SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934

FOR THE QUARTERLY PERIOD ENDED:

~~June 30, 2010~~March 31, 2011

Commission file number:

1-14527

EVEREST REINSURANCE HOLDINGS, INC.

(Exact name of registrant as specified in its charter)

Delaware		22-3263609
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

Liberty Corner, New Jersey 07938-0830

(Address, including zip code, and telephone number, including area code,

of registrant’s principal executive office)

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.

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

		Number of Shares Outstanding
Class		At ~~August~~May 1, ~~2010~~2011
Common Shares, $0.01 par value		1,000

EVEREST REINSURANCE HOLDINGS, INC.

Table of Contents

Form 10-Q

Page

~~Page~~

PART I

FINANCIAL INFORMATION


Item 1.	Financial Statements

	Consolidated Balance Sheets at ~~June 30, 2010~~March 31, 2011 (unaudited) and
		December 31, ~~2009~~2010	1

	Consolidated Statements of Operations and Comprehensive Income (Loss) ~~for~~
		for the three ~~and six~~ months ended ~~June 30,~~March 31, 2011 and 2010 ~~and 2009~~ (unaudited)	2

	Consolidated Statements of Changes in Stockholder’s Equity for the three ~~and~~
		~~six~~ months ended ~~June 30,~~March 31, 2011 and 2010 ~~and 2009~~ (unaudited)	3

	Consolidated Statements of Cash Flows for the three ~~and six~~ months ended
		~~June 30,~~March 31, 2011 and 2010 ~~and 2009~~ (unaudited)	4

	Notes to Consolidated Interim Financial Statements (unaudited)		5

Item 2.	Management’s Discussion and Analysis of Financial Condition and
		Results of Operation	2627

Item 3.	Quantitative and Qualitative Disclosures About Market Risk		4541

Item 4.	Controls and Procedures		4541

PART II

OTHER INFORMATION


Item 1.	Legal Proceedings	4541

Item 1A.	Risk Factors	4541

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	4541

Item 3.	Defaults Upon Senior Securities	4541

Item 4.	Reserved	4541

Item 5.	Other Information	4642

Item 6.	Exhibits	4642

Table of Contents

Part I

ITEM 1. FINANCIAL STATEMENTS

EVEREST REINSURANCE HOLDINGS, INC.

CONSOLIDATED BALANCE SHEETS

	June 30,		December 31,		March 31,		December 31,
(Dollars in thousands, except par value per share)	2010		2009		2011		2010
	(unaudited)				(unaudited)
ASSETS:
Fixed maturities - available for sale, at market value	$	6,393,011	$	6,463,168	$	5,433,976	$	5,599,940
(amortized cost: 2010, $6,133,003; 2009, $6,255,759)
(amortized cost: 2011, $5,289,312; 2010, $5,438,359)
Fixed maturities - available for sale, at fair value		66,351		50,528		143,708		180,482
Equity securities - available for sale, at market value (cost: 2010, $15; 2009, $15)		12		13
Equity securities - available for sale, at market value (cost: 2011, $15 2010, $15)						13		13
Equity securities - available for sale, at fair value		340,377		380,025		797,424		683,454
Short-term investments		251,820		261,438		368,767		516,885
Other invested assets (cost: 2010, $399,989; 2009, $387,200)		399,611		386,326
Other invested assets (cost: 2011, $385,471; 2010, $405,401)						388,421		406,916
Other invested assets, at fair value		545,160		382,639		857,107		788,142
Cash		106,847		107,480		169,365		118,092
Total investments and cash		8,103,189		8,031,617		8,158,781		8,293,924
Accrued investment income		78,687		83,705		66,269		70,874
Premiums receivable		746,384		769,744		756,042		643,257
Reinsurance receivables - unaffiliated		635,129		618,081		679,975		670,168
Reinsurance receivables - affiliated		2,690,402		2,492,152		3,010,140		2,708,193
Funds held by reinsureds		156,702		156,223		174,535		171,179
Deferred acquisition costs		179,454		183,498		176,395		184,247
Prepaid reinsurance premiums		578,606		562,146		605,832		629,323
Deferred tax asset		245,231		210,493		149,062		183,924
Federal income taxes recoverable		67,238		135,682		198,695		142,421
Other assets		196,985		136,234		425,438		171,923
TOTAL ASSETS	$	13,678,007	$	13,379,575	$	14,401,164	$	13,869,433

LIABILITIES:
Reserve for losses and loss adjustment expenses	$	7,583,530	$	7,300,139	$	8,143,475	$	7,652,303
Unearned premium reserve		1,247,378		1,239,320		1,266,955		1,287,476
Funds held under reinsurance treaties		159,451		175,257		183,728		180,377
Losses in the course of payment		23,663		42,633		62,113		13,089
Commission reserves		42,432		50,897		36,202		37,796
Other net payable to reinsurers		529,226		444,535		520,510		467,486
Revolving credit borrowings		133,000		-		40,000		50,000
8.75% Senior notes due 3/15/2010		-		199,970
5.4% Senior notes due 10/15/2014		249,790		249,769		249,824		249,812
6.6% Long term notes due 05/01/2067		238,349		238,348		238,352		238,351
Junior subordinated debt securities payable		329,897		329,897		329,897		329,897
Accrued interest on debt and borrowings		4,892		9,885		12,103		4,793
Other liabilities		266,151		240,151		285,191		230,312
Total liabilities		10,807,759		10,520,801		11,368,350		10,741,692

Commitments and Contingencies (Note 6)

STOCKHOLDER'S EQUITY:
Common stock, par value: $0.01; 3,000 shares authorized;
1,000 shares issued and outstanding (2010 and 2009)		-		-
1,000 shares issued and outstanding (2011 and 2010)						-		-
Additional paid-in capital		324,156		321,185		329,356		327,767
Accumulated other comprehensive income (loss), net of deferred income tax expense (benefit) of
$109.6 million at 2010 and $89.9 million at 2009		203,523		166,978
Retained earnings (deficit)		2,342,569		2,370,611
Accumulated other comprehensive income (loss), net of deferred income tax expense
(benefit) of $88,837 at 2011 and $88,289 at 2010						164,983		163,966
Retained earnings						2,538,475		2,636,008
Total stockholder's equity		2,870,248		2,858,774		3,032,814		3,127,741
TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY	$	13,678,007	$	13,379,575	$	14,401,164	$	13,869,433

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

Table of Contents

EVEREST REINSURANCE HOLDINGS, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)

	Three Months Ended
	March 31,
(Dollars in thousands)	2011			2010
	(unaudited)
REVENUES:
Premiums earned	$	459,393		$	414,134
Net investment income		87,132			85,107
Net realized capital gains (losses):
Other-than-temporary impairments on fixed maturity securities		(13,611	)		-
Other-than-temporary impairments on fixed maturity securities
transferred to other comprehensive income (loss)		-			-
Other net realized capital gains (losses)		54,087			(5,307	)
Total net realized capital gains (losses)		40,476			(5,307	)
Other income (expense)		32			5,112
Total revenues		587,033			499,046

CLAIMS AND EXPENSES:
Incurred losses and loss adjustment expenses		553,028			427,004
Commission, brokerage, taxes and fees		88,512			67,841
Other underwriting expenses		38,217			32,714
Corporate expenses		1,190			2,226
Interest, fee and bond issue cost amortization expense		12,682			16,340
Total claims and expenses		693,629			546,125

INCOME (LOSS) BEFORE TAXES		(106,596	)		(47,079	)
Income tax expense (benefit)		(9,063	)		(2,150	)

NET INCOME (LOSS)	$	(97,533	)	$	(44,929	)

Other comprehensive income (loss), net of tax		1,017			11,746

COMPREHENSIVE INCOME (LOSS)	$	(96,516	)	$	(33,183	)

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

Three Months Ended Six Months Ended
June 30, June 30,
(Dollars in thousands) 2010 2009 2010 2009
(unaudited) (unaudited)
REVENUES:
Premiums earned $ 442,724 $ 460,774 $ 856,858 $ 899,219
Net investment income 89,346 74,516 174,453 114,175
Net realized capital gains (losses):
Other-than-temporary impairments on fixed maturity securities - (4,936 ) - (5,510 )
Other-than-temporary impairments on fixed maturity securities
transferred to other comprehensive income (loss) - - - -
Other net realized capital gains (losses) (95,473 ) 27,877 (100,780 ) (39,733 )
Total net realized capital gains (losses) (95,473 ) 22,941 (100,780 ) (45,243 )
Realized gain on debt repurchase - - - 78,271
Other income (expense) 8,709 (7,166 ) 13,821 (7,280 )
Total revenues 445,306 551,065 944,352 1,039,142

CLAIMS AND EXPENSES:
Incurred losses and loss adjustment expenses 314,749 246,108 741,753 535,303
Commission, brokerage, taxes and fees 88,197 86,923 156,038 175,142
Other underwriting expenses 35,371 34,858 68,085 66,166
Corporate expenses 1,463 1,878 3,689 3,196
Interest, fee and bond issue cost amortization expense 12,722 17,073 29,062 36,706
Total claims and expenses 452,502 386,840 998,627 816,513

INCOME (LOSS) BEFORE TAXES (7,196 ) 164,225 (54,275 ) 222,629
Income tax expense (benefit) (24,083 ) 35,725 (26,233 ) 48,465

NET INCOME (LOSS) $ 16,887 $ 128,500 $ (28,042 ) $ 174,164

Other comprehensive income (loss), net of tax 24,799 84,300 36,545 122,780

COMPREHENSIVE INCOME (LOSS) $ 41,686 $ 212,800 $ 8,503 $ 296,944

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

Table of Contents

EVEREST REINSURANCE HOLDINGS, INC.

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDER’S EQUITY

	Three Months Ended
	March 31,
(Dollars in thousands, except share amounts)	2011			2010
	(unaudited)
COMMON STOCK (shares outstanding):
Balance, beginning of period		1,000			1,000
Balance, end of period		1,000			1,000

ADDITIONAL PAID-IN CAPITAL:
Balance, beginning of period	$	327,767		$	321,185
Share-based compensation plans		1,589			1,274
Balance, end of period		329,356			322,459

ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS),
NET OF DEFERRED INCOME TAXES:
Balance, beginning of period		163,966			166,978
Net increase (decrease) during the period		1,017			11,746
Balance, end of period		164,983			178,724

RETAINED EARNINGS:
Balance, beginning of period		2,636,008			2,370,611
Net income (loss)		(97,533	)		(44,929	)
Balance, end of period		2,538,475			2,325,682

TOTAL STOCKHOLDER'S EQUITY, END OF PERIOD	$	3,032,814		$	2,826,865

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

Three Months Ended Six Months Ended
June 30, June 30,
(Dollars in thousands, except share amounts) 2010 2009 2010 2009
(unaudited) (unaudited)
COMMON STOCK (shares outstanding):
Balance, beginning of period 1,000 1,000 1,000 1,000
Balance, end of period 1,000 1,000 1,000 1,000

ADDITIONAL PAID-IN CAPITAL:
Balance, beginning of period $ 322,459 $ 317,033 $ 321,185 $ 315,771
Share-based compensation plans 1,697 1,459 2,971 2,721
Balance, end of period 324,156 318,492 324,156 318,492

ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS),
NET OF DEFERRED INCOME TAXES:
Balance, beginning of period 178,724 (33,583 ) 166,978 (72,063 )
Cumulative adjustment of initial adoption(1), net of tax
- (15,500 ) - (15,500 )
Net increase (decrease) during the period 24,799 84,300 36,545 122,780
Balance, end of period 203,523 35,217 203,523 35,217

RETAINED EARNINGS (DEFICIT):
Balance, beginning of period 2,325,682 2,004,924 2,370,611 1,959,260
Cumulative adjustment of initial adoption(1), net of tax
- 15,500 - 15,500
Net income (loss) 16,887 128,500 (28,042 ) 174,164
Balance, end of period 2,342,569 2,148,924 2,342,569 2,148,924

TOTAL STOCKHOLDER'S EQUITY, END OF PERIOD $ 2,870,248 $ 2,502,633 $ 2,870,248 $ 2,502,633

(1) The cumulative adjustment to accumulated other comprehensive income (loss), net of deferred income taxes, and retained earnings (deficit), represents the effect of initially

adopting new guidance for other-than-temporary impairments of debt securities

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

Table of Contents

EVEREST REINSURANCE HOLDINGS, INC.

	Three Months Ended
	March 31,
(Dollars in thousands)	2011			2010
	(unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)	$	(97,533	)	$	(44,929	)
Adjustments to reconcile net income to net cash provided by operating activities:
Decrease (increase) in premiums receivable		(111,328	)		3,330
Decrease (increase) in funds held by reinsureds, net		196			2,210
Decrease (increase) in reinsurance receivables		(306,071	)		(209,177	)
Decrease (increase) in deferred tax asset		34,314			(8,294	)
Decrease (increase) in prepaid reinsurance premiums		23,936			(18,251	)
Increase (decrease) in reserve for losses and loss adjustment expenses		465,159			303,114
Increase (decrease) in unearned premiums		(23,149	)		17,379
Change in equity adjustments in limited partnerships		(18,415	)		(9,414	)
Change in other assets and liabilities, net		70,747			126,226
Non-cash compensation expense		1,380			1,195
Amortization of bond premium (accrual of bond discount)		3,492			3,546
Amortization of underwriting discount on senior notes		12			42
Net realized capital (gains) losses		(40,476	)		5,307
Net cash provided by (used in) operating activities		2,264			172,284

CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from fixed maturities matured/called - available for sale, at market value		107,455			172,263
Proceeds from fixed maturities matured/called - available for sale, at fair value		6,900			-
Proceeds from fixed maturities sold - available for sale, at market value		516,721			165,485
Proceeds from fixed maturities sold - available for sale, at fair value		32,952			2,497
Proceeds from equity securities sold - available for sale, at market value		27,096			-
Proceeds from equity securities sold - available for sale, at fair value		52,696			21,342
Distributions from other invested assets		61,359			8,165
Cost of fixed maturities acquired - available for sale, at market value		(472,805	)		(275,526	)
Cost of fixed maturities acquired - available for sale, at fair value		(8,076	)		(14,194	)
Cost of equity securities acquired - available for sale, at market value		(27,059	)		-
Cost of equity securities acquired - available for sale, at fair value		(126,665	)		(20,739	)
Cost of other invested assets acquired		(23,014	)		(9,740	)
Cost of other invested assets acquired, at fair value		(37,611	)		(47,032	)
Cost of businesses acquired		(63,100	)		-
Net change in short-term investments		149,303			12,085
Net change in unsettled securities transactions		(143,998	)		16,323
Net cash provided by (used in) investing activities		52,154			30,929

CASH FLOWS FROM FINANCING ACTIVITIES:
Tax benefit from share-based compensation		209			79
Net cost of senior notes maturing		-			(200,000	)
Revolving credit borrowings		(10,000	)		-
Net cash provided by (used in) financing activities		(9,791	)		(199,921	)

EFFECT OF EXCHANGE RATE CHANGES ON CASH		6,646			(3,035	)

Net increase (decrease) in cash		51,273			257
Cash, beginning of period		118,092			107,480
Cash, end of period	$	169,365		$	107,737

SUPPLEMENTAL CASH FLOW INFORMATION:
Cash transactions:
Income taxes paid (recovered)	$	10,792		$	3,766
Interest paid		5,203			13,899

Non-cash transaction:
Net assets acquired and liabilities assumed from business acquisitions		19,130			-

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

Three Months Ended Six Months Ended
June 30, June 30,
(Dollars in thousands) 2010 2009 2010 2009
(unaudited) (unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 16,887 $ 128,500 $ (28,042 ) $ 174,164
Adjustments to reconcile net income to net cash provided by operating activities:
Decrease (increase) in premiums receivable 21,553 (61,149 ) 24,883 (49,821 )
Decrease (increase) in funds held by reinsureds, net (18,472 ) (671 ) (16,262 ) (165 )
Decrease (increase) in reinsurance receivables (18,620 ) (100,495 ) (227,797 ) (153,465 )
Decrease (increase) in deferred tax asset (46,121 ) (928 ) (54,415 ) 32,976
Increase (decrease) in reserve for losses and loss adjustment expenses (12,762 ) (133,909 ) 290,352 (182,445 )
Increase (decrease) in unearned premiums (10,237 ) (2,807 ) 7,142 (3,686 )
Change in equity adjustments in limited partnerships (8,882 ) (1,968 ) (18,296 ) 32,125
Change in other assets and liabilities, net 18,454 243,408 126,429 244,515
Non-cash compensation expense 1,685 1,445 2,880 2,707
Amortization of bond premium (accrual of bond discount) 1,071 2,707 4,617 4,978
Amortization of underwriting discount on senior notes 11 48 53 94
Realized gain on debt repurchase - - - (78,271 )
Net realized capital (gains) losses 95,473 (22,941 ) 100,780 45,243
Net cash provided by (used in) operating activities 40,040 51,240 212,324 68,949

CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from fixed maturities matured/called - available for sale, at market value 136,606 84,848 308,869 194,083
Proceeds from fixed maturities matured/called - available for sale, at fair value - - - 5,570
Proceeds from fixed maturities sold - available for sale, at market value 206,078 8,316 371,563 53,094
Proceeds from fixed maturities sold - available for sale, at fair value 6,115 4,510 8,612 8,002
Proceeds from equity securities sold - available for sale, at fair value 51,400 10,591 72,742 12,225
Distributions from other invested assets 15,715 7,832 23,880 20,125
Cost of fixed maturities acquired - available for sale, at market value (280,050 ) (348,542 ) (555,576 ) (609,780 )
Cost of fixed maturities acquired - available for sale, at fair value (9,487 ) (3,243 ) (23,681 ) (16,553 )
Cost of equity securities acquired - available for sale, at fair value (30,140 ) (10,320 ) (50,879 ) (19,296 )
Cost of other invested assets acquired (8,634 ) (13,780 ) (18,374 ) (16,342 )
Cost of other invested assets acquired, at fair value (200,079 ) - (247,111 ) -
Net change in short-term investments (2,164 ) 182,051 9,921 370,917
Net change in unsettled securities transactions (51,843 ) 22,688 (35,520 ) 24,334
Net cash provided by (used in) investing activities (166,483 ) (55,049 ) (135,554 ) 26,379

CASH FLOWS FROM FINANCING ACTIVITIES:
Tax benefit from share-based compensation 12 14 91 14
Net cost of senior notes maturing - - (200,000 ) -
Revolving credit borrowings 133,000 - 133,000 -
Net cost of debt repurchase - - - (83,026 )
Net cash provided by (used in) financing activities 133,012 14 (66,909 ) (83,012 )

EFFECT OF EXCHANGE RATE CHANGES ON CASH (7,459 ) 3,388 (10,494 ) (9,379 )

Net increase (decrease) in cash (890 ) (407 ) (633 ) 2,937
Cash, beginning of period 107,737 95,608 107,480 92,264
Cash, end of period $ 106,847 $ 95,201 $ 106,847 $ 95,201

SUPPLEMENTAL CASH FLOW INFORMATION:
Cash transactions:
Income taxes paid (recovered) $ (53,156 ) $ 13,213 $ (49,390 ) $ 16,359
Interest paid 19,866 19,764 33,765 37,572

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

NOTES TO CONSOLIDATED INTERIM FINANCIAL STATEMENTS (UNAUDITED)

For the Three ~~and Six~~ Months Ended ~~June 30,~~March 31, 2011 and 2010 ~~and 2009~~

2. BASIS OF PRESENTATION

2.	~~BASIS OF PRESENTATION~~

~~Certain reclassifications and format changes have been made to prior years’ amounts to conform to the 2010 presentation.~~

~~Financial~~Application of Recently Issued Accounting ~~Standards Board Accounting Codification~~Standard Changes

Financial Accounting Standards Board Launched Accounting Codification. In June 2009, the Financial Accounting Standards Board (“FASB”) issued authoritative guidance establishing the FASB Accounting Standards CodificationTM (“Codification”) as the single source of authoritative U.S. GAAP recognized by the FASB to be applied by non-governmental entities. Rules and interpretive releases of the Securities and Exchange Commission (“SEC”) under authority of federal securities laws are also sources of authoritative GAAP for SEC registrants. The Codification supersedes all existing non-SEC accounting and reporting standards. All other ~~no n-grandfathered,~~non-grandfathered, non-SEC accounting literature not included in the Codification will become non-authoritative.

~~Application~~Treatment of ~~Recently Issued Accounting Standard Changes~~Insurance Contract Acquisition Costs. In October 2010, the FASB issued authoritative guidance for the accounting for costs associated with acquiring or renewing insurance contracts. The guidance identifies the incremental direct costs of contract acquisition and costs directly related to acquisition activities that should be capitalized. This guidance is effective for reporting periods beginning after December 15, 2011. The Company will adopt this guidance prospectively, as of January 1, 2012.

Subsequent Events. In May 2009, the FASB issued authoritative guidance for subsequent events, which was later modified in February 2010, that addresses the accounting for and disclosure of subsequent events not addressed in other applicable U.S. GAAP. The Company implemented the new disclosure requirement beginning with the second quarter of 2009 and included it in the Notes to Consolidated Interim Financial Statements.

