Navigators (NAVG) 10-Q 2011 Q3 Quarterly report

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

x Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the quarterly period ended September 30, 2011

or

¨ Transitional Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the transition period from              to             

Commission file number 0-15886

The Navigators Group, Inc.

(Exact name of registrant as specified in its charter)

Delaware	13-3138397
(State or other jurisdiction of incorporation or organization)	(IRS Employer Identification No.)
6 International Drive, Rye Brook, New York	10573
(Address of principal executive offices)	(Zip Code)

(914) 934-8999

(Registrant’s telephone number, including area code)

(Former name, former address and former fiscal year, if changed since last report.)

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No  ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  x    No  ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definition of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check One):

Large accelerated filer	¨	Accelerated filer	x
Non-accelerated filer	¨	Smaller reporting company	¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ¨    No  x

The number of common shares outstanding as of October 25, 2011 was 14,291,310.

THE NAVIGATORS GROUP, INC. AND SUBSIDIARIES

INDEX

	Page Number
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets September 30, 2011 (Unaudited) and December 31, 2010		3
Consolidated Statements of Income (Unaudited) Three Months Ended September  30, 2011 and 2010 and Nine Months Ended September 30, 2011 and 2010		4
Consolidated Statements of Stockholders’ Equity (Unaudited) Nine Months Ended September  30, 2011 and 2010		5
Consolidated Statements of Comprehensive Income (Unaudited) Three Months Ended September  30, 2011 and 2010 and Nine Months Ended September 30, 2011 and 2010		6
Consolidated Statements of Cash Flows (Unaudited) Nine Months Ended September 30, 2011 and 2010		7
Notes to Interim Consolidated Financial Statements (Unaudited)		8
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations		29
Item 3. Quantitative and Qualitative Disclosures About Market Risk		62
Item 4. Controls and Procedures		62
PART II. FINANCIAL INFORMATION
Item 1. Legal Proceedings		63
Item 1A. Risk Factors		63
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds		64
Item 3. Defaults Upon Senior Securities		64
Item 5. Other Information		64
Item 6. Exhibits		65
Signatures		66
Index of Exhibits		67

2

Part I. Financial Information

Item 1. Financial Statements

THE NAVIGATORS GROUP, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(In thousands except per share amounts)

		September 30,			September 30,
	(Unaudited) September 30, 2011			December 31, 2010
ASSETS
Investments and cash:
Fixed maturities, available-for-sale, at fair value (amortized cost: 2011, $1,768,428; 2010, $1,855,598)	$	1,827,973		$	1,882,245
Equity securities, available-for-sale, at fair value (cost: 2011, $133,616; 2010, $64,793)		147,794			87,258
Short-term investments, at cost which approximates fair value		159,549			153,057
Cash		58,935			31,768
Total investments and cash		2,194,251			2,154,328
Premiums receivable		249,834			188,368
Prepaid reinsurance premiums		170,180			156,869
Reinsurance recoverable on paid losses		49,232			56,658
Reinsurance recoverable on unpaid losses and loss adjustment expenses		843,546			843,296
Deferred policy acquisition costs		61,975			55,201
Accrued investment income		14,741			15,590
Goodwill and other intangible assets		6,897			6,925
Current income tax receivable, net		9,817			1,054
Deferred income tax, net		4,250			15,141
Other assets		18,652			38,029
Total assets	$	3,623,375		$	3,531,459
LIABILITIES AND STOCKHOLDERS’ EQUITY
Liabilities:
Reserves for losses and loss adjustment expenses	$	2,044,709		$	1,985,838
Unearned premiums		528,463			463,515
Reinsurance balances payable		113,188			105,904
Senior notes		114,240			114,138
Accounts payable and other liabilities		23,320			32,710
Total liabilities		2,823,920			2,702,105
Stockholders’ equity:
Preferred stock, $.10 par value, authorized 1,000,000 shares, none issued	$	—		$	—
Common stock, $.10 par value, authorized 50,000,000 shares, issued 17,451,233 shares for 2011 and 17,274,440 shares for 2010		1,745			1,728
Additional paid-in capital		324,257			312,588
Treasury stock, at cost (3,134,469 shares for 2011 and 1,532,273 shares for 2010)		(138,611	)		(64,935	)
Retained earnings		555,021			539,512
Accumulated other comprehensive income		57,043			40,461
Total stockholders’ equity		799,455			829,354
Total liabilities and stockholders’ equity	$	3,623,375		$	3,531,459

The accompanying Notes to Interim Consolidated Financial Statements are an integral part of these financial statements.

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THE NAVIGATORS GROUP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME (Unaudited)

(In thousands except share and per share amounts)

		September 30,			September 30,			September 30,			September 30,
	Three Months Ended September 30,						Nine Months Ended September 30,
	2011			2010			2011			2010
Gross written premiums	$	255,318		$	233,638		$	830,315		$	757,351
Revenues:
Net written premiums	$	175,357		$	157,807		$	551,796		$	512,129
Change in unearned premiums		(1,724	)		10,426			(51,908	)		(18,356	)
Net earned premiums		173,633			168,233			499,888			493,773
Net investment income		16,259			17,839			51,072			53,664
Total other-than-temporary impairment losses		(1,241	)		(1,034	)		(2,338	)		(1,774	)
Portion of loss recognized in other comprehensive income (before tax)		618			365			941			870
Net other-than-temporary impairment losses recognized in earnings		(623	)		(669	)		(1,397	)		(904	)
Net realized gains (losses)		3,238			4,521			4,856			21,653
Other income (expense)		(921	)		2,767			643			2,938
Total revenues		191,586			192,691			555,062			571,124
Expenses:
Net losses and loss adjustment expenses		110,242			107,463			340,893			311,133
Commission expenses		25,934			25,185			80,164			76,178
Other operating expenses		34,989			34,682			107,341			103,781
Interest expense		2,047			2,045			6,140			6,133
Total expenses		173,212			169,375			534,538			497,225
Income (loss) before income taxes		18,374			23,316			20,524			73,899
Income tax expense (benefit)		4,476			7,091			5,015			21,659
Net income (loss)	$	13,898		$	16,225		$	15,509		$	52,240
Net income per common share:
Basic	$	0.94		$	1.03		$	1.02		$	3.23
Diluted	$	0.92		$	1.00		$	1.00		$	3.17
Average common shares outstanding:
Basic		14,796,309			15,779,902			15,243,603			16,170,493
Diluted		15,104,424			16,148,990			15,569,370			16,503,098

The accompanying Notes to Interim Consolidated Financial Statements are an integral part of these financial statements.

4

THE NAVIGATORS GROUP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (Unaudited)

(In thousands)

		September 30,			September 30,
	Nine Months Ended September 30,
	2011			2010
Preferred stock
Balance at beginning and end of period	$	—		$	—
Common stock
Balance at beginning of year	$	1,728		$	1,721
Shares issued under stock plan		17			5
Balance at end of period	$	1,745		$	1,726
Additional paid-in capital
Balance at beginning of year	$	312,588		$	304,505
Shares issued under stock plan		9,415			2,024
Share-based compensation		2,254			4,704
Balance at end of period	$	324,257		$	311,233
Treasury stock, at cost
Balance at beginning of year	$	(64,935	)	$	(18,296	)
Treasury stock acquired		(73,676	)		(50,272	)
Issuance related to share-based compensation		—			5,341
Balance at end of period	$	(138,611	)	$	(63,227	)
Retained earnings
Balance at beginning of year	$	539,512		$	469,934
Net income (loss)		15,509			52,240
Balance at end of period	$	555,021		$	522,174
Accumulated other comprehensive income, net of tax
Balance at beginning of year	$	40,461		$	43,655
Change in net unrealized gains on securities		16,717			40,844
Change in net non-credit other-than-temporary impairment losses		(357	)		(2,520	)
Change in net cumulative translation adjustments		222			128
Balance at end of period	$	57,043		$	82,107
Total stockholders’ equity at end of period	$	799,455		$	854,013

The accompanying Notes to Interim Consolidated Financial Statements are an integral part of these financial statements.

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THE NAVIGATORS GROUP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Unaudited)

(In thousands)

		September 30,			September 30,
	Three Months Ended September 30,
	2011			2010
Net income (loss)	$	13,898		$	16,225
Other comprehensive income (loss):
Change in net unrealized gains (losses) on investments, net of tax expense (benefit) of $(322) and $12,806 in 2011 and 2010, respectively(1)		(511	)		24,104
Change in foreign currency translation gains (losses), net of tax expense (benefit) of $(273) and $(165) in 2011 and 2010, respectively		(701	)		(306	)
Other comprehensive income (loss)		(1,212	)		23,798
Comprehensive income (loss)	$	12,686		$	40,023
(1)        Disclosure of reclassification amount, net of tax:
Unrealized gains (losses) on investments arising during period	$	411		$	26,588
Reclassification adjustment for net realized gains (losses) included in net income		(1,025	)		(2,939	)
Reclassification adjustment for other-than-temporary impairment losses recognized in net income		103			455
Change in net unrealized gains (losses) on investments, net of tax	$	(511	)	$	24,104
	Nine Months Ended September 30,
	2011			2010
Net income (loss)	$	15,509		$	52,240
Other comprehensive income (loss):
Change in net unrealized gains (losses) on investments, net of tax expense (benefit) of $8,251 and $20,160 in 2011 and 2010, respectively(2)		16,360			38,324
Change in foreign currency translation gains (losses), net of tax expense (benefit) of $86 and $69 in 2011 and 2010, respectively		222			128
Other comprehensive income (loss)		16,582			38,452
Comprehensive income (loss)	$	32,091		$	90,692
(2)        Disclosure of reclassification amount, net of tax:
Unrealized gains (losses) on investments arising during period	$	15,986		$	51,784
Reclassification adjustment for net realized gains (losses) included in net income		264			(14,075	)
Reclassification adjustment for other-than-temporary impairment losses recognized in net income		110			615
Change in net unrealized gains (losses) on investments, net of tax	$	16,360		$	38,324

The accompanying Notes to Interim Consolidated Financial Statements are an integral part of these financial statements.

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THE NAVIGATORS GROUP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)

(In thousands)

		September 30,			September 30,
	Nine Months Ended September 30,
	2011			2010
Operating activities:
Net income (loss)	$	15,509		$	52,240
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation & amortization		2,978			3,374
Deferred income taxes		2,534			15,789
Net realized (gains) losses		(4,856	)		(21,653	)
Net other-than-temporary losses recognized in earnings		1,397			904
Changes in assets and liabilities:
Reinsurance recoverable on paid and unpaid losses and loss adjustment expenses		6,618			33,857
Reserves for losses and loss adjustment expenses		60,681			6,641
Prepaid reinsurance premiums		(13,496	)		6,097
Unearned premiums		65,408			12,409
Premiums receivable		(61,570	)		(11,331	)
Deferred policy acquisition costs		(6,802	)		(3,856	)
Accrued investment income		700			1,909
Reinsurance balances payable		7,306			(1,141	)
Current income taxes		(6,755	)		855
Other		16,670			18,022
Net cash provided by (used in) operating activities		86,322			114,116
Investing activities:
Fixed maturities
Redemptions and maturities		80,296			157,330
Sales		464,580			372,971
Purchases		(464,685	)		(467,704	)
Equity securities
Sales		2,107			3,069
Purchases		(70,636	)		(22,537	)
Change in payable for securities		10,223			11,137
Net change in short-term investments		(6,661	)		(87,690	)
Purchase of property and equipment		(2,624	)		(1,076	)
Net cash provided by (used in) investing activities		12,600			(34,500	)
Financing activities:
Purchase of treasury stock		(73,676	)		(50,272	)
Proceeds of stock issued from employee stock purchase plan		822			868
Proceeds of stock issued from exercise of stock options		1,099			352
Net cash provided by (used in) financing activities		(71,755	)		(49,052	)
Increase (decrease) in cash		27,167			30,564
Cash at beginning of year		31,768			509
Cash at end of period	$	58,935		$	31,073
Supplemental cash information:
Income taxes paid, net		6,565		$	5,596
Interest paid		4,025			4,025
Issuance of stock to directors		210			190

The accompanying Notes to Interim Consolidated Financial Statements are an integral part of these financial statements.

7

THE NAVIGATORS GROUP, INC. AND SUBSIDIARIES

Notes to Interim Consolidated Financial Statements

(Unaudited)

Note 1. Accounting Policies

The accompanying interim consolidated financial statements are unaudited and reflect all adjustments which, in the opinion of management, are necessary to fairly present the results of The Navigators Group, Inc. and its subsidiaries for the interim periods presented on the basis of United States generally accepted accounting principles (“GAAP” or “U.S. GAAP”). All such adjustments are of a normal recurring nature. All significant intercompany transactions and balances have been eliminated. The preparation of these financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported revenues and expenses during the reporting periods. The results of operations for any interim period are not necessarily indicative of results for the full year. The term “the Company” as used herein is used to mean The Navigators Group, Inc. and its subsidiaries, unless the context otherwise requires. The term “Parent” or “Parent Company” are used to mean The Navigators Group, Inc. without its subsidiaries. These financial statements should be read in conjunction with the consolidated financial statements and notes contained in the Company’s 2010 Annual Report on Form 10-K. Certain amounts for the prior year have been reclassified to conform to the current year’s presentation.

Note 2. Recent Accounting Pronouncements

Recently Adopted Accounting Pronouncements

In January 2010, the Financial Accounting Standards Board (“FASB”) issued accounting guidance (Accounting Standards Update (“ASU”) 2010-06) which improves disclosures about fair value measurements (Accounting Standards Codification (“ASC” or “Codification”) 820-10). This guidance requires additional disclosures regarding significant transfers in and out of Levels 1 and 2 and additional disclosures regarding Level 3 purchases, sales, issuances and settlements. In addition, this guidance also requires fair value measurement disclosures for each class of assets and liabilities as well as disclosures about the valuation techniques and inputs used to measure fair value for items classified as Level 2 or Level 3. This guidance was effective as of January 1, 2010 for calendar year reporting entities with the exception of the additional disclosures about purchases, sales, issuances and settlements in the roll forward of activity in Level 3 fair value measurements which became effective as of January 1, 2011 for calendar year reporting entities. Early adoption is permitted. The Company adopted this guidance in the first quarter of 2010 with the exception of the additional disclosures about purchases, sales, issuances and settlement in the roll forward of activity in Level 3 fair value measurements, which the Company adopted in the first quarter of 2011. Adoption of this guidance did not have a material effect on the Company’s consolidated financial condition, results of operations or cash flows.

Recent Accounting Developments

In September 2011, the FASB issued ASU 2011-08 amending Codification topic 350 –Intangibles – Goodwill and Other. The amendment simplifies how goodwill is tested for impairment by permitting entities to first assess qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying value as a basis for determining whether it is necessary to perform the two step goodwill impairment test. The amendment is effective for the interim and annual goodwill impairment tests performed for fiscal years beginning after December 15, 2011. Early adoption is permitted, but the Company did not early adopt and is currently evaluating the potential impact of the adoption on its’ consolidated financial position, results of operations and cash flows.

8

In June 2011, the FASB issued ASU 2011-05 amending Codification Topic 220 -Comprehensive Income. The amendment requires that other comprehensive income be either presented in a single continuous statement or two separate but consecutive statements. In addition, the amendment requires the disclosure of reclassification adjustments for items reclassified from other comprehensive income to net income on the face of the financial statements. The amendment is effective for the interim and annual periods beginning after December 15, 2011 and should be applied retrospectively. This standard will only affect the Company’s presentation of comprehensive income and will not affect the Company’s financial position, results of operations, and cash flows.

In May 2011, the FASB issued ASU 2011-04 amending Codification Topic 820 -Fair Value Measurements and Disclosures. The amendments were intended to result in common fair value measurement and disclosure requirements in U.S. GAAP and International Financial Reporting Standards (IFRS). The amendment expands and enhances current disclosures about fair value measurement and clarifies the FASB’s intent regarding the application of existing fair value measurement requirements in certain circumstances. The amendments are effective for the interim and annual periods beginning after December 15, 2011 and should be applied prospectively. We are currently evaluating the impact of this amendment on the Company’s consolidated financial position, results of operations and cash flows.

In October 2010, the FASB issued ASU 2010-26 amending Codification Topic 944 –Financial Services – Insurance;Accounting for Costs Associated with Acquiring or Renewing Insurance Contracts. The amendment clarifies which costs relating to the acquisition of new or renewal insurance contracts qualify for deferral. In addition, the amendment limits deferrable costs to those that are related directly to the successful acquisition of new or renewal insurance contracts that can be capitalized. The amendment is effective for fiscal and interim periods within that fiscal year, beginning after December 15, 2011 and can be applied prospectively or retrospectively. Early adoption is permitted, but the Company did not early adopt and is currently evaluating the potential impact of the adoption on its’ consolidated financial position, results of operations and cash flows.

Note 3. Segment Information

The Company classifies its’ business into two underwriting segments consisting of the Insurance Companies segment (“Insurance Companies”) and the Lloyd’s Operations segment (“Lloyd’s Operations”), which are separately managed, and a Corporate segment (“Corporate”). Segment data for each of the two underwriting segments include allocations of the operating expenses of the wholly-owned underwriting management companies and the Parent Company’s operating expenses and related income tax amounts. The Corporate segment consists of the Parent Company’s investment income, interest expense and the related tax effect.

The Company evaluates the performance of each underwriting segment based on its underwriting and GAAP results. The Insurance Companies’ and the Lloyd’s Operations’ results are measured by taking into account net earned premiums, net losses and loss adjustment expenses (“LAE”), commission expenses, other operating expenses and other income (expense). Each segment maintains its own investments on which it earns income and realizes capital gains or losses. The Company’s underwriting performance is evaluated separately from the performance of its’ investment portfolios.

The Insurance Companies consist of Navigators Insurance Company, including its branch located in the United Kingdom (the “U.K. Branch”), and its wholly-owned subsidiary, Navigators Specialty Insurance Company (“Navigators Specialty”). They are primarily engaged in underwriting marine insurance and related lines of business, professional liability insurance and specialty lines of business including contractors general liability insurance, commercial umbrella and primary and excess casualty businesses. Navigators Specialty underwrites specialty and professional liability insurance on an excess and surplus lines basis. Navigators Specialty is 100% reinsured by Navigators Insurance Company.

The Lloyd’s Operations primarily underwrite marine and related lines of business along with offshore energy, professional liability insurance and construction coverage for onshore energy business at Lloyd’s of London (“Lloyd’s”) through Lloyd’s Syndicate 1221 (“Syndicate 1221”). The Company’s Lloyd’s Operations includes Navigators Underwriting Agency Ltd. (“NUAL”), a Lloyd’s underwriting agency that manages Syndicate 1221. The Company controlled 100% of the stamp capacity of Syndicate 1221 through its’ wholly-owned Lloyd’s corporate member in 2011 and 2010.

9

Navigators Management Company, Inc. (“NMC”) is a wholly-owned underwriting management company which produces, manages and underwrites insurance and reinsurance, and provides corporate services for the Company. The operating results for the underwriting management company are allocated to both the Insurance Companies and Lloyd’s Operations.

The Insurance Companies’ and the Lloyd’s Operations’ underwriting results are measured based on underwriting profit or loss and the related combined ratio, which are both non-GAAP measures of underwriting profitability. Underwriting profit or loss is calculated from net earned premiums, less the sum of net losses and LAE, commission expenses, other operating expenses and other income (expense). The combined ratio is derived by dividing the sum of net losses and LAE, commission expenses, other operating expenses and other income (expense) by net earned premiums. A combined ratio of less than 100% indicates an underwriting profit and greater than 100% indicates an underwriting loss.

The following tables provide the Company’s segment results for the three and nine months ended September 30, 2011 and 2010 follows:

		September 30,			September 30,			September 30,			September 30,
	Three Months Ended September 30, 2011
In thousands	Insurance Companies			Lloyd’s Operations			Corporate(1)			Total
Gross written premiums	$	191,175		$	64,143		$	—		$	255,318
Net written premiums		135,292			40,065			—			175,357
Net earned premiums		119,332			54,301			—			173,633
Net losses and loss adjustment expenses		(76,755	)		(33,487	)		—			(110,242	)
Commission expenses		(16,514	)		(9,953	)		533			(25,934	)
Other operating expenses		(25,735	)		(9,254	)		—			(34,989	)
Other income (expense)		554			(942	)		(533	)		(921	)
Underwriting profit (loss)	$	882		$	665		$	0		$	1,547
Net investment income		14,037			2,158			64			16,259
Net realized gains (losses)		2,809			(226	)		32			2,615
Interest expense		—			—			(2,047	)		(2,047	)
Income (loss) before income taxes	$	17,728		$	2,597		$	(1,951	)	$	18,374
Income tax expense (benefit)		4,379			780			(683	)		4,476
Net income (loss)	$	13,349		$	1,817		$	(1,268	)	$	13,898
Identifiable assets	$	2,692,597		$	887,401		$	43,377		$	3,623,375
Losses and loss adjustment expenses ratio		64.3	%		61.7	%					63.5	%
Commission expense ratio		13.8	%		18.3	%					14.9	%
Other operating expense ratio(2)		21.2	%		18.8	%					20.7	%
Combined ratio		99.3	%		98.8	%					99.1	%

(1) - Includes Corporate segment intercompany eliminations.

(2) - Includes Other operating expenses and Other income.

