##### 



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 June 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 June 30, 2007
 Part I  Financial InformationItem 1. Financial Statements:Consolidated Balance Sheets June 30, 2007 and
December 31, 2006
    
    
    3Consolidated Statements of Operations and Comprehensive
Income  For the three and six months ended June 30, 2007 and 2006
    
    
    4Consolidated Statements of Changes in Shareholders Equity  For
the six months ended June 30, 2007 and the year ended
December 31, 2006
    
    
    5Consolidated Statements of Cash Flows  For the six
months ended June 30, 2007 and 2006
    
    
    6Notes to Consolidated Financial Statements
    
    
    7-17Item 2.Managements Discussion and Analysis of Financial Condition
and Results of Operations
    
    
    18-35Item 3.Quantitative and Qualitative Disclosures About Market Risk
    
    
    36Item 4.Controls and Procedures
    
    
    37Part II  Other InformationItem 1.Legal Proceedings
    
    
    38Item 1A.Risk Factors
    
    
    38Item 2.Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    38Item 3.Defaults Upon Senior Securities
    
    
    38Item 4.Submission of Matters to a Vote of Security Holders
    
    
    38-39Item 5.Other Information
    
    
    39Item 6.Exhibits
    
    
    40Signatures
    
    
    41
 2




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##### 



PHILADELPHIA CONSOLIDATED HOLDING CORP. AND SUBSIDIARIES
 CONSOLIDATED BALANCE SHEETS
 As ofJune 30, 2007
    
    
    December 31,(Unaudited)
    
    
    2006ASSETSINVESTMENTS:FIXED MATURITIES AVAILABLE FOR SALE AT MARKET
(AMORTIZED COST $2,408,375 AND $2,136,231)
    
    $
    2,367,228
    
    
    $
    2,129,609EQUITY SECURITIES AT MARKET (COST $313,353
AND $259,184)
    
    
    358,231
    
    
    
    304,033TOTAL INVESTMENTS
    
    
    2,725,459
    
    
    
    2,433,642CASH AND CASH EQUIVALENTS
    
    
    102,101
    
    
    
    108,671ACCRUED INVESTMENT INCOME
    
    
    22,255
    
    
    
    20,083PREMIUMS RECEIVABLE
    
    
    337,817
    
    
    
    346,836PREPAID REINSURANCE PREMIUMS AND REINSURANCE
RECEIVABLES
    
    
    275,664
    
    
    
    272,798DEFERRED INCOME TAXES
    
    
    53,293
    
    
    
    26,657DEFERRED ACQUISITION COSTS
    
    
    167,352
    
    
    
    158,805PROPERTY AND EQUIPMENT, NET
    
    
    25,882
    
    
    
    26,999OTHER ASSETS
    
    
    45,126
    
    
    
    44,046TOTAL ASSETS
    
    $
    3,754,949
    
    
    $
    3,438,537LIABILITIES AND SHAREHOLDERS EQUITYPOLICY LIABILITIES AND ACCRUALS:UNPAID LOSS AND LOSS ADJUSTMENT EXPENSES
    
    $
    1,383,452
    
    
    $
    1,283,238UNEARNED PREMIUMS
    
    
    778,871
    
    
    
    759,358TOTAL POLICY LIABILITIES AND ACCRUALS
    
    
    2,162,323
    
    
    
    2,042,596PREMIUMS PAYABLE
    
    
    64,174
    
    
    
    66,827OTHER LIABILITIES
    
    
    204,292
    
    
    
    161,847TOTAL LIABILITIES
    
    
    2,430,789
    
    
    
    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, 71,457,574 AND
70,848,482 SHARES ISSUED AND OUTSTANDING
    
    
    396,580
    
    
    
    376,986NOTES RECEIVABLE FROM SHAREHOLDERS
    
    
    (17,733
    )
    
    
    (17,074
    )ACCUMULATED OTHER COMPREHENSIVE INCOME
    
    
    2,425
    
    
    
    24,848RETAINED EARNINGS
    
    
    942,888
    
    
    
    782,507TOTAL SHAREHOLDERS EQUITY
    
    
    1,324,160
    
    
    
    1,167,267TOTAL LIABILITIES AND SHAREHOLDERS EQUITY
    
    $
    3,754,949
    
    
    $
    3,438,537
  3




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##### 



PHILADELPHIA CONSOLIDATED HOLDING CORP. AND SUBSIDIARIES
 CONSOLIDATED STATEMENTS OF OPERATIONS AND
COMPREHENSIVE INCOME
 For the Three Months
    
    
    For the Six MonthsEnded June 30,
    
    
    Ended June 30,2007
    
    
    2006
    
    
    2007
    
    
    2006REVENUE:NET EARNED PREMIUMS
    
    $
    337,315
    
    
    $
    288,794
    
    
    $
    656,033
    
    
    $
    565,340NET INVESTMENT INCOME
    
    
    28,522
    
    
    
    21,677
    
    
    
    55,495
    
    
    
    41,739NET REALIZED INVESTMENT GAIN (LOSS)
    
    
    28,064
    
    
    
    (2,412
    )
    
    
    29,821
    
    
    
    (2,806
    )OTHER INCOME
    
    
    850
    
    
    
    417
    
    
    
    1,680
    
    
    
    908TOTAL REVENUE
    
    
    394,751
    
    
    
    308,476
    
    
    
    743,029
    
    
    
    605,181LOSSES AND EXPENSES:LOSS AND LOSS ADJUSTMENT EXPENSES
    
    
    172,234
    
    
    
    95,603
    
    
    
    332,753
    
    
    
    257,627NET REINSURANCE RECOVERIES
    
    
    (23,645
    )
    
    
    13,152
    
    
    
    (33,659
    )
    
    
    (5,207
    )NET LOSS AND LOSS ADJUSTMENT EXPENSES
    
    
    148,589
    
    
    
    108,755
    
    
    
    299,094
    
    
    
    252,420ACQUISITION COSTS AND OTHER
UNDERWRITING EXPENSES
    
    
    101,746
    
    
    
    85,337
    
    
    
    198,650
    
    
    
    162,354OTHER OPERATING EXPENSES
    
    
    2,981
    
    
    
    2,948
    
    
    
    6,136
    
    
    
    5,280TOTAL LOSSES AND EXPENSES
    
    
    253,316
    
    
    
    197,040
    
    
    
    503,880
    
    
    
    420,054INCOME BEFORE INCOME TAXES
    
    
    141,435
    
    
    
    111,436
    
    
    
    239,149
    
    
    
    185,127INCOME TAX EXPENSE (BENEFIT):CURRENT
    
    
    56,511
    
    
    
    37,599
    
    
    
    93,330
    
    
    
    66,723DEFERRED
    
    
    (9,477
    )
    
    
    (1,020
    )
    
    
    (14,562
    )
    