Improving Disclosures About Fair Value Measurements. In January 2010, the FASB amended the authoritative guidance for disclosures on fair value measurements. Effective for interim and annual reporting periods beginning after December 15, 2009, the guidance requires a new separate disclosure for: significant transfers in and out of Level 1 and 2 and the reasons for the transfers; and provided clarification on existing disclosures to include: fair value measurement disclosures by class of assets and liabilities and disclosure on valuation techniques and inputs used to measure fair value that fall in either Level 2 or Level 3. The Company implemented this guidance effective January 1, 2010. Effective for interim and annual reporting periods beginning after December 15, 2010, the guidance requires another new separate disclosure in regards to Level 3 fair value measurements in that, the period activity will present separately information about purchases, sales, issuances and settlements. Comparative disclosures shall be required only for periods ending after initial adoption. The Company implemented ~~the first part of~~ this guidance ~~effective January 1, 2010.~~

~~Interim Disclosures About Fair Value of Financial Instruments.~~ In April 2009, the FASB revised the authoritative guidance for disclosures about fair value of financial instruments. This new guidance requires quarterly disclosures on the qualitative and quantitative information about the fair value of all financial instruments including methods and significant assumptions used to estimate fair value during the period. These disclosures were previously only done annually. The Company adopted this disclosure beginning with the ~~second~~third quarter of ~~2009 and included it in the Notes to Consolidated Interim Financial Statements.~~2010.

Other-Than-Temporary Impairments on Investment Securities. In April 2009, the FASB revised the authoritative guidance for the recognition and presentation of other-than-temporary impairments. This new guidance amends the recognition guidance for other-than-temporary impairments of debt securities and expands the financial statement disclosures for other-than-temporary impairments on debt and equity securities. For available for sale debt securities that the Company has no intent to sell and more likely than not will not be required to sell prior to recovery, only the credit loss component of the impairment would be recognized in earnings, while the rest of the fair value loss would be recognized in accumulated ~~ot her~~other comprehensive ~~income.~~income (loss). The Company adopted this guidance effective April 1, 2009. Upon adoption the Company recognized a cumulative-effect adjustment increase in retained earnings ~~(deficit)~~ and decrease in accumulated other comprehensive income (loss) ~~of $15.5 million, net of $8.3 million of tax.~~as follows:

~~Measurement of Fair Value in Inactive Markets.~~ In April 2009, the FASB revised the authoritative guidance for fair value measurements and disclosures, which reaffirms that fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date under current market conditions. It also reaffirms the need to use judgment in determining if a formerly active market has become inactive and in determining fair values when the market has become inactive. There was no impact to the Company’s financial statements upon adoption.

(Dollars in thousands)
Cumulative-effect adjustment, gross	$	23,846
Tax		(8,346	)
Cumulative-effect adjustment, net	$	15,500

In accordance with FASB guidance, the Company reclassified the non-credit portion of other-than-temporary impairments from retained earnings ~~(deficit)~~ into accumulated other comprehensive income (loss), on April 1, 2009. ~~At June 30, 2010,~~The table below presents the pre-tax cumulative unrealized appreciation (depreciation) on ~~these~~those corporate securities, ~~was $0.5 million as compared to pre-tax cumulative unrealized depreciation of $2.0 million at December 31, 2009.~~for the periods indicated:

(Dollars in thousands)		At March 31, 2011			At December 31, 2010
Pre-tax cumulative unrealized appreciation (depreciation)		$	843		$	823

The changes in net unrealized appreciation (depreciation) for the Company’s investments are derived from the following sources for the periods as indicated:

	Three Months Ended
	March 31,
(Dollars in thousands)	2011			2010
Increase (decrease) during the period between the market value and cost
of investments carried at market value, and deferred taxes thereon:
Fixed maturity securities	$	(16,918	)	$	6,205
Equity securities		-			(1	)
Other invested assets		1,435			513
Change in unrealized appreciation (depreciation), pre-tax		(15,483	)		6,717
Deferred tax benefit (expense)		5,419			(2,351	)
Change in unrealized appreciation (depreciation),
net of deferred taxes, included in stockholder's equity	$	(10,064	)	$	4,366

Three Months Ended Six Months Ended
June 30, June 30,
(Dollars in thousands) 2010 2009 2010 2009
Increase (decrease) during the period between the market value and cost
of investments carried at market value, and deferred taxes thereon:
Fixed maturity securities $ 46,864 $ 77,437 $ 50,017 $ 167,026
Fixed maturity securities, cumulative other-than-temporary impairment adjustment (470 ) (23,846 ) 2,582 (23,846 )
Equity securities - 2 (1 ) (4 )
Other invested assets (17 ) 3,868 496 2,227
Change in unrealized appreciation (depreciation), pre-tax 46,377 57,461 53,094 145,403
Deferred tax benefit (expense) (16,396 ) (28,457 ) (17,679 ) (59,237 )
Deferred tax benefit (expense), cumulative other-than-temporary impairment adjustment 164 8,346 (904 ) 8,346
Change in unrealized appreciation (depreciation),
net of deferred taxes, included in stockholder's equity $ 30,145 $ 37,350 $ 34,511 $ 94,512

The aggregate market value and gross unrealized losses related to investments in an unrealized loss position ~~as of June 30, 2010~~at March 31, 2011 were ~~$906.8 million~~$1,221,019 thousand and ~~$48.7 million,~~$64,037 thousand, respectively. There were no unrealized losses on a single ~~security~~issuer that exceeded ~~0.05%~~0.09% of the market value of the fixed maturity securities at ~~June 30, 2010.~~March 31, 2011. In addition, as indicated on the above table, there was no significant concentration of unrealized losses in any one market sector. The ~~$8.1 million~~$43,729 thousand of unrealized losses related to fixed maturity securities that have been in an unrealized loss position for less than one year were generally comprised of highly rated municipal, foreign government and domestic and foreign corporate securities. Of these unrealized losses, ~~$5.6 million~~$39,553 thousand were related to securities that were rated ~~inv estment~~investment grade by at least one nationally recognized statistical rating organization. The ~~$40.5 million~~non-investment grade securities with unrealized losses were mainly comprised of corporate securities. The gross unrealized depreciation less than 12 months for mortgage-backed securities included $23 thousand related to sub-prime and alt-A loans. In all instances, projected cash flows were sufficient to recover the full book value of

the investments and the related interest obligations. The mortgage-backed securities still have excess credit coverage and are current on interest and principal payments. The $20,306 thousand of unrealized losses related to fixed maturity in an unrealized loss position for more than one year related primarily to foreign corporate and foreign government securities. All of these unrealized losses are related to securities that were rated investment grade by at least one nationally recognized statistical rating organization. Unrealized losses at March 31, 2011 are comparable with unrealized losses at December 31, 2010.

The table below displays the aggregate market value and gross unrealized depreciation of fixed maturity and equity securities, by security type and contractual maturity, in each case subdivided according to length of time that individual securities had been in a continuous unrealized loss position for the periods indicated:

	Duration of Unrealized Loss at December 31, 2010 By Security Type
	Less than 12 months					Greater than 12 months					Total
			Gross					Gross					Gross
			Unrealized					Unrealized					Unrealized
(Dollars in thousands)	Market Value		Depreciation			Market Value		Depreciation			Market Value		Depreciation
Fixed maturity securities - available for sale
U.S. Treasury securities and obligations of
U.S. government agencies and corporations	$	47,985	$	(1,916	)	$	43,264	$	(3,230	)	$	91,249	$	(5,146	)
Obligations of U.S. states and political subdivisions		336,522		(9,519	)		171,812		(15,410	)		508,334		(24,929	)
Corporate securities		74,389		(2,715	)		33,109		(7,060	)		107,498		(9,775	)
Asset-backed securities		3,900		(14	)		-		-			3,900		(14	)
Mortgage-backed securities
Agency residential		20,867		(212	)		-		-			20,867		(212	)
Non-agency residential		-		-			22,439		(317	)		22,439		(317	)
Foreign government securities		92,123		(3,776	)		124,807		(11,791	)		216,930		(15,567	)
Foreign corporate securities		120,294		(5,512	)		121,304		(15,666	)		241,598		(21,178	)
Total fixed maturity securities	$	696,080	$	(23,664	)	$	516,735	$	(53,474	)	$	1,212,815	$	(77,138	)
Equity securities		-		-			13		(2	)		13		(2	)
Total	$	696,080	$	(23,664	)	$	516,748	$	(53,476	)	$	1,212,828	$	(77,140	)

	Duration of Unrealized Loss at December 31, 2010 By Maturity
	Less than 12 months					Greater than 12 months					Total
			Gross					Gross					Gross
			Unrealized					Unrealized					Unrealized
(Dollars in thousands)	Market Value		Depreciation			Market Value		Depreciation			Market Value		Depreciation
Fixed maturity securities
Due in one year or less	$	5,982	$	(319	)	$	48,233	$	(8,089	)	$	54,215	$	(8,408	)
Due in one year through five years		186,524		(9,059	)		129,197		(11,559	)		315,721		(20,618	)
Due in five years through ten years		139,896		(4,356	)		92,692		(8,215	)		232,588		(12,571	)
Due after ten years		338,911		(9,704	)		224,174		(25,294	)		563,085		(34,998	)
Asset-backed securities		3,900		(14	)		-		-			3,900		(14	)
Mortgage-backed securities		20,867		(212	)		22,439		(317	)		43,306		(529	)
Total fixed maturity securities	$	696,080	$	(23,664	)	$	516,735	$	(53,474	)	$	1,212,815	$	(77,138	)

The aggregate market value and gross unrealized losses related to investments in an unrealized loss position at December 31, 2010 were $1,212,828 thousand and $77,140 thousand, respectively. There were no unrealized losses on a single issuer that exceeded 0.09% of the market value of the fixed maturity securities at December 31, 2010. In addition, as indicated on the above table, there was no significant concentration of unrealized losses in any one market sector. The $23,664 thousand of unrealized losses related to fixed maturity securities that have been in an unrealized loss position for less than one year were generally comprised of highly rated municipal, foreign government and domestic and foreign corporate securities. Of these unrealized losses, $23,424 thousand were related to securities that were rated investment grade by at least one nationally recognized statistical rating organization. The $53,476 thousand of unrealized losses related to fixed maturity and equity securities in an unrealized loss position for more than one year also related primarily to highly rated domestic and foreign corporate, foreign government and ~~corporate,~~ municipal ~~asset-backed and mortgage-backed~~ securities. Of these unrealized losses, ~~$33.1 million~~$48,165 thousand related to securities that were rated investment grade by at least one nationally recognized statistical rating organization. The

Duration of Unrealized Loss at December 31, 2009 By Security Type
Less than 12 months Greater than 12 months Total
Gross Gross Gross
Unrealized Unrealized Unrealized
(Dollars in thousands) Market Value Depreciation Market Value Depreciation Market Value Depreciation
Fixed maturity securities - available for sale
U.S. Treasury securities and obligations of
U.S. government agencies and corporations $ 44,943 $ (1,671 ) $ - $ - $ 44,943 $ (1,671 )
Obligations of U.S. states and political subdivisions 559 (4 ) 452,018 (24,252 ) 452,577 (24,256 )
Corporate securities 45,045 (1,056 ) 118,153 (12,368 ) 163,198 (13,424 )
Asset-backed securities 366 (26 ) 8,233 (1,883 ) 8,599 (1,909 )
Mortgage-backed securities
Commercial 959 (34 ) 3,312 (77 ) 4,271 (111 )
Agency residential 213,093 (1,691 ) - - 213,093 (1,691 )
Non-agency residential 1,272 (31 ) 47,202 (7,024 ) 48,474 (7,055 )
Foreign government securities 159,493 (2,158 ) 69,109 (4,529 ) 228,602 (6,687 )
Foreign corporate securities 124,325 (4,205 ) 98,772 (10,924 ) 223,097 (15,129 )
Total fixed maturity securities $ 590,055 $ (10,876 ) $ 796,799 $ (61,057 ) $ 1,386,854 $ (71,933 )
Equity securities 13 (2 ) - - 13 (2 )
Total $ 590,068 $ (10,878 ) $ 796,799 $ (61,057 ) $ 1,386,867 $ (71,935 )

Duration of Unrealized Loss at December 31, 2009 By Maturity
Less than 12 months Greater than 12 months Total
Gross Gross Gross
Unrealized Unrealized Unrealized
(Dollars in thousands) Market Value Depreciation Market Value Depreciation Market Value Depreciation
Fixed maturity securities
Due in one year or less $ - $ - $ 58,010 $ (4,887 ) $ 58,010 $ (4,887 )
Due in one year through five years 192,929 (2,975 ) 140,349 (9,129 ) 333,278 (12,104 )
Due in five years through ten years 137,196 (2,934 ) 54,279 (3,401 ) 191,475 (6,335 )
Due after ten years 44,240 (3,185 ) 485,414 (34,656 ) 529,654 (37,841 )
Asset-backed securities 366 (26 ) 8,233 (1,883 ) 8,599 (1,909 )
Mortgage-backed securities 215,324 (1,756 ) 50,514 (7,101 ) 265,838 (8,857 )
Total fixed maturity securities $ 590,055 $ (10,876 ) $ 796,799 $ (61,057 ) $ 1,386,854 $ (71,933 )

The aggregate market value and gross unrealized losses related to investments in an unrealized loss position as of December 31, 2009 were $1,386.9 million and $71.9 million, respectively. There were no unrealized losses on a single security that exceeded 0.11% of the market value of the fixed maturity securities at December 31, 2009. In addition, as indicated on the above table, there was no significant concentration of unrealized losses in any one market sector. The $10.9 million of unrealized losses related to fixed maturity and equity securities that have been in an unrealized loss position for less than one year were generally comprised of highly rated domestic and foreign government and corporate and mortgage-backed securities. Of these unrealized losses, $10.7 million were relate d to securities that were rated investment grade by at least one nationally recognized statistical rating organization. The $61.1 million of unrealized losses related to securities in an unrealized loss position for more than one year related primarily to highly rated municipal, domestic and foreign corporate, foreign government and mortgage-backed securities. Of these unrealized losses, $50.5 million related to securities that were rated investment grade by at least one nationally recognized statistical rating organization. The non-investment grade securities with unrealized losses were mainly comprised of corporate and commercial mortgage-backed securities. The gross unrealized depreciation greater than 12 months for mortgage-backed securities included $0.07 million related to sub-prime and alt-A loans. In all instances, projected cash flows were sufficient to recover the full book value of the investments and the related interest obligations . The mortgage-backed securities still had excess credit coverage and were current on interest and principal payments. Unrealized losses decreased since December 31, 2008, as a result of improved conditions in the overall financial market resulting from increased liquidity and lower interest rates.

	Three Months Ended
	March 31,
(Dollars in thousands)	2011			2010
Fixed maturity securities	$	60,619		$	73,555
Equity securities		5,172			2,404
Short-term investments and cash		207			77
Other invested assets
Limited partnerships		18,415			9,414
Dividends from Parent's shares		4,648			1,426
Other		597			372
Total gross investment income		89,658			87,248
Interest debited (credited) and other investment expense		(2,526	)		(2,141	)
Total net investment income	$	87,132		$	85,107

Three Months Ended Six Months Ended
June 30, June 30,
(Dollars in thousands) 2010 2009 2010 2009
Fixed maturity securities $ 75,862 $ 71,610 $ 149,417 $ 141,938
Equity securities 2,618 730 5,022 1,424
Short-term investments and cash 75 842 152 3,054
Other invested assets
Limited partnerships 8,882 1,968 18,296 (32,125 )
Other 4,457 2,258 6,255 5,029
Total gross investment income 91,894 77,408 179,142 119,320
Interest debited (credited) and other expense (2,548 ) (2,892 ) (4,689 ) (5,145 )
Total net investment income $ 89,346 $ 74,516 $ 174,453 $ 114,175

Three Months Ended Six Months Ended
June 30, June 30,
(Dollars in thousands) 2010 2009 2010 2009
Fixed maturity securities, market value:
Other-than-temporary impairments $ - $ (4,936 ) $ - $ (5,510 )
Gains (losses) from sales 1,617 (401 ) 840 (28,481 )
Fixed maturity securities, fair value:
Gains (losses) from sales 190 133 273 229
Gains (losses) from fair value adjustments (2,518 ) 2,010 482 1,968
Equity securities, fair value:
Gains (losses) from sales (2,893 ) 5,630 (999 ) 5,184
Gains (losses) from fair value adjustments (30,017 ) 17,296 (16,786 ) 373
Other invested assets, fair value:
Gains (losses) from fair value adjustments (61,853 ) 3,203 (84,590 ) (19,012 )
Short-term investment gains (losses) 1 6 - 6
Total net realized capital gains (losses) $ (95,473 ) $ 22,941 $ (100,780 ) $ (45,243 )

The Company ~~records fair value re-measurements~~recorded as net realized capital gains (losses) in the consolidated statements of operations and comprehensive income (loss). The Company recorded net realized capital losses of $94.4 million and net realized capital gains of $22.5 million for the three months ended June 30, 2010 and 2009, respectively, and net realized capital losses of $100.9 million and $16.7 million for the six months ended June 30, 2010 and 2009, respectively, due to both fair value re-measurements ~~on fixed maturity~~ and ~~equity securities and other invested assets, at fair value.~~

	Three Months Ended
	March 31,
(Dollars in thousands)	2011			2010
Proceeds from sales of fixed maturity securities	$	549,673		$	167,982
Gross gains from sales		14,266			1,757
Gross losses from sales		(28,091	)		(2,451	)

Proceeds from sales of equity secuities	$	79,792		$	21,342
Gross gains from sales		2,380			2,370
Gross losses from sales		(471	)		(476	)

			Fair Value Measurement Using:
			Quoted Prices
			in Active		Significant
			Markets for		Other		Significant
			Identical		Observable		Unobservable
			Assets		Inputs		Inputs
(Dollars in thousands)	March 31, 2011		(Level 1)		(Level 2)		(Level 3)
Assets:
Fixed maturities, market value
U.S. Treasury securities and obligations of
U.S. government agencies and corporations	$	84,145	$	-	$	84,145	$	-
Obligations of U.S. States and political subdivisions		2,480,184		-		2,480,184		-
Corporate securities		829,720		-		829,720		-
Asset-backed securities		25,127		-		18,854		6,273
Mortgage-backed securities
Commercial		38,948		-		38,948		-
Agency residential		347,594		-		347,594		-
Non-agency residential		28,814		-		28,366		448
Foreign government securities		901,420		-		901,420		-
Foreign corporate securities		698,024		-		697,505		519
Total fixed maturities, market value		5,433,976		-		5,426,736		7,240

Fixed maturities, fair value		143,708		-		143,708		-
Equity securities, market value		13		13		-		-
Equity securities, fair value		797,424		797,424		-		-
Other invested assets, fair value		857,107		857,107		-		-

			Fair Value Measurement Using:
			Quoted Prices
			in Active		Significant
			Markets for		Other		Significant
			Identical		Observable		Unobservable
			Assets		Inputs		Inputs
(Dollars in thousands)	December 31, 2010		(Level 1)		(Level 2)		(Level 3)
Assets:
Fixed maturities, market value
U.S. Treasury securities and obligations of
U.S. government agencies and corporations	$	150,567	$	-	$	150,567	$	-
Obligations of U.S. States and political subdivisions		2,901,505		-		2,901,505		-
Corporate securities		721,685		-		721,685		-
Asset-backed securities		20,551		-		19,590		961
Mortgage-backed securities
Commercial		39,505		-		39,505		-
Agency residential		369,691		-		369,691		-
Non-agency residential		29,968		-		29,510		458
Foreign government securities		749,041		-		749,041		-
Foreign corporate securities		617,427		-		613,792		3,635
Total fixed maturities, market value		5,599,940		-		5,594,886		5,054

Fixed maturities, fair value		180,482		-		180,482		-
Equity securities, market value		13		13		-		-
Equity securities, fair value		683,454		683,454		-		-
Other invested assets, fair value		788,142		788,142		-		-

Fair Value Measurement Using:
Quoted Prices
in Active Significant
Markets for Other Significant
Identical Observable Unobservable
Assets Inputs Inputs
(Dollars in thousands) June 30, 2010 (Level 1) (Level 2) (Level 3)
Assets:
Fixed maturities, market value
U.S. Treasury securities and obligations of
U.S. government agencies and corporations $ 150,792 $ - $ 150,792 $ -
Obligations of U.S. States and political subdivisions 3,634,029 - 3,634,029 -
Corporate securities 746,192 - 739,227 6,965
Asset-backed securities 27,403 - 20,841 6,562
Mortgage-backed securities
Commercial 39,402 - 39,402 -
Agency residential 438,582 - 438,582 -
Non-agency residential 61,438 - 60,941 497
Foreign government securities 728,609 - 728,609 -
Foreign corporate securities 566,564 - 566,564 -
Total fixed maturities, market value 6,393,011 - 6,378,987 14,024

Fixed maturities, fair value 66,351 - 66,351 -
Equity securities, market value 12 12 - -
Equity securities, fair value 340,377 340,377 - -
Other invested assets, fair value 545,160 545,160 - -

Fair Value Measurement Using:
Quoted Prices
in Active Significant
Markets for Other Significant
Identical Observable Unobservable
Assets Inputs Inputs
(Dollars in thousands) December 31, 2009 (Level 1) (Level 2) (Level 3)
Assets:
Fixed maturities, market value
U.S. Treasury securities and obligations of
U.S. government agencies and corporations $ 134,291 $ - $ 134,291 $ -
Obligations of U.S. States and political subdivisions 3,853,859 - 3,853,859 -
Corporate securities 635,381 - 628,451 6,930
Asset-backed securities 15,148 - 8,890 6,258
Mortgage-backed securities
Commercial 29,058 - 29,058 -
Agency residential 564,707 - 564,707 -
Non-agency residential 54,959 - 54,533 426
Foreign government securities 659,217 - 659,217 -
Foreign corporate securities 516,548 - 516,548 -
Total fixed maturities, market value 6,463,168 - 6,449,554 13,614

Fixed maturities, fair value 50,528 - 50,528 -
Equity securities, market value 13 13 - -
Equity securities, fair value 380,025 379,058 967 -
Other invested assets, fair value 382,639 382,639 - -

	Three Months Ended March 31, 2011												Three Months Ended March 31, 2010
	Asset-backed			Foreign			Non-agency						Corporate		Asset-backed			Non-agency
(Dollars in thousands)	Securities			Corporate			RMBS			Total			Securities		Securities			RMBS			Total
Beginning balance	$	961		$	3,635		$	458		$	5,054		$	6,930	$	6,258		$	426		$	13,614
Total gains or (losses) (realized/unrealized)
Included in earnings (or changes in net assets)		-			-			21			21			-		-			25			25
Included in other comprehensive income (loss)		(63	)		-			-			(63	)		-		(78	)		41			(37	)
Purchases, issuances and settlements		138			-			(31	)		107			-		188			(36	)		152
Transfers in and/or (out) of Level 3		5,237			(3,116	)		-			2,121			-		-			-			-
Ending balance	$	6,273		$	519		$	448		$	7,240		$	6,930	$	6,368		$	456		$	13,754

The amount of total gains or losses for the period included
in earnings (or changes in net assets) attributable to the
change in unrealized gains or losses relating to assets
still held at the reporting date	$	-		$	-		$	-		$	-		$	-	$	-		$	-		$	-

(Some amounts may not reconcile due to rounding.)

