Navigators Reports Second Quarter Earnings

NEW YORK--(BUSINESS WIRE)--The Navigators Group, Inc. (NASDAQ:NAVG) reported net income of $17,421,000 or $1.03 per share for the 2008 second quarter compared to net income of $24,375,000 or $1.44 per share for the 2007 second quarter. The 2008 second quarter results include net realized capital losses of $7,976,000 or $0.31 per share and the 2007 second quarter results include net realized capital gains of $840,000 or $0.03 per share. The 2008 second quarter net realized capital losses include a provision of $8,412,000 for declines in the market value of equity securities which were considered to be other than temporary. The after-tax loss of such provision was $5,468,000 or $0.32 per share. The decision to record realized capital losses on such securities has no impact on the Company’s shareholders’ equity or book value per share.

Net income for the six month period ended June 30, 2008 was $40,671,000 or $2.39 per share, compared to $44,047,000 or $2.60 per share for the six month period ended June 30, 2007. The results for the six months ended June 30, 2008 included a net realized capital loss of $0.31 per share and the results for the six months ended June 30, 2007 included a net realized capital gain of $0.04 per share.

Gross written premium and net written premium for the 2008 second quarter were $279,213,000 and $174,287,000, respectively, increases of 1% and 8%, respectively, from the comparable 2007 period. Gross written premium and net written premium for the six month period ended June 30, 2008 were $566,359,000 and $362,009,000, respectively, a decrease of 2% and an increase of 8%, respectively, from the comparable 2007 period.

The combined loss and expense ratios for the 2008 second quarter and six month period were 90.4% and 89.8%, respectively, compared to 86.4% and 87.8% for the comparable 2007 periods. The combined loss and expense ratios for the 2008 second quarter and six month period were favorably impacted by 6.5 and 7.6 loss ratio points, respectively, for redundancies in prior period loss reserves. Net paid loss ratios for the 2008 second quarter and six month period were 29.7% and 31.2%, respectively, compared to 32.6% and 31.9% for the comparable 2007 periods.

Navigators’ Chief Executive Officer Stan Galanski commented, "We continue to focus on underwriting profit and disciplined risk-taking, which is the foundation of our culture. Our second quarter earnings reflect solid underwriting results in our insurance companies and we continue to experience favorable loss emergence from prior underwriting years. We continue to emphasize the importance of cost control through expense management, implementation of enhanced technology and productivity initiatives."

Net investment income for the 2008 second quarter and six month period was $18,731,000 and $37,569,000, respectively, increases of 8% and 12% from the comparable 2007 periods. The pre-tax investment yields for the 2008 second quarter and six month period were 4.1% and 4.2%, respectively, compared to 4.5% and 4.4% for the comparable 2007 periods. The effective tax rates on net investment income were 25.4% and 25.9% for the 2008 second quarter and six month period, respectively, compared to 28.2% and 28.3% for the comparable 2007 periods.

The Company’s investment portfolio mainly consists of high quality fixed income securities with an average quality rating of “AA/Aa” by Standard & Poor’s and Moody’s, respectively, and an average effective duration of 4.3 years at June 30, 2008.

Consolidated cash flow from operations for the 2008 second quarter and six month period was $73,748,000 and $133,400,000, respectively, compared to $91,589,000 and $111,667,000 for the comparable 2007 periods.

During the 2008 second quarter, the Company repurchased 50,000 shares of its common stock at an average cost of $49.90 per share, for an aggregate amount of $2,495,000. At June 30, 2008 there is approximately $20.2 million in remaining capacity from the $30 million stock repurchase program approved in October 2007.

Stockholders’ equity was $676,357,000 or $40.29 per share at June 30, 2008 compared to $662,106,000 or $39.24 per share at December 31, 2007. Statutory surplus of Navigators Insurance Company was $592,752,000 at June 30, 2008.

The Company will hold a conference call on Tuesday, July 29, 2008 starting at 8:30 a.m. ET to discuss the 2008 second quarter’s results. The call will be available via live webcast on Navigators’ website (www.navg.com) by clicking on the Earnings Webcast link.

To participate by telephone, the domestic dial-in number is 888-679-8034 and the international dial-in is 617-213-4847. The access code is 99254593. Participants may pre-register for the call at www.theconferencingservice.com/prereg/key.process?key=PPKA3UVLK. Pre-registrants will be issued a pin number to use when dialing into the live call that will provide quick access by bypassing the operator upon connection.

The webcast will be available for replay on the "News & Events" page of Navigators' website.

The Navigators Group, Inc. is an international specialty insurance holding company with insurance company operations, underwriting management companies, and operations at Lloyd’s of London. Headquartered in New York, Navigators has offices in major insurance centers in the United States, the United Kingdom and Continental Europe.

