating expenses: Net losses and loss adjustment expenses incurred 91,889 79,739 15% 180,309 160,931 12% Commission expense 23,490 17,650 33% 44,438 34,749 28% Other operating expenses 33,237 28,608 16% 62,993 54,897 15% Interest expense 2,217 2,215 NM 4,434 4,430 NM ----------------------- ---------------------- Total operating expenses 150,833 128,212 18% 292,174 255,007 15% ----------------------- ---------------------- Income before income taxes 24,102 35,808 -33% 57,535 64,813 -11% ----------------------- ---------------------- Income tax expense (benefit): Current 12,156 13,505 -10% 22,462 22,781 -1% Deferred (5,475) (2,072) NM (5,598) (2,015) NM ----------------------- ---------------------- Income tax expense (benefit) 6,681 11,433 -42% 16,864 20,766 -19% ----------------------- ---------------------- Net income 17,421 24,375 -29% $40,671 $ 44,047 -8% ======================= ====================== Per Share Data Net income per common share: Basic $ 1.04 $ 1.45 -28% $ 2.42 $ 2.63 -8% Diluted $ 1.03 $ 1.44 -28% $ 2.39 $ 2.60 -8% Average shares outstanding: Basic 16,773 16,786 16,817 16,771 Diluted 16,912 16,919 17,002 16,947 Underwriting Ratios Loss Ratio 56.5% 54.8% 56.6% 56.5% Expense Ratio 33.9% 31.6% 33.2% 31.3% ----------------------- ------------------------ Combined Ratio 90.4% 86.4% 89.8% 87.8% Balance Sheet Data Jun. 30, Dec. 31, - ------------------ 2008 2007 ------------------------ Stockholders' equity $ 676,357 $ 662,106 2% Book value per share $ 40.29 $ 39.24 3%
News Release Page 4 THE NAVIGATORS GROUP, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS ($'s in thousands)
June 30, December 31, 2008 2007 ---- ---- ASSETS Investments and cash: Fixed maturities, available-for-sale, at fair value (amortized cost: 2008, $1,604,039; 2007, $1,508,489) $ 1,590,566 $ 1,522,320 Equity securities, available-for-sale, at fair value (cost: 2008, $70,178; 68,089 67,240 2007, $65,492) Short-term investments, at cost which approximates fair value 174,874 170,685 Cash 14,499 7,056 ------------- ------------ Total investments and cash 1,848,028 1,767,301 ------------- ------------ Premiums in course of collection 197,490 163,081 Commissions receivable 444 2,381 Prepaid reinsurance premiums 194,195 188,961 Reinsurance receivable on paid losses 78,087 94,818 Reinsurance receivable on unpaid losses and loss adjustment expenses 778,715 801,461 Net deferred income tax benefit 45,412 29,249 Deferred policy acquisition costs 55,100 51,895 Accrued investment income 16,870 15,605 Goodwill and other intangible assets 8,101 8,084 Other assets 23,058 20,935 ------------- ------------ Total assets $ 3,245,500 $ 3,143,771 ============= ============ LIABILITIES AND STOCKHOLDERS' EQUITY Liabilities: Reserves for losses and loss adjustment expenses $ 1,707,101 $ 1,648,764 Unearned premium 518,354 469,481 Reinsurance balances payable 148,632 161,829 Senior notes 123,732 123,673 Federal income tax payable 16,279 10,868 Accounts payable and other liabilities 55,045 67,050 ------------- ------------ Total liabilities 2,569,143 2,481,665 ------------- ------------ Stockholders' equity: Preferred stock, $.10 par value, authorized 1,000,000 shares, none issued - - Common stock, $.10 par value, 50,000,000 shares authorized for 2008 and 2007 issued and outstanding: 16,788,446 for 2008 and 16,873,094 for 2007 1,700 1,687 Additional paid-in capital 295,304 291,616 Retained earnings 395,755 355,084 Treasury stock held at cost (186,026 common shares for 2008) (9,816) - Accumulated other comprehensive income (loss) (6,586) 13,719 ------------- ------------ Total stockholders' equity 676,357 662,106 ------------- ------------ Total liabilities and stockholders' equity $ 3,245,500 $ 3,143,771 ============= ============
News Release Page 5 THE NAVIGATORS GROUP, INC. AND SUBSIDIARIES Comparative Premium Data ($'s in thousands)