By Asset
Three Months Ended June 30, 2010 Six Months Ended June 30, 2010
Corporate Asset-backed Non-agency Corporate Asset-backed Non-agency
(Dollars in thousands) Securities Securities RMBS Total Securities Securities RMBS Total
Beginning balance $ 6,930 $ 6,368 $ 456 $ 13,754 $ 6,930 $ 6,258 $ 426 $ 13,614
Total gains or (losses) (realized/unrealized)
Included in earnings (or changes in net assets) (1 ) - 24 23 (1 ) - 49 48
Included in other comprehensive income (loss) 36 122 51 209 36 44 92 172
Purchases, issuances and settlements - 72 (34 ) 38 - 260 (70 ) 190
Transfers in and/or (out) of Level 3 - - - - - - - -
Ending balance $ 6,965 $ 6,562 $ 497 $ 14,024 $ 6,965 $ 6,562 $ 497 $ 14,024

The amount of total gains or losses for the period included
in earnings (or changes in net assets) attributable to the
change in unrealized gains or losses relating to assets
still held at the reporting date $ - $ - $ - $ - $ - $ - $ - $ -

(Some amounts may not reconcile due to rounding.)
5. CAPITAL TRANSACTIONS

Summary
Three Months Ended Six Months Ended
June 30, June 30,
(Dollars in thousands) 2010 2009 2010 2009
Assets:
Balance, beginning of period $ 13,754 $ 7,464 $ 13,614 $ 10,967
Total gains or (losses) (realized/unrealized)
Included in earnings (or changes in net assets) 23 21 48 (4 )
Included in other comprehensive income (loss) 209 375 172 556
Purchases, issuances and settlements 38 (3,054 ) 190 (79 )
Transfers in and/or (out) of Level 3 - 7,001 - 367
Balance, end of period $ 14,024 $ 11,807 $ 14,024 $ 11,807

The amount of total gains or losses for the period included in earnings
(or changes in net assets) attributable to the change in unrealized
gains or losses relating to assets still held at the reporting date $ - $ - $ - $ (131 )

5.	~~CAPITAL TRANSACTIONS~~

6.	~~CONTINGENCIES~~

	Three Months Ended
	March 31,
(Dollars in thousands)	2011			2010
Gross basis:
Beginning of period reserves	$	554,790		$	638,674
Incurred losses		-			-
Paid losses		(19,026	)		(13,466	)
End of period reserves	$	535,764		$	625,208

Net basis:
Beginning of period reserves	$	382,507		$	430,421
Incurred losses		-			-
Paid losses		(14,363	)		(11,191	)
End of period reserves	$	368,144		$	419,230

Three Months Ended Six Months Ended
June 30, June 30,
(Dollars in thousands) 2010 2009 2010 2009
Gross basis:
Beginning of period reserves $ 625,208 $ 768,761 $ 638,674 $ 786,842
Incurred losses - - - -
Paid losses (11,073 ) (64,254 ) (24,539 ) (82,335 )
End of period reserves $ 614,135 $ 704,507 $ 614,135 $ 704,507

Net basis:
Beginning of period reserves $ 419,230 $ 475,209 $ 430,421 $ 485,296
Incurred losses - - - -
Paid losses (6,579 ) (19,830 ) (17,770 ) (29,917 )
End of period reserves $ 412,651 $ 455,379 $ 412,651 $ 455,379

(Dollars in thousands)		At March 31, 2011				At December 31, 2010
		$	143,087			$	150,560

7.	~~OTHER COMPREHENSIVE INCOME (LOSS)~~

(Dollars in thousands)		At March 31, 2011				At December 31, 2010
		$	26,468			$	26,542

7. OTHER COMPREHENSIVE INCOME (LOSS)

	At March 31,			At December 31,
(Dollars in thousands)	2011			2010
URA(D) on securities, net of deferred taxes
Temporary	$	95,398		$	104,149
Non-credit, OTTI		548			1,860
Total unrealized appreciation (depreciation) on investments, net of deferred taxes		95,946			106,009
Foreign currency translation adjustments, net of deferred taxes		94,374			84,040
Pension adjustments, net of deferred taxes		(25,337	)		(26,083	)
Accumulated other comprehensive income (loss)	$	164,983		$	163,966

June 30, December 31,
(Dollars in thousands) 2010 2009
URA(D) on securities, net of deferred taxes
Temporary $ 168,403 $ 135,570
Non-credit, OTTI 353 (1,325 )
Total unrealized appreciation (depreciation) on investments, net of deferred taxes 168,756 134,245
Foreign currency translation adjustments, net of deferred taxes 58,191 57,001
Pension adjustments, net of deferred taxes (23,424 ) (24,268 )
Accumulated other comprehensive income (loss) $ 203,523 $ 166,978

8.	8. CREDIT FACILITY

~~Holdings Credit Facility~~

(Dollars in thousands)	At March 31, 2011						At December 31, 2010
Bank	Commitment		In Use		Date of Loan	Maturity/Expiry Date	Commitment		In Use		Date of Loan	Maturity/Expiry Date
Citibank Holdings Credit Facility	$	150,000	$	15,000	2/18/2011	6/16/2011	$	150,000	$	50,000	12/16/2010	1/18/2011
				10,000	2/28/2011	6/28/2011				-
				15,000	3/02/2011	6/06/2011				-
Total revolving credit borrowings				40,000						50,000
Total letters of credit				9,527		12/31/2011				9,527		12/31/2011

Total Citibank Holdings Credit Facility	$	150,000	$	49,527			$	150,000	$	59,527

(Dollars in thousands)
Bank Commitment In Use Date of Loan Maturity/Expiry Date
Citibank Holdings Credit Facility $ 150,000 $ 25,000 5/7/2010 8/9/2010
25,000 5/10/2010 8/10/2010
25,000 5/14/2010 8/16/2010
25,000 5/19/2010 8/19/2010
20,000 6/11/2010 9/13/2010
13,000 6/15/2010 9/15/2010
Total short-term borrowings 133,000
Total letters of credit 16,951 12/31/2010

Total Citibank Holdings Credit Facility $ 150,000 $ 149,951

	Three Months Ended
	March 31,
(Dollars in thousands)	2011		2010
Credit facility fees incurred	$	90	$	9

9.	~~TRUST AGREEMENTS~~

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10. SENIOR NOTES

~~10.~~

~~SENIOR NOTES~~

					March 31, 2011				December 31, 2010
					Consolidated Balance				Consolidated Balance
(Dollars in thousands)	Date Issued	Date Due	Principal Amounts		Sheet Amount		Market Value		Sheet Amount		Market Value
5.40% Senior notes	10/12/2004	10/15/2014	$	250,000	$	249,824	$	270,030	$	249,812	$	267,500
8.75% Senior notes (matured and paid on March 15, 2010)	03/14/2000	03/15/2010	$	200,000	$	-	$	-	$	-	$	-

~~11.~~

~~LONG TERM SUBORDINATED NOTES~~

	Three Months Ended
	March 31,
(Dollars in thousands)	2011		2010
Interest expense incurred	$	3,386	$	7,062

~~On April 26, 2007, Holdings completed a public offering of $400.0 million principal amount of 6.6%~~11. LONG TERM SUBORDINATED NOTES

Maturity Date

March 31, 2011

December 31, 2010

Original

Consolidated Balance

(Dollars in thousands)

Date Issued

Principal Amount

Scheduled

Final

Sheet Amount

Market Value

Sheet Amount

Market Value

6.6% Long term subordinated notes

04/26/2007

400,000

05/15/2037

05/01/2067

238,352

233,789

238,351

227,825

During the fixed rate interest period from May 3, 2007 through May 14, 2017, interest will be at the annual rate of 6.6%, payable semi-annually in arrears on November 15 and May 15 of each year, commencing on November 15, 2007, subject to Holdings’ right to defer interest on one or more occasions for up to ten consecutive years. During the floating rate interest period from May 15, 2017 through maturity, interest will be based on the 3 month ~~London Interbank Offered Rate (“LIBOR”)~~LIBOR plus 238.5 basis points, reset quarterly, payable quarterly in arrears on ~~Fe bruary~~February 15, May 15, August 15 and November 15 of each year, subject to Holdings’ right to defer interest on one or more occasions for up to ten consecutive years. Deferred interest will accumulate interest at the applicable rate compounded semi-annually for periods prior to May 15, 2017, and compounded quarterly for periods from and including May 15, 2017.

	Three Months Ended
	March 31,
(Dollars in thousands)	2011		2010
Interest expense incurred	$	3,937	$	3,937

12. JUNIOR SUBORDINATED DEBT SECURITIES PAYABLE

~~Table of Contents~~

~~12.~~

~~JUNIOR SUBORDINATED DEBT SECURITIES PAYABLE~~

					March 31, 2011				December 31, 2010
					Consolidated Balance				Consolidated Balance
(Dollars in thousands)	Date Issued	Date Due	Amount Issued		Sheet Amount		Fair Value		Sheet Amount		Fair Value
6.20% Junior subordinated debt securities	03/29/2004	03/29/2034	$	329,897	$	329,897	$	308,265	$	329,897	$	294,825

~~Capital Trust II is a wholly owned finance subsidiary of Holdings.~~

	Three Months Ended
	March 31,
(Dollars in thousands)	2011		2010
Interest expense incurred	$	5,113	$	5,113

Holdings considers that the mechanisms and obligations relating to the trust preferred securities, taken together, constitute a full and unconditional guarantee by Holdings of Capital Trust II’s payment obligations with respect to ~~the~~their trust preferred securities.

~~13.~~

~~SEGMENT REPORTING~~

13. SEGMENT REPORTING

	Three Months Ended
U.S. Reinsurance	March 31,
(Dollars in thousands)	2011			2010
Gross written premiums	$	253,907		$	244,008
Net written premiums		136,551			128,462

Premiums earned	$	145,155		$	127,001
Incurred losses and LAE		123,427			90,108
Commission and brokerage		37,105			27,218
Other underwriting expenses		7,902			7,806
Underwriting gain (loss)	$	(23,279	)	$	1,869

Three Months Ended Six Months Ended
U.S. Insurance June 30, June 30,
(Dollars in thousands) 2010 2009 2010 2009
Gross written premiums $ 204,941 $ 213,511 $ 433,178 $ 418,228
Net written premiums 80,812 104,358 183,279 225,510

Premiums earned $ 86,187 $ 105,651 $ 187,353 $ 217,623
Incurred losses and LAE 71,800 57,762 144,750 138,906
Commission and brokerage 6,098 9,849 7,739 21,867
Other underwriting expenses 16,279 19,152 32,856 36,433
Underwriting gain (loss) $ (7,990 ) $ 18,888 $ 2,008 $ 20,417

Three Months Ended Six Months Ended
Specialty Underwriting June 30, June 30,
(Dollars in thousands) 2010 2009 2010 2009
Gross written premiums $ 65,855 $ 57,188 $ 131,742 $ 116,111
Net written premiums 37,823 32,126 75,062 64,731

Premiums earned $ 39,342 $ 32,495 $ 78,240 $ 69,331
Incurred losses and LAE 34,512 23,160 61,973 48,543
Commission and brokerage 8,972 8,858 17,507 18,925
Other underwriting expenses 2,407 1,999 4,358 3,844
Underwriting gain (loss) $ (6,549 ) $ (1,522 ) $ (5,598 ) $ (1,981 )

	Three Months Ended
International	March 31,
(Dollars in thousands)	2011			2010
Gross written premiums	$	308,847		$	275,350
Net written premiums		158,124			145,209

Premiums earned	$	166,516		$	147,069
Incurred losses and LAE		318,826			236,485
Commission and brokerage		37,121			30,447
Other underwriting expenses		6,439			6,380
Underwriting gain (loss)	$	(195,870	)	$	(126,243	)

The following table reconciles the underwriting results for the operating segments to income (loss) before taxes as reported in the consolidated statements of operations and comprehensive income (loss) for the periods indicated:

	Three Months Ended
	March 31,
(Dollars in thousands)	2011		2010
Canada	$	43,952	$	35,303

~~14.~~

14. RELATED-PARTY TRANSACTIONS

~~Parent~~

~~On September 21, 2004,~~ Parent

Group’s Board of Directors approved an amended share repurchase program authorizing Group and/or its subsidiary Holdings to purchase ~~up to an aggregate of 5,000,000 of~~ Group’s common shares through open market transactions, privately negotiated transactions or both. ~~On July 21, 2008 and on February 24, 2010,~~The table below represents the ~~Executive Committee of Group’s Board of Directors, approved~~ amendments to the share repurchase ~~an additional 5,000,000~~program for the common shares approved for ~~each amendment, bringing the total amount of Group’s common shares authorized to be repurchased by Group and/or Holdings to 15,000,000.~~repurchase.

		Common Shares
		Authorized for
Amendment Date		Repurchase
09/21/2004		5,000,000
07/21/2008		5,000,000
02/24/2010		5,000,000
		15,000,000

As of ~~June 30, 2010,~~March 31, 2011, Holdings held ~~7,708,707~~9,719,971 common shares of Group, which it had purchased in the open market between February 1, 2007 and ~~June 25, 2010, for a~~March 8, 2011. The table below represents the total purchase price ~~of $665.3 million.~~ for these common shares purchased.

(Dollars in thousands)
Total purchase price		$	835,371

Holdings reports these purchases as other invested assets, fair value, in the consolidated balance sheets with changes in fair value re-measurement recorded in net realized capital gains (losses) in the consolidated statements of operations and comprehensive income (loss). ~~Dividends~~The following table presents the dividends received on these common shares ~~of $5.6 million for the six months ended June 30, 2010, were~~that are reported inas net investment income in the consolidated statements of operations and comprehensive income (loss). for the period indicated.

	Three Months Ended
	March 31,
(Dollars in thousands)	2011		2010
Dividends received	$	4,648	$	1,426

~~Table of Contents~~

Outside Directors

During the normal course of business, the Company, through its affiliates, engages in insurance and brokerage and commission business transactions, with companies controlled by or affiliated with one or more of its outside directors. Such transactions, individually and in the aggregate, are not material to the Company’s financial condition, results of operation and cash flows.

~~Affiliates~~Affiliated Companies

Everest Global Services, Inc. (“Everest Global”), an affiliate of Holdings, provides centralized management and home office services, through a management agreement, to Holdings and other affiliated companies within Holdings’ consolidated structure. Services provided by Everest Global include executive managerial services, legal services, actuarial services, accounting services, information technology services and others.

The following table presents the expenses incurred by Holdings from services provided by Everest Global for the periods indicated.

	Three Months Ended
	March 31,
(Dollars in thousands)	2011		2010
Expenses incurred	$	15,077	$	14,901

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Affiliates

The Company engages in reinsurance transactions with Bermuda Re and Everest International Reinsurance, Ltd. (“Everest International”), affiliates, primarily driven by enterprise risk and capital management considerations under which business is ceded at market rates and terms. ~~These transactions include:~~

·	Effective September 19, 2000, Mt. McKinley and Bermuda Re entered into a loss portfolio transfer reinsurance agreement, whereby Mt. McKinley transferred all of its net insurance exposures and reserves to Bermuda Re.

·	Effective October 1, 2001, Everest Re and Bermuda Re entered into a loss portfolio reinsurance agreement, whereby Everest Re transferred all of its Belgium branch net insurance exposures and reserves to Bermuda Re.

The table below represents affiliated quota share reinsurance agreements ("whole account quota share") for all new and renewal business for the indicated coverage period:

For premiums earned and losses incurred for the period January 1, 2002 through December 31, 2002, Everest Re, Everest National Insurance Company and Everest Security Insurance Company entered into an Excess of Loss Reinsurance Agreement with Bermuda Re, covering workers’ compensation losses occurring on and after January 1, 2002, as respects new, renewal and in force policies effective on that date through December 31, 2002. Bermuda Re is liable for any loss exceeding $100,000 per occurrence, with its liability not to exceed $150,000 per occurrence.

·	Effective January 1, 2002 for the 2002 underwriting year, Everest Re ceded 20.0% of its net retained liability to Bermuda Re through a quota share reinsurance agreement (“whole account quota share”). This agreement remained in effect through December 31, 2002.

Effective January 1, 2003, Everest Re and Bermuda Re amended the whole account quota share, through which Everest Re previously ceded 20.0% of its business to Bermuda Re so that effective January 1, 2003 Everest Re ceded 25.0% to Bermuda Re of the net retained liability on all new and renewal policies underwritten during the term of this agreement. This amendment remained in effect through December 31, 2003.

·	Effective January 1, 2003, Everest Re entered into a whole account quota share with Bermuda Re, whereby Everest Re’s Canadian branch ceded to Bermuda Re 50.0% of its net retained liability on all new and renewal property business. This agreement remained in effect through December 31, 2006.

Effective January 1, 2004, Everest Re and Bermuda Re amended the whole account quota share through which Everest Re previously ceded 25.0% of its business to Bermuda Re so that effective January 1, 2004 Everest Re ceded 22.5% to Bermuda Re and 2.5% to Everest International of the net retained liability on all new and renewal covered business written during the term of this agreement. This amendment remained in effect through December 31, 2005.

(Dollars in thousands)
		Percent			Assuming		Single			Aggregate
Coverage Period	Ceding Company	Ceded			Company	Type of Business	Occurrence Limit			Limit

01/01/2002-12/31/2002	Everest Re		20.0	%	Bermuda Re	property / casualty business	$	-		$	-

01/01/2003-12/31/2003	Everest Re		25.0	%	Bermuda Re	property / casualty business		-			-

01/01/2004-12/31/2005	Everest Re		22.5	%	Bermuda Re	property / casualty business		-			-
	Everest Re		2.5	%	Everest International	property / casualty business		-			-

01/01/2006-12/31/2006	Everest Re		18.0	%	Bermuda Re	property business		125,000	(1)		-
	Everest Re		2.0	%	Everest International	property business		-			-

01/01/2006-12/31/2007	Everest Re		31.5	%	Bermuda Re	casualty business		-			-
	Everest Re		3.5	%	Everest International	casualty business		-			-

01/01/2007-12/31/2007	Everest Re		22.5	%	Bermuda Re	property business		130,000	(1)		-
	Everest Re		2.5	%	Everest International	property business		-			-

01/01/2008-12/31/2008	Everest Re		36.0	%	Bermuda Re	property / casualty business		130,000	(1)		275,000	(2)
	Everest Re		4.0	%	Everest International	property / casualty business		-			-

01/01/2009-12/31/2009	Everest Re		36.0	%	Bermuda Re	property / casualty business		150,000	(1)		325,000	(2)
	Everest Re		8.0	%	Everest International	property / casualty business		-			-

01/01/2010-12/31/2010	Everest Re		44.0	%	Bermuda Re	property / casualty business		150,000			325,000

01/01/2011	Everest Re		50.0	%	Bermuda Re	property / casualty business		150,000			300,000

01/01/2003-12/31/2006	Everest Re- Canadian Branch		50.0	%	Bermuda Re	property business		-			-
01/01/2007-12/31/2009	Everest Re- Canadian Branch		60.0	%	Bermuda Re	property business		-			-
01/01/2010-12/31/2010	Everest Re- Canadian Branch		60.0	%	Bermuda Re	property business		350,000			-
01/01/2011	Everest Re- Canadian Branch		60.0	%	Bermuda Re	property business		350,000			-

(1) The single occurance limit is applied before the loss cessions to either Bermuda Re or Everest International.
(2) The aggregate limit is applied before the loss cessions to either Bermuda Re or Everest International.

