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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-K

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended
December 31, 2002

Commission File No. 0-15886

THE NAVIGATORS GROUP, INC.
(Exact name of registrant as specified in its charter)

        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 ý    No o

        Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of 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 o

        Indicate by check mark whether the registrant is an accelerated filer (as defined in Exchange Act Rule 12b-2). Yes ý    No o

        The aggregate market value of voting stock held by non-affiliates as of June 28, 2002 was $113,016,000.

        The number of common shares outstanding as of March 21, 2003 was 8,492,535.

DOCUMENTS INCORPORATED BY REFERENCE

        Portions of the registrant's 2003 Proxy Statement are incorporated by reference in Part III, Items 10, 11, 12 and 13 of this Form 10-K.

Forward-looking statements

        Some of the statements in this Annual Report on Form 10-K are "forward-looking statements" as defined in the Private Securities Litigation Act of 1995. We derive forward-looking information from information which we currently have and assumptions which we make. We cannot assure that results which we anticipate will be achieved, since results may differ materially because of both known and unknown risks and uncertainties which we face. The Company undertakes no obligation to publicly update or revise any forward-looking statement. Factors which could cause actual results to differ materially from our forward looking statements include, but are not limited to:

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the effects of domestic and foreign economic conditions, and conditions which affect the market for property and casualty insurance;



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changes in the laws, rules and regulations which apply to our insurance companies;



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the effects of emerging claim and coverage issues on our business, including adverse judicial or regulatory decisions and rulings;



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the effects of competition from banks, other insurers and the trend toward self-insurance;



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risks which we face in entering new markets and diversifying the products and services we offer;



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unexpected turnover of our professional staff;



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changing legal and social trends and inherent uncertainties in the loss estimation process that can adversely impact the adequacy of loss reserves and the allowance for reinsurance recoverables;



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risks associated with our continuing ability to obtain reinsurance covering our exposures at appropriate prices and/or in sufficient amounts and the related recoverability of our reinsured losses;



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weather-related events and other catastrophes (including acts of terrorism) impacting our insureds and/or reinsurers;



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our ability to attain adequate prices, obtain new business and to retain existing business consistent with our expectations;



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the possibility of downgrades in our claims-paying and financial strength ratings significantly adversely affecting us, including reducing the number of insurance policies we write generally, or causing clients who require an insurer with a certain rating level to use higher-rated insurers;



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the risk that our investment portfolio suffers reduced returns or investment losses which could reduce our profitability; and



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other risks which we identify in future filings with the Securities and Exchange Commission.

Part I

Item 1. BUSINESS

General

        The accompanying consolidated financial statements consisting of the accounts of The Navigators Group, Inc., a Delaware holding company, and its twelve active wholly owned subsidiaries are prepared on the basis of accounting principles generally accepted in the United States of America ("GAAP"). The Company consists of insurance company operations, insurance underwriting agencies and operations at Lloyd's of London. Unless the context otherwise requires, the term "Company" as used herein means The Navigators Group, Inc. and its subsidiaries. The term "Parent Company" is used to

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mean the Company without its subsidiaries. All significant intercompany transactions and balances have been eliminated.

        The Company's two insurance company subsidiaries are Navigators Insurance Company ("Navigators Insurance"), which includes a United Kingdom Branch ("UK Branch"), and NIC Insurance Company ("NIC"). Navigators Insurance is the Company's largest insurance subsidiary and has been active since 1983. It specializes principally in underwriting marine insurance and related lines of business, contractors' general liability insurance, and professional liability insurance. NIC, a wholly owned subsidiary of Navigators Insurance, began operations in 1990. NIC is a surplus lines insurance company fully reinsured by Navigators Insurance. Surplus lines insurance companies operate on a non-admitted basis, and are not subject to state regulation of rates and forms. Navigators Insurance and NIC are collectively referred to herein as the "Insurance Companies".

        Five of the Company's wholly owned insurance underwriting agencies (the "Navigators Agencies"), produce business for the Insurance Companies. They specialize in writing marine and related lines of business, general liability insurance and professional liability coverages.

        Each of the Navigators Agencies write marine and related business for Navigators Insurance which is pooled with four unaffiliated insurance companies. The five insurance companies comprise a marine insurance pool. Marine insurance policies are issued by Navigators Insurance with the business shared through the pool. Navigators Insurance had a 75% net participation in the pool.

