##### 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 September 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)
 (Registrants telephone number, including area code)
 (Former
name, former address and former fiscal year, if changed since last report.)
 þ o
  þ o 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 SheetsSeptember 30, 2007 (Unaudited) and December 31, 2006
    
    
    3Consolidated Statements of Income (Unaudited)Three Months Ended September 30, 2007 and 2006
    
    
    4Nine Months Ended September 30, 2007 and 2006
    
    
    5Consolidated Statements of Stockholders Equity (Unaudited)September 30, 2007 and 2006
    
    
    6Consolidated Statements of Comprehensive Income (Unaudited)Three Months Ended September 30, 2007 and 2006
    
    
    7Nine Months Ended September 30, 2007 and 2006
    
    
    8Consolidated Statements of Cash Flows (Unaudited)Nine Months Ended September 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)
 
 September 30,
    
    
    December 31,2007
    
    
    2006(Unaudited)ASSETSInvestments and cash:Fixed maturities, available-for-sale, at fair value (amortized cost: 2007, $1,458,458; 2006, $1,263,284)
    
    $
    1,454,684
    
    
    $
    1,258,717Equity securities, available-for-sale, at fair value (cost: 2007, $57,697; 2006, $31,879)
    
    
    63,858
    
    
    
    37,828Short-term investments, at cost which approximates fair value
    
    
    215,117
    
    
    
    176,961Cash
    
    
    4,906
    
    
    
    2,404Total investments and cash
    
    
    1,738,565
    
    
    
    1,475,910Premiums in course of collection
    
    
    186,865
    
    
    
    163,309Commissions receivable
    
    
    2,429
    
    
    
    3,647Prepaid reinsurance premiums
    
    
    194,742
    
    
    
    179,493Reinsurance receivable on paid losses
    
    
    84,043
    
    
    
    108,878Reinsurance receivable on unpaid losses and loss adjustment expenses
    
    
    837,545
    
    
    
    911,439Net deferred income tax benefit
    
    
    31,360
    
    
    
    30,422Deferred policy acquisition costs
    
    
    54,752
    
    
    
    41,700Accrued investment income
    
    
    15,548
    
    
    
    13,052Goodwill and other intangible assets
    
    
    8,237
    
    
    
    8,012Other assets
    
    
    20,906
    
    
    
    20,824Total assets
    
    $
    3,174,992
    
    
    $
    2,956,686LIABILITIES AND STOCKHOLDERS EQUITYLiabilities:Reserves for losses and loss adjustment expenses
    
    $
    1,645,542
    
    
    $
    1,607,555Unearned premium
    
    
    484,507
    
    
    
    415,096Reinsurance balances payable
    
    
    179,892
    
    
    
    194,266Senior notes
    
    
    123,644
    
    
    
    123,560Federal income tax payable
    
    
    7,688
    
    
    
    3,934Payable for securities purchased
    
    
    27,550
    
    
    
    166Accounts payable and other liabilities
    
    
    79,693
    
    
    
    60,766Total liabilities
    
    
    2,548,516
    
    
    
    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: 16,856,267 for 2007 and 16,735,898 for 2006
    
    
    1,686
    
    
    
    1,674Additional paid-in capital
    
    
    290,955
    
    
    
    286,732Retained earnings
    
    
    328,544
    
    
    
    259,464Accumulated other comprehensive income
    
    
    5,291
    
    
    
    3,473Total stockholders equity
    
    
    626,476
    
    
    
    551,343Total liabilities and stockholders equity
    
    $
    3,174,992
    
    
    $
    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 EndedSeptember 30,2007
    
    
    2006(Unaudited)Gross written premium
    
    $
    245,961
    
    
    $
    221,667Revenues:Net written premium
    
    $
    159,102
    
    
    $
    119,037(Increase) in unearned premium
    
    
    (3,064
    )
    
    
    (3,341
    )Net earned premium
    
    
    156,038
    
    
    
    115,696Commission income
    
    
    117
    
    
    
    639Net investment income
    
    
    17,930
    
    
    
    14,691Net realized capital gains (losses)
    
    
    (66
    )
    
    
    (151
    )Other income (expense)
    
    
    298
    
    
    
    (884
    )Total revenues
    
    
    174,317
    
    
    
    129,991Operating expenses:Net losses and loss adjustment
expenses incurred
    
    
    88,019
    
    
    
    64,456Commission expense
    
    
    19,676
    
    
    
    13,769Other operating expenses
    
    
    27,902
    
    
    
    22,683Interest expense
    
    
    2,216
    
    
    
    2,214Total operating expenses
    
    
    137,813
    
    
    
    103,122Income before income tax expense
    
    
    36,504
    
    
    
    26,869Income tax expense (benefit):Current
    
    
    11,520
    
    
    
    8,126Deferred
    
    
    (49
    )
    
    
    410Total income tax expense
    
    
    11,471
    
    
    
    8,536Net income
    
    $
    25,033
    
    
    $
    18,333Net income per common share:Basic
    
    $
    1.49
    
    
    $
    1.10Diluted
    
    $
    1.47
    
    
    $
    1.09Average common shares outstanding:Basic
    
    
    16,843
    
    
    
    16,685Diluted
    
    
    16,996
    
    
    
    16,827
   4




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THE NAVIGATORS GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME  ($ and shares in thousands, except net income per share)
 
 Nine Months EndedSeptember 30,2007
    
    
    2006(Unaudited)Gross written premium
    
    $
    823,371
    
    
    $
    737,816Revenues:Net written premium
    
    $
    493,471
    
    
    $
    391,711(Increase) in unearned premium
    
    
    (52,770
    )
    
    
    (57,752
    )Net earned premium
    
    
    440,701
    
    
    
    333,959Commission income
    
    
    1,011
    
    
    
    2,465Net investment income
    
    
    51,476
    
    
    
    41,244Net realized capital gains (losses)
    
    
    975
    
    
    
    (767
    )Other income (expense)
    
    
    (26
    )
    
    
    (654
    )Total revenues
    
    
    494,137
    
    
    
    376,247Operating expenses:Net losses and loss adjustment expenses incurred
    
    
    248,950
    
    
    
    193,200Commission expense
    
    
    54,425
    
    
    
    41,098Other operating expenses
    
    
    82,799
    
    
    
    61,018Interest expense
    
    
    6,646
    
    
    
    4,034Total operating expenses
    
    
    392,820
    
    
    
    299,350Income before income tax expense
    
    
    101,317
    
    
    
    76,897Income tax expense (benefit):Current
    
    
    34,301
    
    
    
    27,492Deferred
    
    
    (2,064
    )
    
    
    (2,551
    )Total income tax expense
    
    
    32,237
    
    
    
    24,941Net income
    
    $
    69,080
    
    
    $
    51,956Net income per common share:Basic
    
    $
    4.11
    
    
    $
    3.12Diluted
    
    $
    4.07
    
    
    $
    3.09Average common shares outstanding:Basic
    
    
    16,796
    
    
    
    16,664Diluted
    
    
    16,967
    
    
    
    16,812
   5




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THE NAVIGATORS GROUP, INC. AND SUBSIDIARIES
 
 CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY  ($ in thousands)
 
 Nine Months EndedSeptember 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
    
    
    12
    
    
    
    8Balance at end of period
    
    $
    1,686
    
    
    $
    1,670Additional paid-in capitalBalance at beginning of year
    
    $
    286,732
    
    
    $
    282,463Employee stock plans
    
    
    441
    
    
    
    761Shares issued under stock plans
    
    
    3,782
    
    
    
