2.2.0.25falsefalse0205 - Disclosure - Reserves For Losses And Loss Adjustment Expensestruefalsefalse1falsefalseUSDfalsefalse1/1/2010 - 12/31/2010
USD ($)
USD ($) / shares
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<!-- Begin Block Tagged Note 5 - navg:ReservesForLossesAndLossAdjustmentExpensesTextBlock-->
<div style="font-family: 'Times New Roman',Times,serif; margin-left: 0in; ">
<div align="justify" style="font-size: 10pt; margin-top: 10pt"><b>Note 5. Reserves for Losses and Loss Adjustment Expenses</b>
</div>
<div align="justify" style="font-size: 10pt; margin-top: 10pt">Insurance companies and Lloyd’s syndicates are required to maintain reserves for unpaid losses and
unpaid loss adjustment expenses for all lines of business. These reserves are intended to cover
the probable ultimate cost of settling all losses incurred and unpaid, including those incurred but
not reported. The determination of reserves for losses and LAE for insurance companies such as
Navigators Insurance Company and Navigators Specialty Insurance Company, and Lloyd’s corporate
members such as Navigators Corporate Underwriters Ltd. is dependent upon the receipt of information
from the agents and brokers which produce the insurance business for us. Generally, there is a lag
between the time premiums are written and related losses and loss adjustment expenses are incurred,
and the time such events are reported to the agents and brokers and, subsequently, to Navigators
Insurance Company, Navigators Specialty Insurance Company, Navigators Corporate Underwriters Ltd.
and Millennium Underwriting Ltd.
</div>
<div align="justify" style="font-size: 10pt; margin-top: 10pt">Case reserves are established by our Insurance Companies and Syndicate 1221 for reported claims
when notice of the claim is first received. Reserves for such reported claims are established on a
case-by-case basis by evaluating several factors, including the type of risk involved, knowledge of
the circumstances surrounding such claim, severity of injury or damage, the potential for ultimate
exposure, experience with the line of business, and the
policy provisions relating to the type of claim. Reserves for IBNR are determined in part on the
basis of statistical information, in part on industry experience and in part on the judgment of our
senior corporate officers. Indicated reserves are calculated by our actuaries using several standard actuarial
methodologies, including the paid and incurred loss development and the paid and incurred
Bornheutter-Ferguson loss methods. Additional analyses, such as frequency/severity analyses, are
performed for certain books of business. To the extent that reserves are deficient or redundant,
the amount of such deficiency or redundancy is treated as a charge or credit to earnings in the
period in which the deficiency or redundancy is recognized.
</div>
<div align="justify" style="font-size: 10pt; margin-top: 10pt">Total loss reserves are estimates of what the insurer or reinsurer expects to pay on claims, based on
facts and circumstances then known. It is possible that the ultimate liability may exceed or be
less than such estimates. In setting our loss reserve estimates, we review statistical data
covering several years, analyze patterns by line of business and consider several factors including
trends in claims frequency and severity, changes in operations, emerging economic and social
trends, inflation and changes in the regulatory and litigation environment. Using the
aforementioned actuarial methods and different underlying assumptions, our actuaries produce a
number of point estimates for each class of business. After reviewing the appropriateness of the
underlying assumptions, management selects the carried reserve for each class of business. We do
not calculate a range of loss reserve estimates. We believe that ranges may not be a true
reflection of the potential volatility between carried loss reserves and the ultimate settlement
amount of losses incurred prior to the balance sheet date. The numerous factors that contribute to
the inherent uncertainty in the process of establishing loss reserves include: interpreting loss
development activity, emerging economic and social trends, inflation, changes in the regulatory and
judicial environment and changes in our operations, including changes in underwriting standards and
claims handling procedures. During the loss settlement period, which, in some cases, may last
several years, additional facts regarding individual claims may become known and, accordingly, it
often becomes necessary to refine and adjust the estimates of liability on a claim upward or
downward. Such estimates are regularly reviewed and updated and any resulting adjustments are
included in the current year’s income statement. Even then, the ultimate liability may exceed or
be less than the revised estimates. The reserving process is intended to provide implicit
recognition of the impact of inflation and other factors affecting loss payments by taking into
account changes in historical payment patterns and perceived probable trends. There is generally
no precise method for the subsequent evaluation of the adequacy of the consideration given to
inflation, or to any other specific factor, because the eventual deficiency or redundancy of
reserves is affected by many factors, some of which are interdependent.
