UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q


þ		QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended ~~June~~September 30, 2010


o		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission file number: 1-11238

NYMAGIC, INC.

(Exact name of registrant as specified in its charter)

New York		13-3534162
New York (State or other jurisdiction of incorporation or organization)		13-3534162 (I.R.S. Employer Identification No.)
(State or other jurisdiction of		(I.R.S. Employer
919 Third Avenue (Address of principal executive offices)		10022 (Zip Code)
incorporation or organization)		Identification No.)
919 Third Avenue		10022
(Address of principal executive offices)		(Zip Code)

212 551-0600
(Registrant’s telephone number, including area code)

None
(Former name, former address and former fiscal year, if changed since last report)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes o No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):


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

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No þ

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

Class		Outstanding at ~~August~~November 1, 2010
Common Stock, $1.00 par value per share		8,499,513 shares

FORWARD — LOOKING STATEMENTS

This report contains certain forward-looking statements concerning the Company’s operations, economic performance and financial condition, including, in particular, the likelihood of the Company’s success in developing and expanding its business. Any forward-looking statements concerning the Company’s operations, economic performance and financial condition contained herein, including statements related to the outlook for the Company’s performance in 2010 and beyond, are made under the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. These statements are based upon a number of assumptions and estimates which inherently are subject to uncertainties and contingencies, many of which are beyond the control of the Company. Some of these assumptions may not materialize and unanticipated events may occur which could cause actual results to differ materially from such statements. These include, but are not limited to, the failure of the Company to close its pending ~~Agreement~~merger ~~and Plan of Merger~~ with ProSight Specialty Insurance Holdings, Inc., the cyclical nature of the insurance and reinsurance industry, premium rates, investment results, hedge fund results, the estimation of loss reserves and loss reserve development, uncertainties associated with asbestos and environmental claims, including difficulties with assessing latent injuries and the impact of litigation settlements, bankruptcies and potential legislation, the uncertainty surrounding the losses related to the attacks of September 11, 2001, and those associated with catastrophic hurricanes, the occurrence and effects of wars and acts of terrorism, net loss retention, the effect of competition, the ability to collect reinsurance receivables and the timing of such collections, the availability and cost of reinsurance, the possibility that the outcome of any litigation or arbitration proceeding is unfavorable, the ability to pay dividends, regulatory changes, changes in the ratings assigned to the Company by rating agencies, failure to retain key personnel, the possibility that our relationship with Mariner Partners, Inc. could terminate or change, and the fact that ownership of our common stock is concentrated among a few major stockholders and is subject to the voting agreement, as well as assumptions underlying any of the foregoing and are generally expressed with words such as “intends,” “intend,” “intended,” “believes,” “estimates,” “expects,” “anticipates,” “plans,” “projects,” “forecasts,” “goals,” “could have,” “may have” and similar expressions. These risks could cause actual results for the 2010 year and beyond to differ materially from those expressed in any forward-looking statements. The Company undertakes no obligation to update publicly or revise any forward-looking statements.

NYMAGIC, INC.
INDEX

	Page No.
Part I. Financial Information
Item 1. Financial Statements		2
Consolidated Balance Sheets — June 30, 2010 (Unaudited) and December 31, 2009		2
Consolidated Balance Sheets — September 30, 2010 (Unaudited) and December 31, 2009		2
Consolidated Statements of Operations — Six months ended June 30, 2010 (Unaudited) and June 30, 2009 (Unaudited)		3
Consolidated Statements of Operations — Nine months ended September 30, 2010 (Unaudited) and September 30, 2009 (Unaudited)		3
Consolidated Statements of Operations — Three months ended June 30, 2010 (Unaudited) and June 30, 2009 (Unaudited)		4
Consolidated Statements of Operations — Three months ended September 30, 2010 (Unaudited) and September 30, 2009 (Unaudited)		4
Consolidated Statements of Cash Flows — Six months ended June 30, 2010 (Unaudited) and June 30, 2009 (Unaudited)		5
Consolidated Statements of Cash Flows — Nine months ended September 30, 2010 (Unaudited) and September 30, 2009 (Unaudited)		5
Notes to Consolidated Financial Statements (Unaudited)		6
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations		23
Item 3. Quantitative and Qualitative Disclosures About Market Risk		36
Item 4. Controls and Procedures		37
Part II. Other Information
Item 1. Legal Proceedings		38
Item 1A. Risk Factors		3839
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds		3839
Item 3. Defaults Upon Senior Securities		3839
Item 4. Submission of Matters to a Vote of Security Holders		3839
Item 5. Other Information		3839
Item 6. Exhibits		3940
Exhibit 31.1
Exhibit 31.2
Exhibit 32.1
Exhibit 32.2

Item 1. Financial Statements

NYMAGIC, INC.

CONSOLIDATED BALANCE SHEETS

	June 30, 2010			December 31, 2009
	September 30, 2010			December 31, 2009
	(unaudited)
ASSETS
Investments:
Fixed maturities:
Held to maturity at adjusted amortized cost (fair value $53,327,136 and $59,327,813)	$	53,784,511		$	56,589,704
Held to maturity at adjusted amortized cost (fair value $52,573,853 and $59,327,813)	$	52,483,006		$	56,589,704
Available for sale at fair value (amortized cost $18,950,707 and $385,378,334)		19,307,300			386,519,408
Available for sale at fair value (amortized cost $18,926,409 and $385,378,334)		19,258,656			386,519,408
Equity securities — available for sale at fair value (cost $101,780 and $117,968)		101,780			117,968
Commercial loans at fair value (amortized cost $6,147,214 and $7,738,677)		3,351,132			5,001,118
Commercial loans at fair value (amortized cost $6,299,314 and $7,738,677)		3,018,117			5,001,118
Limited partnerships at equity (cost $159,970,990 and $127,379,526)		180,305,807			151,891,838
Limited partnerships at equity (cost $116,319,546 and $127,379,526)		132,222,970			151,891,838
Short-term investments		813,~~897~~900,~~261~~340			8,788,718
Cash and cash equivalents		~~399~~420,~~299~~350,~~281~~759			66,755,909
Total cash and investments		~~665~~641,~~047~~335,~~072~~628			675,664,663
Accrued investment income		~~332~~323,~~451~~856			3,365,535
Premiums and other receivables, net		3330,~~528~~021,~~073~~257			24,753,976
Receivable for investments disposed		1851,~~568~~845,~~300~~890			4,221,356
Reinsurance receivables on unpaid losses, net		~~187~~181,~~667~~212,~~196~~201			205,077,080
Reinsurance receivables on paid losses, net		2625,~~537~~097,~~800~~392			13,116,607
Deferred policy acquisition costs		2021,~~507~~302,~~270~~824			16,438,088
Prepaid reinsurance premiums		21,~~583~~095,~~108~~472			19,643,170
Deferred income taxes		2629,~~854~~097,~~161~~197			29,251,550
Property, improvements and equipment, net		144,~~053~~967,~~837~~512			14,602,141
Other assets		97,~~194~~607,~~065~~191			4,074,424
Total assets	$	1,~~023~~013,~~873~~906,~~333~~420		$	1,010,208,590
LIABILITIES
Unpaid losses and loss adjustment expenses	$	538,~~483~~252,~~914~~703		$	555,485,502
Reserve for unearned premiums		~~107~~109,~~177~~614,~~522~~222			89,458,244
Ceded reinsurance payable		1714,~~478~~833,~~832~~012			13,580,535
Notes payable		100,000,000			100,000,000
Dividends payable		1,~~146~~185,~~679~~029			737,308
Other liabilities		2827,~~758~~717,~~172~~805			34,937,369
Total liabilities		~~793~~791,~~045~~602,~~119~~771			794,198,958
SHAREHOLDERS’ EQUITY
Common stock		15,833,490			15,796,465
Paid-in capital		5354,~~593~~187,~~923~~320			51,699,572
Accumulated other comprehensive loss		(2221,~~050~~353,~~646~~928	)		(22,977,781	)
Retained earnings		~~271~~261,~~488~~673,~~038~~358			259,527,967
		318,864,805			304,046,223
		310,340,240			304,046,223
Treasury stock, at cost, 7,333,977 shares		(88,036,591	)		(88,036,591	)
Total shareholders’ equity		~~230~~222,~~828~~303,~~214~~649			216,009,632
Total liabilities and shareholders’ equity	$	1,~~023~~013,~~873~~906,~~333~~420		$	1,010,208,590

The accompanying notes are an integral part of these consolidated financial statements.

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NYMAGIC, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited)

	Six months ended June 30,
	Nine months ended September 30,
	2010			2009
Revenues:
Net premiums earned	$	89136,~~280~~616,~~566~~078		$	79117,~~170~~676,~~667~~922
Net investment income		147,~~426~~640,~~444~~954			1915,~~742~~365,~~704~~438
Net realized investment gains		7,207,898			1,774,543
Equity in earnings of limited partnerships		12,605,833			18,955,203
Net realized investment gains		7,207,898			2,320,323
Total other-than-temporary impairments		(300,199	)		(478,407	)
Portion of loss recognized in OCI (before taxes)		—			—
Net impairment loss recognized in earnings		(300,199	)		(478,407	)
Commission and other income		85,616			127,470
Other (loss) income, net		(8,069,072	)		3,439,012
Total revenues		~~110~~155,~~700~~701,~~325~~492			~~100~~157,~~336~~278,~~977~~491
Expenses:
Net losses and loss adjustment expenses incurred		5283,~~482~~846,~~795~~049			3857,~~011~~843,~~691~~159
Policy acquisition expenses		2032,~~626~~076,~~360~~067			1726,~~826~~899,~~390~~347
General and administrative expenses		2235,~~856~~511,~~240~~326			2030,~~478~~876,~~159~~796
Interest expense		35,~~371~~101,~~116~~160			35,~~364~~047,~~031~~269
Total expenses		99156,~~336~~534,~~511~~602			79120,~~680~~666,~~271~~571
Income before income taxes		11,363,814			20,656,706
(Loss) income before income taxes		(833,110	)		36,611,920
Income tax provision:
Current		(4,~~265~~917,~~530~~883	)		~~358~~4,~~790~~712,535
Deferred		1(720,~~898,161~~031	)		2(357,~~615,676~~982	)
Total income tax (benefit) expense		(25,~~367~~637,~~369~~914	)		24,~~974~~354,~~466~~553
Net income	$	134,~~731~~804,~~183~~804		$	1732,~~682~~257,~~240~~367
Weighted average number of shares of common stock outstanding-basic		8,~~485~~490,~~932~~509			8,~~417~~422,~~700~~448
Basic earnings per share	$	1.6257		$	23.1083
Weighted average number of shares of common stock outstanding-diluted		8,~~786~~814,~~342~~282			8,~~607~~624,~~700~~267
Diluted earnings per share	$	1.5655		$	23.0574
Dividends declared per share	$	.2030		$	.0814

The accompanying notes are an integral part of these consolidated financial statements.

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NYMAGIC, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited)

	Three months ended June 30,
	Three months ended September 30,
	2010			2009
Revenues:
Net premiums earned	$	4547,~~575~~335,~~199~~512		$	3938,~~041~~506,~~070~~255
Net investment income		785,~~381,246~~903			133,~~190,~~792,061
Net realized investment gains		5,384,096			2,191,241
Equity in earnings of limited partnerships		5,734,440			10,785,876
Total other-than-temporary impairments		—			(478,407	)
Net realized investment gains		—			545,780
Total other-than-temporary impairments		—			—
Portion of loss recognized in OCI (before taxes)		—			—
Net impairment loss recognized in earnings		—			~~(478,407~~—	)
Commission and other income		81,465			122,272
Other (loss) income, net		(8,154,688	)		3,311,542
Total revenues		5845,~~422~~001,~~006~~167			5456,~~066~~941,~~968~~514
Expenses:
Net losses and loss adjustment expenses incurred		2831,~~945~~363,~~533~~254			1719,~~329~~831,~~363~~468
Policy acquisition expenses		1011,~~393~~449,~~719~~707			89,~~529~~072,~~910~~957
General and administrative expenses		1112,~~584~~655,~~378~~086			10,~~433~~398,~~910~~637
Interest expense		1,~~687~~730,~~177~~044			1,683,~~818~~238
Total expenses		5257,~~610~~198,~~807~~091			3740,~~977~~986,~~001~~300
Income before income taxes		5,811,199			16,089,967
(Loss) income before income taxes		(12,196,924	)		15,955,214
Income tax provision:
Current		(~~984~~652,~~692~~353	)		14,~~145~~353,~~505~~745
Deferred		(882,~~440~~618,192	)		~~740~~(2,~~226~~973,658	)
Total income tax (benefit) expense		(13,~~073~~270,~~132~~545	)		1,~~885~~380,~~731~~087
Net income	$	6,884,331		$	14,204,236
Net (loss) income	$	(8,926,379	)	$	14,575,127
Weighted average number of shares of common stock outstanding-basic		8,499,~~161~~573			8,~~424~~431,~~206~~788
Basic earnings per share	$	.81		$	1.69
Basic (loss) earnings per share	$	(1.05	)	$	1.73
Weighted average number of shares of common stock outstanding-diluted		8,~~823~~499,~~618~~573			8,~~625~~657,~~087~~247
Diluted earnings per share	$	.78		$	1.65
Diluted (loss) earnings per share	$	(1.05	)	$	1.68
Dividends declared per share	$	.10		$	.0406

The accompanying notes are an integral part of these consolidated financial statements.

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NYMAGIC, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)

	Six months ended June 30,
	Nine months ended September 30,
	2010			2009
Cash flows (used in) provided by operating activities:
Net income	$	134,~~731~~804,~~183~~804		$	1732,~~682~~257,~~240~~367
Adjustments to reconcile net income to net cash (used in) provided by operating activities:
Provision for deferred taxes		1(720,~~898,161~~031	)		2(357,~~615,676~~982	)
Net realized investment gain		(7,207,898	)		(12,~~774~~320,~~543~~323	)
Net impairment loss recognized in earnings		300,199			478,407
Equity in earnings of limited partnerships		(612,~~691~~143,~~629~~046	)		(920,~~190~~492,~~282~~356	)
Net amortization from bonds and commercial loans		(5355,~~628~~183	)		~~265~~821,~~796~~888
Depreciation and other, net		~~419~~958,~~086~~621			~~654~~1,~~111~~024,857
Trading portfolio activities		3,198			1529,~~470~~217,~~658~~972
Commercial loan activities		12,~~673~~019,~~596~~817			(1,~~612~~615,~~331~~100	)
Loss on abandonment of computer equipment and software		8,176,225			—
Changes in:
Premiums and other receivables		(85,~~774~~267,~~097~~281	)		(125,~~546~~029,~~599~~248	)
Reinsurance receivables paid and unpaid, net		311,~~988~~884,~~691~~094			813,~~831~~248,~~187~~570
Ceded reinsurance payable		31,~~898~~252,~~297~~477			1(236,~~958,519~~064	)
Accrued investment income		3,~~033~~041,~~084~~679			~~890~~1,~~553~~558,475
Deferred policy acquisition costs		(4,~~069~~864,~~182~~736	)		(2,~~517~~425,~~641~~142	)
Prepaid reinsurance premiums		(1,~~939~~452,~~938~~302	)		(53,~~559~~862,~~966~~221	)
Other assets		(53,~~119~~532,~~641~~766	)		~~151~~18,~~311~~492,809
Unpaid losses and loss adjustment expenses		(17,~~001~~232,~~588~~799	)		310,~~934~~015,~~421~~374
Reserve for unearned premiums		1720,~~719~~155,~~278~~978			1412,~~692~~177,~~409~~356
Other liabilities		(67,~~179~~219,~~197~~564	)		96,~~309~~862,~~916~~546
Total adjustments		(2411,~~103~~903,~~208~~318	)		2657,~~051~~559,~~602~~818
Net cash (used in) provided by operating activities		(107,~~372~~098,~~025~~514	)		4389,~~733~~817,~~842~~185
Cash flows provided by (used in) investing activities:
Held to maturity fixed maturities matured, repaid and redeemed		57,~~051~~461,~~203~~777			36,~~931~~712,~~388~~876
Available for sale fixed maturities acquired		(345,751,~~245~~451	)		(~~273~~423,~~469~~889,~~418~~045	)
Available for sale fixed maturities sold		719,040,449			~~204~~264,~~813~~735,~~774~~655
Available for sale equity securities sold		53,960			—
Capital contributed to limited partnerships		(45,~~806~~929,~~966~~970	)		—(27,235,000	)
Distributions and redemptions from limited partnerships		2477,~~084~~741,~~631~~891			11,~~878~~856,~~489~~894
Net purchase of short-term investments		(~~108~~5,~~544~~111,622	)		~~(25~~45,~~179~~254,~~966~~806	)
Receivable for investments disposed and not yet settled		(1447,~~346~~624,~~944~~534	)		1923,~~671~~843,~~995~~597
Acquisition of property & equipment, net		129,218			(3,319,948	)
Payable for securities not yet settled		—			5,445,700
Net cash provided by (used in) investing activities		342,345,762			(61,673,686	)
Acquisition of property & equipment, net		499,783			(4,759,347	)
Net cash provided by (used in) investing activities		360,380,283			(98,033,864	)
Cash flows provided by from financing activities:
Proceeds from stock issuance and other		12,~~931~~524,~~376~~773			~~918~~1,~~228~~569,104
Cash dividends paid to stockholders		(12,~~361~~211,~~741~~692	)		(~~794~~1,~~551~~133,072	)
Net cash provided by financing activities		~~569~~313,~~635~~081			~~123~~436,~~677~~032
Net increase (decrease) in cash		~~332~~353,~~543~~594,~~372~~850			(177,~~816~~780,~~167~~647	)
Cash and cash equivalents at beginning of period		66,755,909			75,672,102
Cash and cash equivalents at end of period	$	~~399~~420,~~299~~350,~~281~~759		$	5767,~~855~~891,~~935~~455
Supplemental disclosures:
Interest paid	$	36,~~250~~542,~~000~~867		$	36,~~251~~501,388
Net federal income tax paid	$	1,514,619		$	—
Net federal income tax received	$	100,763		$	9,148,020

The accompanying notes are an integral part of these consolidated financial statements.

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(1) Basis of Presentation and Accounting Policies

Basis of presentation

The interim consolidated financial statements are prepared in conformity with U.S. generally accepted accounting principles (GAAP) and are unaudited. In the opinion of management, all material adjustments necessary for a fair presentation of results have been reflected for such periods. Adjustments to financial statements consist of normal recurring items. The results of operations for any interim period are not necessarily indicative of results for the full year. These financial statements and related notes should be read in conjunction with the financial statements and notes thereto contained in the Company’s Annual Report on Form 10-K for the year ended December 31, 2009.

The preparation of the consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and claims and expenses during the reporting period. Actual results could differ from those estimates.

Beginning in the third quarter of 2010, the Company presents the equity in earnings of partnership separately from net investment income on the income statement.

Adoption of new accounting pronouncements

In June 2009, the FASB issued ASC 860, Transfers and Servicing (“ASC 860”). ASC 860 amends the derecognition guidance in Statement 140 and eliminates the concept of qualifying special-purpose entities (“QSPEs”). ACS 860 is effective for fiscal years and interim periods beginning after November 15, 2009. Early adoption of ASC 860 was prohibited. The Company adopted ASC 860 during the first quarter of 2010 and the adoption did not have an effect on its results of operations, financial position or liquidity.

In June 2009, the FASB issued ASC 810, (“ASC 810”), which amends the consolidation guidance applicable to variable interest entities (“VIE”). An entity would consolidate a VIE, as the primary beneficiary, when the entity has both of the following characteristics: (a) The power to direct the activities of a VIE that most significantly impact the entity’s economic performance and (b) The obligation to absorb losses of the entity that could potentially be significant to the VIE or the right to receive benefits from the entity that could potentially be significant to the VIE. Ongoing reassessment of whether an enterprise is the primary beneficiary of a VIE is required. ASC 810 amends interpretation 46(R) to eliminate the quantitative approach previously required for determining the primary beneficiary of a VIE. This Statement is effective for fiscal years and interim periods beginning after November 15, 2009. The Company adopted ASC 810 during the first quarter of 2010 and the adoption did not have an effect on its results of operations, financial position or liquidity.

