Transcript Friedman, Billings, Ramsey & Co.New York

The Navigators Group, Inc.
“Insuring a World in Motion”
Friedman, Billings, Ramsey & Co.
New York, NY
November 30, 2010
Stan Galanski
President and CEO
Frank McDonnell
Senior Vice President & CFO
Forward Looking Statements
This presentation contains forward-looking statements that are subject to risks and uncertainties. All statements other than
statements of historical fact included in this presentation are forward-looking statements. Forward-looking statements give our
current expectations and projections relating to our financial condition, results of operations, plans, objectives, future
performance and business. You can identify forward-looking statements by the fact that they do not relate strictly to historical
or current facts. These statements may include words such as "anticipate," "estimate," "expect," "project," "plan,“ "intend,"
"believe" and other words and terms of similar meaning in connection with any discussion of the timing or nature of future
operating or financial performance or other events. These forward-looking statements are based on assumptions that we
have made in light of our industry experience and on our perceptions of historical trends, current conditions, expected future
developments and other factors we believe are appropriate under the circumstances. As you consider this presentation, you
should understand that these statements are not guarantees of performance or results. They involve risks, uncertainties
(some of which are beyond our control) and assumptions. Although we believe that these forward-looking statements are
based on reasonable assumptions, you should be aware that many factors could affect our actual financial results and cause
them to differ materially from those anticipated in the forward-looking statements.
Because of these factors, we caution that you should not place undue reliance on any of our forward-looking statements.
Further, any forward-looking statement speaks only as of the date on which it is made. New risks and uncertainties arise from
time to time, and it is impossible for us to predict those events or how they may affect us. Except as required by law, we have
no duty to, and do not intend to, update or revise the forward-looking statements in this presentation after the date of this
presentation.
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The Navigators Group, Inc.
 Specialty insurer operating in targeted property/casualty niches
– Top 5 U.S. Marine insurer
– Top 25 U.S. Excess & Surplus Lines casualty insurer
– Emerging leader in D&O / Professional Liability
 A global specialty insurance platform
– Two U.S. domiciled insurance companies with licenses in the
U.K. and South America
– Navigators Syndicate 1221 at Lloyd’s provides global access
to desired markets
– 40% of Navigators premiums are produced outside the U.S.
 A growing brand and market reputation
– #66 New York’s fastest-growing companies, 2010 Crain’s
New York Business
– #137 New York’s largest publicly held companies, 2010,
Crain’s New York Business
– Recognized as one of “100 Most Trustworthy Companies” by
Forbes.com
 Financial Strength rated “A” by Standard & Poor’s and A.M. Best
3
Core Values
 Underwriting Profit, not premium volume.
 Specialization in complex risks where the know-how of our Intellectual
Capital is a competitive advantage.
 Commitment to Customer Service backed by a Strong Balance
Sheet.
 Discipline to walk away from business that doesn’t meet our terms and
standards.
 Expense Control by spending money like it is our own.
 Teamwork gets the job done.
 We conduct our business with Integrity, Professionalism and Pride.
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Track Record of Underwriting Excellence
120%
Combined Ratio
100%
80%
60%
P&C Industry
Navigators
40%
20%
0%
2001
2002
2003
2004
2005
2006
Calendar Year
2007
2008
2009
5
A Decade of Successful Growth and Diversification
 2001
Gross Written Premium
$1,044.9
$1,000
Excess Casualty
Antwerp Office
–
Acquired 100% Control of Lloyd’s Syndicate 1221
–
–
Primary Casualty
Inland Marine
–
–
Orange County Office
Miami Office (Latin America)
–
–
–
–
–
–
New Jersey Office
Stockholm Office
Brazilian License
Environmental Underwriting Team
Professional Liability Expansion
Lloyd’s China
–
–
–
–
–
–
UK D&O Expansion
Architect & Engineering Team
Philadelphia Office
Pittsburgh Office
Charlotte Office
Copenhagen Office
–
–
–
Los Angeles Office
Lloyd’s Brazil
Navigators Re
 2006
4%
7%
$779.6
$800
 2007
18%
4%
$600
27%
13%
 2008
11%
$278.2
27%
34%
38%
21%
$0
–
–
 2005
$1,200
$200
D&O
Chicago Marine
 2004
($ in millions)
$400
–
–
39%
2001
30%
2005
23%
 2009
2009
Insurance Companies Marine
Insurance Companies Property Casualty
Insurance Companies Professional Liability
Lloyd's Marine
Lloyd's Property Casualty
Lloyd's Professional liability
 2010
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Specialty Focus
Management &
Professional Liability
$181 Million
Marine
$434 Million
17.3%
41.5%
Specialty
Property & Casualty
$430 Million
41.2%
$1.045 Billion Gross Written Premium
Full Year 2009
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A Market Leader In Marine
Market Leaders In:
–
Marine Liability
–
Bluewater Hull
–
Specie / Cash In Transit
–
Transport
Gross Written Premium $433 million
41% of 2009 Group Total
Cargo, 19%
Inland Marine,
9%
Policyholders Include:
–
Terminal Operators
–
Port Authorities
–
Cruise Ships
–
Ship Owners
–
Logistics Providers
–
Importers / Exporters
–
Armored Car Services
–
Museums
Transport, 5%
Marine
Liability, 45%
Bluewater
Hull, 9%
Specie,
6%
All Other,
7%
(Green = Higher Growth Potential)
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Focus on Select Specialty Property & Casualty Niches

