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Executive

Stan Galanski - President and Chief Executive Officer

Frank McDonnell - Chief Financial Officer

Analyst

Scott Heleniak - RBC Capital Markets

Paul Newsome - Sandler O'Neill & Partners

Bijan Moazami - Friedman Billings Ramsey

The Navigators Group Inc. (NAVG) Q3 2008 Earnings Call October 28, 2008 8:30 AM ET

Operator

Good day ladies and gentlemen and welcome to the 2008 third quarter, The Navigators Group Incorporated earnings conference call. My name is Ann and I will be your coordinator for today’s call. (Operator Instructions) At this time all participants are in listen-only mode. We will be facilitating a question-and-answer session towards the end of the presentation.

Before we begin, the company has asked me to read the following statement. We remind everyone that today’s call includes forward-looking statements made pursuant to the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995. These statements concern future business conditions, expectations and the outlook for the company based on currently available information that involves risks and uncertainties.

The company’s actual results could differ materially from those anticipated in the forward-looking statements. We refer you to the company’s most recent forms 10-K and 10-Q for a description of the important factors that may affect the company’s business.

The forward-looking statements made on this call and any transcript of this call are only made of this date and the company undertakes no obligation to publicly update the forward-looking statements to reflect subsequent events or circumstances, except as required by law.

I would now like to turn the presentation over to Mr. Stan Galanski, President and Chief Executive Officer; and Mr. Frank McDonnell, Chief Financial Officer; please proceed.

Stan Galanski

Thank you very much. Good morning. This is Stan Galanski and I’d like to welcome you to the third quarter earnings teleconference of The Navigators Group Inc. Yesterday afternoon, we announced third quarter 2008 earnings of $1 million and year-to-date net income of $41.7 million, which is 40% less than the net income for the comparable nine month period in 2007.

Our third quarter results were adversely impacted by $18 million of after-tax losses emanating from hurricanes Gustav and Ike. Our combined loss and expense ratio was 107.9% for the quarter and 95.7% for the first nine months of the year. These 2008 third quarter and nine month ratios were increased by 17.4 and 5.7 points respectively, for our net loss estimates from hurricanes Gustav and Ike. Absent these hurricane losses, our combined ratios would have been 90.5% for the third quarter and 90% for the nine-month period, which we consider to be very respectable. During the third quarter, we recognized $5.5 million of net realized capital losses from other than temporary declines in market value.

Let me begin with a couple of thoughts about our hurricane losses. First, most of you on this call know that we are a very significant player in the offshore energy insurance marketplace. Given the magnitude of the industry’s offshore energy loss from hurricane Ike, it’s no surprise that we’ll be hit with losses. As a result, we maintain a relatively limited exposure to natural cat on a first-party insurance basis other than in our energy book.

While we’re very confident in the underwriting acumen of our energy underwriters, the true test of the company’s performance occurs when we are confronted with the volatility of a property CAT and we stated that we do not wish to lose more than one quarter’s earnings in this single natural CAT event. As a result, we carefully monitor our wind aggregates, model our exposure against both historical and hypothetical storm tracks and purchase reinsurance from highly rated re-insurers with knowledge of the energy business.

While I’m disappointed to report an underwriting loss for the quarter as a result of these hurricanes, I’m very glad to report that our estimate of loss from both of these hurricanes combined is contained well within our reinsurance program and within our expectations for a major storm. As with Katrina and Rita in 2005, we have demonstrated again that we are successfully managing our exposure to natural CAT to no more than one quarter’s earnings.

Second, let’s talk a bit more about the magnitude of Hurricane Ike which was characterized in particular by its enormous size. While it was a Category 2 storm as it made U.S. landfall, sustained wins were 110 mph, just 15 mph less than Katrina. The width of Ike’s winds in excess of 75 mph at landfall was very similar to Katrina’s. We believe that Hurricane Ike will prove to be one of the most costly hurricanes in history for the insurance industry and particularly so for offshore energy underwriters.