Gross Written Premium: Second Quarter Six Months ----------------------- ---------------------- Insurance Companies: 2008 2007 Change 2008 2007 Change ----------------------------------- ------------------------------------- Marine & Energy $ 77,996 $ 70,601 10% $160,531 $157,457 2% Specialty 84,013 91,398 -8% 162,895 180,815 -10% Professional Liability 26,437 24,351 9% 45,724 44,833 2% Middle Markets 7,744 6,637 17% 15,758 12,941 22% Property/Other 1,766 5,573 NM 4,644 11,388 NM -------------------------- ---------------------------- 197,956 198,560 0% 389,552 407,434 -4% Lloyd's Operations: Marine 59,872 55,922 7% 134,825 133,601 1% Professional Liability 8,399 10,534 -20% 19,069 16,012 19% Property/Other 12,986 11,533 13% 22,913 20,363 13% -------------------------- ---------------------------- 81,257 77,989 4% 176,807 169,976 4% -------------------------- ---------------------------- Total $ 279,213 $ 276,549 1% $566,359 $577,410 -2% ========================== ============================ Net Written Premium: Second Quarter Six Months ----------------------- ---------------------- Insurance Companies: 2008 2007 Change 2008 2007 Change ----------------------------------- ------------------------------------- Marine & Energy $ 45,123 $ 37,229 21% $94,794 $82,964 14% Specialty 57,998 62,490 -7% 111,942 117,076 -4% Professional Liability 15,906 14,767 8% 27,639 26,959 3% Middle Markets 7,252 4,624 57% 13,778 8,593 60% Property/Other 1,903 4,963 NM 4,339 10,529 NM -------------------------- ---------------------------- 128,182 124,073 3% 252,492 246,121 3% Lloyd's Operations: Marine 38,297 27,038 42% 90,799 72,526 25% Professional Liability 5,081 6,126 -17% 11,873 9,509 25% Property/Other 2,727 4,113 -34% 6,845 6,213 10% -------------------------- ---------------------------- 46,105 37,277 24% 109,517 88,248 24% -------------------------- ---------------------------- Total $ 174,287 $ 161,350 8% $362,009 $334,369 8% ========================== ============================ Net Earned Premium: Second Quarter Six Months ----------------------- ---------------------- Insurance Companies: 2008 2007 Change 2008 2007 Change ----------------------------------- ------------------------------------- Marine & Energy $ 36,456 $ 34,005 7% $69,682 $67,494 3% Specialty 56,574 54,378 4% 113,243 103,421 9% Professional Liability 14,388 13,334 8% 28,461 26,371 8% Middle Markets 6,736 4,539 48% 12,433 9,109 36% Property/Other 3,280 3,479 NM 5,861 5,152 NM -------------------------- ---------------------------- 117,434 109,735 7% 229,680 211,547 9% Lloyd's Operations: Marine 37,103 30,005 24% 71,095 62,346 14% Professional Liability 5,141 1,954 163% 11,100 4,911 126% Property/Other 3,025 3,923 -23% 6,568 5,859 12% -------------------------- ---------------------------- 45,269 35,882 26% 88,763 73,116 21% -------------------------- ---------------------------- Total $ 162,703 $ 145,617 12% $318,443 $284,663 12% ========================== ============================
News Release Page 6 THE NAVIGATORS GROUP, INC. AND SUBSIDIARIES Segment Information Three Months Ended June 30, 2008 ($'s in thousands)
Insurance Lloyd's Companies Operations Corporate Total ----------- ------------ ----------- ---------- Gross written premium $ 197,956 $81,257 $279,213 Net written premium 128,182 46,105 174,287 Net earned premium 117,434 45,269 162,703 Net losses and loss adjustment (62,225) (29,664) (91,889) expenses Commission expense (14,723) (8,767) (23,490) Other operating expenses (24,552) (8,685) (33,237) Other income (expense) 1,516 (39) 1,477 ----------- ------------ ----------- ---------- Underwriting profit 17,450 (1,886) 15,564 Investment income 15,593 2,871 $ 267 18,731 Net realized capital gains (8,053) 77 - (7,976) Interest expense - - (2,217) (2,217) ----------- ------------ ----------- ---------- Income (loss) before income tax expense (benefit) 24,990 1,062 (1,950) 24,102 Income tax expense (benefit) 6,939 425 (683) 6,681 ----------- ------------ ----------- ---------- Net income (loss) $ 18,051 $ 637 $(1,267) $17,421 =========== ============ =========== ========== Loss and loss expenses ratio 53.0% 65.5% 56.5% Commission expense ratio 12.5% 19.4% 14.4% Other operating expenses ratio 19.6% 19.3% 19.5% ----------- ------------ ---------- (1) Combined ratio 85.1% 104.2% 90.4% =========== ============ ==========
(1) The other operating expenses ratio includes other income (expense). News Release Page 7 THE NAVIGATORS GROUP, INC. AND SUBSIDIARIES Segment Information Three Months Ended June 30, 2007 ($'s in thousands)
