##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 WASHINGTON, D.C. 20549
 FORM 10-Q
  þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
 For the quarterly period ended June 30, 2008
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
 For the transition period from  to
 Commission File No. 001-33374
 CastlePoint Holdings, Ltd.
  Bermuda
(State or other jurisdiction of 
incorporation or organization)
    
    N/A
(I.R.S. Employer
Identification No.)
 Victoria Hall, 11 Victoria Street
Hamilton HM 11, Bermuda
(Address of principal executive offices) (Zip code)
(441) 294-6400
(Registrants telephone number, including area code)
 
  þ o
  Large accelerated filer o
    
    Accelerated filer o
    
    Non-accelerated filer þ
    
    Smaller reporting company o(Do not check if a smaller reporting company)
  o þ




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##### 



TABLE OF CONTENTS
 PAGEPart I  FINANCIAL INFORMATION
    
    
    1Item 1. Financial Statements
    
    
    1Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    19Item 3. Quantitative and Qualitative Disclosures About Market Risk
    
    
    41Item 4T. Controls and Procedures
    
    
    42Part II  OTHER INFORMATION
    
    
    42Item 1. Legal Proceedings
    
    
    42Item 1A. Risk Factors
    
    
    43Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    43Item 4. Submission of Matters to a Vote of Security Holders
    
    
    44Item 6. Exhibits
    
    
    45EX-31.1: CERTIFICATIONEX-31.2: CERTIFICATIONEX-32: CERTIFICATION
    i




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##### Table of Contents



PART I  FINANCIAL INFORMATION
 
 Item 1. Financial Statements
 CastlePoint Holdings, Ltd.
Consolidated Balance Sheets
(Unaudited)
 June 30,
    
    
    December 31,2008
    
    
    2007(in thousands, except par value andshare amounts)AssetsFixed-maturity securities, available-for-sale, at fair value (amortized cost
$570,734 for 2008; $484,489 for 2007)
    
    $
    556,431
    
    
    $
    484,972Equity securities, available-for-sale, at fair value (cost $56,810 for 2008;
$44,036 for 2007)
    
    
    52,020
    
    
    
    42,402Short-term investments, available-for-sale, at fair value (amortized cost
$16,911 for 2008; $0 for 2007)
    
    
    16,911
    
    
    
    Total available-for-sale investments
    
    
    625,362
    
    
    
    527,374Investment in partnerships, equity method
    
    
    4,974
    
    
    
    8,503Common trust securities  statutory business trusts, equity method
    
    
    4,022
    
    
    
    4,022Total investments
    
    
    634,358
    
    
    
    539,899Cash and cash equivalents
    
    
    149,362
    
    
    
    153,632Accrued investment income
    
    
    4,204
    
    
    
    4,064Premiums receivable (primarily with related parties  See note 3)
    
    
    160,957
    
    
    
    125,597Premiums receivable  programs (primarily with related parties  See note 3)
    
    
    25,568
    
    
    
    9,083Prepaid reinsurance premiums
    
    
    10,001
    
    
    
    3,475Reinsurance recoverable on paid loss & loss adjustment expense
    
    
    1,366
    
    
    
    22Reinsurance recoverable on unpaid loss & loss adjustment expense
    
    
    4,449
    
    
    
    Deferred acquisition costs (primarily with related parties  See note 3)
    
    
    85,439
    
    
    
    73,073Deferred income taxes
    
    
    9,189
    
    
    
    7,051Deferred financing fees
    
    
    3,610
    
    
    
    3,673Other assets
    
    
    12,858
    
    
    
    7,174Total Assets
    
    $
    1,101,361
    
    
    $
    926,743Liabilities and Shareholders EquityLiabilitiesLoss and loss adjustment expenses (primarily with related parties  See note 3)
    
    $
    191,287
    
    
    $
    121,426Unearned premium (primarily with related parties  See note 3)
    
    
    258,987
    
    
    
    217,518Losses payable (primarily with related parties  See note 3)
    
    
    20,672
    
    
    
    8,527Premiums payable (primarily with related parties  See note 3)
    
    
    47,102
    
    
    
    16,257Accounts payable and accrued expenses
    
    
    2,145
    
    
    
    3,592Payable for securities
    
    
    14,844
    
    
    
    Other liabilities
    
    
    9,015
    
    
    
    3,595Subordinated debentures
    
    
    134,022
    
    
    
    134,022Total Liabilities
    
    
    678,074
    
    
    
    504,937Shareholders EquityCommon shares ($0.01 par value, 100,000,000 shares authorized; and 38,305,735
issued as of June 30, 2008 and 38,289,430 shares issued as of December 31,
2007)
    
    
    383
    
    
    
    383Additional paid-in-capital
    
    
    386,203
    
    
    
    385,057Accumulated other comprehensive net loss
    
    
    (17,722
    )
    
    
    (1,051
    )Retained earnings
    
    
    54,423
    
    
    
    37,417Total Shareholders Equity
    
    
    423,287
    
    
    
    421,806Total Liabilities and Shareholders Equity
    
    $
    1,101,361
    
    
    $
    926,743
  1




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##### Table of Contents



CastlePoint Holdings, Ltd.
Consolidated Statements of Income and
Comprehensive Income
(Unaudited)
 Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2008
    
    
    2007
    
    
    2008
    
    
    2007($ in thousands, except share and per share amounts)RevenuesNet premiums earned (primarily with
related parties  See note 3)
    
    $
    110,815
    
    
    $
    54,940
    
    
    $
    211,219
    
    
    $
    101,536Insurance services revenue (primarily
with related parties  See note 3)
    
    
    8,371
    
    
    
    674
    
    
    
    16,349
    
    
    
    2,235Net investment income
    
    
    8,227
    
    
    
    8,088
    
    
    
    13,384
    
    
    
    13,879Net realized investment losses
    
    
    (2,801
    )
    
    
    (25
    )
    
    
    (1,436
    )
    
    
    (19
    )Total revenues
    
    
    124,612
    
    
    
    63,677
    
    
    
    239,516
    
    
    
    117,631ExpensesLoss and loss adjustment expenses
(primarily with related parties  See
note 3)
    
    
    60,660
    
    
    
    27,982
    
    
    
    115,195
    
    
    
    53,308Commission and other acquisition
expenses (primarily with related
parties  See note 3)
    
    
    45,485
    
    
    
    19,389
    
    
    
    87,009
    
    
    
    35,962Other operating expenses
    
    
    6,196
    
    
    
    4,379
    
    
    
    12,633
    
    
    
    7,715Interest expense
    
    
    2,826
    
    
    
    2,153
    
    
    
    5,669
    
    
    
    4,354Total expenses
    
    
    115,167
    
    
    
    53,903
    
    
    
    220,506
    
    
    
    101,339Income before income taxes
    
    
    9,445
    
    
    
    9,774
    
    
    
    19,010
    
    
    
    16,292Income tax benefit
    
    
    869
    
    
    
    744
    
    
    
