Navigators (NAVG) CORRESP Correspondence with SEC

VIA EDGAR

December 1, 2017

Securities and Exchange Commission

Division of Corporation Finance

Washington, D.C. 20549

Attn: Jim Rosenberg

Division of Corporation Finance

Office of Healthcare and Insurance

Re: The Navigators Group, Inc. (the “Company”)

Form 10-K for Fiscal Year Ended December 31, 2016

Filed February 17, 2017

File No. 000-15886

Dear Mr. Rosenberg:

This letter is in response to the Division of Corporation Finance’s comment letter dated November 17, 2017, in which you requested additional information based on your review of the Company’s Annual Report on Form 10-K for the year ended December 31, 2016 (the “2016 10-K”). For ease of reference, the comment included in your letter is repeated below in italicized type, and our response immediately follows the comment.

Notes to Consolidated Financial Statements

Note 5. Reserves for Losses and LAE

Supplemental Tables Related to Short Duration Contracts, page F-24

Please provide us an analysis of each of the business divisions (i.e. excess casualty, primary casualty, environmental and other P&C) within your U.S. Insurance – U.S. P&C operating segment to help us evaluate whether further disaggregation of the incurred and paid claims tables on page F-26 for this operating segment is necessary. We are concerned that the information for this operating segment in the tables is obscured by the aggregation of items with significantly different characteristics. Refer to ASC 944-40-50-4H. In your analysis, compare and contrast the characteristics of the business divisions as well as comparing and contrasting the characteristics of products within each division. In various places in your filing, you refer to short tail and long tail classes of business. To further help us with our evaluation, please provide us tables that aggregate the short tail classes of business separately from your long tail classes of business for your U.S. Insurance – U.S. P&C operating segment.

Response:

Guidance

ASC 944-40-50-4H requires aggregation or disaggregation of the disclosures outlined in paragraphs 944-40-50-4B through 50-4G and 944-40-50-5, which includes the incurred and paid tables, in a manner that allows the users to understand the amount, timing and uncertainty of cash flows arising from the liability for unpaid claims and claims adjustment expenses. The guidance goes on to state that an insurance entity should aggregate or disaggregate so that useful information is not obscured by either the inclusion of a large amount of insignificant detail or the aggregation of items that have significantly different characteristics.

Paragraph 944-40-55-9B explains that when selecting the type of category to use for aggregating or disaggregating disclosures, an insurance entity should consider how information about the entity’s liability for unpaid claims and claims adjustment expenses has been presented for other purposes, including:

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a. Disclosures presented outside the financial statements (for example, in earnings releases, annual reports, statutory filings, or investor presentations);

b. Information regularly viewed by the chief operating decision maker for evaluating financial performance; and

c. Other information that is similar to the types of information identified in (a) and (b) and that is used by the insurance entity or users of the insurance entity’s financial statements to evaluate the insurance entity’s financial performance or make resource allocation decisions.

Paragraph 944-40-55-9C provides examples of categories that might be appropriate including:

a. Type of coverage (for example, major product line);

b. Geography (for example, country or region);

c. Reportable segment as defined in Topic 280 on segment reporting;

d. Market or type of customer (for example, personal or commercial lines of business); and

e. Claim duration (for example, claims that have short settlement periods or claims that have long settlement periods).

When applying the guidance, an insurance entity should not aggregate amounts from different reportable segments.

We applied the above guidance when analyzing and preparing our disclosures for the 2016 10-K.

Analysis

When drafting the 2016 10-K, the Company held extensive internal discussions specifically to determine the most meaningful aggregation or disaggregation of our business appropriate for the short-duration contract disclosures.  We concluded that the presentation in Note 5 of the 2016 10-K, including the U.S. Insurance P&C operating segment, would provide an appropriate level of information that would be meaningful to the users of the financial statements to better understand the amount, timing, and uncertainty of cash flows arising from our liability for unpaid claims and claims adjustment expenses.

