##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 FORM 10-Q
 þ
    
    Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
 For the Quarterly Period Ended September 30, 2007
 Commission File Number 0-22280
 PHILADELPHIA CONSOLIDATED HOLDING CORP.
  PENNSYLVANIA
    
    23-2202671(State of Incorporation)
    
    (IRS Employer Identification No.)
 One Bala Plaza, Suite 100
Bala Cynwyd, Pennsylvania 19004
(610) 617-7900  (Address, including zip code and telephone number,
   þ o
  þ o o
  o þ




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##### 



INDEX
 For the Quarterly Period Ended September 30, 2007
 Part I - Financial InformationItem 1. Financial Statements:Consolidated Balance Sheets September 30, 2007 and
December 31, 2006
    
    
    3Consolidated Statements of Operations and Comprehensive
Income - For the three and nine months ended September 30, 2007 and 2006
    
    
    4Consolidated Statements of Changes in Shareholders Equity - For
the nine months ended September 30, 2007 and the year ended
December 31, 2006
    
    
    5Consolidated Statements of Cash Flows - For the nine
months ended September 30, 2007 and 2006
    
    
    6Notes to Consolidated Financial Statements
    
    
    7-18Item 2. Managements Discussion and Analysis of Financial Condition
and Results of Operations
    
    
    19-36Item 3. Quantitative and Qualitative Disclosures About Market Risk
    
    
    37Item 4. Controls and Procedures
    
    
    38Part II - Other InformationItem 1. Legal Proceedings
    
    
    39Item 1A. Risk Factors
    
    
    39Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    39Item 3. Defaults Upon Senior Securities
    
    
    39Item 4. Submission of Matters to a Vote of Security Holders
    
    
    39Item 5. Other Information
    
    
    39Item 6. Exhibits
    
    
    40Signatures
    
    
    41Casualty (Clash) Excess of Loss Reinsurance AgreementProperty Per Risk Excess of Loss AgreementInterest and Liabilities AgreementTerrorism Catastrophe Excess of Loss Reinsurance ContractTerrorism Catastrophe Excess of Loss Reinsurance Contract - 20% ShareExcess Catastrophe Reinsurance ContractReinstatement Premium Protection ReinsuranceFlorida Only Excess Catastrophe Reinsurance ContractFirst and Second Excess Reinstatement Premium Protection Reinsurance ContractThird Excess Reinstatement Premium ProtectionFlorida Hurricane Catastrophe Fund Reimbursement ContractFlorida Hurricane Catastrophe Fund Reimbursement ContractCertification of the Company's chief executive officerCertification of the Company's chief financial officerCertification of the Company's chief executive officer, pursuant to Section 906Certification of the Company's chief financial officer, pursuant to Section 906
  2




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PHILADELPHIA CONSOLIDATED HOLDING CORP. AND SUBSIDIARIES
 
 CONSOLIDATED BALANCE SHEETS
  As ofSeptember 30,
    
    
    December 31,2007
    
    
    2006(Unaudited)ASSETSINVESTMENTS:FIXED MATURITIES AVAILABLE FOR SALE AT MARKET
(AMORTIZED COST $2,503,942 AND $2,136,231)
    
    $
    2,495,045
    
    
    $
    2,129,609EQUITY SECURITIES AT MARKET (COST $319,000
AND $259,184)
    
    
    362,238
    
    
    
    304,033TOTAL INVESTMENTS
    
    
    2,857,283
    
    
    
    2,433,642CASH AND CASH EQUIVALENTS
    
    
    122,486
    
    
    
    108,671ACCRUED INVESTMENT INCOME
    
    
    24,303
    
    
    
    20,083PREMIUMS RECEIVABLE
    
    
    406,481
    
    
    
    346,836PREPAID REINSURANCE PREMIUMS AND REINSURANCE
RECEIVABLES
    
    
    276,849
    
    
    
    272,798DEFERRED INCOME TAXES
    
    
    47,926
    
    
    
    26,657DEFERRED ACQUISITION COSTS
    
    
    188,144
    
    
    
    158,805PROPERTY AND EQUIPMENT, NET
    
    
    26,813
    
    
    
    26,999OTHER ASSETS
    
    
    47,502
    
    
    
    44,046TOTAL ASSETS
    
    $
    3,997,787
    
    
    $
    3,438,537LIABILITIES AND SHAREHOLDERS EQUITYPOLICY LIABILITIES AND ACCRUALS:UNPAID LOSS AND LOSS ADJUSTMENT EXPENSES
    
    $
    1,394,834
    
    
    $
    1,283,238UNEARNED PREMIUMS
    
    
    871,842
    
    
    
    759,358TOTAL POLICY LIABILITIES AND ACCRUALS
    
    
    2,266,676
    
    
    
    2,042,596PREMIUMS PAYABLE
    
    
    88,082
    
    
    
    66,827OTHER LIABILITIES
    
    
    196,353
    
    
    
    161,847TOTAL LIABILITIES
    
    
    2,551,111
    
    
    
    2,271,270COMMITMENTS AND CONTINGENCIESSHAREHOLDERS EQUITY:PREFERRED STOCK, $.01 PAR VALUE,
10,000,000 SHARES AUTHORIZED,
NONE ISSUED AND OUTSTANDING
    
    
    
    
    
    
    COMMON STOCK, NO PAR VALUE,
100,000,000 SHARES AUTHORIZED, 71,511,222 AND
70,848,482 SHARES ISSUED AND OUTSTANDING
    
    
    402,010
    
    
    
    376,986NOTES RECEIVABLE FROM SHAREHOLDERS
    
    
    (16,787
    )
    
    
    (17,074
    )ACCUMULATED OTHER COMPREHENSIVE INCOME
    
    
    22,321
    
    
    
    24,848RETAINED EARNINGS
    
    
    1,039,132
    
    
    
    782,507TOTAL SHAREHOLDERS EQUITY
    
    
    1,446,676
    
    
    
    1,167,267TOTAL LIABILITIES AND SHAREHOLDERS EQUITY
    
    $
    3,997,787
    
    
    $
    3,438,537
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PHILADELPHIA CONSOLIDATED HOLDING CORP. AND SUBSIDIARIES
 
 CONSOLIDATED STATEMENTS OF OPERATIONS AND
COMPREHENSIVE INCOME
 For the Three Months
    
    
    For the Nine MonthsEnded September 30,
    
    
    Ended September 30,2007
    
    
    2006
    
    
    2007
    
    
    2006REVENUE:NET EARNED PREMIUMS
    
    $
    359,149
    
    
    $
    296,366
    
    
    $
    1,015,182
    
    
    $
    861,706NET INVESTMENT INCOME
    
    
    30,199
    
    
    
    23,833
    
    
    
    85,694
    
    
    
    65,572NET REALIZED INVESTMENT GAIN (LOSS)
    
    
    2,817
    
    
    
    (6,976
    )
    
    
    32,638
    
    
    
    (9,782
    )OTHER INCOME
    
    
    980
    
    
    
    795
    
    
    
    2,660
    
    
    
    1,703TOTAL REVENUE
    
    
    393,145
    
    
    
    314,018
    
    
    
    1,136,174
    
    
    
    919,199LOSSES AND EXPENSES:LOSS AND LOSS ADJUSTMENT EXPENSES
    
    
    146,389
    
    
    
    95,662
    
    
    
    479,142
    
    
    
    353,289NET REINSURANCE RECOVERIES
    
    
    (1,584
    )
    
    
    (10,956
    )
    
    
    (35,243
    )
    
    
    (16,163
    )NET LOSS AND LOSS ADJUSTMENT EXPENSES
    
    
    144,805
    
    
    
    84,706
    
    
    
    443,899
    
    
    
    337,126ACQUISITION COSTS AND OTHER
UNDERWRITING EXPENSES
    
    
    101,252
    
    
    
    89,052
    
    
    
    299,902
    
    
    
    251,406OTHER OPERATING EXPENSES
    
    
    2,992
    
    
    
    3,364
    
    
    
    9,128
    
    
    
    8,644TOTAL LOSSES AND EXPENSES
    
    
    249,049
    
    
    
    177,122
    
    
    
    752,929
    
    
    
    597,176INCOME BEFORE INCOME TAXES
    
    
    144,096
    
    
    
    136,896
    
    
    
    383,245
    
    
    
    322,023INCOME TAX EXPENSE (BENEFIT):CURRENT
    
    
    53,198
    
    
    
    49,725
    
    
    
    146,528
    
    
    
    116,448DEFERRED
    
    
    (5,346
    )
    
    
    (2,719
    )
    
    
    (19,908
    )
    
    
    (9,493
    )TOTAL INCOME TAX EXPENSE
    
    
    47,852
    
    
    
    47,006
    
    
    
    126,620
    
    
    
    106,955NET INCOME
    
    $
    96,244
    
    
    $
    89,890
    
    
    $
    256,625
    
    
    $
    215,068OTHER COMPREHENSIVE INCOME (LOSS),
NET OF TAX:HOLDING GAIN ARISING DURING PERIOD
    
    $
    21,727
    
    
    $
    29,929
    
    
    $
    18,688
    
    
    $
    10,608RECLASSIFICATION ADJUSTMENT
    
    
    (1,831
    )
    
    
    4,534
    
    
    
    (21,215
    )
    
    
    6,358OTHER COMPREHENSIVE INCOME (LOSS)
    
    
    19,896
    
    
    
    34,463
    
    
    
    (2,527
    )
    
    
    16,966COMPREHENSIVE INCOME
    
    $
    116,140
    
    
    $
    124,353
    
    
    $
    254,098
    
    
    $
    232,034PER AVERAGE SHARE DATA:NET INCOME  BASIC
    
    $
    1.37
    
    
    $
    1.28
    
    
    $
    3.65
    
    
    $
    3.08NET INCOME  DILUTED
    
    $
    1.30
    
    
    $
    1.22
    
    
    $
    3.46
    
    
    $
    2.94WEIGHTED-AVERAGE COMMON SHARES
OUTSTANDING
    
    
    70,457,765
    
    
    
    69,991,728
    
    
    
    70,323,834
    
    
    
    69,717,194WEIGHTED-AVERAGE SHARE EQUIVALENTS
OUTSTANDING
    
    
    3,599,654
    
    
    
    3,488,999
    
    
    
    3,856,902
    
    
    
    3,470,645WEIGHTED-AVERAGE SHARES AND SHARE
EQUIVALENTS OUTSTANDING
    
    
    74,057,419
    
    
    
    73,480,727
    
    
    
    74,180,736
    
    
    
