SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                    FORM 10-K

(Mark One)

[X]    ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES  EXCHANGE
       ACT OF 1934
       For the fiscal year ended December 31, 2003

                                       OR

[ ]    TRANSITION  REPORT  PURSUANT  TO  SECTION  13 OR 15(d) OF THE  SECURITIES
       EXCHANGE ACT OF 1934
       For the transition period from __________________ to __________________


                         Commission file number 1-11238.
                                  NYMAGIC, INC.
             (Exact name of registrant as specified in its charter)

                 New York                                 13-3534162
                 --------                                 ----------
       (State or other jurisdiction of                    (I.R.S. Employer
       incorporation or organization)                     Identification No.)

    919 Third Avenue, New York, NY                              10022
    ------------------------------                              -----
    (Address of principal executive offices)                    (Zip Code)

       Registrant's telephone number, including area code: (212) 551-0600
                                    ---------
           Securities registered pursuant to Section 12(b) of the Act:

       Title of each class:          Name of each exchange on which registered:
  Common Stock, $1.00 par value               New York Stock Exchange

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

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

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

Indicate  by check mark  whether  the  registrant  is an  accelerated  filer (as
defined in Rule 12b-2 of the Act ). Yes X No__

                                  MARKET VALUE
                                  ------------

The   aggregate   market  value  of  the   outstanding   common  stock  held  by
non-affiliates of the registrant,  as of June 30, 2003, the last business day of
the   registrant's   most  recently   completed   second  fiscal  quarter,   was
approximately  $80,657,069,  based on the closing  price of the stock on the New
York Stock Exchange on that date.

                                OUTSTANDING STOCK
                                -----------------

The number of shares  outstanding of each of the registrant's  classes of common
stock,  as of March 1, 2004,  was 9,724,748  shares of common  stock,  $1.00 par
value.

                       DOCUMENTS INCORPORATED BY REFERENCE
                       -----------------------------------

Part III incorporates  information by reference from the registrant's definitive
proxy statement to be filed with the Commission  within 120 days after the close
of the registrant's fiscal year.


<PAGE>


<TABLE>
<CAPTION>

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                                                            NYMAGIC, INC.
------------------------------------------------------------------------------------------------------------------------------------

PART I

----------------------------------------------------------------------------------------------------------------
<S>                    <C>                                                                                                     <C>
                                                                                                                               PAGE

Forward-looking Statements                                                                                                       ii.
Item 1.                Business                                                                                                   1
Item 2.                Properties                                                                                                23
Item 3.                Legal Proceedings                                                                                         23
Item 4.                Submission of Matters to a Vote of Security Holders                                                       23

----------------------------------------------------------------------------------------------------------------

PART II

----------------------------------------------------------------------------------------------------------------

Item 5.                Market for the Registrant's Common Equity and Related Stockholder                                         24
                                Matters
Item 6.                Selected Financial Data                                                                                   25
Item 7.                Management's Discussion and Analysis of Financial Condition and                                           26
                                Results of Operations
Item 7A.               Quantitative and Qualitative Disclosures About Market Risk                                                38
Item 8.                Financial Statements and Supplementary Data                                                               39
Item 9.                Changes in and Disagreements with Accountants on Accounting                                               39
                                and Financial Disclosure
Item 9A.               Controls and Procedures                                                                                   39

----------------------------------------------------------------------------------------------------------------

PART III

----------------------------------------------------------------------------------------------------------------

Item 10.               Directors and Executive Officers of the Registrant                                                        40
Item 11.               Executive Compensation                                                                                    40
Item 12.               Security Ownership of Certain Beneficial Owners and Management                                            40
Item 13.               Certain Relationships and Related Transactions                                                            40
Item 14.               Principal Accounting Fees and Services                                                                    40

----------------------------------------------------------------------------------------------------------------

PART IV

----------------------------------------------------------------------------------------------------------------

Item 15.               Exhibits, Financial Statement Schedules and Reports on Form 8-K                                           41

----------------------------------------------------------------------------------------------------------------

Signatures                                                                                                                       46

Index to Consolidated Financial Statements                                                                                      F-1
</TABLE>


                                        i
<PAGE>


                          FORWARD - LOOKING STATEMENTS


           This report contains certain  forward-looking  statements  concerning
the  Company's   operations,   economic  performance  and  financial  condition,
including, in particular,  the likelihood of the Company's success in developing
and  expanding its  business.  Any  forward-looking  statements  concerning  the
Company's  operations,  economic  performance and financial  condition contained
herein,   including   statements  related  to  the  outlook  for  the  Company's
performance in 2004 and beyond, are made under the safe harbor provisions of the
Private  Securities  Litigation  Reform Act of 1995.  These statements are based
upon a number of  assumptions  and  estimates  which  inherently  are subject to
uncertainties  and  contingencies,  many of which are beyond the  control of the
Company.  Some of these assumptions may not materialize and unanticipated events
may occur  which  could  cause  actual  results to differ  materially  from such
statements.  These include,  but are not limited to, the cyclical  nature of the
insurance and  reinsurance  industry,  premium rates,  investment  results,  the
estimation  of  loss  reserves  and  loss  reserve  development,   uncertainties
associated with asbestos and environmental claims,  including  difficulties with
assessing latent injuries and the impact of litigation settlements, bankruptcies
and potential legislation,  the uncertainty surrounding the loss amounts related
to the attacks of September  11, 2001,  the  occurrence  and effects of wars and
acts of terrorism, net loss retention, the effect of competition, the ability to
collect  reinsurance  receivables  and  the  timing  of  such  collections,  the
availability and cost of reinsurance,  the ability to pay dividends,  regulatory
changes,  changes in the ratings  assigned  to the  Company by rating  agencies,
failure to retain key personnel,  the  possibility  that our  relationship  with
Mariner Partners, Inc. could terminate or change, and the fact that ownership of
our common stock is concentrated  among a few major  stockholders and is subject
to the voting agreement,  as well as assumptions underlying any of the foregoing
and are generally expressed with words such as "intends,"  "intend," "intended,"
"believes,"   "estimates,"   "expects,"   "anticipates,"   "plans,"  "projects,"
"forecasts,"  "goals," "could have," "may have" and similar  expressions.  These
risks  could  cause  actual  results  for the 2004  year and  beyond  to  differ
materially  from those  expressed in any  forward-looking  statements  made. The
Company   undertakes   no   obligation   to  update   publicly   or  revise  any
forward-looking statements made.


                                       ii
<PAGE>


                                     Part I

--------------------------------------------------------------------------------
Item 1.   Business
--------------------------------------------------------------------------------

General

           NYMAGIC,  INC., a New York  corporation (the "Company" or "NYMAGIC"),
is a holding company which owns and operates the following insurance  companies,
risk bearing entities and insurance underwriters and managers:

           Insurance Companies and Lloyd's Corporate Capital Vehicle:
           ---------------------------------------------------------

           New York Marine And General Insurance Company  ("New York Marine")
           Gotham Insurance Company  ("Gotham")
           MMO UK, Ltd.  ("MMO UK")
           MMO EU, Ltd.  ("MMO EU")

           Insurance Underwriters and Managers:
           -----------------------------------

           Mutual Marine Office, Inc.  ("MMO")
           Pacific Mutual Marine Office, Inc.  ("PMMO")
           Mutual Marine Office of the Midwest, Inc.  ("Midwest")

           New York Marine and Gotham each currently holds a financial strength
rating of A ("Excellent") from A.M. Best Company. This is the third highest of
fifteen rating levels in A.M. Best's classification system. MMO UK, as a
corporate member of Lloyd's of London ("Lloyd's"), is not separately rated.
Lloyd's is currently rated A- ("Excellent"), which is the fourth highest rating
level in A.M. Best's classification system. Many of the Company's insureds rely
on ratings issued by rating agencies. Any adverse change in the rating assigned
to New York Marine and Gotham by a rating agency could adversely impact our
ability to write premiums. MMO UK has not provided capacity, which is the
ability to underwrite a certain amount of business, to any Lloyd's syndicate
since 2002.

           The Company has specialized in underwriting ocean marine, inland
marine, aircraft and other liability insurance through insurance pools managed
by MMO, PMMO, and Midwest (collectively referred to as "MMO and affiliates")
since 1964. However, the Company has ceased writing any new policies covering
aircraft risks subsequent to March 31, 2002. The Company decided to exit the
commercial aviation insurance business because it is highly competitive, had
generated underwriting losses for most years during the 1990's, and because it
is highly dependent on the purchase of substantial amounts of reinsurance, which
became increasingly expensive after the events of September 11, 2001. This
decision has enabled the Company to concentrate on its core lines of business,
which include ocean marine, inland marine/fire and other liability.

           In addition to managing the insurance pools as discussed below, the
Company participates in the risks underwritten for the pools through New York
Marine and Gotham. All premiums, losses and expenses are pro-rated among pool
members in accordance with their pool participation percentages.

           In 1997, the Company formed MMO EU as a holding company for MMO UK,
which operated as a limited liability corporate vehicle to provide capacity, or
the ability to underwrite a certain amount of business, for syndicates within
Lloyd's. Lloyd's consists of a number of syndicates whose purpose is to serve as
risk taking entities. Syndicates maintain a certain amount of capacity, which is
the ability to write premiums, depending upon the level of capital provided by
the syndicate's investors. This capacity is then allocated to investors in the
syndicate based upon their ratio of capital provided to the syndicate.

           In 1997, the Company acquired ownership of a Lloyd's managing agency,
which was subsequently renamed MMO Underwriting Agency, Ltd, and commenced
underwriting in 1998 for the Company's wholly owned subsidiary MMO UK, which in
2000, provided 100%, or $29.8 million, of the capacity for Lloyd's Syndicate
1265, which primarily wrote marine insurance. In 2000, the Company sold MMO
Underwriting Agency Ltd. in exchange for a minority interest in Cathedral
Capital PLC, which manages Lloyd's Syndicate 2010, and Lloyd's Syndicate 1265
was placed into runoff. "Runoff" is a term used to refer to an insurer that has
ceased writing new insurance policies but that continues to exist for the
purpose of paying claims on policies that it has already written. In 2001, its
last active year of underwriting, MMO UK provided approximately 11.2%, or $13.6
million, of the capacity for Lloyd's Syndicate 2010 which primarily writes
assumed property and aviation insurance. In 2001, the Company initiated a
withdrawal from its London operations which was subsequently completed in 2002.
MMO EU, MMO UK, Lloyd's Syndicate 1265 and Lloyd's Syndicate 2010 are
collectively hereinafter referred to as "MMO London".


                                       1
<PAGE>


           MMO UK has not provided capacity to any Lloyd's syndicate since 2002.
In February  2003, the Company sold its minority  interest in Cathedral  Capital
PLC for  approximately  $2.8  million.  This sale had no material  effect on the
Company's results of operations.


The Pools

           MMO,  located  in New  York,  PMMO,  located  in San  Francisco,  and
Midwest,  located in  Chicago  (the  "Manager"  or the  "Managers"),  manage the
insurance pools in which the Company participates.

           The Managers accept, on behalf of the pools,  insurance risks brought
to the pools by brokers  and  others.  All  premiums,  losses and  expenses  are
pro-rated   among  the  pool  members  in  accordance   with  their   percentage
participation in the pools. Originally,  the members of the pools were insurance
companies that were not affiliated with the Managers. New York Marine and Gotham
joined the pools in 1972 and 1987,  respectively.  Subsequent  to their  initial
entry  in the  pools,  New York  Marine  and  Gotham  steadily  increased  their
participation,   while  the  unaffiliated   insurance  companies  reduced  their
participation  or withdrew from the pools  entirely.  Since 1997,  the only pool
members are New York Marine and Gotham,  who together write 100% of the business
produced by the pools.

           Assets  and  liabilities  resulting  from  the  insurance  pools  are
allocated  to the  members  of the  insurance  pools  based  upon  the pro  rata
participation  of each member in each pool which is set forth in the  management
agreement entered into by and between the pool participants and the Managers.

           Pursuant to the pool  management  agreements,  the pool  members have
agreed  not  to  accept  ocean  marine   insurance,   other  than  ocean  marine
reinsurance,  in the United States,  its  territories  and  possessions  and the
Dominion of Canada unless  received  through the Managers or written by the pool
member on its own behalf and have  authorized  the  Managers to accept  risks on
behalf of the pool members and to effect all  transactions  in  connection  with
such  risks,  including  the  issuance  of  policies  and  endorsements  and the
adjustment of claims.  As compensation for its services,  the Managers receive a
fee of 5.5% of gross premiums  written by the pools and a contingent  commission
of 10% on net underwriting profits, subject to adjustment.

           As  part  of its  compensation,  the  Manager  also  receives  profit
commissions  on pool  business  ceded to reinsurers  under  various  reinsurance
agreements. Profit commissions on business ceded to reinsurers are calculated on
an earned  premium basis using  inception to date  underwriting  results for the
various  reinsurance  treaties.  Adjustments  to  commissions,   resulting  from
revisions in coverage, retroactive premium or audit adjustments, are recorded in
the period when realized and billed.  Subject to review by the  reinsurers,  the
Managers calculate the profitability of all profit commission  agreements placed
with various reinsurance companies.

           Two former pool  members,  Utica  Mutual  Insurance  Company  ("Utica
Mutual")  and  Arkwright  Mutual  Insurance  Company  ("Arkwright"),   which  is
currently part of the FM Global Group, withdrew from the pools in 1994 and 1996,
respectively,  and retained liability for their effective pool participation for
all loss  reserves,  including  losses  incurred but not  reported  ("IBNR") and
unearned  premium  reserves  attributable  to policies  effective prior to their
withdrawal from the pools.

           On May 28, 2003,  an  arbitration  procedure  was completed and Utica
Mutual was ordered to pay MMO  approximately  $7.8  million,  which  represented
Utica  Mutual's  funding  requirement  to the  pools  and had no  impact  on the
Company's results of operations.  In addition,  the Company was awarded interest
of approximately $1 million on a pre-tax basis,  which was reflected in the 2003
results of operations as other income.  Following the award,  these amounts were
paid in full.  This award  confirmed  that,  as a pool  member,  Utica Mutual is
required to fund gross losses paid by MMO, acting as managing agent.

           The  Company  is not  aware of any  facts  that  could  result in any
possible defaults by either Arkwright or Utica Mutual with respect to their pool
obligations,  which  might  impact  liquidity  or results of  operations  of the
Company, but there can be no assurance that such events will not occur.


                                       2
<PAGE>


Segments

           The  domestic  insurance  companies  consist  of New York  Marine and
Gotham.  New York Marine and Gotham underwrite  insurance  business by accepting
risks generally  through insurance  brokers.  The domestic  insurance  companies
engage in  business  in all 50 states  and also  accept  business  risks in such
worldwide  regions as Europe,  Asia, and Latin America.  See  "Regulation".  The
domestic  insurance  agencies  consist of MMO, PMMO and Midwest.  These agencies
underwrite all the business for the domestic insurance companies.

           The Company considers the four lines of business  underwritten by its
domestic  insurance/agency  companies  plus business  derived from MMO London as
appropriate  segments to report its business  operations.  The Company's overall
performance is evaluated through its five main business segments.

           The domestic insurance/agency  companies underwrite in four different
segments:  ocean marine,  inland marine/fire,  aircraft and non-marine liability
lines of insurance.

           Ocean marine insurance is written on a direct and assumed reinsurance
basis and covers a broad range of classes as follows:

           Hull and Machinery Insurance: Provides coverage for loss of or damage
           to commercial watercraft.

           Cargo Insurance:  Provides coverage for loss of or damage to goods in
           transit.

           Hull and Machinery War Risk Insurance:  Provides coverage for loss of
           or damage to commercial  vessels as a result of war, strikes,  riots,
           and civil commotions.

           Cargo War Risk Insurance:  Provides coverage for loss of or damage to
           goods in transit as a result of war, which can be extended to include
           strikes, riots and civil commotions.

           Protection and Indemnity:  Provides  primary and excess  coverage for
           liabilities  arising  out  of  the  operation  of  owned  watercraft,
           including liability to crew and cargo.

           Charters' Legal Liability:  Provides coverage for liabilities arising
           out of the operation of leased or chartered watercraft.

           Shoreline  Marine  Liability  Exposures:  Provides  coverage for ship
           builders,  ship  repairers,  wharf  owners,  stevedores  and terminal
           operators for liabilities arising out of their operations.

           Marine  Contractor's  Liability:  Provides  coverage for  liabilities
           arising out of onshore and offshore  services  provided to the marine
           and energy industries.

           Maritime  Employers  Liability  (Jones  Act):  Provides  coverage for
           claims arising out of injuries to employees  associated with maritime
           trades who may fall under the Jones Act.

           Marine Umbrella (Bumbershoot) Liability:  Provides coverage in excess
           of primary policy limits for marine insureds.

           Onshore  and  Offshore  Oil  and  Gas   Exploration   and  Production
           Exposures: Provides coverage for physical damage to drilling rigs and
           platforms, associated liabilities and control of well exposures.

           Energy Umbrella (Bumbershoot) Liability:  Provides coverage in excess
           of primary policy limits for exploration and production facilities.

           In August 2003,  the Company  entered into an agreement with Southern
Marine & Aviation,  Inc., an insurance  agency,  to write a primary marine cargo
program.  The program  managed by Southern  Marine & Aviation  will focus on the
underwriting of petroleum and bulk liquid accounts.


           We also  write  inland  marine/fire  insurance,  which  traditionally
includes  property  while  being  transported,  or  property  of a  movable,  or
"floating"  nature.  Inland marine,  among other things,  includes insurance for
motor truck cargo and transit  shipments,  equipment  floaters and miscellaneous
property  floaters.  Inland marine also includes


                                       3
<PAGE>


excess & surplus lines property  coverage on unique or hard to place  commercial
property risks that do not fit into standard commercial lines coverages.  Excess
and surplus lines property risks are written primarily through Gotham.

           In addition,  we write other or non-marine  liability  insurance on a
direct and assumed reinsurance basis and includes,  among other things, coverage
for manufacturers and contractors risks,  building owners and commercial stores,
products liability exposures,  employment practices  liability,  surety,  excess
workers   compensation,    miscellaneous   errors   and   omissions/professional
liabilities including coverage to professional consultants, professional service
providers  and testing  labs and other  casualty  excess and surplus  line risks
written primarily through Gotham. The Company also writes commercial  automobile
liability insurance covering mid-sized trucking fleets in the New York area.

           Aircraft  insurance  provides  insurance   primarily  for  commercial
aircrafts and includes hull and engine insurance, liability insurance as well as
products  liability  insurance.  Coverage  is written  on a direct  and  assumed
reinsurance  basis.  The Company has ceased  writing any new  policies  covering
aircraft insurance subsequent to March 31, 2002.

           MMO  London,  the  fifth  business  segment,  consists  of  insurance
participation in Lloyd's.  Lloyd's  provides  worldwide venues for MMO London to
underwrite  insurance.  MMO  London has not  provided  capacity  to any  Lloyd's
syndicate  since  January  1, 2002.  Business  obtained  by MMO  London  through
Syndicate  1265  included  ocean marine  insurance.  Business  obtained  through
Syndicate 2010 included treaty reinsurance of property and aircraft insurance.

           The following  tables set forth the  Company's  gross and net written
premiums, after reinsurance ceded, including business from MMO London.

<TABLE>
<CAPTION>

Gross Premiums Written by
    Segment                                                    Year Ended December 31,
-----------------                       ---------------------------------------------------------------
                                              2003                   2002                    2001
                                        ---------------------------------------------------------------
                                                              (Dollars in thousands)
<S>                                     <C>       <C>          <C>       <C>             <C>       <C>
Ocean marine ................           $ 94,649   66%         $ 89,301   59%            $ 63,691   43%
Inland marine/Fire ..........             16,515   12%           13,311    9%               6,284    4%
Other liability .............             28,468   20%           13,874    9%               5,551    4%
                                        ---------------------------------------------------------------
           Subtotal                      139,632   98%          116,486   77%              75,526   51%
Aircraft ....................              3,565    2%           35,874   23%              50,485   34%
MMO London ..................                 --    --              157    --              21,632   15%
                                        ---------------------------------------------------------------
Total .......................           $143,197  100%         $152,517  100%            $147,643  100%
                                        ===============================================================


Net Premiums Written by
    Segment                                                    Year Ended December 31,
-----------------                       ---------------------------------------------------------------
                                              2003                   2002                    2001
                                        ---------------------------------------------------------------
                                                              (Dollars in thousands)

Ocean marine ................           $ 67,744   69%          $70,839   67%            $ 45,849   51%
Inland marine/Fire ..........              4,833    5%            2,975    3%               1,349    1%
Other liability .............             22,961   23%            9,960    9%               4,684    5%
                                        ---------------------------------------------------------------
           Subtotal                       95,538   97%           83,774   79%              51,882   57%
Aircraft ....................              2,769    3%           22,366   21%              26,556   30%
MMO London ..................                 --    --              302    --              11,254   13%
                                        ---------------------------------------------------------------
Total .......................           $ 98,307  100%         $106,442  100%            $ 89,692  100%
                                        ===============================================================
</TABLE>


Reinsurance Ceded

           Ceded premiums  written to reinsurers in 2003, 2002 and 2001 amounted
to $44.9 million, $46.1 million and $58.0 million, respectively.

           A  reinsurance  transaction  takes  place when an  insurance  company
transfers  (cedes) a portion or all of its liability on insurance  written by it
to another insurer.  The reinsurer assumes the liability in return for a portion
or all


                                       4
<PAGE>


of the premium. The ceding of reinsurance does not legally discharge the insurer
from its direct liability to the insured under the policies  including,  but not
limited to, payment of valid claims under the policies. The Company, through the
pools,  cedes the greater part of its  reinsurance  through  annual  reinsurance
agreements  (treaties) with other  insurance  companies.  These treaties,  which
cover entire lines or classes of insurance,  allow the Company to  automatically
reinsure  risks  without  having  to  cede  liability  on  a  policy  by  policy
(facultative) basis, although facultative reinsurance is utilized on occasion.

           Generally,  the  Managers  place  reinsurance  with  companies  which
initially  have an A.M. Best rating of A-  (Excellent)  or greater or which have
sufficient  financial strength,  in management's  opinion, to warrant being used
for reinsurance  protections.  The Managers also examine financial statements of
reinsurers  and review such  statements  for financial  soundness and historical
experience. In addition, the Company, through the pools, withholds funds and may
obtain letters of credit under  reinsurance  treaties in order to  collateralize
the  obligations of reinsurers.  The Company  continues to monitor the financial
status of all  reinsurers on a regular  basis,  as well as the timely receipt of
cash, to assess the ability of reinsurers to pay reinsurance claims.

           The Company,  through the pools,  attempts to limit its exposure from
losses on any one occurrence  through the use of various  excess of loss,  quota
share and  facultative  reinsurance  arrangements  and endeavors to minimize the
risk of default by any one  reinsurer by  reinsuring  risks with many  different
reinsurers.  The Company utilizes many separate  reinsurance treaties each year,
generally with a range of 5 to 15 reinsurers  participating on each treaty. Many
reinsurers  participate on multiple  treaties.  The Company utilizes quota share
reinsurance  treaties in which the reinsurers  participate on a set proportional
basis in both the premiums and losses. Additionally, the Company utilizes excess
of loss reinsurance treaties in which the reinsurers,  in exchange for a minimum
premium,  subject to upward  adjustment based upon premium volume,  agree to pay
for that part of each loss in excess of an agreed  upon  amount.  The  Company's
retention of exposure, net of these treaties, varies among its different classes
of business and from year to year,  depending on several factors,  including the
pricing  environment  on both the direct  and ceded  books of  business  and the
availability of reinsurance.

           Until January 1, 2004, the Company generally obtained reinsurance for
each line of business to reduce our  exposure to a maximum of $2 million for any
one risk or  occurrence.  From time to time,  however,  the Company has retained
liability in excess of $2 million for or any one insured or any one  occurrence.
Such instances generally reflected a business decision regarding the cost and/or
the  availability  of  reinsurance.  During the past two years,  there have been
three  instances  in which the  Company's  net loss  retention  has  exceeded $2
million. For 2002, the Company's net retention per loss in the ocean marine line
was limited to $2 million per risk, but some losses could aggregate resulting in
a net  retention  of $3 million,  and one such  aggregation  did result in a net
retention of $3 million to the Company. In August 2003, the Company entered into
a program in which it may underwrite cargo insurance with retained  liability of
up to $2.5  million  for any one  insured or any one  occurrence;  however,  the
Company has not  experienced any losses on this program in excess of $2 million.
In the final year in which the Company wrote aviation  insurance,  April 1, 2001
to April 1, 2002,  the Company wrote some policies with a net loss  retention of
up to $3  million  for any one  aircraft  or any one  occurrence.  However,  the
Company did not experience any losses for which it was required to retain losses
in excess of $2 million.  In 2004,  the Company  increased  its  exposure in the
ocean  marine  line to a net  loss  retention  of up to $4  million  for any one
occurrence  and the Company  endeavors to reinsure our other lines to reduce our
exposure to a maximum of $2 million on any one risk.

           The Company attempts to limit its exposure from catastrophes  through
the purchase of general excess of loss  reinsurance,  which provides coverage in
the event that multiple  insureds incur losses arising from the same occurrence.
These coverages require the Company to pay a minimum premium,  subject to upward
adjustment based upon premium volume. The treaties,  which extend in general for
a twelve month  period,  obligate the  reinsurers  to pay for the portion of the
Company's aggregate losses (net of specific  reinsurance) which fall within each
treaty's  coverage.  In the event of a loss, the Company may be obligated to pay
additional reinstatement premiums under its excess of loss reinsurance treaties,
to the extent  that such  treaties  cover a portion of the loss and in an amount
not greater than the original premium paid under such treaties. The Company also
writes  hull and  cargo war  risks.  In the event  there  are  losses  from such
policies  arising from one  occurrence,  the aggregation of such losses would be
covered under the  Company's  reinsurance  program,  which reduced the Company's
exposure to a loss of $2 million per occurrence in 2003.  The Company  increased
its aggregate  exposure to a loss of $4 million per  occurrence  in 2004.  Every
effort is made to  purchase  sufficient  reinsurance  coverage  to  protect  the
Company  against the  cumulative  impact of several losses arising from a single
occurrence,  but there is no guarantee that such reinsurance coverage will prove
sufficient.


                                       5
<PAGE>


           The  Company  reinsures  risks  with  several  domestic  and  foreign
reinsurers  as well as syndicates of Lloyd's.  The Company's  largest  unsecured
reinsurance  receivables  as of  December  31,  2003  were  from  the  following
reinsurers:

<TABLE>
<CAPTION>

           Reinsurer                                             Amounts                     A.M. Best Rating
           ----------------------------------                    ------------                ----------------
                                                                 (in millions)
<S>                                                              <C>
           Lloyd's Syndicates                                    $    51.5                   A- (Excellent)
           Swiss Reinsurance America Corp.                            10.8                   A+ (Superior)
           Lloyd's (Equitas)                                           9.7                   NR-3 (Rating Procedure Inapplicable)
           Hartford Fire Insurance Company                             7.6                   A+ (Superior)
           FM Global (Arkwright)                                       6.5                   A+ (Superior)
           Folksamerica Reinsurance Company                            5.9                   A (Excellent)
           Liberty Mutual Insurance Company                            4.5                   A (Excellent)
           GE Reinsurance Corp.                                        3.8                   A (Excellent)
           Transatlantic Reinsurance Company                           3.2                   A++ (Superior)
           Utica Mutual Insurance Company                              3.0                   A- (Excellent)
                                                                       ---

           Total                                                    $106.5
</TABLE>

           The  reinsurance  contracts  with  the  above  listed  companies  are
generally  entered into annually and provide coverage for claims occurring while
the relevant  agreement  was in effect,  even if claims are made in later years.
The contracts  with Arkwright and Utica Mutual were entered into with respect to
their participation in the MMO pools.

           Lloyd's maintains a trust fund, which was established for the benefit
of all United States ceding companies. For the three most recent years for which
Lloyd's has reported results, 2000, 1999, and 1998, losses were reported for all
three  years.  Lloyd's  is  expected  to report a profit for 2002 and a loss for
2001.  Lloyd's  receivables  represent  amounts due from 118  different  Lloyd's
syndicates.

            Equitas,  a  Lloyd's  company   established  to  settle  claims  for
underwriting years 1992 and prior, maintains policyholders' surplus at March 31,
2003 of  approximately  527 million Pounds Sterling (US $830 million).  However,
given the  uncertainty  surrounding  the adequacy of surplus and  sufficiency of
assets  in  Equitas  to meet its  ultimate  obligations,  there is a  reasonable
possibility  that the  Company's  collection  efforts  relating  to  reinsurance
receivables from Equitas may be adversely affected in the future.

           At December 31, 2003,  the  Company's  reinsurance  receivables  from
reinsurers  other  than those  listed  above were  approximately  $161  million,
including amounts recoverable for paid losses,  case loss reserves,  IBNR losses
and  unearned  premiums,  and net of ceded  balances  payable.  This  amount  is
recoverable  collectively from  approximately  570 reinsurers or syndicates,  no
single one of whom was liable to the Company for an  unsecured  amount in excess
of approximately $3 million.

           Approximately 90% of the Company's total  reinsurance  receivables as
of December 31, 2003 are fully  collateralized by letters of credit and or funds
withheld,  or reside  with  entities  rated  "A-" or higher,  or are  subject to
offsetting balances.

           The only  reinsurer  that has received  funds from the Company in the
past three years and failed to honor its  obligations  to us is Lloyd's,  but we
subsequently recovered all paid loss balances currently due from Lloyd's through
an  arbitration  proceeding.  However,  some  of  the  reinsurers  to  which  we
previously ceded premiums are contesting  coverage issues and their  obligations
to reinsure claims we paid on liability  policies written during the period 1978
to 1985. We are vigorously enforcing collection of these reinsurance receivables
through  arbitration   proceedings  and/or  commutation,   but  the  unfavorable
resolution of these arbitration  proceedings and commutation  negotiations could
be  material  to our  results of  operations.  The  estimated  amounts  due from
financially  impaired  reinsurers  are  included in our  reserves  for  doubtful
accounts on  reinsurance  receivables  of $12.8  million and $13.3 million as of
December 31, 2003 and 2002, respectively.

Reserves

           The  applicable  insurance  laws  under  which the  Company  operates
require  that  reserves  be  maintained  for the  payment  of  losses  and  loss
adjustment  expenses  with  respect to both  reported  and IBNR losses under its
insurance  policies.  IBNR  losses  are  those  losses,  based  upon  historical
experience and other relevant data, that the Company  estimates will be reported
or ultimately develop under policies issued by the Company.


                                       6
<PAGE>


Case loss reserves are determined by evaluating  reported claims on the basis of
the type of loss involved,  knowledge of the circumstances surrounding the claim
and the  policy  provisions  relating  to the  type of  loss.  IBNR  losses  are
estimated on the basis of statistical  information  with respect to the probable
number and nature of losses,  which have not yet been  reported.  The  Company's
IBNR  is  based  upon a  review  of its  historical  reported  loss  development
patterns.  The  establishment of reserves (and the increase in reserves) has the
effect of reducing income while the reduction of reserves increases income.

           The loss  settlement  period for payment of  insurance  claims may be
many  years,  and during this period it often  becomes  necessary  to adjust the
estimate of  liability  on a claim  either  upward or  downward.  The classes of
marine,  aircraft  and  non-marine  liability  insurance  written by the Company
include  liability  classes which  historically  have had longer periods of time
between occurrence of an insurable event,  reporting of the claim to the Company
and final settlement.  In such cases, the Company is forced to estimate reserves
with the possibility of making several  adjustments to reserves during this time
period. Other classes of insurance,  such as property and claims-made non-marine
liability  classes,  historically  have  had  shorter  periods  of time  between
occurrence  of an  insurable  event,  reporting  of the claim to the Company and
final  settlement.  The reserves with respect to such classes are less likely to
be readjusted.

           Prior to 1997,  when the Company  began to write 100% of the business
produced  by  the  pools,  the  Company,   from  time  to  time,  increased  its
participation  in the pools. The effect of each such increase was prospective in
nature  and does not  affect the loss  reserves  set forth  herein for the years
prior to the effective date of any such change in participation percentage.

           The Company is required to maintain  reserves to cover our  estimated
ultimate liability of losses and loss adjustment  expenses for both reported and
unreported  claims  incurred.  These reserves are what management  estimates the
settlement and  administration of claims will cost, based on our assumptions and
facts and circumstances known to the Company.  Because of the uncertainties that
surround  estimating  loss reserves and loss  adjustment  expenses,  the Company
cannot be certain that ultimate losses will not exceed these estimates of losses
and loss adjustment  reserves.  The low frequency and high severity of the risks
we insure make it  difficult to assess the  adequacy of our loss  reserves.  The
level of catastrophe  losses has fluctuated in the past and may fluctuate in the
future. For example,  after tax losses resulting from catastrophes in 2003, 2002
and 2001  amounted to $0, $2.0 million and $9.0  million,  respectively.  If our
reserves  are  insufficient  to cover  our  actual  losses  and loss  adjustment
expenses,  we would  have to  augment  our  reserves  and  incur a charge to our
earnings. These charges could be material.

           Unpaid  losses and loss  adjustment  expenses  for each  segment on a
gross and net of reinsurance basis as of December 31, 2003 were as follows:


                                          Gross               Net
                                       --------               ---
                                              (in thousands)

             Ocean marine              $199,406          $109,035
             Inland marine/fire          26,483             7,142
             Other liability             96,555            55,741
             Aircraft                   196,486            70,393
                                        -------            ------

                     Total             $518,930          $242,311
                                       --------          --------

           In 2001,  the  Company  recorded  losses of $154.9  million  and $8.0
million on a gross and net of reinsurance basis,  respectively,  in its aircraft
line of business as a result of the  terrorist  attacks of September 11, 2001 on
the World Trade Center,  the Pentagon and the hijacked  airliner that crashed in
Pennsylvania (collectively, the "WTC attack"). Additional reinsurance costs were
also incurred on the WTC attack and amounted to $5.0 million. The ultimate gross
and net liability for unpaid losses  resulting from the WTC attack represent the
estimated  ultimate costs of all incurred claims and claim adjustment  expenses.
Since the gross  liability  and related  reinsurance  recoverables  are based on
estimates, the ultimate liability may change from the amount provided currently,
depending upon revisions in gross loss  estimates and the  interpretation  as to
the number of occurrences as defined in the aircraft ceded reinsurance treaties.
Since 2001,  reinsurance  recoverables  related to the WTC attack have decreased
and the net liability has  increased as a result of the  commutation  of certain
reinsurance recoverables.


                                       7
<PAGE>


Asbestos and Environmental Reserves

           Our insurance  subsidiaries  are required to record an adequate level
of reserves  necessary to provide for all known and unknown  losses on insurance
business  written.  Our  insurance  subsidiaries  have not had  difficulties  in
maintaining  reserves  in recent  years at  aggregate  levels  which  management
believes to be  adequate  based on  management's  best  estimates,  but the loss
reserving process is subject to many uncertainties as further described herein.

           The  difficulty in estimating  our reserves is increased  because the
Company's   loss  reserves   include   reserves  for   potential   asbestos  and
environmental liabilities.  Asbestos and environmental liabilities are difficult
to  estimate  for many  reasons,  including  the long  waiting  periods  between
exposure and  manifestation of any bodily injury or property damage,  difficulty
in identifying the source of the asbestos or environmental  contamination,  long
reporting  delays  and  difficulty  in  properly  allocating  liability  for the
asbestos or  environmental  damage.  Legal tactics and judicial and  legislative
developments affecting the scope of insurers' liability,  which can be difficult
to predict, also contribute to uncertainties in estimating reserves for asbestos
and environmental liabilities.

           The Company  participated  in the issuance of both umbrella  casualty
insurance  for  various  Fortune  1000  companies  and  ocean  marine  liability
insurance  for  various  oil  companies  during  the  period  from 1978 to 1985.
Depending on the calendar year, the insurance pools' net retained  liability per
occurrence after applicable reinsurance ranged from $250,000 to $2,000,000.  The
Company's  effective pool participation on such risks varied from 11% in 1978 to
59% in 1985.  Ocean marine and non-marine  policies issued during the past three
years also provide some coverage for environmental risks.

