##### Table of Contents



UNITED STATES SECURITIES AND
    EXCHANGE COMMISSION
 Washington, D.C.
    20549
  Form 10-K
  þ

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
    SECURITIES EXCHANGE ACT OF 1934For the fiscal year ended
    December 31, 2006oro

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
    SECURITIES EXCHANGE ACT OF 1934For the transition period
    from          to   Commission file number: 
    001-32883
 DARWIN PROFESSIONAL
    UNDERWRITERS, INC.
 (Exact name of registrant as
    specified in its charter)
  Delaware

03-0510450(State or other jurisdiction
    of
    incorporation or organization)

(I.R.S. Employer
    Identification Number)9 Farm Springs Road
    Farmington, CT(Address of principal
    executive offices)

06032(Zip Code)   Registrants telephone number, including area code:
 860-284-1300
  Securities registered pursuant to Section 12(b) of the
    Act:
  Title of Each Class

Name of Each Exchange on Which RegisteredCommon Stock, $0.01 par value

NYSE Arca, Inc.   Securities registered pursuant to Section 12(g) of the
    Act:
 Not applicable
  o þ
  o þ
  þ o
  Regulation S-K Form 10-K Form 10-K. þ
   o o þ
  o þ
    DOCUMENTS INCORPORATED BY REFERENCE
  Form 10-K




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##### 



SELECTED
    HISTORICAL CONSOLIDATED FINANCIAL DATA
    Darwin Professional Underwriters, Inc.
  Annual
    Report on
    Form 10-K
  For
    Fiscal Year Ended December 31, 2006
  
  TABLE OF
    CONTENT
  Item

Description

PagePart I


1 and 2.

Business and
    Properties


31A.

Risk
    Factors


361B.

Unresolved Staff
    Comments


473.

Legal
    Proceedings


474.

Submission of
    Matters to a Vote of Security


48Part II


5.

Market for
    Registrants Common Equity and Related Shareholder
    Matters


486.

Selected Financial
    Data


517.

Managements
    Discussion and Analysis of Financial Condition and Resultsof Operations


527A.

Quantitative and
    Qualitative Disclosures About Market Risk


748.

Financial
    Statements and Supplementary Data


759.

Changes in and
    Disagreements With Accountants on Accounting and Financial
    Disclosure


759A.

Controls and
    Procedures


759B.

Other
    Information


76Part III


10.

Directors,
    Executive Officers and Corporate Governance of the
    Registrant


7611.

Executive
    Compensation


7612.

Security Ownership
    of Certain Beneficial Owners and Management and Related
    Stockholder Matters


7613.

Certain
    Relationships and Related Transactions


7714.

Principal
    Accountant Fees and Services


77Part IV


15.

Financial Statement
    Schedules and Exhibits


77Signatures


78Index to
    Consolidated Financial Statements and Schedules


F-1EX-10.9: STOCK AND UNIT PLAN FOR NON-EMPLOYEE DIRECTORSEX-14: CODE OF BUSINESS CONDUCT AND ETHICSEX-21: LIST OF SUBSIDIARIESEX-23: CONSENT OF KPMG LLPEX-31.1: CERTIFICATIONEX-31.2: CERTIFICATIONEX-32.1: CERTIFICATIONEX-32.2: CERTIFICATION   2




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##### Table of Contents



PART I  Unless the context requires otherwise, references in this
    Annual Report to Darwin, the company,
    we, our and us are to Darwin
    Professional Underwriters, Inc. and its subsidiaries, taken as a
    whole, unless the context otherwise requires. We sometimes refer
    to Darwin Professional Underwriters, Inc., excluding its
    subsidiaries, as DPUI. References to
    Alleghany are to Alleghany Corporation, our ultimate
    parent company, which is a holding company primarily engaged,
    through its subsidiaries, in the property and casualty insurance
    business. References to Darwin Group are to our
    subsidiary Darwin Group, Inc. References to DNA are
    to our subsidiary Darwin National Assurance Company and
    references to Darwin Select are to our subsidiary
    Darwin Select Insurance Company. Whenever in this Annual Report
    we refer to business generated, written or produced by Darwin,
    we include business produced by DPUI and written on policies of
    certain insurance company subsidiaries of Alleghany (which we
    refer to as the Capitol Companies), whether before
    or after the acquisitions of DNA and Darwin Select, all of which
    policies are now fully reinsured by DNA. This Annual Report
    gives effect to certain reorganization and reinsurance
    transactions that were implemented prior to the date of our
    initial public offering as though the structure of our business
    resulting therefrom had been in effect since our inception in
    March 2003. See Business and Properties for a
    description of these transactions.
 ITEMS 1
    and 2.  Business and Properties.  Overview
           3




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##### Table of Contents



Our
    Competitive Strengths
    Proven Leadership and Experienced
    Management.
  Specialized Product Offerings and Underwriting
    Expertise.
 4




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##### Table of Contents



Our Knowledge of the Healthcare Industry.
  Focused Distribution.
  Innovative Use of Technology. i-bind, i-bind i-bind
  Strong Ratings. Risks Related to Our
    Business
  Conservative Balance Sheet.
 5




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##### Table of Contents



Our
    Strategy
    Manage a Balanced Book of Business. i-bind
  Focus on Underwriting Profitability.
  Limit Commodity Business.
  
    Emphasizing primary and first excess layer
    business.  We believe that, at these attachment
    points, we have more influence over terms, conditions, rates,
    and handling of claims, and that our greater degree of
    involvement in these matters enables us to form stronger
    relationships with customers.
    Providing added value to insureds.  We believe
    both our profitability and the stickiness (loyalty)
    of our producer and customer relationships are improved when we
    provide value-enhancing activities, such as risk management and
    loss control assistance, to insureds.
    Constantly looking for loose bricks.We use
    loose bricks as a short-hand description for
    opportunities that arise from market dislocations, such as an
    underserved market, an unmet need for innovation and speed, or a
    disparity between perception and the reality of a particular
    type of risk. We seek to capitalize on the opportunities created
    by these market dislocations.  Utilize Technology to Efficiently Operate our
    Business.
  Expand Use of Technology. i-bind
 6




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##### Table of Contents



i-bind
  i-bind i-bind i-bind
  Grow Responsibly into Our Capital Base.
  Selective Acquisitions. and/or
  Industry
    Dynamics
  and/or
  class-action
   7




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##### Table of Contents



Admitted
    Business and Surplus Lines Business
  and/or
    Our
    Products and Markets
   8




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##### Table of Contents



Line of Business

Market Classes

2003


2004


2005


2006D&O

Public Accounts


ü



ü



ü



üPrivate Accounts


ü



ü



ü



üEmployment Practices


ü



ü



ü



üHealthcare Management Liability


ü



ü



ü



üFiduciary






ü



ü



üNon-profit Accounts










ü



üFinancial Institutions














üE&O

Managed Care


ü



ü



ü



üLawyers Professional


ü



ü



ü



üInsurance Agents


ü



ü



ü



üMiscellaneous Professional


ü



ü



ü



üTechnology










ü



üMunicipal Entity and Public
    Officials










ü



üInsurer














üPsychologists














üFinancial Institutions














üMedical Malpractice Liability

Hospital Professional Liability


ü



ü



ü



üPhysicians and Physician Groups


ü



ü



ü



üMiscellaneous Medical Facilities






ü



ü



üPsychiatrists






ü



ü



ü     Year Ended December 31,2006


2005


2004Amount


Percent


Amount


Percent


Amount


Percent(Dollars in thousands)Directors and Officers

$
40,626



16.5
%

$
32,926



19.9
%

$
24,453



24.3
%Errors and Omissions


111,039



45.1
%


58,867



35.5
%


36,712



36.5
%Medical Malpractice Liability


94,587



38.4
%


74,031



44.6
%


39,290



39.1
%Total

$
246,252



100.0
%

$
165,824



100.0
%

$
100,455



100.0
%     30-40%
   9




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##### Table of Contents



and/or
      D&O.
  Public Accounts.
  Private Accounts; Non-Profit Accounts; Employment Practices
    Liability (EPL). i-bind
  i-bind. i-bind
 10




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##### Table of Contents



Healthcare Management Liability.
  Financial Institutions D&O/E&O:
  E&O.
      Managed Care E&O.
  Lawyers Professional E&O.
 11




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##### Table of Contents



Insurance Agents E&O.
  Insurer E&O.
  Technology E&O. Technology Errors and Omissions
    Market Survey,
  Municipal Entity and Public Officials
    E&O. and/or
 12




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##### Table of Contents



Psychologists E&O.
  Miscellaneous Professional
    E&O. sub-classes i-bind.
  Medical Malpractice Liability.
  Hospital Professional Liability.
  Miscellaneous Medical Facilities.
  Physicians and Physician Groups.
 13




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##### Table of Contents



Psychiatrist
  Clinical Trial Professionals.
    Geographic
    Concentration
    Year Ended December 31,2006


2005


2004Percent of





Percent of





Percent ofVolume


Total


Volume


Total


Volume


Total(Dollars in thousands)California(1)

$
22,567



9.2
%

$
14,156



8.5
%

$
7,138



7.1
%Pennsylvania


20,206



8.2
%


10,696



6.5
%


3,733



3.7
%New York(2)


18,240



7.4
%


12,441



7.5
%


11,986



12.0
%Texas


18,205



7.4
%


14,786



8.9
%


9,859



9.8
%Florida


16,168



6.6
%


14,557



8.8
%


10,423



10.4
%Illinois


14,714



6.0
%


9,405



5.7
%


4,469



4.4
%New Jersey


10,636



4.3
%


6,289



3.8
%


2,059



2.0
%Tennessee


9,221



3.7
%


6,371



3.8
%


4,338



4.3
%West Virginia


8,573



3.5
%


4,843



2.9
%


3,467



3.5
%Washington


7,779



3.2
%


5,165



3.1
%


1,620



1.6
%All other


99,943



40.5
%


67,115



40.5
%


41,363



41.2
%Total

$
246,252



100.0
%

$
165,824



100.0
%

$
100,455



100.0
%     (1)
    
    Darwin Select is currently eligible as a surplus lines carrier
    in California. DNA is not currently licensed, but has a license
    application currently pending, in California.(2)
    
    DNA is currently licensed in New York. Darwin Select is not
    eligible as a surplus lines carrier in New York. 14




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##### Table of Contents



Concentration
    by Statutory Line
    Year Ended December 31,2006


2005


2004Percent of





Percent of





Percent ofAmount


Total


Amount


Total


Amount


Total(Dollars in thousands)Other liability(1), claims-made

$
147,687



60.0
%

$
91,494



55.2
%

$
61,165



60.9
%Other liability(1), occurrence


3,978



1.6
%


299



0.2
%






0.0
%Medical Malpractice liability,
    claims made


94,587



38.4
%


74,031



44.6
%


39,290



39.1
%Total

$
246,252



100.0
%

$
165,824



100.0
%

$
100,455



100.0
%     (1)
    
    Under statutory reporting standards, Other liability
    includes, but is not limited to, D&O and E&O.  Underwriting
         15




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##### Table of Contents



10-year
  Marketing
    and Distribution
         16




---



##### Table of Contents



i-bind i-bind i-bind i-bind i-bind
  i-bind i-bind
  
    Straight through processing:  Risks that can be
    quoted and bound real-time without human intervention by the
    designated user. Our ability to offer straight through
    processing is based on the underwriting logic that we have built
    into the i-bindsystem. Our technology development staff
    worked closely with our technical underwriting team to develop
    the underwriting rules that i-bind follows, drawing on
    their extensive experience in developing formal rating
    strategies and plans, and incorporating senior-level
    underwriting and actuarial reviews. To ensure that the
    application of these rules through i-bindremains
    consistent with our underwriting guidelines, we continually
    monitor the business accepted through i-bindfor straight
    through processing, including the review of a portion of our
    i-bindbusiness by our technical underwriting group for
    appropriate and consistent pricing, and we adjust the
    underwriting logic embedded in the system as appropriate.
    Referral:  Risks with low premium and moderate
    exposure which are ineligible for real-time rating, thus needing
    some underwriter intervention. These risks will receive quotes
    within a time period defined by our service standards.  i-bind
  i-bind
  Arrangements
    with the Capitol Companies
   17




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##### Table of Contents



Year Ended December 31,2006


2005


2004(Dollars in millions)Public D&O Gross Premiums
    Written

$
29.0


$
26.3


$
18.5Total Gross Premiums Written

$
246.3


$
165.8


$
100.5Percentage of Total Represented by
    Public D&O


11.8
%


15.9
%


18.4
%       DNA
  ApplicationState

Filing MonthCalifornia


December 2006Wyoming


September 2006  18




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##### Table of Contents



Darwin
    Select
  ApplicationState

Filing MonthLouisiana

March 2007New Hampshire

Not approved(1)New Mexico

February 2007New York

Not approved (2)     (1)
    
    In October 2006, the Companys application for surplus
    lines eligibility was denied by the New Hampshire Insurance
    Department for not having a long enough stand-alone operating
    history. The New Hampshire Insurance Department indicated that
    it requires companies to have been in business a minimum of five
    years. DPUI wrote approximately $128.9 thousand of gross
    premiums on policies of the Capitol Companies in New Hampshire
    for the year ended December 31, 2006 because Darwin Select
    was not eligible to write business in that state.(2)
    
    In August 2006, the Companys application for surplus lines
    eligibility was denied by the Excess Lines Association of New
    York, for reasons associated with operating losses that had
    occurred during Darwin Selects predecessor ownership. The
    association indicated that it is agreeable to reviewing this
    decision with an updated application and meeting with the
    Companys senior management to discuss the application.
    DPUI wrote approximately $8.5 million of gross premiums on
    policies of the Capitol Companies in New York for the year ended
    December 31, 2006 because Darwin Select was not eligible to
    write business in that state.        Reinsurance
  Ceded
    Reinsurance
   19




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##### Table of Contents



Treaty Reinsurance.
    Total CompanyRetention atProduct Lines

Company Policy

Reinsurance

Description of

Maximum LimitTreaty

Covered

Limit Offered

Coverage(1)

Company Retention

OfferedProfessional Lines

D&O, E&O (Technology
    E&O, Lawyers Professional E&O for law firms with fewer
    than 100 lawyers, Insurance Agents E&O, Insurance Company
    E&O, Miscellaneous E&O), Fiduciary, EPLI, Financial
    Institutions

Up to $10 million per
    occurrence; Up to $15 million per occurrence for Private
    and Non- profit D&O; Up to $15 million per occurrence
    for certain Public D&O

$13 million excess of
    $2 million per occurrence for certain D&O;
    $8 million excess of $2 million per occurrence for all
    other classes

First $2 million per
    occurrence; 15% of loss in excess of $5 million per
    occurrence

$3.5 million per occurrence
    for certain D&O; $2.75 million per occurrence for all
    other classes 20




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##### Table of Contents



Total CompanyRetention atProduct Lines

Company Policy

Reinsurance

Description of

Maximum LimitTreaty

Covered

Limit Offered

Coverage(1)

Company Retention

OfferedManaged Care E&O

Managed Care E&O

Up to $20 million per
    occurrence for Managed Care E&O

$18 million excess of
    $2 million per occurrence

First $2 million per
    occurrence; 15% of loss on $5 million in excess of
    $5 million per occurrence; 10% on $10 million in
    excess of $10 million per occurrence

