UNITED STATES
                       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, 2004

                                       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)

     The 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  the  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, 2004, the last business day of
the   registrant's   most  recently   completed   second  fiscal  quarter,   was
approximately  $163,004,942,  based on the closing price of the stock on the New
York Stock Exchange on that date.

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

As of March 1, 2005,  there were 8,688,363  outstanding  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>





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

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

PART I

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

                                                                            PAGE

Forward-looking Statements                                                   ii.
Item 1.          Business                                                      1
Item 2.          Properties                                                   25
Item 3.          Legal Proceedings                                            26
Item 4.          Submission of Matters to a Vote of Security Holders          26

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

PART II

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


Item 5.          Market for the Registrant's Common Equity, Related
                 Stockholder Matters and Issuer Purchases of Equity
                 Securities                                                   27
Item 6.          Selected Financial Data                                      28
Item 7.          Management's Discussion and Analysis of Financial            29
                 Condition and Results of Operations
Item 7A.         Quantitative and Qualitative Disclosures About Market Risk   42
Item 8.          Financial Statements and Supplementary Data                  43
Item 9.          Changes in and Disagreements with Accountants on Accounting  43
                          and Financial Disclosure
Item 9A.         Controls and Procedures                                      43
Item 9B.         Other Information                                            44
----------------------------------------------------------------------

PART III

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

Item 10.         Directors and Executive Officers of the Registrant           45
Item 11.         Executive Compensation                                       45
Item 12.         Security Ownership of Certain Beneficial Owners and Management
                           and Related Stockholder Matters                    45
Item 13.         Certain Relationships and Related Transactions               45
Item 14.         Principal Accounting Fees and Services                       45

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

PART IV

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

Item 15.         Exhibits, Financial Statement Schedules                      46

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

Signatures                                                                    49

Index to Consolidated Financial Statements                                   F-1


                                       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
2005 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 possibility  that the outcome of any
litigation  or  arbitration  proceeding  is  unfavorable,  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
2005  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 insurance companies, risk bearing entities and
insurance underwriters and managers; the Company also consolidates its interest
in a limited partnership hedge fund:

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") and MMO EU, Ltd. ("MMO
EU"). MMO UK and MMO EU have been inactive since 2002.

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

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

Consolidated Investment Interests:
----------------------------------

Mariner Tiptree (CDO) Fund I, L.P.  ("Tiptree").

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
also currently  rated A  ("Excellent").  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,  other
liability and aircraft  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  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,  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


                                       1
<PAGE>


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."

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.

In 2003,  the Company  obtained a 100% interest in a limited  partnership  hedge
fund,   (Tiptree),   that  invests  in  Collateralized  Debt  Obligations  (CDO)
securities,  Credit  Related  Structured  Product  (CRS)  securities  and  other
structured  product  securities  that are  structured,  managed  or advised by a
Mariner affiliated company. See "Relationship with Mariner Partners Inc."

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 in  accordance  with the terms of 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.  The management commission charged
by MMO has been eliminated in consolidation  with respect to the New York Marine
and Gotham share. Since the 1997 policy year, all management commissions charged
by MMO have been eliminated in consolidation.

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 or
audit premium 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 the  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  proceeding  against Utica Mutual was completed
and it 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.


                                       2
<PAGE>


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.

Segments

The Company's domestic  insurance  companies are 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 Company's
domestic insurance agencies are 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,  non-marine  liability and aircraft 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.

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

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

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 as well as commercial
general liability and automobile liability.

Petroleum  and Bulk  Liquid  Cargo:  Provides  coverage  for loss and  damage to
petroleum and liquid bulk cargo.


                                       3
<PAGE>


Inland  marine/fire   insurance   traditionally   covers  property  while  being
transported,  or property of a movable,  or  "floating"  nature and includes the
following:

Contractor's  Equipment:  Provides coverage for physical damage to various types
of fixed and mobile equipment used in the contracting and service industries.

Motor Truck Cargo: Provides coverage for cargo carried aboard trucks.

Transit Floaters: Provides coverage for physical damage to property while being
transported on various conveyances and while in storage.

Commercial Property: Provides primary property coverage for owners and operators
of commercial, residential and mercantile properties.

Surety: Provides commercial and contract bonds to small contractors located in
the Southeastern and Midwestern regions of the United States.

Inland marine also includes excess and 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.

Non-marine  liability  insurance is written on a direct and assumed  reinsurance
basis and includes:

Professional Liability including:

Accountants Professional Liability: Provides primary liability coverage for the
errors and omissions of small to medium-sized accounting firms.

Lawyers Professional Liability: Provides primary liability coverage for law
firms with an emphasis on intellectual property and specialty firms.

Miscellaneous  Professional  Errors &  Omissions:  Includes  primary  and excess
liability coverage for non-medical professionals written on a claims-made basis.
The book includes liability for music producers, web site designers, information
technology  consultants,  title  agents,  home  inspectors  and other design and
consulting firms.

Casualty including:

Contractors Liability: Provides primary liability coverage for commercial and
high-end residential contractors.

Commercial and Habitational Liability: Provides primary liability coverage for
commercial property owners and lessors of habitational properties.

Products Liability: Provides primary liability coverage for manufacturers and
distributors of commercial and consumer products.

Other Lines including:

Workers Compensation: Provides reinsurance for self-insured workers compensation
trusts in New York State and California.

Commercial Automobile: Provides physical damage and liability insurance for
commercial mid-sized trucking fleets located primarily in New York State.

Directors and Officers  Liability:  Provides coverage for directors and officers
of companies on a primary basis for companies with assets under $100 million and
on an excess basis for companies with assets under $300 million.

Employment  Practices  Liability:  Provides primary liability insurance to small
and medium-sized businesses for employment-related claims brought by employees.


                                       4
<PAGE>


Since  January 1, 2001,  the Company has entered into a number of new  specialty
lines of business identified above including professional liability,  commercial
real  estate,   employment   practices   liability,   surety,   excess  workers'
compensation and commercial automobile insurance.  The Company continues to look
for appropriate  opportunities  to diversify its business  portfolio by offering
new lines of insurance in which  management  believes the Company has sufficient
underwriting and claims  expertise.  However,  because of the Company's  limited
history in these new lines, it may impact  management's  ability to successfully
develop these new lines or appropriately price and reserve for the ultimate loss
associated with these new lines.  Due to the Company's  limited history in these
lines,  management may have less experience  managing the development and growth
of such lines than some of our competitors.  Additionally,  there is a risk that
the lines of  business  into which the Company  expands  will not perform at the
level it anticipates.

Aircraft  insurance  provides  insurance  primarily for commercial  aircraft 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 ceased writing any new policies covering  aircraft  insurance
as of March 31, 2002.

MMO London, the fifth business segment,  consists of insurance  participation in
Lloyd's.  Lloyd's  provided  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,
--------------------------                ---------------------------------------------------
                                                2004              2003               2002
                                          ---------------------------------------------------
                                                          (Dollars in thousands)

<S>                                       <C>       <C>      <C>       <C>      <C>       <C>
Ocean marine .......................      $104,726  57%      $ 94,649  66%      $ 89,301  59%
Inland marine/Fire .................        16,878   9%        16,515  12%        13,311   9%
Other liability ....................        61,688  34%        28,468  20%        13,874   9%
                                          ---------------------------------------------------
                     Subtotal ......       183,292 100%       139,632  98%       116,486  77%
Aircraft ...........................           342  --          3,565   2%        35,874  23%
MMO London .........................            --  --             --  --            157  --
                                          ---------------------------------------------------
Total ..............................      $183,634 100%      $143,197 100%      $152,517 100%
                                          ===================================================

NYMAGIC Net Premiums Written
      By Segment                                           Year Ended December 31,
-----------------------                   ----------------------------------------------------
                                                2004              2003               2002
                                          ----------------------------------------------------
                                                          (Dollars in thousands)

Ocean marine .......................      $ 82,689    60%    $ 67,744    69%    $ 70,839   67%
Inland marine/Fire .................         5,255     4%       4,833     5%       2,975    3%
Other liability ....................        49,190    36%      22,961    23%       9,960    9%
                                          ----------------------------------------------------
   Subtotal ........................       137,134   100%      95,538    97%      83,774   79%
Aircraft ...........................            (6)   --        2,769     3%      22,366   21%
MMO London .........................            --    --           --    --          302   --
                                          ----------------------------------------------------
Total ..............................      $137,128   100%     $98,307   100%    $106,442   100%
                                          ====================================================
</TABLE>


                                       5
<PAGE>


Reinsurance Ceded

Ceded  premiums  written to reinsurers in 2004,  2003 and 2002 amounted to $46.5
million, $44.9 million and $46.1 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 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 monitors the financial status of all reinsurers on a
regular basis.

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 1 to 15 reinsurers participating on each treaty. Some reinsurers
participate  on  multiple  treaties.  The  Company  also  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 its  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.

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.

For 2002,  the  Company's  net  retention  per loss in the ocean marine line was
limited  to $2  million  per risk.  Individual  losses  arising  out of a common
occurrence could result in aggregate retained losses of $3 million, and one such
occurrence did result in a net retention of $3 million to the Company.

In August 2003, the Company entered into a cargo program with retained liability
of up to  $2.5  million  for  any  one  occurrence,  and  in  2004  the  Company
experienced a loss which equaled its net retention of $2.5 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.  In 2005, the Company
reduced its  exposure in the ocean  marine  line to a net loss  retention  of $3
million  for any one  occurrence.  With regard to its other  lines,  the Company
endeavors to limit its 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


                                       6
<PAGE>


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) that 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 up to the
amount of the original premium paid under such treaties. 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.


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, 2004 were from the following reinsurers:


<TABLE>
<CAPTION>
Reinsurer                                  Amounts                A.M. Best Rating
---------------------------------          ----------             ----------------
                                          (in millions)
<S>                                        <C>                    <C>
Lloyd's Syndicates                         $    55.5              A (Excellent)
Swiss Reinsurance America Corp.                 12.0              A+ (Superior)
FM Global (Arkwright)                            7.7              A+ (Superior)
Lloyd's (Equitas)                                7.2              NR-3 (Rating Procedure Inapplicable)
Folksamerica Reinsurance Company                 7.0              A (Excellent)
GE Reinsurance Corp.                             4.2              A (Excellent)
Liberty Mutual Insurance Company                 3.4              A (Excellent)
Utica Mutual Insurance Company                   3.1              A- (Excellent)
Hartford Fire Insurance Company                  3.1              A+ (Superior)
                                                 ---

Total                                         $103.2
</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 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, 2001, 2000, and 1999, losses were reported for all
three years.  Lloyd's is expected to report a profit for 2003 and 2002.  Lloyd's
receivables  represent  amounts due from  approximately  100  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,  2004  of
approximately 460 million Pounds Sterling (US $840 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, 2004,  the Company's  reinsurance  receivables  from  reinsurers
other than those listed above were approximately $155 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 600 reinsurers or syndicates,  no single one of
whom  was  liable  to  the  Company  for  an  unsecured   amount  in  excess  of
approximately $3 million.

Approximately 87% of the Company's total reinsurance  receivables as of December
31, 2004 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. The
paid balances due from these companies collectively amount to approximately $1.0
million as of December 31, 2004. We are vigorously enforcing collection of these
reinsurance receivables through arbitration


                                       7
<PAGE>


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 $12.4 million and $12.8 million as of December 31, 2004 and
December 31, 2003, 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.

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 2004, 2003
and 2002  amounted  to $2.9  million,  $0 and $2  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, 2004 were as follows:
                           Gross              Net
                          --------          --------
                                 (in thousands)

Ocean marine              $198,655          $123,346
Inland marine/fire          21,801             7,216
Other liability            126,023            79,278
Aircraft                   156,782            45,639
                           -------            ------
Total                      $503,261          $255,479
                          --------          --------


In 2001,  the Company  recorded  losses of $154.9  million and $8.0 million on a
gross  and net of  reinsurance  basis,


                                       8
<PAGE>


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. 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.  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.
For  example,   in  September  2004  the  Company  became  aware  of  additional
information  that allowed us to reduce loss  reserves  relating to the terrorist
attacks of September  11, 2001 on the Pentagon  and the hijacked  airliner  that
crashed in Pennsylvania.  This amounted to a reduction of $16.3 million and $8.3
million in gross and net loss reserves, respectively, to the Company.

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,  2004,  the  Company's  gross,  ceded  and net  loss  and loss
adjustment expense reserves for all asbestos/environmental  policies amounted to
$70.7 million,  $57.9 million and $12.8  million,  as compared to $77.3 million,
$65.5 million and $11.8 million at December 31, 2003.

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
predict   accurately   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, 2004,
represent management's best estimate.

The Company  provides  for IBNR on Asbestos &  Environmental  liabilities  after
considering  various  reserving  methodologies.   One  methodology  considers  a
specific  ground up analysis  which  reviews the potential  exposure  based upon
actual policies issued by MMO. Other  methodologies  include  industry  survival
ratios and market share statistics per loss settlement.


                                       9
<PAGE>


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,
                                                        -----------------------------------
                                                              2004         2003       2002
                                                        -----------------------------------
                                                                  (In thousands)
Asbestos/Environmental
----------------------
<S>                                                        <C>          <C>        <C>
Net unpaid losses and loss adjustment expenses
    (including IBNR) at beginning of period                $11,797      $12,696    $11,492
Net incurred losses and loss adjustment expenses             4,264          753      2,195
Net paid loss settlements                                   (3,196)      (1,501)      (880)
Net loss adjustment expense payments
(cost of administering claims)                                (106)        (151)      (111)
                                                        -----------------------------------
Net unpaid losses and loss adjustment expenses
    (including IBNR) at end of period                      $12,759      $11,797    $12,696
                                                        ===================================
</TABLE>



The following 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,
                                                        -----------------------------------
                                                            2004         2003      2002
                                                        -----------------------------------


<S>                                                          <C>          <C>       <C>
Number of claims pending at beginning of period              453          490       409
Number of claims reported                                     71           54       186
Number of claims settled/dismissed or otherwise resolved     (49)         (91)     (105)
                                                        ------------------------------------
Number of claims pending at end of period                    475          453       490
                                                        ====================================
</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.

Loss Reserve Table

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


                                       10
<PAGE>


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  quarterly and 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, 2004, 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 1994 calendar year.

The  Company  calculates  its loss  reserves on the basis of  management's  best
estimate.  In 9 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.

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 including an evaluation of IBNR by the use of historical  paid
loss and incurred data utilizing the Bornheutter-Ferguson method.

Since  January 1, 2001,  the Company has entered into a number of new  specialty
lines of business  including  professional  liability,  commercial  real estate,
employment  practices  liability,   surety,  excess  workers'  compensation  and
commercial  automobile  insurance.  Because of the Company's  limited history in
these new lines, it may impact management's ability to appropriately reserve for
the ultimate loss  associated  with these new lines.  Management  considers many
factors when  estimating  the ultimate  loss ratios for these  various  classes,
including  industry  loss ratios and  anticipated  loss ratios  based upon known
experience.



                                       11
<PAGE>

<TABLE>
<CAPTION>
                                                               Year Ended December 31,

--------------------------------------------------------------------------------------------------------------------------------
Year  Ended               1994      1995       1996      1997      1998      1999       2000      2001     2002   2003      2004
December 31               ----      ----       ----      ----      ----      ----       ----      ----     ----   ----      ----
                                                        (Dollars in thousands)
<S>                <C>      <C>       <C>       <C>        <C>       <C>        <C>        <C>       <C>       <C>       <C>
Estimated Liability for Net Unpaid Losses and Loss Adjustment Expenses
                        212,377   229,916    227,370   222,335  213,589   196,865    199,685   210,953  208,979 242,311   255,479

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

     1  Year  Later       20%       20%        17%       19%       20%       24%        28%       30%       8%    18%
     2  Years Later       34%       32%        30%       32%       35%       39%        56%       30%      24%
     3  Years Later       44%       42%        42%       43%       43%       53%        64%       41%
     4  Years Later       53%       51%        51%       49%       51%       58%        70%
     5  Years Later       62%       58%        56%       54%       55%       63%
     6  Years Later       68%       62%        58%       57%       59%
     7  Years Later       72%       64%        61%       61%
     8  Years Later       73%       66%        64%
     9  Years Later       75%       69%
    10  Years Later       78%


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

     1  Year  Later       97%       94%        90%       91%       94%       96%       105%      102%       99%   94%
     2  Years Later       95%       87%        87%       87%       87%       94%       108%      101%       94%
     3  Years Later       91%       86%        85%       83%       84%       95%       104%       96%
     4  Years Later       91%       86%        83%       81%       85%       91%       103%
     5  Years Later       92%       85%        82%       81%       82%       92%
     6  Years Later       93%       84%        82%       80%       83%
     7  Years Later       92%       84%        80%       81%
     8  Years Later       92%       83%        83%
     9  Years Later       91%       86%
    10  Years Later       94%


Net Cumulative        12,646    33,289     39,708     41,820    37,136    16,662     (5,319)    7,707    12,337    14,960
 Redundancy/(Deficiency)

Gross Unpaid         435,072   417,795    411,837    388,402   401,584   425,469    411,267   534,189   516,002    518,930   503,261
  Losses and Loss Adjustment Expenses

Reinsurance          222,695   187,879    184,467    166,067   187,995   228,604    211,582   323,236  307,023     276,619   247,782
  Recoverable on Unpaid Losses and Loss Adjustment Expenses

Reserve              458,050   431,942    395,190    412,127   439,214   454,620     460,990   568,473   504,810   492,964
  Re-estimated Gross

Reserve              258,319   235,315    207,528    231,611   262,762   274,417     255,986   365,227   308,168   265,614
  Re-estimated Reinsurance Recoverable

Gross Cumulative    (22,978)  (14,147)     16,647    (23,725)  (37,630)  (29,151)   (49,723)   (34,285)   11,192    25,966
  Redundancy (Deficiency)
</TABLE>


The net loss reserve  deficiency  reported for the 2000  calendar  year 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 the increase were provisions made for
insolvent or financially  impaired  reinsurers and adverse  development from the
Company's other liability line reflecting umbrella exposures.  The 2000 reported
deficiency  was partially  offset by favorable  development  in the ocean marine
line of business.

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 all  but  one  year.  Much  of the  gross  loss  reserve
deficiencies  was  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 for the 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.  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
was also reinsured


                                       12
<PAGE>


resulting in an insignificant impact on net development.

The  improved  development  of net  incurred  losses  for the 2001 year  reflect
reductions  made  in the  2004  calendar  year in  gross  and  net  reserves  of
approximately  $16.3  million  and $8.3  million,  respectively,  as a result of
reductions in loss reserves  relating to the terrorist  attacks of September 11,
2001 on the Pentagon and the hijacked airliner that crashed in Pennsylvania.

