##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 WASHINGTON, D.C. 20549
 FORM 10-Q
 þ
    
    Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
 For the Quarterly Period Ended September 30, 2009
 or
 o
    
    Transitional Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
 For the transition period from
 _____ 
to
 _____
 Commission file number 0-15886
 The Navigators Group, Inc.
  Delaware
    
    13-3138397(State or other jurisdiction of 
incorporation or organization)
    
    (IRS Employer
Identification No.)One Penn Plaza, New York, New York
    
    10119(Address of principal executive offices)
    
    (Zip Code)
 (Registrants telephone number, including area code)
 (Former name, former address and former fiscal year, if changed since last report.)
 þ o
 o o
  Large accelerated filer þ
    
    Accelerated filer o
    
    Non-accelerated filer o
    
    Smaller reporting company o
 o þ




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##### 



THE NAVIGATORS GROUP, INC. AND SUBSIDIARIES
 INDEX
 Page No.Part I. FINANCIAL INFORMATION:Item 1. Financial StatementsConsolidated Balance Sheets
September 30, 2009 (Unaudited) and December 31, 2008
    
    
    3Consolidated Statements of Income (Unaudited)
Three Months Ended September 30, 2009 and 2008 and
Nine Months Ended September 30, 2009 and 2008
    
    
    4Consolidated Statements of Stockholders Equity (Unaudited)
September 30, 2009 and 2008
    
    
    5Consolidated Statements of Comprehensive Income (Unaudited)
Three Months Ended September 30, 2009 and 2008 and
Nine Months Ended September 30, 2009 and 2008
    
    
    6Consolidated Statements of Cash Flows (Unaudited)
Nine Months Ended September 30, 2009 and 2008
    
    
    7Notes to Interim Consolidated Financial Statements (Unaudited)
    
    
    8Item 2. Managements Discussion and Analysis of Financial
Condition and Results of Operations
    
    
    31Item 3. Quantitative and Qualitative Disclosures
About Market Risk
    
    
    83Item 4. Controls and Procedures
    
    
    83Part II. OTHER INFORMATIONItem 1. Legal Proceedings
    
    
    83Item 1A. Risk Factors
    
    
    83Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    83Item 3. Defaults Upon Senior Securities
    
    
    84Item 4. Submissions of Matters to a Vote of Security Holders
    
    
    84Item 5. Other Information
    
    
    84Item 6. Exhibits
    
    
    84Signature
    
    
    85Index of Exhibits
    
    
    86Exhibit 11.1Exhibit 31.1Exhibit 31.2Exhibit 32.1Exhibit 32.2
   2




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##### Table of Contents



Part I. Financial Information
 
 Item 1. Financial Statements
 THE NAVIGATORS GROUP, INC. AND SUBSIDIARIES
 
 CONSOLIDATED BALANCE SHEETS
 ($ in thousands, except share data)
 September 30,
    
    
    December 31,2009
    
    
    2008(Unaudited)ASSETSInvestments and cash:Fixed maturities, available-for-sale, at fair value
(amortized cost: 2009, $1,823,107; 2008, $1,664,755)
    
    $
    1,877,786
    
    
    $
    1,643,772Equity securities, available-for-sale, at fair value (cost: 2009, $45,178; 2008, $52,523)
    
    
    57,949
    
    
    
    51,802Short-term
investments, at cost which approximates fair value
    
    
    136,935
    
    
    
    220,684Cash
    
    
    21,692
    
    
    
    1,457Total investments and cash
    
    
    2,094,362
    
    
    
    1,917,715Premiums receivable
    
    
    189,378
    
    
    
    170,522Prepaid reinsurance premiums
    
    
    163,248
    
    
    
    188,874Reinsurance recoverable on paid losses
    
    
    93,287
    
    
    
    67,227Reinsurance recoverable on unpaid losses and loss adjustment expenses
    
    
    818,397
    
    
    
    853,793Deferred income tax, net
    
    
    25,233
    
    
    
    54,736Deferred policy acquisition costs
    
    
    59,480
    
    
    
    47,618Accrued investment income
    
    
    16,596
    
    
    
    17,411Goodwill and other intangible assets
    
    
    7,010
    
    
    
    6,622Other assets
    
    
    26,306
    
    
    
    25,062Total assets
    
    $
    3,493,297
    
    
    $
    3,349,580LIABILITIES AND STOCKHOLDERS EQUITYLiabilities:Reserves for losses and loss adjustment expenses
    
    $
    1,903,204
    
    
    $
    1,853,664Unearned premiums
    
    
    491,410
    
    
    
    480,665Reinsurance balances payable
    
    
    111,494
    
    
    
    140,319Senior notes
    
    
    113,979
    
    
    
    123,794Federal income taxes payable
    
    
    6,563
    
    
    
    5,874Accounts payable and other liabilities
    
    
    55,692
    
    
    
    55,947Total liabilities
    
    
    2,682,342
    
    
    
    2,660,263Stockholders equity:Preferred stock, $.10 par value, authorized 1,000,000 shares, none issued
    
    
    
    
    
    
    Common stock, $.10 par value, authorized 50,000,000 shares, issued
17,197,419 shares as of September 2009 and 17,080,826 shares as of
December 2008
    
    
    1,720
    
    
    
    1,708Additional paid-in capital
    
    
    304,000
    
    
    
    298,872Retained earnings
    
    
    463,858
    
    
    
    406,776Treasury stock, at cost (224,754 shares for both 2009 and 2008)
    
    
    (11,540
    )
    
    
    (11,540
    )Accumulated other comprehensive income (loss)
    
    
    52,917
    
    
    
    (6,499
    )Total stockholders equity
    
    
    810,955
    
    
    
    689,317Total liabilities and stockholders equity
    
    $
    3,493,297
    
    
    $
    3,349,580
   3




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##### Table of Contents



THE NAVIGATORS GROUP, INC. AND SUBSIDIARIES
 
 CONSOLIDATED STATEMENTS OF INCOME
 ($ and shares in thousands, except net income per share)
 Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2009
    
    
    2008
    
    
    2009
    
    
    2008(Unaudited)
    
    
    (Unaudited)Gross written premiums
    
    $
    245,191
    
    
    $
    252,943
    
    
    $
    793,179
    
    
    $
    819,302Revenues:Net written premiums
    
    $
    156,001
    
    
    $
    140,318
    
    
    $
    539,660
    
    
    $
    502,327Decrease (increase) in unearned premiums
    
    
    15,270
    
    
    
    13,722
    
    
    
    (33,575
    )
    
    
    (29,844
    )Net earned premiums
    
    
    171,271
    
    
    
    154,040
    
    
    
    506,085
    
    
    
    472,483Commission income
    
    
    144
    
    
    
    8
    
    
    
    179
    
    
    
    736Net investment income
    
    
    19,110
    
    
    
    19,322
    
    
    
    56,509
    
    
    
    56,891Total other-than-temporary impairment losses
    
    
    (22
    )
    
    
    (4,748
    )
    
    
    (28,769
    )
    
    
    (13,160
    )Portion of loss recognized in other comprehensive
income (before tax)
    
    
    (525
    )
    
    
    
    
    
    
    17,053
    
    
    
    Net other-than-temporary impairment losses
recognized in earnings
    
    
    (547
    )
    
    
    (4,748
    )
    
    
    (11,716
    )
    
    
    (13,160
    )Net realized gains (losses)
    
    
    6,682
    
    
    
    (768
    )
    
    
    7,741
    
    
    
    (408
    )Other income (expense)
    
    
    1,097
    
    
    
    (119
    )
    
    
    6,507
    
    
    
    902Total revenues
    
    
    197,757
    
    
    
    167,735
    
    
    
    565,305
    
    
    
    517,444Expenses:Net losses and loss adjustment expenses
    
    
    107,591
    
    
    
    113,269
    
    
    
    308,566
    
    
    
    293,578Commission expenses
    
    
    22,852
    
    
    
    22,357
    
    
    
    71,578
    
    
    
    66,795Other operating expenses
    
    
    35,018
    
    
    
    30,601
    
    
    
    98,572
    
    
    
    93,594Interest expense
    
    
    2,042
    
    
    
    2,218
    
    
    
    6,411
    
    
    
    6,652Total expenses
    
    
    167,503
    
    
    
    168,445
    
    
    
    485,127
    
    
    
    460,619Income (loss) before income taxes
    
    
    30,254
    
    
    
    (710
    )
    
    
    80,178
    
    
    
    56,825Income tax expense (benefit)
    
    
    8,822
    
    
    
    (1,711
    )
    
    
    23,096
    
    
    
    15,153Net income
    
    $
    21,432
    
    
    $
    1,001
    
    
    $
    57,082
    
    
    $
    41,672Net income per common share:Basic
    
    $
    1.26
    
    
    $
    0.06
    
    
    $
    3.37
    
    
    $
    2.48Diluted
    
    $
    1.24
    
    
    $
    0.06
    
    
    $
    3.30
    
    
    $
    2.45Average common shares outstanding:Basic
    
    
    16,966
    
    
    
    16,772
    
    
    
    16,929
    
    
    
    16,802Diluted
    
    
    17,334
    
    
    
    16,927
    
    
    
    17,277
    
    
    
    16,980
   4




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THE NAVIGATORS GROUP, INC. AND SUBSIDIARIES
 
 CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY
 ($ in thousands)
 Nine Months EndedSeptember 30,2009
    
    
    2008(Unaudited)Preferred StockBalance at beginning and end of period
    
    $
    
    
    
    $
    Common stockBalance at beginning of year
    
    $
    1,708
    
    
    $
    1,687Shares issued under stock plans
    
    
    12
    
    
    
    13Balance at end of period
    
    $
    1,720
    
    
    $
    1,700Additional paid-in capitalBalance at beginning of year
    
    $
    298,872
    
    
    $
    291,616Shares issued under stock plans
    
    
    5,128
    
    
    
    4,861Balance at end of period
    
    $
    304,000
    
    
    $
    296,477Retained earningsBalance at beginning of year
    
    $
    406,776
    
    
    $
    355,084Net income
    
    
    57,082
    
    
    
    41,672Balance at end of period
    
    $
    463,858
    
    
    $
    396,756Treasury stock, at costBalance at beginning of year
    
    $
    (11,540
    )
    
    $
    Treasury stock acquired
    
    
    
    
    
    
    (11,540
    )Balance at end of period
    
    $
    (11,540
    )
    
    $
    (11,540
    )Accumulated other comprehensive income (loss)Net unrealized gains (losses) on investments, net of taxBalance at beginning of year
    
    $
    (15,062
    )
    
    $
    10,186Change in period
    
    
    52,037
    
    
    
    (43,423
    )Balance at end of period
    
    
    36,975
    
    
    
    (33,237
    )Non-credit other-than-temporary impairment gains (losses), net of taxBalance at beginning of year
    
    
    
    
    
    
    Change in period
    
    
    6,762
    
    
    
    Balance at end of period
    
    
    6,762
    
    
    
    Cumulative translation adjustments, net of taxBalance at beginning of year
    
    
    8,563
    
    
    
    3,533Net adjustment for period
    
    
    617
    
    
    
    1,872Balance at end of period
    
    
    9,180
    
    
    
    5,405Balance at end of period
    
    $
    52,917
    
    
    $
    (27,832
    )Total stockholders equity at end of period
    
    $
    810,955
    
    
    $
    655,561
   5




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##### Table of Contents



THE NAVIGATORS GROUP, INC. AND SUBSIDIARIES
 
 CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
 ($ in thousands)
 Three Months EndedSeptember 30,2009
    
    
    2008(Unaudited)Net income
    
    $
    21,432
    
    
    $
    1,001Other comprehensive income (loss):Change in net unrealized gains (losses) on investments,
net of tax expense (benefit) of $20,627 and ($11,938)
in 2009 and 2008, respectively(1)
    
    
    39,046
    
    
    
    (23,025
    )Change in foreign currency translation (losses) gains,
net of tax (benefit) expense of $884 and $958
in 2009 and 2008, respectively
    
    
    1,641
    
    
    
    1,779Other comprehensive income (loss)
    
    
    40,687
    
    
    
    (21,246
    )Comprehensive income (loss)
    
    $
    62,119
    
    
    $
    (20,245
    )(1) Disclosure of reclassification
amount, net of tax:Unrealized gains (losses) on investments arising
during period
    
    $
    43,064
    
    
    $
    (26,609
    )Less: reclassification adjustment for net realized
gains (losses) included in net income
    
    
    4,370
    
    
    
    (3,584
    )reclassification adjustment for other-than-temporary
impairment losses recognized in net income
    
    
    (352
    )
    
    
    Change in net unrealized gains (losses) on investments
    
    $
    39,046
    
    
    $
    (23,025
    )
 Nine Months EndedSeptember 30,2009
    
    
    2008(Unaudited)Net income
    
    $
    57,082
    
    
    $
    41,672Other comprehensive income (loss):Change in net unrealized gains (losses) on investments,
net of tax expense (benefit) of $30,356 and $(22,680)
in 2009 and 2008, respectively(2)
    
    
    58,799
    
    
    
    (43,423
    )Change in foreign currency translation (losses) gains,
net of tax (benefit) expense of $332 and $1,008
in 2009 and 2008, respectively
    
    
    617
    
    
    
    1,872Other comprehensive income (loss)
    
    
    59,416
    
    
    
    (41,551
    )Comprehensive income
    
    $
    116,498
    
    
    $
    121(2) Disclosure of reclassification amount, net of tax:Unrealized gains (losses) on investments arising
during period
    
    $
    56,006
    
    
    $
    (52,242
    )Less: reclassification adjustment for net realized
gains (losses) included in net income
    
    
    4,933
    
    
    
    (8,819
    )reclassification adjustment for other-than-temporary
impairment losses recognized in net income
    
    
    (7,726
    )
    
    
    Change in net unrealized gains (losses) on investments
    
    $
    58,799
    
    
    $
    (43,423
    )
   6




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##### Table of Contents



THE NAVIGATORS GROUP, INC. AND SUBSIDIARIES
 
 CONSOLIDATED STATEMENTS OF CASH FLOWS
 ($ in thousands)
 Nine Months EndedSeptember 30,2009
    
    
    2008(Unaudited)Operating activities:Net income
    
    $
    57,082
    
    
    $
    41,672Adjustments to reconcile net income to net
cash provided by operating activities:Depreciation & amortization
    
    
    3,418
    
    
    
    3,667Deferred income taxes
    
    
    (1,233
    )
    
    
    (9,378
    )Net realized losses
    
    
    3,975
    
    
    
    13,568Changes in assets and liabilities:Reinsurance recoverable on paid and unpaid losses and
loss adjustment expenses
    
    
    14,509
    
    
    
    (35,844
    )Reserves for losses and loss adjustment expenses
    
    
    38,144
    
    
    
    211,119Prepaid reinsurance premiums
    
    
    26,787
    
    
    
    (1,732
    )Unearned premiums
    
    
    7,394
    
    
    
    31,400Premiums receivable
    
    
    (16,406
    )
    
    
    (12,132
    )Commissions receivable
    
    
    189
    
    
    
    2,221Deferred policy acquisition costs
    
    
    (11,293
    )
    
    
    (720
    )Accrued investment income
    
    
    832
    
    
    
    (1,570
    )Reinsurance balances payable
    
    
    (29,870
    )
    
    
    (11,266
    )Federal income taxes
    
    
    (235
    )
    
    
    (2,122
    )Other
    
    
    11,879
    
    
    
    (12,518
    )Net cash provided by operating activities
    
    
    105,172
    
    
    
    216,365Investing activities:Fixed maturities, available-for-saleRedemptions and maturities
    
    
    106,210
    
    
    
    104,863Sales
    
    
    295,524
    
    
    
    133,752Purchases
    
    
    (565,886
    )
    
    
    (398,972
    )Equity securities, available-for-saleSales
    
    
    17,202
    
    
    
    18,514Purchases
    
    
    (18,544
    )
    
    
    (38,556
    )Change in payable for securities
    
    
    (544
    )
    
    
    2,643Net change in short-term investments
    
    
    88,215
    
    
    
