UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C.  20549

FORM 10-Q

Quarterly Report Under Section 13 or 15(d)
of the Securities Exchange Act of 1934

For the Quarterly Period Ended   September 30, 2005

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)	(IRS Employer Identification No.)
One Penn Plaza, New York, New York	10119
(Address of principal executive offices)	(Zip Code)

(212) 244-2333

(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   ý    No   o

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes   ý    No   o

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

The number of common shares outstanding as of October 18, 2005 was 16,587,257.

THE NAVIGATORS GROUP, INC. AND SUBSIDIARIES

INDEX

Part I. FINANCIAL INFORMATION:
Item 1. Financial Statements
Consolidated Balance Sheets
	September 30, 2005 (unaudited) and December 31, 2004
Consolidated Statements of Income (unaudited)
	Three Months Ended September 30, 2005 and 2004
	Nine Months Ended September 30, 2005 and 2004
Consolidated Statements of Stockholders’ Equity
	September 30, 2005 and 2004 (unaudited)
Consolidated Statements of Comprehensive Income (unaudited)
	Three Months Ended September 30, 2005 and 2004
	Nine Months Ended September 30, 2005 and 2004
Consolidated Statements of Cash Flows (unaudited)
	Nine Months Ended September 30, 2005 and 2004
Notes to Interim Consolidated Financial Statements (unaudited)
Item 2. Management’s Discussion and Analysis of Financial
	Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosures
	About Market Risk
Item 4. Controls and Procedures
Part II. OTHER INFORMATION
Item 1. Legal Proceedings
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Item 3. Defaults Upon Senior Securities
Item 4. Submissions of Matters to a Vote of Security Holders
Item 5. Other Information
Item 6. Exhibits
Signature
Index of Exhibits

2

Part 1. Financial Information

Item 1.    Financial Statements

THE NAVIGATORS GROUP, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

($ in thousands, except share data)

	September 30, 2005		December 31, 2004
	(Unaudited)
ASSETS
Investments and cash:
Fixed maturities, available-for-sale, at fair value (amortized cost: 2005, $854,288; 2004, $713,049)	$	854,621	$	722,434
Equity securities, available-for-sale, at fair value (cost: 2005, $19,081; 2004, $19,101)	20,917		21,170
Short-term investments, at cost which approximates fair value	136,520		96,653
Cash	11,806		14,676
Total investments and cash	1,023,864		854,933
Premiums in course of collection	163,156		176,720
Commissions receivable	3,663		3,062
Prepaid reinsurance premiums	146,422		130,761
Reinsurance receivable on paid losses	46,418		20,955
Reinsurance receivable on unpaid losses and loss adjustment expenses	979,107		502,329
Federal income tax recoverable	1,493		—
Net deferred income tax benefit	26,164		17,348
Deferred policy acquisition costs	32,000		23,882
Accrued investment income	8,638		7,303
Goodwill	5,072		5,282
Other assets	15,059		14,103
Total assets	$	2,451,056	$	1,756,678
LIABILITIES AND STOCKHOLDERS’ EQUITY
Liabilities:
Reserves for losses and loss adjustment expenses	$	1,526,027	$	966,117
Unearned premium	333,359		270,970
Reinsurance balances payable	180,574		143,427
Federal income tax payable	—		5,614
Payable for securities purchased	27,094		3,027
Accounts payable and other liabilities	51,087		38,945
Total liabilities	2,118,141		1,428,100
Stockholders’ equity:
Preferred stock, $.10 par value, authorized 1,000,000 shares, none issued	—		—
Common stock, $.10 par value, 20,000,000 shares authorized; issued and outstanding: 12,792,257 for 2005 and 12,657,160 for 2004	1,279		1,266
Additional paid-in capital	157,617		154,670
Retained earnings	171,591		163,337
Accumulated other comprehensive income	2,428		9,305
Total stockholders’ equity	332,915		328,578
Total liabilities and stockholders’ equity	$	2,451,056	$	1,756,678

See accompanying notes to interim consolidated financial statements.

3

THE NAVIGATORS GROUP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME

($ and shares in thousands, except net income per share)

	Three Months Ended
	September 30,
	2005			2004
	(Unaudited)
Gross written premium	$	188,114		$	151,178
Revenues:
Net written premium	$	76,049		$	65,992
(Increase) decrease in unearned premium	(1,315		)	9,145
Net earned premium	74,734			75,137
Commission income	1,025			1,121
Net investment income	9,196			6,881
Net realized capital gains	344			271
Other income (expense)	459			(127		)
Total revenues	85,758			83,283
Operating expenses:
Net losses and loss adjustment expenses incurred	76,836			49,247
Commission expense	11,656			8,773
Other operating expenses	17,482			16,014
Total operating expenses	105,974			74,034
Income (loss) before income tax expense (benefit)	(20,216		)	9,249
Income tax expense (benefit):
Current	(5,605		)	4,225
Deferred	(1,886		)	(1,256		)
Total income tax expense (benefit)	(7,491		)	2,969
Net income (loss)	$	(12,725	)	$	6,280
Net income (loss) per common share:
Basic	$	(0.99	)	$	0.50
Diluted	$	(0.99	)	$	0.50
Average common shares outstanding:
Basic	12,791			12,612
Diluted	12,791			12,679

See accompanying notes to interim consolidated financial statements.

4

	Nine Months Ended
	September 30,
	2005			2004
	(Unaudited)
Gross written premium	$	595,243		$	508,756
Revenues:
Net written premium	$	286,396		$	235,616
(Increase) in unearned premium	(48,292		)	(10,989		)
Net earned premium	238,104			224,627
Commission income	3,809			3,608
Net investment income	25,779			19,408
Net realized capital gains	927			588
Other income	1,826			267
Total revenues	270,445			248,498
Operating expenses:
Net losses and loss adjustment expenses incurred	176,668			138,391
Commission expense	30,502			29,840
Other operating expenses	52,554			44,066
Total operating expenses	259,724			212,297
Income before income tax expense	10,721			36,201
Income tax expense (benefit):
Current	7,636			14,184
Deferred	(5,169		)	(2,213		)
Total income tax expense	2,467			11,971
Net income	$	8,254		$	24,230
Net income per common share:
Basic	$	0.65		$	1.93
Diluted	$	0.64		$	1.91
Average common shares outstanding:
Basic	12,744			12,584
Diluted	12,849			12,688

See accompanying notes to interim consolidated financial statements.

5

THE NAVIGATORS GROUP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

($ in thousands)

	Nine Months Ended
	September 30,
	2005			2004
	(Unaudited)
Preferred Stock
Balance at beginning and end of period	$	—		$	—
Common stock
Balance at beginning of year	$	1,266		$	1,254
Shares issued under stock plans	13			9
Balance at end of period	$	1,279		$	1,263
Additional paid-in capital
Balance at beginning of year	$	154,670		$	151,765
Effect of SFAS 123 for stock options	784			754
Shares issued under stock plans	2,163			1,362
Balance at end of period	$	157,617		$	153,881
Retained earnings
Balance at beginning of year	$	163,337		$	128,472
Net income	8,254			24,230
Balance at end of period	$	171,591		$	152,702
Accumulated other comprehensive income
Net unrealized gains (losses) on securities, net of tax
Balance at beginning of year	$	7,416		$	7,871
Change in period	(6,043		)	139
Balance at end of period	1,373			8,010
Cumulative translation adjustments, net of tax
Balance at beginning of year	1,889			666
Net adjustment for period	(834		)	76
Balance at end of period	1,055			742
Balance at end of period	$	2,428		$	8,752
Total stockholders’ equity at end of period	$	332,915		$	316,598

See accompanying notes to interim consolidated financial statements.

6

THE NAVIGATORS GROUP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

($ in thousands)

	Three Months Ended
	September 30,
	2005			2004
	(Unaudited)
Net income (loss)	$	(12,725	)	$	6,280
Other comprehensive income (loss):
Change in net unrealized gains or (losses) on securities, net of tax expense (benefit) of $(3,652) and $4,073 in 2005 and 2004, respectively (1)	(6,885		)	7,564
Change in foreign currency translation gains or (losses), net of tax expense (benefit) of $(58) and $(89) in 2005 and 2004, respectively	(107		)	(165		)
Other comprehensive income (loss)	(6,992		)	7,399
Comprehensive income (loss)	$	(19,717	)	$	13,679
(1)  Disclosure of reclassification amount, net of tax:
Unrealized holding gains (losses) arising during period	$	(6,661	)	$	7,740
Less: reclassification adjustment for net gains (losses) included in net income	224			176
Change in net unrealized gains (losses) on securities	$	(6,885	)	$	7,564

See accompanying notes to interim consolidated financial statements.

7

	Nine Months Ended
	September 30,
	2005			2004
	(Unaudited)
Net income	$	8,254		$	24,230
Other comprehensive income:
Change in net unrealized gains or (losses) on securities, net of tax expense (benefit) of $(3,198) and $75 in 2005 and 2004, respectively(1)	(6,043		)	139
Change in foreign currency translation gains or (losses), net of tax expense (benefit) of $(449) and $41 in 2005 and 2004, respectively	(834		)	76
Other comprehensive income (loss)	(6,877		)	215
Comprehensive income	$	1,377		$	24,445
(1)  Disclosure of reclassification amount, net of tax:
Unrealized holding gains or (losses) arising during period	$	(5,440	)	$	521
Less: reclassification adjustment for net gains included in net income	603			382
Net unrealized gains (losses) on securities	$	(6,043	)	$	139

See accompanying notes to interim consolidated financial statements.

8

THE NAVIGATORS GROUP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

($ in thousands)

	Nine Months Ended
	September 30,
	2005			2004
	(Unaudited)
Operating activities:
Net income	$	8,254		$	24,230
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Depreciation & amortization	1,332			893
Net deferred income tax (benefit)	(5,169		)	(2,213		)
Net realized capital (gains)	(927		)	(588		)
Changes in assets and liabilities:
Reinsurance receivable on paid and unpaid losses and loss adjustment expenses	(502,241		)	(110,504		)
Reserve for losses and loss adjustment expenses	559,910			184,895
Prepaid reinsurance premiums	(15,661		)	(36,816		)
Unearned premium	62,389			48,647
Premiums in course of collection	13,564			(26,533		)
Commissions receivable	(601		)	1,141
Deferred policy acquisition costs	(8,118		)	(3,820		)
Accrued investment income	(1,335		)	(1,360		)
Reinsurance balances payable	37,147			41,935
Federal income tax	(7,107		)	10,568
Other	26,510			11,273
Net cash provided by operating activities	167,947			141,748
Investing activities:
Fixed maturities, available-for-sale
Redemptions and maturities	18,316			118,753
Sales	255,002			225,858
Purchases	(428,139		)	(457,892		)
Equity securities, available-for-sale
Sales	4,169			3,646
Purchases	(3,739		)	(8,916		)
Change in payable for securities	24,067			(120		)
Net change in short-term investments	(39,873		)	(15,123		)
Purchase of property and equipment	(2,233		)	(1,446		)
Net cash (used in) investing activities	(172,430		)	(135,240		)
Financing activities:
Proceeds of stock issued from Employee Stock Purchase Plan	419			434
Proceeds of stock issued from exercise of stock options	1,194			688
Net cash provided by financing activities	1,613			1,122
Increase (decrease) in cash	(2,870		)	7,630
Cash at beginning of year	14,676			8,399
Cash at end of period	$	11,806		$	16,029
Supplemental disclosures of cash flow information:
Federal, state and local income tax paid	$	13,366		$	3,597
Issuance of stock to directors	123			60

See accompanying notes to interim consolidated financial statements.

9

THE NAVIGATORS GROUP, INC.  AND SUBSIDIARIES

Notes to Interim Consolidated Financial Statements

(Unaudited)

Note 1.  Accounting Policies

The interim consolidated 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 for the interim periods presented on the basis of accounting principles generally accepted in the United States of America (“GAAP” or “U.S. GAAP”).  All such adjustments are of a normal recurring nature.  All significant intercompany transactions and balances have been eliminated.  The preparation of these 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 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” and “the Company” as used herein mean The Navigators Group, Inc. and its subsidiaries, unless the context otherwise requires.  The term “Parent” or “Parent Company” is used to mean The Navigators Group, Inc. without its subsidiaries.  These financial statements should be read in conjunction with the consolidated financial statements and notes contained in the Company’s 2004 Annual Report on Form 10-K.

Note 2.  Reinsurance Ceded

The Company’s ceded earned premiums were $118,984,000 and $84,858,000 for the three months ended September 30, 2005 and 2004, respectively, and were $292,608,000 and $237,565,000 for the nine months ended September 30, 2005 and 2004, respectively.  The Company’s ceded incurred losses were $514,387,000 and $69,907,000 for the three months ended September 30, 2005 and 2004, respectively, and were $597,985,000 and $194,095,000 for the nine months ended September 30, 2005 and 2004, respectively.

Note 3.  Segment Information

The Company’s subsidiaries are primarily engaged in the writing and management of property and casualty insurance.  The Company’s segments include the Insurance Companies, the Lloyd’s Operations and the Navigators Agencies, each of which is managed separately.  The Insurance Companies consist of Navigators Insurance Company, which includes a branch in the U.K. (the “U.K. Branch”), and NIC Insurance Company and are primarily engaged in underwriting marine insurance and related lines of business, contractors’ general liability insurance, and professional liability insurance.  The Lloyd’s Operations underwrite marine and related lines of business at Lloyd’s of London.  The Navigators Agencies are underwriting management companies which produce, manage and underwrite insurance and reinsurance for both affiliated and unaffiliated companies.  All segments are evaluated based on their GAAP results.

The Insurance Companies’ and the Lloyd’s Operations’ results are measured by taking into account net premiums earned, incurred losses and loss adjustment expenses (“LAE”), commission expense and other underwriting expenses.  The Navigators Agencies’ results include commission income less other operating expenses.  Results of the Parent and Other Operations include inter-segment income and expense in the form of affiliated commissions, income and expense from corporate operations and consolidating adjustments.  Each segment also maintains its own investments, on which it earns income and realizes capital gains or losses.

