Segment Information

3 Months Ended

Mar. 31, 2013

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 segment consists of Navigators Insurance Company, which includes a United Kingdom Branch (the “U.K. Branch”), and Navigators Specialty Insurance Company, which underwrites specialty and professional liability insurance on an excess and surplus lines basis. All of the insurance business written by Navigators Specialty Insurance Company is fully reinsured by Navigators Insurance Company pursuant to a 100% quota share reinsurance agreement. The insurance and reinsurance business written by our Insurance Companies is underwritten through our wholly-owned underwriting management Companies, Navigators Management Company, Inc. (“NMC”) and Navigators Management (UK) Ltd. (“NMUK”).

Our Lloyd’s Operations segment includes Navigators Underwriting Agency Ltd. (“NUAL”), a Lloyd’s of London (“Lloyd’s”) underwriting agency which manages Lloyd’s Syndicate 1221 (“Syndicate 1221”). Our Lloyd’s Operations primarily underwrite marine and related lines of business along with offshore energy, construction coverages for onshore energy business and professional liability insurance at Lloyd’s through Syndicate 1221. We control 100% of Syndicate 1221’s stamp capacity through our wholly-owned subsidiary, Navigators Corporate Underwriters Ltd., (“NCUL”) which is referred to as a corporate name in the Lloyd’s market.

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, 2013 and 2012 were as follows:

	Three Month Ended March 31, 2013
In thousands	Insurance Companies			Lloyd’s Operations			Corporate(1)			Total
Gross written premiums	$	301,628		$	91,594		$	—		$	393,222
Net written premiums		216,319			53,133			—			269,452
Net earned premiums		154,331			47,997			—			202,328
Net losses and loss adjustment expenses		(106,985	)		(24,357	)		—			(131,342	)
Commission expenses		(18,517	)		(8,621	)		583			(26,555	)
Other operating expenses		(29,343	)		(11,531	)		—			(40,874	)
Other income (expense)		659			542			(583	)		618
Underwriting profit (loss)	$	145		$	4,030		$	—		$	4,175
Net investment income		11,951			1,702			4			13,657
Net realized gains (losses)		4,792			(20	)		—			4,772
Interest expense		—			—			(2,051	)		(2,051	)
Income (loss) before income taxes	$	16,888		$	5,712		$	(2,047	)	$	20,553
Income tax expense (benefit)		5,404			2,046			(807	)		6,643
Net income (loss)	$	11,484		$	3,666		$	(1,240	)	$	13,910
Identifiable assets	$	3,087,308		$	936,471		$	47,266		$	4,071,045
Losses and loss adjustment expenses ratio		69.3	%		50.7	%					64.9	%
Commission expense ratio		12.0	%		18.0	%					13.1	%
Other operating expense ratio (2)		18.6	%		22.9	%					19.9	%
Combined ratio		99.9	%		91.6	%					97.9	%

(1) — Includes Corporate segment intercompany eliminations.

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

	Three Month 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.

The following tables provide additional financial data by segment for the three months ended March 31, 2013 and 2012:

	Three Months Ended March 31, 2013
In thousands	Insurance Companies		Lloyd’s Operations		Total
Gross written premiums:
Marine	$	50,847	$	53,644	$	104,491
Property casualty		218,964		25,058		244,022
Professional liability		31,817		12,892		44,709
Total	$	301,628	$	91,594	$	393,222
Net written premiums:
Marine	$	41,141	$	39,558	$	80,699
Property casualty		149,951		7,312		157,263
Professional liability		25,227		6,263		31,490
Total	$	216,319	$	53,133	$	269,452
Net earned premiums:
Marine	$	36,725	$	34,045	$	70,770
Property casualty		92,718		7,879		100,597
Professional liability		24,888		6,073		30,961
Total	$	154,331	$	47,997	$	202,328
	Three Months Ended March 31, 2012
In thousands	Insurance Companies		Lloyd’s Operations		Total
Gross written premiums:
Marine	$	61,865	$	61,775	$	123,640
Property casualty		155,919		24,296		180,215
Professional liability		30,554		8,740		39,294
Total	$	248,338	$	94,811	$	343,149
Net written premiums:
Marine	$	42,865	$	48,058	$	90,923
Property casualty		114,532		9,355		123,887
Professional liability		23,853		4,382		28,235
Total	$	181,250	$	61,795	$	243,045
Net earned premiums:
Marine	$	35,275	$	33,264	$	68,539
Property casualty		74,368		14,502		88,870
Professional liability		21,905		3,805		25,710
Total	$	131,548	$	51,571	$	183,119

The Insurance Companies net earned premiums include $10.1 million and $21.0 million of net earned premiums from the U.K. Branch for the three months ended March 31, 2013 and 2012, respectively.