##### 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 June 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
    
    (IRS Employerincorporation or organization)
    
    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
 Yes þ No o
  Large accelerated filer þ
    
    Accelerated filer o
    
    Non-accelerated filer o
    
    Smaller reporting company o
 Yes o No þ




---



##### 



THE NAVIGATORS GROUP, INC. AND SUBSIDIARIES
 INDEX
 Page No.Part I. FINANCIAL INFORMATION:Item 1. Financial StatementsConsolidated Balance Sheets
June 30, 2009 (Unaudited) and December 31, 2008
    
    
    3Consolidated Statements of Income (Unaudited)Three Months Ended June 30, 2009 and 2008
    
    
    4Six Months Ended June 30, 2009 and 2008
    
    
    5Consolidated Statements of Stockholders Equity (Unaudited)
June 30, 2009 and 2008
    
    
    6Consolidated Statements of Comprehensive Income (Unaudited)Three Months Ended June 30, 2009 and 2008
    
    
    7Six Months Ended June 30, 2009 and 2008
    
    
    8Consolidated Statements of Cash Flows (Unaudited)
Six Months Ended June 30, 2009 and 2008
    
    
    9Notes to Interim Consolidated Financial Statements (Unaudited)
    
    
    10Item 2. Managements Discussion and Analysis of Financial
Condition and Results of Operations
    
    
    31Item 3. Quantitative and Qualitative Disclosures
About Market Risk
    
    
    84Item 4. Controls and Procedures
    
    
    84Part II. OTHER INFORMATIONItem 1. Legal Proceedings
    
    
    84Item 1A. Risk Factors
    
    
    85Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    85Item 3. Defaults Upon Senior Securities
    
    
    85Item 4. Submissions of Matters to a Vote of Security Holders
    
    
    85Item 5. Other Information
    
    
    85Item 6. Exhibits
    
    
    86Signature
    
    
    87Index of Exhibits
    
    
    88Exhibit 11-1Exhibit 31-1Exhibit 31-2Exhibit 32-1Exhibit 32-2
   2




---



##### Table of Contents



Part 1. Financial Information
 
 Item 1. Financial Statements
 THE NAVIGATORS GROUP, INC. AND SUBSIDIARIES
 
 CONSOLIDATED BALANCE SHEETS  ($ in thousands, except share data)
 June 30,
    
    
    December 31,2009
    
    
    2008(Unaudited)ASSETSInvestments and cash:Fixed maturities,
available-for-sale, at
fair value
(amortized
cost: 2009,
$1,752,828;
2008, $1,664,755)
    
    $
    1,754,770
    
    
    $
    1,643,772Equity securities, available-for-sale, at fair value (cost: 2009,
$41,944; 2008, $52,523)
    
    
    47,781
    
    
    
    51,802Short-term
investments, at fair
value
    
    
    191,616
    
    
    
    220,684Cash
    
    
    14,401
    
    
    
    1,457Total
investments
and cash
    
    
    2,008,568
    
    
    
    1,917,715Premiums in course of
collection
    
    
    210,815
    
    
    
    170,522Commissions receivable
    
    
    313
    
    
    
    319Prepaid reinsurance
premiums
    
    
    166,539
    
    
    
    188,874Reinsurance receivable on
paid losses
    
    
    79,857
    
    
    
    67,227Reinsurance receivable on unpaid losses and loss adjustment expenses
    
    
    875,809
    
    
    
    853,793Net deferred income tax
asset
    
    
    48,231
    
    
    
    54,736Deferred policy
acquisition costs
    
    
    60,032
    
    
    
    47,618Accrued investment income
    
    
    17,397
    
    
    
    17,411Goodwill and other
intangible assets
    
    
    7,135
    
    
    
    6,622Other assets
    
    
    25,407
    
    
    
    24,743Total assets
    
    $
    3,500,103
    
    
    $
    3,349,580LIABILITIES AND STOCKHOLDERS EQUITYLiabilities:Reserves for losses and loss adjustment
expenses
    
    $
    1,942,976
    
    
    $
    1,853,664Unearned premium
    
    
    510,282
    
    
    
    480,665Reinsurance balances
payable
    
    
    125,167
    
    
    
    140,319Senior notes
    
    
    113,949
    
    
    
    123,794Federal income tax
payable
    
    
    14,033
    
    
    
    5,874Payable for securities
    
    
    11,075
    
    
    
    Accounts payable and
other liabilities
    
    
    34,824
    
    
    
    55,947Total
liabilities
    
    
    2,752,306
    
    
    
    2,660,263Stockholders equity:Preferred stock, $.10 par value, authorized 1,000,000 shares, none issued
    
    
    
    
    
    
    Common
stock, $.10 par value, shares authorized: 50,000,000; issued and
outstanding (net of treasury shares): 16,948,497 at 6/30/09 and
16,856,073 at
12/31/08
    
    
    1,717
    
    
    
    1,708Additional paid-in
capital
    
    
    302,964
    
    
    
    298,872Retained earnings
    
    
    442,426
    
    
    
    406,776Treasury stock, at cost (224,754 shares for
both 2009 and 2008)
    
    
    (11,540
    )
    
    
    (11,540
    )Accumulated other comprehensive income (loss)
    
    
    12,230
    
    
    
    (6,499
    )Total
stockholders equity
    
    
    747,797
    
    
    
    689,317Total liabilities and stockholders
equity
    
    $
    3,500,103
    
    
    $
    3,349,580
   3




---



##### Table of Contents



THE NAVIGATORS GROUP, INC. AND SUBSIDIARIES
 
 CONSOLIDATED STATEMENTS OF INCOME  ($ and shares in thousands, except net income per share)
 Three Months EndedJune 30,2009
    
    
    2008(Unaudited)Gross written premium
    
    $
    272,729
    
    
    $
    $279,213Revenues:Net written premium
    
    $
    183,007
    
    
    $
    174,287Increase in unearned premium
    
    
    (13,139
    )
    
    
    (11,584
    )Net earned premium
    
    
    169,868
    
    
    
    162,703Commission income
    
    
    55
    
    
    
    467Net investment income
    
    
    18,656
    
    
    
    18,731Total other-than-temporary impairments
    
    
    (1,876
    )
    
    
    (8,412
    )Portion of loss recognized in OCI (before tax)
    
    
    (1,407
    )
    
    
    Net impairment loss recognized in earnings
    
    
    (469
    )
    
    
    (8,412
    )Net realized capital gains (losses)
    
    
    2,596
    
    
    
    436Other income
    
    
    5,247
    
    
    
    1,010Total revenues
    
    
    195,953
    
    
    
    174,935Operating expenses:Net losses and loss adjustment expenses incurred
    
    
    100,728
    
    
    
    91,889Commission expense
    
    
    26,278
    
    
    
    23,490Other operating expenses
    
    
    33,019
    
    
    
    33,237Interest expense
    
    
    2,150
    
    
    
    2,217Total operating expenses
    
    
    162,175
    
    
    
    150,833Income before income tax expense
    
    
    33,778
    
    
    
    24,102Income tax expense:Current
    
    
    10,440
    
    
    
    12,156Deferred
    
    
    (312
    )
    
    
    (5,475
    )Total income tax expense
    
    
    10,128
    
    
    
    6,681Net income
    
    $
    23,650
    
    
    $
    17,421Net income per common share:Basic
    
    $
    1.40
    
    
    $
    1.04Diluted
    
    $
    1.39
    
    
    $
    1.03Average common shares outstanding:Basic
    
    
    16,938
    
    
    
    16,773Diluted
    
    
    16,993
    
    
    
    16,912
   4




---



##### Table of Contents



THE NAVIGATORS GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME  ($ and shares in thousands, except net income per share)
 Six Months EndedJune 30,2009
    
    
    2008(Unaudited)Gross written premium
    
    $
    547,988
    
    
    $
    566,359Revenues:Net written premium
    
    $
    383,659
    
    
    $
    362,009Increase in unearned premium
    
    
    (48,845
    )
    
    
    (43,566
    )Net earned premium
    
    
    334,814
    
    
    
    318,443Commission income
    
    
    35
    
    
    
    728Net investment income
    
    
    37,399
    
    
    
    37,569Total other-than-temporary impairments
    
    
    (28,747
    )
    
    
    (8,412
    )Portion of loss recognized in OCI (before tax)
    
    
    (17,578
    )
    
    
    Net impairment loss recognized in earnings
    
    
    (11,169
    )
    
    
    (8,412
    )Net realized capital gains (losses)
    
    
    1,059
    
    
    
    360Other income
    
    
    5,410
    
    
    
    1,021Total revenues
    
    
    367,548
    
    
    
    349,709Operating expenses:Net losses and loss adjustment expenses incurred
    
    
    200,975
    
    
    
    180,309Commission expense
    
    
    48,726
    
    
    
    44,438Other operating expenses
    
    
    63,554
    
    
    
    62,993Interest expense
    
    
    4,369
    
    
    
    4,434Total operating expenses
    
    
    317,624
    
    
    
    292,174Income before income tax expense
    
    
    49,924
    
    
    
    57,535Income tax expense:Current
    
    
    17,190
    
    
    
    22,462Deferred
    
    
    (2,916
    )
    
    
    (5,598
    )Total income tax expense
    
    
    14,274
    
    
    
    16,864Net income
    
    $
    35,650
    
    
    $
    40,671Net income per common share:Basic
    
    $
    2.11
    
    
    $
    2.42Diluted
    
    $
    2.10
    
    
    $
    2.39Average common shares outstanding:Basic
    
    
    16,910
    
    
    
    16,817Diluted
    
    
    17,010
    
    
    
    17,002
   5




---



##### Table of Contents



THE NAVIGATORS GROUP, INC. AND SUBSIDIARIES
 
 CONSOLIDATED
STATEMENTS OF STOCKHOLDERS EQUITY  ($ in thousands)
 Six Months EndedJune 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
    
    
    9
    
    
    
    13Balance at end of period
    
    $
    1,717
    
    
    $
    1,700Additional paid-in capitalBalance at beginning of year
    
    $
    298,872
    
    
    $
    291,616Shares issued under stock plans
    
    
    4,092
    
    
    
    3,688Balance at end of period
    
    $
    302,964
    
    
    $
    295,304Retained earningsBalance at beginning of year
    
    $
    406,776
    
    
    $
    355,084Net income
    
    
    35,650
    
    
    
    40,671Balance at end of period
    
    $
    442,426
    
    
    $
    395,755Treasury stock, at costBalance at beginning of year
    
    $
    (11,540
    )
    
    $
    Treasury stock acquired
    
    
    
    
    
    
    (9,816
    )Balance at end of period
    
    $
    (11,540
    )
    
    $
    (9,816
    )Accumulated other comprehensive income (loss)Net unrealized gains (losses) on securities, net of taxBalance at beginning of year
    
    $
    (15,062
    )
    
    $
    10,186Change in period
    
    
    31,179
    
    
    
    (20,398
    )Balance at end of period
    
    
    16,117
    
    
    
    (10,212
    )Non-credit Impairment Losses, net of taxBalance at beginning of year
    
    
    
    
    
    
    Change in period
    
    
    (11,426
    )
    
    
    Balance at end of period
    
    
    (11,426
    )
    
    
    Cumulative translation adjustments, net of taxBalance at beginning of year
    
    
    8,563
    
    
    
    3,533Net adjustment for period
    
    
    (1,024
    )
    
    
    93Balance at end of period
    
    
    7,539
    
    
    
    3,626Balance at end of period
    
    $
    12,230
    
    
    $
    (6,586
    )Total stockholders equity at end of period
    
    $
    747,797
    
    
    $
    676,357
   6




---



##### Table of Contents



THE NAVIGATORS GROUP, INC. AND SUBSIDIARIES
 
 CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME  ($ in thousands)
 Three Months EndedJune 30,2009
    
    
    2008(Unaudited)Net income
    
    $
    23,650
    
    
    $
    17,421Other comprehensive income:Change in net unrealized gains (losses) on securities,
net of tax expense (benefit) of $6,935 and ($9,337) 


in 2009 and 2008,
respectively(1)
    
    
    13,770
    
    
    
    (16,986
    )Change in foreign currency translation (losses) gains, 

net of tax (benefit) expense
of ($1,369) and $909

in 2009 and 2008, respectively
    
    
    (2,544
    )
    
    
    375Other comprehensive income
(loss)
    
    
    11,226
    
    
    
    (16,611
    )Comprehensive income
    
    $
    34,876
    
    
    $
    810(1) Disclosure of reclassification amount, net of tax:Unrealized holding gains
(losses) arising
during period
    
    $
    15,146
    
    
    $
    (22,171
    )Less: reclassification adjustment for net realized
capital gains (losses) included in net income
    
    
    1,703
    
    
    
    (5,185
    )reclassification adjustment for impairment losses
recognized in net income
    
    
    (327
    )
    
    
    Change in net unrealized gains (losses) on securities
    
    $
    13,770
    
    
    $
    (16,986
    )
   7




---



##### Table of Contents



THE NAVIGATORS GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME  ($ in thousands)
 Six Months EndedJune 30,2009
    
    
    2008(Unaudited)Net income
    
    $
    35,650
    
    
    $
    40,671Other comprehensive income:Change in net unrealized gains (losses) on securities,
net of tax expense (benefit) of $9,729 and $
(10,742)
in 2009 and 2008, respectively(1)
    
    
    19,753
    
    
    
    (20,398
    )Change in foreign currency translation (losses) gains,
net of tax (benefit) expense of $(551) and $50
in 2009 and 2008, respectively
    
    
    (1,024
    )
    
    
    93Other comprehensive income (loss)
    
    
    18,729
    
    
    
    (20,305
    )Comprehensive income
    
    $
    54,379
    
    
    $
    20,366(1) Disclosure of reclassification amount, net of
tax:Unrealized holding gains (losses) arising
during period
    
    $
    12,942
    
    
    $
    (25,633
    )Less: reclassification adjustment for net
realized
capital gains (losses) included in net income
    
    
    563
    
    
    
    (5,235
    )reclassification adjustment for impairment
losses
recognized in net income
    
    
    (7,374
    )
    