    73,187,839
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PHILADELPHIA CONSOLIDATED HOLDING CORP. AND SUBSIDIARIES
 
 CONSOLIDATED STATEMENTS OF CHANGES
IN SHAREHOLDERS EQUITY
 For the NineMonths EndedSeptember 30, 2007
    
    
    For the Year Ended(Unaudited)
    
    
    December 31, 2006COMMON SHARES:BALANCE AT BEGINNING OF YEAR
    
    
    70,848,482
    
    
    
    69,266,016ISSUANCE OF SHARES PURSUANT TO
STOCK PURCHASE PLANS, NET
    
    
    92,469
    
    
    
    613,320ISSUANCE OF SHARES PURSUANT TO STOCK
BASED COMPENSATION PLANS
    
    
    570,271
    
    
    
    969,146BALANCE AT END OF PERIOD
    
    
    71,511,222
    
    
    
    70,848,482COMMON STOCK:BALANCE AT BEGINNING OF YEAR
    
    $
    376,986
    
    
    $
    332,757ISSUANCE OF SHARES PURSUANT TO STOCK
PURCHASE PLANS
    
    
    3,550
    
    
    
    19,521EFFECTS OF ISSUANCE OF SHARES PURSUANT TO STOCK
BASED COMPENSATION PLANS
    
    
    20,912
    
    
    
    24,301OTHER
    
    
    562
    
    
    
    407BALANCE AT END OF PERIOD
    
    
    402,010
    
    
    
    376,986NOTES RECEIVABLE FROM SHAREHOLDERS:BALANCE AT BEGINNING OF YEAR
    
    
    (17,074
    )
    
    
    (7,217
    )NOTES RECEIVABLE ISSUED PURSUANT TO
EMPLOYEE STOCK PURCHASE PLANS
    
    
    (3,287
    )
    
    
    (12,391
    )COLLECTION OF NOTES RECEIVABLE
    
    
    3,574
    
    
    
    2,534BALANCE AT END OF PERIOD
    
    
    (16,787
    )
    
    
    (17,074
    )ACCUMULATED OTHER COMPREHENSIVE INCOME,
NET OF DEFERRED INCOME TAXES:BALANCE AT BEGINNING OF YEAR
    
    
    24,848
    
    
    
    (2,702
    )OTHER COMPREHENSIVE INCOME (LOSS) INCOME,
NET OF TAXES
    
    
    (2,527
    )
    
    
    27,550BALANCE AT END OF PERIOD
    
    
    22,321
    
    
    
    24,848RETAINED EARNINGS:BALANCE AT BEGINNING OF YEAR
    
    
    782,507
    
    
    
    493,658NET INCOME
    
    
    256,625
    
    
    
    288,849BALANCE AT END OF PERIOD
    
    
    1,039,132
    
    
    
    782,507TOTAL SHAREHOLDERS EQUITY
    
    $
    1,446,676
    
    
    $
    1,167,267
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PHILADELPHIA CONSOLIDATED HOLDING CORP. AND SUBSIDIARIES
 
 CONSOLIDATED STATEMENTS OF CASH FLOWS
 For the Nine Months Ended September 30,2007
    
    
    2006CASH FLOWS FROM OPERATING ACTIVITIES:NET INCOME
    
    $
    256,625
    
    
    $
    215,068ADJUSTMENTS TO RECONCILE NET INCOME TO NET CASH
PROVIDED BY OPERATING ACTIVITIES:NET REALIZED INVESTMENT (GAIN) LOSS
    
    
    (32,638
    )
    
    
    9,782AMORTIZATION OF INVESTMENT PREMIUMS, NET OF DISCOUNT
    
    
    4,414
    
    
    
    7,452AMORTIZATION OF INTANGIBLE ASSETS
    
    
    2,217
    
    
    
    DEPRECIATION
    
    
    5,755
    
    
    
    4,297DEFERRED INCOME TAX BENEFIT
    
    
    (19,908
    )
    
    
    (9,493
    )CHANGE IN PREMIUMS RECEIVABLE
    
    
    (59,645
    )
    
    
    (55,462
    )CHANGE IN PREPAID REINSURANCE PREMIUMS AND REINSURANCE
RECEIVABLES, NET OF FUNDS HELD PAYABLE TO REINSURER
    
    
    (4,051
    )
    
    
    84,189CHANGE IN ACCRUED INVESTMENT INCOME
    
    
    (4,220
    )
    
    
    (410
    )CHANGE IN DEFERRED ACQUISITION COSTS
    
    
    (29,339
    )
    
    
    (27,971
    )CHANGE IN INCOME TAXES PAYABLE
    
    
    8,085
    
    
    
    11,957CHANGE IN OTHER ASSETS
    
    
    8,459
    
    
    
    (8,126
    )CHANGE IN UNPAID LOSS AND LOSS ADJUSTMENT EXPENSES
    
    
    111,596
    
    
    
    (2,352
    )CHANGE IN UNEARNED PREMIUMS
    
    
    112,484
    
    
    
    126,673CHANGE IN OTHER LIABILITIES
    
    
    36,503
    
    
    
    26,164FAIR VALUE OF STOCK BASED COMPENSATION
    
    
    11,341
    
    
    
    9,780EXCESS TAX BENEFIT FROM ISSUANCE OF SHARES PURSUANT TO
STOCK BASED COMPENSATION PLANS
    
    
    (4,368
    )
    
    
    (8,411
    )NET CASH PROVIDED BY OPERATING ACTIVITIES
    
    
    403,310
    
    
    
    383,137CASH FLOWS FROM INVESTING ACTIVITIES:PROCEEDS FROM SALES OF INVESTMENTS IN FIXED MATURITIES
    
    
    185,559
    
    
    
    133,439PROCEEDS FROM MATURITY OF INVESTMENTS IN FIXED MATURITIES
    
    
    183,600
    
    
    
    206,316PROCEEDS FROM SALES OF INVESTMENTS IN EQUITY SECURITIES
    
    
    213,854
    
    
    
    71,858COST OF FIXED MATURITIES ACQUIRED
    
    
    (725,502
    )
    
    
    (603,243
    )COST OF EQUITY SECURITIES ACQUIRED
    
    
    (241,526
    )
    
    
    (156,679
    )PURCHASE OF PROPERTY AND EQUIPMENT
    
    
    (5,569
    )
    
    
    (6,852
    )PURCHASE OF INTANGIBLES
    
    
    (12,726
    )
    
    
    NET CASH USED BY INVESTING ACTIVITIES
    
    
    (402,310
    )
    
    
    (355,161
    )CASH FLOWS FROM FINANCING ACTIVITIES:PROCEEDS FROM EXERCISE OF EMPLOYEE STOCK OPTIONS
    
    
    4,604
    
    
    
    6,474PROCEEDS FROM COLLECTION OF SHAREHOLDER NOTES RECEIVABLE
    
    
    3,574
    
    
    
    1,978PROCEEDS FROM SHARES ISSUED PURSUANT TO
STOCK PURCHASE PLANS
    
    
    269
    
    
    
    1,746EXCESS TAX BENEFIT FROM ISSUANCE OF SHARES PURSUANT TO
STOCK BASED COMPENSATION PLANS
    
    
    4,368
    
    
    
    8,411COST OF SHARES WITHHELD TO SATISFY MINIMUM REQUIRED TAX
WITHHOLDING OBLIGATION ARISING UPON EXERCISE
OF OPTIONS
    
    
    
    
    
    
    (4,676
    )NET CASH PROVIDED BY FINANCING ACTIVITIES
    
    
    12,815
    
    
    
    13,933NET INCREASE IN CASH AND CASH EQUIVALENTS
    
    
    13,815
    
    
    
    41,909CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD
    
    
    108,671
    
    
    
    74,385CASH AND CASH EQUIVALENTS AT END OF PERIOD
     
    $
    122,486
    
    
    $
    116,294NON-CASH TRANSACTIONS:ISSUANCE OF SHARES PURSUANT TO EMPLOYEE STOCK
PURCHASE PLANS IN EXCHANGE FOR NOTES RECEIVABLE
    
    $
    3,287
    
    

    $
    4,879
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PHILADELPHIA CONSOLIDATED HOLDING CORP. AND SUBSIDIARIES
 
 Notes to Consolidated Financial Statements
  1.
    
    Basis of PresentationThe consolidated financial statements for the quarterly period ended September 30, 2007 are
unaudited, but in the opinion of management have been prepared on the same basis as the annual
audited consolidated financial statements and reflect all adjustments, consisting of normal
recurring adjustments and accruals, necessary for a fair statement of the information set forth
therein. The results of operations for the nine months ended September 30, 2007 are not
necessarily indicative of the operating results to be expected for the full year or any other
period.These consolidated financial statements should be read in conjunction with the financial
statements and notes included in the Companys Annual Report on Form 10-K as of and for the year
ended December 31, 2006.2.
    
    InvestmentsThe carrying amount for the Companys investments approximates their estimated fair value. The
Companys external fixed income investment manager provides pricing of the Companys investments
based on a pricing methodology approved by the investment managers pricing committee. Pricing
is primarily obtained from market vendors based on a pre-established provider list. For
non-investment grade structured securities for which a vendor price is not available, broker
pricing is obtained from either the lead manager of the issue or from the broker used at the
time the security was purchased. Material assumptions and factors considered by the independent
vendors and brokers in pricing these securities may include: cash flows, collateral performance
including delinquencies, defaults, and recoveries and any market clearing activity and/or
liquidity circumstances in the security or other benchmark securities that may have occurred
since the prior month-end pricing period. For mortgage and asset-backed securities (structured
securities) of high credit quality, changes in expected cash flows are recognized using the
retrospective method. For structured securities where the possibility of credit loss is other
than remote, changes in expected cash flows are recognized on the prospective method over the
remaining life of the securities. Cash flow assumptions for structured securities are obtained
from a primary market provider of such information. These assumptions represent a market based
best estimate of the amount and timing of estimated principal and interest cash flows based on
current information and events.The Company regularly performs impairment reviews with respect to its investments. There are
certain risks and uncertainties inherent in the Companys impairment methodology, including, but
not limited to, the financial condition of specific industry sectors and the resultant effect on
any such underlying security collateral values and changes in accounting, tax, and/or regulatory
requirements which may have an effect on either, or both, the investor and/or the issuer. For
investments other than interests in securitized assets, these reviews include identifying any
security whose fair value is below its cost and an analysis of securities meeting predetermined
impairment thresholds to determine whether such decline is other than temporary. If the Company
determines that it does not intend to hold a security to maturity or determines a decline in
value to be other than temporary, the cost basis of the security is written down to its fair
value with the amount of the write down included in earnings as a realized investment loss in
the period the impairment arose. This evaluation resulted in non-cash realized investment
losses of $1.1 million and $5.7 million, respectively, for the three months ended September 30,
2007 and 2006, and $3.7 million and $7.0 million, respectively, for the nine months ended
September 30, 2007 and 2006. The Companys impairment review also includes an impairment
evaluation for interests in securitized assets conducted in accordance with the guidance
provided by the Emerging Issues Task Force of the Financial Accounting Standards Board. There
were no non-cash realized investment losses recorded for the three or nine months ended
September 30, 2007 or 2006 as a result of the Companys impairment evaluation for investments in
securitized assets.The following table identifies the period of time securities with an unrealized loss at
September 30, 2007 have continuously been in an unrealized loss position. Included in the
amounts displayed in the table are $0.1 million of unrealized losses due to non-investment grade
fixed maturity securities having a fair value of $0.9 million. No issuer of securities or
industry represents more than 2.4% and 25.8%, respectively, of the total estimated fair
 7