    869
    
    
    
    1,297Net income
    
    $
    10,314
    
    
    $
    10,518
    
    
    $
    19,879
    
    
    $
    17,589Comprehensive IncomeNet income
    
    $
    10,314
    
    
    $
    10,518
    
    
    $
    19,879
    
    
    $
    17,589Other comprehensive income (loss):Gross unrealized investment
holding losses arising during
period
    
    
    (8,926
    )
    
    
    (6,661
    )
    
    
    (19,377
    )
    
    
    (5,945
    )Less: reclassification adjustment
for losses included in net income
    
    
    (2,801
    )
    
    
    (25
    )
    
    
    (1,436
    )
    
    
    (19
    )(6,125
    )
    
    
    (6,636
    )
    
    
    (17,941
    )
    
    
    (5,926
    )Income tax recovery related to
items of other comprehensive loss
    
    
    496
    
    
    
    614
    
    
    
    1,270
    
    
    
    585Total other comprehensive loss
    
    
    (5,629
    )
    
    
    (6,022
    )
    
    
    (16,671
    )
    
    
    (5,341
    )Comprehensive Income
    
    $
    4,685
    
    
    $
    4,496
    
    
    $
    3,208
    
    
    $
    12,248Earnings Per ShareBasic earnings per common share
    
    $
    0.27
    
    
    $
    0.27
    
    
    $
    0.52
    
    
    $
    0.51Diluted earnings per common share
    
    $
    0.27
    
    
    $
    0.27
    
    
    $
    0.52
    
    
    $
    0.51Weighted Average Common Shares Outstanding:Basic
    
    
    38,282,320
    
    
    
    38,277,148
    
    
    
    38,280,012
    
    
    
    34,349,404Diluted
    
    
    38,303,705
    
    
    
    38,848,730
    
    
    
    38,410,038
    
    
    
    34,718,272Dividends declared and paid per common share:Common stock
    
    $
    0.05
    
    
    $
    0.025
    
    
    $
    0.075
    
    
    $
    0.05
  2




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CastlePoint Holdings, Ltd.
Consolidated Statements of Cash Flows
(Unaudited)
 Six Months Ended June 30,2008
    
    
    2007($ in thousands)Cash flows from operating activities:Net income
    
    $
    19,879
    
    
    $
    17,589Adjustments to reconcile net income to net cash provided by (used
in) operations:(Gain)/ loss on sale of investments
    
    
    1,436
    
    
    
    19Depreciation and amortization
    
    
    177
    
    
    
    54Amortization of bond premium or discount
    
    
    (373
    )
    
    
    (263
    )Amortization of stock-based compensation expense
    
    
    1,146
    
    
    
    906Amortization of deferred financing fees
    
    
    63
    
    
    
    50Equity in limited partnerships
    
    
    3,529
    
    
    
    Deferred income taxes
    
    
    (869
    )
    
    
    (1,297
    )(Increase)/decrease in assets:Accrued investment income
    
    
    (140
    )
    
    
    1,572Premiums receivable
    
    
    (35,361
    )
    
    
    (28,977
    )Premiums receivable  programs
    
    
    (16,485
    )
    
    
    (164
    )Prepaid reinsurance premiums
    
    
    (6,527
    )
    
    
    Reinsurance recoverable on paid loss & loss adjustment expense
    
    
    (1,344
    )
    
    
    Reinsurance recoverable on unpaid loss & loss adjustment expense
    
    
    (4,449
    )
    
    
    Deferred acquisition costs
    
    
    (12,366
    )
    
    
    (17,085
    )Other assets
    
    
    (5,674
    )
    
    
    (8,514
    )Increase in liabilities:Loss and loss adjustment expenses
    
    
    69,861
    
    
    
    39,096Unearned premium
    
    
    41,469
    
    
    
    50,871Losses payable
    
    
    12,145
    
    
    
    8,951Premiums payable  programs
    
    
    30,845
    
    
    
    239Accounts payable and accrued expenses
    
    
    (1,447
    )
    
    
    (918
    )Other liabilities
    
    
    5,287
    
    
    
    767Net cash flows provided by operations
    
    
    100,802
    
    
    
    59,752Cash flows from investing activities:Cost of fixed assets purchased
    
    
    (188
    )
    
    
    (769
    )Purchases of investments:Cost of fixed-maturity securities
    
    
    (345,945
    )
    
    
    (308,537
    )Cost of equity securities
    
    
    (27,670
    )
    
    
    (25,046
    )Sale of investments:Proceeds from sales of fixed-maturity securities
    
    
    274,746
    
    
    
    151,790Other investments
    
    
    
    
    
    
    40,000Proceeds from sales of equities
    
    
    13,769
    
    
    
    (20,109
    )Net short term investments (purchased)/sold
    
    
    (16,911
    )
    
    
    51,626Net cash flows (used) in investing activities
    
    
    (102,199
    )
    
    
    (111,045
    )Cash flows from financing activities:Net proceeds from Initial Public Offering
    
    
    
    
    
    
    114,894Dividends to shareholders
    
    
    (2,873
    )
    
    
    (1,698
    )Net cash flows (used)/provided by financing activities
    
    
    (2,873
    )
    
    
    113,196(Decrease)/Increase in cash and cash equivalents
    
    
    (4,270
    )
    
    
    61,903Cash and cash equivalents, beginning of period
    
    
    153,632
    
    
    
    34,784Cash and cash equivalents, end of period
    
    $
    149,362
    
    
    $
    96,687Supplemental disclosures of cash flow information:Cash paid for income taxes
    
    $
    
    
    
    $
    Cash paid for interest
    
    $
    5,733
    
    
    $
    4,054
  3




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CastlePoint Holdings , Ltd.
Consolidated Statement of Changes in Shareholders Equity
for the period ended June 30, 2008
(Unaudited)
 AccumulatedAdditional
    
    
    Other
    
    
    
    
    
    
    TotalCommon
    
    
    Paid-In
    
    
    Comprehensive
    
    
    Retained
    
    
    ShareholdersShares
    
    
    Capital
    
    
    Income (Loss)
    
    
    Earnings
    
    
    Equity($ in thousands)Balance at December 31, 2007
    
    $
    383
    
    
    $
    385,057
    
    
    $
    (1,051
    )
    
    $
    37,417
    
    
    $
    421,806Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    19,879
    
    
    
    19,879Net unrealized losses
    
    
    
    
    
    
    
    
    
    
    (16,671
    )
    
    
    
    
    
    
    (16,671
    )Stock based compensation
    
    
    
    
    
    
    1,146
    
    
    
    
    
    
    
    
    
    
    
    1,146Dividends to shareholders
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,873
    )
    
    
    (2,873
    )Balance at June 30, 2008
    
    $
    383
    
    
    $
    386,203
    
    
    $
    (17,722
    )
    
