Note 3. Segment Information

The Company classifies its’ business into two underwriting segments consisting of the Insurance Companies segment (“Insurance Companies”) and the Lloyd’s Operations segment (“Lloyd’s Operations”), which are separately managed, and a Corporate segment (“Corporate”). Segment data for each of the two underwriting segments include allocations of the operating expenses of the wholly-owned underwriting management companies and the Parent Company’s operating expenses and related income tax amounts. The Corporate segment consists of the Parent Company’s investment income, interest expense and the related tax effect.

The Company evaluates the performance of each underwriting segment based on its underwriting and GAAP results. The Insurance Companies’ and the Lloyd’s Operations’ results are measured by taking into account net earned premiums, net losses and loss adjustment expenses (“LAE”), commission expenses, other operating expenses and other income (expense). Each segment maintains its own investments on which it earns income and realizes capital gains or losses. The Company’s underwriting performance is evaluated separately from the performance of its’ investment portfolios.

The Insurance Companies consist of Navigators Insurance Company, including its branch located in the United Kingdom (the “U.K. Branch”), and its wholly-owned subsidiary, Navigators Specialty Insurance Company (“Navigators Specialty”). They are primarily engaged in underwriting marine insurance and related lines of business, professional liability insurance and specialty lines of business including contractors general liability insurance, commercial umbrella and primary and excess casualty businesses. Navigators Specialty underwrites specialty and professional liability insurance on an excess and surplus lines basis. Navigators Specialty is 100% reinsured by Navigators Insurance Company.

The Lloyd’s Operations primarily underwrite marine and related lines of business along with offshore energy, professional liability insurance and construction coverage for onshore energy business at Lloyd’s of London (“Lloyd’s”) through Lloyd’s Syndicate 1221 (“Syndicate 1221”). The Company’s Lloyd’s Operations includes Navigators Underwriting Agency Ltd. (“NUAL”), a Lloyd’s underwriting agency that manages Syndicate 1221. The Company controlled 100% of the stamp capacity of Syndicate 1221 through its’ wholly-owned Lloyd’s corporate member in 2011 and 2010.

Navigators Management Company, Inc. (“NMC”) is a wholly-owned underwriting management company which produces, manages and underwrites insurance and reinsurance, and provides corporate services for the Company. The operating results for the underwriting management company are allocated to both the Insurance Companies and Lloyd’s Operations.

The Insurance Companies’ and the Lloyd’s Operations’ underwriting results are measured based on underwriting profit or loss and the related combined ratio, which are both non-GAAP measures of underwriting profitability. Underwriting profit or loss is calculated from net earned premiums, less the sum of net losses and LAE, commission expenses, other operating expenses and other income (expense). The combined ratio is derived by dividing the sum of net losses and LAE, commission expenses, other operating expenses and other income (expense) by net earned premiums. A combined ratio of less than 100% indicates an underwriting profit and over 100% indicates an underwriting loss.

Financial data by segment for the three and six months ended June 30, 2011 and 2010 follows:

		September 30,			September 30,			September 30,			September 30,
	Three Months Ended June 30, 2011
	Insurance Companies			Lloyd’s Operations			Corporate ⁽¹⁾			Total
	*($ in thousands)*

Gross written premiums	$	186,767		$	91,947		$	—		$	278,714
Net written premiums		123,204			60,159			—			183,363

Net earned premiums		114,987			58,790			—			173,777
Net losses and loss adjustment expenses		(77,330	)		(36,533	)		—			(113,863	)
Commission expenses		(16,402	)		(12,042	)		414			(28,030	)
Other operating expenses		(26,516	)		(9,261	)		—			(35,777	)
Other income (expense)		626			361			(414	)		573


Underwriting profit (loss)		(4,635	)		1,315			—			(3,320	)

Net investment income		14,989			2,320			120			17,429
Net realized gains (losses)		3,100			(798	)		172			2,474
Interest expense		—			—			(2,047	)		(2,047	)

Income (loss) before income taxes		13,454			2,837			(1,755	)		14,536

Income tax expense (benefit)		4,617			1,029			(614	)		5,032

Net income (loss)	$	8,837		$	1,808		$	(1,141	)	$	9,504


Identifiable assets ⁽²⁾	$	2,681,023		$	908,361		$	74,326		$	3,655,910


Losses and loss adjustment expenses ratio		67.3	%		62.1	%					65.5	%
Commission expense ratio		14.3	%		20.5	%					16.1	%
Other operating expense ratio ⁽³⁾		22.4	%		15.2	%					20.3	%

Combined ratio		104.0	%		97.8	%					101.9	%

⁽¹⁾	Includes Corporate segment intercompany eliminations.

