UNITED STATESSECURITIES AND EXCHANGE COMMISSIONWASHINGTON, D.C. 20549



FORM10-K

(Mark One)

|                                                                    |  |                                                                                        
|------------------------------------------------------------------- |  | ---------------------------------------------------------------------------------------
|S                                                                   |  | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THESECURITIES EXCHANGE ACT OF 1934    
|FOR THE FISCAL YEAR ENDED DECEMBER 31, 2007OR                      
|£                                                                   |  | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THESECURITIES EXCHANGE ACT OF 1934
|FOR THE TRANSITION PERIOD FROM   TO  COMMISSION FILE NUMBER 1-10545



TRANSATLANTIC HOLDINGS, INC.(Exact name of registrant as specified in its charter)



|                                                                           |  |                                               
|-------------------------------------------------------------------------- |  | ----------------------------------------------
|Delaware(State or other jurisdiction ofincorporation or organization)      |  | 13-3355897(I.R.S. Employer Identification No.)
|80 Pine Street, New York, New York(Address of principal executive offices) |  | 10005(Zip Code)                               

(212) 770-2000(Registrants telephone number, including area code)



Securities registered pursuant to Section 12(b) of the Act:

|                                        |  |                                         
|--------------------------------------- |  | ----------------------------------------
|Title of Each Class                     |  | Name of Each Exchange onWhich Registered
|Common Stock, Par Value $1.00 per Share |  | New York Stock Exchange, Inc.           

Securities registered pursuant to Section 12(g) of the Act:None



Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. YesRNo£

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes£NoR

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or such shorter
  period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.   YesRNo£

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (Section 229.405 of this chapter) is not contained herein, and will not be contained, to the best of
  registrants knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.£

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of large accelerated filer,
  accelerated filer, and smaller reporting company in Rule 12b-2 of the Exchange Act. (check one):Large accelerated filerRAccelerated filer£Non-accelerated filer£Smaller reporting company£

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes£NoR

The aggregate market value of the voting and non-voting common equity held by non-affiliates of the registrant computed by reference to the price at which the common equity was last sold, as of June
  30, 2007 (the last business day of the registrants most recently completed second fiscal quarter) was approximately $1,912,278,267.

As of January 31, 2008, there were outstanding 66,234,360 shares of Common Stock, $1.00 par value, of the registrant.



Documents Incorporated by Reference

Portions of the registrants definitive proxy statement filed or to be filed with the Securities and Exchange Commission pursuant to Regulation 14A involving the election of directors at the annual
  meeting of the stockholders of the registrant scheduled to be held on May 22, 2008 are incorporated by reference in Part III of this Form 10-K.





---

TRANSATLANTIC HOLDINGS, INC. AND SUBSIDIARIESTABLE OF CONTENTS
PagePART IItem 1.
    
    Business
    
    1Item 1A.
    
    Risk Factors
    
    19Item 1B.
    
    Unresolved Staff Comments
    
    26Item 2.
    
    Properties
    
    26Item 3.
    
    Legal Proceedings
    
    26Item 4.
    
    Submission of Matters to a Vote of Security Holders
    
    26PART IIItem 5.
    
    Market for the Registrants Common Equity, Related Stockholder Matters and
      Issuer Purchases of Equity Securities
    
    27Item 6.
    
    Selected Financial Data
    
    29Item 7.
    
    Managements Discussion and Analysis of Financial Condition and Results of
      Operations
    
    31Item 7A.
    
    Quantitative and Qualitative Disclosures About Market Risk
    
    62Item 8.
    
    Financial Statements and Supplementary Data
    
    63Item 9.
    
    Changes in and Disagreements With Accountants on Accounting and Financial
      Disclosure
    
    101Item 9A.
    
    Controls and Procedures
    
    101Item 9B.
    
    Other Information
    
    101PART IIIItem 10.
    
    Directors, Executive Officers and Corporate Governance
    
    101Item 11.
    
    Executive Compensation
    
    103Item 12.
    
    Security Ownership of Certain Beneficial Owners and Management and Related
      Stockholder Matters
    
    103Item 13.
    
    Certain Relationships and Related Transactions, and Director Independence
    
    103Item 14.
    
    Principal Accounting Fees and Services
    
    103PART IVItem 15.
    
    Exhibits and Financial Statement Schedules
    
    104

PART I
Item 1. Business
Introduction
Transatlantic Holdings, Inc. (the Company, and collectively with its subsidiaries, TRH) is a holding company incorporated in the state of Delaware. Originally formed in 1986 under the name
  PREINCO Holdings, Inc. as a holding company for Putnam Reinsurance Company (Putnam), the Companys name was changed to Transatlantic Holdings, Inc. on April 18, 1990 following the acquisition
  on April 17, 1990 of all of the common stock of Transatlantic Reinsurance Company®(TRC) in exchange for shares of Common Stock of the Company (the Share Exchange). Prior to the Share Exchange,
  American International Group, Inc. (AIG, and collectively, with its subsidiaries, the AIG Group) held a direct and indirect interest of approximately 25% in the Company and an indirect interest of
  49.99% in TRC. As a result of the Share Exchange, AIG became the beneficial owner of approximately 41% of the Companys outstanding Common Stock and TRC became a wholly-owned subsidiary of the
  Company. In June 1990, certain stockholders of the Company (other than AIG) sold shares of the Companys Common Stock (TRH shares) in a public offering. As of December 31, 2007, 2006 and 2005,
  AIG beneficially owned approximately 59% of the Companys outstanding shares.
The Company, through its wholly-owned subsidiaries, TRC, Trans Re Zurich (TRZ), acquired by TRC in 1996, and Putnam (contributed by the Company to TRC in 1995), offers reinsurance capacity
  for a full range of property and casualty products on both a treaty and facultative basis. These products are offered directly and through brokers, to insurance and reinsurance companies, in both the domestic
  and international markets. One or both of TRC and Putnam is licensed, accredited, authorized or can serve as a reinsurer in 50 states and the District of Columbia in the United States and in Puerto Rico and
  Guam. TRC is licensed in Canada, Japan, the United Kingdom, the Dominican Republic, the Hong Kong Special Administrative Region, Peoples Republic of China and Australia. In addition, TRC is
  registered or authorized as a foreign reinsurer in Argentina (where it maintains a representative office in Buenos Aires, Transatlantic Re (Argentina) S.A.), Brazil (where it maintains a representative office in
  Rio de Janeiro, Transatlantic Re (Brasil) Ltda.), the Republic of Panama (where it maintains a representative office, TRC (PANAMÁ) S.A.), Bolivia, Chile, Colombia, Ecuador, El Salvador, France,
  Guatemala, Honduras, Mexico, Nicaragua, Paraguay, Peru, Uruguay, Venezuela and is authorized to maintain a representative office in Shanghai, Peoples Republic of China. TRZ is licensed as a reinsurer in
  Switzerland and registered in Paraguay, Ecuador, Argentina, Honduras, El Salvador, Dominican Republic, Brazil and Colombia. Transatlantic Polska Sp. z o.o., a subsidiary of TRC, maintains a registered
  representative office in Warsaw, Poland.
TRHs principal lines of reinsurance include other liability (including directors and officers liability (D&O), errors and omissions liability (E&O) and general casualty), medical malpractice, ocean
  marine and aviation, auto liability (including non-standard risks), accident and health (A&H) and surety and credit in the casualty lines, and fire, allied lines, auto physical damage and homeowners multiple
  peril lines in the property lines. Reinsurance is provided for most major lines of insurance on both excess-of-loss and pro rata bases.
TRHs website, which can be found on the Internet at http://www.transre.com, contains frequently updated information about the Company and its operations. Copies of TRHs recent Forms 10-K, Forms
  10-Q and Forms 8-K, and all amendments to those reports, can be accessed free of charge as soon as reasonably practicable after the reports and amendments are electronically filed with or furnished to the
  Securities and Exchange Commission by selecting SEC Filings on the drop-down menu under Investor Information. TRH also makes available on its corporate website copies of its charters for its Audit,
  Nominating and Corporate Governance and Compensation Committees, as well as its Corporate Governance Guidelines, Director Independence Standards, Director, Executive Officer and Senior Financial
  Officer Code of Business Conduct & Ethics, Employee Code of Conduct and Related-Party Transaction Approval Policy.
1

In addition, copies of any of TRHs reports on Form 10-K, Form 10-Q and Form 8-K, and all amendments to those reports, as well as any Quarterly Earnings Press Release may be obtained by contacting
  TRHs Investor Relations Department at:
Transatlantic Holdings, Inc.80 Pine StreetNew York, New York 10005Telephone: (212) 770-2040Telefax: (212) 248-0965E-mail: investor_relations@transre.comThroughout this Annual Report on Form 10-K, TRH presents its operations in the way it believes will be most meaningful. TRHs unpaid losses and loss adjustment expenses, net of related reinsurance
  recoverable, and TRHs combined ratio and its components are presented in accordance with principles prescribed or permitted by insurance regulatory authorities as these are standard measures in the
  insurance and reinsurance industries.
The Reinsurance Business
Reinsurance is an arrangement whereby one or more companies, the reinsurer(s), agrees to indemnify another (re)insurance company, the ceding company, for all or part of the insurance risks
  underwritten by the ceding company. Reinsurance can provide certain basic benefits to the ceding company. It reduces net liability on individual risks, thereby enabling the ceding company to underwrite
  more business than its own resources can support and it provides catastrophe protection to lessen the impact of large or multiple losses.
There are two major classes of reinsurance: treaty reinsurance and facultative reinsurance. Treaty reinsurance is a contractual arrangement that provides for the automatic reinsuring of a type or
  category of risk underwritten by the ceding company. Facultative reinsurance is the reinsurance of individual risks. Rather than agreeing to reinsure all or a portion of a class of risk, the reinsurer separately
  rates and underwrites each risk. Facultative reinsurance is normally purchased for risks not covered by treaty reinsurance or for individual risks covered by reinsurance treaties that are in need of capacity
  beyond that provided by such treaties.
A ceding companys reinsurance program may involve pro rata and excess-of-loss reinsurance on both a treaty and facultative basis. Under pro rata reinsurance (also referred to as proportional), the
  ceding company and the reinsurer share the premiums as well as the losses and expenses in an agreed proportion. As pro rata business is a proportional sharing of premiums and losses between ceding
  company and reinsurer, generally, the underwriting results of such business more closely reflect the underwriting results of the business ceded than do the results of excess-of-loss business. In pro rata
  reinsurance, the reinsurer generally pays the ceding company a ceding commission. Generally, the ceding commission is based on the ceding companys cost of obtaining the business being reinsured (i.e.,
  brokers and agents commissions, local taxes and administrative expenses).
Under excess-of-loss reinsurance, the reinsurer agrees to reimburse the ceding company for all losses in excess of a predetermined amount up to a predetermined limit. Premiums paid by the ceding
  company to the reinsurer for excess-of-loss coverage are generally not proportional to the premiums that the ceding company receives because the reinsurer does not assume a proportionate risk. Often
  there is no ceding commission on excess-of-loss reinsurance and therefore the pricing mechanism used by reinsurers in those instances is a rate applicable to premiums of the individual policy or policies
  subject to the reinsurance agreement.
In general, casualty insurance protects the insured against financial loss arising out of its obligation to others for loss or damage to their person or property. Property insurance protects the insured
  against financial loss arising out of the loss of property or its use caused by an insured peril. Property and casualty reinsurance protects the ceding company against loss to the extent of the reinsurance
  coverage provided.
Casualty insurance can be written on a claims-made or an occurrence basis. Claims-made policies generally provide coverage for claims made during the policy period regardless of when the act causing
2

the claim occurred. Occurrence policies generally provide coverage in perpetuity for acts committed during the policy period regardless of when the claim is made. Depending on the nature of the business
  and statute of limitations, the final claims costs for occurrence business can take many years to be definitively known given that new claims can come in at any time and existing claims may continue to
  develop. Claims-made business, while also taking a significant time to finalize claims costs, due to the development of open claims, generally has a shorter period for completion as the number of claims is
  known shortly after the policy expires.
Casualty business as a whole is volatile in that the ultimate claims costs for a policy or portfolio are not known for a significant amount of time. Reasons for this are the complexity of liability theory,
  the occurrence nature of some coverages, the potential for litigation, adverse court rulings, unpredictable claims and social inflation trends and reporting lag time between cedents and reinsurers.
Property reinsurance is written on an occurrence basis, but, because the loss is generally immediate and manifest, claims are adjusted and closed in a much shorter period. However, due to the
  unpredictable nature of fires, hurricanes, earthquakes and other natural or man-made catastrophic events as well as the imperfect models that exist in measuring the probability and potential magnitude of
  costs from these events, there is a great deal of volatility in property reinsurance as well.
General
TRHs activities in the United States are conducted through its worldwide headquarters in New York, N.Y., its branch in Miami, FL and offices in Chicago, IL, Overland Park, KS, San Francisco, CA,
  Columbus, OH and Stamford, CT. All domestic treaty and facultative business is underwritten by, or under the supervision of, senior officers of TRH located in New York. TRHs headquarters in New
  York and offices in Miami, Toronto, London, Paris, Zurich, Hong Kong, Tokyo and Sydney offer treaty as well as facultative reinsurance. In addition, TRH operates representative offices in Buenos Aires,
  Rio de Janeiro, Panama, Warsaw and Shanghai, maintains exclusive representative arrangements with MS Upson Associates c.c. in Johannesburg, South Africa and with NOBARE in Stockholm, Sweden
  and maintains an arrangement with Momentum Underwriting Management, Ltd. (Momentum Underwriting) in London, England. Momentum Underwriting has the underwriting authority to bind TRH,
  pursuant to strict underwriting guidelines. TRH also operates Professional Risk Management Services, Inc. (PRMS), its wholly-owned subsidiary. Based in Arlington, VA, PRMS is an insurance program
  manager specializing in professional liability insurance services, including underwriting, claims, and risk management, for individual healthcare providers, group practices, facilities and organizations.
TRH reinsures risks from a broad spectrum of industries throughout the United States and foreign countries. Business underwritten by all branches located outside the United States and by the Miami
  branch (which underwrites business in Latin America and the Caribbean) accounted for approximately 51%, 52% and 55% of worldwide net premiums written in 2007, 2006 and 2005, respectively. The
  London branch had net premiums written totaling $813.2 million, $744.5 million and $759.3 million in 2007, 2006 and 2005, respectively, representing 21%, 20% and 22%, respectively, of worldwide net
  premiums written in each of those years. TRZ had net premiums written totaling $366.7 million, $342.6 million and $369.2 million in 2007, 2006 and 2005, respectively, representing 9%, 9% and 11%,
  respectively, of worldwide net premiums written in each of those years. (See Managements Discussion and Analysis of Financial Condition and Results of Operations (MD&A) for a discussion of premium
  fluctuations between years, Regulation for a discussion of certain conditions associated with international business and Note 16 of Notes to Consolidated Financial Statements for financial data by business
  segment.)
A portion of the reinsurance written by TRH is assumed from other subsidiaries of AIG and therefore generally reflects their underwriting philosophy and diversified insurance products, except for
  insurance business written by other subsidiaries of AIG that is almost entirely reinsured by TRH by prearrangement. Approximately $555 million (13%), $593 million (15%) and $575 million (15%) of gross
  premiums written by TRH in the years 2007, 2006 and 2005, respectively, were attributable to reinsurance purchased by other subsidiaries of AIG. (See Relationship with the AIG Group.)
In addition, TRH holds a 40% interest in Kuwait Reinsurance Company (K.S.C.) (Kuwait Re), acquired in 2000, which has a balance sheet carrying value of $52.8 million at December 31, 2007.
3

Kuwait Re provides property, casualty and life reinsurance products to clients in Middle Eastern and North African markets.
TRC and Putnam have a quota share reinsurance agreement where TRC cedes 5% of its assumed reinsurance, net of other retrocessions, to Putnam. Presently all of Putnams business is assumed from
  TRC pursuant to this quota share reinsurance agreement. This agreement was entered into for operational reasons and had no impact on TRHs financial position or results of operations.
In general, the overall operating results (including investment performance) and other changes to stockholders equity of property and casualty insurance and reinsurance companies, and TRH, in
  particular, are subject to significant fluctuations due to competition, natural and man-made catastrophic events, economic and social conditions, foreign currency exchange rate fluctuations, interest rates,
  operating performance and prospects of investee companies and other factors, such as changes in tax laws, tort laws and the regulatory environment.
Operating results in 2007, 2006 and 2005 included pre-tax net catastrophe costs of $55 million, $29 million and $544 million, respectively. (See MD&A.)
TRH seeks to focus on more complex risks within the casualty and property lines, and to adjust its mix of business to take advantage of market opportunities. Casualty reinsurance constitutes the larger
  portion of TRHs business, accounting for 71% of net premiums written in 2007, 73% in 2006 and 70% in 2005. The following table presents certain underwriting information concerning TRHs casualty and
  property business for the periods indicated (see MD&A):
Years Ended December 31,Net Premiums Written
    
    Net Premiums Earned
    
    Net Losses and LossAdjustmentExpenses Incurred
    
    Loss and LossAdjustmentExpenseRatio2007
    
    2006
    
    2005
    
    2007
    
    2006
    
    2005
    
    2007
    
    2006
    
    2005
    
    2007
    
    2006
    
    2005(dollars in millions)Casualty:Other liability(1)(2)(3)(4)
    
    
    $
    
    1,040.4
    
    
    
    $
    
    1,003.4
    
    
    
    $
    
    865.3
    
    
    
    $
    
    1,043.9
    
    
    
    $
    
    899.6
    
    
    
    $
    
    830.2
    
    
    
    $
    
    941.7
    
    
    
    $
    
    784.8
    
    
    
    $
    
    896.8
    
    
    
    
    90.2
    %
    
    
    
    
    87.2
    %
    
    
    
    
    108.0
    %Medical malpractice(2)(3)(4)
    
    
    
    388.8
    
    
    
    
    318.0
    
    
    
    
    308.0
    
    
    
    
    379.8
    
    
    
    
    304.9
    
    
    
    
    306.5
    
    
    
    
    304.2
    
    
    
    
    233.2
    
    
    
    
    258.5
    
    
    
    
    80.1
    
    
    
    
    76.5
    
    
    
    
    84.3Ocean marine and aviation(4)
    
    
    
    335.7
    
    
    
    
    349.4
    
    
    
    
    304.7
    
    
    
    
    350.9
    
    
    
    
    325.6
    
    
    
    
    301.4
    
    
    
    
    251.5
    
    
    
    
    234.6
    
    
    
    
    237.1
    
    
    
    
    71.7
    
    
    
    
    72.0
    
    
    
    
    78.7Auto liability
    
    
    
    289.6
    
    
    
    
    288.3
    
    
    
    
    308.7
    
    
    
    
    268.0
    
    
    
    
    302.4
    
    
    
    
    359.7
    
    
    
    
    213.6
    
    
    
    
    229.4
    
    
    
    
    258.0
    
    
    
    
    79.7
    
    
    
    
    75.9
    
    
    
    
    71.7Accident and health
    
    
    
    248.3
    
    
    
    
    230.4
    
    
    
    
    173.2
    
    
    
    
    238.5
    
    
    
    
    232.7
    
    
    
    
    166.4
    
    
    
    
    185.6
    
    
    
    
    181.4
    
    
    
    
    134.3
    
    
    
    
    77.8
    
    
    
    
    77.9
    
    
    
    
    80.7Surety and credit(3)
    
    
    
    177.6
    
    
    
    
    174.0
    
    
    
    
    152.6
    
    
    
    
    173.8
    
    
    
    
    165.4
    
    
    
    
    146.6
    
    
    
    
    84.7
    
    
    
    
    118.3
    
    
    
    
    96.9
    
    
    
    
    48.7
    
    
    
    
    71.6
    
    
    
    
    66.1Other(2)
    
    
    
    324.7
    
    
    
    
    298.2
    
    
    
    
    320.4
    
    
    
    
    313.5
    
    
    
    
    318.2
    
    
    
    
    282.0
    
    
    
    
    208.1
    
    
    
    
    221.5
    
    
    
    
    144.2
    
    
    
    
    66.4
    
    
    
    
    69.6
    
    
    
    
    51.1Total casualty
    
    
    
    2,805.1
    
    
    
    
    2,661.7
    
    
    
    
    2,432.9
    
    
    
    
    2,768.4
    
    
    
    
    2,548.8
    
    
    
    
    2,392.8
    
    
    
    
    2,189.4
    
    
    
    
    2,003.2
    
    
    
    
    2,025.8
    
    
    
    
    79.1
    
    
    
    
    78.6
    
    
    
    
    84.7Property:Fire(2)(3)(4)
    
    
    
    568.6
    
    
    
    
    474.0
    
    
    
    
    473.9
    
    
    
    
    534.2
    
    
    
    
    487.7
    
    
    
    
    485.0
    
    
    
    
    235.6
    
    
    
    
    156.8
    
    
    
    
    349.2
    
    
    
    
    44.1
    
    
    
    
    32.2
    
    
    
    
    72.0Allied lines(2)(4)
    
    
    
    284.4
    
    
    
    
    230.5
    
    
    
    
    135.5
    
    
    
    
    289.4
    
    
    
    
    220.3
    
    
    
    
    125.8
    
    
    
    
    73.4
    
    
    
    
    99.4
    
    
    
    
    246.3
    
    
    
    
    25.4
    
    
    
    
    45.1
    
    
    
    
    195.7Auto physical damage
    
    
    
    111.4
    
    
    
    
    108.3
    
    
    
    
    139.6
    
    
    
    
    101.4
    
    
    
    
    136.7
    
    
    
    
    126.6
    
    
    
    
    78.1
    
    
    
    
    107.6
    
    
    
    
    83.5
    
    
    
    
    77.1
    
    
    
    
    78.7
    
    
    
    
    66.0Homeowners multiple peril(2)(3)(4)
    
    
    
    64.5
    
    
    
    
    45.9
    
    
    
    
    169.2
    
    
    
    
    83.4
    
    
    
    
    97.6
    
    
    
    
    143.6
    
    
    
    
    (6.6)
    
    
    
    
    29.8
    
    
    
    
    147.8
    
    
    
    
    (7.9)
    
    
    
    
    30.5
    
    
    
    
    102.9Other(2)(3)(4)
    
    
    
    118.9
    
    
    
    
    113.0
    
    
    
    
    115.3
    
    
    
    
    125.9
    
    
    
    
    113.0
    
    
    
    
    111.2
    
    
    
    
    68.1
    
    
    
    
    65.9
    
    
    
    
    24.4
    
    
    
    
    54.1
    
    
    
    
    58.3
    
    
    
    
    22.0Total property
    
    
    
    1,147.8
    
    
    
    
    971.7
    
    
    
    
    1,033.5
    
    
    
    
    1,134.3
    
    
    
    
    1,055.3
    
    
    
    
    992.2
    
    
    
    
    448.6
    
    
    
    
    459.5
    
    
    
    
    851.2
    
    
    
    
    39.6
    
    
    
    
    43.5
    
    
    
    
    85.8Total
    
    
    $
    
    3,952.9
    
    
    
    $
    
    3,633.4
    
    
    
    $
    
    3,466.4
    
    
    
    $
    
    3,902.7
    
    
    
    $
    
    3,604.1
    
    
    
    $
    
    3,385.0
    
    
    
    $
    
    2,638.0
    
    
    
    $
    
    2,462.7
    
    
    
    $
    
    2,877.0
    
    
    
    
    67.6
    
    
    
    
    68.3
    
    
    
    
    85.0

(1)
    
    
    
    A large majority of the amounts within the other liability line relates to complex risks such as E&O and D&O, to general casualty risks and, to a much lesser extent, environmental impairment liability.(2)
    
    
    
    In 2007, development on reserves held at December 31, 2006 relating to losses that occurred in 2006 and prior years significantly increased net losses and loss adjustment expenses incurred in the other liability, medical malpractice and other property
      lines and significantly decreased net losses and loss adjustment expenses incurred in the homeowners multiple peril, fire, allied lines and other casualty lines. In addition, pre-tax net catastrophe losses of $65 million, including $11 million which is included
      in development on reserves held at December 31, 2006, significantly increased net losses and loss adjustment expenses incurred in the fire line.(3)
    
    
    
    In 2006, development on reserves held at December 31, 2005 relating to losses that occurred in 2005 and prior years significantly increased net losses and loss adjustment expenses incurred in the other liability, medical malpractice, surety and credit and
      other property lines and significantly decreased net losses and loss adjustment expenses incurred in the homeowners multiple peril and fire lines. 2006 pre-tax net catastrophe costs did not have a significant impact on that years results.(footnotes continued on next page)
4

(footnotes continued from previous page)
(4)
    
    
    
    In 2005, development on reserves held at December 31, 2004 relating to losses that occurred in 2004 and prior years significantly increased net losses and loss adjustment expenses incurred in the other liability and medical malpractice lines and
      significantly decreased net losses and loss adjustment expenses incurred in the fire, homeowners multiple peril, ocean marine and aviation and other property lines. In addition, pre-tax net catastrophe losses of $483 million, including $14 million that is
      included in development on reserves held at December 31, 2004, significantly increased net losses and loss adjustment expenses incurred in the allied lines, fire, ocean marine and aviation and homeowners multiple peril lines. Also, net ceded
      reinstatement premiums of $61 million reduced net premiums written and earned primarily in the allied lines and fire lines.Treaty reinsurance constitutes the great majority of TRHs business, accounting for 96%, 95% and 96% of net premiums written in 2007, 2006 and 2005, respectively. Facultative reinsurance comprises
  the balance of net premiums written.
The following table presents certain information concerning TRHs treaty and facultative business for the periods indicated:
TreatyYears Ended December 31,2007(1)
    
    2006(2)
    
    2005(in millions)Gross premiums written
    
    
    $
    
    3,971.5
    
    
    
    $
    
    3,655.2
    
    
    
    $
    
    3,614.7Net premiums written
    
    
    
    3,805.8
    
    
    
    
    3,461.6
    
    
    
    
    3,310.6Net premiums earned
    
    
    
    3,748.4
    
    
    
    
    3,434.7
    
    
    
    
    3,241.5FacultativeYears Ended December 31,2007(1)
    
    2006(2)
    
    2005(in millions)Gross premiums written
    
    
    $
    
    312.1
    
    
    
    $
    
    328.2
    
    
    
    $
    
    273.0Net premiums written
    
    
    
    147.1
    
    
    
    
    171.8
    
    
    
    
    155.8Net premiums earned
    
    
    
    154.3
    
    
    
    
    169.4
    
    
    
    
    143.5

(1)
    
    
    
    In 2007 compared to 2006, domestic treaty net premiums written increased significantly in the property, medical malpractice and auto liability lines, offset in part by a significant decrease in the A&H line. International treaty net premiums written
      increased significantly in the other liability, A&H and property lines, partially offset by a significant decrease in the auto liability line. Facultative net premiums written in 2007 decreased compared to 2006 principally in the medical malpractice and
      property lines.(2)
    
    
    
    In 2006 compared to 2005, domestic treaty net premiums written increased significantly in the other liability, A&H and auto liability lines, offset in part by significant decreases in the surety line. International treaty net premiums written decreased
      significantly in the auto liability and property lines, partially offset by significant increases in the ocean marine, surety and credit and A&H lines. Facultative gross premiums written increased in 2006 compared to 2005 due significantly to an increase in
      premiums that, by prearrangement with TRH, were assumed from an affiliate and then ceded in an equal amount to other affiliates in the property and other liability lines. Facultative net premiums written, in 2006 compared to 2005, increased
      principally in the medical malpractice and other liability lines.Treaty Reinsurance
Treaty reinsurance accounted for approximately $3,971.5 million of gross premiums written and $3,805.8 million of net premiums written in 2007. Approximately 71% of treaty net premiums written
  resulted from casualty lines treaties, with the remainder from property lines treaties. Approximately 67% of total treaty gross premiums written in 2007 represented treaty reinsurance written on a pro rata
  basis and the balance represented treaty reinsurance written on an excess-of-loss basis. Approximately 10% of treaty gross premiums written in 2007 were attributable to other subsidiaries of AIG and were
  primarily written on a pro rata basis. (See Relationship with the AIG Group.) The majority of TRHs non-AIG Group treaty premiums were also written on a pro rata basis. Non-U.S. treaty business
  accounted for approximately 48% of TRHs total net premiums written for the year ended December 31, 2007.
TRHs treaty business consists primarily of business within the other liability (including D&O and E&O), medical malpractice, ocean marine and aviation, auto liability (including non-standard risks), A&H,
  surety and credit, fire, allied lines, auto physical damage and homeowners multiple peril lines. A significant portion of TRHs business within these lines (primarily other liability, medical malpractice and
  A&H) is derived from complex risks.
5

TRHs treaty business accepts a portfolio of risks on either a risk attaching basis or loss occurring during (LOD) basis. For the risk attaching treaties, if an individual risk covered by the treaty incepts
  during the treaty period, TRHs liability for that policy goes to that treaty year regardless of when the loss occurs. For LOD treaties, TRH covers losses occurring during the treaty coverage period on all in-
  force policies, regardless of the date the policies were issued by the ceding company.
TRHs treaty underwriting process emphasizes a team approach among TRHs underwriters, actuaries and claims staff, as appropriate. Treaties are reviewed for compliance with TRHs underwriting
  guidelines and objectives and most treaties are evaluated in part based upon actuarial analyses conducted by TRH. TRHs actuarial models used in such analyses are tailored in each case to the exposures
  and experience underlying the specific treaty and the loss experience for the risks covered. Property catastrophe exposed treaties are generally evaluated using industry standard models. These models are
  used as a guide for risk assessment and are continually being updated. TRH also frequently conducts underwriting and claims audits at the offices of a prospective ceding company both before and after
  entering into major treaties, because reinsurers, including TRH, do not separately evaluate each of the individual risks assumed under their treaties and, consequently, are largely dependent on the original
  underwriting decisions made by the ceding company. Such dependence subjects TRH, and reinsurers in general, to the possibility that the ceding companies have not adequately evaluated the risks to be
  reinsured and, therefore, that the premiums ceded in connection therewith may not adequately compensate the reinsurer for the risk assumed.
TRH offers brokers full service with large capacity for both casualty and property risks. For non-AIG Group business, TRH often seeks to lead treaty arrangements. The lead reinsurer on a treaty
  generally accepts one of the largest percentage shares of the treaty and takes the initiative in negotiating price, terms and conditions. TRH believes that this strategy has enabled it to influence more
  effectively the terms and conditions of the treaties in which it has participated. Except where insurance business written by AIG subsidiaries is almost entirely reinsured by TRH by prearrangement, TRH
  has generally not set terms and conditions as lead underwriter with respect to treaty reinsurance purchased by other subsidiaries of AIG, although it may do so in the future. When TRH does not lead the
  treaty, it may still suggest changes to any aspect of the treaty. In either case, TRH may reject any treaty business offered to it by AIG subsidiaries or others based upon its assessment of all relevant factors.
  Such factors include type and level of risk assumed, actuarial and underwriting judgment with respect to rate adequacy, various treaty terms, prior and anticipated loss experience (including exposure to
  natural and man-made catastrophes) on the treaty, prior business experience with the ceding company, overall financial position, operating results, the A.M. Best Company (Best), Standard & Poors
  (S&P) and Moodys Investors Service (Moodys) ratings of the ceding company and social, legal, regulatory, environmental and general economic conditions affecting the risks assumed or the ceding
  company.
TRH currently has approximately 4,400 treaties in effect for the current underwriting year. In 2007, no single treaty exceeded 2% of treaty gross premiums written. No ceding company accounted for
  more than 3% of total treaty gross premiums written in 2007 except for other subsidiaries of AIG (see Relationship with the AIG Group). Members of Lloyds of London (Lloyds) in the aggregate
  accounted for 6% of treaty gross premiums written.
Facultative Reinsurance
During 2007, TRH wrote approximately $312.1 million of gross premiums written and $147.1 million of net premiums written of facultative reinsurance. Approximately 64% of facultative net premiums
  written represented casualty risks with the balance comprising property risks. TRH provides facultative reinsurance on predominantly an excess-of-loss basis, although some business is written on a pro rata
  basis. Non-U.S. facultative business accounted for approximately 2% of TRHs total net premiums written for the year ended December 31, 2007.
TRHs facultative contracts (also called certificates) provide prospective coverage on virtually the same basis as the original policy issued by the ceding insurer. In 2007, TRHs facultative book of
  business focused on the property, other liability, medical malpractice and A&H lines, although coverage is generally offered for most lines of business, and is written principally on a risk attaching basis for
  each risk (i.e., TRHs liability starts with the underlying policy inception and ends when the underlying policy expires). With respect to facultative contracts, TRHs clients come to TRH on a risk by risk
  basis
6

when they wish to obtain a larger policy limit than provided by their existing outward treaty reinsurance or when their existing treaty reinsurance excludes a class of business or type of coverage they
  provide to policyholders.
Other underwriting expenses associated with facultative business are generally higher in proportion to related premiums than those associated with treaty business, reflecting, among other things, the
  more labor-intensive nature of underwriting and servicing facultative business. Approximately 56% of facultative gross premiums written in 2007 were attributable to other subsidiaries of AIG. The large
  majority of such facultative gross premiums written in 2007, 2006 and 2005, were, by prearrangement with TRH, assumed from one AIG subsidiary and ceded in an equal amount to other AIG subsidiaries.
  (See Note 15 of Notes to Consolidated Financial Statements (Note 15).) Except for AIG subsidiaries, no single ceding company accounted for more than 4% of total facultative gross premiums written in
  2007.
Retrocession Arrangements
TRH generally enters into retrocession arrangements for many of the same reasons primary insurers seek reinsurance, including reducing the effect of individual or aggregate losses and increasing gross
  premium writings and risk capacity without requiring additional capital.
Retrocession arrangements do not relieve TRH from its obligations to the insurers and reinsurers from whom it assumes business. The failure of retrocessionnaires to honor their obligations could result
  in losses to TRH. TRH holds substantial amounts of funds and letters of credit to collateralize reinsurance recoverables. Such funds and letters of credit can be drawn on for amounts remaining unpaid
  beyond contract terms. In addition, an allowance has been established for estimated unrecoverable amounts.
As of December 31, 2007, TRH had in place approximately 150 active retrocessional arrangements for current and prior underwriting years with approximately 360 retrocessionnaires, and reinsurance
  recoverable on paid and unpaid losses and loss adjustment expenses (LAE) totaled $1.07 billion, including $443.9 million recoverable from affiliates. No unsecured recoverables from a single
  retrocessionnaire, other than amounts due from affiliates, are considered material to the financial position of TRH. (See Note 15.)
Marketing
TRH provides property and casualty reinsurance capacity through brokers as well as directly to insurance and reinsurance companies in both the domestic and international markets. TRH believes its
  worldwide network of offices and its relationship with the AIG Group help position TRH to take advantage of market opportunities.
Business assumed from other subsidiaries of AIG is generally obtained directly from the ceding company. No ceding company, other than such AIG subsidiaries has accounted for 10% or more of
  TRHs consolidated revenues in any of the last five years.
Non-AIG Group treaty business is produced primarily through brokers, while non-AIG Group facultative business is produced both directly and through brokers. In 2007, approximately 83% of TRHs
  non-AIG Group business was written through brokers and the balance was written directly. Also in 2007, companies controlled by Aon Corporation (Aon) and Marsh & McLennan Companies, Inc.
  (Marsh), TRHs largest brokerage sources of non-AIG Group business, accounted for 16% and 14%, respectively, of TRHs consolidated revenues. In addition, Aon and Marsh each accounted for non-
  AIG Group business representing 17% and 15% of total gross premiums written in 2007, respectively. TRHs largest 10 brokers accounted for non-AIG Group business aggregating approximately 57% of
  total gross premiums written. Brokerage fees generally are paid by reinsurers. TRH believes that its emphasis on seeking the lead position in non-AIG Group reinsurance treaties in which it participates is
  beneficial in obtaining business. Brokers do not have the authority to bind TRH with respect to reinsurance agreements, nor does TRH commit in advance to accept any portion of the business that brokers
  submit to it.
7

Claims
Claims are managed by TRHs professional claims staff whose responsibilities include the review of initial loss reports, creation of claim files, determination of whether further investigation is required,
  establishment and adjustment of case reserves and payment of claims. In addition to claims assessment, processing and payment, the claims staff conducts comprehensive claims audits of both specific claims
  and overall claims procedures at the offices of selected ceding companies, which TRH believes benefit all parties to the reinsurance arrangement. Claims audits are conducted in the ordinary course of
  business. In certain instances, a claims audit may be performed prior to assuming reinsurance business.
Reserves for Unpaid Losses and Loss Adjustment Expenses (Gross Loss Reserves)
Significant periods of time may elapse between the occurrence of an insured loss, the reporting of the loss to the ceding company and the reinsurer, and the ceding companys payment of that loss and
  subsequent payments to the ceding company by the reinsurer. Insurers and reinsurers establish gross loss reserves, which represent estimates of future amounts needed to pay claims and related expenses
  with respect to insured events which have occurred on or before the balance sheet date, including events which have not been reported to the ceding company.
Upon receipt of a notice of claim from the ceding company, TRH establishes its own case reserve for the estimated amount of the ultimate settlement, if any. Case reserves usually are based upon the
  amount of reserves recommended by the ceding company and may be supplemented by additional amounts as deemed necessary. In certain instances, TRH establishes case reserves even when the ceding
  company has not reported any liability to TRH.
TRH also establishes reserves to provide for the estimated expenses of settling claims, including legal and other fees, the general expenses of administering the claims adjustment process (i.e., LAE),
  and for losses and LAE incurred but not reported (IBNR). TRH calculates LAE and IBNR reserves by using generally accepted actuarial reserving techniques to estimate the ultimate liability for losses
  and LAE. Such reserves are periodically reassessed by TRH to adjust for changes in the expected loss emergence pattern over time. TRH has an in-house actuarial staff which periodically reviews its unpaid
  losses and loss adjustment expenses both gross and net of related reinsurance recoverables, and does not retain any outside actuarial firm to review its loss reserves on an ongoing basis.
Gross loss reserves represent the accumulation of case reserves and IBNR. Provisions for inflation and social inflation (e.g., awards by judges and juries which progressively increase in size at a rate
  exceeding that of general inflation) are implicitly considered in the overall reserve setting process as an element of the numerous judgments which are made as to expected trends in average claim severity.
  Legislative changes may also affect TRHs liabilities, and evaluation of the impact of such changes is made in the reserve setting process.
The methods of determining estimates for unreported losses and establishing resulting reserves and related reinsurance recoverable are continually reviewed and updated, and any resulting adjustments
  are reflected in income currently. The process relies upon the basic assumption that past experience, adjusted for the effect of current developments and likely trends, is an appropriate basis for predicting
  future events. However, estimation of loss reserves is a difficult process, especially in view of changes in the legal and tort environment which impact the development of loss reserves, and therefore
  quantitative techniques frequently have to be supplemented by subjective considerations and managerial judgment. In addition, trends that have affected development of liabilities in the past may not
  necessarily occur or affect liability development to the same degree in the future.
While the reserving process is difficult and subjective for the ceding companies, the inherent uncertainties of estimating such reserves are even greater for the reinsurer, due primarily to the longer term
  nature of much reinsurance business, the diversity of development patterns among different types of reinsurance treaties or facultative contracts, the necessary reliance on the ceding companies for
  information regarding reported claims and differing reserving practices among ceding companies, which are subject to change without notice. TRH writes a significant amount of non-proportional assumed
  casualty reinsurance as well as proportional assumed reinsurance of excess casualty business for classes such as medical malpractice and D&O, which can exhibit greater volatility over time than most other
  classes due to their low frequency, high severity nature, and loss cost trends that are more difficult to predict.
8

Included in TRHs unpaid losses and loss adjustment expenses net of related reinsurance recoverables (net loss reserves) are amounts related to environmental impairment and asbestos-related
  illnesses. (See MD&A for more detail regarding the significant uncertainties related to these reserves.)
During the loss settlement period, which can be many years in duration, additional facts regarding individual claims and trends usually become known. As these become apparent, it usually becomes
  necessary to refine and adjust the reserves upward or downward. Even then, the ultimate net liability may be materially different from the revised estimates which are reflected in TRHs consolidated
  financial statements, and such differences may have, and in recent years have had, a material effect on net income. (See MD&A, including the discussion of Critical Accounting Estimates, and Note 2(i) of
  Notes to Consolidated Financial Statements for further discussion.)
Net losses and LAE incurred consists of the estimated ultimate cost of settling claims incurred within the reporting period (net of related reinsurance recoverable), including IBNR claims, plus changes
  in estimates of prior period losses.
The Analysis of Consolidated Net Loss Reserves Development which follows presents the development of net loss reserves for calendar years 1997 through 2007. The upper half of the table shows
  the cumulative amounts paid during successive years relating to the opening reserve. For example, with respect to the net loss reserve of $2,522.7 million as of December 31, 1997, by the end of 2007 (ten
  years later) $2,380.5 million had actually been paid in settlement of those net loss reserves. In addition, as reflected in the lower section of the table, the original net loss reserve of $2,522.7 million was
  reestimated to be $2,691.3 million at December 31, 2007. This change from the original estimate would normally result from a combination of a number of factors, including losses being settled for different
  amounts than originally estimated. The original estimates will also be increased or decreased as more information becomes known about the individual claims and overall claim frequency and severity
  patterns. The net deficiency depicted in the table, for any particular calendar year, shows the aggregate change in estimates over the period of years subsequent to the calendar year reflected at the top of
  the respective columns. For example, the net deficiency of $168.6 million at December 31, 2007 relating to December 31, 1997 net loss reserves of $2,522.7 million, represents the cumulative amount by
  which net loss reserves as of year-end 1997 have developed adversely from 1998 through 2007.
Each amount other than the original reserves in the following table includes the effects of all changes in amounts for prior periods. For example, if a loss settled in 2004 for $150,000 was first reserved in
  2001 at $100,000 and remained unchanged until settlement, the $50,000 deficiency (actual loss minus original estimate) would be included in the cumulative net redundancy (deficiency) in each of the years
  in the period 2001 through 2003 shown in the following table. Conditions and trends that have affected development of liability in the past may not necessarily occur in the future. Accordingly, it may not be
  appropriate to extrapolate future development based on this table.
The Analysis of Net Unpaid Losses and Loss Adjustment Expenses and Net Reestimated Liability presents additional information regarding the development of gross loss reserves.
9

ANALYSIS OF CONSOLIDATED NET LOSS RESERVES DEVELOPMENT(1)(2)
1997
    
    1998
    
    1999
    
    2000
    
    2001
    
    2002
    
    2003
    
    2004
    
    2005
    
    2006
    
    2007(in thousands)Net loss reserves, as of
      December 31:(3)
    
    
    $
    
    2,522,728
    
    
    
    $
    
    2,656,103
    
    
    
    $
    
    2,762,162
    
    
    
    $
    
    2,614,917
    
    
    
    $
    
    2,908,887
    
    
    
    $
    
    3,257,906
    
    
    
    $
    
    3,956,420
    
    
    
    $
    
    4,980,609
    
    
    
    $
    
    5,690,443
    
    
    
    $
    
    6,207,220
    
    
    
    $
    
    6,899,716Cumulative paid as of:One year later
    
    
    
    543,539
    
    
    
    
    702,603
    
    
    
    
    953,708
    
    
    
    
    892,752
    
    
    
    
    1,033,574
    
    
    
    
    1,057,314
    
    
    
    
    1,090,058
    
    
    
    
    1,492,464
    
    
    
    
    1,447,284
    
    
    
    
    1,464,916Two years later
    
    
    
    1,003,059
    
    
    
    
    1,224,593
    
    
    
    
    1,570,329
    
    
    
    
    1,573,227
    
    
    
    
    1,759,047
    
    
    
    
    1,806,388
    
    
    
    
    2,035,299
    
    
    
    
    2,416,036
    
    
    
    
    2,526,261Three years later
    
    
    
    1,339,141
    
    
    
    
    1,620,068
    
    
    
    
    2,050,795
    
    
    
    
    2,071,480
    
    
    
    
    2,332,901
    
    
    
    
    2,535,149
    
    
    
    
    2,792,484
    
    
    
    
    3,263,061Four years later
    
    
    
    1,604,714
    
    
    
    
    1,982,347
    
    
    
    
    2,408,700
    
    
    
    
    2,499,596
    
    
    
    
    2,932,043
    
    
    
    
    3,198,831
    
    
    
    
    3,485,611Five years later
    
    
    
    1,835,665
    
    
    
    
    2,213,639
    
    
    
    
    2,722,971
    
    
    
    
    2,940,058
    
    
    
    
    3,479,594
    
    
    
    
    3,792,955Six years later
    
    
    
    1,972,791
    
    
    
    
    2,417,530
    
    
    
    
    3,039,306
    
    
    
    
    3,333,401
    
    
    
    
    3,953,515Seven years later
    
    
    
    2,079,993
    
    
    
    
    2,620,053
    
    
    
    
    3,306,557
    
    
    
    
    3,649,883Eight years later
    
    
    
    2,187,524
    
    
    
    
    2,794,230
    
    
    
    
    3,525,322Nine years later
    
    
    
    2,284,911
    
    
    
    
    2,937,132Ten years later
    
    
    
    2,380,457Net reestimated liability
      as of:(3)End of year
    
    
    
    2,522,728
    
    
    
    
    2,656,103
    
    
    
    
    2,762,162
    
    
    
    
    2,614,917
    
    
    
    
    2,908,887
    
    
    
    
    3,257,906
    
    
    
    
    3,956,420
    
    
    
    
    4,980,609
    
    
    
    
    5,690,443
    
    
    
    
    6,207,220
    
    
    
    
    6,899,716One year later
    
    
    
    2,463,239
    
    
    
    
    2,588,626
    
    
    
    
    2,776,519
    
    
    
    
    2,650,589
    
    
    
    
    3,248,013
    
    
    
    
    3,580,493
    
    
    
    
    4,273,802
    
    
    
    
    5,249,445
    
    
    
    
    5,871,571
    
    
    
    
    6,295,600Two years later
    
    
    
    2,369,885
    
    
    
    
    2,496,422
    
    
    
    
    2,802,612
    
    
    
    
    3,088,303
    
    
    
    
    3,561,876
    
    
    
    
    4,112,290
    
    
    
    
    4,781,344
    
    
    
    
    5,557,243
    
    
    
    
    6,133,365Three years later
    
    
    
    2,265,351
    
    
    
    
    2,508,278
    
    
    
    
    3,158,790
    
    
    
    
    3,392,021
    
    
    
    
    4,176,419
    
    
    
    
    4,637,194
    
    
    
    
    5,110,862
    
    
    
    
    5,878,870Four years later
    
    
    
    2,235,533
    
    
    
    
    2,764,144
    
    
    
    
    3,379,226
    
    
    
    
    3,872,054
    
    
    
    
    4,641,988
    
    
    
    
    4,976,922
    
    
    
    
    5,485,195Five years later
    
    
    
    2,342,492
    
    
    
    
    2,886,020
    
    
    
    
    3,725,975
    
    
    
    
    4,217,748
    
    
    
    
    4,904,646
    
    
    
    
    5,345,798Six years later
    
    
    
    2,396,192
    
    
    
    
    3,073,754
    
    
    
    
    3,944,728
    
    
    
    
    4,396,225
    
    
    
    
    5,184,316Seven years later
    
    
    
    2,483,736
    
    
    
    
    3,218,944
    
    
    
    
    4,064,479
    
    
    
    
    4,584,446Eight years later
    
    
    
    2,567,505
    
    
    
    
    3,313,104
    
    
    
    
    4,193,632Nine years later
    
    
    
    2,632,555
    
    
    
    
    3,407,352Ten years later
    
    
    
    2,691,298Net deficiency as of
      December 31, 2007
    
    
    $
    
    (168,570
    )
    
    
    
    $
    
    (751,249
    )
    
    
    
    $
    
    (1,431,470
    )
    
    
    
    $
    
    (1,969,529
    )
    
    
    
    $
    
    (2,275,429
    )
    
    
    
    $
    
    (2,087,892
    )
    
    
    
    $
    
    (1,528,775
    )
    
    
    
    $
    
    (898,261
    )
    
    
    
    $
    
    (442,922
    )
    
    
    
    $
    
    (88,380
    )

(1)
    
    
    
    This table is on a calendar year basis and does not present accident or underwriting year data.(2)
    
    
    
    Data have been affected by transactions between TRH and the AIG Group. (See Relationship with the AIG Group and Notes 13 and 15 of Notes to Consolidated Financial Statements.)(3)
    
    
    
    Represents unpaid losses and loss adjustment expenses, net of related reinsurance recoverables.10

ANALYSIS OF NET UNPAID LOSSES AND LOSS ADJUSTMENT EXPENSESAND NET REESTIMATED LIABILITY(1)(2)
1997
    
    1998
    
    1999
    
    2000
    
    2001
    
    2002
    
    2003
    
    2004
    
    2005
    
    2006
    
    2007(in thousands)End of year:Gross liability
    
    
    $
    
    2,918,782
    
    
    
    $
    
    3,116,038
    
    
    
    $
    
    3,304,931
    
    
    
    $
    
    3,077,162
    
    
    
    $
    
    3,747,583
    
    
    
    $
    
    4,032,584
    
    
    
    $
    
    4,805,498
    
    
    
    $
    
    5,941,464
    
    
    
    $
    
    7,113,294
    
    
    
    $
    
    7,467,949
    
    
    
    $
    
    7,926,261Related reinsurance recoverable
    
    
    
    396,054
    
    
    
    
    459,935
    
    
    
    
    542,769
    
    
    
    
    462,245
    
    
    
    
    838,696
    
    
    
    
    774,678
    
    
    
    
    849,078
    
    
    
    
    960,855
    
    
    
    
    1,422,851
    
    
    
    
    1,260,729
    
    
    
    
    1,026,545Net liability
    
    
    $
    
    2,522,728
    
    
    
    $
    
    2,656,103
    
    
    
    $
    
    2,762,162
    
    
    
    $
    
    2,614,917
    
    
    
    $
    
    2,908,887
    
    
    
    $
    
    3,257,906
    
    
    
    $
    
    3,956,420
    
    
    
    $
    
    4,980,609
    
    
    
    $
    
    5,690,443
    
    
    
    $
    
    6,207,220
    
    
    
    $
    
    6,899,716One year later:Gross reestimated liability
    
    
    $
    
    2,864,610
    
    
    
    $
    
    3,083,643
    
    
    
    $
    
    3,369,520
    
    
    
    $
    
    3,126,518
    
    
    
    $
    
    4,136,126
    
    
    
    $
    
    4,465,908
    
    
    
    $
    
    5,117,490
    
    
    
    $
    
    6,344,019
    
    
    
    $
    
    7,306,595
    
    
    
    $
    
    7,633,138Reestimated related reinsurance recoverable
    
    
    
    401,371
    
    
    
    
    495,017
    
    
    
    
    593,001
    
    
    
    
    475,929
    
    
    
    
    888,113
    
    
    
    
    885,415
    
    
    
    
    843,688
    
    
    
    
    1,094,574
    
    
    
    
    1,435,024
    
    
    
    
    1,337,538Net reestimated liability
    
    
    $
    
    2,463,239
    
    
    
    $
    
    2,588,626
    
    
    
    $
    
    2,776,519
    
    
    
    $
    
    2,650,589
    
    
    
    $
    
    3,248,013
    
    
    
    $
    
    3,580,493
    
    
    
    $
    
    4,273,802
    
    
    
    $
    
    5,249,445
    
    
    
    $
    
    5,871,571
    
    
    
    $
    
    6,295,600Two years later:Gross reestimated liability
    
    
    $
    
    2,776,598
    
    
    
    $
    
    3,033,092
    
    
    
    $
    
    3,426,471
    
    
    
    $
    
    3,565,853
    
    
    
    $
    
    4,556,676
    
    
    
    $
    
    5,003,598
    
    
    
    $
    
    5,761,231
    
    
    
    $
    
    6,633,579
    
    
    
    $
    
    7,618,979Reestimated related reinsurance recoverable
    
    
    
    406,713
    
    
    
    
    536,670
    
    
    
    
    623,859
    
    
    
    
    477,550
    
    
    
    
    994,800
    
    
    
    
    891,308
    
    
    
    
    979,887
    
    
    
    
    1,076,336
    
    
    
    
    1,485,614Net reestimated liability
    
    
    $
    
    2,369,885
    
    
    
    $
    
    2,496,422
    
    
    
    $
    
    2,802,612
    
    
    
    $
    
    3,088,303
    
    
    
    $
    
    3,561,876
    
    
    
