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 and six months ended June 30, 2013 and 2012 were as follows:


	Three Month Ended June 30, 2013
In thousands	Insurance Companies			Lloyd’s Operations			Corporate⁽¹⁾			Total
Gross written premiums	$	228,565		$	103,563		$	—		$	332,128
Net written premiums		143,380			55,089			—			198,469
Net earned premiums		156,547			49,267			—			205,814
Net losses and loss adjustment expenses		(106,668	)		(24,480	)		—			(131,148	)
Commission expenses		(20,573	)		(8,335	)		517			(28,391	)
Other operating expenses		(29,829	)		(10,849	)		—			(40,678	)
Other income (expense)		689			(1,087	)		(517	)		(915	)

Underwriting profit (loss)	$	166		$	4,516		$	—		$	4,682
Net investment income		12,515			1,728			3			14,246
Net realized gains (losses)		3,099			242			4			3,345
Interest expense		—			—			(2,052	)		(2,052	)

Income (loss) before income taxes	$	15,780		$	6,486		$	(2,045	)	$	20,221
Income tax expense (benefit)		4,785			2,206			(707	)		6,284

Net income (loss)	$	10,995		$	4,280		$	(1,338	)	$	13,937

Identifiable assets	$	3,097,754		$	947,736		$	51,020		$	4,096,510

Losses and loss adjustment expenses ratio		68.1	%		49.7	%					63.7	%
Commission expense ratio		13.1	%		16.9	%					13.8	%
Other operating expense ratio ⁽²⁾		18.7	%		24.2	%					20.2	%

Combined ratio		99.9	%		90.8	%					97.7	%

(1)	- Includes Corporate segment intercompany eliminations.

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


	Three Month Ended June 30, 2012
	Insurance			Lloyd’s
In thousands	Companies			Operations			Corporate⁽¹⁾			Total
Gross written premiums	$	214,064		$	108,923		$	—		$	322,987
Net written premiums		134,065			56,187			—			190,252
Net earned premiums		141,577			54,440			—			196,017
Net losses and loss adjustment expenses		(100,003	)		(23,404	)		—			(123,407	)
Commission expenses		(21,117	)		(8,938	)		552			(29,503	)
Other operating expenses		(28,914	)		(10,905	)		—			(39,819	)
Other income (expense)		879			60			(552	)		387

Underwriting profit (loss)	$	(7,578	)	$	11,253		$	—		$	3,675
Net investment income		13,286			2,454			37			15,777
Net realized gains (losses)		2,325			1,396			—			3,721
Interest expense		—			—			(2,049	)		(2,049	)

Income (loss) before income taxes	$	8,033		$	15,103		$	(2,012	)	$	21,124
Income tax expense (benefit)		2,101			5,207			(1,083	)		6,225

Net income (loss)	$	5,932		$	9,896		$	(929	)	$	14,899

Identifiable assets	$	2,933,334		$	967,862		$	37,870		$	3,939,066

Losses and loss adjustment expenses ratio		70.6	%		43.0	%					63.0	%
Commission expense ratio		14.9	%		16.4	%					15.1	%
Other operating expense ratio ⁽²⁾		19.9	%		19.9	%					20.0	%

Combined ratio		105.4	%		79.3	%					98.1	%

(1)	- Includes Corporate segment intercompany eliminations.

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


	Six Month Ended June 30, 2013
	Insurance			Lloyd’s
In thousands	Companies			Operations			Corporate⁽¹⁾			Total
Gross written premiums	$	530,193		$	195,157		$	—		$	725,350
Net written premiums		359,699			108,222			—			467,921
Net earned premiums		310,878			97,264			—			408,142
Net losses and loss adjustment expenses		(213,653	)		(48,837	)		—			(262,490	)
Commission expenses		(39,090	)		(16,956	)		1,100			(54,946	)
Other operating expenses		(59,172	)		(22,380	)		—			(81,552	)
Other income (expense)		1,348			(545	)		(1,100	)		(297	)

Underwriting profit (loss)	$	311		$	8,546		$	—		$	8,857
Net investment income		24,466			3,430			7			27,903
Net realized gains (losses)		7,891			222			4			8,117
Interest expense		—			—			(4,103	)		(4,103	)

Income (loss) before income taxes	$	32,668		$	12,198		$	(4,092	)	$	40,774
Income tax expense (benefit)		10,199			4,242			(1,514	)		12,927

Net income (loss)	$	22,469		$	7,956		$	(2,578	)	$	27,847

Identifiable assets	$	3,097,754		$	947,736		$	51,020		$	4,096,510

Losses and loss adjustment expenses ratio		68.7	%		50.2	%					64.3	%
Commission expense ratio		12.6	%		17.4	%					13.5	%
Other operating expense ratio ⁽²⁾		18.6	%		23.6	%					20.0	%

Combined ratio		99.9	%		91.2	%					97.8	%

(1)	- Includes Corporate segment intercompany eliminations.