$3.75 million per occurrenceMedical Malpractice

Physicians, Hospitals

Up to $11 million per
    occurrence

$11 million excess of
    $0.25 million per occurrence

First $0.25 million per
    occurrence for physicians; First $0.50 million per
    occurrence for hospitals; 30% of $1 million in excess of
    $1 million per occurrence; 15% of loss in excess of
    $2 million per occurrence

$1.9 million per occurrence
    for physicians; $2.15 million per occurrence for hospitalsBusiness Written through
    i-bind

Private D&O, Fiduciary, EPLI
    and Non-profit D&O

Up to $2 million per
    occurrence

75% quota share of $2 million
    per occurrence

25% quota share of $2 million
    per occurrence

$0.5 million per occurrencePsychiatrists

Psychiatrists Professional
    Liability

Up to $2 million per
    occurrence

$1.5 million excess of
    $0.5 million per occurrence

$0.5 million per occurrence

$0.5 million per occurrencePsychologists

Psychologists E&O Liability

Up to $2 million per
    Occurrence

$1.50 million excess of
    $0.5 million per occurrence

$0.5 million per occurrence

$0.5 million per occurrence 21




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##### Table of Contents



Total CompanyRetention atProduct Lines

Company Policy

Reinsurance

Description of

Maximum LimitTreaty

Covered

Limit Offered

Coverage(1)

Company Retention

OfferedPublic Entity

Public Officials, Police and
    Governmental Employees E&O

Up to $5 million per
    occurrence

$4.75 million excess of
    $0.25 million per occurrence

First $0.25 million per
    occurrence; 30% of $1 million in excess of $1 million
    per occurrence; 10% of $3 million in excess of
    $2 million per occurrence

$0.85 million per occurrence     (1)
    
    Caps or aggregate limits apply to various layers of coverage as
    set forth in each reinsurance contract.    
    Fixed rate excess of loss reinsurance, under which we cede a
    fixed percentage of premiums to our reinsurers depending upon
    the policy limits written and the losses recoverable, provides
    indemnification to us in excess of a fixed percentage of losses
    incurred.
    Variable rate excess of loss reinsurance is structured on a
    basis that enables us to retain a greater portion of premium if
    our ultimate loss ratio is lower than an initial loss pick
    threshold set by our reinsurers. For these contracts our
    ultimate ceded premium incurred on these treaties is determined
    by the loss ratio on the business subject to the reinsurance
    treaty. As the expected ultimate loss ratio increases or
    decreases, the ceded premiums and losses recoverable from
    reinsurers will also increase or decrease relationally within a
    minimum and maximum range for ceded premium and up to a loss
    ratio cap for losses recoverable. Until such time as the ceded
    premium reaches the maximum rate within the terms of the
    contract, ceded premium paid to the reinsurer will be in excess
    of the amount of any losses recoverable from reinsurers. After
    the ceded premium incurred reaches the maximum rate stated in
    the contract, losses incurred covered within the contract are
    recoverable from reinsurers up to a loss ratio cap, without any
    required additional ceded premium payment. The loss ratio caps
    in these variable rated contracts vary from 225% to 400% of the
    maximum rate of ceded premium payable within the terms of the
    contracts. As a result, the same uncertainties associated with
    estimating loss and loss adjustment expense (LAE) reserves
    affect the estimates of ceded premiums and losses recoverable
    from reinsurers on these contracts.      Facultative Reinsurance.
 22




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##### Table of Contents



Risk Transfer Requirements. Accounting for Reinsurance
  Darwin Select Reinsurance Recoverable.
 23




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##### Table of Contents



Principal
    Reinsurers
    ReinsuranceLess





RecoverableAmounts in





on Losses as aReinsurance





Less Net


Trust





% of TotalRecoverable


Ceded


Reinsurance


Accounts





ReinsuranceA.M.


on Paid


Unearned


Ceded


or Secured


Net


RecoverableBest


and Unpaid


Reinsurance


Premiums


by Letters


Exposure to


on Paid andReinsurer

Rating


Losses


Premiums


Payable


of Credit


Reinsurer


Unpaid Losses(Dollars in thousands)Transatlantic Reinsurance Company


A+


$
23,299


$
9,466


$
3,719


$



$
29,046



24.2
%Max Re Limited


A−



12,880



5,871



2,477



16,274







13.4
%ACE Property and Casualty
    Insurance Company


A+



12,791



4,753



2,271







15,273



13.3
%AXIS Reinsurance Company


A



10,168



6,078



3,021







13,225



10.5
%Allied World Assurance Corporation


A



8,498



6,122



2,797



11,823







8.8
%Platinum Underwriters Reinsurance
    Company


A



7,581



3,415



1,073







9,923



7.8
%Liberty Syndicates 4472(1)


A



5,803



4,828



1,854







8,777



6.0
%Partner Reinsurance Company of the
    U.S.


A+



3,176



1,153



634







3,695



3.3
%American Reinsurance Company


A



2,581



26



1







2,606



2.7
%Ulico Casualty Company


B+



1,529











1,529







1.6
%Subtotal






88,306



41,712



17,847



29,626



82,545



91.6
%All other reinsurers






8,065



3,030



1,591



2,564



6,940



8.4
%Total reinsurance receivable





$
96,371


$
44,742


$
19,438


$
32,190


$
89,485



100.0
%     (1)
    
    Liberty Syndicates 4472 is a wholly-owned subsidiary of Liberty
    Mutual Group Inc.  Reinsurance Assumed from the Capitol
    Companies.
 24




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##### Table of Contents



Claims
    Management and Administration
        Reserves
    for Unpaid Losses and LAE
       25




---



##### Table of Contents



Changes
    in Historical Net Loss and LAE Reserves
   26




---



##### Table of Contents



December 31,2003


2004


2005


2006(Dollars in thousands)Net liability as of the end of
    period

$
2,495


$
31,635


$
87,175


$
167,291Cumulative amount of net liability
    paid as of:One year later


50



1,782



6,231Two years later


555



3,250Three years later


557Net liability re-estimated as of:One year later


2,495



31,601



84,915Two years later


2,527



29,341Three years later


2,186Cumulative redundancy (deficiency)

$
309


$
2,294


$
2,260Gross liability-end of period

$
3,485


$
47,207


$
138,404


$
263,549Less: reinsurance recoverables on
    unpaid losses


990



15,572



51,229



96,258Net liability-end of period

$
2,495


$
31,635


$
87,175


$
167,291Gross re-estimated liability-latest

$
2,716


$
39,754


$
130,968Less: re-estimated
    recoverable-latest


530



10,413



46,053Net re-estimated liability-latest

$
2,186


$
29,341


$
84,915Gross cumulative redundancy
    (deficiency)

$
769


$
7,453


$
7,436   Net Loss
    and LAE Reserves
    Reconciliation
    of Reserves for Losses and LAE from SAP Basis to
    GAAP Basis
  December 31,2006


2005


2004(Dollars in thousands)Statutory reserves

$
167,291


$
87,175


$
31,635Reinsurance recoverables on unpaid
    losses


96,258



51,229



15,572GAAP reserves

$
263,549


$
138,404


$
47,207  27




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##### Table of Contents



Reconciliation
    of Reserves for Losses and LAE
  2006


2005


2004(Dollars in thousands)Gross reserves balance at January 1

$
138,404


$
47,207


$
3,485Less reinsurance recoverables on
    unpaid losses


(51,229
)


(15,572
)


(990
)Net reserves balance at January 1


87,175



31,635



2,495Add acquired gross reserves






6,693



Less reinsured acquired gross
    reserves






(6,693
)


Net reserve balance


87,125



31,635



2,495Incurred losses and LAE, net of
    reinsurance, related to:Current period


90,879



58,640



29,628Prior periods


(2,260
)


(34
)


Total incurred


88,619



58,606



29,628Paid losses and LAE, net of
    reinsurance, related to:Current period


2,272



1,284



438Prior periods


6,231



1,782



50Total paid


8,503



3,066



488Net reserve balance at
    December 31


167,291



87,175



31,635Plus reinsurance recoverables on
    unpaid losses


96,258



51,229



15,572Gross reserves balance at
    December 31

$
263,549


$
138,404


$
47,207   Asbestos,
    Environmental Impairment and Mold Claims Reserves
    Competition
    Ratings
   28




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##### Table of Contents



A Guide to Bests Financial Strength
    Ratings
    Legal
    Proceedings
    Employees
    Facilities
    Available
    Information on the Internet
  1-800-SEC-0330. Form 10-K, Form 10-Q, Form 8-K,
 29




---



##### Table of Contents



REGULATION
  State
    Regulation
  General
        Required
    Licensing
         30




---



##### Table of Contents



Insurance
    holding company laws
    Payment
    of dividends
  General.
  Delaware.
  Arkansas.
   31




---



##### Table of Contents



Change
    of control
        Privacy
    regulations
   32




---



##### Table of Contents



Statutory
    accounting principles
      Guaranty
    association assessments
      Insurance
    Regulatory Information System
     33




---



##### Table of Contents



Risk-based
    capital
    Market
    condition examinations
    Financial
    examinations
  Form 10-K,
  Insurance
    reserves
    Regulation
    of investments
   34




---



##### Table of Contents



Broker
    compensation
    and/or
  Federal
    Regulation
  General
  and/or
  Terrorism
    Risk Insurance Act
     35




---



##### Table of Contents



USA
    PATRIOT Act and OFAC
    ITEM 1A.
    Risk
    Factors.  Risks
    Related to Our Business
  Form 10-K,
  We
    have a limited operating and financial history, and if we are
    unable to implement our business strategy or operate our
    business as we currently expect, our financial condition and
    results of operations may be adversely affected.
    A
    decline in our financial strength ratings could cause us to lose
    substantially all of our business.
   36




---



##### Table of Contents



We do
    not have employment agreements or non-competition agreements
    with most of our key management personnel, and if we lose key
    personnel or are unable to recruit qualified personnel, our
    ability to implement our business strategies could be delayed or
    hindered.
        If we
    are unable to underwrite risks accurately and to charge adequate
    rates to policyholders, our financial condition and results of
    operations could be adversely affected.
      Our
    actual incurred losses and LAE may be greater than our loss and
    LAE reserves, which could have a material adverse effect on our
    financial condition and results of operations.
   37




---



##### Table of Contents



We
    currently rely on certain Alleghany subsidiaries to write some
    of the insurance policies that we produce, and a termination of
    our arrangements with them could have an adverse effect on our
    business, financial condition and results of
    operations.
         38




---



##### Table of Contents



If we
    are not able to renew our existing reinsurance or obtain new
    reinsurance or if we were to increase our retention levels in
    premiums written, either our net exposures would increase or we
    would have to reduce the level of our underwriting commitment,
    both of which could negatively affect our revenues and results
    of operations.
        If our
    reinsurers do not pay claims made by us in a timely fashion, our
    business, financial condition and results of operations could be
    materially adversely affected.
    If our
    relationships with certain of our distribution partners, four of
    which account for a significant part of our business, were
    terminated, our financial condition and results of operations
    could be materially adversely affected.
   39




---



##### Table of Contents



We
    rely on our brokers, agents and program administrators to
    collect premiums on our behalf, and their failure to remit
    premiums to us could cause our underwriting profits to
    decline.
    If a
    program administrator were to exceed its underwriting authority
    or otherwise breach obligations owed to us, we could be
    materially adversely affected.
    We
    rely heavily on our information technology and telecommunication
    systems, and the failure of these systems could materially and
    adversely affect our business.
     40




---



##### Table of Contents



If
    i-bind, our web-based underwriting system, has technical
    problems, or if it is accepted by the marketplace more slowly
    than anticipated, we may not be able to grow the small account
    business that we target as quickly or as cost-effectively as we
    would like.
  i-bind i-bind i-bind i-bind i-bind
  Our
    investment results and, therefore, financial condition and
    results of operations, may be materially adversely impacted by
    changes in the business, financial condition or operating
    results of the entities in which we invest, as well as changes
    in interest rates, government monetary policies, general
    economic conditions and overall capital market
    conditions.
          As a
    holding company and underwriting manager, we are dependent on
    the results of operations of our insurance company subsidiaries,
    and we rely upon the regulatory and financial capacity of our
    subsidiaries to pay dividends to us. The inability of our
    subsidiaries to pay dividends to us in sufficient amounts could
    harm our ability to meet our obligations.
   41




---



##### Table of Contents



winding-up winding-up
    If we
    are unable to raise additional capital in the future, whether on
    favorable terms or at all, we may not have sufficient funds to
    implement our operating plans, and our business, financial
    condition or results of operations could be materially adversely
    affected.
    Litigation
    and legal proceedings against our insurance company subsidiaries
    could have an adverse effect on our financial condition and
    results of operations.
   42




---



##### Table of Contents



If we
    acquire other insurance businesses and are unable to integrate
    them successfully with our business, our financial condition and
    results of operations could be materially adversely
    affected.
      Our
    capital adequacy requirements could negatively affect our return
    on equity for a long time. In addition, if we are unable to grow
    into our capital base as quickly as we anticipate, our return on
    equity could be negatively affected.
    Our
    insurance company subsidiaries are subject to assessments in the
    states in which they are licensed, and these assessments could
    significantly affect our financial condition.
    Risks
    Related to Our Industry
  Our
    business is cyclical in nature, which may affect our financial
    performance.
   43




---



##### Table of Contents



Some
    of our competitors have greater financial resources than we
    have, or have more market recognition than we do, and, we may
    not be successful in competing effectively with
    them.
        We are
    subject to extensive regulation, which may adversely affect our
    ability to achieve our business objectives. In addition, if we
    fail to comply with regulations, we may be subject to penalties,
    including fines and suspensions, which may adversely affect our
    results of operations.
     44




---



##### Table of Contents



The
    effects of emerging claim and coverage issues on our business
    are uncertain and could materially adversely affect our
    business, financial condition and results of
    operations.
   45




---



##### Table of Contents



The
    passage of tort reform and the subsequent review of such laws by
    the courts could have a material impact on our
    operations.
    Risks
    Related to Our Corporate Structure
  We are
    a majority-owned subsidiary of Alleghany and the ownership of
    our shares is highly concentrated. A future sale of all or a
    substantial portion of Alleghanys shares of our common
    stock, or the possibility of such future sales, could adversely
    affect the market price of our common stock.
  lock-up
  Alleghany
    has significant control over us and may not always exercise its
    control in a way that benefits the other securityholders. Also,
    conflicts of interest that may arise between us and Alleghany
    could be resolved in a manner unfavorable to us.
       46




---



##### Table of Contents



Because
    Alleghany, through certain of its insurance company
    subsidiaries, engages in some of the same lines of specialty
    insurance that we write, our ability to successfully operate and
    expand our business may be adversely affected.
    We are
    a controlled company within the meaning of the NYSE
    Arca exchange rules and qualify for exemptions from certain
    corporate governance requirements. As a result, our stockholders
    are not afforded all of the same protections as stockholders of
    companies that are subject to all of the corporate governance
    requirements of the exchange.
    ITEM 1B.
    Unresolved
    Staff Comments    ITEM 3.
    Legal
    Proceedings   47




---



##### Table of Contents



ITEM 4.
    Submission
    of Matters to a Vote of Security Holders.   PART II  ITEM 5.
    Market
    for the Registrants Common Equity and Related Stockholder
    Matters.  Shares
    and Stockholders
      Price
    Range of Common Stock
    High


Low


Close5/19/2006  6/30/2006

$
20.12


$
16.00


$
17.66Third Quarter

$
23.50


$
17.75


$
22.21Fourth Quarter

$
25.29


$
20.61


$
23.45  48




---



##### Table of Contents



Performance
    Graph
    COMPARISON
    OF CUMULATIVE TOTAL RETURN
  
  INDEXED
    RETURNS
  Months EndingBasePeriodCompany/Index

5/19/06

5/31/06

6/30/06

7/31/06

8/31/06

9/30/06

10/31/06

11/30/06

12/31/06Darwin Professional
    Underwriters, Inc.

