NAVG The Navigators Grp., Inc.

The Navigators Group, Inc. (NASDAQ:NAVG) reported Net Income of $4.6 million, or $0.15 per diluted share, for the three months ended September 30, 2018 compared to a Net Loss of $(28.0) million, or $(0.95) per diluted share, for the same period in 2017. Net Operating Earnings (Loss)1 were $4.2 million, or $0.14 per diluted share, for the three months ended September 30, 2018 compared to $(29.6) million, or $(1.00) per diluted share, for the same period in 2017.

Gross Written Premiums and Net Written Premiums for the three months ended September 30, 2018 were $455.9 million and $352.4 million, respectively, increasing 13.4% and 19.1%, respectively, from the comparable period in 2017. The Combined Ratio for the three months ended September 30, 2018 was 105.3%, compared to 121.9% for the same period in 2017.

The current quarter included Net Losses and Loss Adjustment Expenses of $11.8 million, net of reinsurance reinstatement premiums, from Typhoon Jebi and Hurricane Florence, as well as prior accident year reserve strengthening of $16.5 million primarily within our Primary Casualty division of our U.S. Insurance reporting segment. This compares with the same quarter in 2017 which included Net Losses and Loss Adjustment Expenses of $75.1 million, net of reinsurance reinstatement premiums, from Hurricanes Maria, Irma and Harvey and the Puebla, Mexico Earthquake, as well as prior accident year reserve strengthening of $29.5 million primarily within our U.S. and International Insurance reporting segments.

Net Investment Income for the three months ended September 30, 2018 was $25.7 million, an increase of 13.5% as compared to the same period in 2017. The annualized pre-tax investment yield, excluding Total Net Realized and Unrealized Gains and Losses recognized in the Results of Operations, was 2.8% for the three months ended September 30, 2018 compared to 2.7% for the same period in 2017.

The Company recognized $2.6 million of Total Net Realized and Unrealized Gains within the Results of Operations for the three months ended September 30, 2018, compared to $4.2 million for the same period in 2017. The Net Realized and Unrealized Gains within the Results of Operations for the three months ended September 30, 2018 included $2.3 million of Net Unrealized Gains on Equity Securities.

Other Income (Loss) for the three months ended September 30, 2018 was $1.7 million, compared to $(1.7) million for the same period in 2017. Other Income (Loss) primarily consists of managing agent fee income and realized and unrealized foreign exchange gains and losses.

The effective tax rate was (11.1%) for the three months ended September 30, 2018, which compares to 37.6% for the same period in 2017, with the decrease being primarily driven by low pretax earnings resulting from an underwriting loss during the third quarter of 2018 and a consistent level of permanent tax adjustments, which generated a tax benefit for the quarter. This compares to the third quarter of 2017 which incurred large catastrophe losses driving a pretax loss resulting in a tax benefit.

Stan Galanski, President and Chief Executive Officer, commented, “We are pleased to report continued strong revenue growth in the third quarter, with each of our three reporting segments producing positive premium growth. We benefited from modest rate increases across the majority of our specialty product lines. The ongoing strength of the U.S. economy, and particularly the construction segment, also benefited us, providing a strong growth of new business. In a quarter in which the insurance industry experienced significant natural catastrophe activity, our natural catastrophe loss estimates were well within our expectations. GlobalRe had another excellent quarter, with 9.4% growth in gross written premium and a 93.2% combined ratio. Within the U.S. Insurance segment, gross written premium grew 19.2%. Underwriting results for the U.S. Insurance segment were adversely impacted by a strengthening of reserves for a portfolio of primary casualty policies on habitational risks that is largely now in runoff. Absent that action, the U.S. Insurance business would have been profitable, with continued solid performance in our primary construction liability, excess casualty, environmental, life sciences, marine and management and professional liability products. The International Insurance segment showed improved results over third quarter 2017 and for the first nine months and our team is focused on actions required to improve both the loss ratio and cost structure. Our investment portfolio continued to perform well, with net investment income up 13.5% for the quarter and 11.5% for the first nine months of 2018.”

On August 22, 2018, the Company announced that it had entered into a definitive agreement to be acquired by The Hartford Financial Services Group, Inc. (NYSE: HIG) in an all-cash transaction that values Navigators at approximately $2.1 billion. Holders of the Company’s common shares will be entitled to receive consideration of $70.00 in cash per common share. The Merger is expected to close in the first half of 2019, subject to the receipt of regulatory approvals and other customary closing conditions.

For the nine months ended September 30, 2018 the Company reported Net Income of $67.6 million, or $2.24 per diluted share compared to $13.6 million, or $0.45 per diluted share, for the same period in 2017. Net Operating Earnings1 were $64.7 million, or $2.15 per diluted share, for the nine months ended September 30, 2018 compared to $10.5 million, or $0.35 per diluted share, for the same period in 2017.

Gross Written Premiums and Net Written Premiums for the nine months ended September 30, 2018 were $1.4 billion and $1.1 billion, respectively, increasing 11.0% and 16.4%, respectively, from the comparable period in 2017. The Combined Ratio for the nine months ended September 30, 2018 was 98.6%, compared to 105.5% for the same period in 2017.

Net Investment Income for the nine months ended September 30, 2018 was $74.0 million, an increase of 11.5% as compared to the same period in 2017. The annualized pre-tax investment yield, excluding Total Net Realized and Unrealized Gains and Losses recognized in the Results of Operations, was 2.8% for the nine months ended September 30, 2018 compared to 2.7% for the same period in 2017.

