navg-10k_20181231.htm

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☒ No ☐

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act. Yes ☐ No ☒

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and will not be contained, to the best of the registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definition of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

The aggregate market value of voting stock held by non-affiliates as of June 30, 2018 was $1,320,453,310 (Last business day of The Company’s most recently completed second fiscal quarter).

The number of common shares outstanding as of February 21, 2019 was 29,818,468 (Last practical business day for the count of shares outstanding).

Portions of the Company’s definitive Proxy Statement in connection with its 2019 Annual Meeting of Stockholders, to be filed within 120 days of the end of the fiscal year ended December 31, 2018 with the Securities and Exchange Commission, are incorporated by reference in Part III hereof.

Some of the statements in this Annual Report on Form 10-K are “forward-looking statements” as defined in the Private Securities Litigation Reform Act of 1995. All statements other than statements of historical fact included in or incorporated by reference in this Annual Report are forward-looking statements. Whenever used in this report, the words “estimate,” “expect,” “believe,” “may,” “will,” “intend,” “continue” or similar expressions or their negative are intended to identify such forward-looking statements. Forward-looking statements are derived from information that we currently have and assumptions that we make. Factors that could cause actual results to differ materially from our forward-looking statements include, but are not limited to, the factors described in Part I, Item 1A, Risk Factors of this report. Due to these known risks, any unknown risks, uncertainties and assumptions, forward-looking statements discussed in this report may not occur and actual results may differ materially, and you are therefore cautioned not to place undue reliance on them. We undertake no obligation to publicly update or revise any forward-looking statement, whether as a result of new information, future events or otherwise.

We are an international insurance company with a long-standing area of specialization in Marine insurance. We also offer Property and Casualty (“P&C”) insurance, which consists primarily of general liability coverage and umbrella & excess liability coverage to commercial enterprises through our Primary and Excess Casualty divisions. We have also developed niches in Professional Liability insurance, through our Directors & Officers (“D&O”) and Errors & Omissions (“E&O”) divisions, as well as assumed reinsurance products.

We operate through various wholly-owned insurance and service companies. Our subsidiaries domiciled in the United States (“U.S.”) include two insurance companies, Navigators Insurance Company (“NIC”) and Navigators Specialty Insurance Company (“NSIC”), as well as our U.S. underwriting agency, Navigators Management Company, Inc. (“NMC”). NIC includes a branch in the United Kingdom (“U.K.”). We also have operations domiciled in the U.K., Hong Kong and Europe. Navigators International Insurance Company Ltd. (“NIIC”), Navigators Management (U.K.) Ltd. (“NMUK”) and Navigators Underwriting Ltd. (“NUL”) are domiciled in the U.K. and NUL includes European branches. Navigators Underwriting Agency Ltd. (“NUAL”), a Lloyd’s of London (“Lloyd’s”) underwriting agency, manages and provides the capital, through Navigators Corporate Underwriters Ltd. (“NCUL”), for our Lloyd’s Syndicate 1221 (the “Syndicate”), and is also domiciled in the U.K. We control 100% of the Syndicate’s stamp capacity.

On June 7, 2018, we acquired 100% ownership interest in Bracht, Deckers & Mackelbert NV, an insurance underwriting agency organized under the laws of Belgium (“BDM”) and Assurances Continentales – Continentale Verzekeringen NV, an insurance company licensed under the laws of Belgium (“ASCO”). The acquisition was accounted for in accordance with Accounting Standards Codification (“ASC”) 805, “Business Combinations.” Refer to Note 2 Merger and Business Combinations and Note 6 Goodwill and Intangible Assets, in the Notes to Consolidated Financial Statements, for further information regarding the acquisition.

We report our results of operations consistent with the manner in which our Chief Operating Decision Maker reviews the business to assess performance of our four reporting segments: U.S. Insurance, International Insurance (“Int’l Insurance”), GlobalRe and Corporate. The U.S. Insurance and Int’l Insurance reporting segments are each comprised of three operating segments: Marine, P&C and Professional Liability. The underwriting results of the acquired business from BDM and ASCO are included in the Int’l Insurance reporting segment, with no new operating segments resulting from the acquisition.

For additional information on our segment presentation and for financial information concerning our operations by segment, see Segment Results included in Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations and Note 3, Segment Information, in the Notes to the Consolidated Financial Statements.

Our Company distributes insurance related products through international, national, regional and retail insurance brokers. For 2018, business produced through the broker Marsh & McLennan Companies Inc. represented just over 10% of consolidated gross premiums written. Additionally, within each of our three reporting segments there are premiums written through individual brokers that represent over 10% of gross premiums written for the reporting segment. No customer accounted for more than 10% of consolidated gross premiums written. The GlobalRe reporting segment has one customer that represents just over 10% of the segment’s gross premiums written for 2018.

Our on-going operations are organized into distinct divisions, each offering specialized products and services targeted at a specific niche customer segment.

Our U.S. Insurance, Int’l Insurance and GlobalRe reporting segments are considered our three underwriting segments. The U.S. Insurance and Int’l Insurance reporting segments are further comprised of three operating segments:

Our underwriting segments and operating segments noted above are further comprised of business divisions and/or products.

A summary of our U.S. Insurance – U.S. Marine operating segment by product is as follows:

A summary of our U.S. Insurance – U.S. P&C operating segment by business division and primary products within these divisions are as follows:

A summary of our U.S. Insurance – U.S. Professional Liability operating segment by business division and primary products within these divisions is as follows:

A summary of our Int’l Insurance – Int’l Marine operating segment by product is as follows:

A summary of our Int’l Insurance – Int’l P&C operating segment by business division and primary products within these divisions is as follows:

A summary of our Int’l Insurance – Int’l Professional Liability operating segment by business division and primary products within these divisions is as follows:

Our Company faces competition from both domestic and foreign insurers, many of whom have longer operating histories and greater financial, marketing and management resources. Competition in the types of insurance in which our Company is engaged is based on many factors, including the perceived overall financial strength ratings as assigned by independent rating agencies, pricing, other terms and conditions of products and services offered, business experience, business infrastructure, global presence, marketing and distribution arrangements, agency and broker relationships, quality of customer service (including speed of claims payments), product differentiation and quality, operating efficiencies and underwriting. Furthermore, insureds tend to favor large, financially strong insurers, and our Company faces the risk that we will lose market share to these larger insurers. Another competitive factor in the industry is the entrance of underwriting organizations and other financial services providers, such as banks and brokerage firms, into the insurance business. These efforts pose new challenges to insurance companies and agents from financial services companies traditionally not involved in the insurance business. We strive to offer superior service, which we believe has differentiated us from our competitors. Our Company pursues a specialist strategy and focuses on market opportunities where we can compete effectively based on service levels and product design, while still achieving an adequate level of profitability. Our Company has grown, in part, from the leveraging of cross-marketing opportunities with our other operations to take advantage of our organization's global presence.

As of December 31, 2018, we had 838 full-time employees of which 587 were located in the United States, 149 in the United Kingdom, 65 in Belgium, 9 in The Netherlands, 8 in Italy, 8 in Hong Kong, 4 in France, 4 in Switzerland, 3 in Spain and 1 in Singapore.

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 the loss reserve estimates, our Company reviews statistical data covering several years, analyzes patterns by line of business and considers 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. We also consult with experienced claims professionals. Based on our analysis, we make a best estimate of our ultimate liability. 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 our current period’s earnings. Even then, the ultimate liability may exceed or be less than our revised estimates. Our 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 strengthening or release of reserves is affected by many factors, some of which are interdependent.

Our Company maintains reserves for unpaid losses and unpaid loss adjustment expenses (“LAE”) for all lines of business. Loss reserves consist of both reserves for reported claims, known as case reserves, and reserves for losses that have occurred but have not yet been reported, known as incurred but not reported (“IBNR”) losses. In the normal course of business, our Company cedes a portion of our premium to reinsurers through treaty and facultative reinsurance agreements. Although reinsurance does not discharge our Company from liability to our policyholders, our Company participates in reinsurance agreements to limit our loss exposure and to protect us against catastrophic losses.

There is a lag between the time premiums are written and related losses and LAE are incurred, and the time such events are reported to us. The loss reserves include amounts related to short tail and long tail classes of business. Short tail business refers to claims that are generally reported quickly upon occurrence of an event and involve little or no litigation, making estimation of loss reserves less complex. The long tail business includes our Marine Liability product as well as various other insurance products in our P&C and Professional Liability operating segments. For the long tail lines, significant periods of time, ranging up to several years or more, may elapse between the occurrence of the loss, the reporting of the loss and the settlement of the claim. Generally, the longer the time span between the incidence of a loss and the settlement of the claim, the more likely the ultimate settlement amount will vary from the original estimate.

The following table presents the development of our loss and LAE reserves for 2008 through 2018. Net reserves for losses and LAE reflects our net reserves at the balance sheet date for each of the indicated years and represents our estimated amount of losses and LAE arising in all prior years that are unpaid at the balance sheet date. Reserves for losses and LAE re-estimated in the table reflect our re-estimated amount of our previously recorded reserves based on experience as of the end of each succeeding year. Our reserve estimates may change as more information becomes known about the frequency and severity of claims for individual years. Our net and gross cumulative redundancy (deficiency) in the table reflects our cumulative amounts developed as of successive years with respect to the aforementioned reserve liability. Our cumulative redundancy (deficiency) represents the aggregate change in the estimates over all prior years.

The table calculates losses and LAE reported and recorded for all prior years starting with the year in which the loss was incurred. For example, assuming that a loss occurred in 2008 but was not reported until 2009, the amount of such loss will appear as a deficiency in both 2008 and 2009. Conditions and trends that have affected development of the liability in the past may not necessarily occur in the future. Accordingly, it may not be appropriate to extrapolate future strengthening or releases based on the table.

A significant portion of our favorable or adverse development on the gross reserves has been ceded to the excess-of-loss reinsurance treaties. As a result of these reinsurance arrangements, our gross losses and related reserve strengthening and releases tend to be more sensitive to favorable or adverse developments such as those described above than our net losses and related reserve strengthening and releases.

	Years Ended December 31,
amounts in thousands	2008		2009		2010		2011		2012		2013			2014			2015			2016			2017			2018
Net reserves for losses and LAE	$	999,871	$	1,112,934	$	1,142,542	$	1,237,234	$	1,216,909	$	1,222,633		$	1,308,136		$	1,393,126		$	1,510,451		$	1,705,380		$	1,923,784
Reserves for losses and LAE re-estimated as of:
One year later		990,930		1,099,132		1,144,687		1,191,943		1,215,643		1,166,821			1,243,467			1,364,598			1,544,761			1,781,622
Two years later		971,048		1,065,382		1,068,344		1,189,651		1,142,545		1,144,854			1,262,367			1,430,261			1,574,455
Three years later		943,231		1,037,233		1,084,728		1,167,745		1,165,959		1,196,219			1,324,701			1,466,997
Four years later		925,756		1,027,551		1,072,849		1,193,950		1,196,157		1,249,756			1,332,421
Five years later		921,597		1,029,215		1,097,862		1,192,188		1,223,661		1,243,535
Six years later		925,518		1,041,778		1,098,545		1,212,716		1,213,197
Seven years later		935,511		1,046,653		1,111,350		1,188,565
Eight years later		943,450		1,060,053		1,084,389
Nine years later		953,450		1,031,535
Ten years later		922,568
Net cumulative redundancy (deficiency)	$	77,303	$	81,399	$	58,153	$	48,669	$	3,712	$	(20,902	)	$	(24,285	)	$	(73,871	)	$	(64,004	)	$	(76,242	)
Net cumulative paid as of:
One year later		263,523		314,565		309,063		407,385		365,479		295,527			320,863			412,544			478,979			554,733
Two years later		460,058		517,125		552,881		620,955		550,747		512,709			620,514			739,944			832,013
Three years later		591,226		682,051		695,054		752,315		703,511		736,360			821,045			984,066
Four years later		688,452		773,261		785,046		862,722		856,240		875,895			976,054
Five years later		745,765		828,269		868,850		949,784		938,370		954,243
Six years later		785,211		872,685		930,327		1,002,026		989,184
Seven years later		819,146		920,319		958,261		1,039,371
Eight years later		855,320		940,984		982,300
Nine years later		871,078		960,912
Ten years later		884,557
Gross liability-end of year		1,853,664		1,920,286		1,985,838		2,082,679		2,097,048		2,045,071			2,159,634			2,202,644			2,289,727			2,515,145			2,743,973
Reinsurance recoverable		853,793		807,352		843,296		845,445		880,139		822,438			851,498			809,518			779,276			809,765			820,189
Net liability-end of year	$	999,871	$	1,112,934	$	1,142,542	$	1,237,234	$	1,216,909	$	1,222,633		$	1,308,136		$	1,393,126		$	1,510,451		$	1,705,380		$	1,923,784
Gross re-estimated latest		1,718,058		1,784,792		1,867,500		2,033,375		2,074,648		2,086,369			2,172,916			2,316,402			2,382,571			2,597,606
Re-estimated recoverable latest		795,490		753,258		783,112		844,810		861,451		842,834			840,494			849,406			808,116			815,984
Net re-estimated latest	$	922,568	$	1,031,534	$	1,084,388	$	1,188,565	$	1,213,197	$	1,243,535		$	1,332,422		$	1,466,996		$	1,574,455		$	1,781,622
Gross cumulative redundancy (deficiency)	$	135,606	$	135,494	$	118,338	$	49,304	$	22,400	$	(41,298	)	$	(13,282	)	$	(113,758	)	$	(92,844	)	$	(82,461	)

The objective of our investment policy, guidelines and strategy is to maximize total investment return in the context of preserving and enhancing stockholder value and the statutory surplus of our regulated insurance companies. As part of our overall investment strategy, we seek to build a tax efficient investment portfolio and maintain appropriate levels of liquidity to satisfy cash requirements of current operations and longer term obligations.

Our investments are managed by outside professional fixed-income and equity portfolio managers. We seek to achieve our investment objectives by investing in cash equivalents and money market funds, municipal bonds, sovereign bonds, government agency guaranteed and non-guaranteed securities, corporate bonds, mortgage-backed and asset-backed securities, common and preferred stocks, and exchange traded funds. The Finance Committee of our Board of Directors approves our overall group asset allocation targets and investment policy to ensure that they are consistent with our overall goals, strategies and objectives.

Our regulated insurance companies’ investments are subject to the oversight of their respective Boards of Directors and the Finance Committee of our Parent Company’s Board of Directors. Our investment portfolio and the performance of the investment managers are reviewed quarterly. Our investments within NIC and NSIC must comply with the insurance laws of New York State, the domiciliary state of NIC and NSIC. These laws prescribe the type, quality and concentration of investments which may be made by insurance companies. In general, these laws permit investments, within specified limits and subject to certain qualifications, in federal, state and municipal obligations, corporate bonds, structured securities, preferred stocks, common stocks, real estate mortgages and real estate.

Our investments supporting our Int’l Insurance business must also comply with the regulations set forth by the Prudential Regulatory Authority (the “PRA”) in the U.K, the National Bank of Belgium (“NBB”), and the Commissariat Aux Assurances (the “CAA”) in Luxembourg. Our investments supporting our Int’l Insurance business are subject to the direction and control of the Boards of Directors and the Investment Committees of NUAL, NIIC and ASCO, as well as our Parent Company’s Board of Directors and Finance Committee.

Refer to Management’s Discussion of Financial Condition and Results of Operations - Investments and Note 4, Investments, in the Notes to Consolidated Financial Statements, both of which are included herein, for additional information regarding investments.

Our Company is subject to regulation under various insurance statutes, including holding company statutes of various states and applicable regulatory authorities in the United States. These regulations vary but generally require insurance holding companies, and insurers that are subsidiaries of holding companies, to register and file reports concerning their capital structure, ownership, financial condition and general business operations. Such regulations also generally require prior regulatory agency approval of changes in control of an insurer and of certain transactions within the holding company structure. The regulatory agencies have statutory authorization to enforce their laws and regulations through various administrative orders and enforcement proceedings.

State insurance regulations are intended primarily for the protection of policyholders rather than stockholders. The state insurance departments monitor compliance with regulations through periodic reporting procedures and examinations. The quarterly and annual financial reports to the state insurance regulators utilize statutory accounting principles, which are different from generally accepted accounting principles (“GAAP”) that we use in our reports to stockholders. Statutory accounting principles, in keeping with the intent to assure the protection of policyholders, are generally based on a solvency concept, while GAAP is based on a going-concern concept.

The state insurance regulators utilize risk-based capital measurements, developed by the National Association of Insurance Commissioners (“NAIC”), to identify insurance companies that potentially are inadequately capitalized. The NAIC’s risk-based capital model is intended to establish minimum capital thresholds that vary with the size and mix of an insurance company’s business and assets. It is designed to identify companies with capital levels that may require regulatory attention. At December 31, 2018, each of our domestic insurance companies’ total adjusted capital was significantly in excess of the authorized control level risk-based capital.

The NAIC has developed a set of financial relationships or tests known as the Insurance Regulatory Information System (“IRIS”) to assist state regulators in monitoring the financial condition of U.S. insurance companies and identifying companies that require special attention or action by insurance regulatory authorities. Generally, regulators will begin to investigate or monitor an insurance company if its IRIS ratios fall outside usual ranges for four or more of the ratios. If an insurance company has insufficient capital, regulators

may act to reduce the amount of insurance it can issue. Based on our most recent statutory filings (calculated as of December 31, 2018), none of our U.S. insurance companies are subject to regulatory scrutiny based on these ratios.

In 2012, the NAIC adopted the Risk Management and Own Risk and Solvency Assessment (“ORSA”) Model Act, which, following enactment at the state level became effective in 2015. ORSA requires U.S. insurance companies and their groups to regularly, but no less than annually: 1) conduct an assessment of the adequacy of its risk management framework and current and estimated future solvency position, 2) internally document the process and results of such assessment and 3) provide a confidential, high level summary of such assessment to certain state regulatory authorities. This year we filed our ORSA report with the New York State Department of Financial Services on December 3, 2018, and we believe we have a robust Enterprise Risk Management framework in place that is effective in meeting the ORSA requirements.

The U.S. state insurance regulations also regulate the payment of dividends and other distributions by insurance companies to their stockholders. Generally, insurance companies are limited by these regulations in the payment of dividends above a specified level. Dividends in excess of those thresholds are “extraordinary dividends” and are subject to prior regulatory approval. While New York only requires approval of extraordinary dividends, some states require prior regulatory approval for all dividends.

Because we are an insurance holding company, we are subject to the insurance holding company system regulatory requirements of a number of states. Under these regulations, we are required to report information regarding our capital structure, financial condition and management. We are also required to provide prior notice to, or seek the prior approval of, the Department of Financial Services of certain agreements and transactions between our affiliated companies. These agreements and transactions must satisfy certain regulatory requirements.

Government intervention has also occurred in the insurance and reinsurance markets in relation to terrorism coverage in the U.S. (and through industry initiatives in other countries). The U.S. Terrorism Risk Insurance Act (“TRIA”), which was enacted in 2002 to ensure the availability of insurance coverage for certain terrorist acts in the U.S., was extended through 2007 by the Terrorism Risk Insurance Extension Act of 2005, or TRIEA, and made certain changes in the program. The Terrorism Risk Insurance Program Reauthorization Act of 2007 (“TRIPRA”), which extended the program through 2015, was reauthorized for an additional six years through December 31, 2020, and applies to certain of our product offerings.

On December 22, 2017, the U.S. government enacted comprehensive tax legislation commonly referred to as the Tax Cuts and Jobs Act (the “Tax Act”). The Tax Act made broad and complex changes to the U.S. tax code and contains various provisions that affect corporations, including a reduction of the U.S. federal corporate tax rate from a 35% maximum rate to a 21% flat rate, changes to net operating loss carryback and carryforward rules and changes to U.S. taxation of foreign profits. See the risk factor Changes in tax laws could increase our corporate taxes, reduce our deferred tax assets or affect pricing of some of our products in Item 1A – Risk Factors for additional information regarding the impact of the Tax Act.

Our UK branch, NIIC and NUAL, the managing agent for Syndicate 1221, are all subject to regulation by the PRA (for prudential issues) and the Financial Conduct Authority (the “FCA”) (for conduct of business issues). In addition, the Lloyd’s market is subject to management and supervision by the Council of Lloyd’s. The PRA and FCA have been granted broad authorization and intervention powers as they relate to the operations of all insurers, including Lloyd’s syndicates, operating in the U.K. Lloyd’s is regulated by the PRA and FCA and is required to implement certain rules prescribed by them, which it does by the powers it has under the Lloyd’s Act 1982 relating to the operation of the Lloyd’s market. Lloyd’s prescribes, in respect of its managing agents and corporate members, certain minimum standards relating to their management and control, solvency and various other requirements. The PRA and FCA also monitor Lloyd’s managing agents’ compliance with those systems and controls. If it appears to the PRA and/or the FCA that either Lloyd’s is not fulfilling its regulatory responsibilities, or that managing agents are not complying with the applicable regulatory rules and guidance, the PRA and/or FCA may intervene at their discretion.

The Council of Lloyd’s has wide discretionary powers to regulate members’ underwriting at Lloyd’s. It may, for instance, change the basis on which syndicate expenses are allocated or vary the required amount of capital to be held by a corporate member of Lloyd’s in support of its business (“Funds at Lloyd’s”) or the investment criteria applicable to the provision of Funds at Lloyd’s. Exercising any of these powers might affect the return on an investment of the corporate member in a given underwriting year (“UWY”). Further, it should be noted that the annual business plans of a syndicate are subject to the review and approval of the Lloyd’s Franchise Board. The Lloyd’s Franchise Board is responsible for setting risk management and profitability targets for the Lloyd’s market and operates a business planning and monitoring process for all syndicates.

The U.K. branch, NIIC and the Syndicate are required to meet the requirements of the European Union’s (“the E.U.”) financial services regulatory regime known as “Solvency II,” which is built on a risk-based approach to setting capital requirements for

insurers. Solvency II established a revised set of the E.U.-wide capital requirements and risk management standards, which became effective on January 1, 2016, with certain aspects of Solvency II concerning compliance with supervisory reporting and disclosure requirements effective in 2017. Over the last few years, our Company has undertaken a significant amount of work to ensure that it meets the requirements of Solvency II for all of its affected entities, and will continue its efforts to ensure that it meets such requirements.

ASCO and BDM are incorporated and regulated in Belgium by the NBB and the Financial Services and Markets Authority (the “FSMA”), respectively. Belgium has a “twin peaks” supervisory model that is similar to the supervisory model in the U.K., with the NBB authorizing insurance and reinsurance companies in Belgium and for prudential purposes, in particular solvency, monitoring and supervising their activities. The FSMA is responsible for the registration and regulation of insurance and reinsurance intermediaries.

ASCO and BDM are both subject to E.U. legislation with direct application (such as the General Data Protection Regulation, which governs data protection) and Belgian legislation that transposes E.U. directives (such as the Solvency II) or adds local rules. The NBB and FSMA have both added additional rules regulating the insurance market.

Canal Re S.A. is authorized in Luxembourg as a reinsurer by the CAA. The CAA is the public body that supervises the insurance sector in Luxembourg. It exercises prudential oversight and supervises the activities of Luxembourg insurance and reinsurance companies established in Luxembourg, and it is authorized to issue regulations relating to the insurance sector.

Following Brexit in March 2019, Syndicate 1221 may continue to access European Economic Area markets and business via the Lloyd’s of London subsidiary located in Brussels. The Lloyd's Brussels subsidiary is authorized and regulated by the NBB and regulated by the FSMA.

Our corporate website is http://www.navg.com. We make available free of charge, through the Investor Relations section of our corporate website, the following reports (and related amendments as filed with the SEC) as soon as reasonably practicable after such materials are electronically filed with, or furnished to, the SEC:

Also available through our website are our corporate governance guidelines, corporate code of ethics and conduct, and charters for the committees of our Board of Directors. The information found on our website is not part of this or any other report filed with or furnished to the SEC.

Factors that could have a material impact on our results of operations or financial condition are outlined below. Additional risks not presently known to us or which we currently deem insignificant may also impair our business or results of operations as they become known facts or as facts and circumstances change. Any of the risks described below could result in a material adverse effect on our results of operations or financial condition.

Completion of the Merger is subject to the conditions contained in the Merger Agreement and if these conditions are not satisfied or waived, the Merger will not be completed.

The obligation of our Company and The Hartford to complete the Merger is subject to the satisfaction or waiver of a number of conditions, including, among others, the receipt of certain regulatory approvals. Many of the conditions to the closing of the Merger are not within our or The Hartford’s control, and we cannot predict when or if these conditions will be satisfied or waived. For example, regulators may impose conditions on the completion of the Merger or require changes to the terms of the Merger. Such conditions or changes could have the effect of delaying completion of the Merger or imposing additional costs to consummate the Merger. If all of these conditions are not satisfied or waived prior to May 1, 2019, which may be extended, under certain circumstances, to July 1, 2019, it is possible that the Merger Agreement will be terminated and the Merger will not be completed.

There can be no assurance that all of the conditions to the closing of the Merger will be satisfied or waived or that the Merger will be completed.

Our Company will be subject to business uncertainties while the Merger is pending, which could result in an adverse effect on our revenues and operating results.

While completion of the Merger is pending, we are subject to some uncertainty about our future. As a result of this uncertainty, the perceptions of brokers, insurers, cedents and other third parties of our Company may be negatively impacted, which in turn could affect our ability to compete for or write new business or obtain renewals in the marketplace. If this business represents a significant portion of our anticipated revenue, our results of operations could be substantially below expectations.

In addition, uncertainty about the effect of the Merger on our Company's employees may have an adverse effect on our operating results. Our ability to attract, retain or motivate key personnel may be impaired by these uncertainties, and could cause brokers, insurers, cedents and others that deal with our Company to seek to change existing business relationships with our Company. Employee retention may be particularly challenging while completion of the Merger is pending. If key employees of our Company depart, our Company’s business could be harmed.

Lawsuits filed against us or our directors challenging the Merger may have an adverse impact on our business, results of operations or financial position.

Merger transactions are frequently the subject of litigation or other legal proceedings, including actions alleging that a board of directors has breached its respective fiduciary duties by entering into the Merger Agreement and failing to obtain a greater value in the transaction for stockholders. In connection with the proposed Merger, one putative class action lawsuit was filed on behalf of our stockholders in the United States District Court for the District of Delaware, alleging, among other things, that the defendants failed to make adequate disclosures in the Company’s proxy statement for the special meeting of stockholders relating to the Merger. While this lawsuit was dismissed on February 25, 2019 with prejudice as to the shareholder representative and without prejudice as to claims on behalf of the putative class in the lawsuit, there can be no assurance that additional lawsuits will not be brought in connection with the Merger.

We intend to defend against any litigation or proceeding brought against us or our board of directors in connection with the Merger, but may not be successful in doing so. Any adverse outcome in such matters, as well as the costs and efforts of a defense even if successful, could have an adverse effect on our business, results of operations or financial position. Further, one of the conditions to the completion of the Merger is that no injunction, judgment or ruling by any court or other tribunal of competent jurisdiction will be in effect that enjoins, restrains or otherwise prohibits the consummation of the Merger. In the event that a plaintiff is successful in obtaining an injunction, judgment or ruling prohibiting the consummation of the Merger, the Merger may not be completed within the expected timeframe or at all.

Expenses related to the proposed Merger are significant and could adversely affect our Company's operating results.

If the Merger Agreement is terminated, our stock price may be adversely affected as a result of the fact that we have incurred and will continue to incur significant expenses related to the Merger, the intended benefits of which will not be realized if the Merger is not completed. If the Merger Agreement is terminated under certain circumstances, we may be obligated to pay The Hartford a termination fee of $68.25 million.

The Merger Agreement subjects us to restrictions on our business activities and obligates us to generally operate our business in the ordinary course in all material respects. These restrictions could have an adverse effect on our results of operations, cash flows and financial position to the extent that in the absence of the restrictions, our business decisions and operations would otherwise depart from our ordinary course of business.

Our Company’s business is concentrated in Marine, P&C and Professional Liability insurance as well as reinsurance, and if market conditions change adversely, or our Company experiences large losses in these lines, it could have a material adverse effect on our business.

As a result of our strategy to focus on specialty products in niches where our Company has underwriting and claims handling expertise and to decrease our business in areas where pricing does not afford what it considers to be acceptable returns, our business is concentrated in the Marine, P&C and Professional Liability lines of business, as well as reinsurance. If our results of operations from any of these lines are less favorable for any reason, including lower demand for our products on terms and conditions that our

Company finds appropriate, flat or decreased rates for our products or increased competition, the impact of a reduction could have a material adverse effect on our business.

Our Company is exposed to cyclicality in our business that may cause material fluctuations in our results.

The P&C insurance business generally, and the marine insurance business specifically, have historically been characterized by periods of intense price competition due to excess underwriting capacity as well as periods when shortages of underwriting capacity have allowed for attractive premium levels. Our Company has reduced business during periods of severe competition and price declines and has grown when pricing allowed an acceptable return. The cyclical trends in the P&C insurance and reinsurance industries and the profitability of these industries can also be significantly affected by volatile and unpredictable developments, including natural and man-made disasters, fluctuations in interest rates, changes in the investment environment that affect market prices of investments and inflationary pressures that may tend to affect the size of losses experienced by insureds. Our Company cannot predict with accuracy whether market conditions will remain constant, improve or deteriorate. Our Company expects that the business will continue to experience the effects of this cyclicality, which, over the course of time, could result in material fluctuations in premium volume, revenues or expenses.

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

The P&C insurance industry is highly competitive. Our Company faces competition from both domestic and foreign insurers, many of whom have longer operating histories and greater financial, marketing and management resources. Competition in the types of insurance in which our Company is engaged is based on many factors, including the perceived overall financial strength, pricing and other terms and conditions of products and services offered, business experience, marketing and distribution arrangements, agency and broker relationships, levels of customer service (including speed of claims payments), product differentiation and quality, operating efficiencies and underwriting. In addition, insurance industry participants may seek to consolidate through mergers and acquisitions. Continued consolidation within the insurance industry will increase the already competitive underwriting environment, as our Company would likely experience more robust competition from larger competitors. Furthermore, insureds tend to favor large, financially strong insurers, and our Company faces the risk that it will lose market share to larger or higher rated insurers. Our Company may have difficulty in continuing to compete successfully on any of these bases in the future. If competition limits the ability to write new business at adequate rates, the ability to transact business would be materially and adversely affected and our results of operations would be adversely affected.

Our Company insures risks around the world and deterioration in the U.S. and global financial markets could have a material adverse effect on our results of operations and financial condition.

In the past years, the U.S. and global financial markets experienced severe disruption and significant volatility. Although our Company continues to monitor market conditions, we cannot predict future market conditions or their impact on our operations, investment portfolio, or stock price. Depending on market conditions, our Company could incur future realized and unrealized losses, which could have a material adverse effect on our results of operations and the financial condition of our Company. Volatile economic conditions also could have an adverse impact on the availability and cost of credit generally, which could negatively affect the ability to obtain letters of credit utilized by us to support business written through Lloyd’s.

In addition to financial market volatility, an economic downturn could have a material adverse effect on our insureds, agents, claimants, reinsurers, vendors and competitors. A variety of economic environments, including but not limited to slow economic growth, or actual or expected inflation, may have an impact on our operations. The U.S., U.K., European and other foreign governments may implement monetary and fiscal policies in response to these environments, any of which could affect our operations either positively or negatively. Trade conflicts and retaliatory responses in the form of quotas, tariffs, and other costs and restrictions, may impact global trade flows and the demand for marine and other related insurance products, which may reduce the demand or pricing of our products and thereby negatively impacting our operations.

The withdrawal of the U.K. from the E.U. could have a material adverse effect on our business, business opportunities, results of operations, financial condition and cash flows.

Following the referendum vote that took place in June 2016 in favor of leaving the European Union (“Brexit”) and the U.K. government triggering the relevant withdrawal provision of the E.U. Treaty, formal negotiations on the terms of the U.K.’s withdrawal from the E.U. are still in progress. We have significant international operations in the U.K., as well as offices in the E.U. While we have implemented measures to allow our Company to operate in the E.U. independently of our U.K. operations, and while Lloyd’s of London has implemented measures to allow Lloyd’s of London members and their syndicates, including Navigators’ Lloyd’s

Syndicate, to operate in the E.U., Brexit may cause disruptions throughout the E.U. and the U.K. Continuing access for our U.K. entities to the E.U. market will depend on general trade and services agreements made by the U.K. with the E.U. or on specific arrangements made by our U.K. entities and Lloyd’s itself to retain access to the E.U. market. The consequence of making such specific arrangements may include an increase in our cost of doing business. In addition, the overall U.K. withdrawal could, among other outcomes, cause significant volatility in global financial markets, currency exchange rate fluctuations and asset valuations, and disrupt the U.K. market and the E.U. markets in which we operate, by increasing restrictions on the trade and free movement of goods, services and people between the U.K. and the E.U. The withdrawal could also lead to legal uncertainty and potentially divergent national laws and regulations as the U.K. determines which E.U. laws to replace or replicate. The consequences of a withdrawal in the long term are unknown and not quantifiable at this time. However, given the lack of comparable precedent, any of these effects of a withdrawal, among others, could materially adversely affect our business, business opportunities, results of operations, financial condition and cash flows.

Our Company’s efforts to expand in targeted international markets, may not be successful and may expose us to additional risks which could cause a material adverse effect on our business, financial position and results of operations.

A number of our Company’s planned business initiatives involve expanding existing products in targeted international markets. To develop new markets, our Company may need to make substantial capital and operating expenditures, which may negatively impact our results in the near term. In addition, the demand in new markets may not meet our Company’s expectations. This, in turn, could lead to losses in excess of expectations. Moreover, to the extent our Company is able to expand in new international markets, our Company may be exposed to certain additional risks including but not limited to:

The occurrence of any of these risks could negatively affect our Company’s international business and consequently our financial position and results of operations.

Our Company may invest in new insurance ventures or acquisitions that may not be successful and presents risks not originally contemplated.

Our Company has invested, and in the future may invest, in new insurance ventures or acquisitions. We cannot assure you that we will be able to identify suitable insurance ventures or acquisition targets, that such transactions will be financed and completed on acceptable terms or that our future insurance ventures or acquisitions will be successful. Even if we do find suitable targets, such endeavors may involve significant risks and uncertainties, including:

Our Company is exposed to claims arising out of catastrophes, which can be caused by various natural events, including, but not limited to, hurricanes, windstorms, earthquakes, tornadoes, floods, hail, severe winter weather and fires. Catastrophes can also be man-made, such as war, explosions or terrorism, or caused by severe disasters such as an oil rig explosion. In addition, changing climate conditions could result in an increase in the frequency or severity of natural catastrophes, which could increase exposure to such losses. The incidence and severity of catastrophes are inherently unpredictable. However, we utilize third party modeling tools to assist us in analyzing the potential occurrence and severity of losses from certain catastrophic events. The loss estimates developed by these tools may contain flaws or faulty assumptions or assume various conditions and probability scenarios which may not be known to us or are not within our control. As a result, the models that we use to manage our exposure to catastrophes may not accurately predict future losses, and we could incur losses that exceed those estimates or are not covered by our reinsurance program, which could have a material adverse effect on the financial condition of our Company and reduce our profitability.

Our Company may incur additional losses if our losses and LAE reserves are insufficient.

Our Company maintains loss reserves representing our estimated ultimate unpaid liability for losses and LAE with respect to reported and unreported claims incurred as of the end of each accounting period. Our Company utilizes actuarial projection techniques and judgment in determining our estimated reserves. Our estimates require analysis of facts and circumstances then known, historical settlement patterns, trends in claims severity, frequency, legal theories of liability and other factors. Both internal and external events, including changes in claims handling procedures, economic inflation, legal trends and legislative changes, may affect our reserve estimation process. Many of these items are not directly quantifiable, particularly on a prospective basis. Our Company continually refines our reserve estimates in a regular ongoing process as historical loss experience develops and additional claims are reported and settled. Adjustments to reserves are reflected in the results of the periods in which the estimates are changed. Because establishment of reserves is an inherently uncertain process involving estimates, our currently established reserves may not be sufficient. If our estimated reserves are insufficient, our Company will incur additional charges to earnings, which could have a material adverse effect on our future results of operations, financial position or cash flows.

Our loss reserves include amounts related to short tail and long tail classes of business. Short tail business means that claims are generally reported quickly upon occurrence of an event, making estimation of loss reserves less complex. For the long tail lines, significant periods of time, ranging up to several years or more, may elapse between the occurrence of the loss, the reporting of the loss and the settlement of the claim. The longer the time span between the incidence of a loss and the settlement of the claim, the more likely the ultimate settlement amount will vary. There can be no assurance that our Company will not suffer substantial adverse prior period development in the business in the future.

Our Company may not have access to adequate reinsurance to protect us against losses.

Our Company purchases reinsurance by transferring part of our risk to a reinsurance company in exchange for part of the premium it receives in connection with the risk. The availability and cost of reinsurance are subject to prevailing market conditions which can affect our business volume and profitability. Reinsurance programs are generally subject to renewal on an annual basis. If our Company were unable to renew the expiring facilities or to obtain new reinsurance facilities, our net exposures would increase. If our Company was unwilling to bear an increase in net exposures, we would have to reduce the level of our underwriting commitments, especially catastrophe exposed risks, which would reduce revenues and possibly net income.

Our reinsurance operations are largely dependent upon ceding companies’ evaluation of risk.

Our Company, like other companies that write reinsurance, generally does not evaluate separately individual insurance risks assumed under our reinsurance contracts. As such, our Company is largely dependent upon the ceding companies’ original underwriting decisions. Our Company is subject to the risk that the ceding companies may not have adequately or accurately evaluated risks that they have insured, and it has reinsured, and that the premiums ceded may not adequately compensate it for the risks it assumes. If the reserves are insufficient to cover the unpaid losses and LAE arising from the reinsurance business, our Company would have to strengthen the reserves and incur charges to our earnings, which could adversely affect future results of operations, financial position or cash flows.

Reinsurers may not pay on losses in a timely fashion, or at all, which may increase costs.

Although reinsurance makes the reinsurer liable to our Company to the extent the risk is transferred or ceded to the reinsurer, ceded reinsurance arrangements do not eliminate our Company’s obligation to pay claims to our policyholders. Accordingly, our Company bears credit risk with respect to our reinsurers. Specifically, the reinsurers may not pay claims made by our Company on a timely basis, or they may not pay some or all of these claims. Either of these events would increase our Company’s costs and could have a material adverse effect on our business.

In addition to losses and LAE reserves, preparation of our financial statements requires our Company to make estimates and judgments.

In addition to loss reserves discussed above, our consolidated financial statements contain accounting estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosures. On an ongoing basis, our Company evaluates our estimates based on historical experience and other assumptions that our Company believes to be reasonable. Any significant change in our estimates could adversely affect our results of operations and/or financial condition. Our accounting estimates that are viewed by our management as critical are those in connection with reserves for losses and LAE, reinsurance recoverables, written and unearned premiums, the recoverability of deferred tax assets, impairment of invested assets, the valuation of invested assets, and the valuation of goodwill and intangible assets.

The determination of the impairments taken on our investments is subjective and could materially impact our financial position or results of operations.

The determination of the impairments taken on our investments varies by investment type and is based upon the periodic evaluation and assessment of known and inherent risks associated with the respective asset class. Such evaluations and assessments are revised as conditions change and new information becomes available. Management updates our evaluations regularly and reflects impairments in operations as such evaluations are revised. Our Company cannot be certain that we have accurately assessed the level of impairments taken in our financial statements. Furthermore, additional impairments may need to be taken in the future, which could materially impact our financial position or results of operations. Historical trends may not be indicative of future impairments.

Our investment portfolio is subject to certain risks that could adversely affect the results of operations, financial condition or cash flows.

Although our investment policy guidelines emphasize total investment return in the context of preserving and enhancing stockholder value and statutory surplus of the insurance subsidiaries, our investments are subject to market-wide risks and fluctuations, as well as to risks inherent in particular types of securities. Due to these risks, our Company may not be able to realize our investment objectives. In addition, our Company may be forced to liquidate investments at times and at prices that are not optimal, which could have an adverse effect on our results of operations. Investment losses could significantly decrease our asset base, thereby adversely affecting our ability to conduct business and pay claims.

Because of the unpredictable nature of losses that may arise under insurance policies, our Company may require substantial liquidity at any time. While our principal source of liquidity is cash from our operations, if there are insufficient funds from operations to meet our liquidity needs, we may rely on selling instruments in our investment portfolio. The investment portfolio consists largely of Fixed Maturities and is an additional source of liquidity for our Company. The market value of the Fixed Maturities is subject to fluctuation depending on changes in prevailing interest rates and various other factors. Our Company does not hedge the investment portfolio against interest rate risk. Increases in interest rates during periods when our Company must sell Fixed Maturities securities to satisfy liquidity needs may result in substantial realized investment losses.

Our Company is exposed to significant capital market risks related to changes in interest rates, credit spreads, equity prices and foreign exchange rates, which may adversely affect our results of operations, financial condition or cash flows.

Declines in equity prices, changes in interest rates, changes in credit spreads and the strengthening or weakening of foreign currencies against the U.S. dollar, individually or together, could have a material adverse effect on our consolidated results of operations, financial condition or cash flows.

Our exposure to interest rate risk relates primarily to the market price and cash flow variability of our invested assets associated with changes in interest rates. Our investment portfolio contains interest rate sensitive instruments, such as Fixed Maturities and certain preferred stock classified as equity for financial reporting purposes, which may be adversely affected by changes in interest rates from governmental monetary policies, domestic and international economic and political conditions and other factors beyond the control of our Company. A rise in interest rates would reduce the fair value of our investment portfolio. It would also provide us the opportunity to earn higher rates of return on funds reinvested. Conversely, a decline in interest rates would increase the fair value of our investment portfolio. Our Company would then presumably earn lower rates of return on assets reinvested. Our Company may be forced to liquidate investments prior to maturity at a loss in order to cover liabilities. Although our Company takes measures to manage the economic risks of investing in a changing interest rate environment, we may not be able to mitigate the interest rate risk of our assets relative to our liabilities.

Included in the Fixed Maturities are Asset-Backed and Mortgage-Backed securities. Changes in interest rates can expose our Company to changes in the timing of expected cash flows. In periods of declining interest rates, mortgage prepayments generally increase and Mortgage-Backed securities are prepaid more quickly, requiring our Company to reinvest the proceeds at the then current rates. In periods of rising interest rates, the likelihood of mortgage prepayment decreases and Mortgage-Backed securities are prepaid at a slower rate, limiting our Company’s ability to capitalize on the higher interest rates because its investments remain invested in Mortgage-Backed securities for a longer period of time.

