##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 
 FORM 10-K
 þ
    
    ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
 For the fiscal year ended December 31, 2008
 OR
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF
THE SECURITIES EXCHANGE ACT OF 1934
 For the transition period from  to.
 Commission File No. 0-15886
 THE NAVIGATORS GROUP, INC.
  Delaware
    
    13-3138397(State or other jurisdiction of
    
    (I.R.S. Employer Identification No.)incorporation or organization)One Penn Plaza, New York, New York
    
    10119(Address of principal executive offices)
    
    (Zip Code)
 (212) 244-2333
  Title of Each Class:
    
    Name of Each Exchange on Which Registered:Common Stock, $.10 Par Value
    
    The NASDAQ Global Select Market
 None
 Yes o No þ
 Yes o No þ
 þ o
 þ
  Large accelerated filer þ
    
    Accelerated filer o
    
    Non-accelerated filer o
    
    Smaller reporting company o
 Yes o No þ
   DOCUMENTS INCORPORATED BY REFERENCE




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TABLE OF CONTENTS
 Description
    
    Page NumberNote on Forward-Looking Statements
    
    
    3PART IITEM 1. Business
    
    
    4General
    
    
    4Reinsurance Recoverables
    
    
    7Loss Reserves
    
    
    9Investments
    
    
    22Ratings
    
    
    40Regulation
    
    
    40Competition
    
    
    45Employees
    
    
    45Available Information on the Internet
    
    
    45ITEM 1A. Risk Factors
    
    
    45ITEM 1B. Unresolved Staff Comments
    
    
    53ITEM 2. Properties
    
    
    53ITEM 3. Legal Proceedings
    
    
    53ITEM 4. Submission of Matters to a Vote of Security Holders
    
    
    53PART IIITEM 5. Market for Companys Common Equity, Related Stockholder Matters and Issuer
Purchases of Equity Securities
    
    
    54ITEM 6. Selected Financial Data
    
    
    58ITEM 7. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    59Overview
    
    
    59Catastrophe Risk Management
    
    
    62Hurricanes Gustav, Ike, Katrina, and Rita
    
    
    63Critical Accounting Policies
    
    
    63Results of Operations and Overview
    
    
    66Segment Information
    
    
    87Off-Balance Sheet Transactions
    
    
    94Tabular Disclosure of Contractual Obligations
    
    
    94Investments
    
    
    95Liquidity and Capital Resources
    
    
    95Economic Conditions
    
    
    99ITEM 7A. Quantitative and Qualitative Disclosures about Market Risk
    
    
    99ITEM 8. Financial Statements and Supplementary Data
    
    
    100ITEM 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
    
    
    100ITEM 9A. Controls and Procedures
    
    
    100ITEM 9B. Other Information
    
    
    101PART IIIITEM 10. Directors, Executive Officers and Corporate Governance
    
    
    101ITEM 11. Executive Compensation
    
    
    101ITEM 12 Security Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters
    
    
    101ITEM 13. Certain Relationships and Related Transactions, and Director Independence
    
    
    102ITEM 14. Principal Accountant Fees and Services
    
    
    102PART IVITEM 15. Exhibits and Financial Statement Schedules
    
    
    102Signatures
    
    
    103Index to Consolidated Financial Statements and Schedules
    
    
    F-1Exhibit 11.1Exhibit 21.1Exhibit 23.1Exhibit 31.1Exhibit 31.2Exhibit 32.1Exhibit 32.2
   2




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NOTE ON FORWARD-LOOKING STATEMENTS
  
    
    the effects of domestic and foreign economic conditions, and conditions which affect the
market for property and casualty insurance;
 
    
    changes in the laws, rules and regulations which apply to our insurance companies;
 
    
    the effects of emerging claim and coverage issues on our business, including adverse judicial
or regulatory decisions and rulings;
 
    
    the effects of competition from banks and other insurers and the trend toward self-insurance;
 
    
    risks that we face in entering new markets and diversifying the products and services we
offer;
 
    
    risk that the bank consortium does not renew the credit facility, which would cause us to
find other sources to provide the letters of credit or other collateral required to continue
our participation in Syndicate 1221;
 
    
    general economic conditions, including recent distress in the financial markets that has had
an adverse impact on the availability of credit and liquidity resources generally and could
jeopardize certain of our counterparty obligations, including those of our reinsurers and
financial institutions;
 
    
    unexpected turnover of our professional staff;
 
    
    changing legal and social trends and inherent uncertainties in the loss estimation process
that can adversely impact the adequacy of loss reserves and the allowance for reinsurance
recoverables, including our estimates relating to ultimate asbestos liabilities and related
reinsurance recoverables;
 
    
    risks inherent in the collection of reinsurance recoverable amounts from our reinsurers over
many years into the future based on the reinsurers financial ability and intent to meet such
obligations to the Company;
 
    
    risks associated with our continuing ability to obtain reinsurance covering our exposures at
appropriate prices and/or in sufficient amounts and the related recoverability of our
reinsured losses;
 
    
    weather-related events and other catastrophes (including acts of terrorism) impacting our
insureds and/or reinsurers, including, without limitation, the impact of Hurricanes Katrina,
Rita and Wilma in 2005 and Hurricanes Gustav and Ike in 2008 and the possibility that our
estimates of losses from such Hurricanes will prove to be materially inaccurate;
 
    
    our ability to attain adequate prices, obtain new business and retain existing business
consistent with our expectations and to successfully implement our business strategy during
soft as well as hard markets;
 
    
    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;
  3




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
    
    the inability of our internal control framework to provide absolute assurance that all
incidents of fraud or unintended material errors will be detected and prevented;
 
    
    changes in accounting principles or policies or in our application of such accounting
principles or policies;
 
    
    the risk that our investment portfolio suffers reduced returns or investment losses which
could reduce our profitability; and
 
    
    other risks that we identify in future filings with the Securities and Exchange Commission
(SEC).
  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-K . It contains forward-looking statements that
involve risks and uncertainties. Please see the above 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-K .
 
 Part I
 
 Item 1. BUSINESS
 
 General
    4




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Marine Insurance
     Specialty
   5




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Professional Liability
  Engineering and Construction
   6




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##### Table of Contents



Onshore Energy
  Inland Marine
  
 Reinsurance Recoverables
    A.M. Best
    
    Rating
    
    Recoverable
    
    
    PercentRating(1)
    
    Description
    
    Amounts
    
    
    of Total($ in millions)A++, A+
    
    Superior
    
    $
    597.5
    
    
    
    54
    %A, A-
    
    Excellent
    
    
    481.8
    
    
    
    43
    %B++, B+
    
    Very good
    
    
    0.9
    
    
    
    0
    %(2)NR
    
    Not rated
    
    
    29.7
    
    
    
    3
    %(2)Total
    
    
    
    $
    1,109.9
    
    
    
    100
    %
 (1)
    
    Equivalent S&P rating used for certain companies when an A.M. Best
rating was unavailable.(2)
    
    The Company holds offsetting collateral of approximately 73.8% for B++
and B+ companies and 81.4% for not rated companies which includes letters of credit,
ceded balances payable and other balances held by our Insurance Companies and our
Lloyds Operations.  7




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Reinsurance RecoverablesUnearned
    
    
    Unpaid/Paid
    
    
    
    
    
    
    Collateral(1)
    
    
    Rating &Reinsurer
    
    Premium
    
    
    Losses
    
    
    Total
    
    
    Held
    
    
    Rating Agency($ in millions)Swiss Reinsurance America Corporation
    
    $
    21.3
    
    
    $
    116.0
    
    
    $
    137.3
    
    
    $
    16.2
    
    
    
    A+
    
    
    AMB (2)White Mountains Reinsurance of America
    
    
    10.6
    
    
    
    92.4
    
    
    
    103.0
    
    
    
    26.3
    
    
    
    A-
    
    
    AMBGeneral Reinsurance Corporation
    
    
    1.5
    
    
    
    66.6
    
    
    
    68.1
    
    
    
    0.8
    
    
    
    A++
    
    
    AMBTransatlantic Reinsurance Company
    
    
    20.9
    
    
    
    41.5
    
    
    
    62.4
    
    
    
    10.3
    
    
    
    A
    
    
    AMBEverest Reinsurance Company
    
    
    15.9
    
    
    
    36.9
    
    
    
    52.8
    
    
    
    6.1
    
    
    
    A+
    
    
    AMBMunich Reinsurance America Inc
    
    
    16.2
    
    
    
    35.8
    
    
    
    52.0
    
    
    
    9.7
    
    
    
    A+
    
    
    AMBMunchener Ruckversicherungs-Gesellschaft
    
    
    10.0
    
    
    
    31.9
    
    
    
    41.9
    
    
    
    13.0
    
    
    
    A+
    
    
    AMBNational Indemnity Company
    
    
    9.3
    
    
    
    30.7
    
    
    
    40.0
    
    
    
    5.4
    
    
    
    A++
    
    
    AMBPlatinum Underwriters Re
    
    
    8.3
    
    
    
    30.3
    
    
    
    38.6
    
    
    
    4.4
    
    
    
    A
    
    
    AMBSwiss Re Europe
    
    
    6.1
    
    
    
    30.2
    
    
    
    36.3
    
    
    
    9.9
    
    
    
    A+
    
    
    AMBLloyds Syndicate #2003
    
    
    7.2
    
    
    
    19.0
    
    
    
    26.2
    
    
    
    5.2
    
    
    
    A
    
    
    AMBBerkley Insurance Company
    
    
    12.5
    
    
    
    13.1
    
    
    
    25.6
    
    
    
    2.2
    
    
    
    A+
    
    
    AMBPartner Reinsurance Europe
    
    
    8.7
    
    
    
    15.3
    
    
    
    24.0
    
    
    
    12.2
    
    
    
    AA-
    
    
    S&PScor Holding (Switzerland) AG
    
    
    4.5
    
    
    
    18.7
    
    
    
    23.2
    
    
    
    3.9
    
    
    
    A
    
    
    AMBFederal Insurance Co.
    
    
    1.1
    
    
    
    19.2
    
    
    
    20.3
    
    
    
    2.1
    
    
    
    A++
    
    
    AMBArch Reinsurance Company
    
    
    1.9
    
    
    
    16.9
    
    
    
    18.8
    
    
    
    0.2
    
    
    
    A
    
    
    AMBPartner Reinsurance Company of the U.S.
    
    
    2.5
    
    
    
    14.9
    
    
    
    17.4
    
    
    
    0.2
    
    
    
    A+
    
    
    AMBHannover Ruckversicherung
    
    
    1.2
    
    
    
    16.0
    
    
    
    17.2
    
    
    
    2.0
    
    
    
    A
    
    
    AMBAce Property and Casualty Insurance Company
    
    
    0.1
    
    
    
    14.6
    
    
    
    14.7
    
    
    
    
    
    
    
    A+
    
    
    AMBNational Liability & Fire Insurance Company
    
    
    0.0
    
    
    
    14.3
    
    
    
    14.3
    
    
    
    
    
    
    
    A++
    
    
    AMBTop 20 Total
    
    
    159.8
    
    
    
    674.3
    
    
    
    834.1
    
    
    
    130.1All Other
    
    
    29.1
    
    
    
    246.7
    
    
    
    275.8
    
    
    
    99.8Total
    
    $
    188.9
    
    
    $
    921.0
    
    
    $
    1,109.9
    
    
    $
    229.9
 (1)
    
    Collateral includes letters of credit, ceded balances payable and other
balances held by our Insurance Companies and our Lloyds Operations.(2)
    
    A.M. Best.  8




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Loss Reserves
   9




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10




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Year Ended December 31,2008
    
    
    2007
    
    
    2006($ in thousands)Net reserves for losses and LAE at beginning of
year
    
    $
    847,303
    
    
    $
    696,116
    
    
    $
    578,976Provision for losses and LAE for claims
occurring in the current year
    
    
    443,877
    
    
    
    387,601
    
    
    
    287,401(Decrease) in estimated losses and LAE for
claims occurring in prior years
    
    
    (50,746
    )
    
    
    (47,009
    )
    
    
    (17,214
    )Incurred losses and LAE
    
    
    393,131
    
    
    
    340,592
    
    
    
    270,187Losses and LAE paid for claims occurring duringCurrent year
    
    
    (60,104
    )
    
    
    (46,467
    )
    
    
    (19,710
    )Prior years
    
    
    (180,459
    )
    
    
    (142,938
    )
    
    
    (133,337
    )Losses and LAE payments
    
    
    (240,563
    )
    
    
    (189,405
    )
    
    
    (153,047
    )Net reserves for losses and LAE at end of year
    
    
    999,871
    
    
    
    847,303
    
    
    
    696,116Reinsurance receivables on unpaid losses and LAE
    
    
    853,793
    
    
    
    801,461
    
    
    
    911,439Gross reserves for losses and LAE at end of year
    
    $
    1,853,664
    
    
    $
    1,648,764
    
    
    $
    1,607,555
    11




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12




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Year Ended December 31,1998
    
    
    1999
    
    
    2000
    
    
    2001
    
    
    2002
    
    
    2003
    
    
    2004
    
    
    2005
    
    
    2006
    
    
    2007
    
    
    2008($ in thousands)Net reserves for losses and LAE
    
    $
    150,517
    
    
    $
    170,530
    
    
    $
    174,883
    
    
    $
    202,759
    
    
    $
    264,647
    
    
    $
    374,171
    
    
    $
    463,788
    
    
    $
    578,976
    
    
    $
    696,116
    
    
    $
    847,303
    
    
    $
    999,871Reserves for losses and
LAE re-estimated as of:One year later
    
    
    159,897
    
    
    
    165,536
    
    
    
    180,268
    
    
    
    209,797
    
    
    
    323,282
    
    
    
    370,335
    
    
    
    460,007
    
    
    
    561,762
    
    
    
    649,107
    
    
    
    796,557Two years later
    
    
    149,741
    
    
    
    160,096
    
    
    
    183,344
    
    
    
    266,459
    
    
    
    328,683
    
    
    
    360,964
    
    
    
    457,769
    
    
    
    523,541
    
    
    
    589,044Three years later
    
    
    142,229
    
    
    
    156,322
    
    
    
    232,530
    
    
    
    266,097
    
    
    
    321,213
    
    
    
    377,229
    
    
    
    432,988
    
    
    
    481,532Four years later
    
    
    138,495
    
    
    
    194,924
    
    
    
    227,554
    
    
    
    256,236
    
    
    
    334,991
    
    
    
    362,227
    
    
    
    401,380Five years later
    
    
    176,226
    
    
    
    190,830
    
    
    
    218,982
    
    
    
    264,431
    
    
    
    325,249
    
    
    
    343,182Six years later
    
    
    172,688
    
    
    
    185,075
    
    
    
    225,031
    
    
    
    260,264
    
    
    
    314,332Seven years later
    
    
    169,294
    
    
    
    188,055
    
    
    
    221,541
    
    
    
    257,852Eight years later
    
    
    172,256
    
    
    
    187,422
    
    
    
    220,045Nine years later
    
    
    171,334
    
    
    
    186,581Ten years later
    
    
    170,055Net cumulative redundancy
(deficiency)
    
    
    (19,538
    )
    
    
    (16,051
    )
    
    
    (45,162
    )
    
    
    (55,093
    )
    
    
    (49,685
    )
    
    
    30,989
    
    
    
    62,408
    
    
    
    97,444
    
    
    
    107,072
    
    
    
    50,746Net cumulative paid as of:One year later
    
    
    38,976
    
    
    
    43,301
    
    
    
    53,646
    
    
    
    64,785
    
    
    
    84,385
    
    
    
    80,034
    
    
    
    96,981
    
    
    
    133,337
    
    
    
    142,938
    
    
    
    180,459Two years later
    
    
    63,400
    
    
    
    71,535
    
    
    
    91,352
    
    
    
    112,746
    
    
    
    133,911
    
    
    
    140,644
    
    
    
    180,121
    
    
    
    219,125
    
    
    
    233,211Three years later
    
    
    79,218
    
    
    
    88,570
    
    
    
    114,449
    
    
    
    138,086
    
    
    
    170,236
    
    
    
    195,961
    
    
    
    238,673
    
    
    
    264,663Four years later
    
    
    89,913
    
    
    
    101,667
    
    
    
    127,961
    
    
    
    159,042
    
    
    
    208,266
    
    
    
    223,847
    
    
    
    262,425Five years later
    
    
    100,314
    
    
    
    108,146
    
    
    
    141,384
    
    
    
    185,037
    
    
    
    226,798
    
    
    
    239,355Six years later
    
    
    103,823
    
    
    
    116,752
    
    
    
    159,389
    
    
    
    196,098
    
    
    
    234,284Seven years later
    
    
    109,771
    
    
    
    131,579
    
    
    
    171,768
    
    
    
    198,760Eight years later
    
    
    123,092
    
    
    
    142,709
    
    
    
    171,744Nine years later
    
    
    132,770
    
    
    
    142,101Ten years later
    
    
    131,876Gross liability-end of year
    
    
    342,444
    
    
    
    391,094
    
    
    
    357,674
    
    
    
    401,177
    
    
    
    489,642
    
    
    
    724,612
    
    
    
    966,117
    
    
    
    1,557,991
    
    
    
    1,607,555
    
    
    
    1,648,764
    
    
    
    1,853,664Reinsurance recoverable
    
    
    191,927
    
    
    
    220,564
    
    
    
    182,791
    
    
    
    198,418
    
    
    
    224,995
    
    
    
    350,441
    
    
    
    502,329
    
    
    
    979,015
    
    
    
    911,439
    
    
    
    801,461
    
    
    
    853,793Net liability-end of year
    
    
    150,517
    
    
    
    170,530
    
    
    
    174,883
    
    
    
    202,759
    
    
    
    264,647
    
    
    
    374,171
    
    
    
    463,788
    
    
    
    578,976
    
    
    
    696,116
    
    
    
    847,303
    
    
    
    999,871Gross re-estimated latest
    
    
    394,242
    
    
    
    437,429
    
    
    
    473,055
    
    
    
    537,778
    
    
    
    654,022
    
    
    
    703,954
    
    
    
    867,558
    
    
    
    1,386,935
    
    
    
    1,417,529
    
    
    
    1,560,418Re-estimated recoverable latest
    
    
    224,187
    
    
    
    250,848
    
    
    
    253,010
    
    
    
    279,926
    
    
    
    339,690
    
    
    
    360,772
    
    
    
    466,178
    
    
    
    905,403
    
    
    
    828,485
    
    
    
    763,861Net re-estimated latest
    
    
    170,055
    
    
    
    186,581
    
    
    
    220,045
    
    
    
    257,852
    
    
    
    314,332
    
    
    
    343,182
    
    
    
    401,380
    
    
    
    481,532
    
    
    
    589,044
    
    
    
    796,557Gross cumulative redundancy
(deficiency)
    
    
    (51,798
    )
    
    
    (46,335
    )
    
    
    (115,381
    )
    
    
    (136,601
    )
    
    
    (164,380
    )
    
    
    20,658
    
    
    
    98,559
    
    
    
    171,056
    
    
    
    190,026
    
    
    
    88,346
  13




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Gross Cumulative Redundancy (Deficiency)
 Consolidated
    
    
    Insurance CompaniesYear
    
    Grand
    
    
    Excluding
    
    
    
    
    
    
    
    
    
    
    All
    
    
    LloydsEnded
    
    Total
    
    
    Asbestos
    
    
    Total
    
    
    Asbestos
    
    
    Other(1)
    
    
    Operations($ in thousands)2007
    
    $
    88,346
    
    
    $
    89,142
    
    
    $
    62,024
    
    
    $
    (796
    )
    
    $
    62,820
    
    
    $
    26,3222006
    
    
    190,026
    
    
    
    190,042
    
    
    
    107,264
    
    
    
    (16
    )
    
    
    107,280
    
    
    
    82,7622005
    
    
    171,056
    
    
    
    171,318
    
    
    
    87,801
    
    
    
    (262
    )
    
    
    88,063
    
    
    
    83,2552004
    
    
    98,559
    
    
    
    81,412
    
    
    
    76,454
    
    
    
    17,147
    
    
    
    59,307
    
    
    
    22,1052003
    
    
    20,658
    
    
    
    4,694
    
    
    
    14,831
    
    
    
    15,964
    
    
    
    (1,133
    )
    
    
    5,8272002
    
    
    (164,380
    )
    
    
    (102,507
    )
    
    
    (155,268
    )
    
    
    (61,873
    )
    
    
    (93,395
    )
    
    
    (9,112
    )2001
    
    
    (136,601
    )
    
    
    (74,371
    )
    
    
    (124,593
    )
    
    
    (62,230
    )
    
    
    (62,363
    )
    
    
    (12,008
    )2000
    
    
    (115,381
    )
    
    
    (52,903
    )
    
    
    (84,656
    )
    
    
    (62,478
    )
    
    
    (22,178
    )
    
    
    (30,725
    )1999
    
    
    (46,335
    )
    
    
    16,254
    
    
    
    (28,716
    )
    
    
    (62,589
    )
    
    
    33,873
    
    
    
    (17,619
    )1998
    
    
    (51,798
    )
    
    
    10,638
    
    
    
    (38,447
    )
    
    
    (62,436
    )
    
    
    23,989
    
    
    
    (13,351
    )
 Net Cumulative Redundancy (Deficiency)
 Consolidated
    
    
    Insurance CompaniesYear
    
    Grand
    
    
    Excluding
    
    
    
    
    
    
    
    
    
    
    All
    
    
    LloydsEnded
    
    Total
    
    
    Asbestos
    
    
    Total
    
    
    Asbestos
    
    
    Other(1)
    
    
    Operations($ in thousands)2007
    
    $
    50,746
    
    
    
    51,009
    
    
    
    41,922
    
    
    $
    (263
    )
    
    
    42,185
    
    
    $
    8,8242006
    
    
    107,072
    
    
    
    109,114
    
    
    
    78,702
    
    
    
    (2,042
    )
    
    
    80,744
    
    
    
    28,3702005
    
    
    97,444
    
    
    
    99,715
    
    
    
    69,818
    
    
    
    (2,271
    )
    
    
    72,089
    
    
    
    27,6262004
    
    
    62,408
    
    
    
    65,208
    
    
    
    42,084
    
    
    
    (2,800
    )
    
    
    44,884
    
    
    
    20,3242003
    
    
    30,989
    
    
    
    34,194
    
    
    
    9,899
    
    
    
    (3,205
    )
    
    
    13,104
    
    
    
    21,0902002
    
    
    (49,685
    )
    
    
    (14,800
    )
    
    
    (60,021
    )
    
    
    (34,885
    )
    
    
    (25,136
    )
    
    
    10,3362001
    
    
    (55,093
    )
    
    
    (20,060
    )
    
    
    (54,233
    )
    
    
    (35,033
    )
    
    
    (19,200
    )
    
    
    (860
    )2000
    
    
    (45,162
    )
    
    
    (10,035
    )
    
    
    (34,676
    )
    
    
    (35,127
    )
    
    
    451
    
    
    
    (10,486
    )1999
    
    
    (16,051
    )
    
    
    19,181
    
    
    
    (13,116
    )
    
    
    (35,232
    )
    
    
    22,116
    
    
    
    (2,935
    )1998
    
    
    (19,538
    )
    
    
    15,657
    
    
    
    (14,734
    )
    
    
    (35,195
    )
    
    
    20,461
    
    
    
    (4,804
    )
 (1)
    
    Contains cumulative loss development for all active and run-off lines of business
exclusive of asbestos losses.  14




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##### Table of Contents



15




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##### Table of Contents



16




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##### Table of Contents



Specialty Liability and Professional Liability.
   17




---



##### Table of Contents



Hurricanes Gustav and Ike.
  18




---



##### Table of Contents



Year EndedDecember 31, 2008($ in thousands)Gross of ReinsuranceBeginning gross reserves
    
    $
    Incurred loss & LAE
    
    
    114,000Calendar year payments
    
    
    6,601Ending gross reserves
    
    $
    107,399Gross case loss reserves
    
    $
    70,299Gross IBNR loss reserves
    
    
    37,100Ending gross reserves
    
    $
    107,399Net of ReinsuranceBeginning net reserves
    
    $
    Incurred loss & LAE
    
    
    17,169Calendar year payments
    
    
    4,246Ending net reserves
    
    $
    12,923Net case loss reserves
    
    $
    11,696Net IBNR loss reserves
    
    
    1,227Ending net reserves
    
    $
    12,923
 Hurricanes Katrina and Rita.
  19




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##### Table of Contents



Year Ended December 31,2008
    
    
    2007
    
    
    2006($ in thousands)Gross of ReinsuranceBeginning gross reserves
    
    $
    141,831
    
    
    $
    319,230
    
    
    $
    465,728Incurred loss & LAE
    
    
    (12,250
    )
    
    
    (29,349
    )
    
    
    Calendar year payments
    
    
    31,849
    
    
    
    148,050
    
    
    
    146,498Ending gross reserves
    
    $
    97,732
    
    
    $
    141,831
    
    
    $
    319,230Gross case loss reserves
    
    $
    62,732
    
    
    $
    94,959
    
    
    $
    172,916Gross IBNR loss reserves
    
    
    35,000
    
    
    
    46,872
    
    
    
    146,314Ending gross reserves
    
    $
    97,732
    
    
    $
    141,831
    
    
    $
    319,230Net of ReinsuranceBeginning net reserves
    
    $
    4,519
    
    
    $
    10,003
    
    
    $
    19,408Incurred loss & LAE
    
    
    (990
    )
    
    
    (1,909
    )
    
    
    Calendar year payments
    
    
    (138
    )
    
    
    3,575
    
    
    
    9,405Ending net reserves
    
    $
    3,667
    
    
    $
    4,519
    
    
    $
    10,003Net case loss reserves
    
    $
    279
    
    
    $
    646
    
    
    $
    3,628Net IBNR loss reserves
    
    
    3,388
    
    
    