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		September 30,			September 30,			September 30,			September 30,
	Three Months Ended September 30, 2010
In thousands	Insurance Companies			Lloyd’s Operations			Corporate(1)			Total
Gross written premiums	$	163,343		$	70,295		$	—		$	233,638
Net written premiums		107,916			49,891			—			157,807
Net earned premiums		112,198			56,035			—			168,233
Net losses and loss adjustment expenses		(72,306	)		(35,157	)		—			(107,463	)
Commission expenses		(14,374	)		(10,459	)		(352	)		(25,185	)
Other operating expenses		(26,398	)		(8,301	)		—			(34,699	)
Other income (expense)		1,380			1,052			352			2,784
Underwriting profit (loss)	$	500		$	3,170		$	—		$	3,670
Net investment income		15,736			1,982			121			17,839
Net realized gains (losses)		4,206			(354	)		—			3,852
Interest expense		—			—			(2,045	)		(2,045	)
Income (loss) before income taxes	$	20,442		$	4,798		$	(1,924	)	$	23,316
Income tax expense (benefit)		6,049			1,715			(673	)		7,091
Net income (loss)	$	14,393		$	3,083		$	(1,251	)	$	16,225
Identifiable assets	$	2,603,090		$	841,926		$	75,980		$	3,520,996
Losses and loss adjustment expenses ratio		64.4	%		62.7	%					63.9	%
Commission expense ratio		12.8	%		18.7	%					15.0	%
Other operating expense ratio(2)		22.4	%		12.9	%					18.9	%
Combined ratio		99.6	%		94.3	%					97.8	%

(1) - Includes Corporate segment intercompany eliminations.

(2) - Includes Other operating expenses and Other income.

11

		September 30,			September 30,			September 30,			September 30,
	Nine Months Ended September 30, 2011
In thousands	Insurance Companies			Lloyd’s Operations			Corporate(1)			Total
Gross written premiums	$	584,718		$	245,597		$	—		$	830,315
Net written premiums		389,236			162,560			—			551,796
Net earned premiums		333,139			166,749			—			499,888
Net losses and loss adjustment expenses		(228,882	)		(112,011	)		—			(340,893	)
Commission expenses		(45,256	)		(36,402	)		1,494			(80,164	)
Other operating expenses		(79,050	)		(28,291	)		—			(107,341	)
Other income (expense)		2,871			(734	)		(1,494	)		643
Underwriting profit (loss)	$	(17,178	)	$	(10,689	)	$	0		$	(27,867	)
Net investment income		44,009			6,733			330			51,072
Net realized gains (losses)		5,664			(2,409	)		204			3,459
Interest expense		—			—			(6,140	)		(6,140	)
Income (loss) before income taxes	$	32,495		$	(6,365	)	$	(5,606	)	$	20,524
Income tax expense (benefit)		9,224			(2,247	)		(1,962	)		5,015
Net income (loss)	$	23,271		$	(4,118	)	$	(3,644	)	$	15,509
Identifiable assets	$	2,692,597		$	887,401		$	43,377		$	3,623,375
Losses and loss adjustment expenses ratio		68.7	%		67.2	%					68.2	%
Commission expense ratio		13.6	%		21.8	%					16.0	%
Other operating expense ratio(2)		22.9	%		17.4	%					21.4	%
Combined ratio		105.2	%		106.4	%					105.6	%

(1) - Includes Corporate segment intercompany eliminations.

(2) - Includes Other operating expenses and Other income.

12

		September 30,			September 30,			September 30,			September 30,
	Nine Months Ended September 30, 2010
In thousands	Insurance Companies			Lloyd’s Operations			Corporate(1)			Total
Gross written premiums	$	511,822		$	245,529		$	—		$	757,351
Net written premiums		340,657			171,472			—			512,129
Net earned premiums		333,834			159,939			—			493,773
Net losses and loss adjustment expenses		(205,571	)		(105,562	)		—			(311,133	)
Commission expenses		(43,351	)		(32,827	)		—			(76,178	)
Other operating expenses		(79,658	)		(24,161	)		—			(103,819	)
Other income (expense)		289			2,687			—			2,976
Underwriting profit (loss)	$	5,543		$	76		$	—		$	5,619
Net investment income		47,040			6,179			445			53,664
Net realized gains (losses)		20,140			378			231			20,749
Interest expense		—			—			(6,133	)		(6,133	)
Income (loss) before income taxes	$	72,723		$	6,633		$	(5,457	)	$	73,899
Income tax expense (benefit)		21,166			2,403			(1,910	)		21,659
Net income (loss)	$	51,557		$	4,230		$	(3,547	)	$	52,240
Identifiable assets	$	2,603,090		$	841,926		$	75,980		$	3,520,996
Losses and loss adjustment expenses ratio		61.6	%		66.0	%					63.0	%
Commission expense ratio		13.0	%		20.5	%					15.4	%
Other operating expense ratio(2)		23.7	%		13.5	%					20.5	%
Combined ratio		98.3	%		100.0	%					98.9	%

(1) - Includes Corporate segment intercompany eliminations.

(2) - Includes Other operating expenses and Other income.

13

The following tables provide additional financial data by segment for the three months ended September 30, 2011 and 2010:

		September 30,		September 30,		September 30,
	Three Months Ended September 30, 2011
In thousands	Insurance Companies		Lloyd’s Operations		Total
Gross written premiums:
Marine	$	47,141	$	26,979	$	74,120
Property casualty		110,975		29,682		140,657
Professional liability		33,059		7,482		40,541
Total	$	191,175	$	64,143	$	255,318
Net written premiums:
Marine	$	34,180	$	20,649	$	54,829
Property casualty		77,056		16,296		93,352
Professional liability		24,056		3,120		27,176
Total	$	135,292	$	40,065	$	175,357
Net earned premiums:
Marine	$	41,951	$	34,510	$	76,461
Property casualty		58,585		15,952		74,537
Professional liability		18,796		3,839		22,635
Total	$	119,332	$	54,301	$	173,633
	Three Months Ended September 30, 2010
In thousands	Insurance Companies		Lloyd’s Operations		Total
Gross written premiums:
Marine	$	49,406	$	32,788	$	82,194
Property casualty		81,351		27,687		109,038
Professional liability		32,586		9,820		42,406
Total	$	163,343	$	70,295	$	233,638
Net written premiums:
Marine	$	35,546	$	27,142	$	62,688
Property casualty		52,677		17,414		70,091
Professional liability		19,693		5,335		25,028
Total	$	107,916	$	49,891	$	157,807
Net earned premiums:
Marine	$	41,091	$	38,254	$	79,345
Property casualty		50,976		12,202		63,178
Professional liability		20,131		5,579		25,710
Total	$	112,198	$	56,035	$	168,233

The Insurance Companies’ net earned premiums include $21.2 million and $23.3 million of net earned premiums from the U.K. Branch for the three months ended September 30, 2011 and 2010, respectively.

14

The following tables provide additional financial data by segment for the nine months ended September 30, 2011 and 2010:

		September 30,		September 30,		September 30,
	Nine Months Ended September 30, 2011
In thousands	Insurance Companies		Lloyd’s Operations		Total
Gross written premiums:
Marine	$	175,812	$	127,585	$	303,397
Property casualty		323,994		91,106		415,100
Professional liability		84,912		26,906		111,818
Total	$	584,718	$	245,597	$	830,315
Net written premiums:
Marine	$	130,200	$	102,362	$	232,562
Property casualty		201,978		47,364		249,342
Professional liability		57,058		12,834		69,892
Total	$	389,236	$	162,560	$	551,796
Net earned premiums:
Marine	$	124,387	$	109,222	$	233,609
Property casualty		156,871		44,105		200,976
Professional liability		51,881		13,422		65,303
Total	$	333,139	$	166,749	$	499,888
	Nine Months Ended September 30, 2010
In thousands	Insurance Companies		Lloyd’s Operations		Total
Gross written premiums:
Marine	$	172,136	$	133,758	$	305,894
Property casualty		242,494		76,768		319,262
Professional liability		97,192		35,003		132,195
Total	$	511,822	$	245,529	$	757,351
Net written premiums:
Marine	$	123,702	$	111,205	$	234,907
Property casualty		156,674		43,049		199,723
Professional liability		60,281		17,218		77,499
Total	$	340,657	$	171,472	$	512,129
Net earned premiums:
Marine	$	122,739	$	108,541	$	231,280
Property casualty		152,228		34,880		187,108
Professional liability		58,867		16,518		75,385
Total	$	333,834	$	159,939	$	493,773

The Insurance Companies’ net earned premiums include $64.1 million and $61.9 million of net earned premiums from the U.K. Branch for the nine months ended September 30, 2011 and 2010, respectively.

15

Note 4. Reinsurance Ceded

The Company’s ceded earned premiums were $85.5 million and $81.6 million for the three months ended September 30, 2011 and 2010, respectively, and were $261.9 million and $251.4 million for the nine months ended September 30, 2011 and 2010, respectively. The Company’s ceded incurred losses were $39.8 million and $42.6 million for the three months ended September 30, 2011 and 2010, respectively, and were $165.6 million and $156.0 million for the nine months ended September 30, 2011 and 2010, respectively.

The following table lists the Company’s 20 largest reinsurers measured by the amount of reinsurance recoverable for ceded losses and loss adjustment expense and ceded unearned premium (constituting approximately 74% of the total recoverable), together with the reinsurance recoverable and collateral as of September 30, 2011, and the reinsurers’ rating from the indicated rating agency:

		September 30,		September 30,		September 30,		September 30,		September 30,
	Reinsurance Recoverables								Rating &
In thousands	Unearned Premium		Paid/Unpaid Losses		Total		Collateral Held(1)		Rating Agency(2)
Swiss Reinsurance America Corporation		5,643		92,482		98,125		7,756	A	AMB
Munich Reinsurance America Inc.		12,442		75,289		87,731		2,896	A+	AMB
Everest Reinsurance Company		15,019		69,873		84,892		7,193	A+	AMB
Transatlantic Reinsurance Company		16,279		68,333		84,612		6,557	A	AMB
National Indemnity Company		14,511		26,891		41,402		6,348	A++	AMB
Partner Reinsurance Europe		7,082		33,691		40,773		16,832	AA-	S&P
Scor Holding (Switzerland) AG		2,888		34,727		37,615		7,211	A	AMB
Berkley Insurance Company		1,816		30,877		32,693		123	A+	AMB
General Reinsurance Corporation		815		31,741		32,556		1,466	A++	AMB
Lloyd’s Syndicate #2003		5,774		25,815		31,589		6,401	A	AMB
Munchener Ruckversicherungs-Gesellschaft		706		27,400		28,106		5,885	A+	AMB
White Mountains Reinsurance of America		150		27,530		27,680		716	A	AMB
Platinum Underwriters Re		988		25,787		26,775		3,000	A	AMB
Ace Property and Casualty Insurance Company		2,013		22,982		24,995		31	A+	AMB
Allied World Reinsurance		6,824		15,656		22,480		2,431	A	AMB
AXIS Re Europe		5,792		15,559		21,351		5,058	A	AMB
Validus Reinsurance Ltd.		3,130		14,841		17,971		6,671	A-	AMB
Tower Insurance Company		10,337		7,112		17,449		2,577	A-	AMB
Lloyd’s Syndicate #4000		2,225		11,937		14,162		1,995	A	AMB
Lloyd’s Syndicate #457		2,806		10,492		13,298		3,118	A	AMB
Top 20 Total	$	117,240	$	669,015	$	786,255	$	94,265
All Other		52,940		223,763		276,703		89,905
Total	$	170,180	$	892,778	$	1,062,958	$	184,170

(1) Collateral includes letter of credit balances payable and other balances held by the Company’s Insurance Companies and Lloyd’s Operations.

(2) A.M. Best Company (“A.M. Best”) and Standard and Poor’s Rating Services (“S&P”).

16

Note 5. Stock-Based Compensation

Stock-based compensation granted under the Company’s stock plans is expensed in tranches over the vesting period. Options and non-performance based grants generally vest equally over a four year period and the options have a maximum term of ten years. Certain non-performance based grants vest over five years with one-third vesting in each of the third, fourth and fifth years. The Company’s performance based share grants generally consist of two types of awards. The restricted stock units issued in 2011 will cliff vest in three years, generally with 50% vesting in full, while the vesting of the remaining 50% will be dependent on the compound annual growth in book value per share for the three years immediately prior to the vesting date, with actual shares that vest ranging between 150% to 0% of that portion of the original award. Those issued prior to 2011 generally vest over five years with one-third vesting in each of the third, fourth and fifth years, dependent on the rolling three-year average return on equity based on the three years prior to the year in which the vesting occurs, with actual shares that vest ranging between 150% to 0% of the original award.

The amounts charged to expense for stock-based compensation for the three and nine months ended September 30, 2011 and 2010 are presented in the following table:

		September 30,			September 30,		September 30,			September 30,
	Three Months Ended September 30,					Nine Months Ended September 30,
In thousands	2011			2010		2011			2010
Restricted stock units	$	775		$	1,720	$	2,254		$	4,704
Directors restricted stock grants(1)		64			45		184			135
Employee stock purchase plan		1			61		124			158
Stock appreciation rights(2)		(47	)		108		(100	)		(248	)
Stock options		—			—		—			—
					��
Total stock based compensation	$	793		$	1,934	$	2,462		$	4,749

(1) Relates to non-employee directors serving on the Parent Company’s Board of Directors, all who have been elected by the Company’s shareholders, as well as NUAL’s Board of Directors.

(2) All issued stock appreciation rights were exercised during 2011. The Company will no longer issue awards from the Stock Appreciation Rights Plan as a result of the 2005 Amended and Restated Stock Incentive Plan.

Note 6. Lloyd’s Syndicate 1221

The Company’s Lloyd’s Operations included in the consolidated financial statements represents its’ participation in Syndicate 1221. Syndicate 1221’s stamp capacity is £175 million ($273 million) for the 2011 underwriting year compared to £168 million ($264 million) for the 2010 underwriting year. Stamp capacity is a measure of the amount of premiums a Lloyd’s syndicate is authorized to write based on a business plan approved by the Council of Lloyd’s. Syndicate 1221’s stamp capacity is expressed net of commission (as is standard at Lloyd’s). The Syndicate 1221 premiums recorded in the Company’s financial statements are gross of commission. The Company controlled 100% of Syndicate 1221’s stamp capacity for the 2011 and 2010 underwriting years through its’ wholly-owned Lloyd’s corporate member.

The Company provides letters of credit and posts cash to Lloyd’s to support its’ participation in Syndicate 1221’s stamp capacity. As of September 30, 2011, the Company had provided letters of credit of $132.6 million and did not have any cash collateral posted. If Syndicate 1221 increases its stamp capacity and the Company participates in the additional stamp capacity, or if Lloyd’s changes the capital requirements, the Company may be required to supply additional collateral acceptable to Lloyd’s. If the Company is unwilling or unable to provide additional acceptable collateral, the Company will be required to reduce its’ participation in the stamp capacity of Syndicate 1221. The letters of credit are provided through a credit facility with a consortium of banks which provides the Company with the ability to have letters of credit issued to support Syndicate 1221’s stamp capacity at Lloyd’s for the 2011 and 2012 underwriting years. The ability to issue new letters of credit expires on December 31, 2011. If any letters of credit remain outstanding under the facility after December 31, 2012, we would be required to post additional collateral to secure the remaining letters of credit. If the credit facility is not renewed prior to December 31, 2012, the Company will need to find internal and/or external sources to provide either letters of credit or other collateral in order to continue to participate in Syndicate 1221. The credit facility is collateralized by all of the common stock of Navigators Insurance Company. Refer to Note 11,Credit Facility for additional information.

17

Note 7. Income Taxes

The Company is subject to the tax laws and regulations of the United States (“U.S.”) and foreign countries in which it operates. The Company files a consolidated U.S. federal tax return, which includes all domestic subsidiaries and the United Kingdom (“U.K.”) Branch. The income from the foreign operations is designated as either U.S. connected income or non-U.S. connected income. Lloyd’s is required to pay U.S. income tax on U.S. connected income written by Lloyd’s syndicates. Lloyd’s and the Internal Revenue Service (“IRS”) have entered into an agreement whereby the amount of tax due on U.S. connected income is calculated by Lloyd’s and remitted directly to the IRS. These amounts are then charged to the corporate members in proportion to their participation in the relevant syndicates. The Company’s corporate members are subject to this agreement and will receive U.K. tax credits for any U.S. income tax incurred up to the U.K. income tax charged on the U.S. connected income. The non-U.S. connected insurance income would generally constitute taxable income under the Subpart F income section of the Internal Revenue Code (“Subpart F”) since less than 50% of Syndicate 1221’s premiums are derived within the U.K. and would therefore be subject to U.S. taxation when the Lloyd’s year of account closes. Taxes are accrued at a 35% rate on the Company’s foreign source insurance income and foreign tax credits, where available, are utilized to offset U.S. tax as permitted. The Company’s effective tax rate for Syndicate 1221 taxable income could substantially exceed 35% to the extent the Company is unable to offset U.S. taxes paid under Subpart F tax regulations with U.K. tax credits on future underwriting year distributions. U.S. taxes are not accrued on the earnings of the Company’s foreign agencies as these earnings are not includable as Subpart F income in the current year. These earnings are subject to taxes under U.K. tax regulations at a 28% rate through March 31, 2011. A finance bill was enacted in the U.K. that reduces the U.K. corporate tax rate from 28% to 26% effective April 2011. The effect of such tax rate change was not material.

The Company has not provided for U.S. deferred income taxes on the undistributed earnings of approximately $61.6 million of its non-U.S. subsidiaries since these earnings are intended to be permanently reinvested in the non-U.S. subsidiaries. However, in the future, if such earnings were distributed to the Company, taxes of approximately $1.6 million would be payable on such undistributed earnings and would be reflected in the tax provision for the year in which these earnings are no longer intended to be permanently reinvested in the foreign subsidiary, assuming all foreign tax credits are realized.

Unrecognized tax benefits are differences between tax positions taken in the tax returns and benefits recognized in the financial statements. The Company has no unrecognized tax benefits as of September 30, 2011 and 2010. The Company did not incur any interest or penalties related to unrecognized tax benefits for the three and nine months ended September 30, 2011 and 2010. The Company is currently not under examination by any major U.S. or foreign tax authority and is generally subject to U.S. Federal, state or local, or foreign tax examinations by tax authorities for 2008 and subsequent years.

The Company recorded income tax expense of $4.5 million and $5.0 million for the three and nine months ended September 30, 2011 compared to $7.1 million and $21.7 million for the comparable periods in 2010, resulting in an effective tax rate of 24.4% for the three and nine months ended September 30, 2011 and 30.4% and 29.3% for the comparable periods in 2010, respectively. The effective tax rate on net investment income was 28.6% for the three and nine months ended September 30, 2011 compared to 28.4% and 26.7% for the same periods in 2010.

The Company had state and local deferred tax assets amounting to potential future tax benefits of $1.8 million and $2.2 million as of September 30, 2011 and December 31, 2010, respectively. Included in the deferred tax assets are state and local net operating loss carry-forwards of $1.3 million and $1.4 million as of September 30, 2011 and December 31, 2010, respectively. A valuation allowance was established for the full amount of these potential future tax benefits due to the uncertainty associated with their realization. The Company’s state and local tax carry-forwards as of September 30, 2011 expire from 2024 to 2030.

18

Note 8. Senior Notes due May 1, 2016

On April 17, 2006, the Company completed a public debt offering of $125 million principal amount of 7% senior notes due May 1, 2016 (the “Senior Notes”) and received net proceeds of $123.5 million. The interest payment dates on the Senior Notes are each May 1 and November 1. The effective interest rate related to the Senior Notes, based on the proceeds net of discount and all issuance costs, approximates 7.17%. The interest expense on the Senior Notes was $2.0 million for the three months ended September 30, 2011 and 2010, respectively, and $6.1 million for the nine months ended September 30, 2011 and 2010, respectively.

The Company may redeem the Senior Notes at any time and from time to time, in whole or in part, at a “make-whole” redemption price. The terms of the Senior Notes contain various restrictive business and financial covenants typical for debt obligations of this type, including limitations on mergers, liens and dispositions of the common stock of certain subsidiaries. As of September 30, 2011, the Company was in compliance with all such covenants.

In April 2009, the Company repurchased $10.0 million aggregate principal amount of the Senior Notes from an unaffiliated note holder on the open market for $7.0 million, which generated a $2.9 million pre-tax gain that was reflected in Other income. As a result of this transaction, approximately $114 million aggregate principal amount of the Senior Notes remains issued and outstanding as of September 30, 2011.

Note 9. Commitments and Contingencies

In the ordinary course of conducting business, the Company’s subsidiaries are involved in various legal proceedings, either indirectly as insurers for parties or directly as defendants. Most of these proceedings are claims litigation involving the Company’s subsidiaries as either (a) liability insurers defending or providing indemnity for third party claims brought against insureds or (b) insurers defending first party coverage claims brought against them. The Company accounts for such activity through the establishment of unpaid loss and loss adjustment reserves. The Company’s management believes that the ultimate liability, if any, with respect to such ordinary-course claims litigation, after consideration of provisions made for potential losses and cost of defense, will not be material to the Company’s consolidated financial condition, results of operations, or cash flows.

The Company’s subsidiaries are also from time-to-time involved with other legal actions, some of which assert claims for substantial amounts. These actions include claims asserting extra contractual obligations, such as claims involving allegations of bad faith in the handling of claims or the underwriting of policies. In general, the Company believes it has valid defenses to these cases. The Company’s management expects that the ultimate liability if any, with respect to future extra-contractual matters will not be material to its’ consolidated financial position. Nonetheless, given the large or indeterminate amounts sought in certain of these matters, and the inherent unpredictability of litigation, an adverse outcome in such matters could, from time-to-time, have a material adverse outcome on the Company’s consolidated results of operations or cash flows in a particular fiscal quarter or year.

