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Navigators Reports First Quarter 2016 Earnings

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STAMFORD, Conn., May 05, 2016 (GLOBE NEWSWIRE) -- The Navigators Group, Inc. (NASDAQ: NAVG) reported net income of $22.9 million, or $1.54 per diluted share, for the three months ended March 31, 2016 compared to $25.9 million, or $1.77 per diluted share, for the comparable period in 2015. Operating earnings were $20.2 million, or $1.36 per diluted share, for the three months ended March 31, 2016 compared to $20.9 million, or $1.43 per diluted share, for the comparable period in 2015. 

Gross written premiums and net written premiums for the three months ended March 31, 2016 were $413.9 million and $319.8 million, respectively, increases of 4.4% and 10.7% from the comparable period in 2015.

The combined ratio for the three months ended March 31, 2016 was 95.1% compared to 92.3% for the comparable period in 2015.

Stan Galanski, President and Chief Executive Officer commented, "We are pleased to report profitable underwriting results across all three of our reporting segments, contributing to strong operating earnings and book value growth for the quarter. Our marine business continued to perform very well globally as did our U.S. property and casualty products. Premium growth benefitted from the ongoing development of the previous investments made in new products and new offices over the past few years. This was most evident in our International Insurance segment, where our newer first-party products at Lloyd's contributed meaningfully to growth as did our European regional offices. At the same time, we continue to walk away from business that does not meet our standards for rates and policy terms, emphasizing the integrity of individual risk underwriting. We are encouraged by the improved contribution to earnings from our investment portfolio, which was achieved while maintaining the overall credit quality of the portfolio." 

Stockholders' equity was $1.144 billion, or $78.72 per share, as of March 31, 2016 compared to $1.096 billion, or $75.96 per share, as of December 31, 2015.

Net investment income for the three months ended March 31, 2016 was $19.6 million, an increase of 20.6% from the comparable period in 2015. The annualized pre-tax investment yield, excluding net realized gains and losses and other-than-temporary impairment losses recognized in earnings, was 2.7% for the three months ended March 31, 2016, compared to 2.4% for the comparable period in 2015.

The Company's investment portfolio mainly consists of fixed income securities with an average quality rating of "AA-/Aa3" as defined by Standard & Poor's and Moody's, respectively, and an average effective duration of 3.7 years as of March 31, 2016.  As of March 31, 2016, net unrealized gains within our investment portfolio were $72.9 million, an increase of $35.6 million compared to December 31, 2015.

There were $1.6 million of net realized gains recognized in earnings for the three months ended March 31, 2016, compared to $5.6 million for the same period in 2015. 

Other income (loss) for the three months ended March 31, 2016 was $2.6 million of income, compared to $2.2 million of income for the same period in 2015.  Other income (loss) primarily consists of realized and unrealized foreign exchange gains and losses.

The Company will hold a conference call on Friday, May 6, 2016 starting at 8:30 a.m. (EST) to discuss the 2016 first quarter results.  The call will be available via live webcast on Navigators' website (www.navg.com).

To participate by telephone, the domestic dial-in number is (800) 850-2903 and the international dial-in is (224) 357-2399. Participants may connect to the webcast at: 

http://edge.media-server.com/m/p/uysns3xg

Net operating earnings, or net income excluding after-tax net realized gains (losses), after-tax net other-than-temporary impairment losses recognized in earnings, and after-tax foreign exchange gains and losses resulting from foreign currency transactions (transactions denominated in a currency other than the entity's functional currency) and translation adjustments (translation of foreign currency denominated assets and liabilities into the entity's functional currency), is a non-GAAP financial measure that is a common performance measurement for insurance companies.  We believe this presentation enhances the understanding of our results of operations by highlighting the underlying profitability of our insurance business.

The Navigators Group, Inc. is an international specialty insurance holding company with insurance company operations, underwriting management companies and operations at Lloyd's. Navigators has offices in the United States, the United Kingdom and Continental Europe, as well as representative offices in China and Brazil.

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. 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.

