10-K

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-K

x ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2014

or

¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                      to                     .

Commission File number 0-15886

The Navigators Group, Inc.

(Exact name of registrant as specified in its charter)

Delaware	13-3138397
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

400 Atlantic Street, Stamford, Connecticut	06901
(Address of principal executive offices)	(Zip Code)

Registrant’s telephone number, including area code: (203) 905-6090

Securities registered pursuant to section 12(b) of the Act:

Title of each class:	Name of each exchange on which registered:
Common Stock, $.10 Par Value	The NASDAQ Global Select Market

Securities registered pursuant to Section 12(g) of the Act: None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.    Yes  ¨    No  x

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act.    Yes  ¨    No  x

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No  ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  x    No  ¨

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and will not be contained, to the best of the registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.  x

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definition of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check One):

Large accelerated filer	¨	Accelerated filer	x
Non-accelerated filer	¨	Smaller reporting company	¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ¨    No  x

The aggregate market value of voting stock held by non-affiliates as of June 30, 2014 was $723,657,575 (Last business day of The Company’s most recently completed second fiscal quarter).

The number of common shares outstanding as of January 31, 2015 was 14,289,970 (Last practical business day for the count of shares outstanding).

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the Company’s 2014 Proxy Statement are incorporated by reference in Part III, Items 10, 11, 12, 13 and 14 of this Form 10-K.

TABLE OF CONTENTS

Description		Page Number
Note on Forward-Looking Statements			3
PART I
Item 1.	Business		3
	Overview		3
	Business Lines		5
	Loss Reserves		9
	Catastrophe Risk Management		13
	Superstorm Sandy and Hurricanes Gustav and Ike		14
	Reinsurance Recoverables		14
	Investments		17
	Regulation		19
	Competition		22
	Employees		22
	Available Information		22
Item 1A.	Risk Factors		23
Item 1B.	Unresolved Staff Comments		30
Item 2.	Properties		31
Item 3.	Legal Proceedings		31
Item 4.	Mine Safety Disclosures		31
PART II
Item 5.	Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities		32
Item 6.	Selected Financial Data		35
Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		36
	Overview		36
	Ratings		37
	Critical Accounting Estimates		38
	Results of Operations		44
	Segment Information		58
	Off-Balance Sheet Transactions		67
	Tabular Disclosure of Contractual Obligations		67
	Capital Resources		67
	Liquidity		70
Item 7A.	Quantitative and Qualitative Disclosures about Market Risk		80
Item 8.	Financial Statements and Supplementary Data		81
Item 9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure		81
Item 9A.	Controls and Procedures		82
Item 9B.	Other Information		84
PART III
Item 10.	Directors, Executive Officers and Corporate Governance		84
Item 11.	Executive Compensation		84
Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters		84
Item 13.	Certain Relationships and Related Transactions, and Director Independence		84
Item 14.	Principal Accountant Fees and Services		84
PART IV
Item 15.	Exhibits and Financial Statement Schedules		85
Signatures			86
Index to Consolidated Financial Statements and Schedules			F-1

2

NOTE ON FORWARD-LOOKING STATEMENTS

Some of the statements in this Annual Report on Form 10-K are “forward-looking statements” as defined in the Private Securities Litigation Reform Act of 1995. All statements other than statements of historical fact included in or incorporated by reference in this Annual Report are forward-looking statements. Whenever used in this report, the words “estimate,” “expect,” “believe,” “may,” “will,” “intend,” “continue” or similar expressions or their negative 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 you that anticipated results will be achieved, since actual results may differ materially because of both known and unknown risks and uncertainties which we face. Factors that could cause actual results to differ materially from our forward-looking statements include, but are not limited to, the factors described in Part I, Item 1A, “Risk Factors” of this report. In light of these risks, uncertainties and assumptions, any forward-looking events discussed in this report may not occur. You are cautioned not to place undue reliance on any forward-looking statements, which speak only as of their respective dates. We undertake no obligation to publicly update or revise any forward-looking statement, whether as a result of new information, future events or otherwise.

The discussion and analysis of our financial condition and results of operations contained herein should be read in conjunction with our Consolidated Financial Statements and accompanying notes which appear elsewhere in this report. They contain forward-looking statements that involve risks and uncertainties. Please refer to the above “Note on Forward-Looking Statements” for more information. Our actual results could differ materially from those anticipated in these forward-looking statements as a result of various factors, including those discussed above and elsewhere in this report.

PART I

ITEM 1. BUSINESS

Overview

The accompanying consolidated financial statements, consisting of the results of The Navigators Group, Inc., a Delaware holding company established in 1982, and its subsidiaries are prepared on the basis of United States (“U.S.”) generally accepted accounting principles (“GAAP” or “U.S. GAAP”). All significant intercompany transactions and balances have been eliminated. The preparation of these consolidated financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the consolidated financial statements and the reported revenues and expenses during the reporting periods. The term “the Company” as used herein is used to mean The Navigators Group, Inc. and its subsidiaries, unless the context otherwise requires. The terms “Parent” or “Parent Company” are used to mean The Navigators Group, Inc. without its subsidiaries. Certain amounts for the prior year have been reclassified to conform to the current year’s presentation.

The Company is an international insurance company focusing on specialty products within the overall property and casualty insurance market. The Company’s long-standing area of specialization is Marine insurance. The Company has also developed niches in Professional Liability insurance and Property Casualty lines of insurance, such as Primary and Excess casualty coverages offered to commercial enterprises and Assumed Reinsurance.

The Company classifies its business into one Corporate segment (“Corporate”) and two underwriting segments, the Insurance Companies segment (“Insurance Companies”) and the Lloyd’s Operations segment (“Lloyd’s Operations”) which are separately managed by business line divisions. The Insurance Companies are primarily engaged in underwriting Marine insurance, Primary Casualty insurance with a concentration in contractors’ general liability products, Excess Casualty insurance with a concentration in commercial umbrella products, Assumed Reinsurance, Management Liability insurance and Errors & Omissions (“E&O”) insurance. This segment is comprised of Navigators Insurance Company (“NIC”), which includes a United Kingdom (“UK”) branch (“UK Branch”), and Navigators Specialty Insurance Company (“NSIC”), which underwrites business on an excess and surplus lines basis. All of the business underwritten by NSIC is fully reinsured by NIC pursuant to a 100% quota share reinsurance agreement.

The Lloyd’s Operations are primarily engaged in underwriting Marine insurance; Energy & Engineering insurance with a concentration in offshore energy products and onshore energy construction products, Assumed Reinsurance, Management Liability insurance and E&O insurance at Lloyd’s of London (“Lloyd’s”) through Lloyd’s Syndicate 1221 (“Syndicate 1221”). The Corporate segment consists of the Parent Company’s investment income, interest expense and related income tax.

Revenue is primarily comprised of premiums and investment income. The Company derives premiums predominantly from business written by wholly-owned underwriting management companies, Navigators Management Company (“NMC”) and Navigators Management (UK) Ltd. (“NMUK”) that manage and service insurance and reinsurance business written by the Insurance Companies. The Company’s products are distributed through multiple channels, utilizing global, national and regional retail and wholesale insurance brokers.

3

Navigators Underwriting Agency Ltd. (“NUAL”) is a Lloyd’s underwriting agency that manages Syndicate 1221. The Company controls 100% of Syndicate 1221’s stamp capacity through the wholly-owned subsidiary, Navigators Corporate Underwriters Ltd. (“NCUL”), which is referred to as a corporate name in the Lloyd’s market. In addition, the Company has also established underwriting agencies in Antwerp, Belgium; Stockholm, Sweden; and Copenhagen, Denmark; as well as branches of the appointed representative, Navigators Underwriting Ltd. (“NUL”), in the European Economic Area (“EEA”), in Milan, Italy; Rotterdam, The Netherlands; and Paris, France, which underwrite risks pursuant to binding authorities with NUAL into Syndicate 1221. The Company has also established a presence in Brazil and China through contractual arrangements with local affiliates of Lloyd’s.

For financial information by segment, refer to Note 3, Segment Information, in the Notes to Consolidated Financial Statements, included herein.

While the Company’s management takes into consideration a wide range of factors in planning the business strategy and evaluating results of operations, there are certain factors that management believes are fundamental to understanding how the Company is managed. First, underwriting profit is consistently emphasized as a primary goal, above premium growth. Underwriting profit is a non-GAAP financial measure of performance and underwriting profitability, which is derived from net earned premium less the sum of net losses and Loss Adjustment Expenses (“LAE”), commission expenses, other operating expenses and other underwriting income or loss. Management’s assessment of the trends and potential growth in underwriting profit is the dominant factor in its decisions with respect to whether or not to expand a business line, enter into a new niche, product or territory or, conversely, to contract capacity in any business line. In addition, management focuses on controlling the costs of the operations. Management believes that careful monitoring of the costs of existing operations and assessment of costs of potential growth opportunities are important to the profitability. Access to capital also has a significant impact on management’s outlook for the operations. The Insurance Companies’ operations and ability to grow their business and take advantage of market opportunities are constrained by regulatory capital requirements and rating agency assessments of capital adequacy. Similarly, the ability to grow the Lloyd’s Operations is subject to capital and operating requirements of Lloyd’s and the U.K. regulatory authorities.

Management’s decisions are also greatly influenced by access to specialized underwriting and claims expertise in the Company’s lines of business. The Company has chosen to operate in specialty niches with certain common characteristics, which provides it with the opportunity to use its technical underwriting expertise in order to realize underwriting profit. As a result, the Company has focused on underserved markets for businesses characterized by higher severity and lower frequency of loss where it believes its intellectual capital and financial strength bring meaningful value. In contrast, the Company has avoided niches that it believes have a high frequency of loss activity and/or is subject to a high level of regulatory requirements, such as Workers Compensation and Personal Automobile insurance, because the Company does not believe, its technical underwriting expertise is of as much value in these types of businesses. Examples of niches that have the characteristics the Company looks for include Bluewater Hull which provides coverage for physical damage to highly valued cruise ships, and Directors and Officers Liability insurance (“D&O”) which covers litigation exposure of a corporation’s directors and officers. These types of exposures require substantial technical expertise. The Company attempts to mitigate the financial impact of severe claims on their results through conservative and detailed underwriting, prudent use of reinsurance and a balanced portfolio of risks.

4

Business Lines

Marine

The Company has been providing high-quality insurance protection for global marine clients since 1974. The Company offers insurance for companies engaged in the diverse aspects of shipping, trade and transportation. A summary of the business line divisions and primary products within those divisions, by underwriting segment:

Insurance Companies

Marine
	•	Marine Liability
	•	Craft/Fishing Vessels
	•	Protection & Indemnity
	•	Cargo
	•	Bluewater Hull
	•	War
	•	Marine Energy Liability
	•	Transport
	•	Customs Bonds
	•	Inland Marine

Lloyd’s Operations

Marine
	•	Cargo
	•	Marine Liability
	•	Transport
	•	Specie
	•	Marine Energy Liability
	•	Marine Excess-of-Loss Reinsurance
	•	Bluewater Hull
	•	War

The Insurance Companies’ Marine business consists of a number of different product lines. The largest is Marine Liability, which protects businesses from liability to third parties for bodily injury or property damage stemming from their marine-related operations, such as terminals, marinas and stevedoring. The Insurance Companies also underwrite insurance for Harbor Craft and other small craft such as fishing vessels, providing physical damage and third party liability coverage as well as Customs Bonds. The U.K. Branch underwrites Primary Marine Protection & Indemnity business, which complements the Marine Liability business, which is generally written above the primary layer on an excess basis. The Insurance Companies also underwrite Cargo insurance, which provides coverage for physical damage to goods in the course of transit, whether by water, air or land, as well as Bluewater Hull, which provides coverage to the owners of ocean-going vessels against physical damage. In addition, the Insurance Companies write Inland Marine products including builders’ risk, contractors’ tools and equipment, fine arts, computer equipment and warehouse legal liability.

The Insurance Companies’ Marine business is written from offices located in major insurance or port locations in New York, Seattle, San Francisco, Houston, Chicago, Miami and London.

The Lloyd’s Operations Marine business primarily consists of Cargo, Marine Liability, Transport and Specie. Other key product lines include Marine Energy Liability, Assumed Marine Reinsurance of other marine insurers on an excess-of-loss basis, Bluewater Hull and War.

The Lloyd’s Operations Cargo insurance business is one of the largest products and provides coverage for cargo in transit covering all types of manufacturers, importers and exporters. The largest component part of the Marine Liability account is written on an excess basis with terms that are common with the rest of the Lloyd’s market. Within the Marine Liability account the Company writes a large book of Shipowners’ Liability risks and Charterers’ Liability risks both directly and as reinsurance of various primary providers. The Lloyd’s Operations Transport account predominantly comprises worldwide Property and Liability exposures in respect of ports and terminals and services ancillary to the transportation of marine cargo, such as stevedoring, warehousing, wharfingering and logistics. The Lloyd’s Operations Specie account includes cash in transit, jeweler’s block, fine art, precious metals and securities.

5

The Energy Liability account is predominantly made up of worldwide upstream Energy Liabilities. The Marine Assumed Reinsurance business is fundamentally Cargo based and contains very little International Hull business and Energy exposure in the Gulf of Mexico and the North Sea. The Hull product line covers a general spread of worldwide Hull business along with shipowners’ interests including loss of hire, increased value, mortgagees’ interest and ship construction. The Lloyd’s Operations War product line includes war physical damage, loss of hire, loss of charter hire, piracy, confiscation and drug seizure.

The Lloyd’s Operations Marine business is written from offices located in London, and in Continental Europe in Antwerp, Stockholm, Rotterdam, Milan and Paris.

Property Casualty

The Property Casualty business focuses on specialty products within the overall Property and Casualty insurance and reinsurance market. A summary of the business line divisions and primary products within those divisions, by underwriting segment, is as follows.

Insurance Companies

Assumed Reinsurance
	•	Accident & Health (“A&H”)
	•	Agriculture
	•	Property, Casualty, Surety and Financial written in Latin America & The Caribbean (“LatAm”)
	•	Professional Liability
Primary Casualty
	•	General Liability
	•	Product Liability
Excess Casualty
	•	Umbrella & Excess Liability
Environmental Casualty
	•	General Environmental Liability
	•	Pollution Liability
Other Property & Casualty
	•	Life Sciences
	•	Commercial Auto
	•	Global Exporters Package Liability
Energy & Engineering
	•	Offshore Energy

Lloyd’s Operations

Energy & Engineering
	•	Offshore Energy
	•	Onshore Energy
	•	Engineering and Construction
	•	Direct and Facultative (“D&F”) Property
Assumed Reinsurance
	•	International Property and Surety
Casualty
	•	General Liability
	•	Environmental Liability
	•	Life Sciences

6

The Insurance Companies’ business consists of Assumed Reinsurance, Primary Casualty, Excess Casualty, Environmental Casualty, Other Property & Casualty and Energy & Engineering Divisions.

The Specialty Assumed Reinsurance business is written by NavRe, an underwriting unit managed by NMC. The specialty products on which the unit currently writes are proportional and excess-of-loss treaty reinsurance covering medical health care exposures, Agriculture exposures primarily in North America, Property, Casualty, Surety and Financial treaty exposures in Central and South America and the Caribbean as well as Professional Liability exposures in the U.S.

The Primary Casualty Division underwrites General Liability insurance policies for business in what is termed the Excess and Surplus lines market, which generally consists of businesses with more complex liability exposures, including contractors, manufacturers, real estate owners and other service businesses. Since 1995, the Insurance Companies have specialized in providing General Liability insurance to both residential and commercial contractors, including coverage to both individual businesses and on a project or wrap-up basis that collectively insures all contractors involved on a designated construction project. In addition, the Insurance Companies insure other liability to third parties emanating from their premises and operations and products manufactured or distributed. The Company’s underwriters and claims professionals have significant experience in underwriting and settling claims in these niches that serves as the principle competitive advantage and allows for better underwriting results than those achieved by the U.S. insurance industry in the aggregate.

The Excess Casualty division provides Commercial Umbrella and Excess Casualty insurance coverage. Commercial Umbrella policies provide additional limits of coverage in excess of a businesses’ General Liability and Automobile Liability policies. Excess policies also provide additional limits of liability, but generally provide limits in excess of the Primary policy and Commercial Umbrella policy, and in many instances attaching in excess of other Excess Liability layers. Areas of specialty include manufacturing and wholesale distribution, commercial construction, residential construction, construction project and wrap-up covers, business services, hospitality and real estate and niche programs.

The Environmental Casualty division provides highly specialized liability coverage to a wide variety of businesses and property owners in three broad product segments: Contractors Pollution Liability; Site Pollution Liability for owners and operators of real estate; and Integrated General and Pollution Liability for manufacturers, distributors, and environmental service providers. The division also writes Transactional Site Pollution policies that support the transfer of environmental liabilities between parties to real estate transactions. Environmental Liability policies can cover both first and/or third party legal liability arising out of pollution events or conditions that are generally excluded under Standard Liability and Property insurance policies.

Additional liability insurance is underwritten for select industry niches, including the Life Sciences, or Biotechnology, Medical Device and Environmental businesses. Other Property Casualty products underwritten include Commercial Automobile, which protects a business for third-party liability emanating from automobiles as well as physical damage to owned vehicles; Commercial Property insurance; and an exporter’s policy that provides coverage for third party liability for suits brought outside of the United States along with other coverage targeted toward the needs of international business owners and travelers. In 2012 and 2013, the Company wrote a limited amount of Commercial Surety Bonds, but discontinued that business because of increased levels of competition that made it difficult to achieve scale without sacrificing underwriting discipline.

The Energy & Engineering business is written by Navigators Technical Risk (“NavTech”), underwriting unit of the Insurance Companies. The Offshore Energy insurance principally focuses on the oil and gas, chemical and petrochemical industries, with coverage primarily for property damage and business interruption.

The Lloyd’s Operations Property Casualty business consists of Energy & Engineering written through NavTech, as well as Assumed Reinsurance and Casualty business.

The NavTech underwriting unit writes Offshore Energy, Onshore Energy, Engineering and Construction as well as D&F Property business. The Offshore Energy product lines includes coverage for property and activities such as offshore exploration and production assets, offshore construction projects, operators extra expenses and business interruption.

The Onshore Energy and Engineering business is written through a Lloyd’s consortium led by Navigators. The Onshore Energy portfolio comprises first party insurance damage to refineries and process plants in the oil, gas and petrochemical industries. The Engineering business comprises coverage of construction projects and operational power plants and facilities as well as business interruption insurance. Additionally, D&F Property is written through the NavTech underwriting unit with its core product being Fire and Natural Catastrophe Perils coverage for light commercial business.

7

The Assumed Reinsurance product lines include Property, Casualty and Surety treaty business focused in Argentina and Brazil. In addition, the Lloyd’s Operations writes Property Treaty business consisting of a portfolio of excess-of-loss contracts excluding exposure in the U.S., Caribbean and Latin America to avoid competition with the Insurance Companies.

In 2015, the Lloyd’s Operations plan to start writing Casualty insurance, which will include General Liability, Environmental Liability and Life Sciences (Product Liability and Clinical Trials business insurance), through the Lloyd’s Operations. The portfolio will cover a broad range of industries with a focus on low to medium hazard sectors, including general manufacturing, retail, and services. The Company intends to limit the exposure to high risk sectors such as transportation, automotive, and mining/utilities.

Professional Liability

A summary of the business line divisions and products within those divisions, by underwriting segment, is as follows:

Insurance Companies

Management Liability
	•	D&O Liability
	•	Fiduciary Liability
	•	Crime Liability
	•	Employment Practices Liability
	•	Non Profit D&O Liability
Errors & Omissions (“E&O”)
	•	E&O Miscellaneous Professional Liability
	•	Real Estate Agent Liability
	•	Design Professionals Liability
	•	Accountants Professional Liability
	•	Insurance Agents E&O
	•	Technology, Media & Cyber Liability

Lloyd’s Operations

Management Liability
	•	D&O Liability
	•	Fiduciary Liability
	•	Crime Liability
	•	Employment Practices Liability
	•	Public Offering of Securities Insurance (“POSI”) Liability
	•	Representations and Warranties Insurance
E&O
	•	E&O Miscellaneous Professional Liability
	•	Design Professionals Liability
	•	Accountants Professional Liability
	•	Insurance Agents E&O
	•	Technology, Media & Cyber Liability

The Insurance Companies Management Liability business consists of D&O Liability and related products for publicly traded corporations, privately held companies and not-for-profit organizations. Policies written for U.S. publicly traded companies are largely provided on an excess basis, while the majority of the U.S. private company and not-for-profit D&O is primary insurance. The E&O business is written on a primary and excess basis to a broad range of non-medical professional service providers, ranging from accountants to real estate appraisers. During 2013, the Insurance Companies decided to significantly reduce the underwriting of U.S. law firms, for which they had focused on smaller law firms, as a result of increased competition that precluded them from attaining terms and conditions consistent with profitable underwriting results. Management Liability and Professional Liability policies are generally written on a claims-made basis, for which the claim must be reported during the policy period or a defined extended reporting period following expiration of the policy.

The Lloyd’s Operations Management Liability book comprises primary and excess D&O targeting predominantly commercial companies outside of the U.S. The Lloyd’s Operations E&O portfolio is comprised of worldwide commercial E&O business targeting regulated professions and written on either a primary or an excess basis. The focus of this business is on companies domiciled outside of the U.S.

8

Loss Reserves

The Company maintains reserves for unpaid losses and unpaid LAE for all lines of business. Loss reserves consist of both reserves for reported claims, known as case reserves, and reserves for losses that have occurred but have not yet been reported, known as incurred but not reported (“IBNR”) losses. Case reserves are established when notice of a claim is first received. Reserves for such reported claims are established on a case-by-case basis by evaluating several factors, including the type of risk involved, knowledge of the circumstances surrounding such claim, severity of injury or damage, the potential for ultimate exposure, experience with the insured and the broker on the line of business, and the policy provisions relating to the type of claim. Reserves for IBNR are determined in part on the basis of statistical information and in part on the basis of industry experience. To the extent that reserves are strengthened or released, the amount of such strengthening or release is treated as a charge or credit to earnings in the period in which the strengthening or release is identified. These reserves are intended to cover the probable ultimate cost of settling all losses incurred and unpaid, including those incurred but not reported. The determination of reserves for losses and LAE is dependent upon the receipt of information from insureds, brokers and agents.

There is a lag between the time premiums are written and related losses and LAE are incurred, and the time such events are reported to us. The loss reserves include amounts related to short tail and long tail classes of business. Short tail business refers to claims that are generally reported quickly upon occurrence of an event and involve little or no litigation, making estimation of loss reserves less complex. The long tail business includes the Marine Liability, Casualty and Professional Liability insurance products. For the long tail lines, significant periods of time, ranging up to several years or more, may elapse between the occurrence of the loss, the reporting of the loss and the settlement of the claim. Generally, the longer the time span between the incidence of a loss and the settlement of the claim, the more likely the ultimate settlement amount will vary from the original estimate. Refer to the Casualty and Professional Liability section below for additional information.

Loss reserves are estimates of what the insurer or reinsurer expects to pay on claims, based on facts and circumstances then known. It is possible that the ultimate liability may exceed or be less than such estimates. In setting the loss reserve estimates, the Company reviews statistical data covering several years, analyzes patterns by line of business and considers several factors including trends in claims frequency and severity, changes in operations, emerging economic and social trends, inflation and changes in the regulatory and litigation environment. The Company also consults with experienced claims professionals. Based on this review, the Company makes a best estimate of its ultimate liability. During the loss settlement period, which, in some cases, may last several years, additional facts regarding individual claims may become known and, accordingly, it often becomes necessary to refine and adjust the estimates of liability on a claim upward or downward. Such estimates are regularly reviewed and updated and any resulting adjustments are included in the current period’s earnings. Even then, the ultimate liability may exceed or be less than the revised estimates. The reserving process is intended to provide implicit recognition of the impact of inflation and other factors affecting loss payments by taking into account changes in historical payment patterns and perceived probable trends. There is generally no precise method for the subsequent evaluation of the adequacy of the consideration given to inflation, or to any other specific factor, because the eventual strengthening or release of reserves is affected by many factors, some of which are interdependent.

Another factor related to reserve development is that the estimate of ultimate losses is based on the ratio of ultimate losses to ultimate premiums. For all the segments a certain, relatively stable, percentage of premium is reported after the close of the fiscal year. These amounts relate to the timing of the inception date of policies, lags in reporting of premium, premium audits, endorsements and cancellations. Losses are projected to an ultimate level. The ratio of ultimate loss to ultimate premium is then applied to the booked earned premium to match revenue with expense for GAAP purposes.

As part of the risk management process, the Company purchases reinsurance to limit the liability on individual risks and to protect against catastrophic loss. The Company purchases both quota share reinsurance and excess-of-loss reinsurance in order to limit the net retention per risk and event. Net retention represents the risk that the Company keeps for its own account. Once the initial reserve is established and the net retention is exceeded, any adverse development will directly affect the gross loss reserve, but would generally have no impact on the net retained loss unless the aggregate limits available under the impacted excess-of-loss reinsurance treaty are exhausted. Reinstatement premiums triggered under the excess-of-loss reinsurance by such additional loss development could have a potential impact on the net premiums during the period in which such additional loss development is recognized. Generally, the limits of exposure are known with greater certainty when estimating the net loss versus the gross loss. This situation tends to create greater volatility in the strengthening and releases of the gross reserves as compared to the net reserves.

9

The following table summarizes the reserve activity for losses and LAE for the years ended December 31, 2014, 2013 and 2012:

	Year Ended December 31,
In thousands	2014			2013			2012
Net reserves for losses and LAE at beginning of year	$	1,222,633		$	1,216,909		$	1,237,234
Provision for losses and LAE for claims occurring in the current year		601,041			520,227			542,724
Increase (decrease) in estimated losses and LAE for claims occurring in prior years		(55,812	)		(1,266	)		(45,291	)
Incurred losses and LAE		545,229			518,961			497,433
Losses and LAE paid for claims occurring during:
Current year		(164,199	)		(147,758	)		(110,373	)
Prior years		(295,527	)		(365,479	)		(407,385	)
Losses and LAE payments		(459,726	)		(513,237	)		(517,758	)
Net reserves for losses and LAE at end of year		1,308,136			1,222,633			1,216,909
Reinsurance recoverables on unpaid losses and LAE		851,498			822,438			880,139
Gross reserves for losses and LAE at end of year	$	2,159,634		$	2,045,071		$	2,097,048

The following table presents the development of the loss and LAE reserves for 2004 through 2014. The line “Net reserves for losses and LAE” reflects the net reserves at the balance sheet date for each of the indicated years and represents the estimated amount of losses and LAE arising in all prior years that are unpaid at the balance sheet date. The “Reserves for losses and LAE re-estimated” lines of the table reflect the re-estimated amount of the previously recorded reserves based on experience as of the end of each succeeding year. The reserve estimates may change as more information becomes known about the frequency and severity of claims for individual years. The net and gross cumulative redundancy (deficiency) lines of the table reflect the cumulative amounts developed as of successive years with respect to the aforementioned reserve liability. The cumulative redundancy (deficiency) represents the aggregate change in the estimates over all prior years.

The table calculates losses and LAE reported and recorded for all prior years starting with the year in which the loss was incurred. For example, assuming that a loss occurred in 2004 but was not reported until 2005, the amount of such loss will appear as a deficiency in both 2004 and 2005. Conditions and trends that have affected development of the liability in the past may not necessarily occur in the future. Accordingly, it may not be appropriate to extrapolate future strengthening or releases based on the table.

A significant portion of the favorable or adverse development on the gross reserves has been ceded to the excess-of-loss reinsurance treaties. As a result of these reinsurance arrangements, the gross losses and related reserve strengthening and releases tend to be more sensitive to favorable or adverse developments such as those described above than the net losses and related reserve strengthening and releases.

The gross loss reserves include estimated losses related to the 2008 Hurricanes Ike and Gustav and the 2012 Superstorm Sandy totaling approximately 0.6% and 1.6% of gross loss reserves as of December 31, 2014 and 2013, respectively. In addition, 2.3% and 3.4% of the gross loss reserves as of December 31, 2014 and 2013, respectively, include estimated losses related to the Deepwater Horizon loss event. When recording these losses, the Company assesses the reinsurance coverage, potential reinsurance recoverable and the recoverability of those balances.

Refer to “Management’s Discussion of Financial Condition and Results of Operations - Results of Operations - Expenses - Net Losses and Loss Adjustment Expenses” and Note 5, Reserves for Losses and Loss Adjustment Expenses, in the Notes to Consolidated Financial Statements, both of which are included herein, for additional information regarding Hurricanes Ike and Gustav, Superstorm Sandy and the asbestos exposure.

10

	Year Ended December 31,
In thousands	2004		2005		2006		2007		2008		2009		2010		2011		2012		2013		2014
Net reserves for losses and LAE	$	463,788	$	578,976	$	696,116	$	847,303	$	999,871	$	1,112,934	$	1,142,542	$	1,237,234	$	1,216,909	$	1,222,633	$	1,308,136
Reserves for losses and LAE re-estimated as of:
One year later		460,007		561,762		649,107		796,557		990,930		1,099,132		1,144,687		1,191,943		1,215,643		1,166,821
Two years later		457,769		523,541		589,044		776,845		971,048		1,065,382		1,068,344		1,189,651		1,142,545
Three years later		432,988		481,532		555,448		767,600		943,231		1,037,233		1,084,728		1,167,745
Four years later		401,380		461,563		559,368		749,905		925,756		1,027,551		1,072,849
Five years later		391,766		469,195		539,327		745,489		921,597		1,029,215
Six years later		401,071		451,807		538,086		736,776		925,518
Seven years later		387,613		449,395		530,856		737,514
Eight years later		389,520		444,632		526,515
Nine years later		386,991		440,561
Ten years later		383,626
Net cumulative redundancy (deficiency)		80,162		138,415		169,601		109,789		74,353		83,719		69,693		69,489		74,364		55,812
Net cumulative paid as of:
One year later		96,981		133,337		142,938		180,459		263,523		314,565		309,063		407,385		365,479		295,527
Two years later		180,121		219,125		233,211		322,892		460,058		517,125		552,881		620,955		550,747
Three years later		238,673		264,663		300,328		441,267		591,226		682,051		695,054		752,315
Four years later		262,425		302,273		359,592		526,226		688,452		773,261		785,046
Five years later		283,538		337,559		401,102		583,434		745,765		828,269
Six years later		305,214		356,710		427,282		620,507		785,211
Seven years later		318,539		372,278		451,118		645,951
Eight years later		328,842		385,902		462,648
Nine years later		340,956		392,468
Ten years later		343,444
Gross liability-end of year		966,117		1,557,991		1,607,555		1,648,764		1,853,664		1,920,286		1,985,838		2,082,679		2,097,048		2,045,071		2,159,634
Reinsurance recoverable		502,329		979,015		911,439		801,461		853,793		807,352		843,296		845,445		880,139		822,438		851,498
Net liability-end of year		463,788		578,976		696,116		847,303		999,871		1,112,934		1,142,542		1,237,234		1,216,909		1,222,633		1,308,136
Gross re-estimated latest		849,169		1,323,498		1,315,366		1,473,307		1,690,517		1,753,963		1,817,727		1,939,296		1,950,611		1,963,267
Re-estimated recoverable latest		465,543		882,937		788,851		735,793		764,999		724,748		744,878		771,551		808,066		796,446
Net re-estimated latest		383,626		440,561		526,515		737,514		925,518		1,029,215		1,072,849		1,167,745		1,142,545		1,166,821
Gross cumulative redundancy (deficiency)		116,948		234,493		292,189		175,457		163,147		166,323		168,111		143,383		146,437		81,804

11

The following tables identify the approximate gross and net cumulative redundancy (deficiency) as of each year-end balance sheet date for the Insurance Companies and Lloyd’s Operations contained in the preceding ten year table:

	Gross Cumulative Redundancy (Deficiency)
	Consolidated				Insurance Companies									Lloyd’s Operations
In thousands	Grand Total		Excluding Asbestos		Total			Asbestos			All Other (1)			Total
2013		81,804		85,057		51,675			(3,253	)		54,928			30,129
2012		146,437		149,690		70,915			(3,253	)		74,168			75,522
2011		143,383		146,638		(9,140	)		(3,255	)		(5,885	)		152,523
2010		168,111		171,494		17,903			(3,383	)		21,286			150,208
2009		166,323		170,739		18,646			(4,416	)		23,062			147,677
2008		163,147		168,492		32,848			(5,345	)		38,193			130,299
2007		175,457		181,598		56,033			(6,141	)		62,174			119,424
2006		292,189		297,550		130,326			(5,361	)		135,687			161,863
2005		234,493		240,100		111,649			(5,607	)		117,256			122,844
2004		116,948		105,146		87,885			11,802			76,083			29,063

(1) Contains cumulative loss development for all active and run-off lines of business exclusive of asbestos losses.

	Net Cumulative Redundancy (Deficiency)
	Consolidated				Insurance Companies									Lloyd’s Operations
In thousands	Grand Total		Excluding Asbestos		Total			Asbestos			All Other (1)			Total
2013		55,812		54,497		30,312			1,315			28,997			25,500
2012		74,364		73,049		10,614			1,315			9,299			63,750
2011		69,489		68,174		(54,102	)		1,315			(55,417	)		123,591
2010		69,693		67,027		(31,676	)		2,666			(34,342	)		101,369
2009		83,719		81,344		(12,327	)		2,375			(14,702	)		96,046
2008		74,353		71,954		6,434			2,399			4,035			67,919
2007		109,789		107,653		43,461			2,136			41,325			66,328
2006		169,601		169,243		98,092			358			97,734			71,509
2005		138,415		138,287		91,227			128			91,099			47,188
2004		80,162		80,563		54,044			(401	)		54,445			26,118

(1) - Contains cumulative loss development for all active and run-off lines of business exclusive of asbestos losses.

Property Casualty

The majority of the Property Casualty business involves General Liability and Umbrella & Excess Liability policies, which generate third party, liability claims that are long tail in nature. A significant portion of the General Liability reserves relate to construction risks. The balance is related to coverage for Energy & Engineering related businesses (both Onshore and Offshore), Assumed Reinsurance, and Professional Liability insurance. The Assumed Reinsurance business includes the Agriculture, A&H, LatAm Property and Professional Liability lines.

12

Professional Liability

The Professional Liability business generates third party claims, which are also longer tail in nature. The Professional Liability policies mainly provide coverage on a claims-made basis, whereby coverage is generally provided for those claims that are made during the policy period. The substantial majority of the claims-made policies provide coverage for one year periods. The Company has also issued a limited number of multi-year claims-made Professional Liability policies known as “project policies” or “tail coverage” that provide for insurance protection for wrongful acts prior to the run-off date. Such multi-year policies provide insurance protection for several years.

The Professional Liability loss estimates are based on expected losses, an assessment of the characteristics of reported losses at the claim level, evaluation of loss trends, industry data, and the legal, regulatory and current risk environment because anticipated loss experience in this area is less predictable due to the small number of claims and/or erratic claim severity patterns. The Company believes that it has made a reasonable estimate of the required loss reserves for Professional Liability. The expected ultimate losses may be adjusted up or down as the accident years mature.

Additional information regarding the loss and loss adjustment expenses incurred and loss reserves can be found in “Management’s Discussion and Analysis of Financial Condition and Results of Operations - Results of Operations - Expenses - Net Losses and Loss Adjustment Expenses” and Note 5, Reserves for Losses and Loss Adjustment Expenses, in the Notes to Consolidated Financial Statements, both of which are included herein.

Catastrophe Risk Management

The Company has exposure to losses caused by hurricanes, earthquakes, and other natural and man-made catastrophic events. The frequency and severity of catastrophic events is unpredictable. The extent of covered losses from a catastrophe is a function of both the total amount of insured exposure in an area affected by the event and the severity of the event. The Company continually assesses the concentration of underwriting exposures in catastrophe exposed areas globally and manages this exposure through individual risk selection and through the purchase of reinsurance. The Company also uses modeling and concentration management tools that allow better monitoring and better control of the accumulations of potential losses from catastrophe events. Despite these efforts, there remains uncertainty about the characteristics, timing and extent of insured losses given the unpredictable nature of catastrophes. The occurrence of one or more catastrophic events could have a material adverse effect on the results of operations, financial condition and/or liquidity.

The Company has significant natural catastrophe exposures throughout the world. The Company estimates that the largest exposure to loss from a single natural catastrophe event comes from a hurricane on the east coast of the United States. As of December 31, 2014, the Company estimates that the probable maximum pre-tax gross and net loss exposure from such a hurricane event would be approximately $97.0 million and $38.3 million, respectively, including the cost of reinsurance reinstatement premiums (“RRPs”).

Like all catastrophe exposure estimates, the foregoing estimate of the probable maximum loss is inherently uncertain. This estimate is highly dependent upon numerous assumptions and subjective underwriting judgments. Examples of significant assumptions and judgments related to such an estimate include the intensity, depth and location of the earthquake, the various types of the insured risks exposed to the event at the time the event occurs and the estimated costs or damages incurred for each insured risk. The composition of the portfolio also makes such estimates challenging due to the non-static nature of the exposures covered under the policies in lines of business such as Cargo and Hull. There can be no assurances that the gross and net loss amounts that the Company could incur in such an event or in any natural catastrophe event would not be materially higher than the estimates discussed above given the significant uncertainties with respect to such an estimate. Moreover, the portfolio of insured risks changes dynamically over time and there can be no assurance that the probable maximum loss will not change materially over time.

The occurrence of large loss events could reduce the reinsurance coverage that is available to the Company and could weaken the financial condition of the reinsurers, which could have a material adverse effect on its results of operations. Although the reinsurance agreements make the reinsurers liable to the Company to the extent the risk is transferred or ceded to the reinsurer, ceded reinsurance arrangements do not eliminate the obligation to pay claims to policyholders, as the Company is required to pay the losses if a reinsurer fails to meet its obligations under the reinsurance agreement.

13

Superstorm Sandy and Hurricanes Gustav and Ike

Superstorm Sandy, which occurred in the fourth quarter 2012 and Hurricanes Gustav and Ike, which occurred in the third quarter 2008 generated substantial losses in the Marine, Inland Marine and Energy lines of business. The total estimated net loss for Superstorm Sandy in the fourth quarter of 2014 was $20.0 million, inclusive of $8.5 million in reinsurance reinstatement premiums. Gross of reinsurance the loss related to Superstorm Sandy was $66.7 million. There were no significant hurricane losses in 2014, 2013, 2011, 2010, 2009 or 2007 that impacted the Marine, Inland Marine and Energy lines of business.

The Company monitors the development of paid and reported claims activities in relation to the estimate of ultimate losses established for Superstorm Sandy and Hurricanes Gustav and Ike. Management believes that should any adverse loss development for gross claims occur from the aforementioned Superstorm and Hurricanes, it would be contained within the reinsurance program. The actual losses from such loss events may differ materially from the estimated losses as a result of, among other things, the receipt of additional information from insureds or brokers, the attribution of losses to coverages that, for the purposes of the estimates, the Company assumed would not be exposed and inflation in repair costs due to the limited availability of labor and materials. If the actual losses from the aforementioned losses are materially greater than the estimated losses, the business, results of operations and financial condition could be materially adversely affected.

Refer to “Management’s Discussion of Financial Condition and Results of Operations - Results of Operations and Overview - Operating Expenses - Net Losses and Loss Adjustment Expenses Incurred” and Note 5, Reserves for Losses and Loss Adjustment Expenses, in the Notes to Consolidated Financial Statements, both of which are included herein, for additional information regarding Superstorm Sandy and the aforementioned hurricanes.

Reinsurance Recoverables

The Company utilizes reinsurance principally to reduce the exposure on individual risks, to protect against catastrophic losses and to stabilize loss ratios and underwriting results. The Company is protected by various treaty and facultative reinsurance agreements. The reinsurance is placed either directly by the Company or through reinsurance intermediaries. The reinsurance intermediaries are compensated by the reinsurers.

The Company’s ceded earned premiums were $440.7 million, $456.0 million and $396.6 million for the years ended December 31, 2014, 2013 and 2012, respectively. Ceded earned premium is impacted by written RRPs, which are fully earned when written. The Company incurred $8.4 million, $3.0 million and $26.9 million of ceded RRPs for the years ended December 31, 2014, 2013, and 2012, respectively. The RRPs for 2014, 2013 and 2012 are primarily related to large losses from the Company’s Marine business. In 2014, $3.9 million of the large loss is due to the sinking of a vessel in South Korean waters, and $1.6 million is due to additional loss activity on the grounding of the cruise ship Cost Concordia. The total RRPs recorded in 2012 included $11.1 million also from the grounding of the cruise ship Costa Concordia off the coast of Italy as well as $8.3 million in connection with the Company’s loss on Superstorm Sandy.

Normalized for RRPs, the Company’s ceded earned premiums were $432.3 million, $453.0 million and $369.7 million for the years ended December 31, 2014, 2013 and 2012, respectively. The decrease in normalized ceded earned premiums from 2013 to 2014 is primarily due to key changes to the reinsurance programs and mix of business primarily driven by a change in the Insurance Companies Property Casualty Reinsurance program supporting certain casualty risks. The increase in ceded earned premium from 2012 to 2013 is primarily due to growth in the Excess Casualty and Offshore Energy and Liability business.

The Company’s ceded incurred losses were $230.2 million, $188.7 million and $262.6 million for the years ended December 31, 2014, 2013 and 2012, respectively. The increase in ceded incurred losses from 2013 to 2014 is due to growth in the Insurance Companies Primary Casualty and Excess Casualty divisions, coupled with unfavorable emergence on construction defect losses from prior years. Also contributing to the increase is large loss activity in the Insurance Companies Offshore Energy business and unfavorable development on the Professional Liability division’s runoff business. Offsetting these increases is favorable prior year emergence in the Insurance Companies Marine division across all products, and a decrease in the percentage of business ceded in 2014. The decrease in ceded incurred losses from 2012 to 2013 is primarily due to a decrease in large loss activity during the 2013 year.

Although reinsurance makes the reinsurer liable to the Company to the extent the risk is transferred or ceded to the reinsurer, ceded reinsurance arrangements do not eliminate the obligation to pay claims to the policyholders. Accordingly, the Company bears credit risk with respect to the reinsurers. Specifically, the reinsurers may not pay claims made by the Company on a timely basis, or they may not pay some or all of these claims. Either of these events would increase the costs and could have a material adverse effect on the business.

The Company has established a reserve for uncollectible reinsurance in the amount of $11.3 million as of December 31, 2014 and 2013, which was determined by considering reinsurer specific default risk as indicated by their financial strength ratings as well as additional default risk for Asbestos and Environmental related recoverables. Actual uncollectible reinsurance could potentially differ from the estimate.

The exposure to credit risk from any one reinsurer is managed through diversification by reinsuring with a number of different reinsurers, principally in the United States and European reinsurance markets. When reinsurance is placed, the standards of acceptability generally require that a reinsurer must have a rating from A.M. Best Company (“A.M. Best”) and/or Standard & Poor’s (“S&P”) of “A” or better, or an equivalent financial strength if not rated, plus at least $500 million in policyholders’ surplus. The Reinsurance Security Committee, which is included within the Enterprise Risk Management Finance and Credit Sub-Committee, monitors the financial strength of the reinsurers and the related reinsurance recoverables and periodically reviews the list of acceptable reinsurers.

14

The credit quality distribution of the Company’s reinsurance recoverables of $1.1 billion as of December 31, 2014 for ceded paid and unpaid losses and LAE and ceded unearned premiums based on insurer financial strength ratings from A.M. Best or S&P were as follows:

In thousands	Rating	Carrying Value (2)		Percent of Total
A.M. Best Rating description (1):
Superior	A++, A+	$	575,205		50	%
Excellent	A, A-		547,314		48	%
Very good	B++, B+		8,483		1	%
Fair	B, B-		—		0	%
Not rated	NR		9,694		1	%
Total		$	1,140,696		100	%

(1)	-	When an A.M. Best rating is unavailable, the equivalent S&P rating is used.
(2)	-	The carrying value is comprised of prepaid reinsurance premium as well as reinsurance recoverables on paid and unpaid losses which are net of the reserve for uncollectible reinsurance.

The Company holds collateral of $202.0 million, which consists of $152.8 million in ceded balances payable, $43.1 million in letters of credit and $6.1 million of funds held and trust account balances, all of which are held by the Insurance Companies and Lloyd’s Operations. In total, the collateral represents 17.7% of the carrying value of the reinsurance recoverables. Collateral of $5.2 million or 53.6% of the carrying value is held for NR rated reinsurance recoverables.

15

The following table lists the 20 largest reinsurers measured by the amount of reinsurance recoverable for ceded losses and LAE and ceded unearned premium (constituting 75.7% of the total recoverable), together with the reinsurance recoverable and collateral held as of December 31, 2014, and the reinsurers’ ratings from A.M. Best and S&P:

In thousands	Unearned Premium		Paid/Unpaid Losses		Total (1)		Collateral Held		A.M. Best	S&P
National Indemnity Company	$	25,202	$	117,562	$	142,764	$	22,069	A++	AA+
Everest Reinsurance Company		21,573		75,063		96,636		7,326	A+	A+
Swiss Reinsurance America Corporation		22,815		73,305		96,120		14,587	A+	AA-
Transatlantic Reinsurance Company		11,916		74,072		85,988		4,038	A	A+
Munich Reinsurance America Inc.		11,366		58,768		70,134		5,539	A+	AA-
Allied World Reinsurance		9,048		37,088		46,136		1,666	A	A
Lloyd’s Syndicate #2003		4,399		35,123		39,522		5,191	A	A+
Partner Reinsurance Europe		10,986		25,409		36,395		16,052	A+	A+
Employers Mutual Casualty Company		11,928		21,851		33,779		10,935	A	NR
Scor Global P&C SE		10,190		17,572		27,762		5,558	A	A+
Ace Property and Casualty Insurance Company		11,165		12,741		23,906		2,907	A++	AA
Tower Insurance Company		—		21,509		21,509		2,455	A-	NR
Aspen Insurance UK Ltd.		8,928		11,227		20,155		4,869	A	A
Ironshore Indemnity Inc.		6,234		13,395		19,629		8,645	A	NR
Validus Reinsurance Ltd.		2,020		16,873		18,893		10,975	A	A
Atlantic Specialty Insurance		2,542		15,812		18,354		—	A	A-
QBE Reinsurance Corp		2,636		15,539		18,175		—	A	A+
National Union Fire Ins.		8,067		8,459		16,526		6,158	A	A+
Endurance Reinsurance Corporation		5,695		9,936		15,631		1,337	A	A
Odyssey American Reinsurance Corporation		3,506		11,650		15,156		1,604	A	A-
Top 20	$	190,216	$	672,954	$	863,170	$	131,911
Others		47,635		229,891		277,526		70,065
Total	$	237,851	$	902,845	$	1,140,696	$	201,976

(1) - Net of reserve for uncollectible reinsurance of approximately $11.3 million.

16

Approximately 21% of the collateral held consists of letters of credit obtained from reinsurers in accordance with New York Insurance Regulation Nos. 20 and 133. Regulation 20 requires collateral to be held by the ceding company from reinsurers not licensed in New York State in order for the ceding company to take credit for the reinsurance recoverables on its statutory balance sheet. The specific requirements governing the letters of credit are contained in Regulation 133 and include a clean and unconditional letter of credit and an “evergreen” clause which prevents the expiration of the letter of credit without due notice to the Company. Only banks considered qualified by the National Association of Insurance Commissioners (“NAIC”) may be deemed acceptable issuers of letters of credit. In addition, based on the credit assessment of the reinsurer, there are certain instances where the Company requires collateral from a reinsurer even if the reinsurer is licensed in New York State, generally applying the requirements of Regulation No. 133. The contractual terms of the letters of credit require that access to the collateral is unrestricted. In the event that the counterparty to the collateral would be deemed not qualified by the NAIC, the reinsurer would be required by agreement to replace such collateral with acceptable security under the reinsurance agreement. There is no assurance, however, that the reinsurer would be able to replace the counterparty bank in the event such counterparty bank becomes unqualified and the reinsurer experiences significant financial deterioration. Under such circumstances, the Company could incur a substantial loss from uncollectible reinsurance from such reinsurer. In November 2010, Regulation No. 20 was amended to provide the New York Superintendent of Financial Services (the “New York Superintendent”) discretion to allow a reduction in collateral that qualifying reinsurers must post in order for New York domestic ceding insurers such as NIC and NSIC to receive full financial statement credit. The “collateral required” percentages range from 0% – 100%, are based upon the New York Superintendent’s evaluation of a number of factors, including the reinsurer’s financial strength ratings, and apply to contracts entered into, renewed or having an anniversary date on or after January 1, 2011. In November 2011, the NAIC adopted similar amendments to its Credit for Reinsurance Model Act that would apply to certain non-U.S. reinsurers. States will have the option to retain a 100% funding requirement if they so choose and it remains to be seen whether and when states will amend their credit for reinsurance laws and regulations in accordance with such model act.

Investments

The objective of the investment policy, guidelines and strategy is to maximize total investment return in the context of preserving and enhancing shareholder value and statutory surplus of the Insurance Companies. Secondarily, the Company seeks to optimize after-tax investment income.

The investments are managed by outside professional fixed-income and equity portfolio managers. The Company seeks to achieve the investment objectives by investing in cash equivalents and money market funds, municipal bonds, U.S. Government bonds, U.S. Government agency guaranteed and non-guaranteed securities, corporate bonds, mortgage-backed and asset-backed securities and common and preferred stocks.

The investment guidelines require that the amount of the consolidated fixed-income portfolio rated below “A-” but no lower than “BBB-” by S&P or below “A3” but no lower than “Baa3” by Moody’s Investors Service (“Moody’s”) shall not exceed 10% of the total investment portfolio. Fixed-income securities rated below “BBB-” by S&P or “Baa3” by Moody’s combined with any other investments not specifically permitted under the investment guidelines, cannot exceed 2% of the total investment portfolio. Investments in equity securities that are actively traded on major U.S. stock exchanges cannot exceed 10% of the total investment portfolio. Finally, the investment guidelines prohibit investments in derivatives other than as a hedge against foreign currency exposures or the writing of covered call options on the equity portfolio.

The Insurance Companies’ investments are subject to the oversight of their respective Boards of Directors and the Finance Committee of the Parent Company’s Board of Directors. The investment portfolio and the performance of the investment managers are reviewed quarterly. These investments must comply with the insurance laws of New York State, the domiciliary state of NIC and NSIC. These laws prescribe the type, quality and concentration of investments which may be made by insurance companies. In general, these laws permit investments, within specified limits and subject to certain qualifications, in federal, state and municipal obligations, corporate bonds, structured securities, preferred stocks, common stocks, real estate mortgages and real estate. The U.K. Branch’s investments must also comply with the regulations set forth by the Prudential Regulation Authority (“PRA”) in the U.K.

The Lloyd’s Operations investments are subject to the direction and control of the Board of Directors and the Investment Committee of NUAL, as well as the Parent Company’s Board of Directors and Finance Committee. These investments must comply with the rules and regulations imposed by Lloyd’s and the PRA.

17

The table set forth below reflects the total investment balances, net investment income earned thereon and the related average yield for the last three calendar years:

	Year Ended December 31,
In thousands	2014			2013			2012
Invested Assets and Cash:
Insurance Companies	$	2,195,924		$	1,954,429		$	1,899,309
Lloyd’s Operations		523,531			519,481			507,919
Parent Company		101,031			100,676			15,026
Consolidated	$	2,820,486		$	2,574,586		$	2,422,254
Net Investment Income:
Insurance Companies	$	56,714		$	49,083		$	46,549
Lloyd’s Operations		7,378			7,160			7,551
Parent Company		76			8			148
Consolidated	$	64,168		$	56,251		$	54,248
Average Yield (amortized cost basis):
Insurance Companies		2.8	%		2.7	%		2.6	%
Lloyd’s Operations		1.4	%		1.4	%		1.3	%
Parent Company		0.1	%		0.0	%		1.7	%
Consolidated		2.3	%		2.4	%		2.4	%

As of December 31, 2014, the average quality of the investment portfolio was rated “AA” by S&P and “Aa” by Moody’s. All of the Company’s mortgage-backed and asset-backed securities were rated investment grade by S&P and by Moody’s except for 57 securities with a fair value approximating $9.1 million. There were no collateralized debt obligations (“CDO’s”), asset-backed commercial paper or credit default swaps in the investment portfolio. As of December 31, 2014, 2013 and 2012, all fixed-maturity and equity securities held by the Company were classified as available-for-sale.

Refer to “Management’s Discussion of Financial Condition and Results of Operations - Investments” and Note 4, Investments, in the Notes to Consolidated Financial Statements, both of which are included herein, for additional information regarding investments.

18

Regulation

United States

The Company is subject to regulation under the insurance statutes, including holding company statutes of various states and applicable regulatory authorities in the United States. These regulations vary but generally require insurance holding companies, and insurers that are subsidiaries of holding companies, to register and file reports concerning their capital structure, ownership, financial condition and general business operations. Such regulations also generally require prior regulatory agency approval of changes in control of an insurer and of certain transactions within the holding company structure. The regulatory agencies have statutory authorization to enforce their laws and regulations through various administrative orders and enforcement proceedings.

NIC is licensed to engage in the insurance and reinsurance business in 50 states, the District of Columbia and Puerto Rico. NSIC is licensed to engage in the insurance and reinsurance business in the State of New York and is an approved surplus lines insurer or meets the financial requirements where there is not a formal approval process in all other states and the District of Columbia.

The State of New York Department of Financial Services (the “New York Department”) is the principal regulatory agency. New York insurance law provides that no corporation or other person may acquire control of the Company, and thus indirect control of the Insurance Companies, unless it has given notice to the Insurance Companies and obtained prior written approval from the New York Superintendent for such acquisition. Any purchaser of 10% or more of the outstanding shares of the Parent Company’s common stock would be presumed to have acquired control of the Company, unless such presumption is rebutted.

Under New York insurance law, NIC and NSIC may only pay dividends out of their statutory earned surplus. Generally, the maximum amount of dividends NIC and NSIC may pay without regulatory approval in any twelve-month period is the lesser of adjusted net investment income or 10% of statutory surplus. For a discussion of the current dividend capacity, refer to “Management’s Discussion of Financial Condition and Results of Operations—Capital Resources” in Item 7 of this report.

As part of its general regulatory oversight process, the New York Department conducts detailed examinations of the books, records and accounts of New York insurance companies every three to five years. NIC and NSIC were examined for the years 2005 through 2009 by the New York Department in 2011. The New York Department commenced an examination of the years 2010 through 2014 on February 13, 2015.

Under insolvency or guaranty laws in most states in which NIC and NSIC operate, insurers doing business in those states can be assessed up to prescribed limits for policyholder losses of insolvent insurance companies. Neither NIC nor NSIC was subject to any material assessments under state insolvency or guaranty laws in the last three years.

The Insurance Regulatory Information System, (“IRIS”), was developed by the NAIC and is intended primarily to assist state insurance departments in executing their statutory mandates to oversee the financial condition of insurance companies operating in their respective states. IRIS identifies thirteen industry ratios and specifies “usual values” for each ratio. Departure from the usual values on four or more of the ratios can lead to inquiries from individual state insurance commissioners as to certain aspects of an insurer’s business. As of December 31, 2014, the results for NIC and NSIC were within the usual values for all IRIS ratios except for one. The one ratio outside of the usual values was related to the investment yield. The investment yield of NIC for the year ended December 31, 2014, was 2.6% and the investment yield of NSIC for the year ended December 31, 2014, was 3.0%, both of which were equal to or below the expected 3-6.5% range due to a persistent low rate environment.

State insurance departments have adopted a methodology developed by the NAIC for assessing the adequacy of statutory surplus of Property and Casualty insurers which includes a risk-based capital formula that attempts to measure statutory capital and surplus needs based on the risks in a company’s mix of products and investment portfolio. The formula is designed to allow state insurance regulators to identify weakly capitalized companies. Under the formula, a company determines its “risk-based capital” by taking into account certain risks related to the insurer’s assets (including risks related to its investment portfolio and ceded reinsurance) and the insurer’s liabilities (including underwriting risks related to the nature and experience of its insurance business). The risk-based capital rules provide for different levels of regulatory attention depending on the ratio of a company’s total adjusted capital to its “authorized control level” of risk-based capital. Based on calculations made by NIC and NSIC, their risk-based capital levels exceed the level that would trigger regulatory attention or company action as of December 31, 2014.

Both the NAIC and the New York Department have increased their focus on risks within an insurer’s holding company system that may pose enterprise risk to the insurer. “Enterprise risk” is defined as any activity, circumstance, event or series of events involving one or more affiliates of an insurer that, if not remedied promptly, is likely to have a material adverse effect upon the financial condition or the liquidity of the insurer or its insurance holding company system as a whole. The New York Department requires the establishment and maintenance of an enterprise risk management (“ERM”) function by New York domestic insurers, while the Model Insurance Holding Company System Regulatory Act and Regulations, as adopted by the NAIC, includes a requirement for the ultimate controlling person to file an enterprise risk report.

19

The NAIC has also adopted the Risk Management and Own Risk and Solvency Assessment Model Act (the “Model Act”), requiring insurers to maintain a framework for identifying, assessing, monitoring, managing and reporting on the “material and relevant risks” associated with the insurer’s or insurance group’s business plans. The Model Act is effective as of January 1, 2015. Under the Model Act, insurers will be required to submit an Own Risk and Solvency Assessment (“ORSA”) Summary Report to their lead regulator at least annually.

In addition to regulations applicable to insurance agents generally, NMC is subject to managing general agents’ acts in its state of domicile and in certain other jurisdictions where it does business.

In 2002, in response to the tightening of supply in certain insurance and reinsurance markets resulting from, among other things, the September 11, 2001 terrorist attacks, the Terrorism Risk Insurance Act, or TRIA, was enacted. TRIA was intended to ensure the availability of insurance coverage for “acts of terrorism” (as defined) in the United States of America committed by or on behalf of foreign persons or interests. This law established a federal program through the end of 2005 to help the commercial Property and Casualty insurance industry cover claims related to future losses resulting from acts of terrorism and requires insurers to offer coverage for acts of terrorism in all commercial Property and Casualty policies. As a result, the Company is prohibited from adding certain terrorism exclusions to those policies written by insurers in the group that write business in the U.S. On December 22, 2005, the Terrorism Risk Insurance Extension Act of 2005, or TRIEA, was enacted. TRIEA extended TRIA through December 31, 2007 and made several changes in the program, including increasing the deductible for each insurer to 17.5% and 20% of direct earned premiums in 2006 and 2007, respectively. In addition, for losses in excess of an insurer’s deductible, TRIEA increased the Insurance Companies’ share of the excess losses to an additional 10% and 15% in 2006 and 2007, respectively, with the balance to be covered by the Federal government up to an aggregate cap of insured losses of $25 billion in 2006 and $27.5 billion in 2007. Also, TRIEA established a new program trigger under which Federal compensation will become available only if aggregate insured losses sustained by all insurers exceed $50 million from a certified act of terrorism occurring after March 31, 2006 and $100 million for certified acts occurring on or after January 1, 2007. On December 26, 2007, the Terrorism Risk Insurance Program Reauthorization Act of 2007 (“TRIPRA”) was enacted. TRIPRA, among other provisions, extended for seven years the program established under TRIA, as amended. On January 12, 2015, TRIPRA was reauthorized until December 31, 2020, retroactive to January 1, 2015. In the new TRIPRA, the program trigger will be increased in phases starting in 2016 from $100 million to $200 million of annual aggregate insured losses, the insurer co-share will be increased from 15 to 20 percent over the next five years, and the cap on the mandatory recoupment of insured losses will be increased from $27.5 billion to $37.5 billion by two billion per year until 2019. In addition, TRIPRA calls for several government studies and reports which will require information reporting by insurers. The imposition of these TRIA deductibles could have an adverse effect on the results of operations. Potential future changes to TRIA could also adversely affect the Company by causing the reinsurers to increase prices or withdraw from certain markets where terrorism coverage is required. As a result of TRIA, the Company is required to offer coverage for certain terrorism risks that it may normally exclude. Occasionally in the Marine business, such coverage falls outside of the normal reinsurance program. In such cases, the only reinsurance would be the protection afforded by TRIA. Additionally, the doubling of the program trigger could limit the ability to obtain reimbursement for losses under the program, and the increase in the co-insurance to 20% could increase the exposure to terrorism risk that will not be reimbursed by the government.

The Lloyd’s Operations are subject to regulation in the United States in addition to being regulated in the United Kingdom. The Lloyd’s market is licensed to engage in insurance business in Illinois, Kentucky and the U.S. Virgin Islands and operates as an eligible Excess and Surplus lines insurer in all states and territories except Kentucky and the U.S. Virgin Islands. Lloyd’s is also an accredited reinsurer in all states and territories of the United States. Lloyd’s maintains various trust funds in the state of New York to protect its U.S. business and is therefore subject to regulation by the New York Department, which acts as the domiciliary department for Lloyd’s U.S. trust funds. There are deposit trust funds in other states to support Lloyd’s reinsurance and Excess and Surplus lines insurance business.

From time to time, various regulatory and legislative changes have been proposed in the insurance and reinsurance industry. Among the proposals that have in the past been or are at present being considered are the possible introduction of federal regulation in addition to, or in lieu of, the current system of state regulation of insurers and proposals in various state legislatures (some of which have been enacted) to conform portions of their insurance laws and regulations to various model acts adopted by the NAIC. The Company is unable to predict whether any of these laws and regulations will be adopted, the form in which any such laws and regulations would be adopted, or the effect, if any, these developments would have on its operations and financial condition.

20

United Kingdom

The United Kingdom subsidiaries and the Lloyd’s Operations are subject to regulation by the Prudential Regulation Authority (“PRA”) (for prudential issues) and the Financial Conduct Authority (“FCA”) (for conduct of business issues), the successors to the FSA, as established by the Financial Services and Markets Act 2012. The Lloyd’s Operations are also subject to supervision by the Council of Lloyd’s. The PRA and FCA have been granted broad authorization and intervention powers as they relate to the operations of all insurers, including Lloyd’s syndicates, operating in the United Kingdom. Lloyd’s is regulated by the PRA and FCA and is required to implement certain rules prescribed by them, which it does by the powers it has under the Lloyd’s Act 1982 relating to the operation of the Lloyd’s market. Lloyd’s prescribes, in respect of its managing agents and corporate members, certain minimum standards relating to their management and control, solvency and various other requirements. The PRA and FCA also monitor Lloyd’s managing agents’ compliance with the systems and controls. If it appears to the PRA and or the FCA that either Lloyd’s is not fulfilling its regulatory responsibilities, or that managing agents are not complying with the applicable regulatory rules and guidance, the PRA and or FCA may intervene at their discretion.

The Company participates in the Lloyd’s market through the ownership of NUAL and NCUL. NUAL is the managing agent for Syndicate 1221. The Company has controlled 100% of Syndicate 1221’s stamp capacity for the 2014, 2013 and 2012 underwriting years (“UWY”) through its wholly-owned subsidiary, NCUL, which is referred to as a corporate name in the Lloyd’s market. By entering into a membership agreement with Lloyd’s, NCUL undertakes to comply with all Lloyd’s by-laws and regulations as well as the provisions of the Lloyd’s Acts and the Financial Services and Markets Act that are applicable to it. The operation of Syndicate 1221, as well as NCUL and their respective directors, is subject to the Lloyd’s supervisory regime.

Underwriting capacity of a member of Lloyd’s must be supported by providing a deposit (referred to as “Funds at Lloyd’s”) in the form of cash, securities or letters of credit in an amount determined by Lloyd’s equal to a specified percentage of the member’s underwriting capacity. The amount of such deposit is calculated by each member through the completion of an annual capital adequacy exercise. The results of this exercise are submitted to Lloyd’s for approval. Lloyd’s then advises the member of the amount of deposit that is required. The consent of the Council of Lloyd’s may be required when a managing agent of a syndicate proposes to increase underwriting capacity for the following UWY.

The Council of Lloyd’s has wide discretionary powers to regulate members’ underwriting at Lloyd’s. It may, for instance, change the basis on which syndicate expenses are allocated or vary the Funds at Lloyd’s ratio or the investment criteria applicable to the provision of Funds at Lloyd’s. Exercising any of these powers might affect the return on an investment of the corporate member in a given UWY. Further, it should be noted that the annual business plans of a syndicate are subject to the review and approval of the Lloyd’s Franchise Board. The Lloyd’s Franchise Board was formally constituted on January 1, 2003. The Franchise Board is responsible for setting risk management and profitability targets for the Lloyd’s market and operates a business planning and monitoring process for all syndicates.

Corporate members continue to have insurance obligations even after all their UWYs have been closed by reinsurance to close. In order to continue to fulfill these obligations, corporate members are required to stay in existence; accordingly, there continues to be an administrative and financial burden for corporate members between the time their memberships have ceased and the time their insurance obligations are extinguished, including the completion of financial accounts in accordance with the Companies Act 2006.

If a member of Lloyd’s is unable to pay its debts to policyholders, such debts may be payable by the Lloyd’s Central Fund, which acts similarly to state guaranty funds in the United States. If Lloyd’s determines that the Central Fund needs to be increased, it has the power to assess premium levies on current Lloyd’s members. The Council of Lloyd’s has discretion to call or assess up to 3% of a member’s underwriting capacity in any one year as a Central Fund contribution.

A European Union (“E.U.”) directive covering the capital adequacy, risk management and regulatory reporting for insurers, known as Solvency II, was adopted by the European Parliament in April 2009. Solvency II will introduce a new system of regulation for insurers operating in the E.U. (including the United Kingdom) and presents a number of risks to the Company. Although Solvency II was originally stated to have become effective by October 31, 2012, implementation has been delayed several times. During November 2013, a vote was held in the European Parliament to amend and finalize the dates for implementation and transposition of the Solvency II Directive. The Parliament approved transposition being set for March 31, 2015 and implementation for January 1, 2016. Over the last few years, the Company has undertaken a significant amount of work to ensure that it meets the new requirements and this work will continue into 2015. Work has, and will continue, to focus on the capital structure, technical provisions, solvency calculations, governance, disclosure and risk management. There is also a risk that if the Solvency II requirements are not met on an on-going basis they may impact the capital requirements for NIC’s U.K. Branch and Syndicate 1221. These new regulations have the potential to adversely affect the profitability of NIC, NUAL and Syndicate 1221, and to restrict their ability to carry on their businesses as currently conducted. An outstanding issue is the question about how Solvency II will be implemented is whether the new regulations will apply to NIC’s U.K. Branch or to all of its operations, both within and outside of the United Kingdom and the other E.U. countries in which it operates. If the regulations are applied to NIC in its entirety, NIC could be subject to even more onerous requirements under the new regulations. Work is ongoing in this area to find a solution that aligns to the Company’s longer term strategy.

21

Competition

The Property and Casualty insurance and reinsurance industry is highly competitive. The Company faces competition from both domestic and foreign insurers, many of whom have longer operating histories and greater financial, marketing and management resources. Competition in the types of insurance which the Company is engaged in is based on many factors, including the perceived overall financial strength ratings as assigned by independent rating agencies, pricing, other terms and conditions of products and services offered, business experience, business infrastructure, global presence, marketing and distribution arrangements, agency and broker relationships, quality of customer service (including speed of claims payments), product differentiation and quality, operating efficiencies and underwriting. Furthermore, insureds tend to favor large, financially strong insurers, and the Company faces the risk that it will lose market share to higher rated insurers.

Another competitive factor in the industry is the entrance of other underwriting organizations and other financial services providers such as banks and brokerage firms into the insurance business. These efforts pose new challenges to insurance companies and agents from financial services companies traditionally not involved in the insurance business.

Employees

As of December 31, 2014, the Company had 651 full-time employees of which 494 were located in the United States, 132 in the United Kingdom, 7 in The Netherlands, 5 in Italy, 5 in Sweden, 3 in France, 2 in Belgium, 2 in Denmark, and 1 in Brazil.

Available Information

This report and all other filings made by the Company with the Securities Exchange Commission (“SEC”) pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), are available to the public by the SEC. All filings can be read and copied at the SEC Public Reference Room, located at 100 F Street, NE, Washington, DC 20549. Information pertaining to the operation of the Public Reference Room can be obtained by calling 1-800-SEC-0330. The Company is an electronic filer with the SEC, so all reports, proxy and information statements, and other information can be found at the SEC website, www.sec.gov. The website address is http://www.navg.com. Through the website at http://www.navg.com/Pages/sec-filings.aspx, the Company makes available, free of charge, its annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and all amendments to those reports as soon as reasonably practicable after such material is electronically filed with or furnished to the SEC. The annual report to stockholders, press releases and recordings of the earnings release conference calls are also available on the website. Any reference to the Company’s website in this report shall not constitute an incorporation by reference of any materials available on its website.

22

ITEM 1A. RISK FACTORS

You should carefully consider each of the risks and uncertainties described below and elsewhere in this Annual Report on Form 10-K, as well as any amendments or updates reflected in subsequent filings with the SEC. The Company believes these risks and uncertainties, individually or in the aggregate, could cause the actual results to differ materially from expected and historical results and could materially and adversely affect the business operations. Further, additional risks and uncertainties not presently known to the Company or that the Company currently deems immaterial may also impair the results and business operations.

The continuing volatility in the financial markets and the risk of another recession could have a material adverse effect on the results of operations and financial condition.

The financial market experienced significant volatility worldwide commencing in the third quarter of 2008. Although the U.S., European and other foreign governments have taken various actions to try to stabilize the financial markets, it is unclear whether those actions will continue to be effective. Therefore, the financial market volatility and the resulting negative economic impact could continue.

Although the Company continues to monitor market conditions, it cannot predict future market conditions or their impact on the stock price or investment portfolio. Depending on market conditions, the Company could incur future realized and unrealized losses, which could have a material adverse effect on the results of operations and financial condition of the Company. These economic conditions have had an adverse impact on the availability and cost of credit resources generally, which could negatively affect the ability to obtain letters of credit utilized by the Lloyd’s Operations to support business written through Lloyd’s.

In addition, financial market volatility or an economic downturn could have a material adverse effect on the insureds, agents, claimants, reinsurers, vendors and competitors. Certain of the actions of the U.S., European and other foreign governments have taken or may take in response to the financial market volatility have impacted, or may impact, certain Property and Casualty insurance carriers. The U.S., European and other foreign governments continue to take active steps to implement measures to stabilize the financial markets and stimulate the economy, and it is possible that these measures could further affect the Property and Casualty insurance industry and its competitive landscape.

The business is concentrated in Marine, Property, Casualty and Professional Liability insurance, and if market conditions change adversely, or the Company experiences large losses in these lines, it could have a material adverse effect on the business.

As a result of the strategy to focus on specialty products in niches where the Company has underwriting and claims handling expertise and to decrease the business in areas where pricing does not afford what it considers to be acceptable returns, the business is concentrated in the Marine, Property, Casualty and Professional Liability lines of business. If the results of operations from any of these lines are less favorable for any reason, including lower demand for the products on terms and conditions that the Company finds appropriate, flat or decreased rates for the products or increased competition, the impact of a reduction could have a material adverse effect on the business.

The Company is exposed to cyclicality in the business that may cause material fluctuations in the results.

The property and casualty insurance business generally, and the Marine insurance business specifically, have historically been characterized by periods of intense price competition due to excess underwriting capacity as well as periods when shortages of underwriting capacity have permitted attractive premium levels. The Company has reduced business during periods of severe competition and price declines and grown when pricing allowed an acceptable return. The cyclical trends in the Property and Casualty insurance and reinsurance industries and the profitability of these industries can also be significantly affected by volatile and unpredictable developments, including what the Company believes to be a trend of natural and man-made disasters, fluctuations in interest rates, changes in the investment environment that affect market prices of investments and inflationary pressures that may tend to affect the size of losses experienced by insureds. The Company cannot predict with accuracy whether market conditions will remain constant, improve or deteriorate. The Company expects that the business will continue to experience the effects of this cyclicality, which, over the course of time, could result in material fluctuations in premium volume, revenues or expenses.

23

The Company may not be successful in its diversification efforts, which could adversely affect its results.

Over the past decade, the Company has diversified the business from being an Ocean Marine specialist to underwriting in a targeted number of specialties, including numerous third-party liability products in the Casualty and Professional Liability niches. The ability to produce profitable underwriting results and grow those businesses is highly dependent upon the quality of the underwriting and claims professionals and the extent of their expertise and quality of their individual risk-taking decisions. In addition, the results can be impacted by change in the competitive, regulatory and economic environment impacting those specific products.

The Company may incur additional losses if its loss reserves are insufficient.

The Company maintains loss reserves to cover the estimated ultimate unpaid liability for losses and LAE with respect to reported and unreported claims incurred as of the end of each accounting period. Reserves do not represent an exact calculation of liability, but instead represent estimates, generally utilizing actuarial projection techniques and judgment at a given accounting date. These reserve estimates are expectations of what the ultimate settlement and administration of claims will cost based on the assessment of facts and circumstances then known, review of historical settlement patterns, estimates of trends in claims severity, frequency, legal theories of liability and other factors. Both internal and external events, including changes in claims handling procedures, economic inflation, legal trends and legislative changes, may affect the reserve estimation process. Many of these items are not directly quantifiable, particularly on a prospective basis. Additionally, there may be significant lags between the occurrence of the insured event and the time it is actually reported to the Company. The Company continually refines reserve estimates in a regular ongoing process as historical loss experience develops and additional claims are reported and settled. Adjustments to reserves are reflected in the results of the periods in which the estimates are changed. Because establishment of reserves is an inherently uncertain process involving estimates, currently established reserves may not be sufficient. If estimated reserves are insufficient, the Company will incur additional charges to earnings, which could have a material adverse effect on future results of operations, financial position or cash flows.

The loss reserves include amounts related to short tail and long tail classes of business. Short tail business means that claims are generally reported quickly upon occurrence of an event, making estimation of loss reserves less complex. For the long tail lines, significant periods of time, ranging up to several years or more, may elapse between the occurrence of the loss, the reporting of the loss and the settlement of the claim. The longer the time span between the incidence of a loss and the settlement of the claim, the more likely the ultimate settlement amount will vary. The longer tail business includes General Liability, including construction defect claims, as well as historical claims for asbestos exposures through the Marine business and claims relating to the run-off businesses. The Professional Liability business, though long tail with respect to settlement period, is produced on a claims-made basis (which means that the policy in-force at the time the claim is filed, rather than the policy in-force at the time the loss occurred, provides coverage) and is therefore, the Company believes, less likely to result in a significant time lag between the occurrence of the loss and the reporting of the loss. There can be no assurance, however, that the Company will not suffer substantial adverse prior period development in the business in the future.

In addition, reinsurance reserves are subject to greater uncertainty than insurance reserves primarily because a reinsurer relies on the original underwriting decisions made by ceding companies. As a result, in relation to the reinsurance business, the Company is subject to the risk that the ceding companies may not have adequately evaluated the risks reinsured by the Company and the premiums ceded may not adequately compensate the Company for the risks it assumes. In addition, reinsurance reserves may be less reliable than insurance reserves because there is generally a longer lapse of time from the occurrence of the event to the reporting of the loss or benefit to the reinsurer to the ultimate resolution or settlement of the loss.

The effects of emerging claim and coverage issues on the business are uncertain.

As industry practices and legislative, regulatory, judicial, social, financial, and other environmental conditions change, unexpected and unintended issues related to claims and coverage may emerge. These issues may adversely affect the business by either extending coverage beyond the underwriting intent or by increasing the frequency and severity of claims. In some instances, these changes may not become apparent until sometime after the Company has issued insurance or reinsurance contracts that are affected by the changes. As a result, the full extent of liability under the insurance or reinsurance contracts may not be known for many years after a contact is issued.

In addition to loss reserves, preparation of financial statements requires the Company to make estimates and judgments.

In addition to loss reserves discussed above, the consolidated financial statements contain accounting estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosures. On an ongoing basis, the Company evaluates the estimates based on historical experience and other assumptions that the Company believes to be reasonable under the circumstances. Any significant change in these estimates could adversely affect its results of operations and/or financial condition. The accounting estimates that are viewed by management as critical are those in connection with reserves for losses and loss adjustment expenses, reinsurance recoverables, written and unearned premiums, the recoverability of deferred tax assets and impairment of invested assets.

24

The Company may not have access to adequate reinsurance to protect it against losses.

The Company purchases reinsurance by transferring part of the risk it has assumed to a reinsurance company in exchange for part of the premium it receives in connection with the risk. The availability and cost of reinsurance are subject to prevailing market conditions, both in terms of price and available capacity, which can affect the business volume and profitability. The reinsurance programs are generally subject to renewal on an annual basis. If the Company were unable to renew the expiring facilities or to obtain new reinsurance facilities, either the net exposures would increase, which could increase the costs, or, if the Company was unwilling to bear an increase in net exposures, it would have to reduce the level of its underwriting commitments, especially catastrophe exposed risks, which would reduce revenues and possibly net income.

The reinsurance operations are largely dependent upon ceding companies’ evaluation of risk.

The Company, like other companies that write reinsurance, generally does not evaluate separately each of the assumed individual insurance risks under its reinsurance contracts. As such, the Company is largely dependent upon the ceding companies original underwriting decisions. The Company is subject to the risk that the ceding companies may not have adequately or accurately evaluated the risks that they have insured, and it has reinsured, and that the premiums ceded may not adequately compensate it for the risks it assumes. If the reserves are insufficient to cover the unpaid losses and LAE arising from the reinsurance business, the Company would have to strengthen the reserves and incur charges to its earnings, which could adversely affect future results of operations, financial position or cash flows.

Reinsurers may not pay on losses in a timely fashion, or at all, which may increase costs.

Although reinsurance makes the reinsurer liable to the Company to the extent the risk is transferred or ceded to the reinsurer, ceded reinsurance arrangements do not eliminate the obligation to pay claims to the policyholders. Accordingly, the Company bears credit risk with respect to its reinsurers. Specifically, the reinsurers may not pay claims made by the Company on a timely basis, or they may not pay some or all of these claims. Either of these events would increase the costs and could have a material adverse effect on the business.

Intense competition for products could harm the ability of the Company to maintain or increase profitability and premium volume.

The Property and Casualty insurance industry is highly competitive. The Company faces competition from both domestic and foreign insurers, many of whom have longer operating histories and greater financial, marketing and management resources. Competition in the types of insurance in which the Company is engaged is based on many factors, including the perceived overall financial strength, pricing and other terms and conditions of products and services offered, business experience, marketing and distribution arrangements, agency and broker relationships, levels of customer service (including speed of claims payments), product differentiation and quality, operating efficiencies and underwriting. In addition, insurance industry participants may seek to consolidate through mergers and acquisitions. Continued consolidation within the insurance industry will further enhance the already competitive underwriting environment, as the Company would likely experience more robust competition from larger competitors. Furthermore, insureds tend to favor large, financially strong insurers, and the Company faces the risk that it will lose market share to larger or higher rated insurers. The Company may have difficulty in continuing to compete successfully on any of these bases in the future. If competition limits the ability to write new business at adequate rates, the ability to transact business would be materially and adversely affected and the results of operations would be adversely affected.

The Company may be unable to attract and retain qualified employees.

The Company depends on the ability to attract and retain qualified executive officers, experienced underwriters, claims professionals and other skilled employees who are knowledgeable about the Specialty lines of business. If the quality of the executive officers, underwriting or claims team and other personnel decreases, the Company may be unable to maintain the current competitive position in the specialty markets in which the Company operates and be unable to expand the operations into new specialty markets.

Increases in interest rates may cause the Company to experience losses.

Because of the unpredictable nature of losses that may arise under insurance policies, the Company may require substantial liquidity at any time. The investment portfolio, which consists largely of fixed-income investments, is the principal source of liquidity. The market value of the fixed-income investments is subject to fluctuation depending on changes in prevailing interest rates and various other factors. The Company does not hedge the investment portfolio against interest rate risk. Interest rates are at or close to historic lows. Increases in interest rates during periods when the Company must sell fixed-income securities to satisfy liquidity needs may result in substantial realized investment losses.

The investment portfolio is subject to certain risks that could adversely affect the results of operations, financial condition or cash flows.

Although the investment policy guidelines emphasize total investment return in the context of preserving and enhancing shareholder value and statutory surplus of the insurance subsidiaries, the investments are subject to market-wide risks and fluctuations, as well as to risks inherent in particular types of securities. Due to these risks, the Company may not be able to realize its investment objectives. In addition, the Company may be forced to liquidate investments at times and prices that are not optimal, which could have an adverse effect on results of operations. Investment losses could significantly decrease the asset base, thereby adversely affecting the ability to conduct business and pay claims.

25

The Company is exposed to significant capital market risks related to changes in interest rates, credit spreads, equity prices and foreign exchange rates, which may adversely affect its results of operations, financial condition or cash flows.

The Company is exposed to significant capital markets risk related to changes in interest rates, credit spreads, equity prices and foreign currency exchange rates. If significant, declines in equity prices, changes in interest rates, changes in credit spreads and the strengthening or weakening of foreign currencies against the U.S. dollar, individually or in tandem, could have a material adverse effect on the consolidated results of operations, financial condition or cash flows.

The exposure to interest rate risk relates primarily to the market price and cash flow variability associated with changes in interest rates. The investment portfolio contains interest rate sensitive instruments, such as fixed income securities, which may be adversely affected by changes in interest rates from governmental monetary policies, domestic and international economic and political conditions and other factors beyond the control of the Company. A rise in interest rates would reduce the fair value of the investment portfolio. It would also provide the opportunity to earn higher rates of return on funds reinvested. Conversely, a decline in interest rates would increase the fair value of the investment portfolio. The Company would then presumably earn lower rates of return on assets reinvested. The Company may be forced to liquidate investments prior to maturity at a loss in order to cover liabilities. Although the Company takes measures to manage the economic risks of investing in a changing interest rate environment, it may not be able to mitigate the interest rate risk of its assets relative to its liabilities.

Included in the fixed income securities are asset-backed and mortgage-backed securities. Changes in interest rates can expose the Company to prepayment risks on these investments. In periods of declining interest rates, mortgage prepayments generally increase and mortgage-backed securities are prepaid more quickly, requiring the Company to reinvest the proceeds at the then current rates.

The fixed income portfolio is invested in high quality, investment-grade securities. However, the Company is generally permitted to hold up to 2% of the total investment portfolio in below investment-grade high yield fixed income securities. These securities, which pay a higher rate of interest, also have a higher degree of credit or default risk. These securities may also be less liquid in times of economic weakness or market disruptions. While the Company has put in place procedures to monitor the credit risk and liquidity of the invested assets, it is possible that, in periods of economic weakness, the Company may experience default losses in the portfolio. This may result in a reduction of net income, capital and cash flows.

The Company invests a portion of the portfolio in common stock or preferred stocks. The value of these assets fluctuates with the equity markets. In times of economic weakness, the market value and liquidity of these assets may decline, and may impact net income, capital and cash flows.

The functional currency of the Company’s principal insurance and reinsurance subsidiaries is the U.S. dollar. Exchange rate fluctuations relative to the functional currency may materially impact the financial position, as the Company conducts business in several non-U.S. currencies. In addition, locally-required capital levels are invested in local currencies in order to satisfy regulatory requirements and to support local insurance operations regardless of currency fluctuations. One currency in the NavRe Latin American division can be considered hyperinflationary (or subject to a monthly inflation rate greater than 50 percent, as many economists generally define such term). However, the balances in that currency are immaterial.

Despite mitigation efforts, an increase in interest rates or a change in foreign exchange rates could have a material adverse effect on the results of operations, financial position and cash flows.

Capital may not be available to the Company in the future or may only be available on unfavorable terms.

The capital needs of the business are dependent on several factors, including the ability to write new business successfully and to establish premium rates and reserves at levels sufficient to cover the losses. If the current capital becomes insufficient for its future plans, the Company may need to raise additional capital through the issuance of stock or debt. Otherwise, in the case of insufficient capital, the Company may need to limit its growth. The terms of equity or debt offering could be unfavorable, for example, causing dilution to the current shareholders or such securities may have rights, preferences and privileges that are senior to existing securities. If the Company was in a situation of having inadequate capital and if it was not able to obtain additional capital, the business, results of operations and financial condition could be adversely affected to a material extent.

26

A downgrade in the ratings could adversely impact the competitive positions of the operating businesses or negatively affect the ability to implement the business strategy successfully.

Ratings are a critical factor in establishing the competitive position of insurance companies. The Insurance Companies are rated by A.M. Best and S&P. A.M. Best’s and S&P’s ratings reflect their opinions of an insurance company’s financial strength, operating performance, strategic position and ability to meet its obligations to policyholders, and are not evaluations directed to investors. The ratings are subject to periodic review by A.M. Best and S&P. Because these ratings have become an increasingly important factor in establishing the competitive position of insurance companies, if these ratings are reduced, the competitive position in the industry, and therefore the business, could be adversely affected in a material manner. A significant downgrade could result in a substantial loss of business as policyholders might move to other companies with higher ratings. In addition, a significant downgrade could subject the Company to higher borrowing costs and the ability to access the capital markets could be negatively impacted. If the Company were to be downgraded below an “A-”, it would be required to provide additional collateral under the letter of credit facility with ING Bank, N.V., London Branch, as Administrative Agent and Letter of Credit Agent. Further, a downgrade below BBB- by S&P would subject the Company to higher interest rates payable on the 5.75% Senior Notes due October 15, 2023 (“5.75% Senior Notes”). Refer to Note 8, Credit Facilities, and Note 9, Senior Notes, in the Notes to Consolidated Financial Statements for additional information regarding such credit facility and 5.75% Senior Notes, respectively.

There can be no assurance that the current ratings will continue for any given period of time. For a further discussion of the ratings, refer to “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Ratings” included herein.

Continued or increased premium levies by Lloyd’s for the Lloyd’s Central Fund and cash calls for trust fund deposits or a significant downgrade of Lloyd’s A.M. Best rating could materially and adversely affect the Company.

The Lloyd’s Central Fund protects Lloyd’s policyholders against the failure of a member of Lloyd’s to meet its obligations. The Central Fund is a mechanism which in effect mutualizes unpaid liabilities among all members, whether individual or corporate. The fund is available to back Lloyd’s policies issued after 1992. Lloyd’s requires members to contribute to the Central Fund, normally in the form of an annual contribution, although a special contribution may be levied. The Council of Lloyd’s has discretion to call up to 3% of underwriting capacity in any one year.

Policies issued before 1993 have been reinsured by Equitas Insurance Limited (“Equitas”), an independent insurance company authorized by the Financial Services Authority. However, if Equitas were to fail or otherwise be unable to meet all of its obligations, Lloyd’s may take the view that it is appropriate to apply the Central Fund to discharge those liabilities Equitas failed to meet. In that case, the Council of Lloyd’s may resolve to impose a special or additional levy on the existing members, including Lloyd’s corporate members, to satisfy those liabilities.

Additionally, Lloyd’s insurance and reinsurance business is subject to local regulation, and regulators in the United States require Lloyd’s to maintain certain minimum deposits in trust funds as protection for policyholders in the United States. These deposits may be used to cover liabilities in the event of a major claim arising in the United States and Lloyd’s may require the Company to satisfy cash calls to meet claims payment obligations and maintain minimum trust fund amounts.

Any premium levy or cash call would increase the expenses of NCUL, the corporate member, without providing compensating revenues, and could have a material adverse effect on the results.

The Company believes that in the event that Lloyd’s rating is downgraded, the downgrade could have a material adverse effect on the ability to underwrite business through the Lloyd’s Operations and therefore on the financial condition or results of operations.

The businesses are heavily regulated, and changes in regulation may reduce the profitability and limit growth.

The insurance subsidiaries are subject to extensive regulation and supervision in the jurisdictions in which they conduct business. This regulation is generally designed to protect the interests of policyholders, as opposed to insurers and their stockholders and other investors, and relates to authorization for lines of business, capital and surplus requirements, investment limitations, underwriting limitations, transactions with affiliates, dividend limitations, changes in control, premium rates and a variety of other financial and non-financial components of an insurance company’s business.

Virtually all states require insurers licensed to do business in that state to bear a portion of the loss suffered by some insureds as the result of impaired or insolvent insurance companies through the operation of guaranty funds. The effect of these arrangements could reduce profitability in any given period or limit the ability to grow the business.

In recent years, the state insurance regulatory framework has come under increased federal scrutiny, and some state legislatures have considered or enacted laws that may alter or increase state authority to regulate insurance companies and insurance holding companies. Further, the NAIC and state insurance regulators are re-examining existing laws and regulations, specifically focusing on

27

modifications to holding company regulations, interpretations of existing laws and the development of new laws. Additionally, the Dodd-Frank Wall Street Reform and Consumer Protection Act, which became effective on July 21, 2010, established a Federal Insurance Office to, among other responsibilities; identify issues or gaps in the regulation of insurers that could contribute to a systemic crisis in the insurance industry or the United States financial system. Any proposed or future legislation or NAIC initiatives may be more restrictive than current regulatory requirements or may result in higher costs.

In response to the September 11, 2001 terrorist attacks, the United States Congress has enacted legislation designed to ensure, among other things, the availability of insurance coverage for terrorist acts, including the requirement that insurers provide such coverage in certain circumstances. Refer to “Business - Regulation – United States” included herein for a discussion of the TRIA, TRIEA and TRIPRA legislation.

Extensive changes to the regulatory regime for financial services in the United Kingdom have been enacted. Refer to “Business – Regulation – United Kingdom” included herein for a discussion of such proposals.

The E.U. Directive on Solvency II may affect how the Company manages the business, subject the Company to higher capital requirements and cause it to incur additional costs to conduct the business in the E.U. (including the United Kingdom) and possibly elsewhere.

An E.U. directive covering the capital adequacy, risk management and regulatory reporting for insurers, known as Solvency II, was adopted by the European Parliament in April 2009. Solvency II will introduce a new system of regulation for insurers operating in the E.U. (including the United Kingdom) and presents a number of risks to us. Although Solvency II was originally stated to have become effective by October 31, 2012, implementation has been delayed several times. On January 31, 2014, EIOPA set up the timeline for the delivery of the Solvency II Implementing Technical Standards and Guidelines. It was stated that the overall goal was to deliver the regulatory and supervisory framework for the technical implementation of the Solvency II regime from the first day of application, January 1, 2016. Over the last few years, the Company has undertaken a significant amount of work to ensure that it meets the new requirements and this work will continue into 2015. There is also a risk that if the Solvency II requirements are not met on an on-going basis they may impact the capital requirements for the U.K. Branch and Syndicate 1221. These new regulations have the potential to adversely affect the profitability of NIC, NUAL and Syndicate 1221, and to restrict their ability to carry on their businesses as currently conducted. An outstanding issue is the question about how Solvency II will be implemented and whether the new regulations will apply to NIC’s U.K. Branch or to all of its operations, both within and outside of the United Kingdom and the other E.U. countries in which it operates. If the regulations are applied to NIC in its entirety, the Company could be subject to even more onerous requirements under the new regulations. Work is ongoing in this area to find a solution that aligns to the Company’s longer term strategy, but there is no assurance that such a solution can be found.

The inability of the subsidiaries to pay dividends to the Company in sufficient amounts would harm the ability to meet obligations.

The Parent Company is a holding company and relies primarily on dividends from its subsidiaries to meet its obligations for payment of interest and principal on outstanding debt obligations and corporate expenses. The ability of the insurance subsidiaries to pay dividends to the Parent Company in the future will depend on their statutory surplus, on earnings and on regulatory restrictions. For a discussion of the insurance subsidiaries’ current dividend-paying ability, please refer to “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Capital Resources”, included herein. The Parent Company, as an insurance holding company, and the underwriting subsidiaries are subject to regulation by some states. Such regulation generally provides that transactions between companies within the consolidated group must be fair and equitable. Transfers of assets among affiliated companies, certain dividend payments from underwriting subsidiaries and certain material transactions between companies within the consolidated group may be subject to prior notice to, or prior approval by, state regulatory authorities. The underwriting subsidiaries are also subject to licensing and supervision by government regulatory agencies in the jurisdictions in which they do business. These regulations may set standards of solvency that must be met and maintained, such as the nature of and limitations on investments, the nature of and limitations on dividends to policyholders and stockholders and the nature and extent of required participation in insurance guaranty funds. These regulations may affect the subsidiaries’ ability to provide the Company with dividends.

Catastrophe losses could materially reduce profitability.

The Company is exposed to claims arising out of catastrophes, particularly in the Marine insurance line of business, the NavTech and NavRe businesses. The Company has experienced, and will experience in the future, catastrophe losses, which may materially reduce profitability or harm the financial condition of the Company. Catastrophes can be caused by various natural events, including, but not limited to, hurricanes, windstorms, earthquakes, tornadoes, floods, hail, severe winter weather and fires. Catastrophes can also be man-made, such as war, explosions or the World Trade Center attack, or caused by unfortunate events such as the Deepwater Horizon oil rig disaster or the grounding of the cruise ship Costa Concordia. In addition, changing climate conditions could result in an increase in the frequency or severity of natural catastrophes, which could increase exposure to such losses. The incidence and severity

28

of catastrophes are inherently unpredictable. Although the Company will attempt to manage exposure to such events, the frequency and severity of catastrophic events could exceed estimates, which could have a material adverse effect on the financial condition of the Company.

The market price of Navigators common stock may be volatile.

There has been significant volatility in the market for equity securities. The price of Navigators common stock may not remain at or exceed current levels. In addition to the other risk factors detailed herein, the following factors may have an adverse impact on the market price of Navigators common stock:

• Actual or anticipated variations in the quarterly results of operations, including the result of catastrophes,

• Changes in market valuations of companies in the insurance and reinsurance industry,

• Changes in expectations of future financial performance or changes in estimates of securities analysts,

• Issuances of common shares or other securities in the future,

• A downgrade in the credit ratings,

• The addition or departure of key personnel, and

• Announcements by the Company or the competitors of acquisitions, investments or strategic alliances.

Stock markets in the United States often experience price and volume fluctuations. Market fluctuations, as well as general political and economic conditions such as a recession or interest rate or currency rate fluctuations, could adversely affect the market price of Navigators common stock.

There is a risk that the Company may be directly or indirectly exposed to recent uncertainties with regard to European sovereign debt holdings.

The Company is protected by various treaty and facultative reinsurance agreements. The exposure to credit risk from any one reinsurer is managed through diversification by reinsuring with a number of different reinsurers, principally in the United States and European reinsurance markets. Consequently, the Company may be indirectly exposed to recent uncertainties with regard to European sovereign debt holdings through certain of its reinsurers. A table of the 20 largest reinsurers by the amount of reinsurance recoverable for ceded losses and LAE and ceded unearned premium is presented in “Business” along with their rating from two rating agencies. The 20 largest reinsurers from the United States and Europe represent 75.7% of the Reinsurance Recoverables at December 31, 2014.

In addition, the Company invests in non-sovereign fixed maturities where the issuer is located in the Euro Area, an economic and monetary union of certain member states within the European Union that have adopted the Euro as their common currency. As of December 31, 2014, the fair value of such securities was $97.6 million, with an amortized cost of $97.6 million representing 3.8% of the total fixed income and equity portfolio. The largest exposure is in France with a total of $40.1 million followed by The Netherlands with a total of $39.6 million. The Company has no direct material exposure to Greece, Portugal, Italy, Spain, Ukraine or Russia as of December 31, 2014.

Nonetheless, the failure of the European Union member states to successfully resolve a fiscal or political crisis could result in the devaluation of the Euro, the abandonment of the Euro by one or more members of the European Union or the dissolution of the European Union and it is impossible to predict all of the consequences that this could have on the global economy in general or more specifically on the business. Any or all of these events could have a material adverse effect on the results of operations, liquidity and financial condition of the Company.

The determination of the impairments taken on the investments is subjective and could materially impact the financial position or results of operations.

The determination of the impairments taken on the investments varies by investment type and is based upon the periodic evaluation and assessment of known and inherent risks associated with the respective asset class. Such evaluations and assessments are revised as conditions change and new information becomes available. Management updates its evaluations regularly and reflects impairments in operations as such evaluations are revised. The Company cannot be certain that it has accurately assessed the level of impairments taken in its financial statements. Furthermore, additional impairments may need to be taken in the future, which could materially impact its financial position or results of operations. Historical trends may not be indicative of future impairments.

If the Company experiences difficulties with information technology and telecommunications systems and/or data security, the ability to conduct the business might be adversely affected.

The Company relies heavily on the successful, uninterrupted functioning of the information technology (“IT”) and telecommunications systems. The business and continued expansion is highly dependent upon the ability to perform, in an efficient

29

and uninterrupted fashion, necessary business functions, such as pricing, quoting and processing policies, paying claims, performing actuarial and other modeling functions. A failure of the IT and telecommunication systems or the termination of third-party software licenses the Company relies on in order to maintain such systems could materially impact the ability to write and process business, provide customer service, pay claims in a timely manner or perform other necessary actuarial, legal, financial and other business functions. Computer viruses, hackers and other external hazards, as well as internal exposures such as potentially dishonest employees, could expose the IT and data systems to security breaches that may result in liability to the Company, cause the data to be corrupted and cause the Company to commit resources, management time and money to prevent or correct security breaches. If the Company does not maintain adequate IT and telecommunications systems, it could experience adverse consequences, including inadequate information on which to base critical decisions, the loss of existing customers, difficulty in attracting new customers, litigation exposures, damage to business reputation and increased administrative expenses. As a result, the Company could experience financial losses and ability of the Company to conduct business might be adversely affected.

Compliance by the Marine business with the legal and regulatory requirements to which they are subject is evolving and unpredictable. In addition, compliance with new sanctions and embargo laws could have a material adverse effect on the business.

The Marine business, like the other business lines, is required to comply with a wide variety of laws and regulations, including economic sanctions and embargo laws and regulations, applicable to insurance or reinsurance companies, both in the jurisdictions in which they are organized and where they sell their insurance and reinsurance products, and that implicate the conduct of insureds. The insurance industry, in particular as relates to international insurance and reinsurance companies, has become subject to increased scrutiny in many jurisdictions, including the United States, various states within the United States, the E.U., and various countries within the E.U., and the United Kingdom. For example, in 2012, President Obama signed into law the Iran Threat Reduction and Syria Human Rights Act of 2012 (the “Act”) which created new sanctions and strengthened existing sanctions against Iran. Among other things, the Act intensifies existing sanctions regarding the provision of goods, services, infrastructure or technology to Iran’s petroleum or petrochemical sector, and included provisions relating to persons that engage in certain insurance or re-insurance activities.

Increased regulatory focus on the Company, such as in connection with the matters discussed above, may result in costly compliance burdens and/or may otherwise increase costs, which could materially and adversely impact financial performance. The introduction of new or expanded economic sanctions applicable to Marine insurance could also force the Company to exit certain geographic areas or product lines, which could have an adverse impact on profitability.

Although the Company intends to maintain compliance with all applicable sanctions and embargo laws and regulations, and have established protocols, policies and procedures reasonably tailored to ensure compliance with all applicable embargo laws and regulations, there can be no assurance that the Company will be in compliance in the future, particularly as the scope of certain laws may be unclear and may be subject to changing interpretations. Any such violation could result in fines, penalties or other sanctions that could severely impact the ability to access U.S. capital markets and conduct the business, and could result in some investors deciding, or being required, to divest their interest, or not to invest, in the Company. In addition, certain institutional investors may have investment policies or restrictions that prevent them from holding securities of companies that have contracts with countries identified by the U.S. government as state sponsors of terrorism. The determination by these investors not to invest in, or to divest from, investing in the common stock of the Company may adversely affect the price at which the common stock trades.

Moreover, the subsidiaries, such as the Lloyd’s Operations, may be subject to different sanctions and embargo laws and regulations. The reputation and the market for the securities of the Company may be adversely affected if the Lloyd’s Operations engages in certain activities, even though such activities are lawful under applicable sanctions and embargo laws and regulations.

ITEM 1B. UNRESOLVED STAFF COMMENTS

None

30

ITEM 2. PROPERTIES

The executive and administrative office is located at 400 Atlantic Street, Stamford, CT. The lease for this space expires in October 2023. The underwriting operations are in various locations with non-cancelable operating leases including:

• U.S.

• Alpharetta, GA,

• Boston, MA,

• Chicago, IL,

• Coral Gables, FL,

• Danbury, CT,

• Ellicott City, MD,

• Houston, TX,

• Irvine, CA,

• Iselin, NJ,

• Los Angeles, CA,

• Minneapolis, MN,

• New York City, NY,

• Philadelphia, PA,

• Pittsburgh, PA,

• San Francisco, CA,

• Schaumburg, IL,

• Seattle, WA,

• Stamford, CT.

• Non-U.S.

• Antwerp, Belgium,

• Copenhagen, Denmark,

• London, England,

• Milan, Italy,

• Paris, France,

• Rio de Janeiro, Brazil,

• Rotterdam, The Netherlands,

• Stockholm, Sweden.

ITEM 3. LEGAL PROCEEDINGS

In the ordinary course of conducting business, the subsidiaries are involved in various legal proceedings, either indirectly as insurers for parties or directly as defendants. Most of the these proceedings consist of claims litigation involving the subsidiaries as either (a) liability insurers defending or providing indemnity for third party claims brought against insureds or (b) insurers defending first party coverage claims brought against them. The Company accounts for such activity through the establishment of unpaid loss and loss adjustment reserves. The Company’s management believes that the ultimate liability, if any, with respect to such ordinary-course claims litigation, after consideration of provisions made for potential losses and cost of defense, will not be material to the consolidated financial condition, results of operations, or cash flows of the Company.

The subsidiaries are also occasionally involved with other legal actions, some of which assert claims for substantial amounts. These actions include claims asserting extra contractual obligations, such as claims involving allegations of bad faith in the handling of claims or the underwriting of policies. In general, the Company believes they have valid defenses to these cases. The Company’s management expects that the ultimate liability, if any, with respect to such extra-contractual matters will not be material to its consolidated financial position. Nonetheless, given the large or indeterminate amounts sought in certain of these matters, and the inherent unpredictability of litigation, an adverse outcome in such matters could, from time to time, have a material adverse outcome on the consolidated results of operations or cash flows in a particular fiscal quarter or year.

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable

31

PART II

ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUE PURCHASES OF EQUITY SECURITIES

Market Information

The Company’s common stock is traded over-the-counter on NASDAQ under the symbol NAVG. Over-the-counter market quotations reflect inter-dealer prices, without retail mark-up, mark-down or commissions and may not necessarily represent actual transactions.

The high, low and closing trade prices for the four quarters of 2014 and 2013 were as follows:

	2014						2013
	High		Low		Close		High		Low		Close
First Quarter		63.59		58.41		61.39		59.5		51.72		58.75
Second Quarter		67.05		55.26		67.05		62.02		54.13		57.04
Third Quarter		67.25		60.8		61.5		61.5		53.58		57.77
Fourth Quarter		73.72		61.5		73.34		67.56		54.28		63.16

32

Information provided to the Company by the transfer agent and proxy solicitor indicates that there are approximately 471 holders of record and 4,059 beneficial holders of the common stock, as of January 20, 2015.

Five Year Stock Performance Graph

The Five Year Stock Performance Graph and related Cumulative Indexed Returns table, as presented below, reflects the cumulative return on the Company’s common stock, the Standard & Poor’s 500 Index (“S&P 500 Index”) and the S&P Property and Casualty Insurance Index (the “Insurance Index”) assuming an original investment in each of $100 on December 31, 2009 (the “Base Period”) and reinvestment of dividends to the extent declared. Cumulative returns for each year subsequent to 2009 are measured as a change from this Base Period.

The comparison of five year cumulative returns among the Company, the companies listed in the S&P 500 Index and the Insurance Index are as follows:

	Cumulative Indexed Returns Year Ended December 31,
	Base Period
Company / Index	2009		2010		2011		2012		2013		2014
The Navigators Group, Inc.		100.00		106.88		99.05		105.58		130.58		151.63
S&P 500 Index		100.00		115.06		117.49		136.29		180.43		205.11
Insurance Index		100.00		109.23		108.95		130.86		180.96		209.44

The following Annual Return Percentage table reflects the annual return on the Company’s common stock, the S&P 500 Index and the Insurance Index including reinvestment of dividends to the extent declared.

	Annual Return Percentage Year Ended December 31,
Company / Index	2010		2011		2012		2013		2014
The Navigators Group, Inc.		6.88		-7.33		6.60		23.67		16.12
S&P 500 Index		15.06		2.11		16.00		32.39		13.68
Insurance Index		9.23		-0.26		20.11		38.29		15.74

33

Dividends

The Company has not paid or declared any cash dividends on the common stock. While there presently is no intention to pay cash dividends on the common stock, future declarations, if any, are at the discretion of the Board of Directors and the amounts of such dividends will be dependent upon, among other factors, the results of operations and cash flow, financial condition and business needs, restrictive covenants under its credit facilities, the capital and surplus requirements of the subsidiaries and applicable government regulations.

Refer to Note 13, Dividends and Statutory Financial Information, in the Notes to Consolidated Financial Statements for additional information regarding dividends, including dividend restrictions and net assets available for dividend distribution.

Recent Sales of Unregistered Securities

None

Use of Proceeds from Public Offering of Debt Securities

None

Purchases of Equity Securities by the Issuer

None

34

ITEM 6. SELECTED FINANCIAL DATA

The following table sets forth selected consolidated financial data including consolidated financial information of the Company for each of the last five calendar years, derived from the Company’s audited Consolidated Financial Statements. The table should be read in conjunction with Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations”, and Item 8, “Financial Statements and Supplementary Data”, included herein.

	Year Ended December 31,
In thousands, except share and per share amounts	2014			2013			2012			2011			2010
Operating Information:
Gross written premiums	$	1,432,353		$	1,370,517		$	1,286,465		$	1,108,216		$	987,201
Net written premiums		1,000,138			887,922			833,655			753,798			653,938
Net earned premiums		935,895			841,939			781,964			691,645			659,931
Net investment income		64,168			56,251			54,248			63,500			71,662
Net other-than-temporary impairment losses		—			(2,393	)		(858	)		(1,985	)		(1,080	)
Net realized gains (losses)		12,812			22,939			41,074			11,996			41,319
Total revenues		1,023,531			917,564			877,916			766,385			776,975
Income (loss) before income taxes		140,536			92,273			91,736			32,734			98,829
Net income (loss)		95,329			63,466			63,762			25,597			69,578
Net income per share:
Basic	$	6.69		$	4.49		$	4.54		$	1.71		$	4.33
Diluted	$	6.51		$	4.42		$	4.45		$	1.69		$	4.24
Average common shares outstanding:
Basic		14,259,768			14,133,925			14,052,311			14,980,429			16,064,770
Diluted		14,646,369			14,345,553			14,327,820			15,183,285			16,415,266
Combined loss and expense ratio (1):
Loss ratio		58.3	%		61.6	%		63.6	%		69.0	%		63.8	%
Expense ratio		34.3	%		33.2	%		35.7	%		35.7	%		36.9	%
Total		92.6	%		94.8	%		99.3	%		104.7	%		100.7	%
Balance sheet information:
Total investments and cash	$	2,820,486		$	2,574,586		$	2,422,254		$	2,233,498		$	2,154,328
Total assets		4,464,176			4,169,452			4,007,670			3,670,007			3,531,459
Gross losses and LAE reserves		2,159,634			2,045,071			2,097,048			2,082,679			1,985,838
Net losses and LAE reserves		1,308,136			1,222,633			1,216,909			1,237,234			1,142,542
Senior Notes		263,440			263,308			114,424			114,276			114,138
Stockholders’ equity		1,027,224			902,212			879,485			803,435			829,354
Common shares outstanding		14,281,466			14,198,496			14,046,666			13,956,235			15,743,511
Book value per share (2)	$	71.93		$	63.54		$	62.61		$	57.57		$	52.68
Statutory surplus of Navigators Insurance Company	$	893,946		$	804,073		$	682,881		$	662,162		$	686,919

(1) - Calculated based on earned premiums.

(2) - Calculated as stockholders’ equity divided by actual shares outstanding as of the date indicated.

35

Item 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our consolidated financial statements and accompanying notes which appear elsewhere in this Form 10-K. It contains forward-looking statements that involve risks and uncertainties. Please refer to “Note on Forward Looking Statements” and “Risk Factors” for more information. Our actual results could differ materially from those anticipated in these forward-looking statements as a result of various factors, including those described below and elsewhere in this Form 10-K.

Overview

The terms “we,” “us,” “our,” or “our Company” as used herein are used to mean The Navigators Group, Inc., a Delaware holding company established in 1982, and its subsidiaries, unless the context otherwise requires. The terms “Parent” or “Parent Company” are used to mean The Navigators Group, Inc. without its subsidiaries. Our Company is an international insurance company focusing on specialty products within the overall property and casualty insurance market. Our long-standing area of specialization is Marine insurance. We have also developed niches in Professional Liability insurance and Property Casualty lines of insurance, such as Primary and Excess casualty coverages offered to commercial enterprises and Assumed Reinsurance.

Financial Highlights for the Year Ended December 31, 2014

• Net income of $95.3 million, an increase of 50.2% over prior year

• Earnings per diluted share of $6.51, an increase of 47.1% over prior year

• Net underwriting profit of $68.9 million, an increase of 57.0% over prior year

• Net investment income of $64.2 million, an increase of 14.1% over prior year

• Net cash flow from operations of $222.5 million, an increase of 62.6% over prior year

• Book value of $1.0 billion, an increase of 13.9% over prior year

We classify its business into one Corporate segment (“Corporate”) and two underwriting segments, the Insurance Companies segment (“Insurance Companies”) and the Lloyd’s Operations segment (“Lloyd’s Operations”) which are separately managed by business line divisions. The Insurance Companies are primarily engaged in underwriting Marine insurance, Primary Casualty insurance with a concentration in contractors’ general liability products, Excess Casualty insurance with a concentration in commercial umbrella products, Assumed Reinsurance, Management Liability insurance and Errors & Omissions (“E&O”) insurance. This segment is comprised of Navigators Insurance Company (“NIC”), which includes a United Kingdom (“UK”) branch (“UK Branch”), and Navigators Specialty Insurance Company (“NSIC”), which underwrites business on an excess and surplus lines basis. All of the business underwritten by NSIC is fully reinsured by NIC pursuant to a 100% quota share reinsurance agreement.

The Lloyd’s Operations are primarily engaged in underwriting Marine insurance; Energy & Engineering insurance with a concentration in offshore energy products and onshore energy construction products, Assumed Reinsurance, Management Liability insurance and E&O insurance at Lloyd’s of London (“Lloyd’s”) through Lloyd’s Syndicate 1221 (“Syndicate 1221”). The Corporate segment consists of the Parent Company’s investment income, interest expense and related income tax.

Our revenue is primarily comprised of premiums and investment income. We derive our premiums predominantly from business written by wholly-owned underwriting management companies, Navigators Management Company (“NMC”) and Navigators Management (UK) Ltd. (“NMUK”) that manage and service insurance and reinsurance business written by the Insurance Companies. Our products are distributed through multiple channels, utilizing global, national and regional retail and wholesale insurance brokers.

Navigators Underwriting Agency Ltd. (“NUAL”) is a Lloyd’s underwriting agency that manages Syndicate 1221. We control 100% of Syndicate 1221’s stamp capacity through our wholly-owned subsidiary, Navigators Corporate Underwriters Ltd. (“NCUL”), which is referred to as a corporate name in the Lloyd’s market. In addition, we have also established underwriting agencies in Antwerp, Belgium; Stockholm, Sweden; and Copenhagen, Denmark, as well as branches of the appointed representative, Navigators Underwriting Ltd. (“NUL”), in the European Economic Area (“EEA”), in Milan, Italy; Rotterdam; The Netherlands, and Paris,

36

France, which underwrite risks pursuant to binding authorities with NUAL into Syndicate 1221. We have also established a presence in Brazil and China through contractual arrangements with local affiliates of Lloyd’s.

For financial information by segment, refer to Note 3, Segment Information, in the Notes to Consolidated Financial Statements, included herein.

While management takes into consideration a wide range of factors in planning our business strategy and evaluating results of operations, there are certain factors that management believes are fundamental to understanding how we are managed. First, underwriting profit is consistently emphasized as a primary goal, above premium growth. Underwriting profit is a non-GAAP financial measure of performance and underwriting profitability, which is derived from net earned premium less the sum of net losses and Loss Adjustment Expenses (“LAE”), commission expenses, other operating expenses and other underwriting income or loss. Management’s assessment of our trends and potential growth in underwriting profit is the dominant factor in its decisions with respect to whether or not to expand a business line, enter into a new niche, product or territory or, conversely, to contract capacity in any business line. In addition, management focuses on controlling the costs of our operations. Management believes that careful monitoring of the costs of existing operations and assessment of costs of potential growth opportunities are important to our profitability. Access to capital also has a significant impact on management’s outlook for our operations. The Insurance Companies’ operations and ability to grow their business and take advantage of market opportunities are constrained by regulatory capital requirements and rating agency assessments of capital adequacy. Similarly, the ability to grow our Lloyd’s Operations is subject to capital and operating requirements of Lloyd’s and the U.K. regulatory authorities.

Management’s decisions are also greatly influenced by access to specialized underwriting and claims expertise in our lines of business. We have chosen to operate in specialty niches with certain common characteristics, which provide us with the opportunity to use our technical underwriting expertise in order to realize underwriting profit. As a result, we have focused on underserved markets for businesses characterized by higher severity and lower frequency of loss where we believe our intellectual capital and financial strength bring meaningful value. In contrast, we have avoided niches that we believe have a high frequency of loss activity and/or are subject to a high level of regulatory requirements, such as Workers Compensation and Personal Automobile insurance, because we do not believe; our technical underwriting expertise is of as much value in these types of businesses. Examples of niches that have the characteristics we look for include Bluewater Hull which provides coverage for physical damage to highly valued cruise ships, and Directors and Officers Liability insurance (“D&O”) which covers litigation exposure of a corporation’s directors and officers. These types of exposures require substantial technical expertise. We attempt to mitigate the financial impact of severe claims on our results through conservative and detailed underwriting, prudent use of reinsurance and a balanced portfolio of risks.

For additional information regarding our business, refer to “Business – Overview”, included herein.

Ratings

Our ability to underwrite business is dependent upon the financial strength of the Insurance Companies and Lloyd’s Operations. Financial strength ratings represent the opinions of the rating agencies on the financial strength of a company and its capacity to meet the obligations of insurance policies. Independent ratings are important to our competitive position in the insurance markets. The rating agencies consider many factors in determining the financial strength rating of an insurance company, including the relative level of statutory surplus necessary to support the business operations of our Company. These ratings are based upon factors relevant to policyholders, agents and intermediaries and are not directed toward the protection of investors. Such ratings are not recommendations to buy, sell or hold securities. We could be adversely impacted by a downgrade in the Insurance Companies’ or Lloyd’s Operations financial strength ratings, including a possible reduction in demand for our products, higher borrowing costs and our ability to access the capital markets.

The Insurance Companies, NIC and NSIC, utilize the financial strength ratings from A.M. Best and S&P for underwriting purposes. NIC and NSIC are both rated “A” (Excellent – stable outlook) by A.M. Best and “A” (Strong - stable outlook) by S&P. Syndicate 1221 utilizes the ratings from A.M. Best and S&P for underwriting purposes, which apply to all Lloyd’s syndicates. Lloyd’s is rated “A” (Excellent – positive outlook) by A.M. Best and A+ (Strong – stable outlook) by S&P.

Debt ratings apply to short-term and long-term debt as well as preferred stock. These ratings are assessments of the likelihood that we will make timely payments of the principal and interest for our senior debt. It is possible that, in the future, one or more of the rating agencies may reduce our existing debt ratings. If one or more of our debt ratings were downgraded, we could incur higher borrowing costs and our ability to access the capital markets could be impacted.

We utilize the senior debt ratings from S&P. Our senior debt is rated BBB (Adequate) by S&P.

37

Critical Accounting Estimates

We prepare our financial statements in accordance with GAAP, which requires the use of estimates and assumptions. Our consolidated financial statements include amounts that, either by their nature or due to requirements of GAAP, are determined using best estimates and assumptions. Management has discussed and reviewed the development, selection, and disclosure of critical accounting estimates with our Company’s Audit Committee. While we believe that the amounts included in our consolidated financial statements reflect our best judgment, actual amounts could ultimately materially differ from those currently presented.

We believe the items that require the most subjective and complex estimates involve the reporting of:

• The reserves for losses and LAE (including losses that have occurred but were not reported to us by the financial reporting date)

• Reinsurance recoverables, including a provision for uncollectible reinsurance

• Written and unearned premium

• The recoverability of deferred tax assets

• The impairment of investment securities

Reserves for Losses and LAE

Reserves for losses and LAE represent an estimate of the expected cost of the ultimate settlement and administration of losses, based on facts and circumstances then known less the amount paid to date. Actuarial methodologies are employed to assist in establishing such estimates and include judgments relative to estimates of future claims severity and frequency, length of time to develop to ultimate, judicial theories of liability and other third party factors, which are often beyond our control. No assurance can be given that actual claims made and related payments will not be in excess of the amounts reserved. During the loss settlement period, it often becomes necessary to refine and adjust the estimates of liability on a claim either upward or downward. Even after such adjustments, ultimate liability may exceed or be less than the revised estimates.

The numerous factors that contribute to the inherent uncertainty in the process of establishing loss reserves include: interpreting loss development activity, emerging economic and social trends, inflation, changes in the regulatory and judicial environment and changes in our operations, including changes in underwriting standards and claims handling procedures. The process of establishing loss reserves is complex and imprecise, as it must take into account many variables that are subject to the outcome of future events. As a result, informed subjective judgments as to our ultimate exposure to losses are an integral component of our loss reserving process.

Our actuaries calculate indicated incurred but not reported (“IBNR”) loss reserves for each line of business by underwriting year (“UWY”) by major product groupings using standard actuarial methodologies, which are projection or extrapolation techniques: the loss ratio method, the loss development method and the Bornheutter-Ferguson method. In general the loss ratio method is used to calculate the IBNR for only the most recent UWYs in the absence of any statistical data upon which to estimate ultimate losses while the Bornheutter-Ferguson method is used to calculate the IBNR for recent years where a statistical basis exists for that computation with the loss development method used for more mature UWYs. When appropriate such methodologies are supplemented by the frequency/severity method, which are used to analyze and better comprehend loss development patterns and trends in the data when making selections and judgments. Each of these methodologies, which are described below, are generally applicable to both long tail and short tail lines of business depending on a variety of circumstances. In utilizing these methodologies to develop our IBNR loss reserves, a key objective of management in making their final selections is to deliberate with our actuaries to identify aberrations and systemic changes occurring within historical experience and accurately adjust for them. This process requires the substantial use of informed judgment and is inherently uncertain as it can be influenced by numerous factors including:

• Inflationary pressures (medical and economic) that affect the size of losses;

• Judicial, regulatory, legislative, and legal decisions that affect insurers’ liabilities;

• Changes in the frequency and severity of losses;

• Changes in the underlying loss exposures of our policies;

• Changes in our claims handling procedures.