    
    Change in net unrealized gains (losses) on
securities
    
    $
    19,753
    
    
    $
    (20,398
    )
   8




---



##### Table of Contents



THE NAVIGATORS GROUP, INC. AND SUBSIDIARIES
 
 CONSOLIDATED STATEMENTS OF CASH FLOWS  ($ in thousands)
 Six Months EndedJune 30,2009
    
    
    2008(Unaudited)Operating activities:Net income
    
    $
    35,650
    
    
    $
    40,671Adjustments to reconcile net income to net
cash provided by operating activities:Depreciation & amortization
    
    
    2,263
    
    
    
    2,422Net deferred income tax benefit
    
    
    (2,916
    )
    
    
    (5,598
    )Net realized capital losses
    
    
    10,110
    
    
    
    8,052Changes in assets and liabilities:Reinsurance receivable on paid and unpaid losses and LAE
    
    
    (28,447
    )
    
    
    40,156Reserve for losses and LAE
    
    
    75,937
    
    
    
    56,873Prepaid reinsurance premiums
    
    
    23,527
    
    
    
    (5,019
    )Unearned premium
    
    
    25,508
    
    
    
    48,311Premiums in course of collection
    
    
    (37,060
    )
    
    
    (34,052
    )Commissions receivable
    
    
    7
    
    
    
    1,933Deferred policy acquisition costs
    
    
    (11,597
    )
    
    
    (3,143
    )Accrued investment income
    
    
    18
    
    
    
    (1,342
    )Reinsurance balances payable
    
    
    (16,287
    )
    
    
    (13,331
    )Federal income tax
    
    
    6,635
    
    
    
    5,354Other
    
    
    (13,867
    )
    
    
    (7,887
    )Net cash provided by operating activities
    
    
    69,481
    
    
    
    133,400Investing activities:Fixed maturities, available-for-saleRedemptions and maturities
    
    
    65,094
    
    
    
    72,764Sales
    
    
    98,650
    
    
    
    84,562Purchases
    
    
    (260,161
    )
    
    
    (253,945
    )Equity securities, available-for-saleSales
    
    
    17,201
    
    
    
    12,063Purchases
    
    
    (15,287
    )
    
    
    (25,893
    )Change in payable for securities
    
    
    11,223
    
    
    
    (2,046
    )Net change in short-term investments
    
    
    34,148
    
    
    
    (3,736
    )Purchase of property and equipment
    
    
    (1,306
    )
    
    
    (1,618
    )Net cash used in investing activities
    
    
    (50,438
    )
    
    
    (117,849
    )Financing activities:Purchase of treasury stock
    
    
    
    
    
    
    (9,816
    )Repurchase of Senior Notes
    
    
    (7,000
    )
    
    
    Proceeds of stock issued from employee stock purchase plan
    
    
    344
    
    
    
    520Proceeds of stock issued from exercise of stock options
    
    
    557
    
    
    
    1,188Net cash used in financing activities
    
    
    (6,099
    )
    
    
    (8,108
    )Increase in cash
    
    
    12,944
    
    
    
    7,443Cash at beginning of year
    
    
    1,457
    
    
    
    7,056Cash at end of period
    
    $
    14,401
    
    
    $
    14,499Supplemental cash information:Federal, state and local income tax paid
    
    $
    9,688
    
    
    $
    15,430Interest paid
    
    
    4,330
    
    
    
    4,375Issuance of stock to directors
    
    
    210
    
    
    
    200
   9




---



##### Table of Contents



THE NAVIGATORS GROUP, INC. AND SUBSIDIARIES
 
 Notes to Interim Consolidated Financial Statements  (Unaudited)
 Note 1. Accounting Policies
  Note 2. Reinsurance Ceded
  Note 3. Segment Information
     10




---



##### 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 Company 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.
   11




---



##### Table of Contents



Three Months Ended June 30, 2009Insurance
    
    
    LloydsCompanies
    
    
    Operations
    
    
    Corporate
    
    
    Total($ in thousands)Gross written premium
    
    $
    189,385
    
    
    $
    83,344
    
    
    
    
    
    
    $
    272,729Net written premium
    
    
    122,359
    
    
    
    60,648
    
    
    
    
    
    
    
    183,007Net earned premium
    
    
    116,223
    
    
    
    53,645
    
    
    
    
    
    
    
    169,868Net losses and LAE
    
    
    (68,843
    )
    
    
    (31,885
    )
    
    
    
    
    
    
    (100,728
    )Commission expense
    
    
    (15,060
    )
    
    
    (11,218
    )
    
    
    
    
    
    
    (26,278
    )Other operating expenses
    
    
    (26,906
    )
    
    
    (6,117
    )
    
    $
    4
    
    
    
    (33,019
    )Commission income and other income (expense)
    
    
    1,655
    
    
    
    651
    
    
    
    2,996
    
    
    
    5,302Underwriting Income (loss)
    
    
    7,069
    
    
    
    5,076
    
    
    
    3,000
    
    
    
    15,145Net investment income
    
    
    16,239
    
    
    
    2,316
    
    
    
    101
    
    
    
    18,656Net realized capital gains (losses)
    
    
    2,210
    
    
    
    (83
    )
    
    
    
    
    
    
    2,127Interest expense
    
    
    
    
    
    
    
    
    
    
    (2,150
    )
    
    
    (2,150
    )Income (loss) before income taxes
    
    
    25,518
    
    
    
    7,309
    
    
    
    951
    
    
    
    33,778Income tax expense (benefit)
    
    
    7,171
    
    
    
    2,624
    
    
    
    333
    
    
    
    10,128Net income (loss)
    
    $
    18,347
    
    
    $
    4,685
    
    
    $
    618
    
    
    $
    23,650Identifiable assets (1)
    
    $
    2,571,787
    
    
    $
    832,751
    
    
    $
    80,000
    
    
    $
    3,500,103Loss and LAE ratio
    
    
    59.2
    %
    
    
    59.4
    %
    
    
    
    
    
    
    59.3
    %Commission expense ratio
    
    
    13.0
    %
    
    
    20.9
    %
    
    
    
    
    
    
    15.5
    %Other operating expense ratio (2)
    
    
    21.7
    %
    
    
    10.2
    %
    
    
    
    
    
    
    18.1
    %Combined ratio
    
    
    93.9
    %
    
    
    90.5
    %
    
    
    
    
    
    
    92.9
    %
 (1)
    
    Includes inter-segment transactions causing the row not to crossfoot.(2)
    
    Includes other operating expensesand commission income and other income (expense).  12




---



##### Table of Contents



Three Months Ended June 30, 2009Insurance
    
    
    LloydsCompanies
    
    
    Operations
    
    
    Total($ in thousands)Gross written premium:Marine
    
    $
    57,086
    
    
    $
    47,273
    
    
    $
    104,359Property Casualty
    
    
    94,567
    
    
    
    25,506
    
    
    
    120,073Professional Liability
    
    
    37,732
    
    
    
    10,565
    
    
    
    48,297Total
    
    $
    189,385
    
    
    $
    83,344
    
    
    $
    272,729Net written premium:Marine
    
    $
    34,956
    
    
    $
    40,077
    
    
    $
    75,033Property Casualty
    
    
    65,704
    
    
    
    15,070
    
    
    
    80,774Professional Liability
    
    
    21,699
    
    
    
    5,501
    
    
    
    27,200Total
    
    $
    122,359
    
    
    $
    60,648
    
    
    $
    183,007Net earned premium:Marine
    
    $
    34,678
    
    
    $
    37,038
    
    
    $
    71,716Property Casualty
    
    
    63,068
    
    
    
    11,201
    
    
    
    74,269Professional Liability
    
    
    18,477
    
    
    
    5,406
    
    
    
    23,883Total
    
    $
    116,223
    
    
    $
    53,645
    
    
    $
    169,868
  13




---



##### Table of Contents



Three Months Ended June 30, 2008Insurance
    
    
    LloydsCompanies
    
    
    Operations
    
    
    Corporate
    
    
    Total($ in thousands)Gross written premium
    
    $
    197,956
    
    
    $
    81,257
    
    
    
    
    
    
    $
    279,213Net written premium
    
    
    128,182
    
    
    
    46,105
    
    
    
    
    
    
    
    174,287Net earned premium
    
    
    117,434
    
    
    
    45,269
    
    
    
    
    
    
    
    162,703Net losses and LAE
    
    
    (62,225
    )
    
    
    (29,664
    )
    
    
    
    
    
    
    (91,889
    )Commission expense
    
    
    (14,723
    )
    
    
    (8,767
    )
    
    
    
    
    
    
    (23,490
    )Other operating expenses
    
    
    (24,552
    )
    
    
    (8,685
    )
    
    
    
    
    
    
    (33,237
    )Commission income and other income (expense)
    
    
    1,516
    
    
    
    (39
    )
    
    
    
    
    
    
    1,477Underwriting profit
    
    
    17,450
    
    
    
    (1,886
    )
    
    
    
    
    
    
    15,564Net investment income
    
    
    15,593
    
    
    
    2,871
    
    
    $
    267
    
    
    
    18,731Net realized capital gains (losses)
    
    
    (8,053
    )
    
    
    77
    
    
    
    
    
    
    
    (7,976
    )Interest expense
    
    
    
    
    
    
    
    
    
    
    (2,217
    )
    
    
    (2,217
    )Income (loss) before income taxes
    
    
    24,990
    
    
    
    1,062
    
    
    
    (1,950
    )
    
    
    24,102Income tax expense (benefit)
    
    
    6,939
    
    
    
    425
    
    
    
    (683
    )
    
    
    6,681Net income (loss)
    
    $
    18,051
    
    
    $
    637
    
    
    $
    (1,267
    )
    
    $
    17,421Identifiable assets (1)
    
    $
    2,383,898
    
    
    $
    773,572
    
    
    $
    68,413
    
    
    $
    3,245,500Loss and LAE ratio
    
    
    53.0
    %
    
    
    65.5
    %
    
    
    
    
    
    
    56.5
    %Commission expense ratio
    
    
    12.5
    %
    
    
    19.4
    %
    
    
    
    
    
    
    14.4
    %Other operating expense ratio (2)
    
    
    19.6
    %
    
    
    19.3
    %
    
    
    
    
    
    
    19.5
    %Combined ratio
    
    
    85.1
    %
    
    
    104.2
    %
    
    
    
    
    
    
    90.4
    %
 (1)
    
    Includes inter-segment transactions causing the row not to crossfoot.(2)
    
    Includes other operating expensesand commission income and other income (expense).  14




---



##### Table of Contents



Three Months Ended June 30, 2008Insurance
    
    
    LloydsCompanies
    
    
    Operations
    
    
    Total($ in thousands)Gross written premium:Marine
    
    $
    64,339
    
    
    $
    41,499
    
    
    $
    105,838Property Casualty
    
    
    107,180
    
    
    
    31,359
    
    
    
    138,539Professional Liability
    
    
    26,437
    
    
    
    8,399
    
    
    
    34,836Total
    
    $
    197,956
    
    
    $
    81,257
    
    
    $
    279,213Net written premium:Marine
    
    $
    38,982
    
    
    $
    28,269
    
    
    $
    67,251Property Casualty
    
    
    73,294
    
    
    
    12,755
    
    
    
    86,049Professional Liability
    
    
    15,906
    
    
    
    5,081
    
    
    
    20,987Total
    
    $
    128,182
    
    
    $
    46,105
    
    
    $
    174,287Net earned premium:Marine
    
    $
    33,095
    
    
    $
    31,328
    
    
    $
    64,423Property Casualty
    
    
    69,951
    
    
    
    8,800
    
    
    
    78,751Professional Liability
    
    
    14,388
    
    
    
    5,141
    
    
    
    19,529Total
    
    $
    117,434
    
    
    $
    45,269
    
    
    $
    162,703
  15




---



##### Table of Contents



Six Months Ended June 30, 2009Insurance
    
    
    LloydsCompanies
    
    
    Operations
    
    
    Corporate
    
    
    Total($ in thousands)Gross written premium
    
    $
    381,368
    
    
    $
    166,620
    
    
    
    
    
    
    $
    547,988Net written premium
    
    
    259,441
    
    
    
    124,218
    
    
    
    
    
    
    
    383,659Net earned premium
    
    
    236,513
    
    
    
    98,301
    
    
    
    
    
    
    
    334,814Net losses and LAE
    
    
    (138,996
    )
    
    
    (61,979
    )
    
    
    
    
    
    
    (200,975
    )Commission expense
    
    
    (30,028
    )
    
    
    (18,698
    )
    
    
    
    
    
    
    (48,726
    )Other operating expenses
    
    
    (51,466
    )
    
    
    (12,098
    )
    
    $
    10
    
    
    
    (63,554
    )Commission income and other income (expense)
    
    
    1,856
    
    
    
    599
    
    
    
    2,990
    
    
    
    5,445Underwriting profit
    
    
    17,879
    
    
    
    6,125
    
    
    
    3,000
    
    
    
    27,004Net investment income
    
    
    32,446
    
    
    
    4,699
    
    
    
    254
    
    
    
    37,399Net realized capital gains (losses)
    
    
    (6,697
    )
    
    
    (3,413
    )
    
    
    
    
    
    
    (10,110
    )Interest expense
    
    
    
    
    
    
    
    
    
    
    (4,369
    )
    
    
    (4,369
    )Income (loss) before income taxes
    
    
    43,628
    
    
    
    7,411
    
    
    
    (1,115
    )
    
    
    49,924Income tax expense (benefit)
    
    
    11,704
    
    
    
    2,960
    
    
    
    (390
    )
    
    
    14,274Net income (loss)
    
    $
    31,924
    
    
    $
    4,451
    
    
    $
    (725
    )
    
    $
    35,650Identifiable assets (1)
    
    $
    2,571,787
    
    
    $
    832,751
    
    
    $
    80,000
    
    
    $
    3,500,103Loss and LAE ratio
    
    
    58.8
    %
    
    
    63.0
    %
    
    
    
    
    
    
    60.0
    %Commission expense ratio
    
    
    12.7
    %
    
    
    19.0
    %
    
    
    
    
    
    
    14.6
    %Other operating expense ratio (2)
    
    
    21.0
    %
    
    
    11.7
    %
    
    
    
    
    
    
    18.2
    %Combined ratio
    
    
    92.5
    %
    
    
    93.7
    %
    
    
    
    
    
    
    92.8
    %
 (1)
    
