##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 WASHINGTON, D.C. 20549
 FORM 10-Q
 Quarterly Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
 For the Quarterly Period Ended March 31, 2009
 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
 þ o
 
 Large accelerated filer þ
    
    Accelerated filer o
    
    Non-accelerated filer o
    
    Smaller reporting company o
 o þ




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##### 



THE NAVIGATORS GROUP, INC. AND SUBSIDIARIES
 INDEX
 Page No.Part I. FINANCIAL INFORMATION:Item 1. Financial StatementsConsolidated Balance Sheets
March 31, 2009 (Unaudited) and December 31, 2008
    
    
    3Consolidated Statements of Income (Unaudited)
Three Months Ended March 31, 2009 and 2008
    
    
    4Consolidated Statements of Stockholders Equity (Unaudited)
March 31, 2009 and 2008
    
    
    5Consolidated Statements of Comprehensive Income (Unaudited)
Three Months Ended March 31, 2009 and 2008
    
    
    6Consolidated Statements of Cash Flows (Unaudited)
Three Months Ended March 31, 2009 and 2008
    
    
    7Notes to Interim Consolidated Financial Statements (Unaudited)
    
    
    8Item 2. Managements Discussion and Analysis of Financial
Condition and Results of Operations
    
    
    22Item 3. Quantitative and Qualitative Disclosures
About Market Risk
    
    
    71Item 4. Controls and Procedures
    
    
    71Part II. OTHER INFORMATIONItem 1. Legal Proceedings
    
    
    71Item 1A. Risk Factors
    
    
    72Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    72Item 3. Defaults Upon Senior Securities
    
    
    72Item 4. Submissions of Matters to a Vote of Security Holders
    
    
    72Item 5. Other Information
    
    
    72Item 6. Exhibits
    
    
    72Signature
    
    
    73Index of Exhibits
    
    
    74Exhibit 11.1Exhibit 31.1Exhibit 31.2Exhibit 32.1Exhibit 32.2
   2




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##### 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)
 March 31,
    
    
    December 31,2009
    
    
    2008(Unaudited)ASSETSInvestments and cash:Fixed maturities, available-for-sale, at fair value
(amortized cost: 2009, $1,689,179; 2008, $1,664,755)
    
    $
    1,676,826
    
    
    $
    1,643,772Equity securities, available-for-sale, at fair value (cost: 2009, $52,309; 2008, $52,523)
    
    
    51,735
    
    
    
    51,802Short-term investments, at fair value
    
    
    206,223
    
    
    
    220,684Cash
    
    
    16,644
    
    
    
    1,457Total investments and cash
    
    
    1,951,428
    
    
    
    1,917,715Premiums in course of collection
    
    
    201,891
    
    
    
    170,522Commissions receivable
    
    
    313
    
    
    
    319Prepaid reinsurance premiums
    
    
    167,272
    
    
    
    188,874Reinsurance receivable on paid losses
    
    
    70,725
    
    
    
    67,227Reinsurance receivable on unpaid losses and loss adjustment expenses
    
    
    851,703
    
    
    
    853,793Net deferred income tax benefit
    
    
    53,908
    
    
    
    54,736Deferred policy acquisition costs
    
    
    57,675
    
    
    
    47,618Accrued investment income
    
    
    16,114
    
    
    
    17,411Goodwill and other intangible assets
    
    
    6,532
    
    
    
    6,622Other assets
    
    
    26,072
    
    
    
    24,743Total assets
    
    $
    3,403,633
    
    
    $
    3,349,580LIABILITIES AND STOCKHOLDERS EQUITYLiabilities:Reserves for losses and loss adjustment expenses
    
    $
    1,879,895
    
    
    $
    1,853,664Unearned premium
    
    
    494,455
    
    
    
    480,665Reinsurance balances payable
    
    
    129,296
    
    
    
    140,319Senior notes
    
    
    123,825
    
    
    
    123,794Federal income tax payable
    
    
    12,139
    
    
    
    5,874Accounts payable and other liabilities
    
    
    51,569
    
    
    
    55,947Total liabilities
    
    
    2,691,179
    
    
    
    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): 16,934,225 at 3/31/09 and
16,856,073 at 12/31/08
    
    
    1,716
    
    
    
    1,708Additional paid-in capital
    
    
    302,498
    
    
    
    298,872Retained earnings
    
    
    418,776
    
    
    
    406,776Treasury stock, at cost (224,754 shares for both 2009 and 2008)
    
    
    (11,540
    )
    
    
    (11,540
    )Accumulated other comprehensive income (loss)
    
    
    1,004
    
    
    
    (6,499
    )Total stockholders equity
    
    
    712,454
    
    
    
    689,317Total liabilities and stockholders equity
    
    $
    3,403,633
    
    
    $
    3,349,580
   3




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##### Table of Contents



THE NAVIGATORS GROUP, INC. AND SUBSIDIARIES
 
 CONSOLIDATED STATEMENTS OF INCOME
 ($ and shares in thousands, except net income per share)
 Three Months EndedMarch 31,2009
    
    
    2008(Unaudited)Gross written premium
    
    $
    275,259
    
    
    $
    287,146Revenues:Net written premium
    
    $
    200,652
    
    
    $
    187,722Decrease (increase) in unearned premium
    
    
    (35,706
    )
    
    
    (31,982
    )Net earned premium
    
    
    164,946
    
    
    
    155,740Commission income
    
    
    (20
    )
    
    
    261Net investment income
    
    
    18,743
    
    
    
    18,838Total other-than-temporary impairments
    
    
    (26,871
    )
    
    
    Portion of loss recognized in OCI (before tax)
    
    
    (16,171
    )
    
    
    Net impairment loss recognized in earnings
    
    
    (10,700
    )
    
    
    Net realized capital (losses)
    
    
    (1,537
    )
    
    
    (76
    )Other income (expense)
    
    
    163
    
    
    
    11Total revenues
    
    
    171,595
    
    
    
    174,774Operating expenses:Net losses and loss adjustment expenses incurred
    
    
    100,247
    
    
    
    88,420Commission expense
    
    
    22,448
    
    
    
    20,948Other operating expenses
    
    
    30,535
    
    
    
    29,756Interest expense
    
    
    2,219
    
    
    
    2,217Total operating expenses
    
    
    155,449
    
    
    
    141,341Income (loss) before income tax expense
    
    
    16,146
    
    
    
    33,433Income tax expense (benefit):Current
    
    
    6,750
    
    
    
    10,306Deferred
    
    
    (2,604
    )
    
    
    (123
    )Total income tax expense (benefit)
    
    
    4,146
    
    
    
    10,183Net income
    
    $
    12,000
    
    
    $
    23,250Net income per common share:Basic
    
    $
    0.71
    
    
    $
    1.38Diluted
    
    $
    0.71
    
    
    $
    1.36Average common shares outstanding:Basic
    
    
    16,882
    
    
    
    16,862Diluted
    
    
    17,002
    
    
    
    17,052
   4




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THE NAVIGATORS GROUP, INC. AND SUBSIDIARIES
 
 CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY
 ($ in thousands)
 Three Months EndedMarch 31,2009
    
    
    2008(Unaudited)Preferred StockBalance at beginning and end of period
    
    $
    
    
    
    $
    Common stockBalance at beginning of year
    
    $
    1,708
    
    
    $
    1,687Shares issued under stock plans
    
    
    8
    
    
    
    6Balance at end of period
    
    $
    1,716
    
    
    $
    1,693Additional paid-in capitalBalance at beginning of year
    
    $
    298,872
    
    
    $
    291,616Shares issued under stock plans
    
    
    3,626
    
    
    
    2,530Balance at end of period
    
    $
    302,498
    
    
    $
    294,146Retained earningsBalance at beginning of year
    
    $
    406,776
    
    
    $
    355,084Net income
    
    
    12,000
    
    
    
    23,250Balance at end of period
    
    $
    418,776
    
    
    $
    378,334Treasury stock, at costBalance at beginning of year
    
    $
    (11,540
    )
    
    $
    Treasury stock acquired
    
    
    
    
    
    
    (7,321
    )Balance at end of period
    
    $
    (11,540
    )
    
    $
    (7,321
    )Accumulated other comprehensive income (loss)Net unrealized gains (losses) on securities, net of taxBalance at beginning of year
    
    $
    (15,062
    )
    
    $
    10,186Change in period
    
    
    16,494
    
    
    
    (3,412
    )Balance at end of period
    
    
    1,432
    
    
    
    6,774Non-credit Impairment Losses, net of TaxBalance at beginning of year
    
    
    
    
    
    
    Change in period
    
    
    (10,511
    )
    
    
    Balance at end of period
    
    
    (10,511
    )
    
    
    Cumulative translation adjustments, net of taxBalance at beginning of year
    
    
    8,563
    
    
    
    3,533Net adjustment for period
    
    
    1,520
    
    
    
    (282
    )Balance at end of period
    
    
    10,083
    
    
    
    3,251Balance at end of period
    
    $
    1,004
    
    
    $
    10,025Total stockholders equity at end of period
    
    $
    712,454
    
    
    $
    676,877
   5




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THE NAVIGATORS GROUP, INC. AND SUBSIDIARIES
 
 CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
 ($ in thousands)
 Three Months EndedMarch 31,2009
    
    
    2008(Unaudited)Net income
    
    $
    12,000
    
    
    $
    23,250Other comprehensive income (loss):Change in net unrealized gains (losses) on securities,
net of tax expense benefit of $2,794 and ($1,813)
in 2009 and 2008, respectively (1)
    
    
    5,983
    
    
    
    (3,412
    )Change in foreign currency translation gains,
net of tax expense of $818 and ($151)
in 2009 and 2008, respectively
    
    
    1,520
    
    
    
    (282
    )Other comprehensive income (loss)
    
    
    7,503
    
    
    
    (3,694
    )Comprehensive income (loss)
    
    $
    19,503
    
    
    $
    19,556(1) Disclosure of reclassification amount,
net of tax:Unrealized holding (losses) arising
during period
    
    $
    (2,204
    )
    
    $
    (3,461
    )Less: reclassification adjustment for net realized
capital (losses) included in net income
    
    
    (1,140
    )
    
    
    (49
    )reclassification adjustment for impairment (losses)
recognized in net income
    
    
    (7,047
    )
    
    
    Change in net unrealized gains (losses) on securities
    
    $
    5,983
    
    
    $
    (3,412
    )
   6




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##### Table of Contents



THE NAVIGATORS GROUP, INC. AND SUBSIDIARIES
 
 CONSOLIDATED STATEMENTS OF CASH FLOWS
 ($ in thousands)
 Three Months EndedMarch 31,2009
    
    
    2008(Unaudited)Operating activities:Net income
    
    $
    12,000
    
    
    $
    23,250Adjustments to reconcile net income to net
cash provided by (used in) operating activities:Depreciation & amortization
    
    
    957
    
    
    
    1,222Net deferred income tax (benefit)
    
    
    (2,604
    )
    
    
    (123
    )Net realized capital (gains) losses
    
    
    12,237
    
    
    
    76Changes in assets and liabilities:Reinsurance receivable on paid and unpaid losses and LA E
    
    
    (2,916
    )
    
    
    45,418Reserve for losses and LA E
    
    
    28,539
    
    
    
    12,577Prepaid reinsurance premiums
    
    
    21,318
    
    
    
    776Unearned premium
    
    
    14,492
    
    
    