For non-statistical claim events, i.e., where historical patterns are not available for applicable, expert judgment by claims professionals with input from underwriting and management are used. Such instances relate to the IBNR loss reserve processes for our Hurricane losses and our asbestos exposures.

38

A brief summary of each actuarial method discussed above follows:

Loss ratio method

This method is based on the assumption that ultimate losses vary proportionately with premiums. Pursuant to the loss ratio method, IBNR loss reserves are calculated by multiplying the earned premium by an expected ultimate loss ratio to estimate the ultimate losses for each UWY, then subtracting the reported losses, consisting of paid losses and case loss reserves, to determine the IBNR loss reserve amount. The ultimate loss ratios applied are our Company’s best estimates for each UWY and are generally determined after evaluating a number of factors which include: information derived by underwriters and actuaries in the initial pricing of the business, the ultimate loss ratios established in the prior accounting period and the related judgments applied, the ultimate loss ratios of previous UWYs, premium rate changes, underwriting and coverage changes, changes in terms and conditions, legislative changes, exposure trends, loss development trends, claim frequency and severity trends, paid claims activity, remaining open case reserves and industry data where deemed appropriate. Such factors are also evaluated when selecting ultimate loss ratios and/or loss development factors in the methods described below.

Bornheutter-Ferguson method

The Bornheutter-Ferguson method calculates the IBNR loss reserves as the product of the earned premium, an expected ultimate loss ratio, and a loss development factor that represents the expected percentage of the ultimate losses that have been incurred but not yet reported. The loss development factor equals one hundred percent less the expected percentage of losses that have thus far been reported, which is generally calculated as an average of the percentage of losses reported for comparable reporting periods of prior UWY. The expected ultimate loss ratio is generally determined in the same manner as in the loss ratio method.

Loss development method

The loss development method, also known as the chainladder or the link-ratio method, develops the IBNR loss reserves by multiplying the paid or reported losses by a loss development factor to estimate the ultimate losses, then subtracting the reported losses, consisting of paid losses and case loss reserves, to determine the IBNR loss reserves. The loss development factor is the reciprocal of the expected percentage of losses that have thus far been reported, which is generally calculated as an average of the percentage of losses reported for comparable reporting periods of prior UWYs.

Frequency/severity method

The frequency/severity method calculates the IBNR loss reserves by separately projecting claim count and average cost per claim data on either a paid or incurred basis. It estimates the expected ultimate losses as the product of the ultimate number of claims that are expected to be reported and the expected average amount of these claims.

Actuarial loss studies are conducted by our Company’s actuaries at various times throughout the year for major lines of business employing the methodologies as described above. Additionally, a review of the emergence of actual losses relative to expectations for each line of business generally derived from the quarterly and/or semi-annual in depth reserve analyses is conducted to determine whether the assumptions used in the reserving process continue to form a reasonable basis for the projection of liabilities for each product line. Such reviews may result in maintaining or revising assumptions regarding future loss development based on various quantitative and qualitative considerations. If actual loss activity differs from expectations, an upward or downward adjustment to loss reserves may occur. As time passes, estimated loss reserves for an UWY will be based more on historical loss activity and loss development patterns rather than on assumptions based on underwriters’ input, pricing assumptions or industry experience.

The following discusses the method used for calculating the IBNR for each line of business and key assumptions used in applying the actuarial methods described.

The period between the date of loss occurrence and the final payment date of the ensuing claim(s) is referred to as the “claim-tail.” Short-tail business generally describes Product lines for which losses are typically known and paid shortly after the loss actually occurs. For example, a personal accident where no other parties were involved tends to be a short process. The ambiguity associated with our estimate of ultimate losses for any particular accident period diminishes quickly as actual loss experience develops. Long-tail business defines lines of business for which specific losses may not be known or reported for a longer period and claims can take significant time to settle. For long-tail lines such as General Liability, the time lag for reporting claims is greater than it is in short-tail lines. Facts and information are frequently not complete at the time case reserves are established, and because there is a higher risk for additional litigation, final settlement amounts are unknown. Each business segment is analyzed individually, with development characteristics for each short-tail and long-tail line of business identified and applied accordingly.

39

Marine

Generally, two key assumptions are used by our actuaries in setting IBNR loss reserves for major products in this line of business. The first assumption is that our historical experience regarding paid and reported losses for each product where we have sufficient history can be relied on to predict future loss activity. The second assumption is that our underwriters’ assessments as to potential loss exposures are reliable indicators of the level of our expected loss activity. The specific loss reserves for Marine are then analyzed separately by product based on such assumptions, except where noted below, with the major products including Marine Liability, Cargo, Protection and Indemnity (“P&I”), Transport and Bluewater Hull.

The claims emergence patterns for various Marine Product lines vary substantially. Our largest Marine Product line is Marine Liability, which has one of the longer loss development patterns. Marine Liability protects an insured’s business from Liability to third parties stemming from their marine-related operations, such as terminal operations, stevedoring and marina operations. Since Marine Liability claims generally involve a dispute as to the extent and amount of legal liability that our insured has to a third party, these claims tend to take a longer time to develop and settle. Other Marine Product lines have considerably shorter periods in which losses develop and settle. Ocean Cargo insurance, for example, provides physical damage coverage to goods in the course of transit by water, air or land. By their nature, Cargo claims tend to be reported quickly as losses typically result from an obvious peril such as fire, theft or weather. Similarly, Bluewater Hull insurance provides coverage against physical damage to ocean-going vessels. Such claims for physical damage generally are discovered, reported and settled quickly. Relatively short tailed Marine lines with a third party liability component include P&I Insurance, which provides coverage for third party liability as well as injury to crew for vessel operators, and Transport insurance, which provides both property and third party liability on a primary basis to business such as port authorities, marine terminal operators and others engaged in infrastructure of international transportation. Our Company currently has extensive experience for all of these products and thus the IBNR loss reserves for all of the Marine Products are determined using the key assumptions and actuarial methodologies described above. Prior to 2007, however, as discussed below in the sensitivity analysis, our Company did not have sufficient experience in the Transport product line and instead used its Hull and Liability products loss development experience as a key assumption in setting the IBNR loss reserves for its Transport product.

Property Casualty

The reserves for P&C are established separately for each major Product line, such as Offshore Energy, Excess Casualty, and Accident and Health (“A&H”), reinsurance. Within Primary Casualty, the reserves are established separately for construction and non-construction risks. Our actuaries generally assume that historical loss development patterns are reasonable predictors of future loss patterns and deploy a variety of traditional actuarial techniques to develop a reasonable expectation of ultimate losses. However, there are a number of products for which our Company has insufficient experience so as to generate credible actuarial projections. In those instances, we typically evaluate overall industry experience, rely on the input of underwriting, and claims executives in setting assumptions for our IBNR reserves. We also attempt to make reasonable provisions for the impact of economic, legal and competitive trends in projecting future loss development.

A substantial portion of our Primary Casualty loss reserves are for liability policies issued to contractors, many of which are operating in California and other western states which have experienced significant amounts of litigation involving allegations of construction defect. Accordingly, Contractor Liability claims are categorized into two claim types: construction defect and other general liability. Other general liability claims typically derive from worksite accidents or from negligence alleged by third parties, and frequently take a long time to report and settle. construction defect claims involve the discovery of damage to buildings that was caused by latent construction defects. These claims take a very long time to report and to settle compared to other general liability claims. Since construction defect claims report much later than other Contractor Liability claims, they are analyzed separately in our quarterly actuarial loss studies.

We have extensive history in the Contractors’ Liability business upon which to perform actuarial analyses and we use the key assumption noted above relating to our own historical experience as a reliable indicator of the future for this product. However, there is inherent uncertainty in the loss reserve estimation process for this line of business given both the long-tail nature of the liability claims and the continuing underwriting and coverage changes, claims handling and reserve changes, and legislative changes that have occurred over a several year period. Such factors are judgmentally taken into account in this line of business in specific periods. The underwriting and coverage changes include the migration to a non-admitted business from admitted business in 2003, which allowed us to exclude certain exposures previously permitted (for example, exposure to construction work performed prior to the policy inception), withdrawals from certain contractor classes previously underwritten and expansion into new states beginning in 2005. Claims changes include bringing the claim handling in-house in 1999 and changes in case reserving practices in 2003, 2006 and 2011. During 2010 and 2011, we also significantly increased our claims staff and improved our claims procedures, which has allowed our Company to respond more quickly to reported construction defect claims. Our Company is closely monitoring the impact of these effects on the adequacy of our case and IBNR loss reserves. After analysis of the factors above, Management believes that our reserves remain adequate to address our exposure to construction defect losses, but given the uncertainties noted above, there is a risk that our reserves for construction defect losses may ultimately prove to be inadequate, perhaps in a material manner.

40

Offshore Energy provides physical damage coverage to offshore oil platforms along with offshore operations related to oil exploration and production. The significant Offshore Energy claims are generally caused by fire or storms, and thus tend to be large, infrequent, quickly reported, but occasionally not quickly settled because the damage is often extensive and not always immediately known.

Primary Casualty insurance provides Primary General Liability coverage principally to corporations in the construction, real estate and manufacturing sector. Excess Casualty insurance is purchased by corporations, which seek higher limits of liability than are provided in their Primary Casualty policies.

Assumed Reinsurance provides proportional and excess-of-loss treaty coverage for several niche lines: A&H, Agriculture, Latin America (“LatAm”), and Professional Liability. The A&H reinsurance line primarily provides reinsurance coverage for individual medical claims that occur with small frequency. The Agriculture reinsurance line primarily provides reinsurance coverage related to crop insurance schemes, most of which are sponsored by governmental bodies in the United States (“U.S.”) and Canada. The LatAm line primarily provides reinsurance coverage for individual risk and catastrophic Property exposures, Liability exposures, and Surety Bonds in Central and South America and the Spanish-speaking Caribbean. The Professional Liability line primarily provides reinsurance coverage for exposure related to medical malpractice and other miscellaneous Professional Liability policies.

Professional Liability

The Professional Liability policies mainly provide coverage on a claims-made basis mostly for a one-year period. The reserves for Professional Liability are analyzed separately by product. The major products are Management Liability and Errors and Omissions (“E&O”), Insurance. For Management Liability, we evaluate and set loss reserves separately for Primary policies and Excess policies for U.S. corporations.

The losses for Management Liability business are generally very severe and infrequent, and with some cases, involving securities class actions. Management Liability claims report reasonably quickly, but take years to settle. In addition, our potential liability to pay a covered claim depends upon whether we have issued a Primary policy, in which case the cost of defense is a large component of the ultimate loss, or an excess policy at a higher attachment point, in which case our policy is not impacted until the covered claim has exceeded the coverage available in the other policies that our policy is in excess-of-loss. Our loss estimates are based on expected losses, an assessment of the characteristics of reported losses at the claim level, evaluation of loss trends, industry data, and the legal, regulatory and current risk environment. Significant judgment is involved because anticipated loss experience in this area is less predictable due to the small number of claims and/or erratic claim severity patterns. As time passes for a given UWY, we place additional weight on assumptions relating to our actual experience and claims outstanding. The expected ultimate losses may be adjusted up or down as the UWYs mature.

Lloyd’s Operations

Reserves for our Company’s Lloyd’s Operations are reviewed separately for the Marine, P&C, and Professional Liability lines by product. The major Marine Products are Marine Liability, Transport, Marine Energy Liability, Cargo, Specie and Marine Reinsurance. The major P&C Products are Offshore Energy, Engineering, Onshore Energy, Operational Engineering and Direct and Facultative Property. The major products for Professional Liability are International Management Liability and International E&O.

The Marine Liability, Offshore Energy and Cargo Products and related loss exposures are similar in nature to that described for Marine business above. Specie insurance provides property coverage for jewelry, fine art, vault and cash in transit risks. Claims tend to be from theft or damage, quick to report and, in most cases, quick to settle. Marine reinsurance is a diversified global book of reinsurance, the majority of which consists of excess-of-loss reinsurance policies for which claims activity tends to be large and infrequent with loss development somewhat longer than for such products written on a direct basis. Marine reinsurance reinsures Liability, Cargo, Hull and Offshore Energy exposures that are similar in nature to the Marine business described above.

The process for establishing the IBNR loss reserves for the Marine and Professional Liability lines of the Lloyd’s Operations, and the assumptions used as part of this process, are similar in nature to the process employed by the Insurance Companies.

The Lloyd’s Operations products also include Property coverages for engineering and construction projects and Onshore Energy business, which are substantially reinsured. Losses from engineering and construction projects tend to result from loss of use due to construction delays while losses from Onshore Energy business are usually caused by fires or explosions. Large losses tend to be catastrophic in nature and are heavily reinsured. IBNR loss reserves for attritional losses are established based on the Syndicate’s extensive loss experience.

41

Sensitivity Analysis

			Reasonably Likely Range of Deviation
In thousands, except per share amounts	Total Net Loss Reserve		Strengthening Amount			%			Release Amount			%
Insurance Companies:
Marine	$	194,743	$	18,373			9.4	%	$	20,287			-10.4	%
Property Casualty		655,320		73,014			11.1	%		82,168			-12.5	%
Professional Liability		142,858		25,680			18.0	%		31,308			-21.9	%
Total Insurance Companies (1)		992,921		90,033			9.1	%		99,011			-10.0	%
Lloyd’s Operations:
Marine		214,461		12,749			5.9	%		13,554			-6.3	%
Property Casualty		39,563		2,787			7.0	%		2,998			-7.6	%
Professional Liability		61,191		7,058			11.5	%		7,978			-13.0	%
Total Lloyd’s Operations (1)		315,215		17,996			5.7	%		19,086			-6.1	%
Subtotal		1,308,136		108,029						118,097
Portfolio Effect (1)		—		(20,285	)					(24,044	)
Total	$	1,308,136	$	87,744			6.7	%	$	94,053			-7.2	%
Increase (decrease) to net income
Amount			$	57,034					$	(61,134	)
Per Share (2)			$	3.89					$	(4.17	)

(1) - The totals for each segment are adjusted for portfolio effect. The portfolio effect is the reduction in risk arises out of diversification in the portfolio.

(2) - Calculated using average diluted shares of 14,646,369 for the year ended December 31, 2014.

A range of reasonable estimates has been developed based on the historical volatility of held reserves versus current estimates for the purposes of this sensitivity analysis. The history indicates that our held reserves tend to be 9.7% redundant with a standard deviation of 10.3%. We have ignored the historical conservatism and built a range around the current held amounts. Our Company’s lines of business, the market pricing adequacy and our Company’s underwriting strategies have changed dynamically over the past eleven years. There is thus a significant risk that the potential volatility of the current reserve estimates could differ in a material manner from the historical trends.

Actual emergence will vary and may exceed the historical variation. The actual losses may not emerge as expected which would cause the ranges to expand or contract from year to year. The impact from the shift on ranges will be greater for lines with longer emergence patterns. The individual lines will also have greater variance than the range for the entire book of business. The statistical variation is expected to have a somewhat higher range of deterioration than savings. The history in itself is only a rough estimate of the potential volatility. The ranges have been refined by reserve segment in three categories – Marine, Property Casualty and Professional Liability. These groupings give a sense of the volatility by sub-group but are not intended to be rigorous estimates even if such were possible. The computation of each range represents the central 50% of outcomes. The specific movement of an individual year may not fall within this range. The total reserve variability is not equal to the sum of the segment variability due to the benefit of diversification.

Reinsurance Recoverables

We are required to pay losses even if a reinsurer fails to meet its obligations under the applicable reinsurance agreement. Reinsurance recoverables are established for the portion of the loss reserves that are ceded to reinsurers. Reinsurance recoverables are determined based upon the terms and conditions of reinsurance contracts, which could be subject to interpretations that differ from our own based on judicial theories of liability. We bear credit risk with respect to our reinsurers, which can be significant considering that certain of the reserves remain outstanding for an extended period of time. Additional information regarding our reinsurance recoverables can be found in the “Business - Reinsurance Recoverables” section and Note 6, Reinsurance, in the notes to the consolidated financial statements, both included herein.

42

Written and Unearned Premium

Substantially all of our business is placed through agents and brokers. Written premium is recorded based on the insurance policies that have been reported to us and the policies that have been written by agents but not yet reported to us. We estimate the amount of written premium not yet reported based on judgments relative to current and historical trends of the business being written. An unearned premium reserve is established to reflect the unexpired portion of each policy at the financial reporting date. Assumed and ceded reinsurance reinstatement premiums are written and fully earned in the period in which the loss event, which caused the reinstatement premium, occurred.

A portion of our premium is estimated for unreported premium, mostly for the Marine business written by our U.K. Branch and Lloyd’s Operations as well as the A&H and LatAm reinsurance business written by NavRe. We generally do not experience any significant backlog in processing premiums. Such premium estimates are generally based on submission data received from brokers and agents and recorded when the insurance policy or reinsurance contract is written or bound. The estimates are regularly reviewed and updated taking into account the premium received to date versus the estimate and the age of the estimate. To the extent that the actual premium varies from the estimates, the difference, along with the related loss reserves and underwriting expenses, is recorded in current operations.

We also record the ceded portion of the estimated gross written premium and related acquisition costs. The earned gross, ceded and net premiums are calculated based on our earning methodology, which is generally over the policy period. Losses are also recorded in relation to the earned premium. The estimate for losses incurred on the estimated premium is based on an actuarial calculation consistent with the methodology used to determine incurred but not reported loss reserves for reported premiums.

Additional information regarding our written and unearned premium can be found in Note 1, Organization and Summary of Significant Accounting Policies, and Note 6, Reinsurance, in the Notes to Consolidated Financial Statements, both included herein.

The Recoverability of Deferred Tax Assets

We apply the asset and liability method of accounting for income taxes whereby deferred assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis. In assessing the realization of deferred tax assets, management considers whether it is more likely than not that the deferred tax assets will be realized. These reviews include, among other factors, the nature and amount of the taxable income and expense items, the expected timing of when assets will be used or liabilities will be required to be reported, as well as the reliability of historical profitability of businesses expected to provide future earnings. After review, if management determines that the realization of the tax asset does not meet the more likely than not criterion an offsetting valuation allowance is recorded, which reduces net earnings and the deferred tax asset in that period. Additional information regarding our deferred tax assets can be found in Note 1, Organization and Summary of Significant Accounting Policies, and Note 7, Income Taxes, in the Notes to Consolidated Financial Statements, both included herein.

Impairment of Investment Securities

Management regularly reviews our fixed maturity and equity securities portfolios to evaluate the necessity of recording impairment losses for other-than-temporary declines in the fair value of investments.

For fixed maturity securities, we consider our intent to sell a security and whether it is more likely than not that, we will be required to sell a security before the anticipated recovery as part of the process of evaluating whether a security’s unrealized loss represents an other-than-temporary decline. For structured securities, we assess whether the amortized cost basis of a fixed maturity security will be recovered by comparing the present value of cash flows expected to be collected to the current book value. Any shortfalls of the present value of the cash flows expected to be collected in relation to the amortized cost basis is considered the credit loss portion of net other-than-temporary impairment (“OTTI”) losses and is recognized in earnings. All non-credit losses are recognized as changes in OTTI losses within Other Comprehensive Income (“OCI”).

For equity securities, in general, our Company focuses its attention on those securities with a fair value less than 80% of their cost for six or more consecutive months. If warranted as the result of conditions relating to a particular security, our Company will focus on a significant decline in fair value regardless of the time period involved. Factors considered in evaluating potential impairment include, but are not limited to, the current fair value as compared to cost of the security, the length of time the investment has been below cost and by how much the investment is below cost. If these securities are deemed to be other-than-temporarily impaired, the cost is written down to fair value with the loss recognized in earnings.

43

For equity securities, our Company also considers its intent to hold securities as part of the process of evaluating whether a decline in fair value represents an other-than-temporary decline in value. For fixed maturity securities, our Company considers its intent to sell a security and whether it is more likely than not that our Company will be required to sell a security before the anticipated recovery as part of the process of evaluating whether a security’s unrealized loss represents an other-than-temporary decline. Our Company’s ability to hold such securities is supported by sufficient cash flow from its operations and from maturities within its investment portfolio in order to meet its claims payment and other disbursement obligations arising from its underwriting operations without selling such investments. With respect to securities where the decline in value is determined to be temporary and the security’s value is not written down, a subsequent decision may be made to sell that security and realize a loss. Subsequent decisions on security sales are made within the context of overall risk monitoring, changing information and market conditions.

The day to day management of our investment portfolio is outsourced to third party investment managers. While these investment managers may, at a given point in time, believe that the preferred course of action is to hold securities with unrealized losses that are considered temporary until such losses are recovered, the dynamic nature of the portfolio management may result in a subsequent decision to sell the security and realize the loss based upon a change in the market and other factors described above. Investment managers are required to notify management of rating agency downgrades of securities in their portfolios as well as any potential investment valuation issues at the end of each quarter. Investment managers are also required to notify management, and receive approval, prior to the execution of a transaction or series of related transactions that may result in a realized loss above a certain threshold. Additionally, management monitors the execution of a transaction or series of related transactions that may result in any realized loss up until a certain period beyond the close of a quarterly accounting period.

Results of Operations

The following is a discussion and analysis of our consolidated and segment results of operations for the years ended December 31, 2014, 2013 and 2012. Our financial results are presented on the basis of U.S. GAAP. However, in presenting our financial results, we discuss our performance with reference to net operating earnings, book value per share, underwriting profit or loss, and the combined ratio, all of which are non-GAAP financial measures of performance and/or underwriting profitability. Net operating earnings are calculated as net income less after-tax net realized gains (losses), after-tax net OTTI losses recognized in earnings, 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). Book value per share is calculated by dividing stockholders’ equity by the number of outstanding shares at any period end. Underwriting profit or loss is calculated from net earned premiums, less the sum of net losses and LAE, commission expenses, other operating expenses and other underwriting income (expense). The combined ratio is derived by dividing the sum of net losses and LAE, commission expenses, other operating expenses and other underwriting income (expense) by net earned premiums. A combined ratio of less than 100% indicates an underwriting profit and greater than 100% indicates an underwriting loss. We consider such measures, which may be defined differently by other companies, to be important in the understanding of our overall results of operations by highlighting the underlying profitability of our insurance business.

Summary of Consolidated Results

The following table presents a summary of our consolidated financial results for the years ended December 31, 2014, 2013 and 2012:

	Year Ended December 31,						Percentage Change
In thousands, except for per share amounts	2014		2013		2012		2014 vs. 2013			2013 vs. 2012
Gross written premiums	$	1,432,353	$	1,370,517	$	1,286,465		4.5	%		6.5	%
Net written premiums		1,000,138		887,922		833,655		12.6	%		6.5	%
Total revenues		1,023,531		917,564		877,916		11.5	%		4.5	%
Total expenses		882,995		825,291		786,180		7.0	%		5.0	%
Pre-tax income (loss)	$	140,536	$	92,273	$	91,736		52.3	%		0.6	%
Provision (benefit) for income taxes		45,207		28,807		27,974		56.9	%		3.0	%
Net income (loss)	$	95,329	$	63,466	$	63,762		50.2	%		-0.5	%
Net income (loss) per common share:
Basic	$	6.69	$	4.49	$	4.54
Diluted	$	6.51	$	4.42	$	4.45

Net income for the year ended December 31, 2014 was $95.3 million or $6.51 per diluted share compared to $63.5 million or $4.42 per diluted share for the year ended December 31, 2013. The increase over prior year is generally attributable to underwriting growth,

44

favorable loss emergence from prior accident years, the prior year effect of the non-recurring call premium expense on the 5.75% Senior Notes and the current year effect of the change in functional currency of the Lloyd’s Operations. These positive effects were offset by additional tax expense and interest expense over prior year.

Net income for the year ended December 31, 2013 was $63.5 million or $4.42 per diluted share compared to $63.8 million or $4.45 per diluted share for the year ended December 31, 2012.

Cash flow from operations was $222.5 million, $136.9 million and $96.7 million for the years ended December 31, 2014, 2013 and 2012. The increase in cash flow from operations for 2014 is largely attributable to a reduction in net losses paid, and to a lesser extent, a decrease in tax payments due to the use of prior year overpayments in the current year, partially offset by higher operating expenses resulting from increased headcount associated with growth in our business. The increase in cash flow from operations for 2013 is largely attributable to the growth of our business as well as improved collections on premiums receivable.

The following table presents our net operating earnings for the years ended December 31, 2014, 2013 and 2012:

In thousands, except per share amounts	Twelve Months Ended December 31,									Percentage Change
	2014			2013			2012			2014 vs. 2013			2013 vs. 2012
Net income	$	95,329		$	63,466		$	63,762			50.2	%		-0.5	%
Less: after-tax realized (gains) losses		(8,327	)		(14,910	)		(26,698	)		-44.2	%		-44.2	%
Plus: after-tax Call Premium on Senior Notes		—			11,632			—			NM			NM
Less: after-tax other (income) expense		(6,534	)		—			—			NM			NM
Add: after-tax OTTI		—			1,557			561			NM			NM
Net operating earnings	$	80,468		$	61,745		$	37,625			30.3	%		64.1	%
Net operating earnings per common share:
Basic		5.64			4.37			2.68
Diluted		5.49			4.30			2.63

NM - Percentage change not meaningful

Net operating earnings for the year ended December 31, 2014 were $80.5 million or $5.49 per diluted share compared to $61.7 million or $4.30 per diluted share for the comparable period in 2013. The increase was largely attributable to stronger underwriting results from both our Insurance Companies and Lloyd’s Operations, inclusive of net favorable prior period reserve releases.

Net operating earnings for the year ended December 31, 2013 were $61.7 million or $4.30 per diluted share compared to $37.6 million or $2.63 per diluted share for the comparable period in 2012. The increase in our net operating earnings was largely attributable to stronger underwriting results.

Our book value per share as of December 31, 2014 was $71.93, increasing 13.2% from $63.54 as of December 31, 2013. The growth in our book value per share is primarily driven by $95.3 million of net income for the year ended December 31, 2014, and to a lesser extent, a $23.2 million after tax-increase in unrealized gains on our investment portfolio in connection with our investment in longer dated fixed income securities. Our consolidated stockholders’ equity increased 13.9% to $1.03 billion as of December 31, 2014 compared to $902.2 million as of December 31, 2013.

45

The following table presents our consolidated underwriting results and provides a reconciliation of our underwriting profit or loss to GAAP net income or loss for the years ended December 31, 2014, 2013 and 2012:

	Year Ended December 31,									Percentage Change
In thousands	2014			2013			2012			2014 vs. 2013			2013 vs. 2012
Gross written premiums	$	1,432,353		$	1,370,517		$	1,286,465			4.5	%		6.5	%
Net written premiums		1,000,138			887,922			833,655			12.6	%		6.5	%
Net earned premiums		935,895			841,939			781,964			11.2	%		7.7	%
Net losses and loss adjustment expenses		(545,229	)		(518,961	)		(497,433	)		5.1	%		4.3	%
Commission expenses		(125,528	)		(113,494	)		(121,470	)		10.6	%		-6.6	%
Other operating expenses		(196,825	)		(164,434	)		(159,079	)		19.7	%		3.4	%
Other underwriting income (expenses)		595			(1,172	)		1,488			NM			NM
Underwriting profit (loss)	$	68,908		$	43,878		$	5,470			57.0	%		NM
Net investment income		64,168			56,251			54,248			14.1	%		3.7	%
Net other-than-temporary impairment losses recognized in earnings		—			(2,393	)		(858	)		NM			NM
Net realized gains (losses)		12,812			22,939			41,074			-44.1	%		-44.2	%
Other income (expense)		10,061			—			—			NM			NM
Call premium on Senior Notes		—			(17,895	)		—			NM			NM
Interest expense		(15,413	)		(10,507	)		(8,198	)		46.7	%		28.2	%
Income (loss) before income taxes	$	140,536		$	92,273		$	91,736			52.3	%		0.6	%
Income tax expense		45,207			28,807			27,974			56.9	%		3.0	%
Net income	$	95,329		$	63,466		$	63,762			50.2	%		-0.5	%
Losses and loss adjustment expenses ratio		58.3	%		61.6	%		63.6	%
Commission expense ratio		13.4	%		13.5	%		15.5	%
Other operating expense ratio (1)		20.9	%		19.7	%		20.2	%
Combined ratio		92.6	%		94.8	%		99.3	%

(1) - Includes Other operating expenses & Other underwriting income (expense)

NM - Percentage change not meaningful

Our 2014 net pre-tax underwriting profit of $68.9 million is $25.0 million greater than prior year of $43.9 million. The combined ratio for the year ended December 31, 2014 was 92.6% compared to 94.8% in 2013. The increase in net profit is due to strong underwriting results from our Insurance Companies and Lloyd’s Operations.

For the year ended December 31, 2014, our Insurance Companies reported an underwriting profit of $49.1 million, primarily driven by our Marine business, which reported $30.8 million of underwriting profit due to favorable loss emergence from prior accident years across all core product lines. In addition, our Property Casualty business reported an underwriting profit of $16.1 million, which includes $13.5 million of underwriting profit from our Excess Casualty division due in part to strong production attributable to the expansion of those underwriting teams and the continued dislocation of certain competitors, as well as $13.0 million of underwriting profit from our Assumed Reinsurance division mostly driven by growth and a lack of current accident year catastrophe activity from our LatAm P&C Products, and to a lesser extent, growth from our A&H product lines as we are starting to experience favorable loss trends from both those product lines. Partially offsetting the aforementioned underwriting profits is an $11.4 million underwriting loss from our Primary Casualty division in connection with net prior year reserve strengthening specific to Construction Liability issued to contractors operating in California and other western states. Our Professional Liability business reported an underwriting profit of $2.2 million primarily due in part to a recovery of prior period losses coming from a cash settlement of a contract dispute with a former third part administrator, partially offset by unfavorable loss emergence from our small lawyers product line, which is now in runoff.

46

For the year ended December 31, 2014, our Lloyd’s Operations reported an underwriting profit of $19.8 million which includes an underwriting profit of $9.6 million from our Lloyd’s Operations Property Casualty business driven by our Energy & Engineering division due to favorable current accident year loss trends, and to a lesser extent, prior year reserve releases from our Onshore Energy Product line. In addition, our Lloyd’s Operations Marine business reported an underwriting profit of $6.3 million driven by prior year reserve releases, which were offset by an $8.9 million Marine Liability loss, net of reinsurance and RRPs of $3.9 million, which involved the sinking of a vessel in South Korean waters. Our Lloyd’s Operations also includes an underwriting profit of $4.0 million from Professional Liability driven by favorable loss emergence.

Our 2013 pre-tax underwriting profit increased $38.4 million to a $43.9 million underwriting profit for December 31, 2013 compared to $5.5 million for the same period in 2012. The combined ratio for the year ended December 31, 2013 was 94.8%, compared to 99.3% for the year ended December 31, 2011. These increases were driven by strong underwriting results described below.

Our pre-tax underwriting profit for 2013 was driven by the mix of business and favorable loss trends of our Insurance Companies and our Lloyd’s Operations. Our Insurance Companies reported an underwriting profit of $25.6 million inclusive of $13.6 million and $16.3 million of underwriting profit from our Energy & Engineering and Marine divisions, respectively, in connection with favorable loss emergence from UWYs 2011 and prior. In addition, our Excess Casualty division produced an underwriting profit of $6.1 million as a result of continued strong production attributable to the expansion of those underwriting teams and the continued dislocation of certain competitors, partially offset by an underwriting loss of $5.8 million from our Management Liability division due to net reserve strengthening from UWYs 2010 and prior, and an underwriting loss of $3.4 million from businesses in run-off. Our Lloyd’s Operations reported an underwriting profit of $18.2 million due to continued favorable loss emergence from all businesses from UWYs 2011 and prior, partially offset by large current accident year losses from our Lloyd’s Operations Marine and Lloyd’s Operations Energy & Engineering divisions.

The combined ratio for the year ended December 31, 2012 was 99.3%. Our pre-tax underwriting profit for 2012 was affected by various significant events and adjustments during the year. A net loss of $20.4 million, inclusive of $8.3 million in RRPs, related to Superstorm Sandy was recorded in 2012. Gross of reinsurance our loss related to Superstorm Sandy was approximately $66.7 million. Refer to subsection “Net Losses and Loss Adjustment Expenses” within this section of the MD&A for additional disclosure related to Superstorm Sandy. Current accident year loss emergence of $14.5 million was recorded in our Agriculture product line and was driven by significant drought related crop losses across the U.S. Net losses of $13.9 million were also recorded, inclusive of $11.1 million in RRPs, related to several large losses from our Marine business, including the grounding of the cruise ship Costa Concordia off the coast of Italy. Net reserve releases of $47.2 million from our Lloyd’s Operations across all businesses and all divisions, most notably Lloyd’s Operations Marine. In addition to the above, the increase in our pre-tax underwriting profit in 2012 was affected by the mix of business and loss trends.

Revenues

The following table sets forth our gross written premiums, net written premiums and net earned premiums by segment and line of business for the years ended December 31, 2014, 2013, and 2012:

	Year Ended December 31,
	2014									2013									2012
In thousands	Gross Written Premiums		%			Net Written Premiums		Net Earned Premiums		Gross Written Premiums		%			Net Written Premiums		Net Earned Premiums		Gross Written Premiums		%			Net Written Premiums		Net Earned Premiums
Insurance Companies:
Marine	$	177,363		12	%	$	123,617	$	123,203	$	171,822		13	%	$	119,837	$	129,276	$	200,095		16	%	$	133,210	$	142,181
Property Casualty		755,059		53	%		554,844		496,209		700,087		51	%		462,942		409,480		590,741		46	%		390,168		332,782
Professional Liability		113,032		8	%		74,312		85,162		130,366		10	%		97,229		100,582		130,489		10	%		99,578		96,476
Insurance Companies		1,045,454		73	%		752,773		704,574		1,002,275		74	%		680,008		639,338		921,325		72	%		622,956		571,439
Lloyd’s Operations:
Marine		188,107		13	%		144,327		141,471		181,046		13	%		134,627		138,690		194,423		15	%		143,600		136,898
Property Casualty		126,016		9	%		55,917		51,338		129,522		9	%		42,334		37,722		127,028		10	%		43,824		52,951
Professional Liability		72,776		5	%		47,121		38,512		57,674		4	%		30,953		26,189		43,689		3	%		23,275		20,676
Lloyd’s Operations		386,899		27	%		247,365		231,321		368,242		26	%		207,914		202,601		365,140		28	%		210,699		210,525
Total	$	1,432,353		100	%	$	1,000,138	$	935,895	$	1,370,517		100	%	$	887,922	$	841,939	$	1,286,465		100	%	$	833,655	$	781,964

47

Gross Written Premiums

Gross written premiums increased $61.8 million, or 4.5%, to $1.43 billion for the year ended December 31, 2014 compared to $1.37 billion for the same period in 2013. The overall increase is primarily driven by growth from our Insurance Companies, most notably from the Property Casualty businesses, which includes a $41.8 million increase from our Primary Casualty division, driven by strong production from the continued improvement of the overall construction market, as well as a $17.5 million increase in our Excess Casualty division due to improved market conditions and the dislocation of certain competitors, and a $13.1 million increase from our Environmental division due to our continued investment in those underwriting teams, all of which are partially offset by a $11.3 million decrease from our Energy & Engineering division due to difficult market conditions and an unfavorable rating environment, and a net $6.3 million decrease from our Assumed Reinsurance division as a result of a reduction in renewal premiums from our A&H and Agriculture products. The overall increase from our Insurance Company Property Casualty business was partially offset by a $17.3 million decrease from our Insurance Companies Professional Liability business due to a reduction in our E&O division resulting from our decision to exit the small lawyers professional liability product line, as well as a decrease in our real estate agents and accountants liability product lines as a result of certain program terminations, partially offset by an increase from our Management Liability division due to an increase in subject premium on renewals. To a lesser extent, the overall increase in gross written premiums is also driven by a $15.1 million increase from our Lloyd’s Operations that is primarily driven by the continued expansion of our Lloyd’s Operations E&O division, a portion of which is due to our European expansion into new offices in Italy, the Netherlands and France.

Gross written premiums increased $84.1 million, or 6.5%, to $1.37 billion for the year ended December 31, 2013 compared to $1.29 billion for the same period in 2012. The increase in gross written premiums is primarily attributed to growth within our Insurance Companies Property Casualty business, specifically from our Excess Casualty and Primary Casualty divisions as a result of strong production attributable to an expansion of our underwriting teams and continued dislocation among certain competitors. In addition, we have experienced growth in Lloyd’s Operations Professional Liability business as a result of strong new business production. The aforementioned increases were partially offset by a decrease in our Insurance Companies Marine business in connection with the re-underwriting of our Inland Marine product line and certain non-renewals from our Blue Water Hull product line, as well as a decrease in our Lloyd’s Operations Marine business due to non-renewals from our Cargo and Transport product lines.

Average premium renewal rates decreased 0.1% for the year ended December 31, 2014 driven by a 1.9% decrease for our Lloyd’s Operations, primarily due to 5.9% and 4.2% decreases in Lloyd’s Operations Energy & Engineering and Lloyd’s Operations Professional Liability, respectively, partially offset by a 1.7% increase in our Lloyd’s Operations Marine division. The aforementioned decreases were partially offset by a 0.6% increase from our Insurance Companies driven by Insurance Company Marine, which reported an increase of 1.9%, and Property Casualty, which realized a net increase of 0.8% consisting of a 3.3% increase from our Excess Casualty division, partially offset by a 7.3% decrease from our Insurance Company Energy & Engineering. The Insurance Companies Professional Liability realized a decrease of 2.0%, consisting of 4.0% and 0.5% decreases for the Management Liability and E&O divisions, respectively.

Average renewal premium rates for our Insurance Companies segment for the year ended December 31, 2013 increased as compared to the same period in 2012 across substantially all of our businesses within each segment. Our Insurance Companies Marine business has realized a 4.7%, 8.5% and 6.2% increase in rates for the Marine Liability, Inland Marine and Craft divisions, respectively. Within our Insurance Companies Property Casualty business, we have realized a 4.6% increase in rates for the Excess Casualty division and a 2.5% increase in the Primary Casualty division, partially offset by a 2.7% decrease from our Energy & Engineering division. Our Insurance Companies Professional Liability business has experienced an overall increase in its renewal rates of 3.4%, consisting of 5.0% and 2.7% for the Management Liability and E&O divisions, respectively. For the year, ended December 31, 2013, average renewal premium rates for our Lloyd’s Operations segment include increases for Marine and Property Casualty of approximately 3.4% and 1.6%, respectively. Our Lloyd’s Operations Professional Liability business experienced an average decrease of 1.7%.

The average premium rate increases or decreases as noted above for the Marine, Property Casualty and Professional Liability businesses are calculated primarily by comparing premium amounts on policies that have renewed. The premiums are adjusted for changes in exposures and sometimes represent an aggregation of several lines of business. The rate change calculations provide an indicated pricing trend and are not meant to be a precise analysis of the numerous factors that affect premium rates or the adequacy of such rates to cover all underwriting costs and generate an underwriting profit. The calculation can also be affected quarter by quarter depending on the particular policies and the number of policies that renew during that period. Due to market conditions, these rate changes may or may not apply to new business that generally would be more competitively priced compared to renewal business. The calculation does not reflect the rate on business that we are unwilling or unable to renew due to loss experience or competition.

Ceded Written Premiums

In the ordinary course of business, we reinsure certain insurance risks with unaffiliated insurance companies for the purpose of limiting our maximum loss exposure, protecting against catastrophic losses and maintaining desired ratios of net premiums written to statutory surplus. The relationship of ceded to gross written premium varies based upon the types of business written and whether the business is written by the Insurance Companies or the Lloyd’s Operations.

48

Our ceded reinsurance program includes contracts for proportional reinsurance, per risk and whole account excess-of-loss reinsurance for both P&C risks and property catastrophe excess-of-loss reinsurance. In recent years, we have increased our utilization of excess-of-loss reinsurance for Marine, Property and certain Casualty risks. Our excess-of-loss reinsurance contracts generally provide for a specific amount of coverage in excess of an attachment point and sometimes provides for reinstatement of the coverage to the extent the limit has been exhausted for payment of additional premium. The number of ceded reinsurance reinstatements (“RRP”) available varies by contract, and we record an estimate of the expected RRPs for losses ceded to excess-of-loss agreements where this feature applies.

We incurred $8.4 million, $3.0 million and $26.9 million of ceded RRPs for the years ended December 31, 2014, 2013, and 2012, respectively. The RRPs for 2014, 2013 and 2012 are primarily related to large losses from our Marine business. In 2014, $3.9 million of the large loss is due to the sinking of a vessel in South Korean waters, and $1.6 million is due to additional loss activity on the grounding of the cruise ship Cost Concordia. The total RRPs recorded in 2012 included $11.1 million also from the grounding of the cruise ship Costa Concordia off the coast of Italy as well as $8.3 million in connection with our loss on Superstorm Sandy.

The following table sets forth our ceded written premiums by segment and major line of business for the calendar years ended December 31, 2014, 2013 and 2012:

	Year Ended December 31,
	2014					2013					2012
In thousands	Ceded Written Premiums		% of Gross Written Premiums			Ceded Written Premiums		% of Gross Written Premiums			Ceded Written Premiums		% of Gross Written Premiums
Insurance Companies:
Marine	$	53,746		30	%	$	51,985		30	%	$	66,885		33	%
Property Casualty		200,215		27	%		237,145		34	%		200,573		34	%
Professional Liability		38,720		34	%		33,137		25	%		30,911		24	%
Insurance Companies		292,681		28	%		322,267		32	%		298,369		32	%
Lloyd’s Operations:
Marine		43,780		23	%		46,419		26	%		50,823		26	%
Property Casualty		70,099		56	%		87,188		67	%		83,204		66	%
Professional Liability		25,655		35	%		26,721		46	%		20,414		47	%
Lloyd’s Operations		139,534		36	%		160,328		44	%		154,441		42	%
Total	$	432,215		30	%	$	482,595		35	%	$	452,810		35	%

Overall, the percentage of total ceded written premiums to total gross written premiums for the year ended December 31, 2014 has decreased by 5% compared to the year ended December 31, 2013. This decrease is indicative of key changes to our reinsurance programs and mix of business.

Our Insurance Companies’ decrease in ceded written premium is driven by the Property Casualty line, due to a change in the reinsurance program supporting certain Casualty risks. Effective in the first quarter 2014, our Company entered into a treaty that combined a reduced level of proportional reinsurance with an additional excess-of-loss cover. Additionally, we decreased the Energy & Engineering Offshore Energy quota share program from 62% to 55%. The increase in the percentage ceded for our Insurance Companies Professional Liability business is due to additional contracts for proportional reinsurance, signed in the fourth quarter of 2013 and 2014. The treaty signed in the fourth quarter of 2013 allowed us to cede 100% of our small lawyers’ Professional Liability E&O business to the carrier that has assumed the renewal rights, indicative of our decision to exit this business. This treaty expired on March 31, 2014. In the fourth quarter of 2014, in addition to our Professional Liability excess-of-loss treaty, a new treaty was signed that allows us to ceded a 60% quota share and additional excess-of-loss on various Professional Liability lines of business.

The decrease in the percentage of total ceded written premium for our Lloyd’s Operations is driven by changes in the mix of business as well as changes to our quota share reinsurance programs. The decrease in the Lloyd’s Operations Property Casualty line is due to growth in the Assumed Reinsurance division, which includes new business from our LatAm and Property Treaty product lines, which is not ceded. The decrease in the Lloyd’s Operations Professional Liability business is driven by increased growth from our Lloyd’s Operations E&O division, which is not attached to any proportional reinsurance, as well a reduction in the use of proportional reinsurance for Lloyd’s Operations D&O division. In Lloyd’s Operations Marine, the ceded premium ratio has decreased against prior year due to a reduction in the use of proportional reinsurance for certain product lines.

The percentage of total ceded written premiums to total gross written premiums for the year ended December 31, 2013 and 2012 has remained constant at 35%. The decrease in percentage for Insurance Companies Marine is driven by a reduction in RRPs in connection with a reduction in large loss activity, partially offset by increase in ceded written premiums related to a true up of certain estimated Minimum and Deposit premium adjustments in the year. The Insurance Companies Professional Liability business percentage increased in 2013 due to an additional proportional contract covering this business. The increase in the percentage for the Lloyd’s Operations Property Casualty business is driven by an increased use of proportional reinsurance to support our offshore energy business for 2013.

49

Net Written Premiums

Net written premiums increased 12.6% for the year ended December 31, 2014 compared to the same period in 2013. The increase is due to mix of business, inclusive of certain changes in our reinsurance program that have increased our retention as well as growth in gross written premiums primarily driven by our Insurance Companies Property Casualty business, as described above. Together these changes have resulted in growth in net written premium, which outpaces the growth in gross written premium.

Net written premiums increased 6.5% for the year ended December 31, 2013 compared to the same period in 2012. The increase is due to the mix of our Insurance Companies Property Casualty business and is specifically driven by the continued growth of our Excess Casualty and Primary Casualty divisions and more RRPs recorded in 2012 in connection with several losses from our Marine businesses. The aforementioned increases are partially offset by a decrease in our Marine business in connection with the re-underwriting of our Inland Marine division.

Net Earned Premiums

Net earned premiums increased 11.2% for the year ended December 31, 2014 compared to the same period in 2013. The increase in net earned premiums is due to increased retention resulting from changes in our reinsurance programs as well as the recent growth of our business primarily driven by our Insurance Companies’ Property Casualty business.

Net earned premiums increased 7.7% for the year ended December 31, 2013 compared to the same period in 2012, driven by earnings from the continued growth of our Insurance Companies Excess Casualty, Primary Casualty, and our Assumed Reinsurance divisions, which includes the A&H product lines that are recognized in earnings over a longer exposure period than our other lines of business. In addition, the increases are also attributable to the RRPs recorded in 2012, and are partially offset by a decrease from the re-underwriting of our Inland Marine product lines, as described above.

Net Investment Income

Our net investment income was derived from the following sources:

	Year Ended December 31,									Percentage Change
In thousands	2014			2013			2012			2014 vs. 2013			2013 vs. 2012
Fixed maturities	$	57,219		$	53,898		$	58,995			6.2	%		-8.6	%
Equity securities		9,036			4,835			3,945			86.9	%		22.6	%
Short-term investments		911			774			1,694			17.7	%		-54.3	%
Total investment income	$	67,166		$	59,507		$	64,634			12.9	%		-7.9	%
Investment expenses		(2,998	)		(3,256	)		(10,386	)		-7.9	%		-68.7	%
Net investment income	$	64,168		$	56,251		$	54,248			14.1	%		3.7	%

The increase in total investment income before investment expenses for all years presented was primarily due to growth of invested assets. The increase for 2014 is also driven by a $1.6 million one-time special dividend received in the first quarter from our equity portfolio. The annualized pre-tax investment yield, excluding net realized gains and losses and net OTTI losses recognized in earnings, was 2.3% for the year ended December 31, 2014 and 2.4% for the years ended December 31, 2013 and 2012, respectively.

The 2.4% annualized pre-tax yields for the year ended December 31, 2012, included investment expenses of $4.5 of interest expense related to the settlement of a dispute with Equitas over foregone interest on amounts that were due on certain reinsurance contracts. In the dispute Equitas alleged that we failed to make timely payments to them under certain reinsurance agreements in connection with subrogation recoveries received by us with respect to several catastrophe losses that occurred in the late 1980’s and early 1990’s. In addition, investment expenses for the year ended December 31, 2012 includes a $2.8 million investment performance fee. Excluding the impact of the aforementioned interest expense and investment performance fee, the annualized pre-tax yield for the year ended December 31, 2012 would have been 2.7%, reflective of the general decline in market yield.

The portfolio duration was 3.8 years for the year ended December 31, 2014 and was 3.7 and 3.6 years for each of the years ended December 31, 2013 and 2012, respectively.

50

Other-Than-Temporary Impairment Losses Recognized In Earnings

Our net OTTI losses recognized in earnings for the periods indicated were as follows:

	Year Ended December 31,								Percentage Change
In thousands	2014		2013			2012			2014 vs. 2013		2013 vs. 2012
Fixed maturities	$	—	$	(1,821	)	$	(11	)		NM		NM
Equity securities		—		(572	)		(847	)		NM		-32.5	%
OTTI recognized in earnings	$	—	$	(2,393	)	$	(858	)		NM		NM

NM - Percentage change not meaningful

Our Company did not have any OTTI losses for the year ended December 31, 2014.

Net OTTI losses for the year ended December 31, 2013 consisted of $1.8 million for one municipal bond and $0.6 million for three equity securities for which fair value was less than 80% of amortized cost for at least six months.

Net OTTI losses for the year ended December 31, 2012 primarily consists of $0.8 million for three equity securities, which were previously impaired.

Net Realized Gains and Losses

Realized gains and losses, excluding net OTTI losses recognized in earnings, for the periods indicated, were as follows:

	Year Ended December 31,									Percentage Change
In thousands	2014			2013			2012			2014 vs. 2013			2013 vs. 2012
Fixed maturities:
Gains	$	8,326		$	8,539		$	28,789			-2.5	%		-70.3	%
Losses		(2,610	)		(2,797	)		(1,915	)		-6.7	%		46.1	%
Fixed maturities, net	$	5,716		$	5,742		$	26,874			-0.5	%		-78.6	%
Equity securities:
Gains	$	9,447		$	17,955		$	14,673			-47.4	%		22.4	%
Losses		(2,351	)		(758	)		(473	)		NM			60.3	%
Equity securities, net	$	7,096		$	17,197		$	14,200			-58.7	%		21.1	%
Net realized gains (losses)	$	12,812		$	22,939		$	41,074			-44.1	%		-44.2	%

NM - Percentage change not meaningful

Net realized gains and losses are generated as part of the normal ongoing management of our investment portfolio. Net realized gains of $12.8 million for the year ended December 31, 2014 are primarily due to the sale of corporate bonds and equity securities. Net realized gains of $22.9 million for the year ended December 31, 2013 are primarily due to the sale of equities. Net realized gains of $41.1 million for the year ended December 31, 2012 are primarily due to the sale of municipal bonds and equity securities in anticipation of continued market uncertainty, the proceeds of which were reinvested in U.S. Government Treasury bonds and equities.

Other Income/Expense

Other Income or other expense is comprised of unrealized and realized foreign exchange gains and losses, commission income, and inspection fees. Total Other Income for the year ended December 31, 2014 was $10.7 million compared to total other expense of $1.2 million and total Other Income of $1.5 million for the years ended December 31, 2013 and 2012, respectively. The increase in Other Income for the year ended December 31, 2014 is primarily driven by a $10.0 million foreign currency transaction gain recorded in the first quarter in connection with a change in the functional currency of our Lloyd’s Operations. Refer to Footnote 1, Organization & Summary of Significant Accounting Policies, included herein, for further details on foreign currency remeasurement and translation.

51

Expenses

Net Losses and LAE

The ratio of net losses and LAE to net earned premiums (“loss ratios”) for the years ended December 31, 2014, 2013 and 2012 is presented in the following table:

	Year Ended December 31,
Net Loss and LAE Ratio	2014			2013			2012
Net Loss and LAE Payments		48.6	%		61.0	%		66.2	%
Change in reserves		15.6	%		0.7	%		3.2	%
Subtotal - current year loss ratio		64.2	%		61.7	%		69.4	%
Prior year loss development (release)		-5.9	%		-0.1	%		-5.8	%
Net loss and LAE ratio		58.3	%		61.6	%		63.6	%

The net loss and LAE ratio for the year ended December 31, 2014 decreased 3.3 percentage points to 58.3% from 61.6% for the year ended December 31, 2013. The decrease in the loss ratio reflects an increase in prior year reserve releases as a result of favorable loss emergence from both our Insurance Companies and Lloyd’s Operations, partially offset by an increase in the current accident year driven by mix of business in medium and long-tail lines, current accident year losses and loss trends. The increase in current accident year loss activity from our Marine business is driven by several losses from our Craft and Marine Liability product lines, inclusive of a $5.0 million net loss involving the sinking of a vessel in South Korean waters, partially offset by a reduction in current accident year loss activity from our Property Casualty business.

The net loss and LAE ratio for the year ended December 31, 2013 decreased 2.0 percentage points to 61.6% from 63.6% for the year ended December 31, 2012. The decrease in the loss ratio reflects an improvement in the current accident year driven by mix of business, loss trends, and a reduction in large loss events as compared to the same period in 2012.

The changes in the net loss and LAE ratios by reportable segment and line of business, as presented above, are primarily driven by prior year reserve strengthening or releases, as discussed below, and to a lesser extent changes in our mix of business and loss trends.

The segment and line of business breakdown of the net loss and LAE ratios for the years ended December 31, 2014, 2013 and 2012 are as follows:

	Year Ended December 31,
In thousands	2014			2013			2012
Insurance Companies:
Marine		37.5	%		48.4	%		77.4	%
Property Casualty		68.1	%		68.5	%		70.8	%
Professional Liability		59.0	%		71.8	%		73.8	%
Insurance Companies		61.7	%		65.0	%		73.0	%
Lloyd’s Operations:
Marine		52.7	%		55.1	%		37.3	%
Property Casualty		33.6	%		36.7	%		44.7	%
Professional Liability		49.4	%		50.6	%		26.8	%
Lloyd’s Operations		47.9	%		51.1	%		38.2	%

Prior Year Reserve Strengthening (Releases)

The relevant factors that may have a significant impact on the establishment and adjustment of losses and LAE reserves can vary by line of business and from period to period. As part of our regular review of prior reserves, management, in consultation with our actuaries, may determine, based on their judgment that certain assumptions made in the reserving process in prior year periods may need to be revised to reflect various factors, likely including the availability of additional information. Based on their reserve analyses, management may make corresponding reserve adjustments.

52

The segment and line of business breakdowns of prior period net reserve movements for the years ended December 31, 2014, 2013 and 2012 are as follows:

	Year Ended December 31,
In thousands	2014			2013			2012
Insurance Companies:
Marine	$	(41,388	)	$	(15,227	)	$	(10,010	)
Property Casualty		14,612			18,466			4,293
Professional Liability		(3,536	)		10,191			7,613
Insurance Companies	$	(30,312	)	$	13,430		$	1,896
Lloyd’s Operations:
Marine	$	(21,336	)	$	(2,998	)	$	(30,735	)
Property Casualty		(1,500	)		(14,574	)		(6,890	)
Professional Liability		(2,664	)		2,876			(9,562	)
Lloyd’s Operations	$	(25,500	)	$	(14,696	)	$	(47,187	)
Total strengthening (releases)	$	(55,812	)	$	(1,266	)	$	(45,291	)

The following is a discussion of relevant factors related to the $55.8 million prior period net reserve releases recorded for the year ended December 31, 2014:

The Insurance Companies recorded $30.3 million of net prior year reserve releases, primarily driven by our Marine business, in connection with $41.4 million of net favorable loss emergence due to a lesser amount of large losses and improved underwriting over the past couple of years across all core product lines, inclusive of $13.4 million from Marine Liability, $7.2 million from Craft/Fishing vessels, $6.4 million from P&I, $4.7 million from Inland Marine, $1.1 million from Bluewater Hull and $0.7 million from Cargo.

The Insurance Companies’ Marine reserve releases were partially offset by $14.6 million of net reserve strengthening from our Property Casualty business which is driven by $23.2 million of prior year reserve strengthening from our Primary Casualty division resulting entirely from unfavorable activity on pre-2010 California construction defect Liability claims, partially offset by $6.1 million of reserve releases due to favorable loss emergence from our Excess Casualty division.

The Insurance Companies’ Professional Liability business recorded $3.5 million of net prior year reserve releases primarily driven by $4.5 million of favorable loss emergence from our Management Liability division due to a cash settlement of a contract dispute with a former third party administrator, partially offset by unfavorable loss emergence from our E&O division due to our small lawyers’ product lines, which are in runoff.

The Lloyds Operations recorded $25.5 million of net prior year reserve releases primarily driven by $21.3 million of Marine releases in connection with favorable loss emergence across all core product lines, inclusive of $11.0 million from Marine Liability, $3.7 million from Specie, $1.3 million from Transport, $1.0 million from Cargo, $2.3 million from Energy Liability and $2.0 million from Marine Assumed.

The Lloyd’s Operations Property Casualty line recorded prior year releases of $1.5 million due to favorable loss emergence on our Onshore Energy book. Additionally, the Professional Liability business reserve releases on older UWYs was due to favorable loss emergence on both our E&O book by $1.0 million and Excess D&O by $1.7 million.

The following is a discussion of relevant factors related to the $1.3 million prior period net reserve releases recorded for the year ended December 31, 2013:

The Insurance Companies recorded $13.4 million of net strengthening primarily driven by our Property Casualty and Professional Liability businesses. Within the Property Casualty business, we reported net prior period reserve strengthening of $18.5 million, which includes $13.2 million of net strengthening from our Assumed Reinsurance division mostly attributable to our excess-of-loss A&H treaty lines in connection with UWYs 2012 and 2011, $10.4 million of strengthening from our Primary Casualty division related to our general liability coverage for general and artisan contractors, and a total of $2.1 million of strengthening for business in run-off. The aforementioned net prior period reserve strengthening was partially offset by $8.0 million of net prior period reserve releases from our Energy & Engineering division in connection with favorable emergence on our Offshore Energy lines written by our UK Branch.

53

Our Insurance Companies Professional Liability business reported net prior period reserve strengthening of $10.2 million largely attributable to $6.1 million reserve strengthening from our Management Liability division related to specific large claims for UWYs 2010 and prior, and $4.4 million reserve strengthening from our E&O division related to specific large claims from our insurance agents, miscellaneous Professional Liability, and small lawyer lines from UWYs 2011 and prior.

The aforementioned net prior period reserve strengthening from our Insurance Companies Property Casualty and Professional Liability were partially offset by $15.2 million of net reserve releases from our Insurance Companies Marine business in connection with favorable emergence from our Marine Liability lines for UWYs 2012 and prior.    

Our Lloyd’s Operations recorded $14.7 million of net reserve releases driven by our Property Casualty and Marine businesses partially offset by strengthening in our Professional Liability business. Within our Property Casualty business we reported net prior period reserve releases of $14.6 million primarily from our Energy & Engineering division. Within our Marine business we reported prior period reserve releases of $3.0 million driven by our Marine Liability business. Within our Professional Liability business we reported strengthening of $2.9 million, inclusive of $6.1 million of strengthening in our E&O division partially offset by $3.2 million of favorable emergence from our Lloyd’s Management Liability division.

The following is a discussion of relevant factors related to the $45.3 million prior period net reserve releases recorded for the year ended December 31, 2012:

The Insurance Companies recorded $1.9 million net strengthening. The Marine business had $10.0 million of net reserve releases, which were primarily driven by:

• An IBNR adjustment of $4.0 million to reflect the actual emergence of claims for UWY 2010, which was more favorable than the expected emergence.

• Case reserve releases of $3.4 million due to the favorable settlement of several large losses; and

• A favorable IBNR adjustment of $2.6 million attributable to changes in our assumptions for salvage and subrogation from our short tail Marine lines that was based on our observation of a consistent and persistent historical pattern of favorable savings attributable to salvage and subrogation.

The Marine reserve releases were partially offset by net strengthening of $7.6 million from the small lawyer and accountants lines within our Professional Liability business. This strengthening was primarily driven by several large losses that caused the actual claims emergence for these lines to exceed the expected losses. We also incurred net reserve strengthening of $4.3 million within our Property Casualty segment, which were primarily attributable to two large hemophiliac claims from UWY 2011 arising from our A&H product lines.

Our Lloyd’s Operations recorded $47.2 million of net prior period reserve releases across all businesses and divisions. In connection with our Company’s implementation of the Solvency II technical provisions in its Lloyd’s Operations, our Company’s actuaries undertook a comprehensive review during 2012 of the historical claims emergence patterns for all lines of business underwritten through Syndicate 1221. As a result of this review, our Company updated the loss emergence patterns used to project ultimate losses for all such lines of business, aligning these loss emergence factors with the historical median. This caused a reduction in ultimate loss estimates for all Lloyd’s Operations segments other than certain lines of business in Property Casualty segment, which increased. The Lloyd’s Operation also experienced significant reserve redundancies in several large claims. The amount of reserve redundancies attributable to these settlements was $5.0 million, consisting of $4.1 million from the Marine business and $0.9 million from Professional Liability business. A summary of the resulting prior period redundancies for each business within our Lloyd’s Operations by prior UWY is set forth below:

In thousands	Marine		Property Casualty		Professional Liability		Total
2010	$	3,492	$	378	$	1,157	$	5,027
2009		14,792		4,170		6,072		25,034
2008 and Prior		12,451		2,342		2,333		17,126
Total Strengthening	$	30,735	$	6,890	$	9,562	$	47,187

54

Superstorm Sandy

During 2012, we recorded gross and net loss estimates of $66.7 million and $12.1 million, respectively, exclusive of $8.3 million for the cost of excess-of-loss reinstatement premiums related to the fourth quarter 2012 Superstorm Sandy. Our Superstorm Sandy pre-tax net loss, inclusive of RRPs, was approximately $20.4 million, which increased our combined ratio by 2.6 points.

The following table sets forth our gross and net loss and LAE reserves, incurred loss and LAE, and payments for Superstorm Sandy for the periods indicated:

	Year Ended December 31,
In thousands	2014			2013			2012
Gross of Reinsurance
Beginning gross reserves	$	29,880		$	62,847		$	—
Incurred loss & LAE		3			21			66,674
Calendar year payments		4,287			32,988			3,827
Ending gross reserves	$	25,596		$	29,880		$	62,847
Gross case loss reserves	$	4,217		$	6,757		$	26,294
Gross IBNR loss reserves		21,379			23,123			36,553
Ending gross reserves	$	25,596		$	29,880		$	62,847
Net of Reinsurance
Beginning net reserves	$	458		$	8,628		$	—
Incurred loss & LAE		(193	)		(450	)		12,087
Calendar year payments		49			7,720			3,459
Ending net reserves	$	216		$	458		$	8,628
Net case loss reserves	$	138		$	338		$	7,455
Net IBNR loss reserves		78			120			1,173
Ending net reserves	$	216		$	458		$	8,628

The decrease in incurred losses and LAE, net of reinsurance, for the year ended December 31, 2014 was primarily driven by a required reallocation of Superstorm Sandy losses for UWYs 2011 and 2012. Due to different reinsurance programs for the respective UWYs, this resulted in a benefit to the 2012 UWY, recognized in 2014 calendar year.

55

Hurricanes Gustav and Ike

The following table sets forth our gross and net loss and LAE reserves, incurred loss and LAE, and payments for the 2008 Hurricanes Gustav and Ike for the periods indicated:

	Year Ended December 31,
In thousands	2014			2013			2012
Gross of Reinsurance
Beginning gross reserves	$	3,327		$	15,777		$	31,170
Incurred loss & LAE		6,285			(11,260	)		(12,551	)
Calendar year payments		1,975			1,190			2,842
Ending gross reserves	$	7,637		$	3,327		$	15,777
Gross case loss reserves	$	7,634		$	2,821		$	2,404
Gross IBNR loss reserves		3			506			13,373
Ending gross reserves	$	7,637		$	3,327		$	15,777
Net of Reinsurance
Beginning net reserves	$	432		$	844		$	1,150
Incurred loss & LAE		(135	)		(413	)		(58	)
Calendar year payments		(7	)		(1	)		248
Ending net reserves	$	304		$	432		$	844
Net case loss reserves	$	302		$	404		$	344
Net IBNR loss reserves		2			28			500
Ending net reserves	$	304		$	432		$	844

The decrease in incurred losses and LAE, net of reinsurance, for the year ended December 31, 2014 was primarily driven by a required reallocation of Hurricane Ike losses for UWYs 2007 and 2008. Due to different reinsurance programs for the respective UWYs, this resulted in a benefit due to the 2008 UWY, recognized in the 2014 calendar year.

Asbestos Liability

Our exposure to Asbestos Liability principally stems from Marine Liability insurance written on an occurrence basis during the mid-1980s. In general, our participation on such risks is in the excess layers, which requires the underlying coverage to be exhausted prior to coverage being triggered in our layer. In many instances, we are one of many insurers who participate in the defense and ultimate settlement of these claims, and we are generally a minor participant in the overall insurance coverage and settlement.

The reserves for asbestos exposures as of December 31, 2014 are for: (i) one large settled claim for Excess insurance policy limits exposed to a class action suit against an insured involved in the manufacturing or distribution of asbestos products being paid over several years and (ii) attritional asbestos claims that could be expected to occur over time. Substantially all of our Asbestos Liability reserves are included in our Marine loss reserves. For the year ended December 31, 2014, the Company recognized a benefit of $2.1 million as a result of settlements with third party administrators on ceded paid losses previously written off in prior years due to bankruptcy or insolvency of the reinsurer.

There can be no assurances that material loss development may not arise in the future from existing asbestos claims or new claims given the evolving and complex legal environment that may directly affect the outcome of the asbestos exposures of our insureds.

56

The following tables set forth our gross and net loss and LAE reserves, incurred loss and LAE, and payments for our asbestos exposures for the periods indicated:

	Year Ended December 31,
In thousands	2014			2013		2012
Gross of Reinsurance
Beginning gross reserves	$	15,519		$	24,223	$	19,830
Incurred loss & LAE		527			3,040		5,032
Calendar year payments		676			11,744		639
Ending gross reserves	$	15,370		$	15,519	$	24,223
Gross case loss reserves	$	13,105		$	13,254	$	21,958
Gross IBNR loss reserves		2,265			2,265		2,265
Ending gross reserves	$	15,370		$	15,519	$	24,223
Net of Reinsurance
Beginning net reserves	$	10,314		$	14,477	$	15,089
Incurred loss & LAE		(2,068	)		724		(317	)
Calendar year payments		(2,045	)		4,887		295
Ending net reserves	$	10,291		$	10,314	$	14,477
Net case loss reserves	$	8,231		$	8,254	$	12,417
Net IBNR loss reserves		2,060			2,060		2,060
Ending net reserves	$	10,291		$	10,314	$	14,477

Commission Expenses

Commission expenses paid to brokers and agents are generally based on a percentage of gross written premiums and are partially offset by ceding commissions we may receive on ceded written premiums. Commissions are generally deferred and earned in line with premium earned. The percentage of commission expenses to net earned premiums (“commission expense ratio”) for the years ended December 31, 2014, 2013 and 2012 was 13.4%, 13.5% and 15.5%, respectively. The slight decrease in commission ratio for the year ended December 31, 2014 compared to the same period in 2013 is attributed to the changes in the mix of business. The decrease in commission expense for the year ended December 31, 2013 compared to the same period in 2012 is attributed to the changes in the mix of business, mostly driven by an increase in the ceding commission on the quota share program for our Offshore Energy product lines, and to a lesser extent RRPs recorded in 2012 in connection with loss events from our Marine business, which reduce net earned premium without any commission expense relief.

Other Operating Expenses

Other operating expenses increased to $196.8 million for the year ended December 31, 2014 compared to $164.4 million for the same period during 2013. The increase is primarily due to continued investment in new underwriting teams and expansion of existing support departments closely aligned with business growth, an increase in incentive compensation driven by stronger underwriting results, and the expansion of our European operation. To a lesser extent, other operating expenses have been adversely affected by exchange rate movement when converting expenses denominated in British pounds to U.S. dollars.

Other operating expenses increased to $164.4 million for the year ended December 31, 2013 compared to $159.1 million for the same period during 2012. The increase is primarily due to continued investments in new underwriting teams closely aligned with business growth and an increase in incentive compensation.

57

Call Premium on Senior Notes

In the fourth quarter of 2013 we incurred a charge of $17.9 million for the payment of a call premium in connection with the redemption of our 7.0% Senior Notes due May 1, 2016 (“7.0% Senior Notes”).

Interest Expense

2014 interest expense relates to our 5.75% Senior Notes due October 15, 2023 (“5.75% Senior Notes”). Interest expense increased to $15.4 million for the year ended December 31, 2014 from $10.5 and $8.2 million for the years ended December 31, 2013 and 2012, respectively, primarily due to the completion of our October 4, 2013 public debt offering of $265 million principal amount of 5.75% Senior Notes and the subsequent redemption of the $115 million aggregate principal amount of our 7% Senior Notes due May 1, 2016. The effective interest rate related to the 5.75% Senior Notes and 7.0% Senior Notes, based on the proceeds net of discount and all issuance costs, approximates 5.86% and 7.17%, respectively.

Income Taxes

We recorded income tax expense of $45.2 million, $28.8 million and $28.0 million for the years ended December 31, 2014, 2013 and 2012 respectively. The effective tax rates were 32.2%, 31.2% and 30.5% for the years ended December 31, 2014, 2013 and 2012, respectively. The increase in the effective tax rate from 2013 to 2014 is due to the decrease in percentage of tax-exempt interest to pre-tax income. While tax-exempt interest increased from 2013 of $3.8 million to $4.8 million in 2014, the related percentage of pre-tax income in 2013 was 4.2% whereas in 2014 it was only 3.4%. The increase in effective tax rate from 2012 to 2013 is due to a smaller percentage of tax-exempt interest earned during 2013. The effective tax rate on net investment income was 27.4%, 27.8% and 26.8% for the years ended December 31, 2014, 2013 and 2012 respectively.

As of December 31, 2014, the net deferred federal, foreign, state and local tax liability was $1.5 million, compared to a net deferred tax asset of $23.8 million as of December 31, 2013 with the change primarily due to the Lloyd’s year of account reclass to deferred from current of $9.2 million liability and the increase in tax on unrealized gains on equities and fixed maturities (including foreign exchange) of $9.4 million.

The net deferred tax asset is $23.8 million as of December 31, 2013 as compared to $3.2 million as of December 31, 2012, with the change primarily due to the increase in unrealized losses on investments and the increase in the deferred tax asset for unearned premium reserve, in line with the growth of our business. Refer to Footnote 7, Income Taxes, included herein, for further detail on the IRS and Lloyd’s tax agreement and Subpart F tax regulation.

We had net state and local deferred tax assets amounting to potential future tax benefits of $0.8 million and $0.6 million as of December 31, 2014 and 2013, respectively. Included in the deferred tax assets are state and local net operating loss carry-forwards of $0.0 million as of December 31, 2014 and $0.1 million for December 31, 2013. A valuation allowance was established for the full amount of these potential future tax benefits due to uncertainty associated with their realization. Our state and local tax carry-forwards as of December 31, 2014 expire from 2024 to 2032. Refer to Footnote 7, Income Taxes, included herein, for further detail on the temporary differences that give rise to federal, foreign, state and local deferred tax assets or liabilities.

Our Company has not provided for U.S. income taxes on approximately $22.6 million of undistributed earnings of its non-U.S. subsidiaries since it is intended that those earnings will be reinvested indefinitely in those subsidiaries. If a future determination is made that those earnings no longer are intended to be reinvested indefinitely in those subsidiaries, U.S. income taxes of approximately $2.3 million, assuming all foreign tax credits are realized, would be included in the tax provision at that time and would be payable if those earnings were distributed to our Company.

Segment Information

Our Company evaluates the performance of each underwriting segment based on their underwriting and GAAP results. Underwriting results are measured based on underwriting profit or loss and the related combined ratio, which are both non-GAAP measures of underwriting profitability. Underwriting profit or loss is calculated from net earned premiums, less the sum of net losses and LAE, commission expenses, other operating expenses and other income (expense). The combined ratio is derived by dividing the sum of net losses and LAE, commission expenses, other operating expenses and other underwriting income (expense) by net earned premiums. A combined ratio of less than 100% indicates an underwriting profit and greater than 100% indicates an underwriting loss. Each segment maintains its own investments on which it earns income and realizes capital gains or losses. Our underwriting performance is evaluated separately from the performance of its investment portfolios.

The following is a discussion of the financial results for each of our two underwriting segments.

Insurance Companies

The Insurance Companies consist of NIC, including its U.K. Branch, and its wholly-owned subsidiary, NSIC. They are primarily engaged in underwriting Marine insurance and related lines of business, specialty insurance lines of business, including Contractors’ General Liability insurance, Commercial Umbrella and Primary and Excess Casualty businesses, Specialty Assumed reinsurance business, and Professional Liability insurance. NSIC underwrites Specialty and Professional Liability insurance on an excess and surplus lines basis. NSIC is 100% reinsured by NIC.

58

The following table sets forth the results of operations for the Insurance Companies for the years ended December 31, 2014, 2013 and 2012:

	Year Ended December 31,									Percentage Change
										2014 vs.			2013 vs.
In thousands	2014			2013			2012			2013			2012
Gross written premiums	$	1,045,454		$	1,002,275		$	921,325			4.3	%		8.8	%
Net written premiums		752,773			680,008			622,956			10.7	%		9.2	%
Net earned premiums		704,574			639,338			571,439			10.2	%		11.9	%
Net losses and loss adjustment expenses		(434,396	)		(415,413	)		(417,082	)		4.6	%		-0.4	%
Commission expenses		(85,137	)		(81,132	)		(81,370	)		4.9	%		-0.3	%
Other operating expenses		(138,675	)		(119,920	)		(113,625	)		15.6	%		5.5	%
Other underwriting income (expense)		2,727			2,764			3,790			-1.3	%		-27.1	%
Underwriting profit (loss)	$	49,093		$	25,637		$	(36,848	)		91.5	%		NM
Net investment income		56,714			49,083			46,549			15.5	%		5.4	%
Net realized gains (losses)		12,715			20,600			36,468			-38.3	%		-43.5	%
Other income (expense)		(2,182	)		—			—			NM			NM
Income (loss) before income taxes	$	116,340		$	95,320		$	46,169			22.1	%		106.5	%
Income tax expense (benefit)		36,609			29,965			12,686			22.2	%		136.2	%
Net income (loss)	$	79,731		$	65,355		$	33,483			22.0	%		95.2	%
Losses and loss adjustment expenses ratio		61.7	%		65.0	%		73.0	%
Commission expense ratio		12.1	%		12.7	%		14.2	%
Other operating expense ratio (1)		19.2	%		18.3	%		19.2	%
Combined ratio		93.0	%		96.0	%		106.4	%

(1) - Includes Other operating expenses & Other underwriting income (expense)

NM - Percentage change not meaningful

Our Insurance Companies reported net income of $79.7 million, $65.4 million and $33.5 million for the years ended December 31, 2014, 2013 and 2012, respectively. The increase in net income for the year ended December 31, 2014 as compared to the same period in 2013 is due to stronger underwriting results, as well as increases in net investment income due to growth in our investment portfolio driven by strong operating cash flows, partially offset by a decrease in net realized gains, a foreign exchange loss and additional tax expense. The increase in net income for the year ended December 31, 2013 as compared to the same period in 2012 was due to an improvement in underwriting results.

59

The following tables reflect the net underwriting result by major line of business in the calendar years ended December 2014, 2013, and 2012:

($ in thousands)
	Twelve Months Ended December 31, 2014
	Net Earned Premiums		Losses and LAE Incurred		Underwriting Expenses		Underwriting Profit (Loss)			Loss Ratio			Expense Ratio			Combined Ratio
Insurance Companies:
Marine	$	123,203	$	46,169	$	46,226	$	30,808			37.5	%		37.5	%		75.0	%
Property Casualty		496,209		337,961		142,131		16,117			68.1	%		28.7	%		96.8	%
Professional Liability		85,162		50,266		32,728		2,168			59.0	%		38.5	%		97.5	%
Total Insurance Companies	$	704,574	$	434,396	$	221,085	$	49,093			61.7	%		31.3	%		93.0	%
	Twelve Months Ended December 31, 2013
	Net Earned Premiums		Losses and LAE Incurred		Underwriting Expenses		Underwriting Profit (Loss)			Loss Ratio			Expense Ratio			Combined Ratio
Insurance Companies:
Marine	$	129,276	$	62,617	$	50,206	$	16,453			48.4	%		38.9	%		87.3	%
Property Casualty		409,480		280,530		114,660		14,290			68.5	%		28.0	%		96.5	%
Professional Liability		100,582		72,266		33,422		(5,106	)		71.8	%		33.3	%		105.1	%
Total Insurance Companies	$	639,338	$	415,413	$	198,288	$	25,637			65.0	%		31.0	%		96.0	%
	Twelve Months Ended December 31, 2012
	Net Earned Premiums		Losses and LAE Incurred		Underwriting Expenses		Underwriting Profit (Loss)			Loss Ratio			Expense Ratio			Combined Ratio
Insurance Companies:
Marine	$	142,181	$	110,119	$	55,419	$	(23,357	)		77.4	%		39.0	%		116.4	%
Property Casualty		332,782		235,740		100,770		(3,728	)		70.8	%		30.3	%		101.1	%
Professional Liability		96,476		71,223		35,016		(9,763	)		73.8	%		36.3	%		110.1	%
Total Insurance Companies	$	571,439	$	417,082	$	191,205	$	(36,848	)		73.0	%		33.4	%		106.4	%

Our Insurance Companies combined ratio for the year ended December 31, 2014 was 93.0% compared to 96.0% for the same period in 2013. Our Insurance Companies pre-tax underwriting results increased by $23.5 million to an underwriting profit of $49.1 million compared to an underwriting profit of $25.6 million for the same period in 2013.

Our Insurance Companies reported an underwriting profit of $49.1 million for the year ended December 31, 2014, mostly driven by our Marine business due to favorable loss emergence from prior accident years across all core product lines. In addition, our Property Casualty division includes $13.5 million of underwriting profit from our Excess Casualty division due in part to strong production attributable to the expansion of those underwriting teams and the continued dislocation of certain competitors, as well as $13.0 million of underwriting profit from our Assumed Reinsurance division mostly driven by growth and a lack of current accident year catastrophe activity from our LatAm Property & Casualty products, and to a lesser extent, profit from our A&H product lines as we are starting to experience favorable loss trends from those products lines. Also included within our Property Casualty results is $2.4 million of underwriting profit from our Energy & Engineering division due to favorable loss emergence from prior accident years, partially offset by an $11.4 million underwriting loss from our Primary Casualty division, mostly driven by reserve strengthening specific to Construction Liability policies issued to contractors operating in California and other western states. Our Professional Liability business reported an underwriting profit of $2.2 million due in part to a recovery of prior period losses coming from a cash settlement of a contract dispute with a former third part administrator, partially offset by unfavorable loss emergence from our small lawyers product line, which is now in runoff.

Our Insurance Companies combined ratio for the year ended December 31, 2013 was 96.0% compared to 106.4% for the same period in 2012. For the year ended December 31, 2013, our Insurance Companies reported an underwriting profit of $25.6 million inclusive of $13.6 million and $16.3 million of underwriting profit from our Energy & Engineering and Marine businesses, respectively, in connection with favorable loss emergence from UWY’s 2011 and prior. In addition, our Excess Casualty division produced an underwriting profit of $6.1 million as a result of continued strong production attributable to the expansion of those underwriting teams and the continued dislocation of certain competitors, partially offset by an underwriting loss of $5.8 million from our Management Liability division due to net prior period reserve strengthening from UWYs 2010 and prior, and an underwriting loss of $3.4 million from businesses in run-off.

60

Our Insurance Companies combined ratio for the year ended December 31, 2012 was 106.4% compared to 106.5% for the same period in 2011. For the year ended December 31, 2012, our Insurance Companies reported an underwriting loss of $36.8 million, which includes the following:

• 2012 accident year loss emergence of $14.5 million from our Agriculture product line that was driven by significant drought related crop losses across the U.S.

• Net loss of $12.8 million, inclusive of $6.3 million in RRPs, related to Superstorm Sandy. Gross of reinsurance the Insurance Companies’ loss related to Superstorm Sandy was approximately $45.2 million.

• Net losses of $9.9 million, inclusive of $9.2 million in RRPs, related to several large losses from our Marine business, including the grounding of the cruise ship Costa Concordia off the coast of Italy.

Insurance Companies Gross Written Premiums

Marine Premiums. The gross written premiums for our Marine business for the years ended December 31, 2014, 2013 and 2012 consisted of the following:

	Year Ended December 31,						Percentage Change
In thousands	2014		2013		2012		2014 vs. 2013			2013 vs. 2012
Marine Liability	$	65,740	$	62,534	$	64,429		5.1	%		-2.9	%
Craft/Fishing Vessels		37,866		32,320		25,018		17.2	%		29.2	%
Cargo		20,178		21,162		25,840		-4.7	%		-18.1	%
Protection & Indemnity		14,462		16,442		17,767		-12.0	%		-7.5	%
Bluewater Hull		12,544		12,609		18,134		-0.5	%		-30.5	%
Inland Marine		12,210		14,727		33,982		-17.1	%		-56.7	%
Other Marine		14,363		12,028		14,925		19.4	%		-19.4	%
Total Marine	$	177,363	$	171,822	$	200,095		3.2	%		-14.1	%

Insurance Companies Marine gross written premiums for the year ended December 31, 2014 increased $5.5 million, or 3.2% compared to the same period in 2013 primarily due to new business growth in our Craft/Fishing Vessels and Marine Liability product lines, partially offset by decreases in Inland Marine due to a reduction in renewal premium driven by competitive pricing as well as certain policy cancellations in the P&I product line.

The Insurance Companies Marine business experienced a 1.9% increase in renewal rates for the year ended December 31, 2014.

The Insurance Companies Marine gross written premiums for the year ended December 31, 2013 decreased 14.1% compared to the same period in 2012 primarily due to the re-underwriting of our Inland Marine product line, as well as a reduction in the Bluewater Hull product line due to less business written due to pricing on certain accounts and vessel types that do not meet our underwriting standard. In addition, the decrease in Cargo was related to non-renewed business that did not meet the current underwriting criteria. The aforementioned decreases were slightly offset by growth in Craft and Fishing Vessels products due to strong new business production.

The Insurance Companies Marine business experienced a 4.1% increase in renewal rates for the year ended December 31, 2013.

61

Property Casualty Premiums. The gross written premiums for our Property Casualty business for the years ended December 31, 2014, 2013 and 2012 consisted of the following:

	Year Ended December 31,						Percentage Change
In thousands	2014		2013		2012		2014 vs. 2013			2013 vs. 2012
Excess Casualty	$	276,339	$	258,791	$	194,306		6.8	%		33.2	%
Primary Casualty		180,302		138,551		111,595		30.1	%		24.2	%
Assumed Reinsurance		169,112		175,409		181,025		-3.6	%		-3.1	%
Energy & Engineering		57,838		69,171		61,109		-16.4	%		13.2	%
Environmental Liability		44,066		31,010		25,815		42.1	%		20.1	%
Other Property & Casualty		27,402		27,155		16,891		0.9	%		60.8	%
Total Property Casualty	$	755,059	$	700,087	$	590,741		7.9	%		18.5	%

The Insurance Companies Property Casualty gross written premiums for the year ended December 31, 2014 increased $55.0 million, or 7.9% compared to the same period in 2013, primarily driven by our Primary Casualty division, which increased $41.8 million, or 30.1%, due to strong production across all product lines from an improvement in the overall construction market. In addition, there were increases from our Excess Casualty division due to improved market conditions and dislocation of certain competitors, as well as from our Environmental division due to our continued investments in those underwriting teams. The aforementioned increases were partially offset by a net decrease from our Assumed Reinsurance division as a result of reduction in renewal premiums from our A&H product line and Agriculture products that was partially offset by an increase from our LatAm product lines driven by new business growth and an increase in line shares on certain renewals. In addition, we reported a decrease in premium from our Energy & Engineering division due to difficult market conditions and an unfavorable rate environment.

The Insurance Companies Property Casualty business experienced an overall renewal rate increase of 0.8% for the year ended December 31, 2014, mostly driven by a 3.3% increase from our Excess Casualty division, partially offset by a 7.3% decrease in rates from our Energy & Engineering division.

The Insurance Companies Property Casualty gross written premiums for the year ended December 31, 2013 increased 18.5% compared to the same period in 2012. The increases were primarily driven by the growth from our Excess Casualty and Primary Casualty divisions as a result of strong production attributable to an expansion of our underwriting teams and continued dislocation among certain competitors, partially offset by a decrease in our Assumed Reinsurance division attributable to the non-renewal of certain policies from our A&H product line.

Professional Liability Premiums. The gross written premiums for our Professional Liability business for the years ended December 31, 2014, 2013 and 2012 consisted of the following:

	Year Ended December 31,						Percentage Change
In thousands	2014		2013		2012		2014 vs. 2013			2013 vs. 2012
Errors & Omissions	$	67,130	$	86,001	$	87,221		-21.9	%		-1.4	%
Management Liability		45,902		44,365		43,268		3.5	%		2.5	%
Total Professional Liability	$	113,032	$	130,366	$	130,489		-13.3	%		-0.1	%

The Insurance Companies Professional Liability gross written premiums for the year ended December 31, 2014 decreased $17.3 million, or 13.3% compared to the same period in 2013, primarily driven by a reduction in our E&O division due to our decision to exit the small lawyers professional liability product line in the fourth quarter of 2013, as well as a decrease in our real estate agents and accountants liability product lines as a result of certain program terminations, partially offset by an increase from our Management Liability division due to an increase in subject premium on renewals.

The Insurance Companies Professional Liability business experienced an overall renewal rate decrease of 2.0% for the year ended December 31, 2014, inclusive of a 4.0% decrease from our Management Liability division and a 0.5% decrease from our E&O division.

The Insurance Companies Professional Liability gross written premiums for the years ended December 31, 2013 and 2012 are consistent at approximately $130 million. In the fourth quarter of 2013, we made the decision to exit the small lawyers product line that had contributed gross written premiums of $16.3 million and $19.1 million, in 2013 and 2012, respectively.

62

Insurance Companies Commission Expenses. The commission expense ratio for the years ended December 31, 2014, 2013 and 2012 was 12.1%, 12.7%, and 14.2%, respectively. The changes in the commission expense ratio are primarily driven by mix of business; however, the net commission expense for 2014 includes a $0.8 million estimated profit commission related to our proportional reinsurance program on Offshore Energy product lines. The net commission expense ratio for 2012 is impacted by RRPs, as previously discussed.

Insurance Companies Other Operating Expenses. Other operating expenses for the Insurance Companies were $138.7 million for the year ended December 31, 2014 compared to $119.9 million for the same period in 2013. The increase in operating expenses is due to continued investments in new underwriting teams and support staff closely aligned with business growth and an increase in incentive compensation driven by stronger underwriting results.

Other operating expenses for the Insurance Companies increased to $119.9 million for the year ended December 31, 2013 from $113.6 million for the same period in 2012 primarily due to an increase in allocated expenses from NMC and NMUK, which is driven by continued investments in new underwriting teams, closely aligned with business growth and an increase in incentive compensation.

Lloyd’s Operations

Our Lloyd’s Operations are primarily engaged in underwriting Marine and related lines of business along with Offshore Energy, construction coverages for Onshore Energy business and Professional Liability insurance at Lloyd’s through Syndicate 1221. Our Lloyd’s Operations segment includes NUAL, a Lloyd’s underwriting agency, which manages Syndicate 1221.

The following table sets forth the results of operations of the Lloyd’s Operations for the years ended December 31, 2014, 2013 and 2012:

	Year Ended December 31,									Percentage Change
In thousands	2014			2013			2012			2014 vs. 2013			2013 vs. 2012
Gross written premiums	$	386,899		$	368,242		$	365,140			5.1	%		0.8	%
Net written premiums		247,365			207,914			210,699			19.0	%		-1.3	%
Net earned premiums		231,321			202,601			210,525			14.2	%		-3.8	%
Net losses and loss adjustment expenses		(110,833	)		(103,548	)		(80,351	)		7.0	%		28.9	%
Commission expenses		(42,558	)		(34,710	)		(42,449	)		22.6	%		-18.2	%
Other operating expenses		(58,150	)		(44,514	)		(45,454	)		30.6	%		-2.1	%
Other underwriting income (expense)		35			(1,588	)		47			NM			NM
Underwriting profit (loss)	$	19,815		$	18,241		$	42,318			8.6	%		-56.9	%
Net investment income		7,378			7,160			7,551			3.0	%		-5.2	%
Net realized gains (losses)		97			(58	)		3,555			NM			NM
Other income (expense)		12,243			—			—			NM			NM
Income (loss) before income taxes	$	39,533		$	25,343		$	53,424			56.0	%		-52.6	%
Income tax expense (benefit)		13,885			8,728			18,620			59.1	%		-53.1	%
Net income (loss)	$	25,648		$	16,615		$	34,804			54.4	%		-52.3	%
Losses and loss adjustment expenses ratio		47.9	%		51.1	%		38.2	%
Commission expense ratio		18.4	%		17.1	%		20.2	%
Other operating expense ratio (1)		25.1	%		22.8	%		21.5	%
Combined ratio		91.4	%		91.0	%		79.9	%

(1) - Includes Other operating expenses & Other underwriting income (expense)

NM - Percentage change not meaningful.

63

Our Lloyd’s Operations reported net income of $25.6 million, $16.6 million and $34.8 million for the years ended December 31, 2014, 2013 and 2012, respectively. The increase in net income for the year ended December 31, 2014 compared to the same period in 2013 was largely attributable to an increase in Other Income primarily due to a one-time $10.1 million pre-tax foreign exchange gain in connection with a change in the functional currency of our Lloyd’s Operations. To a lesser extent, the increase in net income was driven by increased underwriting profits in our Property Casualty business. The decrease in net income for the year ended December 31, 2013 as compared to the same period in 2012 was largely attributable to weaker underwriting results due to only $14.7 million of net prior period reserve redundancies in 2013 compared to $47.2 million in 2012, and to a lesser extent a decrease in net realized gains on investments.

The following tables reflect the net underwriting result by major line of business for the calendar years ended December 2014, 2013, and 2012.

($ in thousands)
	Twelve Months Ended December 31, 2014
	Net Earned Premiums		Losses and LAE Incurred		Underwriting Expenses		Underwriting Profit (Loss)		Loss Ratio			Expense Ratio			Combined Ratio
Lloyd’s Operations:
Marine	$	141,471	$	74,569	$	60,633	$	6,269		52.7	%		42.9	%		95.6	%
Property Casualty		51,338		17,235		24,517		9,586		33.6	%		47.7	%		81.3	%
Professional Liability		38,512		19,029		15,523		3,960		49.4	%		40.3	%		89.7	%
Total Lloyd’s Operations	$	231,321	$	110,833	$	100,673	$	19,815		47.9	%		43.5	%		91.4	%
	Twelve Months Ended December 31, 2013
	Net Earned Premiums		Losses and LAE Incurred		Underwriting Expenses		Underwriting Profit (Loss)		Loss Ratio			Expense Ratio			Combined Ratio
Lloyd’s Operations:
Marine	$	138,690	$	76,454	$	56,377	$	5,859		55.1	%		40.7	%		95.8	%
Property Casualty		37,722		13,852		16,066		7,804		36.7	%		42.6	%		79.3	%
Professional Liability		26,189		13,242		8,369		4,578		50.6	%		31.9	%		82.5	%
Total Lloyd’s Operations	$	202,601	$	103,548	$	80,812	$	18,241		51.1	%		39.9	%		91.0	%
	Twelve Months Ended December 31, 2012
	Net Earned Premiums		Losses and LAE Incurred		Underwriting Expenses		Underwriting Profit (Loss)		Loss Ratio			Expense Ratio			Combined Ratio
Lloyd’s Operations:
Marine	$	136,898	$	51,116	$	59,110	$	26,672		37.3	%		43.2	%		80.5	%
Property Casualty		52,951		23,689		20,030		9,232		44.7	%		37.9	%		82.6	%
Professional Liability		20,676		5,546		8,716		6,414		26.8	%		42.2	%		69.0	%
Total Lloyd’s Operations	$	210,525	$	80,351	$	87,856	$	42,318		38.2	%		41.7	%		79.9	%

Our Lloyd’s Operations combined ratio for the year ended December 31, 2014 was 91.4% compared to 91.0% for the same period in 2013. Our Lloyd’s Operations underwriting results increased by $1.6 million to $19.8 million underwriting profit for the year ended December 31, 2014 compared to $18.2 million in 2013. Our Lloyd’s Operations underwriting profit for the twelve months ended December 31, 2014 includes an underwriting profit of $9.6 million from our Property Casualty division driven by favorable current accident year loss trends, and to a lesser extent, prior year reserve releases from our Onshore Energy product line. Our Lloyd’s Operations also includes an underwriting profit of $4.0 million from our Professional Liability division driven by favorable loss emergence. In addition, our Marine division reported an underwriting profit of $6.3 million driven by prior year reserve releases of $21.3 million, which were offset by current year reserve strengthening of $18.2 million, inclusive of a $5.0 million net loss and related RRPs of $3.9 million resulting from the sinking of a vessel in South Korean waters.

Our Lloyd’s Operations combined ratio for the year ended December 31, 2013 was 91.0% compared to 79.9% for the same period in 2012. Our Lloyd’s Operations underwriting results decreased by $24.1 million to $18.2 million underwriting profit for the year ended December 31, 2013 compared to $42.3 million in 2012. Our Lloyd’s Operations pre-tax underwriting profit for the twelve months ended December 31, 2013 includes $14.7 million of net prior period reserve releases in connection with continued favorable emergence from our Property Casualty division, specifically Energy & Engineering and Marine divisions as well as a $1.6 million foreign exchange loss on the re-measurement of certain deposits required by Lloyd’s.

Our Lloyd’s Operations underwriting profit for the year ended December 31, 2013 included $14.1 million of net prior period reserve releases in connection with continued favorable emergence from our D&O, Energy & Engineering and Marine divisions, partially offset by large current accident year losses from our Marine and Energy & Engineering divisions, as well as a $1.1 million foreign exchange loss on the remeasurement of certain deposits required by Lloyd’s.

64

Our Lloyd’s Operations combined ratio for the year ended December 31, 2012 was 79.9% compared to 100.8% for the same period in 2011. Our Lloyd’s Operations underwriting results increased by $44.0 million to a $42.3 million underwriting profit for the year ended December 31, 2012 compared to a $1.7 million underwriting loss for the same period in 2011. Our Lloyd’s Operations pre-tax underwriting profit in 2012 includes:

• Net loss of $7.6 million, inclusive of $2.0 million in RRPs, related to Superstorm Sandy. Gross of reinsurance our Lloyd’s Operations loss related to Superstorm Sandy was approximately $21.5 million.

• Net losses of $4.0 million, inclusive of $1.9 million in RRPs, related to several large losses from our Marine business, including the grounding of the cruise ship Costa Concordia off the coast of Italy.

• Net reserve releases of $47.2 million across all businesses and all divisions, most notably Lloyd’s Operations Marine.

Lloyd’s Operations Gross Written Premiums

We have controlled 100% of Syndicate 1221’s stamp capacity since 2006. Stamp capacity is a measure of the amount of premium a Lloyd’s syndicate is authorized to write based on a business plan approved by the Council of Lloyd’s. Syndicate 1221’s stamp capacity was £215 million ($336.9 million) in 2014, £195 million ($323.7 million) in 2013, £184 million ($300 million) in 2012.

Marine Premiums. The gross written premiums for our Marine business for the years ended December 31, 2014, 2013 and 2012 consisted of the following:

	Year Ended December 31,						Percentage Change
In thousands	2014		2013		2012		2014 vs. 2013			2013 vs. 2012
Cargo	$	53,513	$	52,469	$	57,787		2.0	%		-9.2	%
Marine Liability		41,263		39,831		39,417		3.6	%		1.1	%
Transport		24,329		20,871		22,912		16.6	%		-8.9	%
Specie		20,114		21,395		21,772		-6.0	%		-1.7	%
Marine Excess-of-Loss Reinsurance		17,476		15,328		15,309		14.0	%		0.1	%
Energy Liability		16,929		16,259		18,747		4.1	%		-13.3	%
Bluewater Hull		11,116		5,754		6,959		93.2	%		-17.3	%
War		3,367		9,139		11,520		-63.2	%		-20.7	%
Total Marine	$	188,107	$	181,046	$	194,423		3.9	%		-6.9	%

Our Lloyd’s Operations Marine gross written premiums for the year ended December 31, 2014 increased 3.9% compared to the same period in 2013. The lines with the greatest increase on 2013 are Transport, Assumed Marine excess-of-loss and Bluewater Hull. Marine excess-of-loss Assumed Reinsurance Product line includes $2.7 million of Assumed RRPs recognized year to date accounting for the difference. Transport has seen strong growth on new business. Bluewater Hull is inclusive of $3.4 million of new business generated from our new European offices, which commenced operation in September 2014. The total premium generated from these new offices for Marine classes was $3.8 million. War premium has decreased significantly due to less business written in high risk areas.

Our Lloyd’s Operations Marine gross written premiums for the year ended December 31, 2013 decreased 6.9% compared to the same period in 2012. The decrease is driven by reduction in renewals across the division, particularly on Cargo. The Lloyd’s Operations Marine business experienced average renewal rate increases of 3.4% for the year ended December 31, 2013.

65

Property Casualty Premiums. The gross written premiums for our Property Casualty business for the years ended December 31, 2014, 2013 and 2012 consisted of the following:

	Year Ended December 31,						Percentage Change
In thousands	2014		2013		2012		2014 vs. 2013			2013 vs. 2012
Energy & Engineering:
Offshore Energy	$	54,288	$	54,605	$	53,915		-0.6	%		1.3	%
Engineering and Construction		22,310		30,159		36,178		-26.0	%		-16.6	%
Onshore Energy		23,185		30,787		30,658		-24.7	%		0.4	%
Direct and Facultative Property		10,958		9,140		—		19.9	%		NM
Energy & Engineering		110,741		124,691		120,751		-11.2	%		3.3	%
Assumed Reinsurance		13,757		2,298		—		NM			NM
Other Property Casualty		1,518		2,533		6,277		-40.1	%		-59.6	%
Total Property Casualty	$	126,016	$	129,522	$	127,028		-2.7	%		2.0	%

NM - Percentage change not meaningful

Our Lloyd’s Operations Property Casualty gross written premiums for the year ended December 31, 2014 decreased 2.7% compared to the same period in 2013. Tough market conditions and an unfavorable rating environment have led to reduced premium in our Offshore Energy, Onshore Energy and Engineering and Construction lines for the year ended December 31, 2014. This has been offset by an increase in new business growth, specifically from our Assumed Reinsurance product lines, which have increased from $2.3 million in 2013 after commencing writing business in Syndicate 1221 in the fourth quarter of 2013 to $13.8 million in 2014 following a full year of writing. Other Property Casualty includes our Life Science product line, which during 2014 has largely consisted of a renewal book of business.

Our Lloyd’s Operations Property Casualty gross written premiums for the year ended December 31, 2013 increased 2.0% compared to the same period in 2012. The increase is primarily due to new business growth from our Direct and Facultative Property lines that we began writing in 2013, partially offset by Engineering and Construction and runoff business. The Lloyd’s Operations Property Casualty business achieved increases of 1.2% on renewal rates for the year ended December 31, 2013.

Professional Liability Premiums. The gross written premiums for our Professional Liability business for the years ended December 31, 2014, 2013 and 2012 consisted of the following:

	Year Ended December 31,						Percentage Change
In thousands	2014		2013		2012		2014 vs. 2013			2013 vs. 2012
Management Liability	$	48,569	$	41,989	$	32,036		15.7	%		31.1	%
Errors & Omissions		24,207		15,685		11,653		54.3	%		34.6	%
Total Professional Liability	$	72,776	$	57,674	$	43,689		26.2	%		32.0	%

Our Lloyd’s Operations Professional Liability gross written premiums for the year ended December 31, 2014 increased 26.2% compared to the same period in 2013 as a result of strong new business growth, partially offset by decreases in renewal rates of 4.2% for the year ended December 31, 2014. Gross written premium increased within Management Liability as we continue to grow our D&O portfolio, while our E&O portfolio has grown across all targeted professions. Both products also benefited from a strategy to increase distribution channels in the UK, Continental Europe, and Australia. The premium numbers are inclusive of $1.0 million of new business generated out of our new European offices, which came into operation in September 2014.

Our Lloyd’s Operations Professional Liability gross written premiums for the year ended December 31, 2013 increased 32.0% compared to the same period in 2012 as a result of new business growth, partially offset by decreases in renewal rates of 1.7% for the year ended December 31, 2013.

Lloyd’s Operations Commission Expenses. The commission expenses ratios for the year ended December 31, 2014 was 18.4%, compared to 17.1% for the same period in 2013. The increase in the commission expense ratio for the year ended December 31, 2014 is driven by a reduction in our proportional reinsurance premiums, which generate ceding commission.

66

Lloyd’s Operations Other Operating Expenses. Lloyd’s Operations other operating expenses was $58.1 million for the year ended December 31, 2014 compared to $44.5 million for the same period in 2013, primarily due to an increase in employee costs associated with growth initiatives for our business as well as an increase in certain information technology charges assessed by Lloyd’s. One of the initiatives in the year was the opening of 3 new European offices in Rotterdam, The Netherlands, Paris, France and Milan, Italy and accounted for $2.4 million of the increase with additional headcount, office costs and professional fees. New staff in the London office accounted for about an additional $3.0 million of expenses over 2013. Staff expenses are also higher than last year by $1.4 million due to increased incentive compensation in 2014. Costs charged by Lloyd’s Operations were $0.5 million higher than the prior year and IT costs were $2.5 million higher than the prior year. Other operating expenses for the year ended December 31, 2014 were also affected by approximately $2.1 million due to adverse exchange rate movement between the British Pound and the U.S. Dollar which resulted in British Pound denominated expenses to increase more when expressed in U.S. Dollar terms.

Off –Balance Sheet Transactions

We have no material off-balance sheet transactions with the exception of our letter of credit facilities. For a discussion of our letter of credit facilities, refer to “Capital Resources”.

Tabular Disclosure of Contractual Obligations

The following table sets forth the best estimate of our known contractual obligations with respect to the items indicated as of December 31, 2014:

	Payments Due by Period
In thousands	Total		Less than 1 Year		1-3 Years		3-5 Years		Thereafter
Reserves for losses and LAE (1)	$	2,159,634	$	750,294	$	752,712	$	358,012	$	298,616
5.75% Senior Notes (2)		398,966		15,238		30,476		30,476		322,776
Operating Leases (3)		52,397		11,245		17,176		11,165		12,811
Total	$	2,610,997	$	776,777	$	800,364	$	399,653	$	634,203

(1) The amounts determined are estimates which are subject to a high degree of variation and uncertainty, and are not subject to any specific payment schedule since the timing of these obligations are not set contractually. The amounts in the above table exclude reinsurance recoveries of $851.5 million. See “Business – Loss Reserves” included herein.

(2) Includes interest payments.

(3) Obligation includes rent and rent items. Rent items are estimates based on the lease agreement due to uncontrollable fluctuations of actual costs.

The State of Connecticut awarded our Company up to $11.5 million ($8.0 million in loans and $3.5 million in grants) as an incentive to move its corporate headquarters to Stamford Connecticut. The loan is non-interest bearing, has a term of 10 years and is subject to forgiveness under conditions of the agreement with the State. The amount of the assistance to be received is dependent on our Company reaching certain milestones for creation of new jobs over a five-year period, and the funds are to be used to offset certain equipment purchases, facility costs, training of employees and other eligible project-related costs. Our Company completed the move to Stamford in September 2013 and received $7.5 million for reaching the first job milestone. Earning of the grant and forgiveness of the loan is subject to certain conditions, including maintaining the required jobs for an extended period of time. As of December 31, 2014, the length of time commitment has not been met, however, our Company expects to meet all the conditions to keep the amount of assistance received to date, therefore this contractual obligation has been excluded from the table above. Accordingly, our Company is recognizing the assistance received over the period in which our Company recognizes the expenses for which the assistance is intended to compensate, and is recognized as a reduction of such expenses. During the year ended December 31, 2014, our Company recognized $1.1 million of the assistance and has deferred revenue of $6.1 million, which is included in other liabilities.

Capital Resources

Overview. We monitor our capital adequacy to support our business on a regular basis. The future capital requirements of our business will depend on many factors, including our ability to write new business successfully and to establish premium rates and reserves at levels sufficient to cover losses. Our ability to underwrite is largely dependent upon the quality of our claims paying and financial strength ratings as evaluated by independent rating agencies. In particular, we require (1) sufficient capital to maintain our financial strength ratings, as issued by various ratings agencies, at a level considered necessary by management to enable our Insurance Companies to compete, (2) sufficient capital to enable our Insurance Companies to meet the capital adequacy tests performed by statutory agencies in the U.S. and the U.K. and (3) letters of credit and other forms of collateral that are necessary to support the business plan of our Lloyd’s Operations.

67

Our capital resources consist of funds deployed or available to be deployed to support our business operations. As of December 31, 2014 and 2013, our capital resources were as follows:

	December 31,
In thousands	2014			2013
Senior Notes	$	263,440		$	263,308
Stockholders’ equity		1,027,224			902,212
Total capitalization	$	1,290,664		$	1,165,520
Ratio of debt to total capitalization		20.4	%		22.6	%

Share Repurchase. As part of our capital management program, we may seek to raise additional capital or may seek to return capital to our stockholders through share repurchases, cash dividends or other methods (or a combination of such methods). Any such determination will be at the discretion of the Parent Company’s Board of Directors and will be dependent upon our profits, financial requirements and other factors, including legal restrictions, rating agency requirements, credit facility limitations and such other factors as our Board of Directors deems relevant.

Shelf Registration. In July 2012, we filed a universal shelf registration statement with the SEC. This registration statement, which expires in July 2015, allows for the future possible offer and sale by our Company of up to $500 million in the aggregate of various types of securities including common stock, preferred stock, debt securities, depositary shares, warrants, units or stock purchase contracts and stock purchase units. The shelf registration statement enables us to efficiently access the public equity or debt markets in order to meet future capital needs, if necessary. This report is not an offer to sell or the solicitation of an offer to buy nor shall there be any sale of these securities in any state in which such offer, solicitation or sale would be unlawful prior to registration or qualification under the securities laws of such state.

Statutory Dividend Capacity. We primarily rely upon dividends from our subsidiaries to meet our Parent Company’s obligations. The Parent Company’s cash obligations primarily consist of semi-annual interest payments on the senior debt, which are currently $7.6 million. Going forward, the interest payments may be made from funds currently at the Parent Company or dividends from its subsidiaries.

NIC may pay dividends to the Parent Company out of its statutory earned surplus pursuant to statutory restrictions imposed under the New York insurance law. As of December 31, 2014, the maximum amount available for the payment of dividends by NIC in 2015 without prior regulatory approval is $89.4 million. NIC did not pay any dividends to the Parent Company in 2014 and 2013, but, did pay $15.0 million of dividends in 2012.

NCUL may pay dividends to the Parent Company up to the extent of available profits that have been distributed from Syndicate 1221, and as of December 31, 2014 and 2013 that amount was $9.9 million (£6.3 million) and $11.6 million (£7.0 million), respectively.

Refer to Note 13, Dividends and Statutory Financial Information, in the Notes to Consolidated Financial Statements for additional information regarding dividends, including dividend restrictions and net assets available for dividend distribution.

68

Parent Company Balance Sheet. Condensed Parent Company balance sheets as of December 31, 2014 and 2013 are shown in the table below:

	December 31,
In thousands	2014		2013
Cash and investments	$	101,032	$	100,676
Investments in subsidiaries		1,163,822		1,040,214
Goodwill and other intangible assets		2,534		2,534
Other assets		27,531		26,538
Total assets	$	1,294,919	$	1,169,962
Senior Notes	$	263,440	$	263,308
Accounts payable and other liabilities		1,081		802
Accrued interest payable		3,174		3,640
Total liabilities	$	267,695	$	267,750
Stockholders’ equity	$	1,027,224	$	902,212
Total liabilities and stockholders’ equity	$	1,294,919	$	1,169,962

Senior Notes and Credit Facility. On October 4, 2013, we completed a public debt offering of $265 million principal amount of the 5.75% Senior Notes and received net proceeds of $263 million. We used the proceeds of the 5.75% Senior Notes for general corporate purposes including the redemption of our 7.0% Senior Notes. We incurred a charge of $17.9 million for the payment of call premium in connection with the redemption of the 7.0% Senior Notes. The effective interest rate related to the net proceeds received from the 5.75% Senior Notes is approximately 5.86%. Interest is payable on the 5.75% Senior Notes each April 15 and October 15.

On November 6, 2014, NUAL entered into a credit facility for $8.0 million Australian Dollars with Barclays Bank PLC to fund our participation in Syndicate 1221. The facility is used to fund Australian underwriting obligations for the 2014 and prior UWYs. The facility contains customary covenants for facilities of this type, including a restriction on future encumbrances that are outside the ordinary course of business, and a requirement to maintain at least £75 million of Funds at Lloyd’s. Interest is payable on the facility at a rate of 2% per annum above a floating rate tied to the average mid-rate for Australian bills of exchange administered by the Australian Financial Markets Association. The facility may be cancelled by either party after providing written notice. As of December 31, 2014, we were in compliance with all covenants.

On November 24, 2014, our Company entered into a $175 million credit facility agreement with ING Bank N.V., London Branch, individually and as Administrative Agent, and a syndicate of lenders. The new credit facility amended and restated a $165 million letter of credit facility entered into by the parties on November 21, 2012. The credit facility, which is denominated in U.S. dollars, is utilized to fund participation in Syndicate 1221 through letters of credit for the 2016 and 2015 UWYs, as well as open prior years. The letters of credit issued under the facility can be denominated in British pounds and their aggregate face amount will fluctuate based on exchange rates. If any letters of credit remain outstanding under the facility after December 31, 2016, our Company would be required to post additional collateral to secure the remaining letters of credit. As of December 31, 2014, letters of credit with an aggregate face amount of $149.4 million were outstanding under the credit facility and our Company had $1.0 million of cash collateral posted.

This credit facility contains customary covenants for facilities of this type, including restrictions on indebtedness and liens, limitations on mergers, dividends and the sale of assets, and requirements as to maintaining certain consolidated tangible net worth, statutory surplus and other financial ratios. The credit facility also provides for customary events of default, including failure to pay principal, interest or fees when due, failure to comply with covenants, any representation or warranty made by our Company being false in any material respect, default under certain other indebtedness, certain insolvency or receivership events affecting our Company and its subsidiaries, the occurrence of certain material judgments, or a change in control of our Company. The letter of credit facility is secured by a pledge of the stock of certain insurance subsidiaries of our Company. To the extent, the aggregate face amount issued under the credit facility exceeds the commitment amount; we are required to post collateral with the lead bank of the consortium. We were in compliance with all covenants under the credit facility as of December 31, 2014.

The applicable fee rate payable under the credit facility is based on a tiered schedule that is based on our Company’s then-current financial strength ratings issued by S&P and A.M. Best, and the amount of our Company’s own collateral utilized to fund its participation in Syndicate 1221.

Reinsurance. Time lags do occur in the normal course of business between the time gross loss reserves are paid by our Company and the time such gross paid losses are billed and collected from reinsurers. Reinsurance recoverable amounts related to gross loss reserves as of December 31, 2014 are anticipated to be billed and collected over the next several years as the gross loss reserves are paid by our Company.

69

Generally, for pro rata or quota share reinsurers, we issue quarterly settlement statements for premiums less commissions and paid loss activity, which are expected to be settled within 30-45 days. We have the ability to issue “cash calls” requiring such reinsurers to pay losses whenever paid loss activity for a claim ceded to a particular reinsurance treaty exceeds a predetermined amount (generally $0.5 million to $1.0 million) as set forth in the pro rata treaty. For the Insurance Companies, cash calls must generally be paid within 7-15 calendar days. There is generally no specific settlement period for the Lloyd’s Operations cash call provisions, but such billings have historically on average been paid within the same time period.

Generally, for excess-of-loss reinsurers we pay quarterly deposit premiums based on the estimated subject premiums over the contract period (usually one year) that are subsequently adjusted based on actual premiums determined after the expiration of the applicable reinsurance treaty. Paid losses subject to excess-of-loss recoveries are generally billed as they occur and are usually settled by reinsurers within 30 calendar days for the Insurance Companies and 30 business days for the Lloyd’s Operations.

We sometimes withhold funds from reinsurers and may apply ceded loss billings against such funds in accordance with the applicable reinsurance agreements.

Liquidity

Consolidated Cash Flows

Cash flow from operations was $222.5 million, $136.9 million and $96.7 million for the years ended December 31, 2014, 2013 and 2012. The increase in cash flow from operations for 2014 is largely attributable to a reduction in net losses paid, and to a lesser extent, a decrease in tax payments due to utilization of prior year tax overpayments, partially, offset by higher operating expenses resulting from increased headcount associated with growth in our business. The increase in cash flow from operations for 2013 is largely attributable to the growth of our business as well as improved collections on premiums receivable.

Net cash used in investing activities was $219.5 million and $229.9 million for the years ended December 31, 2014 and 2013, respectively, as compared to net cash used in investing activities of $179.8 million for the same period in 2012. Fluctuations in cash provided by, or used in, investing activities is primarily due to changes in operating cash flows and the associated ongoing management of our investment portfolio.

Net cash provided by financing activities was $1.2 million and $134.2 million for the years ended December 31, 2014 and 2013, respectively, compared to net cash provided by financing activities of $1.1 million for the year ended December 31, 2012. The decrease in cash flows from financing for 2014 compared to 2013 relates to a reduction in proceeds from exercise of stock options. The increase in cash flows from financing for 2013 compared to 2012 is due to net proceeds of $130.8 million received from our public debt offering of the 5.75% Senior Notes.

We believe that the cash flow generated by the operating activities of our subsidiaries will provide sufficient funds for us to meet our liquidity needs over the next twelve months. Beyond the next twelve months, cash flow available to us may be influenced by a variety of factors, including general economic conditions and conditions in the insurance and reinsurance markets, as well as fluctuations from year to year in claims experience.

We believe that we have adequately managed our cash flow requirements related to reinsurance recoveries from their positive cash flows and the use of available short-term funds when applicable. However, there can be no assurances that we will be able to continue to adequately manage such recoveries in the future or that collection disputes or reinsurer insolvencies will not arise that could materially increase the collection time lags or result in recoverable write-offs causing additional incurred losses and liquidity constraints to our Company. The payment of gross claims and related collections from reinsurers with respect to large losses could significantly impact our liquidity needs. However, in general, we expect to collect our paid reinsurance recoverables under the terms described above.

70

Investments

As of December 31, 2014, the weighted average rating of our fixed maturities was “AA” by S&P and “Aa” by Moody’s. The entire fixed maturity investment portfolio, except for investments with a fair value of $15.3 million, consists of investment grade bonds. As of December 31, 2014, our portfolio had a duration of 3.8 years. Management periodically projects cash flow of the investment portfolio and other sources in order to maintain the appropriate levels of liquidity in an effort to ensure our ability to satisfy claims. As of December 31, 2014 and 2013, all fixed maturities and equity securities held by us were classified as available-for-sale.

The following tables set forth our Company’s cash and investments as of December 31, 2014 and 2013. The tables below include OTTI securities recognized within AOCI.

	December 31, 2014
In thousands	Fair Value		Gross Unrealized Gains		Gross Unrealized Losses			Amortized Cost
Fixed maturities:
U.S. Treasury bonds, agency bonds and foreign government bonds	$	397,923	$	3,431	$	(5,965	)	$	400,457
States, municipalities and political subdivisions		541,007		19,204		(558	)		522,361
Mortgage-backed and asset-backed securities:
Agency mortgage-backed securities		364,622		8,476		(998	)		357,144
Residential mortgage obligations		34,087		1,153		(138	)		33,072
Asset-backed securities		206,413		380		(964	)		206,997
Commercial mortgage-backed securities		206,318		6,630		(98	)		199,786
Subtotal	$	811,440	$	16,639	$	(2,198	)	$	796,999
Corporate bonds		615,564		13,048		(1,626	)		604,142
Total fixed maturities	$	2,365,934	$	52,322	$	(10,347	)	$	2,323,959
Equity securities - common stocks		127,183		28,520		(1,254	)		99,917
Equity securities - preferred stocks		57,112		2,236		(50	)		54,926
Short-term investments		179,506		—		(21	)		179,527
Cash		90,751		—		—			90,751
Total	$	2,820,486	$	83,078	$	(11,672	)	$	2,749,080

	December 31, 2013
In thousands	Fair Value		Gross Unrealized Gains		Gross Unrealized Losses			Amortized Cost
Fixed maturities:
U.S. Treasury bonds, agency bonds and foreign government bonds	$	441,685	$	2,854	$	(8,855	)	$	447,686
States, municipalities and political subdivisions		460,422		9,298		(13,651	)		464,775
Mortgage-backed and asset-backed securities:
Agency mortgage-backed securities		301,274		6,779		(6,016	)		300,511
Residential mortgage obligations		41,755		1,212		(161	)		40,704
Asset-backed securities		125,133		653		(480	)		124,960
Commercial mortgage-backed securities		172,750		7,656		(374	)		165,468
Subtotal	$	640,912	$	16,300	$	(7,031	)	$	631,643
Corporate bonds		504,854		15,402		(3,443	)		492,895
Total fixed maturities	$	2,047,873	$	43,854	$	(32,980	)	$	2,036,999
Equity securities - common stocks		143,954		25,700		(550	)		118,804
Short-term investments		296,250		—		—			296,250
Cash		86,509		—		—			86,509
Total	$	2,574,586	$	69,554	$	(33,530	)	$	2,538,562

71

As of December 31, 2014 and 2013, debt securities for which non-credit OTTI was previously recognized and included in other comprehensive income are now in an unrealized gains position of $0.7 million and $0.5 million, respectively.

The fair value of our investment portfolio may fluctuate significantly in response to various factors such as changes in interest rates, investment quality ratings, equity prices, foreign exchange rates and credit spreads. We do not have the intent to sell nor is it more likely than not that we will have to sell fixed maturities in unrealized loss positions that are not other-than-temporarily impaired before recovery. For structured securities, default probability and severity assumptions differ based on property type, vintage and the stress of the collateral. We do not intend to sell any of these securities and it is more likely than not that, we will not be required to sell these securities before the recovery of the amortized cost basis. For equity securities, our Company also considers its intent to hold securities as part of the process of evaluating whether a decline in fair value represents an other-than-temporary decline in value. We may realize investment losses to the extent our liquidity needs require the disposition of fixed maturity securities in unfavorable interest rate, liquidity or credit spread environments. Significant changes in the factors we consider when evaluating investments for impairment losses could result in a significant change in impairment losses reported in the consolidated financial statements.

