Philadelphia Consolidated Holding (PHLY) 10-Q 2005 Q2 Quarterly report

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

þ Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the Quarterly Period Ended June 30, 2005

Commission File Number 0-22280

PHILADELPHIA CONSOLIDATED HOLDING CORP.

(Exact name of registrant as specified in its charter)

PENNSYLVANIA	23-2202671
(State of Incorporation)	(IRS Employer Identification No.)

One Bala Plaza, Suite 100
Bala Cynwyd, Pennsylvania 19004
(610) 617-7900

(Address, including zip code and telephone number,

including area code, of registrant’s principal executive offices)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

YES:þ NO:o

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).

YES:þ NO:o

Indicate the number of shares outstanding of each of the issuer’s classes of common stock as of July 31, 2005.

Common Stock, no par value, 23,045,328 shares outstanding

PHILADELPHIA CONSOLIDATED HOLDING CORP. AND SUBSIDIARIES

INDEX
For the Quarterly Period Ended June 30, 2005

Part I — Financial Information
Item 1. Financial Statements:
Consolidated Balance Sheets – June 30, 2005 and December 31, 2004	3
Consolidated Statements of Operations and Comprehensive Income — For the three and six months ended June 30, 2005 and 2004	4
Consolidated Statements of Changes in Shareholders’ Equity — For the six months ended June 30, 2005 and year ended December 31, 2004	5
Consolidated Statements of Cash Flows — For the six months ended June 30, 2005 and 2004	6
Notes to Consolidated Financial Statements	7-16
Item 2.Management’s Discussion and Analysis of Financial Condition and Results of Operations	17-31
Item 3.Quantitative and Qualitative Disclosures About Market Risk	32
Item 4.Controls and Procedures	33
Part II — Other Information
Item 1.Legal Proceedings	34
Item 2.Unregistered Sales of Equity Securities and Use of Proceeds	34
Item 3.Defaults Upon Senior Securities	34
Item 4.Submission of Matters to a Vote of Security Holders	34-35
Item 5.Other Information	35
Item 6.Exhibits	36-38
Signatures	39
Excess Catastrophe Reinsurance Contract effective June 1, 2004
65% Florida Only Third and Fourth Event Excess Catastrophe Reinsurance Contract effective September 1, 2004
$45 million excess of $195 million Florida Only Catastrophe Reinsurance Contract effective September 10, 2004
$6.5 million excess of $3.5 million Florida Only Fifth Event Catastrophe Reinsurance Contract effective September 24, 2004
$50 million excess of $240 million Florida Only Catastrophe Reinsurance Contract effective October 1, 2004
$40 million excess of $50 million Florida Only Third Event Catastrophe Reinsurance Contract effective October 1, 2004
$50 million excess of $140 million Florida Only Catastrophe Excess Reinsurance Contract effective October 1, 2004
Florida Hurricane Catastrophe Rund Reinsurance Contract effective June 1, 2005 (Liberty American Insurance Company)
Florida Hurricane Catastrophe Rund Reinsurance Contract effective June 1, 2005 (Mobile USA Insurance Compnay)
Excess Catastrophe Reinsurance Contract effective June 1, 2005 (Preliminary Agreement)
Reinstatement Premium Protection Reinsurance Contract effective June 1, 2005 (Preliminary Agreement)
Florida Only Excess Catastrophe Reinsurance Contract effective June 1, 2005 (Preliminary Agreement)
Florida Only Reinstatement Premium Protection Reinsurance Contract effective June 1, 2005 (Preliminary Agreement)
Third Event Catastrophe Reinsurance Contract effective September 3, 2004
Third Event Catastrophe Reinsurance Contract effective September 3, 2004
Certification of the Company's chief executive officer pursuant to Section 302
Certification of the Company's chief financial officer pursuant to Section 302
Certification of the Company's chief executive officer pursuant to Section 906
Certification of the Company's chief financial officer pursuant to Section 906

2

PHILADELPHIA CONSOLIDATED HOLDING CORP. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)

	As of
	June 30,			December 31,
	2005			2004
	(Unaudited)
ASSETS
INVESTMENTS:
FIXED MATURITIES AVAILABLE FOR SALE AT MARKET (AMORTIZED COST $1,591,461 AND $1,287,094)	$	1,599,748		$	1,299,704
EQUITY SECURITIES AT MARKET (COST $132,172 AND $110,601)		138,205			128,447
TOTAL INVESTMENTS		1,737,953			1,428,151
CASH AND CASH EQUIVALENTS		56,182			195,496
ACCRUED INVESTMENT INCOME		16,339			13,475
PREMIUMS RECEIVABLE		228,877			229,502
PREPAID REINSURANCE PREMIUMS AND REINSURANCE RECEIVABLES		302,077			429,850
DEFERRED INCOME TAXES		29,981			14,396
DEFERRED ACQUISITION COSTS		105,697			91,647
PROPERTY AND EQUIPMENT, NET		23,051			21,281
GOODWILL		25,724			25,724
OTHER ASSETS		27,075			36,134
TOTAL ASSETS	$	2,552,956		$	2,485,656
LIABILITIES AND SHAREHOLDERS’ EQUITY
POLICY LIABILITIES AND ACCRUALS:
UNPAID LOSS AND LOSS ADJUSTMENT EXPENSES	$	1,052,502		$	996,667
UNEARNED PREMIUMS		533,084			531,849
TOTAL POLICY LIABILITIES AND ACCRUALS		1,585,586			1,528,516
FUNDS HELD PAYABLE TO REINSURER		44,667			131,119
LOANS PAYABLE		—			33,406
PREMIUMS PAYABLE		47,879			48,111
OTHER LIABILITIES		114,812			100,347
TOTAL LIABILITIES		1,792,944			1,841,499
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS’ EQUITY:
PREFERRED STOCK, $.01 PAR VALUE, 10,000,000 SHARES AUTHORIZED, NONE ISSUED AND OUTSTANDING		—			—
COMMON STOCK, NO PAR VALUE, 100,000,000 SHARES AUTHORIZED, 23,046,184 AND 22,273,917 SHARES ISSUED AND OUTSTANDING		333,808			292,856
NOTES RECEIVABLE FROM SHAREHOLDERS		(9,082	)		(5,465	)
RESTRICTED STOCK DEFERRED COMPENSATION COST		(3,704	)		—
ACCUMULATED OTHER COMPREHENSIVE INCOME		9,309			19,796
RETAINED EARNINGS		429,681			336,970
TOTAL SHAREHOLDERS’ EQUITY		760,012			644,157
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY	$	2,552,956		$	2,485,656

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

3

PHILADELPHIA CONSOLIDATED HOLDING CORP. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS AND
COMPREHENSIVE INCOME
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
(Unaudited)

	For the Three Months						For the Six Months
	Ended June 30,						Ended June 30,
	2005			2004			2005			2004
REVENUE:
NET EARNED PREMIUMS	$	233,136		$	189,563		$	469,891		$	360,985
NET INVESTMENT INCOME		15,373			10,800			28,864			20,773
NET REALIZED INVESTMENT GAIN (LOSS)		296			(1,061	)		11,094			717
OTHER INCOME		300			829			780			2,211
TOTAL REVENUE		249,105			200,131			510,629			384,686
LOSSES AND EXPENSES:
LOSS AND LOSS ADJUSTMENT EXPENSES		142,393			136,520			296,857			267,206
NET REINSURANCE RECOVERIES		(26,591	)		(29,203	)		(54,584	)		(63,646	)
NET LOSS AND LOSS ADJUSTMENT EXPENSES		115,802			107,317			242,273			203,560
ACQUISITION COSTS AND OTHER UNDERWRITING EXPENSES		57,826			51,272			121,774			98,626
OTHER OPERATING EXPENSES		6,010			2,642			9,949			4,411
TOTAL LOSSES AND EXPENSES		179,638			161,231			373,996			306,597
INCOME BEFORE INCOME TAXES		69,467			38,900			136,633			78,089
INCOME TAX EXPENSE (BENEFIT):
CURRENT		29,585			13,889			53,860			25,763
DEFERRED		(7,258	)		(1,656	)		(9,938	)		(1,101	)
TOTAL INCOME TAX EXPENSE		22,327			12,233			43,922			24,662
NET INCOME	$	47,140		$	26,667		$	92,711		$	53,427
OTHER COMPREHENSIVE INCOME, NET OF TAX:
HOLDING GAIN (LOSS) ARISING DURING PERIOD	$	13,220		$	(18,943	)	$	(3,276	)	$	(11,375	)
RECLASSIFICATION ADJUSTMENT		(192	)		690			(7,211	)		(466	)
OTHER COMPREHENSIVE INCOME (LOSS)		13,028			(18,253	)		(10,487	)		(11,841	)
COMPREHENSIVE INCOME	$	60,168		$	8,414		$	82,224		$	41,586
PER AVERAGE SHARE DATA:
BASIC EARNINGS PER SHARE	$	2.05		$	1.21		$	4.09		$	2.42
DILUTED EARNINGS PER SHARE	$	1.93		$	1.15		$	3.86		$	2.31
WEIGHTED-AVERAGE COMMON SHARES OUTSTANDING		22,952,906			22,111,232			22,690,118			22,064,751
WEIGHTED-AVERAGE SHARE EQUIVALENTS OUTSTANDING		1,487,016			1,081,954			1,318,593			1,107,482
WEIGHTED-AVERAGE SHARES AND SHARE EQUIVALENTS OUTSTANDING		24,439,922			23,193,186			24,008,711			23,172,233

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

4

PHILADELPHIA CONSOLIDATED HOLDING CORP. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES
IN SHAREHOLDERS’ EQUITY
(IN THOUSANDS, EXCEPT SHARE DATA)

	For the Six
	Months Ended
	June 30, 2005			For the Year Ended
	(Unaudited)			December 31, 2004
COMMON SHARES:
BALANCE AT BEGINNING OF YEAR		22,273,917			22,007,552
ISSUANCE OF SHARES PURSUANT TO STOCK BASED COMPENSATION PLANS		280,408			67,250
ISSUANCE OF SHARES PURSUANT TO STOCK PURCHASE PLANS, NET		491,859			199,115
BALANCE AT END OF PERIOD		23,046,184			22,273,917
COMMON STOCK:
BALANCE AT BEGINNING OF YEAR	$	292,856		$	281,088
ISSUANCE OF SHARES PURSUANT TO STOCK BASED COMPENSATION PLANS		12,585			2,183
ISSUANCE OF SHARES PURSUANT TO STOCK PURCHASE PLANS		28,367			9,585
BALANCE AT END OF PERIOD		333,808			292,856
NOTES RECEIVABLE FROM SHAREHOLDERS:
BALANCE AT BEGINNING OF YEAR		(5,465	)		(5,444	)
NOTES RECEIVABLE ISSUED PURSUANT TO EMPLOYEE STOCK PURCHASE PLANS		(4,681	)		(2,326	)
COLLECTION OF NOTES RECEIVABLE		1,064			2,305
BALANCE AT END OF PERIOD		(9,082	)		(5,465	)
��
RESTRICTED STOCK DEFERRED COMPENSATION COST:
BALANCE AT BEGINNING OF YEAR		—			—
DEFERRED COMPENSATION COST PURSUANT TO ISSUANCE OF RESTRICTED STOCK		(3,735	)		—
AMORTIZATION OF DEFERRED COMPENSATION COST		31			—
BALANCE AT END OF PERIOD		(3,704	)		—
ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS), NET OF DEFERRED INCOME TAXES:
BALANCE AT BEGINNING OF YEAR		19,796			16,715
OTHER COMPREHENSIVE INCOME (LOSS), NET OF TAXES		(10,487	)		3,081
BALANCE AT END OF PERIOD		9,309			19,796
RETAINED EARNINGS:
BALANCE AT BEGINNING OF YEAR		336,970			253,287
NET INCOME		92,711			83,683
BALANCE AT END OF PERIOD		429,681			336,970
TOTAL SHAREHOLDERS’ EQUITY	$	760,012		$	644,157

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

5

PHILADELPHIA CONSOLIDATED HOLDING CORP. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(Unaudited)