    3,873
    
    
    
    6,375Ending net reserves
    
    $
    3,667
    
    
    $
    4,519
    
    
    $
    10,003
 Asbestos Liability.
    20




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##### Table of Contents



Year Ended December 31,2008
    
    
    2007
    
    
    2006($ in thousands)Gross of ReinsuranceBeginning gross reserves
    
    $
    23,194
    
    
    $
    37,171
    
    
    $
    56,838Incurred loss & LAE
    
    
    796
    
    
    
    (780
    )
    
    
    246Calendar year payments
    
    
    2,216
    
    
    
    13,197
    
    
    
    19,913Ending gross reserves
    
    $
    21,774
    
    
    $
    23,194
    
    
    $
    37,171Gross case loss reserves
    
    $
    13,918
    
    
    $
    16,014
    
    
    $
    29,291Gross IBNR loss reserves
    
    
    7,856
    
    
    
    7,180
    
    
    
    7,880Ending gross reserves
    
    $
    21,774
    
    
    $
    23,194
    
    
    $
    37,171Net of ReinsuranceBeginning net reserves
    
    $
    16,717
    
    
    $
    21,381
    
    
    $
    30,372Incurred loss & LAE
    
    
    263
    
    
    
    1,779
    
    
    
    229Calendar year payments
    
    
    297
    
    
    
    6,443
    
    
    
    9,220Ending net reserves
    
    $
    16,683
    
    
    $
    16,717
    
    
    $
    21,381Net case loss reserves
    
    $
    9,032
    
    
    $
    9,715
    
    
    $
    13,678Net IBNR loss reserves
    
    
    7,651
    
    
    
    7,002
    
    
    
    7,703Ending net reserves
    
    $
    16,683
    
    
    $
    16,717
    
    
    $
    21,381
     21




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##### Table of Contents



Reserves
for Losses and Loss Adjustment Expenses
 
 Investments
      22




---



##### Table of Contents



Year Ended December 31,2008
    
    
    2007
    
    
    2006($ in thousands)Invested Assets and CashInsurance Companies
    
    $
    1,509,382
    
    
    $
    1,421,365
    
    
    $
    1,203,842Lloyds Operations
    
    
    356,184
    
    
    
    301,790
    
    
    
    239,760Parent Company
    
    
    52,149
    
    
    
    44,146
    
    
    
    32,308Consolidated
    
    $
    1,917,715
    
    
    $
    1,767,301
    
    
    $
    1,475,910Net Investment IncomeInsurance Companies
    
    $
    63,544
    
    
    $
    58,261
    
    
    $
    47,723Lloyds Operations
    
    
    11,655
    
    
    
    10,524
    
    
    
    7,694Parent Company
    
    
    1,355
    
    
    
    1,877
    
    
    
    1,478Consolidated
    
    $
    76,554
    
    
    $
    70,662
    
    
    $
    56,895Average Yield (amortized cost basis)Insurance Companies
    
    
    4.3
    %
    
    
    4.5
    %
    
    
    4.6
    %Lloyds Operations
    
    
    3.4
    %
    
    
    3.9
    %
    
    
    3.4
    %Parent Company
    
    
    3.1
    %
    
    
    4.9
    %
    
    
    5.3
    %Consolidated
    
    
    4.1
    %
    
    
    4.4
    %
    
    
    4.4
    %
      23




---



##### Table of Contents




    
    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.
    24




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##### Table of Contents



Quoted Prices
    
    
    SignificantIn Active
    
    
    Other
    
    
    SignificantMarkets for
    
    
    Observable
    
    
    UnobservableIdentical Assets
    
    
    Inputs
    
    
    InputsLevel 1
    
    
    Level 2
    
    
    Level 3
    
    
    Total($ in thousands)Fixed Maturities
    
    $
    271,392
    
    
    $
    1,372,224
    
    
    $
    156
    
    
    $
    1,643,772Equity securities
    
    
    51,802
    
    
    
    
    
    
    
    
    
    
    
    51,802Short-term investments
    
    
    59,957
    
    
    
    160,727
    
    
    
    
    
    
    
    220,684Total
    
    $
    383,151
    
    
    $
    1,532,951
    
    
    $
    156
    
    
    $
    1,916,258
   Twelve Months EndedDecember 31, 2008($ in thousands)Level 3 investments as of January 1, 2008
    
    $
    2,603Unrealized net gains included in other comprehensive income (loss)
    
    
    (94
    )Purchases, sales, paydowns and amortization
    
    
    (704
    )Transfer from Level 3
    
    
    (1,979
    )Transfer to Level 3
    
    
    330Level 3 investments as of December 31, 2008
    
    $
    156
   25




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##### Table of Contents



Gross
    
    
    Gross
    
    
    Cost orFair
    
    
    Unrealized
    
    
    Unrealized
    
    
    AmortizedDecember 31, 2008
    
    Value
    
    
    Gains
    
    
    (Losses)
    
    
    Cost($ in thousands)U.S. Government Treasury and Agency
Bonds and foreign government bonds
    
    $
    361,656
    
    
    $
    25,741
    
    
    $
    (145
    )
    
    $
    336,060States, municipalities, and political
subdivisions
    
    
    614,609
    
    
    
    12,568
    
    
    
    (8,036
    )
    
    
    610,077Mortgage- and asset-backed securities:Mortgage-backed securities
    
    
    299,775
    
    
    
    10,930
    
    
    
    (26
    )
    
    
    288,871Collateralized mortgage obligations
    
    
    56,743
    
    
    
    
    
    
    
    (27,119
    )
    
    
    83,862Asset-backed securities
    
    
    29,436
    
    
    
    5
    
    
    
    (1,289
    )
    
    
    30,720Commercial mortgage-backed securities
    
    
    92,684
    
    
    
    
    
    
    
    (20,350
    )
    
    
    113,034Subtotal
    
    
    478,638
    
    
    
    10,935
    
    
    
    (48,784
    )
    
    
    516,487Corporate bonds
    
    
    188,869
    
    
    
    1,398
    
    
    
    (14,660
    )
    
    
    202,131Total fixed maturities
    
    
    1,643,772
    
    
    
    50,642
    
    
    
    (71,625
    )
    
    
    1,664,755Equity securities  common stocks
    
    
    51,802
    
    
    
    1,266
    
    
    
    (1,987
    )
    
    
    52,523Cash
    
    
    1,457
    
    
    
    
    
    
    
    
    
    
    
    1,457Short-term investments
    
    
    220,684
    
    
    
    
    
    
    
    
    
    
    
    220,684Total
    
    $
    1,917,715
    
    
    $
    51,908
    
    
    $
    (73,612
    )
    
    $
    1,939,419
  26




---



##### Table of Contents



Gross
    
    
    Gross
    
    
    Cost orFair
    
    
    Unrealized
    
    
    Unrealized
    
    
    AmortizedDecember 31, 2007
    
    Value
    
    
    Gains
    
    
    (Losses)
    
    
    Cost($ in thousands)U.S. Government Treasury and Agency
Bonds and foreign government bonds
    
    $
    256,131
    
    
    $
    5,984
    
    
    $
    (63
    )
    
    $
    250,210States, municipalities, and political
subdivisions
    
    
    515,883
    
    
    
    7,050
    
    
    
    (657
    )
    
    
    509,490Mortgage- and asset-backed securities:Mortgage-backed securities
    
    
    266,270
    
    
    
    2,177
    
    
    
    (758
    )
    
    
    264,851Collateralized mortgage obligations
    
    
    109,560
    
    
    
    253
    
    
    
    (822
    )
    
    
    110,129Asset-backed securities
    
    
    64,352
    
    
    
    533
    
    
    
    (79
    )
    
    
    63,898Commercial mortgage-backed securities
    
    
    113,488
    
    
    
    544
    
    
    
    (1,031
    )
    
    
    113,975Subtotal
    
    
    553,670
    
    
    
    3,507
    
    
    
    (2,690
    )
    
    
    552,853Corporate bonds
    
    
    196,636
    
    
    
    2,504
    
    
    
    (1,804
    )
    
    
    195,936Total fixed maturities
    
    
    1,522,320
    
    
    
    19,045
    
    
    
    (5,214
    )
    
    
    1,508,489Equity securities  common stocks
    
    
    67,240
    
    
    
    6,452
    
    
    
    (4,704
    )
    
    
    65,492Cash
    
    
    7,056
    
    
    
    
    
    
    
    
    
    
    
    7,056Short-term investments
    
    
    170,685
    
    
    
    
    
    
    
    
    
    
    
    170,685Total
    
    $
    1,767,301
    
    
    $
    25,497
    
    
    $
    (9,918
    )
    
    $
    1,751,722
  Gross
    
    
    Gross
    
    
    Cost orFair
    
    
    Unrealized
    
    
    Unrealized
    
    
    AmortizedDecember 31, 2008
    
    Value
    
    
    Gains
    
    
    (Losses)
    
    
    Cost($ in thousands)U.S. Treasury Bonds
    
    $
    290,059
    
    
    $
    23,243
    
    
    $
    (143
    )
    
    $
    266,959Agency Bonds
    
    
    58,401
    
    
    
    2,008
    
    
    
    (2
    )
    
    
    56,395Foreign Government Bonds
    
    
    13,196
    
    
    
    490
    
    
    
    
    
    
    
    12,706Total
    
    $
    361,656
    
    
    $
    25,741
    
    
    $
    (145
    )
    
    $
    336,060
 Gross
    
    
    Gross
    
    
    Cost orFair
    
    
    Unrealized
    
    
    Unrealized
    
    
    AmortizedDecember 31, 2007
    
    Value
    
    
    Gains
    
    
    (Losses)
    
    
    Cost($ in thousands)U.S. Treasury Bonds
    
    $
    191,876
    
    
    $
    5,359
    
    
    $
    (27
    )
    
    $
    186,544Agency Bonds
    
    
    55,158
    
    
    
    612
    
    
    
    (4
    )
    
    
    54,550Foreign Government Bonds
    
    
    9,097
    
    
    
    13
    
    
    
    (32
    )
    
    
    9,116Total
    
    $
    256,131
    
    
    $
    5,984
    
    
    $
    (63
    )
    
    $
    250,210
  27




---



##### Table of Contents



Gross
    
    
    Gross
    
    
    Cost orFair
    
    
    Unrealized
    
    
    Unrealized
    
    
    Amortized
    
    
    S&PValue
    
    
    Gains
    
    
    (Losses)
    
    
    Cost
    
    
    Rating($ in thousands)Issuers:Commonwealth of Massachusetts
    
    $
    15,446
    
    
    $
    585
    
    
    $
    
    
    
    $
    14,861
    
    
    AAState of Wisconsin
    
    
    9,623
    
    
    
    84
    
    
    
    
    
    
    
    9,539
    
    
    AA-State of Louisiana
    
    
    9,477
    
    
    
    57
    
    
    
    (158
    )
    
    
    9,578
    
    
    A+State of California
    
    
    9,017
    
    
    
    32
    
    
    
    (628
    )
    
    
    9,613
    
    
    A+State of North Carolina
    
    
    9,017
    
    
    
    401
    
    
    
    
    
    
    
    8,616
    
    
    AAAState of Washington
    
    
    8,193
    
    
    
    346
    
    
    
    
    
    
    
    7,847
    
    
    AACommonwealth of Pennsylvania
    
    
    8,119
    
    
    
    256
    
    
    
    (78
    )
    
    
    7,941
    
    
    AAState of Ohio
    
    
    7,652
    
    
    
    247
    
    
    
    
    
    
    
    7,405
    
    
    AA+Illinois Finance Authority
    
    
    7,380
    
    
    
    16
    
    
    
    (71
    )
    
    
    7,435
    
    
    BBB+City of Phoenix
    
    
    7,328
    
    
    
    274
    
    
    
    
    
    
    
    7,054
    
    
    AA+Delaware Transportation Authority
    
    
    6,715
    
    
    
    351
    
    
    
    
    
    
    
    6,364
    
    
    AA-City of Chicago
    
    
    6,662
    
    
    
    275
    
    
    
    
    
    
    
    6,387
    
    
    A-Adams County School District
    
    
    6,662
    
    
    
    
    
    
    
    (285
    )
    
    
    6,947
    
    
    BBB+Virginia Resources Authority
    
    
    6,398
    
    
    
    133
    
    
    
    
    
    
    
    6,265
    
    
    AAANew York Local Government Assistance
    
    
    6,355
    
    
    
    
    
    
    
    (319
    )
    
    
    6,674
    
    
    AAASubtotal
    
    
    124,044
    
    
    
    3,057
    
    
    
    (1,539
    )
    
    
    122,526All Other
    
    
    490,565
    
    
    
    9,511
    
    
    
    (6,497
    )
    
    
    487,551Total
    
    $
    614,609
    
    
    $
    12,568
    
    
    $
    (8,036
    )
    
    $
    610,077
  Equivalent
    
    EquivalentS&P
    
    Moodys
    
    
    
    
    
    
    
    
    
    UnrealizedRating
    
    Rating
    
    Fair Value
    
    
    Book Value
    
    
    Gain/(Loss)($ in thousands)AAA/AA/A
    
    Aaa/Aa/A
    
    $
    578,648
    
    
    $
    573,079
    
    
    $
    5,569BBB
    
    Baa
    
    
    34,055
    
    
    
    34,976
    
    
    
    (921
    )BB
    
    Ba
    
    
    
    
    
    
    
    
    
    
    B
    
    B
    
    
    
    
    
    
    
    
    
    
    CCC or lower
    
    Caa or lower
    
    
    
    
    
    
    
    
    
    
    N/A
    
    N/A
    
    
    1,906
    
    
    
    2,022
    
    
    
    (116
    )Total
    
    
    
    $
    614,609
    
    
    $
    610,077
    
    
    $
    4,532
  28




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##### Table of Contents



Gross
    
    
    Gross
    
    
    Cost orFair
    
    
    Unrealized
    
    
    Unrealized
    
    
    AmortizedValue
    
    
    Gains
    
    
    (Losses)
    
    
    Cost($ in thousands)Mortgage-backed securities:GNMA
    
    $
    42,258
    
    
    $
    1,043
    
    
    $
    (5
    )
    
    $
    41,220FNMA
    
    
    189,232
    
    
    
    6,848
    
    
    
    (21
    )
    
    
    182,405FHLMC
    
    
    68,285
    
    
    
    3,039
    
    
    
    
    
    
    
    65,246Prime
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Alt-A
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Subprime
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total
    
    $
    299,775
    
    
    $
    10,930
    
    
    $
    (26
    )
    
    $
    288,871
  29




---



##### Table of Contents



Gross
    
    
    Gross
    
    
    Cost orFair
    
    
    Unrealized
    
    
    Unrealized
    
    
    AmortizedValue
    
    
    Gains
    
    
    (Losses)
    
    
    Cost($ in thousands)Collateralized
mortgage
obligations:GNMA
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    FNMA
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    FHLMC
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Prime
    
    
    48,329
    
    
    
    
    
    
    
    (25,043
    )
    
    
    73,372Alt-A
    
    
    8,414
    
    
    
    
    
    
    
    (2,076
    )
    
    
    10,490Subprime
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total
    
    $
    56,743
    
    
    $
    
    
    
    $
    (27,119
    )
    
    $
    83,862
  Issue
    
    
    Fair
    
    
    Book
    
    
    Unrealized
    
    
    S&P
    
    
    MoodysSecurity Description
    
    Date
    
    
    Value
    
    
    Value
    
    
    (Loss)
    
    
    Rating
    
    
    Rating($ in thousands)MLCC Mortgage Investors Inc 06 2
    
    
    2006
    
    
    $
    4,065
    
    
    $
    4,597
    
    
    $
    (532
    )
    
    AAA
    
    AaaCountrywide Alternative Loan Trust 05 85CB
    
    
    2005
    
    
    
    3,880
    
    
    
    3,880
    
    
    
    
    
    
    BBB
    
    AaaCitigroup Mortgage Loan Trust 06 AR2
    
    
    2006
    
    
    
    3,597
    
    
    
    5,404
    
    
    
    (1,807
    )
    
    NR
    
    A3GMAC Mortgage Corp Loan Trust 05 AR6
    
    
    2005
    
    
    
    3,491
    
    
    
    4,437
    
    
    
    (946
    )
    
    AAA
    
    AaaWells Fargo Mortgage Backed 06 AR8
    
    
    2006
    
    
    
    3,386
    
    
    
    6,173
    
    
    
    (2,787
    )
    
    AAA
    
    NRMerrill Lynch Mortgage Backed 07 2
    
    
    2007
    
    
    
    2,957
    
    
    
    4,871
    
    
    
    (1,914
    )
    
    NR
    
    Aa3Wells Fargo Mortgage Backed 06AR5
    
    
    2006
    
    
    
    2,467
    
    
    
    3,813
    
    
    
    (1,346
    )
    
    NR
    
    Baa1Merrill Lynch Mortgage Investors 05 A9
    
    
    2005
    
    
    
    2,390
    
    
    
    4,260
    
    
    
    (1,870
    )
    
    AAA
    
    NRCountrywide Home Loan Mortgage 06 HYB1
    
    
    2006
    
    
    
    2,198
    
    
    
    2,198
    
    
    
    
    
    
    A
    
    AaaCountrywide Home Loan Mortgage 05 HY10
    
    
    2005
    
    
    
    1,115
    
    
    
    1,115
    
    
    
    
    
    
    AAA
    
    AaaWells Fargo Mortgage Backed 05AR4
    
    
    2005
    
    
    
    1,101
    
    
    
    1,542
    
    
    
    (441
    )
    
    NR
    
    AaaMerrill Lynch Mortgage Investors 05 A9
    
    
    2005
    
    
    
    1,025
    
    
    
    1,221
    
    
    
    (196
    )
    
    AAA
    
    NRBank of America Mortgage 04 F
    
    
    2004
    
    
    
    968
    
    
    
    992
    
    
    
    (24
    )
    
    AAA
    
    AaaMaster Adjustable Rate Mortage 05 6
    
    
    2005
    
    
    
    937
    
    
    
    1,029
    
    
    
    (92
    )
    
    AAA
    
    A2Countrywide Alternative Loan Trust 07 HY5R
    
    
    2007
    
    
    
    773
    
    
    
    1,449
    
    
    
    (676
    )
    
    AAA
    
    AaaSubtotal
    
    
    
    
    
    
    34,350
    
    
    
    46,981
    
    
    
    (12,631
    )All Other
    
    
    
    
    
    
    22,393
    
    
    
    36,881
    
    
    
    (14,488
    )Total
    
    
    
    
    
    $
    56,743
    
    
    $
    83,862
    
    
    $
    (27,119
    )
  30




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##### Table of Contents



Gross
    
    
    Gross
    
    
    Cost orFair
    
    
    Unrealized
    
    
    Unrealized
    
    
    AmortizedValue
    
    
    Gains
    
    
    (Losses)
    
    
    Cost($ in thousands)Asset-backed securities:GNMA
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    FNMA
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    FHLMC
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Prime
    
    
    28,421
    
    
    
    5
    
    
    
    (1,178
    )
    
    
    29,594Alt-A
    
    
    793
    
    
    
    
    
    
    
    (25
    )
    
    
    818Subprime
    
    
    222
    
    
    
    
    
    
    
    (86
    )
    
    
    308Total
    
    $
    29,436
    
    
    $
    5
    
    
    $
    (1,289
    )
    
    $
    30,720
  TotalTotal
    
    
    Amortized
    
    
    UnrealizedAAA
    
    
    AA
    
    
    A
    
    
    BBB
    
    
    Fair Value
    
    
    Cost
    
    
    Gain/(Loss)($ in thousands)Auto Loans
    
    $
    15,453
    
    
    $
    1,971
    
    
    $
    1,061
    
    
    $
    3,312
    
    
    $
    21,797
    
    
    $
    22,801
    
    
    $
    (1,004
    )Credit Cards
    
    
    802
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    802
    
    
    
    825
    
    
    
    (23
    )Miscellaneous
    
    
    6,617
    
    
    
    
    
    
    
    
    
    
    
    220
    
    
    
    6,837
    
    
    
    7,094
    
    
    
    (257
    )Total
    
    $
    22,872
    
    
    $
    1,971
    
    
    $
    1,061
    
    
    $
    3,532
    
    
    $
    29,436
    
    
    $
    30,720
    
    
    $
    (1,284
    )
  31




---



##### Table of Contents



AverageIssue
    
    
    Fair
    
    
    Book
    
    
    Underlying
    
    
    Delinq.
    
    
    Subord.
    
    
    S&P
    
    
    MoodysSecurity Description
    
    Date
    
    
    Value
    
    
    Value
    
    
    LTV %
    
    
    Rate
    
    
    Level
    
    
    Rating
    
    
    Rating($ in thousands)Wachovia Bank Commercial Mortgage 05 C18
    
    
    2005
    
    
    $
    5,666
    
    
    $
    6,839
    
    
    
    71.8
    %
    
    
    0.8
    %
    
    
    31.1
    %
    
    AAA
    
    AaaGS Mortgage Securities Corp II 05 GG4
    
    
    2005
    
    
    
    5,404
    
    
    
    6,594
    
    
    
    72.0
    %
    
    
    0.0
    %
    
    
    30.5
    %
    
    AAA
    
    AaaLB-UBS Mortgage Commercial Mortgage
Trust 06 C6
    
    
    2006
    
    
    
    5,295
    
    
    
    6,790
    
    
    
    63.6
    %
    
    
    0.7
    %
    
    
    30.2
    %
    
    AAA
    
    AaaLB-UBS Mortgage Commercial Mortgage
Trust 06 C7
    
    
    2006
    
    
    
    4,907
    
    
    
    6,334
    
    
    
    63.8
    %
    
    
    0.9
    %
    
    
    30.1
    %
    
    AAA
    
    AaaCitigroup/Deutsche Bank Comm 05 CD1
    
    
    2005
    
    
    
    4,852
    
    
    
    5,874
    
    
    
    68.4
    %
    
    
    0.2
    %
    
    
    30.5
    %
    
    AAA
    
    AaaFour Times Square Trust 06 4TS
    
    
    2006
    
    
    
    4,848
    
    
    
    7,031
    
    
    
    39.4
    %
    
    
    0.0
    %
    
    
    7.9
    %
    
    AAA
    
    AaaBear Stearns Commercial Mortgage 06 T22
    
    
    2006
    
    
    
    4,190
    
    
    
    4,883
    
    
    
    57.7
    %
    
    
    0.0
    %
    
    
    27.9
    %
    
    AAA
    
    AaaBear Stearns Commercial Mortgage 07 PW15
    
    
    2007
    
    
    
    3,942
    
    
    
    5,138
    
    
    
    68.1
    %
    
    
    0.4
    %
    
    
    30.2
    %
    
    AAA
    
    AaaBanc of America Commercial Mortgage 07 1
    
    
    2007
    
    
    
    3,528
    
    
    
    4,784
    
    
    
    69.6
    %
    
    
    0.7
    %
    
    
    30.1
    %
    
    AAA
    
    AaaMorgan Stanley Capital I 07 HQ11
    
    
    2007
    
    
    
    3,523
    
    
    
    4,792
    
    
    
    69.4
    %
    
    
    1.2
    %
    
    
    30.1
    %
    
    AAA
    
    AaaCommercial Mortgage Pass Throu 05 C6
    
    
    2005
    
    
    
    3,317
    
    
    
    4,054
    
    
    
    71.0
    %
    
    
    2.7
    %
    
    
    30.3
    %
    
    AAA
    
    AaaMerrill Lynch Mortgage Trust 05 CIP1
    
    
    2005
    
    
    
    3,301
    
    
    
    4,034
    
    
    
    68.8
    %
    
    
    0.2
    %
    
    
    30.7
    %
    
    AAA
    
    AaaMorgan Stanley Capital I 04 T13
    
    
    2004
    
    
    
    2,790
    
    
    
    3,323
    
    
    
    58.8
    %
    
    
    0.0
    %
    
    
    15.0
    %
    
    AAA
    
    AaaCitigroup Commercial Mortgage 06 C5
    
    
    2006
    
    
    
    2,743
    
    
    
    3,513
    
    
    
    68.8
    %
    
    
    2.2
    %
    
    
    30.3
    %
    
    AAA
    
    AaaGE Capital Commercial Mortgage 02 1A
    
    
    2002
    
    
    
    2,348
    
    
    
    2,504
    
    
    
    71.9
    %
    
    
    2.8
    %
    
    
    23.8
    %
    
    AAA
    
    AaaSubtotal
    
    
    
    
    
    
    60,654
    
    
    
    76,487All Other
    
    
    
    
    
    
    32,030
    
    
    
    36,547Total
    
    
    
    
    
    $
    92,684
    
    
    $
    113,034
  PercentRating
    
    
    
    Fair
    
    
    ofDescription
    
    Rating
    
    Value
    
    
    Total($ in thousands)Extremely Strong
    
    AAA
    
    $
    1,170,908
    
    
    
    63
    %Very Strong
    
    AA
    
    
    346,936
    
    
    
    19
    %Strong
    
    A
    
    
    243,014
    
    
    
    13
    %Adequate
    
    BBB
    
    
    101,518
    
    
    
    5
    %Speculative
    
    BB & below
    
    
    174
    
    
    
    0
    %Not Rated
    
    NR
    
    
    1,906
    
    
    
    0
    %Total
    
    AA
    
    $
    1,864,456
    
    
    
    100
    %
  32




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##### Table of Contents



Gross
    
    
    Gross
    
    
    Cost orFair
    
    
    Unrealized
    
    
    Unrealized
    
    
    AmortizedValue
    
    
    Gains
    
    
    (Losses)
    
    
    Cost($ in thousands)Credit enhanced securities:States, municipalities and political
subdivisions
    
    $
    336,288
    
    
    $
    6,181
    
    
    $
    (4,250
    )
    
    $
    334,357Mortgage- and asset-backed
securities
    
    
    6,344
    
    
    
    
    
    
    
    (530
    )
    
    
    6,874Corporate bonds
    
    
    1,584
    
    
    
    13
    
    
    
    (63
    )
    
    
    1,634Total
    
    $
    344,216
    
    
    $
    6,194
    
    
    $
    (4,843
    )
    
    $
    342,865
 AverageGross
    
    
    Gross
    
    
    Cost or
    
    
    UnderlyingFair
    
    
    Unrealized
    
    
    Unrealized
    
    
    Amortized
    
    
    CreditValue
    
    
    Gains
    
    
    (Losses)
    
    
    Cost
    
    
    Rating($ in thousands)Financial guarantors:AMBAC
    
    $
    72,636
    
    
    $
    1,264
    
    
    $
    (1,252
    )
    
    $
    72,624
    
    
    AA-Assured Guaranty LTD
    
    
    3,869
    
    
    
    4
    
    
    
    (52
    )
    
    
    3,917
    
    
    AFGIC
    
    
    58,553
    
    
    
    938
    
    
    
    (424
    )
    
    
    58,039
    
    
    AA-Financial Security Assurance
    
    
    85,563
    
    
    
    2,031
    
    
    
    (1,092
    )
    
    
    84,624
    
    
    A+MBIA
    
    
    110,753
    
    
    
    1,818
    
    
    
    (1,575
    )
    
    
    110,510
    
    
    AA-Radian Group, Inc
    
    
    5,276
    
    
    
    47
    
    
    
    (291
    )
    
    
    5,520
    
    
    AXL Capital
    
    
    7,566
    
    
    
    92
    
    
    
    (157
    )
    
    
    7,631
    
    
    A+Total
    
    $
    344,216
    
    
    $
    6,194
    
    
    $
    (4,843
    )
    
    $
    342,865
    
    
    AA-
    33




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##### Table of Contents



Gross
    
    
    Gross
    
    
    Cost orFair
    
    
    Unrealized
    
    
    Unrealized
    
    
    Amortized
    
    
    S&PValue
    
    
    Gains
    
    
    (Losses)
    
    
    Cost
    
    
    Rating($ in thousands)Issuers:Bank of
America Corp.
    