        Navigators Specialty, a division of a Navigators Agency located in San Francisco, California, produces business exclusively for the Insurance Companies. It specializes in underwriting general liability insurance coverage for general contractors and small artisans as well as small commercial risks with the majority of the business located on the west coast of the U.S.

        Navigators Pro, a division of a Navigators Agency located in New York, specializes in underwriting professional liability insurance and began producing directors & officers liability insurance exclusively for the Insurance Companies in the fourth quarter of 2001. In late 2002, Navigators Pro introduced additional products to complement its directors & officers liability coverage. The products include employment practices liability, lawyers professional liability and miscellaneous professional liability coverages.

        Navigators Holdings (UK) Limited is a holding company for the Company's UK subsidiaries consisting of the Lloyd's Operations and Navigators Management (UK) Limited, a Navigators Agency, which produces business for the UK Branch of Navigators Insurance. The Lloyd's Operations consist of Navigators Underwriting Agency Ltd. ("NUAL"), a Lloyd's of London ("Lloyd's") marine underwriting managing agency which manages Lloyd's Syndicate 1221, Millennium Underwriting Ltd. ("Millennium") and Navigators Corporate Underwriters Ltd. ("NCUL"). Both Millennium and NCUL are Lloyd's corporate members with limited liability and provide capacity to Lloyd's Syndicate 1221. NUAL owns Pennine Underwriting Ltd., an underwriting managing agency with offices in Manchester and Leeds, England, which underwrites cargo and engineering business for Lloyd's Syndicate 1221.

        The Company's revenue is primarily comprised of premiums, commissions and investment income. The Insurance Companies derive their premium primarily from business written by the Navigators Agencies. The Lloyd's Operations derive their premium from business written by NUAL. The Navigators Agencies and NUAL receive commissions and, in some cases, profit commissions and service fees on the business produced.

        Property and casualty insurance premiums historically have been cyclical in nature and, accordingly, during a "hard market" demand for property and casualty insurance exceeds supply or capacity and, as a result, premiums and commissions may increase. On the downturn of the property and casualty cycle, which is referred to as a "soft market", supply exceeds demand and, as a result, premiums and commissions may decrease.

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Lines of Business

        The Company's two largest lines of business are marine and general liability insurance. It also writes professional liability insurance, onshore energy, engineering and construction insurance. In 2002, the Company began to write surety, commercial multiple peril and commercial automobile from its midwest office and personal umbrella insurance from its California office. Marine insurance includes hull, offshore energy, liability and cargo; general liability insurance is primarily contractors' liability; onshore energy insurance focuses on the oil and gas, chemical and petrochemical industries with coverages primarily for property damage and business interruption; and engineering and construction insurance consists of coverage for construction projects including machinery, equipment and loss of use due to delays. In November 2001, the Company formed a new division, Navigators Pro, specializing in professional liability insurance, primarily directors and officers coverages.

Marine Insurance

        Navigators Insurance obtains marine business through participation in the marine pool managed by the Navigators Agencies. The composition of the pool and the level of participation of each member changes from time to time. Navigators Insurance's net participation in the marine pool for 2002, 2001 and 2000 was 75%. The Navigators Agencies generally receive commissions equal to 7.5% of the gross premium earned on marine insurance and are entitled to receive a 20% profit commission on the net underwriting profits of the pool.

        The Lloyd's marine premium is generated as a result of NCUL and Millennium providing capacity to Lloyd's Syndicate 1221. The Company's share of the premiums, losses and expenses from Lloyd's Syndicate 1221 are included in the Company's consolidated results.

Engineering and Construction

        The Lloyd's Operations write engineering and construction business consisting of coverage for construction projects including machinery, equipment and loss of use due to delays.

Onshore Energy

        The Lloyd's Operations also write onshore energy insurance which principally focuses on the oil and gas, chemical and petrochemical industries with coverages primarily for property damage and business interruption.

General Liability

        Navigators Specialty writes primary general liability and excess liability/umbrella insurance for general contractors and small artisans and other small commercial risks.