Insurance Lloyd's Companies Operations Corporate Total ----------- ---------- ---------- --------- Gross written premium $ 198,560 $77,989 $276,549 Net written premium 124,073 37,277 161,350 Net earned premium 109,735 35,882 145,617 Net losses and loss adjustment (63,725) (16,014) (79,739) expenses Commission expense (13,903) (3,747) (17,650) Other operating expenses (21,057) (7,551) (28,608) Other income (expense) 96 137 233 ----------- ----------- ---------- --------- Underwriting profit 11,146 8,707 19,853 Investment income 14,440 2,407 $ 483 17,330 Net realized capital gains 834 6 - 840 (losses) Interest expense 0.00 - (2,215) (2,215) ----------- ----------- ---------- --------- Income (loss) before income tax expense (benefit) 26,420 11,120 (1,732) 35,808 Income tax expense (benefit) 8,163 3,875 (605) 11,433 ----------- ----------- ---------- --------- Net income (loss) $ 18,257 $7,245 $ (1,127) $24,375 =========== =========== ========== ========= Loss and loss expenses ratio 58.1% 44.6% 54.8% Commission expense ratio 12.7% 10.4% 12.1% Other operating expenses ratio (1) 19.0% 20.6% 19.5% ----------- ----------- --------- Combined ratio 89.8% 75.6% 86.4% =========== =========== =========
(1) The other operating expenses ratio includes other income (expense). News Release Page 8 THE NAVIGATORS GROUP, INC. AND SUBSIDIARIES Segment Information Six Months Ended June 30, 2008 ($'s in thousands)
Insurance Lloyd's Companies Operations Corporate Total ----------- ----------- ---------- --------- Gross written premium $ 389,552 $ 176,807 $566,359 Net written premium 252,492 109,517 362,009 Net earned premium 229,680 88,763 318,443 Net losses and loss adjustment (129,581) (50,728) (180,309) expenses Commission expense (27,671) (16,767) (44,438) Other operating expenses (46,700) (16,293) (62,993) Other income (expense) 1,774 (25) 1,749 ----------- ----------- --------- Underwriting profit 27,502 4,950 32,452 Investment income 31,058 5,853 $ 658 37,569 Net realized capital gains (8,155) 103 - (8,052) Interest expense - - (4,434) (4,434) ----------- ----------- ---------- --------- Income (loss) before income tax expense (benefit) 50,405 10,906 (3,776) 57,535 Income tax expense (benefit) 14,309 3,877 (1,322) 16,864 ----------- ----------- ---------- --------- Net income (loss) $ 36,096 $7,029 $(2,454) $40,671 =========== =========== ========== ========= Loss and loss expenses ratio 56.4% 57.1% 56.6% Commission expense ratio 12.0% 18.9% 14.0% Other operating expenses ratio (1) 19.6% 18.4% 19.2% ----------- ----------- --------- Combined ratio 88.0% 94.4% 89.8% =========== =========== =========
(1) The other operating expenses ratio includes other income (expense). News Release Page 9 THE NAVIGATORS GROUP, INC. AND SUBSIDIARIES Segment Information Six Months Ended June 30, 2007 ($'s in thousands)
Insurance Lloyd's Companies Operations Corporate Total ----------- ----------- ---------- --------- Gross written premium $ 407,434 $ 169,976 $577,410 Net written premium 246,121 88,248 334,369 Net earned premium 211,547 73,116 284,663 Net losses and loss adjustment (125,065) (35,866) (160,931) expenses Commission expense (24,986) (9,763) (34,749) Other operating expenses (39,826) (15,071) (54,897) Other income (expense) 585 (15) 570 ----------- ----------- ----------- --------- Underwriting profit 22,255 12,401 34,656 Investment income 28,094 4,558 $ 894 33,546 Net realized capital gains / 1,077 (36) - 1,041 (losses) Interest expense - - (4,430) (4,430) ----------- ----------- ----------- --------- Income (loss) before income tax expense 51,426 16,923 (3,536) 64,813 Income tax expense (benefit) 16,074 5,929 (1,237) 20,766 ----------- ----------- ----------- --------- Net income (loss) $ 35,352 $10,994 $ (2,299) $44,047 =========== =========== =========== ========= Loss and loss expenses ratio 59.1% 49.1% 56.5% Commission expense ratio 11.8% 13.4% 12.2% Other operating expense ratio (1) 18.6% 20.5% 19.1% ----------- ----------- ----------- --------- Combined ratio 89.5% 83.0% 87.8% =========== =========== =========== =========
(1) The other operating expense ratio is adjusted to include commission and other income/(expense). News Release Page 10 THE NAVIGATORS GROUP, INC. AND SUBSIDIARIES Underwriting Results ($'s in thousands)
