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 greater than 100% indicates an underwriting loss.

The following tables provide the Company’s segment results for the three and nine months ended September 30, 2011 and 2010 follows:

		September 30,			September 30,			September 30,			September 30,
	Three Months Ended September 30, 2011
In thousands	Insurance Companies			Lloyd’s Operations			Corporate⁽¹⁾			Total
Gross written premiums	$	191,175		$	64,143		$	—		$	255,318
Net written premiums		135,292			40,065			—			175,357
Net earned premiums		119,332			54,301			—			173,633
Net losses and loss adjustment expenses		(76,755	)		(33,487	)		—			(110,242	)
Commission expenses		(16,514	)		(9,953	)		533			(25,934	)
Other operating expenses		(25,735	)		(9,254	)		—			(34,989	)
Other income (expense)		554			(942	)		(533	)		(921	)

Underwriting profit (loss)	$	882		$	665		$	0		$	1,547
Net investment income		14,037			2,158			64			16,259
Net realized gains (losses)		2,809			(226	)		32			2,615
Interest expense		—			—			(2,047	)		(2,047	)

Income (loss) before income taxes	$	17,728		$	2,597		$	(1,951	)	$	18,374
Income tax expense (benefit)		4,379			780			(683	)		4,476

Net income (loss)	$	13,349		$	1,817		$	(1,268	)	$	13,898

Identifiable assets	$	2,692,597		$	887,401		$	43,377		$	3,623,375

Losses and loss adjustment expenses ratio		64.3	%		61.7	%					63.5	%
Commission expense ratio		13.8	%		18.3	%					14.9	%
Other operating expense ratio ⁽²⁾		21.2	%		18.8	%					20.7	%

Combined ratio		99.3	%		98.8	%					99.1	%

(1) - Includes Corporate segment intercompany eliminations.

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

		September 30,			September 30,			September 30,			September 30,
	Three Months Ended September 30, 2010
In thousands	Insurance Companies			Lloyd’s Operations			Corporate⁽¹⁾			Total
Gross written premiums	$	163,343		$	70,295		$	—		$	233,638
Net written premiums		107,916			49,891			—			157,807
Net earned premiums		112,198			56,035			—			168,233
Net losses and loss adjustment expenses		(72,306	)		(35,157	)		—			(107,463	)
Commission expenses		(14,374	)		(10,459	)		(352	)		(25,185	)
Other operating expenses		(26,398	)		(8,301	)		—			(34,699	)
Other income (expense)		1,380			1,052			352			2,784

Underwriting profit (loss)	$	500		$	3,170		$	—		$	3,670
Net investment income		15,736			1,982			121			17,839
Net realized gains (losses)		4,206			(354	)		—			3,852
Interest expense		—			—			(2,045	)		(2,045	)

Income (loss) before income taxes	$	20,442		$	4,798		$	(1,924	)	$	23,316
Income tax expense (benefit)		6,049			1,715			(673	)		7,091

Net income (loss)	$	14,393		$	3,083		$	(1,251	)	$	16,225

Identifiable assets	$	2,603,090		$	841,926		$	75,980		$	3,520,996

Losses and loss adjustment expenses ratio		64.4	%		62.7	%					63.9	%
Commission expense ratio		12.8	%		18.7	%					15.0	%
Other operating expense ratio ⁽²⁾		22.4	%		12.9	%					18.9	%

Combined ratio		99.6	%		94.3	%					97.8	%

(1) - Includes Corporate segment intercompany eliminations.

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

		September 30,			September 30,			September 30,			September 30,
	Nine Months Ended September 30, 2011
In thousands	Insurance Companies			Lloyd’s Operations			Corporate⁽¹⁾			Total
Gross written premiums	$	584,718		$	245,597		$	—		$	830,315
Net written premiums		389,236			162,560			—			551,796
Net earned premiums		333,139			166,749			—			499,888
Net losses and loss adjustment expenses		(228,882	)		(112,011	)		—			(340,893	)
Commission expenses		(45,256	)		(36,402	)		1,494			(80,164	)
Other operating expenses		(79,050	)		(28,291	)		—			(107,341	)
Other income (expense)		2,871			(734	)		(1,494	)		643

Underwriting profit (loss)	$	(17,178	)	$	(10,689	)	$	0		$	(27,867	)
Net investment income		44,009			6,733			330			51,072
Net realized gains (losses)		5,664			(2,409	)		204			3,459
Interest expense		—			—			(6,140	)		(6,140	)

Income (loss) before income taxes	$	32,495		$	(6,365	)	$	(5,606	)	$	20,524
Income tax expense (benefit)		9,224			(2,247	)		(1,962	)		5,015

Net income (loss)	$	23,271		$	(4,118	)	$	(3,644	)	$	15,509

Identifiable assets	$	2,692,597		$	887,401		$	43,377		$	3,623,375

Losses and loss adjustment expenses ratio		68.7	%		67.2	%					68.2	%
Commission expense ratio		13.6	%		21.8	%					16.0	%
Other operating expense ratio ⁽²⁾		22.9	%		17.4	%					21.4	%

Combined ratio		105.2	%		106.4	%					105.6	%

(1) - Includes Corporate segment intercompany eliminations.