~~Table~~For premiums earned and losses incurred for the period January 1, 2002 through December 31, 2002, Everest Re, Everest National Insurance Company and Everest Security Insurance Company entered into an Excess of ~~Contents~~

Effective January 1, 2006, Everest Re, Bermuda Re and Everest International amended the whole account quota share so that for all new and renewal business recorded on or after January 1, 2006, Everest Re ceded 31.5% and 3.5% of its casualty business to Bermuda Re and Everest International, respectively, and Everest Re ceded 18.0% and 2.0% of its property business to Bermuda Re and Everest International, respectively. However, in no event shall the loss cessions to Bermuda Re and Everest International relating to any one occurrence on the property business exceed $125.0 million (20.0% of $625.0 million). The property portion of this amendment remained in effect through December 31, 2006. The casualty portion of this amendment remained in effect through December 31, 2007.

Effective January 1, 2007, Everest Re and Bermuda Re amended the whole account quota share so that for all new and renewal business recorded on or after January 1, 2007, Everest Re ceded 60.0% of its Canadian branch property business to Bermuda Re. This amendment remained in effect through December 31, 2009.

Effective January 1, 2007, Everest Re, Bermuda Re and Everest International amended the whole account quota share so that for all new and renewal property business recorded on or after January 1, 2007, Everest Re ceded 22.5% and 2.5% to Bermuda Re and Everest International, respectively. However, in no event shall the loss cessions to Bermuda Re and Everest International relating to any one occurrence on the property business exceed $130.0 million. This amendment remained in effect through December 31, 2007.

Loss Reinsurance Agreement with Bermuda Re, covering workers’ compensation losses occurring on and after January 1, 2002, as respect to new, renewal and in force policies effective on that date through December 31, 2002. The table below represents Bermuda Re's liability limits for any losses per one occurrence.

Effective January 1, 2008, Everest Re, Bermuda Re and Everest International amended the whole account quota share whereby, for all new and renewal casualty and property business recorded on or after January 1, 2008, Everest Re ceded 36.0% and 4.0% to Bermuda Re and Everest International, respectively. However, in no event shall the loss cessions to Bermuda Re and Everest International relating to any one catastrophe occurrence on the property business exceed $130.0 million or in the aggregate for each underwriting year for all property catastrophes exceed $275.0 million. This amendment remained in effect through December 31, 2008.

	Liability Limits
(Dollars in thousands)	Exceeding		Not to Exceed
Losses per one occurrence	$	100,000	$	150,000

Effective October 1, 2008, Everest Re and Bermuda Re entered into a loss portfolio transfer reinsurance agreement, whereby Everest Re transferred a percentage of its net loss reserves ($747.0 million) corresponding to all existing open and future liabilities at December 31, 2007, arising from policies, insurance or reinsurance written or renewed by or on behalf of Everest Re during the period of January 1, 2002 through December 31, 2007, classified by Everest Re as casualty.

Effective January 1, 2009, Everest Re, Bermuda Re and Everest International amended the whole account quota share whereby, for all new and renewal casualty and property business recorded on or after January 1, 2009, Everest Re ceded 36.0% and 8.0% to Bermuda Re and Everest International, respectively. However, in no event shall the loss cessions to Bermuda Re and Everest International relating to any one occurrence exceed $150.0 million or in the aggregate for each underwriting year for all occurrences exceed $325.0 million. This amendment remained in effect through December 31, 2009.

Effective January 1, 2010, Everest Re entered into a whole account quota share with Bermuda Re, whereby Everest Re’s Canadian branch cedes to Bermuda Re 60.0% of its net retained liability on all new and renewal property business recorded on or after January 1, 2010. However, in no event shall the loss cessions to Bermuda Re relating to any one occurrence exceed $350.0 million (60% of $583.3 million).

Effective January 1, 2010, Everest Re entered into a whole account quota share with Bermuda Re, whereby for all new and renewal business recorded on or after January 1, 2010, Everest Re cedes 44.0% of its net retained liability to Bermuda Re. However, in no event shall the loss cessions to Bermuda Re relating to any one occurrence exceed $150.0 million or in the aggregate for each underwriting year for all such occurrences exceed $325.0 million.

Table of Contents

The table below represents loss portfolio transfer reinsurance agreements whereby net insurance exposures and reserves were transferred to an affiliate.

(Dollars in thousands)

Effective	Transferring	Assuming	% of Business or			Covered Period
Date	Company	Company	Amount of Transfer			of Transfer

09/19/2000	Mt. McKinley	Bermuda Re		100	%	All years
10/01/2001	Everest Re (Belgium Branch)	Bermuda Re		100	%	All years
10/01/2008	Everest Re	Bermuda Re	$	747,022		01/01/2002-12/31/2007

The following tables summarize the premiums and losses ceded by the Company to Bermuda Re and Everest International, respectively, for the periods indicated:

	Three Months Ended
Bermuda Re	March 31,
(Dollars in thousands)	2011		2010
Ceded written premiums	$	380,808	$	320,031
Ceded earned premiums		380,047		288,158
Ceded losses and LAE (a)		490,713		288,446

	Three Months Ended
Everest International	March 31,
(Dollars in thousands)		2011		2010
Ceded written premiums	$	464	$	28,312
Ceded earned premiums		9,605		40,332
Ceded losses and LAE		2,918		24,016

Three Months Ended Six Months Ended
Bermuda Re June 30, June 30,
(Dollars in thousands) 2010 2009 2010 2009
Ceded written premiums $ 325,719 $ 271,299 $ 645,750 $ 556,065
Ceded earned premiums 326,072 275,068 614,230 549,136
Ceded losses and LAE (a) 194,630 191,732 483,076 332,599

Three Months Ended Six Months Ended
Everest International June 30, June 30,
(Dollars in thousands) 2010 2009 2010 2009
Ceded written premiums $ 20,629 $ 45,534 $ 48,941 $ 83,882
Ceded earned premiums 34,172 37,947 74,504 72,283
Ceded losses and LAE 39,770 17,155 63,786 36,555

(a) Ceded losses and LAE include the Mt. McKinley loss portfolio transfer that constitutes losses ceded under retroactive reinsurance and therefore, in accordance with FASB guidance, a deferred gain on retroactive reinsurance is reflected in other expenses on the consolidated statements of operations and comprehensive income (loss).

Everest Re sold net assets of its ~~U.K.~~UK branch to Bermuda Re and provided Bermuda Re with a reserve indemnity agreement allowing for indemnity payments of up to 90% of ₤25.0 million of the excess of 2002 and prior reserves, provided that any recognition of profit from the reserves for 2002 and prior underwriting years is taken into account. The limit available under this agreement was fully exhausted at December 31, 2004.

~~15.~~

15. INCOME TAXES

The Company ~~uses a projected~~is domiciled in the United States and has subsidiaries domiciled within the United States with significant branches in Canada and Singapore. The Company’s non-U.S. branches are subject to income taxation at varying rates in their respective domiciles.

The Company generally will use the estimated annual effective tax rate approach for calculating its tax provision for interim periods as prescribed by ASC 740-270, Interim Reporting. Under the estimated annual effective tax rate approach, the estimated annual effective tax rate is applied to ~~calculate its quarterly~~the interim year-to-date pre-tax income to determine the income tax expense or benefit for the year-to-date period. The tax expense or benefit for a quarter represents the difference between the year-to-date tax expense or benefit for the current year-to-date period less such amount for the immediately preceding year-to-date period. Management considers the estimated impact of all known events in ~~accordance with FASB guidance. Under this methodology, when an interim quarter’s~~its estimation of the Company’s annual pre-tax income ~~(loss) varies significantly from a full year’s income (loss) projection,~~and effective tax rate.

Table of Contents

16. ACQUISITIONS

During the ~~tax impact resulting from~~first quarter of 2011, the ~~income (loss) variance is effectively spread between the impacted quarter~~Company made several acquisitions to expand its domestic and ~~the remaining quarters~~Canadian insurance operations. Below are descriptions of the ~~year, except for discreet items impacting an individual quarter.~~transactions.

On January 2, 2011, the Company acquired the entire business and operations of Heartland Crop Insurance, Inc. (“Heartland”) of Topeka, Kansas for $55,000 thousand in cash, plus contingent payments in future periods based upon achievement of performance targets. Heartland is a managing general agent specializing in crop insurance.

On January 28, 2011, the Company acquired the entire business and operations of Premiere Underwriting Services (“Premiere”) of Toronto, Canada. Premiere is a managing general agent specializing in entertainment and sports and leisure risks. On January 31, 2011, the Company acquired the renewal rights and operations of the financial lines business of Executive Risk Insurance Services, Ltd. (“Executive Risk”) of Toronto, Canada. The financial lines business of Executive Risk mainly underwrites Directors and Officers Liability, Fidelity, and Errors and Omissions Liability.

Overall, the Company ~~recognizes accrued interest~~recorded $35,068 thousand of goodwill and $26,903 thousand of intangible assets related to unrecognized tax benefits and penalties in income taxes. For the three and six months ended June 30, 2010, the Company expensed approximately $1.1 million and $2.2 million, respectively, in interest and penalties.these acquisitions. All intangible assets recorded as part of these acquisitions will be amortized on a straight line basis over seven years.

~~16.~~

17. SUBSEQUENT EVENTS

The Company has evaluated known recognized and non-recognized subsequent events. The Company does not have any subsequent events to report.

2526

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ITEM 2.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION

Industry Conditions.

The worldwide reinsurance and insurance businesses are highly competitive, as well as cyclical by product and market. As such, financial results tend to fluctuate with periods of constrained availability, high rates and strong profits followed by periods of abundant capacity, low rates and constrained profitability. Competition in the types of reinsurance and insurance business that we underwrite is based on many factors, including the perceived overall financial strength of the reinsurer or insurer, ratings of the reinsurer or insurer by A.M. Best and/or Standard & Poor’s, underwriting expertise, the jurisdictions where the reinsurer or insurer is licensed or otherwise authorized, capacity and coverages offered, premiums charged, other terms and conditions of the reinsurance and insurance business offered, services offered, speed of claims payment and reputation and experience in lines written. Furthermore, the market impact from these competitive factors related to reinsurance and insurance is generally not consistent across lines of business, domestic and international geographical areas and distribution channels.

We compete in the U.S. and international reinsurance and insurance markets with numerous global competitors. Our competitors include independent reinsurance and insurance companies, subsidiaries or affiliates of established worldwide insurance companies, reinsurance departments of certain insurance companies and domestic and international underwriting operations, including underwriting syndicates at Lloyd’s. Some of these competitors have greater financial resources than we do and have established long term and continuing business relationships, which can be a significant competitive advantage. In addition, the lack of strong barriers to entry into the reinsurance business and the potential for securitization of reinsurance and insurance risks through capital markets provide additional ~~source s~~sources of potential reinsurance and insurance capacity and competition.

Starting in the latter part of 2007 and continuing into 2010 there has been a significant slowdown in the global economy, which has negatively impacted the financial resources of the industry. Excessive availability and use of credit, particularly by individuals, led to increased defaults on sub-prime mortgages in the U.S. and elsewhere, falling values for houses and many commodities and contracting consumer spending. The significant increase in default rates negatively impacted the value of asset-backed securities held by both foreign and domestic institutions. The defaults have led to a corresponding increase in foreclosures, which have driven down housing values, resulting in additional losses on asset-backed securities. During the third and fourth quarters of 2008, credit markets det eriorated dramatically, evidenced by widening credit spreads and dramatically reduced availability of credit. Many financial institutions, including some insurance entities, experienced liquidity crises due to immediate demands for funds for withdrawals or collateral, combined with falling asset values and their inability to sell assets to meet the increased demands. As a result, several financial institutions failed or were acquired at distressed prices, while others received loans from the U.S. government to continue operations. The liquidity crisis significantly increased the spreads on fixed maturity securities and, at the same time, had a dramatic and negative impact on the stock markets around the world. The combination of losses on securities from failed or impaired companies combined with the decline in values of fixed maturity and equity securities resulted in significant declines in the capital bases of most insurance and reinsurance companies. While ther e was significant improvement in the financial markets during 2009 and into 2010, concerns about interest rates, deflation and sovereign debt levels have hindered financial market recoveries. It is too early to predict the timing and extent of the impact these financial market fluctuations will have on insurance and reinsurance market conditions.

Worldwide insurance and reinsurance market conditions continued to be very competitive, particularly in the casualty lines of business. Generally, there was ample insurance and reinsurance capacity relative to demand. We noted, however, that in many markets and lines during 2009 and into 2010, the rates of decline have slowed, pricing in some segments was relatively flat and there was upward movement in some others, particularly property catastrophe coverage in Latin America and Australia where there have been significant losses. Competition and its effect on rates, terms and conditions vary widely by market and coverage yet ~~continues~~continued to be most prevalent in the U.S. casualty insurance and reinsurance markets. The ~~U.S. insurance~~Insurance markets in which we participate were extremely competitive as well.

~~Table~~However, during the first quarter of ~~Contents~~

~~Rates~~2011, the industry experienced significant losses from Australian floods, the New Zealand earthquake and the earthquake and tsunami in Japan. It is too early to determine the impact on market conditions as a result of these events. We believe there will be meaningful rate increases for catastrophe coverages, particularly in the ~~international markets have generally been stable~~regions impacted by these losses. Whether the magnitude of these losses is sufficient to increase rates and ~~we have seen some increases, particularly~~improve market conditions for ~~catastrophe exposed business. We have grown our~~other lines of business ~~in the Middle East, Latin America and Asia. We are expanding our international reach with our new office in Brazil~~remains to ~~capitalize on the recently expanded opportunity for professional reinsurers in that market and on the economic growth expected for Brazil in the future.~~be seen.

Overall, we believe that current marketplace conditions, ~~offer pockets of~~particularly for catastrophe coverages, provide profit opportunities for us given our strong ratings, distribution system, reputation and expertise. We continue to employ our strategy of targeting business that offers the greatest profit potential, while maintaining balance and diversification in our overall portfolio.

Table of Contents

Financial Summary.

We monitor and evaluate our overall performance based upon financial results. The following table displays a summary of the consolidated net income (loss), ratios and stockholder’s equity for the periods indicated:

	Three Months Ended						Percentage
	March 31,						Increase/
(Dollars in millions)	2011			2010			(Decrease)
Gross written premiums	$	886.4		$	813.5			9.0	%
Net written premiums		460.1			413.4			11.3	%

REVENUES:
Premiums earned	$	459.4		$	414.1			10.9	%
Net investment income		87.1			85.1			2.4	%
Net realized capital gains (losses)		40.5			(5.3	)	NM
Other income (expense)		-			5.1			-99.3	%
Total revenues		587.0			499.0			17.6	%

CLAIMS AND EXPENSES:
Incurred losses and loss adjustment expenses		553.0			427.0			29.5	%
Commission, brokerage, taxes and fees		88.5			67.8			30.5	%
Other underwriting expenses		38.2			32.7			16.8	%
Corporate expense		1.2			2.2			-46.6	%
Interest, fee and bond issue cost amortization expense		12.7			16.3			-22.4	%
Total claims and expenses		693.6			546.1			27.0	%

INCOME (LOSS) BEFORE TAXES		(106.6	)		(47.1	)		126.4	%
Income tax expense (benefit)		(9.1	)		(2.2	)	NM
NET INCOME (LOSS)	$	(97.5	)	$	(44.9	)		117.1	%

RATIOS:							Point Change
Loss ratio		120.4	%		103.1	%		17.3
Commission and brokerage ratio		19.3	%		16.4	%		2.9
Other underwriting expense ratio		8.3	%		7.9	%		0.4
Combined ratio		148.0	%		127.4	%		20.6


	At			At			Percentage
	March 31,			December 31,			Increase/
(Dollars in millions)		2011			2010		(Decrease)
Balance sheet data:
Total investments and cash	$	8,158.8		$	8,293.9			-1.6	%
Total assets		14,401.2			13,869.4			3.8	%
Loss and loss adjustment expense reserves		8,143.5			7,652.3			6.4	%
Total debt		858.1			868.1			-1.2	%
Total liabilities		11,368.4			10,741.7			5.8	%
Stockholder's equity		3,032.8			3,127.7			-3.0	%

(NM, not meaningful)
(Some amounts may not reconcile due to rounding.)

Three Months Ended Percentage Six Months Ended Percentage
June 30, Increase/ June 30, Increase/
(Dollars in millions) 2010 2009 (Decrease) 2010 2009 (Decrease)
Gross written premiums $ 846.0 $ 811.1 4.3 % $ 1,659.5 $ 1,589.8 4.4 %
Net written premiums 435.1 447.2 -2.7 % 848.5 875.7 -3.1 %

REVENUES:
Premiums earned $ 442.7 $ 460.8 -3.9 % $ 856.9 $ 899.2 -4.7 %
Net investment income 89.3 74.5 19.9 % 174.5 114.2 52.8 %
Net realized capital gains (losses) (95.5 ) 22.9 NM (100.8 ) (45.2 ) 122.8 %
Realized gain on debt repurchase - - NA - 78.3 NA
Other income (expense) 8.7 (7.2 ) -221.6 % 13.8 (7.3 ) NM
Total revenues 445.3 551.1 -19.2 % 944.4 1,039.1 -9.1 %

CLAIMS AND EXPENSES:
Incurred losses and loss adjustment expenses 314.7 246.1 27.9 % 741.8 535.3 38.6 %
Commission, brokerage, taxes and fees 88.2 86.9 1.5 % 156.0 175.1 -10.9 %
Other underwriting expenses 35.4 34.9 1.5 % 68.1 66.2 2.9 %
Corporate expense 1.5 1.9 -22.1 % 3.7 3.2 15.4 %
Interest, fee and bond issue cost amortization expense 12.7 17.1 -25.5 % 29.1 36.7 -20.8 %
Total claims and expenses 452.5 386.8 17.0 % 998.6 816.5 22.3 %

INCOME (LOSS) BEFORE TAXES (7.2 ) 164.2 -104.4 % (54.3 ) 222.6 -124.4 %
Income tax (benefit) expense (24.1 ) 35.7 -167.4 % (26.2 ) 48.5 -154.1 %
NET INCOME (LOSS) $ 16.9 $ 128.5 -86.9 % $ (28.0 ) $ 174.2 -116.1 %

RATIOS: Point Change Point Change
Loss ratio 71.1 % 53.4 % 17.7 86.6 % 59.5 % 27.1
Commission and brokerage ratio 19.9 % 18.9 % 1.0 18.2 % 19.5 % (1.3 )
Other underwriting expense ratio 8.0 % 7.5 % 0.5 7.9 % 7.4 % 0.5
Combined ratio 99.0 % 79.8 % 19.2 112.7 % 86.4 % 26.3

At At Percentage
June 30, December 31, Increase/
(Dollars in millions) 2010 2009 (Decrease)
Balance sheet data:
Total investments and cash $ 8,103.2 $ 8,031.6 0.9 %
Total assets 13,678.0 13,379.6 2.2 %
Loss and loss adjustment expense reserves 7,583.5 7,300.1 3.9 %
Total debt 951.0 1,018.0 -6.6 %
Total liabilities 10,807.8 10,520.8 2.7 %
Stockholder's equity 2,870.2 2,858.8 0.4 %

(NM, not meaningful)
(NA, not applicable)
(Some amounts may not reconcile due to rounding.)

Revenues.

Premiums. Gross written premiums increased by ~~$34.9~~$72.9 million, or ~~4.3%~~9.0%, for the three months ended ~~June 30, 2010~~March 31, 2011 compared to the three months ended ~~June 30, 2009,~~March 31, 2010, reflecting an increase of $43.5 million in our reinsurance business, partially offset by a decline of $8.6 million in our insurance business. Gross written premiums increased by $69.7 million, or 4.4%, for the six months ended June 30, 2010 compared to the six months ended June 30, 2009, reflecting an increase of $54.7$46.7 million in our reinsurance business and ~~$15.0~~$26.2 million increase in our insurance business. The increase in reinsurance premiums was ~~the result~~due to a combination of increased ~~writings from Brazil, Asia~~reinstatement premiums of $4.9 million, quarter over quarter, attributable to higher catastrophe loss activity in the period, and ~~Canadian locations.~~$35.6 million in our international books of business due to higher premium rates, particularly in regions affected by catastrophe losses during 2010, partially offset by non-renewed business. The increase in insurance premiums ~~were~~was primarily due to the acquisition of Heartland, which provided a $22.3 million increase, as well as improved rates in ~~t he~~California workers’ compensation ~~Florida property and financial institution D&O and E&O lines of business.~~business, partially offset by our reduced participation on a large casualty program.