In June 2010, the FASB issued ASU 2010-09, Amendments to Certain Recognition and Disclosure Requirements. ASU 2010-09 is an amendment of ASC 855, Subsequent Events. ASC 855 established that an entity should disclose the date through which subsequent events have been evaluated. ASU 2010-09 amends ASC 855 to state that an SEC filer is not required to disclose the date through which subsequent events have been evaluated. The Company adopted ASU 2010-09 during the ~~second~~third quarter of 2010 and the adoption did not have an effect on its results of operations, financial position or liquidity.

Future adoption of new accounting pronouncements

In January 2010, the FASB issued ASU 2010-06, Improving Disclosures about Fair Value Measurements. ASU 2010-06 is an amendment of ASC 820, Fair Value Measurements and Disclosures. ASU 2010-06 provides additional disclosures for transfers in and out of the Levels I and II and for activity in Level III as well as clarifies certain existing disclosure requirements including level of desegregation and disclosures around inputs and valuation techniques. The final amendments to ASU 2010-06 were effective for annual and interim reporting periods beginning after December 15, 2009, except for the requirement to provide the Level 3 activity for purchases, sales, issuances, and settlements on a gross basis. That requirement will be effective for fiscal years beginning after December 15, 2010, and for interim periods within those fiscal years. The Company adopted ASU 2010-06 during the first quarter of 2010 and the adoption did not have an effect on its results of operations, financial position or liquidity. The portion of ASU 2010-06 that has not yet been adopted is not expected to have a material impact on our Company’s financial position, cash flows or results of operations.

In October 2010, the FASB issued ASU 2010-26, Financial Services — Insurance (Topic 944): Accounting for Costs Associated with Acquiring or Renewing Insurance Contracts. ASU 2010-26 clarifies the definition of acquisition costs that are eligible for deferral. Acquisition costs are to include only those costs that are directly related to the successful acquisition or renewal of insurance contracts; incremental direct costs of contract acquisition that are incurred in transactions with either independent third parties or employees; and advertising costs meeting the capitalization criteria for direct-response advertising. This guidance will be effective for fiscal years beginning after December 15, 2011, and interim periods within those years. This guidance may be applied prospectively upon the date of adoption, with retrospective application permitted, but not required. Early adoption is permitted. The Company will adopt this guidance in the first quarter of 2012. The Company has not yet determined the impact adoption will have on its results of operations, financial position or liquidity.

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(2) Investments:

A summary of the Company’s investment portfolio components at ~~June~~September 30, 2010 and December 31, 2009 is presented below:

	June 30, 2010		Percent			December 31, 2009		Percent
	September 30, 2010		Percent			December 31, 2009		Percent
Fixed maturities held to maturity (adjusted amortized cost):
Residential mortgage-backed securities	$	5352,~~784~~483,~~511~~006		8.0918	%	$	56,589,704		8.37	%
Total fixed maturities held to maturity	$	5352,~~784~~483,~~511~~006		8.0918	%	$	56,589,704		8.37	%
Fixed maturities available for sale (fair value):
U.S. Treasury securities	$	18,~~484~~434,~~492~~108		2.7887	%	$	385,715,035		57.09	%
Municipal obligations		~~822~~824,~~808~~548		0.1213	%		804,373		0.12	%
Total fixed maturities available for sale	$	19,~~307~~258,~~300~~656		23.9000	%	$	386,519,408		57.21	%
Total fixed maturities	$	7371,~~091~~741,~~811~~662		1011.9918	%	$	443,109,112		65.58	%
Equity securities available for sale (fair value):
Common stock	$	101,780		0.02	%	$	117,968		0.02	%
Total equity securities	$	101,780		0.02	%	$	117,968		0.02	%
Cash, cash equivalents and short-term investments	$	~~408~~434,~~196~~251,~~542~~099		6167.3871	%	$	75,544,627		11.18	%
Total fixed maturities, equity securities, cash, cash equivalents and short-term investments	$	~~481~~506,~~390~~094,~~133~~541		7278.3991	%	$	518,771,707		76.78	%
Commercial loans (fair value)	$	3,~~351~~018,~~132~~117		0.5047	%	$	5,001,118		0.74	%
Limited partnership hedge funds (equity)	$	~~180~~132,~~305~~222,~~807~~970		2720.1162	%	$	151,891,838		22.48	%
Total investment portfolio	$	~~665~~641,~~047~~335,~~072~~628		100.00	%	$	675,664,663		100.00	%

As of ~~June~~September 30, 2010, 9192.51% of the Company’s fixed income and short-term ~~investment~~ investment portfolios were considered investment grade by S&P.

Short-term investments, which have maturity of one year or less from the date of purchase, are carried at amortized cost, which approximates fair value. The Company considers all highly liquid debt instruments purchased with an original maturity of three months or less to be cash equivalents. The Company’s investment in limited partnerships at equity include hedge fund interests in limited partnerships and limited liability companies.

Pursuant to certain covenants in the Agreement and Plan of Merger with ProSight Specialty Insurance Holdings, Inc., dated July 15, 2010, the Company has submitted redemption notices for all of its hedge fund investments except for its investment in Tiptree Financial Partners, LP.

The Company’s investment in Tiptree Financial Partners, LP is valued at approximately $35 million at September 30, 2010. During the quarter, Tiptree Financial Partners, LP completed the acquisition of an entity for which the initial acquisition accounting is not yet completed. While the Company believes the purchase price approximates the fair value of identifiable assets acquired and liabilities assumed, the ultimate valuation of such assets and liabilities, including intangibles, which is still in process, may result in the recording of goodwill or a gain on bargain purchase.

- 7 -

Details of the residential mortgage-backed securities (“RMBS”) portfolio as of ~~June~~ September 30, 2010, including publicly available qualitative information, are presented below:

Weighted

Average

Loan to

FICO

D60+

Credit

S&P

Moody’s

Adjusted

Loan to

FICO

D60+

Credit

S&P

Moody’s

Security

~~Adjusted~~amortized cost

Value %

Credit

Delinquency

Support

Rating

~~Rating~~

Rating

description

Issue date

~~amortized cost~~ (6)

Fair value

(1)

Score (2)

Rate (3)

Level (4)

(5)

~~(5)~~

(5)

AHMA 2006-3

7/2006

10,~~666~~457,~~400~~012

9,~~854~~707,~~819~~649

84.98

705

3834.23

3635.93

~~Caa1~~

Caa1

CWALT 2005-69

11/2005

6,~~865~~677,~~539~~549

6,~~414~~077,~~370~~223

8180.1

698

5155.63

47.76

CCC

~~Ba3~~

Ba3

CWALT 2005-76

12/2005

6,~~752~~605,~~551~~873

6,~~659~~341,~~662~~236

81.64

~~700~~699

54.91

4847.1

CCC

RALI 2005-QO3

10/2005

7,~~178~~042,~~258~~417

5,~~948~~525,~~895~~030

80.42

704

4443.62

3938.93

B-

WaMu 2005-AR17

12/2005

5,~~844~~688,~~676~~359

6,~~684~~976,~~510~~057

7372.04

715

2829.32

49.53

AAA

WaMu 2006-AR9

7/2006

87,~~048~~842,~~422~~748

8,~~550~~649,~~953~~699

7473.27

731

3433.04

22.95

~~Ba1~~

Ba1

WaMu 2006-AR13

9/2006

8,~~428~~169,~~665~~048

9,~~213~~296,~~927~~959

75.41

728

3332.58

2322.79

CCC

5352,~~784~~483,~~511~~006

5352,~~327~~573,~~136~~853

(1)		The dollar-weighted average amortized loan-to-original value of the underlying loans at ~~July~~October 25, 2010.
(2)		Average FICO credit score at origination of remaining borrowers in the loan pool at ~~July~~October 25, 2010.
(3)		The percentage of the current outstanding principal balance that is more than 60 days delinquent as of ~~July~~October 25, 2010. This includes loans that are in foreclosure and real estate owned.
(4)		The current credit support provided by subordinate ranking tranches within the overall security structure at ~~July~~October 25, 2010.
(5)		Ratings as of ~~July~~October 25, 2010.
(6)		After OTTI recognized in OCI.

The Company’s cash flow analysis for each of these securities attempts to estimate ~~the~~ the likelihood of any future impairment. While the Company does not believe there are any other than temporary impairments (“OTTI”) currently, future estimates may change depending upon the actual performance statistics reported for each security to the Company. This may result in future charges based upon revised estimates for delinquency rates, severity rates or prepayment patterns. These changes in estimates may be material. These securities are collateralized by pools of “Alt-A” mortgages, and receive priority payments from these pools. The Company’s securities rank senior to subordinated tranches of debt collateralized by each respective pool of mortgages. The Company has collected all applicable interest and principal repayments on such securities to date. As of ~~July~~October 25, 2010, the levels of subordination ranged from 22.95% to 49.53% of the total ~~debt~~ debt outstanding for each pool. Delinquencies within the underlying mortgage pools ranged ~~from~~ 28from 29.32% to 5455.93% of total amounts outstanding. For comparison purposes, as of ~~July~~ October 25, 2009, delinquencies ranged from 2528.37% to 4751.21%, while subordination levels ranged from 26 25.27% to 51.20%. Delinquency rates are not the same as severity rates, or actual loss, but are an indication of the potential for losses of some degree in future periods.

The fair value of each RMBS investment is based on the framework established in ASC 820 (See Note 3). Fair value is determined by estimating the price at which an asset might be sold on the measurement date. There has been a considerable amount of turmoil in the U.S. housing market since 2007, which has led to market declines in the Company’s RMBS securities. Because the pricing of these investments is complex and has many variables affecting price including, projected delinquency rates, projected severity rates, estimated loan to value ratios, vintage year, subordination levels, projected prepayment speeds and expected rates of return required by prospective purchasers, the estimated price of such securities will differ among brokers depending on these facts and assumptions. While many of the inputs utilized in pricing are observable, many other inputs are unobservable and will vary depending upon the broker. During periods of market dislocation, such as current market conditions, it is increasingly difficult to value such investments because trading becomes less frequent and/or market data becomes less observable. As a result, valuations may include inputs and assumptions that are less observable or require greater estimation and judgment as well as valuation methods that are more complex. For example, assumptions regarding projected delinquency and severity rates have become very pessimistic due to uncertainties associated with the residential real estate markets. Additionally, there are only a limited number of prospective purchasers of such securities and such purchasers generally demand high expected returns in the current market. This has resulted in lower quotes from securities dealers, who are, themselves, reluctant to position such securities because of financing uncertainties. Accordingly, the dealer quotes used to establish fair value may not be reflective of the expected future cash flows from a security and, therefore, not reflective of its intrinsic value.

- 8 -

As of ~~June~~September 30, 2010, there was no significant variance in RMBS securities prices from different pricing sources. Management also determined that the few trades of RMBS were not consistent with the prices received and analysis performed at quarter end. This confirmed management’s previously established view that the market is dislocated and illiquid. Accordingly, the Company determined fair value using ~~a matrix pricing analysis. The pricing matrix was~~ ~~based~~prices onobtained ~~risk~~from ~~profile~~its ~~and qualitative and quantitative data for similar vintage RMBS that had recently established prices~~custodian. ~~The~~From ~~securities were evaluated in each of the following 9 categories: sector~~September 30, ~~collateral,~~2009 ~~current S&P rating, current credit support, 3 month~~to ~~conditional default rate, 3~~June ~~month voluntary prepayment~~30, ~~1 month loss severity~~2010, ~~60+ delinquencies,~~there ~~and~~was ~~FICO~~variance ~~score.~~in ~~The price for each~~ RMBS ~~was~~securities ~~based upon the~~ prices offrom ~~those RMBS~~different ~~securities~~pricing ~~that~~sources, ~~had~~therefore, the ~~similar~~Company ~~underlying~~determined ~~characteristics~~fair value tousing ~~the~~a ~~Company’s~~matrix ~~RMBS portfolio~~pricing analysis.

There are government sponsored programs that may affect the performance of the Company’s RMBS. Further there has been recent moratoriums on foreclosures and extensive litigation regarding placing mortgages back to the originators, The Company is uncertain as to the impact, if any, these programs or events will have on the fair value of the Company’s RMBS. The fair value of such securities at ~~June~~September 30, 2010 was ~~approximately~~ approximately $5352.36 million.

The gross unrealized gains and losses on fixed maturities held to maturity and available for sale at ~~June~~September 30, 2010 and December 31, 2009 are as follows:

June 30, 2010

September 30, 2010

OTTI

Adjusted

Gross

Amortized

Recognized

Amortized Cost

Unrealized

Fair

Cost

In OCI (a)

(after OTTI)

Gains

Losses

Value

RMBS

8885,~~065~~667,~~174~~249

(3433,~~280~~184,~~663~~243

)

5352,~~784~~483,~~511~~006

23,~~127~~222,~~627~~560

(23,~~585~~131,~~002~~713

)

5352,~~327~~573,~~136~~853

U.S. Treasury securities available for sale

18,~~210~~185,~~304~~942

—

18,~~210~~185,~~304~~942

~~274~~248,~~188~~166

—

18,~~484~~434,~~492~~108

Municipal obligations available for sale

740,~~404~~467

—

740,~~404~~467

8284,~~404~~081

—

~~822~~824,~~808~~548

Totals

~~107~~104,~~015~~593,~~882~~658

(3433,~~280~~184,~~663~~243

)

7271,~~735~~409,~~219~~415

23,~~484~~554,~~219~~807

(23,~~585~~131,~~002~~713

)

7271,~~634~~832,~~436~~509


	December 31, 2009
			OTTI			Adjusted		Gross		Gross
	Amortized		Recognized			Amortized Cost		Unrealized		Unrealized			Fair
	Cost		In OCI (a)			(after OTTI)		Gains		Losses			Value
RMBS	$	93,081,210	$	(36,491,506	)	$	56,589,704	$	5,077,950	$	(2,339,841	)	$	59,327,813
U.S. Treasury securities available for sale		384,638,048		—			384,638,048		1,317,809		(240,822	)		385,715,035
Municipal obligations available for sale		740,286		—			740,286		64,087		—			804,373


Totals	$	478,459,544	$	(36,491,506	)	$	441,968,038	$	6,459,846	$	(2,580,663	)	$	445,847,221

(a) Effective April 1, 2009, the Company adopted a new accounting standard resulting in a reclassification in the amount of $40.1 million of non-credit investment impairment losses previously recognized on the Company’s RMBS holdings that are currently being held to maturity. These securities are categorized as non-credit based on the Company’s impairment analysis. The Company is accreting from OCI to the amortized cost of the RMBS over their remaining life in a prospective manner on the basis of the amount and timing of future cash flows. The amount of the accretion was $23.23 million for the ~~six~~nine months ended ~~June~~September 30, 2010. The amount of accretion for the period April 1, 2009 to December 31, 2009 was $3.7 million.

- 9 -

Net investment income from each major category of investments for the periods indicated is as follows:

	Six months ended						Three months ended
	Nine months ended						Three months ended
	June 30,						June 30,
	September 30,						September 30,
	2010			2009			2010			2009
	(in millions)
Fixed maturities held to maturity	$	0.69		$	1.15		$	0.3		$	0.54
Fixed maturities available for sale		3.45			4.7.1			0.81			2.75
Trading securities		3.4			34.75			~~3.4~~—			0.78
Commercial loans		~~0.2~~—			12.91			(0.23	)		10.81
Equity in earnings of limited partnerships		7.9			9.2			3.2			8.0
Short-term investments		—			0.4			—			0.1
Short-term investments		—			0.3			—			0.1
Total investment income		7.8			15.6			0.1			3.9
Total investment income		15.5			20.9			7.9			13.8
Investment expenses		(0.2	)		(0.2	)		—			(0.1	)
Investment expenses		(1.1	)		(1.2	)		(0.5	)		(0.6	)
Net investment income	$	7.6		$	15.4		$	0.1		$	3.8
Net investment income	$	14.4		$	19.7		$	7.4		$	13.2

Details related to investment income from commercial loans and trading activities presented in the preceding table are as follows:

	Six months ended						Three months ended
	Nine months ended						Three months ended
	June 30,						June 30,
	September 30,						September 30,
	2010			2009			2010			2009
	(in millions)
Interest and dividends earned	$	0.57		$	01.70		$	0.42		$	0.3
Net realized gains (losses)		3.2			(01.30	)		~~3.2~~—			—(0.7	)
Net unrealized (depreciation) appreciation		(0.15	)		56.26			—(0.5	)		21.23
Total investment income from commercial loans and trading activities	$	3.64		$	56.6		$	3(0.63	)	$	20.59

- 10 -

The following tables summarize all fixed maturity securities in an unrealized loss position at ~~June~~September 30, 2010 and December 31, 2009, disclosing the aggregate fair value ~~and~~ and gross unrealized loss for less than as well as more than 12 months:

	2010
	Less than 12 months				12 months or longer					Total
	Fair		Unrealized		Fair		Unrealized			Fair		Unrealized
	Value		Loss		Value		Loss			Value		Loss (1)
Residential mortgage-backed securities held to maturity	$	—	$	—	$	5352,~~327~~573,~~136~~853	$	(3433,~~738~~093,~~039~~396	)	$	5352,~~327~~573,~~136~~853	$	(3433,~~738~~093,~~039~~396	)
Total temporarily impaired securities	$	—	$	—	$	5352,~~327~~573,~~136~~853	$	(3433,~~738~~093,~~039~~396	)	$	5352,~~327~~573,~~136~~853	$	(3433,~~738~~093,~~039~~396	)


	2009
	Less than 12 months					12 months or longer					Total
	Fair		Unrealized			Fair		Unrealized			Fair		Unrealized
	Value		Loss			Value		Loss			Value		Loss (1)

Residential mortgage-backed securities held to maturity	$	—	$	—		$	59,327,813	$	(33,753,397	)	$	59,327,813	$	(33,753,397	)
U.S. Treasury Securities		198,588,058		(240,822	)		—		—			198,588,058		(240,822	)


Total temporarily impaired securities	$	198,588,058		(240,822	)	$	59,327,813	$	(33,753,397	)	$	257,915,871	$	(33,994,219	)

At ~~June~~September 30, 2010, the Company was holding seven fixed maturity securities that ~~were~~ were in an unrealized loss position. The Company believes these unrealized losses are temporary, as they resulted from changes in market conditions, including interest rates or sector spreads, and are not considered to be credit risk related. The Company does not intend to sell nor does it expect to be required to sell the securities outlined above.

The amortized cost and fair value of debt securities that are not included in the Company’s commercial loan portfolio at ~~June~~September 30, 2010 are shown below by contractual maturity. Expected maturities will differ from contractual maturities, because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.

	Amortized		Fair
	Cost		Value
Due in one year or less	$	615,~~361~~864,~~027~~433	$	615,~~456~~956,~~957~~866
Due after one year through five years		112,~~849~~321,~~276~~509		122,~~027~~477,~~535~~242
Due after five years through ten years		482,~~054~~492		~~529~~528,~~205~~505
Due after ten years		~~258~~257,~~350~~975		~~293~~296,~~603~~043
Subtotal		18,~~950~~926,~~707~~409		19,~~307~~258,~~300~~656
Residential mortgage-backed securities		5352,~~784~~483,~~511~~006		5352,~~327~~573,~~136~~853
Totals	$	7271,~~735~~409,~~218~~415	$	7271,~~634~~832,~~436~~509

- 11 -

The components for net realized gains (losses) for the ~~six~~nine months ended ~~June~~ September 30, 2010 and 2009 are as follows:

	Six months ended						Three months ended
	Nine months ended						Three months ended
	June 30,						June 30,
	September 30,						September 30,
	2010			2009			2010			2009
Realized gains (losses) on investments:
Fixed maturities gains	$	7,424,553		$	34,~~794~~830,~~847~~332		$	~~5,583,882~~—		$	21,~~463~~035,~~459~~485
Equity securities gains		37,772			—			~~37,772~~—			—
Fixed maturities losses		(254,427	)		(12,~~882~~378,~~468~~981	)		~~(237,558~~—	)		(~~271~~496,~~993~~513	)
Short-term investments		—			(~~137~~131,~~836~~028	)		—			~~(225~~6,808	)
Net realized investment gains before impairments		7,207,898			12,~~774~~320,~~543~~323			~~5,384,096~~—			2545,~~191,241~~780
Fixed maturities impairments		(300,199	)		(478,407	)		—			~~(478,407~~—	)
Net realized investment gains after impairments	$	6,907,699		$	1,~~296~~841,~~136~~916		$	~~5,384,096~~—		$	1545,~~712,834~~780

Proceeds from redemptions in investments held to maturity or disposals of fixed income investments available for sale for the ~~six~~nine months ended ~~June~~September 30, 2010 and ~~2009~~ 2009 were $~~724~~726,~~091~~502,~~652~~226 and $~~208~~271,~~745~~448,~~162~~477, respectively.