</div>
<!-- Folio -->
<!-- /Folio -->
</div>
<!-- PAGEBREAK -->
<div style="font-family: 'Times New Roman',Times,serif; margin-left: 0in; ">
<div align="justify" style="font-size: 10pt; margin-top: 10pt">The following table summarizes the activity in our reserve for losses and LAE during the three most
recent years:
</div>
<div align="center">
<table style="font-size: 10pt; text-align: left" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<tr valign="bottom">
<td width="58%"> </td>
<td width="3%"> </td>
<td width="1%"> </td>
<td width="9%"> </td>
<td width="1%"> </td>
<td width="3%"> </td>
<td width="1%"> </td>
<td width="9%"> </td>
<td width="1%"> </td>
<td width="3%"> </td>
<td width="1%"> </td>
<td width="9%"> </td>
<td width="1%"> </td>
</tr>
<tr style="font-size: 10pt" valign="bottom">
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="10" style="border-bottom: 1px solid #000000"><b>Year Ended December 31,</b></td>
<td> </td>
</tr>
<tr style="font-size: 10pt" valign="bottom">
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000"><b>2010</b></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000"><b>2009</b></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000"><b>2008</b></td>
<td> </td>
</tr>
<tr style="font-size: 10pt" valign="bottom">
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="10"><i>($ in thousands)</i></td>
<td> </td>
</tr>
<!-- End Table Head -->
<!-- Begin Table Body -->
<tr valign="bottom"><!-- Blank Space -->
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px">Net reserves for losses and LAE at
beginning of year
</div></td>
<td> </td>
<td align="left">$</td>
<td align="right">1,112,934</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">999,871</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">847,303</td>
<td> </td>
</tr>
<tr style="font-size: 1px">
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:15px; text-indent:-15px">Provision for losses and LAE for
claims occurring in the current year
</div></td>
<td> </td>
<td> </td>
<td align="right">434,957</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">444,939</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">443,877</td>
<td> </td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px">Decrease in estimated losses and LAE
for claims occurring in prior years
</div></td>
<td> </td>
<td nowrap="nowrap" align="left"> </td>
<td align="right">(13,802</td>
<td nowrap="nowrap">)</td>
<td> </td>
<td nowrap="nowrap" align="left"> </td>
<td align="right">(8,941</td>
<td nowrap="nowrap">)</td>
<td> </td>
<td nowrap="nowrap" align="left"> </td>
<td align="right">(50,746</td>
<td nowrap="nowrap">)</td>
</tr>
<tr style="font-size: 1px">
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:15px; text-indent:-15px">Incurred losses and LAE
</div></td>
<td> </td>
<td> </td>
<td align="right">421,155</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">435,998</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">393,131</td>
<td> </td>
</tr>
<tr style="font-size: 1px">
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px">Losses and LAE paid for claims
occurring during:
</div></td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:30px; text-indent:-15px">Current year
</div></td>
<td> </td>
<td nowrap="nowrap" align="left"> </td>
<td align="right">(76,982</td>
<td nowrap="nowrap">)</td>
<td> </td>
<td nowrap="nowrap" align="left"> </td>
<td align="right">(59,412</td>
<td nowrap="nowrap">)</td>
<td> </td>
<td nowrap="nowrap" align="left"> </td>
<td align="right">(60,104</td>
<td nowrap="nowrap">)</td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:30px; text-indent:-15px">Prior years
</div></td>
<td> </td>
<td nowrap="nowrap" align="left"> </td>
<td align="right">(314,565</td>
<td nowrap="nowrap">)</td>
<td> </td>
<td nowrap="nowrap" align="left"> </td>
<td align="right">(263,523</td>
<td nowrap="nowrap">)</td>
<td> </td>
<td nowrap="nowrap" align="left"> </td>
<td align="right">(180,459</td>
<td nowrap="nowrap">)</td>
</tr>
<tr style="font-size: 1px">
