##### 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, 2009
 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
(State or other jurisdiction of 
incorporation or organization)
    
    13-3138397
(I.R.S. Employer Identification No.)6 International Drive, Rye Brook, New York
(Address of principal executive offices)
    
    10573
(Zip Code)
 Registrants telephone number, including area code: (914) 934-8999
 Securities registered pursuant to section 12(b) of the Act:
 Title of each class:
    
    Name of each exchange on which registered:Common Stock, $.10 Par Value
    
    The NASDAQ Global Select Market
 Securities registered pursuant to Section 12(g) of the Act:
None
 Yes o No þ
 Yes o No þ
 Yes þ No o
 Yes o No o
 þ
  Large accelerated filer o
    
    Accelerated filer þ
    
    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
    
    
    3Overview
    
    
    3Business Lines
    
    
    5Ratings
    
    
    8Loss Reserves
    
    
    9Catastrophe Risk Management
    
    
    15Hurricanes Gustav, Ike, Katrina and Rita
    
    
    16Reinsurance Recoverables
    
    
    17Investments
    
    
    19Regulation
    
    
    21Competition
    
    
    24Employees
    
    
    25Available Information
    
    
    25ITEM 1A. Risk Factors
    
    
    26ITEM 1B. Unresolved Staff Comments
    
    
    33ITEM 2. Properties
    
    
    34ITEM 3. Legal Proceedings
    
    
    34ITEM 4. Submission of Matters to a Vote of Security Holders
    
    
    34PART IIITEM 5. Market for Registrants Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
    
    
    35ITEM 6. Selected Financial Data
    
    
    39ITEM 7. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    40Overview
    
    
    40Critical Accounting Policies
    
    
    42Results of Operations
    
    
    51Segment Information
    
    
    70Off-Balance Sheet Transactions
    
    
    77Tabular Disclosure of Contractual Obligations
    
    
    77Investments
    
    
    78Liquidity and Capital Resources
    
    
    93ITEM 7A. Quantitative and Qualitative Disclosures about Market Risk
    
    
    98ITEM 8. Financial Statements and Supplementary Data
    
    
    99ITEM 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
    
    
    99ITEM 9A. Controls and Procedures
    
    
    99ITEM 9B. Other Information
    
    
    102PART IIIITEM 10. Directors, Executive Officers and Corporate Governance
    
    
    102ITEM 11. Executive Compensation
    
    
    102ITEM 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
    
    
    102ITEM 13. Certain Relationships and Related Transactions, and Director Independence
    
    
    102ITEM 14. Principal Accounting Fees and Services
    
    
    103PART IVITEM 15. Exhibits, Financial Statement Schedules
    
    
    103Signatures
    
    
    104Index 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 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 report. They contain 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 above and elsewhere in this
report.
 
 Part I
 
 Item 1. BUSINESS
 
 Overview
    3




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4




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Business Lines
  
    
    The offshore energy business, formerly included in the Marine and Energy
businesses of the Insurance Companies and Lloyds Operations, is now included in the
Insurance Companies and Lloyds Operations Property Casualty businesses.
 
    
    The marine lines within both the Insurance Companies and Lloyds Operations are
now presented as Marine instead of Marine and Energy, since the offshore energy
business has now been reclassified to Property Casualty.
 
    
    Engineering and construction, European Property and other run-off business,
formerly included in the Other category of business within the Insurance Companies
and Lloyds Operations, are now included under Property Casualty.
 
    
    The Middle Markets business, formerly broken out separately in the Insurance
Companies, is now included in the Insurance Companies Property Casualty business.
 Marine
  Marine  Insurance Companies
    
         Marine liability
     Bluewater hull
     Brownwater hull
     Cargo, specie and logistics
     Protection & indemnity
     Transport
     Builders risk
     War
     Customs bondsInland Marine  Insurance Companies
    
         Transportation
     Construction equipment
     Builders risk
     Jewelry, fine arts & other specialties
     Commercial output policyMarine  Lloyds Operations
    
         Cargo and specie
     Marine liability
     Bluewater hull
     Marine excess-of-loss reinsurance
  5




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Property Casualty
  Navigators Property and Casualty (NAV PAC)
 Insurance Companies
    
         Multi-Peril
     Commercial automotive
     Liability
     Property
     Umbrella
     Inland marine
     Crime insurancePrimary Casualty  Insurance Companies
    
         Construction liability
     Construction wrap-up
     Primary casualty
     Environmental liability
     Life sciences liabilityExcess Casualty  Insurance Companies
    
         Excess casualty
     Commercial umbrellaNavigators Technical Risk (NavTech)
 Insurance Companies
    
         Offshore energy
     Onshore energy
     Operational engineering
     ConstructionCasualty  Lloyds Operations
    
         Bloodstock
     U.S. Casualty written through LloydsNavigators Technical Risk (NavTech)
 Lloyds Operations
    
         Offshore energy
     Onshore energy
     Engineering and construction
  6




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7




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Professional Liability
  Navigators Professional Liability (Navigators Pro)
 Insurance Companies
    
         Accountants professional liability
     Directors & officers liability
     Employment practice liability
     Lawyers professional liability
     Insurance agent errors & omissions
     Miscellaneous professional liabilityNavigators Professional Liability (Navigators Pro)
 Lloyds Operations
    
         Directors & officers liability
     Lawyers professional liability
     
 Ratings
   8




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Loss Reserves
  Casualty and Professional Liability
  9




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10




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Year Ended December 31,2009
    
    
    2008
    
    
    2007($ in thousands)Net reserves for losses and LAE at
beginning of year
    
    $
    999,871
    
    
    $
    847,303
    
    
    $
    696,116Provision for losses and LAE for
claims occurring in the current year
    
    
    444,939
    
    
    
    443,877
    
    
    
    387,601Decrease in estimated losses and LAE
for claims occurring in prior years
    
    
    (8,941
    )
    
    
    (50,746
    )
    
    
    (47,009
    )Incurred losses and LAE
    
    
    435,998
    
    
    
    393,131
    
    
    
    340,592Losses and LAE paid for claims
occurring during:Current year
    
    
    (59,412
    )
    
    
    (60,104
    )
    
    
    (46,467
    )Prior years
    
    
    (263,523
    )
    
    
    (180,459
    )
    
    
    (142,938
    )Losses and LAE payments
    
    
    (322,935
    )
    
    
    (240,563
    )
    
    
    (189,405
    )Net reserves for losses and LAE at end of year
    
    
    1,112,934
    
    
    
    999,871
    
    
    
    847,303Reinsurance recoverables on unpaid losses and LAE
    
    
    807,352
    
    
    
    853,793
    
    
    
    801,461Gross reserves for losses and LAE at end of year
    
    $
    1,920,286
    
    
    $
    1,853,664
    
    
    $
    1,648,764
    11




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Loss Reserves for Losses and Loss Adjustment
Expenses
  12




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##### Table of Contents



Year Ended December 31,1999
    
    
    2000
    
    
    2001
    
    
    2002
    
    
    2003
    
    
    2004
    
    
    2005
    
    
    2006
    
    
    2007
    
    
    2008
    
    
    2009($ in thousands)Net reserves for losses
and LAE
    
    $
    170,530
    
    
    $
    174,883
    
    
    $
    202,759
    
    
    $
    264,647
    
    
    $
    374,171
    
    
    $
    463,788
    
    
    $
    578,976
    
    
    $
    696,116
    
    
    $
    847,303
    
    
    $
    999,871
    
    
    $
    1,112,934Reserves for losses and
LAE re-estimated as of:One year later
    
    
    165,536
    
    
    
    180,268
    
    
    
    209,797
    
    
    
    323,282
    
    
    
    370,335
    
    
    
    460,007
    
    
    
    561,762
    
    
    
    649,107
    
    
    
    796,557
    
    
    
    990,930Two years later
    
    
    160,096
    
    
    
    183,344
    
    
    
    266,459
    
    
    
    328,683
    
    
    
    360,964
    
    
    
    457,769
    
    
    
    523,541
    
    
    
    589,044
    
    
    
    776,844Three years later
    
    
    156,322
    
    
    
    232,530
    
    
    
    266,097
    
    
    
    321,213
    
    
    
    377,229
    
    
    
    432,988
    
    
    
    481,532
    
    
    
    555,448Four years later
    
    
    194,924
    
    
    
    227,554
    
    
    
    256,236
    
    
    
    334,991
    
    
    
    362,227
    
    
    
    401,380
    
    
    
    461,563Five years later
    
    
    190,830
    
    
    
    218,982
    
    
    
    264,431
    
    
    
    325,249
    
    
    
    343,182
    
    
    
    391,766Six years later
    
    
    185,075
    
    
    
    225,031
    
    
    
    260,264
    
    
    
    314,332
    
    
    
    333,857Seven years later
    
    
    188,055
    
    
    
    221,541
    
    
    
    257,852
    
    
    
    305,051Eight years later
    
    
    187,422
    
    
    
    220,045
    
    
    
    250,021Nine years later
    
    
    186,581
    
    
    
    213,198Ten years later
    
    
    180,431Net cumulative redundancy
(deficiency)
    
    
    (9,901
    )
    
    
    (38,315
    )
    
    
    (47,262
    )
    
    
    (40,404
    )
    
    
    40,314
    
    
    
    72,022
    
    
    
    117,413
    
    
    
    140,668
    
    
    
    70,458
    
    
    
    8,941Net cumulative paid as of:One year later
    
    
    43,301
    
    
    
    53,646
    
    
    
    64,785
    
    
    
    84,385
    
    
    
    80,034
    
    
    
    96,981
    
    
    
    133,337
    
    
    
    142,938
    
    
    
    180,459
    
    
    
    263,523Two years later
    
    
    71,535
    
    
    
    91,352
    
    
    
    112,746
    
    
    
    133,911
    
    
    
    140,644
    
    
    
    180,121
    
    
    
    219,125
    
    
    
    233,211
    
    
    
    322,892Three years later
    
    
    88,570
    
    
    
    114,449
    
    
    
    138,086
    
    
    
    170,236
    
    
    
    195,961
    
    
    
    238,673
    
    
    
    264,663
    
    
    
    300,328Four years later
    
    
    101,667
    
    
    
    127,961
    
    
    
    159,042
    
    
    
    208,266
    
    
    
    223,847
    
    
    
    262,425
    
    
    
    302,273Five years later
    
    
    108,146
    
    
    
    141,384
    
    
    
    185,037
    
    
    
    226,798
    
    
    
    239,355
    
    
    
    283,538Six years later
    
    
    116,752
    
    
    
    159,389
    
    
    
    196,098
    
    
    
    234,284
    
    
    
    251,006Seven years later
    
    
    131,579
    
    
    
    171,768
    
    
    
    198,760
    
    
    
    241,083Eight years later
    
    
    142,709
    
    
    
    171,744
    
    
    
    203,370Nine years later
    
    
    142,101
    
    
    
    176,876Ten years later
    
    
    146,798Gross liability-end of year
    
    
    391,094
    
    
    
    357,674
    
    
    
    401,177
    
    
    
    489,642
    
    
    
    724,612
    
    
    
    966,117
    
    
    
    1,557,991
    
    
    
    1,607,555
    
    
    
    1,648,764
    
    
    
    1,853,664
    
    
    
    1,920,286Reinsurance recoverable
    
    
    220,564
    
    
    
    182,791
    
    
    
    198,418
    
    
    
    224,995
    
    
    
    350,441
    
    
    
    502,329
    
    
    
    979,015
    
    
    
    911,439
    
    
    
    801,461
    
    
    
    853,793
    
    
    
    807,352Net liability-end of year
    
    
    170,530
    
    
    
    174,883
    
    
    
    202,759
    
    
    
    264,647
    
    
    
    374,171
    
    
    
    463,788
    
    
    
    578,976
    
    
    
    696,116
    
    
    
    847,303
    
    
    
    999,871
    
    
    
    1,112,934Gross re-estimated latest
    
    
    429,719
    
    
    
    463,960
    
    
    
    529,707
    
    
    
    639,674
    
    
    
    698,021
    
    
    
    862,260
    
    
    
    1,367,835
    
    
    
    1,388,088
    
    
    
    1,544,672
    
    
    
    1,851,667Re-estimated recoverable latest
    
    
    249,289
    
    
    
    250,763
    
    
    
    279,685
    
    
    
    334,623
    
    
    
    364,164
    
    
    
    470,493
    
    
    
    906,272
    
    
    
    832,640
    
    
    
    767,828
    
    
    
    860,737Net re-estimated latest
    
    
    180,431
    
    
    
    213,198
    
    
    
    250,021
    
    
    
    305,051
    
    
    
    333,857
    
    
    
    391,766
    
    
    
    461,563
    
    
    
    555,448
    
    
    
    776,844
    
    
    
    990,930Gross cumulative redundancy
(deficiency)
    
    
    (38,625
    )
    
    
    (106,286
    )
    
    
    (128,530
    )
    
    
    (150,032
    )
    
    
    26,591
    
    
    
    103,857
    
    
    
    190,156
    
    
    
    219,467
    
    
    
    104,092
    
    
    
    1,997
  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)2008
    
    $
    1,997
    
    
    $
    2,926
    
    
    $
    (16,517
    )
    
    $
    (929
    )
    
    $
    (15,588
    )
    
    $
    18,5142007
    
    
    104,092
    
    
    
    105,817
    
    
    
    57,512
    
    
    
    (1,725
    )
    
    
    59,237
    
    
    
    46,5802006
    
    
    219,467
    
    
    
    220,412
    
    
    
    131,443
    
    
    
    (945
    )
    
    
    132,388
    
    
    
    88,0242005
    
    
    190,156
    
    
    
    191,347
    
    
    
    97,758
    
    
    
    (1,191
    )
    
    
    98,949
    
    
    
    92,3982004
    
    
    103,857
    
    
    
    87,639
    
    
    
    84,639
    
    
    
    16,218
    
    
    
    68,421
    
    
    
    19,2182003
    
    
    26,591
    
    
    
    11,556
    
    
    
    20,128
    
    
    
    15,035
    
    
    
    5,093
    
    
    
    6,4632002
    
    
    (150,032
    )
    
    
    (87,230
    )
    
    
    (144,804
    )
    
    
    (62,802
    )
    
    
    (82,002
    )
    
    
    (5,228
    )2001
    
    
    (128,530
    )
    
    
    (65,371
    )
    
    
    (117,136
    )
    
    
    (63,159
    )
    
    
    (53,977
    )
    
    
    (11,394
    )2000
    
    
    (106,286
    )
    
    
    (42,879
    )
    
    
    (77,340
    )
    
    
    (63,407
    )
    
    
    (13,933
    )
    
    
    (28,946
    )1999
    
    
    (38,625
    )
    
    
    24,893
    
    
    
    (21,912
    )
    
    
    (63,518
    )
    
    
    41,606
    
    
    
    (16,713
    )
 Net Cumulative Redundancy (Deficiency)
 Consolidated
    
    
    Insurance CompaniesYear
    
    Grand
    
    
    Excluding
    
    
    
    
    
    
    
    
    
    
    All
    
    
    LloydsEnded
    
    Total
    
    
    Asbestos
    
    
    Total
    
    
    Asbestos
    
    
    Other (1)
    
    
    Operations($ in thousands)2008
    
    $
    8,941
    
    
    $
    8,916
    
    
    $
    3,079
    
    
    $
    25
    
    
    $
    3,054
    
    
    $
    5,8622007
    
    
    70,458
    
    
    
    70,696
    
    
    
    54,475
    
    
    
    (238
    )
    
    
    54,713
    
    
    
    15,9832006
    
    
    140,668
    
    
    
    142,685
    
    
    
    104,831
    
    
    
    (2,017
    )
    
    
    106,848
    
    
    
    35,8372005
    
    
    117,413
    
    
    
    119,659
    
    
    
    85,408
    
    
    
    (2,246
    )
    
    
    87,654
    
    
    
    32,0052004
    
    
    72,022
    
    
    
    74,797
    
    
    
    51,083
    
    
    
    (2,775
    )
    
    
    53,858
    
    
    
    20,9392003
    
    
    40,314
    
    
    
    43,494
    
    
    
    19,279
    
    
    
    (3,180
    )
    
    
    22,459
    
    
    
    21,0352002
    
    
    (40,404
    )
    
    
    (5,544
    )
    
    
    (51,720
    )
    
    
    (34,860
    )
    
    
    (16,860
    )
    
    
    11,3162001
    
    
    (47,262
    )
    
    
    (12,254
    )
    
    
    (47,261
    )
    
    
    (35,008
    )
    
    
    (12,253
    )
    
    
    (1
    )2000
    
    
    (38,315
    )
    
    
    (3,213
    )
    
    
    (28,001
    )
    
    
    (35,102
    )
    
    
    7,101
    
    
    
    (10,314
    )1999
    
    
    (9,901
    )
    
    
    25,306
    
    
    
    (6,730
    )
    
    
    (35,207
    )
    
    
    28,477
    
    
    
    (3,171
    )
 (1)
    
    Contains cumulative loss development for all active and run-off lines of business exclusive of asbestos losses.  14




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Casualty and Professional Liability.
   Reserves for Losses and Loss Adjustment Expenses
 
 Catastrophe Risk Management
     15




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Hurricanes Gustav, Ike, Katrina and Rita
    16




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Loss Reserves for Losses and Loss Adjustment Expenses
 
 Reinsurance Recoverables
      A.M. Best
    
    Rating
    
    Recoverable
    
    
    PercentRating (1)
    
    Description
    
    Amounts
    
    
    of Total($ in millions)A++, A+
    
    Superior
    
    $
    436.7
    
    
    
    42
    %A, A-
    
    Excellent
    
    
    585.2
    
    
    
    56
    %B++, B+
    
    Very good
    
    
    0.8
    
    
    
    0
    %(2)NR
    
    Not rated
    
    
    23.5
    
    
    
    2
    %(2)Total
    
    
    
    $
    1,046.2
    
    
    
    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 102.1% for B++
and B+ companies and 71.8% 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.  17




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Reinsurance RecoverablesUnearned
    
    
    Unpaid/Paid
    
    
    
    
    
    
    Collateral
    
    
    Rating &Reinsurer
    
    Premium
    
    
    Losses
    
    
    Total
    
    
    Held (1)
    
    
    Rating Agency($ in millions)Swiss Reinsurance America Corporation
    
    $
    9.0
    
    
    $
    97.8
    
    
    $
    106.8
    
    
    $
    9.2
    
    
    A
    
    AMB
    (2)Munich Reinsurance America Inc.
    
    
    26.1
    
    
    
    60.3
    
    
    
    86.4
    
    
    
    16.2
    
    
    A+
    
    AMBTransatlantic Reinsurance Company
    
    
    21.7
    
    
    
    49.3
    
    
    
    71.0
    
    
    
    9.5
    
    
    A
    
    AMBWhite Mountains Reinsurance of America
    
    
    1.2
    
    
    
    68.6
    
    
    
    69.8
    
    
    
    2.3
    
    
    A-
    
    AMBEverest Reinsurance Company
    
    
    19.9
    
    
    
    49.4
    
    
    
    69.3
    
    
    
    8.5
    
    
    A+
    
    AMBGeneral Reinsurance Corporation
    
    
    1.5
    
    
    
    58.3
    
    
    
    59.8
    
    
    
    1.7
    
    
    A++
    
    AMBMunchener Ruckversicherungs-Gesellschaft
    
    
    4.9
    
    
    
    37.0
    
    
    
    41.9
    
    
    
    10.2
    
    
    A+
    
    AMBNational Indemnity Company
    
    
    7.5
    
    
    
    29.8
    
    
    
    37.3
    
    
    
    3.1
    
    
    A++
    
    AMBPlatinum Underwriters Re
    
    
    4.2
    
    
    
    26.8
    
    
    
    31.0
    
    
    
    2.6
    
    
    A
    
    AMBBerkley Insurance Company
    
    
    8.1
    
    
    
    21.1
    
    
    
    29.2
    
    
    
    1.5
    
    
    A+
    
    AMBScor Holding (Switzerland) AG
    
    
    5.9
    
    
    
    19.2
    
    
    
    25.1
    
    
    
    5.9
    
    
    A-
    
    AMBSwiss Re International SE
    
    
    1.3
    
    
    
    22.2
    
    
    
    23.5
    
    
    
    6.2
    
    
    A
    
    AMBPartner Reinsurance Europe
    
    
    5.6
    
    
    
    17.6
    
    
    
    23.2
    
    
    
    8.7
    
    
    AA-
    
    S&PLloyds Syndicate #2003
    
    
    3.6
    
    
    
    17.9
    
    
    
    21.5
    
    
    
    3.4
    
    
    A
    
    AMBPartner Reinsurance Company of the U.S.
    
    
    1.0
    
    
    
    19.6
    
    
    
    20.6
    
    
    
    0.1
    
    
    A+
    
    AMBArch Reinsurance Company
    
    
    0.7
    
    
    
    15.9
    
    
    
    16.6
    
    
    
    0.1
    
    
    A
    
    AMBHannover Ruckversicherung
    
    
    1.5
    
    
    
    14.8
    
    
    
    16.3
    
    
    
    2.4
    
    
    A
    
    AMBAce Property and Casualty Insurance Company
    
    
    3.7
    
    
    
    12.1
    
    
    
    15.8
    
    
    
    1.6
    
    
    A+
    
    AMBAllianz Global Corporate & Specialty AG
    
    
    0.2
    
    
    
    14.4
    
    
    
    14.6
    
    
    
    4.2
    
    
    A+
    
    AMBFederal Insurance Co.
    