    $
    9,399
    
    
    $
    36
    
    
    $
    (253
    )
    
    $
    9,616
    
    
    ACitigroup,
Inc.
    
    
    7,197
    
    
    
    20
    
    
    
    (202
    )
    
    
    7,379
    
    
    A-Wells Fargo
& Co.
    
    
    5,707
    
    
    
    34
    
    
    
    (118
    )
    
    
    5,791
    
    
    AA-Goldman Sachs Group
    
    
    4,872
    
    
    
    
    
    
    
    (550
    )
    
    
    5,422
    
    
    AGeneral Electric
    
    
    4,849
    
    
    
    27
    
    
    
    (8
    )
    
    
    4,830
    
    
    AAAEuropean Investment Bank
    
    
    4,805
    
    
    
    197
    
    
    
    
    
    
    
    4,608
    
    
    AAAMorgan Stanley
    
    
    4,524
    
    
    
    
    
    
    
    (432
    )
    
    
    4,956
    
    
    A-Bank of New York
    
    
    3,230
    
    
    
    45
    
    
    
    (11
    )
    
    
    3,196
    
    
    A+AT&T,
Inc.
    
    
    3,007
    
    
    
    
    
    
    
    (76
    )
    
    
    3,083
    
    
    ADeere &
Co.
    
    
    2,714
    
    
    
    5
    
    
    
    (29
    )
    
    
    2,738
    
    
    APepsi
Bottling Group Inc.
    
    
    2,686
    
    
    
    
    
    
    
    (54
    )
    
    
    2,740
    
    
    ACargill, Inc.
    
    
    2,606
    
    
    
    
    
    
    
    (216
    )
    
    
    2,822
    
    
    AConoco Phillips
    
    
    2,550
    
    
    
    14
    
    
    
    (1
    )
    
    
    2,537
    
    
    AMitsubishi UFJ Financial Group
    
    
    2,530
    
    
    
    
    
    
    
    (503
    )
    
    
    3,033
    
    
    AProgress
Energy, Inc.
    
    
    2,475
    
    
    
    29
    
    
    
    (60
    )
    
    
    2,506
    
    
    BBBSubtotal
    
    $
    63,151
    
    
    $
    407
    
    
    $
    (2,513
    )
    
    $
    65,257All Other
    
    
    125,718
    
    
    
    991
    
    
    
    (12,147
    )
    
    
    136,874Total
    
    $
    188,869
    
    
    $
    1,398
    
    
    $
    (14,660
    )
    
    $
    202,131
    34




---



##### Table of Contents



Gross
    
    
    Gross
    
    
    Cost orFair
    
    
    Unrealized
    
    
    Unrealized
    
    
    AmortizedValue
    
    
    Gains
    
    
    (Losses)
    
    
    Cost($ in thousands)Issuers:Vanguard Total Stock Market Index
    
    $
    3,614
    
    
    $
    
    
    
    $
    
    
    
    $
    3,614Vanguard Pacific Stock Index
    
    
    3,273
    
    
    
    4
    
    
    
    
    
    
    
    3,269Vanguard European Stock Index
    
    
    2,939
    
    
    
    11
    
    
    
    
    
    
    
    2,928Vanguard Emerging Market Stock Index
    
    
    2,385
    
    
    
    5
    
    
    
    
    
    
    
    2,380Chevron Corp.
    
    
    2,005
    
    
    
    271
    
    
    
    
    
    
    
    1,734Bristol-Myers Squibb Co.
    
    
    1,313
    
    
    
    164
    
    
    
    
    
    
    
    1,149Unilever NV
    
    
    1,260
    
    
    
    108
    
    
    
    
    
    
    
    1,152HJ Heinz Co.
    
    
    1,215
    
    
    
    
    
    
    
    (47
    )
    
    
    1,262Johnson & Johnson
    
    
    1,188
    
    
    
    
    
    
    
    (5
    )
    
    
    1,193Wells Fargo & Co.
    
    
    1,143
    
    
    
    49
    
    
    
    
    
    
    
    1,094Ishares MSCI Japan Index Fund
    
    
    1,134
    
    
    
    
    
    
    
    
    
    
    
    1,134Verizon Communications Inc.
    
    
    1,129
    
    
    
    87
    
    
    
    
    
    
    
    1,042Comcast Corp.
    
    
    1,097
    
    
    
    
    
    
    
    
    
    
    
    1,097JP Morgan Chase & Co.
    
    
    1,095
    
    
    
    
    
    
    
    (266
    )
    
    
    1,361BP PLC
    
    
    1,065
    
    
    
    
    
    
    
    
    
    
    
    1,065Subtotal
    
    
    25,855
    
    
    
    699
    
    
    
    (318
    )
    
    
    25,474All Other
    
    
    25,947
    
    
    
    567
    
    
    
    (1,669
    )
    
    
    27,049Total
    
    $
    51,802
    
    
    $
    1,266
    
    
    $
    (1,987
    )
    
    $
    52,523
  35




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##### Table of Contents



December 31, 2008
    
    
    December 31, 2007Fair
    
    
    Gross
    
    
    Fair
    
    
    GrossValue
    
    
    Unrealized Loss
    
    
    Value
    
    
    Unrealized Loss($ in thousands)Fixed Maturities:US Government Treasury and Agency
Bonds and foreign government bonds0-6 Months
    
    $
    3,862
    
    
    $
    145
    
    
    $
    6,316
    
    
    $
    307-12 Months
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    > 12 Months
    
    
    
    
    
    
    
    
    
    
    6,527
    
    
    
    33Subtotal
    
    
    3,862
    
    
    
    145
    
    
    
    12,843
    
    
    
    63States, municipalities and
political subdivisions0-6 Months
    
    
    68,727
    
    
    
    2,187
    
    
    
    21,853
    
    
    
    677-12 Months
    
    
    118,910
    
    
    
    4,376
    
    
    
    6,045
    
    
    
    115> 12 Months
    
    
    15,918
    
    
    
    1,473
    
    
    
    69,671
    
    
    
    475Subtotal
    
    
    203,555
    
    
    
    8,036
    
    
    
    97,569
    
    
    
    657Mortgage- and asset-backed securities0-6 Months
    
    
    30,670
    
    
    
    939
    
    
    
    59,191
    
    
    
    5177-12 Months
    
    
    80,618
    
    
    
    26,966
    
    
    
    48,496
    
    
    
    423> 12 Months
    
    
    66,218
    
    
    
    20,879
    
    
    
    134,858
    
    
    
    1,750Subtotal
    
    
    177,506
    
    
    
    48,784
    
    
    
    242,545
    
    
    
    2,690Corporate bonds0-6 Months
    
    
    57,805
    
    
    
    2,445
    
    
    
    20,722
    
    
    
    2557-12 Months
    
    
    57,971
    
    
    
    5,893
    
    
    
    25,520
    
    
    
    974> 12 Months
    
    
    27,873
    
    
    
    6,322
    
    
    
    38,865
    
    
    
    575Subtotal
    
    
    143,649
    
    
    
    14,660
    
    
    
    85,107
    
    
    
    1,804Total Fixed Maturities
    
    $
    528,572
    
    
    $
    71,625
    
    
    $
    438,064
    
    
    $
    5,214Equity securities  common stocks0-6 Months
    
    $
    8,991
    
    
    $
    1,941
    
    
    $
    26,257
    
    
    $
    3,4947-12 Months
    
    
    351
    
    
    
    46
    
    
    
    4,153
    
    
    
    1,209> 12 Months
    
    
    
    
    
    
    
    
    
    
    53
    
    
    
    1Total Equity Securities
    
    $
    9,342
    
    
    $
    1,987
    
    
    $
    30,463
    
    
    $
    4,704
  36




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Period for Which Fair Value is Less than 80% of Amortized Cost
 6 monthsLonger than 3
    
    
    or longer, lessLess than 3
    
    
    months, less
    
    
    than 12
    
    
    12 months($
in thousands)
    
    months
    
    
    than 6 months
    
    
    months
    
    
    or longer
    
    
    TotalFixed Maturities
    
    $
    
    
    
    $
    (477
    )
    
    $
    (22,841
    )
    
    $
    (20,870
    )
    
    $
    (44,188
    )Equity Securities
    
    
    
    
    
    
    (1,090
    )
    
    
    
    
    
    
    
    
    
    
    (1,090
    )Total
    
    $
    
    
    
    $
    (1,567
    )
    
    $
    (22,841
    )
    
    $
    (20,870
    )
    
    $
    (45,278
    )
        37




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##### Table of Contents



Credit
    
    
    MarketRisk
    
    
    Conditions($ in thousands)Corporate Bonds
    
    $
    748
    
    
    $
    Non-agency mortgage-backed securities
    
    
    169
    
    
    
    7,686Total
    
    $
    917
    
    
    $
    7,686
    GrossEquivalent
    
    Equivalent
    
    Unrealized Loss
    
    
    Fair ValueNAIC
    
    S&P
    
    Moodys
    
    
    
    
    
    Percent
    
    
    
    
    
    
    PercentRating
    
    Rating
    
    Rating
    
    Amount
    
    
    of Total
    
    
    Amount
    
    
    of Total($ in thousands)1
    
    AAA/AA/A
    
    Aaa/Aa/A
    
    $
    58,588
    
    
    
    82
    %
    
    $
    438,015
    
    
    
    83
    %2
    
    BBB
    
    Baa
    
    
    12,843
    
    
    
    18
    %
    
    
    88,477
    
    
    
    17
    %3
    
    BB
    
    Ba
    
    
    78
    
    
    
    0
    %
    
    
    174
    
    
    
    0
    %4
    
    B
    
    B
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5
    
    CCC or lower
    
    Caa or lower
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    6
    
    N/A
    
    N/A
    
    
    116
    
    
    
    
    
    
    
    1,906
    
    
    
    Total
    
    
    
    $
    71,625
    
    
    
    100
    %
    
    $
    528,572
    
    
    
    100
    %
   38




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##### Table of Contents



GrossUnrealized Loss
    
    
    Fair ValuePercent
    
    
    
    
    
    
    PercentAmount
    
    
    of Total
    
    
    Amount
    
    
    of Total($ in thousands)Due in one year or less
    
    $
    127
    
    
    
    0
    %
    
    $
    6,815
    
    
    
    1
    %Due after one year through five years
    
    
    6,064
    
    
    
    8
    %
    
    
    113,851
    
    
    
    22
    %Due after five years through ten years
    
    
    8,206
    
    
    
    11
    %
    
    
    89,342
    
    
    
    17
    %Due after ten years
    
    
    8,444
    
    
    
    12
    %
    
    
    141,058
    
    
    
    27
    %Mortgage- and asset-backed securities
    
    
    48,784
    
    
    
    69
    %
    
    
    177,506
    
    
    
    33
    %Total fixed income securities
    
    $
    71,625
    
    
    
    100
    %
    
    $
    528,572
    
    
    
    100
    %
   Year Ended December 31,2008
    
    
    2007
    
    
    2006($ in thousands)Fixed maturities:Gains
    
    $
    3,650
    
    
    $
    1,320
    
    
    $
    743(Losses)
    
    
    (1,670
    )
    
    
    (1,749
    )
    
    
    (2,385
    )(Impairments)
    
    
    (8,604
    )
    
    
    
    
    
    
    (6,624
    )
    
    
    (429
    )
    
    
    (1,642
    )Equity securities:Gains
    
    
    720
    
    
    
    3,626
    
    
    
    714(Losses)
    
    
    (3,954
    )
    
    
    (536
    )
    
    
    (98
    )(Impairments)
    
    
    (28,441
    )
    
    
    (655
    )
    
    
    (31,675
    )
    
    
    2,435
    
    
    
    616Net realized capital gains (losses)
    
    $
    (38,299
    )
    
    $
    2,006
    
    
    $
    (1,026
    )
  39




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Ratings
     
 Regulation
 United States
    40




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41




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42




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United Kingdom
     43




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44




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Competition
    
 Employees
  
 Available Information on the Internet
  
 Item 1A. RISK FACTORS
  The continuing volatility in the financial markets and the current recession could have a
material adverse effect on our results of operations and financial condition.
   45




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##### Table of Contents



Our business is concentrated in marine and energy, general liability and professional liability
insurance, and if market conditions change adversely, or we experience large losses in these lines,
it could have a material adverse effect on our business.
  We are exposed to cyclicality in our business that may cause material fluctuations in our results.
  We may not be successful in developing our new specialty lines which could cause us to experience
losses.
   46




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We may be unable to manage effectively our rapid growth in our lines of business, which may
adversely affect our results.
  We may incur additional losses if our loss reserves are insufficient.
    47




---



##### Table of Contents



In addition to loss reserves, preparation of our financial statements requires us to make many
estimates and judgments.
  We may not have access to adequate reinsurance to protect us against losses.
  Our reinsurers, including the other participants in the marine pool, may not pay on losses in a
timely fashion, or at all, which may increase our costs.
   Intense competition for our products could harm our ability to maintain or increase our
profitability and premium volume.
   48




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##### Table of Contents



We may be unable to attract and retain qualified employees.
  Increases in interest rates may cause us to experience losses.
  Our investment portfolio is subject to certain risks that could adversely affect our results of
operations and/or financial condition.
  We are exposed 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.
    49




---



##### Table of Contents



Capital may not be available in the future, or available on unfavorable terms.
  A downgrade in our ratings could adversely impact the competitive positions of our operating
businesses.
   50




---



##### Table of Contents



Continued or increased premium levies by Lloyds for the Lloyds Central Fund and cash calls for
trust fund deposits or a significant downgrade of Lloyds A.M. Best rating could materially and
adversely affect us.
      Our businesses are heavily regulated, and changes in regulation may reduce our profitability and
limit our growth.
   51




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The inability of our subsidiaries to pay dividends to us in sufficient amounts would harm our
ability to meet our obligations.
  Catastrophe losses could materially reduce our profitability.
   52




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##### Table of Contents



The market price of Navigators common stock may be volatile.
  
    
    actual or anticipated variations in our quarterly results of operations, including the
result of catastrophes,
    
    changes in market valuations of companies in the insurance and reinsurance industry,
    
    changes in expectations of future financial performance or changes in estimates of
securities analysts,
    
    issuances of common shares or other securities in the future,
    
    the addition or departure of key personnel, and
    
    announcements by us or our competitors of acquisitions, investments or strategic
alliances.
  
 Item 1B. UNRESOLVED STAFF COMMENTS
  
 Item 2. PROPERTIES
  
 Item 3. LEGAL PROCEEDINGS
  
 Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
   53




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Part II
 
 Item 5.
MARKET FOR COMPANYS COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER
PURCHASES OF EQUITY SECURITIES
 Market Information
   2008
    
    
    2007High
    
    
    Low
    
    
    Close
    
    
    High
    
    
    Low
    
    
    CloseFirst Quarter
    
    $
    65.01
    
    
    $
    50.91
    
    
    $
    54.40
    
    
    $
    53.16
    
    
    $
    45.41
    
    
    $
    50.17Second Quarter
    
    $
    56.99
    
    
    $
    47.23
    
    
    $
    54.05
    
    
    $
    54.16
    
    
    $
    47.52
    
    
    $
    53.90Third Quarter
    
    $
    66.74
    
    
    $
    43.46
    
    
    $
    58.00
    
    
    $
    55.45
    
    
    $
    45.86
    
    
    $
    54.25Fourth Quarter
    
    $
    60.50
    
    
    $
    39.29
    
    
    $
    54.91
    
    
    $
    66.53
    
    
    $
    53.25
    
    
    $
    65.00
   54




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##### Table of Contents



Five Year Stock Performance Graph
   
  55




---



##### Table of Contents



Base
    
    
    Cumulative Indexed ReturnsPeriod
    
    
    Years Ending December 31,Company / Index
    
    2003
    
    
    2004
    
    
    2005
    
    
    2006
    
    
    2007
    
    
    2008The Navigators Group, Inc.
    
    
    100
    
    
    
    97.54
    
    
    
    141.27
    
    
    
    156.07
    
    
    
    210.56
    
    
    
    177.87S&P 500 Index
    
    
    100
    
    
    
    110.88
    
    
    
    116.33
    
    
    
    134.70
    
    
    
    142.10
    
    
    
    89.53S&P 500 Property &
Casualty Insurance
    
    
    100
    
    
    
    110.42
    
    
    
    127.11
    
    
    
    143.47
    
    
    
    123.44
    
    
    
    87.13
  Annual Return PercentageYears Ending December 31,Company / Index
    
    2004
    
    
    2005
    
    
    2006
    
    
    2007
    
    
    2008The Navigators Group, Inc.
    
    
    -2.46
    
    
    
    44.84
    
    
    
    10.48
    
    
    
    34.91
    
    
    
    -15.52S&P 500 Index
    
    
    10.88
    
    
    
    4.91
    
    
    
    15.79
    
    
    
    5.49
    
    
    
    -37.00S&P 500 Property &
Casualty Insurance
    
    
    10.42
    
    
    
    15.11
    
    
    
    12.87
    
    
    
    -13.96
    
    
    
    -29.41
 Dividends
  Recent Sales of Unregistered Securities
  Use of Proceeds from Public Offering of Debt Securities
  Purchases of Equity Securities by the Issuer
   56




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##### Table of Contents



Number ofShares
    
    
    Dollar ValueTotal
    
    
    
    
    
    
    Purchased
    
    
    of Shares thatNumber
    
    
    Average
    
    
    Under Publicly
    
    
    May Yet Beof Shares
    
    
    Cost Paid
    
    
    Announced
    
    
    Purchased Under($ in thousands, except per share)
    
    Purchased
    
    
    Per Share
    
    
    Program
    
    
    the Program(1)January 2008
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    30,000February 2008
    
    
    30,202
    
    
    $
    54.66
    
    
    
    30,202
    
    
    $
    28,349March 2008
    
    
    105,824
    
    
    $
    53.58
    
    
    
    105,824
    
    
    $
    22,679Subtotal first
quarter
    
    
    136,026
    
    
    $
    53.82
    
    
    
    136,026April 2008
    
    
    50,000
    
    
    $
    49.90
    
    
    
    50,000
    
    
    $
    20,184May 2008
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    20,184June 2008
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    20,184Subtotal second
quarter
    
    
    50,000
    
    
    $
    49.90
    
    
    
    50,000July 2008
    
    
    38,728
    
    
    $
    44.51
    
    
    
    38,728
    
    
    $
    18,460August 2008
    
    
    
    
    
    
    
    
    
    
    September 2008
    
    
    
    
    
    
    
    
    
    
    Subtotal third
quarter
    
    
    38,728
    
    
    $
    44.51
    
    
    
    38,728Total December
31, 2008
    
    
    224,754
    
    
    $
    51.34
    
    
    
    224,754
    
    
    
    
 (1)
    
    Balance as of the end of the month indicated.  57




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Item 6. SELECTED FINANCIAL DATA
  Year Ended December 31,2008
    
    
    2007
    
    
    2006
    
    
    2005
    
    
    2004($ in thousands, except per share data)Operating Information:Gross written premium
    
    $
    1,084,922
    
    
    $
    1,070,707
    
    
    $
    970,790
    
    
    $
    779,579
    
    
    $
    696,146Net written premium
    
    
    661,615
    
    
    
    645,796
    
    
    
    520,807
    
    
    
    380,659
    
    
    
    312,730Net earned premium
    
    
    643,976
    
    
    
    601,977
    
    
    
    468,323
    
    
    
    338,551
    
    
    
    310,995Net investment income
    
    
    76,554
    
    
    
    70,662
    
    
    
    56,895
    
    
    
    37,069
    
    
    
    26,795Net realized capital gains (losses)
    
    
    (38,299
    )
    
    
    2,006
    
    
    
    (1,026
    )
    
    
    1,238
    
    
    
    922Total revenues
    
    
    683,666
    
    
    
    676,659
    
    
    
    526,594
    
    
    
    385,219
    
    
    
    343,029Income before income taxes
    
    
    68,731
    
    
    
    139,182
    
    
    
    106,617
    
    
    
    33,754
    
    
    
    52,092Net income
    
    
    51,692
    
    
    
    95,620
    
    
    
    72,563
    
    
    
    23,564
    
    
    
    34,865Net income per share:Basic
    
    $
    3.08
    
    
    $
    5.69
    
    
    $
    4.34
    
    
    $
    1.74
    
    
    $
    2.77Diluted
    
    $
    3.04
    
    
    $
    5.62
    
    
    $
    4.30
    
    
    $
    1.73
    
    
    $
    2.74Average common shares (000s):Basic
    
    
    16,802
    
    
    
    16,812
    
    
    
    16,722
    
    
    
    13,528
    
    
    
    12,598Diluted
    
    
    16,992
    
    
    
    17,005
    
    
    
    16,856
    
    
    
    13,657
    
    
    
    12,715Combined
loss & expense ratio (1):Loss ratio
    
    
    61.0
    %
    
    
    56.6
    %
    
    
    57.7
    %
    
    
    69.6
    %
    
    
    60.5
    %Expense ratio
    
    
    32.8
    %
    
    
    30.9
    %
    
    
    30.1
    %
    
    
    31.7
    %
    
    
    31.7
    %Total
    
    
    93.8
    %
    
    
    87.5
    %
    
    
    87.8
    %
    
    
    101.3
    %
    
    
    92.2
    %Balance Sheet Information
(at end of year):Total investments and cash
    
    $
    1,917,715
    
    
    $
    1,767,301
    
    
    $
    1,475,910
    
    
    $
    1,182,236
    
    
    $
    854,933Total assets
    
    
    3,349,580
    
    
    
    3,143,771
    
    
    
    2,956,686
    
    
    
    2,583,249
    
    
    
    1,756,678Gross loss and LAE reserves
    
    
    1,853,664
    
    
    
    1,648,764
    
    
    
    1,607,555
    
    
    
    1,557,991
    
    
    
    966,117Net loss and LAE reserves
    
    
    999,871
    
    
    
    847,303
    
    
    
    696,116
    
    
    
    578,976
    
    
    
    463,788Senior notes
    
    
    123,794
    
    
    
    123,673
    
    
    
    123,560
    
    
    
    
    
    
    
    Stockholders equity
    
    
    689,317
    
    
    
    662,106
    
    
    
    551,343
    
    
    
    470,238
    
    
    
    328,578Common shares outstanding (000s)
    
    
    16,856
    
    
    
    16,873
    
    
    
    16,736
    
    
    
    16,617
    
    
    
    12,657Book value
per share (2)
    
    $
    40.89
    
    
    $
    39.24
    
    
    $
    32.94
    
    
    $
    28.30
    
    
    $
    25.96Statutory surplus of Navigators
Insurance Company
    
    $
    581,166
    
    
    $
    578,668
    
    
    $
    524,188
    
    
    $
    356,484
    
    
    $
    235,561
 (1)
    
    Calculated based on earned premium.(2)
    
    Calculated as stockholders equity divided by actual shares outstanding as of the date
indicated.  58




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Item 7. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
 The following discussion and analysis of our financial condition and results of operations
should be read in conjunction with our consolidated financial statements and accompanying notes
which appear elsewhere in this Form 10-K . It contains forward-looking statements that involve
risks and uncertainties. Please see Note on Forward-Looking Statements and Risk Factors 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-K .
 