The OTTI of $300,199 recognized for the ~~six~~nine months ended ~~June~~September 30, 2010 resulted from the Company’s intention to sell certain U.S. Treasury securities under circumstances in which those securities are not expected to recover their entire amortized cost prior to sale. The Company recorded declines in values of investments considered to be OTTI of $478,407 for the ~~six~~nine months ended ~~June~~September 30, 2009, resulting from the Company’s intention to sell certain municipal securities whereby those securities were not expected to recover their entire amortized cost prior to sale.

The Company maintains a portfolio of municipal bonds that has an average S&P rating of AAA. The average S&P rating includes certain municipal bonds that carry the benefit of insurance that provides credit enhancement. Excluding the benefit of this credit enhancement, the portfolio of municipal bonds has an average underlying S&P rating of A+. The Company purchases municipal bonds with the intent to rely upon the underlying credit rating of the security exclusive of the credit enhancement provided by any financial guarantor.

The following table lists the financial guarantors, as well as the average S&P ratings and the average underlying S&P ratings, excluding the impact of credit enhancement, of the guaranteed municipal bonds in our investment portfolio in which there are a total of two municipal securities with a fair value of approximately $~~823~~825,000 containing credit enhancements. The Company does not have any investments directly in the following financial guarantors.

Fair

Average

~~Average~~

Average

Value

S&P

~~Underlying~~

Underlying

Financial Guarantors

(in millions)

Rating

~~Rating~~

Rating

Financial Guaranty Insurance Company

0.3

AAA

~~AAA~~

AAA

Assured Guaranty Municipal Corporation

0.5

~~AAA~~AA+

~~BBB-~~

BBB-

Total

0.8

- 12 -

(3) Fair Value Measurements:

The Company’s estimates of fair value for financial assets and financial liabilities are based on the framework established in ASC 820. The framework is based on the inputs used in valuation and gives the highest priority to quoted prices in active markets and requires that observable inputs be used in the valuations when available. The disclosure of fair value estimates in the ASC 820 hierarchy is based on whether the significant inputs into the valuation are observable. In determining the level of the hierarchy in which the estimate is disclosed, the highest priority is given to unadjusted quoted prices in active markets and the lowest priority to unobservable inputs that reflect the Company’s significant market assumptions. The standard describes three levels of inputs that may be used to measure fair value and categorize the assets and liabilities within the hierarchy:

Level 1 — Fair value is based on unadjusted quoted prices in active markets that are accessible to the Company for identical assets or liabilities. These prices generally provide the most reliable evidence and are used to measure fair value whenever available. Active markets are defined as having the following for the measured asset/liability: i) many transactions, ii) current prices, iii) price quotes not varying substantially among market makers, iv) narrow bid/ask spreads and v) most information publicly available.

- 12 -

The Company’s Level 1 assets are comprised of U.S. Treasury securities, which are highly liquid and traded in active exchange markets.

The Company uses the quoted market prices as fair value for assets classified as Level 1. The Company receives quoted market prices from a third party, a nationally recognized pricing service. Prices are obtained from available sources for market transactions involving identical assets. For the majority of Level 1 investments, the Company receives quoted market prices from an independent pricing service. The Company validates primary source prices by back testing to trade data to confirm that the pricing service’s significant inputs are observable. The Company also compares the prices received from the third party service to other third party sources to validate the consistency of the prices received on securities.

Level 2 — Fair value is based on significant inputs, other than Level 1 inputs, that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the asset through corroboration with observable market data. Level 2 inputs include quoted market prices in active markets for similar assets, non-binding quotes in markets that are not active for identical or similar assets and other market observable inputs (e.g., interest rates, yield curves, prepayment speeds, default rates loss severities, etc.).

The Company’s Level 2 assets include municipal debt obligations.

The Company generally obtains valuations from third party pricing services and/or security dealers for identical or comparable assets or liabilities by obtaining non-binding broker quotes (when pricing service information is not available) in order to determine an estimate of fair value. The Company bases all of its estimates of fair value for assets on the bid price as it represents what a third party market participant would be willing to pay in an arm’s length transaction. Prices from pricing services are validated by the Company through comparison to prices from corroborating sources and are validated by back testing to trade data to confirm that the pricing service’s significant inputs are observable. Under certain conditions, the Company may conclude the prices received from independent third party pricing services or brokers are not reasonable or reflective of market activity or that significant inputs are not observable, in which case it may choose to over-ride the third-party pricing information or quotes received and apply internally developed values to the related assets or liabilities. In such cases, those valuations would be generally classified as Level 3. Generally, the Company utilizes an independent pricing service to price its municipal debt obligations. Currently, these securities are exhibiting low trade volume. The Company considers such investments to be in the Level 2 category.

Level 3 — Fair value is based on at least one or more significant unobservable inputs that are supported by little or no market activity for the asset. These inputs reflect the Company’s understanding about the assumptions market participants would use in pricing the asset or liability.

The Company’s Level 3 assets include its RMBS, commercial loans and common stocks as they are illiquid and trade in inactive markets. These markets are considered inactive as a result of the low level of trades of such investments. The RMBS investments are not considered within the Level 3 tabular disclosure, because they have been transferred to “held to maturity” category effective October 1, 2008. Held to maturity investments are not measured at fair value on a recurring basis and as such do not fall within the scope of ASC 820. See Note 2, “Investments” for a complete discussion regarding the Company’s RMBS portfolio.

The primary pricing sources for the Company’s commercial loan and common stock portfolios are reviewed for reasonableness, based on the Company’s understanding of the respective market. Prices may then be determined using valuation methodologies such as discounted cash flow models, as well as matrix pricing analyses performed on non-binding quotes from brokers or other market-makers. As of ~~June~~September 30, 2010, the Company did not utilize an alternate valuation methodology for its RMBS, commercial loan or common stock portfolios.

- 13 -

The following are the major categories of assets measured at fair value on a recurring basis for the periods ended ~~June~~September 30, 2010 and December 31, 2009, using quoted prices in in active markets for identical assets (Level 1); significant other observable inputs (Level 2); and significant unobservable inputs (Level 3):

September 30, 2010

Level 1:

Quoted

Prices in

Level 2:

Active

Significant

Level 3:

Markets for

Other

Significant

Total at

Identical

Observable

Unobservable

~~June~~September 30,

Assets

Inputs

2010

Fixed maturities available for sale

18,~~484~~434,~~492~~108

~~822~~824,~~808~~548

—

19,~~307~~258,~~300~~656

Commercial loans

—

3,~~351~~018,~~132~~117

Common stock

—

101,780

Total

18,~~484~~434,~~492~~108

~~822~~824,~~808~~548

3,~~452~~119,~~912~~897

22,~~760~~378,~~212~~553

	December 31, 2009
	Level 1:
	Quoted
	Prices in		Level 2:
	Active		Significant		Level 3:
	Markets for		Other		Significant		Total at
	Identical		Observable		Unobservable		December 31,
	Assets		Inputs		Inputs		2009
Fixed maturities available for sale	$	385,715,035	$	804,373	$	—	$	386,519,408
Commercial loans		—		—		5,001,118		5,001,118
Common stock		—		—		117,968		117,968
Total	$	385,715,035	$	804,373	$	5,119,086	$	391,638,494

- 14 -

The investments classified as Level 3 in the above table consist of commercial loans and common stock, for which the Company has determined that quoted market prices of similar investments are not determinative of fair value. The following table presents a a reconciliation of the beginning and ending balances for all investments measured at ~~fair~~ fair value using Level 3 inputs during the ~~six~~nine months and three months ended ~~June~~September 30, 2010.

	Six months ended June 30, 2010									Three months ended June 30, 2010
	Nine months ended September 30, 2010									Three months ended September 30, 2010
	Commercial			Common						Commercial			Common
	Loans			Stocks			Total			Loans			Stocks			Total
Beginning balance	$	5,001,118		$	117,968		$	5,119,086		$	3,~~324~~351,~~857~~132		$	~~117~~101,~~968~~780		$	3,~~442~~452,~~825~~912
Total gains or losses (realized/unrealized):
Included in earnings (or changes in net assets)		(32517,~~748~~862	)		37,772			5(480,~~024~~090	)		(37485,~~202~~114	)		~~37,772~~—			~~570~~(485,114	)
Included in other comprehensive income		—			—			—			—			—			—
Purchases, sales, maturities, repayments, redemptions and amortization		(1,~~617~~465,~~238~~139	)		(53,960	)		(1,~~671~~519,~~198~~099	)		63152,~~477~~099			~~(53,960~~—	)		9152,~~517~~099
Transfers from Level 3		—			—			—			—			—			—
Transfers to Level 3		—			—			—			—			—			—
Ending balance	$	3,~~351~~018,~~132~~117		$	101,780		$	3,~~452~~119,~~912~~897		$	3,~~351~~018,~~132~~117		$	101,780		$	3,~~452~~119,~~912~~897

Management believes that the use of the fair value option to record commercial loan purchases is consistent with its objective for such investments. As such, the entire commercial loan portfolio, consisting of three securities, ofvalued at $3.40 million at ~~June~~ September 30, 2010 was recorded at fair value. All loans are current with respect to interest payments. The Company also has one small common stock position at ~~June~~September 30, 2010, which was recorded at fair value.

(4) Income Taxes:

The Company files tax returns subject to the tax regulations of federal, state and local tax authorities. A tax benefit taken in the tax return but not in the financial statements is known as an “unrecognized tax benefit.” The Company had no unrecognized tax benefits at either ~~June~~September 30, 2010 or ~~June~~September 30, 2009. The Company’s policy is to ~~record~~ record interest and penalties related to unrecognized tax benefits to income tax expense. ~~The~~ The Company did not incur any interest or penalties related to unrecognized tax benefits ~~for~~ for each of the ~~six~~nine months ended ~~June~~September 30, 2010 and ~~June~~September 30, 2009.

At ~~June~~September 30, 2010, state net operating losses that can be carried forward are $12,~~490~~913,~~002~~839. The range of years in which the state NOL carryforwards, which are primarily in the State of New York, can be carried forward against future tax liabilities is from 2010 to 2029. At ~~June~~September 30, 2010, federal realized capital losses that can be carried forward are $41,~~069~~294,~~677~~556. The range of years in which the federal capital loss carryforwards can be carried forward is from 2010 to 2014. The estimate for federal capital losses may differ from the actual amount ultimately filed in the Company’s tax return.

As of ~~June~~September 30, 2010, the Company has recorded a valuation allowance of $4,960,384 ~~with~~ with respect to the uncertainty in the realization of capital loss carryforwards. The ~~Company~~ Company considered various tax planning strategies to support the recoverability of ~~existing~~ existing deferred income taxes for capital loss carryforwards. This included an analysis of the timing and availability of unrealized positions in the Company’s investment portfolio. Included in changes in the valuation allowance were tax benefits of $6,359,026 for the ~~six~~ nine months ended ~~June~~September 30, 2010, as a result of the reversal of the deferred tax valuation allowance previously provided for capital losses that are now considered ordinary and a reversal of the deferred tax valuation resulting from sales of US U.S. Treasury securities. For the ~~six~~nine months ended ~~June~~September 30, 2009, the Company recorded tax benefits of $35,~~269~~924,~~735~~ 398 as a result of the partial reversal of the deferred tax valuation previously provided for capital losses. This resulted from capital gains achieved within the investment portfolio. Management believes the deferred tax asset, net of the recorded valuation allowance account, as of ~~June~~September 30, 2010 will more-likely-than-not be fully realized.

- 15 -

The provision for federal income (benefit) expense is different from that which would be obtained by applying the statutory federal income tax rate to income before taxes. The significant items causing this difference for the ~~six~~nine months and three months ended ~~June~~ September 30, 2010 and 2009 are as follows:

	Six months ended June 30,										Three months ended June 30,
	Nine months ended September 30,										Three months ended September 30,
	2010					2009					2010					2009
	(in thousands)					(in thousands)					(in thousands)					(in thousands)
Provision computed at statutory rate	$	~~3,977~~(292	)	35.0	%	$	712,~~230~~814		35.0	%	$	2(4,~~034~~269	)	35.0	%	$	5,~~631~~584		35.0	%
Tax-exempt interest		(710	)	~~(0.~~1.2	)		(1,~~216~~846	)	(5.90	)		(3	)	~~(0.1~~—	)		(~~627~~631	)	(34.90	)
Dividends received deduction		—		—			(37	)	(0.21	)		—		—			—		—
Proration		12		—(0.2	)		~~179~~249		0.97			—		—			8871		0.54
Valuation allowance		(5,~~769~~428	)	~~(50~~651.86	)		(24,~~629~~749	)	(1213.70	)		~~(2,843~~341	)	(482.98	)		(2,~~976~~120	)	(1813.53	)
State taxes		(~~582~~927	)	(5111.13	)		(~~623~~1,144	)	(3.01	)		(~~269~~344	)	(42.68	)		(~~279~~521	)	(13.73	)
Other		13		0.2			70		0.3			8		0.1			49		0.3
Merger transaction costs		764		(91.7	)		—		—			764		(6.3	)		—		—
Total income tax (benefit) expense	$	(2,367	)	(20.8)	%	$	2,974		14.4	%	$	(1,073	)	(18.5)	%	$	1,886		11.7	%
Life insurance income		—		—			(1,128	)	(3.1	)		—		—			(1,128	)	(7.1	)
Other		253		(30.4	)		196		0.5			240		(1.9	)		125		0.9
Total income tax (benefit) expense	$	(5,638	)	(676.8	)%	$	4,355		11.9	%	$	(3,271	)	(26.8	)%	$	1,380		8.6	%

(5) Comprehensive Income

The Company’s comparative comprehensive income is as follows:

	Six months ended June 30,						Three months ended June 30,
	Nine months ended						Three months ended
	September 30,						September 30,
	2010			2009			2010			2009
	(in thousands)
Net income	$	13,731		$	17,682		$	6,884		$	14,204
Net income (loss)	$	4,805		$	32,257		$	(8,926	)	$	14,575
Other comprehensive income (loss), net of deferred taxes:
Unrealized holding gains on securities, net of deferred tax expense (benefit) of $(2,947), $3,110, $(786) and $1,376		9,070			5,775			6,810			2,556
Unrealized holding gains on securities, net of deferred tax (benefit) expense of $(3,086), $5,306, $(138) and $2,197		9,184			9,854			114			4,079
Noncredit component of other than temporarily impaired securities (a):
Held-to-maturity, net of deferred benefit of $0, $(14,053), $0 and $(14,053)		—			(26,099	)		—			(26,099	)
Held-to-maturity, net of deferred benefit of $0, $(14,053), $0 and $0		—			(26,099	)		—			—
Accretion of noncredit portion of impairment on held-to-maturity, net of deferred tax expense of $774, $354, $380 and $354		1,437			657			705			657
Accretion of noncredit portion of impairment on held-to-maturity, net of deferred tax expense of $1,158, $729, $384 and $376		2,150			1,355			713			698
Less : reclassification adjustment for gains realized in net income, net of tax (benefit) expense of $(2,672), $621, $(1,010) and $767		9,880			1,153			6,394			1,424
Less: reclassification adjustment for gains realized in net income, net of tax (benefit) expense of $(2,802), $812, $(130) and $191		10,010			1,508			130			355
Less : reclassification adjustment for impairment losses recognized in net income, net of tax benefit of $0, $(167), $0 and $(167)		(300	)		(311	)		—			(311	)
Less: reclassification adjustment for impairment losses recognized in net income, net of tax benefit of $(105), $(167), $0 and $0		(300	)		(311	)		—			—
Other comprehensive income (loss)		~~927~~1,624			(2016,~~509~~087	)		~~1,121~~697			~~(23~~4,~~999~~422	)
Comprehensive income (loss)	$	146,~~658~~429		$	(216,~~827~~170	)	$	(8,~~005~~229	)	$	(918,~~795~~997	)

(6) Common Stock Repurchase Plan:

Under the Common Stock Repurchase Plan, the Company may purchase up to $75 million of the Company’s issued and outstanding shares of common stock on the open market. There were no repurchases of the Company’s common stock during the first six months of 2010 or 2009.

- 16 -

(76) Earnings per share:

Reconciliations of the numerators and denominators of the basic and diluted earnings per share (“EPS”) computations for each of the periods reported herein are presented below:

Six months ended June 30,

Nine months ended September 30,

2010

2009

Weighted

Average

Net

Income

Outstanding

Per

Income

Outstanding

Per

(Numerator)

(Denominator)

(Numerator)

(Denominator)

(In thousands, except for per share data)

Basic EPS

134,~~731~~805

8,~~486~~491

10.6257

1732,~~682~~257

8,~~418~~422

23.1083

Effect of dilutive securities:

Equity awards and purchased options

—

~~300~~323

(.0602

)

—

~~190~~202

(.0509

)

Diluted EPS

134,~~731~~805

8,~~786~~814

10.5655

1732,~~682~~257

8,~~608~~624

23.0574

Three months ended June 30,

Three months ended September 30,

2010

2009

Weighted

Average

Net

Income

Outstanding

Per

Income

Outstanding

Per

Loss

Outstanding

Per

Income

Outstanding

Per

(Numerator)

(Denominator)

(Numerator)

(Denominator)

(In thousands, except for per share data)

Basic EPS

6(8,~~884~~926

)

8,~~499~~500

(1.8105

)

14,~~204~~575

8,~~424~~432

1.6973

Effect of dilutive securities:

Equity awards and purchased options

—

~~325~~—

~~(.03~~—

)

—

~~201~~225

(.0405

)

Diluted EPS

6(8,~~884~~926

)

8,~~824~~500

(1.7805

)

14,~~204~~575

8,~~625~~657

1.6568

(87) Incentive Compensation:

Share-based Plans:

The Company records compensation costs using the fair value of all share awards. Compensation expense is recorded pro-rata over the vesting period of the award.

The Company has established three share-based incentive compensation plans (the “Plans”), which are described below. Management believes that the Plans provide a means whereby the Company may attract and retain persons of ability to exert their best efforts on behalf of the Company. The Plans generally allow for the issuance of grants and exercises through newly issued shares, treasury stock, or any combination thereof to officers, key employees and directors who are employed by, or provide services to the Company. The compensation cost that has been charged against income for the Plans was approximately $12,~~915~~512,000 and $1,~~051~~647,000 for the ~~six~~nine months ended ~~June~~September 30, 2010 and 2009, respectively. The approximate total income tax benefit accrued and recognized in the Company’s financial statements for the ~~six~~nine months ended ~~June~~September 30, 2010 and 2009 related to share-based compensation expenses was approximately $~~548~~770,000 and $~~368~~577,000, respectively.

- 17 -

1991 and 2002 Stock Option Plans

The 1991 and 2002 Stock Option Plans (the “Option Plans”) were adopted by the Company’s Board of Directors and approved by its shareholders in each of their respective years. The plans provide for the grant of non-qualified options to purchase shares of the Company’s common stock. Both of the plans authorize the issuance of options to purchase up to 500,000 shares of the Company’s common stock at not less than 95 percent of the fair market value at the date of grant. Option awards are exercisable over the period specified in each contract and expire at a maximum term of ten years.