    Includes inter-segment transactions causing the row not to crossfoot.(2)
    
    Includes other operating expensesand commission income and other income (expense).  16




---



##### Table of Contents



Six Months Ended June 30, 2009Insurance
    
    
    LloydsCompanies
    
    
    Operations
    
    
    Total($ in thousands)Gross written premium:Marine
    
    $
    134,323
    
    
    $
    106,296
    
    
    $
    240,619Property Casualty
    
    
    178,825
    
    
    
    39,034
    
    
    
    217,859Professional Liability
    
    
    68,220
    
    
    
    21,290
    
    
    
    89,510Total
    
    $
    381,368
    
    
    $
    166,620
    
    
    $
    547,988Net written premium:Marine
    
    $
    93,415
    
    
    $
    90,051
    
    
    $
    183,466Property Casualty
    
    
    125,680
    
    
    
    22,665
    
    
    
    148,345Professional Liability
    
    
    40,346
    
    
    
    11,502
    
    
    
    51,848Total
    
    $
    259,441
    
    
    $
    124,218
    
    
    $
    383,659Net earned premium:Marine
    
    $
    71,839
    
    
    $
    68,213
    
    
    $
    140,052Property Casualty
    
    
    128,480
    
    
    
    19,124
    
    
    
    147,604Professional Liability
    
    
    36,194
    
    
    
    10,964
    
    
    
    47,158Total
    
    $
    236,513
    
    
    $
    98,301
    
    
    $
    334,814
  17




---



##### Table of Contents



Six Months Ended June 30, 2008Insurance
    
    
    LloydsCompanies
    
    
    Operations
    
    
    Corporate
    
    
    Total($ in thousands)Gross written premium
    
    $
    389,552
    
    
    $
    176,807
    
    
    
    
    
    
    $
    566,359Net written premium
    
    
    252,492
    
    
    
    109,517
    
    
    
    
    
    
    
    362,009Net earned premium
    
    
    229,680
    
    
    
    88,763
    
    
    
    
    
    
    
    318,443Net losses and LAE
    
    
    (129,581
    )
    
    
    (50,728
    )
    
    
    
    
    
    
    (180,309
    )Commission expense
    
    
    (27,671
    )
    
    
    (16,767
    )
    
    
    
    
    
    
    (44,438
    )Other operating expenses
    
    
    (46,700
    )
    
    
    (16,293
    )
    
    
    
    
    
    
    (62,993
    )Commission income and other income (expense)
    
    
    1,774
    
    
    
    (25
    )
    
    
    
    
    
    
    1,749Underwriting profit
    
    
    27,502
    
    
    
    4,950
    
    
    
    
    
    
    
    32,452Net investment income
    
    
    31,058
    
    
    
    5,853
    
    
    $
    658
    
    
    
    37,569Net realized capital gains (losses)
    
    
    (8,155
    )
    
    
    103
    
    
    
    
    
    
    
    (8,052
    )Interest expense
    
    
    
    
    
    
    
    
    
    
    (4,434
    )
    
    
    (4,434
    )Income (loss) before income taxes
    
    
    50,405
    
    
    
    10,906
    
    
    
    (3,776
    )
    
    
    57,535Income tax expense (benefit)
    
    
    14,309
    
    
    
    3,877
    
    
    
    (1,322
    )
    
    
    16,864Net income (loss)
    
    $
    36,096
    
    
    $
    7,029
    
    
    $
    (2,454
    )
    
    $
    40,671Identifiable assets (1)
    
    $
    2,383,898
    
    
    $
    773,572
    
    
    $
    68,413
    
    
    $
    3,245,500Loss and LAE ratio
    
    
    56.4
    %
    
    
    57.1
    %
    
    
    
    
    
    
    56.6
    %Commission expense ratio
    
    
    12.0
    %
    
    
    18.9
    %
    
    
    
    
    
    
    14.0
    %Other operating expense ratio (2)
    
    
    19.6
    %
    
    
    18.4
    %
    
    
    
    
    
    
    19.2
    %Combined ratio
    
    
    88.0
    %
    
    
    94.4
    %
    
    
    
    
    
    
    89.8
    %
 (1)
    
    Includes inter-segment transactions causing the row not to crossfoot.(2)
    
    Includes other operating expensesand commission income and other income (expense).  18




---



##### Table of Contents



Six Months Ended June 30, 2008Insurance
    
    
    LloydsCompanies
    
    
    Operations
    
    
    Total($ in thousands)Gross written premium:Marine & Energy
    
    $
    135,955
    
    
    $
    108,653
    
    
    $
    244,608Property Casualty
    
    
    207,873
    
    
    
    49,085
    
    
    
    256,958Professional Liability
    
    
    45,724
    
    
    
    19,069
    
    
    
    64,793Total
    
    $
    389,552
    
    
    $
    176,807
    
    
    $
    566,359Net written premium:Marine & Energy
    
    $
    82,456
    
    
    $
    77,179
    
    
    $
    159,635Property Casualty
    
    
    142,397
    
    
    
    20,465
    
    
    
    162,862Professional Liability
    
    
    27,639
    
    
    
    11,873
    
    
    
    39,512Total
    
    $
    252,492
    
    
    $
    109,517
    
    
    $
    362,009Net earned premium:Marine & Energy
    
    $
    59,564
    
    
    $
    60,121
    
    
    $
    119,685Property Casualty
    
    
    141,655
    
    
    
    17,542
    
    
    
    159,197Professional Liability
    
    
    28,461
    
    
    
    11,100
    
    
    
    39,561Total
    
    $
    229,680
    
    
    $
    88,763
    
    
    $
    318,443
  Note 4. Comprehensive Income
 Consolidated Statements of Stockholders Equity Consolidated
Statements of Comprehensive Income accumulated other
comprehensive income (loss) comprehensive income (loss)
 Note 5. Stock-Based Compensation
 other operating expenses
  19




---



##### Table of Contents



Note 6. Recently Adopted Accounting Pronouncements
 SFAS No. 141(R): Business Combinations Business Combinations
 SFAS No. 160: Noncontrolling Interest in
Consolidated Financial Statementsan amendment to ARB No. 51
 SFAS No. 161: Disclosures about Derivative
Instruments and Hedging Activities Accounting for Derivative Instruments and Hedging Activities
 FASB Staff Position (FSP) No. 142-3: Determining
the Useful Life of Intangible Assets
 EITF No. 07-5: Determining Whether
an Instrument (or Embedded Feature) is Indexed to an Entitys Own Stock
  20




---



##### Table of Contents



FASB Staff Position No. 157-4: 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
 FASB Staff Position No. 115-2: Recognition and Presentation of Other-Than-Temporary Impairments
 FASB Staff Position No. 107-1: Interim Disclosures about Fair Value of Financial Instruments .
 SFAS No. 165: Subsequent Events
 SFAS No. 166 Accounting for Transfers of
Financial Assets, an amendment of FASB Statement No. 140 Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities Consolidation of Variable Interest
Entities
  21




---



##### Table of Contents



SFAS No. 167 Amendments to FASB Interpretation No.
46(R)
 SFAS No. 168 The FASB Accounting Standards
Codification and the Hierarchy of Generally Accepted Accounting
Principles  a replacement of FASB
Statement No. 162
 Note 7. Syndicate 1221
      22




---



##### Table of Contents



Note 8. Income Taxes
      23




---



##### Table of Contents



Note 9. Commitments and Contingencies
   Note 10. Senior Notes due May 1, 2016
     24




---



##### Table of Contents



Note 11. Investments
  Gross
    
    
    Gross
    
    
    OTTI
    
    
    Cost orFair
    
    
    Unrealized
    
    
    Unrealized
    
    
    Recognized
    
    
    AmortizedJune 30, 2009
    
    Value
    
    
    Gains
    
    
    (Losses)
    
    
    in OCI
    
    
    Cost($ in thousands)Fixed maturities:U.S. Government Treasury Bonds,
agency bonds and foreign government bonds
    
    $
    402,071
    
    
    $
    11,555
    
    
    $
    (249
    )
    
    $
    
    
    
    $
    390,765States, municipalities and political
subdivisions
    
    
    642,861
    
    
    
    18,069
    
    
    
    (3,719
    )
    
    
    
    
    
    
    628,511Mortgage- and asset-backed securitiesMortgage-backed securities
    
    
    309,097
    
    
    
    11,607
    
    
    
    (170
    )
    
    
    
    
    
    
    297,660Collateralized mortgage obligations
    
    
    43,230
    
    
    
    
    
    
    
    (1,359
    )
    
    
    (17,505
    )
    
    
    62,094Asset-backed securities
    
    
    24,773
    
    
    
    721
    
    
    
    (197
    )
    
    
    (73
    )
    
    
    24,322Commercial mortgage-backed securities
    
    
    96,417
    
    
    
    119
    
    
    
    (16,763
    )
    
    
    
    
    
    
    113,061Subtotal
    
    
    473,517
    
    
    
    12,447
    
    
    
    (18,489
    )
    
    
    (17,578
    )
    
    
    497,137Corporate bonds
    
    
    236,321
    
    
    
    6,184
    
    
    
    (6,278
    )
    
    
    
    
    
    
    236,415Total fixed maturities
    
    
    1,754,770
    
    
    
    48,255
    
    
    
    (28,735
    )
    
    
    (17,578
    )
    
    
    1,752,828Equity securities  common stocks
    
    
    47,781
    
    
    
    6,103
    
    
    
    (266
    )
    
    
    
    
    
    
    41,944Cash
    
    
    14,401
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    14,401Short-term investments
    
    
    191,616
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    191,616Total
    
    $
    2,008,568
    
    
    $
    54,358
    
    
    $
    (29,001
    )
    
    $
    (17,578
    )
    
    $
    2,000,789
   25




---



##### Table of Contents



June 30, 2009
    
    
    December 31, 2008Fair
    
    
    Gross
    
    
    Fair
    
    
    GrossValue
    
    
    Unrealized Loss
    
    
    Value
    
    
    Unrealized Loss($ in thousands)Fixed Maturities:U.S. Government Treasury and AgencyBonds and foreign government bonds0-6 Months
    
    $
    43,336
    
    
    $
    249
    
    
    $
    3,862
    
    
    $
    1457-12 Months
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    > 12 Months
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Subtotal
    
    
    43,336
    
    
    
    249
    
    
    
    3,862
    
    
    
    145States,
municipalities and political subdivisions0-6 Months
    
    
    67,665
    
    
    
    886
    
    
    
    68,727
    
    
    
    2,1877-12 Months
    
    
    10,221
    
    
    
    570
    
    
    
    118,910
    
    
    
    4,376> 12 Months
    
    
    46,759
    
    
    
    2,263
    
    
    
    15,918
    
    
    
    1,473Subtotal
    
    
    124,645
    
    
    
    3,719
    
    
    
    203,555
    
    
    
    8,036Mortgage- and asset-backed securities0-6 Months
    
    
    23,219
    
    
    
    170
    
    
    
    30,670
    
    
    
    9397-12 Months
    
    
    1,812
    
    
    
    137
    
    
    
    80,618
    
    
    
    26,966> 12 Months
    
    
    133,750
    
    
    
    35,760
    
    
    
    66,218
    
    
    
    20,879Subtotal
    
    
    158,781
    
    
    
    36,067
    
    
    
    177,506
    
    
    
    48,784Corporate bonds0-6 Months
    
    
    12,237
    
    
    
    201
    
    
    
    57,805
    
    
    
    2,4457-12 Months
    
    
    9,272
    
    
    
    384
    
    
    
    57,971
    
    
    
    5,893> 12 Months
    
    
    54,868
    
    
    
    5,693
    
    
    
    27,873
    
    
    
    6,322Subtotal
    
    
    76,377
    
    
    
    6,278
    
    
    
    143,649
    
    
    
    14,660Total Fixed Maturities
    
    $
    403,139
    
    
    $
    46,313
    
    
    $
    528,572
    
    
    $
    71,625Equity securities  common stocks0-6 Months
    
    $
    2,746
    
    
    $
    111
    
    
    $
    8,991
    
    
    $
    1,9417-12 Months
    
    
    728
    
    
    
    155
    
    
    
    351
    
    
    
    46> 12 Months
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total Equity Securities
    
    $
    3,474
    
    
    $
    266
    
    
    $
    9,342
    
    
    $
    1,987
  26




---



##### Table of Contents



June 30, 2009($ in thousands)Beginning Balance at January 1, 2009
    
    $
    Credit Losses on Securities not previously impaired as of December 31, 2008
    
    
    1,881Additional Credit Losses on Securities not previously impaired as of March 31, 2009
    
    
    26Ending balance at June 30, 2009
    
    $
    1,907
   27




---



##### Table of Contents



GrossUnrealized Loss
    
    
    Fair ValuePercent
    
    
    
    
    
    
    PercentAmount
    
    
    to Total
    
    
    Amount
    
    
    to Total($ in thousands)Due in one year or less
    
    $
    7
    
    
    
    0
    %
    
    $
    1,630
    
    
    
    0
    %Due after one year through five years
    
    
    1,785
    
    
    
    4
    %
    
    
    74,263
    
    
    
    18
    %Due after five years through ten years
    
    
    3,589
    
    
    
    8
    %
    
    
    76,724
    
    
    
    19
    %Due after ten years
    
    
    4,865
    
    
    
    11
    %
    
    
    91,741
    
    
    
    23
    %Mortgage- and asset-backed securities
    
    
    36,067
    
    
    
    77
    %
    
    
    158,781
    
    
    
    40
    %Total fixed income securities
    
    $
    46,313
    
    
    
    100
    %
    
    $
    403,139
    
    
    
    100
    %
  Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2009
    
    
    2008
    
    
    2009
    
    
    2008($ in thousands)Fixed maturities:Gains
    
    $
    1,593
    
    
    $
    1,329
    
    
    $
    4,525
    
    
    $
    1,526(Losses)
    
    
    (196
    )
    
    
    (426
    )
    
    
    (3,498
    )
    
    
    (435
    )(Impairments)
    
    
    (110
    )
    
    
    
    
    
    
    (2,471
    )
    
    
    1,287
    
    
    
    903
    
    
    
    (1,444
    )
    
    
    1,091Equity securities:Gains
    
    
    1,549
    
    
    
    180
    
    
    
    1,562
    
    
    
    443(Losses)
    
    
    (350
    )
    
    
    (647
    )
    
    
    (1,530
    )
    
    
    (1,174
    )(Impairments)
    
    
    (359
    )
    
    
    (8,412
    )
    
    
    (8,698
    )
    
    
    (8,412
    )840
    
    
    
    (8,879
    )
    
    
    (8,666
    )
    
    
    (9,143
    )Net realized capital gains (losses)
    
    $
    2,127
    
    
    $
    (7,976
    )
    
    $
    (10,110
    )
    
    $
    (8,052
    )
 Investments
  28




---



##### Table of Contents



Fair Value Measurements
 
    
    Level 1  Quoted prices for identical instruments in active markets.
 