Nav Tech: Property Insurance for Energy
and Power Generation Risks

Excess Casualty: Monoline Commercial
Umbrella & Commercial Excess Liability

Western States Construction: A Market
Leader in California Construction Liability
Since 1995



E&S Primary Casualty: Construction East of
the Rockies, Product Liability, Real Estate
and Environmental Casualty
NAV PAC: Admitted Niche
Property/Casualty Products for Middle
Market Businesses
Life Sciences: Product Liability and Clinical
Trials Coverage
Gross Written Premium $430 million
41% of 2009 Group Total
Excess
Casualty, 19%
Nav Tech,
27%
E&S Primary
Casualty, 9%
Western
States
Construction,
21%
All Other,
16%
NavPac,
8%
(Green = Higher Growth Potential)
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Management & Professional Liability Niche Focus
Specializing In:
US D&O

Gross Written Premium $181 million
17% of 2009 Group Total
Primary and Excess on
– Small to Mid Cap Public Companies
– Private Companies
– Not for Profit Organization
U.S. E&O,
21%
International D&O



High Excess D&O on Large Cap
Primary D&O on Small to Mid Cap
Underwriters in London, Stockholm, Copenhagen
and Shanghai
U.S. D&O,
55%
International
D&O
(Lloyd's), 15%
E&O




Lawyers
Architects & Engineers
Insurance Agents
Miscellaneous Professional
International
E&O
(Lloyd's), 9%
(Green = Higher Growth Potential)
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Taking Our Products to New Geographic Markets in The U.S.
Number of Products
One – Black
Two – Blue
Multiple - Red
Navigators U.S. Footprint – 2001
$278 Million Gross Written Premium
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Taking Our Products to New Geographic Markets in The U.S.
Number of Products
One – Black
Two – Blue
Multiple - Red
Navigators U.S. Footprint – 2010
$1 Billion Gross Written Premium
12
Specialty Expertise
Construction Wrap-up





Project: 42 story, 116 unit residential condominium in Dallas, Texas
Duration: 3 years
Number of contractors: 40
Solution: One shared liability program with primary limits of $2 million
NAVG advantages:
– Contract review
– Proprietary terms and conditions
– Construction claims expertise
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Strategies For A Softening Market
 Emphasize Profit Not Premium
– Reduce premium when profit margins are not apparent
– Reward underwriters for profit, not premiums
– Diligent commission negotiations and expense management
 Targeted Growth Opportunities in High Margin/Low Market Share Products
– NavTech
– Excess Casualty
– International D&O
– Professional Liability
 Expansion of Distribution System/Regional Office Network
 Improve Productivity / Service Efficiency
– “Navigate” Proprietary Policy Administration Systems
– Expansion of remote service centers
 Preserve & Grow our Intellectual Capital
 Responsible Capital Management
– Share Re-Purchase
– Conservative Investment Strategy
– Enterprise Risk Management
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Global Leadership Team
Years in
P&C
Industry
Age
The Navigators Group, Inc.
Stan Galanski, President and Chief Executive Officer
Frank McDonnell, SVP and Chief Financial Officer
Clay Bassett, SVP, CUO, Chief Risk Officer and President of Navigators Re.
Bruce Byrnes, SVP, General Counsel and Chief Compliance Officer
Scott Eisdorfer, SVP and Chief Administrative Officer
Denise Lowsley, SVP, Human Resources
Navigators Management Company, Inc.
Chris Duca, President and Chief Executive Officer
Mike Civisca, EVP and Chief Operating Officer
LoriAnn Lowery-Biggers, SVP and President of Field Operations
Navigators Holdings (UK)
Paul Hennessy, President
Stephen Coward, President, Navigators Technical Risk
Richard Bardwell, Active Underwriter, Navigators Underwriting Agency Ltd.
Averages
Years at
NAVG
52
54
45
42
47
39
30
28
23
18
25
13
9
2
2
1
11
1
44
48
43
18
27
22
9
23
1
62
56
52
39
39
34
2
8
30
49
26
8
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The Navigators Group, Inc.
Financial Overview
The Navigators Group, Inc.
EXCHANGE/TICKER
NASDAQ/NAVG
MARKET CAP (11/18/10)
$855 MILLION
SHARE PRICE (11/18/10)
$49.52
BOOK VALUE/SHARE
$54.17
(9/30/10)
FINANCIAL STRENGTH
A (A.M. BEST/S&P)
WEBSITE
WWW.NAVG.COM
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Strong Book Value Growth
Stockholders’ Equity
($ in millions)
120.0%
106.6% - A&E Charge
11.7%
100.0%
106.5%
101.3%- Hurricanes
93.8% - Hurricanes
4.3%
10.5%
97.2%
98.6%
94.9%
80.0%
92.2%
90.8%
87.8%
87.5%
$551
60.0%
$662
$470
40.0%
$291
$147
$171
12/31/2001
12/31/2002
89.5%
$802
$689
$329
20.0%
0.0%
12/31/2003
Combined Ratio
12/31/2004
12/31/2005
12/31/2006
12/31/2007
12/31/2008
12/31/2009
Stockholders’ Equity
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High Quality Investment Portfolio