Invested assets increased in 2014 from the prior comparable periods for 2013 and 2012 primarily due to positive cash flows from operations. The annualized pre-tax yield, excluding net realized gains and losses and net OTTI losses recognized in earnings, was 2.3%, 2.4% and 2.4% for the years ended December 31, 2014, 2013 and 2012, respectively. The 2.4% annualized pre-tax yield for the years ended December 31, 2012 includes investment expenses of $4.5 million of interest expense related to the settlement of a dispute with Equitas over foregone interest on amounts that were due on certain reinsurance contracts. In the dispute Equitas alleged that we failed to make timely payments to them under certain reinsurance agreements in connection with subrogation recoveries received by us with respect to several catastrophe losses that occurred in the late 1980’s and early 1990’s. In addition, investment expenses for the year ended December 31, 2012 includes a $2.8 million investment performance fee. Excluding the impact of the aforementioned interest expense and investment performance fee, the annualized pre-tax yield for the year ended December 31, 2012 would have been 2.7%, reflective of the general decline in market yields.

The tax equivalent yields for the years ended December 31, 2014, 2013 and 2012 on a consolidated basis were 2.5%, 2.5% and 2.6%, respectively. The portfolio duration was 3.8 years and 3.7 years for the years ended December 31, 2014 and 2013, respectively. Since the beginning of 2014, the tax-exempt portion of our investment portfolio has increased by $86.3 million to approximately 21.0% of the fixed maturities investment portfolio as of December 31, 2014 compared to approximately 20.1% at December 31, 2013.

We are a specialty insurance company and periods of moderate economic recession or inflation tend not to have a significant direct effect on our underwriting operations. They do, however, impact our investment portfolio. A decrease in interest rates will tend to decrease our yield and have a positive effect on the fair value of our invested assets. An increase in interest rates will tend to increase our yield and have a negative effect on the fair value of our invested assets.

The contractual maturity dates for fixed maturity securities categorized by the number of years until maturity as of December 31, 2014 are shown in the following table:

	December 31, 2014
			Amortized
In thousands	Fair Value		Cost
Due in one year or less	$	63,670	$	65,643
Due after one year through five years		765,084		758,064
Due after five years through ten years		356,929		348,195
Due after ten years		368,811		355,058
Mortgage- and asset-backed securities		811,440		796,999
Total	$	2,365,934	$	2,323,959

Expected maturities may differ from contractual maturities because issuers may have the right to call or prepay obligations with or without call or prepayment penalties. Due to the periodic repayment of principal, the aggregate amount of mortgage-backed and asset-backed securities is estimated to have an effective maturity of approximately 4.4 years.

72

The following table sets forth the amount and percentage of our fixed maturities as of December 31, 2014 by S&P credit rating or, if an S&P rating is not available, the equivalent Moody’s rating. The table includes fixed maturities at fair value, and the total rating is the weighted average quality rating.

	December 31, 2014
				Percent
In thousands	Rating	Fair Value		of Total
Rating description:
Extremely strong	AAA	$	462,603		20	%
Very strong	AA		1,090,505		45	%
Strong	A		612,131		26	%
Adequate	BBB		185,372		8	%
Speculative	BB & Below		14,852		1	%
Not rated	NR		471		0	%
Total	AA	$	2,365,934		100	%

The following table sets forth our U.S. Treasury bonds, agency bonds, and foreign government bonds as of December 31, 2014 and 2013:

	December 31, 2014
			Gross		Gross
	Fair		Unrealized		Unrealized			Amortized
In thousands	Value		Gains		(Losses)			Cost
U.S. Treasury bonds	$	146,905	$	1,931	$	(942	)	$	145,916
Agency bonds		157,543		1,416		(181	)		156,308
Foreign government bonds		93,475		84		(4,842	)		98,233
Total	$	397,923	$	3,431	$	(5,965	)	$	400,457
	December 31, 2013
			Gross		Gross
	Fair		Unrealized		Unrealized			Amortized
In thousands	Value		Gains		(Losses)			Cost
U.S. Treasury bonds	$	395,762	$	1,982	$	(8,636	)	$	402,416
Agency bonds		42,544		796		(186	)		41,934
Foreign government bonds		3,379		76		(33	)		3,336
Total	$	441,685	$	2,854	$	(8,855	)	$	447,686

The following table sets forth the composition of the investments categorized as states, municipalities and political subdivisions in our portfolio by generally equivalent S&P and Moody’s ratings (not all securities in our portfolio are rated by both S&P and Moody’s) as of December 31, 2014. The securities that are not rated in the table below are primarily state bonds.

In thousands		December 31, 2014
Equivalent S&P Rating	Equivalent Moody’s Rating	Fair Value		Amortized Cost		Net Unrealized Gain (Loss)
AAA/AA/A	Aaa/Aa/A	$	531,161	$	512,916	$	18,245
BBB	Baa		9,375		8,975		400
BB	Ba		—		—		—
B	B		—		—		—
CCC or lower	Caa or lower		—		—		—
NR	NR		471		470		1
Total		$	541,007	$	522,361	$	18,646

73

The following table sets forth the municipal bond holdings by sectors as of December 31, 2014 and 2013:

	December 31, 2014					December 31, 2013
	Fair		Percent			Fair		Percent
In thousands	Value		of Total			Value		of Total
Municipal Sector:
General obligation	$	156,289		29	%	$	125,063		27	%
Prerefunded		17,595		3	%		15,835		3	%
Revenue		323,349		60	%		270,016		59	%
Taxable		43,774		8	%		49,508		11	%
Total	$	541,007		100	%	$	460,422		100	%

We own $77.2 million of municipal securities, which are credit enhanced by various financial guarantors. As of December 31, 2014, the average underlying credit rating for these securities is A+. There has been no material adverse impact to our investment portfolio or results of operations as a result of downgrades of the credit ratings for several of the financial guarantors.

We analyze our mortgage-backed and asset-backed securities by credit quality of the underlying collateral distinguishing between the securities issued by the Federal National Mortgage Association (“FNMA”), the Federal Home Loan Mortgage Corporation (“FHLMC”) and the Government National Mortgage Association (“GNMA”) which are Federal government sponsored entities, and the non-FNMA and non-FHLMC securities broken out by prime, Alternative A-paper (“Alt-A”) and subprime collateral. The securities issued by FNMA and FHLMC are the obligations of each respective entity. The U.S. Department of the Treasury has agreed to provide support to FNMA and FHLMC under the Preferred Stock Purchase Agreement by committing to make quarterly payments to these enterprises, if needed, to maintain a zero net worth.

Prime collateral consists of mortgages or other collateral from the most creditworthy borrowers. Alt-A collateral consists of mortgages or other collateral from borrowers, which have a risk potential that is greater than prime but less than subprime. The subprime collateral consists of mortgages or other collateral from borrowers with low credit ratings. Such subprime and Alt-A categories are as defined by S&P.

The following table sets forth our agency mortgage-backed securities and residential mortgage-backed securities (“RMBS”) by those issued by GNMA, FNMA, and FHLMC, and the quality category (prime, Alt-A and subprime) for all other such investments as of December 31, 2014:

	December 31, 2014
In thousands	Fair Value		Gross Unrealized Gains		Gross Unrealized Losses			Amortized Cost
Agency mortgage-backed securities:
GNMA	$	83,452	$	2,865	$	(772	)	$	81,359
FNMA		216,133		4,059		(162	)		212,236
FHLMC		65,037		1,552		(64	)		63,549
Total agency mortgage-backed securities	$	364,622	$	8,476	$	(998	)	$	357,144
Residential mortgage-backed securities:
Prime	$	13,457	$	548	$	(117	)	$	13,026
Alt-A		1,738		116		(21	)		1,643
Subprime		390		14		—			376
Non-US RMBS		18,502		475		—			18,027
Total residential mortgage-backed securities	$	34,087	$	1,153	$	(138	)	$	33,072

74

The following table sets forth the composition of the investments categorized as RMBS in our portfolio by generally equivalent S&P and Moody’s ratings (not all securities in our portfolio are rated by both S&P and Moody’s) as of December 31, 2014:

In thousands		December 31, 2014
Equivalent S&P Rating	Equivalent Moody’s Rating	Fair Value		Amortized Cost		Net Unrealized Gain (Loss)
AAA/AA/A	Aaa/Aa/A	$	23,233	$	22,770	$	463
BBB	Baa		1,709		1,722		(13	)
BB	Ba		1,419		1,447		(28	)
B	B		1,431		1,410		21
CCC or lower	Caa or lower		6,295		5,723		572
NR	NR		—		—		—
Total		$	34,087	$	33,072	$	1,015

Details of the collateral of our asset-backed securities portfolio as of December 31, 2014 are presented below:

															Amortized		Unrealized
In thousands	AAA		AA		A		BBB		BB		CCC		Fair Value		Cost		Gain (Loss)
Auto loans	$	20,526	$	9,638	$	4,513	$	—	$	—	$	—	$	34,677	$	34,628	$	49
Credit cards		49,967		—		5,982		—		—		—		55,949		55,907		42
Collateralized loan obligations		69,141		6,696										75,837		76,597		(760	)
Time Share		—		—		21,652		—		—		—		21,652		21,622		30
Student Loans		825				—		—		—		—		825		803		22
Miscellaneous		6,678		—		10,795		—		—		—		17,473		17,440		33
Total	$	147,137	$	16,334	$	42,942	$	—	$	—	$	—	$	206,413	$	206,997	$	(584	)

The following table sets forth the composition of the investments categorized as commercial mortgage-backed securities in our portfolio by generally equivalent S&P and Moody’s ratings (not all securities in our portfolio are rated by both S&P and Moody’s) as of December 31, 2014:

In thousands		December 31, 2014
Equivalent S&P Rating	Equivalent Moody’s Rating	Fair Value		Amortized Cost		Net Unrealized Gain (Loss)
AAA/AA/A	Aaa/Aa/A	$	206,318	$	199,786	$	6,532
BBB	Baa		—		—		—
BB	Ba		—		—		—
B	B		—		—		—
CCC or lower	Caa or lower		—		—		—
NR	NR		—		—		—
Total		$	206,318	$	199,786	$	6,532

75

The following table sets forth the composition of the investments categorized as corporate bonds in our portfolio by generally equivalent S&P and Moody’s ratings (not all securities in our portfolio are rated by both S&P and Moody’s) as of December 31, 2014:

In thousands		December 31, 2014
Equivalent S&P Rating	Equivalent Moody’s Rating	Fair Value		Amortized Cost		Net Unrealized Gain (Loss)
AAA/AA/A	Aaa/Aa/A	$	435,571	$	428,906	$	6,665
BBB	Baa		174,287		169,712		4,575
BB	Ba		5,706		5,524		182
B	B		—		—		—
CCC or lower	Caa or lower		—		—		—
NR	NR		—		—		—
Total		$	615,564	$	604,142	$	11,422

Our company holds non-sovereign securities, where the issuer is located in the Euro Area, an economic and monetary union of certain member states within the European Union that have adopted the Euro as their common currency. As of December 31, 2014, the fair value of such securities was $97.6 million, with an amortized cost of $97.6 million representing 3.8% of our total fixed income and equity portfolio. Our largest exposure is in France with a total of $40.1 million followed by The Netherlands with a total of $39.6 million. We have no direct material exposure to Greece, Portugal, Italy, Spain, Ukraine or Russia as of December 31, 2014.

76

The following table summarizes all securities in a gross unrealized loss position as of December 31, 2014 and 2013, showing the aggregate fair value and gross unrealized loss by the length of time those securities had continuously been in a gross unrealized loss position as well as the number of securities:

	December 31, 2014						December 31, 2013
In thousands, except # of securities	Number of Securities		Fair Value		Gross Unrealized Loss		Number of Securities		Fair Value		Gross Unrealized Loss
Fixed maturities:
U.S. Treasury bonds, agency bonds, and foreign government bonds
0-6 months		19	$	87,915	$	1,061		27	$	136,360	$	1,096
7-12 months		—		—		—		26		149,370		7,759
> 12 months		31		117,683		4,904		—		—		—
Subtotal		50	$	205,598	$	5,965		53	$	285,730	$	8,855
States, municipalities and political subdivisions
0-6 months		13	$	14,242	$	41		28	$	40,132	$	297
7-12 months		2		2,107		19		104		205,152		12,100
> 12 months		17		37,340		498		6		12,357		1,254
Subtotal		32	$	53,689	$	558		138	$	257,641	$	13,651
Agency mortgage-backed securities
0-6 months		4	$	14,743	$	52		39	$	39,458	$	434
7-12 months		2		4,138		28		64		77,860		3,768
> 12 months		46		58,301		918		9		22,784		1,814
Subtotal		52	$	77,182	$	998		112	$	140,102	$	6,016
Residential mortgage obligations
0-6 months		6	$	4,966	$	43		3	$	431	$	2
7-12 months		2		659		7		7		950		29
> 12 months		14		1,728		88		15		2,467		130
Subtotal		22	$	7,353	$	138		25	$	3,848	$	161
Asset-backed securities
0-6 months		19	$	96,123	$	354		14	$	75,887	$	479
7-12 months		3		14,152		185		1		203		1
> 12 months		3		34,530		425		—		—		—
Subtotal		25	$	144,805	$	964		15	$	76,090	$	480
Commercial mortgage-backed securities
0-6 months		4	$	18,665	$	65		4	$	6,712	$	31
7-12 months		1		1,076		6		2		15,098		322
> 12 months		3		1,391		27		4		774		21
Subtotal		8	$	21,132	$	98		10	$	22,584	$	374
Corporate bonds
0-6 months		52	$	179,390	$	797		34	$	93,591	$	717
7-12 months		4		11,071		74		18		55,021		2,726
> 12 months		14		31,126		755		—		—		—
Subtotal		70	$	221,587	$	1,626		52	$	148,612	$	3,443
Total fixed maturities		259	$	731,346	$	10,347		405	$	934,607	$	32,980
Equity securities - common stocks
0-6 months		6	$	9,152	$	761		5	$	7,387	$	422
7-12 months		1		3,887		486		2		3,538		128
> 12 months		1		238		7		—		—		—
		8	$	13,277	$	1,254		7	$	10,925	$	550
Equity securities - preferred stocks
0-6 months		7	$	6,651	$	50		—	$	—	$	—
7-12 months		—		—		—		—		—		—
> 12 months		—		—		—		—		—		—
		7	$	6,651	$	50		—	$	—	$	—
Total equity securities		15	$	19,928	$	1,304		7	$	10,925	$	550

77

We analyze the unrealized losses quarterly to determine if any are other-than-temporary. The above unrealized losses have been determined to be temporary based on our policies.

In the above, table the gross unrealized loss for the greater than 12 months category consists primarily of Treasury and agency bonds, due to an increase in interest rates and unfavorable foreign exchange movement.

To determine whether the unrealized loss on structured securities is other-than-temporary, we analyze the projections provided by our investment managers with respect to an expected principal loss under a range of scenarios and utilize the most likely outcomes. The analysis relies on actual collateral performance measures such as default rate, prepayment rate and loss severity. These assumptions are applied throughout the remaining term of the deal, incorporating the transaction structure and priority of payments, to generate loss adjusted cash flows. Results of the analysis will indicate whether the security is expected ultimately to incur a loss or whether there is a material impact on yield due to either a projected loss or a change in cash flow timing. A break even default rate is also calculated. A comparison of the break even default rate to the actual default rate provides an indication of the level of cushion or coverage to the first dollar principal loss. The analysis applies the stated assumptions throughout the remaining term of the transaction to forecast cash flows, which are then applied through the transaction structure to determine whether there is a loss to the security. For securities in which a tranche loss is present, and the net present value of loss adjusted cash flows is less than book value, an impairment is recognized. The output data also includes a number of additional metrics such as average life remaining, original and current credit support, over 60 day delinquency and security rating.

Prepayment assumptions associated with the mortgage-backed and asset-backed securities are reviewed on a periodic basis. When changes in prepayment assumptions are deemed necessary as the result of actual prepayments differing from anticipated prepayments, securities are revalued based upon the new prepayment assumptions utilizing the retrospective accounting method.

As of December 31, 2014 and 2013, the largest unrealized loss by a non-government backed issuer in the investment portfolio was $0.5 million and $1.1 million, respectively.

The following table sets forth the composition of the investments categorized as fixed maturities securities in our investment portfolio with gross unrealized losses by generally equivalent S&P and Moody’s ratings (not all of the securities are rated by S&P and Moody’s) as of December 31, 2014:

		December 31, 2014
In thousands		Gross Unrealized Loss					Fair Value
Equivalent S&P Rating	Equivalent Moody’s Rating	Amount		Percent of Total			Amount		Percent of Total
AAA/AA/A	Aaa/Aa/A	$	9,811		95	%	$	691,175		95	%
BBB	Baa		464		5	%		38,179		5	%
BB	Ba		40		0	%		809		0	%
B	B		14		0	%		442		0	%
CCC or lower	Caa or lower		18		0	%		741		0	%
NR	NR		—		0	%		—		0	%
Total		$	10,347		100	%	$	731,346		100	%

As of December 31, 2014, the gross unrealized losses in the table above were related to fixed maturities that are rated investment grade, which is defined as a security having an S&P rating of “BBB–” or higher, or a Moody’s rating of “Baa3” or higher, except for $0.07 million, which is rated below investment grade or not rated. Unrealized losses on investment grade securities principally relate to changes in interest rates or changes in sector-related credit spreads since the securities were acquired.

78

The contractual maturity for fixed maturities categorized by the number of years until maturity, with a gross unrealized loss as of December 31, 2014 is presented in the following table:

	December 31, 2014
	Gross Unrealized Losses					Fair Value
			Percent					Percent
In thousands	Amount		of Total			Amount		of Total
Due in one year or less	$	2,638		25	%	$	21,919		3	%
Due after one year through five years		3,791		37	%		334,046		46	%
Due after five years through ten years		1,562		15	%		103,376		14	%
Due after ten years		158		2	%		21,533		3	%
Mortgage- and asset-backed securities		2,198		21	%		250,472		34	%
Total	$	10,347		100	%	$	731,346		100	%

As of December 31, 2014, there were no investments with a fair value that was less than 80% of amortized cost.

The following table below summarizes our activity related to OTTI losses for the periods indicated:

	Year Ended December 31,
	2014					2013				2012
In thousands, except # of securities	Number of Securities		Amount			Number of Securities		Amount		Number of Securities		Amount
Total OTTI losses:
Corporate and other bonds		—	$	—			1	$	1,822		—	$	—
Commercial mortgage-backed securities		—		—			—		—		—		—
Residential mortgage-backed securities		31		(137	)		—		—		1		55
Asset-backed securities		—		—			—		—		—		—
Equities		—		—			3		571		3		847
Total		31	$	(137	)		4	$	2,393		4	$	902
Less: Portion of loss in accumulated other comprehensive income (loss):
Corporate and other bonds			$	—				$	—			$	—
Commercial mortgage-backed securities				—					—				—
Residential mortgage-backed securities				(137	)				—				44
Asset-backed securities				—					—				—
Equities				—					—				—
Total			$	(137	)			$	—			$	44
Impairment losses recognized in earnings:
Corporate and other bonds			$	—				$	1,822			$	—
Commercial mortgage-backed securities				—					—				—
Residential mortgage-backed securities				—					—				11
Asset-backed securities				—					—				—
Equities				—					571				847
Total			$	—				$	2,393			$	858

79

We did not have OTTI losses during the year ended December 31, 2014. During the year ended December 31, 2013, we recognized OTTI losses of $2.4 million related to three equity securities and one municipal bond. During the year ended December 31, 2012, we recognized OTTI losses of $0.9 million related to one non-agency mortgage-backed security and three equity securities. The significant inputs used to measure the amount of credit loss recognized in earnings were actual delinquency rates, default probability assumptions, severity assumptions and prepayment assumptions. Projected losses are a function of both loss severity and probability of default. Default probability and severity assumptions differ based on property type, vintage and the stress of the collateral. We do not intend to sell any of these securities and it is more likely than not that, we will not be required to sell these securities before the recovery of the amortized cost basis.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Market Sensitive Instruments and Risk Management

Market risk represents the potential for loss due to adverse changes in the fair value of financial instruments. We are exposed to potential loss to various market risks, including changes in interest rates, equity prices and foreign currency exchange rates. Market risk is directly influenced by the volatility and liquidity in the markets in which the related underlying assets are traded. The following is a discussion of our primary market risk exposures and how those exposures have been managed through December 31, 2014. Our market risk sensitive instruments are entered into for purposes other than trading and speculation.

The carrying value of our investment portfolio as of December 31, 2014 was $2.8 billion of which 83.9% was invested in fixed maturity securities. The primary market risk to our investment portfolio is interest rate risk associated with investments in fixed maturity securities. We do not have any commodity risk exposure.

For fixed maturity securities, short-term liquidity needs and the potential liquidity needs of the business are key factors in managing the portfolio. The portfolio duration relative to the liabilities’ duration is primarily managed through investment transactions.

There were no significant changes regarding the investment portfolio in our primary market risk exposures or in how those exposures were managed for the year ended December 31, 2014. We do not currently anticipate significant changes in our primary market risk exposures or in how those exposures are managed in future reporting periods based upon what is known or expected to be in effect in future reporting periods.

Interest Rate Risk Sensitivity Analysis

Sensitivity analysis is defined as the measurement of potential loss in fair values or cash flows of market sensitive instruments resulting from one or more selected hypothetical changes in interest rates and other market rates or prices over a selected time. In our sensitivity analysis model, a hypothetical change in market rates is selected that is expected to reflect reasonably possible near-term changes in those rates. “Near-term” means a period of time going forward up to one year from the date of the Consolidated Financial Statements. Actual results may differ from the hypothetical change in market rates assumed in this disclosure, especially since this sensitivity analysis does not reflect the results of any actions that would be taken by us to mitigate such hypothetical losses in fair value.

In this sensitivity analysis model, we use fair values to measure our potential loss. The sensitivity analysis model includes fixed maturities. The primary market risk to our market-sensitive instruments is interest rate risk. The sensitivity analysis model uses a 50 and 100 basis points change in interest rates to measure the hypothetical change in fair value of financial instruments included in the model. Changes in interest rates will have an immediate effect on comprehensive income and stockholders’ equity but will not ordinarily have an immediate effect on net income. As interest rates rise, the market value of our interest rate sensitive securities will decrease. Conversely, as interest rates fall, the market value of our interest rate sensitive securities will increase.

For invested assets, modified duration modeling is used to calculate changes in fair values. Durations on invested assets are adjusted for call, put and interest rate reset features. Duration on tax-exempt securities is adjusted for the fact that the prices on such securities are less sensitive to changes in interest rates compared to treasury securities. Invested asset portfolio durations are calculated on a market value weighted basis using holdings as of December 31, 2014.

80

The following table summarizes the effect that an immediate, parallel shift in the interest rate yield curve would have had on our portfolio as of December 31, 2014 and 2013.

	Interest Rate Shift in Basis Points
In thousands	-100			-50			0		+50			+100
December 31, 2014:
Total market value	$	2,434,073		$	2,403,789		$	2,365,934	$	2,320,035		$	2,274,609
Market value change from base		2.88	%		1.60	%				-1.94	%		-3.86	%
Change in unrealized value	$	68,139		$	37,855		$	—	$	(45,899	)	$	(91,325	)
December 31, 2013:
Total market value	$	2,134,293		$	2,090,878		$	2,047,873	$	2,005,687		$	1,964,729
Market value change from base		4.22	%		2.10	%				-2.06	%		-4.06	%
Change in unrealized value	$	86,420		$	43,005		$	—	$	(42,186	)	$	(83,144	)

Equity Price Risk

Our portfolio of equity securities currently valued at $184.3 million, which we carry on our balance sheet at fair value, has exposure to price risk. This risk is defined as the potential loss in fair value resulting from adverse changes in stock prices. Our U.S. equity portfolio is benchmarked to the S&P 500 index and changes in that index may approximate the impact on our portfolio.

Foreign Currency Exchange Rate Risk

We are exposed to foreign currency exchange rate risk primarily related to foreign-denominated cash, cash equivalents and marketable securities (“foreign funds”), premiums receivable, reinsurance recoverables on paid and unpaid losses and loss adjustment expenses as well as reserves for losses and loss adjustment expenses. The principal currencies creating foreign currency exchange risk for our Operations are the British pound, the Euro and the Canadian dollar. We manage its foreign currency exchange rate risk primarily through asset-liability matching.

Based on the primary foreign-denominated balances within our Lloyd’s Operations as of December 31, 2014, an assumed 5%, 10% and 15% negative currency movement would result in changes as follows:

	December 31, 2014
			Negative Currency Movement of
In millions	USD Equivalent		5%			10%			15%
Cash, cash equivalents and marketable securities at fair value	$	104.6	$	(2.2	)	$	(4.3	)	$	(6.5	)
Premiums receivable	$	34.0	$	(1.6	)	$	(3.1	)	$	(4.7	)
Reinsurance recoverables on paid, unpaid losses and LAE	$	55.9	$	(2.1	)	$	(4.3	)	$	(6.4	)
Reserves for losses and loss adjustment expenses	$	143.4	$	5.7		$	11.5		$	17.2
Total				(0.2	)		(0.2	)		(0.4	)

* NavRe is excluded from the analysis above due to materiality; see pages C1 – C3 for detail

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The Consolidated Financial Statements required in response to this section are submitted as part of Item 15(a) of this report.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

None

81

ITEM 9A. CONTROLS AND PROCEDURES

Conclusion Regarding the Effectiveness of Disclosure Controls and Procedures

Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, we conducted an evaluation of our disclosure controls and procedures, as such, term is defined under Rule 13a-15(e) promulgated under the Exchange Act. Based on this evaluation, our Chief Executive Officer and our Chief Financial Officer concluded that our disclosure controls and procedures were effective as of the end of the period covered by this annual report.

Management’s Report on Internal Control Over Financial Reporting

(a) Management’s report on internal control over financial reporting

Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rule 13a-15(f). Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, we conducted an evaluation of the effectiveness of our internal control over financial reporting based on the Internal Control – Integrated Framework (1992) issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on our evaluation under such framework, our management concluded that our internal control over financial reporting was effective as of December 31, 2014.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

The Company’s independent registered public accounting firm, KPMG LLP, has audited the effectiveness of our Company’s internal control over financial reporting as of December 31, 2014, as stated in their report in item (b) below.

(b) Attestation report of the registered public accounting firm

82

Report of Independent Registered Public Accounting Firm

The Board of Directors and Stockholders

The Navigators Group, Inc.

We have audited The Navigators Group, Inc.’s internal control over financial reporting as of December 31, 2014, based on criteria established in Internal Control – Integrated Framework (1992) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). The Navigators Group, Inc.’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures, as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records, that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

In our opinion, The Navigators Group, Inc. maintained, in all material respects, effective internal control over financial reporting as of December 31, 2014, based on criteria established in Internal Control – Integrated Framework (1992) issued by the Committee of Sponsoring Organizations of the Treadway Commission.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of The Navigators Group, Inc. and subsidiaries as of December 31, 2014 and 2013, and the related consolidated statements of income, comprehensive income, stockholders’ equity, and cash flows for each of the years in the three-year period ended December 31, 2014, and our report dated February 17, 2015 expressed an unqualified opinion on those consolidated financial statements.

/s/ KPMG LLP

New York, New York

February 17, 2015

83

(b) Changes in internal control over financial reporting

There have been no changes during our fourth fiscal quarter in our internal control over financial reporting that have materially affected, or are reasonably likely to materially affect our internal control over financial reporting.

ITEM 9B. OTHER INFORMATION

None

PART III

ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

Information concerning our directors and executive officers is contained under “Election of Directors” in our 2015 Proxy Statement, which information is incorporated herein by reference. Information concerning the Audit Committee and the Audit Committee’s financial expert of the Company is contained under “Board of Directors and Committees” in our 2015 Proxy Statement, which information is incorporated herein by reference.

We have adopted a Code of Ethics for our Chief Executive Officer and Senior Financial Officers, which is applicable to our Chief Executive Officer, Chief Financial Officer, Treasurer, Controller and all other persons performing similar functions. A copy of such Code is available on our website at www.navg.com under the Corporate Governance link. Any amendments to, or waivers of, such Code which apply to any of the financial professionals listed above will be disclosed on our website under the same link promptly following the date of such amendment or waiver.

ITEM 11. EXECUTIVE COMPENSATION

Information concerning executive compensation will be contained under “Compensation Discussion and Analysis” in our 2015 Proxy Statement, which information is incorporated herein by reference.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

Information concerning the security ownership of the directors and officers of the Company is contained under “Election of Directors” and “Compensation Discussion and Analysis” in our 2015 Proxy Statement, which information is incorporated herein by reference. Information concerning securities that are available to be issued under our equity compensation plans is contained under “Equity Compensation Plan Information” in our 2015 Proxy Statement, which information is incorporated herein by reference.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

Information concerning relationships and related transactions of our directors and officers is contained under “Related Party Transactions” in our 2015 Proxy Statement, which information is incorporated herein by reference. Information concerning director independence is contained under “Board of Directors and Committees” in our 2015 Proxy Statement, which information is incorporated herein by reference.

ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES

Information concerning the principal accountant’s fees and services for the Company is contained under “Independent Registered Public Accounting Firm” in the Company’s 2015 Proxy Statement, which information is incorporated herein by reference.

84

PART IV

ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES

The following documents are filed as part of this report:

a. Financial Statements and Schedules: The financial statements and schedules that are listed in the accompanying Index to Consolidated Financial Statements and Schedules on page F-1.

b. Exhibits: The exhibits that are listed in the accompanying Index to Exhibits on the page, which immediately follows page S-8. The exhibits include the management contracts and compensatory plans or arrangements required to be filed as exhibits to this Form 10-K by Item 601(a)(10)(iii) of Regulation S-K.

85

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Company has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

	The Navigators Group, Inc.
	(Company)
Dated: February 17, 2015	By:	/s/ Ciro M. DeFalco
		Ciro M. DeFalco
		Senior Vice President and Chief Financial Officer

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Company and in the capacities and on the dates indicated.

Name	Title	Date
/s/ ROBERT V. MENDELSOHN	Chairman	February 17, 2015
Robert V. Mendelsohn
/s/ STANLEY A. GALANSKI	President and Chief Executive Officer (Principal Executive Officer)	February 17, 2015
Stanley A. Galanski
/s/ CIRO M. DEFALCO	Senior Vice President and Chief Financial Officer (Principal Financial Officer)	February 17, 2015
Ciro M. DeFalco
/s/ SAUL L. BASCH	Director	February 17, 2015
Saul L. Basch
/s/ H.J. MERVYN BLAKENEY	Director	February 17, 2015
H.J. Mervyn Blakeney
/s/ TERENCE N. DEEKS	Director	February 17, 2015
Terence N. Deeks
/s/ GEOFFREY E. JOHNSON	Director	February 17, 2015
Geoffrey E. Johnson
/s/ JOHN F. KIRBY	Director	February 17, 2015
John F. Kirby
/s/ DAVID M. PLATTER	Director	February 17, 2015
David M. Platter
/s/ PATRICIA H. ROBERTS	Director	February 17, 2015
Patricia H. Roberts
/s/ JANICE C. TOMLINSON	Director	February 17, 2015
Janice C. Tomlinson
/s/ MARC M. TRACT	Director	February 17, 2015
Marc M. Tract

86

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULES

	Page
Report of Independent Registered Public Accounting Firm		F-2
Consolidated Balance Sheets as of December 31, 2014 and 2013		F-3
Consolidated Statements of Income for each of the years ended December 31, 2014, 2013 and 2012		F-4
Consolidated Statements of Comprehensive Income for each of the years ended December  31, 2014, 2013 and 2012		F-5
Consolidated Statements of Stockholders’ Equity for each of the years ended December  31, 2014, 2013 and 2012		F-6
Consolidated Statements of Cash Flows for each of the years ended December 31, 2014, 2013 and 2012		F-7
Notes to Consolidated Financial Statements		F-8

SCHEDULES:
Schedule I	Summary of Consolidated Investments-Other Than Investment in Related Parties	S-1
Schedule II	Condensed Financial Information of Registrant	S-2
Schedule III	Supplementary Insurance Information	S-5
Schedule IV	Reinsurance - Written Premiums	S-6
Schedule V	Valuation and Qualifying Accounts	S-7
Schedule VI	Supplementary Information Concerning Property-Casualty Insurance Operations	S-8
Index to Exhibits

F-1

Report of Independent Registered Public Accounting Firm

The Board of Directors and Stockholders

The Navigators Group, Inc.

We have audited the accompanying consolidated balance sheets of The Navigators Group, Inc. and subsidiaries as of December 31, 2014 and 2013, and the related consolidated statements of income, comprehensive income, stockholders’ equity, and cash flows for each of the years in the three-year period ended December 31, 2014. In connection with our audits of the consolidated financial statements, we also have audited financial statement schedules I to VI. These consolidated financial statements and financial statement schedules are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements and financial statement schedules based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of The Navigators Group, Inc. and subsidiaries as of December 31, 2014 and 2013, and the results of their operations and their cash flows for each of the years in the three year period ended December 31, 2014, in conformity with U.S. generally accepted accounting principles. Also in our opinion, the related financial statement schedules, when considered in relation to the basic consolidated financial statements taken as a whole, present fairly, in all material respects, the information set forth therein.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), The Navigators Group, Inc.’s internal control over financial reporting as of December 31, 2014, based on criteria established in Internal Control – Integrated Framework (1992) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO), and our report dated February 17, 2015 expressed an unqualified opinion on the effectiveness of the Company’s internal control over financial reporting.

/s/ KPMG LLP

New York, New York

February 17, 2015

F-2

THE NAVIGATORS GROUP, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(In thousands, except share and per share amounts)

	December 31,
	2014			2013
ASSETS
Investments and cash:
Fixed maturities, available-for-sale, at fair value (amortized cost: 2014, $2,323,959; 2013, $2,036,999)	$	2,365,934		$	2,047,873
Equity securities, available-for-sale, at fair value (cost: 2014, $154,843; 2013, $118,804)		184,295			143,954
Short-term investments, at fair value (amortized cost: 2014: $179,527; 2013: $296,250)		179,506			296,250
Cash		90,751			86,509
Total investments and cash	$	2,820,486		$	2,574,586
Premiums receivable		342,479			325,025
Prepaid reinsurance premiums		237,851			247,822
Reinsurance recoverable on paid losses		51,347			38,384
Reinsurance recoverable on unpaid losses and loss adjustment expenses		851,498			822,438
Deferred policy acquisition costs		79,452			67,007
Accrued investment income		14,791			13,866
Goodwill and other intangible assets		7,013			7,177
Current income tax receivable, net		14,549			14,299
Deferred income tax, net		—			23,806
Receivable for investments sold		326			3
Other assets		44,384			35,039
Total assets	$	4,464,176		$	4,169,452
LIABILITIES AND STOCKHOLDERS’ EQUITY
Liabilities:
Reserves for losses and loss adjustment expenses	$	2,159,634		$	2,045,071
Unearned premiums		766,167			714,606
Reinsurance balances payable		152,774			167,252
Senior Notes		263,440			263,308
Deferred income tax, net		1,467			—
Payable for investments purchased		134			7,624
Accounts payable and other liabilities		93,336			69,379
Total liabilities	$	3,436,952		$	3,267,240
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 17,792,846 shares for 2014 and 17,709,876 shares for 2013		1,778			1,770
Additional paid-in capital		347,022			335,546
Treasury stock, at cost (3,511,380 shares for 2014 and 2013)		(155,801	)		(155,801	)
Retained earnings		787,666			692,337
Accumulated other comprehensive income		46,559			28,360
Total stockholders’ equity	$	1,027,224		$	902,212
Total liabilities and stockholders’ equity	$	4,464,176		$	4,169,452

The accompanying Notes to Consolidated Financial Statements are an integral part of these financial statements.

F-3

THE NAVIGATORS GROUP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME

(In thousands, except share and per share amounts)

	Year Ended December 31,
	2014			2013			2012
Gross written premiums	$	1,432,353		$	1,370,517		$	1,286,465
Revenues:
Net written premiums	$	1,000,138		$	887,922		$	833,655
Change in unearned premiums		(64,243	)		(45,983	)		(51,691	)
Net earned premiums		935,895			841,939			781,964
Net investment income		64,168			56,251			54,248
Total other-than-temporary impairment losses		137			(2,393	)		(902	)
Portion of loss recognized in other comprehensive income (before tax)		(137	)		—			44
Net other-than-temporary impairment losses recognized in earnings		—			(2,393	)		(858	)
Net realized gains (losses)		12,812			22,939			41,074
Other income (expense)		10,656			(1,172	)		1,488
Total revenues	$	1,023,531		$	917,564		$	877,916
Expenses:
Net losses and loss adjustment expenses	$	545,229		$	518,961		$	497,433
Commission expenses		125,528			113,494			121,470
Other operating expenses		196,825			164,434			159,079
Call premium on Senior Notes		—			17,895			—
Interest expense		15,413			10,507			8,198
Total expenses	$	882,995		$	825,291		$	786,180
Income before income taxes	$	140,536		$	92,273		$	91,736
Income tax expense (benefit)	$	45,207		$	28,807		$	27,974
Net income	$	95,329		$	63,466		$	63,762
Net income per common share:
Basic	$	6.69		$	4.49		$	4.54
Diluted	$	6.51		$	4.42		$	4.45
Average common shares outstanding:
Basic		14,259,768			14,133,925			14,052,311
Diluted		14,646,369			14,345,553			14,327,820

The accompanying Notes to Consolidated Financial Statements are an integral part of these financial statements.

F-4

THE NAVIGATORS GROUP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(In thousands)

	Year Ended December 31,
	2014			2013			2012
Net income	$	95,329		$	63,466		$	63,762
Other comprehensive income (loss):
Change in net unrealized gains (losses) on investments:
Unrealized gains (losses) on investments arising during the period, net of deferred tax of $14,925, $17,521 and $13,136 in 2014, 2013 and 2012 respectively	$	28,252		$	(32,546	)	$	24,350
Reclassification adjustment for net realized (gains) losses included in net income net of deferred tax of $2,776, $6,218 and $10,314 in 2014, 2013 and 2012 respectively		(5,156	)		(11,548	)		(19,154	)
Change in net unrealized gains (losses on investments)	$	23,096		$	(44,094	)	$	5,196
Change in other-than-temporary impairments:
Non credit other-than-temporary impairments arising during the period, net of deferred tax of $48, $174 and $612 in 2014, 2013 and 2012 respectively	$	89		$	320		$	1,135
Reclassification adjustment for non credit other-than-temporary impairment losses recognized in net income net of deferred tax of $0, $0 and $16 in 2014, 2013 and 2012 respectively		—			—			(29	)
Change in other-than-temporary impairments	$	89		$	320		$	1,106
Change in foreign currency translation gains (losses), net of deferred tax of $2,800, $1,650, and $521 in 2014, 2013 and 2012 respectively	$	(4,986	)	$	(3,074	)	$	(1,342	)
Other comprehensive income (loss)	$	18,199		$	(46,848	)	$	4,960
Comprehensive income (loss)	$	113,528		$	16,618		$	68,722

The accompanying Notes to Consolidated Financial Statements are an integral part of these financial statements.

F-5

THE NAVIGATORS GROUP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(In thousands, except share amounts)

					Additional Paid-in Capital								Retained Earnings		Accumulated Other Comprehensive Income (Loss)			Total Stockholders’ Equity
	Common Stock							Treasury Stock
	Shares		Amount					Shares		Amount
Balance, December 31, 2011		17,467,615	$	1,746	$	322,133			3,511,380	$	(155,801	)	$	565,109	$	70,248		$	803,435
Net income		—		—		—			—		—			63,762		—			63,762
Changes in comprehensive income:
Change in net unrealized gain (loss) on investments		—		—		—			—		—			—		5,196			5,196
Change in net non-credit other- than-temporary impairment losses		—		—		—			—		—			—		1,106			1,106
Change in foreign currency translation gain (loss)		—		—		—			—		—			—		(1,342	)		(1,342	)
Total comprehensive income		—		—		—			—		—			—		4,960			4,960
Shares issued under stock plan		90,431		9		(61	)		—		—			—		—			(52	)
Share-based compensation		—		—		7,380			—		—			—		—			7,380
Balance, December 31, 2012		17,558,046	$	1,755	$	329,452			3,511,380	$	(155,801	)	$	628,871	$	75,208		$	879,485
Net income		—		—		—			—		—			63,466		—			63,466
Changes in comprehensive income:
Change in net unrealized gain (loss) on investments		—		—		—			—		—			—		(44,094	)		(44,094	)
Change in net non-credit other-than-temporary impairment losses		—		—		—			—		—			—		320			320
Change in foreign currency translation gain (loss)		—		—		—			—		—			—		(3,074	)		(3,074	)
Total comprehensive income		—		—		—			—		—			—		(46,848	)		(46,848	)
Shares issued under stock plan		151,830		15		2,725			—		—			—		—			2,740
Share-based compensation		—		—		3,369			—		—			—		—			3,369
Balance, December 31, 2013		17,709,876	$	1,770	$	335,546			3,511,380	$	(155,801	)	$	692,337	$	28,360		$	902,212
Net income		—		—		—			—		—			95,329		—			95,329
Changes in comprehensive income:
Change in net unrealized gain (loss) on investments		—		—		—			—		—			—		23,096			23,096
Change in net non-credit other-than-temporary impairment losses		—		—		—			—		—			—		89			89
Change in foreign currency translation gain (loss)		—		—		—			—		—			—		(4,986	)		(4,986	)
Total comprehensive income		—		—		—			—		—			—		18,199			18,199
Shares issued under stock plan		82,970		8		(31	)		—		—			—		—			(23	)
Share-based compensation		—		—		11,507			—		—			—		—			11,507
Balance, December 31, 2014		17,792,846	$	1,778	$	347,022			3,511,380	$	(155,801	)	$	787,666	$	46,559		$	1,027,224

The accompanying Notes to Consolidated Financial Statements are an integral part of these financial statements.

F-6

THE NAVIGATORS GROUP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

	Year Ended December 31,
	2014			2013			2012
Operating activities:
Net income	$	95,329		$	63,466		$	63,762
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Depreciation & amortization		4,915			4,518			5,931
Deferred income taxes		16,881			4,658			(11,414	)
Net realized (gains) losses		(12,812	)		(22,939	)		(41,074	)
Net other-than-temporary losses recognized in earnings		—			2,393			858
Call premium on redemption of Senior Notes		—			17,895			—
Changes in assets and liabilities:
Reinsurance recoverable on paid and unpaid losses and loss adjustment expenses		(42,024	)		68,599			(40,185	)
Reserves for losses and loss adjustment expenses		114,563			(51,977	)		14,369
Prepaid reinsurance premiums		10,344			(26,807	)		(56,853	)
Unearned premiums		52,380			72,199			109,778
Premiums receivable		(17,455	)		(4,843	)		(64,457	)
Deferred policy acquisition costs		(12,445	)		(6,002	)		2,979
Accrued investment income		(925	)		(1,279	)		1,905
Reinsurance balances payable		(14,716	)		1,439			57,114
Current income taxes		(582	)		(16,432	)		17,523
Other		29,039			31,987			36,503
Net cash provided by (used in) operating activities	$	222,492		$	136,875		$	96,739
Investing activities:
Fixed maturities
Redemptions and maturities	$	210,674		$	237,627		$	188,282
Sales		362,136			648,335			1,319,404
Purchases		(864,902	)		(899,930	)		(1,711,080	)
Equity securities
Sales		54,900			72,113			39,503
Purchases		(83,845	)		(89,288	)		(37,587	)
Change in payable for securities		(7,814	)		(46,414	)		56,543
Net change in short-term investments		117,740			(142,214	)		(31,568	)
Purchase of property and equipment		(8,359	)		(10,088	)		(3,336	)
Net cash provided by (used in) investing activities	$	(219,470	)	$	(229,859	)	$	(179,839	)
Financing activities:
Net Proceeds from Debt Offering		—		$	263,278			—
Redemption of 7.0% Senior Notes Due May 1, 2016		—			(132,437	)		—
Proceeds of stock issued from employee stock purchase plan		1,067			821			672
Proceeds of stock issued from exercise of stock options		153			2,495			404
Net cash provided by (used in) financing activities	$	1,220		$	134,157		$	1,076
Increase (decrease) in cash		4,242			41,173			(82,024	)
Cash at beginning of year		86,509			45,336			127,360
Cash at end of period	$	90,751		$	86,509		$	45,336
Supplemental cash information:
Income taxes paid, net	$	27,066		$	41,094		$	19,602
Interest paid	$	15,703		$	8,050		$	8,050
Issuance of stock to directors	$	438		$	400		$	242

The accompanying Notes to Consolidated Financial Statements are an integral part of these financial statements.

F-7

THE NAVIGATORS GROUP, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

Note 1. Organization & Summary of Significant Accounting Policies

Organization

The accompanying Consolidated Financial Statements, consisting of the results of The Navigators Group, Inc., a Delaware holding company established in 1982, and its subsidiaries are prepared on the basis of United States (“U.S.”) generally accepted accounting principles (“GAAP” or “U.S. GAAP”). All significant intercompany transactions and balances have been eliminated. The preparation of these consolidated financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the consolidated financial statements and the reported revenues and expenses during the reporting periods. The results of operations for any interim period are not necessarily indicative of results for the full year. The terms “we,” “us,” “our” or “our Company” as used herein are used to mean The Navigators Group, Inc. and its subsidiaries, unless the context otherwise requires. The terms “Parent” or “Parent Company” are used to mean The Navigators Group, Inc. without its subsidiaries. Certain amounts for the prior year have been reclassified to conform to the current year’s presentation.

Our Company is an international insurance company focusing on specialty products within the overall property and casualty insurance market. Our long-standing area of specialization is Marine insurance. We have also developed niches in Professional Liability insurance and Property Casualty lines of insurance, such as Primary and Excess casualty coverages offered to commercial enterprises and Assumed Reinsurance.

We classify its business into one Corporate segment (“Corporate”) and two underwriting segments, the Insurance Companies segment (“Insurance Companies”) and the Lloyd’s Operations segment (“Lloyd’s Operations”) which are separately managed by business line divisions. The Insurance Companies are primarily engaged in underwriting Marine insurance, Primary Casualty insurance with a concentration in contractors’ general liability products, Excess Casualty insurance with a concentration in commercial umbrella products, Assumed Reinsurance, Management Liability insurance and Errors & Omissions (“E&O”) insurance. This segment is comprised of Navigators Insurance Company (“NIC”), which includes a United Kingdom (“UK”) branch (“UK Branch”), and Navigators Specialty Insurance Company (“NSIC”), which underwrites business on an excess and surplus lines basis. All of the business underwritten by NSIC is fully reinsured by NIC pursuant to a 100% quota share reinsurance agreement.

The Lloyd’s Operations are primarily engaged in underwriting Marine insurance; Energy & Engineering insurance with a concentration in offshore energy products and onshore energy construction products, Assumed Reinsurance, Management Liability insurance and E&O insurance at Lloyd’s of London (“Lloyd’s”) through Lloyd’s Syndicate 1221 (“Syndicate 1221”). The Corporate segment consists of the Parent Company’s investment income, interest expense and related income tax.

Our revenue is primarily comprised of premiums and investment income. We derive our premiums predominantly from business written by wholly-owned underwriting management companies, Navigators Management Company (“NMC”) and Navigators Management (UK) Ltd. (“NMUK”) that manage and service insurance and reinsurance business written by the Insurance Companies. Our products are distributed through multiple channels, utilizing global, national and regional retail and wholesale insurance brokers.

Navigators Underwriting Agency Ltd. (“NUAL”) is a Lloyd’s underwriting agency that manages Syndicate 1221. We control 100% of Syndicate 1221’s stamp capacity through our wholly-owned subsidiary, Navigators Corporate Underwriters Ltd. (“NCUL”), which is referred to as a corporate name in the Lloyd’s market. In addition, we have also established underwriting agencies in Antwerp, Belgium; Stockholm, Sweden; and Copenhagen, Denmark, as well as branches of the appointed representative, Navigators Underwriting Ltd. (“NUL”), in the European Economic Area (“EEA”), in Milan, Italy; Rotterdam, The Netherlands; and Paris, France, which underwrite risks pursuant to binding authorities with NUAL into Syndicate 1221. We have also established a presence in Brazil and China through contractual arrangements with local affiliates of Lloyd’s.

For financial information by segment, refer to Note 3, Segment Information, in the Notes to Consolidated Financial Statements, included herein.

F-8

Significant Accounting Policies

Cash

Cash includes cash on hand and demand deposits with banks, excluding such amounts held by Syndicate 1221 included as Funds at Lloyd’s.

Investments

As of December 31, 2014 and 2013, all fixed maturity and equity securities held by our Company were carried at fair value and classified as available-for-sale. Available-for-sale securities are debt and equity securities not classified as either held-to-maturity securities or trading securities and are reported at fair value, with unrealized gains and losses excluded from earnings and reported in accumulated other comprehensive income (“AOCI”) as a separate component of stockholders’ equity. Fixed maturity securities include bonds, mortgage-backed and asset-backed securities. Equity securities consist of common stock and preferred stock.

Short-term investments are carried at fair value. Short-term investments mature within one year from the purchase date.

All prices for our fixed maturities, equity securities and short-term investments valued as Level 1, Level 2 or Level 3 in the fair value hierarchy, as defined in the Financial Accounts Standards Board (“FASB”) Accounting Standards Codification 820 (“ASC 820”), Fair Value Measurements, are received from independent pricing services utilized by one of our outside investment managers whom we employ to assist us with investment accounting services. This manager utilizes a pricing committee, which approves the use of one or more independent pricing service vendors. The pricing committee consists of five or more members of the investment management firm, one from senior management and one from the accounting group with the remainder from the asset class specialists and client strategists. The pricing source of each security is determined in accordance with the pricing source procedures approved by the pricing committee. The investment manager uses supporting documentation received from the independent pricing service vendor detailing the inputs, models and processes used in the independent pricing service vendors’ evaluation process to determine the appropriate fair value hierarchy. Any pricing where the input is believed to be unobservable is deemed to be a Level 3 price. Management has reviewed this process by which the manager determines the prices and has obtained alternative pricing to validate a sample of the prices and assess their reasonableness.

Premiums and discounts on fixed maturity securities are amortized into interest income over the life of the security under the interest method. For mortgage-backed and asset-backed securities, anticipated prepayments and expected maturities are utilized in applying the interest rate method. An effective yield is calculated based on projected principal cash flows at the time of original purchase. The effective yield is used to amortize the purchase price of the security over the security’s expected life. Book values are adjusted to reflect the amortization of premium or accretion of discount on a monthly basis. The projected principal cash flows are based on certain prepayment assumptions, which are generated using a prepayment model. The prepayment model uses a number of factors to estimate prepayment activity including the current levels of interest rates (refinancing incentive), time of year (seasonality), economic activity (including housing turnover) and term and age of the underlying collateral (burnout, seasoning). Prepayment assumptions associated with the mortgage-backed and asset-backed securities are reviewed on a periodic basis. When changes in prepayment assumptions are deemed necessary as the result of actual prepayments differing from anticipated prepayments, securities are revalued based upon the new prepayment assumptions utilizing the retrospective adjustment method, whereby the effective yield is recalculated to reflect actual payments to date and anticipated future payments. The investment in such securities is adjusted to the amount that would have existed had the new effective yield been applied since the acquisition of the security. Such adjustments, if any, are included in net investment income for the current period being reported.

Realized gains and losses on sales of investments are recognized when the related trades are executed and are determined on the basis of the specific identification method.

Impairment of Invested Assets

Management regularly reviews our fixed maturity and equity securities portfolios to evaluate the necessity of recording impairment losses for other-than-temporary declines in the fair value of securities.

For fixed maturity securities, we consider our intent to sell a security and whether it is more likely than not that, we will be required to sell a security before the anticipated recovery as part of the process of evaluating whether a security’s unrealized loss represents an other-than-temporary decline. For fixed maturity securities that have a fair value below amortized cost and that we intend to sell or for which it is more likely than not that we would be required to sell, an other than temporary impairment (“OTTI”) loss is recognized in earnings by writing such security down to fair value. For fixed maturity securities we do not intend to sell or for which it is more likely than not our Company would not be required to sell, a decline in value below amortized cost is only recognized to the extent the present value of future cash flows expected to be collected is less than the amortized cost of the security. Such shortfall in the present value of future cash flows is considered the credit loss and is recognized as an OTTI loss in earnings, with the non-credit portion of the impairment (i.e. the difference between the present value of future cash flows and fair value of the security) recognized as OTTI losses in other comprehensive income (“OCI”).

F-9

In evaluating OTTI of equity securities, we consider our intent to hold the securities as part of the process of evaluating whether a decline in fair value below cost represents an other than temporary decline in value. For equity securities in an unrealized loss position that we do not intent to hold or that we do not expect to recover their value within a reasonable period of time, a net OTTI loss is recognized in earnings by writing such security down to the fair value.

Syndicate 1221

Syndicate 1221 reports the amount of premiums, claims, and expenses recorded in an underwriting account for a particular year over a three year period. Traditionally, three years have been necessary to report substantially all premiums associated with an underwriting year and to report most of the related claims, although claims may remain unsettled after the underwriting year is closed. Syndicate 1221 typically closes an underwriting year by reinsuring outstanding claims in that underwriting year with the next underwriting year. Only profits from closed underwriting years of account are distributed to NCUL. Profits from open underwriting years of account are not available and therefore not distributed to NCUL until the end of the three year period.

Our Company’s financial statements include all of the assets, liabilities, revenues and expenses of Syndicate1221. Adjustments are recorded to recognize underwriting results as incurred in the specific year and not over a three year period. Syndicate 1221 is not a separate legal entity. Refer to Note 10, Lloyd’s Syndicate 1221, for additional information.

Foreign Currency Remeasurement and Translation

The functional currency in each of our operations is generally the currency of the local operating environment, except for our Lloyd’s Operations which is the U.S. dollar. Transactions in currencies other than an operation’s functional currency are remeasured into the functional currency and the resulting foreign exchange gains and losses are reflected in net Other Income (Expense) in the Consolidated Statements of Income. Functional currency assets and liabilities are translated into U.S. dollars using period end rates of exchange and the related translation adjustments are recorded as a separate component of AOCI. Statement of income amounts expressed in functional currencies are translated using average exchange rates.

During the first quarter, Syndicate 1221 revised its foreign exchange accounting methodology from reporting its financial position and results using three functional currencies (GBP, USD and CAD) to one functional currency (USD). The USD was chosen as the single functional currency as the majority of the Syndicate’s insurance business has been and continues to be transacted in USD. This cumulative change in re-measurement has resulted in an immaterial correction of $10.0 million ($6.6 million, after-tax) reducing Accumulated Other Comprehensive Income in the consolidated balance sheet, offset by a gain in Other Income in the consolidated statement of income. The impact of the correction is not material to the previously issued annual financial statements for 2013 and 2012.

Premium Revenues

Written premium is recorded based on the insurance policies that have been reported to us and the policies that have been written by agents but not yet reported to us. We estimate the amount of written premium not yet reported based on judgments relative to current and historical trends of the business being written. Such estimates are regularly reviewed and updated and any resulting adjustments are included in the current year’s results. An unearned premium reserve is established to reflect the unexpired portion of each policy at the financial reporting date.

Substantially all of our business is placed through agents and brokers. We record estimates for both unreported direct and assumed premiums. We also record the ceded portion of the estimated gross written premium and related acquisition costs. The earned gross, ceded and net premiums are calculated based on our earning methodology, which is generally pro-rata over the policy period or over the period of risk if the period of risk differs significantly from the contract period.

A portion of our premium is estimated for unreported premium, mostly for the Marine business written by our U.K. Branch and Lloyd’s Operations as well as the Accident & Health (“A&H”) and Latin American & Caribbean Property Casualty and Surety Reinsurance business written by NavRe. Such premium estimates are generally based on submission data received from brokers and agents and recorded when the insurance policy or reinsurance contract is written or bound. The estimates are regularly reviewed and updated taking into account the premium received to date versus the estimate and the age of the estimate. To the extent that the actual premium varies from the estimates, the difference, along with the related loss reserves and underwriting expenses, is recorded in current operations.

Reinsurance Ceded

In the normal course of business, reinsurance is purchased by us from insurers or reinsurers to reduce the amount of loss arising from claims. In order to determine the proper accounting for the reinsurance, management analyzes the reinsurance agreements to determine whether the reinsurance should be classified as prospective or retroactive based upon the terms of the reinsurance agreement and whether the reinsurer has assumed significant insurance risk to the extent that the reinsurer may realize a significant loss from the transaction.

F-10

Prospective reinsurance is reinsurance in which an assuming company agrees to reimburse the ceding company for losses that may be incurred as a result of future insurable events covered under contracts subject to the reinsurance. Retroactive reinsurance is reinsurance in which an assuming company agrees to reimburse a ceding company for liabilities incurred as a result of past insurable events covered under contracts subject to the reinsurance.

Ceded reinsurance premiums and any related ceding commission and ceded losses are reflected as reductions of the respective income or expense accounts over the terms of the reinsurance contracts. Prepaid reinsurance premiums represent the portion of premiums ceded to reinsurers applicable to the unexpired terms of the reinsurance contracts in force. Reinsurance reinstatement premiums are recognized in the same period as the loss event that gave rise to the reinstatement premiums. Amounts recoverable from reinsurers are estimated in a manner consistent with the claim liability associated with the reinsured policy. Unearned premiums ceded and estimates of amounts recoverable from reinsurers on paid and unpaid losses are reflected as assets. Provisions are made for estimated unrecoverable reinsurance.

Deferred Policy Acquisition Costs

Costs of acquiring business are deferred and amortized ratably over the period that the related premiums are recognized as revenue. Such costs (e.g., commission expense, other underwriting expenses and premium taxes) are limited to the incremental direct costs related to the successful acquisition of new or renewal business. The method of computing deferred policy acquisition costs limits the deferral to their estimated net realizable value based on the related unearned premiums and takes into account anticipated losses and loss adjustment expenses, commission expense and operating expenses based on historical and current experience as well as anticipated investment income.

Reserves for Losses and Loss Adjustment Expenses

Unpaid losses and loss adjustment expenses are determined on an individual basis for claims reported on direct business for insureds, from reports received from ceding insurers for insurance assumed from such insurers and on estimates based on Company and industry experience for incurred but not reported (“IBNR”) claims and loss adjustment expenses. Indicated IBNR loss reserves are calculated by our actuaries using several standard actuarial methodologies, including the paid and incurred loss development and the paid and incurred Bornheutter-Ferguson loss methods. Additional analyses, such as frequency/severity analyses, are performed for certain books of business. The provision for unpaid losses and loss adjustment expenses has been established to cover the estimated unpaid cost of claims incurred. Such estimates are regularly reviewed and updated and any resulting adjustments are included in the current year’s results. Management believes that the liability it has recognized for unpaid losses and loss adjustment expenses is a reasonable estimate of the ultimate unpaid claims incurred, however, such provisions are necessarily based on estimates and, accordingly, no representation is made that the ultimate liability will not differ materially from the amounts recorded in the accompanying consolidated financial statements. Losses and loss adjustment expenses are recorded on an undiscounted basis.

Earnings per Share

Basic earnings per share (“EPS”) is computed by dividing net income by the weighted average number of common shares outstanding for the period. Diluted earnings per share reflects the basic earnings per share adjusted for the potential dilution that would occur if all issued stock options were exercised and all stock grants were fully vested.

Depreciation and Amortization

Depreciation of furniture and fixtures, electronic data processing equipment and computer software is provided over the estimated useful lives of the respective assets, ranging from three to seven years, using the straight-line method. Amortization of leasehold improvements is provided over the shorter of the useful lives of those improvements or the contractual terms of the leases using the straight-line method.

Goodwill and Other Intangible Assets

Goodwill represents the excess-of-cost of acquiring a business enterprise over the fair value of the net assets acquired. Our Company has also recorded indefinite lived intangible assets related to the acquisition of the remaining non-controlled stamp capacity of Lloyd’s Syndicate 1221. Goodwill and indefinite lived intangible assets are reported at carrying value and are tested for impairment at least annually, and when permitted by the applicable accounting guidance, qualitative factors are assessed to determine whether it is necessary to calculate an asset’s fair value when testing an asset with an indefinite life for impairment. Goodwill and indefinite lived intangible assets are considered impaired if the estimated fair value is less than its carrying value and any impairment loss is measured as the difference between the implied fair value and the carrying value. This Company did not recognize an impairment on goodwill or the indefinite lived intangible assets for any of the years ended December 31, 2014, 2013 and 2012.

As of December 31, 2014, the carrying value of goodwill and indefinite lived intangible assets was $7.0 million, consisting of $2.5 million and $2.4 million of goodwill assigned to NMC and our Lloyd’s Operations, respectively, and $2.1 million of indefinite lived intangible assets assigned to our Lloyd’s Operations. As of December 31, 2013, the carrying value of goodwill and indefinite lived intangible assets was $7.2 million, consisting of $2.5 million and $2.4 million of goodwill assigned to NMC and our Lloyd’s Operations, respectively, and $2.3 million of indefinite lived intangible assets assigned to our Lloyd’s Operations. Changes in the carrying value of the goodwill and indefinite lived intangible assets are due to fluctuations in currency exchange rates between the U.S. dollar and the British pound.

F-11

Income Taxes

We apply the asset and liability method of accounting for income taxes whereby deferred assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis. In assessing the realization of deferred tax assets, management considers whether it is more likely than not that, the deferred tax assets will be realized. These reviews include, among other factors, the nature and amount of the taxable income and expense items, the expected timing of when assets will be used or liabilities will be required to be reported, as well as the reliability of historical profitability of businesses expected to provide future earnings. After review, if management determines that the realization of the tax asset does not meet the more likely than not criterion an offsetting valuation allowance is recorded, which reduces net earnings and the deferred tax asset in that period. Additional information regarding our deferred tax assets can be found in Note 7, Income Taxes, in the Notes to Consolidated Financial Statements, included herein.

Use of Estimates

The preparation of financial statements in conformity with GAAP requires the use of estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the period. The accounting estimates that are viewed by management as critical are those in connection with reserves for losses and loss adjustment expenses, reinsurance recoverables, written and unearned premiums, the recoverability of deferred tax assets, and impairment of invested assets.

Note 2. Earnings Per Share

The following is a reconciliation of the basic and diluted EPS computations for the years ended December 31, 2014, 2013 and 2012:

	Year Ended December 31,
In thousands, except share and per share amounts	2014		2013		2012
Net income	$	95,329	$	63,466	$	63,762
Basic weighted average shares		14,259,768		14,133,925		14,052,311
Effect of common stock equivalents:
Assumed exercise of stock options and vesting of stock grants		386,601		211,628		275,509
Diluted weighted average shares		14,646,369		14,345,553		14,327,820
Net income per common share:
Basic	$	6.69	$	4.49	$	4.54
Diluted	$	6.51	$	4.42	$	4.45

F-12

Note 3. Segment Information

We classify our business into one corporate segment and two underwriting segments, Insurance Companies and Lloyd’s Operations. Management takes into consideration a wide range of factors in planning the business strategy of the Company and evaluating the results of its operations. The performance of each underwriting segment is based on their underwriting and GAAP results. Underwriting results are measured based on underwriting profit or loss and the related combined ratio, which are both non-GAAP measures of underwriting profitability. Underwriting profit or loss is calculated from net earned premiums, less the sum of net losses and LAE, commission expenses, other operating expenses and other income or expense. The combined ratio is derived by dividing the sum of net losses and LAE, commission expenses, other operating expenses and other underwriting (expense) by net earned premiums. A combined ratio of less than 100% indicates an underwriting profit and greater than 100% indicates an underwriting loss. Each segment maintains its own investments on which it earns income and realizes capital gains or losses. Each segment’s underwriting performance is evaluated separately from the performance of its investment portfolio. The Corporate segment’s results consist of the Parent Company’s investment income, interest expense and related income taxes.

Access to capital also has a significant impact on management’s outlook for the operations. The Insurance Companies’ operations and ability to grow their business and take advantage of market opportunities are constrained by regulatory capital requirements and rating agency assessments of capital adequacy. Similarly, the ability to grow the Lloyd’s Operations is subject to capital and operating requirements of the Lloyd’s and UK regulatory authorities.

The accounting policies used to prepare the segment reporting data for the Company’s segments are the same as those described in the Summary of Significant Accounting Policies in Footnote 1.

F-13

Financial data by segment for the years ended December 31, 2014, 2013, and 2012 were as follows:

	Year Ended December 31, 2014
In thousands	Insurance Companies			Lloyd’s Operations			Corporate(1)			Total
Gross written premiums	$	1,045,454		$	386,899		$	—		$	1,432,353
Net written premiums		752,773			247,365			—			1,000,138
Net earned premiums		704,574			231,321			—			935,895
Net losses and loss adjustment expenses		(434,396	)		(110,833	)		—			(545,229	)
Commission expenses		(85,137	)		(42,558	)		2,167			(125,528	)
Other operating expenses		(138,675	)		(58,150	)		—			(196,825	)
Other underwriting income (expense)		2,727			35			(2,167	)		595
Underwriting profit (loss)	$	49,093		$	19,815		$	—		$	68,908
Net investment income		56,714			7,378			76			64,168
Net realized gains (losses)		12,715			97			—			12,812
Call premium on Senior Notes		—			—			—			—
Interest expense		—			—			(15,413	)		(15,413	)
Other income (expense)		(2,182	)		12,243			—			10,061
Income (loss) before income taxes	$	116,340		$	39,533		$	(15,337	)	$	140,536
Income tax expense (benefit)		36,609			13,885			(5,287	)		45,207
Net income (loss)	$	79,731		$	25,648		$	(10,050	)	$	95,329
Identifiable assets	$	3,344,084		$	957,795		$	162,297		$	4,464,176
Losses and loss adjustment expenses ratio		61.7	%		47.9	%					58.3	%
Commission expense ratio		12.1	%		18.4	%					13.4	%
Other operating expense ratio (2)		19.2	%		25.1	%					20.9	%
Combined ratio		93.0	%		91.4	%					92.6	%

(1) - Includes Corporate segment intercompany eliminations.

(2) - Includes Other operating expenses and Other underwriting income (expenses).

F-14

	Year Ended December 31, 2013
In thousands	Insurance Companies			Lloyd’s Operations			Corporate(1)			Total
Gross written premiums	$	1,002,275		$	368,242		$	—		$	1,370,517
Net written premiums		680,008			207,914			—			887,922
Net earned premiums		639,338			202,601			—			841,939
Net losses and loss adjustment expenses		(415,413	)		(103,548	)		—			(518,961	)
Commission expenses		(81,132	)		(34,710	)		2,348			(113,494	)
Other operating expenses		(119,920	)		(44,514	)		—			(164,434	)
Other income (expense)		2,764			(1,588	)		(2,348	)		(1,172	)
Underwriting profit (loss)	$	25,637		$	18,241		$	—		$	43,878
Net investment income		49,083			7,160			8			56,251
Net realized gains (losses)		20,600			(58	)		4			20,546
Call premium on Senior Notes		—			—			(17,895	)		(17,895	)
Interest expense		—			—			(10,507	)		(10,507	)
Income (loss) before income taxes	$	95,320		$	25,343		$	(28,390	)	$	92,273
Income tax expense (benefit)		29,965			8,728			(9,886	)		28,807
Net income (loss)	$	65,355		$	16,615		$	(18,504	)	$	63,466
Identifiable assets	$	3,077,437		$	930,567		$	161,448		$	4,169,452
Losses and loss adjustment expenses ratio		65.0	%		51.1	%					61.6	%
Commission expense ratio		12.7	%		17.1	%					13.5	%
Other operating expense ratio (2)		18.3	%		22.8	%					19.7	%
Combined ratio		96.0	%		91.0	%					94.8	%

(1) - Includes Corporate segment intercompany eliminations.

(2) - Includes Other operating expenses and Other income.

F-15

	Year Ended December 31, 2012
In thousands	Insurance Companies			Lloyd’s Operations			Corporate(1)			Total
Gross written premiums	$	921,325		$	365,140		$	—		$	1,286,465
Net written premiums		622,956			210,699			—			833,655
Net earned premiums		571,439			210,525			—			781,964
Net losses and loss adjustment expenses		(417,082	)		(80,351	)		—			(497,433	)
Commission expenses		(81,370	)		(42,449	)		2,349			(121,470	)
Other operating expenses		(113,625	)		(45,454	)		—			(159,079	)
Other income (expense)		3,790			47			(2,349	)		1,488
Underwriting profit (loss)	$	(36,848	)	$	42,318		$	—		$	5,470
Net investment income		46,549			7,551			148			54,248
Net realized gains (losses)		36,468			3,555			193			40,216
Interest expense		—			—			(8,198	)		(8,198	)
Income (loss) before income taxes	$	46,169		$	53,424		$	(7,857	)	$	91,736
Income tax expense (benefit)		12,686			18,620			(3,332	)		27,974
Net income (loss)	$	33,483		$	34,804		$	(4,525	)	$	63,762
Identifiable assets	$	3,036,489		$	928,448		$	42,733		$	4,007,670
Losses and loss adjustment expenses ratio		73.0	%		38.2	%					63.6	%
Commission expense ratio		14.2	%		20.2	%					15.5	%
Other operating expense ratio (2)		19.2	%		21.5	%					20.2	%
Combined ratio		106.4	%		79.9	%					99.3	%

(1) - Includes Corporate segment intercompany eliminations.

(2) - Includes Other operating expenses and Other income.

F-16

The following tables provide additional financial data by segment for the years ended December 31, 2014, 2013 and 2012:

	Year Ended December 31, 2014
In thousands	Insurance Companies		Lloyd’s Operations		Total
Gross written premiums:
Marine	$	177,363	$	188,107	$	365,470
Property casualty		755,059		126,016		881,075
Professional liability		113,032		72,776		185,808
Total	$	1,045,454	$	386,899	$	1,432,353
Net written premiums:
Marine	$	123,617	$	144,327	$	267,944
Property casualty		554,844		55,917		610,761
Professional liability		74,312		47,121		121,433
Total	$	752,773	$	247,365	$	1,000,138
Net earned premiums:
Marine	$	123,203	$	141,471	$	264,674
Property casualty		496,209		51,338		547,547
Professional liability		85,162		38,512		123,674
Total	$	704,574	$	231,321	$	935,895

	Year Ended December 31, 2013
In thousands	Insurance Companies		Lloyd’s Operations		Total
Gross written premiums:
Marine	$	171,822	$	181,046	$	352,868
Property casualty		700,087		129,522		829,609
Professional liability		130,366		57,674		188,040
Total	$	1,002,275	$	368,242	$	1,370,517
Net written premiums:
Marine	$	119,837	$	134,627	$	254,464
Property casualty		462,942		42,334		505,276
Professional liability		97,229		30,953		128,182
Total	$	680,008	$	207,914	$	887,922
Net earned premiums:
Marine	$	129,276	$	138,690	$	267,966
Property casualty		409,480		37,722		447,202
Professional liability		100,582		26,189		126,771
Total	$	639,338	$	202,601	$	841,939

F-17

	Year Ended December 31, 2012
In thousands	Insurance Companies		Lloyd’s Operations		Total
Gross written premiums:
Marine	$	200,095	$	194,423	$	394,518
Property casualty		590,741		127,028		717,769
Professional liability		130,489		43,689		174,178
Total	$	921,325	$	365,140	$	1,286,465
Net written premiums:
Marine	$	133,210	$	143,600	$	276,810
Property casualty		390,168		43,824		433,992
Professional liability		99,578		23,275		122,853
Total	$	622,956	$	210,699	$	833,655
Net earned premiums:
Marine	$	142,181	$	136,898	$	279,079
Property casualty		332,782		52,951		385,733
Professional liability		96,476		20,676		117,152
Total	$	571,439	$	210,525	$	781,964

The Insurance Companies net earned premiums include $37.7 million, $44.6 million and $63.9 million of net earned premiums from the U.K. Branch for 2014, 2013 and 2012, respectively.

F-18

Note 4. Investments

The following tables set forth our Company’s cash and investments as of December 31, 2014 and 2013. The tables below include OTTI securities recognized within AOCI.

	December 31, 2014
In thousands	Fair Value		Gross Unrealized Gains		Gross Unrealized Losses			Amortized Cost
Fixed maturities:
U.S. Treasury bonds, agency bonds and foreign government bonds	$	397,923	$	3,431	$	(5,965	)	$	400,457
States, municipalities and political subdivisions		541,007		19,204		(558	)		522,361
Mortgage-backed and asset-backed securities:
Agency mortgage-backed securities		364,622		8,476		(998	)		357,144
Residential mortgage obligations		34,087		1,153		(138	)		33,072
Asset-backed securities		206,413		380		(964	)		206,997
Commercial mortgage-backed securities		206,318		6,630		(98	)		199,786
Subtotal	$	811,440	$	16,639	$	(2,198	)	$	796,999
Corporate bonds		615,564		13,048		(1,626	)		604,142
Total fixed maturities	$	2,365,934	$	52,322	$	(10,347	)	$	2,323,959
Equity securities - common stocks		127,183		28,520		(1,254	)		99,917
Equity securities - preferred stocks		57,112		2,236		(50	)		54,926
Short-term investments		179,506		—		(21	)		179,527
Cash		90,751		—		—			90,751
Total	$	2,820,486	$	83,078	$	(11,672	)	$	2,749,080

	December 31, 2013
In thousands	Fair Value		Gross Unrealized Gains		Gross Unrealized Losses			Amortized Cost
Fixed maturities:
U.S. Treasury bonds, agency bonds and foreign government bonds	$	441,685	$	2,854	$	(8,855	)	$	447,686
States, municipalities and political subdivisions		460,422		9,298		(13,651	)		464,775
Mortgage-backed and asset-backed securities:
Agency mortgage-backed securities		301,274		6,779		(6,016	)		300,511
Residential mortgage obligations		41,755		1,212		(161	)		40,704
Asset-backed securities		125,133		653		(480	)		124,960
Commercial mortgage-backed securities		172,750		7,656		(374	)		165,468
Subtotal	$	640,912	$	16,300	$	(7,031	)	$	631,643
Corporate bonds		504,854		15,402		(3,443	)		492,895
Total fixed maturities	$	2,047,873	$	43,854	$	(32,980	)	$	2,036,999
Equity securities - common stocks		143,954		25,700		(550	)		118,804
Short-term investments		296,250		—		—			296,250
Cash		86,509		—		—			86,509
Total	$	2,574,586	$	69,554	$	(33,530	)	$	2,538,562

As of December 31, 2014 and 2013, fixed maturities for which non-credit OTTI was previously recognized and included in accumulated other comprehensive income are now in an unrealized gains position of $0.7 million and $0.5 million, respectively.

F-19

The fair value of our Company’s investment portfolio may fluctuate significantly in response to various factors such as changes in interest rates, investment quality ratings, equity prices, foreign exchange rates and credit spreads. Our Company does not have the intent to sell nor is it more likely than not that it will have to sell fixed maturities in unrealized loss positions that are not other-than-temporarily impaired before recovery. For structured securities, default probability and severity assumptions differ based on property type, vintage and the stress of the collateral. Our Company does not intend to sell any of these securities and it is more likely than not that, our Company will not be required to sell these securities before the recovery of the amortized cost basis. For equity securities, our Company also considers its intent to hold securities as part of the process of evaluating whether a decline in fair value represents an other-than-temporary decline in value. Our Company may realize investment losses to the extent its liquidity needs require the disposition of fixed maturity securities in unfavorable interest rate, liquidity or credit spread environments. Significant changes in the factors our Company considers when evaluating investments for impairment losses could result in a significant change in impairment losses reported in the consolidated financial statements.

The contractual maturity dates for fixed maturities categorized by the number of years until maturity as of December 31, 2014 are shown in the following table:

	December 31, 2014
In thousands	Fair Value		Amortized Cost
Due in one year or less	$	63,670	$	65,643
Due after one year through five years		765,084		758,064
Due after five years through ten years		356,929		348,195
Due after ten years		368,811		355,058
Mortgage- and asset-backed securities		811,440		796,999
Total	$	2,365,934	$	2,323,959

Expected maturities may differ from contractual maturities because issuers may have the right to call or prepay obligations with or without call or prepayment penalties. Due to the periodic repayment of principal, the mortgage-backed and asset-backed securities are estimated to have an effective maturity of approximately 4.4 years.

The following table shows the amount and percentage of our Company’s fixed maturities as of December 31, 2014 by Standard & Poor’s (“S&P”) credit rating or, if an S&P rating is not available, the equivalent Moody’s Investor Services (“Moody’s”) rating. The table includes fixed maturities at fair value, and the total rating is the weighted average quality rating.

	December 31, 2014
In thousands	Rating	Fair Value		Percent of Total
Rating description:
Extremely strong	AAA	$	462,603		20	%
Very strong	AA		1,090,505		45	%
Strong	A		612,131		26	%
Adequate	BBB		185,372		8	%
Speculative	BB & Below		14,852		1	%
Not rated	NR		471		0	%
Total	AA	$	2,365,934		100	%

F-20

The following table summarizes all securities in a gross unrealized loss position as of December 31, 2014 and 2013, showing the aggregate fair value and gross unrealized loss by the length of time those securities had continuously been in a gross unrealized loss position as well as the relevant number of securities.

	December 31, 2014						December 31, 2013
In thousands, except # of securities	Number of Securities		Fair Value		Gross Unrealized Loss		Number of Securities		Fair Value		Gross Unrealized Loss
Fixed maturities:
U.S. Treasury bonds, agency bonds, and foreign government bonds
0-6 months		19	$	87,915	$	1,061		27	$	136,360	$	1,096
7-12 months		—		—		—		26		149,370		7,759
> 12 months		31		117,683		4,904		—		—		—
Subtotal		50	$	205,598	$	5,965		53	$	285,730	$	8,855
States, municipalities and political subdivisions
0-6 months		13	$	14,242	$	41		28	$	40,132	$	297
7-12 months		2		2,107		19		104		205,152		12,100
> 12 months		17		37,340		498		6		12,357		1,254
Subtotal		32	$	53,689	$	558		138	$	257,641	$	13,651
Agency mortgage-backed securities
0-6 months		4	$	14,743	$	52		39	$	39,458	$	434
7-12 months		2		4,138		28		64		77,860		3,768
> 12 months		46		58,301		918		9		22,784		1,814
Subtotal		52	$	77,182	$	998		112	$	140,102	$	6,016
Residential mortgage obligations
0-6 months		6	$	4,966	$	43		3	$	431	$	2
7-12 months		2		659		7		7		950		29
> 12 months		14		1,728		88		15		2,467		130
Subtotal		22	$	7,353	$	138		25	$	3,848	$	161
Asset-backed securities
0-6 months		19	$	96,123	$	354		14	$	75,887	$	479
7-12 months		3		14,152		185		1		203		1
> 12 months		3		34,530		425		—		—		—
Subtotal		25	$	144,805	$	964		15	$	76,090	$	480
Commercial mortgage-backed securities
0-6 months		4	$	18,665	$	65		4	$	6,712	$	31
7-12 months		1		1,076		6		2		15,098		322
> 12 months		3		1,391		27		4		774		21
Subtotal		8	$	21,132	$	98		10	$	22,584	$	374
Corporate bonds
0-6 months		52	$	179,390	$	797		34	$	93,591	$	717
7-12 months		4		11,071		74		18		55,021		2,726
> 12 months		14		31,126		755		—		—		—
Subtotal		70	$	221,587	$	1,626		52	$	148,612	$	3,443
Total fixed maturities		259	$	731,346	$	10,347		405	$	934,607	$	32,980
Equity securities - common stocks
0-6 months		6	$	9,152	$	761		5	$	7,387	$	422
7-12 months		1		3,887		486		2		3,538		128
> 12 months		1		238		7		—		—		—
		8	$	13,277	$	1,254		7	$	10,925	$	550
Equity securities - preferred stocks
0-6 months		7	$	6,651	$	50		—	$	—	$	—
7-12 months		—		—		—		—		—		—
> 12 months		—		—		—		—		—		—
		7	$	6,651	$	50		—	$	—	$	—
Total equity securities		15	$	19,928	$	1,304		7	$	10,925	$	550

As of December 31, 2014 and 2013, the largest unrealized loss by a non-government backed issuer in the investment portfolio was $0.5 million and $1.1 million, respectively.

F-21

Our Company analyzes impaired securities quarterly to determine if any are other-than-temporary. The above securities with unrealized losses have been determined to be temporarily impaired based on our evaluation.

For fixed maturities, when assessing whether the amortized cost basis of the security will be recovered, our Company compares the present value of cash flows expected to be collected in relation to the current book value. Any shortfalls of the present value of the cash flows expected to be collected to the amortized cost basis is considered the credit loss portion of OTTI losses and is recognized in earnings. All non-credit losses are recognized as changes in OTTI losses within AOCI.

To determine whether the unrealized loss on structured securities is other-than-temporary, our Company analyzes the projections provided by its investment managers with respect to an expected principal loss under a range of scenarios and utilizes the most likely outcomes. The analysis relies on actual collateral performance measures such as default rate, prepayment rate and loss severity. These assumptions are applied throughout the remaining term of the deal, incorporating the transaction structure and priority of payments, to generate loss adjusted cash flows. Results of the analysis will indicate whether the security is expected ultimately to incur a loss or whether there is a material impact on yield due to either a projected loss or a change in cash flow timing. A break even default rate is also calculated. A comparison of the break even default rate to the actual default rate provides an indication of the level of cushion or coverage to the first dollar principal loss. The analysis applies the stated assumptions throughout the remaining term of the transaction to forecast cash flows, which are then applied through the transaction structure to determine whether there is a loss to the security. For securities in which a tranche loss is present, and the net present value of loss adjusted cash flows is less than book value, impairment is recognized. The output data also includes a number of additional metrics such as average life remaining, original and current credit support, over 60 day delinquency and security rating.

The significant inputs used to measure the amount of credit loss recognized in earnings were actual delinquency rates, default probability assumptions, severity assumptions and prepayment assumptions. Projected losses are a function of both loss severity and probability of default. Default probability and severity assumptions differ based on property type, vintage and the stress of the collateral. Our Company does not intend to sell any of these securities and it is more likely than not that, it will not be required to sell these securities before the recovery of the amortized cost basis.

For equity securities, in general, our Company focuses its attention on those securities with a fair value less than 80% of their cost for six or more consecutive months. If warranted as the result of conditions relating to a particular security, our Company will focus on a significant decline in fair value regardless of the time period involved. Factors considered in evaluating potential impairment include, but are not limited to, the current fair value as compared to cost of the security, the length of time the investment has been below cost and by how much the investment is below cost. If an equity security is deemed to be other-than-temporarily impaired, the cost is written down to fair value with the loss recognized in earnings.

Our Company’s ability to hold securities is supported by sufficient cash flow from its operations and from maturities within its investment portfolio in order to meet its claims payment and other disbursement obligations arising from its underwriting operations without selling such investments. With respect to securities where the decline in value is determined to be temporary and the security’s value is not written down, a subsequent decision may be made to sell that security and realize a loss. Subsequent decisions on security sales are made within the context of overall risk monitoring, changing information and market conditions.

As of December 31, 2014, there were no securities with a fair value that was less than 80% of amortized cost.

F-22

The table below summarizes our Company’s activity related to OTTI losses for the periods indicated:

	Year Ended December 31,
	2014					2013				2012
In thousands, except # of securities	Number of Securities		Amount			Number of Securities		Amount		Number of Securities		Amount
Total OTTI losses:
Corporate and other bonds		—	$	—			1	$	1,822		—	$	—
Commercial mortgage-backed securities		—		—			—		—		—		—
Residential mortgage-backed securities		31		(137	)		—		—		1		55
Asset-backed securities		—		—			—		—		—		—
Equities		—		—			3		571		3		847
Total		31	$	(137	)		4	$	2,393		4	$	902
Less: Portion of loss in accumulated other comprehensive income (loss):
Corporate and other bonds			$	—				$	—			$	—
Commercial mortgage-backed securities				—					—				—
Residential mortgage-backed securities				(137	)				—				44
Asset-backed securities				—					—				—
Equities				—					—				—
Total			$	(137	)			$	—			$	44
Impairment losses recognized in earnings:
Corporate and other bonds			$	—				$	1,822			$	—
Commercial mortgage-backed securities				—					—				—
Residential mortgage-backed securities				—					—				11
Asset-backed securities				—					—				—
Equities				—					571				847
Total			$	—				$	2,393			$	858

F-23

The following table summarizes the cumulative amounts related to our Company’s credit loss portion of the OTTI losses on fixed maturities for the years ended December 31, 2014, 2013 and 2012. Our Company does not intend to sell and it is more likely than not that it will not be required to sell, the securities prior to recovery of the amortized cost basis and for which the non-credit loss portion is included in AOCI.

	Year Ended December 31,
In thousands	2014			2013		2012
Beginning balance	$	5,154		$	3,332	$	3,321
Additions for credit loss impairments recognized in the current period on securities not previously impaired		—			1,822		—
Additions for credit loss impairments recognized in the current period on securities previously impaired		—			—		11
Reductions for credit loss impairments previously recognized on securities sold during the period		(2,793	)		—		—
Ending balance	$	2,361		$	5,154	$	3,332

The contractual maturity dates for fixed maturities categorized by the number of years until maturity, with a gross unrealized loss as of December 31, 2014 is presented in the following table:

	December 31, 2014
	Gross Unrealized Losses					Fair Value
In thousands	Amount		Percent of Total			Amount		Percent of Total
Due in one year or less	$	2,638		25	%	$	21,919		3	%
Due after one year through five years		3,791		37	%		334,046		46	%
Due after five years through ten years		1,562		15	%		103,376		14	%
Due after ten years		158		2	%		21,533		3	%
Mortgage- and asset-backed securities		2,198		21	%		250,472		34	%
Total	$	10,347		100	%	$	731,346		100	%

Our Company’s net investment income was derived from the following sources:

	Year Ended December 31,
In thousands	2014			2013			2012
Fixed maturities	$	57,219		$	53,898		$	58,995
Equity securities		9,036			4,835			3,945
Short-term investments		911			774			1,694
Total investment income		67,166			59,507			64,634
Investment expenses		(2,998	)		(3,256	)		(10,386	)
Net investment income	$	64,168		$	56,251		$	54,248

F-24

Investment expenses for the year ended December 31, 2012 include $4.5 million of interest expense related to the settlement of a dispute with Equitas over foregone interest on amounts that were due on certain reinsurance contracts. In the dispute Equitas alleged that we failed to make timely payments to them under certain reinsurance agreements in connection with subrogation recoveries received by our Company with respect to several catastrophe losses that occurred in the late 1980’s and early 1990’s. In addition, investment expenses for the year ended December 31, 2012 includes a $2.8 million investment performance fee.

The change in net unrealized gains and losses, inclusive of the change in the non-credit portion of OTTI losses, consisted of:

	Year Ended December 31,
In thousands	2014		2013			2012
Fixed maturities	$	31,080	$	(76,194	)	$	15,709
Equity securities		4,302		8,857			(5,989	)
Gross unrealized gains (losses)		35,382		(67,337	)		9,720
Deferred income tax		12,197		(23,565	)		3,418
Change in net unrealized gains (losses), net	$	23,185	$	(43,772	)	$	6,302

Realized gains and losses, excluding net OTTI losses recognized in earnings, for the periods indicated, were as follows:

	Year Ended December 31,
In thousands	2014			2013			2012
Fixed maturities:
Gains	$	8,326		$	8,539		$	28,789
Losses		(2,610	)		(2,797	)		(1,915	)
Fixed maturities, net	$	5,716		$	5,742		$	26,874
Equity securities:
Gains	$	9,447		$	17,955		$	14,673
Losses		(2,351	)		(758	)		(473	)
Equity securities, net	$	7,096		$	17,197		$	14,200
Net realized gains (losses)	$	12,812		$	22,939		$	41,074

The following tables present, for each of the fair value hierarchy levels as defined by the accounting guidance for fair value measurements and described below, our Company’s fixed maturities and equity securities by asset class that are measured at fair value on a recurring basis as of December 31, 2014 and 2013:

	December 31, 2014
In thousands	Level 1		Level 2		Level 3		Total
Fixed maturities:
U.S. Treasury bonds, agency bonds and foreign government bonds	$	146,904	$	251,019	$	—	$	397,923
States, municipalities and political subdivisions		—		541,007		—		541,007
Mortgage-backed and asset-backed securities:								—
Agency mortgage-backed securities		—		364,622		—		364,622
Residential mortgage obligations		—		34,087		—		34,087
Asset-backed securities		—		206,413		—		206,413
Commercial mortgage-backed securities		—		206,318		—		206,318
Subtotal	$	—	$	811,440	$	—	$	811,440
Corporate bonds		—		615,564		—		615,564
Total fixed maturities	$	146,904	$	2,219,030	$	—	$	2,365,934
Equity securities - common stocks		127,183				—		127,183
Equity securities - preferred stocks		—		57,112		—		57,112
Total	$	274,087	$	2,276,142	$	—	$	2,550,229

F-25

	December 31, 2013
In thousands	Level 1		Level 2		Level 3		Total
Fixed maturities:
U.S. Treasury bonds, agency bonds and foreign government bonds	$	242,379	$	199,306	$	—	$	441,685
States, municipalities and political subdivisions		—		460,422		—		460,422
Mortgage-backed and asset-backed securities:								—
Agency mortgage-backed securities		—		301,274		—		301,274
Residential mortgage obligations		—		41,755		—		41,755
Asset-backed securities		—		125,133		—		125,133
Commercial mortgage-backed securities		—		172,750		—		172,750
Subtotal	$	—	$	640,912	$	—	$	640,912
Corporate bonds		—		500,447		4,407		504,854
Total fixed maturities	$	242,379	$	1,801,087	$	4,407	$	2,047,873
Equity securities - common stocks		143,954		—		—		143,954
Total	$	386,333	$	1,801,087	$	4,407	$	2,191,827

The fair value of financial instruments is determined based on the following fair value hierarchy:

Level 1 – Quoted prices for identical instruments in active markets. Examples are listed equity and fixed income securities traded on an exchange. U.S. Treasury securities are reported as level 1 and are valued based on unadjusted quoted prices for identical assets in active markets that our Company can access.

Level 2 – Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations in which all significant inputs and significant value drivers are observable in active markets. Examples are asset-backed and mortgage-backed securities that are similar to other asset-backed or mortgage-backed securities observed in the market. U.S. government agency securities are reported as level 2 and are valued using yields and spreads that are observable in active markets.

Level 3 – Valuations derived from valuation techniques in which one or more significant inputs or significant value drivers are unobservable. An example would be a private placement with minimal liquidity.

F-26

Our Company did not have any significant transfers between Level 1 and 2 for the years ended December 31, 2014 and 2013.

Our Company did not have any Level 3 assets for the year ended December 31, 2014.

During 2014, one security was transferred from Level 3 to Level 2 as our Company was able to obtain a price from a vendor, in which all significant inputs to the model are observable in active markets.

The following tables present a reconciliation of the beginning and ending balances for all investments measured at fair value using Level 3 inputs for the years ended December 31, 2014 and 2013. For the year ended December 31, 2012, our Company did not have any Level 3 assets.

	Year Ended December 31, 2014
In thousands	Beginning Balance		Realized Gains (Losses)		Unrealized Gains (Losses)		Purchase		Sales		Settlements		Transfers into Level 3		Transfers out of Level 3			Ending
Assets:
Corporate Bond	$	4,407	$	—	$	—	$	—	$	—	$	—	$	—	$	(4,407	)	$	—
Total assets	$	4,407	$	—	$	—	$	—	$	—	$	—	$	—	$	(4,407	)	$	—

	Year Ended December 31, 2013
In thousands	Beginning Balance		Realized Gains (Losses)		Unrealized Gains (Losses)			Purchase		Sales			Settlements		Transfers into Level 3		Transfers out of Level 3		Ending
Assets:
Commercial
Mortgage	$	—	$	—	$	(42	)	$	4,660	$	(211	)	$	—	$	—	$	—	$	4,407
Total assets	$	—	$	—	$	(42	)	$	4,660	$	(211	)	$	—	$	—	$	—	$	4,407

F-27

In 2013 the Level 3 security was valued using unobservable inputs based on a proxy of a security of similar duration in which market quotations are available.

As of December 31, 2014 and 2013, our Company’s restricted net assets in support of the underwriting activities of the Insurance Companies and Lloyd’s Operations were $523.4 million and $520.9 million, respectively, consisting of fixed maturities, short term investments and cash. Refer to Note 13, Dividends and Statutory Financial Information, for additional information on the nature and type of restricted net assets.

As of December 31, 2014 and 2013, our Company did not have a concentration of greater than 5% of invested assets in a single non-U.S. government-backed issuer.

Note 5. Reserves for Losses and Loss Adjustment Expenses

Insurance companies and Lloyd’s syndicates are required to maintain reserves for unpaid losses and unpaid loss adjustment expenses for all lines of business. These reserves are intended to cover the probable ultimate cost of settling all losses incurred and unpaid, including those incurred but not reported. The determination of reserves for losses and LAE for the Insurance Companies and the Lloyd’s Operations is dependent upon the receipt of information from the agents and brokers, which produce the insurance business for us. Generally, there is a lag between the time premiums are written and related losses and loss adjustment expenses are incurred, and the time such events are reported to the agents and brokers and, subsequently, the Insurance Companies and the Lloyd’s Operations.

Case reserves are established by our Insurance Companies and Syndicate 1221 for reported claims when notice of the claim is first received. Reserves for such reported claims are established on a case-by-case basis by evaluating several factors, including the type of risk involved, knowledge of the circumstances surrounding such claim, severity of injury or damage, the potential for ultimate exposure, experience with the line of business, and the policy provisions relating to the type of claim. Reserves for IBNR are determined in part on the basis of statistical information, in part on industry experience and in part on the judgment of our senior corporate officers. Indicated reserves are calculated by our actuaries using several standard actuarial methodologies, including the paid and incurred loss development and the paid and incurred Bornheutter-Ferguson loss methods. Additional analyses, such as frequency/severity analyses, are performed for certain books of business.

Total loss reserves are estimates of what the insurer or reinsurer expects to pay on claims, based on facts and circumstances then known. It is possible that the ultimate liability may exceed or be less than such estimates. In setting our loss reserve estimates, we review statistical data covering several years, analyze patterns by line of business and consider several factors including trends in claims frequency and severity, changes in operations, emerging economic and social trends, inflation and changes in the regulatory and litigation environment. Using the aforementioned actuarial methods and different underlying assumptions, our actuaries produce a number of point estimates for each class of business. After reviewing the appropriateness of the underlying assumptions, management selects the carried reserve for each class of business. The numerous factors that contribute to the inherent uncertainty in the process of establishing loss reserves include: interpreting loss development activity, emerging economic and social trends, inflation, changes in the regulatory and judicial environment and changes in our operations, including changes in underwriting standards and claims handling procedures. During the loss settlement period, which, in some cases, may last several years, additional facts regarding individual claims may become known and, accordingly, it often becomes necessary to refine and adjust the estimates of liability on a claim upward or downward. Such estimates are regularly reviewed and updated and any resulting adjustments are included in the current year’s income statement. Even then, the ultimate liability may exceed or be less than the revised estimates. The reserving process is intended to provide implicit recognition of the impact of inflation and other factors affecting loss payments by taking into account changes in historical payment patterns and perceived probable trends. There is generally no precise method for the subsequent evaluation of the adequacy of the consideration given to inflation, or to any other specific factor, because the eventual strengthening or release of reserves is affected by many factors, some of which are interdependent. To the extent that reserves are strengthened or released, the amount of such strengthening or release is treated as a charge or credit to earnings in the period in which the strengthening or release is recognized.

F-28

The following table summarizes our Company’s reserves for losses and LAE activity for the years ended December 31, 2014, 2013 and 2012:

	Year Ended December 31,
In thousands	2014			2013			2012
Net reserves for losses and LAE at beginning of year	$	1,222,633		$	1,216,909		$	1,237,234
Provision for losses and LAE for claims occurring in the current year		601,041			520,227			542,724
Increase (decrease) in estimated losses and LAE for claims occurring in prior years		(55,812	)		(1,266	)		(45,291	)
Incurred losses and LAE		545,229			518,961			497,433
Losses and LAE paid for claims occurring during:
Current year		(164,199	)		(147,758	)		(110,373	)
Prior years		(295,527	)		(365,479	)		(407,385	)
Losses and LAE payments		(459,726	)		(513,237	)		(517,758	)
Net reserves for losses and LAE at end of year		1,308,136			1,222,633			1,216,909
Reinsurance recoverables on unpaid losses and LAE		851,498			822,438			880,139
Gross reserves for losses and LAE at end of year	$	2,159,634		$	2,045,071		$	2,097,048

The segment and line of business breakdowns of prior period net reserve strengthening (releases) for the years ended December 31, 2014, 2013 and 2012 are as follows:

	Year Ended December 31,
In thousands	2014			2013			2012
Insurance Companies:
Marine	$	(41,388	)	$	(15,227	)	$	(10,010	)
Property Casualty		14,612			18,466			4,293
Professional Liability		(3,536	)		10,191			7,613
Insurance Companies	$	(30,312	)	$	13,430		$	1,896
Lloyd’s Operations:
Marine	$	(21,336	)	$	(2,998	)	$	(30,735	)
Property Casualty		(1,500	)		(14,574	)		(6,890	)
Professional Liability		(2,664	)		2,876			(9,562	)
Lloyd’s Operations	$	(25,500	)	$	(14,696	)	$	(47,187	)
Total strengthening (releases)	$	(55,812	)	$	(1,266	)	$	(45,291	)

The following is a discussion of relevant factors related to the $55.8 million prior period net reserve releases recorded for the year ended December 31, 2014:

The Insurance Companies recorded $30.3 million of net prior year reserve releases, primarily driven by our Marine business, in connection with $41.4 million of net favorable loss emergence due to a lesser amount of large losses and improved underwriting over the past couple of years across all core product lines, inclusive of $13.4 million from Marine Liability, $7.2 million from Craft/Fishing vessels, $6.4 million from P&I, $4.7 million from Inland Marine, $1.1 million from Bluewater Hull and $0.7 million from Cargo.

The Insurance Companies’ Marine reserve releases were partially offset by $14.6 million of net reserve strengthening from our Property Casualty business which is driven by $23.2 million of prior year reserve strengthening from our Primary Casualty division resulting entirely from unfavorable activity on pre-2010 California construction defect liability claims, partially offset by $6.1 million of reserve releases due to favorable loss emergence from our Excess Casualty division.

The Insurance Companies’ Professional Liability business recorded $3.5 million of net prior year reserve releases primarily driven by $4.5 million of favorable loss emergence from our Management Liability division due to a cash settlement of a contract dispute with a former third party administrator, partially offset by unfavorable loss emergence from our Errors and Omissions (“E&O”) division due to our small lawyers’ product lines, which are in runoff.

F-29

The Lloyds Operations recorded $25.5 million of net prior year reserve releases primarily driven by $21.3 million of Marine releases in connection with favorable loss emergence across all core product lines, inclusive of $11.0 million from Marine Liability, $3.7 million from Specie, $1.3 million from Transport, $1.0 million from Cargo, $2.3 million from Energy Liability and $2.0 million from Marine Assumed.

The Lloyd’s Operations Property Casualty line recorded prior year releases of $1.5 million due to favorable loss emergence on our Onshore Energy book. Additionally, the Professional Liability business reserve releases on older underwriting years (“UWYs”) was due to favorable loss emergence on both our E&O book by $1.0 million and Excess D&O by $1.7 million.

The following is a discussion of relevant factors related to the $1.3 million prior period net reserve releases recorded for the year ended December 31, 2013:

The Insurance Companies recorded $13.4 million of net strengthening primarily driven by our Property Casualty and Professional Liability businesses. Within the Property Casualty business, we reported net prior period reserve strengthening of $18.5 million, which includes $13.2 million of net strengthening from our Assumed Reinsurance division mostly attributable to our excess-of-loss A&H treaty lines in connection with UWYs 2012 and 2011, $10.4 million of strengthening from our Primary Casualty division related to our general liability coverage for general and artisan contractors, and a total of $2.1 million of strengthening for business in run-off. The aforementioned net prior period reserve strengthening was partially offset by $8.0 million of net prior period reserve releases from our Energy & Engineering division in connection with favorable emergence on our Offshore Energy lines written by our UK Branch.

Our Insurance Companies Professional Liability business reported net prior period reserve strengthening of $10.2 million largely attributable to $6.1 million reserve strengthening from our Management Liability division related to specific large claims for UWYs 2010 and prior, and $4.4 million reserve strengthening from our E&O division related to specific large claims from our insurance agents, miscellaneous Professional Liability, and small lawyer lines from UWYs 2011 and prior.

The aforementioned net prior period reserve strengthening from our Insurance Companies Property Casualty and Professional Liability were partially offset by $15.2 million of net reserve releases from our Insurance Companies Marine business in connection with favorable emergence from our Marine Liability lines for UWYs 2012 and prior.

Our Lloyd’s Operations recorded $14.7 million of net reserve releases driven by our Property Casualty and Marine businesses partially offset by strengthening in our Professional Liability business. Within our Lloyd’s Operations Property Casualty business, we reported net prior period reserve releases of $14.6 million primarily from our Energy & Engineering division. Within our Lloyd’s Operations Marine business, we reported prior period reserve releases of $3.0 million driven by our Marine Liability product. Within our Lloyd’s Operations Professional Liability business, we reported strengthening of $2.9 million, inclusive of $6.1 million of strengthening in our E&O division partially offset by $3.2 million of favorable emergence from our Management Liability division.

The following is a discussion of relevant factors related to the $45.3 million prior period net reserve releases recorded for the year ended December 31, 2012:

The Insurance Companies recorded $1.9 million net strengthening. The Marine business had $10.0 million of net reserve releases, which were primarily driven by:

• An IBNR adjustment of $4.0 million to reflect the actual emergence of claims for UWY 2010, which was more favorable than the expected emergence.

• Case reserve releases of $3.4 million due to the favorable settlement of several large losses; and

• A favorable IBNR adjustment of $2.6 million attributable to changes in our assumptions for salvage and subrogation from our short tail Marine lines that was based on our observation of a consistent and persistent historical pattern of favorable savings attributable to salvage and subrogation.

The Marine reserve releases were partially offset by net strengthening of $7.6 million from the small lawyer and accountants lines within our Professional Liability business. This strengthening was primarily driven by several large losses that caused the actual claims emergence for these lines to exceed the expected losses. We also incurred net reserve strengthening of $4.3 million within our Property Casualty segment, which were primarily attributable to two large hemophiliac claims from UWY 2011 arising from our A&H product lines.

Our Lloyd’s Operations recorded $47.2 million of net prior period reserve releases across all businesses and divisions. In connection with our Company’s implementation of the Solvency II technical provisions in its Lloyd’s Operations, our Company’s actuaries undertook a comprehensive review during 2012 of the historical claims emergence patterns for all lines of business underwritten through Syndicate 1221. As a result of this review, our Company updated the loss emergence patterns used to project ultimate losses

F-30

for all such lines of business, aligning these loss emergence factors with the historical median. This caused a reduction in ultimate loss estimates for all Lloyd’s Operations segments other than certain lines of business in Property Casualty segment, which increased. The Lloyd’s Operations also experienced significant reserve redundancies in several large claims. The amount of reserve redundancies attributable to these settlements was $5.0 million, consisting of $4.1 million from the Marine business and $0.9 million from Professional Liability business. A summary of the resulting prior period redundancies for each business within our Lloyd’s Operations by prior UWY is set forth below:

In thousands	Marine		Property Casualty		Professional Liability		Total
2010	$	3,492	$	378	$	1,157	$	5,027
2009		14,792		4,170		6,072		25,034
2008 and Prior		12,451		2,342		2,333		17,126
Total Redundancy	$	30,735	$	6,890	$	9,562	$	47,187

Management believes that the reserves for losses and loss adjustment expenses are adequate to cover the ultimate cost of losses and loss adjustment expenses on reported and unreported claims. We continue to review our reserves on a regular basis.

Note 6. Ceded Reinsurance

We utilize reinsurance principally to reduce our exposure on individual risks, to protect against catastrophic losses, and to stabilize loss ratios and underwriting results. Although reinsurance makes the reinsurer liable to us to the extent the risk is transferred or ceded to the reinsurer, ceded reinsurance arrangements do not eliminate our obligation to pay claims to our policyholders. Accordingly, we bear credit risk with respect to our reinsurers.

Our Company’s ceded earned premiums were $440.7 million, $456.0 million and $396.6 million for the years ended December 31, 2014, 2013 and 2012, respectively.

Our Company’s ceded incurred losses were $230.2 million, $188.7 million and $262.6 million for the years ended December 31, 2014, 2013 and 2012, respectively.

We have established a reserve for uncollectible reinsurance in the amount of $11.3 million as of December 31, 2014 and 2013, which was determined by considering reinsurer specific default risk as indicated by their financial strength ratings as well as additional default risk for Asbestos and Environmental related recoverables. Actual uncollectible reinsurance could exceed or be less than our estimate.

We are protected by various treaty and facultative reinsurance agreements. Our exposure to credit risk from any one reinsurer is managed through diversification by reinsuring with a number of different reinsurers, principally in the United States and European reinsurance markets. To meet our standards of acceptability, when the reinsurance is placed, a reinsurer generally must have a rating from A.M. Best Company (“A.M. Best”) and/or S&P of “A” or better, or an equivalent financial strength if not rated, plus at least $500 million in policyholders’ surplus. Our Reinsurance Security Committee, which is part of our Enterprise Risk Management Finance and Credit Sub-Committee, monitors the financial strength of our reinsurers and the related reinsurance receivables and periodically reviews the list of acceptable reinsurers. The reinsurance is placed either directly by us or through reinsurance intermediaries. The reinsurance intermediaries are compensated by the reinsurers.

F-31

The credit quality distribution of our Company’s reinsurance recoverables of $1.1 billion as of December 31, 2014 for ceded paid and unpaid losses and LAE and ceded unearned premiums based on insurer financial strength ratings from A.M. Best or S&P were as follows:

In thousands	Rating	Carrying Value (2)		Percent of Total
A.M. Best Rating description (1):
Superior	A++, A+	$	575,205		50	%
Excellent	A, A-		547,314		48	%
Very good	B++, B+		8,483		1	%
Fair	B, B-		—		0	%
Not rated	NR		9,694		1	%
Total		$	1,140,696		100	%

(1)	-	When an A.M. Best rating is unavailable, the equivalent S&P rating is used.
(2)	-	The carrying value is comprised of prepaid reinsurance premium as well as reinsurance recoverables on paid and unpaid losses which are net of the reserve for uncollectible reinsurance.

Our Company holds collateral of $202.0 million, which consists of $152.8 million in ceded balances payable, $43.1 million in letters of credit and $6.1 million of funds held and trust account balances, all of which are held by our Insurance Companies and Lloyd’s Operations. In total, the collateral represents 17.7% of the carrying value of the reinsurance recoverables. Collateral of $5.2 million or 53.6% of the carrying value is held for NR rated reinsurance recoverables.

F-32

The following table lists our Company’s 20 largest reinsurers measured by the amount of reinsurance recoverable for ceded losses and LAE and ceded unearned premium (constituting 75.7% of the total recoverable), together with the reinsurance recoverable and collateral as of December 31, 2014, and the reinsurers’ ratings from A.M. Best or S&P:

In thousands	Unearned Premium		Paid/Unpaid Losses		Total (1)		Collateral Held		A.M. Best	S&P
National Indemnity Company	$	25,202	$	117,562	$	142,764	$	22,069	A++	AA+
Everest Reinsurance Company		21,573		75,063		96,636		7,326	A+	A+
Swiss Reinsurance America Corporation		22,815		73,305		96,120		14,587	A+	AA-
Transatlantic Reinsurance Company		11,916		74,072		85,988		4,038	A	A+
Munich Reinsurance America Inc.		11,366		58,768		70,134		5,539	A+	AA-
Allied World Reinsurance		9,048		37,088		46,136		1,666	A	A
Lloyd’s Syndicate #2003		4,399		35,123		39,522		5,191	A	A+
Partner Reinsurance Europe		10,986		25,409		36,395		16,052	A+	A+
Employers Mutual Casualty Company		11,928		21,851		33,779		10,935	A	NR
Scor Global P&C SE		10,190		17,572		27,762		5,558	A	A+
Ace Property and Casualty Insurance Company		11,165		12,741		23,906		2,907	A++	AA
Tower Insurance Company		—		21,509		21,509		2,455	A-	NR
Aspen Insurance UK Ltd.		8,928		11,227		20,155		4,869	A	A
Ironshore Indemnity Inc.		6,234		13,395		19,629		8,645	A	NR
Validus Reinsurance Ltd.		2,020		16,873		18,893		10,975	A	A
Atlantic Specialty Insurance		2,542		15,812		18,354		—	A	A-
QBE Reinsurance Corp		2,636		15,539		18,175		—	A	A+
National Union Fire Ins.		8,067		8,459		16,526		6,158	A	A+
Endurance Reinsurance Corporation		5,695		9,936		15,631		1,337	A	A
Odyssey American Reinsurance Corporation		3,506		11,650		15,156		1,604	A	A-
Top 20	$	190,216	$	672,954	$	863,170	$	131,911
Others		47,635		229,891		277,526		70,065
Total	$	237,851	$	902,845	$	1,140,696	$	201,976

(1) - Net of reserve for uncollectible reinsurance of approximately $11.3 million.

F-33

Approximately 21% of the collateral held consists of letters of credit obtained from reinsurers in accordance with New York Insurance Regulation Nos. 20 and 133. Regulation 20 requires collateral to be held by the ceding company from reinsurers not licensed in New York State in order for the ceding company to take credit for the reinsurance recoverables on its statutory balance sheet. The specific requirements governing the letters of credit are contained in Regulation 133 and include a clean and unconditional letter of credit and an “evergreen” clause which prevents the expiration of the letter of credit without due notice to our Company. Only banks considered qualified by the National Association of Insurance Commissioners (“NAIC”) may be deemed acceptable issuers of letters. In addition, based on our credit assessment of the reinsurer, there are certain instances where we require collateral from a reinsurer even if the reinsurer is licensed in New York State, generally applying the requirements of Regulation No. 133. The contractual terms of the letters of credit require that access to the collateral is unrestricted. In the event that the counterparty to our collateral would be deemed not qualified by the NAIC, the reinsurer would be required by agreement to replace such collateral with acceptable security under the reinsurance agreement. There is no assurance, however, that the reinsurer would be able to replace the counterparty bank in the event such counterparty bank becomes unqualified and the reinsurer experiences significant financial deterioration. Under such circumstances, we could incur a substantial loss from uncollectible reinsurance from such reinsurer. In November 2010, Regulation No. 20 was amended to provide the New York Superintendent of Financial Services (the “New York Superintendent”) discretion to allow a reduction in collateral that qualifying reinsurers must post in order for New York domestic ceding insurers such as Navigators Insurance Company and Navigators Specialty Insurance Company to receive full financial statement credit. The “collateral required” percentages range from 0% – 100%, are based upon the New York Superintendent’s evaluation of a number of factors, including the reinsurer’s financial strength ratings, and apply to contracts entered into, renewed or having an anniversary date on or after January 1, 2011. In November 2011, the NAIC adopted similar amendments to its Credit for Reinsurance Model Act that would apply to certain non-U.S. reinsurers. States will have the option to retain a 100% funding requirement if they so choose and it remains to be seen whether and when states will amend their credit for reinsurance laws and regulations in accordance with such model act.

As of December 31, 2014, the reinsurance recoverables for paid and unpaid losses due from reinsurers in connection with all catastrophic losses was $43.3 million. Included in this figure is $25.4 million for Superstorm Sandy and $7.3 million for the 2008 Hurricanes. As of December 31, 2013, the reinsurance recoverables for paid and unpaid losses due from reinsurers in connection with all catastrophic losses was $46.5 million. Included in this figure is $30.7 million for Superstorm Sandy and $3.3 million for the 2008 Hurricanes.

The following table summarizes the components of Net Written Premium:

	Year Ended December 31,
In thousands	2014			2013			2012
Direct	$	1,184,538		$	1,127,331		$	1,034,658
Assumed		247,815			243,187			251,807
Ceded		(432,215	)		(482,596	)		(452,810	)
Net Written Premiums	$	1,000,138		$	887,922		$	833,655

The following table summarizes the components of Net Earned Premium:

	Year Ended December 31,
In thousands	2014			2013			2012
Direct	$	1,133,336		$	1,069,677		$	972,844
Assumed		243,215			228,247			205,759
Ceded		(440,656	)		(455,985	)		(396,639	)
Net Earned Premiums	$	935,895		$	841,939		$	781,964

The following table summarizes the components of Net Losses and LAE incurred:

	Year Ended December 31,
In thousands	2014			2013			2012
Direct	$	631,730		$	552,381		$	608,945
Assumed		143,681			155,313			151,137
Ceded		(230,182	)		(188,733	)		(262,649	)
Net Losses and LAE	$	545,229		$	518,961		$	497,433

F-34

Note 7. Income Taxes

Our Company is subject to the tax laws and regulations of the United States (“U.S.”) and the foreign countries in which it operates. Our Company files a consolidated U.S. Federal tax return, which includes all domestic subsidiaries and the U.K. Branch. The income from the foreign operations is designated as either U.S. connected income or non-U.S. connected income. Lloyd’s is required to pay U.S. income tax on U.S. connected income written by Lloyd’s syndicates. Lloyd’s and the Internal Revenue Service (“IRS”) have entered into an agreement whereby the amount of tax due on U.S. connected income is calculated by Lloyd’s and remitted directly to the IRS. These amounts are then charged to the corporate member in proportion to its participation in the relevant syndicates. Our Company’s corporate member is subject to this agreement and receives U.K. tax credits in the U.K. for any U.S. income tax incurred up to the U.K. income tax charged on the U.S. connected income. The non-U.S. connected insurance income would generally constitute taxable income under the Subpart F income section of the U.S. Internal Revenue Code (“Subpart F”) since less than 50% of Syndicate 1221’s premiums are derived within the U.K. and would therefore be subject to U.S. taxation when the Lloyd’s year of account closes. Taxes are accrued at a 35% rate on our Company’s foreign source insurance income and foreign tax credits, where available, are utilized to offset U.S. tax as permitted. Our Company’s effective tax rate for Syndicate 1221 taxable income could substantially exceed 35% to the extent our Company is unable to offset U.S. taxes paid under Subpart F tax regulations with U.K. tax credits on future underwriting year distributions. U.S. taxes are not accrued on the earnings of our Company’s foreign agencies as these earnings are subject to the active financing exception and are not includable as Subpart F income. Certain provisions of Subpart F expired for years after December 31, 2014; therefore, these earnings will be taxable in the U.S. at the 35% tax rate beginning January 1, 2015.

The components of current and deferred income tax expense (benefit) are as follows:

	Year Ended December 31,
In thousands	2014		2013		2012
Current income tax expense (benefit):
Federal and foreign	$	27,290	$	23,703	$	39,242
State and local		1,036		446		146
Subtotal		28,326		24,149		39,388
Deferred income tax expense (benefit):
Federal and foreign		16,881		4,658		(11,414	)
State and local		—		—		—
Subtotal		16,881		4,658		(11,414	)
Total income tax expense (benefit)	$	45,207	$	28,807	$	27,974

A reconciliation of total income taxes applicable to pre-tax operating income and the amounts computed by applying the federal statutory income tax rate to the pre-tax operating income were as follows:

	Year Ended December 31,
In thousands	2014					2013					2012
Computed expected tax expense	$	49,187		35.0	%	$	32,299		35.0	%	$	32,109		35.0	%
Tax-exempt interest		(4,771	)	-3.4	%		(3,839	)	-4.2	%		(4,443	)	-4.8	%
Dividends received deduction		(1,257	)	-0.9	%		(897	)	-1.0	%		(799	)	-0.9	%
Proration of DRD and Tax-exempt interest		904		0.6	%		710		0.8	%		786		0.9	%
Current state and local income taxes, net of federal income tax deduction		674		0.5	%		290		0.3	%		95		0.1	%
Other		470		0.3	%		244		0.3	%		226		0.2	%
Actual tax expense and rate	$	45,207		32.2	%	$	28,807		31.2	%	$	27,974		30.5	%

F-35

The tax effects of temporary differences that give rise to federal, foreign, state and local deferred tax assets and deferred tax liabilities were as follows:

	December 31,
In thousands	2014			2013
Deferred tax assets:
Loss reserve discount	$	24,820		$	27,822
Unearned premiums		29,080			25,706
Compensation related		10,586			6,782
State and local net deferred tax assets		777			555
Other		1,834			3,889
Total gross deferred tax assets		67,097			64,754
Less: Valuation allowance		(777	)		(555	)
Total deferred tax assets	$	66,320		$	64,199
Deferred tax liabilities:
Net unrealized gains/losses on securities		(24,832	)		(9,119	)
Deferred acquisition costs		(22,120	)		(19,258	)
Lloyd’s year of account deferral		(13,578	)		(4,381	)
Net unrealized foreign exchange		(4,470	)		(3,516	)
Other		(2,787	)		(4,119	)
Total deferred tax liabilities	$	(67,787	)	$	(40,393	)
Net deferred income tax asset (liability)	$	(1,467	)	$	23,806

F-36

Our Company has not provided for U.S. income taxes on approximately $22.6 million of undistributed earnings of its non-U.S. subsidiaries since it is intended that those earnings will be reinvested indefinitely in those subsidiaries. If a future determination is made that those earnings no longer are intended to be reinvested indefinitely in those subsidiaries, U.S. income taxes of approximately $2.3 million, assuming all foreign tax credits are realized, would be included in the tax provision at that time and would be payable if those earnings were distributed to our Company.

Unrecognized tax benefits are differences between tax positions taken in the tax returns and benefits recognized in the financial statements. Our Company has no unrecognized tax benefits as of December 31, 2014 and 2013. Our Company did not incur any interest or penalties related to unrecognized tax benefits for the years ended December 31, 2014 and 2013. Our Company currently is under examination by the IRS for taxable years 2010, 2011, and 2012 and generally is subject to U.S. Federal, state or local or foreign tax examinations by tax authorities for 2009 and subsequent years.

Our Company recorded income tax expense of $45.2 million for the year ended December 31, 2014 compared to $28.8 million for the same period in 2013, resulting in an effective tax rate of 32.2% for the year ended December 31, 2014 and 31.2% for the comparable periods in 2013.

Our Company had state and local deferred tax assets amounting to potential future tax benefits of $0.8 million and $0.6 million as of December 31, 2014 and 2013, respectively. Included in the deferred tax assets are state and local net operating loss carry-forwards of $0.0 million as of December 31, 2014 and $0.1 million for December 31, 2013. A valuation allowance was established for the full amount of these potential future tax benefits due to the uncertainty associated with their realization. Our Company’s state and local tax carry-forwards as of December 31, 2014 expire from 2024 to 2032.

