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, 2008
 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
  þ o
  Large accelerated filer: þ
    
    Accelerated Filer: o
    
    Non-accelerated Filer: o
    
    Smaller reporting company: o(Do not check if a smaller reporting company)
 o þ




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##### 



PHILADELPHIA CONSOLIDATED HOLDING CORP. AND SUBSIDIARIES
 INDEX
 For the Quarterly Period Ended September 30, 2008
 Part I  Financial InformationItem 1. Financial Statements:Consolidated Balance Sheets September 30, 2008 and
December 31, 2007
    
    
    3Consolidated Statements of Operations and Comprehensive
Income  For the three and nine months ended September 30, 2008 and 2007
    
    
    4Consolidated Statements of Changes in Shareholders Equity  For
the nine months ended September 30, 2008 and the year ended
December 31, 2007
    
    
    5Consolidated Statements of Cash Flows  For the nine
months ended September 30, 2008 and 2007
    
    
    6Notes to Consolidated Financial Statements
    
    
    7 - 28Item 2. Managements Discussion and Analysis of Financial Condition
and Results of Operations
    
    
    29 - 51Item 3. Quantitative and Qualitative Disclosures About Market Risk
    
    
    52Item 4. Controls and Procedures
    
    
    53Part II  Other InformationItem 1. Legal Proceedings
    
    
    54Item 1A. Risk Factors
    
    
    54Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    54Item 3. Defaults Upon Senior Securities
    
    
    55Item 4. Submission of Matters to a Vote of Security Holders
    
    
    55Item 5. Other Information
    
    
    55Item 6. Exhibits
    
    
    55Signatures
    
    
    56
 2




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##### 



PHILADELPHIA CONSOLIDATED HOLDING CORP. AND SUBSIDIARIES
 
 CONSOLIDATED BALANCE SHEETS
 As ofSeptember 30,2008
    
    
    December 31,(Unaudited)
    
    
    2007ASSETSINVESTMENTS:FIXED MATURITIES AVAILABLE FOR SALE AT MARKET
(AMORTIZED COST $2,863,583 AND $2,639,471)
    
    $
    2,778,992
    
    
    $
    2,659,197EQUITY SECURITIES AT MARKET (COST $357,918
AND $322,877)
    
    
    352,053
    
    
    
    356,026TOTAL INVESTMENTS
    
    
    3,131,045
    
    
    
    3,015,223CASH AND CASH EQUIVALENTS
    
    
    152,050
    
    
    
    106,342ACCRUED INVESTMENT INCOME
    
    
    31,249
    
    
    
    24,964PREMIUMS RECEIVABLE
    
    
    433,958
    
    
    
    378,217PREPAID
REINSURANCE PREMIUMS AND REINSURANCE RECEIVABLES
    
    
    376,263
    
    
    
    280,110DEFERRED INCOME TAXES
    
    
    115,303
    
    
    
    42,855DEFERRED ACQUISITION COSTS
    
    
    205,838
    
    
    
    184,446PROPERTY AND EQUIPMENT, NET
    
    
    20,870
    
    
    
    26,330OTHER ASSETS
    
    
    349,879
    
    
    
    41,451TOTAL ASSETS
    
    $
    4,816,455
    
    
    $
    4,099,938LIABILITIES AND SHAREHOLDERS EQUITYPOLICY LIABILITIES AND ACCRUALS:UNPAID LOSS AND LOSS ADJUSTMENT EXPENSES
    
    $
    1,733,936
    
    
    $
    1,431,933UNEARNED PREMIUMS
    
    
    962,472
    
    
    
    847,485TOTAL POLICY LIABILITIES AND ACCRUALS
    
    
    2,696,408
    
    
    
    2,279,418PREMIUMS PAYABLE
    
    
    97,196
    
    
    
    97,674OTHER LIABILITIES
    
    
    416,079
    
    
    
    175,373TOTAL LIABILITIES
    
    
    3,209,683
    
    
    
    2,552,465COMMITMENTS AND CONTINGENCIESSHAREHOLDERS EQUITY:PREFERRED
STOCK, $.01 PAR VALUE, 10,000,000 SHARES AUTHORIZED,
NONE ISSUED AND OUTSTANDING
    
    
    
    
    
    
    COMMON
STOCK, NO PAR VALUE 125,000,000 SHARES AUTHORIZED, 71,783,778 AND
72,087,287 SHARES ISSUED AND OUTSTANDING ,
    
    
    412,184
    
    
    
    423,379NOTES RECEIVABLE FROM SHAREHOLDERS
    
    
    (21,487
    )
    
    
    (19,595
    )ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)
    
    
    (58,796
    )
    
    
    34,369RETAINED EARNINGS
    
    
    1,274,871
    
    
    
    1,109,320TOTAL SHAREHOLDERS EQUITY
    
    
    1,606,772
    
    
    
    1,547,473TOTAL LIABILITIES AND SHAREHOLDERS EQUITY
    
    $
    4,816,455
    
    
    $
    4,099,938
  3




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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 30,2008
    
    
    2007
    
    
    2008
    
    
    2007REVENUE:NET EARNED PREMIUMS
    
    $
    408,512
    
    
    $
    359,149
    
    
    $
    1,180,937
    
    
    $
    1,015,182NET INVESTMENT INCOME
    
    
    33,273
    
    
    
    30,199
    
    
    
    97,577
    
    
    
    85,694NET REALIZED INVESTMENT GAIN (LOSS)
    
    
    (17,852
    )
    
    
    2,817
    
    
    
    (40,759
    )
    
    
    32,638OTHER INCOME
    
    
    870
    
    
    
    980
    
    
    
    5,877
    
    
    
    2,660TOTAL REVENUE
    
    
    424,803
    
    
    
    393,145
    
    
    
    1,243,632
    
    
    
    1,136,174LOSSES AND EXPENSES:LOSS AND LOSS ADJUSTMENT EXPENSES
    
    
    330,726
    
    
    
    146,389
    
    
    
    820,218
    
    
    
    479,142NET REINSURANCE RECOVERIES
    
    
    (96,887
    )
    
    
    (1,584
    )
    
    
    (169,690
    )
    
    
    (35,243
    )NET LOSS AND LOSS ADJUSTMENT EXPENSES
    
    
    233,839
    
    
    
    144,805
    
    
    
    650,528
    
    
    
    443,899ACQUISITION COSTS AND OTHER
UNDERWRITING EXPENSES
    
    
    117,640
    
    
    
    101,252
    
    
    
    347,275
    
    
    
    299,902OTHER OPERATING EXPENSES
    
    
    4,314
    
    
    
    2,992
    
    
    
    12,279
    
    
    
    9,128TOTAL LOSSES AND EXPENSES
    
    
    355,793
    
    
    
    249,049
    
    
    
    1,010,082
    
    
    
    752,929INCOME BEFORE INCOME TAXES
    
    
    69,010
    
    
    
    144,096
    
    
    
    233,550
    
    
    
    383,245INCOME TAX EXPENSE (BENEFIT):CURRENT
    
    
    24,931
    
    
    
    53,198
    
    
    
    90,281
    
    
    
    146,528DEFERRED
    
    
    (5,888
    )
    
    
    (5,346
    )
    
    
    (22,282
    )
    
    
    (19,908
    )TOTAL INCOME TAX EXPENSE
    
    
    19,043
    
    
    
    47,852
    
    
    
    67,999
    
    
    
    126,620NET INCOME
    
    $
    49,967
    
    
    $
    96,244
    
    
    $
    165,551
    
    
    $
    256,625OTHER COMPREHENSIVE INCOME (LOSS), NET
OF TAX:HOLDING LOSS ARISING DURING PERIOD
    
    $
    (63,044
    )
    
    $
    21,727
    
    
    $
    (119,658
    )
    
    $
    18,688RECLASSIFICATION ADJUSTMENT
    
    
    11,604
    
    
    
    (1,831
    )
    
    
    26,493
    
    
    
    (21,215
    )OTHER COMPREHENSIVE INCOME (LOSS)
    
    
    (51,440
    )
    
    
    19,896
    
    
    
    (93,165
    )
    
    
    (2,527
    )COMPREHENSIVE INCOME (LOSS)
    
    $
    (1,473
    )
    
    $
    116,140
    
    
    $
    72,386
    
    
    $
    254,098PER AVERAGE SHARE DATA:NET INCOME  BASIC
    
    $
    0.71
    
    
    $
    1.37
    
    
    $
    2.36
    
    
    $
    3.65NET INCOME  DILUTED
    
    $
    0.68
    
    
    $
    1.30
    
    
    $
    2.27
    
    
    $
    3.46WEIGHTED-AVERAGE COMMON SHARES
OUTSTANDING
    
    
    69,996,068
    
    
    
    70,457,765
    
    
    
    70,084,248
    
    
    
    70,323,834WEIGHTED-AVERAGE SHARE EQUIVALENTS
OUTSTANDING
    
    
    3,602,386
    
    
    
    3,599,654
    
    
    
    2,884,758
    
    
    
    3,856,902WEIGHTED-AVERAGE SHARES AND SHARE
EQUIVALENTS OUTSTANDING
    
    
    73,598,454
    
    
    
    74,057,419
    
    
    
    72,969,006
    
    
    
    74,180,736
  4




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##### 



PHILADELPHIA CONSOLIDATED HOLDING CORP. AND SUBSIDIARIES
 
 CONSOLIDATED STATEMENTS OF CHANGES
IN SHAREHOLDERS EQUITY
 For the Nine MonthsEndedSeptember 30, 2008
    
    
    For the Year Ended(Unaudited)
    
    
    December 31, 2007COMMON SHARES:BALANCE AT BEGINNING OF YEAR
    
    
    72,087,287
    
    
    
    70,848,482ISSUANCE OF SHARES PURSUANT TO
STOCK PURCHASE PLANS, NET
    
    
    853,897
    
    
    
    491,416ISSUANCE OF SHARES PURSUANT TO STOCK
BASED COMPENSATION PLANS
    
    
    195,794
    
    
    
    747,389LESS: TREASURY SHARES ACQUIRED
    
    
    (1,353,200
    )
    
    
    BALANCE AT END OF PERIOD
    
    
    71,783,778
    
    
    
    72,087,287COMMON STOCK:BALANCE AT BEGINNING OF YEAR
    
    $
    423,379
    
    
    $
    376,986ISSUANCE OF SHARES PURSUANT TO STOCK
PURCHASE PLANS, NET
    
    
    5,067
    
    
    