In October 2010, Equitas represented by Resolute Management Services Limited (“Resolute”) commenced a lawsuit in the Supreme Court of the State of New York (the “Court Proceeding”) and a separate arbitration proceeding (the “Arbitration” and collectively with the Court Proceeding, the “Resolute Proceedings”) against Navigators Management Company (“NMC”) Inc., a wholly-owned subsidiary of the Company. The arbitration demand and complaint in the Resolute Proceedings allege that NMC failed to make timely payments to Resolute under certain reinsurance agreements in connection with subrogation recoveries received by NMC with respect to several catastrophe losses that occurred in the late 1980’s and early 1990’s. Resolute alleges that it suffered damages of approximately $7.5 million as a result of the alleged delays in payment. The relative proportion of total damages sought in the Court Proceeding and Arbitration are approximately 55% and 45%, respectively. The Company believes that the claims of Resolute are without merit and it intends to vigorously contest the claims.

On October 25, 2011, an order was issued in the Court Proceeding denying NMC’s motion for summary judgment and granting Resolute’s cross-motion for summary judgment (the “October 25^th Order”). The October 25^th Order found that NMC had breached its obligations under the reinsurance agreements at issue in the Court Proceeding and further found that Resolute was entitled to damages for unpaid interest at the statutory rate of 9%. The Court ordered the parties to meet and confer for purposes of determining the amount of damages to be awarded. As of November 4, 2011, the parties had not reached an agreement as to the amount of damages. Navigators disagrees with the October 25^th Order and intends to challenge the Order. The Arbitration is in the discovery phase and involves contracts and/or factual situations that are distinct from those in the Court Proceeding. Navigators intends to continue to vigorously contest the claims in the Arbitration.

While it is too early to predict with any certainty the ultimate outcome of the Resolute Proceedings, the Company believes that the ultimate outcome would not be expected to have a significant adverse effect on its results of operations, financial condition or liquidity, although an adverse resolution of the Resolute Proceedings could have a material adverse effect on the Company’s results of operations in a particular fiscal quarter or year.

19

Note 10. Investments

The following tables set forth the Company’s cash and investments as of September 30, 2011 and December 31, 2010. The table below includes other-than-temporarily impaired (“OTTI”) securities recognized within other comprehensive income (“OCI”).

		September 30,		September 30,		September 30,			September 30,		September 30,
	As of September 30, 2011
In thousands	Fair Value		Gross Unrealized Gains		Gross Unrealized Losses			Amortized Cost		OTTI Recognized in OCI
Fixed-maturities:
U.S. Government Treasury bonds, agency bonds, and foreign government bonds	$	301,757	$	8,656	$	(487	)	$	293,588	$	—
States, municipalities and political subdivisions		386,167		23,394		(195	)		362,968		—
Mortgage-backed and asset-backed securities:
Agency mortgage-backed securities		377,465		16,932		(20	)		360,553		—
Residential mortgage obligations		24,525		30		(2,232	)		26,727		(1,260	)
Asset-backed securities		49,915		779		(86	)		49,222		—
Commerical mortgage-backed securities		215,033		6,673		(909	)		209,269		—
Subtotal	$	666,938	$	24,414	$	(3,247	)	$	645,771	$	(1,260	)
Corporate bonds		473,111		15,008		(7,998	)		466,101		—
Total fixed-maturities	$	1,827,973	$	71,472	$	(11,927	)	$	1,768,428	$	(1,260	)
Equity securities - common stocks		147,794		18,597		(4,419	)		133,616		—
Cash		58,935		—		—			58,935		—
Short-term investments		159,549		—		—			159,549		—
Total	$	2,194,251	$	90,069	$	(16,346	)	$	2,120,528	$	(1,260	)
	As of December 31, 2010
In thousands	Fair Value		Gross Unrealized Gains		Gross Unrealized Losses			Amortized Cost		OTTI Recognized in OCI
Fixed-maturities:
U.S. Government Treasury bonds, agency bonds, and foreign government bonds	$	324,145	$	5,229	$	(4,499	)	$	323,415	$	—
States, municipalities and political subdivisions		392,250		11,903		(3,805	)		384,152		—
Mortgage-backed and asset-backed securities:
Agency mortgage-backed securities		382,628		10,127		(2,434	)		374,935		—
Residential mortgage obligations		20,463		24		(2,393	)		22,832		(1,646	)
Asset-backed securities		46,093		247		(292	)		46,138		—
Commerical mortgage-backed securities		190,015		4,804		(1,794	)		187,005		—
Subtotal	$	639,199	$	15,202	$	(6,913	)	$	630,910	$	(1,646	)
Corporate bonds		526,651		15,075		(5,545	)		517,121		—
Total fixed-maturities	$	1,882,245	$	47,409	$	(20,762	)	$	1,855,598	$	(1,646	)
Equity securities - common stocks		87,258		22,475		(10	)		64,793		—
Cash		31,768		—		—			31,768		—
Short-term investments		153,057		—		—			153,057		—
Total	$	2,154,328	$	69,884	$	(20,772	)	$	2,105,216	$	(1,646	)

20

The fair value of the Company’s investment portfolio may fluctuate significantly in response to various factors such as changes in interest rates, investment quality ratings, equity prices, foreign exchange rates and credit spreads. The Company does not have the intent to sell nor is it more likely than not that it will have to sell debt securities in unrealized loss positions that are not other-than-temporarily impaired before recovery. The Company may realize investment losses to the extent its’ liquidity needs require the disposition of fixed maturity securities in unfavorable interest rate, liquidity or credit spread environments. Significant changes in the factors the Company considers when evaluating investment for impairment losses could result in a significant change in impairment losses reported in the consolidated financial statements.

The contractual maturity dates for fixed maturity securities categorized by the number of years until maturity as of September 30, 2011 are shown in the following table:

		September 30,		September 30,
	As of September 30, 2011
In thousands	Fair Value		Amortized Cost
Due in one year or less	$	86,286	$	85,378
Due after one year through five years		516,118		506,889
Due after five years through ten years		353,019		335,229
Due after ten years		205,612		195,161
Mortgage- and asset-backed securities		666,938		645,771
Total	$	1,827,973	$	1,768,428

21

The following table summarizes all securities in a gross unrealized loss position as of September 30, 2011 and December 31, 2010, showing the aggregate fair value and gross unrealized loss by the length of time those securities had continuously been in a gross unrealized loss position as well as the relevant number of securities.

		September 30,		September 30,		September 30,			September 30,		September 30,		September 30,
	As of September 30, 2011							As of December 31, 2010
In thousands except # of securities	Number of Securities		Fair Value		Gross Unrealized Loss			Number of Securities		Fair Value		Gross Unrealized Loss
Fixed maturities:
U.S. Government Treasury bonds, agency bonds, and foreign government bonds
0-6 months		8	$	80,840	$	230			36	$	163,253	$	4,499
7-12 months		2		6,916		257			—		—		—
> 12 months		—		—		—			—		—		—
Subtotal		10	$	87,756	$	487			36	$	163,253	$	4,499
States, municipalities and political subdivisions
0-6 months		7	$	6,133	$	26			57	$	112,291	$	3,749
7-12 months		4		8,809		131			1		1,004		20
> 12 months		5		3,196		38			4		1,317		36
Subtotal		16	$	18,138	$	195			62	$	114,612	$	3,805
Agency mortgage-backed securities
0-6 months		4	$	8,049	$	20			36	$	139,226	$	2,434
7-12 months		—		—		—			—		—		—
> 12 months		—		—		—			—		—		—
Subtotal		4	$	8,049	$	20			36	$	139,226	$	2,434
Residential mortgage obligations
0-6 months		7	$	9,407	$	124			3	$	3,215	$	20
7-12 months		3		1,520		111			—		—		—
> 12 months		47		11,716		1,997	��		52		15,939		2,373
Subtotal		57	$	22,643	$	2,232			55	$	19,154	$	2,393
Asset-backed securities
0-6 months		7	$	14,216	$	86			7	$	28,175	$	292
7-12 months		—		—		—			—		—		—
> 12 months		1		2		—			1		2		—
Subtotal		8	$	14,218	$	86			8	$	28,177	$	292
Commercial mortgage-backed securities
0-6 months		23	$	53,115	$	772			16	$	78,212	$	1,755
7-12 months		6		7,078		120			—		—		—
> 12 months		1		220		17			2		491		39
Subtotal		30	$	60,413	$	909			18	$	78,703	$	1,794
Corporate bonds
0-6 months		81	$	168,290	$	6,819			98	$	214,180	$	5,545
7-12 months		15		22,737		1,179			—		—		—
> 12 months		—		—		—			—		—		—
Subtotal		96	$	191,027	$	7,998			98	$	214,180	$	5,545
Total fixed maturities		221	$	402,244	$	11,927			313	$	757,305	$	20,762
Equity securities - common stocks
0-6 months		25	$	59,039	$	4,419			1	$	322	$	10
7-12 months		—		—		—			—		—		—
> 12 months		—		—		—			—		—		—
Total equity securities		25	$	59,039	$	4,419			1	$	322	$	10

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We analyze the unrealized losses quarterly to determine if any are other-than-temporary. The above unrealized losses have been determined to be temporary based on our policies.

In the above table, the residential mortgage obligations gross unrealized loss for the greater than 12 months category consists primarily of residential mortgage-backed securities. Residential mortgage-backed securities are a type of fixed income security in which residential mortgage loans are sold into a trust or special purpose vehicle, thereby securitizing the cash flows of the mortgage loans.

For debt securities, when assessing whether the amortized cost basis of the security will be recovered, the Company compares the present value of cash flows expected to be collected in relation to the current book value. Any shortfalls of the present value of the cash flows expected to be collected in relation to the amortized cost basis is considered the credit loss portion of OTTI losses and is recognized in earnings. All non-credit losses are recognized as changes in OTTI losses within OCI.

To determine whether the unrealized loss on structured securities is other-than-temporary, the Company analyzes the projections provided by its investment managers with respect to an expected principal loss under a range of scenarios and utilizes the most likely outcomes. The analysis relies on actual collateral performance measures such as default rate, prepayment rate and loss severity. These assumptions are applied throughout the remaining term of the deal, incorporating the transaction structure and priority of payments, to generate loss adjusted cash flows. Results of the analysis will indicate whether the security ultimately incurs a loss or whether there is a material impact on yield due to either a projected loss or a change in cash flow timing. A break even default rate is also calculated. A comparison of the break even default rate to the actual default rate provides an indication of the level of cushion or coverage to the first dollar principal loss. The analysis applies the stated assumptions throughout the remaining term of the transaction to forecast cash flows, which are then applied through the transaction structure to determine whether there is a loss to the security. For securities in which a tranche loss is present, and the net present value of loss adjusted cash flows is less than book value, impairment is recognized. The output data also includes a number of additional metrics such as average life remaining, original and current credit support, over 60 day delinquency and security rating.

For equity securities, in general, the Company focuses its’ attention on those securities with a fair value less than 80% of their cost for six or more consecutive months. If warranted as the result of conditions relating to a particular security, the Company will focus on a significant decline in fair value regardless of the time period involved. Factors considered in evaluating potential impairment include, but are not limited to, the current fair value as compared to cost of the security, the length of time the investment has been below cost and by how much. If an equity security is deemed to be other-than-temporarily impaired, the cost is written down to fair value with the loss recognized in earnings.

For equity securities, the Company considers its’ intent to hold securities as part of the process of evaluating whether a decline in fair value represents an other-than-temporary decline in value. For fixed maturity securities, the Company considers its’ intent to sell a security and whether it is more likely than not that the Company will be required to sell a security before the anticipated recovery as part of the process of evaluating whether a security’s unrealized loss represents an other-than-temporary decline. The Company’s ability to hold such securities is supported by sufficient cash flow from its’ operations and from maturities within its’ investment portfolio in order to meet its’ claims payment and other disbursement obligations arising from its’ underwriting operations without selling such investments. With respect to securities where the decline in value is determined to be temporary and the security’s value is not written down, a subsequent decision may be made to sell that security and realize a loss. Subsequent decisions on security sales are made within the context of overall risk monitoring, changing information and market conditions.

The significant inputs used to measure the amount of credit loss recognized in earnings were actual delinquency rates, default probability assumptions, severity assumptions and prepayment assumptions. Projected losses are a function of both loss severity and probability of default. Default probability and severity assumptions differ based on property type, vintage and the stress of the collateral. The Company does not intend to sell any of these securities and it is more likely than not that it will not be required to sell these securities before the recovery of the amortized cost basis.

23

The table below summarizes the Company’s activity related to OTTI losses for the periods indicated:

		September 30,		September 30,		September 30,		September 30,		September 30,		September 30,		September 30,		September 30,
	Three Months Ended September 30,								Nine Months Ended September 30,
	2011				2010				2011				2010
In thousands except # of securities	Number of Securities		Amount		Number of Securities		Amount		Number of Securities		Amount		Number of Securities		Amount
Total other than temporary impairment losses:
Corporate and other bonds		—	$	—		—	$	—		—	$	—		—	$	—
Commercial mortgage-backed securities		—		—		—		—		—		—		—		—
Residential mortgage-backed securities		10		1,241		10		674		15		1,791		12		1,387
Asset-backed securities		—		—		—		—		—		—		—		—
Equities		—		—		1		360		1		547		2		387
Total		10	$	1,241		11	$	1,034		16	$	2,338		14	$	1,774
Portion of loss in accumulated other comprehensive income (loss):
Corporate and other bonds			$	—			$	—			$	—			$	—
Commercial mortgage-backed securities				—				—				—				—
Residential mortgage-backed securities				618				365				941				870
Asset-backed securities				—				—				—				—
Equities				—				—				—				—
Total			$	618			$	365			$	941			$	870
Impairment losses recognized in earnings
Corporate and other bonds			$	—			$	—			$	—			$	—
Commercial mortgage-backed securities				—				—				—				—
Residential mortgage-backed securities				623				309				850				517
Asset-backed securities				—				—				—				—
Equities				—				360				547				387
Total			$	623			$	669			$	1,397			$	904

The following table summarizes the cumulative amounts related to the Company’s credit loss portion of the OTTI losses on debt securities for the three and nine months ended September 30, 2011 and 2010 that it does not intend to sell and it is more likely than not that it will not be required to sell the securities prior to recovery of the amortized cost basis and for which the non-credit loss portion is included in other comprehensive income:

		September 30,		September 30,			September 30,		September 30,
	Three Months Ended September 30,					Nine Months Ended September 30,
In thousands	2011		2010			2011		2010
Beginning balance	$	1,885	$	2,731		$	1,658	$	2,523
Additions for credit loss impairments recognized in the current period on securities not previously impaired		623		309			850		517
Additions for credit loss impairments recognized in the current period on securities previously impaired		—		—			—		—
Reductions for credit loss impairments previously recognized on securities sold during the period		—		(935	)		—		(935	)
Ending balance	$	2,508	$	2,105		$	2,508	$	2,105

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The contractual maturity dates for fixed maturity securities categorized by the number of years until maturity, with a gross unrealized loss as of September 30, 2011 is presented in the following table:

		September 30,		September 30,			September 30,		September 30,
	As of September 30, 2011
	Gross Unrealized Losses					Fair Value
In thousands	Amount		Percent of Total			Amount		Percent of Total
Due in one year or less	$	3		0	%	$	4,509		1	%
Due after one year through five years		5,229		44	%		204,736		51	%
Due after five years through ten years		2,592		22	%		57,144		14	%
Due after ten years		856		7	%		30,532		8	%
Mortgage- and asset-backed securities		3,247		27	%		105,323		26	%
Total	$	11,927		100	%	$	402,244		100	%

The change in net unrealized gains/(losses), inclusive of the change in the non credit portion of other-than-temporary impairment losses, consisted of:

		September 30,			September 30,
	Nine Months Ended September 30,
In thousands	2011			2010
Fixed maturities	$	32,898		$	54,257
Equity securities		(8,287	)		4,227
Gross unrealized gains (losses)		24,611			58,484
Deferred income tax charge (credit)		8,251			20,160
Change in net unrealized gains (losses), net	$	16,360		$	38,324

Realized gains/(losses), excluding net other-than-temporary impairment losses recognized in earnings, for the periods indicated were as follows:

		September 30,			September 30,			September 30,			September 30,
	Three Months Ended September 30,						Nine Months Ended September 30,
In thousands	2011			2010			2011			2010
Fixed maturities:
Gains	$	3,315		$	4,790		$	10,625		$	22,440
Losses		(77	)		(1,036	)		(6,610	)		(1,319	)
Fixed maturities, net	$	3,238		$	3,754		$	4,015		$	21,121
Equity securities:
Gains	$	—		$	773		$	841		$	773
Losses		—			(6	)					(241	)
Equity securities, net	$	—		$	767		$	841		$	532
Net realized gains (losses)	$	3,238		$	4,521		$	4,856		$	21,653

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The following tables present, for each of the fair value hierarchy levels as defined in ASC 820,Fair Value Measurements, the Company’s fixed maturities and equity securities by asset class that are measured at fair value as of September 30, 2011 and December 31, 2010:

		September 30,		September 30,		September 30,		September 30,
	As of September 30, 2011
In thousands	Level 1		Level 2		Level 3		Total
Fixed-maturities:
U.S. Government Treasury bonds, agency bonds, and foreign government bonds	$	100,325	$	201,432	$	—	$	301,757
States, municipalities and political subdivisions		—		386,167		—		386,167
Mortgage-backed and asset-backed securities:								—
Agency mortgage-backed securities		—		377,465		—		377,465
Residential mortgage obligations		—		24,525		—		24,525
Asset-backed securities		—		49,915		—		49,915
Commercial mortgage-backed securities		—		215,033		—		215,033
Subtotal	$	—	$	666,938	$	—	$	666,938
Corporate bonds		—		473,111		—		473,111
Total fixed-maturities	$	100,325	$	1,727,648	$	—	$	1,827,973
Equity securities - common stocks		147,794		—		—		147,794
Total	$	248,119	$	1,727,648	$	—	$	1,975,767

		September 30,		September 30,		September 30,		September 30,
	As of December 31, 2010
In thousands	Level 1		Level 2		Level 3		Total
Fixed-maturities:
U.S. Government Treasury bonds, agency bonds, and foreign government bonds	$	212,933	$	111,212	$	—	$	324,145
States, municipalities and political subdivisions		—		392,250		—		392,250
Mortgage-backed and asset-backed securities:								—
Agency mortgage-backed securities		—		382,628		—		382,628
Residential mortgage obligations		—		20,463		—		20,463
Asset-backed securities		—		46,093		—		46,093
Commercial mortgage-backed securities		—		188,178		1,837		190,015
Subtotal	$	—	$	637,362	$	1,837	$	639,199
Corporate bonds		—		526,651		—		526,651
Total fixed-maturities	$	212,933	$	1,667,475	$	1,837	$	1,882,245
Equity securities - common stocks		87,258		—		—		87,258
Total	$	300,191	$	1,667,475	$	1,837	$	1,969,503

The fair value of financial instruments is determined based on the following fair value hierarchy. The fair value measurement inputs and valuation techniques are similar across all asset classes within the levels outlined below.

• Level 1 – Quoted prices for identical instruments in active markets. Examples are listed equity and fixed income securities traded on an exchange. Treasury securities would generally be considered Level 1.

• Level 2 – Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations in which all significant inputs and significant value drivers are observable in active markets. Examples are asset-backed and mortgage-backed securities which are similar to other asset-backed or mortgage-backed securities observed in the market.

• Level 3 – Valuations derived from valuation techniques in which one or more significant inputs or significant value drivers are unobservable. An example would be a private placement with minimal liquidity.

26

The Company did not have any significant transfers between Level 1 and 2 for the three and nine months ended September 30, 2011.

The following tables present a reconciliation of the beginning and ending balances for all investments measured at fair value using Level 3 inputs during the three and nine months ended September 30, 2011.

		September 30,		September 30,		September 30,		September 30,		September 30,		September 30,		September 30,		September 30,			September 30,
	For The Three Months Ended September 30, 2011
In thousands	Beginning Balance		Realized Gains (Losses)		Unrealized Gains (Losses)		Purchases		Sales		Settlements		Transfers into Level 3		Transfers out of Level 3			Ending Balance
Assets:
Commercial Mortgage
Obligations	$	4,821	$	—	$	—	$	—	$	—	$	—	$	—	$	(4,821	)	$	—
Total assets	$	4,821	$	—	$	—	$	—	$	—	$	—	$	—	$	(4,821	)	$	—

		September 30,		September 30,		September 30,		September 30,		September 30,		September 30,		September 30,		September 30,			September 30,
	For The Nine Months Ended September 30, 2011
In thousands	Beginning Balance		Realized Gains (Losses)		Unrealized Gains (Losses)		Purchases		Sales		Settlements		Transfers into Level 3		Transfers out of Level 3			Ending Balance
Assets:
Commercial Mortgage
Obligations	$	1,837	$	—	$	—	$	4,821	$	—	$	—	$	—	$	(6,658	)	$	—
Total assets	$	1,837	$	—	$	—	$	4,821	$	—	$	—	$	—	$	(6,658	)	$	—

As of September 30, 2010, the Company did not have any securities classified as Level 3 and there were no changes in Level 3 assets for the three and nine months ended September 30, 2010.