In assessing the realization of deferred tax assets, management considers whether it is more likely than not that, the deferred tax assets will be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. Management considers the scheduled reversal of deferred tax liabilities, tax planning strategies and anticipated future taxable income in making this assessment and believes it is more likely than not that our Company will realize the benefits of its deductible differences as of December 31, 2014, net of any valuation allowance.

Note 8. Credit Facilities

On November 6, 2014 NUAL entered into a credit facility for $8.0 million Australian Dollars with Barclays Bank PLC to fund its participation in Syndicate 1221. The facility is used to fund Australian underwriting obligations for the 2014 and prior underwriting years. The facility contains customary covenants for facilities of this type, including a restriction on future encumbrances that are outside the ordinary course of business, and a requirement to maintain at least £75 million of Funds at Lloyd’s. Interest is payable on the facility at a rate of 2% per annum above a floating rate tied to the average mid-rate for Australian bills of exchange administered by the Australian Financial Markets Association. The facility may be cancelled by either party after providing written notice. As of December 31, 2014, our Company was in compliance with all covenants.

On November 24, 2014, our Company entered into a $175 million credit facility agreement with ING Bank N.V., London Branch, individually and as Administrative Agent, and a syndicate of lenders. The new credit facility amended and restated a $165 million letter of credit facility entered into by the parties on November 22, 2012. The credit facility, which is denominated in U.S. dollars, is utilized to fund participation in Syndicate 1221 through letters of credit for the 2015 and 2016 underwriting years, as well as open prior years. The letters of credit issued under the facility can be denominated in British pounds and their aggregate face amount will fluctuate based on exchange rates. If any letters of credit remain outstanding under the facility after December 31, 2016, our Company would be required to post additional collateral to secure the remaining letters of credit. As of December 31, 2014, letters of credit with an aggregate face amount of $149.4 million were outstanding under the credit facility and our Company had $1.0 million of cash collateral posted.

This credit facility contains customary covenants for facilities of this type, including restrictions on indebtedness and liens, limitations on mergers, dividends and the sale of assets, and requirements as to maintaining certain consolidated tangible net worth, statutory surplus and other financial ratios. The credit facility also provides for customary events of default, including failure to pay principal, interest or fees when due, failure to comply with covenants, any representation or warranty made by our Company being false in any material respect, default under certain other indebtedness, certain insolvency or receivership events affecting our Company and its subsidiaries, the occurrence of certain material judgments, or a change in control of our Company. The letter of credit facility is secured by a pledge of the stock of certain insurance subsidiaries of our Company. To the extent, the aggregate face amount issued under the credit facility exceeds the commitment amount; our Company is required to post collateral with the lead bank of the consortium. Our Company was in compliance with all covenants under the credit facility as of December 31, 2014 and our Company had $1.0 million of cash collateral posted.

The applicable fee rate payable under the credit facility are based on a tiered schedule that is based on our Company’s then-current financial strength ratings issued by S&P and A.M. Best and the amount of our Company’s own collateral utilized to fund its participation in Syndicate 1221.

F-37

Note 9. Senior Notes

On October 4, 2013, our Company completed a public debt offering of $265 million principal amount of 5.75% Senior Notes (“5.75% Senior Notes”) and received net proceeds of $263 million. The Principal amount of the 5.75% Senior Notes is payable in one single installment on October 15, 2023. Our Company used a portion of the proceeds of the 5.75% Senior Notes for the redemption of the 7.0% Senior Notes due May 1, 2016 (“7.0% Senior Notes”). Our Company incurred a charge of $17.9 million for the payment of call premium in connection with the redemption of the 7.0% Senior Notes. The 5.75% Senior Notes Liability as of December 31, 2014 and 2013 was $263.4 million and $263.3 million, respectively. The unamortized discount as of December 31, 2014 and 2013 was $1.6 million and $1.7 million, respectively.

The fair value of the 5.75% Senior Notes was $285.7 million and $277.6 million as of December 31, 2014 and December 31, 2013, respectively. The fair values were determined using quoted prices for similar instruments in active markets and is classified as Level 2 within the fair value hierarchy as defined by the accounting guidance for fair value measurements.

Interest is payable on the 5.75% Senior Notes each April 15 and October 15. The effective interest rate related to the 5.75% Senior Notes, based on the proceeds net of discount and all issuance costs, approximates 5.86%. Interest expense on the 5.75% was $15.4 million for the year ended December 31, 2014. Interest expense on the 5.75% Senior Notes and 7.0% Senior Notes totaled $10.5 million for the year ended December 31, 2013. Interest expense on the 7.0% Senior Notes was $8.2 million for the year ended December 31, 2012.

The interest rate payable on the 5.75% Senior Note is subject to a tiered adjustment based on defined changes in our Company’s debt ratings. Our Company may redeem the 5.75% Senior Notes in whole at any time or in part from time to time at a make-whole redemption price. The 5.75% Senior Notes are our Company’s only senior unsecured obligation and will rank equally with future senior unsecured indebtedness.

The terms of the 5.75%, Senior Notes contain various restrictive business and financial covenants, including a restriction on indebtedness, and other restrictions typical for debt obligations of this type, including limitations on mergers, liens and dispositions of the common stock of certain subsidiaries. As of December 31, 2014, our Company was in compliance with all such covenants.

Note 10. Lloyd’s Syndicate 1221

The Lloyd’s Operations included in the consolidated financial statements represents its participation in Syndicate 1221. Syndicate 1221’s stamp capacity is £215 million ($336.9 million) for the 2014 underwriting year compared to £195 million ($323.7 million) for the 2013 underwriting year. Stamp capacity is a measure of the amount of premiums a Lloyd’s syndicate is authorized to write based on a business plan approved by the Council of Lloyd’s. Syndicate 1221’s stamp capacity is expressed net of commission (as is standard at Lloyd’s). The Syndicate 1221 premiums recorded in our Company’s financial statements are gross of commission. Our Company controlled 100% of Syndicate 1221’s stamp capacity for the 2014, 2013 and 2012 underwriting years through its wholly-owned Lloyd’s corporate member.

During the first quarter, Syndicate 1221 revised its foreign exchange accounting methodology from reporting its financial position and results using three functional currencies (GBP, USD and CAD) to one functional currency (USD). The USD was chosen as the single functional currency as the majority of the Syndicate’s insurance business has been and continues to be transacted in USD. This cumulative change in re-measurement has resulted in an immaterial correction of $10.0 million ($6.6 million, after-tax) reducing Accumulated Other Comprehensive Income in the consolidated balance sheet, offset by a gain in Other Income in the consolidated statement of income. The impact of the correction is not material to the previously issued annual financial statements for 2013 and 2012.

Our Company provides letters of credit and posts cash to Lloyd’s to support its participation in Syndicate 1221’s stamp capacity. If Syndicate 1221 increases its stamp capacity and our Company participates in the additional stamp capacity, or if Lloyd’s changes the capital requirements, our Company may be required to supply additional collateral acceptable to Lloyd’s. If our Company is unwilling or unable to provide additional acceptable collateral, our Company will be required to reduce its participation in the stamp capacity of Syndicate 1221. Refer to Note 8, Credit Facilities, for additional information.

F-38

Note 11. Commitments and Contingencies

Future minimum annual rental commitments as of December 31, 2014 under various non-cancellable operating leases for our office facilities, which expire at various dates through 2023, are as follows:

	Year Ended
In thousands	December 31,
2015	$	11,245
2016		9,234
2017		7,942
2018		6,907
2019		4,258
Thereafter		12,811
Total minimum operating lease payments	$	52,397

We are also liable for additional payments to the landlords for certain annual cost increases. Rent expense for the years ended December 31, 2014, 2013 and 2012 was $13.2 million, $11.5 million and $10.5 million, respectively.

The State of Connecticut (“the State”) awarded our Company up to $11.5 million ($8.0 million in loans and $3.5 million in grants) as an incentive to move its corporate headquarters to Stamford Connecticut. The loan is non-interest bearing, has a term of 10 years and is subject to forgiveness under conditions of the agreement with the State. The amount of the assistance to be received is dependent on our Company reaching certain milestones for creation of new jobs over a five-year period, and the funds are to be used to offset certain equipment purchases, facility costs, training of employees and other eligible project-related costs. Our Company completed the move to Stamford in September 2013 and received $7.5 million for reaching the first job milestone. Earning of the grant and forgiveness of the loan is subject to certain conditions, including maintaining the required jobs for an extended period of time. As of December 31, 2014, the length of time commitment has not been met, however, our Company expects to meet all the conditions to keep the amount of assistance received to date, and accordingly, is recognizing the assistance received over the period in which our Company recognizes the expenses for which the assistance is intended to compensate, and is recognized as a reduction of such expenses. For the years ended December 31, 2014 and 2013, our Company recognized $1.1 million and $0.3 million of the assistance and as of December 31, 2014 has deferred revenue of $6.1 million, which is included in other liabilities.

In the ordinary course of conducting business, our Company’s subsidiaries are involved in various legal proceedings, either indirectly as insurers for parties or directly as defendants. Most of these proceedings consist of claims litigation involving our Company’s subsidiaries as either: (a) liability insurers defending or providing indemnity for third party claims brought against insureds or (b) insurers defending first party coverage claims brought against them. Our Company accounts for such activity through the establishment of unpaid loss and loss adjustment reserves. Our Company’s management believes that the ultimate liability, if any, with respect to such ordinary-course claims litigation, after consideration of provisions made for potential losses and cost of defense, will not be material to our Company’s consolidated financial condition, results of operations, or cash flows.

Our Company’s subsidiaries are also occasionally involved with other legal actions, some of which assert claims for substantial amounts. These actions include claims asserting extra contractual obligations, such as claims involving allegations of bad faith in the handling of claims or the underwriting of policies. In general, our Company believes it has valid defenses to these cases. Our Company’s management expects that the ultimate liability, if any, with respect to future extra-contractual matters will not be material to its consolidated financial position. Nonetheless, given the large or indeterminate amounts sought in certain of these matters, and the inherent unpredictability of litigation, an adverse outcome in such matters could, from time to time, have a material adverse outcome on our Company’s consolidated results of operations or cash flows in a particular fiscal quarter or year.

F-39

Note 12. Share Capital

Our authorized share capital consists of 50,000,000 common shares with a par value of $0.10 per share and 1,000,000 preferred shares with a par value of $0.10 per share. Our Company has not issued any preferred shares as of December 31, 2014.

The following table represents changes in our Company’s issued and outstanding common shares for the periods indicated:

	Year Ended December 31,
In thousands	2014		2013		2012
Beginning balance		14,198		14,047		13,956
Vested stock grants		59		50		60
Employee stock purchase plan		19		17		16
Stock options exercised		5		84		15
Treasury shares purchased		—		—		—
Ending balance		14,281		14,198		14,047

F-40

Note 13. Dividends and Statutory Financial Information

The Parent Company has not paid or declared any cash dividends on common stock. There are no regulatory restrictions on the ability of the Parent Company to pay dividends. While there is no intention to pay cash dividends on the common stock, future declarations, if any, are at the discretion of our Board of Directors. The amounts of such dividends will be dependent, upon other factors such as, our results of operations and cash flow, financial condition and business needs, restrictive covenants under our credit facility and senior notes that require us to maintain certain consolidated tangible net worth, the capital and surplus requirements of our subsidiaries, and applicable insurance regulations that limit the amount of dividends that may be paid by our regulated insurance subsidiaries. Refer to Note 8, Credit Facilities, for additional information on the restrictions of our credit facilities that limit the amount of dividends that may be paid by our subsidiaries.

The amount and nature of net assets that are restricted from payment of dividends as of December 31, 2014 and 2013 are presented in the following table:

	As of December 31,
In thousands	2014		2013
Restricted Net Assets:
Insurance Companies:
Fixed maturities at fair value (amortized cost: 2014, $10,086; 2013, $9,730)	$	11,732	$	11,105
Short term investments, at cost which approximates fair value		290		290
Cash		1,212		1,210
Total Insurance Companies (1)	$	13,234	$	12,605
Lloyd’s Operations:
Fixed maturities at fair value (amortized cost: 2014, $445,504; 2013, $398,930)		447,679		398,808
Short term investments, at cost which approximates fair value		61,549		108,485
Cash		963		988
Total Lloyd’s Operations (2)	$	510,191	$	508,281
Total Restricted Net Assets	$	523,425	$	520,886

(1) - The restricted net assets for the Insurance Companies primarily consist of fixed maturities on deposit with various state insurance departments. The cash as of December 31, 2014 and 2013, as presented in the table above, was on deposit with a U.K. bank to comply with the regulatory requirements of the Prudential Regulation Authority for the underwriting activities of the U.K. Branch.

(2) - The restricted net assets for the Lloyd’s Operations consists of fixed maturities and cash held in trust for the benefit of syndicate policyholders and short term investments primarily consisting of overseas deposits in various countries with Lloyd’s to support underwriting activities in those countries.

In addition to our Company’s restricted net assets provided in the table above, there are regulatory limitations on the payment of dividends by our subsidiaries, discussed below, and our Company’s letter of credit facility with ING Bank N.V., London Branch, as administrative agent, is secured by all of the common stock of NIC.

Insurance Companies

NIC may pay dividends to the Parent Company out of its statutory earned surplus pursuant to statutory restrictions imposed under the New York insurance law. As of December 31, 2014, the maximum amount available for the payment of dividends by NIC in 2015 without prior regulatory approval is $89.4 million. NIC did not pay any dividends to the Parent Company in 2014 or 2013. In 2012, NIC paid $15.0 million in dividends to the Parent Company.

The Insurance Companies’ statutory net income as filed with the regulatory authorities for 2014, 2013 and 2012 was $75.7 million, $59.4 million and $28.6 million, respectively. The statutory capital and surplus as filed with the regulatory authorities was $893.9 million and $804.1 million as of December 31, 2014 and 2013, respectively.

The NAIC has codified Statutory Accounting Practices and Procedures (“SAP”) for insurance enterprises. We prepare our statutory basis financial statements in accordance with the most recently updated SAP manual subject to any deviations prescribed or permitted by the New York Insurance Commissioner. The significant differences between SAP and GAAP, as they relate to our operations, are as follows: (1) acquisition and commission costs are expensed when incurred, while under GAAP these costs are deferred and amortized as the related premium is earned; (2) bonds are stated at amortized cost, while under GAAP bonds are classified as available-for-sale and reported at fair value, with unrealized gains and losses recognized in other comprehensive income as a separate

F-41

component of stockholders’ equity; (3) certain deferred tax assets are not permitted to be included in statutory surplus, while under GAAP deferred taxes are provided to reflect all temporary differences between the carrying values and tax basis of assets and liabilities; (4) unearned premiums and loss reserves are reflected net of ceded amounts, while under GAAP the unearned premiums and loss reserves are reflected gross of ceded amounts; (5) agents’ balances over ninety days due are excluded from the balance sheet, and uncollateralized amounts due from unauthorized reinsurers are deducted from surplus, while under GAAP they are restored to the balance sheet, subject to the usual tests regarding recoverability.

The NAIC has adopted Risked Based Capital (“RBC”) requirements to elevate the adequacy of statutory capital and surplus in relation to risks associated with: (1) asset risk; (2) insurance risk; (3) interest rate and equity market risk; and (4) business risk. The RBC formula is designated as an early warning tool for the states to identify possible undercapitalized companies for the purpose of initiating regulatory action. In the course of operations, we periodically monitor the RBC level of NIC. As of December 31, 2014 and 2013, NIC exceeded our company action RBC levels. The RBC ratio of NIC was 314.8% and 304.2% of our company action level as of December 31, 2014 and 2013, respectively.

As part of its general regulatory oversight process, the New York State Department of Finance conducts detailed examinations of the books, records and accounts of New York insurance companies every three to five years. In 2011, the New York State Department of Finance conducted an examination of NIC and NSIC for the years 2005 through 2009. Our Company has received notice that the New York Department intends to commence an examination of the years 2010 through 2014 on February 17, 2015.

The U.K. Branch is required to maintain certain capital requirements under U.K. regulations and is subject to examination by the U.K. Prudential Regulation Authority (PRA).

Lloyd’s Operations

Lloyd’s sets the corporate member’s required capital annually based on Syndicate 1221’s business plans, rating environment, reserving environment and input arising from Lloyd’s discussions with regulatory and rating agencies. The capital requirement of Syndicate 1221, known as Funds at Lloyd’s (the “FAL”), is currently calculated using the internal Lloyd’s risk-based capital model. The FAL may comprise cash, investments and undrawn letters of credit provided by various banks. As of December 31, 2014 and 2013, the FAL requirement set by Lloyd’s for Syndicate 1221 was $268.1 million (£171.1 million) and $279.3 million (£168.3 million), respectively, based on its business plans, approved in November 2014 and November 2013, respectively.

The valuation of the assets and letters of credit posted for FAL for Syndicate 1221 as of December 31, 2014 and 2013 was $290.1 million (£185.1 million) and $280.2 million (£168.8 million), respectively.

We prepare our Lloyd’s financial statements in accordance with U.K. GAAP basis. The significant differences between U.K. GAAP and U.S. GAAP, as they relate to our operations, are as follows: (1) investments are recorded at fair value with unrealized gains and losses being recorded in income while under U.S. GAAP the changes in unrealized gains and losses are recorded through AOCI as a separate component of stockholders’ equity; (2) realized foreign exchange on inter-currency conversions are recorded through the income statement, while under U.S. GAAP foreign exchange translation is recorded through AOCI as a separate component of stockholders’ equity; (3) Lloyd’s membership costs are not deferred for U.K. GAAP, while under U.S. GAAP a prepaid asset is established and amortized over each year of account.

The primary source of income for NCUL, a corporate member of Lloyd’s and controller of 100% of Syndicate 1221’s stamp capacity, is generated through Syndicate 1221. Syndicate 1221 is subject to oversight by the Council of Lloyd’s. Lloyd’s as a whole is authorized and regulated by the PRA. Syndicate 1221’s income as filed with Lloyd’s for 2014, 2013 and 2012 was $33.8 million, $21.0 million and $54.9 million, respectively. The Syndicate’s capital and surplus as filed with Lloyd’s was $140.1 million (£89.4 million) and $124.2 million (£74.8 million) as of December 31, 2014 and 2013, respectively. The difference between our Syndicate’s capital and surplus and the FAL primarily consists of letters of credit and cash held by our corporate member.

NCUL may pay dividends to the Parent Company up to the extent of available profits that have been distributed from Syndicate 1221. The Syndicate’s capital and surplus as filed with Lloyd’s consists of undistributed profits on closed and open years of account. In connection with the business plan approved in November 2014, NCUL posted all of the available undistributed profits on closed years of $139.9 million (£89.3 million) to support a portion of the FAL requirement and therefore that amount is not available for distribution to NCUL, which ultimately is not available to the Parent in the form of a dividend. As of December 31, 2014, NCUL has the ability to pay dividends of up to $9.9 million (£6.3 million), consisting of previously distributed profits from Syndicate 1221, to the Parent in the form of dividends.

Refer to Note 1, Organization and Summary of Significant Accounting Policies, for additional disclosure on the accounting treatment for Syndicate 1221 as it relates to closed and open years of account.

F-42

Note 14. Stock Option Plans, Stock Grants, Stock Appreciation Rights and Employee Stock Purchase Plan

At our May 2005 Annual Meeting, the stockholders approved the 2005 Stock Incentive Plan. The 2005 Stock Incentive Plan authorizes the issuance in the aggregate of 1,000,000 incentive stock options, non-incentive stock options, restricted shares and stock appreciation rights for our common stock. Upon the approval of the 2005 Amended and Restated Stock Incentive Plan, no further awards are being issued under any of our other stock plans or the stock appreciation rights plan. All stock options issued under the 2005 Amended and Restated Stock Incentive Plan are exercisable upon vesting for one share of our common stock and are granted at exercise prices no less than the fair market value of our common stock on the date of grant.

In April 2009, the stockholders approved an amendment to the 2005 Stock Incentive Plan increasing the available number of restricted shares from 1,000,000 to 1,500,000. In April 2013, the stockholders further amended and restated the 2005 Stock Incentive Plan increasing the available number of restricted shares from 1,500,000 to 2,000,000. As of December 31, 2014, 1,523,228 of such awards were issued leaving 476,772 awards available to be issued in subsequent periods.

Stock-based compensation granted under our Company’s stock plans is expensed in tranches over the vesting period. Options and non-performance based grants generally vest equally over a three or four year period and the options have a maximum term of ten years. Certain non-performance based grants vest over five years with one-third vesting in each of the third, fourth and fifth years. Our Company’s performance based share grants generally consist of three types of awards. The restricted stock units issued in 2014 and after will cliff vest on the third anniversary of the date of the grant with 100% dependent on the rate of cumulative annual growth in tangible book value for the three years immediately prior to the vesting date, with actual shares that vest ranging between 150% to 50% of that portion of the original award. The restricted stock units issued between 2011 – 2013 will cliff vest on the third anniversary of the date of grant, with 50% vesting in full, and 50% dependent on the rate of compound annual growth in book value per share for the three years immediately prior to the vesting date, with actual shares that vest ranging between 150% to 0% of that portion of the original award. The performance based restricted stock units issued prior to 2011 generally vest over five years with one-third vesting in each of the third, fourth and fifth years, with 100% dependent on the rolling three-year average return on equity based on the three years prior to the year in which the vesting occurs, with actual shares that vest ranging between 150% to 0% of the original award.

F-43

The amounts charged to expense for stock-based compensation for the years ended December 31, 2014, 2013 and 2012 are presented in the following table:

	Year Ended December 31,
In thousands	2014		2013		2012
Restricted stock units	$	11,507	$	3,369	$	7,380
Directors restricted stock grants (1)		420		413		390
Employee stock purchase plan		194		132		82
Total stock-based compensation	$	12,121	$	3,914	$	7,852

(1) - Relates to non-employee directors serving on the Parent Company’s Board of Directors, all of whom have been elected by the Company’s stockholders, as well as non-employee directors serving on NUAL’s Board of Directors.

Unvested restricted stock units outstanding as of December 31, 2014, 2013 and 2012, and changes during the years ended on those dates, are presented in the following table:

	December 31,
	2014			2013			2012
Beginning balance		626,812			587,629			526,972
Granted - Performance		228,607			114,463			97,145
Granted - Non Performance		59,523			155,463			146,915
Total Granted		288,130			269,926			244,060
Vested - Performance Earned		—			(15,714	)		—
Vested - Performance Unearned		(93,453	)		(57,585	)		(46,998	)
Vested - Non Performance		(90,263	)		(60,183	)		(91,323	)
Total Vested		(183,716	)		(133,482	)		(138,321	)
Forfeited		(12,334	)		(97,261	)		(45,082	)
Ending balance		718,892			626,812			587,629

As included in the table above, there were 15,714 performance based shares that vested during the year ended December 31, 2013. There were no performance based shares that vested during the years ended December 31, 2014 and 2012.

The fair value of total vested shares for the years ended December 31, 2014, 2013 and 2012 was $5.1 million, $3.5 million and $4.6 million, respectively.

The weighted average grant date fair value per share of all RSUs granted during the years ended December 31, 2014, 2013 and 2012 was $60.75, $55.36 and $48.21, respectively.

F-44

As of December 31, 2014 and 2013, the total unrecognized compensation expense, net of estimated forfeitures, related to unvested RSUs was $16.3 million and $10.6 million, respectively, which is expected to be recognized as expense over weighted average periods of 2.3 years and 2.2 years, respectively. The aggregate fair value of all unvested RSUs as of December 31, 2014 and 2013 was $46.1 million and $39.6 million, respectively.

Stock options outstanding as of December 31, 2014, 2013 and 2012 are as follows:

	December 31,
	2014					2013					2012
	# of Shares			Average Exercise Price		# of Shares			Average Exercise Price		# of Shares			Average Exercise Price
Beginning balance		6,750		$	30.65		90,250		$	29.94		105,250		$	29.50
Granted		—			—		—			—		—			—
Exercised		(5,250	)	$	29.11		(83,500	)	$	29.88		(15,000	)	$	26.90
Expired or forfeited		—			—		—			—		—		$	—
Ending balance		1,500		$	36.03		6,750		$	30.65		90,250		$	29.94
Number of options exercisable		1,500		$	36.03		6,750		$	30.65		90,250		$	29.94

The following table summarizes information about stock options outstanding as of December 31, 2014:

Price Range	Outstanding Options		Average Remaining Contract Life		Average Exercise Price		Average Aggregate Intrinsic Value		Exercisable Options		Average Exercise Price		Average Aggregate Intrinsic Value
$31 to $37		1,500		0.7	$	36.03	$	27.13		1,500	$	36.03	$	27.13
Total		1,500		0.7						1,500

F-45

We offer an Employee Stock Purchase Plan (the “ESPP”) to all of our eligible employees. Employees are offered the opportunity to purchase our Company’s common stock at 90% of fair market value at the lower of the price at the beginning or the end of each six month offering period. Employees can invest up to 10% of their base compensation through payroll withholding towards the purchase of our common stock subject to the lesser of 1,000 shares or total market value of $25,000. There will be 9,509 shares purchased in 2015 from funds withheld during the July 1, 2014 to December 31, 2014 offering period. There were 19,386 shares purchased in 2014 in the aggregate from funds withheld during the offering periods of July 1, 2013 to December 31, 2013 and January 1, 2014 to June 30, 2014. We expense both the value of the 10% discount and the “look-back” option, which provides for the more favorable price at either the beginning or end of the offering period.

Note 15. Retirement Plans

We have a 401(k) Plan for all U.S. eligible employees. Each eligible employee can contribute a portion of their salary, limited by certain Federal regulations. Beginning in 2008, we matched 100% of employee contributions on eligible compensation, up to a maximum of 4% each pay period; our contribution vests immediately. Eligible compensation consisted of gross base salary and annual bonus. In addition, we have the discretion of contributing up to 4% of eligible compensation to each eligible employee’s 401(k) plan irrespective of the employees’ contribution amount, which also vests immediately. Our Company will make a discretionary matching contribution of 3% or $1.6 million for the year ended December 31, 2014. Our Company made a discretionary matching contribution of 2% or $0.8 million for the year ended December 31, 2013. There was no discretionary matching contributions for the year ended 2012.

We sponsored a standalone retirement savings defined contribution plan covering substantially all of our Company’s U.S. employees through December 31, 2011. The standalone retirement savings defined contribution plan was merged into the 401(k) Plan effective January 1, 2012. Company contributions were equal to 7.5% of each eligible employee’s eligible compensation up to the amount permitted by certain Federal regulations. For 2014, 2013 and 2012 eligible compensation consisted solely of gross base salary. Our Company’s contributions vest at 20% per year for six years with vesting beginning in an employee’s second year of service. For any employee hired prior to January 1, 2008, vesting is calculated based on hours of service and vesting commences on January 1 following an employee’s first full year of service. For employees hired after January 1, 2008, vesting is calculated based on elapsed time and vesting commences on the employees anniversary date.

The expense recorded for all contributions to the 401(k) Plan for the year ended December 31, 2014 was $7.5 million, consisting of $3.8 million for the retirement savings contributions, $2.1 million for the non-discretionary matching contributions, and $1.6 million for the discretionary matching contribution. The expense recorded for all contributions to the 401(k) Plan for the year ended December 31, 2013 was $5.1 million, consisting of $2.7 million for the retirement savings contributions, $1.6 million for the non-discretionary matching contributions, and $0.8 million for the discretionary matching contribution. The expense recorded for all contributions to the 401(k) Plan for the year ended December 31, 2012 was $4.6 million, consisting of $2.5 million for the retirement savings contributions and $2.1 million for the non-discretionary matching contributions.

Our Company sponsors a defined contribution plan for our Company’s U.K. employees under U.K. regulations. Contributions, which are fully vested when made, are equal to 15% of each eligible employee’s gross base salary for all U.K. employees hired prior to November 2014 and 12% for all employees hired after November 2014. All U.K. employees are eligible on their date of hire. The expense recorded for the U.K. defined contribution plan was $2.6 million, $2.2 million and $1.9 million for the years ended December 31, 2014, 2013 and 2012, respectively. Such expenses are included in Other operating expenses.

F-46

Note 16. Quarterly Financial Data (Unaudited)

The following is a summary of quarterly financial data for the periods indicated:

In thousands, except per share amounts	March 31, 2014			June 30, 2014			September 30, 2014			December 31, 2014
Gross written premiums	$	422,790		$	348,795		$	327,469		$	333,299
Revenues:
Net written premiums	$	311,850		$	231,864		$	228,417		$	228,007
Change in unearned premiums		(86,578	)		(780	)		16,950			6,165
Net earned premiums		225,272			231,084			245,367			234,172
Net investment income		16,610			15,648			15,839			16,071
Total other-than-temporary impairment losses					—			158			(21	)
Portion of loss recognized in other comprehensive income (before tax)		—			—			(158	)		21
Net other-than-temporary impairment losses recognized in earnings					—			—			—
Net realized gains (losses)		833			4,473			6,718			788
Other income (expense)		10,399			(1,665	)		1,336			586
Total revenues	$	253,114		$	249,540		$	269,260		$	251,617
Expenses:
Net losses and loss adjustment expenses	$	135,067		$	140,220		$	135,284		$	134,658
Commission expenses		25,727			32,150			33,943			33,708
Other operating expenses		47,146			47,992			50,388			51,299
Call premium on Senior Notes					—			—			—
Interest expense		3,852			4,319			3,388			3,854
Total expenses	$	211,792		$	224,681		$	223,003		$	223,519
Income before income taxes		41,322			24,859			46,257			28,098
Income tax expense	$	13,354		$	7,998		$	15,032		$	8,823
Net income	$	27,968		$	16,861		$	31,225		$	19,275
Comprehensive income (loss)	$	32,920		$	32,965		$	20,628		$	27,015
Combined ratio		92.2	%		95.3	%		89.5	%		93.8	%
Net income (loss) per share:
Basic	$	1.96		$	1.18		$	2.19		$	1.35
Diluted	$	1.94		$	1.17		$	2.14		$	1.31

F-47

In thousands, except per share amounts	March 31, 2013			June 30, 2013			September 30, 2013			December 31, 2013
Gross written premiums	$	393,222		$	332,128		$	312,076		$	333,091
Revenues:
Net written premiums	$	269,452		$	198,469		$	196,556		$	223,445
Change in unearned premiums		(67,124	)		7,345			17,339			(3,543	)
Net earned premiums		202,328			205,814			213,895			219,902
Net investment income		13,657			14,246			14,094			14,254
Total other-than-temporary impairment losses		(42	)		—			(1,821	)		(530	)
Portion of loss recognized in other comprehensive income (before tax)		—			—			—			—
Net other-than-temporary impairment losses recognized in earnings		(42	)		—			(1,821	)		(530	)
Net realized gains		4,814			3,345			(988	)		15,768
Other income (expense)		618			(915	)		(210	)		(665	)
Total revenues	$	221,375		$	222,490		$	224,970		$	248,729
Expenses:
Net losses and loss adjustment expenses	$	131,342		$	131,148		$	125,086		$	131,385
Commission expenses		26,555			28,391			27,685			30,863
Other operating expenses		40,874			40,678			39,056			43,826
Call premium on Senior Notes		—			—			—			17,895
Interest expense		2,051			2,052			2,053			4,351
Total expenses	$	200,822		$	202,269		$	193,880		$	228,320
Income before income taxes		20,553			20,221			31,090			20,409
Income tax expense	$	6,643		$	6,284		$	9,804		$	6,076
Net income	$	13,910		$	13,937		$	21,286		$	14,333
Comprehensive income	$	14,785		$	(24,829	)	$	25,462		$	1,200
Combined ratio		97.9	%		97.7	%		89.8	%		94.0	%
Net income per share:
Basic	$	0.99		$	0.99		$	1.50		$	1.01
Diluted	$	0.97		$	0.97		$	1.48		$	1.00

F-48

SCHEDULE I

THE NAVIGATORS GROUP, INC. AND SUBSIDIARIES

Summary of Consolidated Investments-Other Than Investments in Related Parties

December 31, 2014

	December 31, 2014
In thousands	Fair Value		Gross Unrealized Gains		Gross Unrealized Losses			Amortized Cost
Fixed maturities:
U.S. Treasury bonds, agency bonds and foreign government bonds	$	397,923	$	3,431	$	(5,965	)	$	400,457
States, municipalities and political subdivisions		541,007		19,204		(558	)		522,361
Mortgage-backed and asset-backed securities:
Agency mortgage-backed securities		364,622		8,476		(998	)		357,144
Residential mortgage obligations		34,087		1,153		(138	)		33,072
Asset-backed securities		206,413		380		(964	)		206,997
Commercial mortgage-backed securities		206,318		6,630		(98	)		199,786
Subtotal	$	811,440	$	16,639	$	(2,198	)	$	796,999
Corporate bonds		615,564		13,048		(1,626	)		604,142
Total fixed maturities	$	2,365,934	$	52,322	$	(10,347	)	$	2,323,959
Equity securities - common stocks		127,183		28,520		(1,254	)		99,917
Equity securities - preferred stocks		57,112		2,236		(50	)		54,926
Short-term investments		179,506		—		(21	)		179,527
Cash		90,751		—		—			90,751
Total	$	2,820,486	$	83,078	$	(11,672	)	$	2,749,080

S-1

SCHEDULE II

THE NAVIGATORS GROUP, INC. AND SUBSIDIARIES

Condensed Financial Information of Registrant

The Navigators Group, Inc.

Balance Sheets

(Parent Company)

(In thousands, except share amounts)

	December 31,
	2014			2013
ASSETS
Cash and investments	$	101,032		$	100,676
Investments in subsidiaries		1,163,822			1,040,214
Goodwill and other intangible assets		2,534			2,534
Other assets		27,531			26,538
Total assets	$	1,294,919		$	1,169,962
LIABILITIES AND STOCKHOLDERS’ EQUITY
Liabilities:
Senior Notes	$	263,440		$	263,308
Accounts payable and other liabilities		1,081			802
Accrued interest payable		3,174			3,640
Total liabilities	$	267,695		$	267,750
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 17,792,846 shares for 2014 and 17,709,876 shares for 2013		1,778			1,770
Additional paid-in capital		347,022			335,546
Treasury stock, at cost (3,511,380 shares for 2014 and 2013)		(155,801	)		(155,801	)
Retained earnings		787,666			692,337
Accumulated other comprehensive income:
Net unrealized gains (losses) on securities available-for-sale, net of tax		46,573			23,387
Foreign currency translation adjustment, net of tax		(14	)		4,973
Total stockholders’ equity	$	1,027,224		$	902,212
Total liabilities and stockholders’ equity	$	1,294,919		$	1,169,962

S-2

SCHEDULE II

THE NAVIGATORS GROUP, INC. AND SUBSIDIARIES

Condensed Financial Information of Registrant (Continued)

The Navigators Group, Inc.

Statements of Income

(Parent Company)

(In thousands)

	Year Ended December 31,
	2014			2013			2012
Revenues:
Net investment income	$	76		$	13		$	341
Dividends received from wholly-owned subsidiaries		—			—			15,000
Total revenues	$	76		$	13		$	15,341
Expenses:
Call premium on Senior Notes	$	—		$	17,895		$	—
Interest expense		15,413			10,507			8,198
Other (income) expense		—			2			1,749
Total expenses	$	15,413		$	28,404		$	9,947
Income (loss) before income tax benefit	$	(15,337	)	$	(28,391	)	$	5,394
Income tax benefit		(5,287	)		(9,886	)		(3,332	)
Income (loss) before equity in undistributed net income of wholly owned subsidiaries	$	(10,050	)	$	(18,505	)	$	8,726
Equity in undistributed net income of wholly-owned subsidiaries		105,379			81,971			55,036
Net income	$	95,329		$	63,466		$	63,762

S-3

SCHEDULE II

THE NAVIGATORS GROUP, INC. AND SUBSIDIARIES

Condensed Financial Information of Registrant (Continued)

The Navigators Group, Inc.

Statements of Cash Flows

(Parent Company)

(In thousands)

	Year Ended December 31,
	2014			2013			2012
Operating activities:
Net income	$	95,329		$	63,466		$	63,762
Adjustments to reconcile net income to net cash provided by (used in) operations:
Equity in undistributed net income of wholly-owned subsidiaries		(105,379	)		(81,971	)		(70,036	)
Dividends received from subsidiaries		—			—			15,000
Call premium on redemption of Senior Notes		—			17,895			—
Other		9,211			2,098			(3,265	)
Net cash provided by (used in) operating activities	$	(839	)	$	1,488		$	5,461
Investing activities:
Fixed maturities, available-for-sale
Sales	$	3,200		$	8,754		$	7,986
Purchases		—			(1,249	)		(14,700	)
Equity securities
Sales		—			—			—
Purchases		—			—			—
Net increase in short-term investments		(3,424	)		(89,988	)		(167	)
Net cash provided by (used in) investing activities	$	(224	)	$	(82,483	)	$	(6,881	)
Financing activities:
Capital contribution to subsidiary	$	—		$	(50,000	)	$	—
Net Proceeds from Debt Offering		—			263,278			—
Redemption of 7.0% Senior Notes Due May 1, 2016		—			(132,437	)		—
Purchase of treasury stock		—			—			—
Proceeds of stock issued from employee stock purchase plan		1,067			821			672
Proceeds of stock issued from exercise of stock options		153			2,495			404
Net cash provided by (used in) financing activities	$	1,220		$	84,157		$	1,076
Increase (decrease) in cash	$	157		$	3,162		$	(344	)
Cash at beginning of year		6,143			2,981			3,325
Cash at end of year	$	6,300		$	6,143		$	2,981

S-4

SCHEDULE III

In thousands	Deferred policy acquisition costs		Reserve for losses and loss adjustment expenses		Unearned Premiums		Other policy claims and benefits payable		Net earned premiums		Net investment income (1)		Losses and loss adjustment expenses incurred		Amortization of deferred policy acquisition costs (2)		Other operating expenses (1)		Net written premiums
Year ended December 31, 2014
Insurance Companies	$	63,200	$	1,645,984	$	579,331	$	—	$	704,574	$	56,714	$	434,396	$	85,137	$	138,675	$	752,773
Lloyd’s Operations		16,252		513,650		186,836		—		231,321		7,378		110,833		42,558		58,150		247,365
	$	79,452	$	2,159,634	$	766,167	$	—	$	935,895	$	64,092		545,229	$	127,695		196,825		1,000,138
Year ended December 31, 2013
Insurance Companies	$	54,984	$	1,523,175	$	536,303	$	—	$	639,338	$	49,083	$	415,413	$	81,132	$	119,920	$	680,008
Lloyd’s Operations		12,023		521,896		178,303		—		202,601		7,160		103,548		34,710		44,514		207,914
	$	67,007	$	2,045,071	$	714,606	$	—	$	841,939	$	56,243	$	518,961	$	115,842	$	164,434	$	887,922
Year ended December 31, 2012
Insurance Companies	$	48,294	$	1,567,045	$	470,425	$	—	$	571,439	$	46,549	$	417,082	$	81,370	$	113,625	$	622,956
Lloyd’s Operations		12,711		530,003		171,982		—		210,525		7,551		80,351		42,449		45,454		210,699
	$	61,005	$	2,097,048	$	642,407	$	—	$	781,964	$	54,100	$	497,433	$	123,819	$	159,079	$	833,655

(1) - Net investment income and Other operating expenses reflect only such amounts attributable to the Company’s insurance operations.

(2) - Amortization of deferred policy acquisition costs reflects only such amounts attributable to the Company’s insurance operations. A portion of these costs is eliminated in consolidation.

S-5

SCHEDULE IV

THE NAVIGATORS GROUP, INC. AND SUBSIDIARIES

Reinsurance - Written Premium

In thousands	Direct Amount		Ceded to other companies		Assumed from other companies		Net amount		Percentage of amount assumed to net
Year ended December 31, 2014
Property-Casualty	$	1,184,538	$	432,214	$	247,814	$	1,000,138		25	%
Year ended December 31, 2013
Property-Casualty	$	1,127,331	$	482,596	$	243,187	$	887,922		27	%
Year ended December 31, 2012
Property-Casualty	$	1,034,658	$	452,810	$	251,807	$	833,655		30	%

S-6

SCHEDULE V

THE NAVIGATORS GROUP, INC. AND SUBSIDIARIES

Valuation and Qualifying Accounts

In thousands	Balance at January 1, 2014		Charged (Credited) to Costs and Expenses		Charged to Other Accounts		Deductions (Describe)		Balance at December 31, 2014
Description:
Allowance for uncollectable reinsurance	$	11,332	$	—	$	—	$	—	$	11,332
Valuation allowance in deferred taxes	$	554	$	222	$	—	$	—	$	776

S-7

SCHEDULE VI

THE NAVIGATORS GROUP, INC. AND SUBSIDIARIES

Supplementary Information Concerning Property-Casualty Insurance Operations

($ in thousands)

Affiliation with Registrant	Deferred policy acquisition costs		Reserve for losses and loss adjustment expenses		Discount, if any, deducted		Unearned premiums		Net earned premiums		Net investment income (1)		Losses and loss adjustment expenses incurred related to					Amortization of deferred Policy acquisition costs (2)		Other operating expenses (1)		Net written premiums
													Current year		Prior years
Consolidated Subsidiaries:
Year ended December 31, 2014	$	79,452	$	2,159,634	$	—	$	766,167	$	935,895	$	64,092	$	601,041	$	(55,812	)	$	127,695	$	196,825	$	1,000,138
Year ended December 31, 2013	$	67,007	$	2,045,071	$	—	$	714,606	$	841,939	$	56,243	$	520,227	$	(1,266	)	$	115,842	$	164,434	$	887,922
Year ended December 31, 2012	$	61,005	$	2,097,048	$	—	$	642,407	$	781,964	$	54,100	$	542,724	$	(45,291	)	$	123,819	$	159,079	$	833,655

(1) - Net investment income and Other operating expenses reflect only such amounts attributable to the Company’s insurance operations.

(2) - Amortization of deferred policy acquisition costs reflects only such amounts attributable to the Company’s insurance operations. A portion of these costs is eliminated in consolidation.

S-8

Exhibit No.	Description of Exhibit	Previously filed and Incorporated Herein by Reference to:
3-1	Restated Certificate of Incorporation	Form S-8 filed July 26, 2002 (File No. 333-97183)
3-2	Certificate of Amendment to the Restated Certificate of Incorporation	Form S-8 filed July 26, 2002 (File No. 333-97183)
3-3	By-laws, as amended	Form S-1 (File No. 33-5667)
3-4	Certificate of Amendment to the Restated Certificate of Incorporation	Form 10-Q for June 30, 2006
4-1	Specimen of Common Stock certificate, par value $0.10 per share	Form S-8 filed June 20, 2003 (File No. 333-106317)
4-2	Second Supplemental Indenture, dated as of October 4, 2013, between the Company and The Bank of New York Mellon	Form 8-K filed October 4, 2013
10-1*	Stock Option Plan	Form S-1 (File No. 33-5667)
10-2*	Non-Qualified Stock Option Plan	Form S-4 (File No. 33-75918)
10-3	Employment Agreement with Stanley A. Galanski effective March 26, 2001	Form 10-Q for March 31, 2001
10-4	Employment Agreement with R. Scott Eisdorfer dated September 1, 1999	Form 10-K for December 31, 2002
10-5*	2002 Stock Incentive Plan	Proxy Statement filed May 30, 2002
10-6*	Employee Stock Purchase Plan	Proxy Statement filed May 29, 2003
10-7*	Executive Performance Incentive Plan	Proxy Statement filed April 4, 2008
10-8	Form of Indemnity Agreement by the Company and the Selling Stockholders (as defined therein)	Amendment No. 2 to Form S-3 dated October 1, 2003 (File No.333-108424)
10-16*	Second Amended and Restated 2005 Stock Incentive Plan	Proxy Statement filed April 12, 2013
10-17	Second Amended and Restated Funds at Lloyd’s Letter of Credit Agreement, dated as of November 24, 2014, among the Company, ING Bank N.V., London Branch, individually and as Administrative Agent and Letter of Credit Agent, JP Morgan Chase Bank N.A., and Barclays Bank PLC	**
10-18	Employment Agreement with Stephen R. Coward dated December 9, 2010	Form 10-K for December 31, 2013
10-19	Employment Agreement with Colin Sprott dated July 10, 2013	Form 10-K for December 31, 2013
11-1	Statement re Computation of Per Share Earnings	**
21-1	Subsidiaries of Registrant	**
23-1	Consent of Independent Registered Public Accounting Firm	**
31-1	Certification of CEO per Section 302 of the Sarbanes-Oxley Act	**
31-2	Certification of CFO per Section 302 of the Sarbanes-Oxley Act	**
32-1	Certification of CEO per Section 906 of the Sarbanes-Oxley Act (This exhibit is intended to be furnished in accordance with regulation S-K item 601(b)(32)(ii) and shall not be deemed to be filed for purposes of section 18 of the Securities Exchange Act of 1934, as amended, or incorporated by reference into any filing under the Securities Act of 1933, except as shall be expressly set forth by specific reference).	**
32-2	Certification of CFO per Section 906 of the Sarbanes-Oxley Act (This exhibit is intended to be furnished in accordance with regulation S-K item 601(b)(32)(ii) and shall not be deemed to be filed for purposes of section 18 of the Securities Exchange Act of 1934, as amended, or incorporated by reference into any filing under the Securities Act of 1933, except as shall be expressly set forth by specific reference).	**
101.INS	XBRL Instance Document	**
101.SCH	XBRL Taxonomy Extension Scheme	**
101.CAL	XBRL Taxonomy Extension Calculation Database	**
101.LAB	XBRL Taxonomy Extension Label Linkbase	**
101.PRE	XBRL Taxonomy Extension Presentation Linkbase	**
101.DEF	XBRL Taxonomy Extension Definition Linkbase	**

* Compensatory Plan

EX-10.17

Exhibit 10.17

SECOND AMENDED AND RESTATED FUNDS AT LLOYD’S

LETTER OF CREDIT AGREEMENT

AMONG

THE NAVIGATORS GROUP, INC.,

as Borrower,

THE LENDERS NAMED HEREIN,

and

ING BANK N.V., LONDON BRANCH,

as Administrative Agent and Letter of Credit Agent

DATED AS OF

November 24, 2014

ING BANK, N.V., LONDON BRANCH,

as Lead Arranger and Sole Bookrunner

TABLE OF CONTENTS

		Page
ARTICLE I	DEFINITIONS		1
ARTICLE II	THE LETTER OF CREDIT FACILITY		20
2.1	Issuance of Letters of Credit		20
2.2	Conversion Principles		21
2.3	Reductions in Aggregate Commitment		21
2.4	Reimbursement Obligations		22
2.5	Procedure for Issuance		23
2.6	Nature of the Agent and Lenders’ Obligations		24
2.7	Notification of Issuance Requests		26
2.8	Fees		26
2.9	Collateralization Events		27
2.10	Collateral Account		28
ARTICLE III	YIELD PROTECTION; TAXES		29
3.1	Yield Protection		29
3.2	Changes in Capital Adequacy Regulations		30
3.3	Taxes		30
3.4	Lender Statements; Survival of Indemnity		33
ARTICLE IV	CONDITIONS PRECEDENT		34
4.1	The Lenders Obligation to Issue		34
4.2	Each Letter of Credit		36
ARTICLE V	REPRESENTATIONS AND WARRANTIES		36
5.1	Existence and Standing		36
5.2	Authorization and Validity		36
5.3	No Conflict; Government Consent		37
5.4	Financial Statements		37
5.5	Statutory Financial Statements		38
5.6	Material Adverse Change		38
5.7	Taxes		38
5.8	Litigation and Contingent Obligations		38
5.9	Subsidiaries		38

-i-

TABLE OF CONTENTS

(continued)

		Page
5.10	ERISA		38
5.11	Defaults		39
5.12	Accuracy of Information		39
5.13	Regulation U		39
5.14	Material Agreements		39
5.15	Compliance With Laws		39
5.16	Ownership of Properties		39
5.17	Plan Assets; Prohibited Transactions		39
5.18	Environmental Matters		40
5.19	Investment Company Act		40
5.20	Solvency		40
5.21	Insurance Licenses		40
5.22	Partnerships		41
5.23	Lines of Business		41
5.24	Reinsurance Practices		41
5.25	Security		41
5.26	Disclosure		41
5.27	Anti-Money Laundering and Anti-Terrorism Finance Laws		41
5.28	Anti-Corruption Laws		41
5.29	Sanctions Laws		42
ARTICLE VI	COVENANTS		42
6.1	Financial Reporting		42
6.2	Purpose		46
6.3	Notice of Material Events		47
6.4	Conduct of Business		47
6.5	Taxes		47
6.6	Insurance		47
6.7	Compliance with Laws		48
6.8	Maintenance of Properties		48
6.9	Inspection; Maintenance of Books and Records		48

-ii-

TABLE OF CONTENTS

(continued)

		Page
6.10	Dividends and Stock Repurchases		48
6.11	Indebtedness		48
6.12	Merger		49
6.13	Sale of Assets		49
6.14	Investments and Acquisitions		49
6.15	Contingent Obligations		50
6.16	Liens		51
6.17	Affiliates		52
6.18	Amendments to Agreements		52
6.19	Change in Fiscal Year		52
6.20	Inconsistent Agreements		52
6.21	Reinsurance		52
6.22	Stock of Subsidiaries		53
6.23	Financial Covenants		53
6.24	Additional Pledge		53
6.25	Primary FAL		54
6.26	Anti-Money Laundering and Anti-Terrorism Finance Laws; Foreign Corrupt Practices Act; Sanctions Laws; Restricted Person		54
ARTICLE VII	DEFAULTS		54
ARTICLE VIII	ACCELERATION, WAIVERS, AMENDMENTS AND REMEDIES		57
8.1	Acceleration		57
8.2	Amendments		57
8.3	Preservation of Rights		58
8.4	Application of Funds		58
ARTICLE IX	GENERAL PROVISIONS		59
9.1	Survival of Representations		59
9.2	Governmental Regulation		59
9.3	Headings		59
9.4	Entire Agreement		59
9.5	Numbers of Documents		60

-iii-

TABLE OF CONTENTS

(continued)

		Page
9.6	Several Obligations; Benefits of this Agreement		60
9.7	Expenses; Indemnification		60
9.8	Accounting		61
9.9	Severability of Provisions		61
9.10	Nonliability of Lenders		61
9.11	Confidentiality		61
9.12	Nonreliance		61
9.13	Disclosure		62
9.14	USA Patriot Act Notification		62
ARTICLE X	THE AGENT		62
10.1	Appointment; Nature of Relationship		62
10.2	Powers		62
10.3	General Immunity		63
10.4	No Responsibility for Recitals, etc		63
10.5	Action on Instructions of Lenders		63
10.6	Employment of Administrative Agent and Counsel		63
10.7	Reliance on Documents; Counsel		64
10.8	Administrative Agent’s Reimbursement and Indemnification		64
10.9	Notice of Default		64
10.10	Rights as a Lender		64
10.11	Lender Credit Decision		65
10.12	Successor Administrative Agent		65
10.13	Administrative Agents’ Fees		66
10.14	Delegation to Affiliates		66
10.15	Security Trustee		66
ARTICLE XI	SETOFF; RATABLE PAYMENTS		66
11.1	Setoff		66
11.2	Ratable Payments		66
ARTICLE XII	BENEFIT OF AGREEMENT; ASSIGNMENTS; PARTICIPATIONS		67
12.1	Successors and Assigns		67

-iv-

TABLE OF CONTENTS

(continued)

		Page
12.2	Participations		67
12.3	Assignments		68
12.4	Dissemination of Information		69
12.5	Tax Treatment		69
ARTICLE XIII	NOTICES		69
13.1	Notices		69
13.2	Change of Address		69
ARTICLE XIV	COUNTERPARTS		70
ARTICLE XV	CHOICE OF LAW; CONSENT TO JURISDICTION; WAIVER OF JURY TRIAL		70
15.1	CHOICE OF LAW		70
15.2	CONSENT TO JURISDICTION		70
15.3	WAIVER OF JURY TRIAL		71
15.4	REAFFIRMATION OF SECURITY DOCUMENTS		71

SCHEDULES

Schedule 1	Commitments
Schedule 1.1	Eligible Collateral
Schedule 1.2	Existing Letters of Credit
Schedule 5.9	Subsidiaries
Schedule 5.22	Partnerships
Schedule 5.23	Existing Lines of Business
Schedule 6.16	Liens
Schedule 6.21	Reinsurance Guidelines

EXHIBITS

Exhibit A	Compliance Certificate
Exhibit B	Assignment Agreement
Exhibit C	Letter of Credit Application
Exhibit D	Borrowing Base Certificate
Exhibit E	Security Agreement
Exhibit F	Fixed Charge
Exhibit G	Letter of Credit
Exhibit H	Lloyd’s Comfort Letter
Exhibit I	Confirmation of Primary FAL
Exhibit J-1	Deposit Account Control Agreement
Exhibit J-2	Securities Account Control Agreement

-v-

SECOND AMENDED AND RESTATED FUNDS AT LLOYD’S

LETTER OF CREDIT AGREEMENT

This Second Amended and Restated Funds at Lloyd’s Letter of Credit Agreement, dated as of November 24, 2014, is among THE NAVIGATORS GROUP, INC., a Delaware corporation, the Lenders and ING BANK, N.V., London Branch, individually and as Administrative Agent, Letter of Credit Agent and Lead Arranger and Sole Bookrunner.

R E C I T A L S:

A. The Borrower, the Lenders, and ING Bank, N.V., London Branch, as administrative agent, letter of credit agent and lead arranger, entered into that certain Funds at Lloyd’s Amended and Restated Letter of Credit Agreement, dated as of November 21, 2012 (as amended, the “Existing Credit Agreement).

B. The parties wish to amend and restate the Existing Credit Agreement in its entirety for the purpose of issuing Letters of Credit to provide Funds at Lloyd’s to support underwriting capacity provided by the Corporate Member to the Supported Syndicate for the 2015 and 2016 underwriting years of account (and prior open years).

C. The parties hereto intend that this Agreement and any Facility Documents executed in connection herewith not effect a novation of the obligations of the Borrower under the Existing Credit Agreement but merely a restatement, and where applicable, an amendment to the terms governing said obligations.

D. The parties further agree that the letters of credit listed on Schedule 1.2 which are outstanding immediately prior to the Amendment Effective Date pursuant to the Existing Credit Agreement (the “Existing Letters of Credit”) will continue to be outstanding Letters of Credit under this Agreement until such time as Letters of Credit are issued under this Agreement in substitution therefor.

NOW, THEREFORE, in consideration of the mutual covenants and undertakings herein contained and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Borrower, the Lenders and the Administrative Agent hereby agree as follows:

ARTICLE I

DEFINITIONS

As used in this Agreement:

“Account Bank” means (i) with respect to funds in the United Kingdom, ING Bank, N.V., London Branch and (b) with respect to funds in the United States, any “bank” within the meaning of Section 9-102(a)(8) of the UCC at which any deposit account constituting a Collateral Account is held, which shall be reasonably acceptable to the Administrative Agent.

“Acquisition” means any transaction, or any series of related transactions, consummated on or after the date of this Agreement, by which the Borrower or any of its Subsidiaries (a) acquires any on-going business or all or substantially all of the assets of any firm, corporation or limited liability company, or division thereof, whether through purchase of assets, merger, amalgamation or otherwise or (b) directly or indirectly acquires (in one transaction or as the most recent transaction in a series of transactions) at least a majority (in number of votes) of the securities of a corporation which have ordinary voting power for the election of directors (other than securities having such power only by reason of the happening of a contingency) or a majority (by percentage or voting power) of the outstanding ownership interests of a partnership or limited liability company.

“Adjusted Fair Market Value” means with respect to any Cash Equivalent Investment held in a Collateral Account an amount equal to the product of the Fair Market Value of such Cash Equivalent Investment and the applicable percentage with respect to such Cash Equivalent Investment as set forth on Schedule 1.1.

“Adjusted Primary FAL” means, as of any date, (i) Primary FAL minus (ii) the NFS Deficiency as of the most recent date such amount has been reported by Lloyd’s plus (iii) the Solvency Surplus as of the most recent date such amount has been reported by Lloyd’s.

“Administrative Agent” means ING Bank, N.V. London Branch, in its capacity as Administrative Agent pursuant to Article X and not in its individual capacity as a Lender or as Letter of Credit Agent and any successor Administrative Agent appointed pursuant to Article X.

“Affiliate” of any Person means any other Person directly or indirectly controlling, controlled by or under common control with such Person. A Person shall be deemed to control another Person if the controlling Person owns 10% or more of any class of voting securities (or other ownership interests) of the controlled Person or possesses, directly or indirectly, the power to direct or cause the direction of the management or policies of the controlled Person, whether through ownership of stock, by contract or otherwise.

“Aggregate Commitment” means the aggregate commitment of all of the Lenders, as reduced or increased from time to time pursuant to the terms hereof. The Aggregate Commitment as of the date hereof is $175,000,000.

“Agreement” means this Amended and Restated Funds at Lloyd’s Letter of Credit Agreement.

“Agreement Accounting Principles” means generally accepted accounting principles as in effect from time to time, applied in a manner consistent with those used in preparing the financial statements referred to in Section 5.4; provided, however, that (a) for purposes of all computations required to be made with respect to compliance by the Borrower with Section 6.23, such term shall mean generally accepted accounting principles as in effect on the Amendment Effective Date, applied in a manner consistent with those used in preparing the financial statements referred to in Section 5.4 and (b) for purposes of the financial statements required under Sections 6.1(f) and (g), such term shall mean the generally accepted accounting principles as in effect from time to time in the United Kingdom.

2

“A.M. Best Rating” means, as to any insurance company, its financial strength rating assigned by The A.M. Best Company, Inc.

“Amendment Effective Date” means November 24, 2014.

“Annual Statement” means the annual statutory financial statement of any Insurance Subsidiary required to be filed with the insurance commissioner (or similar authority) of its jurisdiction of incorporation, which statement shall be in the form required by such Insurance Subsidiary’s jurisdiction of incorporation or, if no specific form is so required, in the form of financial statements permitted by such insurance commissioner (or such similar authority) to be used for filing annual statutory financial statements and shall contain the type of information permitted by such insurance commissioner (or such similar authority) to be disclosed therein, together with all exhibits or schedules filed therewith.

“Anti-Corruption Laws” is defined in Section 5.28.

“Anti-Terrorism Laws” is defined in Section 5.27.

“Applicable Letter of Credit Fee Rate” means, at any time, the per annum rate at which Letter of Credit Fees are accruing on the Letters of Credit at such time as set forth below:

Applicable Letter of Credit Fee Rate	A+ Financial Strength Rating of Navigators			A Financial Strength Rating of Navigators			A- or below Financial Strength Rating of Navigators or no Financial Strength Rating
Adjusted Primary FAL < 75% of the aggregate stated amount of outstanding Letters of Credit		1.15	%		1.35	%		1.60	%
Adjusted Primary FAL ³ 75% but < 100% of the aggregate stated amount of outstanding Letters of Credit		1.05	%		1.25	%		1.50	%
Adjusted Primary FAL ³ 100% of the aggregate stated amount of outstanding Letters of Credit		0.95	%		1.15	%		1.40	%

3

The Adjusted Primary FAL on any date shall be based on the most recently delivered Compliance Certificate delivered pursuant to Section 6.1(i); provided, however that if a Compliance Certificate has not been delivered when required pursuant to Section 6.1(i), the Adjusted Primary FAL shall be deemed to be less than 75% until such Compliance Certificate has been delivered. The Financial Strength Rating on any day shall be based on Navigator’s then-current A.M. Best Rating and S&P Rating; provided that if the A.M. Best Rating and the S&P Rating are not the same, the better Rating shall apply except that if the Ratings differ by more than one level than the level above the lower Rating shall apply. The Rating in effect on any date for the purposes of this Schedule is that in effect at the close of business on such date. If at any time Navigators has only an A.M. Best Rating or a S&P Rating, the Letter of Credit Fee Rate shall be determined based on the current A.M. Best Rating or S&P Rating, as the case may be.

Notwithstanding the foregoing, (i) in the event the Borrower has posted Collateral (other than Collateral which has been posted pursuant to Section 2.9), the Applicable Letter of Credit Fee Rate shall be (x) with respect to an amount of the outstanding Letters of Credit supported by Eligible Collateral, 0.50%, and (y) with respect to the remaining amount of outstanding Letters of Credit, the rate then in effect pursuant to the table above, (ii) in the event the Borrower has posted Collateral pursuant to Sections 2.9(c), (d), (e) or (f), the Applicable Letter of Credit Fee Rate shall be (x) with respect to an amount of the outstanding Letters of Credit supported by Eligible Collateral, 0.70%, and (y) with respect to the remaining amount of outstanding Letters of Credit, the rate then in effect pursuant to the table above, and (iii) in the event that an Event of Default has occurred and is continuing, the Applicable Letter of Credit Fee shall be the Default Rate.

“Applicable Percentage” means with respect to any Lender at any time, the percentage (carried out to the ninth decimal place) of the Aggregate Commitments represented by such Lender’s Commitment at such time. If the Commitment of each Lender to issue Letters of Credit have been terminated pursuant to Section 8.1 or if the Aggregate Commitments have expired, then the Applicable Percentage of each Lender shall be determined based on the percentage such Lender’s Letter of Credit Obligations are of all Letter of Credit Obligations. The initial Applicable Percentage of each Lender is set forth opposite the name of such Lender on Schedule 1 or in the Notice of Assignment pursuant to which such Lender becomes a party hereto, as applicable. The Applicable Percentage “of” a particular amount may also refer to the value obtained by multiplying the Applicable Percentage times such amount.

“Applicable Unused Fee Rate” means 0.375%.

“Approved Reinsurer” means a reinsurer which satisfies the criteria set forth in the Reinsurance Guidelines for entering into reinsurance or retrocession agreements with the Borrower and its Insurance Subsidiaries

“Arranger” means ING Bank N.V., London Branch and its successors.

“Article” means an article of this Agreement unless another document is specifically referenced.

4

“Authorized Officer” means any of the president, chief financial officer or treasurer of the Borrower, acting singly.

“Bankruptcy Code” means Title 11, United States Code, sections 1 et seq., as the same may be amended from time to time and any successor thereto or replacement therefor which may be hereafter enacted.

“Basel III” means (a) the agreements on capital requirements, a leverage ratio and liquidity standards contained in “Basel III: A global regulatory framework for more resilient banks and banking systems”, “Basel III: International framework for liquidity risk measurement, standards and monitoring” and “Guidance for national authorities operating the countercyclical capital buffer” published by the Basel Committee on Banking Supervision in December 2010, each as amended, supplemented or restated; (b) the rules for global systemically important banks contained in “Global systemically important banks: assessment methodology and the additional loss absorbency requirement – Rules text” published by the Basel Committee on Banking Supervision in November 2011, as amended, supplemented or restated; and (c) any further guidance or standards published by the Basel Committee on Banking Supervision relating to “Basel III”.

“Borrower” means The Navigators Group, Inc., a Delaware corporation and its successors and assigns.

“Borrowing Base” means on any date of determination, an amount equal to the sum of the Adjusted Fair Market Value of all Eligible Collateral.

“Borrowing Base Certificate” means a certificate substantially in the form of Exhibit D with such changes therein as the Administrative Agent may reasonably request from time to time.

“Business Day” means a day (other than a Saturday or Sunday) on which banks generally are open in New York and London for the conduct of substantially all of their commercial lending activities.

“Capitalized Lease” of a Person means any lease of Property by such Person as lessee which would be capitalized on a balance sheet of such Person prepared in accordance with Agreement Accounting Principles.

“Capitalized Lease Obligations” of a Person means the amount of the obligations of such Person under Capitalized Leases which would be shown as a liability on a balance sheet of such Person prepared in accordance with Agreement Accounting Principles.

“Cash Equivalent Investments” means (a) short-term obligations of, or fully guaranteed by, the United States of America, (b) commercial paper rated A-1 or better by S&P or P1 or better by Moody’s, (c) demand deposit accounts maintained in the ordinary course of business and (d) certificates of deposit issued by and time deposits with commercial banks (whether domestic or foreign) having capital and surplus in excess of $500,000,000.

“Change” is defined in Section 3.2.

5

“Change in Control” means (a) the acquisition by any Person, or two or more Persons acting in concert of beneficial ownership (within the meaning of Rule 13d-3 of the Securities and Exchange Commission under the Securities Exchange Act of 1934) of (i) 20% or more of the outstanding shares of voting stock of the Borrower or (ii) if less, a percentage of such stock, greater than the percentage owned by members of the Terence Deeks Family, or (b) the members of the Terence Deeks Family shall cease to own, in the aggregate, free and clear of all Liens and other encumbrances, at least 10% of the outstanding shares of voting stock of the Borrower on a fully diluted basis.

“Code” means the Internal Revenue Code of 1986, as amended or otherwise modified from time to time, and the Treasury Regulations promulgated thereunder.

“Collateral” means any property or asset in which the Borrower has granted a security interest to the Administrative Agent or the Security Trustee for the benefit of the Secured Parties.

“Collateral Account” means each of (a) the UK Collateral Account, (b) account number 6255582 titled “Navigators Group – Securities” and account number 6255590 titled “Navigators Group – Cash”, in each case held at Brown Brothers & Harriman & Co. and (c) any other “demand deposit account” or “securities account” (as such terms are defined in the UCC) maintained by the Administrative Agent or any Financial Intermediary which is subject to a Control Agreement into which Eligible Collateral is deposited from time to time pursuant to the terms of this Agreement. Each Collateral Account and the related Eligible Collateral shall be subject to documentation satisfactory to the Administrative Agent and the taking of all steps required to give the Administrative Agent a perfected security interest in such Collateral Account and the Eligible Collateral therein. Once opened a Collateral Account can only be closed with the consent of the Administrative Agent.

“Collateralization Event” means the occurrence of any of (a) an Event of Default or (b) any of the events set forth in Sections 2.9(c) through (f).

“Collateral Excess” is defined in Section 2.10(d).

“Collateral Shortfall” is defined in Section 2.10(a).

“Collateral Value” means, on any date, an amount equal to the sum of the Adjusted Fair Market Value of all Eligible Collateral in all Collateral Accounts.

“Commitment” means, for each Lender, the amount set forth on Schedule 1 or as set forth in any Notice of Assignment relating to any assignment that has become effective pursuant to Section 12.3(b), as such amount may be modified from time to time pursuant to the terms hereof.

“Compliance Certificate” means a certificate substantially in the form of Exhibit A with such changes therein as may be satisfactory to the Administrative Agent.

“Condemnation” is defined in Section 7.8.

“Confirmation of Primary FAL” means the letter substantially in the form of Exhibit I

6

“Consolidated” or “consolidated”, when used in connection with any calculation, means a calculation to be determined on a consolidated basis for the Borrower and its Consolidated Subsidiaries in accordance with Agreement Accounting Principles.

“Consolidated Net Income” means, for any period, the net income (or loss) of the Borrower and its Consolidated Subsidiaries calculated on a consolidated basis for such period, all as determined in accordance with Agreement Accounting Principles.

“Consolidated Net Worth” means, for any period, the sum of the consolidated stockholders’ equity of the Borrower and its Consolidated Subsidiaries calculated on a consolidated basis for such period, all as determined in accordance with Agreement Accounting Principles (excluding the effect of any unrealized gain or loss reported under Statement of Financial Accounting Standards No. 115).

“Consolidated Person” means, for the taxable year of reference, each Person which is a member of the affiliated group of the Borrower if Consolidated returns are or shall be filed for such affiliated group for federal income tax purposes or any combined or unitary group of which the Borrower is a member for state income tax purposes.

“Consolidated Subsidiaries” means all Subsidiaries of the Borrower which should be included in the Borrower’s consolidated financial statements, all as determined in accordance with Agreement Accounting Principles.

“Consolidated Tangible Net Worth means Consolidated Net Worth minus Consolidated Total Intangible Assets.

“Consolidated Total Assets” means, at any time, the total assets of the Borrower and its Consolidated Subsidiaries calculated on a consolidated basis as of such time, all as determined in accordance with Agreement Accounting Principles.

“Consolidated Total Intangible Assets” means, at any time, the total intangible assets of the Borrower and its Consolidated Subsidiaries calculated on a consolidated basis as of such time including, but not limited to, goodwill, patents, trademarks, tradenames, copyrights and franchises and excluding deferred policy acquisition costs.

“Contingent Obligation” of a Person means any agreement, undertaking or arrangement by which such Person assumes, guarantees, endorses, contingently agrees to purchase or provide funds for the payment of, or otherwise becomes or is contingently liable upon, the obligation or liability of any other Person, or agrees to maintain the net worth or working capital or other financial condition of any other Person, or otherwise assures any creditor of such other Person against loss, including, without limitation, any comfort letter, operating agreement, take-or-pay contract or the obligations of any such Person as general partner of a partnership with respect to the liabilities of the partnership. The term “Contingent Obligation” shall not include (a) the obligations of any Insurance Subsidiary arising under any insurance policy or reinsurance agreement entered into in the ordinary course of business or (b) operating leases.

“Control Agreement” means (a) the Deposit Account Control Agreement dated as of March 28, 2011 among the Administrative Agent, the Borrower and Brown Brothers Harriman

7

& Co. attached hereto as Exhibit J-1, (b) the Securities Account Control Agreement dated as of March 28, 2011 among the Administrative Agent, the Borrower and Brown Brothers Harriman & Co. attached hereto as Exhibit J-2, and (c) any other agreement (in form and substance acceptable to the Administrative Agent) among the Borrower, the applicable Financial Institution and the Administrative Agent with respect to any “deposit account” or “securities account” (as such terms are defined in the UCC) of the Borrower pursuant to which the Administrative Agent has “control” (as such term is defined in the UCC).

“Controlled Group” means all members of a controlled group of corporations or other business entities and all trades or businesses (whether or not incorporated) under common control which, together with the Borrower or any of its Subsidiaries, are treated as a single employer under Section 414 of the Code.

“Conversion Differential” is defined in Section 2.9(b).

“Conversion Rate” means the spot rate of exchange between Dollars and Pounds as determined by the Administrative Agent on the Reuters WRLD Page as of the time of determination on such date. In the event that such rate does not appear on any Reuters WRLD Page, the exchange rate shall be determined by reference to such other publicly available service for displaying exchange rates as may be agreed upon by the Administrative Agent and the Borrower, or, in the absence of such an agreement, such exchange rate shall instead be the arithmetic average of the spot rates of exchange of the Administrative Agent in London at or about such time between Dollars and Pounds for delivery two Business Days later; provided that if at the time of any such determination, for any reason, no such spot rate is being quoted, the Administrative Agent may use any reasonable method it deems appropriate to determine such rate and such determination shall be presumed correct absent manifest error.

“Corporate Member” means Navigators Corporate Underwriters Limited, which entity is a corporate name with limited liability at Lloyd’s of London and a Wholly-Owned Subsidiary of the Borrower.

“CRD IV” means Directive 2013/36/EU of the European Parliament and of the Council of 26 June 2013 on access to the activity of credit institutions and the prudential supervision of credit institutions and investment firms, amending Directive 2002/87/EC and repealing Directives 2006/48/EC and 2006/49/EC.

“CRR” means Regulation (EU) No 575/2013 of the European Parliament and of the Council of 26 June 2013 on prudential requirements for credit institutions and investment firms.

“Default” means an event described in Article VII.

“Default Rate” means as of any day (a) with respect to fees payable under Section 2.8, an amount equal to the Applicable Letter of Credit Rate or the Applicable Unused Fee Rate, as the case may be, plus 2% and (b) with respect to Reimbursement Obligations and all other Obligations, an amount equal to the Eurodollar Rate plus 2%.

“Defaulting Lender” means any Lender that (i) has not funded such Lender’s Applicable Percentage of the amount of any draw under a Letter of Credit within three (3) Business Days

8

after the date due therefor in accordance with Section 2.4(b), (ii) has notified the Borrower or the Administrative Agent that it does not intend to comply with its obligations under Section 2.4(b) or (iii) is the subject of a bankruptcy, insolvency or similar receivership proceeding.

“Defeased Indebtedness” means Indebtedness which has been defeased or for which an amount has been deposited in a sinking fund, a redemption fund or an escrow account for the sole purpose of repaying such Indebtedness on or before the due date thereof.

“Department” is defined in Section 5.5.

“Dollars” and the sign “$” mean lawful money of the United States of America.

“Drawing Request” is defined in Section 2.4(a).

“Eligible Collateral” means (a) obligations of, or fully guaranteed by, the United States of America and UK Gilts, (b) commercial paper rated A-1 or better by S&P or P1 or better by Moody’s, (c) cash and (d) certificates of deposit issued by and time deposits with commercial banks organized in a country which is a member of the Organization of Economic Co-operation and Development which (i) are rated of AA- or better from S&P or Aa3 or better from Moody’s and (ii) have a maturity of not more than two years; provided that all Eligible Collateral must be denominated in Dollars or Pounds.

“Environmental Laws” means any and all federal, state, local and foreign statutes, laws, judicial decisions, regulations, ordinances, rules, judgments, orders, decrees, plans, injunctions, permits, concessions, grants, franchises, licenses, agreements and other governmental restrictions relating to (a) the protection of the environment, (b) the effect of the environment on human health, (c) emissions, discharges or releases of pollutants, contaminants, hazardous substances or wastes into surface water, ground water or land or (d) the manufacture, processing, distribution, use, treatment, storage, disposal, transport or handling of pollutants, contaminants, hazardous substances or wastes or the clean-up or other remediation thereof.

“ERISA” means the Employee Retirement Income Security Act of 1974, as amended from time to time and any rule or regulation issued thereunder.

“Eurodollar Rate” means the applicable ICE Benchmark Administration Limited LIBOR rate for deposits in U.S. dollars having a maturity of a one month period, as reported by any generally recognized financial information service as of 11:00 A.M. (London time) two Business Days prior to the first day of such applicable period; provided that (i) if no such ICE Benchmark Administration Limited LIBOR rate is available to the Administrative Agent, the Eurodollar Rate shall instead be the rate determined by the Administrative Agent to be the rate at which ING Bank N.V., London Branch or one of its Affiliate banks offers to place deposits in U.S. dollars with first class banks in the London interbank market, in the approximate amount of the related Letter of Credit and having a maturity of one month and (ii) if the Eurodollar Rate shall be less than zero, such rate shall be deemed to be zero for purposes of this Agreement.

“Excluded Taxes” means, in the case of each Lender or applicable Lending Installation, the Administrative Agent or any other recipient of any payment to be made by or on account of any obligation of the Borrower hereunder, (a) income, franchise or similar taxes imposed on (or

9

measured by) its overall net income by (i) the United States of America, or (ii) the jurisdiction (or any political subdivision thereof) under the laws of which such Lender or the Administrative Agent or other recipient is incorporated or organized, or (iii) the jurisdiction (or any political subdivision thereof) in which the Administrative Agent’s or such Lender’s or such other recipient’s principal executive office or, in the case of any Lender, in which such Lender’s applicable Lending Installation, is located, or, in the case of a jurisdiction (or any political subdivision thereof) that imposes taxes on the basis of management or control or other concept or principle of residence, the jurisdiction (or any political subdivision thereof) in which such Lender or the Administrative Agent or other recipient is so resident, (b) taxes imposed by reason of any present or former connection between such recipient and the jurisdiction (or any political subdivision thereof) imposing such taxes, other than solely as a result of the execution and delivery of this Agreement or the performance of any action provided for hereunder, (c) any branch profits taxes imposed by the United States of America, (d) any backup withholding tax imposed by the United States of America or any similar taxes imposed by any other jurisdiction (other than backup withholding tax imposed on the Administrative Agent in such capacity), (e) in the case of a Non-U.S. Lender, any U.S. Federal withholding taxes (i) resulting from any law in effect on the date such Non-U.S. Lender becomes a party to this Agreement (or designates a new Lending Installation), except to the extent that such Non-U.S. Lender was entitled, at the time of designation of a new Lending Installation, to receive additional amounts from the Borrower with respect to such withholding tax pursuant to Section 3.3(a), or (ii) attributable to such Non-U.S. Lender’s failure to comply with Section 3.3(d) (including as a result of any inaccurate or incomplete documentation), and (f) any taxes imposed on any “withholdable payment” payable to a Non-U.S. Lender as a result of its failure to comply with the applicable requirements of FATCA.

“Exhibit” refers to an exhibit to this Agreement, unless another document is specifically referenced.

“Existing Credit Agreement” has the meaning assigned thereto in the recitals.

“Existing Letters of Credit” has the meaning assigned thereto in the recitals.

“Existing Lines of Business” is defined in Section 5.23.

“Expiry Notice” means written notice from the Letter of Credit Agent to the beneficiary of any Letter of Credit stating that such Letter of Credit shall expire four (4) years from the date of such notice.

“Facility Documents” means this Agreement, the Security Documents, the Control Agreements, the Letter of Credit Applications and the other documents and agreements contemplated hereby and executed by the Borrower in favor of the Administrative Agent or any Lender as each such Facility Document may be amended, modified or restated and in effect from time to time.

“Fair Market Value” means (a) with respect to any Eligible Collateral described in clauses (a) or (b) of the definition thereof, the closing price for such security on Bloomberg, Inc. or, if Bloomberg, Inc. is not available, another quotation service reasonably acceptable to the

10

Administrative Agent, and (b) with respect to any Eligible Collateral described in clauses (c) or (d) of the definition thereof, the amounts thereof. Fair Market Value of non-Dollar denominated Eligible Collateral shall be determined in accordance with Section 2.2(d).

“FATCA” means:

(a) Sections 1471 to 1474 of the Code (or any amended or successor version that is substantively comparable and not materially more onerous to comply with) and any associated regulations or other official guidance or interpretations thereof;

(b) any treaty, law, regulation or other official guidance enacted in any other jurisdiction, or relating to an intergovernmental agreement between the US and any other jurisdiction, which (in either case) facilitates the implementation of paragraph (a) above; or

(c) any agreement pursuant to the implementation of paragraphs (a) or (b) above with the US Internal Revenue Service, the US government or any governmental or taxation authority in any other jurisdiction.

“FATCA Deduction” means a deduction or withholding from a payment under a Facility Document required by FATCA.

“FATCA Exempt Party” means a Party that is entitled to receive payments free from any FATCA Deduction.

“Fee Letter” is defined in Section 9.4.

“Financial Institution” means the Securities Intermediary or Account Bank, as applicable, with respect to any Collateral Account.

“Fiscal Quarter” means one of the four three-month accounting periods comprising a Fiscal Year.

“Fiscal Year” means the twelve-month accounting period commencing on January 1 and ending December 31 of each year.

“Fixed Charge” means (a) the Deed of Charge dated March 28, 2011 among the Borrower, the Administrative Agent, the Security Trustee and the other parties thereto attached hereto as Exhibit F and (b) any other debenture, deed or charge or other document which the Administrative Agent and the Borrower may enter into with respect to Collateral located in the United Kingdom.

“Governmental Authority” means any government (foreign or domestic) or any state or other political subdivision thereof or any governmental body, agency, authority, department or commission (including without limitation any taxing authority or political subdivision) or any instrumentality or officer thereof (including without limitation any court or tribunal and any board of insurance, insurance department or insurance commissioner) exercising executive, legislative, judicial, regulatory or administrative functions of or pertaining to government and any corporation, partnership or other entity directly or indirectly owned or controlled by or subject to the control of any of the foregoing.

11

“Honor Date” is defined in Section 2.4(a).

“Indebtedness” of a Person means such Person’s (a) obligations for borrowed money, (b) obligations representing the deferred purchase price of Property or services (other than accounts payable arising in the ordinary course of such Person’s business payable on terms customary in the trade), (c) obligations, whether or not assumed, secured by Liens or payable out of the proceeds or production from Property now or hereafter owned or acquired by such Person, (d) obligations which are evidenced by notes, acceptances, or other instruments, (e) obligations of such Person to purchase securities or other Property arising out of or in connection with the sale of the same or substantially similar securities or Property, (f) Capitalized Lease Obligations, (g) Contingent Obligations, (h) actual and contingent reimbursement obligations in respect of letters of credit, (i) any other obligation for borrowed money or other financial accommodation which in accordance with Agreement Accounting Principles would be shown as a liability on the consolidated balance sheet of such Person, (j) any liability under any financing lease or so-called “synthetic lease” transaction entered into by such Person and (k) any obligation arising with respect to any other transaction which is the functional equivalent of or takes the place of borrowing but which does not constitute a liability on the consolidated balance sheet of such Person.

“Insurance Subsidiary” means each of Navigators, NSIC and any other United States domestic Subsidiary acquired or formed after the Amendment Effective Date which is an insurer or is authorized to act as an insurer. For the avoidance of doubt, Navigators Management Company, Inc. is not a Insurance Subsidiary.

“Investment” of a Person means (a) any loan, advance (other than commission, travel and similar advances to officers and employees made in the ordinary course of business), extension of credit (other than accounts receivable arising in the ordinary course of business on terms customary in the trade) or contribution of capital by such Person, (b) stocks, bonds, mutual funds, partnership interests, membership interests, notes, debentures or other securities owned by such Person, (c) any deposit accounts and certificate of deposit owned by such Person and (d) structured notes, derivative financial instruments and other similar instruments or contracts owned by such Person.

“Issuance Request” is defined in Section 2.5.

“Issue Date” means a date on which a Letter of Credit is issued hereunder.

“Lender Affiliates” means, with respect to any Lender or the Administrative Agent, such Person’s Lending Installation, its Subsidiaries, its holding company and Subsidiaries of its holding company.

“Lenders” means the lending institutions listed on the signature pages of this Agreement and their respective successors and assigns.

12

“Lending Installation” means, with respect to a Lender or the Administrative Agent, the office, branch, subsidiary or affiliate of such Lender or the Administrative Agent listed on the signature pages hereof or on a Schedule or otherwise selected by such Lender or the Administrative Agent.

“Letter of Credit” means (a) the Existing Letters of Credit and (b) any letter of credit issued pursuant to Article II. Each Letter of Credit shall be substantially in the form of Exhibit G.

“Letter of Credit Advance Date” is defined in Section 2.4(b).

“Letter of Credit Agent” means ING Bank N.V. located at 60 London Wall, London EC2M 5TQ, as Letter of Credit Agent for the Lenders, together with any replacement Letter of Credit Agent arising under Article X.

“Letter of Credit Application” means “a letter of credit application substantially in the form of Exhibit C or such other form as the Letter of Credit Agent may from time to time employ in the ordinary course of business.

“Letter of Credit Availability Termination Date” means July 31, 2016 or any earlier date on which the Aggregate Commitment is reduced to zero or otherwise terminated pursuant to the terms hereof.

“Letter of Credit Fee” means the letter of credit fees payable pursuant to Section 2.8(b).

“Letter of Credit Obligations” means, at the time of determination thereof, the sum of (a) the Reimbursement Obligations then outstanding and (b) the aggregate then undrawn face amount of the then outstanding Letters of Credit.

“Leverage Ratio” means, at any time, the ratio of (a) the consolidated Indebtedness of the Borrower and its Consolidated Subsidiaries (with respect to letters of credit obligations, only unreimbursed drawings shall be included) at such time to (b) the sum of (i) the consolidated Indebtedness of the Borrower and its Consolidated Subsidiaries (with respect to letters of credit obligations, only unreimbursed drawings shall be included) plus (ii) Consolidated Net Worth at such time.

“License” means any license, certificate of authority, permit or other authorization which is required to be obtained from any Governmental Authority in connection with the operation, ownership or transaction of insurance business.

“Lien” means any security interest, lien (statutory or other), mortgage, pledge, hypothecation, assignment, deposit arrangement, encumbrance or preference, priority or other security agreement or preferential arrangement of any kind or nature whatsoever (including, without limitation, the interest of a vendor or lessor under any conditional sale, Capitalized Lease or other title retention agreement).

“Lloyd’s” means The Society and Council of Lloyd’s.

13

“Lloyd’s Approved Bank” means any bank approved by Lloyd’s to provide Funds at Lloyd’s letters of credit.

“Lloyd’s Comfort Letter” means a letter substantially in the form of Exhibit H.

“Loss Reserves” means, with respect to any Insurance Subsidiary at any time, the sum of (a) all losses, including incurred losses of such Insurance Subsidiary at such time shown on page 3, line 1 of the Annual Statement of such Insurance Subsidiary plus (b) all loss adjustment expenses of such Insurance Subsidiary at such time shown on page 3, line 3 of the Annual Statement of such Insurance Subsidiary, as determined in accordance with SAP.

“Managing Agent” means Navigators Underwriting Agency Limited, a company organized under the laws of England and Wales.

“Margin Stock” has the meaning assigned to that term under Regulation U.

“Material Adverse Effect” means a material adverse effect on (a) the business, Property, condition (financial or otherwise) or results of operations of any of (i) the Borrower or (ii) the Subsidiaries taken as a whole, (b) the ability of the Borrower to perform its obligations under the Facility Documents, or (c) the validity or enforceability of any of the Facility Documents or the rights or remedies of the Administrative Agent or the Lenders thereunder. Any current examination by the Internal Revenue Service with respect to the Borrower’s Plans will not constitute a Material Adverse Effect; provided, however, a Material Adverse Effect may result from any payments made or Plan changes required as a result of such audit.

“Moody’s” means Moody’s Investors Service, Inc. or any successor thereto.

“Multiemployer Plan” means a Plan of the type described in Section 4001(a)(3) of ERISA to which the Borrower or any member of the Controlled Group is obligated to make contributions, or during the preceding five plan years, has made or been obligated to make contributions.

“NAIC” means the National Association of Insurance Commissioners or any successor thereto, or in lieu thereof, any other association, agency or other organization performing advisory, coordination or other like functions among insurance departments, insurance commissioners and similar Governmental Authorities of the various states of the United States toward the promotion of uniformity in the practices of such Governmental Authorities.

“Navigators” means Navigators Insurance Company, a New York corporation.

“NFS Deficiency” is defined in Section 2.9(e).

“Non-U.S. Lender” is defined in Section 3.3(d).

“Notice of Assignment” is defined in Section 12.3(b).

“NSIC” means Navigators Specialty Insurance Company, a New York corporation.

14

“Obligations” means the Letter of Credit Obligations and all other liabilities (if any), whether actual or contingent, of the Borrower with respect to Letters of Credit, all accrued and unpaid fees and all expenses, reimbursements, indemnities and other obligations of the Borrower to the Lenders or to any Lender, the Administrative Agent, the Letter of Credit Agent or any indemnified party hereunder arising under any of the Facility Documents.

“OFAC” is defined in Section 5.29.

“Other Taxes” is defined in Section 3.3(b).

“Participants” is defined in Section 12.2(a).

“PATRIOT ACT” is defined in Section 9.14.

“Payment Date” means the first day of each April, July, October and January.

“PBGC” means the Pension Benefit Guaranty Corporation or any successor thereto.

“Person” means any natural person, corporation, firm, joint venture, partnership, association, enterprise, limited liability company, trust or other entity or organization, or any government or political subdivision or any agency, department or instrumentality thereof.

“Plan” means an employee pension benefit plan (including a Multiemployer Plan) which is covered by Title IV of ERISA or subject to the minimum funding standards under Section 412 of the Code as to which the Borrower or any member of the Controlled Group may have any liability.

“Pounds” and the sign “£” mean lawful money of the United Kingdom.

“Primary FAL” means funds at Lloyd’s in the form of (i) cash and/or investment assets held directly at Lloyd’s and/or (ii) collateralised letters of credit (other than Letters of Credit issued under this Agreement), which will be immediately available to cover losses in the Supported Syndicate and which will be utilised ahead of the Letters of Credit issued hereunder in the event that the Lloyd’s is required to draw on the funds at Lloyd’s of the Supported Syndicate.

“Property” of a Person means any and all property, whether real, personal, tangible, intangible, or mixed, of such Person, or other assets owned, leased or operated by such Person.

“Purchasers” is defined in Section 12.3(a).

“RDS” means realistic disaster scenarios as such term is used by Lloyd’s and in respect of which, pursuant to Lloyd’s rules, the Managing Agent is obligated to prepare and submit to Lloyd’s a report.

“Regulation D” means Regulation D of the Board of Governors of the Federal Reserve System as from time to time in effect and shall include any successor thereto or other regulation or official interpretation of said Board of Governors relating to reserve requirements applicable to member banks of the Federal Reserve System.

15

“Regulation T” means Regulation T of the Board of Governors of the Federal Reserve System as from time to time in effect and shall include any successor thereto or other regulation or official interpretation of such Board of Governors relating to the extension of credit by securities brokers and dealers for the purpose of purchasing or carrying margin stocks applicable to such Persons.

“Regulation U” means Regulation U of the Board of Governors of the Federal Reserve System as from time to time in effect and shall include any successor thereto or other regulation or official interpretation of said Board of Governors relating to the extension of credit by banks for the purpose of purchasing or carrying margin stocks applicable to member banks of the Federal Reserve System.

“Regulation X” means Regulation X of the Board of Governors of the Federal Reserve Systems from time to time in effect and shall include any successor thereto or other regulation or official interpretation of said Board of Governors relating to the extension of credit by the specified lenders for the purpose of purchasing or carrying margin stocks applicable to such Persons.

“Reimbursement Obligations” means, at any time, the aggregate (without duplication) of the Obligations of the Borrower to the Lenders and/or the Administrative Agent in respect of all unreimbursed payments or disbursements made by the Lenders and/or the Administrative Agent under or in respect of draws made under the Letters of Credit.

“Reinsurance Guidelines” is defined in Section 6.21(c).

“Release” is defined in the Comprehensive Environmental Response, Compensation and Liability Act, as amended, 42 U.S.C. 39601 et seq.

“Reportable Event” means a reportable event as defined in Section 4043 of ERISA and the regulations issued under such section, with respect to a Plan, excluding, however, such events as to which the PBGC has by regulation waived the requirement of Section 4043(a) of ERISA that it be notified within 30 days of the occurrence of such event; provided, however, that a failure to meet the minimum funding standard of Section 412 of the Code and of Section 302 of ERISA shall be a Reportable Event regardless of the issuance of any such waiver of the notice requirement in accordance with either Section 4043(a) of ERISA or Section 412(d) of the Code.

“Required Amount” means the aggregate amount required to be deposited and held in Collateral Accounts pursuant to Sections 2.9 and 8.1 hereof.

“Required Lenders” means Lenders in the aggregate having at least 66 ²⁄₃% of the Aggregate Commitment or, if the Aggregate Commitment has been terminated, the aggregate amount of the outstanding Letter of Credit Obligations; provided, however, the Commitment or outstanding Letter of Credit Obligations of any Defaulting Lender shall be deemed to be zero.

“Restricted Person” is defined in Section 5.29.

“S&P” means Standard and Poor’s Ratings Services, a division of The McGraw Hill Companies, Inc. or any successor thereto.

16

“S&P Rating” means, as to any insurance company, its financial strength rating assigned by S&P.

“Sanctions” means sanctions administered or enforced by (a) OFAC, (b) the U.S. Department of State, (c) the United Nations Security Council, (d) the European Union, (e) Her Majesty’s Treasury, (f) any other sanctions authority that has jurisdictional authority over the Borrower or any of its Subsidiaries or (g) any other sanctions authority that has jurisdictional authority over a Lender, so long as such Lender has advised the Borrower of same.

“SAP” means, with respect to any Insurance Subsidiary, the statutory accounting practices prescribed or permitted by the insurance commissioner (or other similar authority) in the jurisdiction of such Person for the preparation of annual statements and other financial reports by insurance companies of the same type as such Person in effect from time to time, applied in a manner consistent with those used in preparing the Statutory Financial Statements referred to in Section 5.5.

“Schedule” refers to a specific schedule to this Agreement, unless another document is specifically referenced.

“SEC Reports” means the reports filed by the Borrower with the Securities and Exchange Commission on Form 8-K, Form 10-Q or Form 10-K.

“Section” means a numbered section of this Agreement, unless another document is specifically referenced.

“Secured Parties” means the Administrative Agent, the Letter of Credit Agent, the Security Trustee under each Fixed Charge and the Lenders.

“Security Agreement” means (a) the security agreement dated as of March 28, 2011 between the Borrower and the Administrative Agent attached hereto as Exhibit E and (b) any other security agreement or other document which may be entered into by the Administrative Agent and the Borrower with respect to the Collateral located in the United States.

“Security Documents” means each Security Agreement, each Control Agreement and each Fixed Charge.

“Security Trustee” means ING Bank N.V., London Branch, as security trustee for the Secured Parties and appointed under the Fixed Charges together with any successor appointed pursuant to the terms thereof.

“Securities Intermediary” means any “securities intermediary” within the meaning of Section 8.102(a)(14) of the UCC at which any securities account constituting a Collateral Account is held, which shall be (a) located in the United States and (b) reasonably acceptable to the Administrative Agent.

“Significant Insurance Subsidiary” means a Significant Subsidiary which is a Insurance Subsidiary. For the avoidance of doubt, Navigators Management Company, Inc. shall not be a Significant Insurance Subsidiary.

17

“Significant Subsidiary” means, at any time, a direct United States domestic Subsidiary of the Borrower the assets of which are greater than or equal to five percent (5%) of the Consolidated Total Assets of the Borrower and its Consolidated Subsidiaries.

“Single Employer Plan” means a Plan maintained by the Borrower or any member of the Controlled Group for employees of the Borrower or any member of the Controlled Group.

“Solvency Surplus” means the solvency surplus, if any, on any open years of account for the Supported Syndicate, as reported in the solvency statements prepared by Lloyd’s.

“Statutory Financial Statements” is defined in Section 5.5.

“Statutory Surplus” means, with respect to any Insurance Subsidiary at any time, the statutory capital and surplus of such Insurance Subsidiary at such time, as determined in accordance with SAP (“Liabilities, Surplus and Other Funds” statement, page 3, line 35 of the Annual Statement).

“Subsidiary” of a Person means (a) any corporation more than 50% of the outstanding securities having ordinary voting power of which shall at the time be owned or controlled, directly or indirectly, by such Person or by one or more of its Subsidiaries or by such Person and one or more of its Subsidiaries or (b) any partnership, association, joint venture, limited liability company or similar business organization more than 50% of the ownership interests having ordinary voting power of which shall at the time be so owned or controlled. Unless otherwise expressly provided, all references herein to a “Subsidiary” shall mean a Subsidiary of the Borrower.

“Substantial Portion” means, with respect to the Property of the Borrower and its Consolidated Subsidiaries, Property which (a) represents more than 10% of the Consolidated Total Assets of the Borrower and its Consolidated Subsidiaries, as would be shown in the consolidated financial statements of the Borrower and its Consolidated Subsidiaries as at the end of the quarter next preceding the date on which such determination is made or (b) is responsible for more than 10% of the consolidated premiums or of the Consolidated Net Income of the Borrower and its Consolidated Subsidiaries for the 12-month period ending as of the end of the quarter next preceding the date of determination.

“Supported Syndicate” means Lloyd’s Syndicate 1221 underwriting insurance business at Lloyd’s through the Managing Agent.

“Taxes” means any and all present or future taxes, duties, levies, imposts, deductions, charges or withholdings and any and all liabilities with respect to the foregoing, but excluding Excluded Taxes.

“Terence Deeks Family” means, collectively, Terence N. Deeks; his spouse; any natural person who is a lineal descendant of Terence N. Deeks; the spouse, children, or grandchildren of any such natural person; any trust of which any of the foregoing is or are the sole beneficiary or beneficiaries; or the estate, executor, administrator, or legal guardian of any of the foregoing.

18

“Termination Event” means, with respect to a Plan which is subject to Title IV of ERISA, (a) a Reportable Event, (b) the withdrawal of the Borrower or any other member of the Controlled Group from such Plan during a plan year in which the Borrower or any other member of the Controlled Group was a “substantial employer” as defined in Section 4001(a)(2) of ERISA or was deemed such under Section 4068(f) of ERISA, (c) the termination of such Plan, the filing of a notice of intent to terminate such Plan or the treatment of an amendment of such Plan as a termination under Section 4041 of ERISA, (d) the institution by the PBGC of proceedings to terminate such Plan or (e) any event or condition which might constitute grounds under Section 4042 of ERISA for the termination of, or appointment of a trustee to administer, such Plan.

“Transferee” is defined in Section 12.4.

“Total Investment Portfolio” means, as of any date, the “Total Investments and Cash” of the Borrower and its Consolidated Subsidiaries as shown on the Borrower’s financial statements.

“UCC” means the Uniform Commercial Code as in effect in the State of New York or the State of Delaware, as applicable, from time to time.

“UK Collateral Account” means account nos. ending 20505406 and 20505305 and each other account held at ING Bank N.V., London Branch, and subject to a Fixed Charge.

“Unfunded Liabilities” means the amount (if any) by which the present value of all vested and unvested accrued benefits under all Single Employer Plans exceeds the fair market value of all such Plan assets allocable to such benefits, all determined as of the then most recent valuation date for such Plans using PBGC actuarial assumptions for single employer plan terminations.

“Unmatured Default” means an event which but for the lapse of time or the giving of notice, or both, would constitute a Default.

“Unreimbursed Amount” is defined in Section 2.4(b).

“Unused Fees” means the fees payable pursuant to Section 2.8(a).

“Wholly-Owned Subsidiary” of a Person means (a) any Subsidiary all (or, in the case of Navigators N.V., all but one) of the outstanding voting securities of which shall at the time be owned or controlled, directly or indirectly, by such Person or one or more Wholly-Owned Subsidiaries of such Person, or by such Person and one or more Wholly-Owned Subsidiaries of such Person, or (b) any partnership, limited liability company, association, joint venture or similar business organization 100% of the ownership interests having ordinary voting power of which shall at the time be so owned or controlled.

The foregoing definitions shall be equally applicable to both the singular and plural forms of the defined terms.

19

ARTICLE II

THE LETTER OF CREDIT FACILITY

2.1 Issuance of Letters of Credit. (a) From and after the date hereof to but excluding the Letter of Credit Availability Termination Date, each Lender severally agrees, upon the terms and conditions set forth in this Agreement, to issue at the request and for the account of the Borrower, such Lender’s Applicable Percentage of, one or more Letters of Credit for the account of the Borrower to support the obligations of the Corporate Member with respect to the Supported Syndicate and to increase the stated amount of any Letters of Credit issued hereunder; provided, however, that no Lender shall be under any obligation to issue or increase, and the Letter of Credit Agent shall not issue or increase, any Letter of Credit if: (i) the expiry date of such Letter of Credit would be after December 31, 2019, (ii) any order, judgment or decree of any Governmental Authority or other regulatory body with jurisdiction over any Lender shall purport by its terms to enjoin or restrain any Lender from issuing or increasing such Letter of Credit, or any law or governmental rule, regulation, policy, guideline or directive (whether or not having the force of law) from any Governmental Authority or other regulatory body with jurisdiction over any Lender prohibit, or request that any Lender refrain from, the issuance of Letters of Credit in particular or shall impose upon any Lender with respect to any Letter of Credit any restriction or reserve or capital requirement (for which such Lender is not otherwise compensated) or any unreimbursed loss, cost or expense which was not applicable, in effect and known to such Lender as of the date of this Agreement and which such Lender in good faith deems material to it, (iii) one or more of the conditions to such issuance or increase contained in Section 4.2 is not then satisfied; (iv) after giving effect to such issuance or increase, any Lender’s aggregate outstanding amount of the Letter of Credit Obligations would exceed such Lender’s Commitment; (v) after giving effect to such issuance or increase, the aggregate outstanding amount of the Letter of Credit Obligations would exceed the Aggregate Commitment; or (v) there is a Defaulting Lender. Letters of Credit shall be denominated, at the Borrower’s option, in either Dollars or Pounds.

(b) In no event shall: (i) the aggregate amount of the Letter of Credit Obligations at any time exceed the Aggregate Commitment or (ii) the expiration date of any Letter of Credit or the date for payment of any draft presented thereunder and accepted by the Lender, be later than the earlier of (A) December 31, 2019 or (B) four (4) years after the date of the related Expiry Notice. The Letter of Credit Agent shall not issue a Letter of Credit except with Lloyd’s as the beneficiary thereof. The Letter of Credit Agent shall not (x) permit the renewal or extension of any Letter of Credit at any time (A) during the continuation of a Default or Unmatured Default or (B) after December 31, 2015 or (y) permit the increase of any Letter of Credit at any time (A) during the continuation of a Default or Unmatured Default or (B) after the Letter of Credit Availability Termination Date.

(c) The Letter of Credit Agent (i) shall issue an Expiry Notice no later than December 31, 2015 for outstanding Letters of Credit and (ii) may, and upon the request of the Required Lenders shall, issue an Expiry Notice when a Default has occurred and is continuing; provided, however, that upon the occurrence of an Unmatured Default pursuant to Sections 7.6 and 7.7, the Letter of Credit Agent shall immediately issue an Expiry Notice.

20

(d) At the request of the Borrower, Letters of Credit may be issued with the Corporate Member as a co-applicant, so long as the Borrower is also a co-applicant under the applicable Letter of Credit Application. The fact that the Corporate Member is an applicant shall not affect the obligations of the Borrower with respect to such Letters of Credit hereunder or under any Facility Document in any way. Any Letter of Credit Application for a Letter of Credit with respect to which the Corporate Member is a co-applicant shall include language substantially similar to that set forth in Exhibit C or otherwise acceptable to the Letter of Credit Agent.

(e) Each Lender’s obligation to pay its Applicable Percentage of all draws under the Letters of Credit, absent gross negligence or willful misconduct by Letter of Credit Agent in honoring any such draw, shall be absolute, unconditional and irrevocable and in each case shall be made without counterclaim or set-off by such Lender.

2.2 Conversion Principles. Determination of the Dollar amount of any Letter of Credit, Obligation or Cash Equivalent Investment denominated in a currency other than Dollars shall be made as follows:

(a) For purposes of usage and availability under Section 2.1, when a Letter of Credit is issued in Pounds or amended to increase the stated amount thereof, such Pounds will be converted to Dollars by the Administrative Agent upon such issuance or increase, upon the proposed issuance of any other Letter of Credit and at the end of each calendar quarter and at any time thereafter as requested by the Administrative Agent or any Lender at the Conversion Rate as of such date of determination.

(b) For purposes of determining interest and fees on Letter of Credit Obligations and other Obligations, any such Obligations which are denominated in Pounds will be converted to Dollars and such determination shall be made by the Administrative Agent based upon the Conversion Rate as of such date of determination.

(c) For purposes of determining the (i) Collateral Value as of any date, (ii) Fair Market Value on any date, or (iii) Required Amount on any date, Eligible Collateral and Letter of Credit Obligations denominated in Pounds will be converted to Dollars at the Conversion Rate as of the date of determination (and in the event of a disagreement as to such Fair Market Value between the Borrower and the Administrative Agent, the determination of the Administrative Agent shall control).

2.3 Reductions in Aggregate Commitment. (a) The Borrower may permanently reduce the Aggregate Commitment in whole, or in part ratably among the Lenders in integral multiples of $5,000,000, upon at least five (5) Business Days’ written notice to the Administrative Agent, which notice shall specify the amount of such reduction; provided, however, that the amount of the Aggregate Commitment may not be reduced below the aggregate amount of the outstanding Letter of Credit Obligations.

21

2.4 Reimbursement Obligations. (a) Upon receipt from the beneficiary of any Letter of Credit or any notice of a drawing under such Letter of Credit (a “Drawing Request”), the Letter of Credit Agent shall notify the Administrative Agent and the Borrower of the receipt of such Drawing Request and of the date the Letter of Credit Agent will honor such request (each such date, an “Honor Date”). Not later than 10:00 a.m. (London time) on such Honor Date or the following Business Day in the event that the Borrower shall not have received at least twenty-four hours notice of such Honor Date, the Borrower shall provide the Letter of Credit Agent the amount of the Drawing Request in the currency in which the applicable Letter of Credit was issued. Any notice given by the Letter of Credit Agent or the Administrative Agent pursuant to this Section 2.4(a) may be given by telephone if immediately confirmed in writing; provided that the lack of such an immediate confirmation shall not affect the conclusiveness or binding effect of such notice.

(b) (i) With respect to any Drawing Request, if funds are not received by the Letter of Credit Agent from the Borrower prior to 11:00 a.m. (London time) on the Honor Date or the following Business Day in the event that the Borrower shall not have received at least twenty-four hours notice of such Honor Date in the amount and currency of such Drawing Request, the Administrative Agent shall promptly notify each Lender of such Drawing Request, the amount of the unreimbursed drawing (the “Unreimbursed Amount”) and such Lender’s Applicable Percentage of such Unreimbursed Amount. Each Lender shall make funds available in the applicable currency to the Letter of Credit Agent in an amount equal to its Applicable Percentage of the Unreimbursed Amount not later than 1:00 p.m. (London time) on the Business Day specified in such notice by the Administrative Agent (the “Letter of Credit Advance Date”). To the extent that funds are received by the Letter of Credit Agent from the Lenders prior to 2:00 p.m. (London time) on the Letter of Credit Advance Date, the Letter of Credit Agent shall promptly make such funds available to the beneficiary of such Letter of Credit on such date. To the extent that the Letter of Credit Agent has not delivered funds to any beneficiary of a Letter of Credit on behalf of a Lender on the Letter of Credit Advance Date, if funds are received by the Letter of Credit Agent from such Lender: (i) after 2:00 p.m. (London time) on the Letter of Credit Advance Date, the Letter of Credit Agent shall make such funds available to such beneficiary on the next Business Day; (ii) prior to 2:00 p.m. (London time) on any Business Day after the Letter of Credit Advance Date, the Letter of Credit Agent shall make those funds available to such beneficiary on such Business Day; and (iii) after 2:00 p.m. (London time) on any Business Day after the Letter of Credit Advance Date, the Letter of Credit Agent shall make those funds available to such beneficiary on the next Business Day following such Business Day.

(ii) Notwithstanding any provisions to the contrary in any Letter of Credit Application, the Borrower agrees to pay the Letter of Credit Agent for the benefit of the Lenders no later than the time specified in this Agreement.

(iii) With respect to any Unreimbursed Amount, the Borrower shall have a Reimbursement Obligation in the amount of the Unreimbursed Amount from the Lenders to the extent that they have provided funds with respect to such Letter of Credit pursuant to Section 2.4(b)(i). Reimbursement Obligations shall be due and payable on demand (together with interest) and shall bear interest at

22

the Default Rate. Any payment by the Borrower in respect of such Reimbursement Obligation shall be made to the Administrative Agent and upon receipt applied by the Administrative Agent in accordance with Section 2.4(c).

(c) At any time after the Letter of Credit Agent has made a payment under any Letter of Credit and has received from any Lender such Lender’s Letter of Credit Advance in respect of such payment in accordance with Section 2.4(b), if the Letter of Credit Agent or Administrative Agent receives any payment in respect of the related Reimbursement Obligation or interest thereon (whether directly from the Borrower or otherwise, including proceeds of Collateral applied thereto by the Administrative Agent), the Administrative Agent will distribute to such Lender its Applicable Percentage thereof in the same funds as those received by the Letter of Credit Agent or the Administrative Agent, as the case may be.

(d) If any payment received by the Letter of Credit Agent or the Administrative Agent pursuant to Section 2.4(b) (including any payment under Article XI) and such payment or the proceeds of such setoff or any part thereof is subsequently invalidated, declared to be fraudulent or preferential, set aside or required (including pursuant to any settlement entered into by the Letter of Credit Agent, the Administrative Agent or such Lender in its discretion) to be repaid to a trustee, receiver or any other party, in connection with any insolvency proceeding or otherwise, then (x) to the extent of such recovery, the obligation or part thereof originally intended to be satisfied shall be revived and continued in full force and effect as if such payment had not been made or such setoff had not occurred, and (y) each Lender shall pay to the Letter of Credit Agent or the Administrative Agent, as applicable, its Applicable Percentage thereof on demand of the Letter of Credit Agent or the Administrative Agent, as applicable, plus interest thereon from the date of such demand to the date such amount is returned by such Lender, at a rate per annum equal to the Eurodollar Rate from time to time in effect. The obligations of the Lenders under this clause shall survive the payment in full of the Obligations and the termination of this Agreement.

2.5 Procedure for Issuance. (a) Prior to the issuance of each new Letter of Credit and as a condition of such issuance, the Borrower shall deliver to the Letter of Credit Agent a Letter of Credit Application signed by the Borrower, together with such other documents or items as may be required pursuant to the terms thereof, and the proposed form and content of such Letter of Credit shall be reasonably satisfactory to the Letter of Credit Agent. Each Letter of Credit shall be issued no earlier than two (2) Business Days after delivery of the foregoing documents, which delivery may be by the Borrower to the Letter of Credit Agent by telecopy, telex or other electronic means followed by delivery of executed originals within five (5) days thereafter. The documents so delivered shall be in compliance with the requirements set forth in Section 2.1(b), and shall specify therein (a) the stated amount of the Letter of Credit requested, (b) the effective date of issuance of such requested Letter of Credit, which shall be a Business Day, (c) whether the Letter of Credit is to be denominated in Dollars or Pounds and (d) the aggregate amount of Letter of Credit Obligations which are outstanding and which will be outstanding after giving effect to the requested Letter of Credit issuance. The delivery of the foregoing documents and information shall constitute an “Issuance Request” for purposes of this Agreement. Subject to the terms and conditions of Section 2.1 and provided that the applicable conditions set forth in

23

Section 4.2 hereof have been satisfied, the Letter of Credit Agent (on behalf of the Lenders) shall, on the requested date, issue a Letter of Credit on behalf of the Borrower in accordance with the Letter of Credit Agent’s usual and customary business practices. In addition, any amendment of an existing Letter of Credit shall be deemed to be an issuance of a new Letter of Credit and shall be subject to the requirements set forth above. The Administrative Agent shall give the Lenders prompt written notice of the issuance of any Letter of Credit.

(b) The Letter of Credit Agent is hereby authorized to execute and deliver each Letter of Credit and each amendment to a Letter of Credit on behalf of each Lender. The Letter of Credit Agent shall use the Applicable Percentage of each Lender under each Letter of Credit as its “Commitment”. The Letter of Credit Agent shall not amend any Letter of Credit to change the “Commitment” of a Lender or add or delete a Lender liable thereunder unless such amendment is done in connection with an assignment in accordance with Section 12.3. Each Lender hereby irrevocably constitutes and appoints the Letter of Credit Agent its true and lawful attorney-in-fact for and on behalf of such Lender with full power of substitution and revocation in its own name or in the name of the Letter of Credit Agent to issue, execute and deliver, as the case may be, each Letter of Credit and each amendment to a Letter of Credit and to carry out the purposes of this Agreement with respect to Letters of Credit. Upon request, each Lender shall execute such powers of attorney or other documents as any beneficiary of any Letter of Credit may reasonably request to evidence the authority of the Letter of Credit Agent to execute and deliver such Letter of Credit and any amendment or other modification thereto on behalf of the Lenders.

(c) The Letter of Credit Agent shall act on behalf of the Lenders with respect to any Letters of Credit and the documents associated therewith, and the Letter of Credit Agent shall have all of the benefits and immunities (A) provided to the Administrative Agent in Article X with respect to any acts taken or omissions suffered by the Letter of Credit Agent in connection with Letters of Credit issued by it or proposed to be issued by it and Letter of Credit Applications pertaining to such Letters of Credit as fully as if the term “Administrative Agent” as used in Article X includes the Letter of Credit Agent as with respect to such acts or omissions, and (B) as additionally provided herein with respect to the Letter of Credit Agent.

2.6 Nature of the Agent and Lenders’ Obligations. (a) Each Lender and the Borrower agree that, in paying any drawing under a Letter of Credit, the Letter of Credit Agent shall not have any responsibility to obtain any document (other than any sight draft, certificates and documents expressly required by the Letter of Credit) or to ascertain or inquire as to the validity or accuracy of any such document or the authority of the Person executing or delivering any such document. Neither the Letter of Credit Agent nor any of its respective Affiliates shall be liable to for (i) any action taken or omitted in connection herewith at the request or with the approval of the Lenders or the Required Lenders, as applicable; (ii) any action taken or omitted in the absence of gross negligence or willful misconduct; or (iii) the due execution, effectiveness, validity or enforceability of any document or instrument related to any Letter of Credit or Letter of Credit Application.

24

(b) As between the Borrower and the Lenders and the Letter of Credit Agent, the Borrower assumes all risks of the acts and omissions of, or misuse of the Letters of Credit by, the respective beneficiaries of the Letters of Credit; provided, however, that the Borrower may have a claim against the Letter of Credit Agent and the Letter of Credit Agent may be liable to the Borrower, to the extent, but only to the extent, of any direct (as opposed to consequential or exemplary) damages suffered by the Borrower which the Borrower proves were caused by the willful misconduct or gross negligence in determining whether documents presented under a Letter of Credit comply with the terms of such Letter of Credit. In furtherance and not in limitation of the foregoing, neither the Letter of Credit Agent nor the Lenders shall be responsible for: (i) the form, validity, sufficiency, accuracy, genuineness or legal effect of any document submitted by any party in connection with the application for an issuance of a Letter of Credit, even if it should in fact prove to be in any or all respects invalid, insufficient, inaccurate, fraudulent or forged, (ii) the validity or sufficiency of any instrument transferring or assigning or purporting to transfer or assign a Letter of Credit or the rights or benefits thereunder or proceeds thereof, in whole or in part, which may prove to be invalid or ineffective for any reason, (iii) the failure of the beneficiary of a Letter of Credit to comply fully with conditions required to be satisfied by any Person other than the Letter of Credit Agent in order to draw upon such Letter of Credit, (iv) errors, omissions, interruptions or delays in transmission or delivery of any messages, by mail, cable, telegraph, telex or otherwise, (v) errors in the interpretation of technical terms, (vi) the misapplication by the beneficiary of a Letter of Credit of the proceeds of any drawing under such Letter of Credit or (vii) any consequences arising from causes beyond control of the Letter of Credit Agent or the Lenders.

(c) In furtherance and extension and not in limitation of the specific provisions hereinabove set forth, any action taken or omitted by the Letter of Credit Agent under or in connection with the Letters of Credit or any related certificates, if taken or omitted in good faith, shall not put the Letter of Credit Agent or any Lender under any resulting liability to the Borrower or relieve the Borrower of any of its obligations hereunder to the Lenders or any such Person.

(d) The Borrower agrees to pay to the Letter of Credit Agent for the benefit of the Lenders the amount of all Reimbursement Obligations owing in respect of any Letter of Credit immediately when due, under all circumstances, including, without limitation, any of the following circumstances: (w) any lack of validity or enforceability of this Agreement or any of the other Facility Documents, (x) the existence of any claim, set-off, defense or other right which the Borrower or any account party may have at any time against a beneficiary named in a Letter of Credit, any transferee of any Letter of Credit (or any Person for whom any such transferee may be acting), any Lender or any other Person, whether in connection with this Agreement, any Letter of Credit, the transactions contemplated herein or any unrelated transactions (including any underlying transaction between the Borrower or any account party and the beneficiary named in any Letter of Credit), (y) the validity, sufficiency or genuineness of any document which the Letter of Credit Agent has determined in good faith complies on its face with the terms of the applicable Letter of Credit, even if such document should later prove to have been forged, fraudulent, invalid or insufficient in any respect or any statement therein shall have been untrue or inaccurate in any respect or (z) the surrender or impairment of any security for the performance or observance of any of the terms hereof.

25

2.7 Notification of Issuance Requests. Promptly after receipt thereof, the Letter of Credit Agent will notify each Lender of the contents of each Issuance Request received by it hereunder.

2.8 Fees.

(a) Unused Fee. The Borrower agrees to pay to the Administrative Agent for the account of each Lender with respect to its Commitment an Unused Fee at a rate per annum equal to the Applicable Unused Fee Rate on the daily unused portion of such Lender’s Commitment from the last “Payment Date” under and as defined in the Existing Credit Agreement to and including the Letter of Credit Availability Termination Date, calculated with respect to actual days elapsed on the basis of a 360-day year and payable in Dollars on each Payment Date hereafter and on the Letter of Credit Availability Termination Date or, if later, upon receipt of a bill from the Administrative Agent. During the continuance of a Default, the Required Lenders may, at their option, by notice to the Borrower, declare that the Applicable Unused Fee Rate shall accrue at the Default Rate; provided, that during the continuance of a Default under Section 7.6 or 7.7, the Applicable Unused Fee Rate shall accrue at the Default Rate without any election or action on the part of the Administrative Agent or any Lender.

(b) Letter of Credit Fee. The Borrower agrees to pay to the Administrative Agent for the pro-rata account of the Lenders in Dollars a Letter of Credit Fee with respect to each Letter of Credit from and including the date of issuance thereof until the date such Letter of Credit is fully drawn, canceled or expired, in an amount equal to the Applicable Letter of Credit Fee Rate on the aggregate amount from time to time available to be drawn on such Letter of Credit, calculated with respect to actual days elapsed on the basis of a 360-day year and payable quarterly in arrears on each Payment Date in each year and upon the expiration, cancellation or utilization in full of such Letter of Credit. During the continuance of a Default, the Required Lenders may, at their option, by notice to the Borrower, declare that the Applicable Letter of Credit Fee Rate shall accrue at the Default Rate; provided, that during the continuance of a Default under Section 7.6 or 7.7, the Applicable Letter of Credit Fee Rate shall accrue at the Default Rate without any election or action on the part of the Administrative Agent or any Lender.

(c) Defaulting Lender. If at any time a Lender is a Defaulting Lender, then, to the extent permitted by applicable law (and notwithstanding any other provision of this Agreement), (i) any payment of Reimbursement Obligations with respect to Letters of Credit (including through sharing of payments pursuant to Section 10.2, but excluding any payment pursuant to Section 2.3(b)) shall, if the Borrower so directs at the time of making such payment, be applied first to amounts owed to Lenders other than such Defaulting Lender, as if the amount owed to such Defaulting Lender hereunder in respect of Reimbursement Obligations were zero, and then to amounts owed to such Defaulting Lender; (ii) such Defaulting Lender’s Applicable Percentage of the Letter of Credit Obligations shall be excluded for purposes of calculating Unused Fees pursuant to

26

Section 2.8(a) in respect of each day on which such Lender is a Defaulting Lender, and such Defaulting Lender shall not be entitled to receive any Unused Fees for any such day and (iii) such Defaulting Lender’s Applicable Percentage shall be deemed to be zero for purposes of calculating Letter of Credit Fees pursuant to Section 2.8(b) in respect of each day on which such Lender is a Defaulting Lender, and such Defaulting Lender shall not be entitled to receive any Letter of Credit Fees for any such day. Any payment made pursuant to this Section shall be taken into account for purposes of calculating the Unused Fee and Letter of Credit Fee. The provisions of this Section 2.8(c) do not limit, but are in addition to, any other claim or right that the Borrower, the Administrative Agent, the Letter of Credit Agent or any other Lender may have against a Defaulting Lender.