The Fixed Maturities portfolio is invested in high quality, investment-grade securities. Our Company has limits on the amount of below investment-grade, high yield fixed income securities that it can hold in its investment portfolio. These securities may pay a higher rate of interest, and also may have a higher degree of credit or default risk. These securities may also be less liquid in times of economic weakness or market disruptions. While our Company has put in place procedures to monitor the credit risk and liquidity of our invested assets, it is possible that, in periods of economic weakness, our Company may experience default losses in the portfolio. This may result in a reduction of net income, capital and cash flows.

Our Company invests a portion of our portfolio in Common Stock. The value of these assets fluctuates with the equity markets. In times of economic weakness, the market value and liquidity of these assets may decline, and may impact our net income, capital and cash flows.

The functional currency of our Company’s principal insurance subsidiaries is the U.S. Dollar (“USD”). Exchange rate fluctuations relative to the functional currency may materially impact our financial position, as our Company conducts business in currencies other than the U.S. dollar. The principal currencies creating foreign currency exchange risk for our portfolio are the Great British Pound (“GBP”), Euro (“EUR”) and Canadian Dollar (“CAD”). In addition, locally-required capital levels are invested in local currencies in order to satisfy regulatory requirements and to support local insurance operations regardless of currency fluctuations.

Despite mitigation efforts, an increase in interest rates and credit spreads, or a change in foreign exchange rates could have a material adverse effect on our results of operations, financial position and cash flows.

Capital may not be available to our Company in the future or may only be available on unfavorable terms.

The capital needs of our business are dependent on several factors, including the ability to write new business successfully and to establish premium rates and reserves at levels sufficient to cover our losses. If the current capital becomes insufficient for our future plans, our Company may need to raise additional capital through the issuance of stock or debt. Otherwise, in the case of insufficient capital, our Company may need to limit our growth. The terms of equity or debt offering could be unfavorable, for example, causing dilution to the current stockholders or such securities may have rights, preferences and privileges that are senior to existing securities. If our Company was in a situation of having inadequate capital and if we were not able to obtain additional capital, our business, results of operations and financial condition could be adversely affected to a material extent.

A downgrade in our ratings could adversely impact the competitive positions of our operating businesses or negatively affect the ability to implement our business strategy successfully.

Ratings are a critical factor in establishing the competitive position of insurance companies. NIC, NSIC and NIIC are rated by A.M. Best and NIC, NSIC, NIIC and ASCO NV are rated by S&P. Syndicate 1221, as a member of Lloyd’s of London, carries the ratings of Lloyd’s of London, which is rated A by A.M. Best and A+ by S&P. A.M. Best’s and S&P’s ratings reflect their opinions of an insurance company’s financial strength, operating performance, strategic position and ability to meet its obligations to policyholders, and are not evaluations directed to investors. The ratings are subject to periodic review by A.M. Best and S&P. Because these ratings have become an increasingly important factor in establishing the competitive position of insurance companies, if these ratings are reduced, our competitive position in the industry, and therefore the business, could be adversely affected in a material manner. A significant downgrade could result in a substantial loss of business as policyholders might move to other companies with higher

ratings. In addition, a significant downgrade could subject our Company to higher borrowing costs and our ability to access the capital markets could be negatively impacted. If our Company were to be downgraded below an “A-”, we would be required to provide additional collateral under the letter of credit facility with ING Bank, N.V., London Branch, as Administrative Agent and Letter of Credit Agent. Further, a downgrade below BBB- by S&P would subject our Company to higher interest rates payable on the 5.75% Senior Notes due October 15, 2023. Refer to Note 9, Debt, in the Notes to Consolidated Financial Statements for additional information regarding such credit facility and 5.75% Senior Notes due October 15, 2023, respectively.

There can be no assurance that our current ratings will continue for any given period of time. For a further discussion of our ratings, refer to Management’s Discussion and Analysis of Financial Condition and Results of Operations – Ratings included herein.

Continued or increased premium levies by Lloyd’s for the Lloyd’s Central Fund and cash calls for trust fund deposits or a significant downgrade of Lloyd’s A.M. Best rating could materially and adversely affect our Company.

The Lloyd’s Central Fund protects Lloyd’s policyholders against the failure of a member of Lloyd’s to meet its obligations. The Lloyd’s Central Fund is a mechanism which in effect mutualizes unpaid liabilities among all members, whether individual or corporate. The Lloyd’s Central Fund is available to back Lloyd’s policies issued after 1992. Lloyd’s requires members to contribute to the Lloyd’s Central Fund, normally in the form of an annual contribution, although a special contribution may be levied. The Council of Lloyd’s has discretion to call up to 3% of underwriting capacity in any one year.

Policies issued before 1993 have been reinsured by Equitas Insurance Limited (“Equitas”), an independent insurance company authorized by the Financial Services Authority, the predecessor to the PRA and the FCA. However, if Equitas were to fail or otherwise be unable to meet all of its obligations, Lloyd’s may take the view that it is appropriate to apply the Lloyd’s Central Fund to discharge those liabilities. In that case, the Council of Lloyd’s may resolve to impose a special or additional levy on the existing members, including Lloyd’s corporate members, to satisfy those liabilities.

Additionally, Lloyd’s insurance and reinsurance business is subject to local regulation, and regulators in the United States require Lloyd’s to maintain certain minimum deposits in trust funds as protection for policyholders in the United States. These deposits may be used to cover liabilities in the event of a major claim arising in the United States and Lloyd’s may require our Company to satisfy cash calls to meet claims payment obligations and maintain minimum trust fund amounts.

Any premium levy or cash call would increase the expenses of Navigators Corporate Underwriters, Ltd. (“NCUL”), the corporate member, without providing compensating revenues, and could have a material adverse effect on our results.

Our Company believes that in the event that Lloyd’s rating is downgraded, the downgrade could have a material adverse effect on our ability to underwrite business through Lloyd’s and on our financial condition or results of operations.

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

NIC and NSIC are subject to extensive regulation and supervision in the jurisdictions in which we conduct business. This regulation is generally designed to protect the interests of policyholders, as opposed to insurers and their stockholders and other investors, and relates to authorization for lines of business, capital and surplus requirements, investment limitations, underwriting limitations, transactions with affiliates, dividend limitations, changes in control, premium rates and a variety of other financial and non-financial components of an insurance company’s business.

Virtually all states require insurers licensed to do business in that state to bear a portion of the loss suffered by some insureds as the result of impaired or insolvent insurance companies through the operation of guaranty funds. The effect of these arrangements could reduce our profitability in any given period or limit our ability to grow our business.

In recent years, the state insurance regulatory framework has come under increased federal scrutiny, and some state legislatures have considered or enacted laws that may alter or increase state authority to regulate insurance companies and insurance holding companies. Further, the NAIC and state insurance regulators are re-examining existing laws and regulations, specifically focusing on modifications to holding company regulations, interpretations of existing laws and the development of new laws. Additionally, the Dodd-Frank Wall Street Reform and Consumer Protection Act, which became effective on July 21, 2010, established a Federal Insurance Office to, among other responsibilities identify issues or gaps in the regulation of insurers that could contribute to a systemic crisis in the insurance industry or the United States financial system. Any proposed or future legislation or NAIC initiatives may be more restrictive than current regulatory requirements or may result in higher costs.

In response to the September 11, 2001 terrorist attacks, the United States Congress has enacted legislation designed to ensure, among other things, the availability of insurance coverage for terrorist acts, including the requirement that insurers provide such coverage in certain circumstances. The legislation also provides governmental reinsurance to the insurers who have assumed the terrorism exposure from their policyholders, but there is no certainty that these programs will be renewed upon expiration. Refer to Business – Regulation – United States included herein for a discussion of the TRIA, TRIEA and TRIPRA legislation.

In addition, new legislative, regulatory, and fiscal initiatives may be introduced in the future in any of the jurisdictions where we operate. Any of those initiatives could cause changes in U.S. social, political, regulatory and economic conditions or in laws and policies governing foreign trade, development and investment in the countries where our Company currently operates, which could adversely affect our business and our financial conditions or results of operations.

Our subsidiaries are subject to the laws and regulations of each country in which they operate, with some jurisdictions imposing comprehensive regulatory requirements and others imposing fewer requirements. Our businesses in the U.K. and on the European continent are also heavily regulated and must comply with the requirements of the PRA, FCA, the NBB, FSMA, CAA and Lloyd’s, and those imposed upon the Lloyd’s market by overseas regulators where the Syndicate conducts business. Refer to Business – Regulation – United Kingdom included herein for a discussion of regulations in that jurisdiction.

Changes in tax laws could increase our corporate taxes, reduce our deferred tax assets or affect pricing of some of our products.

We are subject to U.S. federal and various state and foreign jurisdiction taxes. Our provision for income taxes, our recorded tax liabilities and our net deferred tax assets, including any valuation allowances, are recorded based on estimates. These estimates require us to make significant judgments regarding a number of factors, including, among others, the applicability of various federal and state laws, our interpretation of tax laws and the interpretations given to those tax laws by taxing authorities and courts, the timing of future income and deductions, and our expected levels and sources of future taxable income. Additionally, from time to time there are changes to tax laws and interpretations of tax laws that could cause us to revise our estimates of the amount of tax benefits or deductions expected to be available to us in future periods. In such circumstances, any revisions to our prior estimates would be reflected in the period changed and could have a material and adverse effect on our effective tax rate, financial position, results of operations and cash flows.

In addition, the Tax Act includes a number of provisions, including the lowering of the U.S. corporate tax rate from 35% to 21%, effective January 1, 2018. The Tax Act has impacted and is expected to continue to impact our Company’s operating results, cash flows, and financial condition. The effect of the international provisions of the Tax Act, which generally establishes a territorial-style system for taxing foreign-source income of domestic multinational corporations, is uncertain. As a result of the Tax Act, our Company has reflected in our financial statements the estimated impact for one-time adjustments for the re-measurement of deferred tax assets (liabilities), future discounting for loss reserves and the deemed repatriation tax on unremitted foreign earnings and profits. In accordance with the SEC’s Staff Accounting Bulletin No. 118 (“SAB 118”), provisional amounts for certain income tax effects of the Tax Act were estimated. As of December 31, 2018, we have finalized the impact of the Tax Act which resulted in a decrease in the provisional amount of $1.3 million. Additionally, a tax benefit of $0.5 million related to the remeasurement of net deferred tax assets was recognized in the fourth quarter of 2018. There could be additional tax effects or adjustments related to the Tax Act that could materially impact our results of operations and financial condition.

The E.U. Directive on Solvency II may affect how our Company manages our business, subject our Company to higher capital requirements and cause us to incur additional costs to conduct our business in the E.U. (including the U.K.).

An E.U. directive covering the capital adequacy, risk management and regulatory reporting for insurers, known as Solvency II, was adopted by the European Parliament in April 2009 and became effective on January 1, 2016. Solvency II has introduced a new system of regulation for insurers operating in the E.U. (including the United Kingdom) and presented a number of risks to us. Over the last few years, our Company has undertaken a significant amount of work to ensure that it meets the requirements for all of the affected entities. There is a risk that if the Solvency II requirements are not met and maintained on an on-going basis, the regulator may increase the capital requirements for our subsidiaries and branch operations that are subject to Solvency II. These new regulations have the potential to adversely affect their profitability and restrict their ability to carry on business as currently conducted.

The effects of emerging claim and coverage issues on our business are uncertain.

As industry practices and legislative, regulatory, judicial, social, financial, and other environmental conditions change, unexpected and unintended issues related to claims and coverage may emerge. These issues may adversely affect the business by either extending coverage beyond the underwriting intent or by increasing the frequency and severity of claims. In some instances, these changes may

not become apparent until after our Company has issued insurance or reinsurance contracts that are impacted. As a result, the full extent of liability under the insurance or reinsurance contracts may not be known for many years after a contract is issued.

Compliance with the legal and regulatory requirements to which we are subject is evolving and unpredictable. In addition, compliance with new sanctions and embargo laws could have a material adverse effect on our business.

All of our business written is required to comply with a wide variety of laws and regulations, including economic sanctions and embargo laws and regulations, applicable to insurance or reinsurance companies, both in the jurisdictions in which the business is organized and where the business sells their insurance and reinsurance products, and that implicate the conduct of insureds. The insurance industry, in particular as it relates to international insurance and reinsurance companies, has become subject to increased scrutiny in many jurisdictions, including the United States, various states within the U.S., the E.U., and various countries within the E.U., and the U.K.

Increased regulatory focus on our Company may result in costly compliance burdens and/or may otherwise increase costs, which could materially and adversely impact our financial performance. The introduction of new or expanded economic sanctions applicable to marine insurance could also force our Company to exit certain geographic areas or product lines, which could have an adverse impact on our profitability.

Although our Company intends to maintain compliance with all applicable sanctions and embargo laws and regulations, and have established protocols, policies and procedures reasonably tailored to ensure compliance with all applicable embargo laws and regulations, there can be no assurance that our Company will be in compliance in the future, particularly as the scope of certain laws may be unclear and may be subject to changing interpretations. Any such violation could result in fines, penalties or other sanctions that could severely impact our ability to access U.S. capital markets and conduct our business, and could result in some investors deciding, or being required, to divest their interest, or not to invest, in our Company. In addition, certain institutional investors may have investment policies or restrictions that prevent them from holding securities of companies that have contracts with countries identified by the U.S. government as state sponsors of terrorism. The determination by these investors not to invest in, or to divest from, investing in the Common Stock of our Company may adversely affect the price at which our Common Stock trades.

Moreover, our non-U.S. subsidiaries, such as NUAL, NIIC, and ASCO may be subject to different sanctions and embargo laws and regulations. The reputation and the market for the securities of our Company may be adversely affected if any such subsidiary engages in certain activities, even though such activities are lawful under applicable sanctions and embargo laws and regulations.

The price of our Parent Company Common Stock may not remain at or exceed current levels. In addition to the other risk factors detailed herein, the following factors may have an adverse impact on the market price of our Parent Company Common Stock:

Stock markets in the United States often experience price and volume fluctuations. Market fluctuations, as well as general political and economic conditions such as a recession or interest rate or currency rate fluctuations, could adversely affect the market price of our Parent Company Common Stock.

The payment of dividends is at the discretion of our Board of Directors, and the reduction or elimination of dividends could cause a decline in the price of our Common Stock.

We are not obligated to pay dividends on our Common Stock. Any determinations by the Board of Directors to declare and pay cash dividends on our Company’s Common Stock will be based primarily upon our Company’s financial condition, results of operations,

business requirements, regulatory and legal constraints and any other factors the Board of Directors deems relevant. Several of these factors will be subject to general economic, financial, competitive, legislative and regulatory factors beyond our Company’s control. Any reduction or elimination of dividends could cause our Company’s stock price to decline.

The inability of our subsidiaries to pay dividends to our Parent Company in sufficient amounts would harm our ability to meet obligations.

Our Parent Company is a holding company and relies primarily on dividends from our subsidiaries to meet our obligations for payment of interest and principal on outstanding debt obligations and corporate expenses. The ability of our insurance subsidiaries to pay dividends to our Parent Company in the future will depend on their statutory surplus, on earnings and on regulatory restrictions. For a discussion of our insurance subsidiaries’ current dividend-paying ability, please refer to Management’s Discussion and Analysis of Financial Condition and Results of Operations – Capital Resources, included herein. Our Parent Company, as an insurance holding company, and our insurance subsidiaries are subject to regulation by some states. Such regulation generally provides that transactions between companies within the consolidated group must be fair and equitable. Transfers of assets among affiliated companies, certain dividend payments from underwriting subsidiaries and certain material transactions between companies within the consolidated group may be subject to prior notice to, or prior approval by, state regulatory authorities. Our insurance subsidiaries are also subject to licensing and supervision by government regulatory agencies in the jurisdictions in which we do business. These regulations may set standards of solvency that must be met and maintained, such as the nature of and limitations on investments, the nature of and limitations on dividends to policyholders and stockholders and the nature and extent of required participation in insurance guaranty funds. These regulations may affect our subsidiaries’ ability to provide our Parent Company with dividends.

Our Company depends on the ability to attract and retain qualified executive officers, experienced underwriters, claims professionals and other skilled employees who are knowledgeable about our Company’s lines of business. If the quality of our executive officers, underwriting or claims team and other personnel decreases, our Company may be unable to maintain the current competitive position in the specialty markets in which our Company operates and be unable to expand our operations into new specialty markets.

Our Company could be adversely affected if we do not maintain effective operating procedures and controls.

Our Company engages in a large number of complex insurance and investment activities on a daily basis. We continually work to enhance our operating procedures and internal controls to effectively support our business and ensure that we are able to assess and monitor operational risks that can result from, among other things, errors, failure to document transactions properly or to obtain proper internal authorization, failure to comply with regulatory requirements, information technology failures, external events or fraud. However, a control system, no matter how well designed and operated, has inherent limitations and can provide only reasonable assurance that the control system's objectives will be met. If our operating procedures and controls are not effective or if we experience difficulties in their implementation, it could lead to financial loss, unanticipated risk exposure (including underwriting, credit and investment risk) or damage to our Company’s reputation.

If our Company experiences difficulties with the efficient functioning of information technology, telecommunications and other business systems, our ability to conduct our business might be adversely affected.

Our Company relies heavily on the successful, uninterrupted functioning of our information technology (“IT”), telecommunications and other business systems. Our business and continued expansion is highly dependent upon the ability to perform, in an efficient and uninterrupted fashion, necessary business functions, such as pricing, quoting and processing policies, paying claims, performing actuarial and other modeling functions. Although we have an information technology continuity plan in place to ensure the continuation of essential business operations in the event of a failure of such systems due to security breaches, network failures, or sustained or repeated loss of electricity and while we continue to test and assess our continuity plan, there is no guarantee that essential business operations could be performed upon the occurrence of any such event. A failure of our IT, telecommunication or other business systems or the termination of third-party software licenses our Company relies on in order to maintain such systems could materially impact our ability to write and process business, provide customer service, pay claims in a timely manner or perform other necessary actuarial, legal, financial and other business functions. As a result, our Company could experience financial losses and the ability of our Company to conduct business might be adversely affected.

Our Company is dependent upon the security of our information technology systems as well as those of our third party service providers, and a breach of the security of such systems could result in an impairment of our ability to conduct business effectively.

Our Company retains confidential and proprietary information on our IT systems and relies on sophisticated technologies to maintain the security of that information. In addition, we outsource certain business functions to third parties, which may expose us to enhanced risk related to data security. While, to date, our Company has not experienced, nor has any third party service provider notified us of, a material breach of cybersecurity, any administrative and technical controls and other preventive actions we take or require such service providers to take to reduce the risk of cyber-incidents and protect such systems may be insufficient to prevent physical and electronic break-ins, cyber-attacks or other security breaches. The failure to maintain the security, confidentiality or privacy of sensitive data could harm our Company’s reputation, subject us to legal claims, lead to a loss of customers and revenues and otherwise adversely affect our business and financial results. While our Company maintains cyber liability insurance that provides both third-party liability and first party liability coverages, our insurance may not be sufficient to protect us against all losses.

Our business operations may be affected by natural and man-made catastrophes, disasters, severe events, pandemics and crises which could result in an impairment of our ability to conduct business effectively and have a material financial impact on our financial condition.

Severe events could disrupt business operations, including depleting our Company’s workforce. Our Company has a business continuity plan in place to mitigate the impacts from disruptive events and to be ready to restore operations if such an event were to occur. Our business continuity plan is designed to meet the needs of our policyholders, shareholders, business partners, and other constituents, and to assist other insurers in meeting their policyholder needs if requested should such an event occur. While we continue to test and assess our business continuity plan to ensure it addresses multiple business interruption events, there is no guarantee that essential business operations could be performed upon the occurrence of any such an event. As a result, our Company could experience financial losses and the ability of our Company to conduct business might be adversely affected.

Our Company could be materially adversely affected if third parties we utilize to support our business do not comply with underwriting and claims guidelines, procedures and protocols provided by us or expose us to additional underwriting and credit risk.

Our Company utilizes third parties, including brokers, managing general agents and third party administrators, to produce or service a portion of our business. In these arrangements, we may authorize these third parties to write business, settle claims and/or collect premium on our behalf, subject to underwriting guidelines, claims handling procedures, and other contractual restrictions and obligations provided by us. Although we monitor these arrangements on an ongoing basis, these third parties could contravene such guidelines, procedures, restrictions or obligations. As a result, our Company could be exposed to potential liabilities related to policies that exceed or expand on our underwriting intention, claims practices that do not comply with our prescribed policies and procedures or operational deficiencies or misconduct with respect to the collection and handling of premium. In addition, our use of independent agents and brokers exposes our Company to additional credit risk. When policyholders purchase insurance policies from us through these agents and brokers, the premiums are often first received by them, who then pay the premiums to our Company. In many jurisdictions, the premiums are deemed paid to our Company whether or not we receive them. Although we perform due diligence on these third parties prior to our engagement of them and have implemented oversight protocols to monitor these third party arrangements, we cannot guarantee that these control mechanisms will be sufficient to mitigate all of these exposures, and consequently, our results of operations and financial condition could be materially adversely affected.

We have no outstanding, unresolved comments from the SEC staff at December 31, 2018.

Our executive and administrative office is located at 400 Atlantic Street, Stamford, CT. The lease for this space expires in October 2023. Additionally, we operate in various locations with non-cancelable operating leases including:

The Company also owns real estate property which operates as office facilities in Antwerp, Belgium.

In the ordinary course of conducting business, our subsidiaries are involved in various legal proceedings, either indirectly as insurers for parties or directly as defendants. Most of these proceedings consist of claims litigation involving our subsidiaries as either (a) liability insurers defending or providing indemnity for third party claims brought against insureds or (b) insurers defending first party coverage claims brought against us. Our Company accounts for such activity through the establishment of unpaid losses and LAE reserves. Our Company’s management believes that our ultimate liability, if any, with respect to such ordinary-course claims litigation, after consideration of provisions made for potential losses and cost of defense, will not be material to the consolidated financial condition, results of operations, or cash flows of our Company.

Our subsidiaries are also occasionally involved with other legal actions, some of which assert claims for substantial amounts. These actions include claims asserting extra contractual obligations, such as claims involving allegations of bad faith in the handling of claims or the underwriting of policies. In general, our Company believes we have valid defenses to these cases. Our Company’s management expects that the ultimate liability, if any, with respect to such extra-contractual matters will not be material to our consolidated financial position. Nonetheless, given the large or indeterminate amounts sought in certain of these matters, and the inherent unpredictability of litigation, an adverse outcome in such matters could, from time to time, have a material adverse outcome on our consolidated results of operations or cash flows in a particular fiscal quarter or year.

ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUE PURCHASES OF EQUITY SECURITIES

Our Parent Company’s Common Stock is traded over-the-counter on NASDAQ under the symbol NAVG. Over-the-counter market quotations reflect inter-dealer prices, without retail mark-up, mark-down or commissions and may not necessarily represent actual transactions.

The following table reflects the dividends declared each quarter for the four quarters of 2018 and 2017:

The declaration and amount of any future dividend will be at the discretion of the Board of Directors, and will depend upon many factors, including financial condition, results of operations, business requirements, regulatory and legal constraints and any other factors the Board of Directors deems relevant.

Refer to Note 12, Stockholders’ Equity, in the Notes to Consolidated Financial Statements for additional information regarding dividends, including dividend restrictions and net assets available for dividend distribution.

Information provided to our Company by the transfer agent and proxy solicitor indicates that there are approximately 89 holders of record as of February 26, 2019 and 7,882 beneficial holders of our Common Stock, as of February 27, 2019.

The Five Year Stock Performance Graph and related Cumulative Indexed Returns table, as presented below, reflects the cumulative return on our Company’s Common Stock, the Standard & Poor’s 500 Index (“S&P 500 Index”) and the S&P Property and Casualty Insurance Index (the “Insurance Index”) assuming an original investment in each of $100 on December 31, 2013 (the “Base Period”) and reinvestment of dividends to the extent declared. Cumulative returns for each year subsequent to 2013 are measured as a change from this Base Period.

The comparison of five year cumulative returns among our Company, the companies listed in the S&P 500 Index and the Insurance Index are as follows:

The following table sets forth selected consolidated financial data including consolidated financial information of our Company for each of the last five calendar years, derived from our Company’s audited Consolidated Financial Statements. The table should be read in conjunction with Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations, and Item 8, Financial Statements and Supplementary Data, included herein.

	Years Ended December 31,
in thousands, except per share amounts	2018			2017			2016			2015			2014
Operating information:
Gross Written Premiums	$	1,912,961		$	1,713,265		$	1,568,911		$	1,453,502		$	1,432,353
Revenues:
Net Earned Premiums	$	1,363,223		$	1,186,420		$	1,100,345		$	984,087		$	935,895
Net Investment Income		103,113			89,293			79,451			68,718			64,168
Net Other-Than-Temporary Impairment Losses Recognized in Earnings		—			(2,064	)		(150	)		(1,698	)		—
Net Realized Gains on Investments Sold		2,989			45,073			9,186			8,373			12,812
Net Unrealized Losses on Equity Securities		(33,337	)		—			—			—			—
Total Net Realized and Unrealized Gains (Losses)		(30,348	)		45,073			9,186			8,373			12,812
Other Income (Loss)		7,169			(4,243	)		8,701			(491	)		10,656
Total Revenues	$	1,443,157		$	1,314,479		$	1,197,533		$	1,058,989		$	1,023,531
Expenses:
Net Losses and Loss Adjustment Expenses	$	893,779		$	806,265		$	665,448		$	572,598		$	545,229
Commission Expenses		220,144			184,731			165,045			129,977			125,528
Other Operating Expenses		261,224			233,230			234,096			223,516			196,825
Merger Transaction Costs		3,950			—			—			—			—
Interest Expense		15,485			15,447			15,435			15,424			15,413
Total Expenses	$	1,394,582		$	1,239,673		$	1,080,024		$	941,515		$	882,995
Income Before Income Taxes		48,575			74,806			117,509			117,474			140,536
Income Tax Expense		14,336			34,312			34,783			36,417			45,207
Net Income	$	34,239		$	40,494		$	82,726		$	81,057		$	95,329
Net Income per Share:
Basic	$	1.15		$	1.38		$	2.85		$	2.82		$	3.34
Diluted	$	1.13		$	1.35		$	2.75		$	2.73		$	3.25
Cash Dividends Declared per Common Share	$	0.280		$	0.225		$	0.135		$	—		$	—
Average Common Shares Outstanding:
Basic		29,720			29,441			29,074			28,785			28,520
Diluted		30,193			30,071			30,032			29,651			29,293
Combined Loss and Expense Ratio ⁽¹⁾:
Loss Ratio		65.6	%		68.0	%		60.5	%		58.2	%		58.3	%
Expense Ratio		35.1	%		35.2	%		36.2	%		35.9	%		34.3	%
Total		100.7	%		103.2	%		96.7	%		94.1	%		92.6	%

Balance Sheet information:
Total Investments ⁽²⁾	$	3,481,454		$	3,330,003		$	3,022,320		$	2,838,272		$	2,668,238
Total Assets		5,603,449			5,224,622			4,814,037			4,584,012			4,476,185
Gross Losses and LAE Reserves		2,743,973			2,515,145			2,289,727			2,202,644			2,159,634
Net Losses and LAE Reserves ⁽³⁾		1,923,784			1,705,380			1,510,451			1,393,126			1,308,136
Senior Notes		264,052			263,885			263,728			263,580			263,440
Stockholders' Equity		1,186,850			1,225,965			1,178,188			1,096,148			1,027,224
Common Shares Outstanding		29,782			29,507			29,124			28,862			28,563
Book Value per Share ⁽⁴⁾	$	39.85		$	41.55		$	40.45		$	37.98		$	35.96

(2) - Cash that was misclassified within Short-Term Investments prior to 2018 was reclassified, representing an immaterial correction. Refer to Note 1 Organization & Summary of Significant Accounting Policies, in the Notes to the Consolidated Financial Statements, for further information.

(3) - Net Losses and LAE Reserves is comprised of our Reserves for Losses and Loss Adjustment Expenses less our Reinsurance Recoverable on Unpaid Losses and Loss Adjustment Expenses.

(4) - Calculated as stockholders’ equity divided by actual shares outstanding as of the date indicated.

Item 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Throughout this Annual Report, we present our operations in the way we believe will be most meaningful, useful and transparent to anyone using this financial information to evaluate our performance. In addition to the presentation of Net Income (Loss), Book Value, Book Value per Share, Net Losses and LAE Reserves and Combined Ratio, we show certain non-GAAP financial measures as defined in Regulation G that we believe are valuable in managing our business and drawing comparisons to our peers. These non-GAAP measures are Net Operating Earnings and Underwriting Profit (Loss).

The following is a list of GAAP and non-GAAP measures found throughout this report with their definitions, relationships to GAAP measures and explanations of their importance to our operations:

Book value is equivalent to Stockholders’ Equity and Book Value per Share is calculated by dividing Stockholders’ Equity by the number of outstanding shares at the end of the period being presented.

Reserve for Losses and LAE, as shown in the liabilities section of our Consolidated Balance Sheets, represents the total obligations to claimants for both estimates of known claims and estimates for IBNR claims. The related asset item, Reinsurance Recoverable on Unpaid Losses and LAE, is the estimate of both known claims and IBNR that we expect to recover from reinsurers. The net of these two items is generally referred to as Net Losses and LAE Reserves and is commonly used in our disclosures regarding the process of establishing these various estimated amounts.

The Combined Ratio is a common insurance industry measure of profitability for any underwriting operation and is calculated in three components. First, the Loss Ratio is represented by Net Losses and LAE divided by Net Earned Premiums. The second component is the Commission Expense Ratio, which is Commission Expenses divided by Net Earned Premiums. The third component is the Other Operating Expense Ratio, which reflects the sum of Other Operating Expenses and Other Underwriting Income (Expense), divided by Net Earned Premiums. All items included in these components of the Combined Ratio are presented in our GAAP Consolidated Financial Statements. The sum of the Loss Ratio, Commission Expense Ratio and Other Operating Expense Ratio is the Combined Ratio. The difference between the Combined Ratio and 100% reflects the rate of Underwriting Profit (Loss). For example, a Combined Ratio of 85% implies that for every $100 of premium we earn, we record $15 of Underwriting Profit.

Net Operating Earnings is a “non-GAAP financial measure” as defined in Regulation G. Net Operating Earnings is comprised of Net Income excluding After-Tax adjustments, including: Total Net Realized and Unrealized Gains (Losses), Foreign Exchange Gains (Losses), the Net Gain on Disposition of Product Line, Merger Transaction Costs, and the impact of the Tax Act at enactment recognized in our Consolidated Statements of Income. We believe that this presentation reflects the underlying fundamentals of our business.

A reconciliation of Net Income (the nearest GAAP financial measure) to Net Operating Earnings can be found in Item 7, Results of Operations. We believe this presentation enhances the understanding of our results of operations by highlighting the underlying profitability of our business and enables investors and other users of our financial information to analyze underlying business performance in a manner similar to management. We also believe this measure follows industry practice and, therefore facilitates comparison of our performance with our peer group.

Underwriting Profit (Loss) represents one measure of the pre-tax profitability of our insurance operations and is derived by subtracting the following from Net Earned Premiums: Net Losses and LAE, Commission Expenses, Other Operating Expenses and Other Underwriting Income (Expense). This information is available in total and by segment in the Notes to Consolidated Financial Statements. The nearest comparable GAAP measure is Income Before Income Taxes which, in addition to Underwriting Profit (Loss), includes Net Investment Income, Total Net Realized and Unrealized Gains (Losses) recognized in our Consolidated Statements of Income, Interest Expense, Other Income (Loss), and Merger Transaction Costs. While this measure is presented in the footnotes to the Consolidated Financial Statements, it is considered a “non-GAAP financial measure” as defined in Regulation G when presented elsewhere on a consolidated basis.

A reconciliation of total Underwriting Profit (Loss) and its components to Income Before Income Taxes (the nearest GAAP financial measure) can be found in the Notes to the Consolidated Financial Statements and in Item 7, Segment Results. We believe that presentation of Underwriting Profit (Loss) provides investors and other users of our financial information with an enhanced understanding of our results of operations, by highlighting the underlying pre-tax profitability of our underwriting activities.

The discussion and analysis of our financial condition and results of operations contained herein should be read in conjunction with our consolidated financial statements and accompanying notes which appear elsewhere in this Form 10-K. It contains forward-looking statements that involve risks and uncertainties. Please refer to Forward-Looking Statements and Risk Factors for more information. Our results could differ materially from those anticipated in these forward-looking statements as a result of various factors, including those described below and elsewhere in this Form 10-K.

We are an international insurance company with a long-standing area of specialization in Marine insurance. We also offer P&C insurance, primarily general liability coverage and umbrella & excess liability coverage to commercial enterprises through our Primary and Excess Casualty divisions. We have also developed niches in Professional Liability insurance, through our D&O and E&O divisions, as well as assumed reinsurance products.

On February 7, 2018, certain wholly owned subsidiaries of our Company entered into a Renewal Rights Agreement with Thomas Miller Specialty Underwriting Agency Limited and Thomas Miller & Co Limited (collectively “Thomas Miller”), pursuant to which Thomas Miller agreed to acquire the renewal rights to our Company’s fixed-premium protection and indemnity business. During the first quarter of 2018, our Company recorded a gain from this transaction. Our Company agreed to continue to underwrite such business from February 8, 2018 through an end date of August 31, 2018, while all transitional arrangements were put in place, and ceded 100% of such business through a quota share agreement. After August 31, 2018 this business renewed through Thomas Miller. Our Company remains responsible for all losses incurred on such business written prior to February 8, 2018, and our Company continues to participate in the protection and indemnity market primarily through reinsurance of mutual clubs via our Lloyd’s of London (“Lloyd’s”) syndicate, Syndicate 1221.

During the second quarter of 2018, our Company established a wholly owned subsidiary, Navigators Holding (Europe) NV, which on June 7, 2018 (the “acquisition date”), acquired a 100% ownership interest in Bracht, Deckers & Mackelbert NV, an insurance underwriting agency organized under the laws of Belgium (“BDM”), Assurances Continentales – Continentale Verzekeringen NV, an insurance company licensed under the laws of Belgium (“ASCO”), and a wholly-owned subsidiary of ASCO, Canal Re S.A., a reinsurance company licensed under the laws of the Grand Duchy of Luxembourg (“Canal Re”). The acquisition of all three of these entities will be referred to as the “Acquisition” and the group of companies will be referred to as the Navigators Insurance Company Europe Group (the “NICE Group”). The Acquisition was undertaken as part of the Company’s strategy of expanding to more brokers and insureds across Europe and reinforces the Company’s presence in the European Union’s single market. We anticipate that this will enable the Company to better serve its European clients after Brexit, and will also provide opportunities to reach a wider European audience. The underwriting results of the acquired business from the NICE Group are included in the Int’l Insurance reporting segment, with no new operating segments resulting from the Acquisition.

On August 22, 2018, our Company entered into an Agreement and Plan of Merger (the “Merger Agreement”) with The Hartford Financial Services Group, Inc. (“The Hartford”). The Merger Agreement provides that, subject to the terms and conditions set forth therein, our Company will merge with an existing subsidiary of The Hartford, with our Company surviving as a wholly owned subsidiary of The Hartford (the “Merger”). Pursuant to the Merger Agreement, at the effective time of the Merger, holders of the Company’s common shares will be entitled to receive consideration of $70.00 in cash per common share. At a special meeting of stockholders of the Company held on November 16, 2018, the Company’s stockholders approved by the requisite vote a proposal to adopt the Merger Agreement. The Merger is expected to close in the first half of 2019, but remains subject to the receipt of regulatory approvals and other customary closing conditions.

Our revenue is primarily comprised of premiums and investment income. Cash flow is generated from premiums collected and investment income received less paid losses and loss expenses, commission and administrative expenses as well as the timing of reinsurance receipts and payments. Our products are distributed through multiple channels, utilizing global, national and regional retail and wholesale insurance brokers.

We report our results of operations consistent with the manner in which our Chief Operating Decision Maker reviews the business to assess performance by our four reportable segments: U.S. Insurance, Int’l Insurance, GlobalRe and Corporate.

The following table presents a summary of our consolidated financial results for the years ended December 31, 2018, 2017 and 2016:

	Years Ended December 31,									Percentage Change
										2018 vs.			2017 vs.
amounts in thousands, except per share amounts	2018			2017			2016			2017			2016
Gross Written Premiums	$	1,912,961		$	1,713,265		$	1,568,911			11.7	%		9.2	%
Ceded Written Premiums		(441,876	)		(441,935	)		(382,687	)		(0.0	%)		15.5	%
Net Written Premiums		1,471,085			1,271,330			1,186,224			15.7	%		7.2	%
Net Earned Premiums	$	1,363,223		$	1,186,420		$	1,100,345			14.9	%		7.8	%
Net Losses and LAE		(893,779	)		(806,265	)		(665,448	)		10.9	%		21.2	%
Commission Expenses		(220,144	)		(184,731	)		(165,045	)		19.2	%		11.9	%
Other Operating Expenses		(261,224	)		(233,230	)		(234,096	)		12.0	%		(0.4	%)
Other Underwriting Income		2,311			68			136		NM				(50.0	%)
Underwriting Profit (Loss)	$	(9,613	)	$	(37,738	)	$	35,892			(74.5	%)	NM
Net Investment Income		103,113			89,293			79,451			15.5	%		12.4	%
Total Net Realized and Unrealized Gains (Losses)		(30,348	)		43,009			9,036		NM			NM
Interest Expense		(15,485	)		(15,447	)		(15,435	)		0.2	%		0.1	%
Other Income (Loss)		4,858			(4,311	)		8,565		NM			NM
Merger Transaction Costs		(3,950	)		—			—		NM			NM
Income Before Income Taxes	$	48,575		$	74,806		$	117,509			(35.1	%)		(36.3	%)
Income Tax Expense		(14,336	)		(34,312	)		(34,783	)		(58.2	%)		(1.4	%)
Net Income	$	34,239		$	40,494		$	82,726			(15.4	%)		(51.1	%)
Net Income per Basic Share	$	1.15		$	1.38		$	2.85
Net Income per Diluted Share	$	1.13		$	1.35		$	2.75
Effective Tax Rate		29.5	%		45.9	%		29.6	%
Losses and LAE Ratio		65.6	%		68.0	%		60.5	%
Commission Expense Ratio		16.1	%		15.6	%		15.0	%
Other Operating Expense Ratio ⁽¹⁾		19.0	%		19.6	%		21.2	%
Combined Ratio		100.7	%		103.2	%		96.7	%

The following table calculates our Net Operating Earnings for the years ended December 31, 2018, 2017 and 2016:

	Years Ended December 31,
	2018									2017									2016									Percentage Change
amounts in thousands, except per share amounts	Pre- Tax			Tax ⁽¹⁾			After- Tax			Pre- Tax			Tax ⁽¹⁾			After- Tax			Pre- Tax			Tax ⁽¹⁾			After- Tax			2018 vs. 2017			2017 vs. 2016
Net Income	$	48,575		$	(14,336	)	$	34,239		$	74,806		$	(34,312	)	$	40,494		$	117,509		$	(34,783	)	$	82,726			(15.4	%)		(51.1	%)
Adjustments to Net Income:
Total Net Realized and Unrealized Losses (Gains)		30,348			(6,373	)		23,975			(43,009	)		15,054			(27,955	)		(9,036	)		3,163			(5,873	)	NM			NM
FX Losses (Gains)		(3,157	)		662			(2,495	)		4,213			(1,474	)		2,739			(8,626	)		3,019			(5,607	)	NM			NM
Net Gain on Disposition of Product Line		(948	)		199			(749	)		—			—			—			—			—			—		NM			NM
Merger Transaction Costs		3,950			(596	)		3,354			—			—			—			—			—			—		NM			NM
Impact of the Tax Act at Enactment ⁽²⁾		—			(1,820	)		(1,820	)		—			19,694			19,694			—			—			—		NM			NM
Net Operating Earnings	$	78,768		$	(22,264	)	$	56,504		$	36,010		$	(1,038	)	$	34,972		$	99,847		$	(28,601	)	$	71,246			61.6	%		(50.9	%)
Average Common Shares Outstanding:
Basic								29,720									29,441									29,074
Diluted								30,193									30,071									30,032

Net Operating Earnings per Common Share:
Basic							$	1.90								$	1.19								$	2.45
Diluted							$	1.87								$	1.16								$	2.37

(1) - Tax impact is estimated by applying the statutory rates of applicable jurisdictions, after consideration of any other relevant factors.

(2) - As a result of the enactment of the Tax Act, we revalued our deferred tax assets as of December 31, 2017, resulting in a reduction in our deferred tax assets of $16.6 million, of which $17.1 million was recorded in 2017 and $(0.5) million was recorded in 2018. We also incurred a one-time payment of $1.3 million due to tax on previously untaxed accumulated and current earnings and profits on certain foreign subsidiaries, of which $2.6 million was recorded in 2017 and $(1.3) million was recorded in 2018.

The Company’s Underwriting Loss of $9.6 million for the year ended December 31, 2018, decreased by $28.1 million, compared to the same period in 2017.

The decrease in the Underwriting Loss was largely attributable to lower Net Current AY Losses and LAE primarily due to a lower level of catastrophe losses with $26.3 million of net catastrophe losses net of RRPs in 2018 related to Typhoon Jebi, Hurricane Michael, Hurricane Florence, the California Camp Fire, Typhoon Trami, and other CAT events, compared to $85.2 million of net catastrophe losses inclusive of net RRPs in 2017 mostly related to Hurricanes Harvey, Irma, and Maria (the “Hurricane events”), the Puebla, Mexico Earthquake, Typhoon Hato, and other CAT events. Also contributing to the decrease was the impact of growth in Net Earned Premiums across all of our reporting segments.

The decrease in the Underwriting Loss was partially offset by $76.2 million of Net Prior AY Reserve Strengthening for the year ended December 31, 2018 compared to $34.3 million of Net Prior AY Reserve Strengthening, for the same period in 2017, an increase in Other Operating Expenses primarily due to an increase in employee expenses, professional service fees, and information technology costs associated with new business initiatives and expansion of our global platform. Also partially offsetting the decrease in the Underwriting Loss was an increase in the Commission Expense driven by all of our reporting segments.