Invested assets: $2.2 billion

Fixed Maturities, Cash and Short-term
Investments:
―
96% of portfolio
―
Average AA rating
―
Duration of approximately 4.1 years
―
Average 2010 investment yield of
3.5%
At September 30, 2010
CMO's
18%
19%
Corporate Bonds
Equities
7%
2%
Cash & Short-Term
Securities
U.S. Treasury Bonds,
GNMA's & Foreign Govt.
13%
Municipal Bonds

Equity securities: 4% of portfolio

Substantially all mortgage and assetbacked securities are investment grade


No CDO’s, CLO’s or asset-backed
commercial paper
19%
4%
Commercial Mortgages
17%
1%
Asset- Backed
Mortgage- Backed
Underlying credit rating of A+ for credit
enhanced securities
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Strong Growth in Invested Assets
$2,199
Invested Assets
$2,057
($ in millions)
$1,918
$1,767
$1,476
$1,282
$855
$694
$453
$278
2001
2002
2003
2004
2005
2006
2007
2008
2009
US Government and GNMAs
States, municipalities & political subdivisions
Mortage and asset backed
Corporate bonds
Equity securities
Cash and short-term investments
9/30/10
20
Prudent & Consistent Loss Reserving
Historical Consolidated
Net Loss Reserves
$1,113
$1,137
$1,000
($ in millions)
39%
$847
40%
37%
$696
$579
35%
$464
63%
61%
60%
66%
39%
$374
41%
65%
$265
$203
34%
41%
61%
51%
54%
59%
46%
49%
12/31/01
12/31/02
12/31/03
59%
12/31/04
12/31/05
Net IBNR Reserves
12/31/06
12/31/07
12/31/08
12/31/09
09/30/10
Net Case Loss Reserves
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Reinsurance - Integral Part of Our Business
 Utilize reinsurance to reduce exposure to individual risks & catastrophic losses
Philosophy
 Stabilize underwriting results
 Ratio of NWP to GWP for 2009 was 67.1%
 Diversification of reinsurers
 High credit quality
Mitigate
Risks
 Strong collateral position
 Reserve for Uncollectible Reinsurance
 Integration of reinsurance risk into ERM practices
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Reinsurer Financial Strength Ratings
(A.M. Best or equivalent ratings - December 31, 2009) ($ in millions)
Reinsurer
Total
Collateral
Held
Rating
Total Recoverables
$1,046
9.2 A
$ 106.8 $
Swiss Reinsurance America Corporation
Total Offsets/Funds Held
(179)
16.2 A+
86.4
Munich Reinsurance America Inc.
Net Recoverables
$867
9.5 A
71.0
Transatlantic Reinsurance Company
2.3 A69.8
White Mountains Reinsurance of America
8.5 A+
69.3
Everest Reinsurance Company
1.7 A++
59.8
General Reinsurance Corporation
2%
10.2 A+
41.9
Munchener Ruckversicherungs-Gesellschaft
3.1 A++
37.3
National Indemnity Company
2.6 A
31.0
Platinum Underwriters Re
1.5 A+
29.2
Berkley Insurance Company
5.9 A25.1
Scor Holding (Switzerland) AG
Excellent A, A6.2 A
23.5
Swiss Re International SE
39%
8.7 AA23.2
Partner Reinsurance Europe
Superior A++, A+
3.4 A
21.5
Lloyd's Syndicate #2003
0.1 A+
20.6
Partner Reinsurance Company of the U.S.
59%
0.1 A
16.6
Arch Reinsurance Company
Other
2.4 A
16.3
Hannover Ruckversicherung
1.6 A+
15.8
Ace Property and Casualty Insurance Company
4.2 A+
14.6
Allianz Global Corporate & Specialty AG
1.0 A++
11.3
Federal Insurance Co.
98.4
791.0