The Company recognized $3.7 million of Total Net Realized and Unrealized Gains within the Results of Operations for the nine months ended September 30, 2018, compared to $5.9 million for the same period in 2017. The Net Realized and Unrealized Gains within the Results of Operations for the nine months ended September 30, 2018 included $0.5 million of Net Unrealized Gains on Equity Securities.

Other Income (Loss) for the nine months ended September 30, 2018 was $4.2 million, compared to $(1.0) million for the same period in 2017. Other Income for the nine months ended September 30, 2018 included revenue from the sale of renewal rights for the Company’s fixed-premium protection and indemnity (“P&I”) business as well as net realized and unrealized foreign exchange gains and managing agent fee income. Other Income for the same period in 2017 primarily consisted of net realized and unrealized foreign exchange losses.

The effective tax rate was 16.6% for the nine months ended September 30, 2018, which compares to (19.7%) for the same period in 2017. The tax benefit for the nine months ended September 30, 2017 was the result of a lower level of pretax earnings driven by catastrophe losses incurred during 2017 and a consistent level of permanent tax adjustments.

The Company’s investment portfolio mainly consists of fixed income securities with an average quality rating of “AA-/Aa3” as defined by S&P and Moody’s, respectively, with an effective duration of 3.4 years as of September 30, 2018. As of September 30, 2018, Net Unrealized Losses within the Available-For-Sale investment portfolio recognized in Accumulated Other Comprehensive Income were $38.4 million, a change of $79.8 million, compared to Net Unrealized Gains of $41.5 million as of December 31, 2017. Included in this change was the reclassification of $11.8 million of net unrealized gains, before tax, from Accumulated Other Comprehensive Income to Retained Earnings as a result of adopting ASU 2016-01.

Stockholders’ Equity was $1.2 billion, or $41.38 per share, as of September 30, 2018 compared to $41.49 per share, as of June 30, 2018, and $41.55 per share, as of December 31, 2017.

During the three months ended September 30, 2018, the Company declared and paid a quarterly cash dividend of $0.07 per share of Common Stock.

On November 7, 2018 our Board of Directors declared a cash dividend on our Company’s Common Stock of $0.07 per share, payable on December 21, 2018 to stockholders of record on November 30, 2018.

The Navigators Group, Inc. is an international specialty insurance holding company with operations in the United States, the United Kingdom, Continental Europe and Asia.

This press release may contain “forward-looking statements” as defined in the Private Securities Litigation Reform Act of 1995. Whenever used in this release, the words “estimate,” “expect,” “believe” or similar expressions are intended to identify such forward-looking statements. Forward-looking statements are derived from information that we currently have and assumptions that we make. These forward-looking statements include statements on the financial impact of tax reform. We continue to assess the tax accounting effects of tax reform. We cannot assure that results that we anticipate will be achieved, since results may differ materially because of known and unknown risks and uncertainties that we face. Please refer to Navigators’ most recent reports on Forms 10-K and 10-Q and its other filings with the Securities and Exchange Commission for a description of Navigators’ business and the important factors that may affect that business. Navigators’ undertakes no obligation to publicly update or revise any forward-looking statement.

___________________________

1  Net Operating Earnings (Loss) is a “non-GAAP financial measure” as defined in Regulation G. A reconciliation of Net Income (Loss) (the nearest GAAP financial measure) to Net Operating Earnings (Loss) is provided on page 4 of this release, as is a discussion of the rationale for the presentation of this item.

Contact:		Ciro M. DeFalco
		Executive Vice President and Chief Financial Officer
		(203) 905-6343
		cdefalco@navg.com
		www.navg.com

THE NAVIGATORS GROUP, INC. AND SUBSIDIARIESFINANCIAL HIGHLIGHTS(Unaudited)

		Three Months Ended												Nine Months Ended
amounts in thousands, except per share amounts		September 30,												September 30,
Results of Operations		2018				2017				Change				2018				2017				Change
Gross Written Premiums		$	455,943			$	402,038				13.4	%		$	1,448,403			$	1,304,522				11.0	%
Net Written Premiums			352,412				296,016				19.1	%			1,124,966				966,461				16.4	%
Revenues:
Net Earned Premiums		$	347,038			$	301,355				15.2	%		$	1,000,680			$	881,321				13.5	%
Net Investment Income			25,651				22,598				13.5	%			73,954				66,311				11.5	%
Net Realized and Unrealized Gains (Losses):
Total Other-Than-Temporary Impairment Losses			(15	)			(957	)			(98.4	%)			(71	)			(2,005	)			(96.5	%)
Portion of Loss Recognized in Other Comprehensive Income			15				(15	)		NM					71				(60	)		NM
Net Other-Than-Temporary Impairment Losses Recognized In Earnings			—				(972	)		NM					—				(2,065	)		NM
Net Realized Gains on Investments Sold			253				5,190				(95.1	%)			3,210				7,933				(59.5	%)
Net Unrealized Gains on Equity Securities			2,310				—			NM					457				—			NM
Total Net Realized and Unrealized Gains			2,563				4,218				(39.2	%)			3,667				5,868				(37.5	%)
Other Income (Loss)			1,724				(1,699	)		NM					4,235				(1,042	)		NM
Total Revenues		$	376,976			$	326,472				15.5	%		$	1,082,536			$	952,458				13.7	%
Expenses:
Net Losses and Loss Adjustment Expenses		$	240,900			$	276,171				(12.8	%)		$	623,378			$	622,881				0.1	%
Commission Expenses			57,999				45,509				27.4	%			165,344				141,526				16.8	%
Other Operating Expenses			67,584				45,773				47.6	%			198,692				165,077				20.4	%
Merger Transaction Costs			2,439				—			NM					2,439				—			NM
Interest Expense			3,891				3,862				0.8	%			11,619				11,584				0.3	%
Total Expenses		$	372,813			$	371,315				0.4	%		$	1,001,472			$	941,068				6.4	%
Income (Loss) Before Income Taxes		$	4,163			$	(44,843	)		NM				$	81,064			$	11,390			NM
Income Tax Expense (Benefit)			(462	)			(16,864	)			(97.3	%)			13,457				(2,243	)		NM
Net Income (Loss)		$	4,625			$	(27,979	)		NM				$	67,607			$	13,633			NM
Per Share Data
Net Income (Loss) Per Common Share:
Basic		$	0.16			$	(0.95	)		NM				$	2.28			$	0.46			NM
Diluted		$	0.15			$	(0.95	)		NM				$	2.24			$	0.45			NM
Average Common Shares Outstanding:
Basic			29,768				29,500								29,699				29,419
Diluted			30,184				29,500								30,160				30,006
Underwriting Ratios
Loss Ratio			69.4	%			91.6	%							62.3	%			70.7	%
Expense Ratio			35.9	%			30.3	%							36.3	%			34.8	%
Combined Ratio			105.3	%			121.9	%							98.6	%			105.5	%
Balance Sheet Data		September 30,				June 30,								September 30,				December 31,
		2018				2018								2018				2017
Stockholders' Equity		$	1,231,828			$	1,234,084				(0.2	%)		$	1,231,828			$	1,225,965				0.5	%
Book Value per Share		$	41.38			$	41.49				(0.3	%)		$	41.38			$	41.55				(0.4	%)