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. 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 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
($'s in thousands, except per share data)
			Three Months Ended									Six Months Ended
			June 30,									June 30,
Financial Highlights				2008			2007		Change				2008			2007		Change
Gross written premium				279,213			276,549		1	%		$	566,359		$	577,410		-2	%
Net written premium				174,287			161,350		8	%			362,009			334,369		8	%
Revenues:
	Net earned premium			162,703			145,617		12	%			318,443			284,663		12	%
	Commission income			467			486		-4	%			728			894		-19	%
	Investment income			18,731			17,330		8	%			37,569			33,546		12	%
	Net realized capital gains (losses)			(7,976	)		840		NM				(8,052	)		1,041		NM
	Other income (expense)			1,010			(253	)	NM				1,021			(324	)	NM
	Total revenues			174,935			164,020		7	%			349,709			319,820		9	%
Operating expenses:
	Net losses and loss adjustment
	expenses incurred			91,889			79,739		15	%			180,309			160,931		12	%
	Commission expense			23,490			17,650		33	%			44,438			34,749		28	%
	Other operating expenses			33,237			28,608		16	%			62,993			54,897		15	%
	Interest expense			2,217			2,215		NM				4,434			4,430		NM
	Total operating expenses			150,833			128,212		18	%			292,174			255,007		15	%
Income before income taxes				24,102			35,808		-33	%			57,535			64,813		-11	%
Income tax expense (benefit):
	Current			12,156			13,505		-10	%			22,462			22,781		-1	%
	Deferred			(5,475	)		(2,072	)	NM				(5,598	)		(2,015	)	NM
Income tax expense (benefit)				6,681			11,433		-42	%			16,864			20,766		-19	%
Net income				17,421			24,375		-29	%		$	40,671		$	44,047		-8	%
Per Share Data
Net income per common share:
	Basic		$	1.04		$	1.45		-28	%		$	2.42		$	2.63		-8	%
	Diluted		$	1.03		$	1.44		-28	%		$	2.39		$	2.60		-8	%
Average shares outstanding:
	Basic			16,773			16,786						16,817			16,771
	Diluted			16,912			16,919						17,002			16,947
Underwriting Ratios
Loss Ratio				56.5	%		54.8	%					56.6	%		56.5	%
Expense Ratio				33.9	%		31.6	%					33.2	%		31.3	%
Combined Ratio				90.4	%		86.4	%					89.8	%		87.8	%
Balance Sheet Data												Jun. 30,			Dec. 31,
													2008			2007
Stockholders' equity												$	676,357		$	662,106		2	%
Book value per share												$	40.29		$	39.24		3	%

THE NAVIGATORS GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
($'s in thousands)
			June 30,				December 31,
				2008				2007
ASSETS
Investments and cash:
	Fixed maturities, available-for-sale, at fair value (amortized cost: 2008, $1,604,039; 2007, $1,508,489)
			$	1,590,566			$	1,522,320
	Equity securities, available-for-sale, at fair value (cost: 2008, $70,178; 2007, $65,492)			68,089				67,240
	Short-term investments, at cost which approximates fair value			174,874				170,685
	Cash			14,499				7,056
		Total investments and cash		1,848,028				1,767,301
	Premiums in course of collection			197,490				163,081
	Commissions receivable			444				2,381
	Prepaid reinsurance premiums			194,195				188,961
	Reinsurance receivable on paid losses			78,087				94,818
	Reinsurance receivable on unpaid losses and loss adjustment expenses			778,715				801,461
	Net deferred income tax benefit			45,412				29,249
	Deferred policy acquisition costs			55,100				51,895
	Accrued investment income			16,870				15,605
	Goodwill and other intangible assets			8,101				8,084
	Other assets			23,058				20,935
		Total assets	$	3,245,500			$	3,143,771
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
	Reserves for losses and loss adjustment expenses		$	1,707,101			$	1,648,764
	Unearned premium			518,354				469,481
	Reinsurance balances payable			148,632				161,829
	Senior notes			123,732				123,673
	Federal income tax payable			16,279				10,868
	Accounts payable and other liabilities			55,045				67,050
		Total liabilities		2,569,143				2,481,665
Stockholders' equity:
	Preferred stock, $.10 par value, authorized 1,000,000 shares, none issued			-				-
	Common stock, $.10 par value, 50,000,000 shares authorized for 2008 and 2007;  issued and outstanding: 16,788,446 for 2008 and 16,873,094 for 2007
				1,700				1,687
	Additional paid-in capital			295,304				291,616
	Retained earnings			395,755				355,084
	Treasury stock held at cost (186,026 common shares for 2008)			(9,816	)			-
	Accumulated other comprehensive income (loss)			(6,586	)			13,719
		Total stockholders' equity		676,357				662,106
		Total liabilities and stockholders' equity	$	3,245,500			$	3,143,771

THE NAVIGATORS GROUP, INC. AND SUBSIDIARIES
Comparative Premium Data
($'s in thousands)
Gross Written Premium:	Second Quarter									Six Months
Insurance Companies:	2008			2007			Change			2008			2007		Change
Marine & Energy	$	77,996		$	70,601		10	%		$	160,531		$	157,457	2	%
Specialty		84,013			91,398		-8	%			162,895			180,815	-10	%
Professional Liability		26,437			24,351		9	%			45,724			44,833	2	%
Middle Markets		7,744			6,637		17	%			15,758			12,941	22	%
Property/Other		1,766			5,573		NM				4,644			11,388	NM
		197,956			198,560		0	%			389,552			407,434	-4