Three Months Ended June 30,2008 ----------------------------------------------------------------- Net Losses Combined Ratio Earned and LAE Underwriting -------------- Insurance Companies: Premium Incurred Expenses Loss Expense Total ----------------------------------------------------------------- Marine & Energy $ 36,456 $17,497 $12,194 48.0% 33.4% 81.4% Specialty 56,574 33,614 16,685 59.4% 29.5% 88.9% Professional Liability 14,388 7,374 5,020 51.3% 34.9% 86.2% Middle Markets 6,736 3,719 2,751 55.2% 40.8% 96.0% Property/Other 3,280 21 1,109 0.6% 33.8% 34.4% ----------------------------------------------------------------- 117,434 62,225 37,759 53.0% 32.1% 85.1% Lloyd's Operations 45,269 29,664 17,491 65.5% 38.7% 104.2% ----------------------------------------------------------------- Total $ 162,703 $91,889 $55,250 56.5% 33.9% 90.4% ================================================================= Three Months Ended June 30, 2007 ----------------------------------------------------------------- Net Losses Combined Ratio Earned and LAE Underwriting -------------- Insurance Companies: Premium Incurred Expenses Loss Expense Total ----------------------------------------------------------------- Marine & Energy $ 34,005 $17,913 $12,340 52.7% 36.3% 89.0% Specialty 54,378 31,261 14,317 57.5% 26.3% 83.8% Professional Liability 13,334 7,741 5,330 58.1% 39.9% 98.0% Middle Markets 4,539 2,045 1,723 45.1% 38.0% 83.1% Property/Other 3,479 4,765 1,154 137.0% 33.2% 170.2% ----------------------------------------------------------------- 109,735 63,725 34,864 58.1% 31.7% 89.8% Lloyd's Operations 35,882 16,014 11,161 44.6% 31.0% 75.6% ----------------------------------------------------------------- Total $ 145,617 $79,739 $46,025 54.8% 31.6% 86.4% ================================================================= Amounts Loss Ratio ---------------------------------------------- Net Incurred Loss Activity June 30, June 30, June 30, June 30, For the Six Months Ended: 2008 2007 2008 2007 ---------------------------------------------- Insurance Companies: Loss and LAE payments $34,922 $31,066 29.8% 28.3% Change in reserves 27,303 32,659 23.2% 29.8% ---------------------------------------------- Net incurred loss and LAE 62,225 63,725 53.0% 58.1% ---------------------------------------------- Lloyd's Operations: Loss and LAE payments 13,369 $16,348 29.5% 45.5% Change in reserves 16,295 (334) 36.0% -0.9% ---------------------------------------------- Net incurred loss and LAE 29,664 16,014 65.5% 44.6% ---------------------------------------------- Total Loss and LAE payments 48,291 47,414 29.7% 32.6% Change in reserves 43,598 32,325 26.8% 22.2% ---------------------------------------------- Net incurred loss and LAE $91,889 $79,739 56.5% 54.8% ============================================== Impact of Prior Years Reserves Amounts Loss Ratio Impact ---------------------------------------------- Favorable / (Unfavorable) Development June 30, June 30, June 30, June 30, For the Three Months Ended: 2008 2007 2008 2007 ---------------------------------------------- Insurance Companies $11,652 $ 5,491 9.9% 5.0% Lloyd's Operations (1,072) 5,126 -2.4% 14.3% ---------------------------------------------- Total $10,580 $10,617 6.5% 7.3% ==============================================
News Release Page 11 THE NAVIGATORS GROUP, INC. AND SUBSIDIARIES Underwriting Results ($'s in thousands)
Six Months Ended June 30,2008 ----------------------------------------------------------------- Net Losses Combined Ratio Earned and LAE Underwriting -------------- Insurance Companies: Premium Incurred Expenses Loss Expense Total ----------------------------------------------------------------- Marine & Energy $ 69,682 $ 41,868 $ 23,256 60.1% 33.4% 93.5% Specialty 113,243 63,094 32,183 55.7% 28.4% 84.1% Professional Liability 28,461 16,279 10,118 57.2% 35.6% 92.8% Middle Markets 12,433 8,003 4,740 64.4% 38.1% 102.5% Property/Other 5,861 337 2,300 5.8% 39.2% 45.0% ----------------------------------------------------------------- 229,680 129,581 72,597 56.4% 31.6% 88.0% Lloyd's Operations 88,763 50,728 33,085 57.1% 37.3% 94.4% ----------------------------------------------------------------- Total $ 318,443 $180,309 $ 105,682 56.6% 33.2% 89.8% ================================================================= Six Months Ended June 30,2007 ----------------------------------------------------------------- Net Losses Combined Ratio Earned and LAE