Organization and Summary of Significant Accounting Policies	12 Months Ended
Dec. 31, 2018
Accounting Policies [Abstract]
Organization and Summary of Significant Accounting Policies	NOTE 1. ORGANIZATION & SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Basis of Presentation Unless the context requires otherwise, the terms “we,” “us,” “our,” or “our Company” are used to mean The Navigators Group, Inc., a Delaware holding company established in 1982, and its subsidiaries. The term “Parent Company” is used to mean The Navigators Group, Inc. without its subsidiaries. The accompanying consolidated financial statements of our Company have been prepared in conformity with accounting principles generally accepted in the United States of America (“GAAP” or “U.S. GAAP”) and the rules and regulations of the U.S. Securities and Exchange Commission (“SEC”). All significant intercompany transactions and balances have been eliminated in consolidation. The preparation of these financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements and the reported revenues and expenses during the reporting periods. Certain amounts for the prior year have been reclassified to conform with the current period presentation. Organization We are an international insurance company with a long-standing area of specialization in Marine insurance. We also offer Property and Casualty (“P&C”) insurance, primarily general liability coverage and umbrella & excess liability coverage to commercial enterprises through our Primary and Excess Casualty divisions. We have also developed niches in Professional Liability insurance, through our Directors & Officers (“D&O”) and Errors & Omissions (“E&O”) divisions, as well as assumed reinsurance products. We operate through various wholly-owned insurance and service companies. Our subsidiaries domiciled in the United States (“U.S.”) include two insurance companies, Navigators Insurance Company (“NIC”) and Navigators Specialty Insurance Company (“NSIC”), as well as our U.S. underwriting agency, Navigators Management Company, Inc. (“NMC”). NIC includes a branch in the United Kingdom (“U.K.”). We also have operations domiciled in the U.K., Hong Kong and Europe. Navigators International Insurance Company Ltd. (“NIIC”), Navigators Management (U.K.) Ltd. (“NMUK”) and Navigators Underwriting Ltd. (“NUL”) are domiciled in the U.K. and NUL includes European branches. Navigators Underwriting Agency Ltd. (“NUAL”), a Lloyd’s of London (“Lloyd’s”) underwriting agency, manages and provides the capital, through Navigators Corporate Underwriters Ltd. (“NCUL”), for our Lloyd’s Syndicate 1221 (the “Syndicate”), and is also domiciled in the U.K. We control 100% of the Syndicate’s stamp capacity. On June 7, 2018, we acquired 100% ownership interest in Bracht, Deckers & Mackelbert NV, an insurance underwriting agency organized under the laws of Belgium (“BDM”) and Assurances Continentales – Continentale Verzekeringen NV, an insurance company licensed under the laws of Belgium (“ASCO”). The acquisition was accounted for in accordance with Accounting Standards Codification (“ASC”) 805, “Business Combinations.” Refer to Note 2 Merger and Business Combinations and Note 6 Goodwill and Intangible Assets for further information regarding the acquisition. On August 22, 2018, our Company entered into an Agreement and Plan of Merger (the “Merger Agreement”) with The Hartford Financial Services Group, Inc. (“The Hartford”). The Merger Agreement provides that, subject to the terms and conditions set forth therein, our Company will merge with an existing subsidiary of The Hartford, with our Company surviving as a wholly owned subsidiary of The Hartford (the “Merger”). Refer to Note 2 Merger and Business Combinations for further information. Immaterial Error Corrections Cash and overseas deposits that were misclassified within Short-Term Investments were reclassified representing an immaterial correction. Cash of $20.5 million as of December 31, 2017 was reclassified from Short-Term Investments to Cash and Cash Equivalents. Overseas deposits of $28.8 million as of December 31, 2017 were reclassified from Short-Term Investments to Other Invested Assets. The reclassification of cash within Short-Term Investments to Cash and Cash Equivalents impacted the Statement of Cash Flows for the years ended December 31, 2017 and 2016 by increasing Net Cash Used in Investing Activities by $1.9 million and decreasing Net Cash Used in Investing Activities by $6.0 million, respectively. During the year ended December 31, 2018, a full review of foreign taxes paid and refunds received was performed resulting in an increase in our Income Tax Expense of $7.0 million, inclusive of interest. Refer to Note 11 Income Taxes for further information. Of this adjustment, $5.4 million relates to a correction of prior years. It was found that foreign tax credits were overstated, due to refunds received and issues in data accumulation. Additionally, during the year ended December 31, 2018, various adjustments increasing Net Income by $5.1 million were recorded relating to items dating back as far as 2005. These various adjustments were identified as part of a finance transformation initiative and were not material, individually or in the aggregate in the current year or any prior year. In total all adjustments resulted in a combined impact to Net Income for the year ended December 31, 2018 of $0.3 million. The controls related to the adjustments were also evaluated and none were deemed to represent a material weakness in our internal control over financial reporting. Significant Accounting Policies Cash and Cash Equivalents and Restricted Cash and Cash Equivalents Cash includes cash on hand and demand deposits with banks. Cash Equivalents include highly liquid investments with original maturities of three months or less including money-market funds. Restricted Cash and Cash Equivalents primarily relates to funds that are held to support regulatory and contractual obligations. Investments Fixed Maturities held by our Company were carried at fair value and classified as available-for-sale. Available-for-sale securities are debt securities not classified as either held-to-maturity securities or trading securities and are reported at fair value, with unrealized gains and losses excluded from earnings and reported in Accumulated Other Comprehensive Income (“AOCI”) as a separate component of Stockholders’ Equity. Fixed Maturities include bonds, mortgage-backed and asset-backed securities, and redeemable preferred stocks. Upon adoption of ASU 2016-01 on January 1, 2018, Equity Securities held by our Company were carried at fair value with any changes in fair value recognized in Net Income through the Net Unrealized Gains (Losses) on Equity Securities account. Prior to the adoption of ASU 2016-01, Equity Securities were carried at fair value and classified as available-for-sale. Equity Securities consist of common stock, exchange traded funds, mutual funds and preferred stock. Other Invested Assets consist of investments our Company made in certain strategic companies which are accounted for using the equity method of accounting and overseas deposits which are carried at fair value. For our investments applying the equity method, these investments are initially recorded at cost and are subsequently adjusted based on our Company’s proportionate share of the net income or loss of the companies. Changes in the carrying value of such investments are recorded in Other Income. In applying the equity method, we use the most recently available financial information provided by the companies which is generally three months prior to the end of the reporting period. Overseas deposits include private funds held by the Syndicate and invested according to local regulatory requirements. The compositions of the overseas deposits vary and the deposits are based on the portfolio level reporting that is provided by Lloyd’s. The fair values of these overseas deposits were measured using the net asset value practical expedient and therefore have not been categorized within the fair value hierarchy. Changes in the fair value of the overseas deposits are recorded in Net Investment Income. Short-Term Investments are carried at fair value. Short-Term Investments have maturities greater than three months but less than one year from the purchase date. All prices for our Fixed Maturities, Equity Securities and Short-Term Investments are classified as Level 1, Level 2 or Level 3 under the fair value hierarchy, as defined in the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification 820 (“ASC 820”). Premiums and discounts on Fixed Maturities are amortized into interest income over the life of the security using the interest method. For Mortgage-Backed and Asset-Backed Securities, anticipated prepayments and expected maturities are utilized in applying the interest rate method. An effective yield is calculated based on projected principal cash flows at the time of original purchase. The effective yield is used to amortize the purchase price of the security over the security’s expected life. Book values are adjusted to reflect the amortization of premium or accretion of discount on a monthly basis. The projected principal cash flows are based on certain prepayment assumptions, which are generated using a prepayment model. The prepayment model uses a number of factors to estimate prepayment activity including the current levels of interest rates (refinancing incentive), time of year (seasonality), economic activity (including housing turnover) and term and age of the underlying collateral (burnout, seasoning). Prepayment assumptions associated with the Mortgage-Backed and Asset-Backed Securities are reviewed on a periodic basis. When changes in prepayment assumptions are deemed necessary as the result of actual prepayments differing from anticipated prepayments, securities are revalued based upon the new prepayment assumptions utilizing the retrospective adjustment method, whereby the effective yield is recalculated to reflect actual payments to date and anticipated future payments. The investment in such securities is adjusted to the amount that would have existed had the new effective yield been applied since the acquisition of the security. Such adjustments, if any, are included in Net Investment Income for the current period. Realized Gains and Losses on sales