- 17 -

2004 Long-Term Incentive Plan

The NYMAGIC, INC. Amended and Restated 2004 Long-Term Incentive Plan (the “LTIP’) was adopted by the Company’s Board of Directors and approved by its shareholders in 2004. The LTIP authorizes the Board of Directors to grant non-qualified options to purchase shares of Company’s common stock, share appreciation rights, restricted shares, restricted share units, unrestricted share awards, deferred share units and performance awards. The LTIP allows for the issuance of share-based awards up to the equivalent of 450,000 shares of the Company’s common stock at not less than 95 percent of the fair market value at the date of grant. Share grants awarded under the LTIP are exercisable over the period specified in each contract and expire at a maximum term of ten years. The LTIP was amended and restated in 2008 to change the amount of share equivalents that may be issued under it from 450,000 to 900,000.

Under the LTIP, the Company has granted restricted share units (“RSUs”), deferred share units (“DSUs”) and performance share awards (“performance shares”), as well as unrestricted common stock awards (i.e., vested and unencumbered shares). Grantees generally have the option to defer the receipt of shares of common stock that would otherwise be acquired upon vesting of restricted share units, which allows for preferential tax treatment by the recipient of the award.

Stock Options

The fair value of each option award has been estimated as of the respective grant-date using the Black-Scholes option-pricing model assuming the following inputs:

	June 30,		June 30,
	September 30,				September 30,
	2010		~~2009~~		2009
Expected volatility	~~N/A~~	N/A		~~41.5-67.3~~	%	41.5-67.3	%
Expected dividends	~~N/A~~	N/A		~~1.21-1.62~~	%	1.21-1.62	%
Expected term (in years)	~~N/A~~	N/A		~~3-4~~		3-4
Risk-free rate	~~N/A~~	N/A		~~1.34-1.43~~	%	1.34-1.43	%

The Company did not grant any stock option awards through the Option Plans during the ~~six~~ nine months ended ~~June~~September 30, 2010. The weighted-average grant-date fair value of options granted for the ~~six~~nine months ended ~~June~~September 30, 2010 and 2009 was $0 and $3.0 00 per share, respectively. There was $5246,~~528~~673 of unrecognized compensation cost related to unvested options awarded pursuant to the Option Plans as of ~~June~~September 30, 2010, which will be recognized over the remaining weighted-average vesting period of approximately 2 1.29 years. The total intrinsic value of options exercised during the ~~six~~nine months ended ~~June~~ September 30, 2010 was approximately $9,551. As of ~~June~~September 30, 2010, the aggregate intrinsic value was $12,~~161~~925,~~709~~040 for both options outstanding and vested and exercisable.

The following table sets forth stock option activity for the Option Plans for the ~~six~~nine months ended ~~June~~September 30, 2010 and 2009:

	June 30, 2010					June 30, 2009
	September 30, 2010					September 30, 2009
				Weighted					Weighted
				Average					Average
				Exercise					Exercise
	Number of			Price		Number of			Price
Shares Under Option	Shares			Per Share		Shares			Per Share
Outstanding, beginning of year		314,950		$	15.76		185,950		$	16.48
Granted		—		$	—		130,000		$	14.80
Exercised		(2,500	)	$	14.47		—(5,000	)	$	—12.59
Forfeited		(15,000	)	$	19.15		—(6,000	)	$	—14.47
Outstanding, end of period		297,450		$	15.85		~~315~~304,950		$	15.7072
Exercisable, end of period		284,950		$	15.69		~~170~~159,950		$	1516.9703

The weighted-average remaining contractual term as of September 30, 2010 for options outstanding and options vested and exercisable was approximately 2.5 and 2.1 years, respectively. For the nine months ended September 30, 2010 and September 30, 2009, the Company received approximately $36,000 and $62,950, respectively, in cash for the exercise of stock options granted under the Option Plans.

- 18 -

The weighted-average remaining contractual term as of June 30, 2010 for options outstanding and options vested and exercisable was approximately 2.7 and 2.4 years, respectively. For the six months ended June 30, 2010 and June 30, 2009, the Company received approximately $36,000 and $0, respectively, in cash for the exercise of stock options granted under the Option Plans.

Restricted Share Units (“RSUs”) and Deferred Share Units (“DSUs”)

RSUs, as well as restricted shares, become vested and convertible into shares of common stock when the restrictions applicable to them lapse. In accordance with ASC 718, the fair value of nonvested shares is estimated on the date of grant based on the market price of the Company’s stock and is amortized to compensation expense on a straight-line basis over the related vesting periods. As of ~~June~~September 30, 2010, there was $21,~~475~~920,~~016~~514 of unrecognized compensation cost related to RSUs, which is expected to be recognized over a remaining weighted-average vesting period of approximately two years. The total fair value of RSUs vested and converted to shares of common stock during the ~~six~~nine months ended ~~June~~September 30, 2010 and 2009 was $323,690 and $~~238~~398,~~064~~334, respectively.

The Company has settled annual Board of Directors fees, in part, through the issuance of DSUs. DSUs are vested immediately and are typically converted into shares of the Company’s common stock upon the departure of the grantee director. For the ~~six~~nine months ended ~~June~~September 30, 2010, fees of $641,200, have been settled by the grant of 36,831 DSUs.

The following table sets forth activity for the LTIP as it relates to RSUs and DSUs for the ~~six~~nine months ended ~~June~~September 30, 2010 and 2009:

	June 30, 2010					June 30, 2009
	September 30, 2010					September 30, 2009
				Weighted					Weighted
				Average					Average
				Grant					Grant
				Date Fair					Date Fair
	Number of			Value		Number of			Value
RSUs and DSUs	Shares			Per Share		Shares			Per Share
Nonvested, beginning of year		113,292		$	24.49		136,900		$	27.14
Granted		132,856		$	17.93		3532,~~579~~466		$	1516.9301
Vested		(81111,~~310~~316	)	$	20.0186		(3886,~~400~~066	)	$	2522.9859
Forfeited		(4,000	)	$	40.15		—		$	—
Nonvested, end of period		~~160~~130,~~838~~832		$	20.7621		~~134~~83,~~079~~300		$	2427.5051

Unrestricted shares of the Company’s common stock have been granted pursuant to the LTIP. 17,525 shares were granted to George Kallop, the former Chief Executive Officer and director of the Company, during the ~~six~~nine months ended ~~June~~September 30, 2010. The ~~unrestricted~~ unrestricted stock awards settled compensation costs of $300,028. There were no unrestricted stock awards granted during the ~~six~~nine months ended ~~June~~September 30, 2009.

Employee Stock Purchase Plan

The Company established the Employee Stock Purchase Plan (the “ESPP”) in 2004. The ESPP allows eligible employees of the Company and its designated affiliates to purchase, through payroll deductions, shares of common stock of the Company. The ESPP is designed to retain and motivate the employees of the Company and its designated affiliates by encouraging them to acquire ownership in the Company on a tax-favored basis. The price per common share sold under the ESPP is 85% (or more if the Board of Directors or the committee administering the plan so provides) of the closing price of the Company’s shares on the New York Stock Exchange on the day the Common Stock is offered. The Company has reserved 50,000 shares for issuance under the ESPP. There were no shares issued under the ESPP during the ~~six~~nine and three month periods ended ~~June~~September 30, 2010 and 2009.

(98) Nature of Business and Segment Information:

The Company’s subsidiaries include three insurance companies and three insurance agencies. These subsidiaries underwrite commercial insurance in three major lines of business. The Company considers ocean marine, inland marine/fire and other liability as appropriate segments for purposes of evaluating the Company’s overall performance. A final segment includes the aircraft business. The Company ceased writing any new policies covering common carrier aircraft risks subsequent to ~~June~~September 30, 2002, although in October 2009 it began to write policies on small, non-common carrier aircraft. The Company evaluates revenues and income or loss by the aforementioned segments. Revenues include premiums earned and commission income. Income or loss includes premiums earned and commission income less the sum of losses incurred and policy acquisition costs.

- 19 -

The financial information by segment is as follows:

	Six months ended June 30,
	Nine months ended September 30,
	2010						2009
	(in thousands)
				Income						Income
	Revenues			(Loss)			Revenues			(Loss)
Ocean marine	$	2536,~~031~~565		$	1219,~~583~~463		$	2739,~~389~~756		$	1322,~~892~~576
Inland marine/fire		46,~~313~~142			~~424~~564			24,~~749~~078			~~318~~1,405
Other liability		5993,~~897~~830			~~2,658~~111			4974,~~244~~055			76,~~146~~826
Aircraft		~~119~~153			~~586~~630			(~~149~~63	)		2,~~039~~277
Subtotal		89136,~~360~~690			1620,~~251~~768			79117,~~233~~826			2333,~~395~~084
Net investment income		147,~~426~~641			147,~~426~~641			1915,~~743~~366			1915,~~743~~366
Net realized investment gains		7,208			7,208			1,774			1,774
Equity in earnings of limited partnerships		12,606			12,606			18,955			18,955
Net realized investment gains		7,208			7,208			2,320			2,320
Total other-than-temporary impairments		(300	)		(300	)		(478	)		(478	)
Portion of loss recognized in OCI (before taxes)		—			—			—			—
Net impairment loss recognized in earnings		(300	)		(300	)		(478	)		(478	)
Other income		6			6			65			65
Other (loss) income, net		(8,143	)		(8,143	)		3,289			3,289
General and administrative expenses		—			(2235,~~856~~512	)		—			(2030,~~478~~877	)
Interest expense		—			(35,~~371~~101	)		—			(35,~~364~~047	)
Income tax (expense) benefit		—			2,367			—			(2,975	)
Income tax benefit (expense)		—			5,638			—			(4,355	)
Total	$	~~110~~155,~~700~~702		$	134,~~731~~805		$	~~100~~157,~~337~~278		$	1732,~~682~~257


	Three months ended September 30,
	2010						2009
	(in thousands)
				Income					Income
	Revenues			(Loss)			Revenues		(Loss)
Ocean marine	$	11,534		$	6,880		$	12,367	$	8,684
Inland marine/fire		1,829			140			1,329		1,087
Other liability		33,933			(2,547	)		24,811		(320	)
Aircraft		34			44			86		238


Subtotal		47,330			4,517			38,593		9,689

Net investment income		86			86			3,792		3,792
Equity in earnings of limited partnerships		5,734			5,734			10,786		10,786
Net realized investment gains		—			—			546		546

Total other-than-temporary impairments		—			—			—		—
Portion of loss recognized in OCI (before taxes)		—			—			—		—


Net impairment loss recognized in earnings		—			—			—		—

Other (loss) income, net		(8,149	)		(8,149	)		3,224		3,224
General and administrative expenses		—			(12,655	)		—		(10,399	)
Interest expense		—			(1,730	)		—		(1,683	)
Income tax benefit (expense)		—			3,271			—		(1,380	)


Total	$	45,001		$	(8,926	)	$	56,941	$	14,575

- 20 -

	Three months ended June 30,
	2010					2009
	(in thousands)
			Income						Income
	Revenues		(Loss)			Revenues			(Loss)
Ocean marine	$	12,646	$	4,819		$	14,101		$	6,869
Inland marine/fire		2,298		(94	)		1,567			214
Other liability		30,620		1,268			23,558			4,384
Aircraft		91		322			(123	)		1,777
Subtotal		45,655		6,315			39,103			13,244
Net investment income		7,381		7,381			13,191			13,191
Net realized investment gains		5,384		5,384			2,191			2,191
Total other-than-temporary impairments		—		—			(478	)		(478	)
Portion of loss recognized in OCI (before taxes)		—		—			—			—
Net impairment loss recognized in earnings		—		—			(478	)		(478	)
Other income		2		2			60			60
General and administrative expenses		—		(11,584	)		—			(10,434	)
Interest expense		—		(1,687	)		—			(1,684	)
Income tax (expense) benefit		—		1,073			—			(1,886	)
Total	$	58,422	$	6,884		$	54,067		$	14,204

(9) Computer Systems:

During the preparation and review of our financial statements for this quarterly report on Form 10-Q, the Company determined that certain computer equipment and software no longer possessed any future service potential and accounted for it as an abandoned asset. Accordingly, the Company charged off $8.1 million relating to disposition of the computer systems.

(10) Related Party Transactions:

The Company entered into an investment management agreement with Mariner Partners, Inc. (“Mariner”) effective October 1, 2002, which was amended and restated on December 6, 2002. Under the terms of this agreement, Mariner manages the Company’s and its subsidiaries, New York Marine And General Insurance Company’s and Gotham Insurance Company’s investment portfolios. Fees to be paid to Mariner are based on a percentage of the investment portfolios as follows: .20% of liquid assets, .30% of fixed maturity investments and 1.25% of limited partnership (hedge fund) and equity security investments. Another of the Company’s subsidiaries, Southwest Marine And General Insurance Company, entered into an investment management agreement, the substantive terms of which are identical to those set forth above, with a subsidiary of Mariner, Mariner Investment Group, Inc. (“Mariner Group”) effective March 1, 2007. William J. Michaelcheck, a former director of the Company, is the Chairman and the beneficial owner of a substantial number of shares of Mariner. George R. Trumbull, a director and the President and Chief Executive Officer of the Company, A. George Kallop, formerly President, Chief Executive Officer and a director of the Company, and William D. Shaw, Jr., Vice Chairman and a director of the Company, are also associated with Mariner. Investment fees incurred under the agreements with Mariner were $1,~~127~~587,384,548 and $1,~~157~~537,~~980~~ 156 for the ~~six~~nine months ended ~~June~~September 30, 2010 and 2009, respectively.

As of ~~June~~September 30, 2010, the Company held approximately $~~180~~95.37 million in limited ~~partnership~~ partnership and limited liability company interests in hedge funds, which are selected or ~~directly~~ directly managed by Mariner.

~~On March~~ (11~~, 2010 Mr.~~) ~~Kallop,~~Legal ~~the Company’s former President and Chief Executive Officer,~~Proceedings: announced his intention to retire from the Company, effective April 2, 2010. Mr. Kallop informed the Board of Directors that he had intended to retire in any event on or before December 31, 2010, but that the intervening severe illness of a family member had accelerated his plans. In order to facilitate a smooth management transition from Mr. Kallop to his successor, and to recognize his contributions to the Company, the Company entered into an agreement with Mr. Kallop dated April 1, 2010 pursuant to which he will make himself available for advice and counsel to his successor and the Chairman of the Board of Directors through December 31, 2010 in consideration of $800,000, the acceleration of the vesting of his outstanding unvested awards made under the Company’s Amended and Restated Long-Term Investment Plan, the waiver of a requirement in his outstanding option award made in March of 2009 that he be employed by the Company on the date of its exercise and the waiver of a requirement in his performance share award effective January 1, 2009 that he be an employed by the Company in order to be eligible for the grant of a standard performance share award in 2010. The Company recorded compensation expense of approximately $482,000 and $216,000 for the six and three months ended June 30, 2010 as a result of this agreement.

-Two 21former -pool members, Utica Mutual Insurance Company (“Utica Mutual”) and Arkwright Mutual Insurance Company (“Arkwright”), which is currently part of the FM Global Group, withdrew from the pools in 1994 and 1996, respectively, and retained the liability for their effective pool participation for all loss reserves, including losses incurred but not reported (“IBNR”) and unearned premium reserves attributable to policies effective prior to their withdrawal from the pools. In December, 2007, MMO, which has been managing the pools without compensation pursuant to a Restated Management Agreement entered into with pool members in 1986, served notice on the pool members of its intent to terminate the Restated Management Agreement, effective December 31, 2009. Two of the pool members, Utica Mutual and Arkwright, rejected MMO’s notice of intent to terminate, and MMO initiated an arbitration against them, seeking an arbitral award, confirming its right to terminate the Restated Management Agreement, or in the alternative, seeking a reformation of the Restated Management Agreement. An arbitration hearing was held in January and February, 2010, but an award is not expected until December 2010, at the earliest.

11) Legal Proceedings:

Two former pool members, Utica Mutual Insurance Company (“Utica Mutual”) and Arkwright Mutual Insurance Company (“Arkwright”), which is currently part of the FM Global Group, withdrew from the pools in 1994 and 1996, respectively, and retained the liability for their effective pool participation for all loss reserves, including losses incurred but not reported (“IBNR”) and unearned premium reserves attributable to policies effective prior to their withdrawal from the pools. In December, 2007, MMO, which has been managing the pools without compensation pursuant to a Restated Management Agreement entered into with pool members in 1986, served notice on the pool members of its intent to terminate the Restated Management Agreement, effective December 31, 2009. Two of the pool members, Utica Mutual and Arkwright, rejected MMO’s notice of intent to terminate, and MMO initiated an arbitration against them, seeking an arbitral award, confirming its right to terminate the Restated Management Agreement, or in the alternative, seeking a reformation of the Restated Management Agreement. An arbitration hearing was held in January and February, 2010, but an award is not expected until September 2010, at the earliest.

The Company is not aware of any facts that could result in any possible defaults by either Arkwright or Utica Mutual with respect to their pool obligations, which might impact liquidity or results of operations of the Company, but there can be no assurance that such events will not occur.

In February 2010, the Company paid approximately $33 million in gross claims with respect to the WTC Attack. The ceded recovery with respect to this claim is approximately $22 million. While the claim payment adversely impacted cash flows from operations, it did not have a substantial impact on results of operations or financial position. Several reinsurers are currently disputing payment of the recovery to the Company based upon their denial of any obligation to pay property settlements and their interpretation as to the number of occurrences as defined in the aircraft ceded reinsurance treaties. The Company intends to vigorously pursue such balances through arbitrations, settlements or commutations, if necessary, but an unfavorable resolution of such collection efforts could have a material adverse impact to our results of operations.

The Company’s insurance subsidiaries are subject to disputes, including litigation and arbitration, arising out of the ordinary course of business. The Company’s estimates of the costs of settling such matters are reflected in its reserves for losses and loss expenses, and the Company does not believe that the ultimate outcome of such matters will have a material adverse effect on its financial condition or results of operations.

~~12)~~- ~~Subsequent~~21 ~~Events:~~-

(12) Subsequent Events:

Proposed Merger

On July 15, 2010 the Company announced that it entered into a definitive agreement to be acquired by ProSight Specialty Insurance Holdings, Inc. for $25.75 per share. ProSight Specialty Insurance was founded by a group of senior executives from the property and casualty industry and is backed by affiliates of TPG Capital and GS Capital Partners. Under the terms of the agreement, NYMAGIC stockholders will receive $25.75 per share in cash. The transaction will be 100% equity funded by ProSight Specialty Insurance. Completion of the transaction, which is expected to occur in the fourth quarter of 2010, is subject to the approval of NYMAGIC stockholders, the Company having a minimum tangible book value of at least $205 million, customary closing conditions and regulatory approvals.

A copy of the press release announcing the transaction was filed as an exhibit to the Company’s Current Report on From 8-K, filed with Securities and Exchange Commission on July 15, 2010. A copy of the Agreement and Plan of Merger was filed as an exhibit to the Company’s Current Report on Form 8-K, filed on July 19, 2010.

Litigation Relating to the Proposed Merger

Between July 16 and July 26, 2010, four substantially similar putative class action lawsuits were commenced by stockholders of NYMAGIC against the Company, its board of directors and ProSight in the Supreme Court of the State of New York for the County of New York challenging the proposed merger, captioned, Gross v. NYMAGIC, Inc., No. 650979/2010 (N.Y. Sup. Ct. filed July 16, 2010), Kahn v. Trumbull, No. 651033/2010 (N.Y. Sup. Ct. filed July 20, 2010), Cambridge Retirement System v. NYMAGIC, Inc., No. 651058/2010 (N.Y. Sup. Ct. filed July 21, 2010), and Walker v. NYMAGIC, Inc., No. 109851/2010 (N.Y. Sup. Ct. filed July 26, 2010), respectively. The complaints, each of which purports to be brought as a class action on behalf of all of the Company’s stockholders, excluding the defendants and their affiliates, allege that the consideration that stockholders will receive in connection with the merger is inadequate and that the Company’s directors breached their fiduciary duties to stockholders in negotiating and approving the merger agreement. The complaints further allege that the Company and/or ProSight aided and abetted the alleged breaches by the Company’s directors. The complaints seek various forms of relief, including injunctive relief to prevent consummation of the merger.

