Navigators Reports First Quarter 2017 Earnings


STAMFORD, Conn., May 04, 2017 (GLOBE NEWSWIRE) -- The Navigators Group, Inc. (NASDAQ:NAVG) reported Net income of $21.1 million, or $0.70 per diluted share, for the three months ended March 31, 2017 compared to $22.9 million, or $0.77 per diluted share, for the comparable period in 2016. Net operating earnings1 were $20.4 million, or $0.68 per diluted share, for the three months ended March 31, 2017 compared to $20.2 million, or $0.68 per diluted share, for the same period in 2016. 

Gross written premiums and Net written premiums for the three months ended March 31, 2017 were $450.3 million and $337.2 million, respectively, increasing 8.8% and 5.4% from the comparable period in 2016. The combined ratio for the three months ended March 31, 2017 was 96.4%, compared to 95.1% for the same period in 2016.

Net investment income for the three months ended March 31, 2017 was $21.4 million, an increase of 9.5% as compared to the same period in 2016. 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, 2017 and 2016.

Stan Galanski, President and Chief Executive Officer, commented, “We are pleased to report profitable underwriting results and reasonable premium growth for the quarter. Our U.S. Insurance and Global Reinsurance segments had excellent quarters, achieving double digit premium growth and increased underwriting profit over first quarter 2016. Cost control continues to be a priority and our other operating expenses were down 3.7% from first quarter 2016, offset by increased commission levels in large part resulting from competitive market conditions. This is evident in the results of our International Insurance segment, which continues to be challenged by soft trading conditions, particularly in the London market. Our investment portfolio continued to perform well. Book value per share increased 1.2% during the quarter.”

Our 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 average effective duration of 3.8 years as of March 31, 2017.  As of March 31, 2017, Net unrealized gains within our investment portfolio were $52.2 million, an increase of $23.2 million compared to December 31, 2016. We recognized $44 thousand of Net realized losses (inclusive of Net other-than-temporary impairment losses recognized in earnings) for the three months ended March 31, 2017, compared to $1.6 million of Net realized gains for the same period in 2016. 

Other income for the three months ended March 31, 2017 was $1.1 million, compared to $2.5 million for the same period in 2016. Other income primarily consists of realized and unrealized foreign exchange gains and losses.

Stockholders’ equity was $1.2 billion, or $40.94 per share, as of March 31, 2017 compared to $40.45 per share, as of December 31, 2016.

During the three months ended March 31, 2017, our Company declared and paid a quarterly cash dividend of $0.045 per share of Common stock.

Our Company will hold a conference call on Friday, May 5, 2017 starting at 8:30 a.m. (EST) to discuss the 2017 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/o6dcrex9.

On December 6, 2016, our Board of Directors declared a two-for-one stock split of The Navigators Group, Inc. Common stock, to be effected in the form of a stock dividend. Stockholders of record at the close of business on December 30, 2016 received one additional share of Common stock for every share of Common stock held. All disclosures of shares and per share data in this earnings release have been retroactively adjusted to reflect the stock split for all periods presented. The additional shares of Common stock were issued on January 20, 2017. 

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

  
THE NAVIGATORS GROUP, INC. AND SUBSIDIARIES 
FINANCIAL HIGHLIGHTS 
(Unaudited) 
  
   Three Months Ended      
amounts in thousands, except per share amounts. March 31,      
Results of Operations 2017  2016   Change   
              
Gross written premiums $450,305  $413,877   8.8% 
Net written premiums  337,163   319,820   5.4% 
              
Revenues:             
Net earned premiums $286,131  $264,358   8.2% 
Net investment income  21,448   19,594   9.5% 
Net realized gains (losses):             
  Total other-than-temporary impairment losses  (1,077)  (109) NM  
  Portion of loss recognized in other comprehensive income (before tax)    (16)  109  NM  
Net other-than-temporary impairment losses recognized in earnings  (1,093)    NM  
Other realized gains  1,049   1,597   (34.3%) 
Net realized gains (losses)  (44)  1,597  NM  
Other income  1,068   2,549   (58.1%) 
Total revenues $308,603  $288,098   7.1% 
              