Underwriting -------------- Insurance Companies: Premium Incurred Expenses Loss Expense Total ----------------------------------------------------------------- Marine & Energy $ 67,494 $ 38,235 $ 20,114 56.6% 29.8% 86.4% Specialty 103,421 60,288 29,195 58.3% 28.2% 86.5% Professional Liability 26,371 16,225 9,653 61.5% 36.5% 98.0% Middle Markets 9,109 4,785 3,336 52.5% 36.6% 89.1% Property/Other 5,152 5,532 1,929 107.4% 37.4% 144.8% ----------------------------------------------------------------- 211,547 125,065 64,227 59.1% 30.4% 89.5% Lloyd's Operations 73,116 35,866 24,849 49.1% 33.9% 83.0% ----------------------------------------------------------------- Total $ 284,663 $160,931 $ 89,076 56.5% 31.3% 87.8% ================================================================= Amounts Loss Ratio ----------------------------------------------- Net Incurred Loss Activity June 30, June 30, June 30, June 30, For the Six Months Ended: 2008 2007 2008 2007 ----------------------------------------------- Insurance Companies: Loss and LAE payments $ 69,086 $ 60,410 30.1% 28.5% Change in reserves 60,495 64,655 26.3% 30.6% ----------------------------------------------- Net incurred loss and LAE 129,581 125,065 56.4% 59.1% ----------------------------------------------- Lloyd's Operations: Loss and LAE payments $ 30,141 $ 30,465 34.0% 41.7% Change in reserves 20,587 5,401 23.1% 7.4% ----------------------------------------------- Net incurred loss and LAE 50,728 35,866 57.1% 49.1% ----------------------------------------------- Total Loss and LAE payments 99,227 90,875 31.2% 31.9% Change in reserves 81,082 70,056 25.4% 24.6% ----------------------------------------------- Net incurred loss and LAE $180,309 $ 160,931 56.6% 56.5% =============================================== Impact of Prior Years Reserves Amounts Loss Ratio Impact ----------------------------------------------- Favorable / (Unfavorable) Development June 30, June 30, June 30, June 30, For the Six Months Ended: 2008 2007 2008 2007 ----------------------------------------------- Insurance Companies $ 20,152 $ 11,191 8.8% 5.3% Lloyd's Operations 4,108 6,226 4.6% 8.5% ----------------------------------------------- Total $ 24,260 $ 17,417 7.6% 6.1% ===============================================
News Release Page 12 THE NAVIGATORS GROUP, INC. AND SUBSIDIARIES Net Loss Data ($'s in thousands)
Case IBNR Net Loss Reserves, June 30, 2008: Reserves Reserves Total -------- -------- ----- Insurance Companies: Marine & Energy $ 104,796 $ 108,502 $213,298 Specialty 64,524 294,602 359,126 Professional Liability 22,383 55,936 78,319 Middle Markets 12,055 12,681 24,736 Property/Other 10,870 9,827 20,697 ---------- ----------- ---------- Total Insurance Companies 214,628 481,548 696,176 ---------- ----------- ---------- Lloyd's Operations: Marine 104,679 89,886 194,565 Other 12,238 25,407 37,645 ---------- ----------- ---------- Total Lloyd's Operations 116,917 115,293 232,210 ---------- ----------- ---------- Total Net Loss Reserves $ 331,545 $ 596,841 $928,386 ========== =========== ========== Case IBNR Net Loss Reserves, December 31, 2007: Reserves Reserves Total -------- -------- ----- Insurance Companies: Marine & Energy $ 93,467 $ 103,500 $196,967 Specialty 53,276 268,485 321,761 Professional Liability 20,335 50,584 70,919 Middle Markets 11,469 10,329 21,798 Property/Other 12,790 11,446 24,236 ---------- ----------- ---------- Total Insurance Companies 191,337 444,344 635,681 ---------- ----------- ---------- Lloyd's Operations: Marine 89,957 93,069 183,026 Other 7,485 21,111 28,596 ---------- ----------- ---------- Total Lloyd's Operations 97,442 114,180 211,622 ---------- ----------- ---------- Total Net Loss Reserves $ 288,779 $ 558,524 $847,303 ========== =========== ==========
News Release Page 13 Professional Liability Reported Claims or Notices of Potential Claims Related to Subprime Exposure June 30, 2008 ($'s in thousands) The following table sets forth claims data and other information related to subprime exposure for our professional liability business. Our management believes that its reserves for losses and loss adjustment expenses are adequate to cover the ultimate costs for such loss contingencies related to subprime exposure for our professional liability business.