    (10,301
    )Purchase of property and equipment
    
    
    (1,782
    )
    
    
    (2,900
    )Net cash used in investing activities
    
    
    (79,605
    )
    
    
    (190,957
    )Financing activities:Purchase of treasury stock
    
    
    
    
    
    
    (11,540
    )Principal paydown of Senior notes
    
    
    (7,000
    )
    
    
    Proceeds of stock issued from employee stock purchase plan
    
    
    727
    
    
    
    962Proceeds of stock issued from exercise of stock options
    
    
    941
    
    
    
    1,412Net cash used in financing activities
    
    
    (5,332
    )
    
    
    (9,166
    )Increase in cash
    
    
    20,235
    
    
    
    16,242Cash at beginning of year
    
    
    1,457
    
    
    
    7,056Cash at end of period
    
    $
    21,692
    
    
    $
    23,298Supplemental cash information:Income taxes paid
    
    $
    23,906
    
    
    $
    23,985Interest paid
    
    
    4,330
    
    
    
    4,375Issuance of stock to directors
    
    
    210
    
    
    
    200
   7




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##### Table of Contents



THE NAVIGATORS GROUP, INC. AND SUBSIDIARIES
 
 Notes to Interim Consolidated Financial Statements  (Unaudited)
 Note 1. Accounting Policies
  Note 2. Recent Accounting Pronouncements
 Recently Adopted Accounting Pronouncements
 The FASB Accounting Standards Codification and the Hierarchy
of Generally Accepted Accounting Principlesa replacement of FASB Statement No. 162.
 Subsequent Events Subsequent Events
  8




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##### Table of Contents



Determining the Fair Value
When the Volume and Level of Activity for the Asset and Liability Have Significantly Decreased and
Identifying Transactions that are Not Orderly Fair Value
Measurements and Disclosures
 Recognition and Presentation of
Other-Than-Temporary Impairments Investments
 Interim Disclosures about Fair Value of
Financial Instruments Financial Instruments
 Determining the Useful Life of Intangible Assets Intangibles  Goodwill and Other
 Disclosures about Derivative Instruments and Hedging
Activities Derivatives and Hedging
 Business Combinations Business Combinations
  9




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##### Table of Contents



Recent Accounting Developments
  Amendments to FASB Interpretation No. 46(R)
 Accounting for Transfers of Financial Assets, an
amendment of FASB Statement No. 140 Consolidation,
 Note 3. Segment Information
    10




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##### Table of Contents




    
    The offshore energy business, formerly included in the Marine and Energy
businesses of the Insurance Companies and Lloyds Operations, is now included in the
Insurance Companies and Lloyds Operations Property Casualty businesses.
 
    
    The marine lines within both the Insurance Companies and Lloyds Operations are
now presented as Marine instead of Marine and Energy, since the offshore energy
business has now been reclassified to Property Casualty.
  11




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##### Table of Contents




    
    Engineering and construction, European Property and other run-off business,
formerly included in the Other category of business within the Insurance Companies
and Lloyds Operations, are now included under Property Casualty.
 
    
    The Middle Markets business, formerly broken out separately in the Insurance
Companies, is now included in the Insurance Companies Property Casualty business.
  Three Months Ended September 30, 2009Insurance
    
    
    Lloyd'sCompanies
    
    
    Operations
    
    
    Corporate
    
    
    Total($ in thousands)Gross written premiums
    
    $
    180,000
    
    
    $
    65,191
    
    
    $
    
    
    
    $
    245,191Net written premiums
    
    
    116,033
    
    
    
    39,968
    
    
    
    
    
    
    
    156,001Net earned premiums
    
    
    122,804
    
    
    
    48,467
    
    
    
    
    
    
    
    171,271Net losses and LAE
    
    
    (75,838
    )
    
    
    (31,753
    )
    
    
    
    
    
    
    (107,591
    )Commission expenses
    
    
    (15,346
    )
    
    
    (7,835
    )
    
    
    329
    
    
    
    (22,852
    )Other operating expenses
    
    
    (27,194
    )
    
    
    (7,835
    )
    
    
    
    
    
    
    (35,029
    )Commission income and other income (expense)
    
    
    1,301
    
    
    
    280
    
    
    
    (329
    )
    
    
    1,252Underwriting profit (loss)
    
    
    5,727
    
    
    
    1,324
    
    
    
    
    
    
    
    7,051Net investment income
    
    
    16,597
    
    
    
    2,361
    
    
    
    152
    
    
    
    19,110Net realized gains (losses)
    
    
    5,710
    
    
    
    425
    
    
    
    
    
    
    
    6,135Other operating expenses
    
    
    
    
    
    
    
    
    
    
    11
    
    
    
    11Commission income and other income (expense)
    
    
    
    
    
    
    
    
    
    
    (11
    )
    
    
    (11
    )Interest expense
    
    
    
    
    
    
    
    
    
    
    (2,042
    )
    
    
    (2,042
    )Income (loss) before income taxes
    
    
    28,034
    
    
    
    4,110
    
    
    
    (1,890
    )
    
    
    30,254Income tax expense (benefit)
    
    
    7,973
    
    
    
    1,510
    
    
    
    (661
    )
    
    
    8,822Net income (loss)
    
    $
    20,061
    
    
    $
    2,600
    
    
    $
    (1,229
    )
    
    $
    21,432Identifiable assets (1)
    
    $
    2,566,163
    
    
    $
    821,743
    
    
    $
    87,061
    
    
    $
    3,493,297Loss and LAE ratio
    
    
    61.8
    %
    
    
    65.5
    %
    
    
    
    
    
    
    62.8
    %Commission expense ratio
    
    
    12.5
    %
    
    
    16.2
    %
    
    
    
    
    
    
    13.3
    %Other operating expense ratio (2)
    
    
    21.1
    %
    
    
    15.6
    %
    
    
    
    
    
    
    19.8
    %Combined ratio
    
    
    95.4
    %
    
    
    97.3
    %
    
    
    
    
    
    
    95.9
    %
 (1)
    
    Includes inter-segment transactions causing the row not to cross foot.(2)
    
    Includes Other operating expensesand Commission income and other income (expense).  12




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##### Table of Contents



Three Months Ended September 30, 2009Insurance
    
    
    Lloyd'sCompanies
    
    
    Operations
    
    
    Total($ in thousands)Gross written premiums:Marine
    
    $
    53,129
    
    
    $
    33,960
    
    
    $
    87,089Property Casualty
    
    
    93,302
    
    
    
    20,024
    
    
    
    113,326Professional Liability
    
    
    33,569
    
    
    
    11,207
    
    
    
    44,776Total
    
    $
    180,000
    
    
    $
    65,191
    
    
    $
    245,191Net written premiums:Marine
    
    $
    39,632
    
    
    $
    23,816
    
    
    $
    63,448Property Casualty
    
    
    57,567
    
    
    
    11,116
    
    
    
    68,683Professional Liability
    
    
    18,834
    
    
    
    5,036
    
    
    
    23,870Total
    
    $
    116,033
    
    
    $
    39,968
    
    
    $
    156,001Net earned premiums:Marine
    
    $
    42,620
    
    
    $
    33,945
    
    
    $
    76,565Property Casualty
    
    
    60,380
    
    
    
    9,126
    
    
    
    69,506Professional Liability
    
    
    19,804
    
    
    
    5,396
    
    
    
    25,200Total
    
    $
    122,804
    
    
    $
    48,467
    
    
    $
    171,271
  13




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##### Table of Contents



Three Months Ended September 30, 2008Insurance
    
    
    Lloyd'sCompanies
    
    
    Operations
    
    
    Corporate
    
    
    Total($ in thousands)Gross written premiums
    
    $
    182,133
    
    
    $
    70,810
    
    
    $
    
    
    
    $
    252,943Net written premiums
    
    
    106,133
    
    
    
    34,185
    
    
    
    
    
    
    
    140,318Net earned premiums
    
    
    112,447
    
    
    
    41,593
    
    
    
    
    
    
    
    154,040Net losses and LAE
    
    
    (78,346
    )
    
    
    (34,923
    )
    
    
    
    
    
    
    (113,269
    )Commission expenses
    
    
    (13,823
    )
    
    
    (8,534
    )
    
    
    
    
    
    
    (22,357
    )Other operating expenses
    
    
    (22,802
    )
    
    
    (7,799
    )
    
    
    
    
    
    
    (30,601
    )Commission income and other income (expense)
    
    
    279
    
    
    
    (390
    )
    
    
    
    
    
    
    (111
    )Underwriting profit (loss)
    
    
    (2,245
    )
    
    
    (10,053
    )
    
    
    
    
    
    
    (12,298
    )Net investment income
    
    
    15,973
    
    
    
    3,074
    
    
    
    275
    
    
    
    19,322Net realized gains (losses)
    
    
    (5,207
    )
    
    
    (309
    )
    
    
    
    
    
    
    (5,516
    )Interest expense
    
    
    
    
    
    
    
    
    
    
    (2,218
    )
    
    
    (2,218
    )Income (loss) before income taxes
    
    
    8,521
    
    
    
    (7,288
    )
    
    
    (1,943
    )
    
    
    (710
    )Income tax expense (benefit)
    
    
    1,458
    
    
    
    (2,489
    )
    
    
    (680
    )
    
    
    (1,711
    )Net income (loss)
    
    $
    7,063
    
    
    $
    (4,799
    )
    
    $
    (1,263
    )
    
    $
    1,001Identifiable assets (1)
    
    $
    2,437,909
    
    
    $
    808,768
    
    
    $
    71,608
    
    
    $
    3,340,584Loss and LAE ratio
    
    
    69.7
    %
    
    
    84.0
    %
    
    
    
    
    
    
    73.5
    %Commission expense ratio
    
    
    12.3
    %
    
    
    20.5
    %
    
    
    
    
    
    
    14.5
    %Other operating expense ratio (2)
    
    
    20.0
    %
    
    
    19.7
    %
    
    
    
    
    
    
    19.9
    %Combined ratio
    
    
    102.0
    %
    
    
    124.2
    %
    
    
    
    
    
    
    107.9
    %
 (1)
    
    Includes inter-segment transactions causing the row not to cross foot.(2)
    
    Includes Other operating expensesand Commission income and other income (expense).  14




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##### Table of Contents



Three Months Ended September 30, 2008Insurance
    
    
    Lloyd'sCompanies
    
    
    Operations
    
    
    Total($ in thousands)Gross written premiums:Marine
    
    $
    53,247
    
    
    $
    34,917
    
    
    $
    88,164Property Casualty
    
    
    103,180
    
    
    
    25,586
    
    
    
    128,766Professional Liability
    
    
    25,706
    
    
    
    10,307
    
    
    
    36,013Total
    
    $
    182,133
    
    
    $
    70,810
    
    
    $
    252,943Net written premiums:Marine
    
    $
    29,983
    
    
    $
    22,448
    
    
    $
    52,431Property Casualty
    
    
    61,131
    
    
    
    5,682
    
    
    
    66,813Professional Liability
    
    
    15,019
    
    
    
    6,055
    
    
    
    21,074Total
    
    $
    106,133
    
    
    $
    34,185
    
    
    $
    140,318Net earned premiums:Marine
    
    $
    34,091
    
    
    $
    31,132
    
    
    $
    65,223Property Casualty
    
    
    63,740
    
    
    
    5,350
    
    
    
    69,090Professional Liability
    
    
    14,616
    
    
    
    5,111
    
    
    
    19,727Total
    
    $
    112,447
    
    
    $
    41,593
    
    
    $
    154,040
  15




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##### Table of Contents



Nine Months Ended September 30, 2009Insurance
    
    
    Lloyd'sCompanies
    
    
    Operations
    
    
    Corporate
    
    
    Total($ in thousands)Gross written premiums
    
    $
    561,368
    
    
    $
    231,811
    
    
    $
    
    
    
    $
    793,179Net written premiums
    
    
    375,474
    
    
    
    164,186
    
    
    
    
    
    
    
    539,660Net earned premiums
    
    
    359,317
    
    
    
    146,768
    
    
    
    
    
    
    
    506,085Net losses and LAE
    
    
    (214,834
    )
    
    
    (93,732
    )
    
    
    
    
    
    
    (308,566
    )Commission expenses
    
    
    (45,374
    )
    
    
    (26,533
    )
    
    
    329
    
    
    
    (71,578
    )Other operating expenses
    
    
    (78,660
    )
    
    
    (19,933
    )
    
    
    
    
    
    
    (98,593
    )Commission income and other income (expense)
    
    
    3,157
    
    
    
    879
    
    
    
    (329
    )
    
    
    3,707Underwriting profit
    
    
    23,606
    
    
    
    7,449
    
    
    
    
    
    
    
    31,055Net investment income
    
    
    49,043
    
    
    
    7,060
    
    
    
    406
    
    
    
    56,509Net realized gains (losses)
    
    
    (987
    )
    
    
    (2,988
    )
    
    
    
    
    
    
    (3,975
    )Other operating expenses
    
    
    
    
    
    
    
    
    
    
    21
    
    
    
    21Commission income and other income (expense)
    
    
    
    
    
    
    
    
    
    
    2,979
    
    
    
    2,979Interest expense
    
    
    
    
    
    
    
    
    
    
    (6,411
    )
    
    
    (6,411
    )Income (loss) before income taxes
    
    
    71,662
    
    
    
    11,521
    
    
    
    (3,005
    )
    
    
    80,178Income tax expense (benefit)
    
    
    19,677
    
    
    
    4,470
    
    
    
    (1,051
    )
    
    
    23,096Net income (loss)
    
    $
    51,985
    
    
    $
    7,051
    
    
    $
    (1,954
    )
    
    $
    57,082Identifiable assets (1)
    
    $
    2,566,163
    
    
    $
    821,743
    
    
    $
    87,061
    
    
    $
    3,493,297Loss and LAE ratio
    
    
    59.8
    %
    
    
    63.9
    %
    
    
    
    
    
    
    61.0
    %Commission expense ratio
    
    
    12.6
    %
    
    
    18.1
    %
    
    
    
    
    
    
    14.1
    %Other operating expense ratio (2)
    
    
    21.0
    %
    
    
    13.0
    %
    
    
    
    
    
    
    18.8
    %Combined ratio
    
    
    93.4
    %
    
    
    95.0
    %
    
    
    
    
    
    
    93.9
    %
 (1)
    
    Includes inter-segment transactions causing the row not to cross foot.(2)
    
    Includes Other operating expensesand Commission income and other income (expense).  16




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##### Table of Contents



Nine Months Ended September 30, 2009Insurance
    
    
    Lloyd'sCompanies
    
    
    Operations
    
    
    Total($ in thousands)Gross written premiums:Marine
    
    $
    187,452
    
    
    $
    140,256
    
    
    $
    327,708Property Casualty
    
    
    272,127
    
    
    
    59,058
    
    
    
    331,185Professional Liability
    
    
    101,789
    
    
    
    32,497
    
    
    
    134,286Total
    
    $
    561,368
    
    
    $
    231,811
    
    
    $
    793,179Net written premiums:Marine
    
    $
    133,047
    
    
    $
    113,867
    
    
    $
    246,914Property Casualty
    
    
    183,247
    
    
    
    33,781
    
    
    
    217,028Professional Liability
    
    
    59,180
    
    
    
    16,538
    
    
    
    75,718Total
    
    $
    375,474
    
    
    $
    164,186
    
    
    $
    539,660Net earned premiums:Marine
    
    $
    114,459
    
    
    $
    102,158
    
    
    $
    216,617Property Casualty
    
    
    188,860
    
    
    
    28,250
    
    
    
    217,110Professional Liability
    
    
    55,998
    
    
    
    16,360
    
    
    
    72,358Total
    
    $
    359,317
    
    
    $
    146,768
    
    
    $
    506,085
  17




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##### Table of Contents



Nine Months Ended September 30, 2008Insurance
    
    
    Lloyd'sCompanies
    
    
    Operations
    
    
    Corporate
    
    
    Total($ in thousands)Gross written premiums
    
    $
    571,685
    
    
    $
    247,617
    
    
    $
    
    
    
