##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 WASHINGTON, D.C. 20549
 FORM 10-Q
 Quarterly Report Under Section 13 or 15(d)
of the Securities Exchange Act of 1934
 For the Quarterly Period Ended     June 30, 2007
 Commission file number     0-15886
 The Navigators Group, Inc.
  Delaware
    
    13-3138397(State or other jurisdiction of 
incorporation or organization)
    
    (IRS Employer
Identification No.)
 One Penn Plaza, New York, New York
    
    10119(Address of principal executive offices)
    
    (Zip Code)
  
   
  þ o
  Large accelerated filer þ
    
    Accelerated filer o
    
    Non-accelerated filer o
 o þ




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##### 



THE NAVIGATORS GROUP, INC. AND SUBSIDIARIES
 INDEX
 Page No.Part I. FINANCIAL INFORMATION:Item 1. Financial StatementsConsolidated Balance Sheets
June 30, 2007 (Unaudited) and December 31, 2006
    
    
    3Consolidated Statements of Income (Unaudited)
Three Months Ended June 30, 2007 and 2006
    
    
    4Six Months Ended June 30, 2007 and 2006
    
    
    5Consolidated Statements of Stockholders Equity (Unaudited)
June 30, 2007 and 2006
    
    
    6Consolidated Statements of Comprehensive Income (Unaudited)
Three Months Ended June 30, 2007 and 2006
    
    
    7Six Months Ended June 30, 2007 and 2006
    
    
    8Consolidated Statements of Cash Flows (Unaudited)
Six Months Ended June 30, 2007 and 2006
    
    
    9Notes to Interim Consolidated Financial Statements (Unaudited)
    
    
    10Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    20Item 3. Quantitative and Qualitative Disclosures About Market Risk
    
    
    58Item 4. Controls and Procedures
    
    
    58Part II. OTHER INFORMATIONItem 1. Legal Proceedings
    
    
    59Item 1A. Risk Factors
    
    
    59Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    59Item 3. Defaults Upon Senior Securities
    
    
    59Item 4. Submissions of Matters to a Vote of Security Holders
    
    
    60Item 5. Other Information
    
    
    60Item 6. Exhibits
    
    
    60Signature
    
    
    61Index of Exhibits
    
    
    62Exhibit 11-1Exhibit 31-1Exhibit 31.2Exhibit 32-1Exhibit 32-2
   2




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##### Table of Contents



Part 1. Financial Information
 
 Item 1. Financial Statements
 
 THE NAVIGATORS GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS  ($ in thousands, except share data)
 June 30,
    
    
    December 31,2007
    
    
    2006(Unaudited)ASSETSInvestments and cash:Fixed maturities, available-for-sale, at fair value(amortized cost: 2007, $1,352,442; 2006, $1,263,284)
    
    $
    1,329,809
    
    
    $
    1,258,717Equity securities, available-for-sale, at fair value (cost: 2007, $48,198; 2006, $31,879)
    
    
    54,611
    
    
    
    37,828Short-term investments, at cost which approximates fair value
    
    
    186,833
    
    
    
    176,961Cash
    
    
    218
    
    
    
    2,404Total investments and cash
    
    
    1,571,471
    
    
    
    1,475,910Premiums in course of collection
    
    
    225,095
    
    
    
    163,309Commissions receivable
    
    
    2,714
    
    
    
    3,647Prepaid reinsurance premiums
    
    
    209,147
    
    
    
    179,493Reinsurance receivable on paid losses
    
    
    107,146
    
    
    
    108,878Reinsurance receivable on unpaid losses and loss adjustment expenses
    
    
    837,518
    
    
    
    911,439Net deferred income tax benefit
    
    
    37,980
    
    
    
    30,422Deferred policy acquisition costs
    
    
    53,394
    
    
    
    41,700Accrued investment income
    
    
    14,024
    
    
    
    13,052Goodwill and other intangible assets
    
    
    8,145
    
    
    
    8,012Other assets
    
    
    26,329
    
    
    
    20,824Total assets
    
    $
    3,092,963
    
    
    $
    2,956,686LIABILITIES AND STOCKHOLDERS EQUITYLiabilities:Reserves for losses and loss adjustment expenses
    
    $
    1,603,689
    
    
    $
    1,607,555Unearned premium
    
    
    495,261
    
    
    
    415,096Reinsurance balances payable
    
    
    202,434
    
    
    
    194,266Senior notes
    
    
    123,615
    
    
    
    123,560Federal income tax payable
    
    
    10,142
    
    
    
    3,934Payable for securities purchased
    
    
    
    
    
    
    166Accounts payable and other liabilities
    
    
    69,789
    
    
    
    60,766Total liabilities
    
    
    2,504,930
    
    
    
    2,405,343Stockholders equity:Preferred stock, $.10 par value, authorized 1,000,000 shares, none issued
    
    
    
    
    
    
    Common stock, $.10 par value, shares authorized: 50,000,000 for 2007 and
2006; issued and outstanding: 16,832,443 for 2007 and 16,735,898 for 2006
    
    
    1,683
    
    
    
    1,674Additional paid-in capital
    
    
    290,033
    
    
    
    286,732Retained earnings
    
    
    303,511
    
    
    
    259,464Accumulated other comprehensive income (loss)
    
    
    (7,194
    )
    
    
    3,473Total stockholders equity
    
    
    588,033
    
    
    
    551,343Total liabilities and stockholders equity
    
    $
    3,092,963
    
    
    $
    2,956,686
   3




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THE NAVIGATORS GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME  ($ and shares in thousands, except net income per share)
 Three Months EndedJune 30,2007
    
    
    2006(Unaudited)Gross written premium
    
    $
    276,549
    
    
    $
    252,365Revenues:Net written premium
    
    $
    161,350
    
    
    $
    129,248(Increase) in unearned premium
    
    
    (15,733
    )
    
    
    (14,707
    )Net earned premium
    
    
    145,617
    
    
    
    114,541Commission income
    
    
    486
    
    
    
    540Net investment income
    
    
    17,330
    
    
    
    14,003Net realized capital gains (losses)
    
    
    840
    
    
    
    (192
    )Other income (expense)
    
    
    (253
    )
    
    
    44Total revenues
    
    
    164,020
    
    
    
    128,936Operating expenses:Net losses and loss adjustment expenses incurred
    
    
    79,739
    
    
    
    66,627Commission expense
    
    
    17,650
    
    
    
    13,624Other operating expenses
    
    
    28,608
    
    
    
    19,927Interest expense
    
    
    2,215
    
    
    
    1,820Total operating expenses
    
    
    128,212
    
    
    
    101,998Income before income tax expense
    
    
    35,808
    
    
    
    26,938Income tax expense (benefit):Current
    
    
    13,505
    
    
    
    10,034Deferred
    
    
    (2,072
    )
    
    
    (1,194
    )Total income tax expense
    
    
    11,433
    
    
    
    8,840Net income
    
    $
    24,375
    
    
    $
    18,098Net income per common share:Basic
    
    $
    1.45
    
    
    $
    1.09Diluted
    
    $
    1.44
    
    
    $
    1.08Average common shares outstanding:Basic
    
    
    16,786
    
    
    
    16,668Diluted
    
    
    16,919
    
    
    
    16,791
   4




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THE NAVIGATORS GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME  ($ and shares in thousands, except net income per share)
 Six Months EndedJune 30,2007
    
    
    2006(Unaudited)Gross written premium
    
    $
    577,410
    
    
    $
    516,149Revenues:Net written premium
    
    $
    334,369
    
    
    $
    272,674(Increase) in unearned premium
    
    
    (49,706
    )
    
    
    (54,411
    )Net earned premium
    
    
    284,663
    
    
    
    218,263Commission income
    
    
    894
    
    
    
    1,826Net investment income
    
    
    33,546
    
    
    
    26,553Net realized capital gains (losses)
    
    
    1,041
    
    
    
    (616
    )Other income (expense)
    
    
    (324
    )
    
    
    230Total revenues
    
    
    319,820
    
    
    
    246,256Operating expenses:Net losses and loss adjustment expenses incurred
    
    
    160,931
    
    
    
    128,744Commission expense
    
    
    34,749
    
    
    
    27,329Other operating expenses
    
    
    54,897
    
    
    
    38,335Interest expense
    
    
    4,430
    
    
    
    1,820Total operating expenses
    
    
    255,007
    
    
    
    196,228Income before income tax expense
    
    
    64,813
    
    
    
    50,028Income tax expense (benefit):Current
    
    
    22,781
    
    
    
    19,366Deferred
    
    
    (2,015
    )
    
    
    (2,961
    )Total income tax expense
    
    
    20,766
    
    
    
    16,405Net income
    
    $
    44,047
    
    
    $
    33,623Net income per common share:Basic
    
    $
    2.63
    
    
    $
    2.02Diluted
    
    $
    2.60
    
    
    $
    2.00Average common shares outstanding:Basic
    
    
    16,771
    
    
    
    16,654Diluted
    
    
    16,947
    
    
    
    16,839
   5




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THE NAVIGATORS GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY  ($ in thousands)
 Six Months EndedJune 30,2007
    
    
    2006(Unaudited)Preferred StockBalance at beginning and end of period
    
    $
    
    
    
    $
    Common stockBalance at beginning of year
    
    $
    1,674
    
    
    $
    1,662Shares issued under stock plans
    
    
    9
    
    
    
    5Balance at end of period
    
    $
    1,683
    
    
    $
    1,667Additional paid-in capitalBalance at beginning of year
    
    $
    286,732
    
    
    $
    282,463Effect of SFAS 123 for stock options
    
    
    301
    
    
    