$
100


$
120.38


$
110.37


$
116.56


$
125.25


$
138.81


$
140.63


$
146.75


$
146.56S&P 500 Index

$
100


$
100.24


$
100.38


$
101.00


$
103.40


$
106.06


$
109.52


$
111.60


$
113.17S&P Property &
    Casualty Insurance Index

$
100


$
99.05


$
98.50


$
99.65


$
100.89


$
105.17


$
107.04


$
107.94


$
112.34    49




---



##### Table of Contents



Dividend
    Policy
      Initial
    Public Offering and Repurchase of Preferred Stock
  Form S-1
    Equity
    Compensation Plan Information
   50




---



##### Table of Contents



ITEM 6.
    Selected
    Financial Data.      PeriodMarch 3,2003 toYear Ended December 31,


December 31,2006


2005


2004


2003(Dollars in thousands, except per share amounts)Revenues:Net premiums earned

$
132,378


$
84,698


$
46,092


$
4,115Net investment income


16,442



4,920



949



11Net realized investment gains
    (losses)


12



(176
)


1



Other income






14







Total revenues


148,832



89,456



47,042



4,126Costs and expenses:Losses and loss adjustment expenses


88,619



58,606



29,628



2,683Commissions and brokerage expenses


14,609



9,191



6,167



504Other underwriting, acquisition
    and operating expenses


21,603



14,574



10,221



4,408Other expenses


750



1,102



904



Total costs and expenses


125,581



83,473



46,920



7,675Earnings before income taxes


23,251



5,983



122



(3,549
)Income tax expense


7,286



2,276



74



(1,219
)Net earnings

$
15,965


$
3,707


$
48


$
(2,330
)Underwriting ratios:Loss ratio(1)


66.9
%


69.2
%


64.3
%


65.2
%Commissions and brokerage expense
    ratio(2)


11.1
%


10.9
%


13.4
%


12.2
%Other underwriting, acquisition
    and operating expense ratio(3)


16.3
%


17.2
%


22.2
%


109.1
%Total expense ratio(4)


27.4
%


28.1
%


35.6
%


121.3
%Combined ratio(5)


94.3
%


97.3
%


99.9
%


186.5
%Basic earnings per
    share:Net earnings per share

$
1.38


$
0.56


$
0.01


$
(0.35
)Weighted average shares outstanding


9,770,268



6,600,000



6,600,000



6,600,000Diluted earnings per
    share:Net earnings per share

$
0.95


$
0.46


$
0.01


$
(0.35
)Weighted average shares outstanding


16,785,721



8,119,370



8,167,500



6,600,000   51




---



##### Table of Contents



As of December 31,2006


2005


2004


2003(Dollars in thousands)Balance sheet data:Cash and investments

$
426,256


$
315,113


$
86,832


$
12,640Reinsurance recoverables on paid
    and unpaid losses


96,371



51,260



15,572



990All other assets


112,637



81,225



47,199



15,117Total assets

$
635,264


$
447,598


$
149,603


$
28,747Loss and loss adjustment expense
    reserves

$
263,549


$
138,404


$
47,207


$
3,485Unearned premium reserves


123,796



88,280



54,274



18,791All other liabilities


30,069



21,391



12,514



6,471Total liabilities


417,414



248,075



113,995



28,747Series A Preferred Stock






2,106



2,106



2,106Total stockholders equity


217,850



197,417



33,502



(2,330
)Total liabilities and
    stockholders equity

$
635,264


$
447,598


$
149,603


$
28,747     (1)
    
    Loss ratio is calculated by dividing total incurred losses and
    loss adjustment expenses by net premiums earned.(2)
    
    Commissions and brokerage expense ratio is calculated by
    dividing total commissions and brokerage expenses by net
    premiums earned.(3)
    
    Other underwriting, acquisition and operating expense ratio is
    calculated by dividing total other underwriting, acquisition and
    operating expenses by net premiums earned.(4)
    
    Total expense ratio is the sum of the commissions and brokerage
    expense ratio and the other underwriting, acquisition and
    operating expense ratio.(5)
    
    Combined ratio is the sum of the loss ratio and the total
    expense ratio.  Item 7.
    Managements
    Discussion and Analysis of Financial Conditions and Results of
    Operations.  The following discussion and analysis of our financial
    condition and results of operations should be read in
    conjunction with the audited consolidated financial statements
    and accompanying notes included herein. Some of the information
    contained in this discussion and analysis or set forth elsewhere
    in this
    Form 10-K
    constitutes forward-looking statements that involve risks and
    uncertainties. Please see Note on Forward-Looking
    Statements for a discussion of important factors that
    could cause actual results to differ materially from the results
    described in or implied by the forward-looking statements
    contained herein.
  Note on
    Forward Looking Statements
     52




---



##### Table of Contents



higher-than-anticipated and/or and/or
    Our
    History
        Our
    Corporate Reorganization
     53




---



##### Table of Contents



33-for-two Form S-1
  33-for-two
    Our
    Condensed Consolidated Financial Information
      Critical
    Accounting Estimates
  Loss and Loss Adjustment Expense (LAE)
    Reserves.
     54




---



##### Table of Contents



The Bornhuetter-Ferguson (B-F)
    methodology.
         55




---



##### Table of Contents



The Expected Loss Ratio
    Methodology.
    and/or
      
    Are at 12 months of maturity when evaluated on 12/31/04.
    The B-F indications would receive 0% weighting.
    Are at 36 months of maturity when evaluated on 12/31/06.
    The B-F indications would receive 30% weighting.
    Are at 72 months of maturity when evaluated on 12/31/09.
    The B-F indication would receive 100% weighting.       56




---



##### Table of Contents



and/or
         57




---



##### Table of Contents



Gross
    Loss and LAE Reserves
  At December 31, 2006


At December 31, 2005Statutory Line of Business

Case


IBNR


ULAE


Total


Case


IBNR


ULAE


Total(Dollars in thousands)Other liability, claims-made

$
17,779


$
135,938


$
3,931


$
157,648


$
5,213


$
76,517


$
3,079


$
84,809Other liability, occurrence






1,725



47



1,772







20



1



21Medical Malpractice Liability,
    claims-made


15,334



84,952



3,843



104,129



7,014



44,601



1,959



53,574Total

$
33,113


$
222,615


$
7,821


$
263,549


$
12,227


$
121,138


$
5,039


$
138,404Percentage of total gross reserves


13.0
%


84.0
%


3.0
%


100.0
%


8.6
%


87.7
%


3.7
%


100.0
%   Loss and
    LAE Reserves, Net of Reinsurance
  At December 31, 2006


At December 31, 2005Statutory Line of Business

Case


IBNR


ULAE


Total


Case


IBNR


ULAE


Total(Dollars in thousands)Other liability, claims-made

$
14,653


$
82,887


$
3,895


$
101,435


$
4,997


$
48,895


$
3,043


$
56,935Other liability, occurrence






1,364



47



1,411







19



1



20Medical Malpractice Liability,
    claims-made


12,556



48,046



3,843



64,445



6,767



21,494



1,959



30,220Total

$
27,209


$
132,297


$
7,785


$
167,291


$
11,764


$
70,408


$
5,003


$
87,175Percentage of total net reserves


16.0
%


79.0
%


5.0
%


100.0
%


13.5
%


80.8
%


5.7
%


100.0
%          58




---



##### Table of Contents



Pre-Tax
  Change in LossDevelopment/Emergence5% Average


No


5% AverageChange in Expected Loss and LAE Ratio

Decrease


Change


Increase(Dollars in thousands)5 percentage point increase

$
7,643


$
16,604


$
24,774No change


(8,434
)






7,6435 percentage point decrease


(24,510
)


(16,604
)


(9,488
)   After-Tax
    (Assumes a 35% tax rate)
  Change in LossDevelopment/Emergence5% Average


No


5% AverageChange in Expected Loss and LAE Ratio

Decrease


Change


Increase(Dollars in thousands)5 percentage point increase

$
4,968


$
10,792


$
16,103No change


(5,482
)






4,9685 percentage point decrease


(15,932
)


(10,792
)


(6,167
)   The effect of Darwins reinsurance program on the
    scenarios reflected above would depend on the nature of the loss
    activity that generated a change in loss development/emergence.
    Darwins reinsurance program is predominantly excess of
    loss in structure and will respond to the occurrence of
    individual large losses (severity). If the changes were produced
    by a large number (frequency) of small losses, the reinsurance
    would not respond and the scenario results would be unchanged.
    The results summarized above implicitly make this
    assumption.
    Reinsurance and Reinsurance
    Recoverables. case-by-case
   59




---



##### Table of Contents



Accounting for Reinsurance
      Investment Valuation. available-for-sale
  other-than-temporary
 60




---



##### Table of Contents



other-than-temporary. other-than-temporary.
    other-than-temporarily
  Deferred Taxes.
      Intangible Assets. Goodwill and Other
    Intangible Assets
   61




---



##### Table of Contents



10-K.
  Condensed
    Consolidated Results of Operations
    Year Ended December 31,


Change


Change2006


2005


2004


2006 vs 2005


2005 vs 2004(Dollars in thousands)Insurance Revenues:Gross premiums written

$
246,252


$
165,824


$
100,455



48.5
%


65.1
%Ceded premiums written


(89,248
)


(65,174
)


(29,955
)


36.9
%


117.6
%Net premiums written


157,004



100,650



70,500



56.0
%


42.8
%Increase in unearned premiums


(24,626
)


(15,952
)


(24,408
)


54.4
%


(34.6
)%Net premiums earned


132,378



84,698



46,092



56.3
%


83.8
%Net investment income


16,442



4,920



949



234.2
%


418.4
%Realized investment gains (losses)


12



(176
)


1



(106.8
)%


*Other income






14







(100.0
)%


*Total revenues


148,832



89,456



47,042



66.4
%


90.2
%Costs and Expenses:Losses and loss adjustment
    expenses incurred


88,619



58,606



29,628



51.2
%


97.8
%Commissions and brokerage expenses


14,609



9,191



6,167



58.9
%


49.0
%Other underwriting, acquisition
    and operating expenses


21,603



14,574



10,221



48.2
%


42.6
%Other expenses


750



1,102



904



(31.9
)%


21.9
%Total costs and
    expenses


125,581



83,473



46,920



50.4
%


77.9
%Earnings before income taxes


23,251



5,983



122



288.6
%


*Income tax expense


7,286



2,276



74



220.1
%


*Net earnings

$
15,965


$
3,707


$
48



330.7
%


* 62




---



##### Table of Contents



Year Ended December 31,


Change


Change2006


2005


2004


2006 vs 2005


2005 vs 2004(Dollars in thousands)Underwriting ratios to net
    premiums earned:Loss ratio(1)


66.9
%


69.2
%


64.3
%


(2.3
)%


4.9
%Commissions and brokerage expense
    ratio(2)


11.1
%


10.9
%


13.4
%


0.2
%


(2.5
)%Other underwriting, acquisition
    and operating expense ratio(3)


16.3
%


17.2
%


22.2
%


(0.9
)%


(5.0
)%Total expense ratio(4)


27.4
%


28.1
%


35.6
%


(0.7
)%


(7.5
)%Combined ratio(5)


94.3
%


97.3
%


99.9
%


(2.9
)%


(2.6
)%Net premiums written/gross
    premiums written


63.8
%


60.7
%


70.2
%


3.1
%


(9.5
)%Net premiums earned/net premiums
    written


84.3
%


84.2
%


65.4
%


0.1
%


18.8
%     (1)
    
    Loss ratio is calculated by dividing total incurred losses and
    loss adjustment expenses by net premiums earned.(2)
    
    Commissions and brokerage expense ratio is calculated by
    dividing total commissions and brokerage expenses by net
    premiums earned.(3)
    
    Other underwriting, acquisition and operating expense ratio is
    calculated by dividing total other underwriting, acquisition and
    operating expenses by net premiums earned.(4)
    
    Total expense ratio is the sum of the commissions and brokerage
    expense ratio and the other underwriting, acquisition and
    operating expense ratio.(5)
    
    Combined ratio is the sum of the loss ratio and the total
    expense ratio.  Year-end
    December 31, 2006 Compared to Year end December 31,
    2005
  Net earnings.
  Gross premiums written.
 63




---



##### Table of Contents



Ceded premiums written.
  Net premiums written.
  Net premiums earned.
  Net investment income and realized investment gains
    (losses).
 64




---



##### Table of Contents



Losses and LAE incurred.
  Commissions and brokerage
    expenses.
  Other underwriting, acquisition and operating
    expenses.
    Other expenses.
  Income tax expense.
 65




---



##### Table of Contents



Year
    Ended December 31, 2005 Compared to Year Ended
    December 31, 2004
  Net earnings. build-up
  Gross premiums written.
  Ceded premiums written.
  Net premiums written.
  Net premiums earned.
 66




---



##### Table of Contents



Net investment income and realized investment gains
    (losses).
  Losses and LAE incurred.
  Commissions and brokerage
    expenses.
  Other underwriting, acquisition and operating
    expenses.
    Other expenses.
 67




---



##### Table of Contents



Income tax expense (benefit).
  Liquidity
    and Capital Resources
  DPUI
    Only
  General.
  Dividends.
       68




---



##### Table of Contents



Credit Agreements.
  Darwin
    Consolidated Financial Position
  Capital Resources.
  Capital Transactions.
        Book Value Per Common Share.
  Cash Flows.
 69




---



##### Table of Contents



Year Ended December 31,2006


2005(Dollars in thousands)Net cash provided by operating
    activities

$
108,283


$
69,065Net cash used in investing
    activities


(91,967
)


(224,082
)Net cash provided by financing
    activities


302



160,240Net increase (decrease) in cash

$
16,618


$
5,223   Investment Securities.
  Contractual Obligations.
  More Than


More Than1 Year but within


3 Years but within


More ThanContractual Obligations

Total


Within 1 Year


3 Years


5 Years


5 Years(Dollars in thousands)Operating lease obligations

$
3,451


$
613


$
1,484


$
1,354


$
Other long-term liabilities
    reflected on consolidated balance sheet under GAAP(1)


2,755



361



2,335



59



Loss and LAE reserves


263,549



65,403



131,287



27,365



39,494Total

$
269,755


$
66,377


$
135,106


$
28,778


$
39,494     (1)
    
    Other long-term liabilities primarily reflect Darwins
    long-term incentive plan obligations.   70




---



##### Table of Contents



Investments.
    At December 31, 2006


At December 31, 2005Fair





FairValue


%


Value


%(Dollars in thousands)Fixed maturity securities:U.S. Government and
    government agencies