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:15px; text-indent:-15px">Losses and LAE payments
</div></td>
<td> </td>
<td nowrap="nowrap" align="left"> </td>
<td align="right">(391,547</td>
<td nowrap="nowrap">)</td>
<td> </td>
<td nowrap="nowrap" align="left"> </td>
<td align="right">(322,935</td>
<td nowrap="nowrap">)</td>
<td> </td>
<td nowrap="nowrap" align="left"> </td>
<td align="right">(240,563</td>
<td nowrap="nowrap">)</td>
</tr>
<tr style="font-size: 1px">
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px">Net reserves for losses and LAE at end of year
</div></td>
<td> </td>
<td> </td>
<td align="right">1,142,542</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">1,112,934</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">999,871</td>
<td> </td>
</tr>
<tr style="font-size: 1px">
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
</tr>
<tr valign="bottom"><!-- Blank Space -->
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:15px; text-indent:-15px">Reinsurance recoverables on unpaid losses and LAE
</div></td>
<td> </td>
<td> </td>
<td align="right">843,296</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">807,352</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">853,793</td>
<td> </td>
</tr>
<tr style="font-size: 1px">
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px">Gross reserves for losses and LAE at end of year
</div></td>
<td> </td>
<td align="left">$</td>
<td align="right">1,985,838</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">1,920,286</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">1,853,664</td>
<td> </td>
</tr>
<tr style="font-size: 1px">
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td>
<td> </td>
</tr>
<!-- End Table Body -->
</table>
</div>
<div align="justify" style="font-size: 10pt; margin-top: 10pt">The segment breakdown of prior years’ net reserve deficiency (redundancy) was as follows:
</div>
<div align="center">
<table style="font-size: 10pt; text-align: left" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<tr valign="bottom">
<td width="58%"> </td>
<td width="3%"> </td>
<td width="1%"> </td>
<td width="9%"> </td>
<td width="1%"> </td>
<td width="3%"> </td>
<td width="1%"> </td>
<td width="9%"> </td>
<td width="1%"> </td>
<td width="3%"> </td>
<td width="1%"> </td>
<td width="9%"> </td>
<td width="1%"> </td>
</tr>
<tr style="font-size: 10pt" valign="bottom">
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="10" style="border-bottom: 1px solid #000000"><b>Year Ended December 31,</b></td>
<td> </td>
</tr>
<tr style="font-size: 10pt" valign="bottom">
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000"><b>2010</b></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000"><b>2009</b></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000"><b>2008</b></td>
<td> </td>
</tr>
<tr style="font-size: 10pt" valign="bottom">
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="10"><i>($ in thousands)</i></td>
<td> </td>
</tr>
<!-- End Table Head -->
<!-- Begin Table Body -->
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px">Insurance Companies:
</div></td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:30px; text-indent:-15px">Marine
</div></td>
<td> </td>
<td nowrap="nowrap" align="left">$</td>
<td align="right">(4,155</td>
<td nowrap="nowrap">)</td>
<td> </td>
<td align="left">$</td>
<td align="right">11,893</td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="left">$</td>
<td align="right">(5,298</td>
<td nowrap="nowrap">)</td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:30px; text-indent:-15px">Property Casualty
</div></td>
<td> </td>
<td nowrap="nowrap" align="left"> </td>
<td align="right">(14,923</td>
<td nowrap="nowrap">)</td>
<td> </td>
<td nowrap="nowrap" align="left"> </td>
<td align="right">(35,658</td>
<td nowrap="nowrap">)</td>
<td> </td>
<td nowrap="nowrap" align="left"> </td>
<td align="right">(33,065</td>
<td nowrap="nowrap">)</td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:30px; text-indent:-15px">Professional Liability
</div></td>
<td> </td>
<td> </td>
<td align="right">13,623</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">20,686</td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="left"> </td>
<td align="right">(3,559</td>
<td nowrap="nowrap">)</td>
</tr>
<tr style="font-size: 1px">
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px">Insurance Companies
</div></td>
<td> </td>
<td nowrap="nowrap" align="left">$</td>
<td align="right">(5,455</td>
<td nowrap="nowrap">)</td>
<td> </td>
<td nowrap="nowrap" align="left">$</td>
<td align="right">(3,079</td>
<td nowrap="nowrap">)</td>
<td> </td>
<td nowrap="nowrap" align="left">$</td>
<td align="right">(41,922</td>
<td nowrap="nowrap">)</td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:15px; text-indent:-15px">Lloyd’s Operations
</div></td>
<td> </td>
<td nowrap="nowrap" align="left"> </td>
<td align="right">(8,347</td>
<td nowrap="nowrap">)</td>
<td> </td>
<td nowrap="nowrap" align="left"> </td>
<td align="right">(5,862</td>
<td nowrap="nowrap">)</td>
<td> </td>
<td nowrap="nowrap" align="left"> </td>
<td align="right">(8,824</td>
<td nowrap="nowrap">)</td>
</tr>
<tr style="font-size: 1px">
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:45px; text-indent:-15px">Total
</div></td>
<td> </td>
<td nowrap="nowrap" align="left">$</td>
<td align="right">(13,802</td>
<td nowrap="nowrap">)</td>
<td> </td>
<td nowrap="nowrap" align="left">$</td>
<td align="right">(8,941</td>
<td nowrap="nowrap">)</td>
<td> </td>
<td nowrap="nowrap" align="left">$</td>
<td align="right">(50,746</td>
<td nowrap="nowrap">)</td>
</tr>
<tr style="font-size: 1px">
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td>
<td> </td>
</tr>
<!-- End Table Body -->
</table>
</div>
<div align="justify" style="font-size: 10pt; margin-top: 10pt">The 2010 consolidated net redundancy of $13.8 million consisted of prior year savings of $5.5
million from the Insurance Companies and $8.3 million from the Lloyd’s Operations.
</div>
<!-- Folio -->
<!-- /Folio -->
</div>
<!-- PAGEBREAK -->
<div style="font-family: 'Times New Roman',Times,serif; margin-left: 0in; ">
<div align="justify" style="font-size: 10pt; margin-top: 10pt">The Insurance Companies recorded $4.2 million of net prior year favorable development for the
marine business, of which $2.6 million arose in the marine liability business due to favorable loss
emergence relative to our expectations and $1.4 million in Hull as we eliminated IBNR in older
underwriting years where we determined the year had been fully reported and saw case reserve
reductions on a number of claims.
</div>
<div align="justify" style="font-size: 10pt; margin-top: 10pt">The Insurance Companies recorded $14.9 million of net prior year savings for property casualty
business in total. The favorable development included:
</div>
<div style="margin-top: 10pt">
<table width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt; text-align: left">
<tr valign="top" style="font-size: 10pt; color: #000000; background: transparent">
<td width="4%" style="background: transparent"> </td>
<td width="3%" nowrap="nowrap" align="left"><b>•</b></td>
<td width="1%"> </td>
<td>
<div style="text-align: justify">$29.2 million for West Coast contractors’ liability due to an internal
actuarial review conducted in 2010 which indicated that loss development on
underwriting years 2006 to 2008 has been more favorable than our prior expectations
with a partial offset for underwriting years 2004 and prior. This internal review
includes a more detailed analysis than is included in our regular quarterly reserving
process.
</div></td>
</tr>
</table>
</div>
<div style="margin-top: 10pt">
<table width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt; text-align: left">
<tr valign="top" style="font-size: 10pt; color: #000000; background: transparent">
<td width="4%" style="background: transparent"> </td>
<td width="3%" nowrap="nowrap" align="left"><b>•</b></td>
<td width="1%"> </td>
<td>
<div style="text-align: justify">$2.9 million of favorable development on our offshore energy (NavTech) book due
to favorable claims trends across a number of prior underwriting years.
