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Exclusive Interview With The President And COO: Navigators Group Inc. (NAVG) - Stanley A. Galanski

67 WALL STREET, New York - July 10, 2012 - The Wall Street Transcript has just published its Insurance Report offering a timely review of the sector to serious investors and industry executives. This special feature contains expert industry commentary through in-depth interviews with public company CEOs, Equity Analysts and Money Managers. The full issue is available by calling (212) 952-7433 or via The Wall Street Transcript Online.

Topics covered: Insurance Reserves Adequacy, Low Profitability and Interest Rates, Commercial Line Brokers and Underwriters, Life and Property/Casualty Insurers

Companies include: CNO Financial (CNO); Fortegra Financial (FRF); Protective Life (PL); A.J. Gallagher (AJG); Aflac (AFL); and many more.

In the following brief excerpt from the Insurance Report, expert analysts discuss the outlook for the sector and for investors.

Stanley A. Galanski joined the Navigators Group Inc. in 2001 as President and Chief Operating Officer and was promoted to Chief Executive Officer of the company in 2003. In addition to serving as Chairman and President of Navigators Insurance Company and Navigators Specialty Insurance Company, he is a Director of NUAL, the company's Lloyd's managing agency. Before Navigators, Mr. Galanski was CEO of Intercargo Corporation from 1997 to 2001, and was responsible for the sale of the company to XL Capital in 1999. He formerly was President of XL Insurance Company of New York and XL Specialty Insurance Company, as well as New Hampshire Insurance Company, an AIG subsidiary. He spent the first 15 years of his career with the Chubb Group of Insurance Companies. Mr. Galanski is a graduate of the University of Pittsburgh and remains active in its alumni association.

TWST: Please begin by giving us some highlights from Navigators Group's first quarter to give us an update on what has been going on with the company since we spoke last year.

Mr. Galanski: We were pleased to generate an underwriting profit in the first quarter with a combined ratio of 99.6%, and that's particularly significant because it was a quarter that was impacted by what is going to turn out to be one of the largest ocean marine losses in history, that being the Costa Concordia.Our exposure to the loss comes from both being an insurer of the physical damage to the hull of the Costa Concordia as well as a reinsurer of the International Group of Protection and Indemnity Clubs who provide the liability coverage for ocean-going vessels through a shared reinsurance program. That's a very significant event in the ocean marine business, and to have that kind of a loss impact the quarter and still make an underwriting profit as a company, we were quite pleased with that result.

TWST: With that kind of a loss, what was on the other side balancing it out to make it a positive quarter overall?

Mr. Galanski: Particularly strong underwriting performance from our property/casualty units. We had a very good quarter in our energy business, where we specialize in physical damage insurance for both onshore and offshore oil and gas risk, as well as the engineering business, which is the construction and operational risks of power plants on a worldwide basis.Our U.S. casualty business also continues to be very strong, particularly our commercial umbrella and excess casualty. That market is continuing to show improvement over the last year as a number of insurers have reduced their capacity. Specifically, what's occurred is that a number of large insurers had offered limits of $25 million and even as much as $50 million on commercial umbrella and excess liability placements, and now we see them reducing their capacity more routinely to $10 million. That's created opportunities for companies like Navigators to participate on some of the layers of the program that may have been priced too competitively and were all being placed with one insurer in the past. That's been a terrific growth opportunity for us, in particular.

TWST: Conversely, about which business lines is Navigators Group more bearish at the moment? Has the company made any strategic shifts as a result of its outlook on those lines?

Mr. Galanski: Over the last three years, we've reduced the size of our U.S. directors and officers liability portfolio in response to what we felt was both inadequate pricing, but more importantly, a dramatic increase in loss activity impacting small- to mid-cap companies. We entered the D&O business in the U.S. in 2001, and the largest focus that we've had has been on small- to mid-cap companies, in particular the technology sector. That naturally leads to having a significant book of business in California, and what we found over the last two or three years is a significant deterioration in the cost of disposing of claims, even those that might appear groundless.

On top of that, the plaintiff lawyers have become much more resilient. Often when the court rules in our favor and grants a motion to dismiss, they are very quick to refile and try to negotiate a settlement from the tower of D&O insurers. So there's been a fundamental shift in the loss costs or what you might think of as your legal landscape for claims, particularly coming out of the Ninth District in California. As a result, we've shifted a good chunk of our U.S. D&O business away from primary into excess business. We've never been afraid to shrink or even exit a product line if the opportunity for underwriting profit isn't there.And in our view, the game has changed in the primary business for U.S. public D&O, particularly in the West Coast, especially in the small- and mid-cap tech sector.

So as a result, our D&O book today is much more of an excess book than it would have been in, say, three or four years ago, and we are very optimistic that our strategy will lead to improved performance.At long last, we are starting to see some price improvement on the primary D&O, which has been muted for several years, but it's still slow to materialize on the excess layers. Pricing is certainly trending in the right direction, but has a long way to go before we'd consider it to be adequate.

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