    $
    819,302Net written premiums
    
    
    358,625
    
    
    
    143,702
    
    
    
    
    
    
    
    502,327Net earned premiums
    
    
    342,127
    
    
    
    130,356
    
    
    
    
    
    
    
    472,483Net losses and LAE
    
    
    (207,927
    )
    
    
    (85,651
    )
    
    
    
    
    
    
    (293,578
    )Commission expenses
    
    
    (41,494
    )
    
    
    (25,301
    )
    
    
    
    
    
    
    (66,795
    )Other operating expenses
    
    
    (69,502
    )
    
    
    (24,092
    )
    
    
    
    
    
    
    (93,594
    )Commission income and other income (expense)
    
    
    2,053
    
    
    
    (415
    )
    
    
    
    
    
    
    1,638Underwriting profit (loss)
    
    
    25,257
    
    
    
    (5,103
    )
    
    
    
    
    
    
    20,154Net investment income
    
    
    47,031
    
    
    
    8,927
    
    
    
    933
    
    
    
    56,891Net realized gains (losses)
    
    
    (13,362
    )
    
    
    (206
    )
    
    
    
    
    
    
    (13,568
    )Interest expense
    
    
    
    
    
    
    
    
    
    
    (6,652
    )
    
    
    (6,652
    )Income (loss) before income taxes
    
    
    58,926
    
    
    
    3,618
    
    
    
    (5,719
    )
    
    
    56,825Income tax expense (benefit)
    
    
    15,767
    
    
    
    1,388
    
    
    
    (2,002
    )
    
    
    15,153Net income (loss)
    
    $
    43,159
    
    
    $
    2,230
    
    
    $
    (3,717
    )
    
    $
    41,672Identifiable assets (1)
    
    $
    2,437,909
    
    
    $
    808,768
    
    
    $
    71,608
    
    
    $
    3,340,584Loss and LAE ratio
    
    
    60.8
    %
    
    
    65.7
    %
    
    
    
    
    
    
    62.1
    %Commission expense ratio
    
    
    12.1
    %
    
    
    19.4
    %
    
    
    
    
    
    
    14.1
    %Other operating expense ratio (2)
    
    
    19.7
    %
    
    
    18.8
    %
    
    
    
    
    
    
    19.5
    %Combined ratio
    
    
    92.6
    %
    
    
    103.9
    %
    
    
    
    
    
    
    95.7
    %
 (1)
    
    Includes inter-segment transactions causing the row not to cross foot.(2)
    
    Includes Other operating expensesand Commission income and other income (expense).  18




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##### Table of Contents



Nine Months Ended September 30, 2008Insurance
    
    
    Lloyd'sCompanies
    
    
    Operations
    
    
    Total($ in thousands)Gross written premiums:Marine & Energy
    
    $
    189,202
    
    
    $
    143,570
    
    
    $
    332,772Property Casualty
    
    
    311,053
    
    
    
    74,671
    
    
    
    385,724Professional Liability
    
    
    71,430
    
    
    
    29,376
    
    
    
    100,806Total
    
    $
    571,685
    
    
    $
    247,617
    
    
    $
    819,302Net written premiums:Marine & Energy
    
    $
    112,439
    
    
    $
    99,627
    
    
    $
    212,066Property Casualty
    
    
    203,528
    
    
    
    26,147
    
    
    
    229,675Professional Liability
    
    
    42,658
    
    
    
    17,928
    
    
    
    60,586Total
    
    $
    358,625
    
    
    $
    143,702
    
    
    $
    502,327Net earned premiums:Marine & Energy
    
    $
    93,655
    
    
    $
    91,253
    
    
    $
    184,908Property Casualty
    
    
    205,395
    
    
    
    22,892
    
    
    
    228,287Professional Liability
    
    
    43,077
    
    
    
    16,211
    
    
    
    59,288Total
    
    $
    342,127
    
    
    $
    130,356
    
    
    $
    472,483
  Note 4. Reinsurance Ceded
   19




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##### Table of Contents



Reinsurance RecoverablesUnearned
    
    
    Unpaid/Paid
    
    
    
    
    
    
    Collateral(1)
    
    
    Rating &Reinsurer
    
    Premium
    
    
    Losses
    
    
    Total
    
    
    Held
    
    
    Rating Agency($ in millions)Swiss Reinsurance America Corporation
    
    $
    9.8
    
    
    $
    107.2
    
    
    $
    117.0
    
    
    $
    8.8
    
    
    A
    
    AMB (2)White Mountains Reinsurance of America
    
    
    2.1
    
    
    
    91.4
    
    
    
    93.5
    
    
    
    13.1
    
    
    A-
    
    AMBGeneral Reinsurance Corporation
    
    
    1.6
    
    
    
    62.9
    
    
    
    64.5
    
    
    
    1.1
    
    
    A++
    
    AMBTransatlantic Reinsurance Company
    
    
    21.2
    
    
    
    42.1
    
    
    
    63.3
    
    
    
    9.1
    
    
    A
    
    AMBEverest Reinsurance Company
    
    
    19.0
    
    
    
    39.7
    
    
    
    58.7
    
    
    
    6.8
    
    
    A+
    
    AMBMunich Reinsurance America Inc.
    
    
    21.0
    
    
    
    34.1
    
    
    
    55.1
    
    
    
    13.5
    
    
    A+
    
    AMBMunchener Ruckversicherungs-Gesellschaft
    
    
    5.8
    
    
    
    38.0
    
    
    
    43.8
    
    
    
    10.6
    
    
    A+
    
    AMBNational Indemnity Company
    
    
    7.3
    
    
    
    27.6
    
    
    
    34.9
    
    
    
    2.8
    
    
    A++
    
    AMBPlatinum Underwriters Re
    
    
    5.0
    
    
    
    29.1
    
    
    
    34.1
    
    
    
    2.2
    
    
    A
    
    AMBSwiss Re International SE
    
    
    1.6
    
    
    
    26.2
    
    
    
    27.8
    
    
    
    6.5
    
    
    A
    
    AMBBerkley Insurance Company
    
    
    9.4
    
    
    
    15.5
    
    
    
    24.9
    
    
    
    2.5
    
    
    A+
    
    AMBScor Holding (Switzerland) AG
    
    
    6.4
    
    
    
    18.2
    
    
    
    24.6
    
    
    
    7.0
    
    
    A-
    
    AMBLloyds Syndicate #2003
    
    
    3.9
    
    
    
    18.4
    
    
    
    22.3
    
    
    
    2.9
    
    
    A
    
    AMBPartner
Reinsurance Europe
    
    
    3.2
    
    
    
    17.8
    
    
    
    21.0
    
    
    
    8.7
    
    
    AA-
    
    S&PAllianz Global Corporate & Specialty AG
    
    
    0.3
    
    
    
    18.4
    
    
    
    18.7
    
    
    
    1.4
    
    
    A+
    
    AMBFederal Insurance Co.
    
    
    0.7
    
    
    
    17.5
    
    
    
    18.2
    
    
    
    1.1
    
    
    A++
    
    AMBArch Reinsurance Company
    
    
    0.9
    
    
    
    17.3
    
    
    
    18.2
    
    
    
    0.1
    
    
    A
    
    AMBAce Property and Casualty Insurance Company
    
    
    2.8
    
    
    
    14.1
    
    
    
    16.9
    
    
    
    1.4
    
    
    A+
    
    AMBPartner Reinsurance Company of the U.S.
    
    
    1.1
    
    
    
    15.1
    
    
    
    16.2
    
    
    
    
    
    
    A+
    
    AMBHannover Ruckversicherung
    
    
    1.4
    
    
    
    13.2
    
    
    
    14.6
    
    
    
    1.9
    
    
    A
    
    AMBTop 20 Total
    
    
    124.5
    
    
    
    663.8
    
    
    
    788.3
    
    
    
    101.5All Other
    
    
    38.7
    
    
    
    247.9
    
    
    
    286.6
    
    
    
    91.6Total
    
    $
    163.2
    
    
    $
    911.7
    
    
    $
    1,074.9
    
    
    $
    193.1
 (1)
    
    Collateral includes letters of credit, ceded balances payable and other
balances held by our Insurance Companies and our Lloyds Operations.(2)
    
    A.M. Best Note 5. Stock-Based Compensation
    20




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##### Table of Contents



Note 6. Syndicate 1221
   Note 7. Income Taxes
   21




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##### Table of Contents



Note 8. Senior Notes due May 1, 2016
     22




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##### Table of Contents



Note 9. Commitments and Contingencies
     23




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##### Table of Contents



Note 10. Investments
  Gross
    
    
    Gross
    
    
    Cost or
    
    
    OTTIFair
    
    
    Unrealized
    
    
    Unrealized
    
    
    Amortized
    
    
    RecognizedSeptember 30, 2009
    
    Value
    
    
    Gains
    
    
    (Losses)
    
    
    Cost
    
    
    in OCI($ in thousands)Fixed maturities:U.S. Government Treasury bonds,
agency bonds and foreign government bonds
    
    $
    514,158
    
    
    $
    10,855
    
    
    $
    (54
    )
    
    $
    503,357
    
    
    $
    States, municipalities and political
subdivisions
    
    
    679,417
    
    
    
    37,072
    
    
    
    (570
    )
    
    
    642,915
    
    
    
    Mortgage- and asset-backed securitiesMortgage-backed securities
    
    
    308,515
    
    
    
    15,142
    
    
    
    (10
    )
    
    
    293,383
    
    
    
    Collateralized mortgage obligations
    
    
    46,126
    
    
    
    
    
    
    
    (12,120
    )
    
    
    58,246
    
    
    
    (9,818
    )Asset-backed securities
    
    
    20,088
    
    
    
    793
    
    
    
    (119
    )
    
    
    19,414
    
    
    
    (48
    )Commercial mortgage-backed securities
    
    
    106,459
    
    
    
    584
    
    
    
    (6,458
    )
    
    
    112,333
    
    
    
    Subtotal
    
    
    481,188
    
    
    
    16,519
    
    
    
    (18,707
    )
    
    
    483,376
    
    
    
    (9,866
    )Corporate bonds
    
    
    203,023
    
    
    
    10,166
    
    
    
    (602
    )
    
    
    193,459
    
    
    
    Total fixed maturities
    
    
    1,877,786
    
    
    
    74,612
    
    
    
    (19,933
    )
    
    
    1,823,107
    
    
    
    (9,866
    )Equity securities  common stocks
    
    
    57,949
    
    
    
    12,843
    
    
    
    (72
    )
    
    
    45,178
    
    
    
    Cash
    
    
    21,692
    
    
    
    
    
    
    
    
    
    
    
    21,692
    
    
    
    Short-term investments
    
    
    136,935
    
    
    
    
    
    
    
    
    
    
    
    136,935
    
    
    
    Total
    
    $
    2,094,362
    
    
    $
    87,455
    
    
    $
    (20,005
    )
    
    $
    2,026,912
    
    
    $
    (9,866
    )
   24




---



##### Table of Contents



Period from
    
    
    
    
    Cost orSeptember 30, 2009
    
    Fair
    
    
    Amortizedto Maturity
    
    Value
    
    
    Cost($ in thousands)Due in one year or less
    
    $
    4,316
    
    
    $
    4,313Due after one year through five years
    
    
    694,349
    
    
    
    673,116Due after five years through ten years
    
    
    377,737
    
    
    
    357,728Due after ten years
    
    
    320,196
    
    
    
    304,574Mortgage- and asset-backed
    
    
    481,188
    
    
    
    483,376Total
    
    $
    1,877,786
    
    
    $
    1,823,107
   25




---



##### Table of Contents



September 30, 2009
    
    
    December 31, 2008Fair
    
    
    Gross
    
    
    Fair
    
    
    GrossValue
    
    
    Unrealized Loss
    
    
    Value
    
    
    Unrealized($ in thousands)Fixed Maturities:U.S.
Government Treasury bonds, agency
bonds and foreign government bonds0-6 Months
    
    $
    8,367
    
    
    $
    54
    
    
    $
    3,862
    
    
    $
    1457-12 Months
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    > 12 Months
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Subtotal
    
    
    8,367
    
    
    
    54
    
    
    
    3,862
    
    
    
    145States, municipalities and
political subdivisions0-6 Months
    
    
    5,962
    
    
    
    17
    
    
    
    68,727
    
    
    
    2,1877-12 Months
    
    
    5,150
    
    
    
    103
    
    
    
    118,910
    
    
    
    4,376> 12 Months
    
    
    20,406
    
    
    
    450
    
    
    
    15,918
    
    
    
    1,473Subtotal
    
    
    31,518
    
    
    
    570
    
    
    
    203,555
    
    
    
    8,036Mortgage-backed securities0-6 Months
    
    
    9,517
    
    
    
    10
    
    
    
    2,130
    
    
    
    67-12 Months
    
    
    
    
    
    
    
    
    
    
    3,471
    
    
    
    9> 12 Months
    
    
    
    
    
    
    
    
    
    
    962
    
    
    
    11Subtotal
    
    
    9,517
    
    
    
    10
    
    
    
    6,563
    
    
    
    26Collateralized mortgage obligations0-6 Months
    
    
    4,579
    
    
    
    1,102
    
    
    
    
    
    
    
    7-12 Months
    
    
    
    
    
    
    
    
    
    
    39,012
    
    
    
    20,779> 12 Months
    
    
    41,547
    
    
    
    11,018
    
    
    
    10,315
    
    
    
    6,340Subtotal
    
    
    46,126
    
    
    
    12,120
    
    
    
    49,327
    
    
    
    27,119Asset-backed securities0-6 Months
    
    
    
    
    
    
    
    
    
    
    22,079
    
    
    
    6527-12 Months
    
    
    
    
    
    
    
    
    
    
    6,631
    
    
    
    551> 12 Months
    
    
    702
    
    
    
    119
    
    
    
    223
    
    
    
    86Subtotal
    
    
    702
    
    
    
    119
    
    
    
    28,933
    
    
    
    1,289Commercial mortgage-backed securities0-6 Months
    
    
    8,800
    
    
    
    546
    
    
    
    6,461
    
    
    
    2807-12 Months
    
    
    
    
    
    
    
    
    
    
    31,505
    
    
    
    5,628> 12 Months
    
    
    64,941
    
    
    
    5,912
    
    
    
    54,717
    
    
    
    14,442Subtotal
    
    
    73,741
    
    
    
    6,458
    
    
    
    92,683
    
    
    
    20,350Corporate bonds0-6 Months
    
    
    3,320
    
    
    
    100
    
    
    
    57,805
    
    
    
    2,4457-12 Months
    
    
    801
    
    
    
    13
    
    
    
    57,971
    
    
    
    5,893> 12 Months
    
    
    10,675
    
    
    
    489
    
    
    
    27,873
    
    
    
    6,322Subtotal
    
    
    14,796
    
    
    
    602
    
    
    
    143,649
    
    
    
    14,660Total Fixed Maturities
    
    $
    184,767
    
    
    $
    19,933
    
    
    $
    528,572
    
    
    $
    71,625Equity Securities  common stocks0-6 Months
    
    $
    
    
    
    $
    
    
    
    $
    8,991
    
    
    $
    1,9417-12 Months
    
    
    811
    
    
    
    72
    
    
    
    351
    
    
    
    46> 12 Months
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total Equity Securities
    
    $
    811
    
    
    $
    72
    
    
    $
    9,342
    
    
    $
    1,987
  26




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##### Table of Contents



Recent Accounting Pronouncements
      27




---



##### Table of Contents



($ in thousands)Beginning balance at June 30, 2009
    
    $
    2,472Credit losses on securities not previously impaired as of June 30, 2009
    
    
    Additional credit losses on securities previously impaired as of June 30, 2009
    
    
    525Ending balance at September 30, 2009
    
    $
    2,997
 ($ in thousands)Beginning balance of at January 1, 2009
    
    $
    Credit losses on securities not previously impaired as of December 31, 2008
    
    
    2,997Additional credit losses on securities not previously impaired as of June 30, 2009
    
    
    Ending balance at September 30, 2009
    
    $
    2,997
   GrossUnrealized Loss
    
    
    Fair ValuePercent
    
    
    