    2,392Balance at end of period
    
    $
    290,955
    
    
    $
    285,616Retained earningsBalance at beginning of year
    
    $
    259,464
    
    
    $
    186,901Net income
    
    
    69,080
    
    
    
    51,956Balance at end of period
    
    $
    328,544
    
    
    $
    238,857Accumulated other comprehensive income (loss)Net unrealized gains (losses) on securities, net of taxBalance at beginning of year
    
    $
    849
    
    
    $
    (884
    )Change in period
    
    
    686
    
    
    
    707Balance at end of period
    
    
    1,535
    
    
    
    (177
    )Cumulative translation adjustments, net of taxBalance at beginning of year
    
    
    2,624
    
    
    
    96Net adjustment for period
    
    
    1,132
    
    
    
    1,453Balance at end of period
    
    
    3,756
    
    
    
    1,549Balance at end of period
    
    $
    5,291
    
    
    $
    1,372Total stockholders equity at end of period
    
    $
    626,476
    
    
    $
    527,515
   6




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THE NAVIGATORS GROUP, INC. AND SUBSIDIARIES
 
 CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
 ($ in thousands)
 
 Three Months EndedSeptember 30,2007
    
    
    2006(Unaudited)Net income
    
    $
    25,033
    
    
    $
    18,333Other comprehensive income:Change in net unrealized gains on securities,
net of tax expense of $6,446 and $9,371
in 2007 and 2006, respectively(1)
    
    
    12,154
    
    
    
    17,249Change in foreign currency translation gains,
net of tax expense of $178 and $135
in 2007 and 2006, respectively
    
    
    331
    
    
    
    252Other
comprehensive income
    
    
    12,485
    
    
    
    17,501Comprehensive income
    
    $
    37,518
    
    
    $
    35,834(1) Disclosure of reclassification amount, net
of tax:Unrealized holding gains arising
during period
    
    $
    12,105
    
    
    $
    17,145Less: reclassification adjustment for net
realized
capital (losses) included in net income
    
    
    (49
    )
    
    
    (104
    )Change in net unrealized gains on securities
    
    $
    12,154
    
    
    $
    17,249
   7




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THE NAVIGATORS GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME  ($ in thousands)
 
 Nine Months EndedSeptember 30,2007
    
    
    2006(Unaudited)Net income
    
    $
    69,080
    
    
    $
    51,956Other comprehensive income:Change in net unrealized gains on securities,
net of tax expense of $311 and $462
in 2007 and 2006, respectively(1)
    
    
    686
    
    
    
    707Change in foreign currency translation gains,
net of tax expense of $610 and $782
in 2007 and 2006, respectively
    
    
    1,132
    
    
    
    1,453Other comprehensive income
    
    
    1,818
    
    
    
    2,160Comprehensive income
    
    $
    70,898
    
    
    $
    54,116(1) Disclosure of reclassification amount, net of tax:Unrealized holding gains arising
during period
    
    $
    1,312
    
    
    $
    187Less: reclassification adjustment for net realized capital
capital gains (losses) included in net income
    
    
    626
    
    
    
    (520
    )Change in net unrealized gains on securities
    
    $
    686
    
    
    $
    707
   8




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THE NAVIGATORS GROUP, INC. AND SUBSIDIARIES
 
 CONSOLIDATED STATEMENTS OF CASH FLOWS
 ($ in thousands)
 
 Nine Months EndedSeptember 30,2007
    
    
    2006(Unaudited)Operating activities:Net income
    
    $
    69,080
    
    
    $
    51,956Adjustments to reconcile net income to net
cash provided by (used in) operating activities:Depreciation & amortization
    
    
    2,532
    
    
    
    1,990Net deferred income tax expense (benefit)
    
    
    (2,064
    )
    
    
    (2,551
    )Net realized capital (gains) losses
    
    
    (975
    )
    
    
    767Changes in assets and liabilities:Reinsurance receivable on paid and unpaid losses and LAE
    
    
    111,379
    
    
    
    (21,429
    )Reserve for losses and LAE
    
    
    19,306
    
    
    
    11,677Prepaid reinsurance premiums
    
    
    (12,558
    )
    
    
    (42,139
    )Unearned premium
    
    
    63,504
    
    
    
    95,977Premiums in course of collection
    
    
    (19,151
    )
    
    
    (17,056
    )Commissions receivable
    
    
    1,247
    
    
    
    1,004Deferred policy acquisition costs
    
    
    (12,052
    )
    
    
    (11,764
    )Accrued investment income
    
    
    (2,650
    )
    
    
    (1,721
    )Reinsurance balances payable
    
    
    (18,297
    )
    
    
    13,684Federal income tax
    
    
    3,193
    
    
    
    2,138Other
    
    
    28,842
    
    
    
    5,561Net cash provided by operating activities
    
    
    231,336
    
    
    
    88,094Investing activities:Fixed maturities, available-for-saleRedemptions and maturities
    
    
    127,639
    
    
    
    95,288Sales
    
    
    136,046
    
    
    
    111,643Purchases
    
    
    (455,845
    )
    
    
    (388,126
    )Equity securities, available-for-saleSales
    
    
    17,436
    
    
    
    3,431Purchases
    
    
    (41,294
    )
    
    
    (12,121
    )Change in payable for securities
    
    
    27,176
    
    
    
    78Net change in short-term investments
    
    
    (34,867
    )
    
    
    (30,675
    )Purchase of property and equipment
    
    
    (7,149
    )
    
    
    (3,559
    )Net cash (used in) investing activities
    
    
    (230,858
    )
    
    
    (224,041
    )Financing activities:Net proceeds from senior notes
    
    
    
    
    
    
    123,511Proceeds of stock issued from employee stock purchase plan
    
    
    606
    
    
    
    536Proceeds of stock issued from exercise of stock options
    
    
    1,406
    
    
    
    601Net cash provided by financing activities
    
    
    2,012
    
    
    
    124,648Effect of exchange rate changes on foreign currency cash
    
    
    12
    
    
    
    25Increase (decrease) in cash
    
    
    2,502
    
    
    
    (11,274
    )Cash at beginning of year
    
    
    2,404
    
    
    
    13,165Cash at end of period
    
    $
    4,906
    
    
    $
    1,891Supplemental disclosures of cash flow information:Federal, state and local income tax paid
    
    $
    31,144
    
    
    $
    19,857Interest paid
    
    
    4,375
    
    
    
    4,715Issuance 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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11




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##### Table of Contents



Three Months Ended September 30, 2007Insurance
    
    
    LloydsCompanies
    
    
    Operations
    
    
    Corporate
    
    
    Total($ in thousands)Gross written premium
    
    $
    178,058
    
    
    $
    67,903
    
    
    
    
    
    
    $
    245,961Net written premium
    
    
    109,677
    
    
    
    49,425
    
    
    
    
    
    
    
    159,102Net earned premium
    
    
    109,060
    
    
    
    46,978
    
    
    
    
    
    
    
    156,038Net losses and LAE
    
    
    (59,816
    )
    
    
    (28,203
    )
    
    
    
    
    
    
    (88,019
    )Commission expense
    
    
    (13,086
    )
    
    
    (6,590
    )
    
    
    
    
    
    
    (19,676
    )Other operating expenses
    
    
    (21,157
    )
    
    
    (6,745
    )
    
    
    
    
    
    
    (27,902
    )Commission income and other income (expense)
    
    
    304
    
    
    
    111
    
    
    
    
    
    
    
    415Underwriting profit
    
    
    15,305
    
    
    
    5,551
    
    
    
    
    
    
    