    
    (6,774
    )TOTAL INCOME TAX EXPENSE
    
    
    47,034
    
    
    
    36,579
    
    
    
    78,768
    
    
    
    59,949NET INCOME
    
    $
    94,401
    
    
    $
    74,857
    
    
    $
    160,381
    
    
    $
    125,178OTHER COMPREHENSIVE (LOSS), NET OF TAX:HOLDING LOSS ARISING DURING PERIOD
    
    $
    (11,920
    )
    
    $
    (13,427
    )
    
    $
    (3,039
    )
    
    $
    (19,321
    )RECLASSIFICATION ADJUSTMENT
    
    
    (18,242
    )
    
    
    1,568
    
    
    
    (19,384
    )
    
    
    1,824OTHER COMPREHENSIVE LOSS
    
    
    (30,162
    )
    
    
    (11,859
    )
    
    
    (22,423
    )
    
    
    (17,497
    )COMPREHENSIVE INCOME
    
    $
    64,239
    
    
    $
    62,998
    
    
    $
    137,958
    
    
    $
    107,681PER AVERAGE SHARE DATA:NET INCOME  BASIC
    
    $
    1.34
    
    
    $
    1.07
    
    
    $
    2.28
    
    
    $
    1.80NET INCOME  DILUTED
    
    $
    1.27
    
    
    $
    1.03
    
    
    $
    2.16
    
    
    $
    1.73WEIGHTED-AVERAGE COMMON SHARES
OUTSTANDING
    
    
    70,361,554
    
    
    
    69,775,336
    
    
    
    70,255,758
    
    
    
    69,577,653WEIGHTED-AVERAGE SHARE EQUIVALENTS
OUTSTANDING
    
    
    3,835,617
    
    
    
    2,721,730
    
    
    
    3,966,198
    
    
    
    2,915,528WEIGHTED-AVERAGE SHARES AND SHARE
EQUIVALENTS OUTSTANDING
    
    
    74,197,171
    
    
    
    72,497,066
    
    
    
    74,221,956
    
    
    
    72,493,181
  4




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##### 



PHILADELPHIA CONSOLIDATED HOLDING CORP. AND SUBSIDIARIES
 CONSOLIDATED STATEMENTS OF CHANGES
IN SHAREHOLDERS EQUITY
 For the SixMonths EndedJune 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
    
    
    95,776
    
    
    
    613,320ISSUANCE OF SHARES PURSUANT TO STOCK
BASED COMPENSATION PLANS
    
    
    513,316
    
    
    
    969,146BALANCE AT END OF PERIOD
    
    
    71,457,574
    
    
    
    70,848,482COMMON STOCK:BALANCE AT BEGINNING OF YEAR
    
    $
    376,986
    
    
    $
    332,757ISSUANCE OF SHARES PURSUANT TO STOCK
PURCHASE PLANS
    
    
    3,656
    
    
    
    19,521EFFECTS OF ISSUANCE OF SHARES PURSUANT TO STOCK
BASED COMPENSATION PLANS
    
    
    15,567
    
    
    
    24,301OTHER
    
    
    371
    
    
    
    407BALANCE AT END OF PERIOD
    
    
    396,580
    
    
    
    376,986NOTES RECEIVABLE FROM SHAREHOLDERS:BALANCE AT BEGINNING OF YEAR
    
    
    (17,074
    )
    
    
    (7,217
    )NOTES RECEIVABLE ISSUED PURSUANT TO
EMPLOYEE STOCK PURCHASE PLANS
    
    
    (3,450
    )
    
    
    (12,391
    )COLLECTION OF NOTES RECEIVABLE
    
    
    2,791
    
    
    
    2,534BALANCE AT END OF PERIOD
    
    
    (17,733
    )
    
    
    (17,074
    )ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS),
NET OF DEFERRED INCOME TAXES:BALANCE AT BEGINNING OF YEAR
    
    
    24,848
    
    
    
    (2,702
    )OTHER COMPREHENSIVE INCOME (LOSS) INCOME,
NET OF TAXES
    
    
    (22,423
    )
    
    
    27,550BALANCE AT END OF PERIOD
    
    
    2,425
    
    
    
    24,848RETAINED EARNINGS:BALANCE AT BEGINNING OF YEAR
    
    
    782,507
    
    
    
    493,658NET INCOME
    
    
    160,381
    
    
    
    288,849BALANCE AT END OF PERIOD
    
    
    942,888
    
    
    
    782,507TOTAL SHAREHOLDERS EQUITY
    
    $
    1,324,160
    
    
    $
    1,167,267
  5




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##### 



PHILADELPHIA CONSOLIDATED HOLDING CORP. AND SUBSIDIARIES
 CONSOLIDATED STATEMENTS OF CASH FLOWS
 For the Six Months Ended June 30,2007
    
    
    2006CASH FLOWS FROM OPERATING ACTIVITIES:NET INCOME
    
    $
    160,381
    
    
    $
    125,178ADJUSTMENTS TO RECONCILE NET INCOME TO NET CASH
PROVIDED BY OPERATING ACTIVITIES:NET REALIZED INVESTMENT (GAIN) LOSS
    
    
    (29,821
    )
    
    
    2,806AMORTIZATION OF INVESTMENT PREMIUMS, NET OF DISCOUNT
    
    
    3,044
    
    
    
    5,441AMORTIZATION OF INTANGIBLE ASSETS
    
    
    1,434
    
    
    
    DEPRECIATION
    
    
    3,821
    
    
    
    2,844DEFERRED INCOME TAX BENEFIT
    
    
    (14,562
    )
    
    
    (6,774
    )CHANGE IN PREMIUMS RECEIVABLE
    
    
    9,019
    
    
    
    3,526CHANGE IN PREPAID REINSURANCE PREMIUMS AND REINSURANCE
RECEIVABLES, NET OF FUNDS HELD PAYABLE TO REINSURER
    
    
    (2,866
    )
    
    
    86,325CHANGE IN OTHER RECEIVABLES
    
    
    (2,172
    )
    
    
    (497
    )CHANGE IN DEFERRED ACQUISITION COSTS
    
    
    (8,547
    )
    
    
    (7,192
    )CHANGE IN INCOME TAXES PAYABLE
    
    
    11,544
    
    
    
    6,094CHANGE IN OTHER ASSETS
    
    
    4,542
    
    
    
    1,357CHANGE IN UNPAID LOSS AND LOSS ADJUSTMENT EXPENSES
    
    
    100,213
    
    
    
    2,455CHANGE IN UNEARNED PREMIUMS
    
    
    19,513
    
    
    
    20,057CHANGE IN OTHER LIABILITIES
    
    
    1,854
    
    
    
    (1,753
    )FAIR VALUE OF STOCK BASED COMPENSATION
    
    
    7,649
    
    
    
    6,371EXCESS TAX BENEFIT FROM ISSUANCE OF SHARES PURSUANT TO
STOCK BASED COMPENSATION PLANS
    
    
    (2,902
    )
    
    
    (8,088
    )NET CASH PROVIDED BY OPERATING ACTIVITIES
    
    
    262,144
    
    
    
    238,150CASH FLOWS FROM INVESTING ACTIVITIES:PROCEEDS FROM SALES OF INVESTMENTS IN FIXED MATURITIES
    
    
    114,212
    
    
    
    115,024PROCEEDS FROM MATURITY OF INVESTMENTS IN FIXED MATURITIES
    
    
    119,214
    
    
    
    128,116PROCEEDS FROM SALES OF INVESTMENTS IN EQUITY SECURITIES
    
    
    199,048
    
    
    
    50,384COST OF FIXED MATURITIES ACQUIRED
    
    
    (479,195
    )
    
    
    (385,073
    )COST OF EQUITY SECURITIES ACQUIRED
    
    
    (220,459
    )
    
    
    (122,023
    )PURCHASE OF PROPERTY AND EQUIPMENT
    
    
    (2,704
    )
    
    
    (3,465
    )PURCHASE OF INTANGIBLES
    
    
    (8,564
    )
    
    
    NET CASH USED BY INVESTING ACTIVITIES
    
    
    (278,448
    )
    
    
    (217,037
    )CASH FLOWS FROM FINANCING ACTIVITIES:PROCEEDS FROM EXERCISE OF EMPLOYEE STOCK OPTIONS
    
    
    3,835
    
    
    
    6,037PROCEEDS FROM COLLECTION OF SHAREHOLDER NOTES RECEIVABLE
    
    
    2,791
    
    
    
    1,302PROCEEDS FROM SHARES ISSUED PURSUANT TO
STOCK PURCHASE PLANS
    
    
    206
    
    
    
    1,750EXCESS TAX BENEFIT FROM ISSUANCE OF SHARES PURSUANT TO
STOCK BASED COMPENSATION PLANS
    
    
    2,902
    
    
    
    8,088COST OF SHARES WITHHELD TO SATSIFY MINIMUM REQUIRED TAX
WITHHOLDING OBLIGATION ARISING UPON EXERCISE
OF OPTIONS
    
    
    
    
    
    
    (4,676
    )NET CASH PROVIDED BY FINANCING ACTIVITIES
    
    
    9,734
    
    
    
    12,501NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS
    
    
    (6,570
    )
    
    
    33,614CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD
    
    
    108,671
    
    
    
    74,385CASH AND CASH EQUIVALENTS AT END OF PERIOD
    
    $
    102,101
    
    
    $
    107,999NON-CASH TRANSACTIONS:ISSUANCE OF SHARES PURSUANT TO EMPLOYEE STOCK
PURCHASE PLANS IN EXCHANGE FOR NOTES RECEIVABLE
    
    $
    3,450
    
    
    $
    4,900
  6




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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 June 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 six months ended June 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 measures the fair value of investments based upon quoted market prices or by obtaining
quotes from third party broker-dealers. Material assumptions and factors utilized by such
broker-dealers in pricing these securities include: future cash flows, constant default rates,
recovery rates and any market clearing activity 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. 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 $0.1 million and $0.6 million, respectively, for the three months ended June 30, 2007
and 2006, and $2.6 million and $1.3 million, respectively, for the six months ended June 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 six months ended June 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 June 30,
2007 have continuously been in an unrealized loss position. Included in the amounts displayed
in the table are $1,880 of unrealized losses due to non-investment grade fixed maturity
securities having a fair value of $1.0 million. No issuer of securities or industry represents
more than 1.9% and 22.0%, respectively, of the total estimated fair value, or 3.7% and 33.4%,
respectively, of the total gross unrealized loss included in the table below. The industry
concentration represents investments in AAA rated Mortgage Backed Securities issued by
Agencies of the U.S. Government which are collateralized by pools of residential mortgage loans.
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. Should the Company subsequently determine a decline in the fair value below
the cost basis to be other than temporary, the security would be written down to its fair value
and the difference would be included in earnings as a realized loss for the period such
determination was made.
 7




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##### 



Less Than 12 Months
    
    12 Months or More
    
    TotalUnrealized
    
    
    
    
    
    Unrealized
    
    
    
    
    
    UnrealizedJune 30, 2007
    
    Fair Value
    
    Losses
    
    Fair Value
    
    Losses
    
    Fair Value
    
    LossesFixed Maturities Available for Sale
    
    (In Thousands)U.S. Treasury Securities and
Obligations of U.S. Government
Corporations and Agencies
    
    $
    3,871
    
    
    $
    18
    
    
    $
    9,512
    
    
    $
    182
    
    
    $
    13,383
    
    
    $
    200Obligations of States and
Political Subdivisions
    
    
    685,145
    
    
    
    12,690
    
    
    
    297,259
    
    
    
    7,400
    
    
    
    982,404
    
    
    
    20,090Corporate and Bank Debt Securities
    
    
    23,528
    
    
    
    304
    
    
    
    84,907
    
    
    
    2,299
    
    
    
    108,435
    
    
    
    2,603Asset Backed Securities
    
    
    127,723
    
    
    
    1,450
    
    
    
    26,291
    
    
    
    313
    
    
    
    154,014
    
    
    
    1,763Mortgage Pass-Through Securities
    
    
    307,840
    
    
    
    8,952
    
    
    
    157,250
    
    
    
    7,135
    
    
    
    465,090
    
    
    
    16,087Collateralized Mortgage Obligations
    
    
    160,761
    
    
    
    1,181
    
    
    
    112,133
    
    
    
    2,536
    
    
    
    272,894
    
    
    
    3,717Total Fixed Maturities
Available for Sale
    
    $
    1,308,868
    
    
    $
    24,595
    
    
    $
    687,352
    
    
    $
    19,865
    
    
    $
    1,996,220
    
    
    $
    44,460Equity Securities
    
    
    112,242
    
    
    
    3,668
    
    
    
    
    
    
    
    
    
    
    
    112,242
    
    
    
    3,668Total Investments
    
    $
    1,421,110
    
    
    $
    28,263
    
    
    $
    687,352
    
    
    $
    19,865
    
    
    $
    2,108,462
    
    
    $
    48,128
           8




---



##### 



9




---



##### 



Less Than 12 Months
    
    12 Months or More
    
    TotalUnrealized
    
    
    
    
    
    Unrealized
    
    
    
    
    
    UnrealizedDecember 31, 2006
    
    Fair Value
    
    Losses
    
    Fair Value
    
    Losses
    
    Fair Value
    
    LossesFixed Maturities Available for Sale
    
    (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




---



##### 



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
June 30, 2007 and December 31, 2006, the carrying value of the securities on deposit totaled
$15.0 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 necessarily 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 June 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 June 30, 2007, the Company decreased the estimated net unpaid loss
and loss adjustment expenses for accident years 2006 and prior by the following amounts:
 Net Decrease(In millions)Accident Year 2006
    
    $
    5.2Accident Year 2005
    
    
    4.5Accident Year 2004
    
    
    1.2Accident Year 2003 and prior
    
    
    9.9Total
    
    $
    20.8
 For accident year 2006, 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 property and
 11




---



##### 



automobile coverages due to better than expected case incurred loss development primarily as a
result of severity emergence 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 professional liability, management liability and
commercial general liability coverages due to better than expected case incurred loss
development as a result of severity emergence 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 coverages due to
better than expected case incurred loss development as a result of severity emergence 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 across most commercial coverages due to
better than expected case incurred loss development as a result of 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 433,107 and 949,000 stock settled
appreciation rights (SARS) during the six months ended June 30, 2007 and the year ended
December 31, 2006, respectively. The Company also issued 146,334 and 47,080 shares of
restricted stock awards during the six months ended June 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 six months ended
June 30, 2007 and 2006, respectively (in thousands, except per share data):
 As of and For the Three
    
    
    As of and For the SixMonths Ended June 30,
    
    
    Months Ended June 30,2007
    
    
    2006
    
    
    2007
    
    
    2006Weighted-Average Common Shares Outstanding
    
    
    70,362
    
    
    
    69,775
    
    
    
    70,256
    
    
    
    69,578Weighted-Average Potential Shares Issuable
    
    
    3,835
    
    
    
    2,722
    
    
    
    3,966
    
    
    
    2,915Weighted-Average Shares and Potential
Shares Issuable
    
    
    74,197
    
    
    
    72,497
    
    
    
    74,222
    
    
    
    72,493Net Income
    
    $
    94,401
    
    
    $
    74,857
    
    
    $
    160,381
    
    
    $
    125,178Basic Earnings per Share
    
    $
    1.34
    
    
    $
    1.07
    
    
    $
    2.28
    
    
    $
    1.80Diluted Earnings per Share
    
    $
    1.27
    
    
    $
    1.03
    
    
    $
    2.16
    
    
    $
    1.73
 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 June 30,
2007.
 12




---



##### 



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 $2.1
million as of January 1, 2007 and June 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 participates in such agreements for the purpose of
limiting loss exposure and diversifying 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 Six Months EndedJune 30, 2007
    
    
    June 30, 2007(In thousands)
    
    Written
    
    
    Earned
    
    
    Written
    
    
    EarnedDirect Business
    
    $
    397,829
    
    
    $
    394,634
    
    
    $
    791,360
    
    
    $
    771,576Reinsurance Assumed
    
    
    684
    
    
    
    865
    
    
    
    1,267
    
    
    
    1,538Reinsurance Ceded
    
    
    (59,326
    )
    
    
    (58,184
    )
    
    
    (116,007
    )
    
    
    (117,081
    )Net Premiums
    
    $
    339,187
    
    
    $
    337,315
    
    
    $
    676,620
    
    
    $
    656,033
 For the Three Months Ended
    
    
    For the Six Months EndedJune 30, 2006
    
    
    June 30, 2006Written
    
    
    Earned
    
    
    Written
    
    
    EarnedDirect Business
    
    $
    340,430
    
    
    $
    330,746
    
    
    $
    667,107
    
    
    $
    647,085Reinsurance Assumed
    
    
    933
    
    
    
    976
    
    
    
    2,299
    
    
    
    2,264Reinsurance Ceded
    
    
    (45,111
    )
    
    
    (42,928
    )
    
    
    (85,198
    )
    
    
    (84,009
    )Net Premiums
    
    $
    296,252
    
    
    $
    288,794
    
    
    $
    584,208
    
    
    $
    565,340
 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.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 June 30, 2007, no borrowings have been made by
the Company under this Credit Agreement.
 13




---



##### 



The Credit Agreement contains various representations, covenants and events of default typical
for credit facilities of this type. As of June 30, 2007, the Company was in compliance with all
covenants contained in the Credit Agreement.State Insurance Guaranty Funds:As of June 30, 2007 and December 31, 2006, included in Other Liabilities in the Consolidated
Balance Sheets were $17.0 million and $15.1 million, respectively, of liabilities for state
guaranty funds. As of June 30, 2007 and December 31, 2006, included in Other Assets in the
Consolidated Balance Sheets were $0.2 million, respectively, 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.During June 2006, the FOIR approved a 1% emergency assessment effective January 1, 2007 which
the Company is required to collect from its policyholders and remit to the FHCF beginning
January 1, 2007.10.
    
    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 Losses arising during
the three and six months ended June 30, 2007 and 2006 was $(6.4) million and $(7.2) million,
respectively, and $(1.6) million and $(10.4) million, respectively. The related tax effect of
Reclassification Adjustments for the three and six months ended June 30, 2007 and 2006 was
$(9.8) million and $0.8 million, respectively, and $(10.4) million and $1.0 million,
respectively.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.
 14




---



##### 



15




---



##### 



Three Months Ended June 30,Commercial
    
    Specialty
    
    PersonalLines
    
    Lines
    
    Lines
    
    Corporate
    
    Total2007:Gross Written Premiums
    
    $
    321,908
    
    
    $
    59,963
    
    
    $
    16,642
    
    
    
    
    
    
    $
    398,513Net Written Premiums
    
    $
    293,543
    
    
    $
    49,337
    
    
    $
    (3,693
    )
    
    
    
    
    
    $
    339,187Revenue:Net Earned Premiums
    
    $
    286,642
    
    
    $
    47,811
    
    
    $
    2,862
    
    
    
    
    
    
    $
    337,315Net Investment Income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    28,522
    
    
    
    28,522Net Realized Investment Gain
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    28,064
    
    
    
    28,064Other Income
    
    
    
    
    
    
    
    
    
    
    630
    
    
    
    220
    
    
    
    850Total Revenue
    
    
    286,642
    
    
    
    47,811
    
    
    
    3,492
    
    
    
    56,806
    
    
    
    394,751Losses and Expenses:Net Loss and Loss Adjustment Expenses
    
    
    123,238
    
    
    
    24,024
    
    
    
    1,327
    
    
    
    
    
    
    
    148,589Acquisition Costs and Other Underwriting
Expenses
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    101,746
    
    
    
    101,746Other Operating Expenses
    
    
    
    
    
    
    
    
    
    
    357
    
    
    
    2,624
    
    
    
    2,981Total Losses and Expenses
    
    
    123,238
    
    
    
    24,024
    
    
    
    1,684
    
    
    
    104,370
    
    
    
    253,316Income Before Income Taxes
    
    
    163,404
    
    
    
    23,787
    
    
    
    1,808
    
    
    
    (47,564
    )
    
    
    141,435Total Income Tax Expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    47,034
    
    
    
    47,034Net Income
    
    $
    163,404
    
    
    $
    23,787
    
    
    $
    1,808
    
    
    $
    (94,598
    )
    
    $
    94,401Total Assets
    
    
    
    
    
    
    
    
    
    $
    107,019
    
    
    $
    3,647,930
    
    
    $
    3,754,9492006:Gross Written Premiums
    
    $
    265,185
    
    
    $
    53,736
    
    
    $
    22,443
    
    
    
    
    
    
    $
    341,364Net Written Premiums
    
    $
    247,660
    
    
    $
    43,792
    
    
    $
    4,800
    
    
    
    
    
    
    $
    296,252Revenue:Net Earned Premiums
    
    $
    235,598
    
    
    $
    43,507
    
    
    $
    9,689
    
    
    
    
    
    
    $
    288,794Net Investment Income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    21,677
    
    
    
    21,677Net Realized Investment Loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,412
    )
    
    
    (2,412
    )Other Income
    
    
    
    
    
    
    
    
    
    
    342
    
    
    
    75
    
    
    
    417Total Revenue
    
    
    235,598
    
    
    
    43,507
    
    
    
    10,031
    
    
    
    19,340
    
    
    
    308,476Losses and Expenses:Net Loss and Loss Adjustment Expenses
    
    
    84,374
    
    
    
    21,376
    
    
    
    3,005
    
    
    
    
    
    
    
    108,755Acquisition Costs and Other Underwriting
Expenses
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    85,337
    
    
    
    85,337Other Operating Expenses
    
    
    
    
    
    
    
    
    
    
    266
    
    
    
    2,682
    
    
    
    2,948Total Losses and Expenses
    
    
    84,374
    
    
    
    21,376
    
    
    
    3,271
    
    
    
    88,019
    
    
    
    197,040Income Before Income Taxes
    
    
    151,224
    
    
    
    22,131
    
    
    
    6,760
    
    
    
    (68,679
    )
    
    
    111,436Total Income Tax Expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    36,579
    
    
    
    36,579Net Income
    
    $
    151,224
    
    
    $
    22,131
    
    
    $
    6,760
    
    
    $
    (105,258
    )
    
    $
    74,857Total Assets
    
    
    
    
    
    
    
    
    
    $
    158,213
    
    
    $
    2,894,915
    
    
    $
    3,053,128
 16




---



##### 



Six Months Ended June 30,Commercial
    
    Specialty
    
    PersonalLines
    
    Lines
    
    Lines
    
    Corporate
    
    Total2007:Gross Written Premiums
    
    $
    633,277
    
    
    $
    120,705
    
    
    $
    38,645
    
    
    
    
    
    
    $
    792,627Net Written Premiums
    
    $
    578,965
    
    
    $
    99,897
    
    
    $
    (2,242
    )
    
    
    
    
    
    $
    676,620Revenue:Net Earned Premiums
    
    $
    558,547
    
    
    $
    93,293
    
    
    $
    4,193
    
    
    
    
    
    
    $
    656,033Net Investment Income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    55,495
    
    
    
    55,495Net Realized Investment Gain
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    29,821
    
    
    
    29,821Other Income
    
    
    
    
    
    
    
    
    
    
    1,448
    
    
    
    232
    
    
    
    1,680Total Revenue
    
    
    558,547
    
    
    
    93,293
    
    
    
    5,641
    
    
    
    85,548
    
    
    
    743,029Losses and Expenses:Net Loss and Loss Adjustment Expenses
    
    
    238,706
    
    
    
    54,800
    
    
    
    5,588
    
    
    
    
    
    
    
    299,094Acquisition Costs and Other Underwriting
Expenses
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    198,650
    
    
    
    198,650Other Operating Expenses
    
    
    
    
    
    
    
    
    
    
    796
    
    
    
    5,340
    
    
    
    6,136Total Losses and Expenses
    
    
    238,706
    
    
    
    54,800
    
    
    
    6,384
    
    
    
    203,990
    
    
    
    503,880Income Before Income Taxes
    
    
    319,841
    
    
    
    38,493
    
    
    
    (743
    )
    
    
    (118,442
    )
    
    
    239,149Total Income Tax Expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    78,768
    
    
    
    78,768Net Income
    
    $
    319,841
    
    
    $
    38,493
    
    
    $
    (743
    )
    
    $
    (197,210
    )
    
    $
    160,381Total Assets
    
    
    
    
    
    
    
    
    
    $
    107,019
    
    
    $
    3,647,930
    
    
    $
    3,754,9492006:Gross Written Premiums
    
    $
    508,292
    
    
    $
    111,804
    
    
    $
    49,310
    
    
    
    
    
    
    $
    669,406Net Written Premiums
    
    $
    475,778
    
    
    $
    89,220
    
    
    $
    19,210
    
    
    
    
    
    
    $
    584,208Revenue:Net Earned Premiums
    
    $
    459,969
    
    
    $
    83,434
    
    
    $
    21,937
    
    
    
    
    
    
    $
    565,340Net Investment Income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    41,739
    
    
    
    41,739Net Realized Investment Loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,806
    )
    
    
    (2,806
    )Other Income
    
    
    
    
    
    
    
    
    
    
    782
    
    
    
    126
    
    
    
    908Total Revenue
    
    
    459,969
    
    
    
    83,434
    
    
    
    22,719
    
    
    
    39,059
    
    
    
    605,181Losses and Expenses:Net Loss and Loss Adjustment Expenses
    
    
    195,172
    
    
    
    48,195
    
    
    
    9,053
    
    
    
    
    
    
    
    252,420Acquisition Costs and Other Underwriting
Expenses
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    162,354
    
    
    
    162,354Other Operating Expenses
    
    
    
    
    
    
    
    
    
    
    514
    
    
    
    4,766
    
    
    
    5,280Total Losses and Expenses
    
    
    195,172
    
    
    
    48,195
    
    
    
    9,567
    
    
    
    167,120
    
    
    
    420,054Income Before Income Taxes
    
    
    264,797
    
    
    
    35,239
    
    
    
    13,152
    
    
    
    (128,061
    )
    
    
    185,127Total Income Tax Expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    59,949
    
    
    
    59,949Net Income
    
    $
    264,797
    
    
    $
    35,239
    
    
    $
    13,152
    
    
    $
    (188,010
    )
    
    $
    125,178Total Assets
    
    
    
    
    
    
    
    
    
    $
    158,213
    
    
    $
    2,894,915
    
    
    $
    3,053,128
 17




---



##### 



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.
 
 18




---



##### 



PHILADELPHIA CONSOLIDATED HOLDING CORP. AND SUBSIDIARIES
Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
 Results of Operations (Six Months ended June 30, 2007 vs. June 30, 2006)
 Premiums
 Commercial Lines
    
    Specialty Lines
    
    Personal Lines
    
    Total2007 Gross Written Premiums
    
    $
    633.3
    
    
    $
    120.7
    
    
    $
    38.6
    
    
    $
    792.62006 Gross Written Premiums
    
    $
    508.3
    
    
    $
    111.8
    
    
    $
    49.3
    
    
    $
    669.4Percentage Increase (Decrease)
    
    
    24.6
    %
    
    
    8.0
    %
    
    
    (21.7
    )%
    
    
    18.4
    %2007 Gross Earned Premiums
    
    $
    613.2
    
    
    $
    115.2
    
    
    $
    44.7
    
    
    $
    773.12006 Gross Earned Premiums
    
    $
    493.5
    
    
    $
    104.6
    
    
    $
    51.2
    
    
    $
    649.3Percentage Increase (Decrease)
    
    
    24.3
    %
    
    
    10.1
    %
    
    
    (12.7
    )%
    
    
    19.1
    %
  
    
    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, religious organizations,
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 $85.8 million of the $125.0 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 commercial package
product, and the camp operators product. These new product offerings accounted for
approximately $30.7 million of the $125.0 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 through regional marketing
meetings.
    
    As a result of the factors noted above:
 §
    
    The commercial lines segment in-force policy counts increased by 60.4% for the
six months ended June 30, 2007 compared to 17.3% for the six months ended June 30,
2006. The introduction of the antique/collector vehicle program accounted for 93.4%
of the 60.4% total policy count increase for the period. The other factors
discussed above accounted for the remaining 6.6% increase in the policy counts for
the period.§
    
    The specialty lines segment in-force policy counts increased by 14.2% for the
six months ended June 30, 2007 compared to 7.9% for the six months ended June 30,
2006.
  
    
    A decrease in the renewal retention percentage of the personal lines segment to 73.9%
for the six months ended June 30, 2007 compared to 92.7% renewal retention percentage for
the six months ended June 30,
2006. The decrease in the renewal retention is primarily attributable to the implementation
of rate increases effective September 1, 2006, resulting in part from higher reinsurance
costs.
 19




---



##### 



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 after June 14, 2007. Pending the outcome of the Companys
mandatory rate filing with the Florida Department of Insurance, the Company intends to
continue this action on such expiring policies until December 31, 2007. The mandatory
rate filing seeks 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 June 30, 2007, there were approximately 8,900 such homeowners policies with
an aggregate in-force premium of approximately $18.4 million which expire before January 1,
2008, and approximately 1,200 such rental dwelling policies with an aggregate in-force
premium of approximately $1.5 million which expire before January 1, 2008.
    
    A decrease in in-force policy counts for the personal lines segment of 28.3%, resulting
from a decrease to the in-force counts for the homeowners product and the mobile homeowners
product of 31.4% and 14.9%, respectively, due to the factors noted above.
    
    A decrease in the lawyers professional liability gross written premium of $7.9 million
as a result of non-renewing policies due to unacceptable underwriting results. For the six
months ended June 30, 2007, gross written premium for the lawyers 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 $3.8
million of gross written premium for the six months ended December 31, 2006.
    
    Continued price competition during the six months ended June 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;§
    
    Professional liability accounts at all premium levels; and§
    
    Personal lines homeowners policies for homes located in Florida, due to
implemented rate increases and recent changes in the regulatory environment.
  
    
    Realized average rate decreases on renewal business approximating 1.6% and 0.4% for the
specialty lines and commercial lines segments, respectively.
  Commercial Lines
    
    Specialty Lines
    
    Personal Lines
    
    Total2007 Net Written Premiums
    
    $
    578.9
    
    
    $
    99.9
    
    
    $
    (2.2
    )
    
    $
    676.62006 Net Written Premiums
    
    $
    475.8
    
    
    $
    89.2
    
    
    $
    19.2
    
    
    $
    584.2Percentage Increase (Decrease)
    
    
    21.7
    %
    
    
    12.0
    %
    
    
    (111.5
    )%
    
    
    15.8
    %2007 Net Earned Premiums
    
    $
    558.5
    
    
    $
    93.3
    
    
    $
    4.2
    
    
    $
    656.02006 Net Earned Premiums
    
    $
    460.0
    
    
    $
    83.4
    
    
    $
    21.9
    
    
    $
    565.3Percentage Increase (Decrease)
    
    
    21.4
    %
    
    
    11.9
    %
    
    
    (80.8
    )%
    
    
    16.0
    %
 20




---



##### 



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 six month period ended June 30, 2007, compared
to the six month period ended June 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 (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 (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.
 21




---



##### 



PHILADELPHIA CONSOLIDATED HOLDING CORP. AND SUBSIDIARIES
Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
 
 
    
    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.
    
    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 June 30, 2007 and 2006, the Company accrued $1.9 million ($0.8 million for
the commercial lines segment and $1.1 million for the specialty lines segment) and $3.2
million ($1.3 million for the commercial lines segment and $1.9 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):
 22




---



##### 



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.
    
    Net reserve actions taken during the six months ended June 30, 2007 whereby net
estimated unpaid loss and loss adjustment expenses for accident years 2006 and prior were
decreased by $33.7 million as compared to net reserve actions taken during the six months
ended June 30, 2006 whereby the estimated net unpaid loss and loss adjustment expenses for
accident years 2005 and prior were decreased by $35.6 million. Changes in the estimated
net unpaid loss and loss adjustment expenses by accident year during the six months ended
June 30, 2007 are as follows:
 Net Decrease(In millions)Accident Year 2006
    
    $
    12.2Accident Year 2005
    
    
    9.4Accident Year 2004
    
    
    4.2Accident Years 2003 and prior
    
    
    7.9Total
    
    $
    33.7
     23




---



##### 



PHILADELPHIA CONSOLIDATED HOLDING CORP. AND SUBSIDIARIES
Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
   
    
    A lower current accident year net ultimate loss and loss adjustment expense ratio for
the six months ended June 30, 2007, compared to the same period in 2006. During the six
months ended June 30, 2007, a net ultimate loss and loss adjustment expense ratio estimate
of 50.7% was recorded for the 2007 accident year. During the six months ended June 30,
2006, a net ultimate loss and loss adjustment expense ratio estimate of 51.0% was recorded
for the 2006 accident year.
 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 six months ended June 30, 2007, compared to the six months ended June 30,
2006, which contributed to the increase in the expense ratio.
    
    A $1.5 million change in net charges related to assessments from Florida Citizens
Property Insurance Corporation (Citizens). During the six months ended June 30, 2007 the
Company recognized a net reduction to expense of $1.2 million, compared to a net reduction
to expense of $2.7 million for the six months ended June 30, 2006 related to Citizens
assessments.
  Other Operating Expenses
 Income Tax Expense:
 Results of Operations (Three Months ended June 30, 2007 vs. June 30, 2006)
 Premiums
 24




---



##### 



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
    
    $
    321.9
    
    
    $
    60.0
    
    
    $
    16.6
    
    
    $
    398.52006 Gross Written Premiums
    
    $
    265.3
    
    
    $
    53.7
    
    
    $
    22.4
    
    
    $
    341.4Percentage Increase (Decrease)
    
    
    21.3
    %
    
    
    11.7
    %
    
    
    (25.9
    )%
    
    
    16.7
    %2007 Gross Earned Premiums
    
    $
    315.5
    
    
    $
    58.4
    
    
    $
    21.6
    
    
    $
    395.52006 Gross Earned Premiums
    
    $
    252.8
    
    
    $
    53.1
    
    
    $
    25.8
    
    
    $
    331.7Percentage Increase (Decrease)
    
    
    24.8
    %
    
    
    10.0
    %
    
    
    (16.3
    )%
    
    
    19.2
    %
  
    
    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, religious organizations,
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 $38.3 million of the $56.6 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 commercial package
product, and the camp operators product. These new product offerings accounted for
approximately $18.0 million of the $56.6 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 through regional marketing
meetings.
    
    As a result of the factors noted above:
 §
    
    The commercial lines segment in-force policy counts increased by 30.2% for the
three months ended June 30, 2007 compared to 7.0% for the three months ended June
30, 2006. The introduction of the antique/collector vehicle program accounted for
93.5% of the 30.2% total policy count increase for the period. The other factors
discussed above accounted for the remaining 6.5% increase in the policy counts for
the period.§
    
    The specialty lines segment in-force policy counts increased by 11.0% for the
three months ended June 30, 2007, compared to 4.0% for the three months ended June
30, 2006.
  
    
    A decrease in the renewal retention percentage of the personal lines segment to 67.2%
for the three months ended June 30, 2007, compared to 92.7% renewal retention percentage
for the three months ended June 30, 2006. The decrease in the renewal retention is
primarily attributable to the implementation of rate increases effective September 1, 2006,
resulting in part from higher reinsurance costs.
    
    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 after June 14, 2007. Pending the
 25




---



##### 



PHILADELPHIA CONSOLIDATED HOLDING CORP. AND SUBSIDIARIES
Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
 outcome of the Companys
mandatory rate filing with the Florida Department of Insurance, the Company intends to continue this action on such expiring policies until December 31, 2007. The
mandatory rate filing seeks 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 June 30, 2007, there were approximately 8,900 such homeowners
policies with an aggregate in-force premium of approximately $18.4 million which expire
before January 1, 2008, and approximately 1,200 such rental dwelling policies with an
aggregate in-force premium of approximately $1.5 million which expire before January 1,
2008.
    
    A decrease in in-force policy counts for the personal lines segment of 28.2%, resulting
from a decrease to the in-force counts for the mobile homeowners product and the
homeowners product of 50.9% and 47.4%, respectively, due to the factors noted above.
    
    A decrease in the lawyers professional liability gross written premium of $3.4 million
as a result of non-renewing policies due to unacceptable underwriting results. For the
three months ended June 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 $3.8 million of gross written premium for the six months ended December 31,
2006.
    
    Continued price competition during the three months ended June 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;§
    
    Professional liability accounts at all premium levels; and§
    
    Personal lines homeowners policies for homes located in Florida, due to
implemented rate increases and recent changes in the regulatory environment.
  
    
    Realized average rate decreases on renewal business approximating 1.8% and 0.7% for the
specialty lines and commercial lines segments, respectively.
  Commercial Lines
    
    Specialty Lines
    
    Personal Lines
    
    Total2007 Net Written Premiums
    
    $
    293.6
    
    
    $
    49.3
    
    
    $
    (3.7
    )
    
    $
    339.22006 Net Written Premiums
    
    $
    247.7
    
    
    $
    43.8
    
    
    $
    4.8
    
    
    $
    296.3Percentage Increase (Decrease)
    
    
    18.5
    %
    
    
    12.6
    %
    
    
    (177.1
    )%
    
    
    14.5
    %2007 Net Earned Premiums
    
    $
    286.6
    
    
    $
    47.8
    
    
    $
    2.9
    
    
    $
    337.32006 Net Earned Premiums
    
    $
    235.6
    
    
    $
    43.5
    
    
    $
    9.7
    
    
    $
    288.8Percentage Increase (Decrease)
    
    
    21.6
    %
    
    
    9.9
    %
    
    
    (70.1
    )%
    
    
    16.8
    %
  26




---



##### 



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 three month period ended June 30, 2007,
compared to the three month period ended June 30, 2006. 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, a lower catastrophe loss retention and purchased decreased
catastrophe coverage limits due to lower exposures, compared to the June 1, 2006 renewal.
    
    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 treaties.
    
    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):
 27




---



##### 



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.
    
    A higher current accident year net ultimate loss and loss adjustment expense ratio for
the three months ended June 30, 2007, compared to the same period in 2006. During the
three months ended June 30, 2007, a net ultimate loss and loss adjustment expense ratio
estimate of 50.2% was recorded for the 2007 accident year. During the three months ended
June 30, 2006, a net ultimate loss and loss adjustment expense ratio estimate of 50.0% was
recorded for the 2006 accident year.
    
    Net reserve actions taken during the three months ended June 30, 2007 whereby net
estimated unpaid loss and loss adjustment expenses for accident years 2006 and prior were
decreased by $20.8 million as compared to net reserve actions taken during the three months
ended June 30, 2006 whereby the estimated net unpaid loss and loss adjustment expenses for
accident years 2005 and prior were decreased by $35.7 million. Changes in the estimated
net unpaid loss and loss adjustment expenses by accident year during the three months ended
June 30, 2007 are as follows:
 Net Decrease(In millions)Accident Year 2006
    
    $
    5.2Accident Year 2005
    
    
    4.5Accident Year 2004
    
    
    1.2Accident Years 2003 and prior
    
    
    9.9Total
    
    $
    20.8
   28




---



##### 



PHILADELPHIA CONSOLIDATED HOLDING CORP. AND SUBSIDIARIES
Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
   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 lower net earned premiums without a
corresponding decrease in acquisition and other underwriting expenses for the three months
ended June 30, 2007 compared to the three months ended June 30, 2006, which contributed to
the increase in the expense ratio.
  Other Operating Expenses
 Income Tax Expense:
 Investments
    29




---



##### 



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 June 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
    
    $
    6.8
    
    
    $
    7.1
    
    
    $
    13.9
    
    
    $
    3.2
    
    
    $
    17.14  6 months
    
    
    4.3
    
    
    
    1.9
    
    
    
    6.2
    
    
    
    0.5
    
    
    
    6.77  9 months
    
    
    1.9
    
    
    
    2.6
    
    
    