	For the Six Months Ended June 30,
	2005			2004
CASH FLOWS FROM OPERATING ACTIVITIES:
NET INCOME	$	92,711		$	53,427
ADJUSTMENTS TO RECONCILE NET INCOME TO NET CASH PROVIDED BY OPERATING ACTIVITIES:
NET REALIZED INVESTMENT GAIN		(11,094	)		(717	)
DEPRECIATION AND AMORTIZATION EXPENSE		8,075			6,508
DEFERRED INCOME TAX BENEFIT		(9,938	)		(1,101	)
CHANGE IN PREMIUMS RECEIVABLE		625			(2,278	)
CHANGE IN PREPAID REINSURANCE PREMIUMS AND REINSURANCE RECEIVABLES, NET OF FUNDS HELD PAYABLE TO REINSURER		41,321			13,961
CHANGE IN OTHER RECEIVABLES		(2,864	)		(1,416	)
CHANGE IN INCOME TAXES PAYABLE		3,150			1,196
CHANGE IN DEFERRED ACQUISITION COSTS		(14,050	)		(22,482	)
CHANGE IN OTHER ASSETS		6,875			(4,498	)
CHANGE IN UNPAID LOSS AND LOSS ADJUSTMENT EXPENSES		55,835			99,685
CHANGE IN UNEARNED PREMIUMS		1,235			32,879
CHANGE IN OTHER LIABILITIES		(6,493	)		7,736
TAX BENEFIT FROM EXERCISE OF EMPLOYEE STOCK OPTIONS		5,172			387
NET CASH PROVIDED BY OPERATING ACTIVITIES		170,560			183,287
CASH FLOWS FROM INVESTING ACTIVITIES:
PROCEEDS FROM SALES OF INVESTMENTS IN FIXED MATURITIES		131,447			41,734
PROCEEDS FROM MATURITY OF INVESTMENTS IN FIXED MATURITIES		98,750			83,854
PROCEEDS FROM SALES OF INVESTMENTS IN EQUITY SECURITIES		117,951			17,236
COST OF FIXED MATURITIES ACQUIRED		(517,119	)		(259,770	)
COST OF EQUITY SECURITIES ACQUIRED		(128,791	)		(45,395	)
SETTLEMENT OF CASH FLOW HEDGE		(3,148	)		—
PURCHASE OF PROPERTY AND EQUIPMENT		(3,987	)		(4,078	)
NET CASH USED BY INVESTING ACTIVITIES		(304,897	)		(166,419	)
CASH FLOWS FROM FINANCING ACTIVITIES:
REPAYMENTS ON LOANS PAYABLE		(44,787	)		(43,435	)
PROCEEDS FROM LOANS PAYABLE		11,381			39,138
PROCEEDS FROM EXERCISE OF EMPLOYEE STOCK OPTIONS		3,679			432
PROCEEDS FROM COLLECTION OF NOTES RECEIVABLE		1,064			1,153
PROCEEDS FROM SHARES ISSUED PURSUANT TO STOCK PURCHASE PLANS		23,686			7,107
NET CASH PROVIDED (USED) BY FINANCING ACTIVITIES		(4,977	)		4,395
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS		(139,314	)		21,263
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD		195,496			73,942
CASH AND CASH EQUIVALENTS AT END OF PERIOD	$	56,182		$	95,205
CASH PAID DURING THE PERIOD FOR:
INCOME TAXES	$	45,533		$	26,435
INTEREST	$	165		$	283
NON-CASH TRANSACTIONS:
ISSUANCE OF SHARES PURSUANT TO EMPLOYEE STOCK PURCHASE PLAN IN EXCHANGE FOR NOTES RECEIVABLE	$	4,681		$	2,326
ISSUANCE OF RESTRICTED SHARES PURSUANT TO STOCK BASED COMPENSATION PLAN	$	3,735		$	—

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

6

PHILADELPHIA CONSOLIDATED HOLDING CORP. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(Unaudited)

1. Basis of Presentation

The consolidated financial statements for the quarterly period ended June 30, 2005 are unaudited, but in the opinion of management have been prepared on the same basis as the annual audited consolidated financial statements and reflect all adjustments, consisting of normal recurring adjustments and accruals, necessary for a fair statement of the information set forth therein. The results of operations for the six months ended June 30, 2005 are not necessarily indicative of the operating results to be expected for the full year or any other period. Certain prior years’ amounts have been reclassified for comparative purposes.

These consolidated financial statements should be read in conjunction with the financial statements and notes included in the Company’s Annual Report on Form 10-K as of and for the year ended December 31, 2004.

2. Stock-Based Compensation

Stock-based compensation plans are accounted for under the provisions of Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees,” and related interpretations. Accordingly, no compensation expense is recognized for fixed stock option grants and the Company’s stock purchase plans. The following table illustrates the effect on net income and earnings per share as if the provisions of statement of Financial Accounting Standards (SFAS) No. 123 (as amended by SFAS No. 148), “Accounting for Stock-Based Compensation,” had been applied for the three and six months ended June 30, 2005 and 2004, respectively:

	Three Months Ended June 30,						Six Months Ended June 30,
(In thousands, except per share data)	2005			2004			2005			2004
Net Income As Reported	$	47,140		$	26,667		$	92,711		$	53,427
Assumed Stock Compensation Cost		(1,533	)		(998	)		(3,027	)		(1,798	)
Pro Forma Net Income	$	45,607		$	25,669		$	89,684		$	51,629
Basic Earnings Per Share:
As Reported	$	2.05		$	1.21		$	4.09		$	2.42
Pro Forma	$	1.99		$	1.16		$	3.95		$	2.34
Diluted Earnings Per Share:
As Reported	$	1.93		$	1.15		$	3.86		$	2.31
Pro Forma	$	1.87		$	1.11		$	3.74		$	2.23

3. Investments

The carrying amount for the Company’s investments approximates their estimated fair value. The Company measures the fair value of investments based upon quoted market prices or by obtaining quotes from third party broker-dealers. Material assumptions and factors utilized by such broker-dealers in pricing these securities include: future cash flows, constant default rates, recovery rates and any market clearing activity that may have occurred since the prior month-end pricing period.

For mortgage and asset-backed securities (“structured securities”) of high credit quality, changes in expected cash flows are recognized using the retrospective method. For structured securities where the possibility of credit loss is other than remote, changes in expected cash flows are recognized on the prospective method over the remaining life of the securities. Cash flow assumptions for structured securities are obtained from broker dealer survey values or internal estimates consistent with the current interest rate and economic environments. These assumptions represent the Company’s best estimate of the amount and timing of estimated principal and

7

interest cash flows based on current information and events that a market participant would use in determining the current fair value of the security.

The Company regularly performs various analytical procedures with respect to its investments, including identifying any security whose fair value is below its cost. Upon identification of such securities, a detailed review is performed for such securities, excluding interests in securitized assets, meeting predetermined thresholds to determine whether a decline in fair value below a security’s cost basis is other than temporary. If the Company determines a decline in value to be other than temporary, the cost basis of the security is written down to its fair value with the amount of the write down included in earnings as a realized loss in the period the impairment arose. This evaluation resulted in non-cash realized investment losses of $0.1 million and $0 million, respectively, for the three months ended June 30, 2005 and 2004, and $0.2 million and $0 million, respectively, for the six months ended June 30, 2005 and 2004.

The Company’s impairment evaluation and recognition for interests in securitized assets is conducted in accordance with the guidance provided by the Emerging Issues Task Force of the Financial Accounting Standards Board. Under this guidance, impairment losses on securities must be recognized if both the fair value of the security is less than its book value and the net present value of expected future cash flows is less than the net present value of expected future cash flows at the most recent (prior) estimation date. If these criteria are met, an impairment charge, calculated as the difference between the current book value of the security and its fair value, is included in earnings as a realized loss in the period the impairment arose. Non-cash realized investment losses recorded for the three and six months ended June 30, 2005 and 2004 were $0 million and $1.7 million, respectively, and $0 million and $2.6 million, respectively, as a result of the Company’s impairment evaluation for investments in securitized assets.

The following table (in thousands) identifies the period of time securities with an unrealized loss at June 30, 2005 have continuously been in an unrealized loss position. Included in the amounts displayed in the table are $0.1 million of unrealized losses due to non-investment grade fixed maturity securities having a fair value of $2.8 million. No issuer of securities or industry represents more than 2.7% and 14.2%, respectively, of the total estimated fair value, or 2.0% and 10.2%, respectively, of the total gross unrealized loss included in the table below. There are certain risks and uncertainties inherent in the Company’s impairment methodology, such as the financial condition of specific industry sectors and the resultant effect on any such underlying security collateral values. Should the Company subsequently determine a decline in the fair value below the cost basis to be other than temporary, the security would be written down to its fair value and the difference would be included in earnings as a realized loss for the period such determination was made.

	Less Than 12 Months				12 Months or More				Total
			Unrealized				Unrealized				Unrealized
	Fair Value		Losses		Fair Value		Losses		Fair Value		Losses
Fixed Maturities:
Available for Sale
U.S. Treasury Securities and Obligations of U.S. Government Corporations and Agencies	$	52,440	$	371	$	23,067	$	245	$	75,507	$	616
Obligations of States and Political Subdivisions		218,131		874		40,757		377		258,888		1,251
Corporate and Bank Debt Securities		120,917		1,311		75,648		1,543		196,565		2,854
Asset Backed Securities		17,551		131		16,738		372		34,289		503
Mortgage Pass-Through Securities		99,997		762		11,084		247		111,081		1,009
Collateralized Mortgage Obligations		62,915		401		10,005		250		72,920		651
Total Fixed Maturities Available for Sale		571,951		3,850		177,299		3,034		749,250		6,884
Equity Securities		50,677		2,989		—		—		50,677		2,989
Total Investments	$	622,628	$	6,839	$	177,299	$	3,034	$	799,927	$	9,873

8

Based upon the Company’s impairment evaluation as of June 30, 2005, it was concluded that the remaining unrealized losses in the table above are not other than temporary.

4. Restricted Assets

The Insurance Subsidiaries have investments, principally U.S. Treasury securities and Obligations of States and Political Subdivisions, on deposit with the various states in which they are licensed insurers. At June 30, 2005 and December 31, 2004, the carrying value of the securities on deposit totaled $14.7 million and $15.3 million, respectively.

Additionally, the Company’s insurance subsidiaries had investments, principally Mortgage Pass-Through securities, which collateralized the borrowings from the Federal Home Loan Bank of Pittsburgh, see Note 9. The carrying value of these investments was $0 million and $46.8 million as of June 30, 2005 and December 31, 2004, respectively.

Certain of the Company’s insurance subsidiaries are required to hold a certain minimum amount of Federal Home Loan Bank of Pittsburgh common stock as a requirement of membership in the Federal Home Loan Bank of Pittsburgh. The required minimum amount of common stock is based on the amount of outstanding borrowings plus the unused maximum borrowing capacity, as defined by the Federal Home Loan Bank of Pittsburgh. The carrying value of Federal Home Loan Bank of Pittsburgh common stock was $0.2 million and $1.8 million as of June 30, 2005 and December 31, 2004, respectively.

5. Derivative Instruments

Statement of Financial Accounting Standards No. 133, “Accounting for Derivative Instruments and Hedging Activities” (“SFAS 133”), as amended, requires that derivatives be recorded on the balance sheet as either assets or liabilities measured at fair value. Changes in the fair value of derivatives are recorded either through current earnings or as other comprehensive income, depending on the type of hedge transaction. Gains and losses on the derivative instrument reported in other comprehensive income are reclassified into earnings in the periods in which earnings are impacted by the variability of the cash flow of the hedged item. The ineffective portion of all hedge transactions is recognized in current period earnings.

During the first quarter of 2005, the Company was considering the issuance of a debt offering. To manage potential interest rate risk and mitigate the impact of fluctuations in interest rates prior to any issuance, a cash flow hedge derivative instrument was purchased. Cash flow hedges are hedges that use simple derivatives to offset the variability of expected future cash flows. The cash flow hedge purchased was for a notional amount of $125 million, had an interest rate of 4.557% based on the Then-Current 10-Year Treasury interest rate, and a final settlement date of May 6, 2005. At the time of purchase, the cash flow hedge was anticipated to be highly effective in offsetting the changes in the expected future interest rate payments on the proposed debt offering attributable to fluctuations in the Treasury benchmark interest rate.

Subsequent to the purchase of the cash flow hedge the Company decided against the issuance of a debt offering. As a result, the cash flow hedge became an ineffective hedge and the change in fair value of the hedge was reported as a component of earnings immediately. For the three months ended March 31, 2005 the Company recorded the change in fair value of $0.3 million as a reduction to net realized investment gain. Subsequently, upon settlement, the loss in fair value increased to $3.2 million. The $2.9 million change in fair value since March 31, 2005 was recorded as a net realized investment loss during the three months ended June 30, 2005. The Company does not hold any not hold any other derivative instruments.

6. Goodwill

The Company performs an annual impairment analysis to identify potential goodwill impairment and measure the amount of a goodwill impairment loss to be recognized (if any). This annual test is performed at December 31 of each year or more frequently if events or circumstance change that require the Company to perform the impairment analysis on an interim basis.

9

Goodwill impairment testing requires the evaluation of the fair value of each reporting unit to its carrying value, including the goodwill, and an impairment charge is recorded if the carrying amount of the reporting unit exceeds its estimated fair value. No change in the carrying amount of goodwill, which arose from the purchase of Liberty American Insurance Group, Inc., was recorded by the Company for the six months ended June 30, 2005.

7. Liability for Unpaid Loss and Loss Adjustment Expenses

The liability for unpaid loss and loss adjustment expenses reflects the Company’s best estimate for future amounts needed to pay losses and related settlement expenses with respect to insured events. The process of establishing the ultimate claims liability is necessarily a complex imprecise process, requiring the use of informed estimates and judgments using data currently available. The liability includes an amount determined on the basis of claim adjusters’ evaluations with respect to insured events that have occurred and an amount for losses incurred that have not been reported to the Company. In some cases significant periods of time, up to several years or more, may elapse between the occurrence of an insured loss and the reporting of such to the Company. Estimates for unpaid loss and loss adjustment expenses are based upon management’s assessment of known facts and circumstances, review of past loss experience and settlement patterns and consideration of other factors such as legal, social, and economic developments. These adjustments are reviewed regularly and any adjustments there from are made in the accounting period in which the adjustment arose. If the Company’s ultimate losses, net of reinsurance, prove to differ substantially from the amounts recorded at June 30, 2005, the related adjustments could have a material adverse impact on the Company’s financial condition, and results of operations.