Professional Liability

        In late 2001, the Insurance Companies began to write professional liability insurance through Navigators Pro, a division of one of the Navigators Agencies. Navigators Pro primarily offers directors and officers liability insurance for privately held and publicly traded corporations. More recently, Navigators Pro began offering employment practices liability, lawyers professional liability and miscellaneous professional liability coverages.

Surety

        Beginning in the third quarter of 2002, the Company began producing surety business from its midwest office with a focus on the small to medium contractor market as well as the small general commercial surety risks.

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Other Property/Casualty Insurance

        In late 2002, the Company began to write commercial multiple peril and commercial automobile from its midwest office and personal umbrella insurance from its California office.

Reinsurance Ceded

        The Company utilizes reinsurance principally to reduce its exposure on individual risks, to protect against catastrophic losses, to maintain desired ratios of net premium written to statutory surplus and to stabilize loss ratios.

        Reinsurance does not discharge the original insurer from its primary liability to the policyholder. The ceding company is required to pay the losses even if the assuming company fails to meet its obligations under the reinsurance agreement.

        Reinsurance is generally written under treaty contracts in which coverage is either on a proportional basis, where the reinsurer shares proportionately in premiums and losses, or on an excess of loss basis, where only losses above a fixed amount are reinsured.

        The Company is protected by various treaty and facultative reinsurance agreements. The Company's exposure to credit risk from any one reinsurer is managed through diversification by reinsuring with a number of different reinsurers, principally in the United States and European reinsurance markets. To meet our standards of acceptability, when the reinsurance is placed, a reinsurer must have an A.M. Best and/or Standard & Poor's ("S&P") rating of A or better, or equivalent financial strength if not rated, plus at least $150 million in policyholders' surplus. The list of acceptable reinsurers is reviewed periodically by the Reinsurance Security Committee. The reinsurance is placed either directly by the Company or through reinsurance intermediaries. The reinsurance intermediaries are compensated by the reinsurers. The Company's Reinsurance Security Committee monitors the financial strength of its reinsurers and the amounts of reinsurance receivables from those reinsurers. See Management's Discussion and Analysis of Financial Condition and Results of Operations—Operating Expenses—Net Loss and LAE Incurred for a discussion of the reinsurance recoverables from and financial strength ratings of the Company's primary reinsurers.

Reserves

        Insurance companies and Lloyd's syndicates are required to maintain reserves for unpaid losses and unpaid loss adjustment expenses ("LAE") for all lines of business. These reserves are intended to cover the probable ultimate cost of settling all losses incurred and unpaid, including those incurred but not reported. The determination of reserves for losses and LAE for insurance companies such as Navigators Insurance and NIC, and Lloyd's corporate members such as NCUL and Millennium is dependent upon the receipt of information from the pools and syndicates in which such companies participate. Generally, 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 the pools and syndicates and, subsequently, to Navigators Insurance, NIC, NCUL and Millennium.

        Reserves are established for the Insurance Companies and Lloyd's Syndicate 1221 for reported claims when notice of the claim is first received. Reserves for such reported claims are established on a case-by-case basis by evaluating several factors, including the type of risk involved, knowledge of the circumstances surrounding such claim, severity of injury or damage, the potential for ultimate exposure, experience with the insured and the broker on the line of business, and the policy provisions relating to the type of claim. Reserves for incurred but not reported losses (which are referred to as IBNR) are determined in part on the basis of statistical information and in part on industry experience.

        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

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such estimates. In setting its loss reserve estimates, the 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. Based on this review, the Company makes a best estimate of its ultimate liability. The Company does not establish a range of loss estimates around the best estimate it uses to establish its reserves and LAE. During the loss settlement period, which, in some cases, may last several years, additional facts regarding individual claims may become known and, accordingly, it often becomes necessary to refine and adjust the estimates of liability on a claim upward or downward. Such estimates are regularly reviewed and updated and any resulting adjustments are included in the current year's income statement. Even then, the ultimate liability may exceed or be less than the revised estimates. The reserving process is intended to provide implicit recognition of the impact of inflation and other factors affecting loss payments by taking into account changes in historical payment patterns and perceived probable trends. There is generally no precise method for the subsequent evaluation of the adequacy of the consideration given to inflation, or to any other specific factor, because the eventual deficiency or redundancy of reserves is affected by many factors, some of which are interdependent.

