-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, U65y/hj8MWptvhrbkgiWRYQG/UPwRheZxJHTjuGpBQxYY6z4YJ0KKUMHbQu9PBvL 8urz4QKmf6Fq0o9H446hyQ== 0000950123-96-002477.txt : 19960517 0000950123-96-002477.hdr.sgml : 19960517 ACCESSION NUMBER: 0000950123-96-002477 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19960331 FILED AS OF DATE: 19960515 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: NAVIGATORS GROUP INC CENTRAL INDEX KEY: 0000793547 STANDARD INDUSTRIAL CLASSIFICATION: FIRE, MARINE & CASUALTY INSURANCE [6331] IRS NUMBER: 133138397 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-15886 FILM NUMBER: 96567668 BUSINESS ADDRESS: STREET 1: 123 WILLIAM ST CITY: NEW YORK STATE: NY ZIP: 10038 BUSINESS PHONE: 2124062900 MAIL ADDRESS: STREET 2: 123 WILLIAM ST CITY: NEW YORK STATE: NY ZIP: 10038 10-Q 1 THE NAVIGATORS GROUP, INC. 1 FORM 10-Q SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 Quarterly Report Under Section 13 or 15(d) of the Securities Exchange Act of 1934 For Quarter Ended March 31, 1996 Commission file number 0-15886 The Navigators Group, Inc. (Exact name of registrant as specified in its charter) Delaware (State or other jurisdiction of incorporation or organization) 13-3138397 (IRS Employer Identification No.) 123 William Street, New York, New York 10038 (Address of principal executive offices) (Zip Code) (212) 406-2900 (Registrant's telephone number, including area code) (Former name, former address and former fiscal year, if changed since last report.) 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 the number of shares outstanding of each of the issuer's classes of common stock as of the latest practicable date. On May 14, 1996 there were 8,184,401 shares of common stock, $0.10 par value issued and outstanding. 2 THE NAVIGATORS GROUP, INC. AND SUBSIDIARIES INDEX
PAGE NO. -------- Part I. FINANCIAL INFORMATION: Balance Sheets March 31, 1996 and December 31, 1995......................................... 1 Statements of Income Three Months Ended March 31, 1996 and Three Months Ended March 31, 1995............................................ 2 Statements of Cash Flows Three Months Ended March 31, 1996 and Three Months Ended March 31, 1995............................................ 3 Notes to Financial Statements................................................... 4 Management's Discussion and Analysis of Financial Condition and Results of Operations............................................. 7 Part II. OTHER INFORMATION........................................................ 12
3 THE NAVIGATORS GROUP, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS
MARCH 31, DEC. 31, 1996 1995 ----------- ----------- (UNAUDITED) ASSETS Investments: Fixed maturities, available for sale, at fair value (amortized cost: 1996, $205,415,584; 1995, $203,468,088)............................................ $209,103,215 $210,697,423 Equity securities, available for sale, at fair value (cost: 1996, $6,154,411; 1995, $5,587,344)...................... 8,663,996 7,861,813 Short-term investments, at cost which approximates market................................................... 9,358,669 7,290,638 ----------- ----------- Sub-total investments................................. 227,125,880 225,849,874 Investment in affiliated company........................... 2,239,952 2,277,048 ----------- ----------- Total investments..................................... 229,365,832 228,126,922 Cash............................................................ 353,613 7,332,698 Premiums in course of collection................................ 23,592,368 17,971,529 Commissions receivable.......................................... 5,549,747 6,048,440 Accrued investment income....................................... 3,247,908 3,349,030 Prepaid reinsurance premiums.................................... 9,138,559 9,814,146 Reinsurance receivable on paid and unpaid losses and loss adjustment expenses........................................... 137,095,210 147,356,684 Deferred federal income tax benefit............................. 9,887,315 8,873,030 Deferred policy acquisition costs............................... 3,009,697 2,523,180 Other assets.................................................... 3,909,548 4,156,755 ----------- ----------- Total assets.......................................... $425,149,797 $435,552,414 =========== =========== LIABILITIES AND STOCKHOLDERS' EQUITY Liabilities: Reserves for loss and loss adjustment expenses............. $258,966,054 $273,854,054 Unearned premiums.......................................... 27,994,540 26,753,920 Reinsurance balances payable............................... 6,762,732 6,411,746 Loans payable to banks..................................... 18,250,000 19,500,000 Federal income tax payable................................. 881,577 1,243,364 Deferred state & local income taxes........................ 920,267 1,382,881 Notes payable to shareholders.............................. 942,034 1,007,976 Accounts payable and other liabilities..................... 