NM - Percentage change not meaningful.

THE NAVIGATORS GROUP, INC. AND SUBSIDIARIESNON-GAAP RECONCILIATION OF NET INCOME (LOSS) TO NET OPERATING EARNINGS (LOSS)(Unaudited)

In this release, we present Net Operating Earnings (Loss), which is a “non-GAAP financial measure” as defined in Regulation G.

Net Operating Earnings (Loss) is comprised of Net Income (Loss) excluding After-Tax adjustments, including: Total Net Realized and Unrealized Gains (Losses), Foreign Exchange Gains (Losses), the Net Gain on Disposition of Product Line, and Merger Transaction Costs recognized in the Results of Operations.

We believe this presentation enhances the understanding of the results of operations by highlighting the underlying profitability of the business and enables investors and other users of the financial information to analyze underlying business performance in a manner similar to management. We also believe this measure follows industry practice and, therefore facilitates comparison of our performance with our peer group.

The following tables provide a reconciliation of Net Income (Loss) (the nearest GAAP financial measure) to Net Operating Earnings (Loss):

		Three Months Ended September 30, 2018												Three Months Ended September 30, 2017												% Change
amounts in thousands, except per share amounts		Pre-Tax				Tax (1)				After-Tax				Pre-Tax				Tax (1)				After-Tax				QTD
Net Income (Loss)		$	4,163			$	462			$	4,625			$	(44,843	)		$	16,864			$	(27,979	)		NM
Adjustments to Net Income (Loss):
Total Net Realized and Unrealized Gains			(2,563	)			538				(2,025	)			(4,218	)			1,477				(2,741	)			(26.1	%)
FX Losses (Gains)			(706	)			148				(558	)			1,675				(586	)			1,089			NM
Merger Transaction Costs			2,439				(302	)			2,137				—				—				—			NM
Net Operating Earnings (Loss)		$	3,333			$	846			$	4,179			$	(47,386	)		$	17,755			$	(29,631	)		NM
Average Common Shares Outstanding:
Basic											29,768												29,500
Diluted											30,184												29,500
Net Operating Earnings (Loss) per Common Share:
Basic										$	0.14											$	(1.00	)
Diluted										$	0.14											$	(1.00	)

(1) - Tax impact is estimated by applying the statutory rates of applicable jurisdictions, after consideration of any other relevant factors.NM - Percentage change not meaningful.

		Nine Months Ended September 30, 2018												Nine Months Ended September 30, 2017												% Change
amounts in thousands, except per share amounts		Pre-Tax				Tax (1)				After-Tax				Pre-Tax				Tax (1)				After-Tax				YTD
Net Income		$	81,064			$	(13,457	)		$	67,607			$	11,390			$	2,243			$	13,633			NM
Adjustments to Net Income:
Total Net Realized and Unrealized Gains			(3,667	)			770				(2,897	)			(5,868	)			2,055				(3,813	)			(24.0	%)
FX Losses (Gains)			(1,770	)			371				(1,399	)			1,015				(355	)			660			NM
Net Gain on Disposition of Product Line			(948	)			199				(749	)			—				—				—			NM
Merger Transaction Costs			2,439				(302	)			2,137				—				—				—			NM
Net Operating Earnings		$	77,118			$	(12,419	)		$	64,699			$	6,537			$	3,943			$	10,480			NM
Average Common Shares Outstanding:
Basic											29,699												29,419
Diluted											30,160												30,006
Net Operating Earnings per Common Share:
Basic										$	2.18											$	0.36
Diluted										$	2.15											$	0.35

(1) - Tax impact is estimated by applying the statutory rates of applicable jurisdictions, after consideration of any other relevant factors.NM - Percentage change not meaningful.