Note 11. Credit Facility

On April 1, 2011, we entered into a $165 million credit facility agreement with ING Bank, N.V., London Branch, individually and as Administrative Agent, and a syndicate of lenders. The credit facility is a letter of credit facility and replaces a $140 million credit facility agreement that expired March 31, 2011. The credit facility, which is denominated in U.S. dollars, will be utilized to fund the Company’s participation in Syndicate 1221 through letters of credit for the 2011 and 2012 underwriting years, as well as open prior years. The letters of credit issued under the facility are denominated in British pounds and their aggregate face amount will fluctuate based on exchange rates. The ability to issue new letters of credit expires on December 31, 2011. If any letters of credit remain outstanding under the facility after December 31, 2012, we would be required to post additional collateral to secure the remaining letters of credit. As of September 30, 2011, letters of credit with an aggregate face amount of $132.6 million were outstanding under the credit facility.

This credit facility contains customary covenants for facilities of this type, including restrictions on indebtedness and liens, limitations on mergers, dividends and the sale of assets, and requirements as to maintaining certain consolidated tangible net worth, statutory surplus and other financial ratios. The credit facility also provides for customary events of default, including failure to pay principal, interest or fees when due, failure to comply with covenants, any representation or warranty made by the Company being false in any material respect, default under certain other indebtedness, certain insolvency or receivership events affecting the Company and its subsidiaries, the occurrence of certain material judgments, or a change in control of the Company. The letter of credit facility is secured by a pledge of the stock of certain insurance subsidiaries of the Company. To the extent the aggregate face amount issued under the credit facility exceeds the commitment amount, the Company is required to post collateral with the lead bank of the consortium. The Company was in compliance with all covenants under the credit facility as of September 30, 2011.

As a result of the April 1, 2011 replacement of the expiring credit facility, the applicable margin and applicable fee rate payable under the letter of credit facility are now based on a tiered schedule that is based on the Company’s then-current ratings issued by S&P and Moody’s Investors Service (“Moody’s”) with respect to the Company’s senior unsecured long-term debt securities and without third-party credit enhancement and the amount of the Company’s own ‘Funds at Lloyd’s’ collateral.

27

Note 12. Share Repurchases

In May 2011, the Parent Company’s Board of Directors authorized an additional $50 million under the existing share repurchase program of the Company’s common stock, which increased the size of the program to $150 million. This repurchase program was initially authorized in November 2009. The share repurchase program as originally approved was scheduled to expire on December 31, 2010, however, prior to its expiration, the Parent Company’s Board of Directors approved an extension to December 31, 2011.

Purchases are permitted from time to time at prevailing prices in open market or privately negotiated transactions through December 31, 2011. The timing and amount of purchases under the program depend on a variety of factors, including the trading price of the stock, market conditions and corporate and regulatory considerations.

For the three months ended September 30, 2011, the Company repurchased 749,076 shares of the Parent Company’s common stock at an aggregate purchase price of $32.2 million and a weighted average price per share of $43.03 pursuant to the share repurchase program. For the nine months ended September 30, 2011, the Company repurchased 1,602,196 shares of the Parent Company’s common stock at an aggregate purchase price of $73.7 million and a weighted average price per share of $45.98 pursuant to the share repurchase program. Since inception, the Company has repurchased 3,008,056 shares of the Parent Company’s common stock at an aggregate purchase price of $132.4 million and a weighted average price per share of $44.02. As of September 30, 2011, approximately $17.2 million was available for future repurchases under the program.

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

NOTE ON FORWARD LOOKING STATEMENTS

Some of the statements in this Quarterly Report on Form 10-Q for The Navigators Group, Inc. and its subsidiaries (“the Company”, “we”, “us”, and “our”) are “forward-looking statements” as defined in the Private Securities Litigation Reform Act of 1995. All statements other than statements of historical fact included in or incorporated by reference in this Quarterly Report are forward looking statements. Whenever used in this report, the words “estimate,” “expect,” “believe” or similar expressions or their negative 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 anticipated results will be achieved, since actual results may differ materially because of both known and unknown risks and uncertainties which we face. We undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. Factors that could cause actual results to differ materially from our forward-looking statements include, but are not limited to, the factors discussed in the “Risk Factors” section of our 2010 Annual Report on Form 10-K as well as:

• continued volatility in the financial markets and the current recession;

• risks arising from the concentration of our business in marine and energy, general liability and professional liability insurance, including the risk that market conditions for these lines could change adversely or that we could experience large losses in these lines;

• cyclicality in the property/casualty insurance business generally, and the marine insurance business specifically;

• risks that we face in entering new markets and diversifying the products and services that we offer, including risks arising from the development of our new specialty lines or our ability to manage effectively the rapid growth in our lines of business;

• changing legal, social and economic trends and inherent uncertainties in the loss estimation process, which could adversely impact the adequacy of loss reserves and the allowance for reinsurance recoverables;

• risks inherent in the preparation of our financial statements, which requires us to make many estimates and judgments;

• our ability to continue to obtain reinsurance covering our exposures at appropriate prices and/or in sufficient amounts;

• the counterparty credit risk of our reinsurers, including risks associated with the collection of reinsurance recoverable amounts from our reinsurers, who may not pay on losses in a timely fashion, or at all;

• the effects of competition from other insurers;

• unexpected turnover of our professional staff and our ability to attract and retain qualified employees;

• increases in interest rates during periods in which we must sell fixed-income securities to satisfy liquidity needs may result in realized investment losses;

• our investment portfolio is exposed to market-wide risks and fluctuations, as well as to risks inherent in particular types of securities;

• exposure to significant capital market risks related to changes in interest rates, credit spreads, equity prices and foreign exchange rates which may adversely affect our results of operations, financial condition or cash flows;

• capital may not be available in the future, or may not be available on favorable terms;

• our ability to maintain or improve our ratings to avoid the possibility of downgrades in our claims-paying and financial strength ratings significantly adversely affecting us, including reducing the number of insurance policies we write generally, or causing clients who require an insurer with a certain rating level to use higher-rated insurers;

• risks associated with continued or increased premium levies by Lloyd’s of London (“Lloyd’s) for the Lloyd’s Central Fund and cash calls for trust fund deposits, or a significant downgrade of Lloyd’s rating by A.M. Best Company;

29

• changes in the laws, rules and regulations that apply to our insurance companies;

• the inability of our subsidiaries to pay dividends to us in sufficient amounts, which would harm our ability to meet our obligations;

• weather-related events and other catastrophes (including man-made catastrophes) impacting our insureds and/or reinsurers;

• volatility in the market price of our common stock;

• the effect of the E.U. Directive on Solvency II on how we manage our business, capital requirements and costs associated with conducting business; and

• other risks that we identify in current and future filings with the Securities and Exchange Commission (“SEC”).

In light of these risks, uncertainties and assumptions, any forward-looking events discussed in this Form 10-Q may not occur. You are cautioned not to place undue reliance on any forward-looking statements, which speak only as of their respective dates.

OVERVIEW

The discussion and analysis of our financial condition and results of operations contained herein should be read in conjunction with our consolidated financial statements and accompanying notes which appear elsewhere in this Form 10-Q. It contains forward-looking statements that involve risks and uncertainties. Please see “Note on Forward-Looking Statements” for more information. Our actual results could differ materially from those anticipated in these forward-looking statements as a result of various factors, including those discussed below and elsewhere in this Form 10-Q.

We are an international insurance company focusing on specialty products for niches within the overall property/casualty insurance market. Our largest product line and most long-standing area of specialization is ocean marine insurance. We have also developed specialty niches in professional liability insurance and in specialty liability insurance primarily consisting of contractors’ liability and primary and excess liability coverages.

Our underwriting segments consist of insurance company operations (“Insurance Companies”) and operations at Lloyd’s through Lloyd’s Syndicate 1221 (“Syndicate 1221”) (“Lloyd’s Operations”). The Insurance Companies consist of Navigators Insurance Company (“Navigators Insurance”), which includes our branch located in the United Kingdom (the “U.K. Branch”), and Navigators Specialty Insurance Company (“Navigators Specialty”), which underwrites specialty and professional liability insurance on an excess and surplus lines basis. All of the insurance business written by Navigators Specialty is fully reinsured by Navigators Insurance pursuant to a 100% quota share reinsurance agreement. Our Lloyd’s Operations include Navigators Underwriting Agency Ltd. (“NUAL”), a wholly-owned Lloyd’s underwriting agency which manages Syndicate 1221. Our Lloyd’s Operations primarily underwrite marine and related lines of business along with offshore energy, professional liability insurance and construction coverages for onshore energy business through Syndicate 1221. We controlled 100% of Syndicate 1221’s stamp capacity for the 2011 and 2010 underwriting years through our wholly-owned subsidiary, Navigators Corporate Underwriters Ltd., which is referred to as a corporate name in the Lloyd’s market. We have also established underwriting agencies in Antwerp, Belgium; Stockholm, Sweden; and Copenhagen, Denmark; each of which underwrites risks pursuant to binding authorities with NUAL into Syndicate 1221. We also maintain an underwriting presence in Brazil and China through our involvement with Lloyd’s.

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Catastrophe Risk Management

Our Insurance Companies and Lloyd’s Operations have exposure to losses caused by natural and man-made catastrophic events. The frequency and severity of catastrophes are unpredictable. The extent of losses from a catastrophe is a function of both the total amount of insured exposure in an area affected by the event and the severity of the event. We continually assess our concentration of underwriting exposures in catastrophe exposed areas globally and manage this exposure through individual risk selection and through the purchase of reinsurance. We also use modeling and concentration management tools that allow us to better monitor and control our accumulations of potential losses from catastrophe events. Despite these efforts, there remains uncertainty about the characteristics, timing and extent of insured losses given the unpredictable nature of catastrophes. The occurrence of one or more catastrophic events could have a material adverse effect on our results of operations, financial condition and/or liquidity.

We have significant natural catastrophe exposures throughout the world. We estimate that our largest exposure to loss from a single natural catastrophe event comes from an earthquake on the west coast of the United States. As of September 30, 2011, we estimate that our probable maximum pre-tax gross and net loss exposure from such an earthquake event would be approximately $157 million and $28 million, respectively, including the cost of reinsurance reinstatement premiums.

Like all catastrophe exposure estimates, the foregoing estimate of our probable maximum loss is inherently uncertain. This estimate is highly dependent upon numerous assumptions and subjective underwriting judgments. Examples of significant assumptions and judgments related to such an estimate include the intensity, depth and location of the earthquake, the various types of the insured risks exposed to the event at the time the event occurs and the estimated costs or damages incurred for each insured risk. The composition of our portfolio also makes such estimates challenging due to the non-static nature of the exposures covered under our policies in lines of business such as cargo and hull. There can be no assurances that the gross and net loss amounts that we could incur in such an event or in any natural catastrophe event would not be materially higher than the estimates discussed above given the significant uncertainties with respect to such an estimate. Moreover, our portfolio of insured risks changes dynamically over time and there can be no assurance that our probable maximum loss will not change materially over time.

The occurrence of large loss events could reduce the reinsurance coverage that is available to us and could weaken the financial condition of our reinsurers, which could have a material adverse effect on our results of operations. Although the reinsurance agreements make the reinsurers liable to us to the extent the risk is transferred or ceded to the reinsurer, ceded reinsurance arrangements do not eliminate our obligation to pay claims to our policyholders as we are required to pay the losses if a reinsurer fails to meet its obligations under the reinsurance agreement. Accordingly, we bear credit risk with respect to our reinsurers. Specifically, our reinsurers may not pay claims made by us on a timely basis, or they may not pay some or all of these claims. Either of these events would increase our costs and could have a material adverse effect on our business.

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CRITICAL ACCOUNTING POLICIES

The Company’s Annual Report on Form 10-K for the year ended December 31, 2010 discloses our critical accounting policies (see Item 7 – Management’s Discussion and Analysis of Financial Condition and Results of Operations – Critical Accounting Policies). Certain of these policies are critical to the portrayal of our financial condition and results since they require management to establish estimates based on complex and subjective judgments, including those related to our estimates for losses and loss adjustment expenses (“LAE”) (including losses that have occurred but were not reported to us by the financial reporting date), reinsurance recoverables, written and unearned premium, the recoverability of deferred tax assets, the impairment of investment securities and accounting for Lloyd’s results. For additional information regarding our critical accounting policies, refer to our Annual Report on Form 10-K for the year ended December 31, 2010, pages 42 through 51.

RECENT ACCOUNTING PRONOUNCEMENTS

Refer to “Note 2: Recent Accounting Pronouncements” in the Notes to Interim Consolidated Financial Statements for a discussion about accounting standards recently adopted by the Company, as well as recent accounting developments relating to standards not yet adopted by the Company.

RESULTS OF OPERATIONS

The following is a discussion and analysis of our consolidated and segment results of operations for the three and nine months ended September 30, 2011 and 2010. In presenting our financial results, we discuss our performance with reference to book value per share, underwriting profit or loss, and the combined ratio, all of which are non-GAAP financial measures of performance and/or underwriting profitability. Book value per share is calculated by dividing shareholders’ equity by the number of outstanding shares at any period end. Underwriting profit or loss is calculated from net earned premiums, less the sum of net losses and LAE, commission expenses, other operating expenses and other income (expense). The combined ratio is derived by dividing the sum of net losses and LAE, commission expenses, other operating expenses and other income (expense) by net earned premiums. A combined ratio of less than 100% indicates an underwriting profit and over 100% indicates an underwriting loss. We consider such measures, which may be defined differently by other companies, to be important in the understanding of our overall results of operations.

Summary of Consolidated Results

The following table presents a summary of our consolidated financial results for the three and nine months ended September 30, 2011 and 2010:

		September 30,		September 30,		September 30,		September 30,		September 30,			September 30,
	Three Months Ended September 30,				Nine Months Ended September 30,				Percentage Change
In thousands, except for per share amounts	2011		2010		2011		2010		QTD			YTD
Gross written premiums	$	255,318	$	233,638	$	830,315	$	757,351		9.3	%		9.6	%
Net written premiums		175,357		157,807		551,796		512,129		11.1	%		7.7	%
Total revenues		191,586		192,691		555,062		571,124		-0.6	%		-2.8	%
Total expenses		173,212		169,375		534,538		497,225		2.3	%		7.5	%
Pre-tax income (loss)	$	18,374	$	23,316	$	20,524	$	73,899		-21.2	%		-72.2	%
Provision (benefit) for income taxes		4,476		7,091		5,015		21,659		-36.9	%		-76.8	%
Net income (loss)	$	13,898	$	16,225	$	15,509	$	52,240		-14.3	%		-70.3	%
Net income (loss) per common share:
Basic	$	0.94	$	1.03	$	1.02	$	3.23
Diluted	$	0.92	$	1.00	$	1.00	$	3.17

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Net income for the three months ended September 30, 2011 was $13.9 million or $0.92 per diluted share compared to net income of $16.2 million or $1.00 per diluted share for the three months ended September 30, 2010. Included in these results were net realized gains of $2.2 million and $2.9 million after-tax for the three months ended September 30, 2011 and 2010, respectively. In addition, our net income included net other-than-temporary impairment losses recognized in earnings of $0.4 and $0.5 million after-tax for the three months ended September 30, 2011 and 2010.

Net income for the nine months ended September 30, 2011 was $15.5 million or $1.00 per diluted share compared to net income of $52.2 million or $3.17 per diluted share for the nine months ended September 30, 2010. Included in these results were net realized gains of $3.2 million and $14.1 million after-tax for the nine months ended September 30, 2011 and 2010, respectively. In addition, our net income included net other-than-temporary impairment losses recognized in earnings of $0.9 million and $0.6 million after-tax for the nine months ended September 30, 2011 and 2010.

Our book value per share as of September 30, 2011 was $55.82, increasing from $52.68 as of December 31, 2010. The increase in book value per share primarily resulted from the repurchase of $73.7 million of our common stock, as well as an improvement in the value of our consolidated investment portfolio. Primarily because of the share repurchases, our consolidated stockholders’ equity decreased 3.6% to $799.5 million as of September 30, 2011 compared to $829.4 million as of December 31, 2010.

Cash flow from operations was $86.3 million for the nine months ended September 30, 2011 compared to $114.1 million for the comparable period in 2010. The decrease in cash flow from operations for the nine month period was primarily due to increased paid losses as well as an increase in premiums receivable due to growth within our recently established Nav Re division. The premiums receivable for our reinsurance business remain open longer because they are collected as the underlying policies attach and are ceded to the treaties.

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The following table presents our consolidated financial results for the three and nine months ended September 30, 2011 and 2010:

		September 30,			September 30,			September 30,			September 30,			September 30,			September 30,
	Three Months Ended September 30,						Nine Months Ended September 30,						Percentage Change
In thousands	2011			2010			2011			2010			QTD			YTD
Gross written premiums	$	255,318		$	233,638		$	830,315		$	757,351			9.3	%		9.6	%
Net written premiums		175,357			157,807			551,796			512,129			11.1	%		7.7	%
Net earned premiums		173,633			168,233			499,888			493,773			3.2	%		1.2	%
Net losses and loss adjustment expenses		(110,242	)		(107,463	)		(340,893	)		(311,133	)		2.6	%		9.6	%
Commission expenses		(25,934	)		(25,185	)		(80,164	)		(76,178	)		3.0	%		5.2	%
Other operating expenses		(34,989	)		(34,699	)		(107,341	)		(103,819	)		0.8	%		3.4	%
Other income (expense)		(921	)		2,784			643			2,976			-133.1	%		-78.4	%
Underwriting profit (loss)	$	1,547		$	3,670		$	(27,867	)	$	5,619			-57.8	%		NM
Net investment income		16,259			17,839			51,072			53,664			-8.9	%		-4.8	%
Net other-than-temporary impairment losses recognized in earnings		(623	)		(669	)		(1,397	)		(904	)		-6.9	%		54.5	%
Net realized gains (losses)		3,238			4,521			4,856			21,653			-28.4	%		-77.6	%
Interest expense		(2,047	)		(2,045	)		(6,140	)		(6,133	)		0.1	%		0.1	%
Income (loss) before income taxes	$	18,374		$	23,316		$	20,524		$	73,899			-21.2	%		-72.2	%
Income tax expense (benefit)		4,476			7,091			5,015			21,659			-36.9	%		-76.8	%
Net income (loss)	$	13,898		$	16,225		$	15,509		$	52,240			-14.3	%		-70.3	%
Losses and loss adjustment expenses ratio		63.5	%		63.9	%		68.2	%		63.0	%
Commission expense ratio		14.9	%		15.0	%		16.0	%		15.4	%
Other operating expense ratio(1)		20.7	%		18.9	%		21.4	%		20.5	%
Combined ratio		99.1	%		97.8	%		105.6	%		98.9	%

(1) - Includes Other operating expenses & Other income (expense)

NM - Percentage change not meaningful

The combined ratio for the three months ended September 30, 2011 was 99.1% compared to 97.8% for the comparable period in 2010. Our pre-tax underwriting profit declined by $2.1 million to $1.5 million for the three months ended September 30, 2011 compared to $3.7 million for the same period in 2010. The decrease in pre-tax underwriting profit is primarily attributable to prior period net reserve redundancies.

The combined ratio for the nine months ended September 30, 2011 was 105.6% compared to 98.9% for the comparable period in 2010. Our pre-tax underwriting profit decreased by $33.5 million to a $27.9 million underwriting loss for the nine months ended September 30, 2011 compared to $5.6 million of underwriting profit for the same period in 2010. The decrease in pre-tax underwriting profit is primarily due to:

• Large current accident year losses of $18.2 million from a North Sea drilling operation, a Gulf of Mexico drilling operation, as well as from an onshore industrial site. The North Sea drilling operation losses resulted in an $8.9 million first quarter net impact including $5.0 million of net loss and $3.9 million of reinstatement premiums. The Gulf of Mexico drilling operation losses resulted in a $6.9 million second quarter net impact inclusive of $4.0 million in reinstatement premiums. The onshore industrial site generated gross and net losses of $12.0 million and $2.4 million, respectively.

• An increase in our reinsurance reinstatement premium accrual of $5.2 million. This accrual was driven by the recognition of the effect of a shift in our Marine reinsurance protections to an excess of loss program from a quota share program. As a result of this shift and the increased frequency of severity losses in recent periods, a greater portion of our IBNR was attributable to marine and energy losses that are or will be ceded to Marine Excess of Loss Reinsurance program and such cession will trigger additional reinstatement premiums.