AOn ~~motion~~September 1, to2010, ~~consolidate~~ the actions were consolidated and, ~~appoint~~on September 3, 2010, the plaintiffs filed a ~~lead~~consolidated ~~plaintiff~~amended ~~and~~complaint. ~~lead~~In ~~counsel~~addition ~~has been~~to ~~filed~~the ~~and~~allegations isset forth ~~currently~~above, ~~pending.~~the ~~The~~consolidated ~~Company~~amended ~~believes~~complaint also alleges that the ~~allegations~~Company’s directors breached their fiduciary duties in ~~the~~disseminating incomplete and/or inaccurate information ~~complaints~~regarding ~~are~~the ~~without~~proposed ~~merit~~merger, and ~~intends~~added toGoldman, ~~defend~~Sachs & Co. as a defendant based on allegations that it aided and abetted the ~~actions~~directors’ ~~vigorously~~alleged breach of their fiduciary duties.

Although the Company believes that the claims asserted in the actions are without merit, on October 22, 2010, the parties entered into a memorandum of understanding reflecting an agreement in principle to settle and dismiss the actions on the basis that certain additional disclosures would be made in the Proxy Statement provided to the Company’s shareholders. The proposed settlement is subject to court approval and other conditions.

- 22 -

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Description of Business

NYMAGIC, INC., a New York corporation (the “Company” or “NYMAGIC”), is a holding company which owns and operates insurance companies, risk bearing entities and insurance underwriters and managers.

Insurance Companies:

New York Marine And General Insurance Company (“New York Marine”) Gotham Insurance Company (“Gotham”) Southwest Marine And General Insurance Company (“Southwest Marine”)

Gotham Insurance Company (“Gotham”)

Southwest Marine And General Insurance Company (“Southwest Marine”)

Insurance Underwriters and Managers:

Mutual Marine Office, Inc. (“MMO”) Pacific Mutual Marine Office, Inc. (“PMMO”) Mutual Marine Office of the Midwest, Inc. (“Midwest”)

Pacific Mutual Marine Office, Inc. (“PMMO”)

Mutual Marine Office of the Midwest, Inc. (“Midwest”)

New York Marine and Gotham each currently holds a financial strength rating of A (“Excellent”) and Southwest Marine currently holds a financial strength rating of A- (“Excellent”) and an issuer credit rating of “a-” from A.M. Best Company. These are the third and fourth highest of fifteen rating levels in A.M. Best’s classification system. The Company’s insureds rely on ratings issued by rating agencies. Any adverse change in the ratings assigned to New York Marine, Gotham or Southwest Marine may adversely impact their ability to write premiums.

The Company specializes in underwriting ocean marine, inland marine/fire and other liability insurance through insurance pools managed by the Company’s insurance underwriters and managers, MMO, PMMO and Midwest (collectively referred to as “MMO”). The original members of the pools were insurance companies that were not affiliated with the Company. Subsequently, New York Marine and Gotham joined the pools. Over the years, New York Marine and Gotham steadily increased their participation in the pools, while the unaffiliated insurance companies reduced their participation or withdrew from the pools entirely. Since January 1, 1997, New York Marine and Gotham have been the only members of the pools, and therefore we now write 100% of all of the business produced by the pools.

In prior years, the Company issued policies covering aircraft insurance; however, the Company ceased writing any new policies covering aircraft risks as of ~~June~~September 30, 2002. ~~The~~ The Company decided to exit the commercial aviation insurance business, because it is ~~highly~~ highly competitive, generated underwriting losses during the 1990s and is highly dependent on the purchase of substantial amounts of reinsurance, which became increasingly expensive after the events of September 11, 2001. In 2009, however, the Company began underwriting policies covering single engine non-commercial aircraft.

In 2005, the Company formed Southwest Marine And General Insurance Company (“Southwest Marine”), as a wholly owned subsidiary in the State of Arizona. Southwest Marine writes, among other lines of insurance, excess and surplus lines in New York and surety business in others states where it is licensed to write policies.

In 2008, the Company acquired a book of professional liability business oriented to insurance brokers and agents and also formed MMO Agencies, which focuses on generating additional premium growth through a network of general agents with binding authority subject to underwriting criteria established and monitored by MMO.

Results of Operations

The Company reported a net ~~income~~loss for the ~~second~~third quarter ended ~~June~~September 30, 2010 of $6(8.9) million, or $(1.7805) per diluted share, compared with net income of $14.26 million, or $1.6568 per diluted share, for the ~~second~~third quarter of 2009. The decrease in results of operations for the ~~second~~ third quarter of 2010 when compared to the same period of 2009 was ~~primarily~~ primarily attributable to an ~~increase~~after intax ~~losses~~write-off ~~incurred~~of ~~and~~$5.3 million arelating ~~decrease~~to inits ~~investment~~computer systems ~~income,~~that we determined to make during the preparation and review of our financial ~~which~~statements ~~was~~for ~~partially~~this ~~offset~~quarterly byreport on Form 10-Q, as well as an increase in ~~net~~losses incurred ~~realized~~and a decrease in investment ~~gains~~income.

The Company reported net income for the ~~six~~nine months ended ~~June~~September 30, 2010 of $134.7 8 million, or $1.5655 per diluted share, compared with $1732.73 million, or $23.0574 per diluted share, for the same period in 2009. The decrease in results of operations for the ~~six~~ nine months ended ~~June~~ September 30, 2010 when compared to the same period of 2009 was primarily attributable to anthe after tax write-off of $5.3 million relating to its computer systems referred to in the preceding paragraph, as well as an increase in incurred losses and a decrease in investment income, which was partially offset by an increase in realized investment gains and tax benefits of $6.3 million, or $.7271 per diluted share, as a result of the partial reversal of the deferred tax valuation allowance previously provided for capital losses.

Shareholders’ equity increased to $230.8 million as of June 30, 2010 compared to $216.0 million as of December 31, 2009. The increase was primarily attributable to net income for the period which was partially offset by dividends declared.

- 23 -

~~The Company~~Shareholders’s ~~gross~~equity ~~premiums~~increased ~~written,~~to ~~net~~$222.3 million ~~premiums~~as ~~written~~of ~~and~~September 30, ~~net~~2010 ~~premiums~~compared ~~earned~~to ~~increased~~$216.0 million byas 7%of December 31, ~~19%~~2009. ~~and~~The ~~13%,~~increase ~~respectively,~~was ~~for~~primarily ~~the~~attributable ~~six~~to ~~months~~net income ~~ended~~for ~~June 30,~~the ~~2010,~~period ~~when compared~~which towas ~~the~~partially ~~same~~offset ~~period~~by ofdividends ~~2009~~declared.

The Company’s gross premiums written, net premiums written and net premiums earned increased by 13%, 23% and 16%, respectively, for the nine months ended September 30, 2010, when compared to the same period of 2009.

Premiums for each segment were as follows:

NYMAGIC Gross Premiums Written By Segment

	Six months ended June 30,							Three months ended June 30,
	Nine months ended September 30,							Three months ended September 30,
	2010		2009		Change			2010		2009			Change
	(dollars in thousands)							(dollars in thousands)
Ocean marine	$	3855,~~481~~479	$	4461,~~600~~414		(~~14)~~10	)%	$	2016,~~826~~998	$	2416,~~516~~814			~~(15)~~1	%
Inland marine/fire		1115,~~100~~516		1115,~~291~~750		(2)1	)%		54,~~515~~416		54,~~095~~458			8(1	)%
Other liability		76117,~~768~~083		6290,~~039~~161		2430	%		2940,~~652~~315		2028,~~739~~121			43	%
Subtotal		~~126~~188,~~349~~078		~~117~~167,~~930~~325		712	%		5561,~~993~~729		5049,~~350~~393			1125	%
Runoff lines (Aircraft)		~~362~~520		978	NM				~~247~~158		~~(74~~69	)	NM
Total	$	~~126~~188,~~711~~598	$	~~117~~167,~~939~~403		713	%	$	5661,~~240~~887	$	5049,~~276~~462			1225	%

NYMAGIC Net Premiums Written By Segment

	Six months ended June 30,								Three months ended June 30,
	Nine months ended September 30,								Three months ended September 30,
	2010		2009			Change			2010		2009			Change
	(dollars in thousands)								(dollars in thousands)
Ocean marine	$	2739,~~215~~420	$	2941,~~937~~664			(95	)%	$	1312,~~949~~205	$	1511,~~719~~727			~~(11~~4	)%
Inland marine/fire		67,~~146~~497		35,~~776~~181			6345	%		31,~~367~~351		1,~~869~~405			80(4	)%
Other liability		71107,~~335~~964		5479,~~739~~210			3036	%		2736,~~363~~629		1724,~~823~~470			5450	%
Subtotal		~~104~~154,~~696~~881		88126,~~452~~055			1823	%		4450,~~679~~185		3537,~~411~~602			2633	%
Runoff lines (Aircraft)		~~364~~439		(~~149~~63	)	NM				~~248~~75		~~(123~~86	)	NM
Total	$	~~105~~155,~~060~~320	$	88125,~~303~~992			1923	%	$	4450,~~927~~260	$	3537,~~288~~688			2733	%

NYMAGIC Net Premiums Earned By Segment

	Six months ended June 30,								Three months ended June 30,
	Nine months ended September 30,								Three months ended September 30,
	2010		2009			Change			2010		2009			Change
	(dollars in thousands)								(dollars in thousands)
Ocean marine	$	2436,~~952~~501	$	2739,~~425~~689			(98	)%	$	1211,~~567~~549	$	1412,~~137~~264			(116	)%
Inland marine/fire		46,~~313~~142		24,~~749~~078			5751	%		21,~~298~~829		1,~~567~~329			4738	%
Other liability		5993,~~897~~820		4973,~~146~~973			2227	%		3033,~~620~~923		2324,~~460~~827			3137	%
Subtotal		89136,~~162~~463		79117,~~320~~740			1216	%		4547,~~485~~301		3938,~~164~~420			1623	%
Runoff lines (Aircraft)		~~119~~153		(~~149~~63	)	NM				9134		~~(123~~86	)	NM
Total	$	89136,~~281~~616	$	79117,~~171~~677			1316	%	$	4547,~~576~~335	$	3938,~~041~~506			1723	%

Ocean marine gross premiums written for the ~~six~~nine months ended ~~June~~September 30, 2010 ~~decreased~~ decreased by 1410%, primarily reflecting reduced volume due to competitive markets as well as as slightly lower premium rates in the various marine classes. Ocean marine net premiums written and net premiums earned for the ~~six~~nine months ended ~~June~~September 30, 2010 decreased by 5% 9and 8% , respectively, when compared to the same period of 2009 and largely reflected the decline in gross premiums written which was partially offset by lower excess of loss reinsurance costs resulting from larger net loss retentions on business written in the current policy year.

- 24 -

Ocean marine gross premiums written for the three months ended ~~June~~September 30, 2010 increased ~~decreased~~ by 15 1%, primarily reflecting ~~reduced~~rate ~~production~~increases inon ~~the~~rig ~~marine~~premiums ~~liability~~which ~~class~~were aspartially offset ~~well~~by as slightly lower premium rates in the other various marine classes. Ocean marine net premiums written and net premiums earned for the three months ended ~~June~~September 30, 2010 increased by 4% and decreased by 116% , respectively, when compared to the same period of 2009 and largely reflected lower excess of loss reinsurance costs.

In 2009, the Company maintained a net loss retention of $5 million per risk in the ocean marine line. In 2009, an additional amount up to $5 million, depending upon the gross loss to the Company in excess of $5 million, was ceded to reinsurers. Effective January 1, 2010, the Company maintained its $5 million per risk net loss retention in the ocean marine line that was in existence during 2009; however, the Company could retain an additional amount up to $5 million depending upon the gross loss to the Company in excess of $5 million. In addition, certain losses are limited to $2 million plus reinsurance reinstatement costs. The quota share reinsurance protection for energy business remains in effect for 2010 and energy business was also included within the ocean marine reinsurance program.

Inland marine/fire gross premiums written decreased 21% and net premiums written increased by 6345% for the ~~six~~nine months ended ~~June~~September 30, 2010, respectively, when compared to the ~~same~~ same period of 2009. Net premiums earned for the ~~six~~nine months ended ~~June~~September 30, 2010 increased by 57 51%. Gross premiums reflected mildly lower market rates inand ~~the~~lower ~~fire class when compared~~production toin the ~~prior~~fire ~~year’s comparable period~~class, which were partially offset by increases in production in surety business that were attributable to an additional agent appointment. The increase in net premiums written and net premiums earned reflected larger net retention levels of fire premiums when compared to the prior year’s first ~~six~~nine months as well as larger amounts of surety premiums which are written net of reinsurance.

Inland marine/fire gross premiums, ~~net premiums written~~ and net premiums ~~earned increased~~written decreased by 81%, ~~80%~~ and 474%, respectively, for the three months ended ~~June~~September 30, 2010 when compared to the same period of 2009. Gross premiums written for the three months ended ~~June~~September 30, 2010 reflect ~~increases~~decreases in production ~~largely~~and ~~relating~~mild torate ~~inland~~decreases ~~marine~~in ~~and~~fire ~~surety~~premiums ~~risks~~ that ~~were~~ were partially offset by ~~declines~~increasing ~~in fire~~ business ~~largely~~in ~~resulting~~surety ~~from mild rate decreases~~risks. ~~The~~Net ~~increase in net~~ premiums ~~written and~~ earned for the three months ended ~~June~~ September 30, 2010 ~~reflected~~increased ~~larger~~by ~~net~~38% ~~retention~~largely ~~levels~~reflecting ofincreased ~~fire premiums when compared to~~net ~~the prior year’s second quarter as well as larger amounts of surety~~ premiums ~~which~~from ~~are written~~earlier ~~net~~in ofthe ~~reinsurance~~year.

Other liability gross premiums written and net premiums written increased 2430% and 3036%, respectively, for the ~~six~~nine months ended ~~June~~September 30, 2010 when compared to the same period in 2009. Net premiums earned for the ~~six~~nine months ended ~~June~~September 30, 2010 increased by 2227% when compared to the same period in 2009. The increases in premiums are primarily due to production from MMO Agencies, which was formed in 2008 to write premiums through a network of general agents with binding authority subject to underwriting ~~criteria~~ criteria established and monitored by the Company. In addition, commercial auto liability ~~premiums~~ premiums grew largely as a result of the appointment of a new agent ~~appointment~~that ~~which~~ focuses on trucking business written primarily in California. Partially offsetting the increases were declines in premiums from excess workers’ compensation that resulted from lower production largely as a consequence of reduced construction and commercial activities. Net premiums written reflected the increase in gross written premiums as well as higher net retention levels in the professional liability class.

Other liability gross premiums written and net premiums written increased 43% and 5450%, respectively, for the three months ended ~~June~~September 30, 2010 when compared to the same ~~period~~ period in 2009. Net premiums earned for the three months ended ~~June~~September 30, 2010 increased by 3137% when compared to the same period in 2009. The increase in gross and net premiums written is largely attributable to premiums from MMO Agencies, commercial auto ~~premiums~~ premiums resulting from athe new agent appointment and production increases in ~~professional~~excess ~~liability~~workers’ compensation premiums.

Net losses and loss adjustment expenses incurred as a percentage of net premiums earned (the loss ratio) was 6366.53% for the three months ended ~~June~~September 30, 2010 as compared to 44 51.45% for the same period of 2009. The loss ratio was 5861.84% for the ~~six~~nine months ended ~~June~~ September 30, 2010 as compared to 4849.02% for the same period in 2009. Contributing to the higher loss ratios in 2010 were increased severity losses in the ocean marine and inland marine/fire lines of business, larger than expected loss ratios in the professional liability and commercial auto classes as well as lower amounts of overall favorable ~~reserve~~ reserve development. Contributing to a higher ocean marine loss ratio in 2010 ~~was~~were ~~$1.1 million~~larger inseverity losses ~~occurring in the second quarter of 2010 from the Deepwater Horizon oil rig explosion in the Gulf of Mexico~~. The other liability loss ratio increased due to ~~larger~~ larger than expected loss ratios in the professional liability class due to a greater ~~frequency~~ frequency of losses as well as larger severity losses, which were partially offset by lower loss estimates used for contractors liability business. The inland marine/fire ~~segment~~ segment reflected a higher loss ratio in 2010 largely attributable to severity losses and ~~lower~~ lower amounts of favorable loss reserve development.

The Company reported favorable development of prior year loss reserves of $2.7 million during the first nine months of 2010 as a result of favorable reported loss trends arising from the ocean marine, excess workers’ compensation and contractors’ liability lines of business in 2010, which was partially offset by adverse development in the professional liability class. Adverse development of prior year loss reserves of $(1.0) million during the third quarter of 2010 was largely attributable to the professional liability class in accident years 2007 and 2008, but partially offset by favorable development in the ocean marine and excess workers’ compensation classes. In addition, partially contributing to the favorable loss development in 2010 was approximately $0.6 million and $0.3 million in the nine months and third quarter ended September 30, respectively, in favorable loss development in the aviation line.

- 25 -

The Company reported favorable development of prior year loss reserves of $313.72 million and $13.09 million during the first ~~six~~nine months and ~~second~~third quarter of ~~2010~~2009, respectively, as as a result of favorable reported loss trends arising from the ocean marine and ~~contractors’~~ other liability lines of business in ~~2010~~2009, ~~which~~including ~~was~~the ~~partially~~favorable ~~offset~~resolution byof ~~adverse~~large severity ~~development~~claims inand ~~the~~lower ~~professional~~than ~~liability~~expected ~~class~~emergence of claims. In addition, partially contributing to to the favorable loss development in ~~2010~~2009 ~~was~~were approximately $02.63 million and $0.~~3 million~~2 million in the ~~six~~nine months and ~~second~~third quarter ended ~~June~~September 30, respectively, in favorable loss development in the aviation line.

~~The~~Policy ~~Company~~acquisition ~~reported~~costs ~~favorable~~as ~~development~~a percentage of ~~prior~~net ~~year~~premiums ~~loss~~earned ~~reserves~~(the ofacquisition ~~$9.3~~cost ratio) for the three months ended September ~~million~~30, 2010 and September 30, 2009 were 24.2% and $23.6%, respectively.~~2 million~~ ~~during~~The ~~the~~acquisition ~~first~~cost ~~six~~ratios for the nine months ~~and~~ended ~~second~~September 30, ~~quarter~~2010 ofand 2009 were 23.5% and 22.9%, respectively,. The slightly higher acquisition ascost aratio ~~result~~for ofthe ~~favorable~~three ~~reported~~and ~~loss~~nine ~~trends~~months ~~arising~~ended ~~from~~September 30, ~~the~~2010 ~~ocean~~was ~~marine~~largely attributable ~~and~~to increased writings within the other liability ~~lines~~line of business inwhich ~~2009,~~have higher ~~including~~acquisition ~~favorable~~costs ~~resolution~~associated ofwith ~~large~~them. ~~severity claims~~The ~~and~~inland ~~lower~~marine/fire ~~than~~segment ~~expected~~also reported ~~reporting~~higher ofacquisition ~~claims.~~cost Inratios ~~addition,~~in ~~partially~~2010 ~~contributing~~ when compared to the ~~favorable~~three ~~loss~~months ~~development~~and nine inmonths ended September 30, 2009 ~~was~~largely ~~approximately~~as ~~$2.0 million~~a result of increased surety premiums and ~~$1.8 million~~lower reinsurance commissions in the ~~six~~fire ~~months~~class ~~and~~due ~~second~~to ~~quarter~~lower ~~ended~~premium ~~June 30,~~cessions ~~respectively,~~to reinsurers. The ocean marine class also reported a lower acquisition cost ratio in 2010 ~~favorable~~when compared to 2009 largely due to lower excess of loss ~~development~~reinsurance costs in ~~the~~rig premiums ~~aviation~~which ~~line~~have lower net commissions.