2.9 Collateralization Events.

(a) The Borrower agrees that, if at any time as a result of reductions in the Aggregate Commitment pursuant to Section 2.3 or otherwise the aggregate balance of the Letter of Credit Obligations exceeds the Aggregate Commitment, the Borrower shall promptly, but in any event within five (5) Business Days, collateralize the Letter of Credit Obligations by depositing into a Collateral Account Eligible Collateral with a Collateral Value equal to the product of one hundred and two percent (102%) of the amount as may be necessary to eliminate such excess.

(b) Notwithstanding any other provisions of this Agreement, if at any time, after giving effect to the conversion of Pounds into Dollars as set forth in Section 2.2, the aggregate face amount of all outstanding Letters of Credit is greater than the Aggregate Commitment (the “Conversion Differential”), then the Borrower shall promptly, but in any event within five (5) Business Days, collateralize the Letter of Credit Obligations by depositing into a Collateral Account Eligible Collateral with a Collateral Value equal to the product of one hundred and two percent (102%) of the Conversion Differential.

(c) If the A.M. Best Rating or the S&P Rating of Navigators falls below “A-” the Borrower shall promptly, but in any event within five (5) Business Days, collateralize the Letter of Credit Obligations by depositing into a Collateral Account Eligible Collateral with a Collateral Value equal to the product of one hundred and two percent (102%) of the Letter of Credit Obligations.

(d) If the forecast underwriting losses based on mid-points stated in the Franchise Performance Management Quarterly Monitoring Returns for the Supported Syndicate exceed 20% of capacity for any year supported by a Letter of Credit, the Borrower shall promptly, but in any event within five (5) Business Days, collateralize the Letter of Credit Obligations by depositing into a Collateral Account Eligible Collateral with a Collateral Value equal to one hundred and two percent (102%) of the Letter of Credit Obligations with respect to all outstanding Letters of Credit.

(e) In the event that any net unfunded solvency deficit on any open years of account for the Supported Syndicate (as reported in the solvency statements prepared by Lloyd’s) (a “NFS Deficiency”) is not funded directly at Lloyd’s by depositing cash or

27

similar assets into the Supported Syndicate’s personal reserves, promptly, but in any event within 10 Business Days after the Borrower has knowledge of such deficiency, the Borrower shall collateralize the Letter of Credit Obligations by depositing, into a Collateral Account, Eligible Collateral with a Collateral Value equal to the one hundred and two percent (102%) of the NFS Deficiency after giving effect to any amount funded directly at Lloyd’s as set forth above.

(f) In the event that an Expiry Notice is given with respect to any Letter of Credit, the Borrower shall, within five (5) Business Days after December 31 of the last year of account supported by the such Letter of Credit pursuant to Section 6.2, collateralize the Letter of Credit Obligation by depositing into a Collateral Account Eligible Collateral with a Collateral Value equal to one hundred and two percent (102%) of the such Letter of Credit.

(g) Upon the occurrence of an Event of Default, the Borrower shall promptly deposit in a Collateral Account Eligible Collateral with a Collateral Value equal to the product of one hundred and two percent (102%) of the aggregate undrawn face amount of all outstanding Letters of Credit and all fees and other amounts due or which may become due with respect thereto.

2.10 Collateral Account.

(a) The Borrower shall at all times maintain Eligible Collateral in Collateral Accounts with a Collateral Value of not less than the Required Amount. If at any time the Required Amount shall exceed (the amount of such excess, the “Collateral Shortfall”) the Collateral Value for three (3) consecutive Business Days, the Administrative Agent shall provide the Borrower notice, by telephone or in writing, of such Collateral Shortfall and it shall be a Default unless within three (3) Business Days of the Borrower’s receipt of such notice, no Collateral Shortfall exists as a result of (i) a change in the Collateral Value due to market fluctuations and/or (ii) a deposit by the Borrower of additional Eligible Collateral in a Collateral Account.

(b) Eligible Collateral held in a Collateral Account (other than the UK Collateral Account) shall be invested (i) so long as no Default has occurred, at the direction of the Borrower, provided that all such Eligible Collateral must be reasonably acceptable to the Administrative Agent and otherwise permitted by this Agreement, and (ii) following the occurrence and continuation of a Default, at the direction of the Administrative Agent. All income from such Eligible Collateral shall be retained in a Collateral Account and added to the Collateral.

(c) So long as no Default has occurred and is continuing, if at any time the Obligations become due and payable hereunder, the Borrower may request that funds in a Collateral Account be applied to the amount which is due and payable, including with respect to any Reimbursement Obligations and the Administrative Agent shall apply such funds (in the case of the UK Collateral Account) or consent to such release (in the case of any other Collateral Account) provided, in each case, after giving effect to such application the Borrower is in compliance with Section 2.10(a); provided, however, the

28

Administrative Agent shall have the right, upon five (5) days’ prior notice to the Borrower, to apply all or any part of the Eligible Collateral held in a Collateral Account for the amount which is due and payable unless the Borrower shall object in writing and otherwise pay the amount due and payable within such five (5) day period. Upon the occurrence and continuation of a Default, the Administrative Agent may apply (without prior notice to the Borrower) all or any part of the Eligible Collateral held in a Collateral Account pursuant to and in accordance with Section 8.4.

(d) So long as no Default or Unmatured Default under Section 7.2 has occurred, at any time the Collateral Value exceeds (the amount of such excess, the “Collateral Excess”) the Required Amount, the Borrower can request to the release of such Collateral Excess and the Administrative Agent shall release such funds from the UK Collateral or consent to such release with respect to any other Collateral Account; provided, however, upon the occurrence and continuation of a Default, the Administrative Agent shall have no obligation to release or consent to any such release and shall have sole control over any such Collateral Excess, including the application of such amount pursuant to and in accordance with Section 8.4.

ARTICLE III

YIELD PROTECTION; TAXES

3.1 Yield Protection. Without prejudice to the generality of Section 3.2, if, on or after the Amendment Effective Date, any Change affecting such Lender or any of its Lender Affiliates

(a) subjects any Lender or any of its Lender Affiliates to any Taxes, or changes the basis of taxation of payments (other than with respect to Excluded Taxes) to any Lender in respect of its interest in the Letters of Credit,

(b) imposes or increases or deems applicable any reserve, assessment, insurance charge, special deposit or similar requirement against assets of, deposits with or for the account of, or credit extended by, any Lender or r any of its Lender Affiliates, or

(c) imposes any other condition the result of which is to increase the cost to any Lender or any of its Lender Affiliates of making, funding or issuing Letters of Credit or reduces any amount receivable by any Lender or any applicable Lender Affiliate in connection with any Letter of Credit, or requires any Lender or any applicable Lender Affiliate to make any payment calculated by reference to the amount of Letters of Credit issued or participated in or interest received by it, by an amount deemed material by such Lender,

and the result of any of the foregoing is to increase the cost to such Lender or applicable Lender Affiliate of making or maintaining its Commitment or its interest in the Letters of Credit or to reduce the return received by such Lender or applicable Lender Affiliate in connection with such Commitment or interest in Letters of Credit, then, within fifteen (15) days of demand by such Lender, the Borrower shall pay such Lender such additional amount or amounts as will compensate such Lender for such increased cost or reduction in amount received.

29

3.2 Changes in Capital Adequacy Regulations. If any Lender determines that (i) compliance with Basel III, CRR or CRD IV or (ii) any Change affecting such Lender or any of its Lender Affiliates, if any, regarding capital or liquidity requirements, has or would have the effect of reducing the rate of return on such Lender’s capital or on the capital of any of its Lender Affiliates, if any, as a consequence of this Agreement, the Commitment of such Lender or the Letters of Credit issued by such Lender, to a level below that which such Lender or any of its Lender Affiliates could have achieved but for such Change (taking into consideration such Lender’s policies and the policies of its Lender Affiliates with respect to capital adequacy and liquidity), then within fifteen (15) days of demand by such Lender, the Borrower will pay to such Lender the amount necessary to compensate such Lender or such Lender Affiliate for any such reduction suffered. “Change” means the occurrence, after the date of this Agreement, of any of the following: (a) the adoption or taking effect of any law, rule, regulation or treaty, (b) any change in any law, rule, regulation or treaty or in the administration, interpretation, implementation or application thereof by any Governmental Authority or (c) the making or issuance of any request, rule, guideline or directive (whether or not having the force of law) by any Governmental Authority; provided that notwithstanding anything herein to the contrary, and for the avoidance of doubt, (x) the Dodd-Frank Wall Street Reform and Consumer Protection Act and all requests, rules, guidelines or directives thereunder or issued in connection therewith and (y) all requests, rules, guidelines or directives promulgated by the Basel Committee on Banking Supervision Bank for International Settlements (or any successor or similar authority) or any foreign or United States regulatory authorities, in each case pursuant to Basel III, shall in each case be deemed to be a “Change”, regardless of the date enacted, adopted or issued.

3.3 Taxes.

(a) All payments by the Borrower to or for the account of any Lender, the Administrative Agent or the Security Trustee hereunder or under any Letter of Credit Application shall be made free and clear of and without deduction for any and all Taxes. If the Borrower shall be required by law to deduct any Taxes from or in respect of any sum payable hereunder to any Lender, the Administrative Agent or the Security Trustee, (i) the sum payable shall be increased as necessary so that after making all required deductions (including deductions applicable to additional sums payable under this Section 3.3) such Lender, the Administrative Agent or the Security Trustee (as the case may be) receives an amount equal to the sum it would have received had no such deductions been made, (ii) the Borrower shall make such deductions, (iii) the Borrower shall pay the full amount deducted to the relevant authority in accordance with applicable law and (iv) the Borrower shall furnish to the Administrative Agent the original copy of a receipt evidencing payment thereof within thirty (30) days after such payment is made.

(b) In addition, the Borrower hereby agrees to pay any present or future stamp or documentary taxes and any other excise or property taxes, charges or similar levies which arise from any payment made hereunder or under any other Facility Document or from the execution or delivery of, or otherwise with respect to, this Agreement or any other Facility Document (“Other Taxes”).

30

(c) Without duplication of amounts paid by the Borrower under Section 3.3(a) or (b), the Borrower hereby agrees to indemnify the Administrative Agent and each Lender for the full amount of Taxes or Other Taxes (including, without limitation, any Taxes or Other Taxes imposed on amounts payable under this Section 3.3) paid by the Administrative Agent or such Lender and any liability (including penalties, interest and expenses) arising therefrom or with respect thereto; provided, however, that the Borrower shall not be required to indemnify the Administrative Agent or such Lender, as the case may be, for any penalties, interest or expenses arising therefrom or imposed with respect thereto to the extent that such penalties, interest, or expenses are attributable to the failure of the Administrative Agent or such Lender, as the case may be, to pay over any amounts paid to the Administrative Agent or such Lender by the Borrower (for Taxes or Other Taxes) to the relevant Governmental Authority within twenty (20) days after receipt of such payment from the Borrower. Payments due under this indemnification shall be made within thirty (30) days of the date the Administrative Agent or such Lender makes demand therefor pursuant to Section 3.4.

(d) Each Lender that is not incorporated under the laws of the United States of America or a state thereof (each a “Non-U.S. Lender”) agrees that it will, not less than ten (10) Business Days after the date of this Agreement, deliver to each of the Borrower and the Administrative Agent such properly completed and executed documentation prescribed by applicable law or reasonably requested by the Borrower, certifying that such Lender is entitled to receive payments under this Agreement without deduction or withholding of any United States federal income taxes. In addition, each Lender that is not a Non-U.S. Lender will, not less than ten (10) Business Days after the date of this Agreement, deliver to each of the Borrower and the Administrative Agent such other documentation prescribed by law or reasonably requested by the Borrower or the Administrative Agent as will enable the Borrower or the Administrative Agent to determine whether or not such Lender is subject to backup withholding and information reporting requirements. Each Lender further undertakes to deliver to each of the Borrower and the Administrative Agent (x) renewals or additional copies of such form (or any successor form) on or before the date that such form expires or becomes obsolete and (y) after the occurrence of any event requiring a change in the most recent forms so delivered by it, such additional forms or amendments thereto as may be reasonably requested by the Borrower or the Administrative Agent. All forms or amendments described in the preceding sentence shall certify that such Lender is entitled to receive payments under this Agreement without deduction or withholding of any United States federal income taxes, unless an event (including without limitation any change in treaty, law or regulation) has occurred prior to the date on which any such delivery would otherwise be required which renders all such forms inapplicable or which would prevent such Lender from duly completing and delivering any such form or amendment with respect to it and such Lender advises the Borrower and the Administrative Agent that it is not capable of receiving payments without any deduction or withholding of United States federal income tax.

(e) Each “Non-U.S. Lender” shall deliver to each of the Borrower and the Administrative Agent on the Amendment Effective Date any documentation, accurately completed and in a manner reasonably satisfactory to the requesting party, that may be

31

required in order to allow the requesting party to make a payment under this Agreement or any other Facility Document without any deduction or withholding for or on account of any tax otherwise required to be withheld or assessed under FATCA as of the Amendment Effective Date. Thereafter:

(i) Subject to paragraph (iii) below, each Party shall, within ten Business Days of a reasonable request by another Party confirm to that other Party whether it is or is not a FATCA Exempt Party and supply to that other Party such forms, documentation and other information relating to its status under FATCA (including its applicable passthru percentage or other information required under the Treasury Regulations or other official guidance including intergovernmental agreements) as that other Party reasonably requests for the purposes of that other Party’s compliance with FATCA; provided that no Party shall be obliged to do anything which would or might in its reasonable opinion constitute a breach of any law or regulation, any policy of such Party, any fiduciary duty or any duty of confidentiality.

(ii) If a Party confirms to another Party pursuant to Section 3.3(e)(i) above that it is a FATCA Exempt Party and it subsequently becomes aware that it is not, or has ceased to be a FATCA Exempt Party, that Party shall notify that other Party reasonably promptly.

(iii) If a Party fails to confirm its status or to supply forms, documentation or other information requested in accordance with paragraph (a) above (including, for the avoidance of doubt, where a Party determines that providing the other Party with any of the information requested under Section 3.3(e)(i) will or may in its reasonable opinion constitute a breach of any law or regulation, any policy of such Party, any fiduciary duty or any duty of confidentiality), then (x) if that Party failed to confirm whether it is (and/or remains) a FATCA Exempt Party then such Party shall be treated for the purposes of the Facility Documents as if it is not a FATCA Exempt Party and (y) if that Party failed to confirm its applicable passthru percentage then such Party shall be treated for the purposes of the Facility Documents (and payments made thereunder) as if its applicable passthru percentage is 100%, until (in each case) such time as the Party in question provides the requested confirmation, forms, documentation or other information.

(f) For any period during which a Non-U.S. Lender has failed to provide the Borrower with an appropriate form pursuant to paragraph (d) above (unless such failure is due to a change in treaty, law or regulation, or any change in the interpretation or administration thereof by any Governmental Authority, occurring subsequent to the date on which a form originally was required to be provided), such Non-U.S. Lender shall not be entitled to indemnification under this Section 3.3 with respect to Taxes imposed by the United States; provided that, should a Non-U.S. Lender which is otherwise exempt from or subject to a reduced rate of withholding tax become subject to Taxes because of its failure to deliver a form required under paragraph (d) above, the Borrower shall take such steps as such Non-U.S. Lender shall reasonably request to assist such Non-U.S. Lender to recover such Taxes.

32

(g) If the U.S. Internal Revenue Service or any other Governmental Authority of the United States or any other country or any political subdivision thereof asserts a claim that the Administrative Agent did not properly withhold tax from amounts paid to or for the account of any Lender (because the appropriate form was not delivered or properly completed, because such Lender failed to notify the Administrative Agent of a change in circumstances which rendered its exemption from withholding ineffective, or for any other reason), such Lender shall indemnify the Administrative Agent fully for all amounts paid, directly or indirectly, by the Administrative Agent as tax, withholding therefor, or otherwise, including penalties and interest, and including taxes imposed by any jurisdiction on amounts payable to the Administrative Agent under this subsection, together with all costs and expenses related thereto (including attorneys fees and time charges of attorneys for the Administrative Agent, which attorneys may be employees of the Administrative Agent). The obligations of the Lenders under this Section 3.3(g) shall survive the payment of the Obligations and termination of this Agreement.

(h) If the Administrative Agent or any Lender receives a refund of any Taxes or Other Taxes as to which it has been indemnified by the Borrower, it shall pay to the Borrower an amount equal to such refund (but only to the extent of indemnity payments made, or additional amounts paid, by the Borrower under this Section 3.3 with respect to Taxes or Other Taxes giving rise to such refund), net of all reasonable out-of-pocket expenses incurred by the Administrative Agent or the Lender, as the case may be, and without interest (other than any interest paid by the relevant Governmental Authority with respect to such refund), provided that the Borrower, upon the request of the Administrative Agent or the Lender agrees to repay the amount paid over to the Borrower (plus any penalties, interest or other charges imposed by the relevant Governmental Authority) to the Administrative Agent or the Lender in the event the Administrative Agent or the Lender is required to repay such refund to such Governmental Authority.

3.4 Lender Statements; Survival of Indemnity. To the extent reasonably possible, each Lender shall designate an alternate Lending Installation to reduce any liability of the Borrower to such Lender under Sections 3.1, 3.2 and 3.3 so long as such designation is not, in the judgment of such Lender, disadvantageous to such Lender. Each Lender shall deliver a written statement of such Lender to the Borrower (with a copy to the Administrative Agent) as to the amount due, if any, under Section 3.1, 3.2 or 3.3. Such written statement shall set forth in reasonable detail the calculations upon which such Lender determined such amount and shall be final, conclusive and binding on the Borrower in the absence of manifest error. The obligations of the Borrower under Section 3.1, 3.2 and 3.3 shall survive payment of the Obligations and termination of this Agreement.

33

ARTICLE IV

CONDITIONS PRECEDENT

4.1 The Lenders Obligation to Issue. The obligation of the Letter of Credit Agent and each Lender to issue the initial Letter of Credit hereunder is subject to satisfaction of the following conditions precedent:

(a) The Administrative Agent’s receipt of the following, each of which shall be originals or facsimiles or sent by electronic mail (followed promptly by originals) unless otherwise specified, each properly executed by an Authorized Officer of the Borrower, each dated the Amendment Effective Date (or, in the case of certificates of governmental officials, a recent date before the Amendment Effective Date) and each in form and substance satisfactory to the Administrative Agent and its counsel:

(i) Charter Documents; Good Standing Certificates. Copies of the articles or certificate of incorporation of the Borrower, together with all amendments, and a certificate of good standing, each certified by the appropriate governmental officer in its jurisdiction of incorporation.

(ii) By-Laws and Resolutions. Copies, certified by the Secretary or Assistant Secretary of the Borrower, of its by-laws and of its Board of Directors’ resolutions and of resolutions or actions of any other body authorizing the execution of the Facility Documents to which the Borrower is a party.

(iii) Secretary’s Certificate. An incumbency certificate, executed by the Secretary or Assistant Secretary of the Borrower, which shall identify by name and title and bear the signature of the officers of the Borrower authorized to sign the Facility Documents, upon which certificate the Administrative Agent and the Lenders shall be entitled to rely until informed of any change in writing by the Borrower.

(iv) Officer’s Certificate. A certificate, signed by an Authorized Officer of the Borrower, stating that: (A) on the Amendment Effective Date no Default or Unmatured Default has occurred and is continuing, (B) each of the representations and warranties set forth in Article V of this Agreement is true and correct on and as of the Amendment Effective Date (provided, that solely for purposes of this Section 4.1(a)(iv)(B), the representation and warranty in Section 5.6 shall be deemed to contain a reference to “prospects” of the Borrower) and (C) the A.M. Best Rating and the S&P Rating for Navigators.

(v) Legal Opinion. A written opinion of Drinker Briddle & Reath LLP, New York counsel to the Borrower regarding US matters addressed to the Administrative Agent and the Lenders and in form and substance acceptable to the Administrative Agent and its counsel.

(vi) Facility Documents. Executed originals of this Agreement.

(vii) Financial Statements. The financial statements described in Section 6.1(a)(ii) and the statutory statements described in Section 6.1(c)(ii), in each case for the fiscal quarter ending September 30, 2014.

34

(viii) RDS. A summary of the RDS calculations (including the information necessary to calculate the covenants in Sections 6.23(e) and (f)) for the Supported Syndicate prepared in accordance with the definitions and reporting requirements of Lloyd’s as in effect on the Amendment Effective Date for the applicable account years to be covered by the Letters of Credit to be issued hereunder.

(ix) Comfort Letter. The Lloyd’s Comfort Letter duly executed by Lloyds.

(x) Confirmation of Primary FAL. The Confirmation of Primary FAL duly executed by a director of the Managing Agent.

(xi) Compliance Certificate. A Compliance Certificate duly completed and executed based on the September 30, 2014 financial statements and the 2014 Year of Account.

(xii) Know your Customer. All documentation and other information required by bank regulatory authorities under applicable “know your customer” and anti-money laundering rules and regulations, including the PATRIOT Act.

(xiii) Other. Such other documents as the Administrative Agent, any Lender or their counsel may have reasonably requested.

(b) The A.M. Best Rating and the S&P Rating for Navigators shall be not less than “A-”.

(c) Any fees required to be paid on or before the Amendment Effective Date shall have been paid.

(d) Unless waived by the Administrative Agent, the Borrower shall have paid all fees, charges and disbursements of counsel to the Administrative Agent (directly to such counsel if requested by the Administrative Agent) to the extent invoiced prior to or on the Amendment Effective Date, plus such additional amounts of such fees, charges and disbursements as shall constitute its reasonable estimate of such fees, charges and disbursements incurred or to be incurred by it through the closing proceedings (provided that such estimate shall not thereafter preclude a final settling of accounts between Borrower and the Administrative Agent).

Without limiting the generality of Section 10.4, for purposes of determining compliance with the conditions specified in this Section 4.1, each Lender that has signed this Agreement shall be deemed to have consented to, approved or accepted or to be satisfied with, each document or other matter required thereunder to be consented to or approved by or acceptable or satisfactory to a Lender unless the Administrative Agent shall have received notice from such Lender prior to the proposed Amendment Effective Date specifying its objection thereto.

35

4.2 Each Letter of Credit. The Letter of Credit Agent, on behalf of the Lenders, shall not be obligated to issue or increase the stated amount of any Letter of Credit, unless on the applicable Issue Date:

(a) There exists no Default or Unmatured Default and none would result from such issuance of such Letter of Credit.

(b) The representations and warranties contained in Article V are true and correct as of such Issue Date except to the extent any such representation or warranty is stated to relate solely to an earlier date, in which case such representation or warranty shall have been true and correct on and as of such earlier date.

(c) An Issuance Request, as applicable, shall have been properly submitted.

(d) All legal matters incident to the issuance of such Letter of Credit shall be satisfactory to the Lenders and their counsel.

(e) If a Collateralization Event has occurred, the Required Amount shall have been deposited as required under Section 2.9 and the Administrative Agent shall have received a Borrowing Base Certificate calculated as of the most recent Business Day in accordance with the requirements hereof and demonstrating compliance with Section 2.10 after giving effect to the issuance of the requested Letter of Credit.

(f) Each Issuance Request with respect to each such Letter of Credit shall constitute a representation and warranty by the Borrower that the conditions contained in Section 4.2(a) and (b) have been satisfied. Any Lender may require a duly completed Compliance Certificate as a condition to issuing a Letter of Credit.

ARTICLE V

REPRESENTATIONS AND WARRANTIES

The Borrower represents and warrants to the Lenders that:

5.1 Existence and Standing. Each of the Borrower and its Subsidiaries is duly and properly formed, validly existing and in good standing under the laws of its jurisdiction of incorporation or organization and, except as could not reasonably be expected to have a Material Adverse Effect, has all requisite authority to conduct its business in each jurisdiction in which its business is conducted.

5.2 Authorization and Validity. The Borrower has the corporate power and authority and legal right to execute and deliver the Facility Documents and to perform its obligations thereunder. The execution and delivery by the Borrower of the Facility Documents and the performance of its obligations thereunder have been duly authorized by proper corporate proceedings, and the Facility Documents to which the Borrower is a party constitute legal, valid and binding obligations of the Borrower enforceable against the Borrower in accordance with their terms, except as enforceability may be limited by bankruptcy, insolvency or similar laws affecting the enforcement of creditors’ rights generally.

36

5.3 No Conflict; Government Consent. Neither the execution and delivery by the Borrower of the Facility Documents, nor the consummation of the transactions therein contemplated, nor compliance with the provisions thereof will violate (a) any law, rule, regulation, order, writ, judgment, injunction, decree or award binding on the Borrower or any of its Subsidiaries or (b) the Borrower’s or any Subsidiary’s articles or certificate of incorporation, partnership agreement, certificate of partnership, articles or certificate of organization, by-laws, or operating or other management agreement, as the case may be, or (c) the provisions of any indenture, instrument or agreement to which the Borrower or any of its Subsidiaries is a party or is subject, or by which it, or its Property, is bound, or conflict with or constitute a default thereunder, or result in, or require, the creation or imposition of any Lien in, of or on the Property of the Borrower or a Subsidiary pursuant to the terms of any such indenture, instrument or agreement. No order, consent, adjudication, approval, license, authorization, or validation of, or filing, recording or registration with, or exemption by, or other action in respect of any governmental or public body or authority, or any subdivision thereof, which has not been obtained by the Borrower or any of its Subsidiaries, is required to be obtained by the Borrower or any of its Subsidiaries in connection with the execution and delivery of the Facility Documents, the extensions of credit under this Agreement, the payment and performance by the Borrower of the Obligations or the legality, validity, binding effect or enforceability of any of the Facility Documents, except that approval of the New York Insurance Department and/or one or more other state insurance departments would be required in order for the Lenders to acquire control of Navigators and NSIC. Neither the Borrower nor any Subsidiary is in default under or in violation of any foreign, federal, state or local law, rule, regulation, order, writ, judgment, injunction, decree or award binding upon or applicable to the Borrower or such Subsidiary, in each case the consequences of which default or violation could reasonably be expected to have a Material Adverse Effect.

5.4 Financial Statements. (a) (i) The consolidated balance sheets of the Borrower and the Consolidated Subsidiaries as of December 31, 2013, the related consolidated statements of income, consolidated statements of stockholders’ equity, and consolidated statements of cash flows of the Borrower and such Consolidated Subsidiaries for the Fiscal Year then ended, and the accompanying footnotes, together, with the opinion thereon, of KPMG LLP, independent certified public accountants, copies of which have been furnished to the Lenders, fairly present the financial condition of the Borrower and the Consolidated Subsidiaries as at such dates and the results of the operations of the Borrower and Consolidated Subsidiaries for the periods covered by such statements, all in accordance with Agreement Accounting Principles consistently applied and (ii) the unaudited consolidated balance sheets of the Borrower and the Consolidated Subsidiaries as of September 30, 2014, the related consolidated statements of income, consolidated statements of stockholders’ equity, and consolidated statements of cash flows of the Borrower and such Consolidated Subsidiaries for the fiscal quarter then ended, fairly present the financial condition of the Borrower and the Consolidated Subsidiaries as at such dates and the results of the operations of the Borrower and Consolidated Subsidiaries for the periods covered by such statements, all in accordance with Agreement Accounting Principles consistently applied (subject to year-end adjustments and the absence of footnotes).

(b) There are no liabilities of the Borrower or any of the Consolidated Subsidiaries, fixed or contingent, which are material but are not reflected in the most recent financial statements referred to above or in the notes thereto, other than liabilities arising in the ordinary course of business since December 31, 2013.

37

5.5 Statutory Financial Statements. The Annual Statement of each of the Insurance Subsidiaries (including, without limitation, the provisions made therein for investments and the valuation thereof, reserves, policy and contract claims and statutory liabilities) as filed with the appropriate Governmental Authority of its state of domicile (the “Department”) as of and for the 2013 Fiscal Year and the quarterly SAP statements for the fiscal quarter ended September 30, 2014 delivered to each Lender prior to the execution and delivery of this Agreement (collectively, the “Statutory Financial Statements”), have been prepared in accordance with SAP applied on a consistent basis (except as noted therein). Each such Statutory Financial Statement was in material compliance with applicable law when filed.

5.6 Material Adverse Change. Other than as disclosed in any SEC Report filed prior to November [    ], 2014, since December 31, 2013 there has been no change in the business, Property, condition (financial or otherwise), prospects or results of operations of the Borrower and its Subsidiaries which could reasonably be expected to have a Material Adverse Effect.

5.7 Taxes. The Borrower and its Subsidiaries have filed all United States federal tax returns and all other tax returns which are required to be filed and have paid all taxes due pursuant to said returns or pursuant to any assessment received by the Borrower or any of its Subsidiaries, except such taxes, if any, as are being contested in good faith and as to which adequate reserves have been provided in accordance with Agreement Accounting Principles and as to which no Lien exists. No tax liens have been filed and no claims are being asserted with respect to any such taxes. The charges, accruals and reserves on the books of the Borrower and its Subsidiaries in respect of any taxes or other governmental charges are adequate.

5.8 Litigation and Contingent Obligations. There is no litigation, arbitration, governmental investigation, proceeding or inquiry pending or, to the knowledge of any of their officers, threatened against or affecting the Borrower or any of its Subsidiaries which could reasonably be expected to have a Material Adverse Effect or which seeks to prevent, enjoin or delay the issuance of any Letter of Credit. Other than any liability incident to any litigation, arbitration or proceeding which could not reasonably be expected to have a Material Adverse Effect, the Borrower has no material contingent obligations not provided for or disclosed in the SEC Reports or in the financial statements referred to in Section 5.4.

5.9 Subsidiaries. Schedule 5.9 contains an accurate list of all Subsidiaries of the Borrower as of the date of this Agreement, setting forth their respective jurisdictions of organization and the percentage of their respective capital stock or other ownership interests owned by the Borrower or other Subsidiaries and indicating which Subsidiaries are Significant Subsidiaries and which Subsidiaries are Insurance Subsidiaries. All of the issued and outstanding shares of capital stock or other ownership interests of such Subsidiaries have been (to the extent such concepts are relevant with respect to such ownership interests) duly authorized and issued and are fully paid and non-assessable.

5.10 ERISA. The Unfunded Liabilities of all Single Employer Plans is $0 except that funding of any money purchase pension plan may be delayed each Fiscal Year until the end of

38

the first Fiscal Quarter of the following year. Neither the Borrower nor any other member of the Controlled Group has incurred, or is reasonably expected to incur, any withdrawal liability to any Multiemployer Plan. Each Plan complies in all material respects with all applicable requirements of law and regulations, no Reportable Event has occurred with respect to any Plan, neither the Borrower nor any other member of the Controlled Group has withdrawn from any Plan or initiated steps to do so, and no steps have been taken to reorganize or terminate any Plan. There are no pending or, to the best knowledge of the Borrower, threatened claims, actions or lawsuits, or action by any Government Authority, with respect to any Plan that could reasonably be expected to have a Material Adverse Effect.

5.11 Defaults. No Default or Unmatured Default has occurred and is continuing.

5.12 Accuracy of Information. No information, exhibit or report furnished by the Borrower or any of its Subsidiaries to the Administrative Agent or to any Lender in connection with the negotiation of, or compliance with, the Facility Documents contained any material misstatement of fact or omitted to state a material fact or any fact necessary to make the statements contained therein not misleading.

5.13 Regulation U. Margin Stock (as defined in Regulation U) constitutes less than 25% of the value of those assets of the Borrower and its Subsidiaries which are subject to any limitation on sale, pledge, or other restriction hereunder. Neither the issuance of any Letters of Credit hereunder nor the use of the proceeds thereof, will violate or be inconsistent with the provisions of Regulation T, Regulation U or Regulation X.

5.14 Material Agreements. Neither the Borrower nor any Subsidiary is a party to any agreement or instrument or subject to any charter or other corporate restriction which could reasonably be expected to have a Material Adverse Effect. Neither the Borrower nor any Subsidiary is in default in the performance, observance or fulfillment of any of the obligations, covenants or conditions contained in (a) any agreement to which it is a party which default could reasonably be expected to have a Material Adverse Effect or (b) any agreement or instrument evidencing or governing Indebtedness.

5.15 Compliance With Laws. The Borrower and its Subsidiaries have complied with all applicable statutes, rules, regulations, orders and restrictions of any domestic or foreign government or any instrumentality or agency thereof having jurisdiction over the conduct of their respective businesses or the ownership of their respective Property, except where the failure to comply could not reasonably be expected to have a Material Adverse Effect.

5.16 Ownership of Properties. The Borrower and each of its Subsidiaries has good title, free of all Liens other than those permitted by Section 6.16, to all of the Property and assets reflected in the Borrower’s most recent consolidated financial statements filed with the Securities and Exchange Commission as owned by the Borrower and its Subsidiaries.

5.17 Plan Assets; Prohibited Transactions. The Borrower is not an entity deemed to hold “plan assets” within the meaning of 29 C.F.R. § 2510.3-101 of an employee benefit plan (as defined in Section 3(3) of ERISA) which is subject to Title I of ERISA or any plan (within the meaning of Section 4975 of the Code), and neither the execution of this Agreement nor the issuance of Letters of Credit hereunder gives rise to a prohibited transaction within the meaning of Section 406 of ERISA or Section 4975 of the Code.

39

5.18 Environmental Matters. In the ordinary course of its business, the officers of the Borrower consider the effect of Environmental Laws on the business of the Borrower and its Subsidiaries, in the course of which they identify and evaluate potential risks and liabilities accruing to the Borrower due to Environmental Laws. On the basis of this consideration, the Borrower has concluded that Environmental Laws cannot reasonably be expected to have a Material Adverse Effect. Neither the Borrower nor any Subsidiary has received any notice to the effect that its operations are not in material compliance with any of the requirements of applicable Environmental Laws or are the subject of any federal or state investigation evaluating whether any remedial action is needed to respond to a release of any toxic or hazardous waste or substance into the environment, which non-compliance or remedial action could reasonably be expected to have a Material Adverse Effect.

5.19 Investment Company Act. Neither the Borrower nor any Subsidiary is an “investment company” or a company “controlled” by an “investment company”, within the meaning of the Investment Company Act of 1940, as amended.

5.20 Solvency. Immediately after the consummation of the transactions to occur on the date hereof and immediately following each issuance of a Letter of Credit (including the Existing Letters of Credit) hereunder on the date hereof and after giving effect to the application of the proceeds of such Letters of Credit, (a) the fair value of the assets of the Borrower and its Subsidiaries on a consolidated basis, at a fair valuation, will exceed the debts and liabilities, subordinated, contingent or otherwise, of the Borrower and its Subsidiaries on a consolidated basis, (b) the present fair saleable value of the Property of the Borrower and its Subsidiaries on a consolidated basis will be greater than the amount that will be required to pay the probable liability of the Borrower and its Subsidiaries on a consolidated basis on their debts and other liabilities, subordinated, contingent or otherwise, as such debts and other liabilities become absolute and matured, (c) the Borrower and its Subsidiaries on a consolidated basis will be able to pay their debts and liabilities, subordinated, contingent or otherwise, as such debts and liabilities become absolute and matured and (d) the Borrower and its Subsidiaries on a consolidated basis will not have unreasonably small capital with which to conduct the businesses in which they are engaged as such businesses are now conducted and are proposed to be conducted after the date hereof.

5.21 Insurance Licenses. To the extent required by applicable law, each Insurance Subsidiary holds a License and is authorized to transact insurance business in (i) the line or lines of insurance and (ii) the state, states or jurisdictions it is engaged in, except to the extent that the failure to have such a License or authority could not reasonably be expected to have a Material Adverse Effect. No such License, the loss of which could reasonably be expected to have a Material Adverse Effect, is the subject of a proceeding for suspension, limitation or revocation. To the Borrower’s knowledge, there is not a sustainable basis for such suspension, limitation or revocation, and no such suspension, limitation or revocation has been threatened by any Governmental Authority. The Insurance Subsidiaries do not transact any business, directly or indirectly, requiring any license, permit, governmental approval, consent or other authorization other than those currently obtained, except to the extent of which could not reasonably be expected to have a Material Adverse Effect.

40

5.22 Partnerships. Except as disclosed in Schedule 5.22, neither the Borrower nor any of its Subsidiaries is a partner of any partnership.

5.23 Lines of Business. Schedule 5.23 sets forth a complete statement of each material line of business conducted as of the date hereof by the Borrower and each of its Subsidiaries (the “Existing Lines of Business”).

5.24 Reinsurance Practices. The business of each Insurance Subsidiary is being conducted in all material respects in accordance with the Reinsurance Guidelines.

5.25 Security. Each Security Document is effective to create and give the Administrative Agent, for the benefit of the Secured Parties, as security for the repayment of the obligations secured thereby, a legal, valid, perfected and enforceable first priority Lien upon and security interest in the Collateral in which a security interest is granted thereby except for the Permitted Liens (as defined in the Security Agreement) and except that approval of the New York Insurance Department and/or one or more other state insurance departments would be required in order for the Lenders to acquire control of Navigators or NSIC.

5.26 Disclosure. None of the (a) information, exhibits or reports furnished or to be furnished by the Borrower or any Subsidiary to the Administrative Agent or to any Lender in connection with the negotiation of the Facility Documents or (b) representations or warranties of the Borrower or any Subsidiary contained in this Agreement, the other Facility Documents or any other document, certificate or written statement furnished to the Administrative Agent or the Lenders by or on behalf of the Borrower or any Subsidiary for use in connection with the transactions contemplated by this Agreement or the Facility Documents contained, contains or will contain any untrue statement of a material fact or omitted, omits or will omit to state a material fact necessary in order to make the statements contained herein or therein not misleading in light of the circumstances in which the same were made. There is no fact known to the Borrower (other than matters of a general economic nature) that has had or could reasonably be expected to have a Material Adverse Effect and that has not been disclosed herein or in such other documents, certificates and statements furnished to the Lenders for use in connection with the transactions contemplated by this Agreement.

5.27 Anti-Money Laundering and Anti-Terrorism Finance Laws. To the extent applicable, the Borrower is in compliance, in all material respects, with anti-money laundering laws and anti-terrorism finance laws of any jurisdiction applicable to the Borrower or its Subsidiaries, including the Bank Secrecy Act and the PATRIOT Act (the “Anti-Terrorism Laws”).

5.28 Anti-Corruption Laws. No part of the proceeds of the Letters of Credit shall be used, directly or, to the knowledge of the Borrower, indirectly: (a) to offer or give anything of value to any official or employee of any foreign government department or agency or instrumentality or government-owned entity, to any foreign political party or party official or political candidate or to any official or employee of a public international organization, or to

41

anyone else acting in an official capacity (collectively, “Foreign Official”), in order to obtain, retain or direct business by (i) influencing any act or decision of such Foreign Official in his official capacity, (ii) inducing such Foreign Official to do or omit to do any act in violation of the lawful duty of such Foreign Official, (iii) securing any improper advantage or (iv) inducing such Foreign Official to use his influence with a foreign government or instrumentality to affect or influence any act or decision of such government or instrumentality; (b) to cause any Lender to violate the U.S. Foreign Corrupt Practices Act of 1977; or (c) to cause any Lender to violate any other anti-corruption law applicable to such Lender (all laws referred to in clauses (b) and (c) being “Anti-Corruption Laws”).

5.29 Sanctions Laws. Neither the Borrower nor its Subsidiaries and to the knowledge of the Borrower, no other Affiliate or broker or other agent of the Borrower acting or benefiting in any capacity in connection with the Letters of Credit, is any of the following (a “Restricted Person”): (a) a Person that is listed in the annex to, or is otherwise subject to the provisions of, Executive Order No. 13224 on Terrorist Financing, effective September 24, 2001 (the “Executive Order”); (b) a Person that is named as a “specially designated national and blocked person” on the most current list published by the U.S. Treasury Department Office of Foreign Assets Control (“OFAC”) at its official website or any replacement website or other replacement official publication of such list or similarly named by any similar foreign governmental authority; (c) a Person that is owned 50 percent or more by any Person described in Section 5.29(b); (d) any other Person with which any Lender is prohibited from dealing under any Sanctions laws; or (e) a Person that derives more than 10% of its annual revenue from investments in or transactions with any Person described in Section 5.29 (a), (b), (c) or (d). Further, none of the proceeds from the Letters of Credit shall be used to finance or facilitate, directly or, to the Borrower’s or any Subsidiaries’ knowledge, indirectly, any transaction with, investment in, or any dealing for the benefit of, any Restricted Person or any transaction, investment or dealing in which the benefit is received in a country for which such benefit is prohibited by any Sanctions laws.

ARTICLE VI

COVENANTS

Until the date that no Letters of Credit are outstanding and all Letter of Credit Obligations have been indefeasibly paid in full, unless the Lenders shall otherwise consent in writing:

6.1 Financial Reporting. The Borrower will maintain, for itself and each Subsidiary, a system of accounting established and administered in accordance with generally accepted accounting principles, consistently applied, and will furnish to the Lenders:

(a) As soon as practicable and in any event within seventy (70) days after the close of each of its Fiscal Years, an unqualified audit report certified by independent certified public accountants acceptable to the Required Lenders, prepared in accordance with Agreement Accounting Principles on a consolidated and consolidating basis and setting forth in comparative form figures for the preceding Fiscal Year for itself and its Consolidated Subsidiaries and on a stand alone basis for the Borrower, including balance

42

sheets as of the end of such period and related statements of income, stockholders’ equity and cash flows accompanied by any management letter prepared by said accountants; provided that no annual report other than the report on Form 10-K needs to be delivered.

(b) As soon as practicable and in any event within fifty (50) days after the close of the first three Fiscal Quarters of each of its Fiscal Years, for itself and its Subsidiaries, consolidated and consolidating unaudited balance sheets as at the close of each such period and consolidated and consolidating statement of income, stockholders’ equity and cash flows for the period from the beginning of such Fiscal Year to the end of such quarter setting forth in each case in comparative form figures for the corresponding period in the prior Fiscal Year, all prepared in accordance with Agreement Accounting Principles and in reasonable detail, and all signed by its chief financial officer.

(c) As soon as available and in any event (i) within seventy (70) days after the close of each Fiscal Year of each Insurance Subsidiary, the Annual Statement of such Insurance Subsidiary for such Fiscal Year as filed with the insurance commissioner (or similar authority) in such Insurance Subsidiary’s state of domicile, together with the signature thereof of the chief financial officer of the Borrower stating that such Annual Statement presents the financial condition and results of operations of such Insurance Subsidiary in accordance with SAP, (ii) on or prior to each June 1 after the close of each Fiscal Year of each Insurance Subsidiary, the opinion of a firm of certified public accountants reasonably satisfactory to the Required Lenders, who shall have examined such Annual Statement and whose opinion shall not be qualified as to the scope of audit or as to the status of such Insurance Subsidiary as a going concern, and (iii) within one hundred twenty (120) days after the close of each Fiscal Year of each Insurance Subsidiary, a written review of and opinion of an accounting or actuarial firm or internal actuary, as delivered to the Department, reasonably satisfactory to the Required Lenders on the methodology and assumptions used to calculate the Loss Reserves of such Insurance Subsidiary at the end of such Fiscal Year (as shown on the Annual Statement of such Insurance Subsidiary prepared in accordance with SAP).

(d) As soon as available and in any event on or prior to each May 1 after the close of each Fiscal Year of the Insurance Subsidiaries, the Consolidated Annual Statement of the Insurance Subsidiaries for such Fiscal Year, prepared in accordance with SAP and filed with the New York Insurance Department.

(e) As soon as available and in any event within fifty (50) days after the close of each of the first three Fiscal Quarters in each Fiscal Year of each Insurance Subsidiary, quarterly financial statements of such Insurance Subsidiary (prepared in accordance with SAP) for such Fiscal Quarter and as filed with the insurance commissioner (or similar authority) in such Insurance Subsidiary’s state of domicile, together with the signature thereon of the chief financial officer of the Borrower stating that such financial statements present the financial condition and results of operations of such Insurance Subsidiary in accordance with SAP.

(f) As soon as practicable and in any event within ninety (90) days after the close of each Fiscal Year of the Supported Syndicate, an unqualified audit report certified

43

by independent certified public accountants acceptable to the Required Lenders, prepared in accordance with Agreement Accounting Principles setting forth in comparative form figures for the preceding Fiscal Year for the Supported Syndicate, including balance sheets as of the end of such period and related statements of income and stockholders’ equity accompanied by any management letter prepared by said accountants.

(g) As soon as practicable and in any event within one hundred and eighty (180) days after the close of each Fiscal Year of the Corporate Member, an unqualified audit report certified by independent certified public accountants acceptable to the Required Lenders, prepared in accordance with Agreement Accounting Principles setting forth in comparative form figures for the preceding Fiscal Year for the Corporate Member, including balance sheets as of the end of such period and related statements of income and stockholders’ equity accompanied by any management letter prepared by said accountants.

(h) As soon as available, but in any event within one hundred twenty (120) days after the beginning of each Fiscal Year, a copy of the plan and forecast of the Borrower and its Subsidiaries for such Fiscal Year in the form customarily prepared by the Borrower.

(i) Together with the financial statements required by clauses (a) and (b) above, a Compliance Certificate signed by its chief financial officer showing the calculations necessary to determine compliance with this Agreement and stating that no Default or Unmatured Default exists, or if any Default or Unmatured Default exists, stating the nature and status thereof and updating Schedule 5.9.

(j) As soon as possible and in any event within ten (10) days after the Borrower knows that any Termination Event has occurred with respect to any Plan, a statement, signed by the chief financial officer of the Borrower, describing said Termination Event and the action which the Borrower proposes to take with respect thereto.

(k) As soon as possible and in any event within ten (10) days after receipt by the Borrower, a copy of (i) any notice or claim to the effect that the Borrower or any of its Subsidiaries is or may be liable to any Person as a result of the release by the Borrower, any of its Subsidiaries or any other Person of any toxic or hazardous waste or substance into the environment, and (ii) any notice alleging any violation of any federal, state or local environmental, health or safety law or regulation by the Borrower or any of its Subsidiaries.

(l) As soon as possible and in any event within ten (10) days after the Borrower learns thereof, notice of the assertion or commencement of any claims, action, suit or proceeding against or affecting the Borrower or any Subsidiary which may reasonably be expected to have a Material Adverse Effect.

44

(m) Promptly upon the furnishing thereof to the shareholders of the Borrower, copies of all financial statements, reports and proxy statements so furnished; provided that no annual report other than the report on Form 10-K needs to be delivered.

(n) Promptly upon the filing thereof, copies of all registration statements and annual, quarterly, monthly or other regular reports which the Borrower or any of its Subsidiaries files with the Securities and Exchange Commission.

(o) Promptly and in any event within ten (10) days after learning thereof, notification of (i) any tax assessment, demand, notice of proposed deficiency or notice of deficiency received by the Borrower or any Consolidated Person or (ii) the filing of any tax Lien or commencement of any judicial proceeding by or against any such Consolidated Person, if any such assessment, demand, notice, Lien or judicial proceeding relates to tax liabilities in excess of $2,500,000.

(p) Promptly, and in any event within five (5) days after (i) learning thereof, notification of any changes after the date hereof in the Borrower’s S&P Rating or Borrower’s Moody’s Rating or in the A.M. Best Rating in respect of any Insurance Subsidiary and (ii) receipt thereof, copies of any ratings analysis by A.M. Best & Co. relating to any Insurance Subsidiary.

(q) Copies of any actuarial certificates prepared with respect to any Insurance Subsidiary, promptly after the receipt thereof, and not later than ninety (90) days after each Fiscal Year, an actuarial opinion with respect to each Insurance Subsidiary in form and substance reasonably satisfactory to the Administrative Agent and the Required Lenders from an accounting or actuarial firm or internal actuary, as delivered to the Department, reasonably satisfactory to the Administrative Agent and the Required Lenders.

(r) Promptly upon the filing thereof, copies of all filings and annual, quarterly, monthly or other regular reports which the Borrower or any of its Subsidiaries files with the NAIC or any insurance commission or department or analogous Governmental Authority (including, without limitation, any filing made by the Borrower or any Subsidiary pursuant to any insurance holding company act or related rules or regulations), but excluding routine or non-material filings with the NAIC, any insurance commissioner or department or analogous Governmental Authority.

(s) In addition to the requirements of clause (c)(iii) above, as promptly as reasonably practicable following the request of the Required Lenders, a report prepared by an accounting or actuarial firm or internal actuary, as delivered to the Department, reviewing the adequacy of Loss Reserves of each Insurance Subsidiary, which firm shall be provided access to or copies of all reserve analyses and valuations relating to the insurance business of each Insurance Subsidiary in the possession of or available to the Borrower or its Subsidiaries; provided, that, in the event that the written review required to be provided to the Lenders in respect of any Fiscal Year pursuant to clause (c)(iv) above is provided by an independent actuarial consulting firm reasonably satisfactory to the Administrative Agent, or a written review of an independent actuarial consulting firm

45

reasonably satisfactory to the Administrative Agent satisfying the requirements set forth in clause (c)(iv) is otherwise delivered to the Lenders at any time other than pursuant to such clause, then the Required Lenders may not request a report pursuant to this clause (q) until one year after the delivery date of such report unless, at the time of such request, a Default is in existence.

(t) If a Collateralization Event has occurred, (i) as soon as available, but in any event within 10 days after the end of each calendar month of each fiscal year (x) a report listing the Eligible Collateral and (y) a Borrowing Base Certificate executed by a Authorized Officer. For purposes of such report and of completing the Borrowing Base Certificate required under this Section 6.1(r), Eligible Collateral shall be valued based on the Fair Market Value as at the last Business Day of the calendar month for which such report or Borrowing Base Certificate is being delivered and (ii) promptly, at the request of the Administrative Agent, a Borrowing Base Certificate for any given Business Day executed by a Authorized Officer.

(u) As soon as possible and in any event within five (5) days of delivery to Lloyds, the Franchise Performance Management Quarterly Monitoring Reports for the Supported Syndicate.

(v) As soon as possible and in any event within five (5) days of receipt from Lloyds, copies of the annual solvency statements prepared by Lloyd’s for the Supported Syndicate.

(w) As soon as possible and in any event within five (5) days of delivery to Lloyds, the Syndicate Business Forecast of the Supported Syndicate which for the avoidance of doubt shall included full RDS details and a syndicate reinsurance summary.

(x) As soon as possible and in any event within thirty (30) days of receipt from Lloyds, a summary of any material change in Lloyd’s RDS definitions or reporting requirements as well as the impact that such changes may have on the calculations provided pursuant to Section 4.1(a)(viii) and compliance with the covenant set forth in Section 6.23(e).

(y) As soon as possible and in any event within five (5) days of the occurrence thereof, notice of a distribution or withdrawal of any Solvency Surplus then included in the calculation of the Adjusted Primary FAL together with a calculation of Adjusted Primary FAL (and, if the Borrower has been required to post Collateral, a Borrowing Base Certificate) after giving effect to such distribution or withdrawal

(z) As soon as possible and in any event within five (5) days of delivery of the same to Lloyd’s or any other insurance regulator or Governmental Authority, all other ad hoc or exceptional financial reports provided by the Supported Syndicate or the Borrower.

6.2 Purpose. Letters of Credit will be issued to provide Funds at Lloyd’s to support underwriting capacity provided by the Corporate Member to the Supported Syndicate for the 2015 and 2016 underwriting years of account (and prior open years).

46

6.3 Notice of Material Events. The Borrower will, promptly after becoming aware of the occurrence of any of the following, give notice in writing to the Lenders of the occurrence of (a) any Default or Unmatured Default, (b) the existence of an NSF Deficiency, (c) of any other event or development, financial or otherwise which could reasonably be expected to have a Material Adverse Effect, (d) the receipt of any notice from any Governmental Authority or Lloyd’s of the expiration without renewal, revocation or suspension of, or the institution of any proceedings to revoke or suspend, any License now or hereafter held by any Insurance Subsidiary which is required to conduct insurance business in compliance with all applicable laws and regulations and the expiration, revocation or suspension of which could reasonably be expected to have a Material Adverse Effect, (e) the receipt of any notice from any Governmental Authority or Lloyd’s of the institution of any disciplinary proceedings against or in respect of any Insurance Subsidiary, or the issuance of any order, the taking of any action or any request for an extraordinary audit for cause by any Governmental Authority which, if adversely determined, could reasonably be expected to have a Material Adverse Effect, (f) any material judicial or administrative order limiting or controlling the business of any Subsidiary (and not the industry in which such Subsidiary is engaged generally) which has been issued or adopted or (g) the commencement of any litigation which could reasonably be expected to result in a Material Adverse Effect.

6.4 Conduct of Business. The Borrower will, and will cause each Subsidiary to, (a) carry on and conduct its business only in the Existing Lines of Business or in other lines of the insurance business or in activities reasonably incidental to the insurance business, (b) do all things necessary to remain duly incorporated or organized, validly existing and (to the extent such concept applies to such entity) in good standing in its jurisdiction of incorporation and its jurisdiction of incorporation or organization, as the case may be, and maintain all requisite authority to conduct its business in each other jurisdiction in which such qualification is required and (c) do all things necessary to renew, extend and continue in effect all Licenses material to its business which may at any time and from time to time be necessary for any Insurance Subsidiary to operate its business in compliance with all applicable laws and regulations. No Insurance Subsidiary shall change its state of domicile or incorporation without the prior written consent of the Required Lenders. The Borrower will not become an entity deemed to hold “plan assets” within the meaning of 29 C.F.R. § 2510.3-101 of an employee benefit plan (as defined in Section 3(3) of ERISA) which is subject to Title I of ERISA or any plan (within the meaning of Section 4975 of the Code).

6.5 Taxes. The Borrower will, and will cause each Subsidiary to, timely file United States federal and applicable foreign, state and local tax returns required by applicable law complete and correct in all material respects and pay when due all material taxes, assessments and governmental charges and levies upon it or its income, profits or Property, except those which are being contested in good faith by appropriate proceedings and with respect to which adequate reserves have been set aside in accordance with Agreement Accounting Principles and SAP, as applicable.

6.6 Insurance. The Borrower will, and will cause each Subsidiary to, maintain with financially sound and reputable insurance companies insurance on all their Property in such amounts and covering such risks as is consistent with sound business practice, and the Borrower will furnish to the Administrative Agent and any Lender upon request full information as to the insurance carried.

47

6.7 Compliance with Laws. The Borrower will, and will cause each Subsidiary to, comply with all laws, rules, regulations, orders, writs, judgments, injunctions, decrees or awards to which it may be subject, including, without limitation, all Environmental Laws, the noncompliance with which could reasonably be expected to have a Material Adverse Effect.

6.8 Maintenance of Properties. The Borrower will, and will cause each Subsidiary to, do all things necessary to maintain, preserve, protect and keep its Property in good repair, working order and condition, and make all necessary and proper repairs, renewals and replacements so that its business carried on in connection therewith may be properly conducted at all times in all material respects.

6.9 Inspection; Maintenance of Books and Records. The Borrower will, and will cause each Subsidiary to, permit the Administrative Agent and the Lenders, by their respective representatives and agents, to inspect any of the Property, books and financial records of the Borrower and each Subsidiary, to examine and make copies of the books of accounts and other financial records of the Borrower and each Subsidiary, and to discuss the affairs, finances and accounts of the Borrower and each Subsidiary with, and to be advised as to the same by, their respective officers at such reasonable times and intervals, during normal business hours and upon reasonable prior notice to the Borrower, as the Administrative Agent or any Lender may designate. The Borrower will keep or cause to be kept, and cause each Subsidiary to keep or cause to be kept, appropriate records and books of account in which complete entries are to be made reflecting its and their business and financial transactions, such entries to be made in accordance with Agreement Accounting Principles and SAP, as applicable, consistently applied.

6.10 Dividends and Stock Repurchases. The Borrower will not, nor will it permit any Subsidiary to, declare or pay any dividends or make any distributions on its capital stock (other than dividends payable in its own capital stock) or redeem, repurchase or otherwise acquire or retire any of its capital stock or any options or other rights in respect thereof at any time outstanding, except that (a) any Subsidiary may declare and pay dividends or make distributions to the Borrower or to a Wholly-Owned Subsidiary of the Borrower and (b) the Borrower may repurchase capital stock and may pay dividends provided after giving effect thereto (i) Borrower would be in pro forma compliance with the terms of this Agreement and (ii) no Default shall have occurred.

6.11 Indebtedness. The Borrower will not, nor will it permit any Subsidiary to, create, incur or suffer to exist any Indebtedness, except:

(a) the Obligations;

(b) Indebtedness of the Borrower in connection with senior unsecured notes in an aggregate amount not at any time exceeding $300,000,000. For purposes of calculating Indebtedness under this clause (b), the principal amount of any such Indebtedness which constitutes Defeased Indebtedness shall not be included.;

(c) guaranties permitted under Section 6.15;

48

(d) capital leases in amounts not in excess of $2,500,000 at any time outstanding;

(e) up to 12,500,000 Australian Dollars of Indebtedness of the Borrower under the Australian Dollar letter of credit facility evidenced by the facility letter agreement dated October 21, 2014 from Barclays Bank PLC and executed by the Borrower;

(f) other Indebtedness, in addition to the Indebtedness listed above, in an aggregate amount not at any time exceeding $50,000,000; provided that such other Indebtedness shall (a) have a maturity date after the Letter of Credit Availability Termination Date and (b) be pari passu or subordinated to the Obligations;

(g) other Indebtedness, in addition to the Indebtedness listed above, in an aggregate amount not at any time exceeding $10,000,000; and

(h) up to $10,000,000 of Indebtedness of Navigators Insurance Company issued pursuant to that certain Facility Letter dated February 22, 2012 with respect to an uncommitted bail bond facility extended by ING Bank N.V., London Branch.

6.12 Merger. The Borrower will not, nor will it permit any Subsidiary to, merge or consolidate with or into any Person, except that (a) a Subsidiary may merge into the Borrower or any Wholly-Owned Subsidiary and (b) the Borrower may merge with or consolidate with any Person, provided that (i) the Borrower is the surviving entity, (ii) no Default or Unmatured Default has occurred or will occur as a result of such merger or consolidation and (iii) the Administrative Agent has received a certificate from the Borrower showing that the Borrower would be in pro forma compliance with the terms of this Agreement after giving effect to such merger or consolidation.

6.13 Sale of Assets. The Borrower will not, nor will it permit any Subsidiary to, lease, sell, transfer or otherwise dispose of its Property, to any other Person except:

(a) sales of inventory in the ordinary course of business; and

(b) leases, sales, transfers or other dispositions of its Property that, together with all other Property of the Borrower and its Subsidiaries previously leased, sold or disposed of (other than inventory or Investments (other than Investments in Subsidiaries) sold in the ordinary course of business) as permitted by this Section 6.13 since the Amendment Effective Date, do not constitute a Substantial Portion of the Property of the Borrower and its Subsidiaries.

6.14 Investments and Acquisitions. The Borrower will not, nor will it permit any Subsidiary to, make or suffer to exist any Investment (including, without limitation, loans and advances to, and other Investments in, Subsidiaries), or commitments therefor, or to create any Subsidiary or to become or remain a partner in any partnership or joint venture, or to make any Acquisitions, except:

(a) Cash Equivalent Investments;

49

(b) Investments in debt securities rated A- or better by S&P, A3 or better by Moody’s or NAIC-1 or better by the NAIC;

(c) existing Investments in Subsidiaries and other Investments in existence on the Amendment Effective Date;

(d) Investments in debt securities rated less than A- by S&P, A3 by Moody’s or NAIC-1 by the NAIC but BBB- or better by S&P, Baa3 or better by Moody’s or NAIC-2 or better by the NAIC; provided, that all such Investments under this clause (d) do not exceed, in the aggregate at any one time outstanding, 20% of the Total Investment Portfolio; provided, further, that if any such Investment ceases to meet such ratings requirements, then such Investment shall be permitted hereby for a period of one hundred and eighty (180) days after the date on which such ratings requirement is no longer satisfied;

(e) Investments in debt securities not satisfying any of the standards, including the percentage limitations, set forth in clauses (b) or (d) above in an aggregate amount not exceeding 4% of the Total Investment Portfolio;

(f) Investments by the Borrower (not including Investments in Subsidiaries) in equity securities in an aggregate amount not to exceed 10% of the Total Investment Portfolio; provided that no single Investment in equity securities (excluding investments in diversified mutual funds) shall be in an amount in excess of 20% of the total aggregate investments in equity securities;

(g) other Investments after the Amendment Effective Date in an aggregate amount not to exceed 1% of the Total Investment Portfolio;

(h) Acquisitions in an aggregate amount not to exceed 5% of Consolidated Net Worth of the Borrower and its Consolidated Subsidiaries in any Fiscal Year; and

(i) Investments by Navigators in Wholly-Owned Subsidiaries of Navigators (including new Wholly-Owned Subsidiaries of Navigators);

provided that the Borrower will not, and will not permit any Subsidiary to, make any Investments not in conformity with its then applicable investment guidelines.

6.15 Contingent Obligations. The Borrower will not, nor will it permit any Subsidiary to, make or suffer to exist any Contingent Obligation (including, without limitation, any Contingent Obligation with respect to the obligations of a Subsidiary), except (a) by endorsement of instruments for deposit or collection in the ordinary course of business, (b) Contingent Obligations in respect of Letters of Credit, (c) obligations with respect to letters of credit not issued pursuant to this Agreement with the Corporate Member as applicant so long as none of the Borrower or its Subsidiaries is a co-applicant with respect thereto or otherwise guaranties such obligations, and (d) Contingent Obligations with respect to letters of credit issued in the ordinary course of certain Wholly-Owned Subsidiaries with respect to marine insurance policies issued thereby; provided, however, that the Borrower or any of its Wholly-Owned Subsidiaries may guarantee (i) the obligations of any Person that is its or its Subsidiary’s employee so long as the

50

aggregate amount of all such guaranteed obligations, taken together with the aggregate amount of any and all loans to such Persons by the Borrower in accordance with Section 6.14 outstanding at any time do not in the aggregate exceed $500,000 and (ii) the obligations of any Wholly-Owned Subsidiary under office space leases for space used by such Wholly-Owned Subsidiary.

6.16 Liens. The Borrower will not, nor will it permit any Subsidiary to, create, incur, or suffer to exist any Lien in, of or on the Property of the Borrower or any of its Subsidiaries, except:

(a) Liens for taxes, assessments or governmental charges or levies on its Property if the same shall not at the time be delinquent or thereafter can be paid without penalty, or are being contested in good faith and by appropriate proceedings and for which adequate reserves in accordance with Agreement Accounting Principles shall have been set aside on its books;

(b) Liens imposed by law, such as carriers’, warehousemen’s and mechanics’ Liens and other similar Liens arising in the ordinary course of business which secure the payment of obligations not more than sixty (60) days past due or which are being contested in good faith by appropriate proceedings and for which adequate reserves shall have been set aside on its books;

(c) Liens arising out of pledges or deposits under worker’s compensation laws, unemployment insurance, old age pensions, or other social security or retirement benefits, or similar legislation;

(d) Utility easements, building restrictions and such other encumbrances or charges against real property as are of a nature generally existing with respect to properties of a similar character and which do not in any material way affect the marketability of the same or interfere with the use thereof in the business of the Borrower or its Subsidiaries;

(e) Liens existing on the Amendment Effective Date and described in Schedule 6.16 hereto;

(f) Liens in favor of the Administrative Agent, for the benefit of the Secured Parties, granted pursuant to the Security Documents;

(g) Deposits of cash or securities with or on behalf of state insurance departments reflected in the Insurance Subsidiaries’ Statutory Financial Statements;

(h) Deposits of cash or securities by the Borrower with Lloyd’s;

(i) Liens on assets subject to capital leases permitted under Section 6.11(d); and

(j) Liens, in addition to the Liens listed above, securing Indebtedness in an aggregate amount at any time not exceeding $10,000,000.

51

6.17 Affiliates. The Borrower will not, and will not permit any Subsidiary to, enter into any transaction (including, without limitation, the purchase or sale of any Property or service) with, or make any payment or transfer to (other than dividends and stock repurchases permitted under Section 6.10), any Affiliate except in the ordinary course of business and pursuant to the reasonable requirements of the Borrower’s or such Subsidiary’s business and upon fair and reasonable terms no less favorable to the Borrower or such Subsidiary than the Borrower or such Subsidiary would obtain in a comparable arms-length transaction.

6.18 Amendments to Agreements. The Borrower will not, and will not permit any Subsidiary to, amend, waive, modify or terminate any of its constituent documents in any manner that could be expected to have a negative effect in any material respect on the Secured Parties.

6.19 Change in Fiscal Year. The Borrower shall not, nor shall it permit any Subsidiary to, change its Fiscal Year to end on any date other than December 31 of each year.

6.20 Inconsistent Agreements. The Borrower shall not, nor shall it permit any Subsidiary to, enter into any indenture, agreement, instrument or other arrangement which, (a) directly or indirectly prohibits or restrains, or has the effect of prohibiting or restraining, or imposes materially adverse conditions upon, the incurrence of the Obligations, the granting of Liens to secure the Obligations, the amending of the Facility Documents or the ability of any Subsidiary to (i) pay dividends or make other distributions on its capital stock, (ii) make loans or advances to the Borrower or (iii) repay loans or advances from the Borrower or (b) contains any provision which would be violated or breached by the issuance of Letters of Credit or by the performance by the Borrower or any Subsidiary of any of its Obligations under any Facility Document.

6.21 Reinsurance. (a) The Borrower shall cause each Insurance Subsidiary to maintain reinsurance protection with respect to each individual insurance policy written by such Insurance Subsidiary which reinsurance protection, in the event of a loss, limits the net loss of such Insurance Subsidiary under such insurance policy to 2.5% or less of the Statutory Surplus of such Insurance Subsidiary. For purposes of this Section 6.21(a), the term “net loss” shall mean the loss and loss adjustment expenses incurred by the Insurance Subsidiary under an insurance policy net of any amounts recoverable or recovered from reinsurers with respect to such loss and loss adjustment expenses without regard to any reinstatement premiums paid or payable to such reinsurer.

(b) The Borrower shall not cause or permit an Insurance Subsidiary to enter into or maintain, as a cedent, reinsurance agreements or retrocession agreements with any Person other than an Approved Reinsurer; provided, however, that the foregoing shall not require an Insurance Subsidiary to terminate a reinsurance agreement or retrocession agreement if such Person ceases to be an Approved Reinsurer due to a downgrade by The A.M. Best Company, Inc. or S&P and such reinsurance or retrocession agreement cannot be replaced on commercially reasonable terms.

(c) The Borrower shall not cause or permit an Insurance Subsidiary to enter into or maintain, as a cedent, reinsurance agreements or retrocession agreements with any

52

Person which do not comply with the guidelines for reinsurance by Insurance Subsidiaries set forth on Schedule 6.21 hereto, as amended with the consent of the Lenders (the “Reinsurance Guidelines”); provided, however, that the foregoing shall not require an Insurance Subsidiary to terminate a reinsurance agreement or retrocession agreement if such Person ceases to be an Approved Reinsurer due to a downgrade by The A.M. Best Company, Inc. or S&P and such reinsurance or retrocession agreement cannot be replaced on commercially reasonable terms.

6.22 Stock of Subsidiaries. The Borrower shall not sell or otherwise dispose of (including the granting of any security interest in) any shares of capital stock of any Subsidiary other than pursuant to the Security Agreement, or permit any Subsidiary to issue additional shares of its capital stock, except the minimum number of directors’ qualifying shares required by applicable law.

6.23 Financial Covenants.

(a) Minimum Consolidated Tangible Net Worth. The Borrower will at all times maintain Consolidated Tangible Net Worth of not less than $760,558.248.

(b) Minimum Statutory Surplus. The Borrower will at all times cause Navigators Insurance Subsidiaries to maintain an aggregate Statutory Surplus of not less than $699,446,719.

(c) Leverage Ratio. The Borrower will not permit the Leverage Ratio to exceed 0.30 to 1.0 at any time. For purposes of calculating the Leverage Ratio, Defeased Indebtedness shall not be included.

(d) Minimum Risk-Based Capital. The Borrower will at all times cause each Significant Insurance Subsidiary to maintain a ratio of (a) Total Adjusted Capital (as defined in the Risk-Based Capital Act or in the rules and procedures prescribed from time to time by the NAIC with respect thereto) to (b) the Company Action Level RBC (as defined in the Risk-Based Capital Act or in the rules and procedures prescribed from time to time by the NAIC with respect thereto) of at least 150%.

(e) Adjusted Primary FAL. Adjusted Primary FAL shall not be less than 40% of the Letter of Credit Obligations at any time.

(f) RDS. The net loss on the Supported Syndicate from any Lloyd’s prescribed RDS shall not at any time exceed 20% of the total Supported Syndicate capacity for any Year of Account.`

6.24 Additional Pledge. Effective upon any Person becoming a Significant Subsidiary, the parent thereof shall pledge the stock or other equity interests thereof to the Administrative Agent for the benefit of the Secured Parties pursuant to documentation reasonably acceptable to the Administrative Agent provided that no pledge of the stock of NSIC shall be required so long as NSIC is not a direct Subsidiary of the Borrower.

53

6.25 Primary FAL. Subject to the duties of Lloyd’s as trustee of all such Funds at Lloyd’s and to any conditions and requirements prescribed under the Membership Byelaw which are applicable, the Borrower will cause the Corporate Member and the Managing Agent to use their best efforts to cause the Primary FAL of the Supported Syndicate to be applied to its obligations and only after such Primary FAL has been exhausted, to draw under the Letters of Credit.

6.26 Anti-Money Laundering and Anti-Terrorism Finance Laws; Foreign Corrupt Practices Act; Sanctions Laws; Restricted Person. The Borrower shall not, and shall not permit any Subsidiary to, (a) engage in or conspire to engage in any transaction that evades or avoids, or has the purpose of evading or avoiding, or otherwise violates, any Anti-Terrorism Law, Anti-Corruption Law or Sanctions law, (b) knowingly cause or permit any of the funds that are used to repay the Obligations to be derived from any unlawful activity with the result that the Administrative Agent, the Letter of Credit Agent, any Lender or the Borrower would be in violation of any Anti-Terrorism Law, Anti-Corruption Law or Sanctions law or (c) use any part of the proceeds of the Letters of Credit, directly or, to the knowledge of the Borrower, indirectly, for any conduct that would cause the representations and warranties in Sections 5.28 and 5.29 to be untrue as if made on the date any such conduct occurs.

ARTICLE VII

DEFAULTS

The occurrence of any one or more of the following events shall constitute a Default:

7.1 Any representation or warranty made or deemed made by or on behalf of the Borrower or any of its Subsidiaries to the Lenders or the Administrative Agent under or in connection with this Agreement, any other Facility Document, any Letter of Credit or any certificate or information delivered in connection with this Agreement or any other Facility Document shall be false in any material respect on the date as of which made or deemed made.

7.2 Nonpayment of (a) any principal of any Reimbursement Obligation when due, or (b) any interest, Unused Fee, Letter of Credit Fee or other fee or obligations under any of the Facility Documents within five (5) days after written notice from the Administrative Agent or any Lender.

7.3 The breach by the Borrower of any of the terms or provisions of Sections 2.8, 6.2, 6.3, Sections 6.10 through 6.13, Sections 6.15 through 6.20 or Sections 6.22 through 6.23 or 6.26.

7.4 The breach by the Borrower (other than a breach which constitutes a Default under Sections 7.1, 7.2 or 7.3) of any of the terms or provisions of this Agreement which is not remedied within thirty (30) days (or in the case of Section 6.14, ten (10) days) after the Borrower has knowledge thereof or written notice from the Administrative Agent or any Lender.

7.5 Failure of the Borrower or any of its Subsidiaries to pay any Indebtedness aggregating in excess of $2,500,000 when due; or the default by the Borrower or any of its Subsidiaries in the performance of any term, provision or condition contained in any agreement

54

under which any such Indebtedness was created or is governed, or the occurrence of any other event or existence of any other condition, the effect of any of which is to cause, or to permit the holder or holders of such Indebtedness to cause, such Indebtedness to become due prior to its stated maturity; or any such Indebtedness of the Borrower or any of its Subsidiaries shall be declared to be due and payable or required to be prepaid (other than by a regularly scheduled payment) prior to the stated maturity thereof.

7.6 The Borrower or any of its Subsidiaries shall (a) have an order for relief entered with respect to it under the Federal bankruptcy laws as now or hereafter in effect, (b) make an assignment for the benefit of creditors, (c) apply for, seek, consent to, or acquiesce in, the appointment of a receiver, custodian, trustee, examiner, liquidator or similar official for it or any Substantial Portion of its Property, (d) institute any proceeding seeking an order for relief under the Federal bankruptcy laws as now or hereafter in effect or seeking to adjudicate it a bankrupt or insolvent, or seeking dissolution, winding up, liquidation, reorganization, arrangement, adjustment or composition of it or its debts under any law relating to bankruptcy, insolvency or reorganization or relief of debtors or fail to file an answer or other pleading denying the material allegations of any such proceeding filed against it, (e) take any corporate action to authorize or effect any of the foregoing actions set forth in this Section 7.6, (f) fail to contest in good faith any appointment or proceeding described in Section 7.7 or (g) become unable to pay, not pay, or admit in writing its inability to pay, its debts generally as they become due.

7.7 Without the application, approval or consent of the Borrower or any of its Subsidiaries, a receiver, trustee, examiner, liquidator or similar official shall be appointed for the Borrower or any of its Subsidiaries or any Substantial Portion of its Property, or a proceeding described in Section 7.6(d) shall be instituted against the Borrower or any of its Subsidiaries and such appointment continues undischarged or such proceeding continues undismissed or unstayed for a period of thirty (30) consecutive days.

7.8 Any court, government or governmental agency shall condemn, seize or otherwise appropriate, or take custody or control of (each a “Condemnation”), all or any portion of the Property of the Borrower and its Subsidiaries which, when taken together with all other Property of the Borrower and its Subsidiaries so condemned, seized, appropriated, or taken custody or control of, during the twelve-month period ending with the month in which any such Condemnation occurs, constitutes a Substantial Portion.

7.9 The Borrower or any of its Subsidiaries shall fail within thirty (30) days to pay, bond or otherwise discharge one or more (a) final, nonappealable judgments or orders for the payment of money in excess of $2,500,000 (or the equivalent thereof in currencies other than U.S. Dollars) in the aggregate, or (b) final, nonappealable nonmonetary judgments or orders which, individually or in the aggregate, could reasonably be expected to have a Material Adverse Effect, which judgment(s), in any such case, is/are not stayed on appeal or otherwise being appropriately contested in good faith.

7.10 Any Reportable Event shall occur in connection with any Plan.

7.11 The Borrower or any other member of the Controlled Group shall have been notified by the sponsor of a Multiemployer Plan that it has incurred withdrawal liability to such

55

Multiemployer Plan in an amount which, when aggregated with all other amounts required to be paid to Multiemployer Plans by the Borrower or any other member of the Controlled Group as withdrawal liability (determined as of the date of such notification), exceeds $2,500,000.

7.12 The Borrower or any other member of the Controlled Group shall have been notified by the sponsor of a Multiemployer Plan that such Multiemployer Plan is in reorganization or is being terminated, within the meaning of Title IV of ERISA, if as a result of such reorganization or termination the aggregate annual contributions of the Borrower and the other members of the Controlled Group (taken as a whole) to all Multiemployer Plans which are then in reorganization or being terminated have been or will be increased over the amounts contributed to such Multiemployer Plans for the respective plan years of each such Multiemployer Plan immediately preceding the plan year in which the reorganization or termination occurs by an amount exceeding $2,500,000.

7.13 The Borrower or any of its Subsidiaries shall (a) be the subject to any proceeding or investigation pertaining to the release by the Borrower, any of its Subsidiaries or any other Person of any toxic or hazardous waste or substance into the environment, or (b) violate any Environmental Law, which, in the case of an event described in clause (a) or (b), could reasonably be expected to have a Material Adverse Effect.

7.14 Any Change in Control shall occur.

7.15 The occurrence of any “default”, as defined in any Facility Document (other than this Agreement) or the breach of any of the terms or provisions of any Facility Document (other than this Agreement), which default or breach continues beyond any period of grace therein provided.

7.16 There shall occur a change in the business, Property, condition (financial or otherwise) or results of operations of the Borrower and its Subsidiaries which has a Material Adverse Effect.

7.17 The Borrower or any of its Subsidiaries incurs or becomes subject to action or threatened action of any Governmental Authority, including, without limitation, a fine, penalty, cease and desist order or revocation, suspension or limitation of a License, the effect of which could reasonably be expected to have a Material Adverse Effect.

7.18 Any Security Document shall for any reason fail to create a valid and perfected, first priority security interest in any Collateral purported to be covered thereby, except as permitted by the terms of such Security Document, or any Facility Document, once executed, shall fail to remain in full force or effect or any action shall be taken to discontinue or to assert the invalidity or unenforceability of any Facility Document.

7.19 Lloyd’s shall draw under a Letter of Credit except as permitted by the terms of the Lloyd’s Comfort Letter or Lloyd’s shall advise that it will not abide by the terms of the Lloyd’s Comfort Letter.

56

ARTICLE VIII

ACCELERATION, WAIVERS, AMENDMENTS AND REMEDIES

8.1 Acceleration. If any Default described in Section 7.6 or 7.7 occurs with respect to the Borrower, the obligations of the Letter of Credit Agent and the Lenders to issue or increase Letters of Credit hereunder shall automatically terminate and the Obligations shall immediately become due and payable without any election or action on the part of the Letter of Credit Agent, the Administrative Agent or any Lender. If any other Default occurs, the Required Lenders (or the Administrative Agent with the consent of the Required Lenders) may terminate or suspend the obligations of the Letter of Credit Agent and the Lenders to issue or increase Letters of Credit hereunder, or declare the Obligations to be due and payable, or both, whereupon the Obligations shall become immediately due and payable, without presentment, demand, protest or notice of any kind, all of which the Borrower hereby expressly waives. In addition to the foregoing, following the occurrence and during the continuance of a Default, so long as any Letter of Credit has not been fully drawn and has not been canceled or expired by its terms, upon demand by the Administrative Agent (which demand shall be made upon the request of the Required Lenders), the Borrower shall deposit Collateral as required by Section 2.9(g).

If, within thirty (30) days after acceleration of the maturity of the Obligations or termination of the obligations of the Letter of Credit Agent and the Lenders to issue and increase Letters of Credit hereunder as a result of any Default (other than any Default as described in Section 7.6 or 7.7 with respect to the Borrower) and before any judgment or decree for the payment of the Obligations due shall have been obtained or entered, the Required Lenders (in their sole discretion) may direct the Administrative Agent to rescind and annul such acceleration and/or termination.

8.2 Amendments. Subject to the provisions of this Article VIII, the Required Lenders (or the Administrative Agent with the consent of the Required Lenders) and the Borrower may enter into agreements supplemental hereto for the purpose of adding or modifying any provisions to the Facility Documents or changing in any manner the rights of the Lenders or the Borrower hereunder or waiving any Default hereunder; provided, however, that no such supplemental agreement shall, without the consent of each Lender:

(a) Extend the final maturity of any Obligations or forgive all or any portion of the Reimbursement Obligations, or reduce the rate or extend the time of payment of interest or fees (including without limitation Letter of Credit Fees) hereunder;

(b) Reduce or modify the percentage specified in the definition of Required Lenders;

(c) Reduce the amount of or extend the date for payment of Reimbursement Obligations under Section 2.4, or increase the amount of the Commitment of any Lender hereunder;

57

(d) Extend the Letter of Credit Availability Termination Date; permit any Letter of Credit to have an expiry date beyond four years after the Expiry Notice is issued;

(e) Permit any amendment of Section 8.4;

(f) Release any guarantor of any Obligations or, except as provided in the Security Agreement, release any of the Collateral for the Obligations or decrease the amount of Collateral required under Sections 2.9 or 8.1;

(g) Permit any assignment by the Borrower of its Obligations or its rights hereunder; or

(h) Permit any amendment of the Reinsurance Guidelines;

provided, further, that no such supplemental agreement shall, without the consent of each Lender, amend this Section 8.2. No amendment of any provision of this Agreement relating to the Administrative Agent or the Letter of Credit Agent shall be effective without the written consent of the Administrative Agent or the Letter of Credit Agent, as applicable. The Administrative Agent may waive payment of the fee required under Section 12.3(b) without obtaining the consent of any other party to this Agreement. Notwithstanding anything to the contrary herein, no Defaulting Lender shall have any right to approve or disapprove any amendment, waiver or consent hereunder, except that the Commitment of such Lender may not be increased or extended without the consent of such Lender.

8.3 Preservation of Rights. No delay or omission of the Lenders, the Letter of Credit Agent or the Administrative Agent to exercise any right under the Facility Documents shall impair such right or be construed to be a waiver of any Default or an acquiescence therein, and the issuance of a Letter of Credit notwithstanding the existence of a Default or the inability of the Borrower to satisfy the conditions precedent to such Letter of Credit shall not constitute any waiver or acquiescence. Any single or partial exercise of any such right shall not preclude other or further exercise thereof or the exercise of any other right, and no waiver, amendment or other variation of the terms, conditions or provisions of the Facility Documents whatsoever shall be valid unless in writing signed by the Lenders required pursuant to Section 8.2, and then only to the extent in such writing specifically set forth. All remedies contained in the Facility Documents or by law afforded shall be cumulative and all shall be available to the Administrative Agent and the Lenders until the Obligations have been paid in full.

8.4 Application of Funds. After the occurrence of a Default, any amounts received on account of the Obligations (including proceeds of Collateral) shall be applied by the Administrative Agent in the following order:

First, to payment of that portion of the Obligations constituting fees, indemnities, expenses and other amounts (including fees, charges and disbursements of counsel to the Administrative Agent and amounts payable under Article III) payable to the Administrative Agent and the Letter of Credit Agent in its capacity as such;

58

Second, to payment of that portion of the Obligations constituting fees, indemnities and other amounts (other than Reimbursement Obligations, interest and Letter of Credit Fees) payable to the Lenders (including fees, charges and disbursements of counsel to the respective Lenders (including, without duplication, fees and time charges for attorneys who may be employees of any Lender) and amounts payable under Article III), ratably among them in proportion to the respective amounts described in this clause Second payable to them;

Third, to payment of that portion of the Obligations constituting accrued and unpaid Letter of Credit Fees and interest on the Reimbursement Obligations and other Obligations, ratably among the Lenders in proportion to the respective amounts described in this clause Third payable to them;

Fourth, to payment of that portion of the Obligations constituting unpaid Reimbursement Obligations, ratably among the Lenders in proportion to the respective amounts described in this clause Fourth held by them;

Fifth, to the Administrative Agent for the account of the Lenders to be held as Collateral for that portion of the Letter of Credit Obligations comprised of the aggregate undrawn amount of Letters of Credit; and

Last, the balance, if any, after all of the Obligations have been indefeasibly paid in full and the Aggregate Commitment has been terminated, to the Borrower or as otherwise required by Law.

Amounts held as Collateral for the aggregate undrawn amount of Letters of Credit pursuant to clause Fifth above shall be applied to satisfy drawings under such Letters of Credit as they occur. If any Collateral remains after all Letters of Credit have either been fully drawn or expired, such remaining amount shall be applied to the other Obligations, if any, in the order set forth above.

ARTICLE IX

GENERAL PROVISIONS

9.1 Survival of Representations. All representations and warranties of the Borrower contained in this Agreement or in any Facility Document shall survive the issuance of the Letters of Credit herein contemplated.

9.2 Governmental Regulation. Anything contained in this Agreement to the contrary notwithstanding, no Lender shall be obligated to extend credit to the Borrower in violation of any limitation or prohibition provided by any applicable statute or regulation.

9.3 Headings. Section headings in the Facility Documents are for convenience of reference only, and shall not govern the interpretation of any of the provisions of the Facility Documents.

9.4 Entire Agreement. The Facility Documents embody the entire agreement and understanding among the Borrower, the Administrative Agent, and the Lenders and supersede all

59

prior agreements and understandings among the Borrower, the Administrative Agent, and the Lenders relating to the subject matter thereof other than the fee letter dated November 21, 2014 in favor of ING Bank N.V., London Branch (the “Fee Letter”).

9.5 Numbers of Documents. All statements, notices, closing documents, and requests hereunder shall be furnished to the Administrative Agent with sufficient counterparts so that the Administrative Agent may furnish one to each of the Lenders.

9.6 Several Obligations; Benefits of this Agreement. The respective obligations of the Lenders hereunder are several and not joint and no Lender shall be the partner or Administrative Agent of any other (except to the extent to which the Administrative Agent is authorized to act as such). The failure of any Lender to perform any of its obligations hereunder shall not relieve any other Lender from any of its obligations hereunder. This Agreement shall not be construed so as to confer any right or benefit upon any Person other than the parties to this Agreement and their respective successors and assigns, provided, however, that the parties hereto expressly agree that the Arranger shall enjoy the benefits of the provisions of Sections 9.7, 9.11 and 10.12 to the extent specifically set forth therein and shall have the right to enforce such provisions on its own behalf and in its own name to the same extent as if it were a party to this Agreement.

9.7 Expenses; Indemnification. (a) The Borrower shall reimburse the Administrative Agent, the Security Trustee and the Arranger for any costs, internal charges and out-of-pocket expenses (including reasonable attorneys’ fees and time charges of attorneys for the Administrative Agent) paid or incurred by the Administrative Agent, the Security Trustee or the Arranger in connection with the preparation, negotiation, execution, delivery, syndication, review, amendment, modification, and administration of the Facility Documents. The Borrower also agrees to reimburse the Administrative Agent, the Security Trustee, the Arranger and the Lenders for any costs, internal charges and out-of-pocket expenses (including reasonable attorneys’ fees and time charges of attorneys for the Administrative Agent, the Arranger and the Lenders), paid or incurred by the Administrative Agent, the Security Trustee, the Arranger or any Lender in connection with the investigation, collection and enforcement of the Facility Documents.

(b) The Borrower hereby further agrees to indemnify the Administrative Agent, the Security Trustee, the Arranger, each Lender, each Affiliate of a Lender, and the directors, officers, partners and employees of any of the foregoing against all losses, claims, damages, penalties, judgments, liabilities and expenses (including, without limitation, all expenses of litigation or preparation therefor whether or not the Administrative Agent, the Security Trustee, the Arranger or any Lender is a party thereto) which any of them may pay or incur arising out of or relating to this Agreement, the other Facility Documents, the transactions contemplated hereby or the direct or indirect application or proposed application of the proceeds of any Letter of Credit hereunder except to the extent that they have resulted from the gross negligence or willful misconduct of the party seeking indemnification. The obligations of the Borrower under this Section 9.7 shall survive the termination of this Agreement.

60

9.8 Accounting. Except as provided to the contrary herein, all accounting terms used herein shall be interpreted and all accounting determinations hereunder shall be made in accordance with Agreement Accounting Principles. In the event the pages, columns, lines or sections of the Annual Statement referenced herein are changed or renumbered, all such references shall be deemed references to such page, column, line or section as so renumbered or changed.

9.9 Severability of Provisions. Any provision in any Facility Document that is held to be inoperative, unenforceable, or invalid in any jurisdiction shall, as to that jurisdiction, be inoperative, unenforceable, or invalid without affecting the remaining provisions in that jurisdiction or the operation, enforceability, or validity of that provision in any other jurisdiction, and to this end the provisions of all Facility Documents are declared to be severable.

9.10 Nonliability of Lenders. The relationship between the Borrower on the one hand and the Lenders and the Administrative Agent on the other hand shall be solely that of borrower and lender. Neither the Administrative Agent, the Arranger, any bookrunner nor any Lender shall have any fiduciary responsibilities to the Borrower. Neither the Administrative Agent, the Arranger, any bookrunner nor any Lender undertakes any responsibility to the Borrower to review or inform the Borrower of any matter in connection with any phase of the Borrower’s business or operations. The Borrower agrees that neither the Administrative Agent, the Arranger nor any Lender shall have liability to the Borrower (whether sounding in tort, contract or otherwise) for losses suffered by the Borrower in connection with, arising out of, or in any way related to, the transactions contemplated and the relationship established by the Facility Documents, or any act, omission or event occurring in connection therewith, unless it is determined in a final non-appealable judgment by a court of competent jurisdiction that such losses resulted from the gross negligence or willful misconduct of the party from which recovery is sought. Neither the Administrative Agent, the Arranger nor any Lender shall have any liability with respect to, and the Borrower hereby waives, releases and agrees not to sue for, any special, indirect, punitive or consequential damages suffered by the Borrower in connection with, arising out of, or in any way related to the Facility Documents or the transactions contemplated thereby.

9.11 Confidentiality. Each Lender agrees to hold any confidential information which it may receive from the Borrower pursuant to this Agreement in confidence, except for disclosure (a) to its Affiliates and to other Lenders and their respective Affiliates, (b) to legal counsel, accountants, and other professional advisors to such Lender or to a Transferee, (c) to regulatory officials, (d) to any Person as requested pursuant to or as required by law, regulation, or legal process, (e) to any Person in connection with any legal proceeding to which such Lender is a party, (f) to such Lender’s direct or indirect contractual counterparties in swap agreements or to legal counsel, accountants and other professional advisors to such counterparties and (g) permitted by Section 12.4; provided, that any recipient of such disclosure shall be advised by such Lender of the confidentiality requirements herein set forth.

9.12 Nonreliance. Each Lender hereby represents that it is not relying on or looking to any margin stock (as defined in Regulation U of the Board of Governors of the Federal Reserve System) for the repayment of the Obligations provided for herein.

61

9.13 Disclosure. The Borrower and each Lender hereby (a) acknowledge and agree that ING Bank N.V., London Branch and/or its Affiliates from time to time may hold other investments in, make other loans to or have other relationships with the Borrower, and (b) waive any liability of ING Bank N.V., London Branch or such Affiliate to the Borrower or any Lender, respectively, arising out of or resulting from such investments, loans or relationships other than liabilities arising out of the gross negligence or willful misconduct of ING Bank N.V., London Branch or its Affiliates.

9.14 USA Patriot Act Notification. Each Lender hereby notifies the Borrower that pursuant to the requirements of the USA Act (Title III of Pub. L. 107-56 (signed into law on October 26, 2001)) (the “PATRIOT Act”), it is required to obtain, verify and record information that identifies the Borrower, which information includes the name and address of the Borrower and other information that will allow such Lender to identify the Borrower in accordance with the PATRIOT Act. The Borrower agrees to cooperate with each Lender and provide true, accurate and complete information to such Lender in response to any such request.

ARTICLE X

THE AGENT

10.1 Appointment; Nature of Relationship. ING Bank N.V., London Branch is hereby appointed by each of the Lenders as Administrative Agent (herein referred to as the “Administrative Agent”) hereunder and under each other Facility Document, and each of the Lenders irrevocably authorizes the Administrative Agent to act as the Administrative Agent of such Lender with the rights and duties expressly set forth herein and in the other Facility Documents. The Administrative Agent agrees to act as such Administrative Agent upon the express conditions contained in this Article X. Notwithstanding the use of the defined term “Administrative Agent,” it is expressly understood and agreed that the Administrative Agent shall not have any fiduciary responsibilities to any Lender by reason of this Agreement or any other Facility Document and that the Administrative Agent is merely acting as the Administrative Agent of the Lenders with only those duties as are expressly set forth in this Agreement and the other Facility Documents. In its capacity as the Lenders’ Administrative Agent, the Administrative Agent (a) does not hereby assume any fiduciary duties to any of the Lenders, (b) is a “representative” of the Lenders within the meaning of Section 9-105 of the Uniform Commercial Code and (c) is acting as an independent contractor, the rights and duties of which are limited to those expressly set forth in this Agreement and the other Facility Documents. Each of the Lenders hereby agrees to assert no claim against the Administrative Agent on any agency theory or any other theory of liability for breach of fiduciary duty, all of which claims each Lender hereby waives.

10.2 Powers. The Administrative Agent shall have and may exercise such powers under the Facility Documents as are specifically delegated to the Administrative Agent by the terms of each thereof, together with such powers as are reasonably incidental thereto. The Administrative Agent shall have no implied duties to the Lenders, or any obligation to the Lenders to take any action thereunder except any action specifically provided by the Facility Documents to be taken by the Administrative Agent.

62

10.3 General Immunity. Neither the Administrative Agent nor any of its directors, officers, agents or employees shall be liable to the Borrower, the Lenders or any Lender for any action taken or omitted to be taken by it or them hereunder or under any other Facility Document or in connection herewith or therewith except to the extent such action or inaction is determined in a final non-appealable judgment by a court of competent jurisdiction to have arisen from the gross negligence or willful misconduct of such Person.

10.4 No Responsibility for Recitals, etc. Neither the Administrative Agent nor any of its directors, officers, agents or employees shall be responsible for or have any duty to ascertain, inquire into, or verify: (a) any statement, warranty or representation made in connection with any Facility Document or any borrowing hereunder, (b) the performance or observance of any of the covenants or agreements of any obligor under any Facility Document, including, without limitation, any agreement by an obligor to furnish information directly to each Lender, (c) the satisfaction of any condition specified in Article IV, except receipt of items required to be delivered solely to the Administrative Agent, (d) the existence or possible existence of any Default or Unmatured Default, (e) the validity, enforceability, effectiveness, sufficiency or genuineness of any Facility Document or any other instrument or writing furnished in connection therewith, (f) the value, sufficiency, creation, perfection or priority of any Lien in any Collateral or (g) the financial condition of the Borrower or any guarantor of any of the Obligations or of any of the Borrower’s or any such guarantor’s respective Subsidiaries. The Administrative Agent shall have no duty to disclose to the Lenders information that is not required to be furnished by the Borrower to the Administrative Agent at such time, but is voluntarily furnished by the Borrower to the Administrative Agent (either in its capacity as Administrative Agent or in its individual capacity).

10.5 Action on Instructions of Lenders. The Administrative Agent shall in all cases be fully protected in acting, or in refraining from acting, hereunder and under any other Facility Document in accordance with written instructions signed by the Required Lenders, and such instructions and any action taken or failure to act pursuant thereto shall be binding on all of the Lenders. The Lenders hereby acknowledge that the Administrative Agent shall be under no duty to take any discretionary action permitted to be taken by it pursuant to the provisions of this Agreement or any other Facility Document unless it shall be requested in writing to do so by the Required Lenders. The Administrative Agent shall be fully justified in failing or refusing to take any action hereunder and under any other Facility Document unless it shall first be indemnified to its satisfaction by the Lenders pro-rata against any and all liability, cost and expense that it may incur by reason of taking or continuing to take any such action.

10.6 Employment of Administrative Agent and Counsel. The Administrative Agent may execute any of its duties as Administrative Agent hereunder and under any other Facility Document by or through employees, agents, and attorneys-in-fact and shall not be answerable to the Lenders, except as to money or securities received by it or its authorized agents, for the default or misconduct of any such agents or attorneys-in-fact selected by it with reasonable care. The Administrative Agent shall be entitled to advice of counsel concerning the contractual arrangement between the Administrative Agent and the Lenders and all matters pertaining to the Administrative Agent’s duties hereunder and under any other Facility Document.

63

10.7 Reliance on Documents; Counsel. The Administrative Agent shall be entitled to rely upon any notice, consent, certificate, affidavit, letter, telegram, statement, paper or document believed by it to be genuine and correct and to have been signed or sent by the proper person or persons, and, in respect to legal matters, upon the opinion of counsel selected by the Administrative Agent, which counsel may be employees of the Administrative Agent.

10.8 Administrative Agent’s Reimbursement and Indemnification. The Lenders agree to reimburse and indemnify the Administrative Agent ratably in proportion to their Commitment (or, if the Aggregate Commitment has been terminated, in proportion to its Commitment immediately prior to such termination) (a) for any amounts not reimbursed by the Borrower for which the Administrative Agent is entitled to reimbursement by the Borrower under the Facility Documents, (b) for any other expenses incurred by the Administrative Agent on behalf of the Lenders, in connection with the preparation, execution, delivery, administration and enforcement of the Facility Documents (including, without limitation, for any expenses incurred by the Administrative Agent in connection with any dispute between the Administrative Agent and any Lender or between two or more of the Lenders) and (c) for any liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements of any kind and nature whatsoever which may be imposed on, incurred by or asserted against the Administrative Agent in any way relating to or arising out of the Facility Documents or any other document delivered in connection therewith or the transactions contemplated thereby (including, without limitation, for any such amounts incurred by or asserted against the Administrative Agent in connection with any dispute between the Administrative Agent and any Lender or between two or more of the Lenders), or the enforcement of any of the terms of the Facility Documents or of any such other documents; provided that (i) no Lender shall be liable for any of the foregoing to the extent any of the foregoing is found in a final non-appealable judgment by a court of competent jurisdiction to have resulted from the gross negligence or willful misconduct of the Administrative Agent and (ii) any indemnification required pursuant to Section 3.5(g) shall, notwithstanding the provisions of this Section 10.8, be paid by the relevant Lender in accordance with the provisions thereof. The obligations of the Lenders under this Section 10.8 shall survive payment of the Obligations and termination of this Agreement.

10.9 Notice of Default. The Administrative Agent shall not be deemed to have knowledge or notice of the occurrence of any Default or Unmatured Default hereunder unless the Administrative Agent has received written notice from a Lender or the Borrower referring to this Agreement describing such Default or Unmatured Default and stating that such notice is a “notice of default”. In the event that the Administrative Agent receives such a notice, the Administrative Agent shall give prompt notice thereof to the Lenders.

10.10 Rights as a Lender. In the event the Administrative Agent is a Lender, the Administrative Agent shall have the same rights and powers hereunder and under any other Facility Document with respect to its Commitment, and any Letters of Credit in which it has an interest as any Lender and may exercise the same as though it were not the Administrative Agent, and the term “Lender” or “Lenders” shall, at any time when the Administrative Agent is a Lender, unless the context otherwise indicates, include the Administrative Agent in its individual capacity. The Administrative Agent and its Affiliates may accept deposits from, lend money to, and generally engage in any kind of trust, debt, equity or other transaction, in addition to those contemplated by this Agreement or any other Facility Document, with the Borrower or any of its

64

Subsidiaries in which the Borrower or such Subsidiary is not restricted hereby from engaging with any other Person. The Administrative Agent, in its individual capacity, is not obligated to remain a Lender.

10.11 Lender Credit Decision. Each Lender acknowledges that it has, independently and without reliance upon the Administrative Agent, the Arranger or any other Lender and based on the financial statements prepared by the Borrower and such other documents and information as it has deemed appropriate, made its own credit analysis and decision to enter into this Agreement and the other Facility Documents. Each Lender also acknowledges that it will, independently and without reliance upon the Administrative Agent, the Arranger or any other Lender and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit decisions in taking or not taking action under this Agreement and the other Facility Documents.

10.12 Successor Administrative Agent. The Administrative Agent may resign at any time by giving written notice thereof to the Lenders and the Borrower, such resignation to be effective upon the appointment of a successor Administrative Agent or, if no successor Administrative Agent has been appointed, forty-five days after the retiring Administrative Agent gives notice of its intention to resign. The Administrative Agent may be removed at any time with or without cause by written notice received by the Administrative Agent from the Required Lenders, such removal to be effective on the date specified by the Required Lenders. Upon any such resignation or removal, the Required Lenders shall have the right to appoint, on behalf of the Borrower and the Lenders, a successor Administrative Agent. If no successor Administrative Agent shall have been so appointed by the Required Lenders within thirty days after the resigning Administrative Agent’s giving notice of its intention to resign, then the resigning Administrative Agent may appoint, on behalf of the Borrower and the Lenders, a successor Administrative Agent. Notwithstanding the previous sentence, the Administrative Agent may at any time without the consent of the Borrower or any Lender, appoint any of its Affiliates which is a commercial bank as a successor Administrative Agent hereunder. If the Administrative Agent has resigned or been removed and no successor Administrative Agent has been appointed, the Lenders may perform all the duties of the Administrative Agent hereunder and the Borrower shall make all payments in respect of the Obligations to the applicable Lender and for all other purposes shall deal directly with the Lenders. No successor Administrative Agent shall be deemed to be appointed hereunder until such successor Administrative Agent has accepted the appointment. Any such successor Administrative Agent shall be a commercial bank having capital and retained earnings of at least $100,000,000. Upon the acceptance of any appointment as Administrative Agent hereunder by a successor Administrative Agent, such successor Administrative Agent shall thereupon succeed to and become vested with all the rights, powers, privileges and duties of the resigning or removed Administrative Agent. Upon the effectiveness of the resignation or removal of the Administrative Agent, the resigning or removed Administrative Agent shall be discharged from its duties and obligations hereunder and under the Facility Documents. After the effectiveness of the resignation or removal of an Administrative Agent, the provisions of this Article X shall continue in effect for the benefit of such Administrative Agent in respect of any actions taken or omitted to be taken by it while it was acting as the Administrative Agent hereunder and under the other Facility Documents. The resignation or removal of the Administrative Agent shall also constitute a resignation or removal of the Letter of Credit Agent unless the Letter of Credit Agent agrees otherwise.

65

10.13 Administrative Agents’ Fees. The Borrower agrees to pay to the Administrative Agent, for its own account, the fees agreed to by the Borrower and the Administrative Agent pursuant to the Fee Letter.

10.14 Delegation to Affiliates. The Borrower and the Lenders agree that the Administrative Agent may delegate any of its duties under this Agreement to any of its Affiliates. Any such Affiliate (and such Affiliate’s directors, officers, agents and employees) which performs duties in connection with this Agreement shall be entitled to the same benefits of the indemnification, waiver and other protective provisions to which the Administrative Agent is entitled under Articles IX and X.

10.15 Security Trustee. The Security Trustee shall act on behalf of the Lenders with respect to any Fixed Charge and the documents associated therewith, and Security Trustee shall have all of the benefits and immunities (A) provided to the Administrative Agent in this Article X with respect to any acts taken or omissions suffered by the Security Trustee in connection with it capacity as Security Trustee as fully as if the term “Administrative Agent” as used in this Article X includes the Security Trustee as with respect to such acts or omissions, and (B) as additionally provided herein with respect to Security Trustee. The Lenders agree to execute such documents as the Security Trustee may reasonably request to give effect to any assignment pursuant to Section 12.3 or to enable any Assignee to have the benefits of the lien granted under the Fixed Charge.

ARTICLE XI

SETOFF; RATABLE PAYMENTS

11.1 Setoff. In addition to, and without limitation of, any rights of the Lenders under applicable law, if the Borrower becomes insolvent, however evidenced, or any Default occurs, any and all deposits (including all account balances, whether provisional or final and whether or not collected or available) and any other Indebtedness at any time held or owing by any Lender to or for the credit or account of the Borrower may be offset and applied toward the payment of the Obligations owing to such Lender, whether or not the Obligations, or any part hereof, shall then be due.

11.2 Ratable Payments. If any Lender, whether by setoff or otherwise, has payment made to it upon its Reimbursement Obligations (other than payments received pursuant to Section 3.1, 3.2 or 3.3) in a greater proportion than that received by any other Lender, such Lender agrees, promptly upon demand, to purchase a participation interests in Letters of Credit, as the case may be, held by the other Lenders so that after such purchase each Lender will hold its ratable proportion of such participation interests in Letters of Credit. If any Lender, whether in connection with setoff or amounts which might be subject to setoff or otherwise, receives collateral or other protection for its Obligations or such amounts which may be subject to setoff, such Lender agrees, promptly upon demand, to take such action necessary such that all Lenders share in the benefits of such collateral ratably in proportion to their Commitments. In case any such payment is disturbed by legal process, or otherwise, appropriate further adjustments shall be made.

66

ARTICLE XII

BENEFIT OF AGREEMENT; ASSIGNMENTS; PARTICIPATIONS

12.1 Successors and Assigns. The terms and provisions of the Facility Documents shall be binding upon and inure to the benefit of the Administrative Agent, the Borrower and the Lenders and their respective successors and assigns, except that (a) the Borrower shall not have the right to assign its rights or obligations under the Facility Documents and (b) any assignment by any Lender must be made in compliance with Section 12.3. Notwithstanding clause (b) of the foregoing sentence, any Lender may at any time, without the consent of the Borrower or the Administrative Agent, assign all or any portion of its rights under this Agreement to a Federal Reserve Bank or other central bank; provided, however, that no such assignment to a Federal Reserve Bank shall release the transferor Lender from its obligations hereunder. The Administrative Agent may treat the Person which issued any Letter of Credit as the Person who has the Commitment hereunder for all purposes hereof unless and until such Person complies with Section 12.3 in the case of an assignment thereof or, in the case of any other transfer, a written notice of the transfer is filed with the Administrative Agent. Any assignee or transferee of the rights to any Letter of Credit agrees by acceptance of such transfer or assignment to be bound by all the terms and provisions of the Facility Documents. Any request, authority or consent of any Person, who at the time of making such request or giving such authority or consent is the owner of the rights to any Letter of Credit, shall be conclusive and binding on any subsequent holder, transferee or assignee of the rights to such Letter of Credit, as the case may be.

12.2 Participations.

(a) Permitted Participants; Effect. Any Lender may, in the ordinary course of its business and in accordance with applicable law, at any time sell to one or more banks or other entities (“Participants”) participating interests in any Commitment of such Lender, any interest of such Lender in any Letters of Credit or any other interest of such Lender under the Facility Documents. In the event of any such sale by a Lender of participating interests to a Participant, such Lender’s obligations under the Facility Documents shall remain unchanged, such Lender shall remain solely responsible to the other parties hereto for the performance of such obligations, such Lender shall remain the owner of its interest in any Letters of Credit issued to it in evidence thereof for all purposes under the Facility Documents, all amounts payable by the Borrower under this Agreement shall be determined as if such Lender had not sold such participating interests, and the Borrower and the Administrative Agent shall continue to deal solely and directly with such Lender in connection with such Lender’s rights and obligations under the Facility Documents.

(b) Voting Rights. Each Lender shall retain the sole right to approve, without the consent of any Participant, any amendment, modification or waiver of any provision of the Facility Documents, except to the extent such amendment, modification or waiver would require the unanimous consent of the Lenders as described in Section 8.2.

67

(c) Benefit of Setoff. The Borrower agrees that each Participant shall be deemed to have the right of setoff provided in Section 11.1 in respect of its participating interest in amounts owing under the Facility Documents to the same extent as if the amount of its participating interest were owing directly to it as a Lender under the Facility Documents, provided that each Lender shall retain the right of setoff provided in Section 11.1 with respect to the amount of participating interests sold to each Participant. The Lenders agree to share with each Participant, and each Participant, by exercising the right of setoff provided in Section 11.1, agrees to share with each Lender, any amount received pursuant to the exercise of its right of setoff, such amounts to be shared in accordance with Section 11.2 as if each Participant were a Lender.

12.3 Assignments.

(a) Permitted Assignments. Any Lender may, in the ordinary course of its business and in accordance with applicable law, at any time assign to one or more banks or other entities (“Purchasers”) all or any part of its rights and obligations under the Facility Documents provided such Purchasers are Lloyd’s Approved Banks. Such assignment shall be substantially in the form of Exhibit B or in such other form as may be agreed to by the parties thereto. The consent of the Borrower and the Administrative Agent shall be required prior to an assignment becoming effective with respect to a Purchaser which is not a Lender or an Affiliate thereof; provided, however, that if a Default has occurred and is continuing, the consent of the Borrower shall not be required; provided, further, that the Borrower shall be deemed to have consented to any such assignment unless it shall object thereto by written notice to the Administrative Agent within five (5) Business Days after having received notice thereto. Such consent shall not be unreasonably withheld or delayed. Each such assignment shall (unless it is to a Lender or an Affiliate thereof or the Administrative Agent otherwise consents) be in an amount not less than the lesser of (a) $5,000,000 or (b) the remaining amount of the assigning Lender’s Commitment (calculated as at the date of such assignment).

(b) Effect; Effective Date. A Lender shall notify the Administrative Agent in the event it wishes to transfer any of its Commitment. Upon receipt of such notice, the Administrative Agent shall verify that the beneficiaries of the outstanding Letters of Credit will accept an amendment to or replacement of the outstanding Letters of Credit to reflect such assignment and the change in the “Commitments” as reflected in such outstanding Letters of Credit (a “Transfer Amendment”). The Administrative Agent shall advise the Lender whether such Transfer Amendment is acceptable (the “Advisement Date”) and the Lender shall advise the Administrative Agent of the proposed assignment date (which date shall be not less than ten (10) Business Days after the Advisement Date). Upon (i) delivery to the Administrative Agent and the Borrower of a notice of assignment, substantially in the form attached as Exhibit I to Exhibit B (a “Notice of Assignment”), together with any consents required by Section 12.3(b), (ii) payment of a $3,500 fee to the Administrative Agent by the assigning Lender or the Purchaser for processing such assignment, the Administrative Agent shall prepare the necessary Transfer Amendments and coordinate with the beneficiaries a date to effectuate such Transfer Amendment. Upon acceptance of the Transfer Amendment by the beneficiaries, such assignment shall become effective. The Notice of Assignment shall contain a

68

representation by the Purchaser to the effect that none of the consideration used to make the purchase of the participation interests in the Letters of Credit under the applicable assignment agreement are “plan assets” as defined under ERISA and that the rights and interests of the Purchaser in and under the Facility Documents will not be “plan assets” under ERISA. On and after the effective date of such assignment, such Purchaser shall for all purposes be a Lender party to this Agreement and any other Facility Document executed by or on behalf of the Lenders and shall have all the rights and obligations of a Lender under the Facility Documents, to the same extent as if it were an original party hereto, and no further consent or action by the Borrower, the Lenders or the Administrative Agent shall be required to release the transferor Lender with respect to the percentage of the Aggregate Commitment and the participation interests in Letters of Credit assigned to such Purchaser.

12.4 Dissemination of Information. The Borrower authorizes each Lender to disclose to any Participant or Purchaser or any other Person acquiring an interest in the Facility Documents by operation of law (each a “Transferee”) and any prospective Transferee any and all information in such Lender’s possession concerning the creditworthiness of the Borrower and its Subsidiaries; provided that each Transferee and prospective Transferee agrees to be bound by Section 9.11 of this Agreement.

12.5 Tax Treatment. If any interest in any Facility Document is transferred to any Transferee which is organized under the laws of any jurisdiction other than the United States or any State thereof, the transferor Lender shall cause such Transferee, concurrently with the effectiveness of such transfer, to comply with the provisions of Section 3.3(d).

ARTICLE XIII

NOTICES

13.1 Notices. All notices, requests and other communications to any party hereunder shall be in writing (including electronic transmission, facsimile transmission or similar writing) and shall be given to such party: (a) in the case of the Borrower or the Administrative Agent, at its address or facsimile number set forth on the signature pages hereof, (b) in the case of any Lender, at its address or facsimile number set forth below its signature hereto or (c) in the case of any party, at such other address or facsimile number as such party may hereafter specify for the purpose by notice to the Administrative Agent and the Borrower in accordance with the provisions of this Section 13.1. Each such notice, request or other communication shall be effective (i) if given by facsimile transmission, when transmitted to the facsimile number specified in this Section and confirmation of receipt is received, (ii) if given by mail, seventy-two (72) hours after such communication is deposited in the mails with first class postage prepaid, addressed as aforesaid, or (iii) if given by any other means, when delivered (or, in the case of electronic transmission, received) at the address specified in this Section; provided that notices to the Administrative Agent under Article II shall not be effective until received.

13.2 Change of Address. The Borrower, the Administrative Agent and any Lender may each change the address for service of notice upon it by a notice in writing to the other parties hereto.

69

ARTICLE XIV

COUNTERPARTS

This Agreement may be executed in any number of counterparts, all of which taken together shall constitute one agreement, and any of the parties hereto may execute this Agreement by signing any such counterpart. Except as provided in Section 4.1, this Agreement shall be effective when it has been executed by the Borrower, the Administrative Agent and the Lenders. Delivery of an executed counterpart of a signature page of this Agreement by telecopy or in electronic (i.e., “pdf” or “tif”) format shall be effective as delivery of a manually executed counterpart of this Agreement.

ARTICLE XV

CHOICE OF LAW; CONSENT TO JURISDICTION; WAIVER OF JURY TRIAL

15.1 CHOICE OF LAW. THE FACILITY DOCUMENTS (OTHER THAN THOSE CONTAINING A CONTRARY EXPRESS CHOICE OF LAW PROVISION) SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAWS OF THE STATE OF NEW YORK, WITHOUT REGARDS TO THE CONFLICT OF LAW PROVISIONS THEREOF OTHER THAN SECTIONS 5-1401 AND 5-1402 OF THE NEW YORK GENERAL OBLIGATIONS LAW, BUT GIVING EFFECT TO FEDERAL LAWS APPLICABLE TO NATIONAL BANKS.

15.2 CONSENT TO JURISDICTION. THE BORROWER HEREBY IRREVOCABLY SUBMITS TO THE EXCLUSIVE JURISDICTION OF ANY UNITED STATES FEDERAL OR STATE COURT SITTING IN NEW YORK, NEW YORK IN ANY ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO ANY FACILITY DOCUMENTS AND THE BORROWER HEREBY IRREVOCABLY AGREES THAT ALL CLAIMS IN RESPECT OF SUCH ACTION OR PROCEEDING MAY BE HEARD AND DETERMINED IN ANY SUCH COURT AND IRREVOCABLY WAIVES ANY OBJECTION IT MAY NOW OR HEREAFTER HAVE AS TO THE VENUE OF ANY SUCH SUIT, ACTION OR PROCEEDING BROUGHT IN SUCH A COURT OR THAT SUCH COURT IS AN INCONVENIENT FORUM. NOTHING HEREIN SHALL LIMIT THE RIGHT OF THE ADMINISTRATIVE AGENT, THE LETTER OF CREDIT AGENT OR ANY LENDER TO BRING PROCEEDINGS AGAINST THE BORROWER IN THE COURTS OF ANY OTHER JURISDICTION. ANY JUDICIAL PROCEEDING BY THE BORROWER AGAINST THE ADMINISTRATIVE AGENT, THE LETTER OF CREDIT AGENT OR ANY LENDER OR ANY AFFILIATE OF THE ADMINISTRATIVE AGENT, THE LETTER OF CREDIT AGENT OR ANY LENDER INVOLVING, DIRECTLY OR INDIRECTLY, ANY MATTER IN ANY WAY ARISING OUT OF, RELATED TO, OR CONNECTED WITH ANY FACILITY DOCUMENT SHALL BE BROUGHT ONLY IN A COURT IN NEW YORK, NEW YORK.

70

15.3 WAIVER OF JURY TRIAL. THE BORROWER, THE ADMINISTRATIVE AGENT, THE LETTER OF CREDIT AGENT AND EACH LENDER HEREBY WAIVE TRIAL BY JURY IN ANY JUDICIAL PROCEEDING INVOLVING, DIRECTLY OR INDIRECTLY, ANY MATTER (WHETHER SOUNDING IN TORT, CONTRACT OR OTHERWISE) IN ANY WAY ARISING OUT OF, RELATED TO, OR CONNECTED WITH ANY FACILITY DOCUMENT OR THE RELATIONSHIP ESTABLISHED THEREUNDER.

15.4 REAFFIRMATION OF SECURITY DOCUMENTS. The Borrower hereby reaffirms each of the Security Documents attached hereto as Exhibits E, F, J-1 and J-2. All references to the Credit Agreement in the Security Documents or in any other document, instrument, agreement or writing shall be deemed to refer to this Agreement.

[signature pages follow]

71

IN WITNESS WHEREOF, the Borrower, the Lenders, the Letter of Credit Agent and the Administrative Agent have executed this Agreement as of the date first above written.

THE NAVIGATORS GROUP, INC.
By:	/s/ Ciro M. DeFalco
Name:	Ciro M. DeFalco
Title:	Senior Vice President and Chief Financial Officer

Address:	400 Atlantic Street
	Stamford, Connecticut 06901
Attn:	Ciro M. DeFalco
Telephone: (203) 905-6343
Fax: (203) 658-1821
Email: cdefalco@navg.com

Signature Page to Second Amended and Restated Funds

at Lloyd’s Letter of Credit Agreement

ING BANK N.V., LONDON BRANCH,
individually, as Administrative Agent and Letter of Credit Agent
By:	/s/ N J Marchant
Name:	N J Marchant
Title:	Director
By:	/s/ M E R Sharman
Name:	M E R Sharman
Title:	Managing Director

Address:	ING Bank N.V., London Branch
	60 London Wall
	London EC2M 5TQ
	United Kingdom
Attention:	Nick Marchant
Telephone: +44 (0)20 7767 5920
Fax: +44 (0)20 7767 7507
Email: nick.marchant@uk.ing.com

Signature Page to Second Amended and Restated Funds

at Lloyd’s Letter of Credit Agreement

JPMORGAN CHASE BANK, N.A.,
By:	/s/ Hector Varona
Name:	Hector Varona
Title:	Vice President

Address:	270 Park Ave, 41st Floor
	Suite NY1-K769
	New York, NY 10017
Attention:	Hector Varona

Telephone:	(212) 622-6936
Fax:	(646) 534-2235
Email: hector.varona@jpmorgan.com

Signature Page to Second Amended and Restated Funds

at Lloyd’s Letter of Credit Agreement

BARCLAYS BANK PLC
By:	/s/ Dan Broome
Name:	Dan Broome
Title:	Director

Address:	745 Seventh Avenue
New York, New York 10019
Attention: Dan Broome
Telephone: (212) 526-3155
Email: dan.broome@barclays.com

Signature Page to Second Amended and Restated Funds

at Lloyd’s Letter of Credit Agreement

SCHEDULE 1

COMMITMENTS

Lender	Letter of Credit Facility
ING Bank N.V., London Branch	$	75,000,000
JPMorgan Chase Bank N.A.	$	50,000,000
Barclays Bank PLC	$	50,000,000
TOTAL:	$	175,000,000

Schedule 1

SCHEDULE 1.1

ELIGIBLE COLLATERAL AND APPLICABLE ADVANCE RATES

Collateral Description	Advance Rate
	Matching Currency (with respect to outstanding Letters of Credit)			Non-Matching Currency (with respect to outstanding Letters of Credit)
Cash held with ING:		100	%		90	%
Cash held with a Financial Institution (subject to a Control Agreement):		95	%		85	%
US Dollar and/or Pound Time Deposits, CDs and Money Market Deposits: Time deposits, certificates of deposit and money market deposits of any OECD incorporated bank with a rating of at least (i) AA- from S&P and (ii) Aa3 from Moody’s and maturing within two years from the date of determination.		95	%		85	%
US and/or UK Government Securities: Securities issued or directly and fully guaranteed or insured by the United States Government or any agency or instrumentality thereof (provided that the full faith and credit of the United States is pledged in support thereof) or UK Gilts, with maturities of: less than five years from the date of determination		90	%		80	%
more than five years from the date of determination		85	%		75	%
Commercial paper rated A-1 by S&P or P1 or better by Moody’s		85	%		75	%

Schedule 1.1

SCHEDULE 1.2

EXISTING LETTERS OF CREDIT

Applicant	Reference No.	Amount
Navigators Corporate Underwriting Ltd	DTGBLG404774	GBP	27,500,000
Navigators Corporate Underwriting Ltd	DTGBLG404775	USD	106,200,000

Schedule 1.2

SCHEDULE 5.9

SUBSIDIARIES

Subsidiary	State of Incorporation	% ownership by the Borrower or a Subsidiary as otherwise indicated	Insurance Company	Significant Subsidiary
Navigators Insurance Company	New York	100%	Yes	Yes
Navigators Specialty Insurance Company	New York	100% Navigators Insurance Co.	Yes
Navigators Management Company, Inc.	New York	100%
Navigators Corporate Underwriters Ltd.	U.K.	100% Navigators Holdings (UK) Ltd.
Navigators Management (UK) Ltd.	U.K.	100% Navigators Holdings (UK) Ltd.
Navigators Holdings (UK) Ltd.	U.K.	100%
Navigators Underwriting Agency Ltd.	U.K.	100% Navigators Holdings (UK) Ltd.
Millennium Underwriting Ltd.	U.K.	100% Navigators Underwriting Agency Ltd.
Navigators Underwriting Ltd.	U.K.	100% Navigators Underwriting Agency Ltd.
Navigators NV	Belgium	100% Navigators Underwriting Agency Ltd.
NUAL AB	Sweden	100% Navigators Underwriting Agency Ltd.
Navigators A/S	Denmark	100% Navigators Holdings (UK) Ltd.