    
    
    
    PercentAmount
    
    
    to Total
    
    
    Amount
    
    
    to Total($ in thousands)Due in one year or less
    
    $
    1
    
    
    
    0
    %
    
    $
    399
    
    
    
    0
    %Due after one year through five years
    
    
    339
    
    
    
    2
    %
    
    
    15,095
    
    
    
    8
    %Due after five years through ten years
    
    
    248
    
    
    
    1
    %
    
    
    20,786
    
    
    
    11
    %Due after ten years
    
    
    638
    
    
    
    3
    %
    
    
    18,401
    
    
    
    10
    %Mortgage- and asset-backed securities
    
    
    18,707
    
    
    
    94
    %
    
    
    130,086
    
    
    
    71
    %Total fixed income securities
    
    $
    19,933
    
    
    
    100
    %
    
    $
    184,767
    
    
    
    100
    %
  28




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##### Table of Contents



Three Months Ended Sept. 30,
    
    
    Nine Months Ended Sept. 30,2009
    
    
    2008
    
    
    2009
    
    
    2008($ in thousands)Fixed maturities:Gains
    
    $
    8,739
    
    
    $
    757
    
    
    $
    13,264
    
    
    $
    2,283(Losses)
    
    
    (2,057
    )
    
    
    (969
    )
    
    
    (5,555
    )
    
    
    (1,404
    )(Impairments)
    
    
    (525
    )
    
    
    (749
    )
    
    
    (2,996
    )
    
    
    (749
    )6,157
    
    
    
    (961
    )
    
    
    4,713
    
    
    
    130Equity securities:Gains
    
    
    
    
    
    
    166
    
    
    
    1,562
    
    
    
    609(Losses)
    
    
    
    
    
    
    (722
    )
    
    
    (1,530
    )
    
    
    (1,896
    )(Impairments)
    
    
    (22
    )
    
    
    (3,999
    )
    
    
    (8,720
    )
    
    
    (12,411
    )(22
    )
    
    
    (4,555
    )
    
    
    (8,688
    )
    
    
    (13,698
    )Net realized gains (losses)
    
    $
    6,135
    
    
    $
    (5,516
    )
    
    $
    (3,975
    )
    
    $
    (13,568
    )
 Fair Value Measurements
 Quoted Prices
    
    
    SignificantIn Active
    
    
    Other
    
    
    SignificantMarkets for
    
    
    Observable
    
    
    UnobservableIdentical Assets
    
    
    Inputs
    
    
    Inputs($ in thousands)Level 1
    
    
    Level 2
    
    
    Level 3
    
    
    TotalFixed Maturities
    
    $
    349,262
    
    
    $
    1,528,524
    
    
    $
    
    
    
    $
    1,877,786Equity securities
    
    
    57,949
    
    
    
    
    
    
    
    
    
    
    
    57,949Short-term investments
    
    
    11,234
    
    
    
    125,701
    
    
    
    
    
    
    
    136,935Total
    
    $
    418,445
    
    
    $
    1,654,225
    
    
    $
    
    
    
    $
    2,072,670
  29




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##### Table of Contents



Nine Months EndedSeptember 30, 2009($ in thousands)Level 3 investments as of December 31, 2008
    
    $
    156Unrealized net gains included in other comprehensive income (loss)
    
    
    23Purchases, sales, paydowns and amortization
    
    
    (23
    )Transfer from Level 3
    
    
    (156
    )Transfer to Level 3
    
    
    Level 3 investments as of September 30, 2009
    
    $
    
 Note 11. Share Repurchases
   30




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##### Table of Contents



Item 2. Managements Discussion and Analysis of Financial Condition and Results of
Operations
 Note on Forward-Looking Statements
  
    
    continued volatility in the financial markets and the current recession;
 
    
    risks arising from the concentration of our business in marine and energy, general
liability and professional liability insurance, including the risk that market
conditions for these lines could change adversely or that we could experience large
losses in these lines;
 
    
    cyclicality in the property/casualty insurance business generally, and the marine
insurance business specifically;
 
    
    risks that we face in entering new markets and diversifying the products and
services that we offer, including risks arising from the development of our new
specialty lines or our ability to manage effectively the rapid growth in our lines of
business;
 
    
    changing legal, social and economic trends and inherent uncertainties in the loss
estimation process, which could adversely impact the adequacy of loss reserves and the
allowance for reinsurance recoverables;
 
    
    risks inherent in the preparation of our financial statements, which requires us to
make many estimates and judgments;
 
    
    our ability to continue to obtain reinsurance covering our exposures at appropriate
prices and/or in sufficient amounts;
 
    
    the counterparty credit risk of our reinsurers, including the other participants in
the marine pool, and other risks associated with the collection of reinsurance
recoverable amounts from our reinsurers, who may not pay on losses in a timely fashion,
or at all;
 
    
    the effects of competition from banks and other insurers;
 
    
    unexpected turnover of our professional staff and our ability to attract and retain
qualified employees;
 
    
    increases in interest rates during periods in which we must sell fixed-income
securities to satisfy liquidity needs may result in realized investment losses;
 
    
    our investment portfolio is exposed to market-wide risks and fluctuations, as well
as to risks inherent in particular types of securities;
 
    
    exposure 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;
 
    
    capital may not be available in the future, or may not be available on favorable
terms;
  31




---



##### Table of Contents




    
    our ability to maintain or improve our ratings to avoid 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;
 
    
    risks associated with continued or increased premium levies by Lloyds of London
(Lloyds) for the Lloyds Central Fund and cash calls for trust fund deposits, or a
significant downgrade of Lloyds rating by A.M. Best Company;
 
    
    changes in the laws, rules and regulations that apply to our insurance companies;
 
    
    the inability of our subsidiaries to pay dividends to us in sufficient amounts,
which would harm our ability to meet our obligations;
 
    
    weather-related events and other catastrophes (including acts of terrorism)
impacting our insureds and/or reinsurers, including, without limitation, the impact of
Hurricanes Katrina, Rita and Wilma in 2005 and Hurricanes Gustav and Ike in 2008 and
the possibility that our estimates of losses from such hurricanes will prove to be
materially inaccurate;
 
    
    volatility in the market price of our common stock; and
 
    
    other risks that we identify in current and future filings with the Securities and
Exchange Commission (SEC).
  Overview
 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-Q . It contains forward-looking statements that involve
risks and uncertainties. Please see Note on Forward-Looking Statements for more information.
Our actual results could differ materially from those anticipated in these forward-looking
statements as a result of various factors, including those discussed below and elsewhere in this
Form 10-Q.
    32




---



##### Table of Contents



Catastrophe Risk Management
      Critical Accounting Policies
 Impairment of Invested Assets
 Impairment of Invested Assets.
    33




---



##### Table of Contents



Recent Accounting Pronouncements
  Results of Operations
   
    
    The offshore energy business, formerly included in the Marine and Energy
businesses of the Insurance Companies and Lloyds Operations, is now included in the
Insurance Companies and Lloyds Operations Property Casualty businesses.
  34




---



##### Table of Contents




    
    The marine lines within both the Insurance Companies and Lloyds Operations are
now presented as Marine instead of Marine and Energy, since the energy business has
now been reclassified to Property Casualty.
 
    
    Engineering and construction, European Property and other run-off business,
formerly included in the Other category of business within the Insurance Companies
and Lloyds Operations, are now included under Property Casualty.
 
    
    The Middle Markets business, formerly broken out separately in the Insurance
Companies, is now included in the Insurance Companies Property Casualty business.
 Investments
       35




---



##### Table of Contents



REVENUES
       36




---



##### Table of Contents



Three Months Ended September 30,2009
    
    
    2008Gross
    
    
    
    
    
    
    Net
    
    
    Net
    
    
    Gross
    
    
    
    
    
    
    Net
    
    
    NetWritten
    
    
    
    
    
    
    Written
    
    
    Earned
    
    
    Written
    
    
    
    
    
    
    Written
    
    
    EarnedPremiums
    
    
    %
    
    
    Premiums
    
    
    Premiums
    
    
    Premiums
    
    
    %
    
    
    Premiums
    
    
    Premiums($ in thousands)Insurance Companies:Marine
    
    $
    53,129
    
    
    
    21.6
    %
    
    $
    39,632
    
    
    $
    42,620
    
    
    $
    53,247
    
    
    
    21.0
    %
    
    $
    29,983
    
    
    $
    34,091Property Casualty
    
    
    93,302
    
    
    
    38.1
    %
    
    
    57,567
    
    
    
    60,380
    
    
    
    103,180
    
    
    
    40.8
    %
    
    
    61,131
    
    
    
    63,740Professional Liability
    
    
    33,569
    
    
    
    13.7
    %
    
    
    18,834
    
    
    
    19,804
    
    
    
    25,706
    
    
    
    10.2
    %
    
    
    15,019
    
    
    
    14,616Insurance Companies Total
    
    
    180,000
    
    
    
    73.4
    %
    
    
    116,033
    
    
    
    122,804
    
    
    
    182,133
    
    
    
    72.0
    %
    
    
    106,133
    
    
    
    112,447Lloyds Operations:Marine
    
    
    33,960
    
    
    
    13.8
    %
    
    
    23,816
    
    
    
    33,945
    
    
    
    34,917
    
    
    
    13.8
    %
    
    
    22,448
    
    
    
    31,132Property Casualty
    
    
    20,024
    
    
    
    8.2
    %
    
    
    11,116
    
    
    
    9,126
    
    
    
    25,586
    
    
    
    10.1
    %
    
    
    5,682
    
    
    
    5,350Professional Liability
    
    
    11,207
    
    
    
    4.6
    %
    
    
    5,036
    
    
    
    5,396
    
    
    
    10,307
    
    
    
    4.1
    %
    
    
    6,055
    
    
    
    5,111Lloyds Operations Total
    
    
    65,191
    
    
    
    26.6
    %
    
    
    39,968
    
    
    
    48,467
    
    
    
    70,810
    
    
    
    28.0
    %
    
    
    34,185
    
    
    
    41,593Total
    
    $
    245,191
    
    
    
    100.0
    %
    
    $
    156,001
    
    
    $
    171,271
    
    
    $
    252,943
    
    
    
    100.0
    %
    
    $
    140,318
    
    
    $
    154,040
  37




---



##### Table of Contents



Nine Months Ended September 30,2009
    
    
    2008Gross
    
    
    
    
    
    
    Net
    
    
    Net
    
    
    Gross
    
    
    
    
    
    
    Net
    
    
    NetWritten
    
    
    
    
    
    
    Written
    
    
    Earned
    
    
    Written
    
    
    
    
    
    
    Written
    
    
    EarnedPremiums
    
    
    %
    
    
    Premiums
    
    
    Premiums
    
    
    Premiums
    
    
    %
    
    
    Premiums
    
    
    Premiums($ in thousands)Insurance Companies:Marine
    
    $
    187,452
    
    
    
    23.6
    %
    
    $
    133,047
    
    
    $
    114,459
    
    
    $
    189,202
    
    
    
    23.0
    %
    
    $
    112,439
    
    
    $
    93,655Property Casualty
    
    
    272,127
    
    
    
    34.3
    %
    
    
    183,247
    
    
    
    188,860
    
    
    
    311,053
    
    
    
    38.1
    %
    
    
    203,528
    
    
    
    205,395Professional Liability
    
    
    101,789
    
    
    
    12.8
    %
    
    
    59,180
    
    
    
    55,998
    
    
    
    71,430
    
    
    
    8.7
    %
    
    
    42,658
    
    
    
    43,077Insurance Companies Total
    
    
    561,368
    
    
    
    70.7
    %
    
    
    375,474
    
    
    
    359,317
    
    
    
    571,685
    
    
    
    69.8
    %
    
    
    358,625
    
    
    
    342,127Lloyds Operations:Marine
    
    
    140,256
    
    
    
    17.8
    %
    
    
    113,867
    
    
    
    102,158
    
    
    
    143,570
    
    
    
    17.5
    %
    
    
    99,627
    
    
    
    91,253Property Casualty
    
    
    59,058
    
    
    
    7.4
    %
    
    
    33,781
    
    
    
    28,250
    
    
    
    74,671
    
    
    
    9.1
    %
    
    
    26,147
    
    
    
    22,892Professional Liability
    
    
    32,497
    
    
    
    4.1
    %
    
    
    16,538
    
    
    
    16,360
    
    
    
    29,376
    
    
    
    3.6
    %
    
    
    17,928
    
    
    
    16,211Lloyds Operations Total
    
    
    231,811
    
    
    
    29.3
    %
    
    
    164,186
    
    
    
    146,768
    
    
    
    247,617
    
    
    
    30.2
    %
    
    
    143,702
    
    
    
    130,356Total
    
    $
    793,179
    
    
    
    100.0
    %
    
    $
    539,660
    
    
    $
    506,085
    
    
    $
    819,302
    
    
    
    100.0
    %
    
    $
    502,327
    
    
    $
    472,483
  38




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##### Table of Contents



Gross Written Premiums
 Insurance Companies Gross Written Premiums
 Marine Premiums.
 2009
    
    
    2008Marine liability
    
    
    35.1
    %
    
    
    34.0
    %P&I
    
    
    11.0
    %
    
    
    12.0
    %Cargo
    
    
    11.1
    %
    
    
    13.2
    %Inland marine
    
    
    11.8
    %
    
    
    9.1
    %Bluewater hull
    
    
    8.1
    %
    
    
    7.7
    %Transport
    
    
    8.0
    %
    
    
    9.8
    %Craft/Fishing vessel
    
    
    7.9
    %
    
    
    6.2
    %Other
    
    
    7.0
    %
    
    
    8.0
    %Total
    
    
    100.0
    %
    
    
    100.0
    %
  Property Casualty Premiums.
 2009
    
    
    2008Construction liability
    
    
    26.9
    %
    
    
    37.3
    %Commercial umbrella
    
    
    21.4
    %
    
    
    15.0
    %Nav Tech
    
    
    14.0
    %
    
    
    13.2
    %Programs
    
    
    13.0
    %
    
    
    11.2
    %NavPac
    
    
    10.2
    %
    
    
    7.6
    %Primary E&S
    
    
    6.5
    %
    
    
    9.4
    %Personal Umbrella
    
    
    2.2
    %
    
    
    2.2
    %Other
    
    
    5.8
    %
    
    
    4.1
    %Total
    
    
    100.0
    %
    
    
    100.0
    %
   39




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##### Table of Contents



Professional Liability Premiums.
 2009
    
    
    2008D&O (public and private)
    
    
    71.2
    %
    
    
    65.2
    %Miscellaneous professional liability
    
    
    16.1
    %
    
    
    6.1
    %Lawyers professional liability
    
    
    9.2
    %
    
    
    22.8
    %Architects and engineers
    
    
    3.5
    %
    
    
    5.9
    %Total
    
    
    100.0
    %
    
    
    100.0
    %
   Lloyds Operations Gross Written Premiums
   Marine Premiums.
 2009
    
    
    2008Cargo and specie
    
    
    41.9
    %
    
    
    42.6
    %Marine liability
    
    
    28.8
    %
    
    
    33.3
    %Assumed reinsurance
    
    
    12.9
    %
    
    
    10.1
    %Hull
    
    
    10.8
    %
    
    
    9.8
    %Other
    
    
    5.6
    %
    
    
    4.2
    %Total
    
    
    100.0
    %
    
    
    100.0
    %
  40




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##### Table of Contents



Property Casualty Premiums.
 2009
    
    
    2008Offshore Energy
    
    
    47.0
    %
    
    
    59.0
    %Engineering and Construction
    
    
    22.5
    %
    
    
    18.3
    %Onshore Energy
    
    
    20.2
    %
    
    
    15.8
    %US Property Casualty
    
    
    5.4
    %
    
    
    0.6
    %Bloodstock
    
    
    5.0
    %
    
    
    0.0
    %Property
    
    
    -0.1
    %
    
    
    6.3
    %Total
    
    
    100.0
    %
    
    
    100.0
    %
  Professional Liability Premiums.
 2009
    
    
    2008E&O
    
    
    39.0
    %
    
    
    66.2
    %D&O (public and private)
    