    $
    
    4,112,290
    
    
    
    $
    
    4,781,344
    
    
    
    $
    
    5,557,243
    
    
    
    $
    
    6,133,365Three years later:Gross reestimated liability
    
    
    $
    
    2,701,351
    
    
    
    $
    
    3,039,473
    
    
    
    $
    
    3,788,866
    
    
    
    $
    
    3,970,012
    
    
    
    $
    
    5,188,506
    
    
    
    $
    
    5,678,239
    
    
    
    $
    
    6,096,568
    
    
    
    $
    
    7,017,192Reestimated related reinsurance recoverable
    
    
    
    436,000
    
    
    
    
    531,195
    
    
    
    
    630,076
    
    
    
    
    577,991
    
    
    
    
    1,012,087
    
    
    
    
    1,041,045
    
    
    
    
    985,706
    
    
    
    
    1,138,322Net reestimated liability
    
    
    $
    
    2,265,351
    
    
    
    $
    
    2,508,278
    
    
    
    $
    
    3,158,790
    
    
    
    $
    
    3,392,021
    
    
    
    $
    
    4,176,419
    
    
    
    $
    
    4,637,194
    
    
    
    $
    
    5,110,862
    
    
    
    $
    
    5,878,870Four years later:Gross reestimated liability
    
    
    $
    
    2,649,925
    
    
    
    $
    
    3,298,599
    
    
    
    $
    
    4,098,524
    
    
    
    $
    
    4,492,711
    
    
    
    $
    
    5,814,220
    
    
    
    $
    
    6,034,785
    
    
    
    $
    
    6,536,334Reestimated related reinsurance recoverable
    
    
    
    414,392
    
    
    
    
    534,455
    
    
    
    
    719,298
    
    
    
    
    620,657
    
    
    
    
    1,172,232
    
    
    
    
    1,057,863
    
    
    
    
    1,051,139Net reestimated liability
    
    
    $
    
    2,235,533
    
    
    
    $
    
    2,764,144
    
    
    
    $
    
    3,379,226
    
    
    
    $
    
    3,872,054
    
    
    
    $
    
    4,641,988
    
    
    
    $
    
    4,976,922
    
    
    
    $
    
    5,485,195Five years later:Gross reestimated liability
    
    
    $
    
    2,762,480
    
    
    
    $
    
    3,502,673
    
    
    
    $
    
    4,479,946
    
    
    
    $
    
    4,868,258
    
    
    
    $
    
    6,099,084
    
    
    
    $
    
    6,467,893Reestimated related reinsurance recoverable
    
    
    
    419,988
    
    
    
    
    616,653
    
    
    
    
    753,971
    
    
    
    
    650,510
    
    
    
    
    1,194,438
    
    
    
    
    1,122,095Net reestimated liability
    
    
    $
    
    2,342,492
    
    
    
    $
    
    2,886,020
    
    
    
    $
    
    3,725,975
    
    
    
    $
    
    4,217,748
    
    
    
    $
    
    4,904,646
    
    
    
    $
    
    5,345,798Six years later:Gross reestimated liability
    
    
    $
    
    2,887,038
    
    
    
    $
    
    3,713,151
    
    
    
    $
    
    4,728,479
    
    
    
    $
    
    5,058,733
    
    
    
    $
    
    6,441,624Reestimated related reinsurance recoverable
    
    
    
    490,846
    
    
    
    
    639,397
    
    
    
    
    783,751
    
    
    
    
    662,508
    
    
    
    
    1,257,308Net reestimated liability
    
    
    $
    
    2,396,192
    
    
    
    $
    
    3,073,754
    
    
    
    $
    
    3,944,728
    
    
    
    $
    
    4,396,225
    
    
    
    $
    
    5,184,316Seven years later:Gross reestimated liability
    
    
    $
    
    2,997,036
    
    
    
    $
    
    3,893,259
    
    
    
    $
    
    4,860,380
    
    
    
    $
    
    5,262,921Reestimated related reinsurance recoverable
    
    
    
    513,300
    
    
    
    
    674,315
    
    
    
    
    795,901
    
    
    
    
    678,475Net reestimated liability
    
    
    $
    
    2,483,736
    
    
    
    $
    
    3,218,944
    
    
    
    $
    
    4,064,479
    
    
    
    $
    
    4,584,446Eight years later:Gross reestimated liability
    
    
    $
    
    3,112,127
    
    
    
    $
    
    3,995,364
    
    
    
    $
    
    5,007,580Reestimated related reinsurance recoverable
    
    
    
    544,622
    
    
    
    
    682,260
    
    
    
    
    813,948Net reestimated liability
    
    
    $
    
    2,567,505
    
    
    
    $
    
    3,313,104
    
    
    
    $
    
    4,193,632Nine years later:Gross reestimated liability
    
    
    $
    
    3,181,550
    
    
    
    $
    
    4,105,512Reestimated related reinsurance recoverable
    
    
    
    548,995
    
    
    
    
    698,160Net reestimated liability
    
    
    $
    
    2,632,555
    
    
    
    $
    
    3,407,352Ten years later:Gross reestimated liability
    
    
    $
    
    3,260,196Reestimated related reinsurance recoverable
    
    
    
    568,898Net reestimated liability
    
    
    $
    
    2,691,298Gross deficiency as of December 31, 2007
    
    
    $
    
    (341,414
    )
    
    
    
    $
    
    (989,474
    )
    
    
    
    $
    
    (1,702,649
    )
    
    
    
    $
    
    (2,185,759
    )
    
    
    
    $
    
    (2,694,041
    )
    
    
    
    $
    
    (2,435,309
    )
    
    
    
    $
    
    (1,730,836
    )
    
    
    
    $
    
    (1,075,728
    )
    
    
    
    $
    
    (505,685
    )
    
    
    
    $
    
    (165,189
    )

(1)
    
    
    
    This table is on a calendar year basis and does not represent accident or underwriting year data.(2)
    
    
    
    Data has been affected by transactions between TRH and the AIG Group. (See Relationship with the AIG Group and Notes 13 and 15 of Notes to Consolidated Financial Statements.)11

The trend depicted in the latest development year in the net reestimated liability portion of the Analysis of Consolidated Net Loss Reserves Development table and in the Analysis of Net Unpaid
  Losses and Loss Adjustment Expenses and Net Reestimated Liability table reflects net adverse development. Net adverse development of $88.4 million was recorded in 2007 on losses occurring in all prior
  years. This net adverse development was comprised of $368.9 million relating to losses occurring in 2002 and prior, largely offset by net favorable development of $280.5 million, principally relating to losses
  occurring in 2006 and, to lesser extents, 2005 and 2004. (See MD&A.)
In general, the deficiencies shown in the tables for years 1998 through 2006 developed principally in 2002 through 2007 and resulted largely from losses occurring between 1998 and 2002 in certain
  casualty lines. Such adverse development involved an unexpected increase in the frequency and severity of large claims reported in late 2002 through 2007, as was common in the industry, relating to non-
  proportional assumed casualty reinsurance as well as proportional assumed reinsurance of excess casualty business for such volatile classes as medical malpractice, D&O, E&O and other general casualty. (See
  MD&A.)
See Note 5 of Notes to Consolidated Financial Statements for a reconciliation of beginning and ending gross and net loss reserves. For TRHs domestic subsidiaries (TRC and Putnam), there is no
  difference in reserves for losses and LAE, net of related reinsurance recoverable, whether determined in accordance with accounting principles generally accepted in the United States of America or
  statutory accounting principles.
Investment Operations
TRHs investments must comply with the insurance laws of the state of New York, the state of domicile of TRC and Putnam, and of the other states and jurisdictions in which the Company and its
  subsidiaries are regulated. These laws prescribe the kind, quality and concentration of investments which may be made by insurance companies. In general, these laws permit investments, within specified
  limits and subject to certain qualifications, in federal, state and municipal obligations, corporate fixed maturities, preferred and common stocks, real estate mortgages and real estate. The Finance Committee
  of the Companys Board of Directors and senior management oversee investments, establish TRHs investment strategy and implement investment decisions with the assistance of certain subsidiaries of
  AIG, which act as financial advisors and managers of TRHs investment portfolio and, in connection therewith, make the selection of particular investments. Other than as set forth above, there are no
  guidelines or policies with respect to the specific composition of TRHs overall investment portfolio or the composition of its fixed maturity portfolio by rating or maturity. A significant portion of TRHs
  domestic investments are in tax-exempt fixed maturities.
TRHs current investment strategy seeks to maximize after-tax income through a high quality diversified taxable fixed maturity and tax-exempt municipal fixed maturity portfolio, while maintaining an
  adequate level of liquidity. TRH adjusts its mix of taxable and tax-exempt investments, as appropriate, generally as a result of strategic investment and tax planning considerations. Tax-exempt fixed
  maturities carry lower pre-tax yields than taxable fixed maturities that are comparable in risk and term to maturity due to their tax-advantaged status. (See MD&A.) The majority of the equity portfolio is
  structured to achieve capital appreciation primarily through investment in quality growth companies. Other invested assets principally includes investments in limited partnerships and TRHs 40% interest in
  Kuwait Re.
TRH engages in a securities lending program managed by a subsidiary of AIG, whereby certain securities (principally fixed maturities and common stocks available for sale) from its portfolio are
  loaned to third parties. (See Note 2(c) of Notes to Consolidated Financial Statements.) In these transactions, initial collateral, principally cash, is received by TRH in an amount exceeding the fair value of
  the loaned security. The collateral is invested in portfolios containing floating rate bonds (i.e.,fixed maturities), including asset-backed and collateralized securities, and interest-bearing cash equivalents
  which are maintained in segregated accounts for TRH by the program manager. A liability is recorded in an amount equal to the collateral received to recognize TRHs obligation to return such funds when
  the related loaned securities are returned. The fair value of the loaned securities, which is reflected parenthetically as pledged on the balance sheet, is monitored on a daily
12

basis with additional collateral obtained or refunded as the value fluctuates. Income earned on invested collateral, net of interest payable to the collateral provider, is included in net investment income.
The following table reflects investment results for TRH for each of the five years in the period ended December 31, 2007.
INVESTMENT RESULTS
Years Ended December 31,
    
    AverageInvestments(1)
    
    Pre-Tax NetInvestmentIncome
    
    Pre-TaxEffectiveYield(2)(dollars in thousands)2007
    
    
    $
    
    12,024,944
    
    
    
    $
    
    469,772
    
    
    
    
    3.9
    %2006
    
    
    
    10,270,004
    
    
    
    
    434,540
    
    
    
    
    4.22005
    
    
    
    8,748,640
    
    
    
    
    343,247
    
    
    
    
    3.92004
    
    
    
    7,566,066
    
    
    
    
    306,786
    
    
    
    
    4.12003
    
    
    
    6,211,294
    
    
    
    
    270,972
    
    
    
    
    4.4

(1)
    
    
    
    Average of the beginning and ending carrying values of investments and cash for the year, excluding non-interest-bearing cash. See Results of Operations in MD&A.(2)
    
    
    
    Pre-tax net investment income divided by average investments.The carrying values of available for sale and trading securities are subject to significant volatility from changes in their fair values. (See MD&A.)
As of December 31, 2007, the fair value of the total investment portfolio was $12,786.0 million.
In addition, TRHs investments are exposed to market and other significant risks which could result in the loss of fair value. Market risk results from the potential for adverse fluctuations in interest
  rates, equity prices and foreign currency exchange rates. TRH has performed Value at Risk (VaR) analyses to estimate the maximum potential loss of fair value that could occur as a result of market risk
  over a period of one month at a confidence level of 95%. As market risk is assessed based upon VaR historical simulation methodology, it does not provide weight in its analysis to risks relating to current
  market issues such as liquidity and the credit-worthiness of investments. (See MD&A.)
Competition
The reinsurance business is a mature, highly competitive industry in virtually all lines of business. See MD&A for a discussion of market conditions and trends in competition intensity in recent years.
Competition in the types of reinsurance in which TRH engages is based on many factors, including the perceived overall financial strength of the reinsurer, Best, S&P and Moodys ratings, the states or
  other jurisdictions where the reinsurer is licensed, accredited, authorized or can serve as a reinsurer, capacity and coverages offered, premiums charged, specific terms and conditions of the reinsurance
  offered, value-added services offered, speed of claims payment and reputation and experience in the lines of business underwritten. These factors also operate in the aggregate across the reinsurance
  industry, generally in combination with prevailing economic conditions. Reinsurance purchases are also sensitive to cyclical movements in reinsurance rates, terms and conditions and ultimately the
  reinsurance industrys overall financial results.
TRH competes in the United States and international reinsurance markets with numerous major international reinsurance companies and numerous domestic reinsurance companies, some of which
  have greater financial and other resources than TRH. TRHs competitors include independent reinsurance companies, subsidiaries or affiliates of established worldwide insurance companies, reinsurance
  departments of certain primary insurance companies, domestic and European underwriting syndicates and in some instances with government owned or subsidized facilities. Although most reinsurance
  companies operate in the broker market, TRHs largest competitors also work directly with ceding companies, competing with brokers.
Traditional reinsurers as well as capital market participants from time to time produce alternative products (such as reinsurance securitizations, catastrophe bonds and various derivatives such as swaps)
  that may compete with certain types of reinsurance, such as property catastrophe. Over time, these
13

numerous initiatives could significantly affect supply, pricing and competition in the reinsurance industry.
Employees
At December 31, 2007, TRH had approximately 570 employees. Approximately 240 employees were located in the New York headquarters; 110 employees were located in other locations in the United
  States and 220 employees were located in offices outside of the United States.
Regulation
TRHs operations around the world are subject to regulation by insurance regulators in the U.S. and abroad. The regulatory environment can have a significant effect on TRH and its businesses. TRC,
  TRZ and Putnam, in common with other reinsurers, are subject to regulation and supervision by the states and by other jurisdictions in which they do business. Within the United States, the method of such
  regulation varies but generally has its source in statutes that delegate regulatory and supervisory powers to a state insurance official. The regulation and supervision relate primarily to the standards of
  solvency that must be met and maintained, including risk-based capital measurements, the licensing of reinsurance, the nature of and limitations on investments, restrictions on the size of risks which may be
  insured under a single contract, deposits of securities for the benefit of ceding companies, methods of accounting, periodic audits of the affairs and financial reports of insurance companies, the form and
  content of reports of financial condition required to be filed, and reserves for unearned premiums, losses and other purposes. As required by the state of New York, TRC and Putnam use the Codification of
  Statutory Accounting Principles as primary guidance on statutory accounting. In general, such regulation is for the protection of the ceding companies and, ultimately, their policyholders rather than security
  holders.
The rates and contract terms of reinsurance agreements are generally not subject to regulation by any governmental authority. This contrasts with primary insurance agreements, the rates and policy
  terms of which are generally closely regulated by governmental authorities. As a practical matter, however, the rates charged by primary insurers and the policy terms of primary insurance agreements may
  affect the rates charged and the policy terms associated with reinsurance agreements.
The Company, TRC, TRZ and Putnam are subject to the insurance statutes, including insurance holding company statutes, of various states and jurisdictions. The insurance holding company laws and
  regulations vary from jurisdiction to jurisdiction, but generally require domestic insurance holding companies and insurers and reinsurers that are subsidiaries of insurance holding companies to register with
  the applicable state regulatory authority and to file with that authority certain reports which provide information concerning their capital structure, ownership, financial condition, affiliated company
  transactions and general business operations.
Such holding company laws generally also require prior regulatory agency approval of changes in direct or indirect control of an insurer or reinsurer and of certain material intercorporate transfers of
  assets within the holding company structure. The New York Insurance Law provides that no corporation or other person, except an authorized insurer, may acquire direct control of TRC or Putnam, or
  acquire control of the Company and thus indirect control of TRC and Putnam, unless such corporation or person has obtained the prior approval of the New York State Insurance Department (the NYS
  ID) for such acquisition. For the purposes of the New York Insurance Law, any investor acquiring ten percent or more of TRH shares would be presumed to be acquiring control of the Company and its
  subsidiaries, unless the NYS ID determines upon application that such investor would not control the Company. An investor who would be deemed to be acquiring control of the Company would be
  required to obtain the approval of the NYS ID prior to such acquisition. In addition, such investor would become subject to various ongoing reporting requirements in New York and in certain other states.
  (See Control of the Company for additional discussion.)
Risk Based Capital (RBC) is designed to measure the adequacy of an insurers statutory surplus in relation to the risks inherent in its business. Thus, inadequately capitalized insurance companies
  may be identified. The RBC formula develops a risk adjusted target level of statutory surplus by applying
14

certain factors to various asset, premium and reserve items. Higher factors are applied to items deemed to have more risk by the National Association of Insurance Commissioners (NAIC) and lower
  factors are applied to items that are deemed to have less risk. Thus, the target level of statutory surplus varies not only as a result of the insurers size, but also on the risk profile of the insurers operations.
The RBC Model Law provides for four incremental levels of regulatory attention for insurers whose surplus is below the calculated RBC target. These levels of attention range in severity from
  requiring the insurer to submit a plan for corrective action to placing the insurer under regulatory control.
At December 31, 2007, the statutory surpluses of TRC and Putnam each exceeded the level of surplus required under RBC requirements for regulatory attention.
Through the credit for reinsurance mechanism, TRC and Putnam are indirectly subject to the effects of regulatory requirements imposed by the states in which TRCs and Putnams ceding companies
  are licensed. In general, an insurer which obtains reinsurance from a reinsurer that is licensed, accredited or authorized by the state in which the insurer files statutory financial statements is permitted to
  take a credit on its statutory financial statements in an aggregate amount equal to the reinsurance recoverable on paid losses and the liabilities for unearned premiums and loss and LAE reserves ceded to
  the reinsurer, subject to certain limitations where amounts of reinsurance recoverable on paid losses are more than 90 days overdue. Certain states impose additional requirements that make it difficult to
  become so authorized, and certain states do not allow credit for reinsurance ceded to reinsurers that are not licensed or accredited in that state without additional provision for security.
Throughout 2007, the NAIC continued to debate modifications of the collateral requirements under current credit for reinsurance guidelines. Additionally, several states including New York and
  Florida have drafted separate collateral requirement proposals. While it is unclear what proposal will ultimately be adopted by the states, any revision of the collateral requirements will likely recognize that
  reinsurers domiciled in certain countries outside of the U.S. are subject to financial scrutiny comparable to their U.S. domiciled counterparts. Consequently, collateral requirements under credit for
  reinsurance rules will be based in part on domicile and in part on each reinsurers financial strength rating as assigned by the NAIC or its designated rating organization(s). TRH does not presently expect
  this proposal to have a material effect on its operations. However, such proposal is expected to reduce the amount of collateral that many non-U.S. domiciled companies will need to post to secure their
  obligations to U.S. domiciled insurers and reinsurers.
TRHs international operations are regulated in various jurisdictions with respect to licensing requirements, currency, amount and type of security deposits, amount and type of reserves and amount and
  type of local investment. International operations and assets held abroad may be adversely affected by political and other developments in foreign countries, including possible tax changes, nationalization
  and changes in regulatory policy, as well as by consequences of hostilities and unrest. The risks of such occurrences and their overall effect upon TRH vary from country to country and cannot easily be
  predicted. Regulations governing constitution of technical reserves and remittance balances in some countries may hinder remittance of profits and repatriation of assets.
The Terrorism Risk Insurance Act of 2002 (TRIA) was signed into law in November 2002 and extended for two years in December 2005. TRIA provided coverage to the insurance industry for acts
  of terrorism, as defined by TRIA. The Terrorism Risk Insurance Extension Act of 2005 (TRIEA) greatly increased the portion of the loss the insurance industry would pay in the event of a terrorist
  attack and reduced the number of lines covered. This coverage does not apply to reinsurers. Terrorism Risk Insurance Program Reauthorization Act of 2007 (TRIPRA) extended the TRIEA program
  through 2014. TRIPRA removes the distinction between foreign and domestic acts of terrorism and hardens the cap on insurers aggregate liability at $100 billion. Additionally, TRIPRA mandates that
  Federal fund outlays be recouped by mandatory policyholder surcharges. In general, TRH does not provide terrorism cover under international property treaties nor does it provide cover for certified acts
  of terrorism, as defined by TRIEA, under domestic property treaties. TRH offers terrorism-specific treaty coverages to ceding companies on a limited basis. With respect to other lines of business, TRH
  assumes terrorism risk in marine, aviation and other casualty treaties after careful underwriting consideration and, in many cases, with limitations.
15

Within the European Union (the EU), the EU Reinsurance Directive of November 2005 (the Directive) was to be phased in commencing October 2007 and fully implemented no later than
  October 2008. This directive will lift barriers to trade within the EU for companies that are domiciled in an EU country. TRH operates within the EU through a series of foreign branches and continues to
  evaluate the potential impact of the implementation of the Directive, which could vary from country to country. TRH has contacted insurance regulators throughout the EU to ascertain their regulatory
  intent and to discuss each countrys rule applicable to TRH. Currently, TRH continues to conduct business within the EU through its foreign branches with no significant impact on its operations. As each
  country within the EU adopts rules implementing the Directive, TRH could be materially affected by the adopted rules. TRH may be required to post additional collateral in EU countries or may need to
  consider restructuring its business in order to comply with the rules adopted in EU countries implementing the Directive.
In addition to the Directive, the EU is phasing in a new regulatory regime for regulation of financial services known as Solvency II. Solvency II is a principles based regulatory regime that seeks to
  enhance transparency, promote uniformity, and encourage a proactive approach to company solvency. It is built on a risk-based approach to setting capital requirement of insurers and reinsurer. Solvency II
  is scheduled to be introduced for insurers and reinsurers in 2010 and implemented by 2012. TRH could be materially impacted by the implementation of Solvency II depending on the costs associated with
  implementation by each EU country, any increased capitalization requirements and any costs associated with adjustment to its corporate operating structure.
Relationship with the AIG Group
AIG
AIG is a holding company which, through its subsidiaries, is engaged in a broad range of insurance and insurance-related activities in the United States and abroad. AIGs primary activities include
  both general insurance and life insurance & retirement services operations. Other significant activities include financial services and asset management. AIG subsidiaries other than TRH, collectively, are
  among the largest purchasers of reinsurance in the insurance industry based on premiums ceded.
Control of the Company
As of December 31, 2007, 2006 and 2005, AIG beneficially owned approximately 59% of the Companys outstanding shares. As of December 31, 2007, three of the Companys ten current directors were
  active executive officers of AIG, or in the case of Thomas R. Tizzio retired, and held a number of executive positions with AIG, including the following: Steven J. Bensinger is an Executive Vice President
  and Chief Financial Officer; Martin J. Sullivan is a Director, President and Chief Executive Officer; and Thomas R. Tizzio is a Retired Senior Vice Chairman and Honorary Director.
As of December 31, 2006, three of the Companys nine directors were active executive officers of AIG, or in the case of Thomas R. Tizzio retired, and held a number of executive positions with AIG,
  including the following: Steven J. Bensinger was an Executive Vice President and Chief Financial Officer; Martin J. Sullivan was a Director, President and Chief Executive Officer; and Thomas R. Tizzio
  was a Retired Senior Vice Chairman and Honorary Director.
As of December 31, 2005, three of the Companys eight directors were active executive officers of AIG and held a number of executive positions with AIG, including the following: Mr. Bensinger was
  an Executive Vice President and Chief Financial Officer; Mr. Sullivan was a Director, President and Chief Executive Officer; and Mr. Tizzio was an Honorary Director and Senior Vice ChairmanGeneral
  Insurance. Messrs. Bensinger and Sullivan were elected to TRHs Board on May 19, 2005.
Between April 4, 2005 and May 19, 2005, only one, Mr. Tizzio, of the Companys six directors was an active executive officer of AIG.
Between January 1, 2005 and April 3, 2005, four of the Companys nine directors were active executive officers of AIG, or in the case of Edward E. Matthews retired, and held a number of executive
  positions with AIG, including the following: Maurice R. Greenberg was a Director, Chairman
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and Chief Executive Officer; Mr. Mathews was an Honorary Director and Senior Advisor; Howard I. Smith was a Director, Vice Chairman and Chief Financial Officer; and Mr. Tizzio served as an
  Honorary Director and Senior Vice ChairmanGeneral Insurance. On April 4, 2005, Messrs. Greenberg, Matthews and Smith resigned from TRHs Board.
AIG Group Reinsurance
AIG offers TRH the opportunity to participate in a significant amount of property and casualty reinsurance purchased by other subsidiaries of AIG. TRH either accepts or rejects such reinsurance
  offered based upon TRHs assessment of risk selection, pricing, terms and conditions. Except where insurance business written by AIG subsidiaries is almost entirely reinsured by TRH by prearrangement,
  TRH has generally not set terms and conditions as lead underwriter with respect to the treaty reinsurance purchased by other subsidiaries of AIG; however, TRH may in the future set terms and conditions
  with respect to such business as lead underwriter and intends that the terms and conditions of any such reinsurance will be negotiated on an arms length basis. The operating management of TRH is not
  employed by the AIG Group, and the Underwriting Committee of the Board of Directors of the Company, which includes directors of the Company who are not employees of the AIG Group, monitor
  TRHs underwriting policies.
Approximately $555 million (13%), $593 million (15%) and $575 million (15%) of gross premiums written by TRH in the years 2007, 2006 and 2005, respectively, were attributable to reinsurance
  purchased by other subsidiaries of AIG, for the production of which TRH recorded ceding commissions totaling approximately $114 million, $140 million and $122 million, respectively, in such years. (The
  amounts discussed in the preceding sentence include transactions with C.V. Starr & Co., Inc. (Starr) as described in Transactions with Starr.) In 2007, 2006 and 2005, the great majority of such gross
  premiums written were recorded in the property, other liability, medical malpractice and ocean marine and aviation lines. Of the premiums assumed from other subsidiaries of AIG, $248 million, $227
  million and $209 million in 2007, 2006 and 2005, respectively, represent premiums resulting from certain insurance business written by other AIG subsidiaries that is almost entirely reinsured by TRH by
  prearrangement, for the production of which TRH recorded ceding commissions to such AIG subsidiaries totaling approximately $41 million, $40 million and $37 million, respectively, in such years. TRH
  has no goal with respect to the proportion of AIG Group subsidiary versus non-AIG Group subsidiary business it accepts. TRHs objective in determining its business mix is to evaluate each underwriting
  opportunity individually with a view to maximizing overall underwriting results. (See Note 13 of Notes to Consolidated Financial Statements.)
TRH retroceded premiums written to other subsidiaries of AIG in the years 2007, 2006 and 2005 of approximately $143 million, $135 million and $95 million, respectively, and received ceding
  commissions of approximately $13 million, $14 million and $9 million, respectively, for the production of such business in such years. Virtually the entire amount of such retrocessions to AIG subsidiaries in
  2007, 2006 and 2005 consist of amounts which, by prearrangement with TRH, were assumed from a subsidiary of AIG and then ceded in an equal amount to other subsidiaries of AIG. (See Note 15.)
Senior Notes Purchased by AIG Subsidiaries
In December 2005, certain subsidiaries of AIG purchased, and at December 31, 2007 still hold, $450 million aggregate principal amount of the Companys 5.75% senior notes due in 2015. Such amount
  comprised 60% of the total amount of such notes offered. (See Note 6 of Notes to Consolidated Financial Statements.)
Transactions with Starr and Compensation of Certain TRH Employees from Starr International Company (SICO)
According to the Schedule 13D filed on March 20, 2007 by Starr, SICO, Edward E. Matthews, Maurice R. Greenberg, the Maurice R. and Corinne P. Greenberg Family Foundation, Inc., the Universal
  Foundation, Inc., the Maurice R. and Corinne P. Greenberg Joint Tenancy Company, LLC and the C.V. Starr & Co., Inc. Trust, these reporting persons could be deemed to beneficially own 355.0 million
  shares of AIGs common stock at that date. Based on the shares of AIGs common stock
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outstanding as of October 31, 2007, this
ownership would represent approximately 14% of the voting stock of AIG. Although these reporting
persons have made filings under Section 16 of the Securities
  Exchange Act of 1934, reporting sales of shares of common stock, no amendment to the Schedule 13D has been filed to report a change in ownership subsequent to March 20, 2007. Throughout 2005 certain
  directors of TRH were also stockholders, executive officers or directors of Starr. On January 9, 2006, Starr released a press release indicating that all AIG executives and officers had tendered their shares in
  Starr pursuant to Starrs tender offer. In 2007 and 2006, no TRH directors were stockholders, executive officers or directors of Starr.
In 2005, through April 3, Messrs. Greenberg, Matthews and Smith were directors of TRH and also stockholders, executive officers or directors of Starr. On April 4, 2005, Messrs. Greenberg, Matthews
  and Smith resigned from the Board of Directors of TRH. For 2005, Messrs. Orlich and Tizzio were also stockholders, executive officers or directors of Starr. From May 19, 2005, when Messrs. Bensinger and
  Sullivan were elected to the Board of TRH, through approximately December 31, 2005, Messrs. Bensinger and Sullivan were also stockholders, executive officers or directors of Starr.
Transactions with Starr
Throughout 2007, 2006 and 2005, certain of Starrs subsidiaries operated as insurance agencies or brokers for insurance subsidiaries of AIG and, in such capacity, had produced reinsurance business
  for TRH. Net commissions relating to Starr subsidiaries were insignificant in 2007 and 2006. Net commissions relating to Starr subsidiaries totaled $11 million in 2005 for reinsurance purchased by
  subsidiaries of AIG totaling $59 million.
Compensation of Certain TRH Employees from SICO
SICO is a private holding company which has no direct ownership interest in TRH but which has a significant ownership interest in AIG. SICO had provided a series of two-year Deferred
  Compensation Profit Participation Plans (the SICO Plans) to certain TRH employees through December 31, 2004. The SICO Plans came into being in 1975 when the voting shareholders and Board
  of Directors of SICO, a private holding company whose principal asset is AIG common stock, decided that a portion of the capital value of SICO should be used to provide an incentive plan for the
  current and succeeding managements of all American International companies, including TRH.
None of the costs of the various benefits provided under the SICO Plans has been paid by TRH. Following AIGs determination in 2005 to record a charge for the deferred compensation amounts
  paid to TRH employees by SICO, TRH determined that, as a subsidiary of AIG, it was appropriate to record the compensation expense relating to its employees participation in such plans, with an
  offsetting amount credited to additional paid-in capital reflecting amounts deemed contributed by AIG to TRH.
The SICO Plans provide that shares currently owned by SICO are set aside by SICO for the benefit of the participant and distributed upon retirement. The SICO Board of Directors currently may
  permit an early payout of units under certain circumstances. Prior to payout, the participant is not entitled to vote, dispose of or receive dividends with respect to such shares, and shares are subject to
  forfeiture under certain conditions, including but not limited to the participants voluntary termination of employment prior to normal retirement age. Under the SICO Plans, SICOs Board of Directors
  may elect to pay a participant cash in lieu of shares of AIG common stock. Following notification in December 2005 from SICO to participants in the SICO Plans that it will settle specific future awards
  under the SICO Plans with shares rather than cash, the accounting for the SICO Plans changed from variable to fixed measurement accounting. The impact of such change is insignificant to the amount
  of expense recorded in 2005.
In 2007, 2006 and 2005, TRH recorded compensation expense (included in the Consolidated Statements of Operations in Other, net) relating to the SICO Plans of $1.4 million, $1.1 million and
  $3.3 million, respectively, with a corresponding increase to additional paid-in capital. TRH will continue to record compensation expense and increases to additional paid-in capital relating to the SICO
  Plans in future periods.
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As total SICO compensation expense for each year prior to 2005 would not have been material to any such prior year, TRH recorded in 2005 the total amount of compensation expense relating to
  the SICO Plans that would have been recorded in all prior periods through December 31, 2004 as a reduction of retained earnings of $8.3 million, which was net of income tax savings that TRH
  expected to realize of $3.0 million. The entire amount of such prior year compensation cost, before tax effect, of $11.3 million, was considered a contribution to capital, and was recorded as an increase
  to additional paid-in capital.
In making this determination, TRH evaluated the impact that expense recognition would have had on all prior years to which SICO Plans compensation would have applied. In addition, these
  amounts were calculated as variable stock awards, which considered the fair value of AIG common stock at each measurement date, and included any distributions made under the SICO Plans.
In addition, during 2005, AIG initiated the 20052006 Deferred Compensation Profit Participation Plan (the AIG DCPPP) that has been modeled after the SICO Plans and includes certain TRH
  employees as participants. TRH will bear the costs relating to TRH employees participation in the AIG DCPPP. Compensation expense relating to the AIG DCPPP was not material in 2007 and 2006.
Item 1A. Risk Factors
The risks described below could materially affect TRHs business, results of operations, cash flows or financial condition.
The occurrence of severe catastrophic events could have a material adverse effect on TRHs financial condition, results of operations and operating cash flows.
Because TRH underwrites property and casualty reinsurance and has large aggregate exposures to natural and man-made disasters, TRH expects that its loss experience will from time to time include
  infrequent events of great severity. The frequency and severity of catastrophe losses are inherently unpredictable. Consequently, the occurrence of losses from a severe catastrophe or series of catastrophes
  could have a material adverse effect on TRHs financial condition, results of operations and cash flows. Increases in the values and geographic concentrations of insured property and the effects of inflation
  have historically resulted in increased severity of industry losses in recent years, and TRH expects that those factors will increase the severity of catastrophe losses in the future.
If TRH is required to increase its liabilities for loss reserves, TRHs financial condition and results of operations may be materially adversely affected.
Significant periods of time may elapse between the occurrence of an insured loss, the reporting of the loss to the ceding company and the reinsurer, and the ceding companys payment of that loss and
  subsequent payments to the ceding company by the reinsurer. TRH is required by applicable insurance laws and regulations and U.S. generally accepted accounting principles (GAAP) to establish
  liabilities on its consolidated balance sheet for payment of losses and LAE that will arise in the future from its reinsurance products for losses that have occurred as of the balance sheet date. Under GAAP,
  TRH is not permitted to establish liabilities until an event occurs that may give rise to a loss. Once such an event occurs, liabilities are established in TRHs financial statements for TRHs losses, based
  upon estimates of losses incurred by the ceding companies. As a result, only liabilities applicable to losses incurred up to the reporting date may be established, with no allowance for the provision of a
  contingency reserve to account for expected or unexpected future losses. Losses arising from future events will be estimated and recognized at the time the losses occur. Although TRH annually reviews the
  adequacy of its established reserves for losses and LAE, there can be no assurance that TRHs loss reserves will not develop adversely and have a material effect on TRHs results of operations. To the
  extent these liabilities may be insufficient to cover actual losses or LAE, TRH will have to add to these liabilities and incur a charge to its earnings, which could have a material adverse effect on TRHs
  financial condition and results of operations. (See MD&A for further discussion of the risks and uncertainties relating to loss reserves.)
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A downgrade in the ratings assigned to TRHs operating subsidiaries could adversely affect TRHs ability to write new business and may adversely impact TRHs existing agreements.
Best, S&P and Moodys are generally considered to be significant rating agencies with respect to the evaluation of insurance and reinsurance companies. Ratings are used by ceding companies and
  reinsurance intermediaries as an important means of assessing the financial strength and quality of reinsurers. These ratings are subject to periodic review at the discretion of each respective rating agency
  and may be revised downward or revoked at their sole discretion. Rating agencies also may increase their scrutiny of rated companies, revise their rating standards or take other action. In addition, a ceding
  companys own rating may be adversely affected by a downgrade in the rating of its reinsurer or an affiliated company. Therefore, a downgrade of TRHs rating may dissuade a ceding company from
  reinsuring with TRH in the future and may influence a ceding company to reinsure with a competitor of TRH that has a higher financial strength rating.
Best maintains a financial strength rating of A+ (Superior) and issuer credit ratings of aa on the Companys major operating subsidiaries, TRC, Putnam and TRZ. In addition, Best maintains an issuer
  credit rating of a for the Company. These financial strength ratings represent the second highest rating level. The issuer credit ratings of the Companys major operating subsidiaries represent the fourth
  highest rating level and the issuer credit rating of the Company represents the seventh highest rating level.
On February 14, 2008, following the issuance by AIG of a Form 8-K on February 11, 2008, Best placed the issuer credit rating of AIG and the financial strength and issuer credit ratings of certain of
  AIGs domestic property/casualty subsidiaries, including the Company, TRC, TRZ and Putnam, under review with negative implications. According to Best, the placement of the financial strength and
  issuer credit ratings of the Company, TRC, TRZ and Putnam under review with negative implications reflects the fact that these ratings incorporate implicit support from AIG.
Following a detailed review of AIGs year-end 2007 results and further discussion with AIG management, Best has indicated that it will re-evaluate AIGs and its subsidiaries under review status.
S&P maintains counterparty credit and insurer financial strength ratings on each of TRC, Putnam and TRZ of AA (Very Strong). This rating is the fourth highest rating level. The outlook for the AA
  rating is presently negative, due to S&Ps view that Transatlantics operating performance has produced lower returns in recent years than would be expected at the AA rating level. While describing the
  conditions that would contribute to a revision back to a stable outlook, S&P also commented that if operating results are below S&Ps expectations, or should Transatlantic be unsuccessful in integrating the
  economic capital model into the strategic planning process or fail to maintain its disciplined underwriting standards, S&P would review the rating for a possible downgrade.
Moodys maintains an insurance financial strength rating of Aa3 (Excellent) on TRC. The outlook for the rating is stable. This rating is the fourth highest rating level.
The Companys 5.75% senior notes due in 2015 are presently rated A2 by Moodys, A by S&P and a by Best. The outlook for the Moodys rating is stable. The outlook for the S&P rating is currently
  negative and the Best rating is under review with negative implications, each for the same reasons as discussed above relative to the other ratings from such rating agencies. If these debt ratings were
  lowered, future borrowing costs, if any, may increase.
A significant portion of TRCs and TRZs in-force treaty contracts as of December 31, 2007 permit the ceding company to cancel the contract if TRCs or TRZs financial strength rating is downgraded
  below a certain rating level, generally A. TRCs and TRZs financial strength ratings are at least three levels above the most common trigger point. In addition, contracts may also permit the ceding
  company to cancel the contract if there is a significant decline in the statutory surplus of TRC, generally of at least 20%.
Contracts may contain one or both of the aforementioned contractual provisions, certain other cancellation triggers or other stipulations, such as a requirement to post collateral for all or a portion of
  TRHs obligations under the contract if a triggering event occurs. Whether a ceding company would exercise any of these cancellation rights would depend on, among other factors, the reason and extent
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of such downgrade or surplus reduction, the prevailing market conditions and the pricing and availability of replacement reinsurance coverage, among other factors.
When a contract is cancelled on a cut-off basis, as opposed to a run-off basis, the liability of the reinsurer under policies which became effective under the treaty prior to the cancellation date of
  such treaty ceases with respect to losses resulting from events taking place on and after said cancellation date. Accordingly, unearned premiums on that business as of the cut-off date are returned to the
  ceding company, net of a proportionate share of the original ceding commission. In the accounting period of the cancellation effective date, the amount of unearned premiums returned would be recorded as
  a reduction of gross premiums written with a like reduction in gross unearned premiums with no effect on gross premiums earned. Thus, the canceling of a contract generally has future implications to
  TRHs business but rarely affects premiums already earned.
TRH cannot predict in advance the extent to which these cancellation rights would be exercised, if at all, or what effect such cancellations would have on TRHs financial condition or future operations,
  but such effect potentially could be material.
TRH may secure its obligations under its various reinsurance contracts using trusts and letters of credit. TRH may enter into agreements with ceding companies that require TRH to provide collateral
  for its obligations under certain reinsurance contracts with these ceding companies under various circumstances, including where TRHs obligations to these ceding companies exceed negotiated thresholds.
  These thresholds may vary depending on TRHs ratings and a downgrade of TRHs ratings or a failure to achieve a certain rating may increase the amount of collateral TRH is required to provide. TRH
  may provide the collateral by delivering letters of credit to the ceding company, depositing assets into trust for the benefit of the ceding company or permitting the ceding company to withhold funds that
  would otherwise be delivered to TRH under the reinsurance contract. The amount of collateral TRH is required to provide typically represents all or a portion of the obligations TRH may owe the ceding
  company, often including estimates made by the ceding company of IBNR claims. Since TRH may be required to provide collateral based on the ceding companys estimate, TRH may be obligated to
  provide collateral that exceeds its estimates of the ultimate liability to the ceding company. An increase in the amount of collateral TRH is obligated to secure its obligations may have an impact on TRHs
  ability to write additional reinsurance.
These ratings are current opinions of the rating agencies. As such, they may be changed, suspended or withdrawn at any time by the rating agencies as a result of changes in, or unavailability of,
  information or based on other circumstances, including TRHs relationship with AIG. Ratings may also be withdrawn at the request of TRHs management. Ratings are not a recommendation to buy, sell or
  hold securities and each rating should be evaluated independently of any other rating.
If TRHs risk management methods and pricing models are not effective, TRHs financial condition, results of operations and cash flows could be materially adversely affected.
TRHs property and casualty reinsurance contracts cover unpredictable events such as hurricanes, windstorms, hailstorms, earthquakes, volcanic eruptions, fires, industrial explosions, freezes, riots,
  floods and other natural or man-made disasters, including those that may result from terrorist activity. TRH is also exposed to multiple insured losses arising out of a single occurrence that have the
  potential to accumulate to material amounts and affect multiple risks/programs and classes of business. TRH uses modeling techniques to manage certain of such risks to acceptable limits, although current
  techniques used to estimate the exposure may not accurately predict the probability of such an event nor the extent of resulting losses. In addition, TRH may purchase retrocession protection designed to
  limit the amount of losses that TRH may incur. Retrocession arrangements do not relieve TRH from its obligations to the insurers and reinsurers from whom it assumes business, and the failure of
  retrocessionnaires to honor their obligations could result in losses to TRH. Moreover, from time to time, market conditions may limit and in some cases prevent reinsurers from obtaining the types and
  amounts of reinsurance that they consider adequate for their risk management. It is likely that TRH will face more difficulty obtaining certain retrocession protection in the future, and will also be required
  to pay higher prices for such protections than in the recent past. If TRH is unable to obtain retrocessional coverage in the
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amounts it desires or on acceptable terms, TRHs capacity and appetite for risk could change, and TRHs financial condition and results of operations may be materially adversely affected.
Various provisions of TRHs contracts, such as limitations to or exclusions from coverage or choice of forum, may not be enforceable in the manner TRH intends, due to, among other things, disputes
  relating to coverage and choice of legal forum. Underwriting is a matter of judgment, involving important assumptions about matters that are inherently difficult to predict and beyond TRHs control, and
  for which historical experience and probability analysis may not provide sufficient guidance. One or more catastrophic or other events could result in claims that substantially exceed TRHs expectations,
  which could have a material adverse effect on TRHs financial condition, results of operations and cash flows.
The property and casualty reinsurance business is historically cyclical, and TRH expects to experience periods with excess underwriting capacity and unfavorable pricing.
Historically, property and casualty reinsurers have experienced significant fluctuations in operating results. Demand for reinsurance is influenced significantly by underwriting results of primary insurers
  and prevailing general economic and market conditions, all of which affect ceding companies decisions as to the amount or portion of risk that they retain for their own accounts and consequently how
  much they decide to cede to reinsurance companies. The supply of reinsurance is related to prevailing prices, the levels of insured losses, and levels of industry surplus, among other factors, that, in turn,
  may fluctuate in response to changes in rates of return on investments being earned in the reinsurance industry. In addition, the supply of reinsurance is affected by a reinsurers confidence in its ability to
  accurately assess the probability of expected underwriting outcomes, particularly as respects catastrophe losses. As a result, the property and casualty reinsurance business historically has been a cyclical
  industry, characterized by periods of intense price competition due to excessive underwriting capacity as well as periods when shortages of capacity permitted favorable pricing.
The cyclical trends in the industry and the industrys profitability can also be affected significantly by volatile and unpredictable developments, including what TRH believes to be a trend of courts to
  grant increasingly larger awards for certain damages, changes in the political, social or economic environment, natural disasters (such as catastrophic hurricanes, windstorms, tornadoes, earthquakes and
  floods), man-made disasters (such as those arising from terrorist activities), fluctuations in interest rates, changes in the investment environment that affect market prices of and returns on investments and
  inflationary pressures that may tend to affect the size of losses experienced by primary insurers. TRH cannot predict whether market conditions will improve, remain constant or deteriorate. Unfavorable
  market conditions may affect TRHs ability to write reinsurance at rates that it considers appropriate relative to the risk assumed. If TRH cannot write property and casualty reinsurance at appropriate
  rates, its ability to transact reinsurance business would be significantly and adversely affected.
Increased competition could adversely affect TRHs profitability.
The property and casualty reinsurance industry is highly competitive in virtually all lines. TRH faces competition from new market entrants and from existing market participants that devote increasing
  amounts of capital to the types of business written by TRH. Over the past few years, increased market capacity, domestic and international merger and acquisition activity, the strengthening of Lloyds of
  Londons capital base, and limited catastrophe activity in 2006 and 2007, have added to competitive pressures. As a result of certain 2005 catastrophe events, namely, Hurricane Katrina, the insurance
  industrys largest natural catastrophe loss ever, and two subsequent substantial hurricanes, existing insurers and reinsurers raised new capital and significant investments have been made in new insurance
  and reinsurance companies in Bermuda. The ultimate impact on the market of these events is uncertain.
Competition in the types of reinsurance in which TRH is engaged is based on many factors, including the perceived overall financial strength of the reinsurer, the ratings of Best, S&P and Moodys, the
  states or other jurisdictions where the reinsurer is licensed, accredited, authorized or can serve as a reinsurer, capacity and coverages offered, premiums charged, specific terms and conditions of the
  reinsurance offered, services offered, speed of claims payment and reputation and experience in the lines of business underwritten.
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TRH competes in the United States and international reinsurance markets with numerous major international reinsurance companies and numerous domestic reinsurance companies, some of which
  have greater financial and other resources than TRH. TRHs competitors include independent reinsurance companies, subsidiaries or affiliates of established worldwide insurance companies, reinsurance
  departments of certain primary insurance companies, domestic and European underwriting syndicates and in some instances with government owned or subsidized facilities. Certain of these competitors
  have been operating substantially longer than TRH has and have established long-term and continuing business relationships throughout the industry, which can be a significant competitive advantage.
Traditional reinsurers as well as capital market participants from time to time produce alternative products or reinsurance vehicles (such as reinsurance securitizations, catastrophe bonds, various
  derivatives such as swaps and sidecars) that may compete with certain types of reinsurance, such as property catastrophe. Capital markets, including hedge funds, have become more active in assuming more
  reinsurance risk other than from investing in various companies. Numerous hedge funds have provided both pro rata and excess-of-loss reinsurance and retrocessional protections through captive companies
  or other alternative transactions on a fully collateralized basis for property and energy catastrophe business. Over time, these numerous initiatives could significantly affect supply, pricing and competition in
  the reinsurance industry.
In December 2006, the Florida legislature adopted legislation, since signed into law, which directed the Florida Hurricane Catastrophe Fund to more than double its catastrophe reinsurance fund limit.
  The rate for this coverage is mandated to be significantly below the prevailing market rate. The same law froze current property insurance rates and imposed a moratorium on policy non-renewals. Several
  other Southeast states have publicly indicated that they are considering similar proposals. While it is too early to make a prediction of the full impact of this law, given TRHs historical participation in this
  market, TRH does not presently expect the impact of this legislation to materially reduce its premiums assumed as a result of the loss of some catastrophe excess-of-loss premiums covering Florida risks.
  However, this measure will likely reduce the demand for catastrophe reinsurance within the Florida market and may compel current market participants to seek greater participation and thus increase
  competition in other regions such as Latin America, the Caribbean, and the Coastal Mid-Atlantic and New England states.
Liquidity risk represents the potential inability of TRH to meet all payment obligations when they become due.
TRHs liquidity could be impaired by unforeseen significant outflows of cash. This situation may arise due to circumstances specific to TRH or that TRH may be unable to control, such as a general
  market disruption or an operational problem that affects third parties or TRH. The Company depends on dividends, distributions and other payments from its subsidiaries to fund dividend payments and to
  fund payments on its obligations, including debt obligations. Regulatory and other legal restrictions may limit TRHs ability to transfer funds freely, either to or from its subsidiaries. In particular, certain of
  TRHs branches or subsidiaries are subject to laws and regulations, including those in foreign jurisdictions, that authorize regulatory bodies to block or reduce transfers of funds to the home office in the
  U.S. or its affiliates. These laws and regulations may hinder TRHs ability to access funds that TRH may need to make payments on its obligations.
Certain of TRHs investments may become illiquid. TRHs investments include fixed maturities (including asset-backed and collateralized securities), equity investments and limited partnerships
  (including hedge funds and private equities). The current disruption in the credit markets may materially affect the liquidity of TRHs
  investments, including U.S. residential mortgage-backed securities which represent
  2% of total investments and cash. If TRH requires significant amounts of cash
  on short notice in excess of normal cash requirements (which could include
  the requirement to return significant amounts of collateral in connection with
  its securities lending activities on short notice) in a period of market illiquidity,
  then TRH may have difficulty selling investments in a timely manner or may
  be forced to dispose of them for less than what TRH might otherwise have been
  able to under other conditions.
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Concentration of TRHs investment portfolios in any particular segment of the economy may have adverse effects.
Concentration of TRHs investment portfolios in any particular industry, group of related industries, asset classes, such as residential mortgage-backed securities, or geographic sector could have an
  adverse effect on the investment portfolios and consequently on TRHs consolidated results of operations or financial condition. While TRH seeks to mitigate this risk by having a broadly diversified
  portfolio, events or developments that have a negative effect on any particular industry, asset class, group of related industries or geographic region may have a greater adverse effect on investment
  portfolios to the extent that the portfolios are concentrated rather than diversified. Further, TRHs ability to sell assets relating to such particular groups of related assets may be limited if other market
  participants are seeking to sell at the same time.
TRH may be adversely affected by the current disruption in the global credit markets.
During the second half of 2007, disruption in the global credit markets created increasingly difficult conditions in the financial markets. These conditions have resulted in greater volatility, less liquidity
  and a widening of credit spreads in certain markets. These conditions adversely affected the fair value of certain investment securities held by TRH, particularly those backed by U.S. residential mortgage
  loans, and could potentially increase claim activity under mortgage guaranty, D&O, E&O and credit reinsurance business TRH has underwritten. It is difficult to predict how long these conditions will exist and
  how TRHs markets, business and investments will continue to be adversely affected. Accordingly, these conditions could have a material adverse effect on TRHs consolidated financial condition or results
  of operations in future periods.
TRH may be adversely affected by the impact of market volatility and interest rate and foreign currency exchange rate fluctuation on its invested assets.
TRHs principal invested assets are fixed maturity investments and other interest rate sensitive securities, which are subject to the market risk of potential losses from adverse changes in interest rates
  and may also be adversely affected by foreign currency exchange rate fluctuations. Depending on TRHs classification of its investments as available for sale, trading or other, changes in the fair value of
  TRHs securities are reflected in the Consolidated Balance Sheet and/or Statement of Operations. TRHs investment portfolio is also subject to credit risk resulting from adverse changes in the issuers
  ability to repay the debt or the ability of bond issurers to meet their obligations to provide insurance if an issuer is unable to repay its debt. These risks could materially adversely affect TRHs results of
  operations and/or financial condition.
A principal exposure to foreign currency risk is TRHs obligation to settle claims in foreign currencies. The possibility exists that TRH may incur foreign currency exchange gains or losses as TRH
  ultimately settles claims required to be paid in foreign currencies. To mitigate this risk, TRH also maintains investments denominated in certain foreign currencies in which the claims payments will be
  made. To the extent TRH does not seek to hedge its foreign currency risk or hedges prove ineffective, the resulting impact of a movement in foreign currency exchange rate could materially adversely affect
  TRHs results of operations or financial condition.
TRHs businesses are heavily regulated, and changes in regulation may reduce TRHs profitability and limit its growth.
The Companys reinsurance subsidiaries are subject to extensive regulation and supervision in the jurisdictions in which they conduct business. This regulation is generally designed to protect the
  interests of policyholders, as opposed to reinsurers and their stockholders and other investors, and relates to authorization to transact certain lines of business, capital and surplus requirements, investment
  limitations, underwriting limitations, transactions with affiliates, dividend limitations, changes in control and a variety of other financial and non-financial components of an insurance companys business.
In recent years, the state insurance regulatory framework in the U.S. has come under increased federal scrutiny, and some state legislatures have considered or enacted laws that may alter or increase
  state authority to regulate insurance and reinsurance companies and insurance holding companies. Further, the NAIC and state insurance regulators are re-examining existing laws and regulations,
24

specifically focusing on modifications to holding company regulations, interpretations of existing laws and the development of new laws. Any proposed or future legislation or NAIC initiatives may be more
  restrictive than current regulatory requirements or may result in higher costs.
Within the EU, the Directive was to be phased in commencing October 2007 and fully implemented no later than October 2008. The Directive will lift barriers to trade within the EU for companies
  that are domiciled in an EU country. TRH operates within the EU through a series of foreign branches and continues to evaluate the potential impact of the implementation of the Directive which could
  vary from country to country. TRH has contacted insurance regulators throughout the EU to ascertain their regulatory intent and to discuss each countrys rule applicable to TRH. Currently, TRH
  continues to conduct business within the EU through its foreign branches with no significant impact on its operations. As each country within the EU adopts rules implementing the Directive, TRH could be
  materially affected by the adopted rules. TRH may be required to post additional collateral in EU countries or may need to consider restructuring its business in order to comply with the rules adopted in
  EU countries implementing the Directive.
In addition to the Directive, the EU is phasing in a new regulatory regime for regulation of financial services known as Solvency II. Solvency II is a principles based regulatory regime that seeks to
  enhance transparency, promote uniformity, and encourage a proactive approach to company solvency. It is built on a risk-based approach to setting capital requirement of insurers and reinsurer. Solvency II
  is scheduled to be introduced for insurers and reinsurers in 2010 and implemented by 2012. TRH could be materially impacted by the implementation of Solvency II depending on the costs associated with
  implementation by each EU country, any increased capitalization requirements and any costs associated with adjustment to its corporate operating structure.
TRHs offices that operate in jurisdictions outside the United States are subject to certain limitations and risks that are unique to foreign operations.
TRHs international operations are also regulated in various jurisdictions with respect to licensing requirements, currency, amount and type of security deposits, amount and type of reserves, amount
  and type of local investment and other matters. International operations and assets held abroad may be adversely affected by political and other developments in foreign countries, including possibilities of
  tax changes, nationalization and changes in regulatory policy, as well as by consequences of hostilities and unrest. The risks of such occurrences and their overall effect upon TRH vary from country to
  country and cannot easily be predicted. In addition, TRHs results of operations and net unrealized currency translation gain or loss (a component of accumulated other comprehensive income) are subject
  to volatility as the value of the foreign currencies fluctuate relative to the U.S. dollar. Regulations governing constitution of technical reserves and remittance balances in some countries may hinder
  remittance of profits and repatriation of assets.
The current investigations into certain non-traditional, or loss mitigation, insurance products and other legal matters could have a material adverse effect on TRHs financial condition or results of
  operations.
Various regulators including the United States Department of Justice (the DOJ), the Securities and Exchange Commission (the SEC), the Office of the New York State Attorney General (the
  NYAG) and the NYS ID have been conducting investigations relating to certain insurance and reinsurance business practices, non-traditional insurance products and assumed reinsurance transactions
  within the industry and at AIG. In connection with these investigations, AIG requested that TRH, as a subsidiary of AIG, review its documents and practices, and TRH has cooperated with AIG in all such
  requests.
On February 9, 2006, AIG announced that it reached a resolution of claims and matters under investigation by the DOJ, SEC, NYAG and NYS ID. AIG stated that the settlements resolved
  investigations conducted by the SEC, NYAG and NYS ID against AIG and conclude negotiations with these authorities and the DOJ in connection with the accounting, financial reporting and insurance
  brokerage practices of AIG and its subsidiaries, as well as claims relating to the underpayment of certain workers compensation premium taxes and other assessments.
As part of these settlements, AIG has agreed to retain, for a period of three years, an independent consultant who will conduct a review that will include, among other things, the adequacy of AIGs
25

internal controls over financial reporting, the policies, procedures and effectiveness of AIGs regulatory, compliance and legal functions and the remediation plan that AIG has implemented as a result of its
  own internal review. TRH, as a subsidiary of AIG, is cooperating with the terms of the settlements that are applicable to TRH.
In addition, from time to time, other regulators have commenced, and may in the future commence, investigations into insurance brokerage practices relating to contingent commissions and other
  industry-wide practices as well as other broker-related conduct, such as alleged bid-rigging, finite insurance and reinsurance transactions and other reinsurance practices. TRH has cooperated, and will
  continue to cooperate, in producing documents and other information in response to subpoenas and other requests. While TRH does not believe that any of these inquiries will have a material impact on
  TRHs business or financial results, it is not possible to predict with any certainty at this time what impact, if any, these inquiries may have on TRHs business or financial results.
Item 1B. Unresolved Staff Comments
None.
Item 2. Properties
As of December 31, 2007, the office space of TRHs New York headquarters and its Chicago and Toronto offices are rented from the AIG Group, which leases it from others. The lease for the office
  space occupied by TRHs New York headquarters expires in 2021. The Arlington, Columbus, Overland Park, San Francisco, Stamford, Miami, Buenos Aires, Rio de Janeiro, Panama, London, Paris, Zurich,
  Warsaw, Hong Kong, Shanghai, Tokyo and Sydney offices are rented from third parties.
Item 3. Legal Proceedings
TRH, in common with the reinsurance industry in general, is subject to litigation in the normal course of its business. TRH does not believe that any pending litigation will have a material adverse
  effect on its consolidated results of operations, financial position or cash flows.
Various regulators including the DOJ, the SEC, the NYAG and the NYS ID have been conducting investigations relating to certain insurance and reinsurance business practices, non-traditional
  insurance products and assumed reinsurance transactions within the industry and at AIG. In connection with these investigations, AIG requested that TRH, as a subsidiary of AIG, review its documents and
  practices, and TRH has cooperated with AIG in all such requests.
On February 9, 2006, AIG announced that it reached a resolution of claims and matters under investigation by the DOJ, SEC, NYAG and NYS ID. AIG stated that the settlements resolved
  investigations conducted by the SEC, NYAG and NYS ID against AIG and conclude negotiations with these authorities and the DOJ in connection with the accounting, financial reporting and insurance
  brokerage practices of AIG and its subsidiaries, as well as claims relating to the underpayment of certain workers compensation premium taxes and other assessments.
As part of these settlements, AIG has agreed to retain, for a period of three years, an independent consultant who will conduct a review that will include, among other things, the adequacy of AIGs
  internal controls over financial reporting, the policies, procedures and effectiveness of AIGs regulatory, compliance and legal functions and the remediation plan that AIG has implemented as a result of its
  own internal review. TRH, as a subsidiary of AIG, is cooperating with the terms of the settlements that are applicable to TRH.
In addition, from time to time, other regulators have commenced, and may in the future commence, investigations into insurance brokerage practices relating to contingent commissions and other
  industry-wide practices as well as other broker-related conduct, such as alleged bid-rigging, finite insurance and reinsurance transactions and other reinsurance practices. TRH has cooperated, and will
  continue to cooperate, in producing documents and other information in response to subpoenas and other requests. While TRH does not believe that any of these inquiries will have a material impact on
  TRHs business or financial results, it is not possible to predict with any certainty at this time what impact, if any, these inquiries may have on TRHs business or financial results.
Item 4. Submission of Matters to a Vote of Security Holders
There were no matters submitted to a vote of security holders during the fourth quarter of 2007.
26

PART II
Item 5. Market for the Registrants Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
The following table sets forth the high and low closing sales prices and the dividends declared per share of Transatlantic Holdings, Inc. (the Company) Common Stock (TRH shares) on the New
  York Stock Exchange Composite Tape for each of the four quarters of 2007 and 2006:
2007
    
    2006High
    
    Low
    
    DividendsDeclared
    
    High
    
    Low
    
    DividendsDeclaredFirst Quarter
    
    
    $
    
    66.50
    
    
    
    $
    
    60.49
    
    
    
    $
    
    0.135
    
    
    
    $
    
    68.00
    
    
    
    $
    
    57.65
    
    
    
    $
    
    0.120Second Quarter
    
    
    
    72.52
    
    
    
    
    65.31
    
    
    
    
    0.160
    
    
    
    
    57.83
    
    
    
    
    55.25
    
    
    
    
    0.135Third Quarter
    
    
    
    75.78
    
    
    
    
    58.84
    
    
    
    
    0.160
    
    
    
    
    63.18
    
    
    
    
    53.28
    
    
    
    
    0.135Fourth Quarter
    
    
    
    75.05
    
    
    
    
    68.69
    
    
    
    
    0.160
    
    
    
    
    63.51
    
    
    
    
    59.87
    
    
    
    
    0.135The Company paid each dividend in the quarter following the quarter of declaration.
The declaration and payment of future dividends, if any, by the Company will be at the discretion of the Board of Directors and will depend upon many factors, including the Companys consolidated
  earnings, financial condition and business needs, capital and surplus requirements of the Companys operating subsidiaries, regulatory considerations and other factors.
As of January 31, 2008, the approximate number of holders of TRH shares, including those whose TRH shares are held in nominee name, was 39,000.
In November 2000, the Board of Directors authorized the purchase of up to 200,000 shares (375,000 shares after adjustment for subsequent stock splits) of TRH shares in the open market or through
  negotiated transactions. The purchase program has no set expiration or termination date. As of December 31, 2007, 170,050 shares may still be purchased pursuant to this authorization. No shares were
  purchased in the fourth quarter of 2007. The preceding does not include 32,555 shares relating to options exercised in the three months ended December 31, 2007 that were attested to in satisfaction of the
  exercise price by holders of the Companys employee or director stock options and 2,224 shares relating to restricted stock units (RSU) vesting in the three months ended December 31, 2007 that were
  attested to in satisfaction of withholding taxes relating to the issuance of TRH shares for vested RSUs by holders of the Companys employee RSUs.
Performance Graph
The following Performance Graph compares the cumulative total return to stockholders on TRH shares for a five-year period (December 31, 2002 to December 31, 2007) with the cumulative total
  return of the S&P 500 stock index (the S&P 500 Index) and a peer group of companies (the Peer Group) consisting of fifteen reinsurance companies to which TRH compares its business and operations:
  Arch Capital Group Ltd., Axis Capital Holdings Ltd. (included from July 1, 2003), Endurance Specialty Holdings Ltd. (included from February 28, 2003), Everest Re Group Ltd., IPC Holdings Ltd., Max
  Capital Group Ltd., Montpelier Re Holdings Ltd. (included from October 10, 2002), Odyssey Re Holdings Corp., Partner Re Ltd., Platinum Underwriters Holdings, Ltd. (included from October 29, 2002),
  PXRE Group Ltd. (through August 6, 2007 when it was acquired by Argo Group International Holdings, Ltd.), RenaissanceRe Holdings Ltd., SCOR, SCOR Holding (Switzerland) (formerly known as
  Converium Holding AG) and Swiss Reinsurance Co. The performance of certain companies is included for a shorter period since they were not public companies for the entire five-year performance period.
  Dividend reinvestment has been assumed and returns have been weighted to reflect relative stock market capitalization.
27

Cumulative Total Return to StockholdersValue of $100 Invested in December 2002

Company / Index
    
    Dec. 2002
    
    Dec. 2003
    
    Dec. 2004
    
    Dec. 2005
    
    Dec. 2006
    
    Dec. 2007Transatlantic Holdings, Inc.
    
    
    $
    
    100.00
    
    
    
    $
    
    121.86
    
    
    
    $
    
    117.28
    
    
    
    $
    
    128.38
    
    
    
    $
    
    119.65
    
    
    
    $
    
    141.19S&P 500 Index
    
    
    
    100.00
    
    
    
    
    128.68
    
    
    
    
    142.69
    
    
    
    
    149.70
    
    
    
    
    173.34
    
    
    
    
    182.86Peer Group
    
    
    
    100.00
    
    
    
    
    115.85
    
    
    
    
    119.32
    
    
    
    
    122.96
    
    
    
    
    141.66
    
    
    
    
    139.0628

Item 6. Selected Financial Data
TRANSATLANTIC HOLDINGS, INC. AND SUBSIDIARIES
The Selected Financial Data should be read in conjunction with Managements Discussion and Analysis of Financial Condition and Results of Operations and the consolidated financial statements and
  accompanying notes included elsewhere herein.
Years Ended December 31,2007
    
    2006
    
    2005
    
    2004
    
    2003(in thousands, except per share data)Statement of Operations Data:Net premiums written
    
    
    $
    
    3,952,899
    
    
    
    $
    
    3,633,440
    
    
    
    $
    
    3,466,353
    
    
    
    $
    
    3,749,274
    
    
    
    $
    
    3,341,077Net premiums earned
    
    
    
    3,902,669
    
    
    
    
    3,604,094
    
    
    
    
    3,384,994
    
    
    
    
    3,661,090
    
    
    
    
    3,171,226Net investment income
    
    
    
    469,772
    
    
    
    
    434,540
    
    
    
    
    343,247
    
    
    
    
    306,786
    
    
    
    
    270,972Realized net capital gains
    
    
    
    9,389
    
    
    
    
    10,862
    
    
    
    
    39,884
    
    
    
    
    22,181
    
    
    
    
    9,942Revenues
    
    
    
    4,381,830
    
    
    
    
    4,049,496
    
    
    
    
    3,768,125
    
    
    
    
    3,990,057
    
    
    
    
    3,452,140Income (loss) before income taxes(1)
    
    
    
    595,752
    
    
    
    
    539,908
    
    
    
    
    (46,098
    )
    
    
    
    
    276,212
    
    
    
    
    386,674Net income
    
    
    
    487,141
    
    
    
    
    428,152
    
    
    
    
    37,910
    
    
    
    
    254,584
    
    
    
    
    303,644Per Common Share:(2)Net income:Basic
    
    
    $
    
    7.37
    
    
    
    $
    
    6.49
    
    
    
    $
    
    0.58
    
    
    
    $
    
    3.87
    
    
    
    $
    
    4.64Diluted
    
    
    
    7.31
    
    
    
    
    6.46
    
    
    
    
    0.57
    
    
    
    
    3.85
    
    
    
    
    4.60Cash dividends declared
    
    
    
    0.62
    
    
    
    
    0.53
    
    
    
    
    0.46
    
    
    
    
    0.39
    
    
    
    
    0.34Share Data:(2)Weighted average common shares outstanding:Basic
    
    
    
    66,124
    
    
    
    
    65,955
    
    
    
    
    65,836
    
    
    
    
    65,731
    
    
    
    
    65,508Diluted
    
    
    
    66,654
    
    
    
    
    66,266
    
    
    
    
    66,169
    
    
    
    
    66,189
    
    
    
    
    65,953Balance Sheet Data (at year end):Investments and cash
    
    
    $
    
    12,755,972
    
    
    
    $
    
    11,336,096
    
    
    
    $
    
    9,241,837
    
    
    
    $
    
    8,287,003
    
    
    
    $
    
    6,867,165Assets
    
    
    
    15,484,327
    
    
    
    
    14,268,464
    
    
    
    
    12,364,676
    
    
    
    
    10,605,292
    
    
    
    
    8,707,758Unpaid losses and loss adjustment expenses
    
    
    
    7,926,261
    
    
    
    
    7,467,949
    
    
    
    
    7,113,294
    
    
    
    
    5,941,464
    
    
    
    
    4,805,498Unearned premiums
    
    
    
    1,226,647
    
    
    
    
    1,144,022
    
    
    
    
    1,082,282
    
    
    
    
    1,057,265
    
    
    
    
    917,3555.75% senior notes due December 14, 2015(3)
    
    
    
    746,930
    
    
    
    
    746,633
    
    
    
    
    746,353
    
    
    
    
    
    
    
    
    
    Stockholders equity
    
    
    
    3,349,042
    
    
    
    
    2,958,270
    
    
    
    
    2,543,951
    
    
    
    
    2,587,129
    
    
    
    
    2,376,587

(1)
    
    
    
    Includes pre-tax net catastrophe costs of $55 million in 2007, $29 million in 2006, $544 million in 2005 and $215 million in 2004. There were no significant catastrophe losses occurring in 2003.(2)
    
    
    
    Share and per share data have been retroactively adjusted, as appropriate, to reflect common stock splits.(3)
    
    
    
    Includes amounts payable to affiliates and others as follows: 2007Affiliates $448,158; Others $298,772; 2006Affiliates $447,980; Others $298,653; 2005Affiliates $447,812; Others $298,541.29

Cautionary Statement Regarding Forward-Looking Information
This Annual Report on Form 10-K and other publicly available documents may include, and Transatlantic Holdings, Inc. and its subsidiaries (collectively, TRH) officers and representatives may from
  time to time make, statements which may constitute forward-looking statements within the meaning of the U.S. federal securities laws. These forward-looking statements are identified, including without
  limitation, by their use of such terms and phrases as:
intendintendsintendedgoalestimateestimatesexpectexpectsexpectedprojectprojectsprojectedprojections
    
    plansanticipatesanticipatedshouldthinkthinksdesigned toforeseeable futurebelievebelievesscheduledand similar expressionsThese statements are not historical facts but instead represent only TRHs belief regarding future events and financial performance, many of which, by their nature, are inherently uncertain and outside
  of TRHs control. These statements may address, among other things, TRHs strategy and expectations for growth, product development, government and industry regulatory actions, legal matters, market
  conditions, financial results and reserves, as well as the expected impact on TRH of natural and man-made (e.g., terrorist attacks) catastrophic events and political, economic, legal and social conditions.
It is possible that TRHs actual results, financial condition and expected outcomes may differ, possibly materially, from those anticipated in these forward-looking statements. Important factors that
  could cause TRHs actual results to differ, possibly materially, from those discussed in the specific forward-looking statements may include, but are not limited to, uncertainties relating to economic
  conditions and cyclical industry conditions, credit quality, government, regulatory and accounting policies, volatile and unpredictable developments (including natural and man-made catastrophes), the legal
  environment, legal and regulatory proceedings, the reserving process, the competitive environment in which TRH operates, interest rate and foreign currency exchange rate fluctuations, and the
  uncertainties inherent in international operations.
These factors are further discussed throughout Managements Discussion and Analysis of Financial Condition and Results of Operations and in Item 1A. Risk Factors of this Form 10-K. TRH is not
  under any obligation to (and expressly disclaims any such obligations to) update or alter any forward-looking statement, whether written or oral, that may be made from time to time, whether as a result of
  new information, future events or otherwise.
30

Item 7. Managements Discussion and Analysis of Financial Condition and Results of Operations
Throughout this Annual Report on Form 10-K, Transatlantic Holdings, Inc. and its subsidiaries (collectively, TRH) presents its operations in the way it believes will be most meaningful. TRHs
  unpaid losses and loss adjustment expenses net of related reinsurance recoverable (net loss reserves) and TRHs combined ratio and its components are included herein and presented in accordance with
  principles prescribed or permitted by insurance regulatory authorities, as these are standard measures in the insurance and reinsurance industries.
Financial Statements
The following discussion refers to the consolidated financial statements of TRH as of December 31, 2007 and 2006 and for each of the three years in the period ended December 31, 2007, which are
  presented elsewhere herein. Financial data discussed below have been affected by certain transactions between TRH and related parties. (See Notes 6, 11, 12, 13 and 15 of Notes to Consolidated Financial
  Statements.)
Executive Overview
The operations of Transatlantic Holdings, Inc. (the Company) are conducted principally by its three major operating subsidiariesTransatlantic Reinsurance Company®(TRC), Trans Re Zurich
  (TRZ) and Putnam Reinsurance Company (Putnam)and managed based on its geographic segments. Through its operations on six continents, TRH offers reinsurance capacity on both a treaty and
  facultative basisstructuring programs for a full range of property and casualty products, with an emphasis on specialty lines, which may exhibit greater volatility of results over time than most other lines.
  Such capacity is offered through reinsurance brokers and, to a lesser extent, directly to domestic and foreign insurance and reinsurance entities.
TRH conducts its business and assesses performance through segments organized along geographic lines. The Domestic segment principally includes financial data from branches in the United States
  except Miami, as well as revenues and expenses of the Company (including interest expense on the Companys senior notes) and stock-based compensation expense. Data from the London and Paris
  branches and from TRZ are reported in the aggregate as InternationalEurope and considered as one segment due to operational and regional similarities. Data from the Miami (which serves Latin America
  and the Caribbean), Toronto, Hong Kong and Tokyo branches are grouped as InternationalOther and represent the aggregation of non-material segments.
TRHs operating strategy emphasizes product and geographic diversification as key elements in managing its level of risk concentration. TRH also adjusts its mix of business to take advantage of
  market opportunities. Over time, TRH has most often capitalized on market opportunities when they arise by strategically expanding operations in an existing location or opening a branch or representative
  office in new locations. TRHs operations that serve international markets leverage TRHs product knowledge, worldwide resources and financial strength, typically utilizing indigenous management and
  staff with a thorough knowledge of local markets and product characteristics.
In 2007, casualty lines comprised 71% of TRHs net premiums written, while property lines totaled 29%. In addition, treaty reinsurance totaled 96% of net premiums written, with the balance
  representing facultative accounts. Moreover, business written by international operations represented 51% of net premiums written in 2007.
American International Group, Inc. (AIG), which through its subsidiaries is one of the largest providers of insurance and investment products and services to businesses and individuals around the
  world, beneficially owned approximately 59% of the Common Stock of the Company (TRH shares) as of December 31, 2007, 2006 and 2005. On September 28, 2007, AIG filed an amendment to its
  Schedule 13D relating to the Company stating, among other things, that it intends to continuously evaluate their investment in the Company and may acquire or dispose of shares of Common Stock, other
  securities of the Company, or loans or other interests in the Company.
TRHs major sources of revenues are net premiums earned for reinsurance risks undertaken and net investment income earned on investments made. The great majority of TRHs investments are in
  fixed maturity securities held to maturity and available for sale with an average duration of 5.8 years as of December 31, 2007. In general, premiums are received significantly in advance of related claims
  payments.
31

Consolidated Results
The following table summarizes TRHs revenues, income (loss) before income taxes and net income for the periods indicated:
Years Ended December 31,2007
    
    2006
    
    2005Amount
    
    ChangeFromPrior Year
    
    Amount
    
    ChangeFromPrior Year
    
    Amount
    
    ChangeFromPrior Year(dollars in millions)Revenues
    
    
    $
    
    4,381.8
    
    
    
    
    8.2
    %
    
    
    
    $
    
    4,049.5
    
    
    
    
    7.5
    %
    
    
    
    $
    
    3,768.1
    
    
    
    
    (5.6
    )%Income (loss) before income taxes
    
    
    
    595.8
    
    
    
    
    10.3
    
    
    
    
    539.9
    
    
    
    
    
    
    
    
    
    (46.1
    )
    
    
    
    
    Net
    income
    
    
    
    487.1
    
    
    
    
    13.8
    
    
    
    
    428.2
    
    
    
    
    1,029.4
    
    
    
    
    37.9
    
    
    
    
    (85.1
    )Revenues increased in 2007 compared to 2006 due primarily to increases in Domestic net premiums earned and, to lesser extents, InternationalEurope net premiums earned, Domestic realized net
  capital gains and consolidated net investment income, offset in part by decreases in InternationalOther net premiums earned and international realized net capital gains (losses). The increase in
  InternationalEurope net premiums earned occurred principally in the London and Paris branches. The decrease in InternationalOther net premiums earned occurred in the Miami and Hong Kong branches.
  The most significant increases in consolidated net premiums earned occurred in the other liability, property and medical malpractice lines, partially offset by a significant decrease in the auto liability line.
  Net investment income increased in 2007 due largely to an increase in investment income from fixed maturities. The increase in investment income from such securities was due in part to the investment of
  significant positive net operating cash flows generated in recent periods.
Revenues in 2006 increased compared to 2005 due primarily to increases in Domestic and, to a lesser extent, InternationalOther net premiums earned and consolidated net investment income, offset in
  part by decreases in InternationalEurope net premiums earned and decreases in Domestic and InternationalEurope realized net capital gains (losses). The increase in InternationalOther net premiums
  earned occurred principally in the Miami branch and, to a lesser extent, in the Toronto branch. The London and Paris branches reported the great majority of the decrease in InternationalEurope net
  premiums earned in 2006. The most significant increases in consolidated net premiums earned occurred in the other liability, accident & health (A&H) and property lines, partially offset by a significant
  decrease in the auto liability line. The changes in net premiums earned generally reflected prevailing market conditions over recent periods, as discussed below. Net investment income increased in 2006 due
  largely to an increase in fixed maturity investment income and, to a lesser extent, to an increase in investment income from limited partnerships. The increase in fixed maturity investment income was due in
  part to investment returns from continued positive operating cash flows and the investment of the net proceeds from the issuance of $750 million principal amount senior notes in December 2005.
Results for 2007 include pre-tax net catastrophe costs of $55 million principally arising from European Windstorm Kyrill and floods in the U.K. Catastrophe costs include losses and related
  reinstatement premiums, the details of which can be found in Note 9 of Notes to Consolidated Financial Statements (Note 9). Reinstatement premiums may arise on both assumed and ceded business as a
  result of contractual provisions found in certain catastrophe excess-of-loss reinsurance contracts that require additional premiums to be paid in the event of a loss to reinstate coverage for the remaining
  portion of the contract period. Net assumed (ceded) reinstatement premiums serve to increase (reduce) net premiums written and earned.
While there were no significant catastrophe losses occurring in 2006, the year 2006 includes pre-tax net catastrophe costs of $29 million relating to events which occurred in prior years.
The year 2005 was the worst year ever in recorded history for insured catastrophe losses. In addition, Hurricane Katrina was the largest insured catastrophe loss in reported history. An industry source
  projected insurance and reinsurance industry costs relating to Hurricane Katrina of approximately $40 billion.
32

Results
    for 2005 include pre-tax net catastrophe costs of $544 million, or $354 million
    after tax, principally arising from Hurricanes Katrina ($304 million on a
    pre-tax basis), Rita ($44 million on a pre-tax basis) and Wilma ($111 million
    on a pre-tax basis) and, to a lesser extent, from Central European floods
    and European Windstorm Erwin. Such catastrophe costs consist of pre-tax net
    catastrophe losses of $483 million (gross $870 million; ceded $387 million)
    and net ceded reinstatement premiums of $61 million (gross $72 million; ceded
    $133 million).
Income
    before income taxes and net income increased in 2007 as compared to 2006
    principally due to increased underwriting profit and net investment income.
    Net income also benefited from a lower effective tax rate in 2007. The increased
    underwriting profit in 2007 reflects increased premiums earned and a lower
    combined ratio. The lower combined ratio reflected decreased net adverse
    loss reserve development, offset in part by a higher level of catastrophe
    costs in 2007. Lower net adverse loss reserve development and higher catastrophe
    costs in 2007 had the impact of improving underwriting profit (loss) in 2007
    by $47.7 million compared to 2006. (See Note 16 of Notes to Consolidated
  Financial Statements for underwriting profit (loss) by segment.)
Income
    (loss) before income taxes and net income increased in 2006 as compared to
    2005 principally due to increased underwriting profit (loss) and net investment
    income, offset in part by interest expense on TRHs senior notes and
    decreased realized net capital gains. The increased underwriting profit (loss)
    in 2006 reflects an improved combined ratio resulting largely from reduced
    significant net catastrophe costs and, to a lesser extent, lower net adverse
    loss reserve development. Decreases in net catastrophe costs and lower net
    adverse loss reserve development in the aggregate increased underwriting
    profit (loss) by $618.4 million in 2006 compared to 2005. The reasons for
    the increase in net investment income are as discussed earlier. The significant
    tax expense in 2006 compared to the tax benefit recognized in 2005 tempered
    the impact of the above changes on net income.
Underwriting profit (loss) is defined as net premiums earned less net losses and loss adjustment expenses (LAE) incurred, net commissions and other underwriting expenses, plus (minus) the increase
  (decrease) in deferred acquisition costs. (See Operational Review for further discussion.)
Market Conditions and Outlook
The market conditions in which TRH operates have historically been cyclical. For the period under discussion, the reinsurance market has been characterized by significant competition worldwide in
  most lines of business.
Generally
    softening property market conditions were prevalent in the first half of
    2005 on both primary and reinsurance business. In addition, market conditions
    in many casualty lines also softened for a significant portion of 2005. However,
    pricing, terms and conditions on short tail lines of business, such as property,
    marine and energy, improved significantly in the U.S. and, to some degree,
    outside the U.S. after Hurricanes Katrina, Rita and Wilma. These improvements,
    which had little effect on 2005 results, were driven by several factors,
    including the amount of industry capital consumed by the catastrophe losses
    in that year (an industry record), market-wide adjustments for the failure
    of traditional property catastrophe models to accurately capture the severity
    of a Hurricane Katrina type loss and the modification of capital adequacy
    models by certain rating agencies to increase capital charges relating to
    catastrophe exposures. Searching for a proper return and looking to minimize
    the uncertainty of property catastrophe modeling, the market arrived at meaningfully
    higher pricing parameters, higher attachment points, tighter terms and conditions
    for such programs and a more conservative management of aggregate exposure.
    These improvements were most significant in the U.S. nationwide property
    and energy catastrophe programs as well as in energy pro rata contracts.
    To lesser extents, U.S. regional property catastrophe, international property
    catastrophe, marine excess-of-loss, property per risk excess-of-loss and
    property pro rata programs saw improvements. Other lines of business, including
    casualty lines, while not experiencing much deterioration in terms, did not
    see the same magnitude of improvement in market conditions.
A large amount of capital flowed into the market after the major catastrophe events of 2005 with much of the capital raised going to existing reinsurers. Some of the capital also went to new reinsurance
  companies that were started in Bermuda in the fourth quarter of 2005. The capital raised by existing reinsurers was not just to replace some of the capital lost in the catastrophe events of 2005, but also to
33

meet the higher capital thresholds required by the rating agencies to support catastrophe exposure. Also, due to the severe impact on capital that the hurricanes had on property monoline carriers, the rating
  agencies imposed higher hurdles for ratings for this type of (re)insurer. Nevertheless, most of the start up companies achieved a rating of at least A from Best by year-end. While these new companies did
  write a fair amount of property catastrophe and energy excess-of-loss business in 2006, they did not slow the momentum of rate increases in these lines and, in fact, these companies began to diversify their
  writings in order to fully apply their capital.
In addition to new company formations, capital markets, including hedge funds, have become more active in assuming reinsurance risk other than from investing in various companies. Numerous hedge
  funds have provided both pro rata and excess-of-loss reinsurance and retrocessional protections through captive companies or other alternative transactions on a fully collateralized basis for property and
  energy catastrophe business. One type of an alternative transaction is a vehicle known as a sidecar. Sidecars are essentially reinsurance companies set up as a special purpose reinsurer to reinsure a
  discrete group of risks. The sidecar may have an equity investment from its sponsor as well as additional capital provided by hedge funds and other institutional investors and may also have a debt portion
  that is provided by a bank or other financial institution.
Hedge funds and other investment vehicles also formed or sponsored reinsurers or used other reinsurance companies as conduits to offer traditional reinsurance as well as industry loss warranties
  (ILWs) and other forms of index-based protections.
While rates for property catastrophe and other lines of business exposed to natural peril losses in U.S. peak zones (areas with concentrations of coastal exposures to hurricanes or general exposure to
  earthquakes) improved meaningfully at January 1, 2006, rates in these areas experienced more significant increases starting April 1, 2006 and this trend continued throughout the remainder of the year.
  These improvements were a confluence of capital depletion from the 2005 storms, model changes by the generally accepted catastrophe loss models and stricter rating agency requirements.
With the exception of some parts of the Caribbean, catastrophe exposed lines of business in other parts of the world did not enjoy the same magnitude of rate increases in 2006 but did stabilize
  following a decreasing trend prior to the 2005 events. International property business continued to see increased competition from established European reinsurers and from newer Bermudian companies
  that sought to diversify their books. Casualty business experienced downward pressure worldwide, with international rates coming under more pressure than U.S. rates. Other terms and conditions on this
  business generally held up well worldwide.
Given the amount of capital attracted by year-end 2006, catastrophe exposed accounts renewing on January 1, 2007 saw a slowing of upward rate movements on programs. During the second half of
  2007, property catastrophe rates began to decline as did the pricing for primary property risks in general. Nevertheless, TRH believes rates for U.S. catastrophe exposed business remained at an attractive
  level through 2007 and anticipates that will be the case in 2008. Internationally, catastrophe rates in the U.K. and Europe did improve on programs impacted by the storms and floods of 2007, while in other
  regions, rates exhibited modest downward trends.
Through 2007, casualty lines have experienced steady rate reductions in the insurance markets on a global basis for approximately two years, but reinsurance rates did not experience the same amount
  of downward pressure. However, the January 2008 renewals did see rates coming under additional strain, but other terms and conditions for casualty business have remained stable. Although casualty rates
  have generally declined in recent periods, TRH anticipates there will be a large amount of casualty business that will remain attractive throughout 2008.
One major factor keeping overall casualty rates from sliding too much is the actuarial, claims and underwriting barriers to entry for certain specialty casualty lines of business (such as directors and
  officers liability (D&O), errors and omissions liability (E&O) and medical malpractice classes). TRH has been underwriting casualty business for over 20 years and has developed a favorable reputation for
  knowledge and commitment to the casualty marketplace. This expertise is difficult to duplicate and has kept some newer competitors from entering these lines. Furthermore, many buyers of casualty
  reinsurance have been far more cautious about the ability and willingness of reinsurers to pay claims that may not come due for many years. TRHs capital base, financial strength ratings from major
34

rating agencies and favorable claims paying record has generally proven to be a competitive advantage. With fewer reinsurers qualified, in the markets view, to write casualty reinsurance, capacity in these
  lines may be more restricted and may mitigate somewhat the downward pressure on rates.
Due to the favorable trading conditions for most insurance companies in recent years and strong industry results in 2006 and 2007, many insurance companies capitalization is now higher than ever.
  This factor has had a generally negative effect on pricing and has also caused certain ceding companies to choose to rely less on reinsurance as a form of capital and retain more businessthereby ceding less
  business to reinsurers. In formulating a reinsurance purchasing strategy, the ceding company will also consider the perceived volatility of the business to be ceded.
The existence of favorable market conditions in certain regions and lines of business do not necessarily translate into ultimate pricing adequacy for business written under such conditions. In addition,
  there is no guarantee that these conditions will remain in effect as TRH cannot predict, with any reasonable certainty, future market conditions.
Additionally, as a practical matter, the rates charged by primary insurers and the policy terms of primary insurance agreements may affect the rates charged and the policy terms associated with
  reinsurance agreements, particularly for pro rata reinsurance business.
Further information relating to items discussed in this Executive Overview may be found throughout Managements Discussion and Analysis of Financial Condition and Results of Operations
  (MD&A).
Critical Accounting Estimates
This discussion and analysis of financial condition and results of operations is based upon TRHs consolidated financial statements which have been prepared in accordance with U.S. generally accepted
  accounting principles (GAAP). The preparation of these financial statements requires the use of estimates and judgments that affect the reported amounts and related disclosures. TRH relies on historical
  experience and on various other assumptions that it believes to be reasonable under the circumstances, to make judgments about the carrying values of assets and liabilities that are not readily apparent
  from other sources. Actual results may differ materially from these estimates.
TRH
    believes its most critical accounting estimates are those with respect to
    loss reserves, fair value measurements of financial instruments, other-than-temporary
    impairments, premium revenues and deferred acquisition costs, as they require
    managements most significant exercise of judgment on both a quantitative
    and qualitative basis used in the preparation of TRHs consolidated
    financial statements and footnotes. The accounting estimates that result
    require the use of assumptions about certain matters that are highly uncertain
    at the time of estimation. To the extent actual experience differs from the
  assumptions used, TRHs results of operations and financial condition
  would be affected. A discussion of these most critical accounting estimates
  follows:
Loss Reserves
Estimates of loss reserves take into account TRHs assumptions with respect to many factors that will affect ultimate loss costs but are not yet known. The ultimate process by which actual carried
  reserves are determined considers not only actuarial estimates but a myriad of other factors. Such factors, both internal and external, which contribute to the variability and unpredictability of loss costs,
  include trends relating to jury awards, social inflation, medical inflation, worldwide economic conditions, tort reforms, court interpretations of coverages, the regulatory environment, underlying policy
  pricing, terms and conditions and claims handling, among others. In addition, information gathered through underwriting and claims audits are also considered. To the extent that these assumptions
  underlying the loss reserve estimates are significantly incorrect, ultimate losses may be materially different from the estimates included in the financial statements and may have a material adverse effect on
  results of operations and financial condition. The impact of those differences is reflected in the period they become known.
The reserving process is inherently difficult and subjective, especially in view of changes in the legal and tort environment which impact the development of loss reserves, and therefore quantitative
35

techniques frequently have to be supplemented by subjective considerations and managerial judgment. In addition, trends that have affected development of liabilities in the past may not necessarily occur
  or affect development to the same degree in the future.
While this process is difficult and subjective for ceding companies, the inherent uncertainties of estimating loss reserves are even greater for reinsurers, due primarily to the longer term nature of much
  reinsurance business, the diversity of development patterns among different types of reinsurance treaties or facultative contracts, the necessary reliance on the ceding companies for information regarding
  reported claims and differing reserving practices among ceding companies, which are subject to change without notice. Nevertheless, data received from cedants is subjected to audits periodically by TRH
  claims and underwriting personnel, to help ensure that reported data is supported by proper documentation and conforms to contract terms, and analyzed, as appropriate, by TRH underwriting and actuarial
  personnel. Such analysis often includes a detailed review of reported data to assess the underwriting results of reinsurance assumed and to explain any significant departures from expected performance.
  Over time, reported loss information is ultimately corroborated when such information eventually attains paid status.
Standard actuarial methodologies employed to estimate ultimate losses incorporate the inherent lag from the time claims are reported to the cedant to when the cedant reports the claims to the
  reinsurer. Certain actuarial methodologies may be more appropriate than others in instances where this lag may not be consistent from period to period. Consequently, additional actuarial judgment is
  employed in the selection of methodologies to best incorporate the potential impact of this situation.
Generally, for each line of business, significant actuarial judgments are made with respect to the following factors used in the loss reserve setting process:

    
    
    
    Loss trend factors are used to establish expected loss ratios (ELRs) for subsequent accident years based on the projected loss ratios for prior accident years. Provisions for inflation and social
      inflation (e.g., awards by judges and juries which progressively increase in size at a rate exceeding that of general inflation) and trends in court interpretations of coverage are among the factors which
      must be considered.
    
    
    
    ELRs for the latest accident years generally reflect the ELRs from prior accident years adjusted for the loss trend (see loss trend factors discussion immediately above), as well as the impact of rate
      level changes and other quantifiable factors. For certain longer tail lines of business that are typically lower frequency, higher severity classes, such as excess medical malpractice and D&O, ELRs are
      often utilized for the last several accident years.
    
    
    
    Loss development factors are used to arrive at the ultimate amount of losses incurred for each accident year based on reported loss information. These factors, which are initially calculated based on
      historical loss development patterns (i.e., the emergence of reported losses over time relative to the ultimate losses to be paid), are then adjusted for current trends.During the loss settlement period, which can be many years in duration, additional facts regarding individual claims and trends usually become known. As these facts and trends emerge, it usually
  becomes necessary to refine and adjust the loss reserves upward or downward and even then the ultimate net liability may be materially different from the revised estimates.
The methodologies that TRH employed in 2007 and 2006 to assess the reasonableness of loss reserve estimates included paid loss development, incurred loss development, paid Bornhuetter-Ferguson
  (B-F) and incurred B-F methods. The actuarial methods that TRH employs to determine the appropriate loss reserves for shorter tail lines of business are the same as those employed for longer tail lines.
  However, the judgments that are made with regard to factors such as loss trends, ELRs and loss development factors for shorter lines generally have much less of an effect on the determination of the loss
  reserve amount than when those same judgments are made regarding longer tailed lines of business. In contrast to the longer tailed lines of business, reported losses for the shorter tailed classes, such as the
  property lines of business (e.g., fire and homeowners) and certain marine and energy classes, generally reach the ultimate level of incurred losses in a relatively short period of time. Rather than having to
  rely on assumptions regarding ELRs and loss development factors for many accident years for a given line, these assumptions are generally only relevant for the most recent accident year or two.
36

Therefore, these assumptions tend to be less critical and the reserves calculated pursuant to these assumptions are subject to less variability for the shorter tailed lines of business.
The characteristics of each line of business are considered in the reserving process. TRHs major lines of business and reserve methodologies are discussed below:

    
    
    
    Excess Casualty: The vast majority of this class, which is a key component of the other liability line of business, consists of domestic treaties, including pro rata and excess-of-loss contracts of general
      liability business. Excess casualty is dominated by umbrella business, some of which has very high attachment points. This business is generally very long tailed and characterized by relatively low
      frequency and high severity type losses. Therefore, expected loss ratio methods, such as the incurred B-F method, are heavily relied upon for most years due to the lack of mature reported experience
      available. The ELRs utilized for the most recent years are based on the projected ultimate loss ratios of prior years adjusted for rate level changes, estimated loss cost trends and other quantifiable
      changes, as well as actuarial pricing indications.
    
    
    
    D&O and E&O: These classes, which are significant components of the other liability line of business, are dominated by high layer excess-of-loss D&O business as well as E&O classes such as lawyers and
      accountants. Much of this business is domestic, although significant amounts are written out of the London branch. This business is reviewed separately by operating branch and for pro rata versus
      excess-of-loss contracts, treaty versus facultative and D&O separately from certain classes of E&O. Additionally, homogeneous groupings of accountants, lawyers, and architects and engineers risks may
      be reviewed separately. These classes are long tailed in nature, often characterized by very high attachment points. Therefore, B-F methods are generally relied upon for the most recent years due to
      the lack of mature reported experience. The selections for older years will often be based on the weighted average of the loss development methods and B-F methods. The selection of ELRs for these
      classes is generally analogous to that of the Excess Casualty class described above but with added emphasis on actuarial pricing indications, as these accounts are often very large and are virtually all
      actuarially reviewed before the business is underwritten.
    
    
    
    Healthcare Professional: This business, which is the most significant component of TRHs medical malpractice line of business, is reviewed separately for treaty and facultative contracts. Pro rata
      contracts are reviewed separately from excess-of-loss contracts. There is significant volume in all categories. This class is also quite long tailed due to the excess-of-loss nature of most of the contracts.
      Due to the lack of mature reported experience, B-F methods are generally utilized for the most recent five underwriting years with some weight given to the loss development methods for earlier
      years. Because almost all of these accounts are actuarially priced, the indications from these reviews are critical to the selection of the ELRs.
    
    
    
    Shorter tailed lines: These would include the property lines of business, such as fire and homeowners, A&H and certain marine and energy classes. These lines are written out of several of TRHs
      worldwide offices and the reserves are reviewed separately for each operating branch. Where sufficiently credible experience exists, these lines are generally reviewed after segregating pro rata
      contracts from excess-of-loss contracts. As a reinsurer, these lines do not develop to ultimate loss as quickly as when written on a primary basis; however, they are significantly shorter tailed than the
      casualty classes discussed earlier. For these classes, a combination of loss development methods and B-F methods are used. Generally, selections for all but the most recent few years are based on loss
      development methods with the most recent years based on weightings of loss development and expected loss ratio indications.A comprehensive annual loss reserve review is conducted in the fourth quarter of each year. These reviews are conducted in full detail for each class or line of business for each underwriting office and
  consists of more than one hundred individual analyses. In completing these detailed actuarial reserve analyses significant actuarial judgment is often employed. TRH is required to make numerous
  assumptions, including the selection of loss development factors and ELRs. Additionally, TRH needs to select the most appropriate actuarial method(s) to employ for each class of business.
Triangles of written premium, paid losses and incurred losses are organized by underwriting year evaluated at six month intervals. The data triangles are split by branch, contract type (i.e., treaty versus
37

facultative), line of business
    and often between excess-of-loss and pro rata business. The line of business
    groupings vary by branch and are reviewed annually to ensure a proper balance
    between homogeneity and credibility of data. In the loss development methods,
    paid and incurred losses by underwriting year are projected to an ultimate
    basis by applying appropriate age to ultimate development factors to the
    inception to date paid and incurred losses. The development factors are selected
    based on curves fitted to the historical average which best represent the
    data. In the B-F methods, estimates of unpaid and unreported losses are arrived
    at by multiplying underwriting year earned premium by an ELR and an estimated
    percentage of unpaid or unreported losses. These percentages of unpaid or
  unreported losses are derived from the loss development factors described above.
    These methods yield an indication of the ultimate losses for each underwriting
    year. The indicated incurred but not reported (IBNR) reserve
    need is then determined (by year, by line of business) by subtracting the
    reported losses (which are equal to the sum of inception to date paid losses
    and the case reserves as of the balance sheet date) from the indicated ultimate
    losses.
In the course of these detailed loss reserve reviews, which are performed by year and by line of business, a point estimate of the loss reserve need is determined. Differences between the indications
  arising from the various methods are analyzed to understand the drivers of these differences, so that TRH can make a selection based on the methods that are believed to be most appropriate for that line of
  business. Frequently, the selection is based on an average of the various indications, giving the most weight to the indications deemed most appropriate. Generally speaking, TRH is often able to give more
  weight to loss development indications for more mature years where credible reported losses exist, as opposed to the more current years, where the B-F method is often highly relied upon due to the lack of
  credible and mature reported experience. When the actuarial point estimate is compared to the carried reserve, it is recognized that there is an implicit range around the indicated point estimate whereby a
  carried reserve within that range may be considered reasonable. TRH reviews the appropriateness of the held reserves relative to the indicated point estimate considering many factors. These factors may
  include, but are not limited to, the amount and direction of any difference between the point estimate and the held reserve, any operational issues which may be difficult to actuarially quantify, various
  actuarial assumptions on which management may want additional input or any observations regarding optimism or conservatism which management may believe need to be considered. Thus, the carried
  reserves, as determined by management, may be more or less than the actuarially determined point estimate. As of December 31, 2007, TRHs carried loss and LAE reserves, net of related reinsurance
  recoverable, were $6.90 billion and were equal to the actuarial point estimate. As of December 31, 2006, the indicated point estimate was within 0.5% of the carried reserve.
There is potential for significant variation in the development of loss reserves when actual costs differ from those costs implied by the assumptions used to test the loss reserves. This is particularly true
  for assumed reinsurance of long-tail casualty classes. Among the most critical assumptions are those made for ELRs and loss development factors.
TRHs annual loss reserve review for 2007 did not include the calculation of a range of loss reserve estimates. Because management does not believe it can currently assign credible probabilistic values
  to a range, a better understanding of the volatility of loss reserve estimates can be gained via an analysis of the sensitivity of these estimates to changes in the critical assumptions used in the loss reserve
  review process as opposed to creating a range.
An analysis of the sensitivity of the loss reserve indications to these key assumptions can be performed by measuring the effect of various changes to the assumptions utilized in the reviews. The
  assumptions made regarding factors considered in the sensitivity analysis, such as loss trends, ELRs and loss development factors, are generally consistent with TRHs historical experience. Loss
  development factors, for example, which are used to project reported paid and incurred losses to an ultimate incurred loss, are selected based on the curves fitted to the historical averages which best
  represent the data. ELRs are based on the ultimate loss ratios for the more mature years adjusted for changes in the rate levels and other quantifiable factors to enable the ELRs to remain consistent with
  historical experience. In general, it is believed that the vast majority of potential volatility in the loss reserves results from the longer tailed lines of business. For the purpose of these sensitivity analyses,
  only loss reserves from these longer tailed lines, which represent approximately 65% of total loss reserves, were included in the calculations. Additionally, only those underwriting years where it is believed
  reasonable for deviations
38

from the original assumptions to occur were utilized. Generally, the last 12 years were included in the analysis. This sensitivity analysis was performed on unpaid losses and loss adjustment expenses (gross
  loss reserves) and net loss reserves. The results derived from these analyses were roughly equivalent.
While noting that there exists the potential for greater variations, TRH believes utilizing 5% to 10% changes to the assumptions made for both loss development factors and ELRs provide reasonable
  benchmarks for a sensitivity analysis of the loss reserve estimates. For example, changing the ELRs by 5 percentage points has an impact of about $155 million (either positively or negatively) on the loss
  reserve estimate. While less likely for most classes of business, we note that changing the ELRs by 10 percentage points has an effect of about $310 million. As previously described, another key assumption
  is the selection of loss development patterns. The effect of a 5% deviation from the loss development factors utilized in the loss reserve review would be about $285 million. Similarly, a 10% deviation would
  impact the reserve estimate by about $565 million. Because a downward deviation of 5% or 10% results in negative future development of reported losses for certain years, this scenario is not believed to be
  as likely as that of an upward deviation of this amount.
Due to the assumptions and methodologies utilized by TRH in its reviews of longer tailed classes of business, changes to the ELRs generally have a much greater impact on the assessment of loss
  reserves for the most recent few underwriting years while deviations from the loss development factors utilized in the reviews generally are more critical to the loss reserve indications for older underwriting
  years (i.e., 2002 and prior). Management believes that it is reasonable to simultaneously vary both of the assumptions previously discussed by 5%. The effect of varying these assumptions together by 5% is
  about $450 million. Increasing these assumptions by 10% simultaneously adds approximately $900 million to the reserve estimates, although management considers this scenario to be significantly less likely
  than the 5% scenario previously discussed. We also note that the classes of business for which these assumptions are most critical are medical malpractice and D&O, particularly for excess-of-loss business,
  and excess casualty.
Net
    loss reserves include amounts for risks relating to environmental impairment
    and asbestos-related illnesses. The majority of TRHs environmental
    and asbestos-related net loss reserves arose from contracts entered into
    after 1985 that were underwritten specifically as environmental or asbestos-related
    coverages rather than as standard general liability coverages, where the
    environmental or asbestos-related liabilities were neither clearly defined
    nor specifically excluded. The reserves carried for these claims, including
    loss and loss adjustment expenses incurred but not reported,
    are based upon known facts and current law. However, significant uncertainty
    exists in determining the amount of ultimate liability for environmental
    impairment and asbestos-related losses, particularly for those occurring
    in 1985 and prior. This uncertainty is due to inconsistent court resolutions
    and judicial interpretations with respect to underlying policy intent and
    coverage and uncertainties as to the allocation of responsibility for resultant
    damages, among other things.
See discussion of net adverse development on losses occurring in prior years (which includes a discussion of the causative factors of such net adverse development) under Results of Operations and
  further discussion and detail information about gross loss reserves under Financial Condition and Liquidity.
Fair Value Measurements of Financial Instruments
TRH measures financial instruments in its trading and available for sale securities portfolios at fair value and discloses the fair value of its fixed maturities held to maturity. Fair value is the amount that
  would be received to sell an asset in an orderly transaction between market participants at the measurement date.
The
    degree of judgment used in measuring the fair value of financial instruments
    generally correlates with the level of pricing observability. Financial instruments
    with quoted prices in active markets generally have more pricing observability
    and less judgment is used in measuring fair value. Conversely, financial
    instruments traded in other than active markets or financial instruments
    that do not have quoted prices, have less observability and are measured
    at fair value using valuation models or other pricing techniques that require
    more judgment. Pricing observability is affected by a number of
39

factors, including the type of financial instrument, whether the financial instrument is new to the market and not yet established, the characteristics specific to the transaction and general market conditions.
TRH maximizes the use of observable inputs and minimizes the use of unobservable inputs when measuring fair value. The large majority of TRHs securities are valued using observable inputs. TRH
  obtains market price data to value financial instruments whenever such information is available. Market price data generally is obtained from market exchanges or dealer quotations. The types of
  instruments valued based on market price data include government and agency securities, equities listed in active markets and investments in publicly traded mutual funds with quoted market prices.
TRH estimates the fair value of fixed maturities not traded in active markets by referring to traded securities with similar attributes and using a matrix pricing methodology. This methodology considers
  such factors as the issuers industry, the securitys rating and tenor, its coupon rate, its position in the capital structure of the issuer and other relevant factors. The types of fixed maturities not traded in
  active markets include municipal bonds, most corporate bonds and most asset-backed and collateralized (including mortgage-backed) securities.
For fixed maturity and equity instruments that are not traded in active markets, valuations are adjusted to reflect illiquidity, and such adjustments generally are based on available market evidence. In
  the absence of such evidence, managements best estimate is used.
TRH obtains the fair value of its investments in limited partnerships from information provided by the general partner or manager of each of these investments, the accounts of which generally are
  audited on an annual basis.

Subsidiaries of AIG manage the
investments and perform investment recordkeeping services for TRH. In a recently
filed Form 8-K, AIG reported that their independent auditors had concluded and
advised AIG that as of December 31, 2007, AIG had a material weakness in its
internal control over financial reporting and oversight relating to the fair
value valuation of the super senior credit default swap portfolio of AIG
Financial Products and AIG Trading Group Inc., including their respective
subsidiaries (collectively, AIGFP). TRHs portfolio does not
contain any of these instruments, and TRH has determined that the control
weakness identified by AIGs independent auditors did not affect any class
of TRHs investments.

Other-Than-Temporary Impairments
TRH evaluates its investments for other-than-temporary impairments. The determination that a security has incurred an other-than-temporary impairment in value and the amount of any loss
  recognition requires the judgment of TRHs management and a continual review of its investments.
TRH evaluates its investments for other-than-temporary impairment such that a security is considered a candidate for other-than-temporary impairment if it meets any of the following criteria:

    
    
    
    Trading at a significant (25% or more) discount to par, amortized cost (if lower) or cost for an extended period of time (nine consecutive months or longer);
    
    
    
    The occurrence of a discrete credit event resulting in (i) the issuer defaulting on a material outstanding obligation; (ii) the issuer seeking protection from creditors under the bankruptcy laws or any
      similar laws intended for court supervised reorganization of insolvent enterprises; (iii) the issuer proposing a voluntary reorganization pursuant to which creditors are asked to exchange their claims
      for cash or securities having a fair value substantially lower than the par value of their claims; or
    
    
    
    TRH
        may not realize a full recovery on its investment, regardless of the
        occurrence of one or more of the foregoing events.The
    above criteria also consider circumstances of a rapid and severe market
    valuation decline, such as that experienced in current credit markets, in
    which TRH could not reasonably assert that the recovery period would be temporary.
At each balance sheet date, TRH evaluates its securities holdings with unrealized losses. When TRH does not intend to hold such securities until they have fully recovered their cost basis, based on the
  circumstances at the date of evaluation, TRH records a realized capital loss. If a loss is recognized
40

from a sale subsequent to a balance sheet date pursuant to changes in circumstances, the loss is recognized in the period in which the intent to hold the securities to recovery no longer exists.
TRH has the ability to hold any fixed maturity security to its stated maturity, including fixed maturities classified as available for sale. Therefore, the decision to sell any fixed maturity security classified
  as available for sale reflects the judgment of management that the security sold is unlikely to provide, on a relative value basis, as attractive a return in the future as alternative securities entailing
  comparable risks. With respect to distressed securities, the sale decision reflects managements judgment that the risk-discounted anticipated ultimate recovery is less than the value achievable on sale.
Premium Revenues
Management must make certain judgments in the determination of premiums written and earned by TRH. For pro rata treaty contracts, premiums written and earned are based on reports received
  from ceding companies. Generally for excess-of-loss treaty contracts, premiums are recorded as written based on contract terms and are earned ratably over the terms of the related coverages provided. In
  recent years, treaty contracts have generated approximately 96% of TRHs premium revenues. Unearned premiums and prepaid reinsurance premiums represent the portion of gross premiums written and
  ceded premiums written, respectively, relating to the unexpired terms of such coverages. The relationship between net premiums written and net premiums earned will, therefore, vary depending generally
  on the volume and inception dates of the business assumed and ceded and the mix of such business between pro rata and excess-of-loss reinsurance.
Premiums written and earned, along with related costs, for which data has not been reported by the ceding companies, are estimated based on historical patterns and other relevant information. Such
  estimates of premiums earned are considered when establishing the reserve for loss and LAE IBNR. The differences between these estimates and the actual data subsequently reported, which may be
  material as a result of the diversity of cedants and reporting practices and the inherent difficulty in estimating premium inflows, among other factors, are recorded in the period when the actual data
  becomes available and may materially affect results of operations. In the Consolidated Statements of Operations, premiums written and earned and the change in unearned premiums are presented net of
  reinsurance ceded.
TRHs financial statements reflected estimates of gross premiums written, commissions and premium balances receivable, for which data had as yet to be reported by cedants as of December 31, 2007
  and 2006, as follows:
2007
    
    GrossPremiumsWritten
    
    Commissions
    
    PremiumsBalancesReceivableMajor Class(in thousands)Casualty:Other liability
    
    
    $
    
    118,914
    
    
    
    $
    
    32,837
    
    
    
    $
    
    86,077Medical malpractice
    
    
    
    44,788
    
    
    
    
    11,396
    
    
    
    
    33,392Ocean marine and aviation
    
    
    
    40,553
    
    
    
    
    2,052
    
    
    
    
    38,501Auto liability
    
    
    
    19,925
    
    
    
    
    4,824
    
    
    
    
    15,101Accident and health
    
    
    
    13,507
    
    
    
    
    3,958
    
    
    
    
    9,549Surety and credit
    
    
    
    7,250
    
    
    
    
    2,336
    
    
    
    
    4,914Other
    
    
    
    27,594
    
    
    
    
    8,681
    
    
    
    
    18,913Total casualty
    
    
    
    272,531
    
    
    
    
    66,084
    
    
    
    
    206,447Property:Fire
    
    
    
    80,110
    
    
    
    
    23,828
    
    
    
    
    56,282Allied lines
    
    
    
    32,480
    
    
    
    
    5,541
    
    
    
    
    26,939Auto physical damage
    
    
    
    10,318
    
    
    
    
    2,254
    
    
    
    
    8,064Homeowners multiple peril
    
    
    
    3,021
    
    
    
    
    943
    
    
    
    
    2,078Other
    
    
    
    5,432
    
    
    
    
    1,691
    
    
    
    
    3,741Total property
    
    
    
    131,361
    
    
    
    
    34,257
    
    
    
    
    97,104Total
    
    
    $
    
    403,892
    
    
    
    $
    
    100,341
    
    
    
    $
    
    303,55141

2006
    
    GrossPremiumsWritten
    
    Commissions
    
    PremiumsBalancesReceivableMajor Class(in thousands)Casualty:Other liability
    
    
    $
    
    153,959
    
    
    
    $
    
    38,213
    
    
    
    $
    
    115,746Medical malpractice
    
    
    
    27,220
    
    
    
    
    5,869
    
    
    
    
    21,351Ocean marine and aviation
    
    
    
    70,293
    
    
    
    
    9,443
    
    
    
    
    60,850Auto liability
    
    
    
    20,091
    
    
    
    
    5,057
    
    
    
    
    15,034Accident and health
    
    
    
    32,835
    
    
    
    
    8,870
    
    
    
    
    23,965Surety and credit
    
    
    
    22,666
    
    
    
    
    8,110
    
    
    
    
    14,556Other
    
    
    
    42,870
    
    
    
    
    10,411
    
    
    
    
    32,459Total casualty
    
    
    
    369,934
    
    
    
    
    85,973
    
    
    
    
    283,961Property:Fire
    
    
    
    49,481
    
    
    
    
    11,221
    
    
    
    
    38,260Allied lines
    
    
    
    50,178
    
    
    
    
    7,483
    
    
    
    
    42,695Auto physical damage
    
    
    
    5,102
    
    
    
    
    1,356
    
    
    
    
    3,746Homeowners multiple peril
    
    
    
    2,811
    
    
    
    
    746
    
    
    
    
    2,065Other
    
    
    
    12,346
    
    
    
    
    2,945
    
    
    
    
    9,401Total property
    
    
    
    119,918
    
    
    
    
    23,751
    
    
    
    
    96,167Total
    
    
    $
    
    489,852
    
    
    
    $
    
    109,724
    
    
    
    $
    
    380,128TRH has provided no allowance for bad debts relating to the premium estimates based on its historical experience, general profile of its cedants and the ability TRH has in most cases to significantly
  offset these premium receivables with losses and LAE or other amounts payable to the same parties.
Deferred Acquisition Costs
Acquisition costs, consisting primarily of net commissions incurred on business conducted through reinsurance contracts or certificates, are deferred and then amortized over the period in which the
  related premiums are earned, generally one year. The evaluation of recoverability of acquisition costs to be deferred considers the expected profitability of the underlying treaties and facultative certificates,
  which may vary materially from actual results. If the actual profitability varies from the expected profitability, the impact of such differences is recorded, as appropriate, when actual results become known
  and may have a material effect on results of operations.
Operational Review
Results of Operations
TRH derives its revenue from two principal sources: premiums from reinsurance assumed net of reinsurance ceded (i.e., net premiums earned) and income from investments. The following table shows
  net premiums written, net premiums earned and net investment income of TRH for the periods indicated:
Years Ended December 31,2007
    
    2006
    
    2005Amount
    
    ChangeFromPrior Year
    
    Amount
    
    ChangeFromPrior Year
    
    Amount
    
    ChangeFromPrior Year(dollars in millions)Net premiums written
    
    
    $
    
    3,952.9
    
    
    
    
    8.8
    %
    
    
    
    $
    
    3,633.4
    
    
    
    
    4.8
    %
    
    
    
    $
    
    3,466.4
    
    
    
    
    (7.5
    )%Net premiums earned
    
    
    
    3,902.7
    
    
    
    
    8.3
    
    
    
    
    3,604.1
    
    
    
    
    6.5
    
    
    
    
    3,385.0
    
    
    
    
    (7.5
    )Net investment income
    
    
    
    469.8
    
    
    
    
    8.1
    
    
    
    
    434.5
    
    
    
    
    26.6
    
    
    
    
    343.2
    
    
    
    
    11.9Net premiums written increased in 2007 compared to 2006. The sources of the most significant growth were premiums generated by domestic regional offices which were opened during 2006 but
  generated minimal premium volume in that year, increased international other liability business and A&H premiums generated by TRZ. In addition, the impact of changes in foreign currency exchange
42

rates contributed significantly to premium growth as shown in the table below. Excluding the impact of the change in foreign currency exchange rates, net premiums written would have increased by
  approximately 6.4% in 2007 compared to 2006. In general, premium fluctuations reflect prevailing market conditions in recent periods as discussed earlier in MD&A. Premium growth continues to be
  mitigated by increased ceding company retentions in certain lines.
The increase in net premiums written in 2006 compared to 2005 generally reflected prevailing market conditions in recent periods. Excluding the impact of the reduction in net ceded reinstatement
  premiums and the impact of changes in foreign currency exchange rates, net premiums written would have increased approximately 2.5% in 2006 compared to 2005. In 2007 and 2006, as compared to the
  respective immediately prior year, premium increases were primarily from treaty business. On a worldwide basis, casualty lines business represented 71.0% of net premiums written in 2007 versus 73.3% and
  70.2% in 2006 and 2005, respectively. The balance represented property lines. Treaty business represented 96.3% of net premiums written in 2007 versus 95.3% and 95.5% in 2006 and 2005, respectively.
  The balance represented facultative accounts.
The following table summarizes the net effect of changes in foreign currency exchange rates compared to the U.S. dollar on the percentage change in net premiums written in 2007 and 2006 compared
  to its respective immediately prior year.
2007
    
    2006Increase in original currency
    
    
    
    6.4
    %
    
    
    
    
    4.4
    %Foreign exchange effect
    
    
    
    2.4
    
    
    
    
    0.4Increase as reported in U.S. dollars
    
    
    
    8.8
    
    
    
    
    4.8Domestic net premiums written increased in 2007 by $196.8 million, or 11.2%, from the prior year to $1,948.0 million, with the large majority of that increase emanating from domestic regional offices
  which were opened during 2006. Significant increases in domestic net premiums written were recorded in the property ($142.8 million), medical malpractice ($58.8 million) and auto liability ($48.2 million)
  lines. These increases were partially offset by a significant decrease in the A&H ($23.0 million) line.
International net premiums written increased in 2007 by $122.6 million, or 6.5%, from the prior year to $2,004.9 million due largely to the impact of changes in foreign currency exchange rates
  compared to the U.S. dollar. Significant increases in the London ($68.7 million), Paris ($30.1 million) and Toronto ($14.1 million) branches and in TRZ ($24.1 million) were partially offset by a significant
  decrease in the Miami branch ($11.5 million). Of the $122.6 million increase in international net premiums written, $88.5 million is attributable to changes in foreign currency exchange rates between the
  U.S. dollar and the currencies in which TRH does business. Significant increases in international net premiums written were recorded in the other liability (principally D&O, E&O and the general casualty
  class) ($43.9 million), A&H ($40.8 million), property ($33.3 million) and boiler and machinery ($22.8 million) lines. These increases were partially offset by a significant decrease in the auto liability ($46.8
  million) line. International business represented 50.7% of 2007 net premiums written compared to 51.8% in 2006.
Domestic net premiums written increased in 2006 by $182.9 million, or 11.7%, from the prior year to $1,751.2 million due to generally favorable market conditions in certain lines and reduced net ceded
  reinstatement premiums. Significant increases in domestic net premiums written were recorded in the other liability ($153.1 million), A&H ($33.3 million) and auto liability ($33.0 million) lines. These
  increases were partially offset by a significant decrease in the surety ($21.5 million) line.
International net premiums written in 2006 totaled $1,882.2 million, a decrease of $15.8 million from 2005 due in part to some weakness in market conditions in Europe and increased ceding company
  retentions. Significant decreases in TRZ ($26.6 million) and the Paris ($16.5 million) and London ($14.8 million) branches were mostly offset by significant increases in the Miami ($37.1 million) and
  Toronto ($14.6 million) branches. The increased premium volume in the Miami branch benefited from favorable market conditions in Latin America following significant catastrophe losses affecting the
  region in 2005. International net premiums written decreased significantly in the auto liability ($53.4 million) and property ($48.9 million) lines. These decreases were partially offset by significant increases
  in the ocean marine ($41.9 million), credit ($25.1 million) and A&H ($24.0 million) lines. The overall change in international net premiums written includes the impact of changes in foreign currency exchange
  rates
43

between the U.S. dollar and the currencies in which TRH does business as discussed earlier. International business represented 51.8% of 2006 net premiums written compared to 54.8% in 2005.
Reinstatement premiums were not significant in 2007 and 2006. Net premiums written and earned in 2005 include net ceded reinstatement premiums (relating to catastrophe losses) of $61.1 million
  (gross $72.3 million; ceded $133.4 million), principally relating to domestic operations, of which $19.1 million relates to gross adverse development on catastrophe events occurring in 2004. (See Note 9.)
Generally, reasons for changes in gross premiums written between years are similar to those for net premiums written, except as discussed earlier as regards reinstatement premiums and changes in
  premiums assumed from an affiliate that, by prearrangement, were ceded in an equal amount to other affiliates (see Note 15 of Notes to Consolidated Financial Statements (Note 15)). The decrease in
  ceded premiums written and earned in 2006 compared to 2005 is due to a reduction in ceded reinstatement premiums relating to 2005 and 2004 catastrophes, partially offset by increases in premiums
  assumed from an affiliate that, by prearrangement, were ceded in an equal amount to other affiliates.
As further discussed in Notes 13 and 15 of Notes to Consolidated Financial Statements, TRH transacts a significant amount of business assumed and ceded with other subsidiaries of AIG. TRH either
  accepts or rejects the proposed transactions with such companies based on its assessment of risk selection, pricing, terms and conditions.
As premiums written are primarily earned ratably over the terms of the related coverages, the reasons for changes in net premiums earned are generally similar to the reasons for changes in net
  premiums written over time.
Net investment income increased in 2007 compared to 2006 principally due to an increase in fixed maturity income, resulting mostly from investment returns from continued positive operating cash
  flows. The strengthening of foreign currencies against the U.S. dollar increased net investment income by approximately $9 million in 2007 compared to 2006. Net investment income increased in 2006
  compared to 2005 due generally to investment returns from continued positive operating cash flows, the investment of the net proceeds from issuance of $750 million principal amount senior notes in
  December 2005 and increases in investment income from limited partnerships. (See Note 3(b) of Notes to Consolidated Financial Statements for a breakdown of the components of net investment income
  and the cash flow discussion under Financial Condition and Liquidity.)
For 2007, 2006 and 2005, the pre-tax effective yields on investments were 3.9%, 4.2% and 3.9%, respectively. The pre-tax effective yield on investments represents net investment income divided by the
  average balance sheet carrying value of investments and interest-bearing cash. The reduction in investment yield in 2007 compared to 2006 resulted in part from the growth in securities lending collateral,
  which generates minimal net investment income because investment income earned from invested collateral is reduced by interest payable to the collateral provider. The reduction in pre-tax effective yields
  also resulted in part from a decline in investment return from the equities trading portfolio and a slight reduction of investment income from limited partnerships. Generally, market interest rates on fixed
  maturities increased during the first half of 2006, losing much of that increase in the second half of the year. The increase in the pre-tax effective yield on investments in 2006 compared to 2005 was due in
  part to increased investment income from limited partnerships offset in part by a significant increase in 2006 in securities lending collateral, which produces minimal net investment income. In addition, a
  portion of the increase in investment yield in 2006 compared to 2005 relates to the investment in December 2005 of significant net proceeds from the issuance of senior notes. Such investments generated
  limited investment income in 2005, due to the minimal amount of time that they were owned. (See Note 2(c) of Notes to Consolidated Financial Statements (Note 2(c)).)

Realized net
capital gains totaled $9.4 million in 2007, $10.9 million in 2006 and $39.9
million in 2005. Realized net capital gains result in part from investment
dispositions, which reflect TRHs investment and tax planning strategies to
maximize after-tax income, and write-downs of securities that, in the opinion of
management, had experienced a decline in fair value that was other-than-temporary.
Such write-downs in 2007 totaled $2.5 million relating to fixed
maturities available for sale and $24.7 million relating to equities available
for sale, principally common stocks. Given the unrest in the equity markets and
uncertainty in the economy as a whole at year-end 2007 which caused declines in
the fair

44

values of certain equities, TRH could not assert that certain of these equities would be held to recovery. Therefore, TRH determined that such equities were other than temporarily impaired and recorded
  write-downs to fair value. Write-downs in 2006 totaled $1.3 million relating to fixed maturities available for sale and $0.1 million relating to equities available for sale. Such write-downs in 2005 totaled $1.7
  million relating to equities available for sale. Upon the ultimate disposition of securities for which write-downs have been recorded, a portion of the write-downs may be recovered depending on market
  conditions at the time of disposition. (See Note 2(c) for criteria used in determination of such write-downs.) In addition, realized net capital gains in 2007 and 2006 were reduced by net foreign currency
  transaction losses, principally relating to non-functional currencies, of $24.6 million and $11.2 million, respectively.
The property and casualty insurance and reinsurance industries use the combined ratio as a measure of underwriting profitability. The combined ratio reflects only underwriting results, and does not
  include income from investments. Generally, a combined ratio under 100% indicates an underwriting profit and a combined ratio exceeding 100% indicates an underwriting loss. Underwriting profitability is
  subject to significant fluctuations due to competition, natural and man-made catastrophic events, economic and social conditions, foreign currency exchange rate fluctuations, interest rates and other factors.
  The loss ratio represents net losses and LAE incurred expressed as a percentage of net premiums earned. The underwriting expense ratio represents the sum of net commissions and other underwriting
  expenses expressed as a percentage of net premiums written. The combined ratio represents the sum of the loss ratio and the underwriting expense ratio.
The following table presents loss ratios, underwriting expense ratios and combined ratios for consolidated TRH, and separately for its domestic and international components, for the years indicated:
Years EndedDecember 31,2007
    
    2006
    
    2005Consolidated:Loss ratio
    
    
    
    67.6
    %
    
    
    
    
    68.3
    %
    
    
    
    
    85.0
    %Underwriting expense ratio
    
    
    
    27.7
    
    
    
    
    27.7
    
    
    
    
    27.0Combined ratio
    
    
    
    95.3
    
    
    
    
    96.0
    
    
    
    
    112.0Domestic:Loss ratio
    
    
    
    74.2
    %
    
    
    
    
    77.5
    %
    
    
    
    
    103.6
    %Underwriting expense ratio
    
    
    
    25.9
    
    
    
    
    25.6
    
    
    
    
    25.6Combined ratio
    
    
    
    100.1
    
    
    
    
    103.1
    
    
    
    
    129.2International:Loss ratio
    
    
    
    61.1
    %
    
    
    
    
    60.1
    %
    
    
    
    
    70.7
    %Underwriting expense ratio
    
    
    
    29.5
    
    
    
    
    29.6
    
    
    
    
    28.2Combined ratio
    
    
    
    90.6
    
    
    
    
    89.7
    
    
    
    
    98.9The improvement in the loss ratio for consolidated TRH in 2007 compared to 2006 reflects improvement from domestic operations partially offset by deterioration from international operations. The
  loss ratio for consolidated TRH in 2007 benefited from lower net adverse loss reserve development, partially offset by increased net catastrophe costs. The improvement in the loss ratio for consolidated
  TRH in 2006 as compared to 2005 reflects improvements from both domestic and international operations. Two factors in the improvement in the loss ratio for consolidated TRH in 2006 compared to 2005
  are lower net catastrophe costs and, to a much lesser extent, lower net adverse loss reserve development, primarily from domestic operations. In the aggregate, catastrophe costs and estimated net adverse
  loss reserve development added 3.4%, 5.0% and 23.4% to the consolidated TRH combined ratio in 2007, 2006 and 2005, respectively.
2007 includes net catastrophe costs of $55.2 million principally relating to European Windstorm Kyrill and floods in the U.K. Net catastrophe costs in the aggregate added 1.4%, 0.4% and 2.4% to the
  2007 combined ratios for consolidated, domestic and international, respectively. (See Note 9 for the amounts of net catastrophe costs by segment and the amounts of consolidated gross and ceded
  catastrophe losses incurred and reinstatement premiums. See discussion in Catastrophe Exposure of the magnitude of TRHs catastrophe exposures.)
45

In addition, in 2007,
TRH determined that its estimates of the ultimate amounts of net losses
occurring in 2006 and prior years needed to be increased as a result of greater
than expected loss activity in 2007. As a result of that determination, TRH
increased net losses and LAE incurred by $88.4 million, representing significant
net adverse development in 2007 of losses occurring in all prior years. This net
adverse development was comprised of $368.9 million relating to losses occurring
in 2002 and prior, partially offset by net favorable development of $280.5
million, principally relating to losses occurring in 2006 and, to a lesser extent,
2005 and 2004. The detail of the $88.4 million net adverse development by line
of business relating to all prior years is presented in the table
below:

Lines of Business
    
    Net Loss Reserve atDecember 31, 2006
    
    Year-end 2006 NetReestimated Liabilityat Year-end 2007
    
    Amount ofReestimation(Deficiency)Redundancy(1)(in thousands)Other liability
    
    
    $
    
    2,558,979
    
    
    
    $
    
    2,780,364
    
    
    
    $
    
    (221,385
    )Medical Malpractice
    
    
    
    926,906
    
    
    
    
    964,977
    
    
    
    
    (38,071
    )Fire
    
    
    
    461,105
    
    
    
    
    377,473
    
    
    
    
    83,632Allied lines
    
    
    
    113,335
    
    
    
    
    69,990
    
    
    
    
    43,345Homeowners multiple peril
    
    
    
    50,838
    
    
    
    
    16,662
    
    
    
    
    34,176Other, net
    
    
    
    2,096,057
    
    
    
    
    2,086,134
    
    
    
    
    9,923Total
    
    
    $
    
    6,207,220
    
    
    
    $
    
    6,295,600
    
    
    
    $
    
    (88,380
    )

(1)
    
    
    
    Amount of reestimation represents the amount of net losses and LAE incurred in 2007 relating to losses occurring in 2006 and prior years.As presented in the table above, the line of business with the most significant net adverse development recorded in 2007 was the other liability line, arising principally from losses occurring between
  1998 and 2002. The other liability line includes certain specialty casualty classes, such as D&O and E&O, and general casualty classes. In addition, significant net adverse development was recorded in 2007 in
  the medical malpractice line, arising principally from losses occurring between 1998 and 2002. These increases to incurred losses were offset in part by net favorable development occurring most significantly
  in the fire line, arising principally from losses occurring in 2006, and in the allied lines and homeowners multiple peril lines, each arising principally from losses occurring between 2004 and 2006. (See Note 9
  for amounts included in net adverse development that relate to catastrophe losses.)
The net adverse development arising from losses occurring in years 1998 through 2002, which represent the great majority of the 2002 and prior development, generally relates to the fact that for many
  classes within these years, ceding companies continue to experience increased loss costs relative to expectations coupled with an unexpected lengthening of the loss emergence patterns. Generally, loss
  activity was greater than expected from losses occurring in the D&O and E&O classes, which continued to be impacted by claims relating to corporate bankruptcies and IPO allocation/laddering claims. Also,
  classes such as Excess Umbrella and Architects & Engineers were impacted by construction defect and other late reported high layer excess claims to a greater extent than expected. Contributing to this
  increase is the fact that many policies during this period covered underlying contracts that extended over multiple years, which contributed to recent reported loss activity exceeding previous expectations.
  This has led to an increase in both the frequency and severity of claims entering the reinsured excess-of-loss coverage layers at later points in time than had previously been experienced. The favorable
  development in accident years 2004 through 2006 results from favorable loss trends.
TRH writes a significant amount of non-proportional assumed casualty reinsurance as well as proportional assumed reinsurance of excess liability business for such volatile classes as medical
  malpractice, D&O, E&O and general casualty. At the primary level, there are significant risk factors which contribute to the variability and unpredictability of the loss trend factors for this business such as jury
  awards, social inflation, medical inflation, tort reforms and court interpretations of coverage. In addition, as a reinsurer, TRH is also highly dependent upon the claims reserving and reporting practices of its
  cedants, which vary greatly by size, specialization and country of origin and whose practices are subject to change without notice.
Based on information presently available, TRH believes its current loss reserves are adequate, but there can be no assurance that TRHs loss reserves will not develop adversely due to, for example, the
46

inherent volatility in loss
trend factors and variability of reporting practices for those classes, among
other factors, and materially exceed the carried loss reserves as of December
31, 2007 and thus, have a material adverse effect on future net income,
financial condition and cash flows.

For 2007
compared to 2006, the changes in gross and ceded losses and LAE incurred each
include the effect of a $151 million decrease in losses and LAE incurred
relating to business assumed from an affiliate which, by prearrangement with
TRH, was then ceded in an equal amount to other affiliates (see Note 15). In
addition, the change in gross and ceded losses and LAE incurred includes the
changes in gross and ceded catastrophe losses as discussed in Note 9.

There were no significant net catastrophe costs for events occurring in 2006. Net catastrophe costs (relating to events principally occurring in 2005) in the aggregate added 0.8%, 1.1% and 0.6% to the
  2006 combined ratios for consolidated, domestic and international, respectively.
However, in 2006, TRH determined that its estimates of the ultimate amounts of net losses occurring in 2005 and prior years needed to be increased as a result of greater than expected loss activity in
  2006. As a result of that determination, TRH increased net losses and LAE incurred by $181.1 million, representing significant net adverse development in 2006 of losses occurring in all prior years. This net
  adverse development was comprised of $339.7 million relating to losses occurring in 2002 and prior, partially offset by favorable development of $158.6 million relating primarily to 2005. The detail of the
  $181.1 million net adverse development by line of business relating to all prior years is presented in the table below:
Lines of Business
    
    Net Loss Reserve atDecember 31, 2005
    
    Year-end 2005 NetReestimated Liabilityat Year-end 2006
    
    Amount ofReestimation(Deficiency)Redundancy(1)(in thousands)Other liability
    
    
    $
    
    2,272,605
    
    
    
    $
    
    2,464,599
    
    
    
    $
    
    (191,994
    )Fire
    
    
    
    503,396
    
    
    
    
    374,606
    
    
    
    
    128,790Homeowners multiple peril
    
    
    
    128,839
    
    
    
    
    92,526
    
    
    
    
    36,313Medical malpractice
    
    
    
    826,558
    
    
    
    
    861,489
    
    
    
    
    (34,931
    )Fidelity
    
    
    
    147,921
    
    
    
    
    176,037
    
    
    
    
    (28,116
    )Ocean marine and aviation
    
    
    
    499,305
    
    
    
    
    521,074
    
    
    
    
    (21,769
    )Other, net
    
    
    
    1,311,819
    
    
    
    
    1,381,240
    
    
    
    
    (69,421
    )Total
    
    
    $
    
    5,690,443
    
    
    
    $
    
    5,871,571
    
    
    
    $
    
    (181,128
    )

(1)
    
    
    
    Amount of reestimation represents the amount of net losses and LAE incurred in 2006 relating to losses occurring in 2005 and prior years.As presented in the table above, the line of business with the most significant net adverse development recorded in 2006 was the other liability line, arising principally from losses occurring in 2000 to
  2002 for reasons similar to those discussed earlier for the other liability line development in 2007. The other liability line includes certain specialty casualty classes, such as D&O and E&O, and general casualty
  classes. In addition, significant net adverse development was recorded in 2006 in the medical malpractice line, arising principally from losses occurring between 1998 and 2002, the fidelity line, arising
  principally from losses occurring between 1999 and 2005, and the ocean marine and aviation line, arising principally from losses occurring in 2005. The large majority of such net adverse development related
  to domestic operations. These increases to incurred losses were offset in part by net favorable development occurring most significantly in the fire line, arising principally from losses occurring in 2005, and
  the homeowners multiple peril line, arising principally from losses occurring between 2004 and 2005. (See Note 9 for amounts included in net adverse development that relate to catastrophe losses.)
The main reason for the decrease in gross and ceded losses and LAE incurred in 2006 compared to 2005 is the decrease in gross and ceded catastrophe losses (see Note 9) in 2006 partially offset by a
  $199 million increase in gross and ceded losses and LAE incurred relating to business assumed from an affiliate which, by prearrangement with TRH, was then ceded in an equal amount to other affiliates.
TRHs 2005 results include net catastrophe costs of $543.9 million (domestic $385.8 million; international $158.1 million) principally relating to Hurricanes Katrina, Rita and Wilma and, to a lesser
47

extent, to Central European floods and European Windstorm Erwin. Such net catastrophe costs include net ceded reinstatement premiums of $61.1 million (domestic $56.2 million; international $4.9
  million). Approximately $123.9 million of net catastrophe costs included in international operations relate to hurricanes occurring in the Americas. Net catastrophe costs in the aggregate added 16.0%,
  26.3% and 8.2% to the combined ratios for consolidated TRH, domestic and international, respectively.
In addition, in 2005, TRH determined that its estimates of the ultimate amounts of net losses occurring in 2004 and prior years needed to be increased as a result of greater than expected loss activity in
  2005. As a result of that determination, TRH increased net losses and LAE incurred by $268.8 million, representing significant net adverse development in 2005 of losses occurring in all prior years. This net
  adverse development was comprised of $524.9 million relating to losses occurring in 2002 and prior, partially offset by favorable development of $256.1 million relating primarily to 2004 and, to a lesser
  extent, to 2003. The detail of the $268.8 million net adverse development by line of business relating to all prior years is presented in the table below:
Lines of Business
    
    Net Loss Reserve atDecember 31, 2004
    
    Year-end 2004 NetReestimated Liabilityat Year-end 2005
    
    Amount ofReestimation(Deficiency)Redundancy(1)(in thousands)Other liability
    
    
    $
    
    1,800,415
    
    
    
    $
    
    2,166,198
    
    
    
    $
    
    (365,783
    )Fire
    
    
    
    439,680
    
    
    
    
    340,281
    
    
    
    
    99,399Medical malpractice
    
    
    
    715,739
    
    
    
    
    780,119
    
    
    
    
    (64,380
    )Ocean marine and aviation
    
    
    
    462,167
    
    
    
    
    420,075
    
    
    
    
    42,092Homeowners multiple peril
    
    
    
    87,444
    
    
    
    
    63,962
    
    
    
    
    23,482Other, net
    
    
    
    1,475,164
    
    
    
    
    1,478,810
    
    
    
    
    (3,646
    )Total
    
    
    $
    
    4,980,609
    
    
    
    $
    
    5,249,445
    
    
    
    $
    
    (268,836
    )

(1)
    
    
    
    Amount of reestimation represents the amount of net losses and LAE incurred in 2005 relating to losses occurring in 2004 and prior years.As presented in the table above, the lines of business with the most significant net adverse development recorded in 2005 were the other liability line, arising principally from losses occurring in 1996 to
  2002 for reasons similar to those discussed earlier for the other liability line development in 2007, and the medical malpractice line, arising principally from losses occurring between 1997 and 2001. The large
  majority of such net adverse development related to domestic operations. These increases to incurred losses were offset in part by net favorable development occurring most significantly in the fire line,
  which arose principally from losses occurring in 2004, and in the ocean marine and aviation line, which arose principally from losses occurring in 2001 through 2004. (See Note 9 for amounts included in net
  adverse development that relate to catastrophe losses.)
While TRH believes that it has taken appropriate steps to manage its exposure to possible future catastrophe losses, the occurrence of one or more natural or man-made catastrophic events of
  unanticipated frequency or severity, such as a terrorist attack, earthquake or hurricane, that causes insured losses could have a material adverse effect on TRHs results of operations, liquidity or financial
  condition. Current techniques and models may not accurately predict the probability of catastrophic events in the future and the extent of the resulting losses (as was the case with Hurricane Katrina).
  Moreover, one or more catastrophe losses could weaken TRHs retrocessionnaires and result in an inability of TRH to collect reinsurance recoverables.
The
    underwriting expense ratio for consolidated TRH remained level in 2007 compared
    to 2006 due to a decrease of 0.1% in the commission expense component, offset
    by an increase of 0.1% in the other underwriting expense component.
The underwriting expense ratio for consolidated TRH increased in 2006 compared to 2005 due to an increase of 0.5% in the other underwriting expense component of the ratio and 0.2% in the net
  commission component of the ratio. The increase in the other underwriting expense component is due largely to increased employee compensation and benefits expenses.
48

Deferred acquisition costs vary as the components of net unearned premiums change and the deferral rate changes. Acquisition costs, consisting primarily of net commissions incurred, are charged to
  earnings over the period in which the related premiums are earned.
In December 2005, the Company completed a public offering of $750 million principal amount of its 5.75% senior notes due in 2015 (the Senior Notes). The Senior Notes remained outstanding at
  December 31, 2007 and 2006. Interest expense incurred in connection with the Senior Notes totaled $43.4 million, $43.4 million and $2.1 million in 2007, 2006 and 2005, respectively. Interest paid on the
  Senior Notes totaled $43.1million, $43.1 million and nil in 2007, 2006 and 2005, respectively.
General corporate expenses, certain stock-based compensation costs and expenses relating to Professional Risk Management Services, Inc. (PRMS), which was acquired in 2007, are the primary
  components of other, net expenses on the Consolidated Statement of Operations. PRMS is an insurance program manager specializing in professional liability insurance services, including underwriting,
  claims, and risk management, for individual healthcare providers, group practices, facilities and organizations. The increase in other, net in 2007 compared to 2006 is due to PRMS expenses and an
  increase in general corporate expenses.
Income (loss) before income taxes was $595.8 million in 2007, $539.9 million in 2006 and $(46.1) million in 2005. The increase in income before income taxes in 2007 compared to 2006 resulted primarily
  from increased underwriting profit (loss) and net investment income. The increased underwriting profit (loss) in 2007 reflected increased net premiums earned together with a lower combined ratio
  benefiting largely from decreased net adverse loss reserve development offset in part from higher catastrophe costs in 2007 compared to 2006 which together had the impact of increasing income before
  income taxes in 2007 by $47.7 million. The increase in income (loss) before income taxes in 2006 compared to 2005 resulted primarily from increased underwriting profit (loss) and net investment income
  offset in part by increased interest expense and decreased realized net capital gains, each in 2006 as compared to 2005. The increased underwriting profit (loss) in 2006 resulted primarily from lower pre-tax
  net catastrophe costs and lower net adverse loss reserve development. The lower pre-tax net catastrophe costs and lower net adverse loss reserve development in the aggregate increased income (loss)
  before income taxes by approximately $618.4 million in 2006 compared to 2005.
Federal and foreign income tax expense (benefit) of $108.6 million, $111.8 million and $(84.0) million were recorded in 2007, 2006 and 2005, respectively. The 2005 tax benefit, which exceeds the
  amount of pre-tax loss in 2005, resulted from TRH carrying its current year tax net operating loss back to prior years ($61.2 million current tax benefit on the Consolidated Statement of Operations and a
  current tax recoverable in the same amount included in other assets on the Consolidated Balance Sheet) and recording a deferred tax benefit on the Consolidated Statement of Operations (also included on
  the Consolidated Balance Sheet as a deferred tax asset) of $20.9 million for a minimum tax credit carryforward. In 2007 and 2006, TRH generated an additional $32.9 million and $6.6 million, respectively,
  of deferred tax benefits from minimum tax credit carryforwards.
The Company and its domestic subsidiaries (which includes foreign operations) file consolidated federal income tax returns. The tax burden among the companies is allocated in accordance with a tax
  sharing agreement. TRC also includes as part of its taxable income or loss those items of income of the non-U.S. subsidiary, TRZ, which are subject to U.S. income tax currently, pursuant to Subpart F
  income rules of the Internal Revenue Code, and included, as appropriate, in the consolidated federal income tax return.
The effective tax rates, which represent the sum of current and deferred income taxes (benefits) divided by income (loss) before income taxes, were 18.2% in 2007, 20.7% in 2006 and 182.2% in 2005.
  The decrease in the effective tax rate in 2007 compared to 2006 was primarily attributable to the recognition of a previously uncertain tax benefit of $5.3 million, dividends received deduction and additional
  tax credits approximating $4.6 million and interest income anticipated of $4.3 million on net tax refunds. (See Note 4 of Notes to Consolidated Financial Statements.)
With respect to the unusual effective tax rate in 2005, it is important to note that while the actual tax benefit derived from tax-exempt interest income and the dividends received deduction in 2005 is
  not significantly different from 2006, the percentage impact in the effective tax rate calculation from such items is significantly greater. The greater impact is caused by the fact that income (loss) before
  income
49

taxes (i.e., denominator in the effective tax rate calculation) is a lower absolute value in 2005 compared to 2007 and 2006, due largely to the greater amount of catastrophe costs in 2005. The effective tax
  rates for 2007 and 2006 reflect the fact that there were no significant net catastrophe costs during those years.
Net income and net income per common share on a diluted basis, respectively, were as follows: 2007$487.1 million, $7.31; 2006$428.2 million, $6.46; 2005$37.9 million, $0.57. Reasons for the changes
  between years are as discussed earlier. (See Note 8 of Notes to Consolidated Financial Statements.)
Segment Results
(a) Domestic:
2007
      compared to 2006Domestic revenues increased from the prior year
      due principally to increases in net premiums written, for reasons discussed
      earlier in MD&A, net of the difference in the change in
  unearned premiums between years and, to lesser extents, increased realized
      net capital gains, despite significant impairment write-downs in the equities
      portfolio, and net investment income. The increase in net premiums earned
      in 2007 occurred primarily in the property, other liability, medical malpractice
      and auto liability lines offset in part by a significant decrease in the
      fidelity and A&H lines. The increase in
  net investment income is due in part to continued positive operating cash flows,
      offset in part by a reduced investment return from the equities trading
      portfolio. Income before income taxes for 2007 increased due primarily
      to a decrease in underwriting loss and, to lesser extents, increases in
      realized net capital gains and net investment income, partially offset
      by increases in general corporate expenses and expenses relating to PRMS,
      acquired in 2007. The decrease in underwriting loss is due in part to improved
      loss experience in calendar year 2007.
2007 includes net catastrophe costs of $8.0 million relating to catastrophe events occurring in 2005. 2006 includes net catastrophe costs of $18.2 million relating to catastrophe events occurring in prior
  years.
Assets increased $208 million in 2007 due largely to a $490 million increase in investments and cash, partially offset by a $334 million decrease in reinsurance recoverable on paid and unpaid losses and
  LAE. The increase in investments and cash was due largely to $550.5 million of net operating cash inflows.
2006 compared to 2005Domestic revenues increased from the prior year due primarily to increases in net premiums earned, for reasons similar to those discussed earlier in MD&A for the increase in net
  premiums written, and, to a lesser extent, increased net investment income offset in part by a decrease in realized net capital gains. The increase in net premiums earned in 2006 occurred primarily in the
  other liability, property, A&H and auto liability lines offset in part by a significant decrease in the surety line. The increase in net investment income in 2006 is due in part to investment returns from the
  investment of the $745 million net proceeds from the issuance of the Senior Notes, continued positive operating cash flows and increases in investment income from limited partnerships. Income (loss)
  before income taxes for 2006 increased due primarily to an increase in underwriting profit (loss) and, to a lesser extent, by increased net investment income. The increase in underwriting profit (loss) is
  caused principally by decreased net catastrophe costs, which totaled $18.2 million in 2006 compared to $385.8 million in 2005. Both years included significant adverse development of losses occurring in prior
  years, though such development was lower in 2006 then 2005, in certain more volatile casualty classes, as discussed earlier under Results of Operations.
Assets increased $247 million in 2006 as increases in investments and cash were partially offset by reductions in reinsurance recoverable on paid and unpaid losses and LAE. The increase in investments
  and cash was due largely to $445.4 million of net operating cash flows.
(b) InternationalEurope (London and Paris branches and TRZ):
2007 compared to 2006Revenues increased due to increases in net premiums earned and net investment income, partially offset by an increase in realized net capital losses, related in part to increased
  foreign exchange transaction losses. Revenues increased principally in the London and Paris branches. Net premiums earned increased principally in the other liability, A&H and medical
50

malpractice lines offset in part by a significant decrease in the auto liability line. Income before income taxes for 2007 increased due primarily to increases in underwriting profit, despite a significant
  increase in catastrophe loss activity (as further discussed below) and increased net investment income offset in part by an increase in realized net capital losses. The increase in underwriting profit reflects a
  lower combined ratio from the London branch, reflecting improved loss experience, partially offset by a higher combined ratio from the Paris branch due to increased loss activity relating to catastrophe
  losses occuring in 2007.
2007 includes net catastrophe costs of $47.4 million principally relating to Windstorm Kyrill in Europe and floods in the U.K. 2006 includes net catastrophe costs of $16.9 million relating to catastrophe
  events occurring in prior years.
Assets increased $799 million in 2007 due largely to a $742 million increase in investments and cash. The increase in investments and cash was due in part to significant net operating cash inflows in
  recent periods.
2006 compared to 2005Revenues decreased due principally to a decrease in net premiums earned in the London and Paris branches and, to a lesser extent, a decrease in realized net capital gains
  (losses), partially offset by increased net investment income. Net premiums earned decreased principally in the auto liability, other liability and property lines offset in part by increases in the ocean marine,
  A&H and credit lines. The decrease in net premiums earned is due in part to some weakness in market conditions and increased ceding company retentions. Income before income taxes for 2006 increased
  due primarily to an increase in underwriting profit (loss) in the London branch and TRZ and, to a lesser extent, to increased net investment income in each location. The increase in underwriting profit
  (loss) is caused principally by decreased net catastrophe costs, which totaled $16.9 million in 2006 compared to $119.6 million in 2005.
Assets increased $1.37 billion in 2006 due largely to an increase of $1.1 billion in securities lending collateral, due to increased demand to borrow securities denominated in certain European currencies,
  and an increase of $400 million in fixed maturities available for sale reflecting significant positive operating cash flows in recent periods.
(c) InternationalOther (Miami (serving Latin America and the Caribbean), Toronto, Hong Kong and Tokyo branches):
2007 compared to 2006Revenues decreased in 2007 due to decreases in net premiums earned and realized net capital gains (losses), partially offset by an increase in net investment income. The decrease
  in net premiums earned generally occurred in the property, auto liability and A&H lines offset in part by an increase in the other liability line. Significant decreases in net premiums earned occurred in the
  Miami and Hong Kong branches, partially offset by a significant increase in net premiums earned from the Toronto branch. Income before income taxes decreased in 2007 due to a decrease in underwriting
  profit from the Miami branch, reflecting a significant increase in loss activity, and a decrease in realized net capital gains (losses), partially offset by increased net investment income.
2007 includes net catastrophe costs of ($0.2) million relating to events occurring in 2005. 2006 includes net catastrophe costs of ($6.4) million relating to catastrophe events occurring in prior years.
Assets increased $208 million in 2007 due largely to a $189 million increase in investments and cash. The increase in investments and cash was due in part to significant positive net operating cash flows
  in recent periods.
2006 compared to 2005Revenues increased in 2006 due primarily to increases in net premiums earned in all branches, with the largest increases in the Miami and Toronto branches. These increases
  generally occurred in the property line along with relatively minor increases spread among several other lines. The increased net premiums earned in the Miami branch benefited from favorable market
  conditions in Latin America following significant catastrophe losses affecting the region in 2005. Income before income taxes increased in 2006 due to increases in underwriting profit (loss) and net
  investment income. The increase in underwriting profit (loss) is caused in part by decreased net catastrophe costs, which totaled ($6.4) million in 2006 compared to $38.5 million in 2005, and generally
  improved loss experience in 2006.
51

Assets increased by $284 million in 2006 due principally to increases in reinsurance recoverable from affiliates on paid and unpaid losses and LAE and increases in investments and cash.
Financial Condition and Liquidity
As a holding company, the Companys assets consist primarily of the stock of TRC. The Companys liabilities consist primarily of the Senior Notes and related interest payable. The Companys future
  cash flows depend on the availability of dividends or other statutorily permissible payments from TRC and its wholly-owned operating subsidiaries, TRZ and Putnam. (See Note 14 of Notes to Consolidated
  Financial Statements for a discussion of restrictions on dividend payment.) In 2007 and 2006, the Company received cash dividends from TRC of $81.0 million and $88.0 million, respectively. As of
  December 31, 2007, TRC could pay dividends to the Company of $336.9 million without regulatory approval. In 2005, TRC, the primary operating subsidiary, received a capital contribution of $745 million
  from the Company. These funds were obtained by the Company in connection with its public offering of the Senior Notes. (See Note 6 of Notes to Consolidated Financial Statements.) The Company uses
  cash primarily to pay interest to the holders of the Senior Notes, dividends to its common stockholders and, to a lesser extent, operating expenses.
Sources of funds for the operating subsidiaries consist primarily of premiums, reinsurance recoverables, investment income, proceeds from sales, redemptions and the maturing of investments and the
  receipt of securities lending collateral. Funds are applied by the operating subsidiaries primarily to payments of claims, commissions, ceded reinsurance premiums, insurance operating expenses, income
  taxes and securities lending payables and the purchase of investments. Premiums are generally received substantially in advance of related claims payments. Cash and cash equivalents, which are principally
  interest-bearing, are maintained for the payment of claims and expenses as they become due. TRH does not anticipate any material capital expenditures in the foreseeable future.
While the expected payout pattern of liabilities (see contractual obligations table later in this section) is considered in the investment management process, it is not the only factor considered as TRH
  has historically funded its claims payments from current operating cash flows. As a result of such funding history, TRH has not historically maintained a credit facility. TRHs primary investment goal is to
  maximize after-tax income through a high quality diversified taxable fixed maturity and tax-exempt municipal fixed maturity portfolio, while maintaining an adequate level of liquidity. See discussion later in
  this section of the potential liquidity strain that could arise as a result of a significant acceleration of paid losses beyond TRHs ability to fund such payments.
At December 31, 2007, total investments and cash were $12.76 billion compared to $11.34 billion at December 31, 2006. The increase was caused, in large part, by $1,026.8 million of cash provided by
  operating activities and $306.0 million from the net receipt of collateral from securities lending activities, offset by changes in net unrealized appreciation (depreciation) of investments which decreased
  investments and cash by $155.6 million (see discussion of the change in unrealized appreciation of investments, net of tax, below). In addition, the impact of foreign currency exchange rate changes between
  the U.S. dollar and certain currencies in which investments and cash are denominated increased total investments and cash by approximately $255 million.
52

The following table summarizes the investments and cash of TRH (on the basis of carrying value) as of December 31, 2007 and 2006:
December 31, 2007
    
    December 31, 2006Amount
    
    Percent
    
    Amount
    
    Percent(dollars in thousands)Fixed maturities:Held to maturity (at amortized cost):States, municipalities and political subdivisions
    
    
    $
    
    1,249,935
    
    
    
    
    9.8
    %
    
    
    
    $
    
    1,254,017
    
    
    
    
    11.1
    %Available for sale (at fair value):Corporate
    
    
    
    2,060,757
    
    
    
    
    16.2
    
    
    
    
    1,727,715
    
    
    
    
    15.2U.S. Government and government agencies
    
    
    
    330,838
    
    
    
    
    2.6
    
    
    
    
    348,672
    
    
    
    
    3.1Foreign government
    
    
    
    330,012
    
    
    
    
    2.6
    
    
    
    
    304,824
    
    
    
    
    2.7States, municipalities and political subdivisions
    
    
    
    5,335,119
    
    
    
    
    41.8
    
    
    
    
    4,650,278
    
    
    
    
    41.0Asset-backed and collateralized securities
    
    
    
    42,526
    
    
    
    
    0.3
    
    
    
    
    29,601
    
    
    
    
    0.38,099,252
    
    
    
    
    63.5
    
    
    
    
    7,061,090
    
    
    
    
    62.3Total fixed maturities
    
    
    
    9,349,187
    
    
    
    
    73.3
    
    
    
    
    8,315,107
    
    
    
    
    73.4Equities:Available for sale:Common stocks
    
    
    
    587,373
    
    
    
    
    4.6
    
    
    
    
    571,422
    
    
    
    
    5.1Nonredeemable preferred stocks
    
    
    
    197,870
    
    
    
    
    1.5
    
    
    
    
    236,846
    
    
    
    
    2.1785,243
    
    
    
    
    6.1
    
    
    
    
    808,268
    
    
    
    
    7.2Trading, principally common stocks
    
    
    
    35,357
    
    
    
    
    0.3
    
    
    
    
    38,232
    
    
    
    
    0.3Total equities
    
    
    
    820,600
    
    
    
    
    6.4
    
    
    
    
    846,500
    
    
    
    
    7.5Other invested assets
    
    
    
    250,921
    
    
    
    
    2.0
    
    
    
    
    231,502
    
    
    
    
    2.0Securities lending collateral
    
    
    
    2,012,031
    
    
    
    
    15.8
    
    
    
    
    1,694,841
    
    
    
    
    14.9Short-term investments
    
    
    
    67,801
    
    
    
    
    0.5
    
    
    
    
    42,882
    
    
    
    
    0.4Cash and cash equivalents
    
    
    
    255,432
    
    
    
    
    2.0
    
    
    
    
    205,264
    
    
    
    
    1.8Total investments and cash
    
    
    $
    
    12,755,972
    
    
    
    
    100.0
    %
    
    
    
    $
    
    11,336,096
    
    
    
    
    100.0
    %Based on the composition of its investments and cash, TRH considers its liquidity to be adequate through the end of 2008 and thereafter for a period the length of which is difficult to predict, but which
  TRH believes will be at least one year.
TRHs fixed maturities classified as held to maturity and available for sale are predominantly investment grade, liquid securities, approximately 42.0% of which will mature in less than 10 years. The
  average duration of these fixed maturities was 5.8 years as of December 31, 2007. Activity within the fixed maturities available for sale portfolio for the years under discussion generally represented strategic
  portfolio realignments to maximize after-tax income. TRH adjusts its mix of taxable and tax-exempt investments, as appropriate, generally as a result of strategic investment and tax planning considerations.
  With respect to the fixed maturities which are classified as held to maturity and carried at amortized cost, TRH has the positive intent and ability to hold each of these securities to maturity.
The
    following table summarizes the ratings of fixed maturities held to maturity
and available for sale as of December 31, 2007:
Aaa
    
    Aa
    
    A
    
    Baa
    
    Not Rated
    
    Total(dollars in millions)Held to maturity:Non-asset-backed and collateralized
    
    
    $
    
    1,002.7
    
    
    
    $
    
    202.5
    
    
    
    $
    
    44.7
    
    
    
    $
    
    
    
    
    
    $
    
    
    
    
    
    $
    
    1,249.9Available for sale:Asset-backed and collateralized
    
    
    
    20.3
    
    
    
    
    
    
    
    
    
    11.2
    
    
    
    
    11.0
    
    
    
    
    
    
    
    
    
    42.5Non-asset-backed and collateralized
    
    
    
    5,123.3
    
    
    
    
    2,530.1
    
    
    
    
    367.2
    
    
    
    
    22.8
    
    
    
    
    13.4
    
    
    
    
    8,056.8Total available for sale
    
    
    
    5,143.6
    
    
    
    
    2,530.1
    
    
    
    
    378.4
    
    
    
    
    33.8
    
    
    
    
    13.4
    
    
    
    
    8,099.3Total fixed maturities (1)
    
    
    $
    
    6,146.3
    
    
    
    $
    
    2,732.6
    
    
    
    $
    
    423.1
    
    
    
    $
    
    33.8
    
    
    
    $
    
    13.4
    
    
    
    $
    
    9,349.2Percent of total fixed maturities
    
    
    
    65.7
    %
    
    
    
    
    29.2
    %
    
    
    
    
    4.5
    %
    
    
    
    
    0.4
    %
    
    
    
    
    0.2
    %
    
    
    
    
    100.0
    %

(1)
    
    
    
    Of the non-asset-backed and collateralized fixed maturities rated Aaa, approximately $3.3 billion represent insured municipal bonds. The underlying ratings of such bonds (i.e., without the rating benefit of insurance) as of December 31, 2007 were as
      follows: Aaa7%; Aa68%; A23%, Baa2%; Not ratedless than 1%.53

TRH engages in a securities lending program managed by a subsidiary of AIG, whereby certain securities (principally fixed maturities and common stocks available for sale) from its portfolio are
  loaned to third parties. (See Note 2(c).) In these transactions, initial collateral, principally cash, is received by TRH in an amount exceeding the fair value of the loaned security. As of December 31, 2006,
  the collateral was invested in segregated pooled accounts of the program manager containing floating rate bonds, including asset-backed and collateralized securities, and interest-bearing cash equivalents.
  During the latter half of 2007, TRHs interest in such pooled accounts was exchanged for separate portfolios containing floating rate bonds (i.e.,fixed maturities), including asset-backed and collateralized
  securities, and interest-bearing cash equivalents which are maintained in segregated accounts for TRH by the program manager. The investment of securities lending collateral is shown on the balance sheet
  at fair value. A liability is recorded in an amount equal to the collateral received to recognize TRHs obligation to return such funds when the related loaned securities are returned. The fair values of fixed
  maturities available for sale, common stocks available for sale and equities trading that are on loan are reflected parenthetically as pledged on the balance sheet and totaled $1,966.4 million, $21.9 million
  and $2.1 million, respectively, as of December 31, 2007. As of December 31, 2007, securities lending collateral consisted of $1.82 billion of fixed maturities available for sale and $196.7 million of cash equivalents. As of December 31, 2007, the average duration of fixed maturities available for sale included in the securities lending collateral caption on the
  Consolidated Balance Sheet was 0.3 years.
At December 31, 2007, TRHs securities lending payables totaled $2.05 billion, $294 million of which were one-day tenor. These loans do not have a contractual end date but are terminable by either
  party on demand. In addition to the invested collateral, all of the assets of TRH are generally available to satisfy the liability for collateral received.
The following table summarizes the ratings of the underlying securities included in the Consolidated Balance Sheet as securities lending collateral as of December 31, 2007:
Aaa
    
    Aa
    
    A
    
    Baa
    
    Not Rated
    
    Total(dollars in millions)Fixed maturities available for sale:Asset-backed and collateralized:Domestic:Commercial mortgage-backed
    
    
    $
    
    20.3
    
    
    
    $
    
    
    
    
    
    $
    
    
    
    
    
    $
    
    
    
    
    
    $
    
    
    
    
    
    $
    
    20.3Residential:Mortgage-backed:Alt-A
    
    
    
    173.7
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    173.7Prime non-agency
    
    
    
    50.1
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    50.1HELOC(1)
    
    
    
    22.4
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    22.4Other asset-backed(1)
    
    
    
    29.8
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    29.8Total domestic
    
    
    
    296.3
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    296.3Foreign:Commercial mortgage-backed
    
    
    
    98.0
    
    
    
    
    6.9
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    104.9Residential:Mortgage-backed:United Kingdom
    
    
    
    319.2
    
    
    
    
    20.8
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    340.0Australia
    
    
    
    31.5
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    31.5HELOC
    
    
    
    9.9
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    9.9Collateralized debt obligations
    
    
    
    17.1
    
    
    
    
    4.4
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    21.5Other asset-backed(1)
    
    
    
    71.1
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    71.1Total foreign
    
    
    
    546.8
    
    
    
    
    32.1
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    578.9Total asset-backed and collateralized
    
    
    
    843.1
    
    
    
    
    32.1
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    875.2Total non-asset-backed and collateralized
    
    
    
    77.6
    
    
    
    
    691.8
    
    
    
    
    160.5
    
    
    
    
    5.6
    
    
    
    
    4.6
    
    
    
    
    940.1Total fixed maturities available for sale
    
    
    $
    
    920.7
    
    
    
    $
    
    723.9
    
    
    
    $
    
    160.5
    
    
    
    $
    
    5.6
    
    
    
    $
    
    4.6
    
    
    
    
    1,815.3Total cash equivalents
    
    
    
    
    
    
    
    
    
    
    
    
    
    196.7Total securities lending collateral
    
    
    
    
    
    
    
    
    
    
    
    
    $
    
    2,012.0Total securities lending collateral invested in fixed maturities available for sale
    
    
    
    50.7
    %
    
    
    
    
    39.9
    %
    
    
    
    
    8.8
    %
    
    
    
    
    0.3
    %
    
    
    
    
    0.3
    %
    
    
    
    
    100.0
    %

(1)
    
    
    
    The ratings of three securities included above as Aaa benefit from insurance. The underlying rating of a domestic HELOC with a fair value of $22.4 million is Ba. The underlying rating of one domestic other asset-backed and collateralized security with
      a fair value of $18.5 million and one foreign other asset-backed and collateralized security with a fair value of $6.0 million is Aa.54

Gross unrealized gains and losses on all fixed maturities, equities and securities lending collateral at December 31, 2007 was as follows:
Gross Unrealized Gains
    
    Gross Unrealized Losses(in millions)As of December 31, 2007:Fixed maturities (including held to maturity and carried at amortized cost)
    
    
    $
    
    171.9
    
    
    
    $
    
    77.3Equities
    
    
    
    31.0
    
    
    
    
    42.5Securities lending collateral
    
    
    
    3.9
    
    
    
    
    45.1In general, uncertainty in the credit markets at year-end 2007 adversely impacted fair values of equities and fixed maturities, thus increasing gross unrealized losses. (See Disruption in Global Credit Markets in MD&A and
  Item 1A. Risk Factors.) The increase in gross unrealized losses on fixed maturities in 2007 compared to 2006 is due largely to an increase in interest rates on corporate fixed maturities, due mostly to credit
  spread widening resulting in part from the uncertainty in the credit markets. Gross unrealized losses on fixed maturities also increased due to an increase in interest rates on state, municipality and political
  subdivision fixed maturities.
Generally, reserve changes result from the setting of reserves on current accident year business, the adjustment of prior accident year reserves based on new information (i.e., reserve development),
  payments of losses and LAE for which reserves were previously established, and the impact of changes in foreign currency exchange rates.
At December 31, 2007, gross loss reserves totaled $7.93 billion, an increase of $458.3 million, or 6.1% over 2006. The increase in gross loss reserves includes the impact of net changes in foreign currency
  exchange rates of $183 million and gross loss reserve development.
The components of gross loss reserves as of December 31, 2007 and 2006 by major class of business, split between reported (case) amounts and IBNR amounts is presented below:
2007
    
    Gross Loss ReservesCase
    
    IBNR
    
    Total(in millions)Casualty:Other liability(1)
    
    
    $
    
    1,128.8
    
    
    
    $
    
    2,118.3
    
    
    
    $
    
    3,247.1Medical malpractice
    
    
    
    412.1
    
    
    
    
    712.1
    
    
    
    
    1,124.2Ocean marine and aviation
    
    
    
    453.2
    
    
    
    
    199.8
    
    
    
    
    653.0Auto liability
    
    
    
    365.4
    
    
    
    
    212.0
    
    
    
    
    577.4Accident and health
    
    
    
    258.1
    
    
    
    
    107.9
    
    
    
    
    366.0Surety and credit
    
    
    
    111.2
    
    
    
    
    126.7
    
    
    
    
    237.9Other
    
    
    
    326.0
    
    
    
    
    327.8
    
    
    
    
    653.8Total casualty
    
    
    
    3,054.8
    
    
    
    
    3,804.6
    
    
    
    
    6,859.4Property:Fire
    
    
    
    598.4
    
    
    
    
    132.6
    
    
    
    
    731.0Allied lines
    
    
    
    66.4
    
    
    
    
    84.9
    
    
    
    
    151.3Auto physical damage
    
    
    
    24.9
    
    
    
    
    26.4
    
    
    
    
    51.3Homeowners multiple peril
    
    
    
    17.6
    
    
    
    
    20.9
    
    
    
    
    38.5Other
    
    
    
    62.7
    
    
    
    
    32.1
    
    
    
    
    94.8Total property
    
    
    
    770.0
    
    
    
    
    296.9
    
    
    
    
    1,066.9Total
    
    
    $
    
    3,824.8
    
    
    
    $
    
    4,101.5
    
    
    
    $
    
    7,926.355

2006
    
    Gross Loss ReservesCase
    
    IBNR
    
    Total(in millions)Casualty:Other liability(1)
    
    
    $
    
    1,119.6
    
    
    
    $
    
    1,719.8
    
    
    
    $
    
    2,839.4Medical malpractice
    
    
    
    448.9
    
    
    
    
    578.1
    
    
    
    
    1,027.0Ocean marine and aviation
    
    
    
    468.8
    
    
    
    
    184.4
    
    
    
    
    653.2Auto liability
    
    
    
    396.9
    
    
    
    
    184.3
    
    
    
    
    581.2Accident and health
    
    
    
    227.1
    
    
    
    
    120.3
    
    
    
    
    347.4Surety and credit
    
    
    
    125.2
    
    
    
    
    134.3
    
    
    
    
    259.5Other
    
    
    
    289.0
    
    
    
    
    267.6
    
    
    
    
    556.6Total casualty
    
    
    
    3,075.5
    
    
    
    
    3,188.8
    
    
    
    
    6,264.3PropertyFire
    
    
    
    597.4
    
    
    
    
    161.8
    
    
    
    
    759.2Allied lines
    
    
    
    167.2
    
    
    
    
    74.4
    
    
    
    
    241.6Auto physical damage
    
    
    
    28.0
    
    
    
    
    16.0
    
    
    
    
    44.0Homeowners multiple peril
    
    
    
    33.2
    
    
    
    
    42.6
    
    
    
    
    75.8Other
    
    
    
    66.6
    
    
    
    
    16.4
    
    
    
    
    83.0Total property
    
    
    
    892.4
    
    
    
    
    311.2
    
    
    
    
    1,203.6Total
    
    
    $
    
    3,967.9
    
    
    
    $
    
    3,500.0
    
    
    
    $
    
    7,467.9

(1)
    
    
    
    A large majority of the amounts within the other liability line relates to complex risks such as E&O and D&O, to general casualty risks and, to a much lesser extent, environmental impairment liability.Gross loss reserves represent the accumulation of estimates for losses occurring on or prior to the balance sheet date. Gross case reserves are principally based on reports and individual case estimates
  received from ceding companies. The IBNR portion of gross loss reserves is based on past experience and other factors. The methods used to determine such estimates and to establish the resulting reserves
  are continually reviewed and updated. Any adjustments are reflected in income currently.
At December 31, 2007, reinsurance recoverable on gross loss reserves totaled $1.01 billion (a component of reinsurance recoverable on paid and unpaid losses on the Consolidated Balance Sheet, which
  is net of an allowance for uncollectible reinsurance recoverable of approximately $12 million), a decrease of $234.2 million, or 18.8%, from the prior year-end. The decrease in reinsurance recoverable on
  gross loss reserves in 2007 was due largely to a decrease in reinsurance recoverable on ceded losses relating to catastrophes occurring in 2005 and a decrease in reinsurance recoverable on ceded losses
  relating to reinsurance business written by TRH that, by prearrangement with TRH, is almost entirely retroceded to non-affiliated retrocessionaires. Of the amount of reinsurance recoverable on paid and
  unpaid losses and LAE, which totaled $1.07 billion as of December 31, 2007, $609 million represented balances that were unsecured. Of such unsecured balances, $192 million was due from affiliates (which
  are rated AA+) and 92% of the remaining balance was due from companies rated A or better. (See Note 15.)
Net loss reserves totaled $6.90 billion at December 31, 2007, an increase of $692.5 million, or 11.2%, from the prior year-end. The increase in net loss reserves includes the impacts of net changes in
  foreign currency exchange rates of $157 million and net loss reserve development. 2007 included paid losses and LAE, net of reinsurance recovered, relating to net catastrophe losses of approximately $89
  million, relating to events occurring in 2007 and 2005. An analysis of the change in net loss reserves from year-end 2006 to year-end 2007 is included in Note 5 of Notes to Consolidated Financial Statements.
Net loss reserves include amounts for risks relating to environmental impairment and asbestos-related illnesses totaling $124 million at each of December 31, 2007 and 2006, respectively, including $25
  million and $30 million at the aforementioned dates, respectively, relating to such losses occurring in 1985 and prior. As TRC, the major operating subsidiary of the Company, commenced operations in
  1978, the great majority of TRHs environmental and asbestos-related liabilities arose from contracts entered into after 1985 that were underwritten specifically as environmental or asbestos-related
56

coverages rather than as standard general liability coverages, where the environmental or asbestos-related liabilities were neither clearly defined nor specifically excluded. The reserves carried for these
  claims, including IBNR, are based upon known facts and current law. However, significant uncertainty exists in determining the amount of ultimate liability for environmental impairment and asbestos-related losses, particularly for those occurring in 1985 and prior. This uncertainty is due to inconsistent court resolutions and judicial interpretations with respect to underlying policy intent and coverage and
  uncertainties as to the allocation of responsibility for resultant damages, among other things.
Because the reserving process is inherently difficult and subjective, actual losses may materially differ from reserves and related reinsurance recoverables reflected in TRHs consolidated financial
  statements, and accordingly, may have a material effect on future results of operations, financial condition and cash flows. And while there is also the possibility of changes in statutes, laws, regulations and
  other factors that could have a material effect on these liabilities and, accordingly, the financial statement elements cited immediately above, TRH believes that its loss reserves carried at December 31, 2007
  are adequate.
See Critical Accounting Estimates for a discussion of the significant assumptions and factors considered in the reserve setting process.
In the ordinary course of business, TRH is involved in lawsuits, arbitrations and other formal and informal dispute resolution procedures, the outcomes of which will determine TRHs rights and
  obligations under reinsurance agreements and other more general contracts. In some disputes, TRH seeks to enforce its rights under an agreement or to collect funds owing to it. In other matters, TRH is
  resisting attempts by others to enforce alleged rights. Such disputes are resolved through formal and informal means, including litigation, arbitration and mediation.
In all such matters, TRH believes that its positions are legally and commercially reasonable. TRH also regularly evaluates those positions, and where appropriate, establishes or adjusts loss reserves to
  reflect its evaluation. TRHs aggregate loss reserves take into account the possibility that TRH may not ultimately prevail in each and every disputed matter. TRH takes into consideration changes in
  judicial interpretation of legal liability and policy coverages, changes in claims handling practices and inflation. TRH considers not only monetary increases in the cost of what it reinsures, but also changes
  in societal factors that influence jury verdicts and case law, TRHs approach to claim resolution, and, in turn, claim costs. TRH believes its aggregate loss reserves reduce the potential that an adverse
  resolution of one or more of these matters, at any point in time, would have a material impact on TRHs financial condition or results of operations. However, there can be no assurance that adverse
  resolutions of such matters in any one period or in the aggregate will not result in a material adverse effect on TRHs results of operations.
For 2007, TRHs net operating cash inflows totaled $1,026.8 million, an increase of $181.4 million from 2006. The increase is due in large part to increased cash flows from underwriting activities,
  including increased collections of reinsurance recoverable, and investment income received, partially offset by increased income taxes paid.
For 2006, TRHs net operating cash inflows totaled $845.4 million, an increase of $215.1 million from 2005. The increase, which emanated mainly from domestic sources, is due, in large part, to
  increased investment income received and increased recoveries of reinsurance recoverables, partially offset by interest paid on the Senior Notes.
As significant losses from catastrophes occurring in 2005 and 2007 remain unpaid, TRH expects that payments relating to these events will have a material adverse impact on operating cash flows in
  2008 and perhaps thereafter.
If paid losses accelerated significantly beyond TRHs ability to fund such paid losses from current operating cash flows, TRH would be compelled to liquidate a portion of its investment portfolio and/or
  arrange for financing. Such events that may cause such a liquidity strain could be the result of several catastrophic events occurring in a relatively short period of time. Additional strain on liquidity could
  occur if the investments sold to fund such paid losses were sold in a depressed marketplace and/or reinsurance recoverable on such paid losses became uncollectible.
57

Of total consolidated net operating cash inflows, $476.3 million, $400.1 million and $332.9 million were derived from international operations in 2007, 2006 and 2005, respectively. In each of such years,
  London was the most significant source of international net operating cash inflows.
TRH believes that its balance of cash and cash equivalents of $255.4 million as of December 31, 2007 and its future cash inflows will be sufficient to meet TRHs cash requirements through the end of
  2008 and thereafter for a period the length of which is difficult to predict, but which TRH believes will be at least one year.
TRHs operations are exposed to market risk. Market risk is the risk of loss of fair value resulting from adverse fluctuations in interest rates, equity prices and foreign currency exchange rates. TRHs
  market risk exposures arise from the following:

    
    
    
    TRH is a globally diversified enterprise with capital employed in a variety of currencies.
    
    
    
    Much of TRHs capital is invested in fixed income or equity securities.TRH analyzes market risk using Value at Risk (VaR). VaR is a summary statistical measure that applies the estimated volatility and correlation of market factors of TRHs market position. The
  output from the VaR calculation is the maximum loss that could occur over a defined period of time given a certain probability. VaR measures not only the size of individual exposures but also the
  interaction between different market exposures, thereby providing a portfolio approach to measuring market risk.
While VaR models are relatively sophisticated, the quantitative market risk information generated is limited by the assumptions and parameters established in creating the related models. TRH believes
  that statistical models alone do not provide a reliable method of monitoring and controlling market risk. Therefore, such models are tools and do not substitute for the experience or judgment of senior
  management.
TRH has performed VaR analyses to estimate the maximum potential loss of fair value for financial instruments for each type of market risk. In this analysis, financial instrument assets include all
  investments and cash and accrued investment income. Financial instrument liabilities include unpaid losses and LAE and unearned premiums, each net of reinsurance, and the Senior Notes.
TRH calculated the VaR with respect to net fair values for 2007 and 2006. The VaR number represents the maximum potential loss from market risk, as defined, as of those dates that could be incurred
  with a 95% confidence (i.e., only 5% of historical scenarios show losses greater than the VaR figure) within a one-month holding period. TRH uses the historical simulation methodology that entails
  repricing all assets and liabilities under explicit changes in market rates within a specific historical time period. TRH uses the most recent three years of historical market information for interest rates,
  equity index prices and foreign currency exchange rates. For each scenario, each transaction was repriced. Scenario values are then calculated by netting the values of all the underlying assets and liabilities.
As market risk is assessed based upon VaR historical simulation methodology, it does not provide weight in its analysis to risks relating to current market issues such as liquidity and the credit-
  worthiness of investments.
The following table presents the year-end, average, high and low VaRs on a diversified basis and of each component of market risk for 2007 and 2006. The diversified VaR is usually smaller than the
  sum of its components due to correlation effects.
Market Risk
    
    2007
    
    2006Year-End
    
    Average
    
    High
    
    Low
    
    Year-End
    
    Average
    
    High
    
    Low(in millions)Diversified
    
    
    $
    
    185
    
    
    
    $
    
    180
    
    
    
    $
    
    190
    
    
    
    $
    
    163
    
    
    
    $
    
    173
    
    
    
    $
    
    190
    
    
    
    $
    
    211
    
    
    
    $
    
    173Interest rate
    
    
    
    172
    
    
    
    
    166
    
    
    
    
    177
    
    
    
    
    153
    
    
    
    
    153
    
    
    
    
    183
    
    
    
    
    207
    
    
    
    
    153Equity
    
    
    
    58
    
    
    
    
    53
    
    
    
    
    58
    
    
    
    
    49
    
    
    
    
    49
    
    
    
    
    47
    
    
    
    
    50
    
    
    
    
    42Currency
    
    
    
    32
    
    
    
    
    21
    
    
    
    
    32
    
    
    
    
    18
    
    
    
    
    19
    
    
    
    
    19
    
    
    
    
    21
    
    
    
    
    17In December 2005, the Company completed a public offering of $750 million principal amount of 5.75% senior notes due 2015. At December 31, 2007 and 2006, the Senior Notes remained outstanding.
  Of the $750 million aggregate principal amount of the Senior Notes offered, $450 million principal amount was purchased by certain subsidiaries of AIG. The proceeds from the offering were used to
  increase the capital and surplus of TRC and for other general corporate purposes.
58

TRHs stockholders equity totaled $3.35 billion at December 31, 2007, an increase of $390.8 million from year-end 2006. The net increase consisted primarily of net income of $487.1 million, partially
  offset by cash dividends declared of $40.6 million and a decrease in accumulated other comprehensive income of $77.3 million.
The abovementioned decrease in accumulated other comprehensive income consisted principally of net unrealized depreciation of investments, net of income taxes, of $101.2 million, partially offset by
  net unrealized foreign currency translation gain from functional currencies, net of income taxes, of $23.8 million. The net unrealized depreciation of investments, net of income taxes, is composed principally
  of decreases of $34.6 million in unrealized appreciation of fixed maturities available for sale, $41.3 million in unrealized appreciation of equities available for sale and $26.8 million in net unrealized
  depreciation on the investment of securities lending collateral.
Net unrealized appreciation (depreciation) of investments, net of income taxes, is subject to significant volatility resulting from changes in the fair value of fixed maturities and equities available for
  sale, securities lending collateral and other invested assets. Fair values may fluctuate due to changes in general economic and political conditions, market interest rates, prospects of investee companies and
  other factors.
In addition, in 2005, TRH recorded a reduction of retained earnings of $8.3 million (which is net of income tax savings that TRH expected to realize of $3.0 million) and an increase to additional paid-in
  capital of $11.3 million related to compensation to certain TRH employees from Starr International Company for all prior periods through December 31, 2004 as discussed in Note 12(c) of Notes to
  Consolidated Financial Statements.
The Company did not repurchase shares of its common stock in 2007 or 2006. In 2005, the Company repurchased 104,800 shares of its common stock, pursuant to a previously announced buyback
  program, at an aggregate cost of $6.3 million.
As of December 31, 2007, the amounts due and the estimated period between year-end 2007 and the dates of payment, under specified contractual obligations of TRH are as follows:
Total
    
    Less Than1 Year
    
    13 Years
    
    35 Years
    
    More Than5 Years(in thousands)Long-Term Debt(1)
    
    
    $
    
    1,095,000
    
    
    
    $
    
    43,125
    
    
    
    $
    
    86,250
    
    
    
    $
    
    86,250
    
    
    
    $
    
    879,375Operating Leases
    
    
    
    110,941
    
    
    
    
    13,217
    
    
    
    
    24,203
    
    
    
    
    20,960
    
    
    
    
    52,561Gross loss reserves
    
    
    
    7,926,261
    
    
    
    
    1,842,671
    
    
    
    
    2,341,545
    
    
    
    
    1,542,076
    
    
    
    
    2,199,969Payable under securities loan agreements
    
    
    
    2,054,649
    
    
    
    
    2,054,649
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Other(2)
    
    
    
    1,413
    
    
    
    
    1,413
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total
    
    
    $
    
    11,188,264
    
    
    
    $
    
    3,955,075
    
    
    
    $
    
    2,451,998
    
    
    
    $
    
    1,649,286
    
    
    
    $
    
    3,131,905

(1)
    
    
    
    Includes anticipated interest payments.(2)
    
    
    
    Represents commitments to invest in limited partnerships.With respect to commitments and contingent liabilities, see Note 17 of Notes to Consolidated Financial Statements.
Risk Based Capital (RBC) standards, promulgated by the National Association of Insurance Commissioners (NAIC), relate an individual companys statutory policyholders surplus to the risk
  inherent in its overall operations and set thresholds at which certain company and regulatory corrective actions are mandated. At December 31, 2007 the statutory surpluses of TRC and Putnam each
  exceeded the level of surplus required under RBC requirements for regulatory attention.
Catastrophe Exposure
The nature of TRHs business exposes it to losses from various catastrophe events. In a catastrophe event, losses from many insureds across multiple lines of business may result directly or indirectly
  from such single occurrence. In order to control such exposures, TRH employs a combination of measures, including setting targets for the amount of its exposure in key geographic zones and product lines
  that
59

are prone to catastrophic events, monitoring and modeling accumulated exposures and purchasing catastrophe reinsurance when deemed cost effective.
Natural disasters such as hurricanes, earthquakes and other catastrophes have the potential to adversely affect TRHs operating results by material amounts. Other risks, such as an outbreak of a
  pandemic disease, the bankruptcy of a major company, or a marine and/or aviation disaster, could also have a materially adverse effect on TRHs business and operating results to an extent that may be only
  partially offset by reinsurance.
TRH evaluates catastrophic events and assesses the probability of occurrence and magnitude through the use of industry recognized models and other techniques. TRH supplements these models by
  periodically monitoring the exposure risks of its operations and adjusting such modeled output accordingly.
It is important to recognize that there is no single standard methodology to project the possible losses from catastrophe exposures. Further, there are no industry standard assumptions to be utilized in
  projecting these losses and the form and quality of the data obtained from ceding companies used in these models are not uniformly compatible with the data requirements of all models. The use of different
  methodologies and assumptions could materially change the projected losses. Therefore, these modeled losses may not be comparable to estimates made by other companies.
While the analytical tools used to estimate catastrophe exposure are useful in both pricing and monitoring catastrophe risk, the estimates derived by use of these techniques are inherently uncertain and
  do not reflect TRHs maximum exposures to these events. While the models are frequently updated, these projections are nevertheless inherently imprecise. It is highly likely that TRHs losses will vary,
  perhaps materially, from these estimates.
Projections of potential catastrophe losses are typically expressed in terms of the probable maximum loss (PML). TRH defines PML as its anticipated maximum loss (taking into account contract
  limits) caused by a single catastrophic event affecting a broad contiguous area. These modeled losses are estimated as of December 31, 2007 based upon contracts in force. The values provided have a
  likelihood of being exceeded in any single year of 1.0% or 0.4%.
The following is an overview of such modeled PMLs from property, engineering, marine and energy exposures and the associated natural perils that TRH deems most significant. The estimated amount
  of these modeled losses are presented in three ways: 1) gross losses, 2) pre-tax net catastrophe costs (i.e., gross losses, net of reinsurance and the impact of net reinstatement premiums) and 3) after-tax net
  catastrophe costs (i.e., the net economic cost to TRH). The reduction for reinsurance assumes that all reinsurers fulfill their obligations to TRH in accordance with contract terms.
Probability of being exceeded in anygiven year
    
    1.0%
    
    0.4%Pre-Tax NetCatastrophe Costs
    
    After-Tax NetCatastropheCosts
    
    GrossLosses
    
    Pre-Tax NetCatastrophe Costs
    
    After-Tax NetCatastropheCostsGrossLosses(in millions)Europe, Wind
    
    
    $
    
    806
    
    
    
    $
    
    578
    
    
    
    $
    
    376
    
    
    
    $
    
    940
    
    
    
    $
    
    702
    
    
    
    $
    
    456California, Earthquake
    
    
    
    547
    
    
    
    
    379
    
    
    
    
    246
    
    
    
    
    869
    
    
    
    
    662
    
    
    
    
    430Florida, Wind
    
    
    
    535
    
    
    
    
    405
    
    
    
    
    263
    
    
    
    
    809
    
    
    
    
    636
    
    
    
    
    413Japan, Earthquake
    
    
    
    439
    
    
    
    
    324
    
    
    
    
    211
    
    
    
    
    563
    
    
    
    
    406
    
    
    
    
    264Northeast U.S., Wind
    
    
    
    342
    
    
    
    
    282
    
    
    
    
    183
    
    
    
    
    654
    
    
    
    
    475
    
    
    
    
    309Such modeled after-tax net catastrophe costs arising out of events with a 1.0% or 0.4% probability of exceeding the amounts shown in the table above from European Wind, the costliest of the modeled
  events, would represent 11.2% and 13.6%, respectively, of TRHs stockholders equity at December 31, 2007. If multiple severe catastrophic events occur in any one year, the potential economic cost to the
  company could be materially higher than any one of the amounts shown above.
There is much uncertainty and imprecision in the compilation of these estimates at many stages in the process. Moreover, the makeup of TRHs in-force business is constantly changing as new business
  is added and existing contracts terminate or expire, including contracts for reinsurance coverage
60

purchased by TRH. In addition, these estimates take into account what TRH believes to be the most likely accumulation of territories and/or lines of business in a catastrophic natural peril event, but there
  can be no assurance that we have captured every possible scenario in our analysis. As a result of these factors, among others, there can be no assurance that TRH will not experience after-tax net
  catastrophe costs from individual events that will exceed these estimates by a material amount. There also can be no assurance that TRH will not experience catastrophe events more frequently than the
  modeled probabilities would suggest. In any given year, catastrophe events could have a material adverse effect on TRHs financial condition, results of operations, cash flows and liquidity.
See Note 9 for catastrophe costs incurred in 2007, 2006 and 2005.
Disruption in Global Credit Markets
In mid-2007, the U.S. residential mortgage market began to experience serious disruption due to credit quality deterioration in a significant portion of loans originated, particularly to non-prime and
  sub-prime borrowers; evolving changes in the regulatory environment; a slower residential housing market; increased cost of borrowings for mortgage participants; and illiquid credit markets. In addition,
  the financial strength of certain bond insurers has been compromised to varying degrees by losses these entities are presently experiencing due in part to the coverage they provide for domestic residential
  mortgage-backed securities.
These
    issues carry risk relating to certain lines of business TRH underwrites
    because disruption in the U.S. residential mortgage market may increase claim
    activity in lines such as D&O, E&O, credit and
  mortgage guaranty business, where TRH has provided reinsurance on two programs.
    TRH also participates in the U.S. residential mortgage market through
    investments in mortgage-backed securities,
    in which the underlying collateral is composed in whole or in part of residential
    mortgage loans, a significant majority of which have Aaa underlying or subordinate
    layers.
To
    a limited extent, TRH also wrote financial guaranty business, which was last
    underwritten in 1998. The underlying exposures for the vast majority of such
    business related to municipal bonds and state agencies. TRH still has limited
exposure to liabilities which may arise from such financial guaranty business.
The
    operating results and financial condition of TRH have been and are likely
    to continue to be adversely affected by the factors referred to above. The downward
    cycle in the U.S. housing market is not expected to improve until residential
    inventories return to a more normal level and the mortgage credit market
    stabilizes. TRH expects that this downward cycle may have an adverse affect
    on TRHs
    operating results in the future. TRH also incurred unrealized market valuation
    losses in 2007 on its available for sale securities. The result on TRHs
    operations with exposure to the U.S. residential mortgage market will be
    somewhat dependent on future market conditions.
The ongoing effect of the downward cycle in the U.S. housing market on TRHs operating results, investment portfolio and overall consolidated financial condition could be adversely affected if the
  market disruption continues and expands beyond the U.S. residential mortgage markets, although TRH attempts to mitigate these, as well as other financial and operational risks, by disciplined underwriting
  of a diversified book of business, generally conservative investment strategies and risk management. While TRH cannot predict with any certainty the ultimate impact the recent market disruption will have
  on TRH, these events may have a material adverse effect on TRHs results of operations, financial condition and cash flows.
Recent Accounting Standards
For further discussion of the following recent accounting standards and their application to TRH, see Note 2(l) of Notes to Consolidated Financial Statements.
(a) Adoption of Financial Accounting Standards Board (FASB) Interpretation No. 48, Accounting for Uncertainty in Income Taxesan Interpretation of FASB Statement No. 109 (FIN 48)
In July 2006, the FASB issued FIN 48. TRH adopted FIN 48 on January 1, 2007.
61

(b) Adoption of Statement of Financial Accounting Standards (SFAS) No. 158, Employers Accounting for Defined Benefit Pension and Other Postretirement Plansan amendment of FASB
  Statements No. 87, 88, 106 and 132(R) (SFAS 158)
In September 2006, the FASB issued SFAS 158. TRH adopted SFAS 158 in the fourth quarter of 2006.
(c) Adoption of Staff Accounting Bulletin No. 108, Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements (SAB 108)
In September 2006, the Securities and Exchange Commission issued SAB 108. TRH adopted SAB 108 in the fourth quarter of 2006.
(d) Adoption of SFAS No. 123 (revised 2004), Share-Based Payments (SFAS 123R)
In December 2004, the FASB issued SFAS 123R. TRH adopted SFAS 123R on January 1, 2006.
(e) Adoption of FASB Staff Position (FSP) No. FAS 115-1, The Meaning of Other-Than-Temporary Impairment and Its Application to Certain Investments (FSP FAS 115-1)
In November 2005, the FASB issued FSP FAS 115-1. TRH Adopted FSP FAS 115-1 in the first quarter of 2006.
(f) Future Application of
Accounting Standards
(i)
    In June 2007, the American  Institute of Certified Public Accountants (AICPA)
    issued Statement of Position No. 07-1, Clarification
 of the Scope of the Audit and Accounting Guide Audits
  of Investment Companies and Accounting by Parent Companies and Equity
  Method Investors for  Investments in Investment Companies (SOP
  07-1).
In February 2008, the FASB issued FSP No. SOP 07-1-1, Effective Date of
AICPA Statement of Position 07-1 (FSP SOP 07-1-1). FSP SOP
07-1-1 indefinitely deferred the effective date of SOP 07-1.
(ii) In February 2007, the FASB issued SFAS No. 159, The Fair Value Option for Financial Assets and Financial Liabilities (SFAS 159).
(iii) In September 2006, the FASB issued SFAS No. 157, Fair Value Measurements (SFAS 157).
(iv) In December 2007, the FASB issued SFAS No. 141R, Business Combinations (SFAS 141R).
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Included in Item 7, Managements Discussion and Analysis of Financial Condition and Results of Operations.
62

Item 8. Financial Statements and Supplementary Data
TRANSATLANTIC HOLDINGS, INC. AND SUBSIDIARIESINDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULES
PageReport of Independent Registered Public Accounting Firm
    
    64Consolidated Balance Sheets As of December 31, 2007 and 2006
    
    65Consolidated Statements of Operations For the Years Ended December 31, 2007, 2006 and
      2005
    
    66Consolidated Statements of Stockholders Equity For the Years Ended December 31, 2007,
      2006 and 2005
    
    67Consolidated Statements of Cash Flows For the Years Ended December 31, 2007, 2006 and
      2005
    
    68Consolidated Statements of Comprehensive Income (Loss) For the Years Ended
      December 31, 2007, 2006 and 2005
    
    69Notes to Consolidated Financial Statements
    
    70Schedules:ISummary of InvestmentsOther than Investments in Related Parties As of
      December 31, 2007
    
    S-1IICondensed Financial Information of Registrant As of December 31, 2007 and
      2006 and For the Years Ended December 31, 2007, 2006 and 2005
    
    S-2IIISupplementary Insurance Information As of December 31, 2007, 2006 and 2005 and
      For the Years Then Ended
    
    S-5IVReinsurance For the Years Ended December 31, 2007, 2006 and 2005
    
    S-6VISupplementary Information Concerning Property/Casualty Insurance Operations As
      of December 31, 2007, 2006 and 2005 and For the Years Then Ended
    
    S-763

Report of Independent Registered Public Accounting Firm
To the Board of Directors and Stockholders ofTransatlantic Holdings, Inc.:
In our opinion, the consolidated financial statements listed in the accompanying index present fairly, in all material respects, the financial position of Transatlantic Holdings, Inc. and its subsidiaries (the
  Company) at December 31, 2007 and December 31, 2006, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2007 in conformity with
  accounting principles generally accepted in the United States of America. In addition, in our opinion, the financial statement schedules listed in the accompanying index present fairly, in all material
  respects, the information set forth therein when read in conjunction with the related consolidated financial statements. Also in our opinion, the Company maintained, in all material respects, effective
  internal control over financial reporting as of December 31, 2007, based on criteria established in Internal ControlIntegrated Framework issued by the Committee of Sponsoring Organizations of the
  Treadway Commission (COSO). The Companys management is responsible for these financial statements and financial statement schedules, for maintaining effective internal control over financial
  reporting and for its assessment of the effectiveness of internal control over financial reporting, included in Managements Report on Internal Control over Financial Reporting appearing under Item 9A.
  Our responsibility is to express opinions on these financial statements, on the financial statement schedules, and on the Companys internal control over financial reporting based on our integrated audits.
  We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain
  reasonable assurance about whether the financial statements are free of material misstatement and whether effective internal control over financial reporting was maintained in all material respects. Our
  audits of the financial statements included examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant
  estimates made by management, and evaluating the overall financial statement presentation. Our audit of internal control over financial reporting included obtaining an understanding of internal control
  over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also
  included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.
A companys internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for
  external purposes in accordance with generally accepted accounting principles. A companys internal control over financial reporting includes those policies and procedures that (i) pertain to the
  maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded
  as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance
  with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the
  companys assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to
  the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
/s/ PRICEWATERHOUSECOOPERS LLPPricewaterhouseCoopers LLPNew York, New YorkFebruary 27, 2008
64

TRANSATLANTIC HOLDINGS, INC. AND SUBSIDIARIESCONSOLIDATED BALANCE SHEETSAs of December 31, 2007 and 2006
2007
    
    2006(in thousands, exceptshare data)ASSETSInvestments and cash:Fixed maturities:Held to maturity, at amortized cost (fair value: 2007$1,280,011; 2006$1,291,634)
    
    
    $
    
    1,249,935
    
    
    
    $
    
    1,254,017Available for sale, at fair value (amortized cost: 2007$8,034,738; 2006$6,943,290) (pledged, at fair value: 2007$1,966,364; 2006$1,577,864)
    
    
    
    8,099,252
    
    
    
    
    7,061,090Equities:Available for sale, at fair value:Common stocks (cost: 2007$572,468; 2006$527,149) (pledged, at fair value: 2007$21,900; 2006$41,187)
    
    
    
    587,373
    
    
    
    
    571,422Nonredeemable preferred stocks (cost: 2007$224,298; 2006$229,066)
    
    
    
    197,870
    
    
    
    
    236,846Trading, at fair value, principally common stocks (cost: 2007$35,916; 2006$37,397) (pledged, at fair value: 2007$2,144)
    
    
    
    35,357
    
    
    
    
    38,232Other invested assets
    
    
    
    250,921
    
    
    
    
    231,502Securities lending collateral, at fair value (amortized cost: 2007$2,053,271; 2006$1,694,841)
    
    
    
    2,012,031
    
    
    
    
    1,694,841Short-term investments, at cost (approximates fair value)
    
    
    
    67,801
    
    
    
    
    42,882Cash and cash equivalents
    
    
    
    255,432
    
    
    
    
    205,264Total investments and cash
    
    
    
    12,755,972
    
    
    
    
    11,336,096Accrued investment income
    
    
    
    143,675
    
    
    
    
    129,759Premium balances receivable, net
    
    
    
    641,026
    
    
    
    
    708,579Reinsurance recoverable on paid and unpaid losses and loss adjustment expenses:Affiliates
    
    
    
    443,856
    
    
    
    
    441,200Other
    
    
    
    630,787
    
    
    
    
    953,992Deferred acquisition costs
    
    
    
    248,081
    
    
    
    
    231,180Prepaid reinsurance premiums
    
    
    
    71,617
    
    
    
    
    68,647Deferred income taxes
    
    
    
    426,600
    
    
    
    
    310,967Other assets
    
    
    
    122,713
    
    
    
    
    88,044Total assets
    
    
    $
    
    15,484,327
    
    
    
    $
    
    14,268,464LIABILITIES AND STOCKHOLDERS EQUITYUnpaid losses and loss adjustment expenses
    
    
    $
    
    7,926,261
    
    
    
    $
    
    7,467,949Unearned premiums
    
    
    
    1,226,647
    
    
    
    
    1,144,022Securities lending payable
    
    
    
    2,054,649
    
    
    
    
    1,694,8415.75% senior notes due December 14, 2015:Affiliates
    
    
    
    448,158
    
    
    
    
    447,980Other
    
    
    
    298,772
    
    
    
    
    298,653Other liabilities
    
    
    
    180,798
    
    
    
    
    256,749Total liabilities
    
    
    
    12,135,285
    
    
    
    
    11,310,194Commitments and contingent liabilities (see Note 17)Preferred Stock, $1.00 par value; shares authorized: 5,000,000; none issued
    
    
    
    
    
    
    
    
    Common Stock, $1.00 par value; shares authorized: 100,000,000; shares issued: 200767,222,470; 200667,026,608
    
    
    
    67,222
    
    
    
    
    67,027Additional paid-in capital
    
    
    
    249,853
    
    
    
    
    228,480Accumulated other comprehensive (loss) income
    
    
    
    (34,692
    )
    
    
    
    
    42,626Retained earnings
    
    
    
    3,088,578
    
    
    
    
    2,642,056Treasury Stock, at cost; 988,900 shares of common stock
    
    
    
    (21,919
    )
    
    
    
    
    (21,919
    )Total stockholders equity
    
    
    
    3,349,042
    
    
    
    
    2,958,270Total liabilities and stockholders equity
    
    
    $
    
    15,484,327
    
    
    
    $
    
    14,268,464The accompanying notes are an integral part of the consolidated financial statements.
65

TRANSATLANTIC HOLDINGS, INC. AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF OPERATIONSFor the Years Ended December 31, 2007, 2006 and 2005
2007
    
    2006
    
    2005(in thousands, except per share data)Revenues:Net premiums written
    
    
    $
    
    3,952,899
    
    
    
    $
    
    3,633,440
    
    
    
    $
    
    3,466,353Increase in net unearned premiums
    
    
    
    (50,230
    )
    
    
    
    
    (29,346
    )
    
    
    
    
    (81,359
    )Net premiums earned
    
    
    
    3,902,669
    
    
    
    
    3,604,094
    
    
    
    
    3,384,994Net investment income
    
    
    
    469,772
    
    
    
    
    434,540
    
    
    
    
    343,247Realized net capital gains
    
    
    
    9,389
    
    
    
    
    10,862
    
    
    
    
    39,884Total revenues
    
    
    
    4,381,830
    
    
    
    
    4,049,496
    
    
    
    
    3,768,125Expenses:Net losses and loss adjustment expenses
    
    
    
    2,638,033
    
    
    
    
    2,462,666
    
    
    
    
    2,877,042Net commissions
    
    
    
    980,121
    
    
    
    
    903,666
    
    
    
    
    857,450Other underwriting expenses
    
    
    
    115,760
    
    
    
    
    102,339
    
    
    
    
    79,526Increase in deferred acquisition costs
    
    
    
    (16,901
    )
    
    
    
    
    (13,471
    )
    
    
    
    
    (14,648
    )Interest on senior notes
    
    
    
    43,421
    
    
    
    
    43,405
    
    
    
    
    2,050Other, net
    
    
    
    25,644
    
    
    
    
    10,983
    
    
    
    
    12,803Total expenses
    
    
    
    3,786,078
    
    
    
    
    3,509,588
    
    
    
    
    3,814,223Income (loss) before income taxes
    
    
    
    595,752
    
    
    
    
    539,908
    
    
    
    
    (46,098
    )Income taxes (benefits):Current
    
    
    
    182,612
    
    
    
    
    123,986
    
    
    
    
    (52,767
    )Deferred
    
    
    
    (74,001
    )
    
    
    
    
    (12,230
    )
    
    
    
    
    (31,241
    )Total income taxes (benefits)
    
    
    
    108,611
    
    
    
    
    111,756
    
    
    
    
    (84,008
    )Net income
    
    
    $
    
    487,141
    
    
    
    $
    
    428,152
    
    
    
    $
    
    37,910Net income per common share:Basic
    
    
    $
    
    7.37
    
    
    
    $
    
    6.49
    
    
    
    $
    
    0.58Diluted
    
    
    
    7.31
    
    
    
    
    6.46
    
    
    
    
    0.57Weighted average common shares outstanding:Basic
    
    
    
    66,124
    
    
    
    
    65,955
    
    
    
    
    65,836Diluted
    
    
    
    66,654
    
    
    
    
    66,266
    
    
    
    
    66,169The accompanying notes are an integral part of the consolidated financial statements.
66

TRANSATLANTIC HOLDINGS, INC. AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITYFor the Years Ended December 31, 2007, 2006 and 2005
2007
    
    2006
    
    2005(in thousands, except per share data)Common Stock:Balance, beginning of year
    
    
    $
    
    67,027
    
    
    
    $
    
    66,900
    
    
    
    $
    
    66,712Issued under stock compensation plans
    
    
    
    195
    
    
    
    
    127
    
    
    
    
    188Balance, end of year
    
    
    
    67,222
    
    
    
    
    67,027
    
    
    
    
    66,900Additional paid-in capital:Balance, beginning of year
    
    
    
    228,480
    
    
    
    
    214,700
    
    
    
    
    191,403Excess of proceeds over par value of common stock issued under stock option and purchase plans
    
    
    
    5,846
    
    
    
    
    3,146
    
    
    
    
    2,463Contributed capital
    
    
    
    15,527
    
    
    
    
    10,634
    
    
    
    
    20,834Balance, end of year
    
    
    
    249,853
    
    
    
    
    228,480
    
    
    
    
    214,700Accumulated other comprehensive (loss) income:Balance, beginning of year
    
    
    
    42,626
    
    
    
    
    35,729
    
    
    
    
    95,234Net change for year
    
    
    
    (118,950
    )
    
    
    
    
    10,613
    
    
    
    
    (91,548
    )Deferred income tax effect on net change
    
    
    
    41,632
    
    
    
    
    (3,716
    )
    
    
    
    
    32,043Balance, end of year
    
    
    
    (34,692
    )
    
    
    
    
    42,626
    
    
    
    
    35,729Retained earnings:Balance, beginning of year
    
    
    
    2,642,056
    
    
    
    
    2,248,541
    
    
    
    
    2,249,393Net income
    
    
    
    487,141
    
    
    
    
    428,152
    
    
    
    
    37,910Cash dividends declared (per common share: 2007$0.62; 2006$0.53; 2005$0.46)
    
    
    
    (40,619
    )
    
    
    
    
    (34,637
    )
    
    
    
    
    (30,467
    )Other
    
    
    
    
    
    
    
    
    
    
    
    
    
    (8,295
    )Balance, end of year
    
    
    
    3,088,578
    
    
    
    
    2,642,056
    
    
    
    
    2,248,541Treasury Stock:Balance, beginning of year
    
    
    
    (21,919
    )
    
    
    
    
    (21,919
    )
    
    
    
    
    (15,613
    )Acquisition of treasury stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    (6,306
    )Balance, end of year
    
    
    
    (21,919
    )
    
    
    
    
    (21,919
    )
    
    
    
    
    (21,919
    )Total stockholders equity
    
    
    $
    
    3,349,042
    
    
    
    $
    
    2,958,270
    
    
    
    $
    
    2,543,951The accompanying notes are an integral part of the consolidated financial statements.
67

TRANSATLANTIC HOLDINGS, INC. AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF CASH FLOWSFor the Years Ended December 31, 2007, 2006 and 2005
2007
    
    2006
    
    2005(in thousands)Cash flows from operating activities:Net income
    
    
    $
    
    487,141
    
    
    
    $
    
    428,152
    
    
    
    $
    
    37,910Adjustments to reconcile net income to net cash provided by operating activities:Changes in unpaid losses and loss adjustment expenses, unearned premiums and prepaid reinsurance premiums
    
    
    
    537,967
    
    
    
    
    409,039
    
    
    
    
    1,233,088Changes in premium and reinsurance balances receivable and payable, net
    
    
    
    293,485
    
    
    
    
    142,191
    
    
    
    
    (514,583
    )Change in deferred acquisition costs
    
    
    
    (16,901
    )
    
    
    
    
    (13,471
    )
    
    
    
    
    (14,648
    )Change in accrued investment income
    
    
    
    (36,969
    )
    
    
    
    
    (41,262
    )
    
    
    
    
    (29,313
    )Realized net capital gains from investments
    
    
    
    (33,582
    )
    
    
    
    
    (22,084
    )
    
    
    
    
    (39,884
    )Changes in current and deferred income taxes
    
    
    
    (82,327
    )
    
    
    
    
    54,881
    
    
    
    
    (124,445
    )Change in unrealized net foreign exchange gains and losses
    
    
    
    (152,642
    )
    
    
    
    
    (149,000
    )
    
    
    
    
    131,438Changes in other assets and liabilities, net
    
    
    
    10,448
    
    
    
    
    6,219
    
    
    
    
    (20,173
    )Changes in equities trading, net
    
    
    
    (1,920
    )
    
    
    
    
    7,512
    
    
    
    
    (48,839
    )Other, net
    
    
    
    22,110
    
    
    
    
    23,234
    
    
    
    
    19,736Total adjustments
    
    
    
    539,669
    
    
    
    
    417,259
    
    
    
    
    592,377Net cash provided by operating activities
    
    
    
    1,026,810
    
    
    
    
    845,411
    
    
    
    
    630,287Cash flows from investing activities:Proceeds of fixed maturities available for sale sold
    
    
    
    1,348,583
    
    
    
    
    692,237
    
    
    
    
    697,916Proceeds of fixed maturities available for sale redeemed or matured
    
    
    
    490,205
    
    
    
    
    412,379
    
    
    
    
    360,723Proceeds of equities available for sale sold
    
    
    
    1,189,392
    
    
    
    
    981,671
    
    
    
    
    808,305Purchase of fixed maturities held to maturity
    
    
    
    
    
    
    
    
    
    
    
    
    
    (169,893
    )Purchase of fixed maturities available for sale
    
    
    
    (2,782,062
    )
    
    
    
    
    (1,767,482
    )
    
    
    
    
    (2,243,159
    )Purchase of equities available for sale
    
    
    
    (1,191,044
    )
    
    
    
    
    (1,165,148
    )
    
    
    
    
    (770,340
    )Net sale of other invested assets
    
    
    
    6,115
    
    
    
    
    8,792
    
    
    
    
    17,054Net change in securities lending collateral
    
    
    
    (305,987
    )
    
    
    
    
    (1,038,979
    )
    
    
    
    
    192,766Net (purchase) sale of short-term investments
    
    
    
    (20,329
    )
    
    
    
    
    2,473
    
    
    
    
    (510
    )Change in other liabilities for securities in course of settlement
    
    
    
    1,198
    
    
    
    
    7,350
    
    
    
    
    11,572Other, net
    
    
    
    5,947
    
    
    
    
    14,440
    
    
    
    
    9,155Net cash used in investing activities
    
    
    
    (1,257,982
    )
    
    
    
    
    (1,852,267
    )
    
    
    
    
    (1,086,411
    )Cash flows from financing activities:Net change in securities lending payable
    
    
    
    305,987
    
    
    
    
    1,038,979
    
    
    
    
    (192,766
    )Dividends to stockholders
    
    
    
    (39,019
    )
    
    
    
    
    (33,637
    )
    
    
    
    
    (28,967
    )Proceeds from common stock issued
    
    
    
    6,042
    
    
    
    
    3,273
    
    
    
    
    2,651Acquisition of treasury stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    (6,306
    )Net proceeds from senior notes issued
    
    
    
    
    
    
    
    
    
    
    
    
    
    744,690Other, net
    
    
    
    790
    
    
    
    
    233
    
    
    
    
    (1,495
    )Net cash provided by financing activities
    
    
    
    273,800
    
    
    
    
    1,008,848
    
    
    
    
    517,807Effect of exchange rate changes on cash and cash equivalents
    
    
    
    7,540
    
    
    
    
    5,152
    
    
    
    
    (6,998
    )Change in cash and cash equivalents
    
    
    
    50,168
    
    
    
    
    7,144
    
    
    
    
    54,685Cash and cash equivalents, beginning of year
    
    
    
    205,264
    
    
    
    
    198,120
    
    
    
    
    143,435Cash and cash equivalents, end of year
    
    
    $
    
    255,432
    
    
    
    $
    
    205,264
    
    
    
    $
    
    198,120Supplemental cash flow information:Income taxes paid, net
    
    
    $
    
    184,592
    
    
    
    $
    
    54,417
    
    
    
    $
    
    39,637Interest paid on senior notes
    
    
    
    43,125
    
    
    
    
    43,125
    
    
    
    
    The accompanying notes are an integral part of the consolidated financial statements.
68

TRANSATLANTIC HOLDINGS, INC. AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)For the Years Ended December 31, 2007, 2006 and 2005
2007
    
    2006
    
    2005(in thousands)Net income
    
    
    $
    
    487,141
    
    
    
    $
    
    428,152
    
    
    
    $
    
    37,910Other comprehensive (loss) income:Net unrealized depreciation of investments, net of tax:Net unrealized holding (losses) gains
    
    
    
    (121,603
    )
    
    
    
    
    7,932
    
    
    
    
    (10,118
    )Deferred income tax benefit (charge) on above
    
    
    
    42,561
    
    
    
    
    (2,777
    )
    
    
    
    
    3,543Reclassification adjustment for gains included in net income
    
    
    
    (34,018
    )
    
    
    
    
    (22,084
    )
    
    
    
    
    (39,884
    )Deferred income tax benefit on above
    
    
    
    11,906
    
    
    
    
    7,729
    
    
    
    
    13,959(101,154
    )
    
    
    
    
    (9,200
    )
    
    
    
    
    (32,500
    )Net unrealized currency translation gain (loss), net of tax:Net unrealized currency translation gain (loss)
    
    
    
    36,671
    
    
    
    
    24,765
    
    
    
    
    (41,546
    )Deferred income tax (charge) benefit on above
    
    
    
    (12,835
    )
    
    
    
    
    (8,668
    )
    
    
    
    
    14,54123,836
    
    
    
    
    16,097
    
    
    
    
    (27,005
    )Other comprehensive (loss) income
    
    
    
    (77,318
    )
    
    
    
    
    6,897
    
    
    
    
    (59,505
    )Comprehensive income (loss)
    
    
    $
    
    409,823
    
    
    
    $
    
    435,049
    
    
    
    $
    
    (21,595
    )The accompanying notes are an integral part of the consolidated financial statements.
69

TRANSATLANTIC HOLDINGS, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Organization and Nature of Operations
Transatlantic Holdings, Inc. (the Company) is a holding company, incorporated in the state of Delaware, which owns all of the common stock of Transatlantic Reinsurance Company®(TRC). TRC
  owns all of the common stock of Trans Re Zurich (TRZ) and Putnam Reinsurance Company (Putnam). As of December 31, 2007, 2006 and 2005, American International Group, Inc. (AIG, and
  collectively with its subsidiaries, the AIG Group) beneficially owned approximately 59% of the Companys outstanding shares.
The Company and its subsidiaries (collectively, TRH), through its operating subsidiaries TRC, TRZ and Putnam, offers reinsurance capacity for a full range of property and casualty products to
  insurers and reinsurers on a treaty and facultative basis, with an emphasis on specialty classes. Including domestic as well as international risks, TRHs principal lines of business are other liability (including
  directors and officers liability (D&O), errors and omissions liability (E&O) and general casualty), medical malpractice, ocean marine and aviation, auto liability (including non-standard risks), accident
  and health and surety and credit in the casualty lines, and fire, allied lines, auto physical damage and homeowners multiple peril lines in the property lines (which include property catastrophe risks).
  Casualty lines represented 71.0%, 73.3% and 70.2% of net premiums written in 2007, 2006 and 2005, respectively. The balance represented property lines.
2. Summary of Significant Accounting Policies
(a) Basis of Presentation: The consolidated financial statements include the accounts of the Company and its majority owned subsidiaries. The Company consolidates subsidiaries in which it holds a
  controlling financial interest. Entities where the Company holds 20% to 50% of the voting rights or has the ability to exercise significant influence are accounted for under the equity method.
The accompanying consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (GAAP). All material intercompany accounts and
  transactions have been eliminated. Certain reclassifications have been made to conform prior years presentations with 2007.
(b) Use of Estimates: The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and
  liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and reported amounts of revenues and expenses during the reporting periods. Actual results could materially
  differ from those estimates.
TRH
    believes that its most critical accounting estimates are those with respect
    to loss reserves, fair value measurements of financial instruments, other-than-temporary
    impairments, premium revenues and deferred acquisition costs, as they require
    managements
    most significant exercise of judgment on both a quantitative and qualitative
    basis in the preparation of TRHs consolidated financial statements
    and footnotes.
(c) Investments: Fixed maturities are classified as held to maturity and carried at amortized cost if TRH has the positive intent and ability to hold each of these securities to maturity. Where TRH may
  not have the positive intent to hold fixed maturities to maturity and such securities are not designated as trading, such fixed maturities are considered to be available for sale and carried at fair values.
  Premiums and discounts arising from the purchase of fixed maturities are treated as yield adjustments over their estimated lives, until maturity or call date, if applicable. Common stocks and non-
  redeemable preferred stocks, including those held to meet short term investment objectives and classified as trading, are carried at fair values.
TRH engages in a securities lending program managed by a subsidiary of AIG, whereby certain securities (principally fixed maturities and common stocks available for sale) from its portfolio are
  loaned to third parties. In these transactions, initial collateral, principally cash, is received by TRH in an amount exceeding the fair value of the loaned security. At December 31, 2006, the collateral was
  invested in segregated pooled accounts of the program manager containing floating rate bonds,
70

TRANSATLANTIC HOLDINGS, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)
including asset-backed
    and collateralized securities, and interest bearing cash equivalents. During
    the latter half of 2007, TRHs interest in such pooled accounts was
    exchanged for separate portfolios containing floating rate bonds (i.e.,fixed
    maturities), including asset-backed and collateralized securities, and interest-bearing
    cash equivalents. Such securities are maintained in segregated accounts for
  TRH by the program manager. The investment of securities lending collateral
    is shown on the balance sheet at fair value. A liability is recorded in an
    amount equal to the collateral received to recognize TRHs obligation
    to return such funds when the related loaned securities are returned. The
    fair value of the loaned securities, which is reflected parenthetically as
    pledged on the balance sheet, is monitored on a daily basis with additional
    collateral obtained or refunded as the value fluctuates. Income earned on
    invested collateral, net of interest payable to the collateral provider,
    is included in net investment income. At December 31, 2007, TRHs securities
    lending payables totaled $2.05 billion, $294 million of which were one-day
    tenor. These loans do not have a contractual end date but are terminable
    by either party on demand. In addition to the invested collateral,
    all of the assets of TRH are generally available to satisfy the liability
    for collateral received.
Other invested assets primarily include investments in limited partnerships and TRHs 40% interest in Kuwait Reinsurance Company (K.S.C.), which is accounted for on the equity method. Limited
  partnerships in which TRH holds less than a 5% interest are reported at fair value. With respect to limited partnerships in which TRH holds a 5% or greater interest or where TRH has more than a minor
  influence over the operations of the investee, TRHs carrying value represents its share of the net asset value of the partnerships.
TRH measures financial instruments in its trading and available for sale securities portfolios at fair value and discloses the fair value of its fixed maturities held to maturity. Fair value is the amount that
  would be received to sell an asset in an orderly transaction between market participants at the measurement date.
The degree of judgment used in measuring the fair value of financial instruments generally correlates with the level of pricing observability. Financial instruments with quoted prices in active markets
  generally have more pricing observability and less judgment is used in measuring fair value. Conversely, financial instruments traded in other than active markets or financial instruments that do not have
  quoted prices have less observability and are measured at fair value using valuation models or other pricing techniques that require more judgment. Pricing observability is affected by a number of factors,
  including the type of financial instrument, whether the financial instrument is new to the market and not yet established, the characteristics specific to the transaction and general market conditions.
TRH maximizes the use of observable inputs and minimizes the use of unobservable inputs when measuring fair value. The large majority of TRHs securities are valued using observable inputs. TRH
  obtains market price data to value financial instruments whenever such information is available. Market price data generally is obtained from market exchanges or dealer quotations. The types of
  instruments valued based on market price data include government and agency securities, equities listed in active markets and investments in publicly traded mutual funds with quoted market prices.
TRH estimates the fair value of fixed maturities not traded in active markets by referring to traded securities with similar attributes and using a matrix pricing methodology. This methodology considers
  such factors as the issuers industry, the securitys rating and tenor, its coupon rate, its position in the capital structure of the issuer and other relevant factors. The types of fixed maturities not traded in
  active markets include municipal bonds, most corporate bonds and most asset-backed and collateralized (including mortgage-backed) securities.
For fixed maturity and equity instruments that are not traded in active markets, valuations are adjusted to reflect illiquidity, and such adjustments generally are based on available market evidence. In
  the absence of such evidence, managements best estimate is used.
TRH obtains the fair value of its investments in limited partnerships from information provided by the general partner or manager of each of these investments, the accounts of which generally are
  audited on an annual basis.
71

TRANSATLANTIC HOLDINGS, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)
Unrealized gains and losses from fixed maturities available for sale, equities available for sale, securities lending collateral and other invested assets, are reflected as a separate component of
  accumulated other comprehensive income, net of deferred income taxes, in stockholders equity. Unrealized gains and losses from investments in trading securities are reflected in income currently.
  Investments in fixed maturities and equity securities are recorded on a trade date basis.
TRH evaluates its investments for other-than-temporary impairments. The determination that a security has incurred an other-than-temporary impairment in value and the amount of any loss
  recognition requires the judgment of TRHs management and a continual review of its investments.
TRH evaluates its investments for other-than-temporary impairment such that a security is considered a candidate for other-than-temporary impairment if it meets any of the following criteria:

    
    
    
    Trading at a significant (25% or more) discount to par, amortized cost (if lower) or cost for an extended period of time (nine consecutive months or longer);
    
    
    
    The occurrence of a discrete credit event resulting in (i) the issuer defaulting on a material outstanding obligation; (ii) the issuer seeking protection from creditors under the bankruptcy laws or any
      similar laws intended for court supervised reorganization of insolvent enterprises; (iii) the issuer proposing a voluntary reorganization pursuant to which creditors are asked to exchange their claims
      for cash or securities having a fair value substantially lower than the par value of their claims; or
    
    
    
    TRH may not realize a full recovery on its investment, regardless of the occurrence of one or more of the foregoing events.The
    above criteria also consider circumstances of a rapid and severe market
    valuation decline, such as that experienced in current credit markets, in
which TRH could not reasonably assert that the recovery period would be temporary.
At each balance sheet date, TRH evaluates its securities holdings with unrealized losses. When TRH does not intend to hold such securities until they have fully recovered their cost basis, based on the
  circumstances at the date of evaluation, TRH records a realized capital loss. If a loss is recognized from a sale subsequent to a balance sheet date pursuant to changes in circumstances, the loss is recognized
  in the period in which the intent to hold the securities to recovery no longer exists.
In periods subsequent to the recognition of an other-than-temporary impairment loss for fixed maturity securities, TRH generally accretes the discount or amortizes the premium over the remaining life
  of the security based on the amount and timing of estimated future cash flows.
TRH has the ability to hold any fixed maturity security to its stated maturity, including those fixed maturity securities classified as available for sale. Therefore, the decision to sell any such fixed
  maturity security classified as available for sale reflects the judgment of management that the security sold is unlikely to provide, on a relative basis, as attractive a return in the future as alternative
  securities entailing comparable risks. With respect to distressed securities, the sale decision reflects managements judgment that the risk-discounted anticipated ultimate recovery is less than the value
  achievable on sale.
(d) Cash and Cash Equivalents: Cash and cash equivalents, which are principally interest-bearing, generally include cash deposited in demand deposits at banks and highly liquid investments with
  original maturities of 90 days or less.
(e) Deferred Acquisition Costs: Acquisition costs, consisting primarily of net commissions incurred on business conducted through reinsurance contracts or certificates, are deferred, and then amortized
  over the period in which the related premiums are earned, generally one year. Anticipated losses and loss adjustment expenses (LAE) and estimated remaining costs of servicing the contracts are
  considered in the evaluation of recoverability of acquisition costs to be deferred. Anticipated investment income is not considered in such evaluation.
72

TRANSATLANTIC HOLDINGS, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)
(f) Premium Revenues: In recent years, premiums from treaty contracts have approximated 96% of net premiums written, while facultative contracts have approximated 4%. For pro rata treaty
  contracts, premiums written and earned are based on reports received from ceding companies. For excess-of-loss treaty contracts, premiums are generally recorded as written based on contract terms.
  Premiums are earned ratably over the term of the related coverages. Unearned premiums and prepaid reinsurance premiums represent the portion of gross premiums written and ceded premiums written,
  respectively, relating to the unexpired terms of such coverages. Premiums written and earned, along with related costs, for which data has not been reported by the ceding companies, are estimated based on
  historical patterns and other relevant information. These estimates are subject to change when actual data for such items estimated becomes available. In the Consolidated Statements of Operations,
  premiums written and earned and the change in unearned premiums are presented net of reinsurance ceded.
(g) Net Investment Income: Net investment income represents income primarily from the following sources:

    
    
    
    Accrued interest income from fixed maturities, as well as amortization and accretion of premiums and discounts on fixed maturities.
    
    
    
    Dividend income and distributions from common and preferred stock and other investments when receivable.
    
    
    
    Earnings from investments accounted for under the equity method.
    
    
    
    Realized and unrealized gains and losses from investments in trading securities.(h) Realized Net Capital Gains and Losses: Realized capital gains and losses emanate from the following sources:

    
    
    
    Sales of fixed maturities, equities (except trading securities) and limited partnership interests, principally on the basis of specific identification.
    
    
    
    Reductions to the cost basis of fixed maturities, equity securities and other invested assets for other-than-temporary impairments.
    
    
    
    Foreign currency exchange rate gains and losses resulting from foreign currency transactions.(i) Losses and LAE: Unpaid losses and LAE (gross loss reserves) are principally based on reports and individual case estimates received from ceding companies. An amount is included for losses and
  LAE incurred but not reported (IBNR) on the basis of past experience. The methods of making such estimates and for establishing the resulting reserves are continually reviewed and updated, and any
  resulting adjustments are reflected in income currently. Net losses and LAE incurred consists of the estimated ultimate cost of settling claims incurred within the reporting period (net of related reinsurance
  recoverable), including IBNR claims, plus changes in estimates of prior period losses.

Estimation of
loss reserves is a difficult and subjective process, especially in view of
changes in the legal and tort environment, which impact the development of loss
reserves, and therefore, quantitative techniques frequently have to be
supplemented by subjective considerations and managerial judgment. In addition,
trends that have affected development of liabilities in the past may not
necessarily occur or affect liability development to the same degree in the
future.

While the reserving process is difficult and subjective for the ceding companies, the inherent uncertainties of estimating such reserves are even greater for the reinsurer, due primarily to the longer-term
  nature of most reinsurance business, the diversity of development patterns among different types of reinsurance treaties or facultative contracts, the necessary reliance on the ceding companies for
  information regarding reported claims and differing reserving practices among ceding companies, which are subject to change without notice. TRH writes a significant amount of non-proportional assumed
  casualty reinsurance as well as proportional assumed reinsurance of excess liability business for classes such as medical malpractice, D&O, E&O and general casualty. Claims from such classes can exhibit
  greater volatility over time than most other classes due to their low frequency, high severity nature and loss cost trends that are more difficult to predict.
73

TRANSATLANTIC HOLDINGS, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

Losses and loss
adjustment expenses net of related reinsurance recoverable (net loss
reserves) include certain amounts for the reinsurance of risks relating to
environmental impairment and asbestos-related illnesses. The majority of
TRHs environmental and asbestos-related net loss reserves arise from
contracts entered into after 1985. These obligations generally arose from
contracts underwritten specifically as environmental or asbestos-related
coverages rather than from standard general liability coverages where the
environmental or asbestos-related liabilities were neither clearly defined nor
specifically excluded. The reserves carried at December 31, 2007 and 2006 for
such claims, including IBNR, are based upon known facts and current law at the
respective balance sheet dates. However, significant uncertainty exists in
determining the amount of ultimate liability for environment impairment and
asbestos-related losses, particularly for those occurring in 1985 and prior.
This uncertainty is due to inconsistent court resolutions and judicial
interpretations with respect to underlying policy intent and coverage and
uncertainties as to the allocation of responsibility for resultant damages,
among other things. Further, there is always the possibility of changes in
statutes, laws, regulations and other factors that could have a material effect
on these liabilities and, accordingly, future earnings.

(j) Deferred Income Taxes: Deferred tax assets and liabilities are recorded for the effects of temporary differences between the tax basis of an asset or liability and its reported amount in the
  consolidated financial statements. TRH assesses its ability to realize deferred tax assets primarily based on earnings history, future earnings potential, the reversal of taxable temporary differences and the
  tax planning strategies available to legal entities recognizing deferred tax assets, in accordance with Statement of Financial Accounting Standards (SFAS) No. 109, Accounting for Income Taxes. See
  Note 4 for further discussion of income taxes.
(k) Currency Translation:Assets and liabilities denominated in foreign currencies are translated into U.S. dollars at year-end exchange rates. Income and expense accounts are translated at average
  exchange rates for the year. The resulting net unrealized currency translation gain (loss) for functional currencies is recorded as a separate component of accumulated other comprehensive income, net of
  related taxes, in stockholders equity.
Transaction gains and losses on assets and liabilities denominated in foreign currencies are recorded as a component of realized net capital gains (losses) during the period in which they occur.
(l) Recent Accounting Standards:
(1) Adoption of Financial Accounting Standards Board (FASB) Interpretation No. 48, Accounting for Uncertainty in Income Taxesan Interpretation of FASB Statement No. 109 (FIN 48)
In July 2006, the FASB issued FIN 48, which clarified the accounting for uncertain income tax positions. FIN 48 prescribes a recognition threshold and measurement attribute for the financial
  statement recognition and measurement of an income tax position taken or expected to be taken in a tax return. FIN 48 also provides guidance on derecognition, classification, interest and
  penalties, accounting in interim periods and additional disclosures. TRH adopted the provisions of FIN 48 on January 1, 2007. The adoption of FIN 48 did not have a material effect on TRHs
  financial position as of January 1, 2007 or TRHs results of operations and cash flows in 2007.
(2) Adoption of SFAS No. 158, Employers Accounting for Defined Benefit Pension and Other Postretirement Plansan amendment of FASB Statements No. 87, 88, 106 and 132(R) (SFAS
  158)
In September 2006, the FASB issued SFAS 158. SFAS 158 requires an employer to prospectively recognize the over funded or under funded status of a defined benefit postretirement plan as
  an asset or liability in its statement of financial position and to recognize changes in that funded status in the year in which the changes occur through other comprehensive income. SFAS 158 also
  requires an employer to measure the funded status of a
74

TRANSATLANTIC HOLDINGS, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)
plan as of the date of its year-end statement of financial position, with limited exceptions. SFAS 158 does not change the accounting for a multiemployer plan.
TRH adopted SFAS 158 in the fourth quarter of 2006. The adoption of SFAS 158 did not have a material effect on TRHs results of operations, financial position or cash flows in the year of
  adoption.
(3) Adoption of Staff Accounting Bulletin No. 108, Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements (SAB 108)
In September 2006, the Securities and Exchange Commission (SEC) issued SAB 108. SAB 108 provides interpretive guidance on how the effects of the carryover or reversal of prior year
  misstatements should be considered in quantifying a current year misstatement. SAB 108 requires that registrants quantify errors using both a balance sheet and an income statement approach and
  evaluate whether either approach results in quantifying a misstatement that when all relevant quantitative and qualitative factors are considered, is material. TRH adopted SAB 108 in the fourth
  quarter of 2006. The adoption of SAB 108 did not have a material effect on TRHs consolidated financial statements in the year of adoption.
(4) Adoption of SFAS No. 123 (revised 2004), Share-Based Payments (SFAS 123R)

In
December 2004, the FASB issued SFAS 123R. SFAS 123R and its related interpretive
guidance replaced SFAS No. 123, Accounting for Stock-Based
Compensation (SFAS 123) and supercedes Accounting Principles
Board Opinion (APB) No. 25, Accounting for Stock Issued to
Employees (APB 25). SFAS 123R requires share-based payment
transactions with employees to be accounted for using a fair-value based method
and broadens the recognition provisions to include share-based payments awarded
to an employee by related parties or other holders of an economic interest in
the reporting entity.

In 2005, TRH accounted for share-based payment transactions with employees under SFAS 123. Effective January 1, 2006, TRH adopted SFAS 123R using the Modified Prospective
  Application method. The Modified Prospective Application method provides for the recognition of the fair value with respect to stock-based compensation for shares granted or modified on or
  after January 1, 2006 and for all previously granted but unvested awards as of January 1, 2006. Accordingly, financial statement amounts for 2005 presented in this Form 10-K have not been
  restated. The impact of adopting SFAS 123R was not material to income before income taxes, net income (including basic and diluted net income per share amounts), financial condition or cash
  flows in the year of adoption. (See Note 12 for a discussion of stock-based compensation plans.)
(5)Adoption of FASB Staff Position (FSP) No. FAS 115-1, The Meaning of Other-Than-Temporary Impairment and Its Application to Certain Investments (FSP FAS 115-1)
In November 2005, the FASB issued FSP FAS 115-1. FSP FAS 115-1 replaces the measurement and recognition guidance set forth in FASB Emerging Issue Task Force (EITF) Issue No. 03-
  1 and codifies certain existing guidance on impairment. TRH adopted FSP FAS 115-1 in the first quarter of 2006. The adoption of FSP FAS 115-1 did not have a material effect on TRHs results of
  operations, financial position or cash flows in the year of adoption.
(6) Future Application of Accounting Standards
(a)
    In June 2007, the American Institute of Certified Public Accountants (AICPA)
    issued Statement of Position No. 07-1, Clarification of the Scope of
    the Audit and Accounting Guide
  Audits of Investment Companies and Accounting by Parent Companies
  and Equity Method Investors for Investments in Investment Companies (SOP
  07-1). SOP 07-1 amends the guidance
  for whether an entity may apply the provisions of the AICPA Audit and Accounting
  Guide, Audits of Investment Companies (the Guide).
  Investment companies
75

TRANSATLANTIC HOLDINGS, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)
that are subject to the Guide must report all investments at fair value regardless of the nature of the investment or the level of ownership. SOP 07-1 also established new requirements for when
  TRH can retain specialized investment company accounting in its consolidated financial statements for its equity method investees that are covered by the Guide. Such investments are included in
  other invested assets on the balance sheet. In February 2008, the FASB issued FSP No. SOP 07-1-1, Effective Date of AICPA Statement of Position 07-1 (FSP SOP 07-1-1). FSP SOP 07-1-1
  indefinitely deferred the effective date of SOP 07-1-1.
(b) In February 2007, the FASB issued SFAS No. 159, The Fair Value Option for Financial Assets and Financial Liabilities (SFAS 159). SFAS 159 permits entities to choose to measure
  many financial instruments and certain other items at fair value that are not currently required to be measured at fair value. Subsequent changes in fair value for designated items will be required
  to be reported in earnings in the current period. SFAS 159 also establishes presentation and disclosure requirements for similar types of assets and liabilities measured at fair value. SFAS 159 is
  effective for TRH on January 1, 2008. TRH does not plan to employ this standard to measure any assets or liabilities at fair value that are not presently required to be measured on that basis.
(c) In September 2006, the FASB issued SFAS No. 157, Fair Value Measurements (SFAS 157). SFAS 157 defines fair value, establishes a framework for measuring fair value and expands
  disclosures about fair value measurements. SFAS 157 is effective for TRH on January 1, 2008. In February 2008, the FASB issued FSP No. FAS 157-2, Effective Date of FASB Statement No.
  157 (FSP FAS 157-2). FSP FAS 157-2 defers the effective date of FAS 157 for one year for nonfinancial assets and nonfinancial liabilities that are recognized or disclosed at fair value in the
  consolidated financial statements on a non-recurring basis. TRH adopted SFAS 157 on January 1, 2008, its required effective date. With certain specific exceptions which call for a cumulative-effect
  adjustment to opening retained earnings on January 1, 2008, SFAS 157 must be applied prospectively. Based on TRHs review to date which is based on its balance sheet components at December
  31, 2007, management does not expect the adoption of SFAS 157 to have a material effect on opening retained earnings nor on its prospective fair value measurements when compared to fair
  values determined based on authoritative accounting literature in effect at December 31, 2007.
(d) In December 2007, the FASB issued SFAS No. 141R, Business Combinations (SFAS 141R). SFAS 141R broadens the transactions or events that are considered business combinations,
  requiring an acquirer to recognize 100% of the fair values of assets acquired, liabilities assumed, and noncontrolling interests in acquisitions of less than a 100% controlling interest when the
  acquisition constitutes a change in control of the acquired entity, recognizing contingent consideration arrangements at their acquisition-date fair values, with subsequent changes in fair value
  generally reflected in income, and recognizing preacquisition loss and gain contingencies at their acquisition-date fair values, among other changes. For TRH, SFAS 141R is required to be adopted
  for business combinations for which the acquisition date is on or after January 1, 2009. Early adoption is prohibited.
3. Investments
(a) Statutory Deposits: Investments with carrying values of $442 million and $351 million at December 31, 2007 and 2006, respectively, were deposited with governmental authorities as required by law.
  The substantial majority of these deposits are fixed maturities and common stocks available for sale.
76

TRANSATLANTIC HOLDINGS, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)
(b) Net Investment Income: An analysis of net investment income of TRH follows:
Years Ended December 31,2007
    
    2006
    
    2005(in thousands)Fixed maturities
    
    
    $
    
    395,823
    
    
    
    $
    
    354,890
    
    
    
    $
    
    297,522Equities
    
    
    
    25,639
    
    
    
    
    28,122
    
    
    
    
    23,914Other invested assets (including limited partnerships)
    
    
    
    37,755
    
    
    
    
    38,804
    
    
    
    
    16,457Other
    
    
    
    19,206
    
    
    
    
    22,420
    
    
    
    
    14,266Total investment income
    
    
    
    478,423
    
    
    
    
    444,236
    
    
    
    
    352,159Investment expenses
    
    
    
    (8,651
    )
    
    
    
    
    (9,696
    )
    
    
    
    
    (8,912
    )Net investment income
    
    
    $
    
    469,772
    
    
    
    $
    
    434,540
    
    
    
    $
    
    343,247Net unrealized (losses) gains included in net investment income from equities classified as trading securities in 2007, 2006 and 2005 were $(1.4) million, $2.5 million and $(1.6) million.
(c) Investment Gains and Losses: Realized net capital gains (losses) and the change in net unrealized appreciation (depreciation) of investments are summarized as follows:
Years Ended December 31,2007
    
    2006
    
    2005(in thousands)Realized net capital gains (losses):Fixed maturities(1)
    
    
    $
    
    (1,399
    )
    
    
    
    $
    
    (306
    )
    
    
    
    $
    
    (74
    )Equities available for sale(2)
    
    
    
    37,247
    
    
    
    
    22,343
    
    
    
    
    39,915Other(3)
    
    
    
    (26,459
    )
    
    
    
    
    (11,175
    )
    
    
    
    
    43Total
    
    
    $
    
    9,389
    
    
    
    $
    
    10,862
    
    
    
    $
    
    39,884Change in net unrealized appreciation (depreciation) of investments:(4)Fixed maturities carried at amortized cost
    
    
    $
    
    (7,541
    )
    
    
    
    $
    
    10,733
    
    
    
    $
    
    (2,441
    )Fixed maturities carried at fair value
    
    
    
    (53,286
    )
    
    
    
    
    (36,812
    )
    
    
    
    
    (39,029
    )Equities available for sale at fair value
    
    
    
    (63,576
    )
    
    
    
    
    26,332
    
    
    
    
    (19,673
    )Other(5)
    
    
    
    (38,759
    )
    
    
    
    
    (3,674
    )
    
    
    
    
    8,701Total
    
    
    $
    
    (163,162
    )
    
    
    
    $
    
    (3,421
    )
    
    
    
    $
    
    (52,442
    )

(1)
    
    
    
    Includes write-downs for other-than-temporary declines in fair value of $2.5 million and $1.3 million for 2007 and 2006, respectively. There were no write-downs for other-than-temporary declines in fair value in 2005.(2)
    
    
    
    Includes write-downs for other-than-temporary declines in fair value of $24.7 million, $0.1 million and $1.7 million for 2007, 2006 and 2005, respectively.(3)
    
    
    
    Includes net foreign currency transaction losses of $24.6 million and $11.2 million in 2007 and 2006, respectively.(4)
    
    
    
    Before deferred income tax effect.(5)
    
    
    
    Includes
 net unrealized depreciation from securities lending collateral of $41.2 million in 2007.Gross realized gains and gross realized losses on sales of
TRHs available for sale securities and securities lending collateral were as follows:

2007
    
    2006
    
    2005Gross Realized
    Gains
    
    Gross Realized
    Losses
    
    Gross Realized
    Gains
    
    Gross Realized
    Losses
    
    Gross Realized
    Gains
    
    Gross Realized
    Losses(in millions)Fixed maturities
    
    
    $
    
    4.4
    
    
    
    $
    
    5.4
    
    
    
    $
    
    2.8
    
    
    
    $
    
    3.9
    
    
    
    $
    
    4.1
    
    
    
    $
    
    5.0Equities
    
    
    
    90.2
    
    
    
    
    28.3
    
    
    
    
    61.8
    
    
    
    
    39.3
    
    
    
    
    70.9
    
    
    
    
    29.3Securities lending collateral
    
    
    
    0.1
    
    
    
    
    1.9
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    77

TRANSATLANTIC HOLDINGS, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)
(d) Fixed Maturities: The amortized cost and fair value of investments classified as fixed maturities on the balance sheet at December 31, 2007 and 2006 are summarized as follows:
AmortizedCost
    
    Gross Unrealized
    
    Fair ValueGains
    
    Losses(1)(in thousands)2007Fixed maturities held to maturity and carried at amortized cost:States, municipalities and political subdivisions
    
    
    $
    
    1,249,935
    
    
    
    $
    
    32,871
    
    
    
    $
    
    2,795
    
    
    
    $
    
    1,280,011Fixed maturities available for sale and carried at fair value:U.S. Government and government agencies
    
    
    $
    
    323,364
    
    
    
    $
    
    7,564
    
    
    
    $
    
    90
    
    
    
    $
    
    330,838States, municipalities and political subdivisions
    
    
    
    5,231,314
    
    
    
    
    123,661
    
    
    
    
    19,856
    
    
    
    
    5,335,119Foreign governments
    
    
    
    330,079
    
    
    
    
    2,372
    
    
    
    
    2,439
    
    
    
    
    330,012Corporate
    
    
    
    2,108,885
    
    
    
    
    3,882
    
    
    
    
    52,010
    
    
    
    
    2,060,757Asset-backed and collateralized
    
    
    
    41,096
    
    
    
    
    1,502
    
    
    
    
    72
    
    
    
    
    42,526Total
    
    
    $
    
    8,034,738
    
    
    
    $
    
    138,981
    
    
    
    $
    
    74,467
    
    
    
    $
    
    8,099,252AmortizedCost
    
    Gross Unrealized
    
    Fair ValueGains
    
    Losses(1)(in thousands)2006Fixed maturities held to maturity and carried at amortized cost:States, municipalities and political subdivisions
    
    
    $
    
    1,254,017
    
    
    
    $
    
    39,473
    
    
    
    $
    
    1,856
    
    
    
    $
    
    1,291,634Fixed maturities available for sale and carried at fair value:U.S. Government and government agencies
    
    
    $
    
    350,436
    
    
    
    $
    
    774
    
    
    
    $
    
    2,538
    
    
    
    $
    
    348,672States, municipalities and political subdivisions
    
    
    
    4,510,622
    
    
    
    
    140,762
    
    
    
    
    1,106
    
    
    
    
    4,650,278Foreign governments
    
    
    
    305,273
    
    
    
    
    1,541
    
    
    
    
    1,990
    
    
    
    
    304,824Corporate
    
    
    
    1,749,411
    
    
    
    
    4,764
    
    
    
    
    26,460
    
    
    
    
    1,727,715Asset-backed and collateralized
    
    
    
    27,548
    
    
    
    
    2,082
    
    
    
    
    29
    
    
    
    
    29,601Total
    
    
    $
    
    6,943,290
    
    
    
    $
    
    149,923
    
    
    
    $
    
    32,123
    
    
    
    $
    
    7,061,090

(1)
    
    
    
    See Note 3(g) for additional information about gross unrealized losses as of December 31, 2007 and 2006.The amortized cost and fair value of fixed maturities at December 31, 2007 by contractual maturity are as follows. Expected maturities may differ from contractual maturities because borrowers may
  have the right to call or prepay obligations with or without call or prepayment penalties. Investments in fixed maturities exclude short-term investments.
78

TRANSATLANTIC HOLDINGS, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)
AmortizedCost
    
    Fair Value(in thousands)Fixed maturities held to maturity:Due after five years through ten years
    
    
    $
    
    91,246
    
    
    
    $
    
    94,033Due after ten years
    
    
    
    1,158,689
    
    
    
    
    1,185,978Total
    
    
    $
    
    1,249,935
    
    
    
    $
    
    1,280,011Fixed maturities available for sale:Non-asset-backed and collateralized:Due in one year or less
    
    
    $
    
    533,102
    
    
    
    $
    
    532,171Due after one year through five years
    
    
    
    1,568,666
    
    
    
    
    1,559,442Due after five years through ten years
    
    
    
    1,733,682
    
    
    
    
    1,725,835Due after ten years
    
    
    
    4,158,192
    
    
    
    
    4,239,278Asset-backed and collateralized(1)
    
    
    
    41,096
    
    
    
    
    42,526Total
    
    
    $
    
    8,034,738
    
    
    
    $
    
    8,099,252

(1)
    
    
    
    Asset-backed and collateralized fixed maturities by their nature do not generally have single maturity dates.(e) Equities: At December 31, 2007 and 2006, net unrealized appreciation of equities available for sale (before applicable income taxes) included gross gains of $31.0 million and $56.8 million and gross
  losses of $42.5 million and $4.8 million, respectively. (See Note 3(g) for additional information about gross unrealized losses as of December 31, 2007 and 2006.)
(f) Securities Lending Collateral: At December 31, 2006, the collateral was invested in segregated pooled accounts of the program manager containing floating rate bonds, including asset-backed and
  collateralized securities, and interest-bearing cash equivalents. During the latter half of 2007, TRHs interest in such pooled accounts was exchanged for separate portfolios containing floating rate bonds
  (i.e.,fixed maturities), including asset-backed and collateralized securities, and interest-bearing cash equivalents. Such securities are maintained in a segregated account for TRH by the program manager.
  The amortized cost and fair value of securities lending collateral by underlying category of security at December 31, 2007 is summarized as follows:
79

TRANSATLANTIC HOLDINGS, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)
AmortizedCost
    
    Gross Unrealized
    
    Fair ValueGains
    
    Losses(1)(in thousands)2007Fixed maturities available for sale:Asset-backed and collateralized:Domestic:Commercial mortgage-backed
    
    
    $
    
    20,792
    
    
    
    $
    
    
    
    
    
    $
    
    424
    
    
    
    $
    
    20,368Residential:Mortgage-backed:Alt-A
    
    
    
    186,329
    
    
    
    
    
    
    
    
    
    12,654
    
    
    
    
    173,675Prime non-agency
    
    
    
    55,102
    
    
    
    
    
    
    
    
    
    5,070
    
    
    
    
    50,032HELOC
    
    
    
    23,472
    
    
    
    
    
    
    
    
    
    1,094
    
    
    
    
    22,378Other asset-backed
    
    
    
    30,477
    
    
    
    
    
    
    
    
    
    691
    
    
    
    
    29,786Total domestic
    
    
    
    316,172
    
    
    
    
    
    
    
    
    
    19,933
    
    
    
    
    296,239Foreign:Commercial mortgage-backed
    
    
    
    106,821
    
    
    
    
    
    
    
    
    
    1,900
    
    
    
    
    104,921Residential:Mortgage-backed
    
    
    
    385,102
    
    
    
    
    3,822
    
    
    
    
    7,530
    
    
    
    
    381,394HELOC
    
    
    
    21,557
    
    
    
    
    
    
    
    
    
    18
    
    
    
    
    21,539Other asset-backed
    
    
    
    71,810
    
    
    
    
    
    
    
    
    
    657
    
    
    
    
    71,153Total foreign
    
    
    
    585,290
    
    
    
    
    3,822
    
    
    
    
    10,105
    
    
    
    
    579,007Total asset-backed and collateralized
    
    
    
    901,462
    
    
    
    
    3,822
    
    
    
    
    30,038
    
    
    
    
    875,246Non-asset-backed and collateralized
    
    
    
    955,070
    
    
    
    
    54
    
    
    
    
    15,078
    
    
    
    
    940,046Total fixed maturities available for sale
    
    
    
    1,856,532
    
    
    
    
    3,876
    
    
    
    
    45,116
    
    
    
    
    1,815,292Cash equivalents
    
    
    
    196,739
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    196,739Total securities lending collateral
    
    
    $
    
    2,053,271
    
    
    
    $
    
    3,876
    
    
    
    $
    
    45,116
    
    
    
    $
    
    2,012,031

(1)
    
    
    
    See Note 3(g) for additional information about gross unrealized losses as of December 31, 2007.The amortized cost and fair value of securities lending collateral at December 31, 2007 by contractual maturity are as follows. Expected maturities may differ from contractual maturities because
  borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.
AmortizedCost
    
    Fair Value(in thousands)Non-asset-backed and collateralized fixed maturities available for sale:Due in one year or less
    
    
    $
    
    98,503
    
    
    
    $
    
    97,462Due after one year through five years
    
    
    
    674,637
    
    
    
    
    667,881Due after five years through ten years
    
    
    
    181,930
    
    
    
    
    174,703Asset-backed and collateralized fixed maturities available for sale(1)
    
    
    
    901,462
    
    
    
    
    875,246Cash equivalents
    
    
    
    196,739
    
    
    
    
    196,739Total
    
    
    $
    
    2,053,271
    
    
    
    $
    
    2,012,031

(1)
    
    
    
    Asset-backed and collateralized fixed maturities by their nature do not generally have single maturity dates.(g) Additional Information on Gross Unrealized Losses on All Fixed Maturities, on Equities Available for Sale and on Securities Lending Collateral: As of December 31, 2007 and 2006, TRHs
  aggregate gross unrealized losses on all fixed maturities, on equities available for sale and on securities lending collateral totaled $164.9 million and $38.8 million, respectively. As of December 31, 2007 and
  2006, no single issuer accounted for more than 4% and 6%, respectively, of the aggregate gross unrealized losses.
80

TRANSATLANTIC HOLDINGS, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

As of December 31, 2007
and 2006, the aging of the gross unrealized losses with respect to all fixed
maturities,  equities and securities lending collateral, grouped by percentage of gross unrealized loss (the
extent by which the market value is less than amortized cost or cost) relative
to cost, including the number of respective items, was as follows:

2007

Months in a ContinuousUnrealized Loss Position
    
    Less than or Equal to20% of Cost(1)
    
    Greater than 20% to50% of Cost(1)
    
    TotalFairValue
    
    GrossUnrealizedLoss
    
    Items
    
    FairValue
    
    GrossUnrealizedLoss
    
    Items
    
    FairValue
    
    GrossUnrealizedLoss
    
    Items(dollars in thousands)Total Fixed Maturities0-6
    
    
    $
    
    2,224,308
    
    
    
    $
    
    60,636
    
    
    
    
    372
    
    
    
    $
    
    
    
    
    
    $
    
    
    
    
    
    
    
    
    
    
    $
    
    2,224,308
    
    
    
    $
    
    60,636
    
    
    
    
    3726-12
    
    
    
    754,710
    
    
    
    
    13,335
    
    
    
    
    78
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    754,710
    
    
    
    
    13,335
    
    
    
    
    78>12
    
    
    
    134,323
    
    
    
    
    3,291
    
    
    
    
    34
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    134,323
    
    
    
    
    3,291
    
    
    
    
    34Total
    
    
    $
    
    3,113,341
    
    
    
    $
    
    77,262
    
    
    
    
    484
    
    
    
    $
    
    
    
    
    
    $
    
    
    
    
    
    
    
    
    
    
    $
    
    3,113,341
    
    
    
    $
    
    77,262
    
    
    
    
    484Equities Available for Sale0-6
    
    
    $
    
    355,310
    
    
    
    $
    
    34,536
    
    
    
    
    139
    
    
    
    $
    
    21,849
    
    
    
    $
    
    7,603
    
    
    
    
    9
    
    
    
    $
    
    377,159
    
    
    
    $
    
    42,139
    
    
    
    
    1486-12
    
    
    
    4,055
    
    
    
    
    342
    
    
    
    
    4
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,055
    
    
    
    
    342
    
    
    
    
    4>12
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total
    
    
    $
    
    359,365
    
    
    
    $
    
    34,878
    
    
    
    
    143
    
    
    
    $
    
    21,849
    
    
    
    $
    
    7,603
    
    
    
    
    9
    
    
    
    $
    
    381,214
    
    
    
    $
    
    42,481
    
    
    
    
    152Securities Lending Collateral0-6
    
    
    $
    
    1,381,095
    
    
    
    $
    
    38,433
    
    
    
    
    179
    
    
    
    $
    
    5,376
    
    
    
    $
    
    2,246
    
    
    
    
    1
    
    
    
    $
    
    1,386,471
    
    
    
    $
    
    40,679
    
    
    
    
    1806-12
    
    
    
    227,428
    
    
    
    
    3,015
    
    
    
    
    37
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    227,428
    
    
    
    
    3,015
    
    
    
    
    37>12
    
    
    
    58,046
    
    
    
    
    1,422
    
    
    
    
    8
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    58,046
    
    
    
    
    1,422
    
    
    
    
    8Total
    
    
    $
    
    1,666,569
    
    
    
    $
    
    42,870
    
    
    
    
    224
    
    
    
    $
    
    5,376
    
    
    
    $
    
    2,246
    
    
    
    
    1
    
    
    
    $
    
    1,671,945
    
    
    
    $
    
    45,116
    
    
    
    
    225Total Fixed Maturities, Equities
      Available for Sale and Securities
      Lending Collateral0-6
    
    
    $
    
    3,960,713
    
    
    
    $
    
    133,605
    
    
    
    
    690
    
    
    
    $
    
    27,225
    
    
    
    $
    
    9,849
    
    
    
    
    10
    
    
    
    $
    
    3,987,938
    
    
    
    $
    
    143,454
    
    
    
    
    7006-12
    
    
    
    986,193
    
    
    
    
    16,692
    
    
    
    
    119
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    986,193
    
    
    
    
    16,692
    
    
    
    
    119>12
    
    
    
    192,369
    
    
    
    
    4,713
    
    
    
    
    42
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    192,369
    
    
    
    
    4,713
    
    
    
    
    42Total
    
    
    $
    
    5,139,275
    
    
    
    $
    
    155,010
    
    
    
    
    851
    
    
    
    $
    
    27,225
    
    
    
    $
    
    9,849
    
    
    
    
    10
    
    
    
    $
    
    5,166,500
    
    
    
    $
    
    164,859
    
    
    
    
    8612006
Months in a ContinuousUnrealized Loss Position
    
    Less than or Equal to20% of Cost(1)
    
    Greater than 20% to50% of Cost(1)
    
    TotalFairValue
    
    GrossUnrealizedLoss
    
    Items
    
    FairValue
    
    GrossUnrealizedLoss
    
    Items
    
    FairValue
    
    GrossUnrealizedLoss
    
    Items(dollars in thousands)Total Fixed Maturities0-6
    
    
    $
    
    1,821,103
    
    
    
    $
    
    26,876
    
    
    
    
    321
    
    
    
    $
    
    
    
    
    
    $
    
    
    
    
    
    
    
    
    
    
    $
    
    1,821,103
    
    
    
    $
    
    26,876
    
    
    
    
    3216-12
    
    
    
    45,323
    
    
    
    
    451
    
    
    
    
    9
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    45,323
    
    
    
    
    451
    
    
    
    
    9>12
    
    
    
    324,315
    
    
    
    
    6,652
    
    
    
    
    83
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    324,315
    
    
    
    
    6,652
    
    
    
    
    83Total
    
    
    $
    
    2,190,741
    
    
    
    $
    
    33,979
    
    
    
    
    413
    
    
    
    $
    
    
    
    
    
    $
    
    
    
    
    
    
    
    
    
    
    $
    
    2,190,741
    
    
    
    $
    
    33,979
    
    
    
    
    413Equities Available for Sale0-6
    
    
    $
    
    94,897
    
    
    
    $
    
    3,764
    
    
    
    
    37
    
    
    
    $
    
    409
    
    
    
    $
    
    183
    
    
    
    
    2
    
    
    
    $
    
    95,306
    
    
    
    $
    
    3,947
    
    
    
    
    396-12
    
    
    
    7,917
    
    
    
    
    438
    
    
    
    
    4
    
    
    
    
    1,202
    
    
    
    
    391
    
    
    
    
    1
    
    
    
    
    9,119
    
    
    
    
    829
    
    
    
    
    5>12
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total
    
    
    $
    
    102,814
    
    
    
    $
    
    4,202
    
    
    
    
    41
    
    
    
    $
    
    1,611
    
    
    
    $
    
    574
    
    
    
    
    3
    
    
    
    $
    
    104,425
    
    
    
    $
    
    4,776
    
    
    
    
    44Total Fixed Maturities and Equities
      Available for Sale0-6
    
    
    $
    
    1,916,000
    
    
    
    $
    
    30,640
    
    
    
    
    358
    
    
    
    $
    
    409
    
    
    
    $
    
    183
    
    
    
    
    2
    
    
    
    $
    
    1,916,409
    
    
    
    $
    
    30,823
    
    
    
    
    3606-12
    
    
    
    53,240
    
    
    
    
    889
    
    
    
    
    13
    
    
    
    
    1,202
    
    
    
    
    391
    
    
    
    
    1
    
    
    
    
    54,442
    
    
    
    
    1,280
    
    
    
    
    14>12
    
    
    
    324,315
    
    
    
    
    6,652
    
    
    
    
    83
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    324,315
    
    
    
    
    6,652
    
    
    
    
    83Total
    
    
    $
    
    2,293,555
    
    
    
    $
    
    38,181
    
    
    
    
    454
    
    
    
    $
    
    1,611
    
    
    
    $
    
    574
    
    
    
    
    3
    
    
    
    $
    
    2,295,166
    
    
    
    $
    
    38,755
    
    
    
    
    457

(1)
    
    
    
    For fixed maturities and securities lending collateral, which is comprised principally of fixed maturities, represents amortized cost.81

TRANSATLANTIC HOLDINGS, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)
At December 31, 2007 and 2006, the gross unrealized losses for all fixed maturities, equities available for sale and securities lending collateral included the following concentrations:
2007
Concentration
    
    GrossUnrealized Losses(in thousands)Banking and financial institutions
    
    
    $
    
    80,686States, municipalities and political subdivisions
    
    
    
    22,651Domestic Alt-A residential mortgage-backed
    
    
    
    12,654U.S. Government and government agencies
    
    
    
    7,984Other
    
    
    
    40,884Total
    
    
    $
    
    164,8592006
Concentration
    
    GrossUnrealized Losses(in thousands)Banking and financial institutions
    
    
    $
    
    19,796Energy
    
    
    
    4,174States, municipalities and political subdivisions
    
    
    
    2,963Other
    
    
    
    11,822Total
    
    
    $
    
    38,755The fair value of fixed maturities and securities lending collateral, which is comprised principally of fixed maturities, in an unrealized loss position at December 31, 2007 and 2006, by contractual
  maturity, is shown below:
2007
    
    2006(in thousands)Non-asset-backed and collateralized:Due in one year or less
    
    
    $
    
    404,454
    
    
    
    $
    
    216,493Due after one year through five years
    
    
    
    1,590,134
    
    
    
    
    1,002,994Due after five years through ten years
    
    
    
    819,549
    
    
    
    
    721,152Due after ten years
    
    
    
    1,107,008
    
    
    
    
    247,374Asset-backed and collateralized(1)
    
    
    
    864,141
    
    
    
    
    2,728Total
    
    
    $
    
    4,785,286
    
    
    
    $
    
    2,190,741

(1)
    
    
    
    Asset-backed and collateralized fixed maturities by their nature do not generally have single maturity dates.4. Income Taxes (Benefits)
The Company files a U.S. consolidated federal income tax return with its domestic subsidiaries, which includes foreign operations. TRC will include as part of its taxable income those items of income
  of the non-U.S. subsidiary, TRZ, which are subject to U.S. income tax currently, pursuant to Subpart F income rules of the Internal Revenue Code, and included, as appropriate, in the consolidated federal
  income tax return.
The U.S. federal income tax rate was 35% for 2007, 2006 and 2005. Actual tax expense (benefit) on income (loss) before income taxes differs from the expected amount computed by applying the
  U.S. federal income tax rate because of the following:
82

TRANSATLANTIC HOLDINGS, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)
Years Ended December 31,2007
    
    2006
    
    2005Amount
    
    Percent ofIncome BeforeIncome Taxes
    
    Amount
    
    Percent ofIncome BeforeIncome Taxes
    
    Amount
    
    Percent ofLoss BeforeIncome Taxes(dollars in thousands)Expected tax expense (benefit)
    
    
    $
    
    208,513
    
    
    
    
    35.0
    %
    
    
    
    $
    
    188,968
    
    
    
    
    35.0
    %
    
    
    
    $
    
    (16,134
    )
    
    
    
    
    35.0
    %Adjustments:Tax-exempt interest
    
    
    
    (82,866
    )
    
    
    
    
    (13.9
    )
    
    
    
    
    (76,754
    )
    
    
    
    
    (14.2
    )
    
    
    
    
    (63,408
    )
    
    
    
    
    137.6Dividends received deduction
    
    
    
    (5,011
    )
    
    
    
    
    (0.8
    )
    
    
    
    
    (3,688
    )
    
    
    
    
    (0.7
    )
    
    
    
    
    (3,324
    )
    
    
    
    
    7.2Recognition of previously uncertain tax benefit
    
    
    
    (5,300
    )
    
    
    
    
    (0.9
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Interest on net tax refunds
    
    
    
    (4,279
    )
    
    
    
    
    (0.7
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Other
    
    
    
    (2,446
    )
    
    
    
    
    (0.5
    )
    
    
    
    
    3,230
    
    
    
    
    0.6
    
    
    
    
    (1,142
    )
    
    
    
    
    2.4Actual tax expense (benefit)
    
    
    $
    
    108,611
    
    
    
    
    18.2
    %
    
    
    
    $
    
    111,756
    
    
    
    
    20.7
    %
    
    
    
    $
    
    (84,008
    )
    
    
    
    
    182.2
    %Foreign and domestic components of actual tax expense (benefit):Foreign
    
    
    $
    
    117,172
    
    
    
    
    
    $
    
    92,413
    
    
    
    
    
    $
    
    29,044Domestic:Current
    
    
    
    65,440
    
    
    
    
    
    
    31,573
    
    
    
    
    
    
    (81,811
    )Deferred
    
    
    
    (74,001
    )
    
    
    
    
    
    
    (12,230
    )
    
    
    
    
    
    
    (31,241
    )$
    
    108,611
    
    
    
    
    
    $
    
    111,756
    
    
    
    
    
    $
    
    (84,008
    )Income (loss) before income taxes from Domestic operations was $268.1 million, $199.3 million and $(189.7) million in 2007, 2006 and 2005, respectively. Income before income taxes from foreign
  operations was $327.6 million, $340.6 million and $143.6 million in 2007, 2006 and 2005, respectively.
The domestic deferred tax benefit for 2007 and 2006 includes $32.9 million and $6.6 million, respectively, resulting from a minimum tax credit carryforward which, by law, may be carried forward
  indefinitely.
The domestic current tax benefit for 2005 includes $61.2 million resulting from a tax net operating loss carryback to prior years. In addition, the 2005 domestic deferred tax benefit includes $20.9 million
  resulting from a minimum tax credit carryforward.
The components of the net deferred income tax asset at December 31, 2007 and 2006 were as follows:
83

TRANSATLANTIC HOLDINGS, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)
2007
    
    2006(in thousands)Deferred income tax assets:Unpaid losses and LAE, net of related reinsurance recoverable
    
    
    $
    
    325,599
    
    
    
    $
    
    302,078Unearned premiums, net of prepaid reinsurance premiums
    
    
    
    81,237
    
    
    
    
    73,141Cumulative translation adjustment
    
    
    
    28,353
    
    
    
    
    41,188Benefit from amended tax returns
    
    
    
    8,204
    
    
    
    
    8,204Minimum tax credit carryforward
    
    
    
    60,316
    
    
    
    
    27,462Other
    
    
    
    40,246
    
    
    
    
    23,327Total deferred income tax assets
    
    
    
    543,955
    
    
    
    
    475,400Deferred income tax liabilities:Deferred acquisition costs
    
    
    
    86,828
    
    
    
    
    80,913Net unrealized appreciation of investments
    
    
    
    9,602
    
    
    
    
    64,069Other
    
    
    
    20,925
    
    
    
    
    19,451Total deferred income tax liabilities
    
    
    
    117,355
    
    
    
    
    164,433Net deferred income tax asset
    
    
    $
    
    426,600
    
    
    
    $
    
    310,967No valuation allowance has been recorded.
On January 1, 2007, TRH adopted FIN 48. At January 1, 2007, the total amount of TRHs liability for unrecognized tax benefit, excluding interest and penalties, was $5.3 million. In 2007, TRH
  recognized this previously uncertain tax benefit. As a result, income tax expense for 2007 has been reduced by $5.3 million. TRH does not presently anticipate any material change in unrecognized tax
  benefits during the next twelve months.
Interest and penalties relating to unrecognized tax benefits/expenses are recognized in income tax expense, when applicable. As of December 31, 2007, there was $4.3 million of net interest receivable
  on income taxes. There was no interest or penalties accrued as of January 1, 2007. Current income tax expense was reduced by $4.3 million of interest on net tax refunds in 2007.

The table
below reconciles the total amounts of unrecognized tax positions from December 31, 2006 to December 31, 2007,
including interest and penalities, if any:

Total UnrecognizedTax PositionsDecember 31, 2006
    
    TaxAdditions/Increasesof prioryears
    
    TaxReductions/(Decreases)of prioryears
    
    Expiration ofStatute
    
    Settlements
    
    Total UnrecognizedTax PositionsDecember 31, 2007(in thousands)Current Period Positions
    
    
    $
    
    
    
    
    
    $
    
    
    
    
    
    $
    
    
    
    
    
    $
    
    
    
    
    
    $
    
    
    
    
    
    $
    
    Prior Period Positions
    
    
    
    5,300
    
    
    
    
    
    
    
    
    
    (5,300
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total Positions
    
    
    $
    
    5,300
    
    
    
    $
    
    
    
    
    
    $
    
    (5,300
    )
    
    
    
    $
    
    
    
    
    
    $
    
    
    
    
    
    $
    
    The following table lists the tax years that remain subject to examination by major tax jurisdiction as of December 31, 2007:
Major Tax Jurisdiction
    
    Open Tax YearsCanada
    
    
    
    20032006France
    
    
    
    20052006Japan
    
    
    
    20032006Switzerland
    
    
    
    2006United Kingdom
    
    
    
    20052006United States
    
    
    
    2004200684

TRANSATLANTIC HOLDINGS, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)
5. Liability for Gross Loss Reserves
The activity in gross loss reserves is summarized as follows:
Years Ended December 31,2007
    
    2006
    
    2005(in thousands)At beginning of year:Gross loss reserves
    
    
    $
    
    7,467,949
    
    
    
    $
    
    7,113,294
    
    
    
    $
    
    5,941,464Less reinsurance recoverable
    
    
    
    1,260,729
    
    
    
    
    1,422,851
    
    
    
    
    960,855Net loss reserves
    
    
    
    6,207,220
    
    
    
    
    5,690,443
    
    
    
    
    4,980,609Net losses and LAE incurred in respect of losses occurring in:Current year
    
    
    
    2,549,653
    
    
    
    
    2,281,538
    
    
    
    
    2,608,206Prior years
    
    
    
    88,380
    
    
    
    
    181,128
    
    
    
    
    268,836Total
    
    
    
    2,638,033
    
    
    
    
    2,462,666
    
    
    
    
    2,877,042Net losses and LAE paid in respect of losses occurring in:Current year
    
    
    
    508,511
    
    
    
    
    508,917
    
    
    
    
    670,658Prior years
    
    
    
    1,593,614
    
    
    
    
    1,595,614
    
    
    
    
    1,360,995Total
    
    
    
    2,102,125
    
    
    
    
    2,104,531
    
    
    
    
    2,031,653Foreign exchange effect
    
    
    
    156,588
    
    
    
    
    158,642
    
    
    
    
    (135,555
    )At end of year:Net loss reserves
    
    
    
    6,899,716
    
    
    
    
    6,207,220
    
    
    
    
    5,690,443Plus reinsurance recoverable
    
    
    
    1,026,545
    
    
    
    
    1,260,729
    
    
    
    
    1,422,851Gross loss reserves
    
    
    $
    
    7,926,261
    
    
    
    $
    
    7,467,949
    
    
    
    $
    
    7,113,2942007 includes net catastrophe losses incurred of $64.5 million principally relating to European Windstorm Kyrill and floods in the U.K. In addition, in 2007, TRH determined that its estimates of the
  ultimate amounts of net losses occurring in 2006 and prior years needed to be increased as a result of greater than expected loss activity in 2007. As a result of that determination, TRH increased net losses
  and LAE incurred by $88.4 million, representing significant net adverse development in 2007 of losses occurring in all prior years. This net adverse development was comprised of $368.9 million relating to
  losses occurring in 2002 and prior, partially offset by net favorable development of $280.5 million, principally relating to losses occurring in 2006 and, to a lesser extent, 2005 and 2004. The line of business
  with the most significant net adverse development recorded in 2007 was the other liability line ($221 million), arising principally from losses occurring in 1998 to 2002. The other liability line includes certain
  specialty casualty classes, such as D&O and E&O, and general casualty classes. In addition, significant net adverse development was recorded in 2007 in the medical malpractice line ($38 million), arising
  principally from losses occurring between 1998 and 2002. These increases to incurred losses were offset in part by net favorable development occurring most significantly in the fire line ($84 million), arising
  principally from losses occurring in 2006, and in the allied ($43 million) and homeowners multiple peril ($34 million) lines, each arising principally from losses occurring between 2004 and 2006.
The net adverse development arising from losses occurring in years 1998 through 2002, which represent the great majority of the 2002 and prior development, generally relates to the fact that for many
  classes within these years, ceding companies continue to experience increased loss costs relative to expectations coupled with an unexpected lengthening of the loss emergence patterns. Generally, loss
  activity was greater than expected from losses occurring in the D&O and E&O classes, which continued to be impacted by claims relating to corporate bankruptcies and IPO allocation/laddering claims. Also,
  classes such as Excess Umbrella and Architects & Engineers were impacted by construction defect and other late reported high layer excess claims to a greater extent than expected. Contributing to this
  increase is the fact that many policies during this period covered underlying contracts that extended over multiple years, which contributed to recent reported loss activity exceeding previous expectations.
85

TRANSATLANTIC HOLDINGS, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)
This has led to an increase in both the frequency and severity of claims entering the reinsured excess-of-loss coverage layers at later points in time than had previously been experienced. The favorable
  development in accident years 2004 through 2006 results from favorable loss trends, particularly in the shorter tailed classes.
TRH writes a significant amount of non-proportional assumed casualty reinsurance as well as proportional assumed reinsurance of excess liability business for such volatile classes as medical
  malpractice, D&O, E&O and general casualty. At the primary level, there are significant risk factors which contribute to the variability and unpredictability of the loss trend factors for this business such as jury
  awards, social inflation, medical inflation, tort reforms and court interpretations of coverage. In addition, as a reinsurer, TRH is also highly dependent upon the claims reserving and reporting practices of its
  cedants, which vary greatly by size, specialization and country of origin and whose practices are subject to change without notice.
There were no significant net catastrophe losses for events occurring in 2006. However, in 2006, TRH determined that its estimates of the ultimate amounts of net losses occurring in 2005 and prior
  years needed to be increased as a result of greater than expected loss activity in 2006. As a result of that determination, TRH increased net losses and LAE incurred by $181.1 million, representing
  significant net adverse development in 2006 of losses occurring in all prior years. This net adverse development was comprised of $339.7 million relating to losses occurring in 2002 and prior, partially offset
  by favorable development of $158.6 million relating primarily to 2005, and to a much lesser extent, 2004 and 2003. The line of business with the most significant net adverse development recorded in 2006
  was the other liability line ($192 million), arising principally from losses occurring in 2000 to 2002 for reasons similar to those discussed earlier for the other liability line development in 2007. In addition,
  significant net adverse development was recorded in 2006 in the medical malpractice line ($35 million), arising principally from losses occurring between 1998 and 2002, the fidelity line ($28 million), arising
  principally from losses occurring between 1999 and 2005, and the ocean marine and aviation line ($22 million), arising principally from losses occurring in 2005. The large majority of such net adverse
  development related to domestic operations. These increases to incurred losses were offset in part by net favorable development occurring most significantly in the fire line ($129 million), arising principally
  from losses occurring in 2005, and the homeowners multiple peril line ($36 million), arising principally from losses occurring between 2004 and 2005.
The year 2005 included $482.8 million of catastrophe losses incurred principally relating to Hurricanes Katrina, Rita and Wilma, and, to a lesser extent, to Central European floods and European
  Windstorm Erwin. In addition, in 2005, TRH determined that its estimates of the ultimate amounts of net losses occurring in 2004 and prior years needed to be increased as a result of greater than expected
  loss activity in 2005. As a result of that determination, TRH increased net losses and LAE incurred by $268.8 million, representing significant net adverse development in 2005 of losses occurring in all prior
  years. This net adverse development was comprised of $524.9 million relating to losses occurring in 2002 and prior, partially offset by favorable development of $256.1 million relating primarily to 2004 and,
  to a lesser extent, to 2003. The lines of business with the most significant net adverse development recorded in 2005 were the other liability line ($366 million), arising principally from losses occurring in
  1996 to 2002 for reasons similar to those discussed earlier for the other liability line development in 2007, and the medical malpractice line ($64 million), arising primarily from losses occurring between 1997
  and 2001. The large majority of such net adverse development related to domestic operations. These increases to incurred losses were offset in part by net favorable development occurring most significantly
  in the fire line ($99 million), which arose principally from losses occurring in 2004, and in the ocean marine and aviation lines ($42 million, mostly related to aviation), which arose principally from losses
  occurring in 2001 through 2004.
Net adverse development on losses occurring in prior years, for all periods discussed above, includes amounts relating to catastrophe events. See Note 9 for such amounts.
86

TRANSATLANTIC HOLDINGS, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)
6. Senior Notes
In December 2005, the Company completed a public offering of $750 million principal amount of its 5.75% senior notes due on December 14, 2015 (the Senior Notes). At December 31, 2007 and
  2006, the Senior Notes remained outstanding. Of the $750 million aggregate principal amount of the Senior Notes offered, $450 million principal amount was purchased by certain subsidiaries of AIG. In
  addition, the unamortized original issue discount, which totaled $3.1 million and $3.4 million at December 31, 2007 and 2006, respectively, has been deducted from the carrying value of the Senior Notes and
  is being amortized over the term of the Senior Notes on the effective interest rate method. The proceeds from the offering were used to increase the capital and surplus of TRC and for other general
  corporate purposes. Interest expense incurred in connection with the Senior Notes was $43.4 million, $43.4 million and $2.1 million in 2007, 2006 and 2005, respectively. Interest payments on the Senior
  Notes totaled $43.1 million in each of 2007 and 2006. There were no interest payments on the Senior Notes in 2005.
7. Common Stock
Common stock activity for each of the three years in the period ended December 31, 2007 was as follows:
2007
    
    2006
    
    2005Shares outstanding, beginning of year
    
    
    
    66,037,708
    
    
    
    
    65,911,185
    
    
    
    
    65,827,766Issued under stock compensation plans
    
    
    
    195,862
    
    
    
    
    126,523
    
    
    
    
    188,219Acquisition of treasury stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    (104,800
    )Shares outstanding, end of year
    
    
    
    66,233,570
    
    
    
    
    66,037,708
    
    
    
    
    65,911,1858. Net Income Per Common Share
Net income per common share has been computed in the following table based upon weighted average common shares outstanding.
Years Ended December 31,2007
    
    2006
    
    2005(in thousands, except per share data)Net income (numerator)
    
    
    $
    
    487,141
    
    
    
    $
    
    428,152
    
    
    
    $
    
    37,910Weighted average common shares outstanding used in the computation of net income per common share:Average shares issued
    
    
    
    67,113
    
    
    
    
    66,944
    
    
    
    
    66,782Less: Average shares in treasury
    
    
    
    989
    
    
    
    
    989
    
    
    
    
    946Average outstanding sharesbasic (denominator)
    
    
    
    66,124
    
    
    
    
    65,955
    
    
    
    
    65,836Average potential shares from stock compensation(1)
    
    
    
    530
    
    
    
    
    311
    
    
    
    
    333Average outstanding sharesdiluted (denominator)
    
    
    
    66,654
    
    
    
    
    66,266
    
    
    
    
    66,169Net income per common share:Basic
    
    
    $
    
    7.37
    
    
    
    $
    
    6.49
    
    
    
    $
    
    0.58Diluted
    
    
    
    7.31
    
    
    
    
    6.46
    
    
    
    
    0.57

(1)
    
    
    
    2007 excludes the effect of 0.6 million anti-dilutive shares (from a total of 3.0 million potential shares). 2006 excludes the effect of performance-based restricted stock units whose performance period had not yet begun and 1.2 million anti-dilutive shares
      (from a total of 2.8 million potential shares). 2005 excludes the effect of 1.0 million anti-dilutive shares (from a total of 2.7 million potential shares).87

TRANSATLANTIC HOLDINGS, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)
9. Impact of Catastrophe Costs
Income before income taxes in 2007 includes estimated net catastrophe costs of $55.2 million principally relating to European Windstorm Kyrill and floods in the U.K. Such costs consist of net
  catastrophe losses incurred of $64.5 million (gross $68.2 million; ceded $3.7 million) partially offset by net assumed reinstatement premiums of $9.3 million (gross $9.6 million; ceded $0.3 million).
While there were no significant net catastrophe costs for events occurring during 2006, income before income taxes in 2006 includes net catastrophe costs of $28.7 million relating to events which
  occurred in prior years. Such costs consist of net catastrophe losses incurred of $29.7 million (gross $84.5 million; ceded $54.8 million) and net assumed reinstatement premiums of $1.0 million.
Net income for 2005 includes estimated pre-tax net catastrophe costs of $543.9 million, or $353.5 million after tax, arising principally from Hurricanes Katrina ($304 million pre-tax), Rita ($44 million
  pre-tax) and Wilma ($111 million pre-tax) and, to a lesser extent, from Central European floods and European Windstorm Erwin. Such costs consist of net catastrophe losses incurred of $482.8 million
  (gross $870.0 million; ceded $387.2 million) and net ceded reinstatement premiums of $61.1 million (gross $72.3 million; ceded $133.4 million).
Net assumed (ceded) reinstatement premiums serve to increase (reduce) net premiums written and earned by such amounts in their respective periods. Reinstatement premiums may arise on assumed
  and ceded business as a result of contractual provisions found in many excess-of-loss catastrophe reinsurance contracts that require additional premium to be paid in the event of a loss to reinstate coverage
  for the remaining portion of the contract period.
Net catastrophe costs represent TRHs best estimate, including net changes from prior estimates, of the aggregate ultimate costs to be incurred relating to significant catastrophe events based upon
  information available at the time the estimate was made. These catastrophe cost estimates reflect significant judgment relating to many factors, including the ultimate resolution of certain legal and
  regulatory issues.
A summary of the components of pre-tax net catastrophe costs for 2007, 2006 and 2005 is presented below:
Years Ended December 31,2007
    
    2006
    
    2005(in millions)Net losses and LAE incurred for catastrophe events occurring in current year
    
    
    $
    
    53.3
    
    
    
    $
    
    
    
    
    
    $
    
    468.6Net losses and LAE incurred for catastrophe events occurring in prior years
    
    
    
    11.2
    
    
    
    
    29.7
    
    
    
    
    14.2Total net losses and LAE incurred from catastrophe events
    
    
    
    64.5
    
    
    
    
    29.7
    
    
    
    
    482.8Net (assumed) ceded reinstatement premiums
    
    
    
    (9.3
    )
    
    
    
    
    (1.0
    )
    
    
    
    
    61.1Net catastrophe costs
    
    
    $
    
    55.2
    
    
    
    $
    
    28.7
    
    
    
    $
    
    543.9A summary of pre-tax net catastrophe costs by segment for 2007, 2006 and 2005 is presented below:
Years Ended December 31,2007
    
    2006
    
    2005(in millions)Domestic
    
    
    $
    
    8.0
    
    
    
    $
    
    18.2
    
    
    
    $
    
    385.8International:Europe
    
    
    
    47.4
    
    
    
    
    16.9
    
    
    
    
    119.6Other
    
    
    
    (0.2
    )
    
    
    
    
    (6.4
    )
    
    
    
    
    38.5Total international
    
    
    
    47.2
    
    
    
    
    10.5
    
    
    
    
    158.1Total
    
    
    $
    
    55.2
    
    
    
    $
    
    28.7
    
    
    
    $
    
    543.988

TRANSATLANTIC HOLDINGS, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)
10. Accumulated Other Comprehensive Income
The components of accumulated other comprehensive income and changes in such amounts between years are as follows:
NetUnrealizedAppreciationof Investments,Net of DeferredIncome Tax
    
    NetUnrealizedCurrencyTranslationLoss,Net of DeferredIncome Tax
    
    AccumulatedOtherComprehensiveIncome(in thousands)Balance, December 31, 2004
    
    
    $
    
    160,818
    
    
    
    $
    
    (65,584
    )
    
    
    
    $
    
    95,234Change during year
    
    
    
    (32,500
    )
    
    
    
    
    (27,005
    )
    
    
    
    
    (59,505
    )Balance, December 31, 2005
    
    
    
    128,318
    
    
    
    
    (92,589
    )
    
    
    
    
    35,729Change during year
    
    
    
    (9,200
    )
    
    
    
    
    16,097
    
    
    
    
    6,897Balance, December 31, 2006
    
    
    
    119,118
    
    
    
    
    (76,492
    )
    
    
    
    
    42,626Change during year
    
    
    
    (101,154
    )
    
    
    
    
    23,836
    
    
    
    
    (77,318
    )Balance, December 31, 2007
    
    
    $
    
    17,964
    
    
    
    $
    
    (52,656
    )
    
    
    
    $
    
    (34,692
    )11.
      Pension, Other Postretirement Benefits and Incentive Savings Plans
TRHs
    employees participate in benefit plans administered by the AIG Group, including
    noncontributory defined benefit pension plans, other postretirement benefit
    plans and incentive savings plans (such as a 401(k) plan) which provides
    for certain matching contributions. A substantial majority of TRHs
    employees are eligible to participate in these plans. Certain of the pension
    plans are multiemployer plans in that they do not separately identify plan
    benefits and plan assets attributable to employees of participating companies.
    For such plans, only contributions paid or accrued are charged to expense.
The charges made to operations for these plans for 2007, 2006 and 2005 were $4.4 million, $5.2 million and $3.6 million, respectively.
A small portion of TRHs employees participate in plans maintained by TRH. Charges to operations for these plans are not material.
12. Stock-Based Compensation Plans
Prior to 2003, TRH had accounted for stock-based compensation based on the intrinsic-value method prescribed in APB 25 and related Interpretations, as permitted under SFAS 123. On January 1,
  2003, TRH adopted the recognition provisions of SFAS 123, using the prospective method of transition and employed that method until the beginning of 2006. That method requires application of such
  recognition provisions under the fair value method to all stock-based compensation awards granted, modified, or settled on or after the date of adoption of the standard. Accordingly, net income for 2005
  reflects compensation expenses, primarily relating to stock options, for stock-based compensation awards granted in 2003 and thereafter and to TRH employees participation in Starr International
  Company (SICO) Deferred Compensation Profit Participation Plans (the SICO Plans).
Effective January 1, 2006, TRH adopted SFAS 123R utilizing the Modified Prospective Application method. The Modified Prospective Application method entails using a fair-value method of
  expensing all stock compensation awards granted or modified after the adoption of SFAS 123R and the unvested portions of awards granted prior to adoption of SFAS 123R. Accordingly, financial
  statement amounts for periods prior to January 1, 2006 have not been restated. The impact of adopting SFAS 123R was not material to income (loss) before income taxes, net income (including basic and
  diluted net income per share amounts), financial condition or cash flows in 2006 (see Note 2(l)).
89

TRANSATLANTIC HOLDINGS, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)
At December 31, 2007, TRH had four stock-based compensation plans, the Transatlantic Holdings, Inc. 1995 Stock Option Plan (the 1995 Plan), the Transatlantic Holdings, Inc. 2000 Stock Option
  Plan, as amended, (the 2000 Plan and collectively with the 1995 Plan, the Stock Option Plans), the Transatlantic Holdings, Inc. 2003 Stock Incentive Plan, as amended, (the Stock Incentive Plan) and
  the Transatlantic Holdings, Inc. 1990 Employee Stock Purchase Plan, as amended (the Stock Purchase Plan). The Stock Incentive Plan includes two sub-plans, the Transatlantic Holdings, Inc. Partners
  Plan (the Partners Plan) and the Transatlantic Holdings, Inc. Senior Partners Plan (the Senior Partners Plan). In addition, certain TRH employees participate in the SICO Plans and certain AIG
stock-based compensation plans.
Expenses relating to stock-based compensation arrangements totaled $14.8 million, $10.9 million and $9.6 million in 2007, 2006 and 2005, respectively. Income tax benefits recognized related to stock-based compensation arrangements totaled $4.9 million, $3.3 million and $2.8 million in 2007, 2006 and 2005, respectively.
Total
    cash received from exercises of stock-based compensation was $6.0 million,
    $3.3 million and $2.7 million during 2007, 2006 and 2005, respectively. TRH
    has not paid out any cash to settle share-based payment awards during the
    2007, 2006 or 2005. Cash savings resulting from excess tax benefits, as defined
    by SFAS 123R, totaled $1.1 million and $1.9 million in 2007 and 2006, respectively.
Income tax benefits realized by TRH on stock-based compensation exercises totaled $2.7 million, $1.5 million and $2.9 million in 2007, 2006 and 2005, respectively.
If TRH had adopted the provisions of SFAS 123R for recognizing compensation expense commencing at the date of grant for all awards, the effect would not have been material to net income or basic
  or diluted net income per share for 2005.
Historically, TRH has settled stock-based compensation exercises through the issuance of new shares.
The impact on the financial statements of the Stock Purchase Plan and TRH employees participation in certain AIG stock-based compensation plans was not material to TRH in 2007, 2006 and 2005.
  A discussion of the more significant stock-based compensation plans follows.
(a) Stock Option Plans: In 2000, the Companys Board of Directors (the Board) adopted, and the stockholders approved, the 2000 Plan. In 2006, the Board adopted, and the stockholders approved,
  amendments to the 2000 Plan increasing the maximum number of options which may be granted under the plan to 3,712,500 and increasing the maximum number of options which may be granted to any
  one person to 600,000. This plan provides that options to purchase the Companys common stock (TRH shares) may be granted to certain key employees and non-employee directors at prices not less
  than their fair market value at the date of grant.
For options granted under the Stock Option Plans, in general, 25% of the options become exercisable on the anniversary date of the grant in each of the four years following the grant and expire 10
  years from the date of grant. At December 31, 2007, 1,385,000 shares were available for future grants under the 2000 Plan. No further options can be granted under the 1995 Plan, although options
  outstanding continue in force until exercise, expiration or forfeiture.
210,000 and 291,000 options were granted in 2007 and 2005, respectively. No options were granted in 2006. The fair value of each option grant is estimated on the date of grant using a binomial option
  pricing model. The following table presents the weighted average grant date fair value and the weighted average assumptions which were used in the calculation for options granted in 2007 and 2005:
90

TRANSATLANTIC HOLDINGS, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)
Years Ended
      December 31,2007
    
    2005Grant date fair value
    
    
    $
    
    23.41
    
    
    
    $
    
    21.85Expected volatility
    
    
    
    25.0
    %
    
    
    
    
    18.5
    %Risk free interest rate
    
    
    
    4.9
    %
    
    
    
    
    4.5
    %Expected term (in years)
    
    
    
    7.9
    
    
    
    
    7.9In 2007, a weighted average dividend yield of 0.82% was used in valuing options granted and was based on the dividend yield over the twelve month period prior to the grant date. In 2005, an increasing
  dividend schedule was used based on historical information. The expected volatility was based on the historical volatility of TRH shares. The risk-free interest rate was based on the U.S. treasury yield curve
  in effect at the time of grant. The expected term was calculated based on historical data on employee exercise behavior.
A summary of the status of the Stock Option Plans as of December 31, 2007 and the changes since January 1, 2007 is presented below:
Number ofShares
    
    WeightedAverageExercise Price
    
    WeightedAverageRemainingContractual Life
    
    AggregateIntrinsic Value(in thousands)Outstanding, January 1, 2007
    
    
    
    2,499,473
    
    
    
    $
    
    56.55Granted
    
    
    
    210,000
    
    
    
    
    64.31Exercised
    
    
    
    (275,054
    )
    
    
    
    
    43.66Forfeited or expired
    
    
    
    (14,636
    )
    
    
    
    
    52.34Outstanding, December 31, 2007
    
    
    
    2,419,783
    
    
    
    
    
    58.72
    
    
    
    
    5.3 years
    
    
    
    $
    
    33,791Exercisable, December 31, 2007
    
    
    
    1,999,527
    
    
    
    
    
    57.30
    
    
    
    
    4.7 years
    
    
    
    
    
    30,765The aggregate intrinsic value of options exercised (the aggregate amount by which the market price of TRH shares at the time of exercise exceeded the exercise price of options exercised) was $7.1
  million, $4.4 million and $9.4 million in 2007, 2006 and 2005, respectively. A total of approximately 301,000, 368,000 and 411,000 options vested in 2007, 2006 and 2005, respectively, with aggregate fair values
  of $5.0 million, $5.8 million and $6.2 million in 2007, 2006 and 2005, respectively.
As of December 31, 2007, there was $6.6 million of total unrecognized compensation costs relating to options granted but not yet vested under the 2000 Plan. Compensation expense for options granted
  under the 2000 Plan is recognized on a straight-line basis. These costs are expected to be recognized over a weighted average period of 2.3 years.
(b) Stock Incentive Plan, Partners Plan and Senior Partners Plan: In 2003, the Board adopted, and the stockholders approved, the Stock Incentive Plan. In 2006, the Board adopted, and the
  stockholders approved, certain amendments which increased the maximum number of shares available for grant under the Stock Incentive Plan to 925,000, increased the maximum number of awards a
  grantee may receive in any one year to 60,000, allowed for flexibility in determining the vesting terms of grants and allowed for grants of performance-based restricted stock or restricted stock units. This
  plan provides that equity-based or equity-related awards can be granted to officers, directors, employees and other individuals as determined by the Board. No award may be made to directors who are not
  employees of the Company without stockholder approval.
Pursuant to the Stock Incentive Plan, service-based restricted stock units (Service RSU) have been granted and, as part of the Partners Plan and Senior Partners Plan, performance-based restricted
  stock units (Performance RSU) have been granted. As of December 31, 2007, there were 376,211 shares of common stock available for issuance in connection with future grants of awards under the Stock
  Incentive Plan. Shares available for future issuance assume participants in the Partners Plan and
91

TRANSATLANTIC HOLDINGS, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)
the Senior Partners Plan will earn the maximum number of Performance RSUs until the actual amounts are determined, at which time, such shares available amount will be adjusted accordingly.
A summary of the status of the Service RSUs and Performance RSUs granted pursuant to the Stock Incentive Plan as of December 31, 2007 and the changes since January 1, 2007 are presented below:
Number of Units
    
    Weighted AverageGrant Date Fair ValueServiceRSUs
    
    PerformanceRSUs
    
    ServiceRSUs
    
    PerformanceRSUsUnvested, January 1, 2007
    
    
    
    178,255
    
    
    
    
    142,608
    
    
    
    $
    
    65.73
    
    
    
    $
    
    57.85Granted
    
    
    
    103,450
    
    
    
    
    27,000
    
    
    
    
    62.47
    
    
    
    
    62.09Additional RSUs resulting from satisfaction of performance condition
    
    
    
    
    
    
    
    
    21,462
    
    
    
    
    n/a
    
    
    
    
    58.13Vested
    
    
    
    (7,597
    )
    
    
    
    
    
    
    
    
    
    62.29
    
    
    
    
    n/aForfeited or expired
    
    
    
    (6,978
    )
    
    
    
    
    
    
    
    
    
    64.88
    
    
    
    
    n/aUnvested, December 31, 2007
    
    
    
    267,130
    
    
    
    
    191,070
    
    
    
    
    
    64.59
    
    
    
    
    
    58.48ServiceRSUs
    
    PerformanceRSUsUnvested RSUs as of December 31, 2007:Weighted average remaining contractual life
    
    
    
    2.1 years
    
    
    
    
    3.6 yearsAggregate intrinsic value (in thousands)
    
    
    $
    
    19,412
    
    
    
    $
    
    13,885(i) Service RSU
The great majority of Service RSUs will vest on the fourth anniversary of the date of grant for those grantees with continued employment through such date. The Company reserves the right to make
  payment for the Service RSUs in TRH shares or the cash equivalent of the fair value of such shares on the date of vesting.
103,450, 26,350 and 112,050 Service RSUs were granted in 2007, 2006 and 2005, respectively. The fair values of Service RSUs were estimated on the date of grant based on the closing market price of
  TRH shares on the date of grant.
7,597 and 150 Service RSUs vested in 2007 and 2005, respectively. No Service RSUs vested in 2006.
As of December 31, 2007, there was $8.4 million of total unrecognized compensation costs relating to Service RSUs granted but not yet vested under the Stock Incentive Plan. These costs are expected
  to be recognized over a weighted average period of 2.4 years.
(ii) Partners Plan and Senior Partners Plan
In August 2006, the Compensation Committee of the Board (the Compensation Committee) adopted the Partners Plan for purposes of incentivizing performance of certain of TRHs senior
  executives. Under the Partners Plan, the Compensation Committee awards to senior executives Performance RSUs that pay out in TRH shares if performance goals for a specified period are satisfied. Each
  Performance RSU converts into one TRH share. The Partners Plan operates on the basis of successive overlapping two year performance periods, with a new period beginning each year. No awards were
  granted in 2007. Awards were granted in 2006. The first awards performance period runs from January 1, 2006 through December 31, 2007 and the second awards performance period runs from January 1,
  2007 through December 31, 2008.
During the performance periods ending in 2007 and 2008, Partners Plan participants earn Performance RSUs based on the compound annual growth rate in adjusted book value per share of TRH
  shares (BVPS Growth) during the performance period. In 2006, 42,925 Performance RSUs were awarded under the Partners Plan with respect to the performance period beginning in 2006 and 87,683
  Performance RSUs were awarded with respect to the performance period beginning in 2007. Based on the percentage of the BVPS Growth target achieved over the performance period, participants can
  earn
92

TRANSATLANTIC HOLDINGS, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)
from 25% to 150% of the awarded number of Performance RSUs. The maximum number of Performance RSUs that can be earned for the performance period beginning in 2006 and 2007 is 64,387 and
  131,525, respectively. No Performance RSUs will be earned if BVPS Growth is less than 25% of target. Earned Performance RSUs will vest equally on the fourth and sixth anniversaries of the beginning of
  the performance period, generally so long as the participant is then employed by TRH. The two-year performance period beginning in 2006 ended on December 31, 2007. The maximum performance target
  was reached for the 2006-2007 period.
In August 2006, the Committee also adopted the Senior Partners Plan designed for TRHs senior-most executives. The Senior Partners Plan generally operates in the same manner as the Partners Plan,
  except that the performance period is three years, participants can earn from 25% to 200% of the awarded number of Performance RSUs and no Performance RSUs will be earned if BVPS growth is less
  than 50% of target. In 2007, 27,000 Performance RSUs were awarded under the Senior Partners Plan with respect to the performance period beginning in 2007. In 2006, 12,000 Performance RSUs were
  awarded under the Senior Partners Plan with respect to the performance period beginning in 2006. The maximum number of Performance RSUs that can be earned is 54,000 for the performance period
  beginning in 2007 and 24,000 for the performance period beginning in 2006.
The fair value of each Performance RSU grant under the Partners Plan and the Senior Partners Plan is estimated on the date of grant based on the closing market price of TRH shares on the date of
  grant.
No Performance RSUs vested in 2007 or 2006.
As of December 31, 2007, there was $12.1 million of total unrecognized compensation costs relating to Performance RSUs granted but not yet vested under the Senior Partners Plan and the Partners
  Plan. Compensation expense for Performance RSUs is recognized on a straight-line basis. These costs are expected to be recognized over a weighted average period of 3.8 years. Because the performance
  period for the second award under the Partners Plan did not begin until January 1, 2007, the second award was not included in TRHs 2006 expenses.
(c)Compensation to Certain TRH Employees from SICO
SICO is a private holding company which has no direct ownership interest in TRH but which has a significant ownership interest in AIG (see Note 13(c)). SICO had provided a series of two-year SICO
  Plans to certain TRH employees through December 31, 2004. The SICO Plans came into being in 1975 when the voting shareholders and Board of Directors of SICO, a private holding company whose
  principal asset is AIG common stock, decided that a portion of the capital value of SICO should be used to provide an incentive plan for the current and succeeding managements of all American
  International companies, including TRH.
None of the costs of the various benefits provided under the SICO Plans has been paid by TRH. Following AIGs determination in 2005 to record a charge for the deferred compensation amounts paid
  to TRH employees by SICO, TRH determined that, as a subsidiary of AIG, it was appropriate to record the compensation expense relating to its employees participation in such plans, with an offsetting
  amount credited to additional paid-in capital reflecting amounts deemed contributed by AIG to TRH.
The SICO Plans provide that shares currently owned by SICO are set aside by SICO for the benefit of the participant and distributed upon retirement. The SICO Board of Directors currently may
  permit an early payout of units under certain circumstances. Prior to payout, the participant is not entitled to vote, dispose of or receive dividends with respect to such shares, and shares are subject to
  forfeiture under certain conditions, including but not limited to the participants voluntary termination of employment prior to normal retirement age. Under the SICO Plans, SICOs Board of Directors
  may elect to pay a participant cash in lieu of shares of AIG common stock. Following notification in December 2005 from SICO to participants in the SICO Plans that it will settle specific future awards
93

TRANSATLANTIC HOLDINGS, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)
under the SICO Plans with shares rather than cash, the accounting for the SICO Plans changed from variable to fixed measurement accounting.
As of December 31, 2007, there was $8.4 million of total unrecognized compensation costs relating to the SICO Plans. These costs are expected to be recognized over a weighted average period of 5.7
  years.
As total SICO compensation expense for each year prior to 2005 would not have been material to any such prior year, TRH recorded in 2005 the total amount of compensation expense relating to the
  SICO Plans that would have been recorded in all prior periods through December 31, 2004 as a reduction of retained earnings of $8.3 million, which was net of income tax savings that TRH expected to
  realize of $3.0 million. The entire amount of such prior year compensation cost, before tax effect, of $11.3 million, is considered a contribution to capital, and was recorded as an increase to additional paid-in
capital.
In making this determination, TRH evaluated the impact that expense recognition would have had on all prior years to which SICO Plans compensation would have applied. In addition, these amounts
  were calculated as variable stock awards, which considered the fair market value of AIG common stock at each measurement date, and included any distributions made under the SICO Plans.
13. Related Party Transactions
(a) Transactions with the AIG Group: As of December 31, 2007, 2006 and 2005, AIG beneficially owned approximately 59% of the Companys outstanding shares.
TRH has service and expense agreements and certain other agreements with the AIG Group which provide for the reimbursement to the AIG Group of certain administrative and operating expenses
  which include, but are not limited to, investment advisory, investment recordkeeping, cash management services, office space and human resource related activities. Under the guidance of TRHs Finance
  Committee of the Board of Directors and senior management, certain subsidiaries of AIG act as financial advisors and managers of TRHs investment portfolio. In 2007, 2006 and 2005, $13.8 million, $13.1
  million and $11.5 million, respectively, of operating and investment expenses relate to services and expenses provided by the AIG Group under these agreements.
Approximately $555 million (13%), $593 million (15%) and $575 million (15%) of gross premiums written by TRH in 2007, 2006 and 2005, respectively, were attributable to reinsurance purchased by
  other subsidiaries of AIG, for the production of which TRH recorded ceding commissions totaling $114 million, $140 million and $122 million, respectively, in such years. (The amounts discussed in the
  preceding sentence include transactions with C.V. Starr & Co., Inc. (Starr) as described in Note 13(c).) In 2007, 2006 and 2005, the great majority of such gross premiums written were recorded in the
  property, other liability, medical malpractice and ocean marine and aviation lines. Of the premiums assumed from other subsidiaries of AIG, $248 million, $227 million and $209 million in 2007, 2006 and
  2005, respectively, represent premiums resulting from certain insurance business written by AIG subsidiaries that is almost entirely reinsured by TRH by prearrangement, for the production of which TRH
  recorded ceding commissions to such AIG subsidiaries totaling approximately $41 million, $40 million and $37 million, respectively, in such years. (See Note 15 for information relating to reinsurance ceded
  to related parties.)
(b) Senior Notes Purchased by AIG Subsidiaries: In December 2005, certain subsidiaries of AIG purchased, and at December 31, 2007 still hold, $450 million aggregate principal amount of the Senior
  Notes. Such amount comprised 60% of the total amount of the Senior Notes. (See Note 6.)
(c) Transactions with Starr: According to the Schedule 13D filed on March 20, 2007 by Starr, SICO, Edward E. Matthews, Maurice R. Greenberg, the Maurice R. and Corinne P. Greenberg Family
  Foundation, Inc., the Universal Foundation, Inc., the Maurice R. and Corinne P. Greenberg Joint Tenancy Company, LLC and the C.V. Starr & Co., Inc. Trust, these reporting persons could be deemed to
  beneficially own 355.0 million shares of AIGs common stock at that date. Based on the shares of
94

TRANSATLANTIC HOLDINGS, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)
AIGs common stock outstanding as of October 31, 2007, this beneficial ownership represents approximately 14% of the voting stock of AIG. Although these reporting persons have made filings under
  Section 16 of the Securities Exchange Act of 1934, reporting sales of shares of AIGs common stock, no amendment to the Schedule 13D has been filed to report a change in ownership subsequent to March
  20, 2007. Throughout 2005 certain directors of TRH were also stockholders, executive officers or directors of Starr. On January 9, 2006, Starr released a press release indicating that all AIG executives and
  officers had tendered their shares in Starr pursuant to Starrs tender offer. In 2007 and 2006, no TRH directors are stockholders, executive officers or directors of Starr.
In 2005, through April 3, Messrs. Greenberg, Matthews and Howard I. Smith were directors of TRH and also stockholders, executive officers or directors of Starr. On April 4, 2005, Messrs. Greenberg,
  Matthews and Smith resigned from the Board of Directors of TRH. For 2005, Messrs. Orlich and Tizzio were also stockholders, executive officers or directors of Starr. From May 19, 2005, when Messrs.
  Bensinger and Sullivan were elected to the Board of TRH, through approximately December 31, 2005, Messrs. Bensinger and Sullivan were also stockholders, executive officers or directors of Starr.
Throughout 2007, 2006 and 2005, certain of Starrs subsidiaries operated as insurance agencies or brokers for insurance subsidiaries of AIG and, in such capacity, had produced reinsurance business for
  TRH. Net commissions relating to Starr subsidiaries were insignificant in 2007 and 2006. Net commissions relating to Starr subsidiaries totaled $11 million in 2005 for such reinsurance purchased by
  subsidiaries of AIG totaling $59 million.
(d) Other: TRHs employees participate in certain benefit plans administered by the AIG Group and certain stock-based compensation plans which utilize AIG shares (see Notes 11 and 12,
  respectively).
14. Dividend Restriction and Statutory Financial Data
The payment of dividends and interest on the Senior Notes by the Company is dependent on the ability of its subsidiaries to pay dividends. The payment of dividends by TRC and its wholly-owned
  subsidiaries, TRZ and Putnam, is restricted by insurance regulations. Under New York insurance law, TRC and Putnam may pay dividends only out of their statutory earned surplus. Such dividends are
  limited by statutory formula unless otherwise approved by the New York State Insurance Department (the NYS ID). The statutory surplus of TRC includes the statutory surplus of Putnam since all the
  capital stock of Putnam is owned by TRC. At December 31, 2007, TRC had statutory earned surplus of $2.06 billion, and, in 2008, in accordance with the statutory formula, could pay dividends of
  approximately $336.9 million without regulatory approval.
Statutory surplus and net income as reported to the NYS ID were as follows:
Years Ended December 31,2007
    
    2006
    
    2005(in thousands)TRCStatutory surplus
    
    
    $
    
    3,368,801
    
    
    
    $
    
    3,059,483
    
    
    
    $
    
    2,617,997Statutory net income
    
    
    
    391,666
    
    
    
    
    384,660
    
    
    
    
    17,187PutnamStatutory surplus
    
    
    
    151,720
    
    
    
    
    138,091
    
    
    
    
    114,219Statutory net income
    
    
    
    22,482
    
    
    
    
    23,949
    
    
    
    
    622TRC and Putnam each prepare statutory financial statements in accordance with accounting practices prescribed or permitted by New Yorktheir state of domicile. Prescribed statutory accounting
  practices are discussed in a variety of publications of the National Association of Insurance Commissioners (NAIC), as well as in state laws, regulations and general administrative rules. Permitted
  statutory accounting practices encompass all accounting practices not so prescribed. All material statutory accounting practices of TRC and Putnam are prescribed in the authoritative
95

TRANSATLANTIC HOLDINGS, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)
literature described above. As required by the state of New York, TRC and Putnam use the Codification of Statutory Accounting Principles as primary guidance on statutory accounting.
15. Reinsurance Ceded
In the normal course of business, TRH generally purchases reinsurance from its retrocessionnaires to reduce the effect of individual or aggregate losses and to allow increased gross premium writings
  and afford greater risk capacity without necessarily requiring additional capital.
TRHs ceded reinsurance agreements consist of pro rata and excess-of-loss contracts. Under pro rata reinsurance, TRH and its retrocessionnaires share premiums, losses and expenses in an agreed upon
  proportion. For consideration, generally based on a percentage of premiums of the individual policy or policies subject to the reinsurance agreement, excess-of-loss contracts provide reimbursement to TRH
  for losses in excess of a predetermined amount up to a predetermined limit.
Premiums written, premiums earned and losses and LAE incurred are comprised as follows:
Years Ended December 31,2007
    
    2006
    
    2005(in thousands)Gross premiums written(1)
    
    
    $
    
    4,283,563
    
    
    
    $
    
    3,983,417
    
    
    
    $
    
    3,887,663Ceded premiums written:Affiliates(2)
    
    
    
    142,993
    
    
    
    
    134,929
    
    
    
    
    94,690Other(3)
    
    
    
    187,671
    
    
    
    
    215,048
    
    
    
    
    326,620330,664
    
    
    
    
    349,977
    
    
    
    
    421,310Net premiums written
    
    
    $
    
    3,952,899
    
    
    
    $
    
    3,633,440
    
    
    
    $
    
    3,466,353Gross premiums earned(1)
    
    
    $
    
    4,232,190
    
    
    
    $
    
    3,946,715
    
    
    
    $
    
    3,842,545Ceded premiums earned:Affiliates(2)
    
    
    
    135,110
    
    
    
    
    129,019
    
    
    
    
    116,850Other(3)
    
    
    
    194,411
    
    
    
    
    213,602
    
    
    
    
    340,701329,521
    
    
    
    
    342,621
    
    
    
    
    457,551Net premiums earned
    
    
    $
    
    3,902,669
    
    
    
    $
    
    3,604,094
    
    
    
    $
    
    3,384,994Gross incurred losses and LAE(4)
    
    
    $
    
    2,833,203
    
    
    
    $
    
    2,820,206
    
    
    
    $
    
    3,490,646Reinsured losses and LAE ceded(5)
    
    
    
    195,170
    
    
    
    
    357,540
    
    
    
    
    613,604Net losses and LAE
    
    
    $
    
    2,638,033
    
    
    
    $
    
    2,462,666
    
    
    
    $
    
    2,877,042

(1)
    
    
    
    Gross premiums written and earned include $72 million of reinstatement premiums in 2005 relating to catastrophe loss events. Reinstatement premiums were not significant in 2007 and 2006.(2)
    
    
    
    Premiums written and earned that were ceded to affiliates principally represent amounts which, by prearrangement with TRH, were assumed from an affiliate and then ceded in an equal amount to other affiliates.(3)
    
    
    
    Ceded premiums written and earned related to non-affiliates include $133 million of reinstatement premiums in 2005 relating
to catastrophe loss events. Reinstatement premiums were not significant in 2007 and 2006.(4)
    
    
    
    Gross incurred losses and LAE include gross catastrophe losses incurred of $68 million, $85 million and $870 million in 2007, 2006 and 2005, respectively.(5)
    
    
    
    Reinsured losses and LAE ceded include ceded catastrophe losses incurred of $4 million, $55 million and $387 million in 2007, 2006 and 2005, respectively.96

TRANSATLANTIC HOLDINGS, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)
Amounts recoverable from retrocessionnaires are recognized in a manner consistent with the claims liabilities associated with the retrocession and are presented on the balance sheet as reinsurance
  recoverable on paid and unpaid losses and LAE. Such balances at December 31, 2007 and 2006 are comprised as follows:
2007
    
    2006Affiliates
    
    Other
    
    Affiliates
    
    Other(in thousands)Paid
    
    
    $
    
    2,545
    
    
    
    $
    
    57,553
    
    
    
    $
    
    4,486
    
    
    
    $
    
    141,978Unpaid
    
    
    
    441,311
    
    
    
    
    573,234
    
    
    
    
    436,714
    
    
    
    
    812,014Total
    
    
    $
    
    443,856
    
    
    
    $
    
    630,787
    
    
    
    $
    
    441,200
    
    
    
    $
    
    953,992Ceded reinsurance arrangements do not relieve TRH from its obligations to the insurers and reinsurers from whom it assumes business. The failure of retrocessionnaires to honor their obligations could
  result in losses to TRH; consequently, an allowance has been established for estimated unrecoverable reinsurance on paid and unpaid losses totaling $12.0 million as of December 31, 2007 and 2006. TRH
  evaluates the financial condition of its retrocessionnaires through a security committee. With respect to reinsurance recoverable on paid and unpaid losses and prepaid reinsurance premiums, TRH holds
  substantial amounts of funds and letters of credit to collateralize these amounts. Such funds and letters of credit can be drawn on for amounts remaining unpaid beyond contract terms. No uncollateralized
  amounts recoverable from a single retrocessionnaire, other than amounts due from affiliates, are considered material to the financial position of TRH.
16. Segment Information
TRH conducts its business and assesses performance through segments organized along geographic lines. The Domestic segment includes financial data from branches in the United States except
  Miami, as well as revenues and expenses of the Company (including interest expense on the Senior Notes) and stock-based compensation expense. (See Note 6.)
Financial data from the London and Paris branches and from TRZ are reported in the aggregate as InternationalEurope and considered as one segment due to operational and regional similarities.
  Data from the Miami (which serves Latin America and the Caribbean), Toronto, Hong Kong and Tokyo branches are grouped as InternationalOther and represent the aggregation of non-material
  segments. In each segment, property and casualty reinsurance is provided to insurers and reinsurers on a treaty and facultative basis, through brokers or directly to ceding companies.
A significant portion of the assets and liabilities of TRHs international operations relate to the countries where ceding companies and reinsurers are located. Most investments are located in the
  country of domicile of these operations. In addition to licensing requirements, TRHs international operations are regulated in various jurisdictions with respect to currency, amount and type of security
  deposits, amount and type of reserves and amount and type of local investment. Regulations governing constitution of technical reserves and remittance balances in some countries may hinder remittance of
  profits and repatriation of assets. International operations and assets held abroad may be adversely affected by political and other developments in foreign countries, including possibilities of tax changes,
  nationalization and changes in regulatory policy, as well as by consequences of hostilities and unrest. The risks of such occurrences and their overall effect upon TRH vary from country to country and
  cannot easily be predicted.
While the great majority of premium revenues and assets relate to the regions where particular offices are located, a significant portion of such amounts may be derived from other regions of the world.
In addition, two large international brokers, respectively, accounted for non-affiliated business equal to 16% and 14% in 2007, 15% and 14% in 2006 and 15% and 15% in 2005, of consolidated
  revenues, with a significant portion in each segment.
97

TRANSATLANTIC HOLDINGS, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)
The following table is a summary of financial data by segment:
2007
    
    2006
    
    2005(in thousands)Domestic:Net premiums written
    
    
    $
    
    1,948,045
    
    
    
    $
    
    1,751,229
    
    
    
    $
    
    1,568,318Net premiums earned(1)
    
    
    
    1,933,643
    
    
    
    
    1,703,575
    
    
    
    
    1,472,211Net investment income
    
    
    
    300,702
    
    
    
    
    290,349
    
    
    
    
    219,271Realized net capital gains
    
    
    
    39,981
    
    
    
    
    16,915
    
    
    
    
    35,290Revenues
    
    
    
    2,274,326
    
    
    
    
    2,010,839
    
    
    
    
    1,726,772Net losses and LAE
    
    
    
    1,435,229
    
    
    
    
    1,319,940
    
    
    
    
    1,525,340Underwriting expenses(2)
    
    
    
    503,545
    
    
    
    
    449,180
    
    
    
    
    400,672Underwriting loss(3)(4)
    
    
    
    (3,441
    )
    
    
    
    
    (53,514
    )
    
    
    
    
    (430,915
    )Income (loss) before income taxes
    
    
    
    268,120
    
    
    
    
    199,358
    
    
    
    
    (189,698
    )Identifiable assets(7)
    
    
    
    8,577,815
    
    
    
    
    8,369,479
    
    
    
    
    8,122,244International-Europe:Net premiums written
    
    
    $
    
    1,524,036
    
    
    
    $
    
    1,401,140
    
    
    
    $
    
    1,459,018Net premiums earned
    
    
    
    1,498,789
    
    
    
    
    1,405,159
    
    
    
    
    1,493,239Net investment income
    
    
    
    135,317
    
    
    
    
    117,565
    
    
    
    
    103,922Realized net capital (losses) gains
    
    
    
    (20,187
    )
    
    
    
    
    (9,777
    )
    
    
    
    
    2,193Revenues(5)
    
    
    
    1,613,919
    
    
    
    
    1,512,947
    
    
    
    
    1,599,354Net losses and LAE
    
    
    
    951,266
    
    
    
    
    904,924
    
    
    
    
    1,089,304Underwriting expenses(2)
    
    
    
    431,068
    
    
    
    
    400,294
    
    
    
    
    383,371Underwriting profit(3)(4)
    
    
    
    127,259
    
    
    
    
    104,245
    
    
    
    
    7,624Income before income taxes
    
    
    
    242,059
    
    
    
    
    212,069
    
    
    
    
    115,742Identifiable assets(7)
    
    
    
    5,512,987
    
    
    
    
    4,713,522
    
    
    
    
    3,341,310International-Other(6):Net premiums written
    
    
    $
    
    480,818
    
    
    
    $
    
    481,071
    
    
    
    $
    
    439,017Net premiums earned
    
    
    
    470,237
    
    
    
    
    495,360
    
    
    
    
    419,544Net investment income
    
    
    
    33,753
    
    
    
    
    26,626
    
    
    
    
    20,054Realized net capital gains
    
    
    
    (10,405
    )
    
    
    
    
    3,724
    
    
    
    
    2,401Revenues
    
    
    
    493,585
    
    
    
    
    525,710
    
    
    
    
    441,999Net losses and LAE
    
    
    
    251,538
    
    
    
    
    237,802
    
    
    
    
    262,398Underwriting expenses(2)
    
    
    
    161,268
    
    
    
    
    156,531
    
    
    
    
    152,933Underwriting profit (3)(4)
    
    
    
    61,838
    
    
    
    
    98,163
    
    
    
    
    8,915Income before income taxes
    
    
    
    85,573
    
    
    
    
    128,481
    
    
    
    
    27,858Identifiable assets(7)
    
    
    
    1,393,525
    
    
    
    
    1,185,463
    
    
    
    
    901,122Consolidated:Net premiums written
    
    
    $
    
    3,952,899
    
    
    
    $
    
    3,633,440
    
    
    
    $
    
    3,466,353Net premiums earned(1)
    
    
    
    3,902,669
    
    
    
    
    3,604,094
    
    
    
    
    3,384,994Net investment income
    
    
    
    469,772
    
    
    
    
    434,540
    
    
    
    
    343,247Realized net capital gains
    
    
    
    9,389
    
    
    
    
    10,862
    
    
    
    
    39,884Revenues
    
    
    
    4,381,830
    
    
    
    
    4,049,496
    
    
    
    
    3,768,125Net losses and LAE
    
    
    