10

Financial data by segment for the three months ended September 30, 2005 and 2004 was as follows:

	Three Months Ended September 30, 2005
	Insurance Companies			Lloyd’s Operations			Navigators Agencies			Parent & Other Operations (1)			Consolidated Total
	($ in thousands)
Gross written premium	$	133,718		$	54,142					$	254		$	188,114
Net written premium	59,093			16,956						—			76,049
Revenues:
Net earned premium	53,778			20,956						—			74,734
Commission income	—			534			$	7,858		(7,367		)	1,025
Net investment income	7,692			1,439			2			63			9,196
Net realized capital gains (losses)	401			(57		)	—			—			344
Other income	31			246			182			—			459
Total revenues	61,902			23,118			8,042			(7,304		)	85,758
Operating expenses:
Net losses and LAE	47,332			29,504			—			—			76,836
Commission expense	13,068			5,191			—			(6,603		)	11,656
Other operating expenses	2,449			4,670			9,787			576			17,482
Total operating expenses	62,849			39,365			9,787			(6,027		)	105,974
(Loss) before income tax (benefit)	(947		)	(16,247		)	(1,745		)	(1,277		)	(20,216		)
Income tax (benefit)	(894		)	(5,687		)	(464		)	(446		)	(7,491		)
Net (loss)	$	(53	)	$	(10,560	)	$	(1,281	)	$	(831	)	$	(12,725	)
Identifiable assets (2)	$	1,667,213		$	809,870		$	14,936		$	17,802		$	2,451,056
Loss and LAE ratio	88.0		%	140.8		%							102.8		%
Commission expense ratio	24.3		%	24.8		%							24.4		%
Other operating expense ratio	4.6		%	22.3		%							9.5		%
Combined ratio	116.9		%	187.9		%							136.7		%

(1)Includes inter-segment eliminations.

(2)Does not cross-foot due to inter-segment eliminations.

11

	Three Months Ended September 30, 2004
	Insurance Companies			Lloyd’s Operations			Navigators Agencies			Parent & Other Operations (1)			Consolidated Total
	($ in thousands)
Gross written premium	$	107,318		$	45,004					$	(1,144	)	$	151,178
Net written premium	44,904			21,088						—			65,992
Revenues:
Net earned premium	51,541			23,596						—			75,137
Commission income	—			300			$	7,797		(6,976		)	1,121
Net investment income	6,225			649			2			5			6,881
Net realized capital gains (losses)	326			(55		)	—			—			271
Other income	(7		)	(378		)	258			—			(127		)
Total revenues	58,085			24,112			8,057			(6,971		)	83,283
Operating expenses:
Net losses and LAE	35,401			13,846			—			—			49,247
Commission expense	11,682			4,067			—			(6,976		)	8,773
Other operating expenses	1,780			3,425			9,616			1,193			16,014
Total operating expenses	48,863			21,338			9,616			(5,783		)	74,034
Income (loss) before income tax expense (benefit)	9,222			2,774			(1,559		)	(1,188		)	9,249
Income tax expense (benefit)	2,871			971			(460		)	(413		)	2,969
Net income (loss)	$	6,351		$	1,803		$	(1,099	)	$	(775	)	$	6,280
Identifiable assets (2)	$	1,247,123		$	467,998		$	15,721		$	33,039		$	1,692,503
Loss and LAE ratio	68.7		%	58.7		%							65.5		%
Commission expense ratio	22.7		%	17.2		%							21.0		%
Other operating expense ratio	3.4		%	14.5		%							6.9		%
Combined ratio	94.8		%	90.4		%							93.4		%

(1)Includes inter-segment eliminations.

(2)Does not cross-foot due to inter-segment eliminations.

12

Financial data by segment for the nine months ended September 30, 2005 and 2004 was as follows:

	Nine Months Ended September 30, 2005
	Insurance Companies			Lloyd’s Operations			Navigators Agencies			Parent & Other Operations (1)			Total
	($ in thousands)
Gross written premium	$	393,686		$	200,519					$	1,038		$	595,243
Net written premium	199,349			87,047						—			286,396
Revenues:
Net earned premium	160,248			77,856						—			238,104
Commission income	—			1,161			$	29,039		(26,391		)	3,809
Net investment income	22,032			3,642			5			100			25,779
Net realized capital gains (losses)	1,348			(421		)	—			—			927
Other income (expense)	238			875			713			—			1,826
Total revenues	183,866			83,113			29,757			(26,291		)	270,445
Operating expenses:
Net losses and LAE	114,856			61,812			—			—			176,668
Commission expense	39,522			14,905			—			(23,925		)	30,502
Other operating expenses	6,570			13,741			31,946			297			52,554
Total operating expenses	160,948			90,458			31,946			(23,628		)	259,724
Income (loss) before income tax expense (benefit)	22,918			(7,345		)	(2,189		)	(2,663		)	10,721
Income tax expense (benefit)	6,550			(2,571		)	(581		)	(931		)	2,467
Net income (loss)	$	16,368		$	(4,774	)	$	(1,608	)	$	(1,732	)	$	8,254
Identifiable assets (2)	$	1,667,213		$	809,870		$	14,936		$	17,802		$	2,451,056
Loss and LAE ratio	71.7		%	79.4		%							74.2		%
Commission expense ratio	24.7		%	19.1		%							22.9		%
Other operating expense ratio	4.0		%	17.7		%							8.5		%
Combined ratio	100.4		%	116.2		%							105.6		%

(1)Includes inter-segment eliminations.

(2)Does not cross-foot due to inter-segment eliminations.

13

	Nine Months Ended September 30, 2004
	Insurance Companies			Lloyd’s Operations			Navigators Agencies			Parent & Other Operations (1)			Consolidated Total
	($ in thousands)
Gross written premium	$	326,755		$	186,471					$	(4,470	)	$	508,756
Net written premium	145,614			90,002						—			235,616
Revenues:
Net earned premium	156,506			68,121						—			224,627
Commission income	—			863			$	23,884		(21,139		)	3,608
Net investment income	17,538			1,844			6			20			19,408
Net realized capital gains (losses)	707			(119		)	—			—			588
Other income	6			(368		)	629			—			267
Total revenues	174,757			70,341			24,519			(21,119		)	248,498
Operating expenses:
Net losses and LAE	100,669			37,722			—			—			138,391
Commission expense	39,069			11,910			—			(21,139		)	29,840
Other operating expenses	3,967			9,654			27,314			3,131			44,066
Total operating expenses	143,705			59,286			27,314			(18,008		)	212,297
Income (loss) before income tax expense (benefit)	31,052			11,055			(2,795		)	(3,111		)	36,201
Income tax expense (benefit)	9,892			3,869			(852		)	(938		)	11,971
Net income (loss)	$	21,160		$	7,186		$	(1,943	)	$	(2,173	)	$	24,230
Identifiable assets (2)	$	1,247,123		$	467,998		$	15,721		$	33,039		$	1,692,503
Loss and LAE ratio	64.3		%	55.4		%							61.6		%
Commission expense ratio	25.0		%	17.5		%							22.7		%
Other operating expense ratio	2.5		%	14.2		%							6.1		%
Combined ratio	91.8		%	87.1		%							90.4		%

(1)Includes inter-segment eliminations.

(2)Does not cross-foot due to inter-segment eliminations.

14

The Insurance Companies’ net earned premium includes $6,863,000 and $7,670,000 of net earned premium from the U.K. Branch for the three months ended September 30, 2005 and 2004, respectively, and $27,498,000 and $23,849,000 of net earned premium for the nine months ended September 30, 2005 and 2004, respectively.

Note 4.  Comprehensive Income

Comprehensive income encompasses net income, net unrealized capital gains and losses on available for sale securities, and foreign currency translation adjustments.  Please refer to the Consolidated Statements of Stockholders’ Equity and the Consolidated Statements of Comprehensive Income, included herein, for the components of accumulated other comprehensive income and of comprehensive income, respectively.

Note 5.  Stock-Based Compensation

Stock based compensation is expensed as the stock awards vest with the expense being included in other operating expenses for the periods indicated.  The amount charged to expense for stock grants was $405,000 and $275,000 for the three months ended September 30, 2005 and 2004, respectively, and $1,141,000 and $922,000 for the nine months ended September 30, 2005 and 2004, respectively.  The amount charged to expense for stock options was $267,000 and $276,000 for the three months ended September 30, 2005 and 2004, respectively, and $785,000 and $754,000 for the nine months ended September 30, 2005 and 2004, respectively.  Stock appreciation rights resulted in expense of $440,000 and $107,000 for the three months ended September 30, 2005 and 2004, respectively, and $774,000 of expense and $152,000 of income for the nine months ended September 30, 2005 and 2004, respectively.

In addition, $35,000 and $30,000 were expensed for the three months ended September 30, 2005 and 2004, respectively, and $105,000 and $90,000 were expensed for the nine months ended September 30, 2005 and 2004, respectively, for stock issued annually to non-employee directors as part of their directors’ compensation for serving on the Company’s Board of Directors.

Note 6.  Application of New Accounting Standards

In September 2004, the FASB approved the issuance of a Staff Position to delay the requirement to record impairment losses under Emerging Issues Task Force Issue No. 03-1 (“EITF 03-1”).  The approved delay applies to certain provisions relating to the recognition of other-than-temporary impairments for all securities within the scope of EITF 03-1.  At its June 29, 2005 meeting, the FASB decided not to provide additional guidance on the meaning of other-than-temporary impairment.  Instead, the FASB will issue proposed FSP EITF 03-1-a, Implementation Guidance for the Application of Paragraph 16 of EITF Issue No. 03-1, as final.  The Company will review the final documents as they become available.

In December 2004, the FASB issued SFAS 123 (revised 2004), Share Based Payment, which is a revision of SFAS 123, Accounting for Stock-Based Compensation, eliminating the alternative use of APB 25.  SFAS 123 (revised 2004) has no effect on the Company’s results of operations or financial condition since the Company adopted the fair value recognition provisions of SFAS 123 in 2003.

Note 7.  Lloyd’s Syndicate

We record our pro rata share of Lloyd’s Syndicate 1221’s assets, liabilities, revenues and expenses, after making adjustments to convert Lloyd’s accounting to U.S. GAAP.  The most significant U.S. GAAP adjustments relate to income recognition. Lloyd’s syndicates determine underwriting results by year of account at the end of three years.  We record adjustments to recognize underwriting results as incurred, including the expected ultimate cost of losses incurred.  These adjustments to losses are based on actuarial analysis of syndicate accounts,

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including forecasts of expected ultimate losses provided by the syndicates.  At the end of the Lloyd’s three year period for determining underwriting results for an account year, the syndicate will close the account year by reinsuring outstanding claims on that account year with the participants for the account’s next underwriting year.  The amount to close an underwriting year into the next year is referred to as the “reinsurance to close”.  The reinsurance to close transaction is recorded in the fourth quarter as additional written and earned premium, losses incurred, loss reserves and receivables, all in the same amount.  No gain or loss is recorded on the reinsurance to close transaction.

Our Lloyd’s Syndicate 1221’s stamp capacity is £135.0 million ($248.9 million) in 2005 compared to £150.0 million ($275.0 million) in 2004.  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 capacity is expressed net of commission (as is standard at Lloyd’s) of approximately 21%.  The Syndicate 1221 premium recorded in the Company’s financial statements is gross of commission.  The Company participates for 97.5% and 97.4% of Syndicate 1221’s capacity for the 2005 and 2004 underwriting years, respectively.  The Lloyd’s operations included in the consolidated financial statements represent the Company’s participation in Syndicate 1221.  In September 2005, the Company purchased the remaining outstanding minority interest and will own 100% of the Syndicate 1221 capacity for the 2006 underwriting year.

The Company provides letters of credit to Lloyd’s to support its Syndicate 1221 capacity.  If the Company increases its participation or if Lloyd’s changes the capital requirements, the Company may be required to supply additional letters of credit or other collateral acceptable to Lloyd’s, or reduce the capacity of Syndicate 1221.  The letters of credit are provided through the credit facility which the Company maintains with a consortium of banks.  The credit facility agreement requires that the banks vote whether or not to renew the letter of credit portion of the facility periodically.  If the banks decide not to renew the letter of credit facility, the Company will need to find other sources to provide the letters of credit or other collateral in order to continue to participate in Syndicate 1221.  The renewal amendment executed in January 2005 renewed the letter of credit facility until June 30, 2007.  The bank facility is collateralized by all of the common stock of Navigators Insurance Company.

Note 8.  Income Tax - Valuation Allowance

The Company had state and local operating loss carryforwards amounting to potential future tax benefits of $5,779,000 and $4,493,000 at September 30, 2005 and December 31, 2004, respectively.  A valuation allowance was established for the full amount of these potential future tax benefits due to the uncertainty associated with their realization.

Note 9.  Commitments and Contingencies

Other than as set forth below, the Company is not a party to, or the subject of, any material legal proceedings which depart from the ordinary routine litigation incident to the kinds of business it conducts.

The Company was recently advised informally by Equitas, a lead reinsurer participating on excess of loss reinsurance agreements, that it does not intend to satisfy a loss payment recovery demand that the Company presented to it on June 1, 2005.  The Company has not yet received a formal written response to its demand.  The recovery is for the 2004 settlement of a class action suit involving a large asbestos claim (the “Settled Claim”) which settlement is being paid over seven years starting in June 2005.  Equitas has not indicated any dispute with respect to recoveries on related pro rata reinsurance agreements.

Equitas also participates as a lead reinsurer in respect of the Company’s two other large asbestos claims that involve class action lawsuits.  The Company believes it is likely that Equitas will take a similar position when such claims are eventually settled and presented to Equitas for payment.

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The aggregate amount of excess of loss recoveries due from Equitas on all three of these claims is approximately $9 million, and represents approximately 50% of the total excess of loss recoveries for such claims.  The Company has not been advised of any disputes by other excess of loss reinsurers with respect to such asbestos claims.

The Company has filed a demand for arbitration against Equitas in New York with respect to the Settled Claim in accordance with the applicable provisions of the excess of loss reinsurance agreements.  The Company believes that the refusal of Equitas to satisfy the Company’s payment demand is without merit and it intends to vigorously pursue collection of its reinsurance recoveries.   While it is too early to predict with any certainty the outcome of this matter, the Company believes that the ultimate outcome would not be expected to have a significant adverse effect on its results of operations, financial condition or liquidity, although an unexpected adverse resolution could have a material adverse effect on the Company’s results of operations in a particular fiscal quarter or year.