    20,856Net investment income
    
    
    14,816
    
    
    
    2,609
    
    
    $
    505
    
    
    
    17,930Net realized capital gains (losses)
    
    
    41
    
    
    
    (107
    )
    
    
    
    
    
    
    (66
    )Interest expense
    
    
    
    
    
    
    
    
    
    
    (2,216
    )
    
    
    (2,216
    )Income (loss) before income taxes
    
    
    30,162
    
    
    
    8,053
    
    
    
    (1,711
    )
    
    
    36,504Income tax expense (benefit)
    
    
    9,193
    
    
    
    2,877
    
    
    
    (599
    )
    
    
    11,471Net income (loss)
    
    $
    20,969
    
    
    $
    5,176
    
    
    $
    (1,112
    )
    
    $
    25,033Identifiable assets (1)
    
    $
    2,292,811
    
    
    $
    793,661
    
    
    $
    65,950
    
    
    $
    3,174,992Loss and LAE ratio
    
    
    54.8
    %
    
    
    60.0
    %
    
    
    
    
    
    
    56.4
    %Commission expense ratio
    
    
    12.0
    %
    
    
    14.0
    %
    
    
    
    
    
    
    12.6
    %Other operating expense ratio (2)
    
    
    19.1
    %
    
    
    14.1
    %
    
    
    
    
    
    
    17.6
    %Combined ratio
    
    
    85.9
    %
    
    
    88.1
    %
    
    
    
    
    
    
    86.6
    %
 
 (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 September 30, 2006Insurance
    
    
    LloydsCompanies
    
    
    Operations
    
    
    Corporate
    
    
    Total($ in thousands)Gross written premium (1)
    
    $
    163,673
    
    
    $
    57,780
    
    
    
    
    
    
    $
    221,667Net written premium
    
    
    91,188
    
    
    
    27,849
    
    
    
    
    
    
    
    119,037Net earned premium
    
    
    85,494
    
    
    
    30,202
    
    
    
    
    
    
    
    115,696Net losses and LAE
    
    
    (47,926
    )
    
    
    (16,530
    )
    
    
    
    
    
    
    (64,456
    )Commission expense
    
    
    (9,889
    )
    
    
    (3,880
    )
    
    
    
    
    
    
    (13,769
    )Other operating expenses
    
    
    (16,697
    )
    
    
    (5,986
    )
    
    
    
    
    
    
    (22,683
    )Commission income and other income (expense)
    
    
    661
    
    
    
    (906
    )
    
    
    
    
    
    
    (245
    )Underwriting profit
    
    
    11,643
    
    
    
    2,900
    
    
    
    
    
    
    
    14,543Net investment income
    
    
    12,345
    
    
    
    1,774
    
    
    $
    572
    
    
    
    14,691Net realized capital (losses)
    
    
    (29
    )
    
    
    (122
    )
    
    
    
    
    
    
    (151
    )Interest expense
    
    
    
    
    
    
    
    
    
    
    (2,214
    )
    
    
    (2,214
    )Income (loss) before income taxes
    
    
    23,959
    
    
    
    4,552
    
    
    
    (1,642
    )
    
    
    26,869Income tax expense (benefit)
    
    
    7,658
    
    
    
    1,627
    
    
    
    (749
    )
    
    
    8,536Net income (loss)
    
    $
    16,301
    
    
    $
    2,925
    
    
    $
    (893
    )
    
    $
    18,333Identifiable assets (1)
    
    $
    2,050,833
    
    
    $
    855,348
    
    
    $
    50,276
    
    
    $
    2,961,996Loss and LAE ratio
    
    
    56.1
    %
    
    
    54.7
    %
    
    
    
    
    
    
    55.7
    %Commission expense ratio
    
    
    11.6
    %
    
    
    12.8
    %
    
    
    
    
    
    
    11.9
    %Other operating expense ratio (2)
    
    
    18.8
    %
    
    
    22.8
    %
    
    
    
    
    
    
    19.8
    %Combined ratio
    
    
    86.5
    %
    
    
    90.3
    %
    
    
    
    
    
    
    87.4
    %
 
 (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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##### Table of Contents



Nine Months Ended September 30, 2007Insurance
    
    
    LloydsCompanies
    
    
    Operations
    
    
    Corporate
    
    
    Total($ in thousands)Gross written premium
    
    $
    585,492
    
    
    $
    237,879
    
    
    
    
    
    
    $
    823,371Net written premium
    
    
    355,798
    
    
    
    137,673
    
    
    
    
    
    
    
    493,471Net earned premium
    
    
    320,607
    
    
    
    120,094
    
    
    
    
    
    
    
    440,701Net losses and LAE
    
    
    (184,881
    )
    
    
    (64,069
    )
    
    
    
    
    
    
    (248,950
    )Commission expense
    
    
    (38,072
    )
    
    
    (16,353
    )
    
    
    
    
    
    
    (54,425
    )Other operating expenses
    
    
    (60,983
    )
    
    
    (21,816
    )
    
    
    
    
    
    
    (82,799
    )Commission income and other income (expense)
    
    
    889
    
    
    
    96
    
    
    
    
    
    
    
    985Underwriting profit
    
    
    37,560
    
    
    
    17,952
    
    
    
    
    
    
    
    55,512Net investment income
    
    
    42,910
    
    
    
    7,167
    
    
    $
    1,399
    
    
    
    51,476Net realized capital gains (losses)
    
    
    1,118
    
    
    
    (143
    )
    
    
    
    
    
    
    975Interest expense
    
    
    
    
    
    
    
    
    
    
    (6,646
    )
    
    
    (6,646
    )Income (loss) before income taxes
    
    
    81,588
    
    
    
    24,976
    
    
    
    (5,247
    )
    
    
    101,317Income tax expense (benefit)
    
    
    25,267
    
    
    
    8,806
    
    
    
    (1,836
    )
    
    
    32,237Net income (loss)
    
    $
    56,321
    
    
    $
    16,170
    
    
    $
    (3,411
    )
    
    $
    69,080Identifiable assets (1)
    
    $
    2,292,811
    
    
    $
    793,661
    
    
    $
    65,950
    
    
    $
    3,174,992Loss and LAE ratio
    
    
    57.7
    %
    
    
    53.3
    %
    
    
    
    
    
    
    56.5
    %Commission expense ratio
    
    
    11.9
    %
    
    
    13.6
    %
    
    
    
    
    
    
    12.3
    %Other operating expense ratio (2)
    
    
    18.7
    %
    
    
    18.1
    %
    
    
    
    
    
    
    18.6
    %Combined ratio
    
    
    88.3
    %
    
    
    85.0
    %
    
    
    
    
    
    
    87.4
    %
 
 (1)
    
    Includes inter-segment transactions causing the row not to crossfoot.(2)
    
    Includes other operating expensesand commission income and other income (expense).  14




---



##### Table of Contents



Nine Months Ended September 30, 2006Insurance
    
    
    LloydsCompanies
    
    
    Operations
    
    
    Corporate
    
    
    Total($ in thousands)Gross written premium
    
    $
    496,216
    
    
    $
    241,600
    
    
    
    
    
    
    $
    737,816Net written premium
    
    
    273,277
    
    
    
    118,434
    
    
    
    
    
    
    
    391,711Net earned premium
    
    
    231,334
    
    
    
    102,625
    
    
    
    
    
    
    
    333,959Net losses and LAE
    
    
    (135,556
    )
    
    
    (57,644
    )
    
    
    
    
    
    
    (193,200
    )Commission expense
    
    
    (24,925
    )
    
    
    (16,173
    )
    
    
    
    
    
    
    (41,098
    )Other operating expenses
    
    
    (44,096
    )
    
    
    (16,922
    )
    
    
    
    
    
    
    (61,018
    )Commission income and other income (expense)
    
    
    2,661
    
    
    
    (850
    )
    
    
    
    
    
    
    1,811Underwriting profit
    
    
    29,418
    
    
    
    11,036
    
    
    
    
    
    
    
    40,454Net investment income
    
    
    34,778
    
    
    
    5,448
    
    
    $
    1,018
    
    
    
    41,244Net realized capital (losses)
    
    
    (329
    )
    
    
    (438
    )
    
    
    
    
    
    
    (767
    )Interest expense
    
    
    
    
    
    
    
    
    
    
    (4,034
    )
    
    
    (4,034
    )Income (loss) before income taxes
    
    
    63,867
    
    
    
    16,046
    
    
    
    (3,016
    )
    
    
    76,897Income tax expense (benefit)
    
    
    20,442
    
    
    
    5,650
    
    
    
    (1,151
    )
    
    
    24,941Net income (loss)
    
    $
    43,425
    
    
    $
    10,396
    
    
    $
    (1,865
    )
    
    $
    51,956Identifiable assets (1)
    
    $
    2,050,833
    
    
    $
    855,348
    
    
    $
    50,276
    
    
    $
    2,961,996Loss and LAE ratio
    
    
    58.6
    %
    
    
    56.2
    %
    
    
    
    
    
    
    57.9
    %Commission expense ratio
    
    
    10.8
    %
    
    
    15.8
    %
    
    
    
    
    
    
    12.3
    %Other operating expense ratio (2)
    
    
    17.9
    %
    
    
    17.3
    %
    
    
    
    
    
    
    17.7
    %Combined ratio
    
    
    87.3
    %
    
    
    89.3
    %
    
    
    
    
    
    
    87.9
    %
 
 (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




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##### 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
  16




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##### Table of Contents



The Fair Value Option for Financial Assets and
Financial Liabilities
 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




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##### 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




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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.
   Deferred Tax Assets.
  24




---



##### Table of Contents



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
        Revenues . Lloyds Operations Gross
Written Premium
  26




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27




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##### Table of Contents



Three Months Ended September 30,2007
    
    
    2006Gross
    
    
    
    
    
    
    Net
    
    
    Net
    
    
    Gross
    
    
    
    
    
    
    Net
    
    
    NetWritten
    
    
    
    
    
    
    Written
    
    
    Earned
    
    
    Written
    
    
    
    
    
    
    Written
    
    
    EarnedPremium
    
    
    %
    
    
    Premium
    
    
    Premium
    
    
    Premium
    
    
    %
    
    
    Premium
    
    
    Premium($ in thousands)Insurance Companies:Marine
    
    $
    53,040
    
    
    
    21.5
    %
    
    $
    24,207
    
    
    $
    29,520
    
    
    $
    54,116
    
    
    
    24.3
    %
    
    $
    24,566
    
    
    $
    29,291Specialty
    
    
    95,627
    
    
    
    38.9
    %
    
    
    68,441
    
    
    
    62,796
    
    
    
    85,675
    
    
    
    38.7
    %
    
    
    52,923
    
    
    
    45,234Professional Liability
    
    
    24,546
    
    
    
    10.0
    %
    
    
    14,447
    
    
    
    14,184
    
    
    
    22,848
    
    
    
    10.3
    %
    
    
    13,450
    
    
    
    10,938Other
    
    
    4,845
    
    
    
    2.0
    %
    
    
    2,582
    
    
    
    2,560
    
    
    
    1,034
    
    
    
    0.5
    %
    
    
    249
    
    
    
    31Insurance Companies Total
    
    
    178,058
    
    
    
    72.4
    %
    
    
    109,677
    
    
    
    109,060
    
    
    
    163,673
    
    
    
    73.8
    %
    
    
    91,188
    
    
    
    85,494Lloyds Operations:Marine
    
    
    50,060
    
    
    
    20.3
    %
    
    
    37,373
    
    
    
    41,607
    
    
    
    44,962
    
    
    
    20.3
    %
    
    
    23,743
    
    
    
    29,126Professional Liability
    
    
    9,639
    
    
    
    3.9
    %
    
    
    8,692
    
    
    
    4,587
    
    
    
    9,015
    
    
    
    4.1
    %
    
    
    3,381
    
    
    
    1,525Other
    
    
    8,204
    
    
    
    3.4
    %
    
    
    3,360
    
    
    
    784
    
    
    
    3,803
    
    
    
    1.7
    %
    
    
    725
    
    
    
    (449
    )Lloyds Operations Total
    
    
    67,903
    
    
    
    27.6
    %
    
    
    49,425
    
    
    
    46,978
    
    
    
    57,780
    
    
    
    26.1
    %
    
    
    27,849
    
    
    
    30,202Intercompany elimination
    
    
    
    
    
    
    0.0
    %
    
    
    
    
    
    
    
    
    
    
    214
    
    
    
    0.1
    %
    
    
    
    
    
    
    Total
    
    $
    245,961
    
    
    
    100.0
    %
    
    $
    159,102
    
    
    $
    156,038
    
    
    $
    221,667
    
    
    
    100.0
    %
    
    $
    119,037
    
    
    $
    115,696
  28




---



##### Table of Contents



Nine Months Ended September 30,2007
    
    
    2006Gross
    
    
    
    
    
    
    Net
    
    
    Net
    
    
    Gross
    
    
    
    
    
    
    Net
    
    
    NetWritten
    
    
    
    
    
    
    Written
    
    
    Earned
    
    
    Written
    
    
    
    
    
    
    Written
    
    
    EarnedPremium
    
    
    %
    
    
    Premium
    
    
    Premium
    
    
    Premium
    
    
    %
    
    
    Premium
    
    
    Premium($ in thousands)Insurance Companies:Marine
    
    $
    205,296
    
    
    
    24.9
    %
    
    $
    105,453
    
    
    $
    96,531
    
    
    $
    209,928
    
    
    
    28.5
    %
    
    $
    101,891
    
    
    $
    80,679Specialty
    
    
    289,383
    
    
    
    35.2
    %
    
    
    194,109
    
    
    
    175,326
    
    
    
    219,843
    
    
    
    29.8
    %
    
    
    136,246
    
    
    
    121,133Professional Liability
    
    
    69,379
    
    
    
    8.4
    %
    
    
    41,406
    
    
    
    40,555
    
    
    
    65,164
    
    
    
    8.8
    %
    
    
    34,894
    
    
    
    29,494Other
    
    
    21,434
    
    
    
    2.6
    %
    
    
    14,830
    
    
    
    8,195
    
    
    
    1,281
    
    
    
    0.2
    %
    
    
    246
    
    
    
    28Insurance Companies Total
    
    
    585,492
    
    
    
    71.1
    %
    
    
    355,798
    
    
    
    320,607
    
    
    
    496,216
    
    
    
    67.3
    %
    
    
    273,277
    
    
    
    231,334Lloyds Operations:Marine
    
    
    183,661
    
    
    
    22.3
    %
    
    
    109,899
    
    
    
    103,953
    
    
    
    202,074
    
    
    
    27.4
    %
    
    
    107,026
    
    
    
    99,029Professional Liability
    
    
    25,651
    
    
    
    3.1
    %
    
    
    18,201
    
    
    
    9,498
    
    
    
    16,104
    
    
    
    2.1
    %
    
    
    6,326
    
    
    
    2,130Other
    
    
    28,567
    
    
    
    3.5
    %
    
    
    9,573
    
    
    
    6,643
    
    
    
    23,422
    
    
    
    3.2
    %
    
    
    5,082
    
    
    
    1,466Lloyds Operations Total
    
    
    237,879
    
    
    
    28.9
    %
    
    
    137,673
    
    
    
    120,094
    
    
    
    241,600
    
    
    
    32.7
    %
    
    
    118,434
    
    
    
    102,625Intercompany elimination
    
    
    
    
    
    
    0.0
    %
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    0.0
    %
    
    
    
    
    
    
    Total
    
    $
    823,371
    
    
    
    100.0
    %
    
    $
    493,471
    
    
    $
    440,701
    
    
    $
    737,816
    
    
    
    100.0
    %
    
    $
    391,711
    
    
    $
    333,959
  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 September 30,2007
    
    
    2006% of
    
    
    
    
    
    
    % ofCeded
    
    
    Gross
    
    
    Ceded
    
    
    GrossWritten
    
    
    Written
    
    
    Written
    
    
    WrittenPremium
    
    
    Premium
    
    
    Premium
    
    
    Premium($ in thousands)Insurance Companies:Marine
    
    $
    28,833
    
    
    
    54.4
    %
    
    $
    29,550
    
    
    
    54.6
    %Specialty
    
    
    27,186
    
    
    
    28.4
    %
    
    
    32,752
    
    
    
    38.2
    %Professional Liability
    
    
    10,099
    
    
    
    41.1
    %
    
    
    9,398
    
    
    
    41.1
    %Other
    
    
    2,263
    
    
    NM
    
    
    785
    
    
    NMSubtotal
    
    
    68,381
    
    
    
    38.4
    %
    
    
    72,485
    
    
    
    44.3
    %Lloyds Operations:Marine
    
    
    12,687
    
    
    
    25.3
    %
    
    
    21,219
    
    
    
    47.2
    %Professional Liability
    
    
    947
    
    
    
    9.8
    %
    
    
    5,634
    
    
    
    62.5
    %Other
    
    
    4,844
    
    
    
    59.0
    %
    
    
    3,078
    
    
    
    80.9
    %Subtotal
    
    
    18,478
    
    
    
    27.2
    %
    
    
    29,931
    
    
    
    51.8
    %Intercompany elimination
    
    
    
    
    
    NM
    
    
    214
    
    

   NMTotal
    
    $
    86,859
    
    
    
    35.3
    %
    
    $
    102,630
    
    
    
    46.3
    %
   32




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##### Table of Contents



Nine Months Ended September 30,2007
    
    

    2006% of
    
    
    
    
    
    
    % ofCeded
    
    
    Gross
    
    
    Ceded
    
    
    GrossWritten
    
    
    Written
    
    
    Written
    
    
    WrittenPremium
    
    
    Premium
    
    
    Premium
    
    
    Premium($ in thousands)Insurance Companies:Marine
    
    $
    99,843
    
    
    
    48.6
    %
    
    $
    108,037
    
    
    
    51.5
    %Specialty
    
    
    95,274
    
    
    
    32.9
    %
    
    
    83,597
    
    
    
    38.0
    %Professional Liability
    
    
    27,973
    
    
    
    40.3
    %
    
    
    30,270
    
    
    
    46.5
    %Other
    
    
    6,604
    
    
    
    30.8
    %
    
    
    1,035
    
    
    
    80.8
    %Subtotal
    
    
    229,694
    
    
    
    39.2
    %
    
    
    222,939
    
    
    
    44.9
    %Lloyds Operations:Marine
    
    
    73,762
    
    
    
    40.2
    %
    
    
    95,048
    
    
    
    47.0
    %Professional Liability
    
    
    7,450
    
    
    
    29.0
    %
    
    
    9,778
    
    
    
    60.7
    %Other
    
    
    18,994
    
    
    
    66.5
    %
    
    
    18,340
    
    
    
    78.3
    %Subtotal
    
    
    100,206
    
    
    
    42.1
    %
    
    
    123,166
    
    
    
    51.0
    %Intercompany elimination
    
    
    
    
    
    NM
    
    
    
    
    
    NMTotal
    
    $
    329,900
    
    
    
    40.1
    %
    
    $
    346,105
    
    
    
    46.9
    %
   
    
    Modest reductions in the amounts of marine reinsurance ceded on a pro
rata basis by the Insurance Companies.
    
    Reductions in the amount of business ceded on a pro rata basis by the
Lloyds Operations coupled with reductions in reinsurer participation
in our Syndicate 1221 stamp capacity. The 2007 third quarter ceded
written premium of the Lloyds Operations was reduced by approximately
$6.4 million for ceded written premium amounts that were over
estimated in prior accounting periods mostly recorded during the six
months ended 2007. The estimate change which results in a higher
relationship of net premiums retained to gross written premium in the
2007 third quarter was not material to the current and prior quarterly
accounting periods.
    
    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. In addition, 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



September 30,
    
    
    December 31,2007
    
    
    2006($ in thousands)Gross reserves for losses and LAE
    
    $
    1,645,542
    
    
    $
    1,607,555Less: Reinsurance recoverable on unpaid
losses and LAE reserves
    
    
    837,545
    
    
    
    911,439Net loss and
LAE reserves
    
    $
    807,997
    
    
    $
    696,116
  September 30, 2007Net
    
    
    Net
    
    
    Total
    
    
    % of IBNRReported
    
    
    IBNR
    
    
    Net Loss
    
    
    to Total NetReserves
    
    
    Reserves
    
    
    Reserves
    
    
    Loss Reserves($ in thousands)Insurance Companies:Marine
    
    $
    90,345
    
    
    $
    100,760
    
    
    $
    191,105
    
    
    
    52.7
    %SpecialtyConstruction liability
    
    
    37,272
    
    
    
    201,172
    
    
    
    238,444
    
    
    
    84.4
    %All other liability
    
    
    24,436
    
    
    
    57,223
    
    
    
    81,659
    
    
    
    70.1
    %Total Specialty
    
    
    61,708
    
    
    
    258,395
    
    
    
    320,103
    
    
    
    80.7
    %Professional liability
    
    
    21,820
    
    
    
    46,299
    
    
    
    68,119
    
    
    
    68.0
    %Other
    
    
    12,615
    
    
    
    12,402
    
    
    
    25,017
    
    
    
    49.6
    %Total Insurance
Companies
    
    
    186,488
    
    
    
    417,856
    
    
    
    604,344
    
    
    
    69.1
    %Lloyds Operations:Marine
    
    
    81,582
    
    
    
    91,688
    
    
    
    173,270
    
    
    
    52.9
    %Other
    
    
    8,464
    
    
    
    21,919
    
    
    
    30,383
    
    
    
    72.1
    %Total Lloyds Operations
    
    
    90,046
    
    
    
    113,607
    
    
    
    203,653
    
    
    
    55.8
    %Total Company
    
    $
    276,534
    
    
    $
    531,463
    
    
    $
    807,997
    
    
    
    65.8
    %
  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
    %
     36




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##### Table of Contents



NineSeptember 30,
    
    
    December 31,
    
    
    Month2007
    
    
    2006
    
    
    Change($ in thousands)Reinsurance recoverables:Paid losses
    
    $
    84,043
    
    
    $
    108,878
    
    
    $
    (24,835
    )Unpaid losses and LAE
reserves
    
    
    837,545
    
    
    
    911,439
    
    
    
    (73,894
    )Total
    
    $
    921,588
    
    
    $
    1,020,317
    
    
    $
    (98,729
    )
         37




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##### Table of Contents



Asbestos Liability.
    38




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##### Table of Contents



Nine Months Ended
    
    
    Year EndedSeptember 30, 2007
    
    
    December 31, 2006($ in thousands)Gross of ReinsuranceBeginning gross reserves
    
    $
    37,171
    
    
    $
    56,838Incurred losses & LAE
    
    
    (91
    )
    
    
    246Calendar year payments
    
    
    13,169
    
    
    
    19,913Ending gross reserves
    
    $
    23,911
    
    
    $
    37,171Gross case loss reserves
    
    $
    16,031
    
    
    $
    29,291Gross IBNR loss reserves
    
    
    7,880
    
    
    
    7,880Ending gross reserves
    
    $
    23,911
    
    
    $
    37,171Net of ReinsuranceBeginning net reserves
    
    $
    21,381
    
    
    $
    30,372Incurred losses & LAE
    
    
    1,870
    
    
    
    229Calendar year payments
    
    
    5,816
    
    
    
    9,220Ending net reserves
    
    $
    17,435
    
    
    $
    21,381Net case loss reserves
    
    $
    9,732
    
    
    $
    13,678Net IBNR loss reserves
    
    
    7,703
    
    
    
    7,703Ending net reserves
    
    $
    17,435
    
    
    $
    21,381
     39




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##### Table of Contents



Hurricanes Katrina and Rita.
  Nine Months Ended
    
    
    Year EndedSeptember 30, 2007
    
    
    December 31, 2006($ in thousands)Gross of ReinsuranceBeginning gross reserves
    
    $
    319,230
    
    
    $
    465,728Incurred loss & LAE
    
    
    (15,004
    )
    
    
    Calendar year payments
    
    
    115,885
    
    
    
    146,498Ending gross reserves
    
    $
    188,341
    
    
    $
    319,230Gross case loss reserves
    
    $
    75,938
    
    
    $
    172,916Gross IBNR loss reserves
    
    
    112,403
    
    
    
    146,314Ending gross reserves
    
    $
    188,341
    
    
    $
    319,230Net of ReinsuranceBeginning net reserves
    
    $
    10,003
    
    
    $
    19,408Incurred loss & LAE
    
    
    (1,154
    )
    
    
    Calendar year payments
    
    
    3,524
    
    
    
    9,405Ending net reserves
    
    $
    5,325
    
    
    $
    10,003Net case loss reserves
    
    $
    1,103
    
    
    $
    3,628Net IBNR loss reserves
    
    
    4,222
    
    
    
    6,375Ending net reserves
    
    $
    5,325
    
    
    $
    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
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2007
    
    
    2006
    
    
    2007
    
    
    2006($ in thousands)Gross written premium
    
    $
    178,058
    
    
    $
    163,673
    
    
    $
    585,492
    
    
    $
    496,216Net written premium
    
    
    109,677
    
    
    
    91,188
    
    
    
    355,798
    
    
    
    273,277Net earned premium
    
    
    109,060
    
    
    
    85,494
    
    
    
    320,607
    
    
    
    231,334Net losses and LAE
    
    
    (59,816
    )
    
    
    (47,926
    )
    
    
    (184,881
    )
    
    
    (135,556
    )Commission expense
    
    
    (13,086
    )
    
    
    (9,889
    )
    
    
    (38,072
    )
    
    
    (24,925
    )Other operating expenses
    
    
    (21,157
    )
    
    
    (16,697
    )
    
    
    (60,983
    )
    
    
    (44,096
    )Commission income and other income (expense)
    
    
    304
    
    
    
    661
    
    
    
    889
    
    
    
    2,661Underwriting profit
    
    
    15,305
    
    
    
    11,643
    
    
    
    37,560
    
    
    
    29,418Net investment income
    
    
    14,816
    
    
    
    12,345
    
    
    
    42,910
    
    
    
    34,778Net realized capital gains (losses)
    
    
    41
    
    
    
    (29
    )
    
    
    1,118
    
    
    
    (329
    )Income before income taxes
    
    
    30,162
    
    
    
    23,959
    
    
    
    81,588
    
    
    
    63,867Income tax expense
    
    
    9,193
    
    
    
    7,658
    
    
    
    25,267
    
    
    
    20,442Net income
    
    $
    20,969
    
    
    $
    16,301
    
    
    $
    56,321
    
    
    $
    43,425Loss and LAE ratio
    
    
    54.8
    %
    
    
    56.1
    %
    
    
    57.7
    %
    
    
    58.6
    %Commission expense ratio
    
    
    12.0
    %
    
    
    11.6
    %
    
    
    11.9
    %
    
    
    10.8
    %Other operating expense ratio (1)
    
    
    19.1
    %
    
    
    18.8
    %
    
    
    18.7
    %
    
    
    17.9
    %Combined ratio
    
    
    85.9
    %
    
    
    86.5
    %
    
    
    88.3
    %
    
    
    87.3
    %
 (1)
    
    Includes other operating expensesand commission income and other income (expense).
  43




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##### Table of Contents



Three Months Ended September 30, 2007($ in thousands)Net
    
    
    LossesEarned
    
    
    and LAE
    
    
    Underwriting
    
    
    Underwriting
    
    
    Combined RatioPremium
    
    
    Incurred
    
    
    Expenses
    
    
    Profit/(Loss)
    
    
    Loss
    
    
    Expense
    
    
    TotalMarine
    
    $
    29,520
    
    
    $
    19,239
    
    
    $
    9,767
    
    
    $
    514
    
    
    
    65.2
    %
    
    
    33.1
    %
    
    
    98.3
    %Specialty
    
    
    62,796
    
    
    
    30,153
    
    
    
    17,338
    
    
    
    15,305
    
    
    
    48.0
    %
    
    
    27.6
    %
    
    
    75.6
    %Professional
Liability
    
    
    14,184
    
    
    
    8,764
    
    
    
    5,217
    
    
    
    203
    
    
    
    61.8
    %
    
    
    36.8
    %
    
    
    98.6
    %Other
    
    
    2,560
    
    
    
    1,660
    
    
    
    1,617
    
    
    
    (717
    )
    
    NM
    
    
    NM
    
    
    NMTotal
    
    $
    109,060
    
    
    $
    59,816
    
    
    $
    33,939
    
    
    $
    15,305
    
    
    
    54.8
    %
    
    
    31.1
    %
    
    
    85.9
    %
 Three Months Ended September 30, 2006($ in thousands)Net
    
    
    LossesEarned
    
    
    and LAE
    
    
    Underwriting
    
    
    Underwriting
    
    
    Combined RatioPremium
    
    
    Incurred
    
    
    Expenses
    
    
    Profit/(Loss)
    
    
    Loss
    
    
    Expense
    
    
    TotalMarine
    
    $
    29,291
    
    
    $
    17,064
    
    
    $
    8,696
    
    
    $
    3,531
    
    
    
    58.3
    %
    
    
    29.7
    %
    
    
    88.0
    %Specialty
    
    
    45,234
    
    
    
    24,216
    
    
    
    13,713
    
    
    
    7,305
    
    
    
    53.5
    %
    
    
    30.3
    %
    
    
    83.8
    %Professional
Liability
    
    
    10,938
    
    
    
    6,417
    
    
    
    3,615
    
    
    
    906
    
    
    
    58.7
    %
    
    
    33.1
    %
    
    
    91.8
    %Other
    
    
    31
    
    
    
    229
    
    
    
    (99
    )
    
    
    (99
    )
    