9,154,842 6,322,266 ----------- ----------- Total liabilities..................................... 323,872,046 336,476,207 ----------- ----------- Commitments and contingencies................................... -- -- Stockholders' equity: Preferred Stock, $.10 par value, authorized 1,000,000 shares, no shares issued................................. -- -- Common Stock, $.10 par value Authorized 10,000,000 shares Issued and outstanding 8,184,401 in 1996 and 8,172,401 in 1995..................................................... 818,440 817,240 Additional paid-in capital................................. 35,529,179 35,321,339 Net unrealized gains on securities available for sale (net of income taxes of $2,107,053 in 1996 and $3,231,293 in 1995).................................................... 4,090,163 6,272,511 Foreign currency translation adjustment.................... 73,089 110,185 Retained earnings.......................................... 60,766,880 56,554,932 ----------- ----------- Total stockholders' equity............................ 101,277,751 99,076,207 ----------- ----------- Total liabilities and stockholders' equity............ $425,149,797 $435,552,414 =========== ===========
See accompanying notes to interim consolidated financial statements. 4 THE NAVIGATORS GROUP, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME
THREE MONTHS ENDED MARCH 31 ------------------------- 1996 1995 ---------- ---------- (UNAUDITED) Revenues: Net premiums earned............................................. $19,188,829 $17,718,090 Commission income............................................... 2,066,826 2,594,170 Net investment income........................................... 3,563,297 3,412,370 Net realized capital gains...................................... 174,838 (62,147) Other income.................................................... 203,234 217,123 ----------- ----------- Total revenues.......................................... 25,197,024 23,879,606 ----------- ----------- Operating expenses: Losses and loss adjustment expenses incurred.................... 11,835,750 13,112,306 Commissions..................................................... 2,611,533 2,460,155 Other operating expenses........................................ 4,539,911 5,514,635 Interest expense................................................ 774,234 539,923 ----------- ----------- Total operating expenses................................ 19,761,428 21,627,019 ----------- ----------- Operating income before income taxes.............................. 5,435,596 2,252,587 Income tax expense: Current......................................................... 1,554,205 308,329 Deferred........................................................ (330,556) (81,470) ----------- ----------- Total income tax expense................................ 1,223,649 226,859 Net income...................................................... $4,211,947 $2,025,728 =========== =========== Per share data: Average common and common equivalent shares outstanding......... 8,296,617 8,205,946 Net income...................................................... $ 0.51 $ 0.25 =========== ===========
See accompanying notes to interim consolidated financial statements. 2 5 THE NAVIGATORS GROUP, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED MARCH 31 ------------------------- 1996 1995 ---------- ---------- (UNAUDITED) Operating activities: Net income................................................... $ 4,211,947 $ 2,025,728 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation & amortization................................ 134,593 181,901 Reinsurance receivable on paid and unpaid losses and loss adjustment expenses....................................... 10,261,474 12,386,819 Reserve for losses and loss adjustment expenses............ (14,888,000) (3,738,010) Prepaid reinsurance premiums............................... 675,587 4,879,174 Unearned premiums.......................................... 1,240,620 (7,470,659) Premiums in course of collection........................... (5,620,839) 8,194,594 Commissions receivable..................................... 498,693 (449,238) Deferred policy acquisition costs.......................... (486,517) 363,283 Accrued investment income.................................. 101,122 71,418 Reinsurance balances payable............................... 350,986 (3,994,009) Federal income taxes recoverable........................... -- 158,821 Federal income taxes payable............................... (361,787) -- Deferred federal income taxes.............................. 109,955 (85,838) Net realized losses (gains) on investments................. (174,838) 62,147 Other...................................................... (1,041,316) (1,980,870) ----------- ----------- Net cash provided by operating activities............. (4,988,320) $10,605,261 ----------- ----------- Investing activities: Fixed maturities available for sale at fair value: Redemption and maturities.................................. $ 3,858,715 $ 411,010 Sales...................................................... 