~~Policy~~General ~~acquisition costs as a percentage of net premiums earned (the acquisition cost ratio) for the three months ended June 30, 2010~~ and ~~June 30,~~administrative ~~2009~~expenses ~~were~~increased by 22.8% and ~~21.8~~ 15%, ~~respectively. The acquisition cost ratios~~ for the ~~six~~third ~~months~~quarter ~~ended June 30, 2010~~ and ~~2009 were 23.1% and 22.5%, respectively. The slightly higher acquisition cost~~ ~~ratio~~nine ~~for the three and six~~ months ended ~~June~~September 30, 2010 ~~was~~when ~~largely~~compared ~~attributable~~ to ~~increased~~ ~~writings within~~ the ~~other~~same ~~liability~~period ~~line~~ of ~~business~~2009. ~~which have higher~~Larger ~~acquisition~~expenses ~~costs~~were ~~associated~~incurred ~~with~~in ~~them.~~2010 ~~The~~due ~~inland~~to ~~marine/fire~~compensation ~~segment~~and ~~also~~related ~~reported higher~~benefits ~~acquisition~~to ~~cost~~service ~~ratios~~the growth in ~~2010 when compared to~~ the ~~three~~Company’s ~~months~~business ~~and six months ended June 30~~operations, ~~2009~~merger ~~largely~~expenses ~~as a result~~ of ~~increased~~$2.1 million, ~~surety premiums~~ and ~~lower~~ ~~reinsurance~~arbitration ~~commissions~~expenses inincluding ~~the~~legal ~~fire~~expenses ~~class~~from ~~due~~disputes toarising ~~lower~~from ~~premium cessions to reinsurers~~reinsurance receivables.

~~General~~The Company’s combined ratio (the loss ratio, the acquisition cost ratio and general and administrative expenses ~~increased~~divided by ~~11%~~net ~~and~~premiums 12earned) was 117.2% for the ~~second~~three ~~quarter and six~~ months ended ~~June~~September 30, 2010 ~~when~~as compared to 102.1% for the same period ofin 2009. ~~Larger~~The ~~expenses~~Company’s ~~were~~combined ~~incurred~~ratio inwas ~~2010,~~110.8% ~~primarily~~for ~~relating to compensation and related benefits, to service~~ the ~~growth~~nine inmonths ~~the~~ended ~~Company’s business operations~~September 30, ~~merger~~2010 ~~expenses~~as ~~and~~compared ~~arbitration~~to ~~expenses~~98.3% ~~including~~for ~~legal~~the ~~expenses~~same ~~from~~period ~~disputes~~in ~~arising from reinsurance receivables~~2009.

~~The~~Interest ~~Company’s~~expense ~~combined~~of ~~ratio~~$5.1 million ~~(the loss ratio, the acquisition cost ratio~~ and ~~general and administrative expenses divided by net premiums earned) was 111~~$1.7~~% for the three months ended June~~ ~~30,~~million ~~2010 as compared to 93.0%~~ for the ~~same~~nine ~~period~~and inthree ~~2009. The Company’s combined ratio was 107.5% for the six~~ months ended ~~June~~ September 30, 2010 aswas ~~compared~~ comparable to ~~96.4% for~~ the same ~~period~~periods inof 2009.

~~Interest~~Net ~~expense~~investment ofincome for the nine months ended September 30, 2010 was $37.46 million ~~and~~as compared to $115.74 million for the ~~six~~same ~~and~~period ~~three~~of ~~months~~2009. ~~ended~~Net investment income in 2010 ~~June 30~~decreased primarily as a result of lower investment yields on a larger short-term investment portfolio. Investment income from fixed maturities, ~~2010~~available for sale, was ~~comparable~~lower in 2010 primarily due to lower investment balances carried when compared to the ~~same~~prior ~~periods~~year’s first nine months. Investment income from commercial loans was greater in 2009 when compared to 2010 primarily due to unrealized appreciation in such investments. Trading portfolio income of $3.4 million in 2010 resulted primarily from realized gains associated with sales of U.S. Treasury securities as compared to $4.5 million for 2009, which resulted primarily from increases in the market value of tax-exempt securities.

Net investment income for the ~~six~~three months ended ~~June~~September 30, 2010 was $~~14.4 million~~86,000 as compared to $193.78 million for the same period of 2009. Net investment income in 2010 reflected decreased primarily as a result of lower investment ~~returns~~yields inon ~~all~~a larger short-term investment ~~income categories~~portfolio. Investment income from fixed maturities, available for sale, was lower in 2010 primarily due to lower investment balances carried when compared to the prior year’s ~~first~~third ~~six months~~quarter. ~~Investment~~ ~~income~~Trading ~~from commercial loans was greater in 2009 when compared to 2010~~portfolio ~~primarily due to unrealized appreciation in such investments. Limited partnership~~ income ~~for~~ ~~the first six months~~ of ~~2010 decreased from the same period of the prior year as a result of lower returns amounting to 4~~$0.2%0 million asin 2010 compared to 7$0.6%8 million for ~~the same period of~~ 2009~~. For the first six months of 2010~~, ~~G-7~~which ~~fund~~resulted primarily ~~arbitrage~~from ~~strategies~~increases ~~and our investment~~ in ~~Tiptree Financial Partners LP reported lower returns than~~ the ~~prior~~market ~~year’s~~value ~~comparable period.~~of ~~Partially offsetting this decline was an increase in returns from multi~~tax-~~strategy funds~~exempt securities.

Net investment income for the three months ended June 30, 2010 was $7.4 million as compared to $13.2 million for the same period of 2009. Net investment income in 2010 reflected increases in income in the trading portfolio and decreases in all other investment categories. Trading portfolio income of $3.4 million in 2010 resulted primarily from realized gains associated with sales of US Treasury securities as compared to $0.7 million for 2009, which resulted primarily from increases in the market value of tax-exempt securities. Net investment income in 2010 reflected decreases in income from limited partnerships and commercial loan portfolios. Income from commercial loans of $0.2 million in 2010 compared with $1.8 million in 2009, which resulted primarily from greater unrealized appreciation in the market for these types of securities. Net investment income from limited partnerships of $8.0 million in 2009 was greater than the $3.2 million in 2010 largely due to the performance of the Company’s investments in G-7 arbitrage strategies and Tiptree Financial Partners, LP. Limited partnerships reported lower yields of 1.5% in 2010 as compared to 6.8% in 2009. Investment income from fixed maturities, available for sale, was lower in 2010 primarily due to lower investment balances carried when compared to the prior year’s second quarter.

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Investment income, net of investment fees, from each major category of investments was as follows:

	Six months ended						Three months ended
	Nine months ended						Three months ended
	June 30,						June 30,
	September 30,						September 30,
	2010			2009			2010			2009
	(in millions)
Fixed maturities held to maturity	$	0.69		$	1.15		$	0.3		$	0.54
Fixed maturities available for sale		3.45			4.7.1			0.81			2.75
Trading securities		3.4			34.75			~~3.4~~—			0.78
Commercial loans		~~0.2~~—			12.91			(0.23	)		10.81
Equity in earnings of limited partnerships		7.9			9.2			3.2			8.0
Short-term investments		—			0.4			—			0.1
Short-term investments		0.0			0.3			0.0			0.1
Total investment income		7.8			15.6			0.1			3.9
Total investment income		15.5			20.9			7.9			13.8
Investment expenses		(0.2	)		(0.2	)		—			(0.1	)
Investment expenses		(1.1	)		(1.2	)		(0.5	)		(0.6	)
Net investment income	$	7.6		$	15.4		$	0.1		$	3.8
Net investment income	$	14.4		$	19.7		$	7.4		$	13.2

AsEquity ofin ~~June 30,~~earnings ~~2010~~of ~~and~~limited ~~June 30,~~partnerships ~~2009,~~for ~~investments~~the innine ~~limited~~months ~~partnerships~~ended ~~amounted~~September 30, to2010 ~~approximately~~was $~~180~~12.36 million ~~and~~as compared to $~~120~~19.20 million, ~~respectively~~for the same period of 2009. ~~The~~Limited partnership ~~equity~~income ~~method~~for the first nine months of 2010 decreased from the same period of ~~accounting~~the isprior ~~used~~year as a result of lower returns amounting to ~~account~~9.0% as compared to 14.6% for the same period of 2009. For the ~~Company’s~~first ~~limited~~nine ~~partnership~~months ~~hedge~~of 2010, G-7 fund arbitrage strategies ~~investments.~~and ~~Under~~our ~~the~~investment ~~equity~~in ~~method,~~Tiptree ~~the~~Financial ~~Company~~Partners ~~records~~LP ~~all~~(when ~~changes~~compared to our prior investment in Altrion), reported lower returns than the ~~underlying~~prior year’s comparable period. ~~value~~Partially ofoffsetting ~~the~~this ~~limited~~decline ~~partnership~~was ~~hedge~~an ~~fund~~increase toin ~~results~~returns offrom ~~operations~~multi-strategy funds.

AsEquity ~~of June 30, 2010 and June 30, 2009, investments~~ in ~~the~~earnings ~~trading~~of ~~and~~limited ~~commercial~~partnerships ~~loan portfolios collectively amounted to approximately $3.4 million and $18.0 million, respectively. Net investment income~~ for the ~~six~~three months ended ~~June~~September 30, 2010 ~~and 2009~~ ~~reflected~~was ~~approximately~~ $35.67 million ~~and~~as compared to $510.68 million, ~~respectively,~~for ~~derived~~the ~~from combined~~same ~~trading~~period ~~portfolio~~of ~~and commercial loan activities~~2009. ~~These~~The ~~activities primarily~~decrease ~~include~~in ~~the~~limited ~~trading~~partnership ofincome USwas ~~Treasury~~largely ~~securities,~~due ~~commercial~~to ~~loans,~~the ~~municipal~~performance ~~obligations and~~of ~~preferred~~the ~~stocks. The~~ Company’s ~~trading and commercial loan portfolios are marked to~~ ~~market~~investments ~~with the change recognized~~ in ~~net~~G-7 ~~investment~~arbitrage ~~income~~strategies ~~during~~and ~~the~~Tiptree ~~current~~Financial ~~period~~Partners, LP. ~~Any~~Limited ~~realized~~partnerships ~~gains~~reported orlower ~~losses~~overall ~~resulting~~yields ~~from the sales~~ of ~~trading~~4.8% ~~and~~in ~~commercial~~2010 ~~loan investments~~as ~~are~~compared ~~also~~to ~~recognized~~7.0% in ~~net investment income~~2009.

As of September 30, 2010 and September 30, 2009, investments in limited partnerships amounted to approximately $132.1 million and $158.8 million, respectively. The equity method of accounting is used to account for the Company’s limited partnership hedge fund investments. Under the equity method, the Company records all changes in the underlying value of the limited partnership hedge fund to results of operations.

As of September 30, 2010 and September 30, 2009, investments in the trading and commercial loan portfolios collectively amounted to approximately $3.0 million and $4.3 million, respectively. Net investment income for the nine months ended September 30, 2010 and 2009 reflected approximately $3.4 million and $6.6 million, respectively, derived from combined trading portfolio and commercial loan activities. These activities primarily include the trading of U.S. Treasury securities, commercial loans, municipal obligations and preferred stocks. The Company’s trading and commercial loan portfolios are marked to market with the change recognized in net investment income during the current period. Any realized gains or losses resulting from the sales of trading and commercial loan investments are also recognized in net investment income.

The Company’s investment income results may be volatile depending upon the level of limited partnerships, commercial loans and trading portfolio investments held. If the Company invests a greater percentage of its investment portfolio in limited partnership hedge funds, and/or if the fair value of trading and/or commercial loan investments held varies significantly during different periods, there may also be a greater volatility associated with the Company’s investment income.

~~Commission~~Other ~~and~~(loss) ~~other~~ income decreased to $85(8.2) million for the three months ended September 30,~~000~~ 2010 from $3.3 million for the ~~six~~same period in the prior year. Other (loss) income decreased to $(8.1) million for the nine months ended ~~June~~September 30, 2010 from $~~127,000~~3.4 million for the same period in the prior year. During the preparation and review of our financial statements for this quarterly report on Form 10-Q, the Company determined that certain computer equipment and software no longer possessed any future service potential and accounted for it as an abandoned asset. Accordingly, the Company charged off $8.1 million relating to disposition of the computer systems. The income in 2009 was attributable to the Company’s receipt of $3.2 million in the third quarter of 2009 as beneficiary of a life insurance policy on a former director.

~~Net~~There ~~realized~~were ~~investment~~no realized gains ~~were $5.4 million~~ for the three months ended ~~June~~September 30, 2010 as compared to net realized investment gains of $10.75 million for the same period in the prior year. Net realized investment gains were $6.9 million for the ~~six~~nine months ended ~~June~~ September 30, 2010 as compared to net realized gains of $12.3 million for the same period in the prior year. Net realized investment gains in 2010 and 2009 primarily ~~reflect~~reflected gains from the sales of USU.S. Treasury securities.

Write-downs from OTTI in the fair value of securities amounted to $0 and $0.3 million for the three months and six months ended June 30, 2010, respectively as compared to $0.5 million for the three months and six months ended June 30, 2009. The OTTI recorded for the six months ended June 30, 2010 was attributable to the Company’s intention to sell US Treasury securities that are not expected to recover their entire amortized cost prior to sale. The OTTI recorded for the six months ended June 30, 2009 was attributable to the Company’s intention to sell certain municipal securities that were not expected to recover their entire amortized cost prior to sale.

Total income tax (benefit) expense amounted to $(1.1) million and $1.9 million, respectively, for the three months ended June 30, 2010 and 2009, respectively. Total income tax expense as a percentage of income before taxes was (18.5)% and 11.7% for the three months ended June 30, 2010 and 2009, respectively. Total income tax expense amounted to $(2.4) million and $3.0 million, respectively, for the six months ended June 30, 2010 and 2009, respectively. Total income tax expense as a percentage of income before taxes was (20.8)% and 14.4% for the six months ended June 30, 2010 and 2009, respectively. The lower percentages for the second quarter and six months ended June 30, 2010 were primarily attributable to tax benefits of $3.1 million, or $.35 per diluted share, and $6.3 million, or $.72 per diluted share, respectively, as a result of the partial reversal of the deferred tax valuation allowance previously provided for capital losses. This compares to the partial reversal of the deferred tax valuation allowance during the second quarter and six months ended June 30, 2009 of $3.3 million, or $.38 per diluted share.

- 27 -

Write-downs from OTTI in the fair value of securities amounted to $0 and $0.3 million for the three months and nine months ended September 30, 2010, respectively as compared to$0 and $0.5 million for the three months and nine months ended September 30, 2009. The OTTI recorded for the nine months ended September 30, 2010 was attributable to the Company’s intention to sell U.S. Treasury securities that were not expected to recover their entire amortized cost prior to sale. The OTTI recorded for the nine months ended September 30, 2009 was attributable to the Company’s intention to sell certain municipal securities that were not expected to recover their entire amortized cost prior to sale.

Total income tax (benefit) expense amounted to $(3.3) million and $1.4 million, respectively, for the three months ended September 30, 2010 and 2009. Total income tax expense amounted to $(5.6) million and $4.4 million, respectively, for the nine months ended September 30, 2010 and 2009. The lower tax amounts for the third quarter and nine months ended September 30, 2010 include tax benefits of $0 and $6.3 million, or $.72 per diluted share, respectively, as a result of the partial reversal of the deferred tax valuation allowance previously provided for capital losses. This compares to the partial reversal of the deferred tax valuation allowance during the third quarter and nine months ended September 30, 2009 of $3.3 million, or $.38 per diluted share.

Liquidity and Capital Resources

Total cash and investments and receivable for securities disposed ~~increased~~decreased from $679.9 million at December 31, 2009 to $~~683~~641.63 million at ~~June~~September 30, 2010, principally asdue ato ~~result~~receivables offor ~~the~~securities ~~collection~~sold of ~~premiums~~$51.8 million and ~~sales of appreciated investments which was offset by~~ an increase in paid losses mainly attributable to the payment of aviation claims relating to the terrorist attacks of September 11, 2001 on the World Trade Center., which was partially offset by the collection of premiums and sales of appreciated investments. The Company is in the process of liquidating a majority of its investments in limited partnerships. This will serve to increase the level of cash and short- term investments upon the receipt of ~~$408~~the proceeds from such sales.~~2 million~~ atAt ~~June~~September 30, 2010, ~~reflected~~the level of cash and short-term investments of $434.3 million reflected the Company’s high liquidity position and conservative investing posture.

Cash flows used in operating activities were $107.41 million for the ~~six~~nine months ended ~~June~~ September 30, 2010 as compared to cash flows provided by operating activities of $4389.7 8 million for the same period in 2009. Trading portfolio and commercial loan activities of $12.70 million favorably affected cash flows for the ~~six~~nine months ended ~~June~~September 30, 2010 while such activities favorably affected cash flows by $1327.96 million for the ~~six~~nine months ended ~~June~~ September 30, 2009. Trading portfolio activities include the purchase and sale of U.S. US Treasury securities, preferred stocks and municipal bonds. Commercial loan activities include the purchase and sale of middle market loans made to commercial companies. As the Company’s trading and commercial loan portfolio balances may fluctuate significantly from period to period, cash flows from operating activities may also be significantly impacted by such activities. Contributing to a decrease in operating cash flows, other than trading and commercial loan activities, during 2010 was an increase in paid losses mainly attributable to the gross payment of $33 million of aviation claims relating to the terrorist attacks of September 11, 2001 on the World Trade Center. ~~Approximately~~ Approximately $22 million was ceded to reinsurers, of which $11 million was outstanding as of ~~June~~September 30, 2010. Contributing to an increase in operating cash flows, other than trading and commercial loan activities, during 2009, was the collection of premiums and reinsurance recoverable balances and lower amounts of paid losses.

Cash flows provided by investing activities were $~~342~~360.34 million for the ~~six~~nine months ended ~~June~~September 30, 2010 as compared to cash flows used in investing activities of $6198.7 0 million for the ~~six~~nine months ended ~~June~~September 30, 2009. The cash flows for the ~~six~~nine months ended ~~June~~September 30, 2010 were favorably impacted by the net sale of fixed maturities available for sale, which primarily includes USU.S. Treasuries. The favorable cash flows were partially offset by increased investments in limited partnerships. The cash flows for the ~~six~~nine months ended ~~June~~ September 30, 2009 were adversely impacted by the net purchase of fixed ~~maturities~~maturity available for sale investments. This resulted primarily from the sale of selected municipal securities, U.S. Treasury securities and net sale of short-term investments of $45.3 million undertaken to further reposition the Company’s holdings into corporate bonds.

Cash flows provided by financing activities were $0.63 million and $0.14 million for the ~~six~~nine months ended ~~June~~September 30, 2010 and 2009, respectively. In 2010 and 2009, cash ~~inflows~~ inflows from the proceeds, including tax benefits, of stock issuances were partially offset by cash dividends.

On March 10, 2010, the Company declared a dividend to shareholders of ten (10) cents per share payable on April 7, 2010 to shareholders of record on March 31, 2010. On March 10, 2009, the Company declared a dividend to shareholders of four (4) cents per share payable on April 7, 2009 to shareholders of record on March 31, 2009. On May 20, 2010, ~~the~~ the Company declared a dividend to shareholders of ten (10) cents per share payable on July 8, 2010 to shareholders of record on June 30, 2010. On May 21, 2009, the Company ~~declared~~ declared a dividend to shareholders of four (4) cents per share payable on July 7, 2009 to to shareholders of record on June 30, 2009. On September 20, 2010, the Company declared a dividend of ten (10) cents per share to shareholders of record on September 30, 2010, payable on October 6, 2010. On September 17, 2009, the Company declared a dividend of six (6) cents per share to shareholders of record on September 30, 2009, payable on October 6, 2009.

New York Marine and Gotham declared and paid ordinary dividends of $10.0 million and $0 to the Company during the first six months of 2010 and 2009, respectively.

Under the NYMAGIC, INC. Amended and Restated 2004 Long-Term Incentive Plan (the “LTIP”), the Company granted 132,856 restricted shares and deferred share units to officers and Directors of the Company, 17,525 unrestricted shares of Common Stock to the President and Chief Executive Officer and 36,831 deferred shares units to the Company’s Directors during the six months ended June 30, 2010. Under the LTIP, the Company granted 8,000 restricted share units, and up to 49,000 performance share units and 100,000 stock options to the President and Chief Executive Officer during the six months ended June 30, 2009. The market price per share and option price per share on the grant date of the stock option were $9.88 and $15.00 per share, respectively.