of investments are recognized when the related trades are executed and are determined on the basis of the specific identification method. Impairment of Invested Assets Management regularly reviews our Fixed Maturities portfolio to evaluate the necessity of recording impairment losses for other-than-temporary declines in the fair value of securities. Our Company reviews the magnitude of a security’s unrealized loss compared to its cost/amortized cost and the length of time that the security has been impaired to determine if an unrealized loss is other-than-temporary. If warranted as a result of conditions relating to a particular security, our Company will also review securities with declines in fair value resulting from a headline news event involving the issuer, a headline news event involving the asset class, the advice of our external asset managers, or economic events that may impact the issuer to determine if an unrealized loss is other-than-temporary. The depth of analysis performed is dependent upon the nature and magnitude of the indicators of other-than-temporary impairment present in regards to each impaired security. Our Company assesses the underlying fundamentals of each issuer to determine if there is a change in the amount or timing of expected cash flows. Management compares the amortized cost basis to the present value of the revised cash flows using the historical book yield to determine the credit loss portion of impairment which is recognized in earnings. All non-credit losses where we have the intent and ability to hold the security until recovery are recognized as changes in Other than Temporary Impairment (“OTTI”) losses within AOCI. Specifically, for structured Fixed Maturities, our Company analyzes projections provided by our investment managers with respect to an expected principal loss under a range of scenarios and utilizes the most likely outcomes. The analysis relies on actual collateral performance measures such as default rate, prepayment rate and loss severity. These assumptions are applied throughout the remaining term of the deal, incorporating the transaction structure and priority of payments, to generate loss adjusted cash flows. Results of the analysis will indicate whether the security is expected ultimately to incur a loss or whether there is a material impact on yield due to either a projected loss or a change in cash flow timing. A break-even default rate is also calculated. A comparison of the break-even default rate to the actual default rate provides an indication of the level of cushion or coverage to the first dollar principal loss. For securities in which a tranche loss is present and the net present value of loss adjusted cash flows is less than book value, credit impairment is recognized in earnings. The output data also includes a number of additional metrics such as average life remaining, original and current credit support, over 60 day delinquency and security rating. The significant inputs used to measure the amount of credit loss recognized in earnings are actual delinquency rates, default probability, severity and prepayment assumptions. Projected losses are a function of both loss severity and probability of default, which differ based on property type, vintage and the stress of the collateral. Foreign Currency Remeasurement and Translation The functional currency of each of our operations is generally the currency of the local operating environment, except for our Lloyd’s business which is United States Dollar (“USD”). Transactions in currencies other than an operation’s functional currency are remeasured into the functional currency and the resulting foreign exchange gains and losses are reflected in Other Income (Loss) in the Consolidated Statements of Income, with the exception of those related to foreign-denominated available-for-sale investments and equity securities. For the available-for-sale investments, exchange rate fluctuations represent an unrealized appreciation/depreciation in the value of the securities and are included in the related component of AOCI. For the equity securities, exchange rate fluctuations are included in the related component of Total Net Realized and Unrealized Gains (Losses). Functional currency assets and liabilities of foreign operations are translated into USD using period end rates of exchange and the related translation adjustments are recorded as a separate component of AOCI. Consolidated Statements of Income amounts expressed in functional currencies are translated using average exchange rates. Premium Revenues Written premium is based on the insurance policies that have been reported to us and the policies that have been written by agents but not yet reported to us. We estimate the amount of written premium not yet reported based on judgments relative to current and historical trends of the business being written. Such estimates are regularly reviewed and updated and any resulting adjustments are included in the current year’s results. An unearned premium reserve is established to reflect the unexpired portion of each policy at the financial reporting date. Substantially all of our business is placed through agents and brokers. We record estimates for both unreported direct and assumed premiums. We also record the ceded portion of the estimated Gross Written Premiums and related acquisition costs. These estimates are mostly for our Marine and Energy & Engineering products written by our International Insurance (“Int’l Insurance”) reporting segment as well as our GlobalRe reporting segment. Such premium estimates are generally based on submission data received from brokers and agents and recorded when the insurance policy or reinsurance contract is written or bound. The earned gross, ceded and net premiums are calculated based on our earning methodology, which is generally pro-rata over the policy period or over the period of risk if the period of risk differs significantly from the contract period. Reinsurance Ceded In the normal course of business, we purchase reinsurance from insurers or reinsurers to reduce the amount of loss arising from claims. Management analyzes the reinsurance agreements to determine whether the reinsurance should be classified as prospective or retroactive based upon the terms of the reinsurance agreement and whether the reinsurer has assumed significant insurance risk to the extent that the reinsurer may realize a significant loss from the transaction. Prospective reinsurance is reinsurance in which an assuming company agrees to reimburse the ceding company for losses that may be incurred as a result of future insurable events covered under contracts subject to the reinsurance. Retroactive reinsurance is reinsurance in which an assuming company agrees to reimburse a ceding company for liabilities incurred as a result of past insurable events covered under contracts subject to the reinsurance. Ceded reinsurance premiums net of ceding commissions and ceded losses are reflected as reductions of the respective income or expense accounts over the terms of the reinsurance contracts. Prepaid Reinsurance Premiums represent the portion of premiums ceded to reinsurers applicable to the unexpired terms of the reinsurance contracts in force. Reinsurance reinstatement premiums (“RRPs”) are recognized in the same period as the loss event that gave rise to the reinstatement premiums. Amounts recoverable from reinsurers are estimated in a manner consistent with the claim liability associated with the reinsured policy. Ceded Unearned Premiums and estimates of amounts recoverable from reinsurers on paid and unpaid losses are reflected as assets. Provisions are made for estimated unrecoverable reinsurance. Deferred Policy Acquisition Costs Costs of acquiring business are deferred and amortized over the period that the related premiums are recognized as revenue. Such costs (e.g., Commission Expenses, Other Underwriting Expenses and premium taxes) are limited to the incremental direct costs related to the successful acquisition of new or renewal business. The method of computing Deferred Policy Acquisition Costs limits the deferral to their estimated net realizable value based on the related Unearned Premiums and takes into account anticipated Losses, Loss Adjustment Expense (“LAE”), Commission Expenses and Operating Expenses based on historical and current experience, as well as anticipated Investment Income. Reserves for Losses and Loss Adjustment Expenses Unpaid losses and LAE are determined on: (a) individual claims reported on direct business for insureds, (b) from reports received from ceding insurers for assumed business and (c) on estimates based on Company and industry experience for incurred but not reported (“IBNR”) claims and LAE. Indicated IBNR reserves for losses and LAE are calculated by our actuaries using several standard actuarial methodologies, including the paid and incurred loss development and the paid and incurred Bornhuetter-Ferguson loss methods. Frequency/severity analyses are performed for certain books of business. The Reserve for Losses and LAE has been established to cover the estimated unpaid cost of claims incurred. Such estimates are regularly compared to indicated reserves and updated and any resulting adjustments are included in the current year’s results. Management believes that the liability recognized for unpaid losses and LAE is a reasonable estimate of the ultimate unpaid claims incurred, however, no representation is made that the ultimate liability will not differ materially from the amounts recorded in the accompanying Consolidated Financial Statements. Losses and LAE are recorded on an undiscounted basis. Earnings per Share Basic earnings per share (“EPS”) is computed by dividing Net income by the weighted average number of common shares outstanding for the period. Diluted EPS reflects the basic EPS adjusted for the potential dilution that would occur if all stock grants were fully vested. Share-Based Compensation Our Company applies a fair value based measurement method in accounting for its share-based payment arrangements with eligible employees and directors. The associated expense is estimated based on the fair value of the award at the grant date and is recognized in Net Income over the requisite service period with a corresponding increase in Shareholder’s Equity. Forfeitures of share-based payment awards are recognized