The following  table  provides a  reconciliation  of the Company's  consolidated
liability  for losses and loss  adjustment  expenses at the beginning and end of
2004, 2003 and 2002:

<TABLE>
<CAPTION>
                                                              Year ended December 31,
                                                        ---------------------------------------
                                                              2004         2003        2002
                                                        ---------------------------------------
                                                                  (In thousands)
<S>                                                       <C>          <C>          <C>
Net liability for losses and loss adjustment
  expenses at beginning of year ................          $ 242,311    $ 208,979    $ 210,953
                                                           ---------    ---------    ---------
Provision for losses and loss adjustment
  expenses occurring in current year ...........             81,518       57,125       68,952
Increase (decrease) in estimated losses and loss
  adjustment expenses for claims occurring
  in prior years(1) ...........................             (14,960)      (1,410)       4,389
Deferred income-loss portfolio
  assumption(2) ................................                 --           --           15
                                                          ---------    ---------    ---------
Net loss and loss adjustment expenses
  incurred .....................................             66,558       55,715       73,356
                                                          ---------    ---------    ---------
Less:
Losses and loss adjustment expense payments
  for claims occurring during:
      Current year .............................             10,287        5,241       11,950
      Prior years ..............................             43,103       17,142       63,365
                                                             ------       ------       ------
                                                             53,390       22,383       75,315
Add:
Deferred income-loss portfolio assumption(2) ...                 --           --          (15)
                                                          ---------    ---------    ---------
Net liability for losses and loss adjustment
  expenses at year end .........................            255,479      242,311      208,979
                                                          ---------    ---------    ---------
Ceded unpaid losses and loss adjustment
  expenses at year end .........................            247,782      276,619      307,023
                                                          ---------    ---------    ---------
Gross unpaid losses and loss adjustment
  expenses at year end .........................          $ 503,261    $ 518,930    $ 516,002
                                                          =========    =========    =========
</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 $15 million decrease in
      2004 reflects  favorable loss development in the aviation line,  mainly in
      reserves for the  terrorist  attacks of September 11, 2001 on the Pentagon
      and the hijacked  airliner that crashed in Pennsylvania,  and in the ocean
      marine line of business due to a lower than  expected  emergence of losses
      in the  1998-2001  accident  years.  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 2002 amount was 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 was amortized over the
      payout period of the related losses.

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  insurance  pools,  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% of case reserves and
IBNR estimate. The estimated accrual for salvage and subrogation is based on the
line of business and historical  salvage and  subrogation  recovery data.  Under
neither


                                       13
<PAGE>


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, 2004, 2003 and 2002:

<TABLE>
<CAPTION>
                                                                           Year ended December 31,
                                                                      ----------------------------------
                                                                            2004      2003      2002
                                                                      ----------------------------------
                                                                          (In thousands)

<S>                                                                       <C>        <C>        <C>
Net liability for losses and loss adjustment expenses
  reported based on statutory accounting principles ..........            $240,376   $228,760   $195,948
Liability for losses and loss adjustment expenses assumed
  from two former pool members ...............................               9,786      4,371      4,826
 (excludes $3,096, $3,117 and $3,351 at  December 31, 2004,
  2003 and 2002, accounted for in the statutory liability for
   losses and loss adjustment expenses)
Other, net ...................................................               5,317      9,180      8,205
                                                                             -----      -----     ------
Net liability for losses and loss adjustment expenses reported
  based on GAAP ..............................................             255,479    242,311    208,979
Ceded liability for unpaid losses and loss adjustment expenses             247,782    276,619    307,023
                                                                          --------   --------   --------
Gross liability for unpaid losses and loss adjustment expenses            $503,261   $518,930   $516,002
                                                                          ========   ========   ========
</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,  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 2004
or in 2003 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.

The  insurance  industry  recently has been the focus of certain  investigations
regarding  insurance  broker  and  agent  compensation  arrangements  and  other
practices.  The Attorney  General of New York State as well as other  regulators
have made  investigations  into such broker and agent contingent  commission and
other sales  practice  arrangements.  Although the Company has not been notified
that it is, nor does it have any reason to believe  that it is a target of


                                       14
<PAGE>


these  investigations,  we did review our existing arrangements with our brokers
and  reinsurers  and found that we did not engage in any conduct that we believe
is the subject of these investigations.

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.

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,
                                ------------------------------------------------------------------------
                                    2004           2003            2002           2001             2000
                                -----------------------------------------------------------------------
                                                        (Dollars in thousands)

<S>                             <C>             <C>              <C>            <C>            <C>
Net premiums written......      $ 137,128       $ 98,307         $106,140       $ 78,438       $ 61,584
Policyholders' surplus....        181,633        186,325          180,394        152,061        184,688
                                 --------       --------         --------       --------       --------
Ratio ....................       .75 to 1       .53 to 1         .59 to 1       .52 to 1       .33 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 $14.7
million as of December 31, 2004.

The Company's  subsidiaries have paid dividends to the Company of $15.5 million,
$9.6 million and $12.4 million for the years ended  December 31, 2004,  2003 and
2002,  respectively.  Included within these amounts were extraordinary dividends
of $15 million and $5 million for 2004 and 2003, respectively.

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.


                                       15
<PAGE>


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  $185,000,  $121,000 and $98,000 for the
years ended December 31, 2004, 2003 and 2002, 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 2004, that deductible was 10% of
direct commercial earned premiums in 2003. The insurer deductible  percentage is
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
$11 million in 2004, and would be $21 million in 2005.

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.  In January  2005 the  Company  obtained  reinsurance
protection  for a one year period  covering a limit of  $12,000,000 in excess of
the first $4,000,000 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  establishes  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,  while being cognizant of the impact certain  investment  decisions
may have on the Company's  shareholders'  equity,  (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 the Company as of December 31, 2004 was as follows:

Liquidity  Portfolio:  The  Company may invest,  without  limitation,  in liquid
instruments.  Investments  in the Liquidity  Portfolio may include,  but are not
necessarily  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.  The  liquidity  portfolio  shall
consist of obligations  with one year's duration or less at the time of purchase
and will be of sufficient size to accompany the Company's  expected cash outlays
for the immediate six-month period.

Fixed   Income   Portfolio:    Obligations   of   the   U.S.   Government,   its
instrumentalities and government-sponsored agencies will not be restricted as to
amount or maturity. Asset backed securities,  corporate obligations,  tax-exempt
securities  and  preferred  stock  investments  with  sinking  funds will not be
restricted  as to  maturity.  At least 50% of the  fixed  income  and  liquidity
portfolio,  collectively,  shall be rated at  minimum  Baa2 by Moody's or BBB by
S&P.


                                       16
<PAGE>


Equity and Equity-Type  Securities  (Hedge Funds):  Investments in this category
(including convertible securities) may be made without limitation.  With respect
to Hedge Fund  investments,  no more than 10% of assets allocated to hedge funds
shall be invested in any single fund  without the prior  approval of the Finance
Committee  of the  Board of  Directors.  Similarly,  no more  than 40% of assets
allocated to hedge funds shall be concentrated  in any one strategy  without the
prior approval of the Finance Committee of the Board of Directors.

The  investment  policy  for New York  Marine  as of  December  31,  2004 was as
follows:

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.

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.

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).

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.


                                       17
<PAGE>


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

<TABLE>
<CAPTION>
                                                          December 31, 2004    Percent    December 31, 2003        Percent
                                                          -----------------    -------    -----------------        -------
<S>                                                      <C>                    <C>        <C>                     <C>
Fixed Maturities Available for Sale (Fair Value):
------------------------------------

U.S. Treasury Securities                                 $    10,018,470         1.59%     $    9,184,916           1.77%
Municipalities                                                 7,652,500         1.21%         17,352,350           3.34%
Corporate  Bonds                                              95,061,930        15.07%         66,933,425          12.88%
-----------------------------------------------       --------------------------------------------------------------------
           Subtotal                                      $   112,732,900        17.87%     $   93,470,691          17.99%

Trading Securities (Fair Value):
------------------
Collateralized Debt Obligations                               17,767,675         2.82%         61,736,951          11.88%
-----------------------------------------------       --------------------------------------------------------------------
Total Fixed Maturities and Trading Portfolio             $   130,500,575        20.69%     $  155,207,642          29.87%

Cash &  Short-term  Investments (at Cost)                    309,894,313        49.12%        259,000,216          49.84%
-----------------------------------------------       --------------------------------------------------------------------
Total Fixed Maturities, Cash and Short-term Investments  $   440,394,888        69.81%        414,207,858          79.71%

Limited Partnership Hedge Funds (at Equity)                  190,477,346        30.19%        105,434,419          20.29%
--------------------------------------------------------------------------------------------------------------------------
Total Investment  Portfolio                                  630,872,234       100.00%     $  519,642,277         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  and  its  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 (now  Lionshead  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 27% of the Company's issued and outstanding shares of common stock
as of March 1, 2005.

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, 2005 was $21.52.  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 27% of the voting power of NYMAGIC as of March 1, 2005.

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.


                                       18
<PAGE>


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 was a member
         of our Board of  Directors  from 1979  until May 2004 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  Lionshead  Investments  LLC and  co-trustee  of the Blackman
         Charitable  Remainder Trust dated April 1, 2001. He was a member of our
         Board of  Directors  from 1975 until May 2004 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

   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. As contemplated  by the 2004 Amendment,  the size
of  the  Board  was  reduced  to  nine  prior  to the  2004  annual  meeting  of
shareholders. See "Amendments to the Voting Agreement."

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

   o      Prior  to the  2004  Amendment,  each  participating  shareholder  was
          entitled to nominate two  candidates.  Following  the 2004  Amendment,
          each of Robert G. Simses,  Mark W. Blackman and John N. Blackman,


                                       19
<PAGE>


          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.   The  three  current  directors  nominated  by  Mark  W.
          Blackman,  John N.  Blackman,  Jr.,  and  Robert J.  Simses  are Glenn
          Angiolillo, John R. Anderson and Robert G. Simses, respectively.

   o     Prior to the 2004 Amendment,  our Chief Executive  Officer was entitled
         to nominate two  candidates.  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.  The three current directors who were nominated by Mr.
         Trumbull are David W. Young, John T. Baily and David E. Hoffman.

On February 17, 2005, 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 2004,
all three of the participating  shareholders approved the voting of those shares
to elect the three candidates nominated by Mariner.

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:



     o    Mark W. Blackman                                       450,000 shares

     o    Lionshead Investments, LLC                             450,000 shares

     o    Robert G. Simses, as trustee of the Tollefson trusts   900,000 shares


                                       20
<PAGE>


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, 2005 was $21.52 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.

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.  Effective January 1, 2005, Mr. Shaw waived his
interest  in the  option  covering  315,000  shares  of  NYMAGIC  and  became  a
shareholder of Mariner.

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.  Mariner 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, and 1,092,735  shares  purchased
by the Company in January 2005.


                                       21
<PAGE>


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 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


                                       22
<PAGE>


letter to the New York State Insurance  Department,  which, among other matters,
provided that until July 31, 2004,  Mariner and Mr.  Michaelcheck  would 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  was  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.

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 $3,165,030,
$1,753,021  and  $317,514  pursuant to this  agreement  in 2004,  2003 and 2002,
respectively. Assuming this agreement remains in effect, the Company anticipates
incurring Mariner investment  expenses of approximately $3.8 million pursuant to
this  agreement  in 2005.  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  (Tiptree)  managed by a Mariner  affiliated  company.  In 2003,  the
Company made an investment  of $11.0  million,  representing  a 100% interest in
Tiptree,  which is  consolidated  in the  financial  statements.  An  additional
investment of $4.65 million was made in Tiptree in


                                       23
<PAGE>


2004.  The Company is  committed to providing  an  additional  $4.35  million in
capital to Tiptree.  Tiptree 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
the Tiptree agreement at December 31, 2004 amounted to $1,459,255 and were based
upon the fair value of those  securities  held and sold during 2004. The Tiptree
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, 2004. The Company cannot withdraw funds from Tiptree 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 and Chief  Operating  Officer of the
Company,  and William D. Shaw, Jr., Vice Chairman and a Director of the Company,
are also  associated  with  Mariner.  Currently,  Mr. Shaw is a  shareholder  of
Mariner and Messrs.  Trumbull  and Kallop have  contractual  relationships  with
Mariner relating to consulting 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  27% of NYMAGIC's  outstanding  voting  securities  as of March 1,
2005.

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.

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, 2004, 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, 2004, New York Marine had aggregate  receivables due from Gotham
of  approximately  $38  million,  or  23% of New  York  Marine's  policyholders'
surplus.  Gotham had aggregate reinsurance receivables due from New York Marine,
as of December  31,  2004,  of  approximately  $38  million,  or 65% 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.


                                       24
<PAGE>


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.

Tiptree,  the  limited  partnership  hedge fund in which the  Company has a 100%
interest, was formed in 2003 as a limited partnership to invest in CDOs.

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 almost
$2.5 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,  2004 Edition (which
used 2003 data), are: American  International  Group, Inc., 10.3%; CNA Insurance
Cos., 10.1%; Ace INA Group, 9.5%; White Mountains Insurance Group, 5.7%; Allianz
of America,  Inc.,  5.7%;  Chubb Group of Insurance  Companies,  5.6%;  St. Paul
Companies,  5.3%, and,  Navigators  Insurance  Group,  5.0%. Our market share is
approximately 2.8%. 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  119  persons,   of  whom  25  are  insurance
underwriters.  None of our  employees  is  covered  by a  collective  bargaining
agreement and  management  considers the  relationship  with our employees to be
good.

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 Angiolillo, John T. Baily (chairman and
financial expert), David E. Hoffman 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


                                       25
<PAGE>


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.

On  February  8, 2005 the  Company  and the  individual  members of its Board of
Directors  were served with a purported  shareholder  derivative  action lawsuit
brought in New York Supreme  Court,  Queens  County,  relating to the  Company's
purchase on January 7, 2005 of  approximately  1.1 million  shares of its common
stock from certain  members,  or trusts  controlled by certain  members,  of the
family of John N. Blackman,  the Company's  founder.  The  complaint,  which was
brought by one of our shareholders, Linda Parnes, who together with Alan Russell
Kahn, owns 100 shares of the Company's  common stock,  alleges that the Board of
Directors  breached their fiduciary  duty,  wasted  corporate  assets and abused
their control over the Company by paying an excessive price for the shares.  The
plaintiff  is seeking  damages  against  members of the Board of  Directors  and
rescission of the purchase. The Company's answer to the complaint is required to
be filed by April 1, 2005.  The Company  believes  that the  complaint is wholly
without merit, and will defend it vigorously.

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 2004.


                                       26
<PAGE>


                                     PART II

Item 5. Market for Registrant's  Common Equity,  Related Stockholder Matters and
--------------------------------------------------------------------------------
Issuer Purchases of Equity Securities
-------------------------------------

The Company's  common stock trades on the New York Stock  Exchange (NYSE Symbol:
NYM).  The  following  table sets forth high and low sales  prices of the common
stock for the  periods  indicated  as  reported  on the New York Stock  Exchange
composite transaction tape.


                                          2004                      2003
                                 -----------------------   ---------------------
                                     High         Low          High         Low
                                     ----         ---          ----         ---
First Quarter ..............    $   28.85    $   23.99    $   20.22    $   18.00
Second Quarter .............        27.98        23.45        23.50        18.20
Third Quarter ..............        26.50        20.93        26.53        19.80
Fourth Quarter .............        25.86        19.53        27.84        22.60

As of March 1, 2005, there were 62 shareholders of record.  However,  management
believes  there were  approximately  719 beneficial  owners of NYMAGIC's  common
stock as of November 23, 2004.

Dividend Policy

The Company did not  declare a dividend  at any time  during  2002.  The Company
declared a dividend of six cents per share to  shareholders  of record in March,
June,  September  and December in each of 2003 and 2004.  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."


                                       27
<PAGE>


Item 6. Selected Financial Data

The following table sets forth selected  consolidated  financial data, which was
derived from our historical  consolidated  financial  statements included in our
annual  reports  on Form 10-K for the years  then  ended.  You  should  read the
following  together  with  "Item 7.  Management's  Discussion  and  Analysis  of
Financial  Condition and Results of Operations" and the  consolidated  financial
statements and the notes thereto  included in "Item 8. Financial  Statements and
Supplementary Data."


<TABLE>
<CAPTION>

OPERATING DATA                                                         Year Ended December 31,

                                             --------------------------------------------------------------------------
                                                   2004           2003        2002         2001           2000
                                                   ----           ----        ----         ----           ----
                                                            (In thousands, except per share amounts)
<S>                                            <C>            <C>          <C>         <C>             <C>
Revenues:
Net premiums earned..........................  $  116,333     $  96,394    $ 113,457   $  84,633       $  75,448
Net investment income........................      23,679        22,394       15,821      17,388          18,076
Commission income............................         461          (230)       1,549       3,312             903
Net realized investment gains................         678           550        8,456       2,874           5,247
Other income.................................       1,790         1,688          186         285           1,059
                                                 --------     ---------    ---------    --------       ---------

Total revenues...............................  $  142,941     $ 120,796    $ 139,469   $ 108,492       $ 100,733
                                                 ========     =========    =========   =========       =========

Expenses:
Net losses and loss adjustment
  expenses incurred..........................  $   66,558     $  55,715    $  73,356   $  87,901       $  68,063
Policy acquisition expenses..................      25,166        19,430       18,899      16,083          18,178
General and administrative expenses..........      23,247        19,428       18,373      16,952          19,439
Interest expense.............................       5,353            26          575         395             712
                                                 --------     ---------    ---------   ---------       ---------

Total expenses...............................  $  120,324     $  94,599    $ 111,203   $ 121,331       $ 106,392
                                                 ========     =========    =========   =========       =========

Income (loss) before income taxes............  $   22,617      $ 26,197    $  28,266   $ (12,839)      $  (5,659)
                                                 --------      --------     --------   --------        --------
Income taxes expense (benefit)
  Current....................................       3,835         8,987      (4,869)         798           1,276
  Deferred...................................       4,151           117       4,425         (498)         (1,433)
                                                 --------      --------    --------     --------       ---------
Total income taxes...........................       7,986         9,104        (444)         300            (157)
                                                 --------      --------    --------     --------       ---------

Net income (loss)............................  $   14,631     $  17,093    $  28,710   $ (13,139)      $  (5,502)
                                                 ========      ========     ========    ========       =========


BASIC EARNINGS (LOSS) PER SHARE:

Weighted average shares outstanding..........       9,736         9,673        9,277       9,232           9,244
Basic earnings (loss) per share..............        1.50     $    1.77    $    3.09   $   (1.42)       $   (.60)
                                                 ========      ========     ========    ========        ========


DILUTED EARNINGS (LOSS) PER SHARE:

Weighted average shares outstanding..........       9,916         9,828        9,309       9,232           9,244
Diluted earnings (loss) per share............  $     1.48     $    1.74    $    3.08   $   (1.42)      $    (.60)
                                                 ========      ========     ========   =========       =========

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

BALANCE SHEET DATA:

                                                                       Year Ended December 31,

                                             --------------------------------------------------------------------------
                                                      2004           2003          2002           2001            2000
                                                      ----           ----          ----           ----            ----
                                                                   (In thousands, except per share amounts)

Total cash and investments........................$ 630,872      $519,642      $430,470        $369,048       $371,844
Total assets...................................     997,094       875,125       824,007         856,997        720,329
Unpaid losses and loss adjustment expenses.....     503,261       518,930       516,002         534,189        411,267
Notes payable..................................     100,000            --         6,220           7,911          7,458
Total shareholders' equity.....................     258,118       244,291       220,953         199,272        216,290
Book value per share...........................$      25.91      $  24.47      $  23.54         $ 21.46       $  23.62

</TABLE>


                                       28
<PAGE>


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".

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

Executive Overview and Highlights-2004 year

     o    Net income of $14.6 million or $1.48 per diluted share

     o    Gross premium growth in core lines (ocean marine,  inland  marine/fire
          and other liability) of 31% over 2003

     o    Combined ratio of 98.8%

     o    Net investment income growth of 6% over 2003

     o    Favorable  net loss  reserve  development  reported on prior year loss
          reserves of $15 million

     o    Total cash and invested  assets of $631 million,  up from $520 million
          at year end 2003

     o    Total  shareholders'  equity of $258 million,  up from $244 million at
          year end 2003

     o    Total reinsurance  receivables of $262 million, down from $281 million
          at year end 2003

     o    Raised $100 million through the sale of 6.5% Senior Notes

     o    Formed business relationships with various program managers to produce
          additional property and casualty insurance premiums

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  formerly
wrote  aircraft  business,  but 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.


                                       29
<PAGE>

<TABLE>
<CAPTION>

NYMAGIC Gross Premiums Written by
         Segment                                         Year Ended December 31,
------------------------                    -------------------------------------------------
                                                2004              2003               2002
                                            -------------------------------------------------
                                                          (Dollars in thousands)

<S>                                       <C>       <C>      <C>       <C>      <C>       <C>
Ocean marine .......................      $104,726  57%      $ 94,649  66%      $ 89,301  59%
Inland marine/Fire .................        16,878   9%        16,515  12%        13,311   9%
Other liability ....................        61,688  34%        28,468  20%        13,874   9%
                                         ---------------------------------------------------
                     Subtotal ......       183,292 100%       139,632  98%       116,486  77%
Aircraft ...........................           342  --          3,565   2%        35,874  23%
MMO London .........................            --  --             --  --            157  --
                                         ---------------------------------------------------
Total ..............................      $183,634 100%      $143,197 100%      $152,517 100%
                                          ===================================================

NYMAGIC Net Premiums Written
       By Segment                                          Year Ended December 31,
-------------------------                   --------------------------------------------------
                                                2004              2003               2002
                                            --------------------------------------------------
                                                          (Dollars in thousands)

Ocean marine .......................      $ 82,689    60%    $ 67,744    69%    $ 70,839   67%
Inland marine/Fire .................         5,255     4%       4,833     5%       2,975    3%
Other liability ....................        49,190    36%      22,961    23%       9,960    9%
                                         ----------------------------------------------------
   Subtotal ........................       137,134   100%      95,538    97%      83,774   79%
Aircraft ...........................            (6)   --        2,769     3%      22,366   21%
MMO London .........................            --    --           --    --          302   --
                                         ----------------------------------------------------
Total ..............................      $137,128   100%    $98,307   100%    $106,442  100%
                                          ====================================================

NYMAGIC Net Premiums Earned
       By Segment                                         Year Ended December 31,
-----------------------                     --------------------------------------------------
                                                2004              2003               2002
                                            --------------------------------------------------
                                                          (Dollars in thousands)

Ocean marine .......................      $ 76,361    66%    $ 73,096    76%    $ 61,887   54%
Inland marine/Fire .................         4,919     4%       4,234     4%       2,371    2%
Other liability ....................        35,056    30%      16,126    17%       6,883    6%
                                         ----------------------------------------------------
   Subtotal ........................       116,336   100%      93,456    97%      71,141   62%
Aircraft ...........................            (3)   --        2,938     3%      38,157   34%
MMO London .........................            --    --           --    --        4,159    4%
                                         ----------------------------------------------------
Total ..............................      $116,333   100%     $96,394   100%    $113,457  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,


                                       30
<PAGE>


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.

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, 2004 as Compared to Year Ended December 31, 2003

Net income for the year ended  December 31, 2004 was $14.6  million or $1.48 per
diluted share, as compared to $17.1 million, or $1.74 per diluted share, for the
year ended  December  31, 2003.  The decrease in net income in 2004  compared to
2003 was primarily  attributable  to lower  investment  yields,  primarily  from
limited partnerships, an increase in interest expense arising from the Company's
issuance of $100 million of 6.5% senior notes on March 11, 2004 and the expenses
incurred by the Company in connection  with  compliance  with section 404 of the
Sarbanes-Oxley Act.

Total revenues for the year ended December 31, 2004 were $142.9 million compared
with $120.8 million for the year ended  December 31, 2003  primarily  reflecting
increases in net premiums earned.

Net realized  investment  gains after taxes were  $440,000,  or $.04 per diluted
share, and $357,000, or $.04 per diluted share, for the years ended December 31,
2004 and 2003,  respectively.  These  amounts  reflect the sale of fixed  income
investments.

Gross premiums  written,  net premiums  written and net premiums  earned for the
year ended December 31, 2004 increased by 28%, 39% and 21%,  respectively,  when
compared  to the  same  period  of 2003  reflecting  growth  in all of our  core
segments of business.

Premiums for each segment are discussed below:

Ocean marine gross premiums written grew by 11% during 2004 when compared to the
prior  year.  The 2004  year  premiums  reflect  an  increase  in cargo  premium
production  as a result of our  agreement  with  Southern  Marine & Aviation,  a
leading  provider  of  insurance  for  bulk  petroleum  cargo  shipments,  which
commenced  underwriting  for the  Company in the fourth  quarter of 2003.  Gross
premiums  in 2004 also  reflect a leveling  to slight  decline in premium  rates
across all classes  with the largest rate  decreases  occurring in the drill rig
class. The leveling of premium rates follows a few years of rate increases.  Net
premiums  written  increased  by 22% in 2004 when  compared  to 2003  reflecting
increased  gross  premiums  as well as  higher  net  retentions  per  loss.  The
Company's  net loss  retention  increased to a maximum of $4 million for any one
risk or any one  occurrence  effective on policies  written during 2004 compared
with $2 million  for any one risk or any one  occurrence  effective  on policies
written  during  2003.  Partially  offsetting  the  reduction  in ceded  written
premiums in 2004 were $1.6 million in reinsurance  reinstatement  costs incurred
as a result of the Hurricane Ivan  catastrophe  loss.  There were no reinsurance
reinstatement  costs incurred on catastrophe losses in 2003. Net premiums earned
grew by 4% in 2004 when compared to 2003 reflecting growth in premium production
partially offset by reinsurance  reinstatement  costs. The Company cannot assure
that ocean marine rates will not further decrease in 2005.

Inland  marine/fire  gross premiums  written  increased by 2% for the year ended
December  31, 2004 when  compared  to 2003.  The  increase  in premium  writings
reflect additional production from policies covering inland marine, fire,


                                       31
<PAGE>


and motor  truck cargo and new  production  sources in the surety  class.  Gross
premiums  written in 2004 reflect  mildly lower market rates.  Both net premiums
written and net premiums  earned  increased 9% and 16%,  respectively,  over the
comparable 2003 amounts primarily reflecting higher net loss retention levels.

Other liability gross premiums  written rose by 117% for the year ended December
31, 2004 when compared to 2003  primarily due to premium  volume  increases from
existing  classes  and new  classes of  business.  The growth in gross  premiums
written from  existing  classes of business  was derived  from the  professional
liability  class,  which rose from $6.0 million in 2003 to $22.6 million in 2004
as well as additional  production in the  contractor's  liability  class. As the
Company commenced  underwriting excess workers  compensation and commercial auto
insurance  in the  latter  half of 2003,  volume  increases  from  each of these
classes of business were also achieved in 2004.  Gross premiums  written in 2004
and 2003 for excess  workers  compensation  were $14.5 million and $6.2 million,
respectively,  and $6.9 million in commercial  auto for 2004 as compared to $3.3
million in 2003. Premium rates in the professional  liability class were flat in
2004;  however,  premium rates in some of the Company's  other casualty  classes
have  decreased  by as much as 15% in 2004 when  compared  to the same period in
2003.  The leveling of premium  rates  follows a few years of  significant  rate
increases.  Net premiums  written and net premiums earned grew by 114% and 117%,
respectively,  over the prior year due to production increases achieved in 2004.
The Company cannot assure that other liability  rates will not further  decrease
in 2005.

Aircraft  premiums  decreased  substantially  in 2004 as a result of the Company
having ceased  writing new aircraft  policies  subsequent to March 31, 2002. Net
premiums written and net premiums earned decreased in 2003 for the same reason.

Net losses and loss adjustment expenses incurred as a percentage of net premiums
earned (the loss ratio) for the year ended  December 31, 2004 was 57.2% compared
to 57.8% for the year ended December 31, 2003.  The Company  recorded lower loss
ratios in 2004 primarily due to a reduction in net loss reserves in the aircraft
line of business  of $8.3  million,  or 7.1% of the loss ratio,  relating to the
events occurring on September 11, 2001. Specifically, the loss reserves relating
to the terrorist  attacks of September 11, 2001 on the Pentagon and the hijacked
airliner  that  crashed in  Pennsylvania  were reduced as a result of lower than
expected  losses.  Offsetting  this benefit were net  catastrophe  losses in the
ocean marine line in 2004  arising from  Hurricane  Ivan that  increased  losses
incurred by $2.8 million and reduced net premiums  earned by $1.6 million due to
reinsurance  reinstatement  costs.  There were no catastrophe losses reported in
2003. A few large  current  accident  year losses  occurring in the ocean marine
line of business  also  contributed  to a higher loss ratio in the ocean  marine
line in 2004. The inland  marine/fire loss ratios for 2004 were lower than 2003,
reflecting a lower frequency of claims and favorable loss development. The other
liability  loss ratio also  improved in 2004 when  compared to the loss ratio in
2003 primarily due to the growth in professional  liability  writings and excess
liability lines of business,  which largely  reflected the beneficial  impact of
firmer rates in those classes of business.

The Company  decreased  net loss reserves by  approximately  $15 million in 2004
from the 2003 year end net unpaid  loss  reserve  amount of $242  million.  This
benefit  primarily  resulted  from the  favorable  development  of aircraft loss
reserves,  which was largely  attributable to the 2001 accident year. Both ocean
marine and inland  marine/fire  also recorded  favorable  loss  development as a
result of a lower than expected  emergence of losses. The favorable 2004 results
were affected by net adverse loss development of $1.2 million  resulting in part
from   provisions  made  for  insolvent,   financially   impaired  and  commuted
reinsurers,  as compared to $1.0 million in 2003.  The 2004 results also reflect
$4.3 million of adverse  development  from the Company's  other  liability  line
reflecting reserve  strengthening  relating to a few specific umbrella exposures
stemming from Asbestos losses, as compared to $750,000 in 2003.

Policy acquisition costs as a percentage of net premiums earned (the acquisition
cost ratio) for the year ended  December  31,  2004 were 21.6% as compared  with
20.2% for the year ended December 31, 2003. The acquisition  cost ratio for 2004
reflects an increase in the ocean marine ratio as a result of higher acquisition
costs associated with new sources of cargo premium production and an increase in
the other  liability  class  reflecting  higher  acquisition  costs  relating to
increases in the professional liability class of business. In addition, premiums
earned in 2003 reflected  larger amounts of aircraft  premiums,  which generally
have a lower acquisition cost ratio than other lines of business.

General and administrative  expenses increased by 19.7% to $23.2 million for the
year ended  December 31, 2004 from $19.4 million for the year ended December 31,
2003. The increase in 2004 was largely  attributable  to an increase in employee
related  expenses to service the growth in the  Company's  business  operations.
Contributing  to the  increase  in  2004  were  higher  administrative  expenses
resulting from the implementation of computer systems and Sarbanes-Oxley related
expenses.


                                       32
<PAGE>


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 98.8% for the 2004 year compared with 98.1% for 2003.

Net  investment  income for the year ended  December 31, 2004 increased by 6% to
$23.7 million from $22.4 million for the year ended December 31, 2003.  Although
the Company  maintained a larger invested asset base in 2004 than it did in 2003
as a result of favorable  cash flow from  operations  and the proceeds  received
from the $100 million of 6.5% senior notes issued on March 11, 2004,  investment
yields declined in 2004 as a result of lower income from limited partnerships.

Investment  income,  net  of  investment  fees,  from  each  major  category  of
investments is as follows:

                                                     Years ended December 31,
                                                     ------------------------
                                                        2004          2003
                                                        ----          ----
                                                           (in millions)
                                                           -------------

Fixed maturities, available for sale.................   $   4.4    $   4.2
Fixed maturities, trading securities.................      13.4       12.9
Short-term investments...............................       3.0        1.9
Equity in earnings of limited partnerships...........       7.7        8.5
                                                           ---------------
        Total investment income......................      28.5       27.5
Investment expenses..................................      (4.8)      (5.1)
                                                           ---------------
Net investment income................................   $  23.7    $  22.4
                                                        ==================


As of December 31, 2004 and 2003 investments in limited partnerships amounted to
approximately  $190.5 million and $105.4  million,  respectively.  A significant
portion of the proceeds received from the $100 million of 6.5% senior notes were
invested in limited  partnerships.  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 of December 31, 2004 and 2003 investments in the trading  portfolio  amounted
to approximately $17.8 million and $61.7 million,  respectively.  Net investment
income for 2004 and 2003 reflects approximately $13.4 million and $12.9 million,
respectively,  derived  from  trading  portfolio  activities.  These  activities
include the  trading of  collateralized  debt  obligations  (CDOs) and  treasury
notes.  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.

As a result of the accounting  treatment of its limited partnerships and trading
portfolio,  the  Company's  investment  income  results may be volatile.  As the
Company  invests a greater  percentage  of its  investment  portfolio in limited
partnership  hedge  funds and if the amount of trading  securities  held  varies
significantly  during different periods,  there may also be a greater volatility
associated with the Company's investment income.

Commission  and  other  income  increased  to $2.3  million  for the year  ended
December  31,  2004 from $1.5  million for 2003  primarily  as a result of other
income received from litigation and  arbitration  settlements.  The 2003 amounts
consisted  primarily  of lesser  amounts  of income  received  from  arbitration
settlements.  Larger amounts were also recorded in 2004 from reinsurance  profit
commissions on ocean marine business.

Net realized investment gains were $678,000 for the year ended December 31, 2004
as compared to $550,000  for the year ended  December 31,  2003.  These  amounts
reflect   the   sale   of   fixed   income    investments.    Write-downs   from
other-than-temporary  declines  in the fair  value  of  securities  amounted  to
$124,000 and $0 for the years ended December 31, 2004 and 2003, respectively.

Interest  expense was $5.4 million for the year ended December 31, 2004 compared
to $26,000 for 2003 as a result of interest  expense  arising from the Company's
issuance of $100 million of 6.5% Senior Notes on March 11, 2004.

Total income tax expense as a percentage  of income  before taxes for year ended
December  31,  2004 was 35.3% as  compared to 34.8% for the same period of 2003.
The increase in the percentage primarily relates to higher state and local taxes
in 2004 at the holding company level.

Premiums and other  receivables,  net  increased to $42.6 million as of December
31, 2004 from $24.0  million as of December  31, 2003 due to  increases in gross
premiums written and larger balances due from the pool managed by MMO.

Reinsurance  receivables  on paid and  unpaid  losses,  net,  amounted  to $14.5
million and $247.8 million, respectively, as of


                                       33
<PAGE>


December 31, 2004 as compared to $4.2 million and $276.6 million,  respectively,
as of December 31, 2003. Paid recoverables  increased in 2004 primarily due to a
large loss  payment  made at year end.  Unpaid  recoverables  decreased  in 2004
primarily  due to  declines  in  recoverables  in the  runoff  line of  aircraft
business.

Other assets increased to $6.5 million as of December 31, 2004 from $3.7 million
as of December 31, 2003  primarily as a result of deferred bond  issuance  costs
incurred on the Company's 6.5% senior notes.

Unpaid  losses  and loss  adjustment  expenses  decreased  to $503.3  million at
December 31, 2004 from $518.9  million at December  31,  2003.  The decrease was
primarily  attributable to declines in loss reserves in the runoff aircraft line
of business  largely as a result of the  reduction in reserves for the terrorist
attacks on September  11, 2001 on the Pentagon  and the hijacked  airliner  that
crashed in  Pennsylvania.  Partially  offsetting this decrease were increases in
loss  reserves  in the  Company's  ocean  marine  and other  liability  lines of
business due to increased production in 2004.

Reserve for unearned premiums of $83.1 million as of December 31, 2004 increased
by 34% over the balance as of December  31,  2003.  The  percentage  increase is
comparable to the increase in gross  premiums  written from the  Company's  core
lines of business.

Other liabilities  increased to $26.6 million as of December 31, 2004 from $15.4
million  for  2003  due in  large  part to  increases  in  funds  received  from
reinsurers and interest expense payable on the Company's 6.5% senior notes.


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 of
$9.3 million,  or $0.99 per diluted share,  resulting  from the withdrawal  from
London operations in 2002.

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  2002  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 year  ended  December  31,  2002 as a result  of the  Company's
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 2002.

Premiums for each segment are discussed below:

Ocean marine  gross  premiums  written  grew by 6% during 2003 when  compared to
2002.  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 experienced 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  their  premiums  are earned over the  related  policy
periods. 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  included  approximately  $6.5  million  of  cargo  premiums  from  our
agreement with Southern Marine & Aviation,  a leading  provider of insurance for
bulk petroleum cargo shipments.  Net premiums written decreased by 4% reflecting
larger amounts of ceded reinsurance  premium as a result of higher costs as well
as the business mix within the various  classes of ocean marine  insurance.  Net
premiums  earned grew by 18% in 2003  compared to 2002  reflecting  premium rate
increases as well as increased


                                       34
<PAGE>


production in the marine liability classes.

Inland  marine/fire  gross premiums written  increased by 24% for the year ended
December  31,  2003 when  compared  to 2002,  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 contractors'  liability  class,  policy count was
reduced in the professional  liability  classes 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
written  primarily  in New York area,  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, which focuses 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 contractors' liability and errors and omission classes.

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.  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.  This 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 2003  results  were  affected by net
adverse  development of $1.0 million  resulting in part from provisions made for
insolvent,  financially  impaired and commuted  reinsurers,  as compared to $5.2
million in 2002. The 2003 results include  $753,000 of adverse  development from
the Company's other liability line reflecting additional umbrella exposures,  as
compared to $2.2 million in 2002.

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.


                                       35
<PAGE>


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
$12.9 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 $8.5 million in 2003 as compared
to approximately  $1.0 million 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.   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.

Investment  income,  net  of  investment  fees,  from  each  major  category  of
investments is as follows:

                                                     Years ended December 31,
                                                     ------------------------
                                                        2003          2002
                                                        ----          ----
                                                           (in millions)
                                                           -------------

Fixed maturities, available for sale.................   $   4.2    $  14.4
Fixed maturities, trading securities.................      12.9        ---
Short-term investments...............................       1.9         .9
Equity securities....................................       ---         .5
Equity in earnings of limited partnerships...........       8.5        1.0
                                                           ---------------
        Total investment income......................      27.5       16.8
Investment expenses..................................      (5.1)      (1.0)
                                                           ---------------
Net investment income................................   $  22.4    $  15.8
                                                        ==================


Commission  and  other  income  decreased  to $1.5  million  for the year  ended
December  31,  2003  from $1.7  million  for 2002.  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.  Net realized
investment  gains  in  2002  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 receivables.

Unpaid  losses  and loss  adjustment  expenses  increased  to $518.9  million at
December 31, 2003 from $516.0 million


                                       36
<PAGE>


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;  however,  offset by declines in unpaid losses 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 increased from $ 6.4 million and $ 45.4
million,  respectively in the 2002 year end balances  primarily due to increases
in both ceded and gross writings in the ocean marine and other  liability  lines
of business.

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.

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, 2004, the Company's assets included  approximately  $310
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.  In February  2005,  the Company  purchased
approximately $237 million in treasury notes with a one year maturity date.