As of October 6, the minerals management service reported that Ike had destroyed 54 platforms with another 60 platforms reporting damaged that will take an estimated one to three months to repair. Of the roughly 3800 production platforms in the Gulf of Mexico, approximately 38% were exposed to hurricane force winds, but the extent of damage from Ike was not immediately known.

For example, three weeks earlier on September 15, just a few days after Ike made landfall, MMS reported that 28 platforms had been destroyed, roughly one-half of what MMS is currently reporting. By comparison, 3050 platforms were in the path of hurricanes Katrina and Rita. The damage assessment report on October 4, 2005 for those storms stated that 108 older facilities were destroyed and another 53 platforms sustained significant damage.

Insured losses from offshore energy damage resulting from Ike will easily crest $2 billion, destroying both the profit and capital of many carriers who operate in this segment. We are optimistic that these events may lead to a shift in the market environment and we intend to continue to be a factor for underwriting and pricing discipline in the energy market.

Aside from the impact of the hurricanes, Navigator’s had a very respectable underwriting result in the third quarter and the fundamentals of our business continue to be sound. As I said, excluding the impact of the hurricanes our combined ratio for the third quarter was 90.5%.

Our paid and incurred loss emergence continues to be encouraging. As we continued to experience favorable loss emergence in the quarter, we were in a position to release a little over $8 million of IBNR from prior underwriting years. At the same time, we remain committed to maintaining a strong loss reserve position and our net IBNR increased by $33.8 million or 5.6% in the quarter.

Despite competitive market conditions, we were able to achieve gross written premium growth of 3% for the quarter over the third quarter of 2007, once again led by strong growth in our marine and energy units. Our net written premium was down 12% in the quarter, compared to the third quarter of 2007, largely as a result of reserves receded reinsurance reinstatement premiums related to expected hurricane losses.

In most of our product lines, we continue to experience rate reductions. Encouragingly, in a couple of product lines, most notably directors and officers liability and offshore energy, we are beginning to see evidence that renewal rates appear to be flattening, which may serve as an early sign of a shift in pricing. Regardless of the market circumstances, we remain confident that our underwriters are making quality risk selections while setting appropriate pricing and terms as we have done in previous market cycles.

In a few minutes, Frank McDonnell will give you an overview of our financial performance, but first I would like to review the performance of our individual business units and provide some comments on the market environment in which they are operating.

Our Marine and Energy business units which we write through our insurance company as well as our Lloyds syndicate comprise almost one-half of the third quarter 2008 gross written premiums. This quarter the unit was significantly impacted by hurricane activity. For the insurance company the 2008 third quarter combined loss and expense ratio was 128.6% and would’ve been 89.2% excluding the hurricanes. The corresponding figures from the Marine and Energy business at Lloyds are at 128.6% and 92.1% excluding hurricanes.

When comparing third quarter 2008 to the same period in 2007, our gross written premium was up 23% in the insurance company and up 7% at Lloyds. In both cases this was better than we had expected, driven by both the current and prior underwriting year premium recorded during the quarter, largely as a result of offshore energy and open cargo policies.

Renewal rates in the period were down about 2.5% for the Marine and Energy business and the insurance company and about 4% at Lloyds. While pricing reductions are never good news, the fact remains that Marine and Energy pricing as of September 30 was somewhat better than we had anticipated that would be going into 2008.

Marine liability which is our largest product line and for which we enjoy a strong reputation globally, saw continuing single digit rate decreases. Offshore energy rates were down about 10% for the quarter and since Ike we’ve only had one renewal, so it’s very difficult to draw conclusions from one transaction.

We’re eager to see these market conditions develop and improve since this important segment of the business has now experienced two large scale loss events within four years. We believe rates must rise significantly to ensure long term profitability.