           At December 31, 2003 and 2002,  the  Company's  gross,  ceded and net
loss  and  loss  adjustment  expense  reserves  for  all  asbestos/environmental
policies amounted to $77.3 million,  $65.5 million and $11.8 million,  and $67.7
million,  $55.0 million and $12.7 million,  respectively.  The increase in gross
reserves during 2003 is attributable to case reserves on a few policies.

           The   Company    believes    that   the    uncertainty    surrounding
asbestos/environmental  exposures, including issues as to insureds' liabilities,
ascertainment of loss date, definitions of occurrence, scope of coverage, policy
limits and application and interpretation of policy terms,  including exclusions
renders it difficult to determine the ultimate  loss for  asbestos/environmental
related   claims.   Given   the   uncertainty   in  this   area,   losses   from
asbestos/environmental  related claims may develop  adversely and,  accordingly,
management  is unable to estimate  the range of  possible  loss that could arise
from  asbestos/environmental  related claims.  However, the Company's net unpaid
loss and loss adjustment  expense reserves in the aggregate,  as of December 31,
2003, represent management's best estimate.

           The  following  table  sets  forth  the  Company's  net loss and loss
adjustment  expense experience for  asbestos/environmental  policies for each of
the past three years:

<TABLE>
<CAPTION>

                                                               Year ended December 31,
                                                               -----------------------

                                                         2003          2002           2001
                                                         ---------------------------------
                                                                  (In thousands)
<S>                                                     <C>           <C>          <C>
Asbestos/Environmental
----------------------
Net unpaid losses and loss adjustment expenses
    (including IBNR) at beginning of period             $12,696       $11,492      $12,357
Net incurred losses and loss adjustment expenses            753         2,195          567
Net paid loss settlements                                (1,501)         (880)        (996)
Net loss adjustment expense payments
(cost of administering claims)                             (151)         (111)        (436)
                                                        ----------------------------------
Net unpaid losses and loss adjustment expenses
    (including IBNR) at end of period                   $11,797       $12,696      $11,492
                                                        ==================================
</TABLE>


                                       8
<PAGE>


           The  following  table  sets forth a  reconciliation  of the number of
claims  relating to  asbestos/environmental  policies for each of the past three
years:

<TABLE>
<CAPTION>

                                                                 Year ended December 31,
                                                                 -----------------------
                                                           2003             2002      2001
                                                           -------------------------------

<S>                                                        <C>               <C>       <C>
Number of claims pending at beginning of period            490               409       418
Number of claims reported                                   54               186        95
Number of claims settled/dismissed or otherwise resolved   (91)             (105)      (104)
                                                           --------------------------------
Number of claims pending at end of period                  453               490        409
                                                           ================================
</TABLE>

           Claims reported involve a large number of relatively small individual
claims of a similar type.  Additional asbestos claims continue to be reported to
the Company,  including  claims brought by  individuals  who do not appear to be
impaired by asbestos  exposure.  There is also an increasing trend in the number
of  companies  seeking  bankruptcy  protection  as a result of  asbestos-related
liabilities.   These   bankruptcy   proceedings   may  impact  the   Company  by
significantly  accelerating and increasing loss payments made by the Company. As
a result of these trends,  there is a high degree of uncertainty with respect to
future exposure from asbestos claims.

Other Reserves

           The insurance pools have written  coverage for products  liability as
part of other  liability  insurance  policies  issued since 1985.  The insurance
pools'  maximum  loss  per  risk is  generally  limited  to  $1,000,000  and the
Company's  participation  percentage  ranges  from 59% to 100% based upon policy
year.  The Company  believes that its reserves with respect to such policies are
adequate to cover the ultimate resolution of all such products liability claims.

           The  following  table  shows  changes in the  Company's  reserves  in
subsequent years from prior years' reserves.  Each year the Company's  estimated
reserves  increase  or  decrease  as more  information  becomes  known about the
frequency  and severity of losses for past years.  As indicated in the chart,  a
"redundancy" means the original estimate of the Company's consolidated liability
was  higher  than the  current  estimate,  while a  "deficiency"  means that the
original estimate was lower than the current estimate.

           The first line of the table presents, for each of the last ten years,
the estimated  liability for net unpaid losses and loss  adjustment  expenses at
the end of the year,  including  IBNR losses.  The  estimated  liability for net
unpaid  losses and loss  adjustment  expenses is  determined  at the end of each
calendar year.  Below this first line, the first section of the table shows,  by
year, the cumulative amounts of net loss and loss adjustment expenses paid as of
the end of each  succeeding  year,  expressed  as a  percentage  of the original
estimated net liability for such amounts.

           The second section sets forth the  re-estimates in later years of net
incurred  losses,  including  net  payments,  as a  percentage  of the  original
estimated net liability for net unpaid losses and loss  adjustment  expenses for
the years indicated.  Percentages  less than 100% represent a redundancy,  while
percentages  greater  than  100%  represent  a  deficiency.  The net  cumulative
redundancy  (deficiency)  represents,  as of December  31, 2003,  the  aggregate
change in the estimates over all prior years.  The changes in re-estimates  have
been reflected in results from operations over the periods shown.

           The third section sets forth the cumulative  redundancy  (deficiency)
of unpaid losses and loss adjustment expenses on a gross basis, which represents
the  aggregate  change in the  estimates  of such  losses  over all prior  years
starting with the 1993 calendar year.

           The Company calculates its loss reserves on the basis of management's
best  estimate.  In 8 out of  the  past  10  years,  the  Company  has  recorded
redundancies in its net loss reserve position. The Company's considered view, in
light of this history,  is that management is highly sensitive to the nuances of
the Company's  lines of business and that  establishing  net loss reserves based
upon  management's  best estimate is a more reliable  method of calculating  net
loss reserves than  providing a range of net loss reserves and gives the Company
greater assurance that its net loss reserves are appropriate.  In addition,  the
Company  believes  that its history of  establishing  adequate net loss reserves
compares favorably with industry experience.


                                       9
<PAGE>


           The Company  considers  a variety of factors in its  estimate of loss
reserves.  These elements include, but are not necessarily limited to, the level
of catastrophe  losses incurred  during the period,  the length of the reporting
tail (i.e.  occurrence  versus  claims  made  coverage),  the nature of the risk
insured (i.e.  property versus  liability),  the level of net retention per loss
and the emergence of identifiable trends in the statistical analysis of paid and
incurred  loss data.  Case loss reserves are  determined by evaluating  reported
claims on the basis of the type of loss involved, knowledge of the circumstances
surrounding  the claim and the policy  provisions  relating to the type of loss.
IBNR losses are estimated on the basis of statistical  information  with respect
to the probable  number and nature of losses which have not yet been reported to
the Company.  The Company utilizes many different types of actuarial  methods in
calculating  IBNR.  This includes an evaluation of IBNR by the use of historical
paid loss and incurred data utilizing the Bornheutter-Ferguson method.



<TABLE>
<CAPTION>

                                                                          Year Ended December 31,
                    ----------------------------------------------------------------------------------------------------------------
Year Ended               1993      1994      1995       1996      1997      1998      1999       2000      2001      2002     2003
December 31              ----      ----      ----       ----      ----      ----      ----       ----      ----      ----     ----
<S>                      <C>       <C>       <C>        <C>       <C>       <C>       <C>        <C>       <C>       <C>      <C>

Estimated Liability for Net Unpaid Losses and Loss Adjustment Expenses
                        208,366   212,377   229,916    227,370   222,335   213,589   196,865    199,685   210,953   208,979  242,311

Cumulative Amount of Net Losses and Loss Adjustment Expenses Paid as a Percentage of Original Estimate:

     1  Year Later        22%       20%       20%        17%       19%       20%       24%        28%       30%        8%
     2  Years Later       37%       34%       32%        30%       32%       35%       39%        56%       30%
     3  Years Later       49%       44%       42%        42%       43%       43%       53%        64%
     4  Years Later       57%       53%       51%        51%       49%       51%       58%
     5  Years Later       64%       62%       58%        56%       54%       55%
     6  Years Later       71%       68%       62%        58%       57%
     7  Years Later       76%       72%       64%        61%
     8  Years Later       77%       73%       66%
     9  Years Later       78%       75%
    10  Years Later       80%


Net Liability Re-estimated including Cumulative Net Paid Losses and Loss Adjustment Expenses as a percentage of Original Estimate:

     1  Year Later        99%       97%       94%        90%       91%       94%       96%       105%      102%       99%
     2  Years Later       96%       95%       87%        87%       87%       87%       94%       108%      101%
     3  Years Later       95%       91%       86%        85%       83%       84%       95%       104%
     4  Years Later       93%       91%       86%        83%       81%       85%       91%
     5  Years Later       94%       92%       85%        82%       81%       82%
     6  Years Later       95%       93%       84%        82%       80%
     7  Years Later       95%       92%       84%        80%
     8  Years Later       94%       92%       83%
     9  Years Later       95%       91%
    10  Years Later       94%


Cumulative             11,822    18,660    38,968     44,579    45,324    38,859    17,066    (8,850)   (2,111)     1,410
 Redundancy/(Deficiency)

Gross Unpaid          407,321   435,072   417,795    411,837   388,402   401,584   425,469    411,267   534,189   516,002    518,930
  Losses and Loss Adjustment Expenses

Reinsurance          198,955    222,695   187,879    184,467   166,067   187,995   228,604    211,582   323,236   307,023    276,619
  Recoverable on Unpaid Losses and Loss Adjustment Expenses

Reserve               411,366   445,758   419,901    385,006   403,816   433,241   449,567    458,366   576,835   519,449
  Re-estimated Gross

Reserve               214,822   252,040   228,953    202,215   226,805   258,511   269,767    249,831   363,771   311,879
  Re-estimated Reinsurance Recoverable

Gross Cumulative      (4,045)  (10,686)   (2,106)     26,831  (15,414)  (31,657)  (24,098)   (47,099)  (42,646)   (3,447)
  Redundancy (Deficiency)
</TABLE>



           The net  loss  reserve  deficiency  reported  for the  2001  and 2000
calendar years reflects adverse development from the Company's operations in MMO
London due to higher than expected claim frequencies and the emergence of longer
than  expected  loss  development  patterns.  Also  contributing  to each year's
increase were provisions made for insolvent or financially  impaired  reinsurers
and adverse  development  from the Company's  other  liability  line  reflecting
umbrella  exposures.  Both of the  2001  and  2000  reported  deficiencies  were
partially offset by favorable development in the ocean marine line of business.


                                       10
<PAGE>


           Gross loss reserve  deficiencies  were  reported in most years.  Even
though gross  deficiencies  were reported in those years,  the Company  reported
redundancies in net loss reserves in most of those years. Much of the gross loss
reserve  deficiencies were brought about by adverse  development from MMO London
and adverse gross loss development in its umbrella (other liability) losses as a
result  of  the  additional   development  of  asbestos  losses.   Asbestos  and
environmental liabilities are difficult to estimate for many reasons,  including
the long waiting periods between exposure and manifestation of any bodily injury
or property  damage,  difficulty  in  identifying  the source of the asbestos or
environmental  contamination,  long reporting  delays and difficulty in properly
allocating  liability  developments,  which can be  difficult  to predict,  also
contribute   to   uncertainties   in   estimating   reserves  for  asbestos  and
environmental  liabilities.  However, much of this gross loss reserve deficiency
in the other  liability  line  resulted  in smaller  net  deficiencies  due to a
substantial  amount of the gross loss reserve being  reinsured.  The smaller net
deficiencies were more than offset by redundancies in the Company's ocean marine
line. In addition,  a few large severity losses in the Company's core lines also
contributed  to adverse gross loss  development.  Much of these losses were also
reinsured resulting in an insignificant impact on net development.

           The  following  table  provides  a  reconciliation  of the  Company's
consolidated  liability for losses and loss adjustment expenses at the beginning
and end of 2003, 2002 and 2001:

<TABLE>
<CAPTION>


                                                                            Year ended December 31,
                                                               ------------------------------------
                                                                    2003           2002          2001
                                                                    ---------------------------------
                                                                              (In thousands)
<S>                                                               <C>          <C>          <C>

Net liability for losses and loss adjustment
  expenses at beginning of year ................                  $ 208,979    $ 210,953    $ 199,685
                                                                  ---------    ---------    ---------
Provision for losses and loss adjustment
  expenses occurring in current year ...........                     57,125       68,952       78,221
Increase (decrease) in estimated losses and loss
  adjustment expenses for claims occurring
  in prior years (1) ...........................                     (1,410)       4,389        9,604
Deferred income-loss portfolio
  assumption(2) ................................                         --           15           76
                                                                  ---------    ---------    ---------
Net loss and loss adjustment expenses
  incurred .....................................                     55,715       73,356       87,901
                                                                     ------       ------       ------
Less:
Losses and loss adjustment expense payments
  for claims occurring during:
      Current year .............................                      5,241       11,950       20,354
      Prior years ..............................                     17,142       63,365       56,203
                                                                     ------       ------       ------
                                                                     22,383       75,315       76,557
Add:
Deferred income-loss portfolio assumption(2) ...                         --          (15)         (76)
                                                                  ---------    ---------    ---------
Net liability for losses and loss adjustment
  expenses at year end .........................                    242,311      208,979      210,953
                                                                  ---------    ---------    ---------
Ceded unpaid losses and loss adjustment
  expenses at year end .........................                    276,619      307,023      323,236
                                                                  ---------    ---------    ---------
Gross unpaid losses and loss adjustment
  expenses at year end .........................                  $ 518,930    $ 516,002    $ 534,189
                                                                  =========    =========    =========

           (1) The adjustment to the consolidated  liability for losses and loss adjustment  expenses
     for losses  occurring  in prior years  reflects the net effect of the  resolution  of losses for
     other than full reserve value and subsequent  readjustments of loss values. The decrease in 2003
     of $1.4  million  reflects  favorable  loss  development  arising  from the ocean marine line of
     business,  partially  offset by adverse  development  in the aviation  line for  accident  years
     1997-2000.  The  increase  in 2002 of $4.4  million  reflects  provisions  made  for  insolvent,
     financially impaired and commuted  reinsurers,  and adverse development from the Company's other
     liability line  reflecting  umbrella  exposures.  The 2001 year reflects $9.6 million of adverse
     development  from the  Company's  operations  in MMO London due to higher  than  expected  claim
     frequencies  and  the  emergence  of  longer  than  expected  loss  development  patterns.  Also
     contributing  to the 2001 increase were  provisions  made for insolvent or financially  impaired
     reinsurers.  Both of the 2002 and 2001 amounts were partially offset by favorable development in
     the ocean marine line of business.

           (2) Deferred  income-loss  portfolio  assumption  represents the  difference  between cash
     received and unpaid loss reserves  assumed as a result of the  Company's  assumption of net pool
     obligations from two former pool members, which was initially capitalized and is being amortized
     over the payout period of the related losses.
</TABLE>

           The  principal  differences  between the  consolidated  liability for
unpaid losses and loss adjustment  expenses as reported in the Annual  Statement
filed with state insurance  departments in accordance with statutory  accounting
principles and the liability based on generally accepted  accounting  principles
shown in the above tables are due to the  Company's  assumption of loss reserves
arising from former  participants  in the MMO  insurance  pools,  the  Company's
reserves  for MMO London and reserves for  uncollectible  reinsurance.  The loss
reserves shown in the above tables reflect in each year salvage and  subrogation
accruals  of  approximately  1% to 6%. The  estimated  accrual  for  salvage and
subrogation  is  based  on the  line of  business  and  historical  salvage  and
subrogation  recovery  data.  Under neither  statutory  nor  generally  accepted
accounting  principles are loss and loss adjustment expense reserves  discounted
to present value.

           The following table sets forth the reconciliation of the consolidated
net  liability  for  losses  and loss  adjustment  expenses  based on  statutory
accounting  principles for the domestic insurance  companies to the consolidated
amounts based on accounting  principles  generally accepted in the United States
of America ("GAAP") as of December 31, 2003, 2002 and 2001:


                                       11
<PAGE>


<TABLE>
<CAPTION>

                                                                                Year ended December 31,
                                                                                ----------------------
                                                                          2003         2002         2001
                                                                          ------------------------------
                                                                                  (In thousands)
<S>                                                                       <C>        <C>        <C>

Net liability for losses and loss adjustment expenses
  reported based on statutory accounting principles ..........            $228,760   $195,948   $156,203
Liability for losses and loss adjustment expenses assumed
  from two former pool members ...............................               4,371      4,826      5,360
 (excludes $3,117, $3,351 and $2,402 at  December 31, 2003,
  2002 and 2001, accounted for in the statutory liability for
   losses and loss adjustment expenses)
MMO London ...................................................                  --         --     36,823
Other, net ...................................................               9,180      8,205     12,567
                                                                             -----      -----     ------
Net liability for losses and loss adjustment expenses reported
  based on GAAP ..............................................             242,311    208,979    210,953
Ceded liability for unpaid losses and loss adjustment expenses             276,619    307,023    323,236
                                                                          --------   --------   --------
Gross liability for unpaid losses and loss adjustment expenses            $518,930   $516,002   $534,189
                                                                          ========   ========   ========
</TABLE>


Regulation

           The  Company's  domestic  insurance  companies  are  regulated by the
insurance  regulatory  agencies of the states in which they are authorized to do
business. New York Marine is licensed to engage in the insurance business in all
states.

           Gotham is permitted to write excess and surplus lines  insurance on a
non-admitted basis in all of the states except Arkansas, Massachusetts,  Nevada,
New  Hampshire  and  Vermont.  Gotham is  licensed  to  engage in the  insurance
business in the state of New York and, as such,  cannot write excess and surplus
business in that state.

           Many  aspects of the  Company's  insurance  business  are  subject to
regulation.  For example,  minimum  capitalization  must be maintained;  certain
forms of policies must be approved before they may be offered;  reserves must be
established in relation to the amounts of premiums  earned and losses  incurred;
and, in some cases,  schedules of premium  rates must be approved.  In addition,
state  legislatures  and  state  insurance  regulators   continually  re-examine
existing laws and regulations  and may impose changes that materially  adversely
affect the Company's business.

           The  domestic  insurance  company  subsidiaries  also file  statutory
financial  statements  with each state in the format  specified by the NAIC. The
NAIC provides  accounting  guidelines for companies to file statutory  financial
statements and provides minimum solvency standards for all companies in the form
of risk-based capital  requirements.  The policyholders'  surplus (the statutory
equivalent  of net worth) of each of the domestic  insurance  companies is above
the minimum amount required by the NAIC.

           The NAIC's  project to codify  statutory  accounting  principles  was
approved  by the NAIC in 1998.  The  purpose  of  codification  was to provide a
comprehensive basis of accounting for reporting to state insurance  departments.
The approval of codified  accounting  rules  included a provision  for the state
insurance  commissioners to modify such accounting rules by practices prescribed
or permitted for insurers in their state. The domestic  insurance  companies are
domiciled in the State of New York,  however,  there were no differences in 2003
or in 2002 between  prescribed  accounting  practices and those  approved by the
NAIC.  Codification  became  effective  on  January  1,  2001 and did not have a
material impact on the domestic insurance companies' policyholders' surplus.

           New  York  Marine  and  Gotham  are  subject  to  examination  by the
Insurance  Department of the State of New York.  The insurance  companies'  most
recent  examination  was for the year ended  December  31,  2000.  There were no
significant adjustments which resulted from that examination.

           MMO London  operated  in a highly  regulated  environment  within the
overall Lloyd's market. Lloyd's maintains regulatory departments that review the
management  and operation of all agencies and syndicates to ensure that business
is conducted in accordance  with Lloyd's  standards.  Syndicates are required to
maintain  trust funds for  insurance  transactions,  with strict  guidelines  on
withdrawals from such funds.  Annual solvency tests are conducted to ensure that
syndicates  maintain  minimum  capital  requirements  in accordance  with ratios
prescribed by Lloyd's.


                                       12
<PAGE>


           The following table shows, for the periods  indicated,  the Company's
consolidated  domestic  insurance  companies'  statutory  ratios of net premiums
written (gross premiums less premiums ceded) to policyholders' surplus:


<TABLE>
<CAPTION>

                                                            Year Ended December 31,
                                --------------------------------------------------------------------------------
                                   2003             2002              2001             2000                 1999
                                --------------------------------------------------------------------------------
                                                            (Dollars in thousands)

<S>                             <C>               <C>               <C>               <C>               <C>
Net premiums written......      $ 98,307          $106,140          $ 78,438          $ 61,584          $ 38,741
Policyholders' surplus....       186,325           180,394           152,061           184,688           200,899
                                --------          --------          --------          --------          --------
Ratio ....................      .53 to 1          .59 to 1          .52 to 1          .33 to 1          .19 to 1
</TABLE>

While there are no  statutory  requirements  applicable  to the  Company,  which
establish permissible premium to surplus ratios,  guidelines  established by the
NAIC provide that the statutory net premiums  written to surplus ratio should be
no greater than 3 to 1. The Company is well within those guidelines.

           NYMAGIC's   principal   source  of  income  is  dividends   from  its
subsidiaries,  which  are used for  payment  of  operating  expenses,  including
interest  expense,  loan  repayments  and  payment  of  dividends  to  NYMAGIC's
shareholders. The maximum amount of dividends that may be paid to NYMAGIC by the
domestic  insurance  company  subsidiaries  is  limited  to the lesser of 10% of
policyholders'  surplus or 100% of adjusted net  investment  income,  as defined
under New York Insurance Law. Within this  limitation,  the maximum amount which
could be paid to the Company out of the domestic  insurance  companies'  surplus
was approximately $15,900,000 as of December 31, 2003.

           The Company's subsidiaries have paid dividends to the Company of $9.6
million,  $13.1 million and $12.5 million for the years ended December 31, 2003,
2002 and 2001,  respectively.  During the first quarter of 2004, New York Marine
requested and received approval from the State of New York Insurance  Department
to pay an extraordinary dividend of $15,000,000 to the Company.

           Each of New York  Marine and Gotham is  required  to invest an amount
equal to the greater of its minimum capital or its minimum  policyholder surplus
in obligations of the United States, obligations of the State of New York or its
political  subdivisions,  obligations of other states and obligations secured by
first mortgage loans. Sixty percent of that amount is required to be invested in
obligations  of the United States or obligations of the State of New York or its
political  subdivisions.  In  addition,  each of New York  Marine  and Gotham is
required  to  invest  an  amount  equal to 50% of the  aggregate  amount  of its
unearned  premium,  loss and loss adjustment  expense  reserves in the following
categories:  cash,  government  obligations,  obligations of U.S.  institutions,
preferred  or  guaranteed  shares of U.S.  institutions,  loans  secured by real
property,  real property,  certain permitted foreign investments and development
bank  obligations.  Investments in the foregoing  categories are also subject to
detailed  quantitative  and  qualitative  limitations  applicable  to individual
categories and to an overall  limitation that no more than 10% of each insurance
company's assets may be invested in any one institution.  After each of New York
Marine and Gotham invests an amount equal to 50% of its unearned  premium,  loss
and loss  adjustment  reserves in the  foregoing  investments,  each of New York
Marine and Gotham may  invest in equity and  partnership  interests,  securities
issued by  registered  investment  companies and other  otherwise  impermissible
investments, subject to applicable laws and regulatory requirements.

           Several states have established guaranty funds which serve to provide
the assured with payments due under policies issued by insurance  companies that
have become  insolvent.  Insurance  companies  that are  authorized  to write in
states are  assessed a fee,  normally  based on direct  writings in a particular
state,  to cover any  payments  made or to be made by guaranty  funds.  New York
Marine and Gotham are subject to such  assessments  in the various  states.  The
amounts paid for such  assessments were  approximately  $121,000,  $98,000,  and
$48,000 for the years ended 2003, 2002, and 2001, respectively.

           The Terrorism Risk Insurance Act of 2002 ("TRIA") became effective on
November 26, 2002. TRIA applies to all licensed and surplus lines insurers doing
business in the United States,  including Lloyd's and foreign insurers,  who are
writing  commercial  property or  casualty  insurance.  Under TRIA,  the federal
government  will provide the  insurance  industry  with  assistance in the event
there is a loss from  certain  acts of  terrorism.  The  program  terminates  on
December 31, 2005. Each insurer has an insurer  deductible  under TRIA, which is
based upon the prior year's direct  commercial  earned premiums.  For 2003, that
deductible  was 7% of direct  commercial  earned  premiums in 2002.  The insurer
deductible  percentage is 10% in 2004 and 15% in 2005. For losses  exceeding the
insurer deductible, the federal government will reimburse the insurer for 90% of
insured losses,  while the insurer retains 10%. The Company's insurer deductible
under TRIA would have been  approximately  $8 million in 2003,  and would be $11
million in 2004.


                                       13
<PAGE>


           The TRIA will  assist the  Company to  mitigate  our  exposure in the
event  of loss  from  an act of  terrorism.  In  addition,  part of the  insurer
deductible  might be  satisfied  by  recoveries  under  the  Company's  existing
reinsurance  program,  and the Company has purchased  additional  reinsurance to
further  minimize its loss from an act of terrorism.  Effective  January 1, 2004
the Company has obtained reinsurance protection for a one year period covering a
limit of $8,000,000  in excess of the first  $2,500,000  retained  losses to the
Company arising from terrorist acts.

Investment Policy

           The Company follows an investment policy, which is reviewed quarterly
and revised  periodically by management and is approved by the Finance Committee
of the Board of Directors. The investments of the Company's subsidiaries conform
to the  requirements of the New York State Insurance Law and Regulations as well
as the National Association of Insurance Commissioners (the "NAIC"). The Company
recognizes that an important component of its financial results is the return on
invested  assets.  As such,  management  will establish the  appropriate  mix of
traditional fixed income securities and other investments  (including equity and
equity-type  investments;  e.g.  hedge funds) to maximize  rates of return while
minimizing  undue  reliance  on  low  quality  securities.   Overall  investment
objectives  are to (i) seek  competitive  after-tax  income and total  return as
appropriate,  (ii) maintain, in aggregate, medium to high investment grade fixed
income asset  quality,  (iii) ensure  adequate  liquidity and  marketability  to
accommodate  operating needs,  (iv) maintain fixed income maturity  distribution
commensurate  with the Company's  business  objectives and (v) provide portfolio
flexibility  for  changing  business  and  investment  climates.  The  Company's
investment  strategy  incorporates  guidelines  (listed below) for asset quality
standards,  asset  allocations  among  investment  types and issuers,  and other
relevant criteria for the investment portfolio. In addition, invested asset cash
flows, from both current income and investment maturities,  are structured after
considering  the amount and timing of projected  liabilities for losses and loss
adjustment  expenses under New York Marine and Gotham's insurance policies using
actuarial models.

           The investment policy for New York Marine as of December 31, 2003 was
as follows:

        1. Liquidity  Portfolio:  At least  $20,000,000  will be  maintained  in
           liquid funds. Investments in the liquidity portfolio shall be limited
           to  cash,  direct  obligations  of the  U.S.  Government,  repurchase
           agreements, obligations of government instrumentalities,  obligations
           of government  sponsored  agencies,  certificates  of deposit,  prime
           bankers acceptances,  prime commercial paper,  corporate  obligations
           and  tax-exempt  obligations  rated  Aa3/AA-  or  MIG2 or  better  by
           Standard & Poor's ("S&P") or Moody's.  No investment in the liquidity
           portfolio will exceed one year's  duration from the time of purchase.
           No  investment  in  the  liquidity   portfolio   will  exceed  5%  of
           policyholders'  surplus at the time of purchase  as last  reported to
           the New York State Insurance Department except for direct obligations
           of  the  U.S.  Government  or  its  instrumentalities  or  repurchase
           agreements   collateralized   by  direct   obligations  of  the  U.S.
           Government  or its  instrumentalities  in which case there will be no
           limit.

        2. Fixed  Income  Portfolio:  Obligations  of the U.S.  Government,  its
           instrumentalities,  and  government  sponsored  agencies  will not be
           restricted  as to amount or maturity.  At least 75% of the  corporate
           and  tax-exempt  investments  in the fixed income  portfolio  will be
           restricted to those obligations rated, at a minimum,  Baa3 by Moody's
           or BBB- by S&P.  For  purposes  of this  calculation,  the  liquidity
           portfolio also will be included.  Concentration will not exceed 5% of
           policyholder's  surplus at the time of purchase  as last  reported to
           the New York State Insurance  Department.  For those  securities with
           fixed interest  rates,  maturities will not exceed 30 years from date
           of  purchase.  At  least  75%  of the  investments  in  asset  backed
           securities shall similarly be rated, at a minimum, Baa3 by Moody's or
           BBB-  by  S&P.   Individual  issues  will  be  restricted  to  5%  of
           policyholder's  surplus at the time of purchase  as last  reported to
           the New York State Insurance  Department.  For those  securities with
           fixed interest  rates,  maturities will not exceed 30 years from date
           of purchase. At least 75% of preferred stock investments with sinking
           funds  will,  at a minimum,  be rated Baa3 by Moody's or BBB- by S&P.
           Individual issues will be limited to 5% of policyholder's surplus.

        3. Equity and Equity-Type Securities (Hedge Funds):  Investments in this
           category  (including  convertible  securities)  will  not  exceed  in
           aggregate 50% of  policyholders'  surplus or 30% of total investments
           whichever is greater.  Equity  investments in any one issuer will not
           exceed 5% of  policyholders'  surplus at the time of purchase as last
           reported to the New York State Insurance  Department.  Investments in
           any  individual  hedge  fund  will not  exceed  5% of  policyholders'
           surplus. For the purposes of this 5% limitation, in the event that an
           individual hedge fund is comprised of a pool (basket) of separate and
           distinct  hedge  funds,  then this 5%  limitation  will  apply to the
           individual funds within the pool (or basket).


                                       14
<PAGE>

           Subsidiaries
           ------------

           New York Marine's  investments  in subsidiary  companies are excluded
from the requirements of New York Marine's investment policy.

           The  investment  policy of Gotham  is  identical  to that of New York
Marine,  except that at least  $5,000,000  will be  maintained  in the liquidity
portfolio.

           The following sets forth the  allocation of our investment  portfolio
as of the dates indicated:

<TABLE>
<CAPTION>

                                                    December 31, 2003           Percent        December 31, 2002           Percent
                                                    -----------------           -------        -----------------           -------
Fixed Maturities Available for Sale:
------------------------------------
<S>                                                 <C>                           <C>          <C>                            <C>

U.S. Treasury Securities                            $          9,184,916          1.77%        $         9,413,908            2.19%
Municipalities                                                17,352,350          3.35%                 21,066,341            4.91%
Corporate Bonds                                               66,933,425         12.93%                        ---            ---
------------------------------------------------------------------------------------------------------------------------------------
           Subtotal                                 $         93,470,691         18.05%        $        30,480,249            7.10%

Trading Securities:
------------------
Collateralized Debt Obligations                               61,736,951         11.93%                        ---            ---
------------------------------------------------------------------------------------------------------------------------------------
Total Fixed Maturities and Trading Portfolio        $        155,207,642         29.98%        $        30,480,249            7.10%

Short-term Investments                                       257,059,675         49.65%                355,803,960           82.84%
------------------------------------------------------------------------------------------------------------------------------------
Total Fixed Maturities and Short-term Investments   $        412,267,317         79.63%                386,284,209           89.94%

Limited Partnership Hedge Funds                              105,434,419         20.37%                 38,477,219            8.96%
Industrial & Misc. Common Stocks                                     ---         ---                     4,728,485            1.10%
------------------------------------------------------------------------------------------------------------------------------------
Total Investment Portfolio                          $        517,701,736        100.00%        $       429,489,913          100.00%
</TABLE>


Relationship with Mariner Partners, Inc.

           The Company's investments are monitored by management and the Finance
Committee of the Board of  Directors.  The Company  entered  into an  investment
management agreement with Mariner Partners,  Inc. ("Mariner")  effective October
1, 2002 that was amended and restated on December 6, 2002.  As described in more
detail under "Mariner Investment Management  Agreement",  under the terms of the
agreement,  Mariner  manages  the  Company's  domestic  insurance  subsidiaries'
investment  portfolios.  Fees to be paid to Mariner are based on a percentage of
the  investment  portfolio  as  follows:  .20% of liquid  assets,  .30% of fixed
maturity investments and 1.25% of hedge fund (limited partnership)  investments.
William J. Michaelcheck, a Director of the Company, is Chairman, Chief Executive
Officer  and owns a  majority  of the  stock of  Mariner.  George  R.  Trumbull,
Chairman,  Chief  Executive  Officer  and a Director of the  Company,  A. George
Kallop,  Executive Vice President and Chief  Operating  Officer,  and William D.
Shaw, Jr., Vice Chairman and a Director of the Company, are also associated with
Mariner.

           Mariner also entered into a voting  agreement  with Mark W. Blackman,
Blackman  Investments,  LLC and certain trusts and  foundations  affiliated with
Louise B. Tollefson,  of which Robert G. Simses,  a director of the Company,  is
trustee,  on February  20,  2002.  As  described  in more detail  under  "Voting
Agreement,"  Mariner,  with the  approval of two of the three  voting  agreement
participating  shareholders,  is generally  authorized to vote all of the common
shares covered by the voting agreement,  which constituted  approximately 33% of
the  Company's  issued  and  outstanding  shares of common  stock as of March 1,
2004.


                                       15
<PAGE>


           The voting  agreement  also gives Mariner the right to purchase up to
1,800,000  shares  of the  Company's  common  stock  from the  voting  agreement
participating shareholders.  The option exercise price per share is based on the
date the option is exercised.  At the time the voting agreement was signed,  the
option exercise price was $19.00,  with the exercise price  increasing $0.25 per
share every three months,  subject to deduction for dividends paid. The exercise
price of the option as of March 1, 2004 was $20.76. Generally,  Mariner's option
will  expire 30 days after the  termination  of the voting  agreement,  which is
scheduled to terminate on February 15, 2007, if not terminated earlier.

Voting Agreement

           On  February  20,  2002,  shareholders  who are  affiliated  with the
Blackman/Tollefson  family  entered into a voting  agreement  with Mariner which
affected approximately 33% of the voting power of NYMAGIC as of March 1, 2004.

           Mariner is an  investment  management  company  founded by William J.
Michaelcheck,  a member  of our  Board of  Directors.  Mr.  Michaelcheck  is the
majority  shareholder of Mariner.  One of Mariner's  wholly-owned  subsidiaries,
Mariner  Investment  Group,  Inc.,  which we refer to as the Mariner Group,  was
founded  in  1992  and,  together  with  its  affiliates,   provides  investment
management  services to investment  funds,  reinsurance  companies and a limited
number  of  institutional  managed  accounts.  The  Mariner  Group  has  been  a
registered investment adviser since May 2003.

           The shares subject to the voting  agreement were  originally  held by
John N.  Blackman,  Sr.,  who founded the Company in 1972 and died in 1988.  The
shareholders  who are parties to the voting  agreement  are either  heirs of Mr.
Blackman, whom we refer to as our founder, or entities established or controlled
by them.  Three of those  shareholders are designated in the voting agreement as
"participating  shareholders"  and have the specific rights described below. The
participating shareholders are as follows:

           o  Mark W. Blackman, a son of our founder and Louise B. Tollefson, is
              a  participating  shareholder in his individual  capacity.  He has
              been a member of our Board of  Directors  since 1979 and served as
              our   President   from  1988  to  1998.  He  has  been  our  Chief
              Underwriting Officer since June 2002.

           o  John  N.  Blackman,  Jr.,  a son  of our  founder  and  Louise  B.
              Tollefson,  acts  as  a  participating  shareholder  in  his  dual
              capacity as  controlling  member of Blackman  Investments  LLC and
              co-trustee of the Blackman Charitable  Remainder Trust dated April
              1, 2001. He has been a member of our Board of Directors since 1975
              and served as Chairman of the Board from 1988 to 1998.

           o  Robert  G.  Simses  acts  as a  participating  shareholder  in his
              capacity as sole trustee of the Louise B.  Tollefson  2000 Florida
              Intangible Tax Trust dated December 12, 2000,  sole trustee of the
              Louise B. Blackman  Tollefson  Family  Foundation  dated March 24,
              1998,  co-trustee  of the  Louise  B.  Tollefson  Charitable  Lead
              Annuity  Trust dated March 30, 2000 and  co-trustee of the Bennett
              H.  Tollefson  Charitable  Lead Unitrust  dated March 30, 2000. We
              refer to these trusts and foundations as the Tollefson trusts. The
              settlor  of most of these  trusts,  Louise  B.  Tollefson,  is the
              former  wife of our  founder  and was a  member  of our  Board  of
              Directors  from 1986 to 2001.  Mr. Simses has been a member of our
              Board of Directors since 2001. He is also Managing  Partner of the
              law firm of Simses & Associates and President and Chief  Operating
              Officer of The William H. Pitt Foundation Inc.

Voting Rights of Mariner

           The participating  shareholders  retained  significant  voting rights
over their shares under the voting  agreement.  Mariner may only vote the shares
that are subject to the voting agreement with the written approval of two of the
three participating shareholders. If two of the three participating shareholders
fail to approve any vote by Mariner on any matter, then Mariner is not permitted
to vote on that matter and generally the participating shareholders are also not
permitted  to vote on that matter.  However,  if one of the  following  types of
matters is under consideration and two of the three  participating  shareholders
fail to approve the vote by Mariner, the participating shareholders are entitled
to vote their shares instead of Mariner:

           o  the  merger  or  consolidation  of  NYMAGIC  into or with  another
              corporation,

           o  the sale by NYMAGIC of all or substantially all of its assets,

           o  the dissolution and/or liquidation of NYMAGIC, or


                                       16
<PAGE>


           o  any recapitalization or stock offering of NYMAGIC.

Nomination of Directors

           Prior to the  amendment to the voting  agreement  dated  February 24,
2004 (the "2004  Amendment")  the  voting  agreement  provided  for our Board of
Directors to consist of twelve directors.  The 2004 Amendment increased the size
of the Board to thirteen  members and David E.  Hoffman was elected to the newly
created Board  position on February 26, 2004.  The 2004  Amendment also provides
that,  on or before the 2004  annual  meeting of  shareholders  of the  Company,
Mariner and the participating shareholders agree to use their reasonable efforts
to cause the Company to take such action as is necessary to reduce the number of
currently   authorized   directors  to  nine.  See  "Amendments  to  the  Voting
Agreement."  Certain  information  relating to  nomination  of candidates to the
Board is as follows:

           o  Prior to the 2004 Amendment, Mariner was entitled to nominate four
              candidates.  The four  current  directors  who were  nominated  by
              Mariner are William J.  Michaelcheck,  George R. Trumbull III, who
              serves as our  Chairman  and Chief  Executive  Officer,  A. George
              Kallop,  who  serves as our  Executive  Vice  President  and Chief
              Operating  Officer,  and William D. Shaw,  Jr.,  who serves as our
              Vice Chairman.  Following the 2004 Amendment,  Mariner is entitled
              to nominate three candidates for election to the Board.

           o  Prior to the 2004 Amendment,  each  participating  shareholder was
              entitled to nominate two candidates. The two current directors who
              were nominated by John N. Blackman,  Jr. are John N. Blackman, Jr.
              and John R. Anderson. The two current directors who were nominated
              by Mark W. Blackman are Mark W. Blackman and Glenn R. Yanoff.  The
              two current  directors who were  nominated by Robert G. Simses are
              Robert  G.  Simses  and  Glenn  Angiolillo.   Following  the  2004
              Amendment,  each of Robert G. Simses, Mark W. Blackman and John N.
              Blackman,  Jr. is entitled to nominate one  candidate for election
              to the Board,  provided that the  candidates  nominated by Mark W.
              Blackman and John N.  Blackman,  Jr. shall qualify as  independent
              directors  under the rules of the New York Stock  Exchange and all
              other applicable laws and regulations.

           o  Prior to the 2004  Amendment,  our  Chief  Executive  Officer  was
              entitled to nominate two candidates. The two current directors who
              were  nominated  by Mr.  Trumbull  are David W.  Young and John T.
              Baily.  Following the 2004 Amendment,  our Chief Executive Officer
              is entitled  to  nominate  three  candidates  for  election to the
              Board,  all of whom shall qualify as independent  directors  under
              the rules of the New York Stock Exchange and all other  applicable
              laws and regulations.

           On February 26, 2004,  John R. Anderson,  Glenn  Angiolillo,  John T.
Baily, David E. Hoffman,  William J. Michaelcheck,  William D. Shaw, Jr., Robert
G.  Simses,  George R.  Trumbull  III,  and David W.  Young were  nominated  for
election to the Board at the next annual meeting of shareholders.

           If any  participating  shareholder  does not nominate a candidate for
election to the Board, then, in addition to its other rights,  Mariner,  instead
of that participating shareholder,  may nominate a number of candidates equal to
the number not nominated by the  participating  shareholders.  In addition,  the
participating  shareholders have agreed, consistent with their fiduciary duties,
to cause their  nominees  to the Board to vote for one of the  Mariner-nominated
directors, as designated by Mariner, as Chairman of each meeting.

Election of Directors

           Provided that the candidates of the participating  shareholders would
not be legally  disqualified  from serving as  directors of NYMAGIC,  Mariner is
required to vote all shares that are subject to the voting agreement in favor of
the election of those  candidates,  or any successor or replacement  candidates,
nominated by the  participating  shareholders.  Mariner is not permitted to vote
the shares subject to the voting agreement to remove any director nominated by a
participating shareholder without the consent of that participating shareholder.
In  accordance  with the general  voting  provisions  discussed  above under the
heading  "Voting  Rights of  Mariner,"  Mariner is  permitted to vote the shares
subject  to the  voting  agreement  to elect  its own  candidates  only with the
written approval of two of the three participating  shareholders.  In connection
with the election of directors at the annual  meeting of  shareholders  in 2003,
all three of the participating  shareholders approved the voting of those shares
to elect the four candidates nominated by Mariner.


                                       17
<PAGE>


Termination Provisions

           The voting agreement will terminate upon the earliest to occur of the
following dates:

           o  February 15, 2007;

           o  the merger or consolidation  of NYMAGIC into another  corporation,
              the sale of all or substantially all its assets or its dissolution
              and/or its liquidation;

           o  immediately upon the resignation of Mariner; or

           o  upon written notice of such termination to Mariner from all of the
              participating shareholders.

Mariner Stock Option

           The voting  agreement also gives Mariner the right to purchase at any
time and from time to time up to  1,800,000  shares of our common stock from the
participating  shareholders  in  the  amounts  set  forth  below  opposite  each
participating shareholder's name:

<TABLE>
<CAPTION>

<S>                                                                  <C>
           o  Mark W. Blackman                                       450,000 shares

           o  Blackman Investments, LLC                              450,000 shares

           o  Robert G. Simses, as trustee of the Tollefson trusts   900,000 shares
</TABLE>

In the event Mariner exercises this option,  Mr. Simses will have the sole right
to  determine  the number of shares to be provided  by any one of the  Tollefson
trusts.

           The option  exercise  price per share is based on the date the option
is exercised.  At the time the voting agreement was signed,  the option exercise
price was $19.00, with the exercise price increasing $0.25 per share every three
months.  The initial  exercise  price of $19.00 was  approximately  equal to the
mid-point  of the  market  price of our  common  stock and the book value of our
common stock,  during the period in which the voting  agreement was  negotiated.
The final exercise price, for exercises  between February 15, 2007 and March 17,
2007, is $24.00 per share.  The exercise price will be adjusted by deducting the
cumulative amount of dividends paid by us in respect of each share of its common
stock from January 31, 2003 through the date Mariner exercises its option.  This
option was granted with the intention of aligning  Mariner's  interests with the
interests of all of our  shareholders.  The  exercise  price of the option as of
March 1, 2004 was $20.76 per share.

            Generally,   Mariner's   option   will  expire  30  days  after  the
termination  of the  voting  agreement.  However,  if the  voting  agreement  is
terminated  prior to February  15,  2007 by  unanimous  written  notice from the
participating  shareholders,  then the option  will  continue  in full force and
effect until the close of business on February 15, 2007,  unless the termination
was due to gross  negligence or willful  misconduct by Mariner that causes or is
reasonably  likely to cause direct,  substantial and provable damage to NYMAGIC,
in which case the option will terminate concurrently with the termination of the
voting agreement.

Transferability of the Option

           The  option  granted to  Mariner  is not  transferable  except in the
following  instances,  with the  assignee  agreeing  to be  bound to the  voting
agreement:

           o  Mariner is permitted to assign the option, in whole or in part, to
              any one or more of William J. Michaelcheck,  William D. Shaw, Jr.,
              George R.  Trumbull and A. George  Kallop or any other  individual
              employed by or acting as a  consultant  for Mariner in  connection
              with NYMAGIC.

           o  With  the   written   consent   of  at  least  two   participating
              shareholders,  Mariner  or any  assignee  as  described  above  is
              permitted to assign the option, in whole or in part, to any one or
              more other persons.


                                       18
<PAGE>


           On April 4, 2002,  Mariner  entered  into an  agreement  with each of
William D. Shaw,  Jr., the Company's  Vice Chairman,  and A. George Kallop,  the
Company's Executive Vice President and Chief Operating Officer,  whereby Mariner
agreed to hold a portion of the  option  covering  315,000  shares of NYMAGIC as
nominee for each of Mr. Shaw and Mr. Kallop.

Consideration to Mariner

           Mariner  did not  pay any  cash  consideration  to the  participating
shareholders,  nor did the participating shareholders pay any cash consideration
to Mariner, in connection with the voting agreement. Mariner's sole compensation
for entering into the voting agreement,  as opposed to the investment management
arrangement  discussed  below, is the option to purchase NYMAGIC shares from the
participating shareholders.  To date, Mariner has not exercised this option, but
should  it  elect  to do so,  it  would  pay the  option  exercise  price to the
participating shareholders at that time.

Transferability of NYMAGIC Shares

           The  participating  shareholders  retain the right to transfer any of
the shares  covered by the voting  agreement,  provided that two  conditions are
satisfied.  First, the  participating  shareholders must at all times retain the
number of shares  necessary to enable  Mariner to exercise  its option.  Second,
except for 250,000 shares of each  participating  shareholder,  the  transferred
shares  must  remain  subject  to  the  voting   agreement.   The  participating
shareholders  waived  the  requirement  that  assignees  be bound by the  voting
agreement with respect to 2,150,000 shares sold pursuant to a public offering in
December 2003.

Background of and Reasons for the Voting Agreement

           The participating shareholders entered into the voting agreement with
Mariner  in  February  2002  because  they  were  dissatisfied  with the  recent
financial  performance  of  NYMAGIC  and with the high  turnover  in its  senior
management,  as evidenced by the succession of four Chief Executive Officers and
three Chairmen of the Board over a four-year  period.  The voting  agreement was
intended  to permit  Mariner  to  coordinate  the  voting  of the  participating
shareholders for Mariner's recommended actions, subject to receiving the consent
of two out of three of them on each matter  voted upon.  The goal of this voting
arrangement was to secure a new, unified management team for NYMAGIC.

           The first of the participating  shareholders to have discussions with
the Mariner  Group about a potential  role for the Mariner  Group in relation to
NYMAGIC was Mr. Simses,  who was acquainted  with the Mariner Group.  In October
2001,  Mr.  Simses spoke with Mr. Shaw about an  investment  that the  Tollefson
trusts were  contemplating  in several hedge funds managed by the Mariner Group.
In the course of that discussion,  Mr. Simses expressed his disappointment  with
the recent  financial  performance  of NYMAGIC  and the high level of  executive
turnover,  and Mr.  Shaw  suggested  that the  Mariner  Group  could  offer  its
expertise  in  investment  and  financial  management  and its  contacts  in the
investment  and  financial  community  to assist in finding new  leadership  and
turning the company around.  Mr. Simses  communicated this suggestion to Bennett
H. Tollefson, a co-trustee of some of the Tollefson trusts and husband of Louise
B. Tollefson.  At the request of Mr. Simses, acting on behalf of Mrs. Tollefson,
Mark W. Blackman met with members of the Mariner Group's  management in November
2001 to discuss possible structural arrangements for the Mariner Group to become
involved in the management of NYMAGIC.  In December 2001, John N. Blackman,  Jr.
joined these  conversations  and the basic structure of the voting agreement was
developed. On February 20, 2002, the voting agreement was signed.

Management Changes Following Signing of the Voting Agreement

           On March 4, 2002, Mr. Michaelcheck sent a letter to Robert W. Bailey,
who was then NYMAGIC's Chairman and Chief Executive Officer, enclosing a copy of
the voting agreement,  stating that the participating  shareholders  intended to
bring about a change in the  composition  of NYMAGIC's  Board of  Directors  and
requesting a meeting with Mr.  Bailey to discuss these  matters.  In March 2002,
Mr. Michaelcheck and Mr. Trumbull met with Mr. Bailey to discuss Mariner's plans
for the Company.  In the following  weeks,  Mr.  Bailey and the incumbent  Board
cooperated with Mariner and the participating shareholders in effecting a smooth
transition in leadership.  Among other things,  the Board agreed to nominate for
election  as  directors  at  the  annual  meeting  those   candidates  who  were
recommended  by  Mariner  and  the  participating  shareholders,  as well as Mr.
Bailey, the then current Chairman and Chief Executive  Officer.  This was purely
voluntary on the part of the incumbent Board,  since, for the regulatory reasons
discussed  below,  Mariner did not yet have the  ability to exercise  the voting
rights and board  nomination  rights  provided in the voting  agreement.  Before
nominating Mr. Angiolillo and the four Mariner  candidates,  the incumbent Board
conducted an independent review of the backgrounds of those


                                       19
<PAGE>


candidates in order to satisfy itself as to their qualifications.  The remaining
five  candidates  recommended  by the  participating  shareholders  were already
members of the Board,  as was Mr.  Bailey.  The new Board  consisting  of eleven
directors was elected by the NYMAGIC  shareholders  at the annual meeting on May
22, 2002. Following the election of the new Board of Directors, Mr. Trumbull was
appointed  Chairman,  Mr. Shaw was  appointed  Vice  Chairman and Mr. Kallop was
appointed Executive Vice President. On June 30, 2002, upon the retirement of Mr.
Bailey,  Mr.  Trumbull  succeeded him as Chief Executive  Officer.  Also in June
2002, Mr. Mark W. Blackman  rejoined the Company and was subsequently  appointed
Chief Underwriting Officer.

Regulatory Considerations

           During  the  period  of  management  changes  in May and  June  2002,
Mariner's voting rights,  board  nomination  rights and right to acquire through
exercise of the option 10% or more of the voting  stock of NYMAGIC  were not yet
effective.  The reason for this delayed  effectiveness  is that, for purposes of
the New York insurance  holding  company  statute,  the exercise of any of those
rights would have  constituted  "control" of NYMAGIC and its  subsidiaries,  New
York Marine and Gotham.  Under the  provisions  of the holding  company  statute
which govern acquisitions of control, Mariner and its majority owner, William J.
Michaelcheck,   were   required   to  obtain  the   approval  of  the  New  York
Superintendent of Insurance before any of the above control rights could go into
effect.  Accordingly,  on April 1, 2002,  Mariner and Mr.  Michaelcheck filed an
application   for  approval  of   acquisition  of  control  with  the  New  York
Superintendent of Insurance.

           As a condition of obtaining that approval,  on July 8, 2002,  Mariner
and Mr.  Michaelcheck  furnished  a  commitment  letter  to the New  York  State
Insurance Department,  which, among other matters,  provided that until July 31,
2004, Mariner and Mr.  Michaelcheck will prevent New York Marine and Gotham from
paying any dividends  without the prior written consent of the  department.  New
York Marine and Gotham  adopted  board of  directors' resolutions  containing  a
comparable  commitment  not to pay dividends  prior to July 31, 2004 without the
prior written consent of the department, and NYMAGIC submitted those resolutions
to the department in conjunction with Mariner's  application.  Following receipt
of the commitment letter and New York Marine and Gotham board  resolutions,  and
completion of the department's review of the application,  the Superintendent of
Insurance  granted  approval  for the  acquisition  of control on July 31, 2002.
Since that time,  Mariner has had the full  ability to exercise the share voting
rights,  board  nomination  rights  and  option  rights  provided  in the voting
agreement.

Amendments to the Voting Agreement

           The voting  agreement  provides that it may be amended or extended by
the unanimous written consent of the participating shareholders and Mariner. The
voting  agreement  was amended on January 27, 2003 to extend the duration of the
agreement  from  February  15,  2005 to  February  15,  2007 in order to provide
Mariner with additional time to improve the performance of NYMAGIC, and in order
to allow for the  appointment  of an  eleventh  director  and David W. Young was
chosen for this newly  created  Board  position.  Mr. Young is  affiliated  with
Conning Capital Partners VI, L.P., which owns 500,000 shares of our common stock
and options to purchase an  additional  500,000  shares of our common  stock and
which we refer to as Conning.  The voting agreement was further amended on March
12, 2003 to allow for the  appointment  of a twelfth  director and John T. Baily
was chosen for this newly  created  Board  position.  In addition,  as discussed
under  "Transferability  of NYMAGIC  Shares," a limited  waiver was agreed  with
respect to certain transferability restrictions.

           Following  the sale of  common  stock  in  December  2003 by  certain
shareholders that are parties to the voting agreement, the Company was no longer
a "controlled  company" as defined in the New York Stock Exchange Listed Company
Manual.  Accordingly,  the Company is required to have a majority of independent
directors by December  16,  2004.  In order to permit the Company to comply with
this  requirement  certain  provisions of the voting  agreement  relating to the
nomination of directors  and the size of the Board of Directors  were amended on
February 24, 2004 as described in "Nomination of Directors" above.


                                       20
<PAGE>


Mariner Investment Management Arrangement

           In  addition  to  the  voting  agreement,  Mariner  entered  into  an
investment  management  agreement  with  NYMAGIC,  New York  Marine  and  Gotham
effective October 1, 2002. This investment  management agreement was amended and
restated  on  December  6, 2002.  Under the terms of the  investment  management
agreement,  Mariner  manages the Company's  investment  portfolios.  Mariner may
purchase, sell, redeem, invest, reinvest or otherwise trade securities on behalf
of the  Company.  Mariner  may,  among  other  things,  exercise  conversion  or
subscription  rights,  vote proxies,  select broker dealers and value securities
and  assets  of the  Company.  Under  the  terms  of the  investment  management
agreement the Company's  investments  have been  reallocated  into the following
three categories:

           o  the liquidity portfolio (cash management);

           o  the fixed-income portfolio (fixed-income investments); and

           o  the  hedge  fund  and  equity  portfolio  (alternative  investment
              vehicles and common and preferred equities).

           The investment management agreement does not have a specific duration
period and may be terminated by either party on 30 days' prior written notice.

           Fees to be paid to Mariner under the investment  management agreement
are based on a  percentage  of the  investment  portfolio  as follows:  0.20% of
liquid  assets,  0.30% of fixed  maturity  investments  and 1.25% of hedge  fund
(limited  partnership)  investments.  We incurred Mariner investment expenses of
$317,514  pursuant to this  agreement in 2002.  For the year ended  December 31,
2003, the Company incurred Mariner investment expenses of $1,753,021 pursuant to
this  agreement.   Assuming  this  agreement  remains  in  effect,  the  Company
anticipates  incurring Mariner investment expenses of approximately $2.6 million
pursuant to this  agreement in 2004.  In the event that assets in the hedge fund
and equity portfolio are invested in alternative  investment vehicles managed by
Mariner or any of its affiliates,  the 1.25% advisory fee is waived with respect
to those  investments,  although  any fees  imposed by the  investment  vehicles
themselves are nonetheless  payable. In 2003, the Company entered into a limited
partnership hedge fund agreement with a Mariner affiliated company. In 2003, the
Company made an investment of $11.0 million,  representing a 100% interest, into
this limited  partnership  hedge fund,  which is  consolidated  in the financial
statements.  This hedge fund invests in collateralized  debt obligations.  Under
the provisions of the agreement,  the Mariner  affiliated company is entitled to
50% of the net  profit  realized  upon the sale of certain  collateralized  debt
obligations held by the Company.  Investment expenses incurred and payable under
this  agreement at December 31, 2003 amounted to $3,176,643  and were based upon
the fair value of those  securities  held and sold during 2003. The  partnership
agreement  also  provides for other fees  payable to the manager  based upon the
operations of the hedge fund. There were no other fees incurred through December
31, 2003. The Company cannot withdraw funds from this limited  partnership for a
minimum period of three years without the consent of the hedge fund manager.

           William J. Michaelcheck,  a Director of the Company,  is Chairman and
Chief Executive  Officer of Mariner and owns a majority of the stock of Mariner.
George R.  Trumbull,  Chairman,  Chief  Executive  Officer and a Director of the
Company, A. George Kallop, Executive Vice President, Chief Operating Officer and
a Director  of the  Company,  and  William D. Shaw,  Jr.,  Vice  Chairman  and a
Director of the  Company,  are also  associated  with  Mariner.  Currently,  Mr.
Trumbull is in the process of becoming a shareholder of Mariner.  Messrs. Kallop
and Shaw have contractual relationships with Mariner, with Mr. Kallop's contract
relating to consulting  services and Mr. Shaw's contract  relating to investment
services.  As noted above, pursuant to the voting agreement,  Mariner,  together
with the participating shareholders (Mark W. Blackman, John N. Blackman, Jr. and
Robert  G.  Simses),  controlled  the  vote of  approximately  33% of  NYMAGIC's
outstanding voting securities as of March 1, 2004.

           The  Company  believes  that the terms of the  investment  management
agreement are no less favorable to NYMAGIC and its  subsidiaries  than the terms
that would be obtained from an unaffiliated  investment manager for the services
provided. The investment management fees paid to Mariner were arrived at through
negotiations  between  the  Company  and  Mariner.  All then  current  directors
participated  in the  discussion  of the  investment  management  agreement.  In
accordance  with the  Company's  conflict of  interest  policy,  the  investment
management  agreement was approved by an independent  committee of the Company's
board of directors,  which  consisted of all directors who were neither  Mariner
affiliates  nor   participating   shareholders   under  the  voting   agreement.
Thereafter, the investment management agreement was approved by the entire board
of directors.  Under the  provisions of the New York insurance  holding  company
statute, because of the control relationship between Mariner and New York Marine
and Gotham, the investment  management agreement was submitted for review by the
New York State Insurance Department, which examined, among other things, whether
its  terms  were fair and  equitable  and  whether  the fees for  services  were
reasonable.  Upon completion of that review, the investment management agreement
was found to be non-objectionable by the department.


                                       21
<PAGE>


Subsidiaries

           NYMAGIC  was  formed  in 1989 to serve as a holding  company  for the
subsidiary insurance  companies.  NYMAGIC's largest insurance company subsidiary
is New York Marine which was formed in 1972.  NYMAGIC's other domestic insurance
company  subsidiary,  Gotham, was organized in 1986 as a means of expanding into
the excess and surplus  lines  marketplace.  New York Marine and Gotham  entered
into a  Reinsurance  Agreement,  effective  January 1, 1987,  under the terms of
which  Gotham  cedes 100% of its gross  direct  business  to New York Marine and
assumes 15% of New York Marine's  total  retained  business,  beginning with the
1987 policy year.  Accordingly,  for policy year 1987 and  subsequent,  Gotham's
underwriting  statistics  are similar to New York  Marine's.  As of December 31,
2003,  75% and 25% of  Gotham's  common  stock is owned by New York  Marine  and
NYMAGIC, respectively.

           Gotham does not assume or cede  business  to or from other  insurance
companies.  As of December 31, 2003,  New York Marine had aggregate  receivables
due from  Gotham  of  approximately  $31  million,  or 18% of New York  Marine's
policyholders'  surplus.  Gotham had aggregate reinsurance  receivables due from
New York Marine, as of December 31, 2003, of approximately  $28 million,  or 49%
of Gotham's policyholders' surplus.

           MMO was formed in 1964 to underwrite a book of ocean marine insurance
and was acquired in 1991 by NYMAGIC.  MMO's  activities  expanded over the years
and it now underwrites a book of ocean marine, inland marine and other liability
insurance.

           Midwest  was formed in 1978 to  underwrite  a varied book of business
located in the Midwest region and was acquired in 1991 by NYMAGIC.

           PMMO was  formed  in 1975 to  underwrite  a varied  book of  business
located in the West Coast region and was acquired in 1991 by NYMAGIC.

           MMO UK was formed in 1997 as a Lloyd's  limited  liability  corporate
capital vehicle and was placed into runoff in 2002.

           MMO EU was formed in 1997 as a holding company for MMO UK.

Competition

           The insurance industry is highly competitive and the companies,  both
domestic and foreign,  against which the Company competes,  are often larger and
could have  greater  capital  resources  than the  Company  and the  pools.  The
Company's principal methods of competition are pricing and responsiveness to the
individual insured's coverage requirements.

           We compete  in the  United  States  and  international  markets  with
domestic  and  international  insurance  companies.  In the area of our  primary
focus,  ocean marine liability,  there are approximately 50 insurance  companies
writing more than $2 billion in annual premiums for ocean, drill rig, hull, war,
cargo and other marine  liability.  Our main  competitors  and their  respective
shares of this market,  as determined by Best's  Aggregates  and Averages,  2003
Edition  (which  used 2002 data),  are:  CNA  Insurance  Cos.,  10.1%;  American
International Group, Inc., 9.0%; Ace INA Group, 8.1%; St. Paul Companies,  5.5%;
Navigators  Insurance Group,  3.8%; and XL America Group, 1.1%. Our market share
is approximately 3.0%. We also write  opportunistic  excess and surplus property
and casualty  insurance  programs for  professional  liability,  commercial real
estate, employment practices liability, surety, excess worker's compensation and
commercial  automobiles,  but given the  magnitude  of these  markets our market
share is insignificant.

           The  Company  believes  it can  successfully  compete  against  other
companies in the insurance market due to its philosophy of underwriting  quality
insurance,  its  reputation as a conservative  well-capitalized  insurer and its
willingness to forego unprofitable business.

Employees

           The Company currently  employs 112 persons,  of whom 23 are insurance
underwriters.


                                       22
<PAGE>


Code of Conduct and Corporate Goverance Documents

           The Company maintains a separate,  independent,  as defined under the
New York Stock Exchange  rules,  Audit Committee of four directors who have been
appointed  by the  Board of  Directors:  Messrs.  Glenn J.  Angiolillo,  John R.
Anderson, John T. Baily (chairman and financial expert) and David W. Young.

           The  Company has  adopted a code of ethics for Senior  Executive  and
Financial  Officers  as  well as a code  of  Business  Conduct  and  Ethics  for
Directors, Officers and Employees, copies of which are available free of charge,
upon request directed to General Counsel,  NYMAGIC,  INC., 919 Third Avenue, New
York, NY 10022.

           The Company's Corporate Governance Guidelines and the charters of the
Audit,  Human Resources and  Nominating/Corporate  Governance  Committees of the
Company's  Board of Directors  and the  Company's  Code of Business  Conduct and
Ethics for  Directors,  Officers and  Employees  are  available on the Company's
Internet web site  www.nymagic.com and are available in print to any shareholder
who requests them.


--------------------------------------------------------------------------------
Item 2.   Properties
--------------------------------------------------------------------------------

           The Company does not own,  directly or  indirectly,  any real estate.
The Company  subleases  office space for day to day  operations in the following
cities:

                    New York           - 28,000 square feet
                    Chicago            -  3,500 square feet
                    San Francisco      -  2,000 square feet

           The Company's  principal  executive offices are approximately  28,000
square  feet in size and are  located at 919 Third  Avenue,  New York,  New York
10022. The sublease commenced on March 1, 2003 and expires on July 30, 2016. The
minimum monthly rental  payments of $102,794  commenced in March 2004 and end in
2016 and will amount to $15.3 million of total rental  payments over the term of
the sublease.


--------------------------------------------------------------------------------
Item 3.   Legal Proceedings
--------------------------------------------------------------------------------


           The Company  previously  entered into  reinsurance  contracts  with a
reinsurer  that is now in  liquidation.  On October  23,  2003,  the Company was
served with a Notice to Defend and a Complaint by the Insurance  Commissioner of
the  Commonwealth  of  Pennsylvania,  who is the  liquidator of this  reinsurer,
alleging that approximately $3 million in reinsurance claims paid to the Company
in 2000 and 2001 by the  reinsurer  are voidable  preferences  and are therefore
subject  to  recovery  by the  liquidator.  The  Company  has filed  Preliminary
Objections  to  Plaintiff's  Complaint,  denying  that the payments are voidable
preferences  and  asserting  affirmative  defenses.  On February 18,  2004,  the
Plaintiff  filed  Preliminary  Objections to our  Preliminary  Objections and an
Answer and  Memorandum of Law in opposition to our  Preliminary  Objections.  No
trial  date has been set for this  matter,  but we intend  to  defend  ourselves
vigorously in connection with this lawsuit.  The Company  believes it has strong
defenses  against  these  claims;  however,  there can be no assurance as to the
outcome of this litigation.


--------------------------------------------------------------------------------
Item 4.   Submission of Matters to a Vote of Security Holders
--------------------------------------------------------------------------------

           The Company did not submit any matters to a vote of security  holders
during the fourth quarter of 2003.


                                       23
<PAGE>


                                     PART II

--------------------------------------------------------------------------------
Item 5.   Market for Registrant's Common Equity and Related Stockholder Matters
--------------------------------------------------------------------------------

           The  Company's  common  stock  trades on the New York Stock  Exchange
(NYSE Symbol:  NYM). The following  table sets forth high and low closing prices
of the common stock for the periods  indicated as reported on the New York Stock
Exchange composite transaction tape.
                                         2003                      2002
                                -----------------------   ----------------------
                                   High         Low          High         Low
                                   ----         ---          ----         ---
First Quarter ..............    $   20.22    $   18.10    $   20.61    $   15.63
Second Quarter .............        23.45        18.50        22.01        15.14
Third Quarter ..............        25.92        19.85        15.36        13.85
Fourth Quarter .............        27.42        23.20        20.89        14.61

           As of  February  27,  2004,  there  were 67  shareholders  of record.
However,  management  believes there were approximately 661 beneficial owners of
NYMAGIC's common stock as of February 27, 2004.


Dividend Policy

           A cash  dividend of ten (10) cents per share was declared and paid to
shareholders of record in March, June and September of 2001. The Company did not
declare a dividend in December of 2001 or at any time during  2002.  The Company
declared  a  dividend  of six (6) cents per share to  shareholders  of record in
March,  June,  September and December of 2003. For a description of restrictions
on the ability of the Company's insurance  subsidiaries to transfer funds to the
Company in the form of dividends,  see "Business - Regulation" and "Management's
Discussion  and  Analysis of  Financial  Condition  and Results of  Operations -
Liquidity and Capital Resources".


                                       24
<PAGE>


--------------------------------------------------------------------------------
Item 6.   Selected Financial Data
--------------------------------------------------------------------------------


<TABLE>
<CAPTION>


OPERATING DATA                                                                 Year Ended December 31,
                                               -------------------------------------------------------------------------------------
                                                        2003               2002              2001             2000              1999
                                                        ----               ----              ----             ----              ----
                                                                      (In thousands, except per share amounts)
<S>                                                   <C>               <C>              <C>              <C>              <C>

Revenues:
Net premiums earned ..........................        $  96,394         $ 113,457        $  84,633        $  75,448        $  56,155
Net investment income ........................           22,394            15,821           17,388           18,076           18,642
Commission income ............................             (230)            1,549            3,312              903            1,956
Net realized investment gains ................              550             8,456            2,874            5,247           12,504
Other income .................................            1,688               186              285            1,059              237
                                                      ---------         ---------        ---------        ---------        ---------

Total revenues ...............................        $ 120,796         $ 139,469        $ 108,492        $ 100,733        $  89,494
                                                      =========         =========        =========        =========        =========

Expenses:
Net losses and loss adjustment
  expenses incurred ..........................        $  55,715         $  73,356        $  87,901        $  68,063        $  36,853
Policy acquisition expenses ..................           19,430            18,899           16,083           18,178           11,077
General and administrative expenses ..........           19,428            18,373           16,952           19,439           19,327
Interest expense .............................               26               575              395              712            1,058
                                                      ---------         ---------        ---------        ---------        ---------

Total expenses ...............................        $  94,599         $ 111,203        $ 121,331        $ 106,392        $  68,315
                                                      =========         =========        =========        =========        =========

Income (loss) before income taxes ...............      $ 26,197          $ 28,266         $(12,839)        $ (5,659)        $ 21,179
                                                       --------          --------         --------         --------         --------
Income taxes expense (benefit)
  Current .......................................         8,987            (4,869)             798            1,276            3,189
  Deferred ......................................           117             4,425             (498)          (1,433)           1,577
                                                       --------          --------         --------         --------         --------
Total income taxes ..............................         9,104              (444)             300             (157)           4,766
                                                       --------          --------         --------         --------         --------

Net income (loss) ...............................      $ 17,093          $ 28,710         $(13,139)        $ (5,502)        $ 16,413
                                                       ========          ========         ========         ========         ========


BASIC EARNINGS (LOSS) PER SHARE:

Weighted average shares outstanding .............         9,673             9,277            9,232            9,244            9,687
Basic earnings (loss)  per share ................      $   1.77          $   3.09         $  (1.42)        $   (.60)        $   1.69
                                                       ========          ========         ========         ========         ========


DILUTED EARNINGS (LOSS) PER SHARE:

Weighted average shares outstanding .............         9,828             9,309            9,232            9,244            9,687
Diluted earnings (loss) per share ...............      $   1.74          $   3.08         $  (1.42)        $   (.60)        $   1.69
                                                       ========          ========         ========         ========         ========

Dividends declared per share ....................      $    .24          $    .00         $    .30         $    .40         $    .40
                                                       ========          ========         ========         ========         ========

<CAPTION>

BALANCE SHEET DATA:

                                                                                             December 31,
                                                        ----------------------------------------------------------------------------
                                                                  2003             2002          2001           2000           1999
                                                                  ----             ----          ----           ----           ----
                                                                                           (In thousands)

<S>                                                             <C>            <C>            <C>            <C>            <C>
Total investments .......................................       $517,702       $429,490       $366,167       $371,291       $396,710
Total assets ............................................        875,125        824,007        856,997        720,329        764,304
Unpaid losses and loss adjustment expenses ..............        518,930        516,002        534,189        411,267        425,469
Notes payable ...........................................           --            6,220          7,911          7,458         12,458
Total shareholders' equity ..............................       $244,291       $220,953       $199,272       $216,290       $231,142
Book value per share ....................................       $  24.47       $  23.54       $  21.46       $  23.62       $  23.88
</TABLE>


           For a description of factors that materially affect the comparability
of the information  reflected in the Selected  Financial Data, see "Management's
Discussion and Analysis of Financial Condition and Results of Operations".


                                       25
<PAGE>


--------------------------------------------------------------------------------
Item 7. Management's  Discussion and Analysis of Financial Condition and Results
of Operations
--------------------------------------------------------------------------------

Executive Overview and Highlights-2003 year

o  Net income of $17.1 million or $1.74 per diluted share
o  Gross premium growth in core lines (ocean marine, inland marine/fire and
   other liability) of 20% over 2002
o  Combined ratio of 98.1%
o  Net investment income growth of 42% over 2002
o  Net loss reserve redundancy reported on prior year loss reserves of $1.4
   million
o  Total cash and invested assets of $520 million, up from $430 million at year
   end 2002
o  Total shareholders' equity of $244 million, up from $221 million at year end
   2002
o  Total reinsurance receivables of $281 million, down from $326 million at year
   end 2002
o  Raised $8.4 million through the sale of investment units to Conning Capital
   Partners VI, L.P.
o  Reinstated shareholder dividend at 6 cents per quarter
o  Paid off bank loan
o  Formed business relationship with Southern Marine & Aviation, an insurance
   agency to write a primary marine cargo program
o  Strong cash collections from reinsurance receivables
o  Implemented revised investment strategy
o  Completed  secondary  stock  offering of 2,150,000  shares of common stock by
   certain  shareholders (from which the Company received no proceeds)


Results of Operations


           The Company's results of operations are derived from participation in
pools of insurance  covering  ocean marine,  inland  marine,  aircraft and other
liability  insurance  managed by MMO and affiliates.  Since January 1, 1997, the
Company's participation in the pools has been increased to 100%. The Company has
ceased  writing  any  new  policies  covering  aircraft  insurance  for  periods
subsequent to March 31, 2002.


           MMO  London  wrote a book  of  ocean  marine  insurance  through  its
participation  in  Lloyd's  Syndicate  1265 and a book of assumed  property  and
aircraft  reinsurance through its participation in Lloyd's Syndicate 2010. Since
January 1, 2002, MMO London has not provided capacity to any Lloyd's syndicate.