Specifically, the U.S. Insurance P&C operating segment is comprised of our excess casualty, primary casualty, environmental and other P&C divisions. Details as regards each of these divisions are as follows:

Primary Casualty business is comprised of General Liability coverage, which is long tail in nature, provided principally through wholesale insurance brokers for specialty risks, a large segment of which is construction related risks.  The Company has retained net limits on Primary Casualty of up to $2 Million on each account.

Excess Casualty business is comprised of General Liability coverage, which is long tail in nature, provided principally through wholesale insurance brokers for specialty risks, a large segment of which is construction related risks.  The Company retains $7 Million or less on seventy five percent of the accounts, with a maximum net retention of $10 Million per account.

Environmental business is principally comprised of General Liability and Professional Liability coverages, which are long tail in nature, provided to businesses with environmental exposures (such as contractors, engineers and manufacturers) provided principally through wholesale insurance brokers.  The Company retains up to $5 Million on each account.

Other P&C business is comprised of a variety of the Company’s lower volume Active and Runoff products, including Excess and Surplus Property, Commercial Auto and Surety, which are long tail and short tail in nature, in the Active line.

While each division within our U.S. Insurance P&C operating segment is distinct, only one has sufficient volume to provide material information regarding the behavior of unpaid claims on its own.  The chart below shows a comparison of open claims from the divisions within the U.S. Insurance P&C operating segment as of year-end 2016.

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Count of Open Claims	2007		2008		2009		2010		2011		2012		2013		2014		2015		2016		Total
Total		575		364		260		364		472		553		589		808		1,202		1,467		6,654
Primary Casualty		561		330		234		316		412		468		432		631		836		884		5,104	77	%
Excess Casualty		6		11		11		17		25		53		86		86		97		77		469	7	%
Environmental		0		0		0		1		12		15		21		30		60		78		217	3	%
Other - Active		0		0		0		3		3		3		20		32		206		427		694	10	%
- Runoff		8		23		15		27		20		14		30		29		3		1		170	3	%

As such, the data underlying the outstanding reserves is dominated by the Primary Casualty division. Applying the commonly used actuarial standard for full data credibility, which requires a minimum of 1,082 claims¹, only the Primary Casualty division exceeds the standard and will produce consistent and indicative data to assist the user to better understand the liability. Even if the number of open claims for the remaining divisions were to meet such minimum standard noted above, that alone would not necessarily require further disaggregation of the data as it would still need to prove meaningful.   Nonetheless, the number of open claims for the remaining divisions fall well below such standard and would not be meaningful on their own. Additionally, the inclusion of this data both individually and in the aggregate within the total operating segment tables would not impact the usefulness or meaningfulness of the data for users of the financial statements, including the identification of material trends.

An excellent example of the reason for applying the minimum requirements for full data credibility can be seen in the disaggregation of our long tail classes of business from our short tail classes of business.  The attached exhibit includes the tables illustrating such disaggregation, which the staff requested. As you can see, the short tailed business makes up an immaterial component of the overall operating segment and does not provide meaningful information to users of the financial statements.

Some of our divisions have the potential to grow and may reach the point where additional disaggregation of the data will be useful and meaningful to the users of the financial statements.  We will continue to monitor the relevance of the data available to assess our determination of the most appropriate level of disaggregation for purposes of the short-duration contract disclosures.

Conclusion

Based on our interpretation of the accounting guidance and our analysis of the underlying characteristics of the divisions and products as provided above, we have concluded that the level of disaggregation for the Company’s net incurred and paid loss and loss expense development tables in the 2016 10-K is appropriate and meets the requirements of ASC 944-40-50-4H, and further disaggregation is not meaningful at this time. The Company will continually monitor our disclosure requirements as our business develops and changes over time. If the facts and circumstances warrant it, further disaggregation will be applied.

¹  L.H. Longley-Cook, An Introduction To Credibility Theory, Proceedings of the Casualty Actuarial Society 1962, page 194.

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We welcome the opportunity to discuss any of the information included herein should you desire. If you have any questions or comments concerning this response letter, please contact the undersigned at (203) 905-6343 (cdefalco@navg.com) or Emily Miner at (203) 905-6369 (eminer@navg.com).