Note 10.  Share Capital

In October 2005, the Company completed an underwritten public offering of 3,795,000 shares of common stock at $34.50 per share, including the over-allotment option, and received net proceeds of approximately $124 million.  Approximately $120 million of the net proceeds was contributed to the capital of Navigators Insurance Company of which $50 million was contributed to the capital of NIC Insurance Company.

Item 2.Management’s Discussion and Analysis of Financial Condition and Results of Operations

Note on Forward-Looking Statements

Some of the statements in this Quarterly Report on Form 10-Q are ‘‘forward-looking statements’’ as defined in the Private Securities Litigation Reform Act of 1995.   Whenever used in this report, the words “estimate”, “expect”, “believe” or similar expressions are intended to identify such forward-looking statements.  Forward-looking statements are derived from information that we currently have and assumptions that we make. We cannot assure that anticipated results will be achieved, since results may differ materially because of both known and unknown risks and uncertainties which we face. We undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. Factors that could cause actual results to differ materially from our forward-looking statements include, but are not limited to:

•the effects of domestic and foreign economic conditions, and conditions which affect the market for property and casualty insurance;

•changes in the laws, rules and regulations which apply to our insurance companies;

•the effects of emerging claim and coverage issues on our business, including adverse judicial or regulatory decisions and rulings;

•the effects of competition from banks and other insurers and the trend toward self-insurance;

•risks that we face in entering new markets and diversifying the products and services we offer;

•unexpected turnover of our professional staff;

•changing legal and social trends and inherent uncertainties in the loss estimation process that can adversely impact the adequacy of loss reserves and the allowance for reinsurance recoverables, including our estimates relating to ultimate asbestos and environmental liabilities and related reinsurance recoverables;

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•risks inherent in the collection of reinsurance recoverable amounts from our reinsurers over many years into the future based on their financial ability and intent to meet such obligations to the Company;

•risks associated with our continuing ability to obtain reinsurance covering our exposures at appropriate prices and/or in sufficient amounts and the related recoverability of our reinsured losses;

•weather-related events and other catastrophes (including acts of terrorism) impacting our insureds and/or reinsurers, including, without limitation, the impact of Hurricanes Katrina, Rita and Wilma and the possibility that our estimates of losses from Hurricanes Katrina, Rita and Wilma will prove to be materially inaccurate;

•our ability to attain adequate prices, obtain new business and retain existing business consistent with our expectations;

•the possibility of downgrades in our claims-paying and financial strength ratings significantly adversely affecting us, including reducing the number of insurance policies we write generally, or causing clients who require an insurer with a certain rating level to use higher-rated insurers;

•the inability of our internal control framework to provide absolute assurance that all incidents of fraud or unintended material errors will be detected and prevented;

•the risk that our investment portfolio suffers reduced returns or investment losses which could reduce our profitability; and

•other risks that we identify in future filings with the Securities and Exchange Commission (the “SEC”), including without limitation the risks described under the caption “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2004.

In light of these risks, uncertainties and assumptions, any forward-looking events discussed in this Form 10-Q may not occur. You are cautioned not to place undue reliance on any forward-looking statements, which speak only as of their respective dates.

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 Form 10-Q. It contains forward-looking statements that involve risks and uncertainties. Please see ‘‘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 below and elsewhere in this Form 10-Q.

Overview

We are an international insurance holding company focusing on specialty products for niches within the overall property/casualty insurance market. Our largest product line and most long-standing area of specialization is ocean marine insurance. We have also developed specialty niches in professional liability insurance, and in specialty liability insurance primarily consisting of contractors’ liability coverages. We conduct operations through our insurance company subsidiaries, the Navigators Agencies and our Lloyd’s Operations.  Our insurance company subsidiaries (the “Insurance Companies”) consist of Navigators Insurance Company, which includes a United Kingdom Branch (the “U.K. Branch”), and NIC Insurance Company which writes excess and surplus lines.  The Navigators Agencies consist of five wholly-owned insurance underwriting agencies which produce business for our insurance subsidiaries and unaffiliated insurers.  Our Lloyd’s operations include Navigators Underwriting Agency Ltd. (“NUAL”), a Lloyd’s of London (“Lloyd’s”) marine underwriting agency which manages Lloyd’s Syndicate 1221.  We participate in the capacity of Syndicate 1221 through two wholly owned Lloyd’s corporate members.

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While management takes into consideration a wide range of factors in planning the Company’s 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.  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 managing 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.  Our insurance company subsidiaries’ operations and ability to grow their business and take advantage of market opportunities are particularly constrained by regulatory capital requirements and rating agency assessments of capital adequacy.

Although not a financial measure, 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 we believe 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 low 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 coverage requirements, such as workers compensation and personal automobile insurance, because we do not believe our technical 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, for example, highly valued cruise ships) and directors and officers liability (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 by conservative and detailed underwriting, prudent use of reinsurance and a balanced portfolio of risks.

Our revenue is primarily comprised of premiums, commission and investment income. Our insurance company subsidiaries derive their premiums primarily from business written by the Navigators Agencies. The Lloyd’s Operations derive their premiums from business written by NUAL. The Navigators Agencies and NUAL receive commissions and, in some cases, profit commissions and service fees on the business produced on behalf of our insurance company subsidiaries and others.

Over the past three years, we have experienced generally beneficial market changes in our lines of business. As a result of several large industry losses in the second quarter of 2001, the marine insurance market began to experience diminished capacity and rate increases, initially in the offshore energy line of business.  The marine rate increases began to level off in 2004 and into 2005.  As a result of the substantial insurance industry losses resulting from Hurricanes Katrina and Rita, the marine insurance market may experience diminished capacity and rate increases, particularly in the offshore energy line of business.  Specialty liability losses, particularly for our California construction liability business, also resulted in diminished capacity in the market in which we compete, as many former competitors who lacked the expertise to selectively underwrite this business have been forced to withdraw from the market.  Rates for the California construction liability business leveled off in the first six months and began to decline in the 2005 third quarter after rate increases in 2004 and 2003.  In the professional liability market, the enactment of the Sarbanes-Oxley Act of 2002, together with recent financial and accounting scandals at publicly traded corporations and the increased frequency of securities-related class action litigation, has led to heightened interest in professional liability insurance generally. These conditions resulted in rate increases in 2002 and 2003 as well as an overall improvement in policy terms and conditions for our professional liability line of business.  The professional liability business experienced low single digit premium rate decreases in 2004 and in the 2005 third quarter.  Overall, the rates were relatively level for the first nine months of 2005.

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Our business is cyclical and influenced by many factors.  These factors include price competition, economic conditions, interest rates, weather-related events and other catastrophes including natural and man-made disasters (for example hurricanes and terrorism), state regulations, court decisions and changes in the law. The incidence and severity of catastrophes are inherently unpredictable.  Although we will attempt to manage our exposure to such events, the frequency and severity of catastrophic events could exceed our estimates, which could have a material adverse effect on our financial condition. Additionally, because our insurance products must be priced, and premiums charged, before costs have fully developed, our liabilities are required to be estimated and recorded in recognition of future loss and settlement obligations. Due to the inherent uncertainty in estimating these liabilities, we cannot assure you that our actual liabilities will not exceed our recorded amounts.

Hurricanes Katrina, Rita and Wilma

On August 29, 2005, Hurricane Katrina struck Louisiana, Mississippi, Alabama and surrounding areas, causing significant destruction in those areas. Our estimate of after-tax net losses, inclusive of expected reinsurance recoveries and related reinsurance reinstatement premiums, is approximately $15.0 million or $1.17 per share in the 2005 third quarter.  Our estimate of net losses related to Hurricane Katrina was developed from a combination of preliminary claims notifications received from brokers and insureds, portfolio modeling based upon the storm track of Hurricane Katrina and the Company’s own internal assessment of the exposures insured under individual policies. A substantial portion of the Company’s anticipated loss is due to offshore energy exposures in the Gulf of Mexico. Based upon management’s estimate of ultimate loss, we believe that the Company’s gross claims are contained within our reinsurance program. Our actual losses from Hurricane Katrina may differ materially from our 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 purpose of our estimates we assumed would not be exposed and inflation in repair costs due to the limited availability of labor and materials. If our actual losses from Hurricane Katrina are materially greater than our estimated losses, our business, results of operations and financial condition could be materially adversely affected.

On September 24, 2005, Hurricane Rita struck Texas and Louisiana, causing significant destruction in those areas.  Our estimate of after-tax net losses, inclusive of expected reinsurance recoveries and related reinsurance reinstatement premiums, is approximately $9.0 million or $0.70 per share in the 2005 third quarter.  Our estimate of net losses related to Hurricane Rita was developed from a combination of preliminary claims notifications received from brokers and insureds, portfolio modeling based upon the storm track of Hurricane Rita and the Company’s own internal assessment of the exposures insured under individual policies. A substantial portion of the Company’s anticipated loss is due to offshore energy exposures in the Gulf of Mexico. Based upon management’s current estimate of ultimate loss, we believe that the Company’s gross claims are contained within our reinsurance program. Our actual losses from Hurricane Rita may ultimately differ materially from our 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 purpose of our estimates we assumed would not be exposed and inflation in repair costs due to the limited availability of labor and materials. If our actual losses from Hurricane Rita are materially greater than our estimated losses, our business, results of operations and financial condition could be materially adversely affected.

We purchase reinsurance for our insurance operations in order to mitigate the volatility of losses upon our financial results.  The occurrence of additional large loss events could reduce the reinsurance coverage that is available to us and could weaken the financial condition of our reinsurers, which could have a material adverse effect on our results of operations.  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. Specifically, our reinsurers may not pay claims made by us on a timely basis, or they may not pay some or all of these claims. Either of these events would increase our costs and could have a material adverse effect on our business.  We are required to pay the losses even if a reinsurer fails to meet its obligations under the reinsurance agreement.  Hurricanes Katrina and Rita increased our reinsurance recoverables significantly, which increased our credit risk.

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Financial strength ratings by rating agencies are a critical factor in maintaining the competitive position of our insurance companies and establishing the market value of our common stock. Our ratings are subject to periodic review by, and may be revised downward at the sole discretion of, the rating agencies. If our actual losses from Hurricanes Katrina and Rita exceed our current estimates, or if additional large loss events occur, our ratings could be revised downward, which could result in a substantial loss of business and a reduction in the market value of our common stock.

We believe that our net loss from Hurricane Wilma, which occurred in October 2005, will not be significant.

Industry Investigations

The insurance industry has become the subject of increasing scrutiny with respect to insurance broker and agent compensation arrangements, and certain sales practices.  The New York State Attorney General and other state and federal regulators have commenced investigations and other proceedings relating to the payment of contingent commissions by insurance companies to insurance brokers and agents and the extent to which such compensation has been disclosed, and the solicitation and provision of fictitious or inflated quotes.  These investigations and proceedings are expected to continue, and new investigative proceedings may be commenced, in the future.  These investigations and proceedings could result in legal precedents and new industry-wide practices or legislation, rules or regulations that could significantly affect our industry and may also cause stock price volatility for companies in the insurance industry.

The Company has completed its own internal review with respect to such contingent commission arrangements and the anti-competitive sales practices discussed above.  In this internal inquiry, the Company did not find any evidence that it has engaged in the bid-rigging and price-fixing activities that are at the core of the industry investigations into these anti-competitive practices.

Largely as a result of these industry investigations, contingent commission and other commission practice standards are currently evolving.  For example, in December 2004 the National Association of Insurance Commissioners adopted an amendment to its Producer Licensing Model Act with respect to producer compensation disclosure obligations, and is considering further amendments to this Model Act.  The Company is supportive of industry efforts to encourage transparency in the disclosure of contingent commissions paid to brokers by insurers and does not expect to be adversely impacted by legislative developments in this area.

The reinsurance industry has also become the subject of increasing scrutiny with respect to the alleged improper use of reinsurance agreements to manipulate financial reporting results.  The New York State Attorney General and other state and federal regulators have commenced investigations and other proceedings related to reinsurance agreements in which the insurance risk transferred between the ceding company and reinsurer may have been insufficient to properly account for such transactions as reinsurance in financial statements filed with insurance regulatory authorities and the SEC.  Such transactions may include separate or “side” agreements that reduce, limit or mitigate the indemnification against loss or liability relating to the insurance risk transferred to the reinsurer in a reinsurance agreement.

As a result of these industry investigations, accounting and reporting requirements for reinsurance transactions, including risk transfer guidance used to determine when sufficient insurance risk has been transferred by the ceding company to properly account for such transactions as reinsurance, may change.

The Company believes that all of its reinsurance transactions meet the risk transfer requirements to be accounted for as prospective reinsurance in its financial statements, and also believes it has no separate side agreements that would limit the insurance risk transferred to the reinsurer under its reinsurance agreements.  The Company is unable to determine any reinsurance industry financial reporting changes that could occur as a result of such investigations and the effects, if any, on its financial reporting of reinsurance transactions.

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Critical Accounting Policies

It is important to understand our accounting policies in order to understand our financial statements. Management considers certain of these policies to be critical to the presentation of the financial results, since they require management to make estimates and assumptions. These estimates and assumptions affect the reported amounts of assets, liabilities, revenues, expenses, and related disclosures at the financial reporting date and throughout the reporting period. Certain of the estimates result from judgments that can be subjective and complex, and consequently actual results may differ from these estimates, which would be reflected in future periods.

Our most critical accounting policies involve the reporting of the reserves for losses and loss adjustment expenses (“LAE”) (including losses that have occurred but were not reported to us by the financial reporting date), reinsurance recoverables, written and unearned premium, the recoverability of deferred tax assets, the impairment of invested assets, accounting for Lloyd’s results and the translation of foreign currencies.

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. 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. Due to the inherent uncertainty associated with the reserving process, the ultimate liability may be different from the original estimate. Such estimates are regularly reviewed and updated and any resulting adjustments are included in the current year’s results.

Reinsurance Recoverables. 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. In addition, 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. We are required to pay losses even if a reinsurer fails to meet its obligations under the applicable reinsurance agreement.

Written and Unearned Premium. 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 must 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.

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.