    
    Level 2  Quoted prices for similar instruments in active markets; quoted prices
for identical or
similar instruments in markets that are not active; and model-derived valuations in
which all significant inputs and significant value drivers are observable in active
markets.
 
    
    Level 3  Valuations derived from valuation techniques in which one or more
significant inputs or significant value drivers are unobservable.
   Quoted Prices
    
    
    SignificantIn Active
    
    
    Other
    

    SignificantMarkets for
    
    
    Observable

    
    UnobservableIdentical Assets
    
    
    Inputs

    
    Inputs($ in thousands)Level 1
    
    
    Level 2
    
    
    Level 3
    
    
    TotalFixed Maturities
    
    $
    274,353
    
    
    $
    1,480,417
    
    
    $
    
    
    
    $
    1,754,770Equity securities
    
    
    47,781
    
    
    
    
    
    
    
    
    
    
    
    47,781Short-term investments
    
    
    55,495
    
    
    
    136,121
    
    
    
    
    
    
    
    191,616Total
    
    $
    377,629
    
    
    $
    1,616,538
    
    
    $
    
    
    
    $
    1,994,167
  Three Months EndedJune 30, 2009($ in thousands)Level 3 investments as of March 31, 2009
    
    $
    156Unrealized net gains included in other comprehensive income (loss)
    
    
    Purchases, sales, paydowns and amortization
    
    
    Transfer from Level 3
    
    
    (156
    )Transfer to Level 3
    
    
    Level 3 investments as of June 30, 2009
    
    $
    
  29




---



##### Table of Contents



Six Months EndedJune 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 June 30, 2009
    
    $
    
 Note 12. Share Repurchases
   30




---



##### 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 SEC, including
without limitation the risks described under the caption Risk Factors in our Annual
Report on Form 10-K for the year ended December 31, 2008.
  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



33




---



##### Table of Contents



Catastrophe Risk Management
   34




---



##### Table of Contents



35




---



##### Table of Contents



Critical Accounting Policies
  Impairment of Invested Assets.
    36




---



##### Table of Contents



Results of Operations
   
    
    The offshore energy business, formerly included in the Marine and Energy
businesses of the Insurance Companies and Lloyds, is now included in the Insurance
Companies and Lloyds Property Casualty businesses.
 
    
    The marine lines within both the Insurance Company and Lloyds 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, 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.
 
    
    The inland marine business, formerly included in other business, is now
included in marine business.
 
    
    Middle markets business, formerly included in the specialty business, is now
broken out separately.
  Investments accumulated other comprehensive income (loss)
    37




---



##### Table of Contents



Revenues .
   38




---



##### Table of Contents



Three Months Ended June 30,2009
    
    
    2008Gross
    
    
    
    
    
    
    Net
    
    
    Net
    
    
    Gross
    
    
    
    
    
    
    Net
    
    
    NetWritten
    
    
    
    
    
    
    Written
    
    
    Earned
    
    
    Written
    
    
    
    
    
    
    Written
    
    
    EarnedPremium
    
    
    %
    
    
    Premium
    
    
    Premium
    
    
    Premium
    
    
    %
    
    
    Premium
    
    
    Premium($ in thousands)Insurance Companies:Marine
    
    $
    57,086
    
    
    
    20.9
    %
    
    $
    34,956
    
    
    $
    34,678
    
    
    $
    64,339
    
    
    
    23.0
    %
    
    $
    38,982
    
    
    $
    33,095Property Casualty
    
    
    94,567
    
    
    
    34.8
    %
    
    
    65,704
    
    
    
    63,068
    
    
    
    107,180
    
    
    
    38.4
    %
    
    
    73,294
    
    
    
    69,951Professional Liability
    
    
    37,732
    
    
    
    13.8
    %
    
    
    21,699
    
    
    
    18,477
    
    
    
    26,437
    
    
    
    9.5
    %
    
    
    15,906
    
    
    
    14,388Insurance Companies Total
    
    
    189,385
    
    
    
    69.5
    %
    
    
    122,359
    
    
    
    116,223
    
    
    
    197,956
    
    
    
    70.9
    %
    
    
    128,182
    
    
    
    117,434Lloyds Operations:Marine
    
    
    47,273
    
    
    
    17.2
    %
    
    
    40,077
    
    
    
    37,038
    
    
    
    41,499
    
    
    
    14.9
    %
    
    
    28,269
    
    
    
    31,328Property Casualty
    
    
    25,506
    
    
    
    9.4
    %
    
    
    15,070
    
    
    
    11,201
    
    
    
    31,359
    
    
    
    11.2
    %
    
    
    12,755
    
    
    
    8,800Professional Liability
    
    
    10,565
    
    
    
    3.9
    %
    
    
    5,501
    
    
    
    5,406
    
    
    
    8,399
    
    
    
    3.0
    %
    
    
    5,081
    
    
    
    5,141Lloyds Operations Total
    
    
    83,344
    
    
    
    30.5
    %
    
    
    60,648
    
    
    
    53,645
    
    
    
    81,257
    
    
    
    29.1
    %
    
    
    46,105
    
    
    
    45,269Total
    
    $
    272,729
    
    
    
    100.0
    %
    
    $
    183,007
    
    
    $
    169,868
    
    
    $
    279,213
    
    
    
    100.0
    %
    
    $
    174,287
    
    
    $
    162,703
  39




---



##### Table of Contents



Six Months Ended June 30,2009
    
    
    2008Gross
    
    
    
    
    
    
    Net
    
    
    Net
    
    
    Gross
    
    
    
    
    
    
    Net
    
    
    NetWritten
    
    
    
    
    
    
    Written
    
    
    Earned
    
    
    Written
    
    
    
    
    
    
    Written
    
    
    EarnedPremium
    
    
    %
    
    
    Premium
    
    
    Premium
    
    
    Premium
    
    
    %
    
    
    Premium
    
    
    Premium($ in thousands)Insurance Companies:Marine
    
    $
    134,323
    
    
    
    24.5
    %
    
    $
    93,415
    
    
    $
    71,839
    
    
    $
    135,955
    
    
    
    23.9
    %
    
    $
    82,456
    
    
    $
    59,564Property Casualty
    
    
    178,825
    
    
    
    32.6
    %
    
    
    125,680
    
    
    
    128,480
    
    
    
    207,873
    
    
    
    36.8
    %
    
    
    142,397
    
    
    
    141,655Professional Liability
    
    
    68,220
    
    
    
    12.4
    %
    
    
    40,346
    
    
    
    36,194
    
    
    
    45,724
    
    
    
    8.1
    %
    
    
    27,639
    
    
    
    28,461Insurance Companies Total
    
    
    381,368
    
    
    
    69.5
    %
    
    
    259,441
    
    
    
    236,513
    
    
    
    389,552
    
    
    
    68.8
    %
    
    
    252,492
    
    
    
    229,680Lloyds Operations:Marine
    
    
    106,296
    
    
    
    19.5
    %
    
    
    90,051
    
    
    
    68,213
    
    
    
    108,653
    
    
    
    19.1
    %
    
    
    77,179
    
    
    
    60,121Property Casualty
    
    
    39,034
    
    
    
    7.1
    %
    
    
    22,665
    
    
    
    19,124
    
    
    
    49,085
    
    
    
    8.7
    %
    
    
    20,465
    
    
    
    17,542Professional Liability
    
    
    21,290
    
    
    
    3.9
    %
    
    
    11,502
    
    
    
    10,964
    
    
    
    19,069
    
    
    
    3.4
    %
    
    
    11,873
    
    
    
    11,100Lloyds Operations Total
    
    
    166,620
    
    
    
    30.5
    %
    
    
    124,218
    
    
    
    98,301
    
    
    
    176,807
    
    
    
    31.2
    %
    
    
    109,517
    
    
    
    88,763Total
    
    $
    547,988
    
    
    
    100.0
    %
    
    $
    383,659
    
    
    $
    334,814
    
    
    $
    566,359
    
    
    
    100.0
    %
    
    $
    362,009
    
    
    $
    318,443
  40




---



##### Table of Contents



Gross Written Premium
 Insurance Companies Gross Written Premium
 Marine Premium.
 2009
    
    
    2008Marine liability
    
    
    36.4
    %
    
    
    35.5
    %P&I
    
    
    13.4
    %
    
    
    13.5
    %Cargo
    
    
    10.7
    %
    
    
    12.1
    %Inland marine
    
    
    11.8
    %
    
    
    8.4
    %Bluewater hull
    
    
    8.1
    %
    
    
    6.9
    %Transport
    
    
    5.7
    %
    
    
    9.0
    %Craft/Fishing vessel
    
    
    7.0
    %
    
    
    6.2
    %Other
    
    
    6.9
    %
    
    
    8.4
    %Total
    
    
    100.0
    %
    
    
    100.0
    %
  Property / Casualty Premium.
 2009
    
    
    2008Construction liability
    
    
    27.2
    %
    
    
    38.3
    %Commercial umbrella
    
    
    21.5
    %
    
    
    16.2
    %Nav Tech
    
    
    13.3
    %
    
    
    11.9
    %Programs
    
    
    12.4
    %
    
    
    10.5
    %NavPac
    
    
    10.5
    %
    
    
    7.6
    %Primary E&S
    
    
    6.4
    %
    
    
    9.1
    %Personal Umbrella
    
    
    2.2
    %
    
    
    2.2
    %Other
    
    
    6.5
    %
    
    
    4.2
    %Total
    
    
    100.0
    %
    
    
    100.0
    %
   41




---



##### Table of Contents



Professional Liability Premium.
 2009
    
    
    2008D&O (public and private)
    
    
    70.0
    %
    
    
    63.1
    %Miscellaneous professional liability
    
    
    15.6
    %
    
    
    5.5
    %Lawyers professional liability
    
    
    11.4
    %
    
    
    26.1
    %Architects and engineers
    
    
    3.0
    %
    
    
    5.3
    %Total
    
    
    100.0
    %
    
    
    100.0
    %
   Lloyds Operations Gross Written Premium
    42




---



##### Table of Contents



Marine Premium.
 2009
    
    
    2008Cargo and specie
    
    
    40.5
    %
    
    
    39.4
    %Marine liability
    
    
    30.9
    %
    
    
    36.6
    %Assumed reinsurance
    
    
    14.8
    %
    
    
    10.7
    %Hull
    
    
    9.8
    %
    
    
    9.5
    %Other
    
    
    4.0
    %
    
    
    3.8
    %Total
    
    
    100.0
    %
    
    
    100.0
    %
  Property / Casualty Premium.
 2009
    
    
    2008Offshore Energy
    
    
    46.9
    %
    
    
    53.4
    %Engineering and Construction
    
    
    21.4
    %
    
    
    19.4
    %Onshore Energy
    
    
    23.8
    %
    
    
    18.5
    %US Property Casualty
    
    
    7.0
    %
    
    
    1.0
    %Bloodstock
    
    
    1.1
    %
    
    
    0.0
    %Property
    
    
    -0.2
    %
    
    
    7.7
    %Total
    
    
    100.0
    %
    
    
    100.0
    %
   43




---



##### Table of Contents



Professional Liability Premium.
 2009
    
    
    2008E&O
    
    
    50.2
    %
    
    
    67.8
    %D&O (public and private)
    
    
    49.8
    %
    
    
    32.2
    %Total
    
    
    100.0
    %
    
    
    100.0
    %
  Ceded Written Premium .
  Three Months Ended June 30,2009
    
    
    2008% of
    
    
    
    
    
    
    % ofCeded
    
    
    Gross
    
    
    Ceded
    
    
    GrossWritten
    
    
    Written
    
    
    Written
    
    
    WrittenPremium
    
    
    Premium
    
    
    Premium
    
    
    Premium($ in thousands)Insurance Companies:Marine
    
    $
    22,130
    
    
    
    38.8
    %
    
    $
    25,357
    
    
    
    39.4
    %Property Casualty
    
    
    28,863
    
    
    
    30.5
    %
    
    
    33,886
    
    
    
    31.6
    %Professional Liability
    
    
    16,033
    
    
    
    42.5
    %
    
    
    10,531
    
    
    
    39.8
    %Subtotal
    
    
    67,026
    
    
    
    35.4
    %
    
    
    69,774
    
    
    
    35.2
    %Lloyds Operations:Marine
    
    
    7,196
    
    
    
    15.2
    %
    
    
    13,230
    
    
    
    31.9
    %Property Casualty
    
    
    10,436
    
    
    
    40.9
    %
    
    
    18,604
    
    
    
    59.3
    %Professional Liability
    
    
    5,064
    
    
    
    47.9
    %
    
    
    3,318
    
    
    
    39.5
    %Subtotal
    
    
    22,696
    
    
    
    27.2
    %
    
    
    35,152
    
    
    
    43.3
    %Total
    
    $
    89,722
    
    
    
    32.9
    %
    
    $
    104,926
    
    
    
    37.6
    %
  44




---



##### Table of Contents



Six Months Ended June 30,2009
    
    
    2008% of
    
    
    
    
    
    
    % ofCeded
    
    
    Gross
    
    
    Ceded
    
    
    GrossWritten
    
    
    Written
    
    
    Written
    
    
    WrittenPremium
    
    
    Premium
    
    
    Premium
    
    
    Premium($ in thousands)Insurance Companies:Marine
    
    $
    40,908
    
    
    
    30.5
    %
    
    $
    53,499
    
    
    
    39.4
    %Property Casualty
    
    
    53,145
    
    
    
    29.7
    %
    
    
    65,476
    
    
    
    31.5
    %Professional Liability
    
    
    27,874
    
    
    