    $
    54,423
    
    
    $
    423,287
  4




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##### Table of Contents



CastlePoint Holdings, Ltd.
Notes to Consolidated Financial Statements
(Unaudited)
 Note 1  Basis of Presentation  Summary of Significant Accounting Policies
  Note 2  Accounting Pronouncements
    5




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Note 3  Related Party Transactions
   Reinsurance Agreements:
  6




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Management Agreements:
   7




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##### Table of Contents



Three Months Ended June 30,
    
    Six Months Ended June 30,2008
    
    2007
    
    2008
    
    2007($ in thousands)Net premiums earned
    
    $
    84,227
    
    
    $
    45,213
    
    
    $
    159,854
    
    
    $
    83,746Net losses incurred
    
    
    44,999
    
    
    
    22,295
    
    
    
    84,339
    
    
    
    42,849Net commission expense
    
    
    31,641
    
    
    
    16,080
    
    
    
    59,624
    
    
    
    29,298
 Service and Expense Sharing Agreements:
  Proposed Acquisition:
 8




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Note 4  Investments
  Cost or
    
    
    Gross
    
    
    GrossAmortized
    
    
    Unrealized
    
    
    Unrealized
    
    
    EstimatedCost
    
    
    Gains
    
    
    Losses
    
    
    Fair Value($ in thousands)June 30, 2008:Fixed Maturities:US government and agencies
securities
    
    $
    6,073
    
    
    $
    114
    
    
    $
    (57
    )
    
    $
    6,130Corporate fixed maturities
    
    
    149,579
    
    
    
    821
    
    
    
    (5,249
    )
    
    
    145,151Mortgage and asset-backed securities
    
    
    415,082
    
    
    
    1,402
    
    
    
    (11,334
    )
    
    
    405,150Total fixed maturities
    
    
    570,734
    
    
    
    2,337
    
    
    
    (16,640
    )
    
    
    556,431Equities
    
    
    56,810
    
    
    
    177
    
    
    
    (4,967
    )
    
    
    52,020Short term investments
    
    
    16,911
    
    
    
    
    
    
    
    
    
    
    
    16,911Total available-for-sale investments
    
    $
    644,455
    
    
    $
    2,514
    
    
    $
    (21,607
    )
    
    $
    625,362December 31, 2007:Fixed Maturities:US government and agencies
securities
    
    $
    8,598
    
    
    $
    214
    
    
    $
    
    
    
    $
    8,812Corporate fixed maturities
    
    
    132,268
    
    
    
    1,372
    
    
    
    (1,370
    )
    
    
    132,270Mortgage and asset-backed securities
    
    
    343,623
    
    
    
    3,124
    
    
    
    (2,857
    )
    
    
    343,890Total fixed maturities
    
    
    484,489
    
    
    
    4,710
    
    
    
    (4,227
    )
    
    
    484,972Equities
    
    
    44,036
    
    
    
    28
    
    
    
    (1,662
    )
    
    
    42,402Total available-for-sale investments
    
    $
    528,525
    
    
    $
    4,738
    
    
    $
    (5,889
    )
    
    $
    527,374
     9




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Quoted Prices in
    
    
    Significant Other
    
    
    Significant OtherFair Value
    
    
    Active Markets
    
    
    Observable Inputs
    
    
    Unobservable InputsMeasurements
    
    
    (Level 1)
    
    
    (Level 2)
    
    
    (Level 3)(in thousands)Fixed maturity investments
    
    $
    556,431
    
    
    $
    
    
    
    $
    556,431
    
    
    $
    Short-term investments
    
    
    16,911
    
    
    
    
    
    
    
    16,911
    
    
    
    Equity investments
    
    
    52,020
    
    
    
    1,210
    
    
    
    50,810
    
    
    
    Total
    
    $
    625,362
    
    
    $
    1,210
    
    
    $
    624,152
    
    
    $
    
  Less than 12 Months
    
    
    More than 12 Months
    
    
    TotalNumber of
    
    
    
    
    
    
    
    
    
    
    Unrealized
    
    
    
    
    
    
    
    
    
    
    Unrealized
    
    
    
    
    
    
    
    
    
    
    UnrealizedPositions
    
    
    Book Value
    
    
    Fair Value
    
    
    Losses
    
    
    Book Value
    
    
    Fair Value
    
    
    Losses
    
    
    Book Value
    
    
    Fair Value
    
    
    losses($ in thousands)As of June 30, 2008Corporates
    
    
    49
    
    
    $
    73,139
    
    
    $
    69,884
    
    
    $
    (3,255
    )
    
    $
    10,241
    
    
    $
    8,247
    
    
    $
    (1,994
    )
    
    $
    83,380
    
    
    $
    78,131
    
    
    $
    (5,249
    )Mortgage & asset-backed
    
    
    59
    
    
    
    264,384
    
    
    
    255,094
    
    
    
    (9,290
    )
    
    
    7,334
    
    
    
    5,233
    
    
    
    (2,101
    )
    
    
    271,718
    
    
    
    260,327
    
    
    
    (11,391
    )Total fixed maturities
    
    
    108
    
    
    
    337,523
    
    
    
    324,978
    
    
    
    (12,545
    )
    
    
    17,575
    
    
    
    13,480
    
    
    
    (4,095
    )
    
    
    355,098
    
    
    
    338,458
    
    
    
    (16,640)
    )Equities
    
    
    30
    
    
    
    51,601
    
    
    
    47,540
    
    
    
    (4,061
    )
    
    
    4,000
    
    
    
    3,095
    
    
    
    (905
    )
    
    
    55,601
    
    
    
    50,635
    
    
    
    (4,967
    )Total
    
    
    138
    
    
    $
    389,124
    
    
    $
    372,518
    
    
    $
    (16,606
    )
    
    $
    21,575
    
    
    $
    16,575
    
    
    $
    (5,000
    )
    
    $
    410,670
    
    
    $
    389,093
    
    
    $
    (21,607
    )As of December 31, 2007Corporates
    
    
    17
    
    
    $
    28,206
    
    
    $
    26,836
    
    
    $
    (1,370
    )
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    28,206
    
    
    $
    26,836
    
    
    $
    (1,370
    )Mortgage & asset-backed
    
    
    23
    
    
    
    77,757
    
    
    
    74,911
    
    
    
    (2,846
    )
    
    
    3,669
    
    
    
    3,658
    
    
    
    (11
    )
    
    
    81,426
    
    
    
    78,569
    
    
    
    (2,857
    )Total fixed maturities
    
    
    40
    
    
    
    105,963
    
    
    
    101,747
    
    
    
    (4,216
    )
    
    
    3,669
    
    
    
    3,658
    
    
    
    (11
    )
    
    
    109,632
    
    
    
    105,405
    
    
    
    (4,227
    )Equities
    
    
    9
    
    
    
    21,383
    
    
    
    19,721
    
    
    
    (1,662
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    21,383
    
    
    
    19,721
    
    
    
    (1,662
    )Total
    
    
    49
    
    
    $
    127,346
    
    
    $
    121,468
    
    
    $
    (5,878
    )
    
    $
    3,669
    
    
    $
    3,658
    
    
    $
    (11
    )
    
    $
    131,015
    
    
    $
    125,126
    
    
    $
    (5,889
    )
  Corporate Fixed Maturities
 10




---



##### Table of Contents



Mortgage and Asset-Backed Securities
 Equity Securities
  
    
    A fund investment with a cost basis of $5.2 million and a current market value
of $3.2 million was put into run-off by the fund manager during the second quarter
of 2008 based on deteriorating conditions in the financial sector. The fund is
comprised of primarily investment grade securities with a focus on the financial
institutions segment of the credit markets (i.e., primarily trust preferred,
subordinated debt and preferred securities). In June 2008, the fund returned $4.8
million leaving a remaining market value balance of $3.2 million, which the Company
believes will be fully liquidated by year end. The Company recorded an
other-than-temporary impairment charge of $2.0 million based on the belief that the
fund would be liquidated prior to a full recovery.
    