The stiffening we began to see in the bluewater hull market, which was triggered both by large loss activity that hit a number of our competitors as well as a contraction in the Norwegian market continued in the third quarter and we saw a positive renewal rate increase of 2% in the insurance company and 9% at Lloyds.

We continue to be very pleased with the underwriting results of our Navigator Specialty division, which continues to generate profitable underwriting results despite top line pressure as a result of the virtual collapse of the construction industry in the United States.

Our specialty business had a combined loss and expense ratio of 88% in the quarter. This result included $4 million of reserve release from prior underwriting years, reflecting continued favorable loss emergence on our California construction liability business.

Gross written premium for that business is down dramatically as a result of the reduced exposure base. There is simply less new construction activity, as well as from continuing rate erosion and an increasing presence of standard lines carriers competing for that business.

Renewal rates in this business were down 13.5% in the third quarter. The one exception to that trend continues to be the very small artisan contractors business which we handle through the internet, where we see rates that are roughly flat and continue to experience double digit premium growth.

The takeaway on our construction business overall is that we have the expertise and the data to continue to steer the business towards a profitable result. That’s our plan and we have every confidence that’s what our underwriters are doing. When looking at our entire primary casualty business including construction, the premium for the third quarter of 2008 was down approximately 20% compared to the third quarter of 2007. Given the significance of construction to our book and the overall challenges in the economy, I don’t think that should be a real surprise that the premium is down.

Our Life Science unit, a relatively recent launch within Specialty is progressing well and will soon cross the threshold of $1 million of gross written premium. As we expected, the Life Science Property Casualty unit is having good synergy with our D&O business.

Lastly, we’re in the final stages of developing an Environmental Liability unit within Navigator Specialty which we expect will complement the construction and real estate risks underwritten in our primary Casualty unit. This team will be led by an established industry expert with a small team of underwriters based in Chicago. These underwriters have an engineering background and are specialized in the area for quite some time and have a track record of profitability. We expect this business to have good synergy with our primary Casualty business as well as our NAV PAC middle market business.

The Excess Casualty division of Navigator Specialty achieved gross written premium growth of 15% in the quarter despite rates being down by about 9.5%. We are a relatively small player in what is a large and fragmented market for both the commercial umbrella and commercial excess liability and this growth reflects the planned ongoing development of this business unit, which is now in its fourth year of operation.

We remain comfortable that the resulting rate levels are adequate to achieve our profit targets and we continue to look for opportunities to expand this business, particularly as we expand our retail distribution network for non-construction risks.

Navigators Pro had another good quarter, turning in a combined loss and expense ratio of 93.2% for the quarter and 93.9% for the nine months. In both, the insurance company and at Lloyds gross written premium in the quarter was up slightly more than 5% over 2007.

Renewal rate movement in the United States D&O business was down about 5% while the corresponding figure for the Lloyds business was down about 2%. E&O rates were down between 5% and 9% depending upon the line of business, but the real story in our Professional Lines business is unfolding at the moment. We have always been a niche player within the D&O business, focusing on micro cap to middle market business with a strong presence in the technology sector.

During the third quarter, two major players in the D&O market experienced well publicized financial issues. As a result, we believe that both brokers and policyholders are looking to diversify the providers of their D&O insurance, either by reducing or eliminating some carriers who previously provided significant capacity. We have already begun to experience an increase in submission activity as a result.

In response we recently increased the limits of liability we offer our US policyholders to $25 million up from $10 million. This should allow us to participate in midlevel layers for attractive middle market sized risks, but we may not have had the opportunity to underwrite in the past as the placement may have been done in layers that are greater than our available capacity was at the time.

This change in the competitive environment, coupled with what we expect will be an increased level of securities class action claims for the industry, should contribute to a flattening and then a firming of the U.S. D&O rates. In addition, we’re making a couple of hires in London that should increase our involvement in the excess D&O niche, a segment in which our appetite is for industrial and commercial risks that have fared far better than the overall market.