Impairment of Investment Securities. Impairment of investment securities results in a charge to operations when a market decline below cost is other-than-temporary. 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. A number of criteria are considered during this process including, but not limited to: the current fair value as compared to cost or amortized cost, as appropriate, of the security; the length of time the security’s fair value has been below cost or amortized cost, and by how much; and specific credit issues related to the issuer and current economic conditions. In general, we focus our attention on those securities whose market value was less than 80% of their cost or amortized cost, as appropriate, for six or more consecutive months. Other factors considered in evaluating potential impairment include the current fair value as compared to cost or amortized cost, as appropriate, our intent and ability to retain the investment for a

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period of time sufficient to allow for an anticipated recovery in value, specific credit issues related to the issuer and current economic conditions. Other-than-temporary impairment losses result in a permanent reduction of the cost basis of the underlying investment. 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.

Accounting for Lloyd’s Results. We record our pro rata share of Lloyd’s Syndicate 1221 assets, liabilities, revenues and expenses, after making adjustments to convert Lloyd’s accounting to U.S. GAAP. The most significant GAAP adjustments relate to income recognition. Lloyd’s syndicates determine underwriting results by year of account at the end of three years. We record adjustments to recognize underwriting results as incurred, including the expected ultimate cost of losses incurred. These adjustments to losses are based on actuarial analysis of syndicate accounts, including forecasts of expected ultimate losses provided by the syndicate. At the end of the Lloyd’s three-year period for determining underwriting results for an account year, the syndicate will close the account year by reinsuring outstanding claims on that account year with the participants for the account’s next underwriting year. The amount to close an underwriting year into the next year is referred to as the reinsurance to close (“RITC”).  The RITC transaction is recorded in the fourth quarter as additional written and earned premium, losses incurred, loss reserves and receivables, all in the same amount. There are no gains or losses recorded on the RITC.

Translation of Foreign Currencies. Financial statements of subsidiaries expressed in foreign currencies are translated into U.S. dollars in accordance with SFAS No. 52, Foreign Currency Translation, issued by the FASB.  Under SFAS 52, 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 accumulated other comprehensive income.  Functional currencies are generally the currencies of the local operating environment.  Statement of income amounts expressed in functional currencies are translated using average exchange rates.  Gains and losses resulting from foreign currency transactions are recorded in other income (expense) in the Company’s Consolidated Statements of Income.

Results of Operations and Overview

The following is a discussion and analysis of our consolidated and segment results of operations for the three and nine month periods ended September 30, 2005 and 2004.  All earnings per share data is presented on a per diluted share basis.

The Company recorded a net loss of $12.7 million or $0.99 per share for the 2005 third quarter compared to net income of $6.3 million or $0.50 per share for the 2004 third quarter.  Net income (loss) for the 2005 and 2004 third quarters included net realized capital gains of $0.02 per share and $0.01 per share, respectively.

Net income for the nine month period ended September 30, 2005 was $8.3 million or $0.64 per share compared to $24.2 million or $1.91 per share for the nine month period ended September 30, 2004.  Included in these results were net realized capital gains of $0.05 per share and $0.03 per share for the nine months ended September 30, 2005 and 2004, respectively.

The 2005 third quarter and nine month period were adversely affected by Hurricanes Katrina and Rita.  The impact of such hurricanes on the 2005 financial results compared to the impact of Hurricane Ivan on the 2004 financial results are as follows:

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	Three Months Ended
	September 30,
	2005			2004
Reduction in net earned premiums for reinstatement costs	$	14,465		$	2,273
Increase in incurred losses	22,288			2,874
Underwriting loss	$	36,753		$	5,147
After-tax loss	$	23,889		$	3,345
Reduction in earnings per share	$	1.87		$	0.26
Combined ratio increase:
Loss and loss expense ratio	41.7		%	5.6		%
Other operating expense ratio	5.5		%	.9		%
	47.2		%	6.5		%

The increases in the 2005 and 2004 nine month combined ratios attributable to hurricane losses were 14.9% (13.1% for losses and 1.8% for expenses) and 2.2% (1.9% for losses and 0.3% for expenses), respectively.

Excluding the hurricanes, our 2005 and 2004 third quarters’ and nine months’ overall results of operations reflect improved market conditions from late 2000 through 2003 that continued at a reduced rate through 2004 and were showing signs of softening through the 2005 third quarter.  As a result of the substantial insurance industry losses resulting from Hurricanes Katrina and Rita, the marine insurance market may experience diminished capacity and rate increases, particularly in the offshore energy line of business.

Cash flow from operations increased to $168.0 million for the first nine months of 2005 compared to $141.7 million for the 2004 first nine months.  The positive cash flow contributed to the growth in invested assets and net investment income.

Consolidated stockholders’ equity increased 1% to $332.9 million or $26.02 per share at September 30, 2005 compared to $328.6 million or $25.96 per share at December 31, 2004.  The increase was primarily due to net income of $8.3 million for the first nine months of 2005.

Revenues.  Gross written premium increased to $188.1 million and $595.2 million in the third quarter and first nine months of 2005, respectively, from $151.2 million and $508.8 million in the third quarter and first nine months of 2004, respectively, a 24.4% increase for the third quarter and a 17.0% increase for the first nine months.  The growth in gross written premium reflects a combination of business expansion in both new and existing lines of business coupled with premium rate changes on renewal policies.  The premium rate increases or decreases noted below for marine, specialty and professional liability are calculated primarily by comparing premium amounts on policies that have renewed.  The premiums are judgmentally adjusted for exposure factors when deemed significant 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 which may be more competitively priced compared to renewal business.  The following table sets forth our gross and net written premium and net earned premium by segment and line of business for the periods indicated:

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	Three Months Ended September 30,
	2005											2004
	Gross					Net			Net			Gross					Net		Net
	Written					Written			Earned			Written					Written		Earned
	Premium			%		Premium			Premium			Premium			%		Premium		Premium
	($ in thousands)
Insurance Companies:
Marine	$	53,084		28.2	%	$	11,378		$	14,391		$	48,413		32.0	%	$	15,576	$	17,862
Specialty	59,307			31.5	%	38,313			31,965			39,025			25.8	%	20,677		22,824
Professional Liability	21,528			11.4	%	9,823			7,786			18,723			12.4	%	6,703		5,692
Assumed from Lloyd’s	(261		)	-0.1	%	(413		)	(356		)	1,056			0.7	%	1,056		4,271
Other (includes run-off)	60			0.0	%	(8		)	(8		)	101			0.1	%	892		892
Insurance Companies Total	133,718			71.0	%	59,093			53,778			107,318			71.0	%	44,904		51,541
Lloyd’s Operations:
Marine	47,338			25.2	%	14,602			19,453			39,807			26.4	%	18,941		22,075
Professional Liability	3,131			1.7	%	1,231			545			—			0.0	%	—		—
Other	3,673			2.0	%	1,123			958			5,197			3.4	%	2,147		1,521
Lloyd’s Operations Total	54,142			28.9	%	16,956			20,956			45,004			29.8	%	21,088		23,596
Intercompany elimination	254			0.1	%	—			—			(1,144		)	-0.8	%	—		—
Total	$	188,114		100.0	%	$	76,049		$	74,734		$	151,178		100.0	%	$	65,992	$	75,137

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	Nine Months Ended September 30,
	2005											2004
	Gross					Net			Net			Gross					Net		Net
	Written					Written			Earned			Written					Written		Earned
	Premium			%		Premium			Premium			Premium			%		Premium		Premium
	($ in thousands)
Insurance Companies:
Marine	$	181,500		30.5	%	$	68,189		$	57,600		$	159,412		31.3	%	$	61,219	$	59,124
Specialty	152,454			25.6	%	107,991			81,429			110,739			21.8	%	60,229		65,728
Professional Liability	60,708			10.2	%	24,333			21,493			51,982			10.2	%	19,080		14,199
Assumed from Lloyd’s	(1,066		)	-0.2	%	(1,209		)	(320		)	4,398			0.9	%	4,191		16,554
Other (includes run-off)	90			0.0	%	45			46			224			0.0	%	895		901
Insurance Companies Total	393,686			66.1	%	199,349			160,248			326,755			64.2	%	145,614		156,506
Lloyd’s Operations:
Marine	168,458			28.3	%	77,392			74,643			168,564			33.1	%	81,979		64,918
Professional Liability	4,718			0.9	%	1,855			711			—			0.0	%	—		—
Other	27,343			4.6	%	7,800			2,502			17,907			3.5	%	8,023		3,203
Lloyd’s Operations Total	200,519			33.7	%	87,047			77,856			186,471			36.7	%	90,002		68,121
Intercompany elimination	1,038			0.2	%	—			—			(4,470		)	-0.9	%	—		—
Total	$	595,243		100.0	%	$	286,396		$	238,104		$	508,756		100.0	%	$	235,616	$	224,627

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Gross Written Premium

Insurance Companies’ Gross Written Premium

Marine Premium. The marine gross written premium for the 2005 third quarter increased 9.6% compared to the 2004 third quarter, reflecting growth across several lines of business including liability and offshore energy.  The marine gross written premium for the first nine months of 2005 increased 13.9% compared to the first nine months of 2004, again due to growth across several lines of business including cargo, offshore energy and liability.  The average renewal premium rates during the third quarter and first nine months of 2005 increased by approximately 3% and 1%, respectively.  Navigators Insurance Company obtains its marine business through participation in the marine pool managed by the Navigators Agencies.  Its participation is 85% for the 2005 underwriting year compared to 80% for the 2004 underwriting year.

Specialty Premium. The nine months business consists of 64% general liability business for small general and artisan contractors, 12% personal umbrella business and 24% other targeted commercial risks.  The specialty gross written premium for the 2005 third quarter increased 52.0% compared to the 2004 third quarter reflecting growth across all lines of business and premiums generated from our excess casualty business, which started in the first quarter of 2005.  The specialty gross written premium for the first nine months of 2005 increased 37.7% compared to the first nine months of 2004 for the same reasons stated for the 2005 third quarter increase.  The average renewal premium rates decreased by approximately 7% and 1% in the contractors’ liability business in the third quarter and first nine months of 2005, respectively.

Professional Liability Premium. Our insurance company subsidiaries write professional liability insurance, of which 68% represents directors and officers liability insurance (“D&O”) for privately held and publicly traded corporations. In 2002, the professional liability business was expanded to include errors and omissions insurance and employment practices liability coverages.  Commencing in October 2004, our U.K. Branch began writing professional liability coverages for U.K. solicitors and, in 2005, we began writing professional liability coverages for architects and engineers.  The professional liability gross written premium for the 2005 third quarter increased 15.0% compared to the 2004 third quarter, reflecting the expansion of this business for all lines.  The professional liability gross written premium for the first nine months of 2005 increased 16.8% compared to the first nine months of 2004 for the same reasons stated for the 2005 third quarter increase. Average overall renewal premium rates for this business decreased by approximately 2% in the 2005 third quarter and 1% in the first nine months of 2005, with D&O rates declining by approximately 5% in the 2005 third quarter and 4% in the first nine months of 2005.

Assumed from Lloyd’s Operations Premium.  During 2002 and 2003, the Insurance Companies participated in quota share treaties written by the Company’s Lloyd’s operations.  The participations included marine and energy business.

Lloyd’s Operations’ Gross Written Premium

Marine Premium. Our gross written premium is based on the stamp capacity of Syndicate 1221 and the percentage of such stamp capacity we provide.  Our percentage of participation in the stamp capacity is 97.5% for 2005 compared to 97.4% for 2004.  Stamp capacity is a measure of the amount of premium a Lloyd’s syndicate is authorized to write as determined based on a business plan approved by the Council of Lloyd’s.  The stamp capacity for Syndicate 1221 has been reduced to £135 million ($248.9 million) in 2005 from £150 million ($275.0 million) in 2004, reflective of unused stamp capacity in 2004 coupled with anticipated declining market conditions in 2005.  Themarine gross written premium for the third quarter of 2005 increased 18.9% compared to the third quarter of 2004 and was flat for the first nine months of 2005 compared to the first nine months of 2004.  The average renewal premium rates increased approximately 3% in the 2005 third quarter and 1% in the first nine months of 2005.

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Professional Liability Premium.  The Syndicate commenced writing international D&O business during the 2005 second quarter and produced $3.1 million of gross written premium in the 2005 third quarter and $4.7 million for the first nine months of 2005.

Other Premium.  Other premium consists of premium for engineering and construction business which provides coverage for construction projects including machinery, equipment and loss of use due to delays and of premium for onshore energy business which principally focuses on the oil and gas, chemical and petrochemical industries with coverages primarily for property damage and business interruption.

Ceded Written Premium.  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 written premium varies based upon the types of business written and whether the business is written by our insurance company subsidiaries or the Lloyd’s Operations.

The following tables set forth our ceded written premium by segment and major lines of business for the periods indicated:

	Three Months Ended September 30,
	2005				2004
			% of					% of
	Ceded		Gross		Ceded			Gross
	Written		Written		Written			Written
	Premium		Premium		Premium			Premium
	($ in thousands)
Insurance Companies:
Marine	$	41,706	78.6	%	$	32,837		67.8	%
Specialty	20,994		35.4	%	18,348			47.0	%
Professional Liability	11,705		54.4	%	12,020			64.2	%
Assumed from Lloyd’s	152		NM		—			0.0	%
Other (includes run-off)	68		NM		(791		)	NM
Subtotal	74,625		55.8	%	62,414			58.2	%
Lloyd’s Operations:
Marine	32,736		69.2	%	20,866			52.4	%
Professional Liability	1,900		60.7	%	—			NM
Other	2,550		69.4	%	3,050			58.7	%
Subtotal	37,186		68.7	%	23,916			53.1	%
Intercompany elimination	254		NM		(1,144		)	NM
Total	$	112,065	59.6	%	$	85,186		56.3	%

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	Nine Months Ended September 30,
	2005				2004
			% of					% of
	Ceded		Gross		Ceded			Gross
	Written		Written		Written			Written
	Premium		Premium		Premium			Premium
	($ in thousands)
Insurance Companies:
Marine	$	113,311	62.4	%	$	98,193		61.6	%
Specialty	44,463		29.2	%	50,510			45.6	%
Professional Liability	36,375		59.9	%	32,902			63.3	%
Assumed from Lloyd’s	143		-13.4	%	207			4.7	%
Other (includes run-off)	45		NM		(671		)	NM
Subtotal	194,337		49.4	%	181,141			55.4	%
Lloyd’s Operations:
Marine	91,066		54.1	%	86,585			51.4	%
Professional Liability	2,863		60.7	%	—			NM
Other	19,543		71.5	%	9,884			55.2	%
Subtotal	113,472		56.6	%	96,469			51.7	%
Intercompany elimination	1,038		NM		(4,470		)	NM
Total	$	308,847	51.9	%	$	273,140		53.7	%

NM = not meaningful

The ratio of ceded written premium to gross written premium in the 2005 third quarter and nine month periods was 59.6% and 51.9%, respectively, compared to the 2004 third quarter and nine month periods of 56.3% and 53.7%.  The increase in the ratio of ceded written premium to gross written premium in the 2005 third quarter compared to the same period in 2004 resulted primarily from the ceded reinstatement premium costs related to Hurricanes Katrina and Rita.  The Insurance Companies’ marine and Lloyd’s Operations 2005 third quarter ceded written premium includes $9.1 million and $5.3 million, respectively, of reinstatement premium related to the losses from Hurricanes Katrina and Rita.  The Insurance Companies’ marine and Lloyd’s Operations 2004 third quarter ceded written premium includes $1.5 million and $0.8 million, respectively, of reinstatement premium related to the losses from Hurricane Ivan.

