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 and 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 of London (“Lloyd’s”) through Syndicate 1221. The 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 that produces, manages and underwrites insurance and reinsurance, and provides corporate services for the Company. The operating results for NMC are allocated to both the Insurance Companies and Lloyd’s Operations as appropriate.

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 and nine months ended September 30, 2012 and 2011 were as follows:


	Three Months Ended September 30, 2012
In thousands	Insurance Companies			Lloyd’s Operations			Corporate⁽¹⁾			Total
Gross written premiums	$	218,361		$	80,381		$	—		$	298,742
Net written premiums		142,148			45,898			—			188,046
Net earned premiums		149,090			52,172			—			201,262
Net losses and loss adjustment expenses		(113,303	)		(15,547	)		—			(128,850	)
Commission expenses		(20,827	)		(10,911	)		480			(31,258	)
Other operating expenses		(29,387	)		(10,725	)		—			(40,112	)
Other income (expense)		1,229			40			(480	)		789

Underwriting profit (loss)	$	(13,198	)	$	15,029		$	—		$	1,831
Net investment income		12,004			1,552			41			13,597
Net realized gains (losses)		2,609			2,152			—			4,761
Interest expense		—			—			(2,049	)		(2,049	)

Income (loss) before income taxes	$	1,415		$	18,733		$	(2,008	)	$	18,140
Income tax expense (benefit)		(377	)		6,525			(923	)		5,225

Net income (loss)	$	1,792		$	12,208		$	(1,085	)	$	12,915

Identifiable assets	$	2,995,530		$	958,238		$	40,929		$	3,994,697

Losses and loss adjustment expenses ratio		76.0	%		29.8	%					64.0	%
Commission expense ratio		14.0	%		20.9	%					15.5	%
Other operating expense ratio ⁽²⁾		18.9	%		20.5	%					19.6	%

Combined ratio		108.9	%		71.2	%					99.1	%

(1)	- Includes Corporate segment intercompany eliminations.

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


	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		$	—		$	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.


	Nine Months Ended September 30, 2012
In thousands	Insurance Companies			Lloyd’s Operations			Corporate⁽¹⁾			Total
Gross written premiums	$	680,763		$	284,115		$	—		$	964,878
Net written premiums		457,463			163,880			—			621,343
Net earned premiums		422,215			158,183			—			580,398
Net losses and loss adjustment expenses		(304,483	)		(65,759	)		—			(370,242	)
Commission expenses		(61,245	)		(30,735	)		1,769			(90,211	)
Other operating expenses		(83,646	)		(32,592	)		—			(116,238	)
Other income (expense)		3,750			106			(1,769	)		2,087

Underwriting profit (loss)	$	(23,409	)	$	29,203		$	—		$	5,794
Net investment income		34,225			6,289			118			40,632
Net realized gains (losses)		6,809			3,361			—			10,170
Interest expense		—			—			(6,147	)		(6,147	)

Income (loss) before income taxes	$	17,625		$	38,853		$	(6,029	)	$	50,449
Income tax expense (benefit)		3,603			13,458			(2,330	)		14,731

Net income (loss)	$	14,022		$	25,395		$	(3,699	)	$	35,718

Identifiable assets	$	2,995,530		$	958,238		$	40,929		$	3,994,697

Losses and loss adjustment expenses ratio		72.1	%		41.6	%					63.8	%
Commission expense ratio		14.5	%		19.4	%					15.5	%
Other operating expense ratio ⁽²⁾		18.9	%		20.5	%					19.7	%

Combined ratio		105.5	%		81.5	%					99.0	%

(1)	- Includes Corporate segment intercompany eliminations.

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


	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	)	$	—		$	(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.

The following tables provide additional financial data by segment for the three and nine months ended September 30, 2012 and 2011:


	Three Months Ended September 30, 2012
In thousands	Insurance Companies		Lloyd’s Operations		Total
Gross written premiums:
Marine	$	44,879	$	37,716	$	82,595
Property casualty		139,948		32,789		172,737
Professional liability		33,534		9,876		43,410

Total	$	218,361	$	80,381	$	298,742

Net written premiums:
Marine	$	32,615	$	27,939	$	60,554
Property casualty		83,449		11,633		95,082
Professional liability		26,084		6,326		32,410

Total	$	142,148	$	45,898	$	188,046

Net earned premiums:
Marine	$	40,592	$	34,002	$	74,594
Property casualty		83,993		11,870		95,863
Professional liability		24,505		6,300		30,805

Total	$	149,090	$	52,172	$	201,262


	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


	Nine Months Ended September 30, 2012
In thousands	Insurance Companies		Lloyd’s Operations		Total
Gross written premiums:
Marine	$	156,640	$	146,528	$	303,168
Property casualty		426,494		106,063		532,557
Professional liability		97,629		31,524		129,153

Total	$	680,763	$	284,115	$	964,878

Net written premiums:
Marine	$	107,266	$	109,489	$	216,755
Property casualty		274,823		36,693		311,516
Professional liability		75,374		17,698		93,072

Total	$	457,463	$	163,880	$	621,343

Net earned premiums:
Marine	$	111,402	$	101,538	$	212,940
Property casualty		240,536		41,644		282,180
Professional liability		70,277		15,001		85,278

Total	$	422,215	$	158,183	$	580,398


	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

The Insurance Companies’ net earned premiums include $16.9 million and $21.2 million of net earned premiums from the U.K. Branch for the three months ended September 30, 2012 and 2011 and $56.0 million and $64.1 million of net earned premiums from the U.K. Branch for the nine months ended September 30, 2012 and 2011, respectively.