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

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 senior notes provide for
semi-annual interest payments and are to be repaid in full on March 15, 2014. On
July 1, 2004 the Company  completed the exchange of registered 6.5% senior notes
for the  unregistered  senior notes issued on March 11, 2004, as required by the
registration  rights  agreement  with the  purchasers of the senior  notes.  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 ability 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
used part of the net proceeds from the sale of the senior notes to purchase from
certain  of its  shareholders  a total of  1,092,735  shares of common  stock at
$24.80 per share.  The Company is using the  remaining  net proceeds for working
capital and other general  corporate  purposes.  The Company may also deploy the
net  proceeds  for  acquisitions,  although  the Company has no  agreement  with
respect to any acquisition.  We do, however,  assess opportunities on an ongoing
basis  and  from  time to time  have  discussions  with  other  companies  about
potential transactions.

Cash flows provided by operating activities were $66.3 million and $12.1 million
for the year ended  December  31, 2004 and 2003,  respectively.  Sources of cash
flows of $44.0 million in 2004 resulted from decreases in the Company's  trading
portfolio.  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  fixed  maturity  securities.  As  the  Company
commenced its trading portfolio in 2003, any securities purchased by the Company
would be reflected as a use of cash from operating activities and any securities
sold  would be  reflected  as a source 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 2004. Paid losses
were lower in 2003 than in 2004,  reflecting the  commutation  of  approximately
$27.5 million of certain ceded loss reserves.

Cash flows from operating activities in 2002 amounted to $66.2 million 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


                                       37
<PAGE>


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.

In 2002,  the  Company  entered  into a credit  agreement  with an  unaffiliated
company.  The agreement  combined the Company's then 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, 2004,  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  also  issued  400,000  treasury  shares  in
conjunction with the equity sale to Conning Capital Partners VI, L.P. There were
no repurchases of common stock during 2004 and 2002.

In a transaction  separate from its common stock  repurchase plan, on January 7,
2005 the Company purchased from certain of its shareholders a total of 1,092,735
shares of common stock at $24.80 per share. The selling  shareholders  were Mark
W. Blackman, a son of the Company's founder who served on our board of directors
from 1979 until May 2004 and who is currently the Company's  Chief  Underwriting
Officer  (54,530  shares),  his wife  (50,000  shares),  and two  trusts for the
benefit  of their  children  (110,000  shares);  Lionshead  Investments,  LLC, a
company controlled by John N. Blackman, Jr., also a son of the Company's founder
who served on our board of directors from 1975 until May 2004 (495,030  shares),
two of his children  (67,664  shares),  a trust for the benefit of a third child
(25,158  shares),  and a family  trust  (25,000  shares);  and, two trusts and a
foundation established by Louise B. Tollefson,  the former wife of the Company's
founder  (265,353  shares).  Robert G. Simses,  a director of NYMAGIC INC., is a
trustee of the last mentioned entities.

As a result of the share purchase, the Company's outstanding shares were reduced
from  9,781,098  shares to  8,688,363  shares,  of which  2,470,262  shares  are
beneficially  owned by the  Company's  founder's  family,  and of  these  shares
1,800,000  shares  are  subject to the option of  Mariner  Partners,  Inc.,  and
100,000 shares are subject to the option of Conning Capital Partners.

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.

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  $14.7 million as of December 31, 2004. In connection with the
application  for approval of acquisition of control of NYMAGIC,  INC.,  filed by
Mariner and William J.


                                       38
<PAGE>


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
did not have a material  impact on the  Company's  ability to meet  current cash
obligations during this two year period.

During 2003 and 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.  New York Marine and
Gotham  collectively paid ordinary  dividends of $4,575,000 and $500,000 in 2003
and 2004, respectively.

On February 26, 2004, the Company  declared a dividend of six cents per share to
shareholders  of record on March 31, 2004,  payable on April 6, 2004. On May 28,
2004, the Company  declared a dividend of six cents per share to shareholders of
record on June 30, 2004,  payable on July 6, 2004.  On September  15, 2004,  the
Company  declared a dividend of six cents per share to shareholders of record on
September 30, 2004, payable on October 6, 2004. On December 2, 2004, the Company
declared a dividend of six cents per share to shareholders of record on December
31, 2004,  payable on January 6, 2005. On March 12, 2003, the Company declared a
dividend  of six 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 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 cents per
share to  shareholders  of record on December  31,  2003,  payable on October 7,
2003.  On December  17, 2003,  the Company  declared a dividend of six cents per
share to  shareholders  of record on December  31,  2003,  payable on January 8,
2004. The Company did not declare or pay a dividend at any time during 2002.

During 2004, the Company  granted  options to a new director to purchase  10,000
shares of the Company's  common stock.  During 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.  During  2002,  the Company
granted  options to  directors,  officers  and  employees to purchase a total of
463,000 shares of the Company's common stock. 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.

Under the  Amended and  Restated  2004  Long-Term  Incentive  Plan,  the Company
granted  14,100 shares of common stock to certain  officers and directors of the
Company in 2004 for a total compensation expense of approximately  $369,000. The
Company also granted 8,557 deferred share units to certain directors in 2004 for
a total expense of approximately $185,000.

Off-Balance Sheet Arrangements

The Company has no off-balance sheet arrangements other than disclosed herein.

Contractual Obligations

The  following  table  presents  the  Company's  contractual  obligations  as of
December 31, 2004:

<TABLE>
<CAPTION>
                                         Payments Due by Period

                                   Total         Less Than      1-3 Years    3-5 Years     More Than
                                                  1 Year                                    5 Years
                                                                (in thousands)
<S>                                  <C>          <C>          <C>           <C>             <C>
Long-term  debt  obligations      $ 100,000         ---           ---           ---       $ 100,000
Interest on debt obligations         61,750       6,500        13,000        13,000          29,250
Losses and loss  expenses(1)        503,261     113,133       148,864        67,027         174,237
Operating lease obligations          14,602       1,299         2,586         2,567           8,150
Funding commitment(2)                 4,350       4,350            --            --              --
                                   --------    --------       -------        ------         -------

Total                             $ 683,963     125,282       164,450        82,594         311,637
                                  =========    ========       =======       =======         =======
</TABLE>


          (1)  Represents an estimated  payout based upon  historical  paid loss
               development patterns.

          (2)  Commitment to provide capital to Tiptree.


                                       39
<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,  impairment  of
investments and stock compensation.

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 $503.3  million and $518.9 million at December
31, 2004 and 2003, respectively. Unpaid losses and loss adjustment expenses, net
of  reinsurance  amounted to $255.5  million and $242.3  million at December 31,
2004 and 2003,  respectively.  Management  believes  that both the gross and net
unpaid  loss  reserve  estimates  as of December  31, 2004 have been  reasonably
estimated as reserves  originally reported as of December 31, 2003 and 2002 have
been considered  adequate based upon loss development through December 31, 2004.
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 $12.4 million and $12.8 million at December 31, 2004 and
2003,  respectively.  The allowance for doubtful  accounts on premiums and other
receivables amounted to $450,000 as of December 31, 2004 and 2003, 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.  The
Company  performs a qualitative and  quantitative  review of all securities in a
loss  position in order to  determine  if any  impairment  is  considered  to be
other-than-temporary. With respect to fixed income investments, declines in fair
value of less than 10% are normally considered to be temporary, unless the fixed
income  security  has been  downgraded  at least two  levels  by a major  rating
agency.  Additionally,  the Company reviews those securities held for six months
or  more,  with  fair  value  declines  of  greater  than 10% at the end of each
reporting period. The Company also reviews all securities with any rating agency
declines during the reporting  period.  As a result of this review,  the Company
will  record an  impairment  charge to  earnings  if the fair  value  decline is
greater than 20%, if the fixed income  security has been downgraded at least two
levels by a major rating  agency,  or if the fair value  decline is greater than
10% and the security  has been  downgraded  one level by a major rating  agency.
This review  includes  considering  the effect of rising  interest rates and the
Company's  intent and ability to hold  impaired  securities  in the  foreseeable
future to recoup any losses.  In addition to  subjecting  its  securities to the
objective tests of percent declines in fair value and downgrades by major rating
agencies,  when  it  determines  whether  declines  in  the  fair  value  of its
securities  are other than  temporary,  the Company also considers the facts and
circumstances that may have caused the declines in the value of such securities.
As to any specific security, it may consider general market conditions,  changes
in interest rates, adverse changes in the regulatory  environment of the issuer,
the duration  for which the Company  expects to hold the security and the length
of any  forecasted  recovery.  Approximately  $124,000  and $0 were  charged  to
results from  operations  for 2004 and 2003,  respectively,  resulting from fair
value declines considered to be other-than-temporary. Gross unrealized gains and
losses  on  fixed   maturity   investments   available   for  sale  amounted  to
approximately $1.6 million and $.4 million,  respectively, at December 31, 2004.
As of December 31, 2004, there were unrealized losses greater than one year from
the date of purchase on fixed income securities  available for sale amounting to
$233,780.  There  were no  unrealized  gains or losses on equity  securities  at
December 31, 2004 and 2003, respectively.

The Company  utilizes the equity method of accounting to account for its limited
partnership hedge fund


                                       40
<PAGE>


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  before  investment  fees  derived from
investments  in limited  partnerships  amounted to $7.7 million and $8.5 million
for the  years  ended  December  31,  2004 and 2003,  respectively.  See Item 7A
"Quantitative  and  Qualitative  Disclosures  About Market Risk" with respect to
market risks associated with investments in limited partnership hedge funds.

The  Company  maintained  a trading  portfolio  at December  31, 2004  primarily
consisting of  collateralized  debt obligations  (CDOs),  although certain other
types of investments  were included by the Company within the trading  portfolio
during 2004. 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 $13.4 million and $12.9 million in net
trading portfolio income before investment fees for the years ended December 31,
2004  and  2003,  respectively.   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.  Stock  compensation  expense  recorded in 2004 and 2003
amounted to $589,000 and $17,000, respectively.

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,  was effective no later than the end of the first  reporting  period
that ended 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. The adoption of FIN 46R did not result in the
consolidation of any VIEs.

In March  2004,  the  Emerging  Issues Task Force  (EITF) of the FASB  reached a
consensus on Issue No. 03-1, "The Meaning of Other-Than-Temporary Impairment and
its Application to Certain Investments." This consensus provided recognition and
measurement     guidance    for    determining    when    an    investment    is
other-than-temporarily impaired, specifically, when the investor has the ability
and intent to hold an investment until recovery. This guidance was effective for
reporting periods beginning after June 15, 2004. In September 2004, the guidance
contained  within some of the  paragraphs  in EITF 03-1 were delayed by FSP EITF
Issue 03-1-1,  "Effective Date of Paragraphs  10-20 of EITF Issue No. 03-1, "The
Meaning  of  Other-Than-Temporary  Impairment  and Its  Application  to  Certain
Investments," until new guidance is issued. The Company believes the adoption of
this  guidance  will not have a  material  impact on results  of  operations  or
financial condition. (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.

Effective  December 2004, the FASB issued SFAS 123 (revised  2004),  Share Based
Payment.  This Statement is a revision of FASB Statement No. 123, Accounting for
Stock-Based  Compensation.   This  Statement  supersedes  APB


                                       41
<PAGE>


Opinion  No. 25,  Accounting  for Stock  Issued to  Employees,  and its  related
implementation  guidance.  SFAS  123  (revised  2004)  is not  likely  to have a
material  impact on the Company's  results of operations or financial  condition
since the Company  previously  adopted the fair value recognition  provisions of
SFAS 123.

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.

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,  hedge
fund and CDO 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                      2005        2006         2007         2008       2009     after      Cost         Value
------------------                   ----        ----         ----         ----        ----     -----      ----         -----
<S>                                   <C>         <C>          <C>          <C>        <C>      <C>          <C>        <C>
Tax-exempts                         $   8         ---          ---          ---        ---      ---        $ 8         $  8
        Average interest rate         2.2%        ---          ---          ---        ---      ---        ---          ---

Taxables                            $  13         $26          $17          $24        $13      $11        $104         $105
        Average interest rate         7.0%        6.6%         6.1%         5.6%       4.8%     5.5%        ---          ---
                                    ------------------------------------------------------------------------------------------

Total                               $  21         $26          $17          $24        $13      $11        $112         $113
</TABLE>


Credit quality risk includes the risk of default by issuers of debt  securities.
As of December 31, 2004, 92% of the fair value of the Company's fixed income and
short  term  investment  portfolios  were  considered  investment  grade.  As of
December 31, 2004,  the Company  invested  approximately  $34.6 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 5%
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


                                       42
<PAGE>


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 Tiptree,  the Company
cannot withdraw funds for a minimum period of three years without the consent of
the hedge fund manager.

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 $457,000 at December 31,
2004.  The largest  single  investment  made by the  Company in such  securities
amounted to $6.7 million.  The total amount  invested in CDOs as of December 31,
2004 was $17.8 million.

The  Company  maintains  an  investment  in a limited  partnership  hedge  fund,
(Tiptree),  that  invests  in CDOs,  Credit  Related  Structured  Product  (CRS)
securities and other structured product securities that are structured,  managed
or advised by a Mariner affiliated  company.  This investment is consolidated in
the  Company's  financial  statements.  CDOs and CRSs are  purchased  by various
broker dealers.  Such purchases are then repackaged and sold to investors within
a relatively  short time period,  normally within a few months.  Tiptree earns a
fee for servicing these arrangements and provides a margin account as collateral
to secure the credit  risk of the  purchases  made by the  dealers  under  these
agreements. Tiptree has provided $7.5 million in cash as of December 31, 2004 to
secure any purchases made by the dealers. Tiptree does not share in the gains or
losses on investments held by the dealer.  Management  expects that only under a
remote  circumstance  would the margin  account by drawn by the dealer to secure
losses.  Many of the  securities  purchased are  investment  grade floating rate
securities and large unrealized  losses are not normally  expected to occur. The
Company  seeks to  mitigate  market risk  associated  with such  investments  by
concentrating  on investment  grade,  floating rate  securities with the risk of
loss being limited to the cash held in the margin accounts.

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
Company's investments.

Item 8. Financial Statements and Supplementary Data

Interested  persons can obtain  access to the Company's  annual  reports on Form
10-K,  quarterly  reports  on Form 10-Q and  current  reports on Form 8-K on its
corporate 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

An  evaluation  of  the  effectiveness  of  the  design  and  operation  of  our
"disclosure  controls and  procedures"  (as defined in Rule 13a-14(c)  under the
Securities Exchange Act of 1934, as amended, as of the end of the period covered
by this annual report on Form 10-K was made under the  supervision  and with the
participation of our management, including our Chief Executive Officer and Chief
Financial Officer.  Based upon this evaluation,  our Chief Executive Officer and
Chief  Financial  Officer  have  concluded  that  our  disclosure  controls  and
procedures (a)


                                       43
<PAGE>


are  effective  to ensure that  information  required to be  disclosed  by us in
reports filed or submitted under the Securities Exchange Act is timely recorded,
processed, summarized and reported and (b) include, without limitation, controls
and procedures  designed to ensure that information  required to be disclosed by
us  in  reports  filed  or  submitted  under  the  Securities  Exchange  Act  is
accumulated and  communicated  to our management,  including our Chief Executive
Officer and Chief Financial  Officer,  as appropriate to allow timely  decisions
regarding required disclosure.

Management's Report on Internal Control over Financial Reporting

Management's Report on Internal Control over Financial Reporting,  which appears
on page F-2, is incorporated herein by reference.

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.


Item 9B. Other Information

None.


                                       44
<PAGE>


                                    PART III

Item 10. Directors and Executive Officers of the Registrant

The information  required by this Item is incorporated  herein by reference 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  definitive  proxy  statement  for the 2005
Annual  Meeting of  Shareholders  to be filed within 120 days after December 31,
2004.

On June 8, 2004 we filed with the New York Stock  Exchange  ("NYSE")  the Annual
CEO Certification  regarding the Company's  compliance with the NYSE's Corporate
Governance  listing  standards  as  required by Section  303A-12(a)  of the NYSE
Listed Company  Manual.  In addition,  the Company has filed as exhibits to this
annual report and to the annual report on Form 10-K for the year ended  December
31, 2003, the applicable  certifications  of its Chief Executive Officer and its
Chief Financial Officer required under Section 302 of the  Sarbanes-Oxley Act of
2002, regarding the quality of the Company's public disclosures.

Item 11. Executive Compensation

The information  required by this Item is incorporated  herein by reference from
the  sections  captioned   "Compensation  of  Directors"  and  "Compensation  of
Executive Officers" in NYMAGIC's  definitive proxy statement for the 2005 Annual
Meeting of Shareholders to be filed within 120 days after December 31, 2004.

Item 12. Security Ownership of Certain Beneficial Owners and Management

The information  required by this Item is incorporated  herein by reference from
the  sections  captioned  "Security  Ownership  of Certain  Beneficial  Owners,"
"Security   Ownership   of   Management,"   "Changes  in  Control"  and  "Equity
Compensation Plans" in NYMAGIC's  definitive proxy statement for the 2005 Annual
Meeting of Shareholders to be filed within 120 days after December 31, 2004.

Item 13. Certain Relationships and Related Transactions

The information  required by this Item is incorporated  herein by reference from
the  section  captioned  "Certain  Relationships  and Related  Transactions"  in
NYMAGIC's  Proxy  Statement for the 2005 Annual  Meeting of  Shareholders  to be
filed within 120 days after December 31, 2004.

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  30,  2005  with  the  Securities  and  Exchange  Commission  pursuant  to
Regulation 14A of the Exchange Act.


                                       45
<PAGE>


                                     PART IV

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



(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 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 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).

   +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 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).


                                       46
<PAGE>


   +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 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).

   +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).

   +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 the
             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.  Filed  as  Exhibit  10.17  of the
             Registrant's Annual Report on Form 10-K for the year ended December
             31, 2003 (Commission File No. 1- 11238) and incorporated  herein by
             reference.

   +10.18    NYMAGIC, INC. 2002 Nonqualified Stock Option Plan (Filed as Exhibit
             10.2 of the  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    NYMAGIC, INC. Amended and Restated 2004 Long-Term Incentive Plan.

   +10.20    NYMAGIC,  INC. Employee Stock Purchase Plan (Filed as Appendix C to
             the  Registrant's  Proxy  Statement for its 2004 Annual  Meeting of
             Stockholders  (Commission File No. 1-11238) and incorporated herein
             by reference).

  *+10.21    Forms of Election for Deferred Compensation Program.

    10.22    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).

    10.23    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).

    10.24    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).

    10.25    Amendment  No. 4 dated as of February 24, 2004 to Voting  Agreement
             among  Mariner  Partners,  Inc.  and  certain  stockholders  of the
             Company.  (Filed as Exhibit 10.22 of the Registrant's Annual Report
             on Form 10-K for the year ended December 31, 2003  (Commission File
             No. 1-11238) and incorporated herein by reference).

    10.26    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 the  Registrant's  original Form
             10-Q for the  quarter  ended  June 30,  2003  (Commission  File No.
             1-11238) and incorporated herein by reference).

    10.27    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 the Registrant's original Form 10-Q for the quarter
             ended June 30, 2003  (Commission File No. 1-11238) and incorporated
             herein by reference).

    10.28    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 the 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).