    NM
    
    
    NM
    
    
    NMTotal
    
    $
    85,494
    
    
    $
    47,926
    
    
    $
    25,925
    
    
    $
    11,643
    
    
    
    56.1
    %
    
    
    30.4
    %
    
    
    86.5
    %
  44




---



##### Table of Contents



Nine Months Ended September 30, 2007($ in thousands)Net
    
    
    LossesEarned
    
    
    and LAE
    
    
    Underwriting
    
    
    Underwriting
    
    
    Combined RatioPremium
    
    
    Incurred
    
    
    Expenses
    
    
    Profit(Loss)
    
    
    Loss
    
    
    Expense
    
    
    TotalMarine
    
    $
    96,531
    
    
    $
    57,116
    
    
    $
    28,488
    
    
    $
    10,927
    
    
    
    59.2
    %
    
    
    29.5
    %
    
    
    88.7
    %Specialty
    
    
    175,326
    
    
    
    95,226
    
    
    
    49,869
    
    
    
    30,231
    
    
    
    54.3
    %
    
    
    28.4
    %
    
    
    82.7
    %Professional
Liability
    
    
    40,555
    
    
    
    24,989
    
    
    
    14,870
    
    
    
    696
    
    
    
    61.6
    %
    
    
    36.6
    %
    
    
    98.2
    %Other
    
    
    8,195
    
    
    
    7,550
    
    
    
    4,939
    
    
    
    (4,294
    )
    
    NM
    
    
    NM
    
    
    NMTotal
    
    $
    320,607
    
    
    $
    184,881
    
    
    $
    98,166
    
    
    $
    37,560
    
    
    
    57.7
    %
    
    
    30.6
    %
    
    
    88.3
    %
 Nine Months Ended September 30, 2006($ in thousands)Net
    
    
    LossesEarned
    
    
    and LAE
    
    
    Underwriting
    
    
    Underwriting
    
    
    Combined RatioPremium
    
    
    Incurred
    
    
    Expenses
    
    
    Profit(Loss)
    
    
    Loss
    
    
    Expense
    
    
    TotalMarine
    
    $
    80,679
    
    
    $
    47,609
    
    
    $
    22,038
    
    
    $
    11,032
    
    
    
    59.0
    %
    
    
    27.3
    %
    
    
    86.3
    %Specialty
    
    
    121,133
    
    
    
    69,177
    
    
    
    35,312
    
    
    
    16,644
    
    
    
    57.1
    %
    
    
    29.2
    %
    
    
    86.3
    %Professional
Liability
    
    
    29,494
    
    
    
    18,715
    
    
    
    9,076
    
    
    
    1,703
    
    
    
    63.5
    %
    
    
    30.8
    %
    
    
    94.3
    %Other
    
    
    28
    
    
    
    55
    
    
    
    (66
    )
    
    
    39
    
    
    NM
    
    
    NM
    
    
    NMTotal
    
    $
    231,334
    
    
    $
    135,556
    
    
    $
    66,360
    
    
    $
    29,418
    
    
    
    58.6
    %
    
    
    28.7
    %
    
    
    87.3
    %
  other
   45




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##### Table of Contents



Lloyds Operations
     Liquidity and Capital Resources
   46




---



##### Table of Contents



Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2007
    
    
    2006
    
    
    2007
    
    
    2006($ in thousands)Gross written premium
    
    $
    67,903
    
    
    $
    57,780
    
    
    $
    237,879
    
    
    $
    241,600Net written premium
    
    
    49,425
    
    
    
    27,849
    
    
    
    137,673
    
    
    
    118,434Net earned premium
    
    
    46,978
    
    
    
    30,202
    
    
    
    120,094
    
    
    
    102,625Net losses and LAE
    
    
    (28,203
    )
    
    
    (16,530
    )
    
    
    (64,069
    )
    
    
    (57,644
    )Commission expense
    
    
    (6,590
    )
    
    
    (3,880
    )
    
    
    (16,353
    )
    
    
    (16,173
    )Other operating expenses
    
    
    (6,745
    )
    
    
    (5,986
    )
    
    
    (21,816
    )
    
    
    (16,922
    )Commission income and other income (expense)
    
    
    111
    
    
    
    (906
    )
    
    
    96
    
    
    
    (850
    )Underwriting profit
    
    
    5,551
    
    
    
    2,900
    
    
    
    17,952
    
    
    
    11,036Net investment income
    
    
    2,609
    
    
    
    1,774
    
    
    
    7,167
    
    
    
    5,448Net realized capital gains (losses)
    
    
    (107
    )
    
    
    (122
    )
    
    
    (143
    )
    
    
    (438
    )Income before income taxes
    
    
    8,053
    
    
    
    4,552
    
    
    
    24,976
    
    
    
    16,046Income tax expense
    
    
    2,877
    
    
    
    1,627
    
    
    
    8,806
    
    
    
    5,650Net income
    
    $
    5,176
    
    
    $
    2,925
    
    
    $
    16,170
    
    
    $
    10,396Loss and LAE ratio
    
    
    60.0
    %
    
    
    54.7
    %
    
    
    53.3
    %
    
    
    56.2
    %Commission expense ratio
    
    
    14.0
    %
    
    
    12.8
    %
    
    
    13.6
    %
    
    
    15.8
    %Other operating expense ratio (1)
    
    
    14.1
    %
    
    
    22.8
    %
    
    
    18.1
    %
    
    
    17.3
    %Combined ratio
    
    
    88.1
    %
    
    
    90.3
    %
    
    
    85.0
    %
    
    
    89.3
    %
 (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
    
    
    AmortizedSeptember 30, 2007
    
    Value
    
    
    Gains
    
    
    (Losses)
    
    
    Cost($ in thousands)Fixed maturities:U.S. Government Treasury Bonds,
GNMAs and foreign government bonds
    
    $
    205,074
    
    
    $
    1,697
    
    
    $
    (1,381
    )
    
    $
    204,758States, municipalities and political
Subdivisions
    
    
    498,186
    
    
    
    3,612
    
    
    
    (1,803
    )
    
    
    496,377Mortgage- and asset-backed securities
(excluding GNMAs)
    
    
    541,847
    
    
    
    1,141
    
    
    
    (6,132
    )
    
    
    546,838Corporate bonds
    
    
    209,577
    
    
    
    1,525
    
    
    
    (2,433
    )
    
    
    210,485Total fixed maturities
    
    
    1,454,684
    
    
    
    7,975
    
    
    
    (11,749
    )
    
    
    1,458,458Equity securities  common stocks
    
    
    63,858
    
    
    
    7,559
    
    
    
    (1,398
    )
    
    
    57,697Cash
    
    
    4,906
    
    
    
    
    
    
    
    
    
    
    
    4,906Short-term investments
    
    
    215,117
    
    
    
    
    
    
    
    
    
    
    
    215,117Total
    
    $
    1,738,565
    
    
    $
    15,534
    
    
    $
    (13,147
    )
    
    $
    1,736,178
 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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##### Table of Contents



September 30, 2007
    
    
    December 31, 2006Fair
    
    
    GrossUnrealized
    
    
    Fair
    
    
    GrossUnrealizedValue
    
    
    Loss
    
    
    Value
    
    
    Loss($ in thousands)Fixed Maturities:U.S. Government Treasury Bonds, GNMAs and foreign
government bonds0-6 Months
    
    $
    4,417
    
    
    $
    10
    
    
    $
    34,085
    
    
    $
    5867-12 Months
    
    
    16,741
    
    
    
    250
    
    
    
    20,806
    
    
    
    86> 12 Months
    
    
    43,490
    
    
    
    1,121
    
    
    