This is an area where we have played opportunistically in the past, based upon market swings and price and we believe now is a good opportunity to capitalize on the increased insured demand for financially strong insurers. We will continue to avoid any significant exposure to the financial institution segment which despite the availability of rate, we see as simply too volatile.

In the face of the capital securities and credit market turmoil, questions naturally arise about exposure to loss from this disruption. As I mentioned, we have steadfastly limited our exposure to the financial institution business and we have no plans to change that philosophy. As a result, we’ve experienced nine loss notices that have been classified as sub-prime related and we did not receive any new notices during the third quarter. Further, our definition of sub-prime is a relatively broad definition that encompasses sub-prime automobile loans as well as real estate developers.

More broadly speaking, our D&O claims frequency remains flat on a year-over-year basis, as we had expected. We’ve not experienced any up-tick in bankruptcy activity within our D&O portfolio, reflecting our underwriting philosophy that every renewal should be underwritten as if it’s a new piece of business.

Generally speaking, we remain bullish on the D&O business as tort reform and favorable court decisions such as Tellabs have increase the burden of proof on the plaintiffs to establish director negligence and these developments have made class action suits more difficult to sustain. While the precipitous fall of the stock market does not create the same exposure to loss it might have 15 years ago, we fully expect the industry will experience an up-tick in claims activity and clearly the better performing D&O underwriters will rely upon underwriting discipline and risk selection to outperform the rest of their competitors.

I will also add that during the third quarter we commenced underwriting in China as a member of Lloyds China. We had the good fortune to be in a position of transferring one of our underwriters who happens to have been a Shanghai native, from Chicago to Shanghai and I’m pleased to report that since commencing those operations in September, we found two D&O accounts written as a reinsurance of Chinese insurers.

Two weeks ago I was in Stockholm where we opened an office earlier this year and initially is focusing on D&O business in Scandinavia, while we evaluate the potential for other product lines in the region; we are pleased with the launch of that Stockholm unit. While these offices will make only a modest contribution to our results in the next 12 months, we believe they are an important part of our international development strategy over the long-haul.

Achieving an underwriting profit has always come first at Navigators and remains our top priority. Our business model was built up on intellectual capital. We seek to hire experts with a track record of success in achieving profitable underwriting results and we give them the authority to do their jobs and they carry the accompanying responsibility for the outcomes.

We believe our operating environment and our underwriter centric philosophy provides a superior work environment in which they can practice their craft. We have a high degree of confidence in our underwriters expertise and their instinct to write only the business that meets their underwriting standards.

The market is in different places for different lines of business today, but consistently our underwriters jobs remain the same, whether their rates are under pressure or are expected to rise. Only write what meets your standards and your criteria for risk quality, price and policy terms.

We are also proud to note that we were named to Fortune magazine’s annual list of America’s Hundred Fastest Growing Companies in September. We believe this distinction recognizes our strong growth rate in revenue and earnings-per-share, as well as our solid three-year annualized total return to investors; another reflection of our commitment to the strength and integrity of our balance sheet and our underwriting portfolio. While we are excited about the potential to capitalize on market opportunities, we are committed to maintaining our culture of underwriting discipline and specialized expertise.

With that, I’ll turn it over to Frank McDonnell to provide a review of our financial performance.

Frank McDonnell

Thank you, Stan. Adjusted for the previously reported realized capital losses of $0.21 per share and hurricane losses of $1.08 per share, earnings per share were $1.35 in the quarter. This compares to earnings per share of $1.47 in the third quarter of 2007.

The capital markets experienced extraordinary turmoil during the third quarter, resulting in additional impairment losses and a significant increase in the investment portfolio’s net unrealized loss position. The net unrealized loss position deteriorated by $34.8 million during the third quarter as a result of widening credit spreads. At September 30, the net unrealized loss on fixed maturities was 2.9% of the $1.7 billion cost of these investments.