    40.9
    %
    
    
    18,085
    
    
    
    39.6
    %Subtotal
    
    
    121,927
    
    
    
    32.0
    %
    
    
    137,060
    
    
    
    35.2
    %Lloyds Operations:Marine
    
    
    16,245
    
    
    
    15.3
    %
    
    
    31,474
    
    
    
    29.0
    %Property Casualty
    
    
    16,369
    
    
    
    41.9
    %
    
    
    28,620
    
    
    
    58.3
    %Professional Liability
    
    
    9,788
    
    
    
    46.0
    %
    
    
    7,196
    
    
    
    37.7
    %Subtotal
    
    
    42,402
    
    
    
    25.4
    %
    
    
    67,290
    
    
    
    38.1
    %Total
    
    $
    164,329
    
    
    
    30.0
    %
    
    $
    204,350
    
    
    
    36.1
    %
  Net Written Premium .
 Net Earned Premium .
 Commission Income .
 Net Investment Income .
  45




---



##### Table of Contents



Net Realized Capital Gains and Losses .
  Other Income/(Expense) .
 Operating Expenses
 Net Losses and Loss Adjustment Expenses Incurred
   June 30,
    
    
    December 31,2009
    
    
    2008
    
    
    Change($ in thousands)Reinsurance recoverables:Paid losses
    
    $
    79,857
    
    
    $
    67,227
    
    
    $
    12,630Unpaid losses and LAE reserves
    
    
    875,809
    
    
    
    853,793
    
    
    
    22,016Total
    
    $
    955,666
    
    
    $
    921,020
    
    
    $
    34,646
  46




---



##### Table of Contents



June 30,
    
    
    December 31,2009
    
    
    2008
    
    
    Change($ in thousands)Gross reserves for losses and LAE
    
    $
    1,942,976
    
    
    $
    1,853,664
    
    
    
    4.8
    %Less: Reinsurance recoverable on unpaid
losses and LAE reserves
    
    
    875,809
    
    
    
    853,793
    
    
    
    2.6
    %Net loss and LAE reserves
    
    $
    1,067,167
    
    
    $
    999,871
    
    
    
    6.7
    %
  June 30, 2009Net
    
    
    Net
    
    
    Total
    
    
    % of IBNRReported
    
    
    IBNR
    
    
    Net Loss
    
    
    to Total NetReserves
    
    
    Reserves
    
    
    Reserves
    
    
    Loss Reserves($ in thousands)Insurance Companies:Marine
    
    $
    109,472
    
    
    $
    97,777
    
    
    $
    207,249
    
    
    
    47.2
    %Property Casualty
    
    
    120,666
    
    
    
    360,070
    
    
    
    480,736
    
    
    
    74.9
    %Professional Liability
    
    
    40,267
    
    
    
    57,737
    
    
    
    98,004
    
    
    
    58.9
    %Total Insurance Companies
    
    
    270,405
    
    
    
    515,584
    
    
    
    785,989
    
    
    
    65.6
    %Lloyds Operations:Marine
    
    
    104,252
    
    
    
    89,553
    
    
    
    193,805
    
    
    
    46.2
    %Property Casualty
    
    
    23,354
    
    
    
    27,627
    
    
    
    50,981
    
    
    
    54.2
    %Professional Liability
    
    
    7,843
    
    
    
    28,549
    
    
    
    36,392
    
    
    
    78.4
    %Total Lloyds Operations
    
    
    135,449
    
    
    
    145,729
    
    
    
    281,178
    
    
    
    51.8
    %Total Company
    
    $
    405,854
    
    
    $
    661,313
    
    
    $
    1,067,167
    
    
    
    62.0
    %
  47




---



##### 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
    %
        48




---



##### Table of Contents



Hurricanes Gustav and Ike.
  Six Months Ended
    
    
    Year EndedJune 30, 2009
    
    
    December 31, 2008($ in thousands)Gross of ReinsuranceBeginning gross reserves
    
    $
    107,399Incurred loss & LAE
    
    
    299
    
    
    $
    114,000Calendar year payments
    
    
    28,269
    
    
    
    6,601Ending gross reserves
    
    $
    79,429
    
    
    $
    107,399Gross case loss reserves
    
    $
    56,271
    
    
    $
    70,299Gross IBNR loss reserves
    
    
    23,158
    
    
    
    37,100Ending gross reserves
    
    $
    79,429
    
    
    $
    107,399Net of ReinsuranceBeginning net reserves
    
    $
    12,923Incurred loss & LAE
    
    
    836
    
    
    $
    17,169Calendar year payments
    
    
    9,194
    
    
    
    4,246Ending net reserves
    
    $
    4,565
    
    
    $
    12,923Net case loss reserves
    
    $
    4,101
    
    
    $
    11,696Net IBNR loss reserves
    
    
    464
    
    
    
    1,227Ending net reserves
    
    $
    4,565
    
    
    $
    12,923
  Hurricanes Katrina and Rita.
  49




---



##### Table of Contents



Six Months Ended
    
    
    Year EndedJune 30, 2009
    
    
    December 31, 2008($ in thousands)Gross of ReinsuranceBeginning gross reserves
    
    $
    97,732
    
    
    $
    141,831Incurred loss & LAE
    
    
    (1,849
    )
    
    
    (12,250
    )Calendar year payments
    
    
    16,469
    
    
    
    31,849Ending gross reserves
    
    $
    79,414
    
    
    $
    97,732Gross case loss reserves
    
    $
    51,779
    
    
    $
    62,732Gross IBNR loss reserves
    
    
    27,635
    
    
    
    35,000Ending gross reserves
    
    $
    79,414
    
    
    $
    97,732Net of ReinsuranceBeginning net reserves
    
    $
    3,667
    
    
    $
    4,519Incurred loss & LAE
    
    
    146
    
    
    
    (990
    )Calendar year payments
    
    
    186
    
    
    
    (138
    )Ending net reserves
    
    $
    3,627
    
    
    $
    3,667Net case loss reserves
    
    $
    212
    
    
    $
    279Net IBNR loss reserves
    
    
    3,415
    
    
    
    3,388Ending net reserves
    
    $
    3,627
    
    
    $
    3,667
  Asbestos Liability.
    50




---



##### Table of Contents



Six Months Ended
    
    
    Year EndedJune 30, 2009
    
    
    December 31, 2008($ in thousands)Gross of ReinsuranceBeginning gross reserves
    
    $
    21,774
    
    
    $
    23,194Incurred losses & LAE
    
    
    91
    
    
    
    796Calendar year payments
    
    
    239
    
    
    
    2,216Ending gross reserves
    
    $
    21,626
    
    
    $
    21,774Gross case loss reserves
    
    $
    13,770
    
    
    $
    13,918Gross IBNR loss reserves
    
    
    7,856
    
    
    
    7,856Ending gross reserves
    
    $
    21,626
    
    
    $
    21,774Net of ReinsuranceBeginning net reserves
    
    $
    16,683
    
    
    $
    16,717Incurred losses & LAE
    
    
    222
    
    
    
    263Calendar year payments
    
    
    116
    
    
    
    297Ending net reserves
    
    $
    16,789
    
    
    $
    16,683Net case loss reserves
    
    $
    9,138
    
    
    $
    9,032Net IBNR loss reserves
    
    
    7,651
    
    
    
    7,651Ending net reserves
    
    $
    16,789
    
    
    $
    16,683
     51




---



##### Table of Contents



Prior Year Reserve Redundancies/Deficiencies
    Three Months EndedJune 30,
    
    
    June 30,2009
    
    
    2008($ in thousands)Insurance Companies:Marine
    
    $
    2,169
    
    
    $
    (5,679
    )Property Casualty
    
    
    (12,804
    )
    
    
    (5,062
    )Professional Liability
    
    
    5,745
    
    
    
    (911
    )Subtotal Insurance Companies
    
    
    (4,890
    )
    
    
    (11,652
    )Lloyds Operations
    
    
    (4,588
    )
    
    
    1,072Total
    
    $
    (9,478
    )
    
    $
    (10,580
    )
 Six Months EndedJune 30,
    
    
    June 30,2009
    
    
    2008($ in thousands)Insurance Companies:Marine
    
    $
    4,127
    
    
    $
    (5,979
    )Property Casualty
    
    
    (24,517
    )
    
    
    (12,962
    )Professional Liability
    
    
    10,368
    
    
    
    (1,211
    )Subtotal Insurance Companies
    
    
    (10,022
    )
    
    
    (20,152
    )Lloyds Operations
    
    
    (5,223
    )
    
    
    (4,108
    )Total
    
    $
    (15,245
    )
    
    $
    (24,260
    )
    52




---



##### Table of Contents



53




---



##### Table of Contents



54




---



##### Table of Contents



Commission Expense.
 Other Operating Expenses.
 Income Taxes
   55




---



##### Table of Contents



Segment Information
     Insurance Companies
   56




---



##### Table of Contents



Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2009
    
    
    2008
    
    
    2009
    
    
    2008($ in thousands)Gross written premium
    
    $
    189,385
    
    
    $
    197,956
    
    
    $
    381,368
    
    
    $
    389,552Net written premium
    
    
    122,359
    
    
    
    128,182
    
    
    
    259,441
    
    
    
    252,492Net earned premium
    
    
    116,223
    
    
    
    117,434
    
    
    
    236,513
    
    
    
    229,680Net losses and LAE
    
    
    (68,843
    )
    
    
    (62,225
    )
    
    
    (138,996
    )
    
    
    (129,581
    )Commission expense
    
    
    (15,060
    )
    
    
    (14,723
    )
    
    
    (30,028
    )
    
    
    (27,671
    )Other operating expenses
    
    
    (26,906
    )
    
    
    (24,552
    )
    
    
    (51,466
    )
    
    
    (46,700
    )Commission income and other income (expense)
    
    
    1,655
    
    
    
    1,516
    
    
    
    1,856
    
    
    
    1,774Underwriting profit (loss)
    
    
    7,069
    
    
    
    17,450
    
    
    
    17,879
    
    
    
    27,502Net investment income
    
    
    16,239
    
    
    
    15,593
    
    
    
    32,446
    
    
    
    31,058Net realized capital gains (losses)
    
    
    2,210
    
    
    
    (8,053
    )
    
    
    (6,697
    )
    
    
    (8,155
    )Income before income taxes
    
    
    25,518
    
    
    
    24,990
    
    
    
    43,628
    
    
    
    50,405Income tax expense
    
    
    7,171
    
    
    
    6,939
    
    
    
    11,704
    
    
    
    14,309Net income
    
    $
    18,347
    
    
    $
    18,051
    
    
    $
    31,924
    
    
    $
    36,096Loss and LAE ratio
    
    
    59.2
    %
    
    
    53.0
    %
    
    
    58.8
    %
    
    
    56.4
    %Commission expense ratio
    
    
    13.0
    %
    
    
    12.5
    %
    
    
    12.7
    %
    
    
    12.0
    %Other operating expense ratio (1)
    
    
    21.7
    %
    
    
    19.6
    %
    
    
    21.0
    %
    
    
    19.6
    %Combined ratio
    
    
    93.9
    %
    
    
    85.1
    %
    
    
    92.5
    %
    
    
    88.0
    %
 (1)
    
    Includes other operating expenses and commission income and other income
(expense).  57




---



##### Table of Contents



Three Months Ended June 30, 2009($ in thousands)Net
    
    
    LossesEarned
    
    
    and LAE
    
    
    Underwriting
    
    
    Underwriting
    
    
    Loss
    
    
    Expense
    
    
    CombinedPremium
    
    
    Incurred
    
    
    Expenses
    
    
    Profit/(Loss)
    
    
    Ratio
    
    
    Ratio
    
    
    RatioMarine
    
    $
    34,678
    
    
    $
    25,238
    
    
    $
    10,904
    
    
    $
    (1,464
    )
    
    
    72.8
    %
    
    
    31.4
    %
    
    
    104.2
    %Property Casualty
    
    
    63,068
    
    
    
    28,446
    
    
    
    23,227
    
    
    
    11,395
    
    
    
    45.1
    %
    
    
    36.8
    %
    
    
    81.9
    %Professional Liability
    
    
    18,477
    
    
    
    15,159
    
    
    
    6,180
    
    
    
    (2,862
    )
    
    
    82.0
    %
    
    
    33.4
    %
    
    
    115.4
    %Total
    
    $
    116,223
    
    
    $
    68,843
    
    
    $
    40,311
    
    
    $
    7,069
    
    
    
    59.2
    %
    
    
    34.7
    %
    
    
    93.9
    %
 Three Months Ended June 30, 2008($ in thousands)Net
    
    
    LossesEarned
    
    
    and LAE
    
    
    Underwriting
    
    
    Underwriting
    
    
    Loss
    
    
    Expense
    
    
    CombinedPremium
    
    
    Incurred
    
    
    Expenses
    
    
    Profit/(Loss)
    
    
    Ratio
    
    
    Ratio
    
    
    RatioMarine
    
    $
    33,095
    
    
    $
    13,976
    
    
    $
    10,092
    
    
    $
    9,027
    
    
    
    42.2
    %
    
    
    30.5
    %
    
    
    72.7
    %Property Casualty
    
    
    69,951
    
    
    
    40,875
    
    
    
    22,647
    
    
    
    6,429
    
    
    
    58.4
    %
    
    
    32.4
    %
    
    
    90.8
    %Professional Liability
    
    
    14,388
    
    
    
    7,374
    
    
    
    5,020
    
    
    
    1,994
    
    
    
    51.3
    %
    
    
    34.9
    %
    
    
    86.2
    %Total
    
    $
    117,434
    
    
    $
    62,225
    
    
    $
    37,759
    
    
    $
    17,450
    
    
    
    53.0
    %
    
    
    32.1
    %
    
    
    85.1
    %
  58




---



##### Table of Contents



Six Months Ended June 30, 2009($ in thousands)Net
    
    
    LossesEarned
    
    
    and LAE
    
    
    Underwriting
    
    
    Underwriting
    
    
    Loss
    
    
    Expense
    
    
    CombinedPremium
    
    
    Incurred
    
    
    Expenses
    
    
    Profit/(Loss)
    
    
    Ratio
    
    
    Ratio
    
    
    RatioMarine
    
    $
    71,839
    
    
    $
    51,628
    
    
    $
    22,194
    
    
    $
    (1,983
    )
    