$
22,239



5.6
%

$
15,932



5.2
%State and municipal


129,743



32.5
%


31,000



10.2
%Mortgage/asset-backed securities


106,615



26.7
%


39,204



12.8
%Corporate and other


71,249



17.8
%


34,634



11.4
%Total fixed maturity securities


329,846



82.6
%


120,770



39.6
%Short-term investments


69,537



17.4
%


184,088



60.4
%Total investments

$
399,383



100.0
%

$
304,858



100.0
%     At December 31, 2006


At December 31, 2005Book yield on all investments


4.93
%


4.20
%Tax-equivalent yield on all
    investments


5.53
%


4.39
%     For the Year Ended December 31,2006


2005Return on total investments


5.72
%


2.89
%Lehman intermediate aggregate


4.58
%


2.01
%  71




---



##### Table of Contents



At December 31, 2006


At December 31, 2005NAIC


Amortized


Fair


%


Amortized


Fair


%Rating(1)

Designation


Cost


Value


Total


Cost


Value


Total(Dollars in thousands)AAA


1


$
231,925


$
233,228



70.7
%

$
82,850


$
82,772



68.5
%AA+


1



11,538



11,603



3.5
%


2,133



2,159



1.8
%AA


1



20,920



21,278



6.5
%


3,906



3,920



3.2
%AA−


1



10,079



10,180



3.1
%


6,977



6,996



5.8
%A+


1



13,369



13,379



4.1
%


8,804



8,784



7.3
%A


1



18,982



18,865



5.6
%


8,316



8,332



6.9
%A−


1



17,455



17,403



5.3
%


7,348



7,323



6.1
%BBB+


2



3,435



3,415



1.0
%










0.0
%BBB


2



498



495



0.2
%


498



484



0.4
%$
328,201


$
329,846



100.0
%

$
120,832


$
120,770



100.0
%     (1)
    
    Ratings are the lowest rating assigned by Standard &
    Poors, a division of The McGraw-Hill Companies, Inc., or
    Moodys Investors Service. Where a rating is not available
    from either rating agency, ratings are determined by other
    independent sources.    At December 31, 2006


At December 31, 2005Fair





FairValue


%


Value


%(Dollars in thousands)Due in one year or less

$
7,106



2.2
%

$
8,399



7.0
%Due after one year through five
    years


67,565



20.5
%


36,977



30.6
%Due after five years through ten
    years


32,003



9.7
%


7,713



6.4
%Due after ten years


116,557



35.3
%


28,477



23.6
%Mortgage/asset-backed securities


106,615



32.3
%


39,204



32.4
%Total fixed maturities

$
329,846



100.0
%

$
120,770



100.0
%     Impairments of Investment Securities.
 72




---



##### Table of Contents



other-than-temporary.
    Less Than 12 Months


12 Months or More


TotalGross





Gross





GrossFair


Unrealized


Fair


Unrealized


Fair


UnrealizedValue


Loss


Value


Loss


Value


Loss(Dollars in thousands)Type of investmentU.S. Government bonds

$
390


$
(9
)

$
9,145


$
(151
)

$
9,535


$
(160
)State and municipal bonds


18,543



(87
)


1,917



(30
)


20,460



(117
)Mortgage/asset-backed securities


49,799



(235
)


1,631



(34
)


51,430



(269
)Corporate bonds and notes


34,172



(234
)


4,156



(74
)


38,328



(308
)Total fixed maturity securities

$
102,904


$
(565
)

$
16,849


$
(289
)

$
119,753


$
(854
)   other-than-temporarily
  Recent
    Accounting Standards
  Share-Based Payment
  Considering the Effects of Prior
    Year Misstatements in Quantifying Misstatements in Current Year
    Financial Statements
 73




---



##### Table of Contents



05-01, Accounting by Insurance Enterprises for Deferred Acquisition
    Costs in Connection with Modifications or Exchanges of Insurance
    Contracts (SOP 05-01). SOP 05-01 SOP 05-01 SOP 05-01 SOP 05-01 SOP 05-1
  Accounting for Certain Hybrid Instruments, an amendment to
    FASB Statement No. 133 and 140.
  Accounting for Uncertainty in Income Taxes. Accounting for
    Income Taxes.
  Fair
    Value Measurements.
  Off-balance
    Sheet Arrangements
    Item 7A.
    Quantitative
    and Qualitative Disclosures About Market Risk.   74




---



##### Table of Contents



and/or
    Sensitivity
    Analysis at
    At December 31, 2006
  Interest Rate Shifts (in basis points)

-300


-200


-100


0


100


200


300Fixed Maturities
    SecuritiesPortfolio value

$
370,582


$
356,564


$
343,106


$
329,846


$
316,487


$
303,293


$
290,528Change


40,736



26,718



13,260







(13,359
)


(26,553
)


(39,318
)% Change


12.35
%


8.10
%


4.02
%


0.00
%


(4.05
)%


(8.05
)%


(11.92
)%   Item 8.
    Financial
    Statements and Supplementary Data.    Item 9.
    Change
    in and Disagreement With Accountants on Accounting and Financial
    Disclosure.    Item 9A.
    Controls
    and Procedures.  Disclosure
    Controls and Procedures
  Rules 13a-15(e) 15d-15(e)
 75




---



##### Table of Contents



Change in
    Internal Controls
  Rule 13a-15(d) Rule 15d-15(d)
  NYSE Arca
    CEO Certification
    Item 9B.
    Other
    Information.   PART III  Item 10.
    Directors,
    Executive Officers and Corporate Governance of the
    Registrant.  th
  Form 10-K. www.darwinpro.com
  ITEM 11.
    Executive
    Compensation.  th
  ITEM 12.
    Security
    Ownership of Certain Beneficial Owners and Management and
    Related Stockholder Matters.  th
 76




---



##### Table of Contents



ITEM 13.
    Certain
    Relationships and Related Transactions and Director
    Independence.  th
  ITEM 14.
    Principal
    Accountant Fees and Services.  th
 PART IV  Item 15.
    Exhibits
    and Financial Statements and Schedules.    Financial Statements and
    Schedules:
  Exhibits:
 77




---



##### Table of Contents



SIGNATURES      By:
    /s/  Stephen
    J. Sills         By:
    /s/  R.
    Bruce Albro       By:
    /s/  Phillip
    N. Ben-Zvi       By:
    /s/  Christopher
    K. Dalrymple       By:
    /s/  Michael
    E. Hanrahan        By:
    /s/  Weston
    M. Hicks      78




---



##### Table of Contents



By:
    /s/  William
    C. Popik       By:
    /s/  George
    M. Reider, Jr.        By:
    /s/  John
    L. Sennott, Jr.        By:
    /s/  Stephen
    J. Sills         By:
    /s/  James
    P. Slattery        By:      79




---



##### Table of Contents



INDEX TO
    CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULES  Description

PageReport of
    Independent Registered Public Accounting Firm


F-2Consolidated
    Balance Sheets as of December 31, 2006 and 2005


F-3Consolidated
    Statements of Operations for years ended December 31, 2006,
    2005 and 2004


F-4Consolidated
    Statements of Changes in Stockholders Equity and
    Comprehensive Income (Loss) for years ended December 31,
    2006, 2005 and 2004


F-5Consolidated
    Statements of Cash Flows for the years ended December 31,
    2006, 2005 and 2004


F-6Notes to
    Consolidated Financial Statements


F-7SCHEDULE:Schedule
    I  Summary of Investments Other Than Investments in
    Related Parties


S-1Schedule II 
    Condensed Financial Information of Registrant


S-2Schedule III 
    Supplementary Insurance Information


S-5Schedule
    IV  Reinsurance


S-6Schedule
    V  Valuation and Qualifying Accounts


S-7Schedule
    VI  Supplemental Information Concerning
    Property-Casualty Insurance Operation


S-8  F-1




---



##### Table of Contents



Report of
    Independent Registered Public Accounting Firm             F-2




---



##### Table of Contents



Darwin
    Professional Underwriters, Inc. and Subsidiaries
  Consolidated
    Balance Sheets
 December 31,
    2006 and 2005
  2006


2005(Dollars in thousands, except per share amounts)ASSETS:Available for sale securities, at
    fair value:Fixed maturities (amortized cost:
    2006, $328,201; 2005, $120,832)

$
329,846


$
120,770Short-term investments, at cost
    which approximates fair value


69,537



184,088Total investments


399,383



304,858Cash


26,873



10,255Premiums receivable (net of
    allowance for doubtful accounts of $75 as of December 31,
    2006 and $50 as of December 31, 2005)


31,094



22,090Reinsurance recoverable on paid
    and unpaid losses


96,371



51,260Ceded unearned reinsurance premiums


44,742



33,853Deferred insurance acquisition
    costs


12,724



7,603Property and equipment at cost,
    less accumulated depreciation


1,895



1,880Intangibles


7,306



7,092Net deferred income tax asset


8,720



6,278Current income taxes receivable






283Other assets


6,156



2,146Total assets

$
635,264


$
447,598LIABILITIES AND
    STOCKHOLDERS EQUITY:Loss and loss adjustment expense
    reserves

$
263,549


$
138,404Unearned premium reserves


123,796



88,280Reinsurance payable


21,385



10,920Due to brokers for unsettled trades






2,216Current income taxes payable


865



Accrued expenses and other
    liabilities


7,819



8,255Total liabilities


417,414



248,075Commitments and Contingencies
    (Note 23)Series A Preferred Stock;
    $0.10 par value. (Redeemable at $20.00 per share). No
    shares authorized, issued and outstanding at December 31,
    2006. Authorized 500,000 shares, 105,300 shares issued
    and outstanding at December 31, 2005. Aggregate liquidation
    preference of $2,106 at December 31, 2005






2,106Stockholders equity(Notes 1(b), 10,
    and 11):Common stock; $0.01 par
    value. Authorized 50,000,000 shares; issued and outstanding
    17,047,222 shares at December 31, 2006 and
    8,105,625 shares at December 31, 2005


170



81Additional paid-in capital


203,095



195,950Retained earnings


13,548



1,425Accumulated other comprehensive
    income (loss)


1,037



(39
)Total stockholders
    equity


217,850



197,417Total liabilities and
    stockholders equity

$
635,264


$
447,598    F-3




---



##### Table of Contents



Darwin
    Professional Underwriters, Inc. and Subsidiaries
  Consolidated
    Statements of Operations
 For
    the years ended December 31, 2006, 2005, and 2004
  2006


2005


2004(Dollars in thousands, except per share amounts)Revenues:Net premiums earned

$
132,378


$
84,698


$
46,092Net investment income


16,442



4,920



949Net realized investment gains
    (losses)


12



(176
)


1Other income






14



Total revenues


148,832



89,456



47,042Costs and expenses:Losses and loss adjustment expenses


88,619



58,606



29,628Commissions and brokerage expenses


14,609



9,191



6,167Other underwriting, acquisition
    and operating expenses


21,603



14,574



10,221Other expenses


750



1,102



904Total costs and
    expenses


125,581



83,473



46,920Earnings before income
    taxes


23,251



5,983



122Income tax expense


7,286



2,276



74Net earnings

$
15,965


$
3,707


$
48Basic earnings per
    share:Net earnings per share

$
1.38


$
0.56


$
0.01Weighted average shares outstanding


9,770,268



6,600,000



6,600,000Diluted earnings per
    share:Net earnings per share

$
0.95


$
0.46


$
0.01Weighted average shares outstanding


16,785,721



8,119,370



8,167,500    F-4




---



##### Table of Contents



Darwin
    Professional Underwriters, Inc. and Subsidiaries
  Consolidated
    Statements of Changes in Stockholders Equity and
    Comprehensive Income (Loss)
 For
    the years ended December 31, 2006, 2005, and 2004
  2006


2005


2004(Dollars in thousands)Common stock:Balance at beginning of year

$
81


$
81


$
83Exchange of common stock for
    Series A Preferred Stock


(66
)






Issuance of common stock


60







Conversion of Series B
    Preferred Stock


94







Issuance of restricted common stock


1







Forfeiture of shares










(2
)Balance at end of year

$
170


$
81


$
81Additional paid-in
    capital:Balance at beginning of year

$
195,950


$
35,710


$
(83
)Capital contributions






160,240



35,791Exchange of common stock for
    Series A Preferred Stock


66







Contribution of Darwin Group, Inc.
    in exchange for Series B Convertible Preferred Stock


(195,992
)






Issuance of common stock, net of
    issuance costs


86,228







Conversion of Series B
    Preferred Stock


115,558







Stock-based compensation


984







Tax benefit on restricted stock
    vested


302







Issuance of restricted common stock


(1
)






Forfeiture of shares










2Balance at end of year


203,095



195,950


$
35,710Retained earnings
    (deficit):Balance at beginning of year

$
1,425


$
(2,282
)

$
(2,330
)Exchange of common stock for
    Series A Preferred Stock


(191
)






Contribution of Darwin Group, Inc.
    in exchange for Series B Convertible Preferred Stock


(1,186
)






Series C Preferred Stock
    dividend


(2,465
)






Net earnings


15,965



3,707



48Balance at end of year

$
13,548


$
1,425


$
(2,282
)Accumulated other comprehensive
    income (loss):Accumulated other comprehensive
    income (loss) at beginning of year

$
(39
)

$
(7
)

$
Other comprehensive income (loss):Unrealized appreciation
    (depreciation) of investments, net of tax


1,076



(32
)


(7
)Other comprehensive income (loss)


1,076



(32
)


(7
)Accumulated other comprehensive
    income (loss) at end of year

$
1,037


$
(39
)

$
(7
)Total stockholders equity
    at December 31,

$
217,850


$
197,417


$
33,502Comprehensive income
    (loss):Net earnings

$
15,965


$
3,707


$
48Other comprehensive income (loss)


1,076



(32
)


(7
)Total comprehensive income

$
17,041


$
3,675


$
41    F-5




---



##### Table of Contents



Darwin
    Professional Underwriters, Inc. and Subsidiaries
  Consolidated
    Statements of Cash Flows
 For
    the years ended December 31, 2006, 2005, and 2004
  2006


2005


2004(Dollars in thousands)Cash flows provided by (used
    for) operating activities:Net earnings

$
15,965


$
3,707


$
48Adjustments to reconcile net
    earnings to net cash provided by (used for) operating activities:Deferred insurance acquisition
    costs


(20,724
)


(13,730
)


(11,288
)Amortization of insurance
    acquisition costs


15,603



12,087



7,990Deferred income taxes


(3,050
)


(3,551
)


(2,618
)Depreciation and amortization


601



422



165Net realized investment (gains)
    losses


(12
)


176



(1
)Stock-based compensation


984







Gain on the sale of fixed assets






(14
)


Amortization of investment
    discounts and premiums


(3,883
)


(1,601
)


202Change in:Premiums receivable


(9,004
)


(8,323
)


(7,519
)Reinsurance recoverable on paid
    and unpaid losses


(45,111
)


(35,688
)


(14,582
)Ceded unearned reinsurance premiums


(10,889
)


(18,055
)


(11,075
)Current income taxes
    payable/receivable


1,148



(1,638
)


2,470Other assets


(4,035
)


2,105



(4,180
)Loss and loss adjustment expense
    reserves


125,145



91,197



43,722Unearned premium reserves


35,516



34,006



35,483Reinsurance payable


10,465



3,908



2,226Accrued expenses and other
    liabilities


(436
)


4,057



2,289Net cash provided by operating
    activities


108,283



69,065



43,332Cash flows provided by (used
    for) investing activities:Proceeds from sales of
    available-for-sale
    securities


21,688



11,490



Maturities of
    available-for-sale
    securities


12,687



15,989



1,332Purchases of
    available-for-sale
    securities


(242,320
)


(80,484
)


(67,873
)Net sales (purchases) of
    short-term investments


119,023



(146,452
)


(1,251
)Due to brokers for unsettled trades


(2,216
)