THE NAVIGATORS GROUP, INC. AND SUBSIDIARIES
FINANCIAL HIGHLIGHTS
($ in thousands, except share and per share data)
(unaudited)
      
   Three Months Ended 
   March 31, 
Results of Operations  2016  2015 Change
      
Gross written premiums $   413,877  $   396,460   4.4%
Net written premiums    319,820     288,958   10.7%
      
Revenues:    
 Net earned premiums  264,358  236,132  12.0%
 Net investment income  19,594  16,253  20.6%
 Net realized gains (losses):    
 Total other-than-temporary impairment losses  (109) 23  NM 
 Portion of loss recognized in other comprehensive   
 income (before tax)  109  (23) NM 
 Net other-than-temporary impairment losses    
 recognized in earnings  -  -  NM 
 Other realized gains (losses)  1,597  5,596  -71.5%
 Net realized gains (losses)  1,597  5,596  -71.5%
 Other income (loss)  2,549  2,242  13.7%
 Total revenues    288,098     260,223   10.7%
      
Expenses:    
 Net losses and loss adjustment expenses  152,956  130,198  17.5%
 Commission expenses  37,554  32,905  14.1%
 Other operating expenses  60,809  54,909  10.7%
 Interest expense  3,858  3,855  0.1%
 Total expenses    255,177     221,867   15.0%
      
Income before income taxes    32,921     38,356   -14.2%
      
Income tax expense (benefit)    9,989     12,427   -19.6%
      
Net income (loss) $   22,932  $   25,929   -11.6%
      
      
Per Share Data    
      
Net income per common share:    
 Basic $   1.58  $   1.81   -12.7%
 Diluted $   1.54  $   1.77   -13.1%
      
Average common shares outstanding:    
 Basic    14,492,214     14,327,606   
 Diluted    14,891,646     14,637,837   
      
Underwriting Ratios    
Loss Ratio  57.9% 55.1% 
Expense Ratio  37.2% 37.2% 
Combined Ratio  95.1% 92.3% 
      
      
Balance Sheet Data March 31,Dec. 31, 
    2016  2015  
Stockholders' equity $   1,143,879  $   1,096,148   4.4%
Book value per share $   78.72  $   75.96   3.6%
     
NM - Percentage change not meaningful    
     


THE NAVIGATORS GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (Unaudited)
  
amounts in thousands, except share and per share amounts.     
    March  31, December 31, 
     2016   2015  
ASSETS     
Investments:     
Fixed maturities, available-for-sale, at fair value (amortized cost: 2016: $2,432,837; 2015: $2,400,245)$2,477,720  $2,414,210  
Equity securities, available-for-sale, at fair value (cost: 2016: $286,811; 2015: $281,943) 314,815   305,271  
Short-term investments, at fair value (amortized cost: 2016: $211,782; 2015: $217,743)  211,782   217,745  
Total investments$3,004,317  $2,937,226  
        
Cash  72,618   69,901  
Premiums receivable  348,916   276,616  
Prepaid reinsurance premiums 220,696   232,588  
Reinsurance recoverable on paid losses 55,752   49,506  
Reinsurance recoverable on unpaid losses and loss adjustment expenses  793,632   809,518  
Deferred policy acquisition costs  105,359   91,983  
Accrued investment income  16,451   16,001  
Goodwill and other intangible assets  6,746   6,807  
Current income tax receivable, net  13,032   22,323  
Deferred income tax, net  -   3,900  
Other assets Other assets  59,114   67,643  
Total assets $4,696,633  $4,584,012  
        
LIABILITIES AND STOCKHOLDERS' EQUITY     
Liabilities:     
Reserves for losses and loss adjustment expenses $2,211,848  $2,202,644  
Unearned premiums  864,247   820,676  
Reinsurance balances payable  123,165   107,411  
Senior notes 263,616   263,580  
Deferred income tax, net  8,280   -  
Accounts payable and other liabilities  81,598   93,553  
Total liabilities $3,552,754  $3,487,864  
        
Stockholders' equity:     
Preferred stock, $.10 par value, authorized 1,000,000 shares, none issued $-  $-  
Common stock, $.10 par value, authorized 50,000,000 shares, issued 18,042,474 shares for 2016    
and 17,942,269 shares for 2015 1,803   1,793  
Additional paid-in capital 359,829   357,829  
Treasury stock, at cost (3,511,380 shares for 2016 and 2015) (155,801)  (155,801) 
Retained earnings 891,655   868,723  
Accumulated other comprehensive income 46,393   23,604  
Total stockholders' equity$1,143,879  $1,096,148  
Total liabilities and stockholders' equity $4,696,633  $4,584,012  
        