    
    0.6
    
    
    
    10.7
    
    
    
    11.3
    
    
    
    1.0
    
    
    A++
    
    AMBTop 20 Total
    
    
    128.2
    
    
    
    662.8
    
    
    
    791.0
    
    
    
    98.4All Other
    
    
    34.1
    
    
    
    221.1
    
    
    
    255.2
    
    
    
    80.9Total
    
    $
    162.3
    
    
    $
    883.9
    
    
    $
    1,046.2
    
    
    $
    179.3
 (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   18




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Investments
      19




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##### Table of Contents



Year Ended December 31,2009
    
    
    2008
    
    
    2007($ in thousands)Invested Assets and CashInsurance Companies
    
    $
    1,604,354
    
    
    $
    1,509,382
    
    
    $
    1,421,365Lloyds Operations
    
    
    388,556
    
    
    
    356,184
    
    
    
    301,790Parent Company
    
    
    63,677
    
    
    
    52,149
    
    
    
    44,146Consolidated
    
    $
    2,056,587
    
    
    $
    1,917,715
    
    
    $
    1,767,301Net Investment IncomeInsurance Companies
    
    $
    65,717
    
    
    $
    63,544
    
    
    $
    58,261Lloyds Operations
    
    
    9,229
    
    
    
    11,655
    
    
    
    10,524Parent Company
    
    
    566
    
    
    
    1,355
    
    
    
    1,877Consolidated
    
    $
    75,512
    
    
    $
    76,554
    
    
    $
    70,662Average Yield (amortized
cost basis)Insurance Companies
    
    
    4.1
    %
    
    
    4.3
    %
    
    
    4.5
    %Lloyds Operations
    
    
    2.7
    %
    
    
    3.4
    %
    
    
    3.9
    %Parent Company
    
    
    1.0
    %
    
    
    3.1
    %
    
    
    4.9
    %Consolidated
    
    
    3.8
    %
    
    
    4.1
    %
    
    
    4.4
    %
  Investments
  20




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##### Table of Contents



Regulation
 United States
        21




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22




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United Kingdom
     23




---



##### Table of Contents



Competition
    24




---



##### Table of Contents



Employees
  
 Available Information
 www.sec.gov http://www.navg.com
  25




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##### Table of Contents



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.
    Our business is concentrated in marine and energy, specialty 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.
   26




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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.
  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.
   27




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##### 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.
   28




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Intense competition for our products could harm our ability to maintain or increase our
profitability and premium volume.
   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.
   29




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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.
        30




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##### 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.
  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.
     31




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Our businesses are heavily regulated, and changes in regulation may reduce our profitability and
limit our growth.
      32




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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.
  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
   33




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##### Table of Contents



Item 2. PROPERTIES
  
 Item 3. LEGAL PROCEEDINGS
   
 Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
   34




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Part II
 
 Item 5. MARKET FOR REGISTRANTS COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
 Market Information
   2009
    
    
    2008High
    
    
    Low
    
    
    Close
    
    
    High
    
    
    Low
    
    
    CloseFirst Quarter
    
    $
    57.58
    
    
    $
    45.30
    
    
    $
    47.18
    
    
    $
    65.01
    
    
    $
    50.91
    
    
    $
    54.40Second Quarter
    
    $
    49.75
    
    
    $
    42.80
    
    
    $
    44.43
    
    
    $
    56.99
    
    
    $
    47.23
    
    
    $
    54.05Third Quarter
    
    $
    56.29
    
    
    $
    43.59
    
    
    $
    55.00
    
    
    $
    66.74
    
    
    $
    43.46
    
    
    $
    58.00Fourth Quarter
    
    $
    57.64
    
    
    $
    45.83
    
    
    $
    47.11
    
    
    $
    60.50
    
    
    $
    39.29
    
    
    $
    54.91
   35




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##### Table of Contents



Five Year Stock Performance Graph
   
 Base
    
    
    Cumulative Indexed ReturnsPeriod
    
    
    Years Ending December 31,Company / Index
    
    2004
    
    
    2005
    
    
    2006
    
    
    2007
    
    
    2008
    
    
    2009The Navigators Group, Inc.
    
    
    100
    
    
    
    144.84
    
    
    
    160.01
    
    
    
    215.88
    
    
    
    182.36
    
    
    
    156.45S&P 500 Index
    
    
    100
    
    
    
    104.91
    
    
    
    121.48
    
    
    
    128.16
    
    
    
    80.74
    
    
    
    102.11S&P 500 Property &
Casualty Insurance
    
    
    100
    
    
    
    115.11
    
    
    
    129.93
    
    
    
    111.79
    
    
    
    78.91
    
    
    
    88.55
  36




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##### Table of Contents



Annual Return PercentageYears Ending December 31,Company / Index
    
    2005
    
    
    2006
    
    
    2007
    
    
    2008
    
    
    2009The Navigators Group, Inc.
    
    
    44.84
    
    
    
    10.48
    
    
    
    34.91
    
    
    
    -15.52
    
    
    
    -14.21S&P 500 Index
    
    
    4.91
    
    
    
    15.79
    
    
    
    5.49
    
    
    
    -37.00
    
    
    
    26.46S&P 500 Property & Casualty Insurance
    
    
    15.11
    
    
    
    12.87
    
    
    
    -13.96
    
    
    
    -29.41
    
    
    
    12.21
 Dividends
  Recent Sales of Unregistered Securities
  Use of Proceeds from Public Offering of Debt Securities
  Purchases of Equity Securities by the Issuer
    37




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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 UnderPurchased
    
    
    Per Share
    
    
    Program
    
    
    the Program (1)($ in thousands, except per share)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. The stock repurchase program adopted in October
2007 for up to $30 million expired on December 31, 2008. Number ofShares
    
    
    Dollar ValueTotal
    
    
    
    
    
    
    Purchased
    
    
    of Shares thatNumber
    
    
    Average
    
    
    Under Publicly
    
    
    May Yet Beof Shares
    
    
    Cost Paid
    
    
    Announced
    
    
    Purchased UnderPurchased
    
    
    Per Share
    
    
    Program
    
    
    the Program (1)($ in thousands, except per share)October 2009
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    35,000November 2009
    
    
    29,021
    
    
    $
    47.30
    
    
    
    29,021
    
    
    $
    33,627December 2009
    
    
    112,555
    
    
    $
    47.83
    
    
    
    112,555
    
    
    $
    28,243Subtotal fourth quarter
    
    
    141,576
    
    
    $
    47.72
    
    
    
    141,576Total December 31, 2009
    
    
    141,576
    
    
    $
    47.72
    
    
    
    141,576
 (1)
    
    Balance as of the end of the month indicated.  38




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##### Table of Contents



Item 6. SELECTED FINANCIAL DATA
  Year Ended December 31,2009
    
    
    2008
    
    
    2007
    
    
    2006
    
    
    2005($ in thousands, except per share data)Operating Information:Gross written premiums
    
    $
    1,044,918
    
    
    $
    1,084,922
    
    
    $
    1,070,707
    
    
    $
    970,790
    
    
    $
    779,579Net written premiums
    
    
    701,255
    
    
    
    661,615
    
    
    
    645,796
    
    
    
    520,807
    
    
    
    380,659Net earned premiums
    
    
    683,363
    
    
    
    643,976
    
    
    
    601,977
    
    
    
    468,323
    
    
    
    338,551Net investment income
    
    
    75,512
    
    
    
    76,554
    
    
    
    70,662
    
    
    
    56,895
    
    
    
    37,069Net realized gains (losses) (1)
    
    
    (2,660
    )
    
    
    (38,299
    )
    
    
    2,006
    
    
    
    (1,026
    )
    
    
    1,238Total revenues
    
    
    762,880
    
    
    
    683,666
    
    
    
    676,659
    
    
    
    526,594
    
    
    
    385,219Income before income taxes
    
    
    86,848
    
    
    
    68,731
    
    
    
    139,182
    
    
    
    106,617
    
    
    
    33,754Net income
    
    
    63,158
    
    
    
    51,692
    
    
    
    95,620
    
    
    
    72,563
    
    
    
    23,564Net income per share:Basic
    
    $
    3.73
    
    
    $
    3.08
    
    
    $
    5.69
    
    
    $
    4.34
    
    
    $
    1.74Diluted
    
    $
    3.65
    
    
    $
    3.04
    
    
    $
    5.62
    
    
    $
    4.30
    
    
    $
    1.73Average common shares outstanding (000s):Basic
    
    
    16,935
    
    
    
    16,802
    
    
    
    16,812
    
    
    
    16,722
    
    
    
    13,528Diluted
    
    
    17,322
    
    
    
    16,992
    
    
    
    17,005
    
    
    
    16,856
    
    
    
    13,657Combined loss & expense ratio (2):Loss ratio
    
    
    63.8
    %
    
    
    61.0
    %
    
    
    56.6
    %
    
    
    57.7
    %
    
    
    69.6
    %Expense ratio
    
    
    33.4
    %
    
    
    32.8
    %
    
    
    30.9
    %
    
    
    30.1
    %
    
    
    31.7
    %Total
    
    
    97.2
    %
    
    
    93.8
    %
    
    
    87.5
    %
    
    
    87.8
    %
    
    
    101.3
    %Balance sheet information
(at end of year):Total investments and cash
    
    $
    2,056,587
    
    
    $
    1,917,715
    
    
    $
    1,767,301
    
    
    $
    1,475,910
    
    
    $
    1,182,236Total assets
    
    
    3,453,994
    
    
    
    3,349,580
    
    
    
    3,143,771
    
    
    
    2,956,686
    
    
    
    2,583,249Gross losses and LAE reserves
    
    
    1,920,286
    
    
    
    1,853,664
    
    
    
    1,648,764
    
    
    
    1,607,555
    
    
    
    1,557,991Net losses and LAE reserves
    
    
    1,112,934
    
    
    
    999,871
    
    
    
    847,303
    
    
    
    696,116
    
    
    
    578,976Senior notes
    
    
    114,010
    
    
    
    123,794
    
    
    
    123,673
    
    
    
    123,560
    
    
    
    Stockholders equity
    
    
    801,519
    
    
    
    689,317
    
    
    
    662,106
    
    
    
    551,343
    
    
    
    470,238Common shares outstanding (000s)
    
    
    16,846
    
    
    
    16,856
    
    
    
    16,873
    
    
    
    16,736
    
    
    
    16,617Book value per share (3)
    
    $
    47.58
    
    
    $
    40.89
    
    
    $
    39.24
    
    
    $
    32.94
    
    
    $
    28.30Statutory surplus of Navigators
Insurance Company
    
    $
    645,820
    
    
    $
    581,166
    
    
    $
    578,668
    
    
    $
    524,188
    
    
    $
    356,484
 (1)
    
    Includes Net other-than-temporary impairment losses recognized in earnings.(2)
    
    Calculated based on earned premiums.(3)
    
    Calculated as stockholders equity divided by actual shares outstanding as of the date indicated.  39




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##### Table of Contents



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
     
    
    The offshore energy business, formerly included in the Marine and Energy businesses of
the Insurance Companies and Lloyds Operations, is now included in the Insurance Companies
and Lloyds Operations Property Casualty businesses.
 
    
    The marine lines within both the Insurance Companies and Lloyds Operations are now
presented as Marine instead of Marine and Energy, since the offshore energy business
has now been reclassified to Property Casualty.
 
    
    Engineering and construction, European Property and other run-off business, formerly
included in the Other category of business within the Insurance Companies and Lloyds
Operations, are now included under Property Casualty.
 
    
    The Middle Markets business, formerly broken out separately in the Insurance
Companies, is now included in the Insurance Companies Property Casualty business.
  40




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
    
    Our construction liability lines decreased 39% due to both a decline in demand resulting
from current economic conditions as well as increased competition due to new entrants into
the market.
 
    
    A 24% decline in our offshore energy lines primarily resulting from a planned reduction
in our Gulf of Mexico exposure as market pricing and terms did not meet our underwriting
standards.
  
    
    A 39% increase in our D&O insurance lines due to continued expansion of this business.
 
    
    Improved pricing conditions across the majority of our lines of business, resulting in
an overall 4% increase in average renewal rates. Pricing conditions have stabilized after
experiencing declines across all of our lines in 2008 and were driven by a flight to
quality after the market turmoil at the end of 2008.
    41




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Critical Accounting Policies
   Reserves for Losses and Loss Adjustment Expenses
    42




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Loss ratio method
 Bornheutter-Ferguson method
 Loss development method
  43




---



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Frequency/severity method
   Marine
   44




---



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Property Casualty
       45




---



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Professional Liability
   Lloyds Operations
    46




---



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Sensitivity Analysis
      47




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Reasonably likely loss ratio point variances
 Decrease
    
    
    IncreaseInsurance Companies:Marine
    
    
    5
    %
    
    
    6
    %Property Casualty
    
    
    7
    %
    
    
    14
    %Professional Liability
    
    
    13
    %
    
    
    16
    %Lloyds Operations
    
    
    7
    %
    
    
    12
    %
   Reasonably likely ultimate loss development factor variances
 Decrease
    
    
    IncreaseInsurance Companies:Marine
    
    
    9
    %
    
    
    12
    %Property Casualty
    
    
    14
    %
    
    
    16
    %Professional Liability
    
    
    27
    %
    
    
    30
    %Lloyds Operations
    
    
    14
    %
    
    
    15
    %
   48




---



##### Table of Contents



Total
    
    
    Reasonably Likely Range of DeviationNet Loss
    
    
    Redundancy
    
    
    DeficiencyReserve
    
    
    Amount
    
    
    %
    
    
    Amount
    
    
    %($ in thousands)Insurance CompaniesMarine
    
    $
    213,646
    
    
    $
    8,546
    
    
    
    4
    %
    
    $
    12,819
    
    
    
    6
    %Property Casualty
    
    
    486,412
    
    
    
    34,049
    
    
    
    7
    %
    
    
    38,913
    
    
    
    8
    %Professional Liability
    
    
    107,217
    
    
    
    13,938
    
    
    
    13
    %
    
    
    15,010
    
    
    
    14
    %Total Insurance Companies
    
    
    807,275
    
    
    
    56,533
    
    
    
    7
    %
    
    
    66,742
    
    
    
    8
    %Total Lloyds Operations
    
    
    305,659
    
    
    
    21,396
    
    
    
    7
    %
    
    
    21,396
    
    
    
    7
    %Total Company
    
    $
    1,112,934
    
    
    $
    77,929
    
    
    
    7
    %
    
    $
    88,138
    
    
    
    8
    %Increase (decrease) to net incomeAmount
    
    
    
    
    
    $
    50,654
    
    
    
    
    
    
    $
    (57,290
    )Per Share (1)
    
    
    
    
    
    $
    2.92
    
    
    
    
    
    
    $
    (3.31
    )
 (1)
    
    Used 17.3 million average diluted shares outstanding for the year ended December 31, 2009. Reinsurance Recoverables. Reinsurance
 Written and Unearned Premium. Organization and Summary of
Significant Accounting Policies Reinsurance
   49




---



##### Table of Contents



Deferred Tax Assets. Organization and
Summary of Significant Accounting Policies Income Taxes
 Impairment of Invested Assets.
     50




---



##### Table of Contents



Accounting for Lloyds Results. Organization and Summary of Significant Accounting Policies
 
 Results of Operations
  Summary
     51




---



##### Table of Contents



2009 Results
  2008 Results
   2007 Results
   52




---



##### Table of Contents



Revenues
  Year Ended December 31,2009
    
    
    2008
    
    
    2007Gross
    
    
    
    
    
    
    Net
    
    
    Net
    
    
    Gross
    
    
    
    
    
    
    Net
    
    
    Net
    
    
    Gross
    
    
    
    
    
    
    Net
    
    
    NetWritten
    
    
    
    
    
    
    Written
    
    
    Earned
    
    
    Written
    
    
    
    
    
    
    Written
    
    
    Earned
    
    
    Written
    
    
    
    
    
    
    Written
    
    
    EarnedPremiums
    
    
    %
    
    
    Premiums
    
    
    Premiums
    
    
    Premiums
    
    
    %
    
    
    Premiums
    
    
    Premiums
    
    
    Premiums
    
    
    %
    
    
    Premiums
    
    
    Premiums($ in thousands)Insurance Companies:Marine
    
    $
    241,438
    
    
    
    23.1
    %
    
    $
    171,289
    
    
    $
    157,534
    
    
    $
    248,080
    
    
    
    22.9
    %
    
    $
    147,569
    
    
    $
    132,005
    
    
    $
    227,175
    
    
    
    21.2
    %
    
    $
    117,294
    
    
    $
    112,370Property Casualty
    
    
    352,285
    
    
    
    33.7
    %
    
    
    227,234
    
    
    
    246,143
    
    
    
    405,062
    
    
    
    37.3
    %
    
    
    261,322
    
    
    
    273,977
    
    
    
    447,615
    
    
    
    41.8
    %
    
    
    301,607
    
    
    
    275,937Professional Liability
    
    
    137,053
    
    
    
    13.1
    %
    
    
    79,150
    
    
    
    75,444
    
    
    
    109,048
    
    
    
    10.1
    %
    
    
    63,797
    
    
    
    57,316
    
    
    
    99,556
    
    
    
    9.3
    %
    
    
    59,117
    
    
    
    55,149Insurance Cos. Total
    
    
    730,776
    
    
    
    69.9
    %
    
    
    477,673
    
    
    
    479,121
    
    
    
    762,190
    
    
    
    70.3
    %
    
    
    472,688
    
    
    
    463,298
    
    
    
    774,346
    
    
    
    72.3
    %
    
    
    478,018
    
    
    
    443,456Lloyds Operations:Marine
    
    
    191,959
    
    
    
    18.4
    %
    
    
    156,153
    
    
    
    142,958
    
    
    
    192,568
    
    
    
    17.7
    %
    
    
    132,788
    
    
    
    126,126
    
    
    
    175,567
    
    
    
    16.4
    %
    
    
    110,577
    
    
    
    111,380Property Casualty
    
    
    78,151
    
    
    
    7.5
    %
    
    
    45,097
    
    
    
    39,330
    
    
    
    91,292
    
    
    
    8.4
    %
    
    
    32,735
    
    
    
    32,644
    
    
    
    86,513
    
    
    
    8.1
    %
    
    
    33,852
    
    
    
    29,482Professional Liability
    
    
    44,032
    
    
    
    4.2
    %
    
    
    22,332
    
    
    
    21,954
    
    
    
    38,872
    
    
    
    3.6
    %
    
    
    23,404
    
    
    
    21,908
    
    
    
    34,281
    
    
    
    3.2
    %
    
    
    23,349
    
    
    
    17,659Lloyds Ops. Total
    
    
    314,142
    
    
    
    30.1
    %
    
    
    223,582
    
    
    
    204,242
    
    
    
    322,732
    
    
    
    29.7
    %
    
    
    188,927
    
    
    
    180,678
    
    
    
    296,361
    
    
    
    27.7
    %
    
    
    167,778
    
    
    
    158,521Total
    
    $
    1,044,918
    
    
    
    100.0
    %
    
    $
    701,255
    
    
    $
    683,363
    
    
    $
    1,084,922
    
    
    
    100.0
    %
    
    $
    661,615
    
    
    $
    643,976
    
    
    $
    1,070,707
    
    
    
    100.0
    %
    
    $
    645,795
    
    
    $
    601,977
  53




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##### Table of Contents



Gross Written Premiums
  Insurance Companies Gross Written Premiums
 Marine Premiums.
 2009
    
    
    2008
    
    
    2007Marine liability
    
    $
    83,915
    
    
    
    34
    %
    
    $
    82,991
    
    
    
    32
    %
    
    $
    84,270
    
    
    
    37
    %Inland marine
    
    
    28,573
    
    
    
    12
    %
    
    
    23,914
    
    
    
    10
    %
    
    
    12,154
    
    
    
    5
    %Cargo
    
    
    26,636
    
    
    
    11
    %
    
    
    34,202
    
    
    
    14
    %
    
    
    30,282
    
    
    
    13
    %P&I
    
    
    25,361
    
    
    
    11
    %
    
    
    28,935
    
    
    
    12
    %
    
    
    26,312
    
    
    
    12
    %Transport
    
    
    21,527
    
    
    
    9
    %
    
    
    23,013
    
    
    
    9
    %
    
    
    19,587
    
    
    
    9
    %Bluewater hull
    
    
    19,691
    
    
    
    8
    %
    
    
    17,234
    
    
    
    7
    %
    
    
    23,508
    
    
    
    10
    %Craft/Fishing vessel
    
    
    19,758
    
    
    
    8
    %
    
    
    16,545
    
    
    
    7
    %
    
    
    15,986
    
    
    
    7
    %Other
    
    
    15,977
    
    
    
    7
    %
    
    
    21,246
    
    
    
    9
    %
    
    
    15,076
    
    
    
    7
    %Total
    
    $
    241,438
    
    
    
    100
    %
    
    $
    248,080
    
    
    
    100
    %
    
    $
    227,175
    
    
    
    100
    %
  Property Casualty Premiums.
 2009
    
    
    2008
    
    
    2007Construction liability
    
    $
    90,627
    
    
    
    26
    %
    
    $
    147,880
    
    
    
    36
    %
    
    $
    179,633
    
    
    
    40
    %Commercial umbrella
    
    
    72,509
    
    
    
    21
    %
    
    
    63,977
    
    
    
    16
    %
    
    
    57,371
    
    
    
    13
    %Offshore energy
    
    
    47,368
    
    
    
    13
    %
    
    
    56,989
    
    
    
    14
    %
    
    
    51,627
    
    
    
    12
    %Primary E&S
    
    
    23,783
    
    
    
    7
    %
    
    
    35,744
    
    
    
    9
    %
    
    
    50,185
    
    
    
    11
    %Other
    
    
    117,998
    
    
    
    33
    %
    
    
    100,472
    
    
    
    25
    %
    
    
    108,799
    
    
    
    24
    %Total
    
    $
    352,285
    
    
    
    100
    %
    
    $
    405,062
    
    
    
    100
    %
    
    $
    447,615
    
    
    
    100
    %
   54




---



##### Table of Contents



Professional Liability Premiums.
 2009
    
    
    2008
    
    
    2007D&O (public and private)
    
    $
    99,601
    
    
    
    73
    %
    
    $
    75,010
    
    
    
    69
    %
    
    $
    67,973
    
    
    
    68
    %Errors and omissions
    
    
    32,129
    
    
    
    23
    %
    
    
    28,097
    
    
    
    26
    %
    
    
    24,515
    
    
    
    25
    %Architects and engineers
    
    
    5,323
    
    
    
    4
    %
    
    
    5,941
    
    
    
    5
    %
    
    
    7,068
    
    
    
    7
    %Total
    
    $
    137,053
    
    
    
    100
    %
    
    $
    109,048
    
    
    
    100
    %
    
    $
    99,556
    
    
    
    100
    %
  Lloyds Operations Gross Written Premiums
 Marine Premiums.
 2009
    
    
    2008
    
    
    2007Cargo and specie
    
    $
    92,139
    
    
    
    48
    %
    
    $
    92,789
    
    
    
    47
    %
    
    $
    87,412
    
    
    
    50
    %Marine liability
    
    
    51,204
    
    
    
    27
    %
    
    
    58,886
    
    
    
    31
    %
    
    
    48,172
    
    
    
    27
    %Assumed reinsurance
    
    
    19,756
    
    
    
    10
    %
    
    
    17,078
    
    
    
    9
    %
    
    
    24,280
    
    
    
    14
    %Hull
    
    
    18,697
    
    
    
    10
    %
    
    
    16,416
    
    
    
    9
    %
    
    
    13,218
    
    
    
    8
    %War
    
    
    10,163
    
    
    
    5
    %
    
    
    7,399
    
    
    
    4
    %
    
    
    2,485
    
    
    
    1
    %Total
    
    $
    191,959
    
    
    
    100
    %
    
    $
    192,568
    
    
    
    100
    %
    
    $
    175,567
    
    
    
    100
    %
   55




---



##### Table of Contents



Property Casualty Premiums.
 2009
    
    
    2008
    
    
    2007Offshore energy
    
    $
    34,469
    
    
    
    43
    %
    
    $
    51,073
    
    
    
    56
    %
    
    $
    49,649
    
    
    
    57
    %Onshore energy
    
    
    14,055
    
    
    