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Less Than 12 Months
    
    12 Months or More
    
    TotalSeptember 30, 2007
    
    
    
    
    
    Unrealized
    
    
    
    
    
    Unrealized
    
    
    
    
    
    UnrealizedFixed Maturities Available for Sale
    
    Fair Value
    
    Losses
    
    Fair Value
    
    Losses
    
    Fair Value
    
    Losses(In Thousands)U.S. Treasury Securities and
Obligations of U.S. Government
Corporations and Agencies
    
    $
    450
    
    
    $
    2
    
    
    $
    7,406
    
    
    $
    59
    
    
    $
    7,856
    
    
    $
    61Obligations of States and
Political Subdivisions
    
    
    468,977
    
    
    
    4,700
    
    
    
    291,944
    
    
    
    3,350
    
    
    
    760,921
    
    
    
    8,050Corporate and Bank Debt Securities
    
    
    4,070
    
    
    
    52
    
    
    
    82,883
    
    
    
    1,500
    
    
    
    86,953
    
    
    
    1,552Asset Backed Securities
    
    
    80,871
    
    
    
    360
    
    
    
    25,271
    
    
    
    153
    
    
    
    106,142
    
    
    
    513Mortgage Pass-Through Securities
    
    
    278,402
    
    
    
    3,223
    
    
    
    152,690
    
    
    
    4,614
    
    
    
    431,092
    
    
    
    7,837Collateralized Mortgage Obligations
    
    
    63,831
    
    
    
    401
    
    
    
    101,998
    
    
    
    1,501
    
    
    
    165,829
    
    
    
    1,902Total Fixed Maturities
Available for Sale
    
    $
    896,601
    
    
    $
    8,738
    
    
    $
    662,192
    
    
    $
    11,177
    
    
    $
    1,558,793
    
    
    $
    19,915Equity Securities
    
    
    108,771
    
    
    
    9,822
    
    
    
    
    
    
    
    
    
    
    
    108,771
    
    
    
    9,822Total Investments
    
    $
    1,005,372
    
    
    $
    18,560
    
    
    $
    662,192
    
    
    $
    11,177
    
    
    $
    1,667,564
    
    
    $
    29,737
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9




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Less Than 12 Months
    
    
    12 Months or More
    
    
    TotalDecember 31, 2006
    
    
    
    
    
    Unrealized
    
    
    
    
    
    
    Unrealized
    
    
    
    
    
    
    UnrealizedFixed Maturities Available for Sale
    
    Fair Value
    
    
    Losses
    
    
    Fair Value
    
    
    Losses
    
    
    Fair Value
    
    
    Losses(In Thousands)U.S. Treasury Securities and
Obligations of U.S. Government
Corporations and Agencies
    
    $
    1,354
    
    
    $
    19
    
    
    $
    12,707
    
    
    $
    226
    
    
    $
    14,061
    
    
    $
    245Obligations of States and
Political Subdivisions
    
    
    164,444
    
    
    
    831
    
    
    
    321,194
    
    
    
    5,020
    
    
    
    485,638
    
    
    
    5,851Corporate and Bank Debt Securities
    
    
    28,439
    
    
    
    119
    
    
    
    96,794
    
    
    
    2,574
    
    
    
    125,233
    
    
    
    2,693Asset Backed Securities
    
    
    45,478
    
    
    
    187
    
    
    
    31,654
    
    
    
    380
    
    
    
    77,132
    
    
    
    567Mortgage Pass-Through Securities
    
    
    109,877
    
    
    
    921
    
    
    
    174,327
    
    
    
    5,026
    
    
    
    284,204
    
    
    
    5,947Collateralized Mortgage Obligations
    
    
    72,686
    
    
    
    347
    
    
    
    109,789
    
    
    
    2,440
    
    
    
    182,475
    
    
    
    2,787Total Fixed Maturities
Available for Sale
    
    $
    422,278
    
    
    $
    2,424
    
    
    $
    746,465
    
    
    $
    15,666
    
    
    $
    1,168,743
    
    
    $
    18,090Equity Securities
    
    
    37,371
    
    
    
    2,626
    
    
    
    
    
    
    
    
    
    
    
    37,371
    
    
    
    2,626Total Investments
    
    $
    459,649
    
    
    $
    5,050
    
    
    $
    746,465
    
    
    $
    15,666
    
    
    $
    1,206,114
    
    
    $
    20,716
           10




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##### Table of Contents



The Companys impairment evaluation as of December 31, 2006 for equity securities resulted in
the conclusion that the Company does not consider the equity securities to be other than
temporarily impaired. Of the 3,555 investment positions held, approximately 14.8% were in an
unrealized loss position.3.
    
    Restricted AssetsThe Insurance Subsidiaries have investments, principally U.S. Treasury securities, Obligations
of U.S. Government Corporations and Agencies and Obligations of States and Political
Subdivisions, on deposit with the various states in which they are licensed insurers. As of
September 30, 2007 and December 31, 2006, the carrying value of the securities on deposit
totaled $16.2 million and $15.1 million, respectively.4.
    
    Liability for Unpaid Loss and Loss Adjustment ExpensesThe liability for unpaid loss and loss adjustment expenses reflects the Companys best estimate
for future amounts needed to pay losses and related settlement expenses with respect to insured
events. The process of establishing the ultimate claims liability is a complex and imprecise
process, requiring the use of informed estimates and judgments using data currently available.
The liability includes an amount determined on the basis of claim adjusters evaluations with
respect to insured events that have occurred and been reported to the Company and an amount for
losses incurred that have not yet been reported to the Company. In some cases significant
periods of time, up to several years or more, may elapse between the occurrence of an insured
loss and the reporting of such to the Company. Estimates for unpaid loss and loss adjustment
expenses are based upon managements assessment of known facts and circumstances, review of past
loss experience and settlement patterns and consideration of other internal and external
factors. These factors include, but are not limited to, the Companys growth, changes in the
Companys operations, and legal, social, and economic developments. These estimates are
reviewed regularly and any resulting adjustments are made in the accounting period in which the
adjustment arose. If the Companys ultimate losses, net of reinsurance, prove to differ
substantially from the amounts recorded as of September 30, 2007, the related adjustments could
have a material adverse impact on the Companys financial condition and results of operations.During the three months ended September 30, 2007, the Company decreased the estimated net unpaid
loss and loss adjustment expenses for accident years 2006 and prior by the following amounts:
 11




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##### Table of Contents



Net Decrease(In millions)Accident Year 2006
    
    $
    7.5Accident Year 2005
    
    
    11.9Accident Year 2004
    
    
    9.2Accident Years 2003 and prior
    
    
    10.9Total
    
    $
    39.5
 For accident years 2006 and 2005, the decrease in estimated net unpaid loss and loss adjustment
expenses was principally due to lower loss estimates for management liability and professional
liability coverages due to better than expected case incurred loss development primarily as a
result of claim severity emergence being less than anticipated.For accident years 2004 and prior, the decrease in estimated net unpaid loss and loss adjustment
expenses was principally due to lower loss estimates for management liability, professional
liability, and commercial general liability coverages due to better than expected case incurred
loss development as a result of claim severity emergence being less than anticipated.5.
    
    Shareholders EquityThe Philadelphia Consolidated Holding Corp Amended and Restated Employees Stock Incentive and
Performance Based Compensation Plan (the Plan) provides incentives and awards to those
employees and members of the Board (participants) largely responsible for the long term
success of the Company. Under the Plan, the Company issued 436,607 and 949,000 stock settled
appreciation rights (SARS) during the nine months ended September 30, 2007 and the year ended
December 31, 2006, respectively. The Company also issued 146,884 and 47,080 shares of
restricted stock awards during the nine months ended September 30, 2007 and the year ended
December 31, 2006, respectively.6.
    
    Earnings Per ShareEarnings per common share have been calculated by dividing net income for the period by the
weighted average number of common shares and common share equivalents outstanding during the
period. Following is the computation of earnings per share for the three and nine months ended
September 30, 2007 and 2006, respectively (in thousands, except per share data):
 As of and For the Three
    
    
    As of and For the NineMonths Ended
    
    
    Months EndedSeptember 30,
    
    
    September 30,2007
    
    
    2006
    
    
    2007
    
    
    2006Weighted-Average Common Shares Outstanding
    
    
    70,458
    
    
    
    69,992
    
    
    
    70,324
    
    
    
    69,717Weighted-Average Share Equivalents
    
    
    3,599
    
    
    
    3,489
    
    
    
    3,857
    
    
    
    3,471Weighted-Average Shares and Share Equivalents
    
    
    74,057
    
    
    
    73,481
    
    
    
    74,181
    
    
    
    73,188Net Income
    
    $
    96,244
    
    
    $
    89,890
    
    
    $
    256,625
    
    
    $
    215,068Basic Earnings per Share
    
    $
    1.37
    
    
    $
    1.28
    
    
    $
    3.65
    
    
    $
    3.08Diluted Earnings per Share
    
    $
    1.30
    
    
    $
    1.22
    
    
    $
    3.46
    
    
    $
    2.94
 12




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##### Table of Contents



7.
    