Expenses:             
Net losses and loss adjustment expenses  169,600   152,956   10.9% 
Commission expenses  47,844   37,554   27.4% 
Other operating expenses  58,538   60,809   (3.7%) 
Interest expense  3,861   3,858   0.1% 
Total expenses $279,843  $255,177   9.7% 
              
Income before income taxes  28,760   32,921   (12.6%) 
              
Income tax expense  7,650   9,989   (23.4%) 
              
Net income $21,110  $22,932   (7.9%) 
              
Per Share Data (1)             
              
Net income per common share:             
Basic $0.72  $0.79   (8.9%) 
Diluted $0.70  $0.77   (9.1%) 
              
Average common shares outstanding:             
Basic  29,283   28,984      
Diluted  30,000   29,783      
              
Underwriting Ratios             
Loss Ratio  59.3%  57.9%     
Expense Ratio  37.1%  37.2%     
Combined Ratio  96.4%  95.1%     
              
Balance Sheet Data March 31,  December 31,      
  2017  2016      
Stockholders' equity $   1,206,136  $1,178,188   2.4% 
Book value per share $40.94  $40.45   1.2% 

(1) - We completed a two-for-one stock split on January 20, 2017. All share and per share data prior to January 20, 2017 has been retroactively restated on a post-split basis.
NM - Percentage change not meaningful.

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

In this release, we present Net operating earnings, which is a “non-GAAP financial measure” as defined in Regulation G.

Net operating earnings is comprised of 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). We believe that showing Net income exclusive of Realized gains and losses, Net other-than-temporary impairment losses recognized in earnings, and Foreign exchange gains and losses reflects the underlying fundamentals of our business.

We believe this presentation enhances the understanding of our results of operations by highlighting the underlying profitability of our business and enables investors and other users of our 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 table provides a reconciliation of Net income (the nearest GAAP financial measure) to Net operating earnings:

 
  Three Months Ended March 31, 2017  Three Months Ended March 31, 2016  % Change 
amounts in thousands, except per share amounts.   Pre-Tax  Tax (1)  After-Tax  Pre-Tax  Tax (1)  After-Tax  QTD 
Net income $28,760  $(7,650) $21,110  $32,921  $(9,989) $22,932   (7.9%)
Adjustments to Net income:                            
Realized losses (gains)  44   (15)  29   (1,597)  559   (1,038) NM 
FX losses (gains)  (1,123)  393   (730)  (2,540)  888   (1,652)  (55.8%)
Net operating earnings $27,681  $(7,272) $20,409  $28,784  $(8,542) $20,242   0.8%
                             
Average common shares outstanding: (2)                            
Basic          29,283           28,984     
Diluted          30,000           29,783     
                             
Net operating earnings per common share: (2)                            
Basic         $0.70          $0.70     
Diluted         $0.68          $0.68     

(1) - Tax impact is estimated by applying the statutory rates of applicable jurisdictions, after consideration of any other relevant factors.
(2) - We completed a two-for-one stock split on January 20, 2017. All share and per share data prior to January 20, 2017 has been retroactively restated on a post-split basis.
NM - Percentage change not meaningful.

 
 
THE NAVIGATORS GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
         
  March 31,  December 31, 
  2017  2016 
amounts in thousands, except per share amounts. (Unaudited)     
ASSETS        
Investments:        
Fixed maturities, available-for-sale, at fair value (amortized cost: 2017:  $2,678,475; 2016: $2,628,225)   $  2,695,277  $2,635,882 
Equity securities, available-for-sale, at fair value (cost: 2017: $326,910; 2016: $327,911)  362,214   349,142 
Other invested assets  1,776   1,960 
Short-term investments, at fair value (amortized cost: 2017: $123,796; 2016: $143,451)  123,846   143,539 
Total investments $3,183,113  $3,130,523 
Cash  63,462   64,643 
Premiums receivable  379,787   306,686 
Prepaid reinsurance premiums  224,562   213,377 
Reinsurance recoverable on paid losses  76,876   82,582 
Reinsurance recoverable on unpaid losses and loss adjustment expenses  794,576   779,276 
Deferred policy acquisition costs  126,199   119,660 
Accrued investment income  18,107   17,315 
Goodwill and other intangible assets  6,442   6,451 
Current income tax receivable, net  4,280   20,556 
Deferred income tax, net  21,574   20,938 
Other assets  58,365   52,030 
Total assets $4,957,343  $4,814,037 
         