    A publicly traded mortgage REIT, with a market value at June 30, 2008 of
$205,000, whose purpose is to own various mortgage-backed securities, including
CMBS and agency and non-agency residential mortgage-backed securities (MBS). The
market value of this security at June 30, 2008 was 25% of adjusted cost resulting
in an other than temporary impairment charge of $0.6 million. At 2007 year end,
the Company recorded a charge for other-than-temporary impairment of $0.7 million
relating to this investment.
    
    Preferred stocks issued by Fannie Mae and Freddie Mac, with a cost basis of $9.7
million and a market value at June 30, 2008 of $8.9 million, resulting in an
other-than-temporary impairment charge at June 30, 2008 of $0.8 million. During
July 2008, these preferred securities lost significant value based on investors
fears of default as a result of the continuing worsening of the real estate
markets. In July 2008, the Company sold $8.0 million of cost basis securities for
a realized loss of $2.1 million.
  11




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##### Table of Contents



June 30, 2008
    
    
    December 31, 2007Percentage
    
    
    
    
    
    
    Percentage($ in thousands)
    
    Fair Value
    
    
    of Fair Value
    
    
    Fair Value
    
    
    of Fair ValueRatingU.S. Treasury securities
    
    $
    6,130
    
    
    
    1.10
    %
    
    $
    3,218
    
    
    
    0.66
    %AAA
    
    
    406,349
    
    
    
    73.04
    %
    
    
    352,079
    
    
    
    72.61
    %AA
    
    
    42,524
    
    
    
    7.64
    %
    
    
    46,920
    
    
    
    9.67
    %A
    
    
    50,757
    
    
    
    9.12
    %
    
    
    50,312
    
    
    
    10.37
    %BBB
    
    
    49,438
    
    
    
    8.88
    %
    
    
    30,660
    
    
    
    6.32
    %BB
    
    
    1,233
    
    
    
    0.22
    %
    
    
    1,783
    
    
    
    0.37
    %Total
    
    $
    556,431
    
    
    
    100.00
    %
    
    $
    484,972
    
    
    
    100.00
    %
 Note 5  Dividends Declared
   12




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##### Table of Contents



Note 6  Earnings Per Share
  Income
    
    
    Shares
    
    
    Per Share(Numerator)
    
    
    (Denominator)
    
    
    Amount($ in thousands, except shares and per share amounts)Three Months Ended
June 30, 2008Net income
    
    $
    10,314Basic earnings per share
    
    
    10,314
    
    
    
    38,282,320
    
    
    $
    0.27Effect of dilutive securities:Stock options
    
    
    
    
    
    
    Unvested restricted stock
    
    
    
    
    
    
    11,332Warrants
    
    
    
    
    
    
    10,053Diluted earnings per share
    
    $
    10,314
    
    
    
    38,303,705
    
    
    $
    0.27Three Months Ended
June 30, 2007Net income
    
    $
    10,518Basic earnings per share
    
    
    10,518
    
    
    
    38,277,148
    
    
    $
    0.27Effect of dilutive securities:Stock options
    
    
    
    
    
    
    159,538Unvested restricted stock
    
    
    
    
    
    
    5,172Warrants
    
    
    
    
    
    
    406,872Diluted earnings per share
    
    $
    10,518
    
    
    
    38,848,730
    
    
    $
    0.27Six Months Ended
June 30, 2008Net income
    
    $
    19,879Basic earnings per share
    
    
    19,879
    
    
    
    38,280,012
    
    
    $
    0.52Effect of dilutive securities:Stock options
    
    
    
    
    
    
    30,232Unvested Restricted Stock
    
    
    
    
    
    
    9,593Warrants
    
    
    
    
    
    
    90,201Diluted earnings per share
    
    $
    19,879
    
    
    
    38,410,038
    
    
    $
    0.52Six Months Ended
June 30, 2007Net income
    
    $
    17,589Basic earnings per share
    
    
    17,589
    
    
    
    34,349,404
    
    
    $
    0.51Effect of dilutive securities:Stock options
    
    
    
    
    
    
    68,929Unvested Restricted Stock
    
    
    
    
    
    
    2,836Warrants
    
    
    
    
    
    
    297,103Diluted earnings per share
    
    $
    17,589
    
    
    
    34,718,272
    
    
    $
    0.51
  13




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##### Table of Contents



Note 7  Employee Compensation Plans
 Long-Term Equity Compensation Plan
  Six Months EndedJune 30, 2008WeightedNumber of
    
    
    Average ExerciseShares
    
    
    PriceOutstanding at December 31, 2007
    
    
    1,618,783
    
    
    $
    11.50Granted at market value
    
    
    449,518
    
    
    
    10.12Forfeitures and expirations
    
    
    Exercised
    
    
    Outstanding at June 30, 2008
    
    
    2,118,301
    
    
    
    11.18Exercisable, end of period
    
    
    549,237
    
    
    
    11.42Weighted average fair value per
share of options granted
    
    
    
    
    
    
    4.11
 Six Months EndedJune 30, 2007WeightedNumber of
    
    
    Average ExerciseShares
    
    
    PriceOutstanding at December 31, 2006
    
    
    1,082,666
    
    
    $
    10.00Granted at market value
    
    
    556,254
    
    
    
    14.52Forfeitures and expirations
    
    
    Exercised
    
    
    Outstanding at June 30, 2007
    
    
    1,638,920
    
    
    
    11.54Exercisable, end of period
    
    
    22,866
    
    
    
    10.00Weighted average fair value per
share of options granted
    
    
    
    
    
    
    4.29
 14




---



##### Table of Contents



Options outstanding
    
    
    Options exercisableAverageRemaining
    
    
    Average
    
    
    
    
    
    
    AverageNumber of
    
    
    Contractual
    
    
    Exercise
    
    
    Number
    
    
    ExerciseRange of Exercise Prices
    
    Shares
    
    
    Life
    
    
    Price
    
    
    of Shares
    
    
    PriceJune 30, 2008:$10.00 - 2006
    
    
    1,082,666
    
    
    7.75 years
    
    $
    10.00
    
    
    
