The Navigators Group, Inc. Insuring a World In Motion (NASDAQ: NAVG) Morgan Stanley Financials Conference June 12, 2013 Stan Galanski President & CEO Ciro DeFalco Senior Vice President & CFO 1
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. 2
The Navigators Group, Inc. EXCHANGE/TICKER MARKET CAP (5/31/13) SHARE PRICE (5/31/13) BOOK VALUE/SHARE (3/31/13) FINANCIAL STRENGTH WEBSITE NASDAQ/NAVG $ 824 million $58.32 $63.46 A (S&P/A.M. BEST) WWW.NAVG.COM 3
Who We Are Navigators Mission Statement We are a global specialty insurer focused on targeted high-margin niches for which the quality of our intellectual capital, both in underwriting and claims, provide a meaningful competitive advantage. We specialize in insuring complex risks that require proven technical expertise, utilizing reinsurance to protect our conservative balance sheet. We always emphasize underwriting profit over market share and conduct our business with integrity, professionalism and pride. Recognized Leader in Specialty Insurance One of 100 Most Trustworthy Companies by Forbes.com Ranked as fourth leading U.S. Marine insurer by National Underwriter 96 th Largest U.S. Insurance Group Ranked as fifth in net premium growth 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 Approximately 40% of Navigators premiums are produced outside the U.S. 4
Successful Execution of a Growth and Diversification Strategy 1400 1200 13% 2001 2004 2005 D&O Chicago Office Excess Casualty Antwerp Office Acquired 100% Control of Lloyd s Syndicate 1221 1000 800 600 400 200 0 12% 13% 13% 18% 12% 17% 12% 56% 46% 10% 50% 51% 41% 47% 42% 8% 31% 37% 5% 38% 1% 41% 22% 54% 53% 57% 41% 38% 41% 41% 41% 36% 31% 77% 54% 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2006 2007 2008 2009 2010 Primary Casualty Inland Marine Orange County Office Miami Office (Latin America) New Jersey Office Stockholm Office Brazilian License Environmental Lloyd s China International D&O Architect & Engineering Philadelphia Office Pittsburgh Office Charlotte Office Copenhagen Office Los Angeles Office Lloyd s Brazil 2011 Navigators Re Marine Property Casualty Professional Liability 2012 Commercial Surety Navigators Re Professional Liability 5
Product Growth in Core Specialties Gross Written Premium by Product Line 2002, Four Core Specialties Gross Written Premium by Product Line 2012, Five Core Specialties Management & Professional Liability 5% Casualty (Primary) 27% Energy 13% Marine 55% Energy 14% NavRe 14% Marine 31% Casualty 28% Management & Professional Liability 13% GWP Total $448 million GWP Total $1,286 million 6
Five Core Specialties March 31, 2013 Gross Written Premium by Product Line Energy, 12% Marine, 27% NavRe, 23% Casualty, 27% Management & Professional Liability, 11% 7
Global Leader In Marine March 31, 2013 Market Leaders In Gross Written Premiums $104 Million 27% of Group Total Marine Liability Specie/Cash in Transit Transport Hull, 4% Inland Marine, 5% Specie, 6% All Other, 9% Marine and Energy Liability, 38% Policy Holders Include Terminal Operators Port Authorities Cruise Ships Ship Owners Logistics Providers Importers/Exporters Armored Car Services Museums Transport, 4% Cargo, 18% P&I, 6% Craft and Fishing Vessel, 10% 8
Casualty Specialties March 31, 2013 Primary Casualty Recognized as a market leader in construction since 1995 Complimented with a balanced liability portfolio Excess Casualty Commercial Umbrella & Excess Liability All Other Casualty Environmental Casualty Commercial Surety Global Life Sciences Commercial Auto Gross Written Premiums $244 million, 62% of Group Total Primary Casualty, 11% NavTech, 18% Other, 4% Assumed Reinsurance, 38% Excess Casualty, 29% 9
Nav Re March 31, 2013 Assumed Reinsurance Accident & Health Latin American Treaty Professional Liability Agriculture Agriculture, 40% Gross Written Premiums $92 Million 23% of Group Total Accident & Health, 42% Professional Liability, 4% Latin American Treaty, 14% 10 10
Nav Tech March 31, 2013 Energy and Power Generation First Party Coverage for: Onshore Energy Offshore Energy Engineering & Construction Onshore Energy, 12% Gross Written Premiums $45 Million 12% of Group Total Engineering & Construction, 15% Offshore Energy, 73% 11 11