    Income TaxesOn January 1, 2007 the Company adopted FASB Interpretation 48, Accounting for Uncertainty in
Income Taxes, an interpretation of FASB Statement No. 109. As a result of the implementation,
no adjustment to the beginning balance of retained earnings was deemed necessary. As of January
1, 2007, the Companys liability for its unrecognized tax benefits was $0.2 million. The total
amount of unrecognized tax benefits that, if recognized, would affect the effective tax rate was
$0.2 million. There were no material changes to this amount during the quarter ended September
30, 2007.Interest and penalties accrued for the underpayment of taxes are recorded as a component of
income tax expense. The liability for interest and penalties amounted to $1.6 million and $1.5
million as of January 1, 2007 and September 30, 2007, respectively.The Company and its subsidiaries file Federal and State income tax returns as required, and is
subject to Federal and State examinations for tax years 2002 through 2005, and 2003 through
2005, respectively.The effective tax rate differs from the 35% marginal tax rate principally as a result of
tax-exempt interest income, the dividend received deduction and other differences in the
recognition of revenues and expenses for tax and financial reporting purposes.8.
    
    ReinsuranceIn the normal course of business, the Company has entered into various reinsurance contracts
with unrelated reinsurers. The Companys participation in such agreements allows the Company to
limit its loss exposure and diversify its business. Reinsurance contracts do not relieve the
Company from its obligations to policyholders. The effect of reinsurance on premiums written
and earned is as follows:
  For the Three Months Ended
    
    
    For the Nine Months EndedSeptember 30, 2007
    
    
    September 30, 2007Written
    
    
    Earned
    
    
    Written
    
    
    EarnedDirect Business
    
    $
    503,078
    
    
    $
    410,264
    
    
    $
    1,294,438
    
    
    $
    1,181,840Reinsurance Assumed
    
    
    1,550
    
    
    
    1,393
    
    
    
    2,816
    
    
    
    2,931Reinsurance Ceded
    
    
    (62,138
    )
    
    
    (52,508
    )
    
    
    (178,143
    )
    
    
    (169,589
    )Net Premiums
    
    $
    442,490
    
    
    $
    359,149
    
    
    $
    1,119,111
    
    
    $
    1,015,182
 For the Three Months Ended
    
    
    For the Nine Months EndedSeptember 30, 2006
    
    
    September 30, 2006Written
    
    
    Earned
    
    
    Written
    
    
    EarnedDirect Business
    
    $
    455,446
    
    
    $
    348,926
    
    
    $
    1,122,553
    
    
    $
    996,011Reinsurance Assumed
    
    
    1,145
    
    
    
    1,048
    
    
    
    3,444
    
    
    
    3,312Reinsurance Ceded
    
    
    (64,525
    )
    
    
    (53,608
    )
    
    
    (149,723
    )
    
    
    (137,617
    )Net Premiums
    
    $
    392,066
    
    
    $
    296,366
    
    
    $
    976,274
    
    
    $
    861,706
 9.
    
    Commitments and ContingenciesThe Company is subject to routine legal proceedings in connection with its property and casualty
insurance business. The Company is not involved in any other pending or threatened legal or
administrative proceedings which management believes can reasonably be expected to have a
material adverse effect on the Companys financial condition or results of operations.
 13




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##### Table of Contents



Credit Agreement:Effective June 29, 2007, the Company amended its unsecured Credit Agreement (the Credit
Agreement) which establishes a revolving credit facility providing for loans to the Company of
up to $50.0 million in principal amount outstanding at any one time. The amended Credit
Agreement has a maturity date of June 27, 2008 and contains an annual commitment fee of 6.0
basis points per annum on the unused commitments under the Credit Agreement. Each loan under the
amended Credit Agreement will bear interest at a per annum rate equal to, at the Companys
option, (i) Libor plus 0.35% or (ii) the higher of the administrative agent and lenders prime
rate and the Federal Funds rate plus 0.50%. As of September 30, 2007, no borrowings have been
made by the Company under this Credit Agreement.The Credit Agreement contains various representations, covenants and events of default typical
for credit facilities of this type. As of September 30, 2007, the Company was in compliance
with all covenants contained in the Credit Agreement.State Insurance Guaranty Funds:As of September 30, 2007 and December 31, 2006, included in Other Liabilities in the
Consolidated Balance Sheets were $13.6 million and $15.1 million, respectively, of liabilities
for state insurance guaranty funds. As of September 30, 2007 and December 31, 2006, included in
Other Assets in the Consolidated Balance Sheets were $0.2 million of related assets for premium
tax offsets or policy surcharges. The related asset is limited to the amount that is determined
based upon future premium collections or policy surcharges from policies in force.State Insurance Facility Assessments:The Company continually monitors developments with respect to state insurance facilities. The
Company is required to participate in various state insurance facilities that provide insurance
coverage to individuals or entities that otherwise are unable to purchase such coverage from
private insurers. Because of the Companys participation, it may be exposed to losses that
surpass the capitalization of these facilities and/or to assessments from these facilities.Florida Hurricane Catastrophe FundThe Company and other insurance companies writing residential property policies in Florida must
participate in the Florida Hurricane Catastrophe Fund (FHCF). If the FHCF does not have
sufficient funds to pay its ultimate reimbursement obligations to participating insurance
companies, it has the authority to issue bonds, which are funded by assessments on generally all
property and casualty premiums in Florida. By law, these assessments are the obligation of
insurance policyholders, which insurance companies must collect. The FHCF assessments are
limited to 6% of premiums per year beginning the first year in which reimbursements require
bonding, and up to a total of 10% of premiums per year for assessments in the second and
subsequent years, if required to fund additional bonding. Upon the order of the Florida Office
of Insurance Regulation (FOIR), companies are required to collect the FHCF assessments
directly from residential property policyholders and remit them to the FHCF as they are
collected.10.
    
    Comprehensive IncomeComponents of comprehensive income, as detailed in the Consolidated Statements of Operations and
Comprehensive Income, are net of tax. The related tax effect of Holding Gains arising during
the three and nine months ended September 30, 2007 and 2006 was $11.7 million and $16.1 million,
respectively, and $10.1 million and $5.7 million, respectively. The related tax effect of
Reclassification Adjustments for the three and nine months ended September 30, 2007 and 2006 was
$(1.0) million and $2.4 million, respectively, and $(11.4) million and $3.4 million,
respectively.
 14




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##### Table of Contents



11.
    
    Segment InformationThe Companys operations are classified into the following three reportable business segments:
 
    
    The Commercial Lines Underwriting Group, which has underwriting responsibility for
the commercial multi-peril package, commercial automobile, specialty property and
inland marine, and antique/collector car insurance products;
    
    The Specialty Lines Underwriting Group, which has underwriting responsibility for
the professional and management liability insurance products; and
    
    The Personal Lines Underwriting Group, which has underwriting responsibility for
personal property insurance products for the homeowners and manufactured housing market
in Florida, and the National Flood Insurance Program for both personal and commercial
policyholders.
 Each business segments responsibilities include: pricing, managing the risk selection process,
and monitoring the loss ratios by product and insured. The reportable segments operate solely
within the United States and have not been aggregated.The segments follow the same accounting policies used for the Companys consolidated financial
statements as described in the summary of significant accounting policies. Management evaluates
a segments performance based upon premium production and the associated loss experience which
includes paid losses, an amount determined on the basis of claim adjusters evaluation with
respect to insured events that have occurred and an amount for losses incurred that have not
been reported. Investments and investment performance including investment income and net
realized investment gain; acquisition costs and other underwriting expenses including
commissions, premium taxes and other acquisition costs; and other operating expenses are managed
at a corporate level by the corporate accounting function in conjunction with other corporate
departments and are included in Corporate.Following is a tabulation of business segment information for the three and nine months ended
September 30, 2007 and 2006. Corporate information is included to reconcile segment data to the
consolidated financial statements (in thousands):
 15




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##### Table of Contents



As of and For The Three Months Ended September 30,Commercial
    
    Specialty
    
    PersonalLines
    
    Lines
    
    Lines
    
    Corporate
    
    Total2007:Gross Written Premiums
    
    $
    425,131
    
    
    $
    68,476
    
    
    $
    11,021
    
    
    
    
    
    
    $
    504,628Net Written Premiums
    
    $
    389,298
    
    
    $
    55,930
    
    
    $
    (2,738
    )
    
    
    
    
    
    $
    442,490Revenue:Net Earned Premiums
    
    $
    303,381
    
    
    $
    48,675
    
    
    $
    7,093
    
    
    
    
    
    
    $
    359,149Net Investment Income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    30,199
    
    
    
    30,199Net Realized Investment Gain
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,817
    
    
    
    2,817Other Income
    
    
    
    
    
    
    
    
    
    
    530
    
    
    
    450
    
    
    
    980Total Revenue
    
    
    303,381
    
    
    
    48,675
    
    
    
    7,623
    
    
    
    33,466
    
    
    
    393,145Losses and Expenses:Net Loss and Loss Adjustment Expenses
    
    
    146,416
    
    
    
    (3,149
    )
    
    
    1,538
    
    
    
    
    
    
    
    144,805Acquisition Costs and Other Underwriting
Expenses
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    101,252
    
    
    
    101,252Other Operating Expenses
    
    
    
    
    
    
    
    
    
    
    291
    
    
    
    2,701
    
    
    
    2,992Total Losses and Expenses
    
    
    146,416
    
    
    
    (3,149
    )
    
    
    1,829
    
    
    
    103,953
    
    
    
    249,049Income Before Income Taxes
    
    
    156,965
    
    
    
    51,824
    
    
    
    5,794
    
    
    
    (70,487
    )
    
    
    144,096Total Income Tax Expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    47,852
    
    
    
    47,852Net Income
    
    $
    156,965
    
    
    $
    51,824
    
    
    $
    5,794
    
    
    $
    (118,339
    )
    
    $
    96,244Total Assets
    
    
    
    
    
    
    
    
    
    $
    100,385
    
    
    $
    3,897,402
    
    
    $
    3,997,7872006:Gross Written Premiums
    
    $
    367,785
    
    
    $
    62,602
    
    
    $
    26,204
    
    
    
    
    
    
    $
    456,591Net Written Premiums
    
    $
    339,409
    
    
    $
    50,217
    
    
    $
    2,440
    
    
    
    
    
    
    $
    392,066Revenue:Net Earned Premiums
    
    $
    246,905
    
    
    $
    45,415
    
    
    $
    4,046
    
    
    
    
    
    
    $
    296,366Net Investment Income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    23,833
    
    
    
    23,833Net Realized Investment Loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (6,976
    )
    
    
    (6,976
    )Other Income
    
    
    
    
    
    
    
    
    
    
    677
    
    
    
    118
    
    
    
    795Total Revenue
    
    
    246,905
    
    
    
    45,415
    
    
    
    4,723
    
    
    
    16,975
    
    
    
    314,018Losses and Expenses:Net Loss and Loss Adjustment Expenses
    
    
    54,841
    
    
    
    26,385
    
    
    
    3,480
    
    
    
    
    
    
    