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Revenues

Gross Written Premiums

The following tables set forth our gross and net written premiums and net earned premiums by segment and line of business for the periods indicated:

		September 30,		September 30,			September 30,		September 30,		September 30,		September 30,			September 30,		September 30,
	Three Months Ended September 30,
	2011									2010
In thousands	Gross Written Premiums		%			Net Written Premiums		Net Earned Premiums		Gross Written Premiums		%			Net Written Premiums		Net Earned Premiums
Insurance Companies:
Marine	$	47,141		18	%	$	34,180	$	41,951	$	49,406		21	%	$	35,546	$	41,091
Property Casualty		110,975		43	%		77,056		58,585		81,351		35	%		52,677		50,976
Professional Liability		33,059		14	%		24,056		18,796		32,586		14	%		19,693		20,131
Insurance Companies Total		191,175		75	%		135,292		119,332		163,343		70	%		107,916		112,198
Lloyd’s Operations:
Marine		26,979		11	%		20,649		34,510		32,788		14	%		27,142		38,254
Property Casualty		29,682		11	%		16,296		15,952		27,687		12	%		17,414		12,202
Professional Liability		7,482		3	%		3,120		3,839		9,820		4	%		5,335		5,579
Lloyd’s Operations Total		64,143		25	%		40,065		54,301		70,295		30	%		49,891		56,035
Total	$	255,318		100	%	$	175,357	$	173,633	$	233,638		100	%	$	157,807	$	168,233
	Nine Months Ended September 30,
	2011									2010
In thousands	Gross Written Premiums		%			Net Written Premiums		Net Earned Premiums		Gross Written Premiums		%			Net Written Premiums		Net Earned Premiums
Insurance Companies:
Marine	$	175,812		21	%	$	130,200	$	124,387	$	172,136		23	%	$	123,702	$	122,739
Property Casualty		323,994		39	%		201,978		156,871		242,494		32	%		156,674		152,228
Professional Liability		84,912		10	%		57,058		51,881		97,192		13	%		60,281		58,867
Insurance Companies Total		584,718		70	%		389,236		333,139		511,822		68	%		340,657		333,834
Lloyd’s Operations:
Marine		127,585		15	%		102,362		109,222		133,758		18	%		111,205		108,541
Property Casualty		91,106		11	%		47,364		44,105		76,768		10	%		43,049		34,880
Professional Liability		26,906		4	%		12,834		13,422		35,003		4	%		17,218		16,518
Lloyd’s Operations Total		245,597		30	%		162,560		166,749		245,529		32	%		171,472		159,939
Total	$	830,315		100	%	$	551,796	$	499,888	$	757,351		100	%	$	512,129	$	493,773

Gross written premiums increased 9.3% to $255.3 million for the three months ended September 30, 2011 compared to $233.6 million for the same period in 2010. Gross written premiums increased 9.6% to $830.3 million for the nine months ended September 30, 2011 compared to $757.4 million for the same period in 2010. The increases in gross written premiums were primarily attributed to our Property Casualty business and the related addition of our Nav Re division which writes Accident & Health, Agriculture and Latin American reinsurance lines of business. Growth within Property Casualty is also attributable to our Excess and Primary Casualty business resulting from strong production partially offset by the run-off of our middle market commercial package business. The decrease in our Professional Liability business is attributable to our Directors and Officer Liability (“D&O”) lines. This decrease reflects a change in our underwriting strategy that focuses on a planned shift toward underwriting excess layers.

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Our Marine division saw increases in the average renewal premium rates in our Inland Marine and Lloyd’s lines of approximately 13.1% and 1.7%, respectively, for the three months ended September 30, 2011 compared to the same period in 2010. U.K. and U.S. Marine premiums rates decreased 0.3% and 1.3%, respectively, for the period. For our Navigators Technical Risk (“NavTech”) we experienced an average renewal premium rate increase of approximately 8.7% for the three months ended September 30, 2011 compared to the same period in 2010, which was offset by declines in our Excess Casualty and Primary Casualty lines of 2.0% and 0.6%, respectively. The Insurance Companies and Lloyd’s Professional Liability division overall experienced approximately a 0.9% decrease in average renewal premium rates for the three months ended September 30, 2011 compared to 2010.

Our Marine division saw increases in the average renewal premium rates in our Inland Marine, U.K. Marine and Lloyd’s lines of approximately 6.7%, 2.1% and 2.2%, respectively, for the nine months ended September 30, 2011 compared to the same period in 2010. U.S. Marine premiums rates decreased 0.7% for the period. For our Property Casualty division, we experienced an average renewal premium rate increase in our NavTech line of approximately 5.3% for the nine months ended September 30, 2011 compared to the same period in 2010, which was offset by declines in our Primary and Excess Casualty lines of 4.4% and 3.3%, respectively. The Insurance Companies and Lloyd’s Professional Liability division overall experienced approximately 1.9% decrease in average renewal premium rates for the nine months ended September 30, 2011 compared to 2010.

The average premium rate increases or decreases as noted above for the Marine, Property Casualty and Professional Liability businesses are calculated primarily by comparing premium amounts on policies that have renewed. The premiums are judgmentally adjusted for exposure factors when deemed significant and sometimes represent an aggregation of several lines of business. The rate change calculations provide an indicated pricing trend and are not meant to be a precise analysis of the numerous factors that affect premium rates or the adequacy of such rates to cover all underwriting costs and generate an underwriting profit. The calculation can also be affected quarter by quarter depending on the particular policies and the number of policies that renew during that period. Due to market conditions, these rate changes may or may not apply to new business that generally would be more competitively priced compared to renewal business. The calculation does not reflect the rate on business that we are unwilling or unable to renew due to loss experience or competition.

Ceded Written Premiums

In the ordinary course of business, we reinsure certain insurance risks with unaffiliated insurance companies for the purpose of limiting our maximum loss exposure, protecting against catastrophic losses, and maintaining desired ratios of net premiums written to statutory surplus. The relationship of ceded to written premium varies based upon the types of business written and whether the business is written by the Insurance Companies or the Lloyd’s Operations.

Our reinsurance program includes contracts for proportional reinsurance, per risk and whole account excess-of-loss reinsurance for both property and casualty risks and property catastrophe excess-of-loss reinsurance. In recent years we have increased our utilization of excess-of-loss reinsurance for both property and casualty risks. Our excess-of-loss reinsurance contracts generally provide for a specific amount of coverage in excess of an attachment point and sometimes provides for reinstatement of the coverage to the extent the limit has been exhausted for payment of additional premium (referred to as reinstatement premiums). The number of reinstatements available varies by contract.

We record an estimate of the expected reinstatement premiums for losses ceded to excess-of-loss agreements where this feature applies.

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The following table sets forth our ceded written premiums by segment and major line of business for the three and nine months ended September 30, 2011 and 2010:

		September 30,		September 30,			September 30,		September 30,			September 30,		September 30,			September 30,		September 30,
	Three Months Ended September 30,										Nine Months Ended September 30,
	2011					2010					2011					2010
In thousands	Ceded Written Premiums		% of Gross Written Premiums			Ceded Written Premiums		% of Gross Written Premiums			Ceded Written Premiums		% of Gross Written Premiums			Ceded Written Premiums		% of Gross Written Premiums
Insurance Companies:
Marine	$	12,961		27	%	$	13,860		28	%	$	45,612		26	%	$	48,434		28	%
Property Casualty		33,919		31	%		28,674		35	%		122,016		38	%		85,820		35	%
Professional Liability		9,003		27	%		12,893		40	%		27,854		33	%		36,911		38	%
Total Insurance Companies		55,883		29	%		55,427		34	%		195,482		33	%		171,165		33	%
Lloyd’s Operations:
Marine		6,330		23	%		5,646		17	%		25,223		20	%		22,553		17	%
Property Casualty		13,386		45	%		10,273		37	%		43,742		48	%		33,719		44	%
Professional Liability		4,362		58	%		4,485		46	%		14,072		52	%		17,785		51	%
Total Lloyd’s		24,078		38	%		20,404		29	%		83,037		34	%		74,057		30	%
Total	$	79,961		31	%	$	75,831		32	%	$	278,519		34	%	$	245,222		32	%

The decrease in the percentage of total ceded written premiums to total gross written premiums for the three months ended September 30, 2011 compared to the same period in 2010 was primarily due to a mix change resulting from new business within our recently established Nav Re division and to a lesser extent the expansion of our Professional Liability business, where our retention ratios are higher.

The increase in the percentage of total ceded written premiums to total gross written premiums for the nine months ended September 30, 2011 compared to the same period in 2010 was primarily due to the mix change resulting from new business as described above and the transfer of NavPac business to Tower Insurance Company of New York via a quota share on an in force basis which generated an additional $12.1 million of ceded premiums for nine months ended September 30, 2011.

Net Written Premiums

Net written premiums increased 11.1% and 7.7% for the three and nine months ended September 30, 2011 compared to the same periods in 2010. The impact of higher gross written premiums for the three and nine months ended September 30, 2011 was partially offset by mix change resulting from new business written by Nav Re, as discussed above. The increase for the nine months ended September 30, 2011 was also offset by the transfer of NavPac business to Tower Insurance Company of New York via a quota share on an in force basis which generated an additional $12.1 million of ceded premiums for nine months ended September 30, 2011.

Net Earned Premiums

Net earned premiums increased 3.2% for the three months ended September 30, 2011 compared to the same period in 2010 due to $1.1 million of reinstatement premiums in the third quarter of 2010. Net earned premiums increased 1.2% for the nine months ended September 30, 2011 compared to the same period in 2010. In comparison to the increase in net written premiums, the increases in net earned premiums were impacted by the mix change of new business written by Nav Re, specifically the Accident & Health lines which are recognized in earnings over a longer exposure period than our other lines of business.

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Net Investment Income

Our net investment income was derived from the following sources:

		September 30,			September 30,			September 30,			September 30,
	Three Months Ended September 30,						Nine Months Ended September 30,
In thousands	2011			2010			2011			2010
Fixed maturities	$	15,856		$	17,506		$	49,892		$	52,701
Equity securities		942			675			2,584			1,904
Short-term investments		205			233			745			726
Total investment income	$	17,003		$	18,414		$	53,221		$	55,331
Investment expenses		(744	)		(575	)		(2,149	)		(1,667	)
Net investment income	$	16,259		$	17,839		$	51,072		$	53,664

Net investment income decreased 8.9% and 4.8% for the three and nine months ended September 30, 2011 compared to the same period in 2010 due to lower investment yields. The annualized pre-tax investment yield, excluding net realized gains and losses and net other-than-temporary impairment losses recognized in earnings, was 3.1% and 3.2% for the three and nine months ended September 30, 2011, compared to 3.4% and 3.5% for the comparable periods in 2010.

Net Other-Than-Temporary Impairment Losses Recognized In Earnings

Our net other-than-temporary impairment (“OTTI”) losses recognized in earnings for the periods indicated were as follows:

		September 30,		September 30,		September 30,		September 30,
	Three Months Ended September 30,				Nine Months Ended September 30,
In thousands	2011		2010		2011		2010
Fixed maturities	$	623	$	309	$	850	$	517
Equity securities		—		360		547		387
OTTI recognized in earnings	$	623	$	669	$	1,397	$	904

Net OTTI losses recognized in earnings for fixed maturity securities for all periods presented in the table above were primarily related to residential mortgage-backed securities.

Net Realized Gains and Losses

Our realized gains and losses for the periods indicated were as follows:

		September 30,			September 30,			September 30,			September 30,
	Three Months Ended September 30,						Nine Months Ended September 30,
In thousands	2011			2010			2011			2010
Fixed maturities:
Gains	$	3,315		$	4,790		$	10,625		$	22,440
Losses		(77	)		(1,036	)		(6,610	)		(1,319	)
Fixed maturities, net	$	3,238		$	3,754		$	4,015		$	21,121
Equity securities:
Gains	$	—		$	773		$	841		$	773
Losses		—			(6	)		—			(241	)
Equity securities, net	$	—		$	767		$	841		$	532
Net realized gains (losses)	$	3,238		$	4,521		$	4,856		$	21,653

For the three and nine months ended September 30, 2011, we recorded $3.2 million and $4.9 million of net realized gains compared to net realized gains of $4.5 million and $21.7 million for the same period in 2010. On an after-tax basis, the net realized gains for the three and nine months ended September 30, 2011 were $2.2 million and $3.2 million, respectively, compared to $2.9 million and $14.1 million for the same periods in 2010. We typically generate realized gains and losses as part of the normal ongoing management of our investment portfolio, and the gains recorded this period include the sale of corporate bonds as part of our investment strategy to reinvest in equity securities.

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Other Income (Expense)

Other income (expense) primarily includes foreign exchange gains and losses from our Lloyd’s Operations, commission income and inspection fees related to our specialty insurance business.

Expenses

Net Losses and Loss Adjustment Expenses

The ratio of net losses and LAE to net earned premiums (“loss ratios”) for the three and nine months ended September 30, 2011 and 2010 is presented in the following table:

		September 30,			September 30,			September 30,			September 30,
	Three Months Ended September 30,						Nine Months Ended September 30,
Net Loss and LAE Ratio	2011			2010			2011			2010
Net Loss and LAE Payments		51.6	%		53.5	%		56.5	%		58.2	%
Change in reserves:
Current year reserves		12.8	%		12.9	%		11.2	%		7.0	%
Prior year deficiencies (redundancies)		-0.9	%		-2.5	%		0.5	%		-2.2	%
Change in reserves		11.9	%		10.4	%		11.7	%		4.8	%
Net loss and LAE ratio		63.5	%		63.9	%		68.2	%		63.0	%

The loss ratio for the three months ended September 30, 2011 was 63.5% compared to 63.9% for the same period in 2010. The decrease in the loss ratio was primarily due to changes in prior year development, which are explained in more detail below.

The loss ratio for the nine months ended September 30, 2011 was 68.2% compared to 63.0% for the same period in 2010. The increase in the loss ratio was primarily due to the current accident year large loss activity partially offset by changes in prior year development, which are explained in more detail below.

Prior Year Reserve Deficiencies/Redundancies

The relevant factors that may have a significant impact on the establishment and adjustment of losses and LAE reserves can vary by line of business and from period to period. As part of our regular review of prior reserves, management, in consultation with our actuaries, may determine, based on their judgment that certain assumptions made in the reserving process in prior year periods may need to be revised to reflect various factors, likely including the availability of additional information. Based on their reserve analyses, management may make corresponding reserve adjustments.

The segment and line of business breakdowns of prior period net reserve deficiencies (redundancies) for the three months ended September 30, 2011 and 2010 is as follows:

		September 30,			September 30,
	Three Months Ended September 30,
In thousands	2011			2010
Insurance Companies:
Marine	$	(38	)	$	(558	)
Property Casualty		(1,846	)		348
Professional Liability		(260	)		53
Subtotal Insurance Companies	$	(2,144	)	$	(157	)
Lloyd’s Operations		531			(4,002	)
Total deficiencies (redundancies)	$	(1,613	)	$	(4,159	)

For the three months ended September 30, 2011, we recorded a prior period net reserve redundancy of $1.6 million primarily attributed to a favorable ruling on an old property claim within our Property Casualty division, and to a lesser extent, favorable foreign exchange across all of our divisions.

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For the three months ended September 30, 2010, we recorded a prior period net reserve redundancy of $4.2 million primarily related to our Lloyd’s Operations. Our Lloyd’s Operations recorded a $4.0 million reserve redundancy resulting from favorable development in the Marine and NavTech business, partially offset by unfavorable development in the Professional Liability business.

The segment and line of business breakdowns of prior period net reserve deficiencies (redundancies) for the nine months ended September 30, 2011 and 2010 is as follows:

		September 30,			September 30,
	Nine Months Ended September 30,
In thousands	2011			2010
Insurance Companies:
Marine	$	539		$	951
Property Casualty		(863	)		(6,946	)
Professional Liability		(735	)		341
Subtotal Insurance Companies	$	(1,059	)	$	(5,654	)
Lloyd’s Operations		3,694			(5,001	)
Total deficiencies (redundancies)	$	2,635		$	(10,655	)

For the nine months ended September 30, 2011 we recorded a prior period net reserve deficiency of $2.6 million primarily related to our Lloyd’s Operations, partially offset by reserve redundancies within our Property Casualty division. Our Lloyd’s Operations recorded $3.7 million of prior period net reserve deficiencies resulting from adverse development in Professional Liability driven by adverse claim movements for prior underwriting years in the E&O business. Our Property Casualty division recorded $0.9 million of prior period net reserve redundancies due to a favorable ruling on an old property, partially offset by adverse development on our Personal Umbrella and Liquor Liability businesses, both of which are in run-off.

For the nine months ended September 30, 2010 we recorded prior period net reserve redundancy of $10.7 million primarily related to our Property Casualty division and Lloyd’s Operations. Our Property Casualty division recorded $7.0 million of prior period net reserve redundancies as a result of $4.2 million of favorable development on the 2007 underwriting year for our construction liability business due to lower reported claims than expected, $2.5 million of favorable development on two run-off books of business, and $2.3 million of favorable development in our NavTech offshore lines also due to the 2007 underwriting year resulting from lower than expected reported claims. The aforementioned redundancies were partially offset by $2.0 million and $0.8 million of unfavorable development related to our Liquor Liability and Personal Umbrella business, respectively, which are in run-off. Our Lloyd’s Operations recorded $5.0 million of prior period net reserve redundancies resulting from favorable development in the Marine and NavTech divisions, partially offset by unfavorable development in the Professional Liability business.

Commission Expenses

Commission expenses paid to brokers and agents are generally based on a percentage of gross written premiums and are partially offset by ceding commissions we may receive on ceded written premiums. Commissions are generally deferred and recorded as deferred policy acquisition costs to the extent that they relate to unearned premium. The percentage of commission expenses to net earned premiums (“commission expense ratio”) for the three months ended September 30, 2011 and 2010 was relatively consistent at 14.9% and 15.0%, respectively. The commission expense ratio for the nine months ended September 30, 2011 was 16.0%, an increase from 15.4% from the same period in 2010. The increase in the commission expense ratio is due to a reduction in the ceding commission benefit related to sliding scale adjustments on our consortium quota share treaties due to large loss activity in 2011.

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Other Operating Expenses

Other operating expenses increased 0.9% and 3.4% for the three and nine months ended September 30, 2011 compared to the same periods in 2010. The increase in other operating expenses for the three and nine months ended September 30, 2011 was primarily due to investments in new underwriting teams, and higher compliance costs, particularly on account of the implementation of Solvency II.

Income Taxes

We recorded income tax expense of $4.5 million and $5.0 million for the three and nine months ended September 30, 2011, respectively, compared to $7.1 million and $21.7 million for the comparable periods in 2010. The effective tax rate for the three and nine months ended September 30, 2011 was 24.4%, compared to 30.4% and 29.3% for the same periods in 2010. The effective tax rate on net investment income was 28.6% for the three and nine months ended September 30, 2011, compared to 28.4% and 26.7% for the same periods in 2010. As of September 30, 2011 and December 31, 2010 the net deferred federal, foreign, state and local tax assets were $4.3 million and $15.1 million, respectively.

We had net state and local deferred tax assets amounting to potential future tax benefits of $1.8 million and $2.2 million as of September 30, 2011 and December 31, 2010, respectively. Included in the deferred tax assets are state and local net operating loss carry-forwards of $1.3 million and $1.4 million as of September 30, 2011 and December 31, 2010, respectively. A valuation allowance was established for the full amount of these potential future tax benefits due to uncertainty associated with their realization. Our state and local tax carry-forwards as of September 30, 2011 expire from 2024 to 2030.

Segment Information

We classify our business into two underwriting segments consisting of the Insurance Companies and the Lloyd’s Operations, which are separately managed, and a Corporate segment. Segment data for each of the two underwriting segments include allocations of the operating expenses of the wholly-owned underwriting management companies and The Navigator’s Group, Inc.’s (the “Parent Company’s”) operating expenses and related income tax amounts. The Corporate segment consists of the Parent Company’s investment income, interest expense and the related tax effect.

We evaluate the performance of each segment based on its underwriting and GAAP results. The Insurance Companies’ and the Lloyd’s Operations’ results are measured by taking into account net earned premium, net loss and loss adjustment expenses, commission expenses, other operating expenses and other income (expense). The Corporate segment consists of the Parent Company’s investment income, interest expense and the related tax effect. Each segment also maintains its own investments, on which it earns income and realizes capital gains or losses. Our underwriting performance is evaluated separately from the performance of our investment portfolios.

Following are the financial results of our two underwriting segments.

Insurance Companies

The Insurance Companies consist of Navigators Insurance, including its U.K. Branch, and its wholly-owned subsidiary, Navigators Specialty. They are primarily engaged in underwriting marine insurance and related lines of business, professional liability insurance and specialty lines of business including contractors general liability insurance, commercial umbrella and primary and excess casualty businesses. Navigators Specialty underwrites specialty and professional liability insurance on an excess and surplus lines basis. Navigators Specialty is 100% reinsured by Navigators Insurance.

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The following table sets forth the results of operations for the Insurance Companies for the three and nine months ended September 30, 2011 and 2010:

		September 30,			September 30,			September 30,			September 30,			September 30,			September 30,
	Three Months Ended September 30,						Nine Months Ended September 30,						Percentage Change
In thousands	2011			2010			2011			2010			QTD			YTD
Gross written premiums	$	191,175		$	163,343		$	584,718		$	511,822			17.0	%		14.2	%
Net written premiums		135,292			107,916			389,236			340,657			25.4	%		14.3	%
Net earned premiums		119,332			112,198			333,139			333,834			6.4	%		-0.2	%
Net losses and loss adjustment expenses		(76,755	)		(72,306	)		(228,882	)		(205,571	)		6.2	%		11.3	%
Commission expenses		(16,514	)		(14,374	)		(45,256	)		(43,351	)		14.9	%		4.4	%
Other operating expenses		(25,735	)		(26,398	)		(79,050	)		(79,658	)		-2.5	%		-0.8	%
Other income (expense)		554			1,380			2,871			289			-59.9	%		NM
Underwriting profit (loss)	$	882		$	500		$	(17,178	)	$	5,543			76.4	%		NM
Net investment income		14,037			15,736			44,009			47,040			-10.8	%		-6.4	%
Net realized gains (losses)		2,809			4,206			5,664			20,140			-33.2	%		-71.9	%
Income (loss) before income taxes	$	17,728		$	20,442		$	32,495		$	72,723			-13.3	%		-55.3	%
Income tax expense (benefit)		4,379			6,049			9,224			21,166			-27.6	%		-56.4	%
Net income (loss)	$	13,349		$	14,393		$	23,271		$	51,557			-7.3	%		-54.9	%
Losses and loss adjustment expenses ratio		64.3	%		64.4	%		68.7	%		61.6	%
Commission expense ratio		13.8	%		12.8	%		13.6	%		13.0	%
Other operating expense ratio(1)		21.2	%		22.4	%		22.9	%		23.7	%
Combined ratio		99.3	%		99.6	%		105.2	%		98.3	%

(1) - Includes Other operating expenses & Other income (expense)

NM - Percentage change not meaningful

Our Insurance Companies reported net income of $13.3 million for the three months ended September 30, 2011 compared to $14.4 million for the same period in 2010.