    18
    %
    
    
    12,726
    
    
    
    14
    %
    
    
    9,151
    
    
    
    11
    %Engineering &
construction
    
    
    18,383
    
    
    
    24
    %
    
    
    21,036
    
    
    
    23
    %
    
    
    18,551
    
    
    
    21
    %Bloodstock
    
    
    7,726
    
    
    
    10
    %
    
    
    
    
    
    
    0
    %
    
    
    
    
    
    
    0
    %Property
    
    
    (76
    )
    
    
    0
    %
    
    
    5,631
    
    
    
    6
    %
    
    
    9,162
    
    
    
    11
    %US Casualty
    
    
    3,594
    
    
    
    5
    %
    
    
    826
    
    
    
    1
    %
    
    
    
    
    
    
    0
    %Total
    
    $
    78,151
    
    
    
    100
    %
    
    $
    91,292
    
    
    
    100
    %
    
    $
    86,513
    
    
    
    100
    %
  Professional Liability Premiums.
 2009
    
    
    2008
    
    
    2007D&O (public and
private)
    
    $
    26,776
    
    
    
    61
    %
    
    $
    15,845
    
    
    
    41
    %
    
    $
    16,511
    
    
    
    48
    %E&O
    
    
    17,256
    
    
    
    39
    %
    
    
    23,027
    
    
    
    59
    %
    
    
    17,770
    
    
    
    52
    %Total
    
    $
    44,032
    
    
    
    100
    %
    
    $
    38,872
    
    
    
    100
    %
    
    $
    34,281
    
    
    
    100
    %
  Ceded Written Premium
  56




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##### Table of Contents



2009
    
    
    2008
    
    
    2007% of
    
    
    
    
    
    
    % of
    
    
    
    
    
    
    % ofCeded
    
    
    Gross
    
    
    Ceded
    
    
    Gross
    
    
    Ceded
    
    
    GrossWritten
    
    
    Written
    
    
    Written
    
    
    Written
    
    
    Written
    
    
    WrittenPremiums
    
    
    Premiums
    
    
    Premiums
    
    
    Premiums
    
    
    Premiums
    
    
    Premiums($ in thousands)Insurance CompaniesMarine
    
    $
    70,149
    
    
    
    29.1
    %
    
    $
    100,511
    
    
    
    40.5
    %
    
    $
    109,881
    
    
    
    48.4
    %Property Casualty
    
    
    125,051
    
    
    
    35.5
    %
    
    
    143,740
    
    
    
    35.5
    %
    
    
    146,008
    
    
    
    32.6
    %Professional Liability
    
    
    57,903
    
    
    
    42.2
    %
    
    
    45,251
    
    
    
    41.5
    %
    
    
    40,439
    
    
    
    40.6
    %Subtotal
    
    
    253,103
    
    
    
    34.6
    %
    
    
    289,502
    
    
    
    38.0
    %
    
    
    296,328
    
    
    
    38.3
    %Lloyds OperationsMarine
    
    
    35,806
    
    
    
    18.7
    %
    
    
    59,780
    
    
    
    31.0
    %
    
    
    64,990
    
    
    
    37.0
    %Property Casualty
    
    
    33,054
    
    
    
    42.3
    %
    
    
    58,557
    
    
    
    64.1
    %
    
    
    52,661
    
    
    
    60.9
    %Professional Liability
    
    
    21,700
    
    
    
    49.3
    %
    
    
    15,468
    
    
    
    39.8
    %
    
    
    10,932
    
    
    
    31.9
    %Subtotal
    
    
    90,560
    
    
    
    28.8
    %
    
    
    133,805
    
    
    
    41.5
    %
    
    
    128,583
    
    
    
    43.4
    %Total
    
    $
    343,663
    
    
    
    32.9
    %
    
    $
    423,307
    
    
    
    39.0
    %
    
    $
    424,911
    
    
    
    39.7
    %
  Net Written Premiums
 Net Earned Premiums
  57




---



##### Table of Contents



Commission Income
 Net Investment Income
 Net Other-Than-Temporary Impairment Losses Recognized in Earnings
  Year ended December 31,2009
    
    
    2008
    
    
    2007($ in thousands)Fixed maturities
    
    $
    (3,101
    )
    
    $
    (8,604
    )
    
    $
    Equity securities
    
    
    (8,776
    )
    
    
    (28,441
    )
    
    
    (655
    )Net other-than-temporary impairment losses
recognized in earnings
    
    $
    (11,877
    )
    
    $
    (37,045
    )
    
    $
    (655
    )
    58




---



##### Table of Contents



Net Realized Gains (Losses)
  Year Ended December 31,2009
    
    
    2008
    
    
    2007($ in thousands)Fixed maturities:Gains
    
    $
    18,312
    
    
    $
    3,650
    
    
    $
    1,320(Losses)
    
    
    (9,676
    )
    
    
    (1,670
    )
    
    
    (1,749
    )8,636
    
    
    
    1,980
    
    
    
    (429
    )Equity securities:Gains
    
    
    2,110
    
    
    
    720
    
    
    
    3,626(Losses)
    
    
    (1,529
    )
    
    
    (3,954
    )
    
    
    (536
    )581
    
    
    
    (3,234
    )
    
    
    3,090Net realized gains (losses)
    
    $
    9,217
    
    
    $
    (1,254
    )
    
    $
    2,661
  Other Income/(Expense )
 Operating Expenses
 Net Losses and Loss Adjustment Expenses Incurred
   59




---



##### Table of Contents



Prior Year Reserve Redundancies/Deficiencies
     Year Ended December 31,2009
    
    
    2008
    
    
    2007($ in thousands)Insurance CompaniesMarine
    
    $
    11,893
    
    
    $
    (5,298
    )
    
    $
    (11,595
    )Property Casualty
    
    
    (35,658
    )
    
    
    (33,065
    )
    
    
    (11,836
    )Professional Liability
    
    
    20,686
    
    
    
    (3,559
    )
    
    
    (10,365
    )Insurance Companies
    
    $
    (3,079
    )
    
    $
    (41,922
    )
    
    $
    (33,796
    )Lloyds Operations
    
    
    (5,862
    )
    
    
    (8,824
    )
    
    
    (13,213
    )Total
    
    $
    (8,941
    )
    
    $
    (50,746
    )
    
    $
    (47,009
    )
    60




---



##### Table of Contents




    
    $36.5 million for contractors liability due to an actuarial review conducted
in 2009 which indicated that loss development on the 2006 and prior underwriting years
has been more favorable than our prior expectations for those underwriting years
 
    
    $9.3 million from our primary E&S lines and $6.2 million in excess casualty
business due to favorable loss trends in underwriting years 2007 and prior, and
 
    
    $8.0 million of favorable development on our offshore energy (NavTech) book due
to favorable claims trends across a number of prior underwriting years.
  
    
    $12.0 million in our Nav Pac business due to reported
loss activity in excess of our prior expectations from most underwriting years
resulting from reviews of open claims in the auto and liability lines of business
 
    
    $6.4 million from our liquor business, which is now in
run-off, and
 
    
    $5.9 million in our personal umbrella books of business across most
underwriting years where large loss activity has exceeded our expectations.
  
    
    The directors and officers liability book of business had $12.4 million of adverse
development, which was primarily attributable to the unexpected development of previously
reported claims in the 2006 and prior underwriting years. This loss activity was
inconsistent with the loss emergence trends that we observed in calendar years 2007 and
2008 and it caused us to increase our ultimate loss projections in the 2006 and prior
underwriting years, as well as those in the more current underwriting years.
 
    
    The lawyers liability book of business had adverse development of $8.3 million due to
reported loss activity in underwriting years 2005 to 2008 in excess of our prior
expectations.
     61




---



##### Table of Contents



62




---



##### Table of Contents



Hurricanes Gustav and Ike
   63




---



##### Table of Contents



Year Ended December 31,2009
    
    
    2008($ in thousands)Gross of ReinsuranceBeginning gross reserves
    
    $
    107,399
    
    
    $
    Incurred loss & LAE
    
    
    1,039
    
    
    
    114,000Calendar year payments
    
    
    48,929
    
    
    
    6,601Ending gross reserves
    
    $
    59,509
    
    
    $
    107,399Gross case loss reserves
    
    $
    34,015
    
    
    $
    70,299Gross IBNR loss reserves
    
    
    25,494
    
    
    
    37,100Ending gross reserves
    
    $
    59,509
    
    
    $
    107,399Net of ReinsuranceBeginning net reserves
    
    $
    12,923
    
    
    $
    Incurred loss & LAE
    
    
    978
    
    
    
    17,169Calendar year payments
    
    
    11,218
    
    
    
    4,246Ending net reserves
    
    $
    2,683
    
    
    $
    12,923Net case loss reserves
    
    $
    1,793
    
    
    $
    11,696Net IBNR loss reserves
    
    
    890
    
    
    
    1,227Ending net reserves
    
    $
    2,683
    
    
    $
    12,923
 Hurricanes Katrina and Rita
   64




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##### Table of Contents



Year Ended December 31,2009
    
    
    2008
    
    
    2007($ in thousands)Gross of ReinsuranceBeginning gross reserves
    
    $
    97,732
    
    
    $
    141,831
    
    
    $
    319,230Incurred loss & LAE
    
    
    671
    
    
    
    (12,250
    )
    
    
    (29,349
    )Calendar year payments
    
    
    31,365
    
    
    
    31,849
    
    
    
    148,050Ending gross reserves
    
    $
    67,038
    
    
    $
    97,732
    
    
    $
    141,831Gross case loss reserves
    
    $
    49,291
    
    
    $
    62,732
    
    
    $
    94,959Gross IBNR loss reserves
    
    
    17,747
    
    
    
    35,000
    
    
    
    46,872Ending gross reserves
    
    $
    67,038
    
    
    $
    97,732
    
    
    $
    141,831Net of ReinsuranceBeginning net reserves
    
    $
    3,667
    
    
    $
    4,519
    
    
    $
    10,003Incurred loss & LAE
    
    
    114
    
    
    
    (990
    )
    
    
    (1,909
    )Calendar year payments
    
    
    245
    
    
    
    (138
    )
    
    
    3,575Ending net reserves
    
    $
    3,536
    
    
    $
    3,667
    
    
    $
    4,519Net case loss reserves
    
    $
    183
    
    
    $
    279
    
    
    $
    646Net IBNR loss reserves
    
    
    3,353
    
    
    
    3,388
    
    
    
    3,873Ending net reserves
    
    $
    3,536
    
    
    $
    3,667
    
    
    $
    4,519
 Asbestos Liability
     65




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##### Table of Contents



Year Ended December 31,2009
    
    
    2008
    
    
    2007($ in thousands)Gross of ReinsuranceBeginning gross reserves
    
    $
    21,774
    
    
    $
    23,194
    
    
    $
    37,171Incurred loss & LAE
    
    
    928
    
    
    
    796
    
    
    
    (780
    )Calendar year payments
    
    
    555
    
    
    
    2,216
    
    
    
    13,197Ending gross reserves
    
    $
    22,147
    
    
    $
    21,774
    
    
    $
    23,194Gross case loss reserves
    
    $
    14,291
    
    
    $
    13,918
    
    
    $
    16,014Gross IBNR loss reserves
    
    
    7,856
    
    
    
    7,856
    
    
    
    7,180Ending gross reserves
    
    $
    22,147
    
    
    $
    21,774
    
    
    $
    23,194Net of ReinsuranceBeginning net reserves
    
    $
    16,683
    
    
    $
    16,717
    
    
    $
    21,381Incurred loss & LAE
    
    
    (25
    )
    
    
    263
    
    
    
    1,779Calendar year payments
    
    
    (105
    )
    
    
    297
    
    
    
    6,443Ending net reserves
    
    $
    16,763
    
    
    $
    16,683
    
    
    $
    16,717Net case loss reserves
    
    $
    9,112
    
    
    $
    9,032
    
    
    $
    9,715Net IBNR loss reserves
    
    
    7,651
    
    
    
    7,651
    
    
    
    7,002Ending net reserves
    
    $
    16,763
    
    
    $
    16,683
    
    
    $
    16,717
   66




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##### Table of Contents



Loss Reserves
  December 31,
    
    
    December 31,2009
    
    
    2008
    
    
    Change($ in thousands)Reinsurance recoverables:Paid losses
    
    $
    76,505
    
    
    $
    67,227
    
    
    $
    9,278Unpaid losses and LAE reserves
    
    
    807,352
    
    
    
    853,793
    
    
    
    (46,441
    )Total
    
    $
    883,857
    
    
    $
    921,020
    
    
    $
    (37,163
    )
  December 31,
    
    
    December 31,2009
    
    
    2008
    
    
    Change($ in thousands)Gross reserves for losses and LAE
    
    $
    1,920,286
    
    
    $
    1,853,664
    
    
    $
    66,622Less: Reinsurance recoverable on unpaid
losses and LAE reserves
    
    
    807,352
    
    
    
    853,793
    
    
    
    (46,441
    )Net loss and LAE reserves
    
    $
    1,112,934
    
    
    $
    999,871
    
    
    $
    113,063
  67




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##### Table of Contents



December 31, 2009Net
    
    
    Net
    
    
    Total
    
    
    % of IBNRReported
    
    
    IBNR
    
    
    Net Loss
    
    
    to Total NetReserves
    
    
    Reserves
    
    
    Reserves
    
    
    Loss Reserves($ in thousands)Insurance Companies:Marine
    
    $
    113,604
    
    
    $
    100,042
    
    
    $
    213,646
    
    
    
    46.8
    %Property Casualty
    
    
    134,427
    
    
    
    351,985
    
    
    
    486,412
    
    
    
    72.4
    %Professional liability
    
    
    38,410
    
    
    
    68,807
    
    
    
    107,217
    
    
    
    64.2
    %Total Insurance Companies
    
    
    286,441
    
    
    
    520,834
    
    
    
    807,275
    
    
    
    64.5
    %Lloyds Operations:Marine
    
    
    107,800
    
    
    
    101,851
    
    
    
    209,651
    
    
    
    48.6
    %Property Casualty
    
    
    27,148
    
    
    
    25,175
    
    
    
    52,323
    
    
    
    48.1
    %Professional liability
    
    
    7,442
    
    
    
    36,243
    
    
    
    43,685
    
    
    
    83.0
    %Total Lloyds Operations
    
    
    142,390
    
    
    
    163,269
    
    
    
    305,659
    
    
    
    53.4
    %Total
    
    $
    428,831
    
    
    $
    684,103
    
    
    $
    1,112,934
    
    
    
    61.5
    %
 December 31, 2008Net
    
    
    Net
    
    
    Total
    
    
    % of IBNRReported
    
    
    IBNR
    
    
    Net Loss
    
    
    to Total NetReserves
    
    
    Reserves
    
    
    Reserves
    
    
    Loss Reserves($ in thousands)Insurance Companies:Marine
    
    $
    96,244
    
    
    $
    96,995
    
    
    $
    193,239
    
    
    
    50.2
    %Property Casualty
    
    
    115,810
    
    
    
    358,305
    
    
    
    474,115
    
    
    
    75.6
    %Professional liability
    
    
    22,913
    
    
    
    58,793
    
    
    
    81,706
    
    
    
    72.0
    %Total Insurance Companies
    
    
    234,967
    
    
    
    514,093
    
    
    
    749,060
    
    
    
    68.6
    %Lloyds Operations:Marine
    
    
    99,233
    
    
    
    78,293
    
    
    
    177,526
    
    
    
    44.1
    %Property Casualty
    
    
    26,218
    
    
    
    16,386
    
    
    
    42,604
    
    
    
    38.5
    %Professional liability
    
    
    5,822
    
    
    
    24,859
    
    
    
    30,681
    
    
    
    81.0
    %Total Lloyds Operations
    
    
    131,273
    
    
    
    119,538
    
    
    
    250,811
    
    
    
    47.7
    %Total
    
    $
    366,240
    
    
    $
    633,631
    
    
    $
    999,871
    
    
    
    63.4
    %
  68




---



##### Table of Contents



Commission Expense.
 Other Operating Expense.
 Interest Expense.
 Income Taxes
     69




---



##### Table of Contents



Segment Information
    Insurance Companies
   70




---



##### Table of Contents



Year Ended December 31,2009
    
    
    2008
    
    
    2007($ in thousands)Gross written premiums
    
    $
    730,776
    
    
    $
    762,190
    
    
    $
    774,346Net written premiums
    
    
    477,673
    
    
    
    472,688
    
    
    
    478,018Net earned premiums
    
    
    479,121
    
    
    
    463,298
    
    
    
    443,456Net losses and loss adjustment expenses
    
    
    (304,672
    )
    
    
    (275,767
    )
    
    
    (256,652
    )Commission expenses
    
    
    (61,949
    )
    
    
    (55,752
    )
    
    
    (52,490
    )Other operating expenses
    
    
    (104,801
    )
    
    
    (92,297
    )
    
    
    (81,053
    )Commission income and other income (expense)
    
    
    3,498
    
    
    
    2,145
    
    
    
    1,510Underwriting profit
    
    
    11,197
    
    
    
    41,627
    
    
    
    54,771Net investment income
    
    
    65,717
    
    
    
    63,544
    
    
    
    58,261Net realized gains (losses)
    
    
    533
    
    
    
    (37,822
    )
    
    
    1,973Income before income tax expense
    
    
    77,447
    
    
    
    67,349
    
    
    
    115,005Income tax expense
    
    
    19,819
    
    
    
    16,401
    
    
    
    35,061Net income
    
    $
    57,628
    
    
    $
    50,948
    
    
    $
    79,944Identifiable assets
    
    $
    2,554,037
    
    
    $
    2,477,139
    
    
    $
    2,322,647Loss and loss expenses ratio
    
    
    63.6
    %
    
    
    59.5
    %
    
    
    57.9
    %Commission expense ratio
    
    
    12.9
    %
    
    
    12.0
    %
    
    
    11.8
    %Other operating expenses ratio (1)
    
    
    21.1
    %
    
    
    19.5
    %
    
    
    17.9
    %Combined ratio
    
    
    97.6
    %
    
    
    91.0
    %
    
    
    87.6
    %
 (1)
    
    Includes Other operating expensesand Commission income and
Other income (expense).  71




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##### Table of Contents



Year Ended December 31, 2009($ in thousands)Net
    
    
    LossesEarned
    
    
    and LAE
    
    
    Underwriting
    
    
    Underwriting
    
    
    Loss
    
    
    Expense
    
    
    CombinedPremiums
    
    
    Incurred
    
    
    Expenses
    
    
    Profit (Loss)
    
    
    Ratio
    
    
    Ratio
    
    
    RatioMarine
    
    $
    157,534
    
    
    $
    109,916
    
    
    $
    50,451
    
    
    $
    (2,833
    )
    
    
    69.8
    %
    
    
    32.0
    %
    
    
    101.8
    %Property Casualty
    
    
    246,143
    
    
    
    123,775
    
    
    
    86,116
    
    
    
    36,252
    
    
    
    50.3
    %
    
    
    35.0
    %
    
    
    85.3
    %Professional Liability
    
    
    75,444
    
    
    
    70,981
    
    
    
    26,685
    
    
    
    (22,222
    )
    
    
    94.1
    %
    
    
    35.4
    %
    
    
    129.5
    %Total
    
    $
    479,121
    
    
    $
    304,672
    
    
    $
    163,252
    
    
    $
    11,197

    
    
    
    63.6
    %
    
    
    34.0
    %
    
    
    97.6
    %
 Year Ended December 31, 2008($ in thousands)Net
    
    
    LossesEarned
    
    
    and LAE
    
    
    Underwriting
    
    
    Underwriting
    
    
    Loss
    
    
    Expense
    
    
    CombinedPremiums
    
    
    Incurred
    
    
    Expenses
    
    
    Profit (Loss)
    
    
    Ratio
    
    
    Ratio
    
    
    RatioMarine
    
    $
    132,005
    
    
    $
    84,099
    
    
    $
    38,184
    
    
    $
    9,722
    
    
    
    63.7
    %
    
    
    28.9
    %
    
    
    92.6
    %Property Casualty
    
    
    273,977
    
    
    
    158,457
    
    
    
    87,310
    
    
    
    28,210
    
    
    
    57.8
    %
    
    
    31.9
    %
    
    
    89.7
    %Professional
Liability
    
    
    57,316
    
    
    
    33,211
    
    
    
    20,410
    
    
    
    3,695
    
    
    
    57.9
    %
    
    
    35.6
    %
    
    
    93.5
    %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
    
    
    CombinedPremiums
    
    
    Incurred
    
    
    Expenses
    
    
    Profit (Loss)
    
    
    Ratio
    
    
    Ratio
    
    
    RatioMarine
    
    $
    112,370
    
    
    $
    64,802
    
    
    $
    31,878
    
    
    $
    15,690
    
    
    
    57.7
    %
    
    
    28.4
    %
    
    
    86.1
    %Property Casualty
    
    
    275,937
    
    
    
    159,248
    
    
    
    80,509
    
    
    
    36,180
    
    
    
    57.7
    %
    
    
    29.2
    %
    
    
    86.9
    %Professional
Liability
    
    
    55,149
    
    
    
    32,602
    
    
    
    19,646
    
    
    
    2,901
    
    
    
    59.1
    %
    
    
    35.6
    %
    
    
    94.7
    %Total
    
    $
    443,456
    
    
    $
    256,652
    
    
    $
    132,033
    
    
    $
    54,771
    
    
    
    57.9
    %
    
    
    29.7
    %
    
    
    87.6
    %
     72




---



##### 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
    %
       73




---



##### Table of Contents



Lloyds Operations
  Liquidity and
Capital Resources
  74




---



##### Table of Contents



Year Ended December 31,2009
    
    
    2008
    
    
    2007($ in thousands)Gross written premiums
    
    $
    314,142
    
    
    $
    322,732
    
    
    $
    296,361Net written premiums
    
    
    223,582
    
    
    
    188,927
    
    
    
    167,778Net earned premiums
    
    
    204,242
    
    
    
    180,678
    
    
    
    158,521Net losses and loss adjustment expenses
    
    
    (131,326
    )
    
    
    (117,364
    )
    
    
    (83,940
    )Commission expenses
    
    
    (37,727
    )
    
    
    (34,033
    )
    
    
    (25,123
    )Other operating expenses
    
    
    (27,896
    )
    
    
    (30,961
    )
    
    
    (29,356
    )Commission income and other income (expense)
    
    
    961
    
    
    
    (600
    )
    
    
    504Underwriting profit (loss)
    
    
    8,254
    
    
    
    (2,280
    )
    
    
    20,606Net investment income
    
    
    9,229
    
    
    
    11,655
    
    
    
    10,524Net realized gains (losses)
    
    
    (3,193
    )
    
    
    (477
    )
    
    
    33Income before income tax expense
    
    
    14,290
    
    
    
    8,898
    
    
    
    31,163Income tax expense
    
    
    5,582
    
    
    