2,216



Purchases of fixed assets


(616
)


(1,292
)


(1,020
)Proceeds from sales of fixed assets






26



Acquisition of insurance
    companies, net of cash acquired


(213
)


(25,575
)


(17,919
)Net cash used for investing
    activities


(91,967
)


(224,082
)


(86,731
)Cash flows provided by (used
    for) financing activities:Proceeds from issuance of common
    stock


96,000







Issuance costs


(9,712
)






Redemption of Series A
    Preferred Stock


(2,297
)






Redemption of Series C
    Preferred Stock


(2,465
)






Redemption of Series B
    Convertible Preferred Stock


(81,526
)






Tax benefit on restricted stock
    vested


302







Proceeds from capital contributions






160,240



35,791Net cash provided by financing
    activities


302



160,240



35,791Net increase (decrease) in cash


16,618



5,223



(7,608
)Cash, beginning of period


10,255



5,032



12,640Cash, end of period

$
26,873


$
10,255


$
5,032Supplemental disclosures of cash
    flow information:Cash paid for federal and state
    income taxes

$
8,907


$
7,376


$
293    F-6




---



##### Table of Contents



Darwin
    Professional Underwriters, Inc. and SubsidiariesNotes to Consolidated Financial StatementsFor the years ended December 31, 2006, 2005 and 2004
    (Dollars in thousands, except per share amounts)
  (1)  Organization
  (a)
    Organization              (b)
    Reorganization   F-7




---



##### Table of Contents



Notes to
    Consolidated Financial Statements
    For the years ended December 31, 2006, 2005 and 2004
    (Dollars in thousands, except per share amounts)
       33-for-two Form S-1
  33-for-two
    (2)  Summary
    of Significant Accounting Policies
  (a)
    Basis
    of Presentation    (b)
    Investments
    and Fair Values of Financial Instruments  available-for-sale.
  other-than-temporary
  other-than-temporary
   F-8




---



##### Table of Contents



Notes to
    Consolidated Financial Statements
    For the years ended December 31, 2006, 2005 and 2004
    (Dollars in thousands, except per share amounts)
      (c)
    Cash    (d)
    Premiums
    and Unearned Premium Reserves    (e)
    Reinsurance
    Recoverables    Accounting for Reinsurance
  (f)
    Deferred
    Insurance Acquisition Costs   F-9




---



##### Table of Contents



Notes to
    Consolidated Financial Statements
    For the years ended December 31, 2006, 2005 and 2004
    (Dollars in thousands, except per share amounts)
   (g)
    Property
    and Equipment    Computer equipment

3 yearsComputer software

5 yearsFurniture and fixtures

5 yearsLeasehold improvements

Shorter of useful life or life of
    lease     (h)
    Intangible
    Assets  Goodwill and Other Intangible Assets
    (i)
    Income
    Taxes      (j)
    Loss
    and Loss Adjustment Expense Reserves   F-10




---



##### Table of Contents



Notes to
    Consolidated Financial Statements
    For the years ended December 31, 2006, 2005 and 2004
    (Dollars in thousands, except per share amounts)
    (k)
    Comprehensive
    Income (Loss)  Reporting
    Comprehensive Income available-for-sale.
  (l)
    Segments  Disclosure About
    Segments of an Enterprise and Related Information
  (m)
    Estimates    (n)
    Statutory
    Accounting Practices    (o)
    Reclassification    (p)
    Recent
    Accounting Standards  Share-Based Payment
 F-11




---



##### Table of Contents



Notes to
    Consolidated Financial Statements
    For the years ended December 31, 2006, 2005 and 2004
    (Dollars in thousands, except per share amounts)
    Considering the Effects of Prior
    Year Misstatements in Quantifying Misstatements in Current Year
    Financial Statements
  05-01, Accounting by Insurance Enterprises for Deferred Acquisition
    Costs in Connection with Modifications or Exchanges of Insurance
    Contracts (SOP 05-01). SOP 05-01 SOP 05-01 SOP 05-01 SOP 05-01 SOP 05-01
  Accounting for Certain Hybrid Instruments, an amendment to
    FASB Statement No. 133 and 140.
  Accounting for Uncertainty in Income Taxes. Accounting for
    Income Taxes.
 F-12




---



##### Table of Contents



Notes to
    Consolidated Financial Statements
    For the years ended December 31, 2006, 2005 and 2004
    (Dollars in thousands, except per share amounts)
   Fair
    Value Measurements.
  (3)  Purchase
    Accounting
  Business Combinations.
    Pre-


Acquisition


Post-Acquisition


Adjustment


AcquisitionAssetsDebt securities

$
22,026


$



$
22,026Cash


93







93Intangible assets 
    licenses






3,600



3,600Reinsurance recoverable on paid
    and unpaid losses


6,693







6,693Other assets


162







162Total assets

$
28,974


$
3,600


$
32,574LiabilitiesLoss and loss adjustment expense
    reserves

$
6,693


$



$
6,693Stockholders
    EquityCommon stock


4,200







4,200Additional paid-in capital


13,755



7,926



21,681Retained earnings (deficit)


4,326



(4,326
)


Total stockholders equity


22,281



3,600



25,881Total liabilities and
    stockholders equity

$
28,974


$
3,600


$
32,574    F-13




---



##### Table of Contents



Notes to
    Consolidated Financial Statements
    For the years ended December 31, 2006, 2005 and 2004
    (Dollars in thousands, except per share amounts)
        (4)  Investments
    Cost or


Gross


GrossAmortized


Unrealized


Unrealized


Fair2006

Cost


Gains


Losses


ValueType of investmentU.S. Government bonds

$
22,349


$
50


$
(160
)

$
22,239State and municipal bonds


127,960



1,900



(117
)


129,743Mortgage/asset-backed securities


106,473



411



(269
)


106,615Corporate bonds and notes


71,419



138



(308
)


71,249Total fixed maturities

$
328,201


$
2,499


$
(854
)

$
329,846   Cost or


Gross


GrossAmortized


Unrealized


Unrealized


Fair2005

Cost


Gains


Losses


ValueType of investmentU.S. Government bonds

$
16,163


$



$
(231
)

$
15,932State and municipal bonds


30,686



342



(28
)


31,000Mortgage/asset-backed securities


39,233



70



(99
)


39,204Corporate bonds and notes


34,750



51



(167
)


34,634Total fixed maturities

$
120,832


$
463


$
(525
)

$
120,770     F-14




---



##### Table of Contents



Notes to
    Consolidated Financial Statements
    For the years ended December 31, 2006, 2005 and 2004
    (Dollars in thousands, except per share amounts)
  Amortized


FairCost


ValueDue in one year or less

$
7,180


$
7,106Due after one year through five
    years


67,650



67,565Due after five years through ten
    years


32,070



32,003Due after ten years


114,828



116,557Mortgage/asset-backed securities


106,473



106,615Total

$
328,201


$
329,846   available-for-sale other-than-temporary.
    Less Than 12 Months


12 Months or More


TotalGross





Gross





GrossFair


Unrealized


Fair


Unrealized


Fair


UnrealizedValue


Loss


Value


Loss


Value


LossType of investmentU.S. Government bonds

$
390


$
(9
)

$
9,145


$
(151
)

$
9,535


$
(160
)State and municipal bonds


18,543



(87
)


1,917



(30
)


20,460



(117
)Mortgage/asset-backed securities


49,799



(235
)


1,631



(34
)


51,430



(269
)Corporate bonds and notes


34,172



(234
)


4,156



(74
)


38,328



(308
)Total fixed maturities

$
102,904


$
(565
)

$
16,849


$
(289
)

$
119,753


$
(854
)   other-than-temporarily
 F-15




---



##### Table of Contents



Notes to
    Consolidated Financial Statements
    For the years ended December 31, 2006, 2005 and 2004
    (Dollars in thousands, except per share amounts)
     2006


2005


2004Realized gains (losses)Gross gains

$
38


$
1


$
1Gross losses


(26
)


(177
)


Net realized gains (losses)

$
12


$
(176
)

$
1Change in unrealized gains (losses)

$
1,707


$
(51
)

$
(11
)Less effect of tax


(631
)


19



4Change in net unrealized gains
    (losses)

$
1,076


$
(32
)

$
(7
)     2006


2005Unrealized gains (losses)Gross unrealized gains

$
2,499


$
463Gross unrealized losses


(854
)


(525
)Unrealized gains (losses)


1,645



(62
)Less effect of tax


(608
)


(23
)Net unrealized gains (losses)

$
1,037


$
(39
)     2006


2005


2004Fixed maturities

$
11,776


$
4,088


$
663Short-term


5,302



985



328Gross investment income


17,078



5,073



991Investment expenses


636



153



42Net investment income

$
16,442


$
4,920


$
949     (5)  Reinsurance
  (a)
    Ceded   F-16




---



##### Table of Contents



Notes to
    Consolidated Financial Statements
    For the years ended December 31, 2006, 2005 and 2004
    (Dollars in thousands, except per share amounts)
            2006


2005Reinsurance recoverables on paid
    losses

$
113


$
31Ceded outstanding case losses and
    LAE


5,904



463Ceded outstanding IBNR losses and
    LAE


90,354



50,766Gross reinsurance recoverables on
    paid and unpaid losses

$
96,371


$
51,260      F-17




---



##### Table of Contents



Notes to
    Consolidated Financial Statements
    For the years ended December 31, 2006, 2005 and 2004
    (Dollars in thousands, except per share amounts)
   (b)
    Reinsurance
    Ceded and Assumed with the Capitol Companies          As of December 31, 2005CapitolBalance Sheet

Companies


DNA


DPUI


CombinedAssets:Cash and investments

$
(88,752
)

$
88,752


$



$
Reinsurance recoverable on paid
    and unpaid losses


7,253



(7,253
)






Deferred insurance acquisition
    costs


(17,919
)


16,924



995



Affiliate receivable (payable)


4,619



(3,624
)


(995
)


Total assets

$
(94,799
)

$
94,799


$



$
Liabilities and
    Stockholders Equity:Loss and LAE reserves

$
(54,151
)

$
54,151


$



$
Unearned premium reserves


(40,648
)


40,648







Total liabilities


(94,799
)


94,799







Total stockholders equity














Total liabilities and
    stockholders equity

$
(94,799
)

$
94,799


$



$
  F-18




---



##### Table of Contents



Notes to
    Consolidated Financial Statements
    For the years ended December 31, 2006, 2005 and 2004
    (Dollars in thousands, except per share amounts)
  (c)
    Reinsurance
    Effect on Operations    2006


2005


2004Net Premiums Written:Direct premiums written

$
179,776


$
23,354


$
2,451Assumed premiums
    written  Capitol Companies


65,763



142,470



98,004Assumed premiums written


713







Ceded premiums written


(89,248
)


(65,174
)


(29,955
)Net premiums written

$
157,004


$
100,650


$
70,500Net Premiums Earned:Direct premiums earned

$
101,615


$
11,021


$
324Assumed premiums
    earned  Capitol Companies


108,684



120,799



64,648Assumed premiums earned


436







Ceded premiums earned


(78,357
)


(47,122
)


(18,880
)Net premiums earned

$
132,378


$
84,698


$
46,092Net Losses and LAE
    Incurred:Direct losses and LAE incurred

$
68,073


$
11,400


$
220Assumed losses and LAE
    incurred  Capitol Companies


65,531



84,856



43,988Assumed losses and LAE incurred


290







Ceded losses and LAE incurred


(45,275
)


(37,650
)


(14,580
)Net losses and LAE incurred

$
88,619


$
58,606


$
29,628      F-19




---



##### Table of Contents



Notes to
    Consolidated Financial Statements
    For the years ended December 31, 2006, 2005 and 2004
    (Dollars in thousands, except per share amounts)
    (6)  Deferred
    Insurance Acquisition Costs
    2006


2005


2004Balance at beginning of the year

$
7,603


$
5,960


$
2,662Insurance acquisition costs
    deferred:Commissions and brokerage expenses


16,045



10,078



9,410Other underwriting, acquisition
    and operating expenses


4,679



3,652



1,87820,724



13,730



11,288Amortization of insurance
    acquisition costs


(15,603
)


(12,087
)


(7,990
)Net change for year


5,121



1,643



3,298Balance at end of the year

$
12,724


$
7,603


$
5,960   (7)  Property
    and Equipment, Net
    2006


2005Computer hardware and software

$
2,246


$
1,791Furniture and fixtures


548



438Leasehold improvements


301



250Property and equipment, at cost


3,095



2,479Accumulated depreciation


(1,200
)


(599
)Property and equipment, net

$
1,895


$
1,880    F-20




---



##### Table of Contents



Notes to
    Consolidated Financial Statements
    For the years ended December 31, 2006, 2005 and 2004
    (Dollars in thousands, except per share amounts)
   (8)  Loss
    and Loss Adjustment Expense Reserves
    2006


2005


2004Gross reserves balance at
    January 1,

$
138,404


$
47,207


$
3,485Less reinsurance recoverables on
    unpaid losses


(51,229
)


(15,572
)


(990
)Net reserves balance at
    January 1,


87,175



31,635



2,495Add acquired gross reserves






6,693



Less reinsured acquired gross
    reserves






(6,693
)


Net reserve balance


87,175



31,635



2,495Incurred losses and LAE, net of
    reinsurance, related to:Current period


90,879



58,640



29,628Prior periods


(2,260
)


(34
)


Total incurred


88,619



58,606



29,628Paid losses and LAE, net of
    reinsurance, related to:Current period


2,272



1,284



438Prior periods


6,231



1,782



50Total paid


8,503



3,066



488Net reserve balance at
    December 31


167,291



87,175



31,635Plus reinsurance recoverables on
    unpaid losses


96,258



51,229



15,572Gross reserves balance at
    December 31

$
263,549


$
138,404


$
47,207      F-21




---



##### Table of Contents



Notes to
    Consolidated Financial Statements
    For the years ended December 31, 2006, 2005 and 2004
    (Dollars in thousands, except per share amounts)
   (9)  Income
    Taxes
        2006


2005


2004Current expense:Federal expense

$
9,458


$
5,017


$
2,022State expense


906



772



662Total current expense


10,364



5,789



2,684Deferred benefit:Federal deferred benefit


(2,786
)


(2,967
)


(2,078
)State deferred benefit


(292
)


(546
)


(532
)Total deferred benefit


(3,078
)


(3,513
)


(2,610
)Income tax expense

$
7,286


$
2,276


$
74  F-22




---



##### Table of Contents



Notes to
    Consolidated Financial Statements
    For the years ended December 31, 2006, 2005 and 2004
    (Dollars in thousands, except per share amounts)
    2006


2005


2004Dollars


Percent


Dollars


Percent


Dollars


PercentFederal income tax and rate

$
8,138



35.0
%

$
2,094



35.0
%

$
43



35.0
%Tax effect of:Municipal bond income, net of
    proration


(1,275
)


(5.5
)%


(181
)


(3.0
)%


(40
)


(32.4
)%State income taxes, net of federal
    effect


399



1.7
%


203



3.4
%


77



63.1
%Other


(11
)






119



2.0
%






Nondeductible expenses


35



0.1
%


68



1.1
%


10



8.3
%Changes in estimate of future year
    taxes










(27
)


(0.5
)%


(17
)