18,283,178 21,171,214 Purchases.................................................. (24,111,678) (22,479,777) Equity securities: Sales...................................................... 556,914 152,857 Purchases.................................................. (1,035,128) (476,217) Payable for securities purchased............................. 3,579,922 (2,028,556) Net sale (purchases) of short-term investments............... (2,068,031) (2,513,089) Purchase of property and equipment........................... (13,697) (64,507) ----------- ----------- Net cash used in investing activities................. $ (949,805) $(5,827,065) ----------- ----------- Financing activities: Proceeds from bank loans..................................... $ -- $ 1,000,000 Repayment of bank loans...................................... (1,250,000) (4,250,000) Notes payable to shareholders................................ -- (13,204) Proceeds from exercise of stock options...................... 209,040 -- ----------- ----------- Net cash provided by financing activities............. (1,040,960) (3,263,204) ----------- ----------- Increase (decrease) in cash.................................. (6,979,085) 1,514,992 Cash at beginning of period.................................. 7,332,698 730,047 ----------- ----------- Cash at end of period........................................ $ 353,613 $2,245,039 =========== ===========
See accompanying notes to interim consolidated financial statements. 3 6 THE NAVIGATORS GROUP, INC. AND SUBSIDIARIES Notes to Interim Consolidated Financial Statements (1) Accounting Policies The interim financial statements are unaudited but reflect all adjustments which, in the opinion of management, are necessary to provide a fair statement of the results of The Navigators Group, Inc. and its subsidiaries (the "Company") for the interim periods presented. All such adjustments are of a normal recurring nature. The results of operations for any interim period are not necessarily indicative of results for the full year. These financial statements should be read in conjunction with the financial statements and notes thereto contained in the Company's Form 10-K for the year ended December 31, 1995. (2) Reinsurance Ceded The Company's ceded earned premiums were $11,982,800 and $21,039,928 for the three months ended March 31, 1996 and 1995, respectively. The Company's ceded losses were $7,497,911 and $19,354,793 for the three months ended March 31, 1996 and 1995, respectively. 4 7 THE NAVIGATORS GROUP, INC. Management's Discussion and Analysis of Financial Condition and Results of Operations GENERAL The Company is a holding company with 12 wholly owned subsidiaries. Two of the Company's subsidiaries, Navigators Insurance Company and NIC Insurance Company ("NIC"), specialize principally in underwriting marine, aviation and property (including inland marine) insurance, and certain lines of specialty reinsurance and non-marine insurance. Navigators Insurance Company has been active since 1983. NIC is a wholly owned subsidiary of Navigators Insurance Company, was licensed in 1989 and began operations during 1990. Navigators Insurance Company and NIC are collectively referred to herein as "Navigators." Eight of the Company's subsidiaries, Somerset Marine, Inc., Somerset of Georgia, Inc., Somerset Insurance Services of Texas, Inc., Somerset Insurance Services of California, Inc., Somerset Insurance Services of Washington, Inc., Somerset Property, Inc., Somerset Re Management, Inc. and Navigators Management Corporation (collectively, the "Somerset Companies"), are a group of underwriting management companies which produce, manage and underwrite insurance and reinsurance for Navigators and nine other unrelated insurance companies. The other subsidiaries of the Company are Somerset Casualty Agency, Inc. and Somerset Marine Aviation Property Managers Inc., which are both inactive. The Company's revenue is primarily comprised of premiums, commissions and investment income. Navigators derives substantially all of its business from insurance underwritten by the Somerset Companies. The insurance business and operations of Navigators are managed by one of the Somerset Companies, Navigators Management Corporation. The Somerset Companies specialize principally in four lines of business: marine, aviation and property (including inland marine) insurance, and certain lines of specialty reinsurance and non-marine insurance. They underwrite marine business through a syndicate of insurance companies, Navigators having the largest participation in the syndicate. The remaining lines of business are underwritten exclusively for the account of Navigators. The Somerset Companies derive their revenue from commissions, investment income and service fees from Navigators and other insurers. Commissions are earned both on a fixed percentage of premiums and on underwriting profits on business placed with the participating insurance companies within the marine syndicate. Property and casualty insurance premiums are cyclical in nature and, accordingly, during a "hard market" demand for property and casualty insurance exceeds supply, or capacity, and as a result, 5 8 premiums and commissions increase. On the downturn of the property and casualty cycle, supply exceeds demand, and as a result, premiums and commissions decrease. Navigators and the Somerset Companies earn investment income on cash balances and invested assets. The Somerset Companies also earn investment income on fiduciary funds. Such fiduciary funds are invested, subject to applicable insurance regulations, primarily in short-term instruments. RESULTS OF OPERATIONS General. The results of operations of the Company during the first quarter of 1996 reflect management's emphasis on the Company's core ocean marine business, its inland marine business and its non-marine program book of business. Revenues. Gross written premium for the first three months of 1996 increased by 3.6% to $32,411,000 from $31,287,000 for the first three months of 1995. The following table sets forth Navigators' gross written premium by line of business and net written premium in the aggregate:
THREE MONTHS ENDED MARCH 31, ----------------------------------------------- 1996 1995 ------------------- --------------------- (DOLLARS IN THOUSANDS) Marine.......................................... $13,652 42% $12,957 42% Aviation........................................ 8,424 26% 11,357 36% Property and Inland Marine...................... 3,882 12% 2,544 8% Reinsurance and Non-Marine Program Insurance.... 6,453 20% 4,429 14% ------- --- ------- --- Total Gross Premium Written........... $32,411 100% $31,287 100% ======= === ======= === Ceded Premium Written........................... (11,306) (16,244) ------- --- ------- --- Total Net Premium Written............. 21,105 15,043 ======= === ======= ===
Marine Premium. Marine gross premium increased 5% when comparing the first three months of 1996 to the first three months of 1995. Management believes this increase is due to management's emphasis on this core line of business. Although the marine market is competitive at this time, management anticipates a modest increase in the total amount of marine business written in 1996 compared to 1995. 6 9 Aviation Premium. Aviation gross premium decreased 26% from the first three months of 1995 to the first three months of 1996. This decrease reflects management's decision to reduce Navigators' aviation business in response to underwriting losses in this line of business. Property Premium. Property and Inland Marine gross premium increased 53% from the first three months of 1995 to the first three months of 1996 reflecting the continuing development of the Company's inland marine book of business. The Company decided in late 1994 to cease writing large commercial and industrial property risks, which is essentially a property catastrophe book of business, and to concentrate on the inland marine risks. Specialty Reinsurance and Non-Marine Insurance Premium. Gross specialty reinsurance and non-marine insurance premium increased 46% from the first three months of 1995 to the first three months of 1996. The increase was due primarily to the emergence of new non-marine program business, which management began developing in the last half of 1995 to augment its reinsurance book. Ceded Premium. The decrease in ceded premium results primarily from changes in the Company's reinsurance program. Total Premium. Net earned premium for the first three months of 1996 was $19,189,000 as compared to $17,718,000 for the first three months of 1995. Net earned premium generally follows the pattern of written premium; however, the run-off off the property book in 1995 resulted in net earned premiums which exceeded net written premiums. Commission income, based on gross premiums earned and net underwriting profits during the first three months of 1996 was approximately $2,067,000 compared to approximately $2,594,000 during the corresponding period in 1995. The decrease is primarily a result of Navigators' decision to increase its participation in the aviation business managed by the Somerset Companies to 100%, which eliminated commission income paid by the former participants in the aviation insurance pool. Investment income increased 4% to approximately $3,563,000 during the first three months of 1996 from approximately $3,412,000 during the corresponding period in 1995. This increase is due primarily to the increased amount of invested assets. Included in pre-tax net income were $175,000 in realized capital gains for the first three months of 1996 and $62,000 in realized capital losses for the same period last year. On an after tax basis these represent realized gains of $0.01 and $0 per share for the respective periods. Expenses. The ratio of loss and loss adjustment expenses incurred to net premiums earned was 61.7% and 74.0% during the first three months of 1996 and 1995, respectively. The 1995 loss ratio includes additional net loss development of $2,580,000 from 7 10 the Northridge, California earthquake, which occurred on January 17, 1994 (the "Northridge Earthquake"). The