We have a high-quality investment portfolio with average S&P ratings of AA. The duration is approximately 4.3 years. We have no CDOs our CLOs, asset-backed commercial paper or credit default swaps in the portfolio.

Since mid 2007, the performance of the fixed maturity portfolio has benefited from a shift to treasuries, agencies and municipals. These investments now comprise over 57% of our fixed maturities. In addition to the portfolio liquidity, we have more than $200 million of cash and short-term investments and we continue to generate strong cash flow as evidenced by this $216 million of operating cash flow reported for the first nine months of 2008.

As Stan explained, the third quarter after tax charge relating to the hurricane losses was $18.3 million and is inline with our enterprise risk management parameters. The storm losses added $88 million to the reinsurance recoverable balances and were well contained within our reinsurance program.

Our losses recoverable have increased $29 million during 2008 to $925 million. We are supported by a group of highly-rated re-insurers and we hold collateral or other offsets for more than 25% of our total losses recoverable balance.

Net loss reserves have increased $135 million to $982 million during 2008 with incurred but not reported losses accounting for $72 million of the increase. At September 30 2008, incurred but not reported losses comprised 64% of our net loss reserves. Throughout 2008 we have seen favorable loss trends across most lines of business. As a result of these loss trends, prior period reserve redundancies of $8 million were recorded in the third quarter, increasing the amount reported in 2008 to $29.6 million.

During the third quarter, the cost of shares repurchased totaled $1.7 million; under the current authorization, there is $18.5 million remaining in the stock repurchase program.

Finally, despite the extraordinary natural catastrophe and credit market events of 2008, our book value per share declined less than 0.5% of 1% to $39.07 since December 31, 2007.

Now, before I turn the call over for questions-and-answers, I need to point out a correction in the investment data included in the earnings release. On page 16 of the news release in the collateralized mortgage obligation action section, the amount shown as Alt-A and sub-prime are incorrectly reported and they should be moved up a line. The information is shown correctly in our 10-Q which we expect to file tomorrow.

With that I will turn it back over for questions and answers.

Question-and-Answer

Operator

(Operator Instructions) Your first question comes from Scott Heleniak - RBC Capital Markets.

Scott Heleniak - RBC Capital Markets

Just a couple of quick questions; first, on the expense ratio line, I’m just wondering, I know you guys had some researching activity in the second quarter; did we see any of that in the third quarter or was it just a onetime event. I wonder if you could collaborate on that on the cost side there.

Frank McDonnell

We did have a slight impact from the carryover affect of recent restructuring activity in the third quarter, as well as some other minor onetime charges.

Scott Heleniak - RBC Capital Markets

Was it a small number; $1 million to $2 million or less?

Frank McDonnell

Yes there is a combination of things contributing to about on a run rate, $2 million of additional expenses. We had some premium tax accruals, we had some termination of costs associated with the UK terminations that were previously reported and other than that, we just had a few minor adjustments.

Stan Galanski

What exacerbates it from a ratio standpoint is the accruals that we set up for exceeded reinsurance restatements, so that’s something to be cognizant of.

Scott Heleniak - RBC Capital Markets

And I know you gave the pricing changes for Marine and Energy for the quarter. I was just wondering if you could comment on what you’ve seen since October started. I know that a lot has happened over the past month or so. I’m just wondering if you’re seeing any kind of big changes in pricing or you expect to see big changes in the next couple of months.

Obviously with the AIG situation, the long rider marine and energy as you know. I’m just wondering if you might be able to give a little more commentary on what you expect to unfold over the next two or three months or so and if you think there’s enough capacity out there in the marine and energy.

Stan Galanski

Is your question just on marine and energy, Scott?

Scott Heleniak - RBC Capital Markets

Yes, just marine and energy.

Stan Galanski

I think the answer is energy probably less in the marine area. The hallmark has already begun the experience rate increases and it has for some time. We’ve had positive rate change in hall for several years and the question is when is it going to be enough, because of the loss activity that the industry has in that sector and thank God we’ve missed most of.