Our Insurance Companies’ combined ratio for the three months ended September 30, 2011 was 99.3% compared to 99.6% for the same period in 2010. Our Insurance Companies’ pre-tax underwriting profit increased by $0.4 million to $0.9 million for the three months ended September 30, 2011 compared to $0.5 million for the same period in 2010. The increase in pre-tax underwriting profit was primarily attributable to the prior period net reserve redundancies.

Our Insurance Companies reported net income of $23.3 million for the nine months ended September 30, 2011 compared to $51.6 million for the same period in 2010.

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Our Insurance Companies’ combined ratio for the nine months ended September 30, 2011 was 105.2% compared to 98.3% for the same period in 2010. Our Insurance Companies’ pre-tax underwriting profit decreased by $22.7 million to a $17.2 million pre-tax underwriting loss for the nine months ended September 30, 2011 compared to $5.5 million of underwriting profit for the same period in 2010. The decrease in pre-tax underwriting profit is largely due to:

• Large current accident year losses of $11.6 million from drilling operations in the North Sea and Gulf of Mexico. The North Sea drilling operation losses resulted in a $6.1 million first quarter net impact inclusive of reinstatement premiums. The Gulf of Mexico drilling operation losses resulted in a $5.5 million second quarter net impact, also inclusive of reinstatement premiums.

• Prior period net reserve redundancies of $1.1 million in 2011 compared to $5.7 million of prior period net reserve redundancies in 2010. Generally, while the Insurance Companies segment has experienced favorable prior period redundancies, the ultimate loss ratios for the recent underwriting years have been increasing due to softening market conditions for the business written during those periods.

• An increase in our reinsurance reinstatement premium accrual of $2.7 million. This accrual was driven by the recognition of the effect of a shift in our Marine reinsurance protections to an excess of loss program from a quota share program. As a result of this shift and the increased frequency of severity losses in recent periods, a greater portion of our IBNR was attributable to marine and energy losses that are or will be ceded to Marine Excess of Loss Reinsurance program and such cession will trigger additional reinstatement premiums.

Insurance Companies’ Gross Written Premiums

Marine Premiums. The gross written premiums for the three and nine months ended September 30, 2011 and 2010 consisted of the following:

		September 30,		September 30,		September 30,		September 30,		September 30,			September 30,
	Three Months Ended September 30,				Nine Months Ended September 30,				Percentage Change
In thousands	2011		2010		2011		2010		QTD			YTD
Marine liability	$	14,332	$	13,592	$	59,093	$	59,338		5.4	%		-0.4	%
Inland marine		7,391		6,793		25,747		23,310		8.8	%		10.5	%
Cargo		6,073		6,661		18,458		17,317		-8.8	%		6.6	%
Transport		4,778		6,045		14,617		12,792		-21.0	%		14.3	%
Craft/fishing vessel		4,618		4,308		16,979		15,240		7.2	%		11.4	%
Bluewater hull		4,535		4,679		14,727		14,838		-3.1	%		-0.7	%
P&I		2,887		3,797		15,250		14,037		-24.0	%		8.6	%
Other		2,527		3,531		10,941		15,264		-28.4	%		-28.3	%
Total Marine	$	47,141	$	49,406	$	175,812	$	172,136		-4.6	%		2.1	%

The Insurance Companies’ Marine gross written premiums for the three months ended September 30, 2011 decreased 4.6% compared to 2010 primarily due to reduced underwriting activity resulting from current market conditions. Competition remains significant as excess capacity remains in the sector. Economic activity has been on the upswing, increasing reported exposures, which has had a positive impact on premiums. Pricing adjustments have been insignificant and have not seen any benefit from the recent catastrophes.

The Insurance Companies’ Marine gross written premiums for the nine months ended September 30, 2011 increased 2.1% compared to 2010 as the Marine business experienced slight growth due to increases in average renewal rates of 1.1% for the nine months ended September 30, 2011.

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Property Casualty Premiums. The gross written premiums for the three and nine months ended September 30, 2011 and 2010 consisted of the following:

		September 30,		September 30,		September 30,		September 30,		September 30,			September 30,
	Three Months Ended September 30,				Nine Months Ended September 30,				Percentage Change
In thousands	2011		2010		2011		2010		QTD			YTD
Excess Casualty	$	35,178	$	23,160	$	97,070	$	67,506		51.9	%		43.8	%
Nav Re		22,670		—		71,245		5,841		NM			NM
Construction liability		19,777		21,799		62,053		67,892		-9.3	%		-8.6	%
Offshore energy		17,635		20,632		43,265		44,256		-14.5	%		-2.2	%
Primary casualty		11,695		4,333		31,796		13,922		169.9	%		128.4	%
Other		4,020		11,427		18,565		43,077		-64.8	%		-56.9	%
Total Property Casualty	$	110,975	$	81,351	$	323,994	$	242,494		36.4	%		33.6	%

NM - Percentage change not meaningful

The Property Casualty gross written premiums for the three months and nine months ended September 30, 2011 increased 36.4 % and 33.6%, respectively, compared to the same periods in 2010. The increases were primarily driven by our recently established Nav Re division which produced $22.7 million and $71.2 million in gross written premiums for the three and nine months ended September 30, 2011, respectively. Additionally we saw growth in our Excess Casualty and Primary Casualty products due to an increase in underwriting activity resulting from an expansion of our underwriting team. The aforementioned increases were offset by activity within our Specialty Run-off division, reported within Other in the table above, which decreased as a result of our transfer of NavPac business to Tower Insurance Company of New York via a quota share.

Professional Liability Premiums. The gross written premiums for the three and nine months ended September 30, 2011 and 2010 consisted of the following:

		September 30,		September 30,		September 30,		September 30,		September 30,			September 30,
	Three Months Ended September 30,				Nine Months Ended September 30,				Percentage Change
In thousands	2011		2010		2011		2010		QTD			YTD
E&O	$	21,441	$	14,755	$	51,014	$	38,584		45.3	%		32.2	%
D&O (public and private)		11,571		17,284		32,997		54,180		-33.1	%		-39.1	%
Other		47		547		901		4,428		-91.4	%		-79.6	%
Total Professional Liability	$	33,059	$	32,586	$	84,912	$	97,192		1.5	%		-12.6	%

The Professional Liability gross written premiums for the three months ended September 30, 2011 was consistent with the same period in 2010.

The Professional Liability gross written premiums for the nine months ended September 30, 2011 decreased 12.6% when compared to the same period in 2010. The decrease was primarily related to a reduction in our D&O business, reflective of a change in underwriting strategy that focuses on a planned shift toward underwriting excess layers. This was partially offset by an increase from the expansion of our E&O business driven by an investment in our underwriting teams’ revised underwriting strategy.

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Lloyd’s Operations

The Lloyd’s Operations primarily underwrites marine and related lines of business along with professional liability insurance, and construction coverage for onshore energy business at Lloyd’s through Syndicate 1221. Our Lloyd’s Operations includes NUAL, a Lloyd’s underwriting agency which manages Syndicate 1221.

The following table sets forth the results of operations of the Lloyd’s Operations for the three and nine months ended September 30, 2011 and 2010:

		September 30,			September 30,			September 30,			September 30,			September 30,			September 30,
	Three Months Ended September 30,						Nine Months Ended September 30,						Percentage Change
In thousands	2011			2010			2011			2010			QTD			YTD
Gross written premiums	$	64,143		$	70,295		$	245,597		$	245,529			-8.8	%		0.0	%
Net written premiums		40,065			49,891			162,560			171,472			-19.7	%		-5.2	%
Net earned premiums		54,301			56,035			166,749			159,939			-3.1	%		4.3	%
Net losses and loss adjustment expenses		(33,487	)		(35,157	)		(112,011	)		(105,562	)		-4.8	%		6.1	%
Commission expenses		(9,953	)		(10,459	)		(36,402	)		(32,827	)		-4.8	%		10.9	%
Other operating expenses		(9,254	)		(8,301	)		(28,291	)		(24,161	)		11.5	%		17.1	%
Other income (expense)		(942	)		1,052			(734	)		2,687			NM			NM
Underwriting profit (loss)	$	665		$	3,170		$	(10,689	)	$	76			-79.0	%		NM
Net investment income		2,158			1,982			6,733			6,179			8.9	%		9.0	%
Net realized gains (losses)		(226	)		(354	)		(2,409	)		378			-36.2	%		NM
Income (loss) before income taxes	$	2,597		$	4,798		$	(6,365	)	$	6,633			-45.9	%		NM
Income tax expense (benefit)		780			1,715			(2,247	)		2,403			-54.5	%		NM
Net income (loss)	$	1,817		$	3,083		$	(4,118	)	$	4,230			-41.1	%		NM
Losses and loss adjustment expenses ratio		61.7	%		62.7	%		67.2	%		66.0	%
Commission expense ratio		18.3	%		18.7	%		21.8	%		20.5	%
Other operating expense ratio(1)		18.8	%		12.9	%		17.4	%		13.5	%
Combined ratio		98.8	%		94.3	%		106.4	%		100.0	%

(1) - Includes Other operating expenses & Other income (expense)

NM - Percentage change not meaningful.

Our Lloyd’s Operations reported net income of $1.8 million for the three months ended September 30, 2011 compared to $3.1 million for the same period in 2010.

Our Lloyd’s Operations combined ratio for the three months ended September 30, 2011 was 98.8% compared to 94.3% for the same period in 2010. Our Lloyd’s Operations pre-tax underwriting profit decreased by $2.5 million to $0.7 million for the three months ended September 30, 2011 compared to $3.2 million for the same period in 2010. The decrease in pre-tax underwriting profit was primarily attributable to a reduction in estimated premium income and prior period net reserve redundancies in 2010.

Our Lloyd’s Operations reported a net loss of $4.1 million for the nine months ended September 30, 2011 compared to net income of $4.2 million for the same period in 2010.

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Our Lloyd’s Operations combined ratio for the nine months ended September 30, 2011 was 106.4% compared to 100.0% for the same period in 2010. Our Lloyd’s Operations pre-tax underwriting profit decreased by $10.8 million to a $10.7 million pre-tax underwriting loss for the nine months ended September 30, 2011 compared to $0.1 million of underwriting profit for the same period in 2010. The decrease in pre-tax underwriting profit is largely due to:

• Adverse loss development in our Professional Liability division of $3.7 million related mostly to our E&O business for prior underwriting years.

• Sliding scale adjustments of $2.9 million related to large loss activity that has reduced our ceding commission benefit on a large quota share treaty.

• An increase in our reinsurance reinstatement premium accrual of $2.3 million. This accrual was driven by the recognition of the effect of a shift in our Marine reinsurance protections to an excess of loss program from a quota share program. As a result of this shift and the increased frequency of severity losses in recent periods, a greater portion of our IBNR was attributable to marine and energy losses that are or will be ceded to the Marine Excess of Loss Reinsurance program and such cession will trigger additional reinstatement premiums.

• Current accident year large losses. Specifically, an onshore industrial site generated gross and net losses of $12.0 million and $2.4 million, respectively.

Lloyd’s Operations’ Gross Written Premiums

We have controlled 100% of Syndicate 1221’s stamp capacity since 2006. Stamp capacity is a measure of the amount of premium a Lloyd’s syndicate is authorized to write based on a business plan approved by the Council of Lloyd’s. Syndicate 1221’s stamp capacity is £175 million ($273 million) in 2011 compared to £168 million ($264 million) in 2010.

The Lloyd’s Operations’ gross written premiums for the three months ended September 30, 2011 decreased 8.8% compared to the same period in 2010. The decrease in the gross written premiums was attributable to a decline in Marine and Professional Liability premiums which are described in detail below.

The Lloyd’s Operations’ gross written premium for the nine months ended September 30, 2011 was consistent compared to the same period in 2010.

Marine Premiums.The gross written premiums for the three and nine months ended September 30, 2011 and 2010 consisted of the following:

		September 30,		September 30,		September 30,		September 30,		September 30,			September 30,
	Three Months Ended September 30,				Nine Months Ended September 30,				Percentage Change
In thousands	2011		2010		2011		2010		QTD			YTD
Marine and energy liability	$	11,153	$	9,774	$	51,074	$	48,886		14.1	%		4.5	%
Cargo and specie		8,822		15,384		44,904		50,594		-42.7	%		-11.2	%
Assumed reinsurance		2,019		1,713		14,133		12,243		17.9	%		15.4	%
War		3,520		2,393		9,895		7,050		47.1	%		40.4	%
Hull		1,465		3,524		7,579		14,985		-58.4	%		-49.4	%
Total Marine	$	26,979	$	32,788	$	127,585	$	133,758		-17.7	%		-4.6	%

The Marine gross written premiums for the three and nine months ended September 30, 2011 decreased 17.7% and 4.6%, respectively, compared to the same period in 2010. The reduction is attributable to a decrease in Cargo and Hull production. Cargo production has decreased as a result of depressed activity, a reduction in commodity prices, and as a result of reductions to estimated premiums written in prior periods.

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For the three and nine months ended September 30, 2011, average renewal premium rates increased approximately 1.7% and 2.2% compared to the same period in 2010, with larger increases on our marine and energy liability products.

Property Casualty Premiums.The gross written premiums for the three and nine months ended September 30, 2011 and 2010 consisted of the following:

		September 30,		September 30,		September 30,		September 30,		September 30,			September 30,
	Three Months Ended September 30,				Nine Months Ended September 30,				Percentage Change
In thousands	2011		2010		2011		2010		QTD			YTD
Offshore energy	$	12,864	$	12,846	$	40,450	$	36,701		0.1	%		10.2	%
Engineering and construction		8,122		6,686		21,868		17,859		21.5	%		22.4	%
Onshore energy		6,010		3,913		24,657		14,584		53.6	%		69.1	%
Other		2,686		4,242		4,131		7,624		-36.7	%		-45.8	%
Total Property Casualty	$	29,682	$	27,687	$	91,106	$	76,768		7.2	%		18.7	%

The Property Casualty gross written premiums for the three and nine months ended September 30, 2011 increased 7.2% and 18.7%, respectively, compared to the same periods in 2010. The increases are primarily due to greater Onshore Energy premiums as a result of a steady production and renewal rate increases resulting from reduced competition that has occurred due to recent loss activity.

The average renewal premium rates for the three and nine months ended September 30, 2011 increased approximately 8.7% and 5.3%, respectively, compared to the same periods in 2010.

Professional Liability Premiums. The gross written premiums for the three and nine months ended September 30, 2011 and 2010 consisted of the following:

		September 30,		September 30,		September 30,		September 30,		September 30,			September 30,
	Three Months Ended September 30,				Nine Months Ended September 30,				Percentage Change
In thousands	2011		2010		2011		2010		QTD			YTD
D&O (public and private)	$	5,747	$	7,137	$	20,001	$	23,175		-19.5	%		-13.7	%
E&O		1,735		2,683		6,905		11,828		-35.3	%		-41.6	%
Total Professional Liability	$	7,482	$	9,820	$	26,906	$	35,003		-23.8	%		-23.1	%

The Professional Liability gross written premiums for the three and nine months ended September 30, 2011 decreased 23.8% and 23.1%, respectively, compared to the same periods in 2010, due to competitive market conditions in both the D&O and E&O businesses.

The average renewal premium rates for the Professional Liability division decreased approximately 2.0% and 1.6% for the three and nine months ended September 30, 2011, respectively, compared to the same periods in 2010.

CAPITAL RESOURCES

We monitor our capital adequacy to support our business on a regular basis. The future capital requirements of our business will depend on many factors, including our ability to write new business successfully and to establish premium rates and reserves at levels sufficient to cover losses. Our ability to underwrite is largely dependent upon the quality of our claims paying and financial strength ratings as evaluated by independent rating agencies. In particular, we require (1) sufficient capital to maintain our financial strength ratings, as issued by several ratings agencies, at a level considered necessary by management to enable our Insurance Companies to compete, (2) sufficient capital to enable our Insurance Companies to meet the capital adequacy tests performed by statutory agencies in the United States and the United Kingdom and (3) letters of credit and other forms of collateral that are necessary to support the business plan of our Lloyd’s Operations.

47

Our capital resources consist of funds deployed or available to be deployed to support our business operations. As of September 30, 2011 and December 31, 2010, our capital resources were as follows:

		September 30,			September 30,
In thousands	September 30, 2011			December 31, 2010
Senior debt	$	114,240		$	114,138
Stockholders’ equity		799,455			829,354
Total capitalization	$	913,695		$	943,492
Ratio of debt to total capitalization		12.5	%		12.1	%

As part of our capital management program, we may seek to raise additional capital or may seek to return capital to our stockholders through share repurchases, cash dividends or other methods (or a combination of such methods). Any such determination will be at the discretion of the Parent Company’s Board of Directors and will be dependent upon our profits, financial requirements and other factors, including legal restrictions, rating agency requirements, credit facility limitations and such other factors as our Board of Directors deems relevant.

For the three months ended September 30, 2011, the Company repurchased 749,076 shares of the Parent Company’s common stock at an aggregate purchase price of $32.2 million and a weighted average price per share of $43.03 pursuant to the share repurchase program. For the nine months ended September 30, 2011, the Company repurchased 1,602,196 shares of the Parent Company’s common stock at an aggregate purchase price of $73.7 million and a weighted average price per share of $45.98 pursuant to the share repurchase program. Since inception, the Company has repurchased 3,008,056 shares of the Parent Company’s common stock at an aggregate purchase price of $132.4 million and a weighted average price per share of $44.02. As of September 30, 2011, approximately $17.2 million was available for future repurchases under the program.

Purchases are permitted from time to time at prevailing prices in open market or privately negotiated transactions through December 31, 2011. The timing and amount of purchases under the program depend on a variety of factors, including the trading price of the stock, market conditions and corporate and regulatory considerations.

We primarily rely upon dividends from our subsidiaries to meet our Parent Company’s obligations. Since the issuance of the senior debt in April 2006, the Parent Company’s cash obligations primarily consist of semi-annual interest payments which are now $4.0 million. Going forward, the interest payments and any share repurchases may be made from funds currently at the Parent Company or dividends from its subsidiaries. The dividends have historically been paid by Navigators Insurance Company. Based on the December 31, 2010 surplus of Navigators Insurance Company, the approximate remaining maximum amount available for the payment of dividends by Navigators Insurance Company during 2011 without prior regulatory approval was $62.1 million. During the nine months of 2011 Navigators Insurance Company has declared and paid $35.0 million of dividends to the Parent Company, leaving $27.1 million of remaining dividend capacity for 2011.

48

Condensed Parent Company balance sheets as of September 30, 2011 (unaudited) and December 31, 2010 are shown in the table below:

		September 30,		September 30,
In thousands	September 30, 2011		December 31, 2010
Cash and investments	$	19,840	$	53,217
Investments in subsidiaries		881,273		877,999
Goodwill and other intangible assets		2,534		2,534
Other assets		14,178		12,028
Total assets	$	917,825	$	945,778
Senior notes	$	114,240	$	114,138
Accounts payable and other liabilities		776		946
Accrued interest payable		3,354		1,340
Total liabilities	$	118,370	$	116,424
Stockholders’ equity	$	799,455	$	829,354
Total liabilities and stockholders’ equity	$	917,825	$	945,778

On April 1, 2011, we entered into a $165 million credit facility agreement with ING Bank, N.V., London Branch, individually and as Administrative Agent, and a syndicate of lenders. The credit facility is a letter of credit facility and replaces a $140 million credit facility agreement that expired March 31, 2011. The credit facility, which is denominated in U.S. dollars, will be utilized to fund our participation in Syndicate 1221 through letters of credit for the 2011 and 2012 underwriting years, as well as open prior years. The letters of credit issued under the facility are denominated in British pounds and their aggregate face amount will fluctuate based on exchange rates. The ability to issue new letters of credit expires on December 31, 2011. If any letters of credit remain outstanding under the facility after December 31, 2012, we would be required to post additional collateral to secure the remaining letters of credit. As of September 30, 2011, letters of credit with an aggregate face amount of $132.6 million were outstanding under the credit facility.

This credit facility contains customary covenants for facilities of this type, including restrictions on indebtedness and liens, limitations on mergers, dividends and the sale of assets, and requirements as to maintaining certain consolidated tangible net worth, statutory surplus and other financial ratios. The credit facility also provides for customary events of default, including failure to pay principal, interest or fees when due, failure to comply with covenants, any representation or warranty made by the Company being false in any material respect, default under certain other indebtedness, certain insolvency or receivership events affecting the Company and its subsidiaries, the occurrence of certain material judgments, or a change in control of the Company. The letter of credit facility is secured by a pledge of the stock of certain insurance subsidiaries of the Company. To the extent the aggregate face amount issued under the credit facility exceeds the commitment amount, we are required to post collateral with the lead bank of the consortium. We were in compliance with all covenants under the credit facility as of September 30, 2011.