        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. Our long tail business includes contractors' liability and professional liability insurance. We are also exposed to some asbestos and environmental liability primarily through our marine line of business. Management believes that its reserves for such claims are adequate because the Company's participation in such risks is generally in the higher excess layers and, based on a continuing review of such claims, it believes that a majority of these claims will be unlikely to penetrate such high excess layers of coverage; however, due to significant assumptions inherent in estimating these exposures, actual liabilities could differ from current estimates. 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 can vary. For the long tail liability classes, a relatively small proportion of net losses in the more recent accident years are reported claims and an even smaller proportion are paid losses. Therefore, a relatively large proportion of our net losses for these classes are reserves for IBNR losses. In fact, approximately 76% of our construction liability net loss reserves at December 31, 2002 were for IBNR. Virtually all of the professional liability net loss reserves at December 31, 2002 were for IBNR. Where anticipated loss experience is less predictable because of the small number of claims and/or erratic claim severity patterns, our loss estimates are based on expected losses, actual reported losses, evaluation of loss trends, and the legal, regulatory and current risk environment. The expected ultimate losses are adjusted as the accident years mature. As of December 31, 2002, there were 495 open claims for construction defect liability insurance and seven open claims for professional liability coverage. Additional information regarding the complexity of estimating asbestos and environmental reserves is discussed below under Environmental Pollution and Asbestos Related Claims. The Company does not discount any of its reserves.

        The Company records those premiums which are reported to it through the end of each calendar year and accrues estimates for amounts where there is a time lag between when the policy is bound and the recording of the policy. A substantial portion of the estimated premiums is from international business where there can be significant time lags. To the extent that the actual premiums vary from estimates, the difference is recorded in current operations.

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        The following table presents an analysis of losses and LAE:

        The following table presents the development of the loss and LAE reserves for 1992 through 2002. The line "Net reserves for losses and LAE" reflects the net reserves at the balance sheet date for each of the indicated years and represents the estimated amount of losses and LAE arising in all prior years that are unpaid at the balance sheet date. The "Reserves re-estimated" lines of the table reflect the re-estimated amount of the previously recorded reserves based on experience as of the end of each succeeding year. The estimate changes as more information becomes known about the frequency and severity of claims for individual years. The "Cumulative redundancy (deficiency)" lines of the table reflect the cumulative amounts developed as of successive years with respect to the aforementioned reserve liability. The cumulative redundancy or deficiency represents the aggregate change in the estimates over all prior years.

        The table allocates losses and LAE reported and recorded in subsequent years to all prior years starting with the year in which the loss was incurred. For example, assume that a loss occurred in 1994 and was not reported until 1996, the amount of such loss will appear as a deficiency in both 1994 and 1995. 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 redundancies or deficiencies based on the table.

        As part of our risk management process, we purchase reinsurance to limit our liability on individual risks and to protect against catastrophic loss. We purchase both quota share reinsurance and excess of loss reinsurance. Quota share reinsurance is often times utilized on the lower layers of risk and excess of loss reinsurance is used above the quota share reinsurance to limit our net retention per risk. Net retention means the amount of losses that we keep for our own account. Once our initial reserve is established and our net retention is exceeded, any adverse development will directly affect the gross loss reserve, but would generally have no impact on our net retained loss. Generally our limits of exposure are known with greater certainty when estimating our net loss versus our gross loss. This situation tends to create greater volatility in the deficiencies and redundancies of the gross reserves as compared to the net reserves.

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        The net cumulative deficiency for the year ended December 31, 1992 resulted from adverse development in certain lines of business. The 1992 and 1993 gross cumulative deficiencies resulted primarily from the 1989 Exxon Valdez loss. The gross cumulative deficiencies for 1994 and 1995 resulted primarily from the 1994 Northridge Earthquake loss, the 1989 Exxon Valdez loss and a large marine liability claim reported in 1999 affecting years 1994 through 1998. The 1996 gross cumulative deficiency resulted from adverse development in several lines of business. The 1997 gross cumulative deficiency resulted from adverse development in the onshore energy business and from one large 1989 claim from a run-off book of business which also adversely affected years prior to 1997. The gross deficiency in 1998 resulted from the two marine liability claims mentioned, a large energy claim incurred in 1998 and reported in 1999 and reserve strengthening in the Company's Lloyd's Operations. The 2000 gross and net adverse development resulted from the Company's Lloyd's Operations establishing reserves against premiums from prior years' which were received in excess of the Company's original premium estimates and strengthening the Lloyd's reserves related to the 1999 underwriting year. The net reserve deficiency for 2001 year resulted primarily from adverse development in the general liability line of business. The gross deficiency in the 2001 year resulted primarily from the adverse development in the general liability and marine lines of business. The adverse development on the Company's gross reserves has been mostly reinsured through excess of loss reinsurance treaties. As a result of these reinsurance arrangements, while the Company's gross losses and related reserve deficiencies and redundancies are very sensitive to adverse developments such as those described above, our net losses and related reserve deficiencies and redundancies tend to be less sensitive to such developments.