    31,035Premiums in course of collection
    
    
    (31,897
    )
    
    
    (35,297
    )Commissions receivable
    
    
    7
    
    
    
    2,109Deferred policy acquisition costs
    
    
    (10,169
    )
    
    
    (1,546
    )A ccrued investment income
    
    
    1,294
    
    
    
    (262
    )Reinsurance balances payable
    
    
    (10,382
    )
    
    
    (22,525
    )Federal income tax
    
    
    6,719
    
    
    
    8,076Other
    
    
    3,333
    
    
    
    (5,134
    )Net cash provided by operating activities
    
    
    42,928
    
    
    
    59,652Investing activities:Fixed maturities, available-for-saleRedemptions and maturities
    
    
    32,122
    
    
    
    35,146Sales
    
    
    91,969
    
    
    
    20,644Purchases
    
    
    (153,211
    )
    
    
    (103,436
    )Equity securities, available-for-saleSales
    
    
    1,420
    
    
    
    5,514Purchases
    
    
    (10,713
    )
    
    
    (5,595
    )Change in payable for securities
    
    
    (1,106
    )
    
    
    1,974Net change in short-term investments
    
    
    13,265
    
    
    
    (647
    )Purchase of property and equipment
    
    
    (2,164
    )
    
    
    (1,072
    )Net cash (used in) investing activities
    
    
    (28,418
    )
    
    
    (47,472
    )Financing activities:Purchase of treasury stock
    
    
    
    
    
    
    (7,321
    )Proceeds of stock issued from employee stock purchase plan
    
    
    344
    
    
    
    356Proceeds of stock issued from exercise of stock options
    
    
    333
    
    
    
    540Net cash provided by (used in) financing activities
    
    
    677
    
    
    
    (6,425
    )Effect of exchange rate changes on foreign currency cash
    
    
    
    
    
    
    (1
    )Increase (decrease) in cash
    
    
    15,187
    
    
    
    5,754Cash at beginning of year
    
    
    1,457
    
    
    
    7,056Cash at end of period
    
    $
    16,644
    
    
    $
    12,810Supplemental disclosures of cash flow information:Federal, state and local income tax paid
    
    $
    68
    
    
    $
    2,728Interest paid
    
    
    
    
    
    
    Issuance of stock to directors
    
    
    210
    
    
    
    200
   7




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##### Table of Contents



THE NAVIGATORS GROUP, INC. AND SUBSIDIARIES
 
 Notes to Interim Consolidated Financial Statements
 (Unaudited)
 Note 1. Accounting Policies
  Note 2. Reinsurance Ceded
  Note 3. Segment Information
     8




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##### Table of Contents




    
    The offshore energy business, formerly included in the Marine and Energy
businesses of the Insurance Companies and Lloyds, 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.
   9




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##### Table of Contents



Three Months Ended March 31, 2009Insurance
    
    
    LloydsCompanies
    
    
    Operations
    
    
    Corporate
    
    
    Total($ in thousands)Gross written premium
    
    $
    191,983
    
    
    $
    83,276
    
    
    
    
    
    
    $
    275,259Net written premium
    
    
    137,082
    
    
    
    63,570
    
    
    
    
    
    
    
    200,652Net earned premium
    
    
    120,290
    
    
    
    44,656
    
    
    
    
    
    
    
    164,946Net losses and LAE
    
    
    (70,153
    )
    
    
    (30,094
    )
    
    
    
    
    
    
    (100,247
    )Commission expense
    
    
    (14,968
    )
    
    
    (7,480
    )
    
    
    
    
    
    
    (22,448
    )Other operating expenses
    
    
    (24,560
    )
    
    
    (5,981
    )
    
    $
    6
    
    
    
    (30,535
    )Commission income and other income (expense)
    
    
    201
    
    
    
    (52
    )
    
    
    (6
    )
    
    
    143Underwriting Income (loss)
    
    
    10,810
    
    
    
    1,049
    
    
    
    
    
    
    
    11,859Net investment income
    
    
    16,207
    
    
    
    2,383
    
    
    
    153
    
    
    
    18,743Net realized capital gains (losses)
    
    
    (8,907
    )
    
    
    (3,330
    )
    
    
    
    
    
    
    (12,237
    )Interest expense
    
    
    
    
    
    
    
    
    
    
    (2,219
    )
    
    
    (2,219
    )Income (loss) before income taxes
    
    
    18,110
    
    
    
    102
    
    
    
    (2,066
    )
    
    
    16,146Income tax expense (benefit)
    
    
    4,533
    
    
    
    336
    
    
    
    (723
    )
    
    
    4,146Net income (loss)
    
    $
    13,577
    
    
    $
    (234
    )
    
    $
    (1,343
    )
    
    $
    12,000Identifiable assets (1)
    
    $
    2,497,923
    
    
    $
    799,907
    
    
    $
    90,135
    
    
    $
    3,403,633Loss and LAE ratio
    
    
    58.3
    %
    
    
    67.4
    %
    
    
    
    
    
    
    60.8
    %Commission expense ratio
    
    
    12.4
    %
    
    
    16.8
    %
    
    
    
    
    
    
    13.6
    %Other operating expense ratio (2)
    
    
    20.3
    %
    
    
    13.5
    %
    
    
    
    
    
    
    18.4
    %Combined ratio
    
    
    91.0
    %
    
    
    97.7
    %
    
    
    
    
    
    
    92.8
    %
 (1)
    
    Includes inter-segment transactions causing the row not to crossfoot.(2)
    
    Includes other operating expensesand commission income and other income (expense).  10




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##### Table of Contents



Three Months Ended March 31, 2009Insurance
    
    
    LloydsCompanies
    
    
    Operations
    
    
    Total($ in thousands)Gross written premium:Marine
    
    $
    77,237
    
    
    $
    59,023
    
    
    $
    136,260Property Casualty
    
    
    84,258
    
    
    
    13,528
    
    
    
    97,786Professional Liability
    
    
    30,488
    
    
    
    10,725
    
    
    
    41,213Total
    
    $
    191,983
    
    
    $
    83,276
    
    
    $
    275,259Net written premium:Marine
    
    $
    58,459
    
    
    $
    49,974
    
    
    $
    108,433Property Casualty
    
    
    59,976
    
    
    
    7,595
    
    
    
    67,571Professional Liability
    
    
    18,647
    
    
    
    6,001
    
    
    
    24,648Total
    
    $
    137,082
    
    
    $
    63,570
    
    
    $
    200,652Net earned premium:Marine
    
    $
    37,161
    
    
    $
    31,175
    
    
    $
    68,336Property Casualty
    
    
    65,412
    
    
    
    7,923
    
    
    
    73,335Professional Liability
    
    
    17,717
    
    
    
    5,558
    
    
    
    23,275Total
    
    $
    120,290
    
    
    $
    44,656
    
    
    $
    164,946
  11




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##### Table of Contents



Three Months Ended March 31, 2008Insurance
    
    
    LloydsCompanies
    
    
    Operations
    
    
    Corporate
    
    
    Total($ in thousands)Gross written premium
    
    $
    191,596
    
    
    $
    95,550
    
    
    
    
    
    
    $
    287,146Net written premium
    
    
    124,310
    
    
    
    63,412
    
    
    
    
    
    
    
    187,722Net earned premium
    
    
    112,246
    
    
    
    43,494
    
    
    
    
    
    
    
    155,740Net losses and LAE
    
    
    (67,356
    )
    
    
    (21,064
    )
    
    
    
    
    
    
    (88,420
    )Commission expense
    
    
    (12,948
    )
    
    
    (8,000
    )
    
    
    
    
    
    
    (20,948
    )Other operating expenses
    
    
    (22,148
    )
    
    
    (7,608
    )
    
    
    
    
    
    
    (29,756
    )Commission income and other income (expense)
    
    
    258
    
    
    
    14
    
    
    
    
    
    
    
    272Underwriting profit
    
    
    10,052
    
    
    
    6,836
    
    
    
    
    
    
    
    16,888Net investment income
    
    
    15,465
    
    
    
    2,982
    
    
    $
    391
    
    
    
    18,838Net realized capital gains (losses)
    
    
    (102
    )
    
    
    26
    
    
    
    
    
    
    
    (76
    )Interest expense
    
    
    
    
    
    
    
    
    
    
    (2,217
    )
    
    
    (2,217
    )Income (loss) before income taxes
    
    
    25,415
    
    
    
    9,844
    
    
    
    (1,826
    )
    
    
    33,433Income tax expense (benefit)
    
    
    7,370
    
    
    
    3,452
    
    
    
    (639
    )
    
    
    10,183Net income (loss)
    
    $
    18,045
    
    
    $
    6,392
    
    
    $
    (1,187
    )
    
    $
    23,250Identifiable assets (1)
    
    $
    2,356,343
    
    
    $
    756,100
    
    
    $
    69,520
    
    
    $
    3,182,275Loss and LAE ratio
    
    
    60.0
    %
    
    
    48.4
    %
    
    
    
    
    
    
    56.8
    %Commission expense ratio
    
    
    11.5
    %
    
    
    18.4
    %
    
    
    
    
    
    
    13.5
    %Other operating expense ratio (2)
    
    
    19.5
    %
    
    
    17.5
    %
    
    
    
    
    
    
    18.9
    %Combined ratio
    
    
    91.0
    %
    
    
    84.3
    %
    
    
    
    
    
    
    89.2
    %
 (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 March 31, 2008Insurance
    
    
    LloydsCompanies
    
    
    Operations
    
    
    Total($ in thousands)Gross written premium:Marine
    
    $
    71,485
    
    
    $
    67,154
    
    
    $
    138,639Property Casualty
    
    
    100,824
    
    
    
    17,726
    
    
    
    118,550Professional Liability
    
    
    19,287
    
    
    
    10,670
    
    
    
    29,957Total
    
    $
    191,596
    
    
    $
    95,550
    
    
    $
    287,146Net written premium:Marine
    
    $
    43,463
    
    
    $
    48,910
    
    
    $
    92,373Property Casualty
    
    
    69,114
    
    
    
    7,710
    
    
    
    76,824Professional Liability
    
    
    11,733
    
    
    
    6,792
    
    
    
    18,525Total
    
    $
    124,310
    
    
    $
    63,412
    
    
    $
    187,722Net earned premium:Marine
    
    $
    26,455
    
    
    $
    28,793
    
    
    $
    55,248Property Casualty
    
    
    71,718
    
    
    
    8,742
    
    
    
    80,460Professional Liability
    
    
    14,073
    
    
    
    5,959
    
    
    
    20,032Total
    
    $
    112,246
    
    
    $
    43,494
    
    
    $
    155,740
  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
   13




---



##### Table of Contents



Note 6. Application of New Accounting Standards
 Business Combinations Business Combinations
 Noncontrolling Interests in Consolidated Financial
Statements
 Disclosures about Derivative Instruments and Hedging
Activities Accounting for Derivative Instruments and Hedging Activities
 The Hierarchy of Generally Accepted Accounting
Principles
 Note 7. Syndicate 1221
     14




---



##### Table of Contents



Note 8. Income Taxes
     15




---



##### Table of Contents



Note 9. Commitments and Contingencies
   Note 10. Senior Notes due May 1, 2016
    Note 11. Investments
 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
  16




---



##### Table of Contents



Recognition and Presentation of
Other-Than-Temporary Impairments.
 Interim Disclosures about Fair
Value of Financial Instruments.
  Gross
    
    
    Gross
    
    
    OTTI
    
    
    Cost orFair
    
    
    Unrealized
    
    
    Unrealized
    
    
    Recognized
    
    
    AmortizedMarch 31, 2009
    
    Value
    
    
    Gains
    
    
    (Losses)
    
    
    in OCI
    
    
    Cost($ in thousands)Fixed maturities:U.S. Government Treasury Bonds,
agency bonds and foreign government bonds
    
    $
    398,268
    
    
    $
    19,757
    
    
    $
    (25
    )
    
    $
    
    
    
    $
    378,536States, municipalities and political
subdivisions
    
    
    610,021
    
    
    
    19,116
    
    
    
    (4,230
    )
    
    
    
    
    
    
    595,135Mortgage- and asset-backed securitiesMortgage-backed securities
    
    
    314,432
    
    
    
    14,055
    
    
    
    (1
    )
    
    
    
    
    
    
    300,378Collateralized mortgage obligations
    
    
    43,167
    
    
    
    
    
    
    
    (7,188
    )
    
    
    (16,103
    )
    
    
    66,458Asset-backed securities
    
    
    29,826
    
    
    
    273
    
    
    
    (785
    )
    
    
    (68
    )
    
    
    30,406Commercial mortgage-backed securities
    
    
    89,648
    
    
    
    15
    
    
    
    (23,511
    )
    
    
    
    
    
    
    113,144Subtotal
    
    
    477,073
    
    
    
    14,343
    
    
    
    (31,485
    )
    
    
    (16,171
    )
    
    
    510,386Corporate bonds
    
    
    191,464
    
    
    
    2,259
    
    
    
    (15,917
    )
    
    
    
    
    
    
    205,122Total fixed maturities
    
    
    1,676,826
    
    
    
    55,475
    
    
    
    (51,657
    )
    
    
    (16,171
    )
    
    
    1,689,179Equity securities  common stocks
    
    
    51,735
    
    
    
    609
    
    
    
    (1,183
    )
    
    
    
    
    
    
    52,309Cash
    
    
    16,644
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    16,644Short-term investments
    
    
    206,223
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    206,223Total
    
    $
    1,951,428
    
    
    $
    56,084
    
    
    $
    (52,840
    )
    
    $
    (16,171
    )
    
    $
    1,964,355
   17




---



##### Table of Contents



March 31, 2009
    
    
    December 31, 2008Fair
    
    
    Gross
    
    
    Fair
    
    
    GrossValue
    
    
    Unrealized Loss
    
    
    Value
    
    
    Unrealized Loss($ in thousands)Fixed Maturities:U.S. Government Treasury and Agency
Bonds and foreign government bonds0-6 Months
    
    $
    4,145
    
    
    $
    25
    
    
    $
    3,862
    
    
    $
    1457-12 Months
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    > 12 Months
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Subtotal
    
    
    4,145
    
    
    
    25
    
    
    
    3,862
    
    
    
    145States, municipalities and
political subdivisions0-6 Months
    
    
    47,983
    
    
    
    704
    
    
    
    68,727
    
    
    
    2,1877-12 Months
    
    
    39,666
    
    
    
    1,282
    
    
    
    118,910
    
    
    
    4,376> 12 Months
    
    
    42,095
    
    
    
    2,244
    
    
    
    15,918
    
    
    
    1,473Subtotal
    
    
    129,744
    
    
    
    4,230
    
    
    
    203,555
    
    
    
    8,036Mortgage- and asset-backed securities0-6 Months
    
    
    4,623
    
    
    
    40
    
    
    
    30,670
    
    
    
    9397-12 Months
    
    
    37,388
    
    
    
    4,364
    
    
    
    80,618
    
    
    
    26,966> 12 Months
    
    
    107,162
    
    
    
    43,252
    
    
    
    66,218
    
    
    
    20,879Subtotal
    
    
    149,173
    
    
    
    47,656
    
    
    
    177,506
    
    
    
    48,784Corporate bonds0-6 Months
    
    
    22,335
    
    
    
    1,733
    
    
    
    57,805
    
    
    
    2,4457-12 Months
    
    
    51,700
    
    
    
    4,569
    
    
    
    57,971
    
    
    
    5,893> 12 Months
    
    
    37,345
    
    
    
    9,615
    
    
    
    27,873
    
    
    
    6,322Subtotal
    
    
    111,380
    
    
    
    15,917
    
    
    
    143,649
    
    
    
    14,660Total Fixed Maturities
    
    $
    394,442
    
    
    $
    67,828
    
    
    $
    528,572
    
    
    $
    71,625Equity securities  common stocks0-6 Months
    
    $
    6,934
    
    
    $
    1,175
    
    
    $
    8,991
    
    
    $
    1,9417-12 Months
    
    
    173
    
    
    
    8
    
    
    
    351
    
    
    
    46> 12 Months
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total Equity Securities
    
    $
    7,107
    
    
    $
    1,183
    
    
    $
    9,342
    
    
    $
    1,987
  18




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##### Table of Contents



Recognition and Presentation of
Other-Than-Temporary Impairments
  March 31, 2009($ in thousands)Beginning Balance at January 1, 2009
    
    $
    Credit Losses on Securities not previously impaired
    
    
    1,797Ending balance at March 31, 2009
    
    $
    1,797
   GrossUnrealized Loss
    
    
    Fair ValuePercent
    
    
    
    
    
    
    PercentAmount
    
    
    to Total
    
    
    Amount
    
    
    to Total($ in thousands)Due in one year or less
    
    $
    83
    
    
    
    0
    %
    
    $
    5,367
    
    
    
    1
    %Due after one year through five years
    
    
    5,902
    
    
    
    9
    %
    
    
    82,747
    
    
    
    21
    %Due after five years through ten years
    
    
    7,726
    
    
    
    11
    %
    
    
    68,939
    
    
    
    17
    %Due after ten years
    
    
    6,461
    
    
    
    10
    %
    
    
    88,216
    
    
    
    22
    %Mortgage- and asset-backed securities
    
    
    47,656
    
    
    
    70
    %
    
    
    149,173
    
    
    
    39
    %Total fixed income securities
    
    $
    67,828
    
    
    
    100
    %
    
    $
    394,442
    
    
    
    100
    %
  19




---



##### Table of Contents



Three Months Ended March 31,2009
    
    
    2008($ in thousands)Fixed maturities:Gains
    
    $
    2,932
    
    
    $
    197(Losses)
    
    
    (3,302
    )
    
    
    (9
    )(Impairments)
    
    
    (2,361
    )
    
    
    (2,731
    )
    
    
    188Equity securities:Gains
    
    
    13
    
    
    
    263(Losses)
    
    
    (1,180
    )
    
    
    (527
    )(Impairments)
    
    
    (8,339
    )
    
    
    (9,506
    )
    
    
    (264
    )Net realized capital gains (losses)
    
    $
    (12,237
    )
    
    $
    (76
    )
 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.
   20




---



##### 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
    
    $
    261,943
    
    
    $
    1,414,727
    
    
    $
    156
    
    
    $
    1,676,826Equity securities
    
    
    37,164
    
    
    
    14,571
    
    
    
    
    
    
    
    51,735Short-term investments
    
    
    48,953
    
    
    
    157,270
    
    
    
    
    
    
    
    206,223Total
    
    $
    348,060
    
    
    $
    1,586,568
    
    
    $
    156
    
    
    $
    1,934,784
  Three Months EndedMarch 31, 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
    
    
    Transfer to Level 3
    
    
    Level 3 investments as of March 31, 2009
    
    $
    156
 Investments
 Note 12. Share Repurchases
   21




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##### Table of Contents



Item 2. Managements Discussion and Analysis of Financial Condition and Results of
Operations
 Note on Forward-Looking Statements
  
    
    the effects of domestic and foreign economic conditions, and conditions which
affect the market for property and casualty insurance;
 
    
    changes in the laws, rules and regulations which apply to our insurance
companies;
 
    
    the effects of emerging claim and coverage issues on our business, including
adverse judicial or regulatory decisions and rulings;
 
    
    the effects of competition from banks and other insurers and the trend toward
self-insurance;
 
    
    risks that we face in entering new markets and diversifying the products and
services we offer;
 
    
    risk that the bank consortium does not renew the credit facility, which would
cause us to find other sources to provide the letters of credit or other collateral
required to continue our participation in Syndicate 1221;
 
    
    unexpected turnover of our professional staff;
 
    
    changing legal and social trends and inherent uncertainties in the loss
estimation process that can adversely impact the adequacy of loss reserves and the
allowance for reinsurance recoverables, including our estimates relating to ultimate
asbestos liabilities and related reinsurance recoverables;
 
    
    risks inherent in the collection of reinsurance recoverable amounts from our
reinsurers over many years into the future based on the reinsurers financial ability
and intent to meet such obligations to the Company;
 
    
    risks associated with our continuing ability to obtain reinsurance covering our
exposures at appropriate prices and/or in sufficient amounts and the related
recoverability of our reinsured losses;
 
    
    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;
 
    
    our ability to attain adequate prices, obtain new business and retain existing
business consistent with our expectations and to successfully implement our business
strategy during soft as well as hard markets;
  22




---



##### 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;
 
    
    the inability of our internal control framework to provide absolute assurance
that all incidents of fraud or unintended material errors will be detected and
prevented;
 
    
    changes in accounting principles or policies or in our application of such
accounting principles or policies;
 
    
    the risk that our investment portfolio suffers reduced returns or investment
losses which could reduce our profitability; and
 
    
    other risks that we identify in future filings with the Securities and Exchange
Commission (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 .
   23




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##### Table of Contents



24




---



##### Table of Contents



Catastrophe Risk Management
    25




---



##### Table of Contents



Critical Accounting Policies
   Reserves for Losses and LAE.
  26




---



##### Table of Contents



Reinsurance Recoverables.
 Written and Unearned Premium.
   Deferred Tax Assets.
 Impairment of Invested Assets.
   27




---



##### Table of Contents



Accounting for Lloyds Results.
 Translation of Foreign Currencies . Foreign Currency
Translation, accumulated other comprehensive income other income (expense)
  28




---



##### 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.
  Investments accumulated other comprehensive income
(loss)
     29




---



##### Table of Contents



Revenues .
   30




---



##### Table of Contents



Three Months Ended March 31,2009
    
    
    2008Gross
    
    
    
    
    
    
    Net
    
    
    Net
    
    
    Gross
    
    
    
    
    
    
    Net
    
    
    NetWritten
    
    
    
    
    
    
    Written
    
    
    Earned
    
    
    Written
    
    
    
    
    
    
    Written
    
    
    EarnedPremium
    
    
    %
    
    
    Premium
    
    
    Premium
    
    
    Premium
    
    
    %
    
    
    Premium
    
    
    Premium($ in thousands)Insurance Companies:Marine
    
    $
    77,237
    
    
    
    28.1
    %
    
    $
    58,459
    
    
    $
    37,161
    
    
    $
    71,485
    
    
    
    24.9
    %
    
    $
    43,463
    
    
    $
    26,455Property Casualty
    
    
    84,258
    
    
    
    30.6
    %
    
    
    59,976
    
    
    
    65,412
    
    
    
    100,824
    
    
    
    35.1
    %
    
    
    69,114
    
    
    
    71,718Professional Liability
    
    
    30,488
    
    
    
    11.1
    %
    
    
    18,647
    
    
    
    17,717
    
    
    
    19,287
    
    
    
    6.7
    %
    
    
    11,733
    
    
    
    14,073Insurance Companies Total
    
    
    191,983
    
    
    
    69.8
    %
    
    
    137,082
    
    
    
    120,290
    
    
    
    191,596
    
    
    
    66.7
    %
    
    
    124,310
    
    
    
    112,246Lloyds Operations:Marine
    
    
    59,023
    
    
    
    21.4
    %
    
    
    49,974
    
    
    
    31,175
    
    
    
    67,154
    
    
    
    23.4
    %
    
    
    48,910
    
    
    
    28,793Property Casualty
    
    
    13,528
    
    
    
    4.9
    %
    
    
    7,595
    
    
    
    7,923
    
    
    
    17,726
    
    
    
    6.2
    %
    
    
    7,710
    
    
    
    8,742Professional Liability
    
    
    10,725
    
    
    
    3.9
    %
    
    
    6,001
    
    
    
    5,558
    
    
    
    10,670
    
    
    
    3.7
    %
    
    
    6,792
    
    
    
    5,959Lloyds Operations Total
    
    
    83,276
    
    
    
    30.2
    %
    
    
    63,570
    
    
    
    44,656
    
    
    
    95,550
    
    
    
    33.3
    %
    
    
    63,412
    
    
    
    43,494Total
    
    $
    275,259
    
    
    
    100.0
    %
    
    $
    200,652
    
    
    $
    164,946
    
    
    $
    287,146
    
    
    
    100.0
    %
    
    $
    187,722
    
    
    $
    155,740
  31




---



##### Table of Contents



Gross Written Premium
 Insurance Companies Gross Written Premium
 Marine Premium.
 2009
    
    
    2008Marine liability
    
    
    35.1
    %
    
    
    35.6
    %P&I
    
    
    16.0
    %
    
    
    15.9
    %Cargo
    
    
    11.4
    %
    
    
    11.0
    %Inland marine
    
    
    10.9
    %
    
    
    7.5
    %Bluewater hull
    
    
    8.0
    %
    
    
    6.6
    %Transport
    
    
    6.8
    %
    
    
    9.2
    %Craft/Fishing vessel
    
    
    5.8
    %
    
    
    6.2
    %Other
    
    
    6.0
    %
    
    
    8.0
    %Total
    
    
    100.0
    %
    
    
    100.0
    %
  Property / Casualty Premium.
 2009
    
    
    2008Construction liability
    
    
    28.5
    %
    
    
    39.0
    %Commercial umbrella
    
    
    19.7
    %
    
    
    16.5
    %Programs
    
    
    12.0
    %
    
    
    10.1
    %Nav Pac
    
    
    11.2
    %
    
    
    7.9
    %Nav Tech
    
    
    11.1
    %
    
    
    10.8
    %Primary E&S
    
    
    8.5
    %
    
    
    10.5
    %Personal Umbrella
    
    
    1.9
    %
    
    
    2.0
    %Other
    
    
    7.1
    %
    
    
    3.2
    %Total
    
    
    100.0
    %
    
    
    100.0
    %
   32




---



##### Table of Contents



Professional Liability Premium.
 2009
    
    
    2008D&O (public and private)
    
    
    60.2
    %
    
    
    56.6
    %Lawyers
    
    
    18.7
    %
    
    
    32.0
    %E&O (MPL)
    
    
    18.0
    %
    
    
    6.3
    %Architects and engineers
    
    
    3.1
    %
    
    
    5.1
    %Total
    
    
    100.0
    %
    
    
    100.0
    %
  Lloyds Operations Gross Written Premium
   Marine Premium.
 2009
    
    
    2008Cargo and specie
    
    
    36.7
    %
    
    
    34.0
    %Marine liability
    
    
    35.3
    %
    
    
    42.4
    %Assumed reinsurance
    
    
    17.5
    %
    
    
    12.9
    %Hull
    
    
    6.4
    %
    
    
    6.4
    %Other
    
    
    4.1
    %
    
    
    4.3
    %Total
    
    
    100.0
    %
    
    
    100.0
    %
   33




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##### Table of Contents



Property / Casualty Premium.
 2009
    
    
    2008Nav Tech
    
    
    90.9
    %
    
    
    81.3
    %US Property Casualty
    
    
    9.5
    %
    
    
    0.0
    %Property
    
    
    -0.4
    %
    
    
    18.7
    %Total
    
    
    100.0
    %
    
    
    100.0
    %
  Professional Liability Premium.
 2009
    
    
    2008E&O
    
    
    61.8
    %
    
    
    78.1
    %D&O (public and private)
    
    
    38.2
    %
    
    
    21.9
    %Total
    
    
    100.0
    %
    
    
    100.0
    %
  Ceded Written Premium .
  34




---



##### Table of Contents



Three Months Ended March 31,2009
    
    
    2008% of
    
    
    
    
    
    
    % ofCeded
    
    
    Gross
    
    
    Ceded
    
    
    GrossWritten
    
    
    Written
    
    
    Written
    
    
    WrittenPremium
    
    
    Premium
    
    
    Premium
    
    
    Premium($ in thousands)Insurance Companies:Marine
    
    $
    18,778
    
    
    
    24.3
    %
    
    $
    28,022
    
    
    
    39.2
    %Property Casualty
    
    
    24,282
    
    
    
    28.8
    %
    
    
    31,710
    
    
    
    31.5
    %Professional Liability
    
    
    11,841
    
    
    
    38.8
    %
    
    
    7,554
    
    
    
    39.2
    %Subtotal
    
    
    54,901
    
    
    
    28.6
    %
    
    
    67,286
    
    
    
    35.1
    %Lloyds Operations:Marine
    
    
    9,049
    
    
    
    15.3
    %
    
    
    18,244
    
    
    
    27.2
    %Property Casualty
    
    
    5,933
    
    
    
    43.9
    %
    
    
    10,016
    
    
    
    56.5
    %Professional Liability
    
    
    4,724
    
    
    
    44.0
    %
    
    
    3,878
    
    
    
    36.3
    %Subtotal
    
    
    19,706
    
    
    
    23.7
    %
    
    
    32,138
    
    
    
    33.6
    %Total
    
    $
    74,607
    
    
    
    27.1
    %
    
    $
    99,424
    
    
    
    34.6
    %
  Net Written Premium .
 Net Earned Premium .
 Commission Income .
 Net Investment Income .
  35




---



##### Table of Contents



Net Realized Capital Gains and Losses .
  Other Income/(Expense) .
 Operating Expenses
 Net Losses and Loss Adjustment Expenses Incurred
   March 31,
    
    
    December 31,2009
    
    
    2008
    
    
    Change($ in thousands)Reinsurance recoverables:Paid losses
    
    $
    70,725
    
    
    $
    67,227
    
    
    $
    3,498Unpaid losses and LAE reserves
    
    
    851,703
    
    
    
    853,793
    
    
    
    (2,090
    )Total
    
    $
    922,428
    
    
    $
    921,020
    
    
    $
    1,408
  36




---



##### Table of Contents



March 31,
    
    
    December 31,2009
    
    
    2008
    
    
    Change($ in thousands)Gross reserves for losses and LAE
    
    $
    1,879,895
    
    
    $
    1,853,664
    
    
    
    1.4
    %Less: Reinsurance recoverable on unpaid
losses and LAE reserves
    
    
    851,703
    
    
    
    853,793
    
    
    
    -0.2
    %Net loss and LAE reserves
    
    $
    1,028,192
    
    
    $
    999,871
    
    
    
    2.8
    %
  March 31, 2009Net
    
    
    Net
    
    
    Total
    
    
    % of IBNRReported
    
    
    IBNR
    
    
    Net Loss
    
    
    to Total NetReserves
    
    
    Reserves
    
    
    Reserves
    
    
    Loss Reserves($ in thousands)Insurance Companies:Marine
    
    $
    106,949
    
    
    $
    96,636
    
    
    $
    203,585
    
    
    
    47.5
    %Property Casualty
    
    
    116,354
    
    
    
    359,035
    
    
    
    475,389
    
    
    
    75.5
    %Professional Liability
    
    
    32,443
    
    
    
    58,992
    
    
    
    91,435
    
    
    
    64.5
    %Total Insurance Companies
    
    
    255,746
    
    
    
    514,663
    
    
    
    770,409
    
    
    
    66.8
    %Lloyds Operations:Marine
    
    
    97,211
    
    
    
    83,218
    
    
    
    180,429
    
    
    
    46.1
    %Property Casualty
    
    
    21,788
    
    
    
    23,438
    
    
    
    45,226
    
    
    
    51.8
    %Professional Liability
    
    
    6,416
    
    
    
    25,712
    
    
    
    32,128
    
    
    
    80.0
    %Total Lloyds Operations
    
    
    125,415
    
    
    
    132,368
    
    
    
    257,783
    
    
    
    51.3
    %Total Company
    
    $
    381,161
    
    
    $
    647,031
    
    
    $
    1,028,192
    
    
    
    62.9
    %
  37




---



##### 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
    %
        38




---



##### Table of Contents



Hurricanes Gustav and Ike.
  Three Months Ended
    
    
    Year EndedMarch 31, 2009
    
    
    December 31, 2008($ in thousands)Gross of ReinsuranceBeginning gross reserves
    
    $
    107,399Incurred loss & LAE
    
    
    
    
    
    $
    114,000Calendar year payments
    
    
    11,160
    
    
    
    6,601Ending gross reserves
    
    $
    96,239
    
    
    $
    107,399Gross case loss reserves
    
    $
    70,753
    
    
    $
    70,299Gross IBNR loss reserves
    
    
    25,486
    
    
    
    37,100Ending gross reserves
    
    $
    96,239
    
    
    $
    107,399Net of ReinsuranceBeginning net reserves
    
    $
    12,923Incurred loss & LAE
    
    
    449
    
    
    $
    17,169Calendar year payments
    
    
    6,637
    
    
    
    4,246Ending net reserves
    
    $
    6,735
    
    
    $
    12,923Net case loss reserves
    
    $
    6,075
    
    
    $
    11,696Net IBNR loss reserves
    
    
    660
    
    
    
    1,227Ending net reserves
    
    $
    6,735
    
    
    $
    12,923
  Hurricanes Katrina and Rita.
  39




---



##### Table of Contents



Three Months Ended
    
    
    Year EndedMarch 31, 2009
    
    
    December 31, 2008($ in thousands)Gross of ReinsuranceBeginning gross reserves
    
    $
    97,732
    
    
    $
    141,831Incurred loss & LAE
    
    
    (1,849
    )
    
    
    (12,250
    )Calendar year payments
    
    
    2,840
    
    
    
    31,849Ending gross reserves
    
    $
    93,043
    
    
    $
    97,732Gross case loss reserves
    
    $
    62,944
    
    
    $
    62,732Gross IBNR loss reserves
    
    
    30,099
    
    
    
    35,000Ending gross reserves
    
    $
    93,043
    
    
    $
    97,732Net of ReinsuranceBeginning net reserves
    
    $
    3,667
    
    
    $
    4,519Incurred loss & LAE
    
    
    130
    
    
    
    (990
    )Calendar year payments
    
    
    189
    
    
    
    (138
    )Ending net reserves
    
    $
    3,608
    
    
    $
    3,667Net case loss reserves
    
    $
    213
    
    
    $
    279Net IBNR loss reserves
    
    
    3,395
    
    
    
    3,388Ending net reserves
    
    $
    3,608
    
    
    $
    3,667
  Asbestos Liability.
    40




---



##### Table of Contents



Three Months Ended
    
    
    Year EndedMarch 31, 2009
    
    
    December 31, 2008($ in thousands)Gross of ReinsuranceBeginning gross reserves
    
    $
    21,774
    
    
    $
    23,194Incurred losses & LAE
    
    
    11
    
    
    
    796Calendar year payments
    
    
    53
    
    
    
    2,216Ending gross reserves
    
    $
    21,732
    
    
    $
    21,774Gross case loss reserves
    
    $
    13,876
    
    
    $
    13,918Gross IBNR loss reserves
    
    
    7,856
    
    
    
    7,856Ending gross reserves
    
    $
    21,732
    
    
    $
    21,774Net of ReinsuranceBeginning net reserves
    
    $
    16,683
    
    
    $
    16,717Incurred losses & LAE
    
    
    51
    
    
    
    263Calendar year payments
    
    
    (102
    )
    
    
    297Ending net reserves
    
    $
    16,836
    
    
    $
    16,683Net case loss reserves
    
    $
    9,185
    
    
    $
    9,032Net IBNR loss reserves
    
    
    7,651
    
    
    
    7,651Ending net reserves
    
    $
    16,836
    
    
    $
    16,683
     41




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##### Table of Contents



Prior Year Reserve Redundancies/Deficiencies
    Three Months EndedMarch 31,
    
    
    March 31,2009
    
    
    2008($ in thousands)Insurance Companies:Marine
    
    $
    1,958
    
    
    $
    (300
    )Property Casualty
    
    
    (11,713
    )
    
    
    (7,900
    )Professional Liability
    
    
    4,623
    
    
    
    (300
    )Subtotal Insurance Companies
    
    
    (5,132
    )
    
    
    (8,500
    )Lloyds Operations
    
    
    (635
    )
    
    
    (5,180
    )Total
    
    $
    (5,767
    )
    
    $
    (13,680
    )
      42




---



##### Table of Contents



Commission Expense.
 Other Operating Expenses.
  43




---



##### Table of Contents



Income Taxes
    Accounting for Uncertainty in Income
Taxes
  44




---



##### Table of Contents



Segment Information
     Insurance Companies
   45




---



##### Table of Contents



Three Months EndedMarch 31,2009
    
    
    2008($ in thousands)Gross written premium
    
    $
    191,983
    
    
    $
    191,596Net written premium
    
    
    137,082
    
    
    
    124,310Net earned premium
    
    
    120,290
    
    
    
    112,246Net losses and LAE
    
    
    (70,153
    )
    
    
    (67,356
    )Commission expense
    
    
    (14,968
    )
    
    
    (12,948
    )Other operating expenses
    
    
    (24,560
    )
    
    
    (22,148
    )Commission income and other income (expense)
    
    
    201
    
    
    
    258Underwriting profit (loss)
    
    
    10,810
    
    
    
    10,052Net investment income
    
    
    16,207
    
    
    
    15,465Net realized capital gains (losses)
    
    
    (8,907
    )
    
    
    (102
    )Income before income taxes
    
    
    18,110
    
    
    
    25,415Income tax expense
    
    
    4,533
    
    
    
    7,370Net income
    
    $
    13,577
    
    
    $
    18,045Loss and LAE ratio
    
    
    58.3
    %
    
    
    60.0
    %Commission expense ratio
    
    
    12.4
    %
    
    
    11.5
    %Other operating expense ratio (1)
    
    
    20.3
    %
    
    
    19.5
    %Combined ratio
    
    
    91.0
    %
    
    
    91.0
    %
 (1)
    
    Includes other operating expenses and commission income and other income
(expense).  46




---



##### Table of Contents



Three Months Ended March 31, 2009($ in thousands)Net
    
    
    LossesEarned
    
    
    and LAE
    
    
    Underwriting
    
    
    Underwriting
    
    
    Loss
    
    
    Expense
    
    
    CombinedPremium
    
    
    Incurred
    
    
    Expenses
    
    
    Profit/(Loss)
    
    
    Ratio
    
    
    Ratio
    
    
    RatioMarine
    
    $
    37,161
    
    
    $
    26,390
    
    
    $
    11,622
    
    
    $
    (851
    )
    
    
    71.0
    %
    
    
    31.3
    %
    
    
    102.3
    %Property Casualty
    
    
    65,412
    
    
    
    28,004
    
    
    
    20,753
    
    
    
    16,655
    
    
    
    42.8
    %
    
    
    31.7
    %
    
    
    74.5
    %Professional Liability
    
    
    17,717
    
    
    
    15,759
    
    
    
    6,952
    
    
    
    (4,994
    )
    
    
    89.0
    %
    
    
    39.2
    %
    
    
    128.2
    %Total
    
    $
    120,290
    
    
    $
    70,153
    
    
    $
    39,327
    
    
    $
    10,810
    
    
    
    58.3
    %
    
    
    32.7
    %
    
    
    91.0
    %
 Three Months Ended March 31, 2008($ in thousands)Net
    
    
    LossesEarned
    
    
    and LAE
    
    
    Underwriting
    
    
    Underwriting
    
    
    Loss
    
    
    Expense
    
    
    CombinedPremium
    
    
    Incurred
    
    
    Expenses
    
    
    Profit/(Loss)
    
    
    Ratio
    
    
    Ratio
    
    
    RatioMarine
    
    $
    26,455
    
    
    $
    22,313
    
    
    $
    9,169
    
    
    $
    (5,027
    )
    
    
    84.3
    %
    
    
    34.7
    %
    
    
    119.0
    %Property Casualty
    
    
    71,718
    
    
    
    36,138
    
    
    
    20,571
    
    
    
    15,009
    
    
    
    50.4
    %
    
    
    28.7
    %
    
    
    79.1
    %Professional Liability
    
    
    14,073
    
    
    
    8,905
    
    
    
    5,098
    
    
    
    70
    
    
    
    63.3
    %
    
    
    36.2
    %
    
    
    99.5
    %Total
    
    $
    112,246
    
    
    $
    67,356
    
    
    $
    34,838
    
    
    $
    10,052
    
    
    
    60.0
    %
    
    
    31.0
    %
    
    
    91.0
    %
      47




---



##### Table of Contents



Lloyds Operations
    Liquidity and Capital Resources
   48




---



##### Table of Contents



Three Months EndedMarch 31,2009
    
    
    2008($ in thousands)Gross written premium
    
    $
    83,276
    
    
    $
    95,550Net written premium
    
    
    63,570
    
    
    
    63,412Net earned premium
    
    
    44,656
    
    
    
    43,494Net losses and LAE
    
    
    (30,094
    )
    
    
    (21,064
    )Commission expense
    
    
    (7,480
    )
    
    
    (8,000
    )Other operating expenses
    
    
    (5,981
    )
    
    
    (7,608
    )Commission income and other income (expense)
    
    
    (52
    )
    
    
    14Underwriting profit (loss)
    
    
    1,049
    
    
    
    6,836Net investment income
    
    
    2,383
    
    
    
    2,982Net realized capital gains (losses)
    
    
    (3,330
    )
    
    
    26Income before income taxes
    
    
    102
    
    
    
    9,844Income tax expense (benefit)
    
    
    336
    
    
    
    3,452Net income (loss)
    
    $
    (234
    )
    
    $
    6,392Loss and LAE ratio
    
    
    67.4
    %
    
    
    48.4
    %Commission expense ratio
    
    
    16.8
    %
    
    
    18.4
    %Other operating expense ratio (1)
    
    
    13.5
    %
    
    
    17.5
    %Combined ratio
    
    
    97.7
    %
    
    
    84.3
    %
 (1)
    
    Includes other operating expensesand commission income and other income
(expense).     49




---



##### 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
    
    $
    175,680
    
    
    $
    8,355
    
    
    $
    16,100
    
    
    $
    16,100
    
    
    $
    135,125
  Investments
    50




---



##### 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.
  51




---



##### 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
    
    $
    261,943
    
    
    $
    1,414,727
    
    
    $
    156
    
    
    $
    1,676,826Equity securities
    
    
    37,164
    
    
    
    14,571
    
    
    
    
    
    
    
    51,735Short-term
investments
    
    
    48,953
    
    
    
    157,270
    
    
    
    
    
    
    
    206,223Total
    
    $
    348,060
    
    
    $
    1,586,568
    
    
    $
    156
    
    
    $
    1,934,784
   52




---



##### Table of Contents



Three Months EndedMarch 31, 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
    
    
    Transfer to Level 3
    
    
    Level 3 investments as of March 31, 2009
    
    $
    156
  Gross
    
    
    Gross
    
    
    OTTI
    
    
    Cost orFair
    
    
    Unrealized
    
    
    Unrealized
    
    
    Recognized
    
    
    AmortizedMarch 31, 2009
    
    Value
    
    
    Gains
    
    
    (Losses)
    
    
    in OCI
    
    
    Cost($ in thousands)Fixed maturities:U.S. Government Treasury Bonds,
agency bonds and foreign government bonds
    
    $
    398,268
    
    
    $
    19,757
    
    
    $
    (25
    )
    
    $
    
    
    
    $
    378,536States, municipalities and political
subdivisions
    
    
    610,021
    
    
    
    19,116
    
    
    
    (4,230
    )
    
    
    
    
    
    
    595,135Mortgage- and asset-backed securitiesMortgage-backed securities
    
    
    314,432
    
    
    
    14,055
    
    
    
    (1
    )
    
    
    
    
    
    
    300,378Collateralized mortgage obligations
    
    
    43,167
    
    
    
    
    
    
    
    (7,188
    )
    
    
    (16,103
    )
    
    
    66,458Asset-backed securities
    
    
    29,826
    
    
    
    273
    
    
    
    (785
    )
    
    
    (68
    )
    
    
    30,406Commercial mortgage-backed securities
    
    
    89,648
    
    
    
    15
    
    
    
    (23,511
    )
    
    
    
    
    
    
    113,144Subtotal
    
    
    477,073
    
    
    
    14,343
    
    
    
    (31,485
    )
    
    
    (16,171
    )
    
    
    510,386Corporate bonds
    
    
    191,464
    
    
    
    2,259
    
    
    
    (15,917
    )
    
    
    
    
    
    
    205,122Total fixed maturities
    
    
    1,676,826
    
    
    
    55,475
    
    
    
    (51,657
    )
    
    
    (16,171
    )
    
    
    1,689,179Equity securities  common stocks
    
    
    51,735
    
    
    
    609
    
    
    
    (1,183
    )
    
    
    
    
    
    
    52,309Cash
    
    
    16,644
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    16,644Short-term investments
    
    
    206,223
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    206,223Total
    
    $
    1,951,428
    
    
    $
    56,084
    
    
    $
    (52,840
    )
    
    $
    (16,171
    )
    
    $
    1,964,355
  53




---



##### 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
    
    
    AmortizedMarch 31, 2009
    
    Value
    
    
    Gains
    
    
    (Losses)
    
    
    Cost($ in thousands)U.S. Treasury Bonds
    
    $
    310,020
    
    
    $
    17,448
    
    
    $
    (2
    )
    
    $
    292,574Agency Bonds
    
    
    77,234
    
    
    
    2,163
    
    
    
    (3
    )
    
    
    75,074Foreign Government Bonds
    
    
    11,014
    
    
    
    146
    
    
    
    (20
    )
    
    
    10,888Total
    
    $
    398,268
    
    
    $
    19,757
    
    
    $
    (25
    )
    
    $
    378,536
  54




---



##### 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
     55




---



##### Table of Contents



Gross
    
    
    Gross
    
    
    Cost orFair
    
    
    Unrealized
    
    
    Unrealized
    
    
    Amortized
    
    
    S&PValue
    
    
    Gains
    
    
    (Losses)
    
    
    Cost
    
    
    Rating($ in thousands)Issuers:Commonwealth of Massachusetts
    
    $
    15,572
    
    
    $
    829
    
    
    $
    (15
    )
    
    $
    14,758
    
    
    AAState of Wisconsin
    
    
    9,757
    
    
    
    232
    
    
    
    
    
    
    
    9,525
    
    
    AA-State of Louisiana
    
    
    9,593
    
    
    
    61
    
    
    
    (20
    )
    
    
    9,552
    
    
    A+State of Washington
    
    
    9,355
    
    
    
    508
    
    
    
    
    
    
    
    8,847
    
    
    AAState of California
    
    
    9,116
    
    
    
    68
    
    
    
    (550
    )
    
    
    9,598
    
    
    ACommonwealth of Pennsylvania
    
    
    8,361
    
    
    
    435
    
    
    
    
    
    
    
    7,926
    
    
    AAState of North Carolina
    
    
    8,131
    
    
    
    534
    
    
    
    
    
    
    
    7,597
    
    
    AAAVirginia Resources Authority
    
    
    7,819
    
    
    
    418
    
    
    
    
    
    
    
    7,401
    
    
    AAAState of Ohio
    
    
    7,785
    
    
    
    394
    
    
    
    
    
    
    
    7,391
    
    
    AA+Illinois Finance Authority
    
    
    7,642
    
    
    
    24
    
    
    
    (304
    )
    
    
    7,922
    
    
    BBB+Delaware Transportation Authority
    
    
    6,906
    
    
    
    553
    
    
    
    
    
    
    
    6,353
    
    
    AA-Adams County School District
    
    
    6,866
    
    
    
    
    
    
    
    (72
    )
    
    
    6,938
    
    
    BBB+New York Local Government Assistance
    
    
    6,772
    
    
    
    120
    
    
    
    
    
    
    
    6,652
    
    
    AA-City of Chicago
    
    
    6,711
    
    
    
    340
    
    
    
    
    
    
    
    6,371
    
    
    A-State of Maine
    
    
    6,349
    
    
    
    522
    
    
    
    
    
    
    
    5,827
    
    
    AA-Subtotal
    
    $
    126,735
    
    
    $
    5,038
    
    
    $
    (961
    )
    
    $
    122,658All Other
    
    
    483,286
    
    
    
    14,078
    
    
    
    (3,269
    )
    
    
    472,477Total
    
    $
    610,021
    
    
    $
    19,116
    
    
    $
    (4,230
    )
    
    $
    595,135
  Equivalent
    
    EquivalentS&P
    
    Moodys
    
    
    
    
    
    
    
    
    
    UnrealizedRating
    
    Rating
    
    Fair Value
    
    
    Book Value
    
    
    Gain/(Loss($ in thousands)AAA/AA/A
    
    Aaa/Aa/A
    
    $
    572,717
    
    
    $
    556,779
    
    
    $
    15,938BBB
    
    Baa
    
    
    34,008
    
    
    
    34,901
    
    
    
    (893
    )BB
    
    Ba
    
    
    1,413
    
    
    
    1,435
    
    
    
    (22
    )B
    
    B
    
    
    
    
    
    
    
    
    
    
    CCC or lower
    
    Caa or lower
    
    
    
    
    
    
    
    
    
    
    N/A
    
    N/A
    
    
    1,883
    
    
    
    2,020
    
    
    
    (137
    )Total
    
    
    
    $
    610,021
    
    
    $
    595,135
    
    
    $
    14,886
  56




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##### Table of Contents



Gross
    
    
    Gross
    
    
    Cost orFair
    
    
    Unrealized
    
    
    Unrealized
    
    
    AmortizedValue
    
    
    Gains
    
    
    (Losses)
    
    
    Cost($ in thousands)Mortgage-backed securities:GNMA
    
    $
    41,227
    
    
    $
    1,424
    
    
    $
    
    
    
    $
    39,803FNMA
    
    
    202,042
    
    
    
    9,235
    
    
    
    (1
    )
    
    
    192,808FHLMC
    
    
    71,163
    
    
    
    3,396
    
    
    
    
    
    
    
    67,767Prime
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Alt-A
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Subprime
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total
    
    $
    314,432
    
    
    $
    14,055
    
    
    $
    (1
    )
    
    $
    300,378
 Gross
    
    
    Gross
    
    
    Gross
    
    
    Cost orFair
    
    
    Unrealized
    
    
    Unrealized
    
    
    AmortizedValue
    
    
    Gains
    
    
    (Losses)
    
    
    Cost($ in thousands)Collateralized mortgage obligations:GNMA
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    FNMA
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    FHLMC
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Prime
    
    
    42,250
    
    
    
    
    
    
    
    (22,772
    )
    
    
    65,022Alt-A
    
    
    917
    
    
    
    
    
    
    
    (519
    )
    
    
    1,436Subprime
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total
    
    $
    43,167
    
    
    $
    
    
    
    $
    (23,291
    )
    
    $
    66,458
  57




---



##### Table of Contents



Issue
    
    
    Fair
    
    
    Book
    
    
    Unrealized
    
    
    S&P
    
    MoodysSecurity Description
    
    Date
    
    
    Value
    
    
    Value
    
    
    (Loss)
    
    
    Rating
    
    Rating($ in thousands)MLCC Mortgage Investors Inc 06 2
    
    
    2006
    
    
    $
    3,586
    
    
    $
    4,415
    
    
    $
    (829
    )
    
    AAA
    
    AaaWells Fargo Mortgage Backed 06 AR8
    
    
    2006
    
    
    
    3,348
    
    
    
    5,867
    
    
    
    (2,519
    )
    
    AAA
    
    NRCitigroup Mortgage Loan Trust 06 AR2
    
    
    2006
    
    
    
    3,299
    
    
    
    4,926
    
    
    
    (1,627
    )
    
    N/A
    
    A3Merrill Lynch Mortgage Backed 07 2
    
    
    2007
    
    
    
    2,773
    
    
    
    4,591
    
    
    
    (1,818
    )
    
    
    
    Aa3GMAC Mortgage Corp Loan Trust 05 AR6
    
    
    2005
    
    
    
    2,753
    
    
    
    4,243
    
    
    
    (1,490
    )
    
    AAA
    
    AaaMerrill Lynch Mortgage Investors 05 A9
    
    
    2005
    
    
    
    2,669
    
    
    
    4,170
    
    
    
    (1,501
    )
    
    AAA
    
    N/AWells Fargo Mortgage Backed 06 AR5
    
    
    2006
    
    
    
    2,098
    
    
    
    3,439
    
    
    
    (1,341
    )
    
    N/A
    
    Baa1Wells Fargo Mortgage Backed 05 AR4
    
    
    2005
    
    
    
    1,084
    
    
    
    1,455
    
    
    
    (371
    )
    
    N/A
    
    AaaBank of America Mortgage 04 F
    
    
    2004
    
    
    
    976
    
    
    
    995
    
    
    
    (19
    )
    
    AAA
    
    AaaMerrill Lynch Mortgage Investors 05 A9
    
    
    2005
    
    
    
    931
    
    
    
    1,165
    
    
    
    (234
    )
    
    AAABear Stearns Adjustable Rate 06 1
    
    
    2006
    
    
    
    702
    
    
    
    950
    
    
    
    (248
    )
    
    
    
    Aa1Master Adjustable Rate Mortage 05 6
    
    
    2005
    
    
    
    699
    
    
    
    934
    
    
    
    (235
    )
    
    AAA
    
    Baa2Bank of America Funding Corp 06 D
    
    
    2006
    
    
    
    628
    
    
    
    894
    
    
    
    (266
    )
    
    AAA
    
    N/AJP Morgan Mortgage Trust 05 A4
    
    
    2005
    
    
    
    588
    
    
    
    773
    
    
    
    (185
    )
    
    AAA
    
    AaaMortgageit Trust 05 1
    
    
    2005
    
    
    
    570
    
    
    
    838
    
    
    
    (268
    )
    
    AAA
    
    AaaSubtotal
    
    
    
    
    
    $
    26,704
    
    
    $
    39,655
    
    
    $
    (12,951
    )All Other
    
    
    
    
    
    
    16,463
    
    
    
    26,803
    
    
    
    (10,340
    )Total
    
    
    
    
    
    $
    43,167
    
    
    $
    66,458
    
    
    $
    (23,291
    )
 Gross
    
    
    Gross
    
    
    Gross
    
    
    Cost orFair
    
    
    Unrealized
    
    
    Unrealized
    
    
    AmortizedValue
    
    
    Gains
    
    
    (Losses)
    
    
    Cost($ in thousands)Asset-backed securities:GNMA
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    FNMA
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    FHLMC
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Prime
    
    
    29,117
    
    
    
    273
    
    
    
    (648
    )
    
    
    29,492Alt-A
    
    
    545
    
    
    
    
    
    
    
    (136
    )
    
    
    681Subprime
    
    
    164
    
    
    
    
    
    
    
    (69
    )
    
    
    233Total
    
    $
    29,826
    
    
    $
    273
    
    
    $
    (853
    )
    
    $
    30,406
  58




---



##### Table of Contents



Total
    
    
    Amortized
    
    
    UnrealizedAAA
    
    
    AA
    
    
    A
    
    
    BBB
    
    
    CCC
    
    
    Fair Value
    
    
    Cost
    
    
    Gain/(Loss)($ in thousands)Auto Loans
    
    $
    13,500
    
    
    $
    4,731
    
    
    $
    906
    
    
    $
    2,846
    
    
    $
    
    
    
    $
    21,983
    
    
    $
    22,429
    
    
    $
    (446
    )Credit Cards
    
    
    548
    
    
    
    
    
    
    
    
    
    
    
    269
    
    
    
    
    
    
    
    817
    
    
    
    825
    
    
    
    (8
    )Miscellaneous
    
    
    6,320
    
    
    
    
    
    
    
    545
    
    
    
    
    
    
    
    161
    
    
    
    7,026
    
    
    
    7,152
    
    
    
    (126
    )Total
    
    $
    20,368
    
    
    $
    4,731
    
    
    $
    1,451
    
    
    $
    3,115
    
    
    $
    161
    
    
    $
    29,826
    
    
    $
    30,406
    
    
    $
    (580
    )
  AverageIssue
    
    
    Fair
    
    
    Book
    
    
    Unrealized
    
    
    Underlying
    
    
    Delinq.
    
    
    Subord.
    
    
    S&P
    
    
    MoodysSecurity Description
    
    Date
    
    
    Value
    
    
    Value
    
    
    Loss
    
    
    LTV%
    
    
    Rate
    
    
    Level
    
    
    Rating
    
    
    Rating($ in thousands)Wachovia Bank Commercial Mortgage 05 C18
    
    
    2005
    
    
    $
    5,454
    
    
    $
    6,844
    
    
    $
    (1,390
    )
    
    
    72.1
    %
    
    
    0.8
    %
    
    
    31.2
    %
    
    AAA
    
    AaaGS Mortgage Securities Corp II 05 GG4
    
    
    2005
    
    
    
    4,956
    
    
    
    6,597
    
    
    
    (1,641
    )
    
    
    72.0
    %
    
    
    0.2
    %
    
    
    30.6
    %
    
    AAA
    
    AaaLB-UBS Mortgage Commercial Mortgage
Trust 06 C6
    
    
    2006
    
    
    
    4,858
    
    
    
    6,789
    
    
    
    (1,931
    )
    
    
    63.6
    %
    
    
    0.9
    %
    
    
    30.2
    %
    
    AAA
    
    AaaFour Times Square Trust 06 4TS
    
    
    2006
    
    
    
    4,756
    
    
    
    7,030
    
    
    
    (2,274
    )
    
    
    39.4
    %
    
    
    0.0
    %
    
    
    7.9
    %
    
    AA+
    
    Aa1Citigroup/Deutsche Bank Comm 05 CD1
    
    
    2005
    
    
    
    4,700
    
    
    
    5,873
    
    
    
    (1,173
    )
    
    
    68.4
    %
    
    
    0.9
    %
    
    
    30.6
    %
    
    AAA
    
    AaaLB-UBS Mortgage Commercial Mortgage
Trust 06 C7
    
    
    2006
    
    
    
    4,499
    
    
    
    6,333
    
    
    
    (1,834
    )
    
    
    63.8
    %
    
    
    1.2
    %
    
    
    30.1
    %
    
    AAA
    
    N/ABear Stearns Commercial Mortgage 06 T22
    
    
    2006
    
    
    
    4,223
    
    
    
    4,883
    
    
    
    (660
    )
    
    
    57.4
    %
    
    
    0.0
    %
    
    
    27.9
    %
    
    N/A
    
    AaaBear Stearns Commercial Mortgage 07 PW15
    
    
    2007
    
    
    
    3,728
    
    
    
    5,137
    
    
    
    (1,409
    )
    
    
    67.6
    %
    
    
    0.1
    %
    
    
    30.2
    %
    
    AAA
    
    AaaBanc of America Commercial Mortgage 07 1
    
    
    2007
    
    
    
    3,496
    
    
    
    4,783
    
    
    
    (1,287
    )
    
    
    70.1
    %
    
    
    1.0
    %
    
    
    30.4
    %
    
    N/A
    
    AaaMorgan Stanley Capital I 07 HQ11
    
    
    2007
    
    
    
    3,327
    
    
    
    4,791
    
    
    
    (1,464
    )
    
    
    69.6
    %
    
    
    1.4
    %
    
    
    30.1
    %
    
    AAA
    
    AaaCommercial Mortgage Pass Throu 05 C6
    
    
    2005
    
    
    
    3,129
    
    
    
    4,054
    
    
    
    (925
    )
    
    
    71.3
    %
    
    
    4.0
    %
    
    
    30.3
    %
    
    AAA
    
    AaaMerrill Lynch Mortgage Trust 05 CIP1
    
    
    2005
    
    
    
    3,099
    
    
    
    4,034
    
    
    
    (935
    )
    
    
    68.8
    %
    
    
    1.0
    %
    
    
    30.8
    %
    
    N/A
    
    AaaMorgan Stanley Capital I 04 T13
    
    
    2004
    
    
    
    2,655
    
    
    
    3,324
    
    
    
    (669
    )
    
    
    58.8
    %
    
    
    0.0
    %
    
    
    15.2
    %
    
    N/A
    
    AaaCitigroup Cmmercial Mortgage 06 C5
    
    
    2006
    
    
    
    2,423
    
    
    
    3,513
    
    
    
    (1,090
    )
    
    
    68.6
    %
    
    
    1.6
    %
    
    
    30.2
    %
    
    N/A
    
    AaaGE Capital Commercial Mortgage 02 1A
    
    
    2002
    
    
    
    2,417
    
    
    
    2,504
    
    
    
    (87
    )
    
    
    72.1
    %
    
    
    1.5
    %
    
    
    24.1
    %
    
    N/A
    
    AaaSubtotal
    
    
    
    
    
    $
    57,720
    
    
    $
    76,489
    
    
    $
    (18,769
    )All Other
    
    
    
    
    
    
    31,928
    
    
    
    36,655
    
    
    
    (4,727
    )Total
    
    
    
    
    
    $
    89,648
    
    
    $
    113,144
    
    
    $
    (23,496
    )
  59




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PercentRating
    
    
    
    
    
    
    
    toDescription
    
    Rating
    
    Amount
    
    
    Total($ in thousands)Extremely Strong
    
    AAA
    
    $
    1,179,106
    
    
    
    63
    %Very Strong
    
    AA
    
    
    360,571
    
    
    
    19
    %Strong
    
    A
    
    
    236,168
    
    
    
    13
    %Adequate
    
    BBB
    
    
    100,120
    
    
    
    5
    %Speculative
    
    BB & below
    
    
    5,201
    
    
    
    0
    %Not Rated
    
    NR
    
    
    1,883
    
    
    
    0
    %Total
    
    
    
    $
    1,883,049
    
    
    
    100
    %
  Gross
    
    
    Gross
    
    
    Cost orFair
    
    
    Unrealized
    
    
    Unrealized
    
    
    AmortizedValue
    
    
    Gains
    
    
    (Losses)
    
    
    Cost($ in thousands)Credit enhanced securities:States, municipalities and political
subdivisions
    
    $
    319,932
    
    
    $
    8,953
    
    
    $
    (2,485
    )
    
    $
    313,464Mortgage- and asset-backed securities
    
    
    8,484
    
    
    
    4
    
    
    
    (366
    )
    
    
    8,846Corporate bonds
    
    
    1,556
    
    
    
    
    
    
    
    (57
    )
    
    
    1,613Total
    
    $
    329,972
    
    
    $
    8,957
    
    
    $
    (2,908
    )
    
    $
    323,923
 AverageGross
    
    
    Gross
    
    
    Cost or
    
    
    UnderlyingFair
    
    
    Unrealized
    
    
    Unrealized
    
    
    Amortized
    
    
    CreditValue
    
    
    Gains
    
    
    (Losses)
    
    
    Cost
    
    
    Rating($ in thousands)Financial guarantors:AMBAC
    
    $
    66,286
    
    
    $
    1,623
    
    
    $
    (672
    )
    
    $
    65,335
    
    
    A+Assured Guaranty LTD
    
    
    3,821
    
    
    
    2
    
    
    
    (93
    )
    
    
    3,912
    
    
    AFGIC
    
    
    51,893
    
    
    
    1,326
    
    
    
    (495
    )
    
    
    51,062
    
    
    AA-Financial Security Assurance
    
    
    91,036
    
    
    
    3,163
    
    
    
    (383
    )
    
    
    88,256
    
    
    AA-MBIA
    
    
    104,560
    
    
    
    2,621
    
    
    
    (732
    )
    
    
    102,671
    
    
    AA-Radian
Group, Inc.
    
    
    5,170
    
    
    
    55
    
    
    
    (400
    )
    
    
    5,515
    
    
    AXL Capital
    
    
    7,206
    
    
    
    167
    
    
    
    (133
    )
    
    
    7,172
    
    
    A+Total
    
    $
    329,972
    
    
    $
    8,957
    
    
    $
    (2,908
    )
    
    $
    323,923
    
    
    AA-
  60




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61




---



##### Table of Contents



Gross
    
    
    Gross
    
    
    Cost orFair
    
    
    Unrealized
    
    
    Unrealized
    
    
    Amortized
    
    
    S&PValue
    
    
    Gains
    
    
    (Losses)
    
    
    Cost
    
    
    Rating($ in thousands)Issuers:Bank of America Corp.
    
    $
    6,774
    
    
    $
    
    
    
    $
    (1,269
    )
    
    $
    8,043
    
    
    A-Citigroup,
Inc.
    
    
    6,292
    
    
    
    
    
    
    
    (1,081
    )
    
    
    7,373
    
    
    BBB+Wells Fargo
& Co.
    
    
    5,195
    
    
    
    
    
    
    
    (385
    )
    
    
    5,580
    
    
    A+Morgan Stanley
    
    
    4,679
    
    
    
    
    
    
    
    (270
    )
    
    
    4,949
    
    
    A-Goldman Sachs Group
    
    
    4,638
    
    
    
    
    
    
    
    (782
    )
    
    
    5,420
    
    
    A-General Electric
    
    
    4,459
    
    
    
    
    
    
    
    (371
    )
    
    
    4,830
    
    
    AAPfizer Inc.
    
    
    3,387
    
    
    
    191
    
    
    
    
    
    
    
    3,196
    
    
    AAEli Lilly
& Co.
    
    
    3,343
    
    
    
    95
    
    
    
    
    
    
    
    3,248
    
    
    A+Pepsi
Bottling Group Inc.
    
    
    3,268
    
    
    
    155
    
    
    
    
    
    
    
    3,113
    
    
    ABank of New York
    
    
    3,248
    
    
    
    70
    
    
    
    (19
    )
    
    
    3,197
    
    
    A+AT&T,
Inc.
    
    
    2,932
    
    
    
    22
    
    
    
    (172
    )
    
    
    3,082
    
    
    ACargill, Inc.
    
    
    2,778
    
    
    
    
    
    
    
    (46
    )
    
    
    2,824
    
    
    AVerizon
Communications Inc.
    
    
    2,721
    
    
    
    28
    
    
    
    
    
    
    
    2,693
    
    
    BBBConoco Phillips
    
    
    2,645
    
    
    
    113
    
    
    
    
    
    
    
    2,532
    
    
    AProgress
Energy, Inc.
    
    
    2,529
    
    
    
    25
    
    
    
    
    
    
    
    2,504
    
    
    BBBSubtotal
    
    $
    58,888
    
    
    $
    699
    
    
    $
    (4,395
    )
    
    $
    62,584All Other
    
    
    132,576
    
    
    
    1,560
    
    
    
    (11,522
    )
    
    
    142,538Total
    
    $
    191,464
    
    
    $
    2,259
    
    
    $
    (15,917
    )
    
    $
    205,122
     62




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##### Table of Contents



Gross
    
    
    Gross
    
    
    Cost orFair
    
    
    Unrealized
    
    
    Unrealized
    
    
    AmortizedValue
    
    
    Gains
    
    
    (Losses)
    
    
    Cost($ in thousands)Issuers:Vanguard Total Stock Market Index
    
    $
    3,228
    
    
    $
    
    
    
    $
    
    
    
    $
    3,228Vanguard Pacific Stock Index
    
    
    2,818
    
    
    
    
    
    
    
    
    
    
    
    2,818Vanguard European Stock Index
    
    
    2,446
    
    
    
    
    
    
    
    
    
    
    
    2,446Vanguard Emerging Market Stock Inde
    
    
    2,388
    
    
    
    8
    
    
    
    
    
    
    
    2,380Chevron Corp
    
    
    1,822
    
    
    
    176
    
    
    
    
    
    
    
    1,646Johnson & Johnson
    
    
    1,683
    
    
    
    
    
    
    
    (201
    )
    
    
    1,884Barclays PLC
    
    
    1,647
    
    
    
    
    
    
    
    
    
    
    
    1,647State Street Corp.
    
    
    1,311
    
    
    
    46
    
    
    
    
    
    
    
    1,265Bristol-Myers Squibb Co.
    
    
    1,238
    
    
    
    89
    
    
    
    
    
    
    
    1,149Altria Group
    
    
    1,190
    
    
    
    46
    
    
    
    
    
    
    
    1,144BP PLC
    
    
    1,135
    
    
    
    
    
    
    
    
    
    
    
    1,135Nolia OYJ
    
    
    1,126
    
    
    
    
    
    
    
    
    
    
    
    1,126ConocoPhillips
    
    
    1,104
    
    
    
    
    
    
    
    
    
    
    
    1,104FPL Group
Inc.
    
    
    1,103
    
    
    
    127
    
    
    
    
    
    
    
    976AT&T
Inc.
    
    
    1,093
    
    
    
    13
    
    
    
    
    
    
    
    1,080Subtotal
    
    $
    25,332
    
    
    $
    505
    
    
    $
    (201
    )
    
    $
    25,028All Other
    
    
    26,403
    
    
    
    104
    
    
    
    (982
    )
    
    
    27,281Total
    
    $
    51,735
    
    
    $
    609
    
    
    $
    (1,183
    )
    
    $
    52,309
  63




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##### Table of Contents



March 31, 2009
    
    
    December 31, 2008Fair
    
    
    Gross
    
    
    Fair
    
    
    GrossValue
    
    
    Unrealized Loss
    
    
    Value
    
    
    Unrealized Loss($ in thousands)Fixed Maturities:U.S. Government Treasury and Agency
Bonds and foreign government bonds0-6 Months
    
    $
    4,145
    
    
    $
    25
    
    
    $
    3,862
    
    
    $
    1457-12 Months
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    > 12 Months
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Subtotal
    
    
    4,145
    
    
    
    25
    
    
    
    3,862
    
    
    
    145States, municipalities and
political subdivisions0-6 Months
    
    
    47,983
    
    
    
    704
    
    
    
    68,727
    
    
    
    2,1877-12 Months
    
    
    39,666
    
    
    
    1,282
    
    
    
    118,910
    
    
    
    4,376> 12 Months
    
    
    42,095
    
    
    
    2,244
    
    
    
    15,918
    
    
    
    1,473Subtotal
    
    
    129,744
    
    
    
    4,230
    
    
    
    203,555
    
    
    
    8,036Mortgage- and asset-backed securities0-6 Months
    
    
    4,623
    
    
    
    40
    
    
    
    30,670
    
    
    
    9397-12 Months
    
    
    37,388
    
    
    
    4,364
    
    
    
    80,618
    
    
    
    26,966> 12 Months
    
    
    107,162
    
    
    
    43,252
    
    
    
    66,218
    
    
    
    20,879Subtotal
    
    
    149,173
    
    
    
    47,656
    
    
    
    177,506
    
    
    
    48,784Corporate bonds0-6 Months
    
    
    22,335
    
    
    
    1,733
    
    
    
    57,805
    
    
    
    2,4457-12 Months
    
    
    51,700
    
    
    
    4,569
    
    
    
    57,971
    
    
    
    5,893> 12 Months
    
    
    37,345
    
    
    
    9,615
    
    
    
    27,873
    
    
    
    6,322Subtotal
    
    
    111,380
    
    
    
    15,917
    
    
    
    143,649
    
    
    
    14,660Total Fixed Maturities
    
    $
    394,442
    
    
    $
    67,828
    
    
    $
    528,572
    
    
    $
    71,625Equity securities  common stocks0-6 Months
    
    $
    6,934
    
    
    $
    1,175
    
    
    $
    8,991
    
    
    $
    1,9417-12 Months
    
    
    173
    
    
    
    8
    
    
    
    351
    
    
    
    46> 12 Months
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total Equity Securities
    
    $
    7,107
    
    
    $
    1,183
    
    
    $
    9,342
    
    
    $
    1,987
   64




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##### Table of Contents



6 monthsLonger than 3
    
    
    or longer, lessLess than 3
    
    
    months, less
    
    
    than 12
    
    
    12 monthsmonths
    
    
    than 6 months
    
    
    months
    
    
    or longer
    
    
    Total($ in thousands)Fixed Maturities
    
    $
    (282
    )
    
    $
    (712
    )
    
    $
    (4,008
    )
    
    $
    (47,636
    )
    
    $
    (52,638
    )Equity Securities
    
    
    (622
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (622
    )Total
    
    $
    (904
    )
    
    $
    (712
    )
    
    $
    (4,008
    )
    
    $
    (47,636
    )
    
    $
    (53,260
    )
      March 31, 2009($ in thousands)Beginning Balance at January 1, 2009
    
    $
    Credit Losses on Securities not previously impaired
    
    
    1,797Ending balance at March 31,2009
    
    $
    1,797
  65




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##### 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
    
    $
    53,610
    
    
    
    80
    %
    
    $
    310,743
    
    
    
    80
    %2
    
    BBB
    
    Baa
    
    
    12,341
    
    
    
    18
    %
    
    
    76,615
    
    
    
    19
    %3
    
    BB
    
    Ba
    
    
    1,246
    
    
    
    2
    %
    
    
    4,332
    
    
    
    1
    %4
    
    B
    
    B
    
    
    426
    
    
    
    
    
    
    
    708
    
    
    
    5
    
    CCC or lower
    
    Caa or lower
    
    
    68
    
    
    
    
    
    
    
    161
    
    
    
    6
    
    N/A
    
    N/A
    
    
    137
    
    
    
    
    
    
    
    1,883
    
    
    
    Total
    
    
    
    $
    67,828
    
    
    
    100
    %
    
    $
    394,442
    
    
    
    100
    %
   GrossUnrealized Loss
    
    
    Fair ValuePercent
    
    
    
    
    
    
    PercentAmount
    
    
    to Total
    
    
    Amount
    
    
    to Total($ in thousands)Due in one year or less
    
    $
    83
    
    
    
    0
    %
    
    $
    5,367
    
    
    
    1
    %Due after one year through five years
    
    
    5,902
    
    
    
    9
    %
    
    
    82,747
    
    
    
    21
    %Due after five years through ten years
    
    
    7,726
    
    
    
    11
    %
    
    
    68,939
    
    
    
    17
    %Due after ten years
    
    
    6,461
    
    
    
    10
    %
    
    
    88,216
    
    
    
    22
    %Mortgage- and asset-backed securities
    
    
    47,656
    
    
    
    70
    %
    
    
    149,173
    
    
    
    39
    %Total fixed income securities
    
    $
    67,828
    
    
    
    100
    %
    
    $
    394,442
    
    
    
    100
    %
   66




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##### Table of Contents



Three Months Ended March 31,2009
    
    
    2008($ in thousands)Fixed maturities:Gains
    
    $
    2,932
    
    
    $
    197(Losses)
    
    
    (3,302
    )
    
    
    (9
    )(Impairments)
    
    
    (2,361
    )
    
    
    (2,731
    )
    
    
    188Equity securities:Gains
    
    
    13
    
    
    
    263(Losses)
    
    
    (1,180
    )
    
    
    (527
    )(Impairments)
    
    
    (8,339
    )
    
    
    (9,506
    )
    
    
    (264
    )Net realized capital gains (losses)
    
    $
    (12,237
    )
    
    $
    (76
    )
  Reinsurance Recoverables
      67




---



##### Table of Contents



Liquidity and Capital Resources
          68




---



##### Table of Contents



69




---



##### Table of Contents



March 31,
    
    
    December 31,2009
    
    
    2008($ in thousands)Senior debt
    
    $
    123,825
    
    
    $
    123,794Stockholders equity
    
    
    712,454
    
    
    
    689,317Total capitalization
    
    $
    836,279
    
    
    $
    813,111Ratio of debt to total capitalization
    
    
    14.8
    %
    
    
    15.2
    %
      70




---



##### Table of Contents



March 31,
    
    
    December 31,2009
    
    
    2008($ in thousands)Cash and investments
    
    $
    80,257
    
    
    $
    52,149Investments in subsidiaries
    
    
    762,898
    
    
    
    751,864Goodwill and other intangible assets
    
    
    2,534
    
    
    
    2,534Other assets
    
    
    (5,269
    )
    
    
    8,769Total assets
    
    $
    840,420
    
    
    $
    815,316Accounts payable and other liabilities
    
    $
    495
    
    
    $
    747Accrued interest payable
    
    
    3,646
    
    
    
    1,4587% Senior Notes due May 1, 2016
    
    
    123,825
    
    
    
    123,794Total liabilities
    
    
    127,966
    
    
    
    125,999Stockholders equity
    
    
    712,454
    
    
    
    689,317Total liabilities and stockholders equity
    
$
    840,420
    
    $
    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 first 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
   71




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##### Table of Contents



Item 1A. Risk Factors
  
 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
  
 Item 3. Defaults Upon Senior Securities
  
 Item 4. Submissions of Matters to a Vote of Security Holders
  
 Item 5. Other Information
  
 Item 6. Exhibits
 Exhibit No.
    
    Description of Exhibit11-1
    
    Statement re Computation of Per Share Earnings *31-1
    
    Certification of CEO per Section 302 of the Sarbanes-Oxley Act *31-2
    
    Certification of CFO per Section 302 of the Sarbanes-Oxley Act *32-1
    
    Certification of CEO per Section 906 of the Sarbanes-Oxley Act *(This exhibit is intended to be furnished in accordance
with Regulation S-K item 601(b)(32)(ii) and shall not be
deemed to be filed for purposes of section 18 of the
Securities Exchange Act of 1934, as amended, or
incorporated by reference into any filing under the
Securities Act of 1933, except as shall be expressly set
forth by specific reference).32-2
    
    Certification of CFO per Section 906 of the
Sarbanes-Oxley Act *(This exhibit is intended to be furnished in accordance
with Regulation S-K item 601(b)(32)(ii) and shall not be
deemed to be filed for purposes of section 18 of the
Securities Exchange Act of 1934, as amended, or
incorporated by reference into any filing under the
Securities Act of 1933, except as shall be expressly set
forth by specific reference).
 *
    
    Included herein.  72




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##### Table of Contents



The Navigators Group, Inc.(Registrant)Date:  May 1, 2009
    /s/ Francis W. McDonnellFrancis W. McDonnellSenior Vice President
and Chief Financial Officer  73




---



##### Table of Contents



INDEX OF EXHIBITS
 Exhibit No.
    
    Description of Exhibit11-1
    
    Statement re Computation of Per Share Earnings *31-1
    
    Certification of CEO per Section 302 of the Sarbanes-Oxley Act *31-2
    
    Certification of CFO per Section 302 of the Sarbanes-Oxley Act *32-1
    
    Certification of CEO per Section 906 of the Sarbanes-Oxley Act *(This exhibit is intended to be furnished in accordance
with Regulation S-K item 601(b)(32)(ii) and shall not be
deemed to be filed for purposes of section 18 of the
Securities Exchange Act of 1934, as amended, or
incorporated by reference into any filing under the
Securities Act of 1933, except as shall be expressly set
forth by specific reference).32-2
    
    Certification of CFO per Section 906 of the Sarbanes-Oxley Act *(This exhibit is intended to be furnished in accordance
with Regulation S-K item 601(b)(32)(ii) and shall not be
deemed to be filed for purposes of section 18 of the
Securities Exchange Act of 1934, as amended, or
incorporated by reference into any filing under the
Securities Act of 1933, except as shall be expressly set
forth by specific reference).
 
 *
    
    Included herein.  74