                                       47
<PAGE>


    10.29    Limited Partnership Agreement of Mariner Tiptree (CDO) Fund I, L.P.
             dated as of May 1, 2003 (Filed as Exhibit 10.1 of the  Registrant's
             Quarterly  Report on Form 10-Q for the quarter  ended June 20, 2004
             (Commission   File  No.   1-11238)  and   incorporated   herein  by
             reference).

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

    10.32    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 the  Registrant's  Current Report on Form 8-K dated
             January 31, 2003  (Commission  File No.  1-11238) and  incorporated
             herein by reference).

    10.33    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.  (Filed as Exhibit
             10.31 of the  Registrant's  Annual Report on Form 10-K for the year
             ended  December  31,  2003   (Commission   File  No.  1-11238)  and
             incorporated herein by reference).

    10.34    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.  (Filed  as  Exhibit  10.32 of the
             Registrant's Annual Report on Form 10-K for the year ended December
             31, 2003 (Commission  File No. 1-11238) and incorporated  herein by
             reference).

    10.35    First  Supplemental  Indenture  dated as of March  11,  2004 by and
             between  NYMAGIC,  INC. and Wilmington  Trust Company,  as trustee.
             (Filed as Exhibit 10.33 of the  Registrant's  Annual Report on Form
             10-K for the year ended  December  31,  2003  (Commission  File No.
             1-11238) and incorporated herein by reference).

    10.36    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 the 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).

    10.37    Stock Purchase Agreement, dated as of January 7, 2005, by and among
             the Company and the sellers named therein (Filed as Exhibit 10.1 of
             the Registrant's  Current Report on Form 8-K dated January 10, 2005
             (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.
     + Represents a management contract or compensatory plan or arrangement.



                                       48
<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 16, 2005

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.




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

/s/ John R. Anderson            Director                         March 16, 2005
--------------------
John R. Anderson

/s/ Glenn J. Angiolillo         Director                         March 16, 2005
-----------------------
Glenn J. Angiolillo

/s/ John T. Baily               Director                         March 16, 2005
-----------------
John T. Baily

/s/ David E. Hoffman            Director                         March 16, 2005
--------------------
David E. Hoffman

/s/ William J. Michaelcheck     Director                         March 16, 2005
---------------------------
William J. Michaelcheck

/s/ William D. Shaw, Jr.        Director                         March 16, 2005
------------------------
William D. Shaw, Jr.

/s/ Robert G. Simses            Director                         March 16, 2005
--------------------
Robert G. Simses

/s/ George R. Trumbull, III     Director, Chairman and           March 16, 2005
---------------------------     Chief Executive Officer
George R. Trumbull, III

/s/ David W. Young              Director                         March 16, 2005
------------------
David W. Young

/s/ Thomas J. Iacopelli         Principal Accounting Officer     March 16, 2005
-----------------------         and Chief Financial Officer
Thomas J. Iacopelli


                                       49
<PAGE>



                                  NYMAGIC, INC.
                   INDEX TO CONSOLIDATED FINANCIAL STATEMENTS



Management's Report on Internal
  Control Over Financial Reporting..................    F-2

Report of Independent Registered Public Accounting
  Firm... ................................ .........    F-3

Report of Independent Registered Public Accounting
  Firm................ .............................    F-4

Consolidated Balance Sheets.........................    F-5

Consolidated Statements of Income...................    F-6

Consolidated Statements of Shareholders' Equity.....    F-7

Consolidated Statements of Cash Flows...............    F-8

Notes to Consolidated Financial Statements..........    F-9

Financial Statement Schedule II.....................   F-32

Financial Statement Schedule III....................   F-34

Financial Statement Schedule V......................   F-35

Financial Statement Schedule VI.....................   F-36


                                       F-1
<PAGE>





        MANAGEMENT'S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING

Management is responsible for  establishing  and maintaining  adequate  internal
control over  financial  reporting,  and for  performing  an  assessment  of the
effectiveness  of internal  control over financial  reporting as of December 31,
2004. Internal control over financial reporting is a process designed to provide
reasonable  assurance  regarding the reliability of financial  reporting and the
preparation  of financial  statements for external  purposes in accordance  with
generally  accepted  accounting  principles.  The  Company's  system of internal
control over financial reporting includes those policies and procedures that (i)
pertain to the maintenance of records that, in reasonable detail, accurately and
fairly reflect the  transactions  and dispositions of the assets of the company;
(ii) provide reasonable assurance that transactions are recorded as necessary to
permit preparation of financial statements in accordance with generally accepted
accounting  principles,  and that receipts and  expenditures  of the company are
being made only in accordance with authorizations of management and directors of
the company;  and (iii) provide  reasonable  assurance  regarding  prevention or
timely  detection  of  unauthorized  acquisition,  use,  or  disposition  of the
company's assets that could have a material effect on the financial statements.

All  internal  control  systems,  no matter  how well  designed,  have  inherent
limitations.  Therefore,  even those  systems  determined  to be  effective  can
provide  only   reasonable   assurance  with  respect  to  financial   statement
preparation and presentation.

Management  performed  an  assessment  of the  effectiveness  of  the  Company's
internal  control  over  financial  reporting as of December 31, 2004 based upon
criteria in Internal  Control - Integrated  Framework issued by the Committee of
Sponsoring  Organizations  of the  Treadway  Commission  ("COSO").  Based on our
assessment,  management  determined  that the  Company's  internal  control over
financial  reporting was effective as of December 31, 2004 based on the criteria
in Internal Control-Integrated Framework issued by COSO.

Our  management's  assessment of the  effectiveness  of the  Company's  internal
control  over  financial  reporting  as of December 31, 2004 has been audited by
KPMG, LLP, an independent  registered public accounting firm, as stated in their
report which appears herein.


Dated:  March 16, 2005

             George R. Trumbull,                 Thomas J. Iacopelli,
                Chairman and                   Chief Financial Officer
           Chief Executive Officer



                                      F-2
<PAGE>


             Report of Independent Registered Public Accounting Firm
             -------------------------------------------------------

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, 2004 and 2003, 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, 2004. In connection with our audits
of the  consolidated  financial  statements,  we also have 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 the standards of the Public  Company
Accounting Oversight Board (United States). 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,  2004 and 2003,  and the
consolidated  results of their  operations  and their cash flows for each of the
years in the three-year  period ended December 31, 2004, in conformity with U.S.
generally  accepted  accounting  principles.  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.

We also have  audited,  in accordance  with the standards of the Public  Company
Accounting Oversight Board (United States),  the effectiveness of NYMAGIC,  INC.
and subsidiaries'  internal control over financial  reporting as of December 31,
2004,  based on criteria  established in Internal  Control-Integrated  Framework
issued by the Committee of Sponsoring  Organizations of the Treadway  Commission
(COSO), and our report dated March 16, 2005 expressed an unqualified  opinion on
management's  assessment of, and the effective  operation of,  internal  control
over financial reporting.

/s/ KPMG LLP
New York, New York

March 16, 2005


                                      F-3
<PAGE>


             Report of Independent Registered Public Accounting Firm
             -------------------------------------------------------

The Board of Directors and Shareholders
NYMAGIC, INC.:

We  have  audited   management's   assessment,   included  in  the  accompanying
Management's Report on Internal Control Over Financial Reporting,  that NYMAGIC,
INC  maintained  effective  internal  control  over  financial  reporting  as of
December 31, 2004, based on criteria established in Internal  Control-Integrated
Framework  issued by the Committee of Sponsoring  Organizations  of the Treadway
Commission  (COSO).  NYMAGIC,  INC.'s  management is responsible for maintaining
effective  internal  control over financial  reporting and for its assessment of
the   effectiveness   of  internal   control  over  financial   reporting.   Our
responsibility  is to  express  an opinion  on  management's  assessment  and an
opinion on the effectiveness of NYMAGIC,  INC.'s internal control over financial
reporting based on our audit.

We conducted  our audit in accordance  with the standards of the Public  Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain  reasonable  assurance  about whether  effective
internal  control  over  financial  reporting  was  maintained  in all  material
respects. Our audit included obtaining an understanding of internal control over
financial reporting,  evaluating management's assessment, testing and evaluating
the design and operating  effectiveness of internal control, and performing such
other  procedures as we considered  necessary in the  circumstances.  We believe
that our audit provides a reasonable basis for our opinion.

A company's  internal control over financial  reporting is a process designed to
provide reasonable  assurance  regarding the reliability of financial  reporting
and the preparation of financial  statements for external purposes in accordance
with U.S. generally accepted accounting principles. A company's internal control
over financial reporting includes those policies and procedures that (1) pertain
to the maintenance of records that, in reasonable detail,  accurately and fairly
reflect the  transactions  and  dispositions  of the assets of the company;  (2)
provide  reasonable  assurance  that  transactions  are recorded as necessary to
permit  preparation of financial  statements in accordance  with U.S.  generally
accepted  accounting  principles,  and that  receipts  and  expenditures  of the
company are being made only in accordance with  authorizations of management and
directors  of the  company;  and  (3)  provide  reasonable  assurance  regarding
prevention or timely detection of unauthorized acquisition,  use, or disposition
of the  company's  assets  that could have a  material  effect on the  financial
statements.

Because of its inherent  limitations,  internal control over financial reporting
may not prevent or detect misstatements.  Also, projections of any evaluation of
effectiveness to future periods are subject to the risk that controls may become
inadequate  because of changes in  conditions,  or that the degree of compliance
with the policies or procedures may deteriorate.

In our opinion,  management's assessment that NYMAGIC, INC. maintained effective
internal  control over  financial  reporting as of December 31, 2004,  is fairly
stated,  in all material  respects,  based on criteria  established  in Internal
Control-Integrated Framework issued by the Committee of Sponsoring Organizations
of  the  Treadway  Commission  (COSO).  Also,  in  our  opinion,  NYMAGIC,  INC.
maintained, in all material respects,  effective internal control over financial
reporting  as of December 31, 2004,  based on criteria  established  in Internal
Control-Integrated Framework issued by the Committee of Sponsoring Organizations
of the Treadway Commission (COSO).

We also have  audited,  in accordance  with the standards of the Public  Company
Accounting  Oversight Board (United States),  the consolidated balance sheets of
NYMAGIC, INC. and subsidiaries as of December 31, 2004 and 2003, 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, 2004, and our report
dated March 16, 2005,  expressed an  unqualified  opinion on those  consolidated
financial statements.

/s/ KPMG LLP
New York, New York

March 16, 2005


                                      F-4
<PAGE>



                                  NYMAGIC, INC.
                           CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
                                                                          December 31,
                                                                   -------------------------------
                                                                       2004              2003
                                                                   -------------------------------
<S>                                                                  <C>              <C>
ASSETS

Investments:
  Fixed maturities:
       Available for sale at fair value
           (amortized cost $ 111,590,805 and $92,594,971)          $ 112,732,900    $  93,470,691
        Trading at fair value (cost $17,310,386 and $61,423,212)      17,767,675       61,736,951
    Limited partnerships at equity
      (cost $171,439,098 and $96,250,000) ....................       190,477,346      105,434,419
  Short-term investments ....................................        298,039,167      257,059,675
Cash                                                                  11,855,146        1,940,541
                                                                     -----------      -----------
               Total cash and investments ...................        630,872,234      519,642,277
                                                                     -----------      -----------

Accrued investment income ...................................          2,659,731        2,099,641
Receivable for securities sold ..............................          5,067,411               --
Premiums and other receivables, net .........................         42,598,519       23,981,910
Reinsurance receivables on unpaid losses, net ...............        247,782,012      276,618,865
Reinsurance receivables on paid losses, net .................         14,512,616        4,229,697
Deferred policy acquisition costs ...........................         13,055,297        8,245,600
Prepaid reinsurance premiums ................................         21,378,157       20,906,056
Deferred income taxes .......................................          7,528,757       11,772,721
Property, improvements and equipment, net ...................          5,117,609        3,937,603
Other assets ................................................          6,521,354        3,690,715
                                                                       ---------        ---------
               Total assets .................................      $ 997,093,697    $ 875,125,085
                                                                   =============    =============

LIABILITIES

Unpaid losses and loss adjustment expenses ..................      $ 503,261,138    $ 518,929,558
Reserve for unearned premiums ...............................         83,088,394       61,821,283
Ceded reinsurance payable ...................................         25,462,841       25,812,895
Notes payable ...............................................        100,000,000               --
Dividends payable ...........................................            586,866          583,305
Payable for securities not yet settled ......................                 --        8,321,250
Other liabilities ...........................................         26,576,866       15,365,694
                                                                      ----------       ----------
               Total liabilities ............................        738,976,105      630,833,985
                                                                     -----------      -----------
SHAREHOLDERS' EQUITY

Common stock ................................................         15,335,740       15,279,390
Paid-in capital .............................................         36,781,911       35,476,566
Accumulated other comprehensive income ......................            742,364          569,220
Retained earnings ...........................................        251,418,750      239,127,097
                                                                     -----------      -----------
                                                                     304,278,765      290,452,273
Treasury stock, at cost, 5,554,642 shares ...................        (46,161,173)     (46,161,173)
                                                                     -----------      -----------
               Total shareholders' equity ...................        258,117,592      244,291,100
                                                                     -----------      -----------

               Total liabilities and shareholders' equity          $ 997,093,697    $ 875,125,085
                                                                   =============    =============
The  accompanying  notes are an integral  part of these  consolidated  financial
statements.
</TABLE>


                                      F-5
<PAGE>


                                  NYMAGIC, INC.
                        CONSOLIDATED STATEMENTS OF INCOME


<TABLE>
<CAPTION>
                                                               Year ended December 31,
                                                   ------------------------------------------------
                                                         2004            2003              2002
                                                   ------------------------------------------------
<S>                                                <C>              <C>              <C>
Revenues:
Net premiums earned ............................   $ 116,333,254    $  96,393,950    $ 113,457,453
Net investment income ..........................      23,678,954       22,393,704       15,820,734
Net realized investment gains ..................         677,589          549,988        8,456,003
Commission and other income ....................       2,250,902        1,458,007        1,734,888
                                                    ----------------------------------------------
Total revenues .................................     142,940,699      120,795,649      139,469,078
                                                    ----------------------------------------------
Expenses:
Net losses and loss adjustment expenses incurred      66,558,048       55,715,314       73,356,338
Policy acquisition expenses ....................      25,166,397       19,430,211       18,898,550
General and administrative expenses ............      23,246,665       19,427,784       18,372,827
Interest expense ...............................       5,352,775           25,652          575,295
                                                    ----------------------------------------------
Total expenses .................................     120,323,885       94,598,961      111,203,010
                                                    ----------------------------------------------

Income before income taxes .....................      22,616,814       26,196,688       28,266,068
Income tax provision:
Current ........................................       3,835,416        8,987,448       (4,869,283)
Deferred .......................................       4,150,733          116,476        4,424,857
                                                    ----------------------------------------------
Total income tax expense (benefit) .............       7,986,149        9,103,924        (444,426)
                                                    ----------------------------------------------
Net income......................................   $  14,630,665    $  17,092,764    $ 28,710,494
                                                    ==============================================

Weighted average number of shares of
   common stock outstanding-basic ..............       9,736,490        9,673,323        9,277,340
                                                    ----------------------------------------------
Basic earnings per share .......................   $        1.50    $        1.77    $        3.09
                                                    ----------------------------------------------
Weighted average number of shares of
   common stock outstanding-diluted ............       9,916,188        9,827,676        9,308,510
                                                    ----------------------------------------------
Diluted earnings per share .....................   $        1.48    $        1.74    $        3.08
                                                    ----------------------------------------------
</TABLE>


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


                                      F-6
<PAGE>


                                  NYMAGIC, INC.
                 CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
                                                                   Year ended December 31,
                                                      -----------------------------------------------
                                                           2004             2003            2002
                                                      -------------    -------------    -------------
<S>                                                   <C>              <C>              <C>
Common stock:
   Balance, beginning of year .....................   $  15,279,390    $  15,158,324    $  15,123,658
   Shares issued ..................................          56,350          121,066           34,666
                                                      -------------    -------------    -------------
       Balance, end of year .......................      15,335,740       15,279,390       15,158,324
                                                      =============    =============    =============
Paid-in capital:
   Balance, beginning of year .....................   $  35,476,566    $  30,206,370    $  29,702,414
   Shares issued and other ........................       1,305,345        5,270,196          503,956
                                                      -------------    -------------    -------------
       Balance, end of year........................      36,781,911       35,476,566       30,206,370
                                                      =============    =============    =============
Accumulated other comprehensive income:
   Balance, beginning of year .....................   $     569,220    $     361,947    $   7,930,180
   Unrealized gain (loss) on securities,
         net of reclassification adjustment .......         173,144          207,273       (6,756,353)
   Foreign currency translation adjustments .......            --                 --         (811,880)
                                                          ---------       ----------      -----------
   Other comprehensive income (loss) ..............         173,144          207,273       (7,568,233)
                                                          ---------       ----------      -----------
       Balance, end of year........................         742,364          569,220          361,947
                                                          =========       ==========      ===========
Retained earnings:
   Balance, beginning of year .....................   $ 239,127,097    $ 224,364,808    $ 195,654,314
   Net income .....................................      14,630,665       17,092,764       28,710,494
   Dividends declared .............................      (2,339,012)      (2,330,475)              --
                                                      -------------    -------------    -------------
       Balance, end of year........................     251,418,750      239,127,097      224,364,808
                                                      =============    =============    =============
Treasury stock, at cost:
   Balance, beginning of year .....................     (46,161,173)   $ (49,138,699)   $ (49,138,699)
   Net sale of common stock .......................              --        2,977,526               --
                                                      -------------    -------------    -------------
       Balance, end of year........................     (46,161,173)     (46,161,173)     (49,138,699)
                                                      =============    =============    =============
Total Shareholders' Equity ........................     258,117,592      244,291,100      220,952,750
                                                      =============    =============    =============
Comprehensive income:
   Net income ............................... .....   $  14,630,665    $  17,092,764    $  28,710,494
   Other comprehensive income (loss) ........ ......        173,144          207,273       (7,568,233)
                                                      -------------    -------------    -------------
       Comprehensive income .................. .....     14,803,809       17,300,037       21,142,261
                                                      =============    =============    =============

                                                                      Number of Shares
                                                                      ----------------
Common stock, par value $1 each:
   Issued, beginning of year ......................      15,279,390       15,158,324       15,123,658
   Shares Issued ..................................          56,350          121,066           34,666
                                                      -----------------------------------------------
       Issued, end of year ........................      15,335,740       15,279,390       15,158,324
                                                      -----------------------------------------------
Common stock, authorized shares,
   par value $1 each ..............................      30,000,000       30,000,000       30,000,000
                                                      -----------------------------------------------
Common stock, shares outstanding, end of year .....       9,781,098        9,724,748        9,302,498
                                                      -----------------------------------------------
Dividends declared per share ......................            $.24             $.24             $.00
                                                      -----------------------------------------------
</TABLE>


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


                                      F-7
<PAGE>

<TABLE>
<CAPTION>

                                                                                          NYMAGIC, INC
                                                                              CONSOLIDATED STATEMENTS OF CASH FLOWS

                                                                                                  Year ended December 31,
                                                                                     -----------------------------------------------
                                                                                          2004             2003             2002
                                                                                     -----------------------------------------------
Cash flows from operating activities:
<S>                                                                                  <C>              <C>              <C>
Net income                                                                           $  14,630,665    $  17,092,764    $  28,710,494
                                                                                     -------------    -------------    -------------