    
    71.9
    %
    
    
    30.9
    %
    
    
    102.8
    %Property Casualty
    
    
    128,480
    
    
    
    56,450
    
    
    
    44,312
    
    
    
    27,718
    
    
    
    43.9
    %
    
    
    34.5
    %
    
    
    78.4
    %Professional Liability
    
    
    36,194
    
    
    
    30,918
    
    
    
    13,132
    
    
    
    (7,856
    )
    
    
    85.4
    %
    
    
    36.3
    %
    
    
    121.7
    %Total
    
    $
    236,513
    
    
    $
    138,996
    
    
    $
    79,638
    
    
    $
    17,879
    
    
    
    58.8
    %
    
    
    33.7
    %
    
    
    92.5
    %
 Six Months Ended June 30, 2008($ in thousands)Net
    
    
    LossesEarned
    
    
    and LAE
    
    
    Underwriting
    
    
    Underwriting
    
    
    Loss
    
    
    Expense
    
    
    CombinedPremium
    
    
    Incurred
    
    
    Expenses
    
    
    Profit/(Loss)
    
    
    Ratio
    
    
    Ratio
    
    
    RatioMarine
    
    $
    59,564
    
    
    $
    36,298
    
    
    $
    19,301
    
    
    $
    3,965
    
    
    
    60.9
    %
    
    
    32.4
    %
    
    
    93.3
    %Property Casualty
    
    
    141,655
    
    
    
    77,004
    
    
    
    43,178
    
    
    
    21,473
    
    
    
    54.4
    %
    
    
    30.4
    %
    
    
    84.8
    %Professional Liability
    
    
    28,461
    
    
    
    16,279
    
    
    
    10,118
    
    
    
    2,064
    
    
    
    57.2
    %
    
    
    35.6
    %
    
    
    92.8
    %Total
    
    $
    229,680
    
    
    $
    129,581
    
    
    $
    72,597
    
    
    $
    27,502
    
    
    
    56.4
    %
    
    
    31.6
    %
    
    
    88.0
    %
      59




---



##### Table of Contents



Lloyds Operations
    Liquidity and Capital Resources
   60




---



##### Table of Contents



Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2009
    
    
    2008
    
    
    2009
    
    
    2008($ in thousands)Gross written premium
    
    $
    83,344
    
    
    $
    81,257
    
    
    $
    166,620
    
    
    $
    176,807Net written premium
    
    
    60,648
    
    
    
    46,105
    
    
    
    124,218
    
    
    
    109,517Net earned premium
    
    
    53,645
    
    
    
    45,269
    
    
    
    98,301
    
    
    
    88,763Net losses and LAE
    
    
    (31,885
    )
    
    
    (29,664
    )
    
    
    (61,979
    )
    
    
    (50,728
    )Commission expense
    
    
    (11,218
    )
    
    
    (8,767
    )
    
    
    (18,698
    )
    
    
    (16,767
    )Other operating expenses
    
    
    (6,117
    )
    
    
    (8,685
    )
    
    
    (12,098
    )
    
    
    (16,293
    )Commission income and other income (expense)
    
    
    651
    
    
    
    (39
    )
    
    
    599
    
    
    
    (25
    )Underwriting profit (loss)
    
    
    5,076
    
    
    
    (1,886
    )
    
    
    6,125
    
    
    
    4,950Net investment income
    
    
    2,316
    
    
    
    2,871
    
    
    
    4,699
    
    
    
    5,853Net realized capital gains (losses)
    
    
    (83
    )
    
    
    77
    
    
    
    (3,413
    )
    
    
    103Income before income taxes
    
    
    7,309
    
    
    
    1,062
    
    
    
    7,411
    
    
    
    10,906Income tax expense (benefit)
    
    
    2,624
    
    
    
    425
    
    
    
    2,960
    
    
    
    3,877Net income (loss)
    
    $
    4,685
    
    
    $
    637
    
    
    $
    4,451
    
    
    $
    7,029Loss and LAE ratio
    
    
    59.4
    %
    
    
    65.5
    %
    
    
    63.0
    %
    
    
    57.1
    %Commission expense ratio
    
    
    20.9
    %
    
    
    19.4
    %
    
    
    19.0
    %
    
    
    18.9
    %Other operating expense ratio (1)
    
    
    10.2
    %
    
    
    19.3
    %
    
    
    11.7
    %
    
    
    18.4
    %Combined ratio
    
    
    90.5
    %
    
    
    104.2
    %
    
    
    93.7
    %
    
    
    94.4
    %
 (1)
    
    Includes other operating expensesand commission income and other income
(expense).     61




---



##### Table of Contents



Off-Balance Sheet Transactions
  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




    
    Level 1  Quoted prices for identical instruments in active markets. Examples
are listed equity and fixed income securities traded on an exchange. Treasury
securities would generally be considered level 1.
 
    
    Level 2  Quoted prices for similar instruments in active markets; quoted prices
for identical or similar instruments in markets that are not active; and
model-derived valuations in which all significant inputs and significant value
drivers are observable in active markets. Examples are asset-backed and
mortgage-backed securities which are similar to other asset-backed or
mortgage-backed securities observed in the market.
 
    
    Level 3  Valuations derived from valuation techniques in which one or more
significant inputs or significant value drivers are unobservable. An example would
be a private placement with minimal liquidity.
  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
    
    $
    274,353
    
    
    $
    1,480,417
    
    
    $
    
    
    
    $
    1,754,770Equity securities
    
    
    47,781
    
    
    
    
    
    
    
    
    
    
    
    47,781Short-term investments
    
    
    55,495
    
    
    
    136,121
    
    
    
    
    
    
    
    191,616Total
    
    $
    377,629
    
    
    $
    1,616,538
    
    
    $
    
    
    
    $
    1,994,167
  64




---



##### Table of Contents



Three Months EndedJune 30, 2009($ in thousands)Level 3 investments as of March 31, 2009
    
    $
    156Unrealized net gains included in other comprehensive income (loss)
    
    
    Purchases, sales, paydowns and amortization
    
    
    Transfer from Level 3
    
    
    (156
    )Transfer to Level 3
    
    
    Level 3 investments as of June 30, 2009
    
    $
    
 Six Months EndedJune 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 June 30, 2009
    
    $
    
  65




---



##### Table of Contents



Gross
    
    
    Gross
    
    
    OTTI
    
    
    Cost orFair
    
    
    Unrealized
    
    
    Unrealized
    
    
    Recognized
    
    
    AmortizedJune 30, 2009
    
    Value
    
    
    Gains
    
    
    (Losses)
    
    
    in OCI
    
    
    Cost($ in thousands)Fixed maturities:U.S. Government Treasury Bonds,
agency bonds and foreign government bonds
    
    $
    402,071
    
    
    $
    11,555
    
    
    $
    (249
    )
    
    $
    
    
    
    $
    390,765States, municipalities and political
subdivisions
    
    
    642,861
    
    
    
    18,069
    
    
    
    (3,719
    )
    
    
    
    
    
    
    628,511Mortgage- and asset-backed securitiesMortgage-backed securities
    
    
    309,097
    
    
    
    11,607
    
    
    
    (170
    )
    
    
    
    
    
    
    297,660Collateralized mortgage obligations
    
    
    43,230
    
    
    
    
    
    
    
    (1,359
    )
    
    
    (17,505
    )
    
    
    62,094Asset-backed securities
    
    
    24,773
    
    
    
    721
    
    
    
    (197
    )
    
    
    (73
    )
    
    
    24,322Commercial mortgage-backed securities
    
    
    96,417
    
    
    
    119
    
    
    
    (16,763
    )
    
    
    
    
    
    
    113,061Subtotal
    
    
    473,517
    
    
    
    12,447
    
    
    
    (18,489
    )
    
    
    (17,578
    )
    
    
    497,137Corporate bonds
    
    
    236,321
    
    
    
    6,184
    
    
    
    (6,278
    )
    
    
    
    
    
    
    236,415Total fixed maturities
    
    
    1,754,770
    
    
    
    48,255
    
    
    
    (28,735
    )
    
    
    (17,578
    )
    
    
    1,752,828Equity securities  common stocks
    
    
    47,781
    
    
    
    6,103
    
    
    
    (266
    )
    
    
    
    
    
    
    41,944Cash
    
    
    14,401
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    14,401Short-term investments
    
    
    191,616
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    191,616Total
    
    $
    2,008,568
    
    
    $
    54,358
    
    
    $
    (29,001
    )
    
    $
    (17,578
    )
    
    $
    2,000,789
  66




---



##### Table of Contents



Gross
    
    
    Gross
    
    
    OTTI
    
    
    Cost orFair
    
    
    Unrealized
    
    
    Unrealized
    
    
    Recognized
    
    
    AmortizedDecember 31, 2008
    
    Value
    
    
    Gains
    
    
    (Losses)
    
    
    in OCI
    
    
    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
    
    
    AmortizedJune 30, 2009
    
    Value
    
    
    Gains
    
    
    (Losses)
    
    
    Cost($ in thousands)U.S. Treasury Bonds
    
    $
    310,176
    
    
    $
    9,508
    
    
    $
    (193
    )
    
    $
    300,861Agency Bonds
    
    
    70,125
    
    
    
    1,610
    
    
    
    (32
    )
    
    
    68,547Foreign Government Bonds
    
    
    21,770
    
    
    
    437
    
    
    
    (24
    )
    
    
    21,357Total
    
    $
    402,071
    
    
    $
    11,555
    
    
    $
    (249
    )
    
    $
    390,765
  67




---



##### 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
     68




---



##### Table of Contents



Gross
    
    
    Gross
    
    
    Cost orFair
    
    
    Unrealized
    
    
    Unrealized
    
    
    Amortized
    
    
    S&PValue
    
    
    Gains
    
    
    (Losses)
    
    
    Cost
    
    
    Rating($ in thousands)Issuers:Commonwealth of Massachusetts
    
    $
    15,424
    
    
    $
    734
    
    
    $
    (35
    )
    
    $
    14,725
    
    
    
    AACity of San Antonio
    
    
    11,103
    
    
    
    61
    
    
    
    
    
    
    
    11,042
    
    
    AAVirginia Resources Authority
    
    
    11,024
    
    
    
    424
    
    
    
    
    
    
    
    10,600
    
    
    AAAUniversity of Pittsburgh
    
    
    10,674
    
    
    
    34
    
    
    
    
    
    
    
    10,640
    
    
    AAState of Wisconsin
    
    
    9,743
    
    
    
    232
    
    
    
    
    
    
    
    9,511
    
    
    
    AA-State of Louisiana
    
    
    9,720
    
    
    
    194
    
    
    
    
    
    
    
    9,526
    
    
    
    A+State of Washington
    
    
    9,265
    
    
    
    435
    
    
    
    
    
    
    
    8,830
    
    
    AACity of New York, NY
    
    
    8,356
    
    
    
    122
    
    
    
    (77
    )
    
    
    8,311
    
    
    
    AA-Commonwealth of Pennsylvania
    
    
    8,318
    
    
    
    407
    
    
    
    
    
    
    
    7,911
    
    
    AAState of North Carolina
    
    
    8,102
    
    
    
    521
    
    
    
    
    
    
    
    7,581
    
    
    AAAState of Ohio
    
    
    7,708
    
    
    
    332
    
    
    
    
    
    
    
    7,376
    
    
    AAIllinois Finance Authority
    
    
    7,568
    
    
    
    23
    
    
    
    (364
    )
    
    
    7,909
    
    
    
    BBB+Adams County School District
    
    
    6,926
    
    
    
    
    
    
    
    (2
    )
    
    
    6,928
    
    
    
    BBB+State of California
    
    
    6,852
    
    
    
    8
    
    
    
    (668
    )
    
    
    7,512
    
    
    
    A-Delaware Transportation Authority
    
    
    6,834
    
    
    
    492
    
    
    
    
    
    
    
    6,342
    
    
    
    AA-Subtotal
    
    $
    137,617
    
    
    $
    4,019
    
    
    $
    (1,146
    )
    
    $
    134,744All Other
    
    
    505,244
    
    
    
    14,050
    
    
    
    (2,573
    )
    
    
    493,767Total
    
    $
    642,861
    
    
    $
    18,069
    
    
    $
    (3,719
    )
    
    $
    628,511
  Equivalent
    
    EquivalentS&P
    
    Moodys
    
    
    
    
    
    
    
    
    
    
    UnrealizedRating
    
    Rating
    
    
    Fair Value
    
    
    Book Value
    
    
    Gain/(Loss)($ in thousands)AAA/AA/A
    
    Aaa/Aa/A
    
    $
    611,448
    
    
    $
    596,344
    
    
    $
    15,104BBB
    
    Baa
    
    
    28,061
    
    
    
    28,717
    
    
    
    (656
    )BB
    
    Ba
    
    
    1,433
    
    
    
    1,432
    
    
    
    1B
    

    B
    
    
    
    
    
    
    
    
    
    
    
    CCC or lower
    
    Caa or lower
    
    
    
    
    
    
    
    
    
    
    N/A
    

    N/A
    
    
    
    1,919
    
    
    
    2,018
    
    
    
    (99
    )Total
    
    
    
    
    
    $
    642,861
    
    
    $
    628,511
    
    
    $
    14,350
  69




---



##### Table of Contents



Gross
    
    
    Gross
    
    
    Cost orFair
    
    
    Unrealized
    
    
    Unrealized
    
    
    AmortizedValue
    
    
    Gains
    
    
    (Losses)
    
    
    Cost($ in thousands)Mortgage-backed securities:GNMA
    
    $
    38,508
    
    
    $
    978
    
    
    $
    (1
    )
    
    $
    37,531FNMA
    
    
    197,285
    
    
    
    7,973
    
    
    
    (108
    )
    
    
    189,420FHLMC
    
    
    73,304
    
    
    
    2,656
    
    
    
    (61
    )
    
    
    70,709Prime
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Alt-A
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Subprime
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total
    
    $
    309,097
    
    
    $
    11,607
    
    
    $
    (170
    )
    
    $
    297,660
 Gross
    
    
    Gross
    
    
    Cost orFair
    
    
    Unrealized
    
    
    Unrealized
    
    
    AmortizedValue
    
    
    Gains
    
    
    (Losses)
    