During the three months ended June 30, 2005, the Company increased the estimated gross unpaid loss and loss adjustment expenses for accident years 2004 and 2003 and decreased the estimated gross unpaid loss and loss adjustment expenses for accident years 2002 and prior and the estimated net unpaid loss and loss adjustment expenses for accident years 2004 and prior, by the following amounts:

	Gross Basis			Net Basis
(In millions)	increase (decrease)			increase (decrease)
Accident Year 2004	$	5.2		$	(3.4	)
Accident Year 2003		0.6			—
Accident Year 2002		(0.9	)		(1.9	)
Accident Years 2001 and prior		(0.9	)		(2.8	)
Total	$	4.0		$	(8.1	)

For accident year 2004, the increase in estimated gross unpaid loss and loss adjustment expenses was principally due to a higher gross loss estimate for professional liability excess policies due to higher than expected claim severity. The decrease in estimated net unpaid loss and loss adjustment expenses for accident year 2004 was principally due to a lower net loss estimate for commercial property policies as a result of better than expected claim frequency.

For accident year 2003, the increase in estimated gross unpaid loss and loss adjustment expenses was principally due to a higher gross loss estimate for professional liability excess loss estimates due to higher than expected claim severity.

The decrease in estimated gross and net unpaid loss and loss adjustment expenses for accident years 2002 and prior was principally due to decreased loss estimates across most commercial and specialty lines of business due to better than expected case incurred loss development.

8. Funds Held Payable To Reinsurer

Effective April 1, 2003, the Company entered into a quota share reinsurance agreement. Under this agreement, the Company ceded 22% of its net written premiums and loss and loss adjustment expenses for substantially all

10

of the Company’s lines of business on policies effective April 1, 2003 through December 31, 2003, and 10% of its commercial and specialty lines net written premiums and loss and loss adjustment expenses for policies incepting during 2004. The Company receives a provisional commission of 33.0% adjusted pro-rata based upon the ratio of losses incurred to premiums earned. Pursuant to this reinsurance agreement the Company withholds the reinsurance premium due the reinsurers reduced by the reinsurers’ expense allowance, and the Company’s ceding commission allowance in a Funds Held Payable to Reinsurer account. This Funds Held Payable to Reinsurer account is also reduced by ceded paid losses and loss adjustment expenses under this agreement, and increased by an interest credit. In addition, the agreement allows for a profit commission to be paid to the Company upon commutation. Effective January 1, 2005, the Company entered into a Reinsurance Commutation and Release Agreement with respect to the 2003 Whole Account Net Quota Share Reinsurance contract. As a result of this commutation, the Funds Held Payable to Reinsurer liability was reduced by approximately $77.9 million, offset by an increase to net Unpaid Loss and Loss Adjustment Expenses of $64.3 million, an increase to net Unearned Premiums of $0.2 million and a reduction to the profit commission receivable by approximately $13.4 million. No gain or loss was realized as a result of this commutation.

Activity for the Funds Held Payable to Reinsurer is summarized as follows (in thousands):

	As of and For the			As of and For the
	Six Months Ended			Year Ended
	June 30, 2005			December 31, 2004
Funds Held Payable to Reinsurer Balance at Beginning of Period	$	131,119		$	110,011
Net Written Premiums Ceded		(148	)		94,474
Reinsurer Expense Allowance		5			(3,318	)
Provisional Commission		(4,018	)		(48,971	)
Paid Loss and Loss Adjustment Expenses		(5,203	)		(25,585	)
Interest Credit		818			4,853
Commutation		(77,906	)		—
Other		—			(345	)
Subtotal Activity		(86,452	)		21,108
Funds Held Payable to Reinsurer Balance at End of Period	$	44,667		$	131,119

The Company has also accrued a profit commission receivable based upon the experience of the underlying business ceded to this reinsurance agreement, in the amounts of $5.3 million and $13.4 million as of June 30, 2005 and December 31, 2004, respectively. The profit commission reduces ceded written and earned premiums and increases net written and earned premiums.

9. Loans Payable

As of June 30, 2005 and December 31, 2004, the Company had aggregate borrowings of $0 million and $33.4 million, respectively, from the Federal Home Loan Bank of Pittsburgh. Any outstanding borrowings bear interest at adjusted LIBOR and mature twelve months or less from inception. The proceeds from any outstanding borrowings are invested in asset backed and collateralized mortgage obligation securities to achieve a positive spread between the rate of interest on these securities and the borrowing rates. Due to declining spreads the Company prepaid all outstanding Federal Home Loan Bank loans during the first quarter of 2005.

10. Shareholders’ Equity

The Company has established stock purchase plans including an Employee Stock Purchase Plan and a Non-Qualified Employee Stock Purchase Plan. Shares may be purchased under each of these plans by eligible employees during designated one month offering periods established by the Compensation Committee of the Board of Directors at a purchase price of the lesser of 85% of the fair market value of the shares on the first business day of the offering period or the date the shares are purchased. The Company issued 72,602 and 421,200 shares under the Employee Stock Purchase Plan and the Non-Qualified Employee Stock Purchase Plan, respectively, during the six months ended June 30, 2005.

11

During the three months ended June 30, 2005, the Company entered into Restricted Stock Award Agreements with certain employees and issued 44,805 shares pursuant to these agreements.

11. Earnings Per Share

Earnings per common share have been calculated by dividing net income for the period by the weighted average number of common shares and common share equivalents outstanding during the period. Following is the computation of earnings per share for the three and six months ended June 30, 2005 and 2004, respectively (in thousands, except per share data):

	As of and For the Three				As of and For the Six
	Months Ended June 30,				Months Ended June 30
	2005		2004		2005		2004
Weighted-Average Common Shares Outstanding		22,953		22,111		22,690		22,065
Weighted-Average Potential Shares Issuable		1,487		1,082		1,319		1,107
Weighted-Average Shares and Potential Shares Issuable		24,440		23,193		24,009		23,172
Net Income	$	47,140	$	26,667	$	92,711	$	53,427
Basic Earnings per Share	$	2.05	$	1.21	$	4.09	$	2.42
Diluted Earnings per Share	$	1.93	$	1.15	$	3.86	$	2.31

12. Income Taxes

The effective tax rate differs from the 35% marginal tax rate principally as a result of tax-exempt interest income, the dividend received deduction and other differences in the recognition of revenues and expenses for tax and financial reporting purposes.

13. Reinsurance

In the normal course of business, the Company has entered into various reinsurance contracts with unrelated reinsurers. The Company participates in such agreements for the purpose of limiting loss exposure, managing capacity constraints and diversifying business. Reinsurance contracts do not relieve the Company from its obligations to policyholders. The effect of reinsurance on premiums written and earned is as follows:

12

	For the Three Months Ended				For the Six Months Ended
	June 30, 2005				June 30, 2005
(In thousands)	Written		Earned		Written		Earned
Direct Business	$	283,378	$	279,395	$	567,445	$	566,167
Reinsurance Assumed		967		808		2,005		2,048
Reinsurance Ceded		33,995		47,067		65,314		98,324
Net Premiums	$	250,350	$	233,136	$	504,136	$	469,891

	For the Three Months Ended				For the Six Months Ended
	June 30, 2004				June 30, 2004
	Written		Earned		Written		Earned
Direct Business	$	279,535	$	256,856	$	530,396	$	495,943
Reinsurance Assumed		847		1,867		2,423		3,997
Reinsurance Ceded		56,184		69,160		106,042		138,955
Net Premiums	$	224,198	$	189,563	$	426,777	$	360,985

Certain of the Company’s reinsurance contracts have provisions whereby the Company is entitled to a return profit commission based on the ultimate experience of the underlying business ceded to the contracts. Under the terms of these contracts, the Company accrued profit commissions of $1.2 million and $4.6 million for the three months ended June 30, 2005 and 2004, respectively and $2.5 million and $8.7 million for the six months ended June 30, 2005 and 2004, respectively. The profit commissions reduce ceded written and earned premiums and increase net written and earned premiums.

Approximately $15.6 million of the Company’s reinsurance receivable balances at June 30, 2005 are with Converium Reinsurance North American Inc. (“CRNA”). During the third quarter of 2004, Converium AG (Switzerland), CRNA’s parent company, placed CRNA into an orderly runoff. Of the $15.6 million reinsurance receivable balances with CRNA, $0.5 million are receivables on paid losses and $15.1 million are receivables on unpaid loss and loss adjustment expense. The Company is monitoring CRNA’s ability to pay claims, and at this time, believes, that the amounts with CRNA will be collectible.

14. Commitments and Contingencies

The Company is subject to routine legal proceedings in connection with its property and casualty insurance business. The Company is not involved in any other pending or threatened legal or administrative proceedings which management believes can reasonably be expected to have a material adverse effect on the Company’s financial condition or results of operations.

15. Comprehensive Income

Components of comprehensive income, as detailed in the Consolidated Statements of Operations and Comprehensive Income, are net of tax. The related tax effect of Holding Gains (Losses) arising during the three and six months ended June 30, 2005 and 2004 was $7.1 million and $(10.2) million, respectively, and $(1.8) million and $(6.1) million, respectively. The related tax effect of Reclassification Adjustments for the three and six months ended June 30, 2005 and 2004 was $(0.1) million and $0.4 million, respectively, and $(3.9) million and $(0.3) million, respectively.

16. Segment Information

The Company’s operations are classified into three reportable business segments which are organized around its three underwriting divisions: The Commercial Lines Underwriting Group, which has underwriting responsibility for the Commercial Automobile and Commercial Property and Commercial multi-peril package

13

insurance products; The Specialty Lines Underwriting Group, which has underwriting responsibility for the professional liability insurance products; and The Personal Lines Group, which designs, markets and underwrites personal property and casualty insurance products for the Manufactured Housing and Homeowners markets. Each business segment’s responsibilities include: pricing, managing the risk selection process and monitoring the loss ratios by product and insured. The reportable segments operate solely within the United States and have not been aggregated.

The segments follow the same accounting policies used for the Company’s consolidated financial statements, as described in the summary of significant accounting policies. Management evaluates a segment’s performance based upon premium production and the associated loss experience, which includes paid losses, an amount determined on the basis of claim adjusters’ evaluation with respect to insured events that have occurred and an amount for losses incurred that have not been reported. Investments and investment performance, including investment income and net realized investment gain (loss), acquisition costs and other underwriting expenses, including commissions, premium taxes and other acquisition costs, and other operating expenses are managed at a corporate level by the corporate accounting function in conjunction with other corporate departments, and are included in “Corporate”.

Following is a tabulation of business segment information for the three and six months ended June 30, 2005 and 2004. Corporate information is included to reconcile segment data to the consolidated financial statements (in thousands):

14

	Three Months Ended,
	Commercial		Specialty		Personal
	Lines		Lines		Lines		Corporate			Total
June 30, 2005:
Gross Written Premiums	$	211,801	$	48,187	$	24,357		—		$	284,345
Net Written Premiums	$	198,051	$	39,608	$	12,691		—		$	250,350
Revenue:
Net Earned Premiums	$	183,457	$	36,836	$	12,843		—		$	233,136
Net Investment Income		—		—		—		15,373			15,373
Net Realized Investment Gain		—		—		—		296			296
Other Income		—		—		236		64			300
Total Revenue		183,457		36,836		13,079		15,733			249,105
Losses and Expenses:
Net Loss and Loss Adjustment Expenses		83,238		23,878		8,686		—			115,802
Acquisition Costs and Other Underwriting Expenses		—		—		—		57,826			57,826
Other Operating Expenses		—		—		43		5,967			6,010
Total Losses and Expenses		83,238		23,878		8,729		63,793			179,638
Income Before Income Taxes		100,219		12,958		4,350		(48,060	)		69,467
Total Income Tax Expense		—		—		—		22,327			22,327
Net Income	$	100,219	$	12,958	$	4,350	$	(70,387	)	$	47,140
Total Assets		—		—	$	190,472	$	2,362,484		$	2,552,956
June 30, 2004:
Gross Written Premiums	$	198,615	$	46,438	$	35,329		—		$	280,382
Net Written Premiums	$	165,024	$	38,143	$	21,031		—		$	224,198
Revenue:
Net Earned Premiums	$	146,634	$	31,603	$	11,326		—		$	189,563
Net Investment Income		—		—		—		10,800			10,800
Net Realized Investment Loss		—		—		—		(1,061	)		(1,061	)
Other Income		—		—		660		169			829
Total Revenue		146,634		31,603		11,986		9,908			200,131
Losses and Expenses:
Net Loss and Loss Adjustment Expenses		81,083		21,699		4,535		—			107,317
Acquisition Costs and Other Underwriting Expenses		—		—		—		51,272			51,272
Other Operating Expenses		—		—		867		1,775			2,642
Total Losses and Expenses		81,083		21,699		5,402		53,047			161,231
Income Before Income Taxes		65,551		9,904		6,584		(43,139	)		38,900
Total Income Tax Expense		—		—		—		12,233			12,233
Net Income	$	65,551	$	9,904	$	6,584	$	(55,372	)	$	26,667
Total Assets		—		—	$	304,191	$	1,775,332		$	2,079,523