⁽²⁾	Includes inter-segment transactions causing the row not to cross foot.

⁽³⁾	Includes Other operating expenses and Other income.

		September 30,		September 30,		September 30,
	Three Months Ended June 30, 2011
	Insurance Companies		Lloyd’s Operations		Total
	*($ in thousands)*

Gross written premiums:
Marine	$	58,323	$	39,451	$	97,774
Property Casualty		100,131		42,122		142,253
Professional Liability		28,313		10,374		38,687

Total	$	186,767	$	91,947	$	278,714


Net written premiums:
Marine	$	41,802	$	32,042	$	73,844
Property Casualty		62,015		22,682		84,697
Professional Liability		19,387		5,435		24,822

Total	$	123,204	$	60,159	$	183,363


Net earned premiums:
Marine	$	41,877	$	37,734	$	79,611
Property Casualty		55,351		16,259		71,610
Professional Liability		17,759		4,797		22,556

Total	$	114,987	$	58,790	$	173,777

		September 30,			September 30,			September 30,			September 30,
	Three Months Ended June 30, 2010
	Insurance Companies			Lloyd’s Operations			Corporate ⁽¹⁾			Total
	*($ in thousands)*

Gross written premiums	$	170,641		$	82,927		$	—		$	253,568
Net written premiums		111,401			53,604			—			165,005

Net earned premiums		110,425			51,046			—			161,471
Net losses and loss adjustment expenses		(64,862	)		(35,001	)		—			(99,863	)
Commission expenses		(14,615	)		(11,402	)		340			(25,677	)
Other operating expenses		(25,907	)		(8,617	)		—			(34,524	)
Other income (expense)		(114	)		(434	)		(340	)		(888	)


Underwriting profit (loss)		4,927			(4,408	)		—			519

Net investment income		15,556			2,128			169			17,853
Net realized gains (losses)		10,729			19			117			10,865
Interest expense		—			—			(2,044	)		(2,044	)

Income (loss) before income taxes		31,212			(2,261	)		(1,758	)		27,193

Income tax expense (benefit)		9,654			(815	)		(616	)		8,223

Net income (loss)	$	21,558		$	(1,446	)	$	(1,142	)	$	18,970


Identifiable assets ⁽²⁾	$	2,564,004		$	829,008		$	70,742		$	3,480,255


Losses and loss adjustment expenses ratio		58.7	%		68.6	%					61.8	%
Commission expense ratio		13.2	%		22.3	%					15.9	%
Other operating expense ratio ⁽³⁾		23.6	%		17.7	%					22.0	%

Combined ratio		95.5	%		108.6	%					99.7	%

⁽¹⁾	Includes Corporate segment intercompany eliminations.

⁽²⁾	Includes inter-segment transactions causing the row not to cross foot.

⁽³⁾	Includes Other operating expenses and Other income.

		September 30,		September 30,		September 30,
	Three Months Ended June 30, 2010
	Insurance Companies		Lloyd’s Operations		Total
	*($ in thousands)*

Gross written premiums:
Marine	$	55,204	$	41,829	$	97,033
Property Casualty		81,797		29,122		110,919
Professional Liability		33,640		11,976		45,616

Total	$	170,641	$	82,927	$	253,568


Net written premiums:
Marine	$	37,153	$	34,421	$	71,574
Property Casualty		54,300		13,924		68,224
Professional Liability		19,948		5,259		25,207

Total	$	111,401	$	53,604	$	165,005


Net earned premiums:
Marine	$	40,554	$	34,727	$	75,281
Property Casualty		50,171		10,763		60,934
Professional Liability		19,700		5,556		25,256

Total	$	110,425	$	51,046	$	161,471

		September 30,			September 30,			September 30,			September 30,
	Six Months Ended June 30, 2011
	Insurance Companies			Lloyd’s Operations			Corporate ⁽¹⁾			Total
	*($ in thousands)*

Gross written premiums	$	393,543		$	181,454		$	—		$	574,997
Net written premiums		253,944			122,495			—			376,439

Net earned premiums		213,807			112,448			—			326,255
Net losses and LAE		(152,127	)		(78,524	)		—			(230,651	)
Commission expenses		(28,742	)		(26,449	)		961			(54,230	)
Other operating expenses		(53,315	)		(19,037	)		—			(72,352	)
Other income (expense)		2,317			208			(961	)		1,564


Underwriting profit (loss)		(18,060	)		(11,354	)		—			(29,414	)

Net investment income		29,972			4,575			266			34,813
Net realized gains (losses)		2,855			(2,183	)		172			844
Interest expense		—			—			(4,093	)		(4,093	)