as they occur. Depreciation and Amortization Depreciation of furniture and fixtures, electronic data processing equipment and computer software is provided over the estimated useful lives of the respective assets, ranging from three to seven years, using the straight-line method. Amortization of leasehold improvements are provided over the shorter of the useful lives of those improvements or the contractual terms of the leases, ranging from five to ten years, using the straight-line method. Goodwill and Other Intangible Assets Goodwill represents the excess of the cost of acquiring a business enterprise over the fair value of the net assets acquired. Our Company’s recorded indefinite lived intangible assets represent acquired stamp capacity in the Syndicate and ASCO’s European insurance licenses. Our Company’s recorded definite lived intangible assets represent customer relationships, the value of business acquired (“VOBA”), broker networks, and a trade name. Goodwill and indefinite lived intangible assets are reported at carrying value and are tested for impairment at least annually, and when permitted by the applicable accounting guidance, qualitative factors are assessed to determine whether it is necessary to calculate an asset’s fair value when testing an asset with an indefinite life for impairment. Goodwill and indefinite lived intangible assets are considered impaired if the estimated fair value is less than its carrying value and any impairment loss is measured as the difference between the implied fair value and the carrying value. Finite-lived intangibles are amortized over the estimated useful life of the asset and are reviewed for impairment when indicators of impairment are present. Our Company did not recognize an impairment of goodwill or intangible assets for any of the years ended December 31, 2018, 2017 and 2016. As of December 31, 2018, the carrying value of goodwill and intangible assets was $27.1 million, which is $20.5 million more than the carrying value of $6.6 million as of December 31, 2017. Changes in the carrying value of the goodwill and intangible assets were due to the acquisition of BDM and ASCO, as well as fluctuations in currency exchange rates. Income Taxes We recognize deferred tax assets and liabilities based on the differences between the financial statement carrying amounts and the tax bases of assets and liabilities. Deferred tax assets are reduced by a valuation allowance if, based on the weight of available evidence, it is more likely than not that some portion or all of the deferred tax assets will not be realized. All available evidence, both positive and negative, is considered to determine whether, based on the weight of that evidence, a valuation allowance is needed. Future realization of the tax benefit of an existing deferred tax asset ultimately depends on the existence of sufficient taxable income of the appropriate character within the carryback/carryforward period available under the tax law. In determining whether a valuation allowance is needed, management considers the timing of the reversal of each deferred tax asset as well as expected future levels of taxable income, amounts of taxable income in carryback years, and tax planning strategies. On December 22, 2017, the Tax Cuts and Jobs Act (the “Tax Act”) was enacted into law and the new legislation contains several key tax provisions that affected us, including a one-time mandatory Deemed Repatriation Transition Tax (the “Transition Tax”) on accumulated foreign earnings and a reduction of the corporate income tax rate to 21% effective January 1, 2018, among others. We were required to recognize the effect of the tax law changes in the period of enactment, such as determining the Transition Tax, re-measuring our U.S. deferred tax assets and liabilities as well as reassessing the net realizability of our deferred tax assets and liabilities. In December 2017, the SEC staff issued Staff Accounting Bulletin No. 118 (“SAB 118”), Income Tax Accounting Implications of the Tax Act, which allowed us to record provisional amounts during a measurement period not to extend beyond one year of the enactment date. During the fourth quarter of 2017, we made a reasonable estimate of the effects on our deferred tax balances and recognized provisional tax amounts of $2.6 million related to the Transition Tax. As of December 31, 2018, we have finalized the calculation of the Transition Tax which resulted in a decrease in the provisional amount of $1.3 million. Additionally, a tax benefit of $0.5 million related to the remeasurement of net deferred tax assets was recognized in the fourth quarter of 2018. Both of these amounts have been reflected as a discrete item in our Effective Tax Rate calculation. Additional information can be found in Note 11 Income Taxes. New Accounting Standards Adopted in 2018 Revenue From Contracts With Customers Effective January 1, 2018, our Company adopted ASU 2014-09, “Revenue from Contracts with Customers (Topic 606)”. This guidance affects any contracts with customers to transfer goods or services or for the transfer of nonfinancial assets unless those contracts are within the scope of other standards (for example, insurance contracts are not in scope of the new guidance). The core principle of the guidance is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. Our Company generates an insignificant amount of fee income that is within the scope of this guidance and was not materially impacted by the adoption of this guidance. The adoption of this guidance did not have a material impact on our results of operations, financial condition or liquidity. Classification and Measurement of Financial Instruments Effective January 1, 2018, our Company adopted ASU 2016-01 “Financial Instruments – Overall (Subtopic 825-10) – Recognition and Measurement of Financial Assets and Financial Liabilities”. This guidance requires equity investments (except those accounted for under the equity method of accounting, investments that are consolidated or those that meet a practicability exception) to be measured at fair value with changes in fair value recognized in net income, simplifies the impairment assessment of equity investments without readily determinable values by requiring a qualitative assessment to identify impairment, eliminates the requirement to disclose the methods and significant assumptions used to estimate the fair value for financial instruments measured at amortized cost, requires the use of the exit price notion when measuring the fair value of financial instruments for disclosure purposes, requires separate presentation in other comprehensive income of the portion of the total change in the fair value of a liability resulting from a change in the instrument-specific credit risk when the organization has elected to measure the liabilities in accordance with the fair value option, requires the separate presentation of financial assets and financial liabilities by measurement category and form of financial asset on the balance sheet or the accompanying notes to the financial statements and clarifies that the reporting organization should evaluate the need for a valuation allowance on a deferred tax asset related to available-for-sale securities in combination with the organization’s other deferred tax assets. As of January 1, 2018, the adoption of this guidance resulted in a $7.7 million net after-tax increase to Retained Earnings with a corresponding decrease to Accumulated Other Comprehensive Income (Loss), resulting in no change to our Total Stockholders’ Equity. This adjustment reflects the cumulative effect adjustment to reclassify Net Unrealized Gain on Investments in Accumulated Other Comprehensive Income (Loss) for available-for-sale Equity Securities to Retained Earnings upon adoption. Upon the adoption of this guidance, Equity Securities have been measured at fair value with changes in fair value recognized in Net Income through Net Unrealized Gains (Losses) on Equity Securities. The other aspects of this guidance only impacted disclosure or did not apply to our Company and therefore did not impact our results of operations, financial condition or liquidity. Cash Flows Effective January 1, 2018, our Company adopted ASU 2016-15, “Statement of Cash Flows (Topic 230) – Classification of Certain Cash Receipts and Cash Payments” which addresses diversity in practice in how eight specific cash receipts and cash payments should be presented and classified on the statement of cash flows. The adoption of this guidance did not impact our results of operations, financial condition or liquidity. Effective January 1, 2018, our Company adopted ASU 2016-18, “Statement of Cash Flows (Topic 230) – Restricted Cash” which addresses diversity in practice in the classification and presentation of changes in restricted cash on the statement of cash flows. This guidance requires a statement of cash flows to explain the change during the period in the total of cash, cash equivalents, restricted cash and restricted cash equivalents. Transfers between cash and cash equivalents and restricted cash and restricted cash equivalents will no longer be presented on the statement of cash flows. To assist in meeting the requirements of this guidance to provide a reconciliation from the Statement of Cash Flows to the Balance Sheet, upon adoption of this guidance our Company added new accounts titled “Cash and Cash Equivalents” and “Restricted Cash and Cash Equivalents” and reclassified amounts previously held in Short-Term Investments to these accounts for all periods presented. This resulted in the reclassification of $71.3 million of restricted and unrestricted cash and cash equivalent balances as of December 31, 2017. This guidance was adopted on a retrospective basis. Prior to the adoption of this guidance, restricted and unrestricted cash and cash equivalent balances included in the Short-Term Investments account had been presented as a cash flow provided by (used in) investing activities. Consequently, the Statement of Cash Flows for the years ended December 31, 2017 and 2016 include a revision to increase “Net Cash Used in Investing Activities” by $14.4 million and a revision to decrease “Net Cash Used in Investing Activities” by $3.3 million, respectively. Income Taxes Effective January 1, 2018, our Company adopted ASU 2016-16, “Income Taxes (Topic 740) – Intra-Entity