Excluding the effects of ceded reinstatement premiums on both 2005 and 2004, the ratio of ceded written premium to gross written premium in the 2005 third quarter and nine month periods was 50.7% and 49.1%, respectively, compared to the 2004 third quarter and nine month periods of 54.8% and 53.2%.  The decreases in 2005 are primarily related to the March 31, 2005 cancellation of a quota share reinsurance agreement for the specialty business.  The cancellation resulted in a reduction of approximately $14.5 million in ceded unearned premium in the 2005 first quarter.  This amount has been retained by the Company and will be earned over a 12 to 15 month period.  The 2004 nine month net written premium is net of approximately $14 million of ceded written premium related to this agreement for the second and third quarters.

Net Written Premium.Net written premium increased 15.2% in the 2005 third quarter and increased 21.6% in the first nine months of 2005 compared to the third quarter and first nine months of 2004.  The

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increases in the 2005 third quarter and the first nine months would have been 32.6% and 26.5% when excluding the effect of the reinstatements.  The increase in net written premium in 2005 is principally due to the March 31, 2005 cancellation of the specialty quota share treaty discussed above, business expansion, and the increase in Navigators Insurance Company’s portion of the marine pool to 85% in 2005 from 80% in 2004.

Net Earned Premium.  Net earned premium, which generally lags the increase in net written premium, decreased 0.5% in the 2005 third quarter and increased 6.0% in the first nine months of 2005 compared to the third quarter and first nine months of 2004 as a result of the increased net written premium.  The Insurance Companies’ marine and Lloyd’s Operations marine 2005 third quarter net earned premium was reduced by $9.1 million and $5.3 million, respectively, due to reinstatement premium related to the ceded losses from Hurricanes Katrina and Rita.  The increases in earned premium for the 2005 third quarter and the first nine months would have been 15.2% and 11.3%, respectively, when excluding the effect of the reinstatement premium.

Commission Income.  Commission income from unaffiliated business was $1.0 million and $3.8 million compared to $1.1 million and $3.6 million in the third quarter and first nine months of 2004, respectively.

Net Investment Income.Net investment income increased 33.6% in the 2005 third quarter and 32.8% in the first nine months of 2005 compared to the same periods in 2004 due to the increase in invested assets as a result of the positive cash flow from the increased premium volume.

Net Realized Capital Gains (Losses).  Pre-tax net income included net realized capital gains of $344,000 for the three months ended September 30, 2005 compared to $271,000 for the 2004 third quarter.  On an after-tax basis, the net realized capital gains were $224,000 or $0.02 per share and $177,000 or $0.01 per share for the 2005 and 2004 third quarters, respectively.  Pre-tax net income included $927,000 of net realized capital gains for the nine months ended September 30, 2005 compared to $588,000 for the first nine months of 2004.  On an after-tax basis, the net realized capital gains were $603,000 or $0.05 per share and $382,000 or $0.03 per share for the first nine months of 2005 and 2004, respectively.

Other Income/(Expense). Other income/(expense) for the third quarter and first nine months of both 2005 and 2004 consisted primarily of foreign exchange gains and losses from our Lloyd’s Operations and inspection fees related to the specialty insurance business.

Operating Expenses

Net Losses and Loss Adjustment Expenses Incurred.  The ratios of net losses and loss adjustment expenses incurred to net earned premium (loss ratios) for the 2005 and 2004 third quarters were 102.8% and 65.5%, respectively, and for the first nine months of 2005 and 2004 were 74.2% and 61.6%, respectively.  The 2005 third quarter was adversely impacted by $22.3 million of net losses from Hurricanes Katrina and Rita which, along with the effect of the $14.5 million of reinstatement premium caused by the ceded losses from Hurricanes Katrina and Rita.  These net losses increased the loss ratio for the third quarter and first nine months of 2005 by 41.7 and 13.1 loss ratio points, respectively.  The 2004 third quarter was adversely impacted by $2.9 million of net losses from Hurricane Ivan which, along with the effect of the $2.2 million of reinstatement premium caused by the ceded losses from Hurricane Ivan.  These net losses increased the loss ratio for the third quarter and first nine months of 2004 by 5.6 and 1.9 loss ratio points, respectively.  The loss ratios for the third quarter and first nine months of 2004 were favorably impacted by 1.6 and 2.3 loss ratio points, respectively, for a redundancy of prior year loss reserves in our Lloyd’s operations.

The provision for loss adjustment expenses includes defense cost containment expenses for outside adjustors, attorneys’ fees and internal operating expenses consisting principally of claims department costs incurred in the processing and settlement of claims.  Commencing in 2005, the Company allocated paid claims department costs in losses incurred while previously such payments were included in other operating expenses.  Such payments included in incurred losses for the 2005 third quarter and nine month period were $1.1 million and $3.6 million, respectively, compared to $0.7 million and $2.1 million for the comparable 2004 periods

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included in other operating expenses.  Such reclassifications have no impact on net income and the combined loss and expense ratios for all current and prior periods.

The following tables set forth our net loss and LAE reserves by segment and line of insurance business and the total case reserves and incurred but not reported (“IBNR”) reserves as of September 30, 2005 and December 31, 2004:

	September 30,		December 31,
	2005		2004
	($ in thousands)
Insurance Companies:
Marine	$	154,800	$	130,439
Specialty	179,443		150,347
Professional Liability	30,926		19,001
Assumed from Lloyd’s Operations	28,578		37,790
Other (primarily run-off business)	19,330		22,512
Total Insurance Companies	413,077		360,089
Lloyd’s Operations:
Marine	123,642		99,565
Other	10,201		4,134
Total Lloyd’s Operations	133,843		103,699
Total net loss reserves	$	546,920	$	463,788
Total net case loss reserves	$	205,161	$	189,746
Total net IBNR loss reserves	341,759		274,042
Total net loss reserves	$	546,920	$	463,788

At September 30, 2005, the IBNR net loss reserves were 62.5% of our total loss reserves compared to 59.1% at December 31, 2004.  Substantially all of the $36.8 million of net loss reserves recorded for Hurricanes Katrina and Rita are included in IBNR at September 30, 2005.

At September 30, 2005, a 10% increase in the net loss reserves would equate to $54.7 million which would represent an after-tax charge to net income of $35.5 million or 10.7% of stockholders’ equity.  Loss reserve estimates are reviewed each quarter to evaluate whether the assumptions made continue to be appropriate.  Any adjustments that result from this review are recorded in the quarter in which they are identified.

Our reserving practices and the establishment of any particular reserve reflect management’s judgment concerning sound financial practice and do not represent any admission of liability with respect to any claims made against the Company.  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 increase in net loss reserves is also a function of the growth in premium volume over the past two years.  See “Overview-Hurricanes Katrina, Rita and Wilma” included herein.

Our loss reserves include amounts related to short tail and long tail classes of business. Short tail business refers to business where claims are generally reported quickly upon occurrence of an event, making

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estimation of loss reserves less complex. Our longer tail business includes our specialty liability and professional liability insurance. 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 can vary from the original estimate.

Specialty Liability and Professional Liability. Substantially all of our specialty liability business involves general liability policies which generate third party liability claims that are long tail in nature. A significant portion of our general liability reserves relates to California construction liability claims. Reserves and claim frequency on this business may be impacted by legislation implemented in California, which generally provides consumers who experience construction defects a method other than litigation to obtain construction defect repairs. The law, which became effective July 1, 2002 with a sunset provision effective January 1, 2011, provides for an alternative dispute resolution system that attempts to involve all parties to the claim at an early stage. This legislation may impact claim severity, frequency and length of settlement assumptions underlying our reserves. Accordingly, our ultimate liability may exceed or be less than current estimates due to this variable, among others.  There were 1,250 specialty liability claims open at September 30, 2005 compared to 1,028 at December 31, 2004.

The professional liability class generates third party claims, which also are longer tail in nature. The professional liability policies provide coverage on a claims-made basis, whereby coverage is generally provided only for those claims that are made during the policy period.  The substantial majority of our 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 “tail coverage” that provide for insurance protection for wrongful acts prior to the runoff date.  Such multi-year policies provide insurance protection for several years.

Loss development of our professional liability business is relatively immature, as we first began writing the business in late 2001.  Accordingly, it will take some time to better understand the reserve trends on this business.  Our professional liability loss estimates are based on expected losses, actual reported losses, 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. We believe that we have 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.  There were 586 professional liability claims open at September 30, 2005 compared to 337 at December 31, 2004.

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The following tables set forth our net loss and LAE reserves for our specialty liability and professional liability businesses as of September 30, 2005 and December 31, 2004:

	September 30, 2005
					Total		% of IBNR
Type of	Net Reported		Net		Net Loss		to Total Net
Business	Reserves		IBNR		Reserves		Loss Reserves
Specialty construction liability	$	26,551	$	129,781	$	156,332	83.0	%
Professional liability	5,407		26,288		31,695		82.9	%
Total	$	31,958	$	156,069	$	188,027	83.0	%

		December 31, 2004
								Total			% of IBNR
Type of		Net Reported			Net			Net Loss			to Total Net
Business		Reserves			IBNR			Reserves			Loss Reserves
Specialty construction liability	$		21,338	$		110,263	$		131,601	83.8		%
Professional liability	1,166			17,835			19,001			93.9		%
Total	$		22,504	$		128,098	$		150,602	85.1		%

Asbestos and Environmental Liability. Our exposure to asbestos and environmental 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 we have established for asbestos exposures are for: (i) estimated losses for excess insurance policy limits exposed to class action suits against two insureds involved in the manufacturing or distribution of asbestos products; (ii) other insureds not directly involved in the manufacturing or distribution of asbestos products, but that have more than incidental asbestos exposure for their purchase or use of products that contained asbestos; (iii) attritional asbestos claims that could be expected to occur over time; and (iv) the 2004 settlement of a large claim exposed to a class action suit which settlement will be paid over seven years starting in June 2005.

The following tables set forth our gross and net loss and LAE reserves, and claim counts for our asbestos and environmental exposures, for the periods indicated, which we believe are subject to uncertainties greater than those presented by other types of claims:

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	Three Months Ended
	September 30, 2005
	Asbestos		Environmental		Total
	($ in thousands)
Gross of Reinsurance
Beginning Reserve	$	74,743	$	8,892	$	83,635
Incurred Losses & LAE	174		294		468
Calendar Year Payments	118		665		783
Ending Reserves	$	74,799	$	8,521	$	83,320
Net of Reinsurance
Beginning Reserve	$	30,191	$	1,510	$	31,701
Incurred Losses & LAE	120		169		289
Calendar Year Payments	90		207		297
Ending Reserves	$	30,221	$	1,472	$	31,693

	Nine Months Ended
	September 30, 2005
	Asbestos		Environmental		Total
	($ in thousands)
Gross of Reinsurance
Beginning Reserve	$	78,421	$	7,513	$	85,934
Incurred Losses & LAE	479		3,787		4,266
Calendar Year Payments	4,101		2,779		6,880
Ending Reserves	$	74,799	$	8,521	$	83,320
Net of Reinsurance
Beginning Reserve	$	31,394	$	1,494	$	32,888
Incurred Losses & LAE	356		1,206		1,562
Calendar Year Payments	1,529		1,228		2,757
Ending Reserves	$	30,221	$	1,472	$	31,693

			Claims Settled
	Claim Count	New Claims	or Resolved	Claim Count
Type of Business	September 30, 2005	During Period	During Period	December 31, 2004
Environmental	119	49	19	89
Asbestos	146	26	9	129
Total	265	75	28	218

Loss development activity for asbestos related exposures in the first nine months of 2005 has not been significant.

Loss development activity on environmental losses in the first nine months of 2005 has generally consisted of oil spill claims on marine liability policies written in the ordinary course of business.

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Our management believes that the estimates for 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.  However, it is possible that the ultimate liability may exceed or be less than such estimates.  To the extent that reserves are deficient or redundant, the amount of such deficiency or redundancy is treated as a charge or credit to earnings in the period in which the deficiency or redundancy is identified.

Commission Expense. Commission expense paid to unaffiliated brokers and agents is generally based on a percentage of the gross written premium and is reduced by ceding commissions the Company may receive on the ceded written premium.  Commissions are generally recorded as deferred policy acquisition costs to the extent that they relate to unearned premium.  Commission expense as a percentage of earned premium in the third quarter and first nine months of 2005 was 15.6% and 12.8%, respectively, compared to 11.7% and 13.3% for the 2004 comparable periods.  Excluding the reduction in 2005 and 2004 of $14.5 million and $2.3 million, respectively, in earned premiums for reinstatement premiums related to the hurricane losses, the commission expense ratios for the third quarter and first nine months of 2005 were 13.1% and 12.1% compared to 11.3% and 13.2% for the 2004 comparable periods.  The commission ratios were affected by several factors in 2005, including a reduction in ceding commissions with the elimination of the specialty quota share treaty effective March 31, 2005 and a general reduction in commissions to agents.