15

	Six Months Ended,
	Commercial		Specialty		Personal
	Lines		Lines		Lines		Corporate			Total
June 30, 2005:
Gross Written Premiums	$	421,811	$	101,822	$	45,817		—		$	569,450
Net Written Premiums	$	402,374	$	75,909	$	25,853		—		$	504,136
Revenue:
Net Earned Premiums	$	367,175	$	72,221	$	30,495		—		$	469,891
Net Investment Income		—		—		—		28,864			28,864
Net Realized Investment Gain		—		—		—		11,094			11,094
Other Income		—		—		450		330			780
Total Revenue		367,175		72,221		30,945		40,288			510,629
Losses and Expenses:
Net Loss and Loss Adjustment Expenses		172,924		49,741		19,608		—			242,273
Acquisition Costs and Other Underwriting Expenses		—		—		—		121,774			121,774
Other Operating Expenses		—		—		43		9,906			9,949
Total Losses and Expenses		172,924		49,741		19,651		131,680			373,996
Income Before Income Taxes		194,251		22,480		11,294		(91,392	)		136,633
Total Income Tax Expense		—		—		—		43,922			43,922
Net Income	$	194,251	$	22,480	$	11,294	$	(135,314	)	$	92,711
Total Assets		—		—	$	190,472	$	2,362,484		$	2,552,956
June 30, 2004:
Gross Written Premiums	$	373,688	$	93,830	$	65,301		—		$	532,819
Net Written Premiums	$	309,764	$	78,194	$	38,819		—		$	426,777
Revenue:
Net Earned Premiums	$	280,153	$	61,018	$	19,814		—		$	360,985
Net Investment Income		—		—		—		20,773			20,773
Net Realized Investment Gain		—		—		—		717			717
Other Income		—		—		1,803		408			2,211
Total Revenue		280,153		61,018		21,617		21,898			384,686
Losses and Expenses:
Net Loss and Loss Adjustment Expenses		154,991		39,754		8,815		—			203,560
Acquisition Costs and Other Underwriting Expenses		—		—		—		98,626			98,626
Other Operating Expenses		—		—		1,112		3,299			4,411
Total Losses and Expenses		154,991		39,754		9,927		101,925			306,597
Income Before Income Taxes		125,162		21,264		11,690		(80,027	)		78,089
Total Income Tax Expense		—		—		—		24,662			24,662
Net Income	$	125,162	$	21,264	$	11,690	$	(104,689	)	$	53,427
Total Assets		—		—	$	304,191	$	1,775,332		$	2,079,523

16

PHILADELPHIA CONSOLIDATED HOLDING CORP. AND SUBSIDIARIES

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

General

Although the Company’s financial performance is dependent upon its own specific business characteristics, certain risk factors can affect the profitability and/or the financial condition of the Company. These include, but are not limited to:

• Business Environment and Industry factors — Historically the financial performance of the property and casualty insurance industry has tended to fluctuate in cyclical patterns of soft markets followed by hard markets. The Company’s strategy is to focus on underwriting profits, and accordingly the Company’s marketing organization is being directed into those niche businesses that exhibit the greatest potential for underwriting profits.

• Changes in taxes, governmental laws and regulations — Significant new legislation and/or regulation could adversely impact profitability.

• Competition — The Company competes in the property and casualty business with other domestic and international insurers having greater financial and other resources than the Company.

• Financial Strength Rating — If A.M. Best Company downgrades the rating of the Company’s insurance subsidiaries, the Company may not be able to compete as effectively with its commercial and specialty lines competitors.

• Regulation — The Company’s insurance subsidiaries are subject to a substantial degree of regulatory oversight, which generally is designed to protect the interests of policyholders, as opposed to shareholders.

• Litigation — Adverse rulings in any material litigation to which the Company is a party could materially affect its financial position and results of operations.

• Inflation — Property and casualty insurance premiums are established before the amount of losses and loss adjustment expenses, or the extent to which inflation may affect such amounts, is known.

• Investment Risk — Substantial future increases in interest rates could result in a decline in the market value of the Company’s investment portfolio and resulting losses and/or reduction in shareholders’ equity.

• Claims development and the process of estimating loss reserves — Estimating the Company’s ultimate liability for unpaid loss and loss adjustment expenses is necessarily a complex and judgmental process, inasmuch as the amounts of any ultimate liability of the Company with respect to such claims are based on management’s informed estimates and judgments using data currently available.

• Catastrophe Exposure — The Company’s insurance subsidiaries issue insurance policies which provide coverage for commercial and personal property and casualty risks. It is possible that a catastrophic event could greatly increase claims under the insurance policies the insurance subsidiaries issue. Catastrophes may result from a variety of events or conditions, including hurricanes, windstorms, earthquakes, hail and other severe weather conditions and may include terrorist events. It is possible that a catastrophic event could adversely impact profitability.

• Reinsurance — The adequacy of reinsurance coverage which may be obtained by the Company and the ability and willingness of the Company’s reinsurers to pay.

• Contingent Commission Arrangements — The outcome of industry-wide investigations being conducted by various insurance departments, attorneys-general and other authorities relating to the use of contingent commission arrangements.

17

PHILADELPHIA CONSOLIDATED HOLDING CORP. AND SUBSIDIARIES

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

• Finite Risk Reinsurance Arrangements — The outcome of the Securities and Exchange Commission’s industry-wide investigation relating to the use of non-traditional insurance products, including finite risk reinsurance arrangements.

• Future Terrorist Attacks — The Company’s insurance subsidiaries issue insurance policies which provide coverage for commercial and personal property and casualty risks. It is possible that a terrorist attack could greatly increase claims under the insurance policies the insurance subsidiaries issue. It is possible that a terrorist attack could adversely impact profitability.

The above risk factors should be read in conjunction with the Certain Critical Accounting Estimates and Judgments included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2004.

Investments

The Company’s investment objective is the realization of relatively high levels of after-tax net investment income while generating competitive after-tax total rates of return within a prudent level of risk and within the constraints of maintaining adequate securities in amount and duration to meet cash requirements of current operations and long-term liabilities, as well as maintaining and improving the Company’s A.M. Best rating. The Company utilizes external independent professional investment managers for its fixed maturity and equity investments. These investments consist of diversified issuers and issues, and as of June 30, 2005, approximately 90.7% and 7.5% of the total invested assets (total investments plus cash equivalents) on a cost basis consisted of investments in fixed maturity and equity securities, respectively, versus 84.9% and 7.3%, respectively, at December 31, 2004.

Of the total investments in fixed maturity securities, asset backed, mortgage pass-through, and collateralized mortgage obligation securities, on a cost basis, amounted to $95.6 million, $236.8 million and $162.6 million, respectively, as of June 30, 2005 and $96.0 million, $229.6 million and $62.6 million, respectively, as of December 31, 2004. The asset backed, mortgage pass-through, and collateralized mortgage obligation investments are amortizing securities possessing desirable prepayment risk and/or extension profiles.

The Company regularly performs various analytical procedures with respect to its investments, including identifying any security whose fair value is below its cost. Upon identification of such securities, a detailed review is performed for all securities, except interests in securitized assets, meeting predetermined thresholds to determine whether such decline is other than temporary. If the Company determines a decline in value to be other than temporary, based upon its detailed review, or if a decline in value for an equity investment has persisted continuously for nine months, the cost basis of the security is written down to its fair value. The factors considered in reaching the conclusion that a decline below cost is other than temporary include, but are not limited to: whether the issuer is in financial distress; the performance of the collateral underlying a secured investment; whether a significant credit rating action has occurred; whether scheduled interest payments have been delayed or missed; whether changes in laws and/or regulations have impacted an issuer or industry; an assessment of the timing of a security’s recovery to fair value; and an ability and intent to hold the security to recovery of fair value. The amount of any write down is included in earnings as a realized loss in the period the impairment arose. This evaluation resulted in non-cash realized investment losses of $0.1 million and $0 million, respectively, for the three months ended June 30, 2005 and 2004, and $0.2 million and $0 million, respectively, for the six months ended June 30, 2005 and 2004. The Company attributes these other than temporary declines in fair value primarily to issuer specific conditions.

Additionally, the Company conducts its impairment evaluation and recognition for interests in securitized assets in accordance with the guidance provided by the Emerging Issues Task Force of the Financial Accounting Standards Board (the “EITF”). Under this guidance, impairment losses on securities must be recognized if both the fair value of the security is less than its book value and the net present value of expected future cash flows is less than the net present value of expected future cash flows at the most recent estimation date. If these criteria are met, an impairment charge, calculated as the difference between the current book value of the security and its fair value, is included in earnings as a realized loss in the period the impairment arose. This evaluation resulted in non-cash realized investment losses of $0 million and $1.7 million for the three months ended June 30, 2005 and 2004,

18

PHILADELPHIA CONSOLIDATED HOLDING CORP. AND SUBSIDIARIES

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

respectively, and $0 million and $2.6 million for the six months ended June 30, 2005 and 2004, respectively. These non-cash realized investment losses were from investments primarily in collateralized bond obligations which were impacted by recent years’ non investment grade default rates that were higher than historic averages and from investments in other asset backed securities which experienced extension of cash flows on the underlying collateral.

The Company’s fixed maturity portfolio amounted to $1,599.7 million and $1,229.7 million, as of June 30, 2005 and December 31, 2004, respectively, of which 99.5% and 99.3% of the portfolio as of June 30, 2005 and December 31, 2004, respectively, was comprised of investment grade securities. The Company had fixed maturity investments with gross unrealized losses amounting to $6.9 million and $4.9 million as of June 30, 2005 and December 31, 2004, respectively. Of these amounts, interests in securitized assets had gross unrealized losses amounting to $2.2 million and $1.3 million as of June 30, 2005 and December 31, 2004, respectively. The remaining unrealized losses are attributable largely to market price changes due to interest rate increases since the investments were purchased, and are not considered to be other than temporary impairments, given the ability and intent to hold the securities to recovery. As discussed above, the Company’s impairment evaluation and recognition for interests in securitized assets is conducted in accordance with the guidance provided by the EITF.

The following table identifies the period of time securities with an unrealized loss at June 30, 2005 have continuously been in an unrealized loss position. Included in the amounts displayed in the table are $0.1 million of unrealized losses due to non-investment grade fixed maturity securities having a fair value of $2.8 million. No issuer of securities or industry represents more than 2.7% and 14.2%, respectively, of the total estimated fair value, or 2.0% and 10.2%, respectively, of the total gross unrealized loss included in the table below. There are certain risks and uncertainties inherent in the Company’s impairment methodology, including, but not limited to, the financial condition of specific industry sectors and the resultant effect on any such underlying security collateral values and changes in accounting, tax, and/or regulatory requirements which may have an effect on either, or both, the investor and/or the issuer. Should the Company subsequently determine a decline in the fair value below the cost basis to be other than temporary, the security would be written down to its fair value and the difference would be included in earnings as a realized loss for the period in which such determination was made.

	Gross Unrealized Losses
	(in millions)
	Fixed Maturities
	Available for Sale				Total
	Excluding Interests		Interests in		Fixed Maturities
Continuous time in unrealized loss position	in Securitized Assets		Securitized Assets		Available for Sale		Equity Securities		Total Investments
0 – 3 months	$	0.1	$	—	$	0.1	$	1.2	$	1.3
4 – 6 months		1.0		0.6		1.6		1.6		3.2
7 – 9 months		1.2		0.6		1.8		0.2		2.0
10 – 12 months		0.3		0.1		0.4		—		0.4
13 – 18 months		2.1		0.4		2.5		—		2.5
19 – 24 months		—		0.2		0.2		—		0.2
> 24 months		—		0.3		0.3		—		0.3
Total Gross Unrealized Losses	$	4.7	$	2.2	$	6.9	$	3.0	$	9.9
Estimated fair value of securities with a gross unrealized loss	$	531.0	$	218.3	$	749.2	$	50.7	$	799.9

Based upon the Company’s impairment evaluation as of June 30, 2005, it was concluded that the remaining unrealized losses in the table above are not other than temporary.

19

PHILADELPHIA CONSOLIDATED HOLDING CORP. AND SUBSIDIARIES

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

For the three months ended June 30, 2005, the Company’s gross loss on the sale of fixed maturity and equity securities amounted to $0.1 million and $1.4 million, respectively. The fair value of the fixed maturity and equity securities at the time of sale was $2.3 million and $11.4 million, respectively. For the three months ended June 30, 2004, the Company’s gross loss on the sale of fixed maturity and equity securities amounted to $0.1 million and $0.3 million, respectively. The fair value of the fixed maturity and equity securities at the time of sale was $4.3 million and $2.4 million, respectively.