    376,133
    
    
    $
    10.00$14.50 - 03/22/07
    
    
    519,310
    
    
    8.75 years
    
    $
    14.50
    
    
    
    173,104
    
    
    
    14.50$15.25 - 04/30/07
    
    
    16,807
    
    
    8.83 years
    
    $
    15.25
    
    
    
    
    
    
    
    $10.12 - 03/10/08
    
    
    499,518
    
    
    9.67 years
    
    $
    10.12
    
    
    
    
    
    
    
    Total Options
    
    
    2,118,301
    
    
    8.46 years
    
    $
    11.18
    
    
    
    549,237
    
    
    $
    11.42December 31, 2007:$10.00 - 2006
    
    
    1,082,666
    
    
    8.25 years
    
    $
    10.00
    
    
    
    376,133
    
    
    $
    10.00$14.50 - 03/22/07
    
    
    519,310
    
    
    9.25 years
    
    $
    14.50
    
    
    
    
    
    
    
    $15.25 - 04/30/07
    
    
    16,807
    
    
    9.33 years
    
    $
    15.25
    
    
    
    
    
    
    
    Total Options
    
    
    1,618,783
    
    
    8.58 years
    
    $
    11.50
    
    
    
    376,133
    
    
    $
    10.00
    Note 8  Segment Information
  15




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##### Table of Contents



Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2008
    
    
    2007
    
    
    2008
    
    
    2007($ in thousands)Insurance SegmentRevenues:Net premiums earned
    
    $
    29,009
    
    
    $
    1,330
    
    
    $
    52,969
    
    
    $
    1,330Total revenues
    
    
    29,009
    
    
    
    1,330
    
    
    
    52,969
    
    
    
    1,330Expenses:Net loss and loss adjustment expenses
    
    
    15,312
    
    
    
    718
    
    
    
    28,507
    
    
    
    718Commission expenses
    
    
    10,536
    
    
    
    549
    
    
    
    19,485
    
    
    
    549Other underwriting expenses
    
    
    1,196
    
    
    
    19
    
    
    
    1,932
    
    
    
    21Total expenses
    
    
    27,044
    
    
    
    1,286
    
    
    
    49,924
    
    
    
    1,288Segment profit
    
    $
    1,965
    
    
    $
    44
    
    
    $
    3,045
    
    
    $
    42
 Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2008
    
    
    2007
    
    
    2008
    
    
    2007($ in thousands)Reinsurance SegmentRevenues:Net premiums earned
    
    $
    81,806
    
    
    $
    53,610
    
    
    $
    158,249
    
    
    $
    100,206Total revenues
    
    
    81,806
    
    
    
    53,610
    
    
    
    158,249
    
    
    
    100,206Expenses:Net loss and loss adjustment expenses
    
    
    45,348
    
    
    
    27,264
    
    
    
    86,689
    
    
    
    52,590Commission expenses
    
    
    27,812
    
    
    
    18,348
    
    
    
    53,465
    
    
    
    33,705Other underwriting expenses
    
    
    1,034
    
    
    
    839
    
    
    
    2,125
    
    
    
    1,489Total expenses
    
    
    74,194
    
    
    
    46,451
    
    
    
    142,279
    
    
    
    87,784Segment profit
    
    $
    7,612
    
    
    $
    7,159
    
    
    $
    15,970
    
    
    $
    12,422
 Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2008
    
    
    2007
    
    
    2008
    
    
    2007($ in thousands)Insurance Services SegmentRevenues:Direct commission revenue from program business
    
    $
    9,286
    
    
    $
    674
    
    
    $
    17,995
    
    
    $
    2,235Total revenues
    
    
    9,286
    
    
    
    674
    
    
    
    17,995
    
    
    
    2,235Expenses:Direct commission expenses from program business
    
    
    8,052
    
    
    
    492
    
    
    
    15,705
    
    
    
    1,708Other insurance services expenses
    
    
    2,023
    
    
    
    1,788
    
    
    
    4.003
    
    
    
    3,132Total expenses
    
    
    10,075
    
    
    
    2,280
    
    
    
    19,708
    
    
    
    4,840Segment loss
    
    $
    (789
    )
    
    $
    (1,606
    )
    
    $
    (1,713
    )
    
    $
    (2,605
    )
 16




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##### Table of Contents



Three Months
    
    
    Six MonthsEnded June 30,
    
    
    Ended June 30,2008
    
    
    2007
    
    
    2008
    
    
    2007($ in thousands)Revenues:Insurance segment
    
    $
    29,009
    
    
    $
    1,330
    
    
    $
    52,969
    
    
    $
    1,330Reinsurance segment
    
    
    81,806
    
    
    
    53,610
    
    
    
    158,249
    
    
    
    100,206Insurance services segment
    
    
    9,286
    
    
    
    674
    
    
    
    17,995
    
    
    
    2,235Total segment revenues
    
    
    120,101
    
    
    
    55,614
    
    
    
    229,213
    
    
    
    103,771Segment revenue elimination
    
    
    (915
    )
    
    
    
    
    
    
    (1,645
    )
    
    
    Segment revenues after elimination
    
    
    119,186
    
    
    
    
    
    
    
    227,568
    
    
    
    Net investment income
    
    
    8,227
    
    
    
    8,088
    
    
    
    13,384
    
    
    
    13,879Net realized capital losses
    
    
    (2,801
    )
    
    
    (25
    )
    
    
    (1,436
    )
    
    
    (19
    )Consolidated revenues
    
    $
    124,612
    
    
    $
    63,677
    
    
    $
    239,516
    
    
    $
    117,631
  Three Months
    
    
    Six MonthsEnded June 30,
    
    
    Ended June 30,2008
    
    
    2007
    
    
    2008
    
    
    2007($ in thousands)Insurance segment profit
    
    $
    1,965
    
    
    $
    44
    
    
    $
    3,045
    
    
    $
    42Reinsurance segment profit
    
    
    7,612
    
    
    
    7,159
    
    
    
    15,970
    
    
    
    12,422Insurance services segment loss
    
    
    (789
    )
    
    
    (1,606
    )
    
    
    (1,713
    )
    
    
    (2,605
    )Segment profit
    
    
    8,788
    
    
    
    5,597
    
    
    
    17,302
    
    
    
    9,859Net investment income
    
    
    8,227
    
    
    
    8,088
    
    
    
    13,384
    
    
    
    13,879Net realized capital losses
    
    
    (2,801
    )
    
    
    (25
    )
    
    
    (1,436
    )
    
    
    (19
    )Corporate expenses
    
    
    (1,943
    )
    
    
    (1,733
    )
    
    
    (4,571
    )
    
    
    (3,073
    )Interest expense
    
    
    (2,826
    )
    
    
    (2,153
    )
    
    
    (5,669
    )
    