I think the real story is offshore energy where the rates this year are down 11% and dropped a couple of points last year from really historic highs after Katrina and Rita and it’s not just rates, it’s the subliming the coverage of wind in the Gulf. I think part of the answer is going to be what kind of reinsurance capacity exists for first loss Gulf of Mexico wind in 2009.

A lot of these decisions are made in London. Certainly, the leaders in this business, if they haven’t released their numbers yet are going to have significant losses. So I think we are very optimistic that you’ll see an improved pricing environment. The question is how much capacity will be there? And honestly I couldn’t tell you that today. We are working on it.

Scott Heleniak - RBC Capital Markets

Just one last question; to the last recession construction, particularly California construction saw increases in claims and is obviously less profitable. I’m just wondering if you could comment on how much you think of that. That last recession was just due to weak underwriting for many years versus an actual impact from the recession in the earlier part of the decade and how you see that playing out in that market.

Stan Galanski

I guess a little bit of that would be just pure speculation as to what the causes are. I think there’s some fundamentally better things in California that have come across this decade and probably the biggest to me is Senate Bill 800 giving the contractor the mandatory right to cure before it can go to litigation.

Now, where does that go? What kind of court decisions do you get in a worsening economy is anybody’s speculation. We have not seen a real correlation between economic downturn and increase in general liability claims as I think you would expect to see in other lines of business such as workers compensation or surety that we are not in.

So we do not believe there is a real correlation there, nor have we experienced that. We do think that bad underwriting and not staying on top of your contractual liability and not having appropriate coverage restrictions on your contract can get any genera list underwriter into a lot of trouble in California.

Operator

Your next question comes from Paul Newsome - Sandler O'Neill & Partners.

Paul Newsome - Sandler O'Neill & Partners

I was hoping you could kind of just step back and give us a sense of how you are not thinking differently about your financial targets given the higher cost of capital. Obviously your stock has been impacted everyone, actually in many cases much worse. Have you changed how you think about underwriting? What are you doing in response to this higher cost of capital?

Stan Galanski

Well, I’ll speak to you as an underwriter on that Paul and I’ll give Frank a chance to speak as a financial executive on it. We are an underwriting company and we never change our underwriting philosophy based on short term share price or any kind of earnings business plan or anything we have. As a matter of fact, other than Frank and myself and maybe a couple of other guys in our headquarters, we really don’t want anybody thinking about return on equity as a parameter.

We want them thinking about making an underwriting profit, because I think our fundamental belief is that if we consistently do that, we will outperform and we will be an outstanding insurance company. So we are always, always focused on underwriting profit as our primary measure. Now that is not to say we don’t look at what kind of return we get and what the cost of capital are for our lines of business and from my perspective, I think one of the classics is the offshore energy business. Given the volatility of that sector, there has to be much higher returns in non-CAT years than I believe the industry’s been able to achieve and that we’ve been able to achieve.

We think we have maintained a very disciplined approach to that business, but if you can’t get your terms and you can’t get your returns at some point your patience runs out. We’re not there right now. We are optimistic that you will see a much improved pricing environment, but certainly we are cognizant of how much capital a line of business eats up.

We think the company is in a very good capital position today, a very good liquidity position and I think we feel very well positioned to take care of opportunities in the markets which we are pretty confident are going to develop.

Frank McDonnell

Yes, I’ll just add that in our forecasting and annual planning processes, we run the results through our capital models. When we do that, we factor in the changing cost of capital over time, so we are able to measure whether these results generate the desired return and that’s a formal process within the company.

Stan Galanski

But at the end of the day, if you’re an underwriter at Navigators, your combined ratio needs to be double-digit. If it is triple digit, you don’t have a long life expectancy in our company.