THE NAVIGATORS GROUP, INC. AND SUBSIDIARIESCONSOLIDATED BALANCE SHEETS

		September 30,				December 31,
		2018				2017
amounts in thousands, except per share amounts		(Unaudited)
ASSETS
Investments:
Fixed Maturities, available-for-sale, at fair value (amortized cost: 2018:  $3,027,835; 2017: $3,027,408)		$	2,989,473			$	3,057,054
Equity Securities, at fair value  (cost: 2018: $359,400; 2017: $224,159)			371,680				235,981
Other Invested Assets			42,489				30,488
Short-Term Investments, available-for-sale, at fair value (amortized cost: 2018: $7,268; 2017: $6,477)			7,264				6,480
Total Investments		$	3,410,906			$	3,330,003
Cash and Cash Equivalents			219,980				102,735
Restricted Cash and Cash Equivalents			61,644				56,229
Premiums Receivable			392,392				351,393
Prepaid Reinsurance Premiums			235,642				228,569
Reinsurance Recoverable on Paid Losses			102,829				72,494
Reinsurance Recoverable on Unpaid Losses and Loss Adjustment Expenses			780,215				809,765
Deferred Policy Acquisition Costs			161,419				135,249
Accrued Investment Income			21,981				19,480
Goodwill and Other Intangible Assets			28,140				6,596
Current Income Tax Receivable, Net			25,429				16,667
Deferred Income Tax, Net			26,377				22,271
Other Assets			81,373				73,171
Total Assets		$	5,548,327			$	5,224,622
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Reserves for Losses and Loss Adjustment Expenses		$	2,633,835			$	2,515,145
Unearned Premiums			1,128,762				987,681
Reinsurance Balances Payable			147,129				136,192
Senior Notes			264,009				263,885
Payable for Investments Purchased			16,968				—
Accounts Payable and Other Liabilities			125,796				95,754
Total Liabilities		$	4,316,499			$	3,998,657
Stockholders' Equity:
Preferred Stock ($.10 par value per share, authorized 1,000 shares, none issued)		$	—			$	—
Common Stock ($.10 par value per share, authorized 50,000 shares, issued 36,795 shares for 2018 and 36,530 shares for 2017)			3,677				3,650
Additional Paid-In Capital			379,212				376,868
Treasury Stock, at cost (7,023 shares for 2018 and 2017)			(155,801	)			(155,801	)
Retained Earnings			1,047,673				981,380
Accumulated Other Comprehensive Income (Loss)			(42,933	)			19,868
Total Stockholders' Equity		$	1,231,828			$	1,225,965
Total Liabilities and Stockholders' Equity		$	5,548,327			$	5,224,622

THE NAVIGATORS GROUP, INC. AND SUBSIDIARIESSegment Information (Unaudited)

		Three Months Ended September 30, 2018
		U.S.				Int'l
amounts in thousands		Insurance				Insurance				GlobalRe				Corporate (1)				Total
Gross Written Premiums		$	280,183			$	117,376			$	58,384			$	—			$	455,943
Ceded Written Premiums			(72,615	)			(29,020	)			(1,896	)			—				(103,531	)
Net Written Premiums		$	207,568			$	88,356			$	56,488			$	—			$	352,412
Retention Ratio			74.1	%			75.3	%			96.8	%			—				77.3	%
Net Earned Premiums		$	188,504			$	95,226			$	63,308			$	—			$	347,038
Net Losses and LAE			(141,182	)			(60,275	)			(39,443	)			—				(240,900	)
Commission Expenses			(22,247	)			(22,547	)			(13,282	)			77				(57,999	)
Other Operating Expenses			(36,826	)			(24,441	)			(6,317	)			—				(67,584	)
Other Underwriting Income (Expense)			65				945				20				(77	)			953
Underwriting Profit (Loss)		$	(11,686	)		$	(11,092	)		$	4,286			$	—			$	(18,492	)
Net Investment Income															25,651				25,651
Total Net Realized and Unrealized Gains															2,563				2,563
Interest Expense															(3,891	)			(3,891	)
Other Income															771				771
Merger Transaction Costs															(2,439	)			(2,439	)
Income (Loss) Before Income Taxes		$	(11,686	)		$	(11,092	)		$	4,286			$	22,655			$	4,163
Income Tax Benefit															462				462
Net Income																		$	4,625
Losses and LAE Ratio			74.9	%			63.3	%			62.3	%							69.4	%
Commission Expense Ratio			11.8	%			23.7	%			21.0	%							16.7	%
Other Operating Expense Ratio (2)			19.5	%			24.6	%			9.9	%							19.2	%
Combined Ratio			106.2	%			111.6	%			93.2	%							105.3	%

(1) - Includes Corporate segment intercompany eliminations.(2) - Includes Other Operating Expenses and Other Underwriting Income (Expense).

THE NAVIGATORS GROUP, INC. AND SUBSIDIARIESSegment Information (Unaudited)

		Three Months Ended September 30, 2017
		U.S.				Int'l
amounts in thousands		Insurance				Insurance				GlobalRe				Corporate (1)				Total
Gross Written Premiums		$	235,052			$	113,601			$	53,385			$	—			$	402,038
Ceded Written Premiums			(64,328	)			(38,966	)			(2,728	)			—				(106,022	)
Net Written Premiums		$	170,724			$	74,635			$	50,657			$	—			$	296,016
Retention Ratio			72.6	%			65.7	%			94.9	%			—				73.6	%
Net Earned Premiums		$	169,150			$	84,407			$	47,798			$	—			$	301,355
Net Losses and LAE			(135,340	)			(81,713	)			(59,118	)			—				(276,171	)
Commission Expenses			(18,286	)			(16,201	)			(11,233	)			211				(45,509	)
Other Operating Expenses			(25,375	)			(16,388	)			(4,010	)			—				(45,773	)
Other Underwriting Income (Expense)			125				—				94				(211	)			8
Underwriting Loss		$	(9,726	)		$	(29,895	)		$	(26,469	)		$	—			$	(66,090	)
Net Investment Income															22,598				22,598
Total Net Realized and Unrealized Gains															4,218				4,218
Interest Expense															(3,862	)			(3,862	)
Other Loss															(1,707	)			(1,707	)
Income (Loss) Before Income Taxes		$	(9,726	)		$	(29,895	)		$	(26,469	)		$	21,247			$	(44,843	)
Income Tax Benefit															16,864				16,864
Net Loss																		$	(27,979	)
Losses and LAE Ratio			80.0	%			96.8	%			123.7	%							91.6	%
Commission Expense Ratio			10.8	%			19.2	%			23.5	%							15.1	%
Other Operating Expense Ratio (2)			14.9	%			19.4	%			8.2	%							15.2	%
Combined Ratio			105.7	%			135.4	%			155.4	%							121.9	%