Schedule 5.9

SCHEDULE 5.22

PARTNERSHIPS

None

Schedule 5.22

SCHEDULE 5.23

LINES OF BUSINESS

The Borrower and its Subsidiaries are active in the following lines of business:

Accident

Health

Reinsurance

Property

Commercial Multi Peril

Ocean Marine

Inland Marine

Other Liability

Commercial Auto Liability

Auto Physical Damage

Aircraft

Surety

Multiple Peril Crop

Schedule 5.23

SCHEDULE 6.16

LIENS

UCC-1 in favor of Dell Financial Services L.L.C. (f/k/a Dell Financial Services L.P.) filed in the Division of Corporations of the Delaware Secretary of State on 9/18/01 (and continued on 8/25/06 and 8/15/11) under File No. 11180202 covering leased equipment.

Schedule 6.16

SCHEDULE 6.21

REINSURANCE GUIDELINES

• Minimum A.M. Best rating of “A-” and

• Policyholders’ surplus of (i) US $250 million or (ii) US $200 and part of a group with combined statutory surplus of $350 million

• Or, if not rated by A.M. Best, an equivalent rating from a major rating agency along with the following:

• Shareholder’s funds must be in excess of US $250 million

For purpose of this Credit Agreement, the following applies, net of any collateral from the reinsurers:

1. Reinsurers constituting the lessor of $10,000,000 or 25% of the credit risk on any reinsurance program can be outside of the above guidelines.

1. Any reinsurer, falling within the Reinsurance Guidelines, rated A- or below cannot exceed an aggregate exposure across all programs of 66 2/3% of the Consolidated Surplus of the Insurance Subsidiaries.

EXHIBIT A

COMPLIANCE CERTIFICATE

To: The Lenders parties to the

Letter of Credit Agreement Described Below

This Compliance Certificate is furnished pursuant to that certain Second Amended and Restated Funds at Lloyd’s Letter of Credit Agreement, dated as of November 21, 2014 (as amended, modified, renewed or extended from time to time, the “Agreement”), among The Navigators Group, Inc. (the “Borrower”), the lenders party thereto, and ING Bank N.V., London Branch, as Administrative Agent and Letter of Credit Agent. Unless otherwise defined herein, capitalized terms used in this Compliance Certificate have the meanings ascribed thereto in the Agreement.

THE UNDERSIGNED HEREBY CERTIFIES THAT:

1. I am the duly elected              of the Borrower;

2. I have reviewed the terms of the Agreement and I have made, or have caused to be made under my supervision, a detailed review of the transactions and conditions of the Borrower and its Subsidiaries during the accounting period covered by the attached financial statements;

3. The examinations described in paragraph 2 did not disclose, and I have no knowledge of, the existence of any condition or event which constitutes a Default or Unmatured Default during or at the time of the accounting period covered by the attached financial statements or as of the date of this Certificate, except as set forth below; and

4. Schedule I attached hereto sets forth financial data and computations evidencing the Borrower’s compliance with certain covenants of the Agreement, all of which data and computations are true, complete and correct.

Described below are the exceptions, if any, to paragraph 3 by listing, in detail, the nature of the condition or event, the period during which it has existed and the action which the Borrower has taken, is taking, or proposes to take with respect to each such condition or event:

The foregoing certifications, together with the computations set forth in Schedule I hereto and the financial statements delivered with this Certificate in support hereof, are made and delivered this      day of             ,         .

Name:

Title:

SCHEDULE I TO COMPLIANCE CERTIFICATE

Compliance as of             ,          with

Provisions of Sections 6.14 and 6.23 of

the Agreement

Section 6.14 – Investments and Acquisitions
1.	Clause (d)
	(a)	Maximum:
		(i)	Total Investment Portfolio on the date of determination:	$
		(ii)	20% of (a)(i):	$
	(b)	Actual:
		Investments in debt securities rated less than A- by S&P, A3 by Moody’s or NAIC-1 by the NAIC but rated BBB- or better by S&P, Baa3 or better by Moody’s or NAIC-2 or better by the NAIC on the date of determination (or downgraded from such ratings within the last 180 days):		$
		Is (a)(ii) greater than (b)?		Yes/No
2.	Clause (e)
	(a)	Maximum:		$
		(i)	Total Investment Portfolio on the date of determination:	$
		(ii)	4% of (a)(i)	$
	(b)	Actual:		$
		Aggregate Investment in debt securities not satisfying standards set forth in clause (b) or (d) of Section 6.14:
		Is (a)(ii) greater than (b)		Yes/No

3.	Clause (f)
	(a)	Aggregate Investments in equity securities:
		(i)	Maximum:
			(A)	Total Investment Portfolio on the date of determination:	$
			(B)	10% of (a)(i)(A):	$
		(ii)	Actual:
			Aggregate Investments by the Borrower in equity securities on the date of determination:		$
		Is (a)(i)(B) greater than (a)(ii)?			Yes/No
	(b)	Individual Investments in equity securities:
		(i)	Maximum:
			(A)	100% of (a)(ii):	$
			(B)	20% of (b)(i)(A):	$
		(ii)	Actual:
			Largest single equity securities investment by the Borrower and its Subsidiaries on the date of determination:		$
		Is (b)(i)(B) greater than (b)(ii)?			Yes/No
4.	Clause (g)
	(a)	Maximum:
		(i)	Total Investment Portfolio on the date of determination:		$
		(ii)	1% of (a)(i):
	(b)	Actual:
		Other Investments on date of determination:			$
		Is (a)(ii) greater than (b)?			Yes/No

5.	Clause (h)
	(a)	Maximum:
		(i)	Consolidated Net Worth of the Borrower and its Consolidated Subsidiaries on the date of determination:
				$
		(ii)	5% of (a)(i):
	(b)	Actual:
		Amount of Acquisitions from beginning of Fiscal Year through date of determination:		$
		Is (a)(ii) greater than (b)?		Yes/No

Section 6.23(a) – Minimum Consolidated Tangible Net Worth
Period:		Fiscal Quarter ended             ,
1.	Minimum: $[    ]		$
2.	Actual:
	Consolidated Tangible Net Worth (excluding the effect of unrealized gain or loss under SFAS 115):		$
	Is (2) greater than (1)?		Yes/No
Section 6.23(b) – Minimum Statutory Surplus of Navigators
Period:		Fiscal Quarter ended             ,
1.	Minimum: $[    ]		$
2.	Actual:
	Statutory Surplus of Navigators:		$
	Is (2) greater than (1)?		Yes/No
Section 6.23(c) – Leverage Ratio
1.	Maximum:		0.30:1.0
2.	Actual:
	(a)	Consolidated Indebtedness of the Borrower and its Consolidated Subsidiaries (excluding Indebtedness with respect to undrawn letters of credit) on date of determination:	$
	(b)	Consolidated Net Worth on date of determination:	$
	(c)	(a) plus (b):	$
	(d)	Ratio of (a) to (c):	:1.0
	Is the ratio of (a) to (c) less than 0.30:1?		Yes/No

Section 6.23(d) – Minimum Risk-Based Capital1
1.	Minimum:		150%
2.	Actual:
	(a)	Total Adjusted Capital on date of determination:	$
	(b)	Company Action Level RBC on date of determination:	$
	(c)	Ratio of (a) to (b) (expressed as a percentage):	%
	Is the ratio of (a) to (b) greater than 150%?		Yes/No
Section 6.23(e) – Adjusted Primary FAL for Year of Account 2015
1.	Minimum:
	(a)	Total Letter of Credit Obligations	$
	(b)	40% of (1)(a)
2.	Actual:
	(a)	Amount of Primary FAL provided by the Corporate Member on the date of determination:
		(1) Cash/investment assets at Lloyd’s	$
		(2) Undistributed profits for closed years	$
		(3) Collateralized letters of credit available to cover losses in the Supported Syndicate that will be utilized prior to the Letters of Credit	$
		(4) Sum of (a)(1) plus (a)(2) plus (a)(3)	$
	(b)	NDS Deficiency as of ([insert most recent determination date]):	$
	(c)	Solvency Surplus as of ([insert most recent determination date]:	$
	(d)	Adjusted Primary FAL ((a)(4) minus ((b) plus (c))	$
	Is (2)(d) greater than (1)(b)?		Yes/No

¹  To be completed for each Significant Domestic Insurance Subsidiary.

Section 6.23(f) – RDS for Year of Account 201[    ]
Maximum: Highest Net Loss permitted from a prescribed RDS scenario:		20%
Actual (Highest Net Loss from an RDS scenario expressed as a percentage of the total Supported Syndicate capacity for such Year of Account):
(a)	HighestNet Loss from a prescribed RDS scenario :	$
(b)	Total Supported Syndicate Capacity:	$
(c)	Ratio of (a) to (b) (expressed as a percentage):	%
	Is (c) less than 20%?	Yes/No

EXHIBIT B

ASSIGNMENT AGREEMENT

This Assignment Agreement (this “Assignment Agreement”) between                      (the “Assignor”) and                      (the “Assignee”) is dated as of                     . The parties hereto agree as follows:

1. PRELIMINARY STATEMENT. The Assignor is a party to a Credit Agreement (which, as it may be amended, modified, renewed or extended from time to time is herein called the “Credit Agreement”) described in Item 1 of Schedule 1 attached hereto (“Schedule 1”). Capitalized terms used herein and not otherwise defined herein shall have the meanings attributed to them in the Credit Agreement.

2. ASSIGNMENT AND ASSUMPTION. The Assignor hereby sells and assigns to the Assignee, and the Assignee hereby purchases and assumes from the Assignor, an interest in and to the Assignor’s rights and obligations under the Credit Agreement such that after giving effect to such assignment the Assignee shall have purchased pursuant to this Assignment Agreement the percentage interest specified in Item 3 of Schedule 1 of all outstanding rights and obligations under the Credit Agreement relating to the loans listed in Item 3 of Schedule 1 and the other Facility Documents.

3. EFFECTIVE DATE. The effective date of this Assignment Agreement (the “Effective Date”) shall be the later of the date specified in Item 5 of Schedule 1 or the date the Administrative Agent advises that the beneficiaries of Letters of Credit have accepted the amendments or replacements of the Letters of Credit to reflect such assignment and a Notice of Assignment substantially in the form of Exhibit I attached hereto has been delivered to the Administrative Agent. Such Notice of Assignment must include any consents required to be delivered to the Administrative Agent by Section 12.3(a) of the Credit Agreement. In no event will the Effective Date occur if the payments required to be made by the Assignee to the Assignor on the Effective Date under Sections 4 and 5 hereof are not made on the proposed Effective Date or if any other condition precedent agreed to by the Assignor and the Assignee has not been satisfied. The Assignor will notify the Assignee of the proposed Effective Date not later than the Business Day prior to the proposed Effective Date. As of the Effective Date, (i)the Assignee shall have the rights and obligations of a Lender under the Facility Documents with respect to the rights and obligations assigned to the Assignee hereunder and (ii)the Assignor shall relinquish its rights and be released from its corresponding obligations under the Facility Documents with respect to the rights and obligations assigned to the Assignee hereunder.

4. PAYMENT OBLIGATIONS. On and after the Effective Date, the Assignee shall be entitled to receive from the Administrative Agent all payments of principal, interest and fees with respect to the interest assigned hereby. The Assignee shall advance funds directly to the Administrative Agent with respect to all reimbursement payments made on or after the Effective Date with respect to the interest assigned hereby. In the event that either party hereto receives any payment to which the other party hereto is entitled under this Assignment Agreement, then the party receiving such amount shall promptly remit it to the other party hereto.

5. FEES PAYABLE BY THE ASSIGNEE. The Assignee agrees to pay the $3,500 processing fee required to be paid to the Administrative Agent in connection with this Assignment Agreement.

6. REPRESENTATIONS OF THE ASSIGNOR; LIMITATIONS ON THE ASSIGNOR’S LIABILITY. The Assignor represents and warrants that it is the legal and beneficial owner of the interest being assigned by it hereunder and that such interest is free and clear of any adverse claim created by the Assignor. It is understood and agreed that the assignment and assumption hereunder are made without recourse to the Assignor and that the Assignor makes no other representation or warranty of any kind to the Assignee. Neither the Assignor nor any of its officers, directors, employees, agents or attorneys shall be responsible for (i)the due execution, legality, validity, enforceability, genuineness, sufficiency or collectability of any Facility Document, including without limitation, documents granting the Assignor and the other Lenders a security interest in assets of the Borrower or any guarantor, (ii)any representation, warranty or statement made in any Facility Document or in connection with any of the Facility Documents, (iii)the financial condition or creditworthiness of the Borrower or any guarantor, (iv)the performance of or compliance with any of the terms or provisions of any of the Facility Documents, (v)inspecting any of the Property, books or records of the Borrower, (vi)the validity, enforceability, perfection, priority, condition, value or sufficiency of any collateral securing or purporting to secure the Reimbursement Obligations or (vii)any mistake, error of judgment, or action taken or omitted to be taken in connection with the Letters of Credit or the Facility Documents.

7. REPRESENTATIONS OF THE ASSIGNEE. The Assignee (i)confirms that it has received a copy of the Credit Agreement, together with copies of the financial statements requested by the Assignee and such other documents and information as it has deemed appropriate to make its own credit analysis and decision to enter into this Assignment Agreement, (ii)agrees that it will, independently and with reliance upon the Administrative Agent, the Assignor or any other Lender and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit decisions in taking or not taking action under the Facility Documents, (iii)appoints and authorizes the Administrative Agent to take such action as agent on its behalf and to exercise such powers under the Facility Documents as are delegated to the Administrative Agent by the terms thereof, together with such powers as are reasonably incidental thereto, (iv)agrees that it will perform in accordance with their terms all of the obligations which by the terms of the Facility Documents are required to be performed by it as a Lender, (v)agrees that its payment instructions and notice instructions are as set forth in the attachment to Schedule 1, (vi)confirms that none of the funds, monies, assets or other consideration being used to make the purchase and assumption hereunder are “plan assets” as defined under ERISA and that its rights, benefits and interests in and under the Facility Documents will not be “plan assets” under ERISA, [and (vii)attaches the forms prescribed by the Internal Revenue Service of the United States certifying that the Assignee is entitled to receive payments under the Facility Documents without deduction or withholding of any United States federal income taxes].

8. INDEMNITY. The Assignee agrees to indemnify and hold the Assignor harmless against any and all losses, costs and expenses (including, without limitation, reasonable attorneys’ fees) and liabilities incurred by the Assignor in connection with or arising in any manner from the Assignee’s non-performance of the obligations assumed under this Assignment Agreement.

9. SUBSEQUENT ASSIGNMENTS. After the Effective Date, the Assignee shall have the right pursuant to Section 12.3(a) of the Credit Agreement to assign the rights which are assigned to the Assignee hereunder to any entity or person, provided that (i)any such subsequent assignment does not violate any of the terms and conditions of the Facility Documents or any law, rule, regulation, order, writ, judgment, injunction or decree and that any consent required under the terms of the Facility Documents has been obtained and (ii)unless the prior written consent of the Assignor is obtained, the Assignee is not hereby released from its obligations to the Assignor hereunder, if any remain unsatisfied, including, without limitation, its obligations under Sections 4, 5 and 8 hereof.

10. REDUCTIONS OF AGGREGATE COMMITMENT. If any reduction in the Letter of Credit Commitment occurs between the date of this Assignment Agreement and the Effective Date, the percentage interest specified in Item 3 of Schedule 1 shall remain the same, but the dollar amount purchased shall be recalculated based on the reduced Letter of Credit Commitment, as the case may be.

11. ENTIRE AGREEMENT. This Assignment Agreement and the attached Notice of Assignment embody the entire agreement and understanding between the parties hereto and supersede all prior agreements and understandings between the parties hereto relating to the subject matter hereof.

12. GOVERNING LAW. This Assignment Agreement shall be governed by the internal law, and not the law of conflicts, of the State of New York, without regards to the conflict of law provisions thereof other than Sections 5-1401 and 5-1402 of the New York General Obligations Laws, but giving effect to Federal laws applicable to national banks.

13. NOTICES. Notices shall be given under this Assignment Agreement in the manner set forth in the Credit Agreement. For the purpose hereof, the addresses of the parties hereto (until notice of a change is delivered) shall be the address set forth in the attachment to Schedule 1.

[signature page follows]

IN WITNESS WHEREOF, the parties hereto have executed this Assignment Agreement by their duly authorized officers as of the date first above written.

[NAME OF ASSIGNOR]

By:

Title:

Address:

[NAME OF ASSIGNEE]

By:

Title:

Address:

SCHEDULE 1

TO ASSIGNMENT AGREEMENT

2. Description and Date of Credit Agreement:

That certain Second Amended and Restated Funds at Lloyd’s Letter of Credit Agreement, dated as of November 21, 2014, among the Navigators Group, Inc., the financial institutions named therein, and ING Bank N.V., London Branch, as Administrative Agent and Letter of Credit Agent.

3. Date of Assignment Agreement:                     

4. Amounts (As of Date of Item 2 above):

			Letter of Credit Facility
	(a)	Aggregate and Letter of Credit Commitment (total outstanding Letter of Credit Obligations)* under Credit Agreement	$
	(b)	Assignee’s Percentage of Facility purchased under the Assignment Agreement (taken to five decimal places);	%
	(c)	Amount of Assigned Share in Facility purchased under the Assignment Agreement:	$
5.	Total of Letter of Credit Participation Amount (outstanding Letter of Credit Obligations)* purchased hereunder:
6.	Proposed Effective Date:

* If the Letter of Credit Commitment has been terminated, insert total outstanding Letter of Credit Obligations in place of Letter of Credit Commitment or Letter of Credit Participation Amount, as the case may be.

Accepted and Agreed:
[NAME OF ASSIGNOR]	[NAME OF ASSIGNEE]
By:	By:
Title:	Title:

ATTACHMENT TO SCHEDULE 1 to ASSIGNMENT AGREEMENT

ADMINISTRATIVE INFORMATION SHEET

Attach Assignor’s Administrative Information Sheet, which must

include notice addresses for the Assignor and the Assignee

(Sample form shown below)

ASSIGNOR INFORMATION

Contact:

Name:	Telephone No.:
Fax No.:

Payment Information:

Name & ABA # of Destination Bank:

Account Name & Number for Wire Transfer:

Other Instructions:

Address for Notices for Assignee:

ASSIGNEE INFORMATION

Credit Contact:

Name:	Telephone No.:
Fax No.:

Key Operations Contacts:

Booking Installation: Booking Installation:

Name: Name:

Telephone No.: Telephone No.:

Fax No.: Fax No.:

Payment Information:

Name & ABA # of Destination Bank:

Account Name & Number for Wire Transfer:

Other Instructions:

Address for Notices for Assignor:

EXHIBIT I

TO ASSIGNMENT AGREEMENT

NOTICE

OF ASSIGNMENT

            ,        

To:	The Navigators Group, Inc.
	ING Bank N.V., London Branch, as Administrative Agent and Letter of Credit Agent
From:	[NAME OF ASSIGNOR] (the “Assignor”)
	[NAME OF ASSIGNEE] (the “Assignee”)

1. We refer to that certain Credit Agreement (the “Credit Agreement”) described in Item 1 of Schedule 1 attached hereto (“Schedule 1”). Capitalized terms used herein and not otherwise defined herein shall have the meanings attributed to them in the Credit Agreement.

2. This Notice of Assignment (the “Notice of Assignment”) is given and delivered to [the Borrower and] the Administrative Agent pursuant to Section 12.3(b) of the Credit Agreement.

3. The Assignor and the Assignee have entered into an Assignment Agreement, dated as of             ,          (the “Assignment Agreement”), pursuant to which, among other things, the Assignor has sold, assigned, delegated and transferred to the Assignee, and the Assignee has purchased, accepted and assumed from the Assignor the percentage interest specified in Item 3 of Schedule 1 of all outstandings, rights and obligations under the Credit Agreement relating to the facilities listed in Item 3 of Schedule 1. The Effective Date of the Assignment Agreement shall be the later of the date specified in Item 5 of Schedule 1 or two Business Days (or such shorter period as agreed to by the Administrative Agent) after this Notice of Assignment and any consents and fees required by Sections 12.3(a) and 12.3(b) of the Credit Agreement have been delivered to the Administrative Agent; provided that the Effective Date shall not occur if any condition precedent agreed to by the Assignor and the Assignee has not been satisfied.

4. The Assignor and the Assignee hereby give to the Borrower and the Administrative Agent notice of the assignment and delegation referred to herein. The Assignor will confer with the Administrative Agent before the date specified in Item 5 of Schedule 1 to determine if the Assignment Agreement will become effective on such date pursuant to Section 3 hereof, and will confer with the Administrative Agent to determine the Effective Date pursuant to Section 3 hereof if it occurs thereafter. The Assignor shall notify the Administrative Agent if the Assignment Agreement does not become effective on any proposed Effective Date as a result of the failure to satisfy the conditions precedent agreed to by the Assignor and the Assignee. At the request of the Administrative Agent, the Assignor will give the Administrative Agent written confirmation of the satisfaction of the conditions precedent.

5. The Assignor or the Assignee shall pay to the Administrative Agent on or before the Effective Date the processing fee of $3,500 required by Section 12.3(b) of the Credit Agreement.

6. The Assignee advises the Administrative Agent that notice and payment instructions are set forth in the attachment to Schedule 1.

7. The Assignee hereby represents and warrants that none of the funds, monies, assets or other consideration being used to make the purchase pursuant to the Assignment Agreement are “plan assets” as defined under ERISA and that its rights, benefits, and interests in and under the Facility Documents will not be “plan assets” under ERISA.

8. The Assignee authorizes each of the Administrative Agent and the Letter of Credit Agent to act as its agent under the Facility Documents in accordance with the terms thereof. The Assignee acknowledges that the Administrative Agent has no duty to supply information with respect to the Borrower or the Facility Documents to the Assignee until the Assignee becomes a party to the Credit Agreement.

9. Pursuant to Clause 16 (Security Trustee provisions) of the deed of charge dated on or about 28 March 2011 and made between (amongst others) (1) the Borrower as chargor and ING Bank, N.V. in its capacity as security trustee (the “Deed of Charge”), the Assignee confirms its agreement to (a) irrevocably appoint the Security Trustee (as that term is defined in the Credit Agreement) as trustee under the Security Documents (as that term is defined in the Deed of Charge) in its capacity as a Secured Party (as that term is defined in the Deed of Charge) and (b) to be bound by the terms of the Deed of Charge as if it had been a Secured Party from the date of the Deed of Charge. By countersigning this Assignment Agreement, the Security Trustee hereby accepts the appointment by the Assignee as its trustee under the Deed of Charge and this paragraph shall be governed by, and construed in accordance with, English law and shall take effect and be binding on all parties notwithstanding that neither the Assignee nor the Security Trustee have, as a matter of English law, executed this Assignment Agreement as a deed.

[NAME OF ASSIGNOR]	[NAME OF ASSIGNEE]
By:	By:
Title:	Title:

ACKNOWLEDGED AND CONSENTED TO BY ING Bank N.V., London Branch, as Administrative Agent, Letter of Credit Agent and Security Trustee	ACKNOWLEDGED AND CONSENTED TO BY THE NAVIGATORS GROUP, INC.
By:	By:
Title:	Title:

[Attach photocopy of Schedule 1 to Assignment Agreement]

EXHIBIT C

FORM OF APPLICATION

From:
To:	ING Bank N.V., London Branch
Dated:

Dear Sirs,

1. This request to [issue a Letter of Credit][amend the stated amount of Letter of Credit No. []] is made under, and is subject to the terms and conditions of, that certain Second Amended and Restated Funds at Lloyd’s Letter of Credit Agreement, dated as of November 21, 2014, as amended, among The Navigators Group, Inc., a Delaware corporation, certain financial institutions and ING Bank N.V., London Branch, as Administrative Agent and Letter of Credit Agent (the “Credit Agreement”). In the event of a conflict between the terms and conditions of this letter of credit application and those of the Credit Agreement, the terms and conditions of the Credit Agreement shall govern.

2. This notice is irrevocable.

3. We hereby give you notice that, pursuant to the Credit Agreement and upon the terms and subject to the conditions contained therein, we wish ING Bank N.V., London Branch to [issue/ amend] on our behalf a Letter of Credit as follows:

Applicant:	[—]
Beneficiary	[—]
Beneficiary address	[—]
[New] LOC Amount:	[—]
Utilization Date:	[—]
Commencement Date:	[—]
Currency	[—]
Expiry Date:	[—]

4. We confirm that the conditions of Section 4.2(a) and (b) of the Credit Agreement are fully complied with.

Yours faithfully

Authorized Signatory

for and on behalf of

The Navigators Group, Inc.

EXHIBIT D

FORM OF BORROWING BASE CERTIFICATE

To: ING, N.V. London Branch,

as Administrative Agent

60 London Wall

London EC2M 5TQ

United Kingdom

Re: The Navigators Group, Inc.

Ladies and Gentlemen:

Please refer to that certain Second Amended and Restated Funds at Lloyd’s Letter of Credit Agreement, dated as of November 21, 2014 (as amended, modified, renewed or extended from time to time, the “Agreement”), among The Navigators Group, Inc. (the “Borrower”), the lenders party thereto, and ING Bank N.V., London Branch, as Administrative Agent and Letter of Credit Agent. This Certificate, together with supporting calculations attached hereto set forth in reasonable detail, is delivered to you pursuant to the terms of the Credit Agreement. Capitalized terms used but not otherwise defined herein shall have the same meanings herein as in the Credit Agreement.

We hereby certify and warrant to the Administrative Agent, Letter of Credit Agent and the Lenders that at the close of business on             ,          (the “Borrowing Base Calculation Date”), the Borrowing Base for the undersigned was $         and the outstanding Letters of Credit Obligations was $            

We hereby further certify and warrant to the Administrative Agent, the Letter of Credit Agent and the Lenders that the information and computations contained herein are true and correct in all material respects as of the Borrowing Base Calculation Date.

IN WITNESS WHEREOF, the Borrower has caused this Certificate to be executed and delivered by an authorized office this      day of         ,         .

THE NAVIGATORS GROUP, INC.

By:

Title:

Schedule 6.21

SCHEDULE I TO BORROWING BASE CERTIFICATE

DATED AS OF:                     

[FORM TO BE AGREED UPON BY ADMINISTRATIVE AGENT AND NAVIGATORS]

EXHIBIT E

SECURITY AGREEMENT

[OMITTED]

EXHIBIT F

FIXED CHARGE

[OMITTED]

EXHIBIT G

FORM OF LETTER OF CREDIT

To:
The Society and Council of Lloyd’s,
c/o The Manager, Market Services,
Fidentia House
Walter Burke Way
Chatham,
Kent ME4 4RN	Date:

Dear Sirs,

Irrevocable Standby Letter of Credit No. xxxxxxxxxxxx

Re: xxxxxxxxxxxxx (the ‘Applicant’)

This Clean Irrevocable Standby Letter of Credit (the ‘Credit’) is issued by the banks whose names are set out in Schedule 1 hereto (the ‘Issuing Lenders’, and each an ‘Issuing Lender’) in favour of the Society of Lloyd’s (‘Lloyd’s’) on the following terms:

1. Subject to the terms hereof, the Issuing Lenders shall make payments within two business days of demand on ING Bank N.V., London Branch (the ‘Agent’) in accordance with paragraph 4 below.

2. Upon a demand being made by Lloyd’s pursuant to paragraph 4 below each Issuing Lender shall pay that proportion of the amount demanded which is equal to the proportion which its Commitment set out in Schedule 1 hereto bears to the aggregate Commitments of all the Issuing Lenders set out in Schedule 1 hereto provided that the obligations of the Issuing Lenders under this Credit shall be several and no Issuing Lender shall be required to pay an amount exceeding its Commitment set out in Schedule 1 hereto and the Issuing Lenders shall not be obliged to make payments hereunder in aggregate exceeding a maximum amount of xxxxx (figures and words). Any payment by an Issuing Lender hereunder shall be made in US Dollars to Lloyd’s account specified in the demand made by Lloyd’s pursuant to paragraph 4 below.

3. This Credit is effective from xxxxxxxxxxx (the ‘Commencement Date’) and will expire on the Final Expiration Date. This Credit shall remain in force until we give you not less than four years notice in writing terminating the same on the fourth anniversary of the Commencement Date or on any date subsequent thereto as specified in such notice (the ‘Final Expiration Date’), our notice to be sent by registered mail for the attention of the Manager, Market Services, at the above address.

4. Subject to paragraph 3 above, the Issuing Lenders shall pay to Lloyd’s under this Credit upon presentation of a demand by Lloyd’s on the Agent, ING Bank N.V., 60 London Wall,

London, EC2M 5TQ, marked ‘For the attention of Documentary Credits/Agency Department’ substantially in the form set out in Schedule 2 hereto the amount specified therein (which amount shall not, when aggregated with all the other amounts paid by the Issuing Lenders to Lloyd’s under this Credit, exceed the maximum amount referred to in paragraph 2 above).

5. The Agent has signed this Credit as agent for disclosed principals and accordingly shall be under no obligation to Lloyd’s hereunder other than in its capacity as an Issuing Bank.

6. All charges are for the Applicants account.

7. Subject to any contrary indication herein, this Credit is subject to the International Standby Practices- ISP98 (1998 Publication International Chamber of Commerce Publication No. 590).

8. This Credit shall be governed by and interpreted in accordance with English Law and the Issuing Lenders hereby irrevocably submit to the jurisdiction of the High Court of Justice in England.

9. Each of the Issuing Lenders engages with Lloyd’s that demands made under and in compliance with the terms and conditions of this Credit shall be duly honoured on presentation.

Yours faithfully

ING Bank N.V., London Branch, as Agent:

for and on behalf of

ING Bank N.V., London Branch

xxxxxxxxxxxxxxxx

For and on behalf of

ING Bank N.V., London Branch

Name:		Name:
Title:	Authorised signatory	Title:	Authorised signatory

Attaching to and forming an integral part of Irrevocable Standby Letter of Credit No. xxxxxxxxxx dated xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx.

Schedule 1

Issuing Lenders Commitments

Name and address of Issuing Lender Commitment (USD)

Total Value USD

Attaching to and forming an integral part of Irrevocable Standby Letter of Credit No. xxxxxxxxxxx dated xxxxxxxxxxxx.

Schedule 2

Form of Demand

[on Lloyd’s letterhead]

Dear Sir/Madam,

The Society of Lloyd’s

Trustee of

Letter of credit No. xxxxxxxxxxxx dated xxxxxxxxxxxxx

With reference to the above, we enclose for your attention a Bill of Exchange, together with the respective Letter of Credit. Payment should be made by way of CHAPS. The account details are as follows:

National Westminster Bank Plc	Sort Code 60.00.01
City of London Office	Account 13637444
P.O. Box 12258
1 Princes Street
London EC2R 8AP

Please quote Member Code:

Yours faithfully

For Manager

Market Services

By:

Name:

Title:

Attaching to and forming an integral part of Irrevocable Standby Letter of Credit No. xxxxxxxxxxx dated xxxxxxxxxxxxxxxxxxxxxxx.

Schedule 2            

Page 2            

Your ref:
Our ref:	MEM/    /    /    /C911f
Extn:

BILL OF EXCHANGE

The Society of Lloyd’s

Trustee of

Letter of Credit No xxxxxxxxxxxxxx dated xxxxxxxxxxxxxxxxx.

Please pay in accordance with the terms of the Letter of Credit to our order the amount of USD            

For and on behalf of

Authorised Signatory

Market Services

To:	ING Bank N.V.,
	London Branch,
	as the Agent

EXHIBIT H

FORM OF LLOYD’S COMFORT LETTER

Your reference

Our reference MS/Mem Ser/NM/053617S&053575B

            , 2012

ADDRESSED TO ACCOUNT PARTY

AND ADMINISTRATIVE AGENT

RE: Navigators Group Inc. and ING Bank N.V., London Branch

I understand that Navigators Corporate Underwriters Ltd and Millennium Underwriting Ltd (the “Corporate Members”) is about to procure the provision to Lloyd’s of acceptable assets to form its Funds at Lloyd’s. The acceptable assets are listed in the First Schedule to this letter. You have asked whether, in the event of monies having to be applied out of the Corporate Members’ Funds at Lloyd’s, the Funds at Lloyd’s of the Corporate Members’ may be drawn down in pre-determined order and proportions as set out in the Second Schedule to this letter.

As you are aware, the Funds at Lloyd’s are held by Lloyd’s in its capacity as trustee under the terms of the Deposit Trust Deed (substantially in the form DTD (CM) Gen 10) and the Security and Trust Deed (substantially in the form STD (CM) Gen 10) and interavailable (I/A) deed held been the members (STD (I/A-CM) (GEN) (10)) entered into by the corporate members’. Any decision to draw down on any Funds at Lloyd’s involves an exercise of discretion in the light of the circumstances prevailing at the relevant time, and thus no binding undertaking can be given now.

However, I can confirm that at the time of considering the drawdown of the Corporate Members’ Funds at Lloyd’s, Lloyd’s would take into account the request order of drawdown set out in this letter and the Second Schedule to it.

For the avoidance of doubt, Lloyd’s shall not be responsible to you or any other person for any losses incurred by you or such other person as a consequence of acting in reliance upon this letter.

For and on behalf of

The Society and Council of Lloyd’s

Authorized Signatory

Telephone	01634 3492940
Fax	01634 392366
Email	neil.marsh@lloyds.com

The First Schedule

Funds at Lloyd’s

(with respect to Name of Account Party)

[To be updated]

FAL provider Amount

The Second Schedule

Order of drawdown of Funds at Lloyd’s

(with respect Name of Account Party)

[To be updated]

(a) first, the value in cash (NCUL General deposit) as at until exhausted;

(b) second, the value in cash (NCUL Personal Reserve Fund) as at until exhausted;

(c) third, the value in cash (MUL Personal Reserve Fund) as at until exhausted;

(d) fourth, the value in cash and securities (Funds held in Syndicate 1221) as at until exhausted;

(e) fifth, the syndicated letter of credit (agent bank: ING Bank N.V., London Branch) in the maximum aggregate amount of

EXHIBIT I

FORM OF CONFIRMATION OF PRIMARY FAL

[On the Managing Agent’s letterhead]

To: ING Bank N.V., London Branch,

as Administrative Agent

60 London Wall

London EC2M 5TQ

Attention: Nick Marchant

Re: The Navigators Group, Inc.

Dated: [—]

Ladies and Gentlemen:

The Navigators Group, Inc. – Confirmation of Primary Funds at Lloyd’s

1. We understand that pursuant to a Second Amended and Restated Funds at Lloyd’s Letter of Credit Agreement (the “LOC Agreement”; capitalized terms used herein without definition have the meaning given such terms in the LOC Agreement), dated as of November 21, 2014, among the Navigators Group, Inc., the financial institutions named therein, and ING Bank N.V., London Branch, as Administrative Agent and Letter of Credit Agent, you as agent for and on behalf of yourself, JP Morgan Chase Bank, N.A. and Barclays Bank plc, have agreed to issue standby letters of credit in favour of Lloyd’s (the “ING FAL”) to support the underwriting capacity of Navigators Corporate Underwriters Limited (the “Corporate Member”), as a member of Lloyd’s Syndicate 1221 for the 2015 and 2016 underwriting years of account (including any prior open years of account of such Syndicate).

2. We confirm to you that, as of the date of this letter, the following Primary FAL (in the form and amounts specified below) is available in respect of both underwriting years of account for application (excluding any ING FAL):

a) [—];

b) [—]; and

c) [—]

For the avoidance of doubt, the Primary FAL referred to above shall not include any sum covering the solvency deficit of the Corporate Member in its individual open year of account which is reported in its solvency statements prepared by Lloyd’s.

3. We confirm that:

(a) it is our understanding that the Primary FAL set out in paragraph 2 above will be applied by Lloyd’s in full prior to any application of the ING FAL; and

(b) we will not do or permit to be done anything incompatible or inconsistent with the order of priority set out in paragraph (a) above.

4. We acknowledge that it is a requirement under paragraph 4.1(a)(ix) of the LOC Agreement that we issue this written confirmation.

5. This letter and any non-contractual obligations arising out of or in connection with it are governed by English law.

Yours faithfully,

For and on behalf of

Navigators Underwriting Agency Limited

EXHIBIT J-1

DEPOSIT CONTROL ACCOUNT AGREEMENT

[OMITTED]

EXHIBIT J-2

SECURITIES ACCOUNT CONTROL AGREEMENT

[OMITTED]

EX-11.1

EXHIBIT 11-1

THE NAVIGATORS GROUP, INC. AND SUBSIDIARIES

Computation of Per Share Earnings

Earnings Per Share of Common Stock and Common Stock Equivalents

	Year Ended December 31,
In thousands, except share and per share amounts	2014		2013		2012
Net income	$	95,329	$	63,466	$	63,762
Basic weighted average shares		14,259,768		14,133,925		14,052,311
Effect of common stock equivalents:
Assumed exercise of stock options and vesting of stock grants		386,601		211,628		275,509
Diluted weighted average shares		14,646,369		14,345,553		14,327,820
Net income per common share:
Basic	$	6.69	$	4.49	$	4.54
Diluted	$	6.51	$	4.42	$	4.45

EX-21.1

EXHIBIT 21-1

THE NAVIGATORS GROUP, INC. AND SUBSIDIARIES

SUBSIDIARIES OF THE REGISTRANT AS OF DECEMBER 31, 2014

Name	Jurisdiction in which organized
Navigators Insurance Company	New York
Navigators Specialty Insurance Company	New York
Navigators Management Company, Inc.	New York
Navigators Management (UK) Ltd.	United Kingdom
Navigators Corporate Underwriters Ltd.	United Kingdom
Navigators Holdings (UK) Ltd.	United Kingdom
Navigators Underwriting Agency Ltd.	United Kingdom
Millennium Underwriting Ltd.	United Kingdom
Navigators Underwriting Limited	United Kingdom
Navigators N.V.	Belgium
NUAL AB	Sweden
Navigators A/S	Denmark

Note: Navigators Special Risk, Inc. and Navigators California Insurance Services, Inc., wholly-owned subsidiaries of the Company, were merged into Navigators Management Company, Inc. during 2008.

EX-23.1

EXHIBIT 23-1

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

The Board of Directors and Stockholders

The Navigators Group, Inc.

We consent to the incorporation by reference in the registration statements on Form S-8 (No. 333-97183, No. 333-106317, No. 333-125124, No. 333-172784, and No. 333-194886) and Form S-3 (No. 333-181838) of The Navigators Group, Inc. of our report dated February 17, 2015, with respect to the consolidated balance sheets of The Navigators Group, Inc. and subsidiaries as of December 31, 2014 and 2013, and the related consolidated statements of income, comprehensive income, stockholders’ equity, and cash flows for each of the years ended December 31, 2014, 2013, and 2012, and financial statement schedules I to VI, and the effectiveness of internal control over financial reporting as of December 31, 2014, which reports appear in the December 31, 2014 annual report on Form 10-K of The Navigators Group, Inc.

/s/ KPMG LLP                

New York, New York

February 17, 2015

EX-31.1

EXHIBIT 31-1

CERTIFICATION OF CHIEF EXECUTIVE OFFICER PER

SECTION 302 OF THE SARBANES-OXLEY ACT

I, Stanley A. Galanski, certify that:

1. I have reviewed this report on Form 10-K of The Navigators Group, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: February 17, 2015	By:	/s/ Stanley A. Galanski
	Name:	Stanley A. Galanski
	Title:	President and Chief Executive Officer
		(Principal Executive Officer)

EX-31.2

EXHIBIT 31-2

CERTIFICATION OF CHIEF FINANCIAL OFFICER PER

SECTION 302 OF THE SARBANES-OXLEY ACT

I, Ciro M. DeFalco, certify that:

1. I have reviewed this report on Form 10-K of The Navigators Group, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: February 17, 2015	By:	/s/ Ciro M. DeFalco
	Name:	Ciro M. DeFalco
	Title:	Senior Vice President and Chief Financial Officer
		(Principal Financial Officer)

EX-32.1

EXHIBIT 32-1

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Annual Report of The Navigators Group, Inc. (the “Company”) on Form 10-K for the period ending December 31, 2014 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Stanley A. Galanski, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that:

(1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

/s/ Stanley A. Galanski

Stanley A. Galanski

President and Chief Executive Officer

February 17, 2015

A signed original of this written statement required by Section 906 has been provided to The Navigators Group, Inc. and will be retained by The Navigators Group, Inc. and furnished to the Securities and Exchange Commission or its staff upon request.

EX-32.2

EXHIBIT 32-2

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Annual Report of The Navigators Group, Inc. (the “Company”) on Form 10-K for the period ending December 31, 2014 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Ciro M. DeFalco, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that:

(1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

/s/ Ciro M. DeFalco

Ciro M. DeFalco

Senior Vice President and Chief Financial Officer

February 17, 2015

A signed original of this written statement required by Section 906 has been provided to The Navigators Group, Inc. and will be retained by The Navigators Group, Inc. and furnished to the Securities and Exchange Commission or its staff upon request.

XML

Commitments and Contingencies (Tables)

12 Months Ended

Dec. 31, 2014

Future Minimum Annual Rental Commitments under Various Noncancellable Operating Leases

Future minimum annual rental commitments as of December 31, 2014 under various non-cancellable operating leases for our office facilities, which expire at various dates through 2023, are as follows:

	Year Ended
In thousands	December 31,
2015	$	11,245
2016		9,234
2017		7,942
2018		6,907
2019		4,258
Thereafter		12,811
Total minimum operating lease payments	$	52,397

XML

Summary of Activity Related to Other-Than-Temporary Impairment Losses (Detail) (USD $) In Thousands, unless otherwise specified	3 Months Ended					12 Months Ended
	Dec. 31, 2014	Sep. 30, 2014	Dec. 31, 2013	Sep. 30, 2013	Mar. 31, 2013	Dec. 31, 2014 Investment	Dec. 31, 2013 Investment	Dec. 31, 2012 Investment
Other than Temporary Impairment, Credit Losses Recognized in Earnings [Line Items]
Number of Securities						31	4	4
Total other-than-temporary impairment losses	$ 21	$ (158)	$ 530	$ 1,821	$ 42	$ (137)	$ 2,393	$ 902
Portion of loss recognized in other comprehensive income	21	(158)				(137)		44
Net other-than-temporary impairment losses recognized in earnings			530	1,821	42		2,393	858
Corporate And Other Bonds
Other than Temporary Impairment, Credit Losses Recognized in Earnings [Line Items]
Number of Securities							1
Total other-than-temporary impairment losses							1,822
Net other-than-temporary impairment losses recognized in earnings							1,822
Residential Mortgage Backed Securities
Other than Temporary Impairment, Credit Losses Recognized in Earnings [Line Items]
Number of Securities						31		1
Total other-than-temporary impairment losses						(137)		55
Portion of loss recognized in other comprehensive income						(137)		44
Net other-than-temporary impairment losses recognized in earnings								11
Equity Securities
Other than Temporary Impairment, Credit Losses Recognized in Earnings [Line Items]
Number of Securities							3	3
Total other-than-temporary impairment losses							571	847
Net other-than-temporary impairment losses recognized in earnings							$ 571	$ 847

XML

Additional Financial Data by Segment (Detail) (USD $) In Thousands, unless otherwise specified	3 Months Ended								12 Months Ended
	Dec. 31, 2014	Sep. 30, 2014	Jun. 30, 2014	Mar. 31, 2014	Dec. 31, 2013	Sep. 30, 2013	Jun. 30, 2013	Mar. 31, 2013	Dec. 31, 2014	Dec. 31, 2013	Dec. 31, 2012
Segment Reporting Information [Line Items]
Gross written premiums	$ 333,299	$ 327,469	$ 348,795	$ 422,790	$ 333,091	$ 312,076	$ 332,128	$ 393,222	$ 1,432,353	$ 1,370,517	$ 1,286,465
Net written premiums	228,007	228,417	231,864	311,850	223,445	196,556	198,469	269,452	1,000,138	887,922	833,655
Net earned premiums	234,172	245,367	231,084	225,272	219,902	213,895	205,814	202,328	935,895	841,939	781,964
Marine
Segment Reporting Information [Line Items]
Gross written premiums									365,470	352,868	394,518
Net written premiums									267,944	254,464	276,810
Net earned premiums									264,674	267,966	279,079
Property Casualty
Segment Reporting Information [Line Items]
Gross written premiums									881,075	829,609	717,769
Net written premiums									610,761	505,276	433,992
Net earned premiums									547,547	447,202	385,733
Professional Liability
Segment Reporting Information [Line Items]
Gross written premiums									185,808	188,040	174,178
Net written premiums									121,433	128,182	122,853
Net earned premiums									123,674	126,771	117,152
Insurance Companies
Segment Reporting Information [Line Items]
Gross written premiums									1,045,454	1,002,275	921,325
Net written premiums									752,773	680,008	622,956
Net earned premiums									704,574	639,338	571,439
Insurance Companies | Marine
Segment Reporting Information [Line Items]
Gross written premiums									177,363	171,822	200,095
Net written premiums									123,617	119,837	133,210
Net earned premiums									123,203	129,276	142,181
Insurance Companies | Property Casualty
Segment Reporting Information [Line Items]
Gross written premiums									755,059	700,087	590,741
Net written premiums									554,844	462,942	390,168
Net earned premiums									496,209	409,480	332,782
Insurance Companies | Professional Liability
Segment Reporting Information [Line Items]
Gross written premiums									113,032	130,366	130,489
Net written premiums									74,312	97,229	99,578
Net earned premiums									85,162	100,582	96,476
Lloyd's
Segment Reporting Information [Line Items]
Gross written premiums									386,899	368,242	365,140
Net written premiums									247,365	207,914	210,699
Net earned premiums									231,321	202,601	210,525
Lloyd's | Marine
Segment Reporting Information [Line Items]
Gross written premiums									188,107	181,046	194,423
Net written premiums									144,327	134,627	143,600
Net earned premiums									141,471	138,690	136,898
Lloyd's | Property Casualty
Segment Reporting Information [Line Items]
Gross written premiums									126,016	129,522	127,028
Net written premiums									55,917	42,334	43,824
Net earned premiums									51,338	37,722	52,951
Lloyd's | Professional Liability
Segment Reporting Information [Line Items]
Gross written premiums									72,776	57,674	43,689
Net written premiums									47,121	30,953	23,275
Net earned premiums									$ 38,512	$ 26,189	$ 20,676

XML

Summary of Written Premium (Detail) (USD $) In Thousands, unless otherwise specified	3 Months Ended								12 Months Ended
	Dec. 31, 2014	Sep. 30, 2014	Jun. 30, 2014	Mar. 31, 2014	Dec. 31, 2013	Sep. 30, 2013	Jun. 30, 2013	Mar. 31, 2013	Dec. 31, 2014	Dec. 31, 2013	Dec. 31, 2012
Reinsurance Premiums for Insurance Companies, by Product Segment [Line Items]
Direct									$ 1,184,538	$ 1,127,331	$ 1,034,658
Assumed									247,815	243,187	251,807
Ceded									(432,215)	(482,596)	(452,810)
Net Written Premiums	228,007	228,417	231,864	311,850	223,445	196,556	198,469	269,452	1,000,138	887,922	833,655
Direct									1,133,336	1,069,677	972,844
Assumed									243,215	228,247	205,759
Ceded									(440,656)	(455,985)	(396,639)
Net earned premiums	234,172	245,367	231,084	225,272	219,902	213,895	205,814	202,328	935,895	841,939	781,964
Direct									631,730	552,381	608,945
Assumed									143,681	155,313	151,137
Ceded									(230,182)	(188,733)	(262,649)
Net Losses and LAE	$ 134,658	$ 135,284	$ 140,220	$ 135,067	$ 131,385	$ 125,086	$ 131,148	$ 131,342	$ 545,229	$ 518,961	$ 497,433

XML

Summary of Cumulative Amounts Related to Credit Loss Portion of Other-Than-Temporary Impairment Losses on Debt Securities (Detail) (USD $) In Thousands, unless otherwise specified	12 Months Ended
	Dec. 31, 2014	Dec. 31, 2013	Dec. 31, 2012
Other than Temporary Impairment, Credit Losses Recognized in Earnings [Line Items]
Beginning balance	$ 5,154	$ 3,332	$ 3,321
Additions for credit loss impairments recognized in the current period on securities not previously impaired		1,822
Additions for credit loss impairments recognized in the current period on securities previously impaired			11
Reductions for credit loss impairments previously recognized on securities sold during the period	(2,793)
Ending balance	$ 2,361	$ 5,154	$ 3,332

XML

Commitments and Contingencies - Additional Information (Detail) (USD $) In Millions, unless otherwise specified	12 Months Ended
	Dec. 31, 2014	Dec. 31, 2013	Dec. 31, 2012
Loss Contingencies [Line Items]
Rent expense	$ 13.2	$ 11.5	$ 10.5
Incentive awarded to the company by the State of Connecticut, total	11.5
Incentive awarded to the company by the State of Connecticut, non-interest bearing loans	8.0
Incentive awarded to the company by the State of Connecticut, grants	3.5
Non-interest bearing incentive loan term	10 years
Incentive awarded to the company by the State of Connecticut, revenue recognized	1.1	0.3
Incentive awarded to the company by the State of Connecticut, deferred revenue	$ 6.1	$ 7.5
Maximum
Loss Contingencies [Line Items]
Noncancellable operating leases expiration year	2023

XML

Segment Information - Additional Information (Detail) (USD $) In Thousands, unless otherwise specified	3 Months Ended								12 Months Ended
	Dec. 31, 2014	Sep. 30, 2014	Jun. 30, 2014	Mar. 31, 2014	Dec. 31, 2013	Sep. 30, 2013	Jun. 30, 2013	Mar. 31, 2013	Dec. 31, 2014 Segment	Dec. 31, 2013	Dec. 31, 2012
Segment Reporting Information [Line Items]
Number of underwriting segments									2
Number of corporate segment									1
Combined ratio indicating underwriting profit									100.00%
Combined ratio indicating underwriting loss									100.00%
Net earned premiums	$ 234,172	$ 245,367	$ 231,084	$ 225,272	$ 219,902	$ 213,895	$ 205,814	$ 202,328	$ 935,895	$ 841,939	$ 781,964
Insurance Companies
Segment Reporting Information [Line Items]
Net earned premiums									704,574	639,338	571,439
Insurance Companies | UK Branch
Segment Reporting Information [Line Items]
Net earned premiums									$ 37,700	$ 44,600	$ 63,900

XML

Earnings Per Share (Tables)

12 Months Ended

Dec. 31, 2014

Reconciliation of Basic and Diluted Earnings per Share Computations

The following is a reconciliation of the basic and diluted EPS computations for the years ended December 31, 2014, 2013 and 2012:

	Year Ended December 31,
In thousands, except share and per share amounts	2014		2013		2012
Net income	$	95,329	$	63,466	$	63,762
Basic weighted average shares		14,259,768		14,133,925		14,052,311
Effect of common stock equivalents:
Assumed exercise of stock options and vesting of stock grants		386,601		211,628		275,509
Diluted weighted average shares		14,646,369		14,345,553		14,327,820
Net income per common share:
Basic	$	6.69	$	4.49	$	4.54
Diluted	$	6.51	$	4.42	$	4.45

XML

Future Minimum Annual Rental Commitments Under Various Noncancellable Operating Leases (Detail) (USD $) In Thousands, unless otherwise specified	Dec. 31, 2014
Operating Leased Assets [Line Items]
2015	$ 11,245
2016	9,234
2017	7,942
2018	6,907
2019	4,258
Thereafter	12,811
Total minimum operating lease payments	$ 52,397

XML

Reconciliation of Total Income Taxes Applicable to Pre-Tax Operating Income and Amounts Computed by Applying Federal Statutory Income Tax Rate to Pre-Tax Operating Income (Detail) (USD $) In Thousands, unless otherwise specified	3 Months Ended								12 Months Ended
	Dec. 31, 2014	Sep. 30, 2014	Jun. 30, 2014	Mar. 31, 2014	Dec. 31, 2013	Sep. 30, 2013	Jun. 30, 2013	Mar. 31, 2013	Dec. 31, 2014	Dec. 31, 2013	Dec. 31, 2012
Income Tax Expense (Benefit), Continuing Operations, Income Tax Reconciliation
Computed expected tax expense									$ 49,187	$ 32,299	$ 32,109
Tax-exempt interest									(4,771)	(3,839)	(4,443)
Dividends received deduction									(1,257)	(897)	(799)
Proration of DRD and Tax-exempt interest									904	710	786
Current state and local income taxes, net of federal income tax deduction									674	290	95
Other									470	244	226
Actual tax expense and rate	$ 8,823	$ 15,032	$ 7,998	$ 13,354	$ 6,076	$ 9,804	$ 6,284	$ 6,643	$ 45,207	$ 28,807	$ 27,974
Effective Income Tax Rate, Continuing Operations, Tax Rate Reconciliation
Computed expected tax expense									35.00%	35.00%	35.00%
Tax-exempt interest									(3.40%)	(4.20%)	(4.80%)
Dividends received deduction									(0.90%)	(1.00%)	(0.90%)
Proration of DRD and Tax-exempt interest									0.60%	0.80%	0.90%
Current state and local income taxes, net of federal income tax deduction									0.50%	0.30%	0.10%
Other									0.30%	0.30%	0.20%
Actual tax expense and rate									32.20%	31.20%	30.50%

XML

Summarized Information about Options Outstanding (Detail) (USD $)	12 Months Ended
	Dec. 31, 2014
Share-based Compensation, Shares Authorized under Stock Option Plans, Exercise Price Range [Line Items]
Outstanding Options	1,500
Average Remaining Contract Life	8 months 12 days
Exercisable Options	1,500
Price Range $31 to $37
Share-based Compensation, Shares Authorized under Stock Option Plans, Exercise Price Range [Line Items]
Price Range, Lower Range	31
Price Range, Upper Range	37
Outstanding Options	1,500
Average Remaining Contract Life	8 months 12 days
Average Exercise Price	36.03
Average Aggregate Intrinsic Value	27.13
Exercisable Options	1,500
Average Exercise Price	36.03
Average Aggregate Intrinsic Value of Exercisable Options	27.13

XML

Net Investment Income (Detail) (USD $) In Thousands, unless otherwise specified	3 Months Ended								12 Months Ended
	Dec. 31, 2014	Sep. 30, 2014	Jun. 30, 2014	Mar. 31, 2014	Dec. 31, 2013	Sep. 30, 2013	Jun. 30, 2013	Mar. 31, 2013	Dec. 31, 2014	Dec. 31, 2013	Dec. 31, 2012
Net Investment Income [Line Items]
Investment Income									$ 67,166	$ 59,507	$ 64,634
Investment expenses									(2,998)	(3,256)	(10,386)
Net investment income	16,071	15,839	15,648	16,610	14,254	14,094	14,246	13,657	64,168	56,251	54,248
Fixed maturities
Net Investment Income [Line Items]
Investment Income									57,219	53,898	58,995
Equity Securities
Net Investment Income [Line Items]
Investment Income									9,036	4,835	3,945
Short-term investments
Net Investment Income [Line Items]
Investment Income									$ 911	$ 774	$ 1,694

XML

Senior Notes - Additional Information (Detail) (USD $)	3 Months Ended								12 Months Ended			0 Months Ended
	Dec. 31, 2014	Sep. 30, 2014	Jun. 30, 2014	Mar. 31, 2014	Dec. 31, 2013	Sep. 30, 2013	Jun. 30, 2013	Mar. 31, 2013	Dec. 31, 2014	Dec. 31, 2013	Dec. 31, 2012	Oct. 04, 2013
Debt Instrument [Line Items]
Interest rate stated on senior notes	7.00%								7.00%
Senior notes due date									May 01, 2016
Call premium on redemption of Senior Notes					$ (17,895,000)					$ (17,895,000)
Interest expense	3,854,000	3,388,000	4,319,000	3,852,000	4,351,000	2,053,000	2,052,000	2,051,000	15,413,000	10,507,000	8,198,000
Senior Notes
Debt Instrument [Line Items]
Unamortized discount	1,600,000				1,700,000				1,600,000	1,700,000
Interest expense										10,500,000
Senior Notes | 5.75% Senior Notes
Debt Instrument [Line Items]
Principal amount of senior notes												265,000,000
Interest rate stated on senior notes												5.75%
Senior notes due date									Oct. 15, 2023
Net proceeds from issuance of senior notes												263,000,000
Outstanding principal amount of senior notes	263,400,000				263,300,000				263,400,000	263,300,000
Fair value of senior notes	285,700,000				277,600,000				285,700,000	277,600,000
Effective interest rate related to senior notes	5.86%								5.86%
Interest expense									15,400,000
Debt instrument, covenant compliance									As of December 31, 2014, our Company was in compliance with all such covenants.
Senior Notes | 5.75% Senior Notes | Semi Annual Payment, First Payment
Debt Instrument [Line Items]
Interest payment date on senior notes									--04-15
Senior Notes | 5.75% Senior Notes | Semi Annual Payment, Second Payment
Debt Instrument [Line Items]
Interest payment date on senior notes									--10-15
Senior Notes | 7.0% Senior Notes
Debt Instrument [Line Items]
Interest rate stated on senior notes	7.00%								7.00%
Senior notes due date									May 01, 2016
Call premium on redemption of Senior Notes												17,900,000
Interest expense on senior notes											$ 8,200,000

XML

Amounts Charged to Expense for Stock-based Compensation (Detail) (USD $) In Thousands, unless otherwise specified	12 Months Ended
	Dec. 31, 2014		Dec. 31, 2013		Dec. 31, 2012
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Stock based compensation	$ 12,121		$ 3,914		$ 7,852
Restricted stock units
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Stock based compensation	11,507		3,369		7,380
Directors restricted stock grants
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Stock based compensation	420	[1]	413	[1]	390	[1]
Employee stock purchase plan
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Stock based compensation	$ 194		$ 132		$ 82

[1] Relates to non-employee directors serving on the Parent Company's Board of Directors, all of whom have been elected by the Company's stockholders, as well as non-employee directors serving on NUAL's Board of Directors.

XML

Changes in Issued and Outstanding Common Shares (Detail)	12 Months Ended
	Dec. 31, 2014	Dec. 31, 2013	Dec. 31, 2012
Beginning balance	14,198,000	14,047,000	13,956,000
Vested stock grants	59,000	50,000	60,000
Employee stock purchase plan	19,386	17,000	16,000
Stock options exercised	5,250	83,500	15,000
Treasury shares purchased	0	0	0
Ending balance	14,281,000	14,198,000	14,047,000

XML

Unvested Restricted Stock Grants Outstanding (Detail)	12 Months Ended
	Dec. 31, 2014	Dec. 31, 2013	Dec. 31, 2012
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Beginning balance	626,812	587,629	526,972
Granted	288,130	269,926	244,060
Vested	(183,716)	(133,482)	(138,321)
Forfeited	(12,334)	(97,261)	(45,082)
Ending balance	718,892	626,812	587,629
Performance Based Shares
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Granted	228,607	114,463	97,145
Performance Based Shares | Earned
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Vested		(15,714)
Performance Based Shares | Unearned
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Vested	(93,453)	(57,585)	(46,998)
Non Performance Based Shares
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Granted	59,523	155,463	146,915
Vested	(90,263)	(60,183)	(91,323)

XML

Lloyd's Syndicate 1221 - Additional Information (Detail) (Lloyd's, Syndicate 1221) In Millions, unless otherwise specified	3 Months Ended	12 Months Ended
	Mar. 31, 2014 USD ($)	Dec. 31, 2014 USD ($)	Dec. 31, 2014 GBP (£)	Dec. 31, 2013 USD ($)	Dec. 31, 2013 GBP (£)	Dec. 31, 2012
Supplementary Insurance Information, by Segment [Line Items]
Syndicate 1221's stamp capacity		$ 336.9	£ 215.0	$ 323.7	£ 195.0
Percentage control of stamp capacity		100.00%	100.00%	100.00%	100.00%	100.00%
Pre-tax gain in connection with a change in functional currency	10.0
After-tax gain in connection with a change in functional currency	$ 6.6

XML

Income Taxes - Additional Information (Detail) (USD $)	3 Months Ended								12 Months Ended			0 Months Ended
	Dec. 31, 2014	Sep. 30, 2014	Jun. 30, 2014	Mar. 31, 2014	Dec. 31, 2013	Sep. 30, 2013	Jun. 30, 2013	Mar. 31, 2013	Dec. 31, 2014	Dec. 31, 2013	Dec. 31, 2012	Jan. 01, 2015
Income Taxes [Line Items]
Domestic effective income tax rate									35.00%	35.00%	35.00%
Undistributed earnings of non-U.S. subsidiaries	$ 22,600,000								$ 22,600,000
Taxes payable on undistributed earnings	2,300,000								2,300,000
Unrecognized tax benefits	0				0				0	0
Interest or penalties related to unrecognized tax benefits									0	0
Income tax (benefit) expense	8,823,000	15,032,000	7,998,000	13,354,000	6,076,000	9,804,000	6,284,000	6,643,000	45,207,000	28,807,000	27,974,000
Effective income tax rate									32.20%	31.20%	30.50%
Deferred Tax Assets: State and Local	777,000				555,000				777,000	555,000
State and local net operating loss carry-forwards	$ 0				$ 100,000				$ 0	$ 100,000
Syndicate 1221 | Subsequent Event
Income Taxes [Line Items]
Domestic effective income tax rate												35.00%
United Kingdom
Income Taxes [Line Items]
Foreign effective income tax rate									35.00%
United Kingdom | Syndicate 1221 | Maximum
Income Taxes [Line Items]
Percentage of premiums	50.00%								50.00%
United Kingdom | Syndicate 1221 | Minimum
Income Taxes [Line Items]
Foreign effective income tax rate									35.00%
State and Local Jurisdiction | Maximum
Income Taxes [Line Items]
State and local tax carry-forwards expiration year									2032
State and Local Jurisdiction | Minimum
Income Taxes [Line Items]
State and local tax carry-forwards expiration year									2024

XML

Quarterly Financial Data (Unaudited)

12 Months Ended

Dec. 31, 2014

Quarterly Financial Data (Unaudited)

Note 16. Quarterly Financial Data (Unaudited)

The following is a summary of quarterly financial data for the periods indicated:

In thousands, except per share amounts	March 31, 2014			June 30, 2014			September 30, 2014			December 31, 2014
Gross written premiums	$	422,790		$	348,795		$	327,469		$	333,299
Revenues:
Net written premiums	$	311,850		$	231,864		$	228,417		$	228,007
Change in unearned premiums		(86,578	)		(780	)		16,950			6,165
Net earned premiums		225,272			231,084			245,367			234,172
Net investment income		16,610			15,648			15,839			16,071
Total other-than-temporary impairment losses					—			158			(21	)
Portion of loss recognized in other comprehensive income (before tax)		—			—			(158	)		21
Net other-than-temporary impairment losses recognized in earnings					—			—			—
Net realized gains (losses)		833			4,473			6,718			788
Other income (expense)		10,399			(1,665	)		1,336			586
Total revenues	$	253,114		$	249,540		$	269,260		$	251,617
Expenses:
Net losses and loss adjustment expenses	$	135,067		$	140,220		$	135,284		$	134,658
Commission expenses		25,727			32,150			33,943			33,708
Other operating expenses		47,146			47,992			50,388			51,299
Call premium on Senior Notes					—			—			—
Interest expense		3,852			4,319			3,388			3,854
Total expenses	$	211,792		$	224,681		$	223,003		$	223,519
Income before income taxes		41,322			24,859			46,257			28,098
Income tax expense	$	13,354		$	7,998		$	15,032		$	8,823
Net income	$	27,968		$	16,861		$	31,225		$	19,275
Comprehensive income (loss)	$	32,920		$	32,965		$	20,628		$	27,015
Combined ratio		92.2	%		95.3	%		89.5	%		93.8	%
Net income (loss) per share:
Basic	$	1.96		$	1.18		$	2.19		$	1.35
Diluted	$	1.94		$	1.17		$	2.14		$	1.31

In thousands, except per share amounts	March 31, 2013			June 30, 2013			September 30, 2013			December 31, 2013
Gross written premiums	$	393,222		$	332,128		$	312,076		$	333,091
Revenues:
Net written premiums	$	269,452		$	198,469		$	196,556		$	223,445
Change in unearned premiums		(67,124	)		7,345			17,339			(3,543	)
Net earned premiums		202,328			205,814			213,895			219,902
Net investment income		13,657			14,246			14,094			14,254
Total other-than-temporary impairment losses		(42	)		—			(1,821	)		(530	)
Portion of loss recognized in other comprehensive income (before tax)		—			—			—			—
Net other-than-temporary impairment losses recognized in earnings		(42	)		—			(1,821	)		(530	)
Net realized gains		4,814			3,345			(988	)		15,768
Other income (expense)		618			(915	)		(210	)		(665	)
Total revenues	$	221,375		$	222,490		$	224,970		$	248,729
Expenses:
Net losses and loss adjustment expenses	$	131,342		$	131,148		$	125,086		$	131,385
Commission expenses		26,555			28,391			27,685			30,863
Other operating expenses		40,874			40,678			39,056			43,826
Call premium on Senior Notes		—			—			—			17,895
Interest expense		2,051			2,052			2,053			4,351
Total expenses	$	200,822		$	202,269		$	193,880		$	228,320
Income before income taxes		20,553			20,221			31,090			20,409
Income tax expense	$	6,643		$	6,284		$	9,804		$	6,076
Net income	$	13,910		$	13,937		$	21,286		$	14,333
Comprehensive income	$	14,785		$	(24,829	)	$	25,462		$	1,200
Combined ratio		97.9	%		97.7	%		89.8	%		94.0	%
Net income per share:
Basic	$	0.99		$	0.99		$	1.50		$	1.01
Diluted	$	0.97		$	0.97		$	1.48		$	1.00

XML

Investments - Additional Information (Detail) (USD $)	12 Months Ended
	Dec. 31, 2014 Securities	Dec. 31, 2013	Dec. 31, 2012
Schedule of Investments [Line Items]
Non-credit OTTI on fixed maturities in an unrealized gain position	$ 700,000	$ 500,000
Gross Unrealized Loss	1,304,000	550,000
Investment Expenses	2,998,000	3,256,000	10,386,000
Investment performance fee			2,800,000
Number of securities transferred from Level 3 to Level 2	1
Level 3 assets		4,407,000	0
Total Restricted Net Assets	523,425,000	520,886,000
Settlement Agreement
Schedule of Investments [Line Items]
Investment Expenses			4,500,000
Mortgage-backed and asset-backed securities
Schedule of Investments [Line Items]
Securities, effective maturities	4 years 4 months 24 days
Equity Securities | Maximum
Schedule of Investments [Line Items]
Percentage of fair value under carrying value	80.00%
Non-government-backed securities
Schedule of Investments [Line Items]
Gross Unrealized Loss	$ 500,000	$ 1,100,000
Non-government-backed securities | Maximum
Schedule of Investments [Line Items]
Percentage of investment	5.00%	5.00%

XML

Stock Option Plans, Stock Grants, Stock Appreciation Rights and Employee Stock Purchase Plan (Tables)

12 Months Ended

Dec. 31, 2014

Amounts Charged to Expense for Stock-based Compensation

The amounts charged to expense for stock-based compensation for the years ended December 31, 2014, 2013 and 2012 are presented in the following table:

	Year Ended December 31,
In thousands	2014		2013		2012
Restricted stock units	$	11,507	$	3,369	$	7,380
Directors restricted stock grants (1)		420		413		390
Employee stock purchase plan		194		132		82
Total stock-based compensation	$	12,121	$	3,914	$	7,852

(1) - Relates to non-employee directors serving on the Parent Company’s Board of Directors, all of whom have been elected by the Company’s stockholders, as well as non-employee directors serving on NUAL’s Board of Directors.

Unvested Restricted Stock Grants Outstanding

Unvested restricted stock units outstanding as of December 31, 2014, 2013 and 2012, and changes during the years ended on those dates, are presented in the following table:

	December 31,
	2014			2013			2012
Beginning balance		626,812			587,629			526,972
Granted - Performance		228,607			114,463			97,145
Granted - Non Performance		59,523			155,463			146,915
Total Granted		288,130			269,926			244,060
Vested - Performance Earned		—			(15,714	)		—
Vested - Performance Unearned		(93,453	)		(57,585	)		(46,998	)
Vested - Non Performance		(90,263	)		(60,183	)		(91,323	)
Total Vested		(183,716	)		(133,482	)		(138,321	)
Forfeited		(12,334	)		(97,261	)		(45,082	)
Ending balance		718,892			626,812			587,629

Stock Options Outstanding

Stock options outstanding as of December 31, 2014, 2013 and 2012 are as follows:

	December 31,
	2014					2013					2012
	# of Shares			Average Exercise Price		# of Shares			Average Exercise Price		# of Shares			Average Exercise Price
Beginning balance		6,750		$	30.65		90,250		$	29.94		105,250		$	29.50
Granted		—			—		—			—		—			—
Exercised		(5,250	)	$	29.11		(83,500	)	$	29.88		(15,000	)	$	26.90
Expired or forfeited		—			—		—			—		—		$	—
Ending balance		1,500		$	36.03		6,750		$	30.65		90,250		$	29.94
Number of options exercisable		1,500		$	36.03		6,750		$	30.65		90,250		$	29.94

Summarized Information about Options Outstanding

The following table summarizes information about stock options outstanding as of December 31, 2014:

Price Range	Outstanding Options		Average Remaining Contract Life		Average Exercise Price		Average Aggregate Intrinsic Value		Exercisable Options		Average Exercise Price		Average Aggregate Intrinsic Value
$31 to $37		1,500		0.7	$	36.03	$	27.13		1,500	$	36.03	$	27.13
Total		1,500		0.7						1,500

XML

Credit Facilities - Additional Information (Detail) In Millions, unless otherwise specified	12 Months Ended			12 Months Ended			0 Months Ended		0 Months Ended
	Dec. 31, 2014	Mar. 28, 2011 USD ($)	Dec. 31, 2014 Line of Credit USD ($)	Dec. 31, 2014 Syndicate 1221	Nov. 06, 2014 Syndicate 1221 AUD	Nov. 06, 2014 Syndicate 1221 GBP (£)	Nov. 06, 2014 Syndicate 1221 Above Floating Rate Line of Credit	Dec. 31, 2014 Syndicate 1221 Lloyd's USD ($)	Nov. 22, 2012 Amended and Restated Credit Agreement	Nov. 22, 2012 Amended and Restated Credit Agreement USD ($)
Line of Credit Facility [Line Items]
Line of credit facility, maximum borrowing amount					8.0
Line of credit facility, underwriting reserve required						75
Line of credit facility, covenant compliance	The Company was in compliance with all covenants under the credit facility as of December 31, 2014 and the Company had $1.0 million of cash collateral posted.			As of December 31, 2014, our Company was in compliance with all covenants.
Line of credit facility, interest rate							2.00%
Line of credit facility		175								165
Issuance of new letters of credit, expiry date									Dec. 31, 2016
Aggregate face amount of letters of credit outstanding								149.4
Cash collateral posted			$ 1.0					$ 1.0
Line of credit facility, covenant terms	This credit facility contains customary covenants for facilities of this type, including restrictions on indebtedness and liens, limitations on mergers, dividends and the sale of assets, and requirements as to maintaining certain consolidated tangible net worth, statutory surplus and other financial ratios. The credit facility also provides for customary events of default, including failure to pay principal, interest or fees when due, failure to comply with covenants, any representation or warranty made by the Company being false in any material respect, default under certain other indebtedness, certain insolvency or receivership events affecting the Company and its subsidiaries, the occurrence of certain material judgments, or a change in control of the Company.

XML

Condensed Financial Information - Statement of Cash Flows (Parenthetical) (Detail)	12 Months Ended
	Dec. 31, 2014
Condensed Financial Statements, Captions [Line Items]
Interest rate stated on senior notes	7.00%
Senior notes due date	May 01, 2016
Parent Company
Condensed Financial Statements, Captions [Line Items]
Interest rate stated on senior notes	7.00%
Senior notes due date	May 01, 2016

XML

Ceded Reinsurance (Tables)

12 Months Ended

Dec. 31, 2014

Credit Quality Distribution of Reinsurance Recoverables for Ceded Paid and Unpaid Losses and Loss Adjustment Expenses and Ceded Unearned Premiums Based On Insurer Financial Strength Ratings from A. M. Best or S&P

The credit quality distribution of our Company’s reinsurance recoverables of $1.1 billion as of December 31, 2014 for ceded paid and unpaid losses and LAE and ceded unearned premiums based on insurer financial strength ratings from A.M. Best or S&P were as follows:

In thousands	Rating	Carrying Value (2)		Percent of Total
A.M. Best Rating description (1):
Superior	A++, A+	$	575,205		50	%
Excellent	A, A-		547,314		48	%
Very good	B++, B+		8,483		1	%
Fair	B, B-		—		0	%
Not rated	NR		9,694		1	%
Total		$	1,140,696		100	%

(1)	-	When an A.M. Best rating is unavailable, the equivalent S&P rating is used.
(2)	-	The carrying value is comprised of prepaid reinsurance premium as well as reinsurance recoverables on paid and unpaid losses which are net of the reserve for uncollectible reinsurance.

Lists of 20 Largest Reinsurers Measured by Reinsurance Recoverable

The following table lists our Company’s 20 largest reinsurers measured by the amount of reinsurance recoverable for ceded losses and LAE and ceded unearned premium (constituting 75.7% of the total recoverable), together with the reinsurance recoverable and collateral as of December 31, 2014, and the reinsurers’ ratings from A.M. Best or S&P:

In thousands	Unearned Premium		Paid/Unpaid Losses		Total (1)		Collateral Held		A.M. Best	S&P
National Indemnity Company	$	25,202	$	117,562	$	142,764	$	22,069	A++	AA+
Everest Reinsurance Company		21,573		75,063		96,636		7,326	A+	A+
Swiss Reinsurance America Corporation		22,815		73,305		96,120		14,587	A+	AA-
Transatlantic Reinsurance Company		11,916		74,072		85,988		4,038	A	A+
Munich Reinsurance America Inc.		11,366		58,768		70,134		5,539	A+	AA-
Allied World Reinsurance		9,048		37,088		46,136		1,666	A	A
Lloyd’s Syndicate #2003		4,399		35,123		39,522		5,191	A	A+
Partner Reinsurance Europe		10,986		25,409		36,395		16,052	A+	A+
Employers Mutual Casualty Company		11,928		21,851		33,779		10,935	A	NR
Scor Global P&C SE		10,190		17,572		27,762		5,558	A	A+
Ace Property and Casualty Insurance Company		11,165		12,741		23,906		2,907	A++	AA
Tower Insurance Company		—		21,509		21,509		2,455	A-	NR
Aspen Insurance UK Ltd.		8,928		11,227		20,155		4,869	A	A
Ironshore Indemnity Inc.		6,234		13,395		19,629		8,645	A	NR
Validus Reinsurance Ltd.		2,020		16,873		18,893		10,975	A	A
Atlantic Specialty Insurance		2,542		15,812		18,354		—	A	A-
QBE Reinsurance Corp		2,636		15,539		18,175		—	A	A+
National Union Fire Ins.		8,067		8,459		16,526		6,158	A	A+
Endurance Reinsurance Corporation		5,695		9,936		15,631		1,337	A	A
Odyssey American Reinsurance Corporation		3,506		11,650		15,156		1,604	A	A-
Top 20	$	190,216	$	672,954	$	863,170	$	131,911
Others		47,635		229,891		277,526		70,065
Total	$	237,851	$	902,845	$	1,140,696	$	201,976

(1) - Net of reserve for uncollectible reinsurance of approximately $11.3 million.

Summary of Written Premium

The following table summarizes the components of Net Written Premium:

	Year Ended December 31,
In thousands	2014			2013			2012
Direct	$	1,184,538		$	1,127,331		$	1,034,658
Assumed		247,815			243,187			251,807
Ceded		(432,215	)		(482,596	)		(452,810	)
Net Written Premiums	$	1,000,138		$	887,922		$	833,655

Summary of Earned Premium

The following table summarizes the components of Net Earned Premium:

	Year Ended December 31,
In thousands	2014			2013			2012
Direct	$	1,133,336		$	1,069,677		$	972,844
Assumed		243,215			228,247			205,759
Ceded		(440,656	)		(455,985	)		(396,639	)
Net Earned Premiums	$	935,895		$	841,939		$	781,964

Summary of Losses and Loss Adjustment Expenses Incurred

The following table summarizes the components of Net Losses and LAE incurred:

	Year Ended December 31,
In thousands	2014			2013			2012
Direct	$	631,730		$	552,381		$	608,945
Assumed		143,681			155,313			151,137
Ceded		(230,182	)		(188,733	)		(262,649	)
Net Losses and LAE	$	545,229		$	518,961		$	497,433

XML

Amount and Percentage of Fixed Maturities by Rating (Detail) (USD $) In Thousands, unless otherwise specified	12 Months Ended
	Dec. 31, 2014	Dec. 31, 2013
Investment Securities [Line Items]
Rating	AA
Fair Value	$ 2,365,934	$ 2,047,873
Percent of Total	100.00%
Extremely strong
Investment Securities [Line Items]
Rating	AAA
Fair Value	462,603
Percent of Total	20.00%
Very strong
Investment Securities [Line Items]
Rating	AA
Fair Value	1,090,505
Percent of Total	45.00%
Strong
Investment Securities [Line Items]
Rating	A
Fair Value	612,131
Percent of Total	26.00%
Adequate
Investment Securities [Line Items]
Rating	BBB
Fair Value	185,372
Percent of Total	8.00%
Speculative
Investment Securities [Line Items]
Rating	BB & Below
Fair Value	14,852
Percent of Total	1.00%
Not rated
Investment Securities [Line Items]
Rating	NR
Fair Value	$ 471
Percent of Total	0.00%

XML

Credit Quality Distribution of Reinsurance Recoverables for Ceded Paid and Unpaid Losses and Loss Adjustment Expenses and Ceded Unearned Premiums Based On Insurer Financial Strength Ratings from A. M. Best or S&P (Detail) (USD $) In Thousands, unless otherwise specified	12 Months Ended
	Dec. 31, 2014
Ceded Credit Risk [Line Items]
Rating	AA
Fair Value	$ 1,140,696	[1],[2],[3]
Percent of Total	100.00%	[1]
Superior
Ceded Credit Risk [Line Items]
Rating	A++, A+	[1]
Fair Value	575,205	[1],[3]
Percent of Total	50.00%	[1]
Excellent
Ceded Credit Risk [Line Items]
Rating	A, A-	[1]
Fair Value	547,314	[1],[3]
Percent of Total	48.00%	[1]
Very Good
Ceded Credit Risk [Line Items]
Rating	B++, B+	[1]
Fair Value	8,483	[1],[3]
Percent of Total	1.00%	[1]
Fair
Ceded Credit Risk [Line Items]
Rating	B, B-	[1]
Percent of Total	0.00%	[1]
Not rated
Ceded Credit Risk [Line Items]
Rating	NR	[1]
Fair Value	$ 9,695	[1],[3]
Percent of Total	1.00%	[1]

[1] When an A.M. Best rating is unavailable, the equivalent S&P rating is used.

[2] Net of reserve for uncollectible reinsurance of approximately $11.3 million.

[3] The carrying value is comprised of prepaid reinsurance premium as well as reinsurance recoverables on paid and unpaid losses which are net of the reserve for uncollectible reinsurance.

XML

Reconciliation of Beginning and Ending Balances for all Investments Measured at Fair Value Using Level 3 Inputs (Detail) (USD $) In Thousands, unless otherwise specified	12 Months Ended
	Dec. 31, 2014	Dec. 31, 2013
Fair Value, Assets Measured on Recurring Basis, Unobservable Input Reconciliation [Line Items]
Beginning Balance	$ 4,407	$ 0
Realized Gains (Losses)	0	0
Unrealized Gains (Losses)		(42)
Purchase		4,660
Sales		(211)
Settlements	0	0
Transfers into Level 3	0	0
Transfers out of Level 3	(4,407)
Ending Balance		4,407
Corporate bonds
Fair Value, Assets Measured on Recurring Basis, Unobservable Input Reconciliation [Line Items]
Beginning Balance	4,407
Realized Gains (Losses)	0
Settlements	0
Transfers into Level 3	0
Transfers out of Level 3	(4,407)
Commercial mortgage-backed securities
Fair Value, Assets Measured on Recurring Basis, Unobservable Input Reconciliation [Line Items]
Realized Gains (Losses)		0
Unrealized Gains (Losses)		(42)
Purchase		4,660
Sales		(211)
Settlements		0
Transfers into Level 3		0
Ending Balance		$ 4,407

XML

Financial Data by Segment (Detail) (USD $) In Thousands, unless otherwise specified	3 Months Ended										12 Months Ended
	Dec. 31, 2014		Sep. 30, 2014	Jun. 30, 2014	Mar. 31, 2014	Dec. 31, 2013		Sep. 30, 2013	Jun. 30, 2013	Mar. 31, 2013	Dec. 31, 2014		Dec. 31, 2013		Dec. 31, 2012
Segment Reporting Information [Line Items]
Gross written premiums	$ 333,299		$ 327,469	$ 348,795	$ 422,790	$ 333,091		$ 312,076	$ 332,128	$ 393,222	$ 1,432,353		$ 1,370,517		$ 1,286,465
Net written premiums	228,007		228,417	231,864	311,850	223,445		196,556	198,469	269,452	1,000,138		887,922		833,655
Net earned premiums	234,172		245,367	231,084	225,272	219,902		213,895	205,814	202,328	935,895		841,939		781,964
Net losses and loss adjustment expenses	(134,658)		(135,284)	(140,220)	(135,067)	(131,385)		(125,086)	(131,148)	(131,342)	(545,229)		(518,961)		(497,433)
Commission expenses	(33,708)		(33,943)	(32,150)	(25,727)	(30,863)		(27,685)	(28,391)	(26,555)	(125,528)		(113,494)		(121,470)
Other operating expenses	(51,299)		(50,388)	(47,992)	(47,146)	(43,826)		(39,056)	(40,678)	(40,874)	(196,825)		(164,434)		(159,079)
Other underwriting income (expense)											595
Other income (expense)	586		1,336	(1,665)	10,399	(665)		(210)	(915)	618	10,656		(1,172)		1,488
Underwriting profit (loss)											68,908		43,878		5,470
Net investment income	16,071		15,839	15,648	16,610	14,254		14,094	14,246	13,657	64,168		56,251		54,248
Net realized gains (losses)											12,812		20,546		40,216
Call premium on Senior Notes						(17,895)							(17,895)
Interest expense	(3,854)		(3,388)	(4,319)	(3,852)	(4,351)		(2,053)	(2,052)	(2,051)	(15,413)		(10,507)		(8,198)
Other income (expense)											10,061
Income (loss) before income taxes	28,098		46,257	24,859	41,322	20,409		31,090	20,221	20,553	140,536		92,273		91,736
Income tax expense (benefit)	8,823		15,032	7,998	13,354	6,076		9,804	6,284	6,643	45,207		28,807		27,974
Net income (loss)	19,275		31,225	16,861	27,968	14,333		21,286	13,937	13,910	95,329		63,466		63,762
Identifiable assets	4,464,176					4,169,452					4,464,176		4,169,452		4,007,670
Losses and loss adjustment expenses ratio											58.30%		61.60%		63.60%
Commission expense ratio											13.40%		13.50%		15.50%
Other operating expense ratio											20.90%	[1]	19.70%	[2]	20.20%	[2]
Combined ratio	93.80%		89.50%	95.30%	92.20%	94.00%		89.80%	97.70%	97.90%	92.60%		94.80%		99.30%
Insurance Companies
Segment Reporting Information [Line Items]
Gross written premiums											1,045,454		1,002,275		921,325
Net written premiums											752,773		680,008		622,956
Net earned premiums											704,574		639,338		571,439
Net losses and loss adjustment expenses											(434,396)		(415,413)		(417,082)
Commission expenses											(85,137)		(81,132)		(81,370)
Other operating expenses											(138,675)		(119,920)		(113,625)
Other underwriting income (expense)											2,727
Other income (expense)													2,764		3,790
Underwriting profit (loss)											49,093		25,637		(36,848)
Net investment income											56,714		49,083		46,549
Net realized gains (losses)											12,715		20,600		36,468
Other income (expense)											(2,182)
Income (loss) before income taxes											116,340		95,320		46,169
Income tax expense (benefit)											36,609		29,965		12,686
Net income (loss)											79,731		65,355		33,483
Identifiable assets	3,344,084					3,077,437					3,344,084		3,077,437		3,036,489
Losses and loss adjustment expenses ratio											61.70%		65.00%		73.00%
Commission expense ratio											12.10%		12.70%		14.20%
Other operating expense ratio											19.20%	[1]	18.30%	[2]	19.20%	[2]
Combined ratio											93.00%		96.00%		106.40%
Lloyd's
Segment Reporting Information [Line Items]
Gross written premiums											386,899		368,242		365,140
Net written premiums											247,365		207,914		210,699
Net earned premiums											231,321		202,601		210,525
Net losses and loss adjustment expenses											(110,833)		(103,548)		(80,351)
Commission expenses											(42,558)		(34,710)		(42,449)
Other operating expenses											(58,150)		(44,514)		(45,454)
Other underwriting income (expense)											35
Other income (expense)													(1,588)		47
Underwriting profit (loss)											19,815		18,241		42,318
Net investment income											7,378		7,160		7,551
Net realized gains (losses)											97		(58)		3,555
Other income (expense)											12,243
Income (loss) before income taxes											39,533		25,343		53,424
Income tax expense (benefit)											13,885		8,728		18,620
Net income (loss)											25,648		16,615		34,804
Identifiable assets	957,795					930,567					957,795		930,567		928,448
Losses and loss adjustment expenses ratio											47.90%		51.10%		38.20%
Commission expense ratio											18.40%		17.10%		20.20%
Other operating expense ratio											25.10%	[1]	22.80%	[2]	21.50%	[2]
Combined ratio											91.40%		91.00%		79.90%
Corporate
Segment Reporting Information [Line Items]
Commission expenses											2,167	[3]	2,348	[3]	2,349	[3]
Other underwriting income (expense)											(2,167)	[3]
Other income (expense)													(2,348)	[3]	(2,349)	[3]
Net investment income											76	[3]	8	[3]	148	[3]
Net realized gains (losses)													4	[3]	193	[3]
Call premium on Senior Notes													(17,895)	[3]
Interest expense											(15,413)	[3]	(10,507)	[3]	(8,198)	[3]
Income (loss) before income taxes											(15,337)	[3]	(28,390)	[3]	(7,857)	[3]
Income tax expense (benefit)											(5,287)	[3]	(9,886)	[3]	(3,332)	[3]
Net income (loss)											(10,050)	[3]	(18,504)	[3]	(4,525)	[3]
Identifiable assets	$ 162,297	[3]				$ 161,448	[3]				$ 162,297	[3]	$ 161,448	[3]	$ 42,733	[3]

[1] Includes Other operating expenses and Other underwriting income (expenses).

[2] Includes Other operating expenses and Other income.

[3] Includes Corporate segment intercompany eliminations.

XML

Consolidated Statements of Cash Flows (Parenthetical)	12 Months Ended
	Dec. 31, 2014
Interest rate stated on senior notes	7.00%
Senior notes due date	May 01, 2016

XML

Summary of Activity in Reserve for Losses and Loss Adjustment Expenses (Detail) (USD $) In Thousands, unless otherwise specified	12 Months Ended
	Dec. 31, 2014	Dec. 31, 2013	Dec. 31, 2012
Liability for Claims and Claims Adjustment Expense [Line Items]
Net reserves for losses and LAE at beginning of year	$ 1,222,633	$ 1,216,909	$ 1,237,234
Provision for losses and LAE for claims occurring in the current year	601,041	520,227	542,724
Increase (decrease) in estimated losses and LAE for claims occurring in prior years	(55,812)	(1,266)	(45,291)
Incurred losses and LAE	545,229	518,961	497,433
Losses and LAE paid for claims occurring during:
Current year	(164,199)	(147,758)	(110,373)
Prior years	(295,527)	(365,479)	(407,385)
Losses and LAE payments	(459,726)	(513,237)	(517,758)
Net reserves for losses and LAE at end of year	1,308,136	1,222,633	1,216,909
Reinsurance recoverables on unpaid losses and LAE	851,498	822,438	880,139
Gross reserves for losses and LAE at end of year	$ 2,159,634	$ 2,045,071	$ 2,097,048

XML

Quarterly Financial Data (Unaudited) (Tables)

12 Months Ended

Dec. 31, 2014

Summary of Quarterly Financial Data

The following is a summary of quarterly financial data for the periods indicated:

In thousands, except per share amounts	March 31, 2014			June 30, 2014			September 30, 2014			December 31, 2014
Gross written premiums	$	422,790		$	348,795		$	327,469		$	333,299
Revenues:
Net written premiums	$	311,850		$	231,864		$	228,417		$	228,007
Change in unearned premiums		(86,578	)		(780	)		16,950			6,165
Net earned premiums		225,272			231,084			245,367			234,172
Net investment income		16,610			15,648			15,839			16,071
Total other-than-temporary impairment losses					—			158			(21	)
Portion of loss recognized in other comprehensive income (before tax)		—			—			(158	)		21
Net other-than-temporary impairment losses recognized in earnings					—			—			—
Net realized gains (losses)		833			4,473			6,718			788
Other income (expense)		10,399			(1,665	)		1,336			586
Total revenues	$	253,114		$	249,540		$	269,260		$	251,617
Expenses:
Net losses and loss adjustment expenses	$	135,067		$	140,220		$	135,284		$	134,658
Commission expenses		25,727			32,150			33,943			33,708
Other operating expenses		47,146			47,992			50,388			51,299
Call premium on Senior Notes					—			—			—
Interest expense		3,852			4,319			3,388			3,854
Total expenses	$	211,792		$	224,681		$	223,003		$	223,519
Income before income taxes		41,322			24,859			46,257			28,098
Income tax expense	$	13,354		$	7,998		$	15,032		$	8,823
Net income	$	27,968		$	16,861		$	31,225		$	19,275
Comprehensive income (loss)	$	32,920		$	32,965		$	20,628		$	27,015
Combined ratio		92.2	%		95.3	%		89.5	%		93.8	%
Net income (loss) per share:
Basic	$	1.96		$	1.18		$	2.19		$	1.35
Diluted	$	1.94		$	1.17		$	2.14		$	1.31

In thousands, except per share amounts	March 31, 2013			June 30, 2013			September 30, 2013			December 31, 2013
Gross written premiums	$	393,222		$	332,128		$	312,076		$	333,091
Revenues:
Net written premiums	$	269,452		$	198,469		$	196,556		$	223,445
Change in unearned premiums		(67,124	)		7,345			17,339			(3,543	)
Net earned premiums		202,328			205,814			213,895			219,902
Net investment income		13,657			14,246			14,094			14,254
Total other-than-temporary impairment losses		(42	)		—			(1,821	)		(530	)
Portion of loss recognized in other comprehensive income (before tax)		—			—			—			—
Net other-than-temporary impairment losses recognized in earnings		(42	)		—			(1,821	)		(530	)
Net realized gains		4,814			3,345			(988	)		15,768
Other income (expense)		618			(915	)		(210	)		(665	)
Total revenues	$	221,375		$	222,490		$	224,970		$	248,729
Expenses:
Net losses and loss adjustment expenses	$	131,342		$	131,148		$	125,086		$	131,385
Commission expenses		26,555			28,391			27,685			30,863
Other operating expenses		40,874			40,678			39,056			43,826
Call premium on Senior Notes		—			—			—			17,895
Interest expense		2,051			2,052			2,053			4,351
Total expenses	$	200,822		$	202,269		$	193,880		$	228,320
Income before income taxes		20,553			20,221			31,090			20,409
Income tax expense	$	6,643		$	6,284		$	9,804		$	6,076
Net income	$	13,910		$	13,937		$	21,286		$	14,333
Comprehensive income	$	14,785		$	(24,829	)	$	25,462		$	1,200
Combined ratio		97.9	%		97.7	%		89.8	%		94.0	%
Net income per share:
Basic	$	0.99		$	0.99		$	1.50		$	1.01
Diluted	$	0.97		$	0.97		$	1.48		$	1.00

XML

Reinsurance - Written Premium

12 Months Ended

Dec. 31, 2014

Reinsurance - Written Premium

SCHEDULE IV

THE NAVIGATORS GROUP, INC. AND SUBSIDIARIES

Reinsurance - Written Premium

In thousands	Direct Amount		Ceded to other companies		Assumed from other companies		Net amount		Percentage of amount assumed to net
Year ended December 31, 2014
Property-Casualty	$	1,184,538	$	432,214	$	247,814	$	1,000,138		25	%
Year ended December 31, 2013
Property-Casualty	$	1,127,331	$	482,596	$	243,187	$	887,922		27	%
Year ended December 31, 2012
Property-Casualty	$	1,034,658	$	452,810	$	251,807	$	833,655		30	%

XML

Supplementary Insurance Information

12 Months Ended

Dec. 31, 2014

Supplementary Insurance Information

SCHEDULE III

In thousands	Deferred policy acquisition costs		Reserve for losses and loss adjustment expenses		Unearned Premiums		Other policy claims and benefits payable		Net earned premiums		Net investment income (1)		Losses and loss adjustment expenses incurred		Amortization of deferred policy acquisition costs (2)		Other operating expenses (1)		Net written premiums
Year ended December 31, 2014
Insurance Companies	$	63,200	$	1,645,984	$	579,331	$	—	$	704,574	$	56,714	$	434,396	$	85,137	$	138,675	$	752,773
Lloyd’s Operations		16,252		513,650		186,836		—		231,321		7,378		110,833		42,558		58,150		247,365
	$	79,452	$	2,159,634	$	766,167	$	—	$	935,895	$	64,092		545,229	$	127,695		196,825		1,000,138
Year ended December 31, 2013
Insurance Companies	$	54,984	$	1,523,175	$	536,303	$	—	$	639,338	$	49,083	$	415,413	$	81,132	$	119,920	$	680,008
Lloyd’s Operations		12,023		521,896		178,303		—		202,601		7,160		103,548		34,710		44,514		207,914
	$	67,007	$	2,045,071	$	714,606	$	—	$	841,939	$	56,243	$	518,961	$	115,842	$	164,434	$	887,922
Year ended December 31, 2012
Insurance Companies	$	48,294	$	1,567,045	$	470,425	$	—	$	571,439	$	46,549	$	417,082	$	81,370	$	113,625	$	622,956
Lloyd’s Operations		12,711		530,003		171,982		—		210,525		7,551		80,351		42,449		45,454		210,699
	$	61,005	$	2,097,048	$	642,407	$	—	$	781,964	$	54,100	$	497,433	$	123,819	$	159,079	$	833,655

(1) - Net investment income and Other operating expenses reflect only such amounts attributable to the Company’s insurance operations.

(2) - Amortization of deferred policy acquisition costs reflects only such amounts attributable to the Company’s insurance operations. A portion of these costs is eliminated in consolidation.

XML

Valuation and Qualifying Accounts (Detail) (USD $) In Thousands, unless otherwise specified	12 Months Ended
	Dec. 31, 2014
Allowance for uncollectable reinsurance
Valuation and Qualifying Accounts Disclosure [Line Items]
Balance at January 1, 2014	$ 11,332
Charged to Other Accounts	0
Deductions (Describe)	0
Balance at December 31, 2014	11,332
Valuation allowance in deferred taxes
Valuation and Qualifying Accounts Disclosure [Line Items]
Balance at January 1, 2014	554
Charged (Credited) to Costs and Expenses	222
Charged to Other Accounts	0
Deductions (Describe)	0
Balance at December 31, 2014	$ 776

XML

Contractual Maturity by Number of Years Until Maturity for Fixed Maturity Securities with Gross Unrealized Loss (Detail) (USD $) In Thousands, unless otherwise specified	Dec. 31, 2014	Dec. 31, 2013
Schedule of Available-for-sale Securities [Line Items]
Gross Unrealized Loss Amount	$ 1,304	$ 550
Fair Value Amount	19,928	10,925
Fixed maturities
Schedule of Available-for-sale Securities [Line Items]
Gross Unrealized Loss Amount	10,347	32,980
Percent of Total Gross Unrealized Loss	100.00%
Fair Value Amount	731,346	934,607
Percent of Total Fair Value	100.00%
Fixed maturities | Due in one year or less
Schedule of Available-for-sale Securities [Line Items]
Gross Unrealized Loss Amount	2,638
Percent of Total Gross Unrealized Loss	25.00%
Fair Value Amount	21,919
Percent of Total Fair Value	3.00%
Fixed maturities | Due After One Year Through Five Years
Schedule of Available-for-sale Securities [Line Items]
Gross Unrealized Loss Amount	3,791
Percent of Total Gross Unrealized Loss	37.00%
Fair Value Amount	334,046
Percent of Total Fair Value	46.00%
Fixed maturities | Due After Five Years Through Ten Years
Schedule of Available-for-sale Securities [Line Items]
Gross Unrealized Loss Amount	1,562
Percent of Total Gross Unrealized Loss	15.00%
Fair Value Amount	103,376
Percent of Total Fair Value	14.00%
Fixed maturities | Due After Ten Years
Schedule of Available-for-sale Securities [Line Items]
Gross Unrealized Loss Amount	158
Percent of Total Gross Unrealized Loss	2.00%
Fair Value Amount	21,533
Percent of Total Fair Value	3.00%
Fixed maturities | Mortgage- and asset-backed securities
Schedule of Available-for-sale Securities [Line Items]
Gross Unrealized Loss Amount	2,198
Percent of Total Gross Unrealized Loss	21.00%
Fair Value Amount	$ 250,472
Percent of Total Fair Value	34.00%

XML

Organization and Summary of Significant Accounting Policies - Additional Information (Detail) (USD $)	12 Months Ended
	Dec. 31, 2014 Segment	Dec. 31, 2013	Dec. 31, 2012
Organization And Summary Of Significant Accounting Policies [Line Items]
Number of underwriting segments	2
Number of corporate segment	1
Remeasurement of Foreign Currecy	$ 10,000,000
Remeasurement of Foreign currency, After tax	6,600,000
Goodwill and other intangible assets	7,013,000	7,177,000
Minimum
Organization And Summary Of Significant Accounting Policies [Line Items]
Property, Plant and Equipment, Useful Life	3 years
Maximum
Organization And Summary Of Significant Accounting Policies [Line Items]
Property, Plant and Equipment, Useful Life	7 years
Navigators Insurance Company
Organization And Summary Of Significant Accounting Policies [Line Items]
Percentage of Navigators Specialty Insurance Company reinsured by Navigators Insurance Company	100.00%
Lloyd's
Organization And Summary Of Significant Accounting Policies [Line Items]
Goodwill	2,400,000	2,400,000
Other intangible assets	2,100,000	2,300,000
Lloyd's | Syndicate 1221
Organization And Summary Of Significant Accounting Policies [Line Items]
Percentage control of stamp capacity	100.00%	100.00%	100.00%
Underwriting Segments
Organization And Summary Of Significant Accounting Policies [Line Items]
Goodwill	$ 2,500,000	$ 2,500,000

XML

Valuation and Qualifying Accounts

12 Months Ended

Dec. 31, 2014

Valuation and Qualifying Accounts

SCHEDULE V

THE NAVIGATORS GROUP, INC. AND SUBSIDIARIES

Valuation and Qualifying Accounts

In thousands	Balance at January 1, 2014		Charged (Credited) to Costs and Expenses		Charged to Other Accounts		Deductions (Describe)		Balance at December 31, 2014
Description:
Allowance for uncollectable reinsurance	$	11,332	$	—	$	—	$	—	$	11,332
Valuation allowance in deferred taxes	$	554	$	222	$	—	$	—	$	776

XML

Supplementary Information Concerning Property-Casualty Insurance Operations

12 Months Ended

Dec. 31, 2014

Supplementary Information Concerning Property-Casualty Insurance Operations

SCHEDULE VI

THE NAVIGATORS GROUP, INC. AND SUBSIDIARIES

Supplementary Information Concerning Property-Casualty Insurance Operations

($ in thousands)

Affiliation with Registrant	Deferred policy acquisition costs		Reserve for losses and loss adjustment expenses		Discount, if any, deducted		Unearned premiums		Net earned premiums		Net investment income (1)		Losses and loss adjustment expenses incurred related to					Amortization of deferred Policy acquisition costs (2)		Other operating expenses (1)		Net written premiums
													Current year		Prior years
Consolidated Subsidiaries:
Year ended December 31, 2014	$	79,452	$	2,159,634	$	—	$	766,167	$	935,895	$	64,092	$	601,041	$	(55,812	)	$	127,695	$	196,825	$	1,000,138
Year ended December 31, 2013	$	67,007	$	2,045,071	$	—	$	714,606	$	841,939	$	56,243	$	520,227	$	(1,266	)	$	115,842	$	164,434	$	887,922
Year ended December 31, 2012	$	61,005	$	2,097,048	$	—	$	642,407	$	781,964	$	54,100	$	542,724	$	(45,291	)	$	123,819	$	159,079	$	833,655

(1) - Net investment income and Other operating expenses reflect only such amounts attributable to the Company’s insurance operations.

(2) - Amortization of deferred policy acquisition costs reflects only such amounts attributable to the Company’s insurance operations. A portion of these costs is eliminated in consolidation.

XML

Consolidated Statements of Cash Flows (USD $) In Thousands, unless otherwise specified	12 Months Ended
	Dec. 31, 2014	Dec. 31, 2013	Dec. 31, 2012
Operating activities:
Net income	$ 95,329	$ 63,466	$ 63,762
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Depreciation & amortization	4,915	4,518	5,931
Deferred income taxes	16,881	4,658	(11,414)
Net realized (gains) losses	(12,812)	(22,939)	(41,074)
Net other-than-temporary losses recognized in earnings		2,393	858
Call premium on redemption of Senior Notes		17,895
Changes in assets and liabilities:
Reinsurance recoverable on paid and unpaid losses and loss adjustment expenses	(42,024)	68,599	(40,185)
Reserves for losses and loss adjustment expenses	114,563	(51,977)	14,369
Prepaid reinsurance premiums	10,344	(26,807)	(56,853)
Unearned premiums	52,380	72,199	109,778
Premiums receivable	(17,455)	(4,843)	(64,457)
Deferred policy acquisition costs	(12,445)	(6,002)	2,979
Accrued investment income	(925)	(1,279)	1,905
Reinsurance balances payable	(14,716)	1,439	57,114
Current income taxes	(582)	(16,432)	17,523
Other	29,039	31,987	36,503
Net cash provided by (used in) operating activities	222,492	136,875	96,739
Fixed maturities
Redemptions and maturities	210,674	237,627	188,282
Sales	362,136	648,335	1,319,404
Purchases	(864,902)	(899,930)	(1,711,080)
Equity securities
Sales	54,900	72,113	39,503
Purchases	(83,845)	(89,288)	(37,587)
Change in payable for securities	(7,814)	(46,414)	56,543
Net change in short-term investments	117,740	(142,214)	(31,568)
Purchase of property and equipment	(8,359)	(10,088)	(3,336)
Net cash provided by (used in) investing activities	(219,470)	(229,859)	(179,839)
Financing activities:
Net Proceeds from Debt Offering		263,278
Redemption of 7.0% Senior Notes Due May 1, 2016		(132,437)
Proceeds of stock issued from employee stock purchase plan	1,067	821	672
Proceeds of stock issued from exercise of stock options	153	2,495	404
Net cash provided by (used in) financing activities	1,220	134,157	1,076
Increase (decrease) in cash	4,242	41,173	(82,024)
Cash at beginning of year	86,509	45,336	127,360
Cash at end of period	90,751	86,509	45,336
Supplemental cash information:
Income taxes paid, net	27,066	41,094	19,602
Interest paid	15,703	8,050	8,050
Issuance of stock to directors	$ 438	$ 400	$ 242

XML

Organization & Summary of Significant Accounting Policies (Policies)

12 Months Ended

Dec. 31, 2014

Cash

Cash

Cash includes cash on hand and demand deposits with banks, excluding such amounts held by Syndicate 1221 included as Funds at Lloyd’s.

Investments

Investments

As of December 31, 2014 and 2013, all fixed maturity and equity securities held by our Company were carried at fair value and classified as available-for-sale. Available-for-sale securities are debt and equity securities not classified as either held-to-maturity securities or trading securities and are reported at fair value, with unrealized gains and losses excluded from earnings and reported in accumulated other comprehensive income (“AOCI”) as a separate component of stockholders’ equity. Fixed maturity securities include bonds, mortgage-backed and asset-backed securities. Equity securities consist of common stock and preferred stock.

Short-term investments are carried at fair value. Short-term investments mature within one year from the purchase date.

All prices for our fixed maturities, equity securities and short-term investments valued as Level 1, Level 2 or Level 3 in the fair value hierarchy, as defined in the Financial Accounts Standards Board (“FASB”) Accounting Standards Codification 820 (“ASC 820”), Fair Value Measurements, are received from independent pricing services utilized by one of our outside investment managers whom we employ to assist us with investment accounting services. This manager utilizes a pricing committee, which approves the use of one or more independent pricing service vendors. The pricing committee consists of five or more members of the investment management firm, one from senior management and one from the accounting group with the remainder from the asset class specialists and client strategists. The pricing source of each security is determined in accordance with the pricing source procedures approved by the pricing committee. The investment manager uses supporting documentation received from the independent pricing service vendor detailing the inputs, models and processes used in the independent pricing service vendors’ evaluation process to determine the appropriate fair value hierarchy. Any pricing where the input is believed to be unobservable is deemed to be a Level 3 price. Management has reviewed this process by which the manager determines the prices and has obtained alternative pricing to validate a sample of the prices and assess their reasonableness.

Premiums and discounts on fixed maturity securities are amortized into interest income over the life of the security under the interest method. For mortgage-backed and asset-backed securities, anticipated prepayments and expected maturities are utilized in applying the interest rate method. An effective yield is calculated based on projected principal cash flows at the time of original purchase. The effective yield is used to amortize the purchase price of the security over the security’s expected life. Book values are adjusted to reflect the amortization of premium or accretion of discount on a monthly basis. The projected principal cash flows are based on certain prepayment assumptions, which are generated using a prepayment model. The prepayment model uses a number of factors to estimate prepayment activity including the current levels of interest rates (refinancing incentive), time of year (seasonality), economic activity (including housing turnover) and term and age of the underlying collateral (burnout, seasoning). Prepayment assumptions associated with the mortgage-backed and asset-backed securities are reviewed on a periodic basis. When changes in prepayment assumptions are deemed necessary as the result of actual prepayments differing from anticipated prepayments, securities are revalued based upon the new prepayment assumptions utilizing the retrospective adjustment method, whereby the effective yield is recalculated to reflect actual payments to date and anticipated future payments. The investment in such securities is adjusted to the amount that would have existed had the new effective yield been applied since the acquisition of the security. Such adjustments, if any, are included in net investment income for the current period being reported.

Realized gains and losses on sales of investments are recognized when the related trades are executed and are determined on the basis of the specific identification method.

Impairment of Invested Assets

Impairment of Invested Assets

Management regularly reviews our fixed maturity and equity securities portfolios to evaluate the necessity of recording impairment losses for other-than-temporary declines in the fair value of securities.

For fixed maturity securities, we consider our intent to sell a security and whether it is more likely than not that, we will be required to sell a security before the anticipated recovery as part of the process of evaluating whether a security’s unrealized loss represents an other-than-temporary decline. For fixed maturity securities that have a fair value below amortized cost and that we intend to sell or for which it is more likely than not that we would be required to sell, an other than temporary impairment (“OTTI”) loss is recognized in earnings by writing such security down to fair value. For fixed maturity securities we do not intend to sell or for which it is more likely than not our Company would not be required to sell, a decline in value below amortized cost is only recognized to the extent the present value of future cash flows expected to be collected is less than the amortized cost of the security. Such shortfall in the present value of future cash flows is considered the credit loss and is recognized as an OTTI loss in earnings, with the non-credit portion of the impairment (i.e. the difference between the present value of future cash flows and fair value of the security) recognized as OTTI losses in other comprehensive income (“OCI”).

In evaluating OTTI of equity securities, we consider our intent to hold the securities as part of the process of evaluating whether a decline in fair value below cost represents an other than temporary decline in value. For equity securities in an unrealized loss position that we do not intent to hold or that we do not expect to recover their value within a reasonable period of time, a net OTTI loss is recognized in earnings by writing such security down to the fair value.

Syndicate 1221

Syndicate 1221

Syndicate 1221 reports the amount of premiums, claims, and expenses recorded in an underwriting account for a particular year over a three year period. Traditionally, three years have been necessary to report substantially all premiums associated with an underwriting year and to report most of the related claims, although claims may remain unsettled after the underwriting year is closed. Syndicate 1221 typically closes an underwriting year by reinsuring outstanding claims in that underwriting year with the next underwriting year. Only profits from closed underwriting years of account are distributed to NCUL. Profits from open underwriting years of account are not available and therefore not distributed to NCUL until the end of the three year period.

Our Company’s financial statements include all of the assets, liabilities, revenues and expenses of Syndicate1221. Adjustments are recorded to recognize underwriting results as incurred in the specific year and not over a three year period. Syndicate 1221 is not a separate legal entity. Refer to Note 10, Lloyd’s Syndicate 1221, for additional information.

Foreign Currency Remeasurement and Translation

Foreign Currency Remeasurement and Translation

The functional currency in each of our operations is generally the currency of the local operating environment, except for our Lloyd’s Operations which is the U.S. dollar. Transactions in currencies other than an operation’s functional currency are remeasured into the functional currency and the resulting foreign exchange gains and losses are reflected in net Other Income (Expense) in the Consolidated Statements of Income. Functional currency assets and liabilities are translated into U.S. dollars using period end rates of exchange and the related translation adjustments are recorded as a separate component of AOCI. Statement of income amounts expressed in functional currencies are translated using average exchange rates.

During the first quarter, Syndicate 1221 revised its foreign exchange accounting methodology from reporting its financial position and results using three functional currencies (GBP, USD and CAD) to one functional currency (USD). The USD was chosen as the single functional currency as the majority of the Syndicate’s insurance business has been and continues to be transacted in USD. This cumulative change in re-measurement has resulted in an immaterial correction of $10.0 million ($6.6 million, after-tax) reducing Accumulated Other Comprehensive Income in the consolidated balance sheet, offset by a gain in Other Income in the consolidated statement of income. The impact of the correction is not material to the previously issued annual financial statements for 2013 and 2012.

Premium Revenues

Premium Revenues

Written premium is recorded based on the insurance policies that have been reported to us and the policies that have been written by agents but not yet reported to us. We estimate the amount of written premium not yet reported based on judgments relative to current and historical trends of the business being written. Such estimates are regularly reviewed and updated and any resulting adjustments are included in the current year’s results. An unearned premium reserve is established to reflect the unexpired portion of each policy at the financial reporting date.

Substantially all of our business is placed through agents and brokers. We record estimates for both unreported direct and assumed premiums. We also record the ceded portion of the estimated gross written premium and related acquisition costs. The earned gross, ceded and net premiums are calculated based on our earning methodology, which is generally pro-rata over the policy period or over the period of risk if the period of risk differs significantly from the contract period.

A portion of our premium is estimated for unreported premium, mostly for the Marine business written by our U.K. Branch and Lloyd’s Operations as well as the Accident & Health (“A&H”) and Latin American & Caribbean Property Casualty and Surety Reinsurance business written by NavRe. Such premium estimates are generally based on submission data received from brokers and agents and recorded when the insurance policy or reinsurance contract is written or bound. The estimates are regularly reviewed and updated taking into account the premium received to date versus the estimate and the age of the estimate. To the extent that the actual premium varies from the estimates, the difference, along with the related loss reserves and underwriting expenses, is recorded in current operations.

Reinsurance Ceded

Reinsurance Ceded

In the normal course of business, reinsurance is purchased by us from insurers or reinsurers to reduce the amount of loss arising from claims. In order to determine the proper accounting for the reinsurance, management analyzes the reinsurance agreements to determine whether the reinsurance should be classified as prospective or retroactive based upon the terms of the reinsurance agreement and whether the reinsurer has assumed significant insurance risk to the extent that the reinsurer may realize a significant loss from the transaction.

Prospective reinsurance is reinsurance in which an assuming company agrees to reimburse the ceding company for losses that may be incurred as a result of future insurable events covered under contracts subject to the reinsurance. Retroactive reinsurance is reinsurance in which an assuming company agrees to reimburse a ceding company for liabilities incurred as a result of past insurable events covered under contracts subject to the reinsurance.

Ceded reinsurance premiums and any related ceding commission and ceded losses are reflected as reductions of the respective income or expense accounts over the terms of the reinsurance contracts. Prepaid reinsurance premiums represent the portion of premiums ceded to reinsurers applicable to the unexpired terms of the reinsurance contracts in force. Reinsurance reinstatement premiums are recognized in the same period as the loss event that gave rise to the reinstatement premiums. Amounts recoverable from reinsurers are estimated in a manner consistent with the claim liability associated with the reinsured policy. Unearned premiums ceded and estimates of amounts recoverable from reinsurers on paid and unpaid losses are reflected as assets. Provisions are made for estimated unrecoverable reinsurance.

Deferred Policy Acquisition Costs

Deferred Policy Acquisition Costs

Costs of acquiring business are deferred and amortized ratably over the period that the related premiums are recognized as revenue. Such costs (e.g., commission expense, other underwriting expenses and premium taxes) are limited to the incremental direct costs related to the successful acquisition of new or renewal business. The method of computing deferred policy acquisition costs limits the deferral to their estimated net realizable value based on the related unearned premiums and takes into account anticipated losses and loss adjustment expenses, commission expense and operating expenses based on historical and current experience as well as anticipated investment income.

Reserves for Losses and Loss Adjustment Expenses

Reserves for Losses and Loss Adjustment Expenses

Unpaid losses and loss adjustment expenses are determined on an individual basis for claims reported on direct business for insureds, from reports received from ceding insurers for insurance assumed from such insurers and on estimates based on Company and industry experience for incurred but not reported (“IBNR”) claims and loss adjustment expenses. Indicated IBNR loss reserves are calculated by our actuaries using several standard actuarial methodologies, including the paid and incurred loss development and the paid and incurred Bornheutter-Ferguson loss methods. Additional analyses, such as frequency/severity analyses, are performed for certain books of business. The provision for unpaid losses and loss adjustment expenses has been established to cover the estimated unpaid cost of claims incurred. Such estimates are regularly reviewed and updated and any resulting adjustments are included in the current year’s results. Management believes that the liability it has recognized for unpaid losses and loss adjustment expenses is a reasonable estimate of the ultimate unpaid claims incurred, however, such provisions are necessarily based on estimates and, accordingly, no representation is made that the ultimate liability will not differ materially from the amounts recorded in the accompanying consolidated financial statements. Losses and loss adjustment expenses are recorded on an undiscounted basis.

Earnings per Share

Earnings per Share

Basic earnings per share (“EPS”) is computed by dividing net income by the weighted average number of common shares outstanding for the period. Diluted earnings per share reflects the basic earnings per share adjusted for the potential dilution that would occur if all issued stock options were exercised and all stock grants were fully vested.

Depreciation and Amortization

Depreciation and Amortization

Depreciation of furniture and fixtures, electronic data processing equipment and computer software is provided over the estimated useful lives of the respective assets, ranging from three to seven years, using the straight-line method. Amortization of leasehold improvements is provided over the shorter of the useful lives of those improvements or the contractual terms of the leases using the straight-line method.

Goodwill and Other Intangible Assets

Goodwill and Other Intangible Assets

Goodwill represents the excess-of-cost of acquiring a business enterprise over the fair value of the net assets acquired. Our Company has also recorded indefinite lived intangible assets related to the acquisition of the remaining non-controlled stamp capacity of Lloyd’s Syndicate 1221. Goodwill and indefinite lived intangible assets are reported at carrying value and are tested for impairment at least annually, and when permitted by the applicable accounting guidance, qualitative factors are assessed to determine whether it is necessary to calculate an asset’s fair value when testing an asset with an indefinite life for impairment. Goodwill and indefinite lived intangible assets are considered impaired if the estimated fair value is less than its carrying value and any impairment loss is measured as the difference between the implied fair value and the carrying value. This Company did not recognize an impairment on goodwill or the indefinite lived intangible assets for any of the years ended December 31, 2014, 2013 and 2012.

As of December 31, 2014, the carrying value of goodwill and indefinite lived intangible assets was $7.0 million, consisting of $2.5 million and $2.4 million of goodwill assigned to NMC and our Lloyd’s Operations, respectively, and $2.1 million of indefinite lived intangible assets assigned to our Lloyd’s Operations. As of December 31, 2013, the carrying value of goodwill and indefinite lived intangible assets was $7.2 million, consisting of $2.5 million and $2.4 million of goodwill assigned to NMC and our Lloyd’s Operations, respectively, and $2.3 million of indefinite lived intangible assets assigned to our Lloyd’s Operations. Changes in the carrying value of the goodwill and indefinite lived intangible assets are due to fluctuations in currency exchange rates between the U.S. dollar and the British pound.