    16,448EFFECTS OF ISSUANCE OF SHARES PURSUANT TO STOCK
BASED COMPENSATION PLANS
    
    
    26,639
    
    
    
    29,155OTHER
    
    
    
    
    
    
    790LESS: COST OF TREASURY SHARES ACQUIRED
    
    
    (42,901
    )
    
    
    BALANCE AT END OF PERIOD
    
    
    412,184
    
    
    
    423,379NOTES RECEIVABLE FROM SHAREHOLDERS:BALANCE AT BEGINNING OF YEAR
    
    
    (19,595
    )
    
    
    (17,074
    )NOTES RECEIVABLE ISSUED PURSUANT TO
EMPLOYEE STOCK PURCHASE PLANS
    
    
    (4,883
    )
    
    
    (8,466
    )COLLECTION OF NOTES RECEIVABLE
    
    
    2,968
    
    
    
    5,945OTHER
    
    
    23
    
    
    
    BALANCE AT END OF PERIOD
    
    
    (21,487
    )
    
    
    (19,595
    )ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS),
NET OF DEFERRED INCOME TAXES:BALANCE AT BEGINNING OF YEAR
    
    
    34,369
    
    
    
    24,848OTHER COMPREHENSIVE INCOME (LOSS),NET OF TAXES
    
    
    (93,165
    )
    
    
    9,521BALANCE AT END OF PERIOD
    
    
    (58,796
    )
    
    
    34,369RETAINED EARNINGS:BALANCE AT BEGINNING OF YEAR
    
    
    1,109,320
    
    
    
    782,507NET INCOME
    
    
    165,551
    
    
    
    326,813BALANCE AT END OF PERIOD
    
    
    1,274,871
    
    
    
    1,109,320TOTAL SHAREHOLDERS EQUITY
    
    $
    1,606,772
    
    
    $
    1,547,473
  5




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##### 



PHILADELPHIA CONSOLIDATED HOLDING CORP. AND SUBSIDIARIES
 
 CONSOLIDATED STATEMENTS OF CASH FLOWS
 For the Nine Months Ended September 30,2008
    
    
    2007CASH FLOWS FROM OPERATING ACTIVITIES:NET INCOME
    
    $
    165,551
    
    
    $
    256,625ADJUSTMENTS TO RECONCILE NET INCOME TO NET CASH
PROVIDED BY OPERATING ACTIVITIES:NET REALIZED INVESTMENT (GAIN) LOSS
    
    
    40,759
    
    
    
    (32,638
    )GAIN ON SALE OF PROPERTY AND EQUIPMENT
    
    
    (1,174
    )
    
    
    AMORTIZATION OF INVESTMENT PREMIUMS, NET OF DISCOUNT
    
    
    7,779
    
    
    
    4,414AMORTIZATION OF INTANGIBLE ASSETS
    
    
    3,104
    
    
    
    2,217DEPRECIATION
    
    
    6,517
    
    
    
    5,755DEFERRED INCOME TAX BENEFIT
    
    
    (22,282
    )
    
    
    (19,908
    )CHANGE IN PREMIUMS RECEIVABLE
    
    
    (55,741
    )
    
    
    (59,645
    )CHANGE IN PREPAID REINSURANCE PREMIUMS AND REINSURANCE
RECEIVABLES, NET OF FUNDS HELD PAYABLE TO REINSURER
    
    
    (96,153
    )
    
    
    (4,051
    )CHANGE IN ACCRUED INVESTMENT INCOME
    
    
    (6,285
    )
    
    
    (4,220
    )CHANGE IN DEFERRED ACQUISITION COSTS
    
    
    (21,392
    )
    
    
    (29,339
    )CHANGE IN INCOME TAXES PAYABLE
    
    
    (6,646
    )
    
    
    8,085CHANGE IN OTHER ASSETS
    
    
    (27,684
    )
    
    
    8,459CHANGE IN UNPAID LOSS AND LOSS ADJUSTMENT EXPENSES
    
    
    302,003
    
    
    
    111,596CHANGE IN UNEARNED PREMIUMS
    
    
    114,987
    
    
    
    112,484CHANGE IN OTHER LIABILITIES
    
    
    12,434
    
    
    
    36,503FAIR VALUE OF STOCK BASED COMPENSATION
    
    
    12,664
    
    
    
    11,341EXCESS TAX BENEFIT FROM ISSUANCE OF SHARES PURSUANT TO
STOCK BASED COMPENSATION PLANS
    
    
    (5,737
    )
    
    
    (4,368
    )NET CASH PROVIDED BY OPERATING ACTIVITIES
    
    
    422,704
    
    
    
    403,310CASH FLOWS FROM INVESTING ACTIVITIES:PROCEEDS FROM SALES OF INVESTMENTS IN FIXED MATURITIES
    
    
    91,336
    
    
    
    185,559PROCEEDS FROM MATURITY OF INVESTMENTS IN FIXED MATURITIES
    
    
    206,772
    
    
    
    183,600PROCEEDS FROM SALES OF INVESTMENTS IN EQUITY SECURITIES
    
    
    55,837
    
    
    
    213,854COST OF FIXED MATURITIES ACQUIRED
    
    
    (678,871
    )
    
    
    (725,502
    )COST OF EQUITY SECURITIES ACQUIRED
    
    
    (111,979
    )
    
    
    (241,526
    )PROCEEDS FROM SALE OF PROPERTY AND EQUIPMENT, NET
    
    
    3,825
    
    
    
    PURCHASE OF PROPERTY AND EQUIPMENT, NET
    
    
    (3,708
    )
    
    
    (5,569
    )PAYMENT FOR ACQUISITION OF GILLINGHAM & ASSOCIATES INC.,NET OF CASH ACQUIRED
    
    
    (32,881
    )
    
    
    PURCHASE OF OTHER INTANGIBLES
    
    
    (11,159
    )
    
    
    (12,726
    )NET CASH USED FOR INVESTING ACTIVITIES
    
    
    (480,828
    )
    
    
    (402,310
    )CASH FLOWS FROM FINANCING ACTIVITIES:REPAYMENTS ON LOANS
    
    
    (45,000
    )
    
    
    PROCEEDS FROM LOANS
    
    
    175,558
    
    
    
    PROCEEDS FROM EXERCISE OF EMPLOYEE STOCK OPTIONS
    
    
    7,287
    
    
    
    4,604PROCEEDS FROM COLLECTION OF SHAREHOLDER NOTES RECEIVABLE
    
    
    2,969
    
    
    
    3,574PROCEEDS FROM SHARES ISSUED PURSUANT TO STOCK PURCHASE PLANS
    
    
    182
    
    
    
    269EXCESS TAX BENEFIT FROM ISSUANCE OF SHARES PURSUANT TO
STOCK BASED COMPENSATION PLANS
    
    
    5,737
    
    
    
    4,368COST OF COMMON STOCK REPURCHASED
    
    
    (42,901
    )
    
    
    NET CASH PROVIDED BY FINANCING ACTIVITIES
    
    
    103,832
    
    
    
    12,815NET INCREASE IN CASH AND CASH EQUIVALENTS
    
    
    45,708
    
    
    
    13,815CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD
    
    
    106,342
    
    
    
    108,671CASH AND CASH EQUIVALENTS AT END OF PERIOD
    
    $
    152,050
    
    
    $
    122,486NON-CASH TRANSACTIONS:ISSUANCE OF SHARES PURSUANT TO EMPLOYEE STOCK
PURCHASE PLANS IN EXCHANGE FOR NOTES RECEIVABLE
    
    $
    4,883
    
    
    $
    3,287
  6




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##### 



PHILADELPHIA
CONSOLIDATED HOLDING CORP. AND SUBSIDIARIES
 
 Notes to Consolidated Financial Statements
     Fair Value Measurements
 Date
of FASB Statement No. 157
  Determining the
Fair Value of a Financial Asset When the Market for That Asset Is Not Active
 Accounting for Certain Investments
in Debt and Equity Securities
 7




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##### 



SFAS 157 Valuation Techniques:
     Fair Value Hierarchy to SFAS 157 Valuation Techniques:
      SFAS 157 Recurring Fair Value Measurements:
   8




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##### 



9




---



##### 



Fair Value Measurements as of September 30, 2008 Utilizing:(In Thousands)Quoted Prices Active Markets
    
    
    
    
    
    SignificantIdentical Assets 
    
    Significant Other
    
    UnobservableObservable Inputs
    
    Observable Inputs
    
    InputsDescription
    
    (Level 1)
    
    (Level 2)
    
    (Level 3)
    
    TotalUS Treasury Securities and
Obligations of US Government
Corporations and Agencies
    
    $
    9,460
    
    
    $
    4,001
    
    
    $
    
    
    
    $
    13,461Obligations of States and
Political
Subdivisions
    
    
    
    
    
    
    1,681,310
    
    
    
    
    
    
    
    1,681,310Corporate and Bank Debt
Securities
    
    
    
    
    
    
    144,807
    
    
    
    
    
    
    
    144,807Asset Backed Securities
    
    
    
    
    
    
    250,376
    
    
    
    8,978
    
    
    
    259,354Mortgage Pass-Through Securities
    
    
    
    
    
    
    408,689
    
    
    
    
    
    
    
    408,689Collateralized Mortgage
Obligations
    
    
    
    
    
    
    271,371
    
    
    
    
    
    
    
    271,371Total Fixed Maturities
Available
For Sale at Market
    
    $
    9,460
    
    
    $
    2,760,554
    
    
    $
    8,978
    
    
    $
    2,778,992Equity Securities at Market
    
    
    313,085
    
    
    
    11,705
    
    
    
    27,263
    
    
    
    352,053Cash Equivalents
    
    
    109,201
    
    
    
    73,980
    
    
    
    
    
    
    
    183,181Total Fair Value Measurements
    
    $
    431,746
    
    
    $
    2,846,239
    
    
    $
    36,241
    
    
    $
    3,314,226% of Total Fair Value
Measurements
    
    
    13.0
    %
    
    
    85.9
    %
    
    
    1.1
    %
    
    
    100.0
    %
  Fair Value Measurements Utilizing Level 3 Inputs:
    10




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##### 



Fair Value Measurements Utilizing Significant Unobservable (Level 3) Inputs:(In Thousands)CollateralizedAsset Backed
    
    Mortgage
    
    EquitySecurities
    
    Obligations
    
    Securities
    
    TotalFor The Three Months Ended September 30,
2008:Beginning Balance as of July 1, 2008:
    
    $
    19,161
    
    
    $
    
    
    
    $
    22,394
    
    
    $
    41,555Total gains or loss (realized/unrealized)Included in earnings
    
    
    
    
    
    
    (4
    )
    
    
    
    
    
    
    (4
    )Included in Other Comprehensive Income
    
    
    (208
    )
    
    
    
    
    
    
    (7,232
    )
    
    
    (7,440
    )Purchases, issuances, settlements
    
    
    (26
    )
    
    
    (10
    )
    
    
    12,101
    
    
    
    12,065Transfers in and/or out of Level 3
    
    
    (9,949
    )
    
    
    14
    
    
    
    
    
    
    
    (9,935
    )Ending Balance as of September 30, 2008:
    
    $
    8,978
    
    
    $
    
    
    
    $
    27,263
    
    
    $
    36,241For The Nine Months Ended September 30,
2008:Beginning Balance as of January 1, 2008:
    
    $
    10,511
    
    
    $
    121
    
    
    $
    11,505
    
    
    $
    22,137Total gains or loss (realized/unrealized)Included in earnings
    
    
    1
    
    
    
    (16
    )
    
    
    (795
    )
    
    
    (810
    )Included in Other Comprehensive Income
    
    
    (1,043
    )
    
    
    47
    
    
    
    (9,094
    )
    
    
    (10,090
    )Purchases, issuances, settlements
    
    
    9,796
    
    
    
    (26
    )
    
    
    25,647
    
    
    
    35,417Transfers in and/or out of Level 3
    
    
    (10,287
    )
    
    
    (126
    )
    
    
    
    
    
    
    (10,413
    )Ending Balance as of September 30, 2008:
    
    $
    8,978
    
    
    $
    
    
    
    $
    27,263
    
    
    $
    36,241
   SFAS 159 Fair Value Option for Eligible Financial Assets and Liabilities:
    11




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##### 



Impairment Reviews as of September 30, 2008:
   12




---



##### 



Less Than 12 Months
    
    12 Months or More
    
    TotalUnrealized
    
    
    
    
    
    Unrealized
    
    
    
    
    
    UnrealizedFair Value
    
    Losses
    
    Fair Value
    
    Losses
    
    Fair Value
    
    Losses(In Thousands)September 30, 2008Fixed Maturities Available for Sale:U.S. Treasury Securities and
Obligations of U.S. Government
Corporations and Agencies
    
    $
    727
    
    
    $
    8
    
    
    $
    
    
    
    $
    
    
    
    $
    727
    
    
    $
    8Obligations of States and
Political Subdivisions
    
    
    1,059,676
    
    
    
    50,305
    
    
    
    157,596
    
    
    
    16,478
    
    
    
    1,217,272
    
    
    
    66,783Corporate and Bank Debt Securities
    
    
    104,961
    
    
    
    7,708
    
    
    
    5,397
    
    
    
    355
    
    
    
    110,358
    
    
    
    8,063Asset Backed Securities
    
    
    240,745
    
    
    
    10,982
    
    
    
    12,983
    
    
    
    1,573
    
    
    
    253,728
    
    
    
    12,555Mortgage Pass-Through Securities
    
    
    212,878
    
    
    
    2,577
    
    
    
    24,312
    
    
    
    671
    
    
    
    237,190
    
    
    
    3,248Collateralized Mortgage Obligations
    
    
    100,352
    
    
    
    4,756
    
    
    
    20,249
    
    
    
    1,719
    
    
    
    120,601
    
    
    
    6,475Total Fixed Maturities
Available for Sale
    
    
    1,719,339
    
    
    
    76,336
    
    
    
    220,537
    
    
    
    20,796
    
    
    
    1,939,876
    
    
    
    97,132Equity Securities
    
    
    156,327
    
    
    
    33,011
    
    
    
    
    
    
    
    
    
    
    
    156,327
    
    
    
    33,011Total Investments
    
    $
    1,875,666
    
    
    $
    109,347
    
    
    $
    220,537
    
    
    $
    20,796
    
    
    $
    2,096,203
    
    
    $
    130,143
           13




---



##### 



Structured Securities Investment Portfolio:
  
    
    $407.8 million of U.S. government agency backed Mortgage Pass-Through Securities;
    
    $195.9 million of U.S. government agency backed Collateralized Mortgage Obligations;
    
    $67.9 million of non-U.S. government agency Collateralized Mortgage Obligations backed
by pools of prime loans (generally consists of loans made to the highest credit quality
borrowers with Fair Isaac Corporation (FICO) scores generally greater than 720);
    
    $14.4 million of structured securities backed by pools of ALT A loans (loans with less
than normal documentation and borrowers with FICO scores in the approximate range of 650 to
the low 700s); and
    
    $2.8 million of structured securities backed by pools of subprime loans (loans with low
documentation, higher combined loan-to-value ratios and borrowers with FICO scores capped
at approximately 650).
  
    
    first to pay or among the first cash flow tranches of their respective transactions;
    
    weighted average life of 1.6 years;
    
    spread across multiple vintages (origination year of underlying collateral pool); and
    
    an average AAA rating, with one holding experiencing a rating downgrade by Moodys
during the current quarter to A2 from Aaa based on increased delinquencies and lower
coverage levels. Based on the Companys analysis of the collateral underlying the
security, the Company expects to receive full return of its investment.
 14




---



##### 



Amortized Cost of Structured Securities:
    Municipal Bond Portfolio:
  Market Value of
    
    
    
    
    
    
    Weighted AverageInsured Municipal
    
    
    Percentage of
    
    
    Underlying Rating ofBonds
    
    
    Municipal Bond
    
    
    Insured MunicipalMonoline Insurer
    
    (In Thousands)
    
    
    Portfolio
    
    
    BondsFinancial Security Assurance, Inc.
    
    $
    341,014
    
    
    
    20.3
    %
    
    AAMBIA, Inc.
    
    
    308,069
    
    
    
    18.3
    
    
    AAFGIC Corporation.
    
    
    208,117
    
    
    
    12.4
    
    
    AA-AMBAC Financial Group, Inc.
    
    
    178,252
    
    
    
    10.6
    
    
    AA-Berkshire Hathaway Assurance
Company
    
    
    4,696
    
    
    
    0.3
    
    
    
    A+XL Capital, LTD.
    
    
    4,157
    
    
    
    0.2
    
    
    
    AAssured Guaranty Corp.
    
    
    1,966
    
    
    
    0.1
    
    
    
    ATotal
    
    $
    1,046,271
    
    
    
    62.2
    %
    
    AA
 15




---



##### 



Impairment Reviews as of December 31, 2007:
  Less Than 12 Months
    
    12 Months or More
    
    TotalUnrealized
    
    
    
    
    
    Unrealized
    
    
    
    
    
    
    
    
    
    
    UnrealizedFair Value
    
    Losses
    
    Fair Value
    
    Losses
    
    
    

Fair Value
    
    
    Losses(In Thousands)December 31, 2007Fixed Maturities Available for Sale:U.S. Treasury Securities and
Obligations of U.S. Government
Corporations and Agencies
    
    $
    
    
    
    $
    
    
    
    $
    5,670
    
    
    $
    21
    
    
    
    
    
    
    $
    5,670
    
    
    $
    21Obligations of States and
Political Subdivisions
    
    
    294,719
    
    
    
    2,377
    
    
    
    203,427
    
    
    
    1,006
    
    
    
    
    
    
    
    498,146
    
    
    
    3,383Corporate and Bank Debt Securities
    
    
    7,835
    
    
    
    33
    
    
    
    58,709
    
    
    
    570
    
    
    
    
    
    
    
    66,544
    
    
    
    603Asset Backed Securities
    
    
    50,574
    
    
    
    138
    
    
    
    13,989
    
    
    
    81
    
    
    
    
    
    
    
    64,563
    
    
    
    219Mortgage Pass-Through Securities
    
    
    68,691
    
    
    
    366
    
    
    
    128,382
    
    
    
    1,493
    
    
    
    
    
    
    
    197,073
    
    
    
    1,859Collateralized Mortgage Obligations
    
    
    30,731
    
    
    
    236
    
    
    
    65,252
    
    
    
    725
    
    
    
    
    
    
    
    95,983
    
    
    
    961Total Fixed Maturities
Available for Sale
    
    
    452,550
    
    
    
    3,150
    
    
    
    475,429
    
    
    
    3,896
    
    
    
    
    
    
    
    927,979
    
    
    
    7,046Equity Securities
    
    
    118,095
    
    
    
    22,159
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    118,095
    
    
    
    22,159Total Investments
    
    $
    570,645
    
    
    $
    25,309
    
    
    $
    475,429
    
    
    $
    3,896
    
    
    
    
    
    
    $
    1,046,074
    
    
    $
    29,205
      16




---



##### 



Receivables and Payables for Financial Security Sales and Purchases:
    17




---



##### 



Catastrophe Losses:
  Changes in Estimated Net Unpaid Loss and Loss Adjustment Expenses for Prior Accident Years:
  (In Millions)
    
    Net Increase (Decrease)Accident Year 2007
    
    $
    8.4Accident Year 2006
    
    
    (6.3
    )Accident Year 2005
    
    
    (7.1
    )Accident Years 2004 and prior
    
    
    (7.2
    )Total
    
    $
    (12.2
    )
  18




---



##### 



(In Millions)
    
    Net Increase (Decrease)Accident Year 2007
    
    $
    3.7Accident Year 2006
    
    
    (15.2
    )Accident Year 2005
    
    
    (12.4
    )Accident Years 2004 and prior
    
    
    (12.7
    )Total
    
    $
    (36.6
    )
    19




---



##### 



As of and For the Three
    
    
    As of and For the NineMonths Ended
    
    
    Months EndedSeptember 30,
    
    
    September 30,(In Thousands, Except Per Share Amounts)
    
    2008
    
    
    2007
    
    
    2008
    
    
    2007Weighted-Average Common Shares Outstanding
    
    
    69,996
    
    
    
    70,458
    
    
    
    70,084
    
    
    
    70,324Weighted-Average Potential Shares Issuable
    
    
    3,602
    
    
    
    3,599
    
    
    
    2,885
    
    
    
    3,857Weighted-Average Shares and Potential
Shares Issuable
    
    
    73,598
    
    
    
    74,057
    
    
    
    72,969
    
    
    
    74,181Net Income
    
    $
    49,967
    
    
    $
    96,244
    
    
    $
    165,551
    
    
    $
    256,625Basic Earnings per Share
    
    $
    0.71
    
    
    $
    1.37
    
    
    $
    2.36
    
    
    $
    3.65Diluted Earnings per Share
    
    $
    0.68
    
    
    $
    1.30
    
    
    $
    2.27
    
    
    $
    3.46
  20




---



##### 



As of and For the Three Months Ended September 30, 2008
    
    As of and For the Three Months Ended September 30, 2007SARS Outstanding
    
    
    
    
    
    
    
    
    
    SARS Outstandingas of
    
    Hypothetical
    
    Expiration Date
    
    as of
    
    Hypothetical
    
    Expiration DateSeptember 30, 2008
    
    Option Price
    
    of SAR

    
    September 30, 2007
    
    Option Price
    
    of SAR
    
    
    
    
    
    
    
    
    
    
    30,000
    
    
    $
    39.95
    
    
    September 28, 2016407,446
    
    
    $
    47.52
    
    
    February 21, 201725,000
    
    
    $
    43.44
    
    
    March 19, 2017661
    
    
    $
    42.41
    
    
    May 1, 2017
 As of and For the Nine Months Ended September 30, 2008
    
    As of and For the Nine Months Ended September 30, 2007SARS Outstanding
    
    
    
    
    
    
    
    
    
    SARS Outstandingas of
    
    Hypothetical
    
    Expiration Date
    
    as of
    
    Hypothetical
    
    Expiration DateSeptember 30, 2008
    
    Option Price
    
    of SAR
    
    September 30, 2007
    
    Option Price
    
    of SAR407,446
    
    $
    47.52
    
    
    February 21, 2017
    
    
    407,446
    
    
    $
    47.52
    
    
    February 21, 201725,000
    
    $
    43.44
    
    
    March 19, 2017
    
    
    25,000
    
    
    $
    43.44
    
    
    March 19, 2017661
    
    $
    42.41
    
    
    May 1, 2017
    
    
    661
    
    
    $
    42.41
    
    
    May 1, 2017
       21




---



##### 



For the Three Months Ended
    
    
    For the Three Months EndedSeptember 30, 2008
    
    
    September 30, 2007(In Thousands)
    
    Written
    
    
    Earned
    
    
    Written
    
    
    EarnedDirect Business
    
    $
    547,608
    
    
    $
    453,487
    
    
    $
    503,078
    
    
    $
    410,264Reinsurance Assumed
    
    
    6,245
    
    
    
    4,490
    
    
    
    1,550
    
    
    
    1,393Reinsurance Ceded
    
    
    (57,304
    )
    
    
    (49,465
    )
    
    
    (62,138
    )
    
    
    (52,508
    )Net Premiums
    
    $
    496,549
    
    
    $
    408,512
    
    
    $
    442,490
    
    
    $
    359,149
 For the Nine Months Ended
    
    
    For the Nine Months EndedSeptember 30, 2008
    
    
    September 30, 2007Written
    
    
    Earned
    
    
    Written
    
    
    EarnedDirect Business
    
    $
    1,434,953
    
    
    $
    1,321,317
    
    
    $
    1,294,438
    
    
    $
    1,181,840Reinsurance Assumed
    
    
    7,266
    
    
    
    5,915
    
    
    
    2,816
    
    
    
    2,931Reinsurance Ceded
    
    
    (141,256
    )
    
    
    (146,295
    )
    
    
    (178,143
    )
    
    
    (169,589
    )Net Premiums
    
    $
    1,300,963
    
    
    $
    1,180,937
    
    
    $
    1,119,111
    
    
    $
    1,015,182
  Legal Proceedings:
    Credit Agreement:
  22




---



##### 



State Insurance Guaranty Funds:
  State Insurance Facility Assessments:
    Florida Hurricane Catastrophe Fund:
  23




---



##### 



12. Comprehensive Income
   Disclosures about Derivative Instruments and
Hedging Activities
 Determination of the Useful Life of
Intangible Assets Goodwill and Other Intangible Assets Business Combinations
 The Hierarchy of Generally Accepted Accounting
Principles The Meaning of Present Fairly in
Conformity With Generally Accepted Accounting Principles
 Accounting for Financial Guarantee Insurance
Contracts  an interpretation of FASB Statement No. 60 Accounting and Reporting by Insurance Enterprises
   24




---



##### 




    
    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 Run-Off (previously the Personal Lines Group) business segment, which pursuant
to approval received in February, 2008 from the Florida Office of Insurance Regulation,
is currently in the process of non-renewing all personal lines policies, other than
policies issued pursuant to the National Flood Insurance Program (NFIP). The
non-renewal process began with policies expiring on July 23, 2008, and we currently
expect the process to be completed by July 23, 2009.
    25




---



##### 



As of and For The Three Months Ended September 30,Commercial
    
    
    Specialty
    
    
    PersonalLines
    
    
    Lines
    
    
    Lines
    
    
    Corporate
    
    
    Total2008:Gross Written Premiums
    
    $
    467,627
    
    
    $
    75,073
    
    
    $
    11,153
    
    
    
    
    
    
    $
    553,853Net Written Premiums
    
    $
    425,251
    
    
    $
    72,113
    
    
    $
    (815
    )
    
    
    
    
    
    $
    496,549Revenue:Net Earned Premiums
    
    $
    342,005
    
    
    $
    63,250
    
    
    $
    3,257
    
    
    
    
    
    
    $
    408,512Net Investment Income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    33,273
    
    
    
    33,273Net Realized Investment Loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (17,852
    )
    
    
    (17,852
    )Other Income
    
    
    
    
    
    
    
    
    
    
    174
    
    
    
    696
    
    
    
    870Total Revenue
    
    
    342,005
    
    
    
    63,250
    
    
    
    3,431
    
    
    
    16,117
    
    
    
    424,803Losses and Expenses:Net Loss and Loss Adjustment Expenses
    
    
    200,510
    
    
    
    31,579
    
    
    
    1,750
    
    
    
    
    
    
    
    233,839Acquisition Costs and Other Underwriting
Expenses
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    117,640
    
    
    
    117,640Other Operating Expenses
    
    
    
    
    
    
    
    
    
    
    87
    
    
    
    4,227
    
    
    
    4,314Total Losses and Expenses
    
    
    200,510
    
    
    
    31,579
    
    
    
    1,837
    
    
    
    121,867
    
    
    
    355,793Income Before Income Taxes
    
    
    141,495
    
    
    
    31,671
    
    
    
    1,594
    
    
    
    (105,750
    )
    
    
    69,010Total Income Tax Expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    19,043
    
    
    
    19,043Net Income
    
    $
    141,495
    
    
    $
    31,671
    
    
    $
    1,594
    
    
    $
    (124,793
    )
    
    $
    49,967Total Assets
    
    
    
    
    
    
    
    
    
    $
    87,811
    
    
    $
    4,728,644
    
    
    $
    4,816,4552007: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
    
    
    $
    3,997,787
 26




---



##### 



As of and For The Nine Months Ended September 30,Commercial
    
    
    Specialty
    
    
    PersonalLines
    
    
    Lines
    
    
    Lines
    
    
    Corporate
    
    
    Total2008:Gross Written Premiums
    
    $
    1,190,605
    
    
    $
    209,403
    
    
    $
    42,211
    
    
    
    
    
    
    $
    1,442,219Net Written Premiums
    
    $
    1,088,051
    
    
    $
    205,772
    
    
    $
    7,140
    
    
    
    
    
    
    $
    1,300,963Revenue:Net Earned Premiums
    
    $
    995,821
    
    
    $
    177,237
    
    
    $
    7,879
    
    
    
    
    
    
    $
    1,180,937Net Investment Income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    97,577
    
    
    
    97,577Net Realized Investment Loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (40,759
    )
    
    
    (40,759
    )Other Income
    
    
    
    
    
    
    
    
    
    
    2,230
    
    
    
    3,647
    
    
    
    5,877Total Revenue
    
    
    995,821
    
    
    
    177,237
    
    
    
    10,109
    
    
    
    60,465
    
    
    
    1,243,632Losses and Expenses:Net Loss and Loss Adjustment Expenses
    
    
    566,596
    
    
    
    79,548
    
    
    
    4,384
    
    
    
    
    
    
    
    650,528Acquisition Costs and Other Underwriting
Expenses
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    347,275
    
    
    
    347,275Other Operating Expenses
    
    
    
    
    
    
    
    
    
    
    673
    
    
    
    11,606
    
    
    
    12,279Total Losses and Expenses
    
    
    566,596
    
    
    
    79,548
    
    
    
    5,057
    
    
    
    358,881
    
    
    
    1,010,082Income Before Income Taxes
    
    
    429,225
    
    
    
    97,689
    
    
    
    5,052
    
    
    
    (298,416
    )
    
    
    233,550Total Income Tax Expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    67,999
    
    
    
    67,999Net Income
    
    $
    429,225
    
    
    $
    97,689
    
    
    $
    5,052
    
    
    $
    (366,415
    )
    
    $
    165,551Total Assets
    
    
    
    
    
    
    
    
    
    $
    87,811
    
    
    $
    4,728,644
    
    
    $
    4,816,4552007: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
    
    
    $
    3,997,787
 27




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##### 



For The Three Months Ended
    
    
    For The Nine Months EndedSeptember 30,
    
    
    September 30,(In Thousands)
    
    2008
    
    
    2007
    
    
    2008
    
    
    2007Commercial Lines Net Earned PremiumsCommercial Package
    
    $
    310,155
    
    
    $
    274,360
    
    
    $
    905,239
    
    
    $
    787,412Specialty Property
    
    
    12,246
    
    
    
    15,468
    
    
    
    42,287
    
    
    
    43,225Commercial Auto
    
    
    6,776
    
    
    
    6,552
    
    
    
    18,526
    
    
    
    17,790Antique/Collector Auto
    
    
    8,361
    
    
    
    5,655
    
    
    
    23,913
    
    
    
    10,791All Other
    
    
    4,467
    
    
    
    1,346
    
    
    
    5,856
    
    
    
    2,708Total Commercial Lines
    
    
    342,005
    
    
    
    303,381
    
    
    
    995,821
    
    
    
    861,926Specialty Lines Net Earned PremiumsManagement Liability
    
    
    38,804
    
    
    
    26,927
    
    
    
    106,359
    
    
    
    76,586Professional Liability
    
    
    24,446
    
    
    
    21,748
    
    
    
    70,878
    
    
    
    65,383Total Specialty Lines
    
    
    63,250
    
    
    
