Segment Information

3 Months Ended

Mar. 31, 2012

Segment Information

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 coverages for onshore energy business at Lloyd’s through Syndicate 1221. The Company’s Lloyd’s Operations includes Navigators Underwriting Agency Ltd. (“NUAL”), a Lloyd’s underwriting agency which manages Syndicate 1221.

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.

Financial data by segment for the three months ended March 31, 2012 and 2011 was as follows:

	Three Months Ended March 31, 2012
In thousands	Insurance Companies			Lloyd’s Operations			Corporate  (1)			Total
Gross written premiums	$	248,338		$	94,811		$	—		$	343,149
Net written premiums		181,250			61,795			—			243,045
Net earned premiums		131,548			51,571			—			183,119
Net losses and loss adjustment expenses		(91,177	)		(26,808	)		—			(117,985	)
Commission expenses		(19,301	)		(10,886	)		737			(29,450	)
Other operating expenses		(25,345	)		(10,962	)		—			(36,307	)
Other income (expense)		1,642			6			(737	)		911
Underwriting profit (loss)	$	(2,633	)	$	2,921		$	—		$	288
Net investment income		8,935			2,283			40			11,258
Net realized gains (losses)		1,875			(187	)		—			1,688
Interest expense		—			—			(2,049	)		(2,049	)
Income (loss) before income taxes	$	8,177		$	5,017		$	(2,009	)	$	11,185
Income tax expense (benefit)		2,258			1,726			(703	)		3,281
Net income (loss)	$	5,919		$	3,291		$	(1,306	)	$	7,904
Identifiable assets	$	2,899,369		$	907,760		$	40,398		$	3,847,527
Losses and loss adjustment expenses ratio		69.3	%		52.0	%					64.4	%
Commission expense ratio		14.7	%		21.1	%					16.1	%
Other operating expense ratio (2)		18.0	%		21.2	%					19.3	%
Combined ratio		102.0	%		94.3	%					99.8	%

(1) - Includes Corporate segment intercompany eliminations.

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

	Three Months Ended March 31, 2011
In thousands	Insurance Companies			Lloyd’s Operations			Corporate  (1)			Total
Gross written premiums	$	206,776		$	89,507		$	—		$	296,283
Net written premiums		130,740			62,336			—			193,076
Net earned premiums		98,820			53,658			—			152,478
Net losses and loss adjustment expenses		(74,797	)		(41,991	)		—			(116,788	)
Commission expenses		(12,340	)		(14,407	)		547			(26,200	)
Other operating expenses		(26,799	)		(9,776	)		—			(36,575	)
Other income (expense)		1,691			(153	)		(547	)		991
Underwriting profit (loss)	$	(13,425	)	$	(12,669	)	$	0		$	(26,094	)
Net investment income		14,983			2,255			146			17,384
Net realized gains (losses)		(245	)		(1,385	)		—			(1,630	)
Interest expense		—			—			(2,046	)		(2,046	)
Income (loss) before income taxes	$	1,313		$	(11,799	)	$	(1,900	)	$	(12,386	)
Income tax expense (benefit)		228			(4,056	)		(665	)		(4,493	)
Net income (loss)	$	1,085		$	(7,743	)	$	(1,235	)	$	(7,893	)
Identifiable assets	$	2,685,679		$	883,603		$	67,828		$	3,637,110
Losses and loss adjustment expenses ratio		75.7	%		78.3	%					76.6	%
Commission expense ratio		12.5	%		26.8	%					17.2	%
Other operating expense ratio (2)		25.4	%		18.5	%					23.3	%
Combined ratio		113.6	%		123.6	%					117.1	%

(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 March 31, 2012 and 2011:

	Three Months Ended March 31, 2012
In thousands	Insurance Companies		Lloyd’s Operations		Total
Gross written premiums:
Marine	$	61,865	$	62,330	$	124,195
Property casualty		155,919		23,741		179,660
Professional liability		30,554		8,740		39,294
Total	$	248,338	$	94,811	$	343,149
Net written premiums:
Marine	$	42,865	$	48,525	$	91,390
Property casualty		114,532		8,888		123,420
Professional liability		23,853		4,382		28,235
Total	$	181,250	$	61,795	$	243,045
Net earned premiums:
Marine	$	35,275	$	34,609	$	69,884
Property casualty		74,368		13,157		87,525
Professional liability		21,905		3,805		25,710
Total	$	131,548	$	51,571	$	183,119

	Three Months Ended March 31, 2011
In thousands	Insurance Companies		Lloyd’s Operations		Total
Gross written premiums:
Marine	$	70,348	$	61,155	$	131,503
Property casualty		112,888		19,302		132,190
Professional liability		23,540		9,050		32,590
Total	$	206,776	$	89,507	$	296,283
Net written premiums:
Marine	$	54,218	$	49,671	$	103,889
Property casualty		62,907		8,386		71,293
Professional liability		13,615		4,279		17,894
Total	$	130,740	$	62,336	$	193,076
Net earned premiums:
Marine	$	40,559	$	36,978	$	77,537
Property casualty		42,935		11,894		54,829
Professional liability		15,326		4,786		20,112
Total	$	98,820	$	53,658	$	152,478

The Insurance Companies’ net earned premiums include $21.0 million and $17.4 million of net earned premiums from the U.K. Branch for the three months ended March 31, 2012 and 2011, respectively.