For the six months ended June 30, 2005, the Company’s gross loss on the sale of fixed maturity and equity securities amounted to $0.3 million and $3.0 million, respectively. The fair value of the fixed maturity and equity securities at the time of sale was $20.6 million and $31.4 million, respectively. For the six months ended June 30, 2004, the Company’s gross loss on the sale of fixed maturity and equity securities amounted to $0.3 million and $0.4 million, respectively. The fair value of the fixed maturity and equity securities at the time of sale was $7.1 million and $3.9 million, respectively.

$1.2 million of the $3.0 million gross loss on the sale of equity securities for the six months ended June 30, 2005 was the result of the liquidation of certain of the Company’s equity portfolios following the Company’s decision to change four of its common stock investment managers. This $1.2 million realized gross loss was in addition to the previously reported $1.4 million impairment loss recognized during the three months ended December 31, 2004 upon the Company’s initial decision to change three of its common stock investment managers and no longer hold the securities to recovery. The remaining gross loss on the sale of fixed maturity and equity securities resulted from the decision to sell securities based upon an assessment of economic conditions and ongoing portfolio management objectives of maximizing the Company’s after-tax net investment income.

Results of Operations (Six Months ended June 30, 2005 vs. June 30, 2004)

          Premiums: Premium information for the six months ended June 30, 2005 vs. June 30, 2004 for the Company’s business segments is as follows (in millions):

	Commercial Lines			Specialty Lines			Personal Lines			Total
2005 Gross Written Premiums	$	421.8		$	101.8		$	45.8		$	569.4
2004 Gross Written Premiums	$	373.7		$	93.8		$	65.3		$	532.8
Percentage Increase (Decrease)		12.9	%		8.5	%		(29.9	)%		6.9	%
2005 Gross Earned Premiums	$	423.0		$	94.5		$	50.7		$	568.2
2004 Gross Earned Premiums	$	370.3		$	80.8		$	48.8		$	499.9
Percentage Increase (Decrease)		14.2	%		17.0	%		3.9	%		13.7	%

The overall growth in gross written premiums is primarily attributable to the following:

• Prospecting efforts by marketing personnel in conjunction with long term relationships formed by the Company’s marketing Regional Vice Presidents continue to result in additional prospects and increased premium writings, most notably for the Company’s various commercial package and non profit management liability product lines.

• Continued expansion of marketing efforts relating to commercial lines and specialty lines products through the Company’s field organization and preferred agents.

• In-force policy counts as of June 30, 2005 versus June 30, 2004 have increased 14.8% and 22.1% for the commercial lines and specialty lines segments, respectively, primarily as a result of the factors discussed above with respect to the commercial and specialty lines segment.

20

PHILADELPHIA CONSOLIDATED HOLDING CORP. AND SUBSIDIARIES

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

• Realized average rate increases on renewal business approximating 0.8%, 2.9%, and 15.9% for the commercial, specialty and personal lines segments, respectively.

This growth was offset in part due to:

• Liberty American Insurance Group, Inc.’s planned shift in product mix of reducing mobile homeowners product policies and increasing homeowners product policies. As a result, mobile homeowners gross written premium decreased $27.6 million and homeowners gross written premium increased $5.8 million. Additionally, it is anticipated that the shift in product mix from mobile homeowners products to homeowners products will result in approximately $18.0 million of lower mobile homeowners gross written premiums during the remaining six months of 2005 compared to the same period in 2004.

• In-force policy counts for the personal lines segment decreased 31.3%, resulting from a decrease in the in-force counts for the mobile homeowners’ product of 46.7% and an increase in in-force policy counts for the homeowners’ product of 63.5%, as a result of the planned shift in product mix.

• An automobile leasing customer and an automobile excess liability customer decision to self-insure business previously written by the Company. As a result, gross written premiums for the commercial lines segment were reduced by $28.1 million. Additionally, it is anticipated that this decision to self insure will result in approximately $49.0 million of non renewed commercial automobile gross written premium during the remaining six months of 2005 compared to the same period in 2004.

• Re-underwriting the lawyers’ errors and omissions book of business, resulting in gross written premiums for the specialty lines segment being reduced by $7.0 million.

• Increased pricing competition for specialty lines segment products and for the specialty property product (commercial lines segment).

The respective net written premium and net earned premium changes for commercial lines, specialty lines and personal lines segments for the six months ended June 30, 2005 vs. June 30, 2004 were (in millions):

	Commercial Lines			Specialty Lines			Personal Lines			Total
2005 Net Written Premiums	$	402.3		$	75.9		$	25.9		$	504.1
2004 Net Written Premiums	$	309.8		$	78.2		$	38.8		$	426.8
Percentage Increase (Decrease)		29.9	%		(2.9	)%		(33.2	)%		18.1	%
2005 Net Earned Premiums	$	367.2		$	72.2		$	30.5		$	469.9
2004 Net Earned Premiums	$	280.2		$	61.0		$	19.8		$	361.0
Percentage Increase		31.0	%		18.4	%		54.0	%		30.2	%

The differing percentage changes in net written premiums and/or net earned premiums versus gross written premiums and/or gross earned premiums for the commercial lines, specialty lines and personal lines segments during the year results primarily from the following:

• A change in the Company’s reinsurance program whereby, effective April 1, 2003, the Company entered into a Quota Share reinsurance agreement covering substantially all of the Company’s lines of business. Under this agreement:

• The Company ceded 22% of its net written and earned premiums and loss and loss adjustment expenses for policies effective April 1, 2003 through December 31, 2003 and 10% of its commercial and specialty lines net written and earned premiums and loss and loss adjustment expenses for policies becoming effective during 2004. During the six months ended June 30, 2005 and 2004, the Company ceded $(0.4) million and $41.3 million of net written premiums, respectively, and $33.2 million and $76.1 million of net earned premiums, respectively.

21

PHILADELPHIA CONSOLIDATED HOLDING CORP. AND SUBSIDIARIES

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

• As a result of the January 1, 2005 casualty excess of loss treaty renewal, the reinsurance costs by product charged by the reinsurers are at a different level than that charged under the prior treaty to reflect their view of expected treaty experience. Accordingly, specialty lines segment product reinsurance costs were increased and commercial lines segment product reinsurance costs were decreased. The overall cost of the casualty excess of loss treaty reinsurance renewal is expected to approximate 8.1% of gross written casualty premiums.

• Certain of the Company’s reinsurance contracts have provisions whereby the Company is entitled to a return profit commission based on the ultimate experience of the underlying business ceded to the contracts. Under the terms of these contracts, the Company accrued profit commissions of $2.5 million and $8.7 million for the six months ended June 30, 2005 and 2004, respectively. The profit commissions reduce ceded written and earned premiums and increase net written and earned premiums.

• Certain of the Company’s reinsurance contracts have reinstatement provisions whereby the Company must pay additional reinsurance premiums to reinstate coverage provisions upon utilization of initial reinsurance coverage. The Company accrued $1.9 million of reinstatement reinsurance premium under its casualty excess of loss reinsurance treaty, during the six months ended June 30, 2005, as a result of changes in ultimate loss estimates. The reinstatement premium increased ceded and written premiums and reduced net written and earned premiums.

• On December 31, 2004, the Company terminated a quota share reinsurance agreement under which it ceded 15% of its mobile homeowners and homeowners business (personal lines segment). Upon termination the Company increased its unearned premium reserve and net written premium by $5.7 million.

          Net Investment Income:Net investment income approximated $28.9 million for the six months ended June 30, 2005 and $20.8 million for the same period of 2004. Total investments grew to $1,738.0 million at June 30, 2005 from $1,325.4 million at June 30, 2004. The growth in investment income is due to increased investments which arose from investing net cash flows provided from operating activities. The Company’s average duration of its fixed income portfolio was 4.1 years at June 30, 2005 and June 30, 2004. The Company’s taxable equivalent book yield on its fixed income holdings approximated 4.8% at June 30, 2005, compared to 4.7% at June 30, 2004. Net investment income was reduced by $0.8 million and $2.3 million for the six months ended June 30, 2005 and 2004, respectively, due to the interest credit on the Funds Held Account balance pursuant to the Company’s quota share reinsurance agreement (see Note 8).

          The total return, which includes the effects of both income and price returns on securities, of the Company’s fixed income portfolio was 2.26% and 0.23% for the six months ended June 30, 2005 and 2004, respectively, and was similar to the Lehman Brothers Intermediate Aggregate Bond Index (“the Index”) total return of 1.85% and 0.25% for the same periods, respectively. The Company expects some variation in its portfolio’s total return compared to the Index because of the differing sector, security and duration composition of its portfolio as compared to the Index.

          Net Realized Investment Gain:Net realized investment gains were $11.1 million for the six months ended June 30, 2005 and $0.7 million for the same period in 2004. The Company realized net investment gains of $3.6 million and $10.8 million from the sale of fixed maturity and equity securities, respectively, for the six months ended June 30, 2005, and $0 million and $0.2 million in non-cash realized investment losses for fixed maturity and equity securities, respectively, as a result of the Company’s impairment evaluation. The $10.8 million net realized gains from the sale of equity securities included approximately $11.0 million of net realized gains as a result of the liquidation of certain of the Company’s equity portfolios following the Company’s decision to change four of its common stock investment managers. Net realized investment gain was reduced by $3.2 million for the six months ended June 30, 2005 due to the recognized loss of the change in fair value of a cash flow hedge entered into by the Company for which the forecasted transaction did not occur (see Note 5).

22

PHILADELPHIA CONSOLIDATED HOLDING CORP. AND SUBSIDIARIES

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

The Company realized net investment gains of $0.8 million and $2.5 million from the sale of fixed maturity and equity securities, respectively, for the six months ended June 30, 2004, and $2.6 million in non-cash realized investment losses for fixed maturity investments as a result of the Company’s impairment evaluation.

          Other Income: Other income approximated $0.8 million for the six months ended June 30, 2005 and $2.2 million for the same period of 2004. Other income consists primarily of commissions earned on brokered personal lines business, and to a lesser extent brokered commercial lines business. The decrease in other income is due primarily to reduced commissions earned on brokered personal lines business due to termination of certain brokering agreements during 2004.

          Net Loss and Loss Adjustment Expenses:Net loss and loss adjustment expenses increased $38.7 million (19.0%) to $242.3 million for the six months ended June 30, 2005 from $203.6 million for the same period of 2004, and the loss ratio decreased to 51.6% in 2005 from 56.4% in 2004. This increase in net loss and loss adjustment expenses was primarily due to:

• A 30.2% growth in net earned premiums

• A $3.0 million increase in gross and net loss and loss adjustment expenses due to estimated catastrophe losses from Florida hailstorms in March, 2005. The hailstorm losses were incurred in the personal lines segment.

These increases to the loss and loss adjustment expenses were offset in part by:

• Reserve actions taken during the six months ended June 30, 2005 wherein the estimated net unpaid loss and loss adjustment expenses for accident years 2004 and prior were decreased by $7.4 million.

	Net Basis
(In millions)	increase (decrease)
Accident Year 2004	$	(7.7	)
Accident Year 2003		(0.3	)
Accident Year 2002		(1.9	)
Accident Years 2001 and prior		2.5
Total	$	(7.4	)

The decrease in estimated net loss and loss adjustment expenses was principally due to a lower loss estimate for commercial property policies for the 2004 accident year as a result of better than expected claim frequency.

The change in the estimate for gross unpaid loss and loss adjustment expenses is as follows:

	Gross Basis
(In millions)	increase (decrease)
Accident Year 2004	$	(19.7	)
Accident Year 2003		3.0
Accident Year 2002		19.2
Accident Years 2001 and prior		4.8
Total	$	7.3

The overall increase in estimated gross unpaid loss and loss adjustment expenses was principally due to increased program umbrella loss estimates for the 2002 and 2003 accident years due to higher than expected claim severity, and increased loss estimates for general liability and commercial automobile policies for the 2001 and prior accident years. Additionally, the increase in the program umbrella loss

23

PHILADELPHIA CONSOLIDATED HOLDING CORP. AND SUBSIDIARIES

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

estimates for the 2002 accident year resulted in the Company accruing approximately $1.7 million of reinstatement reinsurance premium under its casualty excess of loss reinsurance treaty.

The decrease in estimated gross unpaid loss and loss adjustment expenses for accident year 2004 was principally due to lowering the gross loss estimate for Hurricane Jeanne and a lower loss estimate for commercial property policies as a result of better than expected claim frequency. These decreases were partially offset by a higher gross loss estimate for professional liability excess policies due to higher than expected claim severity.

During the six months ended June 30, 2005 and 2004, the Company also ceded $33.2 million and $76.1 million of net earned premium, respectively, and $15.5 million and $38.1 million in net loss and loss adjustment expenses, respectively, pursuant to quota share reinsurance agreements (see Premiums).