(13.4
)%Effective income tax and rate

$
7,286



31.3
%

$
2,276



38.0
%

$
74



60.6
%     2006


2005Deferred tax assets:Discounting of loss and LAE
    reserves

$
6,736


$
4,144Unearned premium reserves


5,842



4,022Accrued expenses


1,192



880Stock-based compensation expenses


392



Allowance for doubtful accounts


30



20Other


46



51Net operating losses, recoverable
    from Alleghany






142Net unrealized losses on
    investment securities






23Total deferred tax assets


14,238



9,282Deferred tax liabilities:Deferred insurance acquisition
    costs


4,274



2,341Tax depreciation adjustment


253



452Purchase licenses and fees


383



211Net unrealized gains on investment
    securities


608



Total deferred tax liabilities


5,518



3,004Net deferred tax

$
8,720


$
6,278  F-23




---



##### Table of Contents



Notes to
    Consolidated Financial Statements
    For the years ended December 31, 2006, 2005 and 2004
    (Dollars in thousands, except per share amounts)
      (10)  Preferred
    Stock
  Classification and Measurement of
    Redeemable Securities
       F-24




---



##### Table of Contents



Notes to
    Consolidated Financial Statements
    For the years ended December 31, 2006, 2005 and 2004
    (Dollars in thousands, except per share amounts)
     2006


2005


2004Series A Preferred
    Stock:Balance at beginning of year

$
2,106


$
2,106


$
2,106Exchange of common stock for
    Series A Preferred Stock


191







Redemption of Series A
    Preferred Stock


(2,297
)






Balance at end of year

$



$
2,106


$
2,106Series B Convertible
    Preferred Stock:Balance at beginning of year

$



$



$
Exchange Darwin Group, Inc. common
    stock for Series B Convertible Preferred Stock


197,178







Redemption of Series B
    Convertible Preferred Stock


(81,526
)






Conversion of Series B
    Convertible Preferred Stock to common stock


(115,652
)






Balance at end of year

$



$



$
Series C Preferred
    Stock:Balance at beginning of year

$



$



$
Issuance of Series C
    Preferred Stock


2,465







Redemption of Series C
    Preferred Stock


(2,465
)






Balance at end of year

$



$



$
     (11)  Capital
    Stock
     F-25




---



##### Table of Contents



Notes to
    Consolidated Financial Statements
    For the years ended December 31, 2006, 2005 and 2004
    (Dollars in thousands, except per share amounts)
   (12)  Share-Based
    Compensation
      (a)
    2003
    Restricted Stock Plan        Year Ended December 31,2006


2005


2004Unvested restricted shares
    outstanding at beginning of year


1,505,625



1,546,875



1,588,125Granted


144,375







Vested


(752,812
)






Forfeited






(41,250
)


(41,250
)Unvested restricted shares at end
    of year


897,188



1,505,625



1,546,875    F-26




---



##### Table of Contents



Notes to
    Consolidated Financial Statements
    For the years ended December 31, 2006, 2005 and 2004
    (Dollars in thousands, except per share amounts)
   (b)
    2006
    Stock Incentive Plan          Year Ended December 31, 2006Stock Options


Restricted StockWeighted-





Weighted-Average





AverageExercise





VestingShares


Price


Shares


ValueOutstanding at beginning of year










Granted


170,060


$
16.00



4,816


$
22.69Exercised or vested














Forfeited


(6,054
)

$
16.00







Outstanding at end of year


164,006


$
16.00



4,816


$
22.69    F-27




---



##### Table of Contents



Notes to
    Consolidated Financial Statements
    For the years ended December 31, 2006, 2005 and 2004
    (Dollars in thousands, except per share amounts)
      (c)
    2006
    Employees Restricted Stock Plan    (d)
    Directors
    Plan    Initial Public Offering Restricted Stock
    Grant
  Annual Non-Employee Directors Share Unit
    Award
 F-28




---



##### Table of Contents



Notes to
    Consolidated Financial Statements
    For the years ended December 31, 2006, 2005 and 2004
    (Dollars in thousands, except per share amounts)
    2006-2007
  (13)  Earnings
    per Share
     F-29




---



##### Table of Contents



Notes to
    Consolidated Financial Statements
    For the years ended December 31, 2006, 2005 and 2004
    (Dollars in thousands, except per share amounts)
     Year Ended December 31,2006


2005


2004Net earnings

$
15,965


$
3,707


$
48Less dividend declared and paid on
    Series B Convertible Preferred Stock


(2,465
)






Net earnings  numerator
    for basic earnings per share


13,500



3,707



48Add dividend declared and paid on
    Series B Convertible Preferred Stock


2,465







Net earnings  numerator
    for diluted earnings per share

$
15,965


$
3,707


$
48Weighted average common shares
    outstanding  denominator for basic earnings per share


9,770,268



6,600,000



6,600,000Effect of dilutive securities:Series B Convertible
    Preferred Stock


5,711,538







Restricted stock


1,297,056



1,519,370



1,567,500Share units


6,859







Weighted average common shares
    outstanding  denominator for diluted earnings per
    share


16,785,721



8,119,370



8,167,500Basic earnings per share

$
1.38


$
0.56


$
0.01Diluted earnings per share

$
0.95


$
0.46


$
0.01     (14)  Comprehensive
    Income
    Year Ended December 31,2006


2005


2004Net earnings

$
15,965


$
3,707


$
48Other comprehensive income (loss):Add (deduct) unrealized gains
    (losses) on investments Unrealized gains (losses)
    on investments, net of taxes


1,084



(146
)


(7
)Reclassification adjustment for
    realized (gains) losses in net earnings, net of taxes


(8
)


114



Unrealized gains (losses) on
    investments


1,076



(32
)


(7
)Total comprehensive income

$
17,041


$
3,675


$
41  F-30




---



##### Table of Contents



Notes to
    Consolidated Financial Statements
    For the years ended December 31, 2006, 2005 and 2004
    (Dollars in thousands, except per share amounts)
    (15)  Concentration
    in Revenue
      (16)  Related
    Party Transactions
         F-31




---



##### Table of Contents



Notes to
    Consolidated Financial Statements
    For the years ended December 31, 2006, 2005 and 2004
    (Dollars in thousands, except per share amounts)
   (17)  Employee
    Benefit Plan
    (18)  Long-Term
    Incentive Plan
        (19)  Concentration
    of Credit Risk
    (20)  Fair
    Value of Financial Instruments
  Disclosures about Fair Value of
    Financial Instruments
     F-32




---



##### Table of Contents



Notes to
    Consolidated Financial Statements
    For the years ended December 31, 2006, 2005 and 2004
    (Dollars in thousands, except per share amounts)
  (21)
    Segments      Year Ended December 31,2006


2005


2004Gross premiums
    written:Directors and Officers

$
40,626


$
32,926


$
24,453Errors and Omissions


111,039



58,867



36,712Medical Malpractice Liability


94,587



74,031



39,290Total

$
246,252


$
165,824


$
100,455Gross premiums
    earned:Directors and Officers

$
37,993


$
28,444


$
18,037Errors and Omissions


87,805



46,231



25,527Medical Malpractice Liability


84,937



57,145



21,408Total

$
210,735


$
131,820


$
64,972   (22)
    Statutory
    Reporting       F-33




---



##### Table of Contents



Notes to
    Consolidated Financial Statements
    For the years ended December 31, 2006, 2005 and 2004
    (Dollars in thousands, except per share amounts)
      (23)
    Commitments
    and Contingencies      Fiscal year ending:2007

$
6132008


7372009


7472010


7412011


6132012 and thereafter


Total for all future years

$
3,451      F-34




---



##### Table of Contents



Notes to
    Consolidated Financial Statements
    For the years ended December 31, 2006, 2005 and 2004
    (Dollars in thousands, except per share amounts)
  (24)
    Selected
    Quarterly Financial Data (Unaudited)    Total2006 Quarters


2006First


Second


Third


Fourth


YearNet earned premiums

$
27,304


$
31,954


$
34,971


$
38,149


$
132,378Net investment income


3,360



3,763



4,512



4,807



16,442Realized investment gains (losses)


(10
)


(3
)


(11
)


36



12Total revenues

$
30,654


$
35,714


$
39,472


$
42,992


$
148,832Net earnings

$
2,788


$
3,377


$
4,006


$
5,794


$
15,965Earnings per share:Basic

$



$
0.13


$
0.25


$
0.36


$
1.38Diluted

$
0.17


$
0.10


$
0.23


$
0.34


$
0.95     Total2005 Quarters


2005First


Second


Third


Fourth


YearNet earned premiums

$
18,744


$
19,945


$
21,948


$
24,061


$
84,698Net investment income


632



931



1,197



2,160



4,920Realized investment gains (losses)


(60
)










(116
)


(176
)Other income














14



14Total revenues

$
19,316


$
20,876


$
23,145


$
26,119


$
89,456Net earnings

$
424


$
638


$
862


$
1,783


$
3,707Earnings per share:Basic

$
0.05


$
0.10


$
0.13


$
0.27


$
0.56Diluted

$
0.03


$
0.08


$
0.11


$
0.22


$
0.46    F-35




---



##### Table of Contents



Notes to
    Consolidated Financial Statements
    For the years ended December 31, 2006, 2005 and 2004
    (Dollars in thousands, except per share amounts)
   (25)
    Subsequent
    Events     F-36




---



##### Table of Contents



SCHEDULE IDarwin Professional Underwriters, Inc. and
    Subsidiaries
    Summary of Investments-Other Than
    Investments in Related Parties
    December 31, 2006
  Amount atWhich ShownFair


in the BalanceCost


Value


Sheet(Dollars in thousands)Type of investmentFixed maturities:U.S. Government bonds

$
22,349


$
22,239


$
22,239State and municipal bonds


127,960



129,743



129,743Mortgage/asset-backed










securities


106,473



106,615



106,615Corporate bonds and notes


71,419



71,249



71,249Total fixed maturities


328,201



329,846



329,846Short-term Investments


69,537



69,537



69,537Total Investments

$
397,738


$
399,383


$
399,383  S-1




---



##### Table of Contents



SCHEDULE II
 Darwin
    Professional Underwriters, Inc.
    Condensed Balance Sheets
    of the Registrant
    as of December 31, 2006 and 2005  2006


2005(Dollars in thousands)ASSETSCash

$
19,190


$
10,914Premiums receivable (net of
    allowance for doubtful accounts of $75 as of December 31,
    2006 and $50 as of December 31, 2005)


10,592



12,194Property and equipment at cost,
    less accumulated depreciation


1,895



1,880Other assets


18,769



16,163Investment in subsidiaries


213,959



197,178Total assets

$
264,405


$
238,329LIABILITIES AND
    STOCKHOLDERS EQUITYPayable to insurance companies

$
40,084


$
34,163Other liabilities


6,471



4,643Total liabilities


46,555



34,163Series A Preferred Stock






2,106Stockholders equity


217,850



197,417Total liabilities and
    stockholders equity

$
264,405


$
233,686    S-2




---



##### Table of Contents



SCHEDULE II
  Darwin
    Professional Underwriters, Inc.
    Condensed Statements of Operations
    of the Registrant
    for the years ended December 31, 2006, 2005 and
    2004
  2006


2005


2004(Dollars in thousands)Revenues:Net commission revenue

$
33,838


$
28,394


$
20,140Net investment income


502



340



47Net realized investment gains










1Other income






14



Total revenues


34,340



28,748



20,188Costs and Expenses:Commissions and brokerage expenses


11,534



11,984



6,997Other underwriting, acquisition
    and operating expenses


21,423



13,992



9,700Other expenses


750



1,103



843Total costs and
    expenses


33,707



27,079



17,540Operating earnings


633



1,669



2,648Equity in earnings of consolidated
    subsidiaries


22,618



4,314



(2,526
)Earnings from continuing
    operations, before income taxes


23,251



5,983



122Income tax expense


7,286



2,276



74Net earnings

$
15,965


$
3,707


$
48    S-3




---



##### Table of Contents



SCHEDULE II
    Darwin Professional Underwriters, Inc.
    Condensed Statements of Cash Flows
    of the Registrant
    for the years ended December 31, 2006, 2005 and
    2004
  2006


2005


2004(Dollars in thousands)Cash flows provided by (used
    for) operating activities:Net earnings

$
15,965


$
3,707


$
48Adjustments to reconcile net
    earnings to net cash provided by (used for) operating activities:Equity in undistributed net
    (earnings) losses of consolidated subsidiaries


(15,744
)


(2,758
)


1,549Stock-based compensation


984







Depreciation and amortization


601



422



165Gain on the sale of fixed assets






(14
)


Premiums receivable


1,602



(18
)


(5,928
)Other assets


(2,567
)


(6,979
)


(5,204
)Payable to insurance companies


5,921



5,239



13,868Accrued expenses and other
    liabilities


1,828



1,243



1,760Net cash provided by (used for)
    operating activities


(7,375
)


(2,865
)


6,210Cash flows provided by (used
    for) investing activities:Purchases of fixed assets


(616
)


(1,292
)


(1,020
)Proceeds from sales of fixed assets






26



Net cash used for investing
    activities


(616
)


(1,266
)


(1,020
)Cash flows provided by (used
    for) financing activities:Proceeds from issuance of common
    stock


96,000







Issuance costs


(9,712
)






Redemption of Series A
    Preferred Stock


(2,297
)






Payment of Series C Preferred
    Stock


(2,465
)






Redemption of Series B
    Convertible Preferred Stock


(81,526
)






Tax benefit on restricted stock
    vested


302







Net cash provided by financing
    activities


302







Net increase (decrease) in cash


8,276



(424
)


5,238Cash, beginning of period


10,914



11,338



6,100Cash, end of period

$
19,190


$
10,914


$
11,338Supplemental disclosures of cash
    flow information:Cash paid for federal and state
    income taxes

$
5,874


$
4,572


$
2,930    S-4




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##### Table of Contents



SCHEDULE III
 Darwin
    Professional Underwriters, Inc. and Subsidiaries
    Supplementary Insurance Information  At December 31,


For the Year Ended December 31,Future Policy














Benefits,Deferred


Benefits,





Other Policy








Claims,Policy


Losses,


Gross


Claims and





Net


Losses andAcquisition


Claims and Loss


Unearned


Benefits


Net Earned


Investment


SettlementYear


Line of Business

Costs


Expenses


Premiums


Payable


Premiums


Income


Expenses(Dollars in thousands)Property and  Casualty2006


Insurance

$
12,724


$
263,549


$
123,796


$



$
132,378


$
16,442


$
88,619Property and Casualty2005


Insurance


7,603



138,404



88,280







84,698



4,920



58,606Property and Casualty2004


Insurance


5,960



47,207



54,274







46,092



949



29,628   At December 31,Amortization of


Other


Commissions


NetDeferred Policy


Operating


and Brokerage


PremiumsYear


Line of Business

Acquisition Costs


Expenses


Expenses


Written(Dollars in thousands)Property and Casualty2006


Insurance

$
15,603


$
6,000


$
14,609


$
157,004Property and Casualty2005


Insurance


12,087



2,487



9,191



100,650Property and Casualty2004


Insurance


7,990



2,231



6,167



70,500  S-5




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##### Table of Contents



SCHEDULE IV
 Darwin
    Professional Underwriters, Inc. and Subsidiaries
    Reinsurance
    for the years ended December 31, 2006, 2005, and
    2004  PercentageCeded to