    
    61.0
    %
    
    
    33.8
    %Total
    
    
    100.0
    %
    
    
    100.0
    %
  Ceded Written Premiums
   41




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##### Table of Contents



Three Months Ended September 30,2009
    
    
    2008% of
    
    
    
    
    
    
    % ofCeded
    
    
    Gross
    
    
    Ceded
    
    
    GrossWritten
    
    
    Written
    
    
    Written
    
    
    WrittenPremium
    
    
    Premium
    
    
    Premium
    
    
    Premium($ in thousands)Insurance Companies:Marine
    
    $
    13,497
    
    
    
    25.4
    %
    
    $
    23,264
    
    
    
    43.7
    %Property Casualty
    
    
    35,735
    
    
    
    38.3
    %
    
    
    42,049
    
    
    
    40.8
    %Professional Liability
    
    
    14,735
    
    
    
    43.9
    %
    
    
    10,687
    
    
    
    41.6
    %Subtotal
    
    
    63,967
    
    
    
    35.5
    %
    
    
    76,000
    
    
    
    41.7
    %Lloyds Operations:Marine
    
    
    10,144
    
    
    
    29.9
    %
    
    
    12,469
    
    
    
    35.7
    %Property Casualty
    
    
    8,908
    
    
    
    44.5
    %
    
    
    19,904
    
    
    
    77.8
    %Professional Liability
    
    
    6,171
    
    
    
    55.1
    %
    
    
    4,252
    
    
    
    41.3
    %Subtotal
    
    
    25,223
    
    
    
    38.7
    %
    
    
    36,625
    
    
    
    51.7
    %Total
    
    $
    89,190
    
    
    
    36.4
    %
    
    $
    112,625
    
    
    
    44.5
    %
 Nine Months Ended September 30,2009
    
    
    2008% of
    
    
    
    
    
    
    % ofCeded
    
    
    Gross
    
    
    Ceded
    
    
    GrossWritten
    
    
    Written
    
    
    Written
    
    
    WrittenPremium
    
    
    Premium
    
    
    Premium
    
    
    Premium($ in thousands)Insurance Companies:Marine
    
    $
    54,405
    
    
    
    29.0
    %
    
    $
    76,763
    
    
    
    40.6
    %Property Casualty
    
    
    88,880
    
    
    
    32.7
    %
    
    
    107,525
    
    
    
    34.6
    %Professional Liability
    
    
    42,609
    
    
    
    41.9
    %
    
    
    28,772
    
    
    
    40.3
    %Subtotal
    
    
    185,894
    
    
    
    33.1
    %
    
    
    213,060
    
    
    
    37.3
    %Lloyds Operations:Marine
    
    
    26,389
    
    
    
    18.8
    %
    
    
    43,943
    
    
    
    30.6
    %Property Casualty
    
    
    25,277
    
    
    
    42.8
    %
    
    
    48,524
    
    
    
    65.0
    %Professional Liability
    
    
    15,959
    
    
    
    49.1
    %
    
    
    11,448
    
    
    
    39.0
    %Subtotal
    
    
    67,625
    
    
    
    29.2
    %
    
    
    103,915
    
    
    
    42.0
    %Total
    
    $
    253,519
    
    
    
    32.0
    %
    
    $
    316,975
    
    
    
    38.7
    %
  42




---



##### Table of Contents



Net Written Premiums
  Net Earned Premiums
  Commission Income
  Net Investment Income
  Net Realized Gains and Losses
 Investments
    43




---



##### Table of Contents



Other Income/(Expense)
  EXPENSES
 Net Losses and Loss Adjustment Expenses
    September 30,
    
    
    December 31,2009
    
    
    2008
    
    
    Change($ in thousands)Reinsurance recoverables:Paid losses
    
    $
    93,287
    
    
    $
    67,227
    
    
    $
    26,060Unpaid losses and LAE reserves
    
    
    818,397
    
    
    
    853,793
    
    
    
    (35,396
    )Total
    
    $
    911,684
    
    
    $
    921,020
    
    
    $
    (9,336
    )
  44




---



##### Table of Contents



September 30,
    
    
    December 31,2009
    
    
    2008
    
    
    Change($ in thousands)Gross reserves for losses and LAE
    
    $
    1,903,204
    
    
    $
    1,853,664
    
    
    
    2.7
    %Less: Reinsurance recoverable on unpaid
losses and LAE reserves
    
    
    818,397
    
    
    
    853,793
    
    
    
    -4.1
    %Net loss and LAE reserves
    
    $
    1,084,807
    
    
    $
    999,871
    
    
    
    8.5
    %
  September 30, 2009Net
    
    
    Net
    
    
    Total
    
    
    % of IBNRReported
    
    
    IBNR
    
    
    Net Loss
    
    
    to Total NetReserves
    
    
    Reserves
    
    
    Reserves
    
    
    Loss Reserves($ in thousands)Insurance Companies:Marine
    
    $
    106,888
    
    
    $
    104,007
    
    
    $
    210,895
    
    
    
    49.3
    %Property Casualty
    
    
    127,427
    
    
    
    348,055
    
    
    
    475,482
    
    
    
    73.2
    %Professional Liability
    
    
    41,326
    
    
    
    64,909
    
    
    
    106,235
    
    
    
    61.1
    %Total Insurance Companies
    
    
    275,641
    
    
    
    516,971
    
    
    
    792,612
    
    
    
    65.2
    %Lloyds Operations:Marine
    
    
    105,102
    
    
    
    94,621
    
    
    
    199,723
    
    
    
    47.4
    %Property Casualty
    
    
    26,065
    
    
    
    26,525
    
    
    
    52,590
    
    
    
    50.4
    %Professional Liability
    
    
    8,419
    
    
    
    31,463
    
    
    
    39,882
    
    
    
    78.9
    %Total Lloyds Operations
    
    
    139,586
    
    
    
    152,609
    
    
    
    292,195
    
    
    
    52.2
    %Total Company
    
    $
    415,227
    
    
    $
    669,580
    
    
    $
    1,084,807
    
    
    
    61.7
    %
  45




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##### Table of Contents



December 31, 2008Net
    
    
    Net
    
    
    Total
    
    
    % of IBNRReported
    
    
    IBNR
    
    
    Net Loss
    
    
    to Total NetReserves
    
    
    Reserves
    
    
    Reserves
    
    
    Loss Reserves($ in thousands)Insurance Companies:Marine
    
    $
    96,244
    
    
    $
    96,995
    
    
    $
    193,239
    
    
    
    50.2
    %Property Casualty
    
    
    115,810
    
    
    
    358,305
    
    
    
    474,115
    
    
    
    75.6
    %Professional Liability
    
    
    22,913
    
    
    
    58,793
    
    
    
    81,706
    
    
    
    72.0
    %Total Insurance Companies
    
    
    234,967
    
    
    
    514,093
    
    
    
    749,060
    
    
    
    68.6
    %Lloyds Operations:Marine
    
    
    99,233
    
    
    
    78,293
    
    
    
    177,526
    
    
    
    44.1
    %Property Casualty
    
    
    26,218
    
    
    
    16,386
    
    
    
    42,604
    
    
    
    38.5
    %Professional Liability
    
    
    5,822
    
    
    
    24,859
    
    
    
    30,681
    
    
    
    81.0
    %Total Lloyds Operations
    
    
    131,273
    
    
    
    119,538
    
    
    
    250,811
    
    
    
    47.7
    %Total Company
    
    $
    366,240
    
    
    $
    633,631
    
    
    $
    999,871
    
    
    
    63.4
    %
     46




---



##### Table of Contents



Hurricanes Gustav and Ike
   Nine Months Ended
    
    
    Year EndedSeptember 30, 2009
    
    
    December 31, 2008($ in thousands)Gross of ReinsuranceBeginning gross reserves
    
    $
    107,399
    
    
    $
    Incurred loss & LAE
    
    
    1,042
    
    
    
    114,000Calendar year payments
    
    
    42,145
    
    
    
    6,601Ending gross reserves
    
    $
    66,296
    
    
    $
    107,399Gross case loss reserves
    
    $
    41,073
    
    
    $
    70,299Gross IBNR loss reserves
    
    
    25,223
    
    
    
    37,100Ending gross reserves
    
    $
    66,296
    
    
    $
    107,399Net of ReinsuranceBeginning net reserves
    
    $
    12,923
    
    
    $
    Incurred loss & LAE
    
    
    966
    
    
    
    17,169Calendar year payments
    
    
    10,694
    
    
    
    4,246Ending net reserves
    
    $
    3,195
    
    
    $
    12,923Net case loss reserves
    
    $
    2,442
    
    
    $
    11,696Net IBNR loss reserves
    
    
    753
    
    
    
    1,227Ending net reserves
    
    $
    3,195
    
    
    $
    12,923
  Hurricanes Katrina and Rita
   47




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##### Table of Contents



Nine Months Ended
    
    
    Year EndedSeptember 30, 2009
    
    
    December 31, 2008($ in thousands)Gross of ReinsuranceBeginning gross reserves
    
    $
    97,732
    
    
    $
    141,831Incurred loss & LAE
    
    
    420
    
    
    
    (12,250
    )Calendar year payments
    
    
    25,080
    
    
    
    31,849Ending gross reserves
    
    $
    73,072
    
    
    $
    97,732Gross case loss reserves
    
    $
    53,072
    
    
    $
    62,732Gross IBNR loss reserves
    
    
    20,000
    
    
    
    35,000Ending gross reserves
    
    $
    73,072
    
    
    $
    97,732Net of ReinsuranceBeginning net reserves
    
    $
    3,667
    
    
    $
    4,519Incurred loss & LAE
    
    
    138
    
    
    
    (990
    )Calendar year payments
    
    
    243
    
    
    
    (138
    )Ending net reserves
    
    $
    3,562
    
    
    $
    3,667Net case loss reserves
    
    $
    208
    
    
    $
    279Net IBNR loss reserves
    
    
    3,354
    
    
    
    3,388Ending net reserves
    
    $
    3,562
    
    
    $
    3,667
  Asbestos Liability
     48




---



##### Table of Contents



Nine Months Ended
    
    
    Year EndedSeptember 30, 2009
    
    
    December 31, 2008($ in thousands)Gross of ReinsuranceBeginning gross reserves
    
    $
    21,774
    
    
    $
    23,194Incurred losses & LAE
    
    
    136
    
    
    
    796Calendar year payments
    
    
    403
    
    
    
    2,216Ending gross reserves
    
    $
    21,507
    
    
    $
    21,774Gross case loss reserves
    
    $
    13,651
    
    
    $
    13,918Gross IBNR loss reserves
    
    
    7,856
    
    
    
    7,856Ending gross reserves
    
    $
    21,507
    
    
    $
    21,774Net of ReinsuranceBeginning net reserves
    
    $
    16,683
    
    
    $
    16,717Incurred losses & LAE
    
    
    125
    
    
    
    263Calendar year payments
    
    
    88
    
    
    
    297Ending net reserves
    
    $
    16,720
    
    
    $
    16,683Net case loss reserves
    
    $
    9,069
    
    
    $
    9,032Net IBNR loss reserves
    
    
    7,651
    
    
    
    7,651Ending net reserves
    
    $
    16,720
    
    
    $
    16,683
  Environmental Liability
   49




---



##### Table of Contents



Prior Year Reserve Redundancies/Deficiencies
    Three Months EndedSeptember 30,
    
    
    September 30,2009
    
    
    2008($ in thousands)Insurance Companies:Marine
    
    $
    3,898
    
    
    $
    1,800Property Casualty
    
    
    (14,950
    )
    
    
    (5,800
    )Professional Liability
    
    
    7,832
    
    
    
    (1,600
    )Subtotal Insurance Companies
    
    
    (3,220
    )
    
    
    (5,600
    )Lloyds Operations
    
    
    (630
    )
    
    
    (2,420
    )Total
    
    $
    (3,850
    )
    
    $
    (8,020
    )
 Nine Months EndedSeptember 30,
    
    
    September 30,2009
    
    
    2008($ in thousands)Insurance Companies:Marine
    
    $
    8,025
    
    
    $
    (4,179
    )Property Casualty
    
    
    (39,467
    )
    
    
    (18,762
    )Professional Liability
    
    
    18,200
    
    
    
    (2,811
    )Subtotal Insurance Companies
    
    
    (13,242
    )
    
    
    (25,752
    )Lloyds Operations
    
    
    (5,853
    )
    
    
    (6,528
    )Total
    
    $
    (19,095
    )
    
    $
    (32,280
    )
  50




---



##### Table of Contents



51




---



##### Table of Contents



52




---



##### Table of Contents



53




---



##### Table of Contents



Commission Expenses
  Other Operating Expenses
   54




---



##### Table of Contents



INCOME TAXES
      55




---



##### Table of Contents



Segment Information
    Insurance Companies
   56




---



##### Table of Contents



Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2009
    
    
    2008
    
    
    2009
    
    
    2008($ in thousands)Gross written premium
    
    $
    180,000
    
    
    $
    182,133
    
    
    $
    561,368
    
    
    $
    571,685Net written premium
    
    
    116,033
    
    
    
    106,133
    
    
    
    375,474
    
    
    
    358,625Net earned premium
    
    
    122,804
    
    
    
    112,447
    
    
    
    359,317
    
    
    
    342,127Net losses and LAE
    
    
    (75,838
    )
    
    
    (78,346
    )
    
    
    (214,834
    )
    
    
    (207,927
    )Commission expense
    
    
    (15,346
    )
    
    
    (13,823
    )
    
    
    (45,374
    )
    
    
    (41,494
    )Other operating expenses
    
    
    (27,194
    )
    
    
    (22,802
    )
    
    
    (78,660
    )
    
    
    (69,502
    )Commission income and other income (expense)
    
    
    1,301
    
    
    
    279
    
    
    
    3,157
    
    
    
    2,053Underwriting profit (loss)
    
    
    5,727
    
    
    
    (2,245
    )
    
    
    23,606
    
    
    
    25,257Net investment income
    
    
    16,597
    
    
    
    15,973
    
    
    
    49,043
    
    
    
    47,031Net realized capital gains (losses)
    
    
    5,710
    
    
    
    (5,207
    )
    
    
    (987
    )
    
    
    (13,362
    )Income before income taxes
    
    
    28,034
    
    
    
    8,521
    
    
    
    71,662
    
    
    
    58,926Income tax expense
    
    
    7,973
    
    
    
    1,458
    
    
    
    19,677
    
    
    
    15,767Net income
    
    $
    20,061
    
    
    $
    7,063
    
    
    $
    51,985
    
    
    $
    43,159Loss and LAE ratio
    
    
    61.8
    %
    
    
    69.7
    %
    
    
    59.8
    %
    
    
    60.8
    %Commission expense ratio
    
    
    12.5
    %
    
    
    12.3
    %
    
    
    12.6
    %
    
    
    12.1
    %Other operating expense ratio (1)
    
    
    21.1
    %
    
    
    20.0
    %
    
    
    21.0
    %
    
    
    19.7
    %Combined ratio
    
    
    95.4
    %
    
    
    102.0
    %
    
    
    93.4
    %
    
    
    92.6
    %
 (1)
    
    Includes Other operating expenses and Commission income and other income
(expense).  57




---



##### Table of Contents



Three Months Ended September 30, 2009($ in thousands)Net
    
    
    LossesEarned
    
    
    and LAE
    
    
    Underwriting
    
    
    Underwriting
    
    
    Loss
    
    
    Expense
    
    
    CombinedPremium
    
    
    Incurred
    
    
    Expenses
    
    
    Profit/(Loss)
    
    
    Ratio
    
    
    Ratio
    
    
    RatioMarine
    
    $
    42,620
    
    
    $
    31,611
    
    
    $
    13,259
    
    
    $
    (2,250
    )
    
    
    74.2
    %
    
    
    31.1
    %
    
    
    105.3
    %Property Casualty
    
    
    60,380
    
    
    
    23,881
    
    
    
    21,330
    
    
    
    15,169
    
    
    