    69,424
    
    
    
    1,414Subtotal
    
    
    64,648
    
    
    
    1,381
    
    
    
    124,315
    
    
    
    2,086States, municipalities and
political subdivisions0-6 Months
    
    
    44,938
    
    
    
    277
    
    
    
    57,747
    
    
    
    3167-12 Months
    
    
    53,709
    
    
    
    289
    
    
    
    6,661
    
    
    
    80> 12 Months
    
    
    107,220
    
    
    
    1,237
    
    
    
    118,917
    
    
    
    1,949Subtotal
    
    
    205,867
    
    
    
    1,803
    
    
    
    183,325
    
    
    
    2,345Mortgage- and asset-backed securities (excluding GNMAs)0-6 Months
    
    
    109,219
    
    
    
    547
    
    
    
    174,270
    
    
    
    9217-12 Months
    
    
    142,789
    
    
    
    2,370
    
    
    
    10,444
    
    
    
    65> 12 Months
    
    
    158,289
    
    
    
    3,215
    
    
    
    184,515
    
    
    
    3,502Subtotal
    
    
    410,297
    
    
    
    6,132
    
    
    
    369,229
    
    
    
    4,488Corporate bonds0-6 Months
    
    
    48,968
    
    
    
    787
    
    
    
    27,719
    
    
    
    1857-12 Months
    
    
    13,041
    
    
    
    466
    
    
    
    15,503
    
    
    
    224> 12 Months
    
    
    65,437
    
    
    
    1,180
    
    
    
    66,014
    
    
    
    1,541Subtotal
    
    
    127,446
    
    
    
    2,433
    
    
    
    109,236
    
    
    
    1,950Total Fixed Maturities
    
    $
    808,258
    
    
    $
    11,749
    
    
    $
    786,105
    
    
    $
    10,869Equity securities  common stocks0-6 Months
    
    $
    17,223
    
    
    $
    1,257
    
    
    $
    3,265
    
    
    $
    1587-12 Months
    
    
    905
    
    
    
    128
    
    
    
    800
    
    
    
    72> 12 Months
    
    
    304
    
    
    
    13
    
    
    
    782
    
    
    
    118Total Equity Securities
    
    $
    18,432
    
    
    $
    1,398
    
    
    $
    4,847
    
    
    $
    348
   52




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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
    
    $
    10,956
    
    
    
    93
    %
    
    $
    770,130
    
    
    
    95
    %2
    
    BBB
    
    Baa
    
    
    785
    
    
    
    7
    %
    
    
    37,884
    
    
    
    5
    %3
    
    BB
    
    Ba
    
    
    8
    
    
    
    
    
    
    
    244
    
    
    
    4
    
    B
    
    B
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5
    
    CCC or lower
    
    Caa or lower
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    6
    
    N/A
    
    N/A
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total
    
    
    
    $
    11,749
    
    
    
    100
    %
    
    $
    808,258
    
    
    
    100
    %
   GrossUnrealized Loss
    
    
    Fair ValuePercent
    
    
    
    
    
    
    PercentAmount
    
    
    of Total
    
    
    Amount
    
    
    of Total($ in thousands)Due in one year or less
    
    $
    123
    
    
    
    1
    %
    
    $
    27,115
    
    
    
    3
    %Due after one year through five years
    
    
    1,506
    
    
    
    13
    %
    
    
    141,102
    
    
    
    17
    %Due after five years through ten years
    
    
    1,653
    
    
    
    14
    %
    
    
    102,022
    
    
    
    13
    %Due after ten years
    
    
    2,335
    
    
    
    20
    %
    
    
    127,722
    
    
    
    16
    %Mortgage- and asset-backed securities
    
    
    6,132
    
    
    
    52
    %
    
    
    410,297
    
    
    
    51
    %Total fixed income securities
    
    $
    11,749
    
    
    
    100
    %
    
    $
    808,258
    
    
    
    100
    %
   53




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##### Table of Contents



Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2007
    
    
    2006
    
    
    2007
    
    
    2006($ in thousands)Fixed maturities:Gains
    
    $
    23
    
    
    $
    8
    
    
    $
    500
    
    
    $
    349(Losses)
    
    
    (816
    )
    
    
    (198
    )
    
    
    (1,535
    )
    
    
    (1,605
    )(793
    )
    
    
    (190
    )
    
    
    (1,035
    )
    
    
    (1,256
    )Equity securities:Gains
    
    
    888
    
    
    
    41
    
    
    
    2,285
    
    
    
    525(Losses)
    
    
    (161
    )
    
    
    (2
    )
    
    
    (275
    )
    
    
    (36
    )727
    
    
    
    39
    
    
    
    2,010
    
    
    
    489Net realized capital gains (losses)
    
    $
    (66
    )
    
    $
    (151
    )
    
    $
    975
    
    
    $
    (767
    )
  # of MonthsUnrealized LossNet
    
    
    Exceeded 20%Date of
    
    
    Proceeds
    
    
    (Loss) on
    
    
    
    
    
    
    Holdings at
    
    
    Unrealized
    
    
    of Cost orDescription
    
    Sale
    
    
    from Sale
    
    
    Sale
    
    
    Impairment
    
    
    September 30, 2007
    
    
    (Loss)
    
    
    Amortized Cost($ in thousands)Nine months ended September 30, 2007 and 2006:CAPMARK Financial GP (1)
    
    
    8/22/2007
    
    
    $
    1,614
    
    
    
    ($330
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    TIPS (2)
    
    
    3/31/2007
    
    
    $
    5,823
    
    
    
    ($335
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    TIPS (2)
    
    
    3/31/2006
    
    
    $
    15,418
    
    
    
    ($305
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
 
 (1)
    
    CAPMARK Financial Group securities were sold due to credit concerns.(2)
    
    Treasury inflation protection securities (TIPS) were sold during the 2007 and 2006
and 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




---



##### Table of Contents



56




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##### Table of Contents



September 30,
    
    
    December 31,2007
    
    
    2006($ in thousands)Senior debt
    
    $
    123,644
    
    
    $
    123,560Stockholders equity
    
    
    626,476
    
    
    
    551,343Total capitalization
    
    $
    750,120
    
    
    $
    674,903Ratio of debt to total capitalization
    
    
    16.5
    %
    
    
    18.3
    %
      57




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##### Table of Contents



September 30,
    
    
    December 31,2007
    
    
    2006($ in thousands)Cash and investments
    
    $
    43,684
    
    
    $
    32,308Investments in subsidiaries
    
    
    701,369
    
    
    
    634,299Goodwill and other intangible assets
    
    
    2,534
    
    
    
    2,534Other assets
    
    
    8,428
    
    
    
    12,939Total assets
    
    $
    756,015
    
    
    $
    682,080Accounts payable and other liabilities
    
    $
    1,150
    
    
    $
    1,590Accrued interest payable
    
    
    3,646
    
    
    
    1,458Deferred compensation payable
    
    
    1,099
    
    
    
    4,1297% Senior Notes due May 1, 2016
    
    
    123,644
    
    
    
    123,560Total liabilities
    
    
    129,539
    
    
    
    130,737Stockholders equity
    
    
    626,476
    
    
    
    551,343Total liabilities and stockholders equity
    
    $
    756,015
    
    
    $
    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 third 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




---



##### Table of Contents



Item 4. Submissions of Matters to a Vote of Security Holders
  
 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




---



##### Table of Contents



The Navigators Group, Inc.(Registrant)Date: October 31, 2007
    
    /s / Paul J. Malvasio

Paul J. MalvasioExecutive Vice Presidentand 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