Other Operating Expenses. The 9.2% and 19.3% increases in other operating expenses in the third quarter and first nine months of 2005, respectively, compared to the same periods in 2004 are attributable primarily to employee-related expenses resulting from expansion of the business.  Included in the three and nine months ended September 30, 2005 were $1.1 million and $2.7 million, respectively, in the aggregate for employee stock options, stock grants and stock appreciation rights expense compared to $658,000 and $1.8 million, respectively, for the same periods in 2004.

Income Taxes. The income tax expense (benefit) was ($7.5) million and $3.0 million for the third quarters of 2005 and 2004, respectively.  The effective tax rates for the 2005 and 2004 third quarters were (37.1%) and 32.1%, respectively.  The first nine months of 2005 and 2004 had income tax expense of $2.5 million and $12.0 million, respectively, resulting in an effective tax rate of 23.2% and 33.1%, respectively.  The fluctuations in the effective tax rates are due to the tax benefits related to the losses from Hurricanes Katrina and Rita which are included in the calculation of the 2005 effective tax rates.  As of September 30, 2005 and December 31, 2004, the net deferred Federal, foreign, state and local tax assets were $26.2 million and $17.3 million, respectively.

We are subject to the tax regulations of both the United States and the United Kingdom.  The Company files a consolidated 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.  The U.S. connected income under the Subpart F regulations of the Internal Revenue Code is taxed in the year earned for tax purposes and recorded in the Company’s tax return.  It is also included in the tax provision at the corporate 35% rate.  Foreign tax credits, where available, are utilized to offset as much of the U.S. tax as permitted on the U.S. connected income.  Non-U.S. connected income from a foreign subsidiary is subject to U.S. taxation only when distributed.  U.S. taxes are not accrued when the earnings are considered to be permanently reinvested in the foreign subsidiary.  The Company has demonstrated its intention that the foreign earnings are permanently reinvested in the foreign subsidiary, and therefore any distribution is postponed indefinitely.  The foreign earnings are subject to taxation in foreign jurisdictions which, in the case of the Company, approximates a rate of 35%.

We have not provided for U.S. deferred income taxes or foreign withholding taxes on the undistributed earnings of approximately $7.1 million of our foreign subsidiaries earnings since these earnings are intended to be reinvested indefinitely.  However, in the future, if we planned to distribute such earnings to the Company, taxes of approximately $400,000 would be reflected in the tax provision and would then be payable in the year distributed assuming all foreign tax credits are realized.

35

The American Jobs Creation Act of 2004, enacted October 22, 2004, allows a deduction of 85% of certain foreign earnings that are repatriated by December 31, 2005.  If the Company were to repatriate the $7.1 million of earnings from its foreign subsidiaries under this provision, income tax of approximately $60,000 would be reflected in the 2005 tax provision.  The Company does not expect to repatriate any foreign earnings under the American Jobs Creation Act of 2004.

The Company had state and local operating loss carryforwards amounting to potential future tax benefits of $5.8 million and $4.5 million at September 30, 2005 and December 31, 2004, respectively.  A valuation allowance was established for the full amount of these potential future tax benefits due to the uncertainty associated with their realization.  The Company’s state and local tax carryforwards at September 30, 2005 expire from 2019 to 2025.

Segment Information

Following are the financial results of the Company’s three segments:  Insurance Companies, Lloyd’s Operations and Navigators Agencies. We evaluate the performance of each segment based on its underwriting or operating results.  Items of revenue and expenditure, including net investment income and realized capital gains and losses, are included herein based on the legal entity where they are recorded.  Our underwriting performance is evaluated separately from the performance of our investment portfolios.

Insurance Companies

Our Insurance Companies consist of Navigators Insurance Company, which includes an United Kingdom Branch, and NIC Insurance Company. Navigators Insurance Company is our largest insurance subsidiary and has been active since 1983. It specializes principally in underwriting marine insurance and related lines of business, specialty liability insurance and professional liability insurance. NIC Insurance Company, a wholly owned subsidiary of Navigators Insurance Company, began operations in 1990. It underwrites similar types of business but on a non-admitted or surplus lines basis and is fully reinsured by Navigators Insurance Company.  The Navigators Agencies produce business for our insurance company subsidiaries.

36

Following are the results of operations for the Insurance Companies for the three and nine months ended September 30, 2005 and 2004:

	Three Months Ended September 30,						Nine Months Ended September 30,
	2005			2004			2005			2004
	($ in thousands)
Revenues:
Net earned premium	$	53,778		$	51,541		$	160,248		$	156,506
Net investment income	7,692			6,225			22,032			17,538
Net realized capital gains	401			326			1,348			707
Other income	31			(7		)	238			6
Total revenues	61,902			58,085			183,866			174,757
Operating expenses:
Net losses and LAE	47,332			35,401			114,856			100,669
Commission expense	13,068			11,682			39,522			39,069
Other operating expenses	2,449			1,780			6,570			3,967
Total operating expenses	62,849			48,863			160,948			143,705
Income (loss) before income tax expense	(947		)	9,222			22,918			31,052
Income tax expense (benefit)	(894		)	2,871			6,550			9,892
Net income (loss)	$	(53	)	$	6,351		$	16,368		$	21,160
Loss and LAE ratio	88.0		%	68.7		%	71.7		%	64.3		%
Commission expense ratio	24.3		%	22.7		%	24.7		%	25.0		%
Other operating expense ratio	4.6		%	3.4		%	4.0		%	2.5		%
Combined ratio	116.9		%	94.8		%	100.4		%	91.8		%

37

Following are the underwriting results of the Insurance Companies for the three months ended September 30, 2005 and 2004:

	Three Months Ended September 30, 2005
	($ in thousands)
	Net Earned Premium			Losses and LAE Incurred			Underwriting Expenses			Underwriting Gain(Loss)			Loss Ratio		Expense Ratio		Combined Ratio
Marine	$	14,391		$	23,850		$	3,914		$	(13,373	)	165.7	%	27.1	%	192.8	%
Specialty	31,965			19,184			8,985			3,796			60.0	%	28.1	%	88.1	%
Professional Liability	7,786			5,205			2,451			130			66.9	%	31.5	%	98.4	%
Assumed from Lloyd’s Operations	(356		)	(575		)	170			49			NM		NM		NM
Other (includes run-off)	(8		)	(332		)	(3		)	327			NM		NM		NM
Total	$	53,778		$	47,332		$	15,517		$	(9,071	)	88.0	%	28.9	%	116.9	%
Impact of Hurricanes Katrina and Rita:
Marine	$	(9,147	)	$	7,430		$	—		$	(16,577	)	96.0	%	10.6	%	106.5	%
Total	$	(9,147	)	$	7,430		$	—		$	(16,577	)	24.6	%	4.2	%	28.8	%

	Three Months Ended September 30, 2004
	($ in thousands)
	Net Earned Premium			Losses and LAE Incurred		Underwriting Expenses		Underwriting Gain(Loss)			Loss Ratio		Expense Ratio		Combined Ratio
Marine	$	17,862		$	13,222	$	4,785	$	(145	)	74.0	%	26.8	%	100.8	%
Specialty	22,824			15,749		6,516		559			69.0	%	28.5	%	97.5	%
Professional Liability	5,692			3,450		915		1,327			60.6	%	16.1	%	76.7	%
Assumed from Lloyd’s Operations	4,271			1,997		1,241		1,033			46.7	%	29.1	%	75.8	%
Other (includes run-off)	892			983		5		(96		)	110.2	%	0.6	%	110.8	%
Total	$	51,541		$	35,401	$	13,462	$	2,678		68.7	%	26.1	%	94.8	%
Impact of Hurricane Ivan:
Marine	$	(1,522	)	$	1,598	$	—	$	(3,120	)	14.1	%	2.1	%	16.2	%
Total	$	(1,522	)	$	1,598	$	—	$	(3,120	)	5.0	%	0.7	%	5.7	%

NM = Not meaningful

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Following are the underwriting results of the Insurance Companies for the nine months ended September 30, 2005 and 2004:

	Nine Months Ended September 30, 2005
	($ in thousands)
	Net Earned Premium			Losses and LAE Incurred			Underwriting Expenses			Underwriting Gain(Loss)			Loss Ratio		Expense Ratio		Combine Ratio
Marine	$	57,600		$	52,461		$	15,026		$	(9,887	)	91.1	%	26.1	%	117.2	%
Specialty	81,429			49,639			24,736			7,054			61.0	%	30.3	%	91.3	%
Professional Liability	21,493			14,676			6,378			439			68.3	%	29.7	%	98.0	%
Assumed from Lloyd’s Operations	(320		)	(890		)	476			94			NM		NM		NM
Other (includes run-off)	46			(1,030		)	(524		)	1,600			NM		NM		NM
Total	$	160,248		$	114,856		$	46,092		$	(700	)	71.7	%	28.7	%	100.4	%
Impact of Hurricanes Katrina and Rita:
Marine	$	(9,147	)	$	7,430		$	—		$	(16,577	)	23.6	%	3.7	%	27.2	%
Total	$	(9,147	)	$	7,430		$	—		$	(16,577	)	8.3	%	1.5	%	9.8	%

	Nine Months Ended September 30, 2004
	($ in thousands)
	Net Earned Premium			Losses and LAE Incurred		Underwriting Expenses		Underwriting Gain(Loss)			Loss Ratio		Expense Ratio		Combine Ratio
Marine	$	59,124		$	37,691	$	16,044	$	5,389		63.7	%	27.2	%	90.9	%
Specialty	65,728			44,551		19,361		1,816			67.8	%	29.5	%	97.3	%
Professional Liability	14,199			8,581		2,661		2,957			60.4	%	18.7	%	79.1	%
Assumed from Lloyd’s Operations	16,554			8,942		4,963		2,649			54.0	%	30.0	%	84.0	%
Other (includes run-off)	901			904		7		(10		)	100.3	%	0.8	%	101.1	%
Total	$	156,506		$	100,669	$	43,036	$	12,801		64.3	%	27.5	%	91.8	%
Impact of Hurricane Ivan:
Marine	$	(1,522	)	$	1,598	$	—	$	(3,120	)	4.2	%	0.8	%	5.0	%
Total	$	(1,522	)	$	1,598	$	—	$	(3,120	)	1.6	%	0.3	%	1.9	%

NM = Not meaningful

The Insurance Companies 2005 third quarter marine net earned premium was reduced by $9.1 million due to reinstatement premiums related to the ceded losses from Hurricanes Katrina and Rita.  The 2005 third quarter net losses and LAE incurred increased by $7.4 million related to such hurricane losses.  The reinstatement premiums and incurred losses resulting from Hurricanes Katrina and Rita increased the Insurance Companies’ third quarter and first nine months of 2005 combined ratios by 28.8 and 9.8 points, respectively.

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Net earned premiums of the Insurance Companies increased 4.3% and 2.4% in the 2005 third quarter and nine month periods, respectively, compared to the same periods last year.  Such increases were not of the same magnitude as the increases in the 2005 net written premium of 31.6% and 36.9% compared to the same 2004 as the earnings growth from the retention of the specialty quota share will lag the written premium growth.

Excluding hurricane losses the 2005 and 2004 nine month underwriting results generally reflect the favorable industry market conditions over the last three years coupled with satisfactory loss trends in the aforementioned quarterly periods.

The approximate annualized pre-tax yields on the Insurance Companies’ investment portfolio, excluding net realized capital gains and losses, for the 2005 third quarter and nine month period were 4.1% and 4.2%, respectively, compared to 4.1% and 4.0% for the comparable 2004 periods, reflecting the prevailing interest rates.  Net investment income increased in the first nine months of 2005 compared to the same period in 2004 due to the increase in the yield and the strong cash flows resulting in a larger investment portfolio.

Lloyd’s Operations

The Lloyd’s Operations consist of NUAL, which manages Lloyd’s Syndicate 1221, Millennium Underwriting Ltd. and Navigators Corporate Underwriters Ltd. Both Millennium Underwriting Ltd. and Navigators Corporate Underwriters Ltd. are Lloyd’s corporate members with limited liability and provide capacity to Lloyd’s Syndicate 1221. NUAL owns Navigators Underwriting Ltd. (formerly Pennine Underwriting Ltd.), an underwriting managing agency with offices in Manchester, Leeds and Basingstoke, England, which underwrites cargo and engineering business for Lloyd’s Syndicate 1221.  In January 2005, we formed Navigators NV in Antwerp, Belgium, a wholly owned subsidiary of NUAL.  Navigators NV produces transport liability, cargo and marine liability premium on behalf of Syndicate 1221.  The Lloyd’s Operations and Navigators Management (UK) Limited, a Navigators Agency which produces business for the U.K. Branch, are subsidiaries of Navigators Holdings (UK) Limited located in the United Kingdom.

Lloyd’s Syndicate 1221 has stamp capacity of £135 million ($248.9 million) in 2005 compared to £150 million ($275.0 million) in 2004.  The reduction in the 2005 stamp capacity compared to 2004 is reflective of unused stamp capacity in 2004 coupled with declining market conditions in 2005.  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. We provide 97.5% and 97.4% of Syndicate 1221’s total stamp capacity in 2005 and 2004, respectively.  In September 2005 the Company purchased the remaining outstanding minority interest and will provide 100% of the Syndicate 1221’s capacity for the 2006 underwriting year.

Syndicate 1221’s stamp capacity is expressed net of commission (as is standard at Lloyd’s) of approximately 21%. The Syndicate 1221 premium recorded in the Company’s financial statements is gross of commission.  The Lloyd’s marine business had been subject to deteriorating pricing beginning in the mid-1990’s. The pricing competition showed some signs of stabilizing in 2000 and prices increased from 2001 through 2003. Overall pricing in 2004 remained relatively stable and the 2005 first nine months showed an increase of approximately 1% while the 2005 third quarter indicated an increase of approximately 3%.  Lloyd’s presents its results on an underwriting year basis, generally closing each underwriting year after three years. We make estimates for each underwriting year and timely accrue the expected results. Our Lloyd’s Operations included in the consolidated financial statements represent our participation in Syndicate 1221.

