Navigators' Net Premiums Jump 25% In 2Q

Double-digit net premium growth and favorable loss development were among the headlines of the second-quarter earnings report for Navigators Group, as its bottom line net income grew 35 percent, the company reported last night.

The New York-based company reported net income of $24.4 million, or $1.44 per share for the second quarter, compared with $18.1 million, or $1.08 in second-quarter 2006.

Highlights of the second-quarter 2007 earnings report included:

o A 10 percent increase in gross written premiums to $276.5 million, and a 25 percent jump in net written premiums to $161.4 million.

o A 24 percent rise in pre-tax net investment income to $17.3 million.

o A pre-tax underwriting profit of $19.9 million, translating to a combined ratio of 86.4, up from $14.9 million, or a combined ratio of 87.0 in second-quarter 2006.

Contributing to second-quarter 2007 underwriting profit was $10.6 million of favorable loss development for prior years, which took 7.3 points off the overall combined ratio. The comparable figure for favorable prior-year development recorded in second-quarter 2006 was $2.9 million.

During a conference call this morning, Stan Galanski, Navigators' chief executive officer, commented on premium growth in the quarter. He noted that the company's U.S. excess and surplus lines business unit, Navigators Specialty, which accounts for roughly 35 percent of overall gross premiums written, had the most significant growth rate--vaulting 36 percent to $98 million.

"While the E&S world has certainly become more competitive, it is a large and segmented market [that is] still ripe with opportunities for savvy, disciplined underwriters," he said. He added that within the E&S world, Navigators has grown through a combination of being selective about the business it captures and developing new business units in recent years.

"Growth in itself is not difficult to achieve, if you're willing to cut prices and abandon discipline. We are not that type of insurer," Mr. Galanski said.

Giving an example of the company's ability to be selective about garnering profitable business, Mr. Galanski noted that within the specialty unit's core business area--California contractors liability--underwriters are putting renewed emphasis on small artisan contractors in the repair-and-remodel segment of the market while reducing emphasis on the commercial contractors segment, where the company believes rates are inadequate.

In addition, he said that new units, like a primary casualty unit started up last year in Chicago to write construction business east of the Rockies, as well as habitation and products liability business, put $8 million of business on the books "that we simply didn't have last year."

Similarly, an excess casualty unit started up three years ago posted $18 million of gross premiums in the quarter.

In other areas, such as marine businesses in Navigators' U.S. and Lloyd's operations, market conditions dictated premium drops, with overall gross premium falling nearly 12 percent in the quarter to $123.8 million.

Professional liability, on the other hand, experienced 19 percent growth in gross written premiums, with Lloyd's operations doubling their volume to $10.5 million and other operations relatively flat at $24.4 million.

Mr. Galanski also explained that while gross premiums grew only 10 percent in the second quarter, net premiums jumped 25 percent as the result of a strategy to retain more business as the group's policyholder surplus has grown.