</div></td>
</tr>
</table>
</div>
<div style="margin-top: 10pt">
<table width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt; text-align: left">
<tr valign="top" style="font-size: 10pt; color: #000000; background: transparent">
<td width="4%" style="background: transparent"> </td>
<td width="3%" nowrap="nowrap" align="left"><b>•</b></td>
<td width="1%"> </td>
<td>
<div style="text-align: justify">$1.8 million of favorable development on the Somerset Re run-off book of
business where we concluded the IBNR was no longer required and $1.5 million on our
Agriculture reinsurance book where the reported activity was lower than our initial
estimate for the 2009 treaty year.
</div></td>
</tr>
</table>
</div>
<div align="justify" style="font-size: 10pt; margin-top: 10pt">Partially offsetting these favorable developments were adverse development of:
</div>
<div style="margin-top: 10pt">
<table width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt; text-align: left">
<tr valign="top" style="font-size: 10pt; color: #000000; background: transparent">
<td width="4%" style="background: transparent"> </td>
<td width="3%" nowrap="nowrap" align="left"><b>•</b></td>
<td width="1%"> </td>
<td>
<div style="text-align: justify">$16.5 million in our Specialty run-off books of business, including $13.3
million in our personal umbrella lines across multiple underwriting years where loss
activity has exceeded our expectations and $2.0 million of adverse development in our
Liquor business due to reported claim activity.
</div></td>
</tr>
<tr>
<td style="font-size: 8pt"> </td>
</tr>
<tr valign="top" style="font-size: 10pt; color: #000000; background: transparent">
<td width="4%" style="background: transparent"> </td>
<td width="3%" nowrap="nowrap" align="left"><b>•</b></td>
<td width="1%"> </td>
<td>
<div style="text-align: justify">$1.7 million for New York construction liability due to unfavorable loss emergence.
</div></td>
</tr>
</table>
</div>
<div align="justify" style="font-size: 10pt; margin-top: 10pt">The Insurance Companies recorded $13.6 million of net prior year unfavorable development for
professional liability.
</div>
<div style="margin-top: 10pt">
<table width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt; text-align: left">
<tr valign="top" style="font-size: 10pt; color: #000000; background: transparent">
<td width="4%" style="background: transparent"> </td>
<td width="3%" nowrap="nowrap" align="left"><b>•</b></td>
<td width="1%"> </td>
<td>
<div style="text-align: justify">The directors and officers’ liability book of business had $15.7 million of
adverse development, which was primarily attributable to a severity study of our open
claims completed during the fourth quarter. This study showed our IBNR to be
significantly deficient if current trends continued and we raised our loss estimates
for underwriting years 2002 to 2009. This was partially offset by $1.4 million of
favorable development on a run-off lawyers book of business written from London where
we saw favorable settlements of outstanding claims and $0.7 million of favorable
development on other lawyers business mostly due to a favorable claim reserve
settlement.
</div></td>
</tr>
</table>
</div>
<div align="justify" style="font-size: 10pt; margin-top: 10pt">The Lloyd’s Operations recorded $8.3 million in favorable loss development for prior years during
2010. This included favorable development of $3.2 million in Marine, $4.8 million in NavTech, and
$0.5 million in all other areas. The Marine favorable development was primarily from 2007 and 2008
and was driven by liability, assumed reinsurance, and specie. NavTech’s favorable development was
mostly from 2006-2008 driven by offshore energy.
</div>
<!-- Folio -->
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</div>
<!-- PAGEBREAK -->
<div style="font-family: 'Times New Roman',Times,serif; margin-left: 0in; ">
<div align="justify" style="font-size: 10pt; margin-top: 10pt">Management believes that the reserves for losses and loss adjustment expenses are adequate to cover
the ultimate cost of losses and loss adjustment expenses on reported and unreported claims. We
continue to review our reserves on a regular basis.
</div>
</div>
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