 Overview
     59




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61




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Catastrophe Risk Management
        62




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Hurricanes Gustav, Ike, Katrina and Rita
     
 Critical Accounting Policies
   Reserves for Losses and LAE. Reserves for Losses and Loss Adjustment Expenses
  63




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Reinsurance Recoverables. Reinsurance
 Written and Unearned Premium. Organization and Summary of
Significant Accounting Policies Reinsurance
   Deferred Tax Assets. Organization and
Summary of Significant Accounting Policies Income Taxes
  64




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Impairment of Investment Securities Investments
   Accounting for Lloyds Results. Organization and Summary of Significant Accounting Policies
  65




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##### Table of Contents



Translation of Foreign Currencies . Foreign Currency
Translation, accumulated other comprehensive income
 other
income (expense)
 
 Results of Operations and Overview
      2008 Results
     66




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2007 Results
    2006 Results
    Revenues.
  67




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##### Table of Contents



Year Ended December 31,2008
    
    
    2007
    
    
    2006Gross
    
    
    
    
    
    
    Net
    
    
    Net
    
    
    Gross
    
    
    
    
    
    
    Net
    
    
    Net
    
    
    Gross
    
    
    
    
    
    
    Net
    
    
    NetWritten
    
    
    
    
    
    
    Written
    
    
    Earned
    
    
    Written
    
    
    
    
    
    
    Written
    
    
    Earned
    
    
    Written
    
    
    
    
    
    
    Written
    
    
    EarnedPremium
    
    
    %
    
    
    Premium
    
    
    Premium
    
    
    Premium
    
    
    %
    
    
    Premium
    
    
    Premium
    
    
    Premium
    
    
    %
    
    
    Premium
    
    
    Premium($ in thousands)Insurance Companies:Marine & Energy
    
    $
    305,066
    
    
    
    28.1
    %
    
    $
    169,055
    
    
    $
    153,429
    
    
    $
    278,801
    
    
    
    26.0
    %
    
    $
    141,817
    
    
    $
    135,617
    
    
    
    266,675
    
    
    
    27.5
    %
    
    
    129,032
    
    
    
    115,109Specialty
    
    
    311,846
    
    
    
    28.7
    %
    
    
    209,871
    
    
    
    220,722
    
    
    
    355,523
    
    
    
    33.2
    %
    
    
    242,569
    
    
    
    223,724
    
    
    
    288,622
    
    
    
    29.7
    %
    
    
    176,931
    
    
    
    156,031Middle Markets
    
    
    30,095
    
    
    
    2.8
    %
    
    
    24,558
    
    
    
    22,692
    
    
    
    25,870
    
    
    
    2.4
    %
    
    
    20,864
    
    
    
    20,191
    
    
    
    22,754
    
    
    
    2.3
    %
    
    
    18,173
    
    
    
    16,449Professional Liability
    
    
    109,048
    
    
    
    10.1
    %
    
    
    63,797
    
    
    
    57,316
    
    
    
    99,556
    
    
    
    9.3
    %
    
    
    59,117
    
    
    
    55,149
    
    
    
    92,760
    
    
    
    9.6
    %
    
    
    51,192
    
    
    
    41,437Other (1)
    
    
    6,135
    
    
    
    0.6
    %
    
    
    5,407
    
    
    
    9,139
    
    
    
    14,596
    
    
    
    1.4
    %
    
    
    13,651
    
    
    
    8,775
    
    
    
    2,035
    
    
    
    0.2
    %
    
    
    851
    
    
    
    697Insurance Cos.
Total
    
    
    762,190
    
    
    
    70.3
    %
    
    
    472,688
    
    
    
    463,298
    
    
    
    774,346
    
    
    
    72.3
    %
    
    
    478,018
    
    
    
    443,456
    
    
    
    672,846
    
    
    
    69.3
    %
    
    
    376,179
    
    
    
    329,723Lloyds Operations:Marine & Energy
    
    
    243,698
    
    
    
    22.4
    %
    
    
    153,641
    
    
    
    146,152
    
    
    
    225,216
    
    
    
    21.0
    %
    
    
    131,430
    
    
    
    132,443
    
    
    
    245,134
    
    
    
    25.3
    %
    
    
    127,636
    
    
    
    130,644Professional Liability
    
    
    38,872
    
    
    
    3.6
    %
    
    
    23,404
    
    
    
    21,908
    
    
    
    34,281
    
    
    
    3.2
    %
    
    
    23,349
    
    
    
    17,659
    
    
    
    21,759
    
    
    
    2.2
    %
    
    
    9,016
    
    
    
    4,237Other (2)
    
    
    40,162
    
    
    
    3.7
    %
    
    
    11,882
    
    
    
    12,618
    
    
    
    36,864
    
    
    
    3.5
    %
    
    
    12,999
    
    
    
    8,419
    
    
    
    31,051
    
    
    
    3.2
    %
    
    
    7,976
    
    
    
    3,719Lloyds Ops. Total
    
    
    322,732
    
    
    
    29.7
    %
    
    
    188,927
    
    
    
    180,678
    
    
    
    296,361
    
    
    
    27.7
    %
    
    
    167,778
    
    
    
    158,521
    
    
    
    297,944
    
    
    
    30.7
    %
    
    
    144,628
    
    
    
    138,600Total
    
    $
    1,084,922
    
    
    
    100.0
    %
    
    $
    661,615
    
    
    $
    643,976
    
    
    $
    1,070,707
    
    
    
    100.0
    %
    
    $
    645,796
    
    
    $
    601,977
    
    
    $
    970,790
    
    
    
    100.0
    %
    
    $
    520,807
    
    
    $
    468,323
 (1)
    
    Includes inland marine, European property and run-off business.(2)
    
    Includes European property, engineering and construction business.  68




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##### Table of Contents



Gross Written Premium
 Insurance Companies Gross Written Premium
 Marine Premium.
 2008
    
    
    2007
    
    
    2006Marine liability
    
    
    27
    %
    
    
    31
    %
    
    
    33
    %Offshore energy
    
    
    19
    %
    
    
    19
    %
    
    
    19
    %Cargo
    
    
    11
    %
    
    
    11
    %
    
    
    10
    %P&I
    
    
    9
    %
    
    
    9
    %
    
    
    9
    %Transport
    
    
    8
    %
    
    
    7
    %
    
    
    10
    %Inland Marine
    
    
    8
    %
    
    
    4
    %
    
    
    0
    %Other
    
    
    7
    %
    
    
    5
    %
    
    
    6
    %Bluewater hull
    
    
    6
    %
    
    
    8
    %
    
    
    7
    %Craft/Fishing vessel
    
    
    5
    %
    
    
    6
    %
    
    
    6
    %Total
    
    
    100
    %
    
    
    100
    %
    
    
    100
    %
  Specialty Premium.
 2008
    
    
    2007
    
    
    2006Construction liability
    
    
    48
    %
    
    
    51
    %
    
    
    55
    %Commercial umbrella
    
    
    21
    %
    
    
    16
    %
    
    
    18
    %Programs
    
    
    15
    %
    
    
    12
    %
    
    
    9
    %Primary E&S
    
    
    11
    %
    
    
    14
    %
    
    
    7
    %Personal umbrella
    
    
    3
    %
    
    
    3
    %
    
    
    5
    %Liquor liability
    
    
    2
    %
    
    
    1
    %
    
    
    1
    %Monarch PAF
    
    
    0
    %
    
    
    0
    %
    
    
    1
    %Other
    
    
    0
    %
    
    
    3
    %
    
    
    4
    %Total
    
    
    100
    %
    
    
    100
    %
    
    
    100
    %
  Middle Market Premium.
 2008
    
    
    2007
    
    
    2006General liability
    
    
    44
    %
    
    
    53
    %
    
    
    62
    %Commercial automobile liability
    
    
    42
    %
    
    
    34
    %
    
    
    28
    %Property
    
    
    14
    %
    
    
    13
    %
    
    
    10
    %Total
    
    
    100
    %
    
    
    100
    %
    
    
    100
    %
   69




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##### Table of Contents



Professional Liability Premium.
 2008
    
    
    2007
    
    
    2006D&O (public and private)
    
    
    69
    %
    
    
    68
    %
    
    
    68
    %Lawyers and other professionals
    
    
    26
    %
    
    
    25
    %
    
    
    24
    %Architects and engineers
    
    
    5
    %
    
    
    7
    %
    
    
    8
    %Total
    
    
    100
    %
    
    
    100
    %
    
    
    100
    %
  Property/Other Premium.
 Lloyds Operations Gross Written Premium
 Marine Premium.
 2008
    
    
    2007
    
    
    2006Cargo and specie
    
    
    38
    %
    
    
    39
    %
    
    
    43
    %Marine liability
    
    
    24
    %
    
    
    21
    %
    
    
    19
    %Offshore energy
    
    
    21
    %
    
    
    22
    %
    
    
    24
    %Assumed reinsurance
    
    
    7
    %
    
    
    11
    %
    
    
    7
    %Hull
    
    
    7
    %
    
    
    6
    %
    
    
    6
    %Other
    
    
    3
    %
    
    
    1
    %
    
    
    1
    %Total
    
    
    100
    %
    
    
    100
    %
    
    
    100
    %
   Professional Liability Premium.
 2008
    
    
    2007
    
    
    2006E&O
    
    
    59
    %
    
    
    52
    %
    
    
    52
    %D&O (public and private)
    
    
    41
    %
    
    
    48
    %
    
    
    48
    %Total
    
    
    100
    %
    
    
    100
    %
    
    
    100
    %
   70




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##### Table of Contents



Property/Other Premium.
 Ceded Written Premium .
  2008
    
    
    2007
    
    
    2006% of
    
    
    
    
    
    
    % of
    
    
    
    
    
    
    % ofCeded
    
    
    Gross
    
    
    Ceded
    
    
    Gross
    
    
    Ceded
    
    
    GrossWritten
    
    
    Written
    
    
    Written
    
    
    Written
    
    
    Written
    
    
    WrittenPremium
    
    
    Premium
    
    
    Premium
    
    
    Premium
    
    
    Premium
    
    
    Premium($ in thousands)Insurance CompaniesMarine
    
    $
    136,011
    
    
    
    44.6
    %
    
    $
    136,984
    
    
    
    49.1
    %
    
    $
    137,643
    
    
    
    51.6
    %Specialty
    
    
    101,975
    
    
    
    32.7
    %
    
    
    112,954
    
    
    
    31.8
    %
    
    
    111,691
    
    
    
    38.7
    %Middle Markets
    
    
    5,537
    
    
    
    18.4
    %
    
    
    5,006
    
    
    
    19.4
    %
    
    
    4,581
    
    
    
    20.1
    %Professional Liability
    
    
    45,251
    
    
    
    41.5
    %
    
    
    40,439
    
    
    
    40.6
    %
    
    
    41,568
    
    
    
    44.8
    %Other
    
    
    728
    
    
    
    11.9
    %
    
    
    945
    
    
    
    6.5
    %
    
    
    1,184
    
    
    
    58.2
    %Subtotal
    
    
    289,502
    
    
    
    38.0
    %
    
    
    296,328
    
    
    
    38.3
    %
    
    
    296,667
    
    
    
    44.1
    %Lloyds OperationsMarine
    
    
    90,057
    
    
    
    37.0
    %
    
    
    93,786
    
    
    
    41.6
    %
    
    
    117,498
    
    
    
    47.9
    %Professional Liability
    
    
    15,468
    
    
    
    39.8
    %
    
    
    10,932
    
    
    
    31.9
    %
    
    
    12,743
    
    
    
    58.6
    %Other
    
    
    28,280
    
    
    
    70.4
    %
    
    
    23,865
    
    
    
    64.7
    %
    
    
    23,075
    
    
    
    74.3
    %Subtotal
    
    
    133,805
    
    
    
    41.5
    %
    
    
    128,583
    
    
    
    43.4
    %
    
    
    153,316
    
    
    
    51.5
    %Total
    
    $
    423,307
    
    
    
    39.0
    %
    
    $
    424,911
    
    
    
    39.7
    %
    
    $
    449,983
    
    
    
    46.4
    %
   71




---



##### Table of Contents




    
    Restructuring of the 2008 marine quota share treaties for the Insurance Companies and the
Lloyds Operations resulting in a large reduction in ceded premium.
 
    
    Reinstatement premium of $12.2 million related to Hurricanes Gustav and Ike recorded in
2008, as discussed above.
 
    
    A reduction of $1.4 million of ceded written premium in the 2008 second quarter as a result
of the rescission of a reinsurers participation on an excess of loss treaty for middle
markets business.
 
    
    An increased retention from $0.5 million to $1.0 million effective April 1, 2007 for the
contractors liability business which reduced the amount of premium ceded.
 
    
    Increases in our net retentions on the professional liability pro rata reinsurance treaty
which renewed April 1, 2006.
 
    
    The elimination of a 5% reinsurer participation in our Syndicate 1221 2008 stamp capacity.
 
    
    The 2007 third quarter ceded written premium of the Lloyds Operations was reduced by
approximately $6.4 million for ceded written premium amounts that were over-estimated in prior
accounting periods mostly recorded during the six months ended 2007. The estimate change
which results in a higher relationship of net premiums retained to gross written premium in
the 2007 third quarter was not material to the current and prior quarterly or annual
accounting periods.
 Net Written Premium .
 Net Earned Premium .
 Commission Income .
 Net Investment Income .
 Net Realized Capital Gains (Losses) .
  Other Income/(Expense) .
  72




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##### Table of Contents



Operating Expenses
 Net Losses and Loss Adjustment Expenses Incurred.
     December 31,
    
    
    December 31,2008
    
    
    2007
    
    
    Change($ in thousands)Reinsurance recoverables:Paid losses
    
    $
    67,227
    
    
    $
    94,818
    
    
    $
    (27,591
    )Unpaid losses and LAE reserves
    
    
    853,793
    
    
    
    801,461
    
    
    
    52,332Total
    
    $
    921,020
    
    
    $
    896,279
    
    
    $
    24,741
  December 31,
    
    
    December 31,2008
    
    
    2007
    
    
    Change($ in thousands)Gross reserves for losses and LAE
    
    $
    1,853,664
    
    
    $
    1,648,764
    
    
    $
    204,900Less: Reinsurance recoverable on unpaid
losses and LAE reserves
    
    
    853,793
    
    
    
    801,461
    
    
    
    52,332Net loss and LAE reserves
    
    $
    999,871
    
    
    $
    847,303
    
    
    $
    152,568
  73




---



##### Table of Contents



December 31, 2008Net
    
    
    Net
    
    
    Total
    
    
    % of IBNRReported
    
    
    IBNR
    
    
    Net Loss
    
    
    to Total NetReserves
    
    
    Reserves
    
    
    Reserves
    
    
    Loss Reserves($ in thousands)Insurance Companies:Marine
    
    $
    118,263
    
    
    $
    115,713
    
    
    $
    233,976
    
    
    
    49.5
    %SpecialtyConstruction liability
    
    
    44,415
    
    
    
    232,243
    
    
    
    276,658
    
    
    
    83.9
    %All other liability
    
    
    26,683
    
    
    
    80,412
    
    
    
    107,095
    
    
    
    75.1
    %Total Specialty
    
    
    71,098
    
    
    
    312,655
    
    
    
    383,753
    
    
    
    81.5
    %Professional liability
    
    
    22,913
    
    
    
    58,793
    
    
    
    81,706
    
    
    
    72.0
    %Middle Markets
    
    
    11,983
    
    
    
    16,627
    
    
    
    28,610
    
    
    
    58.1
    %Property/Other
    
    
    10,710
    
    
    
    10,305
    
    
    
    21,015
    
    
    
    49.0
    %Total Insurance
Companies
    
    
    234,967
    
    
    
    514,093
    
    
    
    749,060
    
    
    
    68.6
    %Lloyds Operations:Marine
    
    
    117,232
    
    
    
    89,698
    
    
    
    206,930
    
    
    
    43.3
    %Other
    
    
    14,041
    
    
    
    29,840
    
    
    
    43,881
    
    
    
    68.0
    %Total Lloyds Operations
    
    
    131,273
    
    
    
    119,538
    
    
    
    250,811
    
    
    
    47.7
    %Total
    
    $
    366,240
    
    
    $
    633,631
    
    
    $
    999,871
    
    
    
    63.4
    %
  74




---



##### Table of Contents



December 31, 2007Net
    
    
    Net
    
    
    Total
    
    
    % of IBNRReported
    
    
    IBNR
    
    
    Net Loss
    
    
    to Total NetReserves
    
    
    Reserves
    
    
    Reserves
    
    
    Loss Reserves($ in thousands)Insurance Companies:Marine
    
    $
    93,467
    
    
    $
    103,500
    
    
    $
    196,967
    
    
    
    52.5
    %SpecialtyConstruction liability
    
    
    36,137
    
    
    
    213,453
    
    
    
    249,590
    
    
    
    85.5
    %All other liability
    
    
    17,139
    
    
    
    55,031
    
    
    
    72,170
    
    
    
    76.3
    %Total Specialty
    
    
    53,276
    
    
    
    268,484
    
    
    
    321,760
    
    
    
    83.4
    %Professional liability
    
    
    20,335
    
    
    
    50,584
    
    
    
    70,919
    
    
    
    71.3
    %Middle Markets
    
    
    11,469
    
    
    
    10,329
    
    
    
    21,798
    
    
    
    47.4
    %Property/Other
    
    
    12,790
    
    
    
    11,447
    
    
    
    24,237
    
    
    
    47.2
    %Total Insurance Companies
    
    
    191,337
    
    
    
    444,344
    
    
    
    635,681
    
    
    
    69.9
    %Lloyds Operations:Marine
    
    
    89,957
    
    
    
    93,069
    
    
    
    183,026
    
    
    
    50.9
    %Other
    
    
    7,485
    
    
    
    21,111
    
    
    
    28,596
    
    
    
    73.8
    %Total Lloyds Operations
    
    
    97,442
    
    
    
    114,180
    
    
    
    211,622
    
    
    
    54.0
    %Total
    
    $
    288,779
    
    
    $
    558,524
    
    
    $
    847,303
    
    
    
    65.9
    %
      75




---



##### Table of Contents



Loss ratio method
 Bornheutter-Ferguson method
  76




---



##### Table of Contents



Loss development method
 Frequency/severity method
   Marine
   77




---



##### Table of Contents



Specialty
    78




---



##### Table of Contents



Professional liability
   Other
  79




---



##### Table of Contents



Lloyds Operations
    Prior Year Reserve Redundancies/Deficiencies
     80




---



##### Table of Contents



Year Ended December 31,2008
    
    
    2007
    
    
    2006($ in thousands)Insurance CompaniesMarine
    
    $
    (9,291
    )
    
    $
    (10,695
    )
    
    $
    (4,800
    )Specialty
    
    
    (27,021
    )
    
    
    (12,091
    )
    
    
    (6,060
    )Professional Liability
    
    
    (3,559
    )
    
    
    (10,365
    )
    
    
    (1,223
    )Middle Markets
    
    
    1,600
    
    
    
    
    
    
    
    Property/Other
    
    
    (3,651
    )
    
    
    (645
    )
    
    
    (649
    )Subtotal Insurance Companies
    
    
    (41,922
    )
    
    
    (33,796
    )
    
    
    (12,732
    )Lloyds Operations
    
    
    (8,824
    )
    
    
    (13,213
    )
    
    
    (4,482
    )Total
    
    $
    (50,746
    )
    
    $
    (47,009
    )
    
    $
    (17,214
    )
      81




---



##### Table of Contents



82




---



##### Table of Contents



Sensitivity Analysis
      83




---



##### Table of Contents



Reasonably likely loss ratio point variances
 Decrease
    
    
    IncreaseMarine
    
    
    6
    %
    
    
    8
    %Specialty
    
    
    4
    %
    
    
    4
    %Professional Liability
    
    
    14
    %
    
    
    8
    %Syndicate
    
    
    9
    %
    
    
    7
    %
   Reasonably likely ultimate loss development factor variances
 Decrease
    
    
    IncreaseMarine
    
    
    13
    %
    
    
    13
    %Specialty
    
    
    7
    %
    
    
    9
    %Professional Liability
    
    
    11
    %
    
    
    14
    %Syndicate
    
    
    10
    %
    
    
    13
    %
  84




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##### Table of Contents



Total
    
    
    Reasonably Likely Range of DeviationNet Loss
    
    
    Redundancy
    
    
    DeficiencyReserve
    
    
    Amount
    
    
    %
    
    
    Amount
    
    
    %($ in thousands)Insurance CompaniesMarine
    
    $
    233,976
    
    
    $
    13,936
    
    
    
    6
    %
    
    $
    17,426
    
    
    
    7
    %Specialty
    
    
    412,363
    
    
    
    21,635
    
    
    
    5
    %
    
    
    24,227
    
    
    
    6
    %Professional Liability
    
    
    81,706
    
    
    
    9,108
    
    
    
    11
    %
    
    
    10,250
    
    
    
    13
    %Other
    
    
    21,015
    
    
    
    
    
    
    
    0
    %
    
    
    
    
    
    
    0
    %Total Insurance Companies
    
    
    749,060
    
    
    
    44,679
    
    
    
    6
    %
    
    
    51,903
    
    
    
    7
    %Lloyds OperationsMarine & Other
    
    
    250,811
    
    
    
    23,556
    
    
    
    9
    %
    
    
    22,410
    
    
    
    9
    %Total Company
    
    $
    999,871
    
    
    $
    68,235
    
    
    
    7
    %
    
    $
    74,313
    
    
    
    7
    %Increase (decrease) to net incomeAmount
    
    
    
    
    
    $
    44,353
    
    
    
    
    
    
    $
    (48,303
    )Per Share (1)
    
    
    
    
    
    $
    2.61
    
    
    
    
    
    
    $
    (2.84
    )
 (1)
    
    Used 17.0 million average diluted shares outstanding for the year ended
December 31, 2008. Commission Expense.
  85




---



##### Table of Contents



Other Operating Expenses.
 Interest Expense .
 Income Taxes .
    Accounting for Uncertainty in Income
Taxes Accounting for Income Taxes
  86




---



##### Table of Contents



Segment Information
     Insurance Companies
   87




---



##### Table of Contents



Year Ended December 31,2008
    
    
    2007
    
    
    2006($ in thousands)Gross written premium
    
    $
    762,190
    
    
    $
    774,346
    
    
    $
    672,846Net written premium
    
    
    472,688
    
    
    
    478,018
    
    
    
    376,179Net earned premium
    
    
    463,298
    
    
    
    443,456
    
    
    
    329,723Net losses and loss adjustment expenses
    
    
    (275,767
    )
    
    
    (256,652
    )
    
    
    (191,740
    )Commission expense
    
    
    (55,752
    )
    
    
    (52,490
    )
    
    
    (36,412
    )Other operating expenses
    
    
    (92,297
    )
    
    
    (81,053
    )
    
    
    (62,459
    )Commission income and other income (expense)
    
    
    2,145
    
    
    
    1,510
    
    
    
    3,552Underwriting profit
    
    
    41,627
    
    
    
    54,771
    
    
    
    42,664Investment income
    
    
    63,544
    
    
    
    58,261
    
    
    
    47,723Net realized capital gains (losses)
    
    
    (37,822
    )
    
    
    1,973
    
    
    
    (622
    )Income before income tax expense
    
    
    67,349
    
    
    
    115,005
    
    
    
    89,765Income tax expense
    
    
    16,401
    
    
    
    35,061
    
    
    
    28,843Net income
    
    $
    50,948
    
    
    $
    79,944
    
    
    $
    60,922Identifiable assets
    
    $
    2,477,139
    
    
    $
    2,322,647
    
    
    $
    2,105,293Loss and loss expenses ratio
    
    
    59.5
    %
    
    
    57.9
    %
    
    
    58.2
    %Commission expense ratio
    
    
    12.0
    %
    
    
    11.8
    %
    
    
    11.0
    %Other operating expenses ratio (1)
    
    
    19.5
    %
    
    
    17.9
    %
    
    
    17.9
    %Combined ratio
    
    
    91.0
    %
    
    
    87.6
    %
    
    
    87.1
    %
 (1)
    
    Includes other operating expensesand commission income and other
income (expense).  88




---



##### Table of Contents



Year Ended December 31, 2008($ in thousands)Net
    
    
    LossesEarned
    
    
    and LAE
    
    
    Underwriting
    
    
    Underwriting
    
    
    Loss
    
    
    Expense
    
    
    CombinedPremium
    
    
    Incurred
    
    
    Expenses
    
    
    Gain(Loss)
    
    
    Ratio
    
    
    Ratio
    
    
    RatioMarine & Energy
    
    $
    153,429
    
    
    $
    103,606
    
    
    $
    48,380
    
    
    $
    1,443
    
    
    
    67.5
    %
    
    
    31.5
    %
    
    
    99.0
    %Specialty
    
    
    220,722
    
    
    
    119,847
    
    
    
    64,427
    
    
    
    36,448
    
    
    
    54.3
    %
    
    
    29.2
    %
    
    
    83.5
    %Middle Markets
    
    
    22,692
    
    
    
    17,125
    
    
    
    8,977
    
    
    
    (3,410
    )
    
    
    75.5
    %
    
    
    39.6
    %
    
    
    115.1
    %Professional Liability
    
    
    57,316
    
    
    
    33,211
    
    
    
    20,410
    
    
    
    3,695
    
    
    
    57.9
    %
    
    
    35.6
    %
    
    
    93.5
    %Property/Other
    
    
    9,139
    
    
    
    1,978
    
    
    
    3,710
    
    
    
    3,451
    
    
    
    21.6
    %
    
    
    40.6
    %
    
    
    62.2
    %Total
    
    $
    463,298
    
    
    $
    275,767
    
    
    $
    145,904
    
    
    $
    41,627
    
    
    
    59.5
    %
    
    
    31.5
    %
    
    
    91.0
    %
 Year Ended December 31, 2007($ in thousands)Net
    
    
    LossesEarned
    
    
    and LAE
    
    
    Underwriting
    
    
    Underwriting
    
    
    Loss
    
    
    Expense
    
    
    CombinedPremium
    
    
    Incurred
    
    
    Expenses
    
    
    Gain(Loss)
    