 

THE NAVIGATORS GROUP, INC. AND SUBSIDIARIES
Segment Information
             
  Three Months Ended March 31, 2016  
  U.S. Int'l        
amounts in thousands Insurance Insurance GlobalRe Corporate (1) Total  
Gross written premiums $210,647  $144,143  $59,087  $-  $413,877   
Ceded written premiums  (54,497)  (34,971)  (4,589)  -   (94,057)  
Net written premiums  156,150   109,172   54,498   -   319,820   
             
Net earned premiums  148,340   78,008   38,010   -   264,358   
Net losses and LAE  (91,512)  (40,410)  (21,034)  -   (152,956)  
Commission expenses  (14,855)  (15,355)  (7,745)  401   (37,554)  
Other operating expenses  (33,761)  (21,771)  (5,277)  -   (60,809)  
Other underwriting income (expense)  361   -   49   (401)  9   
             
Underwriting profit (loss) $8,573  $472  $4,003  $-  $13,048   
             
Net investment income        19,594   19,594   
Net realized gains (losses)        1,597   1,597   
Interest expense        (3,858)  (3,858)  
Other income (loss)        2,540   2,540   
Income before income taxes $8,573  $472  $4,003  $19,873  $32,921   
Income tax (expense) benefit        (9,989)  (9,989)  
Net income (loss)         $22,932   
             
             
Losses and LAE ratio  61.7%  51.8%  55.3%    57.9%  
Commission expense ratio  10.0%  19.7%  20.4%    14.2%  
Other operating expense ratio (2)  22.5%  27.9%  13.8%    23.0%  
Combined ratio  94.2%  99.4%  89.5%    95.1%  
             
(1) - Includes Corporate segment intercompany eliminations.          
(2) - Includes Other operating expenses and Other underwriting income (expense).      
             


THE NAVIGATORS GROUP, INC. AND SUBSIDIARIES
Segment Information
             
  Three Months Ended March 31, 2015  
  U.S. Int'l        
amounts in thousands Insurance Insurance GlobalRe Corporate (1) Total  
Gross written premiums $199,327  $122,427  $74,706  $-  $396,460   
Ceded written premiums  (68,730)  (34,256)  (4,516)  -   (107,502)  
Net written premiums  130,597   88,171   70,190   -   288,958   
             
Net earned premiums  131,091   65,525   39,516   -   236,132   
Net losses and LAE  (77,799)  (29,691)  (22,708)  -   (130,198)  
Commission expenses  (14,345)  (11,413)  (7,298)  151   (32,905)  
Other operating expenses  (33,688)  (17,009)  (4,212)  -   (54,909)  
Other underwriting income (expense)  196   -   10   (151)  55   
             
Underwriting profit (loss) $5,455  $7,412  $5,308  $-  $18,175   
             
Net investment income        16,253   16,253   
Net realized gains (losses)        5,596   5,596   
Interest expense        (3,855)  (3,855)  
Other income (loss)        2,187   2,187   
Income before income taxes $5,455  $7,412  $5,308  $20,181  $38,356   
Income tax (expense) benefit        (12,427)  (12,427)  
Net income (loss)         $25,929   
             
             
Losses and LAE ratio  59.3%  45.3%  57.5%    55.1%  
Commission expense ratio  10.9%  17.4%  18.5%    13.9%  
Other operating expense ratio (2)  25.6%  26.0%  10.6%    23.3%  
Combined ratio  95.8%  88.7%  86.6%    92.3%  
_______________            
(1) - Includes Corporate segment intercompany eliminations.          
(2) - Includes Other operating expenses and Other underwriting income (expense).      
             