Income Taxes

Income Taxes

We apply the asset and liability method of accounting for income taxes whereby deferred assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis. In assessing the realization of deferred tax assets, management considers whether it is more likely than not that, the deferred tax assets will be realized. These reviews include, among other factors, the nature and amount of the taxable income and expense items, the expected timing of when assets will be used or liabilities will be required to be reported, as well as the reliability of historical profitability of businesses expected to provide future earnings. After review, if management determines that the realization of the tax asset does not meet the more likely than not criterion an offsetting valuation allowance is recorded, which reduces net earnings and the deferred tax asset in that period. Additional information regarding our deferred tax assets can be found in Note 7, Income Taxes, in the Notes to Consolidated Financial Statements, included herein.

Use of Estimates

Use of Estimates

The preparation of financial statements in conformity with GAAP requires the use of estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the period. The accounting estimates that are viewed by management as critical are those in connection with reserves for losses and loss adjustment expenses, reinsurance recoverables, written and unearned premiums, the recoverability of deferred tax assets, and impairment of invested assets.

XML

Amount and Nature of Net Assets Restricted from Payment of Dividends (Parenthetical) (Detail) (Fixed maturities, USD $) In Thousands, unless otherwise specified	Dec. 31, 2014	Dec. 31, 2013
Insurance Companies
Restricted Assets And Liabilities Relating To Securitization [Line Items]
Restricted net assets, amortized cost	$ 10,086	$ 9,730
Lloyd's
Restricted Assets And Liabilities Relating To Securitization [Line Items]
Restricted net assets, amortized cost	$ 445,504	$ 398,930

XML

Share Capital (Tables)

12 Months Ended

Dec. 31, 2014

Changes in Company's Issued and Outstanding Common Shares

The following table represents changes in our Company’s issued and outstanding common shares for the periods indicated:

	Year Ended December 31,
In thousands	2014		2013		2012
Beginning balance		14,198		14,047		13,956
Vested stock grants		59		50		60
Employee stock purchase plan		19		17		16
Stock options exercised		5		84		15
Treasury shares purchased		—		—		—
Ending balance		14,281		14,198		14,047

XML

Summary of Aggregate Fair Value and Gross Unrealized Loss by Length of Time Securities had Continuously been in Gross Unrealized Loss Position as Well as Number of Securities (Detail) (USD $) In Thousands, unless otherwise specified	Dec. 31, 2014 Investment	Dec. 31, 2013 Investment
Gain (Loss) on Investments [Line Items]
Number of Securities	15	7
Fair Value	$ 19,928	$ 10,925
Gross Unrealized Loss	1,304	550
Fixed maturities
Gain (Loss) on Investments [Line Items]
Number of Securities	259	405
Fair Value	731,346	934,607
Gross Unrealized Loss	10,347	32,980
Fixed maturities | U.S. Treasury bonds, agency bonds, and foreign
Gain (Loss) on Investments [Line Items]
Number of Securities	50	53
Fair Value	205,598	285,730
Gross Unrealized Loss	5,965	8,855
Fixed maturities | U.S. Treasury bonds, agency bonds, and foreign | 0-6 months
Gain (Loss) on Investments [Line Items]
Number of Securities	19	27
Fair Value	87,915	136,360
Gross Unrealized Loss	1,061	1,096
Fixed maturities | U.S. Treasury bonds, agency bonds, and foreign | 7-12 months
Gain (Loss) on Investments [Line Items]
Number of Securities		26
Fair Value		149,370
Gross Unrealized Loss		7,759
Fixed maturities | U.S. Treasury bonds, agency bonds, and foreign | > 12 months
Gain (Loss) on Investments [Line Items]
Number of Securities	31
Fair Value	117,683
Gross Unrealized Loss	4,904
Fixed maturities | States, municipalities and political subdivisions
Gain (Loss) on Investments [Line Items]
Number of Securities	32	138
Fair Value	53,689	257,641
Gross Unrealized Loss	558	13,651
Fixed maturities | States, municipalities and political subdivisions | 0-6 months
Gain (Loss) on Investments [Line Items]
Number of Securities	13	28
Fair Value	14,242	40,132
Gross Unrealized Loss	41	297
Fixed maturities | States, municipalities and political subdivisions | 7-12 months
Gain (Loss) on Investments [Line Items]
Number of Securities	2	104
Fair Value	2,107	205,152
Gross Unrealized Loss	19	12,100
Fixed maturities | States, municipalities and political subdivisions | > 12 months
Gain (Loss) on Investments [Line Items]
Number of Securities	17	6
Fair Value	37,340	12,357
Gross Unrealized Loss	498	1,254
Fixed maturities | Agency mortgage-backed securities
Gain (Loss) on Investments [Line Items]
Number of Securities	52	112
Fair Value	77,182	140,102
Gross Unrealized Loss	998	6,016
Fixed maturities | Agency mortgage-backed securities | 0-6 months
Gain (Loss) on Investments [Line Items]
Number of Securities	4	39
Fair Value	14,743	39,458
Gross Unrealized Loss	52	434
Fixed maturities | Agency mortgage-backed securities | 7-12 months
Gain (Loss) on Investments [Line Items]
Number of Securities	2	64
Fair Value	4,138	77,860
Gross Unrealized Loss	28	3,768
Fixed maturities | Agency mortgage-backed securities | > 12 months
Gain (Loss) on Investments [Line Items]
Number of Securities	46	9
Fair Value	58,301	22,784
Gross Unrealized Loss	918	1,814
Fixed maturities | Residential Mortgage Backed Securities
Gain (Loss) on Investments [Line Items]
Number of Securities	22	25
Fair Value	7,353	3,848
Gross Unrealized Loss	138	161
Fixed maturities | Residential Mortgage Backed Securities | 0-6 months
Gain (Loss) on Investments [Line Items]
Number of Securities	6	3
Fair Value	4,966	431
Gross Unrealized Loss	43	2
Fixed maturities | Residential Mortgage Backed Securities | 7-12 months
Gain (Loss) on Investments [Line Items]
Number of Securities	2	7
Fair Value	659	950
Gross Unrealized Loss	7	29
Fixed maturities | Residential Mortgage Backed Securities | > 12 months
Gain (Loss) on Investments [Line Items]
Number of Securities	14	15
Fair Value	1,728	2,467
Gross Unrealized Loss	88	130
Fixed maturities | Asset-backed securities
Gain (Loss) on Investments [Line Items]
Number of Securities	25	15
Fair Value	144,805	76,090
Gross Unrealized Loss	964	480
Fixed maturities | Asset-backed securities | 0-6 months
Gain (Loss) on Investments [Line Items]
Number of Securities	19	14
Fair Value	96,123	75,887
Gross Unrealized Loss	354	479
Fixed maturities | Asset-backed securities | 7-12 months
Gain (Loss) on Investments [Line Items]
Number of Securities	3	1
Fair Value	14,152	203
Gross Unrealized Loss	185	1
Fixed maturities | Asset-backed securities | > 12 months
Gain (Loss) on Investments [Line Items]
Number of Securities	3
Fair Value	34,530
Gross Unrealized Loss	425
Fixed maturities | Commercial mortgage-backed securities
Gain (Loss) on Investments [Line Items]
Number of Securities	8	10
Fair Value	21,132	22,584
Gross Unrealized Loss	98	374
Fixed maturities | Commercial mortgage-backed securities | 0-6 months
Gain (Loss) on Investments [Line Items]
Number of Securities	4	4
Fair Value	18,665	6,712
Gross Unrealized Loss	65	31
Fixed maturities | Commercial mortgage-backed securities | 7-12 months
Gain (Loss) on Investments [Line Items]
Number of Securities	1	2
Fair Value	1,076	15,098
Gross Unrealized Loss	6	322
Fixed maturities | Commercial mortgage-backed securities | > 12 months
Gain (Loss) on Investments [Line Items]
Number of Securities	3	4
Fair Value	1,391	774
Gross Unrealized Loss	27	21
Fixed maturities | Corporate bonds
Gain (Loss) on Investments [Line Items]
Number of Securities	70	52
Fair Value	221,587	148,612
Gross Unrealized Loss	1,626	3,443
Fixed maturities | Corporate bonds | 0-6 months
Gain (Loss) on Investments [Line Items]
Number of Securities	52	34
Fair Value	179,390	93,591
Gross Unrealized Loss	797	717
Fixed maturities | Corporate bonds | 7-12 months
Gain (Loss) on Investments [Line Items]
Number of Securities	4	18
Fair Value	11,071	55,021
Gross Unrealized Loss	74	2,726
Fixed maturities | Corporate bonds | > 12 months
Gain (Loss) on Investments [Line Items]
Number of Securities	14
Fair Value	31,126
Gross Unrealized Loss	755
Common Stock
Gain (Loss) on Investments [Line Items]
Number of Securities	8	7
Fair Value	13,277	10,925
Gross Unrealized Loss	1,254	550
Common Stock | 0-6 months
Gain (Loss) on Investments [Line Items]
Number of Securities	6	5
Fair Value	9,152	7,387
Gross Unrealized Loss	761	422
Common Stock | 7-12 months
Gain (Loss) on Investments [Line Items]
Number of Securities	1	2
Fair Value	3,887	3,538
Gross Unrealized Loss	486	128
Common Stock | > 12 months
Gain (Loss) on Investments [Line Items]
Number of Securities	1
Fair Value	238
Gross Unrealized Loss	7
Preferred Stock
Gain (Loss) on Investments [Line Items]
Number of Securities	7
Fair Value	6,651
Gross Unrealized Loss	50
Preferred Stock | 0-6 months
Gain (Loss) on Investments [Line Items]
Number of Securities	7
Fair Value	6,651
Gross Unrealized Loss	$ 50

XML

Components of Current and Deferred Income Tax Expense (Benefit) (Detail) (USD $) In Thousands, unless otherwise specified	3 Months Ended								12 Months Ended
	Dec. 31, 2014	Sep. 30, 2014	Jun. 30, 2014	Mar. 31, 2014	Dec. 31, 2013	Sep. 30, 2013	Jun. 30, 2013	Mar. 31, 2013	Dec. 31, 2014	Dec. 31, 2013	Dec. 31, 2012
Current income tax expense (benefit):
Federal and foreign									$ 27,290	$ 23,703	$ 39,242
State and local									1,036	446	146
Subtotal									28,326	24,149	39,388
Deferred income tax expense (benefit):
Federal and foreign									16,881	4,658	(11,414)
State and local									0	0	0
Subtotal									16,881	4,658	(11,414)
Actual tax expense and rate	$ 8,823	$ 15,032	$ 7,998	$ 13,354	$ 6,076	$ 9,804	$ 6,284	$ 6,643	$ 45,207	$ 28,807	$ 27,974

XML

Consolidated Balance Sheets (USD $) In Thousands, unless otherwise specified	Dec. 31, 2014	Dec. 31, 2013
Investments and cash:
Fixed maturities, available-for-sale, at fair value (amortized cost: 2014, $2,323,959; 2013, $2,036,999)	$ 2,365,934	$ 2,047,873
Equity securities, available-for-sale, at fair value (cost: 2014, $154,843; 2013, $118,804)	184,295	143,954
Short-term investments, at fair value (amortized cost: 2014: $179,527; 2013: $296,250)	179,506	296,250
Cash	90,751	86,509
Total investments and cash	2,820,486	2,574,586
Premiums receivable	342,479	325,025
Prepaid reinsurance premiums	237,851	247,822
Reinsurance recoverable on paid losses	51,347	38,384
Reinsurance recoverable on unpaid losses and loss adjustment expenses	851,498	822,438
Deferred policy acquisition costs	79,452	67,007
Accrued investment income	14,791	13,866
Goodwill and other intangible assets	7,013	7,177
Current income tax receivable, net	14,549	14,299
Deferred income tax, net		23,806
Receivable for investments sold	326	3
Other assets	44,384	35,039
Total assets	4,464,176	4,169,452
Liabilities:
Reserves for losses and loss adjustment expenses	2,159,634	2,045,071
Unearned premiums	766,167	714,606
Reinsurance balances payable	152,774	167,252
Senior Notes	263,440	263,308
Deferred income tax, net	1,467
Payable for investments purchased	134	7,624
Accounts payable and other liabilities	93,336	69,379
Total liabilities	3,436,952	3,267,240
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 17,792,846 shares for 2014 and 17,709,876 shares for 2013	1,778	1,770
Additional paid-in capital	347,022	335,546
Treasury stock, at cost (3,511,380 shares for 2014 and 2013)	(155,801)	(155,801)
Retained earnings	787,666	692,337
Accumulated other comprehensive income	46,559	28,360
Total stockholders' equity	1,027,224	902,212
Total liabilities and stockholders' equity	$ 4,464,176	$ 4,169,452

XML

Reconciliation of Basic and Diluted Earnings per Share Computations (Detail) (USD $) In Thousands, except Share data, unless otherwise specified	3 Months Ended								12 Months Ended
	Dec. 31, 2014	Sep. 30, 2014	Jun. 30, 2014	Mar. 31, 2014	Dec. 31, 2013	Sep. 30, 2013	Jun. 30, 2013	Mar. 31, 2013	Dec. 31, 2014	Dec. 31, 2013	Dec. 31, 2012
Earnings Per Share Disclosure [Line Items]
Net income	$ 19,275	$ 31,225	$ 16,861	$ 27,968	$ 14,333	$ 21,286	$ 13,937	$ 13,910	$ 95,329	$ 63,466	$ 63,762
Basic weighted average shares									14,259,768	14,133,925	14,052,311
Effect of common stock equivalents:
Assumed exercise of stock options and vesting of stock grants									386,601	211,628	275,509
Diluted weighted average shares									14,646,369	14,345,553	14,327,820
Net income per common share:
Basic	$ 1.35	$ 2.19	$ 1.18	$ 1.96	$ 1.01	$ 1.50	$ 0.99	$ 0.99	$ 6.69	$ 4.49	$ 4.54
Diluted	$ 1.31	$ 2.14	$ 1.17	$ 1.94	$ 1.00	$ 1.48	$ 0.97	$ 0.97	$ 6.51	$ 4.42	$ 4.45

XML

Condensed Financial Information - Statement of Cash Flows (Detail) (USD $) In Thousands, unless otherwise specified	12 Months Ended
	Dec. 31, 2014	Dec. 31, 2013	Dec. 31, 2012
Operating activities:
Net income	$ 95,329	$ 63,466	$ 63,762
Adjustments to reconcile net income to net cash provided by (used in) operations:
Call premium on redemption of Senior Notes		17,895
Other	29,039	31,987	36,503
Net cash provided by (used in) operating activities	222,492	136,875	96,739
Fixed maturities, available-for-sale
Sales	362,136	648,335	1,319,404
Purchases	(864,902)	(899,930)	(1,711,080)
Equity securities
Sales	54,900	72,113	39,503
Purchases	(83,845)	(89,288)	(37,587)
Net increase in short-term investments	117,740	(142,214)	(31,568)
Net cash provided by (used in) investing activities	(219,470)	(229,859)	(179,839)
Financing activities:
Net Proceeds from Debt Offering		263,278
Redemption of 7.0% Senior Notes Due May 1, 2016		(132,437)
Proceeds of stock issued from employee stock purchase plan	1,067	821	672
Proceeds of stock issued from exercise of stock options	153	2,495	404
Net cash provided by (used in) financing activities	1,220	134,157	1,076
Cash at beginning of year	86,509	45,336	127,360
Cash at end of period	90,751	86,509	45,336
Parent Company
Operating activities:
Net income	95,329	63,466	63,762
Adjustments to reconcile net income to net cash provided by (used in) operations:
Equity in undistributed net income of wholly-owned subsidiaries	(105,379)	(81,971)	(70,036)
Dividends received from subsidiaries			15,000
Call premium on redemption of Senior Notes		17,895
Other	9,211	2,098	(3,265)
Net cash provided by (used in) operating activities	(839)	1,488	5,461
Fixed maturities, available-for-sale
Sales	3,200	8,754	7,986
Purchases		(1,249)	(14,700)
Equity securities
Sales	0	0	0
Purchases	0	0	0
Net increase in short-term investments	(3,424)	(89,988)	(167)
Net cash provided by (used in) investing activities	(224)	(82,483)	(6,881)
Financing activities:
Capital contribution to subsidiary		(50,000)
Net Proceeds from Debt Offering		263,278
Redemption of 7.0% Senior Notes Due May 1, 2016		(132,437)
Purchase of treasury stock	0	0	0
Proceeds of stock issued from employee stock purchase plan	1,067	821	672
Proceeds of stock issued from exercise of stock options	153	2,495	404
Net cash provided by (used in) financing activities	1,220	84,157	1,076
Increase (decrease) in cash	157	3,162	(344)
Cash at beginning of year	6,143	2,981	3,325
Cash at end of period	$ 6,300	$ 6,143	$ 2,981

XML

Consolidated Statements of Comprehensive Income (Parenthetical) (USD $) In Thousands, unless otherwise specified	12 Months Ended
	Dec. 31, 2014	Dec. 31, 2013	Dec. 31, 2012
Unrealized gains (losses) on investments arising during the period, deferred tax	$ 14,925	$ 17,521	$ 13,136
Reclassification adjustment for net realized (gains) losses included in net income, deferred tax	2,776	6,218	10,314
Non credit other-than-temporary impairments arising during the period, deferred tax	48	174	612
Reclassification adjustment for non credit other-than-temporary impairment losses recognized in net income, deferred tax	0	0	16
Change in foreign currency translation gains (losses), deferred tax	$ 2,800	$ 1,650	$ 521

XML

Condensed Financial Information - Balance Sheets (Parenthetical) (Detail) (USD $)	Dec. 31, 2014	Dec. 31, 2013
Condensed Financial Statements, Captions [Line Items]
Preferred stock, par value	$ 0.10	$ 0.10
Preferred stock, authorized shares	1,000,000	1,000,000
Preferred stock, issued shares	0	0
Common stock, par value	$ 0.1	$ 0.1
Common stock, authorized shares	50,000,000	50,000,000
Common stock, issued shares	17,792,846	17,709,876
Treasury stock, shares	3,511,380	3,511,380
Parent Company
Condensed Financial Statements, Captions [Line Items]
Preferred stock, par value	$ 0.10	$ 0.10
Preferred stock, authorized shares	1,000,000	1,000,000
Preferred stock, issued shares	0	0
Common stock, par value	$ 0.10	$ 0.10
Common stock, authorized shares	50,000,000	50,000,000
Common stock, issued shares	17,792,846	17,709,876
Treasury stock, shares	3,511,380	3,511,380

XML

Realized Gains and Losses, Excluding Net Other-Than-Temporary Impairment Losses Recognized in Earnings (Detail) (USD $) In Thousands, unless otherwise specified	3 Months Ended								12 Months Ended
	Dec. 31, 2014	Sep. 30, 2014	Jun. 30, 2014	Mar. 31, 2014	Dec. 31, 2013	Sep. 30, 2013	Jun. 30, 2013	Mar. 31, 2013	Dec. 31, 2014	Dec. 31, 2013	Dec. 31, 2012
Gain (Loss) on Investments [Line Items]
Net realized gains (losses)	$ 788	$ 6,718	$ 4,473	$ 833	$ 15,768	$ (988)	$ 3,345	$ 4,814	$ 12,812	$ 22,939	$ 41,074
Fixed maturities
Gain (Loss) on Investments [Line Items]
Gains									8,326	8,539	28,789
Losses									(2,610)	(2,797)	(1,915)
Net realized gains (losses)									5,716	5,742	26,874
Equity Securities
Gain (Loss) on Investments [Line Items]
Gains									9,447	17,955	14,673
Losses									(2,351)	(758)	(473)
Net realized gains (losses)									$ 7,096	$ 17,197	$ 14,200

XML

Reinsurance Written Premium (Detail) (USD $) In Thousands, unless otherwise specified	3 Months Ended								12 Months Ended
	Dec. 31, 2014	Sep. 30, 2014	Jun. 30, 2014	Mar. 31, 2014	Dec. 31, 2013	Sep. 30, 2013	Jun. 30, 2013	Mar. 31, 2013	Dec. 31, 2014	Dec. 31, 2013	Dec. 31, 2012
Supplementary Insurance Information, by Segment [Line Items]
Direct Amount									$ 1,133,336	$ 1,069,677	$ 972,844
Ceded to other companies									440,656	455,985	396,639
Assumed from other companies									243,215	228,247	205,759
Net earned premiums	234,172	245,367	231,084	225,272	219,902	213,895	205,814	202,328	935,895	841,939	781,964
Property Casualty
Supplementary Insurance Information, by Segment [Line Items]
Direct Amount									1,184,538	1,127,331	1,034,658
Ceded to other companies									432,214	482,596	452,810
Assumed from other companies									247,814	243,187	251,807
Net earned premiums									$ 1,000,138	$ 887,922	$ 833,655
Percentage of amount assumed to net									25.00%	27.00%	30.00%

XML

Investments (Tables)

12 Months Ended

Dec. 31, 2014

Cash and Investments Including Other-Than-Temporarily Impaired Securities Recognized within Other Comprehensive Income

The following tables set forth our Company’s cash and investments as of December 31, 2014 and 2013. The tables below include OTTI securities recognized within AOCI.

	December 31, 2014
In thousands	Fair Value		Gross Unrealized Gains		Gross Unrealized Losses			Amortized Cost
Fixed maturities:
U.S. Treasury bonds, agency bonds and foreign government bonds	$	397,923	$	3,431	$	(5,965	)	$	400,457
States, municipalities and political subdivisions		541,007		19,204		(558	)		522,361
Mortgage-backed and asset-backed securities:
Agency mortgage-backed securities		364,622		8,476		(998	)		357,144
Residential mortgage obligations		34,087		1,153		(138	)		33,072
Asset-backed securities		206,413		380		(964	)		206,997
Commercial mortgage-backed securities		206,318		6,630		(98	)		199,786
Subtotal	$	811,440	$	16,639	$	(2,198	)	$	796,999
Corporate bonds		615,564		13,048		(1,626	)		604,142
Total fixed maturities	$	2,365,934	$	52,322	$	(10,347	)	$	2,323,959
Equity securities - common stocks		127,183		28,520		(1,254	)		99,917
Equity securities - preferred stocks		57,112		2,236		(50	)		54,926
Short-term investments		179,506		—		(21	)		179,527
Cash		90,751		—		—			90,751
Total	$	2,820,486	$	83,078	$	(11,672	)	$	2,749,080

	December 31, 2013
In thousands	Fair Value		Gross Unrealized Gains		Gross Unrealized Losses			Amortized Cost
Fixed maturities:
U.S. Treasury bonds, agency bonds and foreign government bonds	$	441,685	$	2,854	$	(8,855	)	$	447,686
States, municipalities and political subdivisions		460,422		9,298		(13,651	)		464,775
Mortgage-backed and asset-backed securities:
Agency mortgage-backed securities		301,274		6,779		(6,016	)		300,511
Residential mortgage obligations		41,755		1,212		(161	)		40,704
Asset-backed securities		125,133		653		(480	)		124,960
Commercial mortgage-backed securities		172,750		7,656		(374	)		165,468
Subtotal	$	640,912	$	16,300	$	(7,031	)	$	631,643
Corporate bonds		504,854		15,402		(3,443	)		492,895
Total fixed maturities	$	2,047,873	$	43,854	$	(32,980	)	$	2,036,999
Equity securities - common stocks		143,954		25,700		(550	)		118,804
Short-term investments		296,250		—		—			296,250
Cash		86,509		—		—			86,509
Total	$	2,574,586	$	69,554	$	(33,530	)	$	2,538,562

Scheduled Maturity Dates for Fixed Maturity Securities by Number of Years Until Maturity

The contractual maturity dates for fixed maturities categorized by the number of years until maturity as of December 31, 2014 are shown in the following table:

	December 31, 2014
In thousands	Fair Value		Amortized Cost
Due in one year or less	$	63,670	$	65,643
Due after one year through five years		765,084		758,064
Due after five years through ten years		356,929		348,195
Due after ten years		368,811		355,058
Mortgage- and asset-backed securities		811,440		796,999
Total	$	2,365,934	$	2,323,959

Amount and Percentage of Fixed Maturities by Rating

The following table shows the amount and percentage of our Company’s fixed maturities as of December 31, 2014 by Standard & Poor’s (“S&P”) credit rating or, if an S&P rating is not available, the equivalent Moody’s Investor Services (“Moody’s”) rating. The table includes fixed maturities at fair value, and the total rating is the weighted average quality rating.

	December 31, 2014
In thousands	Rating	Fair Value		Percent of Total
Rating description:
Extremely strong	AAA	$	462,603		20	%
Very strong	AA		1,090,505		45	%
Strong	A		612,131		26	%
Adequate	BBB		185,372		8	%
Speculative	BB & Below		14,852		1	%
Not rated	NR		471		0	%
Total	AA	$	2,365,934		100	%

Summary of Aggregate Fair Value and Gross Unrealized Loss by Length of Time Securities had Continuously been in Gross Unrealized Loss Position as Well as Number of Securities

The following table summarizes all securities in a gross unrealized loss position as of December 31, 2014 and 2013, showing the aggregate fair value and gross unrealized loss by the length of time those securities had continuously been in a gross unrealized loss position as well as the relevant number of securities.

	December 31, 2014						December 31, 2013
In thousands, except # of securities	Number of Securities		Fair Value		Gross Unrealized Loss		Number of Securities		Fair Value		Gross Unrealized Loss
Fixed maturities:
U.S. Treasury bonds, agency bonds, and foreign government bonds
0-6 months		19	$	87,915	$	1,061		27	$	136,360	$	1,096
7-12 months		—		—		—		26		149,370		7,759
> 12 months		31		117,683		4,904		—		—		—
Subtotal		50	$	205,598	$	5,965		53	$	285,730	$	8,855
States, municipalities and political subdivisions
0-6 months		13	$	14,242	$	41		28	$	40,132	$	297
7-12 months		2		2,107		19		104		205,152		12,100
> 12 months		17		37,340		498		6		12,357		1,254
Subtotal		32	$	53,689	$	558		138	$	257,641	$	13,651
Agency mortgage-backed securities
0-6 months		4	$	14,743	$	52		39	$	39,458	$	434
7-12 months		2		4,138		28		64		77,860		3,768
> 12 months		46		58,301		918		9		22,784		1,814
Subtotal		52	$	77,182	$	998		112	$	140,102	$	6,016
Residential mortgage obligations
0-6 months		6	$	4,966	$	43		3	$	431	$	2
7-12 months		2		659		7		7		950		29
> 12 months		14		1,728		88		15		2,467		130
Subtotal		22	$	7,353	$	138		25	$	3,848	$	161
Asset-backed securities
0-6 months		19	$	96,123	$	354		14	$	75,887	$	479
7-12 months		3		14,152		185		1		203		1
> 12 months		3		34,530		425		—		—		—
Subtotal		25	$	144,805	$	964		15	$	76,090	$	480
Commercial mortgage-backed securities
0-6 months		4	$	18,665	$	65		4	$	6,712	$	31
7-12 months		1		1,076		6		2		15,098		322
> 12 months		3		1,391		27		4		774		21
Subtotal		8	$	21,132	$	98		10	$	22,584	$	374
Corporate bonds
0-6 months		52	$	179,390	$	797		34	$	93,591	$	717
7-12 months		4		11,071		74		18		55,021		2,726
> 12 months		14		31,126		755		—		—		—
Subtotal		70	$	221,587	$	1,626		52	$	148,612	$	3,443
Total fixed maturities		259	$	731,346	$	10,347		405	$	934,607	$	32,980
Equity securities - common stocks
0-6 months		6	$	9,152	$	761		5	$	7,387	$	422
7-12 months		1		3,887		486		2		3,538		128
> 12 months		1		238		7		—		—		—
		8	$	13,277	$	1,254		7	$	10,925	$	550
Equity securities - preferred stocks
0-6 months		7	$	6,651	$	50		—	$	—	$	—
7-12 months		—		—		—		—		—		—
> 12 months		—		—		—		—		—		—
		7	$	6,651	$	50		—	$	—	$	—
Total equity securities		15	$	19,928	$	1,304		7	$	10,925	$	550

Summary of Activity Related to Other-Than-Temporary Impairment Losses

The table below summarizes our Company’s activity related to OTTI losses for the periods indicated:

	Year Ended December 31,
	2014					2013				2012
In thousands, except # of securities	Number of Securities		Amount			Number of Securities		Amount		Number of Securities		Amount
Total OTTI losses:
Corporate and other bonds		—	$	—			1	$	1,822		—	$	—
Commercial mortgage-backed securities		—		—			—		—		—		—
Residential mortgage-backed securities		31		(137	)		—		—		1		55
Asset-backed securities		—		—			—		—		—		—
Equities		—		—			3		571		3		847
Total		31	$	(137	)		4	$	2,393		4	$	902
Less: Portion of loss in accumulated other comprehensive income (loss):
Corporate and other bonds			$	—				$	—			$	—
Commercial mortgage-backed securities				—					—				—
Residential mortgage-backed securities				(137	)				—				44
Asset-backed securities				—					—				—
Equities				—					—				—
Total			$	(137	)			$	—			$	44
Impairment losses recognized in earnings:
Corporate and other bonds			$	—				$	1,822			$	—
Commercial mortgage-backed securities				—					—				—
Residential mortgage-backed securities				—					—				11
Asset-backed securities				—					—				—
Equities				—					571				847
Total			$	—				$	2,393			$	858

Summary of Cumulative Amounts Related to Credit Loss Portion of Other-Than-Temporary Impairment Losses on Debt Securities

The following table summarizes the cumulative amounts related to our Company’s credit loss portion of the OTTI losses on fixed maturities for the years ended December 31, 2014, 2013 and 2012. Our Company does not intend to sell and it is more likely than not that it will not be required to sell, the securities prior to recovery of the amortized cost basis and for which the non-credit loss portion is included in AOCI.

	Year Ended December 31,
In thousands	2014			2013		2012
Beginning balance	$	5,154		$	3,332	$	3,321
Additions for credit loss impairments recognized in the current period on securities not previously impaired		—			1,822		—
Additions for credit loss impairments recognized in the current period on securities previously impaired		—			—		11
Reductions for credit loss impairments previously recognized on securities sold during the period		(2,793	)		—		—
Ending balance	$	2,361		$	5,154	$	3,332

Contractual Maturity by Number of Years Until Maturity for Fixed Maturity Securities with a Gross Unrealized Loss

The contractual maturity dates for fixed maturities categorized by the number of years until maturity, with a gross unrealized loss as of December 31, 2014 is presented in the following table:

	December 31, 2014
	Gross Unrealized Losses					Fair Value
In thousands	Amount		Percent of Total			Amount		Percent of Total
Due in one year or less	$	2,638		25	%	$	21,919		3	%
Due after one year through five years		3,791		37	%		334,046		46	%
Due after five years through ten years		1,562		15	%		103,376		14	%
Due after ten years		158		2	%		21,533		3	%
Mortgage- and asset-backed securities		2,198		21	%		250,472		34	%
Total	$	10,347		100	%	$	731,346		100	%

Net Investment Income

Our Company’s net investment income was derived from the following sources:

	Year Ended December 31,
In thousands	2014			2013			2012
Fixed maturities	$	57,219		$	53,898		$	58,995
Equity securities		9,036			4,835			3,945
Short-term investments		911			774			1,694
Total investment income		67,166			59,507			64,634
Investment expenses		(2,998	)		(3,256	)		(10,386	)
Net investment income	$	64,168		$	56,251		$	54,248

Change in Net Unrealized Gains/(Losses)

The change in net unrealized gains and losses, inclusive of the change in the non-credit portion of OTTI losses, consisted of:

	Year Ended December 31,
In thousands	2014		2013			2012
Fixed maturities	$	31,080	$	(76,194	)	$	15,709
Equity securities		4,302		8,857			(5,989	)
Gross unrealized gains (losses)		35,382		(67,337	)		9,720
Deferred income tax		12,197		(23,565	)		3,418
Change in net unrealized gains (losses), net	$	23,185	$	(43,772	)	$	6,302

Realized Gains and Losses, Excluding Net Other-Than-Temporary Impairment Losses Recognized in Earnings

Realized gains and losses, excluding net OTTI losses recognized in earnings, for the periods indicated, were as follows:

	Year Ended December 31,
In thousands	2014			2013			2012
Fixed maturities:
Gains	$	8,326		$	8,539		$	28,789
Losses		(2,610	)		(2,797	)		(1,915	)
Fixed maturities, net	$	5,716		$	5,742		$	26,874
Equity securities:
Gains	$	9,447		$	17,955		$	14,673
Losses		(2,351	)		(758	)		(473	)
Equity securities, net	$	7,096		$	17,197		$	14,200
Net realized gains (losses)	$	12,812		$	22,939		$	41,074

Fixed Maturities and Equity Securities by Asset Class that are Measured at Fair Value

The following tables present, for each of the fair value hierarchy levels as defined by the accounting guidance for fair value measurements and described below, our Company’s fixed maturities and equity securities by asset class that are measured at fair value on a recurring basis as of December 31, 2014 and 2013:

	December 31, 2014
In thousands	Level 1		Level 2		Level 3		Total
Fixed maturities:
U.S. Treasury bonds, agency bonds and foreign government bonds	$	146,904	$	251,019	$	—	$	397,923
States, municipalities and political subdivisions		—		541,007		—		541,007
Mortgage-backed and asset-backed securities:								—
Agency mortgage-backed securities		—		364,622		—		364,622
Residential mortgage obligations		—		34,087		—		34,087
Asset-backed securities		—		206,413		—		206,413
Commercial mortgage-backed securities		—		206,318		—		206,318
Subtotal	$	—	$	811,440	$	—	$	811,440
Corporate bonds		—		615,564		—		615,564
Total fixed maturities	$	146,904	$	2,219,030	$	—	$	2,365,934
Equity securities - common stocks		127,183				—		127,183
Equity securities - preferred stocks		—		57,112		—		57,112
Total	$	274,087	$	2,276,142	$	—	$	2,550,229

	December 31, 2013
In thousands	Level 1		Level 2		Level 3		Total
Fixed maturities:
U.S. Treasury bonds, agency bonds and foreign government bonds	$	242,379	$	199,306	$	—	$	441,685
States, municipalities and political subdivisions		—		460,422		—		460,422
Mortgage-backed and asset-backed securities:								—
Agency mortgage-backed securities		—		301,274		—		301,274
Residential mortgage obligations		—		41,755		—		41,755
Asset-backed securities		—		125,133		—		125,133
Commercial mortgage-backed securities		—		172,750		—		172,750
Subtotal	$	—	$	640,912	$	—	$	640,912
Corporate bonds		—		500,447		4,407		504,854
Total fixed maturities	$	242,379	$	1,801,087	$	4,407	$	2,047,873
Equity securities - common stocks		143,954		—		—		143,954
Total	$	386,333	$	1,801,087	$	4,407	$	2,191,827

Reconciliation of Beginning and Ending Balances for All Investments Measured at Fair Value Using Level 3 Inputs

The following tables present a reconciliation of the beginning and ending balances for all investments measured at fair value using Level 3 inputs for the years ended December 31, 2014 and 2013. For the year ended December 31, 2012, our Company did not have any Level 3 assets.

	Year Ended December 31, 2014
In thousands	Beginning Balance		Realized Gains (Losses)		Unrealized Gains (Losses)		Purchase		Sales		Settlements		Transfers into Level 3		Transfers out of Level 3			Ending
Assets:
Corporate Bond	$	4,407	$	—	$	—	$	—	$	—	$	—	$	—	$	(4,407	)	$	—
Total assets	$	4,407	$	—	$	—	$	—	$	—	$	—	$	—	$	(4,407	)	$	—

	Year Ended December 31, 2013
In thousands	Beginning Balance		Realized Gains (Losses)		Unrealized Gains (Losses)			Purchase		Sales			Settlements		Transfers into Level 3		Transfers out of Level 3		Ending
Assets:
Commercial
Mortgage	$	—	$	—	$	(42	)	$	4,660	$	(211	)	$	—	$	—	$	—	$	4,407
Total assets	$	—	$	—	$	(42	)	$	4,660	$	(211	)	$	—	$	—	$	—	$	4,407

XML

Net Prior Period Reserve Redundancies (Detail) (USD $) In Thousands, unless otherwise specified	12 Months Ended
	Dec. 31, 2014	Dec. 31, 2013	Dec. 31, 2012
Liability for Claims and Claims Adjustment Expense [Line Items]
Net reserve deficiencies (redundancies) in prior years	$ (55,812)	$ (1,266)	$ (45,291)
Lloyd's
Liability for Claims and Claims Adjustment Expense [Line Items]
Net reserve deficiencies (redundancies) in prior years	25,500	14,696	47,187
Lloyd's | 2010
Liability for Claims and Claims Adjustment Expense [Line Items]
Net reserve deficiencies (redundancies) in prior years			5,027
Lloyd's | 2009
Liability for Claims and Claims Adjustment Expense [Line Items]
Net reserve deficiencies (redundancies) in prior years			25,034
Lloyd's | 2008 and Prior
Liability for Claims and Claims Adjustment Expense [Line Items]
Net reserve deficiencies (redundancies) in prior years			17,126
Marine | Lloyd's
Liability for Claims and Claims Adjustment Expense [Line Items]
Net reserve deficiencies (redundancies) in prior years	21,336	2,998	30,735
Marine | Lloyd's | 2010
Liability for Claims and Claims Adjustment Expense [Line Items]
Net reserve deficiencies (redundancies) in prior years			3,492
Marine | Lloyd's | 2009
Liability for Claims and Claims Adjustment Expense [Line Items]
Net reserve deficiencies (redundancies) in prior years			14,792
Marine | Lloyd's | 2008 and Prior
Liability for Claims and Claims Adjustment Expense [Line Items]
Net reserve deficiencies (redundancies) in prior years			12,451
Property Casualty | Lloyd's
Liability for Claims and Claims Adjustment Expense [Line Items]
Net reserve deficiencies (redundancies) in prior years	1,500	14,574	6,890
Property Casualty | Lloyd's | 2010
Liability for Claims and Claims Adjustment Expense [Line Items]
Net reserve deficiencies (redundancies) in prior years			378
Property Casualty | Lloyd's | 2009
Liability for Claims and Claims Adjustment Expense [Line Items]
Net reserve deficiencies (redundancies) in prior years			4,170
Property Casualty | Lloyd's | 2008 and Prior
Liability for Claims and Claims Adjustment Expense [Line Items]
Net reserve deficiencies (redundancies) in prior years			2,342
Professional Liability | Lloyd's
Liability for Claims and Claims Adjustment Expense [Line Items]
Net reserve deficiencies (redundancies) in prior years	2,664	(2,876)	9,562
Professional Liability | Lloyd's | 2010
Liability for Claims and Claims Adjustment Expense [Line Items]
Net reserve deficiencies (redundancies) in prior years			1,157
Professional Liability | Lloyd's | 2009
Liability for Claims and Claims Adjustment Expense [Line Items]
Net reserve deficiencies (redundancies) in prior years			6,072
Professional Liability | Lloyd's | 2008 and Prior
Liability for Claims and Claims Adjustment Expense [Line Items]
Net reserve deficiencies (redundancies) in prior years			$ 2,333

XML

Dividends and Statutory Financial Information

12 Months Ended

Dec. 31, 2014

Dividends and Statutory Financial Information

Note 13. Dividends and Statutory Financial Information

The Parent Company has not paid or declared any cash dividends on common stock. There are no regulatory restrictions on the ability of the Parent Company to pay dividends. While there is no intention to pay cash dividends on the common stock, future declarations, if any, are at the discretion of our Board of Directors. The amounts of such dividends will be dependent, upon other factors such as, our results of operations and cash flow, financial condition and business needs, restrictive covenants under our credit facility and senior notes that require us to maintain certain consolidated tangible net worth, the capital and surplus requirements of our subsidiaries, and applicable insurance regulations that limit the amount of dividends that may be paid by our regulated insurance subsidiaries. Refer to Note 8, Credit Facilities, for additional information on the restrictions of our credit facilities that limit the amount of dividends that may be paid by our subsidiaries.

The amount and nature of net assets that are restricted from payment of dividends as of December 31, 2014 and 2013 are presented in the following table:

	As of December 31,
In thousands	2014		2013
Restricted Net Assets:
Insurance Companies:
Fixed maturities at fair value (amortized cost: 2014, $10,086; 2013, $9,730)	$	11,732	$	11,105
Short term investments, at cost which approximates fair value		290		290
Cash		1,212		1,210
Total Insurance Companies (1)	$	13,234	$	12,605
Lloyd’s Operations:
Fixed maturities at fair value (amortized cost: 2014, $445,504; 2013, $398,930)		447,679		398,808
Short term investments, at cost which approximates fair value		61,549		108,485
Cash		963		988
Total Lloyd’s Operations (2)	$	510,191	$	508,281
Total Restricted Net Assets	$	523,425	$	520,886

(1) - The restricted net assets for the Insurance Companies primarily consist of fixed maturities on deposit with various state insurance departments. The cash as of December 31, 2014 and 2013, as presented in the table above, was on deposit with a U.K. bank to comply with the regulatory requirements of the Prudential Regulation Authority for the underwriting activities of the U.K. Branch.

(2) - The restricted net assets for the Lloyd’s Operations consists of fixed maturities and cash held in trust for the benefit of syndicate policyholders and short term investments primarily consisting of overseas deposits in various countries with Lloyd’s to support underwriting activities in those countries.

In addition to our Company’s restricted net assets provided in the table above, there are regulatory limitations on the payment of dividends by our subsidiaries, discussed below, and our Company’s letter of credit facility with ING Bank N.V., London Branch, as administrative agent, is secured by all of the common stock of NIC.

Insurance Companies

NIC may pay dividends to the Parent Company out of its statutory earned surplus pursuant to statutory restrictions imposed under the New York insurance law. As of December 31, 2014, the maximum amount available for the payment of dividends by NIC in 2015 without prior regulatory approval is $89.4 million. NIC did not pay any dividends to the Parent Company in 2014 or 2013. In 2012, NIC paid $15.0 million in dividends to the Parent Company.

The Insurance Companies’ statutory net income as filed with the regulatory authorities for 2014, 2013 and 2012 was $75.7 million, $59.4 million and $28.6 million, respectively. The statutory capital and surplus as filed with the regulatory authorities was $893.9 million and $804.1 million as of December 31, 2014 and 2013, respectively.

The NAIC has codified Statutory Accounting Practices and Procedures (“SAP”) for insurance enterprises. We prepare our statutory basis financial statements in accordance with the most recently updated SAP manual subject to any deviations prescribed or permitted by the New York Insurance Commissioner. The significant differences between SAP and GAAP, as they relate to our operations, are as follows: (1) acquisition and commission costs are expensed when incurred, while under GAAP these costs are deferred and amortized as the related premium is earned; (2) bonds are stated at amortized cost, while under GAAP bonds are classified as available-for-sale and reported at fair value, with unrealized gains and losses recognized in other comprehensive income as a separate component of stockholders’ equity; (3) certain deferred tax assets are not permitted to be included in statutory surplus, while under GAAP deferred taxes are provided to reflect all temporary differences between the carrying values and tax basis of assets and liabilities; (4) unearned premiums and loss reserves are reflected net of ceded amounts, while under GAAP the unearned premiums and loss reserves are reflected gross of ceded amounts; (5) agents’ balances over ninety days due are excluded from the balance sheet, and uncollateralized amounts due from unauthorized reinsurers are deducted from surplus, while under GAAP they are restored to the balance sheet, subject to the usual tests regarding recoverability.

The NAIC has adopted Risked Based Capital (“RBC”) requirements to elevate the adequacy of statutory capital and surplus in relation to risks associated with: (1) asset risk; (2) insurance risk; (3) interest rate and equity market risk; and (4) business risk. The RBC formula is designated as an early warning tool for the states to identify possible undercapitalized companies for the purpose of initiating regulatory action. In the course of operations, we periodically monitor the RBC level of NIC. As of December 31, 2014 and 2013, NIC exceeded our company action RBC levels. The RBC ratio of NIC was 314.8% and 304.2% of our company action level as of December 31, 2014 and 2013, respectively.

As part of its general regulatory oversight process, the New York State Department of Finance conducts detailed examinations of the books, records and accounts of New York insurance companies every three to five years. In 2011, the New York State Department of Finance conducted an examination of NIC and NSIC for the years 2005 through 2009. Our Company has received notice that the New York Department intends to commence an examination of the years 2010 through 2014 on February 17, 2015.

The U.K. Branch is required to maintain certain capital requirements under U.K. regulations and is subject to examination by the U.K. Prudential Regulation Authority (PRA).

Lloyd’s Operations

Lloyd’s sets the corporate member’s required capital annually based on Syndicate 1221’s business plans, rating environment, reserving environment and input arising from Lloyd’s discussions with regulatory and rating agencies. The capital requirement of Syndicate 1221, known as Funds at Lloyd’s (the “FAL”), is currently calculated using the internal Lloyd’s risk-based capital model. The FAL may comprise cash, investments and undrawn letters of credit provided by various banks. As of December 31, 2014 and 2013, the FAL requirement set by Lloyd’s for Syndicate 1221 was $268.1 million (£171.1 million) and $279.3 million (£168.3 million), respectively, based on its business plans, approved in November 2014 and November 2013, respectively.

The valuation of the assets and letters of credit posted for FAL for Syndicate 1221 as of December 31, 2014 and 2013 was $290.1 million (£185.1 million) and $280.2 million (£168.8 million), respectively.

We prepare our Lloyd’s financial statements in accordance with U.K. GAAP basis. The significant differences between U.K. GAAP and U.S. GAAP, as they relate to our operations, are as follows: (1) investments are recorded at fair value with unrealized gains and losses being recorded in income while under U.S. GAAP the changes in unrealized gains and losses are recorded through AOCI as a separate component of stockholders’ equity; (2) realized foreign exchange on inter-currency conversions are recorded through the income statement, while under U.S. GAAP foreign exchange translation is recorded through AOCI as a separate component of stockholders’ equity; (3) Lloyd’s membership costs are not deferred for U.K. GAAP, while under U.S. GAAP a prepaid asset is established and amortized over each year of account.

The primary source of income for NCUL, a corporate member of Lloyd’s and controller of 100% of Syndicate 1221’s stamp capacity, is generated through Syndicate 1221. Syndicate 1221 is subject to oversight by the Council of Lloyd’s. Lloyd’s as a whole is authorized and regulated by the PRA. Syndicate 1221’s income as filed with Lloyd’s for 2014, 2013 and 2012 was $33.8 million, $21.0 million and $54.9 million, respectively. The Syndicate’s capital and surplus as filed with Lloyd’s was $140.1 million (£89.4 million) and $124.2 million (£74.8 million) as of December 31, 2014 and 2013, respectively. The difference between our Syndicate’s capital and surplus and the FAL primarily consists of letters of credit and cash held by our corporate member.

NCUL may pay dividends to the Parent Company up to the extent of available profits that have been distributed from Syndicate 1221. The Syndicate’s capital and surplus as filed with Lloyd’s consists of undistributed profits on closed and open years of account. In connection with the business plan approved in November 2014, NCUL posted all of the available undistributed profits on closed years of $139.9 million (£89.3 million) to support a portion of the FAL requirement and therefore that amount is not available for distribution to NCUL, which ultimately is not available to the Parent in the form of a dividend. As of December 31, 2014, NCUL has the ability to pay dividends of up to $9.9 million (£6.3 million), consisting of previously distributed profits from Syndicate 1221, to the Parent in the form of dividends.

Refer to Note 1, Organization and Summary of Significant Accounting Policies, for additional disclosure on the accounting treatment for Syndicate 1221 as it relates to closed and open years of account.

XML

Reserves for Losses and Loss Adjustment Expenses (Tables)

12 Months Ended

Dec. 31, 2014

Summary of Activity in Reserve for Losses and Loss Adjustment Expenses

The following table summarizes our Company’s reserves for losses and LAE activity for the years ended December 31, 2014, 2013 and 2012:

	Year Ended December 31,
In thousands	2014			2013			2012
Net reserves for losses and LAE at beginning of year	$	1,222,633		$	1,216,909		$	1,237,234
Provision for losses and LAE for claims occurring in the current year		601,041			520,227			542,724
Increase (decrease) in estimated losses and LAE for claims occurring in prior years		(55,812	)		(1,266	)		(45,291	)
Incurred losses and LAE		545,229			518,961			497,433
Losses and LAE paid for claims occurring during:
Current year		(164,199	)		(147,758	)		(110,373	)
Prior years		(295,527	)		(365,479	)		(407,385	)
Losses and LAE payments		(459,726	)		(513,237	)		(517,758	)
Net reserves for losses and LAE at end of year		1,308,136			1,222,633			1,216,909
Reinsurance recoverables on unpaid losses and LAE		851,498			822,438			880,139
Gross reserves for losses and LAE at end of year	$	2,159,634		$	2,045,071		$	2,097,048

Segment Break Down of Prior Years' Net Reserve Deficiency (Redundancy)

The segment and line of business breakdowns of prior period net reserve strengthening (releases) for the years ended December 31, 2014, 2013 and 2012 are as follows:

	Year Ended December 31,
In thousands	2014			2013			2012
Insurance Companies:
Marine	$	(41,388	)	$	(15,227	)	$	(10,010	)
Property Casualty		14,612			18,466			4,293
Professional Liability		(3,536	)		10,191			7,613
Insurance Companies	$	(30,312	)	$	13,430		$	1,896
Lloyd’s Operations:
Marine	$	(21,336	)	$	(2,998	)	$	(30,735	)
Property Casualty		(1,500	)		(14,574	)		(6,890	)
Professional Liability		(2,664	)		2,876			(9,562	)
Lloyd’s Operations	$	(25,500	)	$	(14,696	)	$	(47,187	)
Total strengthening (releases)	$	(55,812	)	$	(1,266	)	$	(45,291	)

Lloyd's

Segment Break Down of Prior Years' Net Reserve Deficiency (Redundancy)

A summary of the resulting prior period redundancies for each business within our Lloyd’s Operations by prior UWY is set forth below:

In thousands	Marine		Property Casualty		Professional Liability		Total
2010	$	3,492	$	378	$	1,157	$	5,027
2009		14,792		4,170		6,072		25,034
2008 and Prior		12,451		2,342		2,333		17,126
Total Redundancy	$	30,735	$	6,890	$	9,562	$	47,187

XML

Supplementary Insurance Information (Detail) (USD $) In Thousands, unless otherwise specified	12 Months Ended
	Dec. 31, 2014		Dec. 31, 2013		Dec. 31, 2012
Supplementary Insurance Information, by Segment [Line Items]
Deferred policy acquisition costs	$ 79,452		$ 67,007		$ 61,005
Reserve for losses and loss adjustment expenses	2,159,634		2,045,071		2,097,048
Unearned Premiums	766,167		714,606		642,407
Other policy claims and benefits payable	0		0		0
Net earned premiums	935,895		841,939		781,964
Net investment income	64,092	[1]	56,243	[1]	54,100	[1]
Losses and loss adjustment expenses incurred	545,229		518,961		497,433
Amortization of deferred policy acquisition costs	127,695	[2]	115,842	[2]	123,819	[2]
Other operating expenses	196,825	[1]	164,434	[1]	159,079	[1]
Net written premiums	1,000,138		887,922		833,655
Insurance Companies
Supplementary Insurance Information, by Segment [Line Items]
Deferred policy acquisition costs	63,200		54,984		48,294
Reserve for losses and loss adjustment expenses	1,645,984		1,523,175		1,567,045
Unearned Premiums	579,331		536,303		470,425
Other policy claims and benefits payable	0		0		0
Net earned premiums	704,574		639,338		571,439
Net investment income	56,714	[1]	49,083	[1]	46,549	[1]
Losses and loss adjustment expenses incurred	434,396		415,413		417,082
Amortization of deferred policy acquisition costs	85,137	[2]	81,132	[2]	81,370	[2]
Other operating expenses	138,675	[1]	119,920	[1]	113,625	[1]
Net written premiums	752,773		680,008		622,956
Lloyd's
Supplementary Insurance Information, by Segment [Line Items]
Deferred policy acquisition costs	16,252		12,023		12,711
Reserve for losses and loss adjustment expenses	513,650		521,896		530,003
Unearned Premiums	186,836		178,303		171,982
Other policy claims and benefits payable	0		0		0
Net earned premiums	231,321		202,601		210,525
Net investment income	7,378	[1]	7,160	[1]	7,551	[1]
Losses and loss adjustment expenses incurred	110,833		103,548		80,351
Amortization of deferred policy acquisition costs	42,558	[2]	34,710	[2]	42,449	[2]
Other operating expenses	58,150	[1]	44,514	[1]	45,454	[1]
Net written premiums	$ 247,365		$ 207,914		$ 210,699

[1] Net investment income and Other operating expenses reflect only such amounts attributable to the Company's insurance operations.

[2] Amortization of deferred policy acquisition costs reflects only such amounts attributable to the Company's insurance operations. A portion of these costs is eliminated in consolidation.

XML

Retirement Plans

12 Months Ended

Dec. 31, 2014

Retirement Plans

Note 15. Retirement Plans

We have a 401(k) Plan for all U.S. eligible employees. Each eligible employee can contribute a portion of their salary, limited by certain Federal regulations. Beginning in 2008, we matched 100% of employee contributions on eligible compensation, up to a maximum of 4% each pay period; our contribution vests immediately. Eligible compensation consisted of gross base salary and annual bonus. In addition, we have the discretion of contributing up to 4% of eligible compensation to each eligible employee’s 401(k) plan irrespective of the employees’ contribution amount, which also vests immediately. Our Company will make a discretionary matching contribution of 3% or $1.6 million for the year ended December 31, 2014. Our Company made a discretionary matching contribution of 2% or $0.8 million for the year ended December 31, 2013. There was no discretionary matching contributions for the year ended 2012.

We sponsored a standalone retirement savings defined contribution plan covering substantially all of our Company’s U.S. employees through December 31, 2011. The standalone retirement savings defined contribution plan was merged into the 401(k) Plan effective January 1, 2012. Company contributions were equal to 7.5% of each eligible employee’s eligible compensation up to the amount permitted by certain Federal regulations. For 2014, 2013 and 2012 eligible compensation consisted solely of gross base salary. Our Company’s contributions vest at 20% per year for six years with vesting beginning in an employee’s second year of service. For any employee hired prior to January 1, 2008, vesting is calculated based on hours of service and vesting commences on January 1 following an employee’s first full year of service. For employees hired after January 1, 2008, vesting is calculated based on elapsed time and vesting commences on the employees anniversary date.

The expense recorded for all contributions to the 401(k) Plan for the year ended December 31, 2014 was $7.5 million, consisting of $3.8 million for the retirement savings contributions, $2.1 million for the non-discretionary matching contributions, and $1.6 million for the discretionary matching contribution. The expense recorded for all contributions to the 401(k) Plan for the year ended December 31, 2013 was $5.1 million, consisting of $2.7 million for the retirement savings contributions, $1.6 million for the non-discretionary matching contributions, and $0.8 million for the discretionary matching contribution. The expense recorded for all contributions to the 401(k) Plan for the year ended December 31, 2012 was $4.6 million, consisting of $2.5 million for the retirement savings contributions and $2.1 million for the non-discretionary matching contributions.

Our Company sponsors a defined contribution plan for our Company’s U.K. employees under U.K. regulations. Contributions, which are fully vested when made, are equal to 15% of each eligible employee’s gross base salary for all U.K. employees hired prior to November 2014 and 12% for all employees hired after November 2014. All U.K. employees are eligible on their date of hire. The expense recorded for the U.K. defined contribution plan was $2.6 million, $2.2 million and $1.9 million for the years ended December 31, 2014, 2013 and 2012, respectively. Such expenses are included in Other operating expenses.

XML

Lists of 20 Largest Reinsurers Measured by Reinsurance Recoverable (Detail) (USD $) In Thousands, unless otherwise specified	12 Months Ended
	Dec. 31, 2014		Dec. 31, 2013
Ceded Credit Risk [Line Items]
Reinsurance Recoverables Unearned Premium	$ 237,851		$ 247,822
Reinsurance Recoverables Paid/Unpaid Losses	902,845
Reinsurance Recoverables Total	1,140,696	[1],[2],[3]
Collateral Held	201,976
Rating	AA
National Indemnity Company | AM Best, A++ Rating | Standard & Poor's, AA+ Rating
Ceded Credit Risk [Line Items]
Reinsurance Recoverables Unearned Premium	25,202
Reinsurance Recoverables Paid/Unpaid Losses	117,562
Reinsurance Recoverables Total	142,764	[1]
Collateral Held	22,069
Everest Reinsurance Company | AM Best, A+ Rating | Standard & Poor's, A+ Rating
Ceded Credit Risk [Line Items]
Reinsurance Recoverables Unearned Premium	21,573
Reinsurance Recoverables Paid/Unpaid Losses	75,063
Reinsurance Recoverables Total	96,636	[1]
Collateral Held	7,326
Swiss Reinsurance America Corporation | AM Best, A+ Rating | Standard & Poor's, AA- Rating
Ceded Credit Risk [Line Items]
Reinsurance Recoverables Unearned Premium	22,815
Reinsurance Recoverables Paid/Unpaid Losses	73,305
Reinsurance Recoverables Total	96,120	[1]
Collateral Held	14,587
Transatlantic Reinsurance Company | AM Best, A Rating | Standard & Poor's, A+ Rating
Ceded Credit Risk [Line Items]
Reinsurance Recoverables Unearned Premium	11,916
Reinsurance Recoverables Paid/Unpaid Losses	74,072
Reinsurance Recoverables Total	85,988	[1]
Collateral Held	4,038
Munich Reinsurance America Inc. | AM Best, A+ Rating | Standard & Poor's, AA- Rating
Ceded Credit Risk [Line Items]
Reinsurance Recoverables Unearned Premium	11,366
Reinsurance Recoverables Paid/Unpaid Losses	58,768
Reinsurance Recoverables Total	70,134	[1]
Collateral Held	5,539
Allied World Reinsurance | AM Best, A Rating | Standard & Poor's, A Rating
Ceded Credit Risk [Line Items]
Reinsurance Recoverables Unearned Premium	9,048
Reinsurance Recoverables Paid/Unpaid Losses	37,088
Reinsurance Recoverables Total	46,136	[1]
Collateral Held	1,666
Lloyd Syndicate #2003 | AM Best, A Rating | Standard & Poor's, A+ Rating
Ceded Credit Risk [Line Items]
Reinsurance Recoverables Unearned Premium	4,399
Reinsurance Recoverables Paid/Unpaid Losses	35,123
Reinsurance Recoverables Total	39,522	[1]
Collateral Held	5,191
Partner Reinsurance Europe | AM Best, A+ Rating | Standard & Poor's, A+ Rating
Ceded Credit Risk [Line Items]
Reinsurance Recoverables Unearned Premium	10,986
Reinsurance Recoverables Paid/Unpaid Losses	25,409
Reinsurance Recoverables Total	36,395	[1]
Collateral Held	16,052
Employers Mutual Casualty Company | AM Best, A Rating | Standard & Poor's, Not Rated
Ceded Credit Risk [Line Items]
Reinsurance Recoverables Unearned Premium	11,928
Reinsurance Recoverables Paid/Unpaid Losses	21,851
Reinsurance Recoverables Total	33,779	[1]
Collateral Held	10,935
Scor Global P&C SE | AM Best, A Rating | Standard & Poor's, A+ Rating
Ceded Credit Risk [Line Items]
Reinsurance Recoverables Unearned Premium	10,190
Reinsurance Recoverables Paid/Unpaid Losses	17,572
Reinsurance Recoverables Total	27,762	[1]
Collateral Held	5,558
Ace Property and Casualty Insurance Company | AM Best, A++ Rating | Standard & Poor's, AA Rating
Ceded Credit Risk [Line Items]
Reinsurance Recoverables Unearned Premium	11,165
Reinsurance Recoverables Paid/Unpaid Losses	12,741
Reinsurance Recoverables Total	23,906	[1]
Collateral Held	2,907
Tower Insurance Company | AM Best, A- Rating | Standard & Poor's, Not Rated
Ceded Credit Risk [Line Items]
Reinsurance Recoverables Paid/Unpaid Losses	21,509
Reinsurance Recoverables Total	21,509	[1]
Collateral Held	2,455
Aspen Insurance UK Ltd. | AM Best, A Rating | Standard & Poor's, A Rating
Ceded Credit Risk [Line Items]
Reinsurance Recoverables Unearned Premium	8,928
Reinsurance Recoverables Paid/Unpaid Losses	11,227
Reinsurance Recoverables Total	20,155	[1]
Collateral Held	4,869
Ironshore Indemnity Inc. | AM Best, A Rating | Standard & Poor's, Not Rated
Ceded Credit Risk [Line Items]
Reinsurance Recoverables Unearned Premium	6,234
Reinsurance Recoverables Paid/Unpaid Losses	13,395
Reinsurance Recoverables Total	19,629	[1]
Collateral Held	8,645
Validus Reinsurance Ltd | AM Best, A Rating | Standard & Poor's, A Rating
Ceded Credit Risk [Line Items]
Reinsurance Recoverables Unearned Premium	2,020
Reinsurance Recoverables Paid/Unpaid Losses	16,873
Reinsurance Recoverables Total	18,893	[1]
Collateral Held	10,975
Atlantic Specialty Insurance | AM Best, A Rating | Standard & Poor's, A- Rating
Ceded Credit Risk [Line Items]
Reinsurance Recoverables Unearned Premium	2,542
Reinsurance Recoverables Paid/Unpaid Losses	15,812
Reinsurance Recoverables Total	18,354	[1]
QBE Reinsurance Corp | AM Best, A Rating | Standard & Poor's, A+ Rating
Ceded Credit Risk [Line Items]
Reinsurance Recoverables Unearned Premium	2,636
Reinsurance Recoverables Paid/Unpaid Losses	15,539
Reinsurance Recoverables Total	18,175	[1]
National Union Fire Ins. | AM Best, A Rating | Standard & Poor's, A+ Rating
Ceded Credit Risk [Line Items]
Reinsurance Recoverables Unearned Premium	8,067
Reinsurance Recoverables Paid/Unpaid Losses	8,459
Reinsurance Recoverables Total	16,526	[1]
Collateral Held	6,158
Endurance Reinsurance Corporation | AM Best, A Rating | Standard & Poor's, A Rating
Ceded Credit Risk [Line Items]
Reinsurance Recoverables Unearned Premium	5,695
Reinsurance Recoverables Paid/Unpaid Losses	9,936
Reinsurance Recoverables Total	15,631	[1]
Collateral Held	1,337
Odyssey American Reinsurance Corporation | AM Best, A Rating | Standard & Poor's, A- Rating
Ceded Credit Risk [Line Items]
Reinsurance Recoverables Unearned Premium	3,506
Reinsurance Recoverables Paid/Unpaid Losses	11,650
Reinsurance Recoverables Total	15,156	[1]
Collateral Held	1,604
Insurance Companies
Ceded Credit Risk [Line Items]
Reinsurance Recoverables Unearned Premium	190,216
Reinsurance Recoverables Paid/Unpaid Losses	672,954
Reinsurance Recoverables Total	863,170	[1]
Collateral Held	131,911
All Other
Ceded Credit Risk [Line Items]
Reinsurance Recoverables Unearned Premium	47,635
Reinsurance Recoverables Paid/Unpaid Losses	229,891
Reinsurance Recoverables Total	277,526	[1]
Collateral Held	$ 70,065
AM Best | National Indemnity Company | AM Best, A++ Rating | Standard & Poor's, AA+ Rating
Ceded Credit Risk [Line Items]
Rating	A++
AM Best | Everest Reinsurance Company | AM Best, A+ Rating | Standard & Poor's, A+ Rating
Ceded Credit Risk [Line Items]
Rating	A+
AM Best | Swiss Reinsurance America Corporation | AM Best, A+ Rating | Standard & Poor's, AA- Rating
Ceded Credit Risk [Line Items]
Rating	A+
AM Best | Transatlantic Reinsurance Company | AM Best, A Rating | Standard & Poor's, A+ Rating
Ceded Credit Risk [Line Items]
Rating	A
AM Best | Munich Reinsurance America Inc. | AM Best, A+ Rating | Standard & Poor's, AA- Rating
Ceded Credit Risk [Line Items]
Rating	A+
AM Best | Allied World Reinsurance | AM Best, A Rating | Standard & Poor's, A Rating
Ceded Credit Risk [Line Items]
Rating	A
AM Best | Lloyd Syndicate #2003 | AM Best, A Rating | Standard & Poor's, A+ Rating
Ceded Credit Risk [Line Items]
Rating	A
AM Best | Partner Reinsurance Europe | AM Best, A+ Rating | Standard & Poor's, A+ Rating
Ceded Credit Risk [Line Items]
Rating	A+
AM Best | Employers Mutual Casualty Company | AM Best, A Rating | Standard & Poor's, Not Rated
Ceded Credit Risk [Line Items]
Rating	A
AM Best | Scor Global P&C SE | AM Best, A Rating | Standard & Poor's, A+ Rating
Ceded Credit Risk [Line Items]
Rating	A
AM Best | Ace Property and Casualty Insurance Company | AM Best, A++ Rating | Standard & Poor's, AA Rating
Ceded Credit Risk [Line Items]
Rating	A++
AM Best | Tower Insurance Company | AM Best, A- Rating | Standard & Poor's, Not Rated
Ceded Credit Risk [Line Items]
Rating	A-
AM Best | Aspen Insurance UK Ltd. | AM Best, A Rating | Standard & Poor's, A Rating
Ceded Credit Risk [Line Items]
Rating	A
AM Best | Ironshore Indemnity Inc. | AM Best, A Rating | Standard & Poor's, Not Rated
Ceded Credit Risk [Line Items]
Rating	A
AM Best | Validus Reinsurance Ltd | AM Best, A Rating | Standard & Poor's, A Rating
Ceded Credit Risk [Line Items]
Rating	A
AM Best | Atlantic Specialty Insurance | AM Best, A Rating | Standard & Poor's, A- Rating
Ceded Credit Risk [Line Items]
Rating	A
AM Best | QBE Reinsurance Corp | AM Best, A Rating | Standard & Poor's, A+ Rating
Ceded Credit Risk [Line Items]
Rating	A
AM Best | National Union Fire Ins. | AM Best, A Rating | Standard & Poor's, A+ Rating
Ceded Credit Risk [Line Items]
Rating	A
AM Best | Endurance Reinsurance Corporation | AM Best, A Rating | Standard & Poor's, A Rating
Ceded Credit Risk [Line Items]
Rating	A
AM Best | Odyssey American Reinsurance Corporation | AM Best, A Rating | Standard & Poor's, A- Rating
Ceded Credit Risk [Line Items]
Rating	A
Standard & Poor's | National Indemnity Company | AM Best, A++ Rating | Standard & Poor's, AA+ Rating
Ceded Credit Risk [Line Items]
Rating	AA+
Standard & Poor's | Everest Reinsurance Company | AM Best, A+ Rating | Standard & Poor's, A+ Rating
Ceded Credit Risk [Line Items]
Rating	A+
Standard & Poor's | Swiss Reinsurance America Corporation | AM Best, A+ Rating | Standard & Poor's, AA- Rating
Ceded Credit Risk [Line Items]
Rating	AA-
Standard & Poor's | Transatlantic Reinsurance Company | AM Best, A Rating | Standard & Poor's, A+ Rating
Ceded Credit Risk [Line Items]
Rating	A+
Standard & Poor's | Munich Reinsurance America Inc. | AM Best, A+ Rating | Standard & Poor's, AA- Rating
Ceded Credit Risk [Line Items]
Rating	AA-
Standard & Poor's | Allied World Reinsurance | AM Best, A Rating | Standard & Poor's, A Rating
Ceded Credit Risk [Line Items]
Rating	A
Standard & Poor's | Lloyd Syndicate #2003 | AM Best, A Rating | Standard & Poor's, A+ Rating
Ceded Credit Risk [Line Items]
Rating	A+
Standard & Poor's | Partner Reinsurance Europe | AM Best, A+ Rating | Standard & Poor's, A+ Rating
Ceded Credit Risk [Line Items]
Rating	A+
Standard & Poor's | Employers Mutual Casualty Company | AM Best, A Rating | Standard & Poor's, Not Rated
Ceded Credit Risk [Line Items]
Rating	NR
Standard & Poor's | Scor Global P&C SE | AM Best, A Rating | Standard & Poor's, A+ Rating
Ceded Credit Risk [Line Items]
Rating	A+
Standard & Poor's | Ace Property and Casualty Insurance Company | AM Best, A++ Rating | Standard & Poor's, AA Rating
Ceded Credit Risk [Line Items]
Rating	AA
Standard & Poor's | Tower Insurance Company | AM Best, A- Rating | Standard & Poor's, Not Rated
Ceded Credit Risk [Line Items]
Rating	NR
Standard & Poor's | Aspen Insurance UK Ltd. | AM Best, A Rating | Standard & Poor's, A Rating
Ceded Credit Risk [Line Items]
Rating	A
Standard & Poor's | Ironshore Indemnity Inc. | AM Best, A Rating | Standard & Poor's, Not Rated
Ceded Credit Risk [Line Items]
Rating	NR
Standard & Poor's | Validus Reinsurance Ltd | AM Best, A Rating | Standard & Poor's, A Rating
Ceded Credit Risk [Line Items]
Rating	A
Standard & Poor's | Atlantic Specialty Insurance | AM Best, A Rating | Standard & Poor's, A- Rating
Ceded Credit Risk [Line Items]
Rating	A-
Standard & Poor's | QBE Reinsurance Corp | AM Best, A Rating | Standard & Poor's, A+ Rating
Ceded Credit Risk [Line Items]
Rating	A+
Standard & Poor's | National Union Fire Ins. | AM Best, A Rating | Standard & Poor's, A+ Rating
Ceded Credit Risk [Line Items]
Rating	A+
Standard & Poor's | Endurance Reinsurance Corporation | AM Best, A Rating | Standard & Poor's, A Rating
Ceded Credit Risk [Line Items]
Rating	A
Standard & Poor's | Odyssey American Reinsurance Corporation | AM Best, A Rating | Standard & Poor's, A- Rating
Ceded Credit Risk [Line Items]
Rating	A-

[1] Net of reserve for uncollectible reinsurance of approximately $11.3 million.

[2] When an A.M. Best rating is unavailable, the equivalent S&P rating is used.

[3] The carrying value is comprised of prepaid reinsurance premium as well as reinsurance recoverables on paid and unpaid losses which are net of the reserve for uncollectible reinsurance.

XML

Consolidated Statements of Stockholders' Equity (USD $) In Thousands, except Share data, unless otherwise specified	Total	Common Stock	Additional Paid-in Capital	Treasury Stock	Retained Earnings	Accumulated Other Comprehensive Income (Loss)
Beginning balance at Dec. 31, 2011	$ 803,435	$ 1,746	$ 322,133	$ (155,801)	$ 565,109	$ 70,248
Beginning balance (in shares) at Dec. 31, 2011		17,467,615		3,511,380
Net income	63,762				63,762
Changes in comprehensive income:
Change in net unrealized gain (loss) on investments	5,196					5,196
Change in net non-credit other- than-temporary impairment losses	1,106					1,106
Change in foreign currency translation gain (loss)	(1,342)					(1,342)
Total comprehensive income	4,960					4,960
Shares issued under stock plan (in shares)		90,431
Shares issued under stock plan	(52)	9	(61)
Share-based compensation	7,380		7,380
Ending balance at Dec. 31, 2012	879,485	1,755	329,452	(155,801)	628,871	75,208
Ending balance (in shares) at Dec. 31, 2012		17,558,046		3,511,380
Net income	63,466				63,466
Changes in comprehensive income:
Change in net unrealized gain (loss) on investments	(44,094)					(44,094)
Change in net non-credit other- than-temporary impairment losses	320					320
Change in foreign currency translation gain (loss)	(3,074)					(3,074)
Total comprehensive income	(46,848)					(46,848)
Shares issued under stock plan (in shares)		151,830
Shares issued under stock plan	2,740	15	2,725
Share-based compensation	3,369		3,369
Ending balance at Dec. 31, 2013	902,212	1,770	335,546	(155,801)	692,337	28,360
Ending balance (in shares) at Dec. 31, 2013		17,709,876		3,511,380
Net income	95,329				95,329
Changes in comprehensive income:
Change in net unrealized gain (loss) on investments	23,096					23,096
Change in net non-credit other- than-temporary impairment losses	89					89
Change in foreign currency translation gain (loss)	(4,986)					(4,986)
Total comprehensive income	18,199					18,199
Shares issued under stock plan (in shares)		82,970
Shares issued under stock plan	(23)	8	(31)
Share-based compensation	11,507		11,507
Ending balance at Dec. 31, 2014	$ 1,027,224	$ 1,778	$ 347,022	$ (155,801)	$ 787,666	$ 46,559
Ending balance (in shares) at Dec. 31, 2014		17,792,846		3,511,380

XML

Consolidated Balance Sheets (Parenthetical) (USD $) In Thousands, except Share data, unless otherwise specified	Dec. 31, 2014	Dec. 31, 2013
Fixed maturities, available-for-sale, amortized cost	$ 2,323,959	$ 2,036,999
Equity securities, available-for-sale, cost	154,843	118,804
Short-term investments, amortized cost	$ 179,527	$ 296,250
Preferred stock, par value	$ 0.10	$ 0.10
Preferred stock, authorized shares	1,000,000	1,000,000
Preferred stock, issued shares	0	0
Common stock, par value	$ 0.1	$ 0.1
Common stock, authorized shares	50,000,000	50,000,000
Common stock, issued shares	17,792,846	17,709,876
Treasury stock, shares	3,511,380	3,511,380

XML

Credit Facilities

12 Months Ended

Dec. 31, 2014

Credit Facilities

Note 8. Credit Facilities

On November 6, 2014 NUAL entered into a credit facility for $8.0 million Australian Dollars with Barclays Bank PLC to fund its participation in Syndicate 1221. The facility is used to fund Australian underwriting obligations for the 2014 and prior underwriting years. The facility contains customary covenants for facilities of this type, including a restriction on future encumbrances that are outside the ordinary course of business, and a requirement to maintain at least £75 million of Funds at Lloyd’s. Interest is payable on the facility at a rate of 2% per annum above a floating rate tied to the average mid-rate for Australian bills of exchange administered by the Australian Financial Markets Association. The facility may be cancelled by either party after providing written notice. As of December 31, 2014, our Company was in compliance with all covenants.

On November 24, 2014, our Company entered into a $175 million credit facility agreement with ING Bank N.V., London Branch, individually and as Administrative Agent, and a syndicate of lenders. The new credit facility amended and restated a $165 million letter of credit facility entered into by the parties on November 22, 2012. The credit facility, which is denominated in U.S. dollars, is utilized to fund participation in Syndicate 1221 through letters of credit for the 2015 and 2016 underwriting years, as well as open prior years. The letters of credit issued under the facility can be denominated in British pounds and their aggregate face amount will fluctuate based on exchange rates. If any letters of credit remain outstanding under the facility after December 31, 2016, our Company would be required to post additional collateral to secure the remaining letters of credit. As of December 31, 2014, letters of credit with an aggregate face amount of $149.4 million were outstanding under the credit facility and our Company had $1.0 million of cash collateral posted.

This credit facility contains customary covenants for facilities of this type, including restrictions on indebtedness and liens, limitations on mergers, dividends and the sale of assets, and requirements as to maintaining certain consolidated tangible net worth, statutory surplus and other financial ratios. The credit facility also provides for customary events of default, including failure to pay principal, interest or fees when due, failure to comply with covenants, any representation or warranty made by our Company being false in any material respect, default under certain other indebtedness, certain insolvency or receivership events affecting our Company and its subsidiaries, the occurrence of certain material judgments, or a change in control of our Company. The letter of credit facility is secured by a pledge of the stock of certain insurance subsidiaries of our Company. To the extent, the aggregate face amount issued under the credit facility exceeds the commitment amount; our Company is required to post collateral with the lead bank of the consortium. Our Company was in compliance with all covenants under the credit facility as of December 31, 2014 and our Company had $1.0 million of cash collateral posted.

The applicable fee rate payable under the credit facility are based on a tiered schedule that is based on our Company’s then-current financial strength ratings issued by S&P and A.M. Best and the amount of our Company’s own collateral utilized to fund its participation in Syndicate 1221.

XML

Condensed Financial Information - Balance Sheets (Detail) (USD $) In Thousands, unless otherwise specified	Dec. 31, 2014	Dec. 31, 2013	Dec. 31, 2012	Dec. 31, 2011
ASSETS
Cash and investments	$ 2,820,486	$ 2,574,586
Goodwill and other intangible assets	7,013	7,177
Other assets	44,384	35,039
Total assets	4,464,176	4,169,452	4,007,670
LIABILITIES AND STOCKHOLDERS' EQUITY
Senior Notes	263,440	263,308
Accounts payable and other liabilities	93,336	69,379
Total liabilities	3,436,952	3,267,240
Preferred stock, $.10 par value, authorized 1,000,000 shares, none issued
Common stock, $.10 par value, authorized 50,000,000 shares, issued 17,792,846 shares for 2014 and 17,709,876 shares for 2013	1,778	1,770
Additional paid-in capital	347,022	335,546
Treasury stock, at cost (3,511,380 shares for 2014 and 2013)	(155,801)	(155,801)
Retained earnings	787,666	692,337
Accumulated other comprehensive income:
Total stockholders' equity	1,027,224	902,212	879,485	803,435
Total liabilities and stockholders' equity	4,464,176	4,169,452
Parent Company
ASSETS
Cash and investments	101,032	100,676
Investments in subsidiaries	1,163,822	1,040,214
Goodwill and other intangible assets	2,534	2,534
Other assets	27,531	26,538
Total assets	1,294,919	1,169,962
LIABILITIES AND STOCKHOLDERS' EQUITY
Senior Notes	263,440	263,308
Accounts payable and other liabilities	1,081	802
Accrued interest payable	3,174	3,640
Total liabilities	267,695	267,750
Preferred stock, $.10 par value, authorized 1,000,000 shares, none issued
Common stock, $.10 par value, authorized 50,000,000 shares, issued 17,792,846 shares for 2014 and 17,709,876 shares for 2013	1,778	1,770
Additional paid-in capital	347,022	335,546
Treasury stock, at cost (3,511,380 shares for 2014 and 2013)	(155,801)	(155,801)
Retained earnings	787,666	692,337
Accumulated other comprehensive income:
Net unrealized gains (losses) on securities available-for-sale, net of tax	46,573	23,387
Foreign currency translation adjustment, net of tax	(14)	4,973
Total stockholders' equity	1,027,224	902,212
Total liabilities and stockholders' equity	$ 1,294,919	$ 1,169,962

XML

Summary of Quarterly Financial Data (Detail) (USD $) In Thousands, except Per Share data, unless otherwise specified	3 Months Ended								12 Months Ended
	Dec. 31, 2014	Sep. 30, 2014	Jun. 30, 2014	Mar. 31, 2014	Dec. 31, 2013	Sep. 30, 2013	Jun. 30, 2013	Mar. 31, 2013	Dec. 31, 2014	Dec. 31, 2013	Dec. 31, 2012
Gross written premiums	$ 333,299	$ 327,469	$ 348,795	$ 422,790	$ 333,091	$ 312,076	$ 332,128	$ 393,222	$ 1,432,353	$ 1,370,517	$ 1,286,465
Revenues:
Net written premiums	228,007	228,417	231,864	311,850	223,445	196,556	198,469	269,452	1,000,138	887,922	833,655
Change in unearned premiums	6,165	16,950	(780)	(86,578)	(3,543)	17,339	7,345	(67,124)	(64,243)	(45,983)	(51,691)
Net earned premiums	234,172	245,367	231,084	225,272	219,902	213,895	205,814	202,328	935,895	841,939	781,964
Net investment income	16,071	15,839	15,648	16,610	14,254	14,094	14,246	13,657	64,168	56,251	54,248
Total other-than-temporary impairment losses	(21)	158			(530)	(1,821)		(42)	137	(2,393)	(902)
Portion of loss recognized in other comprehensive income (before tax)	21	(158)							(137)		44
Net other-than-temporary impairment losses recognized in earnings					(530)	(1,821)		(42)		(2,393)	(858)
Net realized gains (losses)	788	6,718	4,473	833	15,768	(988)	3,345	4,814	12,812	22,939	41,074
Other income (expense)	586	1,336	(1,665)	10,399	(665)	(210)	(915)	618	10,656	(1,172)	1,488
Total revenues	251,617	269,260	249,540	253,114	248,729	224,970	222,490	221,375	1,023,531	917,564	877,916
Expenses:
Net losses and loss adjustment expenses	134,658	135,284	140,220	135,067	131,385	125,086	131,148	131,342	545,229	518,961	497,433
Commission expenses	33,708	33,943	32,150	25,727	30,863	27,685	28,391	26,555	125,528	113,494	121,470
Other operating expenses	51,299	50,388	47,992	47,146	43,826	39,056	40,678	40,874	196,825	164,434	159,079
Call premium on Senior Notes					17,895					17,895
Interest expense	3,854	3,388	4,319	3,852	4,351	2,053	2,052	2,051	15,413	10,507	8,198
Total expenses	223,519	223,003	224,681	211,792	228,320	193,880	202,269	200,822	882,995	825,291	786,180
Income before income taxes	28,098	46,257	24,859	41,322	20,409	31,090	20,221	20,553	140,536	92,273	91,736
Income tax expense	8,823	15,032	7,998	13,354	6,076	9,804	6,284	6,643	45,207	28,807	27,974
Net income	19,275	31,225	16,861	27,968	14,333	21,286	13,937	13,910	95,329	63,466	63,762
Comprehensive income (loss)	$ 27,015	$ 20,628	$ 32,965	$ 32,920	$ 1,200	$ 25,462	$ (24,829)	$ 14,785	$ 113,528	$ 16,618	$ 68,722
Combined ratio	93.80%	89.50%	95.30%	92.20%	94.00%	89.80%	97.70%	97.90%	92.60%	94.80%	99.30%
Net income (loss) per share:
Basic	$ 1.35	$ 2.19	$ 1.18	$ 1.96	$ 1.01	$ 1.50	$ 0.99	$ 0.99	$ 6.69	$ 4.49	$ 4.54
Diluted	$ 1.31	$ 2.14	$ 1.17	$ 1.94	$ 1.00	$ 1.48	$ 0.97	$ 0.97	$ 6.51	$ 4.42	$ 4.45

XML

Document and Entity Information (USD $)	12 Months Ended
	Dec. 31, 2014	Jan. 31, 2015	Jun. 30, 2014
Document Information [Line Items]
Document Type	10-K
Amendment Flag	false
Document Period End Date	Dec. 31, 2014
Document Fiscal Year Focus	2014
Document Fiscal Period Focus	FY
Trading Symbol	NAVG
Entity Registrant Name	NAVIGATORS GROUP INC
Entity Central Index Key	0000793547
Current Fiscal Year End Date	--12-31
Entity Well-known Seasoned Issuer	No
Entity Current Reporting Status	Yes
Entity Voluntary Filers	No
Entity Filer Category	Accelerated Filer
Entity Common Stock, Shares Outstanding		14,289,970
Entity Public Float			$ 723,657,575

XML

Senior Notes

12 Months Ended

Dec. 31, 2014

Senior Notes

Note 9. Senior Notes

On October 4, 2013, our Company completed a public debt offering of $265 million principal amount of 5.75% Senior Notes (“5.75% Senior Notes”) and received net proceeds of $263 million. The Principal amount of the 5.75% Senior Notes is payable in one single installment on October 15, 2023. Our Company used a portion of the proceeds of the 5.75% Senior Notes for the redemption of the 7.0% Senior Notes due May 1, 2016 (“7.0% Senior Notes”). Our Company incurred a charge of $17.9 million for the payment of call premium in connection with the redemption of the 7.0% Senior Notes. The 5.75% Senior Notes Liability as of December 31, 2014 and 2013 was $263.4 million and $263.3 million, respectively. The unamortized discount as of December 31, 2014 and 2013 was $1.6 million and $1.7 million, respectively.

The fair value of the 5.75% Senior Notes was $285.7 million and $277.6 million as of December 31, 2014 and December 31, 2013, respectively. The fair values were determined using quoted prices for similar instruments in active markets and is classified as Level 2 within the fair value hierarchy as defined by the accounting guidance for fair value measurements.

Interest is payable on the 5.75% Senior Notes each April 15 and October 15. The effective interest rate related to the 5.75% Senior Notes, based on the proceeds net of discount and all issuance costs, approximates 5.86%. Interest expense on the 5.75% was $15.4 million for the year ended December 31, 2014. Interest expense on the 5.75% Senior Notes and 7.0% Senior Notes totaled $10.5 million for the year ended December 31, 2013. Interest expense on the 7.0% Senior Notes was $8.2 million for the year ended December 31, 2012.

The interest rate payable on the 5.75% Senior Note is subject to a tiered adjustment based on defined changes in our Company’s debt ratings. Our Company may redeem the 5.75% Senior Notes in whole at any time or in part from time to time at a make-whole redemption price. The 5.75% Senior Notes are our Company’s only senior unsecured obligation and will rank equally with future senior unsecured indebtedness.

The terms of the 5.75%, Senior Notes contain various restrictive business and financial covenants, including a restriction on indebtedness, and other restrictions typical for debt obligations of this type, including limitations on mergers, liens and dispositions of the common stock of certain subsidiaries. As of December 31, 2014, our Company was in compliance with all such covenants.

XML

Share Capital and Share Repurchases - Additional Information (Detail) (USD $)	Dec. 31, 2014	Dec. 31, 2013
Equity, Class of Treasury Stock [Line Items]
Common stock, authorized shares	50,000,000	50,000,000
Common stock, par value	$ 0.1	$ 0.1
Preferred stock, authorized shares	1,000,000	1,000,000
Preferred stock, par value	$ 0.10	$ 0.10

XML

Retirement Plans - Additional Information (Detail) (USD $) In Millions, unless otherwise specified	12 Months Ended
	Dec. 31, 2014	Dec. 31, 2013	Dec. 31, 2012
Employee Benefits Disclosure [Line Items]
Defined Contribution Plan, Employer Matching Contribution, Percent of Employees' Gross Pay	100.00%	100.00%	100.00%
Employees contribution to 401(k) plan that is 100 % matched by employer	4.00%	4.00%	4.00%
Defined Contribution Plan, employer discretionary matching contribution percent	3.00%	2.00%	0.00%
Defined Contribution Plan, employer discretionary matching contribution amount	$ 1.6	$ 0.8	$ 0
401(k) plan expense	7.5	5.1	4.6
Retirement Savings Contributions
Employee Benefits Disclosure [Line Items]
401(k) plan expense	3.8	2.7	2.5
Non Discretionary Matching Contributions
Employee Benefits Disclosure [Line Items]
401(k) plan expense	2.1	1.6	2.1
Maximum
Employee Benefits Disclosure [Line Items]
Discretion of contribution to each eligible employee's 401(k) plan irrespective of the employees' contribution	4.00%
United States
Employee Benefits Disclosure [Line Items]
Defined Contribution Plan, Employer Matching Contribution, Percent of Employees' Gross Pay	7.50%
Defined contribution plan employees vesting percentage beginning at the end of their second year	20.00%
Defined contribution plan additional employees vesting percentage being fully vested	6 years
United Kingdom
Employee Benefits Disclosure [Line Items]
Defined Contribution Plan, Employer Matching Contribution, Percent of Employees' Gross Pay	15.00%
401(k) plan expense	$ 2.6	$ 2.2	$ 1.9

XML

Consolidated Statements of Income (USD $) In Thousands, except Share data, unless otherwise specified	3 Months Ended								12 Months Ended
	Dec. 31, 2014	Sep. 30, 2014	Jun. 30, 2014	Mar. 31, 2014	Dec. 31, 2013	Sep. 30, 2013	Jun. 30, 2013	Mar. 31, 2013	Dec. 31, 2014	Dec. 31, 2013	Dec. 31, 2012
Gross written premiums	$ 333,299	$ 327,469	$ 348,795	$ 422,790	$ 333,091	$ 312,076	$ 332,128	$ 393,222	$ 1,432,353	$ 1,370,517	$ 1,286,465
Revenues:
Net written premiums	228,007	228,417	231,864	311,850	223,445	196,556	198,469	269,452	1,000,138	887,922	833,655
Change in unearned premiums	6,165	16,950	(780)	(86,578)	(3,543)	17,339	7,345	(67,124)	(64,243)	(45,983)	(51,691)
Net earned premiums	234,172	245,367	231,084	225,272	219,902	213,895	205,814	202,328	935,895	841,939	781,964
Net investment income	16,071	15,839	15,648	16,610	14,254	14,094	14,246	13,657	64,168	56,251	54,248
Total other-than-temporary impairment losses	(21)	158			(530)	(1,821)		(42)	137	(2,393)	(902)
Portion of loss recognized in other comprehensive income (before tax)	21	(158)							(137)		44
Net other-than-temporary impairment losses recognized in earnings					(530)	(1,821)		(42)		(2,393)	(858)
Net realized gains (losses)	788	6,718	4,473	833	15,768	(988)	3,345	4,814	12,812	22,939	41,074
Other income (expense)	586	1,336	(1,665)	10,399	(665)	(210)	(915)	618	10,656	(1,172)	1,488
Total revenues	251,617	269,260	249,540	253,114	248,729	224,970	222,490	221,375	1,023,531	917,564	877,916
Expenses:
Net losses and loss adjustment expenses	134,658	135,284	140,220	135,067	131,385	125,086	131,148	131,342	545,229	518,961	497,433
Commission expenses	33,708	33,943	32,150	25,727	30,863	27,685	28,391	26,555	125,528	113,494	121,470
Other operating expenses	51,299	50,388	47,992	47,146	43,826	39,056	40,678	40,874	196,825	164,434	159,079
Call premium on Senior Notes					17,895					17,895
Interest expense	3,854	3,388	4,319	3,852	4,351	2,053	2,052	2,051	15,413	10,507	8,198
Total expenses	223,519	223,003	224,681	211,792	228,320	193,880	202,269	200,822	882,995	825,291	786,180
Income (loss) before income taxes	28,098	46,257	24,859	41,322	20,409	31,090	20,221	20,553	140,536	92,273	91,736
Income tax expense (benefit)	8,823	15,032	7,998	13,354	6,076	9,804	6,284	6,643	45,207	28,807	27,974
Net income	$ 19,275	$ 31,225	$ 16,861	$ 27,968	$ 14,333	$ 21,286	$ 13,937	$ 13,910	$ 95,329	$ 63,466	$ 63,762
Net income per common share:
Basic	$ 1.35	$ 2.19	$ 1.18	$ 1.96	$ 1.01	$ 1.50	$ 0.99	$ 0.99	$ 6.69	$ 4.49	$ 4.54
Diluted	$ 1.31	$ 2.14	$ 1.17	$ 1.94	$ 1.00	$ 1.48	$ 0.97	$ 0.97	$ 6.51	$ 4.42	$ 4.45
Average common shares outstanding:
Basic									14,259,768	14,133,925	14,052,311
Diluted									14,646,369	14,345,553	14,327,820

XML

Segment Information

12 Months Ended

Dec. 31, 2014

Segment Information

Note 3. Segment Information

We classify our business into one corporate segment and two underwriting segments, Insurance Companies and Lloyd’s Operations. Management takes into consideration a wide range of factors in planning the business strategy of the Company and evaluating the results of its operations. The performance of each underwriting segment is based on their underwriting and GAAP results. Underwriting results are measured based on underwriting profit or loss and the related combined ratio, which are both non-GAAP measures of underwriting profitability. Underwriting profit or loss is calculated from net earned premiums, less the sum of net losses and LAE, commission expenses, other operating expenses and other income or expense. The combined ratio is derived by dividing the sum of net losses and LAE, commission expenses, other operating expenses and other underwriting (expense) by net earned premiums. A combined ratio of less than 100% indicates an underwriting profit and greater than 100% indicates an underwriting loss. Each segment maintains its own investments on which it earns income and realizes capital gains or losses. Each segment’s underwriting performance is evaluated separately from the performance of its investment portfolio. The Corporate segment’s results consist of the Parent Company’s investment income, interest expense and related income taxes.

Access to capital also has a significant impact on management’s outlook for the operations. The Insurance Companies’ operations and ability to grow their business and take advantage of market opportunities are constrained by regulatory capital requirements and rating agency assessments of capital adequacy. Similarly, the ability to grow the Lloyd’s Operations is subject to capital and operating requirements of the Lloyd’s and UK regulatory authorities.

The accounting policies used to prepare the segment reporting data for the Company’s segments are the same as those described in the Summary of Significant Accounting Policies in Footnote 1.

Financial data by segment for the years ended December 31, 2014, 2013, and 2012 were as follows:

	Year Ended December 31, 2014
In thousands	Insurance Companies			Lloyd’s Operations			Corporate(1)			Total
Gross written premiums	$	1,045,454		$	386,899		$	—		$	1,432,353
Net written premiums		752,773			247,365			—			1,000,138
Net earned premiums		704,574			231,321			—			935,895
Net losses and loss adjustment expenses		(434,396	)		(110,833	)		—			(545,229	)
Commission expenses		(85,137	)		(42,558	)		2,167			(125,528	)
Other operating expenses		(138,675	)		(58,150	)		—			(196,825	)
Other underwriting income (expense)		2,727			35			(2,167	)		595
Underwriting profit (loss)	$	49,093		$	19,815		$	—		$	68,908
Net investment income		56,714			7,378			76			64,168
Net realized gains (losses)		12,715			97			—			12,812
Call premium on Senior Notes		—			—			—			—
Interest expense		—			—			(15,413	)		(15,413	)
Other income (expense)		(2,182	)		12,243			—			10,061
Income (loss) before income taxes	$	116,340		$	39,533		$	(15,337	)	$	140,536
Income tax expense (benefit)		36,609			13,885			(5,287	)		45,207
Net income (loss)	$	79,731		$	25,648		$	(10,050	)	$	95,329
Identifiable assets	$	3,344,084		$	957,795		$	162,297		$	4,464,176
Losses and loss adjustment expenses ratio		61.7	%		47.9	%					58.3	%
Commission expense ratio		12.1	%		18.4	%					13.4	%
Other operating expense ratio (2)		19.2	%		25.1	%					20.9	%
Combined ratio		93.0	%		91.4	%					92.6	%

(1) - Includes Corporate segment intercompany eliminations.

(2) - Includes Other operating expenses and Other underwriting income (expenses).

	Year Ended December 31, 2013
In thousands	Insurance Companies			Lloyd’s Operations			Corporate(1)			Total
Gross written premiums	$	1,002,275		$	368,242		$	—		$	1,370,517
Net written premiums		680,008			207,914			—			887,922
Net earned premiums		639,338			202,601			—			841,939
Net losses and loss adjustment expenses		(415,413	)		(103,548	)		—			(518,961	)
Commission expenses		(81,132	)		(34,710	)		2,348			(113,494	)
Other operating expenses		(119,920	)		(44,514	)		—			(164,434	)
Other income (expense)		2,764			(1,588	)		(2,348	)		(1,172	)
Underwriting profit (loss)	$	25,637		$	18,241		$	—		$	43,878
Net investment income		49,083			7,160			8			56,251
Net realized gains (losses)		20,600			(58	)		4			20,546
Call premium on Senior Notes		—			—			(17,895	)		(17,895	)
Interest expense		—			—			(10,507	)		(10,507	)
Income (loss) before income taxes	$	95,320		$	25,343		$	(28,390	)	$	92,273
Income tax expense (benefit)		29,965			8,728			(9,886	)		28,807
Net income (loss)	$	65,355		$	16,615		$	(18,504	)	$	63,466
Identifiable assets	$	3,077,437		$	930,567		$	161,448		$	4,169,452
Losses and loss adjustment expenses ratio		65.0	%		51.1	%					61.6	%
Commission expense ratio		12.7	%		17.1	%					13.5	%
Other operating expense ratio (2)		18.3	%		22.8	%					19.7	%
Combined ratio		96.0	%		91.0	%					94.8	%

(1) - Includes Corporate segment intercompany eliminations.

(2) - Includes Other operating expenses and Other income.

	Year Ended December 31, 2012
In thousands	Insurance Companies			Lloyd’s Operations			Corporate(1)			Total
Gross written premiums	$	921,325		$	365,140		$	—		$	1,286,465
Net written premiums		622,956			210,699			—			833,655
Net earned premiums		571,439			210,525			—			781,964
Net losses and loss adjustment expenses		(417,082	)		(80,351	)		—			(497,433	)
Commission expenses		(81,370	)		(42,449	)		2,349			(121,470	)
Other operating expenses		(113,625	)		(45,454	)		—			(159,079	)
Other income (expense)		3,790			47			(2,349	)		1,488
Underwriting profit (loss)	$	(36,848	)	$	42,318		$	—		$	5,470
Net investment income		46,549			7,551			148			54,248
Net realized gains (losses)		36,468			3,555			193			40,216
Interest expense		—			—			(8,198	)		(8,198	)
Income (loss) before income taxes	$	46,169		$	53,424		$	(7,857	)	$	91,736
Income tax expense (benefit)		12,686			18,620			(3,332	)		27,974
Net income (loss)	$	33,483		$	34,804		$	(4,525	)	$	63,762
Identifiable assets	$	3,036,489		$	928,448		$	42,733		$	4,007,670
Losses and loss adjustment expenses ratio		73.0	%		38.2	%					63.6	%
Commission expense ratio		14.2	%		20.2	%					15.5	%
Other operating expense ratio (2)		19.2	%		21.5	%					20.2	%
Combined ratio		106.4	%		79.9	%					99.3	%

(1) - Includes Corporate segment intercompany eliminations.

(2) - Includes Other operating expenses and Other income.

The following tables provide additional financial data by segment for the years ended December 31, 2014, 2013 and 2012:

	Year Ended December 31, 2014
In thousands	Insurance Companies		Lloyd’s Operations		Total
Gross written premiums:
Marine	$	177,363	$	188,107	$	365,470
Property casualty		755,059		126,016		881,075
Professional liability		113,032		72,776		185,808
Total	$	1,045,454	$	386,899	$	1,432,353
Net written premiums:
Marine	$	123,617	$	144,327	$	267,944
Property casualty		554,844		55,917		610,761
Professional liability		74,312		47,121		121,433
Total	$	752,773	$	247,365	$	1,000,138
Net earned premiums:
Marine	$	123,203	$	141,471	$	264,674
Property casualty		496,209		51,338		547,547
Professional liability		85,162		38,512		123,674
Total	$	704,574	$	231,321	$	935,895

	Year Ended December 31, 2013
In thousands	Insurance Companies		Lloyd’s Operations		Total
Gross written premiums:
Marine	$	171,822	$	181,046	$	352,868
Property casualty		700,087		129,522		829,609
Professional liability		130,366		57,674		188,040
Total	$	1,002,275	$	368,242	$	1,370,517
Net written premiums:
Marine	$	119,837	$	134,627	$	254,464
Property casualty		462,942		42,334		505,276
Professional liability		97,229		30,953		128,182
Total	$	680,008	$	207,914	$	887,922
Net earned premiums:
Marine	$	129,276	$	138,690	$	267,966
Property casualty		409,480		37,722		447,202
Professional liability		100,582		26,189		126,771
Total	$	639,338	$	202,601	$	841,939

	Year Ended December 31, 2012
In thousands	Insurance Companies		Lloyd’s Operations		Total
Gross written premiums:
Marine	$	200,095	$	194,423	$	394,518
Property casualty		590,741		127,028		717,769
Professional liability		130,489		43,689		174,178
Total	$	921,325	$	365,140	$	1,286,465
Net written premiums:
Marine	$	133,210	$	143,600	$	276,810
Property casualty		390,168		43,824		433,992
Professional liability		99,578		23,275		122,853
Total	$	622,956	$	210,699	$	833,655
Net earned premiums:
Marine	$	142,181	$	136,898	$	279,079
Property casualty		332,782		52,951		385,733
Professional liability		96,476		20,676		117,152
Total	$	571,439	$	210,525	$	781,964

The Insurance Companies net earned premiums include $37.7 million, $44.6 million and $63.9 million of net earned premiums from the U.K. Branch for 2014, 2013 and 2012, respectively.

XML

Earnings Per Share

12 Months Ended

Dec. 31, 2014

Earnings Per Share

Note 2. Earnings Per Share

The following is a reconciliation of the basic and diluted EPS computations for the years ended December 31, 2014, 2013 and 2012:

	Year Ended December 31,
In thousands, except share and per share amounts	2014		2013		2012
Net income	$	95,329	$	63,466	$	63,762
Basic weighted average shares		14,259,768		14,133,925		14,052,311
Effect of common stock equivalents:
Assumed exercise of stock options and vesting of stock grants		386,601		211,628		275,509
Diluted weighted average shares		14,646,369		14,345,553		14,327,820
Net income per common share:
Basic	$	6.69	$	4.49	$	4.54
Diluted	$	6.51	$	4.42	$	4.45

XML

Stock Option Plans, Stock Grants, Stock Appreciation Rights and Employee Stock Purchase Plan

12 Months Ended

Dec. 31, 2014

Stock Option Plans, Stock Grants, Stock Appreciation Rights and Employee Stock Purchase Plan

Note 14. Stock Option Plans, Stock Grants, Stock Appreciation Rights and Employee Stock Purchase Plan

At our May 2005 Annual Meeting, the stockholders approved the 2005 Stock Incentive Plan. The 2005 Stock Incentive Plan authorizes the issuance in the aggregate of 1,000,000 incentive stock options, non-incentive stock options, restricted shares and stock appreciation rights for our common stock. Upon the approval of the 2005 Amended and Restated Stock Incentive Plan, no further awards are being issued under any of our other stock plans or the stock appreciation rights plan. All stock options issued under the 2005 Amended and Restated Stock Incentive Plan are exercisable upon vesting for one share of our common stock and are granted at exercise prices no less than the fair market value of our common stock on the date of grant.

In April 2009, the stockholders approved an amendment to the 2005 Stock Incentive Plan increasing the available number of restricted shares from 1,000,000 to 1,500,000. In April 2013, the stockholders further amended and restated the 2005 Stock Incentive Plan increasing the available number of restricted shares from 1,500,000 to 2,000,000. As of December 31, 2014, 1,523,228 of such awards were issued leaving 476,772 awards available to be issued in subsequent periods.

Stock-based compensation granted under our Company’s stock plans is expensed in tranches over the vesting period. Options and non-performance based grants generally vest equally over a three or four year period and the options have a maximum term of ten years. Certain non-performance based grants vest over five years with one-third vesting in each of the third, fourth and fifth years. Our Company’s performance based share grants generally consist of three types of awards. The restricted stock units issued in 2014 and after will cliff vest on the third anniversary of the date of the grant with 100% dependent on the rate of cumulative annual growth in tangible book value for the three years immediately prior to the vesting date, with actual shares that vest ranging between 150% to 50% of that portion of the original award. The restricted stock units issued between 2011 – 2013 will cliff vest on the third anniversary of the date of grant, with 50% vesting in full, and 50% dependent on the rate of compound annual growth in book value per share for the three years immediately prior to the vesting date, with actual shares that vest ranging between 150% to 0% of that portion of the original award. The performance based restricted stock units issued prior to 2011 generally vest over five years with one-third vesting in each of the third, fourth and fifth years, with 100% dependent on the rolling three-year average return on equity based on the three years prior to the year in which the vesting occurs, with actual shares that vest ranging between 150% to 0% of the original award.

The amounts charged to expense for stock-based compensation for the years ended December 31, 2014, 2013 and 2012 are presented in the following table:

	Year Ended December 31,
In thousands	2014		2013		2012
Restricted stock units	$	11,507	$	3,369	$	7,380
Directors restricted stock grants (1)		420		413		390
Employee stock purchase plan		194		132		82
Total stock-based compensation	$	12,121	$	3,914	$	7,852

(1) - Relates to non-employee directors serving on the Parent Company’s Board of Directors, all of whom have been elected by the Company’s stockholders, as well as non-employee directors serving on NUAL’s Board of Directors.

Unvested restricted stock units outstanding as of December 31, 2014, 2013 and 2012, and changes during the years ended on those dates, are presented in the following table:

	December 31,
	2014			2013			2012
Beginning balance		626,812			587,629			526,972
Granted - Performance		228,607			114,463			97,145
Granted - Non Performance		59,523			155,463			146,915
Total Granted		288,130			269,926			244,060
Vested - Performance Earned		—			(15,714	)		—
Vested - Performance Unearned		(93,453	)		(57,585	)		(46,998	)
Vested - Non Performance		(90,263	)		(60,183	)		(91,323	)
Total Vested		(183,716	)		(133,482	)		(138,321	)
Forfeited		(12,334	)		(97,261	)		(45,082	)
Ending balance		718,892			626,812			587,629

As included in the table above, there were 15,714 performance based shares that vested during the year ended December 31, 2013. There were no performance based shares that vested during the years ended December 31, 2014 and 2012.

The fair value of total vested shares for the years ended December 31, 2014, 2013 and 2012 was $5.1 million, $3.5 million and $4.6 million, respectively.

The weighted average grant date fair value per share of all RSUs granted during the years ended December 31, 2014, 2013 and 2012 was $60.75, $55.36 and $48.21, respectively.

As of December 31, 2014 and 2013, the total unrecognized compensation expense, net of estimated forfeitures, related to unvested RSUs was $16.3 million and $10.6 million, respectively, which is expected to be recognized as expense over weighted average periods of 2.3 years and 2.2 years, respectively. The aggregate fair value of all unvested RSUs as of December 31, 2014 and 2013 was $46.1 million and $39.6 million, respectively.

Stock options outstanding as of December 31, 2014, 2013 and 2012 are as follows:

	December 31,
	2014					2013					2012
	# of Shares			Average Exercise Price		# of Shares			Average Exercise Price		# of Shares			Average Exercise Price
Beginning balance		6,750		$	30.65		90,250		$	29.94		105,250		$	29.50
Granted		—			—		—			—		—			—
Exercised		(5,250	)	$	29.11		(83,500	)	$	29.88		(15,000	)	$	26.90
Expired or forfeited		—			—		—			—		—		$	—
Ending balance		1,500		$	36.03		6,750		$	30.65		90,250		$	29.94
Number of options exercisable		1,500		$	36.03		6,750		$	30.65		90,250		$	29.94

The following table summarizes information about stock options outstanding as of December 31, 2014:

Price Range	Outstanding Options		Average Remaining Contract Life		Average Exercise Price		Average Aggregate Intrinsic Value		Exercisable Options		Average Exercise Price		Average Aggregate Intrinsic Value
$31 to $37		1,500		0.7	$	36.03	$	27.13		1,500	$	36.03	$	27.13
Total		1,500		0.7						1,500

We offer an Employee Stock Purchase Plan (the “ESPP”) to all of our eligible employees. Employees are offered the opportunity to purchase our Company’s common stock at 90% of fair market value at the lower of the price at the beginning or the end of each six month offering period. Employees can invest up to 10% of their base compensation through payroll withholding towards the purchase of our common stock subject to the lesser of 1,000 shares or total market value of $25,000. There will be 9,509 shares purchased in 2015 from funds withheld during the July 1, 2014 to December 31, 2014 offering period. There were 19,386 shares purchased in 2014 in the aggregate from funds withheld during the offering periods of July 1, 2013 to December 31, 2013 and January 1, 2014 to June 30, 2014. We expense both the value of the 10% discount and the “look-back” option, which provides for the more favorable price at either the beginning or end of the offering period.

XML

Lloyd's Syndicate 1221

12 Months Ended

Dec. 31, 2014

Lloyd's Syndicate 1221

Note 10. Lloyd’s Syndicate 1221

The Lloyd’s Operations included in the consolidated financial statements represents its participation in Syndicate 1221. Syndicate 1221’s stamp capacity is £215 million ($336.9 million) for the 2014 underwriting year compared to £195 million ($323.7 million) for the 2013 underwriting year. Stamp capacity is a measure of the amount of premiums a Lloyd’s syndicate is authorized to write based on a business plan approved by the Council of Lloyd’s. Syndicate 1221’s stamp capacity is expressed net of commission (as is standard at Lloyd’s). The Syndicate 1221 premiums recorded in our Company’s financial statements are gross of commission. Our Company controlled 100% of Syndicate 1221’s stamp capacity for the 2014, 2013 and 2012 underwriting years through its wholly-owned Lloyd’s corporate member.

During the first quarter, Syndicate 1221 revised its foreign exchange accounting methodology from reporting its financial position and results using three functional currencies (GBP, USD and CAD) to one functional currency (USD). The USD was chosen as the single functional currency as the majority of the Syndicate’s insurance business has been and continues to be transacted in USD. This cumulative change in re-measurement has resulted in an immaterial correction of $10.0 million ($6.6 million, after-tax) reducing Accumulated Other Comprehensive Income in the consolidated balance sheet, offset by a gain in Other Income in the consolidated statement of income. The impact of the correction is not material to the previously issued annual financial statements for 2013 and 2012.

Our Company provides letters of credit and posts cash to Lloyd’s to support its participation in Syndicate 1221’s stamp capacity. If Syndicate 1221 increases its stamp capacity and our Company participates in the additional stamp capacity, or if Lloyd’s changes the capital requirements, our Company may be required to supply additional collateral acceptable to Lloyd’s. If our Company is unwilling or unable to provide additional acceptable collateral, our Company will be required to reduce its participation in the stamp capacity of Syndicate 1221. Refer to Note 8, Credit Facilities, for additional information.

XML

Dividends and Statutory Financial Information - Additional Information (Detail)	1 Months Ended				12 Months Ended			12 Months Ended
	Nov. 30, 2013 USD ($)	Nov. 30, 2013 GBP (£)	Dec. 31, 2014 USD ($)	Dec. 31, 2014 GBP (£)	Dec. 31, 2012 Navigators Insurance Company USD ($)	Dec. 31, 2014 Navigators Insurance Company USD ($)	Dec. 31, 2013 Navigators Insurance Company	Dec. 31, 2014 Insurance Companies USD ($)	Dec. 31, 2013 Insurance Companies USD ($)	Dec. 31, 2012 Insurance Companies USD ($)	Dec. 31, 2014 Insurance Companies Minimum	Dec. 31, 2014 Insurance Companies Maximum	Dec. 31, 2014 Lloyd's USD ($)	Dec. 31, 2013 Lloyd's USD ($)	Dec. 31, 2012 Lloyd's USD ($)	Dec. 31, 2014 Lloyd's GBP (£)	Dec. 31, 2013 Lloyd's GBP (£)	Dec. 31, 2014 Lloyd's Syndicate 1221 USD ($)	Dec. 31, 2014 Lloyd's Syndicate 1221 GBP (£)	Dec. 31, 2013 Lloyd's Syndicate 1221 USD ($)	Dec. 31, 2013 Lloyd's Syndicate 1221 GBP (£)	Dec. 31, 2012 Lloyd's Syndicate 1221
Statutory Accounting Practices [Line Items]
Maximum amount available for payment of dividends without prior regulatory approval						$ 89,400,000
Dividends paid to Parent Company					15,000,000
Statutory net income								75,700,000	59,400,000	28,600,000
Statutory capital and surplus								893,900,000	804,100,000				140,100,000	124,200,000		89,400,000	74,800,000
Risk based capital ratio						314.80%	304.20%
Insurance examinations period											3 years	5 years
FAL requirement set by Lloyd's for Syndicate 1221 based on its business plan, approved in November 2014 and 2013													268,100,000	279,300,000		171,100,000	168,300,000
Valuation of assets and letters of credit posted																		290,100,000	185,100,000	280,200,000	168,800,000
Pre-tax regulatory income													33,800,000	21,000,000	54,900,000
Percentage control of stamp capacity																		100.00%	100.00%	100.00%	100.00%	100.00%
Undistributed Profit	139,900,000	89,300,000
Dividend Capacity			$ 9,900,000	£ 6,300,000

XML

Ceded Reinsurance

12 Months Ended

Dec. 31, 2014

Ceded Reinsurance

Note 6. Ceded Reinsurance

We utilize reinsurance principally to reduce our exposure on individual risks, to protect against catastrophic losses, and to stabilize loss ratios and underwriting results. Although reinsurance makes the reinsurer liable to us to the extent the risk is transferred or ceded to the reinsurer, ceded reinsurance arrangements do not eliminate our obligation to pay claims to our policyholders. Accordingly, we bear credit risk with respect to our reinsurers.

Our Company’s ceded earned premiums were $440.7 million, $456.0 million and $396.6 million for the years ended December 31, 2014, 2013 and 2012, respectively.

Our Company’s ceded incurred losses were $230.2 million, $188.7 million and $262.6 million for the years ended December 31, 2014, 2013 and 2012, respectively.

We have established a reserve for uncollectible reinsurance in the amount of $11.3 million as of December 31, 2014 and 2013, which was determined by considering reinsurer specific default risk as indicated by their financial strength ratings as well as additional default risk for Asbestos and Environmental related recoverables. Actual uncollectible reinsurance could exceed or be less than our estimate.

We are protected by various treaty and facultative reinsurance agreements. Our exposure to credit risk from any one reinsurer is managed through diversification by reinsuring with a number of different reinsurers, principally in the United States and European reinsurance markets. To meet our standards of acceptability, when the reinsurance is placed, a reinsurer generally must have a rating from A.M. Best Company (“A.M. Best”) and/or S&P of “A” or better, or an equivalent financial strength if not rated, plus at least $500 million in policyholders’ surplus. Our Reinsurance Security Committee, which is part of our Enterprise Risk Management Finance and Credit Sub-Committee, monitors the financial strength of our reinsurers and the related reinsurance receivables and periodically reviews the list of acceptable reinsurers. The reinsurance is placed either directly by us or through reinsurance intermediaries. The reinsurance intermediaries are compensated by the reinsurers.

The credit quality distribution of our Company’s reinsurance recoverables of $1.1 billion as of December 31, 2014 for ceded paid and unpaid losses and LAE and ceded unearned premiums based on insurer financial strength ratings from A.M. Best or S&P were as follows:

In thousands	Rating	Carrying Value (2)		Percent of Total
A.M. Best Rating description (1):
Superior	A++, A+	$	575,205		50	%
Excellent	A, A-		547,314		48	%
Very good	B++, B+		8,483		1	%
Fair	B, B-		—		0	%
Not rated	NR		9,694		1	%
Total		$	1,140,696		100	%

(1)	-	When an A.M. Best rating is unavailable, the equivalent S&P rating is used.
(2)	-	The carrying value is comprised of prepaid reinsurance premium as well as reinsurance recoverables on paid and unpaid losses which are net of the reserve for uncollectible reinsurance.

Our Company holds collateral of $202.0 million, which consists of $152.8 million in ceded balances payable, $43.1 million in letters of credit and $6.1 million of funds held and trust account balances, all of which are held by our Insurance Companies and Lloyd’s Operations. In total, the collateral represents 17.7% of the carrying value of the reinsurance recoverables. Collateral of $5.2 million or 53.6% of the carrying value is held for NR rated reinsurance recoverables.

The following table lists our Company’s 20 largest reinsurers measured by the amount of reinsurance recoverable for ceded losses and LAE and ceded unearned premium (constituting 75.7% of the total recoverable), together with the reinsurance recoverable and collateral as of December 31, 2014, and the reinsurers’ ratings from A.M. Best or S&P:

In thousands	Unearned Premium		Paid/Unpaid Losses		Total (1)		Collateral Held		A.M. Best	S&P
National Indemnity Company	$	25,202	$	117,562	$	142,764	$	22,069	A++	AA+
Everest Reinsurance Company		21,573		75,063		96,636		7,326	A+	A+
Swiss Reinsurance America Corporation		22,815		73,305		96,120		14,587	A+	AA-
Transatlantic Reinsurance Company		11,916		74,072		85,988		4,038	A	A+
Munich Reinsurance America Inc.		11,366		58,768		70,134		5,539	A+	AA-
Allied World Reinsurance		9,048		37,088		46,136		1,666	A	A
Lloyd’s Syndicate #2003		4,399		35,123		39,522		5,191	A	A+
Partner Reinsurance Europe		10,986		25,409		36,395		16,052	A+	A+
Employers Mutual Casualty Company		11,928		21,851		33,779		10,935	A	NR
Scor Global P&C SE		10,190		17,572		27,762		5,558	A	A+
Ace Property and Casualty Insurance Company		11,165		12,741		23,906		2,907	A++	AA
Tower Insurance Company		—		21,509		21,509		2,455	A-	NR
Aspen Insurance UK Ltd.		8,928		11,227		20,155		4,869	A	A
Ironshore Indemnity Inc.		6,234		13,395		19,629		8,645	A	NR
Validus Reinsurance Ltd.		2,020		16,873		18,893		10,975	A	A
Atlantic Specialty Insurance		2,542		15,812		18,354		—	A	A-
QBE Reinsurance Corp		2,636		15,539		18,175		—	A	A+
National Union Fire Ins.		8,067		8,459		16,526		6,158	A	A+
Endurance Reinsurance Corporation		5,695		9,936		15,631		1,337	A	A
Odyssey American Reinsurance Corporation		3,506		11,650		15,156		1,604	A	A-
Top 20	$	190,216	$	672,954	$	863,170	$	131,911
Others		47,635		229,891		277,526		70,065
Total	$	237,851	$	902,845	$	1,140,696	$	201,976

(1) - Net of reserve for uncollectible reinsurance of approximately $11.3 million.

Approximately 21% of the collateral held consists of letters of credit obtained from reinsurers in accordance with New York Insurance Regulation Nos. 20 and 133. Regulation 20 requires collateral to be held by the ceding company from reinsurers not licensed in New York State in order for the ceding company to take credit for the reinsurance recoverables on its statutory balance sheet. The specific requirements governing the letters of credit are contained in Regulation 133 and include a clean and unconditional letter of credit and an “evergreen” clause which prevents the expiration of the letter of credit without due notice to our Company. Only banks considered qualified by the National Association of Insurance Commissioners (“NAIC”) may be deemed acceptable issuers of letters. In addition, based on our credit assessment of the reinsurer, there are certain instances where we require collateral from a reinsurer even if the reinsurer is licensed in New York State, generally applying the requirements of Regulation No. 133. The contractual terms of the letters of credit require that access to the collateral is unrestricted. In the event that the counterparty to our collateral would be deemed not qualified by the NAIC, the reinsurer would be required by agreement to replace such collateral with acceptable security under the reinsurance agreement. There is no assurance, however, that the reinsurer would be able to replace the counterparty bank in the event such counterparty bank becomes unqualified and the reinsurer experiences significant financial deterioration. Under such circumstances, we could incur a substantial loss from uncollectible reinsurance from such reinsurer. In November 2010, Regulation No. 20 was amended to provide the New York Superintendent of Financial Services (the “New York Superintendent”) discretion to allow a reduction in collateral that qualifying reinsurers must post in order for New York domestic ceding insurers such as Navigators Insurance Company and Navigators Specialty Insurance Company to receive full financial statement credit. The “collateral required” percentages range from 0% – 100%, are based upon the New York Superintendent’s evaluation of a number of factors, including the reinsurer’s financial strength ratings, and apply to contracts entered into, renewed or having an anniversary date on or after January 1, 2011. In November 2011, the NAIC adopted similar amendments to its Credit for Reinsurance Model Act that would apply to certain non-U.S. reinsurers. States will have the option to retain a 100% funding requirement if they so choose and it remains to be seen whether and when states will amend their credit for reinsurance laws and regulations in accordance with such model act.