Respectfully submitted,

The Navigators Group, Inc.

By: /s/ Ciro M. DeFalco

Name: Ciro M. DeFalco

Title: Executive Vice President and Chief Financial Officer

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Exhibit

	U.S. P&C
	Loss and ALAE, Net of Reinsurance
amounts in thousands	For the Years Ended December 31,																														As of December 31, 2016
AY	2007			2008			2009			2010			2011			2012			2013			2014			2015			2016			Total IBNR		# of Reported Claims
2007	$	139,377		$	139,570		$	140,551		$	130,501		$	133,050		$	128,087		$	134,310		$	139,870		$	145,472		$	148,609		$	3,753		11,703
2008					158,337			158,336			144,164			140,818			141,332			143,219			147,434			152,416			157,519			3,971		10,818
2009								133,394			135,984			136,700			142,416			149,975			155,156			155,682			159,110			7,717		8,434
2010											101,527			100,529			98,675			104,709			107,602			109,323			112,080			10,106		7,804
2011														86,056			85,238			92,266			95,292			95,958			105,149			15,964		6,346
2012																	111,479			96,618			98,060			103,716			111,746			24,895		4,481
2013																				141,728			130,314			133,068			141,817			29,961		3,533
2014																							193,897			164,364			152,447			76,085		3,356
2015																										251,752			224,532			134,029		3,123
2016																													274,692			258,449		2,106
																									Total			$	1,587,701
	U.S. P&C
	Cumulative Paid Claims and Allocated Claim Adjustment Expenses, Net of Reinsurance
amounts in thousands	For the Years Ended December 31,
AY	2007			2008			2009			2010			2011			2012			2013			2014			2015			2016
2007	$	7,127		$	24,521		$	49,616		$	72,462		$	92,840		$	104,841		$	114,160		$	122,568		$	130,279		$	136,896
2008					12,178			36,713			58,491			82,028			103,804			115,526			123,945			133,064			146,463
2009								14,619			36,641			59,933			92,033			119,360			132,695			138,227			145,407
2010											12,682			27,542			49,109			69,027			81,262			89,873			94,766
2011														3,925			19,548			35,551			51,868			63,800			75,806
2012																	10,013			23,019			33,477			51,980			72,495
2013																				7,317			21,500			49,562			85,719
2014																							5,272			13,762			45,324
2015																										3,641			24,291
2016																													7,706
																									Total			$	834,873
																									Net reserves < 2007				16,571
																									Total Net reserves			$	769,399
	U.S. P&C
	Average Annual Percentage Payout of Incurred Claims by Age, Net of Reinsurance
Years	1			2			3			4			5			6			7			8			9			10
U.S. P&C		5.9	%		11.7	%		16.2	%		18.0	%		14.2	%		8.6	%		4.9	%		5.3	%		6.8	%		4.5	%