    84,706Acquisition Costs and Other Underwriting
Expenses
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    89,052
    
    
    
    89,052Other Operating Expenses
    
    
    
    
    
    
    
    
    
    
    508
    
    
    
    2,856
    
    
    
    3,364Total Losses and Expenses
    
    
    54,841
    
    
    
    26,385
    
    
    
    3,988
    
    
    
    91,908
    
    
    
    177,122Income Before Income Taxes
    
    
    192,064
    
    
    
    19,030
    
    
    
    735
    
    
    
    (74,933
    )
    
    
    136,896Total Income Tax Expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    47,006
    
    
    
    47,006Net Income
    
    $
    192,064
    
    
    $
    19,030
    
    
    $
    735
    
    
    $
    (121,939
    )
    
    $
    89,890Total Assets
    
    
    
    
    
    
    
    
    
    $
    143,860
    
    
    $
    3,185,561
    
    
    $
    3,329,421
 16




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##### Table of Contents



As of and For The Nine Months Ended September 30,Commercial
    
    Specialty
    
    PersonalLines
    
    Lines
    
    Lines
    
    Corporate
    
    Total2007:Gross Written Premiums
    
    $
    1,058,407
    
    
    $
    189,182
    
    
    $
    49,665
    
    
    
    
    
    
    $
    1,297,254Net Written Premiums
    
    $
    968,264
    
    
    $
    155,827
    
    
    $
    (4,980
    )
    
    
    
    
    
    $
    1,119,111Revenue:Net Earned Premiums
    
    $
    861,926
    
    
    $
    141,969
    
    
    $
    11,287
    
    
    
    
    
    
    $
    1,015,182Net Investment Income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    85,694
    
    
    
    85,694Net Realized Investment Gain
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    32,638
    
    
    
    32,638Other Income
    
    
    
    
    
    
    
    
    
    
    1,978
    
    
    
    682
    
    
    
    2,660Total Revenue
    
    
    861,926
    
    
    
    141,969
    
    
    
    13,265
    
    
    
    119,014
    
    
    
    1,136,174Losses and Expenses:Net Loss and Loss Adjustment Expenses
    
    
    385,122
    
    
    
    51,651
    
    
    
    7,126
    
    
    
    
    
    
    
    443,899Acquisition Costs and Other Underwriting
Expenses
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    299,902
    
    
    
    299,902Other Operating Expenses
    
    
    
    
    
    
    
    
    
    
    1,087
    
    
    
    8,041
    
    
    
    9,128Total Losses and Expenses
    
    
    385,122
    
    
    
    51,651
    
    
    
    8,213
    
    
    
    307,943
    
    
    
    752,929Income Before Income Taxes
    
    
    476,804
    
    
    
    90,318
    
    
    
    5,052
    
    
    
    (188,929
    )
    
    
    383,245Total Income Tax Expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    126,620
    
    
    
    126,620Net Income
    
    $
    476,804
    
    
    $
    90,318
    
    
    $
    5,052
    
    
    $
    (315,549
    )
    
    $
    256,625Total Assets
    
    
    
    
    
    
    
    
    
    $
    100,385
    
    
    $
    3,897,402
    
    
    $
    3,997,7872006:Gross Written Premiums
    
    $
    875,386
    
    
    $
    175,097
    
    
    $
    75,514
    
    
    
    
    
    
    $
    1,125,997Net Written Premiums
    
    $
    814,543
    
    
    $
    140,081
    
    
    $
    21,650
    
    
    
    
    
    
    $
    976,274Revenue:Net Earned Premiums
    
    $
    706,445
    
    
    $
    129,278
    
    
    $
    25,983
    
    
    
    
    
    
    $
    861,706Net Investment Income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    65,572
    
    
    
    65,572Net Realized Investment Loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (9,782
    )
    
    
    (9,782
    )Other Income
    
    
    
    
    
    
    
    
    
    
    1,459
    
    
    
    244
    
    
    
    1,703Total Revenue
    
    
    706,445
    
    
    
    129,278
    
    
    
    27,442
    
    
    
    56,034
    
    
    
    919,199Losses and Expenses:Net Loss and Loss Adjustment Expenses
    
    
    250,013
    
    
    
    74,580
    
    
    
    12,533
    
    
    
    
    
    
    
    337,126Acquisition Costs and Other Underwriting
Expenses
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    251,406
    
    
    
    251,406Other Operating Expenses
    
    
    
    
    
    
    
    
    
    
    1,022
    
    
    
    7,622
    
    
    
    8,644Total Losses and Expenses
    
    
    250,013
    
    
    
    74,580
    
    
    
    13,555
    
    
    
    259,028
    
    
    
    597,176Income Before Income Taxes
    
    
    456,432
    
    
    
    54,698
    
    
    
    13,887
    
    
    
    (202,994
    )
    
    
    322,023Total Income Tax Expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    106,955
    
    
    
    106,955Net Income
    
    $
    456,432
    
    
    $
    54,698
    
    
    $
    13,887
    
    
    $
    (309,949
    )
    
    $
    215,068Total Assets
    
    
    
    
    
    
    
    
    
    $
    143,860
    
    
    $
    3,185,561
    
    
    $
    3,329,421
 17




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##### Table of Contents



12.
    
    Subsequent EventDuring October 2007, southern California was affected by wildfires impacting seven counties.
The Companys insurance subsidiaries write commercial property and casualty insurance policies
on risks located in California. Losses resulting from the California wildfires are subject to
the Companys open-market commercial lines catastrophe reinsurance program, which provides
coverage of $245 million in excess of a $10.0 million per occurrence retention. As of November
5, 2007, fewer than 25 claims related to the California wildfires have been reported to the
Company. At this time, the Company does not yet have sufficient information to develop a
meaningful loss estimate for the California wildfires.
 18




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##### Table of Contents



PHILADELPHIA CONSOLIDATED HOLDING CORP. AND SUBSIDIARIES
 
 Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
 Forward-Looking Information
  General
    Critical Accounting Estimates
  
    
    Investments  fair value;
    
    Other than temporary impairments;
    
    Liability for unpaid loss and loss adjustment expenses;
    
    Reinsurance receivables;
    
    Liability for preferred agent profit sharing; and
    
    Share-based compensation expense.
  19




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##### Table of Contents



PHILADELPHIA CONSOLIDATED HOLDING CORP. AND SUBSIDIARIES
Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
 Results of Operations (Nine Months ended September 30, 2007 vs. September 30, 2006)
 Premiums
 Commercial Lines
    
    Specialty Lines
    
    Personal Lines
    
    Total2007 Gross Written Premiums
    
    $
    1,058.4
    
    
    $
    189.2
    
    
    $
    49.7
    
    
    $
    1,297.32006 Gross Written Premiums
    
    $
    875.4
    
    
    $
    175.1
    
    
    $
    75.5
    
    
    $
    1,126.0Percentage Increase (Decrease)
    
    
    20.9
    %
    
    
    8.1
    %
    
    
    (34.2
    )%
    
    
    15.2
    %2007 Gross Earned Premiums
    
    $
    946.0
    
    
    $
    175.1
    
    
    $
    63.7
    
    
    $
    1,184.82006 Gross Earned Premiums
    
    $
    761.8
    
    
    $
    161.0
    
    
    $
    76.5
    
    
    $
    999.3Percentage Increase (Decrease)
    
    
    24.2
    %
    
    
    8.8
    %
    
    
    (16.7
    )%
    
    
    18.6
    %
  
    
    Prospecting efforts by marketing personnel in conjunction with long term relationships
formed by the Companys marketing Regional Vice Presidents continue to result in additional
prospects and increased premium writings in existing product offerings, most notably for
the Companys condominium and homeowners associations, non-profit, real estate, specialty
schools, and golf and country clubs commercial package product lines, as well as the inland
marine specialty property product line. These product offerings accounted for approximately
$113.1 million of the $183.0 million total commercial lines segment gross written premiums
increase.
    
    The introduction of several new niche product offerings, most notably the
antique/collector vehicle product, professional sports and entertainment and religious
organizations commercial package products, and the camp operators product. These new
product offerings accounted for approximately $66.0 million of the $183.0 million total
commercial lines segment gross written premiums increase.
    
    An increase in the Companys marketing personnel as well as an increase in the number of
preferred agents.
    
    The introduction of a Company branded agent program to promote the Companys product
offerings and underwriting philosophy in producers offices.
    
    As a result of the factors noted above:
 §
    
    The commercial lines segment in-force policy counts increased by 107.3% for the
nine months ended September 30, 2007. The introduction of the antique/collector
vehicle program accounted for 72.7% of the 107.3% total policy count increase for
the period. The other factors discussed above accounted for the remaining 27.3%
increase in the policy counts for the period.§
    
    The specialty lines segment in-force policy counts increased by 12.9% for the
nine months ended September 30, 2007.
 
    
    A $2.3 million increase in gross written premium by the personal lines segment for the
National Flood Insurance Program (NFIP) for the nine months ended September 30, 2007,
compared to the same period in 2006. Gross written premiums for the NFIP accounted for
53.7% and 32.3% of the total personal lines segment gross written premiums for the nine
months ended September 30, 2007 and 2006, respectively.
 20




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##### Table of Contents



PHILADELPHIA CONSOLIDATED HOLDING CORP. AND SUBSIDIARIES
Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
  
    
    Restriction of personal lines business production due to the significant increase in
catastrophe reinsurance rates and restricted availability of reinsurance catastrophe
coverage experienced at the June 1, 2006 catastrophe reinsurance program renewal. This
restriction included non-renewing all homeowners and rental dwelling policies providing
windstorm coverage which expire between June 15, 2007 and December 31, 2007. The Company
has submitted mandatory rate filings with the Florida Department of Insurance (FLDOI),
which are currently under review by the FLDOI. The mandatory rate filings seek to increase
existing premium rates to reflect the actual reinsurance costs incurred by the Company in
its June 1, 2007 reinsurance renewal, as well as other factors. As of September 30, 2007,
there were approximately 3,300 such homeowners policies with an aggregate in-force premium
of approximately $7.2 million which expire before January 1, 2008, and approximately 450
such rental dwelling policies with an aggregate in-force premium of approximately $0.6
million which expire before January 1, 2008.
    
    A decrease in the lawyers professional liability gross written premium of $10.3 million
as a result of non-renewing policies due to unacceptable underwriting results. For the nine
months ended September 30, 2007, gross written premium for the lawyers professional
liability product was $0.3 million. The Company anticipates that it will continue to
non-renew its remaining lawyers professional liability business throughout 2007, which
approximated $1.3 million of gross written premium for the three months ended December 31,
2006.
    
    An increase in price competition during the nine months ended September 30, 2007,
particularly with respect to the following:
 §
    
    Large commercial property-driven accounts located in the non-coastal areas of
the country;§
    
    Commercial package business with annual premiums in excess of $100,000; and§
    
    Professional liability accounts at all premium levels.
  
    
    Realized average rate decreases on renewal business approximating 1.7% and 3.2% for the
specialty lines and commercial lines segments, respectively.
  Commercial Lines
    
    Specialty Lines
    
    Personal Lines
    
    Total2007 Net Written Premiums
    
    $
    968.3
    
    
    $
    155.8
    
    
    $
    (5.0
    )
    
    $
    1,119.12006 Net Written Premiums
    
    $
    814.5
    
    
    $
    140.1
    
    
    $
    21.7
    
    
    $
    976.3Percentage Increase (Decrease)
    
    
    18.9
    %
    
    
    11.2
    %
    
    
    (123.0
    )%
    
    
    14.6
    %2007 Net Earned Premiums
    
    $
    861.9
    
    
    $
    142.0
    
    
    $
    11.3
    
    
    $
    1,015.22006 Net Earned Premiums
    
    $
    706.4
    
    
    $
    129.3
    
    
    $
    26.0
    
    
    $
    861.7Percentage Increase (Decrease)
    
    
    22.0
    %
    
    
    9.8
    %
    
    
    (56.5
    )%
    
    
    17.8
    %
  21




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##### Table of Contents



PHILADELPHIA CONSOLIDATED HOLDING CORP. AND SUBSIDIARIES
Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
 
    
    The Company experienced higher property catastrophe reinsurance rates, increased
catastrophe loss retentions, and decreased catastrophe coverage limits for its annual June
1, 2006 reinsurance renewal compared to the June 1, 2005 renewal. This resulted in
increased property catastrophe costs for the nine month period ended September 30, 2007,
compared to the nine month period ended September 30, 2006. For the June 1, 2007
commercial lines segment property catastrophe reinsurance renewal, the Company experienced
lower reinsurance rates, purchased increased catastrophe limits due to higher exposures
primarily in the Northeast part of the country, and maintained the same catastrophe loss
retention compared to the June 1, 2006 renewal. For the June 1, 2007 personal lines
segment property catastrophe reinsurance renewal, the Company experienced reduced
reinsurance rates, a lower catastrophe loss retention and purchased decreased catastrophe
coverage limits due to lower exposures, compared to the June 1, 2006 renewal. The
Companys property catastrophe reinsurance coverage effective June 1, 2007 through May 31,
2008 is as follows:
 §
    
    For its commercial lines segment property catastrophe program:
 o
    
    The Companys open-market catastrophe reinsurance
coverage is $245 million in excess of a $10.0 million per occurrence
retention. The open-market catastrophe program (the coverage provided by
large reinsurers that are rated at least A  (Excellent) by A.M. Best
Company) includes one mandatory reinstatement.o
    
    A reinstatement premium protection contract for the
First and Second Excess Layers of the commercial lines segment open-market
catastrophe contract was also purchased, effective June 1, 2007, providing
coverage for reinstatement premium which the Company may become liable to
pay as a result of loss occurrence between $10.0 million and $50.0 million
on the First and Second Excess Layers of the commercial lines segment
open-market catastrophe reinsurance program.
 §
    
    For its personal lines segment property catastrophe program:
 o
    
    The Companys reinsurance coverage is approximately
$121.0 million in excess of a $3.5 million per occurrence retention. Of
this total amount, the Florida Hurricane Catastrophe Fund (FHCF) provides
on an aggregate basis for Liberty American Select Insurance Company and
Liberty American Insurance Company, 90% coverage for approximately $78.3
million in excess of $15.4 million. The FHCF coverage inures to the
benefit of the Companys open-market catastrophe program. The coverage
provided by the open-market catastrophe program (the coverage provided by
large reinsurers that are rated at least A  (Excellent) by A.M. Best
Company) includes one mandatory reinstatement, but the FHCF coverage does
not reinstate. Since the FHCF reimbursement coverage cannot be reinstated,
the Companys open-market program is structured such that catastrophe
reinsurance coverage in excess of the FHCF coverage will drop down and
fill in any portion of the FHCF which has been utilized.o
    
    Reinstatement premium protection contracts for the
First, Second and Third Excess Layers of its personal lines open-market
catastrophe reinsurance contracts were purchased, effective June 1, 2007,
providing coverage for reinstatement premium which the Company may become
liable to pay as a result of loss occurrences between $3.5 million and
$24.0 million on the First, Second and Third Excess Layers of the personal
lines segment open-market catastrophe reinsurance program.
 
    
    The Company experienced rate decreases on its annual January 1, 2007 renewals of its
casualty excess of loss and property excess of loss reinsurance agreements compared to the
rates on its January 1, 2006 renewals of these agreements.
 22




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##### Table of Contents



PHILADELPHIA CONSOLIDATED HOLDING CORP. AND SUBSIDIARIES
Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
 
    
    Certain of the Companys reinsurance contracts have reinstatement or additional premium
provisions under which the Company must pay reinstatement or additional reinsurance
premiums to reinstate coverage provisions after utilization of initial reinsurance
coverage. As of September 30, 2007 and 2006, the Company accrued $2.6 million ($1.1 million
for the commercial lines segment and $1.5 million for the specialty lines segment) and $3.4
million ($1.4 million for the commercial lines segment and $2.0 million for the specialty
lines segment) respectively, of reinstatement or additional reinsurance premium under its
casualty excess of loss reinsurance treaties, as a result of changes in ultimate loss
estimates. The reinstatement premium increased ceded written and earned premiums and
reduced net written and earned premiums.
    
    Effective for the two-year period beginning March 1, 2007, the Company purchased
Terrorism Catastrophe Excess of Loss reinsurance coverage for its Commercial Lines segment
which provides, on an annual basis, in the aggregate, $50.0 million of coverage for losses
arising from acts of terrorism incurred in excess of $10.0 million, after all applicable
inuring reinsurance coverages. The agreement providing this coverage allows one
reinstatement on an annual basis at the same cost as the initial coverage. The Company did
not purchase similar reinsurance coverage in the prior period.
 Net Investment Income:
  
    
    The portfolio duration target was increased;
    
    The targeted percentage of the fixed maturity portfolio allocated to municipal security
investments was increased; and
    
    The targeted percentage of the investment portfolio allocated to common stock
investments was increased.
   Net Realized Investment Gain (Loss):
 23




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##### Table of Contents



PHILADELPHIA CONSOLIDATED HOLDING CORP. AND SUBSIDIARIES
Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
  Other Income
 Net Loss and Loss Adjustment Expenses:
  
    
    The growth in net earned premiums.
    
    An increase in the current accident year net ultimate loss and loss adjustment expense
ratio for the nine months ended September 30, 2007, compared to the same period in 2006.
During the nine months ended September 30, 2007, a net ultimate loss and loss adjustment
expense ratio estimate of 50.9% was recorded for the 2007 accident year. During the nine
months ended September 30, 2006, a net ultimate loss and loss adjustment expense ratio
estimate of 48.2% was recorded for the 2006 accident year.
    
    Net reserve actions taken during the nine months ended September 30, 2007 whereby net
estimated unpaid loss and loss adjustment expenses for accident years 2006 and prior were
decreased by $73.2 million compared to net reserve actions taken during the nine months
ended September 30, 2006 whereby the estimated net unpaid loss and loss adjustment expenses
for accident years 2005 and prior were decreased by $78.3 million. Changes in the
estimated net unpaid loss and loss adjustment expenses by accident year during the nine
months ended September 30, 2007 were as follows:
 Net Decrease(In millions)Accident Year 2006
    
    $
    19.8Accident Year 2005
    
    
    21.3Accident Year 2004
    
    
    13.4Accident Years 2003 and prior
    
    
    18.7Total
    
    $
    73.2
 For accident year 2006, the decrease in estimated net unpaid loss and loss adjustment
expenses was principally due to lower loss estimates for:
 §
    
    commercial property, professional liability and commercial automobile coverages
due to better than expected case incurred loss development, primarily as a result
of both claim frequency and severity emergence being less than anticipated, and§
    
    management liability coverages due to better than expected incurred loss
development primarily as a result of claim severity being less than anticipated.
 For accident year 2005, the decrease in estimated net unpaid loss and loss adjustment
expenses was principally due to lower loss estimates for:
 §
    
    general liability and commercial automobile coverages due to better than
expected case incurred loss development, primarily as a result of both claim
frequency and severity emergence being less than anticipated, and
 24




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##### Table of Contents



PHILADELPHIA CONSOLIDATED HOLDING CORP. AND SUBSIDIARIES
Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
 §
    
    professional liability and management liability coverages due to better than
expected case incurred loss development, primarily as a result of claim severity
being less than anticipated.
 For accident year 2004, the decrease in estimated net unpaid loss and loss adjustment
expenses was principally due to lower loss estimates for commercial general liability,
professional liability, rental leasing and management liability coverages due to better than
expected case incurred loss development, primarily as a result of claim severity being less
than anticipated.For accident years 2003 and prior, the decrease in estimated net unpaid loss and loss
adjustment expenses was principally due to lower loss estimates for:
 §
    
    commercial general liability, coverages due to better than expected case
incurred loss development, primarily as a result of both claim frequency and
severity emergence being less than anticipated, and§
    
    professional liability, and management liability coverages due to better than
expected case incurred loss development primarily as a result of claim severity
being less than anticipated.
 Establishing loss reserve estimates is a necessarily complex and imprecise process. The
Companys methodology employs several generally accepted actuarial methods to determine net
unpaid loss and loss adjustment expenses. Over time, more reliance is placed on actuarial
methods based on actual loss development, and accordingly, over time, less reliance is
placed on actuarial methods based on expected loss development.
 Acquisition Costs and Other Underwriting Expenses:
 
    
    The growth in net earned premiums
  
    
    Higher property catastrophe reinsurance costs experienced by the Company for its annual
June 1, 2006 reinsurance renewal. This resulted in higher ceded earned premiums and lower
net earned premiums without a corresponding decrease in acquisition and other underwriting
expenses for the nine months ended September 30, 2007, compared to the nine months ended
September 30, 2006, which contributed to the increase in the expense ratio.
  Other Operating Expenses
 Income Tax Expense:
 Results of Operations (Three Months ended September 30, 2007 vs. September 30, 2006)
 Premiums
 25




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##### Table of Contents



PHILADELPHIA CONSOLIDATED HOLDING CORP. AND SUBSIDIARIES
Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
 Commercial Lines
    
    Specialty Lines
    
    Personal Lines
    
    Total2007 Gross Written Premiums
    
    $
    425.1
    
    
    $
    68.5
    
    
    $
    11.0
    
    
    $
    504.62006 Gross Written Premiums
    
    $
    367.8
    
    
    $
    62.6
    
    
    $
    26.2
    
    
    $
    456.6Percentage Increase (Decrease)
    
    
    15.6
    %
    
    
    9.4
    %
    
    
    (58.0
    )%
    
    
    10.5
    %2007 Gross Earned Premiums
    
    $
    332.8
    
    
    $
    60.0
    
    
    $
    18.9
    
    
    $
    411.72006 Gross Earned Premiums
    
    $
    268.7
    
    
    $
    56.0
    
    
    $
    25.3
    
    
    $
    350.0Percentage Increase (Decrease)
    
    
    23.9
    %
    
    
    7.1
    %
    
    
    (25.3
    )%
    
    
    17.6
    %
  
    
    Prospecting efforts by marketing personnel in conjunction with long term relationships
formed by the Companys marketing Regional Vice Presidents continue to result in additional
prospects and increased premium writings in existing product offerings, most notably for
the Companys condominium and homeowners associations, non-profit, real estate, specialty
schools, and golf and country clubs commercial package product lines as well as the inland
marine specialty property product line. These product offerings accounted for approximately
$35.5 million of the $57.3 million total commercial lines segment gross written premiums
increase.
    