    
    Ratio
    
    
    Ratio
    
    
    RatioMarine & Energy
    
    $
    135,617
    
    
    $
    78,808
    
    
    $
    42,386
    
    
    $
    14,423
    
    
    
    58.1
    %
    
    
    31.3
    %
    
    
    89.4
    %Specialty
    
    
    223,724
    
    
    
    125,555
    
    
    
    59,784
    
    
    
    38,385
    
    
    
    56.1
    %
    
    
    26.7
    %
    
    
    82.8
    %Middle Markets
    
    
    20,191
    
    
    
    10,665
    
    
    
    6,422
    
    
    
    3,104
    
    
    
    52.8
    %
    
    
    31.8
    %
    
    
    84.6
    %Professional
Liability
    
    
    55,149
    
    
    
    32,602
    
    
    
    19,646
    
    
    
    2,901
    
    
    
    59.1
    %
    
    
    35.6
    %
    
    
    94.7
    %Property/Other
    
    
    8,775
    
    
    
    9,022
    
    
    
    3,795
    
    
    
    (4,042
    )
    
    
    102.8
    %
    
    
    43.3
    %
    
    
    146.1
    %Total
    
    $
    443,456
    
    
    $
    256,652
    
    
    $
    132,033
    
    
    $
    54,771
    
    
    
    57.9
    %
    
    
    29.7
    %
    
    
    87.6
    %
 Year Ended December 31, 2006($ in thousands)Net
    
    
    LossesEarned
    
    
    and LAE
    
    
    Underwriting
    
    
    Underwriting
    
    
    Loss
    
    
    Expense
    
    
    CombinedPremium
    
    
    Incurred
    
    
    Expenses
    
    
    Gain(Loss)
    
    
    Ratio
    
    
    Ratio
    
    
    RatioMarine & Energy
    
    $
    115,109
    
    
    $
    65,864
    
    
    $
    32,229
    
    
    $
    17,016
    
    
    
    57.2
    %
    
    
    28.0
    %
    
    
    85.2
    %Specialty
    
    
    156,031
    
    
    
    91,120
    
    
    
    44,371
    
    
    
    20,540
    
    
    
    58.4
    %
    
    
    28.4
    %
    
    
    86.8
    %Middle Markets
    
    
    16,449
    
    
    
    7,992
    
    
    
    5,767
    
    
    
    2,690
    
    
    
    48.6
    %
    
    
    35.1
    %
    
    
    83.7
    %Professional Liability
    
    
    41,437
    
    
    
    26,756
    
    
    
    12,648
    
    
    
    2,033
    
    
    
    64.6
    %
    
    
    30.5
    %
    
    
    95.1
    %Property/Other
    
    
    697
    
    
    
    8
    
    
    
    304
    
    
    
    385
    
    
    
    1.2
    %
    
    43.6
    %
    
    44.8
    %Total
    
    $
    329,723
    
    
    $
    191,740
    
    
    $
    95,319
    
    
    $
    42,664
    
    
    
    58.2
    %
    
    
    28.9
    %
    
    
    87.1
    %
  89




---



##### Table of Contents



Hurricane
    
    
    HurricaneGustav
    
    
    Ike
    
    
    Total($ in thousands)Reduction in net earned premiums for reinstatement costs
    
    $
    (871
    )
    
    $
    (6,343
    )
    
    $
    (7,214
    )Gross losses incurred
    
    
    7,200
    
    
    
    53,800
    
    
    
    61,000Reinsurance recoverable
    
    
    4,377
    
    
    
    47,546
    
    
    
    51,923Net losses incurred
    
    
    2,823
    
    
    
    6,254
    
    
    
    9,077Underwriting loss
    
    $
    (3,694
    )
    
    $
    (12,597
    )
    
    $
    (16,291
    )After-tax net loss
    
    $
    (2,401
    )
    
    $
    (8,188
    )
    
    $
    (10,589
    )Reduction in earnings per share
    
    $
    (0.14
    )
    
    $
    (0.48
    )
    
    $
    (0.62
    )Effect on combined ratio:Loss and LAE ratio
    
    
    0.7
    %
    
    
    2.1
    %
    
    
    2.8
    %Expense ratio
    
    
    0.1
    %
    
    
    0.4
    %
    
    
    0.5
    %Combined ratio
    
    
    0.8
    %
    
    
    2.5
    %
    
    
    3.3
    %
      90




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##### Table of Contents



Lloyds Operations
   Liquidity and Capital Resources
   91




---



##### Table of Contents



Year Ended December 31,2008
    
    
    2007
    
    
    2006($ in thousands)Gross written premium
    
    $
    322,732
    
    
    $
    296,361
    
    
    $
    297,944Net written premium
    
    
    188,927
    
    
    
    167,778
    
    
    
    144,628Net earned premium
    
    
    180,678
    
    
    
    158,521
    
    
    
    138,600Net losses and loss adjustment expenses
    
    
    (117,364
    )
    
    
    (83,940
    )
    
    
    (78,447
    )Commission expense
    
    
    (34,033
    )
    
    
    (25,123
    )
    
    
    (21,375
    )Other operating expenses
    
    
    (30,961
    )
    
    
    (29,356
    )
    
    
    (23,296
    )Commission income and other income (expense)
    
    
    (600
    )
    
    
    504
    
    
    
    (1,150
    )Underwriting profit (loss)
    
    
    (2,280
    )
    
    
    20,606
    
    
    
    14,332Investment income
    
    
    11,655
    
    
    
    10,524
    
    
    
    7,694Net realized capital gains (losses)
    
    
    (477
    )
    
    
    33
    
    
    
    (404
    )Income before income tax expense
    
    
    8,898
    
    
    
    31,163
    
    
    
    21,622Income tax expense
    
    
    3,269
    
    
    
    10,946
    
    
    
    7,601Net income
    
    $
    5,629
    
    
    $
    20,217
    
    
    $
    14,021Identifiable assets
    
    $
    779,800
    
    
    $
    744,002
    
    
    $
    806,948Loss and loss expenses ratio
    
    
    65.0
    %
    
    
    53.0
    %
    
    
    56.6
    %Commission expense ratio
    
    
    18.8
    %
    
    
    15.8
    %
    
    
    15.4
    %Other operating expenses ratio (1)
    
    
    17.5
    %
    
    
    18.2
    %
    
    
    17.6
    %Combined ratio
    
    
    101.3
    %
    
    
    87.0
    %
    
    
    89.6
    %
 (1)
    
    Includes other operating expensesand commission income and other income (expense).     92




---



##### Table of Contents



Hurricane
    
    
    HurricaneGustav
    
    
    Ike
    
    
    Total($ in thousands)Reduction in net earned premiums for
reinstatement costs
    
    $
    (672
    )
    
    $
    (4,292
    )
    
    $
    (4,964
    )Gross losses incurred
    
    
    6,800
    
    
    
    46,200
    
    
    
    53,000Reinsurance recoverable
    
    
    4,623
    
    
    
    40,285
    
    
    
    44,908Net losses incurred
    
    
    2,177
    
    
    
    5,915
    
    
    
    8,092Underwriting loss
    
    $
    (2,849
    )
    
    $
    (10,207
    )
    
    $
    (13,056
    )After-tax net loss
    
    $
    (1,852
    )
    
    $
    (6,635
    )
    
    $
    (8,487
    )Reduction in earnings per share
    
    $
    (0.11
    )
    
    $
    (0.39
    )
    
    $
    (0.50
    )Effect on combined ratio:Loss and LAE ratio
    
    
    1.4
    %
    
    
    4.7
    %
    
    
    6.1
    %Expense ratio
    
    
    0.2
    %
    
    
    0.8
    %
    
    
    1.0
    %Combined ratio
    
    
    1.6
    %
    
    
    5.5
    %
    
    
    7.1
    %
       93




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##### Table of Contents



2008
    
    
    2007
    
    
    2006(£ in millions)Syndicate stamp capacity
    
    £
    123
    
    
    £
    140
    
    
    £
    123Lloyds Operations corporate capital participation
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %Reinsurers participation
    
    
    0.0
    %
    
    
    5.0
    %
    
    
    10.0
    %Lloyds Operations consolidated net participation (1)
    
    
    100.0
    %
    
    
    95.0
    %
    
    
    90.0
    %
 (1)
    
    Participation after reinsurance of the Lloyds Operations corporate capital vehicles,
but before other third party reinsurance.  
 Off-Balance Sheet Transactions
  
 Tabular Disclosure of Contractual Obligations
  Payments Due by PeriodLess than
    
    
    
    
    
    
    
    
    
    
    More thanContractual Obligations
    
    Total
    
    
    1 Year
    
    
    1-3 Years
    
    
    3-5 Years
    
    
    5 Years($ in thousands)Reserves for
losses and LAE (1)
    
    $
    1,853,664
    
    
    $
    583,173
    
    
    $
    662,089
    
    
    $
    301,779
    
    
    $
    306,6237% Senior Notes (2)
    
    
    190,625
    
    
    
    8,750
    
    
    
    17,500
    
    
    
    17,500
    
    
    
    146,875Operating Leases
    
    
    47,872
    
    
    
    5,655
    
    
    
    18,792
    
    
    
    9,565
    
    
    
    13,860Total
    
    $
    2,092,161
    
    
    $
    597,578
    
    
    $
    698,381
    
    
    $
    328,844
    
    
    $
    467,358
 (1)
    
    The amounts determined are estimates which are subject to a high degree of
variation and uncertainty, and are not subject to any specific payment schedule since the
timing of these obligations are not set contractually. The amounts in the above table exclude
reinsurance recoveries of $854 million. See Business  Loss Reserves included
herein.(2)
    
    Includes interest payments.  94




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##### Table of Contents



Investments
  
 Liquidity and Capital Resources
           95




---



##### Table of Contents



96




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##### Table of Contents



December 31,2008
    
    
    2007($ in thousands)Senior debt
    
    $
    123,794
    
    
    $
    123,673Stockholders equity
    
    
    689,317
    
    
    
    662,106Total capitalization
    
    $
    813,111
    
    
    $
    785,779Ratio of debt to total capitalization
    
    
    15.2
    %
    
    
    15.7
    %
        97




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##### Table of Contents



December 31,2008
    
    
    2007($ in thousands)Cash and investments
    
    $
    52,149
    
    
    $
    44,146Investments in subsidiaries
    
    
    751,864
    
    
    
    735,351Goodwill and other intangible assets
    
    
    2,534
    
    
    
    2,534Other assets
    
    
    8,769
    
    
    
    6,821Total assets
    
    $
    815,316
    
    
    $
    788,8527% Senior Notes due May 1, 2016
    
    $
    123,794
    
    
    $
    123,673Accounts payable and other liabilities
    
    
    747
    
    
    
    1,615Accrued interest payable
    
    
    1,458
    
    
    
    1,458Deferred compensation payable
    
    
    
    
    
    
    Total liabilities
    
    
    125,999
    
    
    
    126,746Stockholders equity
    
    
    689,317
    
    
    
    662,106Total liabilities and stockholders equity
    
    $
    815,316
    
    
    $
    788,852
  98




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##### Table of Contents



Economic Conditions
  
 ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
 Market Sensitive Instruments and Risk Management
     Interest Rate Risk Sensitivity Analysis
     99




---



##### Table of Contents



Interest Rate Shift in Basis Points-100
    
    
    -50
    
    

0
    
    
    +50
    
    
    +100($ in thousands)December 31, 2008:Total market
value
    
    $
    1,940,899
    
    
    $
    1,902,677
    
    
    $
    1,864,456
    
    
    $
    1,826,421
    
    
    $
    1,788,573Market value
change from base
    
    
    4.10
    %
    
    
    2.05
    %
    
    
    0.00
    %
    
    
    -2.04
    %
    
    
    -4.07
    %Change in
unrealized value
    
    $
    76,443
    
    
    $
    38,221
    
    
    $
    
    
    
    $
    (38,035
    )
    
    $
    (75,883
    )
 Equity Price Risk
   December 31,2008
    
    
    2007($ in thousands)Fair value of equity securities
    
    $
    51,802
    
    
    $
    67,240Pre-tax impact of 10 percent decline in market prices for equity exposures
    
    $
    5,180
    
    
    $
    6,724
 Foreign currency exchange rate risk
  
 Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
  
 Item 9.
 CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
  
 Item 9A. CONTROLS AND PROCEDURES
 Conclusion Regarding the Effectiveness of Disclosure Controls and Procedures
   100




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##### Table of Contents



Managements Report on Internal Control over Financial Reporting
 Internal Control  Integrated Framework Internal Control  Integrated Framework
  Changes in Internal Control over Financial Reporting
  
 Item 9B. OTHER INFORMATION
  
 Part III
 
 Item 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
   
 Item 11. EXECUTIVE COMPENSATION
  
 Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
   101




---



##### Table of Contents



Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
 .
 
 Item 14.
 PRINCIPAL ACCOUNTANT FEES AND SERVICES
  
 Part IV
 
 Item 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
  a.
    
    Financial Statements and Schedules:The financial statements and schedules that
are listed in the accompanying Index to Consolidated Financial Statements and Schedules on
page F-1.b.
    
    Exhibits:The exhibits that are listed in the accompanying Index to Exhibits on
the page which immediately follows page S-8. The exhibits include the management contracts
and compensatory plans or arrangements required to be filed as exhibits to this Form 10-K
by Item 601(a)(10)(iii) of Regulation S-K.
  102




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##### Table of Contents



SIGNATURES
  The Navigators Group, Inc.
(Company)Dated:  February 23, 2009
    By:
    /s/ FRANCIS W. MCDONNELLFrancis W. McDonnellSenior Vice President and
Chief Financial Officer  Name
    
    Title
    
    Date/s/ TERENCE N. DEEKS

Terence N. Deeks
    
    Chairman
    
    February 23, 2009/s/ STANLEY A. GALANSKI

Stanley A. Galanski
    
    President and Chief Executive
Officer
(Principal Executive Officer)
    
    February 23, 2009/s/ FRANCIS W. MCDONNELL

Francis W. McDonnell
    
    Senior Vice President and
Chief Financial Officer
(Principal Financial Officer)
    
    February 23, 2009/s/ THOMAS C. CONNOLLY

Thomas C. Connolly
    
    Vice President and Treasurer
Navigators Management Company
(Principal Accounting Officer)
    
    February 23, 2009/s/ H.J. MERVYN BLAKENEY

H.J. Mervyn Blakeney
    
    Director
    
    February 23, 2009/s/ PETER A. CHENEY

Peter A. Cheney
    
    Director
    
    February 23, 2009/s/ WILLIAM T. FORRESTER

William T. Forrester
    
    Director
    
    February 23, 2009/s/ LEANDRO S. GALBAN, JR.

Leandro S. Galban, Jr.
    
    Director
    
    February 23, 2009/s/ JOHN F. KIRBY

John F. Kirby
    
    Director
    
    February 23, 2009/s/ MARC M. TRACT

Marc M. Tract
    
    Director
    
    February 23, 2009/s/ ROBERT F. WRIGHT

Robert F. Wright
    
    Director
    
    February 23, 2009
  103




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##### Table of Contents



INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULES
 Report of Independent Registered Public Accounting Firm
    
    
    F-2Report of Independent Registered Public Accounting Firm
    
    
    F-3Consolidated Balance Sheets at December 31, 2008 and 2007
    
    
    F-4Consolidated Statements of Income for each of the years in the three-year period ended December 31, 2008
    
    
    F-5Consolidated Statements of Stockholders Equity for each of the years in the three-year period ended December 31, 2008
    
    
    F-6Consolidated Statements of Comprehensive Income for each of the years in the three-year period ended December 31, 2008
    
    
    F-7Consolidated Statements of Cash Flows for each of the years in the three-year period ended December 31, 2008
    
    
    F-8Notes to Consolidated Financial Statements
    
    
    F-9SCHEDULES:Schedule I Summary of Consolidated InvestmentsOther Than Investments in Related Parties
    
    
    S-1Schedule II Condensed Financial Information of Registrant
    
    
    S-2Schedule III Supplementary Insurance Information
    
    
    S-5Schedule IV Reinsurance
    
    
    S-6Schedule V Valuation and Qualifying Accounts
    
    
    S-7Schedule VI Supplementary Information Concerning Property-Casualty Insurance Operations
    
    
    S-8Index to Exhibits
  F-1




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##### Table of Contents



Report of Independent Registered Public Accounting Firm
 
    Internal
ControlIntegrated Framework
 KPMG LLP 
  F-2




---



##### Table of Contents



Report of Independent Registered Public Accounting Firm
 
 Internal Control  Integrated
Framework
    Internal Control  Integrated Framework
  KPMG LLP 
  F-3




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##### Table of Contents



THE NAVIGATORS GROUP, INC. AND SUBSIDIARIES
 
 CONSOLIDATED BALANCE SHEETS
 ($ in thousands, except share data)
 December 31,2008
    
    
    2007ASSETSInvestments and cash:Fixed
maturities, available-for-sale, at fair value (amortized cost: 2008, $1,664,755; 2007, $1,508,489)
    
    $
    1,643,772
    
    
    $
    1,522,320Equity securities, available-for-sale, at fair value (cost: 2008, $52,523; 2007, $65,492)
    
    
    51,802
    
    
    
    67,240Short-term investments, at cost which approximates fair value
    
    
    220,684
    
    
    
    170,685Cash
    
    
    1,457
    
    
    
    7,056Total investments and cash
    
    
    1,917,715
    
    
    
    1,767,301Premiums in course of collection
    
    
    170,522
    
    
    
    163,081Commissions receivable
    
    
    319
    
    
    
    2,381Prepaid reinsurance premiums
    
    
    188,874
    
    
    
    188,961Reinsurance receivable on paid losses
    
    
    67,227
    
    
    
    94,818Reinsurance receivable on unpaid losses and loss adjustment expense
    
    
    853,793
    
    
    
    801,461Net deferred income tax benefit
    
    
    54,736
    
    
    
    29,249Deferred policy acquisition costs
    
    
    47,618
    
    
    
    51,895Accrued investment income
    
    
    17,411
    
    
    
    15,605Goodwill and other intangible assets
    
    
    6,622
    
    
    
    8,084Other assets
    
    
    24,743
    
    
    
    20,935Total assets
    
    $
    3,349,580
    
    
    $
    3,143,771LIABILITIES AND STOCKHOLDERS EQUITYLiabilities:Reserves for losses and loss adjustment expenses
    
    $
    1,853,664
    
    
    $
    1,648,764Unearned premium
    
    
    480,665
    
    
    
    469,481Reinsurance balances payable
    
    
    140,319
    
    
    
    161,829Senior notes
    
    
    123,794
    
    
    
    123,673Federal income tax payable
    
    
    5,874
    
    
    
    10,868Accounts payable and other liabilities
    
    
    55,947
    
    
    
    67,050Total liabilities
    
    
    2,660,263
    
    
    
    2,481,665Stockholders equity:Preferred stock, $.10 par value, authorized 1,000,000 shares, none issued
    
    
    
    
    
    
    Common stock, $.10 par value, 50,000,000 shares authorized; issued and
outstanding: 16,856,073 (net of treasury shares) for 2008 and 16,873,094 for 2007
    
    
    1,708
    
    
    
    1,687Additional paid-in capital
    
    
    298,872
    
    
    
    291,616Treasury stock, at cost (224,754 shares at 12/31/08)
    
    
    (11,540
    )
    
    
    Retained earnings
    
    
    406,776
    
    
    
    355,084Accumulated other comprehensive income
    
    
    (6,499
    )
    
    
    13,719Total stockholders equity
    
    
    689,317
    
    
    
    662,106Total liabilities and stockholders equity
    
    $
    3,349,580
    
    
    $
    3,143,771
   F-4




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##### Table of Contents



THE NAVIGATORS GROUP, INC. AND SUBSIDIARIES
 
 CONSOLIDATED STATEMENTS OF INCOME
 ($ and shares in thousands, except net income per share)
 Year Ended December 31,2008
    
    
    2007
    
    
    2006Gross written premium
    
    $
    1,084,922
    
    
    $
    1,070,707
    
    
    $
    970,790Revenues:Net written premium
    
    $
    661,615
    
    
    $
    645,796
    
    
    $
    520,807(Increase) in unearned premium
    
    
    (17,639
    )
    
    
    (43,819
    )
    
    
    (52,484
    )Net earned premium
    
    
    643,976
    
    
    
    601,977
    
    
    
    468,323Commission income
    
    
    1,005
    
    
    
    1,736
    
    
    
    3,075Net investment income
    
    
    76,554
    
    
    
    70,662
    
    
    
    56,895Net realized capital gains (losses)
    
    
    (38,299
    )
    
    
    2,006
    
    
    
    (1,026
    )Other income (expense)
    
    
    430
    
    
    
    278
    
    
    
    (673
    )Total revenues
    
    
    683,666
    
    
    
    676,659
    
    
    
    526,594Operating expenses:Net losses and loss adjustment expenses incurred
    
    
    393,131
    
    
    
    340,592
    
    
    
    270,187Commission expense
    
    
    89,785
    
    
    
    77,613
    
    
    
    57,787Other operating expenses
    
    
    123,148
    
    
    
    110,409
    
    
    
    85,755Interest expense
    
    
    8,871
    
    
    
    8,863
    
    
    
    6,248Total operating expenses
    
    
    614,935
    
    
    
    537,477
    
    
    
    419,977Income before income tax expense (benefit)
    
    
    68,731
    
    
    
    139,182
    
    
    
    106,617Income tax expense (benefit):Current
    
    
    33,561
    
    
    
    47,963
    
    
    
    38,644Deferred
    
    
    (16,522
    )
    
    
    (4,401
    )
    
    
    (4,590
    )Total income tax expense
    
    
    17,039
    
    
    
    43,562
    
    
    
    34,054Net income
    
    $
    51,692
    
    
    $
    95,620
    
    
    $
    72,563Net income per common share:Basic
    
    $
    3.08
    
    
    $
    5.69
    
    
    $
    4.34Diluted
    
    $
    3.04
    
    
    $
    5.62
    
    
    $
    4.30Average common shares outstanding:Basic
    
    
    16,802
    
    
    
    16,812
    
    
    
    16,722Diluted
    
    
    16,992
    
    
    
    17,005
    
    
    
    16,856
   F-5




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##### Table of Contents



THE NAVIGATORS GROUP, INC. AND SUBSIDIARIES
 
 CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY
 ($ in thousands)
 Year Ended December 31,2008
    
    
    2007
    
    
    2006Preferred StockBalance at beginning and end of year
    
    $
    
    
    
    $
    
    
    
    $
    Common stockBalance at beginning of year
    
    $
    1,687
    
    
    $
    1,674
    
    
    $
    1,662Shares issued under stock plans
    
    
    21
    
    
    
    13
    
    
    
    12Balance at end of year
    
    $
    1,708
    
    
    $
    1,687
    
    
    $
    1,674Additional paid-in capitalBalance at beginning of year
    
    $
    291,616
    
    
    $
    286,732
    
    
    $
    282,463Shares issued under stock plans
    
    
    7,256
    
    
    
    4,884
    
    
    
    4,269Balance at end of year
    
    $
    298,872
    
    
    $
    291,616
    
    
    $
    286,732Treasury stock held at costBalance at beginning of year
    
    $
    
    
    
    $
    
    
    
    $
    Treasury stock acquired
    
    
    (11,540
    )
    
    
    
    
    
    
    Balance at end of year
    
    $
    (11,540
    )
    
    $
    
    
    
    $
    Retained earningsBalance at beginning of year
    
    $
    355,084
    
    
    $
    259,464
    
    
    $
    186,901Net income
    
    
    51,692
    
    
    
    95,620
    
    
    
    72,563Balance at end of year
    
    $
    406,776
    
    
    $
    355,084
    
    
    $
    259,464Accumulated other comprehensive income (loss)Net unrealized gains (losses) on securities, net of taxBalance at beginning of year
    
    $
    10,186
    
    
    $
    849
    
    
    $
    (884
    )Change in year
    
    
    (25,248
    )
    
    
    9,337
    
    
    
    1,733Balance at end of year
    
    
    (15,062
    )
    
    
    10,186
    
    
    
    849Cumulative translation adjustments, net of taxBalance at beginning of year
    
    
    3,533
    
    
    
    2,624
    
    
    
    96Net adjustment
    
    
    5,030
    
    
    
    909
    
    
    
    2,528Balance at end of year
    
    
    8,563
    
    
    
    3,533
    
    
    
    2,624Balance at end of year
    
    $
    (6,499
    )
    
    $
    13,719
    
    
    $
    3,473Total stockholders equity at end of year
    
    $
    689,317
    
    
    $
    662,106
    
    
    $
    551,343
   F-6




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##### Table of Contents



THE NAVIGATORS GROUP, INC. AND SUBSIDIARIES
 
 CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
 ($ in thousands)
 Year Ended December 31,2008
    
    
    2007
    
    
    2006Net income
    
    $
    51,692
    
    
    $
    95,620
    
    
    $
    72,563Other comprehensive income (loss):Change in net unrealized gains (losses) on securities,
net of tax expense (benefit) of $(12,034), $4,858 and $1,010
in 2008, 2007 and 2006, respectively(1)
    
    
    (25,248
    )
    
    
    9,337
    
    
    
    1,733Change in foreign currency translation gains or (losses),
net of tax expense of $2,709, $490 and $1,361
in 2008, 2007 and 2006, respectively
    
    
    5,030
    
    
    
    909
    
    
    
    2,528Other comprehensive income (loss)
    
    
    (20,218
    )
    
    
    10,246
    
    
    