decrease is due primarily to a return to more normal experience in comparison to the adverse development on losses from the Northridge Earthquake in1995. Commission expense as a percentage of net premiums earned were 13.6% and 13.9% during the first three months of 1996 and 1995, respectively. Other operating expenses decreased 17.7% to approximately $4,540,000 during the first three months of 1996 from approximately $5,515,000 during the corresponding period in 1995. This decrease is primarily due to the severance charges incurred in the first quarter of 1995 and savings on operational expenses resulting from the Company's restructuring and headcount reduction that began in early 1995. Interest expense increased 43.3% to approximately $774,000 during the first three months of 1996 from approximately $540,000 during the corresponding period of 1995. This increase is primarily due to the interest expense on the Company's rollback liability under Proposition 103 settled with the State of California Insurance Department on March 19, 1996. The effective tax rate was a 22.5% expense and a 10.1% expense for the three months ended March 31, 1996 and 1995, respectively. For the first three months of 1996, the Company had after tax income of $4,212,000 compared to after tax income of $2,026,000 for the same period last year, primarily due to a return to normal experience in comparison to the losses from the Northridge Earthquake. On a per share basis, this represents net income of $0.51 and $0.25 for the first three months of 1996 and 1995, respectively. LIQUIDITY AND CAPITAL RESOURCES Cash flow from operations was $(4,988,000) and $10,605,000 for the first three months of 1996 and 1995, respectively. Investment assets grew at the rate of 1% during the first three months of 1996 to $229,366,000 at March 31, 1996. Investment income during the three months was $3,563,000, an increase of 4%, reflecting increased assets. The Company has entered into a credit agreement dated as of August 5, 1994. Pursuant to the credit agreement, the Company may borrow, subject to certain conditions, up to an aggregate of $5,000,000 in revolving credit loans. As of March 31, 1996, the Company had outstanding $2,000,000 in revolving credit loans. As of March 31, 1996, the Company's consolidated stockholders' equity was $101,278,000, an increase from $99,076,000 as of December 31, 1995. 8 11 THE NAVIGATORS GROUP, INC. & SUBSIDIARIES Part II -- Other Information Item 1. Legal Proceedings: Neither the Company nor any of its subsidiaries is a party to, nor is the property thereof the subject of, any pending legal proceedings which depart from the ordinary routine litigation incident to the kinds of business conducted by the Company and its subsidiaries or, if such proceedings constitute other than routine litigation, in which there is a reasonable possibility of an adverse decision which could have any material adverse effect upon the financial condition of the Companny In November 1988, the voters of the state of California approved Proposition 103, which required most property and casualty insurance companies, among other things, to reduce rates charged to California insureds to a level 20% below November 8, 1987 levels. On March 19, 1996, the Company agreed with the Insurance Commissioner of the State of California to settle its rollback liability under Proposition 103. The Company expects to be able to recover some portion of this settlement from reinsurers. As a result of these recoveries and existing reserves, management does not believe this settlement will have a material adverse effect on the Company. The settlement is not affected by the preliminary injunction issued in Proposition 103 Enforcement Project v. Quakenbush, LASC Case No. BS037146. Item 2. Changes in Securities: None. Item 3. Defaults Upon Senior Securities: None. Item 4. Submissions of Matters to a Vote of Securities Holders: None. Item 5. Other Information: None. 9 12 Item 6. Exhibits and Reports on Form 8-K: (a) Exhibits: Exhibit No. Description of Exhibit 27.1 Financial Data Schedule (b) Reports on Form 8-K: There were no reports on Form 8-K filed for the three months ended March 31, 1996. 10 13 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. The Navigators Group, Inc. (Registrant) May 15, 1996 /s/ W. Allen Barnett (Date) W. Allen Barnett, Senior Vice President, Chief Financial Officer 11 14 INDEX TO EXHIBITS
SEQUENTIALLY NUMBERED EXHIBIT NO. DESCRIPTION OF EXHIBIT PAGE - ------------ --------------------------------------------------- ------------ 27.1 Financial Data Schedule
12 EX-27 2 FINANCIAL DATA SCHEDULE
7 U.S. DOLLARD 3-MOS DEC-31-1996 JAN-01-1996 MAR-31-1996 1 209,103,215 0 0 8,663,996 0 0 229,365,832 353,613 137,095,210 3,009,697 425,149,797 258,966,054 27,994,540 0 0 19,192,034 0 0 818,440 100,459,311 425,149,797 19,188,829 3,563,297 174,838 2,270,060 11,835,750 2,611,533 4,539,911 5,435,596 1,223,649 4,211,947 0 0 0 4,211,947 0.51 0.51 138,760,610 13,197,755 (1,362,000) 626,209 14,148,025 135,822,133 (1,362,000)
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