        Management believes that the reserves for losses and LAE are adequate to cover the ultimate cost of losses and LAE on reported and unreported claims.

Environmental Pollution and Asbestos Related Claims

        Establishing net loss reserves for asbestos, environmental and other mass tort claims is subject to uncertainties that are greater than those presented by other types of claims. Among the complications are lack of historical data, long reporting delays, uncertainty as to the number and identity of insureds with potential exposure, unresolved legal issues regarding policy coverage, and availability and collectibility of recoveries from reinsurers, and estimating the extent and timing of any contractual liability.

        In 2002, 2001 and 2000, the Company recorded net paid losses and LAE of $262,000, $86,000 and $173,000, respectively, for environmental pollution and asbestos related claims. As of December 31, 2002 and 2001, the Company carried net reserves of $1,513,000 and $1,185,000, respectively, for the potential exposure to such claims. Management believes that its reserves for such claims are adequate because the Company's participation in such risks is generally in the higher excess layers and, based on a continuing review of such claims, it believes that a majority of these claims will be unlikely to penetrate such high excess layers of coverage; however, due to significant assumptions inherent in estimating these exposures, actual liabilities could differ from current estimates. Moreover, due to the uncertainties and factors described above, management believes it is not presently practicable to develop a meaningful range for any such additional net loss reserve that may eventually be required. At December 31, 2002, there were 477 open claims on 304 policies with environmental pollution or asbestos exposures. Management will continue to review its exposure to and reserves for such claims. Any potential exposure to these claims exists predominantly in connection with the marine business.

Investments

        The investments of the Insurance Companies must comply with the insurance laws of New York State, the domiciliary state of Navigators Insurance and NIC. These laws prescribe the type, quality and concentration of investments which may be made by insurance companies. In general, these laws permit

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investments, within specified limits and subject to certain qualifications, in federal, state and municipal obligations, corporate bonds, preferred stocks, common stocks, real estate mortgages and real estate. The Insurance Companies' investment guidelines prohibit investments in derivatives other than as a hedge against a foreign currency.

        The Insurance Companies' investments are subject to the direction and control of its Board of Directors and are reviewed on a quarterly basis. The investments are managed by outside professional fixed income and equity portfolio managers. Current investment objectives are to maximize annual after tax income in the context of preserving and enhancing capital and statutory surplus. The Insurance Companies seek to attain these objectives by investing in municipal bonds, U.S. Government obligations, corporate bonds and common stocks. The Insurance Companies' investment guidelines require that at least 90% of the fixed income portfolio be rated "A-" or better by a nationally recognized rating organization. Up to 25% of the total portfolio may be invested in equity securities that are actively traded on major U.S. stock exchanges. At December 31, 2002 and 2001, all fixed maturity and equity securities held by the Company were classified as available-for-sale.

        The majority of the investment income of the Navigators Agencies is derived from fiduciary funds invested in accordance with the guidelines of various state insurance departments. These guidelines typically require investments in short-term instruments. This investment income is paid to the pool members, including Navigators Insurance.

        The table set forth below reflects investments and income earned thereon for the Company on a consolidated basis and for the Insurance Companies for each of the years in the three year period ended December 31, 2002:

        The following table shows the cash and investments of the Company as of December 31, 2002:

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        Fixed maturity securities include bonds and mortgage and asset backed securities. All fixed maturity and equity securities are carried at fair value. The fair value is based on quoted market prices or dealer quotes provided by independent pricing services.

        The following table presents the amortized cost or cost, as applicable, gross unrealized gains and losses and fair value for all fixed maturity and equity securities: