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 nine months ended September 30, 2013 and 2012 were as follows:


	Three Month Ended September 30, 2013
	Insurance			Lloyd’s
In thousands	Companies			Operations			Corporate⁽¹⁾			Total
Gross written premiums	$	227,609		$	84,467		$	—		$	312,076
Net written premiums		149,290			47,266			—			196,556
Net earned premiums		162,962			50,933			—			213,895
Net losses and loss adjustment expenses		(95,315	)		(29,771	)		—			(125,086	)
Commission expenses		(20,039	)		(8,289	)		643			(27,685	)
Other operating expenses		(28,510	)		(10,546	)		—			(39,056	)
Other income (expense)		955			(522	)		(643	)		(210	)

Underwriting profit (loss)	$	20,053		$	1,805		$	—		$	21,858
Net investment income		12,285			1,807			2			14,094
Net realized gains (losses)		(1,890	)		(919	)		—			(2,809	)
Interest expense		—			—			(2,053	)		(2,053	)

Income (loss) before income taxes	$	30,448		$	2,693		$	(2,051	)	$	31,090
Income tax expense (benefit)		9,355			878			(429	)		9,804

Net income (loss)	$	21,093		$	1,815		$	(1,622	)	$	21,286

Identifiable assets	$	3,018,100		$	983,382		$	73,094		$	4,074,576

Losses and loss adjustment expenses ratio		58.5	%		58.5	%					58.5	%
Commission expense ratio		12.3	%		16.3	%					12.9	%
Other operating expense ratio ⁽²⁾		16.9	%		21.7	%					18.4	%

Combined ratio		87.7	%		96.5	%					89.8	%

(1)	- Includes Corporate segment intercompany eliminations.

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


	Three Month Ended September 30, 2012
	Insurance			Lloyd’s
In thousands	Companies			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.


	Nine Month Ended September 30, 2013
	Insurance			Lloyd’s
In thousands	Companies			Operations			Corporate⁽¹⁾			Total
Gross written premiums	$	757,802		$	279,624		$	—		$	1,037,426
Net written premiums		508,989			155,488			—			664,477
Net earned premiums		473,840			148,197			—			622,037
Net losses and loss adjustment expenses		(308,968	)		(78,608	)		—			(387,576	)
Commission expenses		(59,129	)		(25,245	)		1,743			(82,631	)
Other operating expenses		(87,682	)		(32,926	)		—			(120,608	)
Other income (expense)		2,303			(1,067	)		(1,743	)		(507	)

Underwriting profit (loss)	$	20,364		$	10,351		$	—		$	30,715
Net investment income		36,751			5,237			9			41,997
Net realized gains (losses)		6,001			(697	)		4			5,308
Interest expense		—			—			(6,156	)		(6,156	)

Income (loss) before income taxes	$	63,116		$	14,891		$	(6,143	)	$	71,864
Income tax expense (benefit)		19,554			5,120			(1,943	)		22,731

Net income (loss)	$	43,562		$	9,771		$	(4,200	)	$	49,133

Identifiable assets	$	3,018,100		$	983,382		$	73,094		$	4,074,576

Losses and loss adjustment expenses ratio		65.2	%		53.0	%					62.3	%
Commission expense ratio		12.5	%		17.0	%					13.3	%
Other operating expense ratio ⁽²⁾		18.0	%		23.0	%					19.5	%

Combined ratio		95.7	%		93.0	%					95.1	%

(1)	- Includes Corporate segment intercompany eliminations.

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


	Nine Month Ended September 30, 2012
	Insurance			Lloyd’s
In thousands	Companies			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.

The following tables provide additional financial data by segment for the three and nine months ended September 30, 2013 and 2012:


	Three Months Ended September 30, 2013
	Insurance		Lloyd’s
In thousands	Companies		Operations		Total
Gross written premiums:
Marine	$	38,912	$	36,009	$	74,921
Property casualty		156,228		35,869		192,097
Professional liability		32,469		12,589		45,058

Total	$	227,609	$	84,467	$	312,076

Net written premiums:
Marine	$	26,437	$	26,795	$	53,232
Property casualty		97,553		13,761		111,314
Professional liability		25,300		6,710		32,010

Total	$	149,290	$	47,266	$	196,556

Net earned premiums:
Marine	$	31,490	$	34,264	$	65,754
Property casualty		105,759		10,472		116,231
Professional liability		25,713		6,197		31,910

Total	$	162,962	$	50,933	$	213,895


	Three Months Ended September 30, 2012
	Insurance		Lloyd’s
In thousands	Companies		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


	Nine Months Ended September 30, 2013
	Insurance		Lloyd’s
In thousands	Companies		Operations		Total
Gross written premiums:
Marine	$	132,836	$	135,546	$	268,382
Property casualty		527,287		102,144		629,431
Professional liability		97,679		41,934		139,613

Total	$	757,802	$	279,624	$	1,037,426

Net written premiums:
Marine	$	94,944	$	100,413	$	195,357
Property casualty		338,215		33,254		371,469
Professional liability		75,830		21,821		97,651

Total	$	508,989	$	155,488	$	664,477

Net earned premiums:
Marine	$	100,013	$	102,932	$	202,945
Property casualty		297,954		26,913		324,867
Professional liability		75,873		18,352		94,225

Total	$	473,840	$	148,197	$	622,037


	Nine Months Ended September 30, 2012
	Insurance		Lloyd’s
In thousands	Companies		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

The Insurance Companies net earned premiums include $13.9 million and $16.9 million of net earned premiums from the U.K. Branch for the three months ended September 30, 2013 and 2012, respectively, and $36.7 million and $56.0 million of net earned premiums from the U.K. Branch for the nine months ended September 30, 2013 and 2012, respectively.