- 28 -

~~Under~~New ~~the~~York ~~Common~~Marine ~~Stock~~and ~~Repurchase~~Gotham ~~Plan~~declared ~~(the~~and ~~“Plan”),~~paid ~~the~~ordinary ~~Company~~dividends ~~may~~of ~~purchase~~$10.0 million upand to $750.4 million, ofrespectively, to the Company’s ~~issued~~during ~~and~~the ~~outstanding~~first ~~shares~~nine months of ~~common~~2010. ~~stock~~New ~~on the open~~York ~~market.~~Marine ~~During~~and ~~the~~Gotham ~~second~~declared ~~six~~$5.0 million ~~months~~and of$0.6 million, ~~2010~~respectively, ~~and~~in ~~2009,~~ordinary dividends ~~there~~to ~~were~~the noCompany ~~repurchases~~during ~~of common~~the ~~stock~~first ~~made~~nine ~~under~~months ~~the~~of ~~Plan~~2009.

~~Premiums~~Under ~~and~~the ~~other receivables~~NYMAGIC, ~~net~~INC. ~~increased~~Amended toand ~~$33.5 million~~Restated as2004 ofLong-Term ~~June 30,~~Incentive ~~2010~~Plan ~~from~~(the “LTIP”), ~~$24.8 million~~the asCompany ofgranted ~~December 31~~132,856 ~~2009,~~restricted shares and ~~the~~deferred ~~reserve~~share ~~for~~units ~~unearned~~to ~~premiums~~officers ~~increased to~~and ~~$107.2 million~~Directors as of ~~June 30~~the Company, ~~2010~~17,525 ~~from~~unrestricted ~~$89.5 million~~shares as of ~~December 31,~~Common ~~2009,~~Stock ~~primarily as~~to athe ~~result~~President ofand Chief ~~excess~~Executive ~~workers’~~Officer ~~compensation~~and ~~gross writings~~36,831 ~~which~~deferred ~~are~~shares ~~substantially written~~units ~~during~~to the ~~first~~Company’s ~~half~~Directors during of the ~~calendar~~nine ~~year~~months ~~and~~ended ~~increased~~September 30, ~~writings from MMO Agencies and commercial auto~~2010.

~~Deferred~~Under ~~acquisition~~the ~~costs~~LTIP, ~~increased~~the Company granted 8,000 restricted share units, and up to ~~$20.5 million~~49,000 performance asshare ofunits ~~June~~and 100,000 stock options to the President and Chief Executive Officer during the nine months ended September 30, ~~2010~~2009. ~~from~~The market price per share and option price per share on the grant date of the stock option were $169.488 and $15.00 per ~~million~~share, asrespectively. ofThe ~~December 31~~Company also granted 30,000 ~~2009~~stock ~~largely~~options asto acertain ~~result~~directors. The ofmarket price per share equaled the ~~increase~~option inprice per share on the ~~unearned premiums~~grant indate of the stock ~~other~~options ~~liability~~which ~~segment~~ranged from $12.41 to $15.00 per share, respectively.

~~Reinsurance~~Under ~~receivables~~the onCommon ~~paid~~Stock ~~balances,~~Repurchase ~~net~~Plan as(the ~~of June 30~~“Plan”), ~~2010,~~the ~~increased~~Company tomay ~~$26.5 million~~purchase ~~from~~up ~~$13.1 million as of December 31, 2009 and reinsurance receivables on unpaid balances, net at June 30, 2010 decreased~~ to $~~187.7~~ 75 million ~~from $205.1 million as~~ of ~~December 31,~~ ~~2009 largely as a result of~~ the ~~cession~~Company’s ofissued ~~approximately~~and ~~$22 million~~outstanding ~~to reinsurers~~shares ~~that resulted from $33 million in gross aviation payments relating to the terrorist attacks~~ of ~~September 11,~~common ~~2001~~stock on the ~~World Trade Center~~open market. ~~Unpaid~~During ~~losses~~the ~~and~~first ~~loss adjustment~~nine ~~expenses~~months as of ~~June 30,~~ 2010, ~~decreased~~and ~~to $538.5 million from $555.5 million as of December 31~~2009, ~~2009~~there ~~primarily~~were asno arepurchases ~~result~~ of common ~~gross~~stock ~~loss~~made ~~payments~~under in the ~~aviation segment~~Plan.

~~Other~~Premiums ~~assets~~and atother ~~June~~receivables, net increased to $30.0 million as of September 30, 2010 from $24.8 million as of December 31, 2009, and the reserve for unearned premiums increased to $9109.26 million as of September 30, 2010 from $489.15 million as of December 31, 2009, ~~largely~~primarily as a result of anexcess ~~increase~~workers’ incompensation ~~federal~~gross ~~income~~writings, ~~tax~~which ~~recoverable~~are substantially written during the first half of the calendar year and increased writings from MMO Agencies and commercial auto.

Deferred acquisition costs increased to $21.3 million as of September 30, 2010 from $16.4 million as of December 31, 2009 largely as a result of the increase in the unearned premiums in the other liability segment.

Reinsurance receivables on paid balances, net as of September 30, 2010, increased to $25.1 million from $13.1 million as of December 31, 2009 and reinsurance receivables on unpaid balances, net at September 30, 2010 decreased to $181.2 million from $205.1 million as of December 31, 2009 largely as a result of the cession of approximately $22 million to reinsurers that resulted from $33 million in gross aviation payments relating to the terrorist attacks of September 11, 2001 on the World Trade Center. Unpaid losses and loss adjustment expenses as of September 30, 2010, decreased to $538.3 million from $555.5 million as of December 31, 2009 primarily as a result of gross loss payments in the aviation segment.

Other assets at September 30, 2010 increased to $7.6 million from $4.1 million as of December 31, 2009 largely as a result of an increase in federal income tax recoverable.

Other liabilities at September 30, 2010 decreased to $27.7 million from $34.9 million as of December 31, 2009 largely as a result of a decrease in accrued expenses, interest expense payable and amounts to MMO pool members.

- 29 -

Investments

A summary of the Company’s investment components at ~~June~~September 30, 2010 and December 31, ~~2009~~ 2009 is presented below:

	June 30, 2010		Percent			December 31, 2009		Percent
	September 30, 2010		Percent			December 31, 2009		Percent
Fixed maturities held to maturity (adjusted amortized cost):
Residential mortgage-backed securities	$	5352,~~784~~483,~~511~~006		8.0918	%	$	56,589,704		8.37	%
Total fixed maturities held to maturity	$	5352,~~784~~483,~~511~~006		8.0918	%	$	56,589,704		8.37	%
Fixed maturities available for sale (fair value):
U.S. Treasury securities	$	18,~~484~~434,~~492~~108		2.7887	%	$	385,715,035		57.09	%
Municipal obligations		~~822~~824,~~808~~548		0.1213	%		804,373		0.12	%
Total fixed maturities available for sale	$	19,~~307~~258,~~300~~656		23.9000	%	$	386,519,408		57.21	%
Total fixed maturities	$	7371,~~091~~741,~~811~~662		1011.9918	%	$	443,109,112		65.58	%
Equity securities available for sale (fair value):
Common stock	$	101,780		0.02	%	$	117,968		0.02	%
Total equity securities	$	101,780		0.02	%	$	117,968		0.02	%
Cash, cash equivalents and short-term investments	$	~~408~~434,~~196~~251,~~542~~099		6167.3871	%	$	75,544,627		11.18	%
Total fixed maturities, equity securities, cash, cash equivalents and short-term investments	$	~~481~~506,~~390~~094,~~133~~541		7278.3991	%	$	518,771,707		76.78	%
Commercial loans (fair value)	$	3,~~351~~018,~~132~~117		0.5047	%	$	5,001,118		0.74	%
Limited partnership hedge funds (equity)	$	~~180~~132,~~305~~222,~~807~~970		2720.1162	%	$	151,891,838		22.48	%
Total investment portfolio	$	~~665~~641,~~047~~335,~~072~~628		100.00	%	$	675,664,663		100.00	%

As of ~~June~~September 30, 2010, 9192.51% of the Company’s fixed income and short-term investment portfolios were considered investment grade by S&P. As of ~~June~~September 30, 2010, the Company invested approximately $40.1 million in fixed maturities that were below investment grade.

- 30 -

Details of the RMBS portfolio as of ~~June~~September 30, 2010, including publicly available qualitative information, are presented below:

Weighted

Average

Loan to

FICO

D60+

Credit

S&P

Moody’s

Adjusted

Loan to

FICO

D60+

Credit

S&P

Moody’s

Security

~~Adjusted~~amortized cost

Value %

Credit

Delinquency

Support

Rating

~~Rating~~

description

Issue date

~~amortized cost~~ (6)

Fair value

(1)

Score (2)

Rate (3)

Level (4)

(5)

~~(5)~~

AHMA 2006-3

7/2006

10,~~666~~457,~~400~~012

9,~~854~~707,~~819~~649

84.98

705

3834.23

3635.93

Caa1

~~Caa1~~

CWALT 2005-69

11/2005

6,~~865~~677,~~539~~549

6,~~414~~077,~~370~~223

8180.1

698

5155.63

47.76

CCC

Ba3

~~Ba3~~

CWALT 2005-76

12/2005

6,~~752~~605,~~551~~873

6,~~659~~341,~~662~~236

81.64

~~700~~699

54.91

4847.1

CCC

RALI 2005-QO3

10/2005

7,~~178~~042,~~258~~417

5,~~948~~525,~~895~~030

80.42

704

4443.62

3938.93

B-

WaMu 2005-AR17

12/2005

5,~~844~~688,~~676~~359

6,~~684~~976,~~510~~057

7372.04

715

2829.32

49.53

AAA

WaMu 2006-AR9

7/2006

87,~~048~~842,~~422~~748

8,~~550~~649,~~953~~699

7473.27

731

3433.04

22.95

Ba1

~~Ba1~~

WaMu 2006-AR13

9/2006

8,~~428~~169,~~665~~048

9,~~213~~296,~~927~~959

75.41

728

3332.58

2322.79

CCC

5352,~~784~~483,~~511~~006

5352,~~327~~573,~~136~~853

(1)		The dollar-weighted average amortized loan-to-original value of the underlying loans at ~~July~~October 25, 2010.
(2)		Average FICO credit score at origination of remaining borrowers in the loan pool at ~~July~~October 25, 2010.
(3)		The percentage of the current outstanding principal balance that is more than 60 days delinquent as of ~~July~~October 25, 2010. This includes loans that are in foreclosure and real estate owned.
(4)		The current credit support provided by subordinate ranking tranches within the overall security structure at ~~July~~October 25, 2010.
(5)		Ratings as of ~~July~~October 25, 2010.
(6)		After OTTI recognized in OCI.

The Company’s cash flow analysis for each of these securities attempts to estimate the likelihood of any future impairment. While the Company does not believe there are any other than temporary impairments (“OTTI”) currently, future estimates may change depending upon the actual performance statistics reported for each security to the Company. This may result in future charges based upon revised estimates for delinquency rates, severity rates or prepayment patterns. These changes in estimates may be material. These securities are collateralized by pools of “Alt-A” mortgages, and receive priority payments from these pools. The Company’s securities rank senior to subordinated tranches of debt collateralized by each respective pool of mortgages. The Company has collected all applicable interest and principal repayments on such securities to date. As of ~~July~~ October 25, 2010, the levels of subordination ranged from 22.95% to 49.53% of the total debt outstanding for each pool. Delinquencies within the underlying mortgage pools ranged from 2829.32% to 5455.93% of total amounts outstanding. For comparison purposes, as of ~~July~~ October 25, 2009, delinquencies ranged from 2528.37% to 4751.21%, while subordination levels ranged from 2625.27% to 51.20%. Delinquency rates are not the same as severity rates, or actual loss, but are an indication of the potential for losses of some degree in future periods.

- 31 -

As of ~~June~~September 30, 2010, there was no significant variance in RMBS securities prices from different pricing sources. ~~Management~~Accordingly, ~~also determined that~~ the ~~few~~Company ~~trades~~determined offair ~~RMBS~~value ~~were not consistent with~~using ~~the~~ prices ~~received~~obtained ~~and~~from ~~analysis~~its ~~performed~~custodian. atFrom ~~quarter~~September 30, ~~end.~~2009 ~~This~~to ~~confirmed~~June 30, ~~management’s previously~~2010, ~~established~~there ~~view~~was ~~that~~variance ~~the~~in ~~market~~RMBS securities isprices ~~dislocated~~from ~~and~~different ~~illiquid.~~pricing ~~Accordingly~~sources, therefore, the Company determined fair value using a matrix pricing analysis.

~~The~~There ~~Company~~are ~~used~~government asponsored ~~weighted~~programs ~~pricing~~that ~~matrix~~may toaffect ~~determine~~the ~~fair~~performance ~~value.~~of ~~The~~the ~~pricing matrix~~Company’s ~~was~~RMBS. ~~based~~Further onthere ~~risk~~has ~~profile~~been ~~and~~recent ~~qualitative~~moratoriums ~~and~~on ~~quantitative~~foreclosures ~~data~~and ~~for~~extensive ~~similar~~litigation regarding ~~vintage~~placing ~~RMBS that~~mortgages ~~had~~back ~~recently~~to ~~established~~the ~~prices.~~originators, The ~~securities~~Company ~~were~~is ~~evaluated~~uncertain inas ~~each~~to of the ~~following 9 categories: sector~~impact, ~~collateral,~~if ~~current S&P rating~~any, ~~current~~these ~~credit~~programs ~~support, 3 month~~or ~~conditional~~events ~~default~~will ~~rate,~~have ~~3 month~~on ~~voluntary~~the ~~prepayment,~~fair ~~1 month~~value ~~loss~~of ~~severity, 60+~~the ~~delinquencies, and FICO score~~Company’s RMBS. The ~~price~~fair ~~for~~value ~~each RMBS was based upon the prices~~ of ~~those~~ ~~RMBS~~such securities ~~that~~at ~~had~~September 30, ~~the~~2010 ~~similar~~was ~~underlying~~approximately ~~characteristics to the Company’s~~$52.6 ~~RMBS portfolio~~million.

There are government sponsored programs that may affect the performance of the Company’s RMBS. The Company is uncertain as to the impact, if any, these programs will have on the fair value of the Company’s RMBS. The fair value of such securities at June 30, 2010 was approximately $53.3 million.

The Company’s Level 1 assets are comprised of U.S. Treasury securities, which are highly liquid and traded in active exchange markets.

The Company’s Level 2 assets include municipal debt obligations.

- 32 -

~~The~~ primary pricing sources for the Company’s commercial loan and common stock portfolios are reviewed for reasonableness, based on the Company’s understanding of the respective market. Prices may then be determined using valuation methodologies such as discounted cash flow models, as well as matrix pricing analyses performed on non-~~binding~~ ~~quotes~~32 ~~from brokers or other market~~-~~makers.~~ ~~As of June 30, 2010, the Company did not utilize an~~ ~~alternate valuation methodology for its commercial loan or common stock portfolios.~~

The primary pricing sources for the Company’s commercial loan and common stock portfolios are reviewed for reasonableness, based on the Company’s understanding of the respective market. Prices may then be determined using valuation methodologies such as discounted cash flow models, as well as matrix pricing analyses performed on non-binding quotes from brokers or other market-makers. As of September 30, 2010, the Company did not utilize an alternate valuation methodology for its RMBS, commercial loan or common stock portfolios.

Unpaid losses and loss adjustment expenses

Unpaid losses and loss adjustment expenses for each segment were as follows:

	June 30, 2010				December 31, 2009
	September 30, 2010				December 31, 2009
	Gross		Net		Gross		Net
	(in thousands)				(in thousands)
Ocean marine	$	~~138~~127,~~270~~989	$	8885,~~587~~539	$	145,064	$	95,334
Inland marine/fire		2120,~~747~~296		7,~~861~~431		19,254		6,580
Other liability		~~293~~305,~~897~~902		~~243~~254,~~583~~400		272,554		225,010
Aircraft		84,~~570~~066		109,~~786~~671		118,614		23,484
Total	$	538,~~484~~253	$	~~350~~357,~~817~~041	$	555,486	$	350,408

Our long tail business is primarily in ocean marine liability, aircraft and non-marine liability insurance. These classes historically have extended periods of time between the occurrence of an insurable event, reporting the claim to the Company and final settlement. In such cases, we estimate reserves, with the possibility of making several adjustments, because of emerging differences in actual versus expected loss development, which may result from shock losses (large losses), changes in loss payout patterns and material adjustments to case reserves due to adverse or favorable judicial or arbitral results during this time period.

By contrast, other classes of insurance that we write, such as property, which includes certain ocean marine classes (hull and cargo) and our inland marine/fire segment, and claims-made non-marine liability, historically have had shorter periods of time between the occurrence of an insurable event, reporting of the claim to the Company and final settlement. The reserves for these classes are estimated as described above, but these reserves are less likely to be readjusted, because it is not likely that they will have significant differences resulting from expected loss development, shock or large losses, changes in loss payout patterns and material adjustments to case reserves over their short tails.

As the Company increases its production in its other liability lines of business, its reported loss reserves from period to period may vary depending upon the long tail, short tail and product mix within this segment. Our professional liability class, for example, is written on a claims-made basis, but other sources of recent production, such as excess workers’ compensation, are derived from liability classes written on an occurrence basis. Therefore, the overall level of loss reserves reported by the Company at the end of any reporting period may vary as a function of the level of writings achieved in each of these classes.

In 2001, the Company recorded losses in its aircraft line of business as a result of the terrorist attacks of September 11, 2001 on the World Trade Center, the Pentagon and the hijacked airliner that crashed in Pennsylvania (collectively, the “WTC Attack”). At the time, because of the amount of the potential liability to our insureds (United Airlines and American Airlines) occasioned by the WTC Attack, we established reserves based upon our estimate of our insureds’ policy limits for gross and net liability losses. In 2004 we determined that a reduction in the loss reserves relating to the terrorist attacks of September 11, 2001 on the Pentagon and the hijacked airliner that crashed in Pennsylvania was warranted, because a significant number of claims that could have been made against our insureds were waived by prospective claimants when they opted to participate in the September 11th Victim Compensation Fund of 2001 (the “Fund”), and the statutes of limitations for wrongful death in New York and for bodily injury and property damage, generally, had expired, the latter on September 11, 2004. Our analysis of claims against our insureds, undertaken in conjunction with the industry’s lead underwriters in London, indicated that, because such a significant number of claims potentially emanating from the attack on the Pentagon and the crash in Shanksville had been filed with the Fund, or were time barred as a result of the expiration of relevant statutes of limitations, those same claims would not be made against our insureds. Therefore, we concluded that our insured’s liability and our ultimate insured loss would be substantially reduced. Consequently, we re-estimated our insured’s potential liability for the terrorist attacks of September 11, 2001 on the Pentagon and the hijacked airliner that crashed in Pennsylvania, and in 2004 we reduced our gross and net loss reserves by $16.3 million and $8.3 million, respectively.

- 33 -

In light of the magnitude of the potential losses to our insureds resulting from the WTC Attack, we did not reduce reserves for these losses until we had a high degree of certainty that a substantial amount of these claims were waived by victims’ participation in the Fund, or were time barred by the expiry of statutes of limitations, and we did not reach that level of certainty until September 2004, when the last of the significant statutes of limitations, that applicable to bodily injury and property damage, expired.

In 2006, the Company recorded adverse loss development of approximately $850,000 in the aircraft line of business resulting primarily from losses assumed from the WTC Attack which were partially offset by a reduction in reserves relating to the loss sustained at the Pentagon after re-estimating the reserve based upon lower than expected settlements of claims paid during the year.

The process of establishing reserves for claims involves uncertainties and requires the use of informed estimates and judgments. Our estimates and judgments may be revised as claims develop and as additional experience and other data become available and are reviewed, as new or improved methodologies are developed or as current laws change. The Company realized $32.7 million in favorable development for the ~~six~~nine months ended ~~June~~ September 30, 2010 largely as a result of favorable reported loss trends arising from the ocean marine line of business although offset by adverse development in the professional ~~liability~~ liability class. The Company realized $913.32 million in favorable development for the ~~six months~~nine months ended ~~June~~September 30, 2009 as a result of favorable reported loss trends arising from the ocean marine and other liability lines of business as well as recoveries in the aviation line of business. Other than specifically disclosed herein, there were no significant changes in assumptions made in the evaluation of loss reserves during 2010.