    48,675
    
    
    
    177,237
    
    
    
    141,969Run-Off Net Earned PremiumsHomeowners and Manufactured Housing
    
    
    3,257
    
    
    
    7,093
    
    
    
    7,879
    
    
    
    11,287National Flood Insurance Program
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total Run-Off Net Earned Premiums
    
    
    3,257
    
    
    
    7,093
    
    
    
    7,879
    
    
    
    11,287Other Income
    
    
    174
    
    
    
    530
    
    
    
    2,230
    
    
    
    1,978Total Run-Off
    
    
    3,431
    
    
    
    7,623
    
    
    
    10,109
    
    
    
    13,265CorporateNet Investment Income
    
    
    33,273
    
    
    
    30,199
    
    
    
    97,577
    
    
    
    85,694Net Realized Investment Gain (Loss)
    
    
    (17,852
    )
    
    
    2,817
    
    
    
    (40,759
    )
    
    
    32,638Other Income
    
    
    696
    
    
    
    450
    
    
    
    3,647
    
    
    
    682Total Corporate
    
    
    16,117
    
    
    
    33,466
    
    
    
    60,465
    
    
    
    119,014Total Revenue
    
    $
    424,803
    
    
    $
    393,145
    
    
    $
    1,243,632
    
    
    $
    1,136,174
    28




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##### 



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
  29




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##### 



PHILADELPHIA CONSOLIDATED HOLDING CORP. AND SUBSIDIARIES
Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
 
    
    Investments  fair value;
    
    Investments  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.
   Results of Operations (Nine Months Ended September 30, 2008 compared to September 30, 2007)
 Premiums
 (Dollars In Millions)
    
    Commercial Lines
    
    Specialty Lines
    
    Run-off
    
    Total2008 Gross Written Premiums
    
    $
    1,190.6
    
    
    $
    209.4
    
    
    $
    42.2
    
    
    $
    1,442.22007 Gross Written Premiums
    
    $
    1,058.4
    
    
    $
    189.2
    
    
    $
    49.7
    
    
    $
    1,297.3Percentage Increase (Decrease)
    
    
    12.5
    %
    
    
    10.7
    %
    
    
    (15.1
    )%
    
    
    11.2
    %2008 Gross Earned Premiums
    
    $
    1,095.7
    
    
    $
    190.1
    
    
    $
    41.4
    
    
    $
    1,327.22007 Gross Earned Premiums
    
    $
    946.0
    
    
    $
    175.1
    
    
    $
    63.7
    
    
    $
    1,184.8Percentage Increase (Decrease)
    
    
    15.8
    %
    
    
    8.6
    %
    
    
    (35.0
    )%
    
    
    12.0
    %
  
    
    Prospecting efforts by marketing personnel in conjunction with long term relationships
formed by our marketing Regional Vice Presidents continue to result in additional prospects
and increased premium writings in existing product offerings, most notably for the
following:
 §
    
    Our condominium and homeowners associations, religious organizations,
non-profit, specialty schools, antique/collector vehicle, golf and country clubs,
day care centers, and mental health products in the commercial package product
grouping. These product offerings accounted for approximately $68.1 million of the
$132.2 million total commercial lines segment gross written premiums increase.§
    
    Our consultant liability product in the professional liability product grouping,
as well as our private company protection, directors and officers, and business
owners products in the management liability product grouping. These product
offerings accounted for all of the $20.2 million total specialty lines segment
gross written premiums increase.
 
    
    The introduction of several new niche product offerings, such as the affordable housing,
vehicle parks, special events, and museum commercial package products, as well as the
difference in conditions inland
 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
 marine specialty property product. These new product offerings accounted for approximately
$42.8 million of the $132.2 million total commercial lines segment gross written premiums
increase.
 
    
    The acquisition of Gillingham & Associates, Inc. on March 10, 2008, which accounted for
approximately $25.7 million of commercial lines segment gross written premium growth for
the nine months ended September 30, 2008.
    
    An increase in our marketing personnel, as well as an increase in the number of our
preferred agents.
    
    Our Firemark Producer program, which promotes our product offerings and underwriting
philosophy in selected producers offices.
    
    As a result of the factors noted above, the commercial lines and specialty lines
segments in-force policy counts increased by 17.3% and 72.7% respectively, for the nine
months ended September 30, 2008.
  
    
    Realized average rate decreases on renewal business approximating 4.8% and 2.3% for the
commercial lines and specialty lines segments, respectively.
    
    Continued price competition during the nine months ended September 30, 2008,
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.
 
    
    A reduction in personal lines (run-off segment) production for our homeowners and rental
dwelling policies. This reduction was imposed to reduce our exposure to catastrophe wind
losses. On February 29, 2008, we received approval from the Florida Office of Insurance
Regulation (FLOIR) to non-renew all of our Florida personal lines policies, other than
policies issued pursuant to the National Flood Insurance Program. The non-renewal process
began with policies expiring on July 23, 2008, and we currently expect the process to be
completed by July 23, 2009. As of September 30, 2008, there were approximately 2,213
in-force policies with an aggregate in-force premium of approximately $1.6 million which
expire between October 1, 2008 and December 31, 2008, which we will not renew during 2008.
    
    A decrease in bowling centers commercial package product gross written premium of
$3.3 million as a result of non-renewing policies due to unacceptable underwriting results.
For the nine months ended September 30, 2008, gross written premium for the bowling centers
commercial package product was $0.9 million. The Company anticipates that it will continue
to non-renew its remaining bowling centers commercial package business throughout 2008,
which approximated $0.3 million of gross written premium for the three months ended
December 31, 2007.
   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
 (Dollars In Millions)
    
    Commercial Lines
    
    Specialty Lines
    
    Run-off
    
    Total2008 Net Written Premiums
    
    $
    1,088.1
    
    
    $
    205.8
    
    
    $
    7.1
    
    
    $
    1,301.02007 Net Written Premiums
    
    $
    968.3
    
    
    $
    155.8
    
    
    $
    (5.0
    )
    
    $
    1,119.1Percentage Increase
    
    
    12.4
    %
    
    
    32.1
    %
    
    
    242.0
    %
    
    
    16.3
    %2008 Net Earned Premiums
    
    $
    995.8
    
    
    $
    177.2
    
    
    $
    7.9
    
    
    $
    1,180.92007 Net Earned Premiums
    
    $
    861.9
    
    
    $
    142.0
    
    
    $
    11.3
    
    
    $
    1,015.2Percentage Increase (Decrease)
    
    
    15.5
    %
    
    
    24.8
    %
    
    
    (30.1
    )%
    
    
    16.3
    %
  
    
    We experienced higher property catastrophe reinsurance rates, maintained the same
catastrophe loss retention, and increased catastrophe coverage limits for our annual June
1, 2007 reinsurance renewal compared to the June 1, 2006 renewal. This resulted in
increased property catastrophe costs for the nine month period ended September 30, 2008
compared to the nine month period ended September 30, 2007.
    
    For our June 1, 2008 commercial lines segment property catastrophe reinsurance renewal,
we experienced higher reinsurance rates, purchased increased catastrophe limits due to
higher exposures primarily in the northeastern portion of the country, and increased our
catastrophe loss retention compared to the June 1, 2007 renewal. Our commercial lines
segment property catastrophe reinsurance coverage, which is effective June 1, 2008 through
May 31, 2009, is as follows:
 §
    
    Our open-market catastrophe reinsurance coverage is $480.0 million in excess of a
$20.0 million per occurrence retention. The open-market catastrophe program
(coverage principally provided by large reinsurers that are rated at
least A-
(Excellent) by A.M. Best Company) includes one mandatory reinstatement.§
    
    We also purchased a reinstatement premium protection contract for the First and
Second Excess Layers of our commercial lines segment open-market catastrophe
reinsurance coverage, effective June 1, 2008. This reinstatement premium protection
contract provides coverage for reinstatement premiums which we may become liable to
pay as a result of a loss occurrence between $20.0 million and $100.0 million (the
First and Second Excess Layers of the commercial lines segment open-market
catastrophe reinsurance program).
 
    
    For our run-off segment, our property catastrophe costs were significantly lower for the
nine months ended September 30, 2008 compared to September 30, 2007. For our June 1, 2007
run-off segment property catastrophe reinsurance renewal, we 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.
    
    For our June 1, 2008 run-off segment property catastrophe reinsurance renewal, we
experienced lower reinsurance rates, maintained the same catastrophe loss retention, and
purchased decreased catastrophe coverage limits due to lower exposures, compared to our
June 1, 2007 renewal. Our run-off segment property catastrophe reinsurance coverage, which
is effective June 1, 2008 through May 31, 2009 is as follows:
 §
    
    Our reinsurance coverage is approximately $43.3 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 $26.8 million in excess of $6.4 million per occurrence. The FHCF
coverage inures to the benefit of our open-market catastrophe program. The coverage
 32




---



##### 



PHILADELPHIA CONSOLIDATED HOLDING CORP. AND SUBSIDIARIES
Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
 provided by our 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, our 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.
 
    
    For our commercial and specialty lines segments, we experienced rate reductions on our
annual January 1, 2008 renewal of our casualty excess of loss reinsurance coverage compared
to the rate on our January 1, 2007 renewal of this coverage.
    
    For our commercial lines segment, we experienced a rate increase on our annual January
1, 2008 renewal of our property excess of loss reinsurance coverage compared to the rate on
our January 1, 2007 renewal of this coverage.
    
    For our specialty lines segment, the higher percentage increase in our net written
premiums compared to the percentage increase in our gross written premiums for the nine
months ended September 30, 2008 is primarily due to the January 1, 2008 renewal of our
casualty excess of loss reinsurance coverage. We experienced rate reductions on our
January 1, 2008 renewal of this coverage compared to our January 1, 2007 renewal of this
coverage. This reduced rate was applied to our January 1, 2008 gross unearned premiums,
which resulted in a reduction to ceded written premium as of January 1, 2008.
    
    An increase in accelerated and net reinstatement premium costs related to our
catastrophe reinsurance coverages:
 §
    
    For our commercial lines segment, during the nine months ended September 30,
2008, we experienced catastrophe losses attributable to Hurricane Ike. These
losses resulted in the recognition of accelerated and net reinstatement catastrophe
reinsurance premium expense of $5.1 million during the nine months ended September
30, 2008 due to the utilization of certain of the catastrophe reinsurance
coverages. This recognition of accelerated and net reinstatement reinsurance
premium expense increases ceded written and earned premiums and reduces net written
and earned premiums.
 
    
    Certain of our reinsurance contracts have reinstatement or additional premium provisions
under which we must pay reinstatement or additional reinsurance premiums to reinstate
coverage provisions upon utilization of initial reinsurance coverage. During the nine
months ended September 30, 2008 and 2007, we increased (reduced) our reinstatement or
additional premium accrual by $(4.9) million ($(1.4) million for the commercial lines
segment and $(3.5) million for the specialty lines segment) and $2.6 million ($1.1 million
for the commercial lines segment and $1.5 million for the specialty lines segment)
respectively, under our excess of loss reinsurance treaties, as a result of changes in our
ultimate loss estimates. Increases in these reinstatement and additional premium accruals
increase ceded written and earned premiums and decrease net written and earned premiums,
and decreases in these reinstatement and additional premium accruals decrease ceded written
and earned premiums and increase net written and earned premiums.
 Net Investment Income:
  33




---



##### 



PHILADELPHIA CONSOLIDATED HOLDING CORP. AND SUBSIDIARIES
Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
      Net Realized Investment Gain (Loss):
  
    
    We recognized $7.5 million in non-cash realized fixed maturity security investment
losses primarily relating to our direct holdings in fixed maturity securities issued by
Lehman Brothers Holdings Inc. and its subsidiaries (Lehman).
    
    We recognized $34.7 million in non-cash realized equity security investment losses.
  Other Income
 Net Loss and Loss Adjustment Expenses:
 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
  
    
    The growth in net earned premiums.
 
    
    Net reserve actions taken during the nine months ended September 30, 2008 which
decreased net estimated unpaid loss and loss adjustment expenses for accident years 2007
and prior by $36.6 million, as compared to net reserve actions taken during the nine months
ended September 30, 2007 which decreased estimated net unpaid loss and loss adjustment
expenses for accident years 2006 and prior by $73.2 million. Increases/(decreases) in the
estimated net unpaid loss and loss adjustment expenses for prior accident years during the
nine months ended September 30, 2008 were as follows:
 Net Basis(Dollars In Millions)
    
    Increase/(Decrease)Accident Year 2007
    
    $
    3.7Accident Year 2006
    
    
    (15.2
    )Accident Year 2005
    
    
    (12.4
    )Accident Years 2004 and prior
    
    
    (12.7
    )Total
    
    $
    (36.6
    )
 For accident year 2007, the increase in estimated net unpaid loss and loss adjustment
expenses was principally due to higher loss estimates for commercial automobile liability,
involuntary pools, professional liability and commercial property coverages. The higher
loss estimates in commercial automobile liability and commercial property coverages was due
to higher than expected case incurred loss development as a result of both claim frequency
and severity being greater than anticipated. The higher loss estimates in professional
liability coverages was primarily due to higher than expected case incurred loss
development, primarily as a result of claim severity being greater than anticipated. Loss
estimates for involuntary pools are reported to the Company by multiple residual market
entities, and reasons for higher or lower estimates vary by entity. These higher loss
estimates were partially offset by lower loss estimates for commercial general liability and
management liability coverages. The lower estimate in commercial general liability was due
to lower than expected case incurred loss development, primarily as a result of claim
frequency being less than anticipated. The lower estimate in management liability coverages
was due to lower than expected case incurred loss development, primarily as a result of
claim severity being less than anticipated.For accident year 2006, the decrease in estimated net unpaid loss and loss adjustment
expenses was principally due to lower loss estimates for commercial general liability,
commercial property, management and professional liability, and automobile rental leasing
coverages. The lower estimates in commercial general liability and auto rental leasing
coverages were due to better than expected case incurred loss development, primarily as a
result of claim frequency being less than anticipated. The lower estimates in commercial
property and management and professional liability coverages were due to better than
expected case incurred loss development, primarily as a result of claim severity being less
than anticipated. These lower loss estimates were partially offset by higher loss estimates
for commercial automobile coverages due to higher than expected case incurred loss
development, primarily as a result of claim severity being greater 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 commercial general liability,
commercial property, management and professional liability, and automobile rental leasing
coverages due to better than expected case incurred loss development, primarily as a result
of claim severity 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 commercial general
liability, management and professional liability, and automobile rental leasing coverages
due to better than expected case incurred loss development, primarily as a result of claim
severity being less than anticipated.
 35




---



##### 



PHILADELPHIA CONSOLIDATED HOLDING CORP. AND SUBSIDIARIES
Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
 
    
    An increase in the current accident year net ultimate loss and loss adjustment expense
ratio for the nine months ended September 30, 2008 compared to 2007. During the nine
months ended September 30, 2008, a net ultimate loss and loss adjustment expense ratio of
58.2% was estimated for the 2008 accident year. During the nine months ended September 30,
2007, a net ultimate loss and loss adjustment expense ratio of 50.9% was estimated for the
2007 accident year. The increase in the 2008 accident year loss and loss adjustment
expense ratio is principally attributable to:
 §
    
    $20.6 million of loss and loss adjustment expenses during the nine months ended
September 30, 2008 resulting from hail, tornado, and wind losses which occurred in
Minnesota, Nebraska, Kansas, and Oklahoma during the period of May 22, 2008
through May 26, 2008, and which occurred in Illinois, Indiana, Kansas, Minnesota,
Nebraska, and Oklahoma during the period of May 29, 2008 through June 1, 2008. We
did not have similar losses during the nine months ended September 30, 2007.§
    
    $21.7 million of loss and loss adjustment expenses during the nine months ended
September 30, 2008 resulting from losses attributable to Hurricane Ike. We did
not have similar losses during the nine months ended September 30, 2007.§
    
    Realized average rate decreases on renewal business approximating 4.8% and 2.3%
for the commercial and specialty lines segments, respectively, for the nine months
ended September 30, 2008 compared to the same period in 2007.
  Acquisition Costs and Other Underwriting Expenses:
 Income Tax Expense:
 Results of Operations (Three Months Ended September 30, 2008 compared to September 30, 2007)
 Premiums
 (Dollars In Millions)
    
    Commercial Lines
    
    Specialty Lines
    
    Run-off
    
    Total2008 Gross Written Premiums
    
    $
    467.6
    
    
    $
    75.1
    
    
    $
    11.2
    
    
    $
    553.92007 Gross Written Premiums
    
    $
    425.1
    
    
    $
    68.5
    
    
    $
    11.0
    
    
    $
    504.6Percentage Increase
    
    
    10.0
    %
    
    
    9.6
    %
    
    
    1.8
    %
    
    
    9.8
    %2008 Gross Earned Premiums
    
    $
    379.4
    
    
    $
    65.5
    
    
    $
    13.0
    
    
    $
    457.92007 Gross Earned Premiums
    
    $
    332.8
    
    
    $
    60.0
    
    
    $
    18.9
    
    
    $
    411.7Percentage Increase (Decrease)
    
    
    14.0
    %
    
    
    9.2
    %
    
    
    (31.2
    )%
    
    
    11.2
    %
 36




---



##### 



PHILADELPHIA CONSOLIDATED HOLDING CORP. AND SUBSIDIARIES
Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
  
    
    Prospecting efforts by marketing personnel in conjunction with long term relationships
formed by our marketing Regional Vice Presidents continue to result in additional prospects
and increased premium writings in existing product offerings, most notably for the
following:
 §
    
    Our religious organizations, specialty schools, non-profit, mental health,
antique/collector vehicle, program business, and golf and country clubs products in
the commercial package product grouping; These product offerings accounted for
approximately $19.0 million of the $42.5 million total commercial lines segment
gross written premiums increase.§
    
    Our private company protection, directors and officers, and business owners
products in the management liability product grouping. These product offerings
accounted for all of the $6.6 million total specialty lines segment gross written
premiums increase.
 
    
    The introduction of several new niche product offerings, such as the affordable housing,
vehicle parks, rehabilitation facilities, and museums commercial package products, as well
as the difference in conditions inland marine specialty property product. These new product
offerings accounted for approximately $13.5 million of the $42.5 million total commercial
lines segment gross written premiums increase.
    
    The acquisition of Gillingham & Associates, Inc. on March 10, 2008, which accounted for
approximately $16.8 million of commercial lines segment gross written premium growth for
the three months ended September 30, 2008.
    
    An increase in our marketing personnel, as well as an increase in the number of our
preferred agents.
    
    Our Firemark Producer program, which promotes our product offerings and underwriting
philosophy in selected producers offices.
    
    As a result of the factors noted above the commercial and specialty lines segments
in-force policy counts increased by 4.2% and 15.7%, respectively, for the three months
ended September 30, 2008.
  
    
    Realized average rate decreases on renewal business approximating 5.1% and 2.3% for the
commercial lines and specialty lines segments, respectively.
    
    Continued price competition during the three months ended September 30, 2008,
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.
 
    
    A reduction in personal lines (run-off segment) production for our homeowners and rental
dwelling policies. This reduction was imposed to reduce our exposure to catastrophe wind
losses.On February 29, 2008, we received approval from the Florida Office of Insurance Regulation
(FLOIR) to non-renew all of our Florida personal lines policies, other than policies
issued pursuant to the National Flood Insurance Program. The non-renewal process began with
policies expiring on July 23, 2008, and we currently expect the process to be completed by
July 23, 2009. As of September 30, 2008, there were approximately 2,213 in-force policies
with an aggregate in-force premium of approximately $1.6 million which expire between
October 1, 2008 and December 31, 2008, which we will not renew during 2008.
 37




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##### 



PHILADELPHIA CONSOLIDATED HOLDING CORP. AND SUBSIDIARIES
Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
   (Dollars In Millions)
    
    Commercial Lines
    
    Specialty Lines
    
    Run-off
    
    Total2008 Net Written Premiums
    
    $
    425.2
    
    
    $
    72.1
    
    
    $
    (0.8
    )
    
    $
    496.52007 Net Written Premiums
    
    $
    389.3
    
    
    $
    55.9
    
    
    $
    (2.7
    )
    
    $
    442.5Percentage Increase (Decrease)
    
    
    9.2
    %
    
    
    29.0
    %
    
    
    70.4
    %
    
    
    12.2
    %2008 Net Earned Premiums
    
    $
    342.0
    
    
    $
    63.2
    
    
    $
    3.3
    
    
    $
    408.52007 Net Earned Premiums
    
    $
    303.3
    
    
    $
    48.7
    
    
    $
    7.1
    
    
    $
    359.1Percentage Increase (Decrease)
    
    
    12.8
    %
    
    
    29.8
    %
    
    
    (53.5
    )%
    
    
    13.8
    %
  
    
    For our June 1, 2008 commercial lines segment property catastrophe reinsurance renewal,
we experienced higher reinsurance rates, purchased increased catastrophe limits due to
higher exposures primarily in the northeastern portion of the country, and increased our
catastrophe loss retention compared to our June 1, 2007 renewal.
    
    For our June 1, 2008 run-off segment property catastrophe reinsurance renewal, we
experienced reduced reinsurance rates, maintained the same catastrophe loss retention, and
purchased decreased catastrophe coverage limits due to lower exposures compared to our June
1, 2007 renewal.
    
    For our commercial and specialty lines segments, we experienced rate reductions on our
annual January 1, 2008 renewal of our casualty excess of loss reinsurance coverage compared
to the rate on our January 1, 2007 renewal of this coverage.
    
    For our commercial lines segment, we experienced a rate increase on our annual January
1, 2008 renewal of our property excess of loss reinsurance coverage compared to the rate on
our January 1, 2007 renewal of this coverage.
    
    An increase in accelerated and net reinstatement premium costs related to our
catastrophe reinsurance coverages:
 §
    
    For our commercial lines segment, during the three months ended September 30,
2008, we experienced catastrophe losses attributable to Hurricane Ike. These
losses resulted in the recognition of accelerated and net reinstatement catastrophe
reinsurance premium expense of $5.1 million during the three months ended September
30, 2008 due to the utilization of certain of the catastrophe reinsurance
coverages. This recognition of accelerated and net reinstatement premium expense
increases ceded written and earned premiums and reduces net written and earned
premiums.
 
    
    Certain of our reinsurance contracts have reinstatement or additional premium provisions
under which we must pay reinstatement or additional reinsurance premiums to reinstate
coverage provisions upon utilization of initial reinsurance coverage. During the three
months ended September 30, 2008 and 2007, we increased (reduced) our reinstatement or
additional premium accrual by $(5.8) million ($(2.4) million for the commercial lines
segment and $(3.4) million for the specialty lines segment) and $0.7 million ($0.3
 38




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##### 



PHILADELPHIA CONSOLIDATED HOLDING CORP. AND SUBSIDIARIES
Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
 million for the commercial lines segment and $0.4 million for the specialty lines segment)
respectively, under our excess of loss reinsurance treaties, as a result of changes in our
ultimate loss estimates. Increases in these reinstatement and additional premium accruals
increase ceded written and earned premiums and decrease net written and earned premiums, and
decreases in these reinstatement and additional premium accruals decrease ceded written and
earned premiums and increase net written and earned premiums.
 Net Investment Income:
      Net Realized Investment Gain (Loss):
  
    
    We recognized $7.4 in non-cash realized fixed maturity security investment losses
relating to our direct holdings in fixed maturity securities issued by Lehman.
    
    We recognized $11.4 million in non-cash realized equity security investment losses.
  39




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##### 



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 three months ended September 30, 2008 which
decreased net estimated unpaid loss and loss adjustment expenses for accident years 2007
and prior by $12.2 million, as compared to net reserve actions taken during the three
months ended September 30, 2007 which decreased estimated net unpaid loss and loss
adjustment expenses for accident years 2006 and prior by $39.5 million.
Increases/(decreases) in the estimated net unpaid loss and loss adjustment expenses for
prior accident years during the three months ended September 30, 2008 were as follows:
 Net Basis(Dollars In Millions)
    
    Increase/(Decrease)Accident Year 2007
    
    $
    8.4Accident Year 2006
    
    
    (6.3
    )Accident Year 2005
    
    
    (7.1
    )Accident Years 2004 and prior
    
    
    (7.2
    )Total
    
    $
    (12.2
    )
    40




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##### 



PHILADELPHIA CONSOLIDATED HOLDING CORP. AND SUBSIDIARIES
Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
 professional 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 2004 and prior, the decrease in estimated net unpaid loss and loss
adjustment expenses was principally due to lower loss estimates for commercial general
liability, commercial automobile liability, automobile rental leasing, and professional
liability coverages due to better than expected case incurred loss development, primarily as
a result of claim severity being less than anticipated.
    
    An increase in the current accident year net ultimate loss and loss adjustment expense
ratio for the three months ended September 30, 2008 compared to 2007. During the three
months ended September 30, 2008, a net ultimate loss and loss adjustment expense ratio of
60.2% was estimated for the 2008 accident year. During the three months ended September
30, 2007, a net ultimate loss and loss adjustment expense ratio of 51.3% was estimated for
the 2007 accident year. The increase in the 2008 accident year loss and loss adjustment
expense ratio is principally attributable to:
 §
    
    $21.7 million of loss and loss adjustment expenses during the three months
ended September 30, 2008 resulting from losses attributable to Hurricane Ike. We
did not have similar losses during the three months ended September 30, 2007.§
    
    Realized average rate decreases on renewal business approximating 5.1% and 2.3%
for the commercial and specialty lines segments, respectively, for the three
months ended September 30, 2008 compared to the same period in 2007.
  Acquisition Costs and Other Underwriting Expenses:
 Income Tax Expense:
 Investments
  §
    
    The fair value of our total invested assets is primarily measured utilizing a market based
valuation methodology (Market Approach). A Market Approach utilizes prices and other
relevant information generated by market transactions involving identical or comparable assets
or liabilities to measure fair value. We determine a market
 41




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##### 



PHILADELPHIA CONSOLIDATED HOLDING CORP. AND SUBSIDIARIES
Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
 to be active if securities have traded on it in the last 7 business days. We have consistently
applied the Market Approach as of and for the three and nine months ended September 30, 2008.§
    
    Because we have consistently used matrix pricing as the primary
valuation method for determining the fair value of our fixed
maturity securities, the lack of market activity or liquidity in
certain fixed maturity markets did not affect the determination of
the fair value our fixed maturity investments as of September 30,
2008.§
    
    Approximately 98.9% of our total invested assets are measured
utilizing significant observable inputs (Level 1 or Level 2 per
SFAS 157). Approximately 1.1% of our total invested assets are
measured utilizing significant unobservable inputs (Level 3 per
SFAS 157).§
    
    Approximately 99.7% of our fixed maturity investments are measured
utilizing significant observable inputs (Level 1 or Level 2 per
SFAS 157).§
    
    We have one investment grade asset backed security where the fair
value is determined using unadjusted broker pricing relying on
unobservable inputs. Due to the use of unobservable inputs, we
classify this measurement within Level 3 of the fair value
hierarchy. We obtain this broker pricing from the lead manager
of the issue and we consider the pricing to be indicative of fair
value. We do not consider our use of unobservable inputs (Level 3
per SFAS 157) in our fair value measurements to be significant to
our financial position, results of operations, or liquidity.§
    
    Approximately 92.3% of our equity investments are measured
utilizing significant observable inputs (Level 1 or Level 2 per
SFAS 157).§
    
    Significant observable inputs utilized to measure fair value
include matrix pricing for fixed maturity investments (Level 2
per SFAS 157) and quoted market prices for equity investments
(Level 1 per SFAS 157). Matrix pricing relies on observable
inputs from active markets other than quoted market prices
including, but not limited to, benchmark securities and yields,
latest reported trades, quotes from brokers or dealers, issuer
spreads, bids, offers, and other relevant reference data to
determine fair value. Matrix pricing is used to measure the
fair value of fixed maturity securities where obtaining individual
quoted market prices is impractical.§
    
    The significant unobservable inputs utilized to measure fair value
include broker pricing and net asset value calculations.§
    
    We use the lowest level of the most significant input utilized to
categorize a measurement within the fair value hierarchy.
Consequently, a fair value measurement categorized as having level
3 unobservable inputs may also contain Level 1 or Level 2
observable inputs.§
    
    We do not adjust quotes or prices received from brokers.§
    
    Except for our fixed maturity holdings in Lehman Brothers
Holdings, Inc. and in certain other equity securities that we
impaired as of September 30, 2008, we made no other material
adjustments to the fair value of our invested assets as of and for
the three and nine months ended September 30, 2008.
   42




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##### 



PHILADELPHIA CONSOLIDATED HOLDING CORP. AND SUBSIDIARIES
Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
      Securities with an Unrealized Loss as of September 30, 2008:
  
    
    The industry concentration as a percentage of total estimated fair value represents
investments in a geographically diversified pool of investment grade municipal securities
issued by states, political subdivisions, and public authorities under general obligation
and/or special district/purpose issuing authority.  The unrealized losses on these
securities are generally attributable to changes both in market spreads and in the level of
Treasury yields.  The primary factor underlying the spread widening is the
increasing market risk aversion to issues surrounding the monoline financial guarantors,
given such guarantors significant participation in the municipal sector through their
financial guarantee insurance.
 43




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##### 



PHILADELPHIA CONSOLIDATED HOLDING CORP. AND SUBSIDIARIES
Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
 
    
    The industry concentration as a percentage of the total gross unrealized loss primarily
represents investments in equity securities issued by companies in the diversified
financial services industry. The unrealized losses on these securities are generally
attributable to the recent correction in the financial services industry primarily caused
by the deterioration of credit conditions and increased risk aversion in the marketplace
during the second half of 2007 and the first nine months of 2008. As of September 30, 2008,
these securities were evaluated for other than temporary impairment in accordance with the
Companys impairment policy, and the Company concluded that these securities were not other
than temporarily impaired.
  Gross Unrealized Losses as of September 30, 2008Fixed MaturitiesAvailable for Sale(In Millions)
    
    Excluding Interests
    
    
    Interests inContinuous time in
    
    in Securitized
    
    
    Securitized
    
    
    Fixed Maturities

    
    
    
    
    
    
    TotalUnrealized loss position
    
    Assets
    
    
    Assets
    
    
    Available for Sale
    
    
    Equity Securities
    
    
    Investments0  3 months
    
    $
    21.0
    
    
    $
    5.2
    
    
    $
    26.2
    
    
    $
    14.1
    
    
    $
    40.34  6 months
    
    
    12.0
    
    
    
    4.8
    
    
    
    16.8
    
    
    
    12.6
    
    
    
    29.47  9 months
    
    
    21.2
    
    
    
    7.6
    
    
    
    28.8
    
    
    
    4.7
    
    
    
    33.510  12 months
    
    
    3.8
    
    
    
    0.7
    
    
    
    4.6
    
    
    
    1.6
    
    
    