(1) - Includes Corporate segment intercompany eliminations.(2) - Includes Other Operating Expenses and Other Underwriting Income (Expense).

THE NAVIGATORS GROUP, INC. AND SUBSIDIARIESSegment Information (Unaudited)

		Nine Months Ended September 30, 2018
		U.S.				Int'l
amounts in thousands		Insurance				Insurance				GlobalRe				Corporate (1)				Total
Gross Written Premiums		$	808,589			$	377,771			$	262,043			$	—			$	1,448,403
Ceded Written Premiums			(215,340	)			(97,790	)			(10,307	)			—				(323,437	)
Net Written Premiums		$	593,249			$	279,981			$	251,736			$	—			$	1,124,966
Retention Ratio			73.4	%			74.1	%			96.1	%			—				77.7	%
Net Earned Premiums		$	541,163			$	280,507			$	179,010			$	—			$	1,000,680
Net Losses and LAE			(363,489	)			(158,422	)			(101,467	)			—				(623,378	)
Commission Expenses			(63,490	)			(62,166	)			(40,198	)			510				(165,344	)
Other Operating Expenses			(112,264	)			(68,270	)			(18,158	)			—				(198,692	)
Other Underwriting Income (Expense)			234				945				294				(510	)			963
Underwriting Profit (Loss)		$	2,154			$	(7,406	)		$	19,481			$	—			$	14,229
Net Investment Income															73,954				73,954
Total Net Realized and Unrealized Gains															3,667				3,667
Interest Expense															(11,619	)			(11,619	)
Other Income															3,272				3,272
Merger Transaction Costs															(2,439	)			(2,439	)
Income (Loss) Before Income Taxes		$	2,154			$	(7,406	)		$	19,481			$	66,835			$	81,064
Income Tax Expense															(13,457	)			(13,457	)
Net Income																		$	67,607
Losses and LAE Ratio			67.2	%			56.5	%			56.7	%							62.3	%
Commission Expense Ratio			11.7	%			22.2	%			22.5	%							16.5	%
Other Operating Expense Ratio (2)			20.7	%			23.9	%			9.9	%							19.8	%
Combined Ratio			99.6	%			102.6	%			89.1	%							98.6	%

(1) - Includes Corporate segment intercompany eliminations.(2) - Includes Other Operating Expenses and Other Underwriting Income (Expense).

THE NAVIGATORS GROUP, INC. AND SUBSIDIARIESSegment Information (Unaudited)

		Nine Months Ended September 30, 2017
		U.S.				Int'l
amounts in thousands		Insurance				Insurance				GlobalRe				Corporate (1)				Total
Gross Written Premiums		$	729,843			$	386,654			$	188,025			$	—			$	1,304,522
Ceded Written Premiums			(199,672	)			(129,368	)			(9,021	)			—				(338,061	)
Net Written Premiums		$	530,171			$	257,286			$	179,004			$	—			$	966,461
Retention Ratio			72.6	%			66.5	%			95.2	%			—				74.1	%
Net Earned Premiums		$	500,241			$	250,593			$	130,487			$	—			$	881,321
Net Losses and LAE			(339,436	)			(176,513	)			(106,932	)			—				(622,881	)
Commission Expenses			(59,130	)			(54,435	)			(28,695	)			734				(141,526	)
Other Operating Expenses			(91,987	)			(58,687	)			(14,403	)			—				(165,077	)
Other Underwriting Income (Expense)			335				—				439				(734	)			40
Underwriting Profit (Loss)		$	10,023			$	(39,042	)		$	(19,104	)		$	—			$	(48,123	)
Net Investment Income															66,311				66,311
Total Net Realized and Unrealized Gains															5,868				5,868
Interest Expense															(11,584	)			(11,584	)
Other Loss															(1,082	)			(1,082	)
Income (Loss) Before Income Taxes		$	10,023			$	(39,042	)		$	(19,104	)		$	59,513			$	11,390
Income Tax Benefit															2,243				2,243
Net Income																		$	13,633
Losses and LAE Ratio			67.9	%			70.4	%			81.9	%							70.7	%
Commission Expense Ratio			11.8	%			21.7	%			22.0	%							16.1	%
Other Operating Expense Ratio (2)			18.3	%			23.5	%			10.7	%							18.7	%
Combined Ratio			98.0	%			115.6	%			114.6	%							105.5	%

(1) - Includes Corporate segment intercompany eliminations.(2) - Includes Other Operating Expenses and Other Underwriting Income (Expense).