Number Average Average Average of Gross Net Excess Claims (1) Limit Limit (2) Attachment ----------- --------- ----------- ----------- Primary: D&O Securities/Other Claims 1 $1,000 $ 650 Excess: D&O Securities Claims 4 7,500 4,500 $ 37,500 D&O Side A Securities Claims 2 5,000 3,500 137,500 Other Claims 2 10,000 5,500 35,000 ----------- --------- ----------- ----------- Subtotal/Average 8 7,500 4,500 ----------- --------- ----------- Total 9 $6,778 $4,072 =========== ========= ===========
(1) Claims data for professional liability policies written by the Insurance Companies. There are no reported claims or notices of potential claims reported for the Lloyd's Operations.All policies are claims made.Defense costs are inside the limits of liability. There was one new reported claim/notice of potential claim reported for the six months ended June 30, 2008. (2) Amounts are net of reinsurance. News Release Page 14 THE NAVIGATORS GROUP, INC. AND SUBSIDIARIES Investment Data June 30, 2008 ($'s in thousands) At June 30, 2008, the average quality of the investment portfolio as rated by S&P and Moody's was AA/Aa with an average duration of 4.3 years. All of the Company's mortgage-backed and asset-backed securities are rated AAA/Aaa by S&P and Moody's except for ten securities approximating $6.3 million, which are all rated investment grade. The Company does not own any collateralized debt obligations (CDO's), collateralized loan obligations (CLO's) or asset backed commercial paper. At June 30, 2008, the Company owned two asset-backed securities approximating $0.4 million with subprime mortgage exposures. The securities are rated AAA/Aaa and have an effective maturity of 0.9 years.In addition, the Company owned eleven collateralized mortgage obligations approximating $16.6 million classified as Alt-A which is a credit category between prime and subprime. The Alt-A bonds, also rated AAA/Aaa, have an effective maturity of 2.1 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 at June 30, 2008:
Gross Gross Cost or Fair Unrealized Unrealized Amortized Value Gains (Losses) Cost ------------ ---------- ----------- ------------ Fixed maturities: U.S. Government Treasury Bonds, GNMAs and foreign government bonds.......... $237,360 $ 5,444 $(471) $232,387 States, municipalities and political subdivisions................................. 612,577 4,007 (4,952) 613,522 Mortgage- and asset-backed securities: Non-guaranteed government agency bonds 28,711 373 (58) 28,396 Mortgage-backed securities 235,304 709 (1,955) 236,550 Collateralized mortgage obligations 114,005 404 (8,074) 121,675 Asset-backed securities 51,868 504 (249) 51,613 Commercial mortgage-backed securities 108,168 67 (5,229) 113,330 ------------ ---------- ----------- ------------ Subtotal 538,056 2,057 (15,565) 551,564 Corporate bonds.............................. 202,573 1,210 (5,203) 206,566 ------------ ---------- ----------- ------------ Total fixed maturities....................... 1,590,566 12,718 (26,191) 1,604,039 ------------ ---------- ----------- ------------ Equity securities - common stocks............ 68,089 3,407 (5,496) 70,178 Cash......................................... 14,499 - - 14,499 Short-term investments....................... 174,874 - - 174,874 ------------ ---------- ----------- ------------ Total........................................ $ 1,848,028 $ 16,125 $ (31,687) $ 1,863,590 ============ ========== =========== ============
News Release Page 15 The Navigators Group, Inc. and Subsidiaries Investment Data June 30, 2008 ($'s in thousands) The following three tables set forth our mortgage-backed securities, collateralized mortgage obligations, and asset-backed securities by those issued by FNMA, FHLMC and certain GNMA securities, and the quality category (prime, Alt-A and subprime) for all other such investments at June 30, 2008:
Fair Unrealized Unrealized Amortized Mortgage-backed securities: Value Gains (Losses) Cost -------------- ------------ -------------- ------------ FNMA $181,321 $573 $(1,303) $ 182,051 FHLMC 53,983 136 (652) 54,499 Prime - - - - Alt-A - - - - Subprime - - - - -------------- ------------ -------------- ------------ Total $235,304 $709 $(1,955) $ 236,550 ============== ============ ============== ============ Gross Gross Cost or Fair Unrealized Unrealized Amortized Collateralized mortgage obligations: Value Gains (Losses) Cost -------------- ------------ -------------- ------------ GNMA $ 440 $7 $ - $433 FNMA 9,861 171 - 9,690 FHLMC 12,156 226 - 11,930 Prime 76,096 - (5,589) 81,685 Alt-A 15,452 - (2,485) 17,937 Subprime - - - - -------------- ------------ -------------- ------------ Total $114,005 $404 $(8,074) $ 121,675 ============== ============ ============== ============ Gross Gross Cost or Fair Unrealized Unrealized Amortized Asset-backed securities: Value Gains (Losses) Cost -------------- ------------ -------------- ------------ GNMA $2,657 $89 $ - $ 2,568 FNMA - - - - FHLMC - - - - Prime 47,724 415 (215) 47,524 Alt-A 1,131 - (21) 1,152 Subprime 356 - (13) 369 -------------- ------------ -------------- ------------ Total $51,868 $504 $ (249) $ 51,613 ============== ============ ============== ============
News Release Page 16 THE NAVIGATORS GROUP, INC. AND SUBSIDIARIES Investment Data June 30, 2008 ($'s in thousands) The Company owns securities credit enhanced by financial guarantors. The following two tables set forth the amount of credit enhanced securities in the fixed maturities portfolio at June 30, 2008, identify the amount insured by each financial guarantor and identify the average underlying credit rating of such credit enhanced securities.