    39.6
    %
    
    
    35.3
    %
    
    
    74.9
    %Professional Liability
    
    
    19,804
    
    
    
    20,346
    
    
    
    6,650
    
    
    
    (7,192
    )
    
    
    102.7
    %
    
    
    33.6
    %
    
    
    136.3
    %Total
    
    $
    122,804
    
    
    $
    75,838
    
    
    $
    41,239
    
    
    $
    5,727
    
    
    
    61.8
    %
    
    
    33.6
    %
    
    
    95.4
    %
 Three Months Ended September 30, 2008($ in thousands)Net
    
    
    LossesEarned
    
    
    and LAE
    
    
    Underwriting
    
    
    Underwriting
    
    
    Loss
    
    
    Expense
    
    
    CombinedPremium
    
    
    Incurred
    
    
    Expenses
    
    
    Profit/(Loss)
    
    
    Ratio
    
    
    Ratio
    
    
    RatioMarine
    
    $
    34,091
    
    
    $
    21,910
    
    
    $
    8,588
    
    
    $
    3,593
    
    
    
    64.3
    %
    
    
    25.2
    %
    
    
    89.5
    %Property Casualty
    
    
    63,740
    
    
    
    48,426
    
    
    
    22,574
    
    
    
    (7,260
    )
    
    
    76.0
    %
    
    
    35.4
    %
    
    
    111.4
    %Professional Liability
    
    
    14,616
    
    
    
    8,010
    
    
    
    5,184
    
    
    
    1,422
    
    
    
    54.8
    %
    
    
    35.5
    %
    
    
    90.3
    %Total
    
    $
    112,447
    
    
    $
    78,346
    
    
    $
    36,346
    
    
    $
    (2,245
    )
    
    
    69.7
    %
    
    
    32.3
    %
    
    
    102.0
    %
  58




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##### Table of Contents



Nine Months Ended September 30, 2009($ in thousands)Net
    
    
    LossesEarned
    
    
    and LAE
    
    
    Underwriting
    
    
    Underwriting
    
    
    Loss
    
    
    Expense
    
    
    CombinedPremium
    
    
    Incurred
    
    
    Expenses
    
    
    Profit/(Loss)
    
    
    Ratio
    
    
    Ratio
    
    
    RatioMarine
    
    $
    114,459
    
    
    $
    83,239
    
    
    $
    35,453
    
    
    $
    (4,233
    )
    
    
    72.7
    %
    
    
    31.0
    %
    
    
    103.7
    %Property Casualty
    
    
    188,860
    
    
    
    80,331
    
    
    
    65,642
    
    
    
    42,887
    
    
    
    42.5
    %
    
    
    34.8
    %
    
    
    77.3
    %Professional Liability
    
    
    55,998
    
    
    
    51,264
    
    
    
    19,782
    
    
    
    (15,048
    )
    
    
    91.5
    %
    
    
    35.3
    %
    
    
    126.8
    %Total
    
    $
    359,317
    
    
    $
    214,834
    
    
    $
    120,877
    
    
    $
    23,606
    
    
    
    59.8
    %
    
    
    33.6
    %
    
    
    93.4
    %
 Nine Months Ended September 30, 2008($ in thousands)Net
    
    
    LossesEarned
    
    
    and LAE
    
    
    Underwriting
    
    
    Underwriting
    
    
    Loss
    
    
    Expense
    
    
    CombinedPremium
    
    
    Incurred
    
    
    Expenses
    
    
    Profit/(Loss)
    
    
    Ratio
    
    
    Ratio
    
    
    RatioMarine
    
    $
    93,655
    
    
    $
    58,208
    
    
    $
    27,890
    
    
    $
    7,557
    
    
    
    62.2
    %
    
    
    29.8
    %
    
    
    92.0
    %Property Casualty
    
    
    205,395
    
    
    
    125,430
    
    
    
    65,751
    
    
    
    14,214
    
    
    
    61.1
    %
    
    
    32.0
    %
    
    
    93.1
    %Professional Liability
    
    
    43,077
    
    
    
    24,289
    
    
    
    15,302
    
    
    
    3,486
    
    
    
    56.4
    %
    
    
    35.5
    %
    
    
    91.9
    %Total
    
    $
    342,127
    
    
    $
    207,927
    
    
    $
    108,943
    
    
    $
    25,257
    
    
    
    60.8
    %
    
    
    31.8
    %
    
    
    92.6
    %
     59




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##### Table of Contents



Lloyds Operations
   Liquidity and
Capital Resources
   60




---



##### Table of Contents



Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2009
    
    
    2008
    
    
    2009
    
    
    2008($ in thousands)Gross written premium
    
    $
    65,191
    
    
    $
    70,810
    
    
    $
    231,811
    
    
    $
    247,617Net written premium
    
    
    39,968
    
    
    
    34,185
    
    
    
    164,186
    
    
    
    143,702Net earned premium
    
    
    48,467
    
    
    
    41,593
    
    
    
    146,768
    
    
    
    130,356Net losses and LAE
    
    
    (31,753
    )
    
    
    (34,923
    )
    
    
    (93,732
    )
    
    
    (85,651
    )Commission expense
    
    
    (7,835
    )
    
    
    (8,534
    )
    
    
    (26,533
    )
    
    
    (25,301
    )Other operating expenses
    
    
    (7,835
    )
    
    
    (7,799
    )
    
    
    (19,933
    )
    
    
    (24,092
    )Commission income and other income (expense)
    
    
    280
    
    
    
    (390
    )
    
    
    879
    
    
    
    (415
    )Underwriting profit (loss)
    
    
    1,324
    
    
    
    (10,053
    )
    
    
    7,449
    
    
    
    (5,103
    )Net investment income
    
    
    2,361
    
    
    
    3,074
    
    
    
    7,060
    
    
    
    8,927Net realized capital gains (losses)
    
    
    425
    
    
    
    (309
    )
    
    
    (2,988
    )
    
    
    (206
    )Income before income taxes
    
    
    4,110
    
    
    
    (7,288
    )
    
    
    11,521
    
    
    
    3,618Income tax expense (benefit)
    
    
    1,510
    
    
    
    (2,489
    )
    
    
    4,470
    
    
    
    1,388Net income (loss)
    
    $
    2,600
    
    
    $
    (4,799
    )
    
    $
    7,051
    
    
    $
    2,230Loss and LAE ratio
    
    
    65.5
    %
    
    
    84.0
    %
    
    
    63.9
    %
    
    
    65.7
    %Commission expense ratio
    
    
    16.2
    %
    
    
    20.5
    %
    
    
    18.1
    %
    
    
    19.4
    %Other operating expense ratio (1)
    
    
    15.6
    %
    
    
    19.7
    %
    
    
    13.0
    %
    
    
    18.8
    %Combined ratio
    
    
    97.3
    %
    
    
    124.2
    %
    
    
    95.0
    %
    
    
    103.9
    %
 (1)
    
    Includes Other operating expensesand Commission income and other income
(expense).    61




---



##### Table of Contents



Tabular Disclosure of Contractual Obligations
   Payments Due by PeriodLess than
    
    
    
    
    
    
    
    
    
    
    More thanTotal
    
    
    1 Year
    
    
    1-3 Years
    
    
    3-5 Years
    
    
    5 Years($ in thousands)7% Senior Notes
    
    $
    171,350
    
    
    $
    8,050
    
    
    $
    16,100
    
    
    $
    16,100
    
    
    $
    131,100
 Investments
     62




---



##### Table of Contents



Fair Value Measurements
   63




---



##### Table of Contents



Quoted Prices
    
    
    SignificantIn Active
    
    
    Other
    
    
    SignificantMarkets for
    
    
    Observable
    
    
    UnobservableIdentical Assets
    
    
    Inputs
    
    
    Inputs($ in thousands)Level 1
    
    
    Level 2
    
    
    Level 3
    
    
    TotalFixed Maturities
    
    $
    349,262
    
    
    $
    1,528,524
    
    
    $
    
    
    
    $
    1,877,786Equity securities
    
    
    57,949
    
    
    
    
    
    
    
    
    
    
    
    57,949Short-term investments
    
    
    11,234
    
    
    
    125,701
    
    
    
    
    
    
    
    136,935Total
    
    $
    418,445
    
    
    $
    1,654,225
    
    
    $
    
    
    
    $
    2,072,670
  Nine Months EndedSeptember 30, 2009($ in thousands)Level 3 investments as of December 31, 2008
    
    $
    156Unrealized net gains included in other comprehensive
income (loss)
    
    
    23Purchases, sales, paydowns and amortization
    
    
    (23
    )Transfer from Level 3
    
    
    (156
    )Transfer to Level 3
    
    
    Level 3 investments as of September 30, 2009
    
    $
    
  64




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##### Table of Contents



Gross
    
    
    Gross
    
    
    Cost or
    
    
    OTTIFair
    
    
    Unrealized
    
    
    Unrealized
    
    
    Amortized
    
    
    RecognizedSeptember 30, 2009
    
    Value
    
    
    Gains
    
    
    (Losses)
    
    
    Cost
    
    
    in OCI($ in thousands)Fixed maturities:U.S. Government Treasury bonds,
agency bonds and foreign government bonds
    
    $
    514,158
    
    
    $
    10,855
    
    
    $
    (54
    )
    
    $
    503,357
    
    
    $
    States, municipalities and political
subdivisions
    
    
    679,417
    
    
    
    37,072
    
    
    
    (570
    )
    
    
    642,915
    
    
    
    Mortgage- and asset-backed securitiesMortgage-backed securities
    
    
    308,515
    
    
    
    15,142
    
    
    
    (10
    )
    
    
    293,383
    
    
    
    Collateralized mortgage obligations
    
    
    46,126
    
    
    
    
    
    
    
    (12,120
    )
    
    
    58,246
    
    
    
    (9,818
    )Asset-backed securities
    
    
    20,088
    
    
    
    793
    
    
    
    (119
    )
    
    
    19,414
    
    
    
    (48
    )Commercial mortgage-backed securities
    
    
    106,459
    
    
    
    584
    
    
    
    (6,458
    )
    
    
    112,333
    
    
    
    Subtotal
    
    
    481,188
    
    
    
    16,519
    
    
    
    (18,707
    )
    
    
    483,376
    
    
    
    (9,866
    )Corporate bonds
    
    
    203,023
    
    
    
    10,166
    
    
    
    (602
    )
    
    
    193,459
    
    
    
    Total fixed maturities
    
    
    1,877,786
    
    
    
    74,612
    
    
    
    (19,933
    )
    
    
    1,823,107
    
    
    
    (9,866
    )Equity securities  common stocks
    
    
    57,949
    
    
    
    12,843
    
    
    
    (72
    )
    
    
    45,178
    
    
    
    Cash
    
    
    21,692
    
    
    
    
    
    
    
    
    
    
    
    21,692
    
    
    
    Short-term investments
    
    
    136,935
    
    
    
    
    
    
    
    
    
    
    
    136,935
    
    
    
    Total
    
    $
    2,094,362
    
    
    $
    87,455
    
    
    $
    (20,005
    )
    
    $
    2,026,912
    
    
    $
    (9,866
    )
  65




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##### Table of Contents



Gross
    
    
    Gross
    
    
    Cost orFair
    
    
    Unrealized
    
    
    Unrealized
    
    
    AmortizedDecember 31, 2008
    
    Value
    
    
    Gains
    
    
    (Losses)
    
    
    Cost($ in thousands)Fixed maturities:U.S.
Government Treasury bonds, agency bonds and foreign government
bonds
    
    $
    361,656
    
    
    $
    25,741
    
    
    $
    (145
    )
    
    $
    336,060States, municipalities and political subdivisions
    
    
    614,609
    
    
    
    12,568
    
    
    
    (8,036
    )
    
    
    610,077Mortgage- and asset-backed securities:Mortgage-backed securities
    
    
    299,775
    
    
    
    10,930
    
    
    
    (26
    )
    
    
    288,871Collateralized mortgage obligations
    
    
    56,743
    
    
    
    
    
    
    
    (27,119
    )
    
    
    83,862Asset-backed securities
    
    
    29,436
    
    
    
    5
    
    
    
    (1,289
    )
    
    
    30,720Commercial mortgage-backed securities
    
    
    92,684
    
    
    
    
    
    
    
    (20,350
    )
    
    
    113,034Subtotal
    
    
    478,638
    
    
    
    10,935
    
    
    
    (48,784
    )
    
    
    516,487Corporate bonds
    
    
    188,869
    
    
    
    1,398
    
    
    
    (14,660
    )
    
    
    202,131Total fixed maturities
    
    
    1,643,772
    
    
    
    50,642
    
    
    
    (71,625
    )
    
    
    1,664,755Equity securities  common stocks
    
    
    51,802
    
    
    
    1,266
    
    
    
    (1,987
    )
    
    
    52,523Cash
    
    
    1,457
    
    
    
    
    
    
    
    
    
    
    
    1,457Short-term investments
    
    
    220,684
    
    
    
    
    
    
    
    
    
    
    
    220,684Total
    
    $
    1,917,715
    
    
    $
    51,908
    
    
    $
    (73,612
    )
    
    $
    1,939,419
  Gross
    
    
    Gross
    
    
    Cost orFair
    
    
    Unrealized
    
    
    Unrealized
    
    
    AmortizedSeptember 30, 2009
    
    Value
    
    
    Gains
    
    
    (Losses)
    
    
    Cost($ in thousands)U.S. Treasury bonds
    
    $
    384,097
    
    
    $
    8,118
    
    
    $
    (41
    )
    
    $
    376,020Agency bonds
    
    
    107,882
    
    
    
    2,296
    
    
    
    
    
    
    
    105,586Foreign government bonds
    
    
    22,179
    
    
    
    441
    
    
    
    (13
    )
    
    
    21,751Total
    
    $
    514,158
    
    
    $
    10,855
    
    
    $
    (54
    )
    
    $
    503,357
  66




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##### Table of Contents



Gross
    
    
    Gross
    
    
    Cost orFair
    
    
    Unrealized
    
    
    Unrealized
    
    
    AmortizedDecember 31, 2008
    
    Value
    
    
    Gains
    
    
    (Losses)
    
    
    Cost($ in thousands)U.S. Treasury bonds
    
    $
    290,059
    
    
    $
    23,243
    
    
    $
    (143
    )
    
    $
    266,959Agency bonds
    
    
    58,401
    
    
    
    2,008
    
    
    
    (2
    )
    
    
    56,395Foreign government bonds
    
    
    13,196
    
    
    
    490
    
    
    
    
    
    
    
    12,706Total
    
    $
    361,656
    
    
    $
    25,741
    
    
    $
    (145
    )
    
    $
    336,060
    Gross
    
    
    Gross
    
    
    Cost orFair
    
    
    Unrealized
    
    
    Unrealized
    
    
    Amortized
    
    
    S&PValue
    
    
    Gains
    
    
    (Losses)
    
    
    Cost
    
    
    Rating($ in thousands)Issuers:State of Washington
    
    $
    17,771
    
    
    $
    1,085
    
    
    $
    
    
    
    $
    16,686
    
    
    AATexas State Transportation Commission
    
    
    15,874
    
    
    
    130
    
    
    
    
    
    
    
    15,744
    
    
    AA+City of San Antonio
    
    
    11,919
    
    
    
    893
    
    
    
    
    
    
    
    11,026
    
    
    AAVirginia Resources Authority
    
    
    11,897
    
    
    
    1,315
    
    
    
    
    
    
    
    10,582
    
    
    AAAUniversity of Pittsburgh
    
    
    11,605
    
    
    
    976
    
    
    
    
    
    
    
    10,629
    
    
    AACommonwealth of Massachusetts
    
    
    11,306
    
    
    
    758
    
    
    
    
    
    
    
    10,548
    
    
    AAState of Wisconsin
    
    
    10,310
    
    
    
    813
    
    
    
    
    
    
    
    9,497
    
    
    AA-State of Louisiana
    
    
    10,053
    
    
    
    553
    
    
    
    
    
    
    
    9,500
    
    
    A+New York City Transitional Finance Authority
    
    
    8,465
    
    
    
    3
    
    
    