THE NAVIGATORS GROUP, INC. AND SUBSIDIARIESReportable Segment Results(Unaudited)

		U.S. Insurance
		Three Months Ended September 30, 2018																Three Months Ended September 30, 2017
amounts in thousands		Marine				P&C				Professional Liability				Total				Marine				P&C				Professional Liability				Total				%ChangeTotal
Gross Written Premiums		$	31,681			$	212,911			$	35,591			$	280,183			$	36,403			$	166,097			$	32,552			$	235,052				19.2	%
Ceded Written Premiums			(14,442	)			(52,993	)			(5,180	)			(72,615	)			(18,859	)			(39,952	)			(5,517	)			(64,328	)			12.9	%
Net Written Premiums		$	17,239			$	159,918			$	30,411			$	207,568			$	17,544			$	126,145			$	27,035			$	170,724				21.6	%
Net Earned Premiums		$	20,401			$	141,650			$	26,453			$	188,504			$	20,129			$	125,931			$	23,090			$	169,150				11.4	%
Net Losses and LAE			(11,939	)			(112,993	)			(16,250	)			(141,182	)			(18,325	)			(89,568	)			(27,447	)			(135,340	)			4.3	%
Commission Expenses			(915	)			(16,597	)			(4,735	)			(22,247	)			(967	)			(13,515	)			(3,804	)			(18,286	)			21.7	%
Other Operating Expenses			(6,394	)			(25,202	)			(5,230	)			(36,826	)			(4,661	)			(16,897	)			(3,817	)			(25,375	)			45.1	%
Other Underwriting Income			49				12				4				65				105				18				2				125				(48.0	%)
Underwriting Profit (Loss)		$	1,202			$	(13,130	)		$	242			$	(11,686	)		$	(3,719	)		$	5,969			$	(11,976	)		$	(9,726	)			20.2	%
Losses and LAE Ratio			58.5	%			79.8	%			61.4	%			74.9	%			91.0	%			71.1	%			118.9	%			80.0	%
Commission Expense Ratio			4.5	%			11.7	%			17.9	%			11.8	%			4.8	%			10.7	%			16.5	%			10.8	%
Other Operating Expense Ratio (1)			31.1	%			17.8	%			19.8	%			19.5	%			22.7	%			13.5	%			16.5	%			14.9	%
Combined Ratio			94.1	%			109.3	%			99.1	%			106.2	%			118.5	%			95.3	%			151.9	%			105.7	%

(1) - Includes Other Operating Expenses and Other Underwriting Income.

THE NAVIGATORS GROUP, INC. AND SUBSIDIARIESReportable Segment Results(Unaudited)

		Int'l Insurance
		Three Months Ended September 30, 2018																Three Months Ended September 30, 2017
amounts in thousands		Marine				P&C				Professional Liability				Total				Marine				P&C				Professional Liability				Total				%ChangeTotal
Gross Written Premiums		$	32,486			$	41,898			$	42,992			$	117,376			$	41,689			$	37,415			$	34,497			$	113,601				3.3	%
Ceded Written Premiums			(4,965	)			(13,727	)			(10,328	)			(29,020	)			(9,948	)			(19,772	)			(9,246	)			(38,966	)			(25.5	%)
Net Written Premiums		$	27,521			$	28,171			$	32,664			$	88,356			$	31,741			$	17,643			$	25,251			$	74,635				18.4	%
Net Earned Premiums		$	38,866			$	29,616			$	26,744			$	95,226			$	39,038			$	21,775			$	23,594			$	84,407				12.8	%
Net Losses and LAE			(27,873	)			(12,728	)			(19,674	)			(60,275	)			(39,457	)			(29,918	)			(12,338	)			(81,713	)			(26.2	%)
Commission Expenses			(8,889	)			(6,465	)			(7,193	)			(22,547	)			(8,532	)			(2,666	)			(5,003	)			(16,201	)			39.2	%
Other Operating Expenses			(8,200	)			(9,705	)			(6,536	)			(24,441	)			(6,788	)			(5,614	)			(3,986	)			(16,388	)			49.1	%
Other Underwriting Income			640				305				—				945				—				—				—				—			NM
Underwriting Profit (Loss)		$	(5,456	)		$	1,023			$	(6,659	)		$	(11,092	)		$	(15,739	)		$	(16,423	)		$	2,267			$	(29,895	)			(62.9	%)
Losses and LAE Ratio			71.7	%			43.0	%			73.6	%			63.3	%			101.1	%			137.4	%			52.3	%			96.8	%
Commission Expense Ratio			22.9	%			21.8	%			26.9	%			23.7	%			21.9	%			12.2	%			21.2	%			19.2	%
Other Operating Expense Ratio (1)			19.4	%			31.7	%			24.4	%			24.6	%			17.3	%			25.8	%			16.9	%			19.4	%
Combined Ratio			114.0	%			96.5	%			124.9	%			111.6	%			140.3	%			175.4	%			90.4	%			135.4	%

(1) - Includes Other Operating Expenses and Other Underwriting Income.NM – Percentage change not meaningful

THE NAVIGATORS GROUP, INC. AND SUBSIDIARIESReportable Segment Results(Unaudited)

		U.S. Insurance
		Nine Months Ended September 30, 2018																Nine Months Ended September 30, 2017
amounts in thousands		Marine				P&C				Professional Liability				Total				Marine				P&C				Professional Liability				Total				%ChangeTotal
Gross Written Premiums		$	112,235			$	599,088			$	97,266			$	808,589			$	119,040			$	524,223			$	86,580			$	729,843				10.8	%
Ceded Written Premiums			(48,840	)			(152,740	)			(13,760	)			(215,340	)			(55,830	)			(129,297	)			(14,545	)			(199,672	)			7.8	%
Net Written Premiums		$	63,395			$	446,348			$	83,506			$	593,249			$	63,210			$	394,926			$	72,035			$	530,171				11.9	%
Net Earned Premiums		$	62,670			$	401,870			$	76,623			$	541,163			$	64,635			$	366,280			$	69,326			$	500,241				8.2	%
Net Losses and LAE			(37,208	)			(280,103	)			(46,178	)			(363,489	)			(44,867	)			(239,175	)			(55,394	)			(339,436	)			7.1	%
Commission Expenses			(3,103	)			(46,853	)			(13,534	)			(63,490	)			(4,014	)			(44,113	)			(11,003	)			(59,130	)			7.4	%
Other Operating Expenses			(19,603	)			(77,057	)			(15,604	)			(112,264	)			(18,280	)			(60,356	)			(13,351	)			(91,987	)			22.0	%
Other Underwriting Income			179				40				15				234				270				45				20				335				(30.2	%)
Underwriting Profit (Loss)		$	2,935			$	(2,103	)		$	1,322			$	2,154			$	(2,256	)		$	22,681			$	(10,402	)		$	10,023				(78.5	%)
Losses and LAE Ratio			59.4	%			69.7	%			60.3	%			67.2	%			69.4	%			65.3	%			79.9	%			67.9	%
Commission Expense Ratio			5.0	%			11.7	%			17.7	%			11.7	%			6.2	%			12.0	%			15.9	%			11.8	%
Other Operating Expense Ratio (1)			30.9	%			19.1	%			20.3	%			20.7	%			27.9	%			16.5	%			19.2	%			18.3	%
Combined Ratio			95.3	%			100.5	%			98.3	%			99.6	%			103.5	%			93.8	%			115.0	%			98.0	%

(1) - Includes Other Operating Expenses and Other Underwriting Income.

THE NAVIGATORS GROUP, INC. AND SUBSIDIARIESReportable Segment Results(Unaudited)

		Int'l Insurance
		Nine Months Ended September 30, 2018																Nine Months Ended September 30, 2017
amounts in thousands		Marine				P&C				Professional Liability				Total				Marine				P&C				Professional Liability				Total				%ChangeTotal
Gross Written Premiums		$	129,678			$	122,437			$	125,656			$	377,771			$	160,119			$	124,446			$	102,089			$	386,654				(2.3	%)
Ceded Written Premiums			(24,542	)			(45,099	)			(28,149	)			(97,790	)			(33,410	)			(69,780	)			(26,178	)			(129,368	)			(24.4	%)
Net Written Premiums		$	105,136			$	77,338			$	97,507			$	279,981			$	126,709			$	54,666			$	75,911			$	257,286				8.8	%
Net Earned Premiums		$	115,342			$	75,100			$	90,065			$	280,507			$	116,058			$	67,292			$	67,243			$	250,593				11.9	%
Net Losses and LAE			(77,606	)			(28,245	)			(52,571	)			(158,422	)			(83,906	)			(54,654	)			(37,953	)			(176,513	)			(10.2	%)
Commission Expenses			(27,563	)			(12,014	)			(22,589	)			(62,166	)			(27,590	)			(10,985	)			(15,860	)			(54,435	)			14.2	%
Other Operating Expenses			(22,942	)			(26,087	)			(19,241	)			(68,270	)			(24,454	)			(19,983	)			(14,250	)			(58,687	)			16.3	%
Other Underwriting Income			640				305				—				945				—				—				—				—			NM
Underwriting Profit (Loss)		$	(12,129	)		$	9,059			$	(4,336	)		$	(7,406	)		$	(19,892	)		$	(18,330	)		$	(820	)		$	(39,042	)			(81.0	%)
Losses and LAE Ratio			67.3	%			37.6	%			58.4	%			56.5	%			72.3	%			81.2	%			56.4	%			70.4	%
Commission Expense Ratio			23.9	%			16.0	%			25.1	%			22.2	%			23.8	%			16.3	%			23.6	%			21.7	%
Other Operating Expense Ratio (1)			19.3	%			34.3	%			21.3	%			23.9	%			21.0	%			29.7	%			21.2	%			23.5	%
Combined Ratio			110.5	%			87.9	%			104.8	%			102.6	%			117.1	%			127.2	%			101.2	%			115.6	%

(1) - Includes Other Operating Expenses and Other Underwriting Income.NM – Percentage change not meaningful

THE NAVIGATORS GROUP, INC. AND SUBSIDIARIESNet Incurred Loss Activity(Unaudited)

		For the Three Months Ended September 30,
amounts in thousands		Amounts								Loss Ratio
Net Incurred Loss Activity		2018				2017				2018				2017
U.S. Insurance:
Loss and LAE Payments		$	74,090			$	68,454				39.3	%			40.5	%
Change in Reserves			67,092				66,886				35.6	%			39.5	%
Net Incurred Loss and LAE		$	141,182			$	135,340				74.9	%			80.0	%
Int'l Insurance:
Loss and LAE Payments		$	55,647			$	55,148				58.4	%			65.3	%
Change in Reserves			4,628				26,565				4.9	%			31.5	%
Net Incurred Loss and LAE		$	60,275			$	81,713				63.3	%			96.8	%
GlobalRe:
Loss and LAE Payments		$	30,903			$	13,659				48.8	%			28.6	%
Change in Reserves			8,540				45,459				13.5	%			95.1	%
Net Incurred Loss and LAE		$	39,443			$	59,118				62.3	%			123.7	%
Total
Loss and LAE Payments		$	160,640			$	137,261				46.3	%			45.5	%
Change in Reserves			80,260				138,910				23.1	%			46.1	%
Net Incurred Loss and LAE		$	240,900			$	276,171				69.4	%			91.6	%
		For the Three Months Ended September 30,
Impact of Prior Years Reserves		Amounts								Loss Ratio Impact
Favorable / (Unfavorable) Development		2018				2017				2018				2017
U.S. Insurance		$	(16,640	)		$	(18,383	)			(4.8	%)			(6.0	%)
Int'l Insurance			(1,813	)			(10,714	)			(0.5	%)			(3.7	%)
GlobalRe			1,959				(397	)			0.6	%			(0.1	%)
Total		$	(16,494	)		$	(29,494	)			(4.7	%)			(9.8	%)