As a result of the April 1, 2011 replacement of the expiring credit facility, the applicable margin and applicable fee rate payable under the letter of credit facility are now based on a tiered schedule that is based on the Company’s then-current ratings issued by S&P and Moody’s with respect to the Company’s senior unsecured long-term debt securities and without third-party credit enhancement and the amount of the Company’s own ‘Funds at Lloyd’s’ collateral.

Time lags do occur in the normal course of business between the time gross loss reserves are paid by the Company and the time such gross paid losses are billed and collected from reinsurers. Reinsurance recoverable amounts related to those gross loss reserves as of September 30, 2011 are anticipated to be billed and collected over the next several years as the gross loss reserves are paid by the Company.

49

Generally, for pro rata or quota share reinsurers, we issue quarterly settlement statements for premiums less commissions and paid loss activity, which are expected to be settled by the end of the subsequent quarter. We have the ability to issue “cash calls” requiring such reinsurers to pay losses whenever paid loss activity for a claim ceded to a particular reinsurance treaty exceeds a predetermined amount (generally $1.0 million) as set forth in the pro rata treaty. For the Insurance Companies, cash calls must generally be paid within 30 calendar days. There is generally no specific settlement period for the Lloyd’s Operations cash call provisions, but such billings have historically on average been paid within 45 calendar days.

Generally, for excess of loss reinsurers we pay monthly or quarterly deposit premiums based on the estimated subject premiums over the contract period (usually one year) that are subsequently adjusted based on actual premiums determined after the expiration of the applicable reinsurance treaty. Paid losses subject to excess of loss recoveries are generally billed as they occur and are usually settled by reinsurers within 30 calendar days for the Insurance Companies and 30 business days for the Lloyd’s Operations.

We sometimes withhold funds from reinsurers and may apply ceded loss billings against such funds in accordance with the applicable reinsurance agreements.

LIQUIDITY

Consolidated Cash Flows

Net cash provided by operating activities was $86.3 million for the nine months ended September 30, 2011 compared to $114.1 million for the same period in 2010. The decrease in cash flow from operations for the nine month period was primarily due to increased paid losses as well as an increase in premiums receivable due to growth within our recently established Nav Re division. The premiums receivable for our reinsurance business remain open longer because they are collected as the underlying policies attach and are ceded to the treaties.

Net cash provided by investing activities was $12.6 million for the nine months ended September 30, 2011 compared to net cash used in investing activities of $34.5 million for the same period in 2010. This change is primarily due the sale of securities to fund our share repurchase program.

Net cash used in financing activities was $71.8 million for the nine months ended September 30, 2011 compared to $49.1 million for the comparable period in 2010. The use of cash primarily related to the repurchase of the Parent Company’s common stock under our share repurchase program.

We believe that the cash flow generated by the operating activities of our subsidiaries will provide sufficient funds for us to meet our liquidity needs over the next twelve months. Beyond the next twelve months, cash flow available to us may be influenced by a variety of factors, including general economic conditions and conditions in the insurance and reinsurance markets, as well as fluctuations from year to year in claims experience.

We believe that we have adequately managed our cash flow requirements related to reinsurance recoveries from its positive cash flows and the use of available short-term funds when applicable. However, there can be no assurances that we will be able to continue to adequately manage such recoveries in the future or that collection disputes or reinsurer insolvencies will not arise that could materially increase the collection time lags or result in recoverable write-offs causing additional incurred losses and liquidity constraints to the Company. The payment of gross claims and related collections from reinsurers with respect to large losses could significantly impact our liquidity needs. However, we expect to collect our paid reinsurance recoverables generally under the terms described above.

50

Investments

As of September 30, 2011, the weighted average rating of our fixed maturity investments was “AA” by S&P and “Aa” by Moody’s. The entire fixed maturity investment portfolio, except for investments with a fair value of $22.5 million, consists of investment grade bonds. As of September 30, 2011, our portfolio had a duration of 3.6 years. Management periodically projects cash flow of the investment portfolio and other sources in order to maintain the appropriate levels of liquidity in an effort to ensure our ability to satisfy claims. As of September 30, 2011 and December 31, 2010, all fixed maturity securities and equity securities held by us were classified as available-for-sale.

The following tables set forth our cash and investments as of September 30, 2011 and December 31, 2010:

		September 30,		September 30,		September 30,			September 30,		September 30,
	As of September 30, 2011
In thousands	Fair Value		Gross Unrealized Gains		Gross Unrealized Losses			Amortized Cost		OTTI Recognized in OCI
Fixed-maturities:
U.S. Government Treasury bonds, agency bonds, and foreign government bonds	$	301,757	$	8,656	$	(487	)	$	293,588	$	—
States, municipalities and political subdivisions		386,167		23,394		(195	)		362,968		—
Mortgage-backed and asset-backed securities:
Agency mortgage-backed securities		377,465		16,932		(20	)		360,553		—
Residential mortgage obligations		24,525		30		(2,232	)		26,727		(1,260	)
Asset-backed securities		49,915		779		(86	)		49,222		—
Commerical mortgage-backed securities		215,033		6,673		(909	)		209,269		—
Subtotal	$	666,938	$	24,414	$	(3,247	)	$	645,771	$	(1,260	)
Corporate bonds		473,111		15,008		(7,998	)		466,101		—
Total fixed-maturities	$	1,827,973	$	71,472	$	(11,927	)	$	1,768,428	$	(1,260	)
Equity securities - common stocks		147,794		18,597		(4,419	)		133,616		—
Cash		58,935		—		—			58,935		—
Short-term investments		159,549		—		—			159,549		—
Total	$	2,194,251	$	90,069	$	(16,346	)	$	2,120,528	$	(1,260	)
	As of December 31, 2010
In thousands	Fair Value		Gross Unrealized Gains		Gross Unrealized Losses			Amortized Cost		OTTI Recognized in OCI
Fixed-maturities:
U.S. Government Treasury bonds, agency bonds, and foreign government bonds	$	324,145	$	5,229	$	(4,499	)	$	323,415	$	—
States, municipalities and political subdivisions		392,250		11,903		(3,805	)		384,152		—
Mortgage-backed and asset-backed securities:
Agency mortgage-backed securities		382,628		10,127		(2,434	)		374,935		—
Residential mortgage obligations		20,463		24		(2,393	)		22,832		(1,646	)
Asset-backed securities		46,093		247		(292	)		46,138		—
Commerical mortgage-backed securities		190,015		4,804		(1,794	)		187,005		—
Subtotal	$	639,199	$	15,202	$	(6,913	)	$	630,910	$	(1,646	)
Corporate bonds		526,651		15,075		(5,545	)		517,121		—
Total fixed-maturities	$	1,882,245	$	47,409	$	(20,762	)	$	1,855,598	$	(1,646	)
Equity securities - common stocks		87,258		22,475		(10	)		64,793		—
Cash		31,768		—		—			31,768		—
Short-term investments		153,057		—		—			153,057		—
Total	$	2,154,328	$	69,884	$	(20,772	)	$	2,105,216	$	(1,646	)

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Invested assets increased in the nine months of 2011 primarily due to increased valuations of the investment portfolio. The annualized pre-tax yields of our investment portfolio, excluding net realized gains and losses and net OTTI losses recognized in earnings, was 3.1% and 3.2% for the three and nine months ended September 30, 2011 compared to 3.4% and 3.5% for the three and nine months ended September 30, 2010, respectively.

The tax exempt securities portion of our investment portfolio decreased $27.6 million to approximately 19.0% of the fixed maturities investment portfolio as of September 30, 2011 compared to September 30, 2010. As a result, the effective tax rate on net investment income was 28.6% for the three and nine months ended September 30, 2011 compared to 28.4% and 26.7% for the comparable 2010 periods.

The contractual maturity dates for fixed maturity securities categorized by the number of years until maturity as of September 30, 2011 are shown in the following table:

		September 30,		September 30,
	As of September 30, 2011
In thousands	Fair Value		Amortized Cost
Due in one year or less	$	86,286	$	85,378
Due after one year through five years		516,118		506,889
Due after five years through ten years		353,019		335,229
Due after ten years		205,612		195,161
Mortgage- and asset-backed securities		666,938		645,771
Total	$	1,827,973	$	1,768,428

The following table sets forth our U.S. Treasury bonds, Agency bonds, and Foreign government bonds as of September 30, 2011 and December 31, 2010:

		September 30,		September 30,		September 30,			September 30,
	As of September 30, 2011
In thousands	Fair Value		Gross Unrealized Gains		Gross Unrealized Losses			Amortized Cost
U.S. Treasury bonds	$	100,933	$	5,251	$	(3	)	$	95,685
Agency bonds		132,380		2,529		(159	)		130,010
Foreign government bonds		68,444		876		(325	)		67,893
Total	$	301,757	$	8,656	$	(487	)	$	293,588
	As of December 31, 2010
In thousands	Fair Value		Gross Unrealized Gains		Gross Unrealized Losses			Amortized Cost
U.S. Treasury bonds	$	213,544	$	3,552	$	(3,554	)	$	213,546
Agency bonds		77,229		1,311		(604	)		76,522
Foreign government bonds		33,372		366		(341	)		33,347
Total	$	324,145	$	5,229	$	(4,499	)	$	323,415

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The following table sets forth the fifteen largest holdings categorized as states, municipalities and political subdivisions by counterparty as of September 30, 2011:

		September 30,		September 30,		September 30,	September 30,
			Unrealized
			Gains
In thousands	Fair Value		(Losses)		Book Value		S&P Rating
University of Pittsburgh	$	14,609	$	1,276	$	13,333	AA
New York City Transitional Finance Authority		9,062		855		8,207	AA+
Illinois Finance Authority		8,075		115		7,960	A-
New York State Dormitory Authority		7,603		365		7,238	AA-
Missouri Highway and Transportation Comm		7,181		576		6,605	AA+
Virginia College Building Authority		6,925		648		6,277	AA+
Delaware Transportation Authority		6,918		684		6,234	AA
City of Houston, TX		6,772		140		6,632	A+
State of California		6,361		298		6,063	A-
Energy Northwest		6,197		264		5,933	AA-
Pennsylvania Turnpike Commission		6,196		194		6,002	A+
New York State Thruway Authority		6,123		605		5,518	AA
New York State Environmental Facilities Corp		5,882		477		5,405	AA+
New Mexico Finance Authority		5,560		281		5,279	AA+
Minnesota Public Facilities Authority		5,348		595		4,753	AAA
Subtotal		108,812		7,373		101,439
All Other		277,355		15,826		261,529
Total	$	386,167	$	23,199	$	362,968

The following table sets forth the composition of the investments categorized as states, municipalities and political subdivisions in our portfolio by generally equivalent Standard & Poor’s Rating Services (“S&P”) and Moody’s Investors Service (“Moody’s”) ratings (not all securities in our portfolio are rated by both S&P and Moody’s) as of September 30, 2011. The securities that are not rated in the table below are primarily state bonds.

	September 30,		September 30,		September 30,		September 30,
In thousands
	Equivalent					Net
	Moody’s					Unrealized
Equivalent S&P Rating	Rating	Fair Value		Book Value		Gain (Loss)
AAA/AA/A	Aaa/Aa/A	$	364,259	$	341,373	$	22,886
BBB	Baa		16,978		16,683		295
BB	Ba		—		—		—
B	B		—		—		—
CCC or lower	Caa or lower		—		—		—
NR	NR		4,930		4,912		18
		$	386,167	$	362,968	$	23,199

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The following table sets forth the municipal bond holdings by sectors as of September 30, 2011 and December 31, 2010:

		September 30,		September 30,			September 30,		September 30,
	As of September 30, 2011					As of December 31, 2010
In thousands	Fair Value		Percent of Total			Fair Value		Percent of Total
Municipal Sector:
General obligation		16,026		4	%		13,249		3	%
Prerefunded		17,815		5	%		14,122		4	%
Revenue		314,051		81	%		313,166		80	%
Taxable		38,275		10	%		51,713		13	%
		386,167		100	%		392,250		100	%

We own $138.0 million of municipal securities which are credit enhanced by various financial guarantors. As of September 30, 2011, the average underlying credit rating for these securities is A+. There has been no material adverse impact to our investment portfolio or results of operations as a result of downgrades of the credit ratings for several of the financial guarantors.

We analyze our mortgage-backed and asset-backed securities by credit quality of the underlying collateral distinguishing between the securities issued by the Federal National Mortgage Association (“FNMA”) and the Federal Home Loan Mortgage Corporation (“FHLMC”) which are Federal government sponsored entities, and the non-FNMA and non-FHLMC securities broken out by prime, Alternative A-paper (“Alt-A”) and subprime collateral. The securities issued by FNMA and FHLMC are the obligations of each respective entity. Legislation has provided for guarantees by the U.S. Government of up to $100 billion each for FNMA and FHLMC.

Prime collateral consists of mortgages or other collateral from the most creditworthy borrowers. Alt-A collateral consists of mortgages or other collateral from borrowers which have a risk potential that is greater than prime but less than subprime. The subprime collateral consists of mortgages or other collateral from borrowers with low credit ratings. Such subprime and Alt-A categories are as defined by S&P.

The following table sets forth our agency mortgage-backed securities and residential mortgage obligations by those issued by the Government National Mortgage Association (“GNMA”), FNMA, FHLMC, and the quality category (prime, Alt-A and subprime) for all other such investments as of September 30, 2011:

		September 30,		September 30,		September 30,			September 30,
	As of September 30, 2011
In thousands	Fair Value		Gross Unrealized Gains		Gross Unrealized Losses			Amortized Cost
Agency mortgage-backed securities:
GNMA	$	121,051	$	6,773	$	—		$	114,278
FNMA		184,047		7,971		(20	)		176,096
FHLMC		72,367		2,188		—			70,179
Total agency mortgage-backed securities	$	377,465	$	16,932	$	(20	)	$	360,553
Residential mortgage-backed securities :
Prime	$	13,925	$	30	$	(1,740	)	$	15,635
Alt-A		2,106		—		(467	)		2,573
Subprime		—		—		—			—
Non-US RMBS		8,494		—		(25	)		8,519
Total residential mortgage-backed securities	$	24,525	$	30	$	(2,232	)	$	26,727

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The following table sets forth the fifteen largest residential mortgage obligations as of September 30, 2011:

		September 30,		September 30,		September 30,		September 30,		September 30,	September 30,
In thousands	Issue Date		Fair Value		Book Value		Gross Unrealized Losses			S&P Rating	Moody’s Rating
Fosse Master Issuer Plc 11-1A A2		2011	$	4,499	$	4,500	$	(1	)	AAA	Aaa
Arkle Master Issuer Plc 10-2A 1A1		2010		2,485		2,500		(15	)	AAA	Aaa
GSR Mortgage Loan Trust 05-Ar6 1A1		2005		1,068		1,121		(53	)	AAA	NR
Arran Residential Mortgages Fu 11-1A A1C		2011		791		792		(1	)	NR	Aaa
Wells Fargo Mtg Bkd Secs Tr 05 Ar4 2A2		2005		752		776		(24	)	NR	Ba2
Permanent Master Issuer Plc 11-1A 1A1		2011		600		600		0		AAA	Aaa
Citigroup Mtg Ln Tr Inc 04 Hyb3 1A		2004		531		548		(17	)	AA-	A3
Bear Stearns Adjustable Rate 06 1 A1		2006		508		593		(85	)	NR	B2
JP Morgan Mortgage Trust 06 A4 1A1		2006		504		539		(35	)	NR	Caa2
First Horizon Mtg Pass-Th 05 Ar4 2A		2005		490		467		23		CC	NR
Wells Fargo Mtg Bkd Secs Tr 06 Ar6 3A		2006		480		541		(61	)	NR	B3
JP Morgan Mortgage Trust 07-A3 1A1		2007		469		519		(50	)	CCC	NR
Banc of America Fdg Corp 05 F 4A1		2005		456		546		(90	)	CCC	Caa2
GSR Mortgage Loan Trust 06 AR1 2A1		2006		452		565		(113	)	CC	NR
Mortgageit Trust 05 1 2A		2005		450		530		(80	)	AAA	Ba3
Subtotal				14,535		15,137		(602	)
All Other				9,990		11,590		(1,600	)
Total			$	24,525	$	26,727	$	(2,202	)

Details of the collateral of our asset-backed securities portfolio as of September 30, 2011 are presented below:

		September 30,		September 30,		September 30,		September 30,		September 30,		September 30,		September 30,		September 30,		September 30,
In thousands	AAA		AA		A		BBB		BB		CCC		Fair Value		Amortized Cost		Unrealized Gain (Loss)
Auto loans	$	—	$	5,787	$	3,778	$	—	$	—	$	—	$	9,565	$	9,376	$	189
Credit cards		12,814		—		—		—		—		—		12,814		12,566		248
Miscellaneous		8,446		1,695		17,393		—		—		2	$	27,536		27,280		256
Total	$	21,260	$	7,482	$	21,171	$	—	$	—	$	2	$	49,915	$	49,222	$	693

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The commercial mortgage-backed securities are all rated investment grade by S&P or Moody’s. The following table sets forth the fifteen largest commercial mortgage backed securities as of September 30, 2011:

		September 30,		September 30,		September 30,		September 30,			September 30,			September 30,		September 30,	September 30,
In thousands	Issue Date		Fair Value		Book Value		Average Underlying LTV %			Delin- quency Rate			Subord- ination Level			S&P Rating	Moody’s Rating
Morgan Stanley Cap I 06 IQ12 A4		2006	$	22,453	$	22,448		75.18	%		9.08	%		29.60	%	AAA	NR
Wachovia Bk Comm Mtg Tr 06 C23 A4		2006		15,294		15,343		77.33	%		6.41	%		33.34	%	AA-	Aaa
Banc Of America Comm Mtg 06 2 A4		2006		12,055		11,904		76.34	%		11.59	%		30.79	%	AAA	NR
GSMS 2010-C1 A2		2010		8,291		8,256		53.38	%		0.00	%		18.82	%	NR	Aaa
Wachovia Bk Comm Mtg Tr 05 C18 A4		2006		7,619		7,025		39.40	%		0.00	%		8.12	%	AAA	Aa1
Four Times Square Tr 06-4TS A		2006		7,573		7,131		65.71	%		0.00	%		52.76	%	NR	Aa1
Citigroup Comm Mtg Tr 06 C5 A4		2005		7,548		6,898		77.62	%		9.63	%		35.31	%	AAA	Aaa
Credit Suisse Mortgage Capital 06-Oma B2		2006		7,343		6,947		77.23	%		10.62	%		29.63	%	NR	Aaa
LB-UBS Comm Mtg Tr 06 C7 A3		2006		6,654		6,321		74.98	%		14.21	%		31.16	%	AAA	NR
GS Mortgage Securities Corp 10-C1 B		2006		5,731		5,727		66.24	%		9.01	%		32.90	%	AAA	Aaa
LB-UBS Comm Mtg Tr 06 C6 A4		2010		5,684		6,163		53.38	%		0.00	%		15.26	%	NR	Aa2
Bear Stearns Comm Mtg Secs 06 T22 A4		2006		5,442		4,900		58.59	%		1.88	%		33.51	%	NR	Aaa
Morgan Stanley Capital I 06 Hq10 A4		2006		4,836		4,715		73.01	%		12.19	%		31.26	%	NR	Aaa
Banc of America Re-Remic Trust 11-07C1 A		2011		4,775		4,806		99.48	%		20.70	%		49.52	%	NR	Aaa
Citigroup/Deutsche Bk Comm Mtg 05 CD1 A4		2005		4,557		4,220		75.18	%		8.34	%		32.26	%	AAA	Aaa
Subtotal				125,855		122,804
All Other				89,178		86,465
Total			$	215,033	$	209,269

The following table shows the amount and percentage of our fixed maturities as of September 30, 2011 by S&P credit rating or, if an S&P rating is not available, the equivalent Moody’s rating. The table includes fixed maturities at fair value, and the total rating is the weighted average quality rating.

	September 30,		September 30,		September 30,
In thousands	Rating	Fair Value		Percent of Total
Rating description:
Extremely strong	AAA	$	287,122		49	%
Very strong	AA		983,095		19	%
Strong	A		410,140		25	%
Adequate	BBB		125,126		6	%
Speculative	BB & Below		12,705		1	%
Not rated	NR		9,785		0	%
Total		$	1,827,973		100	%

56

The following is a list of the top fifteen corporate bond holdings for fixed maturities at fair value as of September 30, 2011. All such fixed maturities are rated investment grade by S&P and Moody’s. These holdings represent direct obligations of the issuer or its subsidiaries and exclude any government guaranteed or government sponsored organizations, securitized, credit enhanced or collateralized asset-backed or mortgage-backed securities.