    
    
    
    
    8,462
    
    
    AACypress-Fairbanks Independent School District
    
    
    8,306
    
    
    
    451
    
    
    
    
    
    
    
    7,855
    
    
    AA-Illinois Finance Authority
    
    
    8,198
    
    
    
    50
    
    
    
    (88
    )
    
    
    8,236
    
    
    BBB+Fort Bend Independent School District
    
    
    8,038
    
    
    
    584
    
    
    
    
    
    
    
    7,454
    
    
    AACounty of Hamilton
    
    
    8,020
    
    
    
    205
    
    
    
    
    
    
    
    7,815
    
    
    AState of Ohio
    
    
    8,004
    
    
    
    643
    
    
    
    
    
    
    
    7,361
    
    
    AACity of New York, NY
    
    
    7,746
    
    
    
    470
    
    
    
    
    
    
    
    7,276
    
    
    AA-Subtotal
    
    $
    157,512
    
    
    $
    8,929
    
    
    $
    (88
    )
    
    $
    148,671All Other
    
    
    521,905
    
    
    
    28,143
    
    
    
    (482
    )
    
    
    494,244Total
    
    $
    679,417
    
    
    $
    37,072
    
    
    $
    (570
    )
    
    $
    642,915
  67




---



##### Table of Contents



Equivalent
    
    EquivalentS&P
    
    Moody's
    
    
    
    
    
    
    
    
    
    UnrealizedRating
    
    Rating
    
    Fair Value
    
    
    Book Value
    
    
    Gain/(Loss)($ in thousands)AAA/AA/A
    
    Aaa/Aa/A
    
    $
    641,184
    
    
    $
    605,276
    
    
    $
    35,908BBB
    
    Baa
    
    
    30,265
    
    
    
    29,738
    
    
    
    527BB
    
    Ba
    
    
    1,998
    
    
    
    2,018
    
    
    
    (20
    )B
    
    B
    
    
    
    
    
    
    
    
    
    
    CCC or lower
    
    Caa or lower
    
    
    
    
    
    
    
    
    
    
    N/A
    
    N/A
    
    
    5,970
    
    
    
    5,883
    
    
    
    87Total
    
    
    
    $
    679,417
    
    
    $
    642,915
    
    
    $
    36,502
   Gross
    
    
    Gross
    
    
    Cost orFair
    
    
    Unrealized
    
    
    Unrealized
    
    
    AmortizedValue
    
    
    Gains
    
    
    (Losses)
    
    
    Cost($ in thousands)Mortgage-backed securities:GNMA
    
    $
    46,725
    
    
    $
    1,485
    
    
    $
    (9
    )
    
    $
    45,249FNMA
    
    
    191,824
    
    
    
    10,332
    
    
    
    (1
    )
    
    
    181,493FHLMC
    
    
    69,966
    
    
    
    3,325
    
    
    
    
    
    
    
    66,641Total
    
    $
    308,515
    
    
    $
    15,142
    
    
    $
    (10
    )
    
    $
    293,383
  68




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##### Table of Contents



Gross
    
    
    Gross
    
    
    Cost orFair
    
    
    Unrealized
    
    
    Unrealized
    
    
    AmortizedValue
    
    
    Gains
    
    
    (Losses)
    
    
    Cost($ in thousands)Collateralized
mortgage
obligations:Prime
    
    $
    45,192
    
    
    $
    
    
    
    $
    (11,736
    )
    
    $
    56,928Alt-A
    
    
    934
    
    
    
    
    
    
    
    (384
    )
    
    
    1,318Subprime
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total
    
    $
    46,126
    
    
    $
    
    
    
    $
    (12,120
    )
    
    $
    58,246
  Cost or
    
    
    GrossIssue
    
    
    Fair
    
    
    Amortized
    
    
    Unrealized
    
    
    S&P
    
    MoodysSecurity Description
    
    Date
    
    
    Value
    
    
    Cost
    
    
    (Loss)
    
    
    Rating
    
    Rating($ in thousands)Wells Fargo Mortgage Backed 06 AR8
    
    
    2006
    
    
    $
    3,968
    
    
    $
    5,357
    
    
    $
    (1,389
    )
    
    BBB+
    
    NRCitigroup Mortgage Loan Trust 06 AR2
    
    
    2006
    
    
    
    3,373
    
    
    
    4,473
    
    
    
    (1,100
    )
    
    NR
    
    B3MLCC Mortgage Investors Inc 06 2
    
    
    2006
    
    
    
    3,333
    
    
    
    3,773
    
    
    
    (440
    )
    
    AAA
    
    Aa2GMAC Mortgage Corp Loan Trust 05 AR6
    
    
    2005
    
    
    
    3,327
    
    
    
    3,708
    
    
    
    (381
    )
    
    BB
    
    B3Merrill Lynch Mortgage Investors 05 A9
    
    
    2005
    
    
    
    3,043
    
    
    
    3,710
    
    
    
    (667
    )
    
    B+
    
    NRMerrill Lynch Mortgage Investors 07 2
    
    
    2007
    
    
    
    2,926
    
    
    
    4,182
    
    
    
    (1,256
    )
    
    NR
    
    B3Wells Fargo Mortgage Backed 06 AR5
    
    
    2006
    
    
    
    2,456
    
    
    
    2,886
    
    
    
    (430
    )
    
    NR
    
    Caa1Wells Fargo Mortgage Backed 05 AR4
    
    
    2005
    
    
    
    1,118
    
    
    
    1,195
    
    
    
    (77
    )
    
    NR
    
    A2Merrill Lynch Mortgage Investors 05 A9
    
    
    2005
    
    
    
    821
    
    
    
    881
    
    
    
    (60
    )
    
    BBB
    
    NRBear Stearns Adjustable Rate 06 1A1
    
    
    2006
    
    
    
    737
    
    
    
    857
    
    
    
    (120
    )
    
    NR
    
    Baa1Citigroup Mortgage Loan Trust 04-HYB3
    
    
    2004
    
    
    
    660
    
    
    
    721
    
    
    
    (61
    )
    
    AAA
    
    A1Master Adjustable Rate Mortgage 05 6
    
    
    2005
    
    
    
    637
    
    
    
    860
    
    
    
    (223
    )
    
    B-
    
    Baa2GSR Mortgage Loan Trust 06 AR 1
    
    
    2006
    
    
    
    636
    
    
    
    870
    
    
    
    (234
    )
    
    BB
    
    NRJP Morgan Mortgage Trust 06 A4
    
    
    2006
    
    
    
    634
    
    
    
    900
    
    
    
    (266
    )
    
    NR
    
    B3Wells Fargo Mortgage Backed 06 AR6
    
    
    2006
    
    
    
    625
    
    
    
    820
    
    
    
    (195
    )
    
    NR
    
    B2Subtotal
    
    
    
    
    
    $
    28,294
    
    
    $
    35,193
    
    
    $
    (6,899
    )All Other
    
    
    
    
    
    
    17,832
    
    
    
    23,053
    
    
    
    (5,221
    )Total
    
    
    
    
    
    $
    46,126
    
    
    $
    58,246
    
    
    $
    (12,120
    )
  69




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##### Table of Contents



Gross
    
    
    Gross
    
    
    Cost orFair
    
    
    Unrealized
    
    
    Unrealized
    
    
    AmortizedValue
    
    
    Gains
    
    
    (Losses)
    
    
    Cost($ in thousands)Asset-backed
securities:Prime
    
    $
    19,956
    
    
    $
    793
    
    
    $
    (70
    )
    
    $
    19,233Alt-A
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Subprime
    
    
    132
    
    
    
    
    
    
    
    (49
    )
    
    
    181Total
    
    $
    20,088
    
    
    $
    793
    
    
    $
    (119
    )
    
    $
    19,414
   Cost or
    
    
    NetTotal
    
    
    Amortized
    
    
    UnrealizedAAA
    
    
    AA
    
    
    A
    
    
    BBB
    
    
    BB
    
    
    CC
    
    
    Fair Value
    
    
    Cost
    
    
    Gain/(Loss)($ in thousands)Auto Loans
    
    $
    9,484
    
    
    $
    4,302
    
    
    $
    604
    
    
    $
    2,044
    
    
    $
    
    
    
    $
    
    
    
    $
    16,434
    
    
    $
    15,827
    
    
    $
    607Credit Cards
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    131
    
    
    
    
    
    
    
    131
    
    
    
    133
    
    
    
    (2
    )Miscellaneous
    
    
    3,392
    
    
    
    2
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    129
    
    
    
    3,523
    
    
    
    3,454
    
    
    
    69Total
    
    $
    12,876
    
    
    $
    4,304
    
    
    $
    604
    
    
    $
    2,044
    
    
    $
    131
    
    
    $
    129
    
    
    $
    20,088
    
    
    $
    19,414
    
    
    $
    674
   Gross
    
    
    Gross
    
    
    Cost orFair
    
    
    Unrealized
    
    
    Unrealized
    
    
    AmortizedValue
    
    
    Gains
    
    
    (Losses)
    
    
    Cost($
in thousands)Commercial
mortgage-backed
securities:Prime
    
    $
    106,459
    
    
    $
    584
    
    
    $
    (6,458
    )
    
    $
    112,333Alt-A
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Subprime
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total
    
    $
    106,459
    
    
    $
    584
    
    
    $
    (6,458
    )
    
    $
    112,333
  70




---



##### Table of Contents



Cost or
    
    
    Net
    
    
    AverageIssue
    
    
    Fair
    
    
    Amortized
    
    
    Unrealized
    
    
    Underlying
    
    
    Delinq.
    
    
    Subord.
    
    
    S&P
    
    Moody'sSecurity Description
    
    Date
    
    
    Value
    
    
    Cost
    
    
    Gain/Loss
    
    
    LTV%
    
    
    Rate
    
    
    Level
    
    
    Rating
    
    Rating($ in thousands)Wachovia Bank Commercial Mortgage 05 C18
    
    
    2005
    
    
    $
    6,854
    
    
    $
    6,854
    
    
    $
    
    
    
    
    85.2
    %
    
    
    7.3
    %
    
    
    33.1
    %
    
    AAA
    
    AaaGS Mortgage Securities Corp II 05 GG4
    
    
    2005
    
    
    
    6,281
    
    
    
    6,604
    
    
    
    (323
    )
    
    
    72.0
    %
    
    
    4.4
    %
    
    
    30.7
    %
    
    AAA
    
    AaaLB-UBS Mortgage Commercial Mortgage
Trust 06 C6
    
    
    2006
    
    
    
    6,147
    
    
    
    6,786
    
    
    
    (639
    )
    
    
    63.6
    %
    
    
    2.0
    %
    
    
    30.2
    %
    
    AAA
    
    AaaLB-UBS Mortgage Commercial Mortgage
Trust 06 C7
    
    
    2006
    
    
    
    5,824
    
    
    
    6,331
    
    
    
    (507
    )
    
    
    65.1
    %
    
    
    6.1
    %
    
    
    30.2
    %
    
    AAA
    
    NRCitigroup/Deutsche Bank Comm 05 CD1
    
    
    2005
    
    
    
    5,769
    
    
    
    5,891
    
    
    
    (122
    )
    
    
    68.6
    %
    
    
    6.5
    %
    
    
    30.7
    %
    
    AAA
    
    AaaFour Times Square Trust 06 4TS
    
    
    2006
    
    
    
    5,693
    
    
    
    7,029
    
    
    
    (1,336
    )
    
    
    39.4
    %
    
    
    0.0
    %
    
    
    7.9
    %
    
    AAA
    
    Aa1Bear Stearns Commercial Mortgage 06 T22
    
    
    2006
    
    
    
    4,767
    
    
    
    4,894
    
    
    
    (127
    )
    
    
    57.4
    %
    
    
    0.4
    %
    
    
    28.1
    %
    
    NR
    
    AaaBear Stearns Commercial Mortgage 07 PW15
    
    
    2007
    
    
    
    4,604
    
    
    
    5,136
    
    
    
    (532
    )
    
    
    69.7
    %
    
    
    4.5
    %
    
    
    30.3
    %
    
    AAA
    
    AaaBank of America Commercial Mortgage 07 1
    
    
    2007
    
    
    
    4,200
    
    
    
    4,781
    
    
    
    (581
    )
    
    
    74.1
    %
    
    
    9.4
    %
    
    
    30.5
    %
    
    NR
    
    AaaMorgan Stanley Capital I 07 HQ11
    
    
    2007
    
    
    
    4,058
    
    
    
    4,788
    
    
    
    (730
    )
    
    
    70.1
    %
    
    
    3.1
    %
    
    
    30.2
    %
    
    AAA
    
    AaaMerrill Lynch Mortgage Trust 05 CIP1
    
    
    2005
    
    
    
    3,865
    
    
    
    4,035
    
    
    
    (170
    )
    
    
    68.8
    %
    
    
    14.0
    %
    
    
    30.9
    %
    
    NR
    
    AaaCommercial Mortgage Pass Throu 05 C6
    
    
    2005
    
    
    
    3,852
    
    
    
    4,053
    
    
    
    (201
    )
    
    
    72.4
    %
    
    
    9.4
    %
    
    
    30.4
    %
    
    AAA
    
    AaaMorgan Stanley Capital I 04 T13
    
    
    2004
    
    
    
    3,329
    
    
    
    3,326
    
    
    
    3
    
    
    
    58.8
    %
    
    
    0.0
    %
    
    
    15.4
    %
    
    NR
    
    AaaCitigroup Commercial Mortgage 06 C5
    
    
    2006
    
    
    
    3,163
    
    
    
    3,511
    
    
    
    (348
    )
    
    
    68.9
    %
    
    
    13.3
    %
    
    
    30.3
    %
    
    NR
    
    AaaGE Capital Commercial Mortgage 02 1A
    
    
    2002
    
    
    
    2,651
    
    
    
    2,502
    
    
    
    149
    
    
    
    73.1
    %
    
    
    1.6
    %
    
    
    25.0
    %
    
    NR
    
    AaaSubtotal
    
    
    
    
    
    $
    71,057
    
    
    $
    76,521
    
    
    $
    (5,464
    )All Other
    
    
    
    
    
    
    35,402
    
    
    
    35,812
    
    
    
    (410
    )Total
    
    
    
    
    
    $
    106,459
    
    
    $
    112,333
    
    
    $
    (5,874
    )
  PercenttoRating
    
    Amount
    
    
    Total($ in thousands)AAA
    
    $
    1,184,872
    
    
    
    59
    %AA
    
    
    475,182
    
    
    
    24
    %A
    
    
    245,829
    
    
    
    12
    %BBB
    
    
    68,829
    
    
    
    3
    %BB & below
    
    
    34,039
    
    
    
    2
    %NR
    
    
    5,970
    
    
    
    0
    %$
    2,014,721
    
    
    
    100
    %
  71




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##### Table of Contents



Gross
    
    
    Gross
    
    
    Cost orFair
    
    
    Unrealized
    
    
    Unrealized
    
    
    Amortized
    
    
    S&PValue
    
    
    Gains
    
    
    (Losses)
    
    
    Cost
    
    
    Rating($ in thousands)Issuers:General Electric
    
    $
    20,513
    
    
    $
    820
    
    
    $
    (8
    )
    
    $
    19,701
    
    
    AABank of America
    
    
    8,820
    
    
    
    251
    
    
    
    (35
    )
    
    
    8,604
    
    
    A-Transcanada Corp
    
    
    8,531
    
    
    
    414
    
    
    
    
    
    
    
    8,117
    
    
    A-Citigroup, Inc
    
    
    7,228
    
    
    
    77
    
    
    
    (209
    )
    
    
    7,360
    
    
    BBB+Statoilhydro ASA
    
    
    5,946
    
    
    
    392
    
    
    
    
    
    
    
    5,554
    
    
    AA-Wells Fargo
    
    
    5,803
    
    
    
    262
    
    
    
    (18
    )
    
    
    5,559
    
    
    A+Goldman Sachs Group
    
    
    5,682
    
    
    
    181
    
    
    
    
    
    
    
    5,501
    
    
    A-Scana Corp
    
    
    5,291
    
    
    