    469Shares issued under stock plans
    
    
    3,000
    
    
    
    1,481Balance at end of period
    
    $
    290,033
    
    
    $
    284,413Retained earningsBalance at beginning of year
    
    $
    259,464
    
    
    $
    186,901Net income
    
    
    44,047
    
    
    
    33,623Balance at end of period
    
    $
    303,511
    
    
    $
    220,524Accumulated other comprehensive income (loss)Net unrealized gains (losses) on securities, net of taxBalance at beginning of year
    
    $
    849
    
    
    $
    (884
    )Change in period
    
    
    (11,468
    )
    
    
    (16,542
    )Balance at end of period
    
    
    (10,619
    )
    
    
    (17,426
    )Cumulative translation adjustments, net of taxBalance at beginning of year
    
    
    2,624
    
    
    
    96Net adjustment for period
    
    
    801
    
    
    
    1,201Balance at end of period
    
    
    3,425
    
    
    
    1,297Balance at end of period
    
    $
    (7,194
    )
    
    $
    (16,129
    )Total stockholders equity at end of period
    
    $
    588,033
    
    
    $
    490,475
   6




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THE NAVIGATORS GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME  ($ in thousands)
 Three Months EndedJune 30,2007
    
    
    2006(Unaudited)Net income
    
    $
    24,375
    
    
    $
    18,098Other comprehensive income (loss):Change in net unrealized gains (losses) on securities,
net of tax (benefit) of ($6,906) and
($3,884) in 2007 and 2006, respectively(1)
    
    
    (12,964
    )
    
    
    (7,212
    )Change in foreign currency translation gains,
net of tax expense of $376 and $517
in 2007 and 2006, respectively
    
    
    696
    
    
    
    959Other comprehensive (loss)
    
    
    (12,268
    )
    
    
    (6,253
    )Comprehensive income
    
    $
    12,107
    
    
    $
    11,845(1) Disclosure of reclassification amount, net of tax:Unrealized holding (losses) arising during period
    
    $
    (12,418
    )
    
    $
    (7,336
    )Less: reclassification adjustment for net gains (losses) included in net income
    
    
    546
    
    
    
    (124
    )Change in net unrealized gains (losses) on securities
    
    $
    (12,964
    )
    
    $
    (7,212
    )
   7




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THE NAVIGATORS GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME  ($ in thousands)
 Six Months EndedJune 30,2007
    
    
    2006(Unaudited)Net income
    
    $
    44,047
    
    
    $
    33,623Other comprehensive income (loss):Change in net unrealized gains (losses) on securities,
net of tax (benefit) of ($6,135) and
($8,908) in 2007 and 2006, respectively(1)
    
    
    (11,468
    )
    
    
    (16,542
    )Change in foreign currency translation gains (losses),
net of tax expense of $432 and $647
in 2007 and 2006, respectively
    
    
    801
    
    
    
    1,201Other comprehensive income (loss)
    
    
    (10,667
    )
    
    
    (15,341
    )Comprehensive income
    
    $
    33,380
    
    
    $
    18,282(1) Disclosure of reclassification amount, net of tax:Unrealized holding gains (losses) arising during period
    
    $
    (10,793
    )
    
    $
    (16,942
    )Less: reclassification adjustment for net gains (losses) included in net income
    
    
    675
    
    
    
    (400
    )Change in net unrealized (losses) on securities
    
    $
    (11,468
    )
    
    $
    (16,542
    )
   8




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THE NAVIGATORS GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS  ($ in thousands)
 Six Months EndedJune 30,2007
    
    
    2006(Unaudited)Operating activities:Net income
    
    $
    44,047
    
    
    $
    33,623Adjustments to reconcile net income to net cash provided by (used in) operating activities:Depreciation & amortization
    
    
    1,566
    
    
    
    1,238Net deferred income tax expense (benefit)
    
    
    (2,015
    )
    
    
    (2,961
    )Net realized capital (gains) losses
    
    
    (1,041
    )
    
    
    616Changes in assets and liabilities:Reinsurance receivable on paid and unpaid losses and loss adjustment expenses
    
    
    83,662
    
    
    
    (24,528
    )Reserve for losses and loss adjustment expenses
    
    
    (15,197
    )
    
    
    18,012Prepaid reinsurance premiums
    
    
    (28,036
    )
    
    
    (46,396
    )Unearned premium
    
    
    76,641
    
    
    
    97,349Premiums in course of collection
    
    
    (59,036
    )
    
    
    (63,722
    )Commissions receivable
    
    
    948
    
    
    
    1,109Deferred policy acquisition costs
    
    
    (11,076
    )
    
    
    (11,945
    )Accrued investment income
    
    
    (944
    )
    
    
    (2,386
    )Reinsurance balances payable
    
    
    5,565
    
    
    
    18,355Federal income tax
    
    
    5,783
    
    
    
    (1,743
    )Other
    
    
    10,800
    
    
    
    (4,180
    )Net cash provided by operating activities
    
    
    111,667
    
    
    
    12,441Investing activities:Fixed maturities, available-for-saleRedemptions and maturities
    
    
    91,547
    
    
    
    83,828Sales
    
    
    99,425
    
    
    
    90,487Purchases
    
    
    (278,382
    )
    
    
    (365,549
    )Equity securities, available-for-saleSales
    
    
    11,071
    
    
    
    2,682Purchases
    
    
    (26,092
    )
    
    
    (8,800
    )Change in payable for securities
    
    
    (361
    )
    
    
    2,941Net change in short-term investments
    
    
    (8,126
    )
    
    
    60,654Purchase of property and equipment
    
    
    (4,353
    )
    
    
    (1,583
    )Net cash (used in) investing activities
    
    
    (115,271
    )
    
    
    (135,340
    )Financing activities:Net proceeds from senior notes
    
    
    
    
    
    
    123,485Proceeds of stock issued from employee stock purchase plan
    
    
    301
    
    
    
    222Proceeds of stock issued from exercise of stock options
    
    
    1,113
    
    
    
    353Net cash provided by financing activities
    
    
    1,414
    
    
    
    124,060Effect of exchange rate changes on foreign currency cash
    
    
    4
    
    
    
    19Increase (decrease) in cash
    
    
    (2,186
    )
    
    
    1,180Cash at beginning of year
    
    
    2,404
    
    
    
    13,165Cash at end of period
    
    $
    218
    
    
    $
    14,345Supplemental disclosures of cash flow information:Federal, state and local income tax paid
    
    $
    16,028
    
    
    $
    17,356Issuance of stock to directors
    
    
    181
    
    
    
    140
   9




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THE NAVIGATORS GROUP, INC. AND SUBSIDIARIES
 Notes to Interim Consolidated Financial Statements  (Unaudited)
 Note 1. Accounting Policies
  Note 2. Reinsurance Ceded
  Note 3. Segment Information
     10




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Three Months Ended June 30, 2007Insurance
    
    
    Lloyd'sCompanies
    
    
    Operations
    
    
    Corporate
    
    
    Total($ in thousands)Gross written premium
    
    $
    198,560
    
    
    $
    77,989
    
    
    
    
    
    
    $
    276,549Net written premium
    
    
    124,073
    
    
    
    37,277
    
    
    
    
    
    
    
    161,350Net earned premium
    
    
    109,735
    
    
    
    35,882
    
    
    
    
    
    
    
    145,617Net losses and LAE
    
    
    (63,725
    )
    
    
    (16,014
    )
    
    
    
    
    
    
    (79,739
    )Commission expense
    
    
    (13,903
    )
    
    
    (3,747
    )
    
    
    
    
    
    
    (17,650
    )Other operating expenses
    
    
    (21,057
    )
    
    
    (7,551
    )
    
    
    
    
    
    
    (28,608
    )Commission income and other
income (expense)
    
    
    96
    
    
    
    137
    
    
    
    
    
    
    
    233Underwriting profit
    
    
    11,146
    
    
    
    8,707
    
    
    
    
    
    
    
    19,853Net investment income
    
    
    14,440
    
    
    
    2,407
    
    
    $
    483
    
    
    
    17,330Net realized capital gains
    
    
    834
    
    
    
    6
    
    
    
    
    
    
    
    840Interest expense
    
    
    
    
    
    
    
    
    
    
    (2,215
    )
    
    
    (2,215
    )Income (loss) before income taxes
    
    
    26,420
    
    
    
    11,120
    
    
    
    (1,732
    )
    
    
    35,808Income tax expense (benefit)
    
    
    8,163
    
    
    
    3,875
    
    
    
    (605
    )
    
    
    11,433Net income (loss)
    
    $
    18,257
    
    
    $
    7,245
    
    
    $
    (1,127
    )
    
    $
    24,375Identifiable assets (1)
    
    $
    2,240,321
    
    
    $
    774,796
    
    
    $
    63,374
    
    
    $
    3,092,963Loss and LAE ratio
    
    
    58.1
    %
    
    
    44.6
    %
    
    
    
    
    
    
    54.8
    %Commission expense ratio
    
    
    12.7
    %
    
    
    10.4
    %
    
    
    
    
    
    
    12.1
    %Other operating expense ratio (2)
    
    
    19.0
    %
    
    
    20.6
    %
    
    
    
    
    
    
    19.5
    %Combined ratio
    
    
    89.8
    %
    
    
    75.6
    %
    
    
    
    
    
    
    86.4
    %
 (1)
    
    Includes inter-segment transactions causing the row not to crossfoot.(2)
    
    Includes other operating expensesand commission income and other income (expense).
  12