		September 30,		September 30,			September 30,	September 30,
In thousands	Fair Value		Net Unrealized Gains (Losses)			Cost or Amortized Cost		S&P Rating
General Electric	$	29,465	$	1,550		$	27,915	AA
Bank of America Corp.		23,212		(1,816	)		25,028	BBB+
Morgan Stanley		18,501		(1,404	)		19,905	A
Wells Fargo & Co		17,983		291			17,692	A
Goldman Sach Group Inc.		17,709		(387	)		18,096	A
J.P. Morgan Chase & Co.		16,635		101			16,534	A+
Baker Hughes Inc.		11,499		1,200			10,299	A
Woolworths LTD		10,906		271			10,635	A-
HSBC Holdings PLC		10,566		(285	)		10,851	AA-
Transcanada Corp.		10,493		1,135			9,358	A-
BNP Paribas		9,513		(358	)		9,871	AA+
Target Corp.		8,954		595			8,359	A-
Lloyds Banking Group PLC		8,646		(285	)		8,931	A+
Citigroup Inc.		7,865		79			7,786	A-
Credit Suisse Group AG		7,034		(219	)		7,253	A+
Subtotal		208,981		468			208,513
All Other		264,130		6,542			257,588
Total	$	473,111	$	7,010		$	466,101

The following table sets forth the fifteen largest equity securities holdings as of September 30, 2011:

		September 30,		September 30,			September 30,
In thousands	Fair Value		Net Unrealized Gains (Losses)			Cost or Amortized Cost
Vanguard High Dividend Yield Index	$	26,332	$	134		$	26,198
Vanguard International Index		13,872		(1,128	)		15,000
Vanguard Emerging Market Stock Index		12,833		61			12,772
Vanguard Total Stock Market Index		5,131		1,414			3,717
Vanguard Pacific Stock Index		4,148		799			3,349
Vanguard European Stock Index		3,601		576			3,025
Altria Group Inc.		2,949		891			2,058
Conocophillips		2,850		688			2,162
Johnson & Johnson		2,835		187			2,648
Philip Morris International Inc.		2,807		728			2,079
Kimberly-Clark Corp		2,741		670			2,071
Dominion Resources Inc.		2,722		422			2,300
Unilever NV		2,669		640			2,029
Ameren Corp		2,639		319			2,320
Intel Corp		2,588		116			2,472
Subtotal		90,717		6,517			84,200
All Other		57,077		7,661			49,416
Total	$	147,794	$	14,178		$	133,616

57

The following table summarizes all securities in a gross unrealized loss position as of September 30, 2011 and December 31, 2010, showing the aggregate fair value and gross unrealized loss by the length of time those securities had continuously been in a gross unrealized loss position as well as the number of securities:

		September 30,		September 30,		September 30,		September 30,		September 30,		September 30,
	As of September 30, 2011						As of December 31, 2010
In thousands except # of securities	Number of Securities		Fair Value		Gross Unrealized Loss		Number of Securities		Fair Value		Gross Unrealized Loss
Fixed maturities:
U.S. Government Treasury bonds, agency bonds, and foreign government bonds
0-6 months		8	$	80,840	$	230		36	$	163,253	$	4,499
7-12 months		2		6,916		257		—		—		—
> 12 months		—		—		—		—		—		—
Subtotal		10	$	87,756	$	487		36	$	163,253	$	4,499
States, municipalities and political subdivisions
0-6 months		7	$	6,133	$	26		57	$	112,291	$	3,749
7-12 months		4		8,809		131		1		1,004		20
> 12 months		5		3,196		38		4		1,317		36
Subtotal		16	$	18,138	$	195		62	$	114,612	$	3,805
Agency mortgage-backed securities
0-6 months		4	$	8,049	$	20		36	$	139,226	$	2,434
7-12 months		—		—		—		—		—		—
> 12 months		—		—		—		—		—		—
Subtotal		4	$	8,049	$	20		36	$	139,226	$	2,434
Residential mortgage obligations
0-6 months		7	$	9,407	$	124		3	$	3,215	$	20
7-12 months		3		1,520		111		—		—		—
> 12 months		47		11,716		1,997		52		15,939		2,373
Subtotal		57	$	22,643	$	2,232		55	$	19,154	$	2,393
Asset-backed securities
0-6 months		7	$	14,216	$	86		7	$	28,175	$	292
7-12 months		—		—		—		—		—		—
> 12 months		1		2		—		1		2		—
Subtotal		8	$	14,218	$	86		8	$	28,177	$	292
Commercial mortgage-backed securities
0-6 months		23	$	53,115	$	772		16	$	78,212	$	1,755
7-12 months		6		7,078		120		—		—		—
> 12 months		1		220		17		2		491		39
Subtotal		30	$	60,413	$	909		18	$	78,703	$	1,794
Corporate bonds
0- 6 months		81	$	168,290	$	6,819		98	$	214,180	$	5,545
7-12 months		15		22,737		1,179		—		—		—
> 12 months		—		—		—		—		—		—
Subtotal		96	$	191,027	$	7,998		98	$	214,180	$	5,545
Total fixed maturities		221	$	402,244	$	11,927		313	$	757,305	$	20,762
Equity securities - common stocks
0-6 months		25	$	59,039	$	4,419		1	$	322	$	10
7-12 months		—		—		—		—		—		—
> 12 months		—		—		—		—		—		—
Total equity securities		25	$	59,039	$	4,419		1	$	322	$	10

58

We analyze the unrealized losses quarterly to determine if any are other-than-temporary. The above unrealized losses have been determined to be temporary based on our policies. SeeCritical Accounting Estimates - Impairment of Invested Assets in our 2010 Annual Report on Form 10-K for additional information on our policies.

To determine whether the unrealized loss on structured securities is other-than-temporary, we project an expected principal loss under a range of scenarios and utilize the most likely outcomes. The analysis relies on actual collateral performance measures such as default rate, prepayment rate and loss severity. These assumptions are applied throughout the remaining term of the deal, incorporating the transaction structure and priority of payments, to generate loss adjusted cash flows. Results of the analysis will indicate whether the security ultimately incurs a loss or whether there is a material impact on yield due to either a projected loss or a change in cash flow timing. A break even default rate is also calculated. A comparison of the break even default rate to the actual default rate provides an indication of the level of cushion or coverage to the first dollar principal loss. The analysis applies the stated assumptions throughout the remaining term of the transaction to forecast cash flows, which are then applied through the transaction structure to determine whether there is a loss to the security. For securities in which a tranche loss is present, and the net present value of loss adjusted cash flows is less than book value, an impairment is recognized. The output data also includes a number of additional metrics such as average life remaining, original and current credit support, over 60 day delinquency and security rating.

As of September 30, 2011, the largest single unrealized loss by issuer in the fixed maturities was $1.8 million.

The following table summarizes the gross unrealized investment losses by length of time where the fair value is less than 80% of amortized cost as of September 30, 2011.

		September 30,		September 30,		September 30,
	As of September 30, 2011
In thousands	Fixed Maturities		Equity Securities		Total
Less than three months	$	—	$	122	$	122
Longer than three months and less than six months		109		370		479
Longer than six months and less than twelve months		—		—		—
Longer than twelve months		486		—		486
Total	$	595	$	492	$	1,087

The fair value of our investment portfolio may fluctuate significantly in response to various factors such as changes in interest rates, investment quality ratings, equity prices, foreign exchange rates and credit spreads. We do not have the intent to sell nor is it more likely than not that we will have to sell debt securities in unrealized loss positions that are not other-than-temporarily impaired before recovery. We may realize investment losses to the extent our liquidity needs require the disposition of fixed maturity securities in unfavorable interest rate, liquidity or credit spread environments. Significant changes in the factors we consider when evaluating investment for impairment losses could result in a significant change in impairment losses reported in the consolidated financial statements.

The following table shows the S&P ratings and equivalent Moody’s ratings of the fixed maturity securities in our portfolio with gross unrealized losses as of September 30, 2011. Not all of the securities are rated by S&P and/or Moody’s.

	September 30,	September 30,		September 30,		September 30,			September 30,		September 30,
In thousands
			Gross Unrealized Loss					Fair Value
NAIC Rating	Equivalent S&P Rating	Equivalent Moody’s Rating	Amount		Percent of Total			Amount		Percent of Total
1	AAA/AA/A	Aaa/Aa/A	$	6,480		54	%	$	330,089		82	%
2	BBB	Baa		3,558		30	%		59,285		15	%
3	BB	Ba		258		2	%		1,777		0	%
4	B	B		559		5	%		3,239		1	%
5	CCC or lower	Caa or lower		1,035		9	%		6,516		2	%
6	NR	NR		37		0	%		1,338		0	%
			$	11,927		100	%	$	402,244		100	%

59

As of September 30, 2011, the gross unrealized losses in the table directly above were related to fixed maturity securities that are rated investment grade, which is defined as a security having an S&P rating of “BBB–” or higher, or a Moody’s rating of “Baa3” or higher, except for $1.9 million which is rated below investment grade. Unrealized losses on investment grade securities principally relate to changes in interest rates or changes in sector-related credit spreads since the securities were acquired.

The contractual maturity by the number of years until maturity for fixed maturity securities with unrealized losses as of September 30, 2011 is shown in the following table:

		September 30,		September 30,			September 30,		September 30,
	As of September 30, 2011
	Gross Unrealized Losses					Fair Value
In thousands	Amount		Percent of Total			Amount		Percent of Total
Due in one year or less	$	3		0	%	$	4,509		1	%
Due after one year through five years		5,229		44	%		204,736		51	%
Due after five years through ten years		2,592		22	%		57,144		14	%
Due after ten years		856		7	%		30,532		8	%
Mortgage- and asset-backed securities		3,247		27	%		105,323		26	%
Total	$	11,927		100	%	$	402,244		100	%

Expected maturities may differ from contractual maturities because issuers may have the right to call or prepay obligations with or without call or prepayment penalties. Due to the periodic repayment of principal, the aggregate amount of mortgage-backed and asset-backed securities is estimated to have an effective maturity of approximately 3.8 years.

60

The table below summarizes our activity related to OTTI losses for the periods indicated:

		September 30,		September 30,		September 30,		September 30,		September 30,		September 30,		September 30,		September 30,
	Three Months Ended September 30,								Nine Months Ended September 30,
	2011				2010				2011				2010
In thousands except # of securities	Number of Securities		Amount		Number of Securities		Amount		Number of Securities		Amount		Number of Securities		Amount
Total other than temporary impairment losses:
Corporate and other bonds		—	$	—		—	$	—		—	$	—		—	$	—
Commercial mortgage-backed securities		—		—		—		—		—		—		—		—
Residential mortgage-backed securities		10		1,241		10		674		15		1,791		12		1,387
Asset-backed securities		—		—		—		—		—		—		—		—
Equities		—		—		1		360		1		547		2		387
Total		10	$	1,241		11	$	1,034		16	$	2,338		14	$	1,774
Portion of loss in accumulated other comprehensive income (loss):
Corporate and other bonds			$	—			$	—			$	—			$	—
Commercial mortgage-backed securities				—				—				—				—
Residential mortgage-backed securities				618				365				941				870
Asset-backed securities				—				—				—				—
Equities				—				—				—				—
Total			$	618			$	365			$	941			$	870
Impairment losses recognized in earnings
Corporate and other bonds			$	—			$	—			$	—			$	—
Commercial mortgage-backed securities				—				—				—				—
Residential mortgage-backed securities				623				309				850				517
Asset-backed securities				—				—				—				—
Equities				—				360				547				387
Total			$	623			$	669			$	1,397			$	904

During the three and nine months ended September 30, 2011, we recognized in earnings OTTI losses of $0.6 million and $1.4 million related to non-agency mortgage-backed securities and one equity security. During the comparable periods in 2010, we recognized in earnings OTTI losses of $0.7 million and $0.9 million, respectively, related to residential mortgage-backed securities and equity securities. The significant inputs used to measure the amount of credit loss recognized in earnings were actual delinquency rates, default probability assumptions, severity assumptions and prepayment assumptions. Projected losses are a function of both loss severity and probability of default. Default probability and severity assumptions differ based on property type, vintage and the stress of the collateral. We do not intend to sell any of these securities and it is more likely than not that we will not be required to sell these securities before the recovery of the amortized cost basis.

61

Item 3. Quantitative and Qualitative Disclosures about Market Risk

The following updates our disclosure regarding foreign currency exchange rate risk as previously stated in the Company’s 2010 Annual Report on Form 10-K.

FOREIGN CURRENCY EXCHANGE RATE RISK

Our Lloyd’s Operations are exposed to foreign currency exchange rate risk primarily related to foreign-denominated cash, cash equivalents and marketable securities (“foreign funds”), premiums receivable, reinsurance recoverables on paid and unpaid losses and loss adjustment expenses as well as reserves for losses and loss adjustment expenses. The principal currencies creating foreign currency exchange risk for the Lloyd’s Operations are the British pound, the Euro and the Canadian dollar. The Lloyd’s Operations manages its foreign currency exchange rate risk primarily through asset-liability matching.

Based on the primary foreign-denominated balances within the Lloyd’s Operations as of September 30, 2011, an assumed 5%, 10% and 15% negative currency movement would result in changes as follows:

		September 30,		September 30,			September 30,			September 30,
	As of September 30, 2011
			Negative Currency Movement of
In thousands	USD Equivalent		5%			10%			15%
Cash, cash equivalents and marketable securities at fair value	$	86.3	$	(4.3	)	$	(8.6	)	$	(12.9	)
Premiums receivable	$	23.6	$	(1.2	)	$	(2.4	)	$	(3.5	)
Reinsurance recoverables on paid, unpaid losses and LAE	$	63.6	$	(3.2	)	$	(6.4	)	$	(9.5	)
Reserves for losses and loss adjustment expenses	$	165.0	$	8.3		$	16.5		$	24.8

Item 4. Controls and Procedures

(a) The Chief Executive Officer and Chief Financial Officer of the Company have evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)), as of the end of the period covered by this quarterly report. Based on such evaluation, such officers have concluded that as of the end of such period the Company’s disclosure controls and procedures are effective in identifying, on a timely basis, material information required to be disclosed in our reports filed or submitted under the Exchange Act.

(b) There have been no changes during our first fiscal quarter in our internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

62

Part II - Other Information

Item 1. Legal Proceedings

In the ordinary course of conducting business, our subsidiaries are involved in various legal proceedings, either indirectly as insurers for parties or directly as defendants. Most of the these proceedings are claims litigation involving our subsidiaries as either (a) liability insurers defending or providing indemnity for third party claims brought against insureds or (b) insurers defending first party coverage claims brought against them. We account for such activity through the establishment of unpaid loss and loss adjustment reserves. Our management believes that the ultimate liability, if any, with respect to such ordinary-course claims litigation, after consideration of provisions made for potential losses and cost of defense, will not be material to our consolidated financial condition, results of operations, or cash flows.

Our subsidiaries are also from time-to-time involved with other legal actions, some of which assert claims for substantial amounts. These actions include claims asserting extra contractual obligations, such as claims involving allegations of bad faith in the handling of claims or the underwriting of policies. In general, we believe we have valid defenses to these cases. Our management expects that the ultimate liability if any, with respect to such extra-contractual matters will not be material to our consolidated financial position. Nonetheless, given the large or indeterminate amounts sought in certain of these matters, and the inherent unpredictability of litigation, an adverse outcome in such matters could, from time-to-time, have a material adverse outcome on our consolidated results of operations or cash flows in a particular fiscal quarter or year.

In October 2010, Equitas represented by Resolute Management Services Limited (“Resolute”) commenced a lawsuit in the Supreme Court of the State of New York (the “Court Proceeding”) and a separate arbitration proceeding (the “Arbitration” and collectively with the Court Proceeding, the “Resolute Proceedings”) against Navigators Management Company (“NMC”) Inc., a wholly-owned subsidiary of the Company. The arbitration demand and complaint in the Resolute Proceedings allege that NMC failed to make timely payments to Resolute under certain reinsurance agreements in connection with subrogation recoveries received by NMC with respect to several catastrophe losses that occurred in the late 1980’s and early 1990’s. Resolute alleges that it suffered damages of approximately $7.5 million as a result of the alleged delays in payment. The relative proportion of total damages sought in the Court Proceeding and Arbitration are approximately 55% and 45%, respectively. The Company believes that the claims of Resolute are without merit and it intends to vigorously contest the claims.

On October 25, 2011, an order was issued in the Court Proceeding denying NMC’s motion for summary judgment and granting Resolute’s cross-motion for summary judgment (the “October 25^th Order”). The October 25^th Order found that NMC had breached its obligations under the reinsurance agreements at issue in the Court Proceeding and further found that Resolute was entitled to damages for unpaid interest at the statutory rate of 9%. The Court ordered the parties to meet and confer for purposes of determining the amount of damages to be awarded. As of November 4, 2011, the parties had not reached an agreement as to the amount of damages. Navigators disagrees with the October 25^th Order and intends to challenge the Order. The Arbitration is in the discovery phase and involves contracts and/or factual situations that are distinct from those in the Court Proceeding. Navigators intends to continue to vigorously contest the claims in the Arbitration.

While it is too early to predict with any certainty the ultimate outcome of the Resolute Proceedings, the Company believes that the ultimate outcome would not be expected to have a significant adverse effect on its results of operations, financial condition or liquidity, although an adverse resolution of the Resolute Proceedings could have a material adverse effect on the Company’s results of operations in a particular fiscal quarter or year.

Item 1A. Risk Factors

There have been no material changes from the risk factors as previously disclosed in the Company’s 2010 Annual Report on Form 10-K.

63

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

In May 2011, the Parent Company’s Board of Directors authorized an additional $50 million under the existing share repurchase program of the Company’s common stock which increased the size of the program to $150 million. This repurchase program was initially authorized in November 2009. Purchases are permitted from time to time at prevailing prices in open market or privately negotiated transactions through December 31, 2011. The timing and amount of purchases under the program depend on a variety of factors, including the trading price of the stock, market conditions and corporate and regulatory considerations.

The following presents our share repurchases under the current program for the periods indicated:

		September 30,		September 30,		September 30,		September 30,
In thousands, except share and per share amounts	Total Number of Shares Purchased		Average Cost Paid Per Share		Number of Shares Purchased Under Publicly Announced Program		Dollar Value of Shares that May Yet Be Purchased Under the Program
January 2011		—	$	—		—	$	40,900
February 2011		28,835		52.24		28,835		39,397
March 2011		227,259		50.79		227,259		27,848
Subtotal first quarter		256,094		50.96		256,094
April 2011		131,469		51.51		131,469		21,076
May 2011		143,443		46.12		143,443		14,461
June 2011		322,114		46.58		322,114		49,459
Subtotal second quarter		597,026		47.55		597,026
July 2011		82,567		48.00		82,567		45,495
August 2011		291,415		41.27		291,415		33,469
September 2011		375,094		43.31		375,094		17,224
Subtotal third quarter		749,076		43.03		749,076
Total 2011 activity		1,602,196				1,602,196

��

Item 3. Defaults Upon Senior Securities

None

Item 5.Other Information

None

64

Item 6. Exhibits

Exhibit No.	Description of Exhibit
10-1	Retirement Agreement with Francis W. McDonnell	*
11-1	Computation of Per Share Earnings	*
31-1	Certification of CEO per Section 302 of the Sarbanes-Oxley Act	*
31-2	Certification of CFO per Section 302 of the Sarbanes-Oxley Act	*
32-1	Certification of CEO per Section 906 of the Sarbanes-Oxley Act	*
	(This exhibit is intended to be furnished in accordance with
	Regulation S-K item 601(b)(32)(ii) and shall not be deemed to be
	filed for purposes of section 18 of the Securities Exchange Act of
	1934, as amended, or incorporated by reference into any filing
	under the Securities Act of 1933, except as shall be expressly set
	forth by specific reference).
32-2	Certification of CFO per Section 906 of the Sarbanes-Oxley Act	*
	(This exhibit is intended to be furnished in accordance with
	Regulation S-K item 601(b)(32)(ii) and shall not be deemed to be
	filed for purposes of section 18 of the Securities Exchange Act of
	1934, as amended, or incorporated by reference into any filing
	under the Securities Act of 1933, except as shall be expressly set
	forth by specific reference).
101.INS	XBRL Instance Document	*
101.SCH	XBRL Taxonomy Extension Scheme	*
101.CAL	XBRL Taxonomy Extension Calculation Database	*
101.LAB	XBRL Taxonomy Extension Label Linkbase	*
101.PRE	XBRL Taxonomy Extension Presentation Linkbase	*
101.DEF	XBRL Taxonomy Extension Definition Linkbase	*

* Included herein

65

SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	The Navigators Group, Inc. (Registrant)
Date: November 4, 2011	/s/    CIRO M. DEFALCO
	Ciro M. DeFalco
	Vice President and Treasurer

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INDEX OF EXHIBITS

Exhibit No.	Description of Exhibit
10-1	Retirement Agreement with Francis W. McDonnell	*
11-1	Computation of Per Share Earnings	*
31-1	Certification of CEO per Section 302 of the Sarbanes-Oxley Act	*
31-2	Certification of CFO per Section 302 of the Sarbanes-Oxley Act	*
32-1	Certification of CEO per Section 906 of the Sarbanes-Oxley Act	*
	(This exhibit is intended to be furnished in accordance with
	Regulation S-K item 601(b)(32)(ii) and shall not be deemed to be
	filed for purposes of section 18 of the Securities Exchange Act of
	1934, as amended, or incorporated by reference into any filing
	under the Securities Act of 1933, except as shall be expressly set
	forth by specific reference).
32-2	Certification of CFO per Section 906 of the Sarbanes-Oxley Act	*
	(This exhibit is intended to be furnished in accordance with
	Regulation S-K item 601(b)(32)(ii) and shall not be deemed to be
	filed for purposes of section 18 of the Securities Exchange Act of
	1934, as amended, or incorporated by reference into any filing
	under the Securities Act of 1933, except as shall be expressly set
	forth by specific reference).
101.INS	XBRL Instance Document	*
101.SCH	XBRL Taxonomy Extension Scheme	*
101.CAL	XBRL Taxonomy Extension Calculation Database	*
101.LAB	XBRL Taxonomy Extension Label Linkbase	*
101.PRE	XBRL Taxonomy Extension Presentation Linkbase	*
101.DEF	XBRL Taxonomy Extension Definition Linkbase	*

* Included herein

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