Lloyd’s syndicates report the amounts of premiums, claims, and expenses recorded in an underwriting account for a particular year to the companies or individuals that participate in the syndicates. The syndicates generally keep accounts open for three years. Traditionally, three years have been necessary to report substantially all premiums associated with an underwriting year and to report most related claims, although claims may remain unsettled after the underwriting year is closed. A Lloyd’s syndicate typically closes an underwriting year by reinsuring outstanding claims on that underwriting year with the participants for the next

40

underwriting year. The ceding participants pay the assuming participants an amount based on the unearned premiums and outstanding claims in the underwriting year at the date of the assumption. Our participation in Lloyd’s Syndicate 1221 is represented by and recorded as our proportionate share of the underlying assets and liabilities and results of operations of the syndicate since (i) we hold an undivided interest in each asset, (ii) we are proportionately liable for each liability and (iii) Syndicate 1221 is not a separate legal entity. At Lloyd’s, the amount to close an underwriting year into the next year is referred to as the reinsurance to close (“RITC”) transaction. The RITC amounts represent the transfer of the assets and liabilities from the participants of a closing underwriting year to the participants of the next underwriting year. To the extent our participation in the syndicate changes, the RITC amounts vary accordingly. The RITC transaction is recorded in the fourth quarter as additional written and earned premium, losses incurred, loss reserves and receivables, all in the same amount. There are no gains or losses recorded on the RITC transaction.

We provide letters of credit to Lloyd’s to support our participation in Syndicate 1221’s stamp capacity as discussed below under the caption Liquidity and Capital Resources.

Following are the results of operations of the Lloyd’s Operations for the three and nine months ended September 30, 2005 and 2004:

	Three Months Ended September 30,						Nine Months Ended September 30,
	2005			2004			2005			2004
	($ in thousands)
Revenues:
Net earned premium	$	20,956		$	23,596		$	77,856		$	68,121
Commission income	534			300			1,161			863
Net investment income	1,439			649			3,642			1,844
Net realized capital gains (losses)	(57		)	(55		)	(421		)	(119		)
Other income	246			(378		)	875			(368		)
Total revenues	23,118			24,112			83,113			70,341
Operating expenses:
Net losses and LAE	29,504			13,846			61,812			37,722
Commission expense	5,191			4,067			14,905			11,910
Other operating expenses	4,670			3,425			13,741			9,654
Total operating expenses	39,365			21,338			90,458			59,286
Income (loss) before income tax expense (benefit)	(16,247		)	2,774			(7,345		)	11,055
Income tax expense (benefit)	(5,687		)	971			(2,571		)	3,869
Net income (loss)	$	(10,560	)	$	1,803		$	(4,774	)	$	7,186
Loss and LAE ratio	140.8		%	58.7		%	79.4		%	55.4		%
Commission expense ratio	24.8		%	17.2		%	19.1		%	17.5		%
Other operating expense ratio	22.3		%	14.5		%	17.7		%	14.2		%
Combined ratio	187.9		%	90.4		%	116.2		%	87.1		%

41

The Lloyd’s Operations have been experiencing business expansion coupled with improving underwriting results (excluding the effects of Hurricanes Katrina and Rita) as a result of the generally favorable market conditions for marine and energy business from late 2001 through 2003, and to a lesser extent in 2004 and 2005.  Net earned premium has not been materially affected in 2005 for business ceded to the Insurance Companies while it was reduced by $4.3 million in the third quarter of 2004 and by $16.6 million in the first nine months of 2004 for such business.

The Lloyd’s Operations 2005 third quarter and nine month marine net earned premium was reduced by $5.3 million due to reinstatement premiums related to the ceded losses from Hurricanes Katrina and Rita.  The 2005 third quarter net losses and LAE incurred increased by $14.9 million related to such hurricane losses.  The reinstatement premiums and incurred losses resulting from Hurricanes Katrina and Rita increased the Lloyd’s Operations third quarter and first nine months of 2005 combined ratios by 94.6 and 25.3 ratio points, respectively.

The net loss to the Lloyd’s Operations from Hurricane Ivan, which approximated $2.0 million, increased the Lloyd’s Operations 2004 third quarter and first nine months combined ratios by 8.0 and 2.8 ratio points, respectively.  Excluding the impact of Hurricanes Katrina, Rita and Ivan, the 2005 and 2004 third quarter and nine month underwriting results generally reflect the favorable industry market conditions over the last three years coupled with satisfactory loss trends in the quarterly periods.  The Lloyd’s Operations’ loss ratio for the third quarter and first nine months of 2004 was favorably impacted by $1.2 million or 5.1 loss ratio points and $5.2 million or 7.6 loss ratio points, respectively, for redundancies in prior years’ Lloyd’s Operations’ loss reserves.

The approximate annualized pre-tax investment yields on the Lloyd’s Operations’ investment portfolio, excluding net realized capital gains and losses, for the 2005 third quarter and nine month period were 2.7% and 2.4%, respectively, compared to 1.6% and 1.7% for the comparable 2004 periods.  Generally, funds invested at Lloyd’s have been invested with an average duration of approximately 1.6 years in order to meet liquidity needs.  Such yields are net of interest credits to certain reinsurers for funds withheld by our Lloyd’s Operations.

Navigators Agencies

The Navigators Agencies produce business for our insurance company subsidiaries. They specialize in writing marine and related lines of business, specialty liability insurance and professional liability coverages.

Each of the Navigators Agencies underwrites marine and related lines of business for Navigators Insurance Company and two other unaffiliated insurance companies, which comprise a marine insurance pool. Marine insurance policies are issued by Navigators Insurance Company with the business shared with other pool members. Navigators Insurance Company had an 85% participation in the marine pool for business written with effective dates in 2005 and an 80% participation for business written with effective dates in 2004. 

Navigators Specialty, a division of a Navigators Agency, produces business exclusively for the Insurance Companies. It specializes in underwriting general liability insurance coverage for small general and artisan contractors and other targeted commercial risks, with the majority of its business located in California.  Navigators Specialty also writes commercial multiple peril, excess casualty, commercial automobile and personal umbrella insurance.

Navigators Pro, a division of a Navigators Agency, specializes in underwriting professional liability insurance and began producing directors and officers liability insurance exclusively for the Insurance Companies in the fourth quarter of 2001. In late 2002, Navigators Pro introduced additional products to complement its directors and officers liability coverage. The products include employment practices liability, lawyers professional liability and miscellaneous professional liability coverages.  In 2004, Navigators Pro began writing professional liability coverage for U.K. solicitors through our U.K. Branch.  In 2005, it commenced writing professional liability coverages for architects and engineers.

42

Navigators Specialty and Navigators Pro receive actual cost reimbursement from the Insurance Companies for the business produced.  The Navigators Agencies producing the marine business receive a 20% profit commission, and a management fee of 8.75% for marine business produced with 2005 year effective dates and 7.5% for 2004 and prior year effective dates.  Operating costs are specifically identified to each line of business or allocated based on employee head counts and gross written premium.

Following are the results of operations of the Navigators Agencies for the three and nine months ended September 30, 2005 and 2004:

	Three Months Ended September 30,						Nine Months Ended September 30,
	2005			2004			2005			2004
	($ in thousands)
Revenues:
Commission income	$	7,858		$	7,797		$	29,039		$	23,884
Net investment income	2			2			5			6
Other income	182			258			713			629
Total revenues	8,042			8,057			29,757			24,519
Operating expenses:
Other operating expenses	9,787			9,616			31,946			27,314
Total operating expenses	9,787			9,616			31,946			27,314
(Loss) before income tax (benefit)	(1,745		)	(1,559		)	(2,189		)	(2,795		)
Income tax (benefit)	(464		)	(460		)	(581		)	(852		)
Net (loss)	$	(1,281	)	$	(1,099	)	$	(1,608	)	$	(1,943	)

Commission income generally consists of inter-segment management fees and profit commissions received from insurance premiums of the Insurance Companies for marine, specialty and professional liability business as well as business from unaffiliated insurance companies in the marine pool. 

Other income generally represents fee revenues earned for other services on behalf of third parties.

Other operating expenses consists of compensation and general and administrative expenses incurred in connection with underwriting, administrative and claims services performed on behalf of the Insurance Companies and unaffiliated insurers participating in the marine pool.  Such costs have been increasing each year commensurate with servicing the growth in the overall premium volume.

Income tax expense (benefit) includes Federal and state income taxes related to the taxable income or loss of the Navigators Agencies.

Off-Balance Sheet Transactions

There have been no material changes in the information concerning off-balance sheet transactions as stated in the Company’s 2004 Annual Report on Form 10-K.

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Tabular Disclosure of Contractual Obligations

There have been no material changes in the operating lease or capital lease information concerning contractual obligations as stated in the Company’s 2004 Annual Report on Form 10-K.

Even though total reserves for losses and LAE increased to $1.5 billion at September 30, 2005 from $966.1 million at December 31, 2004, there were no significant changes in the Company’s lines of business or claims handling that would create a material change in the percentage relationship of the projected payments by period to the total reserves.

Investments

The objective of the Company’s 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, an important consideration is to optimize the after-tax book income.

The investments are managed by outside professional fixed-income and equity portfolio managers. The Company seeks to achieve its investment objectives by investing in cash equivalents and money market funds, municipal bonds, U.S. Government bonds, U.S. Government guaranteed and U.S. Federal Agency securities, corporate bonds, mortgage-backed and asset-backed securities and common and preferred stocks. Our investment guidelines require that the amount of the consolidated fixed-income portfolio rated below ‘‘A-’’ by Standard & Poor’s (“S&P”) or A3 by Moody’s shall not exceed 20% of the statutory surplus of the Insurance Companies.  Securities rated below BBB- by S&P or Baa3 by Moody’s are not eligible to be purchased. Up to 15% of the statutory surplus of the Insurance Companies may be invested in equity securities that are actively traded on major U.S. stock exchanges. Our 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 direction and control of their respective boards of directors and the Finance Committee of the 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 Navigators Insurance Company and NIC Insurance Company. 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, preferred stocks, common stocks, real estate mortgages and real estate.

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 board of directors and finance committee of the Company, and represent our share of the investments held by Syndicate 1221. These investments must comply with the rules and regulations imposed by Lloyd’s and by certain overseas regulators.  The investment portfolio and the performance of the investment managers are reviewed quarterly.

The majority of the investment income of the Navigators Agencies is derived from fiduciary funds invested in accordance with the guidelines of various state insurance departments. These guidelines typically require investments in short-term instruments. This investment income is paid to the members of the marine pool, including Navigators Insurance Company.

All fixed maturity and equity securities are carried at fair value. The fair value is based on quoted market prices or dealer quotes provided by independent pricing services.  The following tables show our cash and investments as of September 30, 2005 and December 31, 2004:

44

September 30, 2005	Fair Value		Gross Unrealized Gains		Gross Unrealized (Losses)			Cost or Amortized Cost
	($ in thousands)
Fixed maturities:
U.S. Government Treasury Bonds, GNMAs, U.S. Government non-guaranteed Agencies and foreign government bonds	$	248,851	$	2,471	$	(1,652	)	$	248,032
States, municipalities and political subdivisions	212,339		1,719		(1,625		)	212,245
Mortgage- and asset-backed securities (excluding U.S. Govt.)	259,855		727		(2,465		)	261,593
Corporate bonds	133,576		2,390		(1,232		)	132,418
Total fixed maturities (1)	854,621		7,307		(6,974		)	854,288
Equity securities - common stocks	20,917		2,583		(747		)	19,081
Cash and short-term investments	148,326		—		—			148,326
Total	$	1,023,864	$	9,890	$	(7,721	)	$	1,021,695

(1) Approximately 5.0% and 13.3% of total fixed maturities investments are direct and collateralized obligations, respectively, of FNMA and FHLMC.

December 31, 2004	Fair Value		Gross Unrealized Gains		Gross Unrealized (Losses)			Cost or Amortized Cost
			($ in thousands)
Fixed maturities:
U.S. Government Treasury Bonds, GNMAs, U.S. Government non-guaranteed Agencies and foreign government bonds	$	247,105	$	3,190	$	(1,451	)	$	245,366
States, municipalities and political subdivisions	138,902		2,688		(339		)	136,553
Mortgage- and asset-backed securities (excluding U.S. Govt.)	191,459		1,911		(470		)	190,018
Corporate bonds	144,968		4,375		(519		)	141,112
Total fixed maturities (1)	722,434		12,164		(2,779		)	713,049
Equity securities - common stocks	21,170		2,157		(88		)	19,101
Cash and short-term investments	111,329		—		—			111,329
Total	$	854,933	$	14,321	$	(2,867	)	$	843,479

(1) Approximately 6.0% and 11.4% of total fixed maturities investments are direct and collateralized obligations, respectively, of FNMA and FHLMC.

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At September 30, 2005 and December 31, 2004, all fixed-maturity and equity securities held by us were classified as available-for-sale.

We regularly review 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. In general, we focus our attention on those securities whose market value was less than 80% of their cost or amortized cost, as appropriate, for six or more consecutive months. Other factors considered in evaluating potential impairment include the current fair value as compared to cost or amortized cost, as appropriate, our intent and ability to retain the investment for a period of time sufficient to allow for an anticipated recovery in value, specific credit issues related to the issuer and current economic conditions.

When a security in our investment portfolio has an unrealized loss that is deemed to be other-than-temporary, we write the security down to fair value through a charge to operations. 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.  There were no impairment losses recorded in our fixed maturity or equity securities portfolios in 2005 or 2004.

The following table summarizes all securities in an unrealized loss position at September 30, 2005 and December 31, 2004, showing the aggregate fair value and gross unrealized loss by the length of time those securities have continuously been in an unrealized loss position:

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	September 30, 2005				December 31, 2004
	Fair Value		Gross Unrealized Loss		Fair Value		Gross Unrealized Loss
	($ in thousands)
Fixed Maturities:
U.S. Government Treasury Bonds, GNMAs, U.S. Government non-guaranteed Agencies and foreign government bonds
0-6 Months	$	88,914	$	698	$	97,338	$	519
7-12 Months	34,759		331		33,916		283
> 12 Months	39,159		623		24,258		649
Subtotal	162,832		1,652		155,512		1,451
States, municipalities and political subdivisions
0-6 Months	70,133		514		18,966		94
7-12 Months	50,311		716		14,155		225
> 12 Months	16,722		395		518		20
Subtotal	137,166		1,625		33,639		339
Mortgage- and asset-backed securities (excluding U.S. Govt.)
0-6 Months	123,396		1,091		64,598		208
7-12 Months	75,999		932		19,536		232
> 12 Months	20,455		442		774		30
Subtotal	219,850		2,465		84,908		470
Corporate bonds
0-6 Months	35,620		464		29,870		160
7-12 Months	21,288		377		16,069		189
> 12 Months	13,985		391		4,803		170
Subtotal	70,893		1,232		50,742		519
Total Fixed Maturities	$	590,741	$	6,974	$	324,801	$	2,779
Equity securities - common stocks
0-6 Months	$	5,041	$	437	$	3,779	$	23
7-12 Months	1,528		105		892		65
> 12 Months	803		205		—		—
Total Equity Securities	$	7,372	$	747	$	4,671	$	88

We analyze the unrealized losses quarterly to determine if any are other-than-temporary.  The above unrealized losses have been determined to be temporary and generally result from changes in market conditions. 