    3,269
    
    
    
    10,946Net income
    
    $
    8,708
    
    
    $
    5,629
    
    
    $
    20,217Identifiable assets
    
    $
    799,577
    
    
    $
    779,800
    
    
    $
    744,002Loss and loss expenses ratio
    
    
    64.3
    %
    
    
    65.0
    %
    
    
    53.0
    %Commission expense ratio
    
    
    18.5
    %
    
    
    18.8
    %
    
    
    15.8
    %Other operating expenses ratio (1)
    
    
    13.2
    %
    
    
    17.5
    %
    
    
    18.2
    %Combined ratio
    
    
    96.0
    %
    
    
    101.3
    %
    
    
    87.0
    %
 (1)
    
    Includes Other operating expensesand Commission income and Other income
(expense).    75




---



##### 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
    %
        76




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##### Table of Contents



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)
    
    $
    1,920,286
    
    
    $
    731,746
    
    
    $
    668,866
    
    
    $
    267,634
    
    
    $
    252,0407% Senior Notes (2)
    
    
    167,325
    
    
    
    8,050
    
    
    
    16,100
    
    
    
    16,100
    
    
    
    127,075Operating Leases
    
    
    54,757
    
    
    
    7,379
    
    
    
    15,403
    
    
    
    13,549
    
    
    
    18,426Total
    
    $
    2,142,368
    
    
    $
    747,175
    
    
    $
    700,369
    
    
    $
    297,283
    
    
    $
    397,541
 (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 $807 million. See Business  Loss Reserves included herein.(2)
    
    Includes interest payments.  77




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##### Table of Contents



Investments
  Gross
    
    
    Gross
    
    
    
    
    
    
    OTTIUnrealized
    
    
    Unrealized
    
    
    Cost or
    
    
    RecognizedDecember 31, 2009
    
    Fair Value
    
    
    Gains
    
    
    (Losses)
    
    
    Amortized Cost
    
    
    in OCI($ in thousands)U.S. Government Treasury bonds, agency
bonds and foreign government bonds
    
    $
    471,598
    
    
    $
    7,397
    
    
    $
    (597
    )
    
    $
    464,798
    
    
    $
    States, municipalities and political
subdivisions
    
    
    676,699
    
    
    
    25,044
    
    
    
    (2,917
    )
    
    
    654,572
    
    
    
    Mortgage- and asset-backed securities:Agency mortgage-backed securities
    
    
    283,578
    
    
    
    12,607
    
    
    
    (98
    )
    
    
    271,069
    
    
    
    Residential mortgage obligations
    
    
    31,071
    
    
    
    
    
    
    
    (7,246
    )
    
    
    38,317
    
    
    
    (5,723
    )Asset-backed securities
    
    
    16,469
    
    
    
    612
    
    
    
    (34
    )
    
    
    15,891
    
    
    
    (23
    )Commercial mortgage-backed securities
    
    
    100,393
    
    
    
    594
    
    
    
    (5,028
    )
    
    
    104,827
    
    
    
    Subtotal
    
    
    431,511
    
    
    
    13,813
    
    
    
    (12,406
    )
    
    
    430,104
    
    
    
    (5,746
    )Corporate bonds
    
    
    236,861
    
    
    
    9,111
    
    
    
    (759
    )
    
    
    228,509
    
    
    
    Total fixed maturities
    
    
    1,816,669
    
    
    
    55,365
    
    
    
    (16,679
    )
    
    
    1,777,983
    
    
    
    (5,746
    )Equity securities  common stocks
    
    
    62,610
    
    
    
    15,244
    
    
    
    (10
    )
    
    
    47,376
    
    
    
    Cash
    
    
    509
    
    
    
    
    
    
    
    
    
    
    
    509
    
    
    
    Short-term investments
    
    
    176,799
    
    
    
    
    
    
    
    
    
    
    
    176,799
    
    
    
    Total
    
    $
    2,056,587
    
    
    $
    70,609
    
    
    $
    (16,689
    )
    
    $
    2,002,667
    
    
    $
    (5,746
    )
  78




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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 bonds, 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:Agency mortgage-backed securities
    
    
    299,775
    
    
    
    10,930
    
    
    
    (26
    )
    
    
    288,871Residential 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
    79




---



##### Table of Contents



Fair Value Measurements
   80




---



##### 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
    
    $
    331,925
    
    
    $
    1,484,744
    
    
    $
    
    
    
    $
    1,816,669Equity securities
    
    
    62,610
    
    
    
    
    
    
    
    
    
    
    
    62,610Short-term investments
    
    
    9,992
    
    
    
    166,807
    
    
    
    
    
    
    
    176,799Total
    
    $
    404,527
    
    
    $
    1,651,551
    
    
    $
    
    
    
    $
    2,056,078
   Twelve Months Ended($ in thousands)
    
    December 31, 2009Level 3 investments as of January 1
    
    $
    156Unrealized net gains included in other
comprehensive income (loss)
    
    
    23Purchases, sales, paydowns and amortization
    
    
    (23
    )Transfer from Level 3
    
    
    (156
    )Transfer to Level 3
    
    
    Level 3 investments as of December 31
    
    $
    
  81




---



##### Table of Contents



Gross
    
    
    Gross
    
    
    Cost orFair
    
    
    Unrealized
    
    
    Unrealized
    
    
    AmortizedDecember 31, 2009
    
    Value
    
    
    Gains
    
    
    (Losses)
    
    
    Cost($ in thousands)U.S. Treasury bonds
    
    $
    362,614
    
    
    $
    5,549
    
    
    $
    (560
    )
    
    $
    357,625Agency bonds
    
    
    82,739
    
    
    
    1,489
    
    
    
    
    
    
    
    81,250Foreign government bonds
    
    
    26,245
    
    
    
    359
    
    
    
    (37
    )
    
    
    25,923Total
    
    $
    471,598
    
    
    $
    7,397
    
    
    $
    (597
    )
    
    $
    464,798
 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
  82




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##### Table of Contents



Gross
    
    
    Gross
    
    
    Cost orFair
    
    
    Unrealized
    
    
    Unrealized
    
    
    Amortized
    
    
    S&PValue
    
    
    Gains
    
    
    (Losses)
    
    
    Cost
    
    
    Rating($ in thousands)Issuers:State of Washington
    
    $
    17,428
    
    
    $
    799
    
    
    $
    (25
    )
    
    $
    16,654
    
    
    AATexas State Transportation Commission
    
    
    15,542
    
    
    
    
    
    
    
    (163
    )
    
    
    15,705
    
    
    AA+University of Pittsburgh
    
    
    14,060
    
    
    
    574
    
    
    
    
    
    
    
    13,486
    
    
    AACity of San Antonio
    
    
    11,581
    
    
    
    571
    
    
    
    
    
    
    
    11,010
    
    
    AACity of Chicago
    
    
    11,401
    
    
    
    377
    
    
    
    (32
    )
    
    
    11,056
    
    
    A-Virginia Resources Authority
    
    
    11,389
    
    
    
    826
    
    
    
    
    
    
    
    10,563
    
    
    AAACounty of Fairfax
    
    
    11,027
    
    
    
    
    
    
    
    (70
    )
    
    
    11,097
    
    
    AAAState of Louisiana
    
    
    9,992
    
    
    
    518
    
    
    
    
    
    
    
    9,474
    
    

    A+State of Wisconsin
    
    
    9,962
    
    
    
    479
    
    
    
    
    
    
    
    9,483
    
    
    AA-Salt River Project Agricultural Improvement
    
    
    9,931
    
    
    
    155
    
    
    
    
    
    
    
    9,776
    
    
    AACommonwealth of Massachusetts
    
    
    9,059
    
    
    
    581
    
    
    
    (7
    )
    
    
    8,485
    
    
    AANew York City Transitional Finance Authority
    
    
    8,107
    
    
    
    
    
    
    
    (343
    )
    
    
    8,450
    
    
    AACity of New York
    
    
    8,026
    
    
    
    288
    
    
    
    (20
    )
    
    
    7,758
    
    
    AA-Illinois Finance Authority
    
    
    8,015
    
    
    
    69
    
    
    
    (222
    )
    
    
    8,168
    
    
    BBB+Cypress-Fairbanks Independent School Dist
    
    
    7,985
    
    
    
    131
    
    
    
    
    
    
    
    7,854
    
    
    AA-Subtotal
    
    
    163,505
    
    
    
    5,368
    
    
    
    (882
    )
    
    
    159,019All Other
    
    
    513,194
    
    
    
    19,676
    
    
    
    (2,035
    )
    
    
    495,553Total
    
    $
    676,699
    
    
    $
    25,044
    
    
    $
    (2,917
    )
    
    $
    654,572
  Equivalent
    
    Equivalent
    
    
    
    
    
    
    
    
    
    NetS&P
    
    Moodys
    
    
    
    
    
    
    
    
    
    UnrealizedRating
    
    Rating
    
    Fair Value
    
    
    Book Value
    
    
    Gain/(Loss)($ in thousands)AAA/AA/A
    
    Aaa/Aa/A
    
    $
    639,802
    
    
    $
    617,620
    
    
    $
    22,182BBB
    
    Baa
    
    
    27,668
    
    
    
    27,641
    
    
    
    27BB
    
    Ba
    
    
    2,000
    
    
    
    2,014
    
    
    
    (14
    )B
    
    B
    
    
    
    
    
    
    
    
    
    
    CCC or lower
    
    Caa or lower
    
    
    
    
    
    
    
    
    
    
    N/A
    
    N/A
    
    
    7,229
    
    
    
    7,297
    
    
    
    (68
    )Total
    
    
    
    $
    676,699
    
    
    $
    654,572
    
    
    $
    22,127
  83




---



##### Table of Contents



84




---



##### Table of Contents



Gross
    
    
    Gross
    
    
    Cost orFair
    
    
    Unrealized
    
    
    Unrealized
    
    
    AmortizedValue
    
    
    Gains
    
    
    (Losses)
    
    
    Cost($ in thousands)Agency mortgage-backed securities:GNMA
    
    $
    44,351
    
    
    $
    1,300
    
    
    $
    (53
    )
    
    $
    43,104FNMA
    
    
    173,786
    
    
    
    8,716
    
    
    
    (11
    )
    
    
    165,081FHLMC
    
    
    65,441
    
    
    
    2,591
    
    
    
    (34
    )
    
    
    62,884Total
    
    $
    283,578
    
    
    $
    12,607
    
    
    $
    (98
    )
    
    $
    271,069
 Gross
    
    
    Gross
    
    
    Cost orFair
    
    
    Unrealized
    
    
    Unrealized
    
    
    AmortizedValue
    
    
    Gains
    
    
    (Losses)
    
    
    Cost($ in thousands)Residential mortgage obligations:Prime
    
    $
    29,565
    
    
    $
    
    
    
    $
    (6,836
    )
    
    $
    36,401Alt-A
    
    
    1,506
    
    
    
    
    
    
    
    (410
    )
    
    
    1,916Subprime
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total
    
    $
    31,071
    
    
    $
    
    
    
    $
    (7,246
    )
    
    $
    38,317
 Gross
    
    
    Gross
    
    
    Cost orFair
    
    
    Unrealized
    
    
    Unrealized
    
    
    AmortizedValue
    
    
    Gains
    
    
    (Losses)
    
    
    Cost($ in thousands)Asset-backed securities:Prime
    
    $
    16,323
    
    
    $
    612
    
    
    $
    (10
    )
    
    $
    15,721Alt-A
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Subprime
    
    
    146
    
    
    
    
    
    
    
    (24
    )
    
    
    170Total
    
    $
    16,469
    
    
    $
    612
    
    
    $
    (34
    )
    
    $
    15,891
  85




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##### Table of Contents



Issue
    
    
    Fair
    
    
    Book
    
    
    Unrealized
    
    
    S&P
    
    MoodysSecurity Description
    
    Date
    
    
    Value
    
    
    Value
    
    
    (Loss)
    
    
    Rating
    
    Rating($ in thousands)GMAC Mtg Corp Ln Tr 05 Ar6 2A1
    
    
    2005
    
    
    $
    2,907
    
    
    $
    3,489
    
    
    $
    (582
    )
    
    BB
    
    B3Merrill Lynch Mtg Inv Inc 05 A9 2A1E
    
    
    2005
    
    
    
    2,569
    
    
    
    3,523
    
    
    
    (954
    )
    
    B+
    
    NRWells Fargo Mtg Bkd Secs Tr 06 Ar5 2A1
    
    
    2006
    
    
    
    2,469
    
    
    
    2,725
    
    
    
    (256
    )
    
    NR
    
    Caa1Wells Fargo Mtg Bkd Secs Tr 05 Ar4 2A2
    
    
    2005
    
    
    
    966
    
    
    
    1,102
    
    
    
    (136
    )
    
    NR
    
    A2Merrill Lynch Mtg Inv Inc 05 A9 2A1
    
    
    2005
    
    
    
    742
    
    
    
    780
    
    
    
    (38
    )
    
    BBB
    
    NRBear Stearns Adjustable Rate 06 1 A1
    
    
    2006
    
    
    
    712
    
    
    
    814
    
    
    
    (102
    )
    
    NR
    
    Baa1GSR Mortgage Loan Trust 06 Ar1 2A1
    
    
    2006
    
    
    
    662
    
    
    
    833
    
    
    
    (171
    )
    
    BB
    
    NRWells Fargo Mtg Bkd Secs Tr 06 Ar6 3A
    
    
    2006
    
    
    
    641
    
    
    
    773
    
    
    
    (132
    )
    
    NR
    
    B2JP Morgan Mortgage Trust 06 A4 1A1
    
    
    2006
    
    
    
    628
    
    
    
    869
    
    
    
    (241
    )
    
    NR
    
    B3Master Adj Rate Mtg Tr 05 6 5A1
    
    
    2005
    
    
    
    618
    
    
    
    811
    
    
    
    (193
    )
    
    B-
    
    Baa2Bear Stearns Adjustable Rate 05 3 2A1
    
    
    2005
    
    
    
    610
    
    
    
    706
    
    
    
    (96
    )
    
    BB
    
    Ba1Mortgageit Trust 05 1 2A
    
    
    2005
    
    
    
    605
    
    
    
    672
    
    
    
    (67
    )
    
    AAA
    
    AaaJP Morgan Mortgage Trust 07-A3 1A1
    
    
    2007
    
    
    
    604
    
    
    
    890
    
    
    
    (286
    )
    
    CCC
    
    NRWells Fargo Mortgage Backed Se 06-Ar14 2
    
    
    2006
    
    
    
    577
    
    
    
    722
    
    
    
    (145
    )
    
    NR
    
    Caa1JP Morgan Mortgage Trust 05 A4 3A1
    
    
    2005
    
    
    
    556
    
    
    
    600
    
    
    
    (44
    )
    
    AAA
    
    Baa1Subtotal
    
    
    
    
    
    
    15,866
    
    
    
    19,309
    
    
    
    (3,443
    )All Other
    
    
    
    
    
    
    15,205
    
    
    
    19,008
    
    
    
    (3,803
    )Total
    
    
    
    
    
    $
    31,071
    
    
    $
    38,317
    
    
    $
    (7,246
    )
  TotalTotal
    
    
    Amortized
    
    
    UnrealizedAAA
    
    
    AA
    
    
    A
    
    
    BBB
    
    
    BB
    
    
    CC
    
    
    Fair Value
    
    
    Cost
    
    
    Gain/(Loss)($ in thousands)Auto Loans
    
    $
    7,331
    
    
    $
    3,574
    
    
    $
    461
    
    
    $
    1,633
    
    
    $
    
    
    
    $
    
    
    
    $
    12,999
    
    
    $
    12,556
    
    
    $
    443Credit Cards
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    88
    
    
    
    
    
    
    
    88
    
    
    
    91
    
    
    
    (3
    )Miscellaneous
    
    
    3,235
    
    
    
    2
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    145
    
    
    
    3,382
    
    
    
    3,244
    
    
    
    138Total
    
    $
    10,566
    
    
    $
    3,576
    
    
    $
    461
    
    
    $
    1,633
    
    
    $
    88
    
    
    $
    145
    
    
    $
    16,469
    
    
    $
    15,891
    
    
    $
    578
  86




---



##### 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 Comm Mtg 05 C18 A4
    
    
    2005
    
    
    $
    6,806
    
    
    $
    6,859
    
    
    
    72.18
    %
    
    
    8.80
    %
    
    
    32.07
    %
    
    AAA
    
    AaaGS Mtg Secs Corp II 05 GG4 A4A
    
    
    2005
    
    
    
    6,487
    
    
    
    6,608
    
    
    
    71.96
    %
    
    
    7.15
    %
    
    
    30.86
    %
    
    AAA
    
    AaaFour Times Square 06-4TS A
    
    
    2006
    
    
    
    5,943
    
    
    
    7,029
    
    
    
    39.40
    %
    
    
    0.00
    %
    
    
    7.94
    %
    
    AAA
    
    Aa1Citigroup/Deutsche Bank Comm Mtg 05 CD1 A4
    
    
    2005
    
    
    
    5,840
    
    
    
    5,867
    
    
    
    68.74
    %
    
    
    8.73
    %
    
    
    30.97
    %
    
    AAA
    
    AaaLB-UBS Comm Mtg Trust 06 C7 A3
    
    
    2006
    
    
    
    5,775
    
    
    
    6,330
    
    
    
    66.98
    %
    
    
    6.06
    %
    
    
    29.99
    %
    
    AAA
    
    NRBear Stearns Comm Mtg Secs 06 T22 A4
    
    
    2006
    
    
    
    4,933
    
    
    
    4,883
    
    
    
    57.39
    %
    
    
    0.41
    %
    
    
    28.20
    %
    
    NR
    
    AaaBear Stearns Comm Mtg Secs 07 PW15 A4
    
    
    2007
    
    
    
    4,414
    
    
    
    5,135
    
    
    
    69.96
    %
    
    
    17.44
    %
    
    
    30.31
    %
    

    A+

    
    AaaBanc Of America Comm Mtg Inc 07 1 A4
    
    
    2007
    
    
    
    4,189
    
    
    
    4,780
    
    
    
    74.54
    %
    
    
    13.28
    %
    
    
    30.49
    %
    
    NR
    
    AaaMorgan Stanley Capital I 07 HQ11 A4
    
    
    2007
    
    
    
    4,163
    
    
    
    4,787
    
    
    
    70.94
    %
    
    
    3.67
    %
    
    
    30.23
    %
    

    A

    
    AaaMerrill Lynch Mtg Trust 05 CIP1 A4
    
    
    2005
    
    
    
    3,936
    
    
    
    4,035
    
    
    
    70.86
    %
    
    
    14.00
    %
    
    
    31.01
    %
    
    NR
    
    AaaCommercial Mtg Pass Through Cert 05 C6 A5A
    
    
    2005
    
    
    
    3,932
    
    
    
    4,053
    
    
    
    72.20
    %
    
    
    8.77
    %
    
    
    29.89
    %
    
    AAA
    
    AaaMorgan Stanley Capital I 04 T13 A4
    
    
    2004
    
    
    
    3,316
    
    
    
    3,327
    
    
    
    58.81
    %
    
    
    0.00
    %
    
    
    15.53
    %
    
    NR
    
    AaaCitigroup Comm Mtg Trust 06 C5 A4
    
    
    2006
    
    
    
    3,250
    
    
    
    3,511
    
    
    
    69.00
    %
    
    
    14.80
    %
    
    
    30.37
    %
    
    NR
    
    AaaGE Capital Comm Mtg Svcs 02 1A A3
    
    
    2002
    
    
    
    2,634
    
    
    
    2,502
    
    
    
    72.46
    %
    
    
    2.63
    %
    
    
    25.03
    %
    
    NR
    
    AaaCSFB Mtg Secs Corp 03 C3 A5
    
    
    2003
    
    
    
    2,559
    
    
    
    2,523
    
    
    
    62.03
    %
    
    
    3.49
    %
    
    
    20.69
    %
    
    AAA
    
    AaaSubtotal
    
    
    
    
    
    
    68,177
    
    
    
    72,229All Other
    
    
    
    
    
    
    32,216
    
    
    
    32,598Total
    
    
    
    
    
    $
    100,393
    
    
    $
    104,827
  PercentRating
    
    
    
    Fair
    
    
    ofDescription
    
    Rating
    
    Value
    
    
    Total($ in thousands)Extremely Strong
    
    AAA
    
    $
    1,124,403
    
    
    
    57
    %Very Strong
    
    AA
    
    
    494,764
    
    
    
    25
    %Strong
    
    A
    
    
    275,016
    
    
    
    14
    %Adequate
    
    BBB
    
    
    67,400
    
    
    
    3
    %Speculative
    
    BB & below
    
    
    24,656
    
    
    
    1
    %Not Rated
    
    NR
    
    
    7,229
    
    
    
    0
    %Total
    
    AA
    
    $
    1,993,468
    
    
    
    100
    %
  87




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Gross
    
    
    Gross
    
    
    Cost orFair
    
    
    Unrealized
    
    
    Unrealized
    
    
    Amortized
    
    
    S&PValue
    
    
    Gains
    
    
    (Losses)
    
    
    Cost
    
    
    Rating($ in thousands)Issuers:General Electric
    
    $
    20,475
    
    
    $
    777
    
    
    $
    (9
    )
    
    $
    19,707
    
    
    AASouthern Co
    
    
    11,797
    
    
    
    149
    
    
    
    (159
    )
    
    
    11,807
    
    
    AConoco Phillips
    
    
    11,428
    
    
    
    225
    
    
    
    
    
    
    
    11,203
    
    
    AGoldman Sachs Group
    
    
    10,927
    
    
    
    258
    
    
    
    
    
    
    
    10,669
    
    
    A-Bank of America Corp
    
    
    8,823
    
    
    
    248
    
    
    
    (33
    )
    
    
    8,608
    
    
    A-Transcanada Corp
    
    
    8,445
    
    
    
    349
    
    
    
    
    
    
    
    8,096
    
    
    A-Citigroup Inc
    
    
    6,912
    
    
    
    129
    
    
    
    (170
    )
    
    
    6,953
    
    
    BBB+JP Morgan Chase & Co
    
    
    6,345
    
    
    
    44
    
    
    
    
    
    
    
    6,301
    
    
    AStatoilhydro ASA
    
    
    5,830
    
    
    
    277
    
    
    
    
    
    
    
    5,553
    
    
    AA-Wells Fargo & Co
    
    
    5,216
    
    
    
    243
    
    
    
    (25
    )
    
    
    4,998
    
    
    A+Scana Corp
    
    
    5,206
    
    
    
    105
    
    
    
    
    
    
    
    5,101
    
    
    A-Morgan Stanley
    
    
    5,112
    
    
    
    184
    
    
    
    
    
    
    
    4,928
    
    
    A-Mead Johnson Nutrition Co
    
    
    4,943
    
    
    
    
    
    
    
    (35
    )
    
    
    4,978
    
    
    BBB-Bank of New York
    
    
    3,658
    
    
    