Table of Contents

Net written premiums ~~decreased~~increased by ~~$12.1~~$46.7 million, or ~~2.7%~~11.3%, for the three months ended ~~June 30, 2010~~March 31, 2011 compared to the three months ended ~~June 30, 2009 and by $27.2 million, or 3.1%, for the six months ended June 30, 2010 compared to the six months ended June 30, 2009.~~March 31, 2010. The ~~decrease~~fluctuations in net written premiums ~~was~~compared to the fluctuations in gross written premiums were primarily ~~due~~attributable to ~~increased reinsurance on~~changes in cessions under the ~~newer~~affiliated quota share agreement and fluctuations in cessions for various insurance ~~program business as well as increased cessions on an existing insurance program.~~programs. Premiums earned ~~decreased $18.1~~increased $45.3 million, or ~~3.9%~~10.9%, for the three months ended ~~June 30, 2010~~March 31, 2011 compared to the three months ended ~~June 30, 2009 and by $42.4 million, or 4.7%, for the six months ended June 30, 2010 compared to the six months ended June 30, 2009.~~March 31, 2010. The change in ~~net~~ premiums earned relative to net written premiums is the result of timing; premiums are earned ratably over the coverage period whereas written premiums are recorded at the initiation of the coverage period.

Net Investment Income. Net investment income increased ~~by 19.9% for the three months ended June 30, 2010, compared~~$2.0 million, or 2.4%, to the three months ended June 30, 2009, and by 52.8% for the six months ended June 30, 2010, compared to the six months ended June 30, 2009, primarily due to net investment gains from our limited partnerships that invest in public and non-public securities, both equity and debt. Gains related to these limited partnerships were $8.9 million and $2.0$87.1 million for the three months ended ~~June 30, 2010 and 2009, respectively. Gains related to these limited partnerships were $18.3~~March 31, 2011 compared with net investment income of $85.1 million for the ~~six~~three months ended ~~June 30, 2010, compared with losses of $32.1 million for the comparable period in 2009.~~March 31, 2010. Net pre-tax investment ~~incom e,~~income, as a percentage of average invested assets, was ~~at 4.5%~~4.4% for the three months ended ~~June 30, 2010, compared to 4.0% for the three months ended June 30, 2009~~March 31, 2011 and at 4.4% for the six months ended June 30, 2010, compared to 3.0% for the six months ended June 30, 2009. The variances in these yields were primarily due to the fluctuations in limited partnership income.2010.

Net Realized Capital Gains (Losses). Net realized capital gains were $40.5 million and net realized capital losses were ~~$95.5~~$5.3 million for the three months ended ~~June 30,~~March 31, 2011 and 2010, ~~which consisted of a $94.4~~respectively. Of the $40.5 million, ~~loss in fair value re-measurements and $1.1 million of loss from sales on our available for sale fixed maturity and equity securities. Net realized capital gains~~there were ~~$22.9 million for the three months ended June 30, 2009, which consisted of a $22.5 million gain in fair value re-measurements, $5.4~~$66.0 million of gains from ~~sales of fixed maturity and equity securities,~~fair value re-measurements, which were partially offset by ~~$4.9~~$13.6 million of other-than-temporary impairments on our available for sale fixed maturity ~~securities.~~

~~Net~~securities and $11.9 million of net realized capital losses ~~were $100.8~~from sales on our fixed maturity and equity securities. The net realized capital losses of $5.3 million for the ~~six~~three months ended ~~June 30,~~March 31, 2010 ~~which consisted~~were the result of ~~a $100.9~~$6.5 million ~~loss in~~of losses from fair value re-measurements, ~~which were~~ partially offset by ~~$0.1~~$1.2 million of net realized capital gains from sales on our ~~available for sale~~ fixed maturity and equity securities. Net realized capital losses were $45.2 million for the six months ended June 30, 2009, which consisted of $23.1 million of losses from sales of fixed maturity and equity securities, $16.6 million loss in fair value re-measurements and $5.5 million loss in other-than-temporary impairments on our available for sale fixed maturity securities.

~~Realized Gain on Debt Repurchase.~~ On March 19, 2009, we commenced a cash tender offer for any and all of the 6.60% fixed to floating rate long term subordinated notes due 2067. Upon expiration of the tender offer, we had reduced our outstanding debt by $161.4 million, which resulted in a pre-tax gain on debt repurchase of $78.3 million.

Other Income (Expense). We recorded other income of ~~$8.7~~$0.0 million and ~~$13.8~~$5.1 million for the three ~~and six~~ months ended ~~June 30,~~March 31, 2011 and 2010, ~~respectively, and other expense of $7.2 million and $7.3 million for the three and six months ended June 30, 2009,~~ respectively. The changes were primarily due to ~~the result of~~ fluctuations in ~~foreign currency exchange rates and~~ the ~~deferrals~~amortization of deferred gains on retroactive reinsurance agreements with affiliates and fluctuations in currency exchange rates for the corresponding periods.

Claims and Expenses.

Incurred Losses and Loss Adjustment Expenses. The following table presents our incurred losses and loss adjustment expenses (“LAE”) for the periods indicated.

	Three Months Ended March 31,
	Current			Ratio %/				Prior			Ratio %/				Total			Ratio %/
(Dollars in millions)	Year			Pt Change				Years			Pt Change				Incurred			Pt Change
2011
Attritional (a)	$	256.5			55.9	%		$	(10.5	)		-2.3	%		$	246.0			53.6	%
Catastrophes (b)		304.3			66.2	%			2.7			0.6	%			307.0			66.8	%
A&E		-			0.0	%			-			0.0	%			-			0.0	%
Total	$	560.8			122.1	%		$	(7.8	)		-1.7	%		$	553.0			120.4	%

2010
Attritional (a)	$	268.2			64.8	%		$	(9.3	)		-2.2	%		$	259.0			62.5	%
Catastrophes (b)		165.2			39.9	%			2.8			0.7	%			168.0			40.6	%
A&E		-			0.0	%			-			0.0	%			-			0.0	%
Total	$	433.4			104.7	%		$	(6.4	)		-1.6	%		$	427.0			103.1	%

Variance 2011/2010
Attritional (a)	$	(11.7	)		(8.9	)	pts	$	(1.2	)		(0.1	)	pts	$	(13.0	)		(8.9	)	pts
Catastrophes		139.1			26.3		pts		(0.1	)		(0.1	)	pts		139.0			26.2		pts
A&E		-			-		pts		-			-		pts		-			-		pts
Total	$	127.4			17.4		pts	$	(1.4	)		(0.1	)	pts	$	126.0			17.3		pts

(a) Attritional losses exclude catastrophe and Asbestos and Environmental ("A&E") losses.
(b) For the March 2011 reporting period, a catastrophe is a property event with expected reported losses of at least $10.0 million. For the March 2010 reporting period,
a catastrophe was a property event with expected reported losses of at least $5.0 million.
(Some amounts may not reconcile due to rounding.)

Table of Contents

~~Claims and Expenses.~~

~~Incurred Losses and LAE.~~ ~~The following tables present our incurred losses and LAE for the periods indicated.~~

Three Months Ended June 30,
Current Ratio %/ Prior Ratio %/ Total Ratio %/
(Dollars in millions) Year Pt Change Years Pt Change Incurred Pt Change
2010
Attritional (a) $ 265.5 60.0 % $ 9.7 2.2 % $ 275.2 62.2 %
Catastrophes (b) 45.9 10.4 % (6.4 ) -1.4 % 39.5 8.9 %
A&E - 0.0 % - 0.0 % - 0.0 %
Total $ 311.4 70.3 % $ 3.3 0.8 % $ 314.7 71.1 %

2009
Attritional (a) $ 284.8 61.8 % $ (37.0 ) -8.0 % $ 247.8 53.8 %
Catastrophes - 0.0 % (1.7 ) -0.4 % (1.7 ) -0.4 %
A&E - 0.0 % - 0.0 % - 0.0 %
Total $ 284.8 61.8 % $ (38.7 ) -8.4 % $ 246.1 53.4 %

Variance 2010/2009
Attritional (a) $ (19.3 ) (1.8 ) pts $ 46.7 10.2 pts $ 27.4 8.4 pts
Catastrophes 45.9 10.4 pts (4.7 ) (1.0 ) pts 41.2 9.3 pts
A&E - - pts - - pts - - pts
Total $ 26.6 8.5 pts $ 42.0 9.2 pts $ 68.6 17.7 pts

Six Months Ended June 30,
Current Ratio %/ Prior Ratio %/ Total Ratio %/
(Dollars in millions) Year Pt Change Years Pt Change Incurred Pt Change
2010
Attritional (a) $ 533.8 62.3 % $ 0.4 0.1 % $ 534.2 62.3 %
Catastrophes (b) 211.1 24.6 % (3.5 ) -0.4 % 207.5 24.2 %
A&E - 0.0 % - 0.0 % - 0.0 %
Total $ 744.9 86.9 % $ (3.1 ) -0.4 % $ 741.8 86.6 %

2009
Attritional (a) $ 542.3 60.3 % $ (16.9 ) -1.9 % $ 525.4 58.4 %
Catastrophes 9.1 1.0 % 0.9 0.1 % 9.9 1.1 %
A&E - 0.0 % - 0.0 % - 0.0 %
Total $ 551.3 61.3 % $ (16.0 ) -1.8 % $ 535.3 59.5 %

Variance 2010/2009
Attritional (a) $ (8.5 ) 2.0 pts $ 17.3 2.0 pts $ 8.8 3.9 pts
Catastrophes 202.0 23.6 pts (4.4 ) (0.5 ) pts 197.6 23.1 pts
A&E - - pts - - pts - - pts
Total $ 193.6 25.6 pts $ 12.9 1.4 pts $ 206.5 27.1 pts

(a) Attritional losses exclude catastrophe and A&E losses.
(b) Effective with the June 30, 2010 reporting period, which includes June 30, 2010 year-to-date and the quarter results, a catastrophe is a property event with expected reported losses of
at least $10.0 million. All prior periods reflect a catastrophe as a property event with expected reported losses of at least $5.0 million.
(Some amounts may not reconcile due to rounding.)

Incurred losses and LAE increased by ~~$68.6~~$126.0 million, or ~~27.9%~~29.5%, for the three months ended ~~June 30, 2010~~March 31, 2011 compared to the three months ended ~~June 30, 2009. Of the $68.6 million increase, current~~March 31, 2010. Current year catastrophe losses increased ~~$45.9~~$139.1 million ~~or 10.4 points, period over period,~~(26.3 points), primarily due to losses from the ~~Chilean~~Japan earthquake, ~~partially offset by~~New Zealand earthquake and Australia floods. Partially offsetting the ~~takedown of Windstorm Xynthia as this~~ catastrophe ~~loss was less than we anticipated. The $27.4 million~~ increase, ~~in attritional losses was primarily~~ the ~~result of unfavorable loss development on prior years’~~current year attritional loss ~~reserves in 2010 as compared to favorable loss development on~~ratio was 55.9%, or 8.9 points lower than the prior ~~years’ attritional loss reserves in 2009.~~

~~Incurred losses and LAE increased by $206.5 million, or 38.6%, for the six months ended June 30, 2010 compared to the six months ended June 30, 2009. Of the $206.5 million increase, current~~ year, ~~catastrophe losses increased $202.0 million, or 23.6 points, period over period,~~ primarily due to reinstatement premiums, which are booked without an additional loss provision, and changes in the ~~Chilean earthquake and Australian hailstorms.~~

mix of business.

~~Table of Contents~~

Commission, Brokerage, Taxes and Fees.Commission, brokerage, taxes and fees increased by ~~$1.3~~$20.7 million, or ~~1.5%~~30.5%, for the three months ended ~~June 30, 2010~~March 31, 2011 compared to the same period in ~~2009. Commission, brokerage, taxes and fees decreased by $19.1 million, or 10.9%, for the six months ended June 30, 2010 compared to the same period in 2009,~~2010. The increase was primarily the result of ~~lower premiums earned and~~the change in mix of ~~business.~~business and changes in cessions under affiliated quota share agreements.

Other Underwriting Expenses. Other underwriting expenses were ~~$35.4~~$38.2 million and $32.7 million for the three months ended ~~June 30,~~March 31, 2011 and 2010, ~~compared~~respectively. The increase was primarily attributable to ~~$34.9 million for~~ the ~~three months ended June 30, 2009, and $68.1 million for~~acquisition of Heartland Crop Insurance, Inc. during the six months ended June 30, 2010 compared to $66.2 million for the six months ended June 30, 2009. Other underwriting expense increases were relatively consistent across our reinsurance business, due to normal growth in expenses but decreased for our insurance business due to cost containment measures for the three and six months ended June 30, 2010 and 2009.first quarter of 2011.

Corporate Expenses. Corporate expenses, which are expenses that are not allocated to segments, were ~~$1.5~~$1.2 million and ~~$1.9~~$2.2 million for the three months ended ~~June 30,~~March 31, 2011 and 2010, ~~and 2009, respectively, and $3.7 million and $3.2 million for the six months ended June 30, 2010 and 2009,~~ respectively. These expenses were previously included as underwriting expenses and therefore included in the other underwriting expense ratio. Effective January 1, 2010, these expenses were removed from the calculation of the other underwriting expense ratio and prior periods were recalculated to conform.

Interest, Fees and Bond Issue Cost Amortization Expense. Interest, fees and other bond amortization expense was $12.7 million and ~~$17.1~~$16.3 million for the three months ended ~~June 30,~~March 31, 2011 and 2010, ~~and 2009, respectively, and $29.1 million and $36.7 million for the six months ended June 30, 2010 and 2009,~~ respectively. ~~These decreases were~~The decrease was primarily due to the ~~combination of the repurchase of debt in the first quarter of 2009 and~~ maturing of debt in 2010.

Income Tax Expense (Benefit) ~~Expense.~~. We had an income tax ~~benefits~~benefit of ~~$24.1~~$9.1 million and ~~$26.2~~$2.2 million for the three ~~and six~~ months ended ~~June 30,~~March 31, 2011 and 2010, respectively. We had income tax expense of $35.7 million and $48.5 million for the three and six months ended June 30, 2009, respectively. The period over period variance was primarily due to pre-tax losses in 2010 versus pre-tax income in 2009. Our income tax is primarily a function of the statutory tax ~~rate~~rates coupled with the impact from tax-preferenced investment income. Variations in our effective tax rate generally result from changes in the relative levels of pre-tax income. The decrease in taxes year over year was primarily attributable to the previously mentioned catastrophe losses.

Net Income (Loss).

~~We reported~~Our net ~~income of $16.9~~loss was $97.5 million and ~~a net loss of $28.0~~$44.9 million for the three ~~and six~~ months ended ~~June 30,~~March 31, 2011 and 2010, ~~respectively, compared~~respectively. The increase in net loss was primarily driven by higher catastrophe losses in 2011, partially offset by the increase in net realized capital gains (losses), in addition to ~~net income of $128.5 million and $174.2 million for~~ the ~~three and six months ended June 30, 2009, respectively. This change was the result of the items~~other components discussed above.

Ratios.

Our combined ratio increased by ~~19.2~~20.6 points to ~~99.0%~~148.0% for the three months ended ~~June 30, 2010~~March 31, 2011 compared to ~~79.8%~~127.4% for the three months ended ~~June 30, 2009. Our combined ratio increased by 26.3 points to 112.7% for the six months ended June 30, 2010 compared to 86.4% for the six months ended June 30, 2009.~~March 31, 2010. The loss ratio component increased ~~17.7 points and 27.1~~17.3 points for the three ~~and six~~ months ended ~~June 30, 2010~~March 31, 2011, over the same period last year, principally due to the ~~10.4 point and 23.6 point~~ increase in current year catastrophe losses as a result of the ~~Chilean~~Japan earthquake, New Zealand earthquake and ~~Australian hailstorms.~~the Australia floods. The commission and brokerage expense ratio ~~component~~ increased by ~~1.0~~2.9 points, ~~and decreased by 1.3 points for the three and six months ended June 30, 2010, respectively, over the same period last year, primarily as a resul t of the mix in business~~ quarter over quarter, ~~and reinstatement premiums, which are fully earned, but have no~~primarily due to increased commission expense ~~year over year, while~~resulting from changes in the mix of business. The other underwriting expense ratio component ~~was~~remained relatively flat over the same period last year.

Stockholder's Equity.

Stockholder's equity ~~increased~~decreased by ~~$11.5~~$94.9 million to ~~$2,870.2~~$3,032.8 million at ~~June 30, 2010~~March 31, 2011 from ~~$2,858.8~~$3,127.7 million at December 31, ~~2009,~~2010, principally as a result of ~~$34.5~~$97.5 million of net loss and $10.1 million of unrealized ~~appreciation~~depreciation on investments, net of tax, ~~$3.0 million of share-based compensation transactions, $1.2~~partially offset by $10.3 million of foreign currency translation adjustments, $1.6 million of share-based compensation transactions and ~~$0.8~~$0.7 million of pension ~~adjustments, partially offset by $28.0 million of net loss.~~adjustments.

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Table of Contents

Consolidated Investment Results

Net Investment Income.

Net investment income increased ~~19.9%~~2.4% to ~~$89.3~~$87.1 million for the three months ended ~~June 30, 2010~~March 31, 2011 compared to ~~$74.5~~$85.1 million for the three months ended ~~June 30, 2009, and increased 52.8% to $174.5 million for the six months ended June 30, 2010 compared to $114.2 million for the six months ended June 30, 2009.~~March 31, 2010. The increase ~~for the six months,~~in 2011, period over period, was primarily due to an increase in ~~recorded gains in 2010 as opposed to recorded losses in 2009~~income from our limited partnership investments and increased dividend income from owning more shares of our parent’s common shares and increasing our other public equity investments. ~~The losses~~These increases were partially offset by a decline in ~~2009~~income from our fixed maturities reflective of our reduced municipal bond portfolio. Proceeds from reducing this portfolio were ~~the result of 2008 fourth quarter losses from those limited partnerships that invested in non-public securities and were on a quarter reporting lag.~~used to expand our equity portfolios.

The following table shows the components of net investment income for the periods indicated:

	Three Months Ended						Six Months Ended						Three Months Ended
	June 30,						June 30,						March 31,
(Dollars in millions)	2010			2009			2010			2009			2011			2010
Fixed maturities	$	75.8		$	71.6		$	149.4		$	141.9		$	60.6		$	73.6
Equity securities		2.6			0.7			5.0			1.4			5.2			2.4
Short-term investments and cash		0.1			0.8			0.2			3.1
Short-term investments and cash														0.2			0.1
Other invested assets
Limited partnerships		8.9			2.0			18.3			(32.1	)		18.4			9.4
Dividends from Parent's shares														4.6			1.4
Other		4.5			2.3			6.3			5.0			0.6			0.4
Total gross investment income		91.9			77.4			179.2			119.3			89.7			87.2
Interest debited (credited) and other expense		(2.6	)		(2.9	)		(4.7	)		(5.1	)		(2.5	)		(2.1	)
Total net investment income	$	89.3		$	74.5		$	174.5		$	114.2		$	87.1		$	85.1
(Some amounts may not reconcile due to rounding.)

The following tables show a comparison of various investment yields for the periods indicated:

	At	At	At	At
	June 30,	December 31,	March 31,	December 31,
	2010	2009	2011	2010
Imbedded pre-tax yield of cash and invested assets	3.9%	3.7%	3.5%	3.6%
Imbedded after-tax yield of cash and invested assets	3.1%	3.1%	2.7%	2.8%

	Three Months Ended		Six Months Ended		Three Months Ended
	June 30,		June 30,		March 31,
	2010	2009	2010	2009	2011	2010
Annualized pre-tax yield on average cash and invested assets	4.5%	4.0%	4.4%	3.0%	4.4%	4.4%
Annualized after-tax yield on average cash and invested assets	3.6%	3.3%	3.6%	2.7%	3.4%	3.5%

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Net Realized Capital Gains (Losses).