LIABILITIES AND STOCKHOLDERS' EQUITY        
Liabilities:        
Reserves for losses and loss adjustment expenses $2,331,392  $2,289,727 
Unearned premiums  949,483   887,344 
Reinsurance balances payable  118,167   108,980 
Senior notes  263,767   263,728 
Payable for investments purchased  6,715    
Accounts payable and other liabilities  81,683   86,070 
Total liabilities $3,751,207  $3,635,849 
         
Stockholders' equity: (1)        
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 36,484 shares for 2017 and 36,147 shares for 2016)   3,645   3,612 
Additional paid-in capital  367,311   373,983 
Treasury stock, at cost (7,023 shares for 2017 and 2016)  (155,801)  (155,801)
Retained earnings  967,305   947,519 
Accumulated other comprehensive income  23,676   8,875 
Total stockholders' equity $1,206,136  $1,178,188 
Total liabilities and stockholders' equity $4,957,343  $4,814,037 

(1) - We completed a two-for-one stock split on January 20, 2017. All share data prior to January 20, 2017 has been retroactively restated on a post-split basis.

 
 
THE NAVIGATORS GROUP, INC. AND SUBSIDIARIES
Segment Information
(Unaudited)
 
  Three Months Ended March 31, 2017 
  U.S.  Int'l             
amounts in thousands Insurance  Insurance  GlobalRe   Corporate (1)   Total 
Gross written premiums $   237,605  $  141,860  $70,840  $  $450,305 
Ceded written premiums  (61,487)  (46,593)  (5,062)     (113,142)
Net written premiums  176,118   95,267   65,778      337,163 
                     
Net earned premiums $164,004  $84,086  $38,041  $  $286,131 
Net losses and LAE  (98,826)  (50,705)    (20,069)      (169,600)
Commission expenses  (20,384)  (19,233)  (8,492)  265   (47,844)
Other operating expenses  (33,472)  (19,793)  (5,273)     (58,538)
Other underwriting income (expense)   110      176   (265)  21 
                     
Underwriting profit (loss) $11,432  $(5,645) $4,383  $  $10,170 
                     
Net investment income              21,448   21,448 
Net realized losses              (44)  (44)
Interest expense              (3,861)  (3,861)
Other income              1,047   1,047 
Income before income taxes $11,432  $(5,645) $4,383  $18,590  $28,760 
Income tax expense              (7,650)  (7,650)
Net income                 $21,110 
                     
Losses and LAE ratio  60.3%  60.3%  52.8%      59.3%
Commission expense ratio  12.4%  22.9%  22.3%      16.7%
Other operating expense ratio (2)  20.3%  23.5%  13.4%      20.4%
Combined ratio  93.0%  106.7%  88.5%      96.4%

(1) - Includes Corporate segment intercompany eliminations.
(2) - Includes Other operating expenses and Other underwriting income (expense).

 
 
THE NAVIGATORS GROUP, INC. AND SUBSIDIARIES
Segment Information
(Unaudited)
 
  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 $8,573  $472  $4,003  $  $13,048 
                     
Net investment income              19,594   19,594 
Net realized gains              1,597   1,597 
Interest expense              (3,858)  (3,858)
Other income              2,540   2,540 
Income before income taxes $8,573  $472  $4,003  $19,873  $32,921 
Income tax expense              (9,989)  (9,989)
Net income                 $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
Reportable Segment Results
(Unaudited)
 
  U.S. Insurance 
  Three Months Ended March 31, 2017  Three Months Ended March 31, 2016     
amounts in thousands Marine  P&C   Professional
Liability
  Total  Marine  P&C   Professional
Liability
  Total  %
 Change 
Total
 
Gross written premiums $40,950  $ 170,634  $26,021  $ 237,605  $43,163  $ 141,278  $26,206  $ 210,647   12.8%
Ceded written premiums   (17,520)  (38,198)  (5,769)  (61,487)   (17,647)  (30,507)  (6,343)  (54,497)  12.8%
Net written  premiums  23,430   132,436   20,252   176,118   25,516   110,771   19,863   156,150   12.8%
                                     