    The introduction of several new niche product offerings, most notably the
antique/collector vehicle product, professional sports and entertainment and religious
organizations commercial package products, and the camp operators product. These new
product offerings accounted for approximately $20.9 million of the $57.3 million total
commercial lines segment gross written premiums increase.
    
    An increase in the Companys marketing personnel, as well as an increase in the number
of preferred agents.
    
    The Companys branded agent program, which promotes the Companys product offerings and
underwriting philosophy in producers offices.
    
    As a result of the factors noted above:
 §
    
    The commercial lines segment in-force policy counts increased by 25.2% for the
three months ended September 30, 2007. The introduction of the antique/collector
vehicle program accounted for 57.7% of the 25.2% total policy count increase for
the period. The other factors discussed above accounted for the remaining 42.3%
increase in the policy counts for the period.§
    
    The specialty lines segment in-force policy counts increased by 6.4% for the
three months ended September 30, 2007.
 
    
    A $0.4 million increase in gross written premiums by the personal lines segment for the
NFIP for the three months ended September 30, 2007, compared to the same period in 2006.
Gross written premiums for the NFIP accounted for 94.5% and 38.2% of the total personal
lines segment gross written premiums for the three months ended September 30, 2007 and
2006, respectively.
  
    
    Restriction of personal lines business production due to the significant increase in
catastrophe reinsurance rates and restricted availability of reinsurance catastrophe
coverage experienced at the June 1, 2006 catastrophe reinsurance program renewal. This
restriction included non-renewing all homeowners and rental dwelling policies providing
windstorm coverage which expire between June 15, 2007 and December 31, 2007. The Company
has submitted mandatory rate filings with the FLDOI, which are currently under
 26




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##### Table of Contents



PHILADELPHIA CONSOLIDATED HOLDING CORP. AND SUBSIDIARIES
Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
 review by the FLDOI. The mandatory rate filings seek to increase existing premium rates to
reflect the actual reinsurance costs incurred by the Company in its June 1, 2007 reinsurance
renewal, as well as other factors. As of September 30, 2007, there were approximately 3,300
such homeowners policies with an aggregate in-force premium of approximately $7.2 million
which expire before January 1, 2008, and approximately 450 such rental dwelling policies
with an aggregate in-force premium of approximately $0.6 million which expire before January
1, 2008.
    
    A decrease in the lawyers professional liability gross written premium of $2.4 million
as a result of non-renewing policies due to unacceptable underwriting results. For the
three months ended September 30, 2007, gross written premium for the lawyers professional
liability product was $0.1 million. The Company anticipates that it will continue to
non-renew its remaining lawyers professional liability business throughout 2007, which
approximated $1.3 million of gross written premium for the three months ended December 31,
2006.
    
    An increase in price competition during the three months ended September 30, 2007,
particularly with respect to the following:
 §
    
    Large commercial property-driven accounts located in the non-coastal areas of
the country;§
    
    Commercial package business with annual premiums in excess of $100,000; and§
    
    Professional liability accounts at all premium levels.
 
    
    Realized average rate decreases on renewal business approximating 1.8% and 3.8% for the
specialty lines and commercial lines segments, respectively.
  Commercial Lines
    
    Specialty Lines
    
    Personal Lines
    
    Total2007 Net Written Premiums
    
    $
    389.3
    
    
    $
    55.9
    
    
    $
    (2.7
    )
    
    $
    442.52006 Net Written Premiums
    
    $
    339.4
    
    
    $
    50.2
    
    
    $
    2.5
    
    
    $
    392.1Percentage Increase (Decrease)
    
    
    14.7
    %
    
    
    11.4
    %
    
    
    (208.0
    )%
    
    
    12.9
    %2007 Net Earned Premiums
    
    $
    303.3
    
    
    $
    48.7
    
    
    $
    7.1
    
    
    $
    359.12006 Net Earned Premiums
    
    $
    246.9
    
    
    $
    45.4
    
    
    $
    4.1
    
    
    $
    296.4Percentage Increase (Decrease)
    
    
    22.8
    %
    
    
    7.3
    %
    
    
    73.2
    %
    
    
    21.2
    %
  
    
    For the June 1, 2007 commercial lines segment property catastrophe reinsurance renewal,
the Company experienced lower reinsurance rates, but purchased increased catastrophe limits
due to higher exposures primarily in the Northeast part of the country, and maintained the
same catastrophe loss retentions compared to the June 1, 2006 renewal. For the June 1,
2007 personal lines segment property catastrophe reinsurance renewal, the Company
experienced reduced reinsurance rates, lower catastrophe loss retention and purchased
decreased catastrophe coverage limits due to lower exposures, compared to the June 1, 2006
renewal. This resulted in decreased property catastrophe costs for the three month period
ended September 30, 2007, compared to the three month period ended September 30, 2006.
    
    The Company experienced rate decreases on its annual January 1, 2007 renewals of its
casualty excess of loss and property excess of loss reinsurance agreements compared to the
rates on its January 1, 2006 renewals of these agreements.
 27




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##### Table of Contents



PHILADELPHIA CONSOLIDATED HOLDING CORP. AND SUBSIDIARIES
Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
 
    
    Effective for the two-year period beginning March 1, 2007, the Company purchased
Terrorism Catastrophe Excess of Loss reinsurance coverage for its Commercial Lines segment
which provides, on an annual basis, in the aggregate, $50.0 million of coverage for losses
arising from acts of terrorism incurred in excess of $10.0 million, after all applicable
inuring reinsurance coverages. The agreement providing this coverage allows one
reinstatement on an annual basis at the same cost as the initial coverage. The Company did
not purchase similar reinsurance coverage in the prior period.
 Net Investment Income:
  
    
    The portfolio duration target was increased;
    
    The targeted percentage of the fixed maturity portfolio allocated to municipal security
investments was increased; and
    
    The targeted percentage of the investment portfolio allocated to common stock
investments was increased.
   Net Realized Investment Gain (Loss):
  Other Income
 Net Loss and Loss Adjustment Expenses:
 28




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##### Table of Contents



PHILADELPHIA CONSOLIDATED HOLDING CORP. AND SUBSIDIARIES
Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
  
    
    The growth in net earned premiums.
    
    An increase in the current accident year net ultimate loss and loss adjustment expense
ratio for the three months ended September 30, 2007, compared to the same period in 2006.
During the three months ended September 30, 2007, a net ultimate loss and loss adjustment
expense ratio estimate of 51.3% was recorded for the 2007 accident year. During the three
months ended September 30, 2006, a net ultimate loss and loss adjustment expense ratio
estimate of 43.0% was recorded for the 2006 accident year.
    
    Net reserve actions taken during the three months ended September 30, 2007 whereby net
estimated unpaid loss and loss adjustment expenses for accident years 2006 and prior were
decreased by $39.5 million as compared to net reserve actions taken during the three months
ended September 30, 2006 whereby the estimated net unpaid loss and loss adjustment expenses
for accident years 2005 and prior were decreased by $42.7 million. Changes in the
estimated net unpaid loss and loss adjustment expenses by accident year during the three
months ended September 30, 2007 were as follows:
 Net Decrease(In millions)Accident Year 2006
    
    $
    7.5Accident Year 2005
    
    
    11.9Accident Year 2004
    
    
    9.2Accident Years 2003 and prior
    
    
    10.9Total
    
    $
    39.5
   Acquisition Costs and Other Underwriting Expenses:
 
    
    The growth in net earned premiums
  
    
    Lower property catastrophe reinsurance costs experienced by the Company for its annual
June 1, 2007 reinsurance renewal. This resulted in higher net earned premiums without a
corresponding increase in acquisition and other underwriting expenses for the three months
ended September 30, 2007 compared to the three months ended September 30, 2006, which
contributed to the decrease in the expense ratio.
    