The following table presents the composition of our net realized capital ~~losses~~gains (losses) for the periods indicated:

	Three Months Ended June 30,									Six Months Ended June 30,									Three Months Ended March 31,
(Dollars in millions)	2010			2009			Variance			2010			2009			Variance			2011			2010			Variance
Gains (losses) from sales:
Fixed maturity securities, market value
Gains	$	5.4		$	0.5		$	4.9		$	7.0		$	2.0		$	5.0		$	14.1		$	1.7		$	12.4
Losses		(3.7	)		(0.9	)		(2.8	)		(6.2	)		(30.5	)		24.3			(26.4	)		(2.5	)		(23.9	)
Total		1.6			(0.4	)		2.0			0.8			(28.5	)		29.3			(12.3	)		(0.8	)		(11.5	)

Fixed maturity securities, fair value
Gains																				0.2			0.1			0.1
Losses																				(1.7	)		-			(1.7	)
Total																				(1.5	)		0.1			(1.6	)

Equity securities, market value
Gains		0.2			0.1			0.1			0.3			0.3			-			0.2			-			0.2
Losses		-			-			-			-			(0.1	)		0.1			(0.2	)		-			(0.2	)
Total		0.2			0.1			0.1			0.3			0.2			0.1			-			-			-

Equity securities, fair value
Gains		1.2			5.7			(4.5	)		3.6			5.9			(2.3	)		2.2			2.4			(0.2	)
Losses		(4.1	)		-			(4.1	)		(4.6	)		(0.7	)		(3.9	)		(0.3	)		(0.5	)		0.2
Total		(2.9	)		5.7			(8.6	)		(1.0	)		5.2			(6.2	)		1.9			1.9			-

Total net realized gains (losses) from sales
Gains		6.8			6.3			0.5			10.9			8.2			2.7			16.7			4.2			12.5
Losses		(7.8	)		(0.9	)		(6.9	)		(10.8	)		(31.3	)		20.5			(28.6	)		(3.0	)		(25.6	)
Total		(1.1	)		5.4			(6.5	)		0.1			(23.1	)		23.2			(11.9	)		1.2			(13.1	)

Other-than-temporary impairments:		-			(4.9	)		4.9			-			(5.5	)		5.5			(13.6	)		-			(13.6	)

Gains (losses) from fair value adjustments:
Fixed maturities, fair value		(2.5	)		2.0			(4.5	)		0.5			2.0			(1.5	)		(3.5	)		3.0			(6.5	)
Equity securities, fair value		(30.0	)		17.3			(47.3	)		(16.8	)		0.4			(17.2	)		38.1			13.2			24.9
Other invested assets, fair value		(61.9	)		3.2			(65.1	)		(84.6	)		(19.0	)		(65.6	)		31.4			(22.7	)		54.1
Total		(94.4	)		22.5			(116.9	)		(100.9	)		(16.7	)		(84.3	)		66.0			(6.5	)		72.5

Total net realized capital gains (losses)	$	(95.5	)	$	22.9		$	(118.4	)	$	(100.8	)	$	(45.2	)	$	(55.6	)	$	40.5		$	(5.3	)	$	45.8

(Some amounts may not reconcile due to rounding.)

Net realized capital ~~losses were $95.5 million and net realized capital~~ gains were ~~$22.9~~$40.5 million for the three months ended ~~June 30, 2010 and 2009, respectively. We~~March 31, 2011 compared to net realized capital losses of $5.3 million for the three months ended March 31, 2010. For the three months ended March 31, 2011, we recorded ~~$94.4 million of losses and $22.5~~$66.0 million of gains due to fair value re-measurements on fixed maturity and equity securities and other invested assets, partially offset by $13.6 million of other-than-temporary impairments on fixed maturity securities and ~~$1.1~~$11.9 million of net realized capital losses ~~and $5.4 million of net realized capital gains~~ from sales of fixed maturity and equity ~~securities for~~securities. The net realized losses included the impact of selling part of our municipal bond portfolio as credit concerns arose in this market sector. For the three months ended ~~June 30,~~March 31, 2010, ~~and 2009, respectively. In addition,~~ we ~~did not record any other-than-temporary impairments for the three months ended June 30, 2010 compared to $4.9~~recorded $6.5 million ~~recorded for the three months ended June 30, 2009.~~

~~Net realized capital losses were $100.8 million and $45.2 million for the six months ended June 30, 2010 and 2009, respectively. We recorded $100.9 million and $16.7 million of~~in losses due to fair value re-measurements on fixed maturity and equity securities and other invested assets, ~~and $0.1~~partially offset by $1.2 million of net realized capital gains ~~and $23.1 million of net realized capital losses~~ from sales of fixed maturity and equity securities for the six months ended June 30, 2010 and 2009, respectively. In addition, we did not record any other-than-temporary impairments for the six months ended June 30, 2010 compared to $5.5 million recorded for the six months ended June 30, 2009.securities.

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~~Table of Contents~~

The following discusses the underwriting results for each of our segments for the periods indicated:

U.S. Reinsurance.

The following table presents the underwriting results and ratios for the U.S. Reinsurance segment for the periods indicated.

		Three Months Ended June 30,												Six Months Ended June 30,												Three Months Ended March 31,
(Dollars in millions)		2010			2009			Variance			% Change			2010			2009			Variance			% Change			2011			2010			Variance			% Change
Gross written premiums		$	268.2		$	266.2		$	2.1			0.8	%	$	512.2		$	530.5		$	(18.3	)		-3.4	%	$	253.9		$	244.0		$	9.9			4.1	%
Net written premiums			150.5			156.8			(6.3	)		-4.0	%		278.9			296.2			(17.3	)		-5.8	%		136.6			128.5			8.1			6.3	%

Premiums earned		$	162.5		$	180.7		$	(18.2	)		-10.1	%	$	289.5		$	327.0		$	(37.5	)		-11.5	%	$	145.2		$	127.0		$	18.2			14.3	%
Incurred losses and LAE			84.3			86.0			(1.6	)		-1.9	%		174.5			176.1			(1.7	)		-0.9	%		123.4			90.1			33.3			37.0	%
Commission and brokerage			35.9			37.2			(1.4	)		-3.6	%		63.1			69.1			(6.1	)		-8.8	%		37.1			27.2			9.9			36.3	%
Other underwriting expenses			9.4			8.0			1.4			16.9	%		17.2			15.6			1.6			10.3	%		7.9			7.8			0.1			1.2	%
Underwriting gain (loss)		$	32.9		$	49.5		$	(16.6	)		-33.5	%	$	34.8		$	66.2		$	(31.4	)		-47.5	%	$	(23.3	)	$	1.9		$	(25.1	)	NM

											Point Chg												Point Chg												Point Chg
Loss ratio			51.9	%		47.6	%					4.3			60.3	%		53.8	%					6.5			85.0	%		71.0	%					14.0
Commission and brokerage ratio			22.1	%		20.6	%					1.5			21.8	%		21.1	%					0.7			25.6	%		21.4	%					4.2
Other underwriting expense ratio			5.7	%		4.4	%					1.3			5.9	%		4.9	%					1.0			5.4	%		6.1	%					(0.7	)
Combined ratio			79.7	%		72.6	%					7.1			88.0	%		79.8	%					8.2			116.0	%		98.5	%					17.5

(NM, not meaningful)
(Some amounts may not reconcile due to rounding.)	(Some amounts may not reconcile due to rounding.)

Premiums. Gross written premiums increased by ~~0.8%~~4.1% to ~~$268.2~~$253.9 million for the three months ended ~~June 30, 2010~~March 31, 2011 from ~~$266.2~~$244.0 million for the three months ended ~~June 30, 2009,~~March 31, 2010, primarily due to ~~an $11.3~~a $6.8 million ~~(14.1%)~~ increase in U.S. treaty casualty volume and an $8.4 million (6.3%) increase in treaty property volume, partially offset by a $13.9 million (57.1%) decrease in the crop hail quota share treaties and a $3.5 million (12.2%) decrease in facultative volume.reinstatement premiums related to current quarter catastrophe loss activity. Net written premiums ~~decreased by 4.0%~~increased 6.3% to ~~$150.5~~$136.6 million for the three months ended ~~June 30, 2010~~March 31, 2011 compared to ~~$156.8~~$128.5 million for the three months ended ~~June 30, 2009,~~March 31, 2010, primarily due to ~~a 7.6%~~the increase in ~~cessions.~~gross written premiums for the quarter. Premiums earned ~~decr eased by 10.1%~~increased 14.3% to ~~$162.5~~$145.2 million for the three months ended ~~June 30, 2010~~March 31, 2011 compared to ~~$180.7~~$127.0 million for the three months ended ~~June 30, 2009.~~March 31, 2010. The change in

premiums earned relative to net written premiums is ~~primarily~~ the result of ~~timing on proportional contracts where~~timing; premiums are earned ratably over the coverage period whereas written premiums are recorded onat the initiation of the coverage period.

Incurred Losses and LAE. The following ~~tables present~~table presents the incurred losses and LAE for the U.S. Reinsurance segment for the periods indicated.

Three Months Ended June 30,
Current Ratio %/ Prior Ratio %/ Total Ratio %/
(Dollars in millions) Year Pt Change Years Pt Change Incurred Pt Change
2010
Attritional $ 79.0 48.6 % $ 9.7 6.0 % $ 88.7 54.6 %
Catastrophes (2.8 ) -1.7 % (1.6 ) -1.0 % (4.4 ) -2.7 %
A&E - 0.0 % - 0.0 % - 0.0 %
Total segment $ 76.2 46.9 % $ 8.1 5.0 % $ 84.3 51.9 %

2009
Attritional $ 104.0 57.6 % $ (16.2 ) -8.9 % $ 87.8 48.6 %
Catastrophes - 0.0 % (1.9 ) -1.0 % (1.9 ) -1.0 %
A&E - 0.0 % - 0.0 % - 0.0 %
Total segment $ 104.0 57.6 % $ (18.0 ) -10.0 % $ 86.0 47.6 %

Variance 2010/2009
Attritional $ (25.0 ) (9.0 ) pts $ 25.9 14.9 pts $ 0.9 6.0 pts
Catastrophes (2.8 ) (1.7 ) pts 0.3 - pts (2.5 ) (1.7 ) pts
A&E - - pts - - pts - - pts
Total segment $ (27.8 ) (10.7 ) pts $ 26.1 15.0 pts $ (1.7 ) 4.3 pts

Incurred losses were ~~$1.7~~$33.3 million ~~(4.3~~(14.0 points) ~~lower~~higher at ~~$84.3~~$123.4 million for the three months ended ~~June 30, 2010~~March 31, 2011 compared to ~~$86.0~~$90.1 million for the three months ended June 30, 2009, primarily as a result of an upward adjustment in the second quarter of 2009 to the Crop Hail current year expected loss ratio and a $2.8 million decrease in current year catastrophe losses from the reversal of the first quarter estimate of Windstorm Xynthia, partially offset by unfavorable development in prior years’ losses inMarch 31, 2010, ~~compared to favorable development in 2009.~~

Segment Expenses. Commission and brokerage expenses increased 36.3% to $37.1 million for the three months ended March 31, 2011 compared to $27.2 million for the three months ended March 31, 2010, primarily due to an increase in earned premium and a shift in the mix of business with varying commission rates. Segment other underwriting expenses for the three months ended March 31, 2011 increased slightly as a percentage of earned premium from the three months ended March 31, 2010.

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~~Segment Expenses.~~ Commission and brokerage expenses decreased 3.6% to $35.9 million for the three months ended June 30, 2010 compared to $37.2 million for the three months ended June 30, 2009. Commission and brokerage expenses decreased 8.8% to $63.1 million for the six months ended June 30, 2010 compared to $69.1 million for the six months ended June 30, 2009. These variances were due to the changes in premiums earned and the mix of business.

Segment other underwriting expenses were $9.4 million and $8.0 million for the three months ended June 30, 2010 and 2009, respectively. Segment other underwriting expenses were $17.2 million and $15.6 million for the six months ended June 30, 2010 and 2009, respectively. These increases were due to normal growth in overall operating expenses.

~~U.S.~~ Insurance.

The following table presents the underwriting results and ratios for the ~~U.S.~~ Insurance segment for the periods indicated.

	Three Months Ended March 31,
(Dollars in millions)	2011			2010			Variance			% Change
Gross written premiums	$	254.5		$	228.2		$	26.2			11.5	%
Net written premiums		125.0			102.5			22.6			22.0	%

Premiums earned	$	105.3		$	101.2		$	4.2			4.1	%
Incurred losses and LAE		85.5			73.0			12.6			17.2	%
Commission and brokerage		6.3			1.6			4.7		NM
Other underwriting expenses		21.9			16.6			5.3			31.9	%
Underwriting gain (loss)	$	(8.4	)	$	10.0		$	(18.4	)		-183.8	%

										Point Chg
Loss ratio		81.2	%		72.1	%					9.1
Commission and brokerage ratio		6.0	%		1.6	%					4.4
Other underwriting expense ratio		20.8	%		16.4	%					4.4
Combined ratio		108.0	%		90.1	%					17.9

(NM, not meaningful)
(Some amounts may not reconcile due to rounding.)

Three Months Ended June 30, Six Months Ended June 30,
(Dollars in millions) 2010 2009 Variance % Change 2010 2009 Variance % Change
Gross written premiums $ 204.9 $ 213.5 $ (8.6 ) -4.0 % $ 433.2 $ 418.2 $ 15.0 3.6 %
Net written premiums 80.8 104.4 (23.5 ) -22.6 % 183.3 225.5 (42.2 ) -18.7 %

Premiums earned $ 86.2 $ 105.7 $ (19.5 ) -18.4 % $ 187.4 $ 217.6 $ (30.3 ) -13.9 %
Incurred losses and LAE 71.8 57.8 14.0 24.3 % 144.8 138.9 5.8 4.2 %
Commission and brokerage 6.1 9.8 (3.8 ) -38.1 % 7.7 21.9 (14.1 ) -64.6 %
Other underwriting expenses 16.3 19.2 (2.9 ) -15.0 % 32.9 36.4 (3.6 ) -9.8 %
Underwriting gain (loss) $ (8.0 ) $ 18.9 $ (26.9 ) -142.3 % $ 2.0 $ 20.4 $ (18.4 ) -90.2 %

Point Chg Point Chg
Loss ratio 83.3 % 54.7 % 28.6 77.3 % 63.8 % 13.5
Commission and brokerage ratio 7.1 % 9.3 % (2.2 ) 4.1 % 10.0 % (5.9 )
Other underwriting expense ratio 18.9 % 18.1 % 0.8 17.5 % 16.8 % 0.7
Combined ratio 109.3 % 82.1 % 27.2 98.9 % 90.6 % 8.3

(Some amounts may not reconcile due to rounding.)

Premiums. Gross written premiums ~~decreased~~increased by ~~4.0%~~11.5% to ~~$204.9~~$254.5 million for the three months ended ~~June 30, 2010~~March 31, 2011 compared to ~~$213.5~~$228.2 million for the three months ended ~~June 30, 2009, as we continue~~March 31, 2010. This was primarily due to ~~adjust our book~~the acquisition of ~~business to achieve an appropriate underwriting margin.~~Heartland, which provided $22.3 million of premium in the current quarter, partially offset by the reduced participation on a large casualty program. Net written premiums ~~decreased by 22.6%~~increased 22.0% to ~~$80.8~~$125.0 million for the three months ended ~~June 30, 2010~~March 31, 2011 compared to ~~$104.4~~$102.5 million for the three months ended ~~June 30, 2009,~~March 31, 2010, primarily due to ~~increased~~the increase in gross written premiums and lower premium volume on programs with a higher percentage of reinsurance ~~ceded on certain programs. Ceded premiums generally relate to the affiliated quota share agreement and third party specific reinsurance purchased for individual reinsured programs.~~ceded. Premiums earned ~~decreased 18.4%~~increased 4.1% to ~~$86.2~~$105.3 million for the three months ended ~~June 30, 2010~~March 31, 2011 compared to ~~$105.7~~$101.2 million for the three months ended ~~June 30, 2009.~~March 31, 2010. The change in premiums earned relative to net written premiums is the result of timing; premiums are earned ratably over the coverage period whereas written premiums are recorded at the initiation of the coverage period.

~~Gross written premiums increased by 3.6% to $433.2 million~~Incurred Losses and LAE. The following table presents the incurred losses and LAE for the ~~six months ended June 30, 2010 compared to $418.2 million~~Insurance segment for the six months ended June 30, 2009. Growth was derived from our direct specialty lines and increased rates on the workers’ compensation business. Net written premiums decreased by 18.7% to $183.3 million for the six months ended June 30, 2010 compared to $225.5 million for the six months ended June 30, 2009, once again due to increased reinsurance ceded on certain programs. Premiums earned decreased 13.9% to $187.4 million for the six months ended June 30, 2010 compared to $217.6 million for the six months ended June 30, 2009 due to timing as explained above.periods indicated.

	Three Months Ended March 31,
	Current		Ratio %/				Prior			Ratio %/				Total		Ratio %/
(Dollars in millions)	Year		Pt Change				Years			Pt Change				Incurred		Pt Change
2011
Attritional	$	89.7		85.2	%		$	(4.2	)		-4.0	%		$	85.5		81.2	%
Catastrophes		-		0.0	%			-			0.0	%			-		0.0	%
Total segment	$	89.7		85.2	%		$	(4.2	)		-4.0	%		$	85.5		81.2	%

2010
Attritional	$	74.2		73.4	%		$	(1.3	)		-1.2	%		$	73.0		72.1	%
Catastrophes		-		0.0	%			-			0.0	%			-		0.0	%
Total segment	$	74.2		73.4	%		$	(1.3	)		-1.2	%		$	73.0		72.1	%

Variance 2011/2010
Attritional	$	15.5		11.8		pts	$	(2.9	)		(2.8	)	pts	$	12.6		9.1		pts
Catastrophes		-		-		pts		-			-		pts		-		-		pts
Total segment	$	15.5		11.8		pts	$	(2.9	)		(2.8	)	pts	$	12.6		9.1		pts

(Some amounts may not reconcile due to rounding.)

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~~Incurred Losses and LAE.~~ ~~The following tables present the incurred losses and LAE for the U.S. Insurance segment for the periods indicated.~~

Three Months Ended June 30,
Current Ratio %/ Prior Ratio %/ Total Ratio %/
(Dollars in millions) Year Pt Change Years Pt Change Incurred Pt Change
2010
Attritional $ 70.6 81.9 % $ 1.2 1.4 % $ 71.8 83.3 %
Catastrophes - 0.0 % - 0.0 % - 0.0 %
Total segment $ 70.6 81.9 % $ 1.2 1.4 % $ 71.8 83.3 %

2009
Attritional $ 75.4 71.3 % $ (17.6 ) -16.7 % $ 57.8 54.7 %
Catastrophes - 0.0 % - 0.0 % - 0.0 %
Total segment $ 75.4 71.3 % $ (17.6 ) -16.7 % $ 57.8 54.7 %

Variance 2010/2009
Attritional $ (4.8 ) 10.6 pts $ 18.8 18.1 pts $ 14.0 28.6 pts
Catastrophes - - pts - - pts - - pts
Total segment $ (4.8 ) 10.6 pts $ 18.8 18.1 pts $ 14.0 28.6 pts

Six Months Ended June 30,
Current Ratio %/ Prior Ratio %/ Total Ratio %/
(Dollars in millions) Year Pt Change Years Pt Change Incurred Pt Change
2010
Attritional $ 144.8 77.3 % $ - 0.0 % $ 144.8 77.3 %
Catastrophes - 0.0 % - 0.0 % - 0.0 %
Total segment $ 144.8 77.3 % $ - 0.0 % $ 144.8 77.3 %

2009
Attritional $ 155.4 71.4 % $ (16.5 ) -7.6 % $ 138.9 63.8 %
Catastrophes - 0.0 % - 0.0 % - 0.0 %
Total segment $ 155.4 71.4 % $ (16.5 ) -7.6 % $ 138.9 63.8 %

Variance 2010/2009
Attritional $ (10.6 ) 5.9 pts $ 16.5 7.6 pts $ 5.9 13.5 pts
Catastrophes - - pts - - pts - - pts
Total segment $ (10.6 ) 5.9 pts $ 16.5 7.6 pts $ 5.9 13.5 pts

(Some amounts may not reconcile due to rounding.)

Incurred losses and LAE increased by ~~24.3%~~17.2% to ~~$71.8~~$85.5 million for the three months ended ~~June 30, 2010~~March 31, 2011 compared to ~~$57.8~~$73.0 million for the three months ended ~~June 30, 2009. The increase, period over period, was primarily due to favorable development in 2009 of prior years’ attritional reserves, specifically net casualty losses.~~

~~Incurred losses and LAE increased by 4.2% to $144.8 million for the six months ended June 30, 2010 compared to $138.9 million for the six months ended June 30, 2009.~~March 31, 2010. The increase was primarily due to ~~similar factors as discussed above for~~ the ~~three months.~~$15.5 million increase in current year attritional losses, due to a change in the mix of business and higher expected loss ratios on several programs, reflective of current market conditions.

Segment Expenses. Commission and brokerage expenses ~~decreased by 38.1%~~increased to ~~$6.1~~$6.3 million for the three months ended ~~June 30, 2010~~March 31, 2011 compared to ~~$9.8~~$1.6 million for the three months ended ~~June 30, 2009. Commission and brokerage expenses decreased by 64.6%~~March 31, 2010. The increase is primarily due to ~~$7.7 million for~~ the ~~six months ended June 30, 2010 compared to $21.9 million for~~impact of variations in reinsurance ceded, particularly under the ~~six months ended June 30, 2009. These decreases were primarily the result of a decline in net premiums earned in conjunction with additional reinsurance cessions.~~

affiliated quota share agreement. Segment other underwriting expenses for the three months ended ~~June 30, 2010 decreased~~March 31, 2011 increased to ~~$16.3~~$21.9 million from ~~$19.2~~$16.6 million for the three months ended ~~June 30, 2009. Segment other underwriting~~March 31, 2010, primarily due to the expenses ~~for the six months ended June 30, 2010 decreased to $32.9 million from $36.4 million for the six months ended June 30, 2009. These decreases were the result~~ of ~~management’s direct actions to reduce expenses.~~

newly acquired Heartland.