THE NAVIGATORS GROUP, INC. AND SUBSIDIARIESNet Incurred Loss Activity(Unaudited)

		For the Nine Months Ended September 30,
amounts in thousands		Amounts								Loss Ratio
Net Incurred Loss Activity		2018				2017				2018				2017
U.S. Insurance:
Loss and LAE Payments		$	242,910			$	225,017				44.9	%			45.0	%
Change in Reserves			120,579				114,419				22.3	%			22.9	%
Net Incurred Loss and LAE		$	363,489			$	339,436				67.2	%			67.9	%
Int'l Insurance:
Loss and LAE Payments		$	160,816			$	146,106				57.3	%			58.3	%
Change in Reserves			(2,394	)			30,407				(0.9	%)			12.1	%
Net Incurred Loss and LAE		$	158,422			$	176,513				56.4	%			70.4	%
GlobalRe:
Loss and LAE Payments		$	82,589			$	63,268				46.2	%			48.5	%
Change in Reserves			18,878				43,664				10.5	%			33.4	%
Net Incurred Loss and LAE		$	101,467			$	106,932				56.7	%			81.9	%
Total
Loss and LAE Payments		$	486,315			$	434,391				48.6	%			49.3	%
Change in Reserves			137,063				188,490				13.7	%			21.4	%
Net Incurred Loss and LAE		$	623,378			$	622,881				62.3	%			70.7	%
		For the Nine Months Ended September 30,
Impact of Prior Years Reserves		Amounts								Loss Ratio Impact
Favorable / (Unfavorable) Development		2018				2017				2018				2017
U.S. Insurance		$	(19,233	)		$	(18,206	)			(1.9	%)			(2.1	%)
Int'l Insurance			(2,660	)			(22,073	)			(0.3	%)			(2.5	%)
GlobalRe			2,079				(4,330	)			0.2	%			(0.5	%)
Total		$	(19,814	)		$	(44,609	)			(2.0	%)			(5.1	%)

THE NAVIGATORS GROUP, INC. AND SUBSIDIARIESNet Loss Data(Unaudited)

		As of September 30, 2018
amounts in thousands		Case				IBNR
Net Loss Reserves:		Reserves				Reserves				Total
U.S. Insurance:
Marine		$	55,476			$	48,904			$	104,380
P&C			217,004				783,350				1,000,354
Professional Liability			36,075				89,358				125,433
Total U.S. Insurance		$	308,555			$	921,612			$	1,230,167
Int'l Insurance:
Marine		$	174,517			$	38,034			$	212,551
P&C			59,152				31,539				90,691
Professional Liability			42,193				107,591				149,784
Total Int'l Insurance		$	275,862			$	177,164			$	453,026
GlobalRe		$	55,752			$	114,675			$	170,427
Total Net Loss Reserves		$	640,169			$	1,213,451			$	1,853,620
		As of December 31, 2017
		Case				IBNR
Net Loss Reserves:		Reserves				Reserves				Total
U.S. Insurance:
Marine		$	58,301			$	45,393			$	103,694
P&C			192,291				700,264				892,555
Professional Liability			26,774				86,649				113,423
Total U.S. Insurance		$	277,366			$	832,306			$	1,109,672
Int'l Insurance:
Marine		$	181,369			$	39,949			$	221,318
P&C			66,412				37,067				103,479
Professional Liability			31,463				87,211				118,674
Total Int'l Insurance		$	279,244			$	164,227			$	443,471
GlobalRe		$	58,962			$	93,275			$	152,237
Total Net Loss Reserves		$	615,572			$	1,089,808			$	1,705,380

THE NAVIGATORS GROUP, INC. AND SUBSIDIARIESInvestment Data(Unaudited)

As of September 30, 2018, the average quality of the investment portfolio as rated by S&P and Moody’s was “AA-/Aa3”, respectively, with an effective duration of 3.4 years. The Company does not own any collateralized debt obligations or asset backed commercial paper.

The following table sets forth the Available-For-Sale Investments as of September 30, 2018:

		As of September 30, 2018
						Gross				Gross				Cost or
		Fair				Unrealized				Unrealized				Amortized
amounts in thousands		Value				Gains				(Losses)				Cost
Fixed Maturities:
U.S. Treasury Bonds, Agency Bonds and Foreign Government Bonds		$	245,285			$	1,031			$	(3,879	)		$	248,133
States, Municipalities and Political Subdivisions			631,514				7,569				(7,534	)			631,479
Mortgage-Backed and Asset-Backed Securities:
Agency Mortgage-Backed Securities			344,016				874				(17,219	)			360,361
Residential Mortgage Obligations			124,191				521				(493	)			124,163
Asset-Backed Securities			540,566				554				(4,033	)			544,045
Commercial Mortgage-Backed Securities			186,251				696				(3,126	)			188,681
Subtotal		$	1,195,024			$	2,645			$	(24,871	)		$	1,217,250
Corporate Exposures (1)			917,650				4,191				(17,514	)			930,973
Total Fixed Maturities		$	2,989,473			$	15,436			$	(53,798	)		$	3,027,835
Short-Term Investments			7,264				—				(4	)			7,268
Total Available-For-Sale Investments		$	2,996,737			$	15,436			$	(53,802	)		$	3,035,103

(1) - Corporate Exposures consist of investments in corporate bonds, hybrid bonds and redeemable preferred stocks.