Net earned premiums $22,694  $119,123  $22,187  $164,004  $23,250  $109,159  $15,931  $148,340   10.6%
Net losses and LAE  (13,775)  (71,749)  (13,302)  (98,826)  (9,775)  (71,597)  (10,140)  (91,512)  8.0%
Commission expenses  (1,472)  (15,366)  (3,546)  (20,384)  (1,482)  (11,852)  (1,521)  (14,855)  37.2%
Other operating expenses  (6,821)  (21,814)  (4,837)  (33,472)  (7,372)  (21,522)  (4,867)  (33,761)  (0.9%)
Other underwriting income  83   18   9   110   79   268   14   361   (69.4%)
                                     
Underwriting profit (loss) $709  $10,212  $511  $11,432  $4,700  $4,456  $(583) $8,573   33.3%
                                     
Losses and LAE ratio  60.7%  60.2%  60.0%  60.3%  42.0%  65.6%  63.7%  61.7%    
Commission expense ratio  6.5%  12.9%  16.0%  12.4%  6.4%  10.9%  9.5%  10.0%    
Other operating expense ratio (1)    29.7%  18.3%  21.7%  20.3%  31.4%  19.4%  30.5%  22.5%    
Combined ratio  96.9%  91.4%  97.7%  93.0%  79.8%  95.9%  103.7%  94.2%    

(1) - Includes Other operating expenses and Other underwriting income.

 
 
THE NAVIGATORS GROUP, INC. AND SUBSIDIARIES
Reportable Segment Results
(Unaudited)
 
  Int'l Insurance 
  Three Months Ended March 31, 2017  Three Months Ended March 31, 2016     
amounts in thousands Marine  P&C   Professional
Liability
  Total  Marine  P&C   Professional
Liability
  Total  %
 Change 
Total
 
Gross written premiums $68,833  $40,368  $32,659  $ 141,860  $71,948  $44,046  $28,149  $ 144,143   (1.6%)
Ceded written premiums   (10,926)   (29,646)  (6,021)  (46,593)   (11,089)   (17,229)  (6,653)  (34,971)  33.2%
Net written  premiums  57,907   10,722   26,638   95,267   60,859   26,817   21,496   109,172   (12.7%)
                                     
Net earned premiums $37,495  $22,180  $24,411  $84,086  $38,856  $21,209  $17,943  $78,008   7.8%
Net losses and LAE  (20,601)  (15,869)  (14,235)  (50,705)  (20,088)  (11,216)  (9,106)  (40,410)  25.5%
Commission expenses  (9,541)  (3,742)  (5,950)  (19,233)  (9,405)  (2,775)  (3,175)  (15,355)  25.3%
Other operating expenses  (8,440)  (6,423)  (4,930)  (19,793)  (8,442)  (8,708)  (4,621)  (21,771)  (9.1%)
Other underwriting income (expense)                          NM 
                                     
Underwriting profit (loss) $(1,087) $(3,854) $(704) $(5,645) $921  $(1,490) $1,041  $472  NM 
                                     
Losses and LAE ratio  54.9%  71.5%  58.3%  60.3%  51.7%  52.9%  50.7%  51.8%    
Commission expense ratio  25.4%  16.9%  24.4%  22.9%  24.2%  13.1%  17.7%  19.7%    
Other operating expense ratio (1)  22.6%  29.0%  20.2%  23.5%  21.7%  41.0%  25.8%  27.9%    
Combined ratio  102.9%  117.4%  102.9%  106.7%  97.6%  107.0%  94.2%  99.4%    

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
(Unaudited)
 
  For the Three Months Ended March 31, 
amounts in thousands Amounts  Loss Ratio 
Net Incurred Loss Activity 2017  2016  2017  2016 
U.S. Insurance:                
Loss and LAE payments $69,771  $73,035   42.5%  49.2%
Change in reserves  29,055   18,477   17.8%  12.5%
Net incurred loss and LAE $ 98,826  $91,512   60.3%  61.7%
                 
Int'l Insurance:                
Loss and LAE payments $44,908  $29,243   53.4%  37.5%
Change in reserves  5,797   11,167   6.9%  14.3%
Net incurred loss and LAE $50,705  $40,410   60.3%  51.8%
                 