As of December 31, 2014, the reinsurance recoverables for paid and unpaid losses due from reinsurers in connection with all catastrophic losses was $43.3 million. Included in this figure is $25.4 million for Superstorm Sandy and $7.3 million for the 2008 Hurricanes. As of December 31, 2013, the reinsurance recoverables for paid and unpaid losses due from reinsurers in connection with all catastrophic losses was $46.5 million. Included in this figure is $30.7 million for Superstorm Sandy and $3.3 million for the 2008 Hurricanes.

The following table summarizes the components of Net Written Premium:

	Year Ended December 31,
In thousands	2014			2013			2012
Direct	$	1,184,538		$	1,127,331		$	1,034,658
Assumed		247,815			243,187			251,807
Ceded		(432,215	)		(482,596	)		(452,810	)
Net Written Premiums	$	1,000,138		$	887,922		$	833,655

The following table summarizes the components of Net Earned Premium:

	Year Ended December 31,
In thousands	2014			2013			2012
Direct	$	1,133,336		$	1,069,677		$	972,844
Assumed		243,215			228,247			205,759
Ceded		(440,656	)		(455,985	)		(396,639	)
Net Earned Premiums	$	935,895		$	841,939		$	781,964

The following table summarizes the components of Net Losses and LAE incurred:

	Year Ended December 31,
In thousands	2014			2013			2012
Direct	$	631,730		$	552,381		$	608,945
Assumed		143,681			155,313			151,137
Ceded		(230,182	)		(188,733	)		(262,649	)
Net Losses and LAE	$	545,229		$	518,961		$	497,433

XML

Fixed Maturities and Equity Securities by Asset Class that are Measured at Fair Value (Detail) (USD $) In Thousands, unless otherwise specified	Dec. 31, 2014	Dec. 31, 2013
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Fixed maturities and equity securities, at fair Value	$ 2,550,229	$ 2,191,827
Fixed maturities
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Fixed maturities and equity securities, at fair Value	2,365,934	2,047,873
Fixed maturities | U.S. Treasury bonds, agency bonds, and foreign
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Fixed maturities and equity securities, at fair Value	397,923	441,685
Fixed maturities | States, municipalities and political subdivisions
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Fixed maturities and equity securities, at fair Value	541,007	460,422
Fixed maturities | Agency mortgage-backed securities
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Fixed maturities and equity securities, at fair Value	364,622	301,274
Fixed maturities | Residential Mortgage Backed Securities
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Fixed maturities and equity securities, at fair Value	34,087	41,755
Fixed maturities | Asset-backed securities
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Fixed maturities and equity securities, at fair Value	206,413	125,133
Fixed maturities | Commercial mortgage-backed securities
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Fixed maturities and equity securities, at fair Value	206,318	172,750
Fixed maturities | Mortgage-backed and asset-backed securities
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Fixed maturities and equity securities, at fair Value	811,440	640,912
Fixed maturities | Corporate bonds
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Fixed maturities and equity securities, at fair Value	615,564	504,854
Equity Securities | Common Stock
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Fixed maturities and equity securities, at fair Value	127,183	143,954
Equity Securities | Preferred Stock
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Fixed maturities and equity securities, at fair Value	57,112
Level 1
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Fixed maturities and equity securities, at fair Value	274,087	386,333
Level 1 | Fixed maturities
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Fixed maturities and equity securities, at fair Value	146,904	242,379
Level 1 | Fixed maturities | U.S. Treasury bonds, agency bonds, and foreign
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Fixed maturities and equity securities, at fair Value	146,904	242,379
Level 1 | Equity Securities | Common Stock
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Fixed maturities and equity securities, at fair Value	127,183	143,954
Level 2
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Fixed maturities and equity securities, at fair Value	2,276,142	1,801,087
Level 2 | Fixed maturities
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Fixed maturities and equity securities, at fair Value	2,219,030	1,801,087
Level 2 | Fixed maturities | U.S. Treasury bonds, agency bonds, and foreign
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Fixed maturities and equity securities, at fair Value	251,019	199,306
Level 2 | Fixed maturities | States, municipalities and political subdivisions
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Fixed maturities and equity securities, at fair Value	541,007	460,422
Level 2 | Fixed maturities | Agency mortgage-backed securities
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Fixed maturities and equity securities, at fair Value	364,622	301,274
Level 2 | Fixed maturities | Residential Mortgage Backed Securities
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Fixed maturities and equity securities, at fair Value	34,087	41,755
Level 2 | Fixed maturities | Asset-backed securities
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Fixed maturities and equity securities, at fair Value	206,413	125,133
Level 2 | Fixed maturities | Commercial mortgage-backed securities
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Fixed maturities and equity securities, at fair Value	206,318	172,750
Level 2 | Fixed maturities | Mortgage-backed and asset-backed securities
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Fixed maturities and equity securities, at fair Value	811,440	640,912
Level 2 | Fixed maturities | Corporate bonds
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Fixed maturities and equity securities, at fair Value	615,564	500,447
Level 2 | Equity Securities | Preferred Stock
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Fixed maturities and equity securities, at fair Value	57,112
Level 3
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Fixed maturities and equity securities, at fair Value		4,407
Level 3 | Fixed maturities
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Fixed maturities and equity securities, at fair Value		4,407
Level 3 | Fixed maturities | Corporate bonds
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Fixed maturities and equity securities, at fair Value		$ 4,407

XML

Investments

12 Months Ended

Dec. 31, 2014

Investments

Note 4. Investments

The following tables set forth our Company’s cash and investments as of December 31, 2014 and 2013. The tables below include OTTI securities recognized within AOCI.

	December 31, 2014
In thousands	Fair Value		Gross Unrealized Gains		Gross Unrealized Losses			Amortized Cost
Fixed maturities:
U.S. Treasury bonds, agency bonds and foreign government bonds	$	397,923	$	3,431	$	(5,965	)	$	400,457
States, municipalities and political subdivisions		541,007		19,204		(558	)		522,361
Mortgage-backed and asset-backed securities:
Agency mortgage-backed securities		364,622		8,476		(998	)		357,144
Residential mortgage obligations		34,087		1,153		(138	)		33,072
Asset-backed securities		206,413		380		(964	)		206,997
Commercial mortgage-backed securities		206,318		6,630		(98	)		199,786
Subtotal	$	811,440	$	16,639	$	(2,198	)	$	796,999
Corporate bonds		615,564		13,048		(1,626	)		604,142
Total fixed maturities	$	2,365,934	$	52,322	$	(10,347	)	$	2,323,959
Equity securities - common stocks		127,183		28,520		(1,254	)		99,917
Equity securities - preferred stocks		57,112		2,236		(50	)		54,926
Short-term investments		179,506		—		(21	)		179,527
Cash		90,751		—		—			90,751
Total	$	2,820,486	$	83,078	$	(11,672	)	$	2,749,080

	December 31, 2013
In thousands	Fair Value		Gross Unrealized Gains		Gross Unrealized Losses			Amortized Cost
Fixed maturities:
U.S. Treasury bonds, agency bonds and foreign government bonds	$	441,685	$	2,854	$	(8,855	)	$	447,686
States, municipalities and political subdivisions		460,422		9,298		(13,651	)		464,775
Mortgage-backed and asset-backed securities:
Agency mortgage-backed securities		301,274		6,779		(6,016	)		300,511
Residential mortgage obligations		41,755		1,212		(161	)		40,704
Asset-backed securities		125,133		653		(480	)		124,960
Commercial mortgage-backed securities		172,750		7,656		(374	)		165,468
Subtotal	$	640,912	$	16,300	$	(7,031	)	$	631,643
Corporate bonds		504,854		15,402		(3,443	)		492,895
Total fixed maturities	$	2,047,873	$	43,854	$	(32,980	)	$	2,036,999
Equity securities - common stocks		143,954		25,700		(550	)		118,804
Short-term investments		296,250		—		—			296,250
Cash		86,509		—		—			86,509
Total	$	2,574,586	$	69,554	$	(33,530	)	$	2,538,562

As of December 31, 2014 and 2013, fixed maturities for which non-credit OTTI was previously recognized and included in accumulated other comprehensive income are now in an unrealized gains position of $0.7 million and $0.5 million, respectively.

The fair value of our Company’s investment portfolio may fluctuate significantly in response to various factors such as changes in interest rates, investment quality ratings, equity prices, foreign exchange rates and credit spreads. Our Company does not have the intent to sell nor is it more likely than not that it will have to sell fixed maturities in unrealized loss positions that are not other-than-temporarily impaired before recovery. For structured securities, default probability and severity assumptions differ based on property type, vintage and the stress of the collateral. Our Company does not intend to sell any of these securities and it is more likely than not that, our Company will not be required to sell these securities before the recovery of the amortized cost basis. For equity securities, our Company also considers its intent to hold securities as part of the process of evaluating whether a decline in fair value represents an other-than-temporary decline in value. Our Company may realize investment losses to the extent its liquidity needs require the disposition of fixed maturity securities in unfavorable interest rate, liquidity or credit spread environments. Significant changes in the factors our Company considers when evaluating investments for impairment losses could result in a significant change in impairment losses reported in the consolidated financial statements.

The contractual maturity dates for fixed maturities categorized by the number of years until maturity as of December 31, 2014 are shown in the following table:

	December 31, 2014
In thousands	Fair Value		Amortized Cost
Due in one year or less	$	63,670	$	65,643
Due after one year through five years		765,084		758,064
Due after five years through ten years		356,929		348,195
Due after ten years		368,811		355,058
Mortgage- and asset-backed securities		811,440		796,999
Total	$	2,365,934	$	2,323,959

Expected maturities may differ from contractual maturities because issuers may have the right to call or prepay obligations with or without call or prepayment penalties. Due to the periodic repayment of principal, the mortgage-backed and asset-backed securities are estimated to have an effective maturity of approximately 4.4 years.

The following table shows the amount and percentage of our Company’s fixed maturities as of December 31, 2014 by Standard & Poor’s (“S&P”) credit rating or, if an S&P rating is not available, the equivalent Moody’s Investor Services (“Moody’s”) rating. The table includes fixed maturities at fair value, and the total rating is the weighted average quality rating.

	December 31, 2014
In thousands	Rating	Fair Value		Percent of Total
Rating description:
Extremely strong	AAA	$	462,603		20	%
Very strong	AA		1,090,505		45	%
Strong	A		612,131		26	%
Adequate	BBB		185,372		8	%
Speculative	BB & Below		14,852		1	%
Not rated	NR		471		0	%
Total	AA	$	2,365,934		100	%

The following table summarizes all securities in a gross unrealized loss position as of December 31, 2014 and 2013, showing the aggregate fair value and gross unrealized loss by the length of time those securities had continuously been in a gross unrealized loss position as well as the relevant number of securities.

	December 31, 2014						December 31, 2013
In thousands, except # of securities	Number of Securities		Fair Value		Gross Unrealized Loss		Number of Securities		Fair Value		Gross Unrealized Loss
Fixed maturities:
U.S. Treasury bonds, agency bonds, and foreign government bonds
0-6 months		19	$	87,915	$	1,061		27	$	136,360	$	1,096
7-12 months		—		—		—		26		149,370		7,759
> 12 months		31		117,683		4,904		—		—		—
Subtotal		50	$	205,598	$	5,965		53	$	285,730	$	8,855
States, municipalities and political subdivisions
0-6 months		13	$	14,242	$	41		28	$	40,132	$	297
7-12 months		2		2,107		19		104		205,152		12,100
> 12 months		17		37,340		498		6		12,357		1,254
Subtotal		32	$	53,689	$	558		138	$	257,641	$	13,651
Agency mortgage-backed securities
0-6 months		4	$	14,743	$	52		39	$	39,458	$	434
7-12 months		2		4,138		28		64		77,860		3,768
> 12 months		46		58,301		918		9		22,784		1,814
Subtotal		52	$	77,182	$	998		112	$	140,102	$	6,016
Residential mortgage obligations
0-6 months		6	$	4,966	$	43		3	$	431	$	2
7-12 months		2		659		7		7		950		29
> 12 months		14		1,728		88		15		2,467		130
Subtotal		22	$	7,353	$	138		25	$	3,848	$	161
Asset-backed securities
0-6 months		19	$	96,123	$	354		14	$	75,887	$	479
7-12 months		3		14,152		185		1		203		1
> 12 months		3		34,530		425		—		—		—
Subtotal		25	$	144,805	$	964		15	$	76,090	$	480
Commercial mortgage-backed securities
0-6 months		4	$	18,665	$	65		4	$	6,712	$	31
7-12 months		1		1,076		6		2		15,098		322
> 12 months		3		1,391		27		4		774		21
Subtotal		8	$	21,132	$	98		10	$	22,584	$	374
Corporate bonds
0-6 months		52	$	179,390	$	797		34	$	93,591	$	717
7-12 months		4		11,071		74		18		55,021		2,726
> 12 months		14		31,126		755		—		—		—
Subtotal		70	$	221,587	$	1,626		52	$	148,612	$	3,443
Total fixed maturities		259	$	731,346	$	10,347		405	$	934,607	$	32,980
Equity securities - common stocks
0-6 months		6	$	9,152	$	761		5	$	7,387	$	422
7-12 months		1		3,887		486		2		3,538		128
> 12 months		1		238		7		—		—		—
		8	$	13,277	$	1,254		7	$	10,925	$	550
Equity securities - preferred stocks
0-6 months		7	$	6,651	$	50		—	$	—	$	—
7-12 months		—		—		—		—		—		—
> 12 months		—		—		—		—		—		—
		7	$	6,651	$	50		—	$	—	$	—
Total equity securities		15	$	19,928	$	1,304		7	$	10,925	$	550

As of December 31, 2014 and 2013, the largest unrealized loss by a non-government backed issuer in the investment portfolio was $0.5 million and $1.1 million, respectively.

Our Company analyzes impaired securities quarterly to determine if any are other-than-temporary. The above securities with unrealized losses have been determined to be temporarily impaired based on our evaluation.

For fixed maturities, when assessing whether the amortized cost basis of the security will be recovered, our Company compares the present value of cash flows expected to be collected in relation to the current book value. Any shortfalls of the present value of the cash flows expected to be collected to the amortized cost basis is considered the credit loss portion of OTTI losses and is recognized in earnings. All non-credit losses are recognized as changes in OTTI losses within AOCI.

To determine whether the unrealized loss on structured securities is other-than-temporary, our Company analyzes the projections provided by its investment managers with respect to an expected principal loss under a range of scenarios and utilizes the most likely outcomes. The analysis relies on actual collateral performance measures such as default rate, prepayment rate and loss severity. These assumptions are applied throughout the remaining term of the deal, incorporating the transaction structure and priority of payments, to generate loss adjusted cash flows. Results of the analysis will indicate whether the security is expected ultimately to incur a loss or whether there is a material impact on yield due to either a projected loss or a change in cash flow timing. A break even default rate is also calculated. A comparison of the break even default rate to the actual default rate provides an indication of the level of cushion or coverage to the first dollar principal loss. The analysis applies the stated assumptions throughout the remaining term of the transaction to forecast cash flows, which are then applied through the transaction structure to determine whether there is a loss to the security. For securities in which a tranche loss is present, and the net present value of loss adjusted cash flows is less than book value, impairment is recognized. The output data also includes a number of additional metrics such as average life remaining, original and current credit support, over 60 day delinquency and security rating.

The significant inputs used to measure the amount of credit loss recognized in earnings were actual delinquency rates, default probability assumptions, severity assumptions and prepayment assumptions. Projected losses are a function of both loss severity and probability of default. Default probability and severity assumptions differ based on property type, vintage and the stress of the collateral. Our Company does not intend to sell any of these securities and it is more likely than not that, it will not be required to sell these securities before the recovery of the amortized cost basis.

For equity securities, in general, our Company focuses its attention on those securities with a fair value less than 80% of their cost for six or more consecutive months. If warranted as the result of conditions relating to a particular security, our Company will focus on a significant decline in fair value regardless of the time period involved. Factors considered in evaluating potential impairment include, but are not limited to, the current fair value as compared to cost of the security, the length of time the investment has been below cost and by how much the investment is below cost. If an equity security is deemed to be other-than-temporarily impaired, the cost is written down to fair value with the loss recognized in earnings.

Our Company’s ability to hold securities is supported by sufficient cash flow from its operations and from maturities within its investment portfolio in order to meet its claims payment and other disbursement obligations arising from its underwriting operations without selling such investments. With respect to securities where the decline in value is determined to be temporary and the security’s value is not written down, a subsequent decision may be made to sell that security and realize a loss. Subsequent decisions on security sales are made within the context of overall risk monitoring, changing information and market conditions.

As of December 31, 2014, there were no securities with a fair value that was less than 80% of amortized cost.

The table below summarizes our Company’s activity related to OTTI losses for the periods indicated:

	Year Ended December 31,
	2014					2013				2012
In thousands, except # of securities	Number of Securities		Amount			Number of Securities		Amount		Number of Securities		Amount
Total OTTI losses:
Corporate and other bonds		—	$	—			1	$	1,822		—	$	—
Commercial mortgage-backed securities		—		—			—		—		—		—
Residential mortgage-backed securities		31		(137	)		—		—		1		55
Asset-backed securities		—		—			—		—		—		—
Equities		—		—			3		571		3		847
Total		31	$	(137	)		4	$	2,393		4	$	902
Less: Portion of loss in accumulated other comprehensive income (loss):
Corporate and other bonds			$	—				$	—			$	—
Commercial mortgage-backed securities				—					—				—
Residential mortgage-backed securities				(137	)				—				44
Asset-backed securities				—					—				—
Equities				—					—				—
Total			$	(137	)			$	—			$	44
Impairment losses recognized in earnings:
Corporate and other bonds			$	—				$	1,822			$	—
Commercial mortgage-backed securities				—					—				—
Residential mortgage-backed securities				—					—				11
Asset-backed securities				—					—				—
Equities				—					571				847
Total			$	—				$	2,393			$	858

The following table summarizes the cumulative amounts related to our Company’s credit loss portion of the OTTI losses on fixed maturities for the years ended December 31, 2014, 2013 and 2012. Our Company does not intend to sell and it is more likely than not that it will not be required to sell, the securities prior to recovery of the amortized cost basis and for which the non-credit loss portion is included in AOCI.

	Year Ended December 31,
In thousands	2014			2013		2012
Beginning balance	$	5,154		$	3,332	$	3,321
Additions for credit loss impairments recognized in the current period on securities not previously impaired		—			1,822		—
Additions for credit loss impairments recognized in the current period on securities previously impaired		—			—		11
Reductions for credit loss impairments previously recognized on securities sold during the period		(2,793	)		—		—
Ending balance	$	2,361		$	5,154	$	3,332

The contractual maturity dates for fixed maturities categorized by the number of years until maturity, with a gross unrealized loss as of December 31, 2014 is presented in the following table:

	December 31, 2014
	Gross Unrealized Losses					Fair Value
In thousands	Amount		Percent of Total			Amount		Percent of Total
Due in one year or less	$	2,638		25	%	$	21,919		3	%
Due after one year through five years		3,791		37	%		334,046		46	%
Due after five years through ten years		1,562		15	%		103,376		14	%
Due after ten years		158		2	%		21,533		3	%
Mortgage- and asset-backed securities		2,198		21	%		250,472		34	%
Total	$	10,347		100	%	$	731,346		100	%

Our Company’s net investment income was derived from the following sources:

	Year Ended December 31,
In thousands	2014			2013			2012
Fixed maturities	$	57,219		$	53,898		$	58,995
Equity securities		9,036			4,835			3,945
Short-term investments		911			774			1,694
Total investment income		67,166			59,507			64,634
Investment expenses		(2,998	)		(3,256	)		(10,386	)
Net investment income	$	64,168		$	56,251		$	54,248

Investment expenses for the year ended December 31, 2012 include $4.5 million of interest expense related to the settlement of a dispute with Equitas over foregone interest on amounts that were due on certain reinsurance contracts. In the dispute Equitas alleged that we failed to make timely payments to them under certain reinsurance agreements in connection with subrogation recoveries received by our Company with respect to several catastrophe losses that occurred in the late 1980’s and early 1990’s. In addition, investment expenses for the year ended December 31, 2012 includes a $2.8 million investment performance fee.

The change in net unrealized gains and losses, inclusive of the change in the non-credit portion of OTTI losses, consisted of:

	Year Ended December 31,
In thousands	2014		2013			2012
Fixed maturities	$	31,080	$	(76,194	)	$	15,709
Equity securities		4,302		8,857			(5,989	)
Gross unrealized gains (losses)		35,382		(67,337	)		9,720
Deferred income tax		12,197		(23,565	)		3,418
Change in net unrealized gains (losses), net	$	23,185	$	(43,772	)	$	6,302

Realized gains and losses, excluding net OTTI losses recognized in earnings, for the periods indicated, were as follows:

	Year Ended December 31,
In thousands	2014			2013			2012
Fixed maturities:
Gains	$	8,326		$	8,539		$	28,789
Losses		(2,610	)		(2,797	)		(1,915	)
Fixed maturities, net	$	5,716		$	5,742		$	26,874
Equity securities:
Gains	$	9,447		$	17,955		$	14,673
Losses		(2,351	)		(758	)		(473	)
Equity securities, net	$	7,096		$	17,197		$	14,200
Net realized gains (losses)	$	12,812		$	22,939		$	41,074

The following tables present, for each of the fair value hierarchy levels as defined by the accounting guidance for fair value measurements and described below, our Company’s fixed maturities and equity securities by asset class that are measured at fair value on a recurring basis as of December 31, 2014 and 2013:

	December 31, 2014
In thousands	Level 1		Level 2		Level 3		Total
Fixed maturities:
U.S. Treasury bonds, agency bonds and foreign government bonds	$	146,904	$	251,019	$	—	$	397,923
States, municipalities and political subdivisions		—		541,007		—		541,007
Mortgage-backed and asset-backed securities:								—
Agency mortgage-backed securities		—		364,622		—		364,622
Residential mortgage obligations		—		34,087		—		34,087
Asset-backed securities		—		206,413		—		206,413
Commercial mortgage-backed securities		—		206,318		—		206,318
Subtotal	$	—	$	811,440	$	—	$	811,440
Corporate bonds		—		615,564		—		615,564
Total fixed maturities	$	146,904	$	2,219,030	$	—	$	2,365,934
Equity securities - common stocks		127,183				—		127,183
Equity securities - preferred stocks		—		57,112		—		57,112
Total	$	274,087	$	2,276,142	$	—	$	2,550,229

	December 31, 2013
In thousands	Level 1		Level 2		Level 3		Total
Fixed maturities:
U.S. Treasury bonds, agency bonds and foreign government bonds	$	242,379	$	199,306	$	—	$	441,685
States, municipalities and political subdivisions		—		460,422		—		460,422
Mortgage-backed and asset-backed securities:								—
Agency mortgage-backed securities		—		301,274		—		301,274
Residential mortgage obligations		—		41,755		—		41,755
Asset-backed securities		—		125,133		—		125,133
Commercial mortgage-backed securities		—		172,750		—		172,750
Subtotal	$	—	$	640,912	$	—	$	640,912
Corporate bonds		—		500,447		4,407		504,854
Total fixed maturities	$	242,379	$	1,801,087	$	4,407	$	2,047,873
Equity securities - common stocks		143,954		—		—		143,954
Total	$	386,333	$	1,801,087	$	4,407	$	2,191,827

The fair value of financial instruments is determined based on the following fair value hierarchy:

Level 1 – Quoted prices for identical instruments in active markets. Examples are listed equity and fixed income securities traded on an exchange. U.S. Treasury securities are reported as level 1 and are valued based on unadjusted quoted prices for identical assets in active markets that our Company can access.

Level 2 – Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations in which all significant inputs and significant value drivers are observable in active markets. Examples are asset-backed and mortgage-backed securities that are similar to other asset-backed or mortgage-backed securities observed in the market. U.S. government agency securities are reported as level 2 and are valued using yields and spreads that are observable in active markets.

Level 3 – Valuations derived from valuation techniques in which one or more significant inputs or significant value drivers are unobservable. An example would be a private placement with minimal liquidity.

Our Company did not have any significant transfers between Level 1 and 2 for the years ended December 31, 2014 and 2013.

Our Company did not have any Level 3 assets for the year ended December 31, 2014.

During 2014, one security was transferred from Level 3 to Level 2 as our Company was able to obtain a price from a vendor, in which all significant inputs to the model are observable in active markets.

The following tables present a reconciliation of the beginning and ending balances for all investments measured at fair value using Level 3 inputs for the years ended December 31, 2014 and 2013. For the year ended December 31, 2012, our Company did not have any Level 3 assets.

	Year Ended December 31, 2014
In thousands	Beginning Balance		Realized Gains (Losses)		Unrealized Gains (Losses)		Purchase		Sales		Settlements		Transfers into Level 3		Transfers out of Level 3			Ending
Assets:
Corporate Bond	$	4,407	$	—	$	—	$	—	$	—	$	—	$	—	$	(4,407	)	$	—
Total assets	$	4,407	$	—	$	—	$	—	$	—	$	—	$	—	$	(4,407	)	$	—

	Year Ended December 31, 2013
In thousands	Beginning Balance		Realized Gains (Losses)		Unrealized Gains (Losses)			Purchase		Sales			Settlements		Transfers into Level 3		Transfers out of Level 3		Ending
Assets:
Commercial
Mortgage	$	—	$	—	$	(42	)	$	4,660	$	(211	)	$	—	$	—	$	—	$	4,407
Total assets	$	—	$	—	$	(42	)	$	4,660	$	(211	)	$	—	$	—	$	—	$	4,407

In 2013 the Level 3 security was valued using unobservable inputs based on a proxy of a security of similar duration in which market quotations are available.

As of December 31, 2014 and 2013, our Company’s restricted net assets in support of the underwriting activities of the Insurance Companies and Lloyd’s Operations were $523.4 million and $520.9 million, respectively, consisting of fixed maturities, short term investments and cash. Refer to Note 13, Dividends and Statutory Financial Information, for additional information on the nature and type of restricted net assets.

As of December 31, 2014 and 2013, our Company did not have a concentration of greater than 5% of invested assets in a single non-U.S. government-backed issuer.

XML

Reserves for Losses and Loss Adjustment Expenses

12 Months Ended

Dec. 31, 2014

Reserves for Losses and Loss Adjustment Expenses

Note 5. Reserves for Losses and Loss Adjustment Expenses

Insurance companies and Lloyd’s syndicates are required to maintain reserves for unpaid losses and unpaid loss adjustment expenses for all lines of business. These reserves are intended to cover the probable ultimate cost of settling all losses incurred and unpaid, including those incurred but not reported. The determination of reserves for losses and LAE for the Insurance Companies and the Lloyd’s Operations is dependent upon the receipt of information from the agents and brokers, which produce the insurance business for us. Generally, there is a lag between the time premiums are written and related losses and loss adjustment expenses are incurred, and the time such events are reported to the agents and brokers and, subsequently, the Insurance Companies and the Lloyd’s Operations.

Case reserves are established by our Insurance Companies and Syndicate 1221 for reported claims when notice of the claim is first received. Reserves for such reported claims are established on a case-by-case basis by evaluating several factors, including the type of risk involved, knowledge of the circumstances surrounding such claim, severity of injury or damage, the potential for ultimate exposure, experience with the line of business, and the policy provisions relating to the type of claim. Reserves for IBNR are determined in part on the basis of statistical information, in part on industry experience and in part on the judgment of our senior corporate officers. Indicated reserves are calculated by our actuaries using several standard actuarial methodologies, including the paid and incurred loss development and the paid and incurred Bornheutter-Ferguson loss methods. Additional analyses, such as frequency/severity analyses, are performed for certain books of business.

Total loss reserves are estimates of what the insurer or reinsurer expects to pay on claims, based on facts and circumstances then known. It is possible that the ultimate liability may exceed or be less than such estimates. In setting our loss reserve estimates, we review statistical data covering several years, analyze patterns by line of business and consider several factors including trends in claims frequency and severity, changes in operations, emerging economic and social trends, inflation and changes in the regulatory and litigation environment. Using the aforementioned actuarial methods and different underlying assumptions, our actuaries produce a number of point estimates for each class of business. After reviewing the appropriateness of the underlying assumptions, management selects the carried reserve for each class of business. The numerous factors that contribute to the inherent uncertainty in the process of establishing loss reserves include: interpreting loss development activity, emerging economic and social trends, inflation, changes in the regulatory and judicial environment and changes in our operations, including changes in underwriting standards and claims handling procedures. During the loss settlement period, which, in some cases, may last several years, additional facts regarding individual claims may become known and, accordingly, it often becomes necessary to refine and adjust the estimates of liability on a claim upward or downward. Such estimates are regularly reviewed and updated and any resulting adjustments are included in the current year’s income statement. Even then, the ultimate liability may exceed or be less than the revised estimates. The reserving process is intended to provide implicit recognition of the impact of inflation and other factors affecting loss payments by taking into account changes in historical payment patterns and perceived probable trends. There is generally no precise method for the subsequent evaluation of the adequacy of the consideration given to inflation, or to any other specific factor, because the eventual strengthening or release of reserves is affected by many factors, some of which are interdependent. To the extent that reserves are strengthened or released, the amount of such strengthening or release is treated as a charge or credit to earnings in the period in which the strengthening or release is recognized.

The following table summarizes our Company’s reserves for losses and LAE activity for the years ended December 31, 2014, 2013 and 2012:

	Year Ended December 31,
In thousands	2014			2013			2012
Net reserves for losses and LAE at beginning of year	$	1,222,633		$	1,216,909		$	1,237,234
Provision for losses and LAE for claims occurring in the current year		601,041			520,227			542,724
Increase (decrease) in estimated losses and LAE for claims occurring in prior years		(55,812	)		(1,266	)		(45,291	)
Incurred losses and LAE		545,229			518,961			497,433
Losses and LAE paid for claims occurring during:
Current year		(164,199	)		(147,758	)		(110,373	)
Prior years		(295,527	)		(365,479	)		(407,385	)
Losses and LAE payments		(459,726	)		(513,237	)		(517,758	)
Net reserves for losses and LAE at end of year		1,308,136			1,222,633			1,216,909
Reinsurance recoverables on unpaid losses and LAE		851,498			822,438			880,139
Gross reserves for losses and LAE at end of year	$	2,159,634		$	2,045,071		$	2,097,048

The segment and line of business breakdowns of prior period net reserve strengthening (releases) for the years ended December 31, 2014, 2013 and 2012 are as follows:

	Year Ended December 31,
In thousands	2014			2013			2012
Insurance Companies:
Marine	$	(41,388	)	$	(15,227	)	$	(10,010	)
Property Casualty		14,612			18,466			4,293
Professional Liability		(3,536	)		10,191			7,613
Insurance Companies	$	(30,312	)	$	13,430		$	1,896
Lloyd’s Operations:
Marine	$	(21,336	)	$	(2,998	)	$	(30,735	)
Property Casualty		(1,500	)		(14,574	)		(6,890	)
Professional Liability		(2,664	)		2,876			(9,562	)
Lloyd’s Operations	$	(25,500	)	$	(14,696	)	$	(47,187	)
Total strengthening (releases)	$	(55,812	)	$	(1,266	)	$	(45,291	)

The following is a discussion of relevant factors related to the $55.8 million prior period net reserve releases recorded for the year ended December 31, 2014:

The Insurance Companies recorded $30.3 million of net prior year reserve releases, primarily driven by our Marine business, in connection with $41.4 million of net favorable loss emergence due to a lesser amount of large losses and improved underwriting over the past couple of years across all core product lines, inclusive of $13.4 million from Marine Liability, $7.2 million from Craft/Fishing vessels, $6.4 million from P&I, $4.7 million from Inland Marine, $1.1 million from Bluewater Hull and $0.7 million from Cargo.

The Insurance Companies’ Marine reserve releases were partially offset by $14.6 million of net reserve strengthening from our Property Casualty business which is driven by $23.2 million of prior year reserve strengthening from our Primary Casualty division resulting entirely from unfavorable activity on pre-2010 California construction defect liability claims, partially offset by $6.1 million of reserve releases due to favorable loss emergence from our Excess Casualty division.

The Insurance Companies’ Professional Liability business recorded $3.5 million of net prior year reserve releases primarily driven by $4.5 million of favorable loss emergence from our Management Liability division due to a cash settlement of a contract dispute with a former third party administrator, partially offset by unfavorable loss emergence from our Errors and Omissions (“E&O”) division due to our small lawyers’ product lines, which are in runoff.

The Lloyds Operations recorded $25.5 million of net prior year reserve releases primarily driven by $21.3 million of Marine releases in connection with favorable loss emergence across all core product lines, inclusive of $11.0 million from Marine Liability, $3.7 million from Specie, $1.3 million from Transport, $1.0 million from Cargo, $2.3 million from Energy Liability and $2.0 million from Marine Assumed.

The Lloyd’s Operations Property Casualty line recorded prior year releases of $1.5 million due to favorable loss emergence on our Onshore Energy book. Additionally, the Professional Liability business reserve releases on older underwriting years (“UWYs”) was due to favorable loss emergence on both our E&O book by $1.0 million and Excess D&O by $1.7 million.

The following is a discussion of relevant factors related to the $1.3 million prior period net reserve releases recorded for the year ended December 31, 2013:

The Insurance Companies recorded $13.4 million of net strengthening primarily driven by our Property Casualty and Professional Liability businesses. Within the Property Casualty business, we reported net prior period reserve strengthening of $18.5 million, which includes $13.2 million of net strengthening from our Assumed Reinsurance division mostly attributable to our excess-of-loss A&H treaty lines in connection with UWYs 2012 and 2011, $10.4 million of strengthening from our Primary Casualty division related to our general liability coverage for general and artisan contractors, and a total of $2.1 million of strengthening for business in run-off. The aforementioned net prior period reserve strengthening was partially offset by $8.0 million of net prior period reserve releases from our Energy & Engineering division in connection with favorable emergence on our Offshore Energy lines written by our UK Branch.

Our Insurance Companies Professional Liability business reported net prior period reserve strengthening of $10.2 million largely attributable to $6.1 million reserve strengthening from our Management Liability division related to specific large claims for UWYs 2010 and prior, and $4.4 million reserve strengthening from our E&O division related to specific large claims from our insurance agents, miscellaneous Professional Liability, and small lawyer lines from UWYs 2011 and prior.

The aforementioned net prior period reserve strengthening from our Insurance Companies Property Casualty and Professional Liability were partially offset by $15.2 million of net reserve releases from our Insurance Companies Marine business in connection with favorable emergence from our Marine Liability lines for UWYs 2012 and prior.

Our Lloyd’s Operations recorded $14.7 million of net reserve releases driven by our Property Casualty and Marine businesses partially offset by strengthening in our Professional Liability business. Within our Lloyd’s Operations Property Casualty business, we reported net prior period reserve releases of $14.6 million primarily from our Energy & Engineering division. Within our Lloyd’s Operations Marine business, we reported prior period reserve releases of $3.0 million driven by our Marine Liability product. Within our Lloyd’s Operations Professional Liability business, we reported strengthening of $2.9 million, inclusive of $6.1 million of strengthening in our E&O division partially offset by $3.2 million of favorable emergence from our Management Liability division.

The following is a discussion of relevant factors related to the $45.3 million prior period net reserve releases recorded for the year ended December 31, 2012:

The Insurance Companies recorded $1.9 million net strengthening. The Marine business had $10.0 million of net reserve releases, which were primarily driven by:

• An IBNR adjustment of $4.0 million to reflect the actual emergence of claims for UWY 2010, which was more favorable than the expected emergence.

• Case reserve releases of $3.4 million due to the favorable settlement of several large losses; and

• A favorable IBNR adjustment of $2.6 million attributable to changes in our assumptions for salvage and subrogation from our short tail Marine lines that was based on our observation of a consistent and persistent historical pattern of favorable savings attributable to salvage and subrogation.

The Marine reserve releases were partially offset by net strengthening of $7.6 million from the small lawyer and accountants lines within our Professional Liability business. This strengthening was primarily driven by several large losses that caused the actual claims emergence for these lines to exceed the expected losses. We also incurred net reserve strengthening of $4.3 million within our Property Casualty segment, which were primarily attributable to two large hemophiliac claims from UWY 2011 arising from our A&H product lines.

Our Lloyd’s Operations recorded $47.2 million of net prior period reserve releases across all businesses and divisions. In connection with our Company’s implementation of the Solvency II technical provisions in its Lloyd’s Operations, our Company’s actuaries undertook a comprehensive review during 2012 of the historical claims emergence patterns for all lines of business underwritten through Syndicate 1221. As a result of this review, our Company updated the loss emergence patterns used to project ultimate losses for all such lines of business, aligning these loss emergence factors with the historical median. This caused a reduction in ultimate loss estimates for all Lloyd’s Operations segments other than certain lines of business in Property Casualty segment, which increased. The Lloyd’s Operations also experienced significant reserve redundancies in several large claims. The amount of reserve redundancies attributable to these settlements was $5.0 million, consisting of $4.1 million from the Marine business and $0.9 million from Professional Liability business. A summary of the resulting prior period redundancies for each business within our Lloyd’s Operations by prior UWY is set forth below:

In thousands	Marine		Property Casualty		Professional Liability		Total
2010	$	3,492	$	378	$	1,157	$	5,027
2009		14,792		4,170		6,072		25,034
2008 and Prior		12,451		2,342		2,333		17,126
Total Redundancy	$	30,735	$	6,890	$	9,562	$	47,187

Management believes that the reserves for losses and loss adjustment expenses are adequate to cover the ultimate cost of losses and loss adjustment expenses on reported and unreported claims. We continue to review our reserves on a regular basis.

XML

Income Taxes

12 Months Ended

Dec. 31, 2014

Income Taxes

Note 7. Income Taxes

Our Company is subject to the tax laws and regulations of the United States (“U.S.”) and the foreign countries in which it operates. Our Company files a consolidated U.S. Federal tax return, which includes all domestic subsidiaries and the U.K. Branch. The income from the foreign operations is designated as either U.S. connected income or non-U.S. connected income. Lloyd’s is required to pay U.S. income tax on U.S. connected income written by Lloyd’s syndicates. Lloyd’s and the Internal Revenue Service (“IRS”) have entered into an agreement whereby the amount of tax due on U.S. connected income is calculated by Lloyd’s and remitted directly to the IRS. These amounts are then charged to the corporate member in proportion to its participation in the relevant syndicates. Our Company’s corporate member is subject to this agreement and receives U.K. tax credits in the U.K. for any U.S. income tax incurred up to the U.K. income tax charged on the U.S. connected income. The non-U.S. connected insurance income would generally constitute taxable income under the Subpart F income section of the U.S. Internal Revenue Code (“Subpart F”) since less than 50% of Syndicate 1221’s premiums are derived within the U.K. and would therefore be subject to U.S. taxation when the Lloyd’s year of account closes. Taxes are accrued at a 35% rate on our Company’s foreign source insurance income and foreign tax credits, where available, are utilized to offset U.S. tax as permitted. Our Company’s effective tax rate for Syndicate 1221 taxable income could substantially exceed 35% to the extent our Company is unable to offset U.S. taxes paid under Subpart F tax regulations with U.K. tax credits on future underwriting year distributions. U.S. taxes are not accrued on the earnings of our Company’s foreign agencies as these earnings are subject to the active financing exception and are not includable as Subpart F income. Certain provisions of Subpart F expired for years after December 31, 2014; therefore, these earnings will be taxable in the U.S. at the 35% tax rate beginning January 1, 2015.

The components of current and deferred income tax expense (benefit) are as follows:

	Year Ended December 31,
In thousands	2014		2013		2012
Current income tax expense (benefit):
Federal and foreign	$	27,290	$	23,703	$	39,242
State and local		1,036		446		146
Subtotal		28,326		24,149		39,388
Deferred income tax expense (benefit):
Federal and foreign		16,881		4,658		(11,414	)
State and local		—		—		—
Subtotal		16,881		4,658		(11,414	)
Total income tax expense (benefit)	$	45,207	$	28,807	$	27,974

A reconciliation of total income taxes applicable to pre-tax operating income and the amounts computed by applying the federal statutory income tax rate to the pre-tax operating income were as follows:

	Year Ended December 31,
In thousands	2014					2013					2012
Computed expected tax expense	$	49,187		35.0	%	$	32,299		35.0	%	$	32,109		35.0	%
Tax-exempt interest		(4,771	)	-3.4	%		(3,839	)	-4.2	%		(4,443	)	-4.8	%
Dividends received deduction		(1,257	)	-0.9	%		(897	)	-1.0	%		(799	)	-0.9	%
Proration of DRD and Tax-exempt interest		904		0.6	%		710		0.8	%		786		0.9	%
Current state and local income taxes, net of federal income tax deduction		674		0.5	%		290		0.3	%		95		0.1	%
Other		470		0.3	%		244		0.3	%		226		0.2	%
Actual tax expense and rate	$	45,207		32.2	%	$	28,807		31.2	%	$	27,974		30.5	%

The tax effects of temporary differences that give rise to federal, foreign, state and local deferred tax assets and deferred tax liabilities were as follows:

	December 31,
In thousands	2014			2013
Deferred tax assets:
Loss reserve discount	$	24,820		$	27,822
Unearned premiums		29,080			25,706
Compensation related		10,586			6,782
State and local net deferred tax assets		777			555
Other		1,834			3,889
Total gross deferred tax assets		67,097			64,754
Less: Valuation allowance		(777	)		(555	)
Total deferred tax assets	$	66,320		$	64,199
Deferred tax liabilities:
Net unrealized gains/losses on securities		(24,832	)		(9,119	)
Deferred acquisition costs		(22,120	)		(19,258	)
Lloyd’s year of account deferral		(13,578	)		(4,381	)
Net unrealized foreign exchange		(4,470	)		(3,516	)
Other		(2,787	)		(4,119	)
Total deferred tax liabilities	$	(67,787	)	$	(40,393	)
Net deferred income tax asset (liability)	$	(1,467	)	$	23,806

Our Company has not provided for U.S. income taxes on approximately $22.6 million of undistributed earnings of its non-U.S. subsidiaries since it is intended that those earnings will be reinvested indefinitely in those subsidiaries. If a future determination is made that those earnings no longer are intended to be reinvested indefinitely in those subsidiaries, U.S. income taxes of approximately $2.3 million, assuming all foreign tax credits are realized, would be included in the tax provision at that time and would be payable if those earnings were distributed to our Company.

Unrecognized tax benefits are differences between tax positions taken in the tax returns and benefits recognized in the financial statements. Our Company has no unrecognized tax benefits as of December 31, 2014 and 2013. Our Company did not incur any interest or penalties related to unrecognized tax benefits for the years ended December 31, 2014 and 2013. Our Company currently is under examination by the IRS for taxable years 2010, 2011, and 2012 and generally is subject to U.S. Federal, state or local or foreign tax examinations by tax authorities for 2009 and subsequent years.

Our Company recorded income tax expense of $45.2 million for the year ended December 31, 2014 compared to $28.8 million for the same period in 2013, resulting in an effective tax rate of 32.2% for the year ended December 31, 2014 and 31.2% for the comparable periods in 2013.

Our Company had state and local deferred tax assets amounting to potential future tax benefits of $0.8 million and $0.6 million as of December 31, 2014 and 2013, respectively. Included in the deferred tax assets are state and local net operating loss carry-forwards of $0.0 million as of December 31, 2014 and $0.1 million for December 31, 2013. A valuation allowance was established for the full amount of these potential future tax benefits due to the uncertainty associated with their realization. Our Company’s state and local tax carry-forwards as of December 31, 2014 expire from 2024 to 2032.

In assessing the realization of deferred tax assets, management considers whether it is more likely than not that, the deferred tax assets will be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. Management considers the scheduled reversal of deferred tax liabilities, tax planning strategies and anticipated future taxable income in making this assessment and believes it is more likely than not that our Company will realize the benefits of its deductible differences as of December 31, 2014, net of any valuation allowance.

XML

Reserves for Losses and Loss Adjustment Expenses - Additional Information (Detail) (USD $) In Thousands, unless otherwise specified	12 Months Ended
	Dec. 31, 2014	Dec. 31, 2013	Dec. 31, 2012
Causes of Increase (Decrease) in Liability for Unpaid Claims and Claims Adjustment Expense [Line Items]
Net reserve deficiencies (redundancies) in prior years	$ 55,812	$ 1,266	$ 45,291
Marine | Short Tail Marine Lines
Causes of Increase (Decrease) in Liability for Unpaid Claims and Claims Adjustment Expense [Line Items]
Net reserve deficiencies (redundancies) in prior years			2,600
Marine | Claims Emergence
Causes of Increase (Decrease) in Liability for Unpaid Claims and Claims Adjustment Expense [Line Items]
Net reserve deficiencies (redundancies) in prior years			4,000
Marine | Case Reserves
Causes of Increase (Decrease) in Liability for Unpaid Claims and Claims Adjustment Expense [Line Items]
Net reserve deficiencies (redundancies) in prior years			3,400
Insurance Companies
Causes of Increase (Decrease) in Liability for Unpaid Claims and Claims Adjustment Expense [Line Items]
Net reserve deficiencies (redundancies) in prior years	(30,312)	13,430	1,896
Insurance Companies | Offshore Energy
Causes of Increase (Decrease) in Liability for Unpaid Claims and Claims Adjustment Expense [Line Items]
Net reserve deficiencies (redundancies) in prior years		8,000
Insurance Companies | Marine
Causes of Increase (Decrease) in Liability for Unpaid Claims and Claims Adjustment Expense [Line Items]
Net reserve deficiencies (redundancies) in prior years	(41,388)	(15,227)	(10,010)
Insurance Companies | Marine | Marine Liability
Causes of Increase (Decrease) in Liability for Unpaid Claims and Claims Adjustment Expense [Line Items]
Net reserve deficiencies (redundancies) in prior years	13,400
Insurance Companies | Marine | Craft/Fishing Vassels
Causes of Increase (Decrease) in Liability for Unpaid Claims and Claims Adjustment Expense [Line Items]
Net reserve deficiencies (redundancies) in prior years	7,200
Insurance Companies | Marine | P&I
Causes of Increase (Decrease) in Liability for Unpaid Claims and Claims Adjustment Expense [Line Items]
Net reserve deficiencies (redundancies) in prior years	6,400
Insurance Companies | Marine | Inland Marine
Causes of Increase (Decrease) in Liability for Unpaid Claims and Claims Adjustment Expense [Line Items]
Net reserve deficiencies (redundancies) in prior years	4,700
Insurance Companies | Marine | Bluewater Hull
Causes of Increase (Decrease) in Liability for Unpaid Claims and Claims Adjustment Expense [Line Items]
Net reserve deficiencies (redundancies) in prior years	1,100
Insurance Companies | Marine | Cargo
Causes of Increase (Decrease) in Liability for Unpaid Claims and Claims Adjustment Expense [Line Items]
Net reserve deficiencies (redundancies) in prior years	700
Insurance Companies | Property Casualty
Causes of Increase (Decrease) in Liability for Unpaid Claims and Claims Adjustment Expense [Line Items]
Net reserve deficiencies (redundancies) in prior years	14,612	18,466	4,293
Insurance Companies | Property Casualty | Contractors
Causes of Increase (Decrease) in Liability for Unpaid Claims and Claims Adjustment Expense [Line Items]
Net reserve deficiencies (redundancies) in prior years	23,200	10,400
Insurance Companies | Property Casualty | Claims Emergence
Causes of Increase (Decrease) in Liability for Unpaid Claims and Claims Adjustment Expense [Line Items]
Net reserve deficiencies (redundancies) in prior years	6,100
Insurance Companies | Property Casualty | Accident and Health
Causes of Increase (Decrease) in Liability for Unpaid Claims and Claims Adjustment Expense [Line Items]
Net reserve deficiencies (redundancies) in prior years		13,200	4,300
Insurance Companies | Property Casualty | Business in run-off
Causes of Increase (Decrease) in Liability for Unpaid Claims and Claims Adjustment Expense [Line Items]
Net reserve deficiencies (redundancies) in prior years		2,100
Insurance Companies | Professional Liability
Causes of Increase (Decrease) in Liability for Unpaid Claims and Claims Adjustment Expense [Line Items]
Net reserve deficiencies (redundancies) in prior years	(3,536)	10,191	7,613
Insurance Companies | Professional Liability | Errors and Omissions
Causes of Increase (Decrease) in Liability for Unpaid Claims and Claims Adjustment Expense [Line Items]
Net reserve deficiencies (redundancies) in prior years		4,400
Insurance Companies | Professional Liability | Management Liability
Causes of Increase (Decrease) in Liability for Unpaid Claims and Claims Adjustment Expense [Line Items]
Net reserve deficiencies (redundancies) in prior years		6,100
Insurance Companies | Professional Liability | Settlement
Causes of Increase (Decrease) in Liability for Unpaid Claims and Claims Adjustment Expense [Line Items]
Net reserve deficiencies (redundancies) in prior years	4,500
Lloyd's
Causes of Increase (Decrease) in Liability for Unpaid Claims and Claims Adjustment Expense [Line Items]
Net reserve deficiencies (redundancies) in prior years	(25,500)	(14,696)	(47,187)
Lloyd's | Syndicate 1221
Causes of Increase (Decrease) in Liability for Unpaid Claims and Claims Adjustment Expense [Line Items]
Net reserve deficiencies (redundancies) in prior years			5,000
Lloyd's | Marine
Causes of Increase (Decrease) in Liability for Unpaid Claims and Claims Adjustment Expense [Line Items]
Net reserve deficiencies (redundancies) in prior years	(21,336)	(2,998)	(30,735)
Lloyd's | Marine | Marine Liability
Causes of Increase (Decrease) in Liability for Unpaid Claims and Claims Adjustment Expense [Line Items]
Net reserve deficiencies (redundancies) in prior years	11,000
Lloyd's | Marine | Cargo
Causes of Increase (Decrease) in Liability for Unpaid Claims and Claims Adjustment Expense [Line Items]
Net reserve deficiencies (redundancies) in prior years	1,000
Lloyd's | Marine | Specie
Causes of Increase (Decrease) in Liability for Unpaid Claims and Claims Adjustment Expense [Line Items]
Net reserve deficiencies (redundancies) in prior years	3,700
Lloyd's | Marine | Transport
Causes of Increase (Decrease) in Liability for Unpaid Claims and Claims Adjustment Expense [Line Items]
Net reserve deficiencies (redundancies) in prior years	1,300
Lloyd's | Marine | Energy Liability
Causes of Increase (Decrease) in Liability for Unpaid Claims and Claims Adjustment Expense [Line Items]
Net reserve deficiencies (redundancies) in prior years	2,300
Lloyd's | Marine | Marine Assumed
Causes of Increase (Decrease) in Liability for Unpaid Claims and Claims Adjustment Expense [Line Items]
Net reserve deficiencies (redundancies) in prior years	2,000
Lloyd's | Marine | Syndicate 1221
Causes of Increase (Decrease) in Liability for Unpaid Claims and Claims Adjustment Expense [Line Items]
Net reserve deficiencies (redundancies) in prior years			4,100
Lloyd's | Property Casualty
Causes of Increase (Decrease) in Liability for Unpaid Claims and Claims Adjustment Expense [Line Items]
Net reserve deficiencies (redundancies) in prior years	(1,500)	(14,574)	(6,890)
Lloyd's | Professional Liability
Causes of Increase (Decrease) in Liability for Unpaid Claims and Claims Adjustment Expense [Line Items]
Net reserve deficiencies (redundancies) in prior years	(2,664)	2,876	(9,562)
Lloyd's | Professional Liability | Errors and Omissions
Causes of Increase (Decrease) in Liability for Unpaid Claims and Claims Adjustment Expense [Line Items]
Net reserve deficiencies (redundancies) in prior years	1,000	6,100
Lloyd's | Professional Liability | Management Liability
Causes of Increase (Decrease) in Liability for Unpaid Claims and Claims Adjustment Expense [Line Items]
Net reserve deficiencies (redundancies) in prior years	1,700	3,200
Lloyd's | Professional Liability | Syndicate 1221
Causes of Increase (Decrease) in Liability for Unpaid Claims and Claims Adjustment Expense [Line Items]
Net reserve deficiencies (redundancies) in prior years			$ 900

XML

Stock Option Plans, Stock Grants, Stock Appreciation Rights and Employee Stock Purchase Plan - Additional Information (Detail) (USD $)	12 Months Ended
	Dec. 31, 2014	Dec. 31, 2013	Dec. 31, 2012	Dec. 31, 2005	Apr. 30, 2013	Apr. 30, 2009
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Performance based shares that vested	183,716	133,482	138,321
Fair value of total vested shares	$ 5,100,000	$ 3,500,000	$ 4,600,000
Percentage of employees base compensation through payroll that can be invested for the purchase of common stock, maximum	10.00%
Number of shares which can be acquired by employee, maximum	1,000
Total market value of shares that can be acquired by employee	25,000
Employee Stock Purchase Plan, shares to be purchased in following period	9,509
Employee Stock Purchase Plan, shares purchased by employees	19,386	17,000	16,000
Discount on employee stock purchase plan	10.00%
Performance Based Shares
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Performance based shares that vested	0	15,714	0
Maximum
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Options expiration term (in years)	10 years
Options and Non Performance Based Grants | Minimum
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Share based payment award, award vesting period	3 years
Options and Non Performance Based Grants | Maximum
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Share based payment award, award vesting period	4 years
Non Performance Based Shares
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Share based payment award, award vesting period	5 years
Performance based shares that vested	90,263	60,183	91,323
Non Performance Based Shares | Year Three
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Percentage of shares vesting over the period	33.33%
Non Performance Based Shares | Year Four
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Percentage of shares vesting over the period	33.33%
Non Performance Based Shares | Year Five
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Percentage of shares vesting over the period	33.33%
Performance Based Shares Issued in 2014
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Percentage of remaining shares vesting over the period dependent on compound annual growth book value per share immediately prior to vesting date	100.00%
Performance Based Shares Issued in 2014 | Minimum
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Percentage of shares vesting over the period	50.00%
Performance Based Shares Issued in 2014 | Maximum
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Percentage of shares vesting over the period	150.00%
Performance Based Shares Issued Between 2011-2013
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Percentage of shares vesting over the period	50.00%
Percentage of remaining shares vesting over the period dependent on compound annual growth book value per share immediately prior to vesting date	50.00%
Performance Based Shares Issued Between 2011-2013 | Minimum
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Percentage of shares vesting over the period	0.00%
Performance Based Shares Issued Between 2011-2013 | Maximum
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Percentage of shares vesting over the period	150.00%
Performance Based Shares Issued Prior to 2011
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Share based payment award, award vesting period	5 years
Performance Based Shares Issued Prior to 2011 | Year Three
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Percentage of shares vesting over the period	33.33%
Performance Based Shares Issued Prior to 2011 | Year Four
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Percentage of shares vesting over the period	33.33%
Performance Based Shares Issued Prior to 2011 | Year Five
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Percentage of shares vesting over the period	33.33%
Performance Based Shares Issued Prior to 2011 | Minimum
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Percentage of shares vesting over the period	0.00%
Performance Based Shares Issued Prior to 2011 | Maximum
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Percentage of shares vesting over the period	150.00%
Restricted stock units
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Weighted average grant date fair value of all RSU granted	$ 60.75	$ 55.36	$ 48.21
Unrecognized compensation expense, net of estimated forfeitures	16,300,000	10,600,000
Weighted Average Periods	2 years 3 months 18 days	2 years 3 months 12 days
Aggregate fair value of all unvested RSU	$ 46,100,000	$ 39,600,000
Employee stock purchase plan
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Exercise price as percentage of fair market value	90.00%
2005 Stock Incentive Plan
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Number of stock authorized for issuance				1,000,000
Amended And Restated 2005 Stock Incentive Plan
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Number of stock authorized for issuance					2,000,000	1,500,000
Stock issued during period under incentive plan	1,523,228
Number of stock available to be issued	476,772

XML

Ceded Reinsurance - Additional Information (Detail) (USD $)	12 Months Ended
	Dec. 31, 2014 Entity		Dec. 31, 2013	Dec. 31, 2012
Effects of Reinsurance [Line Items]
Ceded premiums earned	$ 440,656,000		$ 455,985,000	$ 396,639,000
Ceded losses incurred	230,182,000		188,733,000	262,649,000
Reserve for uncollectible reinsurance amount	11,300,000		11,300,000
Reinsurance rating description	To meet our standards of acceptability, when the reinsurance is placed, a reinsurer generally must have a rating from A.M. Best Company ("A.M. Best") and/or S&P of "A" or better, or an equivalent financial strength if not rated, plus at least $500 million in policyholders' surplus.
Reinsurance recoverables	1,140,696,000	[1],[2],[3]
Collateral Held	201,976,000
Percentage of offsetting collateral held	17.70%
Percentage of reinsurance recoverable of 20 largest reinsurers	75.70%
Number of largest reinsurers	20
Percentage of funding requirement to retain	100.00%
Reinsurance recoverables for paid and unpaid losses	902,845,000
Not rated
Effects of Reinsurance [Line Items]
Reinsurance recoverables	5,200,000
Percentage of offsetting collateral held	53.60%
Ceded Balances Payable
Effects of Reinsurance [Line Items]
Collateral Held	152,800,000
Letter of Credit
Effects of Reinsurance [Line Items]
Collateral Held	43,100,000
Percentage of collateral held	21.00%
All Other
Effects of Reinsurance [Line Items]
Collateral Held	6,100,000
Catastrophic
Effects of Reinsurance [Line Items]
Reinsurance recoverables for paid and unpaid losses	43,300,000		46,500,000
Superstorm Sandy
Effects of Reinsurance [Line Items]
Reinsurance recoverables for paid and unpaid losses	25,400,000		30,700,000
Hurricane Gustav and Ike
Effects of Reinsurance [Line Items]
Reinsurance recoverables for paid and unpaid losses	7,300,000		3,300,000
Minimum
Effects of Reinsurance [Line Items]
Policyholders' surplus for reinsurance	$ 500,000,000
Percentage of collateral required of qualifying reinsurers	0.00%
Maximum
Effects of Reinsurance [Line Items]
Percentage of collateral required of qualifying reinsurers	100.00%

[1] Net of reserve for uncollectible reinsurance of approximately $11.3 million.

[2] When an A.M. Best rating is unavailable, the equivalent S&P rating is used.

[3] The carrying value is comprised of prepaid reinsurance premium as well as reinsurance recoverables on paid and unpaid losses which are net of the reserve for uncollectible reinsurance.

XML

Segment And Line of Business Breakdowns of Prior Period Net Reserve Deficiency (Redundancy) (Detail) (USD $) In Thousands, unless otherwise specified	12 Months Ended
	Dec. 31, 2014	Dec. 31, 2013	Dec. 31, 2012
Liability for Claims and Claims Adjustment Expense [Line Items]
Net reserve deficiencies (redundancies) in prior years	$ 55,812	$ 1,266	$ 45,291
Insurance Companies
Liability for Claims and Claims Adjustment Expense [Line Items]
Net reserve deficiencies (redundancies) in prior years	(30,312)	13,430	1,896
Insurance Companies | Marine
Liability for Claims and Claims Adjustment Expense [Line Items]
Net reserve deficiencies (redundancies) in prior years	(41,388)	(15,227)	(10,010)
Insurance Companies | Property Casualty
Liability for Claims and Claims Adjustment Expense [Line Items]
Net reserve deficiencies (redundancies) in prior years	14,612	18,466	4,293
Insurance Companies | Professional Liability
Liability for Claims and Claims Adjustment Expense [Line Items]
Net reserve deficiencies (redundancies) in prior years	(3,536)	10,191	7,613
Lloyd's
Liability for Claims and Claims Adjustment Expense [Line Items]
Net reserve deficiencies (redundancies) in prior years	(25,500)	(14,696)	(47,187)
Lloyd's | Marine
Liability for Claims and Claims Adjustment Expense [Line Items]
Net reserve deficiencies (redundancies) in prior years	(21,336)	(2,998)	(30,735)
Lloyd's | Property Casualty
Liability for Claims and Claims Adjustment Expense [Line Items]
Net reserve deficiencies (redundancies) in prior years	(1,500)	(14,574)	(6,890)
Lloyd's | Professional Liability
Liability for Claims and Claims Adjustment Expense [Line Items]
Net reserve deficiencies (redundancies) in prior years	$ (2,664)	$ 2,876	$ (9,562)

XML

Summary of Consolidated Investments-Other Than Investments in Related Parties (Detail) (USD $) In Thousands, unless otherwise specified	Dec. 31, 2014	Dec. 31, 2013
Summary of Investments, Other than Investments in Related Parties, Reportable Data [Line Items]
Total investments and cash	$ 2,550,229	$ 2,191,827
Total investments and cash	2,820,486
Gross Unrealized Gains	83,078	69,554
Gross Unrealized Losses	(11,672)	(33,530)
Amortized Cost	2,749,080	2,538,562
Short-term investments
Summary of Investments, Other than Investments in Related Parties, Reportable Data [Line Items]
Total investments and cash	179,506
Gross Unrealized Losses	(21)
Amortized Cost	179,527	296,250
Cash
Summary of Investments, Other than Investments in Related Parties, Reportable Data [Line Items]
Total investments and cash	90,751
Amortized Cost	90,751	86,509
Fixed maturities
Summary of Investments, Other than Investments in Related Parties, Reportable Data [Line Items]
Total investments and cash	2,365,934	2,047,873
Gross Unrealized Gains	52,322	43,854
Gross Unrealized Losses	(10,347)	(32,980)
Amortized Cost	2,323,959	2,036,999
Fixed maturities | U.S. Treasury bonds, agency bonds, and foreign
Summary of Investments, Other than Investments in Related Parties, Reportable Data [Line Items]
Total investments and cash	397,923	441,685
Gross Unrealized Gains	3,431	2,854
Gross Unrealized Losses	(5,965)	(8,855)
Amortized Cost	400,457	447,686
Fixed maturities | States, municipalities and political subdivisions
Summary of Investments, Other than Investments in Related Parties, Reportable Data [Line Items]
Total investments and cash	541,007	460,422
Gross Unrealized Gains	19,204	9,298
Gross Unrealized Losses	(558)	(13,651)
Amortized Cost	522,361	464,775
Fixed maturities | Agency mortgage-backed securities
Summary of Investments, Other than Investments in Related Parties, Reportable Data [Line Items]
Total investments and cash	364,622	301,274
Gross Unrealized Gains	8,476	6,779
Gross Unrealized Losses	(998)	(6,016)
Amortized Cost	357,144	300,511
Fixed maturities | Residential Mortgage Backed Securities
Summary of Investments, Other than Investments in Related Parties, Reportable Data [Line Items]
Total investments and cash	34,087	41,755
Gross Unrealized Gains	1,153	1,212
Gross Unrealized Losses	(138)	(161)
Amortized Cost	33,072	40,704
Fixed maturities | Asset-backed securities
Summary of Investments, Other than Investments in Related Parties, Reportable Data [Line Items]
Total investments and cash	206,413	125,133
Gross Unrealized Gains	380	653
Gross Unrealized Losses	(964)	(480)
Amortized Cost	206,997	124,960
Fixed maturities | Commercial mortgage-backed securities
Summary of Investments, Other than Investments in Related Parties, Reportable Data [Line Items]
Total investments and cash	206,318	172,750
Gross Unrealized Gains	6,630	7,656
Gross Unrealized Losses	(98)	(374)
Amortized Cost	199,786	165,468
Fixed maturities | Mortgage-backed and asset-backed securities
Summary of Investments, Other than Investments in Related Parties, Reportable Data [Line Items]
Total investments and cash	811,440	640,912
Gross Unrealized Gains	16,639	16,300
Gross Unrealized Losses	(2,198)	(7,031)
Amortized Cost	796,999	631,643
Fixed maturities | Corporate bonds
Summary of Investments, Other than Investments in Related Parties, Reportable Data [Line Items]
Total investments and cash	615,564	504,854
Gross Unrealized Gains	13,048	15,402
Gross Unrealized Losses	(1,626)	(3,443)
Amortized Cost	604,142	492,895
Equity Securities | Common Stock
Summary of Investments, Other than Investments in Related Parties, Reportable Data [Line Items]
Total investments and cash	127,183	143,954
Gross Unrealized Gains	28,520	25,700
Gross Unrealized Losses	(1,254)	(550)
Amortized Cost	99,917	118,804
Equity Securities | Preferred Stock
Summary of Investments, Other than Investments in Related Parties, Reportable Data [Line Items]
Total investments and cash	57,112
Gross Unrealized Gains	2,236
Gross Unrealized Losses	(50)
Amortized Cost	$ 54,926

XML

Segment Information (Tables)

12 Months Ended

Dec. 31, 2014

Financial Data by Segment

Financial data by segment for the years ended December 31, 2014, 2013, and 2012 were as follows:

	Year Ended December 31, 2014
In thousands	Insurance Companies			Lloyd’s Operations			Corporate(1)			Total
Gross written premiums	$	1,045,454		$	386,899		$	—		$	1,432,353
Net written premiums		752,773			247,365			—			1,000,138
Net earned premiums		704,574			231,321			—			935,895
Net losses and loss adjustment expenses		(434,396	)		(110,833	)		—			(545,229	)
Commission expenses		(85,137	)		(42,558	)		2,167			(125,528	)
Other operating expenses		(138,675	)		(58,150	)		—			(196,825	)
Other underwriting income (expense)		2,727			35			(2,167	)		595
Underwriting profit (loss)	$	49,093		$	19,815		$	—		$	68,908
Net investment income		56,714			7,378			76			64,168
Net realized gains (losses)		12,715			97			—			12,812
Call premium on Senior Notes		—			—			—			—
Interest expense		—			—			(15,413	)		(15,413	)
Other income (expense)		(2,182	)		12,243			—			10,061
Income (loss) before income taxes	$	116,340		$	39,533		$	(15,337	)	$	140,536
Income tax expense (benefit)		36,609			13,885			(5,287	)		45,207
Net income (loss)	$	79,731		$	25,648		$	(10,050	)	$	95,329
Identifiable assets	$	3,344,084		$	957,795		$	162,297		$	4,464,176
Losses and loss adjustment expenses ratio		61.7	%		47.9	%					58.3	%
Commission expense ratio		12.1	%		18.4	%					13.4	%
Other operating expense ratio (2)		19.2	%		25.1	%					20.9	%
Combined ratio		93.0	%		91.4	%					92.6	%

(1) - Includes Corporate segment intercompany eliminations.

(2) - Includes Other operating expenses and Other underwriting income (expenses).

	Year Ended December 31, 2013
In thousands	Insurance Companies			Lloyd’s Operations			Corporate(1)			Total
Gross written premiums	$	1,002,275		$	368,242		$	—		$	1,370,517
Net written premiums		680,008			207,914			—			887,922
Net earned premiums		639,338			202,601			—			841,939
Net losses and loss adjustment expenses		(415,413	)		(103,548	)		—			(518,961	)
Commission expenses		(81,132	)		(34,710	)		2,348			(113,494	)
Other operating expenses		(119,920	)		(44,514	)		—			(164,434	)
Other income (expense)		2,764			(1,588	)		(2,348	)		(1,172	)
Underwriting profit (loss)	$	25,637		$	18,241		$	—		$	43,878
Net investment income		49,083			7,160			8			56,251
Net realized gains (losses)		20,600			(58	)		4			20,546
Call premium on Senior Notes		—			—			(17,895	)		(17,895	)
Interest expense		—			—			(10,507	)		(10,507	)
Income (loss) before income taxes	$	95,320		$	25,343		$	(28,390	)	$	92,273
Income tax expense (benefit)		29,965			8,728			(9,886	)		28,807
Net income (loss)	$	65,355		$	16,615		$	(18,504	)	$	63,466
Identifiable assets	$	3,077,437		$	930,567		$	161,448		$	4,169,452
Losses and loss adjustment expenses ratio		65.0	%		51.1	%					61.6	%
Commission expense ratio		12.7	%		17.1	%					13.5	%
Other operating expense ratio (2)		18.3	%		22.8	%					19.7	%
Combined ratio		96.0	%		91.0	%					94.8	%

(1) - Includes Corporate segment intercompany eliminations.

(2) - Includes Other operating expenses and Other income.

	Year Ended December 31, 2012
In thousands	Insurance Companies			Lloyd’s Operations			Corporate(1)			Total
Gross written premiums	$	921,325		$	365,140		$	—		$	1,286,465
Net written premiums		622,956			210,699			—			833,655
Net earned premiums		571,439			210,525			—			781,964
Net losses and loss adjustment expenses		(417,082	)		(80,351	)		—			(497,433	)
Commission expenses		(81,370	)		(42,449	)		2,349			(121,470	)
Other operating expenses		(113,625	)		(45,454	)		—			(159,079	)
Other income (expense)		3,790			47			(2,349	)		1,488
Underwriting profit (loss)	$	(36,848	)	$	42,318		$	—		$	5,470
Net investment income		46,549			7,551			148			54,248
Net realized gains (losses)		36,468			3,555			193			40,216
Interest expense		—			—			(8,198	)		(8,198	)
Income (loss) before income taxes	$	46,169		$	53,424		$	(7,857	)	$	91,736
Income tax expense (benefit)		12,686			18,620			(3,332	)		27,974
Net income (loss)	$	33,483		$	34,804		$	(4,525	)	$	63,762
Identifiable assets	$	3,036,489		$	928,448		$	42,733		$	4,007,670
Losses and loss adjustment expenses ratio		73.0	%		38.2	%					63.6	%
Commission expense ratio		14.2	%		20.2	%					15.5	%
Other operating expense ratio (2)		19.2	%		21.5	%					20.2	%
Combined ratio		106.4	%		79.9	%					99.3	%

(1) - Includes Corporate segment intercompany eliminations.

(2) - Includes Other operating expenses and Other income.

Additional Financial Data by Segment

The following tables provide additional financial data by segment for the years ended December 31, 2014, 2013 and 2012:

	Year Ended December 31, 2014
In thousands	Insurance Companies		Lloyd’s Operations		Total
Gross written premiums:
Marine	$	177,363	$	188,107	$	365,470
Property casualty		755,059		126,016		881,075
Professional liability		113,032		72,776		185,808
Total	$	1,045,454	$	386,899	$	1,432,353
Net written premiums:
Marine	$	123,617	$	144,327	$	267,944
Property casualty		554,844		55,917		610,761
Professional liability		74,312		47,121		121,433
Total	$	752,773	$	247,365	$	1,000,138
Net earned premiums:
Marine	$	123,203	$	141,471	$	264,674
Property casualty		496,209		51,338		547,547
Professional liability		85,162		38,512		123,674
Total	$	704,574	$	231,321	$	935,895

	Year Ended December 31, 2013
In thousands	Insurance Companies		Lloyd’s Operations		Total
Gross written premiums:
Marine	$	171,822	$	181,046	$	352,868
Property casualty		700,087		129,522		829,609
Professional liability		130,366		57,674		188,040
Total	$	1,002,275	$	368,242	$	1,370,517
Net written premiums:
Marine	$	119,837	$	134,627	$	254,464
Property casualty		462,942		42,334		505,276
Professional liability		97,229		30,953		128,182
Total	$	680,008	$	207,914	$	887,922
Net earned premiums:
Marine	$	129,276	$	138,690	$	267,966
Property casualty		409,480		37,722		447,202
Professional liability		100,582		26,189		126,771
Total	$	639,338	$	202,601	$	841,939

	Year Ended December 31, 2012
In thousands	Insurance Companies		Lloyd’s Operations		Total
Gross written premiums:
Marine	$	200,095	$	194,423	$	394,518
Property casualty		590,741		127,028		717,769
Professional liability		130,489		43,689		174,178
Total	$	921,325	$	365,140	$	1,286,465
Net written premiums:
Marine	$	133,210	$	143,600	$	276,810
Property casualty		390,168		43,824		433,992
Professional liability		99,578		23,275		122,853
Total	$	622,956	$	210,699	$	833,655
Net earned premiums:
Marine	$	142,181	$	136,898	$	279,079
Property casualty		332,782		52,951		385,733
Professional liability		96,476		20,676		117,152
Total	$	571,439	$	210,525	$	781,964

XML

Scheduled Maturity Dates for Fixed Maturity Securities by Number of Years Until Maturity (Detail) (USD $) In Thousands, unless otherwise specified	Dec. 31, 2014	Dec. 31, 2013
Fair Value
Due in one year or less	$ 63,670
Due after one year through five years	765,084
Due after five years through ten years	356,929
Due after ten years	368,811
Mortgage- and asset-backed securities	811,440
Total	2,365,934	2,047,873
Amortized Cost
Due in one year or less	65,643
Due after one year through five years	758,064
Due after five years through ten years	348,195
Due after ten years	355,058
Mortgage- and asset-backed securities	796,999
Total	$ 2,323,959	$ 2,036,999

XML

Share Capital

12 Months Ended

Dec. 31, 2014

Share Capital

Note 12. Share Capital

Our authorized share capital consists of 50,000,000 common shares with a par value of $0.10 per share and 1,000,000 preferred shares with a par value of $0.10 per share. Our Company has not issued any preferred shares as of December 31, 2014.

The following table represents changes in our Company’s issued and outstanding common shares for the periods indicated:

	Year Ended December 31,
In thousands	2014		2013		2012
Beginning balance		14,198		14,047		13,956
Vested stock grants		59		50		60
Employee stock purchase plan		19		17		16
Stock options exercised		5		84		15
Treasury shares purchased		—		—		—
Ending balance		14,281		14,198		14,047

XML

Summary of Consolidated Investments-Other Than Investments in Related Parties

12 Months Ended

Dec. 31, 2014

Summary of Consolidated Investments-Other Than Investments in Related Parties

SCHEDULE I

THE NAVIGATORS GROUP, INC. AND SUBSIDIARIES

Summary of Consolidated Investments-Other Than Investments in Related Parties

December 31, 2014

	December 31, 2014
In thousands	Fair Value		Gross Unrealized Gains		Gross Unrealized Losses			Amortized Cost
Fixed maturities:
U.S. Treasury bonds, agency bonds and foreign government bonds	$	397,923	$	3,431	$	(5,965	)	$	400,457
States, municipalities and political subdivisions		541,007		19,204		(558	)		522,361
Mortgage-backed and asset-backed securities:
Agency mortgage-backed securities		364,622		8,476		(998	)		357,144
Residential mortgage obligations		34,087		1,153		(138	)		33,072
Asset-backed securities		206,413		380		(964	)		206,997
Commercial mortgage-backed securities		206,318		6,630		(98	)		199,786
Subtotal	$	811,440	$	16,639	$	(2,198	)	$	796,999
Corporate bonds		615,564		13,048		(1,626	)		604,142
Total fixed maturities	$	2,365,934	$	52,322	$	(10,347	)	$	2,323,959
Equity securities - common stocks		127,183		28,520		(1,254	)		99,917
Equity securities - preferred stocks		57,112		2,236		(50	)		54,926
Short-term investments		179,506		—		(21	)		179,527
Cash		90,751		—		—			90,751
Total	$	2,820,486	$	83,078	$	(11,672	)	$	2,749,080

XML

Condensed Financial Information - Statement of Income (Detail) (USD $) In Thousands, unless otherwise specified	3 Months Ended								12 Months Ended
	Dec. 31, 2014	Sep. 30, 2014	Jun. 30, 2014	Mar. 31, 2014	Dec. 31, 2013	Sep. 30, 2013	Jun. 30, 2013	Mar. 31, 2013	Dec. 31, 2014	Dec. 31, 2013	Dec. 31, 2012
Revenues:
Net investment income	$ 16,071	$ 15,839	$ 15,648	$ 16,610	$ 14,254	$ 14,094	$ 14,246	$ 13,657	$ 64,168	$ 56,251	$ 54,248
Total revenues	251,617	269,260	249,540	253,114	248,729	224,970	222,490	221,375	1,023,531	917,564	877,916
Expenses:
Call premium on Senior Notes					17,895					17,895
Interest expense	3,854	3,388	4,319	3,852	4,351	2,053	2,052	2,051	15,413	10,507	8,198
Other (income) expense	(586)	(1,336)	1,665	(10,399)	665	210	915	(618)	(10,656)	1,172	(1,488)
Total expenses	223,519	223,003	224,681	211,792	228,320	193,880	202,269	200,822	882,995	825,291	786,180
Income (loss) before income tax benefit	28,098	46,257	24,859	41,322	20,409	31,090	20,221	20,553	140,536	92,273	91,736
Income tax benefit	8,823	15,032	7,998	13,354	6,076	9,804	6,284	6,643	45,207	28,807	27,974
Net income	19,275	31,225	16,861	27,968	14,333	21,286	13,937	13,910	95,329	63,466	63,762
Parent Company
Revenues:
Net investment income									76	13	341
Dividends received from wholly-owned subsidiaries											15,000
Total revenues									76	13	15,341
Expenses:
Call premium on Senior Notes										17,895
Interest expense									15,413	10,507	8,198
Other (income) expense										2	1,749
Total expenses									15,413	28,404	9,947
Income (loss) before income tax benefit									(15,337)	(28,391)	5,394
Income tax benefit									(5,287)	(9,886)	(3,332)
Income (loss) before equity in undistributed net income of wholly owned subsidiaries									(10,050)	(18,505)	8,726
Equity in undistributed net income of wholly-owned subsidiaries									105,379	81,971	55,036
Net income									$ 95,329	$ 63,466	$ 63,762

XML

Cash and Investments Including Other-Than-Temporarily Impaired Securities Recognized within Accumulated Other Comprehensive Income (Detail) (USD $) In Thousands, unless otherwise specified	Dec. 31, 2014	Dec. 31, 2013
Gain (Loss) on Investments [Line Items]
Total investments	$ 2,550,229	$ 2,191,827
Total investments and cash	2,820,486	2,574,586
Gross Unrealized Gains	83,078	69,554
Gross Unrealized Losses	(11,672)	(33,530)
Amortized Cost	2,749,080	2,538,562
Short-term investments
Gain (Loss) on Investments [Line Items]
Total investments and cash	179,506	296,250
Gross Unrealized Losses	(21)
Amortized Cost	179,527	296,250
Cash
Gain (Loss) on Investments [Line Items]
Total investments and cash	90,751	86,509
Amortized Cost	90,751	86,509
Fixed maturities
Gain (Loss) on Investments [Line Items]
Total investments	2,365,934	2,047,873
Gross Unrealized Gains	52,322	43,854
Gross Unrealized Losses	(10,347)	(32,980)
Amortized Cost	2,323,959	2,036,999
Fixed maturities | U.S. Treasury bonds, agency bonds, and foreign
Gain (Loss) on Investments [Line Items]
Total investments	397,923	441,685
Gross Unrealized Gains	3,431	2,854
Gross Unrealized Losses	(5,965)	(8,855)
Amortized Cost	400,457	447,686
Fixed maturities | States, municipalities and political subdivisions
Gain (Loss) on Investments [Line Items]
Total investments	541,007	460,422
Gross Unrealized Gains	19,204	9,298
Gross Unrealized Losses	(558)	(13,651)
Amortized Cost	522,361	464,775
Fixed maturities | Agency mortgage-backed securities
Gain (Loss) on Investments [Line Items]
Total investments	364,622	301,274
Gross Unrealized Gains	8,476	6,779
Gross Unrealized Losses	(998)	(6,016)
Amortized Cost	357,144	300,511
Fixed maturities | Residential Mortgage Backed Securities
Gain (Loss) on Investments [Line Items]
Total investments	34,087	41,755
Gross Unrealized Gains	1,153	1,212
Gross Unrealized Losses	(138)	(161)
Amortized Cost	33,072	40,704
Fixed maturities | Asset-backed securities
Gain (Loss) on Investments [Line Items]
Total investments	206,413	125,133
Gross Unrealized Gains	380	653
Gross Unrealized Losses	(964)	(480)
Amortized Cost	206,997	124,960
Fixed maturities | Commercial mortgage-backed securities
Gain (Loss) on Investments [Line Items]
Total investments	206,318	172,750
Gross Unrealized Gains	6,630	7,656
Gross Unrealized Losses	(98)	(374)
Amortized Cost	199,786	165,468
Fixed maturities | Mortgage-backed and asset-backed securities
Gain (Loss) on Investments [Line Items]
Total investments	811,440	640,912
Gross Unrealized Gains	16,639	16,300
Gross Unrealized Losses	(2,198)	(7,031)
Amortized Cost	796,999	631,643
Fixed maturities | Corporate bonds
Gain (Loss) on Investments [Line Items]
Total investments	615,564	504,854
Gross Unrealized Gains	13,048	15,402
Gross Unrealized Losses	(1,626)	(3,443)
Amortized Cost	604,142	492,895
Equity Securities | Common Stock
Gain (Loss) on Investments [Line Items]
Total investments	127,183	143,954
Gross Unrealized Gains	28,520	25,700
Gross Unrealized Losses	(1,254)	(550)
Amortized Cost	99,917	118,804
Equity Securities | Preferred Stock
Gain (Loss) on Investments [Line Items]
Total investments	57,112
Gross Unrealized Gains	2,236
Gross Unrealized Losses	(50)
Amortized Cost	$ 54,926

XML

Dividends and Statutory Financial Information (Tables)

12 Months Ended

Dec. 31, 2014

Amount and Nature of Net Assets Restricted from Payment of Dividends

The amount and nature of net assets that are restricted from payment of dividends as of December 31, 2014 and 2013 are presented in the following table:

	As of December 31,
In thousands	2014		2013
Restricted Net Assets:
Insurance Companies:
Fixed maturities at fair value (amortized cost: 2014, $10,086; 2013, $9,730)	$	11,732	$	11,105
Short term investments, at cost which approximates fair value		290		290
Cash		1,212		1,210
Total Insurance Companies (1)	$	13,234	$	12,605
Lloyd’s Operations:
Fixed maturities at fair value (amortized cost: 2014, $445,504; 2013, $398,930)		447,679		398,808
Short term investments, at cost which approximates fair value		61,549		108,485
Cash		963		988
Total Lloyd’s Operations (2)	$	510,191	$	508,281
Total Restricted Net Assets	$	523,425	$	520,886

(1) - The restricted net assets for the Insurance Companies primarily consist of fixed maturities on deposit with various state insurance departments. The cash as of December 31, 2014 and 2013, as presented in the table above, was on deposit with a U.K. bank to comply with the regulatory requirements of the Prudential Regulation Authority for the underwriting activities of the U.K. Branch.

(2) - The restricted net assets for the Lloyd’s Operations consists of fixed maturities and cash held in trust for the benefit of syndicate policyholders and short term investments primarily consisting of overseas deposits in various countries with Lloyd’s to support underwriting activities in those countries.

XML

Consolidated Statements of Comprehensive Income (USD $) In Thousands, unless otherwise specified	12 Months Ended
	Dec. 31, 2014	Dec. 31, 2013	Dec. 31, 2012
Net income	$ 95,329	$ 63,466	$ 63,762
Change in net unrealized gains (losses) on investments:
Unrealized gains (losses) on investments arising during the period, net of deferred tax of $14,925, $17,521 and $13,136 in 2014, 2013 and 2012 respectively	28,252	(32,546)	24,350
Reclassification adjustment for net realized (gains) losses included in net income net of deferred tax of $2,776, $6,218 and $10,314 in 2014, 2013 and 2012 respectively	(5,156)	(11,548)	(19,154)
Change in net unrealized gains (losses on investments)	23,096	(44,094)	5,196
Change in other-than-temporary impairments:
Non credit other-than-temporary impairments arising during the period, net of deferred tax of $48, $174 and $612 in 2014, 2013 and 2012 respectively	89	320	1,135
Reclassification adjustment for non credit other-than-temporary impairment losses recognized in net income net of deferred tax of $0, $0 and $16 in 2014, 2013 and 2012 respectively			(29)
Change in other-than-temporary impairments	89	320	1,106
Change in foreign currency translation gains (losses), net of deferred tax of $2,800, $1,650, and $521 in 2014, 2013 and 2012 respectively	(4,986)	(3,074)	(1,342)
Other comprehensive income (loss)	18,199	(46,848)	4,960
Comprehensive income (loss)	$ 113,528	$ 16,618	$ 68,722

XML

Stock Options Outstanding (Detail) (USD $)	12 Months Ended
	Dec. 31, 2014	Dec. 31, 2013	Dec. 31, 2012
Number of Shares
Beginning balance	6,750	90,250	105,250
Granted	0	0	0
Exercised	(5,250)	(83,500)	(15,000)
Expired or forfeited	0	0	0
Ending balance	1,500	6,750	90,250
Number of options exercisable	1,500	6,750	90,250
Average Exercise Price
Share-based Compensation Arrangement by Share-based Payment Award, Options, Outstanding, Weighted Average Exercise Price, Beginning of Period	$ 30.65	$ 29.94	$ 29.50
Granted	$ 0	$ 0	$ 0
Exercised	$ 29.11	$ 29.88	$ 26.90
Expired or forfeited	$ 0	$ 0	$ 0
Share-based Compensation Arrangement by Share-based Payment Award, Options, Outstanding, Weighted Average Exercise Price, End of Period	$ 36.03	$ 30.65	$ 29.94
Number of options exercisable	$ 36.03	$ 30.65	$ 29.94

XML

Organization & Summary of Significant Accounting Policies

12 Months Ended

Dec. 31, 2014

Organization & Summary of Significant Accounting Policies

Note 1. Organization & Summary of Significant Accounting Policies

Organization

The accompanying Consolidated Financial Statements, consisting of the results of The Navigators Group, Inc., a Delaware holding company established in 1982, and its subsidiaries are prepared on the basis of United States (“U.S.”) generally accepted accounting principles (“GAAP” or “U.S. GAAP”). All significant intercompany transactions and balances have been eliminated. The preparation of these consolidated financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the consolidated financial statements and the reported revenues and expenses during the reporting periods. The results of operations for any interim period are not necessarily indicative of results for the full year. The terms “we,” “us,” “our” or “our Company” as used herein are used to mean The Navigators Group, Inc. and its subsidiaries, unless the context otherwise requires. The terms “Parent” or “Parent Company” are used to mean The Navigators Group, Inc. without its subsidiaries. Certain amounts for the prior year have been reclassified to conform to the current year’s presentation.

Our Company is an international insurance company focusing on specialty products within the overall property and casualty insurance market. Our long-standing area of specialization is Marine insurance. We have also developed niches in Professional Liability insurance and Property Casualty lines of insurance, such as Primary and Excess casualty coverages offered to commercial enterprises and Assumed Reinsurance.

We classify its business into one Corporate segment (“Corporate”) and two underwriting segments, the Insurance Companies segment (“Insurance Companies”) and the Lloyd’s Operations segment (“Lloyd’s Operations”) which are separately managed by business line divisions. The Insurance Companies are primarily engaged in underwriting Marine insurance, Primary Casualty insurance with a concentration in contractors’ general liability products, Excess Casualty insurance with a concentration in commercial umbrella products, Assumed Reinsurance, Management Liability insurance and Errors & Omissions (“E&O”) insurance. This segment is comprised of Navigators Insurance Company (“NIC”), which includes a United Kingdom (“UK”) branch (“UK Branch”), and Navigators Specialty Insurance Company (“NSIC”), which underwrites business on an excess and surplus lines basis. All of the business underwritten by NSIC is fully reinsured by NIC pursuant to a 100% quota share reinsurance agreement.

The Lloyd’s Operations are primarily engaged in underwriting Marine insurance; Energy & Engineering insurance with a concentration in offshore energy products and onshore energy construction products, Assumed Reinsurance, Management Liability insurance and E&O insurance at Lloyd’s of London (“Lloyd’s”) through Lloyd’s Syndicate 1221 (“Syndicate 1221”). The Corporate segment consists of the Parent Company’s investment income, interest expense and related income tax.

Our revenue is primarily comprised of premiums and investment income. We derive our premiums predominantly from business written by wholly-owned underwriting management companies, Navigators Management Company (“NMC”) and Navigators Management (UK) Ltd. (“NMUK”) that manage and service insurance and reinsurance business written by the Insurance Companies. Our products are distributed through multiple channels, utilizing global, national and regional retail and wholesale insurance brokers.

Navigators Underwriting Agency Ltd. (“NUAL”) is a Lloyd’s underwriting agency that manages Syndicate 1221. We control 100% of Syndicate 1221’s stamp capacity through our wholly-owned subsidiary, Navigators Corporate Underwriters Ltd. (“NCUL”), which is referred to as a corporate name in the Lloyd’s market. In addition, we have also established underwriting agencies in Antwerp, Belgium; Stockholm, Sweden; and Copenhagen, Denmark, as well as branches of the appointed representative, Navigators Underwriting Ltd. (“NUL”), in the European Economic Area (“EEA”), in Milan, Italy; Rotterdam, The Netherlands; and Paris, France, which underwrite risks pursuant to binding authorities with NUAL into Syndicate 1221. We have also established a presence in Brazil and China through contractual arrangements with local affiliates of Lloyd’s.

For financial information by segment, refer to Note 3, Segment Information, in the Notes to Consolidated Financial Statements, included herein.

Significant Accounting Policies

Cash

Cash includes cash on hand and demand deposits with banks, excluding such amounts held by Syndicate 1221 included as Funds at Lloyd’s.

Investments

As of December 31, 2014 and 2013, all fixed maturity and equity securities held by our Company were carried at fair value and classified as available-for-sale. Available-for-sale securities are debt and equity securities not classified as either held-to-maturity securities or trading securities and are reported at fair value, with unrealized gains and losses excluded from earnings and reported in accumulated other comprehensive income (“AOCI”) as a separate component of stockholders’ equity. Fixed maturity securities include bonds, mortgage-backed and asset-backed securities. Equity securities consist of common stock and preferred stock.

Short-term investments are carried at fair value. Short-term investments mature within one year from the purchase date.

All prices for our fixed maturities, equity securities and short-term investments valued as Level 1, Level 2 or Level 3 in the fair value hierarchy, as defined in the Financial Accounts Standards Board (“FASB”) Accounting Standards Codification 820 (“ASC 820”), Fair Value Measurements, are received from independent pricing services utilized by one of our outside investment managers whom we employ to assist us with investment accounting services. This manager utilizes a pricing committee, which approves the use of one or more independent pricing service vendors. The pricing committee consists of five or more members of the investment management firm, one from senior management and one from the accounting group with the remainder from the asset class specialists and client strategists. The pricing source of each security is determined in accordance with the pricing source procedures approved by the pricing committee. The investment manager uses supporting documentation received from the independent pricing service vendor detailing the inputs, models and processes used in the independent pricing service vendors’ evaluation process to determine the appropriate fair value hierarchy. Any pricing where the input is believed to be unobservable is deemed to be a Level 3 price. Management has reviewed this process by which the manager determines the prices and has obtained alternative pricing to validate a sample of the prices and assess their reasonableness.

Premiums and discounts on fixed maturity securities are amortized into interest income over the life of the security under the interest method. For mortgage-backed and asset-backed securities, anticipated prepayments and expected maturities are utilized in applying the interest rate method. An effective yield is calculated based on projected principal cash flows at the time of original purchase. The effective yield is used to amortize the purchase price of the security over the security’s expected life. Book values are adjusted to reflect the amortization of premium or accretion of discount on a monthly basis. The projected principal cash flows are based on certain prepayment assumptions, which are generated using a prepayment model. The prepayment model uses a number of factors to estimate prepayment activity including the current levels of interest rates (refinancing incentive), time of year (seasonality), economic activity (including housing turnover) and term and age of the underlying collateral (burnout, seasoning). Prepayment assumptions associated with the mortgage-backed and asset-backed securities are reviewed on a periodic basis. When changes in prepayment assumptions are deemed necessary as the result of actual prepayments differing from anticipated prepayments, securities are revalued based upon the new prepayment assumptions utilizing the retrospective adjustment method, whereby the effective yield is recalculated to reflect actual payments to date and anticipated future payments. The investment in such securities is adjusted to the amount that would have existed had the new effective yield been applied since the acquisition of the security. Such adjustments, if any, are included in net investment income for the current period being reported.

Realized gains and losses on sales of investments are recognized when the related trades are executed and are determined on the basis of the specific identification method.

Impairment of Invested Assets

Management regularly reviews our fixed maturity and equity securities portfolios to evaluate the necessity of recording impairment losses for other-than-temporary declines in the fair value of securities.

For fixed maturity securities, we consider our intent to sell a security and whether it is more likely than not that, we will be required to sell a security before the anticipated recovery as part of the process of evaluating whether a security’s unrealized loss represents an other-than-temporary decline. For fixed maturity securities that have a fair value below amortized cost and that we intend to sell or for which it is more likely than not that we would be required to sell, an other than temporary impairment (“OTTI”) loss is recognized in earnings by writing such security down to fair value. For fixed maturity securities we do not intend to sell or for which it is more likely than not our Company would not be required to sell, a decline in value below amortized cost is only recognized to the extent the present value of future cash flows expected to be collected is less than the amortized cost of the security. Such shortfall in the present value of future cash flows is considered the credit loss and is recognized as an OTTI loss in earnings, with the non-credit portion of the impairment (i.e. the difference between the present value of future cash flows and fair value of the security) recognized as OTTI losses in other comprehensive income (“OCI”).

In evaluating OTTI of equity securities, we consider our intent to hold the securities as part of the process of evaluating whether a decline in fair value below cost represents an other than temporary decline in value. For equity securities in an unrealized loss position that we do not intent to hold or that we do not expect to recover their value within a reasonable period of time, a net OTTI loss is recognized in earnings by writing such security down to the fair value.

Syndicate 1221

Syndicate 1221 reports the amount of premiums, claims, and expenses recorded in an underwriting account for a particular year over a three year period. Traditionally, three years have been necessary to report substantially all premiums associated with an underwriting year and to report most of the related claims, although claims may remain unsettled after the underwriting year is closed. Syndicate 1221 typically closes an underwriting year by reinsuring outstanding claims in that underwriting year with the next underwriting year. Only profits from closed underwriting years of account are distributed to NCUL. Profits from open underwriting years of account are not available and therefore not distributed to NCUL until the end of the three year period.

Our Company’s financial statements include all of the assets, liabilities, revenues and expenses of Syndicate1221. Adjustments are recorded to recognize underwriting results as incurred in the specific year and not over a three year period. Syndicate 1221 is not a separate legal entity. Refer to Note 10, Lloyd’s Syndicate 1221, for additional information.

Foreign Currency Remeasurement and Translation

The functional currency in each of our operations is generally the currency of the local operating environment, except for our Lloyd’s Operations which is the U.S. dollar. Transactions in currencies other than an operation’s functional currency are remeasured into the functional currency and the resulting foreign exchange gains and losses are reflected in net Other Income (Expense) in the Consolidated Statements of Income. Functional currency assets and liabilities are translated into U.S. dollars using period end rates of exchange and the related translation adjustments are recorded as a separate component of AOCI. Statement of income amounts expressed in functional currencies are translated using average exchange rates.

During the first quarter, Syndicate 1221 revised its foreign exchange accounting methodology from reporting its financial position and results using three functional currencies (GBP, USD and CAD) to one functional currency (USD). The USD was chosen as the single functional currency as the majority of the Syndicate’s insurance business has been and continues to be transacted in USD. This cumulative change in re-measurement has resulted in an immaterial correction of $10.0 million ($6.6 million, after-tax) reducing Accumulated Other Comprehensive Income in the consolidated balance sheet, offset by a gain in Other Income in the consolidated statement of income. The impact of the correction is not material to the previously issued annual financial statements for 2013 and 2012.

Premium Revenues

Written premium is recorded based on the insurance policies that have been reported to us and the policies that have been written by agents but not yet reported to us. We estimate the amount of written premium not yet reported based on judgments relative to current and historical trends of the business being written. Such estimates are regularly reviewed and updated and any resulting adjustments are included in the current year’s results. An unearned premium reserve is established to reflect the unexpired portion of each policy at the financial reporting date.

Substantially all of our business is placed through agents and brokers. We record estimates for both unreported direct and assumed premiums. We also record the ceded portion of the estimated gross written premium and related acquisition costs. The earned gross, ceded and net premiums are calculated based on our earning methodology, which is generally pro-rata over the policy period or over the period of risk if the period of risk differs significantly from the contract period.

A portion of our premium is estimated for unreported premium, mostly for the Marine business written by our U.K. Branch and Lloyd’s Operations as well as the Accident & Health (“A&H”) and Latin American & Caribbean Property Casualty and Surety Reinsurance business written by NavRe. Such premium estimates are generally based on submission data received from brokers and agents and recorded when the insurance policy or reinsurance contract is written or bound. The estimates are regularly reviewed and updated taking into account the premium received to date versus the estimate and the age of the estimate. To the extent that the actual premium varies from the estimates, the difference, along with the related loss reserves and underwriting expenses, is recorded in current operations.

Reinsurance Ceded

In the normal course of business, reinsurance is purchased by us from insurers or reinsurers to reduce the amount of loss arising from claims. In order to determine the proper accounting for the reinsurance, management analyzes the reinsurance agreements to determine whether the reinsurance should be classified as prospective or retroactive based upon the terms of the reinsurance agreement and whether the reinsurer has assumed significant insurance risk to the extent that the reinsurer may realize a significant loss from the transaction.

Prospective reinsurance is reinsurance in which an assuming company agrees to reimburse the ceding company for losses that may be incurred as a result of future insurable events covered under contracts subject to the reinsurance. Retroactive reinsurance is reinsurance in which an assuming company agrees to reimburse a ceding company for liabilities incurred as a result of past insurable events covered under contracts subject to the reinsurance.

Ceded reinsurance premiums and any related ceding commission and ceded losses are reflected as reductions of the respective income or expense accounts over the terms of the reinsurance contracts. Prepaid reinsurance premiums represent the portion of premiums ceded to reinsurers applicable to the unexpired terms of the reinsurance contracts in force. Reinsurance reinstatement premiums are recognized in the same period as the loss event that gave rise to the reinstatement premiums. Amounts recoverable from reinsurers are estimated in a manner consistent with the claim liability associated with the reinsured policy. Unearned premiums ceded and estimates of amounts recoverable from reinsurers on paid and unpaid losses are reflected as assets. Provisions are made for estimated unrecoverable reinsurance.

Deferred Policy Acquisition Costs

Costs of acquiring business are deferred and amortized ratably over the period that the related premiums are recognized as revenue. Such costs (e.g., commission expense, other underwriting expenses and premium taxes) are limited to the incremental direct costs related to the successful acquisition of new or renewal business. The method of computing deferred policy acquisition costs limits the deferral to their estimated net realizable value based on the related unearned premiums and takes into account anticipated losses and loss adjustment expenses, commission expense and operating expenses based on historical and current experience as well as anticipated investment income.

Reserves for Losses and Loss Adjustment Expenses

Unpaid losses and loss adjustment expenses are determined on an individual basis for claims reported on direct business for insureds, from reports received from ceding insurers for insurance assumed from such insurers and on estimates based on Company and industry experience for incurred but not reported (“IBNR”) claims and loss adjustment expenses. Indicated IBNR loss reserves are calculated by our actuaries using several standard actuarial methodologies, including the paid and incurred loss development and the paid and incurred Bornheutter-Ferguson loss methods. Additional analyses, such as frequency/severity analyses, are performed for certain books of business. The provision for unpaid losses and loss adjustment expenses has been established to cover the estimated unpaid cost of claims incurred. Such estimates are regularly reviewed and updated and any resulting adjustments are included in the current year’s results. Management believes that the liability it has recognized for unpaid losses and loss adjustment expenses is a reasonable estimate of the ultimate unpaid claims incurred, however, such provisions are necessarily based on estimates and, accordingly, no representation is made that the ultimate liability will not differ materially from the amounts recorded in the accompanying consolidated financial statements. Losses and loss adjustment expenses are recorded on an undiscounted basis.

Earnings per Share

Basic earnings per share (“EPS”) is computed by dividing net income by the weighted average number of common shares outstanding for the period. Diluted earnings per share reflects the basic earnings per share adjusted for the potential dilution that would occur if all issued stock options were exercised and all stock grants were fully vested.

Depreciation and Amortization

Depreciation of furniture and fixtures, electronic data processing equipment and computer software is provided over the estimated useful lives of the respective assets, ranging from three to seven years, using the straight-line method. Amortization of leasehold improvements is provided over the shorter of the useful lives of those improvements or the contractual terms of the leases using the straight-line method.

Goodwill and Other Intangible Assets

Goodwill represents the excess-of-cost of acquiring a business enterprise over the fair value of the net assets acquired. Our Company has also recorded indefinite lived intangible assets related to the acquisition of the remaining non-controlled stamp capacity of Lloyd’s Syndicate 1221. Goodwill and indefinite lived intangible assets are reported at carrying value and are tested for impairment at least annually, and when permitted by the applicable accounting guidance, qualitative factors are assessed to determine whether it is necessary to calculate an asset’s fair value when testing an asset with an indefinite life for impairment. Goodwill and indefinite lived intangible assets are considered impaired if the estimated fair value is less than its carrying value and any impairment loss is measured as the difference between the implied fair value and the carrying value. This Company did not recognize an impairment on goodwill or the indefinite lived intangible assets for any of the years ended December 31, 2014, 2013 and 2012.

As of December 31, 2014, the carrying value of goodwill and indefinite lived intangible assets was $7.0 million, consisting of $2.5 million and $2.4 million of goodwill assigned to NMC and our Lloyd’s Operations, respectively, and $2.1 million of indefinite lived intangible assets assigned to our Lloyd’s Operations. As of December 31, 2013, the carrying value of goodwill and indefinite lived intangible assets was $7.2 million, consisting of $2.5 million and $2.4 million of goodwill assigned to NMC and our Lloyd’s Operations, respectively, and $2.3 million of indefinite lived intangible assets assigned to our Lloyd’s Operations. Changes in the carrying value of the goodwill and indefinite lived intangible assets are due to fluctuations in currency exchange rates between the U.S. dollar and the British pound.

Income Taxes

We apply the asset and liability method of accounting for income taxes whereby deferred assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis. In assessing the realization of deferred tax assets, management considers whether it is more likely than not that, the deferred tax assets will be realized. These reviews include, among other factors, the nature and amount of the taxable income and expense items, the expected timing of when assets will be used or liabilities will be required to be reported, as well as the reliability of historical profitability of businesses expected to provide future earnings. After review, if management determines that the realization of the tax asset does not meet the more likely than not criterion an offsetting valuation allowance is recorded, which reduces net earnings and the deferred tax asset in that period. Additional information regarding our deferred tax assets can be found in Note 7, Income Taxes, in the Notes to Consolidated Financial Statements, included herein.

Use of Estimates

The preparation of financial statements in conformity with GAAP requires the use of estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the period. The accounting estimates that are viewed by management as critical are those in connection with reserves for losses and loss adjustment expenses, reinsurance recoverables, written and unearned premiums, the recoverability of deferred tax assets, and impairment of invested assets.

XML

Change in Net Unrealized Gains and Losses (Detail) (USD $) In Thousands, unless otherwise specified	12 Months Ended
	Dec. 31, 2014	Dec. 31, 2013	Dec. 31, 2012
Gross unrealized gains (losses)	$ 35,382	$ (67,337)	$ 9,720
Deferred income tax	12,197	(23,565)	3,418
Change in net unrealized gains (losses), net	23,185	(43,772)	6,302
Fixed maturities
Gross unrealized gains (losses)	31,080	(76,194)	15,709
Equity Securities
Gross unrealized gains (losses)	$ 4,302	$ 8,857	$ (5,989)

XML

Amount and Nature of Net Assets Restricted from Payment of Dividends (Detail) (USD $) In Thousands, unless otherwise specified	Dec. 31, 2014		Dec. 31, 2013
Restricted Assets And Liabilities Relating To Securitization [Line Items]
Total Restricted Net Assets	$ 523,425		$ 520,886
Insurance Companies
Restricted Assets And Liabilities Relating To Securitization [Line Items]
Total Restricted Net Assets	13,234	[1]	12,605	[1]
Insurance Companies | Fixed maturities
Restricted Assets And Liabilities Relating To Securitization [Line Items]
Total Restricted Net Assets	11,732		11,105
Insurance Companies | Short-term investments
Restricted Assets And Liabilities Relating To Securitization [Line Items]
Total Restricted Net Assets	290		290
Insurance Companies | Cash
Restricted Assets And Liabilities Relating To Securitization [Line Items]
Total Restricted Net Assets	1,212		1,210
Lloyd's
Restricted Assets And Liabilities Relating To Securitization [Line Items]
Total Restricted Net Assets	510,191	[2]	508,281	[2]
Lloyd's | Fixed maturities
Restricted Assets And Liabilities Relating To Securitization [Line Items]
Total Restricted Net Assets	447,679		398,808
Lloyd's | Short-term investments
Restricted Assets And Liabilities Relating To Securitization [Line Items]
Total Restricted Net Assets	61,549		108,485
Lloyd's | Cash
Restricted Assets And Liabilities Relating To Securitization [Line Items]
Total Restricted Net Assets	$ 963		$ 988

[1] The restricted net assets for the Insurance Companies primarily consist of fixed maturities on deposit with various state insurance departments. The cash as of December 31, 2014 and 2013, as presented in the table above, was on deposit with a U.K. bank to comply with the regulatory requirements of the Prudential Regulation Authority for the underwriting activities of the U.K. Branch.

[2] The restricted net assets for the Lloyd's Operations consists of fixed maturities and cash held in trust for the benefit of syndicate policyholders and short term investments primarily consisting of overseas deposits in various countries with Lloyd's to support underwriting activities in those countries.

XML

Lists of 20 Largest Reinsurers Measured by Reinsurance Recoverable (Parenthetical) (Detail) (USD $) In Millions, unless otherwise specified	Dec. 31, 2014	Dec. 31, 2013
Ceded Credit Risk [Line Items]
Reserve for uncollectible reinsurance amount	$ 11.3	$ 11.3

XML

Condensed Financial Information of Registrant

12 Months Ended

Dec. 31, 2014

Condensed Financial Information of Registrant

SCHEDULE II

THE NAVIGATORS GROUP, INC. AND SUBSIDIARIES

Condensed Financial Information of Registrant

The Navigators Group, Inc.

Balance Sheets

(Parent Company)

(In thousands, except share amounts)

	December 31,
	2014			2013
ASSETS
Cash and investments	$	101,032		$	100,676
Investments in subsidiaries		1,163,822			1,040,214
Goodwill and other intangible assets		2,534			2,534
Other assets		27,531			26,538
Total assets	$	1,294,919		$	1,169,962
LIABILITIES AND STOCKHOLDERS’ EQUITY
Liabilities:
Senior Notes	$	263,440		$	263,308
Accounts payable and other liabilities		1,081			802
Accrued interest payable		3,174			3,640
Total liabilities	$	267,695		$	267,750
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 17,792,846 shares for 2014 and 17,709,876 shares for 2013		1,778			1,770
Additional paid-in capital		347,022			335,546
Treasury stock, at cost (3,511,380 shares for 2014 and 2013)		(155,801	)		(155,801	)
Retained earnings		787,666			692,337
Accumulated other comprehensive income:
Net unrealized gains (losses) on securities available-for-sale, net of tax		46,573			23,387
Foreign currency translation adjustment, net of tax		(14	)		4,973
Total stockholders’ equity	$	1,027,224		$	902,212
Total liabilities and stockholders’ equity	$	1,294,919		$	1,169,962

The Navigators Group, Inc.

Statements of Income

(Parent Company)

(In thousands)

	Year Ended December 31,
	2014			2013			2012
Revenues:
Net investment income	$	76		$	13		$	341
Dividends received from wholly-owned subsidiaries		—			—			15,000
Total revenues	$	76		$	13		$	15,341
Expenses:
Call premium on Senior Notes	$	—		$	17,895		$	—
Interest expense		15,413			10,507			8,198
Other (income) expense		—			2			1,749
Total expenses	$	15,413		$	28,404		$	9,947
Income (loss) before income tax benefit	$	(15,337	)	$	(28,391	)	$	5,394
Income tax benefit		(5,287	)		(9,886	)		(3,332	)
Income (loss) before equity in undistributed net income of wholly owned subsidiaries	$	(10,050	)	$	(18,505	)	$	8,726
Equity in undistributed net income of wholly-owned subsidiaries		105,379			81,971			55,036
Net income	$	95,329		$	63,466		$	63,762

The Navigators Group, Inc.

Statements of Cash Flows

(Parent Company)

(In thousands)

	Year Ended December 31,
	2014			2013			2012
Operating activities:
Net income	$	95,329		$	63,466		$	63,762
Adjustments to reconcile net income to net cash provided by (used in) operations:
Equity in undistributed net income of wholly-owned subsidiaries		(105,379	)		(81,971	)		(70,036	)
Dividends received from subsidiaries		—			—			15,000
Call premium on redemption of Senior Notes		—			17,895			—
Other		9,211			2,098			(3,265	)
Net cash provided by (used in) operating activities	$	(839	)	$	1,488		$	5,461
Investing activities:
Fixed maturities, available-for-sale
Sales	$	3,200		$	8,754		$	7,986
Purchases		—			(1,249	)		(14,700	)
Equity securities
Sales		—			—			—
Purchases		—			—			—
Net increase in short-term investments		(3,424	)		(89,988	)		(167	)
Net cash provided by (used in) investing activities	$	(224	)	$	(82,483	)	$	(6,881	)
Financing activities:
Capital contribution to subsidiary	$	—		$	(50,000	)	$	—
Net Proceeds from Debt Offering		—			263,278			—
Redemption of 7.0% Senior Notes Due May 1, 2016		—			(132,437	)		—
Purchase of treasury stock		—			—			—
Proceeds of stock issued from employee stock purchase plan		1,067			821			672
Proceeds of stock issued from exercise of stock options		153			2,495			404
Net cash provided by (used in) financing activities	$	1,220		$	84,157		$	1,076
Increase (decrease) in cash	$	157		$	3,162		$	(344	)
Cash at beginning of year		6,143			2,981			3,325
Cash at end of year	$	6,300		$	6,143		$	2,981

XML

Tax Effects of Temporary Differences That Give Rise to Federal, Foreign, State and Local Deferred Tax Assets and Deferred Tax Liabilities (Detail) (USD $) In Thousands, unless otherwise specified	Dec. 31, 2014	Dec. 31, 2013
Deferred tax assets:
Loss reserve discount	$ 24,820	$ 27,822
Unearned premiums	29,080	25,706
Compensation related	10,586	6,782
State and local net deferred tax assets	777	555
Other	1,834	3,889
Total gross deferred tax assets	67,097	64,754
Less: Valuation allowance	(777)	(555)
Total deferred tax assets	66,320	64,199
Deferred tax liabilities:
Net unrealized gains/losses on securities	(24,832)	(9,119)
Deferred acquisition costs	(22,120)	(19,258)
Net unrealized foreign exchange	(4,470)	(3,516)
Other	(2,787)	(4,119)
Total deferred tax liabilities	(67,787)	(40,393)
Net deferred income tax (liability)	(1,467)
Net deferred income tax asset		23,806
Lloyd's
Deferred tax liabilities:
Lloyd's year of account deferral	$ (13,578)	$ (4,381)

XML

Income Taxes (Tables)

12 Months Ended

Dec. 31, 2014

Components of Current and Deferred Income Tax Expense (Benefit)

The components of current and deferred income tax expense (benefit) are as follows:

	Year Ended December 31,
In thousands	2014		2013		2012
Current income tax expense (benefit):
Federal and foreign	$	27,290	$	23,703	$	39,242
State and local		1,036		446		146
Subtotal		28,326		24,149		39,388
Deferred income tax expense (benefit):
Federal and foreign		16,881		4,658		(11,414	)
State and local		—		—		—
Subtotal		16,881		4,658		(11,414	)
Total income tax expense (benefit)	$	45,207	$	28,807	$	27,974

Reconciliation of Total Income Taxes Applicable to Pre-Tax Operating Income and Amounts Computed by Applying Federal Statutory Income Tax Rate to Pre-Tax Operating Income

A reconciliation of total income taxes applicable to pre-tax operating income and the amounts computed by applying the federal statutory income tax rate to the pre-tax operating income were as follows:

	Year Ended December 31,
In thousands	2014					2013					2012
Computed expected tax expense	$	49,187		35.0	%	$	32,299		35.0	%	$	32,109		35.0	%
Tax-exempt interest		(4,771	)	-3.4	%		(3,839	)	-4.2	%		(4,443	)	-4.8	%
Dividends received deduction		(1,257	)	-0.9	%		(897	)	-1.0	%		(799	)	-0.9	%
Proration of DRD and Tax-exempt interest		904		0.6	%		710		0.8	%		786		0.9	%
Current state and local income taxes, net of federal income tax deduction		674		0.5	%		290		0.3	%		95		0.1	%
Other		470		0.3	%		244		0.3	%		226		0.2	%
Actual tax expense and rate	$	45,207		32.2	%	$	28,807		31.2	%	$	27,974		30.5	%

Tax Effects of Temporary Differences That Give Rise to Federal, Foreign, State and Local Deferred Tax Assets and Deferred Tax Liabilities

The tax effects of temporary differences that give rise to federal, foreign, state and local deferred tax assets and deferred tax liabilities were as follows:

	December 31,
In thousands	2014			2013
Deferred tax assets:
Loss reserve discount	$	24,820		$	27,822
Unearned premiums		29,080			25,706
Compensation related		10,586			6,782
State and local net deferred tax assets		777			555
Other		1,834			3,889
Total gross deferred tax assets		67,097			64,754
Less: Valuation allowance		(777	)		(555	)
Total deferred tax assets	$	66,320		$	64,199
Deferred tax liabilities:
Net unrealized gains/losses on securities		(24,832	)		(9,119	)
Deferred acquisition costs		(22,120	)		(19,258	)
Lloyd’s year of account deferral		(13,578	)		(4,381	)
Net unrealized foreign exchange		(4,470	)		(3,516	)
Other		(2,787	)		(4,119	)
Total deferred tax liabilities	$	(67,787	)	$	(40,393	)
Net deferred income tax asset (liability)	$	(1,467	)	$	23,806

XML

Commitments and Contingencies

12 Months Ended

Dec. 31, 2014

Commitments and Contingencies

Note 11. Commitments and Contingencies

Future minimum annual rental commitments as of December 31, 2014 under various non-cancellable operating leases for our office facilities, which expire at various dates through 2023, are as follows:

	Year Ended
In thousands	December 31,
2015	$	11,245
2016		9,234
2017		7,942
2018		6,907
2019		4,258
Thereafter		12,811
Total minimum operating lease payments	$	52,397

We are also liable for additional payments to the landlords for certain annual cost increases. Rent expense for the years ended December 31, 2014, 2013 and 2012 was $13.2 million, $11.5 million and $10.5 million, respectively.

The State of Connecticut (“the State”) awarded our Company up to $11.5 million ($8.0 million in loans and $3.5 million in grants) as an incentive to move its corporate headquarters to Stamford Connecticut. The loan is non-interest bearing, has a term of 10 years and is subject to forgiveness under conditions of the agreement with the State. The amount of the assistance to be received is dependent on our Company reaching certain milestones for creation of new jobs over a five-year period, and the funds are to be used to offset certain equipment purchases, facility costs, training of employees and other eligible project-related costs. Our Company completed the move to Stamford in September 2013 and received $7.5 million for reaching the first job milestone. Earning of the grant and forgiveness of the loan is subject to certain conditions, including maintaining the required jobs for an extended period of time. As of December 31, 2014, the length of time commitment has not been met, however, our Company expects to meet all the conditions to keep the amount of assistance received to date, and accordingly, is recognizing the assistance received over the period in which our Company recognizes the expenses for which the assistance is intended to compensate, and is recognized as a reduction of such expenses. For the years ended December 31, 2014 and 2013, our Company recognized $1.1 million and $0.3 million of the assistance and as of December 31, 2014 has deferred revenue of $6.1 million, which is included in other liabilities.

In the ordinary course of conducting business, our Company’s subsidiaries are involved in various legal proceedings, either indirectly as insurers for parties or directly as defendants. Most of these proceedings consist of claims litigation involving our Company’s subsidiaries as either: (a) liability insurers defending or providing indemnity for third party claims brought against insureds or (b) insurers defending first party coverage claims brought against them. Our Company accounts for such activity through the establishment of unpaid loss and loss adjustment reserves. Our Company’s management believes that the ultimate liability, if any, with respect to such ordinary-course claims litigation, after consideration of provisions made for potential losses and cost of defense, will not be material to our Company’s consolidated financial condition, results of operations, or cash flows.

Our Company’s subsidiaries are also occasionally involved with other legal actions, some of which assert claims for substantial amounts. These actions include claims asserting extra contractual obligations, such as claims involving allegations of bad faith in the handling of claims or the underwriting of policies. In general, our Company believes it has valid defenses to these cases. Our Company’s management expects that the ultimate liability, if any, with respect to future extra-contractual matters will not be material to its consolidated financial position. Nonetheless, given the large or indeterminate amounts sought in certain of these matters, and the inherent unpredictability of litigation, an adverse outcome in such matters could, from time to time, have a material adverse outcome on our Company’s consolidated results of operations or cash flows in a particular fiscal quarter or year.

XML

Supplementary Information Concerning Property-Casualty Insurance Operations (Detail) (USD $) In Thousands, unless otherwise specified	12 Months Ended
	Dec. 31, 2014		Dec. 31, 2013		Dec. 31, 2012
Supplemental Information for Property, Casualty Insurance Underwriters [Line Items]
Deferred policy acquisition costs	$ 79,452		$ 67,007		$ 61,005
Reserve for losses and loss adjustment expenses	2,159,634		2,045,071		2,097,048
Discount, if any, deducted	0		0		0
Unearned premiums	766,167		714,606		642,407
Net earned premiums	935,895		841,939		781,964
Net investment income	64,092	[1]	56,243	[1]	54,100	[1]
Losses and loss adjustment expenses incurred related to Current year	601,041		520,227		542,724
Increase (decrease) in estimated losses and LAE for claims occurring in prior years	(55,812)		(1,266)		(45,291)
Amortization of deferred policy acquisition costs	127,695	[2]	115,842	[2]	123,819	[2]
Other operating expenses	196,825	[1]	164,434	[1]	159,079	[1]
Net written premiums	$ 1,000,138		$ 887,922		$ 833,655

[1] Net investment income and Other operating expenses reflect only such amounts attributable to the Company's insurance operations.

[2] Amortization of deferred policy acquisition costs reflects only such amounts attributable to the Company's insurance operations. A portion of these costs is eliminated in consolidation.