Assumed





of AmountGross


Other


from Other


Net


AssumedYear


Line of Business

Amount


Companies


Companies


Amount


to Net(Dollars in thousands)2006


Property and Casualty

$
245,539


$
89,248


$
713


$
157,004



0.5
%2005


Property and Casualty


165,481



65,174



343



100,650



0.3
%2004


Property and Casualty


100,059



29,955



396



70,500



0.6
%  S-6




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##### Table of Contents



SCHEDULE V
  Darwin
    Professional Underwriters, Inc. and Subsidiaries
 Valuation
    and Qualifying Accounts
  Charged to


Charged toBalance at


Costs and


Other


Deductions


Balance atYear


Description

January 1,


Expenses


Accounts


Describe


December 31,(Dollars in thousands)2006


Allowance for uncollectible
    reinsurance recoverables

$



$



$



$



$
Allowance for uncollectible
    premiums receivable


50



25











752005


Allowance for uncollectible
    reinsurance recoverables


















Allowance for uncollectible
    premiums receivable


50















502004


Allowance for uncollectible
    reinsurance recoverables


















Allowance for uncollectible
    premiums receivable






50











50  S-7




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##### Table of Contents



SCHEDULE VI
 Darwin
    Professional Underwriters, Inc. and Subsidiaries
    Supplementary Information Concerning
    Insurance Operations At December 31,


For the Year Ended December 31,Discount, ifReserves for


any, DeductedUnpaid


in Reserves forDeferred


Claims and


Unpaid ClaimsPolicy


Claim


and Claim


GrossAcquisition


Adjustment


Adjustment


Unearned


Net Earned


Net InvestmentYear


Line of Business

Costs


Expenses


Expenses


Premiums


Premiums


Income(Dollars in thousands)2006


Property and Casualty Insurance

$
12,724


$
263,549


$



$
123,796


$
132,378


$
16,4422005


Property and Casualty Insurance


7,603



138,404


$




88,280



84,698



4,9202004


Property and Casualty Insurance


5,960



47,207


$




54,274



46,092



949   At December 31,Claims and ClaimsAdjustment ExpensesAmortization of


Paid ClaimsDeferred Policy


and Claim(1)Current


(2)Prior


Acquisition


Adjustment


Net PremiumsYear


Line of Business

Year


Year


Costs


Expenses


Written(Dollars in thousands)2006


Property and Casualty Insurance

$
90,879


$
(2,260
)

$
15,603


$
8,503


$
157,0042005


Property and Casualty Insurance


58,640



(34
)


12,087



3,066



100,6502004


Property and Casualty Insurance


29,628







7,990



488



70,500  S-8




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##### Table of Contents



LIST OF
    EXHIBITS
  ExhibitNumber

Description of Exhibit3
.1

Amended and Restated Certificate
    of Incorporation, filed as Exhibit 3.1 to Darwin
    Professional Underwriters Inc.s Quarterly Report on
    Form 10-Q
    filed on November 7, 2006, is incorporated herein by
    reference.3
.2

Amended and Restated By-laws,
    filed as Exhibit 3.2 to Amendment No. 4 to Darwin
    Professional Underwriters, Inc.s Registration Statement on
    Form S-1
    (Reg.
    No. 333-132355)
    filed on May 16, 2006 (Amendment No. 4 to the
    Form S-1),
    is incorporated herein by reference.4
.1

Specimen Stock Certificate, filed
    as Exhibit 4.1 to Amendment No. 4 to the
    Form S-1,
    is incorporated herein by reference.4
.2

Registration Rights Agreement by
    and between Darwin Professional Underwriters, Inc. and Alleghany
    Insurance Holdings LLC, filed as Exhibit 4.1 to Darwin
    Professional Underwriters Inc.s Current Report on
    Form 8-K
    filed on May  23, 2006, is incorporated herein by
    reference.4
.3

Master Agreement by and between
    Darwin Professional Underwriters, Inc. and Alleghany
    Corporation, filed as Exhibit 4.2 to Darwin Professional
    Underwriters Inc.s Current Report on
    Form 8-K
    filed on May 23, 2006, is incorporated herein by reference.10
.1

Amended and Restated Employment
    Agreement dated November 11, 2005 between Darwin
    Professional Underwriters, Inc. and Stephen J. Sills, filed as
    Exhibit 10.1 to Darwin Professional Underwriters,
    Inc.s Registration Statement on
    Form S-1
    (Reg.
    No. 333-132355)
    filed on March 10, 2006 (the
    Form S-1)
    is incorporated herein by reference. 10
.2

Amended and Restated Employment
    Agreement dated November 11, 2005 between Darwin
    Professional Underwriters, Inc. and Mark I. Rosen, filed as
    Exhibit 10.2 to the
    Form S-1,
    is incorporated herein by reference. 10
.3.1

Investment Management Agreement
    dated July 1, 2004 by and between General Re-New England
    Asset Management and Alleghany Corporation, filed as
    Exhibit 10.3.1 to Amendment No. 1 to Darwin
    Professional Underwriters, Inc.s Registration Statement on
    Form S-1
    (Reg.
    No. 333-132355)
    filed on April  17, 2006 (Amendment No. 1
    to the
    Form S-1),
    is incorporated herein by reference.10
.3.2

Amendment No. 1 dated
    June 1, 2005 to Investment Management Agreement dated
    July 1, 2004 by and between General Re-New England Asset
    Management and Alleghany Corporation, filed as
    Exhibit 10.3.2 to Amendment No. 1 to the
    Form S-1,
    is incorporated herein by reference.10
.4

Contribution and Exchange
    Agreement dated November 11, 2005 by and among Alleghany
    Insurance Holdings LLC, Darwin Group, Inc. and Darwin
    Professional Underwriters, Inc, filed as Exhibit 10.4 to
    Amendment No. 1 to the
    Form S-1,
    is incorporated herein by reference.10
.5

Amended and Restated Restricted
    Stock Plan of Darwin Professional Underwriters, Inc. effective
    as of November 11, 2005, filed as Exhibit 10.5 to the
    Form S-1,
    is incorporated herein by reference. 10
.6

Amended and Restated Long-Term
    Incentive Plan of Darwin Professional Underwriters, Inc.
    effective as of November 11, 2005, filed as
    Exhibit 10.6 to the
    Form S-1,
    is incorporated herein by reference. 10
.7

Amended Tax Sharing Agreement
    dated January 1, 2005 by and between Alleghany Insurance
    Holdings LLC and Darwin Professional Underwriters, Inc, filed as
    Exhibit 10.7 to the
    Form S-1,
    is incorporated herein by reference.10
.8

2006 Darwin Professional
    Underwriters, Inc. Stock Incentive Plan, filed as
    Exhibit 10.1 to Darwin Professional Underwriters
    Inc.s Current Report on
    Form 8-K
    filed on May  23, 2006, is incorporated herein by
    reference. 10
.9

Darwin Professional Underwriters,
    Inc. Stock and Unit Plan for Non-Employee Directors, as amended
    by the Board of Directors, effective as of January 25,
    2007. 10
.10.1

Program Administrator Agreement
    effective as of October 1, 2004 between American
    Professional Agency, Inc., Darwin Professional Underwriters,
    Inc., Darwin National Assurance Company, Platte River Insurance
    Company and Capitol Specialty Insurance Corporation, filed as
    Exhibit 10.10 to Amendment No. 1 to the
    Form S-1,
    is incorporated herein by reference. S-9




---



##### Table of Contents



ExhibitNumber

Description of Exhibit10
.10.2

Amendment to Program Administrator
    Agreement effective as of October 1, 2004 between American
    Professional Agency, Inc., Darwin Professional Underwriters,
    Inc., Darwin National Assurance Company, Platte River Insurance
    Company and Capitol Specialty Insurance Corporation, filed as
    Exhibit 10.10.1 to Amendment No. 1 to the
    Form S-1,
    is incorporated herein by reference.10
.11

Program Administrator Agreement
    effective as of September 15, 2005 between Professional
    Underwriters and Darwin Professional Underwriters, Inc, filed as
    Exhibit 10.11 to Amendment No. 1 to the
    Form S-1,
    is incorporated herein by reference.10
.12

Underwriting Management Agreement
    effective as of December  12, 2003 by and between
    Platte River Insurance Corporation and the Darwin Professional
    Underwriters, Inc, filed as Exhibit 10.12 to the
    Form S-1,
    is incorporated herein by reference.10
.13

Underwriting Management Agreement
    effective as of June 1, 2003 by and between Capitol
    Indemnity Corporation and Darwin Professional Underwriters, Inc,
    filed as Exhibit 10.13 to the
    Form S-1,
    is incorporated herein by reference.10
.14

Underwriting Management Agreement
    effective as of June 1, 2003 by and between Capitol
    Specialty Insurance Corporation and Darwin Professional
    Underwriters, Inc, filed as Exhibit 10.14 to the
    Form S-1,
    is incorporated herein by reference.10
.15

Underwriting Management Agreement
    effective as of July 15, 2004 by and between Darwin
    National Assurance Company and Darwin Professional Underwriters,
    Inc, filed as Exhibit 10.15 to the
    Form S-1,
    is incorporated herein by reference.10
.16

Underwriting Management Agreement
    effective as of May 5, 2005 by and between Darwin Select
    Insurance Company and Darwin Professional Underwriters, Inc,
    filed as Exhibit 10.16 to the
    Form S-1,
    is incorporated herein by reference.10
.17.1

Reinsurance Agreement effective as
    of July 1, 2004 between Capitol Indemnity Corporation and
    Darwin National Assurance Company, filed as Exhibit 10.17
    to the
    Form S-1,
    is incorporated herein by reference.10
.17.2

Amendment effective as of
    January 1, 2006 to Reinsurance Agreement effective
    July 1, 2004 between Capitol Indemnity Corporation and
    Darwin National Assurance Company, filed as Exhibit 10.17.1
    to Amendment No. 4 to the
    Form S-1,
    is incorporated herein by reference.10
.18.1

Reinsurance Agreement effective as
    of July 1, 2004 between Capitol Specialty Insurance
    Corporation and Darwin National Assurance Company, filed as
    Exhibit 10.18 to the
    Form S-1,
    is incorporated herein by reference.10
.18.2

Amendment effective as of
    January 1, 2006 to Reinsurance Agreement effective
    July 1, 2004 between Capitol Specialty Insurance
    Corporation and Darwin National Assurance Company, filed as
    Exhibit 10.18.1 to Amendment No. 4 to the
    Form S-1,
    is incorporated herein by reference.10
.19.1

Reinsurance Agreement effective as
    of July 1, 2005 by and among Capitol Indemnity Corporation
    and Darwin National Assurance Company, filed as
    Exhibit 10.19.1 to the
    Form S-1,
    is incorporated herein by reference.10
.19.2

Amendment effective as of
    October 1, 2005 to Reinsurance Agreement effective as of
    July 1, 2005 by and among Capitol Indemnity Corporation and
    Darwin National Assurance Company, filed as Exhibit 10.19.2
    to the
    Form S-1,
    is incorporated herein by reference.10
.19.3

Amendment effective as of
    January 1, 2006 to Reinsurance Agreement effective
    July 1, 2005 between Capitol Indemnity Corporation and
    Darwin National Assurance Company, filed as Exhibit 10.19.3
    to Amendment No. 4 to the
    Form S-1,
    is incorporated herein by reference.10
.20.1

Reinsurance Agreement effective as
    of July 1, 2005 by and among Capitol Specialty Insurance
    Corporation and Darwin National Assurance Company, filed as
    Exhibit 10.20.1 to the
    Form S-1,
    is incorporated herein by reference.10
.20.2

Amendment effective as of
    October 1, 2005 to Reinsurance Agreement effective as of
    July 1, 2005 by and among Capitol Specialty Insurance
    Corporation and Darwin National Assurance Company, filed as
    Exhibit 10.20.2 to the
    Form S-1,
    is incorporated herein by reference.10
.20.3

Amendment effective as of
    January 1, 2006 to Reinsurance Agreement effective
    July 1, 2005 between Capitol Specialty Insurance
    Corporation and Darwin National Assurance Company, filed as
    Exhibit 10.20.3 to Amendment No. 4 to the
    Form S-1,
    is incorporated herein by reference. S-10




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##### Table of Contents



ExhibitNumber

Description of Exhibit10
.21.1

Commutation and Release Agreement
    effective as of July 1, 2005 by and between Capitol
    Indemnity Corporation and Darwin National Assurance Company,
    filed as Exhibit 10.21.1 to the
    Form S-1,
    is incorporated herein by reference.10
.21.2

Amendment effective as of
    October 1, 2005 to Commutation and Release Agreement
    effective as of July 1, 2005 by and between Capitol
    Indemnity Corporation and Darwin National Assurance Company.
    Reinsurance Agreement effective as of July 1, 2004 by and
    among Platte River Insurance Company and Darwin National
    Assurance Company, filed as Exhibit 10.21.2 to the
    Form S-1,
    is incorporated herein by reference.10
.22.1

Reinsurance Agreement effective as
    of July 1, 2004 by and among Platte River Insurance Company
    and Darwin National Assurance Company, filed as
    Exhibit 10.22 to the
    Form S-1,
    is incorporated herein by reference.10
.22.2

Amendment effective as of
    January 1, 2006 to Reinsurance Agreement effective
    July 1, 2004 between Platte River Insurance Company and
    Darwin National Assurance Company, filed as Exhibit 10.22.1
    to Amendment No. 4 to the
    Form S-1,
    is incorporated herein by reference.10
.23.1

Reinsurance Agreement effective as
    of July 1, 2005 by and among Platte River Insurance Company
    and Darwin National Assurance Company, filed as
    Exhibit 10.23.1 to the
    Form S-1,
    is incorporated herein by reference.10
.23.2

Amendment effective as of
    October 1, 2005 to Reinsurance Agreement effective as of
    July 1, 2005 by and among Platte River Insurance Company
    and Darwin National Assurance Company, filed as
    Exhibit 10.23.2 to the
    Form S-1,
    is incorporated herein by reference.10
.23.3

Amendment effective as of
    January 1, 2006 to Reinsurance Agreement effective
    July 1, 2005 between Platte River Insurance Company and
    Darwin National Assurance Company, filed as Exhibit 10.23.3
    to Amendment No. 4 to the
    Form S-1,
    is incorporated herein by reference.10
.24

Excess of Loss Reinsurance
    Contract effective as of July 1, 2003 by and among Capitol
    Indemnity Corporation, Capitol Specialty Insurance Corporation,
    Platte River Insurance Company
    and/or any
    other associated, affiliated or subsidiary companies of
    Alleghany Insurance Holding LLC and the Reinsurers signatory
    thereto, filed as Exhibit 10.24 to Amendment No. 1 to
    the
    Form S-1,
    is incorporated herein by reference.10
.25

Excess Cession Reinsurance
    Contract effective as of October  1, 2003 (originally
    effective as of January 1, 2004) by and among Capitol
    Indemnity Corporation, Capitol Specialty Insurance Corporation,
    Platte River Insurance Company
    and/or any
    other associated, affiliated or subsidiary companies of
    Alleghany Insurance Holding LLC and the Reinsurers signatory
    thereto, filed as Exhibit 10.25 to Amendment No. 1 to
    the
    Form S-1,
    is incorporated herein by reference.10
.26

Excess of Loss Reinsurance
    Contract effective as of October  1, 2003 (originally
    effective as of January 1, 2004) by and among Capitol
    Indemnity Corporation, Capitol Specialty Insurance Corporation,
    Platte River Insurance Company
    and/or any
    other associated, affiliated or subsidiary companies of
    Alleghany Insurance Holding LLC and the Reinsurers signatory
    thereto, filed as Exhibit 10.26 to Amendment No. 1 to
    the
    Form S-1,
    is incorporated herein by reference.10
.27