Off-Balance Sheet Arrangement

The Company has no off-balance sheet arrangements.

Critical Accounting Policies

The Company discloses significant accounting policies in the notes to its financial statements. Management considers certain accounting policies to be critical with respect to the understanding of the Company’s financial statements. Such policies require significant management judgment and the resulting estimates have a material effect on reported results and will vary to the extent that future events affect such estimates and cause them to differ from the estimates provided currently. These critical accounting policies include unpaid losses and loss adjustment expenses, allowance for doubtful accounts, impairment of investments, limited partnerships and trading portfolios, reinstatement reinsurance premiums and stock compensation.

The Company maintains reserves for the future payment of losses and loss adjustment expenses with respect to both case (reported) and IBNR (incurred but not reported) losses under insurance policies issued by the Company. IBNR losses are those losses, based upon historical experience, industry loss data and underwriter expectations, that the Company estimates will be reported under these policies. Case loss reserves are determined by evaluating reported claims on the basis of the type of loss involved, knowledge of the circumstances surrounding the claim and the policy provisions relating to the type of loss. Case reserves can be difficult to estimate depending upon the class of business, claim complexity, judicial interpretations and legislative changes that affect the estimation process. Case reserves are reviewed and monitored on a regular basis, which may result in changes (favorable or unfavorable) to the initial estimate until the claim is ultimately paid and settled. Unpaid losses with respect to asbestos/environmental risks are difficult for management to estimate and require considerable judgment due to the uncertainty regarding the significant issues surrounding such claims. Unpaid losses with respect to catastrophe losses, such as hurricanes Katrina and Rita that occurred in 2005 and hurricanes Ike and Gustav in 2008, are also difficult to estimate due to the high severity of the risks we insure. Unpaid losses and loss adjustment expenses amounted to $538.53 million and $555.5 million at ~~June~~September 30, 2010 and December 31, 2009, respectively. Unpaid losses and loss adjustment expenses, net of reinsurance amounted to $~~350~~357.80 million and $350.4 million at ~~June~~September 30, 2010 and December 31, 2009, respectively. Management continually reviews and updates the estimates for unpaid losses, and any changes resulting therefrom are reflected in operating results currently. The ~~potential~~ potential for future adverse or favorable loss development is highly uncertain and subject to a variety of factors including, but not limited to, court decisions, legislative actions and inflation.

The allowance for doubtful accounts is based on management’s review of amounts due from insolvent or financially impaired companies. Allowances are estimated for both premium receivables and reinsurance receivables. Management continually reviews and updates such estimates for any changes in the financial status of companies. The allowance for doubtful accounts for both premiums and reinsurance receivables amounted to $16.1 million and $17.9 million as of September 30, 2010 and December 31, 2009, respectively.

- 34 -

The allowance for doubtful accounts is based on management’s review of amounts due from insolvent or financially impaired companies. Allowances are estimated for both premium receivables and reinsurance receivables. Management continually reviews and updates such estimates for any changes in the financial status of companies. The allowance for doubtful accounts for both premiums and reinsurance receivables amounted to $17.2 million and $17.6 million as of June 30, 2010 and December 31, 2009, respectively.

Impairment of investments, included in realized investment gains or losses, results from declines in the fair value of investments which are considered by management to be other-than-temporary.

Impairment of investments, included in realized investment gains or losses, results from declines in the fair value of investments which are considered by management to be other-than-temporary. Management reviews investments for impairment based upon specific criteria that include the duration and extent of declines in fair value of the security below its cost or amortized cost. The Company performs a qualitative and quantitative review of all securities in a loss position in order to determine if any impairment is considered to be other-than-temporary. The Company also reviews all securities with any rating agency declines during the reporting period. This review includes considering the effect of rising interest rates and the Company’s intent and ability to hold impaired securities in the foreseeable future to recoup any losses. In addition to subjecting its securities to the objective tests of percent declines in fair value and downgrades by major rating agencies, when it determines whether declines in the fair value of its securities are other-than-temporary, the Company also considers the facts and circumstances that may have caused the declines in the value of such securities. As to any specific security, it may consider general market conditions, changes in interest rates, adverse changes in the regulatory environment of the issuer, the duration for which the Company expects to hold the security and the length of any forecasted recovery. Effective April 1, 2009, under ASC 320 and ASC 958, “Recognition and Presentation of Other-Than-Temporary Impairments” impairment is considered to be other than temporary if an entity (1) intends to sell the security, (2) more likely than not will be required to sell the security before recovering its amortized cost basis, or (3) does not expect to recover the security’s entire amortized cost basis. The OTTI of $0.3 million and $0.5 million recognized for the ~~six~~nine months ended ~~June~~September 30, 2010 and ~~June~~September 30, 2009, respectively, resulted from the Company’s intention to sell certain USU.S. Treasury and ~~other~~ other securities under circumstances in which those securities are not expected to ~~recover~~ recover their entire amortized cost prior to sale. Credit impairment occurs under ASC 320 if the present value of cash flows expected to be collected from the debt security is less than the amortized cost basis of the security. There were no credit impairments ~~recorded~~ recorded during the ~~six~~nine months ended ~~June~~September 30, 2010 and 2009, respectively. Gross unrealized gains and losses on fixed maturity investments available for sale amounted to ~~approximately~~ approximately $0.43 million and $0, respectively, at ~~June~~September 30, 2010. Gross unrealized gains and losses on fixed maturity investments available for sale amounted to approximately $3.9 million and $(0.7) million, respectively, at December 31, 2009. The Company believes the unrealized losses are temporary and result from changes in market conditions, including interest rates or sector spreads.

The Company has investments in residential RMBS amounting to $5352.85 million (amortized value) at ~~June~~September 30, 2010. These securities are classified as held to maturity after ~~the~~ the Company transferred these holdings from the available for sale portfolio effective October 1, 2008. Upon acquisition of the RMBS portfolio and prior to October 1, 2008, the Company was uncertain as to the duration for which it would hold the RMBS portfolio and appropriately classified such securities as available for sale.

The Company utilizes the equity method of accounting to account for its limited partnership hedge fund investments. Under the equity method, the Company records all changes in the underlying value of the limited partnership to net investment income in results of operations. Net investment income derived from investments in limited partnerships amounted to $714.90 million and $920.25 million for the ~~six~~nine months ended ~~June~~ September 30, 2010 and 2009, respectively. See Item 3 “Quantitative and Qualitative Disclosures About Market Risk” with respect to market risks associated with investments in limited partnership hedge funds.

The Company maintained a commercial loan portfolio at ~~June~~September 30, 2010 consisting of commercial middle market loans. As a result of utilizing the fair value election under ASC 825 on these investments, they are marked to market with the change recognized in net investment income during the current period. Any realized gains or losses resulting from the sales of such securities are also recognized in net investment income. The Company recorded $0~~.2 million~~ and $12.81 million in commercial loan portfolio income before expenses for each of the ~~six~~nine months ended ~~June~~September 30, 2010 and 2009, respectively. See Item 3 “Quantitative and Qualitative Disclosures About Market Risk” with respect to market risks associated with investments in illiquid investments.

Reinsurance reinstatement premiums are recorded, as a result of losses incurred by the Company, in accordance with the provisions of our reinsurance contracts. Upon the occurrence of a large severity or catastrophe loss, the Company may be obligated to pay additional reinstatement premiums under its excess of loss reinsurance treaties up to the amount of the original premium paid under such treaties. ~~Reinsurance~~There ~~reinstatement~~were no reinsurance reinstatement premiums incurred for the ~~six~~nine months ended ~~June~~September 30, 2010 and 2009 ~~were $0 and $0.2 million~~, respectively.

The Company records compensation costs at the fair value of all share options, restricted shares units, deferred share units and performance share units over their related vesting period or service period. Total stock compensation cost recognized in earnings for all share-based incentive compensation awards was approximately $2.5 million and $1.6 million for the nine months ended September 30, 2010 and 2009, respectively.

Effective January 1, 2008, the Company adopted ASC 820, which establishes a consistent framework for measuring fair value. The framework is based on the inputs used in valuation and gives the highest priority to quoted prices in active markets and requires that observable inputs be used in the valuations when available. The disclosure of fair value estimates in the ASC 820 hierarchy is based on whether the significant inputs into the valuation are observable. For an updated discussion of the application of estimates and assumptions around the valuation of investments, see “Fair value measurements.”

- 35 -

The Company records compensation costs at the fair value of all share options, restricted shares units, deferred share units and performance share units over their related vesting period or service period. Total stock compensation cost recognized in earnings for all share-based incentive compensation awards was approximately $1.9 million and $1.1 million for the six months ended June 30, 2010 and 2009, respectively.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

The investment portfolio has exposure to market risks, which include the effect on the investment portfolio of adverse changes in interest rates, credit quality, hedge fund values, and illiquid securities including commercial loans and residential mortgage-backed securities. Interest rate risk includes the changes in the fair value of fixed maturities based upon changes in interest rates. Credit quality risk includes the risk of default by issuers of debt securities. Hedge fund risk includes the potential loss from the diminution in the value of the underlying investment of the hedge fund. Illiquid securities risk includes exposure to the private placement market including its lack of liquidity and volatility in changes in market prices. The only significant change to the Company’s exposure to market risks during the ~~six~~nine months ended ~~June~~September 30, 2010 as as compared to those disclosed in the Company’s financial statements for the year ended December 31, 2009 related to the level of investments in limited partnerships. The investment in limited partnerships amounted to $~~180~~132.32 million and $152.0 million as of ~~June~~September 30, 2010 and December 31, 2009, respectively.

AtPursuant ~~June 30,~~to ~~2010,~~certain ~~the~~covenants ~~Company~~in ~~held~~the ~~$3.4 million~~Agreement ofand ~~commercial~~Plan ~~loans, which consisted~~ of ~~loans~~ toMerger ~~middle~~with ~~market~~ProSight ~~companies. The Company has elected to account for such debt~~Specialty ~~instruments~~Insurance ~~utilizing~~Holdings, ~~the fair value election under SFAS 159~~Inc. ~~Accordingly~~, ~~the~~dated ~~changes in the fair value of these debt instruments are recorded in investment income. The markets for these types of investments can be illiquid and~~July 15, ~~therefore~~2010, the ~~price~~Company ~~obtained~~has ~~from~~submitted redemption ~~dealers~~notices onfor ~~these~~all ~~investments~~of isits ~~subject~~hedge tofund ~~change, depending upon the underlying market conditions of these~~ investments, ~~including~~except ~~the potential~~ for ~~downgrades~~its orinvestment ~~defaults~~in onTiptree ~~the~~Financial ~~underlying~~Partners, ~~collateral of the investment~~LP. The Company’s ~~seeks to mitigate market risk associated with commercial loans by maintaining a small portion of its~~ investment ~~portfolio~~ in ~~commercial~~Tiptree ~~loans.~~Financial ~~As such~~Partners, ~~less~~LP ~~than 1% of the Company’s investment~~is ~~portfolio~~valued isat ~~maintained~~approximately in$35 million ~~such investments~~ at ~~June~~September 30, 2010.

At September 30, 2010, the Company held $3.0 million of commercial loans, which consisted of loans to middle market companies. The Company has elected to account for such debt instruments utilizing the fair value election under SFAS 159. Accordingly, the changes in the fair value of these debt instruments are recorded in investment income. The markets for these types of investments can be illiquid and, therefore, the price obtained from dealers on these investments is subject to change, depending upon the underlying market conditions of these investments, including the potential for downgrades or defaults on the underlying collateral of the investment. The Company seeks to mitigate market risk associated with commercial loans by maintaining a small portion of its investment portfolio in commercial loans. As such, less than 1% of the Company’s investment portfolio is maintained in such investments at September 30, 2010.

Hedge fund risk includes the potential loss from the diminution in the value of the underlying investment of the hedge fund. Hedge fund investments are subject to various economic and market risks. The risks associated with hedge fund investments may be substantially greater than the risks associated with fixed income investments. Consequently, our hedge fund portfolio may be more volatile, and the risk of loss greater, than that associated with fixed income investments. In accordance with the investment policy for each of the Company’s New York insurance company subsidiaries, hedge fund investments are limited to the greater of 30% of invested assets or 50% of policyholders’ surplus. The Company’s Arizona insurance subsidiary does not invest in hedge funds.

The Company also seeks to mitigate market risk associated with its investments in hedge funds by maintaining a diversified portfolio of hedge fund investments. Diversification is achieved through the use of many investment managers employing a variety of different investment strategies in determining the underlying characteristics of their hedge funds. The Company is dependent upon these managers to obtain market prices for the underlying investments of the hedge funds. Some of these investments may be difficult to value and actual values may differ from reported amounts. The hedge funds in which we invest usually impose limitations on the timing of withdrawals from the hedge funds (most are within 90 days), and may affect our liquidity.

- 36 -

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

An evaluation of the effectiveness of the design and operation of our “disclosure controls and procedures” (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934, as amended) as of the end of the period covered by this report was made under the supervision and with the participation of our management, including our President and Chief Executive Officer and Chief Financial Officer. Based upon this evaluation, our President and Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures (a) are effective to ensure that information required to be disclosed by us in reports filed or submitted under the Securities Exchange Act is timely recorded, processed, summarized and reported and (b) include, without limitation, controls and procedures designed to ensure that information required to be disclosed by us in reports filed or submitted under the Securities Exchange Act is accumulated and communicated to our management, including our President and Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.

Changes in Internal Controls

There have been no significant changes in our “internal control over financial reporting” (as defined in Rule 13a-15(f) under the Securities Exchange Act) that occurred during the period covered by this report that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

- 37 -

PART II — OTHER INFORMATION

Item 1. Legal Proceedings

~~None~~Two former pool members, Utica Mutual Insurance Company (“Utica Mutual”) and Arkwright Mutual Insurance Company (“Arkwright”), which is currently part of the FM Global Group, withdrew from the pools in 1994 and 1996, respectively, and retained the liability for their effective pool participation for all loss reserves, including losses incurred but not reported (“IBNR”) and unearned premium reserves attributable to policies effective prior to their withdrawal from the pools. In December, 2007, MMO, which has been managing the pools without compensation pursuant to a Restated Management Agreement entered into with pool members in 1986, served notice on the pool members of its intent to terminate the Restated Management Agreement, effective December 31, 2009. Two of the pool members, Utica Mutual and Arkwright, rejected MMO’s notice of intent to terminate, and MMO initiated an arbitration against them, seeking an arbitral award, confirming its right to terminate the Restated Management Agreement, or in the alternative, seeking a reformation of the Restated Management Agreement. An arbitration hearing was held in January and February, 2010, but an award is not expected until December 2010, at the earliest.

On September 1, 2010, the actions were consolidated and, on September 3, 2010, the plaintiffs filed a consolidated amended complaint. In addition to the allegations set forth above, the consolidated amended complaint also alleges that the Company’s directors breached their fiduciary duties in disseminating incomplete and/or inaccurate information regarding the proposed merger, and added Goldman, Sachs & Co. as a defendant based on allegations that it aided and abetted the directors’ alleged breach of their fiduciary duties.

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Item 1A. Risk Factors

There were no material changes to the risk factors disclosed in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2009, except as noted below.

The Failure to Complete the Pending Sale of the Company Could have a Materially Adverse Impact.

On July 15, 2010, we entered into a definitive agreement to be acquired by ProSight Specialty Insurance Holdings, Inc. (the “Merger”). ProSight Specialty Insurance Holdings, Inc. (“ProSight”) was founded by a group of senior executives from the property and casualty industry and is backed by affiliates of TPG Capital and GS Capital Partners. Consummation of the Merger is subject to the terms and conditions of the Agreement and Plan of Merger, including, but not limited to, the approval of the Company’s shareholders and ~~the~~obtaining ~~obtainment of~~ certain required regulatory approvals. There can be no assurance that the Company’s shareholders will approve the Merger or that the other conditions to the completion of the Merger will be satisfied. If the Merger is not completed for any reason, the price of the Company’s common stock will likely decline to the extent that the market price of the common stock reflects market assumptions that the Merger will be completed. Additionally, the Company is subject to additional risks in connection with the Merger, including: (1) the occurrence of an event, change or circumstance that ~~could~~ could give rise to the payment of a termination fee to ProSight pursuant to the terms of the Agreement and Plan of Merger, (2) the outcome of any legal proceedings that have been or may be instituted against the Company and others relating to the transactions contemplated by the Agreement and Plan of Merger, (3) the failure of the Merger to close for any reason, (4) the restrictions imposed on the Company’s business, properties and ~~operations~~ operations pursuant to the affirmative and negative covenants set forth in the Agreement and Plan of Merger and the potential impact of such covenants on the Company’s business, (5) the risk that the proposed transaction will divert management’s attention resulting in a potential disruption of the Company’s current business plan, (6) potential difficulties in employee retention arising from the Merger, (7) the effect of the announcement of the Merger on the Company’s business relationships, operating results and business generally and (8) the amount of fees, expenses and charges incurred by the Company in connection with the Merger.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

None.

Item 3. Defaults Upon Senior Securities

None.

Item 4. Submission of Matters to a Vote of Security Holders

~~The Company held its 2010 annual meeting of shareholders on May 20, 2010~~None. ~~The following matters~~ ~~were voted upon by the Company’s shareholders:~~

1) Directors. The following persons were elected as Directors of the Board of Directors, each to hold office until the next annual meeting of shareholders to be held in 2010.

	Total votes		Total votes
	for each		withheld for
	director		each director
Glenn Angiolillo		5,406,748		182,009
John T. Baily		5,380,529		208,228
Dennis H. Ferro		5,413,937		174,820
William D. Shaw Jr.		5,387,129		201,628
Robert G. Simses		5,393,418		195,339
George R. Trumbull, III		5,404,637		184,120
David W. Young		5,413,837		174,920

2) Ratification of Independent Public Accountants. KPMG LLP were ratified as the Company’s independent public accountants for the Company’s fiscal year ending December 31, 2010.

FOR		AGAINST		ABSTAIN
7,626,645		24,187		1

Item 5. Other Information

None.

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Item 6. Exhibits

	3.1			Charter of NYMAGIC, INC. (filed as Exhibit 99.1 to the Company’s Current Report on Form 8-K filed on December 16, 2003 (File No. 1-11238) and incorporated herein by reference).
	10.1			Agreement, effective April 2, 2010, between the Company and A. George Kallop (filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on April 7, 2010 (File No. 1-11238) and incorporated herein by reference).
	3.2			Amended and Restated By-Laws. (filed as Exhibit 3.3 to the Company’s Current Report on Form 10-K for the fiscal year ended December 31, 1999 (Commission File No. 1-11238) and incorporated herein by reference).
	10.4			Employment Agreement, effective January 1, 2010, between the Company and Thomas J. Iacopelli (filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on April 1, 2010 (File No. 1-11238) and incorporated herein by reference).
	10.1			Executive Severance Agreement, dated as of October 8, 2010, between the Company and Paul J. Hart (filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on October 22, 2010 (file No. 1-11238) and incorporated herein by reference).
	10.2			Executive Severance Agreement, dated as of October 8, 2010, between the Company and Thomas J. Iacopelli (filed as Exhibit 10.2 to the Company’s Current Report on Form 8-K filed on October 22, 2010 (file No. 1-11238) and incorporated herein by reference).
	*31.1			Certification of George R. Trumbull, Chief Executive Officer, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
	*31.2			Certification of Thomas J. Iacopelli, Chief Financial Officer, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
	*32.1			Certification of George R. Trumbull, Chief Executive Officer, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
	*32.2			Certification of Thomas J. Iacopelli, Chief Financial Officer, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.


*		Filed herewith

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	NYMAGIC, INC. (Registrant)
Date: August 9, 2010	/s/ George R. Trumbull
Date: November 9, 2010	/s/ George R. Trumbull
	George R. Trumbull
	President and Chief Executive Officer
Date: August 9, 2010	/s/ Thomas J. Iacopelli
Date: November 9, 2010	/s/ Thomas J. Iacopelli
	Thomas J. Iacopelli
	Executive Vice President and Chief Financial Officer

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Table of Contents

Table of Contents

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