The Navigators Group, Inc. :NAVG-US: Earnings Analysis: Q3, 2017 By the Numbers : December 19, 2017

The Navigators Group, Inc. reports financial results for the quarter ended September 30, 2017.

We analyze the earnings along side the following peers of The Navigators Group, Inc. – W. R. Berkley Corporation, CNA Financial Corporation, Markel Corporation, Loews Corporation, Alleghany Corporation, White Mountains Insurance Group Ltd and AMERISAFE, Inc. (WRB-US, CNA-US, MKL-US, L-US, Y-US, WTM-US and AMSF-US) that have also reported for this period.

Highlights

  • Summary numbers: Revenues of USD 329.14 million, Net Earnings of USD -27.98 million.
  • Year-on-year change in operating cash flow of 106.77% is about the same as the change in earnings, likely no significant movement in accruals or reserves.
  • Earnings decline from operating margin decreases as well as from unusual items

The table below shows the preliminary results and recent trends for key metrics such as revenues and net income (See complete table at the end of this report):

2017-09-30 2017-06-30 2017-03-31 2016-12-31 2016-09-30
Relevant Numbers (Quarterly)
Revenues (mil) 329.14 317.79 308.63 310.04 305.47
Revenue Growth (%YOY) 7.75 8 7.13 13.94 12.32
Earnings (mil) -27.98 20.5 21.11 21.59 22.01
Earnings Growth (%YOY) -227.1 26.63 -7.95 21.69 20.94
Net Margin (%) -8.5 6.45 6.84 6.96 7.21
EPS -0.95 0.69 0.7 0.71 0.73
Return on Equity (%) -2.27 1.67 1.77 1.81 1.85
Return on Assets (%) -2.16 1.64 1.72 1.77 1.8

Access our Ratings and Scores for The Navigators Group, Inc.

Market Share Versus Profits

Revenues History
Earnings History

NAVG-US’s change in revenue this period compared to the same period last year of 7.75% is almost the same as its change in earnings, and is about average among the announced results thus far in its peer group, suggesting that NAVG-US is holding onto its market share. Also, for comparison purposes, revenues changed by 3.57% and earnings by -236.47% compared to the immediate last period.

Revenues Growth Versus Earnings Growth

Quadrant label definitions. Hover to know more

Leader, Earnings Focus, Laggard, Revenues Focus

Earnings Growth Analysis

Insurance companies sometimes tradeoff for improvements in premiums earned by relaxing standards in underwriting policies. A quick way to check against such activity is to compare the changes in loan loss provisions as well any chnages in the level of policy claims. If either of these checks point to a decline in the underwriting standards, it is quite possible that the company’s performance is a result of underwriting policy changes that could have a longer term impact compared to the shorter term pop in premiums earned.

Premiums Earned Percent History
Loss Ratio History

The company’s year-on-year decline in earnings has been influenced by the following factors: (1) Decline in premiums earned as a percent of total revenues from 92.97% to 91.56% and (2) issues with underwriting policies. As a result, loss ratio went from 60.84% to 91.64% in this period. For comparison, premiums earned as a percent of revenues were 92.46% and the loss ratio 60.28% in the immediate last period.

Premiums Earned Percent Versus Loss Ratio

Cash Versus Earnings – Sustainable Performance?

It is important to examine a company�s cash versus earnings numbers to gauge whether its performance is sustainable.

Operating Cash Flow Growth Versus Earnings Growth

Quadrant label definitions. Hover to know more

Cash Flow based Earnings, Likely Non-cash Earnings, Low Cash Flow Base, Likely Undeclared Earnings

NAVG-US’s change in operating cash flow of 106.77% compared to the same period last year is about the same as its change in earnings this period. Additionally, this change in operating cash flow is about average among its peer group. This suggests that the company did not use accruals or reserves to manage earnings this period, and that, all else being equal, the earnings number is sustainable.

Margins

The company’s fall in earnings have been influenced by the following factors: (1) Contraction in operating margins after interest from 11.05% to -12.16% and (2) One-time items that contributed to a weakening of pretax margins from 9.78% to -13.62%.

EBIT Margin Versus PreTax Margin

Quadrant label definitions. Hover to know more

Operation driven Earnings, One-time Favorables, Low Earnings Base, One-time Unfavorables
EBIT Margin History
PreTax Margin History

Access our Ratings and Scores for The Navigators Group, Inc.

Company Profile

Navigators Group, Inc. engages in the provision of international insurance. It also focuses on specialty products within the overall property and casualty insurance market. It operates through the U.S. Insurance, International Insurance, GlobalRe and Corporate segments. The company was founded by Terence N. Deeks in 1974 and is headquartered in Stamford, CT.

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