    4,261Comprehensive income
    
    $
    31,474
    
    
    $
    105,866
    
    
    $
    76,824(1) Disclosure of reclassification amount, net of tax:Unrealized holding gains (losses) arising
during period
    
    $
    (50,142
    )
    
    $
    10,643
    
    
    $
    1,046Less: reclassification adjustment for net
gains (losses) included in net income
    
    
    (24,894
    )
    
    
    1,306
    
    
    
    (687
    )Change in net unrealized gains (losses) on securities, net of tax
    
    $
    (25,248
    )
    
    $
    9,337
    
    
    $
    1,733
   F-7




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##### Table of Contents



THE NAVIGATORS GROUP, INC. AND SUBSIDIARIES
 
 CONSOLIDATED STATEMENTS OF CASH FLOWS
 ($ in thousands)
 Year Ended December 31,2008
    
    
    2007
    
    
    2006Operating activities:Net income
    
    $
    51,692
    
    
    $
    95,620
    
    
    $
    72,563Adjustments to reconcile net income to net
cash provided by (used in) operating activities:Depreciation & amortization
    
    
    4,761
    
    
    
    3,350
    
    
    
    3,011Net deferred income tax (benefit)
    
    
    (16,522
    )
    
    
    (4,401
    )
    
    
    (4,590
    )Net realized capital (gains) losses
    
    
    38,299
    
    
    
    (2,006
    )
    
    
    1,026Changes in assets and liabilities:Reinsurance receivable on paid and unpaid
losses and loss adjustment expenses
    
    
    (48,314
    )
    
    
    129,314
    
    
    
    50,019Reserve for losses and loss adjustment expenses
    
    
    237,817
    
    
    
    34,844
    
    
    
    (25,104
    )Prepaid reinsurance premiums
    
    
    (3,701
    )
    
    
    (8,410
    )
    
    
    (35,354
    )Unearned premium
    
    
    20,183
    
    
    
    52,131
    
    
    
    81,734Premiums in course of collection
    
    
    (14,369
    )
    
    
    2,470
    
    
    
    5,712Commissions receivable
    
    
    2,020
    
    
    
    1,279
    
    
    
    39Deferred policy acquisition costs
    
    
    2,627
    
    
    
    (9,770
    )
    
    
    (9,142
    )Accrued investment income
    
    
    (1,822
    )
    
    
    (2,553
    )
    
    
    (2,618
    )Reinsurance balances payable
    
    
    (10,048
    )
    
    
    (34,342
    )
    
    
    1,342Federal income tax
    
    
    (798
    )
    
    
    6,847
    
    
    
    228Other
    
    
    (16,550
    )
    
    
    20,270
    
    
    
    7,164Net cash provided by operating activities
    
    
    245,275
    
    
    
    284,643
    
    
    
    146,030Investing activities:Fixed maturities, available-for-saleRedemptions and maturities
    
    
    131,674
    
    
    
    156,730
    
    
    
    120,947Sales
    
    
    186,106
    
    
    
    218,044
    
    
    
    157,645Purchases
    
    
    (473,295
    )
    
    
    (624,092
    )
    
    
    (539,401
    )Equity securities, available-for-saleSales
    
    
    22,041
    
    
    
    30,702
    
    
    
    6,287Purchases
    
    
    (40,746
    )
    
    
    (61,930
    )
    
    
    (17,812
    )Change in payable for securities
    
    
    (112
    )
    
    
    (428
    )
    
    
    (604
    )Net change in short-term investments
    
    
    (61,431
    )
    
    
    7,560
    
    
    
    (4,527
    )Purchase of property and equipment
    
    
    (7,548
    )
    
    
    (8,804
    )
    
    
    (4,703
    )Net cash (used in) investing activities
    
    
    (243,311
    )
    
    
    (282,218
    )
    
    
    (282,168
    )Financing activities:Purchase of treasury Stock
    
    
    (11,540
    )
    
    
    
    
    
    
    Net proceeds from debt offering
    
    
    
    
    
    
    
    
    
    
    123,538Proceeds of stock issued from Employee Stock Purchase Plan
    
    
    963
    
    
    
    606
    
    
    
    536Proceeds of stock issued from exercise of stock options
    
    
    3,014
    
    
    
    1,627
    
    
    
    1,265Net cash provided by financing activities
    
    
    (7,563
    )
    
    
    2,233
    
    
    
    125,339Effect of exchange rate changes on foreign currency cash
    
    
    
    
    
    
    (6
    )
    
    
    38Increase (decrease) in cash
    
    
    (5,599
    )
    
    
    4,652
    
    
    
    (10,761
    )Cash at beginning of year
    
    
    7,056
    
    
    
    2,404
    
    
    
    13,165Cash at end of year
    
    $
    1,457
    
    
    $
    7,056
    
    
    $
    2,404Supplemental disclosures of cash flow information:Federal, state and local income tax paid
    
    
    34,990
    
    
    
    40,046
    
    
    
    31,533Interest paid
    
    
    8,750
    
    
    
    8,750
    
    
    
    4,715Issuance of stock to directors
    
    
    200
    
    
    
    181
    
    
    
    140
   F-8




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##### Table of Contents



THE NAVIGATORS GROUP, INC. AND SUBSIDIARIES
 
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 Note 1. Organization and Summary of Significant Accounting Policies
      Investments
   F-9




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##### Table of Contents



Accounting for Nonrefundable Fees and Costs
Associated with Originating or Acquiring Loans and Initial Direct Costs of Leases
    Syndicate 1221
   F-10




---



##### Table of Contents



Translation of Foreign Currencies
 Foreign Currency Translation accumulated other comprehensive income other income (expense)
 Premium Revenues
  Commission Income
   F-11




---



##### Table of Contents



Deferred Policy Acquisition Costs
  Reserves for Losses and Loss Adjustment Expenses
  Net Income per Share
  Reinsurance Ceded
    F-12




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##### Table of Contents



Depreciation and Amortization
  Goodwill and Other Intangible Assets
  Business Combinations, Goodwill and Other Intangible Assets,
 Stock-Based Compensation
 Accounting for Stock-Based Compensation, Share Based Payment Accounting for
Stock-Based Compensation Stock Option Plans, Stock Grants, Stock Appreciation Rights and Employee Stock Purchase
Plan
 Federal Income Taxes
 Income Taxes
  F-13




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##### Table of Contents



Use of Estimates
  Application of New Accounting Standards
 Business Combinations Business Combinations
 Noncontrolling Interests in Consolidated Financial
Statements
 Disclosures about Derivative Instruments and Hedging
Activities Accounting for Derivative Instruments and Hedging Activities
  F-14




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##### Table of Contents



The Hierarchy of Generally Accepted Accounting
Principles
 Amendments
to the Impairment and Interest Income Measurement Guidance of EITF Issue No. 99-20 Recognition of Interest Income and Impairment on Purchased Beneficial Interests and Beneficial
Interests That Continue to be Held by a Transferor in Securitized Financial Assets Accounting for Certain Investments in Debt and Equity Securities
 Note 2. Earnings per Common Share
  Year Ended December 31, 2008Average
    
    
    NetNet
    
    
    Shares
    
    
    IncomeIncome
    
    
    Outstanding
    
    
    Per ShareBasic EPS:Income available to common stockholders
    
    $
    51,691,583
    
    
    
    16,801,713
    
    
    $
    3.08Effect of Dilutive Securities:Stock options and grants
    
    
    
    
    
    
    189,998Diluted EPS:Income available to common stockholders
    
    $
    51,691,583
    
    
    
    16,991,711
    
    
    $
    3.04
  F-15




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##### Table of Contents



Year Ended December 31, 2007Average
    
    
    NetNet
    
    
    Shares
    
    
    IncomeIncome
    
    
    Outstanding
    
    
    Per ShareBasic EPS:Income available to common
stockholders
    
    $
    95,620,201
    
    
    
    16,812,451
    
    
    $
    5.69Effect of Dilutive Securities:Stock options and grants
    
    
    
    
    
    
    192,398Diluted EPS:Income available to common
stockholders
    
    $
    95,620,201
    
    
    
    17,004,849
    
    
    $
    5.62
 Year Ended December 31, 2006Average
    
    
    NetNet
    
    
    Shares
    
    
    IncomeIncome
    
    
    Outstanding
    
    
    Per ShareBasic EPS:Income available to common stockholders
    
    $
    72,563,000
    
    
    
    16,721,964
    
    
    $
    4.34Effect of Dilutive Securities:Stock options and grants
    
    
    
    
    
    
    133,646Diluted EPS:Income available to common stockholders
    
    $
    72,563,000
    
    
    
    16,855,610
    
    
    $
    4.30
  Note 3. Segment Information
     F-16




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##### Table of Contents



F-17




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##### Table of Contents



Year Ended December 31, 2008Insurance
    
    
    LloydsCompanies
    
    
    Operations
    
    
    Corporate
    
    
    Total($ in thousands)Gross written premium
    
    $
    762,190
    
    
    $
    322,732
    
    
    
    
    
    
    $
    1,084,922Net written premium
    
    
    472,688
    
    
    
    188,927
    
    
    
    
    
    
    
    661,615Net earned premium
    
    
    463,298
    
    
    
    180,678
    
    
    
    
    
    
    
    643,976Net losses and loss adjustment expenses
    
    
    (275,767
    )
    
    
    (117,364
    )
    
    
    
    
    
    
    (393,131
    )Commission expense
    
    
    (55,752
    )
    
    
    (34,033
    )
    
    
    
    
    
    
    (89,785
    )Other operating expenses
    
    
    (92,297
    )
    
    
    (30,961
    )
    
    $
    110
    
    
    
    (123,148
    )Commission income and other income (expense)
    
    
    2,145
    
    
    
    (600
    )
    
    
    (110
    )
    
    
    1,435Underwriting profit (loss)
    
    
    41,627
    
    
    
    (2,280
    )
    
    
    
    
    
    
    39,347Investment income
    
    
    63,544
    
    
    
    11,655
    
    
    
    1,355
    
    
    
    76,554Net realized capital gains (losses)
    
    
    (37,822
    )
    
    
    (477
    )
    
    
    
    
    
    
    (38,299
    )Interest expense
    
    
    
    
    
    
    
    
    
    
    (8,871
    )
    
    
    (8,871
    )Income (loss) before income tax expense (benefit)
    
    
    67,349
    
    
    
    8,898
    
    
    
    (7,516
    )
    
    
    68,731Income tax expense (benefit)
    
    
    16,401
    
    
    
    3,269
    
    
    
    (2,631
    )
    
    
    17,039Net income (loss)
    
    $
    50,948
    
    
    $
    5,629
    
    
    $
    (4,885
    )
    
    $
    51,692Identifiable assets (1)
    
    $
    2,477,139
    
    
    $
    779,800
    
    
    $
    63,452
    
    
    $
    3,349,580Loss and loss expenses ratio
    
    
    59.5
    %
    
    
    65.0
    %
    
    
    
    
    
    
    61.0
    %Commission expense ratio
    
    
    12.0
    %
    
    
    18.8
    %
    
    
    
    
    
    
    13.9
    %Other operating expenses ratio (2)
    
    
    19.5
    %
    
    
    17.5
    %
    
    
    
    
    
    
    18.9
    %Combined ratio
    
    
    91.0
    %
    
    
    101.3
    %
    
    
    
    
    
    
    93.8
    %
 (1)
    
    Includes inter-segment
balances causing the row not to crossfoot.(2)
    
    Includes other operating expensesand commission income and other income (expense).  F-18




---



##### Table of Contents



Year Ended December 31, 2008Insurance
    
    
    LloydsCompanies
    
    
    Operations
    
    
    Total($ in thousands)Gross written premium:Marine
    
    $
    305,066
    
    
    $
    243,698
    
    
    $
    548,764Specialty
    
    
    311,846
    
    
    
    
    
    
    
    311,846Middle Markets
    
    
    30,095
    
    
    
    
    
    
    
    30,095Professional Liability
    
    
    109,048
    
    
    
    38,872
    
    
    
    147,920Other
    
    
    6,135
    
    
    
    40,162
    
    
    
    46,297Total
    
    $
    762,190
    
    
    $
    322,732
    
    
    $
    1,084,922Net written premium:Marine
    
    $
    169,055
    
    
    $
    153,641
    
    
    $
    322,696Specialty
    
    
    209,871
    
    
    
    
    
    
    
    209,871Middle Markets
    
    
    24,558
    
    
    
    
    
    
    
    24,558Professional Liability
    
    
    63,797
    
    
    
    23,404
    
    
    
    87,201Other
    
    
    5,407
    
    
    
    11,882
    
    
    
    17,289Total
    
    $
    472,688
    
    
    $
    188,927
    
    
    $
    661,615Net earned premium:Marine
    
    $
    153,429
    
    
    $
    146,152
    
    
    $
    299,581Specialty
    
    
    220,722
    
    
    
    
    
    
    
    220,722Middle Markets
    
    
    22,692
    
    
    
    
    
    
    
    22,692Professional Liability
    
    
    57,316
    
    
    
    21,908
    
    
    
    79,224Other
    
    
    9,139
    
    
    
    12,618
    
    
    
    21,757Total
    
    $
    463,298
    
    
    $
    180,678
    
    
    $
    643,976
  F-19




---



##### Table of Contents



Year Ended December 31, 2007Insurance
    
    
    LloydsCompanies
    
    
    Operations
    
    
    Corporate
    
    
    Total($ in thousands)Gross written premium
    
    $
    774,346
    
    
    $
    296,361
    
    
    
    
    
    
    $
    1,070,707Net written premium
    
    
    478,018
    
    
    
    167,778
    
    
    
    
    
    
    
    645,796Net earned premium
    
    
    443,456
    
    
    
    158,521
    
    
    
    
    
    
    
    601,977Net losses and loss adjustment expenses
    
    
    (256,652
    )
    
    
    (83,940
    )
    
    
    
    
    
    
    (340,592
    )Commission expense
    
    
    (52,490
    )
    
    
    (25,123
    )
    
    
    
    
    
    
    (77,613
    )Other operating expenses
    
    
    (81,053
    )
    
    
    (29,356
    )
    
    
    
    
    
    
    (110,409
    )Commission income and other income (expense)
    
    
    1,510
    
    
    
    504
    
    
    
    
    
    
    
    2,014Underwriting profit
    
    
    54,771
    
    
    
    20,606
    
    
    
    
    
    
    
    75,377Investment income
    
    
    58,261
    
    
    
    10,524
    
    
    $
    1,877
    
    
    
    70,662Net realized capital gains (losses)
    
    
    1,973
    
    
    
    33
    
    
    
    
    
    
    
    2,006Interest expense
    
    
    
    
    
    
    
    
    
    
    (8,863
    )
    
    
    (8,863
    )Income (loss) before income tax expense (benefit)
    
    
    115,005
    
    
    
    31,163
    
    
    
    (6,986
    )
    
    
    139,182Income tax expense (benefit)
    
    
    35,061
    
    
    
    10,946
    
    
    
    (2,445
    )
    
    
    43,562Net income (loss)
    
    $
    79,944
    
    
    $
    20,217
    
    
    $
    (4,541
    )
    
    $
    95,620Identifiable assets (1)
    
    $
    2,322,647
    
    
    $
    744,002
    
    
    $
    53,501
    
    
    $
    3,143,771Loss and loss expenses ratio
    
    
    57.9
    %
    
    
    53.0
    %
    
    
    
    
    
    
    56.6
    %Commission expense ratio
    
    
    11.8
    %
    
    
    15.8
    %
    
    
    
    
    
    
    12.9
    %Other operating expenses ratio (2)
    
    
    17.9
    %
    
    
    18.2
    %
    
    
    
    
    
    
    18.0
    %Combined ratio
    
    
    87.6
    %
    
    
    87.0
    %
    
    
    
    
    
    
    87.5
    %
 (1)
    
    Includes inter-segment
balances causing the row not to crossfoot.(2)
    
    Includes other operating expensesand commission income and other income (expense).  F-20




---



##### Table of Contents



Year Ended December 31, 2007Insurance
    
    
    LloydsCompanies
    
    
    Operations
    
    
    Total($ in thousands)Gross written premium:Marine
    
    $
    278,801
    
    
    $
    225,216
    
    
    $
    504,017Specialty
    
    
    355,523
    
    
    
    
    
    
    
    355,523Middle Markets
    
    
    25,870
    
    
    
    
    
    
    
    25,870Professional Liability
    
    
    99,556
    
    
    
    34,281
    
    
    
    133,837Other
    
    
    14,596
    
    
    
    36,864
    
    
    
    51,460Total
    
    $
    774,346
    
    
    $
    296,361
    
    
    $
    1,070,707Net written premium:Marine
    
    $
    141,817
    
    
    $
    131,430
    
    
    $
    273,247Specialty
    
    
    242,569
    
    
    
    
    
    
    
    242,569Middle Markets
    
    
    20,864
    
    
    
    
    
    
    
    20,864Professional Liability
    
    
    59,117
    
    
    
    23,349
    
    
    
    82,466Other
    
    
    13,651
    
    
    
    12,999
    
    
    
    26,650Total
    
    $
    478,018
    
    
    $
    167,778
    
    
    $
    645,796Net earned premium:Marine
    
    $
    135,617
    
    
    $
    132,443
    
    
    $
    268,060Specialty
    
    
    223,724
    
    
    
    
    
    
    
    223,724Middle Markets
    
    
    20,191
    
    
    
    
    
    
    
    20,191Professional Liability
    
    
    55,149
    
    
    
    17,659
    
    
    
    72,808Other
    
    
    8,775
    
    
    
    8,419
    
    
    
    17,194Total
    
    $
    443,456
    
    
    $
    158,521
    
    
    $
    601,977
  F-21




---



##### Table of Contents



Year Ended December 31, 2006Insurance
    
    
    LloydsCompanies
    
    
    Operations
    
    
    Corporate
    
    
    Total($ in thousands)Gross written premium
    
    $
    672,846
    
    
    $
    297,944
    
    
    
    
    
    
    $
    970,790Net written premium
    
    
    376,179
    
    
    
    144,628
    
    
    
    
    
    
    
    520,807Net earned premium
    
    
    329,723
    
    
    
    138,600
    
    
    
    
    
    
    
    468,323Net losses and loss adjustment expenses
    
    
    (191,740
    )
    
    
    (78,447
    )
    
    
    
    
    
    
    (270,187
    )Commission expense
    
    
    (36,412
    )
    
    
    (21,375
    )
    
    
    
    
    
    
    (57,787
    )Other operating expenses
    
    
    (62,459
    )
    
    
    (23,296
    )
    
    
    
    
    
    
    (85,755
    )Commission income and other income (expense)
    
    
    3,552
    
    
    
    (1,150
    )
    
    
    
    
    
    
    2,402Underwriting profit (loss)
    
    
    42,664
    
    
    
    14,332
    
    
    
    
    
    
    
    56,996Investment income
    
    
    47,723
    
    
    
    7,694
    
    
    $
    1,478
    
    
    
    56,895Net realized capital gains (losses)
    
    
    (622
    )
    
    
    (404
    )
    
    
    
    
    
    
    (1,026
    )Interest expense
    
    
    
    
    
    
    
    
    
    
    (6,248
    )
    
    
    (6,248
    )Income before income tax expense (benefit)
    
    
    89,765
    
    
    
    21,622
    
    
    
    (4,770
    )
    
    
    106,617Income tax expense (benefit)
    
    
    28,843
    
    
    
    7,601
    
    
    
    (2,390
    )
    
    
    34,054Net income (loss)
    
    $
    60,922
    
    
    $
    14,021
    
    
    $
    (2,380
    )
    
    $
    72,563Identifiable assets (1)
    
    $
    2,105,293
    
    
    $
    806,948
    
    
    $
    47,781
    
    
    $
    2,956,686Loss and loss expenses ratio
    
    
    58.2
    %
    
    
    56.6
    %
    
    
    
    
    
    
    57.7
    %Commission expense ratio
    
    
    11.0
    %
    
    
    15.4
    %
    
    
    
    
    
    
    12.3
    %Other operating expense ratio (2)
    
    
    17.9
    %
    
    
    17.6
    %
    
    
    
    
    
    
    17.8
    %Combined ratio
    
    
    87.1
    %
    
    
    89.6
    %
    
    
    
    
    
    
    87.8
    %
 (1)
    
    Includes inter-segment
balances causing the row not to crossfoot.(2)
    
    Includes other operating expensesand commission income and other income (expense).  F-22




---



##### Table of Contents



Year Ended December 31, 2006Insurance
    
    
    LloydsCompanies
    
    
    Operations
    
    
    Total($ in thousands)Gross written premium:Marine
    
    $
    266,675
    
    
    $
    245,134
    
    
    $
    511,809Specialty
    
    
    288,622
    
    
    
    
    
    
    
    288,622Middle Markets
    
    
    22,754
    
    
    
    
    
    
    
    22,754Professional Liability
    
    
    92,760
    
    
    
    21,759
    
    
    
    114,519Other
    
    
    2,035
    
    
    
    31,051
    
    
    
    33,086Total
    
    $
    672,846
    
    
    $
    297,944
    
    
    $
    970,790Net written premium:Marine
    
    $
    129,032
    
    
    $
    127,636
    
    
    $
    256,668Specialty
    
    
    176,931
    
    
    
    
    
    
    
    176,931Middle Markets
    
    
    18,173
    
    
    
    
    
    
    
    18,173Professional Liability
    
    
    51,192
    
    
    
    9,016
    
    
    
    60,208Other
    
    
    851
    
    
    
    7,976
    
    
    
    8,827Total
    
    $
    376,179
    
    
    $
    144,628
    
    
    $
    520,807Net earned premium:Marine
    
    $
    115,109
    
    
    $
    130,644
    
    
    $
    245,753Specialty
    
    
    156,031
    
    
    
    
    
    
    
    156,031Middle Markets
    
    
    16,449
    
    
    
    
    
    
    
    16,449Professional Liability
    
    
    41,437
    
    
    
    4,237
    
    
    
    45,674Other
    
    
    697
    
    
    
    3,719
    
    
    
    4,416Total
    
    $
    329,723
    
    
    $
    138,600
    
    
    $
    468,323
   F-23




---



##### Table of Contents



Note 4. Investments
 Fair Value Measurements
 
    
    Level 1  Quoted prices
for identical instruments in active markets.
 
    
    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.
 