Psychiatrists Professional and
    Office Liability Quota Share effective as of October 1,
    2004 by and among Darwin National Assurance Company, Capitol
    Specialty Insurance Corporation and any other associated,
    affiliated or subsidiary companies of Alleghany Insurance
    Holdings, Ltd. and the Reinsurers signatory thereto, filed as
    Exhibit 10.27 to Amendment No. 1 to the
    Form S-1,
    is incorporated herein by reference.10
.28

Excess Cession Reinsurance
    Contract effective as of January  1, 2005 by and among
    Darwin National Assurance Company, Darwin Select Insurance
    Company, Capitol Indemnity Corporation, Capitol Specialty
    Insurance Corporation, Platte River Insurance Company
    and/or any
    other associated, affiliated or subsidiary companies of
    Alleghany Insurance Holding LLC and the Reinsurers signatory
    thereto, filed as Exhibit 10.28 to Amendment No. 1 to
    the
    Form S-1,
    is incorporated herein by reference.10
.29

Excess Cession Reinsurance
    Contract effective as of September  1, 2005 by and
    among Darwin National Assurance Company, Darwin Select Insurance
    Company, Capitol Indemnity Corporation, Capitol Specialty
    Insurance Corporation, Platte River Insurance Company
    and/or any
    other associated, affiliated or subsidiary companies of
    Alleghany Insurance Holding LLC and the Reinsurers signatory
    thereto, filed as Exhibit 10.29 to Amendment No. 1 to
    the
    Form S-1,
    is incorporated herein by reference. S-11




---



##### Table of Contents



ExhibitNumber

Description of Exhibit10
.30

Excess of Loss Reinsurance
    Contract effective as of January  1, 2005 by and among
    Darwin National Assurance Company, Darwin Select Insurance
    Company, Capitol Indemnity Corporation, Capitol Specialty
    Insurance Corporation, Platte River Insurance Company
    and/or any
    other associated, affiliated or subsidiary companies of
    Alleghany Insurance Holding LLC and the Reinsurers signatory
    thereto, filed as Exhibit 10.30 to Amendment No. 1 to
    the
    Form S-1,
    is incorporated herein by reference.10
.31

Excess of Loss Reinsurance
    Contract effective as of April 1, 2005 by and among Darwin
    National Assurance Company, Darwin Select Insurance Company,
    Capitol Indemnity Corporation, Capitol Specialty Insurance
    Corporation, Platte River Insurance Company
    and/or any
    other associated, affiliated or subsidiary companies of
    Alleghany Insurance Holding LLC and the Reinsurers signatory
    thereto, filed as Exhibit 10.31 to Amendment No. 1 to
    the
    Form S-1,
    is incorporated herein by reference.10
.32

First Excess Cession Reinsurance
    Contract effective as of April 1, 2005 by and among Darwin
    National Assurance Company, Darwin Select Insurance Company,
    Capitol Indemnity Corporation, Capitol Specialty Insurance
    Corporation, Platte River Insurance Company
    and/or any
    other associated, affiliated or subsidiary companies of
    Alleghany Insurance Holding LLC and the Reinsurers signatory
    thereto, filed as Exhibit 10.32 to Amendment No. 1 to
    the
    Form S-1,
    is incorporated herein by reference.10
.33

Quota Share Reinsurance Contract
    effective as of September 1, 2005 by and among Darwin
    National Assurance Company, Darwin Select Insurance Company,
    Capitol Indemnity Corporation, Capitol Specialty Insurance
    Corporation, Platte River Insurance Company
    and/or any
    other associated, affiliated or subsidiary companies of
    Alleghany Insurance Holding LLC and the Reinsurers signatory
    thereto, filed as Exhibit 10.33 to Amendment No. 1 to
    the
    Form S-1,
    is incorporated herein by reference.10
.34

Second Excess Cession Reinsurance
    Contract effective as of April 1, 2005 by and among Darwin
    National Assurance Company, Darwin Select Insurance Company,
    Capitol Indemnity Corporation, Capitol Specialty Insurance
    Corporation, Platte River Insurance Company
    and/or any
    other associated, affiliated or subsidiary companies of
    Alleghany Insurance Holding LLC and the Reinsurers signatory
    thereto, filed as Exhibit 10.34 to Amendment No. 1 to
    the
    Form S-1,
    is incorporated herein by reference.10
.35

Office Lease dated
    February 1, 2005 by and between Lancdon Limited Partnership
    and Darwin Professional Underwriters, Inc, filed as
    Exhibit 10.35 to Amendment No. 1 to the
    Form S-1,
    is incorporated herein by reference.10
.36

Software License Agreement dated
    November 21, 2003 by and between OneShield, Inc. and Darwin
    Professional Underwriters, Inc, filed as Exhibit 10.36 to
    Amendment No. 1 to the
    Form S-1,
    is incorporated herein by reference.10
.37

Software and Services Agreement
    effective as of November 9, 2004 between Valley Oak
    Systems, Inc. and Darwin Professional Underwriters, Inc, filed
    as Exhibit 10.37 to Amendment No. 1 to the
    Form S-1,
    is incorporated herein by reference.10
.38

Excess Cession Reinsurance
    Contract effective April 1, 2006 by and among Darwin
    National Assurance Company, Darwin Select Insurance Company
    and/or any
    other associated, affiliated or subsidiary companies of Darwin
    Professional Underwriters, Inc., including business assumed by
    the Reassured from Capitol Indemnity Corporation, Capitol
    Specialty Insurance Corporation, Platte River Insurance Company
    and/or any
    other associated, affiliated or subsidiary companies of
    Alleghany Insurance Holding LLC, but only in respect of business
    underwritten by Darwin Professional Underwriters, Inc. and the
    Reinsurers signatory thereto, filed as Exhibit 10.38 to
    Amendment No. 2 to Darwin Professional Underwriters,
    Inc.s Registration Statement on
    Form S-1
    (Reg.
    No. 333-132355)
    filed on May 3, 2006 (Amendment No. 2 to the
    Form S-1),
    is incorporated herein by reference.10
.39

Excess of Loss Reinsurance
    Contract effective April 1, 2006 by and among Darwin
    National Assurance Company, Darwin Select Insurance Company
    and/or any
    other associated, affiliated or subsidiary companies of Darwin
    Professional Underwriters, Inc., including business assumed by
    the Reassured from Capitol Indemnity Corporation, Capitol
    Specialty Insurance Corporation, Platte River Insurance Company
    and/or any
    other associated, affiliated or subsidiary companies of
    Alleghany Insurance Holding LLC, but only in respect of business
    underwritten by Darwin Professional Underwriters, Inc. and the
    Reinsurers signatory thereto, filed as Exhibit 10.39 to
    Amendment No. 2 to the
    Form S-1,
    is incorporated herein by reference. S-12




---



##### Table of Contents



ExhibitNumber

Description of Exhibit10
.40

Excess Cession Reinsurance
    Contract effective September 1, 2005 by and among Darwin
    National Assurance Company, Darwin Select Insurance Company,
    Capitol Indemnity Corporation, Capitol Specialty Insurance
    Corporation, Platte River Insurance Company
    and/or any
    other associated, affiliated or subsidiary companies of
    Alleghany Insurance Holding LLC, but only in respect of business
    underwritten by Darwin Professional Underwriters, Inc. and the
    Reinsurers signatory thereto, filed as Exhibit 10.40 to
    Amendment No. 2 to the
    Form S-1,
    is incorporated herein by reference.10
.41

Excess of Loss Reinsurance
    Contract effective April 1, 2006 by and among Darwin
    National Assurance Company, Darwin Select Insurance Company
    and/or any
    other associated, affiliated or subsidiary companies of Darwin
    Professional Underwriters, Inc., including business assumed by
    the Reassured from Capitol Indemnity Corporation, Capitol
    Specialty Insurance Corporation, Platte River Insurance Company
    and/or any
    other associated, affiliated or subsidiary companies of
    Alleghany Insurance Holding LLC, but only in respect of business
    underwritten by Darwin Professional Underwriters, Inc. and the
    Reinsurers signatory thereto, filed as Exhibit 10.41 to
    Amendment No. 2 to the
    Form S-1,
    is incorporated herein by reference.10
.42

First Excess Cession Reinsurance
    Contract effective April 1, 2006 by and among Darwin
    National Assurance Company, Darwin Select Insurance Company
    and/or any
    other associated, affiliated or subsidiary companies of Darwin
    Professional Underwriters, Inc., including business assumed by
    the Reassured from Capitol Indemnity Corporation, Capitol
    Specialty Insurance Corporation, Platte River Insurance Company
    and/or any
    other associated, affiliated or subsidiary companies of
    Alleghany Insurance Holding LLC, but only in respect of business
    underwritten by Darwin Professional Underwriters, Inc. and the
    Reinsurers signatory thereto, filed as Exhibit 10.42 to
    Amendment No. 2 to the
    Form S-1,
    is incorporated herein by reference.10
.43

Second Excess Cession Reinsurance
    Contract effective April 1, 2006 by and among Darwin
    National Assurance Company, Darwin Select Insurance Company
    and/or any
    other associated, affiliated or subsidiary companies of Darwin
    Professional Underwriters, Inc., including business assumed by
    the Reassured from Capitol Indemnity Corporation, Capitol
    Specialty Insurance Corporation, Platte River Insurance Company
    and/or any
    other associated, affiliated or subsidiary companies of
    Alleghany Insurance Holding LLC, but only in respect of business
    underwritten by Darwin Professional Underwriters, Inc. and the
    Reinsurers signatory thereto, filed as Exhibit 10.43 to
    Amendment No. 2 to the
    Form S-1,
    is incorporated herein by reference.10
.44

Quota Share Reinsurance Contract
    effective September 1, 2005 by and among Darwin National
    Assurance Company, Darwin Select Insurance Company, Capitol
    Indemnity Corporation, Capitol Specialty Insurance Corporation,
    Platte River Insurance Company
    and/or any
    other associated, affiliated or subsidiary companies of
    Alleghany Insurance Holding LLC, but only in respect of business
    underwritten by Darwin Professional Underwriters, Inc. and the
    Reinsurers signatory thereto and Addendums No. 1 and 2
    thereto, filed as Exhibit 10.44 to Amendment No. 2 to
    the
    Form S-1,
    is incorporated herein by reference.10
.45

Professional Liability Excess of
    Loss Reinsurance Contract effective October 1, 2005 by and
    among Darwin National Assurance Company, Darwin Select Insurance
    Company, Capitol Indemnity Corporation, Capitol Specialty
    Insurance Corporation, Platte River Insurance Company
    and/or any
    other associated, affiliated or subsidiary companies of
    Alleghany Insurance Holding LLC, but only in respect of business
    underwritten by Professional Government Underwriters
    and/or
    Darwin Professional Underwriters, Inc. and the Reinsurers
    signatory thereto, filed as Exhibit 10.45 to Amendment
    No. 2 to the
    Form S-1,
    is incorporated herein by reference.10
.46

Excess of Loss Reinsurance
    Contract effective November 1, 2005 by and among Darwin
    National Assurance Company, Darwin Select Insurance Company,
    Capitol Indemnity Corporation, Platte River Insurance Company
    and/or any other associated, affiliated or subsidiary companies
    of Alleghany Insurance Holding LLC, but only in respect of
    business underwritten by Darwin Professional Underwriters, Inc.
    and the Reinsurers signatory thereto, filed as
    Exhibit 10.46 to Amendment No. 2 to the
    Form S-1,
    is incorporated herein by reference.10
.47

2006 Employees Restricted
    Stock Plan, filed as Exhibit 10.3 to Darwin Professional
    Underwriters Inc.s Current Report on
    Form 8-K
    filed on May 23, 2006, is incorporated herein by reference.
     S-13




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##### Table of Contents



ExhibitNumber

Description of Exhibit10
.48.1

Trust Agreement, effective as
    of September 1, 2006 among DARWIN NATIONAL ASSURANCE
    COMPANY, as Grantor, CAPITOL INDEMNITY CORPORATION, as
    Beneficiary and THE BANK OF NEW YORK, as Trustee, filed as
    Exhibit 10.48.1 to Darwin Professional Underwriter,
    Inc.s Quarterly Report on
    Form 10-Q
    filed on November 7, 2006, is incorporated herein by
    reference.10
.48.2

Trust Agreement, effective as
    of September 1, 2006 among DARWIN NATIONAL ASSURANCE
    COMPANY, as Grantor, CAPITOL SPECIALITY INSURANCE COMPANY, as
    Beneficiary and THE BANK OF NEW YORK, as Trustee, filed as
    Exhibit 10.48.2 to Darwin Professional Underwriter,
    Inc.s Quarterly Report on
    Form 10-Q
    filed on November 7, 2006, is incorporated herein by
    reference.10
.48.3

Trust Agreement, effective as
    of September 1, 2006 among DARWIN NATIONAL ASSURANCE
    COMPANY, as Grantor, PLATTE RIVER INSURANCE COMPANY, as
    Beneficiary and THE BANK OF NEW YORK, as Trustee, filed as
    Exhibit 10.48.3 to Darwin Professional Underwriter,
    Inc.s Quarterly Report on
    Form 10-Q
    filed on November 7, 2006, is incorporated herein by
    reference.14


Code of Business Conduct and Ethics21


List of subsidiaries of Darwin
    Professional Underwriters, Inc.23


Consent of KPMG LLP, independent
    registered public accounting firm, to the incorporation by
    reference of its reports relating to the financial statements
    the related schedules of Darwin Professional Underwriters, Inc.
    and subsidiaries and its attestation report in Registration
    Statements
    No. 333-134416
    and
    333-134417
    on
    Form S-8
    of Darwin Professional Underwriters, Inc. of its report dated
    February 23, 2007.31
.1

Certification of the Chief
    Executive Officer of Darwin Professional Underwriters, Inc.,
    pursuant to
    Rule 13a-14(a)
    or
    Rule 15d-14(a)
    of the Securities Exchange Act of 1934.31
.2

Certification of the Chief
    Financial Officer of Darwin Professional Underwriters, Inc.,
    pursuant to
    Rule 13a-14(a)
    or
    Rule 15d-14(a)
    of the Securities Exchange Act of 1934.32
.1

Certification of the Chief
    Executive Officer of Darwin Professional Underwriters, Inc.,
    pursuant to 18 U.S.C. section 1350, as adopted
    pursuant to section 906 of the Sarbanes-Oxley Act of 2002,
    furnished as permitted by Item 601(b)(32)(ii) of
    Regulation S-K.
    This Exhibit 32.1 is not filed for purposes of
    Section 18 of the Securities Exchange Act of 1934 and it is
    not and should not be deemed to be incorporated by reference
    into any filing under the Securities Act of 1933 or the
    Securities Exchange Act of 1934.32
.2

Certification of the Chief
    Financial Officer of Darwin Professional Underwriters, Inc.,
    pursuant to 18 U.S.C. section 1350, as adopted
    pursuant to section 906 of the Sarbanes-Oxley Act of 2002,
    furnished as permitted by Item 601(b)(32)(ii) of
    Regulation S-K.
    This Exhibit 32.1 is not filed for purposes of
    Section 18 of the Securities Exchange Act of 1934 and it is
    not and should not be deemed to be incorporated by reference
    into any filing under the Securities Act of 1933 or the
    Securities Exchange Act of 1934.     
    
    Indicates a management contract or compensatory plan. S-14