During the six months ended June 30, 2005, the Company revised its December 31, 2004 estimates for gross losses due to Hurricanes Charley, Frances, Ivan and Jeanne as noted below (in millions):

Hurricane:	Charley		Frances			Ivan			Jeanne			Total
Change in gross loss estimate Increase (Decrease)	$	7.9	$	(5.5	)	$	(2.4	)	$	(26.2	)	$	(26.2	)

The higher loss estimate for Hurricane Charley, which, when combined with the aggregate loss estimates for Hurricanes Frances and Jeanne, resulted in approximately an additional $0.7 million of Hurricane Jeanne losses for the six months ended June 30, 2005 to be in excess of the aggregate $80.0 million coverage limit available on the $40.0 million excess $50.0 million loss layer of the Company’s catastrophe reinsurance program. The additional $0.7 million in Hurricane Jeanne losses reduced net income for the six months ended June 30, 2005 by $0.4 million.

The multiple hurricane events in 2004 resulted in accelerating the recognition of catastrophe reinsurance premium expense during 2004 as a result of utilizing certain of the catastrophe reinsurance coverages. Based upon the June 30, 2005 hurricane gross loss estimates, approximately $1.2 million of previously accelerated reinsurance premium expense was reversed during the six months ended June 30, 2005, increasing net income by $0.8 million.

Based upon the current catastrophe loss estimates, recoveries for Hurricane Frances are near the limit of the Company’s catastrophe reinsurance program. Catastrophe reinsurance recoveries available to the Company for development on Hurricane Frances beyond current estimates are dollar for dollar for approximately the next $0.8 million of additional increase in catastrophe losses, and 34% of the next $50.0 million of additional increase in catastrophe losses. Because of the interaction of the Florida Hurricane Catastrophe Fund (FHCF) and the Company’s open market reinsurance program, development on Hurricane Charley would reduce the coverage limit available from the FHCF for Hurricane Frances. Additionally since the hurricane losses currently exceed the aggregate $80.0 million coverage limit available on the $40.0 million excess $50.0 million coverage loss layer of the Company’s catastrophe reinsurance program, each dollar of additional development on Hurricane Charley in this layer would diminish coverage available for Hurricane Jeanne losses and result in approximately an additional $.085 of losses being retained by the Company.

          Acquisition Costs and Other Underwriting Expenses:Acquisition costs and other underwriting expenses increased $23.2 million (23.5%) to $121.8 million for the six months ended June 30, 2005 from $98.6 million for the same period of 2004 and the expense ratio decreased to 25.9% in 2005 from 27.3% in 2004. The increase in acquisition costs and other underwriting expenses was due primarily to the 30.2% growth in net earned premiums and offset in part due to the decrease in gross written premiums for the commercial automobile excess liability product which possesses a relative higher acquisition cost relative to the Company’s other products. For the six months ended June 30, 2005 and 2004 the Company ceded $33.2 million and $76.1 million, respectively, of net earned premium and earned $15.0 million and $32.5 million, respectively, in ceding commission under a quota share agreement (see Premiums).

24

PHILADELPHIA CONSOLIDATED HOLDING CORP. AND SUBSIDIARIES

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

          Other Operating Expenses: Other operating expenses increased $5.5 million to $9.9 million for the six months ended June 30, 2005 from $4.4 million for the same period of 2004. $2.0 million of the increase is due to a bonus accrual related to the terms of an employment agreement with the Company’s founder and Chairman. The remaining increase in the level of expenses is primarily due to the growth of the business, offset in part by reduced commissions paid on brokered personal lines business (see Other Income).

          Income Tax Expense:The Company’s effective tax rate for the six months ended June 30, 2005 and 2004 was 32.1% and 31.6%, respectively. The effective rates differed from the 35% statutory rate principally due to investments in tax-exempt securities and the relative proportion of tax-exempt income to total income before tax.

Results of Operations (Three Months ended June 30, 2005 vs. June 30, 2004)

          Premiums: Premium information for the three months ended June 30, 2005 vs. June 30, 2004 for the Company’s business segments is as follows (in millions):

	Commercial Lines			Specialty Lines			Personal Lines			Total
2005 Gross Written Premiums	$	211.8		$	48.2		$	24.3		$	284.3
2004 Gross Written Premiums	$	198.7		$	46.4		$	35.3		$	280.4
Percentage Increase (Decrease)		6.6	%		3.9	%		(31.2	)%		1.4	%
2005 Gross Earned Premiums	$	209.3		$	47.2		$	23.7		$	280.2
2004 Gross Earned Premiums	$	191.4		$	41.6		$	25.7		$	258.7
Percentage Increase (Decrease)		9.4	%		13.5	%		(7.8	)%		8.3	%

The overall growth in gross written premiums is primarily attributable to the following:

• Prospecting efforts by marketing personnel in conjunction with long term relationships formed by the Company’s marketing Regional Vice Presidents continue to result in additional prospects and increased premium writings, most notably for the Company’s various commercial package and non profit management liability product lines.

• Continued expansion of marketing efforts relating to commercial lines and specialty lines products through the Company’s field organization and preferred agents.

• In-force policy counts as of June 30, 2005 versus June 30, 2004 have increased 14.8% and 22.1% for the commercial lines and specialty lines segments, respectively, primarily as a result of the factors discussed above with respect to the commercial and specialty lines segment.

• Realized average rate increases on renewal business approximating 2.6% and 19.2% for the specialty and personal lines segments, respectively.

This growth was offset in part due to:

• Liberty American Insurance Group, Inc.’s planned shift in product mix of reducing mobile homeowners product policies and increasing homeowners product policies. As a result, mobile homeowners gross written premium decreased $16.6 million and homeowners gross written premium increased $4.2 million.

• In-force policy counts for the personal lines segment decreased 31.3%, resulting from a decrease in the mobile homeowners’ product of 46.7%, and an increase in in-force policy counts for the homeowners’ product of 63.5%, as a result of the planned shift in product mix.

25

PHILADELPHIA CONSOLIDATED HOLDING CORP. AND SUBSIDIARIES

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

• An automobile leasing customer and an automobile excess liability customer decision to self-insure business previously written by the Company. As a result, gross written premiums for the commercial lines segment were reduced by $25.1 million;

• Realized average rate decreases on renewal business approximating 0.4% for the commercial lines segment.

• Re-underwriting the professional liability excess and lawyers errors and omissions books of business, resulting in gross written premiums for the specialty lines segment being reduced by $1.6 million and $4.1 million, respectively.

• Increased pricing competition for specialty lines segment products and for the specialty property product (commercial lines segment).

The respective net written premium and net earned premium changes for commercial lines, specialty lines and personal lines segments for the three months ended June 30, 2005 vs. June 30, 2004 were (in millions):

	Commercial Lines			Specialty Lines			Personal Lines			Total
2005 Net Written Premiums	$	198.1		$	39.6		$	12.7		$	250.4
2004 Net Written Premiums	$	165.1		$	38.1		$	21.0		$	224.2
Percentage Increase (Decrease)		20.0	%		3.9	%		(39.5	)%		11.7	%
2005 Net Earned Premiums	$	183.5		$	36.8		$	12.8		$	233.1
2004 Net Earned Premiums	$	146.7		$	31.6		$	11.3		$	189.6
Percentage Increase (Decrease)		25.1	%		16.5	%		13.3	%		23.0	%

The differing percentage changes in net written premiums and/or net earned premiums versus gross written premiums and/or gross earned premiums for the commercial lines, specialty lines and personal lines segments during the year results primarily from the following:

• A change in the Company’s reinsurance program whereby, effective April 1, 2003, the Company entered into a Quota Share reinsurance agreement covering substantially all of the Company’s lines of business. Under this agreement:

• The Company ceded 22% of its net written and earned premiums and loss and loss adjustment expenses for policies effective April 1, 2003 through December 31, 2003 and 10% of its commercial and specialty lines net written and earned premiums and loss and loss adjustment expenses for policies becoming effective during 2004. During the three months ended June 30, 2005 and 2004, the Company ceded $(0.2) million and $21.5 million of net written premiums, respectively, and $14.4 million and $35.8 million of net earned premiums, respectively.

• As a result of the January 1, 2005 casualty excess of loss treaty renewal, the reinsurance costs by product charged by the reinsurers are at a different level than that charged under the prior treaty to reflect their view of expected treaty experience. Accordingly, specialty lines segment product reinsurance costs were increased and commercial lines segment product reinsurance costs were decreased. The overall cost of the casualty excess of loss treaty reinsurance renewal is expected to approximate 8.1% of gross written casualty premiums.

• Certain of the Company’s reinsurance contracts have provisions whereby the Company is entitled to a return profit commission based on the ultimate experience of the underlying business ceded to the contracts. Under the terms of these contracts, the Company accrued profit commissions of $1.2 million and $4.6 million for the three months ended June 30, 2005 and 2004, respectively. The profit commissions reduce ceded written and earned premiums and increase net written and earned premiums.

26

PHILADELPHIA CONSOLIDATED HOLDING CORP. AND SUBSIDIARIES

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

          Net Investment IncomeNet investment income approximated $15.4 million for the three months ended June 30, 2005 and $10.8 million for the same period of 2004. Total investments grew to $1,738.0 million at June 30, 2005 from $1,325.4 million at June 30, 2004. The growth in investment income is due to increased investments which arose from investing net cash flows provided from operating activities. The Company’s average duration of its fixed income portfolio was 4.1 years at June 30, 2005 and June 30, 2004. The Company’s taxable equivalent book yield on its fixed income holdings approximated 4.8% at June 30, 2005, compared to 4.7% at June 30, 2004. Net investment income was reduced by $0.3 million and $1.2 million for the three months ended June 30, 2005 and 2004, respectively, due to the interest credit on the Funds Held Account balance pursuant to the Company’s quota share reinsurance agreement (see Note 8).

          The total return, which includes the effects of both income and price returns on securities, of the Company’s fixed income portfolio was 2.56% and (1.57)% for the three months ended June 30, 2005 and 2004, respectively, and was similar to the Lehman Brothers Intermediate Aggregate Bond Index (“the Index”) total return of 2.42% and (1.98)% for the same periods, respectively. The Company expects some variation in its portfolio’s total return compared to the Index because of the differing sector, security and duration composition of its portfolio compared to the index.

          Net Realized Investment Gain (Loss):Net realized investment gains (losses) were $0.3 million for the three months ended June 30, 2005 and $(1.1) million for the same period in 2004. The Company realized net investment gains of $2.6 million and $0.6 million from the sale of fixed maturity and equity securities, respectively, for the three months ended June 30, 2005, and $0 million and $0.1 million in non-cash realized investment losses for fixed maturity and equity securities, respectively, as a result of the Company’s impairment evaluation. The $0.6 million net realized gains from the sale of equity securities included approximately $1.6 million of net realized gains as a result of the liquidation of one of the Company’s equity portfolios following the Company’s decision to change one of its common stock investment managers during the three months ended June 30, 2005. Net realized investment gain was reduced by $2.9 million for the three months ended June 30, 2005 due to the recognized loss of the change in fair value of a cash flow hedge entered into by the Company for which the forecasted transaction did not occur (see Note 5).

The Company realized net investment gains of $0.2 million and $0.4 million from the sale of fixed maturity and equity securities, respectively, for the three months ended June 30, 2004, and $1.7 million in non-cash realized investment losses for fixed maturity investments as a result of the Company’s impairment evaluation.

          Other Income: Other income approximated $0.3 million for the three months ended June 30, 2005 and $0.8 million for the same period of 2004. Other income primarily consists of commissions earned on brokered personal lines business, and to a lesser extent brokered commercial lines business. The decrease in other income is due primarily to reduced commissions earned on brokered personal lines business due to termination of certain brokering agreements during 2004.

          Net Loss and Loss Adjustment Expenses:Net loss and loss adjustment expenses increased $8.5 million (8.0%) to $115.8 million for the three months ended June 30, 2005 from $107.3 million for the same period of 2004 and the loss ratio decreased to 49.7% in 2005 from 56.6% in 2004. This increase in net loss and loss adjustment expenses was primarily due to:

• A 23.0% growth in net earned premiums

     This increase to the loss and loss adjustment expenses was offset in part due to:

• Reserve actions taken during the three months ended June 30, 2005, wherein the Company decreased the estimated net unpaid loss and loss adjustment expenses for accident years 2004 and prior, respectively, by the following amounts:

27

PHILADELPHIA CONSOLIDATED HOLDING CORP. AND SUBSIDIARIES

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

	Net Basis
(In millions)	increase (decrease)
Accident Year 2004	$	(3.4	)
Accident Year 2003		—
Accident Year 2002		(1.9	)
Accident Years 2001 and prior		(2.8	)
Total	$	(8.1	)

The decrease in estimated net unpaid loss and loss adjustment expenses for accident year 2004 was principally due to a lower net loss estimate for commercial property policies as a result of better than expected claim frequency. The decrease in estimated net unpaid loss and loss adjustment expenses for accident years 2002 and prior was principally due to better than expected case incurred loss development across most commercial and specialty lines of business.

The change in the estimate for gross unpaid loss and loss adjustment expenses is as follows:

	Gross Basis
(In millions)	increase (decrease)
Accident Year 2004	$	5.2
Accident Year 2003		0.6
Accident Year 2002		(0.9	)
Accident Years 2001 and prior		(0.9	)
Total	$	4.0

The increase in estimated gross unpaid loss and loss adjustment expenses for accident years 2004 and 2003 was principally due to a higher gross loss estimate for professional liability excess policies due to higher than expected claim severity.