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

		September 30,			September 30,			September 30,			September 30,
	Nine Months Ended September 30, 2010
In thousands	Insurance Companies			Lloyd’s Operations			Corporate⁽¹⁾			Total
Gross written premiums	$	511,822		$	245,529		$	—		$	757,351
Net written premiums		340,657			171,472			—			512,129
Net earned premiums		333,834			159,939			—			493,773
Net losses and loss adjustment expenses		(205,571	)		(105,562	)		—			(311,133	)
Commission expenses		(43,351	)		(32,827	)		—			(76,178	)
Other operating expenses		(79,658	)		(24,161	)		—			(103,819	)
Other income (expense)		289			2,687			—			2,976

Underwriting profit (loss)	$	5,543		$	76		$	—		$	5,619
Net investment income		47,040			6,179			445			53,664
Net realized gains (losses)		20,140			378			231			20,749
Interest expense		—			—			(6,133	)		(6,133	)

Income (loss) before income taxes	$	72,723		$	6,633		$	(5,457	)	$	73,899
Income tax expense (benefit)		21,166			2,403			(1,910	)		21,659

Net income (loss)	$	51,557		$	4,230		$	(3,547	)	$	52,240

Identifiable assets	$	2,603,090		$	841,926		$	75,980		$	3,520,996

Losses and loss adjustment expenses ratio		61.6	%		66.0	%					63.0	%
Commission expense ratio		13.0	%		20.5	%					15.4	%
Other operating expense ratio ⁽²⁾		23.7	%		13.5	%					20.5	%

Combined ratio		98.3	%		100.0	%					98.9	%

(1) - Includes Corporate segment intercompany eliminations.

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

The following tables provide additional financial data by segment for the three months ended September 30, 2011 and 2010:

		September 30,		September 30,		September 30,
	Three Months Ended September 30, 2011
In thousands	Insurance Companies		Lloyd’s Operations		Total
Gross written premiums:
Marine	$	47,141	$	26,979	$	74,120
Property casualty		110,975		29,682		140,657
Professional liability		33,059		7,482		40,541

Total	$	191,175	$	64,143	$	255,318

Net written premiums:
Marine	$	34,180	$	20,649	$	54,829
Property casualty		77,056		16,296		93,352
Professional liability		24,056		3,120		27,176

Total	$	135,292	$	40,065	$	175,357

Net earned premiums:
Marine	$	41,951	$	34,510	$	76,461
Property casualty		58,585		15,952		74,537
Professional liability		18,796		3,839		22,635

Total	$	119,332	$	54,301	$	173,633


	Three Months Ended September 30, 2010
In thousands	Insurance Companies		Lloyd’s Operations		Total
Gross written premiums:
Marine	$	49,406	$	32,788	$	82,194
Property casualty		81,351		27,687		109,038
Professional liability		32,586		9,820		42,406

Total	$	163,343	$	70,295	$	233,638

Net written premiums:
Marine	$	35,546	$	27,142	$	62,688
Property casualty		52,677		17,414		70,091
Professional liability		19,693		5,335		25,028

Total	$	107,916	$	49,891	$	157,807

Net earned premiums:
Marine	$	41,091	$	38,254	$	79,345
Property casualty		50,976		12,202		63,178
Professional liability		20,131		5,579		25,710

Total	$	112,198	$	56,035	$	168,233

The Insurance Companies’ net earned premiums include $21.2 million and $23.3 million of net earned premiums from the U.K. Branch for the three months ended September 30, 2011 and 2010, respectively.

The following tables provide additional financial data by segment for the nine months ended September 30, 2011 and 2010:

		September 30,		September 30,		September 30,
	Nine Months Ended September 30, 2011
In thousands	Insurance Companies		Lloyd’s Operations		Total
Gross written premiums:
Marine	$	175,812	$	127,585	$	303,397
Property casualty		323,994		91,106		415,100
Professional liability		84,912		26,906		111,818

Total	$	584,718	$	245,597	$	830,315

Net written premiums:
Marine	$	130,200	$	102,362	$	232,562
Property casualty		201,978		47,364		249,342
Professional liability		57,058		12,834		69,892

Total	$	389,236	$	162,560	$	551,796

Net earned premiums:
Marine	$	124,387	$	109,222	$	233,609
Property casualty		156,871		44,105		200,976
Professional liability		51,881		13,422		65,303

Total	$	333,139	$	166,749	$	499,888


	Nine Months Ended September 30, 2010
In thousands	Insurance Companies		Lloyd’s Operations		Total
Gross written premiums:
Marine	$	172,136	$	133,758	$	305,894
Property casualty		242,494		76,768		319,262
Professional liability		97,192		35,003		132,195

Total	$	511,822	$	245,529	$	757,351

Net written premiums:
Marine	$	123,702	$	111,205	$	234,907
Property casualty		156,674		43,049		199,723
Professional liability		60,281		17,218		77,499

Total	$	340,657	$	171,472	$	512,129

Net earned premiums:
Marine	$	122,739	$	108,541	$	231,280
Property casualty		152,228		34,880		187,108
Professional liability		58,867		16,518		75,385

Total	$	333,834	$	159,939	$	493,773

The Insurance Companies’ net earned premiums include $64.1 million and $61.9 million of net earned premiums from the U.K. Branch for the nine months ended September 30, 2011 and 2010, respectively.