           The Company records  premiums written in the year policies are issued
and earns  such  premiums  on a  monthly  pro rata  basis  over the terms of the
respective  policies.  The following tables present the Company's gross premiums
written, net premiums written and net premiums earned for each of the past three
years.

<TABLE>
<CAPTION>

Gross Premiums Written by
    Segment                                              Year Ended December 31,
-----------------                           --------------------------------------------------
                                                2003              2002               2001
                                            --------------------------------------------------
                                                          (Dollars in thousands)
<S>                                       <C>       <C>      <C>       <C>      <C>        <C>

Ocean marine .......................      $ 94,649  66%      $ 89,301  59%      $ 63,691   43%
Inland marine/Fire .................        16,515  12%        13,311   9%         6,284    4%
Other liability ....................        28,468  20%        13,874   9%         5,551    4%
                                         -----------------------------------------------------
                     Subtotal ......       139,632  98%       116,486  77%        75,526   51%
Aircraft ...........................         3,565   2%        35,874  23%        50,485   34%
MMO London .........................            --   --           157   --        21,632   15%
                                         -----------------------------------------------------
Total ..............................      $143,197 100%      $152,517 100%      $147,643  100%
                                          ====================================================
</TABLE>


                                       26
<PAGE>


<TABLE>
<CAPTION>

NYMAGIC Net Premiums Written
   By Segment                                              Year Ended December 31,
-----------------                           --------------------------------------------------
                                                2003              2002               2001
                                            --------------------------------------------------
                                                          (Dollars in thousands)
<S>                                       <C>       <C>      <C>       <C>      <C>        <C>


Ocean marine .......................      $ 67,744    69%    $ 70,839   67%     $ 45,849   51%
Inland marine/Fire .................         4,833     5%       2,975    3%        1,349    1%
Other liability ....................        22,961    23%       9,960    9%        4,684    5%
                                         -----------------------------------------------------
   Subtotal ........................        95,538    97%      83,774   79%       51,882   57%
Aircraft ...........................         2,769     3%      22,366   21%       26,556   30%
MMO London .........................            --     --         302    --       11,254   13%
                                         -----------------------------------------------------
Total ..............................      $ 98,307   100%    $106,442  100%     $ 89,692  100%
                                          ====================================================

<CAPTION>

NYMAGIC Net Premiums Earned
   By Segment                                              Year Ended December 31,
-----------------                           --------------------------------------------------
                                                2003              2002               2001
                                            --------------------------------------------------
                                                          (Dollars in thousands)
<S>                                       <C>       <C>      <C>       <C>      <C>        <C>

Ocean marine .......................      $ 73,096    76%    $ 61,887   54%     $ 38,671    46%
Inland marine/Fire .................         4,234     4%       2,371    2%          644     1%
Other liability ....................        16,126    17%       6,883    6%        2,864     3%
                                         -----------------------------------------------------
   Subtotal ........................        93,456    97%      71,141   62%       42,179    50%
Aircraft ...........................         2,938     3%      38,157   34%       28,318    33%
MMO London .........................            --     --       4,159    4%       14,136    17%
                                         -----------------------------------------------------
Total ..............................      $ 96,394   100%    $113,457  100%     $ 84,633   100%
                                          ====================================================
</TABLE>


           Unlike many types of property and casualty  insurance,  ocean marine,
inland  marine,  aircraft  and other  liability  premium  rates are not strictly
regulated  by  governmental  authorities.  Consequently,  the Company is able to
adjust premium rates quickly in response to competition, varying degrees of risk
and other  factors.  In  addition,  the Company,  by virtue of its  underwriting
flexibility,  is able to  emphasize  specific  lines of  business in response to
advantageous  premium  rates  and  its  anticipation  of  positive  underwriting
results. However, the insurance industry is highly competitive and the companies
against which the Company competes may seek to limit any market premium rate.

           The  property  and  casualty  industry  historically  has been highly
cyclical.  Rates for property and casualty insurance are influenced primarily by
factors that are outside of our control, including competition and the amount of
available  capital and surplus in the  industry.  For example,  the  substantial
losses in the insurance  industry  arising from the events of September 11, 2001
caused rates in the insurance industry to rise.  However,  new capital has since
flowed  into  the  insurance  industry.  To the  extent  that  more  capital  is
available,  there  may be  downward  pressure  on  premium  rates as a result of
increased  supply.  These  factors  affecting  rates for the industry in general
impact the rates we are able to charge.  Any  significant  decrease in the rates
for  property and casualty  insurance  could reduce our net income.  While rates
impact our net income, there is not necessarily a direct correlation between the
level of rate increases or decreases and net income because other factors,  such
as the amount of catastrophe losses and the amount of expenses,  also affect net
income.

           Prevailing  policy terms and  conditions in the property and casualty
insurance  market are also  highly  cyclical.  Changes  in terms and  conditions
unfavorable to insurers, which tend to be correlated with declining rates, could
further reduce our net income.  Even as rates rise, the average  percentage rate
increases can fluctuate greatly and be difficult to predict.

           The Company's general and  administrative  expenses consist primarily
of  compensation  expense,  employee  benefits  and  rental  expense  for office
facilities. The Company's policy acquisition costs include brokerage commissions
and premium taxes both of which are primarily  based on a percentage of premiums
written.  Acquisition  costs have generally  changed in proportion to changes in
premium volume.  Losses and loss adjustment expenses incurred in connection with
insurance  claims  in any  particular  year  depend  upon a variety  of  factors
including the rate of inflation,  accident or claim frequency, the occurrence of
natural catastrophes and the number of policies written.


                                       27
<PAGE>


           The  Company  estimates   reserves  each  year  based  upon,  and  in
conformity  with, the factors  discussed under  "Business-Reserves".  Changes in
estimates  of reserves are  reflected in operating  results in the year in which
the change occurs.

Year Ended December 31, 2003 as Compared to Year Ended December 31, 2002

           Net income for the year ended  December 31, 2003 was $17.1 million or
$1.74 per diluted  share,  as compared  to $28.7  million,  or $3.08 per diluted
share,  for the year ended December 31, 2002. The decrease in net income in 2003
compared to 2002 was primarily attributable to realized investment gains and tax
benefits  resulting  from  the  withdrawal  from  London  operations  in 2002 as
described below.

           Net income for the year ended December 31, 2003 was $16.7 million, or
$1.70 per diluted  share,  excluding  realized  investment  gains after taxes of
$357,000, or $0.04 per diluted share. Net income for the year ended December 31,
2002 was $13.9 million,  or $1.50 per diluted share,  after  excluding  realized
investment  gains after taxes of $5.5 million,  or $0.59 per diluted share,  and
$9.3 million,  or $0.99 per diluted share,  resulting from a  non-recurring  tax
benefit  attributable to the Company's  withdrawal from its London  operation in
2002.

           A reconciliation  of net income excluding  realized  investment gains
after taxes and tax benefits  attributable to the Company's  withdrawal from its
London  operations to net income prepared in accordance with generally  accepted
accounting   principles  for  the  years  ended  December  31,  2003  and  2002,
respectively, is set forth below:

<TABLE>
<CAPTION>


                                                                        Year Ended
                                                                        December 31,
                                                                        -----------------------
                                                                        2003         2002
                                                                        -----------  ---------
                                                                         (in millions)
<S>                                                                    <C>           <C>
Net income, excluding realized investment gains and                    $16.7         $13.9
 tax benefits on the withdrawal from London operations (1)
Realized investment gains after taxes                                     .4           5.5
Tax benefits on the withdrawal from London operations                    ---           9.3
                                                                       -----------   ---------
    Net income                                                         $17.1         $28.7
</TABLE>

           (1) Net income excluding  realized  investment gains and tax benefits
on the withdrawal  from London  operations is a non-GAAP  financial  measure and
should be  considered  in addition to, but not as a  substitute  for, net income
prepared in  accordance  with  generally  accepted  accounting  principles  as a
measure of  profitability.  Because  realized  investment  gains in 2002,  which
resulted primarily from the liquidation of the Company's fixed income portfolio,
and  tax  benefits  on the  withdrawal  from  London  operations  in  2002  were
non-recurring in nature,  management believes that net income excluding realized
investment  gains and tax  benefits on the  withdrawal  from  London  operations
provides  useful  information  regarding  trends  in the  Company's  results  of
operations.


           Total  revenues  for the year ended  December  31,  2003 were  $120.8
million  compared  with  $139.5  million  for the year ended  December  31, 2002
reflecting a decline in net premiums earned from lines of business in runoff.

           Net realized investment gains after taxes were $357,000,  or $.04 per
diluted share,  and $5.5 million,  or $.59 per diluted share, in the years ended
December 31, 2003 and 2002,  respectively.  The prior year amounts reflected the
sale of substantially all of the Company's fixed income investments.

           Gross premiums written,  net premiums written and net premiums earned
for the year ended  December 31, 2003 declined by 6%, 8% and 15%,  respectively,
when compared to the same period of 2002 as a result of the Company's previously
announced  decisions to cease  writing  aircraft  business and to withdraw  from
operations in London.  However, gross premiums written, net premiums written and
net premiums  earned from the Company's  core  segments  (ocean  marine,  inland
marine/fire and other liability) increased by 20%, 14% and 31%, respectively, in
2003 over the same period of 2002.


                                       28
<PAGE>


           Premiums for each segment are discussed below:

           Ocean  marine  gross  premiums  written  grew by 6% during  2003 when
compared to the prior year.  The  increase  reflected  higher ocean marine rates
with the largest  rate  increases,  approximately  5% to 15%,  occurring  in the
marine liability and hull classes and additional  production was achieved in the
marine  liability  class.  Other marine  classes are  currently  experiencing  a
leveling in rates.  Partially  offsetting the overall increase were decreases in
policy  count  in the  drill  rig  class  partly  as a result  of some  one-time
builder's  risk  policies  written  in 2002,  which  were not  renewed  in 2003.
Builder's  risk  policies  may  have  policy  terms  greater  than  one year and
accordingly  its premium is earned over the related policy period.  In addition,
we did not renew certain  cargo  policies in order to reduce  concentrations  of
risk. However,  commencing in the fourth quarter of 2003, gross premiums include
cargo  premiums from our recent  agreement  with Southern  Marine & Aviation,  a
leading provider of insurance for bulk petroleum cargo  shipments.  Net premiums
written  decreased  by 4% and  reflected  larger  amounts  of ceded  reinsurance
premium as a result of the  business  mix within  the  various  classes of ocean
marine insurance. Ceded reinsurance premiums are earned over the policy terms of
its related gross premium.  Net premiums  earned grew by 18% in 2003 compared to
2002  reflecting  premium rate increases as well as increased  production in the
marine liability classes.  The Company cannot assure that rates will continue to
increase in 2004 at the levels achieved in 2003.

           Inland  marine/fire  gross premiums written  increased by 24% for the
year ended December 31, 2003 when compared to the prior year, largely due to the
growth in the Company's  underwriting  program insuring excess and surplus lines
property risks and improved pricing.  Both net premiums written and net premiums
earned  increased 62% and 79%,  respectively  over the  comparable  2002 amounts
reflecting  increases  in  production,  pricing  and higher  net loss  retention
levels.

           Other  liability  gross  premiums  written  rose by 105% for the year
ended  December 31, 2003 when compared to 2002 due to production  increases from
existing  classes and new classes  (commercial  automobile  liability and excess
workers compensation) and higher premium rates on policy renewals.  Average rate
increases  achieved in 2003 were  approximately 10% to 20%. Although  additional
production was achieved in the contractor's  liability  class,  policy count was
reduced to mitigate exposure in certain classes of errors and omission policies.
New sources of production  include  underwriting a programmed book of commercial
automobile liability insurance, which contributed $3.3 million in gross premiums
written in 2003. In addition,  gross premiums  written in 2003 also include $6.2
million of excess workers  compensation  insurance focusing on smaller companies
in the New York area. Net premiums  written and net premiums earned grew by 131%
and  134%,  respectively  over  the  prior  year  due to the  premium  rate  and
production  increases  as  well as  higher  net  loss  retention  levels  in the
contractor's  liability  and errors and  omission  classes.  The Company  cannot
assure that rates will  continue  to increase in 2004 at the levels  achieved in
2003.

           Aircraft  gross  written  premiums  decreased  90% in 2003 from $35.9
million to $3.5  million as a result of the Company  having  ceased  writing new
aircraft  policies  subsequent to March 31, 2002. We expect aircraft premiums to
be negligible in 2004. Net premiums written and net premiums earned decreased in
2003 for the same reasons.

           MMO London  premiums earned were zero in 2003, down from $4.2 million
in 2002,  because the Company did not provide capacity to any Lloyd's  syndicate
for the 2002 and subsequent underwriting years.

           Net losses and loss adjustment  expenses  incurred as a percentage of
net  premiums  earned (the loss ratio) for the year ended  December 31, 2003 was
57.8%  compared  to 64.7% for the year ended  December  31,  2002.  The  Company
recorded lower loss ratios in 2003 in both the ocean marine and other  liability
lines of business, which largely reflected the absence of any catastrophe losses
and the  beneficial  impact of increased  rates in those lines of business.  Net
losses incurred from catastrophes in 2002 were $3 million and $0 in 2003.

           The Company decreased net loss reserves by approximately $1.4 million
in 2003  from the 2002 year end  reserve  amount of $209  million.  The  benefit
resulted from the favorable  development of ocean marine  reserves offset by the
adverse development of aviation reserves  attributable to accident years 1997 to
2000 and  additional  net loss  development  in its umbrella  (other  liability)
losses of approximately $1.0 million. The year end 2002 results were affected by
net adverse  development of $4.4 million  resulting in part from provisions made
for insolvent, financially impaired and commuted reinsurers, and $2.2 million of
adverse   development   from  the  Company's  other  liability  line  reflecting
additional umbrella exposures.


                                       29
<PAGE>


           Policy  acquisition  costs as a percentage of net premiums earned for
the year ended  December 31, 2003 were 20.2% as compared with 16.7% for the year
ended December 31, 2002. Net premiums earned in the prior year reflected  larger
amounts of aircraft  premiums,  which have a lower  acquisition  cost ratio than
other  lines of  business.  Accordingly,  a large part of the  aircraft  premium
written in 2002 reflected premium surcharges for terrorism coverage,  which were
recorded  with a nominal  processing  charge.  Premiums  earned in 2003 included
amounts  from new sources of  production,  including  commercial  auto and cargo
premiums, which have higher acquisition costs than other classes of business.

           General,  administrative  and  interest  expenses  increased by 3% to
$19.5  million for the year ended  December 31, 2003 from $18.9  million for the
year ended December 31, 2002.  The prior year's amount  included $1.5 million in
charges resulting from the reorganization of the Company's  management structure
and consisted  primarily of severance  payments to three of the Company's former
executive  officers.  All expenses related to the reorganization were paid prior
to June 30, 2003. Increases in expenses for 2003 were partly attributable to the
Company's new lease for its principal  office space which became effective prior
to the  expiration  on December  31, 2003 of the lease for the  Company's  prior
office location  resulting in higher rent while both leases were in effect.  The
Company  also  incurred  costs with  respect to the  implementation  of computer
systems.

           The Company's combined ratio (the loss ratio plus the ratio of policy
acquisition  costs and general and  administrative  expenses divided by premiums
earned) was 98.1% for the 2003 year compared with 97.5% for 2002.

           Net investment  income for the year ended December 31, 2003 increased
by 42% to $22.4 million from $15.8 million in the year ended  December 31, 2002.
The  increase in 2003  reflects  the  implementation  of our revised  investment
strategy, including income derived from trading portfolio activities and limited
partnerships,  partially  offset by a lower investment yield on the fixed income
portfolio  in 2003 as a  result  of a larger  position  held by the  Company  in
short-term  investments.  Net investment income for 2003 reflects  approximately
$9.4 million derived from trading portfolio activities, which commenced in 2003.
The Company's  trading  portfolio is marked to market with the change recognized
in net investment income during the current period. Any realized gains or losses
resulting  from the  sales of  trading  securities  are also  recognized  in net
investment income. Net Investment income derived from limited  partnership hedge
fund investments  approximated $7.7 million in 2003 as compared to approximately
$900,000.  in 2002. The Company initially  invested in hedge funds in the fourth
quarter of 2002.  The equity  method of  accounting  is used to account  for the
Company's limited  partnership hedge fund investments.  Under the equity method,
the  Company  records  all  changes  in the  underlying  value  of  the  limited
partnership  hedge fund to results of operations.  As a result of the accounting
treatment  of its limited  partnerships  and trading  portfolio,  the  Company's
investment  income  results may be more volatile.  The Company's  investments in
limited  partnership hedge funds amounted to approximately  $105 million and its
trading account amounted to $62 million as of December 31, 2003.

           Commission  and other  income  decreased to $1.5 million for the year
ended  December 31, 2003 from $1.7 million for the prior year.  The 2003 amounts
consisted primarily of income received from arbitration  settlements,  offset by
returns of reinsurance profit contingent  commissions.  In the second quarter of
2003, an arbitration procedure was completed against a former pool member, Utica
Mutual,  which resulted in a payment to MMO of approximately $7.8 million.  This
amount  represented  Utica Mutual's  funding  requirement  to the MMO pools.  In
addition,  MMO was  awarded  interest of  approximately  $1 million on a pre-tax
basis.  In 2002,  larger  profit  commissions  were earned  based upon the ceded
results of aircraft reinsurance treaties.

           Net  realized  investment  gains  were  $550,000  for the year  ended
December  31, 2003 as compared to $8.5  million for the year ended  December 31,
2002.  The prior year amounts  reflected  the sale of  substantially  all of the
Company's  fixed  income  investments.   Write-downs  from  other-than-temporary
declines in the fair value of securities amounted to $0 and $1.5 million for the
years ended December 31, 2003 and 2002, respectively.

           Total income taxes  increased to $9.1 million in 2003 from $(444,000)
for 2002.  The amount for the prior year  included  $9.3 million in tax benefits
attributable to the Company's withdrawal from its London operations.

           Premiums and other receivables,  net decreased to $24.0 million as of
December  31,  2003 from $35.7  million as of  December  31, 2002 as a result of
smaller  balances  due from the pool managed by MMO.  Favorable  cash flows were
recorded at MMO due in part to the previously mentioned  arbitration  settlement
and as a result  of  smaller  investment  balances  held on  behalf  of its pool
members.

           Reinsurance  receivables on paid and unpaid losses, net, decreased to
$4.2  million and $276.6  million,  respectively,  as of December  31, 2003 from
$19.4  million and $307.0  million,  respectively,  as of December  31, 2002 due
mainly  to  collections  of  reinsurance  receivables  on  paid  losses  and the
commutation of certain


                                       30
<PAGE>


receivables.

           Unpaid  losses  and loss  adjustment  expenses  increased  to  $518.9
million at December  31, 2003 from $516.0  million at  December  31,  2002.  The
increase of $2.9 million was  primarily  attributable  to increases in the ocean
marine and other  liability  lines as a result of increased  writings  offset by
declines in the aircraft line of business.

           Prepaid reinsurance premiums of $20.9 million and reserve of unearned
premiums of $61.8 million as of December 31, 2003 each  increased from the prior
year end balances primarily due to increases in both ceded and gross writings in
the ocean marine and other liability lines of business.

           Other liabilities  increased to $23.7 million as of December 31, 2003
from  $15.7  million  for the  same  period  of 2002 as a result  of  securities
purchased but not yet settled.

           Ceded reinsurance  payable increased to $25.8 million at December 31,
2003 from  $19.7  million  at  December  31,  2002 as a result of the  timing of
reinsurance payments.


Year Ended December 31, 2002 as Compared to Year Ended December 31, 2001


           The  Company  reported  net  income  of $28.7  million,  or $3.08 per
diluted share, as compared to net losses of $13.1 million,  or $1.42 per diluted
share, for the years ended December 31, 2002 and 2001, respectively.

           A reconciliation of net income (loss) excluding  realized  investment
gains after taxes and tax benefits attributable to the Company's withdrawal from
its London  operations  to net income  prepared  in  accordance  with  generally
acceptable accounting principles for the years ended December 31, 2002 and 2001,
respectively, is set forth below.

<TABLE>
<CAPTION>


                                                                      Year Ended
                                                                      December 31,
                                                                      -----------------------
                                                                      2002      2001
                                                                      --------  ---------
                                                                        (in millions)
<S>                                                                   <C>       <C>
Net income (loss), excluding realized investment gains and            $13.9     $(15.0)
 tax benefits on the withdrawal from London operations (1)
Realized investment gains after taxes                                   5.5        1.9
Tax benefits on the withdrawal from London operations                   9.3        ---
                                                                      --------  ---------
    Net income (loss)                                                 $28.7     $(13.1)
</TABLE>


           (1) Net income (loss)  excluding  realized  investment  gains and tax
benefits  on the  withdrawal  from  London  operations  is a non-GAAP  financial
measure and should be  considered  in addition to, but not as a substitute  for,
net income prepared in accordance with generally accepted accounting  principles
as a measure of profitability.  Because realized investment gains in 2002, which
resulted primarily from the liquidation of the Company's fixed income portfolio,
and  tax  benefits  on the  withdrawal  from  London  operations  in  2002  were
non-recurring  in nature,  management  believes that net income (loss) excluding
realized  investment  gains  and tax  benefits  on the  withdrawal  from  London
operations provides useful information regarding trends in the Company's results
of operations.



           Net realized  investment  gains after taxes of $5.5 million,  or $.59
per diluted share,  and $1.9 million,  or $.20 per diluted share,  were reported
for the years ended December 31, 2002 and 2001, respectively.

           In 2002,  the  Company  completed  the  withdrawal  from  its  London
operations,  which  resulted in a benefit of $9.3  million,  or $.99 per diluted
share, resulting primarily from the realization of certain tax benefits. Also in
2002,  the Company  recorded a charge of $1.0 million  after taxes,  or $.11 per
diluted  share,  related  to  the  reorganization  of the  Company's  management
structure.

           Results for the year 2001 include  after-tax  losses of approximately
$9.0 million,  or $.98 per diluted share,  resulting from the World Trade Center
attack.  In addition,  the Company's 2001 results from operations were adversely
affected  by net losses  from MMO London of $9.9  million,  or $1.07 per diluted
share.


                                       31
<PAGE>


           Net premiums earned for the year ended December 31, 2002 grew by 34%,
when compared to the same period of the prior year. Net premiums earned from the
Company's  core lines of business  for the year ended  December 31, 2002 grew by
69% when compared to 2001. The increases were achieved  primarily as a result of
rate increases.

           Net premiums earned for each segment are discussed below:

           Ocean  marine - net  premiums  earned  grew by 60%  during  2002 when
compared to 2001 and reflect  higher ocean marine rates across the various ocean
marine classes,  particularly in the rig class, and additional production within
the various marine classes of business.  The ocean marine line reflected average
rate increases of 20% to 30% in 2002.

           Other  liability - net premiums  earned rose by 140% during 2002 when
compared  to 2001 due to new  production  opportunities  arising  from  policies
covering  errors  and   omissions/professional   liability   risks,   additional
production in existing classes and larger premium rates on policy renewals.  The
other liability line reflected  average rate increases of 30% to 40% in 2002 and
volume  increases  of  approximately  75%  principally  as a result  of  writing
errors/omissions insurance for a full year in 2002 as compared to half a year in
2001.

           Inland  marine/fire - net premiums earned increased 268% for the year
ended  December 31, 2002 when compared to 2001,  largely due to an  underwriting
program  insuring excess and surplus lines property risks and improved  pricing.
The underwriting  program commenced in July of 2001. The inland marine/fire line
recorded average rate increases of 20% to 25% in 2002.

           Aircraft - premiums  earned grew 35% for the year ended  December 31,
2002 when compared to 2001, despite a reduction in policy count,  primarily as a
result of rate  increases.  Contributing  to the overall  increase  were premium
surcharges for terrorism  coverage written after September 11, 2001. The Company
recorded  approximately  $28 million in gross premiums written from such premium
surcharges  in 2002.  The prior year net  premiums  were  adversely  affected by
reinstatement  reinsurance costs of $5.0 million incurred as a result of the WTC
attack.

           MMO London - premiums  earned for the year ended  December  31,  2002
were down by 71% to $4.2  million  from  $14.1  million  in the  prior  year and
reflected reduced capacity for premium writings at Lloyd's.

            The loss ratio was 64.7% for the year  ended  December  31,  2002 as
compared to 103.9% for the year ended  December 31, 2001.  The Company  reported
higher loss ratios in 2001 as a result of losses  sustained  from the WTC attack
and larger  severity  losses  arising  from  higher net loss  retentions  in the
aircraft  segment  of  business.   Underwriting  losses  from  MMO  London  also
contributed  to higher  overall loss ratios in the prior year. In addition,  the
prior year loss ratio  reflected  larger  charges for  insolvent or  financially
impaired  reinsurers  of $10.8  million as compared to $5.1  million in calendar
year 2002. A significant  portion of such charges  pertained to the 1998 to 2001
accident  years in the  aircraft  segment of  business  and  contributed  to the
adverse re-estimation of net loss reserves.

           The Company reported lower overall loss ratios in 2002 as a result of
a decrease in the  frequency  and severity of losses in the  aircraft  line when
compared  to 2001.  However,  the  Company  recorded  catastrophe  losses  of $3
million,  which adversely  affected the ocean marine line in 2002. This compared
to catastrophe  losses of $9.0 million in 2001 in the aircraft line. The Company
increased  net loss reserves by $4.4 million in 2002 as compared to $9.6 million
in 2001.  The Company also  increased  net loss  reserves  for  umbrella  (other
liability)  losses  by  approximately  $2.2  million  in 2002 as a result of the
additional  development of asbestos losses with respect to a few insureds.  This
compared to a $.6 million  increase in net reserves for umbrella losses in 2001.
The 2002 and 2001 results were each affected by adverse  development  from ocean
marine  business  written by MMO London.  The quality of the book written by MMO
London was  originally  anticipated  to be  similar  to that  written by the MMO
companies.  However,  the  loss  experience  revealed  a lower  quality  book of
business resulting from higher than expected claim frequencies and a longer than
expected loss development  pattern which caused the Company to increase reserves
substantially  in 2001 and to a lesser extent in 2002.  The adverse  development
recorded in 2002 and 2001 was partially  offset by favorable  development in the
ocean marine line of business.

           Policy  acquisition  costs as a percentage of net premiums earned for
the year ended December 31, 2002 were 16.7% as compared with 19.0% for the prior
year. The decrease in the percentage was primarily  attributable to the aircraft
expense ratio, which reflected a lower ratio as premium surcharges were recorded
with a nominal processing charge.

           The  Company's  combined  ratio  improved  to 97.5% for the 2002 year
compared  with  142.9%  for 2001.  Excluding  losses  from the WTC  attack,  the
combined ratio would have been 127.6% in 2001.


                                       32
<PAGE>


           Net investment  income for the year ended December 31, 2002 decreased
by 9% to $15.8  million  from $17.4  million  for the same  period of 2001.  The
decrease  reflected  lower  investment  yields  as well as larger  positions  in
tax-exempt  securities in 2002,  despite a larger investment asset base in 2002.
Income  derived from hedge fund  investments  approximated  $1.0 million in 2002
compared to no similar amount in 2001.

           Commission and other income, collectively,  decreased to $1.7 million
for the year ended  December 31, 2002 from $3.6  million for the prior year.  In
2001,  larger  profit  commissions  were earned based upon the ceded  results of
aircraft reinsurance treaties.

           General and administrative  expenses increased by 8% to $18.4 million
for the year ended  December 31, 2002 when  compared to $17.0  million for 2001.
The increase is principally  attributable  to $1.5 million in charges  resulting
from the reorganization of the Company's management structure in 2002.

           Interest expense  increased to $575,000 in 2002 from $395,000 in 2001
due to a larger amount of loan principal outstanding during the
year.

           Net  realized  investment  gains were $8.5 million for the year ended
December 31, 2002 as compared to net realized  investment  gains of $2.9 million
for 2001.  The Company  realized  investment  gains on the sale of a substantial
portion of its fixed maturities portfolio in 2002 in an effort to reposition the
portfolio.  However,  such  investment  gains in 2002 were  partially  offset by
realized  investment  losses  on both the  sale of the  Company's  common  stock
portfolio and sale of lower rated fixed maturities.

           The 2002 income tax provision reflects  approximately $9.3 million of
tax benefits  realized from the completion of the Company's  withdrawal from its
London  operations.  Excluding  this  benefit,  income taxes as a percentage  of
income before taxes were 31.5% in 2002.

           Premiums and other  receivables,  net,  decreased to $35.7 million at
the end of 2002 from $74.9 million at the end of 2001.  The decrease was largely
attributable to smaller balances due from the pool managed by MMO as a result of
favorable cash flows and smaller  investment  balances held by the pool. Premium
receivables  from runoff segments  (aircraft and MMO London) have also decreased
since the prior year.

           Reinsurance  receivables on paid and unpaid losses, net, decreased to
$326.4  million as of December 31, 2002 from $361.7  million for the same period
of 2001. The decrease is largely  attributable  to smaller loss  recoveries from
runoff  segments  (aircraft  and MMO London) and to the  commutation  of certain
reinsurance receivable balances.

           Prepaid reinsurance  premiums of $6.4 million and reserve of unearned
premiums of $45.4 million as of December 31, 2002 each  decreased  from the 2001
year end balances  primarily due to reductions in the amount of inforce premiums
from the aircraft and MMO London segments.

           Accumulated other comprehensive income decreased to $.4 million as of
December  31,  2002 from $7.9  million  as of  December  31,  2001.  The  change
principally  reflects the sale of a substantial amount of the fixed maturity and
equity security portfolios in 2002.

           The  change  in  unpaid  losses  and  loss  adjustment  expenses  and
reinsurance  receivables  in 2001 was largely  attributable  to gross  losses of
$154.9  million and  reinsurance  receivables of $146.9  million,  respectively,
incurred  from the World Trade Center  attack.  The change in unpaid  losses and
loss  adjustment  expenses  and  reinsurance  receivables  in 2002  was  largely
attributable to smaller loss payments and recoveries from segments (aircraft and
MMO London) of the Company that are no longer actively  underwritten  and to the
commutation of certain reinsurance receivable balances.

           The change in other  liabilities in 2001 was a result of increases in
funds held from reinsurers in order to  collateralize  their  obligations to the
Company as  required  by  provisions  of  various  reinsurance  treaties.  Funds
obtained from  reinsurers  are invested by MMO for the benefit of the Company in
the insurance pools managed by MMO.

           The change in premium and other  receivables in 2001 was attributable
to  larger  amounts  due from the  pools  managed  by MMO as a result  of larger
investment  balances  held  by  the  pool.  Premium  receivables  from  segments
(aircraft and MMO London) where the Company is no longer  actively  underwriting
have also decreased since 2001.

Liquidity and Capital Resources

           The Company monitors cash and short-term investments in order to have
an adequate  level of funds  available  to satisfy  claims and  expenses as they
become due. As of December 31, 2003, the Company's assets included approximately
$259  million  in cash and  short-term  investments.  The  amount of  short-term
investments held is a direct result of the Company's  concern over the prospects
of rising interest rates in the near future.

           The primary  sources of the Company's  liquidity are funds  generated
from  insurance   premiums,   investment  income  and  maturing  or  liquidating
investments.


                                       33
<PAGE>


           Cash flows  provided by operating  activities  were $22.1 million for
the year ended  December  31,  2003.  Cash of $61.7  million was used in 2003 to
establish the Company's trading  portfolio,  whose trading  activities  included
collateralized   debt  obligations  and  certain  other  securities  with  fixed
maturities.  As the Company commenced its trading portfolio in 2003, any amounts
purchased  by the Company  would be  reflected  as a use of cash from  operating
activities.  In addition,  cash flows in 2003 reflected  larger amounts received
from collections of both  reinsurance and premium and other  receivables than in
2002.  Paid losses were also lower in 2003,  reflecting  lower amounts paid from
runoff  lines  (aircraft  and MMO London) and the  commutation  of certain  loss
reserves.

           Cash flows from  operating  activities  in 2002 and 2001  amounted to
$65.4 million and $1.8 million, respectively, resulting primarily from increases
in premiums.  Cash flows in 2002  reflected  significant  amounts  received from
aircraft premiums as a result of premium  surcharges for terrorism  coverage.  A
substantial  portion of such cash flows provided from  operating  activities was
then  used  in  investing  activities  to  purchase  fixed  maturities.  Further
increasing  cash flows in 2002 was the  commutation  of ceded loss reserves that
contributed  approximately  $19.3  million to cash  flows.  The  Company's  loss
payments on asbestos/environmental  business,  however,  adversely affected cash
flows during the past three years.

           Financing activities occurred in 2001 as a result of borrowings under
the Company's  revolving credit  agreement and unsecured  credit  facility.  The
Company borrowed  approximately $5.5 million in 2001 to assist in the payment of
gross  losses of the  Company.  The loan  amounts  resulted  from draw  downs on
existing  letters of credit  provided to support the Company's U.K.  operations.
Repayments  under the Company's  prior loan facility were made at $1,250,000 per
quarter in 2001.

           In  2002,  the  Company  entered  into a  credit  agreement  with  an
unaffiliated  company.  The  agreement  combined the Company's  existing  credit
agreements  together  with a  facility  to fund  future  cash draw  downs on the
letters of credit  issued on behalf of the Company to fund losses in MMO London.
During 2002, the remaining  balance of the letters of credit issued on behalf of
the Company was fully drawn down (approximately $15.7 million) and such payments
were funded entirely under the credit agreement.  Approximately $17.4 million of
the loan balance was repaid in 2002 from cash derived from operating activities.
On February 7, 2003, the Company repaid its entire  outstanding  loan balance to
the bank  following  the sale of equity to Conning  Capital  Partners  VI,  L.P.
("Conning") on January 31, 2003. In this  transaction,  Conning acquired 400,000
investment  units from the  Company,  each unit  consisting  of one share of the
Company's  common stock and an option to purchase an additional  share of common
stock from the Company.  Conning paid $21.00 per unit  resulting in $8.4 million
in  proceeds to the  Company.  The option  exercise  price is based on a formula
contained  in the Option  Certificate  (which was  attached as an exhibit to the
Company's  current  report on Form 8-K filed on February  4, 2003).  The Company
used common stock held in treasury to effect the transaction with Conning. As of
December 31, 2003,  there were no outstanding  balances open on letter of credit
agreements.

           Under the Common Stock  Repurchase  Plan, the Company may purchase up
to $55,000,000 of the Company's issued and outstanding shares of common stock on
the open market.  The Company  repurchased  98,816 shares of its common stock in
2003.  During 2003, the Company issued  400,000  treasury  shares in conjunction
with the equity sale to Conning  Capital  Partners  VI, L.P.  During  2001,  the
Company issued 4,540 treasury shares in connection with the  compensation of its
Directors.

           The  following  table  outlines the aggregate  minimum  annual rental
payments  payable  by the  Company  under  various  operating  leases for office
facilities as of December 31, 2003:

<TABLE>
<CAPTION>

                                2004     2005     2006    2007      2008        Thereafter
                                ----     ----     ----    -----     ----        ----------
                                                 (in millions)

<S>                             <C>      <C>      <C>     <C>        <C>         <C>
           Operating leases     $1.1     $1.3     $1.3    $1.2       $1.2        $ 9.4
</TABLE>


           On December  30,  2002,  the  Company  signed a sublease at 919 Third
Avenue,  New York,  NY 10022  for which it  received  landlord's  consent  dated
January 31, 2003, for approximately 28,000 square feet for its principal offices
in New York.  The  sublease  commenced  on March 1, 2003 and expires on July 30,
2016. The minimum  monthly rental  payments of $102,794  commenced in March 2004
and end in 2016 and will amount to $15.3  million of total rental  payments over
the term of the sublease.

           As  discussed   below,   on  March  11,  2004,   the  Company  issued
$100,000,000  in the  aggregate  principal  amount of 6.50%  Senior  Notes.  The
principal of the Senior Notes is payable in full on March 15, 2014.  Interest is
payable  semi-annually  on March 15 and  September  15 of each  year,  beginning
September 15, 2004.


                                       34
<PAGE>


           Specific  related party  transactions  and their impact on results of
operations are disclosed in Note 16 of the Company's financial statements.

           The Company  adheres to investment  guidelines  set by management and
approved by the Finance  Committee of the Board of  Directors.  See  "Investment
Policy".

           NYMAGIC's  principal  source  of cash  flow  is  dividends  from  its
insurance  company  subsidiaries,  which are then used to fund various operating
expenses,  including  interest  expense,  loan repayments and the payment of any
dividends to shareholders. The Company's domestic insurance company subsidiaries
are limited by statute in the amount of  dividends  that may be declared or paid
during a year. The limitation  restricts dividends paid or declared to the lower
of 10% of  policyholders'  surplus or 100% of adjusted net investment  income as
defined under New York Insurance Law. Within this limitation, the maximum amount
which  could be paid to the  Company out of the  domestic  insurance  companies'
surplus was  approximately  $15,900,000  as of December 31, 2003.  In connection
with the  application  for approval of acquisition of control of NYMAGIC,  INC.,
filed by Mariner and William J.  Michaelcheck  with the New York State Insurance
Department (the "Department") pursuant to Section 1506 of the New York Insurance
Law,  New York Marine and Gotham  agreed for a period of two years from July 31,
2002,  the date of the  acquisition  of such  control,  not to pay any dividends
without the consent of the  Department.  The  limitations  on dividends from the
insurance company subsidiaries are not expected to have a material impact on the
Company's ability to meet current cash obligations.

           During 2003 and first quarter of 2004, New York Marine  requested and
received  approval  from  the  State  of New York  Insurance  Department  to pay
extraordinary  dividends of $5,000,000  and  $15,000,000,  respectively,  to the
Company.

           On March 12, 2003,  the Company  declared a dividend of six (6) cents
per share to shareholders of record on March 31, 2003, payable on April 8, 2003.
On June 12, 2003, the Company  declared a dividend of six (6) cents per share to
shareholders  of record on June 30, 2003,  payable on July 8, 2003. On September
17,  2003,  the  Company  declared  a  dividend  of six (6)  cents  per share to
shareholders  of record on September  30, 2003,  payable on October 7, 2003.  On
December 17, 2003, the Company declared a dividend of six (6) cents per share to
shareholders  of record on December  31,  2003,  payable on January 8, 2004.  On
February 26, 2004, the Company declared a dividend of six (6) cents per share to
shareholders of record on March 31, 2004,  payable on April 6, 2004. The Company
did not declare or pay a dividend at any time during 2002.

      During the first quarter of 2003, the Company  granted options to purchase
20,000 shares of the Company's common stock to certain directors of the Company,
who are not officers of the Company.  The exercise prices of these stock options
are equal to the  closing  prices of the  Company's  stock on the New York Stock
Exchange on the dates of the underlying stock grants.

           On March 11, 2004,  the Company  issued  $100,000,000  in 6.5% Senior
Notes  due  March  15,  2014  and  received   proceeds  of  $98,763,000  net  of
underwriting discount but before other transaction  expenses.  The Notes provide
for  semi-annual  interest  payments  and are to be  repaid in full on March 15,
2014.  The indenture  relating to the Senior Notes provides that the Company and
its  restricted  subsidiaries  may  not  incur  indebtedness  unless  the  total
indebtedness of the Company and its restricted subsidiaries, calculated on a pro
forma basis after such issuance,  would not exceed 50% of our total consolidated
capitalization  (defined as the aggregate amount of our shareholders'  equity as
shown on our most recent quarterly or annual consolidated balance sheet plus the
aggregate   amount  of   indebtedness   of  the  Company   and  its   restricted
subsidiaries).  The indenture  also provides that the Company and its restricted
subsidiaries  will not pay dividends or make other payments or  distributions on
the  Company's  stock  or the  stock  of any  restricted  subsidiary  (excluding
payments by any  restricted  subsidiary to the Company),  purchase or redeem the
Company's stock or make certain  payments on subordinated  indebtedness  unless,
after making any such  payment,  the total  indebtedness  of the Company and its
restricted   subsidiaries  would  not  exceed  50%  of  our  total  consolidated
capitalization  (as defined above). In addition,  the indenture contains certain
other covenants that restrict our and our restricted  subsidiaries'  ability to,
among other  things,  incur liens on any shares of capital stock or evidences of
indebtedness issued by any of our restricted subsidiaries or issue or dispose of
voting stock of any of our restricted  subsidiaries.  The Company intends to use
the net proceeds from the sale of the Senior Notes for working capital and other
general corporate purposes, and, potentially, for acquisitions.  The Company has
no agreement with respect to any acquisition,  although we assess  opportunities
on an ongoing basis and from time to time have  discussions with other companies
about potential transactions.

           Under the  terms of a  registration  rights  agreement,  NYMAGIC  has
agreed to file a  registration  statement  under the  Securities Act of 1933, as
amended,  with the Securities and Exchange  Commission to permit the exchange of
the Senior Notes for registered  notes having terms  substantially  identical to
those of the Senior Notes (except that the registered  notes will not be subject
to  restrictions  on ownership  and  transfer) or the  registered  resale of the
Senior Notes.


Off-Balance Sheet Arrangements

           The Company has no off-balance sheet arrangements.


                                       35
<PAGE>


Critical accounting policies

           The Company discloses significant accounting policies in the notes to
its financial statements. Management considers certain accounting policies to be
critical for the  understanding  of the  Company's  financial  statements.  Such
policies require  significant  management  judgment and the resulting  estimates
have a material  effect on  reported  results  and will vary to the extent  that
future events affect such  estimates and cause them to differ from the estimates
provided currently. These critical accounting policies include unpaid losses and
loss  adjustment  expenses,  allowance for doubtful  accounts and  impairment of
investments.

           Unpaid  losses and loss  adjustment  expenses are based on individual
case  estimates  for losses  reported.  A provision is also  included,  based on
actuarial estimates utilizing historical trends in the frequency and severity of
paid and reported  claims,  for losses  incurred but not  reported,  salvage and
subrogation  recoveries  and for loss  adjustment  expenses.  Unpaid losses with
respect to asbestos/environmental risks are difficult for management to estimate
and  require  considerable   judgment  due  to  the  uncertainty  regarding  the
significant issues surrounding such claims. For a further discussion  concerning
asbestos/environmental   reserves  see   "Reserves."   Unpaid  losses  and  loss
adjustment  expenses  amounted to $518.9  million and $516.0 million at December
31, 2003 and 2002, respectively. Unpaid losses and loss adjustment expenses, net
of  reinsurance  amounted to $242.3  million and $209.0  million at December 31,
2003 and  2002,  respectively.  Both  the  gross  and net  unpaid  loss  reserve
estimates  as of December  31, 2002 have been  reasonably  estimated  as reserve
changes  of less than one  percent  were  reported  in 2003 on their  respective
balances.  Management  continually  reviews and updates the estimates for unpaid
losses and any changes  resulting  therefrom are reflected in operating  results
currently.  The potential for future  adverse or favorable  loss  development is
highly uncertain and subject to a variety of factors including,  but not limited
to, court decisions, legislative actions and inflation.

           The allowance for doubtful  accounts is based on management's  review
of amounts due from insolvent or financially impaired companies.  Allowances are
estimated for both premium receivables and reinsurance  receivables.  Management
continually  reviews and updates such estimates for any changes in the financial
status of companies. For a further discussion concerning reinsurance receivables
see  "Reinsurance  Ceded." The  allowance for doubtful  accounts on  reinsurance
receivables amounted to $12.8 million and $13.3 million at December 31, 2003 and
2002,  respectively.  The allowance for doubtful  accounts on premiums and other
receivables amounted to $450,000 as of December 31, 2003 and 2002, respectively.

           Impairment of investments,  included in realized  investment gains or
losses,  results  from  declines  in the fair  value of  investments  which  are
considered  by  management  to  be   other-than-temporary.   Management  reviews
investments  for  impairment  based upon  specific  criteria  that  include  the
duration and extent of declines in fair value of the security  below its cost or
amortized cost. Procedures utilized for analyzing  other-than-temporary declines
in the value of fixed income investments  include the following:  1) identifying
those fixed income  securities  with fair values declines of greater than 10% at
the end of each  reporting  period and held for 6 months or more; 2) determining
if such fixed  income  investments  have had any rating  agency  downgrades;  3)
recording an impairment if one of the following  situations is true: a) the fair
value  decline  is  greater  than 20%,  b) the fixed  income  security  has been
downgraded  more than two levels by a major rating agency,  or c) the fair value
decline is greater than 10% and the security has been  downgraded one level by a
major rating  agency.  Procedures  utilized for  analyzing  other-than-temporary
declines in the value of equity securities include recording writedowns on those
equity  securities  with fair value  declines of greater  than 20% at the end of
each  reporting  period and held for 6 months or more. The Company will consider
the effect of rising interest rates in determining other-than-temporary declines
in the value of fixed income investments. Approximately $0 and $1.5 million were
charged to results from  operations  in 2003 and 2002,  respectively,  resulting
from fair value declines considered to be other-than-temporary. Gross unrealized
gains and losses on fixed maturity  investments  amounted to approximately  $1.2
million and $.3 million,  respectively, at December 31, 2003. As of December 31,
2003,  there were no  unrealized  losses  greater than one year from the date of
purchase on fixed income securities. There were no unrealized gains or losses on
equity securities at December 31, 2003 and 2002, respectively.

           The Company  utilizes the equity  method of accounting to account for
its limited  partnership  hedge fund investments.  Under the equity method,  the
Company records all changes in the underlying  value of the limited  partnership
to net investment income in results of operations. Net investment income derived
from  investments  in  limited   partnerships   amounted  to  $7.7  million  and
approximately  $900,000  for  the  years  ended  December  31,  2003  and  2002,
respectively. See Item 7A "Quantitative and Qualitative Disclosures About Market
Risk" with  respect  to market  risks  associated  with  investments  in limited
partnership hedge funds.


                                       36
<PAGE>


           The Company  maintained  a trading  portfolio  at  December  31, 2003
consisting of collaterallized  debt obligations (CDOs),  although other types of
investments  were included by the Company  within the trading  portfolio  during
2003. These  investments are marked to market with the change  recognized in net
investment  income  during the  current  period.  Any  realized  gains or losses
resulting  from  the  sales  of  such  securities  are  also  recognized  in net
investment  income.  The Company recorded $9.4 million in net trading  portfolio
income for the year ended  December  31,  2003.  See Item 7A  "Quantitative  and
Qualitative  Disclosures  About  Market  Risk"  with  respect  to  market  risks
associated with investments in CDOs.

           Effective  January  1,  2003,  the  Company  adopted  the fair  value
recognition  provisions of FASB Statement No. 123,  Accounting  for  Stock-Based
Compensation,  ("SFAS  123"),  prospectively  to all  employee  awards  granted,
modified,  or  settled  after  January  1,  2003.  See Note 13 to the  Company's
Consolidated  Financial  Statements  for a discussion  on the effect of adopting
SFAS 123.


Effect of recent accounting pronouncements

           In   January   2003,   the  FASB   issued   Interpretation   No.  46,
"Consolidation of Variable Interest  Entities,  an interpretation of ARB No. 51"
("FIN 46"),  which requires an enterprise to assess whether  consolidation of an
entity is  appropriate  based upon its interests in a variable  interest  entity
("VIE").  A VIE is an  entity  in which  the  equity  investors  do not have the
characteristics  of a controlling  financial  interest or do not have sufficient
equity at risk for the  entity to  finance  its  activities  without  additional
subordinated  financial support from other parties. The initial determination of
whether  an  entity  is a VIE  shall be made on the date at which an  enterprise
becomes involved with the entity.  An enterprise  shall  consolidate a VIE if it
has a variable  interest that will absorb a majority of the VIEs expected losses
if they occur,  receive a majority of the entity's  expected residual returns if
they occur or both. FIN 46 was effective immediately for new VIEs established or
purchased subsequent to January 31, 2003.

           In December 2003,  the FASB issued a revised  version of FIN 46 ("FIN
46R"),  which  incorporates  a number of  modifications  and changes made to the
original version.  FIN 46R replaces the previously issued FIN 46 and, subject to
certain  special  provisions,  is  effective  no later than the end of the first
reporting period that ends after December 15, 2003 for entities considered to be
special-purpose entities and no later than the end of the first reporting period
that ends after March 15, 2004 for all other VIEs.  Early adoption is permitted.
The  adoption of FIN 46R is not expected to result in the  consolidation  of any
VIEs.

           Effective  December  31,  2003,  the Company  adopted the  disclosure
requirements  of  Emerging  Issues Task Force  ("EITF")  Issue No.  03-01,  "The
Meaning  of  Other-Than-Temporary  Impairment  and Its  Application  to  Certain
Investments".  Under the  consensus,  disclosures  are required  for  unrealized
losses on fixed maturity and equity securities accounted for under SFAS No. 115,
"Accounting for Certain Investment in Debt and Equity Securities",  and SFAS No.
124, "Accounting for Certain Investments Held by Not-for-Profit  Organizations",
that are  classified  as  either  available-for-sale  or  held-to-maturity.  The
disclosure requirements include quantitative information regarding the aggregate
amount of unrealized  losses and the associated fair value of the investments in
an  unrealized  loss  position,  segregated  into  time  periods  for  which the
investments  have been in an unrealized  loss  position.  The EITF also requires
certain  qualitative  disclosures  about  the  unrealized  holdings  in order to
provide  additional  information that the Company  considered in concluding that
the unrealized losses were not other-than-temporary.
(For further discussion, see disclosures in Note 2.)


           Statement of Financial  Accounting Standards No. 148, "Accounting for
Stock Based  Compensation - Transition and Disclosure"  ("SFAS 148"), was issued
by the Financial  Accounting Standards Board ("FASB") in December 2002. SFAS 148
provides  alternative  methods  of  transition  for a company  that  voluntarily
changes its method of accounting  for stock based employee  compensation  to the
fair value method. SFAS 148 also requires additional  disclosures in both annual
and interim financial  statements about the method of accounting for stock based
employee  compensation and its effect on reported results. SFAS 148 is effective
for interim  periods  beginning after December 15, 2002. The Company has adopted
the appropriate disclosures under SFAS 148.

Impact of Inflation

           Periods of inflation have prompted the pools,  and  consequently  the
Company,  to react  quickly to actual or  potential  imbalances  between  costs,
including  claim  expenses,  and  premium  rates.  These  imbalances  have  been
corrected mainly through improved underwriting  controls,  responsive management
information systems and frequent review of premium rates and loss experience.


                                       37
<PAGE>


           Inflation also affects the final  settlement  costs of claims,  which
may not be paid for several years. The longer a claim takes to settle,  the more
significant  the impact of  inflation  on final  settlement  costs.  The Company
periodically reviews outstanding claims and adjusts reserves for the pools based
on a number of factors, including inflation.

--------------------------------------------------------------------------------
Item 7A.   Quantitative and Qualitative Disclosures About Market Risk
--------------------------------------------------------------------------------

           Market risk  includes the  potential for future losses due to changes
in the  fair  value  of  financial  instruments,  which  relates  mainly  to the
Company's  investment  portfolio.  Those risks  associated  with the  investment
portfolio  include the effects of exposure to adverse changes in interest rates,
credit quality and hedge fund and equity investments.

           The  largest  market  risk to the  Company  is  interest  rate  risk.
Interest  rate risk  includes the changes in the fair value of fixed  maturities
based upon changes in interest rates. The Company  considers  interest rate risk
and the overall  duration of the  Company's  loss  reserves  in  evaluating  the
Company's investment portfolio.

           The following tabular  presentation  outlines the expected cash flows
of fixed  maturities  available for sale for each of the next five years and the
aggregate  cash flows  expected for the remaining  years  thereafter  based upon
maturity dates. Fixed maturities include taxable and tax-exempt  securities with
applicable weighted average interest rates.


<TABLE>
<CAPTION>
                                                     Future cash flows of expected principal amounts
                                                     -----------------------------------------------
                                                                   (Dollars in millions)
                                                                                                                Total        Total
                                                                                                    There-    Amortized       Fair
Fixed maturities                      2004        2005         2006         2007       2008          after      Cost         Value
----------------                      ----        ----         ----         ----       ----          -----      ----         -----
<S>                                 <C>           <C>          <C>          <C>        <C>           <C>         <C>          <C>

Tax-exempts                         $   17        ---          ---          ---        ---           ---         $17          $17
        Average interest rate          .9%        ---          ---          ---        ---           ---         ---          ---

Taxables                            $   7         $16          $24          $6         $15           $8          $76          $76
        Average interest rate         7.9%        7.4%         6.4%         6.1%       5.8%          6.7%        ---          ---
                                      ---------------------------------------------------------------------------------------------

Total                               $ 24          $16          $24          $6         $15           $8          $93          $93
</TABLE>

           Credit  quality risk  includes the risk of default by issuers of debt
securities.  As of December  31,  2003,  88% of the fair value of the  Company's
fixed income and short term investment  portfolios  were  considered  investment
grade. As of December 31, 2003, the Company invested approximately $51.5 million
in fixed  maturities that are below  investment  grade,  with a concentration in
investments  rated "BB+" by Standard and Poor's.  The Company  seeks to mitigate
market risk  associated  with such  investments  by  maintaining  a  diversified
portfolio of such securities that limits the  concentration of investment in any
one issuer. The largest single investment made by the Company in such securities
amounted  to 18%  of  the  total  amount  invested  in  below  investment  grade
securities.

           Hedge fund risk  includes the potential  loss from the  diminution in
the value of the underlying investment of the hedge fund. Hedge fund investments
are subject to various  economic and market  risks.  The risks  associated  with
hedge fund  investments may be  substantially  greater than the risks associated
with fixed income  investments.  Consequently,  our hedge fund  portfolio may be
more volatile,  and the risk of loss greater,  than that  associated  with fixed
income  investments.  As  the  Company  invests  a  greater  percentage  of  its
investment  portfolio in limited  partnership  hedge funds,  there may also be a
greater volatility  associated with the Company's investment income. Each of the
insurance company  subsidiaries has revised its investment policy and now limits
the amount of hedge fund investments to the greater of 30% of invested assets or
50% of policyholders' surplus.

           The Company also seeks to mitigate  market risk  associated  with its
investments in hedge funds by maintaining a diversified  portfolio of hedge fund
investments.  Diversification  is achieved  through  the use of many  investment
managers employing a variety of different  investment  strategies in determining
the underlying  characteristics  of their hedge funds.  The Company is dependent
upon these  managers to obtain market prices for the  underlying  investments of
the hedge funds.  Some of these investments may be difficult to value and actual
values may differ  from  reported  amounts.  The hedge  funds in which we invest
usually impose  limitations  on the timing of  withdrawals  from the hedge funds
(most are  within 90 days),  and may affect our  liquidity.  With  respect to an
investment in a limited  partnership managed by a Mariner affiliated Company and
consolidated in the Company's financial statements,  the Company cannot withdraw
funds for a minimum  period of three years without the consent of the hedge fund
manager.


                                       38
<PAGE>


           The Company invests in CDOs, which are private  placements.  The fair
value of each security is provided by securities dealers.  The markets for these
types of securities  can be illiquid  and,  therefore,  the price  obtained from
dealers on these securities is subject to change,  depending upon the underlying
market conditions of these securities, including the potential for downgrades or
defaults on the  underlying  collateral  of the  security.  The Company seeks to
mitigate  market  risk  associated  with  such   investments  by  maintaining  a
diversified  portfolio  of such  securities  that  limits the  concentration  of
investment in any one issuer. The excess of fair value over the cost of the CDOs
was  recorded in net  investment  income and amounted to $.3 million at December
31, 2003. The largest single  investment  made by the Company in such securities
amounted to 15% of the total amount invested in CDO securities.

           The Company monitors market risks on a regular basis through meetings
with Mariner,  examining the existing portfolio and reviewing  potential changes
in investment guidelines,  the overall effect of which is to allow management to
make  informed  decisions  concerning  the impact that market  risks have on the
portfolio.


--------------------------------------------------------------------------------
Item 8.   Financial Statements and Supplementary Data
--------------------------------------------------------------------------------

           Interested  persons can obtain access to the Company's 10-K, 10-Q and
8-K reports on its Internet  web site,  www.nymagic.com,  as soon as  reasonably
practicable after they are filed or furnished to the SEC.

           The consolidated  financial  statements required by this item and the
report of the  independent  accountants  therein  required by Item 15(a) of this
report  commence  on  page  F-2.  See  accompanying  Index  to the  Consolidated
Financial Statements on page F-1.


--------------------------------------------------------------------------------
Item 9.    Changes in and  Disagreements  with  Accountants  on  Accounting  and
           Financial Disclosure
--------------------------------------------------------------------------------

           None.


--------------------------------------------------------------------------------
Item 9A.   Controls and Procedures
--------------------------------------------------------------------------------

Evaluation of Disclosure Controls and Procedures

           As of the end of the period  covered by this  report,  the  Company's
management,  with the participation of the Company's Chief Executive Officer and
Chief Financial Officer, evaluated the effectiveness of the design and operation
of the Company's  disclosure  controls and  procedures as defined in Rule 13a-15
under the  Securities  Exchange  Act of 1934.  Based upon that  evaluation,  the
Company's Chief Executive Officer and Chief Financial Officer concluded that the
Company's  disclosure  controls and procedures are effective in allowing  timely
decisions regarding disclosure.


Changes in Internal Controls

           There have been no significant  changes in our "internal control over
financial  reporting" (as defined in rule  13a-15(f))  that occurred  during the
period  covered by this report  that has  materially  affected or is  reasonably
likely to materially affect our internal control over financial reporting.


                                       39
<PAGE>


                                    PART III

--------------------------------------------------------------------------------
Item 10.   Directors and Executive Officers of the Registrant
--------------------------------------------------------------------------------


           The  information  required by this Item is  incorporated by reference
herein from the  sections  captioned  "Election  of  Directors,"  "Nominees  for
Directors,"  "Executive  Officers of the Company" and "Section 16(a)  Beneficial
Ownership Reporting Compliance" in NYMAGIC's Proxy Statement for the 2004 Annual
Meeting of Shareholders to be filed within 120 days after December 31, 2003.


--------------------------------------------------------------------------------
Item 11.   Executive Compensation
--------------------------------------------------------------------------------

           The  information  required by this Item is  incorporated by reference
herein from the sections captioned "Compensation of Directors" and "Compensation
of Executive  Officers" in NYMAGIC's Proxy Statement for the 2004 Annual Meeting
of Shareholders to be filed within 120 days after December 31, 2003.


--------------------------------------------------------------------------------
Item 12.   Security Ownership of Certain Beneficial Owners and Management
--------------------------------------------------------------------------------

           The  information  required by this Item is  incorporated by reference
herein from the sections  captioned  "Security  Ownership of Certain  Beneficial
Owners,"  "Security  Ownership of Management,"  "Changes in Control" and "Equity
Compensation  Plans" in NYMAGIC's Proxy Statement for the 2004 Annual Meeting of
Shareholders to be filed within 120 days after December 31, 2003.


--------------------------------------------------------------------------------
Item 13.   Certain Relationships and Related Transactions
--------------------------------------------------------------------------------

           The  information  required by this Item is  incorporated by reference
herein  from  the  section   captioned   "Certain   Relationships   and  Related
Transactions"  in  NYMAGIC's  Proxy  Statement  for the 2004  Annual  Meeting of
Shareholders to be filed within 120 days after December 31, 2003.

--------------------------------------------------------------------------------
Item 14.   Principal Accounting Fees and Services
--------------------------------------------------------------------------------


           The information required by Item 9(e) of Schedule 14A is incorporated
herein by reference to the Company's  definitive proxy statement to be filed not
later than April 29, 2004 with the Securities and Exchange  Commission  pursuant
to Regulation 14A of the Exchange Act.


                                       40
<PAGE>


                                     PART IV

Item 15.   Exhibits, Financial Statement Schedules, and Reports on Form 8-K
--------------------------------------------------------------------------------


<TABLE>
<CAPTION>

<S>        <C>     <C>
      (a)  1.      Financial Statements

                   The list of financial statements appears in the accompanying index on page F-1.

           2.      Financial Statement Schedules

                   The list of financial statement schedules appears in the accompanying index on page F-1.

           3.      Exhibits

           3.1     Charter of NYMAGIC,  INC. (Filed as Exhibit 99.1 to the Registrant's Current Report on Form 8-K filed on December
                   16, 2003 (Commission File No. 1-11238) and incorporated herein by reference).

           3.2     Amended and Restated By-Laws. (Filed as Exhibit 3.3 of the Registrant's Annual Report on Form 10-K for the fiscal
                   year ended December 31, 1999 (Commission File No. 1-11238) and incorporated herein by reference).

           4.0     Specimen  Certificate of common stock (Filed as Exhibit 4.0 of Amendment No. 2 to the  Registrant's  Registration
                   Statement No. 33-27665) and incorporated herein by reference).

           10.1    Restated  Management  Agreement  dated as of  January  1, 1986,  by and among  Mutual  Marine  Office,  Inc.  and
                   Arkwright-Boston  Manufacturers Mutual Insurance Company, Utica Mutual Insurance Company, Lumber Mutual Insurance
                   Company, the Registrant and Pennsylvania National Mutual Casualty Insurance Company (Filed as Exhibit 10.2 of the
                   Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1986 (Commission File No. 2-88552)
                   and incorporated herein by reference).

           10.2    Amendment No. 2 to the Restated Management  Agreement,  dated as of December 30, 1988, by and among Mutual Marine
                   Office,  Inc. and Arkwright Mutual Insurance  Company,  Utica Mutual Insurance  Company,  Lumber Mutual Insurance
                   Company, the Registrant and Pennsylvania  National Mutual Casualty Insurance Company (Filed as Exhibit 10.2.2. of
                   the Registrant's  Current Report on Form 8-K dated January 6, 1989 (Commission File No. 2-88552) and incorporated
                   herein by reference).

           10.3    Amendment No. 3 to the Restated  Management  Agreement,  dated as of December 31, 1990 by and among Mutual Marine
                   Office,  Inc. and Arkwright  Mutual  Insurance  Company,  Utica Mutual  Insurance  Company,  the  Registrant  and
                   Pennsylvania  National Mutual Casualty  Insurance  Company (Filed as Exhibit 10.2.3.  of the Registrant's  Annual
                   Report on Form 10-K for the fiscal year ended December 31, 1990  (Commission  File No. 3-27665) and  incorporated
                   herein by reference).

           10.4.   Restated  Management  Agreement  dated as of January 1, 1986, by and among Mutual Inland Marine Office,  Inc. and
                   Arkwright-Boston  Manufacturers Mutual Insurance Company, Utica Mutual Insurance Company, Lumber Mutual Insurance
                   Company, the Registrant and Pennsylvania National Mutual Casualty Insurance Company (Filed as Exhibit 10.4 of the
                   Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1986 (Commission File No. 2-88552)
                   and incorporated herein by reference).

           10.5    Amendment No. 2 to the Restated Management  Agreement,  dated as of December 30, 1988, by and among Mutual Inland
                   Marine Office,  Inc. and Arkwright  Mutual  Insurance  Company,  Utica Mutual  Insurance  Company,  Lumber Mutual
                   Insurance Company,  the Registrant and Pennsylvania  National Mutual Casualty Insurance Company (Filed as Exhibit
                   10.4.2 of the  Registrant's  Current Report on Form 8-K, dated January 6, 1989  (Commission File No. 2-88552) and
                   incorporated herein by reference).
</TABLE>


                                       41
<PAGE>


<TABLE>
<CAPTION>

<S>        <C>     <C>
           10.6    Amendment No. 3 to the Restated Management  Agreement,  dated as of December 31, 1990, by and among Mutual Inland
                   Marine Office,  Inc. and Arkwright Mutual Insurance Company,  Utica Mutual Insurance Company,  the Registrant and
                   Pennsylvania  National Mutual Casualty  Insurance  Company (Filed as Exhibit 10.4.3.  of the Registrant's  Annual
                   Report on Form 10-K for the fiscal year ended December 31, 1990  (Commission  File No. 3-27665) and  incorporated
                   herein by reference).

           10.7    Restated Management Agreement dated as of January 1, 1986, by and among Mutual Marine Office of the Midwest, Inc.
                   and  Arkwright-Boston  Manufacturers  Mutual Insurance  Company,  Utica Mutual Insurance  Company,  Lumber Mutual
                   Insurance Company,  the Registrant and Pennsylvania  National Mutual Casualty Insurance Company (Filed as Exhibit
                   10.6 of the Registrant's  Annual Report on Form 10-K for the fiscal year ended December 31, 1986 (Commission File
                   No. 2-88552) and incorporated herein by reference).

           10.8    Amendment No. 2 to the Restated  Management  Agreement  dated as of December 30, 1988, by and among Mutual Marine
                   Office of the Midwest, Inc. and Arkwright Mutual Insurance Company, Utica Mutual Insurance Company, Lumber Mutual
                   Insurance Company,  the Registrant and Pennsylvania  National Mutual Casualty Insurance Company (Filed as Exhibit
                   10.6.2 of the  Registrant's  Current Report on Form 8-K, dated January 6, 1989  (Commission File No. 2-88552) and
                   incorporated herein by reference).

           10.9    Amendment No. 3 to the Restated  Management  Agreement  dated as of December 31, 1990, by and among Mutual Marine
                   Office of the Midwest,  Inc.  and  Arkwright  Mutual  Insurance  Company,  Utica Mutual  Insurance  Company,  the
                   Registrant  and  Pennsylvania  National  Mutual  Casualty  Insurance  Company  (Filed as Exhibit  10.6.3.  of the
                   Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1990 (Commission File No. 3-27665)
                   and incorporated herein by reference).

           10.10   Restated  Management  Agreement dated as of January 1, 1986, by and among Pacific Mutual Marine Office,  Inc. and
                   Arkwright-Boston  Manufacturers Mutual Insurance Company, Lumber Mutual Insurance Company, Utica Mutual Insurance
                   Company, the Registrant and Pennsylvania National Mutual Casualty Insurance Company (Filed as Exhibit 10.8 of the
                   Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1986 (Commission File No. 2-88552)
                   and incorporated herein by reference).

           10.11   Amendment No. 2 to the Restated  Management  Agreement dated as of December 30, 1988, by and among Pacific Mutual
                   Marine Office,  Inc. and Arkwright  Mutual  Insurance  Company,  Lumber Mutual  Insurance  Company,  Utica Mutual
                   Insurance Company,  the Registrant and Pennsylvania  National Mutual Casualty Insurance Company (Filed as Exhibit
                   10.8.2 of the  Registrant's  Current Report on Form 8-K, dated January 6, 1989  (Commission File No. 2-88552) and
                   incorporated herein by reference).

           10.12   Amendment to Restated  Management  Agreement  dated as of December 31, 1990, by and among  Pacific  Mutual Marine
                   Office,  Inc. and Arkwright  Mutual  Insurance  Company,  Utica Mutual  Insurance  Company,  the  Registrant  and
                   Pennsylvania  National Mutual Casualty  Insurance  Company (Filed as Exhibit 10.8.3.  of the Registrant's  Annual
                   Report on Form 10-K for the fiscal year ended December 31, 1992  (Commission  File No. 1-11238) and  incorporated
                   herein by reference).

           10.13   1991 Stock Option Plan (Filed as Exhibit A to the  Registrant's  Proxy  Statement for its 1991 Annual  Meeting of
                   Shareholders (Commission File No. 1-11238) and incorporated herein by reference).

           10.14   Form of  Indemnification  Agreement  (Filed as Exhibit 10.10 of  Registrant's  Annual Report on Form 10-K for the
                   fiscal year ended December 31, 1999 (Commission File No. 1-11238) and incorporated herein by reference).

           10.15   1999 NYMAGIC,  INC. Phantom Stock Plan (Filed as Exhibit 10.11 of the Registrant's Annual Report on Form 10-K for
                   the fiscal year ended December 31, 1999 (Commission File No. 1-11238) and incorporated herein by reference).
</TABLE>


                                       42
<PAGE>


<TABLE>
<CAPTION>

<S>        <C>     <C>
           10.16   Severance Agreement dated as of December 31, 2001 by and between NYMAGIC,  INC. and Thomas J. Iacopelli (Filed as
                   Exhibit 10.2 of Registrant's  Quarterly  Report on Form 10-Q for the quarter ended June 30, 2002 (Commission File
                   No. 1-11238) and incorporated herein by reference).

           10.17   Severance Agreement dated as of July 9, 2002 by and between NYMAGIC, INC. and Paul Hart. *

           10.18   NYMAGIC, INC. 2002 Nonqualified Stock Option Plan (Filed as Exhibit 10.2 of Registrant's Quarterly Report on Form
                   10-Q for the  quarter  ended  September  30,  2002  (Commission  File No.  1-11238)  and  incorporated  herein by
                   reference).

           10.19   Voting Agreement among Mariner  Partners,  Inc. and certain  stockholders of the Company dated as of February 20,
                   2002, as amended March 1, 2002 (Filed as Exhibit 99.1 to the Schedule 13D filed by Mariner Partners, Inc. and the
                   other reporting  persons named therein on March 4, 2002 (Commission File No. 5-40907) and incorporated  herein by
                   reference).

           10.20   Amendment  No. 2 dated as of January  27, 2003 to Voting  Agreement  among  Mariner  Partners,  Inc.  and certain
                   stockholders of the Company (Filed as Exhibit 99.2 to the Schedule 13D/A filed by Mariner Partners,  Inc. and the
                   other reporting persons named therein on April 10, 2003 (Commission File No. 5-40907) and incorporated  herein by
                   reference).

           10.21   Amendment  No. 3 dated as of March 12,  2003,  to Voting  Agreement  among  Mariner  Partners,  Inc.  and certain
                   stockholders of the Company (Filed as Exhibit 99.3 to the Schedule 13D/A filed by Mariner Partners,  Inc. and the
                   other reporting person named therein on April 10, 2003  (Commission File No. 5-40907) and incorporated  herein by
                   reference).

           10.22   Amendment  No. 4 dated as of February  24, 2004 to Voting  Agreement  among  Mariner  Partners,  Inc. and certain
                   stockholders of the Company. *

           10.23   Resolutions of the Board of Directors of the Company's subsidiary, New York Marine And General Insurance Company,
                   adopted July 18, 2002,  committing not to pay dividends to the Company  without the consent of the New York State
                   Department of Insurance prior to July 31, 2004 (Filed as Exhibit 10.1 to Registrant's  original Form 10-Q for the
                   quarter ended June 30, 2003 (Commission File No. 1-11238) and incorporated herein by reference).

           10.25   Resolutions of the Board of Directors of the Company's  subsidiary,  Gotham Insurance  Company,  adopted July 18,
                   2002,  committing  not to pay  dividends to the Company  without the consent of the New York State  Department of
                   Insurance prior to July 31, 2004 (Filed as Exhibit 10.2 to Registrant's  original Form 10-Q for the quarter ended
                   June 30, 2003 (Commission File No. 1-11238) and incorporated herein by reference).

           10.26   Amended and Restated Investment  Management  Agreement between Mariner Partners,  Inc. and NYMAGIC,  Inc. and New
                   York Marine And General  Insurance Company and Gotham Insurance  Company,  dated as of December 6, 2002 (Filed as
                   Exhibit  10.6 of  Registrant's  amended  Quarterly  Report  on Form  10-Q for the  quarter  ended  June 30,  2003
                   (Commission File No. 1-11238) and incorporated herein by reference).

           10.27   Limited  Partnership  Agreement of Mariner  Tiptree (CDO) Fund I, L.P.  dated as of May 1, 2003 (Filed as Exhibit
                   10.1 of Registrant's  Quarterly Report on Form 10-Q for the quarter ended September 30, 2003 (Commission File No.
                   1-11238) and incorporated herein by reference).

           10.28   Securities  Purchase  Agreement  dated as of January 31, 2003 by and between  NYMAGIC,  Inc. and Conning  Capital
                   Partners  VI, L.P.  (Filed as Exhibit  99.1 of  Registrant's  Current  Report on Form 8-K dated  January 31, 2003
                   (Commission File No. 1-11238) and incorporated herein by reference).

           10.29   Registration  Rights  Agreement  dated as of January 31, 2003 by and between  NYMAGIC,  Inc. and Conning  Capital
                   Partners  VI, L.P.  (Filed as Exhibit  99.2 of  Registrant's  Current  Report on Form 8-K dated  January 31, 2003
                   (Commission File No. 1-11238) and incorporated herein by reference).
</TABLE>


                                       43
<PAGE>


<TABLE>
<CAPTION>

<S>        <C>     <C>
           10.30   Option  Certificate  dated as of January 31, 2003 by and between  NYMAGIC,  INC. and Conning Capital Partners VI,
                   L.P. (Filed as Exhibit 99.3 of Registrant's  Current Report on Form 8-K dated January 31, 2003  (Commission  File
                   No. 1-11238) and incorporated herein by reference).

           10.31   Registration  Rights  Agreement  dated as of March 11, 2004 by and among  NYMAGIC,  INC. and Keefe,  Bruyette and
                   Woods, Inc. and the other initial purchasers referred to therein. *

           10.32   Indenture  dated as of March 11, 2004 by and between  NYMAGIC,  INC. and  Wilmington  Trust  Company,  as trustee
                   related to the Company's 6.50% Senior Notes due 2014. *

           10.33   First  Supplemental  Indenture  dated as of March 11, 2004 by and between  NYMAGIC,  INC.  and  Wilmington  Trust
                   Company, as trustee. *

           10.34   Sublease  dated as of December  12,  2002 by and  between  BNP Paribas and New York Marine And General  Insurance
                   Company (Filed as Exhibit 10.20 of Registrant's Annual Report on Form 10-K for the fiscal year ended December 31,
                   2002 (Commission File No. 1-11238) and incorporated herein by reference).

           21.1    Subsidiaries of the Registrant. *

           23.1    Consent of KPMG LLP. *

           31.1    Certification  of George R. Trumbull,  III, Chief Executive  Officer,  as adopted  pursuant to Section 302 of the
                   Sarbanes-Oxley Act of 2002. *

           31.2    Certification  of Thomas J.  Iacopelli,  Chief  Financial  Officer,  as adopted  pursuant  to section  302 of the
                   Sarbanes-Oxley Act of 2002. *

           32.1    Certification of George R. Trumbull, III, Chief Executive Officer, pursuant to 18 U.S.C. Section 1350, as adopted
                   pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. *

           32.2    Certification of Thomas J. Iacopelli,  Chief Financial  Officer,  pursuant to 18 U.S.C.  Section 1350, as adopted
                   pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. *
           ------------------
           * Filed herewith.

      (b) Reports on Form 8-K

           During the fiscal quarter ended December 31, 2003, the Registrant filed the following Current Reports on Form 8-K:

           (1)     Current Report on Form 8-K, as filed with the Commission on November 10, 2003 reporting under Item 12 "Results of
                   Operations and Financial  Condition" the Company's issuance of a press release reporting the Company's  financial
                   results for its fiscal quarter ended September 30, 2003.

           (2)     Current Report on Form 8-K, as filed with the Commission on November 25, 2003 reporting  under Item 9 "Regulation
                   FD Disclosure" the Company's  issuance of a press release  announcing the Company's  secondary offering of common
                   shares by a group of selling shareholders.

           (3)     Current  Report on Form 8-K, as filed with the  Commission on December 12, 2003 reporting (i) under Item 5 "Other
                   Events" that the Company and certain  selling  shareholders  executed an  Underwriting  Agreement and (ii) Item 9
                   "Regulation  FD  Disclosure"  the Company's  issuance of a press release  announcing the pricing of the Company's
                   secondary offering.


           (4)     Current  Report on Form 8-K, as filed with the  Commission  on December  16,  2003  updating  under Item 5 "Other
                   Events" the certificate of incorporation as on file with the Commission to include charter amendments.
</TABLE>


                                       44
<PAGE>


<TABLE>
<CAPTION>

<S>        <C>     <C>
           (5)     Current Report on Form 8-K, as filed with the Commission on December 18, 2003 reporting  under Item 9 "Regulation
                   FD  Disclosure"  the  Company's  issuance  of a press  release  announcing  that it had  declared a  dividend  to
                   shareholders of six cents per share, payable on January 7, 2004 to shareholders of record on December 31, 2003.

           (6)     Current Report on Form 8-K, as filed with the Commission on December 23, 2003 reporting  under Item 9 "Regulation
                   FD Disclosure" the Company's issuance of a press release announcing that,  pursuant to an Underwriting  Agreement
                   dated December 11, 2003, the underwriters have exercised and closed their  over-allotment  option with respect to
                   the Company's secondary offering.
</TABLE>


                                       45
<PAGE>


                                   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.

                                            NYMAGIC, INC.
                                            (Registrant)

                                            By:  /s/ George R. Trumbull, III
                                                 ---------------------------
                                            George R. Trumbull, III
                                            Chief Executive Officer

                                            Date: March 12, 2004
                                                  --------------

           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 date indicated.

<TABLE>
<CAPTION>

Name                               Title                                              Date
----                               -----                                              ----

<S>                                <C>                                                <C>
/s/ John R. Anderson               Director                                           March 12, 2004
--------------------
John R. Anderson

/s/ Glenn J. Angiolillo            Director                                           March 12, 2004
-----------------------
Glenn J. Angiolillo

/s/ John T. Baily                  Director                                           March 12, 2004
-----------------
John T. Baily

/s/ John N. Blackman, Jr.          Director                                           March 12, 2004
-------------------------
John N. Blackman, Jr.

/s/ Mark W. Blackman               Director                                           March 12, 2004
--------------------
Mark W. Blackman

/s/ David E. Hoffman               Director                                           March 12, 2004
--------------------
David E. Hoffman

/s/ A. George Kallop               Director                                           March 12, 2004
--------------------
A. George Kallop

/s/ William J. Michaelcheck        Director                                           March 12, 2004
---------------------------
William J. Michaelcheck

/s/ William D. Shaw, Jr.           Director                                           March 12, 2004
------------------------
William D. Shaw, Jr.

/s/ Robert G. Simses               Director                                           March 12, 2004
--------------------
Robert G. Simses

/s/ George R. Trumbull, III        Director, Chairman and                             March 12, 2004
---------------------------        Chief Executive Officer
George R. Trumbull, III

/s/ Glenn R. Yanoff                Director                                           March 12, 2004
-------------------
Glenn R. Yanoff

/s/ David W. Young                 Director                                           March 12, 2004
------------------
David W. Young

/s/ Thomas J. Iacopelli            Principal Accounting Officer                       March 12, 2004
-----------------------            and Chief Financial Officer
Thomas J. Iacopelli
</TABLE>


                                       46
<PAGE>


                                  NYMAGIC, INC.
                   INDEX TO CONSOLIDATED FINANCIAL STATEMENTS


                   Independent Auditors' Report........................    F-2

                   Consolidated Balance Sheets.........................    F-3

                   Consolidated Statements of Income...................    F-4

                   Consolidated Statements of Shareholders' Equity.....    F-5

                   Consolidated Statements of Cash Flows...............    F-6

                   Notes to Consolidated Financial Statements..........    F-7

                   Financial Statement Schedule II.....................   F-27

                   Financial Statement Schedule III....................   F-29

                   Financial Statement Schedule V......................   F-30

                   Financial Statement Schedule VI.....................   F-31



                                      F-1
<PAGE>


INDEPENDENT AUDITORS' REPORT
----------------------------

The Board of Directors and Shareholders
NYMAGIC, INC.:


We have audited the accompanying  consolidated  balance sheets of NYMAGIC,  INC.
and subsidiaries as of December 31, 2003 and 2002, and the related  consolidated
statements of income,  shareholders' equity and cash flows for each of the years
in the three-year  period ended December 31, 2003. In connection with our audits
of the  consolidated  financial  statements,  we have also audited the financial
statement  schedules as listed in the  accompanying  index.  These  consolidated
financial statements and financial statement schedules are the responsibility of
the Company's  management.  Our responsibility is to express an opinion on these
consolidated financial statements and financial statement schedules based on our
audits.

We conducted our audits in accordance with auditing standards generally accepted
in the  United  States of  America.  Those  standards  require  that we plan and
perform the audit to obtain  reasonable  assurance  about  whether the financial
statements are free of material misstatement.  An audit includes examining, on a
test basis,  evidence  supporting  the amounts and  disclosures in the financial
statements.  An audit also includes assessing the accounting principles used and
significant  estimates  made by  management,  as well as evaluating  the overall
financial  statement  presentation.   We  believe  that  our  audits  provide  a
reasonable basis for our opinion.

In our opinion, the consolidated  financial statements referred to above present
fairly,  in all  material  respects,  the  consolidated  financial  position  of
NYMAGIC,  INC.  and  subsidiaries  as of  December  31,  2003 and 2002,  and the
consolidated  results of their  operations  and their cash flows for each of the
years in the  three-year  period ended  December 31, 2003,  in  conformity  with
accounting principles generally accepted in the United States of America.  Also,
in our opinion,  the related financial statement  schedules,  when considered in
relation  to the  basic  consolidated  financial  statements  taken  as a whole,
present fairly, in all material respects, the information set forth therein.



KPMG LLP
New York, New York
February 17, 2004, except as to Note 18, which is as of March 11, 2004


                                      F-2
<PAGE>


                                  NYMAGIC, INC.
                           CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>


                                                                           December 31,
-------------------------------------------------------------------------------------------------
                                                                       2003              2002
                                                                   -------------------------------
<S>                                                                <C>              <C>

ASSETS

Investments:
  Fixed maturities:
       Available for sale at fair value
           (amortized cost $ 92,594,971 and $29,923,407)           $  93,470,691    $  30,480,249
        Trading at fair value (cost $61,423,212 and $0) .....         61,736,951               --
  Equity securities available for sale at fair value
      (cost $0 and $4,728,485) ..............................                 --        4,728,485
  Limited partnerships at equity
      (cost $96,250,000 and $37,500,000) ....................        105,434,419       38,477,219
  Short-term investments ....................................        257,059,675      355,803,960
                                                                     -----------      -----------
               Total investments ............................        517,701,736      429,489,913
                                                                     -----------      -----------
Cash ........................................................          1,940,541          980,109
Accrued investment income ...................................          2,099,641          391,949
Premiums and other receivables, net .........................         23,981,910       35,690,128
Reinsurance receivables on unpaid losses, net ...............        276,618,865      307,023,114
Reinsurance receivables on paid losses, net .................          4,229,697       19,399,226
Deferred policy acquisition costs ...........................          8,245,600        7,708,186
Prepaid reinsurance premiums ................................         20,906,056        6,397,405
Deferred income taxes .......................................         11,772,721       12,000,806
Property, improvements and equipment, net ...................          3,937,603          731,406
Other assets ................................................          3,690,715        4,194,725
                                                                       ---------        ---------
               Total assets .................................      $ 875,125,085    $ 824,006,967
                                                                   =============    =============

LIABILITIES

Unpaid losses and loss adjustment expenses ..................      $ 518,929,558    $ 516,002,310
Reserve for unearned premiums ...............................         61,821,283       45,399,375
Ceded reinsurance payable ...................................         25,812,895       19,718,427
Notes payable ...............................................                 --        6,219,953
Dividends payable ...........................................            583,305               --
Other liabilities ...........................................         23,686,944       15,714,152
                                                                      ----------       ----------
               Total liabilities ............................        630,833,985      603,054,217
                                                                     -----------      -----------

SHAREHOLDERS' EQUITY

Common stock ................................................         15,279,390       15,158,324
Paid-in capital .............................................         35,476,566       30,206,370
Accumulated other comprehensive income ......................            569,220          361,947
Retained earnings ...........................................        239,127,097      224,364,808
                                                                     -----------      -----------
                                                                     290,452,273      270,091,449
Treasury stock, at cost, 5,554,642 and 5,855,826 shares .....        (46,161,173)     (49,138,699)
                                                                     -----------      -----------
               Total shareholders' equity ...................        244,291,100      220,952,750
                                                                     -----------      -----------

               Total liabilities and shareholders' equity          $ 875,125,085    $ 824,006,967
                                                                   =============    =============

</TABLE>


The  accompanying  notes are an integral  part of these  consolidated  financial
statements.


                                      F-3
<PAGE>


                                  NYMAGIC, INC.
                        CONSOLIDATED STATEMENTS OF INCOME


<TABLE>
<CAPTION>

                                                                Year ended December 31,
                                                   ------------------------------------------------
                                                         2003            2002              2001
                                                   ------------------------------------------------
<S>                                                <C>              <C>              <C>

Revenues:
Net premiums earned ............................   $  96,393,950    $ 113,457,453    $  84,632,597
Commission income ..............................        (229,772)       1,548,418        3,312,449
Net investment income ..........................      22,393,704       15,820,734       17,387,510
Net realized investment gains ..................         549,988        8,456,003        2,874,573
Other income ...................................       1,687,779          186,470          284,926
                                                    ----------------------------------------------
Total revenues .................................     120,795,649      139,469,078      108,492,055
                                                    ----------------------------------------------
Expenses:
Net losses and loss adjustment expenses incurred      55,715,314       73,356,338       87,900,636
Policy acquisition expenses ....................      19,430,211       18,898,550       16,083,412
General and administrative expenses ............      19,427,784       18,372,827       16,952,636
Interest expense ...............................          25,652          575,295          394,717
                                                    ----------------------------------------------
Total expenses .................................      94,598,961      111,203,010      121,331,401
                                                    ----------------------------------------------

Income (loss) before income taxes ..............      26,196,688       28,266,068      (12,839,346)
Income tax provision:
Current ........................................       8,987,448       (4,869,283)         798,389
Deferred .......................................         116,476        4,424,857         (498,742)
                                                    ----------------------------------------------
Total income tax expense (benefit) .............       9,103,924         (444,426)         299,647
                                                    ----------------------------------------------
Net income (loss) ..............................   $  17,092,764    $  28,710,494    $ (13,138,993)
                                                    ==============================================

Weighted average number of shares of
   common stock outstanding-basic ..............       9,673,323        9,277,340        9,231,698
                                                    ----------------------------------------------
Basic earnings (loss) per share ................           $1.77            $3.09           $(1.42)
                                                    ----------------------------------------------
Weighted average number of shares of
   common stock outstanding-diluted ............       9,827,676        9,308,510        9,231,698
                                                    ----------------------------------------------
Diluted earnings (loss) per share ..............           $1.74            $3.08           $(1.42)
                                                    ----------------------------------------------
</TABLE>


The  accompanying  notes are an integral  part of these  consolidated  financial
statements.


                                      F-4
<PAGE>


                                  NYMAGIC, INC.
                 CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY

<TABLE>
<CAPTION>


                                                                     Year ended December 31,
                                                      -----------------------------------------------
                                                           2003             2002            2001
                                                      -------------    -------------    -------------
<S>                                                   <C>              <C>              <C>

Common stock:
   Balance, beginning of year .....................   $  15,158,324    $  15,123,658    $  15,018,392
   Shares issued ..................................         121,066           34,666          105,266
                                                      -------------    -------------    -------------
       Balance, end of year .......................      15,279,390       15,158,324       15,123,658
                                                      =============    =============    =============

Paid-in capital:
   Balance, beginning of year .....................   $  30,206,370    $  29,702,414    $  27,992,916
   Shares issued and other ........................       5,270,196          503,956        1,709,498
                                                      -------------    -------------    -------------
       Balance, end of year .......................      35,476,566       30,206,370       29,702,414
                                                      =============    =============    =============

Accumulated other comprehensive income:
   Balance, beginning of year .....................   $     361,947    $   7,930,180    $  10,918,088
   Unrealized gain (loss) on securities,
         net of reclassification adjustment .......         207,273       (6,756,353)      (3,314,447)
   Foreign currency translation adjustments .......            --           (811,880)         326,539
                                                      -------------    -------------    -------------
   Other comprehensive income (loss) ..............         207,273       (7,568,233)      (2,987,908)
                                                            -------       ----------       ----------
       Balance, end of year .......................         569,220          361,947        7,930,180
                                                            =======       ==========       ==========

Retained earnings:
   Balance, beginning of year .....................   $ 224,364,808    $ 195,654,314    $ 211,565,023
   Net income (loss) ..............................      17,092,764       28,710,494      (13,138,993)
   Dividends declared .............................      (2,330,475)            --         (2,771,716)
                                                      -------------    -------------    -------------
       Balance, end of year .......................     239,127,097      224,364,808      195,654,314
                                                      =============    =============    =============

Treasury stock, at cost:
   Balance, beginning of year .....................     (49,138,699)   $ (49,138,699)   $ (49,204,710)
   Net sale of common stock .......................       2,977,526             --             66,011
                                                      -------------    -------------    -------------
       Balance, end of year .......................     (46,161,173)     (49,138,699)     (49,138,699)
                                                      =============    =============    =============

Total Shareholders' Equity ........................     244,291,100      220,952,750      199,271,867
                                                      =============    =============    =============


Comprehensive income:
   Net income (loss) ..............................   $  17,092,764    $  28,710,494    $ (13,138,993)
   Other comprehensive income (loss) ..............         207,273       (7,568,233)      (2,987,908)
                                                      -------------    -------------    -------------
       Comprehensive income (loss) ................      17,300,037       21,142,261      (16,126,901)
                                                      =============    =============    =============

                                                                       Number of Shares
                                                                       ----------------

Common stock, par value $1 each:
   Issued, beginning of year ......................      15,158,324       15,123,658       15,018,392
   Shares Issued ..................................         121,066           34,666          105,266
                                                      -----------------------------------------------
       Issued, end of year ........................      15,279,390       15,158,324       15,123,658
                                                      -----------------------------------------------

Common stock, authorized shares,
   par value $1 each ..............................      30,000,000       30,000,000       30,000,000
                                                      -----------------------------------------------

Common stock, shares outstanding, end of year .....       9,724,748        9,302,498        9,267,832
                                                      -----------------------------------------------

Dividends declared per share ......................            $.24             $.00             $.30
                                                      -----------------------------------------------
</TABLE>


The  accompanying  notes are an integral  part of these  consolidated  financial
statements.


                                      F-5
<PAGE>


<TABLE>
<CAPTION>


                                                                                          NYMAGIC, INC
                                                                              CONSOLIDATED STATEMENTS OF CASH FLOWS

                                                                                               Year ended December 31,
                                                                                   -----------------------------------------------
                                                                                       2003             2002             2001
                                                                                   -----------------------------------------------
<S>                                                                                <C>              <C>              <C>
Cash flows from operating activities:
Net income (loss)                                                                  $  17,092,764    $  28,710,494    $ (13,138,993)
                                                                                   -------------    -------------    -------------

Adjustments to reconcile net income (loss) to
    net cash provided by
    operating activities:
    Provision for deferred taxes                                                         116,476        4,424,857         (498,742)
    Net realized investment gains                                                       (549,988)      (8,456,003)      (2,874,573)
    Equity in earnings of limited partnerships                                        (8,548,971)        (977,220)            --
    Net bond amortization                                                                710,214        1,825,473          710,443
    Depreciation and other, net                                                          518,475          410,781          427,799

Changes in:
    Premiums and other receivables                                                    11,708,218       39,203,457      (20,908,841)
    Reinsurance receivables paid and unpaid, net                                      45,573,778       35,326,444     (113,700,613)
    Ceded reinsurance payable                                                          6,094,468       (7,675,269)      12,350,000
    Accrued investment income                                                         (1,707,692)       3,855,082          357,154
    Deferred policy acquisition costs                                                   (537,414)         459,477       (2,813,174)
    Prepaid reinsurance premiums                                                     (14,508,651)      12,388,670          424,283
    Other assets                                                                         504,010        2,031,971         (672,705)
    Unpaid losses and loss adjustment expenses                                         2,927,248      (18,186,752)     122,922,093
    Reserve for unearned premiums                                                     16,421,908      (19,671,615)       4,635,216
    Foreign currency translation adjustments                                                --           (811,880)         326,539
    Other liabilities                                                                  7,972,792       (7,445,716)      14,241,029
    Trading portfolio activities                                                     (61,736,951)            --               --
                                                                                   -------------    -------------    -------------
           Total adjustments                                                           4,957,920       36,701,757       14,925,908
                                                                                   -------------    -------------    -------------
Net cash provided by operating activities                                             22,050,684       65,412,251        1,786,915
                                                                                   -------------    -------------    -------------

Cash flows from investing activities:
    Fixed maturities acquired                                                       (132,310,120)    (121,264,193)    (244,020,478)
    Equity securities acquired                                                              --        (47,958,228)     (22,390,406)
    Limited partnerships acquired                                                    (72,500,000)            --               --
    Net sale (purchase) of short-term investments                                     99,632,096     (290,365,000)     (32,577,834)
    Fixed maturities matured                                                           3,820,000        7,401,141       18,947,896
    Fixed maturities sold                                                             64,840,423      344,255,556      254,449,145
    Equity securities sold                                                             4,658,759       41,820,921       27,781,388
    Limited partnerships sold                                                         14,091,597             --               --
    Acquisition of property & equipment, net                                          (3,724,672)         (50,738)        (293,967)
                                                                                   -------------    -------------    -------------
Net cash provided by (used in) investing activities                                  (21,491,917)     (66,160,541)       1,895,744
                                                                                   -------------    -------------    -------------

Cash flows from financing activities:
    Proceeds from stock issuance and other                                             2,176,507          538,622        1,814,764
    Cash dividends paid to stockholders                                               (1,747,170)            --         (3,687,519)
    Net sale  of treasury shares                                                       6,192,281             --             66,011
    Proceeds from borrowings                                                                --         15,719,953        5,452,840
    Loan principal payments                                                           (6,219,953)     (17,411,253)      (5,000,000)
                                                                                   -------------    -------------    -------------
Net cash provided by (used in) financing activities                                      401,665       (1,152,678)      (1,353,904)
                                                                                   -------------    -------------    -------------

Net increase (decrease) in cash                                                          960,432       (1,900,968)       2,328,755
Cash at beginning of year                                                                980,109        2,881,077          552,322
                                                                                   -------------    -------------    -------------
Cash at end of year                                                                $   1,940,541    $     980,109    $   2,881,077
                                                                                   =============    =============    =============
</TABLE>


The  accompanying  notes are an integral  part of these  consolidated  financial
statements.


                                      F-6
<PAGE>



NYMAGIC, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(1)        Summary Of Significant Accounting Policies:

Nature of operations

           NYMAGIC, INC. (the "Company" or "NYMAGIC"), through its subsidiaries,
has specialized in underwriting ocean marine,  inland marine/fire,  aircraft and
other  liability  insurance  through  insurance  pools  managed by Mutual Marine
Office, Inc. ("MMO"),  Pacific Mutual Marine Office,  Inc. ("PMMO"),  and Mutual
Marine Office of the Midwest, Inc.  ("Midwest").  MMO, located in New York, PMMO
located in San Francisco,  and Midwest, located in Chicago, manage the insurance
pools in which the Company's insurance subsidiaries, New York Marine And General
Insurance Company ("New York Marine") and Gotham Insurance  Company  ("Gotham"),
participate.  All premiums,  losses and expenses are prorated among pool members
in accordance with their pool  participation  percentages.  Effective January 1,
1997 and  subsequent,  the Company  increased to 100% its  participation  in the
business produced by the pools.

           In 1997, the Company  formed MMO EU as a holding  company for MMO UK,
which operated as a limited liability corporate vehicle to provide capacity,  or
the ability to underwrite a certain amount of business,  for  syndicates  within
Lloyd's of London  (Lloyd's).  In 1997,  the  Company  acquired  ownership  of a
Lloyd's managing agency, which was subsequently renamed MMO Underwriting Agency,
Ltd.  MMO  Underwriting  Agency  Ltd.  commenced  underwriting  in 1998  for the
Company's wholly owned subsidiary MMO UK, which provided 100%, or $29.8 million,
of the capacity for Syndicate  1265. In 2000, the Company sold MMO  Underwriting
Agency Ltd. in exchange  for a minority  interest in  Cathedral  Capital PLC and
Syndicate 1265 was placed into runoff.  In 2001,  MMO UK provided  approximately
11.2%, or $13.6 million, of the capacity for Syndicate 2010, which is managed by
Cathedral Capital. In 2002, the Company completed the withdrawal from its London
operations  and since  2002,  MMO UK has not  provided  capacity  to any Lloyd's
syndicate.  Accordingly,  the  consolidated  financial  statements  reflect  the
interests  from  the  syndicate  operations  up to the  time  of  the  Company's
withdrawal  in November  2002.  In January  2003,  the Company sold its minority
interest in Cathedral Capital PLC for approximately $2.8 million.  This sale had
no material impact on the Company's results of operations.

           MMO EU and MMO UK, including its participation interest in Syndicates
1265 and 2010, are collectively referred to as "MMO London".


Basis of reporting

           The consolidated financial statements have been prepared on the basis
of  accounting  principles  generally  accepted in the United  States of America
("GAAP"),  which  differ  in  certain  material  respects  from  the  accounting
principles prescribed or permitted by state insurance regulatory authorities for
the Company's two domestic  insurance  subsidiaries.  The principal  differences
recorded  under GAAP are deferred  policy  acquisition  costs,  an allowance for
doubtful  accounts,  limitations on deferred income taxes,  and fixed maturities
held for sale are carried at fair value.

           The preparation of financial  statements  requires management to make
estimates that affect the reported amounts of assets, liabilities,  revenues and
expenses. Actual amounts could differ from those amounts previously estimated.

Consolidation

           The  consolidated  financial  statements  include the accounts of the
Company,  two  insurance  subsidiaries,  New York Marine and  Gotham,  and three
agency  subsidiaries.  MMO London's  financial  statements  were included in the
consolidated financial statements until November 2002, the date of the Company's
withdrawal  from its London  operations.  Gotham is owned 25% by the Company and
75% by New York Marine. Gotham is consolidated in the financial statements as it
is a 100% indirect subsidiary of NYMAGIC, INC. All other subsidiaries are wholly
owned by NYMAGIC. During 2003, the Company obtained a 100% interest in a limited
partnership  whose  financial  statements  were  included  in  the  consolidated
financial  statements.  All  intercompany  accounts and  transactions  have been
eliminated in consolidation.


                                      F-7
<PAGE>


Investments

           Fixed  maturities held for sale are carried at fair value and include
those bonds where the Company's intent to carry such investments to maturity may
be  affected  in future  periods  by  changes  in market  interest  rates or tax
position.  Unrealized  gains or  losses  on fixed  maturities  held for sale are
reflected in accumulated other comprehensive  income.  Fixed maturities held for
trading are carried at fair value.  Trading securities are marked to market with
the change  recognized in net investment  income during the current period.  Any
realized gains or losses  resulting  from the sales of such  securities are also
recognized in net investment income.

           Equity securities (common stocks and non-redeemable preferred stocks)
are carried at fair value.  Unrealized gains or losses on equity  securities are
reflected in accumulated other comprehensive income.


           Short-term  investments are carried at cost, which  approximates fair
value.


           Investments  in limited  partnerships  are reported  under the equity
method,   which   includes  the  cost  of  the  investment  and  the  subsequent
proportional  share of any  partnership  earnings  or  losses.  Under the equity
method,  the partnership  earnings or losses are recorded as investment  income.
The Company's  investments in limited  partnership hedge funds include interests
in limited partnerships and limited liability companies.


           Realized  investment  gains and  losses  (determined  on the basis of
first in first out) also include any declines in value which are  considered  to
be  other-than-temporary.  Management  reviews  investments for impairment based
upon specific  criteria that include the duration and extent of declines in fair
value of the security below its cost or amortized cost. Unrealized  appreciation
or  depreciation  of  investments,  net of related  deferred  income  taxes,  is
reflected in accumulated other comprehensive income in shareholders' equity.


Derivatives

           The Company  maintained an interest rate agreement,  which expired in
2002,  that was entered into for purposes of hedging  interest  rate risk on the
Company's  note  payable.  Cash flows as a result of the hedge were  recorded as
adjustments to interest expense.  The fair value of the cash flow derivative was
recorded in other liabilities.  Changes in the fair value of the derivative were
recorded to results of  operations.  The Company did not maintain any derivative
positions as of December 31, 2003 and 2002, respectively.


Premium and policy acquisition cost recognition

           Premiums  and policy  acquisition  costs are  reflected in income and
expense on a monthly pro rata basis over the terms of the  respective  policies.
Accordingly,  unearned  premium  reserves  are  established  for the  portion of
premiums  written  applicable to unexpired  policies in force,  and  acquisition
costs, consisting mainly of net brokerage commissions and premium taxes relating
to these unearned premiums, are deferred to the extent recoverable.  The Company
has provided an allowance for uncollectible  premium receivables of $450,000 for
each  of  the  years  ended  December  31,  2003  and  2002,  respectively.  The
determination  of  acquisition  costs to be deferred  considers  historical  and
current loss and loss adjustment expense  experience.  In measuring the carrying
value of  deferred  policy  acquisition  costs  consideration  is also  given to
anticipated  investment  income  using  interest  rates of 3% and 3% in 2003 and
2002, respectively.


Revenue recognition

           Management commission income on policies written by the MMO insurance
pools is recognized  primarily as of the effective date of the policies  issued.
Adjustments to the policies,  resulting principally from changes in coverage and
audit adjustments, are recorded in the period reported.

           Contingent  profit  commission  revenue  derived from the reinsurance
transactions  of the  insurance  pools is  recognized  when such amount  becomes
earned as provided in the treaties to the respective reinsurers.  The contingent
profit commission becomes due shortly after the treaty expires.


                                      F-8
<PAGE>


Reinsurance

           The  Company's   insurance   subsidiaries   participate   in  various
reinsurance  agreements  on both an assumed and ceded  basis.  The Company  uses
various  types  of  reinsurance,  including  quota  share,  excess  of loss  and
facultative agreements,  to spread the risk of loss among several reinsurers and
to limit its exposure from losses on any one  occurrence.  Any  recoverable  due
from  reinsurers is recorded in the period in which the related gross  liability
is established.

           The Company  accounts  for all  reinsurance  receivables  and prepaid
reinsurance premiums as assets.


Depreciation

           Property,  equipment and leasehold  improvements are depreciated over
their estimated useful lives.


Income taxes

           The  Company and its  subsidiaries  file a  consolidated  Federal tax
return.  The Company  provides  deferred  income taxes on temporary  differences
between the financial  reporting basis and the tax basis of the Company's assets
and  liabilities  based upon  enacted  tax rates.  The effect of a change in tax
rates is recognized in income in the period of change.

Fair values of financial instruments

           The fair value of the  Company's  investments  is disclosed in Note 2
including  the fair values of  privately  placed  securities.  The fair value of
fixed maturities,  equity  securities and short-term  investments are based upon
quotes  obtained  from  independent   sources.  The  Company's  other  financial
instruments  include  short-term  receivables,  notes payable and other payables
which are recorded at the  underlying  transaction  value and  approximate  fair
value.


Foreign currency translation

           The assets and liabilities of the Company's U.K. operations, recorded
in Pounds  Sterling,  are translated to U.S. dollars at exchange rates in effect
at the  balance  sheet  date  and the  resulting  adjustments  are  recorded  in
accumulated other  comprehensive  income in shareholders'  equity.  Revenues and
expenses are translated to U.S. dollars using the average exchange rates for the
year.


Incurred losses

           Unpaid  losses  are based on  individual  case  estimates  for losses
reported.  A provision is also  included,  based on past  experience,  for IBNR,
salvage and subrogation  recoveries and for loss adjustment expenses. The method
of  making  such  estimates  and for  establishing  the  resulting  reserves  is
continually  reviewed  and  updated  and any  changes  resulting  therefrom  are
reflected in operating results currently.


Stock options

           Effective  January  1,  2003  the  Company  adopted  the  fair  value
recognition  provisions of FASB Statement No. 123,  Accounting  for  Stock-Based
Compensation  ("SFAS  123"),  prospectively  to  all  employee  awards  granted,
modified  or  settled  after  January 1, 2003.  Therefore,  the cost  related to
stock-based  employee  compensation  included in the determination of net income
for 2003 is less than that which  would have been  recognized  if the fair value
based method had been applied to all awards since the original effective date of
SFAS 123, which includes  awards issued after December 15, 1994.  Prior to 2003,
the Company  accounted  for those plans under the  recognition  and  measurement
provisions of APB Opinion No. 25, Accounting for Stock Issued to Employees ("APB
25"),  and  related  Interpretations.  Under APB 25, the  Company  recorded  the
difference,  if any,  between the exercise price of the Company's  stock options
and the market price of the underlying  stock on the date of grant as an expense
over the vesting  period of the option.  The adoption of SFAS 123 did not have a
significant impact on the Company's results of operations,  financial  condition
or liquidity.


                                      F-9
<PAGE>


           The following table illustrates the effect on net income and earnings
per share if the fair value based method had been applied to all outstanding and
unvested awards in each period:


                                                 Year Ended December 31
                                                 ----------------------
                                              2003        2002         2001
                                              ----        ----         ----
                                           (in thousands except per share data)

Net income, as reported                     $17,093     $28,710     $(13,139)
Add: Stock based employee
   compensation expense included in
   reported net income, net of related
tax effects                                      19          15           15
Deduct: Total stock-based employee
compensation expense determined
under the fair value based method for all
awards, net of related tax effects             (358)       (162)         (65)
                                               -----       -----        -----

Pro forma net income                        $16,754     $28,563     $(13,189)
                                             ======     =======     =========


Earnings per share:


Basic EPS - as reported                       $1.77         $3.09      $(1.42)
Basic EPS - pro forma                         $1.73         $3.08      $(1.43)

Diluted EPS - as reported                     $1.74         $3.08      $(1.42)
Diluted EPS - pro forma                       $1.70         $3.07      $(1.43)


Basic and diluted earnings per share

           Basic EPS is  calculated  by  dividing  net  income  by the  weighted
average  number of common  shares  outstanding  during the year.  Diluted EPS is
calculated  by  dividing  net income by the  weighted  average  number of common
shares  outstanding  during the year and the  dilutive  effect of assumed  stock
option exercises.  See Note 12 for a reconciliation of the shares outstanding in
determining basic and diluted EPS.

Reclassification

           Certain accounts in the prior year's  financial  statements have been
reclassified to conform to the 2003 presentation.

Effects of recent accounting pronouncements

           In January 2003, the FASB issued Interpretation No. 46,
"Consolidation of Variable Interest Entities, an interpretation of ARB No. 51"
("FIN 46"), which requires an enterprise to assess whether consolidation of an
entity is appropriate based upon its interests in a variable interest entity
("VIE"). A VIE is an entity in which the equity investors do not have the
characteristics of a controlling financial interest or do not have sufficient
equity at risk for the entity to finance its activities without additional
subordinated financial support from other parties. The initial determination of
whether an entity is a VIE shall be made on the date at which an enterprise
becomes involved with the entity. An enterprise shall consolidate a VIE if it
has a variable interest that will absorb a majority of the VIEs expected losses
if they occur, receive a majority of the entity's expected residual returns if
they occur or both. FIN 46 was effective immediately for new VIEs established or
purchased subsequent to January 31, 2003.

           In December 2003, the FASB issued a revised version of FIN 46 ("FIN
46R"), which incorporates a number of modifications and changes made to the
original version. FIN 46R replaces the previously issued FIN 46 and, subject to
certain special provisions, is effective no later than the end of the first
reporting period that ends after December 15, 2003 for entities considered to be
special-purpose entities and no later than the end of the first reporting period
that ends after March 15, 2004 for all other VIEs. Early adoption is permitted.
The adoption of FIN 46R is not expected to result in the consolidation of any
VIEs.


                                      F-10
<PAGE>


           Effective December 31, 2003, the Company adopted the disclosure
requirements of Emerging Issues Task Force ("EITF") Issue No. 03-01, "The
Meaning of Other-Than-Temporary Impairment and Its Application to Certain
Investments". Under the consensus, disclosures are required for unrealized
losses on fixed maturity and equity securities accounted for under SFAS No. 115,
"Accounting for Certain Investment in Debt and Equity Securities", and SFAS No.
124, "Accounting for Certain Investments Held by Not-for-Profit Organizations",
that are classified as either available-for-sale or held-to-maturity. The
disclosure requirements include quantitative information regarding the aggregate
amount of unrealized losses and the associated fair value of the investments in
an unrealized loss position, segregated into time periods for which the
investments have been in an unrealized loss position. The EITF also requires
certain qualitative disclosures about the unrealized holdings in order to
provide additional information that the Company considered in concluding that
the unrealized losses were not other-than-temporary. (For further discussion,
see disclosures in Note 2.)

           Statement of Financial  Accounting Standards No. 148, "Accounting for
Stock Based  Compensation - Transition and Disclosure"  ("SFAS 148"), was issued
by the Financial  Accounting Standards Board ("FASB") in December 2002. SFAS 148
provides  alternative  methods  of  transition  for a company  that  voluntarily
changes its method of accounting  for stock based employee  compensation  to the
fair value method. SFAS 148 also requires additional  disclosures in both annual
and interim financial  statements about the method of accounting for stock based
employee  compensation and its effect on reported results. SFAS 148 is effective
for interim  periods  beginning after December 15, 2002. The Company has adopted
the appropriate disclosures under SFAS 148.