    2,638,033
    
    
    
    
    2,462,666
    
    
    
    
    2,877,042Underwriting expenses(2)
    
    
    
    1,095,881
    
    
    
    
    1,006,005
    
    
    
    
    936,976Underwriting profit (loss)(3)(4)
    
    
    
    185,656
    
    
    
    
    148,894
    
    
    
    
    (414,376
    )Income (loss) before income taxes
    
    
    
    595,752
    
    
    
    
    539,908
    
    
    
    
    (46,098
    )Identifiable assets(7)
    
    
    
    15,484,327
    
    
    
    
    14,268,464
    
    
    
    
    12,364,676

(1)
    
    
    
    Net premiums earned from affiliates approximate $427.9 million, $422.7 million and $467.4 million in 2007, 2006 and 2005, respectively, and are included primarily in Domestic.(2)
    
    
    
    Underwriting expenses represent the sum of net commissions and other underwriting expenses.(3)
    
    
    
    Underwriting profit (loss) represents net premiums earned less net losses and LAE and underwriting expenses, plus (minus) the increase (decrease) in deferred acquisition costs.(4)
    
    
    
    See Note 9 for net catastrophe costs by segment.(footnotes continued on next page)
98

TRANSATLANTIC HOLDINGS, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)
(footnotes continued from previous page)
(5)
    
    
    
    Includes revenues from the London, England office of $884.6 million, $819.5 million and $862.0 million in 2007, 2006 and 2005, respectively, and revenues from TRZ of $385.2 million, $380.7 million and $388.4 million in 2007, 2006 and 2005, respectively.(6)
    
    
    
    As the Hong Kong branch segment data is considered significant to segment data in 2005 only, certain key Hong Kong data elements which are included in InternationalOther in 2005 are as follows: Revenues$99.3 million; Income before income
      taxes$20.3 million; Assets$100.9 million.(7)
    
    
    
    As of December 31.Net premiums earned by major product line are as follows:
Years Ended December 31,2007
    
    2006
    
    2005(in thousands)Casualty:Other liability(1)
    
    
    $
    
    1,043,888
    
    
    
    $
    
    899,653
    
    
    
    $
    
    830,183Medical malpractice
    
    
    
    379,792
    
    
    
    
    304,872
    
    
    
    
    306,548Ocean marine and aviation
    
    
    
    350,905
    
    
    
    
    325,582
    
    
    
    
    301,427Auto liability
    
    
    
    267,944
    
    
    
    
    302,382
    
    
    
    
    359,665Accident and health
    
    
    
    238,538
    
    
    
    
    232,731
    
    
    
    
    166,378Surety and credit
    
    
    
    173,838
    
    
    
    
    165,366
    
    
    
    
    146,587Other
    
    
    
    313,443
    
    
    
    
    318,162
    
    
    
    
    281,998Total casualty
    
    
    
    2,768,348
    
    
    
    
    2,548,748
    
    
    
    
    2,392,786Property:Fire
    
    
    
    534,175
    
    
    
    
    487,759
    
    
    
    
    484,994Allied lines
    
    
    
    289,443
    
    
    
    
    220,298
    
    
    
    
    125,871Auto physical damage
    
    
    
    101,348
    
    
    
    
    136,684
    
    
    
    
    126,585Homeowners multiple peril
    
    
    
    83,414
    
    
    
    
    97,567
    
    
    
    
    143,582Other
    
    
    
    125,941
    
    
    
    
    113,038
    
    
    
    
    111,176Total property
    
    
    
    1,134,321
    
    
    
    
    1,055,346
    
    
    
    
    992,208Total
    
    
    $
    
    3,902,669
    
    
    
    $
    
    3,604,094
    
    
    
    $
    
    3,384,994

(1)
    
    
    
    A large majority of the amounts within the other liability line relates to complex risks such as E&O and D&O, to general casualty risks and, to a lesser extent, environmental impairment liability.17. Commitments and Contingent Liabilities
(a) Legal Proceedings: TRH, in common with the reinsurance industry in general, is subject to litigation in the normal course of its business. TRH does not believe that any pending litigation will have a
  material adverse effect on its results of operations, financial position or cash flows.
Various regulators including the United States Department of Justice (the DOJ), the Securities and Exchange Commission (the SEC), the Office of the New York State Attorney General (the
  NYAG) and the NYS ID have been conducting investigations relating to certain insurance and reinsurance business practices, non-traditional insurance products and assumed reinsurance transactions
  within the industry and at AIG. In connection with these investigations, AIG requested that TRH, as a subsidiary of AIG, review its documents and practices, and TRH has cooperated with AIG in all such
  requests.
On February 9, 2006, AIG announced that it reached a resolution of claims and matters under investigation by the DOJ, SEC, NYAG and NYS ID. AIG stated that the settlements resolved
  investigations conducted by the SEC, NYAG and NYS ID against AIG and conclude negotiations with these authorities and the DOJ in connection with the accounting, financial reporting and insurance
  brokerage practices of AIG and its subsidiaries, as well as claims relating to the underpayment of certain workers compensation premium taxes and other assessments.
99

TRANSATLANTIC HOLDINGS, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)
As part of these settlements, AIG has agreed to retain, for a period of three years, an independent consultant who will conduct a review that will include, among other things, the adequacy of AIGs
  internal controls over financial reporting, the policies, procedures and effectiveness of AIGs regulatory, compliance and legal functions and the remediation plan that AIG has implemented as a result of its
  own internal review. TRH, as a subsidiary of AIG, is cooperating with the terms of the settlements that are applicable to TRH.
In addition, from time to time, other regulators have commenced, and may in the future commence, investigations into insurance brokerage practices relating to contingent commissions and other
  industry-wide practices as well as other broker-related conduct, such as alleged bid-rigging, finite insurance and reinsurance transactions and other reinsurance practices. TRH has cooperated, and will
  continue to cooperate, in producing documents and other information in response to subpoenas and other requests. While TRH does not believe that any of these inquiries will have a material impact on
  TRHs business or financial results, it is not possible to predict with any certainty at this time what impact, if any, these inquiries may have on TRHs business or financial results.
(b) Commercial Commitments: In the normal course of business, TRH has issued letters of credit totaling $114.0 million. These letters of credit are provided to secure certain loss reserves and other
  balances due to ceding companies. Where TRH provides a letter of credit, it is generally contractually obligated to continue to provide a letter of credit to the ceding company in the future to secure certain
  reserves and other balances.
(c) Leases: As of December 31, 2007, the future minimum lease payments (principally for leased office space) under various long-term operating leases were as follows:
(in thousands)2008
    
    
    $
    
    13,2172009
    
    
    
    12,7422010
    
    
    
    11,4612011
    
    
    
    10,2902012
    
    
    
    10,670Remaining years after 2012 (from 2013 to 2021)
    
    
    
    52,561Total
    
    
    $
    
    110,941Rent expense approximated $11.3 million, $9.7 million and $8.8 million in 2007, 2006 and 2005, respectively.
18. Quarterly Financial Information (unaudited)
The following is a summary of unaudited quarterly financial data for each of the years ended December 31, 2007 and 2006. However, in the opinion of management, all adjustments, consisting of
  normal recurring accruals, necessary for a fair statement of the results of operations for such periods have been made.
Three Months EndedMarch 31,
    
    June 30,
    
    September 30,
    
    December 31,2007
    
    2006
    
    2007
    
    2006
    
    2007
    
    2006
    
    2007
    
    2006(in thousands, except per share data)Net premiums written
    
    
    $
    
    984,164
    
    
    
    $
    
    914,407
    
    
    
    $
    
    983,084
    
    
    
    $
    
    913,599
    
    
    
    $
    
    984,624
    
    
    
    $
    
    895,271
    
    
    
    $
    
    1,001,027
    
    
    
    $
    
    910,163Net premiums earned
    
    
    
    965,121
    
    
    
    
    907,713
    
    
    
    
    948,110
    
    
    
    
    909,149
    
    
    
    
    959,807
    
    
    
    
    895,594
    
    
    
    
    1,029,631
    
    
    
    
    891,638Net investment income
    
    
    
    116,157
    
    
    
    
    102,321
    
    
    
    
    119,264
    
    
    
    
    107,926
    
    
    
    
    112,244
    
    
    
    
    106,773
    
    
    
    
    122,107
    
    
    
    
    117,520Realized net capital gains (losses)
    
    
    
    15,397
    
    
    
    
    5,709
    
    
    
    
    1,882
    
    
    
    
    (1,329
    )
    
    
    
    
    14,723
    
    
    
    
    2,097
    
    
    
    
    (22,613
    )
    
    
    
    
    4,385Net income
    
    
    
    107,229
    
    
    
    
    101,973
    
    
    
    
    125,662
    
    
    
    
    104,439
    
    
    
    
    141,726
    
    
    
    
    106,943
    
    
    
    
    112,524
    
    
    
    
    114,797Net income per common share:Basic
    
    
    
    1.62
    
    
    
    
    1.55
    
    
    
    
    1.90
    
    
    
    
    1.58
    
    
    
    
    2.14
    
    
    
    
    1.62
    
    
    
    
    1.70
    
    
    
    
    1.74Diluted
    
    
    
    1.61
    
    
    
    
    1.54
    
    
    
    
    1.89
    
    
    
    
    1.58
    
    
    
    
    2.12
    
    
    
    
    1.61
    
    
    
    
    1.68
    
    
    
    
    1.73100

Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure
There have been no changes in nor any disagreements with accountants on accounting and financial disclosure within the twenty-four months ended December 31, 2007.
Item 9A. Controls and Procedures
Conclusion Regarding the Effectiveness of Disclosure Controls and Procedures
As of the end of the period covered by this report, an evaluation was carried out by TRHs management, with the participation of TRHs Chief Executive Officer and Chief Financial Officer, of the
  effectiveness of TRHs disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934). Based upon that evaluation, TRHs Chief Executive Officer and Chief
  Financial Officer concluded that these disclosure controls and procedures were effective as of the end of the period covered by this report. In addition, no change in TRHs internal control over financial
  reporting (as defined in Rule 13a-15(f) under the Securities Exchange Act of 1934) occurred during the fourth quarter of TRHs fiscal year ended December 31, 2007 that has materially affected, or is
  reasonably likely to materially affect, TRHs internal control over financial reporting.
Managements Report on Internal Control Over Financial Reporting
Management of TRH is responsible for establishing and maintaining adequate internal control over financial reporting. TRHs internal control over financial reporting is a process designed under the
  supervision of TRHs principal executive and principal financial officers to provide reasonable assurance regarding the reliability of financial reporting and the preparation of TRHs financial statements for
  external reporting purposes in accordance with U.S. generally accepted accounting principles.
As of the end of TRHs 2007 fiscal year, management conducted an assessment of the effectiveness of TRHs internal control over financial reporting based on the framework established in Internal
  ControlIntegrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Based on this assessment, management has concluded that TRHs internal
  control over financial reporting as of December 31, 2007 is effective.
TRHs internal control over financial reporting includes policies and procedures that pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect transactions and
  dispositions of assets; provide reasonable assurances that transactions are recorded as necessary to permit preparation of financial statements in accordance with accounting principles generally accepted in
  the United States of America, and that receipts and expenditures are being made only in accordance with authorizations of management and the directors of TRH; and provide reasonable assurance
  regarding prevention or timely detection of unauthorized acquisition, use or disposition of TRHs assets that could have a material effect on TRHs financial statements.
The effectiveness of TRHs internal control over financial reporting as of December 31, 2007 has been audited by PricewaterhouseCoopers LLP, an independent registered public accounting firm, as
  stated in their report included herein, which expresses an unqualified opinion on the effectiveness of TRHs internal control over financial reporting as of December 31, 2007.
Item 9B. Other Information
None.
PART III
Item 10. Directors, Executive Officers and Corporate Governance
Information required by this Item concerning directors of Transatlantic Holdings, Inc. (the Company, and collectively with its subsidiaries, TRH) and the TRH code of ethics is included in the
  Companys Proxy Statement for the 2008 Annual Meeting of Stockholders, to be filed with the Securities and Exchange Commission (the SEC) within 120 days after the end of the Companys fiscal year
  (the 2008 Proxy Statement), in the section captioned Election of Directors, and such information is incorporated herein by reference. TRH has adopted a code of ethics that applies to its
101

principal executive officer and principal financial and accounting officer, that establishes minimum standards of professional responsibility and ethical conduct. This code of ethics is available on TRHs
  website at http://www.transre.com. If TRH makes any substantive amendments to this code of ethics or grants any waiver from a provision of this code for such persons, TRH will disclose the nature of such
  amendment or waiver on its website or in a report on Form 8-K. Information required by this Item concerning compliance with Section 16(a) of the Securities Exchange Act of 1934, as amended, is included
  in the 2008 Proxy Statement under the caption Election of Directors: Ownership of Certain Securities,  and such information is incorporated herein by reference.
DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The table below sets forth the names, positions and ages of the persons who are the directors and executive officers of the Company as of February 28, 2008.
Name
    
    Position
    
    Age
    
    Served asDirector orOfficer SinceRobert F. Orlich
    
    President and Chief Executive Officer and Director
    
    60
    
    1990(1)Paul A. Bonny
    
    Executive Vice President, President International
      Operations
    
    51
    
    1994Michael C. Sapnar
    
    Executive Vice President and Chief Underwriting
      Officer, Domestic Operations
    
    41
    
    2005(2)Steven S. Skalicky
    
    Executive Vice President and Chief Financial Officer
    
    59
    
    1995Javier E. Vijil
    
    Executive Vice President, President Latin American
      Division
    
    54
    
    1996Kenneth Apfel
    
    Senior Vice President and Chief Actuary
    
    49
    
    2004(3)Gary A. Schwartz
    
    Senior Vice President and General Counsel
    
    47
    
    1999(3)Elizabeth M. Tuck
    
    Secretary
    
    52
    
    1991Martin J. Sullivan
    
    Chairman of the Board
    
    53
    
    2005(4)James Balog
    
    Director
    
    79
    
    1988Steven J. Bensinger
    
    Director
    
    53
    
    2005(5)C. Fred Bergsten
    
    Director
    
    66
    
    1998Ian H. Chippendale
    
    Director
    
    59
    
    2007(6)John G. Foos
    
    Director
    
    58
    
    2007(7)Diana K. Mayer
    
    Director
    
    61
    
    2006(8)Richard S. Press
    
    Director
    
    69
    
    2006(9)Thomas R. Tizzio
    
    Director
    
    70
    
    1990(1)

(1)
    
    
    
    Prior to April 1990, such person was a director or an officer of TRC and Putnam, but not of the Company.(2)
    
    
    
    Mr. Sapnar was named Executive Vice President and Chief Underwriting Officer, Domestic Operations of the Company, TRC and Putnam by election of the Board of Directors in May 2006. From December 2005 to May 2006, Mr. Sapnar was Senior
      Vice President and Chief Underwriting Officer, Domestic Operations of the Company. From December 2004 to the present, Mr. Sapnar has served as a Director of TRC and Putnam, but not of the Company. From March 2002 to May 2006, Mr. Sapnar
      was Senior Vice President and Chief Underwriting Officer, Domestic Operations of TRC and Putnam.(3)
    
    
    
    On May 19, 2005, Messrs. Apfel and Schwartz were elected Directors of TRC and Putnam, but not of the Company.(4)
    
    
    
    Mr. Sullivan was elected as Chairman of the Board in May 2006. From May 2005 to May 2006, Mr. Sullivan was a Director of the Company.(5)
    
    
    
    Mr. Bensinger was elected as a Director of the Company in May 2005.(6)
    
    
    
    Mr. Chippendale was elected as a Director of the Company in May 2007.(7)
    
    
    
    Mr. Foos was elected as a Director of the Company in January 2007.(8)
    
    
    
    Ms. Mayer was elected as a Director of the Company in May 2006.(9)
    
    
    
    Mr. Press was elected as a Director of the Company in August 2006.102

Except as noted, each of the executive officers has, for more than five years, occupied an executive position with the Company or companies that are now its subsidiaries. For more than five years prior
  to joining the Company in August 2004, Mr. Apfel served as an officer of certain AIG Group companies, with his most recent position as Senior Vice President with AIG Reinsurance Advisors. Since
  January 1991, Ms. Tuck has also served as the Secretary of a number of AIG Group companies.
Item 11. Executive Compensation
This item is omitted because a definitive proxy statement which involves the election of directors will be filed with the SEC not later than 120 days after the close of the fiscal year pursuant to
  Regulation 14A.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related          Stockholder Matters
This item is omitted because a definitive proxy statement which involves the election of directors will be filed with the SEC not later than 120 days after the close of the fiscal year pursuant to
  Regulation 14A.
In addition, summarized information with respect to equity compensation granted by the Company as of December 31, 2007 is as follows:
Number ofSecuritiesto be IssuedUpon Exerciseof OutstandingOptions, Warrantsand Rights
    
    Weighted AverageExercise Priceof OutstandingOption, Warrantsand Rights
    
    Number ofSecuritiesRemainingAvailable forFutureIssuanceunder EquityCompensationPlans (ExcludingSecuritiesReflected inColumn(a))Plan Category
    
    (a)
    
    (b)
    
    (c)Equity compensation plans approved by security holders:Stock options
    
    
    
    2,419,783
    
    
    
    $
    
    58.72
    
    
    
    
    1,385,000Service & performance RSUs
    
    
    
    541,042
    
    
    
    
    
    
    
    
    
    376,211Equity compensation plan not approved by security holders
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total
    
    
    
    2,960,825
    
    
    
    $
    
    47.99
    
    
    
    
    1,761,211Item 13. Certain Relationships and Related Transactions, and Director Independence
This item is omitted because a definitive proxy statement which involves the election of directors will be filed with the SEC not later than 120 days after the close of the fiscal year pursuant to
  Regulation 14A.
Item 14. Principal Accounting Fees and Services
This item is omitted because a definitive proxy statement which involves the election of directors will be filed with the SEC not later than 120 days after the close of the fiscal year pursuant to
  Regulation 14A.
103

PART IV
Item 15. Exhibits and Financial Statement Schedules
(a) Financial Statements and Exhibits
1. Financial Statements and Schedules
See accompanying Index to Consolidated Financial Statements in Item 8. Schedules not included in the accompanying index have been omitted because they are not applicable.
2. Exhibits
21.1
    
    
    
    Subsidiaries of Registrant.23.1
    
    
    
    Consent of PricewaterhouseCoopers LLP.31.1
    
    
    
    Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, by Robert F. Orlich, President and Chief Executive Officer.31.2
    
    
    
    Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, by Steven S. Skalicky, Executive Vice President and Chief Financial Officer.32.1
    
    
    
    Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, by Robert F. Orlich, President and Chief Executive Officer.32.2
    
    
    
    Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, by Steven S. Skalicky, Executive Vice President and Chief
      Financial Officer.See accompanying Exhibit Index for additional Exhibits incorporated by reference.
104

SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly
  authorized.
TRANSATLANTICHOLDINGS, INC.
By:
    
    /s/ ROBERTF. ORLICH
    
    Robert F. OrlichTitle: President and Chief Executive OfficerFebruary 27, 2008
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates
  indicated.
Signature
    
    Title
    
    Date/s/ ROBERTF. ORLICH
    
    Robert
        F. Orlich
    
    President and Chief ExecutiveOfficer (principal executive officer); Director
    
    February 27, 2008/s/ STEVENS. SKALICKY
    
    Steven S. Skalicky
    
    Executive Vice President and Chief Financial Officer (principal financial and accounting officer)
    
    February 27, 2008/s/ JAMESBALOG
    
    James Balog
    
    Director
    
    February 27, 2008/s/ STEVENJ. BENSINGER
    
    Steven J. Bensinger
    
    Director
    
    February 27, 2008C. Fred Bergsten
    
    Director/s/ IANH. CHIPPENDALE
    
    Ian H. Chippendale
    
    Director
    
    February 27, 2008/s/ JOHNG. FOOS
    
    John G. Foos
    
    Director
    
    February 27, 2008/s/ DIANAK. MAYER
    
    Diana K. Mayer
    
    Director
    
    February 27, 2008/s/ RICHARDS. PRESS
    
    Richard S. Press
    
    Director
    
    February 27, 2008/s/ MARTINJ. SULLIVAN
    
    Martin J. Sullivan
    
    Director
    
    February 27, 2008/s/ THOMASR. TIZZIO
    
    Thomas R. Tizzio
    
    Director
    
    February 27, 2008105

SCHEDULE I
TRANSATLANTIC HOLDINGS, INC. AND SUBSIDIARIESSUMMARY OF INVESTMENTSOTHER THAN INVESTMENTS IN RELATED PARTIESAs of December 31, 2007
Type of Investment
    
    Cost orAmortizedCost(1)
    
    FairValue
    
    Amount atWhich Shownin theBalanceSheet(in thousands)Fixed maturities:U.S. Government and government agencies and authorities
    
    
    $
    
    323,364
    
    
    
    $
    
    330,838
    
    
    
    $
    
    330,838States, municipalities and political subdivisions
    
    
    
    6,481,249
    
    
    
    
    6,615,130
    
    
    
    
    6,585,054Foreign governments
    
    
    
    330,079
    
    
    
    
    330,012
    
    
    
    
    330,012Public utilities
    
    
    
    74,478
    
    
    
    
    71,881
    
    
    
    
    71,881All other corporate
    
    
    
    2,034,407
    
    
    
    
    1,988,876
    
    
    
    
    1,988,876Asset-backed and collateralized securities
    
    
    
    41,096
    
    
    
    
    42,526
    
    
    
    
    42,526Total fixed maturities
    
    
    
    9,284,673
    
    
    
    
    9,379,263
    
    
    
    
    9,349,187Equities:Common stocks:Public utilities
    
    
    
    28,390
    
    
    
    
    29,854
    
    
    
    
    29,854Banks, trust and insurance companies
    
    
    
    96,158
    
    
    
    
    92,380
    
    
    
    
    92,380Industrial, miscellaneous and all other
    
    
    
    483,836
    
    
    
    
    500,496
    
    
    
    
    500,496Total common stocks
    
    
    
    608,384
    
    
    
    
    622,730
    
    
    
    
    622,730Nonredeemable preferred stocks
    
    
    
    224,298
    
    
    
    
    197,870
    
    
    
    
    197,870Total equities
    
    
    
    832,682
    
    
    
    
    820,600
    
    
    
    
    820,600Other invested assets
    
    
    
    235,034
    
    
    
    
    250,921
    
    
    
    
    250,921Securities lending collateral
    
    
    
    2,053,271
    
    
    
    
    2,012,031
    
    
    
    
    2,012,031Short-term investments
    
    
    
    67,801
    
    
    
    
    67,801
    
    
    
    
    67,801Cash and cash equivalents
    
    
    
    255,432
    
    
    
    
    255,432
    
    
    
    
    255,432Total investments and cash
    
    
    $
    
    12,728,893
    
    
    
    $
    
    12,786,048
    
    
    
    $
    
    12,755,972

(1)
    
    
    
    Investments in fixed maturities (including those included in securities lending collateral) are shown at amortized cost.S-1

SCHEDULE II
TRANSATLANTIC HOLDINGS, INC. AND SUBSIDIARIESCONDENSED FINANCIAL INFORMATION OF REGISTRANTBALANCE SHEETS(Parent Company Only)As of December 31, 2007 and 2006
2007
    
    2006(in thousands,except share data)Assets:Fixed maturities available for sale, at fair value (amortized cost: 2007$21,502; 2006$33,646)
    
    
    $
    
    22,574
    
    
    
    $
    
    34,571Cash and cash equivalents
    
    
    
    3,496
    
    
    
    
    12,375Investment in subsidiaries
    
    
    
    4,025,270
    
    
    
    
    3,635,647Other assets
    
    
    
    48,313
    
    
    
    
    24,556Dividend due from subsidiary
    
    
    
    10,000
    
    
    
    
    9,000Total assets
    
    
    $
    
    4,109,653
    
    
    
    $
    
    3,716,149Liabilities:Dividends payable
    
    
    $
    
    10,600
    
    
    
    $
    
    9,0005.75% senior notes due December 14, 2015:Affiliates
    
    
    
    448,158
    
    
    
    
    447,980Other
    
    
    
    298,772
    
    
    
    
    298,653Accrued liabilities
    
    
    
    3,081
    
    
    
    
    2,246Total liabilities
    
    
    
    760,611
    
    
    
    
    757,879Stockholders equity:Preferred Stock
    
    
    
    
    
    
    
    
    Common Stock
    
    
    
    67,222
    
    
    
    
    67,027Additional paid-in capital
    
    
    
    249,853
    
    
    
    
    228,480Accumulated other comprehensive (loss) income
    
    
    
    (34,692
    )
    
    
    
    
    42,626Retained earnings
    
    
    
    3,088,578
    
    
    
    
    2,642,056Treasury Stock, at cost; 988,900 shares of common stock
    
    
    
    (21,919
    )
    
    
    
    
    (21,919
    )Total stockholders equity
    
    
    
    3,349,042
    
    
    
    
    2,958,270Total liabilities and stockholders equity
    
    
    $
    
    4,109,653
    
    
    
    $
    
    3,716,149See Notes to Condensed Financial Information of Registrant(Parent Company Only)
S-2

SCHEDULE II
TRANSATLANTIC HOLDINGS, INC. AND SUBSIDIARIESCONDENSED FINANCIAL INFORMATION OF REGISTRANT(Continued)STATEMENTS OF OPERATIONS(Parent Company Only)For the Years Ended December 31, 2007, 2006 and 2005
2007
    
    2006
    
    2005(in thousands)Revenues:Net investment income (principally dividends from subsidiary)
    
    
    $
    
    84,047
    
    
    
    $
    
    90,825
    
    
    
    $
    
    36,561Realized net capital gains
    
    
    
    482
    
    
    
    
    
    
    
    
    
    246Equity in undistributed income of subsidiaries
    
    
    
    442,843
    
    
    
    
    374,491
    
    
    
    
    9,772Total revenues
    
    
    
    527,372
    
    
    
    
    465,316
    
    
    
    
    46,579Expenses:Operating expenses
    
    
    
    15,213
    
    
    
    
    11,734
    
    
    
    
    10,312Interest on senior notes
    
    
    
    43,421
    
    
    
    
    43,405
    
    
    
    
    2,050Total expenses
    
    
    
    58,634
    
    
    
    
    55,139
    
    
    
    
    12,362Income before income taxes
    
    
    
    468,738
    
    
    
    
    410,177
    
    
    
    
    34,217Income tax benefits:Current
    
    
    
    (9,570
    )
    
    
    
    
    (9,675
    )
    
    
    
    
    (697
    )Deferred
    
    
    
    (8,833
    )
    
    
    
    
    (8,300
    )
    
    
    
    
    (2,996
    )Total income tax benefits
    
    
    
    (18,403
    )
    
    
    
    
    (17,975
    )
    
    
    
    
    (3,693
    )Net income
    
    
    $
    
    487,141
    
    
    
    $
    
    428,152
    
    
    
    $
    
    37,910See Notes to Condensed Financial Information of Registrant(Parent Company Only)
S-3

SCHEDULE II
TRANSATLANTIC HOLDINGS, INC. AND SUBSIDIARIESCONDENSED FINANCIAL INFORMATION OF REGISTRANT(Continued)STATEMENTS OF CASH FLOWS(Parent Company Only)For the Years Ended December 31, 2007, 2006 and 2005
2007
    
    2006
    
    2005(in thousands)Cash flows from operating activities:Net income
    
    
    $
    
    487,141
    
    
    
    $
    
    428,152
    
    
    
    $
    
    37,910Adjustments to reconcile net income to net cash provided by operating activities:Equity in undistributed income of subsidiaries
    
    
    
    (442,843
    )
    
    
    
    
    (374,491
    )
    
    
    
    
    (9,772
    )Change in dividend due from subsidiary
    
    
    
    (1,000
    )
    
    
    
    
    (1,000
    )
    
    
    
    
    1,500Changes in other assets and accrued liabilities
    
    
    
    (32,872
    )
    
    
    
    
    (7,083
    )
    
    
    
    
    5,794Total adjustments
    
    
    
    (476,715
    )
    
    
    
    
    (382,574
    )
    
    
    
    
    (2,478
    )Net cash provided by operating activities
    
    
    
    10,426
    
    
    
    
    45,578
    
    
    
    
    35,432Cash flows from investing activities:Proceeds of fixed maturities sold
    
    
    
    25,529
    
    
    
    
    6,780
    
    
    
    
    5,124Proceeds of fixed maturities matured
    
    
    
    20
    
    
    
    
    
    
    
    
    
    Purchase of fixed maturities
    
    
    
    (12,952
    )
    
    
    
    
    (18,428
    )
    
    
    
    
    Capital contribution to subsidiary
    
    
    
    
    
    
    
    
    
    
    
    
    
    (745,000
    )Net change in securities lending collateral
    
    
    
    
    
    
    
    
    5
    
    
    
    
    1Net cash provided by (used in) investing activities
    
    
    
    12,597
    
    
    
    
    (11,643
    )
    
    
    
    
    (739,875
    )Cash flows from financing activities:Net change in securities lending payable
    
    
    
    
    
    
    
    
    (5
    )
    
    
    
    
    (1
    )Dividends to stockholders
    
    
    
    (39,019
    )
    
    
    
    
    (33,637
    )
    
    
    
    
    (28,967
    )Proceeds from common stock issued
    
    
    
    6,042
    
    
    
    
    3,273
    
    
    
    
    2,651Net proceeds from issuance of senior notes
    
    
    
    
    
    
    
    
    
    
    
    
    
    744,690Acquisition of treasury stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    (6,306
    )Other, net
    
    
    
    1,075
    
    
    
    
    683
    
    
    
    
    Net cash (used in) provided by financing activities
    
    
    
    (31,902
    )
    
    
    
    
    (29,686
    )
    
    
    
    
    712,067Change in cash and cash equivalents
    
    
    
    (8,879
    )
    
    
    
    
    4,249
    
    
    
    
    7,624Cash and cash equivalents, beginning of year
    
    
    
    12,375
    
    
    
    
    8,126
    
    
    
    
    502Cash and cash equivalents, end of year
    
    
    $
    
    3,496
    
    
    
    $
    
    12,375
    
    
    
    $
    
    8,126
Notes to Condensed Financial Information of Registrant(Parent Company Only)
(1)
    
    
    
    The condensed financial information of registrant should be read in conjunction with the Consolidated Financial Statements and Notes to Consolidated Financial Statements included elsewhere herein.(2)
    
    
    
    Investment in subsidiaries is reflected on the equity method.S-4

SCHEDULE III
TRANSATLANTIC HOLDINGS, INC. AND SUBSIDIARIESSUPPLEMENTARY INSURANCE INFORMATIONAs of December 31, 2007, 2006 and 2005 and for the Years Then Ended
DeferredAcquisitionCosts
    
    UnpaidLossesand LossAdjustmentExpenses
    
    UnearnedPremiums
    
    NetPremiumsEarned
    
    NetInvestmentIncome
    
    Net Lossesand LossAdjustmentExpenses
    
    NetCommissionsand Changein DeferredAcquisitionCosts
    
    OtherUnderwritingExpenses
    
    NetPremiumsWritten(in thousands)2007Property-CasualtyDomestic
    
    
    $
    
    125,883
    
    
    
    $
    
    4,448,545
    
    
    
    $
    
    632,554
    
    
    
    $
    
    1,933,643
    
    
    
    $
    
    300,702
    
    
    
    $
    
    1,435,229
    
    
    
    $
    
    445,394
    
    
    
    $
    
    56,461
    
    
    
    $
    
    1,948,045International:Europe
    
    
    
    63,618
    
    
    
    
    2,645,256
    
    
    
    
    317,972
    
    
    
    
    1,498,789
    
    
    
    
    135,317
    
    
    
    
    951,266
    
    
    
    
    377,332
    
    
    
    
    42,932
    
    
    
    
    1,524,036Other
    
    
    
    58,580
    
    
    
    
    832,460
    
    
    
    
    276,121
    
    
    
    
    470,237
    
    
    
    
    33,753
    
    
    
    
    251,538
    
    
    
    
    140,494
    
    
    
    
    16,367
    
    
    
    
    480,818Consolidated
    
    
    $
    
    248,081
    
    
    
    $
    
    7,926,261
    
    
    
    $
    
    1,226,647
    
    
    
    $
    
    3,902,669
    
    
    
    $
    
    469,772
    
    
    
    $
    
    2,638,033
    
    
    
    $
    
    963,220
    
    
    
    $
    
    115,760
    
    
    
    $
    
    3,952,8992006Property-CasualtyDomestic
    
    
    $
    
    124,193
    
    
    
    $
    
    4,311,705
    
    
    
    $
    
    619,742
    
    
    
    $
    
    1,703,575
    
    
    
    $
    
    290,349
    
    
    
    $
    
    1,319,940
    
    
    
    $
    
    390,078
    
    
    
    $
    
    47,071
    
    
    
    $
    
    1,751,229International:Europe
    
    
    
    52,814
    
    
    
    
    2,428,357
    
    
    
    
    278,222
    
    
    
    
    1,405,159
    
    
    
    
    117,565
    
    
    
    
    904,924
    
    
    
    
    356,142
    
    
    
    
    39,848
    
    
    
    
    1,401,140Other
    
    
    
    54,173
    
    
    
    
    727,887
    
    
    
    
    246,058
    
    
    
    
    495,360
    
    
    
    
    26,626
    
    
    
    
    237,802
    
    
    
    
    143,975
    
    
    
    
    15,420
    
    
    
    
    481,071Consolidated
    
    
    $
    
    231,180
    
    
    
    $
    
    7,467,949
    
    
    
    $
    
    1,144,022
    
    
    
    $
    
    3,604,094
    
    
    
    $
    
    434,540
    
    
    
    $
    
    2,462,666
    
    
    
    $
    
    890,195
    
    
    
    $
    
    102,339
    
    
    
    $
    
    3,633,4402005Property-CasualtyDomestic
    
    
    $
    
    112,161
    
    
    
    $
    
    4,253,194
    
    
    
    $
    
    569,737
    
    
    
    $
    
    1,472,211
    
    
    
    $
    
    219,271
    
    
    
    $
    
    1,525,340
    
    
    
    $
    
    345,000
    
    
    
    $
    
    32,786
    
    
    
    $
    
    1,568,318International:Europe
    
    
    
    48,511
    
    
    
    
    2,331,533
    
    
    
    
    261,774
    
    
    
    
    1,493,239
    
    
    
    
    103,922
    
    
    
    
    1,089,304
    
    
    
    
    362,279
    
    
    
    
    34,032
    
    
    
    
    1,459,018Other
    
    
    
    57,037
    
    
    
    
    528,567
    
    
    
    
    250,771
    
    
    
    
    419,544
    
    
    
    
    20,054
    
    
    
    
    262,398
    
    
    
    
    135,523
    
    
    
    
    12,708
    
    
    
    
    439,017Consolidated
    
    
    $
    
    217,709
    
    
    
    $
    
    7,113,294
    
    
    
    $
    
    1,082,282
    
    
    
    $
    
    3,384,994
    
    
    
    $
    
    343,247
    
    
    
    $
    
    2,877,042
    
    
    
    $
    
    842,802
    
    
    
    $
    
    79,526
    
    
    
    $
    
    3,466,353S-5

SCHEDULE IV
TRANSATLANTIC HOLDINGS, INC. AND SUBSIDIARIESREINSURANCEFor the Years Ended December 31, 2007, 2006 and 2005
GrossAmount
    
    Cededto OtherCompanies
    
    Assumedfrom OtherCompanies
    
    Net Amount
    
    Percentageof AmountAssumed toNet(dollars in thousands)2007Premiums written:Property-Casualty
    
    
    
    
    
    
    
    $
    
    330,664
    
    
    
    $
    
    4,283,563
    
    
    
    $
    
    3,952,899
    
    
    
    
    108
    %2006Premiums written:Property-Casualty
    
    
    
    
    
    
    
    $
    
    349,977
    
    
    
    $
    
    3,983,417
    
    
    
    $
    
    3,633,440
    
    
    
    
    110
    %2005Premiums written:Property-Casualty
    
    
    
    
    
    
    
    $
    
    421,310
    
    
    
    $
    
    3,887,663
    
    
    
    $
    
    3,466,353
    
    
    
    
    112
    %S-6

SCHEDULE VI
TRANSATLANTIC HOLDINGS, INC. AND SUBSIDIARIESSUPPLEMENTARY INFORMATION CONCERNINGPROPERTY/CASUALTY INSURANCE OPERATIONSAs of December 31, 2007, 2006 and 2005 and For the Years Then Ended
DeferredAcquisitionCosts
    
    UnpaidLossesand LossAdjustmentExpenses
    
    Discountif anyDeducted
    
    UnearnedPremiums
    
    NetPremiumsEarned
    
    NetInvestmentIncome
    
    Net Lossesand LossAdjustmentExpensesRelated toCurrent Year
    
    Net Lossesand LossAdjustmentExpensesRelated toPrior Years
    
    NetCommissionsand Changein DeferredAcquisitionCosts
    
    Net PaidLossesand LossAdjustmentExpenses
    
    NetPremiumsWritten(in thousands)2007
    
    
    $
    
    248,081
    
    
    
    $
    
    7,926,261
    
    
    
    
    
    
    
    
    $
    
    1,226,647
    
    
    
    $
    
    3,902,669
    
    
    
    $
    
    469,772
    
    
    
    $
    
    2,549,653
    
    
    
    $
    
    88,380
    
    
    
    $
    
    963,220
    
    
    
    $
    
    2,102,125
    
    
    
    $
    
    3,952,8992006
    
    
    
    231,180
    
    
    
    
    7,467,949
    
    
    
    
    
    
    
    
    
    1,144,022
    
    
    
    
    3,604,094
    
    
    
    
    434,540
    
    
    
    
    2,281,538
    
    
    
    
    181,128
    
    
    
    
    890,195
    
    
    
    
    2,104,531
    
    
    
    
    3,633,4402005
    
    
    
    217,709
    
    
    
    
    7,113,294
    
    
    
    
    
    
    
    
    
    1,082,282
    
    
    
    
    3,384,994
    
    
    
    
    343,247
    
    
    
    
    2,608,206
    
    
    
    
    268,836
    
    
    
    
    842,802
    
    
    
    
    2,031,653
    
    
    
    
    3,466,353S-7

EXHIBIT INDEX
ExhibitNo.
    
    
    
    Description
    
    Location3.1
    
    
    
    Certificate of Incorporation, as amended
      through April 19, 1990
    
    Filed as exhibit to the Companys Registration
      Statement (File No. 33-34433) and
      incorporated herein by reference.3.1.1
    
    
    
    Certificate of Amendment of the
      Certificate of Incorporation, dated May
      25, 1999
    
    Filed as exhibit to the Companys 1999
      Annual Report on Form 10-K (File No. 1-
      10545) and incorporated herein by
      reference.3.2
    
    
    
    Amended and Restated By-Laws, as of
      September 27, 2007
    
    Filed as exhibit to the Companys Current
      Report on Form 8-K (File No. 1-10545)
      dated October 3, 2007 and incorporated
      herein by reference.4.1
    
    
    
    Form of Common Stock Certificate
    
    Filed as exhibit to the Companys Registration
      Statement (File No. 33-34433) and
      incorporated herein by reference.4.1.1
    
    
    
    Indenture between Transatlantic Holdings,
      Inc. and The Bank of New York, dated
      December 14, 2005
    
    Filed as exhibit to the Companys Current
      Report on Form 8-K (File No. 1-10545)
      dated December 15, 2005, and incorporated
      herein by reference.4.1.2
    
    
    
    First Supplemental Indenture between
      Transatlantic Holdings, Inc. and The
      Bank of New York, dated December 14,
      2005
    
    Filed as exhibit to the Companys Current
      Report on Form 8-K (File No. 1-10545)
      dated December 15, 2005, and incorporated
      herein by reference.4.1.3
    
    
    
    Underwriting Agreement among Banc of
      America Securities LLC, Merrill Lynch,
      Pierce, Fenner & Smith Incorporated and
      Transatlantic Holdings, Inc., dated
      December 7, 2005
    
    Filed as exhibit to the Companys Current
      Report on Form 8-K (File No. 1-10545)
      dated December 9, 2005, and incorporated
      herein by reference.4.1.4
    
    
    
    Letter Agreement among American
      International Group, Inc., certain
      subsidiaries of American International
      Group, Inc. and Transatlantic Holdings,
      Inc., dated December 7, 2005
    
    Filed as exhibit to the Companys Current
      Report on Form 8-K (File No. 1-10545)
      dated December 9, 2005, and incorporated
      herein by reference.

ExhibitNo.
    
    
    
    Description
    
    Location4.1.5
    
    
    
    Registration Rights Agreement by and
      among Transatlantic Holdings, Inc.,
      American International Group, Inc. and
      Designated Subsidiaries of American
      International Group, Inc. dated February
      2, 2006
    
    Filed as exhibit to the Companys 2005
      Annual Report on Form 10-K (File No. 1-
      10545) and incorporated herein by
      reference.10.1
    
    
    
    Amended and Restated Shareholders
      Agreement among American Express
      Company, Gulf Insurance Company, The
      Lambert Brussels Financial Corporation,
      Stoneridge Limited, Mavron Ltd.,
      American International Group, Inc.,
      American Home Assurance Company,
      Metropolitan Life Insurance Company,
      certain trustees under an Indenture of
      Trust made by SwissRe Holding Limited,
      SwissRe Holding Limited, General Re
      Corporation, Compagnie Financiere et de
      Reassurance du Groupe AG, Daido
      Mutual Life Insurance Company, The
      Nichido Fire and Marine Insurance
      Company, Limited, Transatlantic
      Reinsurance Company, and PREINCO
      Holdings, Inc., dated January 5, 1990
    
    Filed as exhibit to the Companys Registration
      Statement (File No. 33-34433) and
      incorporated herein by reference.10.2
    
    
    
    Exclusive Agency Agreement between
      Transatlantic Reinsurance Company and
      American Home Assurance Company,
      dated February 27, 1980
    
    Filed as exhibit to the Companys Registration
      Statement (File No. 33-34433) and
      incorporated herein by reference.10.3
    
    
    
    Service and Expense Agreement among
      PREINCO Holdings, Inc., Putnam
      Reinsurance Company, and American
      International Group, Inc. dated July 1,
      1986
    
    Filed as exhibit to the Companys Registration
      Statement (File No. 33-34433) and
      incorporated herein by reference.10.4
    
    
    
    Service and Expense Agreement between
      Transatlantic Reinsurance Company and
      American International Group, Inc., dated
      December 15, 1977
    
    Filed as exhibit to the Companys Registration
      Statement (File No. 33-34433) and
      incorporated herein by reference.

ExhibitNo.
    
    
    
    Description
    
    Location10.5
    
    
    
    Investment Management Contract
      between Transatlantic Reinsurance
      Company and AIG Global Investors, Inc.
      dated August 1, 1986
    
    Filed as exhibit to the Companys Registration
      Statement (File No. 33-34433) and
      incorporated herein by reference.10.6
    
    
    
    Investment Management Contract
      between Putnam Reinsurance Company
      and AIG Global Investors, Inc. dated
      August 1, 1986
    
    Filed as exhibit to the Companys Registration
      Statement (File No. 33-34433) and
      incorporated herein by reference.10.7
    
    
    
    Transatlantic Holdings, Inc. 1990 Stock
      Option Plan*
    
    Filed as exhibit to the Companys Registration
      Statement (File No. 33-34433) and
      incorporated herein by reference.10.7.1
    
    
    
    Transatlantic Holdings, Inc. 1990
      Employee Stock Purchase Plan*
    
    Filed as exhibit to the Companys Registration
      Statement (File No. 33-41474) and
      incorporated herein by reference.10.7.2
    
    
    
    Amended Transatlantic Holdings, Inc.
      1990 Stock Option Plan*
    
    Filed as exhibit to the Companys 1992
      Quarterly Report on Form 10-Q for the
      quarter ended June 30, 1992 (File No. 1-
      10545) and incorporated herein by
      reference.10.7.3
    
    
    
    Transatlantic Holdings, Inc. 1995 Stock
      Option Plan and form of Director Option
      Agreement*
    
    Filed as exhibits to the Companys
      Registration Statement on Form S-8 (File
      No. 33-99764) and incorporated herein by
      reference.10.7.4
    
    
    
    Amendment to Transatlantic Holdings,
      Inc. 1990 Employee Stock Purchase Plan,
      effective as of December 7, 1995*
    
    Filed as exhibit to the Companys Current
      Report on Form 8-K (File No. 1-10545)
      dated January 31, 1996, and incorporated
      herein by reference.10.7.5
    
    
    
    Transatlantic Holdings, Inc. 2000 Stock
      Option Plan*
    
    Filed as exhibit to the Companys Registration
      Statement on Form S-8 (File No. 333-
      50298) and incorporated herein by
      reference.10.7.6
    
    
    
    Transatlantic Holdings, Inc. 2003 Stock
      Incentive Plan*
    
    Filed as exhibit to the Companys Registration
      Statement on Form S-8 (File No. 333-
      111513) and incorporated herein by
      reference.

ExhibitNo.
    
    
    
    Description
    
    Location10.7.7
    
    
    
    Form of Transatlantic Holdings, Inc. 2000
      Stock Option Plan stock option
      agreement*
    
    Filed as exhibit to the Companys 2004
      Quarterly Report on Form 10-Q for the
      quarter ended September 30, 2004 (File No.
      1-10545) and incorporated herein by
      reference.10.7.8
    
    
    
    Form of Transatlantic Holdings, Inc. 2003
      Stock Incentive Plan RSU award
      agreement*
    
    Filed as exhibit to the Companys 2004
      Quarterly Report on Form 10-Q for the
      quarter ended September 30, 2004 (File No.
      1-10545) and incorporated herein by
      reference.10.7.9
    
    
    
    Form of American International Group,
      Inc. 2005/2006 Deferred Compensation
      Profit Participation Plan for Senior
      Partners and related form of Senior
      Partner Award Letter*
    
    Filed as exhibit to the Companys Current
      Report on Form 8-K (File No. 1-10545)
      dated October 3, 2005, and incorporated
      herein by reference.10.7.10
    
    
    
    Form of American International Group,
      Inc. 2005/2006 Deferred Compensation
      Profit Participation Plan for Partners and
      related form of Partner Award Letter*
    
    Filed as exhibit to the Companys Current
      Report on Form 8-K (File No. 1-10545)
      dated October 3, 2005, and incorporated
      herein by reference.10.7.11
    
    
    
    Form of American International Group,
      Inc. 2005/2006 Deferred Compensation
      Profit Participation Plan for Associates
      and related form of Associate Award
      Letter*
    
    Filed as exhibit to the Companys Current
      Report on Form 8-K (File No. 1-10545)
      dated October 3, 2005, and incorporated
      herein by reference.10.7.12
    
    
    
    Amended Transatlantic Holdings, Inc.
      2000 Stock Option Plan*
    
    Filed as exhibit to the Companys Registration
      Statement on Form S-8 (File No. 333-
      135831) and incorporated herein by
      reference.10.7.13
    
    
    
    Amended Transatlantic Holdings, Inc.
      2003 Stock Incentive Plan*
    
    Filed as exhibit to the Companys Registration
      Statement on Form S-8 (File No. 333-
      135832) and incorporated herein by
      reference.10.7.14
    
    
    
    Transatlantic Holdings, Inc. Partners
      Plan*
    
    Filed as exhibit to the Companys 2006
      Quarterly Report on Form 10-Q for the
      quarter ended September 30, 2006 (File No.
      1-10545) and incorporated herein by
      reference.

ExhibitNo.
    
    
    
    Description
    
    Location10.7.15
    
    
    
    Transatlantic Holdings, Inc. Senior
      Partners Plan*
    
    Filed as exhibit to the Companys 2006
      Quarterly Report on Form 10-Q for the
      quarter ended September 30, 2006 (File No.
      1-10545) and incorporated herein by
      reference.10.7.16
    
    
    
    Transatlantic Holdings, Inc. Annual Bonus
      Plan*
    
    Filed as exhibit to the Companys 2006
      Quarterly Report on Form 10-Q for the
      quarter ended September 30, 2006 (File No.
      1-10545) and incorporated herein by
      reference.10.7.17
    
    
    
    Form of Transatlantic Holdings, Inc.
      Partners Plan Performance RSU Award
      Agreement*
    
    Filed as exhibit to the Companys 2006
      Quarterly Report on Form 10-Q for the
      quarter ended September 30, 2006 (File No.
      1-10545) and incorporated herein by
      reference.10.7.18
    
    
    
    Form of Transatlantic Holdings, Inc.
      Senior Partners Plan Performance RSU
      Award Agreement*
    
    Filed as exhibit to the Companys 2006
      Quarterly Report on Form 10-Q for the
      quarter ended September 30, 2006 (File No.
      1-10545) and incorporated herein by
      reference.10.7.19
    
    
    
    Transatlantic Holdings, Inc. 2007
      Executive Bonus Plan*
    
    Filed as appendix to the Companys Definitive
      Proxy Statement (File No. 1-10545) dated
      April 20, 2007 and incorporated herein by
      reference.10.8
    
    
    
    Surplus Treaty between American
      International Group Companies and
      Transatlantic Reinsurance Company,
      dated September 29, 1989
    
    Filed as exhibit to the Companys Registration
      Statement (File No. 33-34433) and
      incorporated herein by reference.10.9
    
    
    
    Quota Share Reinsurance Treaty among
      Lexington Insurance Company, Landmark
      Insurance Company, New Hampshire
      Insurance Company and Transatlantic
      Reinsurance Company, dated February
      28, 1990
    
    Filed as exhibit to the Companys Registration
      Statement (File No. 33-34433) and
      incorporated herein by reference.

ExhibitNo.
    
    
    
    Description
    
    Location10.10
    
    
    
    Representative Facultative Insurance
      Certificate for Casualty Reinsurance Risk
      (Certificate between National Union Fire
      Insurance Company of Pittsburgh, Pa. and
      Transatlantic Reinsurance Company,
      dated January 9, 1990)
    
    Filed as exhibit to the Companys Registration
      Statement (File No. 33-34433) and
      incorporated herein by reference.10.11
    
    
    
    Representative Facultative Insurance
      Certificate for Property Reinsurance Risk
      (Certificate between American Home
      Assurance Company and Transatlantic
      Reinsurance Company, dated March 7,
      1990)
    
    Filed as exhibit to the Companys Registration
      Statement (File No. 33-34433) and
      incorporated herein by reference.10.12
    
    
    
    Aggregate Excess Treaty between
      Transatlantic Reinsurance Company and
      National Union Fire Insurance Company
      of Pittsburgh, Pa., dated November 15,
      1989
    
    Filed as exhibit to the Companys Registration
      Statement (File No. 33-34433) and
      incorporated herein by reference.10.13
    
    
    
    Management Agreement between
      Transatlantic Reinsurance Company and
      Putnam Reinsurance Company, dated
      February 15, 1991
    
    Filed as exhibit to the Companys 1995
      Annual Report on Form 10-K (File No. 1-
      10545) and incorporated herein by
      reference.10.14
    
    
    
    Quota Share Reinsurance Agreement
      between Transatlantic Reinsurance
      Company and Putnam Reinsurance
      Company, dated December 6, 1995
    
    Filed as exhibit to the Companys 1995
      Annual Report on Form 10-K (File No. 1-
      10545) and incorporated herein by
      reference.21.1
    
    
    
    Subsidiaries of the registrant
    
    Filed herewith.23.1
    
    
    
    Consent of PricewaterhouseCoopers LLP
    
    Filed herewith.31.1
    
    
    
    Certification pursuant to Section 302 of
      the Sarbanes-Oxley Act of 2002, by
      Robert F. Orlich, President and Chief
      Executive Officer
    
    Filed herewith.31.2
    
    
    
    Certification pursuant to Section 302 of
      the Sarbanes-Oxley Act of 2002, by Steven
      S. Skalicky, Executive Vice President and
      Chief Financial Officer
    
    Filed herewith.

ExhibitNo.
    
    
    
    Description
    
    Location32.1
    
    
    
    Certification pursuant to 18 U.S.C. Section
      1350, as adopted pursuant to Section 906
      of the Sarbanes-Oxley Act of 2002, by
      Robert F. Orlich, President and Chief
      Executive Officer
    
    Provided herewith.32.2
    
    
    
    Certification pursuant to 18 U.S.C. Section
      1350, as adopted pursuant to Section 906
      of the Sarbanes-Oxley Act of 2002, by
      Steven S. Skalicky, Executive Vice
      President and Chief Financial Officer
    
    Provided herewith.

*
    
    
    
    Management compensation plan.