    
    (4,354
    )Income before taxes
    
    $
    9,445
    
    
    $
    9,774
    
    
    $
    19,010
    
    
    $
    16,292
 17




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##### Table of Contents



Note 9  Security Requirements
  Note 10  Subsequent Events
       18




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##### Table of Contents



Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
 Note on Forward-Looking Statements
   
    
    our lack of extensive operating history;
    
    our significant dependence on Tower for revenue, which is subject to change as
a result of changes in Towers core business growth and ability to raise capital or
Towers choice to reinsure its business with us at the same volume levels;
    
    the possibility that the acquisition of the Company by Tower will not be
approved by Tower or CastlePoint Holdings Shareholders or certain regulatory
authorities, or will otherwise fail to be consummated;
    
    if the acquisition of the Company by Tower is consummated, the transaction will
result in the Company being a controlled foreign corporation (CFC) subject to U.S.
tax; however, in the event the acquisition of the Company by Tower is not consummated,
there is the risk that CastlePoint Bermuda Holdings or CastlePoint Holdings may be
deemed to be engaged in a U.S. trade or business, or that CastlePoint Re may be
considered to be doing business through a permanent establishment in the United States,
either of which would subject these companies to U.S. taxation;
    
    changes in regulation or tax laws applicable to us, our brokers or our
customers;
    
    the terms of our arrangements with Tower may change as a result of the
regulatory review and approval process;
    
    we may be unable to write premiums with clients other than Tower at favorable
terms and conditions in view of the competition in the reinsurance market;
    
    we may need additional capital for our reinsurance and insurance businesses, as
well as to acquire at least one additional broadly-licensed U.S. insurance company for
our insurance business, and to make strategic investments in some of our clients, and,
that we may not be able to obtain such capital on favorable terms or at all in light of
the market price of our stock in relation to book value, as well as the current state
of the capital markets and the insurance indutry;
    
    the ineffectiveness or obsolescence of our planned business strategy due to
changes in current or future market conditions; for example, due to the current
competitive reinsurance market conditions, it may be appropriate to shift more of our
capital from our reinsurance operations in Bermuda to write insurance business in the
U.S., which may require us to seek acquisitions of
 19




---



##### Table of Contents



distribution sources as well as
depend more on Tower to provide us with business. Such a change in business strategy
would increase our tax liability by generating more business in the U.S.;
    
    changes in the availability, cost or quality of insurance business that meets
our reinsurance underwriting standards;
    
    actual results, changes in market conditions, the occurrence of catastrophic
losses and other factors outside our control that may require us to alter our
anticipated methods of conducting our business, such as the nature, amount and types of
risk we assume and the terms, limits or other characteristics of the products we write
or intend to write;
    
    possible future downgrade in the A.M. Best rating of some or all of our
insurance or reinsurance subsidiaries, or any that we may acquire. A.M Best recently
placed Tower and CastlePoints rating under review with negative implications in
response to our announcement regarding Towers acquisition of CastlePoint. Please
refer to Item 2. Managements Discussion and Analysis of Financial Condition and
Results of OperationsRatings for additional information.
    
    changes in rating agency policies or practices; and
    
    changes in general economic conditions, including inflation, foreign currency
exchange rates, interest rates and other factors.
   Overview
  Tower
 20




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##### Table of Contents



Other Customers .
 Critical Accounting Estimates
  
    
    premiums;
    
    losses and loss adjustment expense reserves;
    
    deferred acquisition costs;
    
    investments;
    
    reinsurance accounting;
    
    deferred taxes; and
    
    U.S. taxation.
 21




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i.e.
  i.e
 22




---



##### Table of Contents



Non-GAAP Measures
  Consolidated combined ratio
 Operating net income and operating return on average equity.
  Three Months Ended June 30,
    
    Six Months Ended June 30,2008
    
    2007
    
    2008
    
    2007($ in thousands)
    
    ($ in thousands)Operating net income
    
    
    13,234
    
    
    
    10,543
    
    
    
    24,277
    
    
    
    17,608Reconciliation to Net Income:Realized and unrealized gains (losses) on
investment in Partnership (1)
    
    
    (551
    )
    
    
    0
    
    
    
    (3,530
    )
    
    
    0Net realized gains (losses) on investments
    
    
    (2,801
    )
    
    
    (25
    )
    
    
    (1,436
    )
    
    
    (19
    )Tax effect on realized and unrealized gains (losses)
    
    
    432
    
    
    
    0
    
    
    
    568
    
    
    
    0Net Income
    
    $
    10,314
    
    
    $
    10,518
    
    
    $
    19,879
    
    
    $
    17,589
 
 (1)
    
    Realized and unrealized gains and losses from our investment in a limited
partnership were recorded as a component of net investment income 23




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Consolidated Results of Operations
 Three Months Ended June 30,
    
    
    Six Months Ended June 30,2008
    
    
    2007
    
    
    2008
    
    
    2007($ in thousands)RevenuesNet premiums earned
    
    $
    110,815
    
    
    $
    54,940
    
    
    $
    211,219
    
    
    $
    101,536Commission income
    
    
    8,371
    
    
    
    674
    
    
    
    16,349
    
    
    
    2,235Net investment income
    
    
    8,227
    
    
    
    8,088
    
    
    
    13,384
    
    
    
    13,879Net realized investment losses
    
    
    (2,801
    )
    
    
    (25
    )
    
    
    (1,436
    )
    
    
    (19
    )Total revenues
    
    
    124,612
    
    
    
    63,677
    
    
    
    239,516
    
    
    
    117,631ExpensesNet loss and loss adjustment
expenses
    
    
    60,660
    
    
    
    27,982
    
    
    
    115,195
    
    
    
    53,308Commission and other
acquisition expenses
    
    
    45,485
    
    
    
    19,389
    
    
    
    87,009
    
    
    
    35,962Other operating expenses
    
    
    6,196
    
    
    
    4,379
    
    
    
    12,633
    
    
    
    7,715Interest expenses
    
    
    2,826
    
    
    
    2,153
    
    
    
    5,669
    
    
    
    4,354Total expenses
    
    
    115,167
    
    
    
    53,903
    
    
    
    220,506
    
    
    
    101,339Income before taxes
    
    
    9,445
    
    
    
    9,774
    
    
    
    19,010
    
    
    
    16,292Income tax benefit
    
    
    869
    
    
    
    744
    
    
    
    869
    
    
    
    1,297Net Income
    
    $
    10,314
    
    
    $
    10,518
    
    
    $
    19,879
    
    
    $
    17,589Key MeasuresReturn on average equity
    
    
    9.8
    %
    
    
    10.4
    %
    
    
    9.4
    %
    
    
    10.2
    %Consolidated combined ratio
    
    
    93.8
    %
    
    
    93.0
    %
    
    
    94.0
    %
    
    
    93.3
    %
  Consolidated Results of Operations for the Three Months Ended June 30, 2008 and 2007
 Summary .
   24




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##### Table of Contents



Total revenues .
 Premiums earned .
 Commission income .
 Net investment income and net realized investment losses .
 25