(2)        Investments:

           A summary of investment  components at December 31, 2003 and December
31, 2002 at fair value consists of the following:


<TABLE>
<CAPTION>


                                                       December 31, 2003           Percent        December 31, 2002        Percent
                                                       -----------------           -------        -----------------        -------
Fixed Maturities Available for Sale:
------------------------------------

<S>                                                    <C>                           <C>          <C>                         <C>
  U.S. Treasury Securities                             $          9,184,916          1.77%        $          9,413,908        2.19%
  Municipalities                                                 17,352,350          3.35%                  21,066,341        4.91%
  Corporate Bonds                                                66,933,425         12.93%                         ---          ---
------------------------------------------------------------------------------------------------------------------------------------
           Subtotal                                    $         93,470,691         18.05%        $         30,480,249        7.10%

Trading Securities:
-------------------
  Collateralized Debt Obligations                                61,736,951         11.93%                         ---         ---
------------------------------------------------------------------------------------------------------------------------------------
Total Fixed Maturities and Trading Portfolio           $        155,207,642         29.98%        $         30,480,249        7.10%

Short-term Investments                                          257,059,675         49.65%                 355,803,960       82.84%
------------------------------------------------------------------------------------------------------------------------------------
Total Fixed Maturities and Short-term Investments      $        412,267,317         79.63%                 386,284,209       89.94%

Limited Partnership Hedge Funds                                 105,434,419         20.37%                  38,477,219        8.96%
Industrial & Misc. Common Stocks                                        ---           ---                    4,728,485        1.10%
------------------------------------------------------------------------------------------------------------------------------------
Total Investment Portfolio                             $        517,701,736        100.00%        $        429,489,913      100.00%
</TABLE>


           There was no unrealized depreciation or appreciation of investments
(before applicable income taxes) at December 31, 2003 and 2002 on equity
securities; gross unrealized gains on fixed maturities available for sale were
$1,215,206 and $556,842 at December 31, 2003 and 2002, respectively; and gross
unrealized losses on fixed maturities available for sale were $339,486 and $0 at
December 31, 2003 and 2002, respectively.

           Included in investments at December 31, 2003 are securities  required
to be held by the Company or are on deposit with various regulatory  authorities
as required by law with a fair value of $9,772,266.

           There were no non-income producing fixed maturity investments for
each of the years ended December 31, 2003 and 2002.


                                      F-11
<PAGE>


           The Company held no mortgage backed securities at December 31, 2003
or at December 31, 2002.

           The gross unrealized gains and losses on fixed maturities available
for sale at December 31, 2003 and 2002 are as follows:

<TABLE>
<CAPTION>

                                                                                          2003
                                                     -------------------------------------------------------------------------------
                                                                               Gross                 Gross
                                                       Amortized             Unrealized            Unrealized              Fair
                                                         Cost                  Gains                 Losses                Value
                                                     -------------------------------------------------------------------------------
<S>                                                   <C>                   <C>                   <C>                    <C>
Fixed maturities available for sale:

U.S, Treasury Securities ..................           $ 8,920,553           $   303,408           $   (39,045)           $ 9,184,916
Municipalities ............................            17,338,395                13,955                  --               17,352,350
Corporate Bonds ...........................            66,336,023               897,843              (300,441)            66,933,425
                                                     -------------------------------------------------------------------------------


Totals ....................................           $92,594,971           $ 1,215,206           $  (339,486)           $93,470,691
                                                     -------------------------------------------------------------------------------


<CAPTION>


                                                                                          2002
                                                     -------------------------------------------------------------------------------
                                                                               Gross                 Gross
                                                       Amortized             Unrealized            Unrealized              Fair
                                                         Cost                  Gains                 Losses                Value
                                                     -------------------------------------------------------------------------------
<S>                                                     <C>               <C>                    <C>                    <C>
Fixed maturities available for sale:

U.S, Treasury Securities ..................             $ 8,953,187       $   460,721            $            --         $ 9,413,908
Municipalities ............................              20,970,220            96,121                         --          21,066,341
                                                     -------------------------------------------------------------------------------

Totals ....................................             $29,923,407       $   556,842            $            --         $30,480,249
                                                     -------------------------------------------------------------------------------
</TABLE>


         As disclosed in the following  table,  all  unrealized  losses are less
than 12 months,  and in  conjunction  with the Company's  investment  impairment
policy,    the   Company   believes   the   unrealized    losses   to   be   not
other-than-temporary.

<TABLE>
<CAPTION>

                                                                                   2003
                                         -------------------------------------------------------------------------------------------
Description of Securities                Less than 12 months                12 months or longer                           Total

                                         -------------------------------------------------------------------------------------------
                                            Fair          Unrealized       Fair         Unrealized          Fair        Unrealized
                                            Value            Loss          Value           Loss             Value          Loss
                                         -------------------------------------------------------------------------------------------
<S>                                      <C>            <C>             <C>             <C>              <C>            <C>
U.S. Treasury Securities                 $ 3,008,134    $   (39,045)    $       --      $        --      $ 3,008,134    $   (39,045)
Corporate Bonds                           20,349,966       (300,441)            --               --       20,349,966       (300,441)
                                         -------------------------------------------------------------------------------------------
Total temporarily impaired               $23,358,100    $  (339,486)    $       --      $        --      $23,358,100    $  (339,486)
      securities
</TABLE>

           The amortized cost and fair value of debt  securities at December 31,
2003 by contractual  maturity,  are shown below. Expected maturities will differ
from  contractual  maturities,  because  borrowers may have the right to call or
prepay obligations with or without call or prepayment penalties.


<TABLE>
<CAPTION>


                                                                   Fixed maturities available for sale
                                                          -------------------------------------------------
                                                                Amortized                          Fair
                                                                     Cost                          Value
                                                          -------------------------------------------------

<S>                                                           <C>                               <C>
           Due in one year or less.................           $24,215,802                       $24,259,962
           Due after one year through five years..             61,797,433                        62,515,714
           Due after five years through ten years..             5,546,566                         5,665,125
           Due after ten years..........................        1,035,170                         1,029,890
                                                          -------------------------------------------------

           Totals......................................       $92,594,971                       $93,470,691
                                                          -------------------------------------------------
</TABLE>


                                      F-12
<PAGE>


           The investment  portfolio has exposure to market risks, which include
the effect of adverse changes in interest  rates,  credit quality and hedge fund
and equity values on the  portfolio.  Interest rate risk includes the changes in
the fair value of fixed maturities based upon changes in interest rates.  Credit
quality risk includes the risk of default by issuers of debt  securities.  Hedge
fund and equity  investment risks include the potential loss from the diminution
in the value of the  underlying  investment  of the hedge fund and the potential
loss from changes in the fair value of equity securities.

           Proceeds from sales of investments in debt  securities  held for sale
during 2003,  2002 and 2001 were  $64,840,423,  $344,255,556  and  $254,449,145,
respectively.  Gross gains of $131,601,  $13,308,860  and  $6,164,126  and gross
losses of  $399,524,  $2,028,978  and $506,789  were  realized on those sales in
2003, 2002 and 2001, respectively.

           Realized  gains  (losses)  and  unrealized  investment   appreciation
(depreciation)  on fixed  maturities  and equity  securities for the years ended
December 31, 2003, 2002 and 2001 are as follows:


<TABLE>
<CAPTION>


                                                                                              Year ended December 31,
                                                                         -----------------------------------------------------------
                                                                                    2003              2002                  2001
                                                                         -----------------------------------------------------------
<S>                                                                      <C>                    <C>                    <C>

Realized gains (losses) of investments
        Fixed maturities ......................................          $   (267,923)          $ 11,279,882           $  5,657,337
        Equity securities .....................................               (69,900)            (2,839,006)            (2,794,608)
        Short-term investments ................................               887,811                 15,127                 11,844
                                                                         -----------------------------------------------------------
        Net realized investment gains .........................               549,988              8,456,003              2,874,573
        Less: applicable income taxes .........................              (192,496)            (2,959,601)            (1,006,101)
                                                                         -----------------------------------------------------------
Net realized investment gains after taxes .....................          $    357,492           $  5,496,402           $  1,868,472
                                                                         ===========================================================
</TABLE>

        The Company recorded declines in values of investments  considered to be
other-than-temporary  of $0,  $1,520,210,  and  $4,369,240  for the years  ended
December 31, 2003, 2002 and 2001.

<TABLE>
<CAPTION>


                                                                                              Year ended December 31,
                                                                         -----------------------------------------------------------
                                                                                    2003              2002                  2001
                                                                         -----------------------------------------------------------
<S>                                                                      <C>                    <C>                    <C>

Change in unrealized investment appreciation
           (depreciation) of securities:
        Fixed maturities .........................................         $    318,878          $ (3,066,700)         $   (550,940)
        Equity securities ........................................                 --              (7,327,689)           (4,548,209)
                                                                         -----------------------------------------------------------
        Net unrealized investment gains (losses) .................              318,878           (10,394,389)           (5,099,149)
        Less:  applicable deferred income taxes ..................             (111,605)            3,638,036             1,784,702
                                                                         -----------------------------------------------------------
Net unrealized investment gains (losses) after taxes .............         $    207,273          $ (6,756,353)         $ (3,314,447)
                                                                         ===========================================================
</TABLE>


        Net investment  income from each major  category of investments  for the
years indicated is as follows:

<TABLE>
<CAPTION>


                                                                                              Year ended December 31,
                                                                         -----------------------------------------------------------
                                                                                    2003              2002                  2001
                                                                         -----------------------------------------------------------
<S>                                                                      <C>                    <C>                    <C>
Fixed maturities available for sale ...........................          $  4,176,273           $ 14,410,878           $ 15,734,345
Trading securities ............................................            12,909,671                   --                     --
Short-term investments ........................................             1,879,098                931,168              1,571,226
Equity securities .............................................                  --                  496,194                846,854
Equity in earnings of limited partnerships ....................             8,548,971                977,220                   --
                                                                         -----------------------------------------------------------
           Total investment income ............................            27,514,013             16,815,460             18,152,425
Investment expenses ...........................................            (5,120,309)              (994,726)              (764,915)
                                                                         -----------------------------------------------------------
           Net investment income ..............................          $ 22,393,704           $ 15,820,734           $ 17,387,510
                                                                         ===========================================================
</TABLE>


           Net investment income for trading securities includes $313,739 of net
unrealized gains as of December 31, 2003.


                                      F-13
<PAGE>


The Company held $105. 4 million of limited  partnership hedge funds at December
31, 2003, accounted for under the equity method, as follows:

<TABLE>
<CAPTION>

                                                                   Amount                   Ownership %
                                                                   ------                   -----------

<S>                                                            <C>                              <C>
Airline Recovery Partners, LLC                                 $  5,286,212                     19.52
Amici Qualified Associates, LP                                    5,431,716                      3.18
Asuka Japanese Equity Long/Short Fund LP                          2,575,391                      6.29
Caspian Capital Partners, LP(1)                                   2,657,419                      0.73
Chatham Asset Partners High Yield Fund                            2,606,064                      2.50
d. Quant Fund, LLC                                                2,520,021                      0.55
Dolphin Domestic Fund II, LP                                      1,300,484                      5.65
Dolphin Limited Partnership - A                                   5,016,245                      6.11
Havens Partners, LP                                               5,101,156                      6.52
Mackay Shield Long/ Short Fund (QP), LP                           6,068,638                      4.83
Mariner Partners, LP(1)                                          10,351,000                      2.37
Maystone Continuum Fund, LP                                       4,997,294                     44.23
Midway Market Neutral Fund LLC                                    6,562,365                      7.21
MV Partners Fund I L.P.                                           5,128,737                      2.02
Parkcentral Global, L.P.                                          4,386,892                      2.41
Relative Value International Fund, L.P.                           7,585,371                     20.19
RH Capital Associates Number One, LP                              6,312,684                      1.74
SV Tiger Precious L.P.                                            3,905,929                      6.04
Triage Capital Management, L.P.                                   7,629,263                      3.55
Wexford Spectrum Fund I, L.P.                                    10,011,538                      4.06
                                                                 ----------

Total limited partnership hedge funds                          $105,434,419
                                                                ===========
</TABLE>

            (1) These limited  partnership  hedge funds are directly  managed by
Mariner.

      The fair values for our  investments  in hedge  funds and other  privately
held equity securities  generally are established on the basis of the valuations
provided monthly by the managers of such investments. These valuations generally
are determined  based upon the valuation  criteria  established by the governing
documents of such investments or utilized in the normal course of such manager's
business.  Such valuations may differ  significantly  from the values that would
have been used had readily  available  markets existed and the differences could
be material.

           The hedge funds in which we invest usually impose  limitations on the
timing of  withdrawals  from the hedge funds (most are within 90 days),  and may
affect our  liquidity.  With respect to an investment  in a limited  partnership
managed  by a Mariner  affiliated  Company  and  consolidated  in the  Company's
financial statements,  the Company cannot withdraw funds for a minimum period of
three years without the consent of the hedge fund manager.

           The Company invests in collateralized debt obligations (CDOs),  which
are private  placements.  The fair value of each CDO is  provided by  securities
dealers.  The  markets  for  these  types of  securities  can be  illiquid  and,
therefore,  the price  obtained  from dealers in these  securities is subject to
change  depending upon the  underlying  market  conditions of these  securities,
including the potential for downgrades or defaults on the underlying  collateral
of the security.

Securities lending

      The Company maintains a securities  lending  agreement with Bear,  Stearns
Securities Corp. (the "Borrower")  whereby certain securities from its portfolio
are loaned to the Borrower for short periods of time.  The agreement  sets forth
the terms and conditions under which the Company may, from time to time, lend to
the Borrower,  against a pledge of  restricted  collateral,  securities  held in
custody  for the  Company  by  Custodial  Trust  Company,  an  affiliate  of the
Borrower. The Company receives restricted collateral from the Borrower generally
equal to at least the fair value of the loaned securities plus accrued interest.
The loaned  securities  remain a recorded asset of the Company.  At December 31,
2003, the Company had loaned securities with a fair value of $6,760,722 and held
collateral related to these loaned securities of $6,962,206.  There were no loan
positions outstanding as of December 31, 2002.


 (3)       Fiduciary Funds:

           The  Company's  insurance  agency   subsidiaries   maintain  separate
      underwriting  accounts,  which  record  all  of the  underlying  insurance
      transactions of the insurance pools, which they manage. These transactions
      primarily include collecting  premiums from the insureds,  collecting paid
      receivables  from  reinsurers,  paying  claims as losses  become  payable,
      paying  reinsurance  premiums  to  reinsurers  and  remitting  net account
      balances to member  insurance  companies  in the pools which MMO  manages.
      Unremitted  amounts  to  members  of the  insurance  pools  are  held in a
      fiduciary  capacity and interest income earned on such funds inures to the
      benefit of the  members  of the  insurance  pools  based on their pro rata
      participation in the pools.


                                      F-14
<PAGE>


           A summary of the pools' underwriting accounts as of December 31, 2003
and 2002 is as follows:


<TABLE>
<CAPTION>


                                                                                                    (Unaudited)
                                                                                                    -----------
                                                                                                    December 31,
                                                                                                    ------------

                                                                                                 2003              2002
                                                                                         ----------------------------------
<S>                                                                                        <C>                  <C>
Cash and short-term investments ..........................................                 $ 18,651,338         $29,620,563
Premiums receivable ......................................................                   21,662,214          19,607,502
Reinsurance and other receivables ........................................                   20,172,248          47,407,546
                                                                                         ----------------------------------

Total assets .............................................................                 $ 60,485,800         $96,635,611
                                                                                         ==================================

Due to insurance pool members ............................................                   10,894,676          48,084,755
Reinsurance payable ......................................................                   26,587,878          20,718,543
Funds withheld from reinsurers ...........................................                   20,729,319          23,220,776
Other liabilities ........................................................                    2,273,927           4,611,537
                                                                                         ----------------------------------
Total liabilities ........................................................                 $ 60,485,800         $96,635,611
                                                                                         ==================================
</TABLE>

           A  portion  of the  pools'  underwriting  accounts  above  have  been
included in the Company's insurance subsidiaries operations based upon their pro
rata participation in the MMO insurance pools.


 (4)       Insurance Operations:

Reinsurance transactions

           Approximately   31%,   30%  and  39%  of  the   Company's   insurance
subsidiaries'  direct and  assumed  gross  premiums  written for the years ended
December 31, 2003, 2002 and 2001, respectively, have been reinsured by the pools
with other companies on both a treaty and a facultative basis.

           Two former pool members,  Utica Mutual and Arkwright,  currently part
of the FM Global Group, withdrew from the pools in 1994 and 1996,  respectively,
and retained  liability  for their  effective  pool  participation  for all loss
reserves,  including IBNR and unearned premium reserves attributable to policies
effective prior to their withdrawal from the pools.

           In the event that all or any of the pool companies might be unable to
meet their obligations to the pools, the remaining companies would be liable for
such defaulted amounts on a pro rata pool participation basis.

           On May 28, 2003,  an  arbitration  procedure  was completed and Utica
Mutual was ordered to pay MMO  approximately  $7.8  million,  which  represented
Utica  Mutual's  funding  requirement  to the  pools  and had no  impact  on the
Company's results of operations.  In addition,  the Company was awarded interest
of approximately $1 million on a pre-tax basis which was reflected in results of
operations in 2003.  Following the award,  these amounts were paid in full. This
award confirmed  that, as a pool member,  Utica Mutual is required to fund gross
losses paid by MMO, acting as managing agent.

           The Company is not aware of any  uncertainties  that could  result in
any possible  defaults by either Arkwright or Utica Mutual with respect to their
pool  obligations,  which might impact liquidity or results of operations of the
Company,  but there can be no  assurance  that such events will not occur in the
future.

           A contingent liability exists with respect to reinsurance ceded since
such transactions generally do not relieve the Company of its primary obligation
to the policyholder,  so that such reinsurance ceded would become a liability of
the Company's  insurance  subsidiaries  in the event that any reinsurer might be
unable to meet the  obligations  assumed under the  reinsurance  agreements.  As
established by the pools, all reinsurers must meet certain minimum  standards of
financial condition.


                                      F-15
<PAGE>


The Company's  largest  unsecured  reinsurance  receivables at December 31, 2003
were from the following reinsurers:

<TABLE>
<CAPTION>

           Reinsurer                                             Amounts                     A.M. Best Rating
           ---------------------------------                     ----------                  ----------------
                                                                (in millions)
<S>                                                              <C>                         <C>
           Lloyd's Syndicates                                    $    51.5                   A- (Excellent)
           Swiss Reinsurance America Corp.                            10.8                   A+ (Superior)
           Lloyd's (Equitas)                                           9.7                   NR-3 (Rating Procedure Inapplicable)
           Hartford Fire Insurance Company                             7.6                   A+ (Superior)
           FM Global (Arkwright)                                       6.5                   A+ (Superior)
           Folksamerica Reinsurance Company                            5.9                   A (Excellent)
           Liberty Mutual Insurance Company                            4.5                   A (Excellent)
           GE Reinsurance Corp.                                        3.8                   A (Excellent)
           Transatlantic Reinsurance Company                           3.2                   A++ (Superior)
           Utica Mutual Insurance Company                              3.0                   A- (Excellent)
                                                                       ---

           Total                                                    $106.5
</TABLE>

           The Company has experienced  difficulties  in collecting  amounts due
from Lloyd's but has subsequently recovered all paid loss balances currently due
through an arbitration  proceeding.  Lloyd's  receivables  represent amounts due
from  118  different  Lloyd's   syndicates.   However,   given  the  uncertainty
surrounding   the  sufficiency  of  assets  in  Equitas  to  meet  its  ultimate
obligations,  there is a reasonable  possibility  that the Company's  collection
efforts  relating to its Equitas  receivables  may be adversely  affected in the
future.

           The  Company's  exposure to  reinsurers,  other than those  indicated
above,  includes  reinsurance  receivables from  approximately 570 reinsurers or
syndicates, and as of December 31, 2003, no single one was liable to the Company
for an unsecured amount in excess of approximately $3 million.

           Funds withheld of approximately $7.6 million and letters of credit of
approximately $137.0 million as of December 31, 2003 were obtained as collateral
for  reinsurance  receivables  as provided under various  reinsurance  treaties.
Reinsurance  receivables  as of December 31, 2003 and 2002 included an allowance
for  uncollectible  reinsurance  receivables of $12.8 million and $13.3 million,
respectively.  Uncollectible  reinsurance  resulted in charges to  operations of
approximately $1.0 million,  $5.2 million,  and $10.8 million in 2003, 2002, and
2001, respectively.


           Reinsurance  ceded and assumed  relating to premiums  written were as
follows:

<TABLE>
<CAPTION>

                                    Gross                   Ceded               Assumed                             Percentage
                                   (direct)                to other            from other                          of assumed
           Year Ended               amount                companies             companies            Net amount       to net
           -----------------------------------------------------------------------------------------------------------------------
<S>                 <C>            <C>                    <C>                  <C>                 <C>                 <C>
           December 31, 2003       $123,520,550           $44,889,948          $19,676,603         $98,307,205         20%
           December 31, 2002        113,988,866            46,074,907           38,528,136         106,442,095         36%
           December 31, 2001        110,458,558            57,950,842           37,184,381          89,692,097         41%

</TABLE>

Reinsurance ceded and assumed relating to premiums earned were as follows:

<TABLE>
<CAPTION>

                                    Gross                   Ceded               Assumed                             Percentage
                                   (direct)                to other            from other                          of assumed
           Year Ended               amount                companies             companies            Net amount       to net
           -----------------------------------------------------------------------------------------------------------------------
<S>                 <C>            <C>                    <C>                  <C>                 <C>                 <C>
           December 31, 2003       $111,876,648           $30,381,297          $14,898,599         $96,393,950         15%
           December 31, 2002        119,181,201            58,437,148           52,713,400         113,457,453         46%
           December 31, 2001        102,264,906            58,375,125           40,742,816          84,632,597         48%
</TABLE>


           Losses  and  loss  adjustment  expenses  incurred  are  net of  ceded
reinsurance  recoveries of  $27,564,318,  $60,574,707 and  $196,709,032  for the
years ended December 31, 2003, 2002 and 2001, respectively.


                                      F-16
<PAGE>


Unpaid losses

           Unpaid  losses  are based on  individual  case  estimates  for losses
reported  and include a provision  for losses  incurred but not reported and for
loss adjustment  expenses.  The following table provides a reconciliation of the
Company's  consolidated liability for losses and loss adjustment expenses at the
beginning and end of 2003, 2002 and 2001:


<TABLE>
<CAPTION>


                                                                                               Year ended December 31,
                                                                                --------------------------------------
                                                                                    2003                 2002                2001
                                                                                    ---------------------------------------------
                                                                                                 (In thousands)
<S>                                                                             <C>                  <C>                  <C>
Net liability for losses and loss adjustment
  expenses at beginning of year .....................................           $ 208,979            $ 210,953            $ 199,685
                                                                                ---------            ---------            ---------
Provision for losses and loss adjustment
  expenses occurring in current year ................................              57,125               68,952               78,221
Increase (decrease) in estimated losses and loss
  adjustment expenses for claims occurring
  in prior years (1) ................................................              (1,410)               4,389                9,604
Deferred income-loss portfolio
  assumption(2) .....................................................                --                     15                   76
                                                                                ---------            ---------            ---------
Net loss and loss adjustment expenses
  Incurred ..........................................................              55,715               73,356               87,901
                                                                                ---------            ---------            ---------
Less:
Net losses and loss adjustment expense payments
  for claims occurring during:
      Current year ..................................................               5,241               11,950               20,354
      Prior years ...................................................              17,142               63,365               56,203
                                                                                ---------            ---------            ---------
                                                                                   22,383               75,315               76,557
Add:
Deferred income-loss portfolio assumption(2) ........................                --                    (15)                 (76)
                                                                                ---------            ---------            ---------
Net liability for losses and loss adjustment
  expenses at year end ..............................................             242,311              208,979              210,953
                                                                                ---------            ---------            ---------
Ceded unpaid losses and loss adjustment
  expenses at year end ..............................................             276,619              307,023              323,236
                                                                                ---------            ---------            ---------
Gross unpaid losses and loss adjustment
  expenses at year end ..............................................           $ 518,930            $ 516,002            $ 534,189
                                                                                =========            =========            =========
</TABLE>


           (1) The adjustment to the consolidated  liability for losses and loss
adjustment  expenses for losses occurring in prior years reflects the net effect
of the  resolution  of losses for other than full reserve  value and  subsequent
readjustments  of loss values.  The  decrease in 2003 of $1.4  million  reflects
favorable  loss  development  arising  from the ocean  marine line of  business,
partially offset by adverse  development in the aviation line for accident years
1997-2000.  The increase in 2002 of $4.4 million  reflects  provisions  made for
insolvent, financially impaired and commuted reinsurers, and adverse development
from the Company's other liability line reflecting umbrella exposures.  The 2001
year reflects $9.6 million of adverse development from the Company's  operations
in London due to higher than  expected  claim  frequencies  and the emergence of
longer than expected loss development  patterns.  Also  contributing to the 2001
increase were provisions made for insolvent or financially  impaired reinsurers.
Both of the 2002 and 2001 amounts were partially offset by favorable development
in the ocean marine line of business.

           (2)  Deferred  income-loss   portfolio   assumption   represents  the
difference between cash received and unpaid loss reserves assumed as a result of
the Company's  assumption of net pool  obligations from two former pool members,
which was initially capitalized and is being amortized over the payout period of
the related losses.


                                      F-17
<PAGE>


           The  insurance  pools  participated  in both the issuance of umbrella
casualty  insurance for various Fortune 1000 companies and the issuance of ocean
marine liability insurance for various oil companies during the period from 1978
to 1985.  Depending on the accident year, the insurance pools' net retention per
occurrence after applicable reinsurance ranged from $250,000 to $2,000,000.  The
Company's  effective pool participation on such risks varied from 11% in 1978 to
59% in 1985.  Subsequent to this period, the pools  substantially  reduced their
umbrella  writings and coverage was provided to smaller  insureds.  In addition,
ocean marine and non-marine  policies issued during the past three years provide
coverage for certain environmental risks.

           At December 31, 2003 and 2002,  the  Company's  gross,  ceded and net
loss  and  loss  adjustment  expense  reserves  for  all  asbestos/environmental
policies amounted to $77.3 million,  $65.5 million and $11.8 million,  and $67.7
million, $55.0 million and $12.7 million,  respectively. As of December 31, 2003
and 2002,  the Company had  approximately  330 and 360  policies,  respectively,
under   which   there   was  at  least  one  claim   outstanding   relating   to
asbestos/environmental  exposures. The increase in gross reserves during 2003 is
attributable to case reserves on a few policies.  The Company  believes that the
uncertainty surrounding asbestos/environmental exposures, including issues as to
insureds'  liabilities,  ascertainment of loss date,  definitions of occurrence,
scope of coverage,  policy limits and application and  interpretation  of policy
terms, including exclusions, all affect the estimation of ultimate losses. Under
such  circumstances,  it  is  difficult  to  determine  the  ultimate  loss  for
asbestos/environmental  related  claims.  Given the  uncertainty  in this  area,
losses from  asbestos/environmental  related  claims may develop  adversely and,
accordingly,  management  is unable to estimate the range of possible  loss that
could arise from  asbestos/environmental  related claims. However, the Company's
net unpaid loss and loss adjustment  expense reserves,  in the aggregate,  as of
December 31, 2003, represent management's best estimate.

           The Company  sustained  losses in its aircraft  line of business as a
result of the terrorist  attacks of September 11, 2001  (collectively,  the "WTC
attack").  The Company  recorded  incurred  losses from the WTC attack of $154.9
million and $8.0  million on a gross and net of  reinsurance  basis.  Additional
reinsurance  costs were also incurred as a result of the WTC attack and amounted
to $5.0 million. The ultimate net liability for unpaid losses resulting from the
WTC  attack  may  change  from the  amount  provided  currently  depending  upon
revisions in gross loss  estimates  and the  interpretation  as to the number of
occurrences as defined in the aircraft ceded reinsurance treaties.  However, the
Company's net liability provided for the WTC attack represents management's best
estimate based upon a review of all known information.

Salvage and subrogation

           Estimates of salvage and  subrogation  recoveries  on paid and unpaid
losses  have  been  recorded  as a  reduction  of  unpaid  losses  amounting  to
$6,480,163 and $6,219,128 at December 31, 2003 and 2002, respectively.

Deferred policy acquisition costs

           Deferrable   acquisition   costs  amortized  to  income  amounted  to
$19,430,211,  $18,898,550 and $16,083,412 for the years ended December 31, 2003,
2002 and 2001, respectively.


(5)        Property, Improvements and Equipment, Net:

           Property,  improvements  and equipment,  net at December 31, 2003 and
2002 include the following:

<TABLE>
<CAPTION>


                                                                                     2003                   2002
                                                                                 ----------------------------------
<S>                                                                                <C>                  <C>
           Office furniture and equipment .....................................    $ 1,905,366          $   845,080
           Computer equipment .................................................      1,784,002            1,076,583
           Leasehold improvements .............................................      4,292,659            2,335,692
                                                                                 ----------------------------------
                                                                                     7,982,027            4,257,355
           Less:  accumulated depreciation and amortization ...................     (4,044,424)          (3,525,949)
                                                                                 ----------------------------------
                  Property, improvements and equipment, net ...................    $ 3,937,603          $   731,406
                                                                                 ==================================
</TABLE>

           Depreciation  and amortization and other expenses for the years ended
December 31, 2003,  2002, and 2001 amounted to $518,475,  $410,781 and $427,799,
respectively.


                                      F-18
<PAGE>


(6)        Income Taxes:

           The components of deferred tax assets and  liabilities as of December
31, 2003 and 2002 are as follows:

<TABLE>
<CAPTION>


                                                                                                  December 31,
                                                                                    ---------------------------------
                                                                                           2003                  2002
                                                                                         ---------------------------------
<S>                                                                                    <C>                    <C>
           Deferred Tax Assets:
           Loss reserves ..................................................            $12,017,630            $11,066,847
           Unearned premiums ..............................................              2,864,066              2,730,138
           Loss carryforwards .............................................              2,990,941              2,363,081
           Bad debt reserve ...............................................                910,000              1,592,500
           Other ..........................................................                343,555                328,752
                                                                                         ---------------------------------
           Deferred tax assets ............................................             19,126,192             18,081,318
                                                                                         ---------------------------------

           Less: Valuation allowance ......................................              2,990,941              2,363,081
                                                                                         ---------------------------------

           Total deferred tax assets ......................................             16,135,251             15,718,237
                                                                                         ---------------------------------

           Deferred Tax Liabilities:
           Deferred policy acquisition costs ..............................              2,885,960              2,697,865
           Unrealized appreciation of investments .........................                306,503                194,894
           Deferred investment income .....................................                213,677                   --
           Accrued salvage and subrogation ................................                284,174                271,913
           Other ..........................................................                672,216                552,759
                                                                                         ---------------------------------
           Total deferred tax liabilities .................................              4,362,530              3,717,431
                                                                                         ---------------------------------
           Net deferred tax assets ........................................            $11,772,721            $12,000,806
                                                                                       ===================================
</TABLE>

           The last year to which the loss  carryforwards can be carried forward
against future tax liabilities is the year 2023.

           The  Company's  valuation  allowance  account  with  respect  to  the
deferred tax asset and the change in the account is as follows:

<TABLE>
<CAPTION>

                                                                        2003               2002                  2001
                                                                   ------------------------------------------------------
<S>                                                               <C>                  <C>                   <C>
           Balance, beginning of year ...................         $  2,363,081         $ 11,050,489          $  5,859,015
           Change in valuation allowance ................              627,860           (8,687,408)            5,191,474
                                                                   ------------------------------------------------------
           Balance, end of year .........................         $  2,990,941         $  2,363,081          $ 11,050,489
                                                                  =======================================================
</TABLE>

           The  change  in the  valuation  account  relates  primarily  to  loss
carryforwards.

           The Company  believes that the total  deferred tax asset,  net of the
recorded valuation  allowance account,  as of December 31, 2003 will more likely
than not be fully realized.

           Income tax  provisions  differ from the amounts  computed by applying
the Federal statutory rate to income before income taxes as follows:

                                                      Year ended December 31,
                                                  ------------------------------
                                                    2003       2002      2001
                                                    ----       -----     ----

Income taxes at the Federal statutory rate ....      35.0%     35.0%    (35.0)%
Tax exempt interest ...........................      (0.3)     (4.7)     (6.2)
Valuation allowance ...........................       2.4     (32.6)     41.5
State taxes ...................................      (2.4)     (0.3)     (0.4)
Other, net ....................................       0.1       1.0       2.4
                                                     ----      ----      ----
           Income tax provisions ..............      34.8%     (1.6)%     2.3%
                                                     ====      ====      ====

           Federal   income  tax  paid   (received)   amounted   to   $6,248,652
$(4,849,204)  and  $1,807,605  for the years ended  December 31, 2003,  2002 and
2001, respectively.

           At December 31, 2003 the federal income tax payable included in other
liabilities amounted to $1,258,717.  At December 31, 2002 the federal income tax
recoverable included in other assets amounted $1,110,059.


                                      F-19
<PAGE>


           Reduction of income taxes paid as a result of the deduction triggered
by employee  exercise of stock  options for the years ended  December  31, 2003,
2002 and 2001  amounted to $331,737,  $83,436 and  $170,559,  respectively.  The
benefit received was recorded in paid-in capital.


(7)        Statutory Income and Surplus:


           The Company's domestic insurance  subsidiaries are limited,  based on
the lesser of 10% of  policyholders'  surplus or 100% of adjusted net investment
income, as defined under New York Insurance Law, in the amount of dividends they
could pay  without  regulatory  approval.  Within this  limitation,  the maximum
amount which may be paid to the Company out of the domestic insurance companies'
surplus was  approximately  $15,900,000  as of December 31, 2003.  In connection
with the  application  for approval of acquisition of control of NYMAGIC,  INC.,
filed by Mariner  Partners,  Inc.  ("Mariner")  and William J.  Michaelcheck,  a
Director of the Company and a majority shareholder of Mariner, with the New York
State Insurance  Department (the  "Department")  pursuant to Section 1506 of the
New York  Insurance  Law, New York Marine and Gotham  agreed for a period of two
years from July 31, 2002, the date of the  acquisition  of such control,  not to
pay any dividends  without the consent of the Department.  During 2003 and first
quarter of 2004, New York Marine requested and received  approval from the State
of New York Insurance  Department to pay  extraordinary  dividends of $5,000,000
and $15,000,000, respectively, to the Company.

           Combined statutory net income,  surplus and dividends declared by the
Company's  domestic  insurance  subsidiaries  were as  follows  for the  periods
indicated:


<TABLE>
<CAPTION>


                                           Combined                    Combined                       Dividends
                                           Statutory                   Statutory                      Declared
           Year Ended                     Net Income                    Surplus                       To Parent
           ----------                     ----------                    -------                       ---------
<S>                                    <C>                           <C>                          <C>
           December 31, 2003           $       13,689,000            $      186,325,000           $        9,575,000
           December 31, 2002           $       16,412,000            $      180,394,000           $       12,361,000
           December 31, 2001           $        3,238,000            $      152,061,000           $       12,550,000
</TABLE>

           The  National  Association  of Insurance  Commissioners  (the "NAIC")
project to codify  statutory  accounting  principles was approved by the NAIC in
1998.  The  purpose  of  codification  was to provide a  comprehensive  basis of
accounting for reporting to state  insurance  departments.  Codification  became
effective on January 1, 2001 and did not have a material  effect on the domestic
insurance companies' statutory surplus.

           The approval of codified  accounting  rules  included a provision for
the state insurance  commissioners  to modify such accounting rules by practices
prescribed  or permitted  for insurers in their  state.  The domestic  insurance
companies  are  domiciled  in the  State of New  York,  however,  there  were no
differences in 2003 or in 2002 between prescribed accounting practices and those
approved by the NAIC.