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	U.S. P&C - Long Tailed
	Loss and ALAE, Net of Reinsurance
amounts in thousands	For the Years Ended December 31,																														As of December 31, 2016
AY	2007			2008			2009			2010			2011			2012			2013			2014			2015			2016			Total IBNR		# of Reported Claims
2007	$	133,614		$	132,093		$	131,980		$	121,680		$	124,364		$	119,879		$	126,206		$	131,761		$	137,633		$	140,519		$	3,717		11,062
2008					143,815			142,779			129,508			125,566			126,786			128,420			132,562			137,883			142,713			4,012		9,886
2009								114,493			117,586			117,559			122,295			125,683			130,819			131,617			134,558			7,781		7,406
2010											82,009			82,995			80,226			82,919			85,951			87,319			89,875			10,198		6,701
2011														79,312			77,687			86,168			89,376			90,163			97,775			15,939		5,304
2012																	103,083			88,684			90,615			98,570			106,593			24,716		4,333
2013																				137,442			121,477			124,521			132,291			30,152		3,136
2014																							189,775			157,251			145,882			76,037		2,972
2015																										238,445			213,553			129,919		2,792
2016																													257,093			247,963		1,630
																									Total			$	1,460,852
	U.S. P&C - Long Tailed
	Cumulative Paid Claims and Allocated Claim Adjustment Expenses, Net of Reinsurance
amounts in thousands	For the Years Ended December 31,
AY	2007			2008			2009			2010			2011			2012			2013			2014			2015			2016
2007	$	5,277		$	20,155		$	43,150		$	65,067		$	84,790		$	96,792		$	106,105		$	114,513		$	122,224		$	128,841
2008					7,135			27,654			48,134			69,682			90,305			101,600			109,767			118,746			132,136
2009								6,649			25,787			46,204			74,811			96,457			108,471			113,870			121,045
2010											5,961			17,334			34,550			49,832			60,337			68,494			73,010
2011														3,506			14,314			30,004			46,237			58,070			70,059
2012																	4,659			17,039			26,830			46,326			66,824
2013																				5,951			18,246			45,667			80,200
2014																							3,992			11,295			41,952
2015																										2,863			22,793
2016																													3,107
																									Total			$	739,967
																									Net reserves < 2007				14,851
																									Total Net reserves			$	735,736
	U.S. P&C - Long Tailed
	Average Annual Percentage Payout of Incurred Claims by Age, Net of Reinsurance
Years	1			2			3			4			5			6			7			8			9			10
U.S. P&C - Long Tailed		3.8	%		10.9	%		16.5	%		18.6	%		14.6	%		9.3	%		5.3	%		5.9	%		7.4	%		4.7	%

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	U.S. P&C - Short Tailed
	Loss and ALAE, Net of Reinsurance
amounts in thousands	For the Years Ended December 31,																														As of December 31, 2016
AY	2007			2008			2009			2010			2011			2012			2013			2014			2015			2016			Total IBNR			# of Reported Claims
2007	$	5,763		$	7,478		$	8,571		$	8,820		$	8,685		$	8,208		$	8,104		$	8,108		$	7,838		$	8,090		$	35			641
2008					14,523			15,557			14,656			15,252			14,545			14,799			14,872			14,533			14,806			(41	)		932
2009								18,900			18,399			19,141			20,121			24,292			24,337			24,065			24,552			(64	)		1,028
2010											19,518			17,534			18,449			21,790			21,651			22,004			22,205			(92	)		1,103
2011														6,744			7,551			6,098			5,916			5,795			7,374			26			1,042
2012																	8,396			7,934			7,445			5,146			5,153			178			148
2013																				4,286			8,837			8,548			9,526			(191	)		397
2014																							4,122			7,113			6,565			49			384
2015																										13,307			10,979			4,110			331
2016																													17,599			10,486			476
																									Total			$	126,849
	U.S. P&C - Short Tailed
	Cumulative Paid Claims and Allocated Claim Adjustment Expenses, Net of Reinsurance
amounts in thousands	For the Years Ended December 31,
AY	2007			2008			2009			2010			2011			2012			2013			2014			2015			2016
2007	$	1,850		$	4,365		$	6,466		$	7,394		$	8,049		$	8,049		$	8,055		$	8,055		$	8,055		$	8,055
2008					5,043			9,059			10,356			12,345			13,499			13,925			14,178			14,318			14,327
2009								7,970			10,854			13,729			17,222			22,903			24,223			24,357			24,362
2010											6,720			10,208			14,560			19,195			20,925			21,379			21,756
2011														419			5,234			5,547			5,630			5,731			5,747
2012																	5,354			5,981			6,647			5,654			5,671
2013																				1,366			3,254			3,895			5,519
2014																							1,280			2,467			3,372
2015																										777			1,498
2016																													4,599
																									Total			$	94,906
																									Net reserves < 2007				1,720
																									Total Net reserves			$	33,663
	U.S. P&C - Short Tailed
	Average Annual Percentage Payout of Incurred Claims by Age, Net of Reinsurance
Years	1			2			3			4			5			6			7			8			9			10
U.S. P&C- Short Tailed		29.6	%		23.1	%		13.0	%		8.4	%		8.1	%		2.1	%		1.0	%		0.3	%		0.0	%		0.0	%

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