    A decrease in state insurance guaranty fund assessments.
 29




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##### Table of Contents



PHILADELPHIA CONSOLIDATED HOLDING CORP. AND SUBSIDIARIES
Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
 Other Operating Expenses
 Income Tax Expense:
 Investments
      30




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PHILADELPHIA CONSOLIDATED HOLDING CORP. AND SUBSIDIARIES
Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
  Gross Unrealized Losses as of September 30, 2007(in millions)Fixed MaturitiesContinuous
    
    Available for Sale
    
    
    
    
    
    
    Totaltime in unrealized
    
    Excluding Interests
    
    
    Interests in
    
    
    Fixed Maturitiesloss position
    
    in Securitized Assets
    
    
    Securitized Assets
    
    
    Available for Sale
    
    
    Equity Securities
    
    
    Total Investments0  3 months
    
    $
    
    
    
    $
    0.1
    
    
    $
    0.1
    
    
    $
    2.2
    
    
    $
    2.34  6 months
    
    
    1.8
    
    
    
    1.8
    
    
    
    3.6
    
    
    
    6.5
    
    
    
    10.17  9 months
    
    
    2.2
    
    
    
    0.9
    
    
    
    3.1
    
    
    
    1.1
    
    
    
    4.210  12 months
    
    
    0.6
    
    
    
    1.3
    
    
    
    1.9
    
    
    
    
    
    
    
    1.913  18 months
    
    
    0.1
    
    
    
    
    
    
    
    0.1
    
    
    
    
    
    
    
    0.119  24 months
    
    
    0.1
    
    
    
    0.5
    
    
    
    0.6
    
    
    
    
    
    
    
    0.6> 24 months
    
    
    4.8
    
    
    
    5.7
    
    
    
    10.5
    
    
    
    
    
    
    
    10.5Total Gross
Unrealized Losses
    
    $
    9.6
    
    
    $
    10.3
    
    
    $
    19.9
    
    
    $
    9.8
    
    
    $
    29.7Estimated fair
value of securities
with a gross
unrealized loss
    
    $
    855.7
    
    
    $
    703.1
    
    
    $
    1,558.8
    
    
    $
    108.8
    
    
    $
    1,667.6
           31




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PHILADELPHIA CONSOLIDATED HOLDING CORP. AND SUBSIDIARIES
Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
          32




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PHILADELPHIA CONSOLIDATED HOLDING CORP. AND SUBSIDIARIES
Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
  Gross Unrealized Losses as of December 31, 2006(in millions)Fixed MaturitiesContinuous
    
    Available for Sale
    
    
    
    
    
    
    Totaltime in unrealized
    
    Excluding Interests
    
    
    Interests in
    
    
    Fixed Maturitiesloss position
    
    in Securitized Assets
    
    
    Securitized Assets
    
    
    Available for Sale
    
    
    Equity Securities
    
    
    Total Investments0  3 months
    
    $
    0.8
    
    
    $
    1.2
    
    
    $
    2.0
    
    
    $
    1.1
    
    
    $
    3.14  6 months
    
    
    
    
    
    
    0.1
    
    
    
    0.1
    
    
    
    0.6
    
    
    
    0.77  9 months
    
    
    0.1
    
    
    
    
    
    
    
    0.1
    
    
    
    0.9
    
    
    
    1.010  12 months
    
    
    0.1
    
    
    
    0.2
    
    
    
    0.3
    
    
    
    
    
    
    
    0.313  18 months
    
    
    2.1
    
    
    
    4.6
    
    
    
    6.7
    
    
    
    
    
    
    
    6.719  24 months
    
    
    2.6
    
    
    
    1.5
    
    
    
    4.1
    
    
    
    
    
    
    
    4.1> 24 months
    
    
    3.1
    
    
    
    1.7
    
    
    
    4.8
    
    
    
    
    
    
    
    4.8Total Gross
Unrealized Losses
    
    $
    8.8
    
    
    $
    9.3
    
    
    $
    18.1
    
    
    $
    2.6
    
    
    $
    20.7Estimated fair
value of securities
with a gross
unrealized loss
    
    $
    624.9
    
    
    $
    543.8
    
    
    $
    1,168.7
    
    
    $
    37.4
    
    
    $
    1,206.1
      33




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PHILADELPHIA CONSOLIDATED HOLDING CORP. AND SUBSIDIARIES
Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
               34




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PHILADELPHIA CONSOLIDATED HOLDING CORP. AND SUBSIDIARIES
Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
   Liquidity and Capital Resources
       35




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PHILADELPHIA CONSOLIDATED HOLDING CORP. AND SUBSIDIARIES
Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
   36




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##### Table of Contents



PHILADELPHIA CONSOLIDATED HOLDING CORP. AND SUBSIDIARIES
 
 Item 3. Quantitative and Qualitative Disclosures About Market Risk
   Estimated
    
    Hypothetical PercentageHypothetical Change
    
    Fair Value after
    
    Increase (Decrease) inEstimated
    
    in Interest Rates
    
    Hypothetical Changes
    
    
    
    
    
    ShareholdersFair Value
    
    (bp=basis points)
    
    in Interest Rates
    
    Fair Value
    
    Equity(Dollars in Thousands)September 30, 2007:InvestmentsTotal Fixed Maturities Available For Sale
    
    $
    2,495,045
    
    
    200 bp decrease
    
    $
    2,716,811
    
    
    
    8.9
    %
    
    
    9.8
    %100 bp decrease
    
    $
    2,615,041
    
    
    
    4.8
    %
    
    
    5.3
    %50 bp decrease
    
    $
    2,556,403
    
    
    
    2.5
    %
    
    
    2.7
    %50 bp increase
    
    $
    2,432,864
    
    
    
    (2.5
    )%
    
    
    (2.8
    )%100 bp increase
    
    $
    2,371,115
    
    
    
    (5.0
    )%
    
    
    (5.5
    )%200 bp increase
    
    $
    2,251,758
    
    
    
    (9.7
    )%
    
    
    (10.8
    )%September 30, 2006:InvestmentsTotal Fixed Maturities Available For Sale
    
    $
    2,045,960
    
    
    200 bp decrease
    
    $
    2,203,927
    
    
    
    7.7
    %
    
    
    9.6
    %100 bp decrease
    
    $
    2,125,622
    
    
    
    3.9
    %
    
    
    4.8
    %50 bp decrease
    
    $
    2,086,185
    
    
    
    2.0
    %
    
    
    2.4
    %50 bp increase
    
    $
    2,005,102
    
    
    
    (2.0
    )%
    
    
    (2.5
    )%100 bp increase
    
    $
    1,963,708
    
    
    
    (4.0
    )%
    
    
    (5.0
    )%200 bp increase
    
    $
    1,880,367
    
    
    
    (8.1
    )%
    
    
    (10.0
    )%
 37




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##### Table of Contents



PHILADELPHIA CONSOLIDATED HOLDING CORP. AND SUBSIDIARIES
 
 Item 4. Controls and Procedures
    38




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##### Table of Contents



PHILADELPHIA CONSOLIDATED HOLDING CORP. AND SUBSIDIARIES
 
  
 Item 1.
    
    Legal Proceedings
 Not applicable.
 
 Item 1A.
    
    Risk Factors
 There were no material changes to the risk factors disclosed in Item 1A of the Companys
Annual Report on Form 10-K for the fiscal year ended December 31, 2006.
 
 Item 2.
    
    Unregistered Sales of Equity Securities and Use of Proceeds
 The Companys purchases of its common stock during the third quarter of 2007 are shown in
the following table:
 (c) Total
    
    (d)Number of
    
    ApproximateShares
    
    Dollar Value ofPurchased as
    
    Shares ThatPart of
    
    May Yet BePublicly
    
    Purchased(a) Total Number
    
    (b) Average
    
    Announced
    
    Under theof Shares
    
    Price Paid per
    
    Plans or
    
    Plans orPeriod
    
    Purchased
    
    Share
    
    Programs
    
    ProgramsJuly 1  July 31
    
    2,149(1)
    
    $
    35.38
    
    
    
    
    $45,000,000 (2)August 1  August 31
    
    1,225(1)
    
    $
    31.07
    
    
    
    
    $45,000,000 (2)September 1  September 30
    
    3,491 (1)
    
    $
    32.18
    
    
    
    
    $45,000,000 (2)
 
 (1)
    
    Such shares were issued under the Companys Employee Stock Purchase Plan and
Amended and Restated Employees Stock Incentive and Performance Based Compensation Plan
and were repurchased by the Company upon the employees termination.(2)
    
    The Companys total stock purchase authorization, which was publicly announced
in August 1998 and subsequently increased, amounted to $75.3 million, of which $30.3
million has been utilized.
 
 Item 3.
    
    Defaults Upon Senior Securities
 Not applicable.
 
 Item 4.
    
    Submission of Matters to a Vote of Security Holders
 Not applicable.
 
 Item 5.
    
    Other Information
 Not applicable.
 39




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##### Table of Contents



Item 6.
    
    Exhibits
 Exhibits:
 Exhibit No.
    
    Description10.1*
    
    Casualty (Clash) Excess of Loss Reinsurance Agreement with
Swiss Reinsurance America Corporation effective January 1,
200710.2*
    
    Property Per Risk Excess of Loss Agreement of Reinsurance No.
9034  07 with General Reinsurance Corporation effective
January 1, 2007 and Termination of Endorsement No. 6 to the
Property Per Risk Excess of Loss Reinsurance Agreement No.
903410.3*
    
    Interest and Liabilities Agreement to the Property Fourth Per
Risk Excess of Loss Reinsurance Agreement with Swiss
Reinsurance America Corporation effective January 1, 200710.4*
    
    Terrorism Catastrophe Excess of Loss Reinsurance Contract 
80% Share with Underwriters At Lloyds effective March 1, 200710.5*
    
    Terrorism Catastrophe Excess of Loss Reinsurance Contract 
20% Share with Validus Reinsurance, LTD. effective March 1,
200710.6*
    
    Excess Catastrophe Reinsurance Contract with Subscribing
Reinsurers effective June 1, 200710.7*
    
    Reinstatement Premium Protection Reinsurance Contract with
Subscribing Reinsurers effective June 1, 200710.8*
    
    Florida Only Excess Catastrophe Reinsurance Contract with
Subscribing Reinsurers effective June 1, 2007  Liberty
American and Liberty American Select Insurance Companies10.9*
    
    First and Second Excess Reinstatement Premium Protection
Reinsurance Contract with Subscribing Reinsurers effective
June 1, 2007  Liberty American and Liberty American Select
Insurance Companies10.10*
    
    Third Excess Reinstatement Premium Protection Reinsurance
Contract with Subscribing Reinsurers effective June 1, 2007 
Liberty American and Liberty American Select Insurance
Companies10.11*
    
    Florida Hurricane Catastrophe Fund Reimbursement Contract and
Addendums No. 1 through No. 4 effective June 1, 2007  Liberty
American Select Insurance Company10.12*
    
    Florida Hurricane Catastrophe Fund Reimbursement Contract and
Addendums No. 1 through No. 4 effective June 1, 2007  Liberty
American Insurance Company31.1*
    
    Certification of the Companys chief executive officer
pursuant to Section 302 of the Sarbanes-Oxley Act of 200231.2*
    
    Certification of the Companys chief financial officer
pursuant to Section 302 of the Sarbanes-Oxley Act of 200232.1*
    
    Certification of the Companys chief executive officer
pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 200232.2*
    
    Certification of the Companys 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. 40




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##### Table of Contents



SIGNATURES
  PHILADELPHIA CONSOLIDATED HOLDING CORP.
 Date November 6, 2007
    
    James J. Maguire, Jr.James J. Maguire, Jr.President and Chief Executive Officer(Principal Executive Officer)Date November 6, 2007
    
    Craig P. KellerCraig P. KellerExecutive Vice President, Secretary,Treasurer and Chief Financial Officer(Principal Financial and Accounting Officer)
 41