    6.213  18 months
    
    
    8.0
    
    
    
    1.2
    
    
    
    9.1
    
    
    
    
    
    
    
    9.119  24 months
    
    
    8.0
    
    
    
    0.2
    
    
    
    8.2
    
    
    
    
    
    
    
    8.2> 24 months
    
    
    0.8
    
    
    
    2.6
    
    
    
    3.4
    
    
    
    
    
    
    
    3.4Total Gross
Unrealized Losses
    
    $
    74.8
    
    
    $
    22.3
    
    
    $
    97.1
    
    
    $
    33.0
    
    
    $
    130.1Estimated fair
value of
securities with a
gross
unrealized loss
    
    $
    1,328.4
    
    
    $
    611.5
    
    
    $
    1,939.9
    
    
    $
    156.3
    
    
    $
    2,096.2
      44




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##### 



PHILADELPHIA CONSOLIDATED HOLDING CORP. AND SUBSIDIARIES
Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
           Structured Securities Portfolio:
   
    
    $407.8 million of U.S. government agency backed Mortgage Pass-Through Securities;
    
    $195.9 million of U.S. government agency backed Collateralized Mortgage Obligations;
    
    $67.9 million of non-U.S. government agency Collateralized Mortgage Obligations backed by
pools of prime loans (generally consists of loans made to the highest credit quality borrowers
with Fair Isaac Corporation (FICO) scores generally greater than 720);
    
    $14.4 million of structured securities backed by pools of ALT A loans (loans with less than
normal documentation and borrowers with FICO scores in the approximated range of 650 to the
low 700s); and
    
    $2.8 million of structured securities backed by pools of subprime loans (loans with less than
normal documentation, higher combined loan-to-value ratios and borrowers with FICO scores
capped at approximately 650).
  45




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##### 



PHILADELPHIA CONSOLIDATED HOLDING CORP. AND SUBSIDIARIES
Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
 
    
    first to pay or among the first cash flow tranches of their respective transactions;
    
    weighted average life of 1.6 years;
    
    spread across multiple vintages (origination year of underlying collateral pool), and
    
    an average AAA rating, with one holding experiencing a rating downgrade by Moodys during the
quarter to A2 from Aaa based on increased delinquencies and lower coverage levels. Based on
our analysis of the collateral underlying the security, we expect to receive full return of
our investment.
   Municipal Bond Portfolio:
  Weighted AverageMarket Value of Insured
    
    
    Percentage of
    
    
    Underlying Rating ofMunicipal Bonds
    
    
    Municipal Bond
    
    
    Insured MunicipalMonoline Insurer
    
    (In Millions)
    
    
    Portfolio
    
    
    BondsFinancial Security
Assurance, Inc.
    
    $
    341.0
    
    
    
    20.3
    %
    
    AAMBIA, Inc.
    
    
    308.1
    
    
    
    18.3
    
    
    AAFGIC Corporation.
    
    
    208.1
    
    
    
    12.4
    
    
    AA-AMBAC Financial Group, Inc.
    
    
    178.3
    
    
    
    10.6
    
    
    AA-Berkshire Hathaway
Assurance Company
    
    
    4.7
    
    
    
    0.3
    
    

    A+XL Capital, LTD.
    
    
    4.2
    
    
    
    0.2
    
    

    AAssured Guaranty Corp.
    
    
    1.9
    
    
    
    0.1
    
    

    ATotal
    
    $
    1046.3
    
    
    
    62.2
    %
    
    AA
  Securities with an Unrealized Loss as of December 31, 2007:
  
    
    The industry concentration as a percentage of total estimated fair value represents
investments in a geographically diversified pool of investment grade municipal securities
issued by states, political subdivisions, and public authorities under general obligation
and/or special district/purpose issuing authority.  The unrealized
 46




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##### 



PHILADELPHIA CONSOLIDATED HOLDING CORP. AND SUBSIDIARIES
Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
 losses on these securities are generally attributable to spread widening.  The primary factor
underlying the spread widening is the increasing market risk aversion to issues surrounding
the monoline financial guarantors, given the monolines significant participation in the
municipal sector through their financial guarantee insurance.
    
    The industry concentration as a percentage of the total gross unrealized loss primarily
represents investments in equity securities issued by companies in the Diversified Financial
Services industry. The unrealized losses on these securities are generally attributable to the
recent correction in the Financial Services industry primarily caused by the deterioration of
credit conditions in the marketplace during the third and fourth quarters of 2007. As of
December 31, 2007, these equity securities were evaluated for other than temporary impairment
in accordance with the Companys impairment policy and the Company concluded that these
securities were not other than temporarily impaired.
  Gross Unrealized Losses as of December 31, 2007Fixed MaturitiesAvailable for Sale(In Millions)
    
    Excluding Interests
    
    
    Interests in
    
    
    Fixed MaturitiesContinuous time in
    
    in Securitized
    
    
    Securitized
    
    
    Available
    
    
    Equity
    
    
    TotalUnrealized loss position
    
    Assets
    
    
    Assets
    
    
    for Sale
    
    
    Securities
    
    
    Investments0  3 months
    
    $
    0.2
    
    
    $
    0.7
    
    
    $
    0.9
    
    
    $
    8.1
    
    
    $
    9.0>3  6 months
    
    
    
    
    
    
    0.1
    
    
    
    0.1
    
    
    
    6.5
    
    
    
    6.6>6  9 months
    
    
    0.8
    
    
    
    
    
    
    
    0.8
    
    
    
    7.6
    
    
    
    8.4>9  12 months
    
    
    1.3
    
    
    
    
    
    
    
    1.3
    
    
    
    
    
    
    
    1.3>12  18 months
    
    
    0.2
    
    
    
    
    
    
    
    0.2
    
    
    
    
    
    
    
    0.2>18  24 months
    
    
    0.1
    
    
    
    
    
    
    
    0.1
    
    
    
    
    
    
    
    0.1> 24 months
    
    
    1.4
    
    
    
    2.2
    
    
    
    3.6
    
    
    
    
    
    
    
    3.6Total Gross Unrealized Losses
    
    $
    4.0
    
    
    $
    3.0
    
    
    $
    7.0
    
    
    $
    22.2
    
    
    $
    29.2Estimated fair value of
securities with a gross
unrealized loss
    
    $
    570.4
    
    
    $
    357.6
    
    
    $
    928.0
    
    
    $
    118.1
    
    
    $
    1,046.1
      47




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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 Realized Losses:
     48




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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
      
    
    $130.6 million of cash provided from borrowings from the Federal Home Loan Bank of
Pittsburgh (FHLB),
    
    $45.0 million of cash provided from borrowings from our unsecured $50.0 million credit
agreement,
    
    $7.4 million of cash provided from proceeds from the issuance of shares pursuant to our
stock based compensation plans and stock purchase plans,
    
    $5.7 million of cash provided from excess tax benefit from the issuance of shares
pursuant to stock based compensation plans, and
    
    $3.0 million of cash provided from the collection of notes receivable associated with
our employee stock purchase plans.
  
    
    $42.9 million of cash used to repurchase common stock under our stock purchase
authorization;
    
    $45.0 million of cash used for repayments on our unsecured $50.0 million credit
agreement.
   49




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##### 



PHILADELPHIA CONSOLIDATED HOLDING CORP. AND SUBSIDIARIES
Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    New Accounting Pronouncements
 Disclosures about Derivative Instruments and
Hedging Activities
 Determination of the Useful Life of
Intangible Assets Goodwill and Other Intangible Assets Business Combinations
 The Hierarchy of Generally Accepted Accounting
Principles The Meaning of Present Fairly in Conformity With
Generally Accepted Accounting Principles
 Accounting for Financial Guarantee Insurance
Contracts  an interpretation of FASB Statement No. 60 Accounting and Reporting by Insurance Enterprises
 50




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##### 



PHILADELPHIA CONSOLIDATED HOLDING CORP. AND SUBSIDIARIES
Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
  51




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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)September 30, 2008:InvestmentsTotal Fixed Maturities Available For Sale
    
    $
    2,778,992
    
    
    200 bp decrease
    
    $
    3,096,112
    
    
    
    11.4
    %
    
    
    12.8
    %100 bp decrease
    
    $
    2,937,059
    
    
    
    5.7
    %
    
    
    6.4
    %50  bp decrease
    
    $
    2,857,388
    
    
    
    2.8
    %
    
    
    3.2
    %50  bp  increase
    
    $
    2,702,522
    
    
    
    (2.8
    )%
    
    
    (3.1
    )%100 bp  increase
    
    $
    2,628,298
    
    
    
    (5.4
    )%
    
    
    (6.1
    )%200 bp  increase
    
    $
    2,487,892
    
    
    
    (10.5
    )%
    
    
    (11.8
    )%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
    )%
 52




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##### 



PHILADELPHIA CONSOLIDATED HOLDING CORP. AND SUBSIDIARIES
 
 Item 4. Controls and Procedures
    53




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##### 



PHILADELPHIA CONSOLIDATED HOLDING CORP. AND SUBSIDIARIES
 
  
   
         
   (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
    
    
    800
    (1)
    
    $
    43.76
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    52,100,000
    (2)August 1  August 31
    
    
    1,910
    (1)
    
    $
    36.61
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    52,100,000
    (2)September 1  September 30
    
    
    2,726
    (1)
    
    $
    35.51
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    52,100,000
    (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, was $125.3 million as of September 30, 2008.
As of September 30, 2008, $73.2 million has been utilized. 54




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Exhibit No.
    
    Description10.1*
    
    Interest and Liabilities Agreement to the Property Fourth Per
Risk Excess of Loss Reinsurance Agreement with Swiss
Reinsurance America Corporation effective January 1, 200810.2*
    
    Interest and Liabilities Agreement to the Property Fifth Per
Risk Excess of Loss Reinsurance Agreement with Swiss
Reinsurance America Corporation effective January 1, 200810.3*
    
    Property Facultative Agreement of Reinsurance No. P304 with
General Reinsurance Corporation effective January 1, 200831.1*
    
    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. 55




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##### 



SIGNATURES
  PHILADELPHIA CONSOLIDATED HOLDING CORP.RegistrantDate November 10, 2008
    
    James J. Maguire, Jr.

James J. Maguire, Jr.President and Chief Executive Officer(Principal Executive Officer)Date November 10, 2008
    
    Craig P. KellerCraig P. KellerExecutive Vice President,
Secretary,Treasurer and Chief Financial Officer(Principal Financial and Accounting Officer)
 56