    
    Cost($ in thousands)Collateralized mortgage obligations:GNMA
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    FNMA
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    FHLMC
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Prime
    
    
    42,386
    
    
    
    
    
    
    
    (18,337
    )
    
    
    60,723Alt-A
    
    
    844
    
    
    
    
    
    
    
    (527
    )
    
    
    1,371Subprime
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total
    
    $
    43,230
    
    
    $
    
    
    
    $
    (18,864
    )
    
    $
    62,094
  70




---



##### Table of Contents



Issue
    
    
    Fair
    
    
    Book
    
    
    Unrealized
    
    
    S&P
    
    MoodysSecurity Description
    
    Date
    
    
    Value
    
    
    Value
    
    
    (Loss)
    
    
    Rating
    
    Rating($ in thousands)Wells Fargo Mortgage Backed 06 AR8
    
    
    2006
    
    
    $
    3,712
    
    
    $
    5,607
    
    
    $
    (1,895
    )
    
    AAA
    
    NRMLCC Mortgage Investors Inc 06 2
    
    
    2006
    
    
    
    3,498
    
    
    
    4,162
    
    
    
    (664
    )
    
    AAA
    
    Aa2Citigroup Mortgage Loan Trust 06 AR2
    
    
    2006
    
    
    
    3,254
    
    
    
    4,740
    
    
    
    (1,486
    )
    
    N/A
    
    B3Merrill Lynch Mortgage Investors 05 A9
    
    
    2005
    
    
    
    2,823
    
    
    
    3,929
    
    
    
    (1,106
    )
    
    AAA
    
    N/AGMAC Mortgage Corp Loan Trust 05 AR6
    
    
    2005
    
    
    
    2,805
    
    
    
    4,032
    
    
    
    (1,227
    )
    
    AAA
    
    B3Merrill Lynch Mortgage Investors 07 2
    
    
    2007
    
    
    
    2,560
    
    
    
    4,380
    
    
    
    (1,820
    )
    
    
    
    B3Wells Fargo Mortgage Backed 06 AR5
    
    
    2006
    
    
    
    2,216
    
    
    
    3,296
    
    
    
    (1,080
    )
    
    N/A
    
    Caa1Wells Fargo Mortgage Backed 05 AR4
    
    
    2005
    
    
    
    1,119
    
    
    
    1,308
    
    
    
    (189
    )
    
    N/A
    
    A2Merrill Lynch Mortgage Investors 05 A9
    
    
    2005
    
    
    
    869
    
    
    
    1,018
    
    
    
    (149
    )
    
    AAABear Stearns Adjustable Rate 06 1
    
    
    2006
    
    
    
    665
    
    
    
    904
    
    
    
    (239
    )
    
    
    
    Baa1GSR Mortgage Loan Trust 06 AR 1
    
    
    2006
    
    
    
    647
    
    
    
    910
    
    
    
    (263
    )
    
    BBB
    
    N/AJP Morgan Mortgage Trust 06 A4
    
    
    2006
    
    
    
    642
    
    
    
    936
    
    
    
    (294
    )
    
    N/A
    
    B3Wells Fargo Mortgage Backed 06 AR6
    
    
    2006
    
    
    
    620
    
    
    
    851
    
    
    
    (231
    )
    
    
    
    B2Master Adjustable Rate Mortgage 05 6
    
    
    2005
    
    
    
    619
    
    
    
    896
    
    
    
    (277
    )
    
    B
    
    Baa2Citigroup Mortgage Loan Trust 04-HYB3
    
    
    2004
    
    
    
    604
    
    
    
    744
    
    
    
    (140
    )
    
    AAA
    
    AaaSubtotal
    
    
    
    
    
    $
    26,653
    
    
    $
    37,713
    
    
    $
    (11,060
    )All Other
    
    
    
    
    
    
    16,577
    
    
    
    24,381
    
    
    
    (7,804
    )Total
    
    
    
    
    
    $
    43,230
    
    
    $
    62,094
    
    
    $
    (18,864
    )
 Gross
    
    
    Gross
    
    
    Cost orFair
    
    
    Unrealized
    
    
    Unrealized
    
    
    AmortizedValue
    
    
    Gains
    
    
    (Losses)
    
    
    Cost($ in thousands)Asset-backed securities:GNMA
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    FNMA
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    FHLMC
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Prime
    
    
    24,184
    
    
    
    721
    
    
    
    (147
    )
    
    
    23,610Alt-A
    
    
    450
    
    
    
    
    
    
    
    (59
    )
    
    
    509Subprime
    
    
    139
    
    
    
    
    
    
    
    (64
    )
    
    
    203Total
    
    $
    24,773
    
    
    $
    721
    
    
    $
    (270
    )
    
    $
    24,322
  71




---



##### Table of Contents



Total
    
    
    Amortized
    
    
    UnrealizedAAA
    
    
    AA
    
    
    A
    
    
    BBB
    
    
    BB
    
    
    CC
    
    
    Fair Value
    
    
    Cost
    
    
    Gain/(Loss)($ in thousands)Auto Loans
    
    $
    11,716
    
    
    $
    4,718
    
    
    $
    771
    
    
    $
    2,604
    
    
    $
    
    
    
    $
    
    
    
    $
    19,809
    
    
    $
    19,240
    
    
    $
    569Credit Cards
    
    
    551
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    216
    
    
    
    
    
    
    
    767
    
    
    
    793
    
    
    
    (26
    )Miscellaneous
    
    
    3,610
    
    
    
    
    
    
    
    450
    
    
    
    
    
    
    
    
    
    
    
    137
    
    
    
    4,197
    
    
    
    4,289
    
    
    
    (92
    )Total
    
    $
    15,877
    
    
    $
    4,718
    
    
    $
    1,221
    
    
     $
    2,604
    
    
    $
    216
    
    
    $
    137
    
    
    $
    24,773
    
    
    $
    24,322
    
    
    $
    451
  AverageIssue
    
    Fair
    
    
    Book
    
    
    Unrealized
    
    
    Underlying
    
    
    Delinq.
    
    
    Subord.
    
    
    S&P
    
    MoodysSecurity Description
    
    Date
    
    Value
    
    
    Value
    
    
    Gain/Loss
    
    
    LTV%
    
    
    Rate
    
    
    Level
    
    
    Rating
    
    Rating($ in thousands)Wachovia Bank Commercial Mortgage 05 C18
    
    2005
    
    $
    5,979
    
    
    $
    6,849
    
    
    $
    (870
    )
    
    
    72.1
    %
    
    
    0.8
    %
    
    
    31.5
    %
    
    AAA
    
    AaaGS Mortgage Securities Corp II 05 GG4
    
    2005
    
    
    5,688
    
    
    
    6,601
    
    
    
    (913
    )
    
    
    72.0
    %
    
    
    4.1
    %
    
    
    30.6
    %
    
    AAA
    
    AaaLB-UBS Mortgage Commercial Mortgage Trust 06 C6
    
    2006
    
    
    5,473
    
    
    
    6,787
    
    
    
    (1,314
    )
    
    
    63.6
    %
    
    
    1.3
    %
    
    
    30.2
    %
    
    AAACitigroup/Deutsche Bank Comm 05 CD1
    
    2005
    
    
    5,187
    
    
    
    5,892
    
    
    
    (705
    )
    
    
    68.4
    %
    
    
    6.5
    %
    
    
    30.7
    %
    
    AAA
    
    AaaLB-UBS Mortgage Commercial Mortgage Trust 06 C7
    
    2006
    
    
    5,008
    
    
    
    6,332
    
    
    
    (1,324
    )
    
    
    64.0
    %
    
    
    6.3
    %
    
    
    30.1
    %
    
    AA+
    
    Aa1Four Times Square Trust 06 4TS
    
    2006
    
    
    4,674
    
    
    
    7,030
    
    
    
    (2,356
    )
    
    
    39.4
    %
    
    
    0.0
    %
    
    
    7.9
    %
    
    AAA
    
    Aa1Bear Stearns Commercial Mortgage 06 T22
    
    2006
    
    
    4,335
    
    
    
    4,893
    
    
    
    (558
    )
    
    
    57.4
    %
    
    
    0.4
    %
    
    
    28.0
    %
    
    AAA
    
    N/ABear Stearns Commercial Mortgage 07 PW15
    
    2007
    
    
    4,140
    
    
    
    5,136
    
    
    
    (996
    )
    
    
    67.6
    %
    
    
    0.5
    %
    
    
    30.2
    %
    
    AAA
    
    AaaMorgan Stanley Capital I 07 HQ11
    
    2007
    
    
    3,629
    
    
    
    4,790
    
    
    
    (1,161
    )
    
    
    69.9
    %
    
    
    2.2
    %
    
    
    30.2
    %
    
    AAA
    
    AaaBank of America Commercial Mortgage 07 1
    
    2007
    
    
    3,543
    
    
    
    4,782
    
    
    
    (1,239
    )
    
    
    70.3
    %
    
    
    9.3
    %
    
    
    30.4
    %
    
    N/A
    
    AaaMerrill Lynch Mortgage Trust 05 CIP1
    
    2005
    
    
    3,483
    
    
    
    4,035
    
    
    
    (552
    )
    
    
    68.8
    %
    
    
    13.4
    %
    
    
    30.9
    %
    
    N/A
    
    AaaCommercial Mortgage Pass Throu 05 C6
    
    2005
    
    
    3,300
    
    
    
    4,053
    
    
    
    (753
    )
    
    
    72.0
    %
    
    
    9.1
    %
    
    
    30.4
    %
    
    AAA
    
    AaaMorgan Stanley Capital I 04 T13
    
    2004
    
    
    2,966
    
    
    
    3,325
    
    
    
    (359
    )
    
    
    58.8
    %
    
    
    0.0
    %
    
    
    15.3
    %
    
    N/A
    
    AaaCitigroup Commercial Mortgage 06 C5
    
    2006
    
    
    2,799
    
    
    
    3,512
    
    
    
    (713
    )
    
    
    68.7
    %
    
    
    11.8
    %
    
    
    30.3
    %
    
    N/A
    
    AaaGE Capital Commercial Mortgage 02 1A
    
    2002
    
    
    2,549
    
    
    
    2,503
    
    
    
    46
    
    
    
    73.1
    %
    
    
    1.6
    %
    
    
    24.9
    %
    
    N/A
    
    AaaSubtotal
    
    
    
    $
    62,753
    
    
    $
    76,520
    
    
    $
    (13,767
    )All Other
    
    
    
    
    33,664
    
    
    
    36,541
    
    
    
    (2,877
    )Total
    
    
    
    $
    96,417
    
    
    $
    113,061
    
    
    $
    (16,644
    )
  72




---



##### Table of Contents



PercentRating
    
    
    
    
    
    
    
    toDescription
    
    Rating
    
    Amount
    
    
    Total($ in thousands)Extremely Strong
    
    AAA
    
    $
    1,150,205
    
    
    
    59
    %Very Strong
    
    AA
    
    
    402,143
    
    
    
    21
    %Strong
    
    A
    
    
    272,042
    
    
    
    14
    %Adequate
    
    BBB
    
    
    94,924
    
    
    
    5
    %Speculative
    
    BB & below
    
    
    25,153
    
    
    
    1
    %Not Rated
    
    NR
    
    
    1,919
    
    
    
    0
    %Total
    
    
    
    $
    1,946,386
    
    
    
    100
    %
  Gross
    
    
    Gross
    
    
    Cost orFair
    
    
    Unrealized
    
    
    Unrealized
    
    
    AmortizedValue
    
    
    Gains
    
    
    (Losses)
    
    
    Cost($ in thousands)Credit enhanced securities:States, municipalities and political
subdivisions
    
    $
    315,394
    
    
    $
    8,365
    
    
    $
    (2,123
    )
    
    $
    309,152Mortgage- and asset-backed securities
    
    
    8,093
    
    
    
    412
    
    
    
    (22
    )
    
    
    7,703Corporate bonds
    
    
    672
    
    
    
    
    
    
    
    (40
    )
    
    
    712Total
    
    $
    324,159
    
    
    $
    8,777
    
    
    $
    (2,185
    )
    
    $
    317,567
 AverageGross
    
    
    Gross
    
    
    Cost or
    
    
    UnderlyingFair
    
    
    Unrealized
    
    
    Unrealized
    
    
    Amortized
    
    
    CreditValue
    
    
    Gains
    
    
    (Losses)
    
    
    Cost
    
    
    Rating($ in thousands)Financial guarantors:AMBAC
    
    $
    64,667
    
    
    $
    1,410
    
    
    $
    (607
    )
    
    $
    63,864
    
    
    A+Assured Guaranty LTD
    
    
    96,192
    
    
    
    3,250
    
    
    
    (611
    )
    
    
    93,553
    
    
    A+FGIC
    
    
    48,883
    
    
    
    1,178
    
    
    
    (298
    )
    
    
    48,003
    
    
    AA-MBIA
    
    
    103,442
    
    
    
    2,741
    
    
    
    (338
    )
    
    
    101,039
    
    
    AA-Radian Group, Inc.
    