    4.5
    
    
    
    
    
    
    
    4.510  12 months
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    13  18 months
    
    
    0.2
    
    
    
    0.3
    
    
    
    0.5
    
    
    
    
    
    
    
    0.519  24 months
    
    
    3.1
    
    
    
    5.9
    
    
    
    9.0
    
    
    
    
    
    
    
    9.0> 24 months
    
    
    6.5
    
    
    
    3.8
    
    
    
    10.3
    
    
    
    
    
    
    
    10.3Total Gross
Unrealized Losses
    
    $
    22.8
    
    
    $
    21.6
    
    
    $
    44.4
    
    
    $
    3.7
    
    
    $
    48.1Estimated fair
value of securities
with a gross
unrealized loss
    
    $
    1,104.2
    
    
    $
    892.0
    
    
    $
    1,996.2
    
    
    $
    112.3
    
    
    $
    2,108.5
    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
               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
     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
    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
                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
   Liquidity and Capital Resources
     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
   35




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##### 



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)June 30, 2007:InvestmentsTotal Fixed Maturities Available For Sale
    
    $
    2,367,228
    
    
    200 bp decrease
    
    $
    2,590,289
    
    
    
    9.4
    %
    
    
    11.0
    %100 bp decrease
    
    $
    2,479,171
    
    
    
    4.7
    %
    
    
    5.5
    %50 bp decrease
    
    $
    2,423,438
    
    
    
    2.4
    %
    
    
    2.8
    %50 bp increase
    
    $
    2,310,641
    
    
    
    (2.4
    )%
    
    
    (2.8
    )%100 bp increase
    
    $
    2,254,153
    
    
    
    (4.8
    )%
    
    
    (5.6
    )%200 bp increase
    
    $
    2,142,740
    
    
    
    (9.5
    )%
    
    
    (11.0
    )%June 30, 2006:InvestmentsTotal Fixed Maturities Available For Sale
    
    $
    1,882,505
    
    
    200 bp decrease
    
    $
    2,030,157
    
    
    
    7.8
    %
    
    
    10.2
    %100 bp decrease
    
    $
    1,958,894
    
    
    
    4.1
    %
    
    
    5.3
    %50 bp decrease
    
    $
    1,920,965
    
    
    
    2.0
    %
    
    
    2.7
    %50 bp increase
    
    $
    1,844,046
    
    
    
    (2.0
    )%
    
    
    (2.7
    )%100 bp increase
    
    $
    1,806,054
    
    
    
    (4.1
    )%
    
    
    (5.3
    )%200 bp increase
    
    $
    1,732,609
    
    
    
    (8.0
    )%
    
    
    (10.3
    )%
 36




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##### 



PHILADELPHIA CONSOLIDATED HOLDING CORP. AND SUBSIDIARIES
Item 4. Controls and Procedures
    37




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##### 



PHILADELPHIA CONSOLIDATED HOLDING CORP. AND SUBSIDIARIES
       (d)(c) Total
    
    ApproximateNumber of
    
    Dollar Value ofShares
    
    Shares ThatPurchased as Part of
    
    May Yet BePublicly
    
    Purchased(a) Total Number
    
    (b) Average
    
    Announced
    
    Under theof Shares
    
    Price Paid per
    
    Plans or
    
    Plans orPeriod
    
    Purchased
    
    Share
    
    Programs
    
    ProgramsApril 1  April 30
    
    
    5,705
    (1)
    
    $
    31.84
    
    
    
    
    
    
    
    $
    45,000,000
    (2)May 1  May 31
    
    
    800
    (1)
    
    $
    27.88
    
    
    
    
    
    
    
    $
    45,000,000
    (2)June 1  June 30
    
    
    2,369
    (1)
    
    $
    31.82
    
    
    
    
    
    
    
    $
    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.     38




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##### 



Name
    
    Votes For
    
    Votes WithheldJames J. Maguire
    
    
    56,097,804
    
    
    
    9,457,012James J. Maguire, Jr.
    
    
    59,380,325
    
    
    
    6,174,491Sean S. Sweeney
    
    
    60,266,753
    
    
    
    5,288,063Aminta Hawkins Breaux
    
    
    60,141,998
    
    
    
    5,412,818Michael J. Cascio
    
    
    60,124,569
    
    
    
    5,430,247Elizabeth H. Gemmill
    
    
    60,270,667
    
    
    
    5,284,149Michael J. Morris
    
    
    57,657,891
    
    
    
    7,896,925Shaun F. OMalley
    
    
    60,120,232
    
    
    
    5,434,584Donald A. Pizer
    
    
    60,272,717
    
    
    
    5,282,099Ronald R. Rock
    
    
    60,272,042
    
    
    
    5,282,774
  BrokerVotes For
    
    Votes Against
    
    Abstentions
    
    Non-VotesApproval of the
appointment of
PricewaterhouseCoopers, LLP as
independent
registered public
accounting firm for
the year 2007
    
    
    65,338,622
    
    
    
    147,928
    
    
    
    68,265
    
    
    
    Approval of the
adoption of the
Philadelphia
Insurance Companies
2007 Cash Bonus
Plan
    
    
    57,335,622
    
    
    
    726,568
    
    
    
    71,348
    
    
    
    7,421,278Approval of the
adoption of the
Companys Amended
and Restated
Non-Qualified
Employee Stock
Purchase Plan
    
    
    47,071,457
    
    
    
    10,992,713
    
    
    
    69,368
    
    
    
    7,421,278Approval of the
amendment to the
Directors Stock
Purchase Plan to
increase the number
of shares subject
to purchase under
the Plan from
75,000 to 125,000
shares
    
    
    48,824,013
    
    
    
    9,233,844
    
    
    
    75,681
    
    
    
    7,421,278
   39




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##### 



Exhibit No.
    
    Description10.1*
    
    Amendment to Credit Agreement dated June 30, 2006 with Bank of
America and Wachovia Bank, National Association10.2**
    
    The Philadelphia Insurance Companies 2007 Cash Bonus Plan
effective as of January 1, 200710.3**
    
    Philadelphia Insurance Companies Non Qualified Employee Stock
Purchase Plan (amended and restated, effective as of January
1, 2007, with Performance-Based Compensation Provisions)31.1*
    
    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.**
    
    Filed as an Exhibit to the Companys Form 8-K dated May 3, 2007 and
incorporated by reference. 40




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##### 



SIGNATURES
  PHILADELPHIA CONSOLIDATED HOLDING CORP.
RegistrantDate August 6, 2007
    
    James J. Maguire, Jr.

James J. Maguire, Jr.
President and Chief Executive Officer
(Principal Executive Officer)Date August 6, 2007
    
    Craig P. Keller

Craig P. Keller
Executive Vice President, Secretary, 
Treasurer and Chief Financial Officer 
(Principal Financial and Accounting Officer)
 41