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##### Table of Contents



Loss and loss adjustment expenses .
 Operating expenses .
  Income tax benefit .
 Net income and return on average equity .
 26




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##### Table of Contents



Consolidated combined ratio .
 Consolidated Results of Operations for the Six Months Ended June 30, 2008 and 2007
   Total revenues .
 Premiums earned .
 Commission income .
 27




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##### Table of Contents



Net investment income and net realized investment losses .
  Loss and loss adjustment expenses .
 Operating expenses .
 Interest expense .
 Income tax benefit .
 28




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##### Table of Contents



Net income and return on average equity .
 Consolidated combined ratio .
 29




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##### Table of Contents



Insurance Segment Results of Operations
 Three Months Ended June 30,
    
    
    Six Months Ended June 30,2008
    
    
    2007
    
    
    2008
    
    
    2007($ in thousands)RevenuesPremiums earnedGross premiums earned
    
    $
    38,307
    
    
    $
    1,330
    
    
    $
    69,901
    
    
    $
    1,330Less: ceded premiums earned
    
    
    (9,298
    )
    
    
    
    
    
    
    (16,932
    )
    
    
    Net premiums earned
    
    
    29,009
    
    
    
    1,330
    
    
    
    52,969
    
    
    
    1,330Ceding commission revenue
    
    
    1,346
    
    
    
    
    
    
    
    2,408
    
    
    
    ExpensesLoss and loss adjustment expensesGross loss and loss adjustment expenses
    
    
    19,123
    
    
    
    718
    
    
    
    35,602
    
    
    
    718Less: ceded loss and loss adjustment
expenses
    
    
    (3,811
    )
    
    
    
    
    
    
    (7,095
    )
    
    
    Net loss and loss adjustment expenses
    
    
    15,312
    
    
    
    718
    
    
    
    28,507
    
    
    
    718Underwriting expensesCeding commission expense
    
    
    11,882
    
    
    
    549
    
    
    
    21,893
    
    
    
    549Other underwriting expenses
    
    
    1,196
    
    
    
    19
    
    
    
    1,932
    
    
    
    21Total underwriting expenses
    
    
    13,078
    
    
    
    568
    
    
    
    23,825
    
    
    
    570Underwriting Profit
    
    $
    1,965
    
    
    $
    44
    
    
    $
    3,045
    
    
    $
    42Key MeasuresPremiums writtenGross premiums written
    
    $
    42,403
    
    
    $
    13,533
    
    
    $
    77,352
    
    
    $
    13,533Less: ceded premiums written
    
    
    (10,107
    )
    
    
    
    
    
    
    (21,124
    )
    
    
    Net premiums written
    
    $
    32,296
    
    
    $
    13,533
    
    
    $
    56,228
    
    
    $
    13,533Loss RatiosGross
    
    
    49.9
    %
    
    
    54.0
    %
    
    
    50.9
    %
    
    
    54.0
    %Net
    
    
    52.8
    %
    
    
    54.0
    %
    
    
    53.8
    %
    
    
    54.0
    %Accident Year Loss RatiosGross
    
    
    51.6
    %
    
    
    54.0
    %
    
    
    51.2
    %
    
    
    54.0
    %Net
    
    
    55.2
    %
    
    
    54.0
    %
    
    
    54.4
    %
    
    
    54.0
    %Underwriting Expense RatiosGross
    
    
    34.1
    %
    
    
    42.7
    %
    
    
    34.1
    %
    
    
    42.8
    %Net
    
    
    40.4
    %
    
    
    42.7
    %
    
    
    40.4
    %
    
    
    42.8
    %Combined RatiosGross
    
    
    84.0
    %
    
    
    96.7
    %
    
    
    85.0
    %
    
    
    96.8
    %Net
    
    
    93.2
    %
    
    
    96.7
    %
    
    
    94.2
    %
    
    
    96.8
    %
 30




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##### Table of Contents



Insurance Segment Results of Operations for the Three Months Ended June 30, 2008 and 2007
 Gross premiums and net premiums .
 Gross and net loss and loss adjustment expenses and loss ratio .
 Underwriting expenses and underwriting expense ratio .
 Underwriting profit and net combined ratio .
 Insurance Segment Results of Operations for the Six Months Ended June 30, 2008 and 2007
 Gross premiums and net premiums .
 31




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##### Table of Contents



Gross and net loss and loss adjustment expenses and loss ratio .
 Underwriting expenses and underwriting expense ratio .
 Underwriting profit and net combined ratio .
 32




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##### Table of Contents



Reinsurance Segment Results of Operations
 Three Months Ended June 30,
    
    
    Six Months Ended June 30,2008
    
    
    2007
    
    
    2008
    
    
    2007($ in thousands)RevenuesPremiums earnedGross premiums earned
    
    $
    81,831
    
    
    $
    53,610
    
    
    $
    158,283
    
    
    $
    100,206Less: ceded premiums earned
    
    
    (25
    )
    
    
    
    
    
    
    (34
    )
    
    
    Net premiums earned
    
    
    81,806
    
    
    
    53,610
    
    
    
    158,249
    
    
    
    100,206ExpensesLoss and loss adjustment expensesGross loss and loss adjustment expenses
    
    
    45,348
    
    
    
    27,264
    
    
    
    86,689
    
    
    
    52,590Less: ceded loss and loss adjustment expenses
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Net loss and loss adjustment expenses
    
    
    45,348
    
    
    
    27,264
    
    
    
    86,689
    
    
    
    52,590Underwriting expensesCeding commission expense
    
    
    27,812
    
    
    
    18,348
    
    
    
    53,465
    
    
    
    33,705Other underwriting expenses
    
    
    1,034
    
    
    
    839
    
    
    
    2,125
    
    
    
    1,489Total underwriting expenses
    
    
    28,846
    
    
    
    19,187
    
    
    
    55,590
    
    
    
    35,194Underwriting Profit
    
    $
    7,612
    
    
    $
    7,159
    
    
    $
    15,970
    
    
    $
    12,422Key MeasuresPremiums writtenGross premiums written
    
    $
    95,800
    
    
    $
    66,978
    
    
    $
    189,967
    
    
    $
    138,874Less: ceded premiums written
    
    
    (24
    )
    
    
    
    
    
    
    (33
    )
    
    
    Net premiums written
    
    $
    95,776
    
    
    $
    66,978
    
    
    $
    189,934
    
    
    $
    138,874Loss RatiosGross
    
    
    55.4
    %
    
    
    50.9
    %
    
    
    54.8
    %
    
    
    52.5
    %Net
    
    
    55.4
    %
    
    
    50.9
    %
    
    
    54.8
    %
    
    
    52.5
    %Accident Year Loss RatiosGross
    
    
    55.6
    %
    
    
    52.2
    %
    
    
    55.1
    %
    
    
    52.7
    %Net
    
    
    55.6
    %
    
    
    52.2
    %
    
    
    55.1
    %
    
    
    52.7
    %Underwriting Expense RatiosGross
    
    
    35.3
    %
    
    
    35.8
    %
    
    
    35.1
    %
    
    
    35.1
    %Net
    
    
    35.3
    %
    
    
    35.8
    %
    
    
    35.1
    %
    
    
    35.1
    %Combined RatiosGross
    
    
    90.7
    %
    
    
    86.7
    %
    
    
    89.9
    %
    
    
    87.6
    %Net
    
    
    90.7
    %
    
    
    86.7
    %
    
    
    89.9
    %
    
    
    87.6
    %
 Reinsurance Segment Results of Operations for the Three Months Ended June 30, 2008 and 2007
 Gross premiums and net premiums .
 33