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


	Six Month Ended June 30, 2012
	Insurance			Lloyd’s
In thousands	Companies			Operations			Corporate⁽¹⁾			Total
Gross written premiums	$	462,402		$	203,734		$	—		$	666,136
Net written premiums		315,315			117,982			—			433,297
Net earned premiums		273,125			106,011			—			379,136
Net losses and loss adjustment expenses		(191,180	)		(50,212	)		—			(241,392	)
Commission expenses		(40,418	)		(19,824	)		1,289			(58,953	)
Other operating expenses		(54,259	)		(21,867	)		—			(76,126	)
Other income (expense)		2,521			66			(1,289	)		1,298

Underwriting profit (loss)	$	(10,211	)	$	14,174		$	—		$	3,963
Net investment income		22,221			4,737			77			27,035
Net realized gains (losses)		4,200			1,209			—			5,409
Interest expense		—			—			(4,098	)		(4,098	)

Income (loss) before income taxes	$	16,210		$	20,120		$	(4,021	)	$	32,309
Income tax expense (benefit)		3,980			6,933			(1,407	)		9,506

Net income (loss)	$	12,230		$	13,187		$	(2,614	)	$	22,803

Identifiable assets	$	2,933,334		$	967,862		$	37,870		$	3,939,066

Losses and loss adjustment expenses ratio		70.0	%		47.4	%					63.7	%
Commission expense ratio		14.8	%		18.7	%					15.5	%
Other operating expense ratio ⁽²⁾		18.9	%		20.5	%					19.8	%

Combined ratio		103.7	%		86.6	%					99.0	%

(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 six months ended June 30, 2013 and 2012:


	Three Months Ended June 30, 2013
	Insurance		Lloyd’s
In thousands	Companies		Operations		Total
Gross written premiums:
Marine	$	43,077	$	45,893	$	88,970
Property casualty		152,095		41,217		193,312
Professional liability		33,393		16,453		49,846

Total	$	228,565	$	103,563	$	332,128

Net written premiums:
Marine	$	27,366	$	34,060	$	61,426
Property casualty		90,711		12,181		102,892
Professional liability		25,303		8,848		34,151

Total	$	143,380	$	55,089	$	198,469

Net earned premiums:
Marine	$	31,798	$	34,623	$	66,421
Property casualty		99,477		8,562		108,039
Professional liability		25,272		6,082		31,354

Total	$	156,547	$	49,267	$	205,814


	Three Months Ended June 30, 2012
	Insurance		Lloyd’s
In thousands	Companies		Operations		Total
Gross written premiums:
Marine	$	49,896	$	47,037	$	96,933
Property casualty		130,627		48,978		179,605
Professional liability		33,541		12,908		46,449

Total	$	214,064	$	108,923	$	322,987

Net written premiums:
Marine	$	31,786	$	33,492	$	65,278
Property casualty		76,842		15,705		92,547
Professional liability		25,437		6,990		32,427

Total	$	134,065	$	56,187	$	190,252

Net earned premiums:
Marine	$	35,535	$	34,272	$	69,807
Property casualty		82,175		15,272		97,447
Professional liability		23,867		4,896		28,763

Total	$	141,577	$	54,440	$	196,017


	Six Months Ended June 30, 2013
	Insurance		Lloyd’s
In thousands	Companies		Operations		Total
Gross written premiums:
Marine	$	93,924	$	99,537	$	193,461
Property casualty		371,059		66,275		437,334
Professional liability		65,210		29,345		94,555

Total	$	530,193	$	195,157	$	725,350

Net written premiums:
Marine	$	68,507	$	73,618	$	142,125
Property casualty		240,662		19,493		260,155
Professional liability		50,530		15,111		65,641

Total	$	359,699	$	108,222	$	467,921

Net earned premiums:
Marine	$	68,523	$	68,668	$	137,191
Property casualty		192,195		16,441		208,636
Professional liability		50,160		12,155		62,315

Total	$	310,878	$	97,264	$	408,142


	Six Months Ended June 30, 2012
	Insurance		Lloyd’s
In thousands	Companies		Operations		Total
Gross written premiums:
Marine	$	111,761	$	108,812	$	220,573
Property casualty		286,546		73,274		359,820
Professional liability		64,095		21,648		85,743

Total	$	462,402	$	203,734	$	666,136

Net written premiums:
Marine	$	74,651	$	81,550	$	156,201
Property casualty		191,374		25,060		216,434
Professional liability		49,290		11,372		60,662

Total	$	315,315	$	117,982	$	433,297

Net earned premiums:
Marine	$	70,810	$	67,536	$	138,346
Property casualty		156,543		29,774		186,317
Professional liability		45,772		8,701		54,473

Total	$	273,125	$	106,011	$	379,136

The Insurance Companies net earned premiums include $12.7 million and $18.2 million of net earned premiums from the U.K. Branch for the three months ended June 30, 2013 and 2012, respectively, and $22.8 million and $39.1 million of net earned premiums from the U.K. Branch for the six months ended June 30, 2013 and 2012, respectively.