Average Gross Gross Cost or Underlying Fair Unrealized Unrealized Amortized Credit Fixed maturities: Value Gains (Losses) Cost Rating ----------- ----------- ----------- ----------- ------------ Credit enhanced securities: - --------------------------- States, municipalities and political subdivisions $346,179 $2,019 $ (3,319) $347,479 Mortgage & asset-backed securities 9,119 15 (191) 9,295 Corporate bonds 1,645 3 (41) 1,683 ----------- ----------- ----------- ----------- Total $356,943 $2,037 $ (3,551) $358,457 =========== =========== =========== =========== Financial guarantors: AMBAC 70,463 344 (886) 71,005 A+ Assured Guaranty LTD 3,923 - (4) 3,927 A FGIC 55,378 215 (452) 55,615 AA- Financial Security Assurance 91,881 898 (574) 91,557 A+ MBIA 117,351 514 (1,403) 118,240 AA- Radian Group, Inc 7,652 66 (41) 7,627 A+ XL Capital 10,295 - (191) 10,486 A ----------- ----------- ----------- ----------- ------------ Total $356,943 $2,037 $ (3,551) $358,457 AA- =========== =========== =========== =========== ============
The average underlying credit rating by bond insurer of the insured securities rated by S&P or Moody's if such securities did not have the credit enhancing insurance is included in the "Underlying Credit Rating" column in the above table. This average rating includes $16.5 million of prerefunded municipal bonds which have an implied rating of AAA but are not otherwise rated by S&P or Moody's. Such average ratings exclude a total of 35 credit enhanced securities approximating $23 million that do not have an underlying rating consisting of 17 municipal bonds approximating $12 million, 15 asset-backed securities approximating $9 million and 3 corporate bonds approximating $2 million. EX-99.2 3 ex99-2.txt PRESS RELEASE DATED JULY 28, 2008 ANNOUNCING NEW CHIEF FINANCIAL OFFICER [LOGO] The Navigators Group, Inc. CORPORATE NEWS Navigators Announces New Chief Financial Officer NEW YORK - (BUSINESS WIRE) - July 28, 2008 -- The Navigators Group, Inc. (NASDAQ:NAVG) today announced the hiring of Francis McDonnell as Senior Vice President and Chief Financial Officer. Mr. McDonnell will join the Company on August 5, 2008 and will assume responsibility as Chief Financial Officer on August 15, 2008 upon the retirement of Paul J. Malvasio, which had been previously announced by the Company. Mr. McDonnell most recently served as Chief Financial Officer of ACE USA, a subsidiary of ACE Ltd. Previously he held the position of Chief Financial Officer of PMA Capital Corporation and, before that, various financial management positions with Reliance Insurance Company. He is a Certified Public Accountant and holds the Chartered Property Casualty Underwriter designation. Mr. McDonnell holds an undergraduate degree from Rutgers University and a Master of Business Administration degree from St. Joseph's University. Stan Galanski, Chief Executive Officer of Navigators, commented, "We are pleased to announce the transition in our Chief Financial Officer role from Paul Malvasio to Frank McDonnell. Paul has served our shareholders well during his tenure, with significant growth in the Company's earnings, assets and book value, and we are grateful for his many contributions. We are delighted to welcome Frank McDonnell to Navigators, and have every expectation that he will continue to develop our culture of excellence and performance in all areas of financial management." 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 City, Navigators has offices in major insurance centers in the United States, the United Kingdom and Continental Europe. For more information, please visit our web site at www.navg.com. 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. 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 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. CONTACT: The Navigators Group, Inc. Elliot S. Orol, 914-933-6027 Senior Vice President, General Counsel and Secretary eorol@navg.com http://www.navg.com EX-99.3 4 ex99-3.txt LETTER AGREEMENT WITH FRANK MCDONNELL July 10, 2008 Francis McDonnell Dear Frank: We are pleased to extend an offer of employment to join The Navigators Group, Inc. as Senior Vice President, The Navigators Group, Inc. Details of the offer are as follows: Position: Senior Vice President and Chief Financial Officer - -------- The Navigators Group, Inc. Navigators Management Company, Inc. Senior Vice President, Chief Financial Officer and Director Navigators Insurance Company NIC Insurance Company Positions Reports to: President and Chief Executive Officer - -------------------- The Navigators Group, Inc. Base Salary: $425,000 per annum, payable semi-monthly. - ----------- Bonus: You will participate in the annual incentive compensation - ----- program of The Navigators Group, Inc. beginning with the 2008 year. Your guaranteed bonus for the 2008 calendar year is $425,000, $275,000 of which will be paid in cash and $150,000 on a deferred basis in the form of Navigators stock with the bonus payment schedule for all other Navigators