    
    Level 3  Valuations derived from valuation techniques in which one or more
significant inputs or significant value drivers are unobservable.
   Quoted Prices
    
    
    SignificantIn Active
    
    
    Other
    
    
    SignificantMarkets for
    
    
    Observable
    
    
    UnobservableIdentical Assets
    
    
    Inputs
    
    
    InputsLevel 1
    
    
    Level 2
    
    
    Level 3
    
    
    Total($ in thousands)Fixed Maturities
    
    $
    271,392
    
    
    $
    1,372,224
    
    
    $
    156
    
    
    $
    1,643,772Equity securities
    
    
    51,802
    
    
    
    
    
    
    
    
    
    
    
    51,802Short-term investments
    
    
    59,957
    
    
    
    160,727
    
    
    
    
    
    
    
    220,684Total
    
    $
    383,151
    
    
    $
    1,532,951
    
    
    $
    156
    
    
    $
    1,916,258
  F-24




---



##### Table of Contents



Twelve Months EndedDecember 31, 2008($ in thousands)Level 3 investments as of January 1, 2008
    
    $
    2,603Unrealized net gains included in other comprehensive income (loss)
    
    
    (94
    )Purchases, sales, paydowns and amortization
    
    
    (704
    )Transfer from Level 3
    
    
    (1,979
    )Transfer to Level 3
    
    
    330Level 3 investments as of December 31, 2008
    
    $
    156
  The Fair Value Option for Financial Assets and
Financial Liabilities
 Effective Date of FASB Statement No. 157
 Determining the Fair Value of a Financial
Asset When the Market for That Asset Is Not Active
  F-25




---



##### Table of Contents



Gross
    
    
    GrossUnrealized
    
    
    Unrealized
    
    
    Cost orDecember 31, 2008
    
    Fair Value
    
    
    Gains
    
    
    (Losses)
    
    
    Amortized Cost($ in thousands)U.S. Government Treasury and Agency Bonds and foreign government bonds
    
    $
    361,656
    
    
    $
    25,741
    
    
    $
    (145
    )
    
    $
    336,060States, municipalities, and political
subdivisions
    
    
    614,609
    
    
    
    12,568
    
    
    
    (8,036
    )
    
    
    610,077Mortgage- and asset-backed securities:Mortgage-backed securities
    
    
    299,775
    
    
    
    10,930
    
    
    
    (26
    )
    
    
    288,871Collateralized mortgage obligations
    
    
    56,743
    
    
    
    
    
    
    
    (27,119
    )
    
    
    83,862Asset-backed securities
    
    
    29,436
    
    
    
    5
    
    
    
    (1,289
    )
    
    
    30,720Commercial mortgage-backed securities
    
    
    92,684
    
    
    
    
    
    
    
    (20,350
    )
    
    
    113,034Subtotal
    
    
    478,638
    
    
    
    10,935
    
    
    
    (48,784
    )
    
    
    516,487Corporate bonds
    
    
    188,869
    
    
    
    1,398
    
    
    
    (14,660
    )
    
    
    202,131Total fixed maturities
    
    
    1,643,772
    
    
    
    50,642
    
    
    
    (71,625
    )
    
    
    1,664,755Equity securities  common stocks
    
    
    51,802
    
    
    
    1,266
    
    
    
    (1,987
    )
    
    
    52,523Cash
    
    
    1,457
    
    
    
    
    
    
    
    
    
    
    
    1,457Short-term investments
    
    
    220,684
    
    
    
    
    
    
    
    
    
    
    
    220,684Total
    
    $
    1,917,715
    
    
    $
    51,908
    
    
    $
    (73,612
    )
    
    $
    1,939,419
  F-26




---



##### Table of Contents



Gross
    
    
    GrossUnrealized
    
    
    Unrealized
    
    
    Cost orDecember 31, 2007
    
    Fair Value
    
    
    Gains
    
    
    (Losses)
    
    
    Amortized Cost($ in thousands)U.S. Government Treasury and Agency Bonds and foreign government bonds
    
    $
    256,131
    
    
    $
    5,984
    
    
    $
    (63
    )
    
    $
    250,210States, municipalities, and political
subdivisions
    
    
    515,883
    
    
    
    7,050
    
    
    
    (657
    )
    
    
    509,490Mortgage- and asset-backed securities:Mortgage-backed securities
    
    
    266,270
    
    
    
    2,177
    
    
    
    (758
    )
    
    
    264,851Collateralized mortgage obligations
    
    
    109,560
    
    
    
    253
    
    
    
    (822
    )
    
    
    110,129Asset-backed securities
    
    
    64,352
    
    
    
    533
    
    
    
    (79
    )
    
    
    63,898Commercial mortgage-backed securities
    
    
    113,488
    
    
    
    544
    
    
    
    (1,031
    )
    
    
    113,975Subtotal
    
    
    553,670
    
    
    
    3,507
    
    
    
    (2,690
    )
    
    
    552,853Corporate bonds
    
    
    196,636
    
    
    
    2,504
    
    
    
    (1,804
    )
    
    
    195,936Total fixed maturities
    
    
    1,522,320
    
    
    
    19,045
    
    
    
    (5,214
    )
    
    
    1,508,489Equity securities  common stocks
    
    
    67,240
    
    
    
    6,452
    
    
    
    (4,704
    )
    
    
    65,492Cash
    
    
    7,056
    
    
    
    
    
    
    
    
    
    
    
    7,056Short-term investments
    
    
    170,685
    
    
    
    
    
    
    
    
    
    
    
    170,685Total
    
    $
    1,767,301
    
    
    $
    25,497
    
    
    $
    (9,918
    )
    
    $
    1,751,722
   F-27




---



##### Table of Contents



F-28




---



##### Table of Contents



December 31, 2008
    
    
    December 31, 2007Fair
    
    
    Gross
    
    
    Fair
    
    
    GrossValue
    
    
    Unrealized Loss
    
    
    Value
    
    
    Unrealized Loss($ in thousands)Fixed Maturities:US Government Treasury and Agency
Bonds and foreign government bonds0-6 Months
    
    $
    3,862
    
    
    $
    145
    
    
    $
    6,316
    
    
    $
    307-12 Months
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    > 12 Months
    
    
    
    
    
    
    
    
    
    
    6,527
    
    
    
    33Subtotal
    
    
    3,862
    
    
    
    145
    
    
    
    12,843
    
    
    
    63States, municipalities and
political subdivisions0-6 Months
    
    
    68,727
    
    
    
    2,187
    
    
    
    21,853
    
    
    
    677-12 Months
    
    
    118,910
    
    
    
    4,376
    
    
    
    6,045
    
    
    
    115> 12 Months
    
    
    15,918
    
    
    
    1,473
    
    
    
    69,671
    
    
    
    475Subtotal
    
    
    203,555
    
    
    
    8,036
    
    
    
    97,569
    
    
    
    657Mortgage- and asset-backed securities0-6 Months
    
    
    30,670
    
    
    
    939
    
    
    
    59,191
    
    
    
    5177-12 Months
    
    
    80,618
    
    
    
    26,966
    
    
    
    48,496
    
    
    
    423> 12 Months
    
    
    66,218
    
    
    
    20,879
    
    
    
    134,858
    
    
    
    1,750Subtotal
    
    
    177,506
    
    
    
    48,784
    
    
    
    242,545
    
    
    
    2,690Corporate bonds0-6 Months
    
    
    57,805
    
    
    
    2,445
    
    
    
    20,722
    
    
    
    2557-12 Months
    
    
    57,971
    
    
    
    5,893
    
    
    
    25,520
    
    
    
    974> 12 Months
    
    
    27,873
    
    
    
    6,322
    
    
    
    38,865
    
    
    
    575Subtotal
    
    
    143,649
    
    
    
    14,660
    
    
    
    85,107
    
    
    
    1,804Total Fixed Maturities
    
    $
    528,572
    
    
    $
    71,625
    
    
    $
    438,064
    
    
    $
    5,214Equity securities  common stocks0-6 Months
    
    $
    8,991
    
    
    $
    1,941
    
    
    $
    26,257
    
    
    $
    3,4947-12 Months
    
    
    351
    
    
    
    46
    
    
    
    4,153
    
    
    
    1,209> 12 Months
    
    
    
    
    
    
    
    
    
    
    53
    
    
    
    1Total Equity Securities
    
    $
    9,342
    
    
    $
    1,987
    
    
    $
    30,463
    
    
    $
    4,704
   F-29




---



##### Table of Contents



Period fromDecember 31, 2008
    
    Fair
    
    
    Amortizedto Maturity
    
    Value
    
    
    Cost($ in thousands)Due in one year or less
    
    $
    63,869
    
    
    $
    63,404Due after one year through five years
    
    
    470,919
    
    
    
    465,799Due after five years through ten years
    
    
    362,393
    
    
    
    352,696Due after ten years
    
    
    267,953
    
    
    
    266,369Mortgage- and asset-backed (including GNMAs)
    
    
    478,638
    
    
    
    516,487Total
    
    $
    1,643,772
    
    
    $
    1,664,755
   Year Ended December 31,2008
    
    
    2007
    
    
    2006($ in thousands)Fixed maturities
    
    $
    73,493
    
    
    $
    64,435
    
    
    $
    51,102Equity securities
    
    
    2,359
    
    
    
    1,767
    
    
    
    1,168Short-term investments
    
    
    3,925
    
    
    
    7,363
    
    
    
    7,05879,777
    
    
    
    73,565
    
    
    
    59,328Investment expenses
    
    
    (3,223
    )
    
    
    (2,903
    )
    
    
    (2,433
    )Net investment income
    
    $
    76,554
    
    
    $
    70,662
    
    
    $
    56,895
  F-30




---



##### Table of Contents



Year Ended December 31,2008
    
    
    2007
    
    
    2006($ in thousands)Fixed maturities:Gains
    
    $
    3,650
    
    
    $
    1,320
    
    
    $
    743(Losses)
    
    
    (1,670
    )
    
    
    (1,749
    )
    
    
    (2,385
    )(Impairments)
    
    
    (8,604
    )
    
    
    
    
    
    
    (6,624
    )
    
    
    (429
    )
    
    
    (1,642
    )Equity securities:Gains
    
    
    720
    
    
    
    3,626
    
    
    
    714(Losses)
    
    
    (3,954
    )
    
    
    (536
    )
    
    
    (98
    )(Impairments)
    
    
    (28,441
    )
    
    
    (655
    )
    
    
    (31,675
    )
    
    
    2,435
    
    
    
    616Net realized capital gains (losses)
    
    $
    (38,299
    )
    
    $
    2,006
    
    
    $
    (1,026
    )
   Note 5. Reserves for Losses and Loss Adjustment Expenses
   F-31




---



##### Table of Contents



F-32




---



##### Table of Contents



Year Ended December 31,2008
    
    
    2007
    
    
    2006($ in thousands)Net reserves for losses and LAE at
beginning of year
    
    $
    847,303
    
    
    $
    696,116
    
    
    $
    578,976Provision for losses and LAE for
claims occurring in the current year
    
    
    443,877
    
    
    
    387,601
    
    
    
    287,401(Decrease) in estimated losses and LAE
for claims occurring in prior years
    
    
    (50,746
    )
    
    
    (47,009
    )
    
    
    (17,214
    )Incurred losses and LAE
    
    
    393,131
    
    
    
    340,592
    
    
    
    270,187Losses and LAE paid for claims
occurring during:Current year
    
    
    (60,104
    )
    
    
    (46,467
    )
    
    
    (19,710
    )Prior years
    
    
    (180,459
    )
    
    
    (142,938
    )
    
    
    (133,337
    )Losses and LAE payments
    
    
    (240,563
    )
    
    
    (189,405
    )
    
    
    (153,047
    )Net reserves for losses and LAE at end of year
    
    
    999,871
    
    
    
    847,303
    
    
    
    696,116Reinsurance receivables on unpaid losses and LAE
    
    
    853,793
    
    
    
    801,461
    
    
    
    911,439Gross reserves for losses and LAE at end of year
    
    $
    1,853,664
    
    
    $
    1,648,764
    
    
    $
    1,607,555
  Year Ended December 31,2008
    
    
    2007
    
    
    2006($ in thousands)Insurance CompaniesMarine
    
    $
    (9,291
    )
    
    $
    (10,695
    )
    
    $
    (4,800
    )Specialty
    
    
    (27,021
    )
    
    
    (12,091
    )
    
    
    (6,060
    )Professional Liability
    
    
    (3,559
    )
    
    
    (10,365
    )
    
    
    (1,223
    )Middle Markets
    
    
    1,600
    
    
    
    
    
    
    
    Property/Other
    
    
    (3,651
    )
    
    
    (645
    )
    
    
    (649
    )Subtotal Insurance Companies
    
    
    (41,922
    )
    
    
    (33,796
    )
    
    
    (12,732
    )Lloyds Operations
    
    
    (8,824
    )
    
    
    (13,213
    )
    
    
    (4,482
    )Total
    
    $
    (50,746
    )
    
    $
    (47,009
    )
    
    $
    (17,214
    )
    F-33




---



##### Table of Contents



Note 6. Reinsurance
    A.M. Best
    
    Rating
    
    
    Recoverable
    
    
    PercentRating(1)
    
    Description
    
    
    Amounts
    
    
    of Total($ in millions)A++, A+
    
    Superior
    
    $
    597.5
    
    
    
    54
    %A, A-
    
    Excellent
    
    
    481.8
    
    
    
    43
    %B++, B+
    
    Very good
    
    
    0.9
    
    
    
    0
    %(2)NR
    
    Not rated
    
    
    29.7
    
    
    
    3
    %(2)Total
    
    
    
    
    
    $
    1,109.9
    
    
    
    100
    %
 (1)
    
    Equivalent S&P rating used for certain companies when an A.M. Best
rating was unavailable(2)
    
    The Company holds offsetting collateral of approximately 73.8% for B++
and B+ companies and 81.4% for not rated companies which includes letters of credit,
ceded balances payable and other balances held by our Insurance Companies and our
Lloyds Operations.  F-34




---



##### Table of Contents



Reinsurance RecoverablesUnearned
    
    
    Unpaid/Paid
    
    
    
    
    
    
    Collateral(1)
    
    
    Rating &Reinsurer
    
    Premium
    
    
    Losses
    
    
    Total
    
    
    Held
    
    
    Rating Agency($ in millions)Swiss Reinsurance America Corporation
    
    $
    21.3
    
    
    $
    116.0
    
    
    $
    137.3
    
    
    $
    16.2
    
    
    
    A+
    
    
    
    AMB
    (2)White Mountains Reinsurance of America
    
    
    10.6
    
    
    
    92.4
    
    
    
    103.0
    
    
    
    26.3
    
    
    
    A-
    
    
     
    AMBGeneral Reinsurance Corporation
    
    
    1.5
    
    
    
    66.6
    
    
    
    68.1
    
    
    
    0.8
    
    
    
    A++
    
    
     
    AMBTransatlantic Reinsurance Company
    
    
    20.9
    
    
    
    41.5
    
    
    
    62.4
    
    
    
    10.3
    
    
    
    A
    
    
     
    AMBEverest Reinsurance Company
    
    
    15.9
    
    
    
    36.9
    
    
    
    52.8
    
    
    
    6.1
    
    
    
    A+
    
    
     
    AMBMunich
Reinsurance America Inc.
    
    
    16.2
    
    
    
    35.8
    
    
    
    52.0
    
    
    
    9.7
    
    
    
    A+
    
    
     
    AMBMunchener Ruckversicherungs-Gesellschaft
    
    
    10.0
    
    
    
    31.9
    
    
    
    41.9
    
    
    
    13.0
    
    
    
    A+
    
    
     
    AMBNational Indemnity Company
    
    
    9.3
    
    
    
    30.7
    
    
    
    40.0
    
    
    
    5.4
    
    
    
    A++
    
    
     
    AMBPlatinum Underwriters Re
    
    
    8.3
    
    
    
    30.3
    
    
    
    38.6
    
    
    
    4.4
    
    
    
    A
    
    
     
    AMBSwiss Re Europe
    
    
    6.1
    
    
    
    30.2
    
    
    
    36.3
    
    
    
    9.9
    
    
    
    A+
    
    
     
    AMBLloyds Syndicate #2003
    
    
    7.2
    
    
    
    19.0
    
    
    
    26.2
    
    
    
    5.2
    
    
    
    A
    
    
     
    AMBBerkley Insurance Company
    
    
    12.5
    
    
    
    13.1
    
    
    
    25.6
    
    
    
    2.2
    
    
    
    A+
    
    
     
    AMBPartner Reinsurance Europe
    
    
    8.7
    
    
    
    15.3
    
    
    
    24.0
    
    
    
    12.2
    
    
    
    AA-
    
    
    
    S&PScor Holding (Switzerland) AG
    
    
    4.5
    
    
    
    18.7
    
    
    
    23.2
    
    
    
    3.9
    
    
    
    A
    
    
     
    AMBFederal
Insurance Co.
    
    
    1.1
    
    
    
    19.2
    
    
    
    20.3
    
    
    
    2.1
    
    
    
    A++
    
    
     
    AMBArch Reinsurance Company
    
    
    1.9
    
    
    
    16.9
    
    
    
    18.8
    
    
    
    0.2
    
    
    
    A
    
    
     
    AMBPartner
Reinsurance Company of the U.S.
    
    
    2.5
    
    
    
    14.9
    
    
    
    17.4
    
    
    
    0.2
    
    
    
    A+
    
    
     
    AMBHannover Ruckversicherung
    
    
    1.2
    
    
    
    16.0
    
    
    
    17.2
    
    
    
    2.0
    
    
    
    A
    
    
     
    AMBAce Property and Casualty Insurance Company
    
    
    0.1
    
    
    
    14.6
    
    
    
    14.7
    
    
    
    
    
    
    
    A+
    
    
     
    AMBNational Liability & Fire Insurance Company
    
    
    0.0
    
    
    
    14.3
    
    
    
    14.3
    
    
    
    
    
    
    
    A++
    
    
     
    AMBTop 20 Total
    
    
    159.8
    
    
    
    674.3
    
    
    
    834.1
    
    
    
    130.1All Other
    
    
    29.1
    
    
    
    246.7
    
    
    
    275.8
    
    
    
    99.8Total
    
    $
    188.9
    
    
    $
    921.0
    
    
    $
    1,109.9
    
    
    $
    229.9
 (1)
    
    Collateral includes letters of credit, ceded balances payable and other balances held
by our Insurance Companies and our Lloyds Operations(2)
    
    A.M. Best   F-35




---



##### Table of Contents



Year Ended December 31,2008
    
    
    2007
    
    
    2006($ in thousands)Direct
    
    $
    1,016,521
    
    
    $
    989,652
    
    
    $
    904,863Assumed
    
    
    68,401
    
    
    
    81,055
    
    
    
    65,927Ceded
    
    
    (423,307
    )
    
    
    (424,911
    )
    
    
    (449,983
    )Net
    
    $
    661,615
    
    
    $
    645,796
    
    
    $
    520,807
  Year Ended December 31,2008
    
    
    2007
    
    
    2006($ in thousands)Direct
    
    $
    993,123
    
    
    $
    940,447
    
    
    $
    811,794Assumed
    
    
    69,989
    
    
    
    78,164
    
    
    
    65,660Ceded
    
    
    (419,136
    )
    
    
    (416,634
    )
    
    
    (409,131
    )Net
    
    $
    643,976
    
    
    $
    601,977
    
    
    $
    468,323
  Year Ended December 31,2008
    
    
    2007
    
    
    2006($ in thousands)Direct
    
    $
    646,095
    
    
    $
    532,445
    
    
    $
    475,148Assumed
    
    
    38,013
    
    
    
    18,314
    
    
    
    22,854Ceded
    
    
    (290,977
    )
    
    
    (210,167
    )
    
    
    (227,815
    )Net
    
    $
    393,131
    
    
    $
    340,592
    
    
    $
    270,187
  F-36




---



##### Table of Contents



Note 7. Income Taxes
    F-37




---



##### Table of Contents



Year Ended December 31,2008
    
    
    2007
    
    
    2006($ in thousands)Current income tax expense:Federal and foreign
    
    $
    33,126
    
    
    $
    47,864
    
    
    $
    38,644State and local
    
    
    435
    
    
    
    99
    
    
    
    Subtotal
    
    
    33,561
    
    
    
    47,963
    
    
    
    38,644Deferred income tax expense:Federal and foreign
    
    
    (16,522
    )
    
    
    (4,401
    )
    
    
    (4,590
    )State and local
    
    
    
    
    
    
    
    
    
    
    Subtotal
    
    
    (16,522
    )
    
    
    (4,401
    )
    
    
    (4,590
    )Total income tax expense
    
    $
    17,039
    
    
    $
    43,562
    
    
    $
    34,054
  Year Ended December 31,2008
    
    
    2007
    
    
    2006($ in thousands)Computed expected tax expense
    
    $
    24,056
    
    
    
    35.0
    %
    
    $
    48,714
    
    
    
    35.0
    %
    
    $
    37,316
    
    
    
    35.0
    %Tax-exempt interest
    
    
    (6,650
    )
    
    
    -9.7
    %
    
    
    (4,736
    )
    
    
    -3.4
    %
    
    
    (3,331
    )
    
    
    -3.1
    %Dividends received deduction
    
    
    (493
    )
    
    
    -0.7
    %
    
    
    (345
    )
    
    
    -0.2
    %
    
    
    (243
    )
    
    
    -0.2
    %State and local income taxes,
net of
Federal income tax
    
    
    284
    
    
    
    0.4
    %
    
    
    64
    
    
    
    0.0
    %
    
    
    
    
    
    
    0.0
    %Change in the state and local
tax net
deferred tax assets
    
    
    (154
    )
    
    
    -0.2
    %
    
    
    (358
    )
    
    
    -0.3
    %
    
    
    (981
    )
    
    
    -1.0
    %Change in the valuation allowance
    
    
    154
    
    
    
    0.2
    %
    
    
    358
    
    
    
    0.3
    %
    
    
    981
    
    
    
    1.0
    %Other
    
    
    (158
    )
    
    
    -0.2
    %
    
    
    (135
    )
    
    
    -0.1
    %
    
    
    312
    
    
    
    0.2
    %Actual tax expense and rate
    
    $
    17,039
    
    
    
    24.8
    %
    
    $
    43,562
    
    
    
    31.3
    %
    
    $
    34,054
    
    
    
    31.9
    %
  F-38




---



##### Table of Contents



December 31,2008
    
    
    2007($ in thousands)Deferred tax assets:Loss reserve discount
    
    $
    31,393
    
    
    $
    28,857Unearned premium
    
    
    15,125
    
    
    
    14,467Capital Loss
    
    
    12,735
    
    
    
    336Compensation related
    
    
    6,012
    
    
    
    5,190State and local net deferred tax assets
    
    
    6,194
    
    
    
    6,183Other
    
    
    682
    
    
    
    497Total gross deferred tax assets
    
    
    72,141
    
    
    
    55,530Less: Valuation allowance
    
    
    (6,194
    )
    
    
    (6,348
    )Total deferred tax assets
    
    
    65,947
    
    
    
    49,182Deferred tax liabilities:Deferred acquisition costs
    
    
    (11,658
    )
    
    
    (10,794
    )Net unrealized gains (losses) on securities
    
    
    6,640
    
    
    
    (5,394
    )Other
    
    
    (6,193
    )
    
    
    (3,745
    )Total deferred tax liabilities
    
    
    (11,211
    )
    
    
    (19,933
    )Net deferred tax asset
    
    $
    54,736
    
    
    $
    29,249
   Accounting for Uncertainty in Income
Taxes Accounting for Income Taxes
  F-39




---



##### Table of Contents



Note 8. Credit Facility
    Note 9. Senior Note due May 1, 2016
     F-40




---



##### Table of Contents



Note 10. Fiduciary Funds
  Note 11. Commitments and Contingencies
 a.
    
    Future minimum annual rental commitments at December 31, 2008 under various noncancellable
operating leases for the Companys office facilities, which expire at various dates through
2018, are as follows:
 Year Ended December 31,
    
    ($ in thousands)2009
    
    $
    5,6552010
    
    
    6,7332011
    
    
    6,0412012
    
    
    6,0182013
    
    
    5,616Subsequent to 2013
    
    
    17,809Total
    
    $
    47,872
  b.
    
    The Company is not a party to, or the subject of, any material pending legal proceedings
which depart from the ordinary routine litigation incident to the kinds of business that it
conducts.
 c.
    
    Wherever a member of Lloyds is unable to pay its debts to policyholders, such debts may be
payable by the Lloyds Central Fund. If Lloyds determines that the Central Fund needs to be
increased, it has the power to assess premium levies on current Lloyds members up to 3% of a
members underwriting capacity in any one year. The Company does not believe that any
assessment is likely in the foreseeable future and has not provided any allowance for such an
assessment. However, based on the Companys 2008 capacity at Lloyds of £123 million, the
December 31, 2008 exchange rate of £1 equals $1.46 and assuming the maximum 3% assessment, the
Company would be assessed approximately $5.4 million.
  F-41




---



##### Table of Contents



Note 12. Share Capital and Share Repurchases
 a.
    
    Authorized
  b.
    
    Issued and outstanding
  Year Ended December 31,2008
    
    
    2007
    
    
    2006(in thousands)Balance, beginning of year
    
    
    16,873
    
    
    
    16,736
    
    
    
    16,617Vested stock grants
    
    
    36
    
    
    
    33
    
    
    
    32Employee stock purchase plan
    
    
    17
    
    
    
    15
    
    
    
    15Stock options exercised
    
    
    155
    
    
    
    89
    
    
    
    72Treasury shares purchased
    
    
    (225
    )
    
    
    
    
    
    
    Balance, end of year
    
    
    16,856
    
    
    
    16,873
    
    
    
    16,736
   Note 13. Dividends from Subsidiaries and Statutory Financial Information
    F-42




---



##### Table of Contents



Note 14. Stock Option Plans, Stock Grants, Stock Appreciation Rights and Employee Stock Purchase
Plan
 Accounting for Stock-Based Compensation Accounting for Stock-Based Compensation-Transition and
Disclosure
    F-43




---



##### Table of Contents



Year Ended December 31,2008
    
    
    2007
    
    
    2006Stock grants outstanding at
beginning of year
    
    
    391,866
    
    
    
    250,149
    
    
    
    99,708Granted
    
    
    243,587
    
    
    
    203,725
    
    
    
    208,623Vested
    
    
    (63,768
    )
    
    
    (40,827
    )
    
    
    (40,574
    )Forfeited
    
    
    (13,636
    )
    
    
    (21,181
    )
    
    
    (17,608
    )Balance at end of year
    
    
    558,049
    
    
    
    391,866
    
    
    
    250,149
  2008
    
    
    2007
    
    
    2006Average
    
    
    
    
    
    
    Average
    
    
    
    
    
    
    AverageNo. of
    
    
    Exercise
    
    
    No. of
    
    
    Exercise
    
    
    No. of
    
    
    ExerciseShares
    
    
    Prices
    
    
    Shares
    
    
    Prices
    
    
    Shares
    
    
    PricesOptions outstanding at
beginning of year
    
    
    384,350
    
    
    $
    23.34
    
    
    
    475,250
    
    
    $
    22.45
    
    
    
    554,000
    
    
    $
    21.85Granted
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Exercised
    
    
    (152,350
    )
    
    $
    19.78
    
    
    
    (88,525
    )
    
    $
    18.38
    
    
    
    (71,750
    )
    
    $
    17.30Expired or forfeited
    
    
    (250
    )
    
    $
    29.11
    
    
    
    (2,375
    )
    
    $
    29.11
    
    
    
    (7,000
    )
    
    $
    28.25Options outstanding at
end of year
    
    
    231,750
    
    
    $
    25.67
    
    
    
    384,350
    
    
    $
    23.34
    
    
    
    475,250
    
    
    $
    22.45Number of options
exercisable
    
    
    230,250
    
    
    $
    25.62
    
    
    
    329,600
    
    
    $
    22.12
    
    
    
    355,000
    
    
    $
    20.01
  F-44




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##### Table of Contents



Outstanding
    
    
    Average Remaining
    
    
    Average
    
    
    Exercisable
    
    
    AveragePrice Range
    
    Options
    
    
    Contract Life
    
    
    Exercise Price
    
    
    Options
    
    
    Exercise Price$10 to $15
    
    
    11,875
    
    
    
    1.7
    
    
    $
    10.50
    
    
    
    11,875
    
    
    $
    10.50$16 to $20
    
    
    41,500
    
    
    
    3.2
    
    
    $
    17.35
    
    
    
    41,500
    
    
    $
    17.35$21 to $30
    
    
    156,875
    
    
    
    4.9
    
    
    $
    27.96
    
    
    
    156,875
    
    
    $
    27.96$31 to $37
    
    
    21,500
    
    
    
    6.2
    
    
    $
    33.39
    
    
    
    20,000
    
    
    $
    33.37
   Year Ended December 31,2008
    
    
    2007
    
    
    2006Average
    
    
    
    
    
    
    Average
    
    
    
    
    
    
    AverageExercise
    
    
    
    
    
    
    Exercise
    
    
    
    
    
    
    ExerciseSARs
    
    
    Prices
    
    
    SARs
    
    
    Prices
    
    
    SARs
    
    
    PricesSARs outstanding at
beginning of year
    
    
    64,250
    
    
    $
    13.63
    
    
    