Income (loss) before income taxes		14,767			(8,962	)		(3,655	)		2,150

Income tax expense (benefit)		4,845			(3,027	)		(1,279	)		539

Net income (loss)	$	9,922		$	(5,935	)	$	(2,376	)	$	1,611


Identifiable assets ⁽²⁾	$	2,681,023		$	908,361		$	74,326		$	3,655,910


Loss and LAE ratio		71.2	%		69.8	%					70.7	%
Commission expense ratio		13.4	%		23.5	%					16.6	%
Other operating expense ratio ⁽³⁾		23.8	%		16.8	%					21.7	%

Combined ratio		108.4	%		110.1	%					109.0	%

⁽¹⁾	Includes Corporate segment intercompany eliminations.

⁽²⁾	Includes inter-segment transactions causing the row not to cross foot.

⁽³⁾	Includes Other operating expenses and Other income.

		September 30,		September 30,		September 30,
	Six Months Ended June 30, 2011
	Insurance Companies		Lloyd’s Operations		Total
	*($ in thousands)*

Gross written premiums:
Marine	$	128,671	$	100,606	$	229,277
Property Casualty		213,019		61,424		274,443
Professional Liability		51,853		19,424		71,277

Total	$	393,543	$	181,454	$	574,997


Net written premiums:
Marine	$	96,020	$	81,713	$	177,733
Property Casualty		124,922		31,068		155,990
Professional Liability		33,002		9,714		42,716

Total	$	253,944	$	122,495	$	376,439


Net earned premiums:
Marine	$	82,436	$	74,712	$	157,148
Property Casualty		98,286		28,153		126,439
Professional Liability		33,085		9,583		42,668

Total	$	213,807	$	112,448	$	326,255

		September 30,			September 30,			September 30,			September 30,
	Six Months Ended June 30, 2010
	Insurance Companies			Lloyd’s Operations			Corporate ⁽¹⁾			Total
	*($ in thousands)*

Gross written premiums	$	348,479		$	175,234		$	—		$	523,713
Net written premiums		232,741			121,581			—			354,322

Net earned premiums		221,636			103,904			—			325,540
Net losses and LAE		(133,265	)		(70,405	)		—			(203,670	)
Commission expenses		(28,977	)		(22,368	)		352			(50,993	)
Other operating expenses		(53,260	)		(15,860	)		—			(69,120	)
Other income (expense)		(1,091	)		1,635			(352	)		192


Underwriting profit (loss)		5,043			(3,094	)		—			1,949

Net investment income		31,304			4,197			324			35,825
Net realized gains (losses)		15,934			732			231			16,897
Interest expense		—			—			(4,088	)		(4,088	)

Income (loss) before income taxes		52,281			1,835			(3,533	)		50,583

Income tax expense (benefit)		15,117			688			(1,237	)		14,568

Net income (loss)	$	37,164		$	1,147		$	(2,296	)	$	36,015


Identifiable assets ⁽²⁾	$	2,564,004		$	829,008		$	70,742		$	3,480,255

Loss and LAE ratio		60.1	%		67.8	%					62.6	%
Commission expense ratio		13.1	%		21.5	%					15.7	%
Other operating expense ratio ⁽³⁾		24.5	%		13.7	%					21.1	%

Combined ratio		97.7	%		103.0	%					99.4	%

⁽¹⁾	Includes Corporate segment intercompany eliminations.

⁽²⁾	Includes inter-segment transactions causing the row not to cross foot.

⁽³⁾	Includes Other operating expenses and Other income.

		September 30,		September 30,		September 30,
	Six Months Ended June 30, 2010
	Insurance Companies		Lloyd’s Operations		Total
	*($ in thousands)*

Gross written premiums:
Marine	$	122,730	$	100,970	$	223,700
Property Casualty		161,143		49,081		210,224
Professional Liability		64,606		25,183		89,789

Total	$	348,479	$	175,234	$	523,713


Net written premiums:
Marine	$	88,156	$	84,063	$	172,219
Property Casualty		103,997		25,635		129,632
Professional Liability		40,588		11,883		52,471

Total	$	232,741	$	121,581	$	354,322


Net earned premiums:
Marine	$	81,648	$	70,287	$	151,935
Property Casualty		101,252		22,678		123,930
Professional Liability		38,736		10,939		49,675

Total	$	221,636	$	103,904	$	325,540

The Insurance Companies’ net earned premiums include $25.5 million and $18.7 million of net earned premiums from the U.K. Branch for the three months ended June 30, 2011 and 2010, respectively and $42.9 million and $38.6 million of net earned premiums from the U.K. Branch for the six months ended June 30, 2011 and 2010.