The Company recognized an Underwriting Loss of $37.7 million for the year ended December 31, 2017, compared to an Underwriting Profit of $35.9 million for the same period in 2016, representing a deterioration of $73.6 million in underwriting profit.

The Underwriting Loss was driven by higher Net Current AY Losses and LAE primarily due to a higher level of catastrophe losses with $85.2 million of net catastrophe losses inclusive of net RRPs in 2017, mostly related to the Hurricane events, the Puebla, Mexico Earthquake, Typhoon Hato, and other CAT events, compared to $28.6 million of net catastrophe losses inclusive of net RRPs in 2016 mostly related to the Alberta Wildfires, Hurricane Matthew, the Ecuador earthquake, and the Taiwan earthquake. Also contributing to the deterioration was $34.3 million of Net Prior AY Reserve Strengthening for the year ended December 31, 2017 compared to $28.5 million of Net Prior AY Reserve Releases, for the same period in 2016.

This was partially offset by increased premiums earned across all of our reporting segments with lower non-catastrophe Net Current AY Losses and LAE ratios.

For additional information on the drivers of Underwriting Profit see the U.S. Insurance, Int’l Insurance and GlobalRe reporting segment results sections included herein.

A major component of our Underwriting Profit (Loss) is Net Losses and LAE. The following table presents the current and prior accident year (“AY”) changes in our Net Losses and LAE Ratio for the years ended December 31, 2018, 2017 and 2016:

For the year ended December 31, 2018, our Reported Net Losses and LAE Ratio decreased 2.4 points as compared to the same period in 2017 primarily driven by:

For the year ended December 31, 2018, our Net Prior AY Losses and LAE Ratio increased 2.7 points as compared to the same period in 2017 primarily driven by:

For the year ended December 31, 2018, our Net Current AY losses and LAE Ratio decreased 5.1 points as compared to the same period in 2017 primarily driven by a reduced level of catastrophe losses. After adjusting for net catastrophe losses net of RRPs, our Net Current AY Losses and LAE Ratio increased 0.1 points as compared to the same period in 2017 primarily due to unfavorable performance within certain key divisions of our U.S. and Int’l Insurance reporting segments.

For the year ended December 31, 2017, our Reported Net Losses and LAE Ratio increased 7.5 points as compared to the same period in 2016 primarily driven by:

For the year ended December 31, 2017, our Net Current AY losses and LAE Ratio increased 2.0 points as compared to the same period in 2016 primarily driven by an increased level of catastrophe losses. After adjusting for net catastrophe losses inclusive of net RRPs, our Net Current AY Losses and LAE Ratio decreased 3.5 points as compared to the same period in 2016 primarily due to decreased large loss activity in our Int’l Insurance reporting segment and changes in product mix in our U.S. and Int’l Insurance reporting segments.

(1) - Cash and overseas deposits that were misclassified within Short-Term Investments prior to 2018 were reclassified, representing an immaterial correction. Refer to Note 1 Organization & Summary of Significant Accounting Policies, in the Notes to the Consolidated Financial Statements, for further information.

The increase in total Net Investment Income for all years presented as compared to the prior years was primarily due to growth of invested assets coupled with an increase in pretax yields, driven in part by an increased allocation to higher yielding preferred stocks, as well as increases in the yield curve resulting from Federal Reserve policy. The annualized pre-tax yields, excluding Net Realized and Unrealized Gains and Losses and Other than Temporary Impairment (“OTTI”) losses recognized in earnings, on a consolidated basis were 2.9%, 2.7% and 2.6%, respectively, for the years ended December 31, 2018, 2017 and 2016.

As part of our overall investment strategy, we seek to build a tax efficient investment portfolio by maintaining an allocation to tax exempt municipal bonds. The tax exempt portion of our investment portfolio was approximately 16.5% and 22.4% of the Fixed Maturities investment portfolio as of December 31, 2018 and 2017, respectively. Additionally, 84.8% and 88.6% of our Equity Securities portfolio is invested in tax efficient securities which qualify for the dividends received deduction for the period ended December 31, 2018 and 2017, respectively. The tax equivalent yields for the years ended December 31, 2018, 2017 and 2016 on a consolidated basis were 3.1%, 3.1% and 2.9%, respectively.

Our Company did not incur credit related OTTI losses during the year ended December 31, 2018. Our Company had four credit related OTTI losses totaling $2.1 million in our Equity Securities portfolio during the year ended December 31, 2017. Our Company had one credit related OTTI loss of $0.2 million from our Fixed Maturities portfolio during the year ended December 31, 2016. Upon the adoption of ASU 2016-01 as of January 1, 2018, changes in the fair value of Equity Securities are now recognized in Net Income.

Net Realized Gains and Losses, excluding OTTI Losses Recognized in Earnings, for the periods indicated were as follows:

	Years Ended December 31,									Percentage Change
										2018 vs.			2017 vs.
amounts in thousands	2018			2017			2016			2017			2016
Fixed Maturities:
Gains	$	3,775		$	4,041		$	5,681			(6.6	%)		(28.9	%)
Losses		(1,306	)		(3,249	)		(4,271	)		(59.8	%)		(23.9	%)
Fixed Maturities, Net	$	2,469		$	792		$	1,410		NM				(43.8	%)
Short-Term Investments, Cash and Cash Equivalents: ⁽¹⁾
Gains	$	208		$	1,575		$	871			(86.8	%)		80.8	%
Losses		(319	)		(243	)		(1,444	)		31.3	%		(83.2	%)
Short-Term , Net	$	(111	)	$	1,332		$	(573	)	NM			NM
Other Invested Assets: ⁽¹⁾
Gains	$	92		$	56		$	19			64.3	%	NM
Losses		(213	)		(369	)		(108	)		(42.3	%)	NM
Other Invested Assets, Net	$	(121	)	$	(313	)	$	(89	)		(61.3	%)	NM
Equity Securities:
Gains	$	1,102		$	44,783		$	9,096			(97.5	%)	NM
Losses		(350	)		(1,521	)		(658	)		(77.0	%)		131.2	%
Equity Securities, Net	$	752		$	43,262		$	8,438			(98.3	%)	NM
Net Realized Gains on Investments Sold	$	2,989		$	45,073		$	9,186			(93.4	%)	NM

Net Realized Gains of $3.0 million for the year ended December 31, 2018 are primarily due to the sale of Corporate and Municipal bonds and Preferred stocks as part of the normal ongoing management of our investment portfolio. Net Realized Gains of $45.1 million for the year ended December 31, 2017 were primarily due to the liquidation of our actively managed Common Stock Equity Securities portfolio in December 2017 as we reassessed our common equity strategy. The remaining Net Realized Gains and Losses for 2017 relate to the ongoing management of our Fixed Maturities and Short-Term Investments portfolios. Net Realized Gains of $9.2 million for the year ended December 31, 2016 were primarily due to the sale of Equity Securities.

For the year ended December 31, 2018, our Company had $33.3 million of Net Unrealized Losses on our Equity Securities, which were recognized in Net Income pursuant to ASU 2016-01, which we adopted effective January 1, 2018.

Interest Expense was $15.5 million for the year ended December 31, 2018, respectively, relating to our $265.0 million principal amount of the Senior Notes. The effective interest rate related to the Senior Notes, based on the proceeds net of discount and all issuance costs, is approximately 5.86%.

Other Income (Loss) for the years ended December 31, 2018, 2017 and 2016 was $4.9 million, ($4.3) million and $8.6 million, respectively. Other Income (Loss) primarily consists of realized and unrealized foreign exchange gains and losses.

The gain in 2018 was mostly driven by the re-measurement of net insurance related liabilities impacted by the strengthening of the USD against the GBP, EUR and CAD, as well as revenue from the sale of renewal rights for our Company’s fixed-premium protection and indemnity business during the first quarter.

The losses in 2017 were mostly driven by the re-measurement of net insurance related assets and liabilities impacted by the combined effect of the weakening of the USD against the GBP, CAD and EUR.

The gain in 2016 was mostly driven by the re-measurement of net insurance related liabilities impacted by the strengthening of the USD against the GBP and CAD.

See Note 1 Organizations & Summary of Significant Accounting Policies, in the Notes to Consolidated Financial Statements, included herein for additional information regarding the foreign currency adjustment.

Merger Transaction Costs for the year ended December 31, 2018 were $4.0 million. These costs represent expenses incurred that are associated with the Merger and are unrelated to our ongoing operations.

We recorded an effective tax rate of 29.5%, 45.9% and 29.6% for December 31, 2018, 2017 and 2016, respectively. Our 2018 effective tax rate is in excess of the Federal statutory income tax rate of 21%, mostly due to an additional tax expense accrued in connection with an internal study of foreign taxes paid, prompted by an IRS audit which increased our effective income tax rate by 14.5 points. This impact was offset by reductions in valuation allowance and transition tax. Our 2017 effective tax rate was increased by 26.4 points due to the net one-time charge related to the Tax Act. Conversely, the rates for 2018 and 2017 benefited by 3.5 points and 6.7 points, respectively, related to stock compensation, which is now recorded in earnings as income tax benefit or expense, effective with the 2017 adoption of accounting standards update 2016-09. In addition, our effective tax rate for each of the years benefitted due to tax-exempt investment income and dividends received deduction by 8.4 points in 2018, 11.5 points in 2017, and 6.1 points in 2016. See Note 11 Income Taxes, in the Notes to Consolidated Financial Statements, for further details. Future changes in tax laws could significantly impact our provision for income taxes, the amount of taxes payable, our deferred tax asset and liability balances, and stockholders’ equity. See the risk factor Changes in tax laws could increase our corporate taxes, reduce our deferred tax assets or affect pricing of some of our products in Item 1A – Risk Factors for additional information regarding the impact of the Tax Act.

The following tables summarize our Consolidated Financial Results by reporting segment for the years ended December 31, 2018, 2017 and 2016:

	Year Ended December 31, 2018
	U.S.			Int'l
amounts in thousands	Insurance			Insurance			GlobalRe			Corporate ⁽¹⁾			Total
Gross written premiums	$	1,083,116		$	530,710		$	299,135		$	—		$	1,912,961
Ceded written premiums		(283,025	)		(147,402	)		(11,449	)		—			(441,876	)
Net written premiums		800,091			383,308			287,686			—			1,471,085
Retention Ratio		73.9	%		72.2	%		96.2	%		—			76.9	%
Net Earned Premiums	$	737,646		$	380,503		$	245,074		$	—		$	1,363,223
Net Losses and LAE		(485,960	)		(252,268	)		(155,551	)		—			(893,779	)
Commission Expenses		(85,127	)		(80,526	)		(55,056	)		565			(220,144	)
Other Operating Expenses		(142,333	)		(93,882	)		(25,009	)		—			(261,224	)
Other Underwriting Income (Expense)		354			2,206			316			(565	)		2,311
Underwriting Profit (Loss)	$	24,580		$	(43,967	)	$	9,774		$	—		$	(9,613	)
Net Investment Income											103,113			103,113
Total Net Realized and Unrealized Losses											(30,348	)		(30,348	)
Interest Expense											(15,485	)		(15,485	)
Other Income											4,858			4,858
Merger Transaction Costs											(3,950	)		(3,950	)
Income (Loss) Before Income Taxes	$	24,580		$	(43,967	)	$	9,774		$	58,188		$	48,575
Income Tax Expense											(14,336	)		(14,336	)
Net Income													$	34,239
Losses and LAE Ratio		65.9	%		66.3	%		63.5	%					65.6	%
Commission Expense Ratio		11.5	%		21.2	%		22.5	%					16.1	%
Other Operating Expense Ratio ⁽²⁾		19.3	%		24.1	%		10.0	%					19.0	%
Combined Ratio		96.7	%		111.6	%		96.0	%					100.7	%

(2) - Includes Other Operating Expenses and Other Underwriting Income (Expense).

	Year Ended December 31, 2017
	U.S.			Int'l
amounts in thousands	Insurance			Insurance			GlobalRe			Corporate ⁽¹⁾			Total
Gross written premiums	$	988,293		$	501,130		$	223,842		$	—		$	1,713,265
Ceded written premiums		(266,993	)		(165,278	)		(9,664	)		—			(441,935	)
Net written premiums		721,300			335,852			214,178			—			1,271,330
Retention Ratio		73.0	%		67.0	%		95.7	%		—			74.2	%
Net Earned Premiums	$	674,665		$	333,792		$	177,963		$	—		$	1,186,420
Net Losses and LAE		(443,353	)		(229,601	)		(133,311	)		—			(806,265	)
Commission Expenses		(77,729	)		(68,824	)		(39,136	)		958			(184,731	)
Other Operating Expenses		(128,905	)		(83,464	)		(20,861	)		—			(233,230	)
Other Underwriting Income (Expense)		461			—			565			(958	)		68
Underwriting Profit (Loss)	$	25,139		$	(48,097	)	$	(14,780	)	$	—		$	(37,738	)
Net Investment Income											89,293			89,293
Total Net Realized and Unrealized Gains											43,009			43,009
Interest Expense											(15,447	)		(15,447	)
Other Loss											(4,311	)		(4,311	)
Income (Loss) Before Income Taxes	$	25,139		$	(48,097	)	$	(14,780	)	$	112,544		$	74,806
Income Tax Expense											(34,312	)		(34,312	)
Net Income													$	40,494
Losses and LAE Ratio		65.7	%		68.8	%		74.9	%					68.0	%
Commission Expense Ratio		11.5	%		20.6	%		22.0	%					15.6	%
Other Operating Expense Ratio ⁽²⁾		19.1	%		25.0	%		11.4	%					19.6	%
Combined Ratio		96.3	%		114.4	%		108.3	%					103.2	%

(2) - Includes Other Operating Expenses and Other Underwriting Income (Expense).

	Year Ended December 31, 2016
	U.S.			Int'l
amounts in thousands	Insurance			Insurance			GlobalRe			Corporate ⁽¹⁾			Total
Gross written premiums	$	919,395		$	484,471		$	165,045		$	—		$	1,568,911
Ceded written premiums		(235,827	)		(138,504	)		(8,356	)		—			(382,687	)
Net written premiums		683,568			345,967			156,689			—			1,186,224
Retention Ratio		74.3	%		71.4	%		94.9	%		—			75.6	%
Net Earned Premiums	$	629,308		$	307,416		$	163,621		$	—		$	1,100,345
Net Losses and LAE		(397,860	)		(178,284	)		(89,304	)		—			(665,448	)
Commission Expenses		(70,812	)		(61,703	)		(34,008	)		1,478			(165,045	)
Other Operating Expenses		(128,108	)		(86,395	)		(19,593	)		—			(234,096	)
Other Underwriting Income (Expense)		1,092			—			522			(1,478	)		136
Underwriting Profit (Loss)	$	33,620		$	(18,966	)	$	21,238		$	—		$	35,892
Net Investment Income											79,451			79,451
Total Net Realized and Unrealized Gains											9,036			9,036
Interest Expense											(15,435	)		(15,435	)
Other Income											8,565			8,565
Income (Loss) Before Income Taxes	$	33,620		$	(18,966	)	$	21,238		$	81,617		$	117,509
Income Tax Expense											(34,783	)		(34,783	)
Net Income													$	82,726
Losses and LAE Ratio		63.2	%		58.0	%		54.6	%					60.5	%
Commission Expense Ratio		11.3	%		20.1	%		20.8	%					15.0	%
Other Operating Expense Ratio ⁽²⁾		20.2	%		28.1	%		11.6	%					21.2	%
Combined Ratio		94.7	%		106.2	%		87.0	%					96.7	%

(2) - Includes Other Operating Expenses and Other Underwriting Income (Expense).

The following tables summarize our financial results by operating segment for our U.S. Insurance reporting segment for the years ended December 31, 2018, 2017 and 2016:

U.S. Insurance
	Year Ended December 31, 2018
amounts in thousands	Marine			P&C			Professional Liability			Total			Change 2018 vs. 2017
Gross Written Premiums	$	148,485		$	803,759		$	130,872		$	1,083,116			9.6	%
Ceded Written Premiums		(64,097	)		(199,307	)		(19,621	)		(283,025	)		6.0	%
Net Written Premiums		84,388			604,452			111,251			800,091			10.9	%
Retention Ratio		56.8	%		75.2	%		85.0	%		73.9	%		0.9

Net Earned Premiums	$	84,774		$	549,136		$	103,736		$	737,646			9.3	%
Net Losses and LAE		(51,671	)		(365,848	)		(68,441	)		(485,960	)		9.6	%
Commission Expenses		(4,561	)		(62,173	)		(18,393	)		(85,127	)		9.5	%
Other Operating Expenses		(25,403	)		(96,203	)		(20,727	)		(142,333	)		10.4	%
Other Underwriting Income		206			129			19			354			(23.2	%)

Underwriting Profit (Loss)	$	3,345		$	25,041		$	(3,806	)	$	24,580			(2.2	%)
Losses and LAE Ratio		61.0	%		66.6	%		66.0	%		65.9	%
Commission Expense Ratio		5.4	%		11.3	%		17.7	%		11.5	%
Other Operating Expense Ratio ⁽¹⁾		29.7	%		17.5	%		20.0	%		19.3	%
Combined Ratio		96.1	%		95.4	%		103.7	%		96.7	%

(1) - Includes Other Operating Expenses and Other Underwriting Income (Expense).

U.S. Insurance
	Year Ended December 31, 2017
amounts in thousands	Marine			P&C			Professional Liability			Total			Change 2017 vs. 2016
Gross Written Premiums	$	156,171		$	713,539		$	118,583		$	988,293			7.5	%
Ceded Written Premiums		(72,431	)		(173,501	)		(21,061	)		(266,993	)		13.2	%
Net Written Premiums		83,740			540,038			97,522			721,300			5.5	%
Retention Ratio		53.6	%		75.7	%		82.2	%		73.0	%		(1.3	)

Net Earned Premiums	$	86,605		$	495,260		$	92,800		$	674,665			7.2	%
Net Losses and LAE		(58,099	)		(316,112	)		(69,142	)		(443,353	)		11.4	%
Commission Expenses		(4,932	)		(57,756	)		(15,041	)		(77,729	)		9.8	%
Other Operating Expenses		(25,501	)		(84,433	)		(18,971	)		(128,905	)		0.6	%
Other Underwriting Income		374			61			26			461			(57.8	%)

Underwriting Profit (Loss)	$	(1,553	)	$	37,020		$	(10,328	)	$	25,139			(25.2	%)
Losses and LAE Ratio		67.1	%		63.8	%		74.5	%		65.7	%
Commission Expense Ratio		5.7	%		11.7	%		16.2	%		11.5	%
Other Operating Expense Ratio ⁽¹⁾		29.0	%		17.0	%		20.4	%		19.1	%
Combined Ratio		101.8	%		92.5	%		111.1	%		96.3	%

(1) - Includes Other Operating Expenses and Other Underwriting Income (Expense).

U.S. Insurance
	Year Ended December 31, 2016
amounts in thousands	Marine			P&C			Professional Liability			Total
Gross Written Premiums	$	169,405		$	631,562		$	118,428		$	919,395
Ceded Written Premiums		(70,858	)		(135,888	)		(29,081	)		(235,827	)
Net Written Premiums		98,547			495,674			89,347			683,568
Retention Ratio		58.2	%		78.5	%		75.4	%		74.3	%

Net Earned Premiums	$	100,132		$	453,673		$	75,503		$	629,308
Net Losses and LAE		(50,087	)		(295,877	)		(51,896	)		(397,860	)
Commission Expenses		(8,469	)		(52,483	)		(9,860	)		(70,812	)
Other Operating Expenses		(27,559	)		(81,469	)		(19,080	)		(128,108	)
Other Underwriting Income		465			582			45			1,092

Underwriting Profit (Loss)	$	14,482		$	24,426		$	(5,288	)	$	33,620

Losses and LAE Ratio		50.0	%		65.2	%		68.7	%		63.2	%
Commission Expense Ratio		8.5	%		11.6	%		13.1	%		11.3	%
Other Operating Expense Ratio ⁽¹⁾		27.0	%		17.8	%		25.2	%		20.2	%
Combined Ratio		85.5	%		94.6	%		107.0	%		94.7	%

(1) - Includes Other Operating Expenses and Other Underwriting Income (Expense).

Gross Written Premiums increased $94.8 million for the year ended December 31, 2018 as compared to the same period in 2017, driven by increases of $90.2 million and $12.3 million in our P&C and Professional Liability operating segments, respectively, partially offset by a decrease in our Marine operating segment of $7.7 million.

The decrease in our Marine operating segment was driven by a decrease in our Craft product due to the nonrenewal of an underperforming program, partially offset by increases in our Inland Marine and Cargo products driven by new business and an increased level of renewals.

The increase in our P&C operating segment was driven by increases in our Excess Casualty, Auto, and Environmental divisions, as well as our Property product, primarily due to new business production and an increased level of renewals, and to a lesser extent, improvement on rates across certain divisions. This was partially offset by a reduction in our Primary Casualty division driven by the decision to reduce exposure in certain products within this division including the Premises product.

The increase in our Professional Liability operating segment was primarily due to an increased level of renewals, new business and improved rates.

Average renewal premium rates for our U.S. Insurance reporting segment for the year ended December 31, 2018 increased 2.6% compared to the same period in 2017, driven by increases of 3.2%, 1.7% and 1.1% within our P&C, Professional Liability and Marine operating segments, respectively.

Gross Written Premiums increased $68.9 million for the year ended December 31, 2017 as compared to the same period in 2016 driven by an $82.0 million increase in our P&C operating segment, partially offset by a decrease in our Marine operating segment of $13.2 million.

The decrease in our Marine operating segment was impacted by our decision to exit certain Hull and War products. Additionally, the renewal of certain business now being managed in our Int’l Insurance reporting segment as well as a transfer of the management of our Custom Bonds product to the Other P&C division impacted the decrease. These decreases were partially offset by an increase in renewals for our Cargo and Inland Marine products.

The increase in our P&C operating segment was primarily driven by increases in our Excess Casualty, Other P&C, Auto and Environmental divisions, partially offset by a decrease in our Primary Casualty division. The increase in our Excess Casualty division was primarily attributable to new business resulting from increases in construction project coverage. The increase in our Other P&C division was driven by new business production and an increase in rates in our Property product, as well as the transfer of the management of our Custom Bonds product from the Marine operating segment to our Surety product in our Other P&C division. The increase in our Auto division was due to new business production and strong rates on renewals. The increase in our Environmental division was attributable to new business with increased opportunities in the market. The decrease in our Primary Casualty division was driven by the nonrenewal of underperforming accounts.

Average renewal premium rates for our U.S. Insurance reporting segment for the year ended December 31, 2017 increased 1.2%, driven by increases of 1.7%, 0.6% and 0.2% within our P&C, Marine and Professional Liability operating segments, respectively.

Ceded Written Premiums were $283.0 million, resulting in a retention ratio of 73.9% of Net Written Premiums to Gross Written Premiums, for the year ended December 31, 2018, compared to Ceded Written Premiums of $267.0 million, resulting in a retention ratio of 73.0%, for the same period in 2017. The increase in the retention ratio was driven by our Marine and Professional Liability operating segments, partially offset by a decrease in the retention ratio for our P&C operating segment.

The increase in our Marine operating segment’s retention ratio was primarily driven by a reduction in proportional reinsurance in our Craft product related to business that was not renewed which had higher proportional cessions, as well as the impact of ceded RRPs in the prior year related to Hurricane Irma and other large loss events.

The decrease in our P&C operating segment’s retention ratio was primarily the result of changes in the mix of business within this operating segment with proportionately more premium written in our Excess Casualty division, which has a lower retention ratio, partially offset by proportionately more premium written in our Auto division, which has a higher retention ratio.

The increase in our Professional Liability operating segment’s retention ratio was primarily the result of changes in the mix of business with an increase in premiums not subject to proportional reinsurance coverage within our D&O division.

Ceded Written Premiums were $267.0 million, resulting in a retention ratio of 73.0% of Net Written Premiums to Gross Written Premiums, for the year ended December 31, 2017, compared to Ceded Written Premiums of $235.8 million, resulting in a retention ratio of 74.3%, for the same period in 2016. The decrease in the retention ratio was driven by our P&C and Marine operating segments, partially offset by an increase in the retention ratio for our Professional Liability operating segment.

The decrease in our Marine operating segment’s retention ratio was driven by changes in the business mix and the impact of an increase in ceded RRP’s due in part to Hurricane Irma and other large loss events.

The decrease in our P&C operating segment’s retention ratio was primarily the result of increased proportional reinsurance on our Property product purchased during the second quarter of 2017, and to a lesser extent, changes in the mix of business.

The increase in our Professional Liability operating segment’s retention ratio was primarily attributable to a reduction in proportional reinsurance coverage that supports our D&O business.

Net Earned Premiums increased $63.0 million for the year ended December 31, 2018, as compared to the same period in 2017 mainly driven by growth in our P&C and Professional Liability operating segments, as well as the impact of ceded RRPs in the prior year related to Hurricane Irma and other large loss events and a reduction in premiums subject to proportional reinsurance coverage within our D&O division. These increases were partially offset by a reduction in the amount of premiums written in our Marine operating segment.

Net Earned Premiums increased $45.4 million for the year ended December 31, 2017 as compared to the same period in 2016 primarily due to growth within our P&C operating segment and recent reductions to the level of proportional reinsurance within our Professional Liability operating segment. These increases to Net Earned Premiums were partially offset by increased proportional reinsurance on our Property product, a decrease in the amount of premium written in our Marine operating segment and an increase in ceded RRPs related to Hurricane Irma and other large loss events.

The Net Losses and LAE Reserves as of December 31, 2018, 2017 and 2016 are as follows:

The following tables present the current and prior accident year changes in our Net Losses and LAE Ratio for the years ended December 31, 2018, 2017 and 2016:

For the year ended December 31, 2018, our Net Losses and LAE Ratio increased 0.2 points as compared to the same period in 2017 driven by:

For the year ended December 31, 2018, our Net Prior AY Losses and LAE Ratio increased 0.1 points as compared to the same period in 2017 primarily driven by:

The above increase in our Net Prior AY Loss and LAE Ratio was partially offset by:

For the year ended December 31, 2018, our Net Current AY Losses and LAE Ratio increased 0.1 points as compared to the same period in 2017. For the year ended December 31, 2018, we recognized $1.8 million of net catastrophe losses related to Hurricane Michael, the California Camp Fire, Typhoon Jebi, and Hurricane Florence. This compared to $9.2 million of net catastrophe losses inclusive of ceded RRPs for the same period in 2017, primarily related to the Hurricane events.

After adjusting for these net catastrophe losses inclusive of ceded RRPs, our Net Current AY Losses and LAE Ratio increased 1.1 points as compared to the same period in 2017 primarily due to:

These increases in the Net Current AY Losses and LAE Ratio were partially offset by:

For the year ended December 31, 2017, our Net Losses and LAE Ratio increased 2.5 points as compared to the same period in 2016 driven by:

For the year ended December 31, 2017, our Net Prior AY Losses and LAE Ratio increased 2.7 points as compared to the same period in 2016 primarily driven by:

The above increase in our Net Prior AY Loss and LAE Ratio was partially offset by:

For the year ended December 31, 2017, our Net Current AY Losses and LAE Ratio decreased 0.2 points as compared to the same period in 2016. For the year ended December 31, 2017, we recognized $9.2 million of net catastrophe losses inclusive of ceded RRPs primarily related to the Hurricane events.

After adjusting for these net catastrophe losses inclusive of ceded RRPs, our Net Current AY Losses and LAE Ratio decreased 1.5 points as compared to the same period in 2016 primarily due to:

These decreases in the Net Current AY Losses and LAE Ratio were partially offset by:

Our Commission Expense Ratio for the year ended December 31, 2018 remained consistent with the same period in 2017, with decreases in our Marine and P&C operating segments, offset by an increase in our Professional Liability operating segment.

Our Marine operating segment’s Commission Expense Ratio decreased due to lower gross commission rates on certain product lines, changes in the mix of business, and greater ceded commission income.

Our P&C operating segment’s Commission Expense Ratio decreased primarily due to changes in the mix of business with an increase in Property business which generates greater ceding commission income related to a large proportional reinsurance program.

Our Professional Liability operating segment’s Commission Expense Ratio increased due to the reduction in proportional reinsurance and the related ceding commission benefits primarily within our D&O division.

Our Commission Expense Ratio for the year ended December 31, 2017 increased 0.2 points as compared to the same period in 2016, mostly driven by our Professional Liability operating segment, partially offset by a decrease in our Marine operating segment.

Our Marine operating segment’s Commission Expense Ratio decreased due to changes in business mix, partially offset by the impact of ceded RRPs related to Hurricane Irma and other large loss activity.

Our P&C operating segment’s Commission Expense Ratio was relatively flat with changes in the business mix largely offset by greater ceding commission income from the proportional reinsurance on our Property product purchased during the second quarter of 2017.

Our Professional Liability operating segment’s Commission Expense Ratio increased due to the reduction in proportional reinsurance and related ceding commission benefits.

Other Operating Expenses for the year ended December 31, 2018 increased $13.4 million, as compared to the same period in 2017, primarily due to an increase in costs associated with new business initiatives, including applicable support and information technology expenses, and higher professional service fees.

Other Operating Expenses for the year ended December 31, 2017 increased $0.8 million as compared to the same period in 2016, primarily due to an increase in costs associated with new business initiatives and applicable support, partially offset by a reduction in performance-based incentive compensation costs.

The following tables summarize our financial results by operating segment for our Int’l Insurance reporting segment for the years ended December 31, 2018, 2017 and 2016:

Int'l Insurance
	Year Ended December 31, 2018
amounts in thousands	Marine			P&C			Professional Liability			Total			Change 2018 vs. 2017
Gross Written Premiums	$	181,053		$	171,502		$	178,155		$	530,710			5.9	%
Ceded Written Premiums		(44,356	)		(64,176	)		(38,870	)		(147,402	)		(10.8	%)
Net Written Premiums		136,697			107,326			139,285			383,308			14.1	%
Retention Ratio		75.5	%		62.6	%		78.2	%		72.2	%		5.2

Net Earned Premiums	$	151,296		$	105,144		$	124,063		$	380,503			14.0	%
Net Losses and LAE		(120,777	)		(48,364	)		(83,127	)		(252,268	)		9.9	%
Commission Expenses		(35,875	)		(14,693	)		(29,958	)		(80,526	)		17.0	%
Other Operating Expenses		(31,152	)		(36,310	)		(26,420	)		(93,882	)		12.5	%
Other Underwriting Income (Expense)		1,371			835			—			2,206		NM

Underwriting Profit (Loss)	$	(35,137	)	$	6,612		$	(15,442	)	$	(43,967	)		(8.6	%)
Losses and LAE Ratio		79.8	%		46.0	%		67.0	%		66.3	%
Commission Expense Ratio		23.7	%		14.0	%		24.1	%		21.2	%
Other Operating Expense Ratio ⁽¹⁾		19.7	%		33.7	%		21.3	%		24.1	%
Combined Ratio		123.2	%		93.7	%		112.4	%		111.6	%

(1) - Includes Other Operating Expenses and Other Underwriting Income (Expense).

Int'l Insurance
	Year Ended December 31, 2017
amounts in thousands	Marine			P&C			Professional Liability			Total			Change 2017 vs. 2016
Gross Written Premiums	$	198,241		$	159,123		$	143,766		$	501,130			3.4	%
Ceded Written Premiums		(42,018	)		(85,298	)		(37,962	)		(165,278	)		19.3	%
Net Written Premiums		156,223			73,825			105,804			335,852			(2.9	%)
Retention Ratio		78.8	%		46.4	%		73.6	%		67.0	%		(4.4	)

Net Earned Premiums	$	152,396		$	88,517		$	92,879		$	333,792			8.6	%
Net Losses and LAE		(114,460	)		(61,791	)		(53,350	)		(229,601	)		28.8	%
Commission Expenses		(32,541	)		(13,918	)		(22,365	)		(68,824	)		11.5	%
Other Operating Expenses		(34,878	)		(28,537	)		(20,049	)		(83,464	)		(3.4	%)

Underwriting Loss	$	(29,483	)	$	(15,729	)	$	(2,885	)	$	(48,097	)	NM
Losses and LAE Ratio		75.1	%		69.8	%		57.4	%		68.8	%
Commission Expense Ratio		21.4	%		15.7	%		24.1	%		20.6	%
Other Operating Expense Ratio		22.8	%		32.3	%		21.6	%		25.0	%
Combined Ratio		119.3	%		117.8	%		103.1	%		114.4	%

Gross Written Premiums increased $29.6 million for the year ended December 31, 2018 compared to the same period in 2017, driven by increases in our Professional Liability and P&C operating segments of $34.4 million and $12.4 million, respectively, partially offset by a decrease in our Marine operating segment of $17.2 million.

The decrease in our Marine operating segment was due to decreases in our Transport, Hull, Marine Liability, and Protection & Indemnity products. These decreases were partially offset by additional premium from the NICE Group business acquired in the second quarter of 2018. The decrease in our Transport and Marine Liability product was primarily driven by declined renewals of several large binding authorities. The decrease in our Hull product was primarily related to the timing of certain construction driven contracts and non-renewals. The decrease in our Protection and Indemnity product was as a result of our decision to sell the renewal rights to our fixed-premium protection and indemnity business.

The increase in our P&C operating segment was driven by additional premium from the NICE Group business acquired in the second quarter, as well as increases in our General Liability, Energy & Engineering, and Political Violence and Terrorism (“PV&T”) divisions due to new and renewal business. This increase was partially offset by a decrease in our Property division due to strategic actions taken to exit our International and North American Property businesses in 2017.

The increase in our Professional Liability operating segment was driven by rate improvement and growth in new business within our D&O division, as well as additional growth across all divisions within this operating segment.

Average renewal premium rates for our Int’l Insurance reporting segment for the year ended December 31, 2018 increased 4.3% compared to the same period in 2017, driven by increases of 6.4%, 3.5% and 3.1% in our Professional Liability, Marine, and P&C operating segments, respectively.

Gross Written Premiums increased $16.7 million for the year ended December 31, 2017 compared to the same period in 2016, driven by increases in our Professional Liability and Marine operating segments of $23.6 million and $15.0 million, respectively, partially offset by a decline in our P&C operating segment of $22.0 million.

The increase in our Marine operating segment was largely due to growth in our Hull and Protection & Indemnity products driven by new business, an increase in our Craft product related to the renewal of certain business previously managed by our U.S. Insurance reporting segment now managed in our Int’l Insurance reporting segment, and an increase in our Transport product related to increased premium estimates.

The decrease in our P&C operating segment was primarily driven by a decline in our Property division, partially offset by increases in our General Liability division, PV&T product and Energy & Engineering division. The decrease in our Property division was related to strategic actions taken to exit our North American and International Property business. The increase in our General Liability division was driven by new business, a larger renewal base and increased premium estimates. The increase in our Political Violence & Terrorism product was driven by new business. Our Energy & Engineering division increase was driven by new business production in our Offshore Energy product.

The increase in our Professional Liability operating segment was primarily driven by new business production in our E&O division, Financial Institutions business in our D&O division and Other Professional Liability division.

Average renewal premium rates for our Int’l Insurance reporting segment for the year ended December 31, 2017 decreased 2.3% compared to the same period in 2016, driven by decreases of 3.5%, 2.0% and 1.4% in our P&C, Marine and Professional Liability operating segments, respectively.

Ceded Written Premiums were $147.4 million, resulting in a retention ratio of 72.2% of Net Written Premiums to Gross Written Premiums, for the year ended December 31, 2018, compared to Ceded Written Premiums of $165.3 million, resulting in a retention ratio of 67.0%, for the same period in 2017. The increase in the retention ratio was driven by the P&C and Professional Liability operating segments, partially offset by a decrease in our Marine operating segment.

The Marine operating segment’s decrease was driven by our Protection & Indemnity product due to our renewal rights agreement with Thomas Miller in 2018 that included a 100% cession of our business through August 31, 2018.

The P&C operating segment’s increase was driven by strategic actions in 2017 to exit our North American Property business, whereby 100% of the unexpired risk was ceded, an increase in our Energy & Engineering division’s retention ratio due to a reduction in proportional reinsurance, and a lower level of ceded RRPs as 2017 was impacted by the Hurricane events.

The increase in our Professional Liability operating segment’s retention ratio was primarily attributable to a reduction in proportional reinsurance.

Ceded Written Premiums were $165.3 million, resulting in a retention ratio of 67.0%, for the year ended December 31, 2017, compared to Ceded Written Premiums of $138.5 million, resulting in a retention ratio of 71.4%, for the same period in 2016. The decrease in the retention ratio was primarily driven by our P&C operating segment, whereby 100% of the unexpired risk on our North American Property business was ceded effective January 1, 2017 as part of strategic actions taken to exit this book of business. Additionally, the impact of an increase in ceded RRPs related to Hurricanes Irma, Maria and Harvey and an increase in excess of loss reinsurance negatively impacted retention in that operating segment.

Net Earned Premiums increased $46.7 million for the year ended December 31, 2018, as compared to the same period in 2017. The increase was driven by growth in our Professional Liability and P&C operating segments, partially offset by a small decrease in our Marine operating segment.

The decrease in our Marine operating segment’s Net Earned Premium was due to decreased production, including the impact of our Protection & Indemnity renewal rights agreement with Thomas Miller, partially offset by additional earned premium of $2.2 million from the NICE Group business acquired in the second quarter of 2018, as well as a lower level of ceded RRPs as 2017 was impacted by the Hurricane events.

The increase in our P&C operating segment’s Net Earned Premium was due to increased production in most divisions, additional earned premium of $8.5 million from the NICE Group business acquired in the second quarter of 2018, and a lower level of ceded RRPs as 2017 was impacted by the Hurricane events. These increases were partially offset by the impact of our decision to exit our International and North American Property businesses in 2017.

The increase in our Professional Liability operating segment’s Net Earned Premium was driven by increased production across all divisions.

Net Earned Premiums increased $26.4 million for the year ended December 31, 2017 as compared to the same period in 2016 driven by increases in our Professional Liability and Marine operating segments, partially offset by a decrease in our P&C operating segment.

The increase in our Marine operating segment’s Net Earned Premium was primarily driven by growth in this segment along with an increased ceded premium estimate booked in the prior year impacting our Protection & Indemnity product. These increases in Net Earned Premiums were partially offset by an increase in ceded RRPs related to Hurricanes Irma and Harvey.

The decrease in our P&C operating segment’s Net Earned Premium was primarily due to lower premium volume and increased cessions related to strategic actions taken to exit our North American Property business and an increase in ceded RRPs related to Hurricanes Irma, Maria and Harvey. This decrease was partially offset by growth in our Political Violence & Terrorism and General Liability products.

The increase in our Professional Liability operating segment’s Net Earned Premium was driven by growth in our Other Professional Liability division, Financial Institution business in our D&O division, and our E&O division, partially offset by ceded premium adjustments on prior years.

The Net Losses and LAE Reserves as of December 31, 2018, 2017 and 2016 are as follows:

The following tables present the current and prior accident year changes in our Net Losses and LAE Ratio for the years ended December 31, 2018, 2017 and 2016:

For the year ended December 31, 2018, our Reported Net Losses and LAE Ratio decreased 2.5 points as compared to the same period in 2017 driven by:

For the year ended December 31, 2018, our Net Prior AY Losses and LAE Ratio increased 3.8 points as compared to the same period in 2017 primarily driven by:

The above increase in our Net Prior AY Loss and LAE Ratio was partially offset by:

For the year ended December 31, 2018, our Net Current AY Losses and LAE Ratio decreased 6.3 points as compared to the same period in 2017, with the reduced level of catastrophe activity being the primary driver. During the year ended December 31, 2018, we recognized $3.5 million of net catastrophe losses primarily related to Hurricane Florence and Hurricane Michael, compared to $35.2 million inclusive of ceded RRPs for the same period in 2017 primarily related to the Hurricane events, Typhoon Hato, the California Wildfires, and the Puebla, Mexico Earthquake.

After adjusting for these net catastrophe losses inclusive of ceded RRPs, our Net Current AY Losses and LAE Ratio increased 3.0 points as compared to the same period in 2017 primarily due to:

For the year ended December 31, 2017, our Reported Net Losses and LAE Ratio increased 10.8 points as compared to the same period in 2016 driven by:

For the year ended December 31, 2017, our Net Prior AY Losses and LAE Ratio increased 12.5 points as compared to the same period in 2016 primarily driven by:

For the year ended December 31, 2017, our Net Current AY Losses and LAE Ratio decreased 1.7 points as compared to the same period in 2016. For the year ended December 31, 2017, we recognized $35.2 million of net catastrophe losses inclusive of ceded RRPs primarily related to the Hurricane events, Typhoon Hato, the California Wildfires, and the Puebla, Mexico Earthquake. This compared to $19.2 million of net catastrophe losses inclusive of ceded RRPs for the same period in 2016, related to the Ecuador Earthquake, Hurricane Matthew, the Alberta Wildfires, and the Taiwan Earthquake.

After adjusting for these net catastrophe losses inclusive of ceded RRPs, our Net Current AY Losses and LAE Ratio decreased 6.0 points as compared to the same period in 2016 primarily due to:

The decrease in the Net Current AY Losses and LAE Ratio were partially offset by:

Our Commission Expense Ratio for the year ended December 31, 2018 increased 0.6 points as compared to the same period in 2017. The increase was driven by our Marine operating segment, partially offset by a decrease in our P&C operating segment.

Our Marine operating segment’s Commission Expense Ratio increased due to higher profit commissions compared to the prior year and the inclusion of the NICE Group, which had a higher Commission Expense Ratio.

The decrease in our P&C operating segment was due to the reduced provision for sliding scale commission on older years and the impact of ceded RRPs related to the Hurricane events on the 2017 Commission Expense Ratio.

Our Commission Expense Ratio for the year ended December 31, 2017 increased 0.5 points as compared to the same period in 2016. The increase was driven by our Professional Liability operating segment, partially offset by a decrease in our Marine operating segment.

Our Marine operating segment’s Commission Expense Ratio decreased due to lower profit commissions compared to the prior year and the Net Earned Premiums impact of RRPs related to Hurricanes Irma and Harvey.

The increase in our Professional Liability operating segment’s Commission Expense Ratio was due to increased gross costs and changes in the mix of business as a result of increased growth in our Warranties and Indemnity product, which attracts a higher commission rate.

Other Operating Expenses for the year ended December 31, 2018 increased $10.4 million as compared to the same period in 2017 primarily due to increased professional fees and expenses related to the NICE Group in the current year.

For the year ended December 31, 2017, Other Operating Expenses decreased $2.9 million as compared to the same period in 2016 due to a reduction in performance-based incentive compensation costs, reduced employee expenses and favorable foreign exchange rates, partially offset by higher Lloyd’s charges due to increased volumes of European business attracting higher foreign levies and professional fees.

Other Underwriting Income for the year ended December 31, 2018 increased $2.2 million, as compared to the same period in 2017 primarily due to managing agent fee income related to the NICE Group.

The following table summarizes our financial results for our GlobalRe reporting segment for the years ended December 31, 2018, 2017 and 2016:

	GlobalRe
	Years Ended December 31,									Change			Change
amounts in thousands	2018			2017			2016			2018 vs 2017			2017 vs.2016
Gross Written Premiums	$	299,135		$	223,842		$	165,045			33.6	%		35.6	%
Ceded Written Premiums		(11,449	)		(9,664	)		(8,356	)		18.5	%		15.6	%
Net Written Premiums		287,686			214,178			156,689			34.3	%		36.7	%
Retention Ratio		96.2	%		95.7	%		94.9	%		0.5			0.8

Net Earned Premiums	$	245,074		$	177,963		$	163,621			37.7	%		8.8	%
Net Losses and LAE		(155,551	)		(133,311	)		(89,304	)		16.7	%		49.3	%
Commission Expenses		(55,056	)		(39,136	)		(34,008	)		40.7	%		15.1	%
Other Operating Expenses		(25,009	)		(20,861	)		(19,593	)		19.9	%		6.5	%
Other Underwriting Income		316			565			522			(44.1	%)		8.2	%

Underwriting Profit (Loss)	$	9,774		$	(14,780	)	$	21,238		NM			NM
Losses and LAE Ratio		63.5	%		74.9	%		54.6	%
Commission Expense Ratio		22.5	%		22.0	%		20.8	%
Other Operating Expense Ratio ⁽¹⁾		10.0	%		11.4	%		11.6	%
Combined Ratio		96.0	%		108.3	%		87.0	%

(1) - Includes Other Operating Expenses and Other Underwriting Income (Expense).

Gross Written Premiums increased $75.3 million for the year ended December 31, 2018, compared to the same period in 2017, primarily due to new business and increased renewals in our A&H, P&C, Specialty Casualty, and Surety products. In addition, our A&H and P&C products were impacted by increased premium estimates, and our Specialty Casualty product was impacted by timing on renewals for two large contracts. Assumed RRP benefit of $6.4 million, primarily on CAT losses attributable to Typhoons Jebi and Trami, Hurricane Michael and California Camp Fire were recognized during 2018, compared to $7.5 million for the same period in 2017.

Gross Written Premiums increased $58.8 million for the year ended December 31, 2017, compared to the same period in 2016, with growth across all of our segment’s products. Our A&H product had significant growth, increasing $24.1 million, attributable to new business and increased renewal business. Growth was seen in our P&C, Surety and Agriculture business, as well as an increase of $4.9 million in assumed RRPs, primarily attributable to CAT losses from Hurricanes Harvey, Irma and Maria, period over period.

Ceded Written Premiums were $11.4 million, resulting in a retention ratio of 96.2% of Net Written Premiums to Gross Written Premiums, for the year ended December 31, 2018, compared to Ceded Written Premiums of $9.7 million, resulting in a retention ratio of 95.7%, for the same period in 2017. The increase in the retention ratio was primarily driven by the impact of changes in the mix of business with proportionately more A&H and Specialty Casualty premium, which had 100% retention, and the prior year impact of ceded RRPs resulting from Hurricane Maria. This was partially offset by additional ceded coverage purchased on our P&C products and increased ceded premium estimates in our Surety product during the year.

Ceded Written Premiums were $9.7 million, resulting in a retention ratio of 95.7%, for the year ended December 31, 2017, compared to $8.4 million, resulting in a retention ratio of 94.9%, for the same period in 2016. The increase in the retention ratio was primarily due to changes in the mix of business with proportionately more A&H premium, which had 100% retention. This increase was partially offset by the impact of ceded RRPs resulting from Hurricane Maria.

Net Earned Premiums for the year ended December 31, 2018 increased $67.1 million, as compared to the same period in 2017, primarily due to growth in our A&H, P&C, and Specialty Casualty products. Net RRP benefit of $6.1 million primarily related to Typhoons Jebi and Trami, Hurricane Michael and California Camp Fire, were comparable to prior year.

Net Earned Premiums for the year ended December 31, 2017 increased $14.3 million as compared to the same period in 2016, primarily due to continued growth in our P&C, Agriculture and Specialty Casualty products. In addition, there was an increase in net assumed RRP benefit with a $6.1 million net RRP benefit for the year ended December 31, 2017, compared to a $1.6 million net RRP benefit for the same period in 2016. The net assumed RRP benefit in 2017 was primarily related to RRPs on Hurricanes Irma and Harvey. Partially offsetting these increases in Net Earned Premiums was the impact from non-renewals in 2016 and late 2015 in our A&H product earning into 2017 as compared to 2016.

The Net Losses and LAE Reserves as of December 31, 2018, 2017 and 2016 are as follows:

The following table presents the current and prior accident year changes in our Net Losses and LAE Ratio for the years ended December 31, 2018, 2017 and 2016:

For the year ended December 31, 2018, our Reported Net Losses and LAE Ratio decreased 11.4 points as compared to the same period in 2017 driven by:

For the year ended December 31, 2018, our Net Prior AY Losses and LAE Ratio increased 9.0 points as compared to the same period in 2017. Our GlobalRe reporting segment for the year ended December 31, 2018 recognized $26.0 million of Net Prior AY Reserve Strengthening primarily related to higher than expected claims activity in the 2016 and 2017 accident years of our A&H product, as well as unfavorable loss emergence in our P&C product, partially offset by favorable loss emergence in our Surety product. This compares to $2.8 million of Net Prior AY Reserve Strengthening for the same period in 2017 mostly related to the settlement of a large A&H claim and unfavorable loss emergence within our P&C product, partially offset by favorable loss emergence across our Agriculture and Marine products.

For the year ended December 31, 2018, our Net Current AY Losses and LAE Ratio decreased 20.4 points as compared to the same period in 2017, primarily driven by a decrease in catastrophe losses. During the year ended December 31, 2018, we recognized $20.9 million of net catastrophe losses net of assumed RRPs mostly related to Typhoon Jebi, Hurricane Michael, Typhoon Trami, the California Camp Fire, and Hurricane Florence. This compared to $40.7 million of net catastrophe losses net of RRPs from the Hurricane events, the Puebla, Mexico Earthquake, and other CAT events.

After adjusting for these net catastrophe losses net of RRPs, our Net Current AY Losses and LAE Ratio decreased 5.9 points as compared to the same period in 2017 primarily related to our A&H product due to lower claims development on accident year 2018.

For the year ended December 31, 2017, our Reported Net Losses and LAE Ratio increased 20.3 points as compared to the same period in 2016 driven by:

For the year ended December 31, 2017, our Net Prior AY Losses and LAE Ratio increased 2.9 points as compared to the same period in 2016. Our GlobalRe reporting segment for the year ended December 31, 2017 recognized $2.8 million of Net Prior AY Reserve Strengthening mostly related to the settlement of a large A&H claim and unfavorable loss emergence within our P&C product, partially offset by favorable loss emergence across our Agriculture and Marine products. This compares to $2.2 million of Net Prior AY Reserve Releases for the same period in 2016 related to our A&H product.

For the year ended December 31, 2017, our Net Current AY Losses and LAE Ratio increased 17.4 points as compared to the same period in 2016, primarily driven by an increase in catastrophe losses. During the year ended December 31, 2017, we recognized $40.7 million of net catastrophe losses net of RRPs from the Hurricane events, the Puebla, Mexico Earthquake, and other CAT events. This compared to $9.4 million of 2016 catastrophe losses mostly from the Alberta Wildfires, Ecuador Earthquake, Taiwan Earthquake, and other weather-related catastrophe events.

After adjusting for these catastrophe losses, our Current AY Losses and LAE Ratio decreased 0.5 points as compared to the same period in 2016 primarily due to changes in mix of business with proportionally less earnings coming from our A&H product, which carries a higher loss ratio, and an increase in earnings from our P&C products, which carry lower loss ratios.

Our Commission Expense Ratio for the year ended December 31, 2018 increased 0.5 points compared to the same period in 2017. The increase was primarily due to changes in the mix of business with more proportional A&H and Specialty Casualty premium earned with higher Commission Expense Ratios.

Our Commission Expense Ratio for the year ended December 31, 2017 increased 1.2 points as compared to the same period in 2016. The increase was attributable to higher profit commission expense particularly on our Surety product and changes in the mix of business, partially offset by the effect of fully earned net RRPs from Hurricanes Irma, Harvey and Maria.

Other Operating Expenses for the year ended December 31, 2018 increased $4.1 million, as compared to the same period in 2017, primarily due to increases in employee expenses and indirect expenses. Although Other Operating Expenses increased, the Other Operating Expense Ratio decreased 1.4 points for the year ended December 31, 2018, as compared to the same period in 2017. An increase in Net Earned Premiums offset the increase in Other Operating Expenses for the year driving the decrease in this ratio compared to the same period in 2017.

Other Operating Expenses for the year ended December 31, 2017 increased $1.3 million as compared to the same period in 2016, primarily due to costs associated with new business initiatives.

Our capital resources consist of funds deployed or available to be deployed to support our business operations. As of December 31, 2018 and 2017, our capital resources were as follows:

As part of our capital management program, we may seek to raise additional capital or may seek to return capital to our stockholders through share repurchases, cash dividends or other methods (or a combination of such methods). Any such determination will be at the discretion of our Parent Company’s Board of Directors and will be dependent upon our profits, financial requirements and other factors, including legal restrictions, rating agency requirements, credit facility limitations and such other factors as our Board of Directors deems relevant.

We primarily rely upon dividends from our subsidiaries to meet our Parent Company’s obligations, which mostly consist of semi-annual (April and October) interest payments of $7.6 million on the Senior Notes. We continue to believe that the dividend capacity of our subsidiaries will provide our Parent Company with sufficient liquidity for the foreseeable future.

NIC may pay dividends to our Parent Company out of our statutory earned surplus pursuant to statutory restrictions imposed under the New York insurance law. As of December 31, 2018, the maximum amount available for the payment of dividends by NIC in 2019 without prior regulatory approval is $5.2 million. During 2018, NIC paid dividends of $97.0 million to our Parent Company, related to the acquisition and subsequent funding of the NICE Group. The statutory calculation for dividends without prior regulatory approval uses a rolling twelve-month basis, and as of December 31, 2018 this calculation was temporarily impacted by the dividends used to acquire the NICE Group during the first half of 2018. This calculation also excludes consideration for the Company’s ability to request extraordinary dividends.

NCUL, our wholly-owned corporate member at Lloyd’s, may pay dividends to our Parent Company up to the extent of available profits that have been distributed from the Syndicate. As of December 31, 2018, there are no profits available for distribution.

NIIC, our wholly-owned UK Insurance company, may pay dividends out of its statutory profits subject to the restrictions imposed under UK Company law and European Insurance regulation (Solvency II). As of December 31, 2018, the maximum amount available for the payment of dividends by NIIC without prior regulatory approval is $20.3 million. In addition, NIIC must provide at least 14 days’ notice to the Prudential Regulatory Authority prior to agreeing to make any material dividend payment to any of its affiliated entities that are domiciled outside of the European Economic Area.

ASCO may only pay a dividend if at the end of its last fiscal year the total amount of its assets, as reduced by its provisions and debts, are in excess of certain minimum capital thresholds calculated under Belgian law. As of December 31, 2018, ASCO may not declare a dividend.

In accordance with the Merger Agreement, the Company’s quarterly cash dividend payments are not to exceed $0.07 per share.

On October 4, 2013, we completed a public debt offering for $265.0 million of 5.75% Senior notes due on October 15, 2023 and received net proceeds of $263.3 million. The effective interest rate related to the net proceeds received from the 5.75% Senior notes is approximately 5.86%. Interest is payable on the 5.75% Senior notes each April 15 and October 15. The terms of the 5.75% Senior notes contain various restrictive business and financial covenants, including a restriction on indebtedness, and other restrictions typical for debt obligations of this type, including limitations on mergers, liens and dispositions of the common stock of certain subsidiaries. As of December 31, 2018, our Company was in compliance with all such covenants.

On November 4, 2016, NUAL entered into an Australian Dollar credit facility, which was subsequently amended on October 30, 2017, with Barclays Bank PLC. Letter of Credit commissions are payable under this facility at a rate of 1.55% per annum. The facility may be cancelled by either party after providing written notice. This credit facility contains customary covenants for facilities of this type, including a restriction on future encumbrances that are outside the ordinary course of business, and a requirement to maintain at least £75.0 million of Funds at Lloyd’s. As of December 31, 2018, letters of credit with an aggregate face amount of 24.0 million Australian Dollars were outstanding under the credit facility, and our Company was in compliance with all covenants.

On November 7, 2018, we entered into a credit facility agreement with ING Bank N.V., London Branch, individually and as Administrative Agent for a syndicate of lenders (the “Club Facility”), which is secured by all the common stock of NIC and requires us to maintain at least forty percent of the outstanding amounts under such facility as Funds at Lloyd’s. The Club Facility has two tranches with one tranche extending a $165.0 million commitment and the other tranche extending a £60.0 million commitment. In addition, in order to support the increased underwriting capacity of the Syndicate for the 2019 UWY, we amended the $25.0 million credit facility with ING Bank N.V., London Branch dated November 20, 2015, on November 7, 2016 and again on January 23, 2019 to extend the term for an additional two years (the “Bilateral Facility”). Both of these facilities, as well as the November 4, 2016 facility, are used to fund underwriting obligations at Lloyd’s for the 2019 UWY, as well as open prior UWYs.

The Bilateral Facility is a non-committed facility which has an applicable fee rate ranging from 0.85% to 1.20% per annum based upon our Company’s S&P rating. For the Club Facility the applicable fee rate payable ranges from 0.95% to 1.60% per annum based on a tiered schedule that is based on our then-current financial strength ratings issued by S&P and A.M. Best and the amount of our own collateral utilized to fund our participation in the Syndicate. If any letters of credit remain outstanding under these facilities after December 31, 2020, we would be required to post additional collateral to secure the remaining letters of credit. As of December 31, 2018, letters of credit with an aggregate face amount of $165.0 million and £60.0 million were outstanding under the Club Facility and we had an aggregate of $1.2 million of cash collateral posted. As of December 31, 2018 there were letters of credit with a face amount of $8.0 million outstanding under the Bilateral Facility.

The Bilateral and Club Facilities contain customary covenants for facilities of this type, including restrictions on indebtedness and liens, limitations on mergers, dividends and the sale of assets, and requirements as to maintaining certain consolidated tangible net worth, statutory surplus and other financial ratios. These credit facilities also provide for customary events of default, including failure to pay principal, interest or fees when due, failure to comply with covenants, any representation or warranty made by our Company being false in any material respect, default under certain other indebtedness, certain insolvency or receivership events affecting our Company and our subsidiaries, the occurrence of certain material judgments, or a change in control of our Company. During the first quarter of 2018, the Company reclassified certain overseas deposits from Short-Term Investments to Other Invested Assets. Refer to Note 1 Organization & Summary of Significant Accounting Policies in the Notes to Interim Consolidated Financial Statements. Although the nature of the investments did not change, this reclassification caused the Company to exceed a covenant of our Club Facility that sets a limitation on other investments as a percentage of total investments. During the second quarter of 2018, our Company received a waiver of compliance with respect to this covenant, which was subsequently amended to increase the percentage of other investments permitted. As of December 31, 2018, our Company was in compliance with all covenants.

We generally maintain the ability to issue certain classes of debt and equity securities via a universal shelf registration statement filed with the SEC, which is renewed every three years. The shelf registration provides us the means to access the debt and equity markets relatively quickly. Our current shelf registration, which was filed on April 13, 2018 with the SEC, expires in 2021. This report is not an offer to sell or the solicitation of an offer to buy nor shall there be any sale of these securities in any state in which such offer, solicitation or sale would be unlawful prior to registration or qualification under the securities laws of such state.

We believe that the cash flow generated by the operating activities of our subsidiaries will provide sufficient funds for us to meet our liquidity needs over the next twelve months. Beyond the next twelve months, our cash flow available may be influenced by a variety of factors, including general economic conditions and conditions in the insurance and reinsurance markets, as well as fluctuations from year to year in claims experience.

We believe that we have adequately managed our cash flow requirements related to reinsurance recoveries from their positive cash flows and the use of available short-term funds when applicable. However, there can be no assurances that we will be able to continue to adequately manage such recoveries in the future or that collection disputes or reinsurer insolvencies will not arise that could materially increase the collection time lags or result in recoverable write-offs causing additional incurred losses and liquidity constraints to our Company. The payment of gross claims and related collections from reinsurers with respect to large losses could significantly impact our liquidity needs. However, in general, we expect to collect our paid reinsurance recoverables under the terms described above.

Net cash provided by operating activities was $342.3 million for the year ended December 31, 2018 compared to $265.3 million for the same period in 2017. Operating cash flows increased from the prior year due to the growth of our business, coupled with increased investment income collections due to growth in invested assets and higher yields. Additionally, estimated federal tax payments were less in 2018 as compared with 2017 due to a decrease in our effective tax rate associated with the Tax Act as well as an increase in cash collateral collections for certain lines of business.

Net cash used in investing activities was $260.1 million for the year ended December 31, 2018 compared to $264.0 million for the comparable period in 2017. The change in cash used in investing activities is the result of changes in operating cash flows and the associated ongoing management of our investment portfolio. Additionally, certain operating cash flows were directed to cash equivalents rather than Fixed Maturities as we anticipate increased cash outflows associated with the non-renewal of our Company’s fixed-premium protection and indemnity business. Finally, investing cash flows were impacted by cash acquired resulting from the Acquisition as discussed in Note 2. Merger and Business Combinations. The cash inflow from the sale of Fixed Maturities to fund the Acquisition was offset by the cash outflow to purchase the subsidiaries

Net cash used in financing activities was $14.8 million for the year ended December 31, 2018 compared to $18.4 million for the same period in 2017. The change in cash used in financing activities is primarily related to a reduction in tax withholding payments on vested stock compensation in 2018 as compared with 2017. To a lesser extent 2018 financing cash flows were impacted by an increase in the quarterly stockholder dividend in 2018 as compared with 2017.

Our diversified underwriting portfolio has demonstrated an ability to withstand catastrophic losses. Since 1993, we have generated positive cash flows from operations, notwithstanding the impacts of the global financial crisis and the recognition of significant natural CAT-related losses during these years. Should claim payment obligations accelerate beyond our ability to fund payments from operating cash flows, we would utilize our cash and cash equivalent balances and/or liquidate a portion of our investment portfolio. Our investment portfolio is heavily weighted towards conservative, high quality and highly liquid securities which would be available in two business days under normal market conditions. Unrestricted Cash and Short Term investments, together with Fixed Maturities due in one year or less, total $350 million at December 31, 2018. By comparison, we estimate that the largest exposure to loss from a single 1 in 250 year natural CAT event as of December 31, 2018, results in a probable maximum pre-tax gross and net loss of approximately $191.0 million and $46.0 million, respectively, including the cost of RRPs.

Our ability to underwrite is dependent upon the financial strength of NIC, NSIC, Lloyd’s, NIIC and ASCO business. Financial strength ratings represent the opinions of the rating agencies on the financial strength of a company and its capacity to meet the obligations of insurance policies. Independent ratings are important to our competitive position in the insurance markets. The rating agencies consider many factors in determining the financial strength rating of an insurance company, including the relative level of statutory surplus necessary to support the business operations of our Company. These ratings are based upon factors relevant to policyholders, agents and intermediaries and are not directed toward the protection of investors. Such ratings are not recommendations to buy, sell or hold securities. We could be adversely impacted by a downgrade in our financial strength ratings, including a possible reduction in demand for our products, higher borrowing costs and our ability to access the capital markets.

U.S. insurance companies, NIC and NSIC, utilize the financial strength ratings from A.M. Best and S&P for underwriting purposes. NIC and NSIC are both rated “A” (Excellent – positive outlook) by A.M. Best and “A” (Strong - stable outlook) by S&P. The Syndicate utilizes the ratings from A.M. Best and S&P for underwriting purposes, which apply to all Lloyd’s syndicates. Lloyd’s is rated “A” (Excellent – stable outlook) by A.M. Best and A+ (Strong – negative outlook) by S&P. NIIC utilizes the financial strength ratings from AM Best and S&P for underwriting purposes. NIIC is rated “A” (Excellent – stable outlook) by AM Best and “A” (Strong – stable outlook) by S&P. ASCO is rated “A-“ (Strong – stable outlook) by S&P.

Debt ratings apply to short-term and long-term debt as well as preferred stock. These ratings are assessments of the likelihood that we will make timely payments of the principal and interest for our senior debt. It is possible that, in the future, one or more of the rating agencies may reduce our existing debt ratings. If one or more of our debt ratings were downgraded, we could incur higher borrowing costs and our ability to access the capital markets could be impacted.

We utilize the senior debt ratings from S&P. Our senior debt is rated BBB (Adequate) by S&P.

We have no material off-balance sheet transactions with the exception of our letter of credit facilities.

The following table sets forth the best estimate of our known contractual obligations with respect to the items indicated as of December 31, 2018:

Our investment portfolio is invested primarily in publicly traded, investment grade, fixed income securities with an average credit quality of AA-/Aa3 as rated by S&P or Moody’s Investors Service (“Moody’s”). As of December 31, 2018, our portfolio had a duration of 3.4 years. Management periodically projects cash flow of the investment portfolio and other sources in order to maintain the appropriate levels of liquidity in an effort to ensure our ability to satisfy claims.

As of December 31, 2018 and December 31, 2017, all Fixed Maturities Securities were classified as Available-For-Sale. Upon adoption of the FASB’s ASU 2016-01 on January 1, 2018, our Equity Securities have been measured at fair value with changes in fair value recognized through Net Income. Prior to the adoption of ASU 2016-01, our Equity Securities were classified as Available-For-Sale with change in fair value recognized through Accumulated Other Comprehensive Income.

Our portfolio is externally managed by independent, professional investment managers and is broadly diversified across geographies, sectors, and issuers. The primary objectives are to maximize total investment return in the context of preserving and enhancing stockholder value and the statutory surplus of our regulated insurance companies. As part of our overall investment strategy, we seek to build a tax efficient investment portfolio by maintaining an allocation to tax exempt municipal bonds. As of December 31, 2018, the tax-exempt portion of our Fixed Maturities portfolio was approximately 16.5%. Additionally, 84.8% of our Equity Securities portfolio is invested in tax efficient securities which qualify for the dividends received deduction. Our investments are subject to the oversight of the respective insurance companies’ Boards of Directors and the Finance Committee of the Parent Company’s Board of Directors.

We are a specialty insurance company and periods of moderate economic recession or inflation tend not to have a significant direct effect on underwriting operations. They do, however, impact our investment portfolio. A decrease in interest rates will tend to decrease our yield and have a positive effect on the fair value of our invested assets. An increase in interest rates will tend to increase our yield and have a negative effect on the fair value of our invested assets.

The following table summarizes the composition of our investments at fair value:

(1) - Cash that was misclassified within Short-Term Investments in 2017 was reclassified, representing an immaterial correction. Refer to Note 1 Organization & Summary of Significant Accounting Policies, in the Notes to the Consolidated Financial Statements, for further information.

Invested assets increased from December 31, 2017 due to positive operating cash flow partially offset by an increase in unrealized losses due to rising interest rates, credit spread widening and equity market losses. Operating cash flows were primarily directed to Residential Mortgage Obligations, and Asset Backed Securities, some of which are floating rate securities which protect against interest rate risk in a rising rate environment. Operating cash flows were also directed to Corporate Exposures at attractive spreads. Furthermore, certain short dated Municipal Bonds were sold due to technical market factors. The increase in Common Stocks is due to the equity portfolio of the NICE Group, which was acquired as part of the purchase of these entities, as well as the purchase of passively managed equity mutual funds.

The following table sets forth the amount of our Fixed Maturities as of December 31, 2018 by S&P credit rating or, if an S&P rating is not available, the equivalent Moody’s rating.

(1) - The total rating is the weighted average quality rating for the Fixed Maturities portfolio as a whole.

The following table sets forth the composition of the non-government guaranteed Fixed Maturities categorized by asset class and generally equivalent S&P and Moody’s ratings (not all securities in our portfolio are rated by both S&P and Moody’s):

The following table sets forth our U.S. Treasury Bonds, Agency Bonds and Foreign Government Bonds, as well as our State, Municipality and Political Subdivision Bond holdings by type:

As of December 31, 2018, we own $23.1 million of municipal securities, which are credit enhanced by various financial guarantors which have an average underlying credit rating of A.

The following table sets forth our Agency Residential Mortgage-Backed Securities (“AMBS”) issued by the Government National Mortgage Association (“GNMA”), Federal National Mortgage Association (“FNMA”) and Federal Home Loan Mortgage Corporation (“FHLMC”) and the quality category (Prime, Alternative A-paper (“Alt-A”) and Other) for Residential Mortgage -Backed Securities (“RMBS”):

We analyze our mortgage-backed securities by credit quality of the underlying collateral distinguishing between the securities issued by FNMA, FHLMC and GNMA, which are federal government sponsored entities, and non-FNMA and non-FHLMC securities broken out by prime, Alt-A and other collateral. The securities issued by FNMA and FHLMC are the obligations of each respective entity. The U.S. Department of the Treasury has agreed to provide support to FNMA and FHLMC under a Preferred Stock Purchase Agreement by committing to make quarterly payments to these enterprises, if needed, to maintain a zero net worth.

Prime collateral consists of mortgages or other collateral from the most creditworthy borrowers. Alt-A collateral consists of mortgages or other collateral from borrowers, which have a risk potential greater than prime but less than subprime. Such prime and Alt-A categories are as defined by S&P.

Details of the collateral of our Asset-Backed Securities portfolio as of December 31, 2018 are presented below:

Details of our Corporate Exposures portfolio as of December 31, 2018 are presented below:

As of December 31, 2018, the fair value of securities issued in foreign countries was $380.6 million, with an amortized cost of $389.3 million, representing 11.1% of our total Fixed Maturities and Equity Securities. Our largest exposure is Canada with a total of $145.1 million followed by the United Kingdom with a total of $41.9 million.

The following table summarizes the gross unrealized losses as of December 31, 2018 by length of time where the fair value was less than 80% of amortized cost:

Our Company had no credit related OTTI losses during the year ended December 31, 2018. Our Company had four credit related OTTI losses totaling $2.1 million in our Equity Securities portfolio during the year ended December 31, 2017. During the year ended December 31, 2016, we recognized one credit related OTTI loss of $0.2 million in our Fixed Maturities portfolio.

The fair value of our investment portfolio may fluctuate significantly in response to various factors such as changes in interest rates, investment quality ratings, equity prices, foreign exchange rates and credit spreads. We do not have the intent to sell nor is it more likely than not that we will have to sell Fixed Maturities in unrealized loss positions that are not other-than-temporarily impaired before recovery. For structured securities, default probability and severity assumptions differ based on property type, vintage and the stress of the collateral. We do not intend to sell any of these securities and it is more likely than not that, we will not be required to sell these securities before the recovery of the amortized cost basis. Upon adoption of ASU-2016-01 as of January 1, 2018, the changes in the fair value of Equity Securities are recognized through Net Income. We may realize investment losses to the extent our liquidity needs require the disposition of Fixed Maturity Securities in unfavorable interest rate, liquidity or credit spread environments. Significant changes in the factors we consider when evaluating investments for impairment losses could result in a significant change in impairment losses reported in the Consolidated Financial Statements.

Our Company monitors the development of paid and reported claims activities in relation to the estimate of ultimate losses established for loss events. Actual losses from such loss events may differ materially from the estimated losses generally due to the receipt of additional information from insureds or brokers, inflation in repair costs due to the limited availability of labor and materials or the attribution of losses to coverages, which our Company assumed we would not have exposure to.

Our exposure to asbestos liability principally stems from our Marine Liability product insurance written on an occurrence basis during the mid-1980s. In general, our participation on such risks is in the excess layers, which requires the underlying coverage to be exhausted prior to coverage being triggered in our layer. In many instances, we are one of many insurers who participate in the defense and ultimate settlement of these claims, and we are generally a minor participant in the overall insurance coverage and settlement.

The reserves for asbestos exposures as of December 31, 2018 are for: (i) one large settled claim for excess insurance policy limits exposed to a class action suit against an insured involved in the manufacturing or distribution of asbestos products being paid over several years and (ii) attritional asbestos claims that could be expected to occur over time. Substantially all of our asbestos liability reserves are included in our U.S. Marine operating segment loss reserves.

There can be no assurances that material loss development may not arise in the future from existing asbestos claims or new claims given the evolving and complex legal environment that may directly affect the outcome of the asbestos exposures of our insureds.

The following tables set forth our gross and net losses and LAE reserves, incurred losses and LAE, and payments for our asbestos exposures for the periods indicated:

Our Company has exposure to losses caused by hurricanes, earthquakes, and other natural and man-made catastrophic events. The frequency and severity of catastrophic events is unpredictable. The extent of covered losses from a catastrophe is a function of both the total amount of insured exposure in an area affected by the event and the severity of the event. We continually assess the concentration of underwriting exposures in catastrophe-exposed areas globally and manage this exposure through individual risk selection and through the purchase of reinsurance. Our Company also uses modeling and concentration management tools that allow better monitoring and better control of the accumulations of potential losses from catastrophe events. Despite these efforts, there remains uncertainty about the characteristics, timing and extent of insured losses given the unpredictable nature of catastrophes. The occurrence of one or more catastrophic events could have a material adverse effect on our results of operations, financial condition and/or liquidity.

Our Company has significant natural catastrophe exposures throughout the world. We estimate that the largest exposure to loss from a 1 in 250 year single natural catastrophe event comes from an earthquake on the west coast of the U.S. As of December 31, 2018, our Company estimates that the probable maximum pre-tax gross and net loss exposure from such an earthquake event would be approximately $191.0 million and $46.0 million, respectively, including the cost of RRPs.

Like all catastrophe exposure estimates, the foregoing estimate of the probable maximum loss is inherently uncertain. This estimate is highly dependent upon numerous assumptions and subjective underwriting judgments. Examples of significant assumptions and judgments related to such an estimate include the intensity, depth and location of a hurricane, the various types of the insured risks exposed to the event at the time the event occurs and the estimated costs or damages incurred for each insured risk. The composition of the portfolio also makes such estimates challenging due to the non-static nature of the exposures covered under the policies in products such as Cargo and Hull. There can be no assurances that the gross and net loss amounts that our Company could incur in such an event or in any natural catastrophe event would not be materially higher than the estimates discussed above given the significant uncertainties with respect to such an estimate. Moreover, the portfolio of insured risks changes dynamically over time and there can be no assurance that the probable maximum loss will not change materially over time.

The occurrence of large loss events could reduce the reinsurance coverage that is available to our Company and could weaken the financial condition of the reinsurers, which could have a material adverse effect on our results of operations. Although the reinsurance agreements make the reinsurers liable to our Company to the extent the risk is transferred or ceded to the reinsurer, ceded reinsurance arrangements do not eliminate the obligation to pay claims to policyholders, as our Company is required to pay the losses if a reinsurer fails to meet its obligations under the reinsurance agreement.

Our Company utilizes reinsurance principally to reduce the exposure on individual risks, to protect against catastrophic losses and to stabilize loss ratios and underwriting results. Our Company is protected by various treaty and facultative reinsurance agreements. The reinsurance is placed either directly by our Company or through reinsurance intermediaries. The reinsurance intermediaries are compensated by the reinsurers.

For the year ended December 31, 2018, the Company incurred net catastrophe losses and LAE of $28.7 million primarily related to Typhoon Jebi, Hurricane Michael, Hurricane Florence, the California Camp Fire, and Typhoon Trami. These catastrophe events generated losses in all three of our reporting segments. As of December 31, 2018, the total net reserves for these catastrophe events totaled $26.6 million, including $2.1 million in additional assumed RRPs.

Hurricanes Harvey, Irma and Maria, which occurred in the third quarter of 2017, and the Alberta Wildfires, which occurred in the second quarter of 2016, generated substantial losses in our U.S. and Int’l Marine and P&C operating segments, as well as in our GlobalRe reporting segment. As of December 31, 2018, the net reserves for Hurricanes Harvey, Irma and Maria totaled $1.0 million and the net reserves for the Alberta Wildfires totaled $0.4 million. Management believes that should any adverse loss development for gross claims occur from the aforementioned hurricanes and wildfires, it would be contained within the reinsurance program.

Our estimated net losses in relation to these events were derived from ground-up analysis of our in-force contracts providing coverage in the affected regions. These analyses include information from brokers or customers and also consider catastrophe modeling analyses, underwriters’ review of certain contracts and industry and/or statistical estimates. Our estimates remain subject to change as additional data becomes available.

The magnitude and complexity of losses arising from these events inherently increases the level of uncertainty as well as management judgment involved in determining our estimated net reserve for loss expenses. As a result, our actual losses from these events may ultimately differ materially from our current estimates.

The following table sets forth our gross and net losses and LAE reserves, incurred losses and LAE, and payments for Hurricanes Harvey, Irma and Maria for the years ended December 31, 2018 and 2017:

Hurricanes Harvey, Irma and Maria impacted 2018 with a total estimated net benefit for the year of $9.8 million and $0.4 million in additional Net RRPs.

The following table sets forth our gross and net losses and LAE reserves, incurred losses and LAE, and payments for the Alberta Wildfires for the years ended December 31, 2018, 2017 and 2016:

The Alberta wildfires impacted 2016 with a total estimated net loss for the year of $11.7 million and $1.8 million in additional RRP and 2017 with a net loss and RPP decrease of $2.6 million and $0.6 million, respectively. At December 31, 2018, there was an overall net loss and RRP decrease of $0.1 million.

Reinsurance recoverable includes the balances due to us from reinsurance companies for paid and unpaid losses and loss expenses, based on contracts in force, and are presented net of a reserve for uncollectible reinsurance which is determined based upon a review of the financial condition of the reinsurers and other factors. We determine the reinsurance recoverable on unpaid losses and loss expenses using actuarial estimates, as well as a determination of our ability to cede unpaid losses and loss expenses under existing reinsurance contracts. Although reinsurance makes the reinsurer liable to our Company to the extent the risk is transferred or ceded to the reinsurer, ceded reinsurance arrangements do not eliminate the obligation to pay claims to the policyholders. Accordingly, our Company bears credit risk with respect to the reinsurers. Specifically, the reinsurers may not pay claims made by our Company on a timely basis, or they may not pay some or all of these claims. Either of these events would increase the costs and could have a material adverse effect on our business.

The exposure to credit risk from any one reinsurer is actively managed through diversification by reinsuring with a number of different reinsurers, principally in the United States and European reinsurance markets. When reinsurance is placed, the standards of acceptability require a reinsurer rating from A.M. Best and/or S&P of “A” or better, or an equivalent financial strength if not rated, plus at least $500 million in policyholders’ surplus. The Reinsurance Security Committee, which is included within the Enterprise Risk Management Finance and Credit Sub-Committee, monitors the financial strength of the reinsurers and the related reinsurance recoverables and periodically reviews the list of acceptable reinsurers.

Our Company has established a reserve for uncollectible reinsurance in the amount of $13.4 million and $12.6 million as of December 31, 2018 and 2017, respectively. Our reserve is determined by considering reinsurer specific default risk as indicated by their financial strength ratings, as well as additional default risk for asbestos and environmental related recoverables or an individual impairment assessment for certain reinsurers that exhibit additional default risk. Actual uncollectible reinsurance could potentially differ from the estimate. The increase in our reserves for uncollectible reinsurance as compared to 2017 is driven primarily by one of our reinsurers having been placed in liquidation by the State of California. We continue to monitor the liquidation process and assess our potential exposure.

Refer to Note 8, Ceded Reinsurance, in the Notes to Consolidated Financial Statements for additional information.

We prepare our financial statements in accordance with GAAP, which requires the use of estimates and assumptions. Our consolidated financial statements include amounts that, either by their nature or due to requirements of GAAP, are determined using best estimates and assumptions. Management has discussed and reviewed the development, selection, and disclosure of critical accounting estimates with our Company’s Audit Committee. While we believe that the amounts included in our consolidated financial statements reflect our best judgment, actual amounts could ultimately materially differ from those currently presented.

We believe the items that require the most subjective and complex estimates involve the reporting of:

Reserves for losses and LAE represent an estimate of the expected cost of the ultimate settlement and administration of losses, based on facts and circumstances then known less the amount paid to date. Our actuaries calculate indicated IBNR loss reserves by UWY for major product groupings using standard actuarial methodologies, which are projection or extrapolation techniques, including: (a) the loss ratio method, (b) the loss development method, and (c) the Bornhuetter-Ferguson method. Each of these methodologies is generally applicable to both long tail and short tail lines of business depending on a variety of circumstances. Informed subjective judgments as to our ultimate exposure to losses are an integral component of our loss reserving process due to numerous factors that contribute to the inherent uncertainty in the process of establishing loss reserves, including:

A review of the emergence of actual losses relative to expectations for each line of business generally derived from the quarterly and/or semi-annual in depth reserve analyses is conducted to determine whether the assumptions used in the reserving process continue to form a reasonable basis for the projection of liabilities for each product line. As time passes, estimated loss reserves for an UWY will be based more on historical loss activity and loss development patterns rather than on assumptions based on underwriters' input, pricing assumptions or industry experience. During the loss settlement period, it often becomes necessary to refine and adjust the estimates of liability on a claim either upward or downward. No assurance can be given that actual claims made and related payments will not be in excess of the amounts reserved.

This method is based on the assumption that ultimate losses vary proportionately with premiums. Pursuant to the loss ratio method, IBNR loss reserves are calculated by multiplying the earned premium by an expected ultimate loss ratio to estimate the ultimate losses for each UWY, then subtracting the reported losses, consisting of paid losses and case loss reserves, to determine the IBNR loss reserve amount. The ultimate loss ratios applied are our Company’s best estimates for each UWY and are generally determined after evaluating a number of factors which include: information derived by underwriters and actuaries in the initial pricing of our business, the ultimate loss ratios established in the prior accounting period and the related judgments applied, the ultimate loss ratios of previous UWYs, premium rate changes, underwriting and coverage changes, changes in terms and conditions, legislative changes, exposure trends, loss development trends, claim frequency and severity trends, paid claims activity, remaining open case reserves and industry data where deemed appropriate. Such factors are also evaluated when selecting ultimate loss ratios and/or loss development factors in the methods described below.

The Bornhuetter-Ferguson method calculates the IBNR loss reserves as the product of the earned premium, an expected ultimate loss ratio, and a loss development factor that represents the expected percentage of the ultimate losses that have been incurred but not yet reported. The loss development factor equals one hundred percent less the expected percentage of losses that have thus far been reported, which is generally calculated as an average of the percentage of losses reported for comparable reporting periods of prior UWYs. The expected ultimate loss ratio is generally determined in the same manner as in the loss ratio method.

The loss development method, also known as the chain ladder or the link-ratio method, develops the IBNR loss reserves by multiplying the paid or reported losses by a loss development factor to estimate the ultimate losses, then subtracting the reported losses, consisting of paid losses and case loss reserves, to determine the IBNR loss reserves. The loss development factor is the reciprocal of the expected percentage of losses that have thus far been reported, which is generally calculated as an average of the percentage of losses reported for comparable reporting periods of prior UWYs.

The following discusses the method used for calculating the IBNR for various lines of business and key assumptions used in applying the actuarial methods described.

Reserves are established separately for each major product. Our actuaries generally assume that historical loss development patterns are reasonable predictors of future loss patterns and apply a variety of traditional actuarial techniques to develop a reasonable expectation of ultimate losses. However, there are a number of products for which our Company has insufficient experience so as to generate credible actuarial projections. In those instances, we typically evaluate overall industry experience, rely on the input of underwriting, and claims executives in setting assumptions for our IBNR reserves. We also attempt to make reasonable provisions for the impact of economic, legal and competitive trends in projecting future loss development.

Our actuarial IBNR estimation approach is based on the nature of the data generated by the lines of business being reviewed. Each business line can be characterized as either a long or short tailed line of business or, if it is a new business line, the length of the tail would not necessarily be immediately relevant and it would be treated only as a new business line.

Short tailed lines of business have the least uncertainty of the three groups. For short tailed lines of business there is typically a mature or close to mature dataset from which to select patterns and estimates. Thus, the actuaries would generally apply a combination of loss development method and Bornhuetter-Ferguson methods that rely on internal historical patterns and losses.

For long tailed lines of business the uncertainty is greater. Due to the amount of time it takes a long tailed segment to mature, there is uncertainty with regards to how any line of business or year will settle as well as uncertainty with regards to the path it will take to settle. Additionally, due to their long tailed nature, many of the lines of business that are not new but are long tailed may not have a mature historical dataset from which to derive credible estimates for reserving. For these lines of business, while standard actuarial reserving methods would usually be applied, the loss development method would generally only be applied in the more mature years where the expectation is that they are close to ultimate. Where internal data on long tailed lines lacks sufficient credibility, overall industry experience would be evaluated and the input of underwriting and claims executives in setting assumptions would be considered.

For new business the assumption is that internal historical data would not be available and the actuaries will typically evaluate based on overall industry experience, and rely on the input of underwriting, and claims executives in setting assumptions for IBNR reserves. Early on, unless there is a credible industry pattern or internal complementary line of business pattern, the loss ratio method would be applied and patterns would only be applied as the business begins to mature. If there is a credible complementary or industry pattern Bornhuetter-Ferguson methods might be applied initially as well, particularly if it is a short tailed line of business.

The data distribution as of December 31, 2018 as measured by net case reserves outstanding is as follows:

The following table provides a sensitivity analysis of our Net Reserves for Losses and LAE as of December 31, 2018:

			Reasonably Likely Range of Deviation
	Total Net		Strengthening						Release
amounts in thousands	Loss Reserve		Amount			%			Amount			%
U.S. Insurance
Marine	$	101,973	$	2,289			2.2	%	$	2,239			2.2	%
P&C		1,017,912		34,257			3.4	%		33,141			3.3	%
Professional Liability		134,821		8,985			6.7	%		8,424			6.2	%
Portfolio Effect ⁽¹⁾				(17,426	)					(16,315	)
Total U.S. Insurance	$	1,254,706	$	28,105			2.2	%	$	27,489			2.2	%
Int'l Insurance
Marine	$	222,397	$	32,015			14.4	%	$	27,986			12.6	%
P&C		102,889		22,849			22.2	%		18,697			18.2	%
Professional Liability		165,196		79,017			47.8	%		53,451			32.4	%
Portfolio Effect ⁽¹⁾				(63,427	)					(38,529	)
Total Int'l Insurance	$	490,482	$	70,454			14.4	%	$	61,605			12.6	%
GlobalRe		178,596		40,429			22.6	%		32,966			18.5	%
Subtotal	$	1,923,784	$	138,988					$	122,060
Portfolio Effect ⁽¹⁾		—		(73,450	)					(58,681	)
Group Total	$	1,923,784	$	65,538			3.4	%	$	63,379			3.3	%

Increase (Decrease) to Net Income
Amount			$	(51,775	)				$	50,069
Per Share ⁽²⁾			$	(1.71	)				$	1.66

(1) - The totals for each segment are adjusted for portfolio effect. The portfolio effect is the reduction in risk which arises out of diversification in the portfolio.

(2) - Calculated using average diluted shares of 30,193 for the year ended December 31, 2018.

A range of reasonable estimates has been developed based on the historical volatility of held reserves versus current estimates for the purposes of this sensitivity analysis. Our Company’s lines of business, the market pricing adequacy and our Company’s underwriting strategies have changed dynamically over the past ten years. The impact from the shift on ranges will be greater for lines with longer emergence patterns. The individual lines will also have greater variance than the range for the entire book of business. The statistical variation is expected to have a somewhat higher range of deterioration than savings. The computation of each range represents the central 50.0% of outcomes. The movement within our reporting segments in an individual year may not fall within this range. There is a significant risk that the potential volatility of the current reserve estimates could differ in a material manner from the historical trends. The total reserve variability is not equal to the sum of the segment variability due to the benefit of diversification.

Reinsurance recoverables are established for the portion of the loss reserves that are ceded to reinsurers. Reinsurance recoverables are determined based upon the terms and conditions of reinsurance contracts, which could be subject to interpretations that differ from our own based on judicial theories of liability. We are required to pay losses even if a reinsurer fails to meet its obligations under the applicable reinsurance agreement. We bear credit risk with respect to our reinsurers, which can be significant considering that certain of the reserves remain outstanding for an extended period of time.

Substantially all of our business is placed through agents and brokers. Written premium is recorded based on the insurance policies that have been reported to us and the policies that have been written by agents but not yet reported to us. We estimate the amount of written premium not yet reported based on judgments relative to current and historical trends of the business being written. An unearned premium reserve is established to reflect the unexpired portion of each policy at the financial reporting date. Assumed and ceded RRPs are written and fully earned in the period in which the loss event, which caused the reinstatement premium, occurred.

A portion of our premium is estimated for unreported premium, mostly for our Marine and Energy & Engineering products written by our Int’l Insurance reporting segment, as well as our A&H, Marine, P&C, Specialty Casualty, Agriculture and Surety products written by our GlobalRe reporting segment. Such premium estimates are based on submission data received from brokers and agents and recorded when the insurance policy or reinsurance contract is written or bound. The estimates are regularly reviewed and updated taking into account the premium received to date versus the estimate and the age of the estimate. To the extent that the actual premium varies from the estimates, the difference, along with the related loss reserves and underwriting expenses, is recorded in current operations.

We also record the ceded portion of the estimated gross written premium and related acquisition costs. The earned gross, ceded and net premiums are calculated based on our earning methodology, which is generally over the policy period. Losses are also recorded in relation to the earned premium. The estimate for losses incurred on the estimated premium is based on an actuarial calculation consistent with the methodology used to determine incurred but not reported loss reserves for reported premiums.

We recognize deferred tax assets and liabilities, which primarily result from temporary differences between the amounts recorded in our Consolidated Financial Statements and the tax basis of our assets and liabilities. At each balance sheet date, we assess the need to establish a valuation allowance that reduces deferred tax assets when it is more likely than not that all, or some portion, of the deferred tax assets will not be realized. The valuation allowance is based on all available information including projections of future taxable income from each tax-paying component in each tax jurisdiction, principally derived from available tax planning strategies. Projections of future taxable income incorporate several assumptions of future business and operations that are apt to differ from actual experience. We regularly review our deferred tax assets for recoverability, taking into consideration our history of earnings, expectations for future earnings, taxable income in carryback years and the expected timing of the reversals of existing temporary differences. When we believe it is more likely than not that a deferred tax asset will not be realized, we establish a valuation allowance for that deferred tax asset. Our valuation allowance as of December 31, 2018 is $4.4 million.

Management regularly reviews our Fixed Maturity and Equity Securities portfolios to evaluate the necessity of recording impairment losses for other-than-temporary declines in the fair value of investments. Upon adoption of ASU-2016-01 as of January 1, 2018, the changes in the fair value of Equity Securities is recognized through Net Income. Our investment portfolio is the largest component of consolidated assets and a multiple of stockholder’s equity. OTTI could be material to our financial condition and results of operations. Refer to Note 4, Investments, in the Notes to Consolidated Financial Statements for additional information.

Fair value is defined as the price in the principal market that would be received for an asset to facilitate an orderly transaction between market participants on the measurement date. We determine the fair value of certain financial instruments based on their underlying characteristics and relevant transactions in the marketplace. GAAP guidance requires an entity to maximize the use of observable inputs and minimizes the use of unobservable inputs when measuring fair value. Refer to Note 5, Fair Value, in the Notes to Consolidated Financial Statements for additional information.

Goodwill on our Company’s Consolidated Balance Sheets represents the excess of purchase price over the fair value of net assets acquired from our acquisitions. Intangible assets other than goodwill have also been identified as part of our acquisitions when determining the fair value of assets acquired.

Intangible assets other than goodwill included in our Company’s Consolidated Balance Sheets include assets related to customer relationships, the value of business acquired, broker networks, a trade name, licenses, and Lloyd’s syndicate capacity. The valuation of these assets used valuation methods appropriate for determining the market value of each asset. These valuation methodologies used various assumptions which included discount rates, the cost of capital, and forecasting among others.

Goodwill is not amortized, but instead it is assessed for impairment at the reporting unit level on an annual basis or more frequently if indicators of impairment exist.

In performing this impairment assessment, our Company may first assess qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount as a basis for determining whether it is necessary to perform a quantitative goodwill impairment test.

Intangible assets with a finite life are amortized over the estimated useful life of the asset and intangible assets with an indefinite useful life are not amortized. Finite-lived intangibles are reviewed for impairment when indicators of impairment are present and indefinite-lived intangibles are assessed for impairment on an annual basis or more frequently if indicators of impairment exist.

Similar to goodwill, in performing the impairment assessment of intangible assets, the Company may first assess qualitative factors to determine whether it is more likely than not that an intangible asset is impaired as a basis for determining whether it is necessary to perform a quantitative impairment test.

If goodwill or intangible assets are impaired, they are written down to their fair value with a corresponding expense reflected in the Consolidated Statements of Income in the period in which the determination is made.

As at December 31, 2018 neither the Company’s initial valuation nor its subsequent valuations have indicated any impairment of the Company’s goodwill and intangible assets of $16.8 million and $10.3 million, respectively. For further details, refer to Note 6 Goodwill and Intangible Assets in the Interim Consolidated Financial Statements.

Refer to Note 1 Organization & Summary of Significant Accounting Policies in the Notes to Consolidated Financial Statements for a discussion of recently issued accounting pronouncements that we have not yet adopted.

Market risk represents the potential for loss due to adverse changes in the fair value of financial instruments. We are exposed to potential loss from various market risks, including changes in interest rates, equity prices and foreign currency exchange rates. Market risk is directly influenced by the volatility and liquidity in the markets in which the related underlying assets are traded. The following is a discussion of our primary market risk exposures and how those exposures have been managed through December 31, 2018. Our market risk sensitive instruments are entered into for purposes other than trading and speculation.

The carrying value of our investment portfolio as of December 31, 2018 was $3.5 billion of which 88.6% was invested in Fixed Maturity securities. The primary market risk to our investment portfolio is interest rate risk associated with investments in Fixed Maturity securities. We do not make direct investments in commodities.

For Fixed Maturity securities, short-term liquidity needs and the potential liquidity needs of our business are key factors in managing our portfolio. Our portfolio duration relative to our liabilities’ duration is primarily managed through investment transactions.

There were no significant changes regarding our investment portfolio in our primary market risk exposures or in how those exposures were managed for the year ended December 31, 2018. We do not currently anticipate significant changes in our primary market risk exposures or in how those exposures are managed in future reporting periods based upon what is known or expected to be in effect in future reporting periods.

Interest rate risk is defined as the measurement of potential loss in fair values of market sensitive instruments resulting from one or more selected hypothetical changes in interest rates and credit spreads. In our sensitivity model, a hypothetical change in interest rates is selected that is expected to reflect reasonably possible near-term changes in those rates. “Near-term” means a period of time going forward up to one year from the date of our Consolidated Financial Statements. Actual results may differ from the hypothetical change in interest rates assumed in this disclosure, especially since this sensitivity analysis does not reflect the results of any actions that would be taken by us to mitigate such hypothetical losses in fair value.

In this sensitivity model, we use fair values to measure our potential loss on Fixed Maturities and interest rate sensitive preferred stocks, which are classified as Equity Securities for financial reporting purposes. The primary market risk to our market-sensitive instruments is interest rate risk. The sensitivity analysis model uses a 50 and 100 basis points change in interest rates to measure the hypothetical change in fair value of financial instruments included in the model. Changes in interest rates will have an immediate effect on our comprehensive income and stockholders’ equity but, with the exception of Preferred Stocks, does not have an immediate effect on our net income. As interest rates rise, the market value of our interest rate sensitive securities will decrease. Conversely, as interest rates fall, the market value of our interest rate sensitive securities will increase.

For interest rate sensitive securities, modified duration modeling is used to calculate changes in fair values. Durations on interest rate sensitive securities are adjusted for call, put and interest rate reset features. Duration on tax-exempt securities is adjusted for the fact that the prices on such securities are less sensitive to changes in interest rates compared to treasury securities. Average duration is calculated on a market value weighted basis using holdings as of December 31, 2018.

The following table summarizes the effect that an immediate, parallel shift in the interest rate yield curve would have on our interest rate sensitive securities as of December 31, 2018 and 2017:

Our portfolio of Common Stocks currently valued at $166.4 million, as of December 31, 2018, which we carry on our Balance Sheet at fair value, has exposure to price risk. This risk is defined as the potential loss in fair value resulting from adverse changes in stock prices. Approximately 70% of our portfolio is benchmarked to the S&P 500 index and changes in that index may approximate the impact on our portfolio.

As a global company, we transact business in multiple currencies. Many of our non-U.S. subsidiaries maintain assets and liabilities in local currencies and write business in currencies that differ from their functional currency. Therefore, foreign currency exchange risk is generally limited to net assets denominated in foreign currencies. Foreign currency exchange rate gains and losses are recognized in our consolidated Statements of Income when net monetary assets or liabilities are denominated in foreign currencies that differ from the functional currency of those subsidiaries. Net monetary assets or liabilities include, but are not limited to, cash and cash equivalents, premiums receivable, reinsurance recoverable and claims payable. While unrealized foreign exchange gains and losses on net monetary balances are reported in earnings, the offsetting unrealized gains and losses on available for sale securities are recorded as a separate component of stockholders' equity, to the extent that the asset currency does not match that entity's functional currency.

We manage our foreign currency exchange rate risk primarily through asset-liability matching. However, locally-required capital levels are invested in local currencies in order to satisfy regulatory requirements and to support local insurance operations and may not always be matched by related liabilities.

The principal currencies creating foreign currency exchange risk for our operations are the GBP, EUR and the CAD. The following table shows the foreign currency denominated net asset position, with elimination of intercompany balances, in USD equivalent at December 31, 2018 and 2017, and the expected dollar change in fair value that would occur if exchange rates changed 10% from exchange rates in effect at those times:

(1) Amount excludes additional currencies where the value of net assets in USD equivalent is less than 1% of total net assets of our Company

Our Consolidated Financial Statements required in response to this section are submitted as part of Item 15(a) of this report.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, we conducted an evaluation of our disclosure controls and procedures, as such, term is defined under Rule 13a-15(e) promulgated under the Exchange Act. Based on this evaluation, our Chief Executive Officer and our Chief Financial Officer concluded that our disclosure controls and procedures were effective as of the end of the period covered by this annual report.

Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rule 13a-15(f). Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, we conducted an evaluation of the effectiveness of our internal control over financial reporting based on the Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on our evaluation under such framework, our management concluded that our internal control over financial reporting as of December 31, 2018 was effective.

On June 7, 2018 we acquired Bracht, Deckers & Mackelbert NV (“BDM”), a specialty underwriting agency, and its affiliated insurance company, Assurances Continentales – Continentale Verzekeringen NV (“ASCO”). SEC guidance permits management to omit an assessment of an acquired business’ internal control over financial reporting from management’s assessment of internal control over financial reporting for a period not to exceed one year from the date of the acquisition. Accordingly, we excluded BDM and ASCO from our assessment of the effectiveness of our disclosure controls and procedures and internal control over financial reporting as of December 31, 2018. For year ended December 31, 2018, BDM and ASCO accounted for $11.1 million of our total revenue, and as of December 31, 2018 had total assets of $157.9 million.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Our Company’s independent registered public accounting firm, KPMG LLP, has audited the effectiveness of our Company’s internal control over financial reporting as of December 31, 2018, as stated in their report in item (b) below.

We have audited The Navigators Group, Inc.’s and subsidiaries’ (the Company) internal control over financial reporting as of December 31, 2018, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2018, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheets of the Company as of December 31, 2018 and 2017, the related consolidated statements of income, comprehensive income, stockholders’ equity, and cash flows for each of the years in the three-year period ended December 31, 2018, and the related notes and financial statement schedules I to VI (collectively, the consolidated financial statements), and our report dated February 27, 2019 expressed an unqualified opinion on those consolidated financial statements.

The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Other than the changes described in the paragraph below, there were no further changes during the fourth fiscal quarter in our internal control over financial reporting. As described above, our management excluded an assessment of the internal controls over financial reporting of BDM and ASCO from its assessment of the effectiveness of our internal control over financial reporting as of December 31, 2018. The Company has begun integrating BDM and ASCO into its existing control procedures, which may lead us to modify certain internal controls in future periods.

We have continued certain transformation initiatives to automate, centralize and simplify our business processes and systems. These are long-term initiatives that we believe will enhance our internal control over financial reporting due to increased automation and integration of related processes. These initiatives have resulted in new manual compensating controls to enhance our control framework as certain systems are being upgraded to include expanded functionality. As the transformation initiative continues, we anticipate the effort will result in an increase of automated controls as certain manual control processes are replaced. We will continue to monitor and evaluate the effectiveness of our internal control over financial reporting throughout the transformation.

The information required by this item is incorporated herein by reference to our definitive Proxy Statement for our 2019 Annual Meeting of Stockholders to be filed within 120 days of the end of the fiscal year ended December 31, 2018 (our “Proxy Statement”).

We have adopted a Code of Ethics for our Chief Executive Officer and Senior Financial Officers, which is applicable to our Chief Executive Officer, Chief Financial Officer, Treasurer, Controller and all other persons performing similar functions. A copy of such Code is available on our website at www.navg.com under the Corporate Governance link. Any amendments to, or waivers of, such Code which apply to any of the financial professionals listed above will be disclosed on our website under the same link promptly following the date of such amendment or waiver.

The information required by this item is incorporated herein by reference to our Proxy Statement.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

The information required by this item is incorporated herein by reference to our Proxy Statement.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

The information required by this item is incorporated herein by reference to our Proxy Statement.

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, our Company has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of our Company and in the capacities and on the dates indicated.

We have audited the consolidated financial statements and the related notes and financial statement schedules I to VI (collectively, the consolidated financial statements) of The Navigators Group, Inc. and subsidiaries (the Company) as listed in the accompanying index. In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2018 and 2017, and the results of its operations and its cash flows for each of the years in the three‑year period ended December 31, 2018, in conformity with U.S. generally accepted accounting principles.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of December 31, 2018, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission, and our report dated February 27, 2019 expressed an unqualified opinion on the effectiveness of the Company’s internal control over financial reporting.

These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.

	December 31,
amounts in thousands, except per share amounts	2018			2017
ASSETS
Investments:
Fixed Maturities, available-for-sale, at fair value (amortized cost: 2018: $3,125,413; 2017: $3,027,408)	$	3,082,923		$	3,057,054
Equity Securities, at fair value (cost: 2018: $361,418; 2017: $224,159)		339,892			235,981
Other Invested Assets		48,406			30,488
Short-Term Investments, available-for-sale, at fair value (amortized cost: 2018: $10,234; 2017: $6,477)		10,233			6,480
Total Investments	$	3,481,454		$	3,330,003
Cash and Cash Equivalents		155,834			102,735
Restricted Cash and Cash Equivalents		66,320			56,229
Premiums Receivable		380,576			351,393
Prepaid Reinsurance Premiums		226,723			228,569
Reinsurance Recoverable on Paid Losses		118,259			72,494
Reinsurance Recoverable on Unpaid Losses and Loss Adjustment Expenses		820,189			809,765
Deferred Policy Acquisition Costs		158,080			135,249
Accrued Investment Income		22,168			19,480
Goodwill and Other Intangible Assets		27,146			6,596
Current Income Tax Receivable, Net		—			16,667
Deferred Income Tax Asset		49,893			22,271
Other Assets		96,807			73,171
Total Assets	$	5,603,449		$	5,224,622
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Reserves for Losses and Loss Adjustment Expenses	$	2,743,973		$	2,515,145
Unearned Premiums		1,102,735			987,681
Reinsurance Balances Payable		145,027			136,192
Senior Notes		264,052			263,885
Current Income Tax Payable, Net		1,594			—
Deferred Income Tax Liability		7,596			—
Accounts Payable and Other Liabilities		151,622			95,754
Total Liabilities	$	4,416,599		$	3,998,657
Stockholders' Equity:
Preferred Stock, ($.10 par value, authorized 1,000 shares, none issued)	$	—		$	—
Common Stock, ($.10 par value, authorized 50,000 shares, issued 36,805 shares for 2018 and 36,530 shares for 2017)		3,678			3,650
Additional Paid-In Capital		378,274			376,868
Treasury Stock, at cost (7,023 shares for 2018 and 2017)		(155,801	)		(155,801	)
Retained Earnings		1,012,220			981,380
Accumulated Other Comprehensive Income (Loss)		(51,521	)		19,868
Total Stockholders' Equity	$	1,186,850		$	1,225,965
Total Liabilities and Stockholders' Equity	$	5,603,449		$	5,224,622

The accompanying Notes to Consolidated Financial Statements are an integral part of these Financial Statements.

	Years Ended December 31,
amounts in thousands, except per share amounts	2018			2017			2016
Gross Written Premiums	$	1,912,961		$	1,713,265		$	1,568,911
Revenues:
Net Written Premiums	$	1,471,085		$	1,271,330		$	1,186,224
Change in Net Unearned Premiums		(107,862	)		(84,910	)		(85,879	)
Net Earned Premiums		1,363,223			1,186,420			1,100,345
Net Investment Income		103,113			89,293			79,451
Net Realized and Unrealized Gains (Losses):
Total Other-Than-Temporary Impairment Losses		(118	)		(2,002	)		(227	)
Portion of Loss Recognized in Other Comprehensive Income		118			(62	)		77
Net Other-Than-Temporary Impairment Losses Recognized in Earnings		—			(2,064	)		(150	)
Net Realized Gains on Investments Sold		2,989			45,073			9,186
Net Unrealized Losses on Equity Securities		(33,337	)		—			—
Total Net Realized and Unrealized Gains (Losses)		(30,348	)		43,009			9,036
Other Income (Loss)		7,169			(4,243	)		8,701
Total Revenues	$	1,443,157		$	1,314,479		$	1,197,533
Expenses:
Net Losses and Loss Adjustment Expenses	$	893,779		$	806,265		$	665,448
Commission Expenses		220,144			184,731			165,045
Other Operating Expenses		261,224			233,230			234,096
Merger Transaction Costs		3,950			—			—
Interest Expense		15,485			15,447			15,435
Total Expenses	$	1,394,582		$	1,239,673		$	1,080,024
Income Before Income Taxes		48,575			74,806			117,509
Income Tax Expense		14,336			34,312			34,783
Net Income	$	34,239		$	40,494		$	82,726
Net Income Per Common Share:
Basic	$	1.15		$	1.38		$	2.85
Diluted	$	1.13		$	1.35		$	2.75
Average Common Shares Outstanding:
Basic		29,720			29,441			29,074
Diluted		30,193			30,071			30,032

The accompanying Notes to Consolidated Financial Statements are an integral part of these Financial Statements.

					Additional											Accumulated Other			Total
	Common Stock				Paid-in			Treasury Stock					Retained			Comprehensive			Stockholders'
amounts in thousands	Shares		Amount		Capital			Shares		Amount			Earnings			Income (Loss)			Equity
Balance, December 31, 2015		35,885	$	3,586	$	356,036			7,023	$	(155,801	)	$	868,723		$	23,604		$	1,096,148
Net Income		—		—		—			—		—			82,726			—			82,726
Dividends Declared ⁽²⁾		—		—		—			—		—			(3,930	)		—			(3,930	)
Changes in Comprehensive Income (Loss):
Change in Net Unrealized Loss on Investments		—		—		—			—		—			—			(5,355	)		(5,355	)
Change in Net Non-Credit Other-Than- Temporary Impairment Losses		—		—		—			—		—			—			(50	)		(50	)
Change in Foreign Currency Translation Loss		—		—		—			—		—			—			(9,324	)		(9,324	)
Total Comprehensive Loss		—		—		—			—		—			—			(14,729	)		(14,729	)
Shares Issued ⁽¹⁾		262		26		323			—		—			—			—			349
Share-Based Compensation		—		—		17,624			—		—			—			—			17,624
Balance, December 31, 2016		36,147	$	3,612	$	373,983			7,023	$	(155,801	)	$	947,519		$	8,875		$	1,178,188
Net Income		—		—		—			—		—			40,494			—			40,494
Dividends Declared ⁽²⁾		—		—		—			—		—			(6,633	)		—			(6,633	)
Changes in Comprehensive Income (Loss):
Change in Net Unrealized Gain on Investments		—		—		—			—		—			—			9,023			9,023
Change in Net Non-Credit Other-Than- Temporary Impairment Losses		—		—		—			—		—			—			40			40
Change in Foreign Currency Translation Gain		—		—		—			—		—			—			1,930			1,930
Total Comprehensive Income		—		—		—			—		—			—			10,993			10,993
Shares Issued ⁽¹⁾		383		38		(10,944	)		—		—			—			—			(10,906	)
Share-Based Compensation		—		—		13,829			—		—			—			—			13,829
Balance, December 31, 2017		36,530	$	3,650	$	376,868			7,023	$	(155,801	)	$	981,380		$	19,868		$	1,225,965
Net Income		—		—		—			—		—			34,239			—			34,239
Dividends Declared ⁽²⁾		—		—		—			—		—			(8,319	)		—			(8,319	)
Changes in Comprehensive Income (Loss):
Change in Net Unrealized Loss on Available- For-Sale Investments		—		—		—			—		—			—			(56,605	)		(56,605	)
Change in Net Non-Credit Other-Than- Temporary Impairment Losses		—		—		—			—		—			—			(93	)		(93	)
Change in Foreign Currency Translation Loss		—		—		—			—		—			—			(9,567	)		(9,567	)
Change in Benefit Plans' Obligations		—		—		—			—		—			—			(204	)		(204	)
Total Other Comprehensive Loss		—		—		—			—		—			—			(66,469	)		(66,469	)
Cumulative Effect of Adoption of ASU 2016-01 at January 1st, Net of Tax		—		—		—			—		—			7,748			(7,748	)		—
Cumulative Effect of Adoption of ASU 2018-02 at January 1st, Net of Tax		—		—		—			—		—			(2,828	)		2,828			—
Shares Issued ⁽¹⁾		275		28		(5,380	)		—		—			—			—			(5,352	)
Share-Based Compensation		—		—		6,786			—		—			—			—			6,786
Balance, December 31, 2018		36,805	$	3,678	$	378,274			7,023	$	(155,801	)	$	1,012,220		$	(51,521	)	$	1,186,850

The accompanying Notes to Consolidated Financial Statements are an integral part of these Financial Statements.

	Years Ended December 31,
amounts in thousands	2018			2017			2016
Operating Activities:
Net Income	$	34,239		$	40,494		$	82,726
Adjustments to Reconcile Net Income to Net Cash Provided by Operating Activities:
Depreciation & Amortization		3,675			3,645			5,429
Amortization of Finite-Lived Intangible Assets		657			—			—
Share-Based Compensation		6,786			13,829			17,624
Deferred Income Taxes		(14,366	)		(8,879	)		(5,755	)
Total Net Realized and Unrealized (Gains) Losses		30,348			(43,009	)		(9,036	)
Changes in Assets And Liabilities:
Reinsurance Recoverable on Paid and Unpaid Losses and Loss Adjustment Expenses		(39,224	)		(20,399	)		(2,835	)
Reserves for Losses and Loss Adjustment Expenses		198,818			225,132			87,083
Prepaid Reinsurance Premiums		4,346			(15,168	)		19,211
Unearned Premiums		104,781			100,160			66,668
Premiums Receivable		(31,308	)		(45,035	)		(30,070	)
Deferred Policy Acquisition Costs		(22,969	)		(15,552	)		(27,677	)
Accrued Investment Income		(2,712	)		(2,139	)		(1,314	)
Reinsurance Balances Payable		8,875			27,362			1,568
Current Income Tax Receivable/Payable, Net		17,674			3,966			(1,988	)
Other		42,718			936			27,791
Net Cash Provided by Operating Activities	$	342,338		$	265,343		$	229,425
Investing Activities:
Fixed Maturities
Redemptions and Maturities	$	418,367		$	373,380		$	275,706
Sales		358,309			225,962			446,666
Purchases		(887,996	)		(1,008,537	)		(962,419	)
Equity Securities
Sales		34,617			207,838			54,798
Purchases		(126,746	)		(62,887	)		(92,329	)
Net Sales and Purchases of Other Invested Assets		(19,097	)		(933	)		(7,519	)
Net Sales, Maturities and Purchases of Short-Term Investments		(4,179	)		2,487			88,349
Net Change in Unsettled Security Transactions		(2,194	)		2,135			(1,517	)
Purchase of Subsidiaries, Net of Acquired Cash		(22,383	)		—			—
Net Purchase of Property and Equipment		(8,845	)		(3,474	)		(3,918	)
Net Cash Used in Investing Activities	$	(260,147	)	$	(264,029	)	$	(202,183	)
Financing Activities:
Proceeds from Employee Stock Purchase Plan		2,008			2,076			1,840
Payment of Employee Tax Withholding on Stock Compensation		(8,456	)		(13,887	)		(5,198	)
Dividends Paid		(8,319	)		(6,633	)		(3,930	)
Net Cash Used in Financing Activities	$	(14,767	)	$	(18,444	)	$	(7,288	)
Effect of Exchange Rate on Unrestricted and Restricted Cash and Cash Equivalents		(4,234	)		3,248			(15,963	)
Change in Unrestricted and Restricted Cash and Cash Equivalents	$	63,190		$	(13,882	)	$	3,991
Unrestricted and Restricted Cash and Cash Equivalents at Beginning of Year		158,964			172,846			168,855
Unrestricted and Restricted Cash and Cash Equivalents at End of Period	$	222,154		$	158,964		$	172,846
Supplemental Information:
Income Taxes Paid, Net	$	21,422		$	39,689		$	34,830
Interest Paid	$	15,238		$	15,238		$	15,238
Issuance of Stock to Directors	$	783		$	578		$	633

The accompanying Notes to Consolidated Financial Statements are an integral part of these Financial Statements.

Unless the context requires otherwise, the terms “we,” “us,” “our,” or “our Company” are used to mean The Navigators Group, Inc., a Delaware holding company established in 1982, and its subsidiaries. The term “Parent Company” is used to mean The Navigators Group, Inc. without its subsidiaries. The accompanying consolidated financial statements of our Company have been prepared in conformity with accounting principles generally accepted in the United States of America (“GAAP” or “U.S. GAAP”) and the rules and regulations of the U.S. Securities and Exchange Commission (“SEC”). All significant intercompany transactions and balances have been eliminated in consolidation. The preparation of these financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements and the reported revenues and expenses during the reporting periods. Certain amounts for the prior year have been reclassified to conform with the current period presentation.

We are an international insurance company with a long-standing area of specialization in Marine insurance. We also offer Property and Casualty (“P&C”) insurance, primarily general liability coverage and umbrella & excess liability coverage to commercial enterprises through our Primary and Excess Casualty divisions. We have also developed niches in Professional Liability insurance, through our Directors & Officers (“D&O”) and Errors & Omissions (“E&O”) divisions, as well as assumed reinsurance products.

On June 7, 2018, we acquired 100% ownership interest in Bracht, Deckers & Mackelbert NV, an insurance underwriting agency organized under the laws of Belgium (“BDM”) and Assurances Continentales – Continentale Verzekeringen NV, an insurance company licensed under the laws of Belgium (“ASCO”). The acquisition was accounted for in accordance with Accounting Standards Codification (“ASC”) 805, “Business Combinations.” Refer to Note 2 Merger and Business Combinations and Note 6 Goodwill and Intangible Assets for further information regarding the acquisition.

Cash and overseas deposits that were misclassified within Short-Term Investments were reclassified representing an immaterial correction. Cash of $20.5 million as of December 31, 2017 was reclassified from Short-Term Investments to Cash and Cash Equivalents. Overseas deposits of $28.8 million as of December 31, 2017 were reclassified from Short-Term Investments to Other Invested Assets. The reclassification of cash within Short-Term Investments to Cash and Cash Equivalents impacted the Statement of Cash Flows for the years ended December 31, 2017 and 2016 by increasing Net Cash Used in Investing Activities by $1.9 million and decreasing Net Cash Used in Investing Activities by $6.0 million, respectively.

During the year ended December 31, 2018, a full review of foreign taxes paid and refunds received was performed resulting in an increase in our Income Tax Expense of $7.0 million, inclusive of interest. Refer to Note 11 Income Taxes for further information. Of this adjustment, $5.4 million relates to a correction of prior years. It was found that foreign tax credits were overstated, due to refunds received and issues in data accumulation.

Additionally, during the year ended December 31, 2018, various adjustments increasing Net Income by $5.1 million were recorded relating to items dating back as far as 2005. These various adjustments were identified as part of a finance transformation initiative and were not material, individually or in the aggregate in the current year or any prior year.

In total all adjustments resulted in a combined impact to Net Income for the year ended December 31, 2018 of $0.3 million. The controls related to the adjustments were also evaluated and none were deemed to represent a material weakness in our internal control over financial reporting.

Cash includes cash on hand and demand deposits with banks. Cash Equivalents include highly liquid investments with original maturities of three months or less including money-market funds. Restricted Cash and Cash Equivalents primarily relates to funds that are held to support regulatory and contractual obligations.

Fixed Maturities held by our Company were carried at fair value and classified as available-for-sale. Available-for-sale securities are debt securities not classified as either held-to-maturity securities or trading securities and are reported at fair value, with unrealized gains and losses excluded from earnings and reported in Accumulated Other Comprehensive Income (“AOCI”) as a separate component of Stockholders’ Equity. Fixed Maturities include bonds, mortgage-backed and asset-backed securities, and redeemable preferred stocks.

Upon adoption of ASU 2016-01 on January 1, 2018, Equity Securities held by our Company were carried at fair value with any changes in fair value recognized in Net Income through the Net Unrealized Gains (Losses) on Equity Securities account. Prior to the adoption of ASU 2016-01, Equity Securities were carried at fair value and classified as available-for-sale. Equity Securities consist of common stock, exchange traded funds, mutual funds and preferred stock.

Other Invested Assets consist of investments our Company made in certain strategic companies which are accounted for using the equity method of accounting and overseas deposits which are carried at fair value.

For our investments applying the equity method, these investments are initially recorded at cost and are subsequently adjusted based on our Company’s proportionate share of the net income or loss of the companies. Changes in the carrying value of such investments are recorded in Other Income. In applying the equity method, we use the most recently available financial information provided by the companies which is generally three months prior to the end of the reporting period.

Overseas deposits include private funds held by the Syndicate and invested according to local regulatory requirements. The compositions of the overseas deposits vary and the deposits are based on the portfolio level reporting that is provided by Lloyd’s. The fair values of these overseas deposits were measured using the net asset value practical expedient and therefore have not been categorized within the fair value hierarchy. Changes in the fair value of the overseas deposits are recorded in Net Investment Income.

Short-Term Investments are carried at fair value. Short-Term Investments have maturities greater than three months but less than one year from the purchase date.

All prices for our Fixed Maturities, Equity Securities and Short-Term Investments are classified as Level 1, Level 2 or Level 3 under the fair value hierarchy, as defined in the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification 820 (“ASC 820”).

Premiums and discounts on Fixed Maturities are amortized into interest income over the life of the security using the interest method. For Mortgage-Backed and Asset-Backed Securities, anticipated prepayments and expected maturities are utilized in applying the interest rate method. An effective yield is calculated based on projected principal cash flows at the time of original purchase. The effective yield is used to amortize the purchase price of the security over the security’s expected life. Book values are adjusted to reflect the amortization of premium or accretion of discount on a monthly basis. The projected principal cash flows are based on certain prepayment assumptions, which are generated using a prepayment model. The prepayment model uses a number of factors to estimate prepayment activity including the current levels of interest rates (refinancing incentive), time of year (seasonality), economic activity (including housing turnover) and term and age of the underlying collateral (burnout, seasoning). Prepayment assumptions associated with the Mortgage-Backed and Asset-Backed Securities are reviewed on a periodic basis. When changes in prepayment

assumptions are deemed necessary as the result of actual prepayments differing from anticipated prepayments, securities are revalued based upon the new prepayment assumptions utilizing the retrospective adjustment method, whereby the effective yield is recalculated to reflect actual payments to date and anticipated future payments. The investment in such securities is adjusted to the amount that would have existed had the new effective yield been applied since the acquisition of the security. Such adjustments, if any, are included in Net Investment Income for the current period.

Realized Gains and Losses on sales of investments are recognized when the related trades are executed and are determined on the basis of the specific identification method.

Management regularly reviews our Fixed Maturities portfolio to evaluate the necessity of recording impairment losses for other-than-temporary declines in the fair value of securities.

Our Company reviews the magnitude of a security’s unrealized loss compared to its cost/amortized cost and the length of time that the security has been impaired to determine if an unrealized loss is other-than-temporary. If warranted as a result of conditions relating to a particular security, our Company will also review securities with declines in fair value resulting from a headline news event involving the issuer, a headline news event involving the asset class, the advice of our external asset managers, or economic events that may impact the issuer to determine if an unrealized loss is other-than-temporary. The depth of analysis performed is dependent upon the nature and magnitude of the indicators of other-than-temporary impairment present in regards to each impaired security.

Our Company assesses the underlying fundamentals of each issuer to determine if there is a change in the amount or timing of expected cash flows. Management compares the amortized cost basis to the present value of the revised cash flows using the historical book yield to determine the credit loss portion of impairment which is recognized in earnings. All non-credit losses where we have the intent and ability to hold the security until recovery are recognized as changes in Other than Temporary Impairment (“OTTI”) losses within AOCI.

Specifically, for structured Fixed Maturities, our Company analyzes projections provided by our investment managers with respect to an expected principal loss under a range of scenarios and utilizes the most likely outcomes. The analysis relies on actual collateral performance measures such as default rate, prepayment rate and loss severity. These assumptions are applied throughout the remaining term of the deal, incorporating the transaction structure and priority of payments, to generate loss adjusted cash flows. Results of the analysis will indicate whether the security is expected ultimately to incur a loss or whether there is a material impact on yield due to either a projected loss or a change in cash flow timing. A break-even default rate is also calculated. A comparison of the break-even default rate to the actual default rate provides an indication of the level of cushion or coverage to the first dollar principal loss. For securities in which a tranche loss is present and the net present value of loss adjusted cash flows is less than book value, credit impairment is recognized in earnings. The output data also includes a number of additional metrics such as average life remaining, original and current credit support, over 60 day delinquency and security rating. The significant inputs used to measure the amount of credit loss recognized in earnings are actual delinquency rates, default probability, severity and prepayment assumptions. Projected losses are a function of both loss severity and probability of default, which differ based on property type, vintage and the stress of the collateral.

The functional currency of each of our operations is generally the currency of the local operating environment, except for our Lloyd’s business which is United States Dollar (“USD”). Transactions in currencies other than an operation’s functional currency are remeasured into the functional currency and the resulting foreign exchange gains and losses are reflected in Other Income (Loss) in the Consolidated Statements of Income, with the exception of those related to foreign-denominated available-for-sale investments and equity securities. For the available-for-sale investments, exchange rate fluctuations represent an unrealized appreciation/depreciation in the value of the securities and are included in the related component of AOCI. For the equity securities, exchange rate fluctuations are included in the related component of Total Net Realized and Unrealized Gains (Losses).

Functional currency assets and liabilities of foreign operations are translated into USD using period end rates of exchange and the related translation adjustments are recorded as a separate component of AOCI. Consolidated Statements of Income amounts expressed in functional currencies are translated using average exchange rates.

Written premium is based on the insurance policies that have been reported to us and the policies that have been written by agents but not yet reported to us. We estimate the amount of written premium not yet reported based on judgments relative to current and historical trends of the business being written. Such estimates are regularly reviewed and updated and any resulting adjustments are included in the current year’s results. An unearned premium reserve is established to reflect the unexpired portion of each policy at the financial reporting date.

Substantially all of our business is placed through agents and brokers. We record estimates for both unreported direct and assumed premiums. We also record the ceded portion of the estimated Gross Written Premiums and related acquisition costs. These estimates are mostly for our Marine and Energy & Engineering products written by our International Insurance (“Int’l Insurance”) reporting segment as well as our GlobalRe reporting segment. Such premium estimates are generally based on submission data received from brokers and agents and recorded when the insurance policy or reinsurance contract is written or bound.

The earned gross, ceded and net premiums are calculated based on our earning methodology, which is generally pro-rata over the policy period or over the period of risk if the period of risk differs significantly from the contract period.

In the normal course of business, we purchase reinsurance from insurers or reinsurers to reduce the amount of loss arising from claims. Management analyzes the reinsurance agreements to determine whether the reinsurance should be classified as prospective or retroactive based upon the terms of the reinsurance agreement and whether the reinsurer has assumed significant insurance risk to the extent that the reinsurer may realize a significant loss from the transaction.

Prospective reinsurance is reinsurance in which an assuming company agrees to reimburse the ceding company for losses that may be incurred as a result of future insurable events covered under contracts subject to the reinsurance. Retroactive reinsurance is reinsurance in which an assuming company agrees to reimburse a ceding company for liabilities incurred as a result of past insurable events covered under contracts subject to the reinsurance.

Ceded reinsurance premiums net of ceding commissions and ceded losses are reflected as reductions of the respective income or expense accounts over the terms of the reinsurance contracts. Prepaid Reinsurance Premiums represent the portion of premiums ceded to reinsurers applicable to the unexpired terms of the reinsurance contracts in force. Reinsurance reinstatement premiums (“RRPs”) are recognized in the same period as the loss event that gave rise to the reinstatement premiums. Amounts recoverable from reinsurers are estimated in a manner consistent with the claim liability associated with the reinsured policy. Ceded Unearned Premiums and estimates of amounts recoverable from reinsurers on paid and unpaid losses are reflected as assets. Provisions are made for estimated unrecoverable reinsurance.

Costs of acquiring business are deferred and amortized over the period that the related premiums are recognized as revenue. Such costs (e.g., Commission Expenses, Other Underwriting Expenses and premium taxes) are limited to the incremental direct costs related to the successful acquisition of new or renewal business. The method of computing Deferred Policy Acquisition Costs limits the deferral to their estimated net realizable value based on the related Unearned Premiums and takes into account anticipated Losses, Loss Adjustment Expense (“LAE”), Commission Expenses and Operating Expenses based on historical and current experience, as well as anticipated Investment Income.

Unpaid losses and LAE are determined on: (a) individual claims reported on direct business for insureds, (b) from reports received from ceding insurers for assumed business and (c) on estimates based on Company and industry experience for incurred but not reported (“IBNR”) claims and LAE. Indicated IBNR reserves for losses and LAE are calculated by our actuaries using several standard actuarial methodologies, including the paid and incurred loss development and the paid and incurred Bornhuetter-Ferguson loss methods. Frequency/severity analyses are performed for certain books of business. The Reserve for Losses and LAE has been established to cover the estimated unpaid cost of claims incurred. Such estimates are regularly compared to indicated reserves and updated and any resulting adjustments are included in the current year’s results. Management believes that the liability recognized for unpaid losses and LAE is a reasonable estimate of the ultimate unpaid claims incurred, however, no representation is made that the ultimate liability will not differ materially from the amounts recorded in the accompanying Consolidated Financial Statements. Losses and LAE are recorded on an undiscounted basis.

Basic earnings per share (“EPS”) is computed by dividing Net income by the weighted average number of common shares outstanding for the period. Diluted EPS reflects the basic EPS adjusted for the potential dilution that would occur if all stock grants were fully vested.

Our Company applies a fair value based measurement method in accounting for its share-based payment arrangements with eligible employees and directors. The associated expense is estimated based on the fair value of the award at the grant date and is recognized in Net Income over the requisite service period with a corresponding increase in Shareholder’s Equity. Forfeitures of share-based payment awards are recognized as they occur.

Depreciation of furniture and fixtures, electronic data processing equipment and computer software is provided over the estimated useful lives of the respective assets, ranging from three to seven years, using the straight-line method. Amortization of leasehold improvements are provided over the shorter of the useful lives of those improvements or the contractual terms of the leases, ranging from five to ten years, using the straight-line method.

Goodwill represents the excess of the cost of acquiring a business enterprise over the fair value of the net assets acquired. Our Company’s recorded indefinite lived intangible assets represent acquired stamp capacity in the Syndicate and ASCO’s European insurance licenses. Our Company’s recorded definite lived intangible assets represent customer relationships, the value of business acquired (“VOBA”), broker networks, and a trade name.

Goodwill and indefinite lived intangible assets are reported at carrying value and are tested for impairment at least annually, and when permitted by the applicable accounting guidance, qualitative factors are assessed to determine whether it is necessary to calculate an asset’s fair value when testing an asset with an indefinite life for impairment. Goodwill and indefinite lived intangible assets are considered impaired if the estimated fair value is less than its carrying value and any impairment loss is measured as the difference between the implied fair value and the carrying value. Finite-lived intangibles are amortized over the estimated useful life of the asset and are reviewed for impairment when indicators of impairment are present. Our Company did not recognize an impairment of goodwill or intangible assets for any of the years ended December 31, 2018, 2017 and 2016.

As of December 31, 2018, the carrying value of goodwill and intangible assets was $27.1 million, which is $20.5 million more than the carrying value of $6.6 million as of December 31, 2017. Changes in the carrying value of the goodwill and intangible assets were due to the acquisition of BDM and ASCO, as well as fluctuations in currency exchange rates.

We recognize deferred tax assets and liabilities based on the differences between the financial statement carrying amounts and the tax bases of assets and liabilities. Deferred tax assets are reduced by a valuation allowance if, based on the weight of available evidence, it is more likely than not that some portion or all of the deferred tax assets will not be realized. All available evidence, both positive and negative, is considered to determine whether, based on the weight of that evidence, a valuation allowance is needed. Future realization of the tax benefit of an existing deferred tax asset ultimately depends on the existence of sufficient taxable income of the appropriate character within the carryback/carryforward period available under the tax law. In determining whether a valuation allowance is needed, management considers the timing of the reversal of each deferred tax asset as well as expected future levels of taxable income, amounts of taxable income in carryback years, and tax planning strategies.

On December 22, 2017, the Tax Cuts and Jobs Act (the “Tax Act”) was enacted into law and the new legislation contains several key tax provisions that affected us, including a one-time mandatory Deemed Repatriation Transition Tax (the “Transition Tax”) on accumulated foreign earnings and a reduction of the corporate income tax rate to 21% effective January 1, 2018, among others. We were required to recognize the effect of the tax law changes in the period of enactment, such as determining the Transition Tax, re-measuring our U.S. deferred tax assets and liabilities as well as reassessing the net realizability of our deferred tax assets and liabilities. In December 2017, the SEC staff issued Staff Accounting Bulletin No. 118 (“SAB 118”), Income Tax Accounting Implications of the Tax Act, which allowed us to record provisional amounts during a measurement period not to extend beyond one year of the enactment date. During the fourth quarter of 2017, we made a reasonable estimate of the effects on our deferred tax balances and recognized provisional tax amounts of $2.6 million related to the Transition Tax. As of December 31, 2018, we have finalized the calculation of the Transition Tax which resulted in a decrease in the provisional amount of $1.3 million. Additionally, a tax benefit of $0.5 million related to the remeasurement of net deferred tax assets was recognized in the fourth quarter of 2018. Both

of these amounts have been reflected as a discrete item in our Effective Tax Rate calculation. Additional information can be found in Note 11 Income Taxes.

Effective January 1, 2018, our Company adopted ASU 2014-09, “Revenue from Contracts with Customers (Topic 606)”. This guidance affects any contracts with customers to transfer goods or services or for the transfer of nonfinancial assets unless those contracts are within the scope of other standards (for example, insurance contracts are not in scope of the new guidance). The core principle of the guidance is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. Our Company generates an insignificant amount of fee income that is within the scope of this guidance and was not materially impacted by the adoption of this guidance. The adoption of this guidance did not have a material impact on our results of operations, financial condition or liquidity.

Effective January 1, 2018, our Company adopted ASU 2016-01 “Financial Instruments – Overall (Subtopic 825-10) – Recognition and Measurement of Financial Assets and Financial Liabilities”. This guidance requires equity investments (except those accounted for under the equity method of accounting, investments that are consolidated or those that meet a practicability exception) to be measured at fair value with changes in fair value recognized in net income, simplifies the impairment assessment of equity investments without readily determinable values by requiring a qualitative assessment to identify impairment, eliminates the requirement to disclose the methods and significant assumptions used to estimate the fair value for financial instruments measured at amortized cost, requires the use of the exit price notion when measuring the fair value of financial instruments for disclosure purposes, requires separate presentation in other comprehensive income of the portion of the total change in the fair value of a liability resulting from a change in the instrument-specific credit risk when the organization has elected to measure the liabilities in accordance with the fair value option, requires the separate presentation of financial assets and financial liabilities by measurement category and form of financial asset on the balance sheet or the accompanying notes to the financial statements and clarifies that the reporting organization should evaluate the need for a valuation allowance on a deferred tax asset related to available-for-sale securities in combination with the organization’s other deferred tax assets.

As of January 1, 2018, the adoption of this guidance resulted in a $7.7 million net after-tax increase to Retained Earnings with a corresponding decrease to Accumulated Other Comprehensive Income (Loss), resulting in no change to our Total Stockholders’ Equity. This adjustment reflects the cumulative effect adjustment to reclassify Net Unrealized Gain on Investments in Accumulated Other Comprehensive Income (Loss) for available-for-sale Equity Securities to Retained Earnings upon adoption. Upon the adoption of this guidance, Equity Securities have been measured at fair value with changes in fair value recognized in Net Income through Net Unrealized Gains (Losses) on Equity Securities. The other aspects of this guidance only impacted disclosure or did not apply to our Company and therefore did not impact our results of operations, financial condition or liquidity.

Effective January 1, 2018, our Company adopted ASU 2016-15, “Statement of Cash Flows (Topic 230) – Classification of Certain Cash Receipts and Cash Payments” which addresses diversity in practice in how eight specific cash receipts and cash payments should be presented and classified on the statement of cash flows. The adoption of this guidance did not impact our results of operations, financial condition or liquidity.

Effective January 1, 2018, our Company adopted ASU 2016-18, “Statement of Cash Flows (Topic 230) – Restricted Cash” which addresses diversity in practice in the classification and presentation of changes in restricted cash on the statement of cash flows. This guidance requires a statement of cash flows to explain the change during the period in the total of cash, cash equivalents, restricted cash and restricted cash equivalents. Transfers between cash and cash equivalents and restricted cash and restricted cash equivalents will no longer be presented on the statement of cash flows. To assist in meeting the requirements of this guidance to provide a reconciliation from the Statement of Cash Flows to the Balance Sheet, upon adoption of this guidance our Company added new accounts titled “Cash and Cash Equivalents” and “Restricted Cash and Cash Equivalents” and reclassified amounts previously held in Short-Term Investments to these accounts for all periods presented. This resulted in the reclassification of $71.3 million of restricted and unrestricted cash and cash equivalent balances as of December 31, 2017. This guidance was adopted on a retrospective basis. Prior to the adoption of this guidance, restricted and unrestricted cash and cash equivalent balances included in the Short-Term Investments account had been presented as a cash flow provided by (used in) investing activities. Consequently, the Statement of Cash

Flows for the years ended December 31, 2017 and 2016 include a revision to increase “Net Cash Used in Investing Activities” by $14.4 million and a revision to decrease “Net Cash Used in Investing Activities” by $3.3 million, respectively.

Effective January 1, 2018, our Company adopted ASU 2016-16, “Income Taxes (Topic 740) – Intra-Entity Transfers of Assets Other than Inventory” that requires companies to account for the income tax effects of intercompany transfers of assets other than inventory when the transfer occurs. The adoption of this guidance did not impact our results of operations, financial condition or liquidity.

Effective January 1, 2018, our Company adopted ASU 2017-01, “Clarifying the Definition of a Business” that provides guidance to assist entities with evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. This guidance will be applied to transactions prospectively. The adoption of this guidance did not impact our results of operations, financial condition or liquidity.

Effective January 1, 2018, our Company early adopted ASU 2018-02, “Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income” that permits entities to reclassify tax effects stranded in accumulated other comprehensive income as a result of tax reform to retained earnings. The total impact of the remeasurement and other adjustments was reflected in 2017 income from continuing operations, regardless of where deferred taxes were originally recorded. As of January 1, 2018, the adoption of this guidance resulted in a one-time reclassification of $2.8 million, decreasing Retained Earnings and increasing Accumulated Other Comprehensive Income (Loss) primarily from the remeasurement of deferred tax assets and liabilities associated with unrealized gains and losses on investments and currency translation adjustments using the 21% corporate tax rate.

In February 2016, the FASB issued ASU 2016-02, “Leases (Topic 842)” which provides a new comprehensive model for lease accounting. Topic 842 was subsequently amended by ASU 2018-10, Codification Improvements to Topic 842, Leases and ASU 2018-11, Targeted Improvements. The new standard requires a lessee to recognize a liability to make lease payments (the lease liability) and a right-of-use (“ROU”) asset representing its right to use the underlying asset for the lease term. Leases will be classified as finance or operating, with classification affecting the pattern and classification of expense recognition in the income statement.

The new standard is effective for us on January 1, 2019, with early adoption permitted. A modified retrospective transition approach is required, applying the new standard to all leases existing at the date of initial application. An entity may choose to use either (1) its effective date or (2) the beginning of the earliest comparative period presented in the financial statements as its date of initial application. We expect to adopt the new standard on January 1, 2019 and use the effective date as our date of initial application. Consequently, financial information will not be updated and the disclosures required under the new standard will not be provided for dates and periods before January 1, 2019.

The new standard provides a number of optional practical expedients in transition. We expect to elect the ‘package of practical expedients’, which permits us not to reassess under the new standard our prior conclusions about lease identification, lease classification and initial direct costs. We do not expect to elect the use-of-hindsight or the practical expedient pertaining to land easements; the latter not being applicable to us. The new standard also provides practical expedients for an entity’s ongoing accounting. We currently do not have any leases with a term shorter than 12 months. We also currently expect to elect the practical expedient to not separate lease and non-lease components for certain classes of leases.

Adoption of this guidance will impact our Company’s consolidated balance sheet, but is not expected to have a material impact on our Company’s results of operations, financial condition and liquidity. While we continue to assess all of the effects of adoption, we currently believe the most significant effects relate to (1) the recognition of new ROU assets and lease liabilities on our balance sheet for our office and equipment operating leases; (2) the derecognition of the deferred rent liability on our balance sheet; and (3) providing significant new disclosures about our leasing activities. We do not expect a significant change in our leasing activities between now and adoption

On adoption, we currently expect to recognize additional operating liabilities ranging from $45.0 million to $55.0 million with corresponding ROU assets ranging from $35.0 million to $45.0 million, with the difference between the lease liability and ROU asset being the derecognition of existing deferred rent liabilities and policy changes due to the adoption of the guidance.

In June 2016, the FASB issued ASU 2016-13, “Financial Instruments – Credit Losses (Topic 326) – Measurement of Credit Losses on Financial Instruments” which replaces the “incurred loss” impairment methodology with an approach based on “expected losses” to estimate credit losses on certain types of financial instruments and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates. The guidance requires financial assets measured at amortized cost to be presented at the net amount expected to be collected. The allowance for credit losses is a valuation account that is deducted from the amortized cost of the financial asset to present the net carrying value at the amount expected to be collected on the financial asset. Credit losses relating to available-for-sale debt securities will be recorded through an allowance for credit losses. The guidance also provides for a simplified accounting model for purchased financial assets with credit deterioration since their origination. This guidance is effective for interim and annual periods beginning after December 15, 2019. Early adoption is permitted for interim and annual periods beginning after December 15, 2018. The application of this guidance is not expected to significantly impact our Company’s available-for-sale debt investment portfolio, but will impact our Company’s other financial assets, including our reinsurance recoverables and premium receivable. Upon adoption of this guidance, any impairment losses on our available-for-sale debt securities will be recorded as an allowance, subject to reversal, rather than as a reduction in amortized cost. Our Company is currently evaluating the impact of this guidance on our results of operations, financial condition and liquidity.

In January 2017, the FASB issued ASU 2017-04, “Simplifying the Test for Goodwill Impairment” that eliminates the requirement to calculate the implied fair value of goodwill (i.e., Step 2 of the current goodwill impairment test) to measure a goodwill impairment charge. Instead, an impairment charge will be based on the excess of a reporting unit’s carrying amount over its fair value (i.e., measure the charge based on Step 1 of the current goodwill impairment test). This guidance is effective for annual and interim impairment tests performed in periods beginning after December 15, 2019, with early adoption permitted for annual and interim goodwill impairment testing dates after January 1, 2017. This guidance will be adopted on a prospective basis.

In March 2017, the FASB issued ASU 2017-08, “Premium Amortization on Purchased Callable Debt Securities” that shortens the amortization period for the premium on certain purchased callable debt securities to the earliest call date. This guidance is effective for annual periods beginning after December 15, 2018, and interim periods within those fiscal years with early adoption permitted. This guidance will be adopted using a modified retrospective transition approach. The adoption of this guidance is not expected to materially impact our results of operations, financial condition or liquidity.

In August 2018, the FASB issued ASU 2018-13, “Disclosure Framework – Changes to the Disclosure Requirements for Fair Value Measurement”, which eliminates, adds, and modifies certain disclosure requirements for fair value measurements. The guidance eliminates the requirement to disclose the amount of and reasons for transfers between Level 1 and Level 2 of the fair value hierarchy, the policy for the timing of transfers between levels of the fair value hierarchy, and the valuation processes for Level 3 fair value measurements. The guidance adds the requirement to disclose changes in unrealized gains and losses included in other comprehensive income for the period and to disclose the range and weighted average used to develop significant unobservable inputs for Level 3 fair value measurements. The guidance modifies disclosures around the use of the practical expedient to measure the fair value of certain investments at their net asset values and modifies the requirement to disclose information as of the reporting date about the measurement uncertainty of Level 3 fair value measurement. This guidance is effective for interim and annual reporting periods beginning after December 15, 2019, with early adoption permitted for the entire standard or only the provisions that eliminate or modify requirements. This guidance will be adopted on a prospective and retrospective basis, where applicable and as required. As this new guidance is disclosure-related only, adoption will not impact our results of operations, financial condition or liquidity.

In August 2018, the FASB issued ASU 2018-15, “Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract”, which requires companies to follow the internal-use software guidance in ASC 350-40 (Intangibles - Goodwill and Other - Internal-Use Software) to determine which implementation costs to capitalize as an asset and which costs to expense. Capitalized implementation costs will be amortized over the term of the service arrangement, beginning when

the service arrangement or a component of the arrangement is ready for its intended use. This guidance is effective for interim and annual reporting periods beginning after December 15, 2019, with early adoption permitted. This guidance will be applied prospectively. The adoption of this guidance is not expected to materially impact our results of operations, financial condition or liquidity.

On August 22, 2018, our Company entered into the Merger Agreement with The Hartford, where subject to the terms and conditions set forth therein, our Company will merge with an existing subsidiary of The Hartford, with our Company surviving as a wholly owned subsidiary of The Hartford. Pursuant to the Merger Agreement, at the effective time of the Merger, holders of the Company’s common shares will be entitled to receive consideration of $70.00 in cash per common share (the “Merger Consideration”). At a special meeting of stockholders of the Company held on November 16, 2018, the Company’s stockholders approved by the requisite vote a proposal to adopt the Merger Agreement. The Merger is expected to close in the first half of 2019, but remains subject to the receipt of regulatory approvals and other customary closing conditions.

The Merger Agreement contains various covenants of our Company and The Hartford. These covenants include interim operating covenants that, subject to certain exceptions, (i) require the Company to (1) conduct its business in all material respects in the ordinary course of business consistent with past practice, (2) use reasonable best efforts to preserve substantially intact, consistent with past practice, the Company’s business organization and (3) preserve, consistent with past practice, existing relations and goodwill with customers, producers, reinsurance providers, governmental authorities and other persons with whom the Company or its subsidiaries have significant business relationships, and (ii) restrict the Company’s ability to take certain actions prior to the effective time of the Merger without The Hartford’s consent (such consent, in certain cases, not to be unreasonably withheld, conditioned or delayed), which include, subject to certain exceptions, issuing additional common shares, incurring additional indebtedness, selling or purchasing material assets, making unbudgeted capital expenditures, making loans or investments (or disposing of investments) not permitted by the Company’s investment guidelines, increasing compensation other than in ordinary course, making material changes to accounting, underwriting, or reserving practices, making material tax elections, settling material litigation, or entering into, modifying or terminating material contracts.

During the second quarter of 2018, our Company established a wholly owned subsidiary, Navigators Holdings (Europe) NV, which on June 7, 2018 (the “acquisition date”), acquired a 100% ownership interest in BDM, ASCO, and a wholly-owned subsidiary of ASCO, Canal Re S.A., a reinsurance company licensed under the laws of the Grand Duchy of Luxembourg (“Canal Re”). The acquisition of all three of these entities will be referred to as the “Acquisition” and the group of companies will be referred to as the Navigators Insurance Company Europe Group (the “NICE Group”). The Acquisition was undertaken as part of our Company’s strategy of expanding to more brokers and insureds across Europe and reinforces our Company’s presence in the European Union’s single market. We anticipate that this will enable our Company to better serve its European clients after Brexit, and will also provide an opportunity to reach a wider European audience.

Our Company paid a purchase price of EUR 35.0 million in cash at the acquisition date (which was approximately $40.5 million based on the exchange rate as of the acquisition date). Additionally, our Company will be reimbursed up to EUR 5.0 million (which was approximately $5.8 million based on the exchange rate as of the acquisition date) in the event of adverse development of claims incurred prior to December 31, 2016 as measured on December 31, 2019. This reimbursement was valued at $nil as of the acquisition date and December 31, 2018.

The purchase price was allocated to the assets acquired and liabilities assumed of the NICE Group, based on estimated fair values as of the acquisition date and our Company recognized goodwill of $12.7 million.

Our Company identified finite lived intangible assets of $6.5 million, including customer relationships, the value of business acquired (“VOBA”), broker networks, and a trade name. These finite lived intangible assets will be amortized over a weighted average period of 9 years.

Our Company identified indefinite lived intangible assets of $2.5 million, related to ASCO’s European licenses.

The fair value of the assets acquired and liabilities assumed and the allocation of the purchase price on the acquisition date are summarized in the table below:

As part of our business combination accounting within the measurement period, the Company recorded an adjustment to the fair value of the customer relationships intangible asset. As a result, the Fair Value of Identifiable Intangible Assets decreased by $1.4 million and Goodwill increased by $1.4 million from the amounts initially recorded at June 30, 2018. Refer to Note 6 Goodwill and Intangible Assets for further information.

The business combination accounting is subject to change if additional information that existed as of the balance sheet date, but was not available, later becomes available within the measurement period, which cannot exceed twelve months from the acquisition date. The acquisition date fair values of the assets acquired and liabilities assumed, including Reserves for Losses and LAE, Deferred Income Tax and Identifiable Intangible Assets, as well as the related estimated useful lives, are provisional and may be subject to adjustments, which may impact the amounts recorded for assets acquired and liabilities assumed as well as the goodwill.

Since the acquisition date, total NICE Group Revenues and Net Income (Loss) of $11.1 million and $(0.3) million, respectively, have been included in our Company’s Consolidated Statements of Income.

We report our results of operations consistent with the manner in which our Chief Operating Decision Maker reviews the business to assess performance through our reporting segments: U.S. Insurance, International Insurance (“Int’l Insurance”), Global Reinsurance (“GlobalRe”) and Corporate.

We classify our business into three underwriting segments: U.S. Insurance, Int’l Insurance and GlobalRe. Both the U.S. Insurance and Int’l Insurance reporting segments are each comprised of three operating segments: Marine, P&C and Professional Liability. The underwriting results of the acquired business from the NICE Group are included in the Int’l Insurance reporting segment, with no new operating segments resulting from the acquisition.

We evaluate the performance of each of the underwriting segments based on underwriting results. Underwriting results are measured based on Underwriting Profit or Loss and the related Combined Ratio, which are both measures of underwriting profitability. Underwriting Profit (Loss) is calculated from Net Earned Premiums less the sum of Net Losses and LAE, Commission Expenses, Other Operating Expenses and Other Underwriting Income (Expense). The Combined Ratio is derived by dividing the sum of Net Losses and LAE, Commission Expenses, Other Operating Expenses and Other Underwriting Income (Expense) by Net Earned Premiums. A Combined Ratio of less than 100% indicates an Underwriting Profit and greater than 100% indicates an Underwriting Loss. Our underwriting performance is evaluated separately from the rest of our operations.

We evaluate our written premiums on a gross, ceded, and net basis. Additionally, we evaluate the retention ratio related to our written premiums, which represents the amount of written premium retained by the Company after ceding to reinsurers and is derived by dividing Net Written Premiums by Gross Written Premiums.

The performance of our investment portfolios, our liquidity and capital resource needs, our foreign currency exposure and our tax planning strategies are evaluated on a consolidated basis within our Corporate segment. We do not allocate our assets by underwriting segment as we evaluate the underwriting results of these segments separately from the results of our investments portfolio.

The following tables set forth the financial data by segment for the years ended December 31, 2018, 2017 and 2016:

	Year Ended December 31, 2018
	U.S.			Int'l
amounts in thousands	Insurance			Insurance			GlobalRe			Corporate ⁽¹⁾			Total
Gross written premiums	$	1,083,116		$	530,710		$	299,135		$	—		$	1,912,961
Ceded written premiums		(283,025	)		(147,402	)		(11,449	)		—			(441,876	)
Net written premiums		800,091			383,308			287,686			—			1,471,085
Retention Ratio		73.9	%		72.2	%		96.2	%		—			76.9	%

Net Earned Premiums	$	737,646		$	380,503		$	245,074		$	—		$	1,363,223
Net Losses and LAE		(485,960	)		(252,268	)		(155,551	)		—			(893,779	)
Commission Expenses		(85,127	)		(80,526	)		(55,056	)		565			(220,144	)
Other Operating Expenses		(142,333	)		(93,882	)		(25,009	)		—			(261,224	)
Other Underwriting Income (Expense)		354			2,206			316			(565	)		2,311
Underwriting Profit (Loss)	$	24,580		$	(43,967	)	$	9,774		$	—		$	(9,613	)
Net Investment Income											103,113			103,113
Total Net Realized and Unrealized Losses											(30,348	)		(30,348	)
Interest Expense											(15,485	)		(15,485	)
Other Income											4,858			4,858
Merger Transaction Costs											(3,950	)		(3,950	)
Income (Loss) Before Income Taxes	$	24,580		$	(43,967	)	$	9,774		$	58,188		$	48,575
Income Tax Expense											(14,336	)		(14,336	)
Net Income													$	34,239
Losses and LAE ratio		65.9	%		66.3	%		63.5	%					65.6	%
Commission Expense Ratio		11.5	%		21.2	%		22.5	%					16.1	%
Other Operating Expense Ratio ⁽²⁾		19.3	%		24.1	%		10.0	%					19.0	%
Combined Ratio		96.7	%		111.6	%		96.0	%					100.7	%

	Year Ended December 31, 2017
	U.S.			Int'l
amounts in thousands	Insurance			Insurance			GlobalRe			Corporate ⁽¹⁾			Total
Gross written premiums	$	988,293		$	501,130		$	223,842		$	—		$	1,713,265
Ceded written premiums		(266,993	)		(165,278	)		(9,664	)		—			(441,935	)
Net written premiums		721,300			335,852			214,178			—			1,271,330
Retention Ratio		73.0	%		67.0	%		95.7	%		—			74.2	%

Net Earned Premiums	$	674,665		$	333,792		$	177,963		$	—		$	1,186,420
Net Losses and LAE		(443,353	)		(229,601	)		(133,311	)		—			(806,265	)
Commission Expenses		(77,729	)		(68,824	)		(39,136	)		958			(184,731	)
Other Operating Expenses		(128,905	)		(83,464	)		(20,861	)		—			(233,230	)
Other Underwriting Income (Expense)		461			—			565			(958	)		68
Underwriting Profit (Loss)	$	25,139		$	(48,097	)	$	(14,780	)	$	—		$	(37,738	)
Net Investment Income											89,293			89,293
Total Net Realized and Unrealized Gains											43,009			43,009
Interest Expense											(15,447	)		(15,447	)
Other Loss											(4,311	)		(4,311	)
Income (Loss) Before Income Taxes	$	25,139		$	(48,097	)	$	(14,780	)	$	112,544		$	74,806
Income Tax Expense											(34,312	)		(34,312	)
Net Income													$	40,494
Losses and LAE ratio		65.7	%		68.8	%		74.9	%					68.0	%
Commission Expense Ratio		11.5	%		20.6	%		22.0	%					15.6	%
Other Operating Expense Ratio ⁽²⁾		19.1	%		25.0	%		11.4	%					19.6	%
Combined Ratio		96.3	%		114.4	%		108.3	%					103.2	%

	Year Ended December 31, 2016
	U.S.			Int'l
amounts in thousands	Insurance			Insurance			GlobalRe			Corporate ⁽¹⁾			Total
Gross written premiums	$	919,395		$	484,471		$	165,045		$	—		$	1,568,911
Ceded written premiums		(235,827	)		(138,504	)		(8,356	)		—			(382,687	)
Net written premiums		683,568			345,967			156,689			—			1,186,224
Retention Ratio		74.3	%		71.4	%		94.9	%		—			75.6	%

Net Earned Premiums	$	629,308		$	307,416		$	163,621		$	—		$	1,100,345
Net Losses and LAE		(397,860	)		(178,284	)		(89,304	)		—			(665,448	)
Commission Expenses		(70,812	)		(61,703	)		(34,008	)		1,478			(165,045	)
Other Operating Expenses		(128,108	)		(86,395	)		(19,593	)		—			(234,096	)
Other Underwriting Income (Expense)		1,092			—			522			(1,478	)		136
Underwriting Profit (Loss)	$	33,620		$	(18,966	)	$	21,238		$	—		$	35,892
Net Investment Income											79,451			79,451
Total Net Realized and Unrealized Gains											9,036			9,036
Interest Expense											(15,435	)		(15,435	)
Other Income											8,565			8,565
Income (Loss) Before Income Taxes	$	33,620		$	(18,966	)	$	21,238		$	81,617		$	117,509
Income Tax Expense											(34,783	)		(34,783	)
Net Income													$	82,726
Losses and LAE ratio		63.2	%		58.0	%		54.6	%					60.5	%
Commission Expense Ratio		11.3	%		20.1	%		20.8	%					15.0	%
Other Operating Expense Ratio ⁽²⁾		20.2	%		28.1	%		11.6	%					21.2	%
Combined Ratio		94.7	%		106.2	%		87.0	%					96.7	%

The following tables provide additional financial data by operating segment for the years ended December 31, 2018, 2017 and 2016:

The following is a summary of our Company's Gross Written Premiums allocated based on the location of the insured's head office:

Our Company distributes our insurance products through international, national, regional and retail insurance brokers. For the year ended December 31, 2018, business produced within our U.S. Insurance, Int’l Insurance and GlobalRe reporting segments through the broker Marsh & McLennan Companies Inc. represented just over 10% of consolidated gross premiums written.

The assets of our Company are reviewed in total by management for purposes of decision making.

The following tables set forth our Company’s available-for-sale investments and Equity Securities as of December 31, 2018 and 2017 and include OTTI securities recognized within AOCI:

(1) - Corporate Exposures consist of investments in corporate bonds, hybrid bonds and redeemable preferred stocks.

	December 31, 2017
			Gross		Gross
			Unrealized		Unrealized			Amortized
amounts in thousands	Fair Value		Gains		Losses			Cost
Fixed Maturities:
U.S. Treasury Bonds, Agency Bonds and Foreign Government Bonds	$	393,563	$	2,081	$	(2,014	)	$	393,496
States, Municipalities and Political Subdivisions		814,632		20,136		(1,423	)		795,919
Mortgage-Backed and Asset-Backed Securities:
Agency Residential Mortgage-Backed Securities		407,619		2,352		(5,414	)		410,681
Residential Mortgage Obligations		54,104		606		(79	)		53,577
Asset-Backed Securities		328,753		2,138		(663	)		327,278
Commercial Mortgage-Backed Securities		160,904		2,354		(1,182	)		159,732
Subtotal	$	951,380	$	7,450	$	(7,338	)	$	951,268
Corporate Exposures⁽¹⁾		897,479		14,491		(3,737	)		886,725
Total Fixed Maturities	$	3,057,054	$	44,158	$	(14,512	)	$	3,027,408
Equity Securities:
Common Stocks	$	52,439	$	7,423	$	(112	)	$	45,128
Preferred Stocks		183,542		6,071		(1,560	)		179,031
Total Equity Securities	$	235,981	$	13,494	$	(1,672	)	$	224,159
Short-Term Investments ⁽²⁾		6,480		3		—			6,477
Total Available-For-Sale Investments	$	3,299,515	$	57,655	$	(16,184	)	$	3,258,044

(1) - Corporate Exposures consist of investments in corporate bonds, hybrid bonds and redeemable preferred stocks.

(2) - Cash and overseas deposits that were misclassified within Short-Term Investments prior to 2018 were reclassified, representing an immaterial correction. Refer to Note 1 Organization & Summary of Significant Accounting Policies for further information.

Our Company made strategic investments in certain companies which are reported as Other Invested Assets on the Consolidated Balance Sheet and accounted for using the equity method. In applying the equity method, these investments are initially recorded at cost and are subsequently adjusted based on our Company’s proportionate share of the net income or loss of the companies. Our initial purchase price of $2.0 million had a current carrying value of $1.9 million and $1.7 million at December 31, 2018 and 2017, respectively.

Other Invested Assets also includes overseas deposits with a fair value of $46.5 million at December 31, 2018 and $28.8 million at December 31, 2017. The overseas deposits consist of investments in private funds which are managed centrally by The Corporation of Lloyd’s in support of all Lloyd’s market participants. The funds consist of fixed income securities, bank deposits, and cash invested in local markets which are intended to fulfill regulatory deposit requirements in worldwide jurisdictions. Our Company’s ability to withdraw from the funds is restricted by an annual and quarterly funding and release process managed by Lloyd’s in conjunction with Syndicate 1221’s capital requirements in various jurisdictions.

As of December 31, 2018 and 2017, our Company did not have a concentration of greater than 5% of invested assets in a single non-U.S. government-backed issuer.

As of December 31, 2018 and 2017, Fixed Maturities for which non-credit OTTI was previously recognized and included in AOCI are now in a net unrealized net gains position of $0.3 million and $0.5 million, respectively.

The fair value of our Company’s investment portfolio may fluctuate significantly in response to various factors such as changes in interest rates, investment quality ratings, equity prices, foreign exchange rates and credit spreads. Our Company does not have the intent to sell, nor is it more likely than not that it will have to sell, Fixed Maturities in unrealized loss positions that are not other-than-temporarily impaired before recovery. For structured securities, default probability and severity assumptions differ based on property type, vintage and the stress of the collateral. Our Company does not intend to sell, and it is more likely than not that our Company will not be required to sell, these securities before the recovery of the amortized cost basis. Our Company may realize investment losses to the extent our liquidity needs require the disposition of Fixed Maturity Securities in unfavorable interest rate, liquidity or credit spread environments. Significant changes in the factors our Company considers when evaluating investments for impairment losses could result in a significant change in impairment losses reported in the Consolidated Financial Statements.

The contractual maturity dates for Fixed Maturities categorized by the number of years until maturity as of December 31, 2018 are shown in the following table:

Expected maturities may differ from contractual maturities because issuers may have the right to call or prepay obligations with or without call or prepayment penalties. Prepayment assumptions associated with the Mortgage-Backed and Asset-Backed Securities are reviewed on a periodic basis. When changes in prepayment assumptions are deemed necessary as the result of actual prepayments differing from anticipated prepayments, securities are revalued based upon the new prepayment assumptions utilizing the retrospective accounting method. Due to the periodic repayment of principal, the Mortgage-Backed and Asset-Backed Securities are estimated to have an effective maturity of approximately 5.2 years.

The following tables summarize all securities available-for-sale in a gross unrealized loss position as of December 31, 2018 and 2017, showing the aggregate fair value and gross unrealized loss by the length of time those securities have continuously been in a gross unrealized loss position:

	December 31, 2018
	Less than 12 months					Greater than 12 months					Total
			Gross					Gross					Gross
	Fair		Unrealized			Fair		Unrealized			Fair		Unrealized
amounts in thousands	Value		(Losses)			Value		(Losses)			Value		(Losses)
Fixed Maturities:
U.S. Treasury Bonds, Agency Bonds and Foreign Government Bonds	$	101,395	$	(2,486	)	$	112,195	$	(1,471	)	$	213,590	$	(3,957	)
States, Municipalities and Political Subdivisions		123,479		(1,274	)		105,405		(2,174	)		228,884		(3,448	)
Mortgage-Backed and Asset-Backed Securities:
Agency Residential Mortgage-Backed Securities		34,819		(814	)		270,997		(12,304	)		305,816		(13,118	)
Residential Mortgage Obligations		70,965		(249	)		10,110		(281	)		81,075		(530	)
Asset-Backed Securities		345,437		(6,950	)		77,362		(1,090	)		422,799		(8,040	)
Commercial Mortgage-Backed Securities		58,877		(282	)		41,477		(2,534	)		100,354		(2,816	)
Subtotal	$	510,098	$	(8,295	)	$	399,946	$	(16,209	)	$	910,044	$	(24,504	)
Corporate Exposures ⁽¹⁾		481,057		(15,456	)		300,113		(13,184	)		781,170		(28,640	)
Total Fixed Maturities	$	1,216,029	$	(27,511	)	$	917,659	$	(33,038	)	$	2,133,688	$	(60,549	)

(1) - Corporate Exposures consist of investments in corporate bonds, hybrid bonds and redeemable preferred stocks.

	December 31, 2017
	Less than 12 months					Greater than 12 months					Total
			Gross					Gross					Gross
	Fair		Unrealized			Fair		Unrealized			Fair		Unrealized
amounts in thousands	Value		(Losses)			Value		(Losses)			Value		(Losses)
Fixed Maturities:
U.S. Treasury Bonds, Agency Bonds and Foreign Government Bonds	$	273,672	$	(1,502	)	$	54,484	$	(512	)	$	328,156	$	(2,014	)
States, Municipalities and Political Subdivisions		74,097		(503	)		45,085		(920	)		119,182		(1,423	)
Mortgage-Backed and Asset-Backed Securities:
Agency Residential Mortgage-Backed Securities		87,496		(346	)		236,745		(5,068	)		324,241		(5,414	)
Residential Mortgage Obligations		12,418		(62	)		546		(17	)		12,964		(79	)
Asset-Backed Securities		85,877		(468	)		24,733		(195	)		110,610		(663	)
Commercial Mortgage-Backed Securities		20,482		(95	)		22,903		(1,087	)		43,385		(1,182	)
Subtotal	$	206,273	$	(971	)	$	284,927	$	(6,367	)	$	491,200	$	(7,338	)
Corporate Exposures ⁽¹⁾		295,433		(1,690	)		121,410		(2,047	)		416,843		(3,737	)
Total Fixed Maturities	$	849,475	$	(4,666	)	$	505,906	$	(9,846	)	$	1,355,381	$	(14,512	)
Equity Securities:
Common Stocks	$	11,245	$	(81	)	$	1,770	$	(31	)	$	13,015	$	(112	)
Preferred Stocks		50,861		(1,524	)		662		(36	)		51,523		(1,560	)
Total Equity Securities	$	62,106	$	(1,605	)	$	2,432	$	(67	)	$	64,538	$	(1,672	)
Total Fixed Maturities and Equity Securities	$	911,581	$	(6,271	)	$	508,338	$	(9,913	)	$	1,419,919	$	(16,184	)

(1) - Corporate Exposures consist of investments in corporate bonds, hybrid bonds and redeemable preferred stocks.

Our Company analyzes impaired securities quarterly to determine if any impairments are other-than-temporary. The above securities with unrealized losses have been determined to be temporarily impaired based on our evaluation.

At December 31, 2018, there were 808 Fixed Maturities in an unrealized loss position. In the above table, the gross unrealized loss for the greater than 12 months category consists primarily of Agency Residential Mortgage-Backed Securities and Hybrid bonds and Redeemable Preferred stocks, which are reported in Corporate Exposures, and is mostly due to an increase in interest rates and spread widening. The gross unrealized loss for the less than 12 months category consists primarily of Hybrid bonds and Redeemable Preferred stocks, which are reported in Corporate Exposures, and Asset Backed Securities mainly due to spread widening. At December 31, 2017, there were 454 Fixed Maturities and 22 Equity Securities in an unrealized loss position. In the above table, the gross unrealized loss for the greater than 12 months category consists primarily of Agency Residential Mortgage-backed Securities and Corporate Exposures and is mostly due to an increase in interest rates at the time of purchase. The gross unrealized loss for the less than 12 months category consists primarily of Corporate Bonds and Preferred Stocks, which are reported in Equity Securities, due to an increase in interest rates since time of purchase, as well as Foreign Government Bonds due to an unfavorable exchange rate movement in our Canadian portfolio.

As of December 31, 2018 and 2017, the largest unrealized loss by a non-government backed issuer in the investment portfolio was $3.7 million and $0.7 million, respectively.

Our Company’s ability to hold securities is supported by sufficient cash flow from our operations and from maturities within our investment portfolio in order to meet our claims payments and other disbursement obligations arising from our underwriting operations without selling such investments. With respect to securities where the decline in value is determined to be temporary and the security's value is not written down, a subsequent decision may be made to sell that security and realize a loss. Subsequent decisions on security sales are made within the context of overall risk monitoring, changing information and market conditions.

Upon adoption of ASU 2016-01 as of January 1, 2018, changes in the fair value of Equity Securities are recognized through Net Income. Our Company had no credit related OTTI losses during the year ended December 31, 2018. Our Company had four credit related OTTI losses totaling $2.1 million during the year ended December 31, 2017 from our Equity Securities portfolio. Our Company had one credit related OTTI loss totaling $0.2 million from our Fixed Maturities portfolio during the year ended December 31, 2016.

The following table summarizes the cumulative amounts related to our Company’s credit loss portion of the OTTI losses on Fixed Maturities for the years ended December 31, 2018, 2017 and 2016.

Realized Gains and Losses, excluding net OTTI losses recognized in earnings, for the periods indicated, were as follows:

The following table presents the portion of Net Unrealized Losses recognized during the year that relates to Equity Securities held as of December 31, 2018:

Fair value measurements are received from independent pricing service vendors, utilized by our outside investment manager whom we employ to assist us with investment accounting services. This manager utilizes a pricing committee, which oversees the use of one or more independent pricing service vendors. The pricing committee consists of five or more members of the investment management firm, one from senior management and one from the accounting group, with the remainder representing asset class specialists and client strategists. The pricing source for each security is determined in accordance with the pricing source procedures approved by the pricing committee. The investment manager receives supporting documentation from the independent pricing service vendor detailing the inputs, models and processes used in the vendors’ evaluation process to determine the appropriate fair value hierarchy. It is ultimately our responsibility to determine whether the values obtained from these service providers are representative of fair value.

To validate the techniques or models used by pricing sources, our review process includes, but is not limited to:

The fair value of our financial instruments is determined based on the following fair value hierarchy:

Level 1 – Quoted prices for identical instruments in active markets. Examples are listed equity and fixed income securities traded on an exchange. U.S. Treasury securities are reported as Level 1 and are valued based on unadjusted quoted prices for identical assets in active markets that our Company can access.

Level 2 – Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations in which all significant inputs and significant value drivers are observable in active markets. Examples are asset-backed and mortgage-backed securities that are similar to other asset-backed or mortgage-backed securities observed in the market. U.S. government agency securities are reported as Level 2 and are valued using yields and spreads that are observable in active markets.

Level 3 – Valuations derived from valuation techniques in which one or more significant inputs or significant value drivers are unobservable. An example would be a private placement with minimal liquidity.

The following tables present, for each of the fair value hierarchy levels as defined by the accounting guidance for fair value measurements and described below, our Company’s Fixed Maturities and Equity Securities by asset class that are measured at fair value on a recurring basis, as well as the fair value of the 5.75% Senior notes due October 15, 2023 (the “5.75% Senior notes”) carried at amortized cost as of December 31, 2018 and 2017:

	December 31, 2018
amounts in thousands	Level 1		Level 2		Level 3		Total
Fixed Maturities:
U.S. Treasury Bonds, Agency Bonds and Foreign Government Bonds	$	35,537	$	204,239	$	—	$	239,776
States, Municipalities and Political Subdivisions		—		646,551		—		646,551
Mortgage-Backed and Asset-Backed Securities:
Agency Residential Mortgage-Backed Securities		—		335,542		—		335,542
Residential Mortgage Obligations		—		138,373		—		138,373
Asset-Backed Securities		—		531,991		—		531,991
Commercial Mortgage-Backed Securities		—		188,201		—		188,201
Subtotal	$	—	$	1,194,107	$	—	$	1,194,107
Corporate Exposures		—		1,002,489		—		1,002,489
Total Fixed Maturities	$	35,537	$	3,047,386	$	—	$	3,082,923
Equity Securities:
Common Stocks		35,029		131,324		—		166,353
Preferred Stocks		—		173,539		—		173,539
Total Equity Securities	$	35,029	$	304,863	$	—	$	339,892
Short-Term Investments		—		10,233		—		10,233
Total Assets Measured at Fair Value	$	70,566	$	3,362,482	$	—	$	3,433,048
Senior Notes	$	—	$	278,150	$	—	$	278,150
Total Liabilities Measured at Fair Value	$	—	$	278,150	$	—	$	278,150

	December 31, 2017
amounts in thousands	Level 1		Level 2		Level 3		Total
Fixed Maturities:
U.S. Treasury Bonds, Agency Bonds and Foreign Government Bonds	$	178,251	$	215,312	$	—	$	393,563
States, Municipalities and Political Subdivisions		—		814,632		—		814,632
Mortgage-Backed and Asset-Backed Securities:
Agency Residential Mortgage-Backed Securities		—		407,619		—		407,619
Residential Mortgage Obligations		—		54,104		—		54,104
Asset-Backed Securities		—		328,753		—		328,753
Commercial Mortgage-Backed Securities		—		160,904		—		160,904
Subtotal	$	—	$	951,380	$	—	$	951,380
Corporate Exposures		—		897,479		—		897,479
Total Fixed Maturities	$	178,251	$	2,878,803	$	—	$	3,057,054
Equity Securities:
Common Stocks		52,439		—		—		52,439
Preferred Stocks		—		183,542		—		183,542
Total Equity Securities	$	52,439	$	183,542	$	—	$	235,981
Short-Term Investments ⁽¹⁾		6,480		—		—		6,480
Total Assets Measured at Fair Value	$	237,170	$	3,062,345	$	—	$	3,299,515
Senior Notes	$	—	$	277,951	$	—	$	277,951
Total Liabilities Measured at Fair Value	$	—	$	277,951	$	—	$	277,951

All other financial assets and liabilities including Cash, Premium Receivables, Reinsurance Recoverables and Reinsurance Balance Payables are carried at cost, which approximates fair value. Our Company has overseas deposits in Other Invested Assets of $46.5 million and $28.8 million at December 31 2018 and December 2017, respectively, which is measured at fair value using the net asset value (“NAV”) as a practical expedient.

Our Company did not have any significant transfers between the Level 1 and Level 2 classifications for the years ended December 31, 2018 and 2017.

The Goodwill Acquired primarily relates to expected synergies from combining operations of the NICE Group and is not expected to be deductible for tax purposes. Included in the Goodwill Acquired is an increase of $1.4 million from the amount initially recorded at June 30, 2018, as a result of a measurement period adjustment to the fair value of the ASCO customer relationships intangible asset. See the “Intangibles” section below for further information.

The gross carrying value and weighted average amortization period of intangible assets by type at December 31, 2018 was as follows:

As part of our business combination accounting within the measurement period, the Company recorded an adjustment to the fair value of the ASCO customer relationships intangible asset. The adjustment resulted from additional analysis of the duration of customer contracts, which decreased the useful life of the intangible asset from 15 to 10 years. As a result, the fair value of the intangible asset decreased by $1.4 million from the amount initially recorded at June 30, 2018.

The amortization of the Finite-Lived Assets was recognized within Other Operating Expenses on our Consolidated Statements of Income (Loss) with the exception of the amortization of the VOBA asset, which was recognized within Commission Expenses.

The estimated remaining amortization expense for the finite-lived intangible assets is as follows:

We establish reserves for the estimated unpaid ultimate liability for losses and LAE under the terms of our policies and agreements. The determination of reserves for losses and LAE is partially dependent upon the receipt of information from agents and brokers. Reserves include estimates for both claims that have been reported and for IBNR, and include estimates of expenses associated with processing and settling these claims. Reserves are recorded in Reserves for Losses and LAE in the Consolidated Balance Sheets. Our estimates and judgments may be revised as additional experience and other data become available and are reviewed, as new or improved methodologies are developed, or as laws change. Frequency/severity analyses are also performed for certain books of business. To the extent that reserves are found deficient or redundant, a strengthening or release is recognized as a charge or credit to earnings.

The following table summarizes activity for our Company’s Reserves for Losses and LAE for the years ended December 31, 2018, 2017 and 2016:

For the year ended December 31, 2018, our Incurred Losses and LAE increased $87.5 million as compared to the same period in 2017 and for the year ended December 31, 2017, our Incurred Losses and LAE increased $140.8 million as compared to the same period in 2016. The increases for both years were the result of increased current and prior year Incurred Losses and LAE.

For the year ended December 31, 2018, the Provision for Losses and LAE for Claims Occurring in the Current Year increased primarily due to growth in Net Earned Premium over the prior year. This increase was partially offset by a decrease in additional net current accident year (“AY”) loss activity related to a lower level of catastrophe (“CAT”) losses incurred in the year, including Typhoon Jebi ($13.9 million), Hurricane Michael ($4.8 million), Hurricane Florence ($3.5 million), the California Camp Fire ($3.2 million), Typhoon Trami ($3.0 million), and other CAT events ($0.3 million), as compared to $84.8 million for the same period in 2017.

The following is a discussion of CAT losses incurred of $28.7 million for the year ended December 31, 2018:

For the year ended December 31, 2017, the Provision for Losses and LAE for Claims Occurring in the Current Year increased primarily due to additional net current AY loss activity related to a higher level of CAT losses incurred during the year, including Hurricanes Irma ($28.3 million), Maria ($23.4 million) and Harvey ($15.8 million), Typhoon Hato ($4.2 million), the Puebla, Mexico Earthquake ($3.5 million), and other CAT events ($9.6 million), as compared to the same period in 2016 which primarily consisted of the Alberta Wildfires ($11.7 million), Hurricane Matthew ($7.1 million), the Ecuador Earthquake ($3.8 million) and the Taiwan Earthquake ($3.3 million). Additionally, growth in Net Earned Premium over the prior year added to the increase in Provision for Losses and LAE for Claims Occurring in the Current Year.

The following is a discussion of CAT losses incurred of $84.8 million for the year ended December 31, 2017:

Our December 31, 2018 Net Reserves for Losses and LAE include $14.2 million of net incurred but not reported (“IBNR”) claims activities for numerous catastrophe events. We caution that the magnitude and complexity of losses arising from these events inherently increases the level of uncertainty and therefore the level of management judgement involved in arriving at our estimated Net Reserves for Losses and LAE. As a result, our actual losses for these events may ultimately differ materially from our current estimates.

The reporting and operating segments breakdowns of prior period net reserve strengthening (releases) for the years ended December 31, 2018, 2017 and 2016 are as follows:

The following is a discussion of the relevant factors related to the prior period net reserve strengthening of $76.2 million recorded for the year ended December 31, 2018:

Our U.S. Insurance reporting segment recorded prior period net reserve strengthening of $18.9 million. The drivers are as follows:

Our Int’l Insurance reporting segment recorded prior period net reserve strengthening of $31.4 million. The drivers are as follows:

Our GlobalRe reporting segment recorded prior period net reserve strengthening of $26.0 million primarily driven by significant unfavorable loss emergence in our Accident & Health (“A&H”) product line, and to a lesser extent our P&C product line, partially offset by favorable loss emergence in our Surety product.

The following is a discussion of the relevant factors related to the prior period net reserve strengthening of $34.3 million recorded for the year ended December 31, 2017:

Our U.S. Insurance reporting segment recorded prior period net reserve strengthening of $16.7 million. The drivers are as follows:

Our Int’l Insurance reporting segment recorded prior period net reserve strengthening of $14.8 million. The drivers are as follows:

Our GlobalRe reporting segment recorded prior period net reserve strengthening of $2.8 million primarily driven by the settlement of a large claim in our A&H product, and unfavorable loss emergence within our P&C product. This strengthening was partially offset by reserve releases in our Agriculture and Marine products due to favorable loss emergence.

The following is a discussion of the relevant factors related to the prior period net reserve releases of $28.5 million recorded for the year ended December 31, 2016:

Our U.S. Insurance reporting segment recorded prior period net reserve releases of $1.3 million. The drivers are as follows:

Our Int’l Insurance reporting segment recorded prior period net reserve releases of $25.0 million. The drivers are as follows:

Our GlobalRe reporting segment recorded prior period net reserve releases of $2.2 million primarily driven by favorable loss development in our A&H, P&C and Professional Liability products, partially offset by large loss activity in our Marine product.

For the year ended December 31, 2018, our Losses and LAE Payments increased $56.4 million as compared to the same period in 2017, primarily due to increased claim payments associated with growth in our business and the catastrophe activity occurring in 2017. For the year ended December 31, 2017, our Losses and LAE Payments increased $91.0 million as compared to the same period in 2016, primarily due to increased claim payments in our Int’l Insurance reporting segment.

Effectively all property and casualty insurance contracts are described as “Short Duration Contracts” as opposed to life insurance, by the Securities and Exchange Commission. Our Company only issues short duration contracts. Below are two tables with reserve data for each operating segment. These tables are presented net of reinsurance. The first table reflects incurred claims development as of December 31, 2018, as well as the cumulative claims frequency and the total of Incurred But Not Reported (“IBNR”) liabilities and expected development on reported claims included within the net incurred claims amounts. The second table reflects the cumulative paid claims development as of December 31, 2018. The conversion of all non USD currencies amounts, for all accident years, is in USD as of December 31, 2018.

The information provided in our supplemental tables related to short duration contracts includes estimates. Beginning in the 2016 calendar year, the Company implemented a process for the business underwritten through Syndicate 1221 that captures and retains more detailed incurred claim data to enable it to assign AY information as accurately and completely as possible using the data available. Prior to the 2016 calendar year, records for Syndicate 1221 were not available by individual AY, which impacts the presentation of our Int’l Insurance and, to a limited extent, our Global Re supplemental tables for 2015 and prior reporting years. For these years, the Company developed a process to allocate the Syndicate 1221 incurred claims to individual prior accident years using only data known as of the end of the calendar year allowing for the development tables to reflect information on the variability of loss emergence from period to period.

Due to the limitations of the data available for our Syndicate 1221 business, the supplemental tables below for our Int’l Insurance and GlobalRe reporting segments begin with the 2012 reporting year and will increase by one year until ten years are presented.

The reserves related to the acquisition of ASCO during the year have been excluded from the development tables below due to data limitations and the overall insignificance of this category to total reserves. The reserve balance for this category has been included in the reconciliation table below.

Claims frequency is based on claims posted in our Company’s data system as reported. Generally, for most direct insurance and excess-of-loss assumed reinsurance, one claim count is posted for each claim. For assumed bordereau business and business written on binders, one claim count is posted for each bordereau received, which could account for multiple claims. Additionally, if the insured is covered for multiple years, a claim may be initially established in all potentially impacted policy years until the appropriate policy year is determined.

The information about incurred claims development and cumulative paid claims and Allocated Loss Adjustment Expense (“ALAE”), net of reinsurance, for the years ended December 31, 2009 through 2017, is presented as unaudited supplementary information.

Note that asbestos reserves are included in the U.S. Marine operating segment in years prior to 2009.

IBNR values shown in the following tables are the difference between the case reserves for reported losses and the estimated future payments for claims arising from the specific accident period. Our Company has always applied prudent claim reserving practices. For a number of segments, this has resulted in case reserves for more mature accident years exceeding the future payments consistently. IBNR estimates will be negative where our history indicates such favorable future emergence is the best estimate.

	U.S. Marine
	Loss and ALAE, Net of Reinsurance
amounts in thousands except # of reported claims	For the Years Ended December 31,																				As of December 31, 2018
AY	2009		2010		2011		2012		2013		2014		2015		2016		2017		2018		Total IBNR			# of Reported Claims
2009	$	62,044	$	58,500	$	55,277	$	49,650	$	47,204	$	48,488	$	50,694	$	49,870	$	50,545	$	50,625	$	105			2,334
2010				64,212		63,221		59,219		53,684		51,791		55,974		55,478		55,316		55,687		67			2,011
2011						69,652		68,967		66,900		62,464		61,258		59,709		59,151		58,237		(95	)		1,916
2012								84,927		87,253		71,941		68,546		70,057		70,573		72,896		1,774			1,863
2013										60,887		57,598		51,464		53,987		55,886		54,033		(882	)		1,818
2014												58,009		41,454		40,211		44,985		49,366		603			1,951
2015														59,296		50,837		49,341		48,027		338			2,257
2016																51,289		47,254		46,817		2,187			2,534
2017																		52,135		49,961		10,634			2,389
2018																				49,188		28,204			1,735
																	Total		$	534,837


	U.S. Marine
	Cumulative Paid Claims and Allocated Claim Adjustment Expenses, Net of Reinsurance
amounts in thousands	For the Years Ended December 31,
AY	2009		2010		2011		2012		2013		2014		2015		2016		2017		2018
2009	$	12,857	$	28,714	$	34,769	$	40,763	$	42,528	$	45,106	$	45,952	$	48,634	$	49,252	$	49,543
2010				16,258		31,769		39,081		42,017		47,173		50,963		54,163		54,321		54,612
2011						14,925		39,707		48,443		51,897		56,405		57,350		57,992		57,879
2012								27,254		46,215		54,470		60,486		66,950		68,750		69,007
2013										17,789		35,350		41,281		46,782		51,041		51,245
2014												10,677		23,162		34,453		40,487		44,852
2015														16,801		30,565		39,927		43,897
2016																11,587		24,566		38,163
2017																		18,861		32,341
2018																				11,010
																	Total		$	452,549
																	Net reserves < 2009			7,740
																	Total Net reserves		$	90,028

	U.S. P&C
	Loss and ALAE, Net of Reinsurance
amounts in thousands except # of reported claims	For the Years Ended December 31,																				As of December 31, 2018
AY	2009		2010		2011		2012		2013		2014		2015		2016		2017		2018		Total IBNR		# of Reported Claims
2009	$	127,749	$	130,391	$	131,636	$	136,835	$	142,348	$	147,405	$	148,126	$	151,298	$	150,614	$	152,609	$	4,699		8,603
2010				97,426		97,037		95,133		101,134		104,094		105,989		108,894		111,136		110,940		5,939		7,981
2011						80,399		78,420		87,297		90,301		91,267		98,857		101,061		102,403		9,172		6,623
2012								103,437		90,111		91,780		99,502		107,526		111,459		118,647		14,122		4,664
2013										139,986		126,220		129,385		137,692		149,841		156,793		14,770		4,040
2014												192,897		160,828		149,462		156,149		167,782		36,292		4,154
2015														246,404		220,278		215,822		235,390		39,530		4,115
2016																273,693		245,905		242,986		133,717		3,772
2017																		298,195		259,919		183,018		3,851
2018																				335,885		301,480		3,514
																	Total		$	1,883,354


	U.S. P&C
	Cumulative Paid Claims and Allocated Claim Adjustment Expenses, Net of Reinsurance
amounts in thousands	For the Years Ended December 31,
AY	2009		2010		2011		2012		2013		2014		2015		2016		2017		2018
2009	$	11,335	$	33,601	$	56,453	$	87,622	$	111,571	$	124,908	$	130,402	$	137,576	$	139,768	$	144,224
2010				12,310		27,036		47,222		65,972		78,243		86,665		91,559		98,053		100,698
2011						3,660		14,694		30,766		47,150		59,038		71,065		80,248		85,885
2012								4,761		17,404		27,717		47,253		67,772		83,215		91,557
2013										7,188		21,035		48,923		84,874		118,932		136,446
2014												5,269		13,569		44,999		75,618		113,585
2015														3,719		24,579		79,639		142,655
2016																5,885		30,124		65,439
2017																		13,014		40,012
2018																				16,752
																	Total		$	937,253
																	Net reserves < 2009			31,867
																	Total Net reserves		$	977,968

	U.S. Professional Liability
	Loss and ALAE, Net of Reinsurance
amounts in thousands except # of reported claims	For the Years Ended December 31,																				As of December 31, 2018
AY	2009		2010		2011		2012		2013		2014		2015		2016		2017		2018		Total IBNR		# of Reported Claims
2009	$	47,473	$	53,273	$	61,023	$	58,600	$	60,789	$	58,487	$	58,660	$	58,143	$	61,083	$	60,067	$	716		1,370
2010				52,302		64,020		68,375		75,619		74,535		86,787		85,348		86,164		87,687		477		1,430
2011						58,116		62,087		70,240		73,028		79,181		79,136		82,558		82,754		715		1,726
2012								61,196		54,480		57,097		55,917		58,344		58,563		58,040		1,657		2,175
2013										60,899		54,982		49,104		48,298		54,228		58,855		3,230		1,984
2014												49,899		35,749		39,699		41,936		43,585		4,590		2,016
2015														31,375		30,486		30,802		35,186		4,712		1,680
2016																41,053		36,036		41,299		5,266		1,813
2017																		50,825		44,346		22,367		1,980
2018																				54,629		46,916		2,017
																	Total		$	566,448


	U.S. Professional Liability
	Cumulative Paid Claims and Allocated Claim Adjustment Expenses, Net of Reinsurance
amounts in thousands	For the Years Ended December 31,
AY	2009		2010		2011		2012		2013		2014		2015		2016		2017		2018
2009	$	3,837	$	21,742	$	41,675	$	51,642	$	55,378	$	53,859	$	57,744	$	58,095	$	58,150	$	58,161
2010				2,981		23,147		46,868		54,019		59,765		82,013		84,511		84,529		85,158
2011						3,204		23,878		43,551		59,576		65,710		75,641		78,258		78,382
2012								3,855		22,635		35,681		44,028		49,675		54,728		55,215
2013										4,677		22,167		32,904		38,876		47,062		50,909
2014												2,304		14,319		29,309		35,008		37,780
2015														2,256		11,173		18,303		23,321
2016																2,351		18,283		31,563
2017																		2,613		16,246
2018																				2,719
																	Total		$	439,454
																	Net reserves < 2009			1,327
																	Total Net reserves		$	128,321

	Int'l Marine
	Loss and ALAE, Net of Reinsurance
amounts in thousands except # of reported claims	For the Years Ended December 31,															As of December 31, 2018
AY		2012		2013		2014		2015		2016		2017		2018		Total IBNR			# of Reported Claims
2009		$	95,612	$	90,880	$	89,667	$	82,730	$	81,296	$	80,930	$	82,896	$	2,065			4,908
2010			130,924		128,878		118,028		113,877		111,165		107,400		107,443		330			5,231
2011			99,374		84,959		81,617		77,099		73,181		73,508		72,008		107			4,855
2012			109,784		131,234		106,553		98,960		91,991		91,844		93,931		272			5,368
2013					87,215		93,736		81,807		81,072		83,094		79,832		669			5,052
2014							104,464		117,228		115,909		118,195		112,498		(6,412	)		5,125
2015									98,245		94,055		95,449		99,103		(1,843	)		7,664
2016											87,690		94,464		89,992		1,561			10,085
2017													107,151		135,759		15,783			12,028
2018															94,251		16,778			7,603
												Total		$	967,713


	Int'l Marine
	Cumulative Paid Claims and Allocated Claim Adjustment Expenses, Net of Reinsurance
amounts in thousands	For the Years Ended December 31,
AY		2012		2013		2014		2015		2016		2017		2018
2009		$	65,715	$	69,853	$	72,605	$	76,050	$	76,752	$	78,007	$	78,044
2010			77,626		89,896		95,906		99,875		102,161		102,597		102,841
2011			45,400		58,695		63,084		67,988		68,951		69,287		69,962
2012			23,088		54,300		69,811		77,847		80,449		82,370		84,744
2013					23,455		45,992		57,973		64,075		66,900		68,443
2014							29,625		56,964		80,943		89,506		104,801
2015									22,651		53,995		75,185		80,684
2016											23,357		54,708		66,912
2017													28,774		77,451
2018															25,404
												Total		$	759,286
												Net reserves < 2009			6,028
												Total Net reserves		$	214,455

	Int'l P&C
	Loss and ALAE, Net of Reinsurance
amounts in thousands except # of reported claims	For the Years Ended December 31,															As of December 31, 2018
AY		2012		2013		2014		2015		2016		2017		2018		Total IBNR			# of Reported Claims
2009		$	38,479	$	40,687	$	40,776	$	40,488	$	34,049	$	34,305	$	34,679	$	(100	)		1,038
2010			42,807		42,234		41,628		41,911		42,528		42,285		40,594		(240	)		1,026
2011			71,160		61,290		59,128		59,237		59,238		54,798		59,050		(215	)		1,030
2012			45,287		37,168		36,167		32,242		32,376		32,830		32,069		(251	)		921
2013					35,862		37,182		36,307		34,221		35,185		34,656		154			1,298
2014							26,741		22,200		20,417		16,363		17,517		(497	)		1,273
2015									34,678		36,391		33,703		32,566		(86	)		2,045
2016											78,827		91,431		74,382		987			3,800
2017													56,376		70,448		15,782			3,209
2018															46,487		15,981			1,053
												Total		$	442,448


	Int'l P&C
	Cumulative Paid Claims and Allocated Claim Adjustment Expenses, Net of Reinsurance
amounts in thousands	For the Years Ended December 31,
AY		2012		2013		2014		2015		2016		2017		2018
2009		$	28,790	$	33,079	$	33,538	$	33,180	$	33,276	$	33,359	$	34,711
2010			34,935		40,576		43,112		40,818		40,935		41,405		41,505
2011			38,362		47,594		50,480		53,034		53,963		51,940		58,422
2012			13,171		21,436		26,904		29,937		31,136		31,389		32,041
2013					7,093		18,294		25,649		28,484		30,067		32,715
2014							3,864		8,948		13,150		16,709		17,626
2015									6,780		18,293		29,420		30,659
2016											25,971		55,287		66,743
2017													14,875		35,628
2018															9,580
												Total		$	359,630
												Net reserves < 2009			4,550
												Total Net reserves		$	87,368

	Int'l Professional Liability
	Loss and ALAE, Net of Reinsurance
amounts in thousands except # of reported claims	For the Years Ended December 31,															As of December 31, 2018
AY		2012		2013		2014		2015		2016		2017		2018		Total IBNR		# of Reported Claims
2009		$	16,528	$	17,061	$	17,143	$	16,785	$	15,752	$	15,711	$	14,496	$	118		624
2010			14,388		13,935		14,076		14,066		15,611		14,376		16,245		13		746
2011			15,310		17,971		19,213		8,817		6,872		12,622		10,704		3		666
2012			6,810		11,433		12,665		13,302		16,970		17,886		21,691		2		1,107
2013					10,250		4,232		14,469		15,546		16,575		15,529		0		1,181
2014							20,607		24,419		23,663		21,438		25,411		6,564		1,775
2015									28,132		30,322		35,144		40,182		5,923		2,483
2016											36,103		34,074		35,873		15,285		3,212
2017													47,610		45,128		32,642		3,642
2018															66,823		55,207		2,031
												Total		$	292,082


	Int'l Professional Liability
	Cumulative Paid Claims and Allocated Claim Adjustment Expenses, Net of Reinsurance
amounts in thousands	For the Years Ended December 31,
AY		2012		2013		2014		2015		2016		2017		2018
2009		$	8,879	$	10,804	$	12,857	$	13,842	$	14,136	$	14,674	$	14,842
2010			5,861		7,256		10,556		12,688		13,412		13,419		13,566
2011			1,211		2,020		2,965		4,038		4,613		16,367		16,430
2012			2,123		3,207		4,251		5,533		7,423		6,818		7,675
2013					726		2,263		3,042		9,349		13,676		14,334
2014							1,373		2,464		5,158		8,799		20,192
2015									3,417		5,864		17,242		21,128
2016											2,051		6,857		10,931
2017													1,992		5,881
2018															4,768
												Total		$	129,747
												Net reserves < 2009			265
												Total Net reserves		$	162,600

	GlobalRe
	Loss and ALAE, Net of Reinsurance
amounts in thousands except # of reported claims	For the Years Ended December 31,															As of December 31, 2018
AY		2012		2013		2014		2015		2016		2017		2018		Total IBNR			# of Reported Claims
2009		$	11,158	$	11,290	$	11,171	$	10,426	$	10,466	$	10,307	$	10,610	$	338			201
2010			13,036		12,997		14,012		11,796		12,476		13,012		13,073		21			202
2011			53,778		76,261		76,054		73,528		72,782		73,428		73,474		(586	)		740
2012			107,134		99,019		92,584		88,203		114,856		119,565		118,477		(1,218	)		1,395
2013					114,785		118,688		102,514		105,049		102,323		101,705		(561	)		1,271
2014							119,351		141,968		121,591		118,131		114,981		860			1,172
2015									101,626		91,526		94,187		93,693		5,777			1,033
2016											88,401		90,567		97,921		5,781			1,022
2017													129,001		153,017		19,356			1,018
2018															128,284		83,977			435
												Total		$	905,235


	GlobalRe
	Cumulative Paid Claims and Allocated Claim Adjustment Expenses, Net of Reinsurance
amounts in thousands	For the Years Ended December 31,
AY		2012		2013		2014		2015		2016		2017		2018
2009		$	8,635	$	8,865	$	8,992	$	9,939	$	10,049	$	10,049	$	10,118
2010			9,927		10,263		10,439		11,058		11,105		11,170		11,203
2011			43,412		71,086		71,754		72,038		72,177		72,345		72,743
2012			37,709		77,147		83,287		84,668		111,816		117,631		118,006
2013					53,445		82,641		90,649		98,393		99,965		100,981
2014							66,271		119,195		105,574		108,693		111,712
2015									41,623		64,425		76,837		82,942
2016											36,312		66,141		84,245
2017													43,639		115,743
2018															25,017
												Total		$	732,710
												Net reserves < 2009			1,870
												Total Net reserves		$	174,395

The reconciliation of the net incurred and paid claims development tables to the Reserve for losses and LAE in the consolidated statement of financial position is as follows:

We utilize reinsurance principally to reduce our exposure on individual risks, to protect against catastrophic losses and to stabilize loss ratios and net underwriting results. Reinsurers are liable to us to the extent the risk is transferred or ceded to them. However, ceded reinsurance arrangements do not eliminate our obligation to pay claims to our policyholders. Accordingly, we bear credit risk with respect to our reinsurers.

We are protected by various treaty and facultative reinsurance agreements. Our exposure to credit risk from any one reinsurer is managed through diversification of reinsurers, principally in the U.S. and European reinsurance markets. A reinsurer generally must have a rating from A.M. Best and/or S&P of “A” or better, or an equivalent financial strength if not rated, plus at least $500 million in policyholders’ surplus to meet our standards of acceptability. Our Reinsurance Security Committee, which is part of our Enterprise Risk Management Finance and Credit Sub-Committee of our Board of Directors, monitors the financial strength of our reinsurers and the related reinsurance recoverables and periodically reviews the list of acceptable reinsurers.

The following table lists our Company’s 10 largest reinsurers measured by the amount of total reinsurance recoverables as of December 31, 2018, and the reinsurers’ ratings from A.M. Best and S&P:

	Reinsurance Recoverables
	Unearned		Paid/Unpaid				Collateral
amounts in thousands	Premium		Losses ⁽¹⁾		Total		Held		A.M. Best	S&P
Everest Reinsurance Company	$	34,809	$	106,334	$	141,143	$	1,547	A+	A+
Swiss Reinsurance America Corporation		13,514		64,457		77,971		4,223	A+	AA-
National Indemnity Company		5,338		61,540		66,878		8,320	A++	AA+
Transatlantic Reinsurance Company		7,597		48,328		55,925		2,541	A+	A+
Munich Reinsurance America Inc.		10,932		41,369		52,301		6,054	A+	AA-
Employers Mutual Casualty Company		16,491		34,445		50,936		18,120	A	NR
Aspen Insurance UK Ltd.		11,801		31,508		43,309		6,446	A	A
Allied World Reinsurance		7,303		30,439		37,742		1,757	A	A-
XL Reinsurance America Inc.		7,240		21,250		28,490		2,761	A+	AA-
Ace Property & Casualty Insurance Company		1,591		24,148		25,739		63	A++	AA
Top 10 Reinsurers	$	116,616	$	463,818	$	580,434	$	51,832
Others		110,107		474,630		584,737		154,085
Total	$	226,723	$	938,448	$	1,165,171	$	205,917

(1) - Net of reserve for uncollectible reinsurance of approximately $13.4 million.

Our Company holds reserves for uncollectible reinsurance in the amounts of $13.4 million and $12.6 million as of December 31, 2018 and 2017, respectively. This reserve is determined by reinsurer specific default risk as indicated by their financial strength ratings as well as additional default risk for asbestos and environmental related recoverables. Actual uncollectible reinsurance could exceed or be less than our reserve balance. The increase in our reserves for uncollectible reinsurance as compared to 2017 is driven primarily by one of our reinsurers having been placed in liquidation by the State of California. We continue to monitor the liquidation process and assess our potential exposure.

Our Company holds collateral of $205.9 million, which consists of $145.0 million in ceded balances payable, $41.2 million in letters of credit and $19.7 million of funds held as trust account balances. NIC and NSIC are required to collateralize reinsurance obligations due to us from reinsurers not authorized by their respective states of domicile.

On November 7, 2018, we entered into a credit facility agreement with ING Bank N.V., London Branch, individually and as Administrative Agent for a syndicate of lenders (the “Club Facility”), which is secured by all the common stock of NIC and requires us to maintain at least forty percent of the outstanding amounts under such facility as Funds at Lloyd’s. The Club Facility has two tranches with one tranche extending a $165.0 million commitment and the other tranche extending a £60.0 million commitment. In addition, in order to support the increased underwriting capacity of the Syndicate for the 2019 UWY, we amended the $25.0 million credit facility with ING Bank N.V., London Branch, dated November 20, 2015, on November 7, 2016 and again on January 23, 2019, to extend the term for an additional two years (the “Bilateral Facility”). Both of these facilities, as well as the November 4, 2016 facility, are used to fund underwriting obligations at Lloyd’s for the 2019 UWY, as well as open prior UWYs.

The Bilateral and Club Facilities contain customary covenants for facilities of this type, including restrictions on indebtedness and liens, limitations on mergers, dividends and the sale of assets, and requirements as to maintaining certain consolidated tangible net worth, statutory surplus and other financial ratios. These credit facilities also provide for customary events of default, including failure to pay principal, interest or fees when due, failure to comply with covenants, any representation or warranty made by our Company being false in any material respect, default under certain other indebtedness, certain insolvency or receivership events affecting our Company and our subsidiaries, the occurrence of certain material judgments, or a change in control of our Company. During the first quarter of 2018, the Company reclassified certain overseas deposits from Short-Term Investments to Other Invested Assets. Refer to Note 1 Organization & Summary of Significant Accounting Policies. Although the nature of the investments did not change, this reclassification caused the Company to exceed a covenant of our Club Facility that sets a limitation on other investments as a percentage of total investments. During the second quarter of 2018, our Company received a waiver of compliance with respect to this covenant, which was subsequently amended to increase the percentage of other investments permitted. As of December 31, 2018, our Company was in compliance with all covenants.

On October 4, 2013, our Company completed a public debt offering of $265.0 million principal amount of the 5.75% Senior notes due on October 15, 2023 and received net proceeds of $263.3 million. Our Company used a portion of the proceeds for the redemption of the 7.0% Senior notes due May 1, 2016 (“7.0% Senior notes”), as well as a $17.9 million call premium in connection with the redemption of the 7.0% Senior notes. The unamortized discount as of December 31, 2018 and 2017 was $0.9 million and $1.1 million, respectively.

The interest rate payable on the 5.75% Senior notes is subject to a tiered adjustment based on defined changes in our Company’s debt ratings. Our Company may redeem the 5.75% Senior notes in whole at any time or in part from time to time at a make-whole redemption price. The 5.75% Senior notes are our Company’s only senior unsecured obligation and will rank equally with future senior unsecured indebtedness.

The terms of the 5.75% Senior notes contain various restrictive business and financial covenants, including a restriction on indebtedness, and other restrictions typical for debt obligations of this type, including limitations on mergers, liens and dispositions of the Common stock of certain subsidiaries. As of December 31, 2018, our Company was in compliance with all such covenants.

Future minimum annual rental commitments as of December 31, 2018 under various non-cancellable operating leases for our office facilities, which expire at various dates through 2032, are as follows:

We are also liable for additional payments to the landlords for certain annual cost increases. Rent expense for the years ended December 31, 2018, 2017 and 2016 was $12.2 million, $13.2 million and $13.2 million, respectively.

In the ordinary course of conducting business, our Parent Company’s subsidiaries are involved in various legal proceedings. Most of these proceedings consist of claims litigation involving our Parent Company’s subsidiaries as either: (a) liability insurers defending or providing indemnity for third party claims brought against insureds or (b) insurers defending first party coverage claims brought against them. In general, our Company believes we have valid defenses to these cases. Our Company’s management believes that the ultimate liability, if any, with respect to these legal proceedings, after consideration of provisions made for potential losses and cost of defense, will not be material to our Company’s Consolidated Balance Sheets, Statements of Income and Statements of Cash Flows.

On February 16, 2017, our Company entered into a Guarantee, pursuant to which it guaranteed all of the liabilities and obligations of NIIC (the “Guarantee”), to facilitate the issuance of a financial strength rating to NIIC by A.M. Best. The Guarantee would remain effective until all of such liabilities and obligations are discharged, and in the event that our Company does not meet its obligations under the Guarantee, any person who is covered by an insurance policy, certificate of coverage or reinsurance contract issued by NIIC would be a third party beneficiary under the Guarantee. Our Company’s obligations under the Guarantee may be terminated by providing twelve months prior written notice to NIIC. However, the obligations of our Company under the Guarantee terminate immediately in the event that (i) the majority of the outstanding voting capital stock in NIIC is sold to any non-affiliated entity; (ii) A.M. Best confirms that NIIC would receive the same financial strength rating as NIC or NSIC, without the benefit of the Guarantee; or (iii) NIIC withdraws its request to be rated by A.M. Best, provided that NIIC has not been downgraded within the prior twelve months.

In 2013, the State of Connecticut (“the State”) awarded our Company up to $11.5 million ($8.0 million in loans and $3.5 million in grants) to move our corporate headquarters to Stamford, Connecticut. The loan is non-interest bearing has a term of 10 years and is subject to forgiveness based on our compliance with certain conditions set forth in the agreement with the State. The amount of the loan to be received is dependent on our Company reaching certain milestones for creation of new jobs over a five-year period, and the funds are to be used to offset certain equipment purchases, facility costs, training of employees and other eligible project-related costs. As of December 31, 2018, our Company has received all of the award and earned a loan forgiveness credit of $7.0 million with the State. Our Company is recognizing the amount of loan and grants received over the period in which offsetting expenses are recognized. Our Company recognized $1.3 million, $1.3 million and $1.4 million for the years ended December 31, 2018, 2017 and 2016. As of December 31, 2018 and December 31, 2017, our Company had deferred revenue of $4.7 million and $4.4 million, respectively, which is included in other liabilities on the Consolidated Balance Sheets.

On August 22, 2018, our Company entered into a Merger Agreement with The Hartford. In accordance with the terms of the Merger Agreement, our Company would be obligated to pay The Hartford a $68.25 million termination fee if the Merger Agreement is terminated for certain reasons outlined in the Merger Agreement.

Our Company is subject to the tax laws and regulations of the U.S. and the foreign countries in which it operates. Our Company files a consolidated U.S. Federal tax return, which includes all domestic subsidiaries including the U.K. Branch. The income from the foreign operations is designated as either U.S. connected income or non-U.S. connected income. Lloyd’s is required to pay U.S. income tax on U.S. connected income written by Lloyd’s syndicates. Lloyd’s and the Internal Revenue Service (“IRS”) have entered into an agreement whereby the amount of tax due on U.S. connected income is calculated by Lloyd’s and remitted directly to the IRS. These amounts are then charged to the corporate member in proportion to its participation in the relevant syndicates. Our Company’s corporate member is subject to this agreement and receives U.K. tax credits in the U.K. for any U.S. income tax incurred up to the U.K. income tax charged on the U.S. connected income. The non-U.S. connected insurance income would generally constitute taxable income under the Subpart F income section of the U.S. Internal Revenue Code (“Subpart F”) since less than 50% of the Syndicate’s premiums are derived within the U.K. and would therefore be subject to U.S. taxation when the Lloyd’s year of account closes. Taxes are accrued at a 21% rate on our Company’s foreign source insurance income and foreign tax credits, where available, are utilized to offset U.S. tax as permitted. Our Company’s effective tax rate for the Syndicate taxable income could substantially

exceed 21% to the extent our Company is unable to offset U.S. taxes paid under Subpart F tax regulations with U.K. tax credits on future underwriting year distributions. Our Company’s undistributed foreign earnings are intended to be permanently reinvested. As a result of the Tax Act’s one-time Transition Tax on the earnings of foreign subsidiaries, our Company determined the unrecognized deferred tax liability attributable to indefinitely reinvested earnings to be immaterial as of December 31, 2018.

On December 22, 2017, the Tax Act was enacted into law and the new legislation contained several key tax provisions that affect us, including the Transition Tax on accumulated foreign earnings and a reduction of the corporate income tax rate to 21% effective January 1, 2018, among others. Due to the timing and significance of the Tax Act, in December 2017 the SEC staff issued SAB 118, Income Tax Accounting Implications of the Tax Act, which allowed us to record provisional amounts during a measurement period not to extend beyond one year of the enactment date. During the fourth quarter of 2017, we made a reasonable estimate of the Tax Act effects on our deferred tax balances and recognized provisional tax amounts of $2.6 million related to the Transition Tax. The final determination of the Transition Tax and the remeasurement of our net deferred tax assets was completed by the fourth quarter of 2018, in accordance with SAB 118. This resulted in a reduction of $1.3 million of Transition Tax, which was calculated and recognized in the third quarter of 2018 and confirmed under final review in the fourth quarter. Additionally, a tax benefit of $0.5 million related to the remeasurement of net deferred tax assets was recognized in the fourth quarter of 2018.

The components of current and deferred income tax expense (benefit) are as follows:

A reconciliation of total income taxes applicable to pre‑tax operating income and the amounts computed by applying the federal statutory income tax rate to the pre‑tax operating income were as follows:

	Years Ended December 31,
amounts in thousands	2018					2017					2016
Computed Expected Tax Expense	$	10,201		21.0	%	$	26,182		35.0	%	$	41,128			35.0	%
Tax-Exempt Interest		(3,356	)	(6.9	%)		(5,394	)	(7.2	%)		(4,559	)		(3.9	%)
Dividends Received Deduction		(2,041	)	(4.2	%)		(4,689	)	(6.3	%)		(3,812	)		(3.2	%)
Proration of DRD and Tax-Exempt Interest		1,330		2.7	%		1,512		2.0	%		1,256			1.1	%
State and Local Income Taxes, Net of Federal Income Tax Deduction		738		1.5	%		497		0.7	%		415			0.4	%
Stock Compensation Fair Market Value		(1,711	)	(3.5	%)		(5,027	)	(6.7	%)	N/A			N/A
Change in Valuation Allowance		(774	)	(1.6	%)		1,182		1.6	%		—			—
Deferred Tax Expense due to Tax Law Changes		(506	)	(1.0	%)		17,107		22.9	%	N/A			N/A
Transition Tax		(1,314	)	(2.7	%)		2,587		3.5	%	N/A			N/A
Uncertain Tax Position - FTC IRS Audit		7,029		14.5	%		—		—			—			—
Non-Deductible Expenses		1,197		2.5	%		405		0.5	%		406			0.2	%
Return to Provision		2,326		4.8	%		(158	)	(0.2	%)		1			0.0	%
Other		1,217		2.4	%		108		0.1	%		(52	)		0.0	%
Actual Tax Expense and Rate	$	14,336		29.5	%	$	34,312		45.9	%	$	34,783			29.6	%

N/A - Not applicable

The tax effects of cumulative temporary differences that give rise to federal, foreign, state and local deferred tax assets and deferred tax liabilities were as follows:

In assessing the realization of deferred tax assets, management considers whether it is more likely than not that the deferred tax assets will be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. Management considers the scheduled reversal of deferred tax liabilities, tax planning strategies and anticipated future taxable income in making this assessment. As of December 31, 2018, management believes it is more likely than not that our Company will realize the benefits of its deferred tax assets, net of any valuation allowance.

Our Company had state and local deferred tax assets of $3.6 million and $0.6 million as of December 31, 2018 and 2017, respectively. Included in the deferred tax assets are minimal state and local net operating loss carry-forwards. A valuation allowance was established for the full amount of these potential future tax benefits due to the uncertainty associated with their realization. Our Company also recorded a net valuation allowance decrease of $0.8 million related to our foreign operations, of which a decrease of $1.2 million relates to the U.K. Based upon a review of the Company’s anticipated future taxable income, and also including all other available evidence, both positive and negative, particularly around strategic shifts in business written, the Company’s management concluded that it is more likely than not that the U.K deferred tax asset will be realized.

The Company is currently under examination by the IRS for tax years 2014, 2015, and 2016 with tax years prior to 2014 being closed. In addition, our Company is generally subject to state, local or foreign tax examinations by tax authorities for open tax years in the respective jurisdictions. In the U.K, the Company is no longer subject to income tax examinations for years prior to 2016.

Unrecognized tax benefits are differences between tax positions taken in the tax returns and tax benefits or expenses recognized in the financial statements. In connection with the IRS audit, the Company conducted a comprehensive review of all foreign taxes supporting tax return positions, and has estimated $6.4 million of unrecognized tax benefits and $0.9 million of related interest ($0.6 million net of tax) and no penalties for the year ended December 31, 2018.

It is reasonable to expect the IRS audit to be concluded within the next twelve months, which may result in a change in unrecognized tax benefits. We do not expect future audit adjustments or changes in unrecognized tax benefits to have a significant impact on our financial statements.

Our Company policy is to recognize interest and penalties related to unrecognized tax benefits as income tax expense. Gross interest was accrued and reported as follows:

Our authorized share capital consists of 50 million common shares with a par value of $0.10 per share and 1 million preferred shares with a par value of $0.10 per share. Our Company has not issued any preferred shares as of December 31, 2018.

The following table represents changes in our Company’s issued and outstanding common shares for the periods indicated.

On December 6, 2016, our Board of Directors declared a two-for-one stock split of The Navigators Group, Inc. Common stock, to be effected in the form of a stock dividend. Stockholders of record at the close of business on December 30, 2016 received one additional share of Common stock for every share of Common stock held. All disclosures of shares and per share data have been retroactively adjusted to reflect the stock split for all periods presented.

For the years ended December 31, 2018, 2017 and 2016, our Company paid total dividends of $0.28, $0.225 and $0.135 per share, respectively, to stockholders of record of our Company’s Common Stock. .

The declaration and amount of any future dividend will be at the discretion of the Board of Directors, and will depend upon our Company’s financial condition, results of operations, business requirements, regulatory and legal constraints and any other factors the Board of Directors deems relevant. Refer to Note 18 Subsequent Events.

NIC may pay dividends to our Parent Company out of its statutory earned surplus pursuant to statutory restrictions imposed under the New York insurance law. As of December 31, 2018, the maximum amount available for the payment of dividends by NIC without prior regulatory approval is $5.2 million. NIC paid a dividend to our Parent Company of $97.0 million and $19.0 million in 2018 and 2017, respectively. The statutory calculation for dividends without prior regulatory approval uses a rolling twelve-month basis and as of December 31, 2018 this calculation was temporarily impacted by the dividends used to acquire the NICE Group during the first half of 2018. This calculation also excludes consideration for the Company’s ability to request extraordinary dividends.

NCUL may pay dividends to our Parent Company up to the extent of available profits that have been distributed from the Syndicate. The Syndicate’s capital and surplus as filed with Lloyd’s consists of undistributed profits on closed and open UWYs. In connection with the business plan approved in November 2018, NCUL posted all of the available undistributed profits on closed years of $235.8 million to support a portion of the FAL requirement and therefore that amount is not available for distribution to NCUL, which ultimately is not available to our Parent Company in the form of a dividend. As of December 31, 2018, NCUL does not have the ability to pay dividends to the Parent Company.

NIIC may pay dividends to our Parent Company out of its statutory profits subject to the restrictions imposed under UK Company law and European Insurance regulation (Solvency II). As of December 31, 2018, the maximum amount available for the payment of dividends by NIIC without prior regulatory approval is $20.3 million. In addition, NIIC must provide at least 14 days’ notice to the Prudential Regulatory Authority prior to agreeing to make any material dividend payment to any of its affiliated entities that are domiciled outside of the European Economic Area.

In accordance with the Merger Agreement, the Company’s quarterly cash dividend payments are not to exceed $0.07 per share.

The amount and nature of net assets that are restricted from payment of dividends as of December 31, 2018 and 2017 are presented in the following table:

(2) - The restricted net assets for NIC and NSIC primarily consist of fixed maturities on deposit with various state insurance departments. The cash as of December 31, 2018 and 2017, as presented in the table above, is held in various collateral accounts to support underwriting activities.

(3) - The restricted net assets for NHUK consists of fixed maturities and cash held in trust for the benefit of syndicate policyholders and other invested assets primarily consisting of overseas deposits in various countries with Lloyd's to support underwriting activities in those countries.

The following is a reconciliation of the basic and diluted EPS computations for the years ended December 31, 2018, 2017 and 2016:

The following table presents statutory Net Income and capital and surplus in accordance with statutory accounting practices:

As of December 31, 2018, 2017, and 2016, all insurance subsidiaries individually exceed the minimum required statutory capital and surplus requirements and all U.S. domestic insurance subsidiaries individually exceeded risk-based capital minimum requirements.

Our insurance subsidiaries file financial statements prepared in accordance with statutory accounting practices prescribed or permitted by domestic and foreign insurance regulatory authorities. The differences between statutory financial statements and financial statements prepared in accordance with U.S. GAAP vary between domestic and foreign jurisdictions.

For NIC and NSIC, the National Association of Insurance Commissioners (“NAIC”) has codified Statutory Accounting Practices and Procedures (“SAP”) for insurance enterprises. We prepare our statutory basis financial statements in accordance with the most recently updated NAIC SAP manual subject to any deviations prescribed or permitted by the New York Insurance Commissioner. The following table represents some of the significant differences between SAP and U.S. GAAP as they relate to our operations:

The Syndicate is subject to oversight by the Council of Lloyd’s. Lloyd’s as a whole is authorized and regulated by the PRA. Our other international businesses are also regulated by the PRA. The following table represents some of the significant differences between U.K. GAAP and U.S. GAAP as they relate to our operations:

Refer to Note 1, Organization and Summary of Significant Accounting Policies, for additional disclosure on the accounting treatment for the Syndicate as it relates to closed and open UWYs.

For NIC and NSIC, aggregate minimum required statutory capital and surplus is based on the greater of the risk-based capital level that would trigger regulatory action or minimum requirements per state insurance regulation. Capital and surplus requirements of our foreign subsidiaries differ from those prescribed in the U.S. and vary by jurisdiction. The capital requirement of the Syndicate, known as FAL, is currently calculated using the internal Lloyd’s risk-based capital model. The FAL may be comprised of cash, investments and undrawn letters of credit provided by various banks. Lloyd’s sets the corporate member’s required capital annually based on the Syndicate business plans, rating environment, reserving environment and input arising from Lloyd’s discussions with regulatory and rating agencies.

NIIC is subject to oversight and regulation by the PRA and the FCA. The following table represents some of the significant differences between U.K. GAAP and U.S. GAAP as they relate to our NIIC operations:

During the second quarter of 2018, our Company acquired ASCO, an insurance subsidiary subject to the oversight and regulation of the National Bank of Belgium (the “NBB”). Canal Re, a wholly owned subsidiary of ASCO, is subject to the oversight and regulation of the Commissariat Aux Assurances (the “CAA”). ASCO and Canal Re are subject to statutory capital requirements as determined by the NBB and the CAA. Additionally for Solvency II, ASCO and Canal Re are required to maintain the minimum capital requirement. As of December 31, 2018, ASCO and Canal Re individually exceed the minimum required statutory capital and surplus requirements.

In May 2005 our shareholders approved the 2005 Stock Incentive Plan authorizing the issuance in aggregate of 1,000,000 incentive stock options, non-incentive stock options, restricted shares and stock appreciation rights for our common stock. In April 2009, the stockholders approved an amendment to the 2005 Stock Incentive Plan increasing the available number of awards from 1,000,000 to 1,500,000. In April 2013, the stockholders further amended and restated the 2005 Stock Incentive Plan increasing the available number of awards from 1,500,000 to 2,000,000 in the Second Amended and Restated 2005 Stock Incentive Plan. The stock split that occurred on January 20, 2017 doubled the number of awards from 2,000,000 to 4,000,000. As of December 31, 2018, 3,192,376 of such awards were issued leaving 807,624 awards available to be issued in subsequent periods.

Stock-based compensation granted under our Company’s stock plans is expensed in tranches over the vesting period. Non-performance based grants generally vest equally over a three or four year period. Our Company’s performance based share grants generally consist of three types of awards. The performance units issued in 2018, 2017 and 2016 will cliff vest on the third anniversary of the date of the grant in an amount as determined by the rate of cumulative annual growth in tangible book value for the three years immediately prior to the vesting date, with actual shares that vest ranging between 150% to 50% of that portion of the original award.

During 2018, 2017 and 2016, the total compensation cost for share-based payment arrangements recognized in the income statement was $6.8 million, $13.8 million and $17.6 million, and the recorded tax benefits related to share-based awards were $1.4 million, $2.9 million and $6.2 million, respectively.

As of December 31, 2018 and 2017, the total unrecognized compensation expense related to nonvested stock awards was $11.8 million and $18.0 million, respectively, which is expected to be recognized as expense over weighted average periods of 1.8 years and 1.9 years, respectively. The aggregate fair value of all unvested restricted stock units as of December 31, 2018 and 2017 was $44.6 million and $49.9 million, respectively.

The activity related to our Company’s restricted stock unit awards was as follows:

During 2018, 2017 and 2016, we granted 24,593, 35,297 and 84,000 restricted stock units, respectively, with weighted average grant-date fair values per share of $50.01, $56.05 and $44.52, respectively.

During 2018, 2017 and 2016, the total fair value of restricted stock units vested was $5.3 million, $3.3 million and $2.5 million, respectively.

The activity related to our Company’s performance-based equity awards was as follows:

During 2018, 2017 and 2016, we granted 247,554, 253,333 and 404,946 performance-based equity awards, respectively, with weighted average grant-date fair values per share of $54.15, $55.70 and $40.77, respectively.

During 2018, 2017 and 2016, the total fair value of performance-based equity awards vested was $15.3 million, $29.0 million and $11.5 million, respectively.

Awards that remain outstanding at the time of the Merger will be treated as follows in accordance with the Merger Agreement:

Each performance unit award granted prior to January 1, 2017, and each tranche of a restricted stock unit award that vests prior to January 1, 2020, that was granted prior to January 1, 2019, and that is payable in shares (together, the “2019 Vesting Company Awards”) will be converted into the right to receive an amount in cash equal to the product of (x) the Merger Consideration multiplied by (y) the number of restricted stock units in the applicable tranche or, in the case of performance unit awards, the target number of shares, in each case subject to the 2019 Vesting Company Award immediately prior to the Merger.

Each performance unit award granted on or after January 1, 2017 and prior to January 1, 2019, and each tranche of a restricted stock unit award that vests on or after January 1, 2020, that was granted prior to January 1, 2019, and that is payable in shares (together, the “2020 Vesting Company Awards”) will be canceled and converted into the right to receive a cash payment equal to the product of (x) the Merger Consideration multiplied by (y) the number of restricted stock units in the applicable tranche or, in the case of performance units, the target number of shares, in each case subject to the 2020 Vesting Company Award immediately prior to the Merger; provided that the right to a cash payment with respect to a 2020 Vesting Company Award shall be subject to the same vesting and payment schedules as the 2020 Vesting Company Award it replaces (other than performance-based vesting conditions).

We offer an Employee Stock Purchase Plan (the “ESPP”) to all of our eligible employees. Employees are offered the opportunity to purchase our Company’s Common stock at 90% of fair market value at the lower of the price at the beginning or the end of each six month offering period. Each employee can invest up to 10% of their base compensation subject to the lesser of 1,000 common stock shares or total market value of $25,000. There were 45,008 shares purchased in 2018 from funds withheld during the July 1, 2017 to December 31, 2017 and January 1, 2018 to June 30, 2018 offering periods. There were 40,488 shares purchased in 2017 in the aggregate from funds withheld during the offering periods of July 1, 2016 to December 31, 2016 and January 1, 2017 to June 30, 2017. We expense both the value of the 10% discount and the “look-back” option, which provides for the more favorable price at either the beginning or end of the offering period.

In accordance with the Merger Agreement, the Company’s ESPP will be terminated at the time of the Merger. There will be no more offering periods under the Company’s ESPP after December 31, 2018.

We have a 401(k) Plan for all U.S. eligible employees. Each eligible employee can contribute a portion of their salary, limited by certain Federal regulations. The expense recorded for all contributions to the 401(k) Plan for the year ended December 31, 2018 was $8.3 million, consisting of $5.1 million for the retirement savings contributions and $3.2 million for the non-discretionary matching contributions. The expense recorded for all contributions to the 401(k) Plan for the year ended December 31, 2017 was $7.5 million, consisting of $4.9 million for the retirement savings contributions and $2.6 million for the non-discretionary matching contributions. The expense recorded for all contributions to the 401(k) Plan for the year ended December 31, 2016 was $7.4 million, consisting of $4.2 million for the retirement savings contributions and $3.2 million for the non-discretionary matching contributions.

Our Company sponsors a defined contribution plan for all of our Company’s U.K. employees under U.K. regulations. Contributions, which are fully vested when made, are equal to 15.0% of each eligible employee’s gross base salary for all U.K. employees hired prior to November 2014 and 12.0% for all employees hired after November 2014. The expense recorded for the U.K. defined contribution plan was $2.5 million, $2.6 million and $2.9 million for the years ended December 31, 2018, 2017 and 2016, respectively.

Our Company sponsors defined contribution plans for employees in several of our other European offices, outside of the U.K., under each countries’ regulations. Contributions, which are fully vested when made, range by European office between 2.1% and 26.0% of each eligible employee’s gross base salary. The expense recorded for the other European offices defined contribution plans was $0.5 million, $0.3 million and $0.5 million for the years ended December 31, 2018, 2017 and 2016, respectively.

BDM and ASCO maintain defined benefit pension plans that provide retirement capital and death coverage in service for employees. These plans are closed to new employees. The funded status of the plans for the year ended December 31, 2018, was $(0.7) million, which consists of a benefit obligation of $2.1 million and the fair value of the pension plan assets of $1.4 million.

The following is a summary of quarterly financial data for the periods indicated:

	March 31,			June 30,			September 30,			December 31,
amounts in thousands, except per share amounts	2018			2018			2018			2018
Gross Written Premiums	$	495,224		$	497,236		$	455,943		$	464,558
Revenues:
Net Written Premiums	$	393,262		$	379,292		$	352,412		$	346,119
Change in Unearned Premiums		(70,635	)		(48,277	)		(5,374	)		16,424
Net Earned Premiums	$	322,627		$	331,015		$	347,038		$	362,543
Net Investment Income		23,702			24,601			25,651			29,159
Net Realized and Unrealized Gains (Losses):
Total Other-Than-Temporary Impairment Losses		(37	)		(18	)		(15	)		(48	)
Portion of Loss Recognized in Other Comprehensive Income		37			18			15			48
Net Other-Than-Temporary Impairment Losses Recognized in Earnings		—			—			—			—
Net Realized Gains (Losses) on Investments Sold		1,169			1,787			253			(220	)
Net Unrealized Gains (Losses) on Equity Securities		(3,181	)		1,329			2,310			(33,795	)
Total Net Realized and Unrealized Gains (Losses)		(2,012	)		3,116			2,563			(34,015	)
Other Income (Loss)		(117	)		2,628			1,724			2,934
Total Revenues	$	344,200		$	361,360		$	376,976		$	360,621

Expenses:
Net Losses and LAE	$	186,145		$	196,333		$	240,900		$	270,401
Commission Expenses		54,152			53,193			57,999			54,800
Other Operating Expenses		62,926			68,182			67,584			62,532
Merger Transaction Costs		—			—			2,439			1,511
Interest Expense		3,864			3,864			3,891			3,866
Total Expenses	$	307,087		$	321,572		$	372,813		$	393,110
Income (Loss) Before Income Taxes		37,113			39,788			4,163			(32,489	)
Income Tax Expense (Benefit)	$	6,235		$	7,684		$	(462	)	$	879
Net Income (Loss)	$	30,878		$	32,104		$	4,625		$	(33,368	)

Comprehensive Income (Loss)	$	(2,962	)	$	15,373		$	(2,681	)	$	(41,960	)

Combined Ratio		94.0	%		96.0	%		105.3	%		106.6	%
Net Income (Loss) per Share:
Basic	$	1.04		$	1.08		$	0.16		$	(1.12	)
Diluted	$	1.02		$	1.07		$	0.15		$	(1.12	)

	March 31,			June 30,			September 30,			December 31,
amounts in thousands, except per share amounts	2017			2017			2017			2017
Gross Written Premiums	$	450,305		$	452,179		$	402,038		$	408,743
Revenues:
Net Written Premiums	$	337,163		$	333,282		$	296,016		$	304,869
Change in Unearned Premiums		(51,032	)		(39,447	)		5,339			230
Net Earned Premiums	$	286,131		$	293,835		$	301,355		$	305,099
Net Investment Income		21,448			22,265			22,598			22,982
Total Other-Than-Temporary Impairment Losses		(1,077	)		29			(957	)		3
Portion of Loss Recognized in Other Comprehensive Income		(16	)		(29	)		(15	)		(3	)
Net Other-Than-Temporary Impairment Losses Recognized in Earnings		(1,093	)		—			(972	)		—
Net Realized Gains		1,049			1,694			5,190			37,141
Other Income (Loss)		1,068			(411	)		(1,699	)		(3,201	)
Total Revenues	$	308,603		$	317,383		$	326,472		$	362,021

Expenses:
Net Losses and LAE	$	169,600		$	177,110		$	276,171		$	183,384
Commission Expenses		47,844			48,173			45,509			43,205
Other Operating Expenses		58,538			60,766			45,773			68,153
Interest Expense		3,861			3,861			3,862			3,863
Total Expenses	$	279,843		$	289,910		$	371,315		$	298,605
Income (Loss) Before Income Taxes		28,760			27,473			(44,843	)		63,416
Income Tax Expense (Benefit)	$	7,650		$	6,971		$	(16,864	)	$	36,555
Net Income (Loss)	$	21,110		$	20,502		$	(27,979	)	$	26,861

Comprehensive Income (Loss)	$	35,911		$	35,699		$	(18,311	)	$	(1,812	)

Combined Ratio		96.4	%		97.3	%		121.9	%		96.6	%
Net Income (Loss) per Share:
Basic	$	0.72		$	0.70		$	(0.95	)	$	0.91
Diluted	$	0.70		$	0.69		$	(0.95	)	$	0.89

On February 14, 2019, our Board of Directors declared a cash dividend on our Company’s Common Stock of $0.07 per share, payable on March 11, 2019 to stockholders of record on February 25, 2019.

(1) Other invested assets are accounted for using the equity method of accounting. All other investments are shown at fair value.

(2) Corporate Exposures consist of investments in corporate bonds, hybrid bonds and redeemable preferred stocks.

															Amortization
	Deferred						Other Policy								of Deferred
	Policy		Reserve				Claims and		Net		Net		Losses		Policy			Other		Net
	Acquisition		for Losses		Unearned		Benefits		Earned		Investment		and LAE		Acquisition			Operating		Written
amounts in thousands	Costs		and LAE		Premiums		Payable		Premiums		Income ⁽¹⁾		Incurred		Costs			Expenses		Premiums
Year ended December 31, 2018
U.S. Insurance	$	63,903	$	1,784,339	$	642,725	$	—	$	737,646	$	—	$	485,960	$	85,127		$	142,333	$	800,091
Int'l Insurance		39,472		768,301		265,753		—		380,503		—		252,268		80,526			93,882		383,308
GlobalRe		54,705		191,333		194,257		—		245,074		—		155,551		55,056			25,009		287,686
Corporate		—		—		—		—		—		103,113		—		(565	)		—		—
	$	158,080	$	2,743,973	$	1,102,735	$	—	$	1,363,223	$	103,113	$	893,779	$	220,144		$	261,224	$	1,471,085
Year ended December 31, 2017
U.S. Insurance	$	54,674	$	1,629,015	$	575,068	$	—	$	674,665	$	—	$	443,353	$	77,729		$	128,905	$	721,300
Int'l Insurance		38,988		716,352		260,982		—		333,792		—		229,601		68,824			83,464		335,852
GlobalRe		41,587		169,778		151,631		—		177,963		—		133,311		39,136			20,861		214,178
Corporate		—		—		—		—		—		89,293		—		(958	)		—		—
	$	135,249	$	2,515,145	$	987,681	$	—	$	1,186,420	$	89,293	$	806,265	$	184,731		$	233,230	$	1,271,330
Year ended December 31, 2016
U.S. Insurance	$	50,028	$	1,564,524	$	519,505	$	—	$	629,308	$	—	$	397,860	$	70,812		$	128,108	$	683,568
Int'l Insurance		37,385		605,105		252,442		—		307,416		—		178,284		61,703			86,395		345,967
GlobalRe		32,247		120,098		115,397		—		163,621		—		89,304		34,008			19,593		156,689
Corporate		—		—		—		—		—		79,451		—		(1,478	)		—		—
	$	119,660	$	2,289,727	$	887,344	$	—	$	1,100,345	$	79,451	$	665,448	$	165,045		$	234,096	$	1,186,224

			Ceded to		Assumed				Percentage
	Direct		Other		from Other		Net		of Amount
amounts in thousands	Amount		Companies		Companies		Amount		Assumed to Net
Year ended December 31, 2018
Accident & Health	$	—	$	—	$	139,692	$	139,692		100.0	%
Property & Liability		1,613,825		441,876		159,444		1,331,393		12.0	%
Total	$	1,613,825	$	441,876	$	299,136	$	1,471,085		20.3	%
Year ended December 31, 2017
Accident & Health	$	—	$	—	$	80,605	$	80,605		100.0	%
Property & Liability		1,489,422		441,935		143,238		1,190,725		12.0	%
Total	$	1,489,422	$	441,935	$	223,843	$	1,271,330		17.6	%
Year ended December 31, 2016
Accident & Health	$	—	$	—	$	53,814	$	53,814		100.0	%
Property & Liability		1,403,865		382,687		111,232		1,132,410		9.8	%
Total	$	1,403,865	$	382,687	$	165,046	$	1,186,224		13.9	%

											Losses and LAE					Amortization
	Deferred Policy		Reserve				Net		Net		Expenses Incurred Related to					of Deferred Policy		Other		Net
amounts in thousands	Acquisition		for Losses		Unearned		Earned		Investment		Current		Prior			Acquisition		Operating		Written
Affiliation with Registrant	Costs		and LAE		Premiums		Premiums		Income		Year		Years			Costs		Expenses		Premiums
Consolidated Subsidiaries:
Year ended December 31, 2018	$	158,080	$	2,743,973	$	1,102,735	$	1,363,223	$	103,113	$	817,537	$	76,242		$	220,144	$	261,224	$	1,471,085
Year ended December 31, 2017	$	135,249	$	2,515,145	$	987,681	$	1,186,420	$	89,293	$	771,955	$	34,310		$	184,731	$	233,230	$	1,271,330
Year ended December 31, 2016	$	119,660	$	2,289,727	$	887,344	$	1,100,345	$	79,451	$	693,976	$	(28,528	)	$	165,045	$	234,096	$	1,186,224

Delaware	13-3138397
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

400 Atlantic Street, Stamford, Connecticut	06901
(Address of principal executive offices)	(Zip Code)

Title of each class:		Name of each exchange on which registered:
Common Stock, $.10 Par Value		The NASDAQ Global Select Market

Description			Page Number
Note on Forward-Looking Statements			3

PART I			3
Item 1.	Business		3
		Overview	3
		Segment Information	3
		Products and Distribution	4
		Competitive Environment	7
		Employees	7
		Loss Reserves	7
		Investments	10
		Regulation	10
		Available Information	12
Item 1A.	Risk Factors		12
Item 1B.	Unresolved Staff Comments		23
Item 2.	Properties		23
Item 3.	Legal Proceedings		24
Item 4.	Mine Safety Disclosures		25

PART II			25
Item 5.	Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities		25
Item 6.	Selected Financial Data		27
Item 7.	Management's Discussion and Analysis of Financial Condition and Results of Operations		28
		U.S. GAAP and Non GAAP Financial Performance Metrics	28
		Overview	29
		Results of Operations	31
		Segment Results	36
		U.S. Insurance	38
		Int’l Insurance	44
		GlobalRe	51
		Capital Resources and Liquidity	55
		Investments	58
		Reserves for Losses and LAE for Loss Events	62
		Reinsurance Recoverables	65
		Critical Accounting Estimates	66
		Recent Accounting Pronouncements	70
Item 7A.	Quantitative and Qualitative Disclosures about Market Risk		70
Item 8.	Financial Statements and Supplementary Data		72
Item 9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure		72
Item 9A.	Controls and Procedures		72
Item 9B.	Other Information		75

PART III			75
Item 10.	Directors, Executive Officers and Corporate Governance		75
Item 11.	Executive Compensation		75
Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters		75
Item 13.	Certain Relationships and Related Transactions, and Director Independence		75
Item 14.	Principal Accountant Fees and Services		75

PART IV			76
Item 15.	Exhibits and Financial Statement Schedules		76
Item 16.	Form 10-K Summary		77
Signatures			78
Index to Consolidated Financial Statements and Schedules			F-1

	Cumulative Indexed Returns
	Years Ended December 31,
	Base Period
Company / Index	2013		2014		2015		2016		2017		2018
The Navigators Group, Inc.		100.00		116.12		135.83		186.96		155.29		222.58
S&P 500 Index		100.00		113.68		115.24		129.02		157.17		150.27
Insurance Index		100.00		115.74		126.77		146.68		179.52		171.10

	Years Ended December 31,
	2018	2017	2016
Net Losses and LAE Ratio	65.6%	68.0%	60.5%
Net Prior AY Reserve (Release)/Strengthening	5.6%	2.9%	(2.6%)
Net Current AY Losses and LAE Ratio	60.0%	65.1%	63.1%

Large accelerated filer	☒	Non-accelerated filer	☐

Accelerated filer	☐	Smaller reporting company	☐
Emerging growth company	☐

Years Ended December 31,	2018 Net Premiums		% of			2017 Net Premiums		% of			2016 Net Premiums		% of
amounts in thousands	Earned		Total			Earned		Total			Earned		Total
U.S. Insurance	$	737,646		54.1	%	$	674,665		56.8	%	$	629,308		57.2	%
Int'l Insurance		380,503		27.9	%		333,792		28.2	%		307,416		27.9	%
GlobalRe		245,074		18.0	%		177,963		15.0	%		163,621		14.9	%
Total	$	1,363,223		100.0	%	$	1,186,420		100.0	%	$	1,100,345		100.0	%

	2018		2017
	Dividends Declared		Dividends Declared
First Quarter	$	0.07	$	0.045
Second Quarter		0.07	0.06
Third Quarter		0.07	0.06
Fourth Quarter		0.07	0.06

	As of December 31,
amounts in thousands, except per share amounts	2018		2017
Balance Sheet Data:
Total Assets	$	5,603,449	$	5,224,622
Total Shareholders' Equity		1,186,850		1,225,965
Book Value per Share	$	39.85	$	41.55

	U.S. Insurance
	Year Ended December 31, 2018
			Professional
	Marine	P&C	Liability	Total
Net Losses and LAE Ratio	61.0%	66.6%	66.0%	65.9%
Net Prior AY Reserve (Release)/Strengthening	(0.9%)	1.9%	9.0%	2.6%
Net Current AY Losses and LAE Ratio	61.9%	64.7%	57.0%	63.3%

	Payments Due by Period
amounts in thousands	Total		Less than 1 Year		1-3 Years		3-5 Years		Thereafter
Reserves for Losses and LAE ⁽¹⁾	$	2,743,973	$	891,696	$	999,934	$	458,537	$	393,806
5.75% Senior Notes ⁽²⁾		338,013		15,238		30,475		292,300		—
Operating Leases ⁽³⁾		84,920		12,907		24,012		19,733		28,268
Total	$	3,166,906	$	919,841	$	1,054,421	$	770,570	$	422,074

	Fair Value as of December 31,
amounts in thousands	2018		2017		% Change
Fixed Maturities:
U.S. Treasury Bonds, Agency Bonds and Foreign Government Bonds	$	239,776	$	393,563		(39.1	%)
States, Municipalities and Political Subdivisions		646,551		814,632		(20.6	%)
Mortgage-Backed and Asset-Backed Securities:
Agency Residential Mortgage-Backed Securities		335,542		407,619		(17.7	%)
Residential Mortgage Obligations		138,373		54,104		155.8	%
Asset-Backed Securities		531,991		328,753		61.8	%
Commercial Mortgage-Backed Securities		188,201		160,904		17.0	%
Subtotal	$	1,194,107	$	951,380		25.5	%
Corporate Exposures		1,002,489		897,479		11.7	%
Total Fixed Maturities	$	3,082,923	$	3,057,054		0.8	%
Equity Securities:
Common Stocks	$	166,353	$	52,439		217.2	%
Preferred Stocks		173,539		183,542		(5.4	%)
Total Equity Securities	$	339,892	$	235,981		44.0	%
Short-Term Investments⁽¹⁾	$	10,233	$	6,480		57.9	%
Total Investments	$	3,433,048	$	3,299,515		4.0	%

		December 31, 2018
amounts in thousands	Rating	Fair Value		Amortized Cost
Rating Description:
Extremely Strong	AAA	$	586,844	$	591,201
Very Strong	AA		1,194,276		1,208,515
Strong	A		805,102		809,960
Adequate	BBB		391,192		401,956
Speculative	BB & Below		102,846		111,331
Not rated	NR		2,663		2,450
Total	AA- ⁽¹⁾	$	3,082,923	$	3,125,413

	As of December 31, 2018
amounts in thousands	AAA		AA		A		BBB		BB and below		NR		Fair Value		Amortized Cost
Municipal Bonds	$	63,840	$	411,620	$	155,583	$	15,508	$	—	$	—	$	646,551	$	639,265
Agency Residential Mortgage-Backed		—		335,542		—		—		—		—		335,542		347,817
Residential Mortgage-Backed		90,443		6,887		250		37,426		1,964		1,403		138,373		138,299
Asset-Backed		217,358		197,120		91,251		26,262		—		—		531,991		539,013
Commercial Mortgage-Backed		117,824		43,379		26,998		—		—		—		188,201		190,159
Corporate Exposures		4,752		83,770		499,831		311,994		100,882		1,260		1,002,489		1,028,028
Total	$	494,217	$	1,078,318	$	773,913	$	391,190	$	102,846	$	2,663	$	2,843,147	$	2,882,581

	As of December 31, 2018
	Fixed
amounts in thousands	Maturities
Less than twelve months	$	(1,873	)
Twelve months or longer		(1,597	)
Total	$	(3,470	)

	Short Tailed			Long Tailed			New Business			Total
U.S. Insurance:
Marine		66.6	%		33.4	%		0.0	%		100.0	%
P&C		12.1	%		87.0	%		0.9	%		100.0	%
Professional Liability		0.0	%		100.0	%		0.0	%		100.0	%

Int'l Insurance:
Marine		65.0	%		28.3	%		6.7	%		100.0	%
P&C		91.0	%		9.0	%		0.0	%		100.0	%
Professional Liability		0.0	%		98.6	%		1.4	%		100.0	%

GlobalRe		71.5	%		13.9	%		14.6	%		100.0	%

	Interest Rate Shift in Basis Points
amounts in thousands	-100			-50			0		+50			+100
December 31, 2018:
Total market value	$	3,370,438		$	3,314,753		$	3,256,462	$	3,196,869		$	3,136,950
Market value change from base		3.5	%		1.8	%				(1.8	%)		(3.7	%)
Change in unrealized value	$	113,976		$	58,291		$	—	$	(59,593	)	$	(119,512	)

December 31, 2017:
Total market value	$	3,354,341		$	3,298,279		$	3,240,596	$	3,181,617		$	3,121,990
Market value change from base		3.5	%		1.8	%				(1.8	%)		(3.7	%)
Change in unrealized value	$	113,745		$	57,683		$	—	$	(58,979	)	$	(118,606	)

	At Years Ended December 31,
amounts in thousands	2018			2017			2018			2017
Original Currency	Value of Net Assets in USD						10% depreciation of all foreign currency exchange rates against the USD
GBP	$	(29,740	)	$	43,117		$	2,974		$	(4,311	)
EURO		(31,837	)		(73,172	)		3,184			7,317
CAD		74,410			82,639			(7,441	)		(8,264	)
Total ⁽¹⁾	$	12,833		$	52,584		$	(1,283	)	$	(5,258	)

Exhibit No.	Description of Exhibit	Previously filed and Incorporated Herein by Reference to:
2-1	Agreement and Plan of Merger, dated as of August 22, 2018 by and among the Company, The Hartford Financial Services Group, Inc., and Renato Acquisition Co.	Form 8-K filed August 22, 2018

3-1	Restated Certificate of Incorporation	Form S-8 filed July 26, 2002 (File No. 333-97183)

3-2	Certificate of Amendment to the Restated Certificate of Incorporation	Form S-8 filed July 26, 2002 (File No. 333-97183)

3-3	Certificate of Amendment to the Restated Certificate of Incorporation	Form 10-Q for June 30, 2006

3-4	Amended and Restated By-laws of the Company	Form 8-K filed August 22, 2018 (File No. 000-15886)

4-1	Specimen of Common Stock certificate, par value $0.10 per share	Form S-8 filed June 20, 2003 (File No. 333-106317)

4-2	Second Supplemental Indenture, dated as of October 4, 2013, between the Company and The Bank of New York Mellon	Form 8-K filed October 4, 2013

10-1*	Stock Option Plan	Form S-1 (File No. 33-5667) (P)

10-2*	Non-Qualified Stock Option Plan	Form S-4 (File No. 33-75918) (P)

10-3*	2002 Stock Incentive Plan	Proxy Statement filed May 29, 2002

10-4*	Executive Performance Incentive Plan	Proxy Statement filed April 7, 2008

10-5	Form of Indemnity Agreement by the Company and the Selling Stockholders (as defined therein)	Amendment No. 2 to Form S-3 dated October 1, 2003 (File No.333-108424)

10-6*	Second Amended and Restated 2005 Stock Incentive Plan	Proxy Statement filed April 12, 2013

10-7*	Non-Qualified Deferred Compensation Plan	Form 10-Q for March 31, 2015

10-8	Guarantee, dated February 16, 2017, entered into by the Company	Form 10-K for December 31, 2016

10-9	Share Purchase Agreement, dated as of December 15, 2017, by and between the Company and Ackermans & van Haaren NV, SIPEF NV, Mr. Jozef Gielen and Kapimar Comm.V	Form 8-K filed December 18, 2017

10-10*	The Navigators Group, Inc. Amended and Restated Employee Stock Purchase Plan	Proxy Statement filed March 29, 2018

10-11*	Employment Agreement, dated August 21, 2018, by and among the Company, Navigators Management Company, Inc. and Stanley A. Galanski	Form 8-K filed August 22, 2018

10-12*	Employment Agreement, dated August 21, 2018, by and among the Company, Navigators Management Company, Inc. and Ciro M. DeFalco	Form 8-K filed August 22, 2018

10-15*	Form of President’s Award Agreement	Form 8-K filed August 22, 2018

10-16	Fourth Amended and Restated Funds at Lloyd's Letter of Credit Agreement, dated as of November 7, 2018, among the Company, the lenders party thereto, and ING Bank N.V., London Branch, individually and as Administrative Agent and Letter of Credit Agent	Form 8-K filed November 7, 2018

11-1	Statement re Computation of Per Share Earnings	**

21-1	Subsidiaries of Registrant	**

23-1	Consent of Independent Registered Public Accounting Firm	**

31-1	Certification of CEO per Section 302 of the Sarbanes-Oxley Act	**

31-2	Certification of CFO per Section 302 of the Sarbanes-Oxley Act	**

32-1	Certification of CEO per Section 906 of the Sarbanes-Oxley Act (This exhibit is intended to be furnished in accordance with regulation S-K item 601(b)(32)(ii) and shall not be deemed to be filed for purposes of section 18 of the Securities Exchange Act of 1934, as amended, or incorporated by reference into any filing under the Securities Act of 1933, except as shall be expressly set forth by specific reference).	**

32-2	Certification of CFO per Section 906 of the Sarbanes-Oxley Act (This exhibit is intended to be furnished in accordance with regulation S-K item 601(b)(32)(ii) and shall not be deemed to be filed for purposes of section 18 of the Securities Exchange Act of 1934, as amended, or incorporated by reference into any filing under the Securities Act of 1933, except as shall be expressly set forth by specific reference).	**

101.INS	XBRL Instance Document	**

101.SCH	XBRL Taxonomy Extension Scheme	**

101.CAL	XBRL Taxonomy Extension Calculation Database	**

101.LAB	XBRL Taxonomy Extension Label Linkbase	**

101.PRE	XBRL Taxonomy Extension Presentation Linkbase	**

101.DEF	XBRL Taxonomy Extension Definition Linkbase	**

		The Navigators Group, Inc.
		(Company)

Dated: February 27, 2019	By:	/s/ Ciro M. DeFalco
		Ciro M. DeFalco
		Executive Vice President and Chief Financial Officer

Name	Title	Date

/s/ ROBERT V. MENDELSOHN	Chairman	February 27, 2019
Robert V. Mendelsohn	Chairman

/s/ STANLEY A. GALANSKI	President and Chief Executive Officer (Principal Executive Officer)	February 27, 2019
Stanley A. Galanski

/s/ CIRO M. DEFALCO	Executive Vice President and Chief Financial Officer (Principal Financial Officer and Principal Accounting Officer)	February 27, 2019
Ciro M. DeFalco

/s/ SAUL L. BASCH	Director	February 27, 2019
Saul L. Basch	Director

/s/ TERENCE N. DEEKS	Director	February 27, 2019
Terence N. Deeks	Director

/s/ MERYL D. HARTZBAND	Director	February 27, 2019
Meryl D. Hartzband


/s/ GEOFFREY E. JOHNSON	Director	February 27, 2019
Geoffrey E. Johnson	Director

/s/ DAVID M. PLATTER	Director	February 27, 2019
David M. Platter	Director

/s/ PATRICIA H. ROBERTS	Director	February 27, 2019
Patricia H. Roberts	Director

/s/ JANICE C. TOMLINSON	Director	February 27, 2019
Janice C. Tomlinson	Director

/s/ MARC M. TRACT	Director	February 27, 2019
Marc M. Tract	Director

		Page
Report of Independent Registered Public Accounting Firm		F-2

Consolidated Balance Sheets as of December 31, 2018 and 2017		F-3

Consolidated Statements of Income for each of the years ended December 31, 2018, 2017 and 2016		F-4

Consolidated Statements of Comprehensive Income (Loss) for each of the years ended December 31, 2018, 2017 and 2016		F-5

Consolidated Statements of Stockholders’ Equity for each of the years ended December 31, 2018, 2017 and 2016		F-6

Consolidated Statements of Cash Flows for each of the years ended December 31, 2018, 2017 and 2016		F-7

Notes to Consolidated Financial Statements		F-8

SCHEDULES:

Schedule I	Summary of Consolidated Investments-Other Than Investment in Related Parties	S-1

Schedule II	Condensed Financial Information of Registrant	S-2

Schedule III	Supplementary Insurance Information	S-5

Schedule IV	Reinsurance - Written Premiums	S-6

Schedule V	Valuation and Qualifying Accounts	S-7

Schedule VI	Supplementary Information Concerning P&C Insurance Operations	S-8

amounts in thousands
Consideration paid	$	40,492

Assets
Investments		45,182
Cash and Cash Equivalents		18,109
Prepaid Reinsurance Premiums		2,701
Reinsurance Recoverables on Paid Losses		1,311
Reinsurance Recoverables on Unpaid Losses and LAE		15,769
Other Assets		19,943

Fair Value of Identifiable Intangible Assets		9,000

Total Assets Acquired	$	112,015

Liabilities
Reserves for Losses and LAE		31,928
Unearned Premiums		11,139
Deferred Income Tax		8,947
Accounts Payable and Other Liabilities		32,212
Total Liabilities Assumed	$	84,226

Goodwill	$	12,703

	Year Ended December 31, 2018
amounts in thousands	Gross written premiums		Ceded written premiums			Net written premiums		Net earned premiums
U.S. Insurance
Marine	$	148,485	$	(64,097	)	$	84,388	$	84,774
P&C		803,759		(199,307	)		604,452		549,136
Professional Liability		130,872		(19,621	)		111,251		103,736
Total	$	1,083,116	$	(283,025	)	$	800,091	$	737,646
Int'l Insurance
Marine	$	181,053	$	(44,356	)	$	136,697	$	151,296
P&C		171,502		(64,176	)		107,326		105,144
Professional Liability		178,155		(38,870	)		139,285		124,063
Total	$	530,710	$	(147,402	)	$	383,308	$	380,503
GlobalRe	$	299,135	$	(11,449	)	$	287,686	$	245,074
Total	$	1,912,961	$	(441,876	)	$	1,471,085	$	1,363,223

	As of December 31, 2018
amounts in thousands	Gross Carrying Amount		Accumulated Amortization			Weighted Average Amortization Period
Finite-Lived Assets
ASCO Customer Relationships	$	3,289	$	(164	)	10 years
ASCO VOBA		1,663		(208	)	4 years
BDM Broker Networks		984		(33	)	15 years
BDM Trade Name		484		(242	)	1 year
Total	$	6,420	$	(647	)

Indefinite-Lived Assets
ASCO European Licenses	$	2,419	indefinite
NUAL Lloyd's Syndicate Capacity	$	2,136	indefinite
Total	$	4,555

amounts in thousands	Total
2019	$	1,052
2020		810
2021		810
2022		602
2023		394
2024 and thereafter		2,105
Total	$	5,773

	U.S. Marine
	Average Annual Percentage Payout of Incurred Claims by Age, Net of Reinsurance
Years	1			2			3			4			5			6			7			8			9			10
U.S. Marine		29.2	%		29.9	%		16.7	%		8.9	%		7.7	%		3.3	%		2.2	%		1.8	%		0.9	%		0.6	%

	Carried Reserves Reconciliation
amounts in thousands	As of December 31, 2018
	Total Net Reserves		Reinsurance Recoverables on Unpaid Claims		Total Gross Reserves
U.S. Marine	$	90,028	$	88,783	$	178,811
U.S. P&C		977,968		387,081		1,365,049
U.S. Professional Liability		128,321		54,052		182,373
Int'l Marine		214,455		68,117		282,572
Int'l P&C		87,368		106,879		194,247
Int'l Professional Liability		162,600		86,970		249,570
GlobalRe		174,395		12,751		187,146
Liabilities for Unpaid Claims and Claim Adjustment Expenses	$	1,835,135	$	804,633	$	2,639,768
Unallocated Claims Adjustment Expenses						72,099
ASCO Reserves						31,834
Other						272
Total Gross Liability for Unpaid Claims and Claim Adjustment Expense					$	2,743,973

Rental Commitments for Years Ended December 31,
amounts in thousands
2019	$	12,907
2020		12,470
2021		11,542
2022		10,354
2023		9,379
2024-2032		28,268
Total Minimum Operating Lease Payments	$	84,920

	Years Ended December 31,
amounts in millions	2018			2017			2016
NIC & NSIC:
Statutory Net Income	$	75.0		$	79.3		$	84.2
Statutory Capital and Surplus	$	1,005.4		$	1,056.6		$	1,027.3
The Syndicate:
Syndicate's Net Income	$	6.8		$	(23.4	)	$	46.3
Syndicate's Capital and Surplus	$	165.3		$	168.7		$	180.7
NIIC:
Statutory Net Income	$	(14.7	)	$	(8.4	)	$	0.4
Statutory Capital and Surplus	$	43.3		$	62.9		$	70.7

Differences	SAP	U.S. GAAP
Acquisition and Commission Costs	Expensed when incurred	Costs are generally deferred
Bonds	Generally stated at amortized cost	Stated at fair value
Unrealized gains/losses on Equities	Recognized in Surplus	Recognized in Income
Deferred tax assets	Certain temporary differences are not recognized	All temporary differences recognized
Receivables over 90 days outstanding and other intangible assets	Not recognized	Generally recognized (subject to valuation allowances)
Provision for Reinsurance	Recorded through a charge to surplus	Recorded through income when deemed uncollectible
Unearned premiums and loss reserves	Net of ceded amounts	Gross of ceded amounts

Differences	U.K. GAAP	U.S. GAAP
Unrealized gains/losses on Fixed Maturities	Recognized in income	Recognized in AOCI
Foreign exchange gains/losses on translation	Recognized in income	Recognized in AOCI
Lloyd’s membership costs	Expensed when incurred	Amortized over each UWY

	Year Ended December 31, 2018
	Number of Awards			Weighted Average Grant Date Fair Value ⁽¹⁾
Nonvested at the beginning of the year		159,539		$	41.60
Granted		24,593			50.01
Vested ⁽²⁾		(90,543	)		36.66
Forfeited		(7,000	)		38.00
Nonvested at the end of the year		86,589		$	49.45

	December 31, 2018
					Amount At
			Amortized		Which Shown
amounts in thousands	Fair Value⁽¹⁾		Cost / Cost		on Balance Sheet
Fixed Maturities:
U.S. Treasury Bonds, Agency Bonds and Foreign Government Bonds	$	239,776	$	242,832	$	239,776
States, Municipalities and Political Subdivisions		646,551		639,265		646,551
Mortgage-Backed and Asset-Backed Securities:
Agency Mortgage-Backed Securities		335,542		347,817		335,542
Residential Mortgage Obligations		138,373		138,299		138,373
Asset-Backed Securities		531,991		539,013		531,991
Commercial Mortgage-Backed Securities		188,201		190,159		188,201
Subtotal	$	1,194,107	$	1,215,288	$	1,194,107
Corporate Exposures⁽²⁾		1,002,489		1,028,028		1,002,489
Total Fixed Maturities	$	3,082,923	$	3,125,413	$	3,082,923
Other Invested Assets		48,406		48,549		48,406
Equity Securities:
Common Stocks		166,353		177,599		166,353
Preferred Stocks		173,539		183,819		173,539
Total Equity Securities	$	339,892	$	361,418	$	339,892
Short-Term Investments		10,233		10,234		10,233
Total Investments	$	3,481,454	$	3,545,614	$	3,481,454