Global Specialist in Management & Professional Liability March 31, 2013 U.S. D&O 20% Gross Written Premium $45 Million 11% of Group Total Directors & Officers Liability Entered market in 2001 Directors & Officers Liability Positions March 31, 2013 International E&O 6% International D&O 23% Entered market in 2002 Professional Liability Realigning professional liability with Navigators specialty to leverage strong wholesale broker relationships Reducing our exposure to U.S. law firms U.S. E&O 51% Targeting growth in miscellaneous professional liability i.e. main street America small professional firms: architect, accountant, real estate, insurance agents Number of Policies U.S. Public U.S. Private Lloyd s Public Lloyd s Private 66 148 150 147 % Primary 15% 78% 9% 58% % Excess 85% 22% 91% 42% Avg. Limit (In millions) Avg. Attachment (In millions) 6.2% 13.8% 4.5% 4.2% 18.1% $8 $3 $10 $7 $51 $15 $100 $27 Lloyd's D&O Geographic Split 19.5% 33.7% All Other Canada Australia U.K. Israel Switzerland Germany 12
Broad Distribution Network March 31, 2013 Top 25 Premium Brokers by Type (as of 3/31/13) 2% 7% 3% 17% 35% 36% Global Retailer U.S. Wholesaer Reinsueance Broker London Wholesaler U.S. Retailer Direct Business Top 25 Broker Relationships = 76% of Total Group Gross Written Premium 13
Combined Ratio Performance Measure: Combined Ratio 120.00% 115.00% 110.00% 105.00% U.S. P&C Industry (Source: ISO, a Verisk analytics company) 100.00% Navigators 95.00% 90.00% 85.00% 80.00% 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 Calendar Year 14
Performance Measure: Book Value Growth Stockholders Equity ($ in millions) 120.0% 100.0% 80.0% 106.5% 98.6% 11.7% 94.9% < A&E Charge 92.2% 90.8% 10.5% < KRW 87.8% 87.5% Hurricanes > 4.3% 89.5% Deep > 2.9% Water 97.2% Horizon 97.8% 8.6% < Large Energy 4.3% < Sandy 97.9% 96.1% Losses & 95.0% Marine Losses 60.0% $662 $689 $802 $829 $803 < Share Buy Back $880 $897 40.0% $470 $551 20.0% $291 $329 $147 $171 0.0% 12/31/01 12/31/02 12/31/03 12/31/04 12/31/05 12/31/06 12/31/07 12/31/08 12/31/09 12/31/10 12/31/11 12/31/12 3/31/13 B.V.P.S. $17.47 $ 20.18 $ 23.14 $ 25.96 $ 28.30 $32.94 $39.24 $40.89 $47.58 $52.68 $57.57 $62.61 $63.46 Combined Ratio Stockholders' Equity 15
Performance Measure: 12 Month Stock Price Growth (Data from Yahoo Finance) Hello 16
Strategic Priorities Financial objective: achieve $100 book value per share Expand our high margin, specialty niche insurance portfolio Build upon our leadership position in ocean marine insurance Become a market leader in the offshore and onshore energy and power business Become a top twenty U.S. Excess & Surplus lines casualty insurer Grow our treaty reinsurance for those products and geographies in which reinsurance is the preferred method to penetrate the market Restore profitability and our market position in D&O and professional liability globally Develop a profitable portfolio of casualty business produced by U.S. retailers Consistently achieve an underwriting profit Continuously grow and develop our intellectual capital 17
The Navigators Group, Inc. Financial Overview
Quarterly Financial Overview First Quarter 2013 Combined ratio of 97.9% with net underwriting profit of $4.2 million Gross written premiums of $393 million, an increase of 14.6% Net written premiums of $269 million, and increase of 10.9% Net earned premiums of $202 million, and increase of 10.5% Net investment income of $13.7 million along with net capital gains of $4.8 million and OTTI of ($0.04) million Net income of $13.9 million, or $0.97 of earnings per diluted share (EPS) including of $0.75 operating EPS Net unrealized loss, after-tax, of $1.8 million Book value of $897 million, or $63.46 per share, an increase of 1.4% Year-over-year growth of 8.6% Annualized ROE of 6.3% with operating ROE of 4.9% Cash flow from operations was $4.3 million 19
The Navigators Group, Inc. and Subsidiaries Financial Highlights First Quarter 2013 and 2012 Three Months Ended March 31, Percentage Change In thousands, except per share amounts 2013 2012 YTD Gross written premiums $ 393,222 $ 343,149 14.6% Net written premiums 269,452 243,045 10.9% Net earned premiums 202,328 183,119 10.5% Net losses and loss adjustment expenses (131,342) (117,985) 11.3% Commission expenses (26,555) (29,450) -9.8% Other operating expenses (40,874) (36,307) 12.6% Other income (expense) 618 911-32.1% Underwriting profit (loss) 4,175 288 NM Net investment income 13,657 11,258 21.3% Net other-than-temporary impairment losses recognized in earnings (42) (154) -72.7% Net realized gains (losses) 4,814 1,842 NM Interest expense (2,051) (2,049) 0.1% Income (loss) before income taxes $ 20,553 $ 11,185 83.8% Income tax expense (benefit) 6,643 3,281 102.5% Net income (loss) $ 13,910 $ 7,904 76.0% Net income per common share: Basic $ 0.99 $ 0.57 74.7% Diluted $ 0.97 $ 0.56 73.5% Operating earnings per common share: Basic $ 0.77 $ 0.49 57.1% Diluted $ 0.75 $ 0.48 56.3% Underwriting Ratios: Losses and loss adjustment expenses ratio 64.9% 64.4% Commission expense ratio 13.1% 16.1% Other operating expense ratio 19.9% 19.3% Combined ratio 97.9% 99.8% March 31, Dec. 31, Balance Sheet Data: 2013 2012 Stockholders' Equity $ 896,758 $ 879,485 2.0% Book value per share $ 63.46 $ 62.61 1.4% 20