The decrease in estimated gross unpaid loss and loss adjustment expenses for accident years 2002 and prior was principally due to better than expected case incurred loss development across most commercial and specialty lines of business.

During the three months ended June 30, 2005, the Company revised its March 31, 2005 estimates for gross losses due to Hurricanes Charley, Frances, Ivan and Jeanne as noted below (in millions):

Hurricane:	Charley		Frances		Ivan		Jeanne			Total
Change in gross loss estimate Increase (Decrease)	$	0.7	$	0.9	$	0.8	$	(3.6	)	$	(1.2	)

The higher loss estimate for Hurricane Charley, which, when combined with the aggregate loss estimates for Hurricanes Frances and Jeanne, resulted in approximately an additional $0.1 million of Hurricane Jeanne losses in the quarter ended June 30, 2005 to be in excess of the aggregate $80.0 million coverage limit available on the $40.0 million excess $50.0 million loss layer of the Company’s catastrophe reinsurance program. The $3.6 million reduction in the loss estimate for Hurricane Jeanne increased net income for the first quarter 2005 by $0.3 million.

The multiple hurricane events in 2004 resulted in accelerating the recognition of catastrophe reinsurance premium expense during 2004 as a result of utilizing certain of the catastrophe reinsurance coverages. Based upon the June 30, 2005 hurricane gross loss estimates, approximately $0.2 million of previously accelerated reinsurance premium expense was reversed in the second quarter 2005, increasing net income by $0.1 million.

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PHILADELPHIA CONSOLIDATED HOLDING CORP. AND SUBSIDIARIES

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

Based upon the current catastrophe loss estimates, recoveries for Hurricane Frances are approaching the limit of the Company’s catastrophe reinsurance program. Catastrophe reinsurance recoveries available to the Company for development on Hurricane Frances beyond current estimates are dollar for dollar for approximately the next $2.3 million of additional increase in catastrophe losses, and 34% of the next $50.0 million of additional increase in catastrophe losses. Because of the interaction of the Florida Hurricane Catastrophe Fund (FHCF) and the Company’s open market reinsurance program, development on Hurricane Charley would reduce the coverage limit available from the FHCF for Hurricane Frances. Additionally since the hurricane losses currently exceed the aggregate $80.0 million coverage limit available on the $40.0 million excess $50.0 million coverage loss layer of the Company’s catastrophe reinsurance program, each dollar of additional development on Hurricane Charley in this layer would diminish coverage available for Hurricane Jeanne losses and result in approximately an additional $.085 of losses being retained by the Company.

          Acquisition Costs and Other Underwriting Expenses:Acquisition costs and other underwriting expenses increased $6.5 million (12.7%) to $57.8 million for the three months ended June 30, 2005 from $51.3 million for the same period of 2004 and the expense ratio decreased to 24.8% in 2005 from 27.0% in 2004. The increase in acquisition costs and other underwriting expenses was due primarily to the 23.0% growth in net earned premiums and offset in part due to the decrease in gross written premiums for the commercial automobile excess liability product (see Premiums) which possesses a higher acquisition cost relative to the Company’s other products. Additionally, for the three months ended June 30, 2005 and 2004 the Company ceded $14.4 million and $35.8 million, respectively, of net earned premium and earned $6.6 million and $17.3 million, respectively, in ceding commission under a quota share agreement (see Premiums).

          Other Operating Expenses: Other operating expenses increased $3.4 million to $6.0 million for the three months ended June 30, 2005 from $2.6 million for the same period of 2004. $2.0 million of the increase is due to a bonus accrual recorded during 2005 related to the terms of an employment agreement with the Company’s founder and Chairman. The remaining increase in the level of expenses is primarily due to the growth of the business, offset in part by reduced commissions paid on brokered personal lines business (see Other Income).

          Income Tax Expense:The Company’s effective tax rate for the three months ended June 30, 2005 and 2004 was 32.1% and 31.4%, respectively. The effective rates differed from the 35% statutory rate principally due to investments in tax-exempt securities and the relative proportion of tax-exempt income to total income before tax.

Liquidity and Capital Resources

          For the six months ended June 30, 2005, the Company’s investments experienced unrealized investment depreciation of $10.5 million, net of the related deferred tax benefit of $5.6 million. At June 30, 2005, the Company had total investments with a carrying value of $1,738.0 million, of which 92.0% consisted of investments in fixed maturity securities, including U.S. treasury securities and obligations of U.S. government corporations and agencies, obligations of states and political subdivisions, corporate debt securities, collateralized mortgage, mortgage pass-through and asset backed securities. The collateralized mortgage, mortgage pass-through, and asset backed securities consist of amortized securities possessing favorable pre-payment and/or extension risk profiles. The remaining 8.0% of the Company’s total investments consisted primarily of publicly traded common stock securities.

          During 2004, the Company experienced catastrophe losses attributable to Hurricanes Charley, Frances, Ivan, and Jeanne. The catastrophe losses primarily impacted the Company’s personal lines segment and, to a lesser extent, its commercial lines segment. The gross catastrophe loss and loss adjustment expense estimates as a result of these hurricanes was $594.0 million for the personal lines segment and $40.0 million for the commercial lines segment.

          Loss estimates may still change in the future due in part to the number of claims which have not yet been completely remediated or for which the property covered by the claim has not been repaired. Under the Company’s catastrophe reinsurance programs in place at the time of these hurricane events, the Company had a $3.5 million pre-tax per occurrence loss retention for its personal lines catastrophe losses and a $7.0 million pre-tax per occurrence

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PHILADELPHIA CONSOLIDATED HOLDING CORP. AND SUBSIDIARIES

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

loss retention for its commercial lines catastrophe losses. The Company estimates its net aggregate retention losses for the four hurricane events is $47.5 million.

          The Company’s catastrophe reinsurance program consists of its open market (“OM”) program, which has been placed principally with large reinsurers that are rated at least “A” (“Excellent”) by A.M. Best, and the Florida Hurricane Catastrophe Fund (“FHCF”). Although the Company believes that it will collect all or substantially all of its reinsurance recoverables, there can be no assurance of this. The Company believes it will have adequate funds to pay the estimated hurricane catastrophe losses noted above. The Company’s estimated total reinsurance recoverables, reinsurance recoverables on paid losses and loss adjustment expenses, catastrophe reinsurance billings and reinsurance collections with respect to its catastrophe reinsurance programs as of June 30, 2005 for the above mentioned hurricane events are summarized in the table below.

	Total
	FHCF		OM		Total
			(In Millions)
Personal Lines Segment:
Total Estimated Loss and LAE Recoverables	$	168.4	$	402.5	$	570.9
Recoverable on Catastrophe Loss and LAE Paid	$	164.9	$	391.1	$	556.0
Catastrophe Loss and LAE Billed to Reinsurers	$	168.2	$	378.6	$	546.8
Catastrophe Loss and LAE Collected from Reinsurers	$	167.8	$	378.6	$	546.4
Commercial Lines Segment:
Total Estimated Loss and LAE Recoverables	$	1.7	$	14.0	$	15.7
Recoverable on Catastrophe Loss and LAE Paid	$	1.7	$	4.6	$	6.3
Catastrophe Loss and LAE Billed to Reinsurers	$	1.7	$	4.6	$	6.3
Catastrophe Loss and LAE Collected from Reinsurers	$	1.2	$	3.7	$	4.9

          The Company produced net cash from operations of $170.6 million and $183.3 million for the six months ended June 30, 2005 and 2004, respectively. Sources of operating funds consist primarily of net premiums written and investment income. Funds are used primarily to pay claims and operating expenses and for the purchase of investments. The source of cash from operations for the six months ended June 30, 2005 was primarily generated from premium growth during the current year due to increases in the number of policies written and, to a lesser extent, price increases realized on renewal business. Net loss and loss expense payments were $143.4 million and $129.6 million, respectively, for the six months ended June 30, 2005 and 2004. Management believes that the Company has adequate liquidity to pay all claims and meet all other cash needs.

          Two of the Company’s insurance subsidiaries are members of the Federal Home Loan Bank of Pittsburgh (“FHLB”). A primary advantage of FHLB membership is the ability of members to access credit products from a reliable capital markets provider. The availability of any one member’s access to credit is based upon its FHLB eligible collateral. The insurance subsidiaries in the past have utilized a portion of their borrowing capacity to purchase a diversified portfolio in investment grade floating rate securities. These purchases were funded by floating rate FHLB borrowings to achieve a positive spread between the rate of interest on these securities and borrowing rates. At June 30, 2005 the insurance subsidiaries’ unused borrowing capacity was $347.9 million. The remaining borrowing capacity provides an immediately available line of credit. Due to declining interest rate spreads, the Company prepaid all outstanding Federal Home Loan Bank loans during the first quarter of 2005.

          The NAIC’s risk-based capital method is designed to measure the acceptable amount of capital and surplus an insurer should have, based on the inherent specific risks of each insurer. The adequacy of a company’s actual capital and surplus is evaluated by a comparison to the risk-based capital results. Insurers failing to meet minimum risk-based capital requirements may be subject to scrutiny by the insurer’s domiciliary insurance department and ultimately rehabilitation or liquidation. Based on the standards currently adopted, the Company’s insurance subsidiaries capital and surplus is in excess of the prescribed risk-based capital requirements.

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PHILADELPHIA CONSOLIDATED HOLDING CORP. AND SUBSIDIARIES

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

New Accounting Pronouncements

          On March 29, 2005, the Securities and Exchange Commission (the “SEC”) issued Staff Accounting Bulletin No. 107 (“SAB 107”), which provides guidance on accounting for share-based payments. SAB 107 summarizes the views of the SEC regarding the interaction between Statement of Financial Accounting Standards No. 123 (revised 2004) (“SFAS 123R), “Share-Based Payment” and certain SEC rules and regulations and provides the SEC’s views regarding the valuation of share-based payment arrangements for public companies. The Company will utilize the guidance provided by SAB 107 when implementing SFAS 123R.

          On April 14, 2005 the SEC announced the adoption of a new rule that amends the compliance dates for the adoption of SFAS 123R. Under SFAS 123R, public companies would have been required to implement the standard as of the beginning of the first interim or annual period that begins after June 15, 2005. The SEC’s new rule allows public companies to implement SFAS 123R at the beginning of the next fiscal year after June 15, 2005. The Company intends to adopt the provisions of SFAS 123R effective January 1, 2006.

Forward-Looking Information

          Certain information included in this report and other statements or materials published or to be published by the Company are not historical facts but are forward-looking statements relating to such matters as anticipated financial performance, business prospects, technological developments, new and existing products, expectations for market segment and growth, and similar matters. In connection with the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995, the Company provides the following cautionary remarks regarding important factors which, among others, could cause the Company’s actual results and experience to differ materially from the anticipated results or other expectations expressed in the Company’s forward-looking statements. The risks and uncertainties that may affect the operations, performance, development, results of the Company’s business, and the other matters referred to above include, but are not limited to those matters set forth under the caption “General”, above. The Company does not intend to publicly update any forward looking statement, except as may be required by law.

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PHILADELPHIA CONSOLIDATED HOLDING CORP. AND SUBSIDIARIES

Item 3. Quantitative and Qualitative Disclosures About Market Risk

          The Company’s financial instruments are subject to the market risk of potential losses from adverse changes in market rates and prices. The primary market risks to the Company are equity price risk associated with investments in equity securities and interest rate risk associated with investments in fixed maturities. The Company has established, among other criteria, duration, asset quality and asset allocation guidelines for managing its investment portfolio market risk exposure. The Company’s investments are held for purposes other than trading and consist of diversified issuers and issues.

          The table below provides information about the Company’s financial instruments that are sensitive to changes in interest rates and shows the effect of hypothetical changes in interest rates as of June 30, 2005. The selected hypothetical changes do not indicate what could be the potential best or worst case scenarios (dollars in thousands). The information is presented in U.S. dollar equivalents, which is the Company’s reporting currency.

				Estimated		Hypothetical Percentage
			Hypothetical Change	Fair Value after		Increase (Decrease) in
	Estimated		in Interest Rates	Hypothetical Changes					Shareholders’
Investments	Fair Value		(bp=basis points)	in Interest Rates		Fair Value			Equity
Total Fixed Maturities Available For Sale	$	1,599,748	200 bp decrease	$	1,720,295		7.5	%		10.3	%
			100 bp decrease	$	1,661,621		3.9	%		5.3	%
			50 bp decrease	$	1,631,882		2.0	%		2.8	%
			50 bp increase	$	1,566,142		(2.1	)%		(2.9	)%
			100 bp increase	$	1,532,150		(4.2	)%		(5.8	)%
			200 bp increase	$	1,465,058		(8.4	)%		(11.5	)%

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PHILADELPHIA CONSOLIDATED HOLDING CORP. AND SUBSIDIARIES

Item 4. Controls and Procedures

     (a) Evaluation of Disclosure Controls and Procedures. The Company’s disclosure controls and procedures, as that term is defined in Rule 13a-15(e) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), are designed with the objective of providing reasonable assurance that information required to be disclosed in the Company’s reports filed or submitted under the Exchange Act, such as this report, is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the Securities and Exchange Commission (the “SEC”). In designing and evaluating the Company’s disclosure controls and procedures, management recognizes that any disclosure controls and procedures, no matter how well designed and operated, can provide only reasonable, rather than absolute, assurance of achieving the desired control objectives.