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Three Months Ended June 30, 2006Insurance
    
    
    LloydsCompanies
    
    
    Operations
    
    
    Corporate
    
    
    Total($ in thousands)Gross written premium (1)
    
    $
    170,296
    
    
    $
    82,072
    
    
    
    
    
    
    $
    252,365Net written premium
    
    
    92,445
    
    
    
    36,803
    
    
    
    
    
    
    
    129,248Net earned premium
    
    
    78,488
    
    
    
    36,053
    
    
    
    
    
    
    
    114,541Net losses and LAE
    
    
    (47,676
    )
    
    
    (18,951
    )
    
    
    
    
    
    
    (66,627
    )Commission expense
    
    
    (7,912
    )
    
    
    (5,712
    )
    
    
    
    
    
    
    (13,624
    )Other operating expenses
    
    
    (13,966
    )
    
    
    (5,961
    )
    
    
    
    
    
    
    (19,927
    )Commission income and other income
(expense)
    
    
    794
    
    
    
    (210
    )
    
    
    
    
    
    
    584Underwriting profit
    
    
    9,728
    
    
    
    5,219
    
    
    
    
    
    
    
    14,947Net investment income
    
    
    12,023
    
    
    
    1,667
    
    
    $
    313
    
    
    
    14,003Net realized capital gains (losses)
    
    
    (225
    )
    
    
    33
    
    
    
    
    
    
    
    (192
    )Interest expense
    
    
    
    
    
    
    
    
    
    
    (1,820
    )
    
    
    (1,820
    )Income (loss) before income taxes
    
    
    21,526
    
    
    
    6,919
    
    
    
    (1,507
    )
    
    
    26,938Income tax expense (benefit)
    
    
    6,868
    
    
    
    2,422
    
    
    
    (450
    )
    
    
    8,840Net income (loss)
    
    $
    14,658
    
    
    $
    4,497
    
    
    $
    (1,057
    )
    
    $
    18,098Identifiable assets (1)
    
    $
    2,018,556
    
    
    $
    845,599
    
    
    $
    48,563
    
    
    $
    2,916,012Loss and LAE ratio
    
    
    60.7
    %
    
    
    52.6
    %
    
    
    
    
    
    
    58.2
    %Commission expense ratio
    
    
    10.1
    %
    
    
    15.8
    %
    
    
    
    
    
    
    11.9
    %Other operating expense ratio (2)
    
    
    16.8
    %
    
    
    17.1
    %
    
    
    
    
    
    
    16.9
    %Combined ratio
    
    
    87.6
    %
    
    
    85.5
    %
    
    
    
    
    
    
    87.0
    %
 (1)
    
    Includes inter-segment transactions causing the row not to crossfoot.(2)
    
    Includes other operating expensesand commission income and other income (expense).
  13




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Six Months Ended June 30, 2007Insurance
    
    
    Lloyd'sCompanies
    
    
    Operations
    
    
    Corporate
    
    
    Total($ in thousands)Gross written premium
    
    $
    407,434
    
    
    $
    169,976
    
    
    
    
    
    
    $
    577,410Net written premium
    
    
    246,121
    
    
    
    88,248
    
    
    
    
    
    
    
    334,369Net earned premium
    
    
    211,547
    
    
    
    73,116
    
    
    
    
    
    
    
    284,663Net losses and LAE
    
    
    (125,065
    )
    
    
    (35,866
    )
    
    
    
    
    
    
    (160,931
    )Commission expense
    
    
    (24,986
    )
    
    
    (9,763
    )
    
    
    
    
    
    
    (34,749
    )Other operating expenses
    
    
    (39,826
    )
    
    
    (15,071
    )
    
    
    
    
    
    
    (54,897
    )Commission income and other income
(expense)
    
    
    585
    
    
    
    (15
    )
    
    
    
    
    
    
    570Underwriting profit
    
    
    22,255
    
    
    
    12,401
    
    
    
    
    
    
    
    34,656Net investment income
    
    
    28,094
    
    
    
    4,558
    
    
    $
    894
    
    
    
    33,546Net realized capital gains (losses)
    
    
    1,077
    
    
    
    (36
    )
    
    
    
    
    
    
    1,041Interest expense
    
    
    
    
    
    
    
    
    
    
    (4,430
    )
    
    
    (4,430
    )Income (loss) before income taxes
    
    
    51,426
    
    
    
    16,923
    
    
    
    (3,536
    )
    
    
    64,813Income tax expense (benefit)
    
    
    16,074
    
    
    
    5,929
    
    
    
    (1,237
    )
    
    
    20,766Net income (loss)
    
    $
    35,352
    
    
    $
    10,994
    
    
    $
    (2,299
    )
    
    $
    44,047Identifiable assets (1)
    
    $
    2,240,321
    
    
    $
    774,796
    
    
    $
    63,374
    
    
    $
    3,092,963Loss and LAE ratio
    
    
    59.1
    %
    
    
    49.1
    %
    
    
    
    
    
    
    56.5
    %Commission expense ratio
    
    
    11.8
    %
    
    
    13.4
    %
    
    
    
    
    
    
    12.2
    %Other operating expense ratio (2)
    
    
    18.6
    %
    
    
    20.5
    %
    
    
    
    
    
    
    19.1
    %Combined ratio
    
    
    89.5
    %
    
    
    83.0
    %
    
    
    
    
    
    
    87.8
    %
 (1)
    
    Includes inter-segment transactions causing the row not to crossfoot.(2)
    
    Includes other operating expensesand commission income and other income (expense).
  14




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##### Table of Contents



Six Months Ended June 30, 2006Insurance
    
    
    Lloyd'sCompanies
    
    
    Operations
    
    
    Corporate
    
    
    Total($ in thousands)Gross written premium (1)
    
    $
    332,543
    
    
    $
    183,820
    
    
    
    
    
    
    $
    516,149Net written premium
    
    
    182,089
    
    
    
    90,585
    
    
    
    
    
    
    
    272,674Net earned premium
    
    
    145,840
    
    
    
    72,423
    
    
    
    
    
    
    
    218,263Net losses and LAE
    
    
    (87,630
    )
    
    
    (41,114
    )
    
    
    
    
    
    
    (128,744
    )Commission expense
    
    
    (15,036
    )
    
    
    (12,293
    )
    
    
    
    
    
    
    (27,329
    )Other operating expenses
    
    
    (27,399
    )
    
    
    (10,936
    )
    
    
    
    
    
    
    (38,335
    )Commission income and other
income (expense)
    
    
    2,000
    
    
    
    56
    
    
    
    
    
    
    
    2,056Underwriting profit
    
    
    17,775
    
    
    
    8,136
    
    
    
    
    
    
    
    25,911Net investment income
    
    
    22,433
    
    
    
    3,674
    
    
    $
    446
    
    
    
    26,553Net realized capital (losses)
    
    
    (300
    )
    
    
    (316
    )
    
    
    
    
    
    
    (616
    )Interest expense
    
    
    
    
    
    
    
    
    
    
    (1,820
    )
    
    
    (1,820
    )Income (loss) before income taxes
    
    
    39,908
    
    
    
    11,494
    
    
    
    (1,374
    )
    
    
    50,028Income tax expense (benefit)
    
    
    12,784
    
    
    
    4,023
    
    
    
    (402
    )
    
    
    16,405Net income (loss)
    
    $
    27,124
    
    
    $
    7,471
    
    
    $
    (972
    )
    
    $
    33,623Identifiable assets (1)
    
    $
    2,018,556
    
    
    $
    845,599
    
    
    $
    48,563
    
    
    $
    2,916,012Loss and LAE ratio
    
    
    60.1
    %
    
    
    56.8
    %
    
    
    
    
    
    
    59.0
    %Commission expense ratio
    
    
    10.3
    %
    
    
    17.0
    %
    
    
    
    
    
    
    12.5
    %Other operating expense ratio (2)
    
    
    17.4
    %
    
    
    15.0
    %
    
    
    
    
    
    
    16.6
    %Combined ratio
    
    
    87.8
    %
    
    
    88.8
    %
    
    
    
    
    
    
    88.1
    %
 (1)
    
    Includes inter-segment transactions causing the row not to crossfoot.(2)
    
    Includes other operating expensesand commission income and other income (expense).
  Note 4. Comprehensive Income
 Consolidated Statements of Stockholders Equity Consolidated
Statements of Comprehensive Income accumulated other
comprehensive income (loss) comprehensive income (loss)
  15




---



##### Table of Contents



Note 5. Stock-Based Compensation
 other operating expenses
  Note 6. Application of New Accounting Standards
 Accounting for Certain Hybrid Financial
Instruments Accounting for Derivative Instruments and Hedging
Activities Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities
 Accounting for Uncertainty in Income
Taxes Accounting for Income Taxes
 Fair Value Measurements
 The Fair Value Option for Financial Assets and
Financial Liabilities
  16




---



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Note 7. Lloyds Syndicate
    Note 8. Income Taxes
   17




---



##### Table of Contents



Note 9. Commitments and Contingencies
     18




---



##### Table of Contents



Note 10. Senior Notes due May 1, 2016
     19




---



##### Table of Contents



Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
 Note on Forward-Looking Statements
  
    
    the effects of domestic and foreign economic conditions, and conditions which
affect the market for property and casualty insurance;
 
    
    changes in the laws, rules and regulations which apply to our insurance
companies;
 
    
    the effects of emerging claim and coverage issues on our business, including
adverse judicial or regulatory decisions and rulings;
 
    
    the effects of competition from banks and other insurers and the trend toward
self-insurance;
 
    
    risks that we face in entering new markets and diversifying the products and
services we offer;
 
    
    unexpected turnover of our professional staff;
 
    
    changing legal and social trends and inherent uncertainties in the loss
estimation process that can adversely impact the adequacy of loss reserves and the
allowance for reinsurance recoverables, including our estimates relating to ultimate
asbestos liabilities and related reinsurance recoverables;
 
    
    risks inherent in the collection of reinsurance recoverable amounts from our
reinsurers over many years into the future based on the reinsurers financial ability
and intent to meet such obligations to the Company;
 
    
    risks associated with our continuing ability to obtain reinsurance covering our
exposures at appropriate prices and/or in sufficient amounts and the related
recoverability of our reinsured losses;
 
    
    weather-related events and other catastrophes (including acts of terrorism)
impacting our insureds and/or reinsurers, including, without limitation, the impact of
Hurricanes Katrina, Rita, and Wilma and the possibility that our estimates of losses
from Hurricanes Katrina, Rita and Wilma will prove to be materially inaccurate;
 
    
    our ability to attain adequate prices, obtain new business and retain existing
business consistent with our expectations;
 
    
    the possibility of downgrades in our claims-paying and financial strength
ratings significantly adversely affecting us, including reducing the number of
insurance policies we write generally, or causing clients who require an insurer with a
certain rating level to use higher-rated insurers;
 
    
    the inability of our internal control framework to provide absolute assurance
that all incidents of fraud or unintended material errors will be detected and
prevented;
  20




---



##### Table of Contents




    
    the risk that our investment portfolio suffers reduced returns or investment
losses which could reduce our profitability; and
 
    
    other risks that we identify in future filings with the Securities and Exchange
Commission (the SEC), including without limitation the risks described under the
caption Risk Factors in our Annual Report on Form 10-K for the year ended December
31, 2006.
  The discussion and analysis of our financial condition and results of operations contained
herein should be read in conjunction with our consolidated financial statements and accompanying
notes which appear elsewhere in this Form 10-Q . It contains forward-looking statements that
involve risks and uncertainties. Please see Note on Forward-Looking Statements for more
information. Our actual results could differ materially from those anticipated in these
forward-looking statements as a result of various factors, including those discussed below and
elsewhere in this Form 10-Q .
 Overview
     21




---



##### Table of Contents



22




---



##### Table of Contents



Catastrophe Risk Management
      23




---



##### Table of Contents



Critical Accounting Policies
   Reserves for Losses and LAE.
 Reinsurance Recoverables.
 Written and Unearned Premium.
    24




---



##### Table of Contents



Deferred Tax Assets.
 Impairment of Investment Securities.
   Accounting for Lloyds Results.
  25




---



##### Table of Contents



Translation of Foreign Currencies . Foreign Currency
Translation, accumulated other comprehensive income
 Results of Operations
         26




---



##### Table of Contents



Revenues . Lloyds Operations Gross
Written Premium
   27




---



##### Table of Contents



Three Months Ended June 30,2007
    
    
    2006Gross
    
    
    
    
    
    
    Net
    
    
    Net
    
    
    Gross
    
    
    
    
    
    
    Net
    
    
    NetWritten
    
    
    
    
    
    
    Written
    
    
    Earned
    
    
    Written
    
    
    
    
    
    
    Written
    
    
    EarnedPremium
    
    
    %
    
    
    Premium
    
    
    Premium
    
    
    Premium
    
    
    %
    
    
    Premium
    
    
    Premium($ in thousands)Insurance Companies:Marine
    
    $
    67,887
    
    
    
    24.5
    %
    
    $
    36,319
    
    
    $
    33,693
    
    
    $
    74,018
    
    
    
    29.3
    %
    
    $
    35,810
    
    
    $
    28,887Specialty
    
    
    98,036
    
    
    
    35.5
    %
    
    
    67,114
    
    
    
    58,918
    
    
    
    72,037
    
    
    
    28.6
    %
    
    
    42,804
    
    
    
    39,765Professional Liability
    
    
    24,351
    
    
    
    8.8
    %
    
    
    14,767
    
    
    
    13,334
    
    
    
    24,182
    
    
    
    9.6
    %
    
    
    13,818
    
    
    
    9,824Other
    
    
    8,286
    
    
    
    3.0
    %
    
    
    5,873
    
    
    
    3,790
    
    
    
    59
    
    
    
    0.0
    %
    
    
    13
    
    
    
    12Insurance Companies Total
    
    
    198,560
    
    
    
    71.8
    %
    
    
    124,073
    
    
    
    109,735
    
    
    
    170,296
    
    
    
    67.5
    %
    
    
    92,445
    
    
    
    78,488Lloyds Operations:Marine
    
    
    55,922
    
    
    
    20.1
    %
    
    
    27,038
    
    
    
    30,005
    
    
    
    66,257
    
    
    
    26.2
    %
    
    
    31,880
    
    
    
    34,187Professional Liability
    
    
    10,534
    
    
    
    3.8
    %
    
    
    6,126
    
    
    
    1,954
    
    
    
    5,069
    
    
    
    2.0
    %
    
    
    2,116
    
    
    
    364Other
    
    
    11,533
    
    
    
    4.3
    %
    
    
    4,113
    
    
    
    3,923
    
    
    
    10,746
    
    
    
    4.3
    %
    
    
    2,807
    
    
    
    1,502Lloyds Operations Total
    
    
    77,989
    
    
    
    28.2
    %
    
    
    37,277
    
    
    
    35,882
    
    
    
    82,072
    
    
    
    32.5
    %
    
    
    36,803
    
    
    
    36,053Intercompany elimination
    
    
    
    
    
    
    0.0
    %
    
    
    
    
    
    
    
    
    
    
    (3
    )
    
    
    0.0
    %
    
    
    
    
    
    
    Total
    
    $
    276,549
    
    
    
    100.0
    %
    
    $
    161,350
    
    
    $
    145,617
    
    
    $
    252,365
    
    
    
    100.0
    %
    
    $
    129,248
    
    
    $
    114,541
  28




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##### Table of Contents



Six Months Ended June 30,2007
    
    
    2006Gross
    
    
    
    
    
    
    Net
    
    
    Net
    
    
    Gross
    
    
    
    
    
    
    Net
    
    
    NetWritten
    
    
    
    
    
    
    Written
    
    
    Earned
    
    
    Written
    
    
    
    
    
    
    Written
    
    
    EarnedPremium
    
    
    %
    
    
    Premium
    
    
    Premium
    
    
    Premium
    
    
    %
    
    
    Premium
    
    
    Premium($ in thousands)Insurance Companies:Marine
    
    $
    152,256
    
    
    
    26.4
    %
    
    $
    81,246
    
    
    $
    67,011
    
    
    $
    155,812
    
    
    
    30.2
    %
    
    $
    77,325
    
    
    $
    51,388Specialty
    
    
    193,756
    
    
    
    33.6
    %
    
    
    125,668
    
    
    
    112,530
    
    
    
    134,168
    
    
    
    26.0
    %
    
    
    83,323
    
    
    
    75,899Professional Liability
    
    
    44,833
    
    
    
    7.8
    %
    
    
    26,959
    
    
    
    26,371
    
    
    
    42,316
    
    
    
    8.2
    %
    
    
    21,444
    
    
    
    18,556Other
    
    
    16,589
    
    
    
    2.8
    %
    
    
    12,248
    
    
    
    5,635
    
    
    
    247
    
    
    
    0.0
    %
    
    
    (3
    )
    
    
    (3
    )Insurance Companies Total
    
    
    407,434
    
    
    
    70.6
    %
    
    
    246,121
    
    
    
    211,547
    
    
    
    332,543
    
    
    
    64.4
    %
    
    
    182,089
    
    
    
    145,840Lloyds Operations:Marine
    
    
    133,601
    
    
    
    23.1
    %
    
    
    72,526
    
    
    
    62,346
    
    
    
    157,112
    
    
    
    30.4
    %
    
    
    83,283
    
    
    
    69,903Professional Liability
    
    
    16,012
    
    
    
    2.8
    %
    
    
    9,509
    
    
    
    4,911
    
    
    
    7,089
    
    
    
    1.4
    %
    
    
    2,945
    
    
    
    605Other
    
    
    20,363
    
    
    
    3.5
    %
    
    
    6,213
    
    
    
    5,859
    
    
    
    19,619
    
    
    
    3.8
    %
    
    
    4,357
    
    
    
    1,915Lloyds Operations Total
    
    
    169,976
    
    
    
    29.4
    %
    
    
    88,248
    
    
    
    73,116
    
    
    
    183,820
    
    
    
    35.6
    %
    
    
    90,585
    
    
    
    72,423Intercompany elimination
    
    
    
    
    
    
    0.0
    %
    
    
    
    
    
    
    
    
    
    
    (214
    )
    
    
    0.0
    %
    
    
    
    
    
    
    Total
    
    $
    577,410
    
    
    
    100.0
    %
    
    $
    334,369
    
    
    $
    284,663
    
    
    $
    516,149
    
    
    
    100.0
    %
    
    $
    272,674
    
    
    $
    218,263
  29




---



##### Table of Contents



Gross Written Premium
 Insurance Companies Gross Written Premium
 Marine Premium.
  Specialty Premium.
  Professional Liability Premium.
  Other Premium.
 Lloyds Operations Gross Written Premium
   30




---



##### Table of Contents



other liabilities
 Marine Premium.
  Professional Liability Premium.
 Other Premium.
 Ceded Written Premium .
  31




---



##### Table of Contents



Three Months Ended June 30,2007
    
    
    2006% of
    
    
    
    
    
    
    % ofCeded
    
    
    Gross
    
    
    Ceded
    
    
    GrossWritten
    
    
    Written
    
    
    Written
    
    
    WrittenPremium
    
    
    Premium
    
    
    Premium
    
    
    Premium($ in thousands)Insurance Companies:Marine
    
    $
    31,568
    
    
    
    46.5
    %
    
    $
    38,208
    
    
    
    51.6
    %Specialty
    
    
    30,922
    
    
    
    31.6
    %
    
    
    29,233
    
    
    
    40.6
    %Professional Liability
    
    
    9,584
    
    
    
    39.4
    %
    
    
    10,364
    
    
    
    42.9
    %Other
    
    
    2,413
    
    
    NM
    
    
    
    46
    
    
    NMSubtotal
    
    
    74,487
    
    
    
    37.5
    %
    
    
    77,851
    
    
    
    45.7
    %Lloyds Operations:Marine
    
    
    28,884
    
    
    
    51.7
    %
    
    
    34,377
    
    
    
    51.9
    %Professional Liability
    
    
    4,408
    
    
    
    41.8
    %
    
    
    2,953
    
    
    
    58.3
    %Other
    
    
    7,420
    
    
    
    64.3
    %
    
    
    7,939
    
    
    
    73.9
    %Subtotal
    
    
    40,712
    
    
    
    52.2
    %
    
    
    45,269
    
    
    
    55.2
    %Intercompany elimination
    
    
    
    
    
    NM
    
    
    
    (3
    )
    
    NMTotal
    
    $
    115,199
    
    
    
    41.7
    %
    
    $
    123,117
    
    
    
    48.8
    %
   32




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##### Table of Contents



Six Months Ended June 30,2007
    
    
    2006% of
    
    
    
    
    
    
    % ofCeded
    
    
    Gross
    
    
    Ceded
    
    
    GrossWritten
    
    
    Written
    
    
    Written
    
    
    WrittenPremium
    
    
    Premium
    
    
    Premium
    
    
    Premium($ in thousands)Insurance Companies:Marine
    
    $
    71,010
    
    
    
    46.6
    %
    
    $
    78,487
    
    
    
    50.4
    %Specialty
    
    
    68,088
    
    
    
    35.1
    %
    
    
    50,845
    
    
    
    37.9
    %Professional Liability
    
    
    17,874
    
    
    
    39.9
    %
    
    
    20,872
    
    
    
    49.3
    %Other
    
    
    4,341
    
    
    NM
    
    
    
    250
    
    
    NMSubtotal
    
    
    161,313
    
    
    
    39.6
    %
    
    
    150,454
    
    
    
    45.2
    %Lloyds Operations:Marine
    
    
    61,075
    
    
    
    45.7
    %
    
    
    73,829
    
    
    
    47.0
    %Professional Liability
    
    
    6,503
    
    
    
    40.6
    %
    
    
    4,144
    
    
    
    58.5
    %Other
    
    
    14,150
    
    
    
    69.5
    %
    
    
    15,262
    
    
    
    77.8
    %Subtotal
    
    
    81,728
    
    
    
    48.1
    %
    
    
    93,235
    
    
    
    50.7
    %Intercompany elimination
    
    
    
    
    
    NM
    
    
    
    (214
    )
    
    NMTotal
    
    $
    243,041
    
    
    
    42.1
    %
    
    $
    243,475
    
    
    
    47.2
    %
   
    
    Modest reductions in the amounts of marine reinsurance ceded on a pro
rata basis by the Insurance Companies and the Lloyds Operations.
 
    
    An increase in the proportion of specialty gross premiums, in which we
retain a higher proportion of premium relative to our other lines, to
the overall total amount. Effective April 1, 2007 the Company
increased its net retention from $500,000 to $1 million for the
contractors liability business which reduced the amount of premium
ceded. Somewhat offsetting retaining more contractors liability
premium, the Company generally reinsures a large percentage of its new
lines of business and increases its retention as the business matures
over time.
 
    
    Increases in our net retentions on the professional liability pro rata
reinsurance treaty which renewed April 1, 2006. No changes to
retentions occurred for the April 1, 2007 renewal.
  33




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##### Table of Contents



Net Written Premium .
 Net Earned Premium .
 Commission Income .
 Net Investment Income .
 Net Realized Capital Gains and Losses .
 Other Income/(Expense) .
 Operating Expenses
 Net Losses and Loss Adjustment Expenses Incurred
   34




---



##### Table of Contents



June 30, 2007Net
    
    
    Net
    
    
    Total
    
    
    % of IBNRReported
    
    
    IBNR
    
    
    Net Loss
    
    
    to Total NetReserves
    
    
    Reserves
    
    
    Reserves
    
    
    Loss Reserves($ in thousands)Insurance Companies:Marine
    
    $
    81,054
    
    
    $
    104,864
    
    
    $
    185,918
    
    
    
    56.4
    %SpecialtyConstruction liability
    
    
    41,022
    
    
    
    189,235
    
    
    
    230,257
    
    
    
    82.2
    %All other liability
    
    
    20,805
    
    
    
    52,345
    
    
    
    73,150
    
    
    
    71.6
    %Total Specialty
    
    
    61,827
    
    
    
    241,580
    
    
    
    303,407
    
    
    
    79.6
    %Professional liability
    
    
    15,568
    
    
    
    46,916
    
    
    
    62,484
    
    
    
    75.1
    %Other
    
    
    9,431
    
    
    
    14,521
    
    
    
    23,952
    
    
    
    60.6
    %Total Insurance Companies
    
    
    167,880
    
    
    
    407,881
    
    
    
    575,761
    
    
    
    70.8
    %Lloyds Operations:Marine
    
    
    81,006
    
    
    
    87,396
    
    
    
    168,402
    
    
    
    51.9
    %Other
    
    
    2,565
    
    
    
    19,443
    
    
    
    22,008
    
    
    
    88.3
    %Total Lloyds Operations
    
    
    83,571
    
    
    
    106,839
    
    
    
    190,410
    
    
    
    56.1
    %Total Company
    
    $
    251,451
    
    
    $
    514,720
    
    
    $
    766,171
    
    
    
    67.2
    %
  35




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##### Table of Contents



December 31, 2006Net
    
    
    Net
    
    
    Total
    
    
    % of IBNRReported
    
    
    IBNR
    
    
    Net Loss
    
    
    to Total NetReserves
    
    
    Reserves
    
    
    Reserves
    
    
    Loss Reserves($ in thousands)Insurance Companies:Marine
    
    $
    83,295
    
    
    $
    96,098
    
    
    $
    179,393
    
    
    
    53.6
    %SpecialtyConstruction liability
    
    
    40,070
    
    
    
    166,179
    
    
    
    206,249
    
    
    
    80.6
    %All other liability
    
    
    15,214
    
    
    
    39,381
    
    
    
    54,595
    
    
    
    72.1
    %Total Specialty
    
    
    55,284
    
    
    
    205,560
    
    
    
    260,844
    
    
    
    78.8
    %Professional liability
    
    
    14,013
    
    
    
    37,558
    
    
    
    51,571
    
    
    
    72.8
    %Other
    
    
    9,867
    
    
    
    9,432
    
    
    
    19,299
    
    
    
    48.9
    %Total Insurance Companies
    
    
    162,459
    
    
    
    348,648
    
    
    
    511,107
    
    
    
    68.2
    %Lloyds Operations:Marine
    
    
    77,621
    
    
    
    95,876
    
    
    
    173,497
    
    
    
    55.3
    %Other
    
    
    3,103
    
    
    
    8,409
    
    
    
    11,512
    
    
    
    73.0
    %Total Lloyds Operations
    
    
    80,724
    
    
    
    104,285
    
    
    
    185,009
    
    
    
    56.4
    %Total Company
    
    $
    243,183
    
    
    $
    452,933
    
    
    $
    696,116
    
    
    
    65.1
    %
  June 30,
    
    
    December 31,2007
    
    
    2006($ in thousands)Total gross reserves for losses and LAE
    
    $
    1,603,689
    
    
    $
    1,607,555Total reinsurance recoverable on unpaid
losses and LAE reserves
    
    
    837,518
    
    
    
    911,439Total net loss reserves
    
    $
    766,171
    
    
    $
    696,116
   36




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##### Table of Contents



June 30,
    
    
    December 31,
    
    
    SixMonth2007
    
    
    2006
    
    
    Change($ in thousands)Reinsurance recoverables:Paid losses
    
    $
    107,146
    
    
    $
    108,878
    
    
    $
    (1,732
    )Unpaid losses and LAE reserves
    
    
    837,518
    
    
    
    911,439
    
    
    
    (73,921
    )Total
    
    $
    944,664
    
    
    $
    1,020,317
    
    
    $
    (75,653
    )
         37




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##### Table of Contents



Asbestos Liability.
   38




---



##### Table of Contents



Six Months Ended
    
    
    Year EndedJune 30, 2007
    
    
    December 31, 2006($ in thousands)Gross of ReinsuranceBeginning gross reserves
    
    $
    37,171
    
    
    $
    56,838Incurred losses & LAE
    
    
    (33
    )
    
    
    246Calendar year payments
    
    
    7,259
    
    
    
    19,913Ending gross reserves
    
    $
    29,879
    
    
    $
    37,171Gross case loss reserves
    
    $
    21,999
    
    
    $
    29,291Gross IBNR loss reserves
    
    
    7,880
    
    
    
    7,880Ending gross reserves
    
    $
    29,879
    
    
    $
    37,171Net of ReinsuranceBeginning net reserves
    
    $
    21,381
    
    
    $
    30,372Incurred losses & LAE
    
    
    1,867
    
    
    
    229Calendar year payments
    
    
    2,843
    
    
    
    9,220Ending net reserves
    
    $
    20,405
    
    
    $
    21,381Net case loss reserves
    
    $
    12,702
    
    
    $
    13,678Net IBNR loss reserves
    
    
    7,703
    
    
    
    7,703Ending net reserves
    
    $
    20,405
    
    
    $
    21,381
     39




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##### Table of Contents



Hurricanes Katrina and Rita.
  Six Months Ended
    
    
    Year EndedJune 30, 2007
    
    
    December 31, 2006($ in thousands)Gross of ReinsuranceBeginning gross reserves
    
    $
    319,230
    
    
    $
    465,728Incurred loss & LAE
    
    
    (15,004
    )
    
    
    Calendar year payments
    
    
    99,120
    
    
    
    146,498Ending gross reserves
    
    $
    205,106
    
    
    $
    319,230Gross case loss reserves
    
    $
    89,678
    
    
    $
    172,916Gross IBNR loss reserves
    
    
    115,428
    
    
    
    146,314Ending gross reserves
    
    $
    205,106
    
    
    $
    319,230Net of ReinsuranceBeginning net reserves
    
    $
    10,003
    
    
    $
    19,408Incurred loss & LAE
    
    
    (1,207
    )
    
    
    Calendar year payments
    
    
    2,630
    
    
    
    9,405Ending net reserves
    
    $
    6,166
    
    
    $
    10,003Net case loss reserves
    
    $
    772
    
    
    $
    3,628Net IBNR loss reserves
    
    
    5,394
    
    
    
    6,375Ending net reserves
    
    $
    6,166
    
    
    $
    10,003
  Commission Expense.
 Other Operating Expenses. other operating expenses
  40




---



##### Table of Contents



Income Taxes
    Accounting for Uncertainty in Income Taxes
  41




---



##### Table of Contents



Segment Information
    Insurance Companies
   42




---



##### Table of Contents



Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2007
    
    
    2006
    
    
    2007
    
    
    2006($ in thousands)Gross written premium
    
    $
    198,560
    
    
    $
    170,296
    
    
    $
    407,434
    
    
    $
    332,543Net written premium
    
    
    124,073
    
    
    
    92,445
    
    
    
    246,121
    
    
    
    182,089Net earned premium
    
    
    109,735
    
    
    
    78,488
    
    
    
    211,547
    
    
    
    145,840Net losses and LAE
    
    
    (63,725
    )
    
    
    (47,676
    )
    
    
    (125,065
    )
    
    
    (87,630
    )Commission expense
    
    
    (13,903
    )
    
    
    (7,912
    )
    
    
    (24,986
    )
    
    
    (15,036
    )Other operating expenses
    
    
    (21,057
    )
    
    
    (13,966
    )
    
    
    (39,826
    )
    
    
    (27,399
    )Commission income and other income
(expense)
    
    
    96
    
    
    
    794
    
    
    
    585
    
    
    
    2,000Underwriting profit
    
    
    11,146
    
    
    
    9,728
    
    
    
    22,255
    
    
    
    17,775Net investment income
    
    
    14,440
    
    
    
    12,023
    
    
    
    28,094
    
    
    
    22,433Net realized capital gains (losses)
    
    
    834
    
    
    
    (225
    )
    
    
    1,077
    
    
    
    (300
    )Income before income taxes
    
    
    26,420
    
    
    
    21,526
    
    
    
    51,426
    
    
    
    39,908Income tax expense
    
    
    8,163
    
    
    
    6,868
    
    
    
    16,074
    
    
    
    12,784Net income
    
    $
    18,257
    
    
    $
    14,658
    
    
    $
    35,352
    
    
    $
    27,124Loss and LAE ratio
    
    
    58.1
    %
    
    
    60.7
    %
    
    
    59.1
    %
    
    
    60.1
    %Commission expense ratio
    
    
    12.7
    %
    
    
    10.1
    %
    
    
    11.8
    %
    
    
    10.3
    %Other operating expense ratio (1)
    
    
    19.0
    %
    
    
    16.8
    %
    
    
    18.6
    %
    
    
    17.4
    %Combined ratio
    
    
    89.8
    %
    
    
    87.6
    %
    
    
    89.5
    %
    
    
    87.8
    %
 (1)
    
    Includes other operatingexpenses and commission income and other income (expense).
  43




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##### Table of Contents



Three Months Ended June 30, 2007($ in thousands)Net
    
    
    LossesEarned
    
    
    and LAE
    
    
    Underwriting
    
    
    Underwriting
    
    
    Combined RatioPremium
    
    
    Incurred
    
    
    Expenses
    
    
    Profit/(Loss)
    
    
    Loss
    
    
    Expense
    
    
    TotalMarine
    
    $
    33,693
    
    
    $
    17,706
    
    
    $
    11,608
    
    
    $
    4,379
    
    
    
    52.6
    %
    
    
    34.5
    %
    
    
    87.1
    %Specialty
    
    
    58,918
    
    
    
    33,307
    
    
    
    16,039
    
    
    
    9,572
    
    
    
    56.5
    %
    
    
    27.1
    %
    
    
    83.6
    %Professional Liability
    
    
    13,334
    
    
    
    7,741
    
    
    
    5,330
    
    
    
    263
    
    
    
    58.1
    %
    
    
    39.9
    %
    
    
    98.0
    %Other
    
    
    3,790
    
    
    
    4,971
    
    
    
    1,887
    
    
    
    (3,068
    )
    
    NM
    
    
    NM
    
    
    NMTotal
    
    $
    109,735
    
    
    $
    63,725
    
    
    $
    34,864
    
    
    $
    11,146
    
    
    
    58.1
    %
    
    
    31.7
    %
    
    
    89.8
    %
 Three Months Ended June 30, 2006($ in thousands)Net
    
    
    LossesEarned
    
    
    and LAE
    
    
    Underwriting
    
    
    Underwriting
    
    
    Combined RatioPremium
    
    
    Incurred
    
    
    Expenses
    
    
    Profit/(Loss)
    
    
    Loss
    
    
    Expense
    
    
    TotalMarine
    
    $
    28,887
    
    
    $
    17,045
    
    
    $
    7,296
    
    
    $
    4,546
    
    
    
    59.0
    %
    
    
    25.3
    %
    
    
    84.3
    %Specialty
    
    
    39,765
    
    
    
    23,804
    
    
    
    11,075
    
    
    
    4,886
    
    
    
    59.9
    %
    
    
    27.9
    %
    
    
    87.8
    %Professional Liability
    
    
    9,824
    
    
    
    6,989
    
    
    
    2,750
    
    
    
    85
    
    
    
    71.1
    %
    
    
    28.0
    %
    
    
    99.1
    %Other
    
    
    12
    
    
    
    (162
    )
    
    
    (37
    )
    
    
    211
    
    
    NM
    
    
    NM
    
    
    NMTotal
    
    $
    78,488
    
    
    $
    47,676
    
    
    $
    21,084
    
    
    $
    9,728
    
    
    
    60.7
    %
    
    
    26.9
    %
    
    
    87.6
    %
  44




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##### Table of Contents



Six Months Ended June 30, 2007($ in thousands)Net
    
    
    LossesEarned
    
    
    and LAE
    
    
    Underwriting
    
    
    Underwriting
    
    
    Combined RatioPremium
    
    
    Incurred
    
    
    Expenses
    
    
    Profit(Loss)
    
    
    Loss
    
    
    Expense
    
    
    TotalInsurance Companies:Marine
    
    $
    67,011
    
    
    $
    37,877
    
    
    $
    18,721
    
    
    $
    10,413
    
    
    
    56.5
    %
    
    
    27.9
    %
    
    
    84.4
    %Specialty
    
    
    112,530
    
    
    
    65,073
    
    
    
    32,531
    
    
    
    14,926
    
    
    
    57.8
    %
    
    
    28.8
    %
    
    
    86.6
    %Professional Liability
    
    
    26,371
    
    
    
    16,225
    
    
    
    9,653
    
    
    
    493
    
    
    
    61.5
    %
    
    
    36.5
    %
    
    
    98.0
    %Other
    
    
    5,635
    
    
    
    5,890
    
    
    
    3,322
    
    
    
    (3,577
    )
    
    NM
    
    
    NM
    
    
    NMTotal
    
    $
    211,547
    
    
    $
    125,065
    
    
    $
    64,227
    
    
    $
    22,255
    
    
    
    59.1
    %
    
    
    30.4
    %
    
    
    89.5
    %
 Six Months Ended June 30, 2006($ in thousands)Net
    
    
    LossesEarned
    
    
    and LAE
    
    
    Underwriting
    
    
    Underwriting
    
    
    Combined RatioPremium
    
    
    Incurred
    
    
    Expenses
    
    
    Profit(Loss)
    
    
    Loss
    
    
    Expense
    
    
    TotalInsurance Companies:Marine
    
    $
    51,388
    
    
    $
    30,545
    
    
    $
    13,342
    
    
    $
    7,501
    
    
    
    59.4
    %
    
    
    26.0
    %
    
    
    85.4
    %Specialty
    
    
    75,899
    
    
    
    44,961
    
    
    
    21,599
    
    
    
    9,339
    
    
    
    59.2
    %
    
    
    28.5
    %
    
    
    87.7
    %Professional Liability
    
    
    18,556
    
    
    
    12,298
    
    
    
    5,461
    
    
    
    797
    
    
    
    66.3
    %
    
    
    29.4
    %
    
    
    95.7
    %Other
    
    
    (3
    )
    
    
    (174
    )
    
    
    33
    
    
    
    138
    
    
    NM
    
    
    NM
    
    
    NMTotal
    
    $
    145,840
    
    
    $
    87,630
    
    
    $
    40,435
    
    
    $
    17,775
    
    
    
    60.1
    %
    
    
    27.7
    %
    
    
    87.8
    %
     45




---



##### Table of Contents



Lloyds Operations
     Liquidity and Capital Resources
   46




---



##### Table of Contents



Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2007
    
    
    2006
    
    
    2007
    
    
    2006($ in thousands)Gross written premium
    
    $
    77,989
    
    
    $
    82,072
    
    
    $
    169,976
    
    
    $
    183,820Net written premium
    
    
    37,277
    
    
    
    36,803
    
    
    
    88,248
    
    
    
    90,585Net earned premium
    
    
    35,882
    
    
    
    36,053
    
    
    
    73,116
    
    
    
    72,423Net losses and LAE
    
    
    (16,014
    )
    
    
    (18,951
    )
    
    
    (35,866
    )
    
    
    (41,114
    )Commission expense
    
    
    (3,747
    )
    
    
    (5,712
    )
    
    
    (9,763
    )
    
    
    (12,293
    )Other operating expenses
    
    
    (7,551
    )
    
    
    (5,961
    )
    
    
    (15,071
    )
    
    
    (10,936
    )Commission income and other income
(expense)
    
    
    137
    
    
    
    (210
    )
    
    
    (15
    )
    
    
    56Underwriting profit
    
    
    8,707
    
    
    
    5,219
    
    
    
    12,401
    
    
    
    8,136Net investment income
    
    
    2,407
    
    
    
    1,667
    
    
    
    4,558
    
    
    
    3,674Net realized capital gains (losses)
    
    
    6
    
    
    
    33
    
    
    
    (36
    )
    
    
    (316
    )Income before income taxes
    
    
    11,120
    
    
    
    6,919
    
    
    
    16,923
    
    
    
    11,494Income tax expense
    
    
    3,875
    
    
    
    2,422
    
    
    
    5,929
    
    
    
    4,023Net income
    
    $
    7,245
    
    
    $
    4,497
    
    
    $
    10,994
    
    
    $
    7,471Loss and LAE ratio
    
    
    44.6
    %
    
    
    52.6
    %
    
    
    49.1
    %
    
    
    56.8
    %Commission expense ratio
    
    
    10.4
    %
    
    
    15.8
    %
    
    
    13.4
    %
    
    
    17.0
    %Other operating expense ratio (1)
    
    
    20.6
    %
    
    
    17.1
    %
    
    
    20.5
    %
    
    
    15.0
    %Combined ratio
    
    
    75.6
    %
    
    
    85.5
    %
    
    
    83.0
    %
    
    
    88.8
    %
 (1)
    
    Includes other operating expensesand commission income and other income (expense).
    47




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##### Table of Contents



Off-Balance Sheet Transactions
  Tabular Disclosure of Contractual Obligations
   Payments Due by PeriodLess than
    
    
    
    
    
    
    
    
    
    
    More thanTotal
    
    
    1 Year
    
    
    1-3 Years
    
    
    3-5 Years
    
    
    5 Years($ in thousands)7% Senior Notes
    
    $
    203,750
    
    
    $
    8,750
    
    
    $
    17,500
    
    
    $
    17,500
    
    
    $
    160,000
 Investments
   48




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##### Table of Contents



49




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##### Table of Contents



Gross
    
    
    Gross
    
    
    Cost orFair
    
    
    Unrealized
    
    
    Unrealized
    
    
    AmortizedJune 30, 2007
    
    Value
    
    
    Gains
    
    
    (Losses)
    
    
    Cost($ in thousands)Fixed maturities:U.S. Government Treasury Bonds,
GNMAs and foreign government bonds
    
    $
    178,573
    
    
    $
    414
    
    
    $
    (3,903
    )
    
    $
    182,062States, municipalities and political
subdivisions
    
    
    426,940
    
    
    
    683
    
    
    
    (5,113
    )
    
    
    431,370Mortgage- and asset-backed securities
(excluding GNMAs)
    
    
    517,953
    
    
    
    217
    
    
    
    (12,054
    )
    
    
    529,790Corporate bonds
    
    
    206,343
    
    
    
    637
    
    
    
    (3,514
    )
    
    
    209,220Total fixed maturities
    
    
    1,329,809
    
    
    
    1,951
    
    
    
    (24,584
    )
    
    
    1,352,442Equity securities  common stocks
    
    
    54,611
    
    
    
    7,114
    
    
    
    (701
    )
    
    
    48,198Cash
    
    
    218
    
    
    
    
    
    
    
    
    
    
    
    218Short-term investments
    
    
    186,833
    
    
    
    
    
    
    
    
    
    
    
    186,833Total
    
    $
    1,571,471
    
    
    $
    9,065
    
    
    $
    (25,285
    )
    
    $
    1,587,691
 Gross
    
    
    Gross
    
    
    Cost orFair
    
    
    Unrealized
    
    
    Unrealized
    
    
    AmortizedDecember 31, 2006
    
    Value
    
    
    Gains
    
    
    (Losses)
    
    
    Cost($ in thousands)Fixed maturities:U.S. Government Treasury Bonds,
GNMAs and foreign government bonds
    
    $
    206,214
    
    
    $
    972
    
    
    $
    (2,086
    )
    
    $
    207,328States, municipalities and political
subdivisions
    
    
    361,859
    
    
    
    2,719
    
    
    
    (2,345
    )
    
    
    361,485Mortgage- and asset-backed securities
(excluding GNMAs)
    
    
    489,556
    
    
    
    939
    
    
    
    (4,488
    )
    
    
    493,105Corporate bonds
    
    
    201,088
    
    
    
    1,672
    
    
    
    (1,950
    )
    
    
    201,366Total fixed maturities
    
    
    1,258,717
    
    
    
    6,302
    
    
    
    (10,869
    )
    
    
    1,263,284Equity securities  common stocks
    
    
    37,828
    
    
    
    6,297
    
    
    
    (348
    )
    
    
    31,879Cash
    
    
    2,404
    
    
    
    
    
    
    
    
    
    
    
    2,404Short-term investments
    
    
    176,961
    
    
    
    
    
    
    
    
    
    
    
    176,961Total
    
    $
    1,475,910
    
    
    $
    12,599
    
    
    $
    (11,217
    )
    
    $
    1,474,528
  50




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51




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June 30, 2007
    
    
    December 31, 2006Fair
    
    
    Gross
    
    
    Fair
    
    
    GrossValue
    
    
    Unrealized Loss
    
    
    Value
    
    
    Unrealized Loss($ in thousands)Fixed Maturities:U.S. Government Treasury
Bonds, GNMAs and foreign
government bonds0-6 Months
    
    $
    78,227
    
    
    $
    1,193
    
    
    $
    34,085
    
    
    $
    5867-12 Months
    
    
    18,495
    
    
    
    774
    
    
    
    20,806
    
    
    
    86> 12 Months
    
    
    43,317
    
    
    
    1,936
    
    
    
    69,424
    
    
    
    1,414Subtotal
    
    
    140,039
    
    
    
    3,903
    
    
    
    124,315
    
    
    
    2,086States, municipalities and
political subdivisions0-6 Months
    
    
    175,705
    
    
    
    1,709
    
    
    
    57,747
    
    
    
    3167-12 Months
    
    
    47,521
    
    
    
    1,086
    
    
    
    6,661
    
    
    
    80> 12 Months
    
    
    113,667
    
    
    
    2,318
    
    
    
    118,917
    
    
    
    1,949Subtotal
    
    
    336,893
    
    
    
    5,113
    
    
    
    183,325
    
    
    
    2,345Mortgage- and asset-backed securities
(excluding GNMAs)0-6 Months
    
    
    234,317
    
    
    
    3,818
    
    
    
    174,270
    
    
    
    9217-12 Months
    
    
    78,234
    
    
    
    2,772
    
    
    
    10,444
    
    
    
    65> 12 Months
    
    
    169,651
    
    
    
    5,464
    
    
    
    184,515
    
    
    
    3,502Subtotal
    
    
    482,202
    
    
    
    12,054
    
    
    
    369,229
    
    
    
    4,488Corporate bonds0-6 Months
    
    
    79,877
    
    
    
    1,489
    
    
    
    27,719
    
    
    
    1857-12 Months
    
    
    3,641
    
    
    
    83
    
    
    
    15,503
    
    
    
    224> 12 Months
    
    
    69,660
    
    
    
    1,942
    
    
    
    66,014
    
    
    
    1,541Subtotal
    
    
    153,178
    
    
    
    3,514
    
    
    
    109,236
    
    
    
    1,950Total Fixed Maturities
    
    $
    1,112,312
    
    
    $
    24,584
    
    
    $
    786,105
    
    
    $
    10,869Equity securities  common stocks0-6 Months
    
    $
    11,418
    
    
    $
    572
    
    
    $
    3,265
    
    
    $
    1587-12 Months
    
    
    290
    
    
    
    30
    
    
    
    800
    
    
    
    72> 12 Months
    
    
    824
    
    
    
    99
    
    
    
    782
    
    
    
    118Total Equity Securities
    
    $
    12,532
    
    
    $
    701
    
    
    $
    4,847
    
    
    $
    348
   52




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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
    
    $
    23,400
    
    
    
    95
    %
    
    $
    1,064,038
    
    
    
    96
    %2
    
    BBB
    
    Baa
    
    
    1,184
    
    
    
    5
    %
    
    
    48,274
    
    
    
    4
    %3
    
    BB
    
    Ba
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4
    
    B
    
    B
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5
    
    CCC or lower
    
    Caa or lower
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    6
    
    N/A
    
    N/A
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total
    
    
    
    $
    24,584
    
    
    
    100
    %
    
    $
    1,112,312
    
    
    
    100
    %
   GrossUnrealized Loss
    
    
    Fair ValuePercent
    
    
    
    
    
    
    PercentAmount
    
    
    of Total
    
    
    Amount
    
    
    of Total($ in thousands)Due in one year or less
    
    $
    272
    
    
    
    1
    %
    
    $
    42,946
    
    
    
    4
    %Due after one year through five years
    
    
    3,292
    
    
    
    13
    %
    
    
    199,568
    
    
    
    18
    %Due after five years through ten years
    
    
    4,271
    
    
    
    17
    %
    
    
    224,407
    
    
    
    20
    %Due after ten years
    
    
    4,695
    
    
    
    19
    %
    
    
    163,189
    
    
    
    15
    %Mortgage- and asset-backed securities
    
    
    12,054
    
    
    
    50
    %
    
    
    482,202
    
    
    
    43
    %Total fixed income securities
    
    $
    24,584
    
    
    
    100
    %
    
    $
    1,112,312
    
    
    
    100
    %
   53




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Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2007
    
    
    2006
    
    
    2007
    
    
    2006($ in thousands)Fixed maturities:Gains
    
    $
    27
    
    
    $
    69
    
    
    $
    477
    
    
    $
    341(Losses)
    
    
    (281
    )
    
    
    (241
    )
    
    
    (719
    )
    
    
    (1,407
    )(254
    )
    
    
    (172
    )
    
    
    (242
    )
    
    
    (1,066
    )Equity securities:Gains
    
    
    1,147
    
    
    
    3
    
    
    
    1,397
    
    
    
    484(Losses)
    
    
    (53
    )
    
    
    (23
    )
    
    
    (114
    )
    
    
    (34
    )1,094
    
    
    
    (20
    )
    
    
    1,283
    
    
    
    450Net realized capital gains (losses)
    
    $
    840
    
    
    $
    (192
    )
    
    $
    1,041
    
    
    $
    (616
    )
  # of MonthsUnrealized LossNet
    
    Exceeded 20%Date of
    
    Proceeds
    
    
    (Loss) on
    
    
    
    
    Holdings at
    
    Unrealized
    
    of Cost orDescription
    
    Sale
    
    from Sale
    
    
    Sale
    
    
    Impairment
    
    June 30, 2007
    
    (Loss)
    
    Amortized Cost($ in thousands)Six months ended June 30, 2007 and 2006:TIPS (1)
    
    3/31/2007
    
    $
    5,823
    
    
    
    ($335
    )
    
    
    
    
    
    
    
    TIPS (1)
    
    3/31/2006
    
    $
    15,418
    
    
    
    ($305
    )
    
    
    
    
    
    
    
    
 (1)
    
    Treasury inflation protection securities (TIPS) were sold during the 2007 and 2006 first quarters due to the widening breakeven yield spread between TIPS and Treasuries.
 Reinsurance Recoverables
   54




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Liquidity and Capital Resources
        55




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56




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##### Table of Contents



June 30,
    
    
    December 31,2007
    
    
    2006($ in thousands)Senior debt
    
    $
    123,615
    
    
    $
    123,560Stockholders equity
    
    
    588,033
    
    
    
    551,343Total capitalization
    
    $
    711,648
    
    
    $
    674,903Ratio of debt to total capitalization
    
    
    17.4
    %
    
    
    18.3
    %
     57




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##### Table of Contents



June 30,
    
    
    December 31,2007
    
    
    2006($ in thousands)Cash and investments
    
    $
    41,338
    
    
    $
    32,308Investments in subsidiaries
    
    
    665,648
    
    
    
    634,299Goodwill and other intangible assets
    
    
    2,534
    
    
    
    2,534Other assets
    
    
    7,636
    
    
    
    12,939Total assets
    
    $
    717,156
    
    
    $
    682,080Accounts payable and other liabilities
    
    $
    1,871
    
    
    $
    1,590Accrued interest payable
    
    
    1,458
    
    
    
    1,458Deferred compensation payable
    
    
    2,179
    
    
    
    4,1297% Senior Notes due May 1, 2016
    
    
    123,615
    
    
    
    123,560Total liabilities
    
    
    129,123
    
    
    
    130,737Stockholders equity
    
    
    588,033
    
    
    
    551,343Total liabilities and stockholders equity
    
    $
    717,156
    
    
    $
    682,080
   
 Item 3. Quantitative and Qualitative Disclosures about Market Risk
  
 Item 4. Controls and Procedures
 (a)
    
    The Chief Executive Officer and Chief Financial Officer of the Company
have evaluated the effectiveness of our disclosure controls and procedures (as
defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934,
as amended (the Exchange Act)), as of the end of the period covered by this
quarterly report. Based on such evaluation, such officers have concluded that as of
the end of such period the Companys disclosure controls and procedures are
effective in identifying, on a timely basis, material information required to be
disclosed in our reports filed or submitted under the Exchange Act.
 (b)
    
    There have been no changes during our second fiscal quarter in our
internal control over financial reporting that have materially affected, or are
reasonably likely to materially affect, the Companys internal control over
financial reporting.
  58




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##### Table of Contents



Part II  Other Information
 
 Item 1. Legal Proceedings
     
 Item 1A. Risk Factors
  
 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
  
 Item 3. Defaults Upon Senior Securities
   59




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##### Table of Contents



Item 4. Submissions of Matters to a Vote of Security Holders
  a)
    
    The election of all ten (10) directors of the Company to serve until the
2008 Annual Meeting of Stockholders or until their respective successors have been
duly elected and qualified. The results of the voting are as follows:
 Name
    
    Votes For
    
    Votes WithheldH. J. Mervyn Blakeney
    
    9,638,024
    
    
    6,307,310Peter A. Cheney
    
    15,657,148
    
    
    288,186Terence N. Deeks
    
    11,829,790
    
    
    4,115,544Robert W. Eager, Jr.
    
    15,681,023
    
    
    264,311W. Thomas Forrester
    
    15,681,023
    
    
    264,311Stanley A. Galanski
    
    11,978,389
    
    
    3,966,945Leandro S. Galban, Jr.
    
    15,406,185
    
    
    539,149John F. Kirby
    
    11,188,720
    
    
    4,756,614Marc M. Tract
    
    11,344,496
    
    
    4,600,838Robert F. Wright
    
    15,324,884
    
    
    620,450
 b)
    
    The appointment of KPMG LLP as the Companys independent auditors for
2007 was ratified with 15,887,714 votes cast for, 57,506 votes cast against and 114
votes abstaining.
 
 Item 5. Other Information
  
 Item 6. Exhibits
 Exhibit No.
    
    Description of Exhibit11-1
    
    Statement re Computation of Per Share Earnings
    
    *31-1
    
    Certification of CEO per Section 302 of the Sarbanes-Oxley Act
    
    *31-2
    
    Certification of CFO per Section 302 of the Sarbanes-Oxley Act
    
    *32-1
    
    Certification of CEO per Section 906 of the Sarbanes-Oxley Act
(This exhibit is intended to be furnished in accordance
with Regulation S-K item 601(b)(32)(ii) and shall not be
deemed to be filed for purposes of section 18 of the
Securities Exchange Act of 1934, as amended, or
incorporated by reference into any filing under the
Securities Act of 1933, except as shall be expressly set
forth by specific reference).
    
    *32-2
    
    Certification of CFO per Section 906 of the
Sarbanes-Oxley Act (This exhibit is intended to be furnished in accordance
with Regulation S-K item 601(b)(32)(ii) and shall not be
deemed to be filed for purposes of section 18 of the
Securities Exchange Act of 1934, as amended, or
incorporated by reference into any filing under the
Securities Act of 1933, except as shall be expressly set
forth by specific reference).
    
    *
 Included herein
  60




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The Navigators Group, Inc.(Registrant)Date: August 1, 2007
    /s/ Paul J. MalvasioPaul J. MalvasioExecutive Vice President
and Chief Financial Officer  61




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##### Table of Contents



INDEX OF EXHIBITS
 Exhibit No.
    
    Description of Exhibit11-1
    
    Statement re Computation of Per Share Earnings
    
    *31-1
    
    Certification of CEO per Section 302 of the Sarbanes-Oxley Act
    
    *31-2
    
    Certification of CFO per Section 302 of the Sarbanes-Oxley Act
    
    *32-1
    
    Certification of CEO per Section 906 of the Sarbanes-Oxley Act
(This exhibit is intended to be furnished in accordance
with Regulation S-K item 601(b)(32)(ii) and shall not be
deemed to be filed for purposes of section 18 of the
Securities Exchange Act of 1934, as amended, or
incorporated by reference into any filing under the
Securities Act of 1933, except as shall be expressly set
forth by specific reference).
    
    *32-2
    
    Certification of CFO per
Section 906 of the Sarbanes-Oxley Act (This exhibit is intended to be furnished in accordance
with Regulation S-K item 601(b)(32)(ii) and shall not be
deemed to be filed for purposes of section 18 of the
Securities Exchange Act of 1934, as amended, or
incorporated by reference into any filing under the
Securities Act of 1933, except as shall be expressly set
forth by specific reference).
    
    *
 Included herein.
  62