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The following table shows the composition by National Association of Insurance Commissioners (“NAIC”) rating and the generally equivalent Standard & Poor’s (“S&P”) and Moody’s ratings of the fixed maturity securities in our portfolio with gross unrealized losses at September 30, 2005.  Not all of the securities are rated by S&P and/or Moody’s.

	Equivalent	Equivalent	Unrealized Loss				Fair Value
NAIC	S&P	M oody’s			Percent				Percent
Rating	Rating	Rating	Amount		of Total		Amount		of Total
	($ in thousands)
1	AAA/AA/A	Aaa/Aa/A	$	6,585	94	%	$	568,385	96	%
2	BBB	Baa	389		6	%	22,356		4	%
3	BB	Ba	—		—		—		—
4	B	B	—		—		—		—
5	CCC or lower	Caa or lower	—		—		—		—
6	N/A	N/A	—		—		—		—
		Total	$	6,974	100	%	$	590,741	100	%

At September 30, 2005, the gross unrealized losses in the table directly above are related to fixed maturity securities that are rated investment grade, which is defined as a security having a NAIC rating of 1 or 2, a S&P rating of “BBB—” or higher, or a Moody’s rating of “Baa3” or higher.  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.  Any such unrealized losses are recognized in income, if the securities are sold, or if the decline in fair value is deemed other-than-temporary. 

The scheduled maturity dates for fixed maturity securities in an unrealized loss position at September 30, 2005 are shown in the following table:

	Unrealized Loss				Fair Value
			Percent					Percent
	Amount		of Total		Amount			of Total
	($ in thousands)
Due in one year or less	$	703	10	%	$		99,535	17	%
Due after one year through five years	1,894		27	%	139,293			24	%
Due after five years through ten years	570		8	%	51,592			9	%
Due after ten years	1,342		19	%	80,471			14	%
Mortgage- and asset-backed securities	2,465		36	%	219,850			36	%
Total fixed income securities	$	6,974	100	%	$	590,741		100	%

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 5.0 years.

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Our realized capital gains and losses for the three and nine months ended September 30, 2005 and 2004 were as follows:

	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2005			2004			2005			2004
	($ in thousands)
Fixed maturities:
Gains	$	440		$	271		$	1,699		$	1,935
(Losses)	(288		)	(45		)	(1,245		)	(1,760		)
	152			226			454			175
Equity securities:
Gains	192			45			607			511
(Losses)	—			—			(134		)	(98		)
	192			45			473			413
Net realized capital gains	$	344		$	271		$	927		$	588

The following table details realized losses in excess of $200,000 from sales and impairments during the first nine months of 2005 and 2004 and the related circumstances giving rise to the loss:

							# of Months
							Unrealized Loss
						Net	Exceeded 20%
	Date of	Proceeds	(Loss) on		Holdings at	Unrealized	of Cost or
Description	Sale	from Sale	Sale	Impairment	September 30, 2005	(Loss)	Amortized Cost
($ in thousands)

Nine months ended September 30, 2005 and 2004:

None

Reinsurance Recoverables

We utilize reinsurance principally to reduce our exposure on individual risks, to protect against catastrophic losses, to maintain desired ratios of net written premium to statutory surplus 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. Specifically, our reinsurers may not pay claims made by us on a timely basis, or they may not pay some or all of these claims. Either of these events would increase our costs and could have a material adverse effect on our business. We are required to pay the losses even if the reinsurer fails to meet its obligations under the reinsurance agreement.  Hurricanes Katrina and Rita increased our reinsurance recoverables significantly which increased our credit risk.

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 an A.M. Best Company and/or Standard & Poor’s rating of ‘‘A’’ or better, or equivalent financial strength if not rated, plus at least $250 million in policyholders’ surplus.  Our Reinsurance Security Committee monitors the financial strength of our reinsurers and the related

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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 Company was recently advised informally by Equitas, a lead reinsurer participating on excess of loss reinsurance agreements, that it does not intend to satisfy a loss payment recovery demand that the Company presented to it on June 1, 2005.  The Company has not yet received a formal written response to its demand.  The recovery is for the 2004 settlement of a class action suit involving a large asbestos claim (the “Settled Claim”) which settlement is being paid over seven years starting in June 2005.  Equitas has not indicated any dispute with respect to recoveries on related pro rata reinsurance agreements.

Equitas also participates as a lead reinsurer in respect of the Company’s two other large asbestos claims that involve class action lawsuits.  The Company believes it is likely that Equitas will take a similar position when such claims are eventually settled and presented to Equitas for payment.

The aggregate amount of excess of loss recoveries due from Equitas on all three of these claims is approximately $9 million, and represents approximately 50% of the total excess of loss recoveries for such claims.  The Company has not been advised of any disputes by other excess of loss reinsurers with respect to such asbestos claims.

The Company has filed a demand for arbitration against Equitas in New York with respect to the Settled Claim in accordance with the applicable provisions of the excess of loss reinsurance agreements.  The Company believes that the refusal of Equitas to satisfy the Company’s payment demand is without merit and it intends to vigorously pursue collection of its reinsurance recoveries.   While it is too early to predict with any certainty the outcome of this matter, the Company believes that the ultimate outcome would not be expected to have a significant adverse effect on its results of operations, financial condition or liquidity, although an unexpected adverse resolution could have a material adverse effect on the Company’s results of operations in a particular fiscal quarter or year.

An allowance for doubtful recoveries is maintained for any amounts considered to be uncollectible. At September 30, 2005 and December 31, 2004, we had allowances for uncollectible reinsurance of $32.1 million and $32.4 million, respectively.  The allowances include $25.7 million for uncollectible reinsurance as a result of loss reserves established in 2003 for asbestos exposures on marine and aviation business written mostly prior to 1986.  Charges (recoveries) for uncollectible reinsurance amounts, all of which were recorded to incurred losses, were ($505,000) and $80,000 for the three months ended September 30, 2005 and 2004, respectively, and $109,000 and ($201,000) for the nine months ended September 30, 2005 and 2004, respectively. 

The Company continues to periodically monitor the financial condition and ongoing activities of its reinsurers, in order to assess the adequacy of its allowance for uncollectible reinsurance.

Liquidity and Capital Resources

Cash flow provided by operations was $167.9 million and $141.7 million for the nine months ended September 30, 2005 and 2004, respectively. The increase in the operating cash flow in the first nine months of 2005 compared to 2004 was primarily due to the increase in net written premium in combination with the receipt of an $8 million hull loss subrogation recovery collected on behalf of quota share reinsurers in the 2005 second quarter.  Operating cash flow was used primarily to acquire additional investment assets.

Payment of losses, including the losses from Hurricanes Katrina and Rita, reduce cash flow by the amount of the gross loss until the ceded portion of the loss can be collected from the reinsurers.

Invested assets and cash increased to $1.0 billion at September 30, 2005 from $854.9 million at December 31, 2004. The increase was primarily due to the positive cash flow.  Net investment income was $9.2

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million and $6.9 million for the three months ended September 30, 2005 and 2004, respectively, and $25.8 million and $19.4 million for the nine months ended September 30, 2005 and 2004, respectively.

The approximate annualized pre-tax investment yields of the portfolio, excluding net realized capital gains and losses, for both the 2005 third quarter and nine month period were 3.8% compared to 3.5% for both comparable 2004 periods, reflecting the prevailing interest rates. As of September 30, 2005 and December 31, 2004, all fixed maturity securities and equity securities held by us were classified as available-for-sale.

At September 30, 2005, the weighted average rating of our fixed maturity investments was ‘‘AA’’ by Standard & Poor’s and ‘‘Aa’’ by Moody’s. We believe that we have no significant exposure to credit risk since the fixed maturity investment portfolio consists of investment-grade bonds. At September 30, 2005, our portfolio had an average maturity of 5.4 years and duration of 4.0 years. Management continually monitors the composition and cash flow of the investment portfolio in order to maintain the appropriate levels of liquidity to ensure our ability to satisfy claims.

We have a credit facility provided through a consortium of banks.  The credit facility, which is denominated in U.S. dollars, is utilized primarily by Navigators Corporate Underwriters Ltd. and Millennium Underwriting Ltd. to fund our participation in Lloyd’s Syndicate 1221 which is denominated in British pounds.  At September 30, 2005, letters of credit with an aggregate face amount of $77.4 million were issued under the credit facility.

The credit facility is collateralized by all of the common stock of Navigators Insurance Company.  The credit agreement contains covenants common to transactions of this type, including restrictions on indebtedness and liens, limitations on mergers and the sale of assets, maintaining certain consolidated tangible net worth, statutory surplus and other financial ratios.  Cash dividends to shareholders are limited to $2.5 million per year.  No dividends have been declared or paid through September 30, 2005.  At September 30, 2005, we were in compliance with all covenants.

The credit facility was amended in January 2005 to increase the letters of credit available under the facility from $80 million to $115 million and to add a $10 million line of credit facility.  The expiration of the credit facility was also extended from November 10, 2005 to June 30, 2007.  If at that time the banks do not renew the credit facility, we will need to find other sources to provide the letters of credit or other collateral in order to continue our participation in Syndicate 1221.

At September 30, 2005, our consolidated stockholders’ equity was $332.9 million or $26.02 per share compared to $328.6 million or $25.96 per share at December 31, 2004. The increase was primarily due to net income of $8.3 million for the nine months ended September 30, 2005.

Our reinsurance has been placed with various U.S. and foreign insurance companies and with selected syndicates at Lloyd’s. Pursuant to the implementation of Lloyd’s Plan of Reconstruction and Renewal, a portion of our recoverables are now reinsured by Equitas which is a separate United Kingdom authorized reinsurance company established to reinsure outstanding liabilities of all Lloyd’s members for all risks written in the 1992 or prior years of account.

We primarily rely upon dividends from our subsidiaries to meet our holding company obligations. The dividends have historically come primarily from Navigators Insurance Company. At December 31, 2004, the maximum amount available for the payment of dividends by Navigators Insurance Company during 2005 without prior regulatory approval was $23.6 million.  Navigators Insurance Company paid $3.0 million of dividends to the Company in the first nine months of 2005.

We believe that the cash flow generated by the operations 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

51

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.

In October 2005, the Company completed an underwritten public offering of 3,795,000 shares of common stock at $34.50 per share including the over-allotment option, and received net proceeds of approximately $124 million.  Approximately $120 million of the net proceeds was contributed to the capital of Navigators Insurance Company of which $50 million was contributed to the capital of NIC Insurance Company.

Item 3.  Quantitative and Qualitative Disclosures About Market Risk

There have been no material changes in the information concerning market risk as stated in the Company’s 2004 Annual Report on Form 10-K.

Item 4.  Controls and Procedures

(a)The Chief Executive Officer and Chief Financial Officer of the Company have evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under of the Securities Exchange Act of 1934, as amended (the “Exchange Act”)), as of the end of the period covered by this quarterly report. Based on such evaluation, such officers have concluded that as of the end of such period the Company’s disclosure controls and procedures are effective in identifying, on a timely basis, material information required to be disclosed in our reports filed or submitted under the Exchange Act.

(b)There have been no changes during our third fiscal quarter in our internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

Part II - Other Information

Item 1.Legal Proceedings

Other than as set forth below, the Company is not a party to, or the subject of, any material legal proceedings which depart from the ordinary routine litigation incident to the kinds of business it conducts.

The Company was recently advised informally by Equitas, a lead reinsurer participating on excess of loss reinsurance agreements, that it does not intend to satisfy a loss payment recovery demand that the Company presented to it on June 1, 2005.  The Company has not yet received a formal written response to its demand.  The recovery is for the 2004 settlement of a class action suit involving a large asbestos claim (the “Settled Claim”) which settlement is being paid over seven years starting in June 2005.  Equitas has not indicated any dispute with respect to recoveries on related pro rata reinsurance agreements.

Equitas also participates as a lead reinsurer in respect of the Company’s two other large asbestos claims that involve class action lawsuits.  The Company believes it is likely that Equitas will take a similar position when such claims are eventually settled and presented to Equitas for payment.

The aggregate amount of excess of loss recoveries due from Equitas on all three of these claims is approximately $9 million, and represents approximately 50% of the total excess of loss recoveries for such claims.  The Company has not been advised of any disputes by other excess of loss reinsurers with respect to such asbestos claims.

The Company has filed a demand for arbitration against Equitas in New York with respect to the Settled Claim in accordance with the applicable provisions of the excess of loss reinsurance agreements.  The Company

52

believes that the refusal of Equitas to satisfy the Company’s payment demand is without merit and it intends to vigorously pursue collection of its reinsurance recoveries.   While it is too early to predict with any certainty the outcome of this matter, the Company believes that the ultimate outcome would not be expected to have a significant adverse effect on its results of operations, financial condition or liquidity, although an unexpected adverse resolution could have a material adverse effect on the Company’s results of operations in a particular fiscal quarter or year.

Item 2.Unregistered Sales of Equity Securities and Use of Proceeds

None.

Item 3.Defaults Upon Senior Securities

None.

Item 4.Submissions of Matters to a Vote of Security Holders

None

Item 5.Other Information

None.

Item 6.Exhibits

Exhibit No.	Description of Exhibit
11-1	Statement re Computation of Per Share Earnings	*
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).

* Included herein.

53

SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	The Navigators Group, Inc.
	(Registrant)
Date: November 2, 2005	/s / Paul J. Malvasio
	Paul J. Malvasio
	Executive Vice President
	and Chief Financial Officer

54

INDEX OF EXHIBITS

Exhibit No.	Description of Exhibit
11-1	Statement re Computation of Per Share Earnings	*
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).	*

*  Included herein.

55