Transfers of Assets Other than Inventory” that requires companies to account for the income tax effects of intercompany transfers of assets other than inventory when the transfer occurs. The adoption of this guidance did not impact our results of operations, financial condition or liquidity. Definition of a Business Effective January 1, 2018, our Company adopted ASU 2017-01, “Clarifying the Definition of a Business” that provides guidance to assist entities with evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. This guidance will be applied to transactions prospectively. The adoption of this guidance did not impact our results of operations, financial condition or liquidity. Tax Reform Reclassification from Other Comprehensive Income Effective January 1, 2018, our Company early adopted ASU 2018-02, “Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income” that permits entities to reclassify tax effects stranded in accumulated other comprehensive income as a result of tax reform to retained earnings. The total impact of the remeasurement and other adjustments was reflected in 2017 income from continuing operations, regardless of where deferred taxes were originally recorded. As of January 1, 2018, the adoption of this guidance resulted in a one-time reclassification of $2.8 million, decreasing Retained Earnings and increasing Accumulated Other Comprehensive Income (Loss) primarily from the remeasurement of deferred tax assets and liabilities associated with unrealized gains and losses on investments and currency translation adjustments using the 21% corporate tax rate. Recently Issued Accounting Standards Not Yet Adopted Leases In February 2016, the FASB issued ASU 2016-02, “Leases (Topic 842)” which provides a new comprehensive model for lease accounting. Topic 842 was subsequently amended by ASU 2018-10, Codification Improvements to Topic 842, Leases and ASU 2018-11, Targeted Improvements. The new standard requires a lessee to recognize a liability to make lease payments (the lease liability) and a right-of-use (“ROU”) asset representing its right to use the underlying asset for the lease term. Leases will be classified as finance or operating, with classification affecting the pattern and classification of expense recognition in the income statement. The new standard is effective for us on January 1, 2019, with early adoption permitted. A modified retrospective transition approach is required, applying the new standard to all leases existing at the date of initial application. An entity may choose to use either (1) its effective date or (2) the beginning of the earliest comparative period presented in the financial statements as its date of initial application. We expect to adopt the new standard on January 1, 2019 and use the effective date as our date of initial application. Consequently, financial information will not be updated and the disclosures required under the new standard will not be provided for dates and periods before January 1, 2019. The new standard provides a number of optional practical expedients in transition. We expect to elect the ‘package of practical expedients’, which permits us not to reassess under the new standard our prior conclusions about lease identification, lease classification and initial direct costs. We do not expect to elect the use-of-hindsight or the practical expedient pertaining to land easements; the latter not being applicable to us. The new standard also provides practical expedients for an entity’s ongoing accounting. We currently do not have any leases with a term shorter than 12 months. We also currently expect to elect the practical expedient to not separate lease and non-lease components for certain classes of leases. Adoption of this guidance will impact our Company’s consolidated balance sheet, but is not expected to have a material impact on our Company’s results of operations, financial condition and liquidity. While we continue to assess all of the effects of adoption, we currently believe the most significant effects relate to (1) the recognition of new ROU assets and lease liabilities on our balance sheet for our office and equipment operating leases; (2) the derecognition of the deferred rent liability on our balance sheet; and (3) providing significant new disclosures about our leasing activities. We do not expect a significant change in our leasing activities between now and adoption On adoption, we currently expect to recognize additional operating liabilities ranging from $45.0 million to $55.0 million with corresponding ROU assets ranging from $35.0 million to $45.0 million, with the difference between the lease liability and ROU asset being the derecognition of existing deferred rent liabilities and policy changes due to the adoption of the guidance. Credit Losses In June 2016, the FASB issued ASU 2016-13, “Financial Instruments – Credit Losses (Topic 326) – Measurement of Credit Losses on Financial Instruments” which replaces the “incurred loss” impairment methodology with an approach based on “expected losses” to estimate credit losses on certain types of financial instruments and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates. The guidance requires financial assets measured at amortized cost to be presented at the net amount expected to be collected. The allowance for credit losses is a valuation account that is deducted from the amortized cost of the financial asset to present the net carrying value at the amount expected to be collected on the financial asset. Credit losses relating to available-for-sale debt securities will be recorded through an allowance for credit losses. The guidance also provides for a simplified accounting model for purchased financial assets with credit deterioration since their origination. This guidance is effective for interim and annual periods beginning after December 15, 2019. Early adoption is permitted for interim and annual periods beginning after December 15, 2018. The application of this guidance is not expected to significantly impact our Company’s available-for-sale debt investment portfolio, but will impact our Company’s other financial assets, including our reinsurance recoverables and premium receivable. Upon adoption of this guidance, any impairment losses on our available-for-sale debt securities will be recorded as an allowance, subject to reversal, rather than as a reduction in amortized cost. Our Company is currently evaluating the impact of this guidance on our results of operations, financial condition and liquidity. Goodwill Impairment In January 2017, the FASB issued ASU 2017-04, “Simplifying the Test for Goodwill Impairment” that eliminates the requirement to calculate the implied fair value of goodwill (i.e., Step 2 of the current goodwill impairment test) to measure a goodwill impairment charge. Instead, an impairment charge will be based on the excess of a reporting unit’s carrying amount over its fair value (i.e., measure the charge based on Step 1 of the current goodwill impairment test). This guidance is effective for annual and interim impairment tests performed in periods beginning after December 15, 2019, with early adoption permitted for annual and interim goodwill impairment testing dates after January 1, 2017. This guidance will be adopted on a prospective basis. Callable Debt Securities In March 2017, the FASB issued ASU 2017-08, “Premium Amortization on Purchased Callable Debt Securities” that shortens the amortization period for the premium on certain purchased callable debt securities to the earliest call date. This guidance is effective for annual periods beginning after December 15, 2018, and interim periods within those fiscal years with early adoption permitted. This guidance will be adopted using a modified retrospective transition approach. The adoption of this guidance is not expected to materially impact our results of operations, financial condition or liquidity. Fair Value Measurement Disclosure In August 2018, the FASB issued ASU 2018-13, “Disclosure Framework – Changes to the Disclosure Requirements for Fair Value Measurement”, which eliminates, adds, and modifies certain disclosure requirements for fair value measurements. The guidance eliminates the requirement to disclose the amount of and reasons for transfers between Level 1 and Level 2 of the fair value hierarchy, the policy for the timing of transfers between levels of the fair value hierarchy, and the valuation processes for Level 3 fair value measurements. The guidance adds the requirement to disclose changes in unrealized gains and losses included in other comprehensive income for the period and to disclose the range and weighted average used to develop significant unobservable inputs for Level 3 fair value measurements. The guidance modifies disclosures around the use of the practical expedient to measure the fair value of certain investments at their net asset values and modifies the requirement to disclose information as of the reporting date about the measurement uncertainty of Level 3 fair value measurement. This guidance is effective for interim and annual reporting periods beginning after December 15, 2019, with early adoption permitted for the entire standard or only the provisions that eliminate or modify requirements. This guidance will be adopted on a prospective and retrospective basis, where applicable and as required. As this new guidance is disclosure-related only, adoption will not impact our results of operations, financial condition or liquidity. Implementation Costs in a Cloud Computing Arrangement In August 2018, the FASB issued ASU 2018-15, “Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract”, which requires companies to follow the internal-use software guidance in ASC 350-40 (Intangibles - Goodwill and Other - Internal-Use Software) to determine which implementation costs to capitalize as an asset and which costs to expense. Capitalized implementation costs will be amortized over the term of the service arrangement, beginning when the service arrangement or a component of the arrangement is ready for its intended use. This guidance is effective for interim and annual reporting periods beginning after December 15, 2019, with early adoption permitted. This guidance will be applied prospectively. The adoption of this guidance is not expected to materially impact our results of operations, financial condition or liquidity.