(8)        Employee Retirement Plans:

           The  Company  maintained  two  retirement  plans for the  benefit  of
employees.  Both plans provided for 100% vesting upon completion of two years of
service. The Money Purchase Plan provided for a contribution equal to 7.5% of an
employee's cash compensation, including bonuses, for each year of service during
which the employee  completed 1000 hours of service and was employed on the last
day of the plan year.  The Profit  Sharing  Plan did not  require  any  specific
contribution,  but any  contribution  made was subject to the  restrictions  set
forth above for the Money Purchase Plan. In 2003, the Company combined the above
two  retirement  plans into the  Profit  Sharing  Plan and  Trust.  The new plan
provides for an annual  mandatory  contribution of 7.5% of compensation for each
year of service during which the employee has completed 11 months of service and
is employed on the last day of the plan year. An additional discretionary annual
contribution of up to 7.5% of compensation may also be made by the Company.  The
new plan  provides  for 100%  vesting  upon  completion  of one year of service.
Employee  retirement  plan expenses for the years ended December 31, 2003,  2002
and 2001 amounted to $901,343, $1,167,436, and $800,962, respectively.


                                      F-20
<PAGE>


(9)        Debt:

           On June 27, 2002, the Company entered into a credit agreement with an
unaffiliated  company.  The interest  rate on the loan and the loan balance were
3.9% and $6.2 million,  respectively,  as of December 31, 2002. This balance was
subsequently repaid on February 7, 2003. There were no outstanding loan balances
as of December 31, 2003. See Note 18.

           Interest  paid  amounted to $34,327,  $608,148  and  $356,676 for the
years ended December 31, 2003, 2002 and 2001, respectively.

           In 1998,  the Company  entered into an interest  rate swap  agreement
(the "agreement") with an unaffiliated bank for purposes of hedging its interest
rate risk on its bank loan.  The agreement  required the Company to pay interest
to the bank at a rate of 6.50% on the original  notional  amount  outstanding of
$22,500,000, which was subsequently adjusted quarterly by notional reductions of
$1,250,000  through  June  30,  2002,  which  was  the  expiration  date  of the
agreement.  The bank  was  required  to pay the  Company,  on the same  notional
amounts  outstanding,  an  amount  equal to the  three  month US  Dollar  London
Interbank  Offered  Rate plus .65%  which was reset on a  quarterly  basis.  The
interest expense recorded under the agreement was $36,132 in 2002 and $65,789 in
2001.


(10)       Commitments:

           The  Company  maintains  various  operating  leases to occupy  office
space. The lease terms expire on various dates through July, 2016.

           The aggregate  minimum annual rental payments under various operating
leases for office facilities as of December 31, 2003 are as follows:

                                                       Amount
                                                       ------
           2004............................          1,074,384
           2005............................          1,278,383
           2006............................          1,252,221
           2007............................          1,233,531
           2008............................          1,233,531
           Thereafter......................          9,354,278
                                                   -----------
           Total...........................        $15,426,328

           The operating leases also include provisions for additional  payments
based on certain  annual  cost  increases.  Rent  expenses  for the years  ended
December  31, 2003,  2002,  and 2001  amounted to  $1,993,278,  $1,102,755,  and
$1,060,103, respectively.

           On December 30,  2002,  the Company  signed a sublease,  for which it
received  landlord's  consent dated January 31, 2003, for  approximately  28,000
square feet for its  principal  offices in New York.  The sublease  commenced on
March 1, 2003 and expires on July 30, 2016. The minimum  monthly rental payments
of $102,794  commenced in 2004 and end in 2016 and will amount to $15.3  million
of total  rental  payments  over the term of the  sublease.  The new offices are
located at 919 Third Avenue, New York, New York 10022.


                                      F-21
<PAGE>


(11)       Comprehensive Income:

           The Company's comparative comprehensive income is as follows:

<TABLE>
<CAPTION>


                                                                                    Year ended December 31,
                                                                         -----------------------------------------
                                                                             2003         2002           2001
                                                                         -----------------------------------------

<S>                                                                    <C>            <C>             <C>
           Net income (loss)                                           $ 17,092,764   $ 28,710,494    $(13,138,993)

           Other comprehensive income (loss), net of tax:
                Unrealized holding gains (losses) on securities,
                    net of deferred tax benefit (expense) of
                    $(304,104), $678,435, and 778,602                       564,765     (1,259,951)     (1,445,975)
                Less: reclassification adjustment for gains realized
                    in net income, net of tax expense of
                    $(192,496), $(2,959,601), and $(1,006,101),             357,492      5,496,402       1,868,472
                Foreign currency translation adjustment                        --         (811,880)        326,539
                                                                         -----------------------------------------
                         Other comprehensive income (loss)                  207,273     (7,568,233)     (2,987,908)
                                                                         -----------------------------------------

           Total comprehensive income (loss)                           $ 17,300,037   $ 21,142,261    $(16,126,901)
                                                                       ===========================================
</TABLE>


           The Company recorded  unrealized holding gains on securities,  net of
deferred  taxes,  of $569,220  and  $361,947  as of December  31, 2003 and 2002,
respectively.


(12)       Common Stock Repurchase Plan and Shareholders' Equity:

           The Company has a common stock  repurchase plan which  authorizes the
repurchase of up to $55,000,000,  at prevailing  market prices, of the Company's
issued and outstanding shares of common stock on the open market. As of December
31, 2003,  the Company had  repurchased  a total of  2,338,684  shares of common
stock under this plan at a total cost of  $42,242,044  at market prices  ranging
from $12.38 to $28.81 per share.

           In connection  with the  acquisition of MMO in 1991, the Company also
acquired  3,215,958 shares of its own common stock held by MMO and recorded such
shares as treasury stock at MMO's original cost of $3,919,129.

           A  reconciliation  of basic and diluted earnings (loss) per share for
each of the years ended December 31, 2003, 2002 and 2001 is as follows:


<TABLE>
<CAPTION>

                                      2003                               2002                                 2001
                     ---------------------------------------------------------------------------------------------------------------
                                  Weighted                              Weighted                            Weighted
                                  Average                               Average                             Average
                     Net           Shares       Per         Net         Shares      Per       Net            Shares       Per
                     Income      Outstanding    Share       Income    Outstanding   Share     (Loss)       Outstanding    Share
                     ---------------------------------------------------------------------------------------------------------------
                                                         (In thousands except for per share data)

<S>                    <C>        <C>           <C>         <C>        <C>          <C>        <C>             <C>         <C>
Basic EPS              $17,093    9,673         $1.77       $28,710    9,277        $3.09      $(13,139)       9,232       $(1.42)

Effect of Dilutive Securities:
        Stock Options    -----      155         $(.03)        -----      32         $(.01)        ---           ---         ---
                     ---------------------------------------------------------------------------------------------------------------

Diluted EPS            $17,093    9,828          $1.74      $28,710    9,309        $3.08      $(13,139)       9,232       $(1.42)
                       =============================================================================================================
</TABLE>


(13)       Stock Plans:

           The  Company  has two  stock  option  plans,  the first  approved  by
shareholders in 1991, the second in 2002. Each plan provides a means whereby the
Company,  through the grant of non-qualified stock options to key employees, may
attract and retain  persons of ability to exert their best  efforts on behalf of
the Company.  Both the 2002 and 1991 plans  authorize the issuance of options to
purchase up to 500,000 shares of the Company's  common stock at not less than 95
percent of the fair market value at the date of grant.  Options are  exercisable
over the period  specified in each option agreement and expire at a maximum term
of ten years.



                                      F-22
<PAGE>


           A summary  of  activity  under the stock  option  plans for the years
ended December 31, 2003, 2002, and 2001 follow:

<TABLE>
<CAPTION>


                                  2003                                  2002                                   2001
                       ------------------------------------------------------------------------------------------------------------
                       Number          Option                 Number         Option                 Number          Option
Shares Under             of            Price                    of           Price                    of            Price
    Option             Shares          Per Share              Shares         Per Share              Shares          Per Share
    ------             ------          ---------              ------         ---------              ------          ---------
<S>                    <C>         <C>                       <C>            <C>                    <C>             <C>
Outstanding,
beginning of year      622,568     $12.05-$20.25             223,234        $12.00-$20.25           318,500         $12.00-$20.25

Granted                 20,000        $18.69                 463,000        $       14.47            10,000                $17.67

Exercised             (121,066)    $12.05-$20.25             (34,666)       $12.00-$17.22          (105,266)        $12.00-$20.25

Forfeited                 (802)    $12.05-$14.47             (29,000)       $12.00-$14.47               ---                   ---
                           ----                              -------                               --------         -------------

Outstanding,
end of year            520,700     $12.59-$20.25             622,568        $12.05-$20.25           223,234         $12.00-$20.25
                       =======                               =======                                =======

Exercisable,
end of year            156,550     $12.59-$20.25             141,567        $12.05-$20.25           140,566         $12.00-$20.25
                       =======                               =======                                =======
</TABLE>

           Effective  January  1,  2003  the  Company  adopted  the  fair  value
recognition  provisions of FASB Statement No. 123,  Accounting  for  Stock-Based
Compensation  ("SFAS  123"),  prospectively  to  all  employee  awards  granted,
modified  or  settled  after  January 1, 2003.  Therefore,  the cost  related to
stock-based  employee  compensation  included in the determination of net income
for 2003 is less than that which  would have been  recognized  if the fair value
based method had been applied to all awards since the original effective date of
SFAS 123, which includes  awards issued after December 15, 1994.  Prior to 2003,
the Company  accounted  for those plans under the  recognition  and  measurement
provisions of APB Opinion No. 25, Accounting for Stock Issued to Employees ("APB
25"),  and  related  Interpretations.  Under APB 25, the  Company  recorded  the
difference,  if any,  between the exercise price of the Company's  stock options
and the market price of the underlying  stock on the date of grant as an expense
over the vesting  period of the option.  The adoption of SFAS 123 did not have a
significant impact on the Company's results of operations,  financial  condition
or liquidity.

           The following table illustrates the effect on net income and earnings
per share if the fair value based method had been applied to all outstanding and
unvested awards in each period:


<TABLE>
<CAPTION>


                                                     Year Ended December 31
                                                     ----------------------

                                                 2003         2002          2001
                                                 ----         ----          ----
                                              (in thousands except per share data)

<S>                                         <C>           <C>           <C>
Net income, as reported                     $   17,093    $   28,710    $  (13,139)
Add: Stock based employee
    compensation expense included in
   reported net income, net of related
    tax effects                                     19            15            15
Deduct: Total stock-based employee
compensation expense determined
under the fair value based method for all
awards, net of related tax effects                (358)         (162)          (65)
                                            ----------    ----------    ----------

Pro forma net income                        $   16,754    $   28,563    $  (13,189)
                                            ==========    ==========    ==========



Earnings per share:

Basic EPS - as reported                          $1.77         $3.09        $(1.42)
Basic EPS - pro forma                            $1.73         $3.08        $(1.43)

Diluted EPS - as reported                        $1.74         $3.08        $(1.42)
Diluted EPS - pro forma                          $1.70         $3.07        $(1.43)
</TABLE>


                                      F-23
<PAGE>


           In determining the pro forma effects on net income, the fair value of
options granted in 2003, 2002, 2001, 2000, 1999, 1998 and 1996 were estimated at
the grant date using the Black-Scholes  option-pricing  model with the following
weighted  average  assumptions in 2003,  2002,  2001, 2000, 1999, 1998 and 1996,
respectively:  dividend yield of 1%, 0%, 0%, 3.0%, 3.0%, 1.9% and 2.2%; expected
volatility  of 31%,  31%,  25%,  25%, 25%, 28% and 25%; the 2003 and 2002 grants
have expected  lives of 4 years with the remaining  grants at 5 years each and a
risk-free interest rate of 2.20%,  2.90%,  4.42%, 4.75%, 6.48%, 4.56% and 6.00%.
There were no options granted in 1997.

           The full impact of calculating compensation expense for stock options
under SFAS 123 is not  reflected in the pro forma net income  amounts  presented
above because options granted prior to January 1, 1995 are not considered in the
determination of the compensation expense.

           In 1999, the Company established the NYMAGIC, Inc. Phantom Stock Plan
(the  "Plan").  The  purpose  of the  Plan is to  build  and  retain  a  capable
experienced  long-term  management team and key personnel to promote the success
of the Company. Each share of phantom stock granted under the Plan constitutes a
right to receive in cash the  appreciation in the fair market value of one share
of the Company's  stock,  as determined on the date of exercise of such share of
phantom stock over the measurement value of such phantom stock. In 1999, 100,000
shares of phantom  stock were  granted to  employees  with a  five-year  vesting
schedule.  There have been no grants of phantom stock by the Company since 1999.
For the years 2003,  2002 and 2001, a total of 60,000  shares were  exercised at
market  prices  ranging from $18 to $26.28 per share.  Accordingly,  the Company
recorded an expense of $455,450,  $368,100 and $319,175 in 2003,  2002 and 2001,
respectively.

           The Company sold 400,000 investment units to Conning Capital Partners
VI, L.P.  ("Conning")  on January 31, 2003.  Each unit consisted of one share of
the  Company's  common  stock and an option to purchase an  additional  share of
common  stock from the Company.  Conning paid $21.00 per unit  resulting in $8.4
million in  proceeds to the  Company.  The option  exercise  price is based on a
formula contained in the Option Certificate (which was attached as an exhibit to
the Company's current report on Form 8-K filed on February 4, 2003).

(14)       Segment Information:

           The Company's  subsidiaries  include two domestic insurance companies
and three domestic agencies.  These subsidiaries underwrite commercial insurance
in four major lines of business.  The Company  considers  ocean  marine,  inland
marine/fire,  other liability, and aircraft as appropriate segments for purposes
of evaluating the Company's overall performance; however, the Company has ceased
writing any new policies  covering  aircraft risks subsequent to March 31, 2002.
In addition,  the Company also considers MMO London as an  appropriate  segment.
However,  in 2002 and  2003,  MMO UK did not  provide  capacity  to any  Lloyd's
syndicate following the Company's withdrawal from its London operations.

           The   Company   evaluates   revenues   and  income  or  loss  by  the
aforementioned segments. Revenues include premiums earned and commission income.
Income or loss includes  premiums  earned and commission  income less the sum of
losses incurred and policy acquisition costs.

           Investment  income  represents a material  component of the Company's
revenues and income.  The Company does not maintain its investment  portfolio by
segment because  management does not consider  revenues and income by segment as
being  derived from the  investment  portfolio.  Accordingly,  an  allocation of
identifiable  assets,  investment  income and realized  investment  gains is not
considered  practicable.  As such,  other  income,  general  and  administrative
expenses,  interest  expense,  and  income  taxes  are  also not  considered  by
management  for  purposes  of  providing  segment  information.   The  financial
information by segment is as follows:

<TABLE>
<CAPTION>

                                                          Year Ended December 31,
                                                          -----------------------
                                  2003                             2002                           2001
                       ---------------------------------------------------------------------------------------------
Segments                                                    (in thousands)
                                            Income                         Income                             Income
                        Revenues            (Loss)          Revenues       (Loss)           Revenues          (Loss)
                        --------------------------------------------------------------------------------------------

<S>                     <C>            <C>               <C>            <C>               <C>              <C>
Ocean marine            $73,371        $ 19,372          $ 62,434       $ 10,078          $ 38,905         $  5,192
Inland marine/Fire        3,802             282             2,371            387               644              485
Other liability          16,126          (1,116)            6,883         (4,577)            2,864           (2,418)
Aircraft                  2,865           2,481            39,159         16,957            31,396          (12,230)
MMO London                  ---             ---             4,159            (94)           14,136           (7,068)
 -------------------------------------------------------------------------------------------------------------------
           Subtotal      96,164          21,019           115,006         22,751            87,945          (16,039)
</TABLE>


                                      F-24
<PAGE>


<TABLE>
<CAPTION>

                                                                   Year Ended December 31,
                                                                   -----------------------
                                                2003                             2002                           2001
                                     ---------------------------------------------------------------------------------------------
Segments (continued)                                                             (in thousands)
                                                          Income                         Income                             Income
                                      Revenues            (Loss)          Revenues       (Loss)           Revenues          (Loss)
                                      --------------------------------------------------------------------------------------------
<S>                                   <C>              <C>             <C>             <C>               <C>              <C>
Other income                             1,688           1,688               186            186               285              285
Net investment income                   22,394          22,394            15,821         15,821            17,388           17,388
Net realized investment gains              550             550             8,456          8,456             2,874            2,874
General and administrative expenses        ---         (19,428)              ---        (18,373)              ---          (16,952)
Interest expense                           ---             (26)              ---           (575)              ---             (395)
Income tax benefit (expense)               ---          (9,104)              ---            444               ---             (300)
                           --------------------------------------------------------------------------------------------------------

Total                                 $120,796         $17,093         $ 139,469       $ 28,710          $108,492         $(13,139)
-----------------------------------------------------------------------------------------------------------------------------------
</TABLE>


The Company's  gross written  premiums  cover risks in the following  geographic
locations:

<TABLE>
<CAPTION>

                                                     2003             2002               2001
                                               ----------------------------------------------
                                                                 (In thousands)
<S>                                            <C>              <C>                <C>
           United States                       $     119,749    $      97,855      $   80,945
           Europe                                     16,836           29,796          41,334
           Asia                                        3,994           13,511          15,803
           Latin America                               1,203            2,669           2,646
           Other                                       1,415            8,686           6,915
                                                ---------------------------------------------
           Total Gross Written Premiums        $     143,197    $     152,517   $     147,643
                                                =============================================
</TABLE>


(15)       Quarterly Financial Data (unaudited):

           The quarterly financial data for 2003 and 2002 are as follows:


                                                   Three Months Ended
                                        ----------------------------------------
                                         March 31, June 30,  Sept. 30, Dec. 31,
                                           2003      2003      2003      2003
                                        ----------------------------------------
                                          (in thousands, except per share data)

           Total revenues ............   $23,568   $32,205   $31,796   $33,226
           Income before income taxes    $ 2,941   $ 6,075   $10,636   $ 6,544
           Net income ................   $ 1,918   $ 3,968   $ 6,921   $ 4,285

           Basic earnings  per share .   $   .20   $   .41   $   .71   $   .44
           Diluted earnings  per share   $   .20   $   .40   $   .70   $   .43


                                                   Three Months Ended
                                        ----------------------------------------
                                         March 31, June 30,  Sept. 30, Dec. 31,
                                           2002      2002      2002      2002
                                        ----------------------------------------
                                          (in thousands, except per share data)
           Total revenues ...........   $30,655   $33,084   $30,603   $45,128
           Income before income taxes   $ 3,777   $ 2,904   $ 4,876   $16,710
           Net income ...............   $ 2,668   $ 2,038   $ 3,423   $20,582

           Basic earnings per share .   $   .29   $   .22   $   .37   $  2.22
           Diluted earnings per share   $   .29   $   .22   $   .37   $  2.20


                                      F-25
<PAGE>


(16)       Related Party Transactions:

           The Company had gross premiums of $9.4 million in 2003,  $3.6 million
in 2002,  and $1.6 million in 2001 written  through I. Arthur  Yanoff & Co, Ltd.
and Yanoff South Inc., insurance brokerages at which Glenn R. Yanoff, a Director
of the Company,  is a vice  president and insurance  underwriter.  In connection
with the placement of such business,  gross  commission  expenses of $1,526,000,
$532,000, and $299,000 in 2003, 2002, and 2001,  respectively,  were incurred by
the Company on these transactions.

           The Company  entered into an  investment  management  agreement  with
Mariner  effective  October 1, 2002 and was amended and  restated on December 6,
2002. Under the terms of the agreement, Mariner manages the Company's investment
portfolio.  Fees  to be  paid  to  Mariner  are  based  on a  percentage  of the
investment  portfolio as follows:  .20% of liquid assets, .30% of fixed maturity
investments and 1.25% of limited  partnership (hedge fund) investments.  William
J. Michaelcheck, a Director of the Company, is Chairman, Chief Executive Officer
and  majority  shareholder  of  Mariner.  George R.  Trumbull,  Chairman,  Chief
Executive  Officer and a Director of the Company,  A. George  Kallop,  Executive
Vice President and Chief  Operating  Officer and a Director of the Company,  and
William D. Shaw,  Jr.,  Vice  Chairman and a Director of the  Company,  are also
associated  with  Mariner.  Investment  fees incurred  under the agreement  with
Mariner were $1,753,021 in 2003 and $317,514 in 2002. The Company made a payment
of $100,000 in 2002 to William D. Shaw, Jr. for investment advisory services.

           In 2003, the Company  entered into a limited  partnership  hedge fund
agreement  with a Mariner  affiliated  company.  In 2003,  the  Company  made an
investment of $11.0 million,  representing  a 100%  interest,  into this limited
partnership hedge fund, which is consolidated in the financial statements.  This
hedge fund invests in collateralized  debt obligations.  Under the provisions of
the  agreement,  the  Mariner  affiliated  company is entitled to 50% of the net
profit realized upon the sale of certain collateralized debt obligations held by
the Company.  Investment  expenses  incurred and payable under this agreement at
December 31, 2003 amounted to  $3,176,643  and were based upon the fair value of
those  securities  held and sold during 2003.  The  partnership  agreement  also
provides for other fees payable to the manager based upon the  operations of the
hedge fund.  There were no other fees incurred  through  December 31, 2003.  The
Company cannot withdraw funds from this limited partnership for a minimum period
of three years without the consent of the hedge fund manager.

           As of December  31, 2003 the  Company  held $13.0  million in limited
partnership interests in hedge funds which are directly managed by Mariner.


(17)       Legal Proceedings:

           The Company  previously  entered into  reinsurance  contracts  with a
reinsurer  that is now in  liquidation.  On October  23,  2003,  the Company was
served with a Notice to Defend and a Complaint by the Insurance  Commissioner of
the  Commonwealth  of  Pennsylvania,  who is the  liquidator of this  reinsurer,
alleging that approximately $3 million in reinsurance claims paid to the Company
in 2000 and 2001 by the  reinsurer  are voidable  preferences  and are therefore
subject  to  recovery  by the  liquidator.  The  Company  has filed  Preliminary
Objections  to  Plaintiff's  Complaint,  denying  that the payments are voidable
preferences  and  asserting  affirmative  defenses.  On February 18,  2004,  the
Plaintiff  filed  Preliminary  Objections to our  Preliminary  Objections and an
Answer and  Memorandum of Law in opposition to our  Preliminary  Objections.  No
trial  date has been set for this  matter,  but we intend  to  defend  ourselves
vigorously in connection with this lawsuit.  The Company  believes it has strong
defenses  against  these  claims;  however,  there can be no assurance as to the
outcome of this litigation.


(18)       Subsequent event:

           On March 11, 2004,  the Company  issued  $100,000,000  in 6.5% Senior
Notes due March 15, 2014. The Notes provide for  semi-annual  interest  payments
and are to be repaid in full on March 15, 2014. The indenture  contains  certain
covenants that restrict our and our restricted  subsidiaries'  ability to, among
other things, incur indebtedness,  make restricted payments,  incur liens on any
shares  of  capital  stock or  evidences  of  indebtedness  issued by any of our
restricted  subsidiaries  or  issue or  dispose  of  voting  stock of any of our
restricted subsidiaries.


                                      F-26
<PAGE>


                          FINANCIAL STATEMENT SCHEDULES
            SCHEDULE II-CONDENSED FINANCIAL INFORMATION OF REGISTRANT
                                  NYMAGIC, INC.
                                 Balance Sheets
                                (Parent Company)


<TABLE>
<CAPTION>

                                                                              December 31,
                                                                    ------------------------------
                                                                        2003              2002
                                                                    ------------------------------
<S>                                                                 <C>              <C>
Assets:
Cash ............................................................   $   1,118,342    $     482,436
Investments .....................................................      10,351,000        2,862,970
Investment in subsidiaries ......................................     221,687,262      211,053,200
Due from subsidiaries and MMO insurance pools ...................      11,900,167       14,565,984
Other assets ....................................................       3,364,910        3,048,287
                                                                    -------------    -------------
                      Total assets ..............................   $ 248,421,681    $ 232,012,877
                                                                    =============    =============

Liabilities:
Notes payable ...................................................   $          --    $  10,869,953
Dividend payable ................................................         583,305               --
Other liabilities ...............................................       3,547,276          190,174
                                                                    -------------    -------------
                      Total liabilities .........................       4,130,581       11,060,127
                                                                    -------------    -------------

Shareholders' equity:
Common stock ....................................................      15,279,390       15,158,324
Paid-in capital .................................................      35,476,566       30,206,370
Accumulated other comprehensive income ..........................         569,220          361,947
Retained earnings ...............................................     239,127,097      224,364,808
Treasury stock ..................................................     (46,161,173)     (49,138,699)
                                                                    -------------    -------------
                      Total shareholders' equity ................     244,291,100      220,952,750
                                                                    ------------    -------------
                      Total liabilities and shareholders' equity    $ 248,421,681    $ 232,012,877
                                                                    =============    =============
</TABLE>


                              Statements of Income
                                (Parent Company)


<TABLE>
<CAPTION>

                                                                       Year Ended December 31,
                                                         -----------------------------------------------
                                                              2003             2002           2001
                                                         -----------------------------------------------
<S>                                                       <C>             <C>             <C>
Revenues:
Cash dividends from subsidiary ........................   $  9,575,000    $ 12,361,252    $ 12,550,000
Net investment and other income (loss) ................     (2,883,359)       (154,681)         34,093
                                                         -----------------------------------------------
                                                             6,691,641      12,206,571      12,584,093
                                                         -----------------------------------------------
Expenses:
Operating expenses ....................................      1,206,769       2,037,610       1,797,523
Income tax benefit ....................................     (1,181,099)     (9,418,711)       (861,278)
                                                         -----------------------------------------------
                                                                25,670      (7,381,101)        936,245
                                                         -----------------------------------------------

Income before equity income ...........................      6,665,971      19,587,672      11,647,848
Equity in undistributed earnings (loss) of subsidiaries     10,426,793       9,122,822     (24,786,841)
                                                         -----------------------------------------------
Net income (loss) .....................................   $ 17,092,764    $ 28,710,494    $(13,138,993)
                                                         ===============================================
</TABLE>


                                      F-27
<PAGE>


            SCHEDULE II-CONDENSED FINANCIAL INFORMATION OF REGISTRANT
                                  NYMAGIC, INC.
                            Statements of Cash Flows
                                (Parent Company)


<TABLE>
<CAPTION>


                                                                              Year Ended December 31,
                                                                  ---------------------------------------------
                                                                       2003          2002            2001
                                                                  ---------------------------------------------
<S>                                                               <C>            <C>             <C>
Cash flows from operating activities:
Net income (loss) .............................................   $ 17,092,764   $ 28,710,494    $(13,138,993)
                                                                  ---------------------------------------------

Adjustments to reconcile net income (loss)
         to cash provided by operating activities:
        Equity in undistributed (earnings) loss of subsidiaries    (10,426,793)    (9,122,822)     24,786,841
        Equity in earnings of limited partnerships ............       (351,000)          --              --
        Increase in other assets ..............................       (316,623)      (137,005)       (227,797)
        Decrease (increase) in due from subsidiaries ..........      2,665,817     (7,390,764)     (2,484,879)
        (Decrease) Increase in other liabilities ..............      3,357,102       (110,524)     (1,157,300)
                                                                  ---------------------------------------------

Net cash provided by operating activities .....................     12,021,267     11,949,379       7,777,872
                                                                  ---------------------------------------------

Cash flows from investing activities:
               Net sale (purchase) of other investments .......      2,862,974     (2,374,196)      3,547,143
               Limited partnerships acquired ..................    (10,000,000)          --              --
               Investment in subsidiaries .....................           --             --        (4,357,847)
                                                                  ---------------------------------------------

Net cash used in investing activities .........................     (7,137,026)    (2,374,196)       (810,704)
                                                                  ---------------------------------------------

Cash flows from financing activities:
        Proceeds from stock issuance and other ................      2,176,507        538,622       1,814,764
        Cash dividends paid to stockholders ...................     (1,747,170)          --        (3,687,519)
        Net sale of treasury shares ...........................      6,192,281           --            66,011
        Proceeds from borrowings ..............................           --       15,719,953       5,452,840
        Loan principal payments ...............................     (6,219,953)   (17,411,253)     (5,000,000)
        Net amount loaned to subsidiary .......................     (4,650,000)    (8,107,642)     (5,452,840)
                                                                  ---------------------------------------------
Net cash used in financing activities .........................     (4,248,335)    (9,260,320)     (6,806,744)
                                                                  ---------------------------------------------

Net increase in cash ..........................................        635,906        314,863         160,424

Cash at beginning of period ...................................        482,436        167,573           7,149
                                                                  ---------------------------------------------

Cash at end of period .........................................   $  1,118,342   $    482,436    $    167,573
                                                                  =============================================
</TABLE>


      The condensed financial  information of NYMAGIC,  INC. for the years ended
December  31,  2003,  2002  and  2001  should  be read in  conjunction  with the
consolidated  financial  statements of NYMAGIC,  INC. and subsidiaries and notes
thereto.


                                      F-28
<PAGE>

<TABLE>
<CAPTION>

                                                           NYMAGIC, INC.
                                         SCHEDULE III - SUPPLEMENTARY INSURANCE INFORMATION
                                         --------------------------------------------------
                                                           (In thousands)

             Column A           Column B              Column C            Column D                Column E             Column F
----------------------------------------------------------------------------------------------------------------------------------
                                DEFERRED            FUTURE POLICY
                                 POLICY           BENEFITS, LOSSES,                             OTHER POLICY
                               ACQUISITION           CLAIMS AND           UNEARNED           CLAIMS AND BENEFITS        PREMIUM
                                  COST              LOSS EXPENSES         PREMIUMS                 PAYABLE              REVENUE
             SEGMENTS          (caption 7)        (caption 13-a-1)    (caption 13-a-2)        (caption 13-a-3)        (caption 1)
------------------------------------------------------------------------------------------------------------------------------------
<S>                            <C>                <C>                   <C>                  <C>                        <C>

2003  Ocean marine                                                                                                      $ 73,096
      Inland marine/Fire                                                                                                   4,234
      Other liability                                                                                                     16,126
      Aircraft                                                                                                             2,938
      MMO London                                                                                                             ---
------------------------------------------------------------------------------------------------------------------------------------
      Total                    $    8,246               $518,930           $  61,821                   -----             $96,394

2002  Ocean marine                                                                                                     $  61,887
      Inland marine/Fire                                                                                                   2,371
      Other liability                                                                                                      6,883
      Aircraft                                                                                                            38,157
      MMO London                                                                                                           4,159
------------------------------------------------------------------------------------------------------------------------------------
             Total             $    7,708               $516,002           $  45,399                   -----            $113,457

2001  Ocean marine                                                                                                     $  38,671
      Inland marine/Fire                                                                                                     644
      Other liability                                                                                                      2,864
      Aircraft                                                                                                            28,318
      MMO London                                                                                                          14,136
------------------------------------------------------------------------------------------------------------------------------------
             Total             $    8,168               $534,189           $  65,071                   -----           $  84,633


             Column A           Column G              Column H            Column I                Column J             Column K
-------------------------------------------------------------------------------------------------------------------------------
                                                      BENEFITS,
                                   NET             CLAIMS, LOSSES      AMORTIZATION OF
                               INVESTMENT          AND SETTLEMENT         DEFERRED                  OTHER
                                 INCOME               EXPENSES             POLICY                 OPERATING            PREMIUMS
             SEGMENTS          (caption 2)           (caption 4)      ACQUISITION COSTS           EXPENSES              WRITTEN
------------------------------------------------------------------------------------------------------------------------------------

2003  Ocean marine                                     $  38,468           $  15,531                                   $  67,744
      Inland marine/Fire                                   3,355                 165                                       4,833
      Other liability                                     13,727               3,515                                      22,961
      Aircraft                                               165                 219                                       2,769
      MMO London                                             ---                 ---                                         ---
------------------------------------------------------------------------------------------------------------------------------------
             Total              $  22,394              $  55,715           $  19,430               $  19,428           $  98,307


2002  Ocean marine                                     $  39,427           $  12,929                                   $  70,839
      Inland marine/Fire                                   2,111                (127)                                      2,975
      Other liability                                      9,783               1,677                                       9,960
      Aircraft                                            18,018               4,184                                      22,366
      MMO London                                           4,017                 236                                         302
------------------------------------------------------------------------------------------------------------------------------------
             Total              $  15,821              $  73,356           $  18,899               $  18,373            $106,442


2001  Ocean marine                                     $  25,442           $   8,271                                   $  45,849
      Inland marine/Fire                                     148                  11                                       1,349
      Other liability                                      4,667                 615                                       4,684
      Aircraft                                            39,150               4,476                                      26,556
      MMO London                                          18,494               2,710                                      11,254
------------------------------------------------------------------------------------------------------------------------------------
             Total              $  17,388              $  87,901           $  16,083               $  16,952           $  89,692
</TABLE>


                                      F-29
<PAGE>


                                  NYMAGIC, INC.
                  SCHEDULE V-VALUATION AND QUALIFYING ACCOUNTS

<TABLE>
<CAPTION>

------------------------------------------------------------------------------------------------
COLUMN A                      COLUMN B             COLUMN C          COLUMN D           COLUMN E
------------------------------------------------------------------------------------------------

DESCRIPTION                   Balance at                                              Balance at
                              beginning                                               close of
                              of period           Additions         Deductions        period
------------------------------------------------------------------------------------------------
<S>                           <C>                 <C>               <C>               <C>
December 31, 2003:
Allowance for
   doubtful accounts.....     $13,725,505         $1,001,825        $(1,453,808)      $13,273,522

December 31, 2002:
Allowance for
   doubtful accounts.....     $18,056,400         $5,293,114        $(9,624,009)      $13,725,505

December 31, 2001:
Allowance for
   doubtful accounts.....     $ 8,112,257        $11,027,039        $(1,082,896)      $18,056,400
</TABLE>


The  allowance  for doubtful  accounts on  reinsurance  receivables  amounted to
$12,823,522,  $13,275,505  and  $17,606,400 at December 31, 2003,  2002 and 2001
respectively.  The  allowance  for  doubtful  accounts  on  premiums  and  other
receivables amounted to $450,000 at December 31, 2003, 2002 and 2001.


                                      F-30
<PAGE>


<TABLE>
<CAPTION>


                                                            NYMAGIC, INC.
                      SCHEDULE VI - SUPPLEMENTAL INFORMATION CONCERNING PROPERTY/CASUALTY INSURANCE OPERATIONS
                      ----------------------------------------------------------------------------------------
                                                           (In thousands)

-----------------------------------------------------------------------------------------------------------------------------------
                                  DEFERRED           RESERVE FOR
      AFFILIATION                  POLICY           UNPAID CLAIMS                      UNEARNED           NET              NET
         WITH                    ACQUISITION         AND CLAIMS                        PREMIUM          EARNED          INVESTMENT
      REGISTRANT                    COSTS             EXPENSES          DISCOUNT       RESERVE         PREMIUMS           INCOME
-----------------------------------------------------------------------------------------------------------------------------------
<S>                                 <C>                <C>               <C>           <C>              <C>               <C>

DECEMBER 31, 2003
CONSOLIDATED SUBSIDIARIES           $8,246             $518,930          ------        $61,821          $96,394           $25,558

DECEMBER 31, 2002
CONSOLIDATED SUBSIDIARIES            7,708              516,002          ------         45,399          113,457            15,876

DECEMBER 31, 2001
CONSOLIDATED SUBSIDIARIES            8,168              534,189          ------         65,071           84,633            17,359


<CAPTION>


---------------------------------------------------------------------------------------------------------------------------
                                       CLAIMS AND CLAIMS
                                       EXPENSES INCURRED               AMORTIZATION
                                          RELATED TO                    OF DEFERRED
      AFFILIATION                -----------------------------            POLICY          PAID CLAIMS
         WITH                     CURRENT              PRIOR            ACQUISITION       AND CLAIMS            PREMIUMS
      REGISTRANT                   YEAR                YEARS               COSTS           EXPENSES              WRITTEN
---------------------------------------------------------------------------------------------------------------------------
<S>                                <C>                   <C>             <C>                <C>                 <C>

DECEMBER 31, 2003
CONSOLIDATED SUBSIDIARIES          $57,125               $(1,410)        $19,430            $22,383             $98,307

DECEMBER 31, 2002
CONSOLIDATED SUBSIDIARIES           68,952                 4,389          18,899             75,315             106,442

DECEMBER 31, 2001
CONSOLIDATED SUBSIDIARIES           78,221                 9,604          16,083             76,557              89,692
</TABLE>



                                      F-31