Invested assets: $2.4 billion High Quality Investment Portfolio March 31, 2013 Fixed Maturities, Cash and Shortterm Investments: CMO's o o 95% of portfolio Average AA/Aa rating (S&P/Moody s) o Duration of approximately 4.0 years o Average 2012 investment yield of 2.3% Equity securities: 5% of portfolio 2% 15% 8% 19% 2% 21% 20% 8% 5% Corporate Bonds Equities Cash & Short Term Securities U.S. Treasury Bonds & Foreign Government Bonds Municipal Bonds Substantially all mortgage and asset-backed securities are investment grade Commercial Mortgages Asset-Backed No CDO s, CLO s or asset-backed commercial paper Mortgage-Backed Underlying credit rating of A+ for credit enhanced securities 21
Growth in Invested Assets 2001 to Present ($ in millions) $1,918 $2,057 $2,154 $2,233 $2, 422 $2, 383 US Treasury Bonds & Foreign Government Bonds Municipal Bonds $1,767 $1,476 Mortgage & Asset- Backed $1,182 Corporate Bonds $855 $453 $694 Equity Securities $278 Cash & Short-Term Investments 12/31/01 12/31/02 12/31/03 12/31/04 12/31/05 12/31/06 12/31/07 12/31/08 12/31/09 12/31/10 12/31/11 12/31/12 3/31/13 22
Prudent & Consistent Loss Reserving Historical Consolidated Net Loss Reserves $692 $782 $660 156% $683 179% $644 163% 173% ($ in millions) $1,237 $602 155% $1,217 $1,143 141% $1,113 46% $468 $1,000 44% 41% $339 149% 39% $847 $311 171% 37% $278 149% $696 34% $222 135% $579 $150 35% 119% $464 56% 135% 39% $374 59% 54% 41% 66% 63% 61% $265 $203 41% 51% 54% 59% 61% 65% 59% 46% 49% 12/31/01 12/31/02 12/31/03 12/31/04 12/31/05 12/31/06 12/31/07 12/31/08 12/31/09 12/31/10 12/31/11 12/31/12 Net IBNR Reserves Net Case Loss Reserves Net Reserves/NEP NEP 23 23
Reinsurance - Integral Part of Our Business Philosophy Utilize reinsurance to reduce exposure to individual risks & catastrophic losses Stabilize underwriting results Ratio of net written premiums to gross written premiums for year to date March 31, 2013 was 68.5% Diversification of reinsurers Mitigate Risks High credit quality Strong collateral position Reserve for uncollectible reinsurance Integration of reinsurance risk into ERM practices 24
Reinsurer Financial Strength Ratings March 31, 2013 ($ millions) Reinsurer Name Group Recoverable Group Collateral AMB S&P National Indemnity Company $ 109.3 $ 33.0 A++ AA+ Swiss Reinsurance America Corporation 92.8 6.1 A+ AA- Transatlantic Reinsurance Company 91.2 9.7 A A+ Everest Reinsurance Company 91.1 9.1 A+ A+ Munich Reinsurance America Inc. 88.0 3.3 A+ AA- Lloyd's Syndicate #2003 47.7 10.3 A A+ Partner Reinsurance Europe 42.9 17.5 A+ A+ Allied World Reinsurance 38.3 4.7 A A Scor Global P&C SE 31.6 6.8 A A+ Tower Insurance Company 29.0 8.2 A- NR General Reinsurance Corporation 26.4 0.7 A++ AA+ Validus Reinsurance Ltd. 25.6 13.0 A A Berkley Insurance Company 20.7 0.2 A+ A+ Scor Holding (Switzerland) AG 17.6 8.2 A A+ Atlantic Specialty Insurance 16.1 3.5 A A- Ace Property and Casualty Insurance Compan 15.6 - A+ AA- AXIS Re Europe 14.8 2.9 A A+ Platinum Underwriters Re 14.6 1.9 A A- Lloyd's Syndicate #4000 13.6 0.9 A A+ Star Insurance Company 13.5 1.3 A- BBB Top 20 Total $ 840.6 $ 141.3 All Others 316.4 84.6 Total $ 1,157.0 $ 225.9 Total Group Recoverables $ 1, 157.0 Total Group Collateral (225.9) Net Group Recoverables $ 931.1 1% 49% Superior A++, A+ 50% Excellent A, A- Other Rating Recoverable Collateral A++, A+ $81.9 $18.5 A, A- $220.2 $56.1 B++ and Below $14.4 $10.1 $316.4 $84.6 Note: A.M. Best and S&P ratings as of March 31, 2013 25
Navigators Core Values We focus on underwriting profit, not premium volume We specialize in complex risks where the know-how of our intellectual capital is a competitive advantage We are committed to customer service backed by a strong balance sheet We have the discipline to underwrite business that meets our terms and standards We practice expense control by spending money like it is our own Teamwork gets the job done We conduct our business with integrity, professionalism and pride 26