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##### Table of Contents



Loss and loss adjustment expenses and loss ratio .
 Underwriting expenses and underwriting expense ratio .
 Underwriting profit and combined ratio .
 Reinsurance Segment Results of Operations for the Six Months Ended June 30, 2008 and 2007
 Gross premiums and net premiums . .
 Loss and loss adjustment expenses and loss ratio .
 Underwriting expenses and underwriting expense ratio .
 34




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##### Table of Contents



Underwriting profit and combined ratio .
 Insurance Services Segment Results of Operations
 Three Months Ended June 30,
    
    
    Six Months Ended June 30,2008
    
    
    2007
    
    
    2008
    
    
    2007($ in thousands)RevenuesDirect commission revenue from programs
    
    $
    9,286
    
    
    $
    674
    
    
    $
    17,995
    
    
    $
    2,235Total Revenues
    
    
    9,286
    
    
    
    674
    
    
    
    17,995
    
    
    
    2,235ExpensesDirect commissions expense for programs
    
    
    8,052
    
    
    
    492
    
    
    
    15,705
    
    
    
    1,708Other insurance services expenses
    
    
    2,023
    
    
    
    1,788
    
    
    
    4,003
    
    
    
    3,132Total Expenses
    
    
    10,075
    
    
    
    2,280
    
    
    
    19,708
    
    
    
    4,840Insurance Services Loss
    
    $
    (789
    )
    
    $
    (1,606
    )
    
    $
    (1,713
    )
    
    $
    (2,605
    )
 Insurance Services Segment Results of Operations for the Three Months Ended June 30, 2008 and 2007
 Direct commission revenue from programs .
 Direct commission expense for programs .
 Other insurance services expenses .
 35




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##### Table of Contents



Insurance services loss .
 Insurance Services Segment Results of Operations for the Six Months Ended June 30, 2008 and 2007
 Direct commission revenue from programs .
 Direct commission expense for programs .
 Other insurance services expenses .
 Insurance services loss .
 Liquidity and Capital Resources
   36




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##### Table of Contents



Sources and Uses of Cash and Cash Flows
    37




---



##### Table of Contents



Cash Flows
     38




---



##### Table of Contents



Security Requirements
  Investments
     39




---



##### Table of Contents



Contractual Obligations
  40




---



##### Table of Contents



Off-Balance Sheet Transactions
  Ratings
   
 Item 3. Quantitative and Qualitative Disclosures About Market Risk
  Sensitivity Analysis
     41




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##### Table of Contents



Estimated Increase (Decrease)
    
    Estimated Percentagein Fair Value
    
    Increase (Decrease)Change in Interest Rate
    
    ($ in thousands)
    
    in Fair Value300 basis point rise
    
    
    (76,114
    )
    
    
    (12.7
    )%200 basis point rise
    
    
    (49,274
    )
    
    
    (8.2
    )%100 basis point rise
    
    
    (23,824
    )
    
    
    (4.0
    )%100 basis point decline
    
    
    21,863
    
    
    
    3.6
    %200 basis point decline
    
    
    41,555
    
    
    
    6.9
    %300 basis point decline
    
    
    58,287
    
    
    
    9.7
    %
   
 Item 4T. Controls and Procedures
   
 PART II  OTHER INFORMATION
 
 Item 1. Legal Proceedings
  42




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##### Table of Contents



Item 1A. Risk Factors
  We are dependent on Tower and its subsidiaries for a substantial portion of our business.
   The proposed acquisition of the Company by Tower may not be consummated.
  
    
    approval by Towers stockholders of an amendment to its certificate of
incorporation to increase the number of authorized shares of common stock;
    
    approval by our shareholders of the merger;
    
    approvals by regulatory authorities, including the Bermuda Monetary Authority;
    
    the absence of laws and regulatory actions by governmental authorities that
impose conditions or restrictions upon us that would reasonably be expected
to have a material adverse effect on our financial condition, properties,
assets, liabilities, obligations, businesses or results of operations or on
our ability to perform our obligations under the merger agreement or to
consummate the merger on a timely basis; and
    
    other customary closing conditions.
  43




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##### Table of Contents



Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
      
 Item 4. Submission of Matters to a Vote of Security Holders
   Name
    
    For
    
    WithheldGregory T. Doyle
    
    
    29,440,944
    
    
    
    5,803,920William A. Robbie
    
    
    33,789,364
    
    
    
    1,455,500
  VotesFOR
    
    
    35,238,345AGAINST
    
    
    3,000ABSTAIN
    
    
    3,519
  VotesFOR
    
    
    33,788,139AGAINST
    
    
    1,424,458ABSTAIN
    
    
    32,267
 44




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##### Table of Contents



VotesFOR
    
    
    35,057,222AGAINST
    
    
    3,100ABSTAIN
    
    
    184,542
  VotesFOR
    
    
    33,787,389AGAINST
    
    
    1,424,458ABSTAIN
    
    
    33,017
  VotesFOR
    
    
    35,056,922AGAINST
    
    
    19,300ABSTAIN
    
    
    168,642
 
 Item 6. Exhibits
 31.1
    
    Chief Executive Officer  Certification pursuant to Sarbanes-Oxley Act of 2002 Section 30231.2
    
    Chief Financial Officer  Certification pursuant to Sarbanes-Oxley Act of 2002 Section 30232
    
    Chief Executive Officer and Chief Financial Officer  Certification pursuant to
Sarbanes-Oxley Act of 2002 Section 906
 
 SIGNATURES
  CASTLEPOINT HOLDINGS, LTD.(Registrant)Date: August 14, 2008
    
    /s/ Michael H. Lee

Michael H. LeeChairman of the Board andChief Executive Officer
 45




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##### Table of Contents



Date: August 14, 2008
    
    /s/ Joel. S. Weiner

Joel S. WeinerSenior Vice President andChief Financial Officer
 46




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##### Table of Contents



EXHIBIT INDEX
 31.1
    
    Chief Executive Officer  Certification pursuant to Sarbanes-Oxley Act of 2002 Section 30231.2
    
    Chief Financial Officer  Certification pursuant to Sarbanes-Oxley Act of 2002 Section 30232
    
    Chief Executive Officer and Chief Financial Officer  Certification pursuant to
Sarbanes-Oxley Act of 2002 Section 906
 47