Organization and Summary of Significant Accounting Policies

12 Months Ended

Dec. 31, 2018

Organization and Summary of Significant Accounting Policies

NOTE 1. ORGANIZATION & SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

Unless the context requires otherwise, the terms “we,” “us,” “our,” or “our Company” are used to mean The Navigators Group, Inc., a Delaware holding company established in 1982, and its subsidiaries. The term “Parent Company” is used to mean The Navigators Group, Inc. without its subsidiaries. The accompanying consolidated financial statements of our Company have been prepared in conformity with accounting principles generally accepted in the United States of America (“GAAP” or “U.S. GAAP”) and the rules and regulations of the U.S. Securities and Exchange Commission (“SEC”). All significant intercompany transactions and balances have been eliminated in consolidation. The preparation of these financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements and the reported revenues and expenses during the reporting periods. Certain amounts for the prior year have been reclassified to conform with the current period presentation.

Organization

We are an international insurance company with a long-standing area of specialization in Marine insurance. We also offer Property and Casualty (“P&C”) insurance, primarily general liability coverage and umbrella & excess liability coverage to commercial enterprises through our Primary and Excess Casualty divisions. We have also developed niches in Professional Liability insurance, through our Directors & Officers (“D&O”) and Errors & Omissions (“E&O”) divisions, as well as assumed reinsurance products.

We operate through various wholly-owned insurance and service companies. Our subsidiaries domiciled in the United States (“U.S.”) include two insurance companies, Navigators Insurance Company (“NIC”) and Navigators Specialty Insurance Company (“NSIC”), as well as our U.S. underwriting agency, Navigators Management Company, Inc. (“NMC”). NIC includes a branch in the United Kingdom (“U.K.”). We also have operations domiciled in the U.K., Hong Kong and Europe. Navigators International Insurance Company Ltd. (“NIIC”), Navigators Management (U.K.) Ltd. (“NMUK”) and Navigators Underwriting Ltd. (“NUL”) are domiciled in the U.K. and NUL includes European branches. Navigators Underwriting Agency Ltd. (“NUAL”), a Lloyd’s of London (“Lloyd’s”) underwriting agency, manages and provides the capital, through Navigators Corporate Underwriters Ltd. (“NCUL”), for our Lloyd’s Syndicate 1221 (the “Syndicate”), and is also domiciled in the U.K. We control 100% of the Syndicate’s stamp capacity.

On June 7, 2018, we acquired 100% ownership interest in Bracht, Deckers & Mackelbert NV, an insurance underwriting agency organized under the laws of Belgium (“BDM”) and Assurances Continentales – Continentale Verzekeringen NV, an insurance company licensed under the laws of Belgium (“ASCO”). The acquisition was accounted for in accordance with Accounting Standards Codification (“ASC”) 805, “Business Combinations.” Refer to Note 2 Merger and Business Combinations and Note 6 Goodwill and Intangible Assets for further information regarding the acquisition.

On August 22, 2018, our Company entered into an Agreement and Plan of Merger (the “Merger Agreement”) with The Hartford Financial Services Group, Inc. (“The Hartford”). The Merger Agreement provides that, subject to the terms and conditions set forth therein, our Company will merge with an existing subsidiary of The Hartford, with our Company surviving as a wholly owned subsidiary of The Hartford (the “Merger”). Refer to Note 2 Merger and Business Combinations for further information.

Immaterial Error Corrections

Cash and overseas deposits that were misclassified within Short-Term Investments were reclassified representing an immaterial correction. Cash of $20.5 million as of December 31, 2017 was reclassified from Short-Term Investments to Cash and Cash Equivalents. Overseas deposits of $28.8 million as of December 31, 2017 were reclassified from Short-Term Investments to Other Invested Assets. The reclassification of cash within Short-Term Investments to Cash and Cash Equivalents impacted the Statement of Cash Flows for the years ended December 31, 2017 and 2016 by increasing Net Cash Used in Investing Activities by $1.9 million and decreasing Net Cash Used in Investing Activities by $6.0 million, respectively.

During the year ended December 31, 2018, a full review of foreign taxes paid and refunds received was performed resulting in an increase in our Income Tax Expense of $7.0 million, inclusive of interest. Refer to Note 11 Income Taxes for further information. Of this adjustment, $5.4 million relates to a correction of prior years. It was found that foreign tax credits were overstated, due to refunds received and issues in data accumulation.

Additionally, during the year ended December 31, 2018, various adjustments increasing Net Income by $5.1 million were recorded relating to items dating back as far as 2005. These various adjustments were identified as part of a finance transformation initiative and were not material, individually or in the aggregate in the current year or any prior year.

In total all adjustments resulted in a combined impact to Net Income for the year ended December 31, 2018 of $0.3 million. The controls related to the adjustments were also evaluated and none were deemed to represent a material weakness in our internal control over financial reporting.

Significant Accounting Policies

Cash and Cash Equivalents and Restricted Cash and Cash Equivalents

Cash includes cash on hand and demand deposits with banks. Cash Equivalents include highly liquid investments with original maturities of three months or less including money-market funds. Restricted Cash and Cash Equivalents primarily relates to funds that are held to support regulatory and contractual obligations.

Investments

Fixed Maturities held by our Company were carried at fair value and classified as available-for-sale. Available-for-sale securities are debt securities not classified as either held-to-maturity securities or trading securities and are reported at fair value, with unrealized gains and losses excluded from earnings and reported in Accumulated Other Comprehensive Income (“AOCI”) as a separate component of Stockholders’ Equity. Fixed Maturities include bonds, mortgage-backed and asset-backed securities, and redeemable preferred stocks.

Upon adoption of ASU 2016-01 on January 1, 2018, Equity Securities held by our Company were carried at fair value with any changes in fair value recognized in Net Income through the Net Unrealized Gains (Losses) on Equity Securities account. Prior to the adoption of ASU 2016-01, Equity Securities were carried at fair value and classified as available-for-sale. Equity Securities consist of common stock, exchange traded funds, mutual funds and preferred stock.

Other Invested Assets consist of investments our Company made in certain strategic companies which are accounted for using the equity method of accounting and overseas deposits which are carried at fair value.

For our investments applying the equity method, these investments are initially recorded at cost and are subsequently adjusted based on our Company’s proportionate share of the net income or loss of the companies. Changes in the carrying value of such investments are recorded in Other Income. In applying the equity method, we use the most recently available financial information provided by the companies which is generally three months prior to the end of the reporting period.

Overseas deposits include private funds held by the Syndicate and invested according to local regulatory requirements. The compositions of the overseas deposits vary and the deposits are based on the portfolio level reporting that is provided by Lloyd’s. The fair values of these overseas deposits were measured using the net asset value practical expedient and therefore have not been categorized within the fair value hierarchy. Changes in the fair value of the overseas deposits are recorded in Net Investment Income.

Short-Term Investments are carried at fair value. Short-Term Investments have maturities greater than three months but less than one year from the purchase date.

All prices for our Fixed Maturities, Equity Securities and Short-Term Investments are classified as Level 1, Level 2 or Level 3 under the fair value hierarchy, as defined in the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification 820 (“ASC 820”).

Premiums and discounts on Fixed Maturities are amortized into interest income over the life of the security using the interest method. For Mortgage-Backed and Asset-Backed Securities, anticipated prepayments and expected maturities are utilized in applying the interest rate method. An effective yield is calculated based on projected principal cash flows at the time of original purchase. The effective yield is used to amortize the purchase price of the security over the security’s expected life. Book values are adjusted to reflect the amortization of premium or accretion of discount on a monthly basis. The projected principal cash flows are based on certain prepayment assumptions, which are generated using a prepayment model. The prepayment model uses a number of factors to estimate prepayment activity including the current levels of interest rates (refinancing incentive), time of year (seasonality), economic activity (including housing turnover) and term and age of the underlying collateral (burnout, seasoning). Prepayment assumptions associated with the Mortgage-Backed and Asset-Backed Securities are reviewed on a periodic basis. When changes in prepayment assumptions are deemed necessary as the result of actual prepayments differing from anticipated prepayments, securities are revalued based upon the new prepayment assumptions utilizing the retrospective adjustment method, whereby the effective yield is recalculated to reflect actual payments to date and anticipated future payments. The investment in such securities is adjusted to the amount that would have existed had the new effective yield been applied since the acquisition of the security. Such adjustments, if any, are included in Net Investment Income for the current period.