Adjustments to reconcile net income to net cash
    provided by operating activities:
    Provision for deferred taxes                                                         4,150,733          116,476       4,424,857
    Net realized investment gains                                                         (677,589)        (549,988)     (8,456,003)
    Equity in earnings of limited partnerships                                          (7,704,358)      (8,548,971)       (977,220)
    Net bond amortization                                                                1,266,282          710,214       1,825,473
    Depreciation and other, net                                                            664,681          518,475         410,781
    Changes in:
    Premiums and other receivables                                                     (18,616,609)      11,708,218      39,203,457
    Reinsurance receivables paid and unpaid, net                                        18,553,934       45,573,778      35,326,444
    Ceded reinsurance payable                                                             (350,054)       6,094,468      (7,675,269)
    Accrued investment income                                                             (560,090)      (1,707,692)      3,855,082
    Deferred policy acquisition costs                                                   (4,809,697)        (537,414)        459,477
    Prepaid reinsurance premiums                                                          (472,101)     (14,508,651)     12,388,670
    Other assets                                                                          (536,067)      (1,141,142)      2,807,971
    Unpaid losses and loss adjustment expenses                                         (15,668,420)       2,927,248     (18,186,752)
    Reserve for unearned premiums                                                       21,267,111       16,421,908     (19,671,615)
    Foreign currency translation adjustments                                                    --               --        (811,880)
    Other liabilities                                                                   11,211,172         (348,458)     (7,445,716)
    Trading portfolio activities                                                        43,969,274      (61,736,951)             --
                                                                                     -------------    -------------   -------------
           Total adjustments                                                            51,688,202       (5,008,482)     37,477,757
                                                                                     -------------    -------------   -------------
Net cash provided by operating activities                                               66,318,867       12,084,282      66,188,251
                                                                                     -------------    -------------   -------------
Cash flows from investing activities:
    Fixed maturities acquired                                                          (80,380,360)    (132,310,120)   (121,264,193)
    Equity securities acquired                                                                  --               --     (47,958,228)
    Limited partnerships acquired                                                     (156,400,000)     (72,500,000)             --
    Fixed maturities sold                                                               55,017,140       64,840,423     344,255,556
    Net sale (purchase) of short-term investments                                      (40,975,796)      99,632,096    (290,365,000)
    Fixed maturities matured                                                             5,775,000        3,820,000       7,401,141
    Equity securities sold                                                                      --        4,658,759      41,820,921
    Limited partnerships sold                                                           79,061,430       14,091,597              --
    Receivable for securities not yet settled                                           (5,067,411)       1,645,152        (776,000)
    Payable for securities not yet settled                                              (8,321,250)       8,321,250              --
    Acquisition of property & equipment, net                                            (1,844,687)      (3,724,672)        (50,738)
                                                                                     -------------    -------------   -------------
Net cash used in investing activities                                                 (153,135,934)     (11,525,515)    (66,936,541)
                                                                                     -------------    -------------   -------------
Cash flows from financing activities:
    Proceeds from stock issuance and other                                               1,361,695        2,176,507         538,622
    Cash dividends paid to stockholders                                                 (2,335,451)      (1,747,170)             --
    Net sale of treasury shares                                                                 --        6,192,281              --
    Proceeds from borrowings                                                            97,705,428               --      15,719,953
    Loan principal payments                                                                     --       (6,219,953)    (17,411,253)
                                                                                     -------------    -------------   -------------
Net cash provided by (used in) financing activities                                     96,731,672          401,665      (1,152,678)
                                                                                     -------------    -------------   -------------
Net increase (decrease) in cash                                                          9,914,605          960,432      (1,900,968)
Cash at beginning of year                                                                1,940,541          980,109       2,881,077
                                                                                     -------------    -------------   -------------
Cash at end of year                                                                 $   11,855,146    $   1,940,541   $     980,109
                                                                                     =============    =============   =============
</TABLE>

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

                                      F-8


<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,  other liability
and aircraft  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.  "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, 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."

The Company  maintains  a 100%  interest  in a limited  partnership  hedge fund,
Mariner Tiptree (CDO) Fund I, L.P. ("Tiptree"),  that invests in CDO securities,
Credit Related  Structured Product (CRS) securities and other structured product
securities  that are  structured,  managed or  advised  by a Mariner  affiliated
Company. See Note 16 "Related Party Transactions"

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

                                      F-9


<PAGE>


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 Tiptree  whose  financial
statements  are  included  in  the  consolidated   financial   statements.   All
intercompany accounts and transactions have been eliminated in consolidation.

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
quantitative and qualitative  criteria that include  downgrades in rating agency
levels for securities,  the duration and extent of declines in fair value of the
security below its cost or amortized cost,  interest rate trends,  the Company's
intent to hold the security,  market conditions,  and the regulatory environment
for  the  security's   issuer.   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  entered into a rate lock agreement that was
used to effectively hedge the Company's  interest rate on its senior notes. Upon
settlement,  the cost of the rate lock  agreement  was included in bond issuance
costs.

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
periods  ended  December 31, 2004 and December 31, 2003.  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 4% and 3% in 2004 and 2003, 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.

                                      F-10


<PAGE>


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 profit commission becomes due shortly
after the treaty expires.

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,  which is  approximately 3 to 12 years.  External costs
incurred in developing or obtaining  software are capitalized and amortized over
their 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.  The  Company  provides  for a
valuation allowance on certain deferred tax assets.

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 values 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  and other payables which are recorded at the underlying
transaction  value and approximate  fair value. See Note 9 for the fair value of
the Company's senior notes.

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.

Debt issuance costs

Debt issuance costs  associated with the $100 million 6.5% Senior Note due March
15, 2014 are being amortized over the term of the senior debt using the interest
method.

Stock options

Effective  January  1,  2003 the  Company  adopted  the  fair  value  method  of
accounting  under  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 the year ended  December  31, 2004 and the year ended  December  31, 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

                                      F-11


<PAGE>


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.  The table  includes  only the effect of stock options on
net income and  earnings per share as all other stock  compensation  awards have
been  accounted for under SFAS 123. The amounts for all other awards issued were
$522,729, $455,450 and $368,100 for 2004, 2003 and 2002, respectively.


                                                 Year Ended December 31,
                                            --------------------------------
                                              2004        2003         2002
                                              ----        ----         ----
                                           (in thousands except per share data)

Net income, as reported                    $ 14,631     $17,093      $28,710
Add: Stock based employee
   compensation expense included in
   reported net income, net of related
tax effects                                      30          19           15
Deduct: Total stock-based employee
compensation expense determined
under the fair value based method for all
awards, net of related tax effects             (354)       (358)        (162)
                                             -------     --------    --------

Pro forma net income                       $ 14,307     $16,754      $28,563
                                             =======     ========    ========

Earnings per share:

Basic EPS - as reported                       $1.50        $1.77       $3.09
Basic EPS - pro forma                         $1.47        $1.73       $3.08

Diluted EPS - as reported                     $1.48        $1.74       $3.08
Diluted EPS - pro forma                       $1.44        $1.70       $3.07

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 2004 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

                                      F-12


<PAGE>


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,  was effective no later than the end of the first  reporting  period
that ended after December 15, 2003 for entities considered to be special-purpose
entities  and no later  than the end of the first  reporting  period  that ended
after March 15,  2004 for all other  VIEs.  Early  adoption  is  permitted.  The
adoption of FIN 46R did not result in the consolidation of any VIEs.

In March  2004,  the  Emerging  Issues Task Force  (EITF) of the FASB  reached a
consensus on Issue No. 03-1, "The Meaning of Other-Than-Temporary Impairment and
its Application to Certain Investments." This consensus provided recognition and
measurement     guidance    for    determining    when    an    investment    is
other-than-temporarily impaired, specifically, when the investor has the ability
and intent to hold an investment until recovery. This guidance was effective for
reporting periods beginning after June 15, 2004. In September 2004, the guidance
contained  within some of the  paragraphs  in EITF 03-1 were delayed by FSP EITF
Issue 03-1-1,  "Effective Date of Paragraphs  10-20 of EITF Issue No. 03-1, "The
Meaning  of  Other-Than-Temporary  Impairment  and Its  Application  to  Certain
Investments," until new guidance is issued. The Company believes the adoption of
this  guidance  will not have a  material  impact on results  of  operations  or
financial condition.
(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.

Effective  December 2004, the FASB issued SFAS 123 (revised  2004),  Share Based
Payment.  This Statement is a revision of FASB Statement No. 123, Accounting for
Stock-Based  Compensation.   This  Statement  supersedes  APB  Opinion  No.  25,
Accounting  for  Stock  Issued  to  Employees,  and its  related  implementation
guidance. SFAS 123 (revised 2004) is not likely to have a material impact on the
Company's  results  of  operations  or  financial  condition  since the  Company
previously adopted the fair value recognition provisions of SFAS 123.

(2) Investments:

A summary of investment components at December 31, 2004 and December 31, 2003 at
fair value consists of the following:

<TABLE>
<CAPTION>

                                                          December 31, 2004      Percent      December 31, 2003       Percent
                                                          -----------------      -------      -----------------       -------
Fixed Maturities Available for Sale (Fair Value):
------------------------------------

<S>                                                        <C>                   <C>           <C>                    <C>
U.S. Treasury Securities                                   $     10,018,470        1.59%       $     9,184,916          1.77%
Municipalities                                                    7,652,500        1.21%            17,352,350          3.34%
Corporate Bonds                                                  95,061,930       15.07%            66,933,425         12.88%
-----------------------------------------------------------------------------------------------------------------------------
           Subtotal                                        $    112,732,900       17.87%       $    93,470,691         17.99%

Trading Securities (Fair Value):
------------------
Collateralized Debt Obligations                                  17,767,675        2.82%            61,736,951         11.88%
-----------------------------------------------------------------------------------------------------------------------------
Total Fixed Maturities and Trading Portfolio               $    130,500,575       20.69%       $   155,207,642         29.87%

Cash & Short-term Investments (at Cost)                         309,894,313       49.12%           259,000,216         49.84%
-----------------------------------------------------------------------------------------------------------------------------
Total Fixed Maturities, Cash and Short-term Investments    $     440,394,888      69.81%           414,207,858         79.71%

Limited Partnership Hedge Funds (at Equity)                      190,477,346      30.19%           105,434,419         20.29%
-----------------------------------------------------------------------------------------------------------------------------
Total Investment Portfolio                                 $     630,872,234     100.00%       $   519,642,277        100.00%
</TABLE>

Gross unrealized  gains on fixed  maturities  available for sale were $1,560,532
and  $1,215,206  at December 31, 2004

                                      F-13


<PAGE>


and  December  31,  2003,  respectively;  and gross  unrealized  losses on fixed
maturities  available  for sale were  $418,437 and $339,486 at December 31, 2004
and December 31, 2003, respectively.

Included in investments at December 31, 2004 are securities  required to be held
by the Company or those that are on deposit with various regulatory  authorities
as required by law with a fair value of $10,053,470.

There were no non-income  producing  fixed maturity  investments for each of the
years ended December 31, 2004 and December 31, 2003.

The  Company  held no mortgage  backed  securities  at  December  31, 2004 or at
December 31, 2003.

The gross unrealized gains and losses on fixed maturities  available for sale at
December 31, 2004 and December 31, 2003 are as follows:

<TABLE>
<CAPTION>

                                                                                          2004

                                                         --------------------------------------------------------------------------
                                                                                   Gross               Gross
                                                             Amortized           Unrealized          Unrealized            Fair
                                                               Cost                Gains               Losses              Value
                                                         --------------------------------------------------------------------------
Fixed maturities available for sale:

<S>                                                      <C>                    <C>                  <C>                <C>
U.S. Treasury Securities ..................              $   9,982,560          $   104,633          $  (68,723)        $10,018,470
Municipalities ............................                  7,636,491               16,009                  --           7,652,500
Corporate Bonds ...........................                 93,971,754            1,439,890            (349,714)         95,061,930
                                                         --------------------------------------------------------------------------
Totals ....................................              $ 111,590,805          $ 1,560,532          $ (418,437)       $112,732,900
                                                         --------------------------------------------------------------------------

                                                                                          2003

                                                         --------------------------------------------------------------------------
                                                                                   Gross               Gross
                                                             Amortized           Unrealized          Unrealized            Fair
                                                               Cost                Gains               Losses              Value
                                                         --------------------------------------------------------------------------
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
                                                         --------------------------------------------------------------------------
</TABLE>


The following table  summarizes all securities in an unrealized loss position at
December 31, 2004 disclosing the aggregate fair value and gross  unrealized loss
for  less  than as well as more  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>

                                                                                         2004
                                         -------------------------------------------------------------------------------------------
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                 $ 1,126,031    $    (8,952)    $ 2,979,900     $  (59,771)     $ 4,105,931     $   (68,723)
Corporate Bonds                           20,784,945       (175,705)     24,041,381       (174,009)      44,826,326        (349,714)
                                         -------------------------------------------------------------------------------------------
Total temporarily impaired               $21,910,976    $  (184,657)    $27,021,281     $ (233,780)     $48,932,257     $  (418,437)
      securities

</TABLE>

                                      F-14


<PAGE>


The  amortized  cost and fair value of debt  securities  at December 31, 2004 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.................          $ 12,877,931                      $ 12,865,419
Due after one year through five years..             79,880,514                        80,898,587
Due after five years through ten years..             9,302,178                         9,428,590
Due after ten years..........................        9,530,182                         9,540,304
                                               -------------------------------------------------

Totals......................................     $ 111,590,805                      $112,732,900
                                               -------------------------------------------------
</TABLE>

The investment  portfolio has exposure to market risks, which include the effect
of  adverse  changes  in  interest  rates,   credit  quality,   hedge  fund  and
collateralized  debt  obligations  (CDO) 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 CDO 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 CDO securities.

Proceeds  from sales of  investments  in debt  securities  held for sale for the
years ended December 31, 2004, 2003 and 2002 were  $55,017,140,  $64,840,423 and
$344,255,556,  respectively.  Gross gains of $995,789,  $131,601 and $13,308,860
and gross losses of $322,415,  $399,524 and  $2,028,978  were  realized on those
sales for the years ended December 31, 2004, 2003 and 2002, respectively.

Realized gains (losses) and unrealized investment appreciation (depreciation) on
fixed  maturities  and equity  securities for the years ended December 31, 2004,
2003 and 2002 are as follows:


<TABLE>
<CAPTION>

                                                                                            Year ended December 31,
                                                                        ------------------------------------------------------------
                                                                                2004                  2003                  2002
                                                                        ------------------------------------------------------------

<S>                                                                      <C>                    <C>                    <C>
Realized gains (losses) of investments
        Fixed maturities ......................................          $    673,374           $    (267,923)         $ 11,279,882
        Equity securities .....................................                    --                 (69,900)           (2,839,006)
        Short-term investments ................................                 4,215                 887,811                15,127
                                                                        ------------------------------------------------------------
        Net realized investment gains .........................               677,589                 549,988             8,456,003
        Less: applicable income taxes .........................              (237,156)               (192,496)           (2,959,601)
                                                                        ------------------------------------------------------------
Net realized investment gains after taxes .....................          $    440,433           $     357,492           $ 5,496,402
                                                                        ============================================================


The  Company  recorded  declines  in  values  of  investments  considered  to be
other-than-temporary  of  $124,487,  $0,  and  $1,520,210  for the  years  ended
December 31, 2004, 2003 and 2002.


                                                                                            Year ended December 31,
                                                                        ------------------------------------------------------------
                                                                                2004                  2003                  2002
                                                                        ------------------------------------------------------------

Change in unrealized investment appreciation
           (depreciation) of securities:
        Fixed maturities .........................................         $  266,375           $     318,878           $(3,066,700)
        Equity securities ........................................               --                        --            (7,327,689)
                                                                        ------------------------------------------------------------
        Net unrealized investment gains (losses) .................            266,375                 318,878           (10,394,389)
        Less:  applicable deferred income taxes ..................            (93,231)               (111,605)            3,638,036
                                                                        ------------------------------------------------------------
Net unrealized investment gains (losses) after taxes .............         $  173,144           $     207,273          $ (6,756,353)
                                                                        ============================================================
</TABLE>

                                      F-15


<PAGE>


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

<TABLE>
<CAPTION>

                                                                                            Year ended December 31,
                                                                          ----------------------------------------------------------
                                                                                2004                2003                   2002
                                                                          ----------------------------------------------------------
<S>                                                                        <C>                 <C>                    <C>
Fixed maturities available for sale ...........................            $  4,375,898        $  4,176,273           $ 14,410,878
Trading securities ............................................              13,420,243          12,909,671                     --
Short-term investments ........................................               2,999,993           1,879,098                931,168
Equity securities .............................................                      --                  --                496,194
Equity in earnings of limited partnerships ....................               7,704,357           8,548,971                977,220
                                                                          ----------------------------------------------------------
           Total investment income ............................              28,500,491          27,514,013             16,815,460
Investment expenses ...........................................              (4,821,537)         (5,120,309)              (994,726)
                                                                          ----------------------------------------------------------
           Net investment income ..............................            $ 23,678,954        $ 22,393,704           $ 15,820,734
                                                                          ==========================================================
</TABLE>

Net investment income for trading securities includes $143,550 of net unrealized
gains as of December 31, 2004.

In addition to its  investment  in Tiptree,  the Company held $190.5  million of
limited  partnership  hedge funds at December 31, 2004,  accounted for under the
equity method, as follows:

<TABLE>
<CAPTION>

                                                                   Amount                   Ownership %
                                                                   ------                   -----------
<S>                                                            <C>                              <C>
Airline Recovery Partners, LLC                                 $  5,662,367                      9.81
Amici Qualified Associates, LP                                    9,648,541                      3.19
Artesian Credit Arbitrage Total Return Fund                      15,301,671                     10.24
Asuka Japanese Equity Long/Short Fund LP                          5,134,823                      9.26
Boldwater Credit Opportunities Fund I, LP                        10,079,885                     10.05
Brencourt Arbitrage, L.P.                                         7,888,550                      8.93
Caspian Capital Partners, LP(1)                                   2,941,201                      0.68
Dolphin Domestic Fund II, LP                                      2,899,562                      5.43
Dolphin Limited Partnership - A                                  14,311,825                     14.32
Havens Partners, LP                                               8,292,995                      8.20
Mariner Voyager LP(1)                                             2,415,388                      2.07
Midway Market Neutral Fund LLC                                   11,898,231                      9.20
MV Partners Fund I, L.P. - Tranche B                              2,876,870                      2.01
Newsmith Credit Fund, LP                                          8,812,806                     16.02
Nippon Partners, L.P.                                             7,645,241                      6.49
Parkcentral Global, L.P.                                          9,610,895                      2.66
P.A.W. Partners, L.P.                                             8,634,056                      3.24
Relative Value International Fund, L.P.                          10,999,131                     16.42
RH Capital Associates Number One, LP                              7,101,026                      1.67
SLS Investors                                                     7,811,732                      4.01
Triage Capital Management, L.P.                                   8,193,178                      3.59
Wexford Spectrum Fund I, L.P.                                    22,317,372                      5.95
                                                                 ----------

Total limited partnership hedge funds                          $190,477,346
                                                                ===========
</TABLE>

        (1) Limited partnership hedge fund 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 the Company's $15.7 million investment in

                                      F-16


<PAGE>


the  Tiptree  limited  partnership  hedge fund  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.