    118,750
    
    
    $
    13.41
    
    
    
    137,750
    
    
    $
    13.51Granted
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Exercised
    
    
    (5,000
    )
    
    $
    10.50
    
    
    
    (53,500
    )
    
    $
    12.98
    
    
    
    (19,000
    )
    
    $
    14.16Expired or forfeited
    
    
    
    
    
    
    
    
    
    
    (1,000
    )
    
    $
    22.50
    
    
    
    SARs outstanding at
end of year
    
    
    59,250
    
    
    $
    13.89
    
    
    
    64,250
    
    
    $
    13.63
    
    
    
    118,750
    
    
    $
    13.41Number of SARs
exercisable
    
    
    59,250
    
    
    $
    13.89
    
    
    
    64,250
    
    
    $
    13.63
    
    
    
    118,750
    
    
    $
    13.41
  F-45




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##### Table of Contents



Note 15. Retirement Plans
    F-46




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##### Table of Contents



Note 16. Quarterly Financial Data (Unaudited)
  March 31,
    
    
    June 30,
    
    
    Sept. 30,
    
    
    Dec. 31,2008
    
    
    2008
    
    
    2008
    
    
    2008($ in thousands, except net income per share)Gross written premium
    
    $
    287,146
    
    
    $
    279,213
    
    
    $
    252,943
    
    
    $
    265,620Net written premium
    
    
    187,722
    
    
    
    174,287
    
    
    
    140,318
    
    
    
    159,288Revenues:Net earned premium
    
    
    155,740
    
    
    
    162,703
    
    
    
    154,040
    
    
    
    171,493Commission income
    
    
    261
    
    
    
    467
    
    
    
    8
    
    
    
    269Net investment income
    
    
    18,838
    
    
    
    18,731
    
    
    
    19,322
    
    
    
    19,663Net realized capital (losses)
    
    
    (76
    )
    
    
    (7,976
    )
    
    
    (5,516
    )
    
    
    (24,731
    )Other income (expense)
    
    
    11
    
    
    
    1,010
    
    
    
    (119
    )
    
    
    (472
    )Total revenues
    
    
    174,774
    
    
    
    174,935
    
    
    
    167,735
    
    
    
    166,222Operating expenses:Net losses and loss adjustment
expenses incurred
    
    
    88,420
    
    
    
    91,889
    
    
    
    113,269
    
    
    
    99,553Commission expense
    
    
    20,948
    
    
    
    23,490
    
    
    
    22,357
    
    
    
    22,990Other operating expenses
    
    
    29,756
    
    
    
    33,237
    
    
    
    30,601
    
    
    
    29,554Interest expense
    
    
    2,217
    
    
    
    2,217
    
    
    
    2,218
    
    
    
    2,219Total operating expenses
    
    
    141,341
    
    
    
    150,833
    
    
    
    168,445
    
    
    
    154,316Income (loss) before income tax
expense (benefit)
    
    
    33,433
    
    
    
    24,102
    
    
    
    (710
    )
    
    
    11,906Income tax expense (benefit)
    
    
    10,183
    
    
    
    6,681
    
    
    
    (1,711
    )
    
    
    1,886Net income
    
    $
    23,250
    
    
    $
    17,421
    
    
    $
    1,001
    
    
    $
    10,020Comprehensive income (loss)
    
    $
    19,556
    
    
    $
    810
    
    
    $
    (20,245
    )
    
    $
    31,353Combined ratio
    
    
    89.2
    %
    
    
    90.4
    %
    
    
    107.9
    %
    
    
    88.9
    %Net income per common share:Basic
    
    $
    1.38
    
    
    $
    1.04
    
    
    $
    0.06
    
    
    $
    0.60Diluted
    
    $
    1.36
    
    
    $
    1.03
    
    
    $
    0.06
    
    
    $
    0.59
   F-47




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##### Table of Contents



March 31,
    
    
    June 30,
    
    
    Sept. 30,
    
    
    Dec. 31,2007
    
    
    2007
    
    
    2007
    
    
    2007($ in thousands, except net income per share)Gross written premium
    
    $
    300,861
    
    
    $
    276,546
    
    
    $
    245,961
    
    
    $
    247,336Net written premium
    
    
    173,019
    
    
    
    161,350
    
    
    
    159,102
    
    
    
    152,325Revenues:Net earned premium
    
    
    139,046
    
    
    
    145,617
    
    
    
    156,038
    
    
    
    161,276Commission income
    
    
    408
    
    
    
    486
    
    
    
    117
    
    
    
    725Net investment income
    
    
    16,216
    
    
    
    17,330
    
    
    
    17,930
    
    
    
    19,186Net realized capital gains (losses)
    
    
    201
    
    
    
    840
    
    
    
    (66
    )
    
    
    1,031Other income (expense)
    
    
    (71
    )
    
    
    (253
    )
    
    
    298
    
    
    
    304Total revenues
    
    
    155,800
    
    
    
    164,020
    
    
    
    174,317
    
    
    
    182,522Operating expenses:Net losses and loss adjustment
expenses incurred
    
    
    81,192
    
    
    
    79,739
    
    
    
    88,019
    
    
    
    91,642Commission expense
    
    
    17,099
    
    
    
    17,650
    
    
    
    19,676
    
    
    
    23,188Interest expense
    
    
    26,289
    
    
    
    28,608
    
    
    
    27,902
    
    
    
    27,610Other operating expenses
    
    
    2,215
    
    
    
    2,215
    
    
    
    2,216
    
    
    
    2,217Total operating expenses
    
    
    126,795
    
    
    
    128,212
    
    
    
    137,813
    
    
    
    144,657Income before income tax expense
    
    
    29,005
    
    
    
    35,808
    
    
    
    36,504
    
    
    
    37,865Income tax expense
    
    
    9,333
    
    
    
    11,433
    
    
    
    11,471
    
    
    
    11,325Net income
    
    $
    19,672
    
    
    $
    24,375
    
    
    $
    25,033
    
    
    $
    26,540Comprehensive income
    
    $
    21,273
    
    
    $
    12,107
    
    
    $
    37,518
    
    
    $
    34,968Combined ratio
    
    
    89.4
    %
    
    
    86.4
    %
    
    
    86.6
    %
    
    
    87.7
    %Net income per common share:Basic
    
    $
    1.17
    
    
    $
    1.45
    
    
    $
    1.49
    
    
    $
    1.57Diluted
    
    $
    1.17
    
    
    $
    1.44
    
    
    $
    1.47
    
    
    $
    1.55
   F-48




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##### Table of Contents



Gross
    
    
    GrossUnrealized
    
    
    Unrealized
    
    
    Cost orDecember 31, 2008
    
    Fair Value
    
    
    Gains
    
    
    (Losses)
    
    
    Amortized Cost($ in thousands)U.S. Government Treasury and Agency
Bonds and foreign government bonds
    
    $
    361,656
    
    
    $
    25,741
    
    
    $
    (145
    )
    
    $
    336,060States, municipalities, and political
subdivisions
    
    
    614,609
    
    
    
    12,568
    
    
    
    (8,036
    )
    
    
    610,077Mortgage- and asset-backed securities:Mortgage-backed securities
    
    
    299,775
    
    
    
    10,930
    
    
    
    (26
    )
    
    
    288,871Collateralized mortgage obligations
    
    
    56,743
    
    
    
    
    
    
    
    (27,119
    )
    
    
    83,862Asset-backed securities
    
    
    29,436
    
    
    
    5
    
    
    
    (1,289
    )
    
    
    30,720Commercial mortgage-backed securities
    
    
    92,684
    
    
    
    
    
    
    
    (20,350
    )
    
    
    113,034Subtotal
    
    
    478,638
    
    
    
    10,935
    
    
    
    (48,784
    )
    
    
    516,487Corporate bonds
    
    
    188,869
    
    
    
    1,398
    
    
    
    (14,660
    )
    
    
    202,131Total fixed maturities
    
    
    1,643,772
    
    
    
    50,642
    
    
    
    (71,625
    )
    
    
    1,664,755Equity securities  common stocks
    
    
    51,802
    
    
    
    1,266
    
    
    
    (1,987
    )
    
    
    52,523Cash
    
    
    1,457
    
    
    
    
    
    
    
    
    
    
    
    1,457Short-term investments
    
    
    220,684
    
    
    
    
    
    
    
    
    
    
    
    220,684Total
    
    $
    1,917,715
    
    
    $
    51,908
    
    
    $
    (73,612
    )
    
    $
    1,939,419
  S-1




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##### Table of Contents



($ in thousands, except share data)
 December 31,2008
    
    
    2007ASSETSCash and investments
    
    $
    52,149
    
    
    $
    44,146Investments in subsidiaries
    
    
    751,864
    
    
    
    735,351Goodwill and other intangible assets
    
    
    2,534
    
    
    
    2,534Other assets
    
    
    8,769
    
    
    
    6,821Total assets
    
    $
    815,316
    
    
    $
    788,852LIABILITIES7% Senior Notes due May 1, 2016
    
    $
    123,794
    
    
    $
    123,673Accounts payable and other liabilities
    
    
    747
    
    
    
    1,615Accrued interest payable
    
    
    1,458
    
    
    
    1,458Total liabilities
    
    
    125,999
    
    
    
    126,746STOCKHOLDERS EQUITYPreferred stock, $.10 par value,
1,000,000 shares authorized, none issued
    
    
    
    
    
    
    Common stock, $.10 par value, 50,000,000 shares
authorized; issued and outstanding: 16,856,073 for
2008 (net of treasury shares) and 16,873,094 for 2007
    
    
    1,708
    
    
    
    1,687Additional paid-in capital
    
    
    298,872
    
    
    
    291,616Treasury stock, at cost (224,754 shares at 12/31/08)
    
    
    (11,540
    )
    
    
    Retained earnings
    
    
    406,776
    
    
    
    355,084Accumulated other comprehensive income:Net unrealized gains (losses) on securities
available-for-sale, net of tax
    
    
    (15,062
    )
    
    
    10,186Foreign currency translation adjustment, net of tax
    
    
    8,563
    
    
    
    3,533Total stockholders equity
    
    
    689,317
    
    
    
    662,106Total liabilities and stockholders equity
    
    $
    815,316
    
    
    $
    788,852
  S-2




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##### Table of Contents



($ in thousands)
 Year Ended December 31,2008
    
    
    2007
    
    
    2006Revenues:Net investment income
    
    $
    1,354
    
    
    $
    1,877
    
    
    $
    1,478Dividends received from wholly-owned
subsidiaries
    
    
    20,000
    
    
    
    8,000
    
    
    
    Total revenues
    
    
    21,354
    
    
    
    9,877
    
    
    
    1,478Expenses:Interest expense
    
    
    8,871
    
    
    
    8,863
    
    
    
    6,248Other (income) expense
    
    
    1,016
    
    
    
    (1,996
    )
    
    
    2,072Total expenses
    
    
    9,887
    
    
    
    6,867
    
    
    
    8,320Income (loss) before income tax (benefit)
    
    
    11,467
    
    
    
    3,010
    
    
    
    (6,842
    )Income tax (benefit)
    
    
    (3,495
    )
    
    
    (1,804
    )
    
    
    (2,390
    )Income (loss) before equity in undistributed net
income of wholly owned subsidiaries
    
    
    14,962
    
    
    
    4,814
    
    
    
    (4,452
    )Equity in undistributed net income of wholly owned
subsidiaries
    
    
    36,730
    
    
    
    90,806
    
    
    
    77,015Net Income
    
    $
    51,692
    
    
    $
    95,620
    
    
    $
    72,563
  S-3




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##### Table of Contents



($ in thousands)
 Year Ended December 31,2008
    
    
    2007
    
    
    2006Operating activities:Net income
    
    $
    51,692
    
    
    $
    95,620
    
    
    $
    72,563Adjustments to reconcile net income
to net cash (used in) provided by operations:Equity in undistributed net (income) of wholly-
owned subsidiaries
    
    
    (56,730
    )
    
    
    (98,806
    )
    
    
    (77,015
    )Dividends received from subsidiaries
    
    
    20,000
    
    
    
    8,000
    
    
    
    Other
    
    
    604
    
    
    
    4,792
    
    
    
    (5,505
    )Net cash (used in) provided by operating activities
    
    
    15,566
    
    
    
    9,606
    
    
    
    (9,957
    )Investing activities:Fixed maturities, available-for-saleSales
    
    
    9,637
    
    
    
    
    
    
    
    Purchases
    
    
    (13,500
    )
    
    
    10,500
    
    
    
    (20,137
    )Investments in wholly-owned subsidiaries
    
    
    
    
    
    
    
    
    
    
    (100,000
    )Net (increase) decrease in short-term investments
    
    
    2,432
    
    
    
    (20,497
    )
    
    
    5,792Net cash (used in) investing activities
    
    
    (1,431
    )
    
    
    (9,997
    )
    
    
    (114,345
    )Financing activities:Net proceeds from debt offering
    
    
    
    
    
    
    
    
    
    
    123,538Purchase of Treasury Stock
    
    
    (11,540
    )
    
    
    
    
    
    
    Proceeds of stock issued from employee stock purchase plan
    
    
    963
    
    
    
    606
    
    
    
    536Proceeds of stock issued from exercise of stock options
    
    
    3,014
    
    
    
    1,627
    
    
    
    1,265Net cash provided by financing activities
    
    
    (7,563
    )
    
    
    2,233
    
    
    
    125,339Increase (decrease) in cash
    
    
    6,572
    
    
    
    1,842
    
    
    
    1,037Cash at beginning of year
    
    
    3,103
    
    
    
    1,261
    
    
    
    224Cash at end of year
    
    $
    9,675
    
    
    $
    3,103
    
    
    $
    1,261
  S-4




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##### Table of Contents



($ in thousands)
 Reserve
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Losses
    
    
    AmortizationDeferred
    
    
    for losses
    
    
    
    
    
    
    Other policy
    
    
    
    
    
    
    
    
    
    
    and loss
    
    
    of deferredpolicy
    
    
    and loss
    
    
    
    
    
    
    claims and
    
    
    Net
    
    
    Net
    
    
    adjustment
    
    
    policy
    
    
    Other
    
    
    Netacquisition
    
    
    adjustment
    
    
    Unearned
    
    
    benefits
    
    
    earned
    
    
    investment
    
    
    expenses
    
    
    acquisition
    
    
    operating
    
    
    writtencosts
    
    
    expenses
    
    
    premiums
    
    
    payable
    
    
    premium
    
    
    income (1)
    
    
    incurred
    
    
    costs (2)
    
    
    expenses (1)
    
    
    premiumYear ended December 31, 2008Insurance Companies
    
    $
    33,308
    
    
    $
    1,359,231
    
    
    $
    348,824
    
    
    $
    
    
    
    $
    463,298
    
    
    $
    63,544
    
    
    $
    275,767
    
    
    $
    55,752
    
    
    $
    92,297
    
    
    $
    472,688Lloyds Operations
    
    
    14,310
    
    
    
    494,433
    
    
    
    131,841
    
    
    
    
    
    
    
    180,678
    
    
    
    11,655
    
    
    
    117,364
    
    
    
    34,033
    
    
    
    30,961
    
    
    
    188,927$
    47,618
    
    
    $
    1,853,664
    
    
    $
    480,665
    
    
    $
    
    
    
    $
    643,976
    
    
    $
    75,199
    
    
    $
    393,131
    
    
    $
    89,785
    
    
    $
    123,258
    
    
    $
    661,615Year ended December 31, 2007Insurance Companies
    
    $
    30,840
    
    
    $
    1,201,595
    
    
    $
    336,261
    
    
    $
    
    
    
    $
    443,456
    
    
    $
    58,261
    
    
    $
    256,652
    
    
    $
    52,490
    
    
    $
    81,053
    
    
    $
    478,018Lloyds Operations
    
    
    21,055
    
    
    
    447,169
    
    
    
    133,220
    
    
    
    
    
    
    
    158,521
    
    
    
    10,524
    
    
    
    83,940
    
    
    
    25,123
    
    
    
    29,356
    
    
    
    167,778$
    51,895
    
    
    $
    1,648,764
    
    
    $
    469,481
    
    
    $
    
    
    
    $
    601,977
    
    
    $
    68,785
    
    
    $
    340,592
    
    
    $
    77,613
    
    
    $
    110,409
    
    
    $
    645,796Year ended December 31, 2006Insurance Companies
    
    $
    24,578
    
    
    $
    1,079,379
    
    
    $
    292,803
    
    
    $
    
    
    
    $
    329,723
    
    
    $
    47,723
    
    
    $
    191,740
    
    
    $
    36,412
    
    
    $
    62,459
    
    
    $
    376,179Lloyds Operations
    
    
    17,122
    
    
    
    528,176
    
    
    
    122,293
    
    
    
    
    
    
    
    138,600
    
    
    
    7,694
    
    
    
    78,447
    
    
    
    21,375
    
    
    
    23,296
    
    
    
    144,628$
    41,700
    
    
    $
    1,607,555
    
    
    $
    415,096
    
    
    $
    
    
    
    $
    468,323
    
    
    $
    55,417
    
    
    $
    270,187
    
    
    $
    57,787
    
    
    $
    85,755
    
    
    $
    520,807
 (1)
    
    Net investment income and other operating expenses reflect only such amounts attributable
to the Companys insurance operations.(2)
    
    Amortization of deferred policy acquisition costs reflects only such amounts attributable
to the Companys insurance operations. A portion of these costs is eliminated in consolidation.  S-5




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##### Table of Contents



($ in thousands)
 Ceded to
    
    
    Assumed
    
    
    
    
    
    
    PercentageDirect
    
    
    other
    
    
    from other
    
    
    Net
    
    
    of amountAmount
    
    
    companies
    
    
    companies
    
    
    amount
    
    
    assumed to netYear ended December 31, 2008Property-Casualty
    
    $
    1,016,521
    
    
    $
    423,307
    
    
    $
    68,401
    
    
    $
    661,615
    
    
    
    10
    %Year ended December 31, 2007Property-Casualty
    
    $
    989,652
    
    
    $
    424,911
    
    
    $
    81,055
    
    
    $
    645,796
    
    
    
    13
    %Year ended December 31, 2006Property-Casualty
    
    $
    904,863
    
    
    $
    449,983
    
    
    $
    65,927
    
    
    $
    520,807
    
    
    
    13
    %
  S-6




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##### Table of Contents



($ in thousands)
 Balance at
    
    
    
    
    
    
    
    
    
    
    
    Balance atJanuary 1,
    
    
    Charged (Credited) to
    
    
    Charged to
    
    
    Deductions
    
    
    December 31,Description
    
    2008
    
    
    Costs and Expenses
    
    
    Other Accounts
    
    
    (Describe)
    
    
    2008Allowance for
uncollectible
reinsurance
    
    $
    9,394
    
    
    $
    2,411
    
    
    $
    
    
    
    $
    
    
    
    $
    11,805Valuation
allowance in
deferred taxes
    
    $
    6,348
    
    
    $
    (154
    )
    
    $
    
    
    
    $
    
    
    
    $
    6,194
  S-7




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##### Table of Contents



($ in thousands)
 Reserve
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    AmortizationDeferred
    
    
    for losses
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Losses and loss adjustment
    
    
    of deferredAffiliation
    
    policy
    
    
    and loss
    
    
    Discount,
    
    
    
    
    
    
    Net
    
    
    Net
    
    
    expenses incurred related to
    
    
    policy
    
    
    Other
    
    
    Netwith
    
    acquisition
    
    
    adjustment
    
    
    if any,
    
    
    Unearned
    
    
    earned
    
    
    investment
    
    
    Current
    
    
    Prior
    
    
    acquisition
    
    
    operating
    
    
    writtenRegistrant
    
    costs
    
    
    expenses
    
    
    deducted
    
    
    premium
    
    
    premium
    
    
    income (1)
    
    
    year
    
    
    years
    
    
    costs (2)
    
    
    expenses (1)
    
    
    premiumConsolidated SubsidiariesYear ended December 31, 2008
    
    $
    47,618
    
    
    $
    1,853,664
    
    
    $
    
    
    
    $
    480,665
    
    
    $
    643,976
    
    
    $
    75,199
    
    
    $
    443,877
    
    
    $
    (50,746
    )
    
    $
    89,785
    
    
    $
    123,258
    
    
    $
    661,615Year ended December 31, 2007
    
    $
    51,895
    
    
    $
    1,648,764
    
    
    $
    
    
    
    $
    469,481
    
    
    $
    601,977
    
    
    $
    68,785
    
    
    $
    387,601
    
    
    $
    (47,009
    )
    
    $
    77,613
    
    
    $
    110,409
    
    
    $
    645,796Year ended December 31, 2006
    
    $
    41,700
    
    
    $
    1,607,555
    
    
    $
    
    
    
    $
    415,096
    
    
    $
    468,323
    
    
    $
    55,417
    
    
    $
    287,401
    
    
    $
    (17,214
    )
    
    $
    57,787
    
    
    $
    85,755
    
    
    $
    520,807
 (1)
    
    Net investment income and
other operating expenses reflect only such amounts attributable
to the Companys Insurance Operations.(2)
    
    Amortization of deferred
policy acquisition costs reflects only such amounts attributable
to the Companys Insurance Operations. A portion of these costs is eliminated in
consolidation.  S-8




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##### Table of Contents



INDEX TO EXHIBITS
 Previously Filed andIncorporated HereinExhibit No.
    
    Description of Exhibit
    
    by Reference to:3-1
    
    Restated Certificate of Incorporation
    
    Form S-8 filed July 26, 2002
(File No. 333-97183)3-2
    
    Certificate of Amendment to the Restated Certificate of Incorporation
    
    Form S-8 filed July 26, 2002
(File No. 333-97183)3-3
    
    By-laws, as amended
    
    Form S-1 (File No. 33-5667)3-4
    
    Certificate of Amendment to the Restated Certificate of Incorporation
    
    Form 10-Q for June 30, 20064-1
    
    Specimen of Common Stock certificate, par value $0.10
per share
    
    Form S-8 filed June 20, 2003
(File No. 333-106317)10-1
    
    Management Agreement between Navigators Insurance Company
and Navigators Management Company, Inc. (formerly Somerset
Marine, Inc.)
    
    Form S-1 (File No. 33-5667)10-2
    
    Agreement between the Company and Navigators Management
Company, Inc. (formerly Somerset Marine, Inc.)
    
    Form S-1 (File No. 33-5667)10-3*
    
    Stock Option Plan
    
    Form S-1 (File No. 33-5667)10-4*
    
    Non-Qualified Stock Option Plan
    
    Form S-4 (File No. 33-75918)10-5
    
    Agreement with Bradley D. Wiley dated June 3, 1997
    
    Form 10-K for December 31, 199710-6
    
    Employment Agreement with Salvatore A. Margarella dated
March 1, 1999
    
    Form 10-K for December 31, 199810-7
    
    Employment Agreement with Stanley A. Galanski effective
March 26, 2001
    
    Form 10-Q for March 31, 200110-8
    
    Employment Agreement with R. Scott Eisdorfer dated
September 1, 1999
    
    Form 10-K for December 31, 200210-9*
    
    2002 Stock Incentive Plan
    
    Proxy Statement for May 30, 200210-10*
    
    Employee Stock Purchase Plan
    
    Proxy Statement for May 29, 200310-11*
    
    Executive Performance Incentive Plan
    
    Proxy Statement for May 29, 200310-12
    
    Form of Indemnity Agreement by the Company and the Selling
Stockholders (as defined therein)
    
    Amendment No. 2 to Form S-3
dated October 1, 2003 (File No. 333-108424)10-13
    
    Agreement with Paul J. Malvasio dated October 9, 2003
    
    Form 10-K for December 31, 200310-14
    
    Form of Stock Grant Award Certificate and Restricted Stock
Agreement for the 2002 Stock Incentive Plan (approved at Annual
Meeting of Shareholders held May 30, 2002)
    
    Form 10-Q for September 30, 200410-15
    
    Form of Option Award Certificate for the 2002 Stock Incentive
Plan (approved at Annual Meeting of Shareholders held May 30,
2002)
    
    Form 10-Q for September 30, 200410-16
    
    Agreement with Jane E. Keller
    
    Form 10-Q for September 30, 200410-17
    
    Common Stock Grant Award to Stanley A. Galanski under the
2002 Stock Incentive Plan
    
    Form 8-K filed December 14, 200410-18
    
    Commutation Agreement between Navigators Insurance Company
and Somerset Insurance Limited
    
    Form 8-K filed January 18, 200510-19
    
    Second Amended and Restated Credit Agreement among the
Company and the Lenders dated January 31, 2005
    
    Form 8-K filed February 4, 200510-20*
    
    2005 Stock Incentive Plan
    
    Proxy Statement for May 20, 200510-21
    
    Agreement with Elliot S. Orol
    
    Form 10-Q for June 30, 200510-22
    
    Agreement with John F. Kirby
    
    Form 8-K filed July 7, 200610-23
    
    Third Amended and Restated Credit Agreement among the
Company and the Lenders dated February 2, 2007
    
    Form 8-K filed February 7, 2007




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##### Table of Contents



Previously Filed andIncorporated HereinExhibit No.
    
    Description of Exhibit
    
    by Reference to:10-24
    
    Paul J. Malvasio Letter Agreement and Retirement Agreement
    
    Form 10-Q for March 31, 200810-25
    
    Agreement with Francis W. McDonnell
    
    Form 8-K filed July 29, 200811-1
    
    Statement re Computation of Per Share Earnings
    
    **21-1
    
    Subsidiaries of Registrant
    
    **23-1
    
    Consent of Independent Registered Public Accounting Firm
    
    **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).
    
    **
 
 *
    
    Compensatory plan.**
    
    Included herein.