    
    4,138
    
    
    
    49
    
    
    
    (255
    )
    
    
    4,344
    
    
    AXL Capital
    
    
    6,837
    
    
    
    149
    
    
    
    (76
    )
    
    
    6,764
    
    
    A+Total
    
    $
    324,159
    
    
    $
    8,777
    
    
    $
    (2,185
    )
    
    $
    317,567
  73




---



##### Table of Contents



Gross
    
    
    Gross
    
    
    Cost orFair
    
    
    Unrealized
    
    
    Unrealized
    
    
    Amortized
    
    
    S&PValue
    
    
    Gains
    
    
    (Losses)
    
    
    Cost
    
    
    Rating($ in thousands)Issuers:Bank of America Corp
    
    $
    8,395
    
    
    $
    90
    
    
    $
    (294
    )
    
    $
    8,599
    
    
    A-Transcanada Corp
    
    
    8,211
    
    
    
    106
    
    
    
    (32
    )
    
    
    8,137
    
    
    A-General Electric
    
    
    8,129
    
    
    
    43
    
    
    
    (108
    )
    
    
    8,194
    
    
    AACitigroup, Inc
    
    
    6,735
    
    
    
    14
    
    
    
    (645
    )
    
    
    7,366
    
    
    BBB+Statoilhydro ASA
    
    
    5,660
    
    
    
    105
    
    
    
    
    
    
    
    5,555
    
    
    AA-Wells Fargo
    
    
    5,647
    
    
    
    147
    
    
    
    (70
    )
    
    
    5,570
    
    
    A+Goldman Sachs Group
    
    
    5,431
    
    
    
    91
    
    
    
    (163
    )
    
    
    5,503
    
    
    A-Scana Corp
    
    
    5,262
    
    
    
    148
    
    
    
    (2
    )
    
    
    5,116
    
    
    A-Morgan Stanley
    
    
    4,959
    
    
    
    91
    
    
    
    (74
    )
    
    
    4,942
    
    
    A-Bank of New York
    
    
    3,608
    
    
    
    141
    
    
    
    
    
    
    
    3,467
    
    
    A+United Technologies Corp
    
    
    3,508
    
    
    
    156
    
    
    
    
    
    
    
    3,352
    
    
    AConoco Phillips
    
    
    3,454
    
    
    
    148
    
    
    
    
    
    
    
    3,306
    
    
    APfizer Inc
    
    
    3,441
    
    
    
    245
    
    
    
    
    
    
    
    3,196
    
    
    AACredit Suisse Group AG
    
    
    3,411
    
    
    
    144
    
    
    
    
    
    
    
    3,267
    
    
    A+Eli Lilly & Co
    
    
    3,352
    
    
    
    104
    
    
    
    
    
    
    
    3,248
    
    
    A+Subtotal
    
    $
    79,203
    
    
    $
    1,773
    
    
    $
    (1,388
    )
    
    $
    78,818All Other
    
    
    157,118
    
    
    
    4,411
    
    
    
    (4,890
    )
    
    
    157,597Total
    
    $
    236,321
    
    
    $
    6,184
    
    
    $
    (6,278
    )
    
    $
    236,415
   74




---



##### Table of Contents



Gross
    
    
    Gross
    
    
    Cost orFair
    
    
    Unrealized
    
    
    Unrealized
    
    
    AmortizedValue
    
    
    Gains
    
    
    (Losses)
    
    
    Cost($ in thousands)Issuers:Vanguard Total Stock Market Index
    
    $
    3,775
    
    
    $
    530
    
    
    $
    
    
    
    $
    3,245Vanguard Pacific Stock Index
    
    
    3,496
    
    
    
    678
    
    
    
    
    
    
    
    2,818Vanguard Emerging Market Stock Index
    
    
    3,204
    
    
    
    824
    
    
    
    
    
    
    
    2,380Vanguard European Stock Index
    
    
    3,093
    
    
    
    647
    
    
    
    
    
    
    
    2,446Astrazeneca PLC
    
    
    1,355
    
    
    
    267
    
    
    
    
    
    
    
    1,088BP PLC
    
    
    1,349
    
    
    
    214
    
    
    
    
    
    
    
    1,1353M Co
    
    
    1,304
    
    
    
    63
    
    
    
    
    
    
    
    1,241Nokia OYJ
    
    
    1,260
    
    
    
    251
    
    
    
    
    
    
    
    1,009Chevron Corp
    
    
    1,252
    
    
    
    163
    
    
    
    
    
    
    
    1,089Microsoft Corp
    
    
    1,249
    
    
    
    230
    
    
    
    
    
    
    
    1,019Unilever NV
    
    
    1,241
    
    
    
    235
    
    
    
    
    
    
    
    1,006FPL Group Inc
    
    
    1,237
    
    
    
    260
    
    
    
    
    
    
    
    977Altria Group
    
    
    1,218
    
    
    
    74
    
    
    
    
    
    
    
    1,144Philip Morris International Inc
    
    
    1,217
    
    
    
    224
    
    
    
    
    
    
    
    993Kimberly Clark Corp
    
    
    1,195
    
    
    
    128
    
    
    
    
    
    
    
    1,067Subtotal
    
    $
    27,445
    
    
    $
    4,788
    
    
    $
    
    
    
    $
    22,657All Other
    
    
    20,336
    
    
    
    1,315
    
    
    
    (266
    )
    
    
    19,287Total
    
    $
    47,781
    
    
    $
    6,103
    
    
    $
    (266
    )
    
    $
    41,944
   75




---



##### Table of Contents



June 30, 2009
    
    
    December 31, 2008Fair
    
    
    Gross
    
    
    Fair
    
    
    GrossValue
    
    
    Unrealized Loss
    
    
    Value
    
    
    Unrealized Loss($ in thousands)Fixed Maturities:U.S. Government Treasury and AgencyBonds and foreign government bonds0-6 Months
    
    $
    43,336
    
    
    $
    249
    
    
    $
    $3,862
    
    
    $
    1457-12 Months
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    > 12 Months
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Subtotal
    
    
    43,336
    
    
    
    249
    
    
    
    3,862
    
    
    
    145States, municipalities and
political subdivisions0-6 Months
    
    
    67,665
    
    
    
    886
    
    
    
    68,727
    
    
    
    2,1877-12 Months
    
    
    10,221
    
    
    
    570
    
    
    
    118,910
    
    
    
    4,376> 12 Months
    
    
    46,759
    
    
    
    2,263
    
    
    
    15,918
    
    
    
    1,473Subtotal
    
    
    124,645
    
    
    
    3,719
    
    
    
    203,555
    
    
    
    8,036Mortgage- and asset-backed securities0-6 Months
    
    
    23,219
    
    
    
    170
    
    
    
    30,670
    
    
    
    9397-12 Months
    
    
    1,812
    
    
    
    137
    
    
    
    80,618
    
    
    
    26,966> 12 Months
    
    
    133,750
    
    
    
    35,760
    
    
    
    66,218
    
    
    
    20,879Subtotal
    
    
    158,781
    
    
    
    36,067
    
    
    
    177,506
    
    
    
    48,784Corporate bonds0-6 Months
    
    
    12,237
    
    
    
    201
    
    
    
    57,805
    
    
    
    2,4457-12 Months
    
    
    9,272
    
    
    
    384
    
    
    
    57,971
    
    
    
    5,893> 12 Months
    
    
    54,868
    
    
    
    5,693
    
    
    
    27,873
    
    
    
    6,322Subtotal
    
    
    76,377
    
    
    
    6,278
    
    
    
    143,649
    
    
    
    14,660Total Fixed Maturities
    
    $
    403,139
    
    
    $
    46,313
    
    
    $
    528,572
    
    
    $
    71,625Equity securities  common stocks0-6 Months
    
    $
    2,746
    
    
    $
    111
    
    
    $
    8,991
    
    
    $
    1,9417-12 Months
    
    
    728
    
    
    
    155
    
    
    
    351
    
    
    
    46> 12 Months
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total Equity Securities
    
    $
    3,474
    
    
    $
    266
    
    
    $
    9,342
    
    
    $
    1,987
  76




---



##### Table of Contents



Period fromJune 30, 2009
    
    Fair
    
    
    Amortizedto Maturity
    
    Value
    
    
    Cost($ in thousands)Due in one year or less
    
    $
    20,770
    
    
    $
    20,714Due after one year through five years
    
    
    646,139
    
    
    
    630,022Due after five years through ten years
    
    
    353,772
    
    
    
    345,533Due after ten years
    
    
    260,572
    
    
    
    259,422Mortgage- and asset-backed (including GNMAs)
    
    
    473,517
    
    
    
    497,137Total
    
    $
    1,754,770
    
    
    $
    1,752,828
  77




---



##### 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
    
    $
    
    
    
    $
    
    
    
    $
    (96
    )
    
    $
    (25,909
    )
    
    $
    (26,005
    )Equity Securities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total
    
    $
    
    
    
    $
    
    
    
    $
    (96
    )
    
    $
    (25,909
    )
    
    $
    (26,005
    )
      June 30, 2009($ in thousands)Beginning Balance at January 1, 2009
    
    $
    Credit Losses on Securities not previously impaired as of December 31, 2008
    
    
    1,881Additional Credit Losses on Securities not previously impaired as of March 31, 2009
    
    
    26Ending balance at June 30, 2009
    
    $
    1,907
  78




---



##### Table of Contents



GrossEquivalent
    
    Equivalent
    
    Unrealized Loss
    
    
    Fair ValueNAIC
    
    S&P
    
    Moodys
    
    
    
    
    
    Percent
    
    
    
    
    
    
    PercentRating
    
    Rating
    
    Rating
    
    Amount
    
    
    to Total
    
    
    Amount
    
    
    to Total($ in thousands)1
    
    AAA/AA/A
    
    Aaa/Aa/A
    
    $
    30,374
    
    
    
    65
    %
    
    $
    322,395
    
    
    
    80
    %2
    
    BBB
    
    Baa
    
    
    4,902
    
    
    
    11
    %
    
    
    55,106
    
    
    
    14
    %3
    
    BB
    
    Ba
    
    
    2,568
    
    
    
    6
    %
    
    
    7,450
    
    
    
    2
    %4
    
    B
    
    B
    
    
    6,292
    
    
    
    14
    %
    
    
    12,373
    
    
    
    3
    %5
    
    CCC or lower
    
    Caa or lower
    
    
    2,078
    
    
    
    4
    %
    
    
    3,896
    
    
    
    1
    %6
    
    N/A
    
    N/A
    
    
    99
    
    
    
    0
    %
    
    
    1,919
    
    
    
    0
    %Total
    
    
    
    $
    46,313
    
    
    
    100
    %
    
    $
    403,139
    
    
    
    100
    %
   GrossUnrealized Loss
    
    
    Fair ValuePercent
    
    
    
    
    
    
    PercentAmount
    
    
    to Total
    
    
    Amount
    
    
    to Total($ in thousands)Due in one year or less
    
    $
    7
    
    
    
    0
    %
    
    $
    1,630
    
    
    
    0
    %Due after one year through five years
    
    
    1,785
    
    
    
    4
    %
    
    
    74,263
    
    
    
    18
    %Due after five years through ten years
    
    
    3,589
    
    
    
    8
    %
    
    
    76,724
    
    
    
    19
    %Due after ten years
    
    
    4,865
    
    
    
    11
    %
    
    
    91,741
    
    
    
    23
    %Mortgage- and asset-backed securities
    
    
    36,067
    
    
    
    77
    %
    
    
    158,781
    
    
    
    40
    %Total fixed income securities
    
    $
    46,313
    
    
    
    100
    %
    
    $
    403,139
    
    
    
    100
    %
   79




---



##### Table of Contents



Three Months Ended June 30,
    
    
    Six Months Ended June 30,2009
    
    
    2008
    
    
    2009
    
    
    2008($ in thousands)Fixed maturities:Gains
    
    $
    1,593
    
    
    $
    1,329
    
    
    $
    4,525
    
    
    $
    1,526(Losses)
    
    
    (196
    )
    
    
    (426
    )
    
    
    (3,498
    )
    
    
    (435
    )(Impairments)
    
    
    (110
    )
    
    
    
    
    
    
    (2,471
    )
    
    
    1,287
    
    
    
    903
    
    
    
    (1,444
    )
    
    
    1,091Equity securities:Gains
    
    
    1,549
    
    
    
    180
    
    
    
    1,562
    
    
    
    443(Losses)
    
    
    (350
    )
    
    
    (647
    )
    
    
    (1,530
    )
    
    
    (1,174
    )(Impairments)
    
    
    (359
    )
    
    
    (8,412
    )
    
    
    (8,698
    )
    
    
    (8,412
    )840
    
    
    
    (8,879
    )
    
    
    (8,666
    )
    
    
    (9,143
    )Net realized capital gains (losses)
    
    $
    2,127
    
    
    $
    (7,976
    )
    
    $
    (10,110
    )
    
    $
    (8,052
    )
  Reinsurance Recoverables
      80




---



##### Table of Contents



Liquidity and Capital Resources
          81




---



##### Table of Contents



82




---



##### Table of Contents



June 30,
    
    
    December 312009
    
    
    2008($ in thousands)Senior debt
    
    $
    113,949
    
    
    $
    123,794Stockholders equity
    
    
    747,797
    
    
    
    689,317Total capitalization
    
    $
    861,746
    
    
    $
    813,111Ratio of debt to total capitalization
    
    
    13.2
    %
    
    
    15.2
    %
      83




---



##### Table of Contents



June 30,
    
    
    December 31,2009
    
    
    2008($ in thousands)Cash and investments
    
    $
    54,765
    
    
    $
    52,149Investments in subsidiaries
    
    
    797,382
    
    
    
    751,864Goodwill and other intangible assets
    
    
    2,534
    
    
    
    2,534Other assets
    
    
    8,881
    
    
    
    8,769Total assets
    
    $
    863,562
    
    
    $
    815,316Accounts payable and other liabilities
    
    $
    474
    
    
    $
    747Accrued interest payable
    
    
    1,342
    
    
    
    1,4587% Senior Notes due May 1, 2016
    
    
    113,949
    
    
    
    123,794Total liabilities
    
    
    115,765
    
    
    
    125,999Stockholders equity
    
    
    747,797
    
    
    
    689,317Total liabilities and stockholders equity
    
    $
    863,562
    
    
    $
    815,316
 
 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 second 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
   84




---



##### Table of Contents



Item 1A.
    
    Risk Factors
  
 Item 2.
    
    Unregistered Sales of Equity Securities and Use of Proceeds
  
 Item 3.
    
    Defaults Upon Senior Securities
 None
 
 Item 4.
    
    Submissions of Matters to a Vote of Security Holders
 None
 
 Item 5.
    
    Other Information
 None
  85




---



##### Table of Contents



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.  86




---



##### Table of Contents



The Navigators Group, Inc.(Registrant)Date:  August 7, 2009
    /s/ Francis W. McDonnellFrancis W. McDonnellSenior Vice President
and Chief Financial Officer  87




---



##### Table of Contents



INDEX OF EXHIBITS
 Exhibit No.
    
    Description of Exhibit4-1
    
    Form of Indenture for Subordinated Debt Securities, between
The Navigators Group Inc. and The Bank of New York Mellon,
as Trustee.
    
    **11-1
    
    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.**
    
    Incorporated by reference to Exhibit 4.2 of our Form S-3 filed July 17, 2009 (File No.
333-160647).  88