Margin Account

The  Company  maintains  an  investment  in a limited  partnership  hedge  fund,
(Tiptree),  that  invests  in CDOs,  Credit  Related  Structured  Product  (CRS)
securities and other structured product securities that are structured,  managed
or advised by a Mariner affiliated  company.  This investment is consolidated in
the  Company's  financial  statements.  CDOs and CRSs are  purchased  by various
broker dealers.  Such purchases are then repackaged and sold to investors within
a relatively  short time period,  normally within a few months.  Tiptree earns a
fee for servicing these arrangements and provides a margin account as collateral
to secure the credit  risk of the  purchases  made by the  dealers  under  these
agreements. Tiptree does not share in the gains or losses on investments held by
the dealer.  Management expects that only under a remote  circumstance would the
margin account be drawn by the dealer to secure  losses.  Many of the securities
purchased are  investment  grade floating rate  securities and large  unrealized
losses are not normally  expected to occur. The Company seeks to mitigate market
risk  associated with such  investments by  concentrating  on investment  grade,
floating rate securities with the risk of loss being limited to the cash held in
the margin accounts.  As of December 31, 2004, Tiptree has provided $7.5 million
in cash as collateral to secure any purchases  made by the dealers.  This amount
is included in the consolidated cash balance of $11,855,146.

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,
2004 and December 31, 2003, the Company had loaned  securities with a fair value
of $3,266,890 and $6,760,722,  respectively and held collateral related to these
loaned securities of $3,367,297 and $6,962,206, respectively.

(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-17


<PAGE>


A summary  of the pools'  underwriting  accounts  as of  December  31,  2004 and
December 31, 2003 is as follows:


<TABLE>
<CAPTION>

                                                                                                    (Unaudited)
                                                                                                    -----------
                                                                                                2004            2003

                                                                                        --------------------------------------
<S>                                                                                       <C>                 <C>
Cash and short-term investments ...........................................               $ 21,238,135        $18,651,338
Premiums receivable ......................................................                  28,929,441         21,662,214
Reinsurance and other receivables ........................................                  48,902,946         20,172,248
                                                                                        ---------------------------------
Total assets .............................................................                $ 99,070,522        $60,485,800
                                                                                        =================================

Due to insurance pool members ............................................                  46,349,940         10,894,676
Reinsurance payable ......................................................                  26,000,228         26,587,878
Funds withheld from reinsurers ...........................................                  24,590,399         20,729,319
Other liabilities ........................................................                   2,129,955          2,273,927
                                                                                        ---------------------------------
Total liabilities ........................................................                $ 99,070,522        $60,485,800
                                                                                        =================================
</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 25%, 31% and 30% of the Company's insurance  subsidiaries'  direct
and assumed gross premiums  written for the years ended December 31, 2004,  2003
and 2002, 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  proceeding  against Utica Mutual was completed
and it 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-18


<PAGE>


The Company's  largest  unsecured  reinsurance  receivables at December 31, 2004
were from the following reinsurers:


<TABLE>
<CAPTION>

Reinsurer                                             Amounts                     A.M. Best Rating
---------------------------------                     ----------                  ----------------
                                                     (in millions)
<S>                                                   <C>                         <C>
Lloyd's Syndicates                                    $    55.5                   A (Excellent)
Swiss Reinsurance America Corp.                            12.0                   A+ (Superior)
FM Global (Arkwright)                                       7.7                   A+ (Superior)
Lloyd's (Equitas)                                           7.2                   NR-3 (Rating Procedure Inapplicable)
Folksamerica Reinsurance Company                            7.0                   A (Excellent)
GE Reinsurance Corp.                                        4.2                   A (Excellent)
Liberty Mutual Insurance Company                            3.4                   A (Excellent)
Utica Mutual Insurance Company                              3.1                   A- (Excellent)
Hartford Fire Insurance Company                             3.1                   A+ (Superior)
                                                            ---
Total                                                    $103.2
</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 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, 2001, 2000, and 1999, losses were reported for all
three years.  Lloyd's is expected to report a profit for 2003 and 2002.  Lloyd's
receivables  represent  amounts due from  approximately  100  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,  2004  of
approximately 460 million Pounds Sterling (US $840 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.

The Company's exposure to reinsurers, other than those indicated above, includes
reinsurance receivables from approximately 600 reinsurers or syndicates,  and as
of December 31,  2004,  no single one was liable to the Company for an unsecured
amount in excess of approximately $3 million.

Funds  withheld  of  approximately  $15.6  million  and  letters  of  credit  of
approximately $131.1 million as of December 31, 2004 were obtained as collateral
for  reinsurance  receivables  as provided under various  reinsurance  treaties.
Reinsurance  receivables  as of December 31, 2004 and 2003 included an allowance
for  uncollectible  reinsurance  receivables of $12.4 million and $12.8 million,
respectively.  Uncollectible  reinsurance  resulted in charges to  operations of
approximately  $1.2  million,  $1.0 million and $5.2  million in 2004,  2003 and
2002, 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>
December 31, 2004     $159,407,233            $46,505,810          $24,226,839          $137,128,262         18%
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%


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




                         Gross                   Ceded               Assumed                             Percentage
                        (direct)                to other            from other                           of assumed
Year Ended               amount                companies            companies            Net amount       to net
---------------------------------------------------------------------------------------------------------------------
December 31, 2004     $142,738,099            $46,033,709          $19,628,864          $116,333,254         17%
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%

</TABLE>

                                      F-19

<PAGE>


Losses  and loss  adjustment  expenses  incurred  are net of  ceded  reinsurance
recoveries  of  $18,416,068,  $27,564,318  and  $60,574,707  for the years ended
December 31, 2004, 2003 and 2002, respectively.

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 for the years
ended December 31, 2004, 2003 and 2002:

<TABLE>
<CAPTION>

                                                                Year ended December 31,
                                                        -----------------------------------
                                                              2004         2003       2002
                                                        -----------------------------------
                                                                  (In thousands)
<S>                                                       <C>          <C>          <C>
Net liability for losses and loss adjustment
  expenses at beginning of year ................          $ 242,311    $ 208,979    $ 210,953
                                                           ---------    ---------    ---------
Provision for losses and loss adjustment
  expenses occurring in current year ...........             81,518       57,125       68,952
Increase (decrease) in estimated losses and loss
  adjustment expenses for claims occurring
  in prior years(1) ...........................             (14,960)      (1,410)       4,389
Deferred income-loss portfolio
  assumption(2) ................................                 --           --           15
                                                          ---------    ---------    ---------
Net loss and loss adjustment expenses
  incurred .....................................             66,558       55,715       73,356
                                                          ---------    ---------    ---------
Less:
Losses and loss adjustment expense payments
  for claims occurring during:
      Current year .............................             10,287        5,241       11,950
      Prior years ..............................             43,103       17,142       63,365
                                                             ------       ------       ------
                                                             53,390       22,383       75,315
Add:
Deferred income-loss portfolio assumption (2) ...                --           --          (15)
                                                          ---------    ---------    ---------
Net liability for losses and loss adjustment
  expenses at year end .........................            255,479      242,311      208,979
                                                          ---------    ---------    ---------
Ceded unpaid losses and loss adjustment
  expenses at year end .........................            247,782      276,619      307,023
                                                          ---------    ---------    ---------
Gross unpaid losses and loss adjustment
  expenses at year end .........................          $ 503,261    $ 518,930    $ 516,002
                                                          =========    =========    =========
</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 $15 million decrease in
2004 reflects  favorable loss development in the aviation line,  mainly in
reserve adjustments of $8.3 million for the terrorist attacks of September
11,  2001 on the  Pentagon  and the  hijacked  airliner  that  crashed  in
Pennsylvania, and in the ocean marine line of business due to a lower than
expected emergence of losses in the 1998-2001 accident years. 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  2002  amount  was
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 was amortized over the
payout period of the related losses.

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

                                      F-20


<PAGE>


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, 2004 and December 31, 2003, the Company's  gross,  ceded and net
loss  and  loss  adjustment  expense  reserves  for  all  asbestos/environmental
policies amounted to $70.7 million,  $57.9 million and $12.8 million,  and $77.3
million, $65.5 million and $11.8 million,  respectively. As of December 31, 2004
and December  31,  2003,  the Company had  approximately  340 and 330  policies,
respectively,  under which there was at least one claim outstanding  relating to
asbestos/environmental  exposures.  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, 2004, represent management's best estimate.

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.  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.  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.  For example, in September 2004 the
Company  became aware of additional  information  that allowed us to reduce loss
reserves relating to the terrorist attacks of September 11, 2001 on the Pentagon
and the hijacked  airliner  that  crashed in  Pennsylvania.  This  amounted to a
reduction  of $16.3  million  and $8.3  million in gross and net loss  reserves,
respectively, to the Company.

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  $7,112,142  and
$6,480,163 at December 31, 2004 and December 31, 2003, respectively.

Deferred policy acquisition costs

Deferrable  acquisition  costs  amortized  to income  amounted  to  $25,166,397,
$19,430,211  and  $18,898,550  for the years ended  December 31, 2004,  2003 and
2002, respectively.

(5) Property, Improvements and Equipment, Net:

Property,  improvements and equipment, net at December 31, 2004 and December 31,
2003 include the following:
<TABLE>
<CAPTION>

                                                                            2004               2003
                                                                      ----------------------------------
<S>                                                                     <C>                  <C>
Office furniture and equipment .....................................    $ 1,335,844          $ 1,905,366
Computer equipment .................................................        500,139            1,029,816
Computer software ..................................................      2,482,235              754,186
Leasehold improvements .............................................      2,254,787            4,292,659
                                                                      ----------------------------------
                                                                          6,573,005            7,982,027
Less:  accumulated depreciation and amortization ...................     (1,455,396)          (4,044,424)
                                                                      ----------------------------------
       Property, improvements and equipment, net ...................    $ 5,117,609          $ 3,937,603
                                                                      ==================================
</TABLE>

                                      F-21


<PAGE>


Depreciation  and  amortization  and other expenses for the years ended December
31,  2004,   2003  and  2002  amounted  to  $703,224,   $518,475  and  $410,781,
respectively.

(6) Income Taxes:

The  components of deferred tax assets and  liabilities  as of December 31, 2004
and December 31, 2003 are as follows:


<TABLE>
<CAPTION>

                                                                           December 31, 2004    December 31, 2003
                                                                           ----------------------------------------
<S>                                                                         <C>                    <C>
Deferred Tax Assets:
Loss reserves ..................................................            $12,808,891            $12,017,630
Unearned premiums ..............................................              4,319,717              2,864,066
Loss carryforwards .............................................              3,286,180              2,990,941
Bad debt reserve ...............................................                182,972                910,000
Other ..........................................................                271,849                343,555
                                                                              ---------------------------------
Deferred tax assets ............................................             20,869,609             19,126,192
                                                                              ---------------------------------

Less: Valuation allowance ......................................              3,790,355              3,495,116
                                                                              ---------------------------------

Total deferred tax assets ......................................             17,079,254             15,631,076
                                                                              ---------------------------------

Deferred Tax Liabilities:
Deferred policy acquisition costs ..............................              4,569,354              2,885,960
Unrealized appreciation of investments .........................                399,734                306,503
Deferred investment income .....................................              3,780,199                213,677
Accrued salvage and subrogation ................................                296,773                284,174
Other ..........................................................                504,437                168,041
                                                                              ---------------------------------
Total deferred tax liabilities .................................              9,550,497              3,858,355
                                                                              ---------------------------------
Net deferred tax assets ........................................            $ 7,528,757            $11,772,721
                                                                            ===================================
</TABLE>


The last year to which the loss  carryforwards  can be carried  forward  against
future tax liabilities is the year 2024.

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

<TABLE>
<CAPTION>

                                                        December 31, 2004   December 31, 2003    December 31, 2002
                                                        ----------------------------------------------------------
<S>                                                    <C>                 <C>                  <C>
Balance, beginning of year ...................         $    3,495,116      $    2,363,081       $  11,050,489
Change in valuation allowance ................                295,239           1,132,035          (8,687,408)
                                                        ----------------------------------------------------------
Balance, end of period .......................         $    3,790,355      $    3,495,116       $   2,363,081
                                                       ===========================================================
</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, 2004 will more likely than not
be fully realized.

                                      F-22


<PAGE>


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,
                                                  ------------------------------
                                                    2004       2003      2002
                                                    ----       -----     ----

Income taxes at the Federal statutory rate ....      35.0%     35.0%     35.0%
Tax exempt interest ...........................      (0.2)     (0.3)     (4.7)
Valuation allowance ...........................       1.3       4.3     (32.6)
State taxes ...................................      (0.9)     (2.4)     (0.3)
Other, net ....................................       0.1      (1.8)      1.0
                                                     ----      ----      ----
           Income tax provisions ..............      35.3%     34.8%     (1.6)%
                                                     ====      ====      ====

Federal  income tax paid  (received)  amounted  to  $5,263,512,  $6,248,652  and
$(4,849,204) for the years ended December 31, 2004, 2003 and 2002, respectively.

At December  31,  2004,  the federal  income tax  recoverable  included in other
assets amounted to $460,289. At December 31, 2003 the federal income tax payable
included in other liabilities amounted to $1,258,717.

Reduction  of  income  taxes  paid as a result  of the  deduction  triggered  by
employee  exercise of stock options for the years ended December 31, 2004,  2003
and 2002 amounted to $139,819, $331,737 and $83,436,  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 ordinary  dividends they
may pay without regulatory approval. Within this limitation,  the maximum amount
which  could be paid to the  Company out of the  domestic  insurance  companies'
surplus was  approximately  $14.7 million as of December 31, 2004. 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, 2004        $        5,363,000          $      181,633,000            $       15,500,000
December 31, 2003        $       13,689,000          $      186,325,000            $        9,575,000
December 31, 2002        $       16,412,000          $      180,394,000            $       12,361,000

</TABLE>

The National  Association  of Insurance  Commissioners  (the "NAIC")  provided a
comprehensive basis of accounting for reporting to state insurance  departments.
Included  in the  codified  accounting  rules  was 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

                                      F-23


<PAGE>


differences  for the years  ended  December  31,  2004 and  2003,  respectively,
between prescribed accounting practices and those approved by the NAIC.


(8) Employee Retirement Plans:

The Company  maintains a retirement plan for the benefit of our employees in the
form of a Profit  Sharing Plan and Trust,  which resulted from the merger of our
Profit Sharing Plan and Money Purchase Plan in 2003. The Profit Sharing Plan and
Trust 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 plan provides for 100% vesting upon  completion of one year
of service.  Employee  retirement plan expenses for the years ended December 31,
2004, 2003 and 2002 amounted to $966,008, $901,343 and $1,167,436, respectively.

(9) Debt:

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.

The fair value of the senior  debt at  December  31,  2004 was a price  equal to
96.5% of the par value.

Interest paid amounted to  $3,322,738,  $34,327 and $608,148 for the years ended
December 31, 2004, 2003 and 2002, respectively.

(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, 2004 are as follows:

                                                      Amount
                                                      ------
          2005............................          1,299,180
          2006............................          1,302,134
          2007............................          1,283,444
          2008............................          1,283,444
          2009............................          1,283,444
          Thereafter......................          8,149,862
                                                  -----------
          Total...........................        $14,601,508


The operating  leases also include  provisions for additional  payments based on
certain  annual cost  increases.  Rent expenses for the years ended December 31,
2004,  2003  and  2002  amounted  to  $1,306,695,  $1,993,278,  and  $1,102,755,
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.

Additionally,  the Company  made a first  amendment to a lease dated May 4, 2004
for its office in Chicago.  The

                                      F-24


<PAGE>


minimum monthly rental payments of $4,159 will commence in 2005 and end in 2010.

(11) Comprehensive Income:

The Company's comparative comprehensive income is as follows:


<TABLE>
<CAPTION>

                                                                     Years ended December 31,
                                                              -----------------------------------------
                                                                  2004            2003           2002
                                                              -----------------------------------------

<S>                                                           <C>            <C>            <C>
Net income                                                    $14,630,665    $17,092,764    $28,710,494

Other comprehensive income (loss), net of tax:
     Unrealized holding gains (losses) on securities,
         net of deferred tax benefit (expense) of
         $(330,387), $(304,104), and $678,435                     613,577        564,765     (1,259,951)
     Less: reclassification adjustment for gains realized
         in net income, net of tax expense of
         $(237,156),$(192,496), and $(2,959,601)                  440,433        357,492      5,496,402
     Foreign currency translation adjustment                           --             --       (811,880)
                                                              -----------------------------------------
              Other comprehensive income (loss)                   173,144        207,273     (7,568,233)
                                                              -----------------------------------------

Total comprehensive income                                    $14,803,809    $17,300,037    $21,142,261
                                                            ===========================================

</TABLE>

The Company  recorded  unrealized  holding gains on securities,  net of deferred
taxes,  of $742,364  and $569,220 as of December 31, 2004 and December 31, 2003,
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, 2004,
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. There were no repurchases made during 2004.

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 per share for each of the years
ended December 31, 2004, 2003 and 2002 is as follows:


<TABLE>
<CAPTION>

                              December 31, 2004                  December 31, 2003                   December 31, 2002
                     ---------------------------------------------------------------------------------------------------------------
                                  Weighted                              Weighted                          Weighted
                                  Average                               Average                            Average
                     Net           Shares       Per         Net         Shares      Per       Net           Shares       Per
                     Income      Outstanding    Share       Income    Outstanding   Share    Income      Outstanding    Share
                     ---------------------------------------------------------------------------------------------------------------
                                                         (In thousands except for per share data)

<S>                   <C>          <C>          <C>        <C>           <C>        <C>      <C>             <C>        <C>
Basic EPS             $14,631      9,736        $1.50      $17,093       9,673      $1.77    $28,710         9,277      $3.09

Effect of Dilutive Securities:
        Stock Options      --        180        $(.02)          --         155      $(.03)        --            32      $(.01)
                     ---------------------------------------------------------------------------------------------------------------
Diluted EPS           $14,631      9,916        $1.48      $17,093       9,828      $1.74    $28,710         9,309      $3.08
                     ===============================================================================================================

</TABLE>

                                      F-25


<PAGE>


(13) Stock Plans:

The Company has three stock plans,  the first approved by  shareholders in 1991,
the second in 2002 and the third in 2004.  Each of these plans  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.  The 2004
plan  authorizes  the  issuance of options to purchase  shares of common  stock,
share appreciation  rights,  restricted and unrestricted share awards as well as
deferred share units and performance  awards.  Options are exercisable  over the
period  specified in each option  agreement  and expire at a maximum term of ten
years  covering  up to  450,000  shares  of the  Company's  common  stock in the
aggregate. The Company granted 14,100 shares of common stock to certain officers
and  directors  of the  Company  in 2004  having a total  compensation  value of
$369,279.  The Company granted 8,557 of deferred share units to certain officers
and directors of the Company in 2004 for a total compensation value of $185,250.
Deferred  share units become shares of common stock issued upon the departure of
the officer/director from the Company.

The Company also adopted an Employee  Stock  Purchase Plan (the "ESPP") in 2004.
The ESPP allows eligible employees of the Company and its designated  affiliates
to purchase, through payroll deductions,  shares of common stock of the Company.
The ESPP is designed to retain and motivate the employees of the Company and its
designated affiliates by encouraging them to acquire ownership in the Company on
a tax-favored  basis.  The price per common share sold under the ESPP is 85% (or
more if the  Board  of  Directors  or the  committee  administering  the plan so
provides)  of the closing  price of the  Company's  shares on the New York Stock
Exchange on the day the Common Stock is offered. The Company has reserved 50,000
shares for issuance  under the ESPP.  There were no shares issued under the ESPP
as of December 31, 2004.