    190
    
    
    
    
    
    
    
    3,468
    
    
    A+Pfizer Inc
    
    
    3,623
    
    
    
    300
    
    
    
    
    
    
    
    3,323
    
    
    A+Subtotal
    
    
    118,740
    
    
    
    3,478
    
    
    
    (431
    )
    
    
    115,693All Other
    
    
    118,121
    
    
    
    5,633
    
    
    
    (328
    )
    
    
    112,816Total
    
    $
    236,861
    
    
    $
    9,111
    
    
    $
    (759
    )
    
    $
    228,509
  88




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##### Table of Contents



Gross
    
    
    Gross
    
    
    Cost orFair
    
    
    Unrealized
    
    
    Unrealized
    
    
    AmortizedValue
    
    
    Gains
    
    
    (Losses)
    
    
    Cost($ in thousands)Issuers:Vanguard Total Stock Market Index
    
    $
    4,656
    
    
    $
    1,361
    
    
    $
    
    
    
    $
    3,295Vanguard Emerging Market Stock Index
    
    
    4,207
    
    
    
    1,771
    
    
    
    
    
    
    
    2,436Vanguard Pacific Stock Index
    
    
    3,967
    
    
    
    1,041
    
    
    
    
    
    
    
    2,926Vanguard European Stock Index
    
    
    3,883
    
    
    
    1,292
    
    
    
    
    
    
    
    2,591PPG Industries
    
    
    1,818
    
    
    
    626
    
    
    
    
    
    
    
    1,1923M Co
    
    
    1,794
    
    
    
    553
    
    
    
    
    
    
    
    1,241Merck & Co Inc
    
    
    1,782
    
    
    
    462
    
    
    
    
    
    
    
    1,320The Boeing Co
    
    
    1,719
    
    
    
    327
    
    
    
    
    
    
    
    1,392Kraft Foods Inc
    
    
    1,713
    
    
    
    211
    
    
    
    
    
    
    
    1,502Philip Morris International Inc
    
    
    1,711
    
    
    
    352
    
    
    
    
    
    
    
    1,359EI Du Pont De Nemours & Co
    
    
    1,705
    
    
    
    404
    
    
    
    
    
    
    
    1,301Diageo PLC
    
    
    1,704
    
    
    
    512
    
    
    
    
    
    
    
    1,192Unilever NV
    
    
    1,660
    
    
    
    654
    
    
    
    
    
    
    
    1,006BP PLC
    
    
    1,641
    
    
    
    506
    
    
    
    
    
    
    
    1,135Johnson & Johnson
    
    
    1,617
    
    
    
    189
    
    
    
    
    
    
    
    1,428Subtotal
    
    
    35,577
    
    
    
    10,261
    
    
    
    
    
    
    
    25,316All Other
    
    
    27,033
    
    
    
    4,983
    
    
    
    (10
    )
    
    
    22,060Total
    
    $
    62,610
    
    
    $
    15,244
    
    
    $
    (10
    )
    
    $
    47,376
  89




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December 31, 2009
    
    
    December 31, 2008# of
    
    
    Fair
    
    
    Gross
    
    
    # of
    
    
    Fair
    
    
    GrossSecurities
    
    
    Value
    
    
    Unrealized Loss
    
    
    Securities
    
    
    Value
    
    
    Unrealized Loss($ in thousands except # of securities)Fixed Maturities:U.S. Government Treasury bonds, agency
bonds and foreign government bonds0-6 Months
    
    
    24
    
    
    $
    116,566
    
    
    $
    597
    
    
    
    4
    
    
    $
    3,862
    
    
    $
    1457-12 Months
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    > 12 Months
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Subtotal
    
    
    24
    
    
    
    116,566
    
    
    
    597
    
    
    
    4
    
    
    
    3,862
    
    
    
    145States, municipalities and
political subdivisions0-6 Months
    
    
    47
    
    
    
    108,290
    
    
    
    2,291
    
    
    
    72
    
    
    
    68,727
    
    
    
    2,1877-12 Months
    
    
    4
    
    
    
    3,534
    
    
    
    112
    
    
    
    73
    
    
    
    118,910
    
    
    
    4,376> 12 Months
    
    
    23
    
    
    
    17,777
    
    
    
    514
    
    
    
    17
    
    
    
    15,918
    
    
    
    1,473Subtotal
    
    
    74
    
    
    
    129,601
    
    
    
    2,917
    
    
    
    162
    
    
    
    203,555
    
    
    
    8,036Agency mortgage-backed securities0-6 Months
    
    
    5
    
    
    
    18,385
    
    
    
    98
    
    
    
    3
    
    
    
    2,130
    
    
    
    67-12 Months
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    6
    
    
    
    3,471
    
    
    
    9> 12 Months
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    11
    
    
    
    962
    
    
    
    11Subtotal
    
    
    5
    
    
    
    18,385
    
    
    
    98
    
    
    
    20
    
    
    
    6,563
    
    
    
    26Residential mortgage obligations0-6 Months
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    7-12 Months
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    65
    
    
    
    39,012
    
    
    
    20,779> 12 Months
    
    
    73
    
    
    
    31,071
    
    
    
    7,246
    
    
    
    14
    
    
    
    10,315
    
    
    
    6,340Subtotal
    
    
    73
    
    
    
    31,071
    
    
    
    7,246
    
    
    
    79
    
    
    
    49,327
    
    
    
    27,119Asset-backed securities0-6 Months
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    53
    
    
    
    22,079
    
    
    
    6537-12 Months
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    10
    
    
    
    6,630
    
    
    
    550> 12 Months
    
    
    4
    
    
    
    637
    
    
    
    34
    
    
    
    2
    
    
    
    224
    
    
    
    86Subtotal
    
    
    4
    
    
    
    637
    
    
    
    34
    
    
    
    65
    
    
    
    28,933
    
    
    
    1,289Commercial mortgage-backed securities0-6 Months
    
    
    11
    
    
    
    28,103
    
    
    
    324
    
    
    
    6
    
    
    
    6,461
    
    
    
    2807-12 Months
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    21
    
    
    
    31,505
    
    
    
    5,628> 12 Months
    
    
    21
    
    
    
    45,135
    
    
    
    4,704
    
    
    
    26
    
    
    
    54,717
    
    
    
    14,442Subtotal
    
    
    32
    
    
    
    73,238
    
    
    
    5,028
    
    
    
    53
    
    
    
    92,683
    
    
    
    20,350Corporate bonds0-6 Months
    
    
    13
    
    
    
    33,275
    
    
    
    337
    
    
    
    75
    
    
    
    57,805
    
    
    
    2,4457-12 Months
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    89
    
    
    
    57,971
    
    
    
    5,893> 12 Months
    
    
    8
    
    
    
    6,325
    
    
    
    422
    
    
    
    40
    
    
    
    27,873
    
    
    
    6,322Subtotal
    
    
    21
    
    
    
    39,600
    
    
    
    759
    
    
    
    204
    
    
    
    143,649
    
    
    
    14,660Total fixed maturities
    
    
    233
    
    
    $
    409,098
    
    
    $
    16,679
    
    
    
    587
    
    
    $
    528,572
    
    
    $
    71,625Equity securities  common stocks0-6 Months
    
    
    
    
    
    $
    
    
    
    $
    
    
    
    
    17
    
    
    $
    8,991
    
    
    $
    1,9417-12 Months
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2
    
    
    
    351
    
    
    
    46> 12 Months
    
    
    1
    
    
    
    872
    
    
    
    10
    
    
    
    
    
    
    
    
    
    
    
    Total equity securities
    
    
    1
    
    
    $
    872
    
    
    $
    10
    
    
    
    19
    
    
    $
    9,342
    
    
    $
    1,987
  90




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##### Table of Contents



Critical
Accounting Estimates  Impairment of Invested Assets
    Period for Which Fair Value is Less than 80% of Amortized Cost6 monthsLonger than 3
    
    
    or longer, lessLess than 3
    
    
    months, less
    
    
    than 12
    
    
    12 monthsmonths
    
    
    than 6 months
    
    
    months
    
    
    or longer
    
    
    Total($ in thousands)Fixed Maturities
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    (4,520
    )
    
    $
    (4,520
    )Equity Securities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    (4,520
    )
    
    $
    (4,520
    )
   91




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##### Table of Contents



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
    
    $
    9,979
    
    
    
    59
    %
    
    $
    356,726
    
    
    
    87
    %2
    
    BBB
    
    Baa
    
    
    1,050
    
    
    
    6
    %
    
    
    24,186
    
    
    
    6
    %3
    
    BB
    
    Ba
    
    
    300
    
    
    
    2
    %
    
    
    4,156
    
    
    
    1
    %4
    
    B
    
    B
    
    
    2,979
    
    
    
    18
    %
    
    
    11,630
    
    
    
    3
    %5
    
    CCC or lower
    
    Caa or lower
    
    
    2,276
    
    
    
    14
    %
    
    
    8,871
    
    
    
    2
    %6
    
    N/A
    
    N/A
    
    
    95
    
    
    
    1
    %
    
    
    3,529
    
    
    
    1
    %Total
    
    
    
    $
    16,679
    
    
    
    100
    %
    
    $
    409,098
    
    
    
    100
    %
   92




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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
    
    $
    23
    
    
    
    0
    %
    
    $
    4,006
    
    
    
    1
    %Due after one year through five years
    
    
    596
    
    
    
    4
    %
    
    
    109,756
    
    
    
    27
    %Due after five years through ten
years
    
    
    1,554
    
    
    
    9
    %
    
    
    95,386
    
    
    
    23
    %Due after ten years
    
    
    2,100
    
    
    
    13
    %
    
    
    76,619
    
    
    
    19
    %Mortgage- and asset-backed securities
    
    
    12,406
    
    
    
    74
    %
    
    
    123,331
    
    
    
    30
    %Total fixed income securities
    
    $
    16,679
    
    
    
    100
    %
    
    $
    409,098
    
    
    
    100
    %
  
 Liquidity and Capital Resources
      93




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##### Table of Contents



94




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##### Table of Contents



December 31,2009
    
    
    2008($ in thousands)Senior debt
    
    $
    114,010
    
    
    $
    123,794Stockholders equity
    
    
    801,519
    
    
    
    689,317Total capitalization
    
    $
    915,529
    
    
    $
    813,111Ratio of debt to total capitalization
    
    
    12.5
    %
    
    
    15.2
    %
  95




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##### Table of Contents



96




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##### Table of Contents



December 31,2009
    
    
    2008($ in thousands)Cash and investments
    
    $
    63,676
    
    
    $
    52,149Investments in subsidiaries
    
    
    846,295
    
    
    
    751,864Goodwill and other intangible assets
    
    
    2,534
    
    
    
    2,534Other assets
    
    
    5,213
    
    
    
    8,769Total assets
    
    $
    917,718
    
    
    $
    815,3167% Senior Notes
    
    $
    114,010
    
    
    $
    123,794Accounts payable and other liabilities
    
    
    847
    
    
    
    747Accrued interest payable
    
    
    1,342
    
    
    
    1,458Deferred compensation payable
    
    
    
    
    
    
    Total liabilities
    
    
    116,199
    
    
    
    125,999Stockholders equity
    
    
    801,519
    
    
    
    689,317Total liabilities and stockholders equity
    
    $
    917,718
    
    
    $
    815,316
  97




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##### Table of Contents



Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
 Market Sensitive Instruments and Risk Management
     Interest Rate Risk Sensitivity Analysis
     98




---



##### Table of Contents



Interest Rate Shift in Basis Points-100
    
    
    -50
    
    
    0
    
    
    +50
    
    
    +100($ in thousands)December 31, 2009:Total market value
    
    $
    2,087,958
    
    
    $
    2,040,514
    
    
    $
    1,993,468
    
    
    $
    1,946,821
    
    
    $
    1,900,971Market value change from base
    
    
    4.74
    %
    
    
    2.36
    %
    
    
    
    
    
    
    -2.34
    %
    
    
    -4.64
    %Change in unrealized value
    
    $
    94,490
    
    
    $
    47,046
    
    
    $
    
    
    
    $
    (46,647
    )
    
    $
    (92,497
    )
 Equity Price Risk
  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
   99




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##### Table of Contents



Managements Report on Internal Control over Financial Reporting
 (a) Managements annual report on internal control over financial reporting
 Internal Control  Integrated Framework Internal Control  Integrated Framework
    100




---



##### Table of Contents



(b) Attestation report of the registered public accounting firm
 Report of Independent Registered Public Accounting Firm
 
 Internal Control  Integrated
Framework
    Internal Control  Integrated Framework
   
  101




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##### Table of Contents



(c) 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
  
 Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
 .
  102




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##### Table of Contents



Item 14.PRINCIPAL ACCOUNTING FEES AND SERVICES
  
 Part IV
 
 Item 15. EXHIBITS, 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.
  103




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##### Table of Contents



The Navigators Group, Inc.
(Company)Dated:  February 26, 2010
    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 26, 2010/s/ STANLEY A. GALANSKI

Stanley A. Galanski
    
    President and Chief Executive Officer
(Principal Executive Officer)
    
    February 26, 2010/s/ FRANCIS W. MCDONNELL

Francis W. McDonnell
    
    Senior Vice President and 
Chief Financial Officer
(Principal Financial Officer)
    
    February 26, 2010/s/ THOMAS C. CONNOLLY

Thomas C. Connolly
    
    Vice President and Treasurer 
Navigators Management Company
(Principal Accounting Officer)
    
    February 26, 2010/s/ H.J. MERVYN BLAKENEY

H.J. Mervyn Blakeney
    
    Director
    
    February 26, 2010/s/ PETER A. CHENEY

Peter A. Cheney
    
    Director
    
    February 26, 2010/s/ WILLIAM T. FORRESTER

William T. Forrester
    
    Director
    
    February 26, 2010/s/ JOHN F. KIRBY

John F. Kirby
    
    Director
    
    February 26, 2010/s/ MARC M. TRACT

Marc M. Tract
    
    Director
    
    February 26, 2010/s/ ROBERT F. WRIGHT

Robert F. Wright
    
    Director
    
    February 26, 2010
  104




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##### Table of Contents



INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULES
 Report of Independent Registered Public Accounting Firm
    
    F-2Consolidated Balance Sheets at December 31, 2009 and 2008
    
    F-3Consolidated Statements of Income for each of the years in the three-year
period ended December 31, 2009
    
    F-4Consolidated Statements of Stockholders Equity for each of the years in
the three-year period ended December 31, 2009
    
    F-5Consolidated Statements of Comprehensive Income for each of the years
in the three-year period ended December 31, 2009
    
    F-6Consolidated Statements of Cash Flows for each of the years in the
three-year period ended December 31, 2009
    
    F-7Notes to Consolidated Financial Statements
    
    F-8SCHEDULES: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
  
  F-2




---



##### Table of Contents



THE NAVIGATORS GROUP, INC. AND SUBSIDIARIES
 
 CONSOLIDATED BALANCE SHEETS
 ($ in thousands, except share data)
 December 31,2009
    
    
    2008ASSETSInvestments and cash:Fixed maturities, available-for-sale, at fair value
(amortized cost: 2009, $1,777,983; 2008, $1,664,755)
    
    $
    1,816,669
    
    
    $
    1,643,772Equity securities, available-for-sale, at fair value (cost: 2009, $47,376; 2008, $52,523)
    
    
    62,610
    
    
    
    51,802Short-term investments, at cost which approximates fair value
    
    
    176,799
    
    
    
    220,684Cash
    
    
    509
    
    
    
    1,457Total investments and cash
    
    
    2,056,587
    
    
    
    1,917,715Premiums receivable
    
    
    193,460
    
    
    
    170,522Prepaid reinsurance premiums
    
    
    162,344
    
    
    
    188,874Reinsurance recoverable on paid losses
    
    
    76,505
    
    
    
    67,227Reinsurance recoverable on unpaid losses and loss adjustment expenses
    
    
    807,352
    
    
    
    853,793Deferred policy acquisition costs
    
    
    56,575
    
    
    
    47,618Accrued investment income
    
    
    17,438
    
    
    
    17,411Goodwill and other intangible assets
    
    
    7,057
    
    
    
    6,622Current income tax receivable, net
    
    
    4,854
    
    
    
    Deferred income tax, net
    
    
    31,222
    
    
    
    54,736Other assets
    
    
    40,600
    
    
    
    25,062Total assets
    
    $
    3,453,994
    
    
    $
    3,349,580LIABILITIES AND STOCKHOLDERS EQUITYLiabilities:Reserves for losses and loss adjustment expenses
    
    $
    1,920,286
    
    
    $
    1,853,664Unearned premiums
    
    
    475,171
    
    
    
    480,665Reinsurance balances payable
    
    
    98,555
    
    
    
    140,319Senior notes
    
    
    114,010
    
    
    
    123,794Federal income taxes payable
    
    
    
    
    
    
    5,874Accounts payable and other liabilities
    
    
    44,453
    
    
    
    55,947Total liabilities
    
    
    2,652,475
    
    
    
    2,660,263Stockholders equity:Preferred stock, $.10 par value, authorized 1,000,000 shares, none issued
    
    $
    
    
    
    $
    Common stock, $.10 par value, authorized 50,000,000 shares, issued
17,212,814 shares for 2009 and 17,080,826 shares for 2008
    
    
    1,721
    
    
    
    1,708Additional paid-in capital
    
    
    304,505
    
    
    
    298,872Treasury stock, at cost (366,330 shares for 2009 and 224,754 shares for 2008)
    
    
    (18,296
    )
    
    
    (11,540
    )Retained earnings
    
    
    469,934
    
    
    
    406,776Accumulated other comprehensive income (loss)
    
    
    43,655
    
    
    
    (6,499
    )Total stockholders equity
    
    
    801,519
    
    
    
    689,317Total liabilities and stockholders equity
    
    $
    3,453,994
    
    
    $
    3,349,580
   F-3




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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 31,2009
    
    
    2008
    
    
    2007Gross written premiums
    
    $
    1,044,918
    
    
    $
    1,084,922
    
    
    $
    1,070,707Revenues:Net written premiums
    
    $
    701,255
    
    
    $
    661,615
    
    
    $
    645,796Increase in unearned premiums
    
    
    (17,892
    )
    
    
    (17,639
    )
    
    
    (43,819
    )Net earned premiums
    
    
    683,363
    
    
    
    643,976
    
    
    
    601,977Commission income
    
    
    87
    
    
    
    1,005
    
    
    
    1,736Net investment income
    
    
    75,512
    
    
    
    76,554
    
    
    
    70,662Total other-than-temporary impairment losses
    
    
    (29,265
    )
    
    
    (37,045
    )
    
    
    (655
    )Portion of loss recognized in othercomprehensive income (before tax)
    
    
    17,388
    
    
    
    
    
    
    
    Net other-than-temporary impairment lossesrecognized in earnings
    
    
    (11,877
    )
    
    
    (37,045
    )
    
    
    (655
    )Net realized gains (losses)
    
    
    9,217
    
    
    
    (1,254
    )
    
    
    2,661Other income
    
    
    6,578
    
    
    
    430
    
    
    
    278Total revenues
    
    
    762,880
    
    
    
    683,666
    
    
    
    676,659Expenses:Net losses and loss adjustment expenses
    
    
    435,998
    
    
    
    393,131
    
    
    
    340,592Commission expenses
    
    
    98,908
    
    
    
    89,785
    
    
    
    77,613Other operating expenses
    
    
    132,671
    
    
    
    123,148
    
    
    
    110,409Interest expense
    
    
    8,455
    
    
    
    8,871
    
    
    
    8,863Total expenses
    
    
    676,032
    
    
    
    614,935
    
    
    
    537,477Income before income taxes
    
    
    86,848
    
    
    
    68,731
    
    
    
    139,182Income tax expense
    
    
    23,690
    
    
    
    17,039
    
    
    
    43,562Net income
    
    $
    63,158
    
    
    $
    51,692
    
    
    $
    95,620Net income per common share:Basic
    
    $
    3.73
    
    
    $
    3.08
    
    
    $
    5.69Diluted
    
    $
    3.65
    
    
    $
    3.04
    
    
    $
    5.62Average common shares outstanding:Basic
    
    
    16,935
    
    
    
    16,802
    
    
    
    16,812Diluted
    
    
    17,322
    
    
    
    16,992
    
    
    
    17,005
   F-4




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##### Table of Contents



THE NAVIGATORS GROUP, INC. AND SUBSIDIARIES
 
 CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY
 ($ in thousands)
 Year Ended December 31,2009
    
    
    2008
    
    
    2007Preferred StockBalance at beginning and end of year
    
    $
    
    
    
    $
    
    
    
    $
    Common stockBalance at beginning of year
    
    $
    1,708
    
    
    $
    1,687
    
    
    $
    1,674Shares issued under stock plans
    
    
    13
    
    
    
    21
    
    
    
    13Balance at end of year
    
    $
    1,721
    
    
    $
    1,708
    
    
    $
    1,687Additional paid-in capitalBalance at beginning of year
    
    $
    298,872
    
    
    $
    291,616
    
    
    $
    286,732Shares issued under stock plans
    
    
    5,633
    
    
    
    7,256
    
    
    
    4,884Balance at end of year
    
    $
    304,505
    
    
    $
    298,872
    
    
    $
    291,616Treasury stock held at costBalance at beginning of year
    
    $
    (11,540
    )
    
    $
    
    
    
    $
    Treasury stock acquired
    
    
    (6,756
    )
    
    
    (11,540
    )
    
    
    Balance at end of year
    
    $
    (18,296
    )
    
    $
    (11,540
    )
    
    $
    Retained earningsBalance at beginning of year
    
    $
    406,776
    
    
    $
    355,084
    
    
    $
    259,464Net income
    
    
    63,158
    
    
    
    51,692
    
    
    
    95,620Balance at end of year
    
    $
    469,934
    
    
    $
    406,776
    
    
    $
    355,084Accumulated other comprehensive income (loss)Net unrealized gains (losses) on securities, net of taxBalance at beginning of year
    
    $
    (15,062
    )
    
    $
    10,186
    
    
    $
    849Change in year
    
    
    46,020
    
    
    
    (25,248
    )
    
    
    9,337Balance at end of year
    
    
    30,958
    
    
    
    (15,062
    )
    
    
    10,186Non-credit other-than-temporary impairment gains (losses),
net of taxBalance at beginning of year
    
    
    
    
    
    
    
    
    
    
    Change in period
    
    
    4,000
    
    
    
    
    
    
    
    Balance at end of period
    
    
    4,000
    
    
    
    
    
    
    
    Cumulative translation adjustments, net of taxBalance at beginning of year
    
    
    8,563
    
    
    
    3,533
    
    
    
    2,624Net adjustment
    
    
    134
    
    
    
    5,030
    
    
    
    909Balance at end of year
    
    
    8,697
    
    
    
    8,563
    
    
    
    3,533Balance at end of year
    
    $
    43,655
    
    
    $
    (6,499
    )
    
    $
    13,719Total stockholders equity at end of year
    
    $
    801,519
    
    
    $
    689,317
    
    
    $
    662,106
   F-5




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##### Table of Contents



THE NAVIGATORS GROUP, INC. AND SUBSIDIARIES
 
 CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME  ($ in thousands)
 Year Ended December 31,2009
    
    
    2008
    
    
    2007Net income
    
    $
    63,158
    
    
    $
    51,692
    
    
    $
    95,620Other comprehensive income (loss):Change in net unrealized gains (losses) on investments,
net of tax expense (benefit) of $25,602, $(12,034) and $4,858
in 2009, 2008 and 2007, respectively(1)
    
    
    50,020
    
    
    
    (25,248
    )
    
    
    9,337Change in foreign currency translation gains (losses),
net of tax expense of $72, $2,709 and $490
in 2009, 2008 and 2007, respectively
    
    
    134
    
    
    
    5,030
    
    
    
    909Other comprehensive income (loss)
    
    
    50,154
    
    
    
    (20,218
    )
    
    
    10,246Comprehensive income
    
    $
    113,312
    
    
    $
    31,474
    
    
    $
    105,866(1) Disclosure of reclassification amount, net of tax:Unrealized gains (losses) on investments arising
during period
    
    $
    48,068
    
    
    $
    (50,142
    )
    
    $
    10,643Less: reclassification adjustment for net realized gains (losses)
included in net income
    
    
    5,882
    
    
    
    (768
    )
    
    
    1,732reclassification adjustment for other-than-temporary impairment
losses recognized in net income
    
    
    (7,834
    )
    
    
    (24,126
    )
    
    
    (426
    )Change in net unrealized gains (losses) on
securities, net of tax
    
    $
    50,020
    
    
    $
    (25,248
    )
    
    $
    9,337
   F-6




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##### Table of Contents



THE NAVIGATORS GROUP, INC. AND SUBSIDIARIES
 
 CONSOLIDATED STATEMENTS OF CASH FLOWS
 ($ in thousands)
 Year Ended December 31,2009
    
    
    2008
    
    
    2007Operating activities:Net income
    
    $
    63,158
    
    
    $
    51,692
    
    
    $
    95,620Adjustments to reconcile net income to net
cash provided by operating activities:Depreciation & amortization
    
    
    4,551
    
    
    
    4,761
    
    
    
    3,350Deferred income taxes
    
    
    (2,285
    )
    
    
    (16,522
    )
    
    
    (4,401
    )Net realized (gains) losses
    
    
    2,660
    
    
    
    38,299
    
    
    
    (2,006
    )Changes in assets and liabilities:Reinsurance recoverable on paid and unpaid
losses and loss adjustment expenses
    
    
    42,781
    
    
    
    (48,314
    )
    
    
    129,314Reserves for losses and loss adjustment expenses
    
    
    54,050
    
    
    
    237,817
    
    
    
    34,844Prepaid reinsurance premiums
    
    
    27,788
    
    
    
    (3,701
    )
    
    
    (8,410
    )Unearned premium
    
    
    (8,872
    )
    
    
    20,183
    
    
    
    52,131Premiums receivable
    
    
    (20,447
    )
    
    
    (14,369
    )
    
    
    2,470Commissions receivable
    
    
    284
    
    
    
    2,020
    
    
    
    1,279Deferred policy acquisition costs
    
    
    (8,394
    )
    
    
    2,627
    
    
    
    (9,770
    )Accrued investment income
    
    
    (11
    )
    
    
    (1,822
    )
    
    
    (2,553
    )Reinsurance balances payable
    
    
    (42,808
    )
    
    
    (10,048
    )
    
    
    (34,342
    )Current income taxes
    
    
    (12,094
    )
    
    
    (798
    )
    
    
    6,847Other
    
    
    3,549
    
    
    
    (16,550
    )
    
    
    20,270Net cash provided by operating activities
    
    
    103,910
    
    
    
    245,275
    
    
    
    284,643Investing activities:Fixed maturities, available-for-saleRedemptions and maturities
    
    
    135,374
    
    
    
    131,674
    
    
    
    156,730Sales
    
    
    473,913
    
    
    
    186,106
    
    
    
    218,044Purchases
    
    
    (728,216
    )
    
    
    (473,295
    )
    
    
    (624,092
    )Equity securities, available-for-saleSales
    
    
    18,899
    
    
    
    22,041
    
    
    
    30,702Purchases
    
    
    (21,947
    )
    
    
    (40,746
    )
    
    
    (61,930
    )Change in payable for securities
    
    
    (15,836
    )
    
    
    (112
    )
    
    
    (428
    )Net change in short-term investments
    
    
    47,821
    
    
    
    (61,431
    )
    
    
    7,560Purchase of property and equipment
    
    
    (2,781
    )
    
    
    (7,548
    )
    
    
    (8,804
    )Net cash used in investing activities
    
    
    (92,773
    )
    
    
    (243,311
    )
    
    
    (282,218
    )Financing activities:Purchase of treasury stock
    
    
    (6,756
    )
    
    
    (11,540
    )
    
    
    Purchase of Senior notes
    
    
    (7,000
    )
    
    
    
    
    
    
    Proceeds of stock issued from employee stock purchase plan
    
    
    727
    
    
    
    963
    
    
    
    606Proceeds of stock issued from exercise of stock options
    
    
    944
    
    
    
    3,014
    
    
    
    1,627Net cash (used in) provided by financing activities
    
    
    (12,085
    )
    
    
    (7,563
    )
    
    
    2,233Effect of exchange rate changes on foreign currency cash
    
    
    
    
    
    
    
    
    
    
    (6
    )Increase (decrease) in cash
    
    
    (948
    )
    
    
    (5,599
    )
    
    
    4,652Cash at beginning of year
    
    
    1,457
    
    
    
    7,056
    
    
    
    2,404Cash at end of year
    
    $
    509
    
    
    $
    1,457
    
    
    $
    7,056Supplemental cash information:Income taxes paid
    
    $
    37,089
    
    
    $
    34,990
    
    
    $
    40,046Interest paid
    
    
    8,355
    
    
    
    8,750
    
    
    
    8,750Issuance of stock to directors
    
    
    210
    
    
    
    200
    
    
    
    181
   F-7




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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
 Organization
    Segment Information
  F-8




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##### Table of Contents



Significant Accounting Policies
 Cash
  Investments
  Fair Value Measurements
    F-9




---



##### Table of Contents



F-10




---



##### Table of Contents



Syndicate 1221
  Translation of Foreign Currencies
 Accumulated other comprehensive income Other income (expense)
 Premium Revenues
   F-11




---



##### Table of Contents



Commission Income
  Deferred Policy Acquisition Costs
  Reserves for Losses and Loss Adjustment Expenses
  Earnings per Share
   F-12




---



##### Table of Contents



Reinsurance Ceded
    Depreciation and Amortization
  Goodwill and Other Intangible Assets
    F-13




---



##### Table of Contents



Stock-Based Compensation
  Income Taxes
  Use of Estimates
  Recently Adopted Accounting Pronouncements
    F-14




---



##### Table of Contents



F-15




---



##### Table of Contents



Recent Accounting Developments
  Consolidation,
  F-16




---



##### Table of Contents



Note 2. Earnings Per Share
  Year Ended December 31, 2009Average
    
    
    NetNet
    
    
    Shares
    
    
    IncomeIncome
    
    
    Outstanding
    
    
    Per Share($ and shares in thousands, except net income per share)Basic EPS:Income available to common stockholders
    
    $
    63,158
    
    
    
    16,935
    
    
    $
    3.73Effect of dilutive securities:Stock options and grants
    
    
    
    
    
    
    387Diluted EPS:Income available to common stockholders
    
    $
    63,158
    
    
    
    17,322
    
    
    $
    3.65
 Year Ended December 31, 2008Average
    
    
    NetNet
    
    
    Shares
    
    
    IncomeIncome
    
    
    Outstanding
    
    
    Per Share($ and shares in thousands, except net income per share)Basic EPS:Income available to common stockholders
    
    $
    51,692
    
    
    
    16,802
    
    
    $
    3.08Effect of dilutive securities:Stock options and grants
    
    
    
    
    
    
    190Diluted EPS:Income available to common stockholders
    
    $
    51,692
    
    
    
    16,992
    
    
    $
    3.04
 Year Ended December 31, 2007Average
    
    
    NetNet
    
    
    Shares
    
    
    IncomeIncome
    
    
    Outstanding
    
    
    Per Share($ and shares in thousands, except net income per share)Basic EPS:Income available to common stockholders
    
    $
    95,620
    
    
    
    16,812
    
    
    $
    5.69Effect of dilutive securities:Stock options and grants
    
    
    
    
    
    
    193Diluted EPS:Income available to common stockholders
    
    $
    95,620
    
    
    
    17,005
    
    
    $
    5.62
  F-17




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##### Table of Contents



Note 3. Segment Information
     Credit Facility.
   F-18




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##### Table of Contents




    
    The offshore energy business, formerly included in the Marine and Energy
businesses of the Insurance Companies and Lloyds Operations, is now included in the
Insurance Companies and Lloyds Operations Property Casualty businesses.
 
    
    The marine lines within both the Insurance Companies and Lloyds Operations are
now presented as Marine instead of Marine and Energy, since the offshore energy
business has now been reclassified to Property Casualty.
 
    
    Engineering and construction, European Property and other run-off business,
formerly included in the Other category of business within the Insurance Companies
and Lloyds Operations, are now included under Property Casualty.
 
    
    The Middle Markets business, formerly broken out separately in the Insurance
Companies, is now included in the Insurance Companies Property Casualty business.
  F-19




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##### Table of Contents



Year Ended December 31, 2009Insurance
    
    
    LloydsCompanies
    
    
    Operations
    
    
    Corporate
    
    
    Total($ in thousands)Gross written premiums
    
    $
    730,776
    
    
    $
    314,142
    
    
    $
    
    
    
    $
    1,044,918Net written premiums
    
    
    477,673
    
    
    
    223,582
    
    
    
    
    
    
    
    701,255Net earned premiums
    
    
    479,121
    
    
    
    204,242
    
    
    
    
    
    
    
    683,363Net losses and loss adjustment expenses
    
    
    (304,672
    )
    
    
    (131,326
    )
    
    
    
    
    
    
    (435,998
    )Commission expenses
    
    
    (61,949
    )
    
    
    (37,727
    )
    
    
    768
    
    
    
    (98,908
    )Other operating expenses
    
    
    (104,801
    )
    
    
    (27,896
    )
    
    
    
    
    
    
    (132,697
    )Commission income and other income (expense)
    
    
    3,498
    
    
    
    961
    
    
    
    (768
    )
    
    
    3,691Underwriting profit
    
    
    11,197
    
    
    
    8,254
    
    
    
    
    
    
    
    19,451Net investment income
    
    
    65,717
    
    
    
    9,229
    
    
    
    566
    
    
    
    75,512Net realized gains (losses)
    
    
    533
    
    
    
    (3,193
    )
    
    
    
    
    
    
    (2,660
    )Other operating expenses
    
    
    
    
    
    
    
    
    
    
    26
    
    
    
    26Other income (expense)
    
    
    
    
    
    
    
    
    
    
    2,974
    
    
    
    2,974Interest expense
    
    
    
    
    
    
    
    
    
    
    (8,455
    )
    
    
    (8,455
    )Income (loss) before income tax expense (benefit)
    
    
    77,447
    
    
    
    14,290
    
    
    
    (4,889
    )
    
    
    86,848Income tax expense (benefit)
    
    
    19,819
    
    
    
    5,582
    
    
    
    (1,711
    )
    
    
    23,690Net income (loss)
    
    $
    57,628
    
    
    $
    8,708
    
    
    $
    (3,178
    )
    
    $
    63,158Identifiable assets (1)
    
    $
    2,554,037
    
    
    $
    799,577
    
    
    $
    71,422
    
    
    $
    3,453,994Loss and loss expenses ratio
    
    
    63.6
    %
    
    
    64.3
    %
    
    
    
    
    
    
    63.8
    %Commission expense ratio
    
    
    12.9
    %
    
    
    18.5
    %
    
    
    
    
    
    
    14.5
    %Other operating expenses ratio (2)
    
    
    21.1
    %
    
    
    13.2
    %
    
    
    
    
    
    
    18.9
    %Combined ratio
    
    
    97.6
    %
    
    
    96.0
    %
    
    
    
    
    
    
    97.2
    %
 (1)
    
    Includes inter-segment transactions causing the row not to cross foot.(2)
    
    Includes Other operating expensesand Commission income and other income (expense).  F-20




---



##### Table of Contents



Year Ended December 31, 2009Insurance
    
    
    LloydsCompanies
    
    
    Operations
    
    
    Total($ in thousands)Gross written premiums:Marine
    
    $
    241,438
    
    
    $
    191,959
    
    
    $
    433,397Property Casualty
    
    
    352,285
    
    
    
    78,151
    
    
    
    430,436Professional Liability
    
    
    137,053
    
    
    
    44,032
    
    
    
    181,085Total
    
    $
    730,776
    
    
    $
    314,142
    
    
    $
    1,044,918Net written premiums:Marine
    
    $
    171,289
    
    
    $
    156,153
    
    
    $
    327,442Property Casualty
    
    
    227,234
    
    
    
    45,097
    
    
    
    272,331Professional Liability
    
    
    79,150
    
    
    
    22,332
    
    
    
    101,482Total
    
    $
    477,673
    
    
    $
    223,582
    
    
    $
    701,255Net earned premiums:Marine
    
    $
    157,534
    
    
    $
    142,958
    
    
    $
    300,492Property Casualty
    
    
    246,143
    
    
    
    39,330
    
    
    
    285,473Professional Liability
    
    
    75,444
    
    
    
    21,954
    
    
    
    97,398Total
    
    $
    479,121
    
    
    $
    204,242
    
    
    $
    683,363
  F-21




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##### Table of Contents



Year Ended December 31, 2008Insurance
    
    
    LloydsCompanies
    
    
    Operations
    
    
    Corporate
    
    
    Total($ in thousands)Gross written premiums
    
    $
    762,190
    
    
    $
    322,732
    
    
    $
    
    
    
    $
    1,084,922Net written premiums
    
    
    472,688
    
    
    
    188,927
    
    
    
    
    
    
    
    661,615Net earned premiums
    
    
    463,298
    
    
    
    180,678
    
    
    
    
    
    
    
    643,976Net losses and loss adjustment expenses
    
    
    (275,767
    )
    
    
    (117,364
    )
    
    
    
    
    
    
    (393,131
    )Commission expenses
    
    
    (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
    )
    
    
    
    
    
    
    39,347Net investment income
    
    
    63,544
    
    
    
    11,655
    
    
    
    1,355
    
    
    
    76,554Net realized 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 transactions causing the row not to cross foot.(2)
    
    Includes Other operating expensesand Commission income and other income (expense).  F-22




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##### Table of Contents



Year Ended December 31, 2008Insurance
    
    
    LloydsCompanies
    
    
    Operations
    
    
    Total($ in thousands)Gross written premiums:Marine
    
    $
    248,080
    
    
    $
    192,568
    
    
    $
    440,648Property Casualty
    
    
    405,062
    
    
    
    91,292
    
    
    
    496,354Professional Liability
    
    
    109,048
    
    
    
    38,872
    
    
    
    147,920Total
    
    $
    762,190
    
    
    $
    322,732
    
    
    $
    1,084,922Net written premiums:Marine
    
    $
    147,569
    
    
    $
    132,788
    
    
    $
    280,357Property Casualty
    
    
    261,322
    
    
    
    32,735
    
    
    
    294,057Professional Liability
    
    
    63,797
    
    
    
    23,404
    
    
    
    87,201Total
    
    $
    472,688
    
    
    $
    188,927
    
    
    $
    661,615Net earned premiums:Marine
    
    $
    132,005
    
    
    $
    126,126
    
    
    $
    258,131Property Casualty
    
    
    273,977
    
    
    
    32,644
    
    
    
    306,621Professional Liability
    
    
    57,316
    
    
    
    21,908
    
    
    
    79,224Total
    
    $
    463,298
    
    
    $
    180,678
    
    
    $
    643,976
  F-23




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##### Table of Contents



Year Ended December 31, 2007Insurance
    
    
    LloydsCompanies
    
    
    Operations
    
    
    Corporate
    
    
    Total($ in thousands)Gross written premiums
    
    $
    774,346
    
    
    $
    296,361
    
    
    $
    
    
    
    $
    1,070,707Net written premiums
    
    
    478,018
    
    
    
    167,778
    
    
    
    
    
    
    
    645,796Net earned premiums
    
    
    443,456
    
    
    
    158,521
    
    
    
    
    
    
    
    601,977Net losses and loss adjustment expenses
    
    
    (256,652
    )
    
    
    (83,940
    )
    
    
    
    
    
    
    (340,592
    )Commission expenses
    
    
    (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 (loss)
    
    
    54,771
    
    
    
    20,606
    
    
    
    
    
    
    
    75,377Net investment income
    
    
    58,261
    
    
    
    10,524
    
    
    
    1,877
    
    
    
    70,662Net realized gains (losses)
    
    
    1,973
    
    
    
    33
    
    
    
    
    
    
    
    2,006Interest expense
    
    
    
    
    
    
    
    
    
    
    (8,863
    )
    
    
    (8,863
    )Income 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 expense ratio (2)
    
    
    17.9
    %
    
    
    18.2
    %
    
    
    
    
    
    
    18.0
    %Combined ratio
    
    
    87.6
    %
    
    
    87.0
    %
    
    
    
    
    
    
    87.5
    %
 (1)
    
    Includes inter-segment transactions causing the row not to cross foot.(2)
    
    Includes Other operating expensesand Commission income and other income (expense).  F-24




---



##### Table of Contents



Year Ended December 31, 2007Insurance
    
    
    LloydsCompanies
    
    
    Operations
    
    
    Total($ in thousands)Gross written premium:Marine
    
    $
    227,175
    
    
    $
    175,567
    
    
    $
    402,742Property Casualty
    
    
    447,615
    
    
    
    86,513
    
    
    
    534,128Professional Liability
    
    
    99,556
    
    
    
    34,281
    
    
    
    133,837Total
    
    $
    774,346
    
    
    $
    296,361
    
    
    $
    1,070,707Net written premium:Marine
    
    $
    117,294
    
    
    $
    110,577
    
    
    $
    227,871Property Casualty
    
    
    301,607
    
    
    
    33,852
    
    
    
    335,459Professional Liability
    
    
    59,117
    
    
    
    23,349
    
    
    
    82,466Total
    
    $
    478,018
    
    
    $
    167,778
    
    
    $
    645,796Net earned premium:Marine
    
    $
    112,370
    
    
    $
    111,380
    
    
    $
    223,750Property Casualty
    
    
    275,937
    
    
    
    29,482
    
    
    
    305,419Professional Liability
    
    
    55,149
    
    
    
    17,659
    
    
    
    72,808Total
    
    $
    443,456
    
    
    $
    158,521
    
    
    $
    601,977
   F-25




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##### Table of Contents



Note 4. Investments
  Gross
    
    
    Gross
    
    
    
    
    
    
    OTTIUnrealized
    
    
    Unrealized
    
    
    Cost or
    
    
    RecognizedDecember 31, 2009
    
    Fair Value
    
    
    Gains
    
    
    (Losses)
    
    
    Amortized Cost
    
    
    in OCI($ in thousands)U.S. Government Treasury bonds, agency
bonds and foreign government bonds
    
    $
    471,598
    
    
    $
    7,397
    
    
    $
    (597
    )
    
    $
    464,798
    
    
    $
    States, municipalities and political
subdivisions
    
    
    676,699
    
    
    
    25,044
    
    
    
    (2,917
    )
    
    
    654,572
    
    
    
    Mortgage- and asset-backed securities:Agency mortgage-backed securities
    
    
    283,578
    
    
    
    12,607
    
    
    
    (98
    )
    
    
    271,069
    
    
    
    Residential mortgage obligations
    
    
    31,071
    
    
    
    
    
    
    
    (7,246
    )
    
    
    38,317
    
    
    
    (5,723
    )Asset-backed securities
    
    
    16,469
    
    
    
    612
    
    
    
    (34
    )
    
    
    15,891
    
    
    
    (23
    )Commercial mortgage-backed securities
    
    
    100,393
    
    
    
    594
    
    
    
    (5,028
    )
    
    
    104,827
    
    
    
    Subtotal
    
    
    431,511
    
    
    
    13,813
    
    
    
    (12,406
    )
    
    
    430,104
    
    
    
    (5,746
    )Corporate bonds
    
    
    236,861
    
    
    
    9,111
    
    
    
    (759
    )
    
    
    228,509
    
    
    
    Total fixed maturities
    
    
    1,816,669
    
    
    
    55,365
    
    
    
    (16,679
    )
    
    
    1,777,983
    
    
    
    (5,746
    )Equity securities  common stocks
    
    
    62,610
    
    
    
    15,244
    
    
    
    (10
    )
    
    
    47,376
    
    
    
    Cash
    
    
    509
    
    
    
    
    
    
    
    
    
    
    
    509
    
    
    
    Short-term investments
    
    
    176,799
    
    
    
    
    
    
    
    
    
    
    
    176,799
    
    
    
    Total
    
    $
    2,056,587
    
    
    $
    70,609
    
    
    $
    (16,689
    )
    
    $
    2,002,667
    
    
    $
    (5,746
    )
  F-26




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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 bonds, 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:Agency mortgage-backed securities
    
    
    299,775
    
    
    
    10,930
    
    
    
    (26
    )
    
    
    288,871Residential 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
  
    
    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.
  F-27




---



##### 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
    
    $
    331,925
    
    
    $
    1,484,744
    
    
    $
    
    
    
    $
    1,816,669Equity securities
    
    
    62,610
    
    
    
    
    
    
    
    
    
    
    
    62,610Short-term investments
    
    
    9,992
    
    
    
    166,807
    
    
    
    
    
    
    
    176,799Total
    
    $
    404,527
    
    
    $
    1,651,551
    
    
    $
    
    
    
    $
    2,056,078
 December 31, 2008
 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-28




---



##### Table of Contents



Twelve Months Ended($ in thousands)
    
    December 31, 2009Level 3 investments as of January 1
    
    $
    156Unrealized net gains included in other comprehensive income (loss)
    
    
    23Purchases, sales, paydowns and amortization
    
    
    (23
    )Transfer from Level 3
    
    
    (156
    )Transfer to Level 3
    
    
    Level 3 investments as of December 31
    
    $
    
 Twelve Months EndedDecember 31, 2008($ in thousands)Level 3 investments as of January 1
    
    $
    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
    
    $
    156
  PercentRating
    
    
    
    
    
    Fair
    
    
    ofDescription
    
    Rating
    
    
    Value
    
    
    Total($ in thousands)Extremely Strong
    
    AAA
    
    $
    1,124,403
    
    
    
    57
    %Very Strong
    
    AA
    
    
    494,764
    
    
    
    25
    %Strong
    
    A

    
    
    275,016
    
    
    
    14
    %Adequate
    
    BBB
    
    
    67,400
    
    
    
    3
    %Speculative
    
    BB & below
    
    
    24,656
    
    
    
    1
    %Not Rated
    
    NR
    
    
    7,229
    
    
    
    0
    %Total
    
    AA
    
    $
    1,993,468
    
    
    
    100
    %
  F-29




---



##### Table of Contents



Period fromDecember 31, 2009
    
    Fair
    
    
    Amortizedto Maturity
    
    Value
    
    
    Cost($ in thousands)Due in one year or less
    
    $
    135,927
    
    
    $
    134,614Due after one year through five years
    
    
    561,016
    
    
    
    542,206Due after five years through ten years
    
    
    371,156
    
    
    
    359,966Due after ten years
    
    
    317,059
    
    
    
    311,093Mortgage- and asset-backed (including GNMAs)
    
    
    431,511
    
    
    
    430,104Total
    
    $
    1,816,669
    
    
    $
    1,777,983
   F-30




---



##### Table of Contents



December 31, 2009
    
    
    December 31, 2008# of
    
    
    Fair
    
    
    Gross
    
    
    # of
    
    
    Fair
    
    
    GrossSecurities
    
    
    Value
    
    
    Unrealized Loss
    
    
    Securities
    
    
    Value
    
    
    Unrealized Loss($ in thousands except # of securities)Fixed Maturities:U.S. Government Treasury bonds, agency
bonds and foreign government bonds0-6 Months
    
    
    24
    
    
    $
    116,566
    
    
    $
    597
    
    
    
    4
    
    
    $
    3,862
    
    
    $
    1457-12 Months
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    > 12 Months
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Subtotal
    
    
    24
    
    
    
    116,566
    
    
    
    597
    
    
    
    4
    
    
    
    3,862
    
    
    
    145States, municipalities and
political subdivisions0-6 Months
    
    
    47
    
    
    
    108,290
    
    
    
    2,291
    
    
    
    72
    
    
    
    68,727
    
    
    
    2,1877-12 Months
    
    
    4
    
    
    
    3,534
    
    
    
    112
    
    
    
    73
    
    
    
    118,910
    
    
    
    4,376> 12 Months
    
    
    23
    
    
    
    17,777
    
    
    
    514
    
    
    
    17
    
    
    
    15,918
    
    
    
    1,473Subtotal
    
    
    74
    
    
    
    129,601
    
    
    
    2,917
    
    
    
    162
    
    
    
    203,555
    
    
    
    8,036Agency mortgage-backed securities0-6 Months
    
    
    5
    
    
    
    18,385
    
    
    
    98
    
    
    
    3
    
    
    
    2,130
    
    
    
    67-12 Months
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    6
    
    
    
    3,471
    
    
    
    9> 12 Months
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    11
    
    
    
    962
    
    
    
    11Subtotal
    
    
    5
    
    
    
    18,385
    
    
    
    98
    
    
    
    20
    
    
    
    6,563
    
    
    
    26Residential mortgage obligations0-6 Months
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    7-12 Months
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    65
    
    
    
    39,012
    
    
    
    20,779> 12 Months
    
    
    73
    
    
    
    31,071
    
    
    
    7,246
    
    
    
    14
    
    
    
    10,315
    
    
    
    6,340Subtotal
    
    
    73
    
    
    
    31,071
    
    
    
    7,246
    
    
    
    79
    
    
    
    49,327
    
    
    
    27,119Asset-backed securities0-6 Months
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    53
    
    
    
    22,079
    
    
    
    6537-12 Months
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    10
    
    
    
    6,630
    
    
    
    550> 12 Months
    
    
    4
    
    
    
    637
    
    
    
    34
    
    
    
    2
    
    
    
    224
    
    
    
    86Subtotal
    
    
    4
    
    
    
    637
    
    
    
    34
    
    
    
    65
    
    
    
    28,933
    
    
    
    1,289Commercial mortgage-backed securities0-6 Months
    
    
    11
    
    
    
    28,103
    
    
    
    324
    
    
    
    6
    
    
    
    6,461
    
    
    
    2807-12 Months
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    21
    
    
    
    31,505
    
    
    
    5,628> 12 Months
    
    
    21
    
    
    
    45,135
    
    
    
    4,704
    
    
    
    26
    
    
    
    54,717
    
    
    
    14,442Subtotal
    
    
    32
    
    
    
    73,238
    
    
    
    5,028
    
    
    
    53
    
    
    
    92,683
    
    
    
    20,350Corporate bonds0-6 Months
    
    
    13
    
    
    
    33,275
    
    
    
    337
    
    
    
    75
    
    
    
    57,805
    
    
    
    2,4457-12 Months
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    89
    
    
    
    57,971
    
    
    
    5,893> 12 Months
    
    
    8
    
    
    
    6,325
    
    
    
    422
    
    
    
    40
    
    
    
    27,873
    
    
    
    6,322Subtotal
    
    
    21
    
    
    
    39,600
    
    
    
    759
    
    
    
    204
    
    
    
    143,649
    
    
    
    14,660Total fixed maturities
    
    
    233
    
    
    $
    409,098
    
    
    $
    16,679
    
    
    
    587
    
    
    $
    528,572
    
    
    $
    71,625Equity securities  common stocks0-6 Months
    
    
    
    
    
    $
    
    
    
    $
    
    
    
    
    17
    
    
    $
    8,991
    
    
    $
    1,9417-12 Months
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2
    
    
    
    351
    
    
    
    46> 12 Months
    
    
    1
    
    
    
    872
    
    
    
    10
    
    
    
    
    
    
    
    
    
    
    
    Total equity securities
    
    
    1
    
    
    $
    872
    
    
    $
    10
    
    
    
    19
    
    
    $
    9,342
    
    
    $
    1,987
  F-31




---



##### Table of Contents



($ in thousands)Beginning balance of at January 1, 2009
    
    $
    Credit losses on securities not previously impaired as of December 31, 2008
    
    
    3,102Reductions for securities sold during the period
    
    
    (579
    )Ending balance at December 31, 2009
    
    $
    2,523
  F-32




---



##### Table of Contents



Period for Which Fair Value is Less than 80% of Amortized Cost6 monthsLonger than 3
    
    
    or longer, lessLess than 3
    
    
    months, less
    
    
    than 12
    
    
    12 monthsmonths
    
    
    than 6 months
    
    
    months
    
    
    or longer
    
    
    Total($ in thousands)Fixed Maturities
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    (4,520
    )
    
    $
    (4,520
    )Equity Securities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    (4,520
    )
    
    $
    (4,520
    )
   F-33




---



##### Table of Contents



Twelve Months EndedDecember 31,2009
    
    
    2008
    
    
    2007($ in thousands)
    
    No.
    
    
    Amount
    
    
    No.
    
    
    Amount
    
    
    No.
    
    
    AmountTotal other-than-temporary impairmentsCorporate and other bonds
    
    
    2
    
    
    $
    564
    
    
    
    1
    
    
    $
    748
    
    
    
    
    
    
    $
    Commercial mortgage-backed securities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Residential mortgage-backed securities
    
    
    39
    
    
    
    19,783
    
    
    
    4
    
    
    
    7,856
    
    
    
    
    
    
    
    Asset-backed securities
    
    
    1
    
    
    
    143
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Equities
    
    
    56
    
    
    
    8,775
    
    
    
    59
    
    
    
    28,441
    
    
    
    1
    
    
    
    655Total
    
    
    98
    
    
    $
    29,265
    
    
    
    64
    
    
    $
    37,045
    
    
    
    1
    
    
    $
    655Portion of loss in accumulated other
comprehensive income (loss)Corporate and other bonds
    
    
    
    
    
    $
    
    
    
    
    
    
    
    $
    
    
    
    
    
    
    
    $
    Commercial mortgage-backed securities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Residential mortgage-backed securities
    
    
    
    
    
    
    17,324
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Asset-backed securities
    
    
    
    
    
    
    64
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Equities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total
    
    
    
    
    
    $
    17,388
    
    
    
    
    
    
    $
    
    
    
    
    
    
    
    $
    -Impairment losses recognized in earningsCorporate and other bonds
    
    
    
    
    
    $
    564
    
    
    
    
    
    
    $
    748
    
    
    
    
    
    
    $
    Commercial mortgage-backed securities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Residential mortgage-backed securities
    
    
    
    
    
    
    2,459
    
    
    
    
    
    
    
    7,856
    
    
    
    
    
    
    
    Asset-backed securities
    
    
    
    
    
    
    79
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Equities
    
    
    
    
    
    
    8,775
    
    
    
    
    
    
    
    28,441
    
    
    
    
    
    
    
    655Total
    
    
    
    
    
    $
    11,877
    
    
    
    
    
    
    $
    37,045
    
    
    
    
    
    
    $
    655
   F-34




---



##### Table of Contents



GrossUnrealized Loss
    
    
    Fair ValuePercent
    
    
    
    
    
    
    PercentAmount
    
    
    of Total
    
    
    Amount
    
    
    of Total($ in thousands)Due in one year or less
    
    $
    23
    
    
    
    0
    %
    
    $
    4,006
    
    
    
    1
    %Due after one year through five years
    
    
    596
    
    
    
    4
    %
    
    
    109,756
    
    
    
    27
    %Due after five years through ten years
    
    
    1,554
    
    
    
    9
    %
    
    
    95,386
    
    
    
    23
    %Due after ten years
    
    
    2,100
    
    
    
    13
    %
    
    
    76,619
    
    
    
    19
    %Mortgage- and asset-backed securities
    
    
    12,406
    
    
    
    74
    %
    
    
    123,331
    
    
    
    30
    %Total fixed income securities
    
    $
    16,679
    
    
    
    100
    %
    
    $
    409,098
    
    
    
    100
    %
  F-35




---



##### Table of Contents



Year Ended December 31,2009
    
    
    2008
    
    
    2007($ in thousands)Fixed maturities
    
    $
    74,779
    
    
    $
    73,493
    
    
    $
    64,435Equity securities
    
    
    2,464
    
    
    
    2,359
    
    
    
    1,767Short-term investments
    
    
    811
    
    
    
    3,925
    
    
    
    7,36378,054
    
    
    
    79,777
    
    
    
    73,565Investment expenses
    
    
    (2,542
    )
    
    
    (3,223
    )
    
    
    (2,903
    )Net investment income
    
    $
    75,512
    
    
    $
    76,554
    
    
    $
    70,662
  Year Ended December 31,2009
    
    
    2008
    
    
    2007($ in thousands)Fixed maturities:Gains
    
    $
    18,312
    
    
    $
    3,650
    
    
    $
    1,320(Losses)
    
    
    (9,676
    )
    
    
    (1,670
    )
    
    
    (1,749
    )8,636
    
    
    
    1,980
    
    
    
    (429
    )Equity securities:Gains
    
    
    2,110
    
    
    
    720
    
    
    
    3,626(Losses)
    
    
    (1,529
    )
    
    
    (3,954
    )
    
    
    (536
    )581
    
    
    
    (3,234
    )
    
    
    3,090Net realized gains (losses)
    
    $
    9,217
    
    
    $
    (1,254
    )
    
    $
    2,661
  F-36




---



##### Table of Contents



Years ended December 31,2009
    
    
    2008
    
    
    2007Fixed maturity investments
    
    $
    59,667
    
    
    $
    (34,813
    )
    
    $
    18,396Equity investments
    
    
    15,955
    
    
    
    (2,469
    )
    
    
    (4,201
    )Total
    
    
    75,622
    
    
    
    (37,282
    )
    
    
    14,195Deferred income tax (charged) credited
    
    
    (25,602
    )
    
    
    12,034
    
    
    
    (4,858
    )Change in unrealized gains (losses), net
    
    $
    50,020
    
    
    $
    (25,248
    )
    
    $
    9,337
    F-37




---



##### Table of Contents



Note 5. Reserves for Losses and Loss Adjustment Expenses
     F-38




---



##### Table of Contents



Year Ended December 31,2009
    
    
    2008
    
    
    2007($ in thousands)Net reserves for losses and LAE at
beginning of year
    
    $
    999,871
    
    
    $
    847,303
    
    
    $
    696,116Provision for losses and LAE for
claims occurring in the current year
    
    
    444,939
    
    
    
    443,877
    
    
    
    387,601Decrease in estimated losses and LAE
for claims occurring in prior years
    
    
    (8,941
    )
    
    
    (50,746
    )
    
    
    (47,009
    )Incurred losses and LAE
    
    
    435,998
    
    
    
    393,131
    
    
    
    340,592Losses and LAE paid for claims
occurring during:Current year
    
    
    (59,412
    )
    
    
    (60,104
    )
    
    
    (46,467
    )Prior years
    
    
    (263,523
    )
    
    
    (180,459
    )
    
    
    (142,938
    )Losses and LAE payments
    
    
    (322,935
    )
    
    
    (240,563
    )
    
    
    (189,405
    )Net reserves for losses and LAE at end of year
    
    
    1,112,934
    
    
    
    999,871
    
    
    
    847,303Reinsurance recoverables on unpaid losses and LAE
    
    
    807,352
    
    
    
    853,793
    
    
    
    801,461Gross reserves for losses and LAE at end of year
    
    $
    1,920,286
    
    
    $
    1,853,664
    
    
    $
    1,648,764
  Year Ended December 31,2009
    
    
    2008
    
    
    2007($ in thousands)Insurance CompaniesMarine
    
    $
    11,893
    
    
    $
    (5,298
    )
    
    $
    (11,595
    )Property Casualty
    
    
    (35,658
    )
    
    
    (33,065
    )
    
    
    (11,836
    )Professional Liability
    
    
    20,686
    
    
    
    (3,559
    )
    
    
    (10,365
    )Insurance Companies
    
    $
    (3,079
    )
    
    $
    (41,922
    )
    
    $
    (33,796
    )Lloyds Operations
    
    
    (5,862
    )
    
    
    (8,824
    )
    
    
    (13,213
    )Total
    
    $
    (8,941
    )
    
    $
    (50,746
    )
    
    $
    (47,009
    )
   F-39




---



##### Table of Contents



Note 6. Reinsurance
     F-40




---



##### Table of Contents



A.M. Best
    
    Rating
    
    
    Recoverable
    
    
    PercentRating (1)
    
    Description
    
    
    Amounts
    
    
    of Total($ in millions)A++, A+
    
    Superior
    
    $
    436.7
    
    
    
    42
    %A, A-
    
    Excellent
    
    
    585.2
    
    
    
    56
    %B++, B+
    
    Very good
    
    
    0.8
    
    
    
    0
    %(2)NR
    
    Not rated
    
    
    23.5
    
    
    
    2
    %(2)Total
    
    
    
    
    
    $
    1,046.2
    
    
    
    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 102.1% for B++
and B+ companies and 71.8% 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.  Reinsurance RecoverablesUnearned
    
    
    Unpaid/Paid
    
    
    
    
    
    
    Collateral
    
    
    
    Rating &Reinsurer
    
    Premium
    
    
    Losses
    
    
    Total
    
    
    Held (1)
    
    
    
    Rating Agency($ in millions)Swiss Reinsurance America Corporation
    
    $
    9.0
    
    
    $
    97.8
    
    
    $
    106.8
    
    
    $
    9.2
    
    
    
    A
    
    
    AMB
    (2)Munich Reinsurance America Inc.
    
    
    26.1
    
    
    
    60.3
    
    
    
    86.4
    
    
    
    16.2
    
    
    
    A+
    
    
    AMBTransatlantic Reinsurance Company
    
    
    21.7
    
    
    
    49.3
    
    
    
    71.0
    
    
    
    9.5
    
    
    
    A
    
    
    AMBWhite Mountains Reinsurance of America
    
    
    1.2
    
    
    
    68.6
    
    
    
    69.8
    
    
    
    2.3
    
    
    
    A-
    
    
    AMBEverest Reinsurance Company
    
    
    19.9
    
    
    
    49.4
    
    
    
    69.3
    
    
    
    8.5
    
    
    
    A+
    
    
    AMBGeneral Reinsurance Corporation
    
    
    1.5
    
    
    
    58.3
    
    
    
    59.8
    
    
    
    1.7
    
    
    
    A++
    
    
    AMBMunchener Ruckversicherungs-Gesellschaft
    
    
    4.9
    
    
    
    37.0
    
    
    
    41.9
    
    
    
    10.2
    
    
    
    A+
    
    
    AMBNational Indemnity Company
    
    
    7.5
    
    
    
    29.8
    
    
    
    37.3
    
    
    
    3.1
    
    
    
    A++
    
    
    AMBPlatinum Underwriters Re
    
    
    4.2
    
    
    
    26.8
    
    
    
    31.0
    
    
    
    2.6
    
    
    
    A
    
    
    AMBBerkley Insurance Company
    
    
    8.1
    
    
    
    21.1
    
    
    
    29.2
    
    
    
    1.5
    
    
    
    A+
    
    
    AMBScor Holding (Switzerland) AG
    
    
    5.9
    
    
    
    19.2
    
    
    
    25.1
    
    
    
    5.9
    
    
    
    A-
    
    
    AMBSwiss Re International SE
    
    
    1.3
    
    
    
    22.2
    
    
    
    23.5
    
    
    
    6.2
    
    
    
    A
    
    
    AMBPartner Reinsurance Europe
    
    
    5.6
    
    
    
    17.6
    
    
    
    23.2
    
    
    
    8.7
    
    
    
    AA-
    
    
    
    S&PLloyds Syndicate #2003
    
    
    3.6
    
    
    
    17.9
    
    
    
    21.5
    
    
    
    3.4
    
    
    
    A
    
    
    AMBPartner Reinsurance Company of the U.S.
    
    
    1.0
    
    
    
    19.6
    
    
    
    20.6
    
    
    
    0.1
    
    
    
    A+
    
    
    AMBArch Reinsurance Company
    
    
    0.7
    
    
    
    15.9
    
    
    
    16.6
    
    
    
    0.1
    
    
    
    A
    
    
    AMBHannover Ruckversicherung
    
    
    1.5
    
    
    
    14.8
    
    
    
    16.3
    
    
    
    2.4
    
    
    
    A
    
    
    AMBAce Property and Casualty Insurance Company
    
    
    3.7
    
    
    
    12.1
    
    
    
    15.8
    
    
    
    1.6
    
    
    
    A+
    
    
    AMBAllianz Global Corporate & Specialty AG
    
    
    0.2
    
    
    
    14.4
    
    
    
    14.6
    
    
    
    4.2
    
    
    
    A+
    
    
    AMBFederal Insurance Co.
    
    
    0.6
    
    
    
    10.7
    
    
    
    11.3
    
    
    
    1.0
    
    
    
    A++
    
    
    AMBTop 20 Total
    
    
    128.2
    
    
    
    662.8
    
    
    
    791.0
    
    
    
    98.4All Other
    
    
    34.1
    
    
    
    221.1
    
    
    
    255.2
    
    
    
    80.9Total
    
    $
    162.3
    
    
    $
    883.9
    
    
    $
    1,046.2
    
    
    $
    179.3
 (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-41




---



##### Table of Contents



Year Ended December 31,2009
    
    
    2008
    
    
    2007($ in thousands)Direct
    
    $
    966,251
    
    
    $
    1,016,521
    
    
    $
    989,652Assumed
    
    
    78,667
    
    
    
    68,401
    
    
    
    81,055Ceded
    
    
    (343,663
    )
    
    
    (423,307
    )
    
    
    (424,911
    )Net
    
    $
    701,255
    
    
    $
    661,615
    
    
    $
    645,796
  F-42




---



##### Table of Contents



Year Ended December 31,2009
    
    
    2008
    
    
    2007($ in thousands)Direct
    
    $
    977,170
    
    
    $
    993,123
    
    
    $
    940,447Assumed
    
    
    78,932
    
    
    
    69,989
    
    
    
    78,164Ceded
    
    
    (372,739
    )
    
    
    (419,136
    )
    
    
    (416,634
    )Net
    
    $
    683,363
    
    
    $
    643,976
    
    
    $
    601,977
  Year Ended December 31,2009
    
    
    2008
    
    
    2007($ in thousands)Direct
    
    $
    625,558
    
    
    $
    646,095
    
    
    $
    532,445Assumed
    
    
    44,318
    
    
    
    38,013
    
    
    
    18,314Ceded
    
    
    (233,878
    )
    
    
    (290,977
    )
    
    
    (210,167
    )Net
    
    $
    435,998
    
    
    $
    393,131
    
    
    $
    340,592
  Note 7. Income Taxes
   F-43




---



##### Table of Contents



The components of current and deferred income tax expense (benefit) were as follows:
 Year Ended December 31,2009
    
    
    2008
    
    
    2007($ in thousands)Current income tax expense:Federal and foreign
    
    $
    25,833
    
    
    $
    33,126
    
    
    $
    47,864State and local
    
    
    142
    
    
    
    435
    
    
    
    99Subtotal
    
    
    25,975
    
    
    
    33,561
    
    
    
    47,963Deferred income tax benefit:Federal and foreign
    
    
    (2,285
    )
    
    
    (16,522
    )
    
    
    (4,401
    )State and local
    
    
    
    
    
    
    
    
    
    
    Subtotal
    
    
    (2,285
    )
    
    
    (16,522
    )
    
    
    (4,401
    )Total income tax expense
    
    $
    23,690
    
    
    $
    17,039
    
    
    $
    43,562
  Year Ended December 31,2009
    
    
    2008
    
    
    2007($ in thousands)Computed expected tax expense
    
    $
    30,397
    
    
    
    35.0
    %
    
    $
    24,056
    
    
    
    35.0
    %
    
    $
    48,714
    
    
    
    35.0
    %Tax-exempt interest
    
    
    (7,051
    )
    
    
    -8.1
    %
    
    
    (6,650
    )
    
    
    -9.7
    %
    
    
    (4,736
    )
    
    
    -3.4
    %Dividends received deduction
    
    
    (508
    )
    
    
    -0.6
    %
    
    
    (493
    )
    
    
    -0.7
    %
    
    
    (345
    )
    
    
    -0.2
    %Current state and local income taxes,
net of federal income tax
    
    
    93
    
    
    
    0.1
    %
    
    
    284
    
    
    
    0.4
    %
    
    
    64
    
    
    
    0.0
    %Change in the deferred state and local
income tax, net of deferred tax assets
    
    
    3,546
    
    
    
    4.1
    %
    
    
    (154
    )
    
    
    -0.2
    %
    
    
    (358
    )
    
    
    -0.3
    %Change in the valuation allowance
    
    
    (3,546
    )
    
    
    -4.1
    %
    
    
    154
    
    
    
    0.2
    %
    
    
    358
    
    
    
    0.3
    %Other
    
    
    759
    
    
    
    0.9
    %
    
    
    (158
    )
    
    
    -0.2
    %
    
    
    (135
    )
    
    
    -0.1
    %Actual tax expense and rate
    
    $
    23,690
    
    
    
    27.3
    %
    
    $
    17,039
    
    
    
    24.8
    %
    
    $
    43,562
    
    
    
    31.3
    %
  F-44




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##### Table of Contents



December 31,2009
    
    
    2008($ in thousands)Deferred tax assets:Loss reserve discount
    
    $
    31,798
    
    
    $
    31,393Unearned premiums
    
    
    15,023
    
    
    
    15,125Realized losses
    
    
    19,327
    
    
    
    12,735Compensation related
    
    
    6,052
    
    
    
    6,012Net unrealized losses on securities
    
    
    
    
    
    
    6,640State and local net deferred tax assets
    
    
    2,648
    
    
    
    6,194Other
    
    
    721
    
    
    
    682Total gross deferred tax assets
    
    
    75,569
    
    
    
    78,781Less: Valuation allowance
    
    
    (2,648
    )
    
    
    (6,194
    )Total deferred tax assets
    
    
    72,921
    
    
    
    72,587Deferred tax liabilities:Deferred acquisition costs
    
    
    (12,205
    )
    
    
    (11,658
    )Net unrealized gains on securities
    
    
    (18,962
    )
    
    
    Other
    
    
    (10,532
    )
    
    
    (6,193
    )Total deferred tax liabilities
    
    
    (41,699
    )
    
    
    (17,851
    )Net deferred income tax asset
    
    $
    31,222
    
    
    $
    54,736
     F-45




---



##### Table of Contents



Note 8. Credit Facility
     F-46




---



##### Table of Contents



Note 9. Senior Note due May 1, 2016
     Note 10. Fiduciary Funds
   F-47




---



##### Table of Contents



Note 11. Commitments and Contingencies
  Year Ended December 31,
    
    ($ in thousands)2010
    
    $
    7,3792011
    
    
    7,8922012
    
    
    7,5112013
    
    
    7,4312014
    
    
    6,118Subsequent to 2014
    
    
    18,426Total
    
    $
    54,757
      F-48




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##### Table of Contents



Note 12. Share Capital and Share Repurchases
   Year Ended December 31,2009
    
    
    2008
    
    
    2007(in thousands)Balance, beginning of year
    
    
    16,856
    
    
    
    16,873
    
    
    
    16,736Vested stock grants
    
    
    74
    
    
    
    36
    
    
    
    33Employee stock purchase plan
    
    
    17
    
    
    
    17
    
    
    
    15Stock options exercised
    
    
    41
    
    
    
    155
    
    
    
    89Treasury shares purchased
    
    
    (142
    )
    
    
    (225
    )
    
    
    Balance, end of year
    
    
    16,846
    
    
    
    16,856
    
    
    
    16,873
    Note 13. Dividends from Subsidiaries and Statutory Financial Information
   F-49




---



##### Table of Contents



Note 14. Stock Option Plans, Stock Grants, Stock Appreciation Rights and Employee Stock Purchase
Plan
   F-50




---



##### Table of Contents



Year Ended December 31,2009
    
    
    2008
    
    
    2007Stock grants outstanding at
beginning of year
    
    
    558,049
    
    
    
    391,866
    
    
    
    250,149Granted
    
    
    202,731
    
    
    
    243,587
    
    
    
    203,725Vested
    
    
    (104,677
    )
    
    
    (63,768
    )
    
    
    (40,827
    )Forfeited
    
    
    (36,364
    )
    
    
    (13,636
    )
    
    
    (21,181
    )Balance at end of year
    
    
    619,739
    
    
    
    558,049
    
    
    
    391,866
   F-51




---



##### Table of Contents



2009
    
    
    2008
    
    
    2007Average
    
    
    
    
    
    
    Average
    
    
    
    
    
    
    AverageNo. of
    
    
    Exercise
    
    
    No. of
    
    
    Exercise
    
    
    No. of
    
    
    ExerciseShares
    
    
    Prices
    
    
    Shares
    
    
    Prices
    
    
    Shares
    
    
    PricesOptions outstanding at
beginning of year
    
    
    231,750
    
    
    $
    25.62
    
    
    
    384,350
    
    
    $
    23.34
    
    
    
    475,250
    
    
    $
    22.45Granted
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Exercised
    
    
    (40,750
    )
    
    $
    23.16
    
    
    
    (152,350
    )
    
    $
    19.78
    
    
    
    (88,525
    )
    
    $
    18.38Expired or
forfeited
    
    
    
    
    
    $
    
    
    
    
    (250
    )
    
    $
    29.11
    
    
    
    (2,375
    )
    
    $
    29.11Options outstanding at
end of year
    
    
    191,000
    
    
    $
    26.21
    
    
    
    231,750
    
    
    $
    25.67
    
    
    
    384,350
    
    
    $
    23.34Number of options
exercisable
    
    
    191,000
    
    
    $
    26.21
    
    
    
    230,250
    
    
    $
    25.62
    
    
    
    329,600
    
    
    $
    22.12
  Outstanding
    
    
    Average Remaining
    
    
    Average
    
    
    Exercisable
    
    
    AveragePrice Range
    
    Options
    
    
    Contract Life
    
    
    Exercise Price
    
    
    Options
    
    
    Exercise Price$10 to $15
    
    
    6,250
    
    
    
    0.7
    
    
    $
    10.50
    
    
    
    6,250
    
    
    $
    10.50$16 to $20
    
    
    35,500
    
    
    
    2.2
    
    
    $
    17.45
    
    
    
    35,500
    
    
    $
    17.45$21 to $30
    
    
    127,750
    
    
    
    4.0
    
    
    $
    28.20
    
    
    
    127,750
    
    
    $
    28.20$31 to $37
    
    
    21,500
    
    
    
    5.2
    
    
    $
    33.39
    
    
    
    21,500
    
    
    $
    33.39
   F-52




---



##### Table of Contents



Year Ended December 31,2009
    
    
    2008
    
    
    2007Average
    
    
    
    
    
    
    Average
    
    
    
    
    
    
    AverageExercise
    
    
    
    
    
    
    Exercise
    
    
    
    
    
    
    ExerciseSARs
    
    
    Prices
    
    
    SARs
    
    
    Prices
    
    
    SARs
    
    
    PricesSARs outstanding at
beginning of year
    
    
    59,250
    
    
    $
    13.89
    
    
    
    64,250
    
    
    $
    13.63
    
    
    
    118,750
    
    
    $
    13.41Granted
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Exercised
    
    
    (7,250
    )
    
    $
    12.76
    
    
    
    (5,000
    )
    
    $
    10.50
    
    
    
    (53,500
    )
    
    $
    12.98Expired or
forfeited
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,000
    )
    
    $
    22.50SARs outstanding at
end of year
    
    
    52,000
    
    
    $
    14.05
    
    
    
    59,250
    
    
    $
    13.89
    
    
    
    64,250
    
    
    $
    13.63Number of SARs
exercisable
    
    
    52,000
    
    
    $
    14.05
    
    
    
    59,250
    
    
    $
    13.89
    
    
    
    64,250
    
    
    $
    13.63
  Note 15. Retirement Plans
   F-53




---



##### Table of Contents



Note 16. Quarterly Financial Data (Unaudited)
  March 31,
    
    
    June 30,
    
    
    Sept. 30,
    
    
    Dec. 31,2009
    
    
    2009
    
    
    2009
    
    
    2009($ in thousands, except net income per share)Gross written premiums
    
    $
    275,259
    
    
    $
    272,729
    
    
    $
    245,191
    
    
    $
    251,739Net written premiums
    
    
    200,652
    
    
    
    183,007
    
    
    
    156,001
    
    
    
    161,595Revenues:Net earned premiums
    
    
    164,946
    
    
    
    169,868
    
    
    
    171,271
    
    
    
    177,278Commission income
    
    
    (20
    )
    
    
    55
    
    
    
    144
    
    
    
    (92
    )Net investment income
    
    
    18,743
    
    
    
    18,656
    
    
    
    19,110
    
    
    
    19,003Total other-than-temporary impairment losses
    
    
    (26,871
    )
    
    
    (1,876
    )
    
    
    (22
    )
    
    
    (496
    )Portion of loss recognized in Other
comprehensive
income (before tax)
    
    
    16,171
    
    
    
    1,407
    
    
    
    (525
    )
    
    
    335Net other-than-temporary impairment losses
recognized in earnings
    
    
    (10,700
    )
    
    
    (469
    )
    
    
    (547
    )
    
    
    (161
    )Net realized gains (losses)
    
    
    (1,537
    )
    
    
    2,596
    
    
    
    6,682
    
    
    
    1,476Other income (expense)
    
    
    163
    
    
    
    5,247
    
    
    
    1,097
    
    
    
    71Total revenues
    
    
    171,595
    
    
    
    195,953
    
    
    
    197,757
    
    
    
    197,575Expenses:Net losses and loss adjustment
expenses
    
    
    100,247
    
    
    
    100,728
    
    
    
    107,591
    
    
    
    127,432Commission expenses
    
    
    22,448
    
    
    
    26,278
    
    
    
    22,852
    
    
    
    27,330Other operating expenses
    
    
    30,535
    
    
    
    33,019
    
    
    
    35,018
    
    
    
    34,099Interest expense
    
    
    2,219
    
    
    
    2,150
    
    
    
    2,042
    
    
    
    2,044Total expenses
    
    
    155,449
    
    
    
    162,175
    
    
    
    167,503
    
    
    
    190,905Income before income taxes
    
    
    16,146
    
    
    
    33,778
    
    
    
    30,254
    
    
    
    6,670Income tax expense
    
    
    4,146
    
    
    
    10,128
    
    
    
    8,822
    
    
    
    594Net income
    
    $
    12,000
    
    
    $
    23,650
    
    
    $
    21,432
    
    
    $
    6,076Comprehensive income (loss)
    
    $
    19,503
    
    
    $
    34,876
    
    
    $
    62,119
    
    
    $
    (3,186
    )Combined ratio
    
    
    92.8
    %
    
    
    92.9
    %
    
    
    95.9
    %
    
    
    106.5
    %Net income per common share:Basic
    
    $
    0.71
    
    
    $
    1.40
    
    
    $
    1.26
    
    
    $
    0.36Diluted
    
    $
    0.71
    
    
    $
    1.39
    
    
    $
    1.24
    
    
    $
    0.35
  F-54




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##### Table of Contents



March 31,
    
    
    June 30,
    
    
    Sept. 30,
    
    
    Dec. 31,2008
    
    
    2008
    
    
    2008
    
    
    2008($ in thousands, except net income per share)Gross written premiums
    
    $
    287,146
    
    
    $
    279,213
    
    
    $
    252,943
    
    
    $
    265,620Net written premiums
    
    
    187,722
    
    
    
    174,287
    
    
    
    140,318
    
    
    
    159,288Revenues:Net earned premiums
    
    
    155,740
    
    
    
    162,703
    
    
    
    154,040
    
    
    
    171,493Commission income
    
    
    261
    
    
    
    467
    
    
    
    8
    
    
    
    269Net investment income
    
    
    18,838
    
    
    
    18,731
    
    
    
    19,322
    
    
    
    19,663Total other-than-temporary impairment losses
    
    
    
    
    
    
    (8,412
    )
    
    
    (4,748
    )
    
    
    (23,885
    )Portion of loss recognized in Other
comprehensive
income (before tax)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Net other-than-temporary impairment losses
recognized in earnings
    
    
    
    
    
    
    (8,412
    )
    
    
    (4,748
    )
    
    
    (23,885
    )Net realized gains (losses)
    
    
    (76
    )
    
    
    436
    
    
    
    (768
    )
    
    
    (846
    )Other income (expense)
    
    
    11
    
    
    
    1,010
    
    
    
    (119
    )
    
    
    (472
    )Total revenues
    
    
    174,774
    
    
    
    174,935
    
    
    
    167,735
    
    
    
    166,222Expenses:Net losses and loss adjustment
expenses
    
    
    88,420
    
    
    
    91,889
    
    
    
    113,269
    
    
    
    99,553Commission expenses
    
    
    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 expenses
    
    
    141,341
    
    
    
    150,833
    
    
    
    168,445
    
    
    
    154,316Income (loss) before income taxes
    
    
    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-55




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##### Table of Contents



Gross
    
    
    Gross
    
    
    
    
    
    
    OTTIUnrealized
    
    
    Unrealized
    
    
    Cost or
    
    
    RecognizedDecember 31, 2009
    
    Fair Value
    
    
    Gains
    
    
    (Losses)
    
    
    Amortized Cost
    
    
    in OCI($ in thousands)U.S. Government Treasury bonds, agency
bonds and foreign government bonds
    
    $
    471,598
    
    
    $
    7,397
    
    
    $
    (597
    )
    
    $
    464,798
    
    
    $
    States, municipalities and political
subdivisions
    
    
    676,699
    
    
    
    25,044
    
    
    
    (2,917
    )
    
    
    654,572
    
    
    
    Mortgage- and asset-backed securities:Agency mortgage-backed securities
    
    
    283,578
    
    
    
    12,607
    
    
    
    (98
    )
    
    
    271,069
    
    
    
    Residential mortgage obligations
    
    
    31,071
    
    
    
    
    
    
    
    (7,246
    )
    
    
    38,317
    
    
    
    (5,723
    )Asset-backed securities
    
    
    16,469
    
    
    
    612
    
    
    
    (34
    )
    
    
    15,891
    
    
    
    (23
    )Commercial mortgage-backed
securities
    
    
    100,393
    
    
    
    594
    
    
    
    (5,028
    )
    
    
    104,827
    
    
    
    Subtotal
    
    
    431,511
    
    
    
    13,813
    
    
    
    (12,406
    )
    
    
    430,104
    
    
    
    (5,746
    )Corporate bonds
    
    
    236,861
    
    
    
    9,111
    
    
    
    (759
    )
    
    
    228,509
    
    
    
    Total fixed maturities
    
    
    1,816,669
    
    
    
    55,365
    
    
    
    (16,679
    )
    
    
    1,777,983
    
    
    
    (5,746
    )Equity securities  common stocks
    
    
    62,610
    
    
    
    15,244
    
    
    
    (10
    )
    
    
    47,376
    
    
    
    Cash
    
    
    509
    
    
    
    
    
    
    
    
    
    
    
    509
    
    
    
    Short-term investments
    
    
    176,799
    
    
    
    
    
    
    
    
    
    
    
    176,799
    
    
    
    Total
    
    $
    2,056,587
    
    
    $
    70,609
    
    
    $
    (16,689
    )
    
    $
    2,002,667
    
    
    $
    (5,746
    )
  S-1




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##### Table of Contents



($ in thousands, except share data)
 December 31,2009
    
    
    2008ASSETSCash and investments
    
    $
    63,676
    
    
    $
    52,149Investments in subsidiaries
    
    
    846,295
    
    
    
    751,864Goodwill and other intangible assets
    
    
    2,534
    
    
    
    2,534Other assets
    
    
    5,213
    
    
    
    8,769Total assets
    
    $
    917,718
    
    
    $
    815,316LIABILITIES7% Senior Notes
    
    $
    114,010
    
    
    $
    123,794Accounts payable and other liabilities
    
    
    847
    
    
    
    747Accrued interest payable
    
    
    1,342
    
    
    
    1,458Total liabilities
    
    
    116,199
    
    
    
    125,999STOCKHOLDERS EQUITYPreferred stock, $.10 par value,
1,000,000 shares authorized, none issued
    
    
    
    
    
    
    Common stock, $.10 par value, 50,000,000 shares authorized:
authorized; issued 17,212,814 shares for 2009 and
17,080,826 for 2008
    
    
    1,721
    
    
    
    1,708Additional paid-in capital
    
    
    304,505
    
    
    
    298,872Treasury stock, at cost (366,330 shares for 2009 and
224,754 shares 2008)
    
    
    (18,296
    )
    
    
    (11,540
    )Retained earnings
    
    
    469,934
    
    
    
    406,776Accumulated other comprehensive income:Net unrealized gains (losses) on securities
available-for-sale, net of tax
    
    
    34,958
    
    
    
    (15,062
    )Foreign currency translation adjustment, net of tax
    
    
    8,697
    
    
    
    8,563Total stockholders equity
    
    
    801,519
    
    
    
    689,317Total liabilities and stockholders equity
    
    $
    917,718
    
    
    $
    815,316
  S-2




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##### Table of Contents



($ in thousands)
 Year Ended December 31,2009
    
    
    2008
    
    
    2007Revenues:Net investment income
    
    $
    583
    
    
    $
    1,354
    
    
    $
    1,877Dividends received from wholly-owned subsidiaries
    
    
    25,000
    
    
    
    20,000
    
    
    
    8,000Total revenues
    
    
    25,583
    
    
    
    21,354
    
    
    
    9,877Expenses:Interest expense
    
    
    8,455
    
    
    
    8,871
    
    
    
    8,863Other (income) expense
    
    
    (1,482
    )
    
    
    1,016
    
    
    
    (1,996
    )Total expenses
    
    
    6,973
    
    
    
    9,887
    
    
    
    6,867Income before income tax benefit
    
    
    18,610
    
    
    
    11,467
    
    
    
    3,010Income tax benefit
    
    
    (2,174
    )
    
    
    (3,495
    )
    
    
    (1,804
    )Income before equity in undistributed net
income of wholly owned subsidiaries
    
    
    20,784
    
    
    
    14,962
    
    
    
    4,814Equity in undistributed net income of wholly-owned
subsidiaries
    
    
    42,374
    
    
    
    36,730
    
    
    
    90,806Net income
    
    $
    63,158
    
    
    $
    51,692
    
    
    $
    95,620
  S-3




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##### Table of Contents



($ in thousands)
 Year Ended December 31,2009
    
    
    2008
    
    
    2007Operating activities:Net income
    
    $
    63,158
    
    
    $
    51,692
    
    
    $
    95,620Adjustments to reconcile net income
to net cash  provided by (used in) operations:Equity in undistributed net income of
wholly-owned subsidiaries
    
    
    (42,374
    )
    
    
    (56,730
    )
    
    
    (98,806
    )Dividends received from subsidiaries
    
    
    25,000
    
    
    
    20,000
    
    
    
    8,000Other
    
    
    (20,318
    )
    
    
    604
    
    
    
    4,792Net cash provided by operating activities
    
    
    25,466
    
    
    
    15,566
    
    
    
    9,606Investing activities:Fixed maturities, available-for-saleSales
    
    
    9,103
    
    
    
    9,637
    
    
    
    Purchases
    
    
    (34,932
    )
    
    
    (13,500
    )
    
    
    10,500Net (increase) decrease in short-term investments
    
    
    13,863
    
    
    
    2,432
    
    
    
    (20,497
    )Net cash used in investing activities
    
    
    (11,966
    )
    
    
    (1,431
    )
    
    
    (9,997
    )Financing activities:Capital contribution
    
    
    (2,000
    )
    
    
    
    
    
    
    Purchase of treasury stock
    
    
    (6,756
    )
    
    
    (11,540
    )
    
    
    Purchase of Senior notes
    
    
    (7,000
    )
    
    
    
    
    
    
    Proceeds of stock issued from employee stock purchase plan
    
    
    727
    
    
    
    963
    
    
    
    606Proceeds of stock issued from exercise of stock options
    
    
    944
    
    
    
    3,014
    
    
    
    1,627Net cash provided by (used in) financing activities
    
    
    (14,085
    )
    
    
    (7,563
    )
    
    
    2,233Increase (decrease) in cash
    
    
    (585
    )
    
    
    6,572
    
    
    
    1,842Cash at beginning of year
    
    
    9,675
    
    
    
    3,103
    
    
    
    1,261Cash at end of year
    
    $
    9,090
    
    
    $
    9,675
    
    
    $
    3,103
  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
    
    
    premiums
    
    
    income (1)
    
    
    incurred
    
    
    costs (2)
    
    
    expenses (1)
    
    
    premiumsYear ended December 31, 2009Insurance Companies
    
    $
    34,872
    
    
    $
    1,395,876
    
    
    $
    334,798
    
    
    $
    
    
    
    $
    479,121
    
    
    $
    65,717
    
    
    $
    304,672
    
    
    $
    61,949
    
    
    $
    104,801
    
    
    $
    477,673Lloyds Operations
    
    
    21,703
    
    
    
    524,410
    
    
    
    140,373
    
    
    
    
    
    
    
    204,242
    
    
    
    9,229
    
    
    
    131,326
    
    
    
    37,727
    
    
    
    27,896
    
    
    
    223,582$
    56,575
    
    
    $
    1,920,286
    
    
    $
    475,171
    
    
    $
    
    
    
    $
    683,363
    
    
    $
    74,946
    
    
    $
    435,998
    
    
    $
    99,676
    
    
    $
    132,697
    
    
    $
    701,255Year 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
    
    
    $
    645,796
 (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, 2009Property-Casualty
    
    $
    966,251
    
    
    $
    343,663
    
    
    $
    78,667
    
    
    $
    701,255
    
    
    
    11
    %Year 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
    %
  S-6




---



##### Table of Contents



($ in thousands)
 Balance at
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Balance atJanuary 1,
    
    
    Charged (Credited) to
    
    
    Charged to
    
    
    Deductions
    
    
    December 31,Description
    
    2009
    
    
    Costs and Expenses
    
    
    Other Accounts
    
    
    (Describe)
    
    
    2009Allowance for
uncollectible
reinsurance
    
    $
    11,805
    
    
    $
    1,994
    
    
    $
    
    
    
    $
    
    
    
    $
    13,799Valuation
allowance in
deferred taxes
    
    $
    6,194
    
    
    $
    (3,546
    )
    
    $
    
    
    
    $
    
    
    
    $
    2,648
  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
    
    
    premiums
    
    
    premiums
    
    
    income (1)
    
    
    year
    
    
    years
    
    
    costs (2)
    
    
    expenses (1)
    
    
    premiumsConsolidated SubsidiariesYear ended December 31, 2009
    
    $
    56,575
    
    
    $
    1,920,286
    
    
    $
    
    
    
    $
    475,171
    
    
    $
    683,363
    
    
    $
    74,946
    
    
    $
    444,939
    
    
    $
    (8,941
    )
    
    $
    99,676
    
    
    $
    132,697
    
    
    $
    701,255Year 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
    
    
    $
    645,796
 (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)10-14
    
    
    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, 200510-23
    
    
    Third Amended and Restated Credit Agreement among the
Company and the Lenders dated February 2, 2007
    
    Form 8-K filed February 7, 2007




---



##### 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, 200810-26
    
    
    Fourth Amended and Restated Credit Agreement
among the Company and the Lender dated April 3, 2009
    
    Form 8-K filed April 7, 200910-27
    *
    
    Amended 2005 Stock Incentive Plan
    
    Proxy Statement for April 29, 200910-28
    
    
    Agreement with Bruce J. Byrnes
    
    Form 8-K filed June 16, 200911-1
    
    
    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.