THE NAVIGATORS GROUP, INC. AND SUBSIDIARIES
Reportable Segment Results
              
  U.S. Insurance 
  Three months ended March 31, 2016 Three months ended March 31, 2015   
amounts in thousands MarineP&CProfessional
Liability
Total MarineP&CProfessional
Liability
Total %
Change
Total
 
Gross written premiums $43,163 $141,278 $26,206 $210,647  $40,835 $134,146 $24,346 $199,327   5.7% 
Ceded written premiums  (17,647) (30,507) (6,343) (54,497)  (16,286) (39,558) (12,886) (68,730)  -20.7% 
Net written premiums  25,516  110,771  19,863  156,150   24,549  94,588  11,460  130,597   19.6% 
              
Net earned premiums $23,250 $109,159 $15,931 $148,340  $23,924 $90,735 $16,432 $131,091   13.2% 
Net losses and LAE  (9,775) (71,597) (10,140) (91,512)  (10,188) (58,047) (9,564) (77,799)  17.6% 
Commission expenses  (1,482) (11,852) (1,521) (14,855)  (4,032) (8,556) (1,757) (14,345)  3.6% 
Other operating expenses  (7,372) (21,522) (4,867) (33,761)  (6,973) (21,059) (5,656) (33,688)  0.2% 
Other underwriting income (expense)  79  268  14  361   151  44  1  196   84.2% 
              
Underwriting profit (loss) $4,700 $4,456 $(583)$8,573  $2,882 $3,117 $(544)$5,455   57.2% 
              
Losses and LAE ratio  42.0% 65.6% 63.7% 61.7%  42.6% 64.0% 58.2% 59.3%   
Commission expense ratio  6.4% 10.9% 9.5% 10.0%  16.9% 9.4% 10.7% 10.9%   
Other operating expense ratio (1)  31.4% 19.4% 30.5% 22.5%  28.5% 23.2% 34.4% 25.6%   
Combined ratio  79.8% 95.9% 103.7% 94.2%  88.0% 96.6% 103.3% 95.8%   
              
(1) - Includes Other operating expenses and Other underwriting income (expense).         
              
              
  Int'l Insurance 
  Three months ended March 31, 2016 Three months ended March 31, 2015   
amounts in thousands  Marine  P&C  Professional
Liability
 
 Total  MarineP&CProfessional
Liability
Total %
Change
Total
 
Gross written premiums $71,948 $44,046 $28,149 $144,143  $67,410 $32,950 $22,067 $122,427   17.7% 
Ceded written premiums  (11,089) (17,229) (6,653) (34,971)  (10,822) (16,129) (7,305) (34,256)  2.1% 
Net written premiums  60,859  26,817  21,496  109,172   56,588  16,821  14,762  88,171   23.8% 
              
Net earned premiums $38,856 $21,209 $17,943 $78,008  $37,792 $16,034 $11,699 $65,525   19.1% 
Net losses and LAE  (20,088) (11,216) (9,106) (40,410)  (19,511) (4,880) (5,300) (29,691)  36.1% 
Commission expenses  (9,405) (2,775) (3,175) (15,355)  (9,190) (1,027) (1,196) (11,413)  34.5% 
Other operating expenses  (8,442) (8,708) (4,621) (21,771)  (6,695) (5,984) (4,330) (17,009)  28.0% 
Other underwriting income (expense)  -  -  -  -   -  -  -  -   NM  
              
Underwriting profit (loss) $921 $(1,490)$1,041 $472  $2,396 $4,143 $873 $7,412   -93.6% 
              
Losses and LAE ratio  51.7% 52.9% 50.7% 51.8%  51.6% 30.4% 45.3% 45.3%   
Commission expense ratio  24.2% 13.1% 17.7% 19.7%  24.3% 6.4% 10.2% 17.4%   
Other operating expense ratio (1)  21.7% 41.0% 25.8% 27.9%  17.8% 37.4% 37.0% 26.0%   
Combined ratio  97.6% 107.0% 94.2% 99.4%  93.7% 74.2% 92.5% 88.7%   
              
NM - Percentage change not meaningful            
(1) - Includes Other operating expenses and Other underwriting income (expense).         
              