~~Table of Contents~~

Specialty Underwriting.

The following table presents the underwriting results and ratios for the Specialty Underwriting segment for the periods indicated.

	Three Months Ended March 31,
(Dollars in millions)	2011			2010			Variance			% Change
Gross written premiums	$	69.2		$	65.9		$	3.3			5.0	%
Net written premiums		40.4			37.2			3.1			8.4	%

Premiums earned	$	42.4		$	38.9		$	3.5			9.0	%
Incurred losses and LAE		25.3			27.5			(2.2	)		-8.0	%
Commission and brokerage		8.0			8.5			(0.6	)		-6.7	%
Other underwriting expenses		2.0			2.0			0.1			2.7	%
Underwriting gain (loss)	$	7.2		$	1.0		$	6.2		NM

										Point Chg
Loss ratio		59.6	%		70.6	%					(11.0	)
Commission and brokerage ratio		18.8	%		21.9	%					(3.1	)
Other underwriting expense ratio		4.7	%		5.1	%					(0.4	)
Combined ratio		83.1	%		97.6	%					(14.5	)

(NM, not meaningful)
(Some amounts may not reconcile due to rounding.)

Three Months Ended June 30, Six Months Ended June 30,
(Dollars in millions) 2010 2009 Variance % Change 2010 2009 Variance % Change
Gross written premiums $ 65.9 $ 57.2 $ 8.7 15.2 % $ 131.7 $ 116.1 $ 15.6 13.5 %
Net written premiums 37.8 32.1 5.7 17.7 % 75.1 64.7 10.3 16.0 %

Premiums earned $ 39.3 $ 32.5 $ 6.8 21.1 % $ 78.2 $ 69.3 $ 8.9 12.8 %
Incurred losses and LAE 34.5 23.2 11.4 49.0 % 62.0 48.5 13.4 27.7 %
Commission and brokerage 9.0 8.9 0.1 1.3 % 17.5 18.9 (1.4 ) -7.5 %
Other underwriting expenses 2.4 2.0 0.4 20.4 % 4.4 3.8 0.5 13.4 %
Underwriting gain (loss) $ (6.5 ) $ (1.5 ) $ (5.0 ) NM $ (5.6 ) $ (2.0 ) $ (3.6 ) 182.6 %

Point Chg Point Chg
Loss ratio 87.7 % 71.3 % 16.4 79.2 % 70.0 % 9.2
Commission and brokerage ratio 22.8 % 27.3 % (4.5 ) 22.4 % 27.3 % (4.9 )
Other underwriting expense ratio 6.1 % 6.1 % - 5.6 % 5.6 % -
Combined ratio 116.6 % 104.7 % 11.9 107.2 % 102.9 % 4.3

(NM, not meaningful)
(Some amounts may not reconcile due to rounding.)

Premiums. Gross written premiums increased by ~~15.2%~~5.0% to $69.2 million for the three months ended March 31, 2011 compared to $65.9 million for the three months ended ~~June 30,~~March 31, 2010, ~~compared~~primarily due to ~~$57.2~~an increase in A&H primary business for medical stop loss insurance and increased writings on special per risk reinsurance programs. Correspondingly, net written premiums increased 8.4% to $40.4 million for the three months ended June 30, 2009. This was driven by strong growth in our A&H business, both the travel accident business as well as several new self-funded medical accounts, partially offset by a decrease in marine business. Net written premiums increased by 17.7%March 31, 2011 compared to ~~$37.8~~$37.2 million for the three months ended ~~June 30, 2010 compared~~March 31, 2010. Premiums earned increased 9.0% to ~~$32.1~~$42.4 million for the three months ended ~~June 30, 2009, primarily as a result of the increase in gross written premiums combined with the change in business mix. Premiums earned increased 21.1%~~March 31, 2011 compared to ~~$3 9.3~~$38.9 million for the three months ended ~~June 30,~~March 31, 2010, ~~compared to $32.5 million for~~relatively consistent with the ~~three months ended June 30, 2009. The change~~increase in ~~premiums earned relative to~~ net written ~~premiums is the result of timing; premiums are earned ratably over the coverage period whereas written premiums are recorded at the initiation of the coverage period.~~premiums.

Gross written premiums increased by 13.5% to $131.7 million for the six months ended June 30, 2010 compared to $116.1 million for the six months ended June 30, 2009. Net written premiums increased 16.0% to $75.1 million for the six months ended June 30, 2010 compared to $64.7 million for the six months ended June 30, 2009. Premiums earned increased 12.8% to $78.2 million for the six months ended June 30, 2010 compared to $69.3 million for the six months ended June 30, 2009. Variances for the six months were driven by similar factors as those discussed above for the three months.

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Table of Contents

Incurred Losses and LAE. The following ~~tables present~~table presents the incurred losses and LAE for the Specialty Underwriting segment for the periods indicated.

Three Months Ended June 30,
Current Ratio %/ Prior Ratio %/ Total Ratio %/
(Dollars in millions) Year Pt Change Years Pt Change Incurred Pt Change
2010
Attritional $ 32.2 81.9 % $ 0.7 1.9 % $ 33.0 83.8 %
Catastrophes - 0.0 % 1.6 4.0 % 1.6 4.0 %
Total segment $ 32.2 81.9 % $ 2.3 5.8 % $ 34.5 87.7 %

2009
Attritional $ 28.2 86.8 % $ (6.7 ) -20.7 % $ 21.5 66.1 %
Catastrophes - 0.0 % 1.7 5.2 % 1.7 5.2 %
Total segment $ 28.2 86.7 % $ (5.0 ) -15.5 % $ 23.2 71.3 %

Variance 2010/2009
Attritional $ 4.0 (4.9 ) pts $ 7.4 22.6 pts $ 11.5 17.7 pts
Catastrophes - - pts (0.1 ) (1.2 ) pts (0.1 ) (1.2 ) pts
Total segment $ 4.0 (4.9 ) pts $ 7.3 21.3 pts $ 11.3 16.4 pts

		Six Months Ended June 30,																					Three Months Ended March 31,
		Current		Ratio %/				Prior			Ratio %/				Total			Ratio %/					Current			Ratio %/				Prior			Ratio %/				Total			Ratio %/
(Dollars in millions)		Year		Pt Change				Years			Pt Change				Incurred			Pt Change					Year			Pt Change				Years			Pt Change				Incurred			Pt Change
2011
Attritional																							$	26.0			61.4	%		$	(0.7	)		-1.7	%		$	25.3			59.6	%
Catastrophes																								-			0.0	%			-			0.0	%			-			0.0	%
Total segment																							$	26.0			61.4	%		$	(0.7	)		-1.7	%		$	25.3			59.6	%

2010
Attritional		$	58.8		75.1	%		$	0.5			0.6	%		$	59.2			75.7	%			$	26.6			68.3	%		$	(0.3	)		-0.7	%		$	26.3			67.6	%
Catastrophes			-		0.0	%			2.7			3.5	%			2.7			3.5	%				-			0.0	%			1.2			3.0	%			1.2			3.0	%
Total segment		$	58.8		75.1	%		$	3.2			4.1	%		$	62.0			79.2	%			$	26.6			68.3	%		$	0.9			2.3	%		$	27.5			70.6	%

2009
Attritional		$	50.8		73.3	%		$	(5.8	)		-8.4	%		$	44.9			64.8	%
Catastrophes			-		0.0	%			3.6			5.2	%			3.6			5.2	%
Total segment		$	50.8		73.3	%		$	(2.2	)		-3.2	%		$	48.5			70.0	%

Variance 2010/2009
Variance 2011/2010
Attritional		$	8.0		1.8		pts	$	6.3			9.0		pts	$	14.3			10.9		pts		$	(0.6	)		(6.9	)	pts	$	(0.4	)		(1.0	)	pts	$	(1.0	)		(8.0	)	pts
Catastrophes			-		-		pts		(0.9	)		(1.7	)	pts		(0.9	)		(1.7	)	pts			-			-		pts		(1.2	)		(3.0	)	pts		(1.2	)		(3.0	)	pts
Total segment		$	8.0		1.8		pts	$	5.4			7.3		pts	$	13.5			9.2		pts		$	(0.6	)		(6.9	)	pts	$	(1.6	)		(4.0	)	pts	$	(2.2	)		(11.0	)	pts

(Some amounts may not reconcile due to rounding.)	(Some amounts may not reconcile due to rounding.)																					(Some amounts may not reconcile due to rounding.)

Incurred losses and LAE ~~increased~~decreased by ~~49.0%~~8.0% to ~~$34.5~~$25.3 million for the three months ended ~~June 30, 2010~~March 31, 2011 compared to ~~$23.2~~$27.5 million for the three months ended ~~June 30, 2009,~~March 31, 2010, primarily due to the ~~result of an increase~~decline in ~~current~~prior years’ development, year ~~attritional reserves for the offshore oil rig in the Gulf.~~over year.

Incurred losses and LAE increased by 27.7% to $62.0 million for the six months ended June 30, 2010 compared to $48.5 million for the six months ended June 30, 2009. This increase was driven by the same factor as discussed above for the three months.

Segment Expenses. Commission and brokerage expenses ~~increased 1.3%~~decreased 6.7% to ~~$9.0~~$8.0 million for the three months ended ~~June 30, 2010~~March 31, 2011 compared to ~~$8.9~~$8.5 million for the three months ended ~~June 30, 2009. This slight increase~~March 31, 2010. The decrease was ~~primarily driven by~~due to the ~~increase~~changes in ~~premiums earned in combination with~~ the mix of business. Commission and brokerage expenses decreased 7.5% to $17.5 million for the six months ended June 30, 2010 compared to $18.9 million for the six months ended June 30, 2009. This decrease was primarily driven by the mix in business, ~~as the~~with a higher level of primary A&H business, which carries a lower commission ~~business, A&H, had increased while the higher commission business of ma rine and surety had declined.~~

~~Table of Contents~~

ratio. Segment other underwriting expenses ~~increased to $2.4 million for the three months ended June 30, 2010 compared to~~remained flat at $2.0 million for the three months ended ~~June 30, 2009. Segment other underwriting expenses increased to $4.4 million for the six months ended June 30, 2010~~March 31, 2011 compared to ~~$3.8 million for~~ the ~~six months ended June 30, 2009. These increases were due to normal growth~~same period in ~~overall operating expenses.~~

2010.

International.

The following table presents the underwriting results and ratios for the International segment for the periods indicated.

		Three Months Ended June 30,												Six Months Ended June 30,												Three Months Ended March 31,
(Dollars in millions)		2010			2009			Variance			% Change			2010			2009			Variance			% Change			2011			2010			Variance			% Change
Gross written premiums		$	307.0		$	274.3		$	32.7			11.9	%	$	582.3		$	525.0		$	57.3			10.9	%	$	308.8		$	275.4		$	33.5			12.2	%
Net written premiums			166.0			154.0			12.1			7.8	%		311.3			289.3			21.9			7.6	%		158.1			145.2			12.9			8.9	%

Premiums earned		$	154.7		$	141.9		$	12.8			9.0	%	$	301.8		$	285.2		$	16.5			5.8	%	$	166.5		$	147.1		$	19.4			13.2	%
Incurred losses and LAE			124.1			79.2			44.9			56.6	%		360.6			171.8			188.8			109.9	%		318.8			236.5			82.3			34.8	%
Commission and brokerage			37.3			31.0			6.3			20.2	%		67.7			65.2			2.5			3.8	%		37.1			30.4			6.7			21.9	%
Other underwriting expenses			7.3			5.7			1.6			28.6	%		13.7			10.3			3.4			32.8	%		6.4			6.4			0.1			0.9	%
Underwriting gain (loss)		$	(14.0	)	$	26.0		$	(40.0	)		-153.7	%	$	(140.2	)	$	38.0		$	(178.2	)	NM			$	(195.9	)	$	(126.2	)	$	(69.6	)		55.2	%

											Point Chg												Point Chg												Point Chg
Loss ratio			80.2	%		55.8	%					24.4			119.5	%		60.2	%					59.3			191.5	%		160.8	%					30.7
Commission and brokerage ratio			24.1	%		21.8	%					2.3			22.4	%		22.9	%					(0.5	)		22.3	%		20.7	%					1.6
Other underwriting expense ratio			4.7	%		4.1	%					0.6			4.6	%		3.6	%					1.0			3.8	%		4.3	%					(0.5	)
Combined ratio			109.0	%		81.7	%					27.3			146.5	%		86.7	%					59.8			217.6	%		185.8	%					31.8

(NM, not meaningful)
(Some amounts may not reconcile due to rounding.)	(Some amounts may not reconcile due to rounding.)

Table of Contents

Premiums. Gross written premiums increased by ~~11.9%~~12.2% to ~~$307.0~~$308.8 million for the three months ended ~~June 30, 2010~~March 31, 2011 compared to ~~$274.3~~$275.4 million for the three months ended ~~June 30, 2009,~~March 31, 2010 due to continued strong growth in ~~Asia,~~premiums written through the Brazil, Miami and New Jersey offices, a ~~$23.5~~$13.8 million increase; ~~Canada, a $19.4~~Asia, an $11.0 million increase; and ~~Brazil, a $5.2~~Canada, an $8.6 million ~~increase.~~increase; resulting from both new business and rate increases in select areas, in particular those that have been affected by catastrophe loss activity. Net written premiums increased by ~~7.8%~~8.9% to ~~$166.0~~$158.1 million for the three months ended ~~June 30, 2010~~March 31, 2011 compared to ~~$154.0~~$145.2 million for the three months ended ~~June 30, 2009,~~March 31, 2010 principally as a result of the increase in gross written ~~premiums, partially offset by an increase in cessions under the affiliated quota share.~~premiums. Premiums earned increased by ~~9.0%~~13.2% to ~~$154.7~~$166.5 million for the three months ended ~~June 30, 2010~~March 31, 2011 compared to ~~$141.9~~$147.1 million for the three months ended ~~June 30, 2009. The change in premiums earned relative to net written premiums is~~March 31, 2010 consistent with the ~~result of timing; premiums are earned ratably over the coverage period whereas written premiums are recorded at the initiation of the coverage period.~~

Gross written premiums increased by 10.9% to $582.3 million for the six months ended June 30, 2010 compared to $525.0 million for the six months ended June 30, 2009, due to continued strong growth in Asia, a $33.8 million increase; Canada, a $17.1 million increase; and Brazil, a $15.1 million increase. Also contributing to the increase was $13.4 million in gross reinstatement premiums from the Chilean earthquake. Net written premiums increased by 7.6% to $311.3 million for the six months ended June 30, 2010 compared to $289.3 million for the six months ended June 30, 2009. Premiums earned increased by 5.8% to $301.8 million for the six months ended June 30, 2010 compared to $285.2 million for the six months ended June 30, 2009, as a result of the increase in net written premiums. Varianc e explanationstrend noted for net written ~~premiums and premiums earned for the six months were similar to those discussed above for the three months.~~premiums.

~~Table of Contents~~

Incurred Losses and LAE. The following ~~tables present~~table presents the incurred losses and LAE for the International segment for the periods indicated.

	Three Months Ended June 30,																					Three Months Ended March 31,
	Current		Ratio %/				Prior			Ratio %/				Total			Ratio %/					Current			Ratio %/				Prior			Ratio %/				Total			Ratio %/
(Dollars in millions)	Year		Pt Change				Years			Pt Change				Incurred			Pt Change					Year			Pt Change				Years			Pt Change				Incurred			Pt Change
2011
Attritional																						$	74.2			44.6	%		$	(3.9	)		-2.3	%		$	70.3			42.3	%
Catastrophes																							246.5			148.0	%			2.0			1.2	%			248.5			149.2	%
Total segment																						$	320.7			192.6	%		$	(1.9	)		-1.1	%		$	318.8			191.5	%

2010
Attritional	$	83.8		54.1	%		$	(2.0	)		-1.3	%		$	81.7			52.8	%			$	91.3			62.1	%		$	(3.5	)		-2.4	%		$	87.8			59.7	%
Catastrophes		48.7		31.5	%			(6.3	)		-4.1	%			42.3			27.4	%				149.5			101.7	%			(0.9	)		-0.6	%			148.7			101.1	%
Total segment	$	132.4		85.6	%		$	(8.3	)		-5.4	%		$	124.1			80.2	%			$	240.8			163.7	%		$	(4.3	)		-2.9	%		$	236.5			160.8	%

2009
Variance 2011/2010
Attritional	$	77.3		54.4	%		$	3.4			2.4	%		$	80.7			56.9	%			$	(17.1	)		(17.5	)	pts	$	(0.4	)		0.1		pts	$	(17.5	)		(17.4	)	pts
Catastrophes		-		0.0	%			(1.5	)		-1.1	%			(1.5	)		-1.1	%				97.0			46.3		pts		2.9			1.8		pts		99.8			48.1		pts
Total segment	$	77.3		54.4	%		$	2.0			1.4	%		$	79.2			55.8	%			$	79.9			28.9		pts	$	2.4			1.8		pts	$	82.3			30.7		pts

Variance 2010/2009
Attritional	$	6.5		(0.3	)	pts	$	(5.4	)		(3.7	)	pts	$	1.0			(4.1	)	pts
Catastrophes		48.7		31.5		pts		(4.8	)		(3.0	)	pts		43.8			28.5		pts
Total segment	$	55.1		31.2		pts	$	(10.3	)		(6.8	)	pts	$	44.9			24.4		pts
(Some amounts may not reconcile due to rounding.)																					(Some amounts may not reconcile due to rounding.)

Six Months Ended June 30,
Current Ratio %/ Prior Ratio %/ Total Ratio %/
(Dollars in millions) Year Pt Change Years Pt Change Incurred Pt Change
2010
Attritional $ 175.1 58.0 % $ (5.5 ) -1.8 % $ 169.6 56.2 %
Catastrophes 198.2 65.7 % (7.2 ) -2.4 % 191.0 63.3 %
Total segment $ 373.2 123.7 % $ (12.7 ) -4.2 % $ 360.6 119.5 %

2009
Attritional $ 158.6 55.6 % $ 5.1 1.8 % $ 163.7 57.4 %
Catastrophes 9.1 3.2 % (1.0 ) -0.4 % 8.1 2.8 %
Total segment $ 167.6 58.8 % $ 4.1 1.4 % $ 171.8 60.2 %

Variance 2010/2009
Attritional $ 16.5 2.4 pts $ (10.6 ) (3.6 ) pts $ 5.9 (1.2 ) pts
Catastrophes 189.1 62.5 pts (6.2 ) (2.0 ) pts 182.9 60.5 pts
Total segment $ 205.6 64.9 pts $ (16.8 ) (5.6 ) pts $ 188.8 59.3 pts

(Some amounts may not reconcile due to rounding.)

Incurred losses and LAE increased ~~56.6%~~34.8% to ~~$124.1~~$318.8 million for the three months ended ~~June 30, 2010~~March 31, 2011 compared to ~~$79.2~~$236.5 million for the three months ended ~~June 30, 2009.~~March 31, 2010. The increase was principally due to a ~~$48.7~~$97.0 million (46.3 points) increase in current year catastrophes related to the Japan earthquake, the New Zealand earthquake and the Australia floods. The current year attritional loss ratio was down to 44.6% for the ~~Chilean earthquake. Attritional losses also increased~~three months ended March 31, 2011 from 62.1% for the three months ended March 31, 2010, primarily due to a shift in the ~~increased premiums earned.~~mix of business with a lower level of quota share business, which generally carries a higher loss ratio.

Incurred losses and LAE increased 109.9% to $360.6 million for the six months ended June 30, 2010 compared to $171.8 million for the six months ended June 30, 2009. The increase was principally due to the large current year catastrophe of $178.6 million for the Chilean earthquake and $19.5 million for the Australian hailstorms in 2010 compared to the absence in 2009 of similar large events.

Segment Expenses. Commission and brokerage expenses increased ~~20.2%~~21.9% to ~~$37.3~~$37.1 million for the three months ended ~~June 30, 2010~~March 31, 2011 compared to ~~$31.0~~$30.4 million for the three months ended ~~June 30, 2009. Commission and brokerage~~March 31, 2010. The increase was primarily in line with the increases in premiums earned. Segment other underwriting expenses ~~increased 3.8% to $67.7~~remained flat at $6.4 million for the ~~six~~three months ended June 30, 2010 compared to $65.2 million for the six months ended June 30, 2009. The increases were primarily due to an increase in premiums earned, an increase in contingent commission on the International U.S. businessMarch 31, 2011 and ~~an increase in commission ratio on the Brazil book.~~2010.

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Segment other underwriting expenses for the three months ended June 30, 2010 were $7.3 million compared to $5.7 million for the three months ended June 30, 2009. Segment other underwriting expenses for the six months ended June 30, 2010 were $13.7 million compared to $10.3 million for the six months ended June 30, 2009. These increases were due to normal growth in overall operating expenses.

Market Sensitive Instruments.

The ~~Securities and Exchange Commission’s (“SEC”)~~SEC’s Financial Reporting Release #48 requires registrants to clarify and expand upon the existing financial statement disclosure requirements for derivative financial instruments, derivative commodity instruments and other financial instruments (collectively, “market sensitive instruments”). We do not generally enter into market sensitive instruments for trading purposes.