    182
    
    
    
    
    
    
    
    5,109
    
    
    A-Morgan Stanley
    
    
    5,116
    
    
    
    182
    
    
    
    (1
    )
    
    
    4,935
    
    
    A-ConocoPhillips
    
    
    4,862
    
    
    
    224
    
    
    
    
    
    
    
    4,638
    
    
    ABank of New York
    
    
    3,670
    
    
    
    203
    
    
    
    
    
    
    
    3,467
    
    
    A+United Technologies Corp
    
    
    3,585
    
    
    
    238
    
    
    
    
    
    
    
    3,347
    
    
    ACredit Suisse Group AG
    
    
    3,530
    
    
    
    260
    
    
    
    
    
    
    
    3,270
    
    
    A+Pfizer Inc
    
    
    3,523
    
    
    
    326
    
    
    
    
    
    
    
    3,197
    
    
    AAEli Lilly & Co
    
    
    3,434
    
    
    
    186
    
    
    
    
    
    
    
    3,248
    
    
    A+Subtotal
    
    $
    95,534
    
    
    $
    4,198
    
    
    $
    (271
    )
    
    $
    91,607All Other
    
    
    107,489
    
    
    
    5,968
    
    
    
    (331
    )
    
    
    101,852Total
    
    $
    203,023
    
    
    $
    10,166
    
    
    $
    (602
    )
    
    $
    193,459
  72




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##### Table of Contents



Gross
    
    
    GrossFair
    
    
    Unrealized
    
    
    UnrealizedValue
    
    
    Gains
    
    
    (Losses)
    
    
    Cost($ in thousands)Issuers:Vanguard Total Stock Market Index
    
    $
    4,398
    
    
    $
    1,132
    
    
    $
    
    
    
    $
    3,266Vanguard Pacific Stock Index
    
    
    3,950
    
    
    
    1,132
    
    
    
    
    
    
    
    2,818Vanguard Emerging Market Stock Index
    
    
    3,883
    
    
    
    1,503
    
    
    
    
    
    
    
    2,380Vanguard European Stock Index
    
    
    3,797
    
    
    
    1,351
    
    
    
    
    
    
    
    2,446PPG Industries Inc
    
    
    1,807
    
    
    
    615
    
    
    
    
    
    
    
    1,192Boeing Co
    
    
    1,719
    
    
    
    327
    
    
    
    
    
    
    
    1,392EI Du Pont De Nemours & Co
    
    
    1,628
    
    
    
    327
    
    
    
    
    
    
    
    1,3013M Co
    
    
    1,601
    
    
    
    360
    
    
    
    
    
    
    
    1,241Merck & Co
    
    
    1,542
    
    
    
    222
    
    
    
    
    
    
    
    1,320Vodafone Group PLC
    
    
    1,508
    
    
    
    319
    
    
    
    
    
    
    
    1,189BP PLC
    
    
    1,507
    
    
    
    372
    
    
    
    
    
    
    
    1,135Unilever NV
    
    
    1,482
    
    
    
    476
    
    
    
    
    
    
    
    1,006HSBC Holdings PLC
    
    
    1,397
    
    
    
    314
    
    
    
    
    
    
    
    1,083Astrazeneca PLC
    
    
    1,380
    
    
    
    292
    
    
    
    
    
    
    
    1,088ConocoPhillips
    
    
    1,368
    
    
    
    125
    
    
    
    
    
    
    
    1,243Subtotal
    
    $
    32,967
    
    
    $
    8,867
    
    
    $
    
    
    
    $
    24,100All Other
    
    
    24,982
    
    
    
    3,976
    
    
    
    (72
    )
    
    
    21,078Total
    
    $
    57,949
    
    
    $
    12,843
    
    
    $
    (72
    )
    
    $
    45,178
    73




---



##### Table of Contents



September 30, 2009
    
    
    December 31, 2008Fair
    
    
    Gross
    
    
    Fair
    
    
    GrossValue
    
    
    Unrealized Loss
    
    
    Value
    
    
    Unrealized Loss($ in thousands)Fixed Maturities:U.S.
Government Treasury bonds, agency
bonds and foreign government bonds0-6 Months
    
    $
    8,367
    
    
    $
    54
    
    
    $
    3,862
    
    
    $
    1457-12 Months
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    > 12 Months
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Subtotal
    
    
    8,367
    
    
    
    54
    
    
    
    3,862
    
    
    
    145States, municipalities and political subdivisions0-6 Months
    
    
    5,962
    
    
    
    17
    
    
    
    68,727
    
    
    
    2,1877-12 Months
    
    
    5,150
    
    
    
    103
    
    
    
    118,910
    
    
    
    4,376> 12 Months
    
    
    20,406
    
    
    
    450
    
    
    
    15,918
    
    
    
    1,473Subtotal
    
    
    31,518
    
    
    
    570
    
    
    
    203,555
    
    
    
    8,036Mortgage-backed securities0-6 Months
    
    
    9,517
    
    
    
    10
    
    
    
    2,130
    
    
    
    67-12 Months
    
    
    
    
    
    
    
    
    
    
    3,471
    
    
    
    9> 12 Months
    
    
    
    
    
    
    
    
    
    
    962
    
    
    
    11Subtotal
    
    
    9,517
    
    
    
    10
    
    
    
    6,563
    
    
    
    26Collateralized mortgage obligations0-6 Months
    
    
    4,579
    
    
    
    1,102
    
    
    
    
    
    
    
    7-12 Months
    
    
    
    
    
    
    
    
    
    
    39,012
    
    
    
    20,779> 12 Months
    
    
    41,547
    
    
    
    11,018
    
    
    
    10,315
    
    
    
    6,340Subtotal
    
    
    46,126
    
    
    
    12,120
    
    
    
    49,327
    
    
    
    27,119Asset-backed securities0-6 Months
    
    
    
    
    
    
    
    
    
    
    22,079
    
    
    
    6527-12 Months
    
    
    
    
    
    
    
    
    
    
    6,631
    
    
    
    551> 12 Months
    
    
    702
    
    
    
    119
    
    
    
    223
    
    
    
    86Subtotal
    
    
    702
    
    
    
    119
    
    
    
    28,933
    
    
    
    1,289Commercial mortgage-backed securities0-6 Months
    
    
    8,800
    
    
    
    546
    
    
    
    6,461
    
    
    
    2807-12 Months
    
    
    
    
    
    
    
    
    
    
    31,505
    
    
    
    5,628> 12 Months
    
    
    64,941
    
    
    
    5,912
    
    
    
    54,717
    
    
    
    14,442Subtotal
    
    
    73,741
    
    
    
    6,458
    
    
    
    92,683
    
    
    
    20,350Corporate bonds0-6 Months
    
    
    3,320
    
    
    
    100
    
    
    
    57,805
    
    
    
    2,4457-12 Months
    
    
    801
    
    
    
    13
    
    
    
    57,971
    
    
    
    5,893> 12 Months
    
    
    10,675
    
    
    
    489
    
    
    
    27,873
    
    
    
    6,322Subtotal
    
    
    14,796
    
    
    
    602
    
    
    
    143,649
    
    
    
    14,660Total Fixed Maturities
    
    $
    184,767
    
    
    $
    19,933
    
    
    $
    528,572
    
    
    $
    71,625Equity Securities  common stocks0-6 Months
    
    $
    
    
    
    $
    
    
    
    $
    8,991
    
    
    $
    1,9417-12 Months
    
    
    811
    
    
    
    72
    
    
    
    351
    
    
    
    46> 12 Months
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total Equity Securities
    
    $
    811
    
    
    $
    72
    
    
    $
    9,342
    
    
    $
    1,987
  74




---



##### Table of Contents



Period from
    
    
    
    
    Cost orSeptember 30, 2009
    
    Fair
    
    
    Amortizedto Maturity
    
    Value
    
    
    Cost($ in thousands)Due in one year or less
    
    $
    4,316
    
    
    $
    4,313Due after one year through five years
    
    
    694,349
    
    
    
    673,116Due after five years through ten years
    
    
    377,737
    
    
    
    357,728Due after ten years
    
    
    320,196
    
    
    
    304,574Mortgage- and asset-backed
    
    
    481,188
    
    
    
    483,376Total
    
    $
    1,877,786
    
    
    $
    1,823,107
  75




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##### Table of Contents



6 monthsLonger than 3
    
    
    or longer, lessLess than 3
    
    
    months, less
    
    
    than 12
    
    
    12 monthsmonths
    
    
    than 6 months
    
    
    months
    
    
    or longer
    
    
    Total($ in thousands)Fixed Maturities
    
    $
    (820
    )
    
    $
    
    
    
    $
    
    
    
    $
    (8,242
    )
    
    $
    (9,062
    )Equity Securities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total
    
    $
    (820
    )
    
    $
    
    
    
    $
    
    
    
    $
    (8,242
    )
    
    $
    (9,062
    )
 Critical
Accounting Estimates  Impairment of Invested Assets
      76




---



##### Table of Contents



($ in thousands)Beginning balance at June 30, 2009
    
    $
    2,472Credit losses on securities not previously impaired as of June 30, 2009
    
    
    Additional credit losses on securities previously impaired as of June 30, 2009
    
    
    525Ending balance at September 30, 2009
    
    $
    2,997
 ($ in thousands)Beginning balance of at January 1, 2009
    
    $
    Credit losses on securities not previously impaired as of December 31, 2008
    
    
    2,997Additional credit losses on securities not previously impaired as of June 30, 2009
    
    
    Ending balance at September 30, 2009
    
    $
    2,997
  GrossEquivalent
    
    Unrealized Loss
    
    
    Fair ValueS&P
    
    Moody's
    
    
    
    
    
    Percent
    
    
    
    
    
    
    PercentRating
    
    Rating
    
    Amount
    
    
    to Total
    
    
    Amount
    
    
    to Total($ in thousands)AAA/AA/A
    
    Aaa/Aa/A
    
    $
    9,147
    
    
    
    46
    %
    
    $
    132,883
    
    
    
    73
    %BBB
    
    Baa
    
    
    1,184
    
    
    
    6
    %
    
    
    17,054
    
    
    
    9
    %BB
    
    Ba
    
    
    1,817
    
    
    
    9
    %
    
    
    8,130
    
    
    
    4
    %B
    
    B
    
    
    2,401
    
    
    
    12
    %
    
    
    10,920
    
    
    
    6
    %CCC or lower
    
    Caa or lower
    
    
    5,358
    
    
    
    27
    %
    
    
    14,989
    
    
    
    8
    %N/A
    
    N/A
    
    
    26
    
    
    
    0
    %
    
    
    791
    
    
    
    0
    %Total
    
    
    
    $
    19,933
    
    
    
    100
    %
    
    $
    184,767
    
    
    
    100
    %
   77




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##### Table of Contents



GrossUnrealized Loss
    
    
    Fair ValuePercent
    
    
    
    
    
    
    PercentAmount
    
    
    to Total
    
    
    Amount
    
    
    to Total($ in thousands)Due in one year or less
    
    $
    1
    
    
    
    0
    %
    
    $
    399
    
    
    
    0
    %Due after one year through five years
    
    
    339
    
    
    
    2
    %
    
    
    15,095
    
    
    
    8
    %Due after five years through ten years
    
    
    248
    
    
    
    1
    %
    
    
    20,786
    
    
    
    11
    %Due after ten years
    
    
    638
    
    
    
    3
    %
    
    
    18,401
    
    
    
    10
    %Mortgage- and asset-backed securities
    
    
    18,707
    
    
    
    94
    %
    
    
    130,086
    
    
    
    71
    %Total fixed income securities
    
    $
    19,933
    
    
    
    100
    %
    
    $
    184,767
    
    
    
    100
    %
   Three Months Ended Sept. 30,
    
    
    Nine Months Ended Sept. 30,2009
    
    
    2008
    
    
    2009
    
    
    2008($ in thousands)Fixed maturities:Gains
    
    $
    8,739
    
    
    $
    757
    
    
    $
    13,264
    
    
    $
    2,283(Losses)
    
    
    (2,057
    )
    
    
    (969
    )
    
    
    (5,555
    )
    
    
    (1,404
    )(Impairments)
    
    
    (525
    )
    
    
    (749
    )
    
    
    (2,996
    )
    
    
    (749
    )6,157
    
    
    
    (961
    )
    
    
    4,713
    
    
    
    130Equity securities:Gains
    
    
    
    
    
    
    166
    
    
    
    1,562
    
    
    
    609(Losses)
    
    
    
    
    
    
    (722
    )
    
    
    (1,530
    )
    
    
    (1,896
    )(Impairments)
    
    
    (22
    )
    
    
    (3,999
    )
    
    
    (8,720
    )
    
    
    (12,411
    )(22
    )
    
    
    (4,555
    )
    
    
    (8,688
    )
    
    
    (13,698
    )Net realized gains (losses)
    
    $
    6,135
    
    
    $
    (5,516
    )
    
    $
    (3,975
    )
    
    $
    (13,568
    )
 Reinsurance Recoverables
   78




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##### Table of Contents



Liquidity and Capital Resources
       79




---



##### Table of Contents



80




---



##### Table of Contents



September 30,
    
    
    December 312009
    
    
    2008($ in thousands)Senior debt
    
    $
    113,979
    
    
    $
    123,794Stockholders equity
    
    
    810,955
    
    
    
    689,317Total capitalization
    
    $
    924,934
    
    
    $
    813,111Ratio of debt to total capitalization
    
    
    12.3
    %
    
    
    15.2
    %
   81




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##### Table of Contents



September 30,
    
    
    December 31,2009
    
    
    2008($ in thousands)Cash and investments
    
    $
    58,312
    
    
    $
    52,149Investments in subsidiaries
    
    
    860,914
    
    
    
    751,864Goodwill and other intangible assets
    
    
    2,534
    
    
    
    2,534Other assets
    
    
    7,222
    
    
    
    8,769Total assets
    
    $
    928,982
    
    
    $
    815,316Accounts payable and other liabilities
    
    $
    694
    
    
    $
    747Accrued interest payable
    
    
    3,354
    
    
    
    1,4587% Senior Notes due May 1, 2016
    
    
    113,979
    
    
    
    123,794Total liabilities
    
    
    118,027
    
    
    
    125,999Stockholders equity
    
    
    810,955
    
    
    
    689,317Total liabilities and stockholders equity
    
    $
    928,982
    
    
    $
    815,316
  82




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##### Table of Contents



Item 3. Quantitative and Qualitative Disclosures about Market Risk
  
 Item 4. Controls and Procedures
 (a)
    
    The Chief Executive Officer and Chief Financial Officer of the Company
have evaluated the effectiveness of our disclosure controls and procedures (as
defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934,
as amended (the Exchange Act)), as of the end of the period covered by this
quarterly report. Based on such evaluation, such officers have concluded that as of
the end of such period the Companys disclosure controls and procedures are
effective in identifying, on a timely basis, material information required to be
disclosed in our reports filed or submitted under the Exchange Act.
 (b)
    
    There have been no changes during our third fiscal quarter in our
internal control over financial reporting that have materially affected, or are
reasonably likely to materially affect, the Companys internal control over
financial reporting.
 
 Part II  Other Information
 
 Item 1. Legal Proceedings
   
 Item 1A. Risk Factors
  
 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
   83




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##### Table of Contents



Item 3. Defaults Upon Senior Securities
  
 Item 4. Submissions of Matters to a Vote of Security Holders
  
 Item 5. Other Information
  
 Item 6. Exhibits
 Exhibit No.
    
    Description of Exhibit11-1
    
    Statement re Computation of Per Share Earnings
    
    *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).
    
    *
 *
    
    Included herein.  84




---



##### Table of Contents



The Navigators Group, Inc.
(Registrant)Date:  November 6, 2009
    /s/ Francis W. McDonnellFrancis W. McDonnellSenior Vice President
and Chief Financial Officer  85




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##### Table of Contents



INDEX OF EXHIBITS
 Exhibit No.
    
    Description of Exhibit11-1
    
    Statement re Computation of Per Share Earnings
    
    *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).
    
    *
 
 *
    
    Included herein.  86