     An evaluation was performed by management, with the participation of the Company’s chief executive officer (“CEO”) and chief financial officer (“CFO”), of the effectiveness of the design and operation of the Company’s disclosure controls and procedures as of the end of the period covered by this report. Based on this evaluation, the CEO and CFO have concluded that, as of the end of such period, the Company’s disclosure controls and procedures are effective to provide reasonable assurance that information required to be disclosed in the reports that the Company files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms.

     (b) Changes in Internal Controls. There has been no change in the Company’s internal control over financial reporting during the Company’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

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PHILADELPHIA CONSOLIDATED HOLDING CORP. AND SUBSIDIARIES

PART II — OTHER INFORMATION

Item 1. Legal Proceedings

As previously reported in the Company’s Form 8-K filed with the Securities and Exchange Commission (“SEC”) on June 17, 2005, the Company received a subpoena on June 15, 2005 from the SEC requesting documents and other information regarding any non-traditional insurance arrangements entered into by certain subsidiaries of the Company with Gen Re Corporation and its affiliates. The Company has supplied documents to the SEC in response to such subpoena.

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

The Company’s purchases of its common stock during the second quarter of 2005 are shown in the following table:

						(c) Total Number of
						Shares Purchased as		(d) Approximate Dollar
						Part of Publicly		Value of Shares That May
	(a) Total Number of			(b) Average Price		Announced Plans or		Yet Be Purchased Under
Period	Shares Purchased			Paid per Share		Programs		the Plans or Programs
April 1 – April 30		175	(1)	$	53.27		—		—
								$	45,000,000	(2)
May 1 – May 31		175	(1)	$	35.93		—		—
								$	45,000,000	(2)
June 1 – June 30		100	(1)	$	57.67		—		—
								$	45,000,000	(2)
Total

(1)	Such shares were issued under the Company’s Employee Stock Purchase Plan and were repurchased by the Company upon the employee’s termination.
(2)	The Company’s total stock purchase authorization, which was publicly announced in August 1998 and subsequently increased, amounted to $75.3 million, of which $30.3 million has been utilized.

Item 3. Defaults Upon Senior Securities

Not applicable.

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

At the Company’s annual meeting of shareholders held on April 28, 2005 the following nominees were elected to the Board of Directors:

34

Name	Votes For		Votes Withheld
Michael J. Cascio		20,061,202		1,178,727
Elizabeth H. Gemmill		21,049,979		189,950
James J. Maguire		19,162,775		2,077,154
James J. Maguire, Jr.		19,163,118		2,076,811
Margaret M. Mattix		20,547,514		692,415
Michael J. Morris		18,660,963		2,528,966
Donald A. Pizer		21,050,014		189,915
Dirk A. Stuurop		21,050,014		189,915
Sean S. Sweeney		19,162,560		2,077,369

The following other matters were approved at the Annual Meeting:

	Votes For		Votes Against		Abstentions		Broker-Non Votes
Approval of the Amended and Restated Employees’ Stock Incentive and Performance Based Compensation Plan		11,191,225		8,606,304		44,789		1,397,611

	Votes For		Votes Against		Abstentions		Broker-Non Votes
Approval of the Appointment of PricewaterhouseCoopers, LLP as Independent Registered Public Accounting Firm for the Fiscal Year Ending December 31, 2005		21,174,451		58,144		7,334

Item 5. Other information

     Not applicable.

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Item 6. Exhibits

Exhibits:

Exhibit No.	Description
3.1**	Amendment to the Company’s bylaws effective as of April 29, 2005
10.1*	Excess Catastrophe Reinsurance Contract effective June 1, 2004 with the Subscribing Reinsurers.
10.2*	65% Florida Only Third and Fourth Event Excess Catastrophe Reinsurance Contract effective September 1, 2004 with the Subscribing Reinsurers.
10.3*	$45 million excess of $195 million Florida Only Catastrophe Reinsurance Contract effective September 10, 2004 with the Subscribing Reinsurers.
10.4*	$6.5 million excess of $3.5 million Florida Only Fifth Event Catastrophe Reinsurance Contract effective September 24, 2004 with the Subscribing Reinsurers.
10.5*	$50 million excess of $240 million Florida Only Catastrophe Reinsurance Contract effective October 1, 2004 with the Subscribing Reinsurers.
10.6*	$40 million excess of $50 million Florida Only Third Event Catastrophe Reinsurance Contract effective October 1, 2004 with the Subscribing Reinsurers.
10.7*	$50 million excess of $140 million Florida Only Catastrophe Excess Reinsurance Contract effective October 1, 2004 with the Subscribing Reinsurers.
10.8*	Florida Hurricane Catastrophe Fund Reinsurance Contract effective June 1, 2005 (Liberty American Insurance Company)
10.9*	Florida Hurricane Catastrophe Fund Reinsurance Contract effective June 1, 2005 (Mobile USA Insurance Company)
10.10*	Excess Catastrophe Reinsurance Contract effective June 1, 2005 (Preliminary Agreement).
	The participating reinsurers on the $5.0 million excess of $5.0 million in coverage are Aspen Insurance Limited, AXA Re, Everest Reinsurance Company, Munchener Ruckversicherungs — Gesellschaf, Quanta Reinsurance LTD, Renaissance Reinsurance Limited (Bermuda), Rosemont Reinsurance LTD and Transatlantic Reinsurance Company at varying levels of participation.
	The participating reinsurers on the $10.0 million excess of $10 million in coverage are AXA Re, AXIS Specialty Limited (Bermuda), Everest Reinsurance Company, Munchener Ruckversicherungs — Gesellschaft, Partner Re (Bermuda), PXRE Reinsurance, Quanta Reinsurance LTD, Rosemont Reinsurance LTD, Sirius International Insurance Corporation , Swiss Reinsurance America, Swiss Re Underwriting Agency Inc. and Transatlantic Reinsurance Co. at varying levels of participation.
	The participating reinsurers on the $20.0 million excess of $20.0 million in coverage are American Re Broker Market, AXA Re, AXIS Specialty Limited (Bermuda), Everest Reinsurance Company, Hannover Re (Bermuda) Ltd., Munchener Ruckversicherungs — Gesellschaft, Partner Re (Bermuda), PXRE Reinsurance, Quanta Reinsurance LTD, Rosemont Reinsurance LTD, Sirius International Insurance Corporation, Swiss Reinsurance America, Transatlantic Reinsurance Co.and XL Re Limited at varying levels of participation.
	The participating reinsurers on the $60.0 million excess of $40.0 million in coverage are American Re Broker Market, AXA Re, AXIS Specialty Limited (Bermuda), Everest Reinsurance Company, Hannover Re (Bermuda) Ltd., Munchener Ruckversicherungs — Gesellschaft, Partner Re (Bermuda), PXRE Reinsurance, Quanta Reinsurance LTD, Rosemont Reinsurance LTD, Sirius International Insurance Corporation, Swiss Reinsurance America, Swiss Re Underwriting Agency Inc., Transatlantic Reinsurance Co., Syndicate #2020 and XL Re Limited at varying levels of participation.

36

Exhibit No.	Description
10.11*	Reinstatement Premium Protection Reinsurance Contract effective June1, 2005 (Preliminary Agreement). The participating reinsurers are ACE Tempest Reinsurance LTD, AXIS Specialty Limited, Everest Reinsurance Company, Munchener Ruckversicherungs – Gesellschaft and Rosemont Reinsurance LTD at varying levels of participation.
10.12*	Florida Only Excess Catastrophe Reinsurance Contract effective June 1, 2005 (Preliminary Agreement).
	The participating reinsurers on the $3.5 million excess of $3.5 million in coverage are Aspen Insurance UK LTD, Rosemont Reinsurance LTD, Ascot Insurance Services Limited, Syndicate #2623, Syndicate #0033, Syndicate #0623, Syndicate #0780, Syndicate #0958, Syndicate #2001 and Syndicate #2791 at varying levels of participation
	The participating reinsurers on the $13.0 million excess of $7.0 million in coverage are Ascot Insurance Services Limited, Aspen Insurance UK LTD, AXIS Specialty Limited (Bermuda ), AXA Re, Montpelier Reinsurance Ltd, Platinum Underwriters Re, Partner Re (Bermuda), PXRE Reinsurance, Rosemont Reinsurance LTD, Syndicate #2623, Syndicate #0033, Syndicate #0566, Syndicate #0623, Syndicate #0780, Syndicate #0958, Syndicate #2001, Syndicate #2003, Syndicate #2010 and Syndicate #2791 at varying levels of participation.
	The participating reinsurers on the $15.0 million excess of $20 million in coverage are Ascot Insurance Services Limited , Aspen Insurance UK LTD, AXIS Specialty Limited (Bermuda ), AXA Re, General Reinsurance Corporation, Montpelier Reinsurance Ltd         , Partner Re (Bermuda), Platinum Underwriters Re, PXRE Reinsurance, Rosemont Reinsurance LTD, Syndicate #2623, Syndicate #0566, Syndicate #0623, Syndicate #0780, Syndicate #0958, Syndicate #2001, Syndicate #2003, Syndicate #2010 and Syndicate #2791 at varying levels of participation.
	The participating reinsurers on the $25.0 million excess of $35.0 million layer in coverage are Ascot Insurance Services Limited , Aspen Insurance UK LTD, AXIS Specialty Limited (Bermuda ), AXA Re, General Reinsurance Corporation, Hannover Re (Bermuda) Ltd, Montpelier Reinsurance Ltd, Partner Re (Bermuda), Platinum Underwriters Re, PXRE Reinsurance, Rosemont Reinsurance LTD, XL Re Limited , Syndicate #2623, Syndicate #0566, Syndicate #0623, Syndicate #0780 and Syndicate #2010 at varying levels of participation.
	The participating reinsurers on the $60.0 million excess of $60.0 million in coverage are American Re Broker Market, Ascot Insurance Services Limited, AXIS Specialty Limited (Bermuda ), AXA Re, General Reinsurance Corporation , Hannover Re (Bermuda) Ltd., Montpelier Reinsurance Ltd., Munchener Ruckversicherungs — Gesellschaft, Partner Re (Bermuda), PXRE Reinsurance, Rosemont Reinsurance LTD, Swiss Re Underwriting Agency Inc., Transatlantic Reinsurance Co., XL Re Limited, Syndicate #0566, Syndicate #0626, Syndicate #2001, Syndicate #2003, Syndicate #2010, Syndicate #2020 and Syndicate #2791 at varying levels of participation.
	The participating reinsurers on the $65.0 million excess of $120.0 million in coverage are American Re Broker Market, Ascot Insurance Services Limited, AXIS Specialty Limited (Bermuda), AXA Re, Hannover Re (Bermuda) Ltd., Montpelier Reinsurance Ltd., Munchener Ruckversicherungs — Gesellschaft, Partner Re (Bermuda), PXRE Reinsurance, Rosemont Reinsurance LTD, Swiss Re Underwriting Agency Inc., Transatlantic Reinsurance Co., XL Re Limited, Syndicate #2001, Syndicate #2020 and Syndicate #2791 at varying levels of

37

Exhibit No.	Description
	participation.
10.13*	Florida Only Reinstatement Premium Protection Reinsurance Contract effective June 1, 2005 (Preliminary Agreement). The participating reinsurers are ACE Tempest Reinsurance LTD, Aspen Insurance UK LTD, AXIS Specialty Limited, Hannover Re (Bermuda) Ltd., Rosemont Reinsurance LTD, Syndicate #0958 and Syndicate #2001 at varying levels of participation.
10.14*	Third Event Catastrophe Reinsurance Contract effective September 3, 2004 with the Subscribing Reinsurers for 50% share.
10.15*	Third Event Catastrophe Reinsurance Contract effective September 3, 2004 with the Subscribing Reinsurers for 50% share.
10.16**	Amendment and Restatement of the Company’s Employees’ Stock Incentive and Performance Based Compensation Plan.
10.17***	Form of Stock Option Award Agreement.
10.18***	Form of Restricted Stock Award Agreement.
31.1*	Certification of the Company’s chief executive officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2*	Certification of the Company’s chief financial officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1*	Certification of the Company’s chief executive officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.2*	Certification of the Company’s chief financial officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

*	Filed herewith.
**	Filed as an Exhibit to the Company’s Form 8-K dated April 28, 2005 and incorporated by reference
***	Filed as an Exhibit to the Company’s Form 8-K dated June 9, 2005 and incorporated by reference.

38

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.

	PHILADELPHIA CONSOLIDATED HOLDING CORP.
	Registrant
Date August 15, 2005		James J. Maguire, Jr.
		James J. Maguire, Jr.
		President and Chief Executive Officer
		(Principal Executive Officer)
Date August 15, 2005		Craig P. Keller
		Craig P. Keller
		Executive Vice President, Secretary,
		Treasurer and Chief Financial Officer
		(Principal Financial and Accounting Officer)

39