Paul Newsome - Sandler O'Neill & Partners

Understandable. I guess I’ve been asking this question a lot and what I’m really interested in is basically people’s response to the fact that a 99 combined ratio is an underwriting profit, but it is probably a completely unacceptable return of equity. Where it used to be in the ‘70s, which is feeling like a lot right now, it was an acceptable underwriting we saw and how that has changed because, we won’t get a hard market if people think that a 99 combined ratio [Inaudible].

Stan Galanski

Well all I would tell you with the exception of the CAT impact in this quarter, we’re looking more like a 90 and we think that’s a respectable quarter. I probably have a lot different feeling in my office if we were sitting at 99 today, Paul.

Operator

(Operator Instructions) Your next question comes from Bijan Moazami - FBR Capital Markets.

Bijan Moazami - Friedman Billings Ramsey

You guys alluded to a potential hardening of the market environment, that’s what we’ve been hearing from a lot of other companies and Navigator usually in a market like that grows very rapidly to take advantage of the market. What are the lines of business that you think if you had a crystal ball, that you would be growing it rapidly and do you see yourself to repeat exactly the same kind of things that you’ve done in the previous hard market?

Stan Galanski

That is a big question. We’ll take it in components. Where do we think that there’s likely to be improvement in the market? I’m reading about some of the comments coming out of the reinsurance gurus who are over at Baden this week. We don’t spend money on trips like that, but I think it’s very difficult to predict a global hardening of the insurance industry and there are lines that we are not in. So this is not uncommon on Property CAT or workers compensation or anything like that, but in our Specialty niches; (1) off shore energy; (2) I think you’re going to the see that in directors and officers liability.

We do believe that those who do have significant exposure to financial institutions and the Fortune, let’s say 250 accounts are going to see an up-tick in class action securities litigation and candidly those rates need to come up, particularly in those segments of the D&O business. So I would think, in general if we say where is the most opportunity in the short term or we are optimistic from improved trading conditions, those two would jump out.

In terms of opportunities in the market for us, we remain very bullish on our Excess Casualty business, because it is a relatively new business. When you have an operation that’s still in its early years, it’s not like you’ve got $0.5 billion worth of business. So we think there will be opportunities for us to expand it. We have a handful of underwriters doing this business and simply having one or two more around increases our ability to complete transactions.

I forget what the second part of your question was, Bijan.

Bijan Moazami - Friedman Billings Ramsey

I just want to make sure that you guys are going to take advantage of the market.

Stan Galanski

Yes, I think we are pretty optimistic about some hires coming on board in London. As you know everybody there has guiding lease; you might not see that for a couple of months and we’re really excited about a couple of strategic hires in the US. Hopefully, we’re in the final stages of launching this environmental team which will be in Chicago, which we see a good synergy with what we do in construction, with some of our other primary casualty business and yes, I think Navigators is viewed as a good place to be.

Bijan Moazami - Friedman Billings Ramsey

I also have a clarification. The change in the net to gross written premium was mostly because of the reinstatements or is that a change in the way that you’re approaching the reinsurance business?

Stan Galanski

No, no. There’s I think two factors in there; one is certainly the reinstatements, but also you may recall from a year ago on our conference call that we have instituted a new system in London for the ceding and the coating of reinsurance. In the third quarter of ‘07, we had a somewhat higher than normal quarter in London and that our net was very high because of the way we had been ceding in the past. This system which I believe is called RFS. So we have kind of that one time impact of having a super large third quarter net in 2007 third quarter, which is a little bit distorting in the numbers this quarter.

Operator

(Operator Instructions) And there are no further questions at this time. I would now like to turn the conference back over to Mr. Stanley Galanski, President and CEO, for closing remarks.

Stan Galanski

Well, it’s a cold rainy day in New York and it’s good to be in a warm place. We think we’re in one and we hope you guys stay warm and dry today as well. Thanks for being on the call today.

Operator

Ladies and gentlemen, thank you for your participation in today’s conference. This concludes the presentation. You may now disconnect. Have a good day.

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