A summary of stock  option  activity  under the stock  plans for the years ended
December 31, 2004, 2003 and 2002 is as follows:




<TABLE>
<CAPTION>

                          December 31, 2004                    December 31, 2003                     December 31,2002
                       ------------------------------------------------------------------------------------------------------------
                       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      520,700      $12.59-$20.25             622,568      $12.05-$20.25            223,234         $12.00-$20.25

Granted                 10,000         $26.00                  20,000             $18.69            463,000         $       14.47

Exercised              (42,250)     $14.47-$15.79            (121,066)     $12.05-$20.25            (34,666)        $12.00-$17.22

Forfeited              (19,950)     $14.47-$15.56                (802)     $12.05-$14.47            (29,000)        $12.00-$14.47
                           ----                               -------                               --------          -------------

Outstanding,
End of period          468,500      $12.59-$26.00             520,700      $12.59-$20.25            622,568         $12.05-$20.25
                       =======                                =======                               ========

Exercisable,
End of period          226,175      $12.59-$20.25             156,550      $12.59-$20.25            141,567         $12.05-$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.

                                      F-26


<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. The table  includes  only the effect of stock options on
net income and  earnings per share as all other stock  compensation  awards have
been  accounted for under SFAS 123. The amounts for all other awards issued were
$522,729, $455,450 and $368,100 for 2004, 2003 and 2002, respectively.


<TABLE>
<CAPTION>

                                                     Year ended December 31,
                                             -------------------------------------
                                                 2004         2003          2002
                                                 ----         ----          ----
                                              (in thousands except per share data)

<S>                                         <C>           <C>           <C>
Net income, as reported                     $   14,631    $   17,093    $   28,710
Add: Stock based employee
    compensation expense included in
   reported net income, net of related
    tax effects                                     30            19            15
Deduct: Total stock-based employee
compensation expense determined
under the fair value based method for all
awards, net of related tax effects                (354)         (358)         (162)
                                            ----------    ----------    ----------

Pro forma net income                        $   14,307    $   16,754    $   28,563
                                            ==========    ==========    ==========


Earnings per share:

Basic EPS - as reported                          $1.50         $1.77         $3.09
Basic EPS - pro forma                            $1.47         $1.73         $3.08

Diluted EPS - as reported                        $1.48         $1.74         $3.08
Diluted EPS - pro forma                          $1.44         $1.70         $3.07

</TABLE>

In  determining  the pro forma effects on net income,  the fair value of options
granted in 2004,  2003,  2002,  2001,  2000, 1999 and 1998 were estimated at the
grant  date using the  Black-Scholes  option-pricing  model  with the  following
weighted  average  assumptions in 2004,  2003,  2002, 2001, 2000, 1999 and 1998,
respectively:  dividend yield of 1%, 1%, 0%, 0%, 3.0%,  3.0% and 1.9%;  expected
volatility of 31%,  31%,  31%,  25%,  25%, 25% and 28%; the 2004,  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 2.65%,  2.20%,  2.90%,  4.42%, 4.75%, 6.48% and
4.56%.  The fair value of options  granted in 2004,  2003 and 2002  amounted  to
$63,611, $85,895 and $1,819,507, respectively.

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  ended  December  31,  2004,  2003 and 2002 a total of 35,000  shares were
exercised at market  prices  ranging from $18 to $26.28 per share.  Accordingly,
the Company  recorded an expense  (benefit) of ($31,800),  $455,450 and $368,100
for the years ended December 31, 2004, 2003 and 2002, 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

                                      F-27


<PAGE>


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).  There were
no options exercised during 2004 and 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, since
the Company's  withdrawal  from its London  operations  in 2002,  MMO UK has not
provided capacity to any Lloyd's syndicate.

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,
                       -------------------------------------------------------------------------------------------------------------
                                       2004                                2003                               2002
                       -------------------------------------------------------------------------------------------------------------
Segments                                                               (in thousands)
                                                          Income                         Income                         Income
                                      Revenues            (Loss)          Revenues       (Loss)          Revenues       (Loss)
                       -------------------------------------------------------------------------------------------------------------
<S>                                    <C>              <C>               <C>            <C>            <C>            <C>
Ocean marine                           $ 76,779         $ 11,912          $ 73,371       $ 19,372       $  62,434      $ 10,078
Inland marine/Fire                        4,891            1,901             3,802            282           2,371           387
Other liability                          35,056             (916)           16,126         (1,116)          6,883        (4,577)
Aircraft                                     68           12,173             2,865          2,481          39,159        16,957
MMO London                                  ---              ---               ---            ---           4,159           (94)
------------------------------------------------------------------------------------------------------------------------------------
           Subtotal                     116,794           25,070            96,164         21,019         115,006        22,751

                                      ----------------------------------------------------------------------------------------------
Other income                              1,790           1,790             1,688          1,688              186           186
Net investment income                    23,679          23,679            22,394         22,394           15,821        15,821
Net realized investment gains               678             678               550            550            8,456         8,456
General and administrative expenses         ---         (23,247)              ---        (19,428)             ---       (18,373)
Interest expense                            ---          (5,353)              ---            (26)             ---          (575)
Income tax benefit (expense)                ---          (7,986)              ---         (9,104)             ---           444
                                 ---------------------------------------------------------------------------------------------------
Total                                 $ 142,941        $ 14,631          $120,796       $ 17,093         $139,469      $ 28,710
------------------------------------------------------------------------------------------------------------------------------------
</TABLE>

                                      F-28

<PAGE>


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

<TABLE>
<CAPTION>

                                            2004             2003            2002
                                    ----------------------------------------------
                                                      (In thousands)
<S>                                 <C>              <C>                <C>
United States                       $     165,388    $     119,749      $   97,855
Europe                                     12,489           16,836          29,796
Asia                                        2,430            3,994          13,511
Latin America                                 991            1,203           2,669
Other                                       2,336            1,415           8,686
                                     ---------------------------------------------
Total Gross Written Premiums        $     183,634    $     143,197   $     152,517
                                     =============================================
</TABLE>


(15) Quarterly Financial Data (unaudited):

The quarterly financial data for 2004 and 2003 are as follows:


                                       Three Months Ended
                             ----------------------------------------
                              March 31, June 30,  Sept. 30, Dec.31,
                                2004      2004      2004     2004
                             ----------------------------------------
                               (in thousands, except per share data)

Total revenues ............   $31,445   $32,318   $35,349   $43,829
Income before income taxes    $ 4,257   $ 1,314   $ 7,724   $ 9,322
Net income ................   $ 2,769   $   858   $ 4,981   $ 6,023

Basic earnings  per share .   $   .28   $   .09   $   .51   $   .62
Diluted earnings  per share   $   .28   $   .09   $   .50   $   .61



                                       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

                                      F-29


<PAGE>


(16) Related Party Transactions:

The Company had gross  premiums of $13.8  million in 2004,  $9.4 million in 2003
and $3.6 million in 2002 written  through I. Arthur Yanoff & Co, Ltd. and Yanoff
South  Inc.,  insurance  brokerages  at which  Glenn R.  Yanoff,  a director  of
theCompany  from  June 1999  until  May 2004 and  currently  a  director  of the
Company's insurance subsidiaries, is a vice president and insurance underwriter.
In connection with the placement of such business,  gross commission expenses of
$2,363,000,  $1,526,000, and $532,000 in 2004, 2003 and 2002, 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 of the Company,  and William D. Shaw,
Jr.,  Vice  Chairman and a Director of the  Company,  are also  associated  with
Mariner.  Effective  December 31, 2004, Mr. Trumbull,  who had previously been a
shareholder of Mariner, ceased to be a shareholder of Mariner. Currently, he has
a consulting  agreement with Mariner.  Effective  January 1, 2005, Mr. Shaw, who
previously  had a contractual  relationship  with Mariner  relating to investing
services, and on whose behalf Mariner agreed to hold as nominee a portion of the
option   covering   315,000  shares  of  NYMAGIC,   terminated  his  contractual
relationship  with Mariner,  waived his interest in the option covering  315,000
shares of  NYMAGIC  and  became a  shareholder  of  Mariner.  Mr.  Kallop  has a
consulting  agreement  with Mariner and Mariner holds on his behalf as nominee a
portion  of the option  covering  315,000  shares of  NYMAGIC.  Investment  fees
incurred under the agreement  with Mariner were  $3,165,030 for the period ended
December 31, 2004 and  $1,753,021  for the period ended  December 31, 2003.  The
Company  made a payment of $83,000 and granted  3,900  shares of common stock in
the amount of  $102,141  for the period  ended  December  31, 2004 to William D.
Shaw, Jr. for his management contributions to the company.

In 2003,  the Company  obtained a 100% interest in a limited  partnership  hedge
fund,  (Tiptree),  that invests in CDO  securities,  Credit  Related  Structured
Product  (CRS)  securities  and other  structured  product  securities  that are
structured,  managed  or advised by a Mariner  affiliated  Company.  In 2003 the
Company made an investment of $11.0 million in Tiptree. An additional investment
of $4.65  million was made in 2004.  The Company is  committed  to  providing an
additional  $4.35  million in capital to Tiptree.  Under the  provisions  of the
limited partnership 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, 2004 and December 31, 2003 amounted to $1,459,255
and  $3,176,643  respectively,  and were  based  upon  the  fair  value of those
securities  held  and sold for the  years  ended  December  31,  2004 and  2003,
respectively.  The limited  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, 2004. 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, 2004 the Company  held $5.4  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.

                                      F-30


<PAGE>


(18) Subsequent events:

In a transaction  separate from its common stock  repurchase plan, on January 7,
2005 the Company purchased from certain of its shareholders a total of 1,092,735
shares of Common Stock at $24.80 per share. The selling  shareholders  were Mark
W. Blackman, a son of the Company's founder who served on our board of directors
from 1979 until May 2004 and who is currently the Company's  Chief  Underwriting
Officer  (54,530  shares),  his wife  (50,000  shares),  and two  trusts for the
benefit  of their  children  (110,000  shares);  Lionshead  Investments,  LLC, a
company controlled by John N. Blackman, Jr., also a son of the Company's founder
who served on our board of directors from 1975 until May 2004 (495,030  shares),
two of his children  (67,664  shares),  a trust for the benefit of a third child
(25,158  shares),  and a family  trust  (25,000  shares);  and, two trusts and a
foundation established by Louise B. Tollefson,  the former wife of the Company's
founder  (265,353  shares).  Robert G. Simses,  a director of NYMAGIC INC., is a
trustee of the last mentioned entities.  As a result of the share purchase,  the
Company's  outstanding  shares were reduced from  9,781,098  shares to 8,688,363
shares.

On  February  8, 2005 the  Company  and the  individual  members of its Board of
Directors  were served with a purported  shareholder  derivative  action lawsuit
brought in New York Supreme  Court,  Queens  County,  relating to the  Company's
purchase on January 7, 2005 of  approximately  1.1 million  shares of its common
stock from certain  members of or trusts  controlled  by certain  members of the
family of John N.  Blackman,  the Company's  founder.  The  complaint  which was
brought by one of our shareholders  Linda Parnes, who together with Alan Russell
Kahn, owns 100 shares of the Company's  common stock,  alleges that the Board of
Directors  breached their fiduciary  duty,  wasted  corporate  assets and abused
their control over the Company by paying an excessive price for the shares.  The
plaintiff  is seeking  damages  against  members of the Board of  Directors  and
rescission of the purchase. The Company's answer to the complaint is required to
be filed by April 1, 2005.  The Company  believes  that the  complaint is wholly
without merit, and will defend it vigorously.


                                      F-31


<PAGE>


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

<TABLE>
<CAPTION>

                                                                    December 31,     December 31,
                                                                        2004              2003
                                                                    ------------------------------
Assets:
<S>                                                                 <C>              <C>
Cash ............................................................   $     311,241    $   1,118,342
Investments .....................................................     113,976,557       10,351,000
                                                                      -----------       ----------
     Total cash and investments .................................     114,287,798       11,469,342
Investment in subsidiaries ......................................     224,027,350      221,687,262
Due from subsidiaries ...........................................      15,093,556       11,900,167
Receivable for securities .......................................       2,628,019               --
Other assets ....................................................       5,873,783        3,364,910
                                                                    -------------    -------------
                      Total assets ..............................   $ 361,910,506    $ 248,421,681
                                                                    =============    =============
Liabilities:
Notes payable ...................................................   $ 100,000,000    $          --
Dividend payable ................................................         586,866          583,305
Other liabilities ...............................................       3,206,048        3,547,276
                                                                    -------------    -------------
                      Total liabilities .........................     103,792,914        4,130,581
                                                                    -------------    -------------
Shareholders' equity:
Common stock ....................................................      15,335,740       15,279,390
Paid-in capital .................................................      36,781,911       35,476,566
Accumulated other comprehensive income ..........................         742,364          569,220
Retained earnings ...............................................     251,418,750      239,127,097
Treasury stock ..................................................     (46,161,173)     (46,161,173)
                                                                    -------------    -------------
                      Total shareholders' equity ................     258,117,592      244,291,100
                                                                    ------------    -------------
                      Total liabilities and shareholders' equity    $ 361,910,506    $ 248,421,681
                                                                    =============    =============
</TABLE>

                              Statements of Income
                                (Parent Company)
<TABLE>
<CAPTION>

                                                               Year ended December 31,
                                                          2004           2003         2002
                                                      ---------------------------------------
Revenues:
<S>                                                  <C>            <C>          <C>
Cash dividends from subsidiary ...................   $ 15,500,000   $  9,575,000 $ 12,361,252
Net investment and other income (loss) ...........      1,785,226     (2,883,359)    (154,681)
                                                       ----------     ----------   ----------
                                                       17,285,226      6,691,641   12,206,571
                                                       ----------     ----------   ----------
Expenses:
General and administrative expenses ..............      2,405,211      1,181,117    1,464,889
Interest expense .................................      5,351,525         25,652      572,721
Income tax benefit ...............................     (2,935,225)    (1,181,099)  (9,418,711)
                                                       ----------     ----------   ----------
                                                        4,821,511         25,670   (7,381,101)
                                                       ----------     ----------   ----------

Income before equity income ......................     12,463,715      6,665,971   19,587,672
Equity in undistributed earnings of subsidiaries..      2,166,950     10,426,793    9,122,822
                                                       ----------     ----------   ----------
Net income .......................................   $ 14,630,665   $ 17,092,764 $ 28,710,494
                                                       ==========     ==========   ==========
</TABLE>

                                      F-32


<PAGE>


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



<TABLE>
<CAPTION>

                                                                             Year ended December 31,

                                                                       2004          2003            2002
                                                                  ---------------------------------------------
Cash flows from operating activities:
<S>                                                               <C>            <C>             <C>
Net income ....................................... ............   $ 14,630,665   $ 17,092,764    $ 28,710,494
                                                                  ---------------------------------------------

Adjustments to reconcile net income
          to cash provided by operating activities:
        Equity in undistributed (earnings) loss of subsidiaries     (2,166,950)   (10,426,793)     (9,122,822)
        Equity in earnings of limited partnerships ............     (5,113,176)      (351,000)             --
        Increase in other assets ..............................       (214,300)      (316,623)       (137,005)
        Decrease (increase) in due from subsidiaries ..........     (3,193,389)     2,665,817      (7,390,764)
        (Decrease) Increase in other liabilities ..............       (341,229)     3,357,102        (110,524)
                                                                    -----------    -----------     ----------

Net cash provided by operating activities .....................      3,601,621     12,021,267      11,949,379
                                                                    ----------     ----------      ----------

Cash flows from investing activities:
         Net sale (purchase) of other investments .............    (35,695,316)     2,862,974      (2,374,196)
         Limited partnerships acquired .............. .........    (62,817,059)   (10,000,000)             --
         Receivable for securities ............................     (2,628,019)            --              --
                                                                    ------------- -----------      ----------

Net cash used in investing activities .........................   (101,140,394)    (7,137,026)     (2,374,196)
                                                                  ------------     ----------      ----------

Cash flows from financing activities:
        Proceeds from stock issuance and other ................      1,361,695      2,176,507         538,622
        Cash dividends paid to stockholders ...................     (2,335,451)    (1,747,170)             --
        Net sale of treasury shares ...........................             --      6,192,281              --
        Proceeds from borrowings ..............................     97,705,428             --      15,719,953
        Loan principal payments ...............................             --     (6,219,953)    (17,411,253)
        Net amount loaned to subsidiary .......................             --     (4,650,000)     (8,107,642)
                                                                    ----------     ----------     -----------
Net cash used in financing activities .........................     96,731,672     (4,248,335)     (9,260,320)
                                                                    ----------     ----------      ----------

Net increase (decrease) in cash ...............................       (807,101)       635,906         314,863

Cash at beginning of period ...................................      1,118,342        482,436         167,573
                                                                     ---------      ---------       ---------

Cash at end of period .........................................   $    311,241   $  1,118,342    $    482,436
                                                                       =======      =========         =======
</TABLE>

The  condensed  financial  information  of  NYMAGIC,  INC.  for the years  ended
December  31,  2004,  2003  and  2002  should  be read in  conjunction  with the
consolidated  financial  statements of NYMAGIC,  INC. and subsidiaries and notes
thereto.

                                      F-33


<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                 REVENUE              REVENUE
             SEGMENTS          (caption 7)        (caption 13-a-1)      (caption 13-a-2)        (caption 13-a-3)        (caption 1)
------------------------------------------------------------------------------------------------------------------------------------

<S>                                                     <C>                <C>                    <C>                    <C>
2004  Ocean marine                                                                                                        $ 76,361
      Inland marine/Fire                                                                                                     4,919
      Other liability                                                                                                       35,056
      Aircraft                                                                                                                  (3)
      MMO London                                                                                                               ---
------------------------------------------------------------------------------------------------------------------------------------
      Total                    $   13,055              $503,261            $  83,088                   -----             $ 116,333

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


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

2004  Ocean marine                                    $  47,544            $  17,323                                     $  82,689
      Inland marine/Fire                                  2,360                  630                                         5,255
      Other liability                                    28,829                7,143                                        49,190
      Aircraft                                          (12,175)                  70                                            (6)
      MMO London                                            ---                  ---                                           ---
------------------------------------------------------------------------------------------------------------------------------------
             Total              $  23,679             $  66,558            $  25,166                 $23,247             $ 137,128

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

</TABLE>

                                      F-34


<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
------------------------------------------------------------------------------------------------
December 31, 2004:
<S>                           <C>                 <C>               <C>               <C>
Allowance for
   doubtful accounts.....     $13,273,522         $1,379,926        $(1,815,441)      $12,838,007

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

</TABLE>


The  allowance  for doubtful  accounts on  reinsurance  receivables  amounted to
$12,388,007, $12,823,522 and $13,275,505 at December 31, 2004, December 31, 2003
and December  31, 2002  respectively.  The  allowance  for doubtful  accounts on
premiums  and other  receivables  amounted to $450,000  at  December  31,  2004,
December 31, 2003 and December 31, 2002.

                                      F-35


<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, 2004
CONSOLIDATED SUBSIDIARIES          $13,055             $503,261         ------        $83,088         $116,333          $21,894

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


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

DECEMBER 31, 2004
CONSOLIDATED SUBSIDIARIES          $81,518             $(14,960)         $25,166            $53,390            $137,128

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

</TABLE>

                                      F-36