Our current investment strategy seeks to maximize after-tax income through a high quality, diversified, taxable and tax-preferenced fixed maturity portfolio, while maintaining an adequate level of liquidity. Our mix of taxable and tax-preferenced investments is adjusted periodically, consistent with our current and projected operating results, market conditions and our tax position. The fixed maturity securities in the investment portfolio are comprised of non-trading available for sale securities. Additionally, we have invested in equity securities.

The overall investment strategy considers the scope of present and anticipated Company operations. In particular, estimates of the financial impact resulting from non-investment asset and liability transactions, together with our capital structure and other factors, are used to develop a net liability analysis. This analysis includes estimated payout characteristics for which our investments provide liquidity. This analysis is considered in the development of specific investment strategies for asset allocation, duration and credit quality. The change in overall market sensitive risk exposure principally reflects the asset changes that took place during the period.

Interest Rate Risk. Our ~~$8.1~~$8.2 billion investment portfolio, at ~~June 30, 2010,~~March 31, 2011, is principally comprised of fixed maturity securities, which are generally subject to interest rate risk and some foreign currency exchange rate risk, and some equity securities, which are subject to price ~~fluctuations.~~fluctuations and some foreign exchange rate risk. The impact of the foreign exchange risks on the investment portfolio is partially mitigated by changes in the dollar value of foreign currency denominated liabilities and their associated income statement impact.

Interest rate risk is the potential change in value of the fixed maturity securities portfolio, including short-term investments, from a change in market interest rates. In a declining interest rate environment, it includes prepayment risk on the ~~$539.4~~$415.4 million of mortgage-backed securities in the ~~$6,459.4~~$5,577.7 million fixed maturity portfolio. Prepayment risk results from potential accelerated principal payments that shorten the average life and thus the expected yield of the security.

The table below displays the potential impact of market value fluctuations and after-tax unrealized appreciation on our fixed maturity ~~securities~~ portfolio (including ~~$251.8~~$368.8 million of short-term investments) for the ~~period~~periods indicated based on upward and downward parallel and immediate 100 and 200 basis point shifts in interest rates. For legal entities with a U.S. dollar functional currency, this modeling was performed on each security individually. To generate appropriate price estimates for mortgage-backed securities, changes in prepayment expectations under different interest rate environments were taken into account. For legal entities with non-U.S. dollar functional currency, the effective duration of the involved portfolio of securities was used as a proxy for the market value change under ~~th e~~the various interest rate change scenarios.

	Impact of Interest Rate Shift in Basis Points
	At March 31, 2011
(Dollars in millions)		-200			-100			0			100			200
Total Market/Fair Value	$	6,369.7		$	6,168.2		$	5,946.5		$	5,706.1		$	5,475.1
Market/Fair Value Change from Base (%)		7.1	%		3.7	%		0.0	%		-4.0	%		-7.9	%
Change in Unrealized Appreciation
After-tax from Base ($)	$	275.1		$	144.2		$	-		$	(156.3	)	$	(306.4	)

Impact of Interest Rate Shift in Basis Points
At June 30, 2010
(Dollars in millions) -200 -100 0 100 200
Total Market/Fair Value $ 7,273.5 $ 7,013.4 $ 6,711.2 $ 6,373.1 $ 6,047.5
Market/Fair Value Change from Base (%) 8.4 % 4.5 % 0.0 % -5.0 % -9.9 %
Change in Unrealized Appreciation
After-tax from Base ($) $ 365.5 $ 196.4 $ - $ (219.8 ) $ (431.4 )

~~Table of Contents~~

We had ~~$7,583.5~~$8,143.5 million and ~~$7,300.1~~$7,652.3 million of gross reserves for losses and LAE as of ~~June 30, 2010~~March 31, 2011 and December 31, ~~2009,~~2010, respectively. These amounts are recorded at their nominal value, as opposed to present value, which would reflect a discount adjustment to reflect the time value of money. Since losses are paid out over a period of time, the present value of the reserves is less than the nominal value. As interest rates rise, the present value of the reserves decreases and, conversely, as interest rates decline, the present value increases. These movements are the opposite of the interest rate impacts on the fair value of

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investments. While the difference between present value and nominal value is not reflected in our financial statements, our financial results will ~~incl ude~~include investment income over time from the investment portfolio until the claims are paid. Our loss and loss reserve obligations have an expected duration that is reasonably consistent with our fixed income portfolio.

Equity Risk. Equity risk is the potential change in fair and/or market value of the common stock and preferred stock portfolios arising from changing ~~equity~~ prices. Our equity investments consist of a diversified portfolio of individual securities and mutual funds, which invest principally in high quality common and preferred stocks that are traded on major exchanges. The primary objective of the equity portfolio is to obtain greater total return relative to bonds over time through market appreciation and income.

The table below displays the impact on fair/market value and after-tax change in fair/market value of a 10% and 20% change in equity prices up and down for the ~~period~~periods indicated.

	Impact of Percentage Change in Equity Fair/Market Values												Impact of Percentage Change in Equity Fair/Market Values
	At June 30, 2010												At March 31, 2011
(Dollars in millions)		-20%			-10%			0%		10%		20%		-20%			-10%			0%		10%		20%
Fair/Market Value of the Equity Portfolio	$	272.3		$	306.4		$	340.4	$	374.4	$	408.5	$	638.0		$	717.7		$	797.4	$	877.2	$	956.9
After-tax Change in Fair/Market Value		(44.3	)		(22.1	)		-		22.1		44.3		(103.7	)		(51.8	)		-		51.8		103.7

Foreign Exchange Risk. Foreign currency risk is the potential change in value, income and cash flow arising from adverse changes in foreign currency exchange rates. Each of our non-U.S. (“foreign”) operations maintains capital in the currency of the country of its geographic location consistent with local regulatory guidelines. Each foreign operation may conduct business in its local currency, as well as the currency of other countries in which it operates. The primary foreign currency exposures for these foreign operations are the Singapore and Canadian ~~Dollar,~~Dollars, the British Pound Sterling and the Euro. We mitigate foreign exchange exposure by generally matching the currency and duration of our assets to our ~~corresp onding~~corresponding operating liabilities. In accordance with FASB guidance, we translate the assets, liabilities and income of non-U.S. dollar functional currency legal entities to the U.S. dollar. This translation amount is reported as a component of other comprehensive income. As of ~~June 30, 2010,~~March 31, 2011, there has been no material change in exposure to foreign exchange rates as compared to December 31, ~~2009.~~2010.

SAFE HARBOR DISCLOSURE

This report contains forward-looking statements within the meaning of the U.S. federal securities laws. We intend these forward-looking statements to be covered by the safe harbor provisions for forward-looking statements in the federal securities laws. In some cases, these statements can be identified by the use of forward-looking words such as “may”, “will”, “should”, “could”, “anticipate”, “estimate”, “expect”, “plan”, “believe”, “predict”, “potential” and “intend”. Forward-looking statements contained in this report include information regarding our reserves for losses and LAE, the adequacy of our provision for uncollectible balances, estimates of our ~~c atastrophe~~catastrophe exposure, the effects of catastrophic events on our financial statements and the ability of our subsidiaries to pay dividends. Forward-looking statements only reflect our expectations and are not guarantees of performance. These statements involve risks, uncertainties and assumptions. Actual events or results may differ materially from our expectations. Important factors that could cause our actual events or results to be materially different from our expectations include the uncertainties that surround the impact on our financial statements and liquidity resulting from changes in the global economy and credit markets, the estimating of reserves for losses and LAE, those discussed in Note 6 of Notes to Consolidated Financial Statements (unaudited) included in this report and risks described under the caption “Risk Factors” in our most recently filed Annual Report on Form 10-K, Part 1, ITEM 1A. We undertake no obligation to update ~~o r~~or revise publicly any forward-looking statements, whether as a result of new information, future events or otherwise.

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ITEM 3.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Market Risk Instruments. See “Market Sensitive Instruments” in PART I – ITEM 2.

ITEM 4.

~~ITEM 4.~~ CONTROLS AND PROCEDURES

As of the end of the period covered by this report, our management carried out an evaluation, with the participation of the Chief Executive Officer and Chief Financial Officer, of the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934 (the “Exchange Act”)). Based on their evaluation, the Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures are effective to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act are recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms. Our management, with the participation of the Chief Executive ~~Of ficer~~Officer and Chief Financial Officer, also conducted an evaluation of our internal control over financial reporting to determine whether any changes occurred during the quarter covered by this report that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. Based on that evaluation, there has been no such change during the quarter covered by this report.

PART II

ITEM 1.

~~ITEM 1.~~ LEGAL PROCEEDINGS

In the ordinary course of business, we are involved in lawsuits, arbitrations and other formal and informal dispute resolution procedures, the outcomes of which will determine our rights and obligations under insurance, reinsurance and other contractual agreements. These disputes arise from time to time and are ultimately resolved through both informal and formal means, including negotiated resolution, arbitration and litigation. In all such matters, we believe that our positions are legally and commercially reasonable, and we vigorously seek to preserve, enforce and defend our legal rights under various agreements. While the final outcome of these matters cannot be predicted with certainty, we do not believe that any of these matters, when finally resolved, will have a material adverse effect on ~~o ur~~our financial position or liquidity. However, an adverse resolution of one or more of these items in any one quarter or fiscal year could have a material adverse effect on our results of operations in that period.

ITEM 1A.

~~ITEM 1A.~~ RISK FACTORS

No material changes.

ITEM 2. ~~UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS~~

UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

None.

ITEM 3.

DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4.

RESERVED~~ITEM 4. RESERVED~~

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ITEM 5.

~~ITEM 5.~~ OTHER INFORMATION

None.

ITEM 6.

~~ITEM 6.~~ EXHIBITS~~EXHIBITS~~

Exhibit Index:

Exhibit No.	Description

31.1	Section 302 Certification of Joseph V. Taranto

31.2	Section 302 Certification of Dominic J. Addesso

32.1	Section 906 Certification of Joseph V. Taranto and Dominic J. Addesso

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Everest Reinsurance Holdings, Inc.

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.


	Everest Reinsurance Holdings, Inc.
	(Registrant)


	/S/ DOMINIC J. ADDESSO
	Dominic J. Addesso
	Executive Vice President and
		Chief Financial Officer

	(Duly Authorized Officer and Principal Financial Officer)



Dated: ~~August 16, 2010~~May 13, 2011

	At June 30, 2010				At December 31, 2009				At March 31, 2011				At December 31, 2010
	Amortized		Market		Amortized		Market		Amortized		Market		Amortized		Market
(Dollars in thousands)	Cost		Value		Cost		Value		Cost		Value		Cost		Value
Fixed maturity securities – available for sale
Due in one year or less	$	261,435	$	261,286	$	334,054	$	335,948	$	208,892	$	207,299	$	212,728	$	207,739
Due after one year through five years		1,519,591		1,571,631		1,276,968		1,316,918		1,739,602		1,770,747		1,642,227		1,681,497
Due after five years through ten years		1,259,022		1,332,129		1,224,457		1,282,470		1,160,884		1,200,473		1,203,497		1,253,609
Due after ten years		2,552,757		2,661,140		2,762,340		2,863,960		1,761,145		1,814,974		1,942,859		1,997,380
Asset-backed securities		28,733		27,403		16,597		15,148		24,453		25,127		19,860		20,551
Mortgage-backed securities
Commercial		32,323		39,402		24,213		29,058		31,347		38,948		31,887		39,505
Agency residential		419,199		438,582		556,032		564,707		334,751		347,594		355,928		369,691
Non-agency residential		59,943		61,438		61,098		54,959		28,238		28,814		29,373		29,968
Total fixed maturity securities	$	6,133,003	$	6,393,011	$	6,255,759	$	6,463,168	$	5,289,312	$	5,433,976	$	5,438,359	$	5,599,940

		Duration of Unrealized Loss at June 30, 2010 By Security Type															Duration of Unrealized Loss at March 31, 2011 By Security Type
		Less than 12 months					Greater than 12 months					Total					Less than 12 months					Greater than 12 months					Total
				Gross					Gross					Gross					Gross					Gross					Gross
				Unrealized					Unrealized					Unrealized					Unrealized					Unrealized					Unrealized
(Dollars in thousands)		Market Value		Depreciation			Market Value		Depreciation			Market Value		Depreciation			Market Value		Depreciation			Market Value		Depreciation			Market Value		Depreciation
Fixed maturity securities - available for sale
U.S. Treasury securities and obligations of
U.S. government agencies and corporations	U.S. government agencies and corporations	$	-	$	-		$	3,398	$	(89	)	$	3,398	$	(89	)	$	21,934	$	(1,199	)	$	3,366	$	(481	)	$	25,300	$	(1,680	)
Obligations of U.S. states and political subdivisions	Obligations of U.S. states and political subdivisions		5,008		(28	)		362,674		(16,988	)		367,682		(17,016	)		341,191		(16,181	)		1,110		(14	)		342,301		(16,195	)
Corporate securities			107,647		(3,068	)		72,766		(7,310	)		180,413		(10,378	)		145,869		(9,193	)		10,667		(1,021	)		156,536		(10,214	)
Asset-backed securities			1,018		-			6,562		(1,835	)		7,580		(1,835	)		4,012		(17	)		-		-			4,012		(17	)
Mortgage-backed securities
Agency residential			7,372		(41	)		-		-			7,372		(41	)		21,573		(241	)		-		-			21,573		(241	)
Non-agency residential			-		-			3,606		(224	)		3,606		(224	)		916		(78	)		-		(1	)		916		(79	)
Foreign government securities			86,610		(3,298	)		76,912		(4,739	)		163,522		(8,037	)		265,864		(7,166	)		85,984		(8,036	)		351,848		(15,202	)
Foreign corporate securities			72,297		(1,681	)		100,942		(9,347	)		173,239		(11,028	)		223,740		(9,654	)		94,780		(10,753	)		318,520		(20,407	)
Total fixed maturity securities		$	279,952	$	(8,116	)	$	626,860	$	(40,532	)	$	906,812	$	(48,648	)	$	1,025,099	$	(43,729	)	$	195,907	$	(20,306	)	$	1,221,006	$	(64,035	)
Equity securities			12		(3	)		-		-			12		(3	)		-		-			13		(2	)		13		(2	)
Total		$	279,964	$	(8,119	)	$	626,860	$	(40,532	)	$	906,824	$	(48,651	)	$	1,025,099	$	(43,729	)	$	195,920	$	(20,308	)	$	1,221,019	$	(64,037	)

	Duration of Unrealized Loss at June 30, 2010 By Maturity															Duration of Unrealized Loss at March 31, 2011 By Maturity
	Less than 12 months					Greater than 12 months					Total					Less than 12 months					Greater than 12 months					Total
			Gross					Gross					Gross					Gross					Gross					Gross
			Unrealized					Unrealized					Unrealized					Unrealized					Unrealized					Unrealized
(Dollars in thousands)	Market Value		Depreciation			Market Value		Depreciation			Market Value		Depreciation			Market Value		Depreciation			Market Value		Depreciation			Market Value		Depreciation
Fixed maturity securities
Due in one year or less	$	36,199	$	(1,221	)	$	37,097	$	(3,244	)	$	73,296	$	(4,465	)	$	34,868	$	(814	)	$	23,691	$	(4,453	)	$	58,559	$	(5,267	)
Due in one year through five years		141,671		(3,361	)		105,827		(5,922	)		247,498		(9,283	)		350,545		(14,105	)		107,273		(8,167	)		457,818		(22,272	)
Due in five years through ten years		80,959		(2,900	)		57,532		(4,156	)		138,491		(7,056	)		219,300		(5,770	)		53,209		(5,436	)		272,509		(11,206	)
Due after ten years		12,733		(593	)		416,236		(25,151	)		428,969		(25,744	)		393,885		(22,704	)		11,734		(2,249	)		405,619		(24,953	)
Asset-backed securities		1,018		-			6,562		(1,835	)		7,580		(1,835	)		4,012		(17	)		-		-			4,012		(17	)
Mortgage-backed securities		7,372		(41	)		3,606		(224	)		10,978		(265	)		22,489		(319	)		-		(1	)		22,489		(320	)
Total fixed maturity securities	$	279,952	$	(8,116	)	$	626,860	$	(40,532	)	$	906,812	$	(48,648	)	$	1,025,099	$	(43,729	)	$	195,907	$	(20,306	)	$	1,221,006	$	(64,035	)

	Three Months Ended						Six Months Ended						Three Months Ended
	June 30,						June 30,						March 31,
(Dollars in thousands)	2010			2009			2010			2009			2011			2010
Unrealized appreciation (depreciation) ("URA(D)") on
securities arising during the period
URA(D) of investments - temporary	$	46,846			75,709		$	50,512		$	163,651		$	(15,503	)	$	3,666
URA(D) of investments - non-credit OTTI		(469	)		5,598			2,582			5,598			20			3,051
Tax benefit (expense) from URA(D) arising during the period		(16,232	)		(28,457	)		(18,583	)		(59,237	)		5,419			(2,351	)
Total URA(D) on securities arising during the period, net of tax		30,145			52,850			34,511			110,012			(10,064	)		4,366

Foreign currency translation adjustments		(8,896	)		45,819			1,830			17,077			15,900			10,726
Tax benefit (expense) from foreign currency translation		3,114			(16,037	)		(640	)		(5,977	)		(5,565	)		(3,754	)
Net foreign currency translation adjustments		(5,782	)		29,782			1,190			11,100			10,335			6,972

Pension adjustments		671			1,900			1,299			1,900			1,148			628
Tax benefit (expense) on pension		(235	)		(232	)		(455	)		(232	)		(402	)		(220	)
Net pension adjustments		436			1,668			844			1,668			746			408

Other comprehensive income (loss), net of tax	$	24,799		$	84,300		$	36,545		$	122,780		$	1,017		$	11,746

	By Asset
	Three Months Ended June 30, 2010										Six Months Ended June 30, 2010
	Corporate			Asset-backed		Non-agency					Corporate			Asset-backed		Non-agency
(Dollars in thousands)	Securities			Securities		RMBS			Total		Securities			Securities		RMBS			Total
Beginning balance	$	6,930		$	6,368	$	456		$	13,754	$	6,930		$	6,258	$	426		$	13,614
Total gains or (losses) (realized/unrealized)
Included in earnings (or changes in net assets)		(1	)		-		24			23		(1	)		-		49			48
Included in other comprehensive income (loss)		36			122		51			209		36			44		92			172
Purchases, issuances and settlements		-			72		(34	)		38		-			260		(70	)		190
Transfers in and/or (out) of Level 3		-			-		-			-		-			-		-			-
Ending balance	$	6,965		$	6,562	$	497		$	14,024	$	6,965		$	6,562	$	497		$	14,024

The amount of total gains or losses for the period included
in earnings (or changes in net assets) attributable to the
change in unrealized gains or losses relating to assets
still held at the reporting date	$	-		$	-	$	-		$	-	$	-		$	-	$	-		$	-

(Some amounts may not reconcile due to rounding.)

	Summary
	Three Months Ended					Six Months Ended
	June 30,					June 30,
(Dollars in thousands)	2010		2009			2010		2009
Assets:
Balance, beginning of period	$	13,754	$	7,464		$	13,614	$	10,967
Total gains or (losses) (realized/unrealized)
Included in earnings (or changes in net assets)		23		21			48		(4	)
Included in other comprehensive income (loss)		209		375			172		556
Purchases, issuances and settlements		38		(3,054	)		190		(79	)
Transfers in and/or (out) of Level 3		-		7,001			-		367
Balance, end of period	$	14,024	$	11,807		$	14,024	$	11,807

The amount of total gains or losses for the period included in earnings
(or changes in net assets) attributable to the change in unrealized
gains or losses relating to assets still held at the reporting date	$	-	$	-		$	-	$	(131	)

	Three Months Ended					Six Months Ended
U.S. Insurance	June 30,					June 30,
(Dollars in thousands)	2010			2009		2010		2009
Gross written premiums	$	204,941		$	213,511	$	433,178	$	418,228
Net written premiums		80,812			104,358		183,279		225,510

Premiums earned	$	86,187		$	105,651	$	187,353	$	217,623
Incurred losses and LAE		71,800			57,762		144,750		138,906
Commission and brokerage		6,098			9,849		7,739		21,867
Other underwriting expenses		16,279			19,152		32,856		36,433
Underwriting gain (loss)	$	(7,990	)	$	18,888	$	2,008	$	20,417

	Three Months Ended						Six Months Ended
Specialty Underwriting	June 30,						June 30,
(Dollars in thousands)	2010			2009			2010			2009
Gross written premiums	$	65,855		$	57,188		$	131,742		$	116,111
Net written premiums		37,823			32,126			75,062			64,731

Premiums earned	$	39,342		$	32,495		$	78,240		$	69,331
Incurred losses and LAE		34,512			23,160			61,973			48,543
Commission and brokerage		8,972			8,858			17,507			18,925
Other underwriting expenses		2,407			1,999			4,358			3,844
Underwriting gain (loss)	$	(6,549	)	$	(1,522	)	$	(5,598	)	$	(1,981	)