Top 20 Total………………………………………………………………………………………………………………………………………………………………………………………………………………………………………….
80.9
255.2
All Other………………………………………………………………………………………………………………………………………………………………………………………………………………………………………….
$ 1,046.2 $ 179.3
Total………………………………………………………………………………………………………………………………………………………………………………………………………………………………………….
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Managing the Cycle – Underwriting Discipline
($ in thousands)
Ultimate Premium
West Coast Construction Liability
Ultimate Loss Ratio
$ 120,000
70%
60%
100,000
50%
80,000
40%
60,000
30%
40,000
20%
20,000
10%
-
0%
2001
2002
2003
2004
2005
2006
2007
2008
2009
24
Managing the Cycle – Aggregate Management
Offshore Energy Gulf of Mexico Wind Aggregate Exposure
($ in millions)
$300
Sum of GoM Windstorm Limits
$250
$200
$150
2010
2009
2008
$100
2007
$50
$-
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Managing the Cycle – Capital Management
 Maintain financial strength ratings
 Grow book value per share
– Conservative & proactive investment management
– Accretive debt repurchase - $3 million gain
– Accretive share repurchases
• 2008 - $11.5 million
• 2009 - $ 6.8 million
• 2010 - $ 50.3 million
• Average cost per share through 9/30/2010 - $42.99
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The Navigators Group, Inc.
2010 Financial Highlights
The Navigators Group, Inc. and Subsidiaries 2010 Financial Highlights
($ in thousands, except per share data, unaudited)
Results of Operations
Gross written prem ium s
Net written prem ium s
Three Mont hs Ended
Sept ember 30,
2010
2009
Change
$ 2 3 3 ,63 8 $ 2 45,1 91
-5%
1 57 ,807
1 56,001
1%
Operating rev enues
Expenses
Pre-tax operating incom e
Nine Mont hs Ended
Sept ember 30,
2010
2009
Change
$ 7 57 ,3 51 $ 7 93 ,1 7 9
-5%
51 2 ,1 2 9
53 9,660
-5%
1 88,83 9
1 69,3 7 5
1 9,464
1 91 ,62 1
1 67 ,503
2 4,1 1 9
-1 %
1%
-1 9%
550,3 7 5
497 ,2 2 5
53 ,1 50
Realized inv estm ent gain (loss)
3 ,852
6,1 3 5
-1 9%
2 0,7 49
Incom e tax expense
7 ,091
8,82 2
-2 0%
2 1 ,659
2 3 ,096
-6%
Net incom e
$ 16,225
$ 21,432
-2 4%
$ 52,240
$ 57 ,083
-8%
Net incom e per com m on share:
Basic
Diluted
$
$
$
$
-1 9%
-1 9%
$
$
$
$
-4%
-4%
Underwriting Ratios
Loss Ratio
Expense Ratio
Com bined Ratio
Balance Sheet Data
Stockholders' equity
Book v alue per share
1 .03
1 .00
63 .9%
3 3 .9%
97 .8%
Sept . 30,
2010
$ 854,01 3
$
54.1 7
1 .2 6
1 .2 4
62 .8%
3 3 .1 %
95.9%
June 30,
2010
$ 81 4,7 43
$ 51 .48
3 .2 3
3 .1 7
63 .0%
3 5.9%
98.9%
5%
5%
Sept . 30,
2010
$ 854,01 3
$
54.1 7
569,2 80
485,1 2 7
84,1 54
(3 ,97 5)
3 .3 7
3 .3 0
-3 %
2%
-3 7 %
-3 7 %
61 .0%
3 2 .9%
93.9%
Dec. 31,
2009
$ 801 ,51 9
$ 47 .58
7%
1 4%
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Summary
 Specialty underwriter with proven track record of profitable growth
 Track record of attracting/retaining strong underwriting expertise
 Strong balance sheet
 High quality, liquid and conservative investment portfolio
 Experienced at insurance cycle management
 Experienced at capital management
 Focused on growing book value per share
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