employees. Starting in 2009, you will be eligible for a bonus of 85% of your base salary, with a potential to earn up to 127.5%. Your actual bonus is based on a combination of corporate (50%) and individual (50%) achievement. Sixty percent of your bonus will be paid in cash and forty percent of your bonus will be paid on a deferred basis in the form of Navigators stock. The stock grant portion under the annual incentive compensation program vests 25% annually over four years from the anniversary of the grant date. Long Term Incentives: You will be awarded a stock grant consisting of 22,000 - -------------------- shares of restricted common stock in The Navigators Group, Inc. This stock will vest annually over a four year period, with the first 25% vesting twelve months from the commencement of your employment. Navigators' stock has enjoyed substantial growth over the past five years and is intended as a long term incentive for profitable underwriting results. You will be eligible for a stock grant for 2009 (granted in 2010) and additional future stock grants awards in accordance with Navigators compensation practices. Relocation Assistance: We will reimburse actual expenses incurred for - --------------------- the relocation of your primary residence to the Rye Brook area, up to $100,000. Eligible expenses are as follows: Brokerage commission, mortgage application fee and origination costs, associated closing costs and household moving expenses. Benefits: You will be eligible to participate in all benefit plans and programs of the Company including medical, dental, life insurance, 401(k), Money Purchase Plan, a discounted Employee Stock Purchase plan in accordance with the terms and conditions of the plan documents. Nothing in this letter should be construed as a guarantee of any particular level of benefits or of your participation in any of the benefit plans. Vacation: You are eligible for 4 weeks paid vacation. An additional - --------- day is added for each year completed with Navigators, to a maximum of 22 vacation days per year. Location: You will be based in the Rye Brook, New York corporate - -------- headquarters. We expect that your responsibilities will require business travel. This offer is conditional upon your successful completion of pre-employment drug screen, and background check including verification of compensation and equity grants. Frank, we believe this is truly an exceptional opportunity for you to join the senior management team of a profitable and growing public corporation. Our culture emphasizes integrity, professionalism and pride. We are a pay for performance organization, and intend to reward performers commensurate with their contribution to corporate results and the growth of shareholder value. I hope you will find our employment offer to be attractive, and that you will join Navigators as soon as possible. I look forward to your response. Sincerely, Stanley Adam Galanski President and CEO The Navigators Group, Inc. Navigators Management Company Navigators Insurance Company ACCEPTED:_______________________________ Date:__________________ Frank McDonnell To: Frank McDonnell From : Stan Galanski Re: Navigators Offer Letter Date: July 11, 2008 Frank, This letter is intended to supplement the offer to you from The Navigators Group, Inc. (the "Company"), set forth in the Company's offer letter to you, to become the Chief Financial Officer of the Company, and to confirm our agreement as follows: 1. In the event that within one year following a change of control of the Company (as defined in the Company's 2005 Stock Plan), you are terminated other than for cause or suffer a substantial diminution of your responsibilities, then all of the outstanding shares of common stock of the Company issued to you in your initial stock grant and in March 2009 in connection with your annual bonus shall immediately become fully vested. 2. If at any time during your employment with the Company you are terminated other than for cause, then, in addition to any accelerated vesting of stock to which you may be entitled pursuant to paragraph 1 above, you will be entitled to receive a severance payment equal to one year's base salary plus the cash portion of your pro rata earned bonus for the year in which such termination occurs. 3. With respect to the Company's agreement in the offer letter to pay up to $100,000 of your relocation expenses, the Company agrees that up to 50% of this amount may be applied by you toward the purchase of a home within commuting distance of the Company's Rye Brook executive office. Please confirm your agreement with the foregoing by executing this letter in the space provided below and returning the fully executed letter to me. We very much look forward to your joining the Company. Sincerely, THE NAVIGATORS GROUP, INC. By: ____________________ Stanley A. Galanski Agreed to and accepted as of the date first written above: ________________________ Frank McDonnell -----END PRIVACY-ENHANCED MESSAGE-----