Realized Gains and Losses on sales of investments are recognized when the related trades are executed and are determined on the basis of the specific identification method.

Impairment of Invested Assets

Management regularly reviews our Fixed Maturities portfolio to evaluate the necessity of recording impairment losses for other-than-temporary declines in the fair value of securities.

Our Company reviews the magnitude of a security’s unrealized loss compared to its cost/amortized cost and the length of time that the security has been impaired to determine if an unrealized loss is other-than-temporary. If warranted as a result of conditions relating to a particular security, our Company will also review securities with declines in fair value resulting from a headline news event involving the issuer, a headline news event involving the asset class, the advice of our external asset managers, or economic events that may impact the issuer to determine if an unrealized loss is other-than-temporary. The depth of analysis performed is dependent upon the nature and magnitude of the indicators of other-than-temporary impairment present in regards to each impaired security.

Our Company assesses the underlying fundamentals of each issuer to determine if there is a change in the amount or timing of expected cash flows. Management compares the amortized cost basis to the present value of the revised cash flows using the historical book yield to determine the credit loss portion of impairment which is recognized in earnings. All non-credit losses where we have the intent and ability to hold the security until recovery are recognized as changes in Other than Temporary Impairment (“OTTI”) losses within AOCI.

Specifically, for structured Fixed Maturities, our Company analyzes projections provided by our investment managers with respect to an expected principal loss under a range of scenarios and utilizes the most likely outcomes. The analysis relies on actual collateral performance measures such as default rate, prepayment rate and loss severity. These assumptions are applied throughout the remaining term of the deal, incorporating the transaction structure and priority of payments, to generate loss adjusted cash flows. Results of the analysis will indicate whether the security is expected ultimately to incur a loss or whether there is a material impact on yield due to either a projected loss or a change in cash flow timing. A break-even default rate is also calculated. A comparison of the break-even default rate to the actual default rate provides an indication of the level of cushion or coverage to the first dollar principal loss. For securities in which a tranche loss is present and the net present value of loss adjusted cash flows is less than book value, credit impairment is recognized in earnings. The output data also includes a number of additional metrics such as average life remaining, original and current credit support, over 60 day delinquency and security rating. The significant inputs used to measure the amount of credit loss recognized in earnings are actual delinquency rates, default probability, severity and prepayment assumptions. Projected losses are a function of both loss severity and probability of default, which differ based on property type, vintage and the stress of the collateral.

Foreign Currency Remeasurement and Translation

The functional currency of each of our operations is generally the currency of the local operating environment, except for our Lloyd’s business which is United States Dollar (“USD”). Transactions in currencies other than an operation’s functional currency are remeasured into the functional currency and the resulting foreign exchange gains and losses are reflected in Other Income (Loss) in the Consolidated Statements of Income, with the exception of those related to foreign-denominated available-for-sale investments and equity securities. For the available-for-sale investments, exchange rate fluctuations represent an unrealized appreciation/depreciation in the value of the securities and are included in the related component of AOCI. For the equity securities, exchange rate fluctuations are included in the related component of Total Net Realized and Unrealized Gains (Losses).

Functional currency assets and liabilities of foreign operations are translated into USD using period end rates of exchange and the related translation adjustments are recorded as a separate component of AOCI. Consolidated Statements of Income amounts expressed in functional currencies are translated using average exchange rates.

Premium Revenues

Written premium is based on the insurance policies that have been reported to us and the policies that have been written by agents but not yet reported to us. We estimate the amount of written premium not yet reported based on judgments relative to current and historical trends of the business being written. Such estimates are regularly reviewed and updated and any resulting adjustments are included in the current year’s results. An unearned premium reserve is established to reflect the unexpired portion of each policy at the financial reporting date.

Substantially all of our business is placed through agents and brokers. We record estimates for both unreported direct and assumed premiums. We also record the ceded portion of the estimated Gross Written Premiums and related acquisition costs. These estimates are mostly for our Marine and Energy & Engineering products written by our International Insurance (“Int’l Insurance”) reporting segment as well as our GlobalRe reporting segment. Such premium estimates are generally based on submission data received from brokers and agents and recorded when the insurance policy or reinsurance contract is written or bound.

The earned gross, ceded and net premiums are calculated based on our earning methodology, which is generally pro-rata over the policy period or over the period of risk if the period of risk differs significantly from the contract period.

Reinsurance Ceded

In the normal course of business, we purchase reinsurance from insurers or reinsurers to reduce the amount of loss arising from claims. Management analyzes the reinsurance agreements to determine whether the reinsurance should be classified as prospective or retroactive based upon the terms of the reinsurance agreement and whether the reinsurer has assumed significant insurance risk to the extent that the reinsurer may realize a significant loss from the transaction.

Prospective reinsurance is reinsurance in which an assuming company agrees to reimburse the ceding company for losses that may be incurred as a result of future insurable events covered under contracts subject to the reinsurance. Retroactive reinsurance is reinsurance in which an assuming company agrees to reimburse a ceding company for liabilities incurred as a result of past insurable events covered under contracts subject to the reinsurance.

Ceded reinsurance premiums net of ceding commissions and ceded losses are reflected as reductions of the respective income or expense accounts over the terms of the reinsurance contracts. Prepaid Reinsurance Premiums represent the portion of premiums ceded to reinsurers applicable to the unexpired terms of the reinsurance contracts in force. Reinsurance reinstatement premiums (“RRPs”) are recognized in the same period as the loss event that gave rise to the reinstatement premiums. Amounts recoverable from reinsurers are estimated in a manner consistent with the claim liability associated with the reinsured policy. Ceded Unearned Premiums and estimates of amounts recoverable from reinsurers on paid and unpaid losses are reflected as assets. Provisions are made for estimated unrecoverable reinsurance.

Deferred Policy Acquisition Costs

Costs of acquiring business are deferred and amortized over the period that the related premiums are recognized as revenue. Such costs (e.g., Commission Expenses, Other Underwriting Expenses and premium taxes) are limited to the incremental direct costs related to the successful acquisition of new or renewal business. The method of computing Deferred Policy Acquisition Costs limits the deferral to their estimated net realizable value based on the related Unearned Premiums and takes into account anticipated Losses, Loss Adjustment Expense (“LAE”), Commission Expenses and Operating Expenses based on historical and current experience, as well as anticipated Investment Income.

Reserves for Losses and Loss Adjustment Expenses

Unpaid losses and LAE are determined on: (a) individual claims reported on direct business for insureds, (b) from reports received from ceding insurers for assumed business and (c) on estimates based on Company and industry experience for incurred but not reported (“IBNR”) claims and LAE. Indicated IBNR reserves for losses and LAE are calculated by our actuaries using several standard actuarial methodologies, including the paid and incurred loss development and the paid and incurred Bornhuetter-Ferguson loss methods. Frequency/severity analyses are performed for certain books of business. The Reserve for Losses and LAE has been established to cover the estimated unpaid cost of claims incurred. Such estimates are regularly compared to indicated reserves and updated and any resulting adjustments are included in the current year’s results. Management believes that the liability recognized for unpaid losses and LAE is a reasonable estimate of the ultimate unpaid claims incurred, however, no representation is made that the ultimate liability will not differ materially from the amounts recorded in the accompanying Consolidated Financial Statements. Losses and LAE are recorded on an undiscounted basis.

Earnings per Share

Basic earnings per share (“EPS”) is computed by dividing Net income by the weighted average number of common shares outstanding for the period. Diluted EPS reflects the basic EPS adjusted for the potential dilution that would occur if all stock grants were fully vested.

Share-Based Compensation

Our Company applies a fair value based measurement method in accounting for its share-based payment arrangements with eligible employees and directors. The associated expense is estimated based on the fair value of the award at the grant date and is recognized in Net Income over the requisite service period with a corresponding increase in Shareholder’s Equity. Forfeitures of share-based payment awards are recognized as they occur.