THE NAVIGATORS GROUP, INC. AND SUBSIDIARIES 
Net Incurred Loss Activity 
($ in thousands) 
         
  For the Three Months Ended March 31,  
  Amounts Loss Ratio  
Net Incurred Loss Activity  2016  2015   2016  2015   
US Insurance:        
Loss and LAE payments $73,035 $62,734   49.2% 47.8%  
Change in reserves  18,477  15,065   12.5% 11.5%  
Net incurred loss and LAE  91,512  77,799   61.7% 59.3%  
         
International Insurance:        
Loss and LAE payments  29,243  35,537   37.5% 54.2%  
Change in reserves  11,167  (5,846)  14.3% -8.9%  
Net incurred loss and LAE  40,410  29,691   51.8% 45.3%  
         
Global Reinsurance:        
Loss and LAE payments  25,131  21,212   66.1% 53.7%  
Change in reserves  (4,097) 1,496   -10.8% 3.8%  
Net incurred loss and LAE  21,034  22,708   55.3% 57.5%  
         
Total        
Loss and LAE payments  127,409  119,483   48.2% 50.6%  
Change in reserves  25,547  10,715   9.7% 4.5%  
Net incurred loss and LAE $152,956 $130,198   57.9% 55.1%  
         
  Amounts Loss Ratio Impact  
Impact of Prior Years Reserves Mar. 31,Mar. 31, Mar. 31,Mar. 31,  
Favorable / (Unfavorable) Development 2016  2015   2016  2015   
US Insurance $2,669 $6,409   1.0% 2.7%  
International Insurance  (855) 6,191   -0.3% 2.6%  
Global Reinsurance  20  (1)  0.0% 0.0%  
Total $1,834 $12,599   0.7% 5.3%  
         

 

 

THE NAVIGATORS GROUP, INC. AND SUBSIDIARIES 
Net Loss Data 
($ in thousands) 
          
    As of March 31, 2016 
    Case IBNR   
Net Loss Reserves:  Reserves Reserves Total 
US Insurance:        
Marine   $61,330  $52,905  $114,235  
Property Casualty   181,868   539,950   721,818  
Professional Liability   35,188   60,167   95,355  
Total US Insurance   278,386   653,022   931,408  
International Insurance:        
Marine    168,371   60,951   229,322  
Property Casualty   42,189   21,437   63,626  
Professional Liability   27,136   62,123   89,259  
Total International Insurance  237,696   144,511   382,207  
          
Global Reinsurance   37,309   67,292   104,601  
          
Total Net Loss Reserves $553,391  $864,825  $1,418,216  
          
          
    As of December 31, 2015 
    Case IBNR   
Net Loss Reserves:  Reserves Reserves Total 
US Insurance:        
Marine   $68,677  $55,408  $124,085  
Property Casualty   170,988   514,777   685,765  
Professional Liability   42,546   60,528   103,074  
Total US Insurance   282,211   630,713   912,924  
International Insurance:        
Marine    167,157   61,409   228,566  
Property Casualty   40,313   19,735   60,048  
Professional Liability   19,583   63,229   82,812  
Total International Insurance  227,053   144,373   371,426  
          
Global Reinsurance   32,160   76,616   108,776  
          
Total Net Loss Reserves $541,424  $851,702  $1,393,126  
          


THE NAVIGATORS GROUP, INC. AND SUBSIDIARIES
Investment Data

As of March 31, 2016, the average quality of the investment portfolio as rated by S&P and Moody's was AA-/Aa3 with an average duration of 3.7 years. The Company does not own any collateralized debt obligations (CDO's) or asset backed commercial paper.

The following table sets forth our investments as of March 31, 2016:

                
        As of  March 31, 2016 
          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 $322,009  $4,934  $(4,478) $321,553  
 States, municipalities and political subdivisions  550,855   26,085   (497)  525,267  
 Mortgage-backed and asset-backed securities:         
  Agency mortgage-backed securities  380,418   8,831   (323)  371,910  
  Residential mortgage obligations  29,451   569   (131)  29,013  
  Asset-backed securities  235,714   421   (2,040)  237,333  
  Commercial mortgage-backed securities  188,169   4,903   (1,718)  184,984  
   Subtotal $833,752  $14,724  $(4,212) $823,240  
 Corporate bonds  771,104   15,457   (7,130)  762,777  
Total fixed maturities $2,477,720  $61,200  $(16,317) $2,432,837  
Equity securities  314,815   29,650   (1,646)  286,811  
Short-term investments  211,782   -   -   211,782  
Total investments $3,004,317  $90,850  $(17,963) $2,931,430  
                
Contact: Ciro M. DeFalco Senior Vice President and Chief Financial Officer (203) 905-6343 cdefalco@navg.com www.navg.com

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