GlobalRe:                
Loss and LAE payments $28,330  $25,131   74.5%  66.1%
Change in reserves  (8,261)  (4,097)    (21.7%)   (10.8%)
Net incurred loss and LAE $20,069  $21,034   52.8%  55.3%
                 
Total                
Loss and LAE payments $143,009  $127,409   50.0%  48.2%
Change in reserves  26,591   25,547   9.3%  9.7%
Net incurred loss and LAE $ 169,600  $ 152,956   59.3%  57.9%
                 
                 
  For the Three Months Ended March 31, 
Impact of Prior Years Reserves Amounts   Loss Ratio Impact  
Favorable / (Unfavorable) Development   2017  2016  2017  2016 
U.S. Insurance $472  $2,669   0.2%  1.0%
Int'l Insurance  (6,616)  (855)  (2.3%)  (0.3%)
GlobalRe  (941)  20   (0.3%)  0.0%
Total $(7,085) $1,834   (2.4%)  0.7%
                 


  
THE NAVIGATORS GROUP, INC. AND SUBSIDIARIES 
Net Loss Data 
(Unaudited) 
  
   As of March 31, 2017 
amounts in thousands Case  IBNR     
Net Loss Reserves: Reserves  Reserves  Total 
U.S. Insurance:            
Marine $53,547  $51,935  $105,482 
P&C  192,160   623,071   815,231 
Professional Liability  26,183   72,578   98,761 
Total U.S. Insurance $  271,890  $  747,584  $ 1,019,474 
Int'l Insurance:            
Marine $170,805  $31,968  $202,773 
P&C  74,807   23,125   97,932 
Professional Liability  38,984   70,526   109,510 
Total Int'l Insurance $284,596  $125,619  $410,215 
             
GlobalRe $43,093  $64,034  $107,127 
             
Total Net Loss Reserves   $599,579  $937,237  $1,536,816 
             
             
  As of December 31, 2016 
  Case  IBNR     
Net Loss Reserves: Reserves  Reserves  Total 
U.S. Insurance:            
Marine $56,701  $54,259  $110,960 
P&C  201,368   603,509   804,877 
Professional Liability  24,555   70,559   95,114 
Total U.S. Insurance $282,624  $728,327  $1,010,951 
Int'l Insurance:            
Marine $163,124  $36,118  $199,242 
P&C  66,496   18,192   84,688 
Professional Liability  30,106   70,103   100,209 
Total Int'l Insurance $259,726  $124,413  $384,139 
             
GlobalRe $47,505  $67,856  $115,361 
             
Total Net Loss Reserves $589,855  $920,596  $1,510,451 
             

THE NAVIGATORS GROUP, INC. AND SUBSIDIARIES
Investment Data
(Unaudited)

As of March 31, 2017, the average quality of the investment portfolio as rated by S&P and Moody’s was AA-/Aa3 with an average duration of 3.8 years. Our Company does not own any collateralized debt obligations or asset backed commercial paper.

The following table sets forth our investments as of March 31, 2017:

   As of March 31, 2017 
      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
 $270,009  $2,110  $(3,671) $271,570 
States, municipalities and political subdivisions  604,912   13,772   (3,353)  594,493 
Mortgage-backed and asset-backed securities:                
Agency mortgage-backed securities  468,255   3,858   (7,051)  471,448 
Residential mortgage obligations  16,970   439   (37)  16,568 
Asset-backed securities  331,567   1,470   (769)  330,866 
Commercial mortgage-backed securities  147,353   2,670   (1,843)  146,526 
  Subtotal $964,145  $8,437  $(9,700) $965,408 
Corporate exposures  856,211   12,948   (3,741)  847,004 
Total fixed maturities $2,695,277  $37,267  $(20,465) $2,678,475 
Equity securities:                
Common stocks $169,905  $29,474  $(652) $141,083 
Preferred stocks  192,309   7,702   (1,220)  185,827 
Total Equity securities $362,214  $37,176  $(1,872) $326,910 
Short-term investments  123,846   50      123,796 
Total investments $ 3,181,337  $74,493  $(22,337) $ 3,129,181 

 


            

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