Depreciation and Amortization

Depreciation of furniture and fixtures, electronic data processing equipment and computer software is provided over the estimated useful lives of the respective assets, ranging from three to seven years, using the straight-line method. Amortization of leasehold improvements are provided over the shorter of the useful lives of those improvements or the contractual terms of the leases, ranging from five to ten years, using the straight-line method.

Goodwill and Other Intangible Assets

Goodwill represents the excess of the cost of acquiring a business enterprise over the fair value of the net assets acquired. Our Company’s recorded indefinite lived intangible assets represent acquired stamp capacity in the Syndicate and ASCO’s European insurance licenses. Our Company’s recorded definite lived intangible assets represent customer relationships, the value of business acquired (“VOBA”), broker networks, and a trade name.

Goodwill and indefinite lived intangible assets are reported at carrying value and are tested for impairment at least annually, and when permitted by the applicable accounting guidance, qualitative factors are assessed to determine whether it is necessary to calculate an asset’s fair value when testing an asset with an indefinite life for impairment. Goodwill and indefinite lived intangible assets are considered impaired if the estimated fair value is less than its carrying value and any impairment loss is measured as the difference between the implied fair value and the carrying value. Finite-lived intangibles are amortized over the estimated useful life of the asset and are reviewed for impairment when indicators of impairment are present. Our Company did not recognize an impairment of goodwill or intangible assets for any of the years ended December 31, 2018, 2017 and 2016.

As of December 31, 2018, the carrying value of goodwill and intangible assets was $27.1 million, which is $20.5 million more than the carrying value of $6.6 million as of December 31, 2017. Changes in the carrying value of the goodwill and intangible assets were due to the acquisition of BDM and ASCO, as well as fluctuations in currency exchange rates.

Income Taxes

We recognize deferred tax assets and liabilities based on the differences between the financial statement carrying amounts and the tax bases of assets and liabilities. Deferred tax assets are reduced by a valuation allowance if, based on the weight of available evidence, it is more likely than not that some portion or all of the deferred tax assets will not be realized. All available evidence, both positive and negative, is considered to determine whether, based on the weight of that evidence, a valuation allowance is needed. Future realization of the tax benefit of an existing deferred tax asset ultimately depends on the existence of sufficient taxable income of the appropriate character within the carryback/carryforward period available under the tax law. In determining whether a valuation allowance is needed, management considers the timing of the reversal of each deferred tax asset as well as expected future levels of taxable income, amounts of taxable income in carryback years, and tax planning strategies.

On December 22, 2017, the Tax Cuts and Jobs Act (the “Tax Act”) was enacted into law and the new legislation contains several key tax provisions that affected us, including a one-time mandatory Deemed Repatriation Transition Tax (the “Transition Tax”) on accumulated foreign earnings and a reduction of the corporate income tax rate to 21% effective January 1, 2018, among others. We were required to recognize the effect of the tax law changes in the period of enactment, such as determining the Transition Tax, re-measuring our U.S. deferred tax assets and liabilities as well as reassessing the net realizability of our deferred tax assets and liabilities. In December 2017, the SEC staff issued Staff Accounting Bulletin No. 118 (“SAB 118”), Income Tax Accounting Implications of the Tax Act, which allowed us to record provisional amounts during a measurement period not to extend beyond one year of the enactment date. During the fourth quarter of 2017, we made a reasonable estimate of the effects on our deferred tax balances and recognized provisional tax amounts of $2.6 million related to the Transition Tax. As of December 31, 2018, we have finalized the calculation of the Transition Tax which resulted in a decrease in the provisional amount of $1.3 million. Additionally, a tax benefit of $0.5 million related to the remeasurement of net deferred tax assets was recognized in the fourth quarter of 2018. Both of these amounts have been reflected as a discrete item in our Effective Tax Rate calculation. Additional information can be found in Note 11 Income Taxes.

New Accounting Standards Adopted in 2018

Revenue From Contracts With Customers

Effective January 1, 2018, our Company adopted ASU 2014-09, “Revenue from Contracts with Customers (Topic 606)”. This guidance affects any contracts with customers to transfer goods or services or for the transfer of nonfinancial assets unless those contracts are within the scope of other standards (for example, insurance contracts are not in scope of the new guidance). The core principle of the guidance is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. Our Company generates an insignificant amount of fee income that is within the scope of this guidance and was not materially impacted by the adoption of this guidance. The adoption of this guidance did not have a material impact on our results of operations, financial condition or liquidity.

Classification and Measurement of Financial Instruments

Effective January 1, 2018, our Company adopted ASU 2016-01 “Financial Instruments – Overall (Subtopic 825-10) – Recognition and Measurement of Financial Assets and Financial Liabilities”. This guidance requires equity investments (except those accounted for under the equity method of accounting, investments that are consolidated or those that meet a practicability exception) to be measured at fair value with changes in fair value recognized in net income, simplifies the impairment assessment of equity investments without readily determinable values by requiring a qualitative assessment to identify impairment, eliminates the requirement to disclose the methods and significant assumptions used to estimate the fair value for financial instruments measured at amortized cost, requires the use of the exit price notion when measuring the fair value of financial instruments for disclosure purposes, requires separate presentation in other comprehensive income of the portion of the total change in the fair value of a liability resulting from a change in the instrument-specific credit risk when the organization has elected to measure the liabilities in accordance with the fair value option, requires the separate presentation of financial assets and financial liabilities by measurement category and form of financial asset on the balance sheet or the accompanying notes to the financial statements and clarifies that the reporting organization should evaluate the need for a valuation allowance on a deferred tax asset related to available-for-sale securities in combination with the organization’s other deferred tax assets.

As of January 1, 2018, the adoption of this guidance resulted in a $7.7 million net after-tax increase to Retained Earnings with a corresponding decrease to Accumulated Other Comprehensive Income (Loss), resulting in no change to our Total Stockholders’ Equity. This adjustment reflects the cumulative effect adjustment to reclassify Net Unrealized Gain on Investments in Accumulated Other Comprehensive Income (Loss) for available-for-sale Equity Securities to Retained Earnings upon adoption. Upon the adoption of this guidance, Equity Securities have been measured at fair value with changes in fair value recognized in Net Income through Net Unrealized Gains (Losses) on Equity Securities. The other aspects of this guidance only impacted disclosure or did not apply to our Company and therefore did not impact our results of operations, financial condition or liquidity.

Cash Flows

Effective January 1, 2018, our Company adopted ASU 2016-15, “Statement of Cash Flows (Topic 230) – Classification of Certain Cash Receipts and Cash Payments” which addresses diversity in practice in how eight specific cash receipts and cash payments should be presented and classified on the statement of cash flows. The adoption of this guidance did not impact our results of operations, financial condition or liquidity.

Effective January 1, 2018, our Company adopted ASU 2016-18, “Statement of Cash Flows (Topic 230) – Restricted Cash” which addresses diversity in practice in the classification and presentation of changes in restricted cash on the statement of cash flows. This guidance requires a statement of cash flows to explain the change during the period in the total of cash, cash equivalents, restricted cash and restricted cash equivalents. Transfers between cash and cash equivalents and restricted cash and restricted cash equivalents will no longer be presented on the statement of cash flows. To assist in meeting the requirements of this guidance to provide a reconciliation from the Statement of Cash Flows to the Balance Sheet, upon adoption of this guidance our Company added new accounts titled “Cash and Cash Equivalents” and “Restricted Cash and Cash Equivalents” and reclassified amounts previously held in Short-Term Investments to these accounts for all periods presented. This resulted in the reclassification of $71.3 million of restricted and unrestricted cash and cash equivalent balances as of December 31, 2017. This guidance was adopted on a retrospective basis. Prior to the adoption of this guidance, restricted and unrestricted cash and cash equivalent balances included in the Short-Term Investments account had been presented as a cash flow provided by (used in) investing activities. Consequently, the Statement of Cash Flows for the years ended December 31, 2017 and 2016 include a revision to increase “Net Cash Used in Investing Activities” by $14.4 million and a revision to decrease “Net Cash Used in Investing Activities” by $3.3 million, respectively.

Income Taxes

Effective January 1, 2018, our Company adopted ASU 2016-16, “Income Taxes (Topic 740) – Intra-Entity Transfers of Assets Other than Inventory” that requires companies to account for the income tax effects of intercompany transfers of assets other than inventory when the transfer occurs. The adoption of this guidance did not impact our results of operations, financial condition or liquidity.

Definition of a Business

Effective January 1, 2018, our Company adopted ASU 2017-01, “Clarifying the Definition of a Business” that provides guidance to assist entities with evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. This guidance will be applied to transactions prospectively. The adoption of this guidance did not impact our results of operations, financial condition or liquidity.

Tax Reform Reclassification from Other Comprehensive Income

Effective January 1, 2018, our Company early adopted ASU 2018-02, “Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income” that permits entities to reclassify tax effects stranded in accumulated other comprehensive income as a result of tax reform to retained earnings. The total impact of the remeasurement and other adjustments was reflected in 2017 income from continuing operations, regardless of where deferred taxes were originally recorded. As of January 1, 2018, the adoption of this guidance resulted in a one-time reclassification of $2.8 million, decreasing Retained Earnings and increasing Accumulated Other Comprehensive Income (Loss) primarily from the remeasurement of deferred tax assets and liabilities associated with unrealized gains and losses on investments and currency translation adjustments using the 21% corporate tax rate.

Recently Issued Accounting Standards Not Yet Adopted

Leases

In February 2016, the FASB issued ASU 2016-02, “Leases (Topic 842)” which provides a new comprehensive model for lease accounting. Topic 842 was subsequently amended by ASU 2018-10, Codification Improvements to Topic 842, Leases and ASU 2018-11, Targeted Improvements. The new standard requires a lessee to recognize a liability to make lease payments (the lease liability) and a right-of-use (“ROU”) asset representing its right to use the underlying asset for the lease term. Leases will be classified as finance or operating, with classification affecting the pattern and classification of expense recognition in the income statement.

The new standard is effective for us on January 1, 2019, with early adoption permitted. A modified retrospective transition approach is required, applying the new standard to all leases existing at the date of initial application. An entity may choose to use either (1) its effective date or (2) the beginning of the earliest comparative period presented in the financial statements as its date of initial application. We expect to adopt the new standard on January 1, 2019 and use the effective date as our date of initial application. Consequently, financial information will not be updated and the disclosures required under the new standard will not be provided for dates and periods before January 1, 2019.

The new standard provides a number of optional practical expedients in transition. We expect to elect the ‘package of practical expedients’, which permits us not to reassess under the new standard our prior conclusions about lease identification, lease classification and initial direct costs. We do not expect to elect the use-of-hindsight or the practical expedient pertaining to land easements; the latter not being applicable to us. The new standard also provides practical expedients for an entity’s ongoing accounting. We currently do not have any leases with a term shorter than 12 months. We also currently expect to elect the practical expedient to not separate lease and non-lease components for certain classes of leases.

Adoption of this guidance will impact our Company’s consolidated balance sheet, but is not expected to have a material impact on our Company’s results of operations, financial condition and liquidity. While we continue to assess all of the effects of adoption, we currently believe the most significant effects relate to (1) the recognition of new ROU assets and lease liabilities on our balance sheet for our office and equipment operating leases; (2) the derecognition of the deferred rent liability on our balance sheet; and (3) providing significant new disclosures about our leasing activities. We do not expect a significant change in our leasing activities between now and adoption

On adoption, we currently expect to recognize additional operating liabilities ranging from $45.0 million to $55.0 million with corresponding ROU assets ranging from $35.0 million to $45.0 million, with the difference between the lease liability and ROU asset being the derecognition of existing deferred rent liabilities and policy changes due to the adoption of the guidance.

Credit Losses

In June 2016, the FASB issued ASU 2016-13, “Financial Instruments – Credit Losses (Topic 326) – Measurement of Credit Losses on Financial Instruments” which replaces the “incurred loss” impairment methodology with an approach based on “expected losses” to estimate credit losses on certain types of financial instruments and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates. The guidance requires financial assets measured at amortized cost to be presented at the net amount expected to be collected. The allowance for credit losses is a valuation account that is deducted from the amortized cost of the financial asset to present the net carrying value at the amount expected to be collected on the financial asset. Credit losses relating to available-for-sale debt securities will be recorded through an allowance for credit losses. The guidance also provides for a simplified accounting model for purchased financial assets with credit deterioration since their origination. This guidance is effective for interim and annual periods beginning after December 15, 2019. Early adoption is permitted for interim and annual periods beginning after December 15, 2018. The application of this guidance is not expected to significantly impact our Company’s available-for-sale debt investment portfolio, but will impact our Company’s other financial assets, including our reinsurance recoverables and premium receivable. Upon adoption of this guidance, any impairment losses on our available-for-sale debt securities will be recorded as an allowance, subject to reversal, rather than as a reduction in amortized cost. Our Company is currently evaluating the impact of this guidance on our results of operations, financial condition and liquidity.

Goodwill Impairment

In January 2017, the FASB issued ASU 2017-04, “Simplifying the Test for Goodwill Impairment” that eliminates the requirement to calculate the implied fair value of goodwill (i.e., Step 2 of the current goodwill impairment test) to measure a goodwill impairment charge. Instead, an impairment charge will be based on the excess of a reporting unit’s carrying amount over its fair value (i.e., measure the charge based on Step 1 of the current goodwill impairment test). This guidance is effective for annual and interim impairment tests performed in periods beginning after December 15, 2019, with early adoption permitted for annual and interim goodwill impairment testing dates after January 1, 2017. This guidance will be adopted on a prospective basis.

Callable Debt Securities

In March 2017, the FASB issued ASU 2017-08, “Premium Amortization on Purchased Callable Debt Securities” that shortens the amortization period for the premium on certain purchased callable debt securities to the earliest call date. This guidance is effective for annual periods beginning after December 15, 2018, and interim periods within those fiscal years with early adoption permitted. This guidance will be adopted using a modified retrospective transition approach. The adoption of this guidance is not expected to materially impact our results of operations, financial condition or liquidity.

Fair Value Measurement Disclosure

In August 2018, the FASB issued ASU 2018-13, “Disclosure Framework – Changes to the Disclosure Requirements for Fair Value Measurement”, which eliminates, adds, and modifies certain disclosure requirements for fair value measurements. The guidance eliminates the requirement to disclose the amount of and reasons for transfers between Level 1 and Level 2 of the fair value hierarchy, the policy for the timing of transfers between levels of the fair value hierarchy, and the valuation processes for Level 3 fair value measurements. The guidance adds the requirement to disclose changes in unrealized gains and losses included in other comprehensive income for the period and to disclose the range and weighted average used to develop significant unobservable inputs for Level 3 fair value measurements. The guidance modifies disclosures around the use of the practical expedient to measure the fair value of certain investments at their net asset values and modifies the requirement to disclose information as of the reporting date about the measurement uncertainty of Level 3 fair value measurement. This guidance is effective for interim and annual reporting periods beginning after December 15, 2019, with early adoption permitted for the entire standard or only the provisions that eliminate or modify requirements. This guidance will be adopted on a prospective and retrospective basis, where applicable and as required. As this new guidance is disclosure-related only, adoption will not impact our results of operations, financial condition or liquidity.

Implementation Costs in a Cloud Computing Arrangement

In August 2018, the FASB issued ASU 2018-15, “Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract”, which requires companies to follow the internal-use software guidance in ASC 350-40 (Intangibles - Goodwill and Other - Internal-Use Software) to determine which implementation costs to capitalize as an asset and which costs to expense. Capitalized implementation costs will be amortized over the term of the service arrangement, beginning when the service arrangement or a component of the arrangement is ready for its intended use. This guidance is effective for interim and annual reporting periods beginning after December 15, 2019, with early adoption permitted